SPS COMMERCE INC 10-Q

Item 1. Financial Statements SPS COMMERCE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except shares) June 30, 2023 December 31, 2022 ASSETS (unaudited) Current assets Cash and cash equivalents $ 209,264 $ 162,893 Short-term investments 60,914 51,412 Accounts receivable 48,092 42,501 Allowance for credit losses ( 3,100 ) ( 3,066 ) Accounts receivable, net 44,992 39,435 Deferred costs 56,250 52,755 Other assets 13,556 16,319 Total current assets 384,976 322,814 Property and equipment, net 35,211 35,458 Operating lease right-of-use assets 7,973 9,170 Goodwill 202,786 197,284 Intangible assets, net 77,633 88,352 Other assets Deferred costs, non-current 19,005 17,424 Deferred income tax assets 6,676 227 Other assets, non-current 1,278 2,185 Total assets $ 735,538 $ 672,914 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Accounts payable $ 6,163 $ 11,256 Accrued compensation 28,637 30,235 Accrued expenses 6,714 7,451 Deferred revenue 66,381 57,423 Operating lease liabilities 4,073 4,277 Total current liabilities 111,968 110,642 Other liabilities Deferred revenue, non-current 5,724 4,771 Operating lease liabilities, non-current 11,058 13,009 Deferred income tax liabilities 5,807 7,419 Total liabilities 134,557 135,841 Commitments and contingencies Stockholders' equity Preferred stock, $ 0.001 par value; 5,000,000 shares authorized; 0 shares issued and outstanding — — Common stock, $ 0.001 par value; 110,000,000 shares authorized; 38,797,917 and 38,309,144 shares issued; and 36,646,819 and 36,158,046 shares outstanding, respectively 39 38 Treasury Stock, at cost; 2,151,098 shares ( 128,892 ) ( 128,892 ) Additional paid-in capital 508,484 476,117 Retained earnings 223,192 193,221 Accumulated other comprehensive loss ( 1,842 ) ( 3,411 ) Total stockholders’ equity 600,981 537,073 Total liabilities and stockholders’ equity $ 735,538 $ 672,914 See accompanying notes to these condensed consolidated financial statements. SPS COMMERCE, INC. 3 Form 10-Q for the Quarterly Period ended June 30, 2023 Table of Contents SPS COMMERCE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Three Months Ended June 30, Six Months Ended June 30, (in thousands, except per share amounts) (unaudited) 2023 2022 2023 2022 Revenues $ 130,416 $ 109,178 $ 256,284 $ 214,371 Cost of revenues 44,544 37,530 87,508 72,919 Gross profit 85,872 71,648 168,776 141,452 Operating expenses Sales and marketing 30,349 24,582 59,433 49,237 Research and development 13,318 11,432 25,880 22,133 General and administrative 21,693 17,198 42,369 32,666 Amortization of intangible assets 3,479 2,468 7,330 4,938 Total operating expenses 68,839 55,680 135,012 108,974 Income from operations 17,033 15,968 33,764 32,478 Other income (expense), net 1,882 ( 1,338 ) 3,157 ( 915 ) Income before income taxes 18,915 14,630 36,921 31,563 Income tax expense 4,233 3,877 6,950 8,207 Net income $ 14,682 $ 10,753 $ 29,971 $ 23,356 Other comprehensive income (expense) Foreign currency translation adjustments 1,615 ( 1,743 ) 1,520 ( 1,013 ) Unrealized gain (loss) on investments, net of tax of $ 136 , $( 3 ), $ 269 and $( 4 ), respectively 408 ( 8 ) 806 ( 11 ) Reclassification of gain on investments into earnings, net of tax of $( 127 ), $( 8 ), $( 252 ), and $( 4 ), respectively ( 381 ) ( 23 ) ( 757 ) ( 12 ) Total other comprehensive income (expense) 1,642 ( 1,774 ) 1,569 ( 1,036 ) Comprehensive income $ 16,324 $ 8,979 $ 31,540 $ 22,320 Net income per share Basic $ 0.40 $ 0.30 $ 0.82 $ 0.65 Diluted $ 0.39 $ 0.29 $ 0.80 $ 0.63 Weighted average common shares used to compute net income per share Basic 36,593 36,085 36,511 36,110 Diluted 37,426 36,862 37,327 36,897 See accompanying notes to these condensed consolidated financial statements. SPS COMMERCE, INC. 4 Form 10-Q for the Quarterly Period ended June 30, 2023 Table of Contents SPS COMMERCE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY Common Stock