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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

 

For the Quarterly Period Ended: March 31, 2021

 

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

(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 ☒  No 

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

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

 

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. 

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

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

 


Table of Contents

 

 

SPS COMMERCE, INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

 

 

 

 

 

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

 

24

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

24

 

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

25

 

 

 

 

 

Item 1A.

 

Risk Factors

 

25

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

25

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

25

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

25

 

 

 

 

 

Item 5.

 

Other Information

 

25

 

 

 

 

 

Item 6.

 

Exhibits

 

26

 

 

 

 

 

Signatures

 

27

 

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 March 31, 2021

 


Table of Contents

 

 

PART I. – FINANCIAL INFORMATION

Item 1.Financial Statements

SPS COMMERCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

March 31,

 

 

December 31,

 

(In thousands, except shares)

 

2021

 

 

2020

 

ASSETS

 

(unaudited)

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

169,274

 

 

$

149,692

 

Short-term investments

 

 

39,174

 

 

 

37,786

 

Accounts receivable

 

 

39,271

 

 

 

37,811

 

Allowance for credit losses

 

 

(4,001

)

 

 

(4,233

)

Accounts receivable, net

 

 

35,270

 

 

 

33,578

 

Deferred costs

 

 

38,666

 

 

 

37,988

 

Other assets

 

 

14,490

 

 

 

12,312

 

Total current assets

 

 

296,874

 

 

 

271,356

 

PROPERTY AND EQUIPMENT, less accumulated depreciation of $62,947 and $59,152, respectively

 

 

26,606

 

 

 

26,432

 

OPERATING LEASE RIGHT-OF-USE ASSETS

 

 

15,296

 

 

 

15,581

 

GOODWILL

 

 

135,263

 

 

 

134,853

 

INTANGIBLE ASSETS, net

 

 

57,594

 

 

 

60,230

 

INVESTMENTS

 

 

2,500

 

 

 

2,500

 

OTHER ASSETS

 

 

 

 

 

 

 

 

Deferred costs, non-current

 

 

12,874

 

 

 

12,607

 

Deferred income tax assets

 

 

210

 

 

 

194

 

Other assets, non-current

 

 

2,620

 

 

 

2,705

 

Total assets

 

$

549,837

 

 

$

526,458

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

 

 

Accounts payable

 

$

5,081

 

 

$

5,354

 

Accrued compensation

 

 

20,428

 

 

 

22,872

 

Accrued expenses

 

 

10,018

 

 

 

11,161

 

Deferred revenue

 

 

44,481

 

 

 

37,947

 

Operating lease liabilities

 

 

3,424

 

 

 

2,798

 

Total current liabilities

 

 

83,432

 

 

 

80,132

 

OTHER LIABILITIES

 

 

 

 

 

 

 

 

Deferred revenue, non-current

 

 

4,027

 

 

 

2,996

 

Operating lease liabilities, non-current

 

 

18,743

 

 

 

19,672

 

Deferred income tax liabilities

 

 

3,112

 

 

 

2,937

 

Total liabilities

 

 

109,314

 

 

 

105,737

 

COMMITMENTS and CONTINGENCIES

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value; 5,000,000 shares authorized; 0 shares issued and outstanding

 

 

 

 

 

 

Common stock, $0.001 par value; 110,000,000 shares authorized; 37,474,834 and 37,100,467 shares issued; and 35,861,584 and 35,487,217 outstanding, respectively

 

 

37

 

 

 

37

 

Treasury stock, at cost; 1,613,250 shares

 

 

(65,247

)

 

 

(65,247

)

Additional paid-in capital

 

 

402,860

 

 

 

393,462

 

Retained earnings

 

 

103,690

 

 

 

93,490

 

Accumulated other comprehensive loss

 

 

(817

)

 

 

(1,021

)

Total stockholders’ equity

 

 

440,523

 

 

 

420,721

 

Total liabilities and stockholders’ equity

 

$

549,837

 

 

$

526,458

 

 

See accompanying notes to these condensed consolidated financial statements.

 

    SPS COMMERCE, INC.

