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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: September 30, 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 October 19, 2023 was 36,697,608 shares.


Table of Contents
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 September 30, 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)September 30,
2023
December 31,
2022
ASSETS(unaudited)
Current assets
Cash and cash equivalents$178,702 $162,893 
Short-term investments60,628 51,412 
Accounts receivable48,218 42,501 
Allowance for credit losses(3,077)(3,066)
Accounts receivable, net45,141 39,435 
Deferred costs59,525 52,755 
Other assets15,743 16,319 
Total current assets359,739 322,814 
Property and equipment, net36,209 35,458 
Operating lease right-of-use assets8,315 9,170 
Goodwill252,045 197,284 
Intangible assets, net103,597 88,352 
Other assets 
Deferred costs, non-current19,521 17,424 
Deferred income tax assets6,805 227 
Other assets, non-current1,177 2,185 
Total assets$787,408 $672,914 
LIABILITIES AND STOCKHOLDERS’ EQUITY 
Current liabilities  
Accounts payable$6,195 $11,256 
Accrued compensation41,474 30,235 
Accrued expenses8,900 7,451 
Deferred revenue71,853 57,423 
Operating lease liabilities4,449 4,277 
Total current liabilities132,871 110,642 
Other liabilities  
Deferred revenue, non-current6,849 4,771 
Operating lease liabilities, non-current10,563 13,009 
Deferred income tax liabilities10,281 7,419 
Total liabilities160,564 135,841 
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; 38,847,028 and 38,309,144 shares issued; and 36,695,930 and 36,158,046 shares outstanding, respectively
39 38 
Treasury Stock, at cost; 2,151,098 shares
(128,892)(128,892)
Additional paid-in capital520,313 476,117 
Retained earnings240,034 193,221 
Accumulated other comprehensive loss(4,650)(3,411)
Total stockholders’ equity626,844 537,073 
Total liabilities and stockholders’ equity$787,408 $672,914 
See accompanying notes to these condensed consolidated financial statements.
2.jpgSPS COMMERCE, INC.
3
Form 10-Q for the Quarterly Period ended September 30, 2023

Table of Contents
SPS COMMERCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three Months Ended
September 30,
Nine Months Ended
September 30,
(in thousands, except per share amounts) (unaudited)2023202220232022
Revenues$135,661 $114,486 $391,945 $328,857 
Cost of revenues45,521 38,605 133,029 111,524 
Gross profit90,140 75,881 258,916 217,333 
Operating expenses
Sales and marketing30,289 25,334 89,722 74,571 
Research and development13,558 11,135 39,438 33,268 
General and administrative21,906 16,724 64,275 49,390 
Amortization of intangible assets3,788 2,998 11,118 7,936 
Total operating expenses69,541 56,191 204,553 165,165 
Income from operations20,599 19,690 54,363 52,168 
Other income (expense), net1,702 (695)4,859 (1,610)
Income before income taxes22,301 18,995 59,222 50,558 
Income tax expense5,459 3,132 12,409 11,339 
Net income$16,842 $15,863 $46,813 $39,219 
Other comprehensive income (expense)
Foreign currency translation adjustments(2,966)(2,296)(1,446)(3,309)
Unrealized gain on investments, net of tax of $190, $53, $459 and $49, respectively
570 158 1,376 147 
Reclassification of gain on investments into earnings, net of tax of $(137), $(13), $(390), and $(17), respectively
(412)(39)(1,169)(51)
Total other comprehensive expense(2,808)(2,177)(1,239)(3,213)
Comprehensive income$14,034 $13,686 $45,574 $36,006 
Net income per share
Basic$0.46 $0.44 $1.28 $1.09 
Diluted$0.45 $0.43 $1.25 $1.06 
Weighted average common shares used to compute net income per share
Basic36,728 36,093 36,584 36,104 
Diluted37,584 36,915 37,417 36,942 
See accompanying notes to these condensed consolidated financial statements.
2.jpgSPS COMMERCE, INC.
4
Form 10-Q for the Quarterly Period ended September 30, 2023

