SPS COMMERCE INC Q2 FY2024 earnings

SPS Commerce reported $153.6 million of revenue in its fiscal 2024 second quarter, up 17.8% from $130.4 million in the same quarter a year earlier. The company called it the 94th consecutive quarter of topline growth, a streak it cites in both the earnings release and the 10-Q. Recurring revenue rose 18% to $144.0 million, or 94% of total revenue, up from 93%. The recurring revenue customer count reached roughly 44,950 at June 30, 2024, a 5% increase from about 43,000 a year earlier, while wallet share climbed 13% to approximately $12,850 for the quarter from roughly $11,350. New customers contribute little revenue at the start of their tenure, so most of the increase came from existing accounts. Acquisitions added to the base. About 1,000 recurring revenue customers arrived in September 2023 with TIE Kinetix, and roughly 50 came in May 2024 with Traverse Systems.

Profitability grew faster than the top line. Gross profit rose 18.3% to $101.58 million, and gross margin edged up 0.3 percentage points to 66.1%. Operating income climbed 36.0% to $23.16 million, which lifted operating margin 2.0 percentage points to 15.1%. Net income was $18.03 million, up 22.8%, and diluted earnings per share came to $0.48, up from $0.39. Non-GAAP income per diluted share was $0.80, against $0.69 a year earlier, and Adjusted EBITDA rose 16% to $44.2 million. Adjusted EBITDA margin held at 29%. The tax line ran the other way. Income tax expense rose on higher pre-tax income and smaller excess tax benefits from equity award settlements and deductible compensation, and management says the annual effective rate will keep fluctuating.

Cash generation was mixed. Operating cash flow for the quarter fell 13.5% to $29.44 million, while operating cash flow year to date rose 14.1% to $63.51 million. Management tied the half-year gain to higher net income adjusted for non-cash expenses, partly offset by working capital swings from the timing of settlements and general business growth. Capital expenditures were $5.06 million in the quarter, up 12.2%, and $8.59 million for the six months, down 12.0%. Deferred revenue, current portion only, stood at $76.39 million at June 30, 2024, up 15.1% from a year earlier.

Capital return stepped up. SPS Commerce repurchased $17.5 million of stock during the quarter, and the board authorized a new program to buy back up to $100.0 million of common stock. The new authorization takes effect August 23, 2024 and expires July 24, 2026, replacing a $50.0 million program that terminates July 26, 2024. The company had 37.0 million shares outstanding at June 30, 2024 and intends to fund buybacks with cash on hand. Guidance for the third quarter of 2024 puts non-GAAP income per diluted share at $0.83 to $0.84 and Adjusted EBITDA at $46.9 million to $47.7 million, with share-based compensation of $11.6 million, depreciation of $4.7 million and amortization of $5.0 million. The release also carries third-quarter and full-year revenue guidance. For the full fiscal year 2024, non-GAAP income per diluted share is guided to $3.63 to $3.66 and Adjusted EBITDA to $185.5 million to $187.0 million, which the company describes as 18% to 19% growth over 2023. Full-year share-based compensation is expected at $55.6 million, with depreciation of $19.2 million and amortization of $19.2 million.

The risk discussion stays broad. The release and the 10-Q point readers to the risk factors in the annual report for the year ended December 31, 2023 and to later quarterly filings, and management repeats that forward-looking measures rest on assumptions that can change. Cost pressure is real. Headcount growth lifted personnel-related costs across cost of revenues, sales and marketing, research and development and general administrative expense, and credit loss expense rose as the business expanded. Cash used to acquire businesses ran about $29.3 million in the first six months. Cash, cash equivalents and short-term investments totaled $271.8 million at June 30, 2024, alongside net accounts receivable of $55.4 million. Inflation and changing prices had no material effect on the business through June 30, 2024, and the company expects its cash, investments and operating cash flow to cover working capital and capital expenditure needs for at least the next twelve months.