SPS COMMERCE INC Q3 FY2024 earnings

SPS Commerce kept revenue growth above 20% in the September quarter, its 95th consecutive quarter of topline growth. Revenue was $163.7 million, up 20.7% from $135.7 million in the prior-year quarter. Gross profit rose 24.3% to $112.1 million, and net income reached $23.5 million, or $0.62 per diluted share, against $16.8 million, or $0.45 per diluted share, a year earlier. Recurring revenue of $154.5 million grew 21% and accounted for 94% of total revenue.

Margins improved at the gross line. Gross margin was 68.5%, up 2.0 percentage points from 66.4%. Operating income of $25.6 million rose 24.1%, and operating margin was 15.6% against 15.2%. Costs rose underneath that result. Personnel-related costs increased in cost of revenues and in every operating expense line as headcount grew. Amortization of intangible assets increased on acquired intangible assets from recent business combinations. General and administrative expense also carried an increase tied to current and projected future credit losses and to business growth. On a year-to-date basis, gross margin was 66.8% against 66.1%, while operating margin slipped to 13.7% from 13.9%.

Customer metrics show a business leaning on its installed base. Wallet share, the average recurring revenue per recurring revenue customer, rose 18% to approximately $13,700 for the quarter from approximately $11,650 a year earlier. Recurring revenue customers increased 2% to approximately 45,200 from approximately 44,500. Acquisitions supplied part of that base. TIE Kinetix brought approximately 1,000 recurring revenue customers in September 2023, Traverse Systems added about 50 in May 2024, and SupplyPike added about 200 in July 2024. Through nine months, revenue was $466.9 million, up 19.1%, net income was $59.5 million, up 27.1%, and diluted EPS was $1.57 against $1.25.

Cash generation tracked earnings. Nine-month operating cash flow was $116.8 million, up 17.4%, while capital expenditures declined 10.6% to $13.8 million. The company spent $147.4 million on business acquisitions during the nine months, $77.2 million more than a year earlier, and used $37.6 million more for share repurchases. Deferred revenue, current portion, was $78.9 million on September 30, 2024, up 9.8% from $71.9 million a year earlier. Purchase commitments and operating lease obligations totaled $35.7 million. Management states that cash, investments and operating cash flow will cover working capital and capital expenditure requirements for at least the next twelve months.

Fourth quarter 2024 guidance calls for revenue growth of 16% to 17%, below the 20.7% just reported. It also sets non-GAAP income per diluted share of $0.83 to $0.84 and Adjusted EBITDA of $48.0 million to $48.7 million. Full fiscal year 2024 guidance is revenue growth of 18% to 19%, non-GAAP income per diluted share of $3.41 to $3.42, and Adjusted EBITDA of $185.0 million to $185.7 million. Adjusted EBITDA for the quarter was $48.4 million, up 19%, at a margin of 30%, the same as a year earlier.

The main risks sit in cost inflation and acquisition integration. Headcount is the largest driver of expense growth, and amortization of intangibles keeps rising as the company folds in the customer bases it buys. Management also points to credit losses on receivables as a source of expense. Revenue growth still depends heavily on wallet share gains from existing customers, since the customer count is up only 2%. Retail supply chain conditions and the pace of customer digital projects remain the swing factors behind the fourth quarter revenue growth guidance.