What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-07-30 compared with 2025-04-24 · 131 added, 32 removed, 160 unchanged (50% of the section changed)

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We classify the majority of our recurring revenue customers as '1P', with the exception of those recurring revenue customers that only have an online marketplace or e-Commerce connection within our network (which we refer to as '3P').

Annual Revenue Per User ("ARPU") - We calculate the annualized average recurring revenues per recurring revenue customer, which was previously referred to as “wallet share”, by dividing the annualized recurring revenues for the period by the average of the beginning and ending number of recurring revenue customers for the period.

SPS COMMERCE, INC.

Form 10-Q for the Quarterly Period ended March 31, 2025

Annual Revenue Per User (ARPU) - We calculate the annualized average recurring revenues per recurring revenue customer, which we refer to as “ARPU” and was previously referred to as “wallet share”, by dividing the annualized recurring revenues for the period by the average of the beginning and ending number of recurring revenue customers for the period.

Form 10-Q for the Quarterly Period ended June 30, 2025

Non-GAAP Financial Measures - To supplement our condensed consolidated financial statements, we provide investors with Adjusted EBITDA, Adjusted EBITDA Margin, and non-GAAP income per share, all of which are non-GAAP financial measures.

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Investors should review the reconciliations of non-GAAP financial measures to the comparable GAAP financial measures that are included in this “ Management’s Discussion and Analysis of Financial Condition and Results of Operations.

SPS COMMERCE, INC.

Form 10-Q for the Quarterly Period ended March 31, 2025

Results of Operations

Three Months Ended March 31, 2025 Compared to Three Months Ended March 31, 2024

Three Months Ended June 30, 2025 Compared to Three Months Ended June 30, 2024

The following table presents our results of operations for the periods indicated:

Three Months Ended March 31,

Three Months Ended June 30,

2025 2024 Change

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(1) Amounts in column may not foot due to rounding

SPS COMMERCE, INC.

Form 10-Q for the Quarterly Period ended June 30, 2025

Revenues - Revenues increased for the 98th consecutive quarter.

The increase in revenue period-over-period resulted from an increase in average recurring revenues per recurring revenue customer, which we also refer to as “ARPU” and was previously referred to as “wallet share”, and from an increase in recurring revenue customers that was driven primarily by business acquisitions and continued business growth.

• ARPU increased 11% to approximately $13,850 for the three months ended March 31, 2025.

The increase in revenue period-over-period resulted from an increase in ARPU and from an increase in recurring revenue customers that was driven primarily by business acquisitions and continued business growth.

• ARPU increased 3% to approximately $13,200 for the three months ended June 30, 2025.

This was primarily attributable to increased usage of our products by our recurring revenue customers, partially offset by the addition of 3P recurring revenue customers.

• The number of recurring revenue customers increased 21% to approximately 54,150 at March 31, 2025.

• The number of recurring revenue customers increased 21% to approximately 54,500 at June 30, 2025.

Of the total recurring revenue customers, a pproximately 46,300 are 1P recurring revenue customers and the remainder are 3P recurring revenue customers.

The increase in recurring revenue customers is primarily d ue to recent acquisition s of 3P recurring revenue customers, which have an inconsequential impact on recurring revenue .

New recurring revenue customers do not have a meaningful contribution to revenue at the beginning of their tenure as our recurring revenue customer, and therefore a majority of the increased revenue was generated from existing recurring revenue customers.

• Approximately 50 recurring revenue customers were added in May 2024 due to the acquisition of the existing customer base of Traverse Systems, and approximately 200 recurring revenue customers were added in July 2024 due to the acquisition of the existing customer base of SupplyPike.

The increase in recurring revenue customers is primarily due to recent acquisitions of 3P recurring revenue customers, which have an inconsequential impact on recurring revenue.

New recurring revenue customers do not have a meaningful contribution to revenue at the beginning of their tenure, and therefore a majority of the increased revenue was generated from existing recurring revenue customers.

