SPS COMMERCE INC 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2024. This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Forward looking statements regarding us, our business prospects and our results of operations are subject to certain risks and uncertainties posed by many factors and events that could cause our actual business, prospects and results of operations to differ materially from those that may be anticipated by such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. In some cases, you can identify forward-looking statements by the following words: “anticipate,” “assume,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “ongoing,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would,” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. Similarly, statements that describe our future plans, objectives or goals are also forward-looking. Forward-looking statements may also be made from time to time in oral presentations, including telephone conferences and/or webcasts open to the public. Shareholders, potential investors, and others are cautioned that all forward-looking statements involve risks and uncertainties that could cause results in future periods to differ materially from those anticipated by some of the statements made in this report, including the risks and uncertainties described under the heading “Risk Factors” appearing in our Annual Report on Form 10-K for the year ended December 31, 2024, as may be updated in our subsequent Quarterly Reports on Form 10-Q or other filings from time to time. We expressly disclaim any intent or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the SEC that advise interested parties of the risks and factors that may affect our business. Overview SPS Commerce is transforming how our global retail supply chain co-operates by creating a more dynamic, interconnected community where players can more freely connect, collaborate, and prosper together. Our comprehensive suite of cloud-based products and solutions lead the industry in establishing and maintaining stronger collaboration between retailers, grocers, distributors, suppliers, manufacturers, and logistics firms around the globe. Our products enable customers to enhance how they operate: both within their organizations and with their trading partners, with reduced operational costs and stronger supply chain performance; compete: with order and supply chain visibility, sell-through data, and optimized inventory management, and; adapt: through the limitless access to connect and grow with the world’s largest retail network of trading partners that only SPS Commerce can offer. We plan to continue to grow our business by further penetrating the supply chain management market, increasing revenues from our customers as their businesses grow, expanding our distribution channels, expanding our international presence and, from time to time, developing new products and applications. We also intend to selectively pursue acquisitions that will add customers, allow us to expand into new regions, or allow us to offer new functionalities. Key Financial Terms, Metrics and Non-GAAP Measures We have several key financial terms, metrics, and non-GAAP measures as discussed in our Annual Report on Form 10-K for the year ended December 31, 2024, as filed with the SEC, under the heading “ Management’s Discussion and Analysis of Financial Condition and Results of Operations. ” Recurring Revenue - We define recurring revenue as active contracts during the reporting period to regularly pay us fees for subscription-based and reoccurring services. All components of the contracts that are not expected to recur (primarily set ups and professional services) are excluded from recurring revenue. Recurring Revenue Customers - We define recurring revenue customers as customers with an active recurring revenue contract at the end of the period. A s mall portion of our recurring revenue customers consist of separate units within a larger organization and are separately invoiced. We treat each of these units, which may include divisions, departments, affiliates and franchises, as distinct recurring revenue customers. 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. 20 Form 10-Q for the Quarterly Period ended June 30, 2025 Table of Contents 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. We believe that these non-GAAP financial measures provide useful information to our management, Board of Directors, and investors regarding certain financial and business trends relating to our financial condition and results of operations. Our management uses these non-GAAP financial measures to compare our performance to that of prior periods for trend analyses and planning purposes. Adjusted EBITDA is also used for purposes of determining executive and senior management incentive compensation. We believe these non-GAAP financial measures are useful to an investor as they are widely used in evaluating operating performance. Adjusted EBITDA and Adjusted EBITDA Margin are used to measure operating performance without regard to items such as depreciation and amortization, which can vary depending upon accounting