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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, 2023, 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, 2024. See Note A to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC, for additional information regarding our significant accounting policies.
Accounting Pronouncements Recently Issued and Adopted
This amendment requires that an entity disclose significant segment expenses impacting profit and loss that are regularly provided to the chief operating decision maker.
2024
The adoption will result in additional disclosure in our Annual Report on Form 10-K for the year ended December 31, 2024.
ASU 2023-09, Income Taxes (Topic 740) - Improvements to Income Tax Disclosures
December 2023
This amendment requires that an entity disclose specific categories in the effective tax rate reconciliation table as well as provide disclosure of disaggregated information related to income tax expense, income before income taxes, and income taxes paid.
2025
We are currently evaluating the adoption on our financial statements and anticipate the impact will result in additional disclosure.
SPS COMMERCE, INC.
8
Form 10-Q for the Quarterly Period ended September 30, 2024
Effective July 31, 2024, we acquired SupplyPike, Inc. ("SupplyPike"), an automated invoice deduction management and prevention solution, through the purchase of all of the outstanding equity ownership interests of SupplyPike. Pursuant to the definitive agreement and plan of merger, the total consideration transferred at close was $205.8 million, net of cash acquired and subject to customary post-close adjustments. The consideration was comprised of $118.6 million paid in cash and 404,587 shares of SPS common stock (valued at $87.2 million, determined at acquisition close based on the price of SPS common stock). The shares were issued from SPS treasury shares, see Note J - Stockholders' Equity for further detail on the treasury share reissuance. The purchase accounting for the acquisition has not been finalized as of September 30, 2024; provisional amounts are primarily related to intangible assets and tax components. We will finalize the allocation of the purchase price within the one-year measurement period following the acquisition. The goodwill associated with the acquisition is not deductible for income tax purposes.
Purchase Price Allocation
We accounted for the acquisition as a business combination. 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 presents the purchase consideration and estimated fair values of acquired assets and liabilities recorded in the Company's condensed consolidated balance sheet as of the acquisition date:
(in thousands)
Cash paid
$
124,769
Equity consideration
87,156
Total consideration
$
211,925
Estimated fair value of assets and liabilities acquired:
Cash
$
6,118
Other assets
3,659
Intangible assets
Subscriber relationships
16,500
Developed technology
49,500
Deferred revenue
(2,297)
Other liabilities
(2,643)
Deferred income tax liabilities, net
(11,580)
Total fair value of assets and liabilities acquired
$
59,257
Goodwill
$
152,668
The following table summarizes the preliminary estimated useful lives for each acquired intangible asset:
Useful Life
Subscriber relationships
7.0 years
Developed technology
8.0 years
Traverse Systems
Effective May 8, 2024, we entered into an asset purchase agreement to acquire certain assets of Traverse Systems LLC ("Traverse Systems"), an industry-leading provider in retailer supply chain performance and vendor management. Total consideration transferred at close was $29.4 million, subject to customary post-close adjustments, which was comprised of $25.0 million paid in cash and 22,874 shares of SPS common stock (valued at $4.4 million, determined at acquisition close based on the price of SPS common stock). The shares were issued from SPS treasury shares, see Note J - Stockholders' Equity for further detail on the treasury share reissuance.
SPS COMMERCE, INC.
9
Form 10-Q for the Quarterly Period ended September 30, 2024
We accounted for the acquisition as a business combination. 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. Assets acquired primarily comprised of subscriber relationships and developed technology intangible assets, totaling $7.7 million and $3.6 million of estimated fair value, respectively, and $18.4 million was allocated to goodwill. The remainder of the consideration transferred was allocated to net assets acquired other than the intangible assets. The purchase accounting for the acquisition was finalized as of September 30, 2024. The goodwill associated with the acquisition is deductible for income tax purposes.
Other Acquisition Activity
Effective April 10, 2024, the Company entered into an asset purchase agreement to acquire Vision33's SAP Business One SPS Integration Technology. Pursuant to the definitive agreement, the purchase price, denominated in Canadian dollars ("CAD"), was $5.8 million CAD ($4.3 million U.S. dollars ["USD"] at the Agreement date exchange rate), of which $4.5 million CAD ($3.3 million USD) was paid in cash at close, with the remainder payable in cash within two years, subject to certain closing conditions. Assets acquired were primarily comprised of developed technology and subscriber relationships, totaling $1.7 million USD and $0.4 million USD of estimated fair value, respectively. The remainder of the consideration transferred, $2.2 million USD, was allocated to goodwill. The purchase accounting for the acquisition was finalized as of June 30, 2024. The goodwill associated with the acquisition is deductible for income tax purposes.
NOTE C – Revenue
We derive our revenues from the following revenue streams:
Three Months Ended September 30,
Nine Months Ended September 30,
(in thousands)
2024
2023
2024
2023
Recurring revenues:
Fulfillment
$
135,290
$
110,900
$
382,654
$
318,069
Analytics
13,838
13,098
41,361
38,177
Other
5,328
3,373
14,107
9,949
Recurring revenues
154,456
127,371
438,122
366,195
One-time revenues
9,230
8,290
28,736
25,750
Total revenue
$
163,686
$
135,661
$
466,858
$
391,945
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.
