Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares of the registrant’s common stock, par value $0.001 per share, outstanding at ~~July 24, 2020~~April 23, 2021 was ~~35,128,208~~35,863,210 shares.

Unless the context otherwise requires, for purposes of the Quarterly Report on Form 10-Q, the words “we,” “us,” “our,” the “Company,” “SPS,” and “SPS Commerce” refer to SPS Commerce, Inc.

	June 30,			December 31,			March 31,			December 31,
(In thousands, except shares)	2020			2019			2021			2020
ASSETS	(unaudited)						(unaudited)
CURRENT ASSETS
Cash and cash equivalents	$	174,850		$	179,252		$	169,274		$	149,692
Short-term investments		50,775			34,284			39,174			37,786
Accounts receivable		37,840			33,001			39,271			37,811
Allowance for credit losses		(3,663	)		(1,469	)		(4,001	)		(4,233	)
Accounts receivable, net		34,177			31,532			35,270			33,578
Deferred costs		35,797			35,274			38,666			37,988
Other assets		8,378			11,279			14,490			12,312
Total current assets		303,977			291,621			296,874			271,356
PROPERTY AND EQUIPMENT, less accumulated depreciation of $55,377 and $50,574, respectively		25,510			23,752
PROPERTY AND EQUIPMENT, less accumulated depreciation of $62,947 and $59,152, respectively								26,606			26,432
OPERATING LEASE RIGHT-OF-USE ASSETS		14,839			15,744			15,296			15,581
GOODWILL		75,883			76,845			135,263			134,853
INTANGIBLE ASSETS, net		19,790			22,668			57,594			60,230
INVESTMENTS		7,566			—			2,500			2,500
OTHER ASSETS
Deferred costs, non-current		10,852			11,667			12,874			12,607
Deferred income tax assets		1,030			2,630			210			194
Other assets, non-current		2,216			2,513			2,620			2,705
Total assets	$	461,663		$	447,440		$	549,837		$	526,458
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable	$	4,256		$	4,274		$	5,081		$	5,354
Accrued compensation		16,950			22,303			20,428			22,872
Accrued expenses		5,067			6,207			10,018			11,161
Deferred revenue		36,273			31,463			44,481			37,947
Operating lease liabilities		4,189			3,783			3,424			2,798
Total current liabilities		66,735			68,030			83,432			80,132
OTHER LIABILITIES
Deferred revenue, non-current		2,746			2,851			4,027			2,996
Operating lease liabilities, non-current		17,920			20,085			18,743			19,672
Deferred income tax liabilities		952			1,193			3,112			2,937
Other liabilities, non-current		—			405
Total liabilities		88,353			92,564			109,314			105,737
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; 36,739,368 and 36,104,619 shares issued; and 35,126,118 and 34,863,271 outstanding, respectively		37			36
Treasury stock, at cost; 1,613,250 and 1,241,348 shares, respectively		(65,247	)		(46,297	)
Common stock, $0.001 par value; 110,000,000 shares authorized; 37,474,834 and 37,100,467 shares issued; and 35,861,584 and 35,487,217 outstanding, respectively								37			37
Treasury stock, at cost; 1,613,250 shares								(65,247	)		(65,247	)
Additional paid-in capital		373,686			354,115			402,860			393,462
Retained earnings		68,613			48,973			103,690			93,490
Accumulated other comprehensive loss		(3,779	)		(1,951	)		(817	)		(1,021	)
Total stockholders’ equity		373,310			354,876			440,523			420,721
Total liabilities and stockholders’ equity	$	461,663		$	447,440		$	549,837		$	526,458

	Three Months Ended						Six Months Ended						Three Months Ended
	June 30,						June 30,						March 31,
(In thousands, except per share amounts) (Unaudited)	2020			2019			2020			2019			2021			2020
Revenues	$	75,573		$	68,529		$	149,765		$	135,463		$	90,094		$	74,192
Cost of revenues		24,326			23,700			47,870			45,067			29,970			23,544
Gross profit		51,247			44,829			101,895			90,396			60,124			50,648
Operating expenses
Sales and marketing		18,611			17,545			36,910			35,467			21,355			18,299
Research and development		7,466			6,509			15,034			12,701			8,706			7,568
General and administrative		12,743			10,179			24,652			22,949			14,737			11,909
Amortization of intangible assets		1,316			1,266			2,652			2,570			2,664			1,336
Total operating expenses		40,136			35,499			79,248			73,687			47,462			39,112
Income from operations		11,111			9,330			22,647			16,709			12,662			11,536
Other income (expense)
Interest income, net		226			813			866			1,390
Other income, net		1,242			240			1			193
Change in earn-out liability		—			400			(72	)		344
Total other income, net		1,468			1,453			795			1,927
Other expense, net														(325	)		(673	)
Income before income taxes		12,579			10,783			23,442			18,636			12,337			10,863
Income tax expense		1,385			1,987			2,733			3,027			2,137			1,348
Net income	$	11,194		$	8,796		$	20,709		$	15,609		$	10,200		$	9,515
Other comprehensive income (expense)
Foreign currency translation adjustments		2,116			291		$	(1,748	)	$	1,030			192			(3,864	)
Unrealized gain on investments, net of tax of $3, $37, $26 and $67		7			110		$	78		$	200
Reclassification of gain on investments into earnings, net of tax of ($27), ($29), ($53) and ($60)		(79	)		(88	)	$	(158	)	$	(180	)
Unrealized gain (loss) on investments, net of tax of ($15) and $24														(45	)		71
Reclassification of (gain) loss on investments into earnings, net of tax of $19 and ($26)														57			(79	)
Total other comprehensive income (expense)		2,044			313			(1,828	)		1,050			204			(3,872	)
Comprehensive income	$	13,238		$	9,109		$	18,881		$	16,659		$	10,404		$	5,643

Net income per share
Basic	$	0.32		$	0.25		$	0.59		$	0.45		$	0.29		$	0.27
Diluted	$	0.31		$	0.24		$	0.58		$	0.43		$	0.28		$	0.26

Weighted average common shares used to compute net income per share
Basic		35,030			35,010			35,051			34,976			35,751			35,072
Diluted		36,016			36,020			35,995			36,006			36,722			35,926

~~Shares and per share data have been adjusted for all periods presented to reflect a 2-for-one stock split effective August 22, 2019.~~

															Accumulated																					Accumulated
											Additional				Other			Total													Additional					Other			Total
	Common Stock					Treasury Stock					Paid-in		Retained		Comprehensive			Stockholders'			Common Stock					Treasury Stock					Paid-in		Retained			Comprehensive			Stockholders'
(In thousands, except shares) (Unaudited)	Shares			Amount		Shares		Amount			Capital		Earnings		Loss			Equity			Shares			Amount		Shares		Amount			Capital		Earnings			Loss			Equity
Balances, March 31, 2019		34,935,364		$	36		891,248	$	(28,645	)	$	339,712	$	22,074	$	(2,473	)	$	330,704
Balances, December 31, 2019																						34,863,271		$	36		1,241,348	$	(46,297	)	$	354,115	$	48,973		$	(1,951	)	$	354,876
Stock-based compensation		—			—		—		—			2,542		—		—			2,542			—			—		—		—			3,968		—			—			3,968
Exercise of stock options and issuance of restricted stock		86,264			—		—		—			899		—		—			899
Shares issued pursuant to stock awards																						367,814			—		—		—			3,683		—			—			3,683
Employee stock purchase plan		30,814			—		—		—			1,079		—		—			1,079			2,015			—		—		—			87		—			—			87
Repurchases of common stock		(116,230	)		—		116,230		(6,000	)		—		—		—			(6,000	)		(240,275	)				240,275		(12,000	)		—		—			—			(12,000	)
Net income		—			—		—		—			—		8,796		—			8,796			—			—		—		—			—		9,515			—			9,515
Foreign currency translation adjustments		—			—		—		—			—		—		291			291			—			—		—		—			—		—			(3,864	)		(3,864	)
Unrealized gain on investments, net of tax		—			—		—		—			—		—		110			110			—			—		—		—			—		—			71			71
Reclassification of gain on investments into earnings, net of tax		—			—		—		—			—		—		(88	)		(88	)		—			—		—		—			—		—			(79	)		(79	)
Balances, June 30, 2019		34,936,212		$	36		1,007,478	$	(34,645	)	$	344,232	$	30,870	$	(2,160	)	$	338,333
Adoption of ASU 2016-13																						—			—		—		—			—		(1,069	)		—			(1,069	)
Balances, March 31, 2020																						34,992,825		$	36		1,481,623	$	(58,297	)	$	361,853	$	57,419		$	(5,823	)	$	355,188

Balances, March 31, 2020		34,992,825		$	36		1,481,623	$	(58,297	)	$	361,853	$	57,419	$	(5,823	)	$	355,188
Balances, December 31, 2020																						35,487,217		$	37		1,613,250	$	(65,247	)	$	393,462	$	93,490		$	(1,021	)	$	420,721
Stock-based compensation		—			—		—		—			4,628		—		—			4,628			—			—		—		—			6,491		—			—			6,491
Exercise of stock options and issuance of restricted stock		233,852			1		—		—			5,742		—		—			5,743
Shares issued pursuant to stock awards																						372,746			—		—		—			2,802		—			—			2,802
Employee stock purchase plan		31,068			—		—		—			1,463		—		—			1,463			1,621			—		—		—			105		—			—			105
Repurchases of common stock		(131,627	)		—		131,627		(6,950	)		—		—		—			(6,950	)
Net income		—			—		—		—			—		11,194		—			11,194			—			—		—		—			—		10,200			—			10,200
Foreign currency translation adjustments		—			—		—		—			—		—		2,116			2,116			—			—		—		—			—		—			192			192
Unrealized gain on investments, net of tax		—			—		—		—			—		—		7			7
Reclassification of gain on investments into earnings, net of tax		—			—		—		—			—		—		(79	)		(79	)
Balances, June 30, 2020		35,126,118		$	37		1,613,250	$	(65,247	)	$	373,686	$	68,613	$	(3,779	)	$	373,310
Unrealized loss on investments, net of tax																						—			—		—		—			—		—			(45	)		(45	)
Reclassification of loss on investments into earnings, net of tax																						—			—		—		—			—		—			57			57
Balances, March 31, 2021																						35,861,584		$	37		1,613,250	$	(65,247	)	$	402,860	$	103,690		$	(817	)	$	440,523

