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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended: March 31, 2023
oTRANSITION 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.
1.jpg
(Exact Name of Registrant as Specified in its Charter)
Delaware41-2015127
(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 classTrading SymbolName of exchange on which registered
Common Stock, par value $0.001 per shareSPSC
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 x No 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 x No 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 filerxAccelerated filero
Non-accelerated fileroSmaller reporting companyo
Emerging growth companyo
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 April 19, 2023 was 36,532,756 shares.


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SPS COMMERCE, INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
Page
Item 1.
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.
2.jpgSPS COMMERCE, INC.
2
Form 10-Q for the Quarterly Period ended March 31, 2023

Table of Contents
PART I. – FINANCIAL INFORMATION
Item 1. Financial Statements
SPS COMMERCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except shares)March 31,
2023
December 31,
2022
ASSETS(unaudited)
Current assets
Cash and cash equivalents$182,304 $162,893 
Short-term investments51,146 51,412 
Accounts receivable46,654 42,501 
Allowance for credit losses(3,217)(3,066)
Accounts receivable, net43,437 39,435 
Deferred costs53,844 52,755 
Other assets15,651 16,319 
Total current assets346,382 322,814 
Property and equipment, net35,078 35,458 
Operating lease right-of-use assets8,451 9,170 
Goodwill199,001 197,284 
Intangible assets, net84,536 88,352 
Other assets 
Deferred costs, non-current17,965 17,424 
Deferred income tax assets3,365 227 
Other assets, non-current2,149 2,185 
Total assets$696,927 $672,914 
LIABILITIES AND STOCKHOLDERS’ EQUITY 
Current liabilities  
Accounts payable$5,339 $11,256 
Accrued compensation26,431 30,235 
Accrued expenses8,163 7,451 
Deferred revenue62,907 57,423 
Operating lease liabilities4,121 4,277 
Total current liabilities106,961 110,642 
Other liabilities  
Deferred revenue, non-current5,105 4,771 
Operating lease liabilities, non-current11,994 13,009 
Deferred income tax liabilities6,977 7,419 
Total liabilities131,037 135,841 
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; 38,683,854 and 38,309,144 shares issued; and 36,532,756 and 36,158,046 shares outstanding, respectively
39 38 
Treasury Stock, at cost; 2,151,098 shares
(128,892)(128,892)
Additional paid-in capital489,716 476,117 
Retained earnings208,510 193,221 
Accumulated other comprehensive loss(3,483)(3,411)
Total stockholders’ equity565,890 537,073 
Total liabilities and stockholders’ equity$696,927 $672,914 
See accompanying notes to these condensed consolidated financial statements.
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3
Form 10-Q for the Quarterly Period ended March 31, 2023

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)20232022
Revenues$125,868 $105,193 
Cost of revenues42,964 35,389 
Gross profit82,904 69,804 
Operating expenses
Sales and marketing29,083 24,655 
Research and development12,563 10,701 
General and administrative20,677 15,468 
Amortization of intangible assets3,851 2,470 
Total operating expenses66,174 53,294 
Income from operations16,730 16,510 
Other income, net1,276 423 
Income before income taxes18,006 16,933 
Income tax expense2,717 4,330 
Net income$15,289 $12,603 
Other comprehensive income (expense)
Foreign currency translation adjustments(95)730 
Unrealized gain (loss) on investments, net of tax of $133 and ($1), respectively
399 (3)
Reclassification of (gain) loss on investments into earnings, net of tax of ($125) and $4, respectively
(376)11 
Total other comprehensive income (expense)(72)738 
Comprehensive income$15,217 $13,341 
Net income per share
Basic$0.42 $0.35 
Diluted$0.41 $0.34 
Weighted average common shares used to compute net income per share
Basic36,427 36,136 
Diluted37,155 36,989 
See accompanying notes to these condensed consolidated financial statements.
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Form 10-Q for the Quarterly Period ended March 31, 2023