Revenue by Geographic Area
Domestic revenue, which we define as revenue that was attributable to customers based within the United States ("U.S."), was as follows:
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Domestic revenue
83
%
84
%
83
%
84
%
No single jurisdiction outside of the U.S. had revenues in excess of 10%.
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.
SPS COMMERCE, INC.
10
Form 10-Q for the Quarterly Period ended September 30, 2024
Given that the recurring revenue contracts are generally 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 generally 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. We expect to recognize $13.5 million of the balance as of September 30, 2024 as revenue over the next 12 months with the remaining amount recognized thereafter.
Three Months Ended September 30,
Nine Months Ended September 30,
(in thousands)
2024
2023
2024
2023
Balance, beginning of period
$
18,360
$
16,978
$
17,603
$
14,999
Invoiced set-up fees
3,866
4,496
13,387
14,493
Recognized set-up fees
(4,519)
(4,225)
(13,283)
(12,243)
Balance, end of period
$
17,707
$
17,249
$
17,707
$
17,249
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.
Deferred Revenue
We recognized revenue of $61.8 million and $52.4 million in the nine months ended September 30, 2024 and 2023, respectively, from amounts included in deferred revenue at the beginning of the period.
NOTE D – Deferred Costs
The deferred costs activity was as follows:
Three Months Ended September 30,
Nine Months Ended September 30,
(in thousands)
2024
2023
2024
2023
Balance, beginning of period
$
84,928
$
75,255
$
82,750
$
70,179
Incurred deferred costs
22,532
20,094
67,483
57,632
Amortized deferred costs
(21,993)
(16,303)
(64,766)
(48,765)
Balance, end of period
$
85,467
$
79,046
$
85,467
$
79,046
SPS COMMERCE, INC.
11
Form 10-Q for the Quarterly Period ended September 30, 2024
Supplemental cash flow information related to leases was as follows:
Nine Months Ended September 30,
(in thousands)
2024
2023
Cash paid for amounts included in the measurement of lease liabilities
Operating cash outflows from operating leases
$
3,801
$
3,835
Right-of-use assets obtained in exchange for operating lease liabilities
2,554
1,072
Supplemental balance sheet information related to operating leases was as follows:
September 30, 2024
December 31, 2023
Weighted-average remaining lease term
2.6 years
3.1 years
Weighted-average discount rate
4.2
%
4.0
%
At September 30, 2024, our future minimum payments under operating leases were as follows:
(in thousands)
Remainder of 2024
$
1,716
2025
5,460
2026
4,784
2027
1,740
Thereafter
240
Total future gross payments
$
13,940
Less: imputed interest
(770)
Total operating lease liabilities
$
13,170
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, 2024, our remaining purchase commitments and estimated purchase timing were as follows:
(in thousands)
Remainder of 2024
$
2,890
2025
14,187
2026
4,692
Total estimated future purchases
$
21,769
SPS COMMERCE, INC.
14
Form 10-Q for the Quarterly Period ended September 30, 2024
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, 2024 were as follows:
(in thousands)
Effective Date
Expiration Date
Share Value Authorized for Repurchase
Share Value Repurchased
Unused & Expired Share Repurchase Value
Share Value Available for Future Repurchase
2022 Program
August 2022
July 2024
$
50,000
$
40,556
$
9,444
N/A
2024 Program
August 2024
July 2026
100,000
—
N/A
$
100,000
Share repurchases are accounted for as the trade date occurs and are reflected in the condensed consolidated financial statements net of the costs incurred to acquire the shares. Share repurchases that have not yet settled in cash are included in accrued expenses in the condensed consolidated balance sheet. The sharerepurchase activity by period was as follows:
Three Months Ended September 30,
Nine Months Ended September 30,
(in thousands, except shares and per share amounts)
2024
2023
2024
2023
Number of shares repurchased
456
—
205,331
—
Total share repurchased cost
$
84
$
—
$
37,567
$
—
Average total cost per repurchased share
$
184.21
$
—
$
182.96
$
—
Treasury Stock Reissuance
In connection with the acquisitions of SupplyPike and Traverse Systems, the Company re-issued treasury shares as part of the purchase considerations (see Note B – Business Combinations for further information). Treasury stock reissuances are accounted for using the specific identification method, with gains (or losses to the extent of previously recognized gains) recognized in additional paid-in capital and any remaining loss recorded in retained earnings.
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. If retirement-eligible employees have not given their required notice, expense is recognized on a pro-rata basis over the notice period prior to retirement; if they have given their notice, expense is recognized over the notice period; if they have given their notice and completed the notice period, expense is recognized upon grant. At September 30, 2024, there were 12.3 million shares available for grant under approved equity compensation plans.
SPS COMMERCE, INC.
