Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended: March 31, 2023 o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from ________ to ________ Commission file number 001-34702 SPS COMMERCE, INC. (Exact Name of Registrant as Specified in its Charter) Delaware 41-20 ...

Part I [Business](index=5&type=section&id=Item%201.%20Business) SPS Commerce provides cloud-based supply chain management services, achieving 88 consecutive quarters of growth through its full-service model and network effect Financial Performance (2020-2022) | Metric | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | **Revenues** | $450.9M | $385.3M | $312.6M | | **Recurring Revenue %** | 93% | 92% | 94% | - As of December 31, 2022, the company had **42,300 recurring revenue customers** and has served a total of 115,000 customers across 85 countries to date[17](index=17&type=chunk)[21](index=21&type=chunk) - The company's core products include Fulfillment (EDI solution), Analytics (sales and inventory data), Assortment (item data management), and Community (supplier onboarding)[23](index=23&type=chunk)[30](index=30&type=chunk) - Growth is driven by a **"network effect,"** where each new trading partner added to the network increases its value for all existing participants, leading to new revenue opportunities[26](index=26&type=chunk) - In 2022, SPS Commerce acquired GCommerce, Inc, an EDI provider for the automotive aftermarket, and InterTrade Systems Inc, an EDI provider for apparel and general merchandising, to extend network capabilities[32](index=32&type=chunk) Employee Distribution by Function (as of Dec 31, 2022) | Functional Area | of Employees | | :--- | :--- | | Cost of revenues | 1,122 | | Sales and marketing | 557 | | Research and development | 359 | | General and administrative | 177 | | **Total employees** | **2,215** | [Risk Factors](index=11&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant business, technology, international, regulatory, and financial risks that could impact its operations and stock performance - **Business Risks:** The company's growth depends on attracting new customers and selling more to existing ones; most customer contracts are short-term (30-90 day notice), making renewal rates critical, while economic downturns, intense competition, and challenges in integrating acquisitions or expanding internationally pose significant threats[57](index=57&type=chunk)[58](index=58&type=chunk)[59](index=59&type=chunk)[65](index=65&type=chunk)[67](index=67&type=chunk) - **Technology & Service Risks:** The business relies on the performance and security of its technical infrastructure, with risks including service interruptions from third-party data centers, failure to protect customer data from cyber-attacks, undetected software defects, and the inability to adapt to rapid technological changes[80](index=80&type=chunk)[81](index=81&type=chunk)[83](index=83&type=chunk)[84](index=84&type=chunk) - **International Operations Risks:** Expansion outside the U.S. exposes the company to risks such as currency fluctuations, regulatory changes, political instability, and compliance with anti-corruption laws; operations in Ukraine and the Philippines are noted as being in potentially volatile political environments[70](index=70&type=chunk)[73](index=73&type=chunk) - **Regulatory Risks:** Increasing regulation of data privacy (e.g, GDPR), cross-border data transfers, and the internet could limit the adoption of cloud-based products and increase compliance costs[99](index=99&type=chunk) - **Financial & Stock Risks:** Future operating results may fluctuate, potentially causing stock price volatility; the company does not intend to pay dividends in the foreseeable future, and charter provisions could discourage a takeover[105](index=105&type=chunk)[110](index=110&type=chunk)[112](index=112&type=chunk) [Unresolved Staff Comments](index=22&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved comments from SEC staff - None[117](index=117&type=chunk) [Properties](index=22&type=section&id=Item%202.%20Properties) The company's primary corporate headquarters are leased in Minneapolis, Minnesota, with additional facilities in other domestic and international locations - The main corporate headquarters are in Minneapolis, MN, with a lease for **~198,000 sq. ft.** running through 2027[118](index=118&type=chunk) [Legal Proceedings](index=23&type=section&id=Item%203.%20Legal%20Proceedings) SPS Commerce is not currently involved in any material legal proceedings - The company is not currently subject to any material legal proceedings[119](index=119&type=chunk) [Mine Safety Disclosures](index=23&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section is not applicable to the company's business operations - Not applicable[120](index=120&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=24&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's stock trades on Nasdaq (SPSC), with no dividends planned and an active share repurchase program in place - The company's common stock trades on the Nasdaq Global Market under the symbol **"SPSC"**[123](index=123&type=chunk) - SPS Commerce has not declared or paid cash dividends and does not expect to in the foreseeable future, intending to retain earnings for business operations and expansion[124](index=124&type=chunk) Share Repurchase Activity (Q4 2022) | Period | Total Shares Purchased | Average Price Paid per Share | Dollar Value Remaining Under Program | | :--- | :--- | :--- | :--- | | Oct 1-31, 2022 | 1,291 | $120.06 | $47,368,000 | | Nov 1-30, 2022 | 3,024 | $119.05 | $47,008,000 | | Dec 1-31, 2022 | — | — | $47,008,000 | | **Total** | **4,315** | **$119.35** | **$47,008,000** | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Revenue