Treasury Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Loss Total Stockholders' Equity (in thousands, except shares) (unaudited) Shares Amount Shares Amount Balances, March 31, 2022 36,120,518 $ 38 1,910,897 $ ( 100,903 ) $ 442,405 $ 150,690 $ ( 709 ) $ 491,521 Stock-based compensation — — — — 8,128 — — 8,128 Shares issued pursuant to stock awards 9,274 — — — 186 — — 186 Employee stock purchase plan activity 33,337 — — — 3,203 — — 3,203 Repurchases of common stock ( 133,652 ) — 133,652 ( 14,997 ) — — — ( 14,997 ) Net income — — — — — 10,753 — 10,753 Foreign currency translation adjustments — — — — — — ( 1,743 ) ( 1,743 ) Unrealized loss on investments, net of tax — — — — — — ( 8 ) ( 8 ) Reclassification of loss on investments into earnings, net of tax — — — — — — ( 23 ) ( 23 ) Balances, June 30, 2022 36,029,477 $ 38 2,044,549 $ ( 115,900 ) $ 453,922 $ 161,443 $ ( 2,483 ) $ 497,020 Balances, March 31, 2023 36,532,756 $ 39 2,151,098 $ ( 128,892 ) $ 489,716 $ 208,510 $ ( 3,484 ) $ 565,889 Stock-based compensation — — — — 12,237 — — 12,237 Shares issued pursuant to stock awards 78,387 — — — 2,636 — — 2,636 Employee stock purchase plan activity 35,676 — — — 3,895 — — 3,895 Net income — — — — — 14,682 — 14,682 Foreign currency translation adjustments — — — — — — 1,615 1,615 Unrealized gain on investments, net of tax — — — — — — 408 408 Reclassification of gain on investments into earnings, net of tax — — — — — — ( 381 ) ( 381 ) Balances, June 30, 2023 36,646,819 $ 39 2,151,098 $ ( 128,892 ) $ 508,484 $ 223,192 $ ( 1,842 ) $ 600,981 Common Stock Treasury Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Loss Total Stockholders' Equity Shares Amount Shares Amount Balances, December 31, 2021 36,009,257 $ 38 1,789,353 $ ( 85,677 ) $ 433,258 $ 138,087 $ ( 1,447 ) $ 484,259 Stock-based compensation — — — — 16,624 — — 16,624 Shares issued pursuant to stock awards 240,381 — — — 690 — — 690 Employee stock purchase plan activity 35,035 — — — 3,350 — — 3,350 Repurchases of common stock ( 255,196 ) — 255,196 ( 30,223 ) — — — ( 30,223 ) Net income — — — — — 23,356 — 23,356 Foreign currency translation adjustments — — — — — — ( 1,013 ) ( 1,013 ) Unrealized loss on investments, net of tax — — — — — — ( 11 ) ( 11 ) Reclassification of loss on investments into earnings, net of tax — — — — — — ( 12 ) ( 12 ) Balances, June 30, 2022 36,029,477 $ 38 2,044,549 $ ( 115,900 ) $ 453,922 $ 161,443 $ ( 2,483 ) $ 497,020 Balances, December 31, 2022 36,158,046 $ 38 2,151,098 $ ( 128,892 ) $ 476,117 $ 193,221 $ ( 3,411 ) $ 537,073 Stock-based compensation — — — — 23,412 — — 23,412 Shares issued pursuant to stock awards 450,548 1 — — 4,818 — — 4,819 Employee stock purchase plan activity 38,225 — — — 4,136 — — 4,136 Net income — — — — — 29,971 — 29,971 Foreign currency translation adjustments — — — — — — 1,520 1,520 Unrealized gain on investments, net of tax — — — — — — 806 806 Reclassification of gain on investments into earnings, net of tax — — — — — — ( 757 ) ( 757 ) Balances, June 30, 2023 36,646,819 $ 39 2,151,098 $ ( 128,892 ) $ 508,484 $ 223,192 $ ( 1,842 ) $ 600,981 See accompanying notes to these condensed consolidated financial statements. . SPS COMMERCE, INC. 5 Form 10-Q for the Quarterly Period ended June 30, 2023 Table of Contents SPS COMMERCE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Six Months Ended June 30, (in thousands) (unaudited) 2023 2022 Cash flows from operating activities Net income $ 29,971 $ 23,356 Reconciliation of net income to net cash provided by operating activities Deferred income taxes ( 8,654 ) ( 2,160 ) Depreciation and amortization of property and equipment 9,289 7,814 Amortization of intangible assets 7,330 4,938 Provision for credit losses 2,491 2,634 Stock-based compensation 24,661 17,676 Other, net 1,143 8 Changes in assets and liabilities Accounts receivable ( 9,937 ) ( 7,862 ) Deferred costs ( 5,136 ) ( 5,095 ) Other current and non-current assets 3,614 ( 