15
Form 10-Q for the Quarterly Period ended September 30, 2024
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)
2024
2023
2024
2023
Cost of revenues
$
1,412
$
2,506
$
8,224
$
7,595
Operating expenses
Sales and marketing
2,820
2,428
9,776
7,379
Research and development
1,939
1,798
7,001
5,387
General and administrative
4,581
4,704
17,263
15,736
$
10,752
$
11,436
$
42,264
$
36,097
Stock-based compensation expense by grant type or plan was as follows:
Three Months Ended September 30,
Nine Months Ended September 30,
(in thousands)
2024
2023
2024
2023
Stock options
$
514
$
487
$
1,517
$
1,472
PSUs
2,260
2,812
7,149
10,236
RSUs & DSUs
6,309
6,722
28,751
20,165
RSAs
112
122
329
345
ESPP
800
637
2,323
1,974
401(k) stock match
757
656
2,195
1,905
$
10,752
$
11,436
$
42,264
$
36,097
As of September 30, 2024, there was $78.9 million of unrecognized stock-based compensation expense under our equity compensation plans, which is expected to be recognized on a primarily straight-line basis over a weighted average period of 2.5 years.
Stock Options
Our stock option activity was as follows:
Nine Months Ended September 30, 2024
Options (#)
Weighted Average Exercise Price ($/share)
Outstanding, beginning of period
346,822
$
80.02
Granted
36,993
197.42
Exercised
(85,364)
49.18
Forfeited
(2,094)
158.63
Outstanding, end of period
296,357
$
103.01
Of the total outstanding options at September 30, 2024, 0.2 million were exercisable. The outstanding and exercisable options had a weighted average exercise price of $83.65 per share and a weighted average remaining contractual life of 3.0 years.
SPS COMMERCE, INC.
16
Form 10-Q for the Quarterly Period ended September 30, 2024
The weighted average grant date fair value of options granted during the nine months ended September 30, 2024 was $69.82 per share. This was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:
Life (in years)
4.1
Volatility
36.7
%
Dividend yield
—
Risk-free interest rate
4.3
%
Performance Share Units, Restricted Stock Units and Awards, and Deferred Stock Units
In each of the quarters ended March 31, 2024, 2023, 2022, and 2021 we granted PSU awards with a target performance level. These awards are earned based upon our Company’s total shareholder return as compared to an indexed total shareholder return over the course of a fiscal based three-year performance period, starting in the year of grant. Earned awards vest in the quarter following the conclusion of the performance period. In the three months ended March 31, 2024, PSU awards granted in 2021 vested at the maximum performance level and 0.1 million shares of common stock were issued.
Activity for our PSUs, RSUs, RSAs, and DSUs in aggregate was as follows:
Nine Months Ended September 30, 2024
#
Weighted Average Grant Date Fair Value ($/share)
Outstanding, beginning of period
773,414
$
147.50
Granted
409,843
185.73
Vested and common stock issued
(403,291)
124.30
Forfeited
(33,725)
180.49
Outstanding, end of period
746,241
$
179.54
The number of PSUs, RSUs, RSAs, and DSUs outstanding at September 30, 2024 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 September 30,
Nine Months Ended September 30,
(in thousands, except shares)
2024
2023
2024
2023
Amounts for shares purchased
$
453
$
344
$
5,672
$
4,481
Shares purchased
2,833
3,159
35,416
41,384
A total of 1.6 million shares of common stock are reserved for issuance under the plan at September 30, 2024.
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
Volatility
30.9
%
Dividend yield
—
Risk-free interest rate
5.3
%
SPS COMMERCE, INC.
17
Form 10-Q for the Quarterly Period ended September 30, 2024
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, net included the following:
Three Months Ended September 30,
Nine Months Ended September 30,
(in thousands)
2024
2023
2024
2023
Investment income
$
2,704
$
2,635
$
8,377
$
5,372
Realized gain from foreign currency on cash and investments held
1,077
98
2,636
525
Other expense, net
(3)
(1,031)
(47)
(1,038)
Total other income, net
$
3,778
$
1,702
$
10,966
$
4,859
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)
2024
2023
2024
2023
Numerator
Net income
$
23,460
$
16,842
$
59,495
$
46,813
Denominator
Weighted average common shares outstanding, basic
37,447
36,728
37,192
36,584
Options to purchase common stock and ESPP
145
256
159
279
PSUs, RSUs, RSAs, and DSUs
404
600
434
554
Weighted average common shares outstanding, diluted
37,996
37,584
37,785
37,417
Net income per share
Basic
$
0.63
$
0.46
$
1.60
$
1.28
Diluted
$
0.62
$
0.45
$
1.57
$
1.25
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)
2024
2023
2024
2023
Anti-dilutive shares
130
40
118
43
SPS COMMERCE, INC.
18
Form 10-Q for the Quarterly Period ended September 30, 2024
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2023. This Quarterly Report on Form 10-Q contains forward-looking statementswithin 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, 2023, 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, 2023, as filed with the SEC, under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
To supplement our condensed 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.
SPS COMMERCE, INC.
19
Form 10-Q for the Quarterly Period ended September 30, 2024
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 condensed 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.”
