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Item 2. Management’s Discussion and Analysis

2025-10-30 compared with 2025-07-30 · 13 added, 205 removed, 86 unchanged (72% of the section changed)

30 unchanged sentences

SPS COMMERCE, INC.

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

Form 10-Q for the Quarterly Period ended September 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.

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.

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 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.

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.

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

Three Months Ended

(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)

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

(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.

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.

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

(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)

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.

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)

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.

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

Form 10-Q for the Quarterly Period ended September 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 six months ended June 30, 2025, there were no changes in our critical accounting policies or estimates.

During the nine months ended September 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 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.

As of September 30, 2025, our principal sources of liquidity were cash and cash equivalents of $133.7 million and net accounts receivable of $67.4 million.

Statements of Cash Flows Summary

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

Six Months Ended

Nine Months Ended

September 30,

(in thousands) 2025 2024

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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.

The increase in cash provided by operating activities from the nine months ended September 30, 2024 to the nine months ended September 30, 2025 was primarily due to an increase in net income as adjusted for non-cash expenses, of $ 46.0 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 $29.9 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.

The increase in cash used in investing activities from the nine months ended September 30, 2024 to the nine months ended September 30, 2025 was primarily due to a net cash inflow of $ 51.0 million from the maturities and purchases of investments during the nine months ended September 30, 2024.

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.

The increase in cash used in financing activities from the nine months ended September 30, 2024 to the nine months ended September 30, 2025 was primarily due to an increase in cash used for share repurchases of $ 52.0 million year-over-year to continue to deliver shareholder value.

SPS COMMERCE, INC.

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

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

Contractual and Commercial Commitment Summary

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

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

Payments Due by Period

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Total $ 19,580 $ 6,414 $ 1,605 $ 34 $ 27,633

In October 2025, we executed the sixth amendment to our lease agreement for our current headquarters located in Minneapolis, Minnesota where we lease approximately 198,000 square feet, effective October 1, 2025.

For more information, refer to Note I to our condensed consolidated financial statements, included in Part I of this Quarterly Report on Form 10-Q.

Future Capital Requirements

14 unchanged sentences

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