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What changed in SPS COMMERCE INC's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of SPS COMMERCE INC's 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+210 added−200 removedSource: 10-K (2025-02-19) vs 10-K (2024-02-21)

Top changes in SPS COMMERCE INC's 2024 10-K

210 paragraphs added · 200 removed · 148 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeCloud-service vendors also compete with traditional on-premise software companies. Traditional on-premise software companies focused on supply chain integration management include IBM Sterling and OpenText. These companies offer a “do-it-yourself” method in which customers purchase, install, and manage specialized software, hardware, and value-added networks for their supply chain integration needs.
Biggest changeTraditional on-premise requires customers to purchase, install, and manage specialized software, hardware, and value-added networks for their supply chain integration needs. Additionally, customers are required to make significant upfront and ongoing investments to purchase, operate, and maintain the software. As such, a customer may be less willing to abandon their traditional on-premise product in favor of a cloud-service product.
The addition of each new customer enables that new customer to communicate with our existing customers and permits our existing customers to do business with the new customer. This “network effect” of adding additional customers to our products’ infrastructure creates a significant opportunity for existing customers to realize incremental sales by working with our new trading partners and vice versa.
The addition of each new customer enables that customer to communicate with our existing customers and permits our existing customers to do business with the new customer. This “network effect” of adding additional customers to our products’ infrastructure creates a significant opportunity for existing customers to realize incremental sales by working with our new trading partners and vice versa.
We enter into confidentiality and proprietary rights agreements with our employees, consultants and additional third parties, and control access to software, documentation, and other proprietary information. We have registered trademarks and pending trademark applications in the U.S. and certain foreign countries.
We enter into confidentiality and proprietary rights agreements with our employees, consultants and other third parties, and control access to software, documentation, and other proprietary information. We have registered trademarks and pending trademark applications in the U.S. and certain foreign countries.
SPS COMMERCE, INC. 8 Form 10-K for the Annual Period ended December 31, 2023 Table of Contents Intellectual Property and Proprietary Content SPS Commerce relies on a combination of copyright, trademark, patent, and trade secret laws as well as confidentiality procedures and contractual provisions to protect our proprietary technology and our brand.
SPS COMMERCE, INC. 8 Form 10-K for the Annual Period ended December 31, 2024 Table of Contents Intellectual Property and Proprietary Content SPS Commerce relies on a combination of copyright, trademark, patent and trade secret laws as well as confidentiality procedures and contractual provisions to protect our proprietary technology and our brand.
Our campus program focuses on bringing in talent with experience from schools that are leaders in technology, supply chain, engineering, and business. 41% of our hires from our most recent campus cohort identify as underrepresented minorities. We regularly survey our employees to better understand their perspectives and where we can focus to improve their experience.
Our campus program focuses on bringing in talent with experience from schools that are leaders in technology, supply chain, engineering, and business. 64% of our most recent campus cohort hires identify as underrepresented minorities. We regularly survey our employees to better understand their perspectives and where we can focus to improve their experience.
Because we do not manage thousands of distinct applications with their own business logic and database schemes, we can scale our business faster than traditional software vendors, even those that modified their products to be accessible over the internet.
Because we do not manage thousands of distinct applications with their own business logic and database schemas, we can scale our business faster than traditional software vendors, even those that modified their products to be accessible over the internet.
We have cultivated relationships with many colleges and universities, including Historically Black Colleges and Universities ("HBCUs"), industry groups, professional associations, and other student programs focused on hiring women, non-binary and genderqueer, minorities, and individuals with disabilities.
We have cultivated relationships with many colleges and universities, including Historically Black Colleges and Universities ("HBCUs"), industry groups, professional associations, and other student programs focused on recruiting women, non-binary and genderqueer, minorities, and individuals with disabilities.
Our development efforts take place at our United States ("U.S.") locations in Minnesota and New Jersey, as well as in Melbourne, Australia; Toronto, Canada; and Kyiv, Ukraine. Operations We operate our infrastructure in third-party data centers located throughout North America, Europe, and Australia, as well as provisioned services with cloud providers.
Our development efforts take place at our United States ("U.S.") locations in Minnesota, Iowa, Arkansas, and New Jersey, as well as in Melbourne, Australia; Toronto, Canada; Breukelen, Netherlands; and Kyiv, Ukraine. Operations We operate our infrastructure in third-party data centers located throughout North America, Europe, and Australia, as well as provisioned services with cloud providers.
In addition to these offerings, we also provide one-time services such as professional services and testing and certification. Growing Our Network As one of the largest providers of cloud-based services for retail supply chain management, SPS Commerce enables trading partner relationships among retailer, grocer, distributor, supplier, and logistics firms that naturally lead to new customer acquisition opportunities.
In addition to these offerings, we also provide one-time services such as professional services and testing and certification. Growing Our Network As one of the largest providers of cloud-based services for retail supply chain management, SPS Commerce enables trading partner relationships among retailers, grocers, distributors, suppliers, manufacturers, and logistics firms that naturally lead to new customer acquisition opportunities.
Once connected to the SPS Commerce cloud-based retail network, our customers often require additional integrations to new organizations that represent an expansion of our cloud-based network and new sources of revenues for us. For the years ended December 31, 2023, 2022, and 2021, we generated revenues of $536.9 million, $450.9 million, and $385.3 million, respectively.
Once connected to the SPS Commerce cloud-based retail network, our recurring revenue customers often require additional integrations to new organizations that represent an expansion of our cloud-based network and new sources of revenues for us. For the years ended December 31, 2024, 2023, and 2022, we generated revenues of $637.8 million, $536.9 million, and $450.9 million, respectively.
Depending on the jurisdiction, trademarks are generally valid as long as they are in use or their registrations are properly maintained, and they have not been found to have become generic. Registrations of trademarks can also generally be renewed indefinitely as long as the trademarks are in use. We have one patent we acquired through the acquisition of GCommerce.
Depending on the jurisdiction, trademarks are generally valid as long as they are in use or their registrations are properly maintained, and they have not been found to have become generic. Registrations of trademarks can also generally be renewed indefinitely as long as the trademarks are in use.
We also believe there are valuable opportunities to promote and sell our products through collaboration with other providers. • Expand Our International Presence - We believe our presence in Asia Pacific, as well as in Europe, represents a significant competitive advantage. We plan to increase our global sales efforts to obtain new customers around the world.
We also believe there are valuable opportunities to promote and sell our products through collaboration with other providers. • Expand Our International Presence - We believe our presence in Asia Pacific and Europe has created a foundation to expand our global presence. We plan to increase our global sales efforts to obtain new customers around the world.
We plan to continue to evaluate potential acquisitions based on the number of new customers, revenue, functionality, or geographic reach the acquisition would provide relative to the purchase price, and our ability to integrate and operate the acquired business. In 2023, we acquired TIE Kinetix Holding B.V.
We plan to continue to evaluate potential acquisitions based on the number of new customers, revenue, functionality, or geographic reach the acquisition would provide relative to the purchase price, and our ability to integrate and operate the acquired business. In 2024, we acquired SupplyPike, Inc.
Our revenues are not concentrated with any customer, as our largest customer represented less than 1% of total revenues for the years ended December 31, 2023, 2022, and 2021. Increasing Demand for a Retail Network The retail industry has undergone many changes in recent years, which have accelerated the need for a more automated supply chain.
Our revenues are not concentrated with any customer, as our largest customer represented less than 1% of total revenues for the years ended December 31, 2024, 2023, and 2022. Increasing Demand for a Retail Network The retail industry is constantly evolving, and consumers expect more, which has accelerated the need for a more automated supply chain.
Our 2023 employee engagement survey indicated a positive engagement score of 71%, which is higher than the benchmark provided by our survey vendor both globally and for North American companies of similar size or within our sector. Additionally, feedback on diversity and inclusion continues to score higher than benchmarks with an 81% positive perception score.
Our 2024 employee engagement survey indicated a positive engagement score of 70%, which is higher than the benchmark provided by our survey vendor both globally and for North American companies of similar size or within our sector. Additionally, our belonging index continues to score higher than benchmarks with an 81% positive perception score. Our 2024 employee retention rate was 91%.
This method requires customers to invest in staff to operate and maintain the software. Traditional on-premise software companies use a single-tenant approach in which information maps to retailers are built for and used by one supplier, as compared to cloud-service products that allow multiple customers to share information maps with a retailer.
Cloud-service vendors also compete with traditional on-premise software companies. Traditional on-premise software uses a single-tenant approach in which information maps to retailers are built for and used by one supplier, as compared to cloud-service products that allow multiple customers to share information maps with a retailer.
Competition Vendors in the supply chain management industry offer products through three delivery methods: traditional on-premise software, cloud-based managed services, and cloud-based full-service products. The market for cloud-based supply chain management products is fragmented and rapidly evolving.
This team focuses on delivering services that build customer satisfaction and result in high customer retention rates. Competition Vendors in the supply chain management industry offer products through three delivery methods: traditional on-premise software, managed services, and cloud-based full-service products. The market for cloud-based supply chain management products is fragmented and rapidly evolving.
Our People As of December 31, 2023, we had a total of 2,489 employees worldwide, including 1,238 in cost of revenues, 644 in sales and marketing, 402 in research and development, and 205 in general and administrative. 81% are based in North America with the remaining in Europe and Asia Pacific.
Our People As of December 31, 2024, we had a total of 2,783 employees worldwide, including 1,355 in cost of revenues, 733 in sales and marketing, 461 in research and development, and 234 in general and administrative. 82% are based in North America with the remaining in Europe and Asia Pacific.
Substantially all our employees are employed on a full-time basis. We also engage third-party agencies for staff augmentation to support our operations. Although we have statutory employee representation obligations in certain countries, none of our U.S. employees are represented by a labor union. 36% of our global workforce identify as female and 2% did not specify their gender.
The majority of our employees are engaged on a full-time basis. We also utilize third-party agencies for staff augmentation to enhance our operations. While we have statutory obligations for employee representation in certain countries, none of our U.S. employees are unionized. 38% of our global workforce identify as female and 2% did not specify their gender.
SPS COMMERCE, INC. 9 Form 10-K for the Annual Period ended December 31, 2023 Table of Contents For well over a decade, SPS has invested in and supported the communities in which we live and work, focused on efforts that expand our future talent pipeline by helping to develop the workforce of tomorrow.
For over a decade, SPS has invested in and supported the communities in which we live and work, focused on efforts that expand our future talent pipeline by helping to develop the workforce of tomorrow.
Our quarter ended December 31, 2023 represented our 92nd consecutive quarter of revenue growth. Recurring revenues from recurring revenue customers accounted for 94%, 93%, and 92% of our total revenues for the years ended December 31, 2023, 2022, and 2021, respectively.
Our quarter ended December 31, 2024 represented our 96th consecutive quarter of revenue gr owth. Recurring revenues from recurring revenue customers acc ounted for 94%, 94%, and 93% of our total revenues for the years ended December 31, 2024, 2023, and 2022, respectively.
Our marketing teams focus on driving awareness and demand for our products through the following activities: • Demand Generation - Engages with target audiences using the latest digital marketing strategies to bring opportunities to our sales teams. • Communications - Manages our brand and public relations, as well as provides go-to-market support.
Our marketing teams focus on driving awareness and demand for our products through the following activities: • Demand Generation - Engages with target audiences using the latest digital marketing strategies to bring opportunities to our sales teams. • Communications - Manages our brand and public relations, as well as provides go-to-market support. • Product Marketing - Equips our sales teams, performs market studies, and promotes the unique capabilities of each of our products using our go-to-market strategies. • Events - Highlights our presence at industry trade shows and orchestrates virtual and in-person events.
Our Growth Strategy Our objective is to be the leading global retail network and provider of supply chain management products. Key elements of our strategy include: • Further Penetrate Our Current Market - We believe the global supply chain management market is underpenetrated.
SPS COMMERCE, INC. 5 Form 10-K for the Annual Period ended December 31, 2024 Table of Contents Our Growth Strategy Our objective is to be the leading global retail network and provider of supply chain management products. Key elements of our strategy include: • Further Penetrate Our Current Market - We believe the global supply chain management market is underpenetrated.