• Approximately 50 1P recurring revenue customers were added in May 2024 due to the acquisition of the existing customer base of Traverse Systems , and approximately 200 1P recurring revenue customers were added in July 2024 due to the acquisition of the existing customer base of SupplyPike .

Additionally, approximately 8,500 recurring revenue customers were added in February 2025 due to the acquisition of the existing customer base of Carbon6 , of which approximately 300 are 1P recurring revenue customers and the remainder are 3P recurring revenue customers.

SPS COMMERCE, INC.

Form 10-Q for the Quarterly Period ended March 31, 2025

Recurring revenues increased 23% to $172.3 million for the three months ended March 31, 2025 compared to the three months ended March 31, 2024 .

Recurring revenues accounted for 95% and 93% of our total revenues for the three months ended March 31, 2025 and 2024, respectively.

Recurring revenues increased 24% to $179.1 million for the three months ended June 30, 2025 compared to the three months ended June 30, 2024 .

Recurring revenues accounted for 96% and 94% of our total revenues for the three months ended June 30, 2025 and 2024, respectively.

We anticipate that the number of recurring revenue customers and ARPU will increase as we execute our growth strategy focused on further penetration of our market.

Cost of Revenues - The increase in cost of revenues was primarily due to increased headcount, which resulted in an increase of $3.3 million in personnel-related costs.

Additionally, there was an increase in software subscriptions of $2.2 million due to general growth of our business.

Sales and Marketing Expenses - The increase in sales and marketing expense was primarily due to increased headcount, which resulted in an increase of $4.6 million in personnel-related costs.

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General and Administrative Expenses - The increase in general and administrative expense was primarily due to increased headcount, which resulted in an increase of $2.7 million in personnel-related costs.

Additionally, there was an increase in stock-based compensation expense of $1.7 million.

Amortization of Intangible Assets - The increase in amortization of intangible assets was driven by acquired intangible assets related to recent business combinations.

Other Income, Net - The decrease in other income, net was primarily due to a decrease in investment income.

Income Tax Expense - The increase in income tax expense was primarily driven by an increase in pre-tax income, a decrease in the excess tax benefits due to the current period equity award settlements and the change in non-deductible compensation.

Income Tax Expense - The decrease in income tax expense was primarily driven by the change in non-deductible compensation and the tax impact of equity award exercise and settlement activity.

Excess tax benefits generated upon the settlement or exercise of stock awards are recognized as a reduction to income tax expense and, as a result, we expect that our annual effective income tax rate will fluctuate.

Adjusted EBITDA - Adjusted EBITDA consists of net income adjusted for income tax expense, depreciation and amortization expense, stock-based compensation expense, realized gain or loss from foreign currency on cash and investments held, investment income, and other adjustments as necessary for a fair presentation.

Other adjustments for the three months ended March 31, 2025 included the expense impacts from disposals of certain capitalized internally developed software and one-time acquisition-related insurance costs.

SPS COMMERCE, INC.

Form 10-Q for the Quarterly Period ended June 30, 2025

Adjusted EBITDA - Adjusted EBITDA consists of net income adjusted for income tax expense, depreciation and amortization expense, stock-based compensation expense, realized gain or loss from investments held and foreign currency impact on cash and investments, investment income, and other adjustments as necessary for a fair presentation.

Other adjustments for the three months ended June 30, 2025 included the expense impact from disposals of certain capitalized internally developed software .

Net income is the comparable GAAP measure of financial performance.

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Investment income (688) (2,794)

Other 1,013 —

Adjusted EBITDA $ 56,052 $ 44,189

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Margin, the comparable GAAP measure of financial performance, consists of net income divided by revenue.

SPS COMMERCE, INC.