grew 17% to $450.9 million in 2022, driven by customer growth and increased wallet share, resulting in higher net income and strong cash flow Results of Operations (2022 vs. 2021) | Metric ($ in thousands) | 2022 | 2021 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | **Revenues** | $450,875 | $385,276 | $65,599 | 17.0% | | **Gross Profit** | $297,810 | $253,598 | $44,212 | 17.4% | | **Income from Operations** | $71,182 | $55,085 | $16,097 | 29.2% | | **Net Income** | $55,134 | $44,597 | $10,537 | 23.6% | - Revenue growth was driven by a **13% increase in recurring revenue customers** (to 42,300) and a **4% increase in wallet share** (average recurring revenue per customer) to $10,500[159](index=159&type=chunk) - Operating expenses increased primarily due to higher headcount, leading to increased personnel-related costs in Cost of Revenues ($15.6M), Sales and Marketing ($9.4M), R&D ($4.4M), and G&A ($1.9M)[161](index=161&type=chunk)[162](index=162&type=chunk)[163](index=163&type=chunk)[164](index=164&type=chunk) Reconciliation of Net Income to Adjusted EBITDA | Metric (in thousands) | 2022 | 2021 | | :--- | :--- | :--- | | Net income | $55,134 | $44,597 | | Income tax expense | $16,190 | $8,944 | | Depreciation and amortization | $28,189 | $24,914 | | Stock-based compensation | $33,399 | $27,574 | | Other adjustments | ($644) | $1,036 | | **Adjusted EBITDA** | **$132,268** | **$107,015** | Reconciliation of Net Income to Non-GAAP Income | Metric (in thousands) | 2022 | 2021 | | :--- | :--- | :--- | | Net income | $55,134 | $44,597 | | Stock-based compensation | $33,399 | $27,574 | | Amortization of intangibles | $11,768 | $10,126 | | Other adjustments | $1,026 | $1,264 | | Income tax effects | ($14,639) | ($16,454) | | **Non-GAAP income** | **$86,688** | **$67,107** | | **Non-GAAP diluted EPS** | **$2.35** | **$1.82** | Summary of Cash Flows (in thousands) | Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash from operating activities | $100,052 | $112,893 | | Net cash used in investing activities | ($112,790) | ($46,703) | | Net cash used in financing activities | ($31,631) | ($8,361) | [Quantitative and Qualitative Disclosures About Market Risk](index=33&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's market risk exposure from interest rate and foreign currency fluctuations is considered immaterial - The company's primary market risks are interest rate sensitivity and foreign currency exchange risk[187](index=187&type=chunk)[189](index=189&type=chunk) - Interest rate risk is considered **minimal** as the company does not have variable interest rate debt and its investment objectives prioritize capital preservation[187](index=187&type=chunk)[188](index=188&type=chunk) - Foreign currency risk exists due to operations in currencies like the Australian and Canadian dollars; as of year-end 2022, **11% of cash and investments were in foreign currencies**, and the company believes a 10% change in exchange rates would not have a material impact[189](index=189&type=chunk)[190](index=190&type=chunk)[191](index=191&type=chunk) [Financial Statements and Supplementary Data](index=34&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the company's audited consolidated financial statements and related notes for the fiscal year ended December 31, 2022 [Consolidated Balance Sheets](index=38&type=section&id=Consolidated%20Balance%20Sheets) Total assets grew to $672.9 million in 2022, driven by acquisitions, while stockholders' equity increased to $537.1 million Consolidated Balance Sheet Highlights (as of Dec 31) | ($ in thousands) | 2022 | 2021 | | :--- | :--- | :--- | | **Total Current Assets** | $322,814 | $352,443 | | Cash and cash equivalents | $162,893 | $207,552 | | **Goodwill** | $197,284 | $143,663 | | **Intangible assets, net** | $88,352 | $58,587 | | **Total Assets** | **$672,914** | **$615,846** | | **Total Current Liabilities** | $110,642 | $102,872 | | **Total Liabilities** | **$135,841** | **$131,587** | | **Total Stockholders' Equity** | **$537,073** | **$484,259** | [Consolidated Statements of Comprehensive Income](index=39&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) The company reported a 17.0% increase in revenue to $450.9 million and a 23.6% rise in net income to $55.1 million for 2022 Income Statement Highlights (Year Ended Dec 31) | ($ in thousands, except per share) | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | **Revenues** | $450,875 | $385,276 | $312,630 | | **Gross Profit** | $297,810 | $253,598 | $212,794 | | **Income from Operations** | $71,182 | $55,085 | $50,158 | | **Net Income** | $55,134 | $44,597 | $45,586 | | **Diluted EPS** | $1.49 | $1.21 | $1.26 | [Notes to Consolidated Financial Statements](index=42&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Key disclosures detail the 2022 acquisitions, revenue recognition policies, goodwill balances, and stock-based compensation expenses - **Business Acquisitions (Note B):** In 2022, the company acquired GCommerce for **$45.1 million** and InterTrade for **$49.1 million**, adding $55.2 million in goodwill and $41.6 million in intangible assets[272](index=272&type=chunk)[273](index=273&type=chunk)[276](index=276&type=chunk) - **Revenue (Note C):** Recurring revenues are recognized ratably over the contract term, while one-time set-up fees are considered a material right and are deferred and recognized over an estimated **two-year benefit period**[278](index=278&type=chunk)[282](index=282&type=chunk) - **Goodwill and Intangibles (Note H):** As of Dec 31, 2022, Goodwill stood at **$197.3 million** and net Intangible Assets were **$88.4 million**, with future amortization expense