Table of Contents
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, June 30, 202236,029,477 $38 2,044,549 $(115,900)$453,922 $161,443 $(2,483)$497,020 
Stock-based compensation— — — — 7,429 — — 7,429 
Shares issued pursuant to stock awards108,240 — — — 1,767 — — 1,767 
Employee stock purchase plan activity2,481 — — — 238 — — 238 
Repurchases of common stock(102,234)— 102,234 (12,477)— — — (12,477)
Net income— — — — — 15,863 — 15,863 
Foreign currency translation adjustments— — — — — — (2,296)(2,296)
Unrealized gain on investments, net of tax— — — — — — 158 158 
Reclassification of gain on investments into earnings, net of tax— — — — — — (39)(39)
Balances, September 30, 202236,037,964 $38 2,146,783 $(128,377)$463,356 $177,306 $(4,660)$507,663 
Balances, June 30, 202336,646,819 $39 2,151,098 $(128,892)$508,484 $223,192 $(1,842)$600,981 
Stock-based compensation— — — — 10,780 — — 10,780 
Shares issued pursuant to stock awards45,952 — — — 705 — — 705 
Employee stock purchase plan activity3,159 — — — 344 — — 344 
Net income— — — — — 16,842 — 16,842 
Foreign currency translation adjustments— — — — — — (2,966)(2,966)
Unrealized gain on investments, net of tax— — — — — — 570 570 
Reclassification of gain on investments into earnings, net of tax— — — — — — (412)(412)
Balances, September 30, 202336,695,930 $39 2,151,098 $(128,892)$520,313 $240,034 $(4,650)$626,844 
Common StockTreasury Stock Additional
Paid-in
Capital
Retained
Earnings
Accumulated Other Comprehensive LossTotal
Stockholders'
Equity
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— — — — 24,053 — — 24,053 
Shares issued pursuant to stock awards348,621 — — — 2,457 — — 2,457 
Employee stock purchase plan activity37,516 — — — 3,588 — — 3,588 
Repurchases of common stock(357,430)— 357,430 (42,700)— — — (42,700)
Net income— — — — — 39,219 — 39,219 
Foreign currency translation adjustments— — — — — — (3,309)(3,309)
Unrealized gain on investments, net of tax— — — — — — 147 147 
Reclassification of gain on investments into earnings, net of tax— — — — — — (51)(51)
Balances, September 30, 202236,037,964 $38 2,146,783 $(128,377)$463,356 $177,306 $(4,660)$507,663 
Balances, December 31, 202236,158,046 $38 2,151,098 $(128,892)$476,117 $193,221 $(3,411)$537,073 
Stock-based compensation— — — — 34,192 — — 34,192 
Shares issued pursuant to stock awards496,500 1 — — 5,523 — — 5,524 
Employee stock purchase plan activity41,384 — — — 4,481 — — 4,481 
Net income— — — — — 46,813 — 46,813 
Foreign currency translation adjustments— — — — — — (1,446)(1,446)
Unrealized gain on investments, net of tax— — — — — — 1,376 1,376 
Reclassification of gain on investments into earnings, net of tax— — — — — — (1,169)(1,169)
Balances, September 30, 202336,695,930 $39 2,151,098 $(128,892)$520,313 $240,034 $(4,650)$626,844 
See accompanying notes to these condensed consolidated financial statements..
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5
Form 10-Q for the Quarterly Period ended September 30, 2023