Form 10-Q for the Quarterly Period ended March 31, 2025

The following table provides a comparison of Margin to Adjusted EBITDA Margin:

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Adjusted EBITDA Margin 30 % 29 %

Non-GAAP Income per Share - Non-GAAP income per share consists of net income adjusted for stock-based compensation expense, amortization expense related to intangible assets, realized gain or loss from foreign currency on cash and investments held, other adjustments as necessary for a fair presentation, including for the three months ended March 31, 2025 the expense impacts from disposals of certain capitalized internally developed software and one-time acquisition-related insurance costs , and the corresponding tax impacts of the adjustments to net income, divided by the weighted average number of shares of common and diluted stock outstanding during each period.

SPS COMMERCE, INC.

Form 10-Q for the Quarterly Period ended June 30, 2025

Non-GAAP Income per Share - Non-GAAP income per share consists of net income adjusted for stock-based compensation expense, amortization expense related to intangible assets, realized gain or loss from investments held and foreign currency impact on cash and investments, other adjustments as necessary for a fair presentation, including for the three months ended June 30, 2025 the expense impact from disposals of certain capitalized internally developed software, and the corresponding tax impacts of the adjustments to net income, divided by the weighted average number of shares of common and diluted stock outstanding during each period.

Net income per share, the comparable GAAP measure of financial performance, consists of net income divided by the weighted average number of shares of common and diluted stock outstanding during each period.

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Realized gain from investments held and foreign currency impact on cash and investments (107) (1,255)

Income tax effects of adjustments (6,285) (3,066)

Non-GAAP income $ 37,954 $ 30,045

Shares used to compute net income and non-GAAP income per share

Basic 37,965 37,078

Diluted 38,099 37,683

Net income per share, basic $ 0.52 $ 0.49

Non-GAAP adjustments to net income per share, basic 0.48 0.32

Non-GAAP income per share, basic $ 1.00 $ 0.81

Net income per share, diluted $ 0.52 $ 0.48

Non-GAAP adjustments to net income per share, diluted 0.48 0.32

Non-GAAP income per share, diluted $ 1.00 $ 0.80

SPS COMMERCE, INC.

Form 10-Q for the Quarterly Period ended June 30, 2025

Six Months Ended June 30, 2025 Compared to Six Months Ended June 30, 2024

The following table presents our results of operations for the periods indicated:

Six Months Ended June 30,

2025 2024 Change

($ in thousands) $ % of revenue (1)

$ % of revenue (1)

Revenues $ 368,949 100 % $ 303,172 100 % $ 65,777 22 %

Cost of revenues 116,740 32 103,505 34 13,235 13

Gross profit 252,209 68 199,667 66 52,542 26

Operating expenses

Sales and marketing 85,068 23 72,123 24 12,945 18

Research and development 34,710 9 30,375 10 4,335 14

General and administrative 61,908 17 49,423 16 12,485 25

Amortization of intangible assets 18,097 5 9,178 3 8,919 97

Total operating expenses 199,783 54 161,099 53 38,684 24

Income from operations 52,426 14 38,568 13 13,858 36

Other income, net 2,980 1 7,188 2 (4,208) (59)

Income before income taxes 55,406 15 45,756 15 9,650 21

Income tax expense 13,477 4 9,721 3 3,756 39

Net income $ 41,929 11 % $ 36,035 12 % $ 5,894 16 %

(1) Amounts in column may not foot due to rounding

Revenues - Revenues increased for the 98th consecutive quarter.

• ARPU increased 11% to approximately $14,100 for the six months ended June 30, 2025.

This was primarily attributable to increased usage of our products by our recurring revenue customers, partially offset by the addition of 3P recurring revenue customers.

• The number of recurring revenue customers increased 21% to approximately 54,500 at June 30, 2025.

Of the total recurring revenue customers, approximately 46,300 are 1P recurring revenue customers and the remainder are 3P recurring revenue customers.

The increase in recurring revenue customers is primarily due to recent acquisitions of 3P recurring revenue customers, which have an inconsequential impact on recurring revenue.