Results of Operations
Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023
The following table presents our results of operations for the periods indicated:
Three Months Ended September 30,
2024
2023
Change
($ in thousands)
$
% of revenue(1)
$
% of revenue(1)
$
%(2)
Revenues
$
163,686
100
%
$
135,661
100
%
$
28,025
21
%
Cost of revenues
51,624
32
45,521
34
6,103
13
Gross profit
112,062
68
90,140
66
21,922
24
Operating expenses
Sales and marketing
37,577
23
30,289
22
7,288
24
Research and development
15,292
9
13,558
10
1,734
13
General and administrative
27,152
17
21,906
16
5,246
24
Amortization of intangible assets
6,470
4
3,788
3
2,682
71
Total operating expenses
86,491
53
69,541
51
16,950
24
Income from operations
25,571
16
20,599
15
4,972
24
Other income, net
3,778
2
1,702
1
2,076
NM
Income before income taxes
29,349
18
22,301
16
7,048
32
Income tax expense
5,889
4
5,459
4
430
8
Net income
$
23,460
14
%
$
16,842
12
%
$
6,618
39
%
(1) Amounts in column may not foot due to rounding
(2) NM = not meaningful
Revenues - Revenues increased for the 95th consecutive quarter. The increase in revenue period-over-period resulted primarily from the increase in average recurring revenues per recurring revenue customer, which we also refer to as wallet share. Additionally, the revenue growth was attributable to an increase in recurring revenue customers, which is driven primarily by continued business growth and by business acquisitions.
•Wallet share increased 18% to approximately $13,700 for the three months ended September 30, 2024 from approximately $11,650 for the same period in 2023. This was primarily attributable to increased usage of our products by our recurring revenue customers.
•The number of recurring revenue customers increased 2% to approximately 45,200 at September 30, 2024 from approximately 44,500 at September 30, 2023, primarily due to sales and marketing efforts to acquire new customers and recent acquisitions. New recurring revenue customers do not have a meaningful contribution to revenue at the beginning of their tenure as our recurring revenue customer, and therefore a majority of the increased revenue was generated from existing recurring revenue customers.
SPS COMMERCE, INC.
20
Form 10-Q for the Quarterly Period ended September 30, 2024
•Approximately 1,000 recurring revenue customers were added in September 2023 due to the acquisition of the existing customer base of TIE Kinetix. Additionally, approximately 50 recurring revenue customers were added in May 2024 due to the acquisition of the existing customer base of Traverse Systems, and approximately 200 recurring revenue customers were added in July 2024 due to the acquisition of the existing customer base of SupplyPike.
Recurring revenues increased 21% to $154.5 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. Recurring revenues accounted for 94%of our total revenues for the three months ended September 30, 2024 and 2023. 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 $4.7 million in personnel-related costs.
Sales and Marketing Expenses -The increase in sales and marketing expense was primarily due to increased headcount, which resulted in an increase of $5.0 million in personnel-related costs.
Research and Development Expenses - The increase in research and development expense was primarily due to increased headcount, which resulted in an increase of $2.4 million in personnel-related costs.
General and Administrative Expenses -The increase in general and administrative expense was primarily due to increased headcount, which resulted in an increase of $1.7 million in personnel-related costs. Additionally, there was an expense increase of $1.1 million associated with current and projected future credit losses and overall business growth.
Amortization of Intangible Assets - The increase in amortization of intangible assets was driven by acquired intangible assets related to recent business combinations.
Other Income, Net - The increase in other income, net was primarily due to realized gains from favorable foreign currency exchange rates.
Income Tax Expense -The increase in income tax expense was primarily driven by increases in pre-tax income and our US state effective rate, as partially offset by favorable return to provision adjustments made in the current period.
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, and other adjustments as necessary for a fair presentation. Other adjustments for the three months ended September 30, 2024 included the expense impacts from disposals of certain capitalized internally developed software and one-time acquisition-related insurance costs. Other adjustments for the three months ended September 30, 2023 included the expense impact from acquisition-related employee severance costs. Net income is the comparable GAAP measure of financial performance.
The following table provides a reconciliation of net income to Adjusted EBITDA:
Three Months Ended September 30,
(in thousands)
2024
2023
Net income
$
23,460
$
16,842
Income tax expense
5,889
5,459
Depreciation and amortization of property and equipment
4,633
4,675
Amortization of intangible assets
6,470
3,788
Stock-based compensation expense
10,752
11,436
Realized gain from foreign currency on cash and investments held
(1,077)
(98)
Investment income
(2,704)
(2,635)
Other
978
1,036
Adjusted EBITDA
$
48,401
$
40,503
SPS COMMERCE, INC.