Table of Contents
SPS COMMERCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
(in thousands) (unaudited)20232022
Cash flows from operating activities
Net income$46,813 $39,219 
Reconciliation of net income to net cash provided by operating activities
Deferred income taxes(11,906)(2,092)
Depreciation and amortization of property and equipment13,964 11,983 
Amortization of intangible assets11,118 7,936 
Provision for credit losses4,004 2,889 
Stock-based compensation36,097 25,636 
Other, net1,711 43 
Changes in assets and liabilities
Accounts receivable(8,800)(3,999)
Deferred costs(7,543)(7,174)
Other current and non-current assets2,814 2,202 
Accounts payable(5,289)129 
Accrued compensation8,073 (4,388)
Accrued expenses(169)(3,035)
Deferred revenue10,042 8,261 
Operating leases(1,417)(1,127)
Net cash provided by operating activities99,512 76,483 
Cash flows from investing activities
Purchases of property and equipment(15,467)(13,894)
Purchases of investments(102,763)(134,276)
Maturities of investments95,000 132,500 
Acquisition of business, net(70,218)(44,923)
Net cash used in investing activities(93,448)(60,593)
Cash flows from financing activities
Repurchases of common stock (42,700)
Net proceeds from exercise of options to purchase common stock5,524 2,457 
Net proceeds from employee stock purchase plan activity4,481 3,588 
Net cash provided by (used in) financing activities10,005 (36,655)
Effect of foreign currency exchange rate changes(260)(557)
Net increase (decrease) in cash and cash equivalents15,809 (21,322)
Cash and cash equivalents at beginning of period162,893 207,552 
Cash and cash equivalents at end of period$178,702 $186,230 
See accompanying notes to these condensed consolidated financial statements.
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6
Form 10-Q for the Quarterly Period ended September 30, 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 nine months ended September 30, 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 has not had a material impact on the purchase accounting for business combinations.
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7
Form 10-Q for the Quarterly Period ended September 30, 2023

Table of Contents
NOTE B – Business Acquisitions
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. During the quarter ended June 30, 2023, provisional amounts were adjusted by $3.1 million, primarily relating to a $3.9 million decrease in estimated value of intangible assets and the corresponding $1.0 million change to the deferred tax position, with the offsets to goodwill. During the quarter ended September 30, 2023, there were no significant adjustments made to provisional amounts. The purchase accounting has been finalized as of September 30, 2023.
TIE Kinetix
Effective September 13, 2023, we acquired all of the outstanding equity ownership interests of TIE Kinetix Holding B.V. ("TIE Kinetix"), a leading provider of supply chain digitalization including EDI and e-invoicing in Europe. Pursuant to the definitive agreement, the purchase price was €63.9 million ($68.7 million at the September 13, 2023 exchange rate), net of cash acquired. The purchase accounting for the acquisition has not been finalized as of September 30, 2023; provisional amounts are primarily related to intangible assets and tax components. We expect to finalize the allocation of the purchase price within the one-year measurement period following the acquisition.
Purchase Price Allocations
We accounted for the acquisitions as business combinations. We allocated the purchase price to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition dates:
InterTradeTIE Kinetix
(in thousands)Acquisition Date Estimated Fair Value as of
December 31, 2022
AdjustmentAcquisition Date Estimated Fair Value as of
September 30, 2023
Acquisition Date Estimated Fair Value as of
September 30, 2023
Cash paid at transaction date$47,165 $— $47,165 $73,558 
Contingent consideration2,000 — 2,000 
Post-closing adjustments(93)116 23 
Total consideration$49,072 $116 $49,188 $73,558 
Estimated fair value of assets and liabilities acquired:
Cash$668 $— $668 $4,859 
Accounts receivable1,302 (94)1,208 1,347 
Other assets1,903 — 1,903 2,981 
Intangible assets
Subscriber relationships17,640 (3,960)13,680 18,183 
Developed technology4,410 (501)3,909 12,122 
Current liabilities(2,337)(35)(2,372)(3,606)
Deferred revenue(397)202 (195)(6,421)
Deferred income tax liabilities, net(6,127)1,030 (5,097)(6,112)
Total fair value of assets and liabilities acquired$17,062 $(3,358)$13,704 $23,354 
Goodwill$32,010 $3,475 $35,485 $50,205 

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8
Form 10-Q for the Quarterly Period ended September 30, 2023