Recurring revenues increased 24% to $351.5 million for the six months ended June 30, 2025 compared to the six months ended June 30, 2024 .

Recurring revenues accounted for 95% and 94% of our total revenues for the six months ended June 30, 2025 and 2024, respectively.

We anticipate that the number of recurring revenue customers and ARPU will increase as we execute our growth strategy focused on further penetration of our market.

SPS COMMERCE, INC.

Form 10-Q for the Quarterly Period ended June 30, 2025

Cost of Revenues - The increase in cost of revenues was primarily due to increased headcount, which resulted in an increase of $8.6 million in personnel-related costs.

Additionally, there was an increase in software subscriptions of $3.7 million due to general growth of our business.

Sales and Marketing Expenses - The increase in sales and marketing expense was primarily due to increased headcount, which resulted in an increase of $10.3 million in personnel-related costs.

Research and Development Expenses - The increase in research and development expense was primarily due to increased headcount, which resulted in an increase of $3.0 million in personnel-related costs.

General and Administrative Expenses - The increase in general and administrative expense was primarily due to increased headcount, which resulted in an increase of $5.3 million in personnel-related costs.

Additionally, other items contributing to the increase related to costs for continued support of our growing operations.

Amortization of Intangible Assets - The increase in amortization of intangible assets was driven by acquired intangible assets related to recent business combinations.

Other Income, Net - The decrease in other income, net was primarily due to a decrease in investment income.

Income Tax Expense - The increase in income tax expense was primarily driven by an increase in pre-tax income, as well as decreases in the excess tax benefits from equity award exercises and settlements, and an increase in nondeductible compensation.

Adjusted EBITDA - Adjusted EBITDA consists of net income adjusted for income tax expense, depreciation and amortization expense, stock-based compensation expense, realized gain or loss from investments held and foreign currency impact on cash and investments, investment income, and other adjustments as necessary for a fair presentation.

Other adjustments for the six months ended June 30, 2025 included the expense impacts from disposals of certain capitalized internally developed software and one-time acquisition-related insurance costs.

Net income is the comparable GAAP measure of financial performance.

The following table provides a reconciliation of net income to Adjusted EBITDA:

Six Months Ended

(in thousands) 2025 2024

Net income $ 41,929 $ 36,035

Income tax expense 13,477 9,721

Depreciation and amortization of property and equipment 9,948 9,377

Amortization of intangible assets 18,097 9,178

Stock-based compensation expense 28,865 31,512

Realized gain from investments held and foreign currency impact on cash and investments (473) (1,559)

Investment income (2,537) (5,673)

Other 1,119 —

Adjusted EBITDA $ 110,425 $ 88,591

Adjusted EBITDA Margin - Adjusted EBITDA Margin consists of Adjusted EBITDA divided by revenue.

Margin, the comparable GAAP measure of financial performance, consists of net income divided by revenue.

SPS COMMERCE, INC.

Form 10-Q for the Quarterly Period ended June 30, 2025

The following table provides a comparison of Margin to Adjusted EBITDA Margin:

Six Months Ended

(in thousands, except Margin and Adjusted EBITDA Margin) 2025 2024

Revenue $ 368,949 $ 303,172

Net income 41,929 36,035

Margin 11 % 12 %

Adjusted EBITDA 110,425 88,591

Adjusted EBITDA Margin 30 % 29 %

Non-GAAP Income per Share - Non-GAAP income per share consists of net income adjusted for stock-based compensation expense, amortization expense related to intangible assets, realized gain or loss from investments held and foreign currency impact on cash and investments, other adjustments as necessary for a fair presentation, including for the six months ended June 30, 2025 the expense impacts from disposals of certain capitalized internally developed software and one-time acquisition-related insurance costs, and the corresponding tax impacts of the adjustments to net income, divided by the weighted average number of shares of common and diluted stock outstanding during each period.