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SPS COMMERCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Common StockTreasury Stock Additional
Paid-in
Capital
Retained
Earnings
Accumulated Other Comprehensive LossTotal
Stockholders'
Equity
(in thousands, except shares) (unaudited)Shares AmountSharesAmount
Balances, December 31, 202136,009,257 $38 1,789,353 $(85,677)$433,258 $138,087 $(1,447)$484,259 
Stock-based compensation— — — — 8,496 — — 8,496 
Shares issued pursuant to stock awards231,107 — — — 504 — — 504 
Employee stock purchase plan activity1,698 — — — 147 — — 147 
Repurchases of common stock(121,544)— 121,544 (15,226)— — — (15,226)
Net income— — — — — 12,603 — 12,603 
Foreign currency translation adjustments— — — — — — 730 730 
Unrealized loss on investments, net of tax— — — — — — (3)(3)
Reclassification of loss on investments into earnings, net of tax— — — — — — 11 11 
Balances, March 31, 202236,120,518 $38 1,910,897 $(100,903)$442,405 $150,690 $(709)$491,521 
Balances, December 31, 202236,158,046 $38 2,151,098 $(128,892)$476,117 $193,221 $(3,411)$537,073 
Stock-based compensation— — — — 11,175 — — 11,175 
Shares issued pursuant to stock awards372,161 — — 2,183 — — 2,184 
Employee stock purchase plan activity2,549 — — — 241 — — 241 
Net income— — — — — 15,289 — 15,289 
Foreign currency translation adjustments— — — — — — (95)(95)
Unrealized gain on investments, net of tax— — — — — — 399 399 
Reclassification of gain on investments into earnings, net of tax— — — — — — (376)(376)
Balances, March 31, 202336,532,756 $39 2,151,098 $(128,892)$489,716 $208,510 $(3,483)$565,890 

See accompanying notes to these condensed consolidated financial statements..
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Form 10-Q for the Quarterly Period ended March 31, 2023

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SPS COMMERCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
March 31,
(in thousands) (unaudited)20232022
Cash flows from operating activities
Net income$15,289 $12,603 
Reconciliation of net income to net cash provided by operating activities
Deferred income taxes(5,147)(269)
Depreciation and amortization of property and equipment4,626 3,864 
Amortization of intangible assets3,851 2,470 
Provision for credit losses1,206 1,144 
Stock-based compensation11,780 9,015 
Other, net502 (7)
Changes in assets and liabilities
Accounts receivable(6,220)(5,563)
Deferred costs(1,679)(2,797)
Other current and non-current assets602 (6,736)
Accounts payable(4,849)(3,229)
Accrued compensation(4,417)(10,495)
Accrued expenses721 (1,746)
Deferred revenue5,818 6,349 
Operating leases(452)(256)
Net cash provided by operating activities21,631 4,347 
Cash flows from investing activities
Purchases of property and equipment(5,261)(4,355)
Purchases of investments(34,329)(54,977)
Maturities of investments35,000 65,000 
Net cash provided by (used in) investing activities(4,590)5,668 
Cash flows from financing activities
Repurchases of common stock (15,226)
Net proceeds from exercise of options to purchase common stock2,184 504 
Net proceeds from employee stock purchase plan activity241 147 
Net cash provided by (used in) financing activities2,425 (14,575)
Effect of foreign currency exchange rate changes(55)96 
Net increase (decrease) in cash and cash equivalents19,411 (4,464)
Cash and cash equivalents at beginning of period162,893 207,552 
Cash and cash equivalents at end of period$182,304 $203,088 
See accompanying notes to these condensed consolidated financial statements.
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6
Form 10-Q for the Quarterly Period ended March 31, 2023

