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SPS Commerce Reports Second Quarter 2018 Financial Results

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MINNEAPOLIS, July 26, 2018 (GLOBE NEWSWIRE) -- SPS Commerce, Inc. (NASDAQ:SPSC), a leader in retail cloud services, today announced financial results for the second quarter ended June 30, 2018.

Revenue was $61.1 million in the second quarter of 2018, compared to $54.1 million in the second quarter of 2017, reflecting 13% growth in revenue from the second quarter 2017. Recurring revenue grew 13% from the second quarter of 2017. Current and prior period financial results reflect the adoption of ASU 2014-09, Revenue from Contracts with Customers (Topic 606).

Net income in the second quarter of 2018 was $5.4 million or $0.31 per diluted share, compared to net income of $2.0 million, or $0.11 per diluted share, in the second quarter of 2017. Non-GAAP income per diluted share was $0.49, compared to non-GAAP income per diluted share of $0.23 in the second quarter of 2017.

Adjusted EBITDA for the second quarter of 2018 increased 53% to $12.1 million, compared to the second quarter of 2017.

"SPS Commerce has grown to be a leader in cloud-based supply chain management solutions by establishing and growing its network of strategic and consultative relationships with retailers and suppliers," said Archie Black, President and CEO of SPS Commerce. "As consumer shopping habits and expectations continue to drive the need for retailers to evolve their omnichannel strategies, SPS leverages its platform and its network to deploy efficient and comprehensive solutions." 

"We posted a strong second quarter and we continue to make significant progress towards our 2020 goals and long term financial targets, proving efficiency in our business model while continually evolving and executing our go-to-market strategy," said Kim Nelson, CFO of SPS Commerce. 

Guidance

For the third quarter of 2018, revenue is expected to be in the range of $61.2 to $61.7 million.  Third quarter net income per diluted share is expected to be in the range of $0.22 to $0.24 with fully diluted weighted average shares outstanding of approximately 17.6 million shares.  Non-GAAP income per diluted share is expected to be in the range of $0.39 to $0.41. Adjusted EBITDA is expected to be in the range of $12.2 to $12.7 million.  Non-cash, share-based compensation expense is expected to be approximately $3.3 million, depreciation expense is expected to be approximately $2.4 million and amortization expense is expected to be approximately $1.1 million.

For the full year of 2018, revenue is expected to be in the range of $243.7 to $245.1 million, representing approximately 11% growth over 2017. Full year net income per diluted share is expected to be in the range of $0.94 to $0.98 with fully diluted weighted average shares outstanding of approximately 17.5 million shares.   Non-GAAP income per diluted share is expected to be in the range of $1.65 to $1.69. Adjusted EBITDA is expected to be in the range of $47.4 to $48.5 million. Non-cash, share-based compensation expense is expected to be approximately $12.7 million, depreciation expense is expected to be approximately $9.5 million, and amortization expense is expected to be approximately $4.4 million. 

Quarterly Conference Call

SPS Commerce will discuss its quarterly results today via teleconference at 3:30 p.m. CT (4:30 p.m. ET). To access the call, please dial (877) 312-7508, or outside the U.S. (253) 237-1184, with Conference ID #6787124 at least five minutes prior to the 3:30 p.m. CT start time.  A live webcast of the call will also be available at www.investors.spscommerce.com under the Events and Presentations menu.  The replay will also be available on our website at www.investors.spscommerce.com.

About SPS Commerce

SPS Commerce perfects the power of trading partner relationships with the industry's most broadly adopted, retail cloud services platform. As a leader in cloud-based supply chain management solutions, we provide proven integrations and comprehensive retail performance analytics to thousands of customers worldwide. SPS Commerce has achieved 70 consecutive quarters of revenue growth and is headquartered in Minneapolis. For additional information, please contact SPS Commerce at 866-245-8100 or visit www.spscommerce.com.

SPS COMMERCE, SPS, SPS logo, RETAIL UNIVERSE, 1=INFINITY logo, AS THE NETWORK GROWS, SO DOES YOUR OPPORTUNITY, INFINITE RETAIL POWER, RETAIL UNIVERSE are marks of SPS Commerce, Inc. and Registered in the U.S. Patent and Trademark Office. RSX, IN:FLUENCE, and others are further marks of SPS Commerce, Inc. These marks may be registered or otherwise protected in other countries.

SPS-F

Use of Non-GAAP Financial Measures

To supplement its financial statements, SPS Commerce also provides investors with Adjusted EBITDA and Non-GAAP net income per share, both of which are non-GAAP financial measures. SPS Commerce believes that these non-GAAP measures provide useful information to management and investors regarding certain financial and business trends relating to its financial condition and results of operations. SPS Commerce's management uses these non-GAAP measures to compare the company's performance to that of prior periods for trend analyses and planning purposes. It uses Adjusted EBITDA for purposes of determining executive and senior management incentive compensation. These measures are also presented to the company's board of directors.