estimated to be $15.3 million in 2023[290](index=290&type=chunk)[291](index=291&type=chunk) - **Stock-Based Compensation (Note K):** Total stock-based compensation expense was **$33.4 million** in 2022, up from $27.6 million in 2021; $38.6 million of unrecognized expense is expected to be recognized over a weighted-average period of 2.4 years[300](index=300&type=chunk) [Controls and Procedures](index=61&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls, procedures, and internal control over financial reporting were effective as of year-end 2022 - The CEO and CFO concluded that the company's disclosure controls and procedures were **effective** as of December 31, 2022[322](index=322&type=chunk) - Management concluded that internal control over financial reporting was **effective** as of December 31, 2022, with the audit performed by KPMG LLP[327](index=327&type=chunk)[330](index=330&type=chunk) - The assessment of internal controls **excluded the recently acquired GCommerce and InterTrade**, which together represented 3.7% of consolidated assets and 1.4% of consolidated revenues for 2022[328](index=328&type=chunk)[329](index=329&type=chunk) [Other Information](index=62&type=section&id=Item%209B.%20Other%20Information) The company amended its bylaws in February 2023 to align with the SEC's new universal proxy rule for director nominations - The company's bylaws were amended on February 17, 2023, to implement procedural mechanisms related to stockholder nominations of directors under **SEC Rule 14a-19**[333](index=333&type=chunk) Part III This part incorporates information by reference from the company's 2023 Proxy Statement regarding governance, compensation, and ownership [Directors, Executive Officers and Corporate Governance](index=64&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information required by this item is incorporated by reference from the company's 2023 Proxy Statement [Executive Compensation](index=64&type=section&id=Item%2011.%20Executive%20Compensation) Information required by this item is incorporated by reference from the company's 2023 Proxy Statement [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=64&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information required by this item is incorporated by reference from the company's 2023 Proxy Statement [Certain Relationships and Related Transactions, and Director Independence](index=64&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information required by this item is incorporated by reference from the company's 2023 Proxy Statement [Principal Accounting Fees and Services](index=64&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information required by this item is incorporated by reference from the company's 2023 Proxy Statement Part IV [Exhibits, Financial Statement Schedules](index=64&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists all financial statements, schedules, and exhibits filed as part of the Form 10-K - This section lists the financial statements and exhibits filed with the Form 10-K[345](index=345&type=chunk) [Form 10-K Summary](index=66&type=section&id=Item%2016.%20Form%2010-K%20Summary) No optional summary is provided under this item - None[348](index=348&type=chunk)

Financial Data and Key Metrics Changes - For the full year 2022, revenue grew 17% to $450.9 million, with recurring revenue increasing 18% [8][16] - Adjusted EBITDA grew 24% to $132.3 million [17] - Q4 2022 revenue was $122 million, a 19% increase year-over-year, with recurring revenue growing 20% [41] - The total number of recurring revenue customers increased 13% year-over-year to approximately 42,300 [16] Business Line Data and Key Metrics Changes - Fulfillment revenue grew 19% and analytics revenue grew 10% in 2022 [8] - Adjusted EBITDA for Q4 2022 increased 26% to $35 million [41] Market Data and Key Metrics Changes - The company reported a total cash and investments of $214 million and repurchased $43.2 million of its shares [43] - The company expects revenue for Q1 2023 to be in the range of $123.3 million to $124.3 million, and for the full year 2023, revenue is expected to be in the range of $523 million to $526 million, representing approximately 16% to 17% growth over 2022 [18] Company Strategy and Development Direction - The company aims to maintain annual revenue growth expectations of 15% or greater and adjusted EBITDA dollar growth of 15% to 25% [20] - The company continues to invest in add-on products through acquisitions to expand market opportunities [87] - The focus remains on improving customer experience and enhancing full-service omnichannel supply chain solutions [39] Management's Comments on Operating Environment and Future Outlook - Management noted that the ongoing transition to omnichannel retail and increasing complexity in supply chain management continue to drive the need for automation [33] - The management expressed confidence in the company's ability to capitalize on existing and new opportunities across its expanding addressable market [46] Other Important Information - The company acquired GCommerce and InterTrade Systems in 2022, adding approximately 3,000 customers to its network [42] - The company maintains a target model for adjusted EBITDA margin of 35% in the long term [20] Q&A Session Summary Question: What are the expectations for analytics growth in 2023? - Management expects analytics growth in 2023 to be similar to the approximately 10% growth rate experienced in 2022 [48] Question: What is driving the flat EBITDA margin guidance for 2023? - The flat EBITDA margin guidance is driven by strong EBITDA dollars in 2022 and the timing of hires in customer success and sales [50] Question: Is there any pressure on spending from SMB-sized customers? - Management acknowledged that retailers are focusing on making their businesses more efficient post-pandemic, which may impact spending [55] Question: How are the acquisitions of GCommerce and InterTrade performing? - Both acquisitions are meeting expectations, with positive reactions from customers and strong talent integration [59] Question: What are the company's top priorities for the coming year? - The top priorities include investing in add-on products through acquisitions, expanding the network, and improving backend integrations for efficiency [87][88]