3

Form 10-Q for the Quarterly Period ended March 31, 2021

 


Table of Contents

 

SPS COMMERCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

 

 

Three Months Ended

 

 

 

March 31,

 

(In thousands, except per share amounts) (Unaudited)

 

2021

 

 

2020

 

Revenues

 

$

90,094

 

 

$

74,192

 

Cost of revenues

 

 

29,970

 

 

 

23,544

 

Gross profit

 

 

60,124

 

 

 

50,648

 

Operating expenses

 

 

 

 

 

 

 

 

Sales and marketing

 

 

21,355

 

 

 

18,299

 

Research and development

 

 

8,706

 

 

 

7,568

 

General and administrative

 

 

14,737

 

 

 

11,909

 

Amortization of intangible assets

 

 

2,664

 

 

 

1,336

 

Total operating expenses

 

 

47,462

 

 

 

39,112

 

Income from operations

 

 

12,662

 

 

 

11,536

 

Other expense, net

 

 

(325

)

 

 

(673

)

Income before income taxes

 

 

12,337

 

 

 

10,863

 

Income tax expense

 

 

2,137

 

 

 

1,348

 

Net income

 

$

10,200

 

 

$

9,515

 

Other comprehensive income (expense)

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

192

 

 

 

(3,864

)

Unrealized gain (loss) on investments, net of tax of ($15) and $24

 

 

(45

)

 

 

71

 

Reclassification of (gain) loss on investments into earnings, net of tax of $19 and ($26)

 

 

57

 

 

 

(79

)

Total other comprehensive income (expense)

 

 

204

 

 

 

(3,872

)

Comprehensive income

 

$

10,404

 

 

$

5,643

 

 

 

 

 

 

 

 

 

 

Net income per share

 

 

 

 

 

 

 

 

Basic

 

$

0.29

 

 

$

0.27

 

Diluted

 

$

0.28

 

 

$

0.26

 

 

 

 

 

 

 

 

 

 

Weighted average common shares used to compute net income per share

 

 

 

 

 

 

 

 

Basic

 

 

35,751

 

 

 

35,072

 

Diluted

 

 

36,722

 

 

 

35,926

 

 

 See accompanying notes to these condensed consolidated financial statements.

 

    SPS COMMERCE, INC.

4

Form 10-Q for the Quarterly Period ended March 31, 2021

 


Table of Contents

 

SPS COMMERCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Other

 

 

Total

 

 

 

Common Stock

 

 

Treasury Stock

 

 

Paid-in

 

 

Retained

 

 

Comprehensive

 

 

Stockholders'

 

(In thousands, except shares) (Unaudited)

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,968

 

 

 

 

 

 

 

 

 

3,968

 

Shares issued pursuant to stock awards

 

 

367,814

 

 

 

 

 

 

 

 

 

 

 

 

3,683

 

 

 

 

 

 

 

 

 

3,683

 

Employee stock purchase plan

 

 

2,015

 

 

 

 

 

 

 

 

 

 

 

 

87

 

 

 

 

 

 

 

 

 

87

 

Repurchases of common stock

 

 

(240,275

)

 

 

 

 

 

 

240,275

 

 

 

(12,000

)

 

 

 

 

 

 

 

 

 

 

 

(12,000

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9,515

 

 

 

 

 

 

9,515

 

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,864

)

 

 

(3,864

)

Unrealized gain on investments, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

71

 

 

 

71

 

Reclassification of gain on investments into earnings, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(79

)

 

 

(79

)

Adoption of ASU 2016-13

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,069

)

 

 

 

 

 

(1,069

)

Balances, March 31, 2020

 

 

34,992,825

 

 

$

36

 

 

 

1,481,623

 

 

$

(58,297

)

 

$

361,853

 

 

$

57,419

 

 

$

(5,823

)

 

$

355,188

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances, December 31, 2020

 

 

35,487,217

 

 

$

37

 

 

 

1,613,250

 

 

$

(65,247

)

 

$

393,462

 

 

$

93,490

 

 

$

(1,021

)

 

$

420,721

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,491

 

 

 

 

 

 

 

 

 

6,491

 

Shares issued pursuant to stock awards

 

 

372,746

 

 

 

 

 

 

 

 

 

 

 

 

2,802

 

 

 

 

 

 

 

 

 

2,802

 

Employee stock purchase plan

 

 

1,621

 

 

 

 

 

 

 

 

 

 

 

 

105

 

 

 

 

 

 

 

 

 

105

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10,200

 

 

 

 

 

 

10,200

 

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

192

 

 

 

192

 

Unrealized loss on investments, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(45

)

 

 

(45

)

Reclassification of loss on investments into earnings, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

57

 

 

 

57

 

Balances, March 31, 2021

 

 

35,861,584

 

 

$

37

 

 

 

1,613,250

 

 

$

(65,247

)

 

$

402,860

 

 

$

103,690

 

 

$

(817

)

 

$

440,523

 

 

  See accompanying notes to these condensed consolidated financial statements.

 

    SPS COMMERCE, INC.