Accumulated

Additional

Other

Total

Common Stock

Treasury Stock

Paid-in

Retained

Comprehensive

Stockholders'

Shares

Amount

Shares

Amount

Capital

Earnings

Loss

Equity

Balances, December 31, 2018

34,691,472

$
36

823,784

$
(25,679
)

$
332,574

$
15,261

$
(3,218
)

$
318,974

Stock-based compensation

—

—

—

—

7,508

—

—

7,508

Exercise of stock options and issuance of restricted stock

403,142

—

—

—

3,371

—

—

3,371

Employee stock purchase plan

30,814

—

—

—

1,079

—

—

1,079

Repurchases of common stock

(183,694
)

—

183,694

(8,966
)

—

—

—

(8,966
)
Settlement and subsequent return of shares

(5,522
)

—

—

—

(300
)

(300
)
Net income

—

—

—

—

—

15,609

—

15,609

Foreign currency translation adjustments

—

—

—

—

—

—

1,030

1,030

Unrealized loss on investments, net of tax

—

—

—

—

—

—

(180
)

(180
)
Reclassification of loss on investments into earnings, net of tax

—

—

—

—

—

—

200

200

Adoption of ASU 2018-02

—

—

—

—

—

—

8

8

Balances, June 30, 2019

34,936,212

$
36

1,007,478

$
(34,645
)

$
344,232

$
30,870

$
(2,160
)

$
338,333

Balances, December 31, 2019

34,863,271

$
36

1,241,348

$
(46,297
)

$
354,115

$
48,973

$
(1,951
)

$
354,876

Stock-based compensation

—

—

—

—

8,596

—

—

8,596

Exercise of stock options and issuance of restricted stock

601,666

1

—

—

9,425

—

—

9,426

Employee stock purchase plan

33,083

—

—

—

1,550

—

—

1,550

Repurchases of common stock

(371,902
)

—

371,902

(18,950
)

—

—

—

(18,950
)
Net income

—

—

—

—

—

20,709

—

20,709

Foreign currency translation adjustments

—

—

—

—

—

—

(1,748
)

(1,748
)
Unrealized gain on investments, net of tax

—

—

—

—

—

—

78

78

Reclassification of gain on investments into earnings, net of tax

—

—

—

—

—

—

(158
)

(158
)
Adoption of ASU 2016-13

—

—

—

—

—

(1,069
)

—

(1,069
)
Balances, June 30, 2020

35,126,118

$
37

1,613,250

$
(65,247
)

$
373,686

$
68,613

$
(3,779
)

$
373,310

~~Shares have been adjusted for all periods presented to reflect a 2-for-one stock split effective August 22, 2019.~~

	Six Months Ended						Three Months Ended
	June 30,						March 31,
(In thousands) (Unaudited)	2020			2019			2021			2020
Cash flows from operating activities
Net income	$	20,709		$	15,609		$	10,200		$	9,515
Reconciliation of net income to net cash provided by operating activities
Deferred income taxes		1,443			2,634			163			668
Change in earn-out liability		72			(344	)		—			72
Depreciation and amortization of property and equipment		6,276			5,324			3,765			3,138
Amortization of intangible assets		2,652			2,570			2,664			1,336
Provision for credit losses		3,020			1,504			1,205			1,285
Stock-based compensation		9,353			8,169			6,925			4,344
Other, net		(129	)		(357	)		76			(105	)
Changes in assets and liabilities
Accounts receivable		(7,071	)		(4,769	)		(2,828	)		(1,053	)
Deferred costs		275			(56	)		(986	)		(256	)
Other current and non-current assets		3,141			(549	)		(2,257	)		2,041
Accounts payable		321			(490	)		(828	)		655
Accrued compensation		(6,166	)		(5,210	)		(2,988	)		(9,302	)
Accrued expenses		(964	)		404			(1,052	)		(615	)
Deferred revenue		4,705			5,250			7,565			3,396
Operating leases		(842	)		(27	)		(19	)		(452	)
Net cash provided by operating activities		36,795			29,662			21,605			14,667
Cash flows from investing activities
Purchases of property and equipment		(8,396	)		(5,351	)		(3,263	)		(3,965	)
Purchases of investments		(55,144	)		(44,548	)		(14,039	)		(12,460	)
Maturities of investments		31,050			37,725			12,500			15,875
Net cash used in investing activities		(32,490	)		(12,174	)		(4,802	)		(550	)
Cash flows from financing activities
Repurchases of common stock		(18,950	)		(8,966	)		—			(12,000	)
Net proceeds from exercise of options to purchase common stock		9,426			3,371			2,802			3,683
Net proceeds from employee stock purchase plan		1,550			1,079			105			87
Payment for earn-out liability		(688	)		—			(164	)		(688	)
Net cash used in financing activities		(8,662	)		(4,516	)
Net cash provided by (used in) financing activities								2,743			(8,918	)
Effect of foreign currency exchange rate changes		(45	)		192			36			33
Net (decrease) increase in cash and cash equivalents		(4,402	)		13,164
Net increase in cash and cash equivalents								19,582			5,232
Cash and cash equivalents at beginning of period		179,252			133,859			149,692			179,252
Cash and cash equivalents at end of period	$	174,850		$	147,023		$	169,274		$	184,484

SPS Commerce is a leading provider of cloud-based supply chain management solutions that make it easier for retailers, suppliers, grocers, distributors, and logistics firms to orchestrate the management of item data, order fulfillment, inventory control and sales analytics across all channels. For many businesses, implementing and maintaining a suite of supply chain management capabilities is resource-intensive and not a core competency. The solutions offered by SPS Commerce eliminate the need for on-premise software and support staff by taking on that capability on the customer’s behalf. These solutions also enable our customers to increase their supply cycle agility, optimize their inventory levels and sell-through, reduce operational costs and gain increased visibility into customer orders, helping ensure that suppliers, grocers, distributors, and logistics firms can satisfy retailer requirements.

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of SPS Commerce, Inc. and its subsidiaries. All intercompany accounts and transactions have been eliminated in the condensed consolidated financial ~~statements, which~~ statements.~~have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) for~~

This interim financial information ~~and with~~has been prepared under the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, these condensed consolidated financial statements do not include all of the information and notes required by GAAP. We have included all normal recurring adjustments considered necessary to provide a fair presentation of our financial position, results of operations, stockholders’ equity, and cash flows for the interim periods shown. Operating results for these interim periods are not necessarily indicative of the results to be expected for the full year. For further information, refer to the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, as filed with the Securities and Exchange Commission (“SEC”).

In December 2020, we ~~adopted Accounting Standards Update~~acquired all of the outstanding equity ownership interests of D Masons Software, LLC (“~~ASU”~~Data Masons”) ~~No. 2016-13,~~ ~~Financial Instruments – Credit Losses~~ ~~(Topic 326) with a modified-retrospective approach~~. As of December 31, 2020 and ~~recorded a $1.1 million cumulative-effect adjustment~~March 31, 2021, the purchase accounting for the acquisition is not finalized.Provisional amounts are primarily related to ~~retained earnings. Under~~intangible assets, net working capital, and tax positions. We expect to finalize the ~~standard, in determining~~allocation of the ~~allowances for credit losses, we pool our outstanding accounts receivable invoices based on~~purchase price within the ~~contractual due date of payment at~~one-year measurement period following the balance sheet date. We take several factors into consideration for estimated credit losses by pool, primarily our historical credit losses. Additional adjustments are made for current and future conditions, primarilyacquisition. During the ~~rate of retail bankruptcies across~~three months ended March 31, 2021, the ~~United States.~~

~~On July 25, 2019, we announced that our board of directors declared a 2-for-one stock split of our common stock, effected~~only change in the ~~form~~purchase accounting was a $0.3 million reduction of ~~a 100 percent stock dividend~~amounts due from the seller as part of the ~~record date on August 8, 2019. The stock split dividend~~initial net working capital adjustment and a corresponding increase to goodwill. Subsequent to March 31, 2021, the net working capital amount was ~~distributed on August 22, 2019. Earnings per share and weighted average shares outstanding are presented in this Quarterly Report on Form 10-Q after~~finalized without change from the ~~effect of the 100 percent stock dividend. The 2-for-one stock split is reflected in the share~~ amounts ~~in all periods presented in this Quarterly Report on Form 10-Q.~~recorded at March 31, 2021.

Preparing financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

For the three months ended March 31, 2021, there were no newly adopted accounting pronouncements. As of March 31, 2021, there are no recently issued but not yet adopted accounting pronouncements that are expected to materially impact our consolidated financial statements.

There were no material changes in our significant accounting policies during the ~~six~~three months ended ~~June 30, 2020.~~March 31, 2021. See Note A to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, as filed with the SEC, for additional information regarding our significant accounting policies.

	Three Months Ended				Six Months Ended				Three Months Ended
	June 30,				June 30,				March 31,
(In thousands)	2020		2019		2020		2019		2021		2020
Recurring revenues:
Fulfillment	$	60,745	$	53,694	$	119,848	$	106,139	$	71,404	$	59,103
Analytics		9,247		9,245		18,983		18,118		10,144		9,736
Other		1,221		1,417		2,420		2,845		1,253		1,199
Recurring Revenues		71,213		64,356		141,251		127,102		82,801		70,038
One-time revenues		4,360		4,173		8,514		8,361		7,293		4,154
	$	75,573	$	68,529	$	149,765	$	135,463	$	90,094	$	74,192

Revenues are recognized when our services are made available to our customers, in an amount that reflects the consideration we are contractually and legally entitled to in exchange for those services.

Recurring revenues ~~consists~~consist of recurring subscriptions from customers that utilize our Fulfillment, Analytics, and Other cloud-based supply chain management solutions. Revenue for these solutions is generally recognized on a ratable basis over the contract term beginning on the date that our service is made available to the customer. Our contracts with our recurring revenue customers are recurring in nature, ranging from monthly to annual, and generally allow the customer to cancel the contract for any reason with 30 to 90 days’ notice. Timing of billings varies by customer and by contract type and are either in advance or within 30 days of the service being performed.

The deferred revenue liability for recurring revenue contracts are for one year or less and recognized on a ratable basis over the contract term. We have applied the optional exemption to not disclose information about the remaining performance obligations for contracts which have original durations of one year or less.

One-time revenues consist of set-up fees from customers and miscellaneous one-time fees.