SPS COMMERCE, INC. 5 Form 10-K for the Annual Period ended December 31, 2023 Table of Contents Channel Partners - In addition to the customer acquisition sources identified above, we market and sell our products through a variety of channel partners, including software providers, resellers, system integrators, and logistics partners.
Channel Partners - In addition to the customer acquisition sources identified above, we market and sell our products through a variety of channel partners, including software providers, resellers, system integrators, and logistics partners.
Our 2023 employee retention rate of 92% improved compared to 88% in 2022. We believe our strong company culture and focus on providing meaningful work, professional development, flexible work options, competitive pay and benefits, as well as our commitment to diversity, equity, and inclusion contribute to our high employee retention.
We believe our strong company culture and focus on providing meaningful work, professional development, flexible work options, competitive pay and benefits, as well as our commitment to belonging contributes to our high employee retention.
Managed service providers focused on the supply chain management market include IBM Sterling, OpenText, TrueCommerce and many other small providers. These companies offer a cloud-based product in which they develop and maintain the core technology, while the customer’s internal staff is responsible for the day-to-day customization, optimization, and operations of the technology.
Managed service providers focused on the supply chain management market offer a cloud-based product in which they develop and maintain the core technology, while the customer’s internal staff is responsible for the day-to-day customization, optimization, and operations of the technology. In contrast, full-service providers, including SPS Commerce, offer cloud-based products and expert resources that customize, optimize, and operate the technology.
SPS Commerce, Inc. 333 South Seventh Street Suite 1000 Minneapolis, MN 55402 Available Information We provide free access to various reports that we file with or furnish to the SEC through our website at www.spscommerce.com , as soon as reasonably practicable after they have been filed or furnished.
SPS COMMERCE, INC. 11 Form 10-K for the Annual Period ended December 31, 2024 Table of Contents Available Information We provide free access to various reports that we file with or furnish to the SEC through our website at www.spscommerce.com , as soon as reasonably practicable after they have been filed or furnished.
They receive regular updates from our Chief Human Resources Officer on key strategic initiatives and other relevant matters related to human resources including, but not limited to, hiring, development, retention, employee engagement, succession planning, compensation and benefits, and human resources-related risks.
They receive consistent updates from our Chief Human Resources Officer about key strategic initiatives and other significant human resources matters, which include hiring, development, retention, employee engagement, succession planning, compensation and benefits, and risks associated with human resources.
Established in 2020, the SPS Diverse Scholar Program supports diverse first-generation college students pursuing a career in technology. In addition to receiving funding for their education, our diverse scholars participate in our internship program, have access to mentors, are offered part-time work during the school year, and are connected to a wide range of business professionals.
In addition to receiving funding for their education, our diverse scholars participate in our internship program, have access to mentors, are offered part-time work during the school year, and are connected to a wide range of business professionals. Additionally, as a federal contractor we comply with applicable federal contractor affirmative action requirements.
We attract, retain, and reward exceptional talent by cultivating an inclusive, high-performing culture and engaging employees with meaningful work and opportunities to grow and develop. Oversight and Governance Our board of directors and Compensation and Talent Committee have oversight of our human capital management and diversity, equity, and inclusion efforts.
By nurturing an inclusive and high-performing culture, we attract, retain, and reward outstanding talent, providing employees with meaningful work and opportunities for personal and professional growth. Oversight and Governance Our board of directors, along with the Compensation and Talent Committee, oversees our human capital management as well as our diversity, equity, and inclusion initiatives.
As customers expand their business, the SPS Commerce retail network is a core part of their omnichannel strategy. Each additional channel brings more reliance and volume to the network and increases customer revenue.
As customers expand their business, the SPS Commerce retail network is a core part of their omnichannel strategy.
We have partnered with a global employee assistance program ("EAP") vendor that provides curated webinars in support of mental health and well-being, and offers all employees and their dependents access to mental health providers and free sessions with a licensed provider. Our U.S. healthcare platform offers virtual mental health solutions, including tools focused on mindfulness, meditation, and wellness.
Through our partnership with a global Employee Assistance Program (EAP), we provide curated mental health and wellness webinars, access to licensed mental health professionals, and complimentary sessions for employees and their dependents. In the U.S., our healthcare platform offers virtual mental health solutions, featuring tools for mindfulness, meditation, and overall wellness support.
Our trade secrets consist primarily of the software we have developed for our SPS Commerce cloud-based products and network. Our software is also protected under copyright law, but we do not have any registered copyrights. Human Capital At SPS, we believe our employees have and will continue to be a primary reason for our growth and success.
We have two patents acquired through the acquisitions of GCommerce, Inc. and SupplyPike, Inc. Our trade secrets consist primarily of the software we have developed for our SPS Commerce cloud-based products and network. Our software is also protected under copyright law, but we do not have any registered copyrights.
Our Products SPS Commerce operates one of the largest retail networks in the world to improve the way retailers, grocers, distributors, suppliers, and logistics firms manage digital item catalogs, fulfill omnichannel orders, optimize sell-through performance, and automate new trading relationships.
Our Products SPS Commerce operates one of the largest retail networks in the world to improve the way retailers, grocers, distributors, suppliers, and logistics firms work together. Our recurring revenue customers use SPS Comm erce products to expand and optimize the performance of their trading relationships through the network.
SPS COMMERCE, INC. 6 Form 10-K for the Annual Period ended December 31, 2023 Table of Contents • Retail needs automation - With increased retail store openings and closings, labor shortages, supply chain disruptions, and new buying patterns, retailers are demanding more from their trading partners as they need to be agile and transition their businesses as markets change.
Each additional channel brings more reliance and volume to the network and increases customer revenue. • Retail needs automation - With increased retail store openings and closings, labor shortages, supply chain disruptions, and new buying patterns, retailers are demanding more from their trading partners as they need to be agile and transition their businesses as markets change.
Analytics improves access and usage of sales and inventory data through a combination of our analytics applications, network of connections, and industry-leading expertise. • Other Products - We provide several complementary products, such as: ◦ Assortment - Our Assortment product simplifies the communication of robust, accurate item data by automatically translating item attributes, and hierarchies through a single connection across all sales channels. ◦ Community - Our Community product allows organizations to accelerate digitization of their supply chain and improve collaboration with suppliers through proven change management and onboarding programs.
Our pre-built dashboards create custom reports, or integrate data with existing tools, to gain insights to enhance product performance, forecasting, pricing, and inventory management. • Other Products - We also have other complementary products, including: ◦ Assortment - Our Assortment product simplifies the communication of robust, accurate item data by automatically translating item attributes and hierarchies through a single connection across all sales channels. ◦ Community - Our Community product allows organizations to accelerate digitization of their supply chain and improve collaboration with suppliers through proven change management, onboarding programs, and supplier score carding.
Additionally, as a federal contractor we comply with federal contractor affirmative action requirements to employ and promote women, minorities, individuals with disabilities, and protected veterans. Talent Acquisition, Engagement, and Retention We work diligently to attract the best talent from a variety of sources to meet current and future business needs.
Talent Acquisition, Engagement, and Retention We work diligently to attract the best talent from a variety of sources to meet current and future business needs.
Businesses using SPS Commerce products to automate supply chain functions with their trading partners can pivot quickly to new delivery models and capture market share.
Businesses using SPS Commerce products to automate supply chain functions with their trading partners can pivot quickly to new delivery models and capture market share. The visibility into orders, shipments, and inventory gained by automating trading relationships on the SPS Commerce retail network is critical to their success and offers a competitive advantage.
For example, a supplier may refer a third-party logistics provider or manufacturer, which is not in our network, to us. Direct Marketing - We employ various marketing strategies. Our marketing programs include a variety of lead generating activities including digital marketing, conferences and trade shows, sponsored events, and public relations activities targeted at key decision makers within our prospective customers.
Our marketing programs include a variety of lead generating activities including digital marketing, account-based marketing, conferences and trade shows, sponsored events, and public relations activities targeted at key decision makers within our prospective customers.
Customer Success The Customer Success team includes retail and technology experts who implement our products on our customers' behalf, provide ongoing support, and collaborate with accounts to identify opportunities for added value from their existing products. This team focuses on delivering services that build customer satisfaction and result in high customer retention rates.
SPS COMMERCE, INC. 7 Form 10-K for the Annual Period ended December 31, 2024 Table of Contents Customer Success The Customer Success team includes retail and technology experts who implement our products on our customers' behalf, provide ongoing support, and collaborate with accounts to identify opportunities for added value from their existing products.
When new employees join SPS, they attend a robust new hire onboarding program that focuses on the skills necessary to become productive employees, including training on company technology, collaboration tools, our company culture, values, and a comprehensive diversity, equity, and inclusion learning experience. Onboarding is followed by on-the-job training and regular performance and development discussions between employees and their managers.
When new employees join SPS COMMERCE, INC. 10 Form 10-K for the Annual Period ended December 31, 2024 Table of Contents SPS, they attend a robust new hire onboarding program that focuses on the skills necessary to become productive employees, including training on company technology, collaboration tools, our company culture, values, and a comprehensive Belonging@SPS experience.
Growth and Development Development of our employees and leaders results in high performing teams who are empowered to grow their careers and deliver exceptional results, and it begins on the first day of employment with SPS.
In 2024, we took significant steps toward establishing a dynamic, experiential learning model designed to drive performance and behavioral change through active engagement in daily work. Development of our employees and leaders results in high performing teams who are empowered to grow their careers and deliver exceptional results, beginning on the first day of employment with SPS.
Over the years we have invested in student programs focused on creating opportunities for high school and college students who are part of underrepresented populations including women, genderqueer and non-binary individuals, and racial minorities. These opportunities build experiences through job shadowing, work-study, mentoring, and professional development in areas of Science, Technology, Engineering and Math ("STEM"), supply-chain, analytics, and customer success.
Over the years we have invested in student programs focused on creating opportunities for high school and college students who are part of underrepresented populations including women, genderqueer and non-binary individuals, and racial minorities. Interns make a meaningful impact by supporting real world projects.
In contrast, full-service providers, including SPS Commerce, offer cloud-based products and expert resources that customize, optimize, and operate the technology. This approach offloads the time-intensive process of managing these products, which is not a core competency for most businesses.
This approach offloads the time-intensive process of managing these products, which is not a core competency for most businesses. Full-service cloud-based vendors compete with both managed service providers and traditional on-premise software products based on the total cost of ownership and flexibility.
To date , 120,000 customers across approximately 85 countries have used SPS Comm erce products to expand and optimize the performance of their trading relationships through the network. Our products fundamentally change how organizations communicate information to manage their omnichannel, supply chain, and other business requirements.
Our products fundamentally change how organizations communicate information to manage their omnichannel, supply chain, and other business requirements.
All employees are welcome and encouraged to participate in one or more of our ERGs, which include the Black Business Resource Group, the Diversity and Inclusion Group, the LGBTQ+ Group, and Women in Tech. Since 2021, all new hires participate in an interactive diversity, equity, and inclusion curriculum focused on the History of Racism, Implicit Bias, and Allyship.
We added two new ERGs in 2024, the Disability Empowerment Network and A+ (Asian, Native Hawaiian & Pacific Islanders). All employees are encouraged to participate in one or more of our ERGs, which also include our Black Business Resource Group, the LGBTQ+ Group, and Women in Tech.
Within the U.S. 18% of our employees self-identified as being a member of an underrepresented group. Our executive team is comprised of 10 individuals, of which 40% are women. Diversity, Equity, and Inclusion We value diversity, equity, and inclusion and believe our differences make us, our customers, and our communities better.
Within the U.S. 17% of our employees self-identified as members of an underrepresented group. As of December 31, 2024, our executive team is comprised of 6 individuals, of which one-third are women.
The visibility into orders, shipments, and inventory gained by automating trading relationships on the SPS Commerce retail network is critical to their success and offers a competitive advantage. • Consumers want new products - Retail assortments are ever-changing with seasonality shifts and new product introductions from companies of all sizes.
