SPS COMMERCE INC Q2 FY2022 earnings

SPS Commerce reported second quarter 2022 revenue of $109.2 million, up 15.5% from the prior-year quarter. That marked the company's 86th consecutive quarter of topline growth. Recurring revenue grew 16% year-over-year, and the number of recurring revenue customers rose 12% to 38,650 at June 30, 2022 from 34,550 a year earlier. Wallet share increased 4% to $10,550 for the quarter. Recurring revenue from recurring revenue customers accounted for 93% of total revenues. Management said retailers and suppliers remain motivated to overhaul systems for omnichannel retail and to address ongoing supply chain disruptions.

Profitability improved on an operating basis, though net income growth lagged topline growth. Gross profit was $71.65 million, up 14.1%, while gross margin was 65.6%, down 0.8 percentage points. Operating income rose 18.0% to $15.97 million, and operating margin was 14.6%, up 0.3 percentage points. Net income increased 5.6% to $10.75 million, and diluted EPS rose to $0.29. Non-GAAP income per diluted share was $0.53, compared with $0.46. Adjusted EBITDA increased 13% to $30.9 million, but Adjusted EBITDA margin slipped to 28% from 29%. Operating expenses increased across sales and marketing, research and development, and general and administrative, largely from higher headcount.

Cash generation softened against a strong prior-year period. Operating cash flow was $32.44 million in the quarter, down 1.9% from the prior-year quarter, and year-to-date operating cash flow was $36.78 million, down 32.7%. Capital expenditures were $3.84 million in the quarter, down 29.9%, and year-to-date capital expenditures were $8.19 million, down 6.3%. Deferred revenue was $59.09 million, up 21.0% from the prior-year quarter. The company also announced a new share repurchase program of up to $50.0 million. The program becomes effective on August 26, 2022, and expires on July 26, 2024; the prior November 2021 program terminates when the new program starts. SPS Commerce said it intends to finance the repurchase program with cash on hand.

Third quarter 2022 guidance covers the next quarter. The company guided to a topline range of $113.4 million to $114.4 million, with GAAP net income per diluted share of $0.29 to $0.31. Non-GAAP income per diluted share is expected to be $0.51 to $0.52, and Adjusted EBITDA is expected to be $32.0 million to $32.7 million. The guidance assumes fully diluted weighted average shares outstanding of 37.2 million shares. For full year 2022, the company guided to a topline range of $446.4 million to $448.4 million, representing 16% growth over 2021. Full year GAAP net income per diluted share is expected to be $1.25 to $1.29, and non-GAAP income per diluted share is expected to be $2.13 to $2.15. Adjusted EBITDA for full year 2022 is expected to be $128.2 million to $129.4 million, representing 20% to 21% growth over 2021. Full year guidance assumes fully diluted weighted average shares outstanding of 37.1 million shares.

Risks include foreign currency exchange rate changes, which management said increased net other expenses and produced a realized loss from foreign currency on cash and investments held. Income tax expense rose because of a decrease in excess tax deductions from equity award settlements, and the company expects its annual effective income tax rate to fluctuate. Management also cited supply chain disruptions and the need to execute on acquisitions and international expansion. Inflation did not have a material effect on the business during the six months ended June 30, 2022. Contractual obligations as of June 30, 2022 included operating lease obligations and purchase commitments. The company believes its cash, cash equivalents, investments and cash flows from operations will be sufficient to meet working capital and capital expenditure requirements for at least the next twelve months. It also pointed to the risk factors described in its annual report on Form 10-K for 2021 and subsequent filings.