Set-up fees are specific for each connection a customer has with a trading partner and many of our customers have connections with numerous trading partners. Set-up fees related to our cloud-based supply chain management solutions are nonrefundable upfront fees that are necessary for our customers to utilize our cloud-based services. These set-up fees do not provide any standalone value to our customers.

Certain contracts contain set-up fees that constitute a material renewal option right. This material right provides customers a significant future incentive that would not otherwise be available to them unless they entered into the contract, as the set-up fees will not be incurred again upon contract renewal.

For our Fulfillment solution, we have determined that the set-up fees and related costs represent a material renewal option right to our customers as they will not be incurred again upon renewal. These set-up fees and related costs are deferred and recognized ratably over two years, which is the estimated period for which a material right is present for our customers.

For our Analytics solution, we have determined that the set-up fees do not represent a material customer renewal right and, as such, are deferred and recognized ratably over the estimated initial contract term, which is generally one year.

The table below presents the activity of the portion of the deferred revenue liability relating to set-up fees:

	Three Months Ended						Six Months Ended						Three Months Ended
	June 30,						June 30,						March 31,
(In thousands)	2020			2019			2020			2019			2021			2020
Balance, beginning of period	$	10,572		$	9,813		$	10,518		$	9,857		$	11,118		$	10,518
Invoiced set-up fees		2,748			2,829			5,467			5,366			3,867			2,719
Amortized set-up fees		(2,687	)		(2,579	)		(5,352	)		(5,160	)		(2,883	)		(2,665	)
Balance, end of period	$	10,633		$	10,063		$	10,633		$	10,063		$	12,102		$	10,572

The entire balance of set-up fees will be recognized within two years and, as such, current amounts will be recognized in the next 1-12 months and long-term amounts will be recognized in the next 13-24 months.

Miscellaneous one-time fees consist of professional services and testing and certification. The deferred revenue liability for these one-time fees are for one year or less and recognized at the time service is provided. We have applied the optional exemption to not disclose information about the remaining performance obligations for contracts which have original durations of one year or less.

Deferred costs consist of costs to obtain customer contracts, such as commissions paid to sales personnel and to third-party partners for customer referrals, and costs to fulfill customer contracts, such as customer implementation costs.

Costs to obtain customer contracts relating to recurring revenues are considered incremental and recoverable costs of obtaining a contract with our customer. These costs are deferred and amortized over the expected period of benefit which we have determined to be ~~two years. Amortization expense is included in sales and marketing expenses in the accompanying condensed consolidated statements of comprehensive income.~~

Costs to fulfill customer contracts are considered incremental and recoverable costs of obtaining a contract with our customer. These costs are deferred and amortized over the expected period of benefit which we have determined to be ~~two years. Amortization expense is included in cost of revenues in the accompanying condensed consolidated statements of comprehensive income.~~

The ~~table below presents the activity of~~ deferred costs and amortization of deferred ~~costs:~~

	Three Months Ended						Six Months Ended						Three Months Ended
	June 30,						June 30,						March 31,
(In thousands)	2020			2019			2020			2019			2021			2020
Balance, beginning of period	$	46,936		$	45,891		$	46,941		$	45,475		$	50,595		$	46,941
Incurred deferred costs		12,350			11,880			25,071			24,212			13,427			12,721
Amortized deferred costs		(12,637	)		(12,243	)		(25,363	)		(24,159	)		(12,482	)		(12,726	)
Balance, end of period	$	46,649		$	45,528		$	46,649		$	45,528		$	51,540		$	46,936

We invest primarily in money market funds, certificates of deposit, highly liquid debt instruments of the United States (“U.S.”) government and U.S. corporate debt securities. ~~Highly liquid~~All investments ~~with original maturities of 90 days or less are classified as cash equivalents. Investments~~ with remaining maturities of less than one year from the balance sheet date are classified as short-term ~~investments whereas those~~investments. Investments with remaining maturities of more than one year from the balance sheet date are classified as long-term investments. Our short-term marketable securities are classified as available-for-sale. We intend to hold marketable securities until maturity; however, we may sell these securities at any time for use in current operations or for other purposes.

Our marketable securities are carried at fair value and unrealized gains and losses on these investments, net of taxes, are included in accumulated other comprehensive loss in the condensed consolidated balance sheets. Realized gains or losses are included in other ~~income (expense),~~expense, net in the condensed consolidated statements of comprehensive income. Certain securities accrue interest that is included in other expense, net. The unrealized gains (losses) noted below are exclusive of previously recognized interest income. When a determination has been made that the fair value of a marketable security is below its amortized cost basis, the portion of the unrealized loss that corresponds to a credit-related factor is realized through a credit allowance on the marketable security and the equivalent expense is realized in other ~~income (expense),~~expense, net in the condensed consolidated statements of comprehensive income.

		June 30, 2020
		Amortized		Unrealized			Fair		March 31, 2021							December 31, 2020
(In thousands)		Cost		Gains (Losses)			Value		Amortized Cost		Unrealized Gains (Losses), net			Fair Value		Amortized Cost		Unrealized Losses, net			Fair Value
Cash equivalents:
Money market funds		$	142,916	$	—		$	142,916	$	118,485	$	—		$	118,485	$	112,907	$	—		$	112,907
Certificates of deposit			6,890		—			6,890		7,618		—			7,618		7,708		—			7,708
Marketable securities:
Corporate bonds			11,313		22			11,335		7,564		(40	)		7,524		5,069		(29	)		5,040
Commercial paper			12,588		(14	)		12,574		2,493		7			2,500		7,569		(55	)		7,514
U.S. treasury securities			27,547		(5	)		27,542		24,094		(62	)		24,032		20,051		(27	)		20,024
		$	201,254	$	3		$	201,257	$	160,254	$	(95	)	$	160,159	$	153,304	$	(111	)	$	153,193
Maturing within one year	Maturing within one year						$	193,691						$	157,659						$	150,693
Maturing within one to two years	Maturing within one to two years							7,566							2,500							2,500
Total	Total						$	201,257						$	160,159						$	153,193

We measure certain financial assets at fair value on a recurring basis based on a fair value hierarchy that requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels of inputs that may be used to measure fair value are:

We obtain the fair values of our ~~level~~Level 2 available-for-sale securities from a professional pricing service.

For the ~~earn-out~~contingent consideration liability, related to the ~~EDIAdmin~~Data Masons acquisition, we are required to pay the ~~Company utilized~~former owners of Data Masons $1.9 million in the ~~Monte Carlo simulation method~~event the Paycheck Protection Program (“PPP”) Loan (“PPP Loan”) acquired in the acquisition is forgiven in full. In November 2020, Data Masons applied for full forgiveness of the PPP Loan. At March 31, 2021, although unknown, we determined that it is probable that Data Masons’ use of the PPP Loan proceeds will meet the conditions for full forgiveness under the PPP. Subsequent to ~~estimate~~March 31, 2021, the ~~fair value~~Small Business Administration approved the full forgiveness of ~~this~~the PPP Loan and as such, the payment of the $1.9 million contingent liability ~~as of the balance sheet date. Thousands of iterations of the simulation were performed using forecasted revenues~~is anticipated to develop a distribution of future values of recurring revenue which, in turn, provided indicated earn-out payments. The total estimated fair value equals the sum of the average present values of the indicated earn-out payments. Changesbe made in the ~~assumptions used in the simulations described above could have an impact on the payout of contingent consideration.~~three months ending June 30, 2021.

The following table presents information about our financial assets and liabilities that are measured at fair value on a recurring basis and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value:

	June 30, 2020								March 31, 2021								December 31, 2020
(In thousands)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Money market funds	$	142,916	$	—	$	—	$	142,916	$	118,485	$	—	$	—	$	118,485	$	112,907	$	—	$	—	$	112,907
Certificates of deposit		6,890		—		—		6,890		7,618		—		—		7,618		7,708		—		—		7,708
Marketable securities:
Corporate bonds		—		11,335		—		11,335		—		7,524		—		7,524		—		5,040		—		5,040
Commercial paper		—		12,574		—		12,574		—		2,500		—		2,500		—		7,514		—		7,514
U.S. treasury securities		—		27,542		—		27,542		—		24,032		—		24,032		—		20,024		—		20,024
	$	149,806	$	51,451	$	—	$	201,257	$	126,103	$	34,056	$	—	$	160,159	$	120,615	$	32,578	$	—	$	153,193

Liabilities:
Earn-out liability	$	—	$	—	$	307	$	307
Contingent consideration									$	—	$	—	$	1,878	$	1,878	$	—	$	—	$	1,878	$	1,878
	$	—	$	—	$	307	$	307	$	—	$	—	$	1,878	$	1,878	$	—	$	—	$	1,878	$	1,878

~~During the three months ended June 30, 2020, there was no change in the earn-out liability. During the six months ended June 30, 2020,~~ ~~we recognized an expense of $0.1 million~~in our condensed consolidated statements of comprehensive income due to the remeasurement of the contingent liability and, additionally, we transferred $0.2 million out of Level 3. The remaining earn-out liability is expected to be paid in the first quarter of 2021 and has been measured as Level 3 given the unobservable inputs that are significant to the measurement of the liability. The earn-out has a maximum potential payout of $1.7 million, of which $0.7 million was paid.

There were 0 ~~other~~ transfers in or out of our Level 1, 2, or 3 assets or liabilities during the ~~six~~three months ended ~~June 30, 2020 and 2019.~~March 31, 2021.

~~The Company~~We ~~measures~~measure certain assets and liabilities at fair value on a nonrecurring basis. Assets that are measured at fair value on a nonrecurring basis include long-lived assets, goodwill, and indefinite-lived intangible assets, which would generally be recorded at fair value as a result of an impairment charge. Assets acquired and liabilities assumed as part of business combinations are measured at fair value.

The carrying ~~values~~amounts of ~~the Company's~~our short-term financial instruments, including cash and cash equivalents, accounts receivable, and accounts payable, when applicable, approximate their respective fair values due to their short-term nature.