Table of Contents
The following table summarizes the estimated useful lives for each acquired intangible asset:
Estimated Useful Life
InterTradeTIE Kinetix
Subscriber relationships8.0 years8.0 years
Developed technology6.0 years6.0 years
Other Acquisition Activity
During the third quarter of 2023, the Company had other acquisition activity resulting in a total purchase price of $1.5 million, paid in cash. Assets acquired were primarily comprised of developed technology and customer relationships, totaling $0.9 million of estimated fair value. The remainder of the consideration transferred, $0.6 million, was allocated to goodwill.
NOTE C – Revenue
We derive our revenues from the following revenue streams:
Three Months Ended
September 30,
Nine Months Ended
September 30,
(in thousands)2023202220232022
Recurring revenues:
Fulfillment$110,900 $92,952 $318,069 $265,570 
Analytics13,098 11,902 38,177 34,846 
Other3,373 1,699 9,949 4,867 
Recurring revenues127,371 106,553 366,195 305,283 
One-time revenues8,290 7,933 25,750 23,574 
Total revenue$135,661 $114,486 $391,945 $328,857 
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.
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.
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9
Form 10-Q for the Quarterly Period ended September 30, 2023

Table of Contents
The table below presents the activity of the portion of the deferred revenue liability relating to set-up fees:
Three Months Ended
September 30,
Nine Months Ended
September 30,
(in thousands)2023202220232022
Balance, beginning of period$16,978 $15,309 $14,999 $14,459 
Invoiced set-up fees4,496 3,715 14,493 11,776 
Recognized set-up fees(4,225)(3,805)(12,243)(11,016)
Balance, end of period$17,249 $15,219 $17,249 $15,219 
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
September 30,
Nine Months Ended
September 30,
(in thousands)2023202220232022
Balance, beginning of period$75,255 $64,665 $70,179 $59,720 
Incurred deferred costs20,094 17,442 57,632 52,860 
Amortized deferred costs(16,303)(15,551)(48,765)(46,024)
Balance, end of period$79,046 $66,556 $79,046 $66,556 
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:
September 30, 2023December 31, 2022
Fair Value LevelAmortized CostUnrealized Gains (Losses), netFair ValueAmortized CostUnrealized Gains (Losses), netFair Value
(in thousands)
Cash equivalents:
Money market fundsLevel 1$120,100 $ $120,100 $73,368 $ $73,368 
Investments:
Certificates of depositLevel 16,431  6,431 6,813  6,813 
Marketable securities:
Commercial paperLevel 253,546 651 54,197 44,224 375 44,599 
$180,077 $651 $180,728 $124,405 $375 $124,780 

2.jpgSPS COMMERCE, INC.
10
Form 10-Q for the Quarterly Period ended September 30, 2023

Table of Contents
NOTE F – Allowance for Credit Losses
The allowance for credit losses activity, included in accounts receivable, net, was as follows:
Nine Months Ended
September 30,
(in thousands)20232022
Balance, beginning of period$3,066 $4,249 
Provision for credit losses4,004 2,889 
Write-offs, net of recoveries(3,993)(3,480)
Balance, end of period$3,077 $3,658 
NOTE G – Property and Equipment, Net
Property and equipment, net consisted of the following:
(in thousands)September 30,
2023
December 31, 2022
Internally developed software$57,933 $49,994 
Computer equipment34,048 30,310 
Leasehold improvements15,361 16,531 
Office equipment and furniture10,993 10,981 
Property and equipment, cost118,335 107,816 
Less: accumulated depreciation and amortization(82,126)(72,358)
Total property and equipment, net$36,209 $35,458 
NOTE H – Goodwill and Intangible Assets, Net
Goodwill
The activity in goodwill was as follows:
Nine Months Ended
September 30,
(in thousands)2023
Balance, beginning of period$197,284 
Foreign currency translation(1,162)
Addition from business acquisition(s)50,842 
Remeasurement from provisional purchase accounting amount5,081 
Balance, end of period$252,045 
Intangible Assets
Intangible assets, net consisted of the following:
September 30, 2023
($ in thousands)Gross
Carrying
Amount
Accumulated
Amortization
Foreign
Currency
Translation
NetWeighted Average Remaining Amortization Period
Subscriber relationships$97,734 $(28,771)$(4,173)$64,790 6.7 years
Acquired technology53,505 (13,995)(703)38,807 5.3 years
$151,239 $(42,766)$(4,876)$103,597 6.1 years
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11
Form 10-Q for the Quarterly Period ended September 30, 2023