Financial Data and Key Metrics Changes - Total revenue for Q3 2022 was $114.5 million, representing a 17% increase year-over-year, marking the 87th consecutive quarter of revenue growth [16] - Recurring revenue grew 18% year-over-year, with the total number of recurring revenue customers increasing by 12% to approximately 39,550 [16] - Adjusted EBITDA increased by 31% to $34.7 million compared to $26.5 million in Q3 of the previous year [17] - The company ended the quarter with total cash and investments of approximately $237 million and repurchased approximately $12 million of shares [17] Business Line Data and Key Metrics Changes - The fulfillment and analytics segments experienced double-digit revenue growth, contributing to the overall revenue increase [7] - The wallet share increased by 5% to $10,900, indicating improved customer engagement and spending [16] Market Data and Key Metrics Changes - The company noted that 42% of consumers expect two-day shipping, while 61% prefer next-day delivery, highlighting the growing demand for efficient supply chain solutions [10] - The acquisition of InterTrade expanded the company's network and capabilities in product information and transaction data exchange [13] Company Strategy and Development Direction - The company aims to strengthen its competitive advantage by expanding its network across various industries and enhancing automation solutions [14] - Future growth is expected to be driven by community enablement campaigns and acquisitions, with a long-term target for adjusted EBITDA margin of 35% [24] Management's Comments on Operating Environment and Future Outlook - Management acknowledged potential impacts from inflationary pressures and uncertainties in the global economy but maintained that the operating model and growth expectations remain unchanged [18] - For Q4 2022, the company expects revenue in the range of $120 million to $121 million, representing approximately 17% to 18% year-over-year growth [19] Other Important Information - The company expects annual revenue growth of 15% or greater beyond 2022, with adjusted EBITDA projected to be approximately $151 million to $153 million in 2023 [23] - The company has a disciplined approach to acquisitions, with a significant cash balance available for strategic opportunities [31] Q&A Session Summary Question: Impact of macroeconomic conditions on new customer acquisition - Management noted that during challenging times, community enablement campaigns tend to increase as retailers seek efficiency, and they do not monetize retailers, making it cost-effective for them to add efficiency [27] Question: Changes in global supply chains and their effect on business - Management indicated that while shipping rates are decreasing, it does not significantly impact customer acquisition as the need for trading partners remains [35] Question: Insights on recent acquisitions and their integration - Management stated that acquisitions are part of a long-term strategy, and they are actively seeking opportunities while remaining disciplined [31] Question: Observations on transaction volumes in the current retail environment - Management confirmed that transaction volumes have seen some decline in drop-ship as e-commerce growth slows, but they remain optimistic about their omnichannel capabilities [48] Question: Customer cohort observations and economic potential - Management indicated that new customer cohorts continue to show strong potential for upselling, and the average supplier payment remains consistent [62] Question: Guidance on adjusted EBITDA and investment priorities for 2023 - Management highlighted that the pace of hiring and investments will impact EBITDA growth, but they expect to be well-positioned for 2023 [46]

Financial Data and Key Metrics Changes - Total revenue grew 15% year-over-year to $109.2 million, marking the 86th consecutive quarter of revenue growth [20][24] - Recurring revenue increased by 16% year-over-year, with the total number of recurring revenue customers rising 12% to approximately 38,650 [20][24] - Adjusted EBITDA grew 13% to $30.9 million compared to $27.3 million in Q2 of the previous year [21][24] Business Line Data and Key Metrics Changes - Demand for fulfillment services grew 17% year-over-year, while analytics services saw a 12% increase [9] - The company reported a 4% increase in wallet share, reaching $10,550 [20][24] Market Data and Key Metrics Changes - The company continues to capitalize on the retail industry's investments in supply chain management efficiency and digital transformation [10][18] - The international business, particularly in Europe and Australia, is performing well, with no signs of slowdown despite macroeconomic challenges [51] Company Strategy and Development Direction - The company is focused on supporting trading partners with full-service EDI to enhance collaboration and efficiency in supply chain management [12][18] - The acquisition of GCommerce aims to strengthen the company's position in the automotive aftermarket and expand its customer base [17][41] Management's