SPS COMMERCE INC

Previous 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.

Current wording

Revenues - Revenues increased for the 95th consecutive quarter. The increase in revenue period-over-period resulted primarily from the increase in average recurring revenues per recurring revenue customer, which we also refer to as wallet share. Additionally, the revenue growth was attributable to an increase in recurring revenue customers, which is driven primarily by continued business growth and by business acquisitions.

Previous 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.

Current wording

•Wallet share increased 18% to approximately $13,700 for the three months ended September 30, 2024 from approximately $11,650 for the same period in 2023. This was primarily attributable to increased usage of our products by our recurring revenue customers.

Previous 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.

Current wording

•The number of recurring revenue customers increased 2% to approximately 45,200 at September 30, 2024 from approximately 44,500 at September 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 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.

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, and approximately 200 recurring revenue customers were added in July 2024 due to the acquisition of the existing customer base of SupplyPike.

Previous wording

Recurring revenues increased 19% to $283,665 for the six months ended June 30, 2024 compared to thesix months ended June 30, 2023. Recurring revenues accounted for 94% of our total revenues for the six 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.

Current wording

Recurring revenues increased 21% to $154.5 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. Recurring revenues accounted for 94% of our total revenues for the three months ended September 30, 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.

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 $3.9 million in personnel-related costs.

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 $5.0 million in personnel-related costs.

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.

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 $2.4 million in personnel-related costs.

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 $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.

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 $1.7 million in personnel-related costs. Additionally, there was an expense increase of $1.1 million associated with current and projected future credit losses and overall business growth.

Previous 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.

Current wording

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

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. Other adjustments included the expense impact from disposals of certain capitalized internally developed software. 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 for the three months ended September 30, 2024 included the expense impacts from disposals of certain capitalized internally developed software and one-time acquisition-related insurance costs. Other adjustments for the three months ended September 30, 2023 included the expense impact from acquisition-related employee severance costs. 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, 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.

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 for the three months ended September 30, 2024 the expense impacts from disposals of certain capitalized internally developed software and one-time acquisition-related insurance costs and for the three months ended September 30, 2023 the expense impact from acquisition-related employee severance 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.

Previous 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.

Current wording

Revenues - Revenues increased for the 95th consecutive quarter. The increase in revenue period-over-period resulted primarily from the increase in average recurring revenues per recurring revenue customer, which we also refer to as wallet share. Additionally, the revenue growth was attributable to an increase in recurring revenue customers, which is driven primarily by continued business growth and by business acquisitions.

Previous wording

•Wallet share increased 13% to approximately $12,650 for the six months ended June 30, 2024 from approximately $11,200 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 16% to approximately $13,000 for the nine months ended September 30, 2024 from approximately $11,250 for the same period in 2023. This was primarily attributable to increased usage of our products by our recurring revenue customers.

Previous 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.

Current wording

•The number of recurring revenue customers increased 2% to approximately 45,200 at September 30, 2024 from approximately 44,500 at September 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 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.

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, and approximately 200 recurring revenue customers were added in July 2024 due to the acquisition of the existing customer base of SupplyPike.

Previous 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.

Current wording

Recurring revenues increased 20% to $438.1 million for the nine months ended September 30, 2024 compared to thenine months ended September 30, 2023. Recurring revenues accounted for 94% of our total revenues for the nine months ended September 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 $9.5 million in personnel-related costs, and an increase of $1.7 million in stock-based compensation. Additionally, there was an increase in our software subscriptions of $1.9 million due primarily to the general growth of our business.

Current wording

Cost of Revenues - The increase in cost of revenues was primarily due to increased headcount, which resulted in an increase of $14.1 million in personnel-related costs. Additionally, there was an increase in our software subscriptions of $3.1 million due primarily to the general growth of our business.

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 $8.1 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 $13.2 million in personnel-related costs, and an increase of $2.4 million in stock-based compensation. Additionally, there was an increase of $2.2 million in product management costs.

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 $3.0 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 $5.4 million in personnel-related costs.

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 $1.9 million in personnel-related costs, partially offset by a decrease in stock-based compensation of $1.5 million. Additionally, there was an increase in credit loss expense of $1.0 million due primarily to overall business growth.

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 $5.2 million in personnel-related costs. Additionally, there was an expense increase of $2.2 million associated with current and projected future credit losses and overall business growth.

Previous 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.

Current wording

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

Previous 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.

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 excess tax benefits from current period equity award settlements, as partially offset by a decrease 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.

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. Other adjustments included the expense impact from disposals of certain capitalized internally developed software. 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 for the nine months ended September 30, 2024 included the expense impacts from disposals of certain capitalized internally developed software and one-time acquisition-related insurance costs. Other adjustments for the nine months ended September 30, 2023 included the expense impacts from acquisition-related employee severance costs and 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, 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.

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 for the nine months ended September 30, 2024 the expense impacts from disposals of certain capitalized internally developed software and one-time acquisition-related insurance costs and for the nine months ended September 30, 2023 the expense impacts from acquisition-related employee severance costs and 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.

Previous 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.

Current wording

During the nine months ended September 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 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.

Current wording

As of September 30, 2024, our principal sources of liquidity were cash and cash equivalents and short-term investments totaling $205.8 million and net accounts receivable of $55.6 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 generally 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 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.

Current wording

The increase in cash provided by operating activities from the nine months ended September 30, 2023 to the nine months ended September 30, 2024 was primarily due to an increase in net income as adjusted for non-cash expenses, of $25.0 million, driven by continued growth in revenue, as partially offset by cash paid for expenses to operate the growing business. Additionally, fluctuations in operating assets and liabilities resulted in a decrease of $7.7 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 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.

Current wording

The increase in cash used in investing activities from the nine months ended September 30, 2023 to the nine months ended September 30, 2024 was primarily due to an increase in cash used to acquire businesses of $77.2 million year-over-year to further grow our business, partially offset by an increase in cash provided by net maturities of investments of $58.8 million year-over-year.

Previous 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.

Current wording

The increase in cash used in financing activities from the nine months ended September 30, 2023 to the nine months ended September 30, 2024 was primarily due to an increase in cash used for share repurchases of $37.6 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 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.

Current wording

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