2 0 2 0 A N N U A L R E P O R T
T O O U R S T O C K H O L D E R S
2020 was a year of strong execution and significant accomplishments for SPS Commerce, despite a challenging macroeconomic
environment. The fourth quarter of 2020 represented our eightieth consecutive quarter of revenue growth.
The COVID-19 pandemic impacted business operations across industries around the globe, forcing us all to adapt. In the retail space,
supply chain disruptions are fast-tracking the industry’s digital transformation. To protect business continuity and future-proof operations,
retailers are expanding their supplier networks, and asking trading partners to implement or improve e-commerce capabilities. In addition
to changing consumer shopping preferences, these dynamics resulted in an acceleration in demand for Electronic Data Interchange (EDI),
driving strong momentum in our Fulfillment solution.
For the full year, revenue grew 12% to $312.6 million, and recurring revenue grew 13%. Adjusted EBITDA1 grew 25% to $87.0 million. Our
consistent focus on profitability resulted in Adjusted EBITDA Margin1 of 28% in 2020, up from 25% in 2019, and 21% in 2018. In 2020,
the number of recurring revenue customers reached approximately 33,150, and wallet share, or average revenue per recurring revenue
customer, was approximately $9,250.
In addition to our strong financial performance, our accomplishments this year include:
• We achieved 16% year-over-year organic growth in sales of our Fulfillment solution in the fourth quarter, a 3-point increase from
the first quarter of 2020.
• The volume of drop-ship orders filled through our network more than doubled, as compared to pre-pandemic levels.
• We grew net new customer adds by 27% in 2020, which excludes the recent Data Masons acquisition.
In addition to helping our customers in their digital transformation, we also provided logistical support. Consumers have embraced “buy
online pick-up in store,” “curbside pickup” and “direct-to-consumer shipping” as preferred shopping methods, making order fulfillment
more complex. Currently, over 600 retailers fulfill drop-ship orders through the SPS network.
To support customers that book shipments themselves, SPS introduced shipping solutions like EDI for ShipStation and Carrier Service. To
help brands that ship on behalf of retailers and their e-commerce retail stores, SPS Commerce joined forces with our partner, ShipFusion,
which has multiple, fully managed fulfillment centers across the U.S. and Canada, giving brands the best tools possible for building a
successful e-commerce operation.
To expand our leadership position in Fulfillment System Automation, we acquired Data Masons in December 2020 to offer unmatched
trading partner and system expertise for customers using Microsoft solutions. Combined, we have numerous partnerships in the Microsoft
community that we expect will extend SPS Commerce’s leadership in this market. Over the years, our acquisitions have solidified our
leadership position across key market segments including Oracle, SAP, Sage and now, Microsoft.
As we enter 2021, we believe SPS Commerce is well-positioned to continue its critical role of driving efficiency in the retail supply chain,
and we are excited about our growth opportunities across a multibillion-dollar total addressable market. We also expect to continue to
deliver strong operating leverage, targeting a long-term Adjusted EBITDA Margin of 35%.
In closing, I am incredibly proud of what we have accomplished this year. I would like to thank all our employees for their dedication to
the company and our network of over 95,000 customers. We remain committed to supporting the digital transformation in the retail
industry, as we all work together to improve the e-commerce experience for trading partners and consumers.
Sincerely,
Archie Black
President and CEO
1 We use Adjusted EBITDA and Adjusted EBITDA Margin as non-GAAP financial measures of operating performance because they assist us in comparing performance on a consistent basis,
as they remove the impact of our capital structure from our operating results. A reconciliation of net income to Adjusted EBITDA can be found within the ‘Results of Operations’ section of
Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, within the attached Form 10-K. Adjusted EBITDA Margin is calculated by dividing
Adjusted EBITDA by total revenues. Revenue can be found on our Consolidated Statements of Comprehensive Income within the attached Form 10-K.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended: December 31, 2020
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
Commission file number 001-34702
SPS COMMERCE, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
41-2015127
(I.R.S. Employer
Identification No.)
333 South Seventh Street, Suite 1000, Minneapolis, MN 55402
(Address of Principal Executive Offices, Including Zip Code)
(612) 435-9400
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $0.001 per share
Trading Symbol
SPSC
Name of exchange on which registered
The Nasdaq Stock Market LLC (Nasdaq Global Market)
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the
Exchange Act.