SPS COMMERCE, INC. 6 Form 10-K for the Annual Period ended December 31, 2024 Table of Contents • Consumers want new products - Retail assortments are ever-changing with seasonality shifts and new product introductions from companies of all sizes.
We offer compelling and competitive packages designed to attract, retain, and motivate our employees. Our benefit programs align to our geographies and provide a comprehensive healthcare offering and other programs, including an employee stock purchase plan in most jurisdictions.
We offer market-competitive pay and comprehensive benefits programs tailored to our global workforce. Our packages are thoughtfully crafted to attract, retain, and motivate top talent, featuring robust healthcare offerings, an employee stock purchase plan available in most jurisdictions, and other region-specific benefits. We are committed to equitable pay practices, ensuring employees are compensated fairly regardless of gender, race, or ethnicity.
Our core values drive our culture and are foundational to how we create an engaging workplace, identify the right talent, and train and develop our teams. Our values guide our interactions with our customers, partners, and one another.
Human Capital At SPS, we recognize that our employees are crucial to our ongoing growth and success. Our core values shape our culture and serve as the foundation for fostering an engaging workplace, attracting the right talent, and developing our teams. These values also inform how we interact with customers, partners, and each other.
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Item 1. Business Overview SPS Commerce is a leading provider of cloud-based supply chain management services across our global retail network. Our products make it easier for retailers, grocers, distributors, suppliers, and logistics firms to communicate and collaborate by simplifying how they manage and share item, inventory, order and sales data across omnichannel retail channels.
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Item 1. 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.
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We deliver our products using a full-service model, which includes industry-leading technology and a team of experts that optimize, update, and operate the technology on customers' behalf. Our products enable customers to increase supply chain performance, optimize inventory levels and sell-through, reduce operational costs, improve order visibility, and satisfy consumer demands for a seamless omnichannel experience.
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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.
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As of December 31, 2023, we had approximately 44,800 customers with ongoing contracts to pay us monthly fees, which we refer to as recurring revenue customers. In addition to our recurring revenue customers, to date we have provided our cloud-based supply chain management services to approximately 75,200 other organizations, and we refer to the combination as our customers.
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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.
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The network provides businesses with a comprehensive view of retail transactions, enabling them to optimize inventory and fulfill orders efficiently, regardless of channel. Customers use our retail network to manage all channels in a single system, saving time and reducing errors.
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As of December 31, 2024, we had approximately 45,350 customers with an active recurring revenue contract at the end of the period, which we refer to as recurring revenue customers, across approximately 90 countries .
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SPS COMMERCE, INC. 4 Form 10-K for the Annual Period ended December 31, 2023 Table of Contents Our products include: • Fulfillment - Our Fulfillment product is a full-service electronic data interchange ("EDI") solution that scales as a business grows. Companies can use a single system to manage orders and logistics from all sales channels, including wholesale, eCommerce, and marketplaces.
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Our products include: • Fulfillment - Our Fulfillment product offers a comprehensive solution designed to streamline supply chain operations. Our connections empower retailers, grocers, distributors, suppliers, manufacturers, and logistics firms to efficiently send and receive order data, ensuring accurate execution of required processes from order to invoicing and revenue recovery through fully automated operations.
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Fulfillment is configurable for any trading partner, document or business system used for order management and offers a full suite of tools to help businesses efficiently manage their supply chain. • Analytics - Our Analytics product enables organizations to improve visibility into how products are selling through a single connection across all sales channels, including wholesale, eCommerce, and marketplaces.
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By integrating seamlessly with existing systems, Fulfillment enhances day-to-day efficiency, reduces errors, and provides real-time visibility across all of our customers' order channels. SPS COMMERCE, INC. 4 Form 10-K for the Annual Period ended December 31, 2024 Table of Contents • Analytics - Our Analytics product simplifies managing sell-through data from our customers’ business partners.
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("TIE Kinetix"), a leading provider of supply chain digitalization including EDI and e-invoicing in Europe and the United States. This acquisition further extends the capabilities of our network and added new customers and technology.
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We handle data acquisition, cleansing, normalization, and delivery.
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SPS COMMERCE, INC. 7 Form 10-K for the Annual Period ended December 31, 2023 Table of Contents • Product Marketing - Equips our sales teams, performs market studies, and promotes the unique capabilities of each of our products using our go-to-market strategies. • Events - Highlights our presence at industry trade shows and orchestrates virtual and in-person events.
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For example, a supplier may refer a third-party logistics provider or manufacturer, which is not in our network, to us. Direct Marketing - We employ various marketing strategies.
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Customers of traditional on-premise software providers must typically make significant upfront investments in the supply chain management products these competitors provide, which can decrease customers’ willingness to abandon their investments in favor of a cloud-service product. Cloud-service vendors compete with these traditional software products based on the total cost of ownership and flexibility.
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("SupplyPike"), a revenue recovery solution, Traverse Systems LLC ("Traverse Systems"), an industry-leading provider in retailer supply chain performance and vendor management, and Vision33's SAP Business One SPS Integration Technology. These acquisitions further extend the capabilities of our network and added new customers and technology.
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We strive to create an organization where every employee feels welcomed and is empowered to do their best work. We make our commitment to diversity, equity, and inclusion a reality by incorporating it into our human resource core processes and our talent strategies.
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Belonging@SPS We power connections that drive the world of commerce forward, and our success depends on making strong decisions, fostering innovation, delivering unparalleled customer solutions, and driving outstanding business performance. We achieve this by creating an environment where every employee feels a true sense of belonging.
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Our Employee Resource Groups ("ERGs") foster employee connections across the globe, provide learning, engagement, and networking opportunities, as well as provide important insights in support of advancing equity company-wide. These employee-led resource groups create community and focus across several dimensions including gender, race and ethnicity, gender identity, sexual orientation, ability/disability, military service and more.
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We are committed to creating an environment where everyone feels welcomed, valued, and empowered to contribute meaningfully. In 2024, we launched Belonging@SPS as a thoughtful update to our diversity, equity, inclusion, and belongin g ("DEI(B)") statement and strategy. This initiative was shaped by employee feedback, designed to better reflect our core values, and tailored to ensure global relevance.
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Additionally, we provide our managers with resources to support building inclusive teams and being an inclusive leader.
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We bring this commitment to life by embedding it into our human resources processes and integrating it into our talent strategies. Our Employee Resource Groups ("ERGs"), a core part of our Belonging@SPS commitment, foster employee connections across the globe, and provide learning, engagement, and community-building for all SPS Commerce employees.
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We provide ongoing opportunities for our employees to build new skills, develop in their current role, and prepare for future roles. All employees have access to an online learning platform that supports their development as well as opportunities to participate in programs such as AccelerateMe and Exploring Leadership.
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SPS COMMERCE, INC. 9 Form 10-K for the Annual Period ended December 31, 2024 Table of Contents We have taken meaningful steps to advance our commitment to diversity and inclusion by collaborating with local organizations that support underrepresented communities, including individuals with disabilities and those who are neurodiverse.
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Annually we host SPS Professional Development Week ("PDW"), a collection of learning and development opportunities designed to help employees develop skills for continued growth. In 2023, the PDW employee track focused on how to effectively receive feedback and owning your SPS career.
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Through these partnerships, we gain valuable insights into equipping our workplace with the tools and resources needed for every employee to succeed. Furthermore, our Talent Acquisition team has a focus area on recruiting individuals with disabilities and neurodiverse candidates, fostering an inclusive hiring process from initial recruitment to onboarding and ongoing professional development.
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The PDW manager track focused on change management, what it means to be an inclusive leader, and building Crucial Conversation skills. Our talent strategy prioritizes growing and developing our own leaders. In 2023, we refreshed our Leadership Model by introducing competencies for each of our four leadership pillars: People Developer, Culture Champion, Strategist, and Results Enabler.
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Since 2021, all new hires have participated in an interactive inclusion curriculum. In 2024, we refreshed our new employee Belonging@SPS onboarding experience to identity awareness and belonging, focused on creating a safe work environment where employees feel comfortable bringing their full authentic selves to the workplace. Additionally, we continue to provide all managers with resources to support building inclusive teams.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeWe face competition from: • cloud-service providers that deliver business-to-business information systems using a multi-tenant approach; • traditional on-premise software providers; and • managed service providers that combine traditional on-premise software with professional technology services. Moreover, our industry is highly fragmented, and we believe it is likely that our existing competitors will continue to consolidate or will be acquired.
Biggest changeWe expect competition to increase in the future both from existing competitors and new companies that may enter our markets. We face competition from: • cloud-service providers that deliver business-to-business information systems using a multi-tenant approach; • traditional on-premise software providers; and • managed service providers that combine traditional on-premise software with professional technology services.
Fluctuations in our results of operations may be due to a number of factors, including, but not limited to, those listed below and identified throughout this “Risk Factors” section: • our ability to retain and increase sales to customers and attract new customers, including our ability to maintain and increase our number of recurring revenue customers; • the timing and success of introductions of new products or upgrades by us or our competitors; • the strength of the U.S. and global economy, in particular, as it affects the U.S. retail sector; • the financial condition of our customers; • changes in our pricing policies or those of our competitors; SPS COMMERCE, INC. 21 Form 10-K for the Annual Period ended December 31, 2023 Table of Contents • competition, including entry into the industry by new competitors; • the amount and timing of our expenses, including stock-based compensation and expenditures related to expanding our operations, attracting and retaining talent, supporting new customers, performing research and development, or introducing new products; • changes in laws and regulations impacting our business; • regulatory compliance costs and unforeseen legal expenses, including litigation and settlement costs; • the timing, size, integration and operational success of potential future acquisitions; • changes in the payment terms for our products; and • system or service failures, security breaches or network downtime.
Fluctuations in our results of operations may be due to a number of factors, including, but not limited to, those listed below and identified throughout this “Risk Factors” section: • our ability to retain and increase sales to customers and attract new customers, including our ability to maintain and increase our number of recurring revenue customers; • the timing and success of introductions of new products or upgrades by us or our competitors; • the strength of the U.S. and global economy, in particular, as it affects the U.S. retail sector; • the financial condition of our customers; • changes in our pricing policies or those of our competitors; SPS COMMERCE, INC. 21 Form 10-K for the Annual Period ended December 31, 2024 Table of Contents • competition, including entry into the industry by new competitors; • the amount and timing of our expenses, including stock-based compensation and expenditures related to expanding our operations, attracting and retaining talent, supporting new customers, performing research and development, or introducing new products; • changes in laws and regulations impacting our business; • regulatory compliance costs and unforeseen legal expenses, including litigation and settlement costs; • the timing, size, integration and operational success of potential future acquisitions; • changes in the payment terms for our products; and • system or service failures, security breaches or network downtime.
We derive, and expect to continue to derive, substantially all of our revenues from providing cloud-based supply chain management products to retailers, grocers, distributors, suppliers, and logistics firms. The market for these products has historically experienced growth, but it is uncertain whether these products will continue or sustain growing levels of demand and market acceptance.
We derive, and expect to continue to derive, substantially all of our revenues from providing cloud-based supply chain management products to retailers, grocers, distributors, suppliers, manufacturers, and logistics firms. The market for these products has historically experienced growth, but it is uncertain whether these products will continue or sustain growing levels of demand and market acceptance.
Regulation related to the provision of services on the internet is increasing, as federal, state, and foreign governments continue to adopt new laws and regulations addressing eCommerce generally, data privacy and the collection, processing, storage and use of personal information, including but not limited to the European Union's General Data Protection Regulation.
Regulation related to the provision of services on the internet is increasing, as federal, state, and foreign governments continue to adopt new laws and regulations addressing eCommerce generally, data privacy and the collection, processing, storage and use of personal information, including but not limited to the European Union's General Data Protection Regulation ("GDPR").