Table of Contents
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$4,718 
202417,899 
202517,761 
202616,757 
202716,294 
Thereafter30,168 
Total future amortization$103,597 
NOTE I – Commitments and Contingencies
Leases
The components of lease expense were as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
(in thousands)2023202220232022
Operating lease cost$729 $788 $2,306 $2,287 
Variable lease cost909 963 2,787 2,612 
$1,638 $1,751 $5,093 $4,899 
Supplemental cash flow information related to leases was as follows:
Nine Months Ended
September 30,
(in thousands)20232022
Cash paid for amounts included in the measurement of lease liabilities  
Operating cash flows from operating leases$3,835 $3,399 
Right-of-use assets obtained in exchange for operating lease liabilities1,072 934 
Supplemental balance sheet information related to operating leases was as follows:
September 30,
2023
December 31, 2022
Weighted-average remaining lease term3.3 years3.9 years
Weighted-average discount rate3.7 %4.0 %
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12
Form 10-Q for the Quarterly Period ended September 30, 2023

Table of Contents
At September 30, 2023, our future minimum payments under operating leases were as follows:
(in thousands)
Remainder of 2023$767 
20245,415 
20254,589 
20263,942 
20271,297 
Thereafter97 
Total future gross payments$16,107 
Less: imputed interest(1,095)
Total operating lease liabilities$15,012 
Purchase Commitments
We have entered into separate noncancelable agreements with computing infrastructure, productivity software, customer relationship management, and performance and security data analytics vendors for services through 2026. At September 30, 2023, our remaining purchase commitments and estimated purchase timing were as follows:
(in thousands)
Remainder of 2023$2,129 
202411,527 
202511,178 
20264,264 
Total estimated future purchases$29,098 
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 September 30, 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 2022$50,000$49,992 $8 N/A
2022 ProgramAugust 2022July 202450,0002,992 N/A$47,008 
The share repurchase activity by period was as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
(in thousands, except shares and per share amounts)2023202220232022
Number of shares repurchased 102,234  357,430 
Shares repurchased cost$ $12,477 $ $42,700 
Average price per repurchased share$ $122.04 $ $119.46 
2.jpgSPS COMMERCE, INC.
13
Form 10-Q for the Quarterly Period ended September 30, 2023

Table of Contents

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 September 30, 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
September 30,
Nine Months Ended
September 30,
(in thousands)2023202220232022
Cost of revenues$2,506 $2,146 $7,595 $6,477 
Operating expenses 
Sales and marketing2,428 1,845 7,379 5,835 
Research and development1,798 1,396 5,387 4,250 
General and administrative4,704 2,573 15,736 9,074 
$11,436 $7,960 $36,097 $25,636 
Stock-based compensation expense by grant type or plan was as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
(in thousands)2023202220232022
Stock options$487 $461 $1,472 $1,401 
PSUs2,812 1,541 10,236 6,244 
RSUs & DSUs6,722 4,735 20,165 14,467 
RSAs122 110 345 328 
ESPP637 577 1,974 1,609 
401(k) stock match656 536 1,905 1,587 
$11,436 $7,960 $36,097 $25,636 
As of September 30, 2023, there was $50.3 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 2.4 years.
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14
Form 10-Q for the Quarterly Period ended September 30, 2023