Comments on Operating Environment and Future Outlook - Management acknowledges inflationary pressures and uncertainties in the global economy but maintains that the operating model and growth expectations remain unchanged [22][24] - The company expects revenue for Q3 2022 to be in the range of $113.4 million to $114.4 million, representing approximately 16% growth year-over-year [24][25] Other Important Information - The company ended the quarter with approximately $259 million in cash and investments and repurchased about $15 million of its shares [21] - A new stock repurchase program of up to $50 million has been authorized, effective August 26, 2022 [21] Q&A Session Summary Question: Impact of volume changes on pricing model - Management indicated that their revenue is primarily derived from trading partner relationships rather than transaction volumes, which tend to remain stable even during economic downturns [31] Question: Customer churn during difficult economic times - Churn has remained constant at around 12% annually, with historical increases of about 1% during tougher economic periods, but no current signs of increased churn [33] Question: Delayed ERP decisions and their impact - Management has not observed any slowdown in their business model despite broader economic concerns, as retailers continue to invest in supply chain efficiencies [37][38] Question: GCommerce acquisition details - The acquisition added approximately 500 customers with an average revenue per user (ARPU) of around $12,000, slightly above the company's average ARPU [39][40] Question: Strength in specific vertical markets - The company has seen consistent performance across various verticals, with slightly more momentum in the distribution area [50] Question: International business performance - The analytics product in Europe is experiencing strong momentum, unaffected by economic challenges, while Australia also shows positive performance [51] Question: Pipeline for Carrier Service solution - The Carrier Service solution is contributing modestly, with growing momentum and a developing sales pipeline [52] Question: Investment strategy for the remainder of the year - The company plans to continue investing in hiring, particularly in customer success and sales, to meet existing and future growth opportunities [74]

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended: June 30, 2022 o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from ________ to ________ Commission file number 001-34702 SPS COMMERCE, INC. (Exact Name of Registrant as Specified in its Charter) (State or other ...

SPS Commerce, Inc. (NASDAQ:SPSC) Q1 2022 Results Conference Call April 28, 2022 4:30 PM ET Company Participants Irmina Blaszczyk - Investor Relations Archie Black - Chief Executive Officer Kim Nelson - Executive Vice President & Chief Financial Officer Conference Call Participants Jeff Martin - ROTH Capital Partners Parker Lane - Stifel Scott Berg - Needham Joe Vruwink - Baird Jason Celino - KeyBanc Mark Schappel - Loop Capital Nehal Chokshi - Northland Capital Joe Goodwin - JMP Securities Operator Hello. T ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended: March 31, 2022 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from to Commission file number 001-34702 SPS COMMERCE, INC. (Exact Name of Registrant as Specified in its Charter) (State or other jurisdiction of incorporation or o ...

Part I [Business](index=4&type=section&id=Item%201.%20Business) SPS Commerce is a leading cloud-based supply chain management provider, achieving **$385.3 million** in 2021 revenues with **92%** recurring, serving **105,000** customers globally Financial Performance (2019-2021) | Year | Revenues (in millions) | Recurring Revenue % | | :--- | :--- | :--- | | 2021 | $385.3 | 92% | | 2020 | $312.6 | 94% | | 2019 | $279.1 | 94% | - As of December 31, 2021, SPS Commerce had approximately **37,500 recurring revenue customers** and a total of **105,000 customers** across its network[16](index=16&type=chunk)[20](index=20&type=chunk) - The company's core products include: **Fulfillment**, **Analytics**, and **Other Products** for supply chain management[28](index=28&type=chunk) - Key growth strategies include market penetration, increasing existing customer revenues, international expansion, and strategic acquisitions like **Genius Central in 2021** and **Data Masons in 2020**[30](index=30&type=chunk) Employee Headcount by Function (as of Dec 31, 2021) | Functional Area | of Employees | | :--- | :--- | | Cost of revenues | 959 | | Sales and marketing | 460 | | Research and development | 332 | | General and administrative | 150 | | **Total employees** | **1,901** | [Risk Factors](index=10&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant business, product, technology, international, and regulatory risks, including customer retention, cybersecurity threats, and geopolitical instability - **Business Risks:** Inability to attract new customers or retain existing ones with short-term contracts, alongside economic weakness in the retail sector, could adversely affect revenue growth[53](index=53&type=chunk)[54](index=54&type=chunk)[55](index=55&type=chunk) - **Product and Technology Risks:** Dependency on maintaining and scaling technical infrastructure, significant cybersecurity threats, and reliance on third-party data centers pose risks of service interruptions and reputational damage[70](index=70&type=chunk)[73](index=73&type=chunk)[75](index=75&type=chunk) - **International Risks:** Expansion outside the U.S. exposes the company to currency fluctuations, regulatory changes, and political instability, particularly impacting its workforce in Ukraine and the Philippines[65](index=65&type=chunk)[68](index=68&type=chunk) - **Regulatory and Legal Risks:** Evolving data privacy laws and internet regulations may increase compliance costs, while reliance on trade secrets and copyrights for intellectual property offers limited protection[85](index=85&type=chunk)[90](index=90&type=chunk) [Unresolved Staff Comments](index=21&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports that it has no unresolved staff comments from the SEC - None[118](index=118&type=chunk) [Properties](index=21&type=section&id=Item%202.