Expanding international sales and operations subjects us to new risks that, generally, we have not faced in the U.S., including: • misjudging the markets and competitive landscape of foreign jurisdictions; • fluctuations in currency exchange rates; • longer accounts receivable payment cycles and difficulties in collecting accounts receivable; • difficulties in managing and staffing international operations; • differing technology standards; • potentially adverse tax consequences, including the complexities of foreign value added tax systems and restrictions on the repatriation of earnings; • localization of our products, including translation into foreign languages and associated expenses; • the burdens of complying with a wide variety of foreign laws and regulations, and changes to such laws and regulations, including laws and regulations related to employment, privacy and tax; • increased financial accounting and reporting burdens and complexities; • unexpected changes in effective tax rates due to international tax liabilities subject to allocation of expenses in differing jurisdictions; • political, social, and economic instability abroad, terrorist attacks and security concerns in general; • greater potential for corruption and bribery; and • reduced or varied protection for intellectual property rights in some countries.
Expanding international sales and operations subjects us to new risks that, generally, we have not faced in the U.S., including: • misjudging the markets and competitive landscape of foreign jurisdictions; • longer accounts receivable payment cycles and difficulties in collecting accounts receivable; • difficulties in managing and staffing international operations; • differing technology standards; • potentially adverse tax consequences, including the complexities of foreign value added tax systems and restrictions on the repatriation of earnings; • localization of our products, including translation into foreign languages and associated expenses; • the burdens of complying with a wide variety of foreign laws and regulations, and changes to such laws and regulations, including laws and regulations related to employment, privacy and tax; • increased financial accounting and reporting burdens and complexities; • unexpected changes in effective tax rates due to international tax liabilities subject to allocation of expenses in differing jurisdictions; • political, social, and economic instability abroad, terrorist attacks and security concerns in general; • greater potential for corruption and bribery; and • reduced or varied protection for intellectual property rights in some countries.
SPS COMMERCE, INC. 22 Form 10-K for the Annual Period ended December 31, 2023 Table of Contents General Our failure to maintain adequate internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 or to prevent or detect material misstatements in our annual or interim financial statements in the future could result in inaccurate financial reporting, or could otherwise harm our business and investor confidence in our financial reporting.
SPS COMMERCE, INC. 22 Form 10-K for the Annual Period ended December 31, 2024 Table of Contents General Our failure to maintain adequate internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 or to prevent or detect material misstatements in our annual or interim financial statements in the future could result in inaccurate financial reporting, or could otherwise harm our business and investor confidence in our financial reporting.
SPS COMMERCE, INC. 15 Form 10-K for the Annual Period ended December 31, 2023 Table of Contents Any unrest, military activities, or sanctions impacting our international operations, should they occur, could disrupt operations, and have a material adverse effect on our business. Any such disruption to our operations may be prolonged and require a transition to alternative workforce locations.
SPS COMMERCE, INC. 15 Form 10-K for the Annual Period ended December 31, 2024 Table of Contents Any unrest, military activities, or sanctions impacting our international operations, should they occur, could disrupt operations, and have a material adverse effect on our business. Any such disruption to our operations may be prolonged and require a transition to alternative workforce locations.
SPS COMMERCE, INC. 20 Form 10-K for the Annual Period ended December 31, 2023 Table of Contents Regulation Privacy concerns and laws, evolving regulation of the internet and cloud computing, cross-border data transfer restrictions and other domestic or foreign regulations may limit the use and adoption of our products and adversely affect our business.
SPS COMMERCE, INC. 20 Form 10-K for the Annual Period ended December 31, 2024 Table of Contents Regulation Privacy concerns and laws, evolving regulation of the internet and cloud computing, cross-border data transfer restrictions and other domestic or foreign regulations may limit the use and adoption of our products and adversely affect our business.
SPS COMMERCE, INC. 17 Form 10-K for the Annual Period ended December 31, 2023 Table of Contents Interruptions or delays from third-party data centers or to the telecommunications infrastructure we use or rely on could impair the delivery of our products and our business could suffer.
SPS COMMERCE, INC. 17 Form 10-K for the Annual Period ended December 31, 2024 Table of Contents Interruptions or delays from third-party data centers or to the telecommunications infrastructure we use or rely on could impair the delivery of our products and our business could suffer.
A failure to protect the integrity and security of our customers’ information and prevent cyber-attacks could materially damage our reputation, expose us to claims and litigation, and lead to service disruptions and harm our business. Additionally, the growing costs to avoid or reduce the risks of such a failure could adversely affect our results of operations.
A failure to protect the confidentiality and integrity of our customers’ information and prevent cyber-attacks could materially damage our reputation, expose us to claims and litigation, and lead to service disruptions and harm our business. Additionally, the growing costs to avoid or reduce the risks of such a failure could adversely affect our results of operations.
Although we are allocating more resources to address cyber threats and safeguard our products and services, including insurance in the event of a breach, we cannot assure you that these efforts to protect this confidential information and prevent unauthorized access to such information systems will be successful, and the growing costs related to these efforts could adversely affect our results of operations.
Although we are allocating more resources to address cyber threats and safeguard our products and services, including cyber insurance, we cannot assure you that these efforts to protect this confidential information and prevent unauthorized access to such information systems will be successful, and the growing costs related to these efforts could adversely affect our results of operations.
Following an acquisition, we may be subject to liabilities arising from an acquired company’s past or present operations, including liabilities related to data security, encryption and privacy of customer data, and these liabilities may be greater than the warranty and indemnity limitations that we negotiate.
Following an acquisition, we may be subject to liabilities arising from an acquired company’s past or present operations, including liabilities related to data security, encryption and privacy of customer data, and these liabilities may be greater than the warranty and indemnity limitations that we negotiate, or the coverage we secure under representation and warranty insurance.
Furthermore, implementing any appropriate future changes to our internal control over financial reporting may entail substantial costs in order to modify our existing accounting systems, may take a significant period of time to complete and may distract our officers, directors, and employees from the operation of our business.
Furthermore, implementing any appropriate future changes to our internal control over financial reporting, including internal controls related to acquisitions and organic business growth, may entail substantial costs in order to modify our existing accounting systems, may take a significant period of time to complete and may distract our officers, directors, and employees from the operation of our business.
Acquisitions involve numerous risks including: • incurring significantly higher than anticipated capital expenditures and operating expenses; • failing to assimilate the operations, customers, and personnel of the acquired company or business; • disrupting our ongoing business; • dissipating or distracting our management resources; • dilution to existing stockholders from the issuance of equity securities; • liabilities or other problems associated with the acquired business; • becoming subject to adverse tax consequences, substantial depreciation, or deferred compensation charges; • compliance with laws and regulations and exposure to other contingent liabilities; • retaining key management of the acquired company; • failing to maintain uniform standards, controls, and policies; and • impairing relationships with employees and customers as a result of changes in management.
Acquisitions involve numerous risks including: • incurring significantly higher than anticipated capital expenditures and operating expenses; • failing to assimilate the operations, customers, and personnel of the acquired company or business; • disrupting our ongoing business; • dissipating or distracting our management resources; • dilution to existing stockholders from the issuance of equity securities; • liabilities or other problems associated with the acquired business; • becoming subject to adverse tax consequences, substantial depreciation, or deferred compensation charges; • compliance with laws and regulations and exposure to other contingent liabilities; • retaining key management of the acquired company; • failing to maintain uniform standards, controls, and policies; and SPS COMMERCE, INC. 14 Form 10-K for the Annual Period ended December 31, 2024 Table of Contents • impairing relationships with employees and customers as a result of changes in management.
The trading price of our common stock could decline due to any of these risks. In assessing these risks, you should also refer to the other information contained in this Annual Report on Form 10-K, including our consolidated financial statements and related notes.
The trading price of our common stock could decline due to any of these risks. In assessing these risks, you should also refer to the other information contained in this Annual Report on Form 10-K, including our consolidated financial statements and related notes. The risks included in this section are not the only ones we face.
We seek to protect our intellectual property through trade secrets, copyrights, confidentiality, non-compete and nondisclosure agreements, license agreements, trademarks, domain names and other measures, some of which afford only limited protection. We do not have any registered copyrights.
We believe that proprietary technology is essential to establishing and maintaining our leadership position. We seek to protect our intellectual property through trade secrets, copyrights, confidentiality, non-compete and nondisclosure agreements, license agreements, trademarks, domain names and other measures, some of which afford only limited protection. We do not have any registered copyrights.
Other factors that may limit market acceptance of our cloud-based supply chain management products include: • our ability to maintain high levels of customer satisfaction; • our ability to maintain continuity of service for all users of our cloud-based products; • the price, performance, and availability of competing products, both new and existing; and • our ability to address customers’ confidentiality and security concerns about information stored within our cloud-based products.
Other factors that may limit market acceptance of our cloud-based supply chain management products include: • our ability to maintain high levels of customer satisfaction; • our ability to maintain continuity of service for all users of our cloud-based products; SPS COMMERCE, INC. 13 Form 10-K for the Annual Period ended December 31, 2024 Table of Contents • the price, performance, and availability of competing products, both new and existing; and • our ability to address customers’ confidentiality and security concerns about information stored within our cloud-based products.
In addition, economic conditions or uncertainty may cause customers and potential customers to reduce or delay technology purchases, including purchases of our products. Our sales cycles may lengthen if purchasing decisions are delayed as a result of uncertain technology or development budgets or contract negotiations become more protracted or difficult as customers institute additional internal approvals for technology purchases.
Our sales cycles may lengthen if purchasing decisions are delayed as a result of uncertain technology or development budgets or contract negotiations become more protracted or difficult as customers institute additional internal approvals for technology purchases.
We have experienced a period of rapid growth in our headcount and operations. To the extent that we are able to sustain such growth, it might place a significant strain on our management, administrative, operational, and financial resources, and infrastructure. Our success will depend in part upon the ability of our senior management to manage this growth effectively.
To the extent that we are able to sustain such growth, it might place a significant strain on our management, administrative, operational, and financial resources, and infrastructure. Our success will depend in part upon the ability of our senior management to manage this growth effectively. To do so, we must continue to hire, train, and manage new employees as needed.
Furthermore, many U.S. states and international jurisdictions have enacted laws requiring companies to notify consumers of data security breaches involving their personal data. Additionally, the SEC recently issued final rules related to cybersecurity risk management and incident disclosure, which may further increase our required disclosures and cost of compliance in such events.
Furthermore, many U.S. states and international jurisdictions have enacted laws requiring companies to notify consumers of data security breaches involving their personal data and to increase transparency related to cybersecurity risk management and incident disclosure, all of which may further increase our costs of compliance.
Given the interconnected nature of the retail supply chain, our significant presence in the retail industry, and the occurrence of cyber-attacks on our system in the past, we believe that we are a target for such attacks.
Given the interconnected and technology-dependent nature of the retail supply chain, our significant presence and impact in the retail industry, and past cyber events affecting our systems, it's reasonable to believe that we are a target for such attacks.
Those potentially disruptive environments are out of our control and we cannot predict the outcome of future developments or reactions to such developments by the U.S., European, Asian, Oceanic, United Nations or other international authorities and organizations.
Those potentially disruptive environments are out of our control and we cannot predict the outcome of future developments or reactions to such developments by the U.S., European, Asian, Oceanic, United Nations or other international authorities and organizations. We may face exposure to fluctuations in foreign currency exchange rates, which could affect our financial condition and results of operations.
These mandatory disclosures regarding a data security breach or other cyber incident often lead to widespread negative publicity, which may cause our customers to lose confidence in our products and the effectiveness of our data security measures.
These mandatory disclosures regarding a data security breach or other cyber incident often lead to widespread negative publicity, which may cause our customers to lose confidence in our products and the effectiveness of our cybersecurity measures. If we fail to comply with these laws and regulations, we could be subject to enforcement action or litigation, which could harm our business.
SPS COMMERCE, INC. 14 Form 10-K for the Annual Period ended December 31, 2023 Table of Contents Fully integrating an acquired company or business into our operations may take a significant amount of time and resources. In addition, we may only be able to conduct limited due diligence on an acquired company’s operations.
Fully integrating an acquired company or business into our operations may take a significant amount of time and resources. In addition, we may only be able to conduct limited due diligence on an acquired company’s operations.
If a significant number of recurring revenue customers seek to terminate their relationship with us, our business, results of operations and financial condition would be adversely affected in a short period of time. Economic weakness and uncertainty could adversely affect our revenue, lengthen our sales cycles, and make it more difficult for us to forecast operating results accurately.