Adjusted EBITDA consists of net income adjusted for depreciation and amortization, interest expense, interest income, income tax expense, and stock-based compensation expense. SPS Commerce uses Adjusted EBITDA as a measure of operating performance because it assists the company in comparing performance on a consistent basis, as it removes from operating results the impact of the company's capital structure. SPS Commerce believes Adjusted EBITDA is useful to an investor in evaluating the company's operating performance because it is widely used to measure a company's operating performance without regard to items such as depreciation and amortization, which can vary depending upon accounting methods and the book value of assets, and to present a meaningful measure of corporate performance exclusive of the company's capital structure and the method by which assets were acquired.

Non-GAAP income per share consists of net income plus stock-based compensation expense, amortization expense related to intangible assets, and income tax effects of adjustments, divided by the weighted average number of shares of common stock outstanding during each period.  SPS Commerce includes an adjustment to non-GAAP income to reflect the income tax effects of the adjustments to GAAP net income. To quantify these tax effects, SPS Commerce recalculates income tax expense excluding the direct book and tax effects of the specific items constituting the non-GAAP adjustments (e.g., stock-based compensation expense). The difference between this recalculated income tax expense and GAAP income tax expense is presented as the income tax effect of the non-GAAP adjustments.

SPS Commerce believes non-GAAP income per share is useful to an investor because it is widely used to measure a company's operating performance.  These non-GAAP measures should not be considered a substitute for, or superior to, financial measures calculated in accordance with generally accepted accounting principles in the United States. These non-GAAP financial measures exclude significant expenses and income that are required by GAAP to be recorded in the company's financial statements and are subject to inherent limitations. SPS Commerce urges investors to review the reconciliation of its non-GAAP financial measures to the comparable GAAP financial measures that are included in this press release.

Forward-Looking Statements

This press release may contain forward-looking statements, including information about management's view of SPS Commerce's future expectations, plans and prospects, including our views regarding future execution within our business, the opportunity we see in the retail supply chain world and our performance for the third quarter and full year of 2018, within the safe harbor provisions under The Private Securities Litigation Reform Act of 1995. These statements involve known and unknown risks, uncertainties and other factors which may cause the results of SPS Commerce to be materially different than those expressed or implied in such statements. Certain of these risk factors and others are included in documents SPS Commerce files with the Securities and Exchange Commission, including but not limited to, SPS Commerce's Annual Report on Form 10-K for the year ended December 31, 2017, as well as subsequent reports filed with the Securities and Exchange Commission. Other unknown or unpredictable factors also could have material adverse effects on SPS Commerce's future results. The forward-looking statements included in this press release are made only as of the date hereof. SPS Commerce cannot guarantee future results, levels of activity, performance or achievements. Accordingly, you should not place undue reliance on these forward-looking statements. Finally, SPS Commerce expressly disclaims any intent or obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

 
SPS COMMERCE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited; in thousands, except share amounts)
         
    June 30,   December 31,
      2018       2017  
ASSETS        
CURRENT ASSETS        
Cash and cash equivalents   $ 125,385     $ 123,127  
Short-term investments     47,352       40,192  
Accounts receivable, less allowance for doubtful accounts of $864 and $763, respectively     28,171       24,897  
Deferred costs     32,216       29,966  
Other current assets     6,762       6,149  
Total current assets     239,886       224,331  
PROPERTY AND EQUIPMENT, net     18,136       16,856  
GOODWILL     50,403       51,613  
INTANGIBLE ASSETS, net     14,354       16,529  
INVESTMENTS     4,922       5,206  
OTHER ASSETS        
Deferred costs     10,328       9,967  
Deferred income tax asset     12,061       13,697  
Other assets     1,583       1,539  
Total assets   $ 351,673     $ 339,738  
LIABILITIES AND STOCKHOLDERS' EQUITY        
CURRENT LIABILITIES        
Accounts payable   $ 3,709     $ 4,463  
Accrued compensation     14,347       15,228  
Accrued expenses     4,758       4,712  
Deferred revenue     24,191       17,863  
Deferred rent     1,373       1,679  
Total current liabilities     48,378       43,945  
OTHER LIABILITIES        
Deferred revenue     2,640       2,731  
Deferred rent     4,290       3,064  
Deferred income tax liability     1,676       1,887  
Total liabilities     56,984       51,627  
COMMITMENTS and CONTINGENCIES        
STOCKHOLDERS' EQUITY        
Preferred stock, $0.001 par value; 5,000,000 shares authorized; 0 shares issued and outstanding            
Common stock, $0.001 par value; 55,000,000 shares authorized; 17,475,360 and 17,249,153 shares issued; and 17,159,819 and 17,127,006 outstanding, respectively     17       17  
Treasury stock, at cost; 315,541 and 122,147 shares, respectively     (17,684 )     (5,815 )
Additional paid-in capital     313,887       301,863  
Retained earnings (accumulated deficit)     59       (8,611 )
Accumulated other comprehensive (loss) income     (1,590 )     657  
Total stockholders' equity     294,689       288,111  
Total liabilities and stockholders' equity   $ 351,673     $ 339,738  
         