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 services across our global retail network. Our products make it easier for retailers, grocers, distributors, suppliers, and logistics firms to communicate and collaborate by simplifying how they manage and share item, inventory, order and sales data across omnichannel retail channels. We deliver our products using a full-service model, which includes industry-leading technology and a team of experts that optimize, update, and operate the technology on customers' behalf.
Our products enable customers to increase supply chain performance, optimize inventory levels and sell-through, reduce operational costs, improve order visibility, and satisfy consumer demands for a seamless omnichannel experience.
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, 2022, 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 presented. Operating results for these interim periods are not necessarily indicative of the results to be expected for the full year.
Use of Estimates
Preparing financial statements in conformity with GAAP requires management to make estimates, judgments, 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.
Significant Accounting Policies
There were no material changes in our significant accounting policies during the three months ended March 31, 2023. See Note A to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC, for additional information regarding our significant accounting policies.
Accounting Pronouncements Recently Adopted
StandardDate of IssuanceDescriptionDate of AdoptionEffect on the Financial Statements
ASU 2021-08, Business Combinations (Topic 805) - Accounting for Contract Assets and Contract Liabilities from Contracts with Customers
October 2021This 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 2023The adoption of this standard may have a material impact on the purchase accounting for future business combinations depending on the specific amount of contract assets and liabilities being acquired.
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7
Form 10-Q for the Quarterly Period ended March 31, 2023

Table of Contents
NOTE B – Business Acquisitions
GCommerce
Effective July 19, 2022, we acquired all of the outstanding equity ownership interests of GCommerce, Inc. ("GCommerce"), a leading EDI provider within the automotive aftermarket industry. Pursuant to the definitive agreement, the purchase price was $45.1 million, including post-closing adjustments. The purchase accounting for the acquisition has not been finalized as of March 31, 2023 due primarily to provisional tax components and corresponding impacts to other items, including intangible assets. We expect to finalize the allocation of the purchase price within the one-year measurement period following the acquisition. During the quarter ended March 31, 2023, provisional amounts were adjusted by $1.6 million, primarily relating to a $1.5 million decrease in the estimated value of deferred income tax assets, with the corresponding offset to goodwill.
InterTrade
Effective October 4, 2022, we acquired all of the outstanding equity ownership interests of Canadian based InterTrade Systems Inc. ("InterTrade"), a leading EDI provider within the apparel and general merchandising markets. Pursuant to the definitive agreement, the purchase price was $49.1 million, including estimated post-closing adjustments. The purchase accounting for the acquisition has not been finalized as of March 31, 2023 due to various items including valuation modeling completion; provisional amounts are primarily related to intangible assets. We expect to finalize the allocation of the purchase price within the one-year measurement period following the acquisition. During the quarter ended March 31, 2023, there were no material changes to the provisional amounts.
NOTE C – Revenue
We derive our revenues from the following revenue streams:
Three Months Ended
March 31,
(in thousands)20232022
Recurring revenues:
Fulfillment$101,668 $84,731 
Analytics12,370 11,296 
Other3,263 1,540 
Recurring revenues117,301 97,567 
One-time revenues8,567 7,626 
Total revenue$125,868 $105,193 
Revenues are the amount that reflects the consideration we are contractually and legally entitled to, as well as the amount we expect to collect, in exchange for those services.
Recurring Revenues
Recurring revenues consist of recurring subscriptions from customers that utilize our Fulfillment, Analytics, and Other supply chain management products. Revenue for these 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.
Given that the recurring revenue contracts are for one year or less, we have applied the optional exemption to not disclose information about the remaining performance obligations for recurring revenue contracts.
One-time Revenues
One-time revenues consist of set-up fees and miscellaneous fees from customers.
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Form 10-Q for the Quarterly Period ended March 31, 2023

Table of Contents
Set-up revenues
Set-up fees are specific for each connection a customer has with a trading partner. These nonrefundable fees are necessary for our customers to utilize our services and do not provide any standalone value. Many of our customers have connections with numerous trading partners.
Set-up fees constitute a material renewal option right that provide customers a significant future incentive that would not be otherwise available to that customer unless they entered into the contract, as the set-up fees will not be incurred again upon contract renewal. 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.
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)20232022
Balance, beginning of period$14,999 $14,459 
Invoiced set-up fees4,251 4,003 
Recognized set-up fees(3,963)(3,524)
Balance, end of period$15,287 $14,938 
The entire balance of deferred set-up fees will be recognized within two years. Those that will be recognized within the next year are classified as current, whereas the remainder are classified as non-current.
Miscellaneous one-time revenues
Miscellaneous one-time fees consist of professional services and testing and certification.
The contract period for these one-time fees 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 since they have original durations of one year or less.
NOTE D – Deferred Costs
The deferred costs activity was as follows:
Three Months Ended
March 31,
(in thousands)20232022
Balance, beginning of period$70,179 $59,720 
Incurred deferred costs18,234 17,781 
Amortized deferred costs(16,604)(14,891)
Balance, end of period$71,809 $62,610 
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9
Form 10-Q for the Quarterly Period ended March 31, 2023

Table of Contents
NOTE E – Fair Value Measurements
Cash Equivalents and Investments
Cash equivalents and investments, as measured at fair value on a recurring basis, consisted of the following:
March 31, 2023December 31, 2022
Fair Value LevelAmortized CostUnrealized Gains (Losses), netFair ValueAmortized CostUnrealized Gains (Losses), netFair Value
(in thousands)
Cash equivalents:
Money market fundsLevel 1$94,284 $ $94,284 $73,368 $ $73,368 
Investments:
Certificates of depositLevel 16,687  6,687 6,813  6,813 
Marketable securities:
Commercial paperLevel 234,228 353 34,581 44,224 375 44,599 
U.S. treasury securitiesLevel 29,827 51 9,878    
$145,026 $404 $145,430 $124,405 $375 $124,780 

NOTE F – Allowance for Credit Losses
The allowance for credit losses activity, included in accounts receivable, net, was as follows:
Three Months Ended
March 31,
(in thousands)20232022
Balance, beginning of period$3,066 $4,249 
Provision for credit losses1,206 1,144 
Write-offs, net of recoveries(1,055)(1,106)
Balance, end of period$3,217 $4,287 
NOTE G – Property and Equipment, Net
Property and equipment, net consisted of the following:
(in thousands)March 31,
2023
December 31, 2022
Internally developed software$53,530 $49,994 
Computer equipment30,601 30,310 
Leasehold improvements16,603 16,531 
Office equipment and furniture11,113 10,981 
Property and equipment, cost111,847 107,816 
Less: accumulated depreciation and amortization(76,769)(72,358)
Total property and equipment, net$35,078 $35,458 
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10
Form 10-Q for the Quarterly Period ended March 31, 2023

Table of Contents
NOTE H – Goodwill and Intangible Assets, Net
Goodwill
The activity in goodwill was as follows:
Three Months Ended
March 31,
(in thousands)2023
Balance, beginning of period$197,284 
Foreign currency translation(71)
Remeasurement from provisional purchase accounting amount1,788 
Balance, end of period$199,001 
Intangible Assets
Intangible assets, net consisted of the following:
March 31, 2023
($ in thousands)Gross
Carrying
Amount
Accumulated
Amortization
Foreign
Currency
Translation
NetWeighted Average Remaining Amortization Period
Subscriber relationships$79,385 $(24,205)$29 $55,209 6.6 years
Acquired technology40,612 (11,292)7 29,327 5.5 years
$119,997 $(35,497)$36 $84,536 6.2 years
December 31, 2022
($ in thousands)Gross
Carrying
Amount
Accumulated
Amortization
Foreign
Currency
Translation
NetWeighted Average Remaining Amortization Period
Subscriber relationships$80,101 $(22,255)$(171)$57,675 6.8 years
Acquired technology40,610 (9,934)1 30,677 5.7 years
$120,711 $(32,189)$(170)$88,352 6.4 years
The estimated future annual amortization expense related to intangible assets is as follows:
(in thousands) 
Remainder of 2023$11,450 
202414,102 
202513,964 
202612,960 
202712,497 
Thereafter19,563 
Total future amortization$84,536 
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11
Form 10-Q for the Quarterly Period ended March 31, 2023

Table of Contents
NOTE I – Commitments and Contingencies
Leases
The components of lease expense were as follows:
Three Months Ended
March 31,
(in thousands)20232022
Operating lease cost$798 $759 
Variable lease cost928 793 
$1,726 $1,552 
Supplemental cash flow information related to leases was as follows:
Three Months Ended
March 31,
(in thousands)20232022
Cash paid for amounts included in the measurement of lease liabilities  
Operating cash flows from operating leases$1,247 $1,095 
Supplemental balance sheet information related to operating leases was as follows:
March 31,
2023
December 31, 2022
Weighted-average remaining lease term3.8 years3.9 years
Weighted-average discount rate4.0 %4.0 %
At March 31, 2023, our future minimum payments under operating leases were as follows:
(in thousands)
Remainder of 2023$3,847 
20244,471 
20254,081 
20263,763 
20271,266 
Total future gross payments$17,428 
Less: imputed interest(1,313)
Total operating lease liabilities$16,115 
Purchase Commitments
We have entered into separate noncancelable agreements with computing infrastructure, customer relationship management, and performance and security data analytics vendors for services through 2025. At March 31, 2023, the total remaining purchase commitments were $4.3 million.



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12
Form 10-Q for the Quarterly Period ended March 31, 2023

Table of Contents
NOTE J – 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 through March 31, 2023 were as follows:
(in thousands)Effective DateExpiration DateShare Value Authorized for RepurchaseShare Value RepurchasedUnused & Expired Share Repurchase ValueShare Value Available for Future Repurchase
2021 ProgramNovember 2021August 202250,00049,992 8 N/A
2022 ProgramAugust 2022July 202450,0002,992 N/A$47,008 
The share repurchase activity by period was as follows:
Three Months Ended
March 31,
(in thousands, except shares and per share amounts)20232022
Number of shares repurchased 121,544 
Shares repurchased cost$ $15,226 
Average price per repurchased share$ $125.27 
NOTE K – 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 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 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 March 31, 2023, there were 12.8 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
March 31,
(in thousands)20232022
Cost of revenues$2,503 $2,179 
Operating expenses 
Sales and marketing2,423 2,032 
Research and development1,777 1,474 
General and administrative5,077 3,330 
$11,780 $9,015 
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13
Form 10-Q for the Quarterly Period ended March 31, 2023

Table of Contents
Stock-based compensation expense by grant type or plan was as follows:
Three Months Ended
March 31,
(in thousands)20232022
Stock options$490 $477 
PSUs3,926 2,699 
RSUs6,062 4,638 
RSAs & DSUs108 108 
ESPP589 574 
401(k) stock match605 519 
$11,780 $9,015 
As of March 31, 2023, there was $63.8 million of unrecognized stock-based compensation expense under our equity compensation plans, which is expected to be recognized on a primarily straight-line basis over a weighted average period of 2.6 years.
Stock Options
Our stock option activity was as follows:
Three Months Ended
March 31, 2023
Options (#) Weighted Average
Exercise Price
($/share)
Outstanding, beginning of period562,697 $56.24 
Granted30,148 150.76 
Exercised(68,088)32.06 
Forfeited(1,916)123.49 
Outstanding, end of period522,841 $64.60 
Of the total outstanding options at March 31, 2023, 0.4 million were exercisable. The outstanding and exercisable options had a weighted average exercise price of $53.22 per share and a weighted average remaining contractual life of 3.0 years.
The weighted average grant date fair value of options granted during the three months ended March 31, 2023 was $54.53 per share. This was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:
Life (in years)3.9
Volatility39.7 %
Dividend yield 
Risk-free interest rate4.2 %
Performance Share Units, Restricted Stock Units and Awards, and Deferred Stock Units
In each of the quarters ended March 31, 2023, 2022, 2021, and 2020 we granted PSU awards with a target performance level. These awards are earned based upon 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. Earned awards vest in the quarter following the conclusion of the performance period. In the three months ended March 31, 2023, PSU awards granted in 2019 vested at the maximum performance level and 0.1 million shares of common stock were issued.
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14
Form 10-Q for the Quarterly Period ended March 31, 2023

