SPS COMMERCE INC

Previous wording

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

Current wording

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.”

Previous wording

Revenues - Revenues increased for the 93rd consecutive quarter. The increase in revenue period-over-period resulted from two primary factors: the increase in recurring revenue customers, which is driven primarily by continued business growth and by business acquisitions, and the increase in average recurring revenues per recurring revenue customer, which we also refer to as wallet share.

Current wording

Revenues - Revenues increased for the 94th consecutive quarter. The increase in revenue period-over-period resulted from two primary factors: the increase in recurring revenue customers, which is driven primarily by continued business growth and by business acquisitions, and the increase in average recurring revenues per recurring revenue customer, which we also refer to as wallet share.

Previous wording

•The number of recurring revenue customers increased 5% to approximately 44,800 at March 31, 2024 from approximately 42,750 at March 31, 2023, primarily due to sales and marketing efforts to acquire new customers and recent acquisitions. New customers do not have a meaningful contribution to revenue at the beginning of their tenure as our customer, and therefore a majority of the increased revenue was generated from existing customers.

Current wording

•The number of recurring revenue customers increased 5% to approximately 44,950 at June 30, 2024 from approximately 43,000 at June 30, 2023, primarily due to sales and marketing efforts to acquire new customers and recent acquisitions. 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.

Previous wording

•Approximately 1,000 customers were added in September 2023 due to the acquisition of the existing customer base of TIE Kinetix.

Current wording

•Approximately 1,000 recurring revenue customers were added in September 2023 due to the acquisition of the existing customer base of TIE Kinetix. Additionally, approximately 50 recurring revenue customers were added in May 2024 due to the acquisition of the existing customer base of Traverse Systems.

Previous wording

•Wallet share increased 13% to approximately $12,450 for the three months ended March 31, 2024 from approximately $11,050 for the same period in 2023. This was primarily attributable to increased usage of our products by our recurring revenue customers.

Current wording

•Wallet share increased 13% to approximately $12,850 for the three months ended June 30, 2024 from approximately $11,350 for the same period in 2023. This was primarily attributable to increased usage of our products by our recurring revenue customers.

Previous wording

Recurring revenues increased 19% to $139.7 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. Recurring revenues accounted for 93% of our total revenues for the three months ended March 31, 2024 and 2023. We anticipate that the number of recurring revenue customers and wallet share will continue to increase as we execute our growth strategy focused on further penetration of our market.

Current wording

Recurring revenues increased 18% to $144.0 million for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. Recurring revenues accounted for 94% of our total revenues for the three months ended June 30, 2024 compared to 93% for the same period in 2023. We anticipate that the number of recurring revenue customers and wallet share will continue to increase as we execute our growth strategy focused on further penetration of our market.

Previous wording

Cost of Revenues - The increase in cost of revenues was primarily due to increased headcount, which resulted in an increase of $4.7 million in personnel-related costs, and an increase of $1.6 million in stock-based compensation.

Current wording

Cost of Revenues - The increase in cost of revenues was primarily due to increased headcount, which resulted in an increase of $4.7 million in personnel-related costs.

Previous wording

Amortization of Intangible Assets - No significant changes.

Current wording

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

Previous wording

Other Income, Net - The increase was primarily due to increased investment income from favorable interest rates.

Current wording

Other Income, Net - The increase in other income, net was primarily due to increased investment income from favorable interest rates and realized gains due to favorable foreign currency exchange rates.

Previous wording

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

Current wording

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 deductible excess tax benefits from current period equity award settlements and deductible 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.

Previous wording

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. Net income is the comparable GAAP measure of financial performance.

Current wording

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 included the expense impact from disposals of certain capitalized internally developed software. Net income is the comparable GAAP measure of financial performance.

Previous wording

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, 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.

Current wording

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 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.

Previous wording

Sales and Marketing Expenses - The increase in sales and marketing expense was primarily due to increased headcount, which resulted in an increase of $4.2 million in personnel-related costs, and an increase of $2.0 million in stock-based compensation.

Current wording

Sales and Marketing Expenses - The increase in sales and marketing expense was primarily due to increased headcount, which resulted in an increase of $8.1 million in personnel-related costs, and an increase of $2.0 million in stock-based compensation.