Large Accelerated Filer
Non-Accelerated Filer
☒
☐
Accelerated Filer
Smaller Reporting Company
Emerging Growth Company
☐
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of June 30, 2020, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of shares of the registrant’s
common stock held by non-affiliates of the registrant (based upon the split adjusted closing sale price of $75.12 per share on the Nasdaq Global Market on such date) was
approximately $2.6 billion.
The number of shares of the registrant’s common stock, par value $0.001 per share, outstanding as of February 10, 2021 was 35,583,977 shares.
Portions of the Company’s definitive Proxy Statement for the Annual Meeting of Stockholders to be held on May 19, 2021 (the “2021 Proxy Statement”), which is
expected to be filed within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K, are incorporated by reference in Part III of this Annual
Report on Form 10-K.
DOCUMENTS INCORPORATED BY REFERENCE
SPS COMMERCE, INC.
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
PART IV
Item 15.
Item 16.
Exhibits, Financial Statement Schedules
Form 10-K Summary
SIGNATURES
Page
4
11
24
24
24
24
25
26
27
34
35
67
67
68
69
69
69
70
70
71
71
74
Unless the context otherwise requires, for purposes of the Annual Report on Form 10-K, the words “we,” “us,”
“our,” the “Company,” “SPS,” and “SPS Commerce” refer to SPS Commerce, Inc.
SPS COMMERCE, INC.
2
Form 10-K for the Annual Period ended December 31, 2020
SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
This Annual Report on Form 10-K contains forward-looking statements within the meaning of the U.S.
Private Securities Litigation Reform Act of 1995. Forward looking statements regarding us, our business prospects
and our results of operations are subject to certain risks and uncertainties posed by many factors and events, many of
which may be amplified by the coronavirus (COVID-19) pandemic, that could cause our actual business, prospects
and results of operations to differ materially from those that may be anticipated by such forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the
date of this report. In some cases, you can identify forward-looking statements by the following words: “anticipate,”
“assumes,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “ongoing,” “plan,” “potential,”
“predict,” “project,” “should,” “will,” “would,” or the negative of these terms or other comparable terminology,
although not all forward-looking statements contain these words. Similarly, statements that describe our future
plans, objectives or goals are also forward-looking. Forward-looking statements may also be made from time to time
in oral presentations, including telephone conferences and/or webcasts open to the public. Shareholders, potential
investors, and others are cautioned that all forward-looking statements involve risks and uncertainties that could
cause results in future periods to differ materially from those anticipated by some of the statements made in this
report, including the risks and uncertainties described under the heading “Risk Factors” including the updates in this
Annual Report on Form 10-K for the year ended December 31, 2020, as may be updated in our subsequent Quarterly
Reports on Form 10-Q from time to time. We expressly disclaim any intent or obligation to update or revise any
forward-looking statements, whether as a result of new information, future events or otherwise. Readers are urged to
carefully review and consider the various disclosures made by us in this report and in our other reports filed with the
Securities and Exchange Commission (“SEC”) that advise interested parties of the risks and factors that may affect
our business.
SPS COMMERCE, INC.
3
Form 10-K for the Annual Period ended December 31, 2020
Item 1.
Business
Overview
PART I
SPS Commerce is a leading provider of cloud-based supply chain management services that make it easier for
retailers, suppliers, grocers, distributors, and logistics firms to orchestrate the management of item data, order
fulfillment, inventory control, and sales analytics across all channels. Implementing and maintaining a suite of
supply chain management capabilities is resource-intensive and is not a core competency for most businesses.
The services offered by SPS Commerce eliminate the need for on-premise software and support staff by
taking on that capability on the customer’s behalf. The services SPS Commerce provides enable our customers to
increase their supply cycle agility, optimize their inventory levels and sell-through, reduce operational costs and gain
increased visibility into customer orders, ensuring that suppliers, grocers, distributors, and logistics firms can satisfy
exacting retailer requirements.
As of December 31, 2020, we had approximately 33,000 customers with contracts to pay us monthly fees,
which we refer to as recurring revenue customers. We have also generated revenues by providing our cloud-based
supply chain management services to an additional 62,000 organizations that, together with our recurring revenue
customers, we refer to as our customers. Once connected to the SPS Commerce cloud-based Platform, our customers
often require integrations to new organizations that represent an expansion of our cloud-based Platform and new
sources of revenues for us.
