UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒
x			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended: June 30, ~~2021~~

2022

☐
o			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from ________ to

________

Commission file number 001-34702

SPS COMMERCE, INC.

(Exact Name of Registrant as Specified in its Charter)

~~Delaware~~	~~41-2015127~~
Delaware		41-2015127
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

333 South Seventh Street, Suite 1000, Minneapolis, MN 55402

(Address of principal executive offices, including Zip Code)

(612) 435-9400

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

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)

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 ☒ xNo ☐o

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 ☒ xNo ☐o

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.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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. ☐o

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

The number of shares of the registrant’s common stock, par value $0.001 per share, outstanding at July ~~22, 2021~~20, 2022 was ~~35,831,643~~36,015,159 shares.

Table of Contents

SPS COMMERCE, INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

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.


SPS COMMERCE, INC.			2			Form 10-Q for the Quarterly Period ended June 30, ~~2021~~ 2022

Table of Contents

PART I. – FINANCIAL INFORMATION

Item 1.~~Financial~~ Financial Statements

SPS COMMERCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

June 30,

December 31,

(In thousands, except shares)

2021

2020

ASSETS

(unaudited)

CURRENT ASSETS

Cash and cash equivalents

$
184,367

$
149,692

Short-term investments

48,999

37,786

Accounts receivable

42,191

37,811

Allowance for credit losses

(4,255
)

(4,233
)
Accounts receivable, net

37,936

33,578

Deferred costs

40,149

37,988

Other assets

11,711

12,312

Total current assets

323,162

271,356

PROPERTY AND EQUIPMENT, less accumulated depreciation of $67,074 and $59,152, respectively

29,046

26,432

OPERATING LEASE RIGHT-OF-USE ASSETS

13,352

15,581

GOODWILL

135,354

134,853

INTANGIBLE ASSETS, net

54,950

60,230

INVESTMENTS

—

2,500

OTHER ASSETS

Deferred costs, non-current

13,692

12,607

Deferred income tax assets

246

194

Other assets, non-current

2,476

2,705

Total assets

$
572,278

$
526,458

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES

Accounts payable

$
5,942

$
5,354

Accrued compensation

27,469

22,872

Accrued expenses

5,221

11,161

Deferred revenue

48,845

37,947

Operating lease liabilities

3,960

2,798

Total current liabilities

91,437

80,132

OTHER LIABILITIES

Deferred revenue, non-current

4,991

2,996

Operating lease liabilities, non-current

17,733

19,672

Deferred income tax liabilities

3,368

2,937

Total liabilities

117,529

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; 110,000,000 shares authorized; 37,536,118 and 37,100,467 shares issued; and 35,859,353 and 35,487,217 outstanding, respectively

38

37

Treasury stock, at cost; 1,676,765 and 1,613,250 shares, respectively

(71,697
)

(65,247
)
Additional paid-in capital

413,182

393,462

Retained earnings

113,873

93,490

Accumulated other comprehensive loss

(647
)

(1,021
)
Total stockholders’ equity

454,749

420,721

Total liabilities and stockholders’ equity

$
572,278

$
526,458


(in thousands, except shares)	June 30, 2022		December 31, 2021
ASSETS	(unaudited)
Current assets
Cash and cash equivalents	$	212,725	$	207,552
Short-term investments	46,513		49,758
Accounts receivable	44,559		38,811
Allowance for credit losses	(4,454)		(4,249)
Accounts receivable, net	40,105		34,562
Deferred costs	48,294		44,529
Other assets	17,912		16,042
Total current assets	365,549		352,443
Property and equipment, net	32,000		31,901
Operating lease right-of-use assets	9,578		10,851
Goodwill	142,960		143,663
Intangible assets, net	53,597		58,587
Other assets
Deferred costs, non-current	16,371		15,191
Deferred income tax assets	191		182
Other assets, non-current	2,530		3,028
Total assets	$	622,776	$	615,846
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	4,442	$	8,330
Accrued compensation	25,855		31,661
Accrued expenses	7,508		8,345
Deferred revenue	59,093		50,428
Operating lease liabilities	4,341		4,108
Total current liabilities	101,239		102,872
Other liabilities
Deferred revenue, non-current	5,281		5,144
Operating lease liabilities, non-current	14,239		16,426
Deferred income tax liabilities	4,997		7,145
Total liabilities	125,756		131,587
Commitments and contingencies	0		0
Stockholders' equity
Preferred stock, $0.001 par value; 5,000,000 shares authorized; 0 shares issued and outstanding	—		—
Common stock, $0.001 par value; 110,000,000 shares authorized; 38,074,026 and 37,798,610 shares issued; and 36,029,477 and 36,009,257 shares outstanding, respectively	38		38
Treasury Stock, at cost; 2,044,549 and 1,789,353 shares, respectively	(115,900)		(85,677)
Additional paid-in capital	453,922		433,258
Retained earnings	161,443		138,087
Accumulated other comprehensive loss	(2,483)		(1,447)
Total stockholders’ equity	497,020		484,259
Total liabilities and stockholders’ equity	$	622,776	$	615,846

See accompanying notes to these condensed consolidated financial statements.


SPS COMMERCE, INC.			3			Form 10-Q for the Quarterly Period ended June 30, ~~2021~~ 2022

Table of Contents

SPS COMMERCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	Three Months Ended						Six Months Ended
	June 30,						June 30,							Three Months Ended June 30,				Six Months Ended June 30,
(In thousands, except per share amounts) (Unaudited)	2021			2020			2021			2020
(in thousands, except per share amounts) (unaudited)													(in thousands, except per share amounts) (unaudited)	2022		2021		2022		2021
Revenues	$	94,539		$	75,573		$	184,633		$	149,765		Revenues	$	109,178	$	94,539	$	214,371	$	184,633
Cost of revenues		31,730			24,326			61,700			47,870		Cost of revenues	37,530		31,730		72,919		61,700
Gross profit		62,809			51,247			122,933			101,895		Gross profit	71,648		62,809		141,452		122,933
Operating expenses													Operating expenses
Sales and marketing		21,952			18,611			43,307			36,910		Sales and marketing	24,582		21,952		49,237		43,307
Research and development		8,899			7,466			17,605			15,034		Research and development	11,432		8,899		22,133		17,605
General and administrative		15,758			12,743			30,495			24,652		General and administrative	17,198		15,758		32,666		30,495
Amortization of intangible assets		2,671			1,316			5,335			2,652		Amortization of intangible assets	2,468		2,671		4,938		5,335
Total operating expenses		49,280			40,136			96,742			79,248		Total operating expenses	55,680		49,280		108,974		96,742
Income from operations		13,529			11,111			26,191			22,647		Income from operations	15,968		13,529		32,478		26,191
Other income (expense), net		(383	)		1,468			(708	)		795
Other expense, net													Other expense, net	(1,338)		(383)		(915)		(708)
Income before income taxes		13,146			12,579			25,483			23,442		Income before income taxes	14,630		13,146		31,563		25,483
Income tax expense		2,963			1,385			5,100			2,733		Income tax expense	3,877		2,963		8,207		5,100
Net income	$	10,183		$	11,194		$	20,383		$	20,709		Net income	$	10,753	$	10,183	$	23,356	$	20,383
Other comprehensive income (expense)													Other comprehensive income (expense)
Foreign currency translation adjustments		172			2,116			364			(1,748	)	Foreign currency translation adjustments	(1,743)		172		(1,013)		364
Unrealized gain (loss) on investments, net of tax of ($12), $3, ($27) and $26, respectively		(35	)		7			(80	)		78
Reclassification of (gain) loss on investments into earnings, net of tax of $11, ($27), $30 and ($53), respectively		33			(79	)		90			(158	)
Unrealized loss on investments, net of tax of ($3), ($12), ($4) and $(27), respectively													Unrealized loss on investments, net of tax of ($3), ($12), ($4) and $(27), respectively	(8)		(35)		(11)		(80)
Reclassification of (gain) loss on investments into earnings, net of tax of $(8), $11, $(4) and $30, respectively													Reclassification of (gain) loss on investments into earnings, net of tax of $(8), $11, $(4) and $30, respectively	(23)		33		(12)		90
Total other comprehensive income (expense)		170			2,044			374			(1,828	)	Total other comprehensive income (expense)	(1,774)		170		(1,036)		374
Comprehensive income	$	10,353		$	13,238		$	20,757		$	18,881		Comprehensive income	$	8,979	$	10,353	$	22,320	$	20,757

Net income per share													Net income per share
Basic	$	0.28		$	0.32		$	0.57		$	0.59		Basic	$	0.30	$	0.28	$	0.65	$	0.57
Diluted	$	0.28		$	0.31		$	0.55		$	0.58		Diluted	$	0.29	$	0.28	$	0.63	$	0.55

Weighted average common shares used to compute net income per share													Weighted average common shares used to compute net income per share
Basic		35,903			35,030			35,828			35,051		Basic	36,085		35,903		36,110		35,828
Diluted		36,753			36,016			36,741			35,995		Diluted	36,862		36,753		36,897		36,741

See accompanying notes to these condensed consolidated financial statements.


SPS COMMERCE, INC.			4			Form 10-Q for the Quarterly Period ended June 30, ~~2021~~ 2022

Table of Contents

SPS COMMERCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY


	Common Stock			Treasury Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Stockholders' Equity
(in thousands, except shares) (unaudited)	Shares	Amount		Shares	Amount
Balances, March 31, 2021	35,861,584	$	37	1,613,250	$	(65,247)	$	402,860	$	103,690	$	(817)	$	440,523
Stock-based compensation	—	—		—	—		7,014		—		—		7,014
Shares issued pursuant to stock awards	36,756	1		—	—		1,227		—		—		1,228
Employee stock purchase plan activity	24,528	—		—	—		2,081		—		—		2,081
Repurchases of common stock	(63,515)	—		63,515	(6,450)		—		—		—		(6,450)
Net income	—	—		—	—		—		10,183		—		10,183
Foreign currency translation adjustments	—	—		—	—		—		—		172		172
Unrealized loss on investments, net of tax	—	—		—	—		—		—		(35)		(35)
Reclassification of loss on investments into earnings, net of tax	—	—		—	—		—		—		33		33
Balances, June 30, 2021	35,859,353	$	38	1,676,765	$	(71,697)	$	413,182	$	113,873	$	(647)	$	454,749

Balances, March 31, 2022	36,120,518	$	38	1,910,897	$	(100,903)	$	442,405	$	150,690	$	(709)	$	491,521
Stock-based compensation	—	—		—	—		8,128		—		—		8,128
Shares issued pursuant to stock awards	9,274	—		—	—		186		—		—		186
Employee stock purchase plan activity	33,337	—		—	—		3,203		—		—		3,203
Repurchases of common stock	(133,652)	—		133,652	(14,997)		—		—		—		(14,997)
Net income	—	—		—	—		—		10,753		—		10,753
Foreign currency translation adjustments	—	—		—	—		—		—		(1,743)		(1,743)
Unrealized loss on investments, net of tax	—	—		—	—		—		—		(8)		(8)
Reclassification of gain on investments into earnings, net of tax	—	—		—	—		—		—		(23)		(23)
Balances, June 30, 2022	36,029,477	$	38	2,044,549	$	(115,900)	$	453,922	$	161,443	$	(2,483)	$	497,020