To quantify the tax effects, we recalculated income tax expense excluding the direct book and tax effects of the specific items constituting the non-GAAP adjustments.

The difference between this recalculated income tax expense and GAAP income tax expense is presented as the income tax effect of the non-GAAP adjustments.

The following table provides a reconciliation of net income per share to non-GAAP income per share:

Six Months Ended

(in thousands, except per share amounts) 2025 2024

Net income $ 41,929 $ 36,035

Stock-based compensation expense 28,865 31,512

Amortization of intangible assets 18,097 9,178

Realized gain from investments held and foreign currency impact on cash and investments (473) (1,559)

Other 1,119 —

Income tax effects of adjustments (13,570) (12,620)

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SPS COMMERCE, INC.

Form 10-Q for the Quarterly Period ended March 31, 2025

Form 10-Q for the Quarterly Period ended June 30, 2025

Critical Accounting Policies and Estimates

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Accordingly, we believe that our policies for revenue recognition, internally developed software, and business combinations are the most critical to fully understand and evaluate our financial condition and results of operations.

During the three months ended March 31, 2025, there were no changes in our critical accounting policies or estimates.

During the six months ended June 30, 2025, there were no changes in our critical accounting policies or estimates.

For additional information regarding our critical accounting policies and estimates, see the discussion under "Critical Accounting Policies and Estimates" in "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report on Form 10-K for the year ended December 31, 2024, as filed with the SEC.

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Sources of Liquidity

As of March 31, 2025, our principal sources of liquidity were cash and cash equivalents of $94.9 million and net accounts receivable of $63.4 million.

As of June 30, 2025, our principal sources of liquidity were cash and cash equivalents of $107.6 million and net accounts receivable of $67.5 million.

Statements of Cash Flows Summary

The summary of activity within the condensed consolidated statements of cash flows was as follows:

Three Months Ended

Six Months Ended

(in thousands) 2025 2024

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Operating Activities

The increase in cash provided by operating activities from the three months ended March 31, 2024 to the three months ended March 31, 2025 was primarily due to an increase in net income as adjusted for non-cash expenses, of $ 6.2 million, driven by continued growth in revenue, as partially offset by cash paid for expenses to operate the growing business.

The increase in cash provided by operating activities from the six months ended June 30, 2024 to the six months ended June 30, 2025 was primarily due to an increase in net income as adjusted for non-cash expenses, of $ 16.6 million, driven by continued growth in revenue, partially offset by cash paid for expenses to operate the growing business.

Additionally, fluctuations in operating assets and liabilities resulted in a decrease of $ 7.8 million in cash provided by operating activities .

Investing Activities

The increase in cash used in investing activities from the three months ended March 31, 2024 to the three months ended March 31, 2025 was primarily due to an increase in cash used to acquire a business of $ 141.6 million to further grow our business.

The increase in cash used in investing activities from the six months ended June 30, 2024 to the six months ended June 30, 2025 was primarily due to an increase in cash used to acquire a business of $ 113.3 million to further grow our business.

Financing Activities

The increase in cash used in financing activities from the three months ended March 31, 2024 to the three months ended March 31, 2025 was primarily due to an increase in cash used for share repurchases of $ 23.5 million year-over-year to continue to deliver shareholder value.

The increase in cash used in financing activities from the six months ended June 30, 2024 to the six months ended June 30, 2025 was primarily due to an increase in cash used for share repurchases of $ 22.1 million year-over-year to continue to deliver shareholder value.

SPS COMMERCE, INC.

Form 10-Q for the Quarterly Period ended March 31, 2025

Form 10-Q for the Quarterly Period ended June 30, 2025

Contractual and Commercial Commitment Summary

Our contractual obligations and commercial commitments as o f March 31, 2025 are summarized below:

Our contractual obligations and commercial commitments as o f June 30, 2025 are summarized below:

Payments Due by Period

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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-Q

Item 2. Management’s Discussion and Analysis