For the years ended December 31, 2020, 2019, and 2018, we generated revenues of $312.6 million, $279.1
million, and $248.2 million, respectively. Our quarter ended December 31, 2020 represented our 80th consecutive
quarter of increased revenues. Recurring revenues from recurring revenue customers accounted for 94%, 94% and
93% of our total revenues for the years ended December 31, 2020, 2019, and 2018, respectively. 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, 2020, 2019, and 2018.
Our Solutions
SPS Commerce operates one of the largest retail trading partner networks in the world through cloud-based
services that improve the way retailers, suppliers, grocers, distributors, and logistics firms manage and fulfill orders,
administer sell-through performance, and source new items. Approximately 95,000 customers across approximately
80 countries are using SPS Commerce solutions to expand and optimize the performance of their trading
relationships.
The SPS Commerce business model fundamentally changes how organizations use electronic communication
to manage their omnichannel, supply chain, and other business requirements by replacing the collection of
traditional, custom-built, point-to-point integrations with a model that facilitates a single automated connection to
the entire SPS Commerce network of trading partners.
From that single connection, a member of our network can make use of the full suite of our services, from
fulfillment automation to the analysis and optimization of item sell-through performance, to sourcing new items,
retailing relationships, logistics providers, or other services. These cloud services deliver value as stand-alone
offerings but can also provide greater value when used collectively. This represents a fundamental change to
fulfillment automation and enables inherent adaptability and flexibility not possible with traditional supply chain
management system architectures.
Our Fulfillment solution allows customers to comply with numerous rulebooks for retailers, grocers, and
distributors. Maintaining current connections with retailers, grocers, and distributors removes the need for their
trading partners to continually stay up-to-date with their required rulebook change. The utilization of a cloud
services model eliminates (or greatly reduces) the burden on trading partners to support and maintain an on-premise
software application, thereby reducing their ongoing operating costs. As the transaction hub for trading partners, we
can provide increased performance visibility and data analytics capabilities across their supply chains, each of which
is difficult to gain from traditional, point-to-point integration solutions.
SPS COMMERCE, INC.
4
Form 10-K for the Annual Period ended December 31, 2020
The following services are enabled through the SPS Commerce cloud-based Platform:
•
•
•
Fulfillment. The Fulfillment solution provides fulfillment automation and replaces or augments an
organization’s existing staff and trading partner electronic communication infrastructure by enabling
easy compliance with retailers’ rulebooks, automatic, digital exchange of information among numerous
trading partners through various protocols, and greater visibility into the journey of an order.
Analytics. The Analytics solution consists of data analytics applications that enable our customers to
improve their visibility across their supply chains through greater analytics capabilities. When focused
on point-of-sale data, for example, retailers and suppliers can ensure inventory is located where demand
is highest. Additionally, retailers improve their visibility into supplier performance and their
understanding of product sell-through.
Other Solutions. We provide several peripheral solutions, such as our assortment solution (which
enables accurate order management and rapid fulfillment) and our community solution (which
accelerates vendor onboarding and ensures trading partner adoption of new supply chain requirements).
Our Customer and Sales Sources
As one of the largest providers of cloud services for retail supply chain management, the trading partner
relationships that we enable among our retailer, supplier, grocer, distributor, and logistics customers naturally lead to
new customer acquisition opportunities.
“Network Effect”
Once connected to our network, trading partners can exchange electronic supply chain information with each
other. The value of our network increases with the number of trading partners connected to it. 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. Additionally, through our Sourcing solution, our community now
has a social network focused on facilitating connections and business interactions among retailers and suppliers.
This “network effect” of adding additional customers to our solutions’ infrastructure creates a significant
opportunity for existing customers to realize incremental sales by working with our new trading partners and vice
versa. As a result of this increased volume of activity among our network participants, we earn additional revenues
from these participants.
Business Development Efforts.
Our business development organization is tasked with finding new sources of revenue and the development of
new business opportunities through channel partners and other areas that present an opportunity for growth.
Customer Acquisition Sources
Community. As retailers and suppliers reshape how they do business in an omnichannel landscape, they need
to bring new capabilities and services to their trading partner networks. For instance, a supplier may wish to
collaborate with their retailers around point-of-sale analytics data, or a retailer may decide to change the workflow
or protocol by which it interacts with its suppliers. In each case, the supplier and retailer may engage us to work with
its trading partner base to enable the new capability. Performing these programs on behalf of retailers and suppliers
often generates supplier sales leads for us.