																Accumulated
											Additional					Other			Total				Common Stock			Treasury Stock			Additional Paid-in Capital				Retained Earnings		Accumulated Other Comprehensive Loss		Total Stockholders' Equity
	Common Stock					Treasury Stock					Paid-in		Retained			Comprehensive			Stockholders'				Shares	Amount		Shares	Amount								Accumulated Other Comprehensive Loss		Total Stockholders' Equity
(In thousands, except shares) (Unaudited)	Shares			Amount		Shares		Amount			Capital		Earnings			Loss			Equity
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																						Balances, December 31, 2020	35,487,217	$	37	1,613,250	$	(65,247)	Additional Paid-in Capital		$	393,462	Retained Earnings		$	93,490	$	(1,021)	$	420,721
Stock-based compensation		—			—		—		—			4,628		—			—			4,628		Stock-based compensation	—	—		—	—		13,505				—		—		13,505
Exercise of stock options and issuance of restricted stock		233,852			1		—		—			5,742		—			—			5,743
Employee stock purchase plan		31,068			—		—		—			1,463		—			—			1,463
Repurchases of common stock		(131,627	)		—		131,627		(6,950	)		—		—			—			(6,950	)
Net income		—			—		—		—			—		11,194			—			11,194
Foreign currency translation adjustments		—			—		—		—			—		—			2,116			2,116
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

Balances, March 31, 2021		35,861,584		$	37		1,613,250	$	(65,247	)	$	402,860	$	103,690		$	(817	)	$	440,523
Stock-based compensation		—			—		—		—			7,014		—			—			7,014
Exercise of stock options and issuance of restricted stock		36,756			1		—		—			1,227		—			—			1,228
Employee stock purchase plan		24,528			—		—		—			2,081		—			—			2,081
Shares issued pursuant to stock awards																						Shares issued pursuant to stock awards	409,502	1		—	—		4,029				—		—		4,030
Employee stock purchase plan activity																						Employee stock purchase plan activity	26,149	—		—	—		2,186				—		—		2,186
Repurchases of common stock		(63,515	)		—		63,515		(6,450	)		—		—			—			(6,450	)	Repurchases of common stock	(63,515)	—		63,515	(6,450)		—				—		—		(6,450)
Net income		—			—		—		—			—		10,183			—			10,183		Net income	—	—		—	—		—				20,383		—		20,383
Foreign currency translation adjustments		—			—		—		—			—		—			172			172		Foreign currency translation adjustments	—	—		—	—		—				—		364		364
Unrealized loss on investments, net of tax		—			—		—		—			—		—			(35	)		(35	)	Unrealized loss on investments, net of tax	—	—		—	—		—				—		(80)		(80)
Reclassification of loss on investments into earnings, net of tax		—			—		—		—			—		—			33			33		Reclassification of loss on investments into earnings, net of tax	—	—		—	—		—				—		90		90
Balances, June 30, 2021		35,859,353		$	38		1,676,765	$	(71,697	)	$	413,182	$	113,873		$	(647	)	$	454,749		Balances, June 30, 2021	35,859,353	$	38	1,676,765	$	(71,697)	$	413,182			$	113,873	$	(647)	$	454,749

																Accumulated
											Additional					Other			Total
	Common Stock					Treasury Stock					Paid-in		Retained			Comprehensive			Stockholders'
	Shares			Amount		Shares		Amount			Capital		Earnings			Loss			Equity
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

Balances, December 31, 2020		35,487,217		$	37		1,613,250	$	(65,247	)	$	393,462	$	93,490		$	(1,021	)	$	420,721
Balances, December 31, 2021																						Balances, December 31, 2021	36,009,257	$	38	1,789,353	$	(85,677)	$	433,258			$	138,087	$	(1,447)	$	484,259
Stock-based compensation		—			—		—		—			13,505		—			—			13,505		Stock-based compensation	—	—		—	—		16,624				—		—		16,624
Shares issued pursuant to stock awards		409,502			1		—		—			4,029		—			—			4,030		Shares issued pursuant to stock awards	240,381	—		—	—		690				—		—		690
Employee stock purchase plan		26,149			—		—		—			2,186		—			—			2,186
Employee stock purchase plan activity																						Employee stock purchase plan activity	35,035	—		—	—		3,350				—		—		3,350
Repurchases of common stock		(63,515	)		—		63,515		(6,450	)		—		—			—			(6,450	)	Repurchases of common stock	(255,196)	—		255,196	(30,223)		—				—		—		(30,223)
Net income		—			—		—		—			—		20,383			—			20,383		Net income	—	—		—	—		—				23,356		—		23,356
Foreign currency translation adjustments		—			—		—		—			—		—			364			364		Foreign currency translation adjustments	—	—		—	—		—				—		(1,013)		(1,013)
Unrealized loss on investments, net of tax		—			—		—		—			—		—			(80	)		(80	)	Unrealized loss on investments, net of tax	—	—		—	—		—				—		(11)		(11)
Reclassification of loss on investments into earnings, net of tax		—			—		—		—			—		—			90			90
Balances, June 30, 2021		35,859,353		$	38		1,676,765	$	(71,697	)	$	413,182	$	113,873		$	(647	)	$	454,749
Reclassification of gain on investments into earnings, net of tax																						Reclassification of gain on investments into earnings, net of tax	—	—		—	—		—				—		(12)		(12)
Balances, June 30, 2022																						Balances, June 30, 2022	36,029,477	$	38	2,044,549	$	(115,900)	$	453,922			$	161,443	$	(2,483)	$	497,020

See accompanying notes to these condensed consolidated financial statements.


SPS COMMERCE, INC.			5			Form 10-Q for the Quarterly Period ended June 30, ~~2021~~ 2022

Table of Contents

SPS COMMERCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Six Months Ended
	June 30,							Six Months Ended June 30,
(In thousands) (Unaudited)	2021			2020
(in thousands) (unaudited)							(in thousands) (unaudited)	2022		2021
Cash flows from operating activities							Cash flows from operating activities
Net income	$	20,383		$	20,709		Net income	$	23,356	$	20,383
Reconciliation of net income to net cash provided by operating activities							Reconciliation of net income to net cash provided by operating activities
Deferred income taxes		351			1,443		Deferred income taxes	(2,160)		351
Change in earn-out liability		—			72
Depreciation and amortization of property and equipment		7,294			6,276		Depreciation and amortization of property and equipment	7,814		7,294
Amortization of intangible assets		5,335			2,652		Amortization of intangible assets	4,938		5,335
Provision for credit losses		2,831			3,020		Provision for credit losses	2,634		2,831
Stock-based compensation		14,424			9,353		Stock-based compensation	17,676		14,424
Other, net		170			(129	)	Other, net	8		170
Changes in assets and liabilities							Changes in assets and liabilities
Accounts receivable		(6,945	)		(7,071	)	Accounts receivable	(7,862)		(6,945)
Deferred costs		(3,338	)		275		Deferred costs	(5,095)		(3,338)
Other current and non-current assets		(1,201	)		3,141		Other current and non-current assets	(1,423)		(1,201)
Accounts payable		(147	)		321		Accounts payable	(3,234)		(147)
Accrued compensation		3,246			(6,166	)	Accrued compensation	(7,186)		3,246
Accrued expenses		(2,087	)		(964	)	Accrued expenses	(805)		(2,087)
Deferred revenue		12,893			4,705		Deferred revenue	8,802		12,893
Operating leases		1,449			(842	)	Operating leases	(678)		1,449
Net cash provided by operating activities		54,658			36,795		Net cash provided by operating activities	36,785		54,658
Cash flows from investing activities							Cash flows from investing activities
Purchases of property and equipment		(8,738	)		(8,396	)	Purchases of property and equipment	(8,191)		(8,738)
Purchases of investments		(44,034	)		(55,144	)	Purchases of investments	(114,603)		(44,034)
Maturities of investments		35,000			31,050		Maturities of investments	117,500		35,000
Net cash used in investing activities		(17,772	)		(32,490	)	Net cash used in investing activities	(5,294)		(17,772)
Cash flows from financing activities							Cash flows from financing activities
Repurchases of common stock		(6,450	)		(18,950	)	Repurchases of common stock	(30,223)		(6,450)
Net proceeds from exercise of options to purchase common stock		4,030			9,426		Net proceeds from exercise of options to purchase common stock	690		4,030
Net proceeds from employee stock purchase plan		2,186			1,550		Net proceeds from employee stock purchase plan	3,350		2,186
Payments for contingent consideration		(2,042	)		(688	)	Payments for contingent consideration	—		(2,042)
Net cash used in financing activities		(2,276	)		(8,662	)	Net cash used in financing activities	(26,183)		(2,276)
Effect of foreign currency exchange rate changes		65			(45	)	Effect of foreign currency exchange rate changes	(135)		65
Net increase (decrease) in cash and cash equivalents		34,675			(4,402	)
Net increase in cash and cash equivalents							Net increase in cash and cash equivalents	5,173		34,675
Cash and cash equivalents at beginning of period		149,692			179,252		Cash and cash equivalents at beginning of period	207,552		149,692
Cash and cash equivalents at end of period	$	184,367		$	174,850		Cash and cash equivalents at end of period	$	212,725	$	184,367

See accompanying notes to these condensed consolidated financial statements.


SPS COMMERCE, INC.			6			Form 10-Q for the Quarterly Period ended June 30, ~~2021~~ 2022

Table of Contents

SPS COMMERCE, INC. AND SUBSIDIARIES

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE A – General

Business Description

SPS Commerce is a leading provider of cloud-based supply chain management ~~solutions that~~ services across our global retail network. Our products 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~~omnichannel retail channels. ~~For many businesses, implementing~~ SPS Commerce delivers our products using a full-service model whereby our internal experts monitor, update, and ~~maintaining a suite of supply chain management capabilities is resource-intensive and not a core competency.~~ boost network performance on our customers’ behalf.

The ~~solutions~~services 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~~The services we provide 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~~to help ensure that suppliers, grocers, distributors, and logistics firms can satisfy exacting retailer requirements.

Basis of Presentation

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.

This interim financial information 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. Therefore, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the Securities and Exchange Commission (“SEC”). 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.~~presented. 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, 2020, as filed with the Securities and Exchange Commission (“SEC”).

~~Business Combinations~~

In December 2020, we acquired all of the outstanding equity ownership interests of D Masons Software, LLC (“Data Masons”). As of December 31, 2020 and June 30, 2021, the purchase accounting for the acquisition is not finalized.Provisional amounts are primarily related to intangible assets and tax positions. We expect to finalize the allocation of the purchase price within the one-year measurement period following the acquisition. During the three months ended March 31, 2021, the only change in the purchase accounting was a $0.3 million reduction of amounts due from the seller as part of the initial net working capital adjustment and a corresponding increase to goodwill. During the three months ended June 30, 2021, there was no change in the purchase accounting and the net working capital amount was finalized and collected without change from the amount recorded at March 31, 2021.

Use of Estimates

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.

~~Recently Issued and Adopted Accounting Pronouncements~~

For the six months ended June 30, 2021, there were no newly adopted accounting pronouncements. As of June 30, 2021, there are no recently issued but not yet adopted accounting pronouncements that are expected to materially impact our consolidated financial statements.

Significant Accounting Policies

There were no material changes in our significant accounting policies during the six months ended June 30, ~~2021.~~2022. See Note A to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, ~~2020,~~2021, as filed with the SEC, for additional information regarding our significant accounting policies.

Accounting Pronouncements Not Yet Adopted

Standard

Date of Issuance

Description

Date of Required Adoption

Effect on the Financial Statements

ASU 2021-08, Business Combinations (Topic 805) - Accounting for Contract Assets and Contract Liabilities from Contracts with Customers

October 2021

This amendment requires that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, effective for all business combinations in the year of adoption and thereafter.

January 2023

The adoption of this standard may have a material impact on the purchase accounting for business combinations depending on the specific amount of contract assets and liabilities being acquired.