1,423 ) Accounts payable ( 4,414 ) ( 3,234 ) Accrued compensation ( 2,910 ) ( 7,186 ) Accrued expenses ( 728 ) ( 805 ) Deferred revenue 9,909 8,802 Operating leases ( 959 ) ( 678 ) Net cash provided by operating activities 55,670 36,785 Cash flows from investing activities Purchases of property and equipment ( 9,769 ) ( 8,191 ) Purchases of investments ( 68,579 ) ( 114,603 ) Maturities of investments 60,000 117,500 Net cash used in investing activities ( 18,348 ) ( 5,294 ) Cash flows from financing activities Repurchases of common stock — ( 30,223 ) Net proceeds from exercise of options to purchase common stock 4,819 690 Net proceeds from employee stock purchase plan activity 4,136 3,350 Net cash provided by (used in) financing activities 8,955 ( 26,183 ) Effect of foreign currency exchange rate changes 94 ( 135 ) Net increase in cash and cash equivalents 46,371 5,173 Cash and cash equivalents at beginning of period 162,893 207,552 Cash and cash equivalents at end of period $ 209,264 $ 212,725 See accompanying notes to these condensed consolidated financial statements. SPS COMMERCE, INC. 6 Form 10-Q for the Quarterly Period ended June 30, 2023 Table of Contents SPS COMMERCE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE A – General Business Description SPS Commerce is a leading provider of cloud-based supply chain management services across our global retail network. Our products make it easier for retailers, grocers, distributors, suppliers, and logistics firms to communicate and collaborate by simplifying how they manage and share item, inventory, order and sales data across omnichannel retail channels. We deliver our products using a full-service model, which includes industry-leading technology and a team of experts that optimize, update, and operate the technology on customers' behalf. Our products enable customers to increase supply chain performance, optimize inventory levels and sell-through, reduce operational costs, improve order visibility, and satisfy consumer demands for a seamless omnichannel experience. Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of SPS Commerce, Inc. and its subsidiaries. All intercompany accounts and transactions have been eliminated in the condensed consolidated financial statements. This interim financial information has been prepared under the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, these condensed consolidated financial statements do not include all of the information and notes required by GAAP. Therefore, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the Securities and Exchange Commission (“SEC”). We have included all normal recurring adjustments considered necessary to provide a fair presentation of our financial position, results of operations, stockholders’ equity, and cash flows for the interim periods presented. Operating results for these interim periods are not necessarily indicative of the results to be expected for the full year. Use of Estimates Preparing financial statements in conformity with GAAP requires management to make estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Significant Accounting Policies There were no material changes in our significant accounting policies during the six months ended June 30, 2023. See Note A to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022 , as filed with the SEC, for additional information regarding our significant accounting policies. Accounting Pronouncements Recently Adopted Standard Date of Issuance Description Date of Adoption Effect on the Financial Statements ASU 2021-08, Business Combinations (Topic 805) - Accounting for Contract Assets and Contract Liabilities from Contracts with Customers October 2021 This amendment requires that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, effective for all business combinations in the year of adoption and thereafter. January 2023 The adoption of this standard may have a material impact