Referrals from Our Customers. We also receive sales leads from our customers seeking to communicate
electronically with their trading partners. For example, a supplier may refer its third-party logistics provider or
manufacturer, which is not in our network, to us.
Direct Marketing. We employ various marketing strategies. Our marketing program include a variety of lead
generating activities including digital marketing, advertising, conferences and tradeshows, events, and public
relations activities targeted at key decision makers within our prospective customers.
SPS COMMERCE, INC.
5
Form 10-K for the Annual Period ended December 31, 2020
Channel Partners. In addition to the customer acquisition sources identified above, we market and sell our
solutions through a variety of channel partners, including software providers, resellers, system integrators, and
logistics partners. For example, software partners such as Microsoft, NetSuite, Oracle, SAP, Sage, and their business
partner communities generate sales for us as part of broader enterprise resource planning, warehouse management
system and/or transportation management system sales efforts. Our logistics partners also drive new sales both by
providing leads and by embedding our solutions as part of their service offerings.
Our Sales Force
We sell our solutions through a global sales force which is organized as follows:
•
•
•
Retailer Sales. We employ a team of sales representatives who focus on selling our cloud services suite
to retailers and distributors.
Supplier Sales. We employ a team of supplier sales representatives focused on selling our cloud
services suite to suppliers.
Other. We employ a team of sales representatives targeting a broad range of potential customer types
such as those in logistics, distribution, ecommerce, and other areas.
Our Growth Strategy
Our objective is to be the leading global provider of supply chain management solutions. Key elements of our
strategy include:
•
•
•
•
•
•
Further Penetrate Our Current Market. We believe the global supply chain management market is
underpenetrated and, as the retail industry continues to respond to the changing requirements of the
omnichannel marketplace, and as the supply chain ecosystem becomes more complex and
geographically dispersed, the demand for supply chain management solutions will increase, especially
among small- and medium-sized businesses. We intend to continue leveraging our relationships with
customers and their trading partners to obtain new sales leads.
Increase Revenues from Our Customer Base. We believe our overall customer satisfaction is strong
and will lead our customers to further expand their use of the solutions they have purchased, as well as
purchase additional services to continue improving the performance of their trading partner
relationships, generating additional revenues for us. We also expect to introduce new solutions to sell to
our customers. We believe our position as the incumbent supply chain management solution provider to
our customers, our integration into our recurring revenue customers’ business systems, and the modular
nature of our cloud-based Platform are conducive to deploying additional solutions with customers.
Expand Our Distribution Channels. We intend to grow our business by expanding our sales capacity to
gain new customers. We also believe there are valuable opportunities to promote and sell our solutions
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 intend to leverage our current global presence to increase the
number of integrations we have with retailers in foreign markets to make our solutions more valuable to
their trading partners based overseas.
Enhance and Expand Our Services. We intend to further improve and develop the functionality and
features of our cloud-based Platform, including, from time to time, developing new solutions and
applications.
Selectively Pursue Strategic Acquisitions. The fragmented nature of our market provides an
opportunity for selective acquisitions. We plan 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 2020, we acquired D
Masons Software, LLC (“Data Masons”), a leading provider of electronic data interchange (“EDI”)
SPS COMMERCE, INC.
6
Form 10-K for the Annual Period ended December 31, 2020
solutions for the Microsoft Dynamics market. This acquisition further extended the power of our
network.
Technology, Development and Operations
Technology
SPS Commerce was an early provider of cloud services to the retail supply chain management industry,
launching the first version of what would become our current services in 1997. We use commercially available
hardware and cloud services with a combination of proprietary and commercially available software.
Our cloud service model treats all customers as logically separate tenants within a shared virtual
infrastructure. As a result, we spread the cost of delivering our solutions across our customer base. Because we do
not manage thousands of distinct applications with their own business logic and database schemes, we believe that
we can scale our business faster than traditional software vendors, even those that modified their products to be
accessible over the Internet.
Development
Our research and development efforts focus on maintaining, improving, and enhancing our existing solutions,
as well as developing new solutions and applications. Our multi-tenant solutions serve all of our customers, which
allows us to maintain relatively low research and development expenses and release software updates more
frequently compared to traditional on-premise licensed software solutions that support multiple versions. Our
development efforts take place at our 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 in Minnesota, New Jersey, Texas, Florida, and
Melbourne, Australia, as well as provisioned services in cloud providers. In