SPS COMMERCE, INC.			7			Form 10-Q for the Quarterly Period ended June 30, ~~2021~~ 2022

Table of Contents

NOTE B – Revenue

We derive our revenues from the following revenue streams:

	Three Months Ended				Six Months Ended
	June 30,				June 30,					Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	2021		2020		2021		2020
(in thousands)									(in thousands)	2022		2021		2022		2021
Recurring revenues:									Recurring revenues:
Fulfillment	$	75,228	$	60,745	$	146,632	$	119,848	Fulfillment	$	87,887	$	75,228	$	172,618	$	146,632
Analytics		10,381		9,247		20,525		18,983	Analytics	11,648		10,381		22,944		20,525
Other		1,331		1,221		2,584		2,420	Other	1,628		1,331		3,168		2,584
Recurring Revenues		86,940		71,213		169,741		141,251
Recurring revenues									Recurring revenues	101,163		86,940		198,730		169,741
One-time revenues		7,599		4,360		14,892		8,514	One-time revenues	8,015		7,599		15,641		14,892
	$	94,539	$	75,573	$	184,633	$	149,765
Total revenue									Total revenue	$	109,178	$	94,539	$	214,371	$	184,633

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

~~We determine revenue recognition through the following steps:~~

~~Identification of the contract, or contracts, with a customer~~

~~Identification of the performance obligations in the contract~~

~~Determination of the transaction price~~

~~Allocation of the transaction price to the performance obligations in the contract~~

~~Recognition of revenue when, or as, we satisfy a performance obligation~~

Recurring Revenues

Recurring revenues consist of recurring subscriptions from customers that utilize our Fulfillment, Analytics, and Other ~~cloud-based~~ supply chain management ~~solutions.~~products. Revenue for these ~~solutions~~products 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, generally 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 generally are either in advance or within 30 days of the service being performed.

~~The deferred revenue liability for~~

Given that the recurring revenue contracts are for one year or less, ~~and recognized on a ratable basis over the contract term. We~~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.~~

recurring revenue contracts.

One-time Revenues

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

fees from customers.

Set-up revenues

Set-up fees are specific for each connection a customer has with a trading ~~partner~~partner. These nonrefundable fees are necessary for our customers to utilize our services and ~~many~~do not provide any standalone value. 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~~that provide customers a significant future incentive that would not be otherwise be available to ~~them~~that customer unless they entered into the contract, as the set-up fees will not be incurred again upon contract renewal.

~~SPS COMMERCE, INC.~~

~~Form 10-Q for the Quarterly Period ended June 30, 2021~~

~~Table of Contents~~

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 As such, 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.~~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
	June 30,						June 30,							Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	2021			2020			2021			2020
(in thousands)													(in thousands)	2022		2021		2022		2021
Balance, beginning of period	$	12,102		$	10,572		$	11,118		$	10,518		Balance, beginning of period	$	14,938	$	12,102	$	14,459	$	11,118
Invoiced set-up fees		4,343			2,748			8,210			5,467		Invoiced set-up fees	4,058		4,343		8,061		8,210
Amortized set-up fees		(3,101	)		(2,687	)		(5,984	)		(5,352	)
Recognized set-up fees													Recognized set-up fees	(3,687)		(3,101)		(7,211)		(5,984)
Balance, end of period	$	13,344		$	10,633		$	13,344		$	10,633		Balance, end of period	$	15,309	$	13,344	$	15,309	$	13,344


SPS COMMERCE, INC.			8			Form 10-Q for the Quarterly Period ended June 30, 2022

Table of Contents

The entire balance of deferred set-up fees will be recognized within two ~~years and, as such, current amounts~~years. Those that will be recognized inwithin the next ~~1-12 months and long-term amounts will be recognized in~~year are classified as current, whereas the ~~next 13-24 months.~~

remainder are classified as non-current.

Miscellaneous one-time revenues

Miscellaneous one-time fees consist of professional services and testing and certification.

The ~~deferred revenue liability~~contract period for these one-time fees ~~are~~is 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 miscellaneous one-time fee contracts ~~which~~since they have original durations of one year or less.

NOTE C – Deferred Costs

The ~~deferred costs and amortization of~~ deferred costs activity was as follows:

	Three Months Ended						Six Months Ended
	June 30,						June 30,							Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	2021			2020			2021			2020
(in thousands)													(in thousands)	2022		2021		2022		2021
Balance, beginning of period	$	51,540		$	46,936		$	50,595		$	46,941		Balance, beginning of period	$	62,610	$	51,540	$	59,720	$	50,595
Incurred deferred costs		16,036			12,350			29,463			25,071		Incurred deferred costs	17,637		16,036		35,418		29,463
Amortized deferred costs		(13,735	)		(12,637	)		(26,217	)		(25,363	)	Amortized deferred costs	(15,582)		(13,735)		(30,473)		(26,217)
Balance, end of period	$	53,841		$	46,649		$	53,841		$	46,649		Balance, end of period	$	64,665	$	53,841	$	64,665	$	53,841

NOTE D – Financial Instruments

~~We invest primarily in money market funds, certificates of deposit, highly liquid debt instruments~~

Cash Equivalents and Investments

Cash equivalents and investments consisted of the United States (“U.S.”) government and U.S. corporate debt securities. All investments with remaining maturities of less than one year from the balance sheet date are classified as short-term 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), net in the condensed consolidated statements of comprehensive income. Certain securities accrue interest that is included in other income (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), net in the condensed consolidated statements of comprehensive income.

following:


	June 30, 2022						December 31, 2021
(in thousands)	Amortized Cost		Unrealized Losses, net		Fair Value		Amortized Cost		Unrealized Gains (Losses), net		Fair Value
Cash equivalents:
Money market funds	$	138,729	$	—	$	138,729	$	138,205	$	—	$	138,205
Certificates of deposit	6,904		—		6,904		7,268		—		7,268
Marketable securities:
Commercial paper	39,634		(25)		39,609		34,984		7		34,991
U.S. treasury securities	—		—		—		7,500		(1)		7,499
	$	185,267	$	(25)	$	185,242	$	187,957	$	6	$	187,963


SPS COMMERCE, INC.			9			Form 10-Q for the Quarterly Period ended June 30, ~~2021~~ 2022

Table of Contents

~~Cash equivalents and investments consisted of the following:~~

June 30, 2021

December 31, 2020

(In thousands)

Amortized Cost

Unrealized Gains (Losses), net

Fair Value

Amortized Cost

Unrealized Losses, net

Fair Value

Cash equivalents:

Money market funds

$
138,102

$
—

$
138,102

$
112,907

$
—

$
112,907

Certificates of deposit

7,494

—

7,494

7,708

—

7,708

Marketable securities:

Corporate bonds

12,564

(55
)

12,509

5,069

(29
)

5,040

Commercial paper

14,996

2

14,998

7,569

(55
)

7,514

U.S. treasury securities

14,043

(45
)

13,998

20,051

(27
)

20,024

$
187,199

$
(98
)

$
187,101

$
153,304

$
(111
)

$
153,193

Maturing within one year

$
187,101

$
150,693

Maturing within one to two years

—

2,500

Total

$
187,101

$
153,193

Recurring Fair Value Measurements

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

basis:

	June 30, 2021								December 31, 2020
(In thousands)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
																		June 30, 2022								December 31, 2021
(in thousands)																	(in thousands)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:																	Assets:
Cash equivalents:																	Cash equivalents:
Money market funds	$	138,102	$	—	$	—	$	138,102	$	112,907	$	—	$	—	$	112,907	Money market funds	$	138,729	$	—	$	—	$	138,729	$	138,205	$	—	$	—	$	138,205
Certificates of deposit		7,494		—		—		7,494		7,708		—		—		7,708	Certificates of deposit	6,904		—		—		6,904		7,268		—		—		7,268
Marketable securities:																	Marketable securities:
Corporate bonds		—		12,509		—		12,509		—		5,040		—		5,040
Commercial paper		—		14,998		—		14,998		—		7,514		—		7,514	Commercial paper	—		39,609		—		39,609		—		34,991		—		34,991
U.S. treasury securities		—		13,998		—		13,998		—		20,024		—		20,024	U.S. treasury securities	—		—		—		—		—		7,499		—		7,499
	$	145,596	$	41,505	$	—	$	187,101	$	120,615	$	32,578	$	—	$	153,193		$	145,633	$	39,609	$	—	$	185,242	$	145,473	$	42,490	$	—	$	187,963

Liabilities:
Contingent consideration	$	—	$	—	$	—	$	—	$	—	$	—	$	1,878	$	1,878
	$	—	$	—	$	—	$	—	$	—	$	—	$	1,878	$	1,878

See Note E to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, ~~2020,~~2021, as filed with the SEC, for additional information regarding the three levels of inputs that may be used to measure fair value.

For the contingent consideration liability, related to the Data Masons acquisition, we were required to pay the former owners of Data Masons $1.9 million in the event the Paycheck Protection Program (“PPP”) Loan (“PPP Loan”) acquired in the acquisition was forgiven in full. In the three months ended June 30, 2021, the Small Business Administration approved the full forgiveness of the PPP Loan and, accordingly, the payment of the $1.9 million contingent liability was made.

~~SPS COMMERCE, INC.~~

~~Form 10-Q for the Quarterly Period ended June 30, 2021~~

~~Table of Contents~~

NOTE E – Allowance for Credit Losses

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

	Six Months Ended
	June 30,							Six Months Ended June 30,
(In thousands)	2021			2020
(in thousands)							(in thousands)	2022		2021
Balance, beginning of period	$	4,233		$	1,469		Balance, beginning of period	$	4,249	$	4,233
Adoption of ASU 2016-13		—			1,069
Provision for credit losses		2,831			3,020		Provision for credit losses	2,634		2,831
Write-offs, net of recoveries		(2,809	)		(1,895	)	Write-offs, net of recoveries	(2,429)		(2,809)
Balance, end of period	$	4,255		$	3,663		Balance, end of period	$	4,454	$	4,255

NOTE F – ~~Goodwill~~Property and ~~Intangible Assets,~~Equipment, Net

Property and equipment, net

~~Goodwill~~

~~The changes in the net carrying amount~~ consisted of ~~goodwill were as follows:~~

Six Months Ended

June 30,

(In thousands)

2021

2020

Balance, beginning of period

$
134,853

$
76,845

Remeasurement from provisional purchase accounting amount

268

—

Foreign currency translation adjustments

233

(962
)
Balance, end of period

$
135,354

$
75,883

~~Intangible Assets~~

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


(in thousands)	June 30, 2022		December 31, 2021
Internally developed software	$	47,230	$	44,981
Computer equipment	31,305		29,329
Leasehold improvements	16,650		16,685
Office equipment and furniture	10,929		10,972
Property and equipment, cost	106,114		101,967
Less: accumulated depreciation and amortization	(74,114)		(70,066)
Total property and equipment, net	$	32,000	$	31,901

June 30, 2021

Gross

Foreign

Carrying

Accumulated

Currency

(In thousands)

Amount

Amortization

Translation

Net

Subscriber relationships

$
54,870

$
(27,781
)

$
(639
)

$
26,450

Non-competition agreements

708

(708
)

—

—

Acquired technology

33,216

(4,716
)

—

28,500

$
88,794

$
(33,205
)

$
(639
)

$
54,950

December 31, 2020

Gross

Foreign

Carrying

Accumulated

Currency

(In thousands)

Amount

Amortization

Translation

Net

Subscriber relationships

$
54,447

$
(24,792
)

$
101

$
29,756

Non-competition agreements

698

(691
)

(4
)

3

Acquired technology

33,195

(2,724
)

—

30,471

$
88,340

$
(28,207
)