on the purchase accounting for future business combinations depending on the specific amount of contract assets and liabilities being acquired. SPS COMMERCE, INC. 7 Form 10-Q for the Quarterly Period ended June 30, 2023 Table of Contents NOTE B – Business Acquisitions GCommerce Effective July 19, 2022, we acquired all of the outstanding equity ownership interests of GCommerce, Inc. ("GCommerce"), a leading EDI provider within the automotive aftermarket industry. Pursuant to the definitive agreement, the purchase price was $ 45.1 million, including post-closing adjustments. During the quarter ended March 31, 2023, provisional amounts were adjusted by $ 1.6 million, primarily relating to a $ 1.5 million decrease in the estimated value of deferred income tax assets, with the corresponding offset to goodwill. During the quarter ending June 30, 2023, there were no significant adjustments made to provisional amounts. The purchase accounting for the acquisition has been finalized as of June 30, 2023. InterTrade Effective October 4, 2022, we acquired all of the outstanding equity ownership interests of Canadian based InterTrade Systems Inc. ("InterTrade"), a leading EDI provider within the apparel and general merchandising markets. Pursuant to the definitive agreement, the purchase price was $ 49.1 million, including estimated post-closing adjustments. The purchase accounting for the acquisition has not been finalized as of June 30, 2023 due to various items including valuation modeling completion; provisional amounts are primarily related to intangible assets. We expect to finalize the allocation of the purchase price within the one-year measurement period following the acquisition. During the quarter ended June 30, 2023, provisional amounts were adjusted by $ 3.1 million, primarily relating to a $ 3.9 million decrease in estimated value of intangible assets and the corresponding $ 1.0 million change to the deferred tax position, with the offsets to goodwill. TIE Kinetix On July 26, 2023, we entered into a purchase agreement with TIE Kinetix N.V. ("TIE Kinetix"), a leading provider of supply chain digitalization including EDI and e-invoicing in Europe, to acquire the business and operations of TIE Kinetix by purchasing the equity of its wholly owned operating subsidiary. The purchase price is € 64.5 million ($ 71.4 million at the July 26, 2023 exchange rate), net of cash acquired. The transaction is subject to customary closing conditions and is expected to close during the quarter ending September 30, 2023, upon the approval of the shareholders of TIE Kinetix. NOTE C – Revenue We derive our revenues from the following revenue streams: Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2023 2022 2023 2022 Recurring revenues: Fulfillment $ 105,500 $ 87,887 $ 207,169 $ 172,618 Analytics 12,709 11,648 25,079 22,944 Other 3,314 1,628 6,576 3,168 Recurring revenues 121,523 101,163 238,824 198,730 One-time revenues 8,893 8,015 17,460 15,641 Total revenue $ 130,416 $ 109,178 $ 256,284 $ 214,371 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. SPS COMMERCE, INC. 8 Form 10-Q for the Quarterly Period ended June 30, 2023 Table of Contents Recurring Revenues Recurring revenues consist of recurring subscriptions from customers that utilize our Fulfillment, Analytics, and Other supply chain management products. Revenue for these products is generally recognized on a ratable basis over the contract term beginning on the date that our service is made available to the customer. Our contracts with our recurring revenue customers are recurring in nature, generally ranging from monthly to annual, and generally allow the customer to cancel the contract for any reason with 30 to 90 days’ notice. Timing of billings varies by customer and by contract type and generally are either in advance or within 30 days of the service being performed. Given that the recurring revenue contracts are for one