If a significant number of recurring revenue customers seek to terminate their relationship with us, our business, results of operations and financial condition would be adversely affected in a short period of time.
SPS COMMERCE, INC. 18 Form 10-K for the Annual Period ended December 31, 2023 Table of Contents Businesses in the retail industry have experienced material sales declines after discovering data security breaches, and our business could be similarly impacted in the event of a breach or other cyber incident.
Businesses in the retail industry have experienced material sales declines after discovering data security breaches, and our business could be similarly impacted in the event of a breach or other cyber incident.
Our business is dependent on our ability to maintain and scale our technical infrastructure, and any failure to effectively maintain or scale such infrastructure could damage our reputation, result in a potential loss of revenue, and adversely affect our financial results.
SPS COMMERCE, INC. 16 Form 10-K for the Annual Period ended December 31, 2024 Table of Contents Our business is dependent on our ability to maintain and scale our technical infrastructure, and any failure to effectively maintain or scale such infrastructure could damage our reputation, result in a potential loss of revenue, and adversely affect our financial results.
SPS COMMERCE, INC. 19 Form 10-K for the Annual Period ended December 31, 2023 Table of Contents While we monitor the use of open source software in our products, processes and technology and work to ensure that open source software is not used in such a way as to require us to disclose the source code to the related product or products, such use could inadvertently occur.
While we have established standards for the use of open source software in our products, processes and technology to ensure that open source software is not used in such a way as to require us to disclose the source code to the related product or products, such use could inadvertently occur.
If we fail to attract, retain, and train members of our senior management team and other key personnel, or if we are not able to successfully manage the transition of our Chief Executive Officer or our President and Chief Operating Officer, our business could be adversely affected.
If we fail to attract, retain, and train members of our senior management team and other key personnel, our business could be adversely affected.
Leadership transitions and management changes involve inherent risks, can be difficult to manage and may cause uncertainty or a disruption, which could adversely affect our business. If the market for cloud-based supply chain management products declines or does not maintain its historical growth rates, our revenues may decline or fail to grow, and we may incur operating losses.
If the market for cloud-based supply chain management products declines or does not maintain its historical growth rates, our revenues may decline or fail to grow, and we may incur operating losses.
To do so, we must continue to hire, train, and manage new employees as needed. To manage the expected growth of our operations and personnel, we will need to continue to improve our operational, financial and management controls and our reporting systems and procedures.
To manage the expected growth of our operations and personnel, we will need to continue to improve our operational, financial and management controls and our reporting systems and procedures. If we fail to successfully manage our growth, we will be unable to execute our business plan as expected.
SPS COMMERCE, INC. 13 Form 10-K for the Annual Period ended December 31, 2023 Table of Contents The markets in which we participate are highly competitive, and our failure to compete successfully would make it difficult for us to add and retain customers and would reduce or impede the growth of our business.
The markets in which we participate are highly competitive, and our failure to compete successfully would make it difficult for us to add and retain customers and would reduce or impede the growth of our business. The markets for supply chain management products are increasingly competitive and global.
SPS COMMERCE, INC. 12 Form 10-K for the Annual Period ended December 31, 2023 Table of Contents Our continued growth could significantly strain our personnel resources and infrastructure, and if we are unable to implement appropriate controls and procedures to manage our growth, we may not be able to implement our business plan successfully.
Our continued growth could significantly strain our personnel resources and infrastructure, and if we are unable to implement appropriate controls and procedures to manage our growth, we may not be able to implement our business plan successfully. We have experienced a period of rapid growth in our headcount and operations.
This could harm our intellectual property position and have a material adverse effect on our business, results of operations and financial condition. If we fail to protect our intellectual property and proprietary rights adequately, our business could suffer material adverse effects. We believe that proprietary technology is essential to establishing and maintaining our leadership position.
This could harm our intellectual property position and have a material adverse effect on our business, results of operations and financial condition. SPS COMMERCE, INC. 19 Form 10-K for the Annual Period ended December 31, 2024 Table of Contents If we fail to protect our intellectual property and proprietary rights adequately, our business could suffer material adverse effects.
We have experienced, and may experience in the future, reduced spending in our business due to financial turmoil affecting the U.S. and global economy, and other macroeconomic factors affecting spending behavior. Uncertainty about future economic conditions increases the difficulty of forecasting operating results and making decisions about future investments.
Economic weakness and constrained retail spending may result in slower growth, or reductions, in revenues and gross profits in the future. We have experienced, and may experience in the future, reduced spending in our business due to financial turmoil affecting the U.S. and global economy, and other macroeconomic factors affecting spending behavior.
In addition, some of our competitors may enter into new alliances with each other or may establish or strengthen cooperative relationships with systems integrators, third-party consulting firms or other parties. New entrants not currently considered to be competitors may also enter the market through new technology offerings, acquisitions, partnerships, or other strategic relationships.
New entrants not currently considered to be competitors may also enter the market through new technology offerings, acquisitions, partnerships, or other strategic relationships.
Our inability to do any of the foregoing could reduce our ability to compete successfully and adversely affect our results of operations.
Our inability to do any of the foregoing could reduce our ability to compete successfully and adversely affect our results of operations. Products and Service Offerings Any new products and changes to existing products we pursue could fail to attract or retain customers or generate expected revenues.
If we fail to comply with these laws and regulations, we could be subject to enforcement action or litigation, which could harm our business. We may experience service failures or interruptions due to defects in the hardware, software, infrastructure, third-party components or processes that comprise our existing or new products, any of which could adversely affect our business.
SPS COMMERCE, INC. 18 Form 10-K for the Annual Period ended December 31, 2024 Table of Contents We may experience service failures or interruptions due to defects in the hardware, software, infrastructure, third-party components or processes that comprise our existing or new products, any of which could adversely affect our business.
As demonstrated by the frequency and sophistication of material and high-profile data security breaches within the retail industry; computer malware, viruses, computer hacking, phishing attacks, spamming, ransomware, and other cyber threats have become more prevalent in our industry.
As demonstrated by the frequency and sophistication of material and high-profile data security breaches across industries, computer malware, viruses, phishing, spam, ransomware, and other cyber threats continue to pose a pervasive issue for business.
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SPS COMMERCE, INC. 11 Form 10-K for the Annual Period ended December 31, 2023 Table of Contents The risks included in this section are not the only ones we face. We operate in a very competitive and rapidly changing environment.
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We operate in a very competitive and rapidly changing environment.
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Our revenues depend significantly on general economic conditions and the sustainability and health of retailers. Economic weakness and constrained retail spending may result in slower growth, or reductions, in revenues and gross profits in the future.
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SPS COMMERCE, INC. 12 Form 10-K for the Annual Period ended December 31, 2024 Table of Contents Economic weakness and uncertainty could adversely affect our revenue, lengthen our sales cycles, and make it more difficult for us to forecast operating results accurately. Our revenues depend significantly on general economic conditions and the sustainability and health of retailers.
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If we fail to successfully manage our growth, we will be unable to execute our business plan as expected.
Added
Uncertainty about future economic conditions increases the difficulty of forecasting operating results and making decisions about future investments. In addition, economic conditions or uncertainty may cause customers and potential customers to reduce or delay technology purchases, including purchases of our products.
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Further, our former Chief Executive Officer, Archie Black, retired as Chief Executive Officer effective October 2, 2023, and the board of directors appointed his successor, Chad Collins, as of that date. We also announced the planned retirement of our President and Chief Operating Officer, James Frome, effective December 31, 2024.
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Further, we announced the retirement of our President and Chief Operating Officer, James Frome, effective December 31, 2024. Leadership transitions and management changes involve inherent risks, can be difficult to manage, and may cause uncertainty or a disruption, which could adversely affect our business.
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The markets for supply chain management products are increasingly competitive and global. We expect competition to increase in the future both from existing competitors and new companies that may enter our markets.
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Moreover, our industry is highly fragmented, and we believe it is likely that our existing competitors will continue to consolidate or will be acquired. In addition, some of our competitors may enter into new alliances with each other or may establish or strengthen cooperative relationships with systems integrators, third-party consulting firms or other parties.
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The extent to which public health emergencies such as epidemics, pandemics, or similar outbreaks may adversely impact our business, results of operations and financial condition will depend on on-going and future developments and outcomes, which are highly uncertain and cannot be predicted.
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While we transact in U.S. dollars with the majority of our customers, vendors, and employees, and expect to continue in the future, we also transact in currencies other than the U.S. dollar due to our international operations. As a result, our consolidated U.S. dollar financial statements are subject to fluctuations due to changes in exchange rates.
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Our business operations and financial results may be adversely impacted by public health emergencies, such as epidemics, pandemics, and similar outbreaks.
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Accordingly, declines in the value of foreign currencies relative to the U.S. dollar adversely affect our financial condition and results of operations. Although we may in the future decide to undertake foreign exchange hedging transactions to cover a portion of our foreign currency exchange exposure, we currently do not hedge our exposure to foreign currency exchange risks.
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Despite our efforts to manage these impacts, their ultimate impact also depends on factors beyond our knowledge or control, including the duration and severity of any such outbreak and actions taken to contain its spread and mitigate its public health effects.
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Public health emergencies could have adverse impacts on our business operations by limiting our employees' ability to work and travel, disrupting our third-party technology providers, or causing internal operational workflow to change, among other potentially unforeseen circumstances given the uncertainties related to public health emergencies.
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Additionally, public health emergencies may cause significant disruptions and changes in the economic or political conditions in markets in which we operate.
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This may cause significant volatility in demand for our services due to, among other adverse impacts, disruption and downturns in our customers’ businesses and related supply chains, an acceleration of existing customer bankruptcies, or our customers’ inability to pay for our services when due or in full.
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Although certain customers may have a reduced demand for our services, we also may see increased demand by certain customer segments, potentially offsetting reduced demand.
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SPS COMMERCE, INC. 16 Form 10-K for the Annual Period ended December 31, 2023 Table of Contents Products and Service Offerings Any new products and changes to existing products we pursue could fail to attract or retain customers or generate expected revenues.

Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

9 edited+3 added−1 removed1 unchanged
Biggest changeThe information security team uses a variety of methods to identify and assess these risks, including, conducting networks scans, using manual and automated tools, conducting vulnerability and maturity assessments, and subscribing to services and reports providing threat intelligence. In addition, we use a variety of third-party service providers to support and execute on our Security Program.
Biggest changeOur information security team actively monitor and evaluate our networks, systems, data, and security risk profile to identify and assess cybersecurity risks. We use a variety of methods to identify and evaluate these risks using manual and automated tools and processes, including, network scans, vulnerability and maturity assessments, and subscribing to services and reports providing threat intelligence.
In addition, our security incident response plan includes reporting certain cybersecurity incidents to our Audit Committee. Finally, our board of directors reviews cybersecurity risks on an annual basis, including discussing with management and members of the ESSC our strategy surrounding prevention, detection, mitigation, and remediation of potential security threats.
In addition, our security incident response plan includes reporting certain cybersecurity incidents to our Audit Committee. Finally, our board of directors reviews cybersecurity risks on an annual basis, including discussing with management, our CISO, and members of the ESSC our strategy surrounding prevention, detection, mitigation, and remediation of potential security threats.
The CISO and security team provide regular updates to the ESSC on our Security Program and, in accordance with our security incident response plan, escalate applicable cybersecurity threats or incidents to the ESSC for review and management.
The CISO and information security team provide regular updates to the ESSC on our Security Program and, in accordance with our security incident response plan, escalate applicable cybersecurity threats or incidents to the ESSC for review and management.
However, we are subject to ongoing risks from cybersecurity threats that could materially affect us, including our business, financial condition, or results of operations, as further described in Part I, Item 1A, "Risk Factors" of this Annual Report on Form 10-K.
However, we are subject to ongoing risks from cybersecurity threats that could materially affect us, including our business, financial condition, or results of operations, as further described in Part I, Item 1A, “Risk Factors” of this Annual Report on Form 10-K.