21
Form 10-Q for the Quarterly Period ended September 30, 2024
Adjusted EBITDA Margin - Adjusted EBITDA Marginconsists 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 September 30,
(in thousands, except Margin and Adjusted EBITDA Margin)
2024
2023
Revenue
$
163,686
$
135,661
Net income
23,460
16,842
Margin
14
%
12
%
Adjusted EBITDA
48,401
40,503
Adjusted EBITDA Margin
30
%
30
%
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, including for the three months ended September 30, 2024 the expense impacts from disposals of certain capitalized internally developed software and one-time acquisition-related insurance costs and for the three months ended September 30, 2023 the expense impact from acquisition-related employee severance costs, 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. Net income per share, the comparable GAAP measure of financial performance, consists of 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 per share to non-GAAP income per share:
Three Months Ended September 30,
(in thousands, except per share amounts)
2024
2023
Net income
$
23,460
$
16,842
Stock-based compensation expense
10,752
11,436
Amortization of intangible assets
6,470
3,788
Realized gain from foreign currency on cash and investments held
(1,077)
(98)
Other
978
1,036
Income tax effects of adjustments
(5,514)
(4,981)
Non-GAAP income
$
35,069
$
28,023
Shares used to compute net income and non-GAAP income per share
Basic
37,447
36,728
Diluted
37,996
37,584
Net income per share, basic
$
0.63
$
0.46
Non-GAAP adjustments to net income per share, basic
0.31
0.30
Non-GAAP income per share, basic
$
0.94
$
0.76
Net income per share, diluted
$
0.62
$
0.45
Non-GAAP adjustments to net income per share, diluted
0.30
0.30
Non-GAAP income per share, diluted
$
0.92
$
0.75
SPS COMMERCE, INC.
22
Form 10-Q for the Quarterly Period ended September 30, 2024
Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023
The following table presents our results of operations for the periods indicated:
Nine Months Ended September 30,
2024
2023
Change
($ in thousands)
$
% of revenue(1)
$
% of revenue(1)
$
%(2)
Revenues
$
466,858
100
%
$
391,945
100
%
$
74,913
19
%
Cost of revenues
155,129
33
133,029
34
22,100
17
Gross profit
311,729
67
258,916
66
52,813
20
Operating expenses
Sales and marketing
109,700
23
89,722
23
19,978
22
Research and development
45,667
10
39,438
10
6,229
16
General and administrative
76,575
16
64,275
16
12,300
19
Amortization of intangible assets
15,648
3
11,118
3
4,530
41
Total operating expenses
247,590
53
204,553
52
43,037
21
Income from operations
64,139
14
54,363
14
9,776
18
Other income, net
10,966
2
4,859
1
6,107
NM
Income before income taxes
75,105
16
59,222
15
15,883
27
Income tax expense
15,610
3
12,409
3
3,201
26
Net income
$
59,495
13
%
$
46,813
12
%
$
12,682
27
%
(1) Amounts in column may not foot due to rounding
(2) NM = "not meaningful"
Revenues - Revenues increased for the 95th consecutive quarter. The increase in revenue period-over-period resulted primarily from the increase in average recurring revenues per recurring revenue customer, which we also refer to as wallet share. Additionally, the revenue growth was attributable to an increase in recurring revenue customers, which is driven primarily by continued business growth and by business acquisitions.
•Wallet share increased 16% to approximately $13,000 for the nine months ended September 30, 2024 from approximately $11,250 for the same period in 2023. This was primarily attributable to increased usage of our products by our recurring revenue customers.
•The number of recurring revenue customers increased 2% to approximately 45,200 at September 30, 2024 from approximately 44,500 at September 30, 2023, primarily due to sales and marketing efforts to acquire new customers and recent acquisitions. New recurring revenue customers do not have a meaningful contribution to revenue at the beginning of their tenure as our recurring revenue customer, and therefore a majority of the increased revenue was generated from existing recurring revenue customers.
•Approximately 1,000 recurring revenue customers were added in September 2023 due to the acquisition of the existing customer base of TIE Kinetix. Additionally, approximately 50 recurring revenue customers were added in May 2024 due to the acquisition of the existing customer base of Traverse Systems, and approximately 200 recurring revenue customers were added in July 2024 due to the acquisition of the existing customer base of SupplyPike.
Recurring revenues increased 20% to $438.1 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. Recurring revenues accounted for 94%of our total revenues for the nine months ended September 30, 2024 compared to 93% for the same period in 2023. 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.
SPS COMMERCE, INC.
23
Form 10-Q for the Quarterly Period ended September 30, 2024
Cost of Revenues -The increase in cost of revenues was primarily due to increased headcount, which resulted in an increase of $14.1 million in personnel-related costs. Additionally, there was an increase in our software subscriptions of $3.1 million due primarily to the general growth of our business.
Sales and Marketing Expenses -The increase in sales and marketing expense was primarily due to increased headcount, which resulted in an increase of $13.2 million in personnel-related costs, and an increase of $2.4 million in stock-based compensation. Additionally, there was an increase of $2.2 million in product management costs.
Research and Development Expenses - The increase in research and development expense was primarily due to increased headcount, which resulted in an increase of $5.4 million in personnel-related costs.
General and Administrative Expenses -The increase in general and administrative expense was primarily due to increased headcount, which resulted in an increase of $5.2 million in personnel-related costs. Additionally, there was an expense increase of $2.2 million associated with current and projected future credit losses and overall business growth.