The allowance for credit losses activity, included in accounts receivable, net, was as follows:

	Six Months Ended						Three Months Ended
	June 30,						March 31,
(In thousands)	2020			2019			2021			2020
Balance, beginning of period	$	1,469		$	1,392		$	4,233		$	1,469
Adoption of ASU 2016-13		1,069			—			—			1,069
Provision for credit losses		3,020			1,504			1,205			1,285
Write-offs, net of recoveries		(1,895	)		(1,461	)		(1,437	)		(884	)
Balance, end of period	$	3,663		$	1,435		$	4,001		$	2,939

Intangible assets subject to amortization are amortized over their respective useful lives (ranging from three to ten years). Intangible assets, net included the following:

	June 30, 2020										March 31, 2021
	Gross					Foreign					Gross					Foreign
	Carrying		Accumulated			Currency					Carrying		Accumulated			Currency
(In thousands)	Amount		Amortization			Translation			Net		Amount		Amortization			Translation			Net
Subscriber relationships	$	36,847	$	(22,476	)	$	(223	)	$	14,148	$	54,870	$	(25,808	)	$	(314	)	$	28,748
Non-competition agreements		698		(628	)		(6	)		64		708		(708	)		—			—
Acquired technology		7,795		(2,217	)		—			5,578		33,216		(4,370	)		—			28,846
	$	45,340	$	(25,321	)	$	(229	)	$	19,790	$	88,794	$	(30,886	)	$	(314	)	$	57,594

	December 31, 2019									December 31, 2020
	Gross					Foreign				Gross					Foreign
	Carrying		Accumulated			Currency				Carrying		Accumulated			Currency
(In thousands)	Amount		Amortization			Translation		Net		Amount		Amortization			Translation			Net
Subscriber relationships	$	43,640	$	(27,287	)	$	214	$	16,567	$	54,447	$	(24,792	)	$	101		$	29,756
Non-competition agreements		2,495		(2,371	)		10		134		698		(691	)		(4	)		3
Acquired technology		8,602		(2,643	)		8		5,967		33,195		(2,724	)		—			30,471
	$	54,737	$	(32,301	)	$	232	$	22,668	$	88,340	$	(28,207	)	$	97		$	60,230

The estimated annual amortization expense related to intangible assets subject to amortization for the next five years ~~and thereafter~~ is as follows:

(In thousands)
Remainder of 2020	$	2,646
2021		4,464
Remainder of 2021			$	7,287
2022		3,360		8,848
2023		3,289		8,769
2024		2,100		7,476
2025				7,337
Thereafter		3,931		17,877
	$	19,790	$	57,594

The changes in the net amount of capitalized implementation costs for software hosting arrangements iswas as follows:

	Three Months Ended						Six Months Ended						Three Months Ended
	June 30,						June 30,						March 31,
(in thousands)	2020			2019			2020			2019
(In thousands)													2021			2020
Balance, beginning of period	$	1,188		$	700		$	1,166		$	455		$	1,181		$	1,166
Capitalized implementation fees		29			262			80			517			46			51
Amortization of implementation fees		(29	)		(16	)		(58	)		(26	)		(57	)		(29	)
Balance, end of period	$	1,188		$	946		$	1,188		$	946		$	1,170		$	1,188

~~There were 0 impairment losses in relation to the capitalized implementation costs for the six months ended June 30, 2020 and 2019.~~

We are obligated under non-cancellable operating leases, primarily for office space, ~~and certain equipment,~~ as follows:

	June 30, 2020			December 31, 2019			March 31, 2021				December 31, 2020
(In thousands, except remaining term)	Remaining Term	Right-of-Use Asset		Remaining Term	Right-of-Use Asset		Remaining Term (years)		Right-of-Use Asset		Remaining Term (years)		Right-of-Use Asset
Minneapolis, MN lease	5 years	$	10,280	5 years	$	10,704		6	$	11,095		6	$	10,992
Kyev, Ukraine lease	5 years		2,124	5 years		2,316
Little Falls, NJ lease	3 years		1,369	4 years		1,574
Kyiv, Ukraine lease								4		1,832		4		1,930
Other leases	<1 - 5 years		1,066	<1 - 5 years		1,150	<1 - 5			2,369	<1 - 5			2,659
		$	14,839		$	15,744			$	15,296			$	15,581

Some of our leases may include options to extend the leases for up to five years. The options to extend our leases are not recognized as part of our Right-of-Use (“ROU”) assets and lease liabilities as it is not reasonably certain that we will exercise those options. Additionally, our agreements do not include options to terminate the leases.

	Three Months Ended				Six Months Ended				Three Months Ended
	June 30,				June 30,				March 31,
(In thousands)	2020		2019		2020		2019		2021		2020
Operating lease cost	$	773	$	620	$	1,368	$	1,306	$	540	$	595
Variable lease cost		909		835		1,801		1,639		768		892
	$	1,682	$	1,455	$	3,169	$	2,945	$	1,308	$	1,487

	Six Months Ended				Three Months Ended
	June 30,				March 31,
(In thousands)	2020		2019		2021		2020
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases		2,278		2,137		521		1,112
ROU assets obtained in exchange for operating lease liabilities		330		—		—		29

	June 30, 2020			December 31, 2019			March 31, 2021			December 31, 2020
Weighted-average remaining lease term - operating leases	4.5 years			5.0 years			5.4 years			5.6 years
Weighted-average discount rate - operating leases		4.5	%		4.5	%		4.1	%		4.1	%

At ~~June 30, 2020,~~March 31, 2021, our future minimum payments under operating leases were as follows:

(In thousands)
Remainder of 2020	$	4,320
2021		5,209
Remainder of 2021				$	3,149
2022		4,700			4,695
2023		4,439			4,427
2024		4,149			4,067
2025					3,715
Thereafter		1,437			4,850
		24,254			24,903
Less: imputed interest		(2,145	)		(2,736	)
	$	22,109		$	22,167

~~In May 2020, we~~We have entered into aseparate noncancelable ~~agreement~~agreements with a computing infrastructure ~~vendor~~and customer relationship management vendors for services through ~~May~~ 2023. At ~~June 30, 2020,~~March 31, 2021, the total remaining purchase ~~commitment was $14.7~~commitments were $16.2 million.

On November 2, 2019, our board of directors authorized a program to repurchase up to $50 million of common stock. Under the program, purchases may be made from time to time in the open market over two years. For the three months ended March 31, 2021, we did 0t repurchase any shares. As of March 31, 2021, $31.1 million of the share repurchase program was available for future share repurchases.

Our equity compensation plans provide for the grant of incentive and nonqualified stock options, as well as other stock-based awards including performance share units (“~~PSU”~~PSUs”), restricted stock awards (“~~RSA”~~RSAs”), restricted stock units (“~~RSU”~~RSUs”), and deferred stock units (“~~DSU”~~DSUs”)~~, to employees, non-employee directors and other consultants who provide services to us.~~. We also ~~provide~~have an employee stock purchase plan (“ESPP”) ~~and 401(k) stock match.~~

~~RSAs result in the issuance of new shares when granted. For other stock-based awards, new shares are issued when~~ the award or the award performance period, except for expense relating to retirement-eligible employees that have not given their required notice, which is ~~exercised, vested or released according~~recognized on a pro-rata basis over the notice period prior to ~~the terms of the agreement.~~ ~~In February 2020, 2.1 million additional shares were reserved for future issuance under our 2010 Equity Incentive Plan.~~retirement. At ~~June 30, 2020,~~March 31, 2021, there were ~~approximately 14.0~~13.6 million shares available for grant under approved equity compensation plans.

We generally recognize stock-based compensation expense on a straight-line basis over the vesting period. Exceptions include when retirement-eligible employees have not given their required notice, in which case expense is recognized on a continuous pro-rata basis relative to the time period until notice is given and for PSUs, in which case expense is recognized on a straight-line basis from the grant date through the end of the performance period, regardless of whether the market condition is satisfied.

Stock-based compensation expense was allocated in the condensed consolidated statements of comprehensive income as follows:

	Three Months Ended				Six Months Ended				Three Months Ended
	June 30,				June 30,				March 31,
(In thousands)	2020		2019		2020		2019		2021		2020
Cost of revenues	$	956	$	662	$	1,764	$	1,249	$	1,503	$	808
Operating expenses
Sales and marketing		1,010		694		1,856		1,424		1,482		846
Research and development		883		602		1,806		1,125		911		923
General and administrative		2,160		917		3,927		4,371		3,029		1,767
	$	5,009	$	2,875	$	9,353	$	8,169	$	6,925	$	4,344

	Three Months Ended				Six Months Ended				Three Months Ended
	June 30,				June 30,				March 31,
(In thousands)	2020		2019		2020		2019		2021		2020
Stock options	$	540	$	655	$	1,134	$	1,929	$	551	$	594
PSUs		1,096		151		1,792		1,074		2,084		696
RSUs		2,672		1,419		5,001		3,862		3,423		2,329
RSAs and DSUs		107		145		234		281
RSAs										106		127
ESPP		213		171		435		361		326		222
401(k) stock match		381		334		757		662		435		376
	$	5,009	$	2,875	$	9,353	$	8,169	$	6,925	$	4,344

As of ~~June 30, 2020,~~March 31, 2021, there was ~~$26.6~~$40.6 million of unrecognized stock-based compensation expense under our equity compensation plans, which is expected to be recognized on a straight-line basis over a weighted average period of ~~2.7~~2.8 years.

~~Stock options generally vest over four years and have a contractual term of seven to ten years from the date of grant. Our stock option activity was as follows:~~

Of the total outstanding options at ~~June 30, 2020, 0.9~~March 31, 2021, 0.7 million were exercisable. The outstanding and exercisable options had a weighted average exercise price of ~~$30.76~~$33.82 per share and a weighted average remaining contractual life of ~~3.1~~3.4 years.

The weighted average grant date fair value of options granted during the first ~~six~~three months of ~~2020~~2021 was ~~$15.53~~$31.16 per share. This was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:

The expected volatility of the options is based on the historical volatility of our common stock. We have not issued dividends on our common stock and do not expect to do so in the foreseeable future. Beginning with awards granted in 2020, the expected term of options is derived from historical data on employee exercises and post-vesting employment termination behavior. For awards granted prior to 2020, the expected term of the options was based on the simplified method which did not consider historical employee exercise behavior. The risk-free interest rate is based on the U.S. Treasury rates at the date of grant with maturity dates approximately equal to the expected life at the grant date.