year or less, we have applied the optional exemption to not disclose information about the remaining performance obligations for recurring revenue contracts. One-time Revenues One-time revenues consist of set-up fees and miscellaneous fees from customers. Set-up revenues Set-up fees are specific for each connection a customer has with a trading partner. These nonrefundable fees are necessary for our customers to utilize our services and do not provide any standalone value. Many of our customers have connections with numerous trading partners. Set-up fees constitute a material renewal option right that provide customers a significant future incentive that would not be otherwise available to that customer unless they entered into the contract, as the set-up fees will not be incurred again upon contract renewal. As such, set-up fees and related costs are deferred and recognized ratably over two years which is the estimated period for which a material right is present for our customers. The table below presents the activity of the portion of the deferred revenue liability relating to set-up fees: Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2023 2022 2023 2022 Balance, beginning of period $ 15,287 $ 14,938 $ 14,999 $ 14,459 Invoiced set-up fees 5,739 4,058 9,990 8,061 Recognized set-up fees ( 4,048 ) ( 3,687 ) ( 8,011 ) ( 7,211 ) Balance, end of period $ 16,978 $ 15,309 $ 16,978 $ 15,309 The entire balance of deferred set-up fees will be recognized within two years . Those that will be recognized within the next year are classified as current, whereas the remainder are classified as non-current. Miscellaneous one-time revenues Miscellaneous one-time fees consist of professional services and testing and certification. The contract period for these one-time fees is for one year or less and recognized at the time service is provided. We have applied the optional exemption to not disclose information about the remaining performance obligations for miscellaneous one-time fee contracts since they have original durations of one year or less. NOTE D – Deferred Costs The deferred costs activity was as follows: Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2023 2022 2023 2022 Balance, beginning of period $ 71,809 $ 62,610 $ 70,179 $ 59,720 Incurred deferred costs 19,304 17,637 37,538 35,418 Amortized deferred costs ( 15,858 ) ( 15,582 ) ( 32,462 ) ( 30,473 ) Balance, end of period $ 75,255 $ 64,665 $ 75,255 $ 64,665 SPS COMMERCE, INC. 9 Form 10-Q for the Quarterly Period ended June 30, 2023 Table of Contents NOTE E – Fair Value Measurements Cash Equivalents and Investments Cash equivalents and investments, as measured at fair value on a recurring basis, consisted of the following: June 30, 2023 December 31, 2022 Fair Value Level Amortized Cost Unrealized Gains (Losses), net Fair Value Amortized Cost Unrealized Gains (Losses), net Fair Value (in thousands) Cash equivalents: Money market funds Level 1 $ 152,309 $ — $ 152,309 $ 73,368 $ — $ 73,368 Investments: Certificates of deposit Level 1 6,662 — 6,662 6,813 — 6,813 Marketable securities: Commercial paper Level 2 43,985 305 44,290 44,224 375 44,599 U.S. treasury securities Level 2 9,827 135 9,962 — — — $ 212,783 $ 440 $ 213,223 $ 124,405 $ 375 $ 124,780 NOTE F – Allowance for Credit Losses The allowance for credit losses activity, included in accounts receivable, net, was as follows: Six Months Ended June 30, (in thousands) 2023 2022 Balance, beginning of period $ 3,066 $ 4,249 Provision for credit losses 2,491 2,634 Write-offs, net of recoveries ( 2,457 ) ( 2,429 ) Balance, end of period $ 3,100 $ 4,454 NOTE G – Property and Equipment, Net Property and equipment, net consisted of the following: (in thousands) June 30, 2023 December 31, 2022 Internally developed software $ 54,846 $ 49,994 Computer equipment 32,213 30,310 Leasehold improvements 15,386 16,531 Office equipment and furniture 10,602 10,981 Property and