$
97

$
60,230


SPS COMMERCE, INC.			11 10			Form 10-Q for the Quarterly Period ended June 30, ~~2021~~ 2022

Table of Contents

NOTE G – Goodwill and Intangible Assets, Net

Goodwill

The activity in goodwill was as follows:


	Six Months Ended June 30,
(in thousands)	2022		2021
Balance, beginning of period	$	143,663	$	134,853
Foreign currency translation	(703)		233
Remeasurement from provisional purchase accounting amount	—		268
Balance, end of period	$	142,960	$	135,354

Intangible Assets

Intangible assets, net consisted of the following:


	June 30, 2022
($ in thousands)	Gross Carrying Amount		Accumulated Amortization		Foreign Currency Translation		Net		Weighted Average Remaining Amortization Period
Subscriber relationships	$	61,142	$	(33,964)	$	(51)	$	27,127	6.0 years
Acquired technology	35,327		(8,857)		—		26,470		6.3 years
	$	96,469	$	(42,821)	$	(51)	$	53,597	6.2 years


	December 31, 2021
($ in thousands)	Gross Carrying Amount		Accumulated Amortization		Foreign Currency Translation		Net		Weighted Average Remaining Amortization Period
Subscriber relationships	$	61,270	$	(29,866)	$	(1,395)	$	30,009	6.4 years
Acquired technology	35,316		(6,738)		—		28,578		6.8 years
	$	96,586	$	(36,604)	$	(1,395)	$	58,587	6.6 years

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

(In thousands)
Remainder of 2021	$	4,627
2022		8,856

(in thousands)			(in thousands)
Remainder of 2022			Remainder of 2022	$	4,924
2023		8,778	2023	9,777
2024		7,476	2024	8,534
2025		7,337	2025	8,396
2026			2026	7,392
Thereafter		17,876	Thereafter	14,573
	$	54,950
Total future amortization			Total future amortization	$	53,597

~~NOTE G – Other Assets~~

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

Three Months Ended

Six Months Ended

June 30,

June 30,

(In thousands)

2021

2020

2021

2020

Balance, beginning of period

$
1,170

$
1,188

$
1,181

$
1,166

Capitalized implementation fees

52

29

98

80

Amortization of implementation fees

(279
)

(29
)

(336
)

(58
)
Balance, end of period

$
943

$
1,188

$
943

$
1,188

~~NOTE H – Commitments and Contingencies~~

~~Leases~~

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

June 30, 2021

December 31, 2020

(In thousands, except remaining term)

Remaining Term (years)

Right-of-Use Asset

Remaining Term (years)

Right-of-Use Asset

Minneapolis, MN lease

6

$
9,544

6

$
10,992

Kyiv, Ukraine lease

4

1,732

4

1,930

Other leases

<1 - 5

2,076

<1 - 5

2,659

$
13,352

$
15,581

Some of our leases 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.

~~The components of lease expense were as follows:~~

Three Months Ended

Six Months Ended

June 30,

June 30,

(In thousands)

2021

2020

2021

2020

Operating lease cost

$
896

$
773

$
1,436

$
1,368

Variable lease cost

950

909

1,718

1,801

$
1,846

$
1,682

$
3,154

$
3,169


SPS COMMERCE, INC.			12 11			Form 10-Q for the Quarterly Period ended June 30, ~~2021~~ 2022

Table of Contents

NOTE H – Commitments and Contingencies

Leases

The components of lease expense were as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2022		2021		2022		2021
Operating lease cost	$	740	$	896	$	1,499	$	1,436
Variable lease cost	856		950		1,649		1,718
	$	1,596	$	1,846	$	3,148	$	3,154

Supplemental cash flow information related to leases was as follows:

	Six Months Ended
	June 30,					Six Months Ended June 30,
(In thousands)	2021		2020
(in thousands)					(in thousands)	2022		2021
Cash paid for amounts included in the measurement of lease liabilities					Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	1,204	$	2,278	Operating cash flows from operating leases	$	2,176	$	1,204
ROU assets obtained in exchange for operating lease liabilities		—		330

Supplemental balance sheet information related to operating leases was as follows:

June 30, 2021

December 31, 2020

Weighted-average remaining lease term - operating leases

5.3 years

5.6 years

Weighted-average discount rate - operating leases

4.1
%

4.1
%


	June 30, 2022		December 31, 2021
Weighted-average remaining lease term	4.4 years		4.8 years
Weighted-average discount rate	4.0	%	4.0	%

At June 30, ~~2021,~~2022, our future minimum payments under operating leases were as follows:

(In thousands)
Remainder of 2021	$	2,467
2022		4,689

(in thousands)				(in thousands)
Remainder of 2022				Remainder of 2022	$	2,478
2023		4,422		2023	4,690
2024		4,064		2024	4,278
2025		3,715		2025	3,874
2026				2026	3,770
Thereafter		4,849		Thereafter	1,268
		24,206
Total future gross payments				Total future gross payments	$	20,358
Less: imputed interest		(2,513	)	Less: imputed interest	(1,778)
	$	21,693
Total operating lease liabilities				Total operating lease liabilities	$	18,580

Purchase Commitments

We have entered into separate noncancelable agreements with computing infrastructure and customer relationship management vendors for services through 2023. At June 30, ~~2021,~~2022, the total remaining purchase commitments were ~~$13.7~~$6.0 million.

~~NOTE I – Stockholders’ Equity~~

~~Stock Repurchase Program~~

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 June 30, 2021, we repurchased 63,515 shares at a cost of $6.4 million. As of June 30, 2021, $24.6 million of the share repurchase program was available for future share repurchases.


SPS COMMERCE, INC.			13 12			Form 10-Q for the Quarterly Period ended June 30, ~~2021~~ 2022

Table of Contents

NOTE I – Stockholders’ Equity

Share Repurchase Programs

Our board of directors has authorized multiple non-concurrent programs to repurchase our common stock. Details of the programs and activity thereunder were as follows:


(in thousands)	Effective Date	Expiration Date	Share Value Authorized for Repurchase		Share Value Repurchased		Unused & Expired Share Repurchase Value		Share Value Available for Future Repurchase
2019 Program	November 2019	November 2021	$	50,000	$	29,611	$	20,389	N/A
2021 Program	November 2021	November 2023	50,000		39,992		N/A		$	10,008

On July 26, 2022, our board of directors authorized a new share repurchase program ("2022 Program"), effective August 26, 2022, that allows up to $50.0 million of common stock to be repurchased, expiring in July 2024. The 2021 Program will terminate on the effective date of the 2022 Program.

The share repurchase activity by period was as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands, except per share amounts)	2022		2021		2022		2021
Shares repurchased cost	$	14,997	$	6,450	$	30,223	$	6,450
Number of shares repurchased	133,652		63,515		255,196		63,515

Average price per repurchased share	$	112.21	$	101.55	$	118.43	$	101.55

NOTE J – Stock-Based Compensation

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 (“PSUs”), restricted stock awards (“RSAs”), restricted stock units (“RSUs”), and deferred stock units (“DSUs”)., to employees, non-employee directors and other consultants who provide services to us. We also ~~have~~provide an employee stock purchase plan (“ESPP”). and 401(k) match to eligible participants.

We recognize stock-based compensation expense based on grant date award fair value. This cost is recognized over the period for which the employee is required to provide service in exchange for the award or the award performance period, except for ~~expense~~expenses relating to retirement-eligible employees that have not given their required notice, which is recognized on a pro-rata basis over the notice period prior to retirement. At June 30, ~~2021,~~2022, there were ~~13.6~~approximately 13.2 million shares available for grant under approved equity compensation plans.

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

	Three Months Ended				Six Months Ended
	June 30,				June 30,					Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	2021		2020		2021		2020
(in thousands)									(in thousands)	2022		2021		2022		2021
Cost of revenues	$	1,746	$	956	$	3,249	$	1,764	Cost of revenues	$	2,152	$	1,746	$	4,331	$	3,249
Operating expenses									Operating expenses
Sales and marketing		1,738		1,010		3,220		1,856	Sales and marketing	1,958		1,738		3,990		3,220
Research and development		1,106		883		2,017		1,806	Research and development	1,380		1,106		2,854		2,017
General and administrative		2,909		2,160		5,938		3,927	General and administrative	3,171		2,909		6,501		5,938
	$	7,499	$	5,009	$	14,424	$	9,353		$	8,661	$	7,499	$	17,676	$	14,424


SPS COMMERCE, INC.			13			Form 10-Q for the Quarterly Period ended June 30, 2022

Table of Contents

Stock-based compensation expense by grant type or plan ~~type~~ was as follows:

	Three Months Ended				Six Months Ended
	June 30,				June 30,					Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	2021		2020		2021		2020
(in thousands)									(in thousands)	2022		2021		2022		2021
Stock options	$	522	$	540	$	1,074	$	1,134	Stock options	$	463	$	522	$	940	$	1,074
PSUs		1,931		1,096		4,016		1,792	PSUs	2,004		1,931		4,703		4,016
RSUs		4,115		2,672		7,536		5,001	RSUs	5,094		4,115		9,732		7,536
RSAs & DSUs		110		107		217		234	RSAs & DSUs	110		110		218		217
ESPP		336		213		662		435	ESPP	458		336		1,032		662
401(k) stock match		485		381		919		757	401(k) stock match	532		485		1,051		919
	$	7,499	$	5,009	$	14,424	$	9,353		$	8,661	$	7,499	$	17,676	$	14,424

As of June 30, ~~2021,~~2022, there was ~~$37.6~~$44.0 million of unrecognized stock-based compensation expense under our equity compensation plans, which is expected to be recognized on a primarily straight-line basis over a weighted average period of 2.6 years.

Stock Options

Our stock option activity was as follows:

	Six Months Ended June 30, 2021
				Weighted Average			Six Months Ended June 30, 2022
	Options (#)			Exercise Price (per share)			Options (#)	Weighted Average Exercise Price ($/share)
Outstanding, beginning of period		944,886		$	36.71	Outstanding, beginning of period	678,650	$	44.76
Granted		51,730			104.73	Granted	47,171	122.36
Exercised		(119,734	)		33.65	Exercised	(18,404)	37.52
Forfeited		(3,243	)		61.78	Forfeited	(3,759)	85.84
Outstanding, end of period		873,639			41.07	Outstanding, end of period	703,658	$	49.93

~~SPS COMMERCE, INC.~~

~~Form 10-Q for the Quarterly Period ended June 30, 2021~~

~~Table of Contents~~

Of the total outstanding options at June 30, ~~2021, 0.7~~2022, 0.6 million were exercisable. The outstanding and exercisable options had a weighted average exercise price of ~~$34.39~~$41.52 per share and a weighted average remaining contractual life of ~~3.2~~3.0 years.

The weighted average grant date fair value of options granted during the six months ended June 30, ~~2021~~2022 was ~~$30.96~~$40.78 per share. This was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:

~~Volatility~~	~~35.4~~	%
~~Dividend yield~~			0	%
Life (in years)			~~4.4~~4.3
Volatility	37.4		%
Dividend yield	—
Risk-free interest rate	2.2			~~0.6~~	%

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

In each of the quarters ended March 31, 2022, 2021, 2020, ~~2019,~~ and ~~2018~~2019 we granted PSU awards with a target performance level. These awards are earned based upon ~~the~~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 year of grant. ~~Awards~~Earned awards vest in the quarter following the conclusion of the performance period. In the three months ended March 31, ~~2021,~~ 2022,


SPS COMMERCE, INC.			14			Form 10-Q for the Quarterly Period ended June 30, 2022

Table of Contents

PSU awards granted in ~~2018~~2019 vested at the maximum performance level and less than 0.1 million shares of common stock were issued.