Performance Share Units, Restricted Stock Units and Awards, and Deferred Stock Units

In ~~February 2017, our executive officers were~~each of the quarters ended March 31, 2021, 2020, 2019, and 2018 we granted PSU awards with ~~vesting contingent on successful attainment of pre-determined revenue targets over~~a target performance level. These awards are earned based upon the ~~course of a~~ ~~three-year~~ ~~performance period (fiscal years 2017 – 2019). The fair value is measured as the number of performance shares expected to be earned multiplied by the grant date fair value of our shares.~~

~~In February 2018, 2019, and 2020, our executive officers were granted PSU awards with vesting contingent on our~~Company’s total shareholder return as compared to an indexed total shareholder return over the course of a fiscal based three-year performance period, starting in the ~~fiscal~~ year of grant. ~~The grant date fair value was estimated using a Monte Carlo simulation that utilizes multiple input variables that determine~~Awards vest in the ~~probability~~quarter following the conclusion of ~~satisfying~~ the performance ~~conditions stipulated~~period. In the three months ended March 31, 2021, PSU awards granted in 2018 vested at the ~~award~~maximum performance level and ~~calculates the fair market value for the PSUs granted.~~

~~RSUs generally vest over four years and, upon vesting, the holder is entitled to receive~~0.1 million shares of ~~our~~ common ~~stock.~~stock were issued.

RSAs vest over one year and, upon vesting, the holder is entitled to receive shares of our common stock. In lieu of RSAs, a participant may elect to receive DSUs with one year vesting but the participant directs delayed receipt of common shares of up to ten years after the end of service to the Company.

~~We have an ESPP which a~~llows participating employees to purchase shares of our common stock at a discount through payroll deductions. The plan is available to all employees subject to certain eligibility requirements. Participating employees may purchase common stock, on a voluntary after-tax basis, at a price that is the lower of 85% of the fair market value of common stock at the beginning or end of each stock purchase period. The plan consists of 2 six-month offering periods, beginning on January 1 and July 1 of each calendar year, respectively. A total of 1.9 million shares of common stock are reserved for issuance under the ~~plan~~ESPP as of ~~June 30, 2020.~~March 31, 2021.

The fair value was estimated based on the market price of our common stock at the beginning of the offering period using the Black-Scholes option pricing model with the following assumptions:

We sponsor a 401(k) retirement savings plan for our U.S. employees where participants can contribute up to 80% of their compensation, subject to the limits established by law. We match 50% of the employee’s elective deferrals, up to the first 6% of the employee’s pre-tax compensation for each pay period. A portion of our match is in company stock, which is purchased from the open market by our plan provider and immediately deposited into the employee’s 401(k) account.

We record our interim provision for income taxes by applying our estimated annual effective tax rate to our year-to-date pretax income and adjust the provision for discrete tax items recorded in the period. Differences between our effective tax rate and statutory tax rates are primarily due to the impact of permanently non-deductible expenses partially offset by the federal research and development credits and tax benefits associated with foreign-derived intangible income. Additionally, excess tax benefits generated upon settlement or exercise of stock awards are recognized as a reduction to income tax expense as a discrete tax item in the quarter that the event occurs creating potentially significant fluctuation in tax expense by quarter and by year. Our provisions for income taxes ~~include~~includes current ~~foreign~~federal, state, and ~~state~~foreign income tax expense, as well as deferred tax expense.

As of ~~June 30, 2020,~~March 31, 2021, we dodid 0t have any unrecognized tax benefits, ~~nor any material~~ accrued interest, or tax penalties.

Effective January 1, 2021, all realized gains or losses and interest income on our investments are included in investment income. Previously, realized gains and losses were included in other income (expense), net and interest income was included in interest income, net. Additionally, realized gains or losses from foreign currency on cash and investments held were previously included in other income (expense), net. Amounts for the three months ended March 31, 2020 have been reclassified to be consistent with the classifications for the three months ended March 31, 2021.

Basic net income per share has been computed using the weighted average number of shares of common stock outstanding during each period. Diluted net income per share also includes the impact of our outstanding potential common shares, including options, PSUs, RSUs, RSAs, and DSUs. Potential common shares that are anti-dilutive are excluded from the calculation of diluted net income per share.

The following table presents the components of the computation of basic and diluted net income per share for the periods indicated:

	Three Months Ended				Six Months Ended				Three Months Ended
	June 30,				June 30,				March 31,
(In thousands, except per share amounts)	2020		2019		2020		2019		2021		2020
Numerator
Net income	$	11,194	$	8,796	$	20,709	$	15,609	$	10,200	$	9,515
Denominator
Weighted average common shares outstanding, basic		35,030		35,010		35,051		34,976		35,751		35,072
Options to purchase common stock		581		698		588		714		568		582
PSUs, RSUs, RSAs, and DSUs		405		312		356		316		403		272
Weighted average common shares outstanding, diluted		36,016		36,020		35,995		36,006		36,722		35,926
Net income per share
Basic	$	0.32	$	0.25	$	0.59	$	0.45	$	0.29	$	0.27
Diluted	$	0.31	$	0.24	$	0.58	$	0.43	$	0.28	$	0.26

~~Shares and per share data have been adjusted for all periods presented to reflect a 2-for-one stock split effective August 22, 2019.~~

The following table presents the effect of the outstanding potential common shares that were excluded from the calculation of diluted net income per share as they were anti-dilutive:

	Three Months Ended				Six Months Ended				Three Months Ended
	June 30,				June 30,				March 31,
(In thousands)	2020		2019		2020		2019
(in thousands)									2021	2020
Antidilutive shares		206		148		195		182	56	309

For the three ~~and six~~ months ended ~~June 30, 2020~~March 31, 2021 and ~~2019,~~2020, 84% and 85%of our revenue, respectively, was attributable to customers based within the ~~United States.NaN~~U.S. NaN single jurisdiction outside of the U.S. had revenues in excess of 10%.

At ~~June 30, 2020~~March 31, 2021 and ~~2019, 9%~~2020, 15% and 8%, respectively, of property and equipment, net was located at subsidiary and office locations outside of the ~~United States.~~U.S.

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements regarding us, our business prospects and our results of operations are subject to certain risks and uncertainties posed by many factors and events, many of which may be amplified by the coronavirus (COVID-19) pandemic, that could cause our actual business, prospects and results of operations to differ materially from those that may be anticipated by such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. In some cases, you can identify forward-looking statements by the following words: “anticipate,” “assumes,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “ongoing,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would,” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. Similarly, statements that describe our future plans, objectives or goals are also forward-looking. Forward-looking statements may also be made from time to time in oral presentations, including telephone conferences and/or webcasts open to the public. Shareholders, potential investors and others are cautioned that all forward-looking statements involve risks and uncertainties that could cause results in future periods to differ materially from those anticipated by some of the statements made in this report, including the risks and uncertainties described under the heading “Risk Factors” appearing in our Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, as may be updated in our subsequent Quarterly Reports on Form 10-Q from time to time, including the updates in this Quarterly Report on Form 10-Q. We expressly disclaim any intent or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the SEC that advise interested parties of the risks and factors that may affect our business.

SPS Commerce is a leading provider of cloud-based solutions that make it easier for retailers, suppliers, grocers, distributors, and logistics firms to orchestrate the management of item data, order fulfillment, inventory control and sales analytics across all channels. The solutions offered by SPS Commerce eliminate the need for on-premise software and support staff by taking on that capability on the customer’s behalf. We derive the majority of our revenues from numerous monthly recurring subscriptions from businesses that utilize our solutions.

We plan to continue to grow our business by further penetrating the supply chain management market, increasing revenues from our customers as their businesses grow, expanding our distribution channels, expanding our international presence and, from time to time, developing new solutions and applications. We also intend to selectively pursue acquisitions that will add customers, allow us to expand into new regions, or allow us to offer new functionalities.

For the three months ended ~~June 30, 2020,~~March 31, 2021, our revenues were ~~$75.6~~$90.1 million, an increase of ~~10%~~21% from the comparable period in ~~2019,~~2020, and represented our ~~78th~~81st consecutive quarter of increased revenues. Total operating expenses increased ~~13%~~21% for the same period in ~~2020~~2021 from ~~2019. For the six months ended June 30, 2020, revenues increased 11% and operating expenses increased 8% compared to the same period in 2019.~~

Although the global emergence of COVID-19 did not have a material adverse effect on our business, operating results, and overall financial performance for the six months ended June 30, 2020, the future impact remains uncertain and depends on several factors, including, but not limited to, the pandemic’s duration and continued spread, impact on our customers, impact on our partners or employees, and impact on the economic environment and financial markets, all of which are uncertain and cannot be predicted. We will continue to actively monitor the situation and may take further actions that alter our business operations, as may be required by federal, state, or local authorities, or that we determine are in the best interests of our employees, customers, partners, and shareholders.2020.

We have several key financial terms and metrics, including annualized average recurring revenues per recurring revenue customer. During the three ~~and six~~ months ended ~~June 30, 2020, there~~March 31, 2021, we added Adjusted EBITDA Margin as a financial metric. There were no additional changes in the definitions of our key financial terms and metrics, which are discussed in more detail under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020, as filed with the SEC.

To supplement our financial statements, we also provide investors with Adjusted EBITDA, Adjusted EBITDA Margin, and non-GAAP income per share, ~~both~~all of which are non-GAAP financial measures. We believe that these non-GAAP measures provide useful information to management and investors regarding certain financial and business trends relating to our financial condition and results of operations. Our management uses these non-GAAP measures to compare the ~~company’s~~Company’s performance to that of prior periods for trend analyses and planning purposes. Adjusted EBITDA is also used for purposes of determining executive and senior management incentive compensation. These measures are presented to our board of directors.

These non-GAAP measures should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP. These non-GAAP financial measures exclude significant expenses and income that are required by GAAP to be recorded in our financial statements and are subject to inherent limitations. Investors should review the reconciliations of non-GAAP financial measures to the comparable GAAP financial measures that are included in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

This discussion of our financial condition and results of operations is based upon our condensed consolidated financial statements, which are prepared in accordance with GAAP and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. The preparation of these financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues, ~~costs~~ and expenses and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions. We base our estimates of the carrying value of certain assets and liabilities on historical experience and on various other assumptions that we believe to be reasonable. Our actual results may differ from these estimates under different assumptions or conditions.

A critical accounting policy is one that is both material to the presentation of our financial statements and requires us to make difficult, subjective, or complex judgments relating to uncertain matters that could have a material effect on our financial condition and results of operations. Accordingly, we believe that our policies for revenue recognition, internal-use software, and business combinations are the most critical to fully understand and evaluate our financial condition and results of operations.