equipment, cost 113,047 107,816 Less: accumulated depreciation and amortization ( 77,836 ) ( 72,358 ) Total property and equipment, net $ 35,211 $ 35,458 SPS COMMERCE, INC. 10 Form 10-Q for the Quarterly Period ended June 30, 2023 Table of Contents NOTE H – Goodwill and Intangible Assets, Net Goodwill The activity in goodwill was as follows: Six Months Ended June 30, (in thousands) 2023 Balance, beginning of period $ 197,284 Foreign currency translation 924 Remeasurement from provisional purchase accounting amount 4,578 Balance, end of period $ 202,786 Intangible Assets Intangible assets, net consisted of the following: June 30, 2023 ($ in thousands) Gross Carrying Amount Accumulated Amortization Foreign Currency Translation Net Weighted Average Remaining Amortization Period Subscriber relationships $ 79,385 $ ( 26,376 ) $ ( 3,068 ) $ 49,941 6.4 years Acquired technology 40,612 ( 12,597 ) ( 323 ) 27,692 5.2 years $ 119,997 $ ( 38,973 ) $ ( 3,391 ) $ 77,633 6.0 years December 31, 2022 ($ in thousands) Gross Carrying Amount Accumulated Amortization Foreign Currency Translation Net Weighted Average Remaining Amortization Period Subscriber relationships $ 80,101 $ ( 22,255 ) $ ( 171 ) $ 57,675 6.8 years Acquired technology 40,610 ( 9,934 ) 1 30,677 5.7 years $ 120,711 $ ( 32,189 ) $ ( 170 ) $ 88,352 6.4 years The estimated future annual amortization expense related to intangible assets is as follows: (in thousands) Remainder of 2023 $ 7,401 2024 13,665 2025 13,527 2026 12,523 2027 12,060 Thereafter 18,457 Total future amortization $ 77,633 SPS COMMERCE, INC. 11 Form 10-Q for the Quarterly Period ended June 30, 2023 Table of Contents NOTE I – Commitments and Contingencies Leases The components of lease expense were as follows: Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2023 2022 2023 2022 Operating lease cost $ 779 $ 740 $ 1,578 $ 1,499 Variable lease cost 950 856 1,878 1,649 $ 1,729 $ 1,596 $ 3,456 $ 3,148 Supplemental cash flow information related to leases was as follows: Six Months Ended June 30, (in thousands) 2023 2022 Cash paid for amounts included in the measurement of lease liabilities Operating cash flows from operating leases $ 1,329 $ 2,176 Right-of-use assets obtained in exchange for operating lease liabilities 268 — Supplemental balance sheet information related to operating leases was as follows: June 30, 2023 December 31, 2022 Weighted-average remaining lease term 3.5 years 3.9 years Weighted-average discount rate 4.0 % 4.0 % At June 30, 2023, our future minimum payments under operating leases were as follows: (in thousands) Remainder of 2023 $ 2,563 2024 4,567 2025 4,116 2026 3,766 2027 1,282 Total future gross payments $ 16,294 Less: imputed interest ( 1,163 ) Total operating lease liabilities $ 15,131 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 June 30, 2023, our remaining purchase commitments and estimated purchase timing were as follows: (in thousands) Remainder of 2023 $ 5,863 2024 11,527 2025 11,178 2026 4,510 Total estimated future purchases $ 33,078 SPS COMMERCE, INC. 12 Form 10-Q for the Quarterly Period ended June 30, 2023 Table of Contents NOTE J – Stockholders’ Equity Share Repurchase Programs Our board of directors has authorized multiple non-concurrent programs to repurchase our common stock. Details of the programs and activity thereunder through June 30, 2023 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 2021 Program November 2021 August 2022 $ 50,000 $ 49,992 $ 8 N/A 2022 Program August 2022 July 2024 50,000 2,992 N/A $ 47,008 The share repurchase activity by period was as follows: Three Months Ended June 30, Six Months Ended June 30, (in thousands, except shares and per share amounts) 2023 2022 2023 2022 Number of shares repurchased — 133,652 — 255,196 Shares repurchased cost $ — $ 14,997 $ — $ 30,223 Average price per repurchased share $ — $ 112.21 $ — $ 118.43 NOTE K – Stock-Based Compensation Our equity compensation