Previous wording

Research and Development Expenses - The increase in research and development expense was primarily due to increased headcount, which resulted in an increase of $1.5 million in personnel-related costs, and an increase of $1.5 million in stock-based compensation.

Current wording

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, and an increase of $1.5 million in stock-based compensation.

Previous wording

General and Administrative Expenses - The increase in general and administrative expense was primarily due to increased headcount, which resulted in an increase of $1.6 million in personnel-related costs, and an increase of $3.2 million in stock-based compensation.

Current wording

General and Administrative Expenses - The increase in general and administrative expense was primarily due to increased headcount, which resulted in an increase of $3.4 million in personnel-related costs, and an increase of $1.7 million in stock-based compensation. Additionally, there was an increase in credit loss expense of $2.0 million due primarily to overall business growth.

Previous wording

During the three months ended March 31, 2024, 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, 2023, as filed with the SEC.

Current wording

During the six months ended June 30, 2024, 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, 2023, as filed with the SEC.

Previous wording

As of March 31, 2024, our principal sources of liquidity were cash and cash equivalents and short-term investments totaling $290.8 million and net accounts receivable of $52.1 million. Our investments are selected in accordance with our investment policy, with a goal to preserve principal, provide liquidity, and maximize income consistent with minimizing risk of material loss. Our cash equivalents and short-term investments are held in highly liquid money market funds, certificates of deposits, and commercial paper.

Current wording

As of June 30, 2024, our principal sources of liquidity were cash and cash equivalents and short-term investments totaling $271.8 million and net accounts receivable of $55.4 million. Our investments are selected in accordance with our investment policy, with a goal to preserve principal, provide liquidity, and maximize income consistent with minimizing risk of material loss. Our cash equivalents and short-term investments are held in highly liquid money market funds, certificates of deposit, and commercial paper.

Previous wording

The increase in cash provided by operating activities from the three months ended March 31, 2023 to the three months ended March 31, 2024 was primarily due to an increase in net income as adjusted for non-cash expenses, of $8.9 million, driven by continued growth in revenue, as partially offset by growth in cash paid for expenses to operate the growing business. Additionally, fluctuations in operating assets and liabilities resulted in an increase of $3.6 million, driven by changes in the amount and timing of settlements and general growth of the business.

Current wording

The increase in cash provided by operating activities from the six months ended June 30, 2023 to the six months ended June 30, 2024 was primarily due to an increase in net income as adjusted for non-cash expenses, of $14.4 million, driven by continued growth in revenue, as partially offset by growth in cash paid for expenses to operate the growing business. Additionally, fluctuations in operating assets and liabilities resulted in a decrease of $6.6 million, driven by changes in the amount and timing of settlements and general growth of the business.

Previous wording

The decrease in cash used in investing activities from the three months ended March 31, 2023 to the three months ended March 31, 2024 was primarily due to a decrease in cash used to purchase property and equipment of $1.7 million year-over-year.

Current wording

The decrease in cash used in investing activities from the six months ended June 30, 2023 to the six months ended June 30, 2024 was primarily due to an increase in cash provided by net maturities of investments of $34.6 million year-over-year, partially offset by an increase in cash used to acquire businesses of $29.3 million year-over-year to further grow our business.

Previous wording

Given our financing activities are not a direct result of servicing our customers, the increase in cash used in financing activities from the three months ended March 31, 2023 to the three months ended March 31, 2024 was primarily due to an increase in cash used for share repurchases of $16.5 million year-over-year to continue to deliver shareholder value.

Current wording

The increase in cash used in financing activities from the six months ended June 30, 2023 to the six months ended June 30, 2024 was primarily due to an increase in cash used for share repurchases of $37.5 million year-over-year to continue to deliver shareholder value.

Previous wording

Inflation and changing prices did not have a material effect on our business during the three months ended March 31, 2024 and we do not expect that inflation or changing prices will materially affect our business in the foreseeable future.

Current wording

Inflation and changing prices did not have a material effect on our business during thesix months ended June 30, 2024 and we do not expect that inflation or changing prices will materially affect our business in the foreseeable future.