~~Our~~ ~~PSU, RSU, RSA,~~

Activity for our PSUs, RSUs, RSAs, and ~~DSU activity~~DSUs in aggregate was as follows:


	Six Months Ended June 30, 2022
	#	Weighted Average Grant Date Fair Value ($/share)
Outstanding, beginning of period	702,160	$	78.03
Granted	241,902	126.60
Vested and common stock issued	(220,002)	62.49
Forfeited	(16,123)	95.03
Outstanding, end of period	707,937	$	99.07

Six Months Ended June 30, 2021

Weighted Average Grant

#

Date Fair Value (per unit)

Outstanding, beginning of period

738,422

$
52.37

Granted

272,813

99.62

Vested and common stock issued

(288,058
)

40.78

Forfeited

(10,529
)

61.12

Outstanding, end of period

712,648

75.01

The number of PSUs, RSUs, RSAs, and DSUs outstanding at June 30, 2022 included less than 0.1 million units that have vested, but the shares of common stock have not yet been issued, pursuant to the terms of the underlying agreements.

Employee Stock Purchase Plan

Our ESPP activity was as follows:

Three Months Ended

Six Months Ended

June 30,

June 30,

(In thousands, except share data)

2021

2020

2021

2020

Amounts for shares purchased

$
2,081

$
1,463

$
2,186

$
1,550

Shares purchased

24,528

31,068

26,149

33,083


	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands, except shares)	2022		2021		2022		2021
Amounts for shares purchased	$	3,203	$	2,081	$	3,350	$	2,186
Shares purchased	33,337		24,528		35,035		26,149

A total of 1.8 million shares of common stock are reserved for issuance under the ESPP as of June 30, ~~2021.~~

2022.

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:

~~Volatility~~	~~31.7~~	%
~~Dividend yield~~			0	%
Life (in years)			0.5
Volatility	37.4		%
Dividend yield	—
Risk-free interest rate	0.2			~~0.1~~	%

~~SPS COMMERCE, INC.~~

~~Form 10-Q for the Quarterly Period ended June 30, 2021~~

~~Table of Contents~~

NOTE K – Income Taxes

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 includes current federal, state, and foreign income tax expense, as well as deferred tax expense.


SPS COMMERCE, INC.			15			Form 10-Q for the Quarterly Period ended June 30, 2022

Table of ~~June 30, 2021, we did 0t have any unrecognized tax benefits, accrued interest, or tax penalties.~~

Contents

NOTE L – Other Income and Expense

Other ~~income (expense),~~expense, net included the following:

Three Months Ended

Six Months Ended

June 30,

June 30,

(In thousands)

2021

2020

2021

2020

Investment income

$
79

$
332

$
176

$
972

Realized gain (loss) from foreign currency on cash and investments held

(349
)

1,370

(638
)

127

Other expense, net

(113
)

(234
)

(246
)

(232
)
Change in earn-out liability

—

—

—

(72
)

$
(383
)

$
1,468

$
(708
)

$
795


	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2022		2021		2022		2021
Investment income	$	172	$	79	$	220	$	176
Realized loss from foreign currency on cash and investments held	(1,327)		(349)		(859)		(638)
Other expense, net	(183)		(113)		(276)		(246)
Total other expense, net	$	(1,338)	$	(383)	$	(915)	$	(708)

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 and six months ended June 30, 2020 have been reclassified to be consistent with the classifications for the three and six months ended June 30, 2021.

NOTE M – Net Income Per Share

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 components and computation of basic and diluted net income per share were as follows:

	Three Months Ended				Six Months Ended
	June 30,				June 30,					Three Months Ended June 30,				Six Months Ended June 30,
(In thousands, except per share amounts)	2021		2020		2021		2020
(in thousands, except per share amounts)									(in thousands, except per share amounts)	2022		2021		2022		2021
Numerator									Numerator
Net income	$	10,183	$	11,194	$	20,383	$	20,709	Net income	$	10,753	$	10,183	$	23,356	$	20,383
Denominator									Denominator
Weighted average common shares outstanding, basic		35,903		35,030		35,828		35,051	Weighted average common shares outstanding, basic	36,085		35,903		36,110		35,828
Options to purchase common stock		505		581		536		588	Options to purchase common stock	391		505		405		536
PSUs, RSUs, RSAs, and DSUs		345		405		377		356	PSUs, RSUs, RSAs, and DSUs	386		345		382		377
Weighted average common shares outstanding, diluted		36,753		36,016		36,741		35,995	Weighted average common shares outstanding, diluted	36,862		36,753		36,897		36,741
Net income per share									Net income per share
Basic	$	0.28	$	0.32	$	0.57	$	0.59	Basic	$	0.30	$	0.28	$	0.65	$	0.57
Diluted	$	0.28	$	0.31	$	0.55	$	0.58	Diluted	$	0.29	$	0.28	$	0.63	$	0.55

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

anti-dilutive was as follows:


	Three Months Ended June 30,		Six Months Ended June 30,
(in thousands)	2022	2021	2022	2021
Anti-dilutive shares	242	129	211	93


SPS COMMERCE, INC.			16			Form 10-Q for the Quarterly Period ended June 30, ~~2021~~ 2022

Table of Contents

Three Months Ended

Six Months Ended

June 30,

June 30,
(in thousands)

2021

2020

2021

2020
Antidilutive shares

129

206

93

195

NOTE N – Geographic Information

Revenue

The ~~following table presents~~percentage of domestic revenue, which we define as the percentage of consolidated revenue that was attributable to customers based within the U.S. ~~NaN~~, was as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Domestic revenue	84	%	84	%	84	%	84	%

No single jurisdiction outside of the U.S. had revenues in excess of 10%.

Three Months Ended

Six Months Ended

June 30,

June 30,

2021

2020

2021

2020

Domestic revenue

84
%

85
%

84
%

85
%

At ~~June 30, 2021~~Property and ~~2020, 14% and 9%, respectively,~~Equipment

The percentage of property and equipment, net ~~was~~ located at subsidiary and office locations outside of the U.S.

was as follows:


	June 30, 2022		December 31, 2022
International property and equipment	13	%	12	%

NOTE O - Subsequent Events

Business Acquisitions

Effective July 19, 2022, we acquired all of the outstanding equity ownership interests of GCommerce, Inc., a leading EDI provider within the automotive aftermarket industry. Pursuant to the definitive agreement, the purchase price of approximately $45 million was paid in cash at closing, and is subject to post-closing adjustments.

Stockholders' Equity

See Note I for information regarding the authorization of a new share repurchase program on July 26, 2022.


SPS COMMERCE, INC.			17			Form 10-Q for the Quarterly Period ended June 30, ~~2021~~ 2022

Table of Contents

~~Item 2.~~

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

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,~~“assume,” “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, ~~2020,~~2021, 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.~~time. 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.

Overview

SPS Commerce is a leading provider of cloud-based ~~solutions that~~ supply chain management services across our global retail network. Our products 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~~omnichannel retail channels. SPS Commerce delivers our products using a full-service model whereby our internal experts monitor, update, and boost network performance on our customers’ behalf.

The ~~solutions~~services 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~~The services we provide enable our ~~revenues from numerous monthly recurring subscriptions from businesses~~customers to increase their supply cycle agility, optimize their inventory levels and sell-through, reduce operational costs and gain increased visibility into customer orders, to help ensure that ~~utilize our solutions.~~

suppliers, grocers, distributors, and logistics firms can satisfy exacting retailer requirements.

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~~products 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, 2021, our revenues were $94.5 million, an increase of 25% from the comparable period in 2020, and represented our 82nd consecutive quarter of increased revenues. Total operating expenses increased 23% for the same period in 2021 from 2020.

Key Financial Terms, Metrics and ~~Metrics~~

Non-GAAP Measures

We have several key financial terms and metrics, ~~including annualized average recurring revenues per recurring revenue customer. Beginning in 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, ~~2020,~~2021, as filed with the ~~SEC.~~

SEC, under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

To supplement our financial statements, we provide investors with Adjusted EBITDA, Adjusted EBITDA Margin, and non-GAAP income per share, all of which are non-GAAP financial measures. We believe that these non-GAAP measures provide useful information to our management, board of directors, 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~~our 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 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.”


SPS COMMERCE, INC.			18			Form 10-Q for the Quarterly Period ended June 30, ~~2021~~ 2022

Table of Contents

Results of Operations

Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021

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


	Three Months Ended June 30,
	2022				2021				Change
(dollars in thousands)	$		% of revenue(1)		$		% of revenue(1)		$		%
Revenues	$	109,178	100.0	%	$	94,539	100.0	%	$	14,639	15.5	%
Cost of revenues	37,530		34.4		31,730		33.6		5,800		18.3
Gross profit	71,648		65.6		62,809		66.4		8,839		14.1
Operating expenses
Sales and marketing	24,582		22.5		21,952		23.2		2,630		12.0
Research and development	11,432		10.5		8,899		9.4		2,533		28.5
General and administrative	17,198		15.8		15,758		16.7		1,440		9.1
Amortization of intangible assets	2,468		2.3		2,671		2.8		(203)		(7.6)
Total operating expenses	55,680		51.0		49,280		52.1		6,400		13.0
Income from operations	15,968		14.6		13,529		14.3		2,439		18.0
Other expense, net	(1,338)		(1.2)		(383)		(0.4)		(955)		249.4
Income before income taxes	14,630		13.4		13,146		13.9		1,484		11.3
Income tax expense	3,877		3.6		2,963		3.1		914		30.8
Net income	$	10,753	9.8	%	$	10,183	10.8	%	$	570	5.6	%

(1) Amounts in column may not foot due to rounding

Revenues - Revenues increased for the 86th consecutive quarter. The increase in revenue resulted from two primary factors: the increase in recurring revenue customers, which is driven primarily by continued business growth and by business acquisitions, and the increase in average recurring revenues per recurring revenue customer, which we also refer to as wallet share.

•The number of recurring revenue customers increased 12% to 38,650 at June 30, 2022 from 34,550 at June 30, 2021 primarily due to sales and marketing efforts to acquire new customers and due to recent acquisitions.

•Wallet share increased 4% to $10,550 for the three months ended June 30, 2022 from $10,150 for the same period in 2021. This was primarily attributable to increased usage of our products by our recurring revenue customers.

Recurring revenues increased 16% to $101.2 million for the three months ended June 30, 2022 compared to the three months ended June 30, 2021. Recurring revenues from recurring revenue customers accounted for 93% and 92% of our total revenues for the three months ended June 30, 2022 and 2021, respectively. We anticipate that the number of recurring revenue customers and wallet share will continue to increase as we execute our growth strategy focused on further penetrations of our market.

Cost of Revenues -The increase in cost of revenues was primarily due to increased headcount, which resulted in an increase of $4.7 million in personnel-related costs and an increase of $0.5 million in software subscriptions.

Sales and Marketing Expenses -The increase in sales and marketing expense was primarily due to increased headcount, which resulted in an increase of $2.0 million in personnel-related costs.

Research and Development Expenses - The increase in research and development expense was primarily due to increased headcount, which resulted in an increase of $2.1 million in personnel-related costs.


SPS COMMERCE, INC.			19			Form 10-Q for the Quarterly Period ended June 30, 2022

Table of Contents

General and Administrative Expenses - The increase in general and administrative expense was primarily related to supporting continued business growth, including an increase in headcount which resulted in an increase in personnel-related costs of $0.8 million. Additionally, there was an increase in professional fees of $0.8 million, which was offset by a decrease of $0.8 million in charitable contributions.

Amortization of Intangible Assets -The decrease in amortization of intangible assets was driven by the full amortization of previously acquired intangible assets as partially offset by acquired intangible assets related to recent business combinations.