%20Properties) SPS Commerce's headquarters are in a leased **198,000 sq ft** facility in Minneapolis, with additional leased offices internationally in Ukraine, Canada, Australia, China, and the Netherlands - The company's principal administrative, marketing, sales, and R&D facilities are at its corporate headquarters in Minneapolis, Minnesota[119](index=119&type=chunk) - Additional office spaces are leased in Little Falls, New Jersey; Kyiv, Ukraine; Toronto, Canada; Melbourne and Sydney, Australia; Beijing, China; and Amsterdam, Netherlands[119](index=119&type=chunk) [Legal Proceedings](index=21&type=section&id=Item%203.%20Legal%20Proceedings) The company states that it is not currently subject to any material legal proceedings - The company is not currently a party to any material legal proceedings and believes it has adequate insurance coverage for potential claims arising from normal business activities[120](index=120&type=chunk) [Mine Safety Disclosures](index=21&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section is not applicable to the company - Not applicable[121](index=121&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=22&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on Nasdaq under "SPSC", has not paid cash dividends, and has an active **$50.0 million** stock repurchase program authorized in October 2021 - The company's common stock has traded on the Nasdaq Global Market under the symbol "SPSC" since its IPO on April 22, 2010[122](index=122&type=chunk) - The company has never paid cash dividends and intends to retain future earnings to finance business operations and expansion[123](index=123&type=chunk) Stock Repurchase Activity (Q4 2021) | Period | Total Shares Purchased | Average Price Paid per Share | Dollar Value Remaining in Program | | :--- | :--- | :--- | :--- | | Oct 1-31, 2021 | - | $- | $20,389,000 | | Nov 1-30, 2021 | 4,287 | $141.36 | $49,394,000 | | Dec 1-31, 2021 | 66,002 | $138.83 | $40,231,000 | | **Total** | **70,289** | **$138.98** | **$40,231,000** | - On October 28, 2021, the board authorized a new **$50.0 million** stock repurchase program, effective November 28, 2021, and expiring in two years[130](index=130&type=chunk) [[Reserved]](index=23&type=section&id=Item%206.%20%5BReserved%5D) This section is not applicable - Not applicable[132](index=132&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=24&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial results, noting a **23.2%** revenue increase to **$385.3 million** in 2021, driven by customer growth and wallet share, alongside increased operating expenses and strong liquidity [Results of Operations](index=26&type=section&id=Results%20of%20Operations) In 2021, revenues grew **23.2%** to **$385.3 million**, driven by a **13%** increase in recurring revenue customers and **9%** wallet share growth, while net income slightly decreased due to rising operating expenses Comparison of Operations (2021 vs. 2020) | (in thousands) | 2021 | 2020 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $385,276 | $312,630 | 23.2% | | Gross Profit | $253,598 | $212,794 | 19.2% | | Income from Operations | $55,085 | $50,158 | 9.8% | | Net Income | $44,597 | $45,586 | (2.2)% | - Revenue growth was primarily driven by a **13%** increase in recurring revenue customers (from **33,150** to **37,500**) and a **9%** increase in wallet share (average recurring revenue per customer) from **$9,250** to **$10,050**[159](index=159&type=chunk) - Increases in operating expenses were mainly due to higher headcount, leading to increased personnel-related costs and stock-based compensation across Cost of Revenues, Sales & Marketing, R&D, and G&A[161](index=161&type=chunk)[162](index=162&type=chunk)[163](index=163&type=chunk)[164](index=164&type=chunk) [Non-GAAP Financial Measures](index=27&type=section&id=Non-GAAP%20Financial%20Measures) The company's non-GAAP results show **Adjusted EBITDA** increased to **$107.0 million** in 2021, with a flat **28%** margin, and non-GAAP diluted income per share rose to **$1.82** Reconciliation of Net Income to Adjusted EBITDA | (in thousands) | 2021 | 2020 | | :--- | :--- | :--- | | Net income | $44,597 | $45,586 | | Adjustments | $62,418 | $41,408 | | **Adjusted EBITDA** | **$107,015** | **$86,994** | Adjusted EBITDA Margin | (in thousands, except Margin) | 2021 | 2020 | | :--- | :--- | :--- | | Revenue | $385,276 | $312,630 | | Adjusted EBITDA | $107,015 | $86,994 | | **Adjusted EBITDA Margin** | **28%** | **28%** | Non-GAAP Income Per Share | (per share amounts) | 2021 | 2020 | | :--- | :--- | :--- | | Non-GAAP income (in thousands) | $67,107 | $55,696 | | Diluted shares (in thousands) | 36,962 | 36,285 | | **Non-GAAP income per share (Diluted)** | **$1.82** | **$1.53** | [Liquidity and Capital Resources](index=28&type=section&id=Liquidity%20and%20Capital%20Resources) As of December 31, 2021, the company had **$257.3 million** in cash and investments, with net cash from operating activities increasing to **$112.9 million**, ensuring sufficient liquidity for the next twelve months - At December 31, 2021, principal sources of liquidity included cash and cash equivalents of **$207.6 