Summary
SPS Commerce reported third quarter 2022 revenue of $114.5 million, up 17% from the prior-year quarter. The company said this was its 87th consecutive quarter of topline growth. Recurring revenue grew 18% and made up 93% of total revenue, up from 92% a year earlier. The customer base expanded as recurring revenue customers increased 12% to 39,550 at September 30, 2022. Wallet share increased 5% to $10,900 for the quarter. Management tied the expansion to new customer acquisition, recent acquisitions, and greater usage of its products by existing customers. The company also said increasing complexity in omnichannel retail continues to fuel demand for automation between trading partners and throughout the supply chain.
GAAP profitability improved faster than the top line. Gross profit was $75.9 million, up 19.4%, and gross margin was 66.3%, up 1.4 percentage points from the prior-year quarter. Operating income reached $19.7 million, up 45.6%, with an operating margin of 17.2%, up 3.4 percentage points. Net income was $15.9 million, up 38.6%, and diluted earnings per share was $0.43, up 38.7%. Adjusted EBITDA was $34.7 million, up 31%, and adjusted EBITDA margin was 30%. Non-GAAP income per diluted share was $0.63. Operating expenses grew, but at a slower pace than the top line. The company pointed to higher headcount and professional fees as drivers, partly offset by lower bad debt expense.
Cash generation was mixed. Operating cash flow was $39.7 million in the quarter, up 47.5% from the prior-year quarter. For the nine months ended September 30, 2022, operating cash flow was $76.5 million, down 6.2% from the prior-year period. The MD&A attributed the year-to-date decline to changes in the amount and timing of settlement of operating assets and liabilities, primarily accrued compensation. Capital expenditures were $5.7 million in the quarter, down 16.5%, and $13.9 million for the nine months, down 10.7%. Deferred revenue, current portion, was $58.9 million at September 30, 2022, up 19.9% from the prior-year quarter. The company said its cash, cash equivalents, and investments are sufficient to meet working capital and capital expenditure requirements for at least the next twelve months.
Guidance for the fourth quarter of 2022 calls for a top-line range of $120.0 million to $121.0 million. Fourth quarter non-GAAP income per diluted share is expected to be $0.52 to $0.53, with fully diluted weighted average shares outstanding of 37.2 million. Fourth quarter adjusted EBITDA is expected to be $32.8 million to $33.5 million. For the full year 2022, guidance is a range of $448.9 million to $449.9 million, representing 17% growth over 2021. Full year non-GAAP income per diluted share is expected to be $2.23 to $2.24, with fully diluted weighted average shares outstanding of 37.0 million. Full year adjusted EBITDA is expected to be $130.1 million to $130.8 million, representing 22% growth over 2021. The company also said non-cash, share-based compensation expense is expected to be $8.3 million for the fourth quarter and $33.9 million for the full year; depreciation expense is expected to be $4.8 million and $16.8 million; and amortization expense is expected to be $3.8 million and $11.7 million.
Risks include increasing complexity in omnichannel retail, competition, international expansion, acquisition integration, foreign currency exchange rate changes, and inflation. The MD&A notes the $49 million InterTrade acquisition in October 2022. It also says inflation and changing prices did not have a material effect during the nine months ended September 30, 2022 and are not expected to materially affect the business in the foreseeable future. The company filed forward-looking statements with the usual caveat that actual results could differ materially, and it pointed to risk factors in its Annual Report on Form 10-K for the year ended December 31, 2021. The company also noted that excess tax benefits from equity award settlements can cause the annual effective income tax rate to fluctuate. The quarter showed strong growth and margin expansion. The year-to-date operating cash flow decline and the fourth quarter guidance are the main items to watch.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2022 | Q2 FY2022 | QoQ | Q3 FY2021 | YoY |
|---|---|---|---|---|---|
| Revenue | $114.5M | $109.2M | +4.9% | $97.9M | +17.0% |
| Gross profit | $75.9M | $71.6M | +5.9% | $63.5M | +19.4% |
| Gross margin | 66.3% | 65.6% | +0.7 pp | 64.9% | +1.4 pp |
| Research & development | $11.1M | $11.4M | -2.6% | $10.9M | +2.6% |
| Sales & marketing | $25.3M | $24.6M | +3.1% | $22.1M | +14.7% |
| General & administrative | $16.7M | $17.2M | -2.8% | $14.7M | +13.8% |
| Total operating expenses | $56.2M | $55.7M | +0.9% | $50.0M | +12.3% |
| Operating income (loss) | $19.7M | $16.0M | +23.3% | $13.5M | +45.6% |
| Operating margin | 17.2% | 14.6% | +2.6 pp | 13.8% | +3.4 pp |
| Net income (loss) | $15.9M | $10.8M | +47.5% | $11.4M | +38.6% |
| Net margin | 13.9% | 9.8% | +4.0 pp | 11.7% | +2.2 pp |
| Diluted EPS | $0.43 | $0.29 | +$0.14 | $0.31 | +$0.12 |
Risks
MD&A attributes the increase in net other expenses for the nine months ended September 30, 2022 primarily to unfavorable foreign currency exchange rate changes, and realized loss from foreign currency on cash and investments held rose to $2.0 million for the nine months ended September 30, 2022 from $1.5 million a year earlier. The quarter's other expense, net also reflected unfavorable currency rates partly offset by higher investment income.
Income tax expense increased 131.0% in FY2022 Q3 and 75.6% for the nine months ended September 30, 2022, driven by higher pre-tax income and a decrease in excess tax deductions from current period equity award settlements. Management states it expects the annual effective income tax rate to fluctuate with stock award settlement activity.
The company closed the approximately $49 million InterTrade acquisition in October 2022 and cites recent business combinations as contributors to customer growth and to higher amortization of intangible assets, which rose 25.0% in FY2022 Q3. Integrating these acquisitions and deploying capital for future deals is a stated part of its growth strategy.
Operating cash flow declined 6.2% for the nine months ended September 30, 2022 even as revenue rose 16.4% and operating income rose 31.4% over the same period, which MD&A attributes to changes in the amount and timing of settlement of operating assets and liabilities, primarily accrued compensation.
SaaS KPIs
All quarters →Adjusted EBITDA Margin
Adjusted EBITDA
Recurring Revenue Customers
Wallet Share
Recurring Revenue
Non-GAAP Income Per Diluted Share
Recurring revenue as % of total revenue
Non-GAAP Income
Summary, forecast, risks and KPIs are extracted from SPS COMMERCE INC's SEC filings for Q3 FY2022 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 6, 2026.