During the three ~~and six~~ months ended ~~June 30, 2020,~~March 31, 2021, there were no changes in our critical accounting policies or estimates. See Note A to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, as filed with the SEC, for additional information regarding our accounting policies.

Three Months Ended ~~June 30, 2020~~March 31, 2021 Compared to Three Months Ended ~~June 30, 2019~~March 31, 2020

The following table presents our results of operations for the periods indicated:

	Three Months Ended June 30,																Three Months Ended March 31,
	2020					2019					Change						2021						2020						Change
(dollars in thousands)			% of revenue					% of revenue			$			%						% of revenue						% of revenue			$		%
Revenues	$	75,573		100.0	%	$	68,529		100.0	%	$	7,044			10.3	%	$	90,094			100.0	%	$	74,192			100.0	%	$	15,902		21.4	%
Cost of revenues		24,326		32.2			23,700		34.6			626			2.6			29,970			33.3			23,544			31.7			6,426		27.3
Gross profit		51,247		67.8			44,829		65.4			6,418			14.3			60,124			66.7			50,648			68.3			9,476		18.7
Operating expenses
Sales and marketing		18,611		24.6			17,545		25.6			1,066			6.1			21,355			23.7			18,299			24.7			3,056		16.7
Research and development		7,466		9.9			6,509		9.5			957			14.7			8,706			9.7			7,568			10.2			1,138		15.0
General and administrative		12,743		16.9			10,179		14.9			2,564			25.2			14,737			16.3			11,909			16.1			2,828		23.7
Amortization of intangible assets		1,316		1.7			1,266		1.8			50			3.9			2,664			2.9			1,336			1.8			1,328		99.4
Total operating expenses		40,136		53.1			35,499		51.8			4,637			13.1			47,462			52.6			39,112			52.8			8,350		21.3
Income from operations		11,111		14.7			9,330		13.6			1,781			19.1			12,662			14.1			11,536			15.5			1,126		9.8
Other income (expense)
Interest income, net		226		0.3			813		1.2			(587	)		(72.2	)
Other income, net		1,242		1.6			240		0.4			1,002			417.5
Change in earn-out liability		—		—			400		0.6			(400	)		(100.0	)
Total other income, net		1,468		1.9			1,453		2.1			15			1.0
Other expense, net																		(325	)		(0.4	)		(673	)		(0.9	)		348		51.7
Income before income taxes		12,579		16.6			10,783		15.7			1,796			16.7			12,337			13.7			10,863			14.6			1,474		13.6
Income tax expense		1,385		1.8			1,987		2.9			(602	)		(30.3	)		2,137			2.4			1,348			1.8			789		58.5
Net income	$	11,194		14.8	%	$	8,796		12.8	%	$	2,398			27.3	%	$	10,200			11.3	%	$	9,515			12.8	%	$	685		7.2	%

Revenues. - The increase in revenues resulted from two primary factors: the increase in recurring revenue customers and an increase in annualized average recurring revenues per recurring revenue customer, which we also refer to as wallet share.

Recurring revenues from recurring revenue customers accounted for 92% and 94% of our total revenues for the three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019.~~respectively. We anticipate that the number of recurring revenue customers and wallet share will increase as we increase the number of solutions we offer and increase the penetration of those solutions across our customer base.

Cost of ~~Revenues.~~Revenues - The increase in cost of revenues for the three months ended ~~June 30, 2020~~March 31, 2021 was primarily due to increased headcount which resulted in an increase of ~~$0.3~~$5.3 million in personnel-related costs and an increase of $0.7 million in stock-based ~~compensation expense and $0.2 million in software subscriptions. As~~compensation. Additionally, as we continued to invest in the infrastructure supporting our platform, depreciation expense increased by $0.4 million.

Sales and Marketing ~~Expenses.~~Expenses - The increase in sales and marketing expense for the three months ended ~~June 30, 2020~~March 31, 2021 was primarily due to increased headcount which resulted in an increase of ~~$0.7~~$1.1 million in personnel-related costs and an increase of ~~$0.3~~$0.6 million in stock-based ~~compensation expense, partially offset by a decrease~~compensation. Additionally, the increase was due to an increase of ~~$0.3~~$0.9 million in variable compensation earned by sales personnel and referral partners.

Research and Development Expenses. - The increase in research and development expense for the three months ended ~~June 30, 2020~~March 31, 2021 was primarily due to increased headcount which resulted in an increase in personnel costs of ~~$0.4~~$0.9 million and an increase in ~~stock-based compensation~~software subscription expense of ~~$0.3~~$0.2 million.

General and Administrative ~~Expenses.~~Expenses - The increase in general and administrative expense for the three months ended ~~June 30, 2020~~March 31, 2021 was driven by an increase in stock-based compensation ~~expense~~ of ~~$1.2 million and an increase~~$1.3 million. Additionally, increases of $0.6 million ofin charitable donations ~~partially offset by a decrease of $0.3~~and $0.5 million in ~~personnel-related costs. As a result of continued business growth, bad debt expense increased $0.9 million, compared~~personal costs contributed to the ~~same period~~overall increase.

Amortization of Intangible Assets -The increase in ~~2019.~~amortization of intangible assets was driven by the amortization of the acquired intangible assets related to Data Masons.

Other ~~Income (Expense).~~Expense, Net - ~~Interest income, net,~~Total other ~~expense, net, and change in earn-out liability for the three months ended June 30, 2020 increased~~expenses decreased primarily due to ~~realized~~better investment performance as well as smaller foreign currency exchange ~~gains, partially offset by decreased income from investments and no change in the fair value of the earn-out liability.~~losses.

Income Tax ~~Expense.~~Expense - The ~~decrease~~increase in income tax expense ~~for the three months ended June 30, 2020~~ was primarily due to ~~an increase of $1.0 million~~a decrease in discrete tax benefits from stock activity ~~partially offset by the~~in addition to an increase in pre-tax income. Excess tax benefits generated upon the settlement or exercise of stock awards are recognized as a reduction to income tax expense and, as a result, we expect that our annual effective income tax rate will ~~be volatile.~~fluctuate.

Adjusted ~~EBITDA.~~EBITDA - Adjusted EBITDA, which is a non-GAAP measure of financial performance, consists of net income adjusted for depreciation and amortization expense, investment income ~~(interest income/expense,~~or loss, realized ~~investments gain/loss excluding realized gain/loss from foreign currency on investments), income tax expense, stock-based compensation expense, realized gain/~~gain or loss from foreign currency on cash and investments held, income tax expense, stock-based compensation expense, and other adjustments as necessary for a fair presentation. Other adjustments included the impact of the fair value adjustment for the EDIAdmin earn-out ~~liability, returned escrow shares in 2019 related to the acquisition~~liability. As part of ~~ToolBox Solutions (“Toolbox”),~~executing a lease amendment, we incurred accelerated depreciation, included within Depreciation and ~~impairment~~amortization of ~~internally developed software.~~property and equipment, and offsetting accelerated tenant improvement benefit, which is included within Other. The following table provides a reconciliation of net income to Adjusted EBITDA:

	Three Months Ended						Three Months Ended
	June 30,						March 31,
(In thousands)	2020			2019			2021			2020
Net income	$	11,194		$	8,796		$	10,200		$	9,515
Depreciation and amortization of property and equipment		3,138			2,688			3,765			3,138
Amortization of intangible assets		1,316			1,266			2,664			1,336
Investment income, net		(332	)		(813	)
Investment income								(97	)		(640	)
Realized loss from foreign currency on cash and investments held								289			1,243
Income tax expense		1,385			1,987			2,137			1,348
Stock-based compensation expense		5,009			2,875			6,925			4,344
Realized gain from foreign currency on cash and investments held		(1,370	)		—
Other		82			(400	)		(426	)		72
Adjusted EBITDA	$	20,422		$	16,399		$	25,457		$	20,356

Adjusted EBITDA Margin.Adjusted EBITDA Margin, which is a non-GAAP measure of financial performance, consists of Adjusted EBITDA divided by revenue. Margin, the comparable GAAP measure of financial performance, consists of net income divided by revenue. The following table provides a comparison of Margin to Adjusted EBITDA Margin:

Non-GAAP Income per Share. Non-GAAP income per share, which is ~~also~~ a non-GAAP measure of financial performance, consists of net income ~~plus~~adjusted for stock-based compensation expense, amortization expense related to intangible assets, realized ~~gain/~~gain or loss from foreign currency on cash and investments held, and other adjustments as necessary for a fair presentation, divided by the weighted average number of shares of common stock outstanding during each period. Other adjustments included the impact of the fair value adjustment for the EDIAdmin earn-out liability ~~returned escrow shares in 2019 related to~~and accelerated tenant improvement benefit as part of executing a lease amendment.

To quantify the ~~acquisition~~tax effects, we recalculated income tax expense excluding the direct book and tax effects of ~~ToolBox,~~the specific items constituting the non-GAAP adjustments. The difference between this recalculated income tax expense and ~~impairment~~GAAP income tax expense is presented as the income tax effect of ~~internally developed software.~~ the non-GAAP adjustments.