million** and short-term investments of **$49.8 million**[172](index=172&type=chunk)[216](index=216&type=chunk) Summary of Cash Flows | (in thousands) | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $112,893 | $88,562 | | Net cash used in investing activities | $(46,703) | $(120,469) | | Net cash (used in) provided by financing activities | $(8,361) | $2,328 | - The decrease in cash used for investing activities was primarily due to lower cash used for acquisitions in 2021 compared to 2020[176](index=176&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=31&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company faces market risks from interest rate and foreign currency fluctuations, but management believes neither poses a material threat, with only **8%** of cash held in foreign currencies - The company believes there is no material risk exposure to changes in interest rates based on its current portfolio of cash, cash equivalents, and investments[187](index=187&type=chunk) - Due to international operations, the company has exposure to foreign currency exchange risk, primarily in Australian and Canadian dollars, with approximately **8%** of total cash and investments held in foreign currencies as of December 31, 2021[189](index=189&type=chunk)[190](index=190&type=chunk) - Management does not believe a hypothetical **10%** change in foreign currency exchange rates would materially affect its financial position[191](index=191&type=chunk) [Financial Statements and Supplementary Data](index=32&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the company's audited consolidated financial statements for 2019-2021, including the independent auditor's report, offering a comprehensive overview of financial position and performance [Consolidated Financial Statements](index=37&type=section&id=Consolidated%20Financial%20Statements) The consolidated financial statements for 2021 show total assets of **$615.8 million**, total liabilities of **$131.6 million**, revenues of **$385.3 million**, and net income of **$44.6 million** Consolidated Balance Sheet Highlights | (in thousands) | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total current assets | $352,443 | $271,356 | | Total assets | $615,846 | $526,458 | | Total current liabilities | $102,872 | $80,132 | | Total liabilities | $131,587 | $105,737 | | Total stockholders' equity | $484,259 | $420,721 | Consolidated Income Statement Highlights | (in thousands) | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Revenues | $385,276 | $312,630 | $279,124 | | Gross profit | $253,598 | $212,794 | $186,885 | | Income from operations | $55,085 | $50,158 | $38,406 | | Net income | $44,597 | $45,586 | $33,712 | [Notes to Consolidated Financial Statements](index=41&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail accounting policies, including the **$17.4 million** acquisition of Genius Central in 2021, revenue stream breakdown with **Fulfillment** as the largest, and **$27.6 million** in stock-based compensation - On November 3, 2021, the company acquired Genius Central Systems Inc. for a total transaction price of **$17.4 million**, resulting in **$8.9 million** of goodwill and **$8.5 million** of intangible assets[275](index=275&type=chunk)[277](index=277&type=chunk)[278](index=278&type=chunk) Revenue by Stream (2019-2021) | (in thousands) | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Fulfillment | $306,851 | $251,272 | $219,297 | | Analytics | $42,674 | $38,824 | $37,038 | | Other Recurring | $5,481 | $4,920 | $5,671 | | One-time revenues | $30,270 | $17,614 | $17,118 | | **Total revenue** | **$385,276** | **$312,630** | **$279,124** | Stock-Based Compensation Expense | (in thousands) | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Total Expense | $27,574 | $18,936 | $14,690 | [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=60&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[331](index=331&type=chunk) [Controls and Procedures](index=60&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2021, excluding the recently acquired Genius Central business - The CEO and CFO concluded that as of December 31, 2021, the company's disclosure controls and procedures were effective[332](index=332&type=chunk) - Management concluded that the company maintained effective internal control over financial reporting as of December 31, 2021[336](index=336&type=chunk) - The assessment of internal control over financial reporting excluded the Genius Central business, which was acquired on November 3, 2021[337](index=337&type=chunk) [Other Information](index=61&type=section&id=Item%209B.%20Other%20Information) The company reports no other information for this item - None[340](index=340&type=chunk) [Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](index=61&type=section&id=Item%209C.%20Disclosure%20Regarding%20Foreign%20Jurisdictions%20that%20Prevent%20Inspections) This section is not applicable to the company - Not Applicable[341](index=341&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=62&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information on directors, executive officers, and corporate governance is incorporated by reference from the company's 2022 Proxy Statement - Information required by this item will be included in the 2022 Proxy Statement and is incorporated by reference[344](index=344&type=chunk) [Executive Compensation](index=62&type=section&id=Item%2011.