methods and the book value of assets, and to present a meaningful measure of corporate performance exclusive of capital structure and the method by which assets were acquired. These non-GAAP financial measures should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP. These non-GAAP financial measures exclude significant expenses and income that are required by GAAP to be recorded in our condensed consolidated financial statements and are subject to inherent limitations. Investors should review the reconciliations of non-GAAP financial measures to the comparable GAAP financial measures that are included in this “ Management’s Discussion and Analysis of Financial Condition and Results of Operations. ” Results of Operations Three Months Ended 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 June 30, 2025 2024 Change ($ in thousands) $ % of revenue (1) $ % of revenue (1) $ % Revenues $ 187,400 100 % $ 153,596 100 % $ 33,804 22 % Cost of revenues 59,826 32 52,018 34 7,808 15 Gross profit 127,574 68 101,578 66 25,996 26 Operating expenses Sales and marketing 43,434 23 35,691 23 7,743 22 Research and development 17,271 9 14,366 9 2,905 20 General and administrative 30,890 16 23,516 15 7,374 31 Amortization of intangible assets 9,509 5 4,840 3 4,669 96 Total operating expenses 101,104 54 78,413 51 22,691 29 Income from operations 26,470 14 23,165 15 3,305 14 Other income, net 773 — 4,056 3 (3,283) (81) Income before income taxes 27,243 15 27,221 18 22 — Income tax expense 7,510 4 9,189 6 (1,679) (18) Net income $ 19,733 11 % $ 18,032 12 % $ 1,701 9 % (1) Amounts in column may not foot due to rounding SPS COMMERCE, INC. 21 Form 10-Q for the Quarterly Period ended June 30, 2025 Table of Contents Revenues - Revenues increased for the 98th consecutive quarter. 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 54,500 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 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. 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. Research and Development Expenses - The increase in research and development expense was primarily due to increased headcount, which resulted in an increase of $1.1 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 $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 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. SPS COMMERCE, INC. 22 Form 10-Q for the Quarterly Period ended June 30, 2025 Table of Contents 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. The following table provides a reconciliation of net income to Adjusted EBITDA: Three Months Ended June 30, (in thousands) 2025 2024 Net income $ 19,733 $ 18,032 Income tax expense 7,510 9,189 Depreciation and amortization of property and equipment 4,991 4,683 Amortization of intangible assets 9,509 4,840 Stock-based compensation expense 14,998 11,494 Realized gain from investments held and foreign currency impact on cash and investments (107) (1,255) Investment income (688) (2,794) Other 106 — Adjusted EBITDA $ 56,052 $ 44,189 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. The following table provides a comparison of Margin to Adjusted EBITDA Margin: Three Months Ended June 30, (in thousands, except Margin and Adjusted EBITDA Margin) 2025 2024 Revenue $ 187,400 $ 153,596 Net income 19,733 18,032 Margin 11 % 12 % Adjusted EBITDA 56,052 44,189 Adjusted EBITDA Margin 30 % 29 % SPS COMMERCE, INC. 23 Form 10-Q for the Quarterly Period ended June 30, 2025 Table of Contents 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. To quantify the tax effects, we recalculated income tax expense excluding the direct book and tax effects of the specific items constituting the non-GAAP adjustments. The difference between this recalculated income tax expense and GAAP income tax expense is presented as the income tax effect of the non-GAAP adjustments. The following table provides a reconciliation of net income per share to non-GAAP income per share: Three Months Ended June 30, (in thousands, except per share amounts) 2025 2024 Net income $ 19,733 $ 18,032 Stock-based compensation expense 14,998 11,494 Amortization of intangible assets 9,509 4,840 Realized gain from investments held and foreign currency impact on cash and investments (107) (1,255) Other 106 — 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. 24 Form 10-Q for the Quarterly Period ended June 30, 2025 Table of Contents 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. 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 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. 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. 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. 25 Form 10-Q for the Quarterly Period ended June 30, 2025 Table of Contents 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. 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 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 June 30, (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. 