The following table provides a reconciliation of net income to non-GAAP income per share:

~~Shares and per share data have been adjusted for all periods presented to reflect a two-for-one stock split effective August 22, 2019.~~

~~Six Months Ended June 30, 2020~~ ~~Compared to Six Months Ended June 30, 2019~~

~~The following table presents our results of operations for the periods indicated:~~

Six Months Ended June 30,

2020

2019

Change

(dollars in thousands)

% of revenue

% of revenue

$

%

Revenues

$
149,765

100.0
%

$
135,463

100.0
%

$
14,302

10.6
%
Cost of revenues

47,870

32.0

45,067

33.3

2,803

6.2

Gross profit

101,895

68.0

90,396

66.7

11,499

12.7

Operating expenses

Sales and marketing

36,910

24.6

35,467

26.2

1,443

4.1

Research and development

15,034

10.0

12,701

9.4

2,333

18.4

General and administrative

24,652

16.5

22,949

16.9

1,703

7.4

Amortization of intangible assets

2,652

1.8

2,570

1.9

82

3.2

Total operating expenses

79,248

52.9

73,687

54.4

5,561

7.5

Income from operations

22,647

15.1

16,709

12.3

5,938

35.5

Other income (expense)

Interest income, net

866

0.6

1,390

1.0

(524
)

(37.7
)
Other income, net

1

—

193

0.1

(192
)

(99.5
)
Change in earn-out liability

(72
)

—

344

0.3

(416
)

(120.9
)
Total other income, net

795

0.5

1,927

1.4

(1,132
)

(58.7
)
Income before income taxes

23,442

15.6

18,636

13.7

4,806

25.8

Income tax expense

2,733

1.8

3,027

2.2

(294
)

(9.7
)
Net income

$
20,709

13.8
%

$
15,609

11.5
%

$
5,100

32.7
%

	Three Months Ended
	March 31,
(In thousands, except per share amounts)	2021			2020
Net income	$	10,200		$	9,515
Stock-based compensation expense		6,925			4,344
Amortization of intangible assets		2,664			1,336
Realized loss from foreign currency on cash and investments held		289			1,243
Other		(426	)		72
Income tax effects of adjustments		(3,975	)		(3,026	)
Non-GAAP income	$	15,677		$	13,484
Shares used to compute non-GAAP income per share
Basic		35,751			35,072
Diluted		36,722			35,926
Non-GAAP income per share
Basic	$	0.44		$	0.38
Diluted	$	0.43		$	0.38

~~Revenues~~. The increase in revenues resulted from two primary factors: the increase in recurring revenue customers and an increase in annualized average recurring revenues per recurring revenue customer, which we also refer to as wallet share.

Recurring revenues from recurring revenue customers accounted for 94% of our total revenues for the six months ended June 30, 2020 and 2019. We anticipate that the number of recurring revenue customers and wallet share will increase as we increase the number of solutions we offer and increase the penetration of those solutions across our customer base.

~~Cost of Revenues.~~The increase in cost of revenues for the six months ended June 30, 2020 was primarily due to increased headcount which resulted in an increase of $1.6 million in personnel-related costs, driven by increased salaries and benefits and increased contract labor, and an increase of $0.5 million in stock-based compensation expense. As we continued to invest in the infrastructure supporting our platform, depreciation expense increased by $0.7 million.

~~Sales and Marketing Expenses.~~The increase in sales and marketing expense for the six months ended June 30, 2020 was primarily due to an increase of $1.3 million in personnel-related costs, driven by increased salaries and benefits due to increased headcount and consulting, and an increase of $0.4 million in stock-based compensation expense, partially offset by a decrease of $0.6 million in variable compensation earned by sales personnel and referral partners.

~~Research and Development Expenses~~. The increase in research and development expense for the six months ended June 30, 2020 was primarily due to increased headcount which resulted in an increase in personnel costs of $1.1 million and an increase in stock-based compensation expense of $0.7 million.

~~General and Administrative Expenses.~~The increase in general and administrative expense for the six months ended June 30, 2020 was driven by an increase of $1.5 million in bad debt expense due to continued business growth. The increase is also due to an increase of $0.6 million in charitable donations, partially offset by a decrease of $0.4 million in stock-based compensation expense.

~~Other Income (Expense).~~Interest income, net, other expense, net, and change in earn-out liability for the six months ended June 30, 2020 decreased primarily due to decreased income from investments and increase in the fair value of the earn-out liability.

~~Income Tax Expense.~~The decrease in income tax expense for the six months ended June 30, 2020 was primarily due to an increase of $1.3 million in discrete tax benefits from stock activity, partially offset by the increase in pre-tax income. Excess tax benefits generated upon the settlement or exercise of stock awards are recognized as a reduction to income tax expense and, as a result, we expect that our annual effective income tax rate will fluctuate.

~~Adjusted EBITDA.~~Adjusted EBITDA, which is a non-GAAP measure of financial performance, consists of net income adjusted for depreciation and amortization, investment income (interest income/expense, realized investments gain/loss excluding realized gain/loss from foreign currency on investments), income tax expense, stock-based compensation expense, realized gain/loss from foreign currency on cash and investments held, and other adjustments as necessary for a fair presentation. Other adjustments included the impact of the fair value adjustment for the EDIAdmin earn-out liability, returned escrow shares in 2019 related to the acquisition of Toolbox, and impairment of internally developed software. The following table provides a reconciliation of net income to Adjusted EBITDA:

~~Non-GAAP Income per Share.~~Non-GAAP income per share, which is also a non-GAAP measure of financial performance, consists of net income plus stock-based compensation expense, amortization expense related to intangible assets, realized gain/loss from foreign currency on cash and investments held, and other adjustments as necessary for a fair presentation, divided by the weighted average number of shares of common stock outstanding during each period. Other adjustments included the impact of the fair value adjustment for the EDIAdmin earn-out liability, returned escrow shares in 2019 related to the acquisition of ToolBox, and impairment of internally developed software. The following table provides a reconciliation of net income to non-GAAP income per share:

~~Shares and per share data have been adjusted for all periods presented to reflect a two-for-one stock split effective August 22, 2019.~~

At ~~June 30, 2020,~~March 31, 2021, our principal sources of liquidity were cash and cash equivalents, certificates of deposit and short-term investments ~~of $225.6~~totaling $208.4 million and accounts receivable, net of provision for credit losses, of ~~$34.2~~$35.3 million. Certificates of deposit and ~~marketable securities~~investments are invested in accordance with our investment policy, with a goal of maintaining liquidity and capital preservation. Our cash equivalents and ~~marketable securities~~short-term investments are held in highly liquid money market funds, commercial paper, federal agency securities and corporate debt securities.

The below table summarizes the activity within the condensed consolidated statements of cash flows:

	Six Months Ended						Three Months Ended
	June 30,						March 31,
(In thousands)	2020			2019			2021			2020
Net cash provided by operating activities	$	36,795		$	29,662		$	21,605		$	14,667
Net cash used in investing activities		(32,490	)		(12,174	)		(4,802	)		(550	)
Net cash used in financing activities	$	(8,662	)	$	(4,516	)
Net cash provided by (used in) financing activities								2,743			(8,918	)

The increase in cash provided by operating ~~cash flows~~activities was primarily driven by business expansion which resulted in increased depreciation and amortization of property and equipment, amortization of intangibles assets, and stock-based compensation expense. Also, the increase was driven by continued business growth ~~which resulted~~resulting in increased net ~~income and decreased deferred tax~~income. Additionally, the changes in assets and ~~was driven by continued acquisitions and business expansions which resulted in increased depreciation, amortization, provision for credit losses, and stock-based compensation.~~liabilities contributed to the overall increase.

The increase in net cash used in investing activities was primarily due to an increase of net purchases of investments ~~compared to the same period in 2019. The increase was also driven by~~as well as increased capital expenditures, due to our business growth and continued investment in our technology.

The change in net cash ~~used in~~provided by (used in) financing activities was primarily due to the ~~increase~~decreases in cash used for share repurchases and ~~due to the earn-out payment of $0.7 million, partially offset by the increase in~~ net proceeds from stock option exercises.

~~Our results~~For information regarding the effect of ~~operations and cash flows were not materially affected by fluctuations in~~ foreign currency exchange ~~rates. We maintain 5%~~rate changes, refer to the section entitled “Foreign Currency Exchange Risk,” included in Part I, Item 3, “Quantitative and Qualitative Disclosures About Market Risk” of our total cash and cash equivalents outside of the U.S. in foreign currencies, primarily in Australian and Canadian dollars. We believe that a significant change in foreign currency exchange rates or an inability to access these funds would not materially affect our ability to meet our operational needs.this Quarterly Report on Form 10-Q.

Our future capital requirements may vary significantly from those now planned and will depend on many factors, including:

Historically, we have experienced increases in our expenditures consistent with the growth in our operations, and we anticipate that our expenditures will continue to increase as we expand our business.

We believe our cash, cash equivalents, ~~certificates of deposit, marketable securities~~investments and our cash flows from operations will be sufficient to meet our working capital and capital expenditure requirements for at least the next twelve months.

Inflation and changing prices did not have a material effect on our business during the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 and we do not expect that inflation or changing prices will materially affect our business in the foreseeable future.

We do not have any off-balance sheet arrangements, investments in special purpose entities or undisclosed borrowings or debt. Additionally, we are not a party to any derivative contracts or synthetic leases.

Our contractual obligations and commercial commitments as of ~~June 30, 2020~~March 31, 2021 are summarized below:

		Payments Due By Period (in thousands)										Payments Due by Period (in thousands)
		Less Than						More Than				Less Than						More Than
Contractual Obligations		1 Year		1-3 Years		3-5 Years		5 Years		Total		1 Year		1-3 Years		3-5 Years		5 Years		Total
Operating lease obligations, including imputed interest	��	$	4,948	$	10,719	$	8,587	$	—	$	24,254	$	4,265	$	9,022	$	7,655	$	3,961	$	24,903
Purchase commitment			5,300		9,400		—		—		14,700		6,412		9,833		—		—		16,245
Total		$	10,248	$	20,119	$	8,587	$	—	$	38,954	$	10,677	$	18,855	$	7,655	$	3,961	$	41,148

The principal objectives of our investment activities are to preserve principal, provide liquidity and maximize income consistent with minimizing risk of material loss. We are exposed to market risk related to changes in interest rates. However, based on the nature and current level of our ~~investments (primarily~~ cash, ~~and~~ cash equivalents, ~~which approximate fair value due to their short maturities, certificates of deposit~~ and ~~marketable securities),~~investments, we believe there is no material risk of exposure. We do not enter into investments for trading or speculative purposes.

We did not have any variable interest rate outstanding debt as of ~~June 30, 2020.~~March 31, 2021. Therefore, we do not have any material risk to interest rate fluctuations.

We have revenue, expenses, assets, and liabilities that are denominated in currencies other than the U.S. dollar, primarily the Australian dollar and Canadian dollar. As of ~~June 30, 2020,~~March 31, 2021, we maintained 5%approximately 7% of our total cash and cash equivalents outside of the U.S. in foreign currencies. We believe that a hypothetical 10% change in foreign currency exchange rates or an inability to access foreign funds would not ~~materially~~ affect our ability to meet our operational needs or result in a material foreign currency loss. As we expand internationally, our results of operations and cash flows may be impacted by changes in foreign currency exchange rates and would be adversely impacted when the U.S. dollar appreciates relative to other foreign currencies. We have not used any forward contracts or currency borrowings to hedge our exposure to foreign currency exchange risk, although we may do so in the future.