Other Expense, Net -The increase in net other expenses was primarily due to unfavorable foreign currency exchange rate changes.

Income Tax Expense -The increase in income tax expense was primarily driven by a decrease in the excess tax deductions due to the current quarter equity award settlements. 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 income tax expense, depreciation and amortization expense, stock-based compensation expense, realized gain or loss from foreign currency on cash and investments held, investment income or loss, and other adjustments as necessary for a fair presentation.

For the three months ended June 30, 2021,other adjustments included disposals of cloud hosting arrangement implementation costs.

The following table provides a reconciliation of net income to Adjusted EBITDA:


	Three Months Ended June 30,
(in thousands)	2022		2021
Net income	$	10,753	$	10,183
Income tax expense	3,877		2,963
Depreciation and amortization of property and equipment	3,950		3,529
Amortization of intangible assets	2,468		2,671
Stock-based compensation expense	8,661		7,499
Realized loss from foreign currency on cash and investments held	1,327		349
Investment income	(172)		(79)
Other	—		213
Adjusted EBITDA	$	30,864	$	27,328


SPS COMMERCE, INC.			20			Form 10-Q for the Quarterly Period ended June 30, 2022

Table of Contents

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:


	Three Months Ended June 30,
(in thousands, except Margin and Adjusted EBITDA Margin)	2022			2021
Revenue	$	109,178		$	94,539

Net income	10,753			10,183
Margin	10		%	11		%

Adjusted EBITDA	30,864			27,328
Adjusted EBITDA Margin	28		%	29		%

Non-GAAP Income per Share - Non-GAAP income per share, which is a non-GAAP measure of financial performance, consists of net income plus stock-based compensation expense, amortization expense related to intangible assets, realized gain or loss from foreign currency on cash and investments held, other adjustments as necessary for a fair presentation, and the corresponding tax impacts of the adjustments to net income, divided by the weighted average number of shares of common and diluted stock outstanding during each period.

For the three months ended June 30, 2021, other adjustments included disposals of cloud hosting arrangement implementation costs.

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

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


	Three Months Ended June 30,
(in thousands, except per share amounts)	2022		2021
Net income	$	10,753	$	10,183
Stock-based compensation expense	8,661		7,499
Amortization of intangible assets	2,468		2,671
Realized loss from foreign currency on cash and investments held	1,327		349
Other	—		213
Income tax effects of adjustments	(3,491)		(3,999)
Non-GAAP income	$	19,718	$	16,916
Shares used to compute non-GAAP income per share
Basic	36,085		35,903
Diluted	36,862		36,753
Non-GAAP income per share
Basic	$	0.55	$	0.47
Diluted	$	0.53	$	0.46


SPS COMMERCE, INC.			21			Form 10-Q for the Quarterly Period ended June 30, 2022

Table of Contents

Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021

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


	Six Months Ended June 30,
	2022				2021				Change
(dollars in thousands)	$		% of revenue(1)		$		% of revenue(1)		$		%
Revenues	$	214,371	100.0	%	$	184,633	100.0	%	$	29,738	16.1	%
Cost of revenues	72,919		34.0		61,700		33.4		11,219		18.2
Gross profit	141,452		66.0		122,933		66.6		18,519		15.1
Operating expenses
Sales and marketing	49,237		23.0		43,307		23.5		5,930		13.7
Research and development	22,133		10.3		17,605		9.5		4,528		25.7
General and administrative	32,666		15.2		30,495		16.5		2,171		7.1
Amortization of intangible assets	4,938		2.3		5,335		2.9		(397)		(7.4)
Total operating expenses	108,974		50.8		96,742		52.4		12,232		12.6
Income from operations	32,478		15.2		26,191		14.2		6,287		24.0
Other expense, net	(915)		(0.4)		(708)		(0.4)		(207)		29.2
Income before income taxes	31,563		14.7		25,483		13.8		6,080		23.9
Income tax expense	8,207		3.8		5,100		2.8		3,107		60.9
Net income	$	23,356	10.9	%	$	20,383	11.0	%	$	2,973	14.6	%

(1) Amounts in column may not foot due to rounding

Revenues- The increase in revenue resulted from two primary factors: the increase in recurring revenue customers, which is driven primarily by continued business growth and by business acquisitions, and the increase in average recurring revenues per recurring revenue customer, which we also refer to as wallet share.

•The number of recurring revenue customers increased 12% to 38,650 at June 30, 2022 from 34,550 at June 30, 2021.

•Wallet share increased 4% to $10,450 for the six months ended June 30, 2022 from $10,100 for the same period in 2021. The increase was primarily attributable to increased usage of our solutions by our recurring revenue customers.

Recurring revenues increased 17% to $198.7 million for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. Recurring revenues from recurring revenue customers accounted for 93% and 92% of our total revenues for the six months ended June 30, 2022 and 2021, respectively. We anticipate that the number of recurring revenue customers and wallet share will continue to increase as we execute our growth strategy focused on further penetrations of our market.

Cost of Revenues -The increase in cost of revenues was primarily due to increased headcount, which resulted in an increase of $8.4 million in personnel-related costs, an increase of $1.1 million in stock-based compensation, and an increase of $1.0 million of software subscriptions. Additionally, as we continued to invest in the infrastructure supporting our platform, depreciation expense increased by $0.8 million.

Sales and Marketing Expenses -The increase in sales and marketing expense was primarily due to increased headcount, which resulted in an increase of $3.7 million in personnel-related costs, an increase of $0.8 million in stock-based compensation, and an increase of $0.7 million in variable compensation earned by sales personnel.

Research and Development Expenses - The increase in research and development expense was primarily due to increased headcount, which resulted in an increase of $3.2 million in personnel-related costs, an increase of $0.8 million in stock-based compensation, and an increase of $0.6 million in software subscriptions.


SPS COMMERCE, INC.			22			Form 10-Q for the Quarterly Period ended June 30, 2022

Table of Contents

General and Administrative Expenses - The increase in general and administrative expense was primarily related to supporting continued business growth, including an increase in headcount, which resulted in an increase in personnel-related costs of $1.6 million and an increase in stock-based compensation of $0.6 million. This was partially offset by a decrease of $1.3 million in charitable contributions.

Other Expense, Net -The increase in net other expenses was primarily due to unfavorable foreign currency exchange rate changes.

Income Tax Expense - The increase in income tax expense was primarily driven by a decrease in the excess tax deductions due to the current period equity award settlements, partially offset by a decrease in nondeductible executive compensation. 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 income tax expense, depreciation and amortization expense, stock-based compensation expense, realized gain or loss from foreign currency on cash and investments held, investment income or loss, and other adjustments as necessary for a fair presentation.

For the six months ended June 30, 2021, other adjustments included disposals of cloud hosting arrangement implementation costs and accelerated tenant improvement benefit, which was incurred as part of executing a lease agreement. This tenant improvement adjustment was partially offset by accelerated depreciation, which is included within Depreciation and amortization of property and equipment and was also incurred as part of executing a lease agreement.

The following table provides a reconciliation of net income to Adjusted EBITDA:


	Six Months Ended June 30,
(in thousands)	2022		2021
Net income	$	23,356	$	20,383
Income tax expense	8,207		5,100
Depreciation and amortization of property and equipment	7,814		7,294
Amortization of intangible assets	4,938		5,335
Stock-based compensation expense	17,676		14,424
Realized loss from foreign currency on cash and investments held	859		638
Investment income	(220)		(176)
Other	—		(213)
Adjusted EBITDA	$	62,630	$	52,785

The following table provides a comparison of Margin to Adjusted EBITDA Margin:


SPS COMMERCE, INC.			23			Form 10-Q for the Quarterly Period ended June 30, 2022

Table of Contents


	Six Months Ended June 30,
(in thousands, except Margin and Adjusted EBITDA Margin)	2022			2021
Revenue	$	214,371		$	184,633

Net income	23,356			20,383
Margin	11		%	11		%

Adjusted EBITDA	62,630			52,785
Adjusted EBITDA Margin	29		%	29		%

Non-GAAP Income per Share - Non-GAAP income per share, which is a non-GAAP measure of financial performance,consists of net income plus stock-based compensation expense, amortization expense related to intangible assets, realized gain or loss from foreign currency on cash and investments held, other adjustments as necessary for a fair presentation, and the corresponding tax impacts of the adjustments to net income, divided by the weighted average number of shares of common and diluted stock outstanding during each period.

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


	Six Months Ended June 30,
(in thousands, except per share amounts)	2022		2021
Net income	$	23,356	$	20,383
Stock-based compensation expense	17,676		14,424
Amortization of intangible assets	4,938		5,335
Realized loss from foreign currency on cash and investments held	859		638
Other	—		(213)
Income tax effects of adjustments	(6,710)		(7,974)
Non-GAAP income	$	40,119	$	32,593
Shares used to compute non-GAAP income per share
Basic	36,110		35,828
Diluted	36,897		36,741
Non-GAAP income per share
Basic	$	1.11	$	0.91
Diluted	$	1.09	$	0.89

Critical Accounting Policies and Estimates

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, and expenses and related disclosures. On an ongoing basis,


SPS COMMERCE, INC.			24			Form 10-Q for the Quarterly Period ended June 30, 2022

Table of Contents

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 or estimate 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 six months ended June 30, ~~2020,~~2022, there were no changes in our critical accounting policies or estimates.~~See Note A to~~ For additional information regarding our ~~condensed consolidated financial statements~~critical accounting policies and estimates, see the discussion under "Critical Accounting Policies and Estimates" in "Management's Discussion and Analysis of Financial Condition and Results of Operations" included ~~in this Quarterly Report on Form 10-Q and~~ in our Annual Report on Form 10-K for the year ended December 31, ~~2020,~~2021, as filed with the ~~SEC, for additional information regarding our accounting policies.~~

~~Results of Operations~~

~~Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020~~

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

Three Months Ended June 30,

2021

2020

Change

(dollars in thousands)

% of revenue

% of revenue

$

%

Revenues

$
94,539

100.0
%

$
75,573

100.0
%

$
18,966

25.1
%
Cost of revenues

31,730

33.6

24,326

32.2

7,404

30.4

Gross profit

62,809

66.4

51,247

67.8

11,562

22.6

Operating expenses

Sales and marketing

21,952

23.2

18,611

24.6

3,341

18.0

Research and development

8,899

9.4

7,466

9.9

1,433

19.2

General and administrative

15,758

16.7

12,743

16.9

3,015

23.7

Amortization of intangible assets

2,671

2.8

1,316

1.7

1,355

103.0

Total operating expenses

49,280

52.1

40,136

53.1

9,144

22.8

Income from operations

13,529

14.3

11,111

14.7

2,418

21.8

Other income (expense), net

(383
)

(0.4
)

1,468

1.9

(1,851
)

(126.1
)
Income before income taxes

13,146

13.9

12,579

16.6

567

4.5

Income tax expense

2,963

3.1

1,385

1.8

1,578

113.9

Net income

$
10,183

10.8
%

$
11,194

14.8
%

$
(1,011
)

(9.0
)%

~~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.

•

~~The number of recurring revenue customers increased 10% to 34,550 at June 30, 2021 from 31,450 at June 30, 2020.~~

SEC.

•

Wallet share increased 12% to $10,150 for the three months ended June 30, 2021 from $9,100 for the same period in 2020. The increase was primarily attributable to increased usage of our solutions by our recurring revenue customers.