Amortization of Intangible Assets - The increase in amortization of intangible assets was driven by acquired intangible assets related to recent business combinations.
Other Income, Net - The increase in other income, net was primarily due to increased investment income from favorable investment allocations and realized gains due to favorable foreign currency exchange rates.
Income Tax Expense -The increase in income tax expense was primarily driven by an increase in pre-tax income, as well as decreases in the excess tax benefits from current period equity award settlements, as partially offset by a decrease in nondeductible compensation. Excess tax benefits generated upon the settlement or exercise of stock awards are recognized as a reduction to income tax expense and, as a result, we expect that our annual effective income tax rate will fluctuate.
Adjusted EBITDA - Adjusted EBITDA 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, and other adjustments as necessary for a fair presentation. Other adjustments for the nine months ended September 30, 2024 included the expense impacts from disposals of certain capitalized internally developed software and one-time acquisition-related insurance costs. Other adjustments for the nine months ended September 30, 2023 included the expense impacts from acquisition-related employee severance costs and disposals of certain capitalized internally developed software. Net income is the comparable GAAP measure of financial performance.
The following table provides a reconciliation of net income to Adjusted EBITDA:
Nine Months Ended September 30,
(in thousands)
2024
2023
Net income
$
59,495
$
46,813
Income tax expense
15,610
12,409
Depreciation and amortization of property and equipment
14,010
13,964
Amortization of intangible assets
15,648
11,118
Stock-based compensation expense
42,264
36,097
Realized gain from foreign currency on cash and investments held
(2,636)
(525)
Investment income
(8,377)
(5,372)
Other
978
1,170
Adjusted EBITDA
$
136,992
$
115,674
Adjusted EBITDA Margin - Adjusted EBITDA Marginconsists of Adjusted EBITDA divided by revenue. Margin, the comparable GAAP measure of financial performance, consists of net income divided by revenue.
SPS COMMERCE, INC.
24
Form 10-Q for the Quarterly Period ended September 30, 2024
The following table provides a comparison of Margin to Adjusted EBITDA Margin:
Nine Months Ended September 30,
(in thousands, except Margin and Adjusted EBITDA Margin)
2024
2023
Revenue
$
466,858
$
391,945
Net income
59,495
46,813
Margin
13
%
12
%
Adjusted EBITDA
136,992
115,674
Adjusted EBITDA Margin
29
%
30
%
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, including for the nine months ended September 30, 2024 the expense impacts from disposals of certain capitalized internally developed software and one-time acquisition-related insurance costs and for the nine months ended September 30, 2023 the expense impacts from acquisition-related employee severance costs and disposals of certain capitalized internally developed software, 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. Net income per share, the comparable GAAP measure of financial performance, consists of 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 per share to non-GAAP income per share:
Nine Months Ended September 30,
(in thousands, except per share amounts)
2024
2023
Net income
$
59,495
$
46,813
Stock-based compensation expense
42,264
36,097
Amortization of intangible assets
15,648
11,118
Realized gain from foreign currency on cash and investments held
(2,636)
(525)
Other
978
1,170
Income tax effects of adjustments
(18,134)
(16,089)
Non-GAAP income
$
97,615
$
78,584
Shares used to compute net income and non-GAAP income per share
Basic
37,192
36,584
Diluted
37,785
37,417
Net income per share, basic
$
1.60
$
1.28
Non-GAAP adjustments to net income per share, basic
1.02
0.87
Non-GAAP income per share, basic
$
2.62
$
2.15
Net income per share, diluted
$
1.57
$
1.25
Non-GAAP adjustments to net income per share, diluted
1.01
0.85
Non-GAAP income per share, diluted
$
2.58
$
2.10
SPS COMMERCE, INC.
25
Form 10-Q for the Quarterly Period ended September 30, 2024
This discussion of our financial condition and results of operations is based upon our condensed consolidated financial statements, which are prepared in accordance with GAAP and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. The preparation of these condensed consolidated financial statements requires us to make estimates, judgments, and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosures. On an ongoing basis, we evaluate our estimates, judgments, and assumptions. We base our estimates of the carrying value of certain assets and liabilities on historical experience and on various other assumptions that we believe to be reasonable. Our actual results may differ from these estimates under different assumptions or conditions.
A critical accounting policy or estimate is one that is both material to the presentation of our financial statements and requires us to make difficult, subjective, or complex judgments relating to uncertain matters that could have a material effect on our financial condition and results of operations. Accordingly, we believe that our policies for revenue recognition, internally developed software, and business combinations are the most critical to fully understand and evaluate our financial condition and results of operations.
During the nine months ended September 30, 2024, there were no changes in our critical accounting policies or estimates. For additional information regarding our critical accounting policies and estimates, see the discussion under "Critical Accounting Policies and Estimates" in "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC.
Liquidity and Capital Resources
Sources of Liquidity
As of September 30, 2024, our principal sources of liquidity were cash and cash equivalents and short-term investments totaling $205.8 million and net accounts receivable of $55.6 million. Our investments are selected in accordance with our investment policy, with a goal to preserve principal, provide liquidity, and maximize income consistent with minimizing risk of material loss. Our cash equivalents and short-term investments are generally held in highly liquid money market funds, certificates of deposit, and commercial paper.