%20Executive%20Compensation) The information regarding executive compensation is incorporated by reference from the company's 2022 Proxy Statement - Information required by this item will be included in the 2022 Proxy Statement and is incorporated by reference[346](index=346&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=62&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Security ownership information is incorporated from the 2022 Proxy Statement, detailing **1,542,378** shares for outstanding equity awards and **15,336,955** shares available for future issuance - Information on security ownership is incorporated by reference from the 2022 Proxy Statement[347](index=347&type=chunk) Equity Compensation Plan Information (as of Dec 31, 2021) | Plan Category | Shares to be issued upon exercise | Weighted-average exercise price | Shares remaining available for future issuance | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by stockholders | 1,542,378 | $44.76 | 15,336,955 | [Certain Relationships and Related Transactions, and Director Independence](index=62&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) The information regarding related party transactions and director independence is incorporated by reference from the company's 2022 Proxy Statement - Information required by this item will be included in the 2022 Proxy Statement and is incorporated by reference[350](index=350&type=chunk) [Principal Accounting Fees and Services](index=62&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) The information regarding principal accounting fees and services is incorporated by reference from the company's 2022 Proxy Statement - Information required by this item will be included in the 2022 Proxy Statement and is incorporated by reference[351](index=351&type=chunk) Part IV [Exhibits, Financial Statement Schedules](index=63&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists the financial statements and various exhibits filed as part of the Annual Report on Form 10-K - This item lists the financial statements, financial statement schedules, and exhibits filed as part of the report[353](index=353&type=chunk) [Form 10-K Summary](index=63&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company provides no summary for this item - None[353](index=353&type=chunk)

Financial Data and Key Metrics Changes - Revenue for Q4 2021 was $102.8 million, a 23% increase year-over-year, marking the 84th consecutive quarter of revenue growth [15] - For the full year, revenue grew 23% to $385.3 million, with recurring revenue increasing by 20% [15][19] - Adjusted EBITDA for Q4 2021 increased 21% to $27.7 million, while for the full year, it grew 23% to $107 million [15][19] - The total number of recurring revenue customers rose 13% year-over-year to approximately 37,500, with wallet share increasing by 9% to 10,050 [15] Business Line Data and Key Metrics Changes - Recurring revenue growth was led by fulfillment, which grew 22% year-over-year, while analytics grew 10% in 2021 [8][15] - Net new customer additions increased by 40% in 2021, excluding the Genius Central acquisition [9][15] Market Data and Key Metrics Changes - The company noted ongoing disruptions in the global supply chain, which intensified demand for supply chain automation and EDI solutions [7][8] - The retail dynamics have shifted towards omnichannel strategies, with increased emphasis on fulfillment automation [7][8] Company Strategy and Development Direction - SPS Commerce aims to capitalize on the growing demand for supply chain automation and fulfillment solutions, expanding its addressable market through strategic initiatives and acquisitions [7][13] - The acquisition of Genius Central is expected to strengthen the company's position in food retail and distribution [13] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the sustainability of growth driven by strategic investments made in previous years, alongside the benefits from the pandemic [25] - The company anticipates continued annual revenue growth expectations of 15% or greater beyond 2022, with adjusted EBITDA dollar growth of 15% to 25% [18] Other Important Information - The company ended the year with total cash and investments of $257 million and repurchased approximately $20 million of its shares [15] - For Q1 2022, revenue is expected to be in the range of $103.8 million to $104.8 million, with full-year revenue guidance of $442.5 million to $445.5 million [16] Q&A Session Summary Question: Sustainability of pandemic-driven growth - Management indicated that while there were benefits from the pandemic, the acceleration in omnichannel strategies is primarily driven by strategic investments made in previous years [25] Question: Growth rate for analytics - Management expressed confidence that analytics could grow consistently with fulfillment, estimating a growth rate around 10% for the near term [27] Question: Recovery in lagging industries - Management noted that differentiation among industries is less pronounced now, with a return to a more normalized growth rate in e-commerce [31] Question: Integration of Genius Central - The integration of Genius Central into the company's go-to-market strategy is progressing well, with expectations for retail sales to benefit from the acquisition [34] Question: Competitive environment - Management observed that SPS Commerce has seen further differentiation from peers, particularly due to its extensive network and relationships with retailers [44] Question: Sales capacity additions for 2022 - The company plans to continue adding resources based on opportunities, with a focus on increasing sales capacity [48] Question: International segment performance - Management highlighted strong performance in the Australian market and ongoing opportunities in Asia and Europe [71] Question: Hiring and retention dynamics - The company has not faced difficulties in hiring, maintaining a strong reputation and effective training programs [78]