Table of Contents
Stock Options
Our stock option activity was as follows:
Nine Months Ended
September 30, 2023
Options (#) Weighted Average
Exercise Price
($/share)
Outstanding, beginning of period562,697 $56.24 
Granted39,949 152.08 
Exercised(154,279)35.80 
Forfeited(2,236)127.39 
Outstanding, end of period446,131 $71.54 
Of the total outstanding options at September 30, 2023, 0.4 million were exercisable. The outstanding and exercisable options had a weighted average exercise price of $59.61 per share and a weighted average remaining contractual life of 2.9 years.
The weighted average grant date fair value of options granted during the nine months ended September 30, 2023 was $56.29 per share. This was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:
Life (in years)4.2
Volatility39.3 %
Dividend yield 
Risk-free interest rate4.0 %
Performance Share Units, Restricted Stock Units and Awards, and Deferred Stock Units
In each of the quarters ended March 31, 2023, 2022, 2021, and 2020 we granted PSU awards with a target performance level. These awards are earned based upon our Company’s total shareholder return as compared to an indexed total shareholder return over the course of a fiscal based three-year performance period, starting in the year of grant. Earned awards vest in the quarter following the conclusion of the performance period. In the three months ended March 31, 2023, PSU awards granted in 2020 vested at the maximum performance level and 0.1 million shares of common stock were issued.
Activity for our PSUs, RSUs, RSAs, and DSUs in aggregate was as follows:
Nine Months Ended
September 30, 2023
#Weighted Average Grant
Date Fair Value
($/share)
Outstanding, beginning of period712,158 $103.93 
Granted352,457 163.26 
Vested and common stock issued(341,570)77.06 
Forfeited(7,607)118.37 
Outstanding, end of period715,438 $145.83 
The number of PSUs, RSUs, RSAs, and DSUs outstanding at September 30, 2023 included 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.
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15
Form 10-Q for the Quarterly Period ended September 30, 2023

Table of Contents
Employee Stock Purchase Plan
Our ESPP activity was as follows:

Three Months Ended
September 30,
Nine Months Ended
September 30,
(in thousands, except shares)2023202220232022
Amounts for shares purchased$344 $238 $4,481 $3,588 
Shares purchased3,159 2,481 41,384 37,516 
A total of 1.7 million shares of common stock are reserved for issuance under the ESPP as of September 30, 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
Volatility40.1 %
Dividend yield 
Risk-free interest rate4.6 %
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.

NOTE M – Other Income and Expense
Other income (expense), net included the following:
Three Months Ended
September 30,
Nine Months Ended
September 30,
(in thousands)2023202220232022
Investment income$2,635 $586 $5,372 $806 
Realized gain (loss) from foreign currency on cash and investments held98 (1,151)525 (2,010)
Other expense, net(1,031)(130)(1,038)(406)
Total other income (expense), net$1,702 $(695)$4,859 $(1,610)
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16
Form 10-Q for the Quarterly Period ended September 30, 2023

Table of Contents
NOTE N – Net Income Per Share
The components and computation of basic and diluted net income per share were as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
(in thousands, except per share amounts)2023202220232022
Numerator
Net income$16,842 $15,863 $46,813 $39,219 
Denominator    
Weighted average common shares outstanding, basic36,728 36,093 36,584 36,104 
Options to purchase common stock256 379 279 396 
PSUs, RSUs, RSAs, and DSUs600 443 554 442 
Weighted average common shares outstanding, diluted37,584 36,915 37,417 36,942 
Net income per share    
Basic$0.46 $0.44 $1.28 $1.09 
Diluted$0.45 $0.43 $1.25 $1.06 
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
September 30,
Nine Months Ended
September 30,
(in thousands)2023202220232022
Anti-dilutive shares40 107 43 222 

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
September 30,
Nine Months Ended
September 30,
2023202220232022
Domestic revenue84 %85 %84 %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:
September 30,
2023
December 31, 2022
International property and equipment14 %13 %
2.jpgSPS COMMERCE, INC.
17
Form 10-Q for the Quarterly Period ended September 30, 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.”
2.jpgSPS COMMERCE, INC.
18
Form 10-Q for the Quarterly Period ended September 30, 2023

Table of Contents
Results of Operations
Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022
The following table presents our results of operations for the periods indicated:
Three Months Ended September 30,
20232022Change
($ in thousands)$
% of revenue(1)
$
% of revenue(1)
$%
Revenues$135,661 100.0 %$114,486 100.0 %$21,175 18.5 %
Cost of revenues45,521 33.6 38,605 33.7 6,916