Statements of Cash Flows Summary
The summary of activity within the condensed consolidated statements of cash flows was as follows:
Nine Months Ended September 30,
(in thousands)
2024
2023
Net cash provided by operating activities
$
116,836
$
99,512
Net cash used in investing activities
(110,227)
(93,448)
Net cash provided by (used in) financing activities
(27,697)
10,005
Operating Activities
The increase in cash provided by operating activities from the nine months ended September 30, 2023 to the nine months ended September 30, 2024 was primarily due to an increase in net income as adjusted for non-cash expenses, of $25.0 million, driven by continued growth in revenue, as partially offset by cash paid for expenses to operate the growing business. Additionally, fluctuations in operating assets and liabilities resulted in a decrease of $7.7 million, driven by changes in the amount and timing of settlements and general growth of the business.
Investing Activities
The increase in cash used in investing activities from the nine months ended September 30, 2023 to the nine months ended September 30, 2024 was primarily due to an increase in cash used to acquire businesses of $77.2 million year-over-year to further grow our business, partially offset by an increase in cash provided by net maturities of investments of $58.8 million year-over-year.
SPS COMMERCE, INC.
26
Form 10-Q for the Quarterly Period ended September 30, 2024
The increase in cash used in financing activities from the nine months ended September 30, 2023 to the nine months ended September 30, 2024 was primarily due to an increase in cash used for share repurchases of $37.6 million year-over-year to continue to deliver shareholder value.
Contractual and Commercial Commitment Summary
Our contractual obligations and commercial commitments as of September 30, 2024are summarized below:
Payments Due by Period
(in thousands)
Less Than 1 Year
1-3 Years
3-5 Years
More Than 5 Years
Total
Operating lease obligations, including imputed interest
$
5,474
$
8,125
$
284
$
57
$
13,940
Purchase commitments
13,799
7,970
—
—
21,769
Total
$
19,273
$
16,095
$
284
$
57
$
35,709
Future Capital Requirements
Our future capital requirements may vary significantly from those now planned and will depend on many factors, including:
•costs to develop and implement new products and applications, if any;
•sales and marketing resources needed to further penetrate our market and gain acceptance of new products and applications that we may develop;
•expansion of our operations in the U.S. and internationally;
•response of competitors to our products and applications; and
•use of capital for acquisitions.
Historically, we have experienced increases in our expenditures consistent with the growth in our operations and personnel, and we anticipate that our expenditures will continue to increase as we expand our business.
We believe our cash, cash equivalents, investments, and cash flows from our operations will be sufficient to meet our working capital and capital expenditure requirements for at least the next twelve months.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements, investments in special purpose entities or undisclosed borrowings or debt. Additionally, we are not a party to any derivative contracts or synthetic leases.
Foreign Currency Exchange and Inflation Rate Changes
For information regarding the effect of foreign currency exchange rate changes, refer to the section entitled “Foreign Currency Exchange Risk,” included in Part I, Item 3, “Quantitative and Qualitative Disclosures About Market Risk” of this Quarterly Report on Form 10-Q.
Inflation and changing prices did not have a material effect on our business during the nine months ended September 30, 2024and we do not expect that inflation or changing prices will materially affect our business in the foreseeable future.
SPS COMMERCE, INC.
27
Form 10-Q for the Quarterly Period ended September 30, 2024
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Sensitivity Risk
The principal objectives of our investment activities are to preserve principal, provide liquidity, and maximize income consistent with minimizing risk of material loss. We are exposed to market risk related to changes in interest rates. However, based on the nature and current level of our cash, cash equivalents, and investments, we believe there is no material risk exposure. We do not enter into investments for trading or speculative purposes.
We did not have any variable interest rate outstanding debt as of September 30, 2024. Therefore, we do not have any material risk to interest rate fluctuations.
Foreign Currency Exchange Risk
Due to international operations, we have revenue, expenses, assets, and liabilities that are denominated in currencies other than the U.S. dollar, primarily the Australian dollar, Canadian dollar, and Euro. Our consolidated balance sheet, results of operations, and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates and may be adversely affected in the future due to changes in foreign exchange rates. Our predominate exposure to foreign currency exchange rates are due to non-monetary assets held in currencies other than the U.S. dollar, and thus fluctuations in currencies primarily result in comprehensive income (loss), not net income (loss).
Our sales are primarily denominated in U.S. dollars. Our expenses are generally denominated in the local currencies in which our operations are located. As of September 30, 2024, we maintained 15% of our total cash and cash equivalents and investments in foreign currencies.
We believe that a hypothetical 10% change in foreign currency exchange rates or an inability to access foreign funds would not materially affect our ability to meet our operational needs or result in a material foreign currency impact classified within net income (loss).