Recurring revenues from recurring revenue customers accounted for 92% and 94% of our total revenues for the three months ended June 30, 2021 and 2020, 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 -~~The increase in cost of revenues for the three months ended June 30, 2021 was primarily due to increased headcount which resulted in an increase of $6.1 million in personnel-related costs and an increase of $0.8 million in stock-based compensation. Additionally, as we continued to invest in the infrastructure supporting our platform, depreciation expense increased by $0.4 million.

~~SPS COMMERCE, INC.~~

~~Form 10-Q for the Quarterly Period ended June 30, 2021~~

~~Table of Contents~~

~~Sales and Marketing Expenses -~~The increase in sales and marketing expense for the three months ended June 30, 2021 was primarily due to an increase of $1.4 million in variable compensation earned by sales personnel and referral partners. Additionally, an increase of $1.2 million in personnel-related costs and an increase of $0.7 million in stock-based compensation contributed to the overall increase.

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

~~General and Administrative Expenses~~ - The increase in general and administrative expense for the three months ended June 30, 2021 was driven by increases in personnel-related costs of $1.5 million and stock-based compensation of $0.7 million. Additionally, an increase of $0.4 million in software subscriptions contributed to the overall increase.

~~Amortization of Intangible Assets -The increase in amortization of intangible assets was driven by the amortization of the acquired intangible assets related to Data Masons, which we acquired in December 2020.~~

~~Other Income (Expense), Net -The change in other expense, net of $0.4 million, compared to the other income, net of $1.5 million in the prior year period, was primarily due to larger foreign currency exchange losses.~~

~~Income Tax Expense -~~The increase in income tax expense was primarily due to an increase in nondeductible executive compensation as well as a decrease in both the discrete tax benefits from stock activity and research and development credits. 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.

Three Months Ended

June 30,

(In thousands)

2021

2020

Net income

$
10,183

$
11,194

Depreciation and amortization of property and equipment

3,529

3,138

Amortization of intangible assets

2,671

1,316

Investment income

(79
)

(332
)
Realized (gain) loss from foreign currency on cash and investments held

349

(1,370
)
Income tax expense

2,963

1,385

Stock-based compensation expense

7,499

5,009

Other

213

82

Adjusted EBITDA

$
27,328

$
20,422

~~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:

Three Months Ended

June 30,

(In thousands, except Margin and Adjusted EBITDA Margin)

2021

2020

Revenue

$
94,539

$
75,573

Net income

10,183

11,194

Margin

11
%

15
%

Adjusted EBITDA

27,328

20,422

Adjusted EBITDA Margin

29
%

27
%

~~SPS COMMERCE, INC.~~

~~Form 10-Q for the Quarterly Period ended June 30, 2021~~

~~Table of Contents~~

~~Non-GAAP Income per Share.~~Non-GAAP income per share, which is a non-GAAP measure of financial performance, consists of net income adjusted for stock-based compensation expense, amortization expense related to intangible assets, realized 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 include the expense impact of the disposal of certain capitalized internally developed software and cloud hosting arrangement implementation costs. To quantify the tax effects, we recalculated income tax expense excluding the direct book and tax effects of the specific items constituting the non-GAAP adjustments. The difference between this recalculated income tax expense and GAAP income tax expense is presented as the income tax effect of the non-GAAP adjustments.

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

Three Months Ended

June 30,

(In thousands, except per share amounts)

2021

2020

Net income

$
10,183

$
11,194

Stock-based compensation expense

7,499

5,009

Amortization of intangible assets

2,671

1,316

Realized (gain) loss from foreign currency on cash and investments held

349

(1,370
)
Other

213

82

Income tax effects of adjustments

(3,999
)

(2,886
)
Non-GAAP income

$
16,916

$
13,345

Shares used to compute non-GAAP income per share

Basic

35,903

35,030

Diluted

36,753

36,016

Non-GAAP income per share

Basic

$
0.47

$
0.38

Diluted

$
0.46

$
0.37

~~Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020~~

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

Six Months Ended June 30,

2021

2020

Change

% of revenue

% of revenue

$

%

Revenues

$
184,633

100.0
%

$
149,765

100.0
%

$
34,868

23.3
%
Cost of revenues

61,700

33.4

47,870

32.0

13,830

28.9

Gross profit

122,933

66.6

101,895

68.0

21,038

20.6

Operating expenses

Sales and marketing

43,307

23.5

36,910

24.6

6,397

17.3

Research and development

17,605

9.5

15,034

10.0

2,571

17.1

General and administrative

30,495

16.5

24,652

16.5

5,843

23.7

Amortization of intangible assets

5,335

2.9

2,652

1.8

2,683

101.2

Total operating expenses

96,742

52.4

79,248

52.9

17,494

22.1

Income from operations

26,191

14.2

22,647

15.1

3,544

15.6

Other income (expense), net

(708
)

(0.4
)

795

0.5

(1,503
)

(189.1
)
Income before income taxes

25,483

13.8

23,442

15.6

2,041

8.7

Income tax expense

5,100

2.8

2,733

1.8

2,367

86.6

Net income

$
20,383

11.0
%

$
20,709

13.8
%

$
(326
)

(1.6
)%

•

~~The number of recurring revenue customers increased 10% to 34,550 at June 30, 2021 from 31,450 at June 30, 2020.~~

•

Wallet share increased 11% to $10,100 for the six months ended June 30, 2021 from $9,100 for the same period in 2020. The increase was primarily attributable to increased usage of our solutions by our recurring revenue customers.

~~SPS COMMERCE, INC.~~

~~Form 10-Q for the Quarterly Period ended June 30, 2021~~

~~Table of Contents~~

Recurring revenues from recurring revenue customers accounted for 92% and 94% of our total revenues for the six months ended June 30, 2021 and 2020, 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 -~~The increase in cost of revenues for the six months ended June 30, 2021 was primarily due to increased headcount which resulted in an increase of $11.4 million in personnel-related costs and an increase of $1.5 million in stock-based compensation. Additionally, as we continued to invest in the infrastructure supporting our platform, depreciation expense increased by $0.8 million.

~~Sales and Marketing Expenses -~~The increase in sales and marketing expense for the six months ended June 30, 2021 was primarily due to an increase of $2.4 million in variable compensation earned by sales personnel and referral partners. Additionally, an increase of $2.4 million in personnel-related costs and an increase of $1.4 million in stock-based compensation contributed to the overall increase.

~~Research and Development Expenses -~~ The increase in research and development expense for the six months ended June 30, 2021 was primarily due to increased headcount which resulted in an increase in personnel costs of $1.8 million and an increase in software subscription expense of $0.6 million.

~~General and Administrative Expenses~~ - The increase in general and administrative expense for the six months ended June 30, 2021 was driven by increases in personnel-related costs of $2.0 million and stock-based compensation of $2.0 million. Additionally, an increase of $0.7 million in charitable contributions led to the overall increase.

~~Other Income (Expense), Net -~~The change in other expense, net of $0.7 million, compared to the other income, net of $0.8 million in the prior year period, was primarily due to larger foreign currency exchange losses and decreased investment income.

~~Adjusted EBITDA -~~Adjusted EBITDA, which is a non-GAAP measure of financial performance, consists of net income adjusted for depreciation and amortization expense, investment income or loss, realized 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 include the expense impact from the disposals of certain capitalized internally developed software and cloud hosting arrangement implementation costs and an earn-out liability fair value adjustment. Additionally, as part of executing a lease amendment, we incurred accelerated depreciation, included within Depreciation and amortization of 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:

Six Months Ended

June 30,

2021

2020

Net income

$
20,383

$
20,709

Depreciation and amortization of property and equipment

7,294

6,276

Amortization of intangible assets

5,335

2,652

Investment income

(176
)

(972
)
Realized (gain) loss from foreign currency on cash and investments held

638

(127
)
Income tax expense

5,100

2,733

Stock-based compensation expense

14,424

9,353

Other

(213
)

154

Adjusted EBITDA

$
52,785

$
40,778

~~SPS COMMERCE, INC.~~

~~Form 10-Q for the Quarterly Period ended June 30, 2021~~

~~Table of Contents~~

Six Months Ended

June 30,

(In thousands, except Margin and Adjusted EBITDA Margin)

2021

2020

Revenue

$
184,633

$
149,765

Net income

20,383

20,709

Margin

11
%

14
%

Adjusted EBITDA

52,785

40,778

Adjusted EBITDA Margin

29
%

27
%

~~Non-GAAP Income per Share.~~Non-GAAP income per share, which is a non-GAAP measure of financial performance, consists of net income adjusted for stock-based compensation expense, amortization expense related to intangible assets, realized 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 and accelerated tenant improvement benefit as part of executing a lease amendment. To quantify the tax effects, we recalculated income tax expense excluding the direct book and tax effects of the specific items constituting the non-GAAP adjustments. The difference between this recalculated income tax expense and GAAP income tax expense is presented as the income tax effect of the non-GAAP adjustments.

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

Six Months Ended

June 30,

2021

2020

Net income

$
20,383

$
20,709

Stock-based compensation expense

14,424

9,353

Amortization of intangible assets

5,335

2,652

Realized (gain) loss from foreign currency on cash and investments held

638

(127
)
Other

(213
)

154

Income tax effects of adjustments

(7,974
)

(5,912
)
Non-GAAP income

$
32,593

$
26,829

Shares used to compute non-GAAP income per share

Basic

35,828

35,051

Diluted

36,741

35,995

Non-GAAP income per share

Basic

$
0.91

$
0.77

Diluted

$
0.89

$
0.75

~~SPS COMMERCE, INC.~~

~~Form 10-Q for the Quarterly Period ended June 30, 2021~~

~~Table of Contents~~

Liquidity and Capital Resources

As of June 30, ~~2021,~~2022, our principal sources of liquidity were cash and cash equivalents ~~certificates of deposit~~ and short-term investments totaling ~~$233.4~~$259.2 million and net accounts receivable ~~net~~ of ~~provision for credit losses, of $37.9~~$40.1 million. ~~Certificates of deposit and~~Our investments are ~~invested~~selected in accordance with our investment policy, with a goal of maintaining liquidity and capital preservation. Our cash equivalents and short-term investments are held in highly liquid money market funds, certificates of deposits, and commercial ~~paper, federal agency securities and corporate debt securities.~~

paper.

The summary of activity within the condensed consolidated statements of cash flows was as follows:

	Six Months Ended
	June 30,							Six Months Ended June 30,
(In thousands)	2021			2020
(in thousands)							(in thousands)	2022		2021
Net cash provided by operating activities	$	54,658		$	36,795		Net cash provided by operating activities	$	36,785	$	54,658
Net cash used in investing activities		(17,772	)		(32,490	)	Net cash used in investing activities	(5,294)		(17,772)
Net cash used in financing activities		(2,276	)		(8,662	)	Net cash used in financing activities	(26,183)		(2,276)

Net Cash Flows from Operating Activities

The ~~increase~~decrease in cash provided by operating activities was primarily driven by ~~the~~ changes in the amount and timing of settlement of operating assets and liabilities, ~~principally~~primarily the ~~increases~~change in ~~deferred revenue and~~ accrued compensation balances. Additionally, business expansion resulted in increased depreciation and amortization of property and equipment, amortization of intangibles assets, and stock-based compensation expense that contributed to the increase.

compensation.

Net Cash Flows from Investing Activities

The decrease in ~~net~~ cash used in investing activities was primarily due to ~~a decrease~~increased maturities of ~~net~~investments, partially offset by increased purchases of investments.

Net Cash Flows from Financing Activities

The ~~change~~increase in ~~net~~ cash used in financing activities was primarily due to the ~~decreases~~increase in cash used for share ~~repurchases~~repurchases.