26 Form 10-Q for the Quarterly Period ended June 30, 2025 Table of Contents The following table provides a comparison of Margin to Adjusted EBITDA Margin: Six Months Ended June 30, (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. Net income per share, the comparable GAAP measure of financial performance, consists of net income divided by the weighted average number of shares of common and diluted stock outstanding during each period. To quantify the tax effects, we recalculated income tax expense excluding the direct book and tax effects of the specific items constituting the non-GAAP adjustments. The difference between this recalculated income tax expense and GAAP income tax expense is presented as the income tax effect of the non-GAAP adjustments. The following table provides a reconciliation of net income per share to non-GAAP income per share: Six Months Ended June 30, (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) Non-GAAP income $ 75,967 $ 62,546 Shares used to compute net income and non-GAAP income per share Basic 37,978 37,063 Diluted 38,132 37,690 Net income per share, basic $ 1.10 $ 0.97 Non-GAAP adjustments to net income per share, basic 0.90 0.72 Non-GAAP income per share, basic $ 2.00 $ 1.69 Net income per share, diluted $ 1.10 $ 0.96 Non-GAAP adjustments to net income per share, diluted 0.89 0.70 Non-GAAP income per share, diluted $ 1.99 $ 1.66 SPS COMMERCE, INC. 27 Form 10-Q for the Quarterly Period ended June 30, 2025 Table of Contents Critical Accounting Policies and Estimates This discussion of our financial condition and results of operations is based upon our condensed consolidated financial statements, which are prepared in accordance with GAAP and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. The preparation of these condensed consolidated financial statements requires us to make estimates, judgments, and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosures. On an ongoing basis, we evaluate our estimates, judgments, and assumptions. We base our estimates of the carrying value of certain assets and liabilities on historical experience and on various other assumptions that we believe to be reasonable. Our actual results may differ from these estimates under different assumptions or conditions. A critical accounting policy or estimate is one that is both material to the presentation of our financial statements and requires us to make difficult, subjective, or complex judgments relating to uncertain matters that could have a material effect on our financial condition and results of operations. Accordingly, we believe that our policies for revenue recognition, internally developed software, and business combinations are the most critical to fully understand and evaluate our financial condition and results of operations. During the 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. Liquidity and Capital Resources Sources of Liquidity 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: Six Months Ended June 30, (in thousands) 2025 2024 Net cash provided by operating activities $ 72,306 $ 63,506 Net cash used in investing activities (155,443) (11,929) Net cash used in financing activities (51,726) (29,950) Operating Activities 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 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 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. 28 Form 10-Q for the Quarterly Period ended June 30, 2025 Table of Contents Contractual and Commercial Commitment Summary Our contractual obligations and commercial commitments as o f June 30, 2025 are summarized below: Payments Due by Period (in thousands) Less Than 1 Year 1-3 Years 3-5 Years More Than 5 Years Total Operating lease obligations, including imputed interest $ 6,422 $ 4,625 $ 197 $ 40 $ 11,284 Purchase commitments 15,334 5,368 1,452 — 22,154 Total $ 21,756 $ 9,993 $ 1,649 $ 40 $ 33,438 Future Capital Requirements Our future capital requirements may vary significantly from those now planned and will depend on many factors, including: • costs to develop and implement new products and applications, if any; • sales and marketing resources needed to further penetrate our market and gain acceptance of new products and applications that we may develop; • expansion of our operations in the U.S. and internationally; • response of competitors to our products and applications; and • use of capital for acquisitions. Historically, we have experienced increases in our expenditures consistent with the growth in our operations and personnel, and we anticipate that our expenditures will continue to increase as we expand our business. We believe our cash, cash equivalents, and cash flows from our operations will be sufficient to meet our working capital and capital expenditure requirements for at least the next twelve months. Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements, investments in special purpose entities or undisclosed borrowings or debt. Additionally, we are not a party to any derivative contracts or synthetic leases. Foreign Currency Exchange and Inflation Rate Changes For information regarding the effect of foreign currency exchange and inflation rate changes, refer to the section entitled “ Foreign Currency Exchange Risk ,” included in Part I, Item 3, “ Quantitative and Qualitative Disclosures About Market Risk ” of this Quarterly Report on Form 10-Q.