We have not used any forward contracts or currency borrowings to hedge our exposure to foreign currency exchange risk, although we may do so in the future.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Quarterly Report on Form 10-Q, our management has evaluated, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2024.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
In May 2024 we acquired the Traverse Systems business and in July 2024 we acquired the SupplyPike business. Pursuant to the SEC’s general guidance that the assessment of a recently acquired business' internal control over financial reporting may be omitted in the year of acquisition, we anticipate the scope of our assessment as of December 31, 2024 will exclude the operations for Traverse Systems and SupplyPike. We are currently in the process of incorporating internal controls specific to Traverse Systems and SupplyPike that we believe are appropriate and necessary to consolidate and report upon our financial results. Excluding net intangible assets and goodwill, Traverse Systems and SupplyPike combined represented less than 5% of our consolidated assets as of September 30, 2024 and less than 5% of our consolidated revenues for the nine months ended September 30, 2024.
SPS COMMERCE, INC.
28
Form 10-Q for the Quarterly Period ended September 30, 2024
We are not currently subject to, or aware of, any claims or actions that would have a material adverse effect on our business, financial condition, or results of operations. From time to time, we may be named as a defendant in legal actions or otherwise be subject to claims arising from our normal business activities. We believe that we have obtained adequate insurance coverage and/or rights to indemnification in connection with potential legal proceedings that may arise.
Item 1A. Risk Factors
There have been no material changes in our risk factors from those disclosed under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) Unregistered Sales of Equity Securities
On July 31, 2024, we issued 404,587 shares of our common stock to the sellers of SupplyPike as partial consideration for the acquisition. The issuance of these shares of common stock was exempt from registration under the Securities Act of 1933 ("Securities Act") pursuant to Section 4(a)(2) of the Securities Act as a transaction by an issuer not involving a public offering.
(c) Share Repurchases
Period
Total Number of Shares Purchased
Average Price Paid per Share
Total Number
of Shares
Purchased as
Part of Publicly
Announced
Program(1)(2)
Approximate
Dollar Value of
Shares that
May Yet be
Purchased
Under the
Program (1)(2)
July 1 - 31, 2024
456
$
184.21
456
$
9,445,000
August 1 - 31, 2024
—
—
—
100,000,000
September 1 - 30, 2024
—
—
—
100,000,000
Total
456
$
184.21
456
$
100,000,000
For more information regarding our share repurchase programs, refer to Note J to our condensed consolidated financial statements, included in Part I of this Quarterly Report on Form 10-Q.
(1) On July 26, 2022 (announced July 27, 2022), our board of directors authorized a program to repurchase up to $50.0 million of our common stock, excluding costs to obtain. Under the program, purchases may be made from time to time in the open market or in privately negotiated purchases, or both. At the program's expiration, July 26, 2024, $9.4 million of unused share repurchase value expired from the program.
(2) On July 23, 2024 (announced July 25, 2024), our board of directors authorized a program to repurchase up to $100.0 million of our common stock, excluding costs to obtain. Under the program, purchases may be made from time to time in the open market or in privately negotiated purchases, or both. The share repurchase program became effective August 23, 2024 and expires on July 24, 2026.
Item 3. Defaults Upon Senior Securities
Not Applicable.
Item 4. Mine Safety Disclosures
Not Applicable.
SPS COMMERCE, INC.
29
Form 10-Q for the Quarterly Period ended September 30, 2024
Insider Adoption or Termination of Trading Arrangements
During the three months ended September 30, 2024, the following directors and officers (as defined in Rule 16a-1(f) of the Exchange Act) adopted written plans for the sale of our securities that are intended to satisfy the affirmative defense of Rule 10b5-1(c) of the Exchange Act:
Name
Title
Adoption Date
Earliest Sale Date
Expiration or Termination Date
Aggregate Number of Shares of the Company's Common Stock to be Sold(1)
Marty Reaume
Director
August 22, 2024
January 2, 2025
May 14, 2025
7,558
Jamie Thingelstad
Chief Technology Officer
September 5, 2024
December 31, 2024
May 23, 2025
18,537
(1) The number of shares is the maximum number of shares to be sold but the actual activity may be lower. Transaction(s) may be contingent upon future events such as performance factors, tax withholding obligations, and/or future market price(s).
There were no other Rule 10b5-1(c) trading arrangements or non-Rule 10b5-1(c) trading arrangements adopted, modified or terminated by the Company's officers and directors during the three months ended September 30, 2024.
Interactive Data Files Pursuant to Rule 405 of Regulation S-T (filed herewith).The XBRL instance document does not appear in the Interactive Data File because its tags are embedded within the Inline XBRL document.
104
The cover page from the Quarterly Report on Form 10-Q for the quarter ended September 30, 2024, formatted in Inline XBRL.
SPS COMMERCE, INC.
30
Form 10-Q for the Quarterly Period ended September 30, 2024
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: October 24, 2024
SPS COMMERCE, INC.
/s/ KIMBERLY NELSON
Kimberly Nelson
Executive Vice President and Chief Financial Officer
(principal financial and accounting officer)
SPS COMMERCE, INC.
31
Form 10-Q for the Quarterly Period ended September 30, 2024