Table of Contents
Activity for our PSUs, RSUs, RSAs, and DSUs in aggregate was as follows:
Three Months Ended
March 31, 2023
#Weighted Average Grant
Date Fair Value
($/share)
Outstanding, beginning of period712,158 $103.93 
Granted304,635 163.06 
Vested and common stock issued(305,123)74.70 
Forfeited(3,798)112.93 
Outstanding, end of period707,872 $141.92 
The number of PSUs, RSUs, RSAs, and DSUs outstanding at March 31, 2023 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
March 31,
(in thousands, except shares)20232022
Amounts for shares purchased$241 $147 
Shares purchased2,549 1,698 
A total of 1.7 million shares of common stock are reserved for issuance under the ESPP as of March 31, 2023.
The fair value was estimated based on the market price of our common stock at the beginning of the offering period using the following assumptions:
Life (in years)0.5
Volatility46.4 %
Dividend yield 
Risk-free interest rate2.5 %
NOTE L – Income Taxes
We record our interim provision for income taxes by applying our estimated annual effective tax rate to our year-to-date pre-tax income and adjust the provision for discrete tax items recorded in the period. Our provisions for income taxes includes current federal, state, and foreign income tax expense, as well as deferred tax expense.
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.
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15
Form 10-Q for the Quarterly Period ended March 31, 2023

Table of Contents
NOTE M – Other Income and Expense
Other income, net included the following:
Three Months Ended
March 31,
(in thousands)20232022
Investment income$1,127 $48 
Realized gain from foreign currency on cash and investments held137 468 
Other income (expense), net12 (93)
Total other income, net$1,276 $423 
NOTE N – Net Income Per Share
The components and computation of basic and diluted net income per share were as follows:
Three Months Ended
March 31,
(in thousands, except per share amounts)20232022
Numerator
Net income$15,289 $12,603 
Denominator  
Weighted average common shares outstanding, basic36,427 36,136 
Options to purchase common stock307 419 
PSUs, RSUs, RSAs, and DSUs421 434 
Weighted average common shares outstanding, diluted37,155 36,989 
Net income per share  
Basic$0.42 $0.35 
Diluted$0.41 $0.34 
The number of outstanding potential common shares that were excluded from the calculation of diluted net income per share as they were anti-dilutive was as follows:
Three Months Ended
March 31,
(in thousands)20232022
Anti-dilutive shares108 151 
NOTE O – Geographic Information
Revenue
Domestic revenue, which we define as revenue that was attributable to customers based within the U.S., was as follows:
Three Months Ended
March 31,
20232022
Domestic revenue84 %84 %
No single jurisdiction outside of the U.S. had revenues in excess of 10%.
Property and Equipment
Property and equipment, net located at subsidiary and office locations outside of the U.S. was as follows:
March 31,
2023
December 31, 2022
International property and equipment14 %13 %
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16
Form 10-Q for the Quarterly Period ended March 31, 2023

Table of Contents
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 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,” “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, 2022, as may be updated in our subsequent Quarterly Reports on Form 10-Q from time to 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 supply chain management services across our global retail network. Our products make it easier for retailers, grocers, distributors, suppliers, and logistics firms to communicate and collaborate by simplifying how they manage and share item, inventory, order and sales data across omnichannel retail channels. We deliver our products using a full-service model, which includes industry-leading technology and a team of experts that optimize, update, and operate the technology on customers' behalf.
Our products enable customers to increase supply chain performance, optimize inventory levels and sell-through, reduce operational costs, improve order visibility, and satisfy consumer demands for a seamless omnichannel experience.
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 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.
Key Financial Terms, Metrics and Non-GAAP Measures
We have several key financial terms, metrics, and non-GAAP measures as discussed in our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC, under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.
To supplement our consolidated 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 financial 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 financial measures to compare 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. We believe these non-GAAP financial measures are useful to an investor as they are widely used in evaluating operating performance. Adjusted EBITDA and Adjusted EBITDA Margin are used to measure operating performance without regard to items such as depreciation and amortization, which can vary depending upon accounting methods and the book value of assets, and to present a meaningful measure of corporate performance exclusive of capital structure and the method by which assets were acquired.
These non-GAAP financial 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 consolidated 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.
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17
Form 10-Q for the Quarterly Period ended March 31, 2023

