SPS(SPSC) - 2021 Q4 - Annual Report

Part I Business SPS Commerce is a leading cloud-based supply chain management provider, achieving $385.3 million in 2021 revenues with 92% recurring, serving 105,000 customers globally Financial Performance (2019-2021) | Year | Revenues (in millions) | Recurring Revenue % | | :--- | :--- | :--- | | 2021 | $385.3 | 92% | | 2020 | $312.6 | 94% | | 2019 | $279.1 | 94% | - As of December 31, 2021, SPS Commerce had approximately 37,500 recurring revenue customers and a total of 105,000 customers across its network[16][20] - The company's core products include: Fulfillment, Analytics, and Other Products for supply chain management[28] - Key growth strategies include market penetration, increasing existing customer revenues, international expansion, and strategic acquisitions like Genius Central in 2021 and Data Masons in 2020[30] Employee Headcount by Function (as of Dec 31, 2021) | Functional Area | of Employees | | :--- | :--- | | Cost of revenues | 959 | | Sales and marketing | 460 | | Research and development | 332 | | General and administrative | 150 | | Total employees | 1,901 | Risk Factors The company faces significant business, product, technology, international, and regulatory risks, including customer retention, cybersecurity threats, and geopolitical instability - Business Risks: Inability to attract new customers or retain existing ones with short-term contracts, alongside economic weakness in the retail sector, could adversely affect revenue growth[53][54][55] - Product and Technology Risks: Dependency on maintaining and scaling technical infrastructure, significant cybersecurity threats, and reliance on third-party data centers pose risks of service interruptions and reputational damage[70][73][75] - International Risks: Expansion outside the U.S. exposes the company to currency fluctuations, regulatory changes, and political instability, particularly impacting its workforce in Ukraine and the Philippines[65][68] - Regulatory and Legal Risks: Evolving data privacy laws and internet regulations may increase compliance costs, while reliance on trade secrets and copyrights for intellectual property offers limited protection[85][90] Unresolved Staff Comments The company reports that it has no unresolved staff comments from the SEC - None[118] Properties SPS Commerce's headquarters are in a leased 198,000 sq ft facility in Minneapolis, with additional leased offices internationally in Ukraine, Canada, Australia, China, and the Netherlands - The company's principal administrative, marketing, sales, and R&D facilities are at its corporate headquarters in Minneapolis, Minnesota[119] - Additional office spaces are leased in Little Falls, New Jersey; Kyiv, Ukraine; Toronto, Canada; Melbourne and Sydney, Australia; Beijing, China; and Amsterdam, Netherlands[119] Legal Proceedings The company states that it is not currently subject to any material legal proceedings - The company is not currently a party to any material legal proceedings and believes it has adequate insurance coverage for potential claims arising from normal business activities[120] Mine Safety Disclosures This section is not applicable to the company - Not applicable[121] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq under "SPSC", has not paid cash dividends, and has an active $50.0 million stock repurchase program authorized in October 2021 - The company's common stock has traded on the Nasdaq Global Market under the symbol "SPSC" since its IPO on April 22, 2010[122] - The company has never paid cash dividends and intends to retain future earnings to finance business operations and expansion[123] Stock Repurchase Activity (Q4 2021) | Period | Total Shares Purchased | Average Price Paid per Share | Dollar Value Remaining in Program | | :--- | :--- | :--- | :--- | | Oct 1-31, 2021 | - | $- | $20,389,000 | | Nov 1-30, 2021 | 4,287 | $141.36 | $49,394,000 | | Dec 1-31, 2021 | 66,002 | $138.83 | $40,231,000 | | Total | 70,289 | $138.98 | $40,231,000 | - On October 28, 2021, the board authorized a new $50.0 million stock repurchase program, effective November 28, 2021, and expiring in two years[130] [Reserved] This section is not applicable - Not applicable[132] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial results, noting a 23.2% revenue increase to $385.3 million in 2021, driven by customer growth and wallet share, alongside increased operating expenses and strong liquidity Results of Operations In 2021, revenues grew 23.2% to $385.3 million, driven by a 13% increase in recurring revenue customers and 9% wallet share growth, while net income slightly decreased due to rising operating expenses Comparison of Operations (2021 vs. 2020) | (in thousands) | 2021 | 2020 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $385,276 | $312,630 | 23.2% | | Gross Profit | $253,598 | $212,794 | 19.2% | | Income from Operations | $55,085 | $50,158 | 9.8% | | Net Income | $44,597 | $45,586 | (2.2)% | - Revenue growth was primarily driven by a 13% increase in recurring revenue customers (from 33,150 to 37,500) and a 9% increase in wallet share (average recurring revenue per customer) from $9,250 to $10,050[159] - Increases in operating expenses were mainly due to higher headcount, leading to increased personnel-related costs and stock-based compensation across Cost of Revenues, Sales & Marketing, R&D, and G&A[161][162][163][164] Non-GAAP Financial Measures The company's non-GAAP results show Adjusted EBITDA increased to $107.0 million in 2021, with a flat 28% margin, and non-GAAP diluted income per share rose to $1.82 Reconciliation of Net Income to Adjusted EBITDA | (in thousands) | 2021 | 2020 | | :--- | :--- | :--- | | Net income | $44,597 | $45,586 | | Adjustments | $62,418 | $41,408 | | Adjusted EBITDA | $107,015 | $86,994 | Adjusted EBITDA Margin | (in thousands, except Margin) | 2021 | 2020 | | :--- | :--- | :--- | | Revenue | $385,276 | $312,630 | | Adjusted EBITDA | $107,015 | $86,994 | | Adjusted EBITDA Margin | 28% | 28% | Non-GAAP Income Per Share | (per share amounts) | 2021 | 2020 | | :--- | :--- | :--- | | Non-GAAP income (in thousands) | $67,107 | $55,696 | | Diluted shares (in thousands) | 36,962 | 36,285 | | Non-GAAP income per share (Diluted) | $1.82 | $1.53 | Liquidity and Capital Resources As of December 31, 2021, the company had $257.3 million in cash and investments, with net cash from operating activities increasing to $112.9 million, ensuring sufficient liquidity for the next twelve months - At December 31, 2021, principal sources of liquidity included cash and cash equivalents of $207.6 million and short-term investments of $49.8 million[172][216] Summary of Cash Flows | (in thousands) | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $112,893 | $88,562 | | Net cash used in investing activities | $(46,703) | $(120,469) | | Net cash (used in) provided by financing activities | $(8,361) | $2,328 | - The decrease in cash used for investing activities was primarily due to lower cash used for acquisitions in 2021 compared to 2020[176] Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from interest rate and foreign currency fluctuations, but management believes neither poses a material threat, with only 8% of cash held in foreign currencies - The company believes there is no material risk exposure to changes in interest rates based on its current portfolio of cash, cash equivalents, and investments[187] - Due to international operations, the company has exposure to foreign currency exchange risk, primarily in Australian and Canadian dollars, with approximately 8% of total cash and investments held in foreign currencies as of December 31, 2021[189][190] - Management does not believe a hypothetical 10% change in foreign currency exchange rates would materially affect its financial position[191] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for 2019-2021, including the independent auditor's report, offering a comprehensive overview of financial position and performance Consolidated Financial Statements The consolidated financial statements for 2021 show total assets of $615.8 million, total liabilities of $131.6 million, revenues of $385.3 million, and net income of $44.6 million Consolidated Balance Sheet Highlights | (in thousands) | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total current assets | $352,443 | $271,356 | | Total assets | $615,846 | $526,458 | | Total current liabilities | $102,872 | $80,132 | | Total liabilities | $131,587 | $105,737 | | Total stockholders' equity | $484,259 | $420,721 | Consolidated Income Statement Highlights | (in thousands) | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Revenues | $385,276 | $312,630 | $279,124 | | Gross profit | $253,598 | $212,794 | $186,885 | | Income from operations | $55,085 | $50,158 | $38,406 | | Net income | $44,597 | $45,586 | $33,712 | Notes to Consolidated Financial Statements The notes detail accounting policies, including the $17.4 million acquisition of Genius Central in 2021, revenue stream breakdown with Fulfillment as the largest, and $27.6 million in stock-based compensation - On November 3, 2021, the company acquired Genius Central Systems Inc. for a total transaction price of $17.4 million, resulting in $8.9 million of goodwill and $8.5 million of intangible assets[275][277][278] Revenue by Stream (2019-2021) | (in thousands) | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Fulfillment | $306,851 | $251,272 | $219,297 | | Analytics | $42,674 | $38,824 | $37,038 | | Other Recurring | $5,481 | $4,920 | $5,671 | | One-time revenues | $30,270 | $17,614 | $17,118 | | Total revenue | $385,276 | $312,630 | $279,124 | Stock-Based Compensation Expense | (in thousands) | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Total Expense | $27,574 | $18,936 | $14,690 | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[331] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2021, excluding the recently acquired Genius Central business - The CEO and CFO concluded that as of December 31, 2021, the company's disclosure controls and procedures were effective[332] - Management concluded that the company maintained effective internal control over financial reporting as of December 31, 2021[336] - The assessment of internal control over financial reporting excluded the Genius Central business, which was acquired on November 3, 2021[337] Other Information The company reports no other information for this item - None[340] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This section is not applicable to the company - Not Applicable[341] Part III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the company's 2022 Proxy Statement - Information required by this item will be included in the 2022 Proxy Statement and is incorporated by reference[344] Executive Compensation The information regarding executive compensation is incorporated by reference from the company's 2022 Proxy Statement - Information required by this item will be included in the 2022 Proxy Statement and is incorporated by reference[346] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership information is incorporated from the 2022 Proxy Statement, detailing 1,542,378 shares for outstanding equity awards and 15,336,955 shares available for future issuance - Information on security ownership is incorporated by reference from the 2022 Proxy Statement[347] Equity Compensation Plan Information (as of Dec 31, 2021) | Plan Category | Shares to be issued upon exercise | Weighted-average exercise price | Shares remaining available for future issuance | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by stockholders | 1,542,378 | $44.76 | 15,336,955 | Certain Relationships and Related Transactions, and Director Independence The information regarding related party transactions and director independence is incorporated by reference from the company's 2022 Proxy Statement - Information required by this item will be included in the 2022 Proxy Statement and is incorporated by reference[350] Principal Accounting Fees and Services The information regarding principal accounting fees and services is incorporated by reference from the company's 2022 Proxy Statement - Information required by this item will be included in the 2022 Proxy Statement and is incorporated by reference[351] Part IV Exhibits, Financial Statement Schedules This section lists the financial statements and various exhibits filed as part of the Annual Report on Form 10-K - This item lists the financial statements, financial statement schedules, and exhibits filed as part of the report[353] Form 10-K Summary The company provides no summary for this item - None[353]