plans provide for the grant of incentive and nonqualified stock options, as well as other stock-based awards including performance share units (“PSUs”), restricted stock awards (“RSAs”), restricted stock units (“RSUs”), and deferred stock units (“DSUs”), to employees, non-employee directors and other consultants who provide services to us. We also provide an employee stock purchase plan (“ESPP”) and 401(k) match to eligible participants. We recognize stock-based compensation expense based on grant date award fair value. This cost is recognized over the period for which the employee is required to provide service in exchange for the award or the award performance period, except for expenses relating to retirement-eligible employees that have not given their required notice, which is recognized on a pro-rata basis over the notice period prior to retirement. At June 30, 2023 , there were 12.8 million shares available for grant under approved equity compensation plans. Stock-based compensation expense was allocated in the condensed consolidated statements of comprehensive income as follows: Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2023 2022 2023 2022 Cost of revenues $ 2,586 $ 2,152 $ 5,089 $ 4,331 Operating expenses Sales and marketing 2,528 1,958 4,951 3,990 Research and development 1,812 1,380 3,589 2,854 General and administrative 5,955 3,171 11,032 6,501 $ 12,881 $ 8,661 $ 24,661 $ 17,676 SPS COMMERCE, INC. 13 Form 10-Q for the Quarterly Period ended June 30, 2023 Table of Contents Stock-based compensation expense by grant type or plan was as follows: Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2023 2022 2023 2022 Stock options $ 494 $ 463 $ 985 $ 940 PSUs 3,499 2,004 7,424 4,703 RSUs 7,381 5,094 13,443 9,732 RSAs & DSUs 115 110 223 218 ESPP 748 458 1,337 1,032 401(k) stock match 644 532 1,249 1,051 $ 12,881 $ 8,661 $ 24,661 $ 17,676 As of June 30, 2023, there was $ 53.8 million of unrecognized stock-based compensation expense under our equity compensation plans, which is expected to be recognized on a primarily straight-line basis over a weighted average period of 2.5 years. Stock Options Our stock option activity was as follows: Six Months Ended June 30, 2023 Options (#) Weighted Average Exercise Price ($/share) Outstanding, beginning of period 562,697 $ 56.24 Granted 39,483 151.89 Exercised ( 143,550 ) 33.57 Forfeited ( 1,916 ) 123.49 Outstanding, end of period 456,714 $ 71.36 Of the total outstanding options at June 30, 2023, 0.4 million were exercisable. The outstanding and exercisable options had a weighted average exercise price of $ 58.49 per share and a weighted average remaining contractual life of 3.1 years. The weighted average grant date fair value of options granted during the six months ended June 30, 2023 was $ 56.23 per share. This was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions: Life (in years) 4.2 Volatility 39.3 % Dividend yield — Risk-free interest rate 4.0 % Performance Share Units, Restricted Stock Units and Awards, and Deferred Stock Units In each of the quarters ended March 31, 2023, 2022, 2021, and 2020 we granted PSU awards with a target performance level. These awards are earned based upon our Company’s total shareholder return as compared to an indexed total shareholder return over the course of a fiscal based three-year performance period, starting in the year of grant. Earned awards vest in the quarter following the conclusion of the performance period. In the three months ended March 31, 2023 , PSU awards granted in 2020 vested at the maximum performance level and 0.1 million shares of common stock were issued. SPS COMMERCE, INC. 14 Form 10-Q for the Quarterly Period ended June 30, 2023 Table of Contents Activity for our PSUs, RSUs, RSAs, and DSUs in aggregate was as follows: Six Months Ended June 30, 2023 # Weighted Average Grant Date Fair Value ($/share) Outstanding, beginning of period 712,158 $ 103.93 Granted 