Table of Contents
Results of Operations
Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022
The following table presents our results of operations for the periods indicated:
Three Months Ended March 31,
20232022Change
($ in thousands)$
% of revenue(1)
$
% of revenue(1)
$%
Revenues$125,868 100.0 %$105,193 100.0 %$20,675 19.7 %
Cost of revenues42,964 34.1 35,389 33.6 7,575 21.4 
Gross profit82,904 65.9 69,804 66.4 13,100 18.8 
Operating expenses
Sales and marketing29,083 23.1 24,655 23.4 4,428 18.0 
Research and development12,563 10.0 10,701 10.2 1,862 17.4 
General and administrative20,677 16.4 15,468 14.7 5,209 33.7 
Amortization of intangible assets3,851 3.1 2,470 2.3 1,381 55.9 
Total operating expenses66,174 52.6 53,294 50.7 12,880 24.2 
Income from operations16,730 13.3 16,510 15.7 220 1.3 
Other income, net1,276 1.0 423 0.4 853 201.7 
Income before income taxes18,006 14.3 16,933 16.1 1,073 6.3 
Income tax expense2,717 2.2 4,330 4.1 (1,613)(37.3)
Net income$15,289 12.1 %$12,603 12.0 %$2,686 21.3 %
(1) Amounts in column may not foot due to rounding
Revenues - Revenues increased for the 89th 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 13% to 42,750 at March 31, 2023 from 37,900 at March 31, 2022 primarily due to sales and marketing efforts to acquire new customers and due to recent acquisitions.
Wallet share increased 7% to $11,050 for the three months ended March 31, 2023 from $10,350 for the same period in 2022. This was primarily attributable to increased usage of our products by our recurring revenue customers.
Recurring revenues increased 20% to $117.3 million for the three months ended March 31, 2023 compared to the three months ended March 31, 2022. Recurring revenues accounted for 93% of our total revenues for the three months ended March 31, 2023 and 2022. 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 penetration of our market.
Cost of Revenues - The increase in cost of revenues was primarily due to increased headcount, which resulted in an increase of $5.8 million in personnel-related costs, and an increase of $0.7 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 $3.4 million in personnel-related costs.
Research and Development Expenses - No significant changes.
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18
Form 10-Q for the Quarterly Period ended March 31, 2023

Table of Contents
General and Administrative Expenses - The increase in general and administrative expense was primarily due to increased headcount, which resulted in an increase of $1.5 million in personnel-related costs. Additionally, there were also increases in stock-based compensation of $1.7 million and $1.0 million in charitable contributions.
Amortization of Intangible Assets - The increase in amortization of intangible assets was driven by acquired intangible assets related to recent business combinations.
Other Expense, Net - No significant changes.
Income Tax Expense - The decrease in income tax expense was primarily driven by the increase in the excess tax deductions from current period equity award settlements, partially offset by an increase in pre-tax income. Excess tax benefits generated upon the settlement or exercise of stock awards are recognized as a reduction to income tax expense and, as a result, we expect that our annual effective income tax rate will fluctuate.
Adjusted EBITDA - Adjusted EBITDA 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.
The following table provides a reconciliation of net income to Adjusted EBITDA:
Three Months Ended
March 31,
(in thousands)20232022
Net income$15,289 $12,603 
Income tax expense2,717 4,330 
Depreciation and amortization of property and equipment4,626 3,864 
Amortization of intangible assets3,851 2,470 
Stock-based compensation expense11,780 9,015 
Realized gain from foreign currency on cash and investments held(137)(468)
Investment income(1,127)(48)
Adjusted EBITDA$36,999 $31,766 
Adjusted EBITDA Margin - Adjusted EBITDA Margin 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
March 31,
(in thousands, except Margin and Adjusted EBITDA Margin)20232022
Revenue$125,868$105,193
Net income15,28912,603
Margin12 %12 %
Adjusted EBITDA36,99931,766
Adjusted EBITDA Margin29 %30 %

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19
Form 10-Q for the Quarterly Period ended March 31, 2023

Table of Contents
Non-GAAP Income per Share - Non-GAAP income per share 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, 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.
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
March 31,
(in thousands, except per share amounts)20232022
Net income$15,289 $12,603 
Stock-based compensation expense11,780 9,015 
Amortization of intangible assets3,851 2,470 
Realized gain from foreign currency on cash and investments held(137)(468)
Income tax effects of adjustments(5,909)(3,219)
Non-GAAP income$