Subject to reclassification        


SPS COMMERCE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited; in thousands, except per share amounts)
                 
    Three Months Ended   Six Months Ended
    June 30,   June 30,
      2018       2017       2018       2017  
Revenues   $ 61,091     $ 54,092     $ 120,183     $ 105,971  
Cost of revenues     20,402       18,191       40,160       35,521  
Gross profit     40,689       35,901       80,023       70,450  
Operating expenses                
Sales and marketing     18,424       18,320       37,071       35,343  
Research and development     5,293       5,369       10,425       10,474  
General and administrative     9,974       8,139       20,104       15,966  
Amortization of intangible assets     1,033       1,117       2,158       2,332  
Total operating expenses     34,724       32,945       69,758       64,115  
Income from operations     5,965       2,956       10,265       6,335  
Other income (expense)                
Interest income, net     547       242       961       433  
Other income (expense), net     (168 )     (102 )     (322 )     (162 )
Total other income, net     379       140       639       271  
Income before income taxes     6,344       3,096       10,904       6,606  
Income tax expense     928       1,128       2,234       1,653  
Net income   $ 5,416     $ 1,968     $ 8,670     $ 4,953  
                 
Net income per share                
Basic   $ 0.32     $ 0.11     $ 0.51     $ 0.29  
Diluted   $ 0.31     $ 0.11     $ 0.50     $ 0.29  
                 
Weighted average common shares used to compute net income per share                
Basic     17,163       17,198       17,140       17,176  
Diluted     17,549       17,378       17,446       17,384  


SPS COMMERCE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in thousands)
    Six months ended
    June 30,
      2018       2017  
Cash flows from operating activities        
Net income   $ 8,670     $ 4,953  
Reconciliation of net income to net cash provided by operating activities        
Deferred income taxes     1,498       1,311  
Depreciation and amortization of property and equipment     4,176       3,431  
Amortization of intangible assets     2,158       2,332  
Provision for doubtful accounts     985       873  
Stock-based compensation     6,712       4,486  
Other, net     (211 )     9  
Changes in assets and liabilities        
Accounts receivable     (4,373 )     (1,607 )
Deferred costs     (2,621 )     (3,213 )
Other current and non-current assets     (710 )     (3 )
Accounts payable     189       195  
Accrued compensation     (1,464 )     (835 )
Accrued expenses     62       206  
Deferred revenue     6,237       6,017  
Deferred rent     939       (249 )
Net cash provided by operating activities     22,247       17,906  
Cash flows from investing activities        
Purchases of property and equipment     (6,481 )     (3,334 )
Purchases of investments     (52,116 )     (22,350 )
Maturities of investments     45,000       21,000  
Acquisitions of businesses and intangible assets, net of cash acquired     (381 )     (500 )
Net cash used in investing activities     (13,978 )     (5,184 )
Cash flows from financing activities        
Repurchases of common stock     (11,869 )      
Net proceeds from exercise of options to purchase common stock     5,120       1,244  
Net proceeds from employee stock purchase plan     836       1,011  
Net cash (used in) provided by financing activities     (5,913 )     2,255  
Effect of foreign currency exchange rate changes     (98 )     890  
Net increase in cash and cash equivalents     2,258       15,867  
Cash and cash equivalents at beginning of period     123,127       115,877  
Cash and cash equivalents at end of period   $ 125,385     $ 131,744  
         
Subject to reclassification        


SPS COMMERCE, INC.
NON-GAAP RECONCILIATION
(Unaudited; in thousands)
                 
    Three Months Ended   Six Months Ended
    June 30,   June 30,
      2018       2017       2018       2017  
Net income   $ 5,416     $ 1,968     $ 8,670     $ 4,953  
Depreciation and amortization of property                
and equipment     2,093       1,740       4,176       3,431  
Amortization of intangible assets     1,033       1,117       2,158       2,332  
Interest income, net     (547)       (242)       (961)       (433)  
Income tax expense     928       1,128       2,234       1,653  
Stock-based compensation expense     3,179       2,186       6,712       4,486  
Adjusted EBITDA   $ 12,102     $ 7,897     $ 22,989     $ 16,422  
                 
Net income   $ 5,416     $ 1,968     $ 8,670     $ 4,953  
Stock-based compensation expense     3,179       2,186       6,712       4,486  
Amortization of intangible assets     1,033       1,117       2,158       2,332  
Income tax effects of adjustments     (1,027)       (1,213)       (2,180)       (3,355)  
Non-GAAP income   $ 8,601     $ 4,058     $ 15,360     $ 8,416  
                 
Shares used to compute non-GAAP income per share                
Basic     17,163       17,198       17,140       17,176  
Diluted     17,549       17,378       17,446       17,384  
                 
Non-GAAP income per share                
Basic   $ 0.50     $ 0.24     $ 0.90     $ 0.49  
Diluted   $ 0.49     $ 0.23     $ 0.88     $ 0.48  

Contact:
Investor Relations
The Blueshirt Group
Irmina Blaszczyk
Lisa Laukkanen 
SPSC@blueshirtgroup.com 
415-217-4962

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