5

Form 10-Q for the Quarterly Period ended March 31, 2021

 


Table of Contents

 

SPS COMMERCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

Three Months Ended

 

 

 

March 31,

 

(In thousands) (Unaudited)

 

2021

 

 

2020

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net income

 

$

10,200

 

 

$

9,515

 

Reconciliation of net income to net cash provided by operating activities

 

 

 

 

 

 

 

 

Deferred income taxes

 

 

163

 

 

 

668

 

Change in earn-out liability

 

 

 

 

 

72

 

Depreciation and amortization of property and equipment

 

 

3,765

 

 

 

3,138

 

Amortization of intangible assets

 

 

2,664

 

 

 

1,336

 

Provision for credit losses

 

 

1,205

 

 

 

1,285

 

Stock-based compensation

 

 

6,925

 

 

 

4,344

 

Other, net

 

 

76

 

 

 

(105

)

Changes in assets and liabilities

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(2,828

)

 

 

(1,053

)

Deferred costs

 

 

(986

)

 

 

(256

)

Other current and non-current assets

 

 

(2,257

)

 

 

2,041

 

Accounts payable

 

 

(828

)

 

 

655

 

Accrued compensation

 

 

(2,988

)

 

 

(9,302

)

Accrued expenses

 

 

(1,052

)

 

 

(615

)

Deferred revenue

 

 

7,565

 

 

 

3,396

 

Operating leases

 

 

(19

)

 

 

(452

)

Net cash provided by operating activities

 

 

21,605

 

 

 

14,667

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(3,263

)

 

 

(3,965

)

Purchases of investments

 

 

(14,039

)

 

 

(12,460

)

Maturities of investments

 

 

12,500

 

 

 

15,875

 

Net cash used in investing activities

 

 

(4,802

)

 

 

(550

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Repurchases of common stock

 

 

 

 

 

(12,000

)

Net proceeds from exercise of options to purchase common stock

 

 

2,802

 

 

 

3,683

 

Net proceeds from employee stock purchase plan

 

 

105

 

 

 

87

 

Payment for earn-out liability

 

 

(164

)

 

 

(688

)

Net cash provided by (used in) financing activities

 

 

2,743

 

 

 

(8,918

)

Effect of foreign currency exchange rate changes

 

 

36

 

 

 

33

 

Net increase in cash and cash equivalents

 

 

19,582

 

 

 

5,232

 

Cash and cash equivalents at beginning of period

 

 

149,692

 

 

 

179,252

 

Cash and cash equivalents at end of period

 

$

169,274

 

 

$

184,484

 

 

See accompanying notes to these condensed consolidated financial statements.

 

 

    SPS COMMERCE, INC.

6

Form 10-Q for the Quarterly Period ended March 31, 2021

 


Table of Contents

 

 

SPS COMMERCE, INC. AND SUBSIDIARIES

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

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. We have included all normal recurring adjustments considered necessary to provide a fair presentation of our financial position, results of operations, stockholders’ equity, and cash flows for the interim periods shown. Operating results for these interim periods are not necessarily indicative of the results to be expected for the full year. For further information, refer to the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 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 March 31, 2021, the purchase accounting for the acquisition is not finalized. Provisional amounts are primarily related to intangible assets, net working capital, 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. Subsequent to March 31, 2021, the net working capital amount was finalized without change from the amounts 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 three months ended March 31, 2021, there were no newly adopted accounting pronouncements. As of March 31, 2021, there are no recently issued but not yet adopted accounting pronouncements that are expected to materially impact our consolidated financial statements.

 

Significant Accounting Policies

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

 

    SPS COMMERCE, INC.

7

Form 10-Q for the Quarterly Period ended March 31, 2021

 


Table of Contents

 

 

NOTE B – Revenue

 

We derive our revenues from the following revenue streams:

 

 

 

Three Months Ended

 

 

 

March 31,

 

(In thousands)

 

2021

 

 

2020

 

Recurring revenues:

 

 

 

 

 

 

 

 

Fulfillment

 

$

71,404

 

 

$

59,103

 

Analytics

 

 

10,144

 

 

 

9,736

 

Other

 

 

1,253

 

 

 

1,199

 

Recurring Revenues

 

 

82,801

 

 

 

70,038

 

One-time revenues

 

 

7,293

 

 

 

4,154

 

 

 

$

90,094

 

 

$

74,192

 

 

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

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. Revenue for these solutions is generally recognized on a ratable basis over the contract term beginning on the date that our service is made available to the customer. Our contracts with our recurring revenue customers are recurring in nature, ranging from monthly to annual, and generally allow the customer to cancel the contract for any reason with 30 to 90 days’ notice. Timing of billings varies by customer and by contract type and are either in advance or within 30 days of the service being performed.

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

One-time Revenues

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

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

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

 

    SPS COMMERCE, INC.

8

Form 10-Q for the Quarterly Period ended March 31, 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 set-up fees and related costs are deferred and recognized ratably over two years, which is the estimated period for which a material right is present for our customers.

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

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

 

 

 

Three Months Ended

 

 

 

March 31,

 

(In thousands)

 

2021