SPS COMMERCE INC Q1 FY2022 earnings

SPS Commerce posted first-quarter 2022 revenue of $105.2 million, up 16.8% from $90.1 million in the first quarter of 2021. Net income rose to $12.6 million, or $0.34 per diluted share, from $10.2 million, or $0.28 per diluted share, a year earlier. Gross profit increased to $69.8 million from $60.1 million. Operating income climbed to $16.5 million from $12.7 million. Gross margin was 66.4%, down from 66.7%. Operating margin expanded to 15.7% from 14.1%. The company marked its 85th consecutive quarter of topline growth. Recurring revenue grew 18% to $97.6 million and made up 93% of total revenue, up from 92% in the prior-year period. The number of recurring revenue customers rose 12% to 37,900 at March 31, 2022 from 33,850 a year earlier. Wallet share increased 5% to $10,350 for the quarter from $9,900.

Profitability metrics looked strong. Adjusted EBITDA increased 25% to $31.8 million from $25.5 million. Non-GAAP income was $20.4 million compared with $15.7 million, and non-GAAP net income per diluted share was $0.55 compared with $0.43. Cash generation did not keep pace. Operating cash flow fell to $4.3 million from $21.6 million, a decline of 79.9%. Capital expenditures rose to $4.4 million from $3.3 million. The company attributed the operating cash flow drop to changes in the amount and timing of settlement of operating assets and liabilities, not to a deterioration in earnings. Deferred revenue increased 27.7% to $56.8 million from $44.5 million.

Management issued guidance for the second quarter and full year 2022. Second-quarter revenue is expected to be $108.3 million to $109.3 million. Non-GAAP net income per diluted share is guided to $0.48 to $0.49, and adjusted EBITDA is expected to be $30.0 million to $30.5 million. For the full year 2022, revenue is expected to be $443.4 million to $445.9 million, representing 15% to 16% growth over 2021. Non-GAAP income per diluted share is guided to $2.07 to $2.09. Adjusted EBITDA is expected to be $126.7 million to $128.0 million, representing 18% to 20% growth over 2021. Management also expects full-year non-cash share-based compensation of $34.9 million, depreciation of $18.0 million, and amortization of $10.0 million. For the second quarter, those items are expected to be $9.4 million, $4.2 million, and $2.5 million, respectively.

Operationally, SPS Commerce continues to lean on its retail network and full-service model. CEO Archie Black said retailers and suppliers are navigating ongoing challenges while pursuing omnichannel strategies, and the company's suite covers inventory, order, delivery, and status information. The network includes more than 105,000 players in the retail space. CFO Kim Nelson tied the opportunity to ongoing evolution in retail and the need for supply chain efficiency, which is driving automation and EDI adoption. The filing points to risks in the company's 10-K risk factors, including foreign currency exchange rate changes and fluctuations in the annual effective income tax rate because of equity award settlements. Inflation did not have a material effect on the business in the first quarter, and the company does not expect it to be material in the foreseeable future. Growth plans include deeper market penetration, higher wallet share, expanded distribution channels, international expansion, and selective acquisitions. Competition and acquisition integration remain watch items. The sharp year-over-year drop in operating cash flow also shows that working capital swings can create volatility from quarter to quarter.