As of the end of the period covered by this Quarterly Report on Form 10-Q, our management has evaluated, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of ~~June 30, 2020.~~March 31, 2021.

In December 2020, we acquired the year ended December 31, 2019, management’s assessment of internal control over financial reporting excluded the internal control of the MAPADOC business, an operating unit of SWK Technologies, Inc., which was acquired on August 26, 2019.Data Masons business. Pursuant to the SEC’s general guidance that an assessment of a recently acquired business may be omitted from our scope for a period not to exceed one year from the date of acquisition, the scope of our most recent assessment did not include ~~MAPADOC.~~Data Masons. We are currently in the process of incorporating internal controls specific to Data Masons that we believe are appropriate and necessary to consolidate and report upon our financial results. Our assessment of the effectiveness of internal control over financial reporting as of ~~September 30, 2020~~December 31, 2021 will include ~~MAPADOC. For~~Data Masons. As of and for the three ~~and six~~ months ended ~~June 30, 2020, MAPADOC~~March 31, 2021, excluding net intangible assets and goodwill, Data Masons represented 2%approximately 3% of our ~~total~~ consolidated assets and ~~less than 1%~~6% of our consolidated revenues.

~~There~~With the exception of the internal control related to integration activities associated with our acquisition of Data Masons, there were no changes in our internal control over financial reporting during the quarter ended ~~June 30, 2020~~March 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

We are not currently subject to any material legal proceedings. From time to time, we may be named as a defendant in legal actions or otherwise be subject to claims arising from our normal business activities. Any such actions, even those that lack merit, could result in the expenditure of significant financial and managerial resources. We believe that we have obtained adequate insurance coverage or rights to indemnification in connection with potential legal proceedings that may arise.

~~With the exception of the addition of the risk factor noted below, there~~There have been no material changes in our risk factors from those disclosed under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020, as filed with the SEC.

The extent to which the COVID-19 outbreak and measures taken in response thereto impact our business, results of operations and financial condition will depend on future developments and outcomes, which are highly uncertain and cannot be predicted.

Our business and financial results may be adversely impacted by health epidemics, pandemics and similar outbreaks. The recent and rapidly spreading COVID-19 pandemic could have adverse impacts on our business, including causing significant volatility in demand for our services due to disruption and downturns in our customers’ businesses and related supply chains, disruptions to our third party technology providers, limitations on our employees' ability to work and travel, and significant changes in the economic or political conditions in markets in which we operate. Despite our efforts to manage these impacts, their ultimate impact also depends on factors beyond our knowledge or control, including the duration and severity of any such outbreak and actions taken to contain its spread and mitigate its public health effects.Any of these events could cause or amplify the risks and uncertainties set forth in our Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the SEC, and could materially adversely affect our business, financial condition, results of operations and/or stock price.

~~The following table presents the~~Under a share repurchase program announced by our board of directors on November 2, 2019, from time to time we can repurchase up to a total ~~number~~ of ~~shares~~$50 million of our ~~common~~ stock ~~that we purchased during~~in the ~~second~~open market through November 2, 2021. We did not make any purchases in the first quarter of ~~2020, the average price paid per share, the number of~~2021. At March 31, 2021, we had approximately $31.1 million remaining for shares that ~~we purchased as part of our publicly announced repurchase program, and the approximate dollar value of shares that still could~~can be repurchased atunder the ~~end of the applicable period.~~plan.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Title of each class		Trading Symbol		Name of exchange on which registered
Common Stock, par value $0.001 per share		SPSC		The Nasdaq Stock Market LLC (Nasdaq Global Market)


		Page
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited)	3

	Condensed Consolidated Balance Sheets	3

	Condensed Consolidated Statements of Comprehensive Income	4

	Condensed Consolidated Statements of Stockholders’ Equity	5

	Condensed Consolidated Statements of Cash Flows	6

	Notes to Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2018

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2824

Item 4.	Controls and Procedures	2824

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	2925

Item 1A.	Risk Factors	2925

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2925

Item 3.	Defaults Upon Senior Securities	2925

Item 4.	Mine Safety Disclosures	2925

Item 5.	Other Information	2925

Item 6.	Exhibits	3026

Signatures		3127

~~Standard~~	~~Date of Issuance~~	~~Description~~	~~Date Adopted~~	~~Effect on the Financial Statements~~
~~ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Statements~~	~~June 2016~~	The amendment replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses on instruments within its scope, including trade receivables. This is intended to provide financial statement users with more decision-useful information about the expected credit losses.	~~January 2020~~	The adoption of this standard did not have a material impact on our condensed consolidated financial statements. See above under “Basis for Presentation” for significant inputs for the allowance for credit losses.
~~ASU 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement~~	~~August 2018~~	~~This amendment adds, modifies and removes several disclosure requirements relative to the three levels of inputs used to measure fair value in accordance with Topic 820, Fair Value Measurement.~~	~~January 2020~~	~~The adoption of this standard did not have a material impact on our condensed consolidated financial statements.~~
~~ASU 2017-04, Intangibles - Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment~~	~~January 2017~~	~~This amendment eliminates Step 2 from the goodwill impairment test.~~	~~January 2020~~	~~The adoption of this standard did not have a material impact on our condensed consolidated financial statements.~~

	Six Months Ended June 30, 2020
				Weighted Average
	Options (#)			Exercise Price (per share)
Outstanding, beginning of period		1,543,912		$	30.03
Granted		114,945			56.93
Exercised		(399,844	)		23.57
Forfeited		(1,878	)		40.40
Outstanding, end of period		1,257,135			34.53

	Three Months Ended March 31, 2021
				Weighted Average
	Options (#)			Exercise Price (per share)
Outstanding, beginning of period		944,886		$	36.71
Granted		34,395			110.42
Exercised		(87,658	)		31.97
Forfeited		(1,560	)		51.57
Outstanding, end of period		890,063			40.00

Volatility	~~32.5~~35.3	%
Dividend yield	0	%
Life (in years)	4.0
Risk-free interest rate	~~1.1~~0.4	%

	Three Months Ended March 31, 2021
				Weighted Average Grant
	#			Date Fair Value (per unit)
Outstanding, beginning of period		738,422		$	52.37
Granted		236,504			99.10
Vested and common stock issued		(286,888	)		38.58
Forfeited		(6,077	)		54.98
Outstanding, end of period		681,961			74.36

	Six Months Ended June 30, 2020
				Weighted Average Grant
	(#)			Date Fair Value (per share)
Outstanding, beginning of period		797,546		$	38.80
Granted		258,980			57.66
Vested and common stock issued		(198,882	)		34.44
Forfeited		(151,185	)		28.28
Outstanding, end of period		706,459			49.20

	Three Months Ended
	March 31,
(In thousands, except share data)	2021		2020
Amounts for shares purchased	$	105	$	87
Shares purchased		1,621		2,015

Volatility	~~30.6~~58.7	%
Dividend yield	0	%
Life (in years)	0.5
Risk-free interest rate	~~1.6~~0.2	%

	Three Months Ended
	March 31,
(In thousands, except Margin and Adjusted EBITDA Margin)	2021			2020
Revenue	$	90,094		$	74,192

Net income		10,200			9,515
Margin		11	%		13	%

Adjusted EBITDA		25,457			20,356
Adjusted EBITDA Margin		28	%		27	%

	Six Months Ended June 30,
	2020						2019					Change
(dollars in thousands)				% of revenue					% of revenue			$			%
Revenues	$	149,765			100.0	%	$	135,463		100.0	%	$	14,302			10.6	%
Cost of revenues		47,870			32.0			45,067		33.3			2,803			6.2
Gross profit		101,895			68.0			90,396		66.7			11,499			12.7
Operating expenses
Sales and marketing		36,910			24.6			35,467		26.2			1,443			4.1
Research and development		15,034			10.0			12,701		9.4			2,333			18.4
General and administrative		24,652			16.5			22,949		16.9			1,703			7.4
Amortization of intangible assets		2,652			1.8			2,570		1.9			82			3.2
Total operating expenses		79,248			52.9			73,687		54.4			5,561			7.5
Income from operations		22,647			15.1			16,709		12.3			5,938			35.5
Other income (expense)
Interest income, net		866			0.6			1,390		1.0			(524	)		(37.7	)
Other income, net		1			—			193		0.1			(192	)		(99.5	)
Change in earn-out liability		(72	)		—			344		0.3			(416	)		(120.9	)
Total other income, net		795			0.5			1,927		1.4			(1,132	)		(58.7	)
Income before income taxes		23,442			15.6			18,636		13.7			4,806			25.8
Income tax expense		2,733			1.8			3,027		2.2			(294	)		(9.7	)
Net income	$	20,709			13.8	%	$	15,609		11.5	%	$	5,100			32.7	%

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Program ⁽¹⁾		Approximate Dollar Value of Shares that May Yet be Purchased Under the Program ⁽¹⁾
April 1 - 30, 2020		82,000	$	49.50		82,000	$	33,941,000
May 1 - 31, 2020		49,627		58.25		49,627		31,050,000
June 1 - 30, 2020		—		—		—		31,050,000
Total second quarter 2020		131,627	$	52.80		131,627	$	31,050,000

Number		Description

3.1		Ninth Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.2 to our Current Report on Form 8-K ~~(File No. 001-34702)~~ filed with the SEC on May 21, 2020).

3.2		Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K ~~(File No. 001-34702)~~ filed with the SEC on October 17, 2017).

31.1		Certification of Principal Executive Officer pursuant to Rules 13a-14(a) under the Securities Exchange Act of 1934, as amended (filed herewith).

31.2		Certification of Principal Financial Officer pursuant to Rules 13a-14(a) under the Securities Exchange Act of 1934, as amended (filed herewith).

32.1		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

101		Interactive Data Files Pursuant to Rule 405 of Regulation S-T (filed herewith). The XBRL instance document does not appear in the Interactive Data File because its tags are embedded within the Inline XBRL document.

104		The cover page from the Quarterly Report on Form 10-Q for the quarter ended ~~June 30, 2020,~~March 31, 2021, formatted in Inline XBRL.

Dated: ~~July 30, 2020~~April 29, 2021		SPS COMMERCE, INC.

		/s/ KIMBERLY K. NELSON
		Kimberly K. Nelson
		Executive Vice President and Chief Financial Officer
		(principal financial and accounting officer)

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company