311,488 162.86 Vested and common stock issued ( 305,853 ) 74.89 Forfeited ( 4,613 ) 115.39 Outstanding, end of period 713,180 $ 142.04 The number of PSUs, RSUs, RSAs, and DSUs outstanding at June 30, 2023 included less than 0.1 million units that have vested, but the shares of common stock have not yet been issued, pursuant to the terms of the underlying agreements. Employee Stock Purchase Plan Our ESPP activity was as follows: Three Months Ended June 30, Six Months Ended June 30, (in thousands, except shares) 2023 2022 2023 2022 Amounts for shares purchased $ 3,895 $ 3,203 $ 4,136 $ 3,350 Shares purchased 35,676 33,337 38,225 35,035 A total of 1.7 million shares of common stock are reserved for issuance under the ESPP as of June 30, 2023. The fair value was estimated based on the market price of our common stock at the beginning of the offering period using the following assumptions: Life (in years) 0.5 Volatility 40.1 % Dividend yield — Risk-free interest rate 4.6 % NOTE L – Income Taxes We record our interim provision for income taxes by applying our estimated annual effective tax rate to our year-to-date pre-tax income and adjust the provision for discrete tax items recorded in the period. Our provisions for income taxes includes current federal, state, and foreign income tax expense, as well as deferred tax expense. Differences between our effective tax rate and statutory tax rates are primarily due to the impact of permanently non-deductible expenses partially offset by the federal research and development credits and tax benefits associated with foreign-derived intangible income. Additionally, excess tax benefits generated upon settlement or exercise of stock awards are recognized as a reduction to income tax expense as a discrete tax item in the quarter that the event occurs, creating potentially significant fluctuation in tax expense by quarter and by year. SPS COMMERCE, INC. 15 Form 10-Q for the Quarterly Period ended June 30, 2023 Table of Contents NOTE M – Other Income and Expense Other income (expense), net included the following: Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2023 2022 2023 2022 Investment income $ 1,611 $ 172 $ 2,737 $ 220 Realized gain (loss) from foreign currency on cash and investments held 290 ( 1,327 ) 427 ( 859 ) Other expense, net ( 19 ) ( 183 ) ( 7 ) ( 276 ) Total other income (expense), net $ 1,882 $ ( 1,338 ) $ 3,157 $ ( 915 ) NOTE N – Net Income Per Share The components and computation of basic and diluted net income per share were as follows: Three Months Ended June 30, Six Months Ended June 30, (in thousands, except per share amounts) 2023 2022 2023 2022 Numerator Net income $ 14,682 $ 10,753 $ 29,971 $ 23,356 Denominator Weighted average common shares outstanding, basic 36,593 36,085 36,511 36,110 Options to purchase common stock 274 391 291 405 PSUs, RSUs, RSAs, and DSUs 559 386 525 382 Weighted average common shares outstanding, diluted 37,426 36,862 37,327 36,897 Net income per share Basic $ 0.40 $ 0.30 $ 0.82 $ 0.65 Diluted $ 0.39 $ 0.29 $ 0.80 $ 0.63 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 June 30, Six Months Ended June 30, (in thousands) 2023 2022 2023 2022 Anti-dilutive shares 37 242 63 211 SPS COMMERCE, INC. 16 Form 10-Q for the Quarterly Period ended June 30, 2023 Table of Contents NOTE O – Geographic Information Revenue Domestic revenue, which we define as revenue that was attributable to customers based within the U.S., was as follows: Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Domestic revenue 84 % 84 % 84 % 84 % No single jurisdiction outside of the U.S. had revenues in excess of 10%. Property and Equipment Property and equipment, net located at subsidiary and office locations outside of the U.S. was as follows: June 30, 2023 December 31, 2022 International property and equipment 14 % 13 % SPS COMMERCE, INC. 17 Form 10-Q for the Quarterly Period ended June 30, 2023 Table of Contents