SPS COMMERCE, INC.			25			Form 10-Q for the Quarterly Period ended June 30, 2022

Table of Contents

Contractual and ~~net proceeds~~Commercial Commitment Summary

Our contractual obligations and commercial commitments as of June 30, 2022 are summarized below:


	Payments Due by Period
(in thousands)	Less Than 1 Year		1-3 Years		3-5 Years		More Than 5 Years		Total
Operating lease obligations, including imputed interest	$	5,012	$	8,459	$	6,887	$	—	$	20,358
Purchase commitments	5,516		515		—		—		6,031
Total	$	10,528	$	8,974	$	6,887	$	—	$	26,389

Future Capital Requirements

Our future capital requirements may vary significantly from ~~stock option exercises.~~

~~Effect~~those now planned and will depend on many factors, including:

•costs to develop and implement new products and applications, if any;

•sales and marketing resources needed to further penetrate our market and gain acceptance of new products and applications that we may develop;

•expansion of our operations in the U.S. and internationally;

•response of competitors to our products and applications; and

•use of capital for acquisitions, if any.

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

We believe our cash, cash equivalents, 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.

Off-Balance Sheet Arrangements

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.

Foreign Currency Exchange and Inflation Rate Changes

For information regarding the effect of foreign currency exchange 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 this Quarterly Report on Form 10-Q.

~~Adequacy of Capital Resources~~

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

•

~~costs to develop and implement new solutions and applications, if any;~~

•

~~sales and marketing resources needed to further penetrate our market and gain acceptance of new solutions and applications that we may develop;~~

•

~~expansion of our operations in the U.S. and internationally;~~

•

~~response of competitors to our solutions and applications; and~~

•

~~use of capital for acquisitions, if any.~~

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.

~~SPS COMMERCE, INC.~~

~~Form 10-Q for the Quarterly Period ended June 30, 2021~~

~~Table of Contents~~

Inflation and changing prices did not have a material effect on our business during the six months ended June 30, ~~2021~~ 2022 and we do not expect that inflation or changing prices will materially affect our business in the foreseeable future.

~~Off-Balance Sheet Arrangements~~

~~Contractual and Commercial Commitment Summary~~

~~Our contractual obligations and commercial commitments as of June 30, 2021 are as follows:~~

Payments Due by Period (in thousands)

Less Than

More Than

Contractual Obligations

1 Year

1-3 Years

3-5 Years

5 Years

Total

Operating lease obligations, including imputed interest

$
4,766

$
8,860

$
7,527

$
3,053

$
24,206

Purchase commitment

6,362

7,344

—

—

13,706

Total

$
11,128

$
16,204

$
7,527

$
3,053

$
37,912

~~SPS COMMERCE, INC.~~

~~Form 10-Q for the Quarterly Period ended June 30, 2021~~

~~Table of Contents~~

~~Item 3.~~

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Sensitivity Risk

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 cash, cash equivalents, and 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, ~~2021.~~2022. Therefore, we do not have any material risk to interest rate fluctuations.


SPS COMMERCE, INC.			26			Form 10-Q for the Quarterly Period ended June 30, 2022

Table of Contents

Foreign Currency Exchange Risk

Due to international operations, 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.~~dollars. Our condensed consolidated balance sheet, results of operations, and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates and may be adversely affected in the future due to changes in foreign exchange rates.

Our sales are primarily denominated in U.S. dollars. Our expenses are generally denominated in the local currencies in which our operations are located. As of June 30, ~~2021,~~2022 , we maintained approximately 6%5% of our total cash and cash equivalents ~~outside of the U.S.~~and investments 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,~~loss or have a material impact on 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. consolidated financials.

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.

~~Item 4.~~

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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, ~~2021.~~

2022.

Changes in Internal Control over Financial Reporting

In ~~December 2020,~~November 2021, we acquired the ~~Data Masons~~Genius Central 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 ~~Data Masons.~~Genius Central. We are currently in the process of incorporating internal controls specific to ~~Data Masons~~Genius Central 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 December 31, ~~2021~~2022 will include ~~Data Masons.~~Genius Central. As of and for the three and six months ended June 30, ~~2021,~~2022, excluding net intangible assets and goodwill, ~~Data Masons~~Genius Central represented ~~approximately 3%~~less than 1% of our consolidated assets and 6%approximately 1% of our consolidated revenues.

~~With the exception of the internal control related to integration activities associated with our acquisition of Data Masons, there~~

There were no changes in our internal control over financial reporting during the quarter endedJune 30, ~~2021~~2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


SPS COMMERCE, INC.			26 27			Form 10-Q for the Quarterly Period ended June 30, ~~2021~~ 2022

Table of Contents

PART II. – OTHER INFORMATION

~~Item 1.~~

Item 1. Legal Proceedings

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.

Item 1A. Risk Factors

~~Item 1A.~~

~~Risk Factors~~

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, ~~2020,~~2021, as filed with the SEC.

~~Item 2.~~

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


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 (2)
April 1 - 30, 2022	36,778	$	124.88	36,778	$	20,412,000
May 1 - 31, 2022	45,132	107.02		45,132	15,582,000
June 1 - 30, 2022	51,742	107.73		51,742	10,008,000
Total	133,652	$	112.21	133,652	$	10,008,000

For more information regarding our share repurchase programs, refer to Note I to our condensed consolidated financial statements, included in Part I of this Quarterly Report on Form 10-Q.

(1)Under aour share repurchase program announced by our board of directors on ~~November 2, 2019,~~October 28, 2021, we can repurchase up to ~~a total of $50~~$50.0 million of our common stock in the open market or in privately negotiated purchases, or both, through November ~~2, 2021.~~28, 2023. Our ~~stock~~share repurchase activity during the three months ended June 30, ~~2021~~2022 is included in this column.

(2)On July 26, 2022 (announced July 27, 2022), a new share repurchase program was ~~as follows:~~authorized, effective August 26, 2022, that allows up to $50.0 million of common stock to be repurchased

in the open market or in privately negotiated purchases, or both, expiring in July 2024. The current program, described in (1) above, will terminate on the effective date of the new share repurchase program.

Period

Total Number
of Shares
Purchased

Average Price
Paid per Share

Total Number
of Shares
Purchased as
Part of Publicly
Announced
Program

Approximate
Dollar Value of
Shares that
May Yet be
Purchased
Under the
Program

April 1 - 30, 2021

-

$
-

-

$
31,050,000

May 1 - 31, 2021

-

-

-

31,050,000

June 1 - 30, 2021

63,515

101.55

63,515

24,600,000

Total

63,515

$
101.55

63,515

$
24,600,000

Item 3.Defaults ~~Upo~~nUpon Senior Securities

Not Applicable.

~~Item 4.~~

Item 4. Mine Safety Disclosures

Not Applicable.

~~Item 5.~~

Item 5. Other Information

Not Applicable.


SPS COMMERCE, INC.			27 28			Form 10-Q for the Quarterly Period ended June 30, ~~2021~~ 2022

Table of Contents

~~Item 6.~~

Item 6. Exhibits

~~Number~~	~~Description~~
~~3.1~~ 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 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 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, ~~2021,~~2022, formatted in Inline XBRL.


SPS COMMERCE, INC.			28 29			Form 10-Q for the Quarterly Period ended June 30, ~~2021~~ 2022

Table of Contents

SIGNATURES

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.


Dated: July ~~29, 2021~~ 27, 2022						SPS COMMERCE, INC.

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


SPS COMMERCE, INC.			29 30			Form 10-Q for the Quarterly Period ended June 30, ~~2021~~ 2022


		~~Page~~
			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		18

Item 3.			Quantitative and Qualitative Disclosures About Market Risk		26

Item 4.			Controls and Procedures		26 27

PART II. OTHER INFORMATION

Item 1.			Legal Proceedings		27 28

Item 1A.			Risk Factors		27 28

Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds		27 28

Item 3.			Defaults Upon Senior Securities		27 28

Item 4.			Mine Safety Disclosures		27 28

Item 5.			Other Information		27 28

Item 6.	Exhibits		~~Exhibits~~29		28

~~Signatures~~SIGNATURES				29 30

	June 30,			December 31,
(In thousands, except shares)	2021			2020
ASSETS	(unaudited)
CURRENT ASSETS
Cash and cash equivalents	$	184,367		$	149,692
Short-term investments		48,999			37,786
Accounts receivable		42,191			37,811
Allowance for credit losses		(4,255	)		(4,233	)
Accounts receivable, net		37,936			33,578
Deferred costs		40,149			37,988
Other assets		11,711			12,312
Total current assets		323,162			271,356
PROPERTY AND EQUIPMENT, less accumulated depreciation of $67,074 and $59,152, respectively		29,046			26,432
OPERATING LEASE RIGHT-OF-USE ASSETS		13,352			15,581
GOODWILL		135,354			134,853
INTANGIBLE ASSETS, net		54,950			60,230
INVESTMENTS		—			2,500
OTHER ASSETS
Deferred costs, non-current		13,692			12,607
Deferred income tax assets		246			194
Other assets, non-current		2,476			2,705
Total assets	$	572,278		$	526,458
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable	$	5,942		$	5,354
Accrued compensation		27,469			22,872
Accrued expenses		5,221			11,161
Deferred revenue		48,845			37,947
Operating lease liabilities		3,960			2,798
Total current liabilities		91,437			80,132
OTHER LIABILITIES
Deferred revenue, non-current		4,991			2,996
Operating lease liabilities, non-current		17,733			19,672
Deferred income tax liabilities		3,368			2,937
Total liabilities		117,529			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; 110,000,000 shares authorized; 37,536,118 and 37,100,467 shares issued; and 35,859,353 and 35,487,217 outstanding, respectively		38			37
Treasury stock, at cost; 1,676,765 and 1,613,250 shares, respectively		(71,697	)		(65,247	)
Additional paid-in capital		413,182			393,462
Retained earnings		113,873			93,490
Accumulated other comprehensive loss		(647	)		(1,021	)
Total stockholders’ equity		454,749			420,721
Total liabilities and stockholders’ equity	$	572,278		$	526,458

	June 30, 2021
	Gross					Foreign
	Carrying		Accumulated			Currency
(In thousands)	Amount		Amortization			Translation			Net
Subscriber relationships	$	54,870	$	(27,781	)	$	(639	)	$	26,450
Non-competition agreements		708		(708	)		—			—
Acquired technology		33,216		(4,716	)		—			28,500
	$	88,794	$	(33,205	)	$	(639	)	$	54,950

	June 30, 2021				December 31, 2020
(In thousands, except remaining term)	Remaining Term (years)		Right-of-Use Asset		Remaining Term (years)		Right-of-Use Asset
Minneapolis, MN lease		6	$	9,544		6	$	10,992
Kyiv, Ukraine lease		4		1,732		4		1,930
Other leases	<1 - 5			2,076	<1 - 5			2,659
			$	13,352			$	15,581

	June 30, 2021			December 31, 2020
Weighted-average remaining lease term - operating leases	5.3 years			5.6 years
Weighted-average discount rate - operating leases		4.1	%		4.1	%

	Six Months Ended June 30, 2021
				Weighted Average Grant
	#			Date Fair Value (per unit)
Outstanding, beginning of period		738,422		$	52.37
Granted		272,813			99.62
Vested and common stock issued		(288,058	)		40.78
Forfeited		(10,529	)		61.12
Outstanding, end of period		712,648			75.01

	Payments Due by Period (in thousands)
	Less Than						More Than
Contractual Obligations	1 Year		1-3 Years		3-5 Years		5 Years		Total
Operating lease obligations, including imputed interest	$	4,766	$	8,860	$	7,527	$	3,053	$	24,206
Purchase commitment		6,362		7,344		—		—		13,706
Total	$	11,128	$	16,204	$	7,527	$	3,053	$	37,912