Item 1C. Cybersecurity We have an established security program and framework based on ISO/IEC 27001 (“Security Program”) and maintain ISO/IEC 27001:2013, SOC 1 Type 2, and SOC 2 Type 2 certifications.
Item 1C. Cybersecurity Risk Management and Strategy We have an established security program and framework based on ISO/IEC 27001 (“Security Program”) and maintain ISO/IEC 27001:2013, SOC 1 Type 2, and SOC 2 Type 2 certifications.
Our information and security team, led by our Chief Information Security Officer (“CISO”), have implemented and continue to maintain various technical, physical, and administrative processes, policies, and standards as the foundation of our Security Program, which are designed to help us manage and mitigate risks from cybersecurity threats, including, but not limited to, incident detection and response plans, vulnerability management processes, risk assessments, disaster recovery and business continuity plans, access controls, asset management, logging and monitoring, security awareness training, and third-party risk management programs.
Our information security team has implemented and continues to maintain various technical, physical, and administrative controls as the foundation of our Security Program, which are designed to help us identify, manage, prevent, and mitigate risks from cybersecurity threats, including, but not limited to, incident detection systems and response plans, vulnerability management tools and processes, risk assessments, disaster recovery and business continuity plans, access controls, asset management, logging and monitoring, security awareness training, and third-party risk management programs.
While we have experienced cybersecurity incidents and expect to continue to be subject to such incidents, to date, we have not experienced any cybersecurity incidents that have materially affected our business, financial condition, or results of operations.
SPS COMMERCE, INC. 23 Form 10-K for the Annual Period ended December 31, 2024 Table of Contents While we have experienced cybersecurity incidents and expect to continue to be subject to such incidents, to date, we have not experienced any cybersecurity incidents that have materially affected our business, financial condition, or results of operations.
SPS COMMERCE, INC. 23 Form 10-K for the Annual Period ended December 31, 2023 Table of Contents Our Audit Committee of our board of directors oversees our risk management processes related to cybersecurity risks and is regularly informed of such risks through presentations or reports from our CISO.
Governance Our Audit Committee of our board of directors oversees our risk management processes related to cybersecurity risks and is regularly informed of such risks through presentations or reports from our CISO. Through committee reports, the Audit Committee apprises the full board of directors of any significant cybersecurity updates.
These third parties provide cybersecurity consulting services, cybersecurity software, penetration testing, audits, and other professional services to aid us in identifying, assessing, and managing risks from cybersecurity threats. Our Security Program is managed by our Executive Security Steering Committee ("ESSC"), comprised of selected members of leadership, including our CISO, which assesses and manages any material risks from cybersecurity threats.
These third parties provide cybersecurity consulting services, cybersecurity software, penetration testing, audits, and other professional services to aid us in identifying, assessing, and managing risks from cybersecurity threats.
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Our CISO and information security team actively monitor and evaluate our networks, systems, data, and security risk profile to identify and assess cybersecurity risks.
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In doing so, risks are assessed for criticality, prioritized in context of our business, and communicated to stakeholders for engagement as needed. We use a variety of third-party service providers to support and execute on our Security Program.
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The Security Program is led by our Chief Information Security Officer ("CISO"), who has served in the role since 2023, has over 10 years of experience leading cybersecurity programs in a large, publicly traded, international enterprise, and is a Certified Information Systems Security Professional ("CISSP").
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Our Executive Security Steering Committee ("ESSC"), comprised of selected members of leadership, assesses and manages any material risks from cybersecurity threats and manages our Security Program.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. Properties Our corporate headquarters, including our principal administrative, marketing, sales, technical support, and research and development facilities, are located in Minneapolis, Minnesota. This location includes approximately 198,000 square feet of space and is under lease through 2027. We lease other smaller facilities across the U.S. and international locations.
Biggest changeItem 2. Properties Our corporate headquarters, including our principal administrative, marketing, sales, technical support, and research and development facilities, are located in Minneapolis, Minnesota. This location includes approximately 200,000 square feet of space and is under lease through 2027. We lease other smaller facilities across the U.S. and international locations.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe return assumes that $100 was invested in shares of our common stock and the other indexes at the close of market on December 31, 2018, and that dividends, if any, were reinvested. In our Annual Report on Form 10-K for the year ended December 31, 2022, we compared our return to the Nasdaq US Benchmark TR Index.
Biggest changeThe return assumes that $100 was invested in shares of our common stock and the other indexes at the close of market on December 31, 2019, and that dividends, if any, were reinvested. The comparison in this graph is based on historical data and is not intended to forecast or be indicative of future performance of our common stock.
The graph below compares the cumulative total stockholder return of our common stock with that of the Russell 1000 Index and the Nasdaq Computer Index from December 31, 2018 through December 31, 2023, utilizing the last trading day of each respective year.
The graph below compares the cumulative total stockholder return of our common stock with that of the Russell 1000 Index and the Nasdaq Computer Index from December 31, 2019 through December 31, 2024, utilizing the last trading day of each respective year.
Under the program, purchases may be made from time to time in the open market or in privately negotiated purchases, or both. The new share repurchase program became effective August 26, 2022 and expires on July 26, 2024. We did not make any repurchases under the program during the quarter ended December 31, 2023.
Under the program, purchases may be made from time to time in the open market or in privately negotiated purchases, or both. The new share repurchase program became effective August 23, 2024 and expires on July 24, 2026. We did not make any repurchases under the program during the quarter ended December 31, 2024.
SPS COMMERCE, INC. 25 Form 10-K for the Annual Period ended December 31, 2023 Table of Contents Purchases of Equity Securities by the Issuer and Affiliated Purchasers On July 26, 2022 (announced July 27, 2022), our board of directors authorized a program to repurchase up to $50.0 million of our common stock.
SPS COMMERCE, INC. 25 Form 10-K for the Annual Period ended December 31, 2024 Table of Contents Purchases of Equity Securities by the Issuer and Affiliated Purchasers On July 23, 2024 (announced July 25, 2024), our board of directors authorized a program to repurchase up to $100.0 million of our common stock, excluding costs to obtain.
Stockholders of Record - As o f February 13, 2024, we had 69 s t ockholders of record of our common stock, excluding holders whose stock is held either in nominee name and/or street name brokerage accounts. Dividends - We have not declared or paid cash dividends on our common stock.
Stockholders of Record - As o f February 11, 2025, we had 71 stockholders of record of our common stock, excluding holders whose stock is held either in nominee name and/or street name brokerage accounts. Dividends - We have not declared or paid cash dividends on our common stock.
The comparison in this graph is based on historical data and is not intended to forecast or be indicative of future performance of our common stock. Comparison of Cumulative Total Returns of SPS Commerce, Inc. to Comparable Indexes Recent Sales of Unregistered Securities; Use of Proceeds from Sales of Registered Securities Not applicable.
Comparison of Cumulative Total Returns of SPS Commerce, Inc. to Comparable Indexes Recent Sales of Unregistered Securities; Use of Proceeds from Sales of Registered Securities Not applicable.
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In 2023 and going forward, we will use the Russell 1000 Index as we believe it is now more reflective of the market we serve and is a more appropriate index to compare our stock performance.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeSPS COMMERCE, INC. 29 Form 10-K for the Annual Period ended December 31, 2023 Table of Contents Results of Operations Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 The following table presents our results of operations for the periods indicated: Year Ended December 31, 2023 2022 Change ($ in thousands) $ % of revenue (1) $ % of revenue (1) $ % Revenues $ 536,910 100.0 % $ 450,875 100.0 % $ 86,035 19.1 % Cost of revenues 182,069 33.9 153,065 33.9 29,004 18.9 Gross profit 354,841 66.1 297,810 66.1 57,031 19.2 Operating expenses Sales and marketing 122,936 22.9 101,772 22.6 21,164 20.8 Research and development 53,654 10.0 45,748 10.1 7,906 17.3 General and administrative 84,887 15.8 67,340 14.9 17,547 26.1 Amortization of intangible assets 16,116 3.0 11,768 2.6 4,348 36.9 Total operating expenses 277,593 51.7 226,628 50.3 50,965 22.5 Income from operations 77,248 14.4 71,182 15.8 6,066 8.5 Other income, net 8,315 1.5 142 — 8,173 NM (2) Income before income taxes 85,563 15.9 71,324 15.8 14,239 20.0 Income tax expense 19,739 3.7 16,190 3.6 3,549 21.9 Net income $ 65,824 12.3 % $ 55,134 12.2 % $ 10,690 19.4 % (1) Amounts in column may not foot due to rounding (2) NM = "not meaningful" Revenues - Revenues increased for the 92nd consecutive quarter.
Biggest changeResults of Operations Year Ended December 31, 2024 Compared to Year Ended December 31, 2023 The following table presents our results of operations for the periods indicated: Year Ended December 31, 2024 2023 Change ($ in thousands) $ % of revenue (1) $ % of revenue (1) $ % Revenues $ 637,765 100 % $ 536,910 100 % $ 100,855 19 % Cost of revenues 210,714 33 182,069 34 28,645 16 Gross profit 427,051 67 354,841 66 72,210 20 Operating expenses Sales and marketing 148,920 23 122,936 23 25,984 21 Research and development 62,809 10 53,654 10 9,155 17 General and administrative 102,929 16 84,887 16 18,042 21 Amortization of intangible assets 23,510 4 16,116 3 7,394 46 Total operating expenses 338,168 53 277,593 52 60,575 22 Income from operations 88,883 14 77,248 14 11,635 15 Other income, net 10,593 2 8,315 2 2,278 27 Income before income taxes 99,476 16 85,563 16 13,913 16 Income tax expense 22,422 4 19,739 4 2,683 14 Net income $ 77,054 12 % $ 65,824 12 % $ 11,230 17 % (1) Amounts in column may not foot due to rounding Revenues - Revenues increased for the 96th consecutive quarter.
We believe our cash, cash equivalents, investments, 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.
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.
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 or loss, and other adjustments as necessary for a fair presentation.
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.
Research and Development Expenses - Research and development expenses consist primarily of personnel, stock-based compensation, and technology costs for development of new and maintenance of existing products, net of amounts capitalized as developed software.
Research and Development Expenses - Research and development expenses consist primarily of personnel costs, stock-based compensation expense, and technology costs for development of new and maintenance of existing products, net of amounts capitalized as developed software.
Sales and Marketing Expenses - Sales and marketing expenses consist primarily of personnel costs and stock-based compensation expense for our sales, marketing, product management teams, and commissions earned by our sales personnel and referral partners.
Sales and Marketing Expenses - Sales and marketing expenses consist primarily of personnel costs and stock-based compensation expense for our sales, marketing, and product management teams, external marketing costs, and commissions earned by our sales personnel and referral partners.
Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 The discussion of our liquidity and capital resources for the year ended December 31, 2022 compared to the year ended December 31, 2021 can be found in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.
Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 The discussion of our liquidity and capital resources for the year ended December 31, 2023 compared to the year ended December 31, 2022 can be found in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.
Foreign Currency Exchange and Inflation Rate Changes For information regarding the effect of foreign currency exchange rate changes, refer to the section entitled “ Foreign Currency Exchange Risk, ” included in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” of this Annual Report on Form 10-K.
Foreign Currency Exchange and Inflation Rate Changes For information regarding the effects of foreign currency exchange and inflation rate changes, refer to the section entitled “ Foreign Currency Exchange and Inflation Risk, ” included in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” of this Annual Report on Form 10-K.
Other Products - We provide several complementary products, such as: ◦ Assortment - Our Assortment product simplifies the communication of robust, accurate item data by automatically translating item attributes, and hierarchies through a single connection across all sales channels. ◦ Community - Our Community product allows organizations to accelerate digitization of their supply chain and improve collaboration with suppliers through proven change management and onboarding programs.
Other Products - We provide several complementary products, such as: ◦ Assortment - Our Assortment product simplifies the communication of robust, accurate item data by automatically translating item attributes and hierarchies through a single connection across all sales channels. ◦ Community - Our Community product allows organizations to accelerate digitization of their supply chain and improve collaboration with suppliers through proven change management, onboarding programs, and supplier score carding.
Wallet Share - We calculate average recurring revenues per recurring revenue customer, which we also refer to as wallet share, by dividing the recurring revenues from recurring revenue customers for the period by the average of the beginning and ending number of recurring revenue customers for the period.
Wallet Share - We calculate the annualized average recurring revenues per recurring revenue customer, which we also refer 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.
Revenue Recognition Revenues are the amount that reflects the consideration we are contractually and legally entitled to, as well as the amount we expect to collect, in exchange for those services. Set-up fees are specific for each connection a customer has with a trading partner.
Revenue Recognition Revenues are the amount that reflects the consideration we are contractually and legally entitled to, as well as the amount we expect to collect, in exchange for those services. Set-up fees, a component of our revenue, are specific for each connection a customer has with a trading partner.
Amortization of Intangibles Assets - Amortization expense consists of the expense recognition of acquired intangible assets over their estimated useful lives. Other Income (Expense), net Other income (expense) consists primarily of realized gain (loss) from foreign currency on cash and investments held and investment income.
Amortization of Intangibles Assets - Amortization expense consists of the expense recognition of acquired intangible assets over their estimated useful lives. Other Income (Expense), net Other income (expense), net consists primarily of investment income, in addition to realized gain (loss) from investments held and realized gain (loss) from foreign currency impacts on cash and investments.
The following table provides a comparison of Margin to Adjusted EBITDA Margin: Year Ended December 31, (in thousands, except Margin and Adjusted EBITDA Margin) 2023 2022 Revenue $ 536,910 $ 450,875 Net income 65,824 55,134 Margin 12 % 12 % Adjusted EBITDA $ 157,630 $ 132,268 Adjusted EBITDA Margin 29 % 29 % Non-GAAP Income per Share - Non-GAAP income per share consists of net income adjusted for stock-based compensation expense, amortization expense related to intangible assets, realized gain or loss from foreign currency on cash and investments held, other adjustments as necessary for a fair presentation, including 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.
SPS COMMERCE, INC. 31 Form 10-K for the Annual Period ended December 31, 2024 Table of Contents The following table provides a comparison of Margin to Adjusted EBITDA Margin: Year Ended December 31, (in thousands, except Margin and Adjusted EBITDA Margin) 2024 2023 Revenue $ 637,765 $ 536,910 Net income 77,054 65,824 Margin 12% 12% Adjusted EBITDA 186,631 157,630 Adjusted EBITDA Margin 29% 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 year ended December 31, 2024 the expense impacts from disposals of certain capitalized internally developed software and one-time acquisition-related insurance costs , and for the year ended December 31, 2023 the expense impacts from disposals of certain capitalized internally developed software and 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.
SPS COMMERCE, INC. 33 Form 10-K for the Annual Period ended December 31, 2023 Table of Contents Recent Accounting Pronouncements For information regarding recent accounting pronouncements, refer to Note A, General, in our Notes to Consolidated Financial Statements in the sections entitled “Accounting Pronouncements Recently Adopted” and “Accounting Pronouncements Not Yet Adopted” as applicable, included in Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.
Recent Accounting Pronouncements For information regarding recent accounting pronouncements, refer to Note A, General, in our Notes to Consolidated Financial Statements in the sections entitled “ Accounting Pronouncements Recently Adopted ” and “ Accounting Pronouncements Not Yet Adopted ” as applicable, included in Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.
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.
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.
Additionally, maintenance of internally developed software are expensed as incurred. Internally developed software is amortized over the estimated useful life, three years, commencing on the date when the asset is ready for its intended use. Amortization is computed using the straight-line method.
Additionally, maintenance of internally developed software is expensed as incurred. Amortization expense is calculated using the straight-line method over the estimated useful life, generally three years, commencing on the earlier date in which the asset is placed in service or ready for its intended use.
SPS COMMERCE, INC. 28 Form 10-K for the Annual Period ended December 31, 2023 Table of Contents 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.
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.
The following table provides a reconciliation of net income to Adjusted EBITDA: Year Ended December 31, (in thousands) 2023 2022 Net income $ 65,824 $ 55,134 Income tax expense 19,739 16,190 Depreciation and amortization of property and equipment 18,631 16,421 Amortization of intangible assets 16,116 11,768 Stock-based compensation expense 45,508 33,399 Realized (gain) loss from foreign currency on cash and investments held (1,726) 1,026 Investment income (7,660) (1,670) Other 1,198 — Adjusted EBITDA $ 157,630 $ 132,268 Adjusted EBITDA Margin - Adjusted EBITDA Margin consists of Adjusted EBITDA divided by revenue.
The following table provides a reconciliation of net income to Adjusted EBITDA: Year Ended December 31, (in thousands) 2024 2023 Net income $ 77,054 $ 65,824 Income tax expense 22,422 19,739 Depreciation and amortization of property and equipment 18,721 18,631 Amortization of intangible assets 23,510 16,116 Stock-based compensation expense 54,557 45,508 Realized gain from investments held and foreign currency impact on cash and investments (115) (1,726) Investment income (10,582) (7,660) Other 1,064 1,198 Adjusted EBITDA $ 186,631 $ 157,630 Adjusted EBITDA Margin - Adjusted EBITDA Margin consists of Adjusted EBITDA divided by revenue.
The following table provides a reconciliation of net income to non-GAAP income per share: Year Ended December 31, (in thousands, except per share amounts) 2023 2022 Net income $ 65,824 $ 55,134 Stock-based compensation expense 45,508 33,399 Amortization of intangible assets 16,116 11,768 Realized (gain) loss from foreign currency on cash and investments held (1,726) 1,026 Other 1,198 — Income tax effects of adjustments (19,983) (14,639) Non-GAAP income $ 106,937 $ 86,688 Shares used to compute net income and non-GAAP income per share Basic 36,646 36,117 Diluted 37,475 36,953 Net income per share, basic $ 1.80 $ 1.53 Non-GAAP adjustments to net income per share, basic 1.12 0.87 Non-GAAP income per share, basic $ 2.92 $ 2.40 Net income per share, diluted $ 1.76 $ 1.49 Non-GAAP adjustments to net income per share, diluted 1.09 0.86 Non-GAAP income per share, diluted $ 2.85 $ 2.35 Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 The discussion of our results from operations for the year ended December 31, 2022 compared to the year ended December 31, 2021 can be found in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.
The following table provides a reconciliation of net income to non-GAAP income per share: Year Ended December 31, (in thousands, except per share amounts) 2024 2023 Net income $ 77,054 $ 65,824 Stock-based compensation expense 54,557 45,508 Amortization of intangible assets 23,510 16,116 Realized gain from investments held and foreign currency impact on cash and investments (115) (1,726) Other 1,064 1,198 Income tax effects of adjustments (24,505) (19,983) Non-GAAP income $ 131,565 $ 106,937 Shares used to compute net income and non-GAAP income per share Basic 37,306 36,646 Diluted 37,856 37,475 Net income per share, basic $ 2.07 $ 1.80 Non-GAAP adjustments to net income per share, basic 1.46 1.12 Non-GAAP income per share, basic $ 3.53 $ 2.92 Net income per share, diluted $ 2.04 $ 1.76 Non-GAAP adjustments to net income per share, diluted 1.44 1.09 Non-GAAP income per share, diluted $ 3.48 $ 2.85 SPS COMMERCE, INC. 32 Form 10-K for the Annual Period ended December 31, 2024 Table of Contents Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 The discussion of our results from operations for the year ended December 31, 2023 compared to the year ended December 31, 2022 can be found in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.
Contractual and Commercial Commitment Summary Our contractual obligations and commercial commitments as of December 31, 2023 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 $ 4,910 $ 8,641 $ 1,324 $ 76 $ 14,951 Purchase commitments 14,536 20,528 — — 35,064 Total $ 19,446 $ 29,169 $ 1,324 $ 76 $ 50,015 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.
SPS COMMERCE, INC. 33 Form 10-K for the Annual Period ended December 31, 2024 Table of Contents Contractual and Commercial Commitment Summary Our contractual obligations and commercial commitments as of December 31, 2024 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 $ 5,952 $ 6,916 $ 225 $ 48 $ 13,141 Purchase commitments 14,187 4,160 — — 18,347 Total $ 20,139 $ 11,076 $ 225 $ 48 $ 31,488 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.
SPS COMMERCE, INC. 27 Form 10-K for the Annual Period ended December 31, 2023 Table of Contents General and Administrative Expenses - General and administrative expenses consist primarily of personnel, stock-based compensation, and technology costs for finance, human resources, and internal technology support, as well as professional services and other fees, such as bad debt expense and credit card processing fees.
General and Administrative Expenses - General and administrative expenses consist primarily of personnel costs, stock-based compensation expense, and technology costs for finance, human resources, and internal security and technology support, as well as professional services and other fees, such as bad debt expense and credit card processing fees.
Cost of Revenues and Operating Expenses Cost of Revenues - Cost of revenues consist primarily of personnel, stock-based compensation, and technology costs for our customer success and implementation teams, customer support personnel, and application support personnel, as well as amortization related to internally developed software.
SPS COMMERCE, INC. 27 Form 10-K for the Annual Period ended December 31, 2024 Table of Contents Cost of Revenues and Operating Expenses Cost of Revenues - Cost of revenues consist primarily of personnel costs, stock-based compensation expense, and technology costs for our customer success and implementation teams, customer support personnel, and application support personnel, as well as amortization related to internally developed software.
Research and Development Expenses - The increase in research and development expense was primarily due to increased headcount, which resulted in increases of $5.3 million in personnel-related costs and $1.2 million of software subscriptions. Additionally, the increase was due to a $1.6 million increase in stock-based compensation.
Additionally, there was an increase in software subscriptions of $4.0 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 increases of $17.6 million in personnel-related costs and $2.8 million in stock-based compensation expense.
We treat each of these units, which may include divisions, departments, affiliates and franchises, as distinct recurring revenue customers.
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.
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.
We believe these non-GAAP financial measures are useful to an investor as they are widely used in evaluating operating performance.
Other Income (Expense) - The change was primarily due to increased investment income and favorable foreign currency exchange rate changes. Income Tax Expense - The increase in income tax expense was driven by an increase in pre-tax income and an increase in nondeductible executive compensation.
Other Income, Net - The increase was primarily due to increased investment income. Income Tax Expense - The increase in income tax expense was primarily driven by an increase in pre-tax income, partially offset by a decrease in nondeductible executive compensation and an increase in tax benefits from credits and foreign derived intangible income.
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 penetrations of our market.
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. Cost of Revenues - The increase in cost of revenues was primarily due to increased headcount, which resulted in an increase of $22.5 million in personnel-related costs.
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 Financial Measures Sources of Revenues Fulfillment - Our Fulfillment product is a full-service EDI solution that scales as a business grows.
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 Financial Measures Sources of Revenues Recurring Revenues We primarily derive our revenues from subscription-based recurring revenue services, which are recognized on a ratable basis over the contract term.
Cost of Revenues - The increase in cost of revenues was primarily due to increased headcount, which resulted in increases of $21.9 million in personnel-related costs and $3.0 million of software subscriptions. Additionally, the increase was due to a $1.5 million increase in stock-based compensation.
General and Administrative Expenses - The increase in general and administrative expense was primarily due to increased headcount, which resulted in increases of $7.1 million in personnel-related costs and $3.5 million in stock-based compensation expense. Amortization of Intangible Assets - The increase in amortization of intangible assets was driven by increased intangible assets related to recent business acquisitions.
The summary of activity within the consolidated statements of cash flows was as follows: Year Ended December 31, (in thousands) 2023 2022 Net cash provided by operating activities $ 132,298 $ 100,052 Net cash used in investing activities (92,642) (112,790) Net cash provided by (used in) financing activities 15,970 (31,631) Net Cash Flows from Operating Activities The increase in cash provided by operating activities was primarily driven by changes in the amount and timing of settlement of operating assets and liabilities, in addition to increased net income.
Statements of Cash Flows Summary The summary of activity within the consolidated statements of cash flows was as follows: Year Ended December 31, (in thousands) 2024 2023 Net cash provided by operating activities $ 157,398 $ 132,298 Net cash used in investing activities (110,454) (92,642) Net cash provided by (used in) financing activities (23,026) 15,970 Operating Activities The increase in cash provided by operating activities from the year ended December 31, 2024 to the year ended December 31, 2023 was primarily due to an increase in net income as adjusted for non-cash expenses, of $28.2 million, driven by continued growth in revenue, as partially offset by cash paid for expenses to operate the growing business.
Business Combinations We allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed, and intangible assets acquired based on their estimated fair values as of the acquisition date. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill.
The assets and related accumulated amortization are adjusted for asset retirements and disposals with the resulting gain or loss included in our consolidated statements of comprehensive income. Business Combinations We allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed, and intangible assets acquired based on their estimated fair values as of the acquisition date.
O ther adjustments 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.
Other adjustments for the year ended December 31, 2024 included the expense impacts from disposals of certain capitalized internally developed software and one-time acquisition-related insurance costs. Other adjustments for the year ended December 31, 2023 included the expense impacts from disposals of certain capitalized internally developed software and acquisition-related employee severance costs.
Such valuations may require us to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets may include, but are not limited to, future expected cash flows from acquired customers and developed technology from a market participant perspective, useful lives, and discount rates.
SPS COMMERCE, INC. 29 Form 10-K for the Annual Period ended December 31, 2024 Table of Contents Significant estimates in valuing certain intangible assets may include, but are not limited to, utilizing variants of the income approach, such as the relief-from-royalty and multi-period excess earnings methods, which estimate future expected cash flows from acquired customers and developed technology from a market participant perspective, useful lives, and discount rates.
Income Tax Expense Income tax expense consists primarily of income taxes for U.S. federal jurisdiction in addition to income taxes for various state and international jurisdictions.
Income Tax Expense Income tax expense consists primarily of income taxes for U.S. federal jurisdiction in addition to income taxes for various state and international jurisdictions. Metrics and Non-GAAP Financial Measures Recurring Revenue - We define recurring revenue as active contracts during the reporting period to regularly pay us fees for subscription-based and reoccurring services.
SPS COMMERCE, INC. 30 Form 10-K for the Annual Period ended December 31, 2023 Table of Contents General and Administrative Expenses - The increase in general and administrative expense was primarily related to increased stock-based compensation of $6.9 million. Additionally, the increase was due to an increase in headcount which resulted in an increase in personnel-related costs of $6.3 million.
Additionally, there was an increase of $3.9 million in product management costs. Research and Development Expenses - The increase in research and development expense was primarily due to increased headcount, which resulted in an increase of $9.0 million in personnel-related costs.
SPS COMMERCE, INC. 32 Form 10-K for the Annual Period ended December 31, 2023 Table of Contents Net Cash Flows from Investing Activities The decrease in net cash used in investing activities was primarily due to business acquisition activity.
SPS COMMERCE, INC. 30 Form 10-K for the Annual Period ended December 31, 2024 Table of Contents • Approximately 1,000 recurring revenue customers were added in September 2023 due to the acquisition of the existing customer base of TIE Kinetix.
The increase in revenues 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. • The number of recurring revenue customers increased 6% to approximately 44,800 at December 31, 2023 from approximately 42,300 at December 31, 2022 primarily due to sales and marketing efforts to acquire new customers and due to recent acquisitions. • Wallet share increased 10% to approximately $11,550 at December 31, 2023 from approximately $10,500 at December 31, 2022.
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. • Wallet share increased 15% to approximately $13,300 for the year ended December 31, 2024 from approximately $11,550 for the year ended December 31, 2023.
This was primarily attributable to increased usage of our products by our recurring revenue customers. Recurring revenues increased 20% to $502.0 million in 2023, as compared to 2022, and accounted for 94% and 93% of our total revenues in 2023 and 2022, respectively.
Recurring revenues increased 20% to $600,089 for the year ended December 31, 2024, as compared to the same period in 2023, and accounted for 94% of our total revenues in 2024 and 2023.
Net Cash Flows from Financing Activities The change in cash provided by (used in) financing activities was primarily due to the decrease in cash used for share repurchases.
Financing Activities The increase in cash used in financing activities from the year ended December 31, 2024 to the year ended December 31, 2023 was primarily due to an increase in cash used for share repurchases of $37.6 million to continue to deliver shareholder value.
SPS COMMERCE, INC. 31 Form 10-K for the Annual Period ended December 31, 2023 Table of Contents 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.
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.
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Overview SPS Commerce is a leading provider of cloud-based supply chain management services across our global retail network. Our products make it easier for retailers, grocers, distributors, suppliers, and logistics firms to communicate and collaborate by simplifying how they manage and share item, inventory, order and sales data across omnichannel retail channels.
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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.
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We deliver our products using a full-service model, which includes industry-leading technology and a team of experts that optimize, update, and operate the technology on customers' behalf. Our products enable customers to increase supply chain performance, optimize inventory levels and sell-through, reduce operational costs, improve order visibility, and satisfy consumer demands for a seamless omnichannel experience.
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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.
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Companies can use a single system to manage orders and logistics from all sales channels, including wholesale, eCommerce, and marketplaces. Fulfillment is configurable for any trading partner, document or business system used for order management and offers a full suite of tools to help businesses efficiently manage their supply chain.
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The following are our recurring revenue streams: Fulfillment - Our Fulfillment product is a comprehensive solution designed to streamline supply chain operations. Our connections empower retailers, grocers, distributors, suppliers, manufacturers, and logistics firms to efficiently send and receive order data, ensuring accurate execution of required processes from order to invoicing and revenue recovery through fully automated operations.
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Analytics - Our Analytics product enables organizations to improve visibility into how products are selling through a single connection across all sales channels, including wholesale, eCommerce, and marketplaces. Analytics improves access and usage of sales and inventory data through a combination of our analytics applications, network of connections, and industry-leading expertise.
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By integrating seamlessly with existing systems, Fulfillment enhances day-to-day efficiency, reduces errors, and provides real-time visibility across all of our customers' order channels. Analytics - Our Analytics product simplifies managing sell-through data from our customers’ business partners. We handle data acquisition, cleansing, normalization, and delivery.
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Metrics and Non-GAAP Financial Measures Recurring Revenue Customers - As of December 31, 2023, we had approximately 44,800 customers with ongoing contracts to pay us monthly fees, which we refer to as recurring revenue customers. A small portion of our recurring revenue customers consist of separate units within a larger organization and are separately invoiced.
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Our pre-built dashboards create custom reports, or integrate data with existing tools, to gain insights to enhance product performance, forecasting, pricing, and inventory management.
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Sales and Marketing Expenses - The increase in sales and marketing expense was primarily due to increased headcount, which resulted in increases of $13.8 million in personnel-related costs and $2.7 million in variable compensation earned by sales personnel and referral partners. Additionally, the increase was due to a $2.2 million increase in stock-based compensation.
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One-time Revenues One-time revenues consist of set-up fees, which are recognized ratably, generally over two years, and miscellaneous fees from customers, primarily professional services and testing and certification. Miscellaneous fees are recognized at the time service is provided.
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Finally, there was an increase in bad debt expense of $2.3 million due primarily to overall business growth. Amortization of Intangible Assets - The increase in amortization of intangible assets was driven by increased intangible assets related to recent business acquisitions.
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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.
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This was partially offset by an increase in excess tax benefits due to the current period equity award settlements. 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.
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SPS COMMERCE, INC. 28 Form 10-K for the Annual Period ended December 31, 2024 Table of Contents 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.
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Liquidity and Capital Resources At December 31, 2023, our principal sources of liquidity were cash and cash equivalents and short-term investments totaling $275.4 million, and net accounts receivable of $46.8 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.
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The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations may require us to make significant estimates and assumptions, especially with respect to intangible assets.
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Our cash equivalents and short-term investments are held in highly liquid instruments, primarily money market funds, certificates of deposits, and commercial paper.
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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.
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During the last three years, inflation and changing prices have not had a material effect on our business and we do not expect that inflation or changing prices will materially affect our business in the foreseeable future.
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This was primarily attributable to increased usage of our products by our recurring revenue customers. • The number of recurring revenue customers increas ed 1% to approximately 45,350 at December 31, 2024 from approximately 44,800 at December 31, 2023 primarily due to sales and marketing efforts to acquire new customers and due to recent acquisitions.
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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.
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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.
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Net income is the comparable GAAP measure of financial performance.
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Liquidity and Capital Resources Sources of Liquidity As of December 31, 2024, our principal sources of liquidity were cash and cash equivalents of $241.0 million and net accounts receivable of $52.0 million.
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Additionally, fluctuations in operating assets and liabilities resulted in a decrease of $3.1 million, driven by changes in the amount and timing of settlements and general growth of the business.
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Investing Activities The increase in cash used in investing activities from the year ended December 31, 2024 to the year ended December 31, 2023 was primarily due to an increase in cash used to acquire businesses of $77.7 million to further grow our business, partially offset by an increase in cash provided by net maturities of investments of $60.2 million.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeTherefore, we do not have any material risk to interest rate fluctuations. Foreign Currency Exchange Risk Due to international operations, we have revenue, expenses, assets, and liabilities that are denominated in currencies other than the U.S. dollar, primarily the Australian dollar, Canadian dollar, and Euro.
Biggest changeSPS COMMERCE, INC. 34 Form 10-K for the Annual Period ended December 31, 2024 Table of Contents Foreign Currency Exchange and Inflation Risk Due to international operations, we have revenue, expenses, assets, and liabilities that are denominated in currencies other than the U.S. dollar, primarily the Australian dollar, Canadian dollar, and Euro.
Our consolidated balance sheet, results of operations, and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates and may be adversely affected in the future due to changes in foreign exchange rates. Our sales are primarily denominated in U.S. dollars.
Our consolidated balance sheet, results of operations, and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates and may be adversely affected in the future due to changes in foreign exchange rates.
We have not used any forward contracts or currency borrowings to hedge our exposure to foreign currency exchange risk, although we may do so in the future. SPS COMMERCE, INC. 34 Form 10-K for the Annual Period ended December 31, 2023 Table of Contents
We have not used any forward contracts or currency borrowings to hedge our exposure to foreign currency exchange risk, although we may do so in the future.
Our expenses are generally denominated in the local currencies in which our operations are located. As of December 31, 2023, we maintained 10% of our total cash and cash equivalents and investments in foreign currencies.
As of December 31, 2024, we maintained 13% of our total cash and cash equivalents in foreign currencies.
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However, based on the nature and current level of our cash, cash equivalents, and investments, we believe there is no material risk exposure. We do not enter into investments for trading or speculative purposes. We did not have any variable interest rate outstanding debt as of December 31, 2023.
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We may choose based on our investment strategy to hold cash, cash equivalents, and investments in interest-bearing or non-interest-bearing accounts.
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We believe that a hypothetical 10% change in foreign currency exchange rates or an inability to access foreign funds would not materially affect our ability to meet our operational needs, result in a material foreign currency loss, or have a material impact on our consolidated financial statements.
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Based upon a sensitivity model , an immediate hypothetical 50-basis point change in interest rates at December 31, 2024 would have resulted in a $1.0 million impact on our investment income included in net income (loss) for the year ended December 31, 2024. We do not enter into investments for trading or speculative purposes.
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We did not have any variable interest rate outstanding debt as of December 31, 2024.
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Our predominate exposure to foreign currency exchange rates are due to non-monetary assets held in currencies other than the U.S. dollar, and thus fluctuations in currencies primarily result in comprehensive income (loss), not net income (loss). Our sales are primarily denominated in U.S. dollars. Our expenses are generally denominated in the local currencies in which our operations are located.
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Based upon a sensitivity model, an immediate hypothetical 10% unfavorable change in all foreign currency exchange rates would have resulted in a $3.2 million impact on our cash and cash equivalents held in currencies other than the U.S. dollar as of December 31, 2024.
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During the last three years, inflation and changing prices have not had a material effect on our business and we do not expect that inflation or changing prices will materially affect our business in the foreseeable future. SPS COMMERCE, INC. 35 Form 10-K for the Annual Period ended December 31, 2024 Table of Contents

Other SPSC 10-K year-over-year comparisons