What changed in this filing

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Item 1A. Risk Factors

2024-02-21 compared with 2023-02-21 · 40 added, 77 removed, 288 unchanged (29% of the section changed)

4 unchanged sentences

In assessing these risks, you should also refer to the other information contained in this Annual Report on Form 10-K, including our consolidated financial statements and related notes.

SPS COMMERCE, INC.

Form 10-K for the Annual Period ended December 31, 2023

The risks included in this section are not the only ones we face.

21 unchanged sentences

In addition, economic conditions or uncertainty may cause customers and potential customers to reduce or delay technology purchases, including purchases of our products.

Our sales cycles may lengthen if purchasing

Our sales cycles may lengthen if purchasing decisions are delayed as a result of uncertain technology or development budgets or contract negotiations become more protracted or difficult as customers institute additional internal approvals for technology purchases.

Delays or reductions in technology spending could have a material adverse effect on demand for our products, and consequently our results of operations and prospects.

SPS COMMERCE, INC.

Form 10-K for the Annual Period ended December 31, 2023

Table of Con t ents

decisions are delayed as a result of uncertain technology or development budgets or contract negotiations become more protracted or difficult as customers institute additional internal approvals for technology purchases.

Delays or reductions in technology spending could have a material adverse effect on demand for our products, and consequently our results of operations and prospects.

Our continued growth could significantly strain our personnel resources and infrastructure, and if we are unable to implement appropriate controls and procedures to manage our growth, we may not be able to implement our business plan successfully.

5 unchanged sentences

If we fail to successfully manage our growth, we will be unable to execute our business plan as expected.

If we fail to attract, retain, and train members of our senior management team, including our Chief Executive Officer and other key personnel, our business plan would be impacted, and we might not be able to implement it successfully.

If we fail to attract, retain, and train members of our senior management team and other key personnel, or if we are not able to successfully manage the transition of our Chief Executive Officer or our President and Chief Operating Officer, our business could be adversely affected.

Given the complex nature of the cloud-based technology through which our business operates and the speed with which such technology advances, our future success is dependent, in large part, upon our ability to attract, retain, and train highly qualified key executive, managerial, technology, and sales personnel.

1 unchanged sentence

Additionally, the loss of any key or a significant number of personnel in our technology, customer success, or sales teams might significantly delay or prevent the achievement of our business objectives and could materially harm our business, customer relationships, results of operations and financial condition.

Further, our former Chief Executive Officer, Archie Black, retired as Chief Executive Officer effective October 2, 2023, and the board of directors appointed his successor, Chad Collins, as of that date.

We also announced the planned retirement of our President and Chief Operating Officer, James Frome, effective December 31, 2024.

Leadership transitions and management changes involve inherent risks, can be difficult to manage and may cause uncertainty or a disruption, which could adversely affect our business.

If the market for cloud-based supply chain management products declines or does not maintain its historical growth rates, our revenues may decline or fail to grow, and we may incur operating losses.

11 unchanged sentences

Form 10-K for the Annual Period ended December 31, 2023

Table of Con t ents

The markets in which we participate are highly competitive, and our failure to compete successfully would make it difficult for us to add and retain customers and would reduce or impede the growth of our business.

22 unchanged sentences

• becoming subject to adverse tax consequences, substantial depreciation, or deferred compensation charges;

• improper compliance with laws and regulations and exposure to other contingent liabilities;

• compliance with laws and regulations and exposure to other contingent liabilities;

• retaining key management of the acquired company;

• failing to maintain uniform standards, controls, and policies;

• impairing relationships with employees and customers as a result of changes in management.

SPS COMMERCE, INC.

Form 10-K for the Annual Period ended December 31, 2023

Fully integrating an acquired company or business into our operations may take a significant amount of time and resources.

5 unchanged sentences

We also may not be able to achieve anticipated synergies or financial results post acquisition, which could negatively impact our operations and financial results.

SPS COMMERCE, INC.

Form 10-K for the Annual Period ended December 31, 2022

Table of Con t ents

Acquisitions could include significant goodwill and intangible assets, which may result in future impairment charges that would reduce our stated earnings.

4 unchanged sentences

• fluctuations in currency exchange rates;

• unexpected changes in foreign regulatory requirements;

• longer accounts receivable payment cycles and difficulties in collecting accounts receivable;

3 unchanged sentences

• localization of our products, including translation into foreign languages and associated expenses;

• the burdens of complying with a wide variety of foreign laws and different legal standards, including laws and regulations related to privacy;

• the burdens of complying with a wide variety of foreign laws and regulations, and changes to such laws and regulations, including laws and regulations related to employment, privacy and tax;

• increased financial accounting and reporting burdens and complexities;

• unexpected changes in effective tax rates due to international tax liabilities subject to allocation of expenses in differing jurisdictions;

• political, social, and economic instability abroad, terrorist attacks and security concerns in general;

11 unchanged sentences

Violations of these laws may result in severe civil and criminal sanctions and penalties, which could disrupt our business and have a material adverse effect on our reputation, results of operations or financial condition.

SPS COMMERCE, INC.

Form 10-K for the Annual Period ended December 31, 2023

Any unrest, military activities, or sanctions impacting our international operations, should they occur, could disrupt operations, and have a material adverse effect on our business.

3 unchanged sentences

Those potentially disruptive environments are out of our control and we cannot predict the outcome of future developments or reactions to such developments by the U.S., European, Asian, Oceanic, United Nations or other international authorities and organizations.

SPS COMMERCE, INC.

Form 10-K for the Annual Period ended December 31, 2022

Table of Con t ents

Our failure to raise additional capital or generate cash flows necessary to expand our operations and invest in new technologies could reduce our ability to compete successfully and adversely affect our results of operations.

16 unchanged sentences

Although certain customers may have a reduced demand for our services, we also may see increased demand by certain customer segments, potentially offsetting reduced demand.

The COVID-19 pandemic could have adverse impacts on our business, including causing significant volatility in demand for our services due to disruption and downturns in our customers’ businesses and related supply chains, disruptions to our third party technology providers, limitations on our employees' ability to work and travel, and significant changes in the economic or political conditions in markets in which we operate.

SPS COMMERCE, INC.

Form 10-K for the Annual Period ended December 31, 2023

Products and Service Offerings

3 unchanged sentences

If new or enhanced products fail to garner expected customer demand in a timely manner or at all, we may fail to generate sufficient revenues, operating margin, or other value to justify our investments and our business may be adversely affected.

SPS COMMERCE, INC.

Form 10-K for the Annual Period ended December 31, 2022

Table of Con t ents

Our business is dependent on our ability to maintain and scale our technical infrastructure, and any failure to effectively maintain or scale such infrastructure could damage our reputation, result in a potential loss of revenue, and adversely affect our financial results.

4 unchanged sentences

Our inability to adapt to rapid technological change could impair our ability to remain competitive.

The industry in which we compete is characterized by rapid technological change, frequent introductions of new products and evolving industry standards.

The industry in which we compete is characterized by rapid technological change, frequent introductions of new products, and evolving industry standards, which may include advancements in artificial intelligence.

Existing products can become obsolete and unmarketable when vendors introduce products utilizing new technologies or new industry standards emerge, and as a result, it is difficult for us to predict the life cycles of our products.

4 unchanged sentences

Any delay or failure in the introduction of new or enhanced products could adversely affect our business, results of operations and financial condition.

We rely on third-party infrastructure, software and services that could take a significant time, and involve a complex transition, to replace or upgrade.

We rely on third-party infrastructure, software and services that could take significant time, and involve a complex transition, to replace or upgrade.

We rely on infrastructure, software and services licensed from third parties to offer our cloud-based supply chain management products.

4 unchanged sentences

Any delays or failures associated with our cloud-based products could damage our reputation with current and potential customers and have an adverse effect on our business.

SPS COMMERCE, INC.

Form 10-K for the Annual Period ended December 31, 2023

Interruptions or delays from third-party data centers or to the telecommunications infrastructure we use or rely on could impair the delivery of our products and our business could suffer.

7 unchanged sentences

We may also incur significant costs for using alternative equipment or taking other actions in preparation for, or in reaction to, events that damage the data centers or infrastructure we use or rely on, including the additional expense of transitioning to substitute facilities or service providers.

SPS COMMERCE, INC.

Form 10-K for the Annual Period ended December 31, 2022

Table of Con t ents

A failure to protect the integrity and security of our customers’ information and prevent cyber-attacks could materially damage our reputation, expose us to claims and litigation, and lead to service disruptions and harm our business.

2 unchanged sentences

computer malware, viruses, computer hacking, phishing attacks, spamming, ransomware, and other cyber threats have become more prevalent in our industry.

Given the interconnected nature of the retail supply chain, our significant presence in the retail industry, and the occurrence of cyber-attacks on our system in the past, we believe that we are an attractive target for such attacks.

Our business involves the collection and use of confidential information of our customers and their trading partners which sometimes requires our direct access to our customers’ information systems.

6 unchanged sentences

In addition, because of the critical nature of information security and system access, any actual or perceived failure of our security measures could cause existing or potential customers not to use our products and harm our reputation.

SPS COMMERCE, INC.

Form 10-K for the Annual Period ended December 31, 2023

Businesses in the retail industry have experienced material sales declines after discovering data security breaches, and our business could be similarly impacted in the event of a breach or other cyber incident.

1 unchanged sentence

states and international jurisdictions have enacted laws requiring companies to notify consumers of data security breaches involving their personal data.

These mandatory disclosures regarding a data security breach often lead to widespread negative publicity, which may cause our customers to lose confidence in our products and the effectiveness of our data security measures.

Additionally, the SEC recently issued final rules related to cybersecurity risk management and incident disclosure, which may further increase our required disclosures and cost of compliance in such events.

These mandatory disclosures regarding a data security breach or other cyber incident often lead to widespread negative publicity, which may cause our customers to lose confidence in our products and the effectiveness of our data security measures.

If we fail to comply with these laws and regulations, we could be subject to enforcement action or litigation, which could harm our business.

We may experience service failures or interruptions due to defects in the hardware, software, infrastructure, third-party components or processes that comprise our existing or new products, any of which could adversely affect our business.

Technology products like ours may contain undetected defects in the hardware, software, infrastructure, third-party components or processes that are part of the products we provide.

If these defects lead to service failures, we could experience delays or lost revenues, diversion of technology resources, negative media attention or increased service costs as a result of performance claims during the period required to correct the cause of the defects.

If these defects lead to service failures, we could experience delays or lost revenues, diversion of technology resources, negative media attention or increased service costs as a result of performance-based claims during the period required to correct the cause of the defects.

We cannot be certain that defects will be avoided in our upgraded or new products, resulting in loss of, or delay in, market acceptance, which could have an adverse effect on our business, results of operations and financial condition.

Because customers use our cloud-based supply chain management products for critical business processes, any defect in our products, any disruption to our products or any error in execution could cause recurring revenue customers to cancel their contracts with us, cause potential customers to not join our network and harm our reputation.

We could also be subject to litigation for actual or alleged losses to our customers’ businesses, which may require us to spend significant time and money in litigation or arbitration or to pay significant settlements or damages.

We could also be subject to litigation for actual or alleged losses to our customers, which may require us to spend significant time and money in litigation or arbitration or to pay significant settlements or damages.

We do not currently maintain any warranty reserves.

Moreover, defending a lawsuit, regardless of its merit, could be costly and divert management’s attention and could cause our business to suffer.

SPS COMMERCE, INC.

Form 10-K for the Annual Period ended December 31, 2022

Table of Con t ents

The insurers under our existing liability insurance policy could deny coverage of a future claim that results from an error or defect in our technology or a resulting disruption in our products, or our existing liability insurance might not be adequate to cover any or all of the damages and other costs of such a claim.

2 unchanged sentences

If open source, or other no-cost products and services, expand into enterprise application and supply chain software or products, our prices, revenues, and operating results may decline.

The open source community is comprised of many different formal and informal groups of software developers and individuals who have created a wide variety of software and have made that software available for use, distribution, and modification, often free of charge.

The open source community comprises many different formal and informal groups of software developers and individuals who have created a wide variety of software and have made that software available for use, distribution, and modification, often free of charge.

If developers contribute effective and scalable enterprise and supply chain application software to the open source community, or if competitors make such software or service available at no cost, we may need to lower our product pricing and alter our distribution strategy to compete successfully, and our revenues and operating results may decline as a result.

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If an author or third-party that distributes such open source software were to allege that we had not complied with the conditions of one or more of these licenses, we could be required to incur significant legal expenses defending against such allegations and could be subject to significant damages, enjoined from the sale of our services that contained the open source software and required to comply with the foregoing conditions, which could disrupt the distribution and sale of some of our products.

While we monitor the use of a majority of open source software in our products, processes and technology and work to ensure that open source software is not used in such a way as to require us to disclose the source code to the related product or products, such use could inadvertently occur.

SPS COMMERCE, INC.

Form 10-K for the Annual Period ended December 31, 2023

While we monitor the use of open source software in our products, processes and technology and work to ensure that open source software is not used in such a way as to require us to disclose the source code to the related product or products, such use could inadvertently occur.

Additionally, if a third-party software provider has incorporated certain types of open source software into software we license from such third-party for our products, we could, under certain circumstances, be required to disclose the source code to our products.

7 unchanged sentences

In addition, the laws of some foreign countries do not protect our proprietary rights to the same extent as the laws of the U.S.

intellectual property protections may also be unavailable, limited or difficult to enforce in some countries, which could make it easier for competitors to capture market share.

and intellectual property protections may also be unavailable, limited or difficult to enforce in some countries, which could make it easier for competitors to capture market share.

Our failure to adequately protect our intellectual property and proprietary rights could adversely affect our business, financial condition, and results of operations.

1 unchanged sentence

Any such legal proceedings, including litigation, that are pursued in the future could result in substantial costs and diversion of resources and could have a material adverse effect on our business, operating results, or financial condition, regardless of whether we prevail in such proceedings.

SPS COMMERCE, INC.

Form 10-K for the Annual Period ended December 31, 2022

Table of Con t ents

An assertion by a third-party that we are infringing its intellectual property, whether or not correct, could subject us to costly and time-consuming litigation or expensive licenses and our business might be materially harmed.

12 unchanged sentences

In that event, we could be required to seek licenses from third parties in order to continue offering our products, to re-develop our products or to discontinue sales of our products, or to release our proprietary software code under the terms of an open source license, any of which could have a material adverse effect on our business.

SPS COMMERCE, INC.

Form 10-K for the Annual Period ended December 31, 2023

Privacy concerns and laws, evolving regulation of the internet and cloud computing, cross-border data transfer restrictions and other domestic or foreign regulations may limit the use and adoption of our products and adversely affect our business.

10 unchanged sentences

Even the perception that the privacy of personal information is not satisfactorily protected or does not meet regulatory requirements could inhibit sales and adoption of our cloud-based products.

SPS COMMERCE, INC.

Form 10-K for the Annual Period ended December 31, 2022

Table of Con t ents

Industry-specific regulation is evolving, and unfavorable or burdensome industry-specific laws, regulations or interpretive positions could harm our business.

17 unchanged sentences

• changes in our pricing policies or those of our competitors;

SPS COMMERCE, INC.

Form 10-K for the Annual Period ended December 31, 2023

• competition, including entry into the industry by new competitors;

• the amount and timing of our expenses, including stock-based compensation and expenditures related to expanding our operations, supporting new customers, performing research and development, or introducing new products;

• the amount and timing of our expenses, including stock-based compensation and expenditures related to expanding our operations, attracting and retaining talent, supporting new customers, performing research and development, or introducing new products;

• changes in laws and regulations impacting our business;

7 unchanged sentences

If this occurs, the trading price of our common stock could decline significantly.

Our stock price may be volatile.

Our stock price has fluctuated and may fluctuate in the future, depending on a number of factors, including:

• fluctuations in our guidance and quarterly financial results or the guidance or quarterly financial results of companies perceived to be similar to us;

• fluctuations in our recorded revenue, even during periods of significant sales order activity;

• fluctuations in stock market volume;

SPS COMMERCE, INC.

Form 10-K for the Annual Period ended December 31, 2022

Table of Con t ents

• changes in estimates of our financial results or recommendations by securities analysts;

• failure of any of our products to achieve or maintain market acceptance;

• changes in market valuations of companies perceived to be similar to us;

• success of competitive products or services;

• changes in our capital structure, such as future issuances of securities or the incurrence of debt;

• announcements by us or our competitors of significant products, contracts, acquisitions, or strategic alliances;

• legal or regulatory developments in the U.S., foreign countries, or both;

• litigation involving our company, our general industry or both;

• additions or departures of key personnel;

• investors’ general perception of us;

• changes in general economic, industry and market conditions.

In addition, if the market for software or technology stocks or the stock market in general experiences a loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business, financial condition, or results of operations.

If any of the foregoing occurs, it could cause our stock price to fall and may expose us to class action lawsuits that, even if unsuccessful, could be costly to defend and a distraction to management.

Our charter documents and Delaware law may delay, discourage, or inhibit a takeover that stockholders consider favorable.

16 unchanged sentences

Form 10-K for the Annual Period ended December 31, 2023

Table of Con t ents

Unanticipated changes in effective tax rates or adverse outcomes resulting from examination of our income or other tax returns could adversely affect our operating results and financial condition.

We are subject to income taxes in the U.S.

and various foreign jurisdictions, and our domestic and international tax liabilities will be subject to the allocation of expenses in differing jurisdictions.

Our future effective tax rates could be subject to volatility or adversely affected by a number of factors, including:

• changes in the valuation of our deferred tax assets and liabilities;

• expected timing and amount of the release of tax valuation allowances;

• expiration of, or detrimental changes in, research and development tax credit laws;

• tax effects of stock-based compensation;

• costs related to intercompany restructurings;

• changes in tax laws, regulations, accounting principles or interpretations thereof;

• future earnings being lower than anticipated in countries where we have lower statutory tax rates and higher than anticipated earnings in countries where we have higher statutory tax rates.

In addition, we are subject to audits of our income, sales, and other taxes by the Internal Revenue Service and other foreign and state tax authorities.

Outcomes from these audits could have an adverse effect on our operating results and financial condition.

Our failure to maintain adequate internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 or to prevent or detect material misstatements in our annual or interim financial statements in the future could result in inaccurate financial reporting, or could otherwise harm our business and investor confidence in our financial reporting.

4 unchanged sentences

If we are not able to comply with the requirements of Section 404 in the future, or if material weaknesses are identified, our business could be harmed and investor confidence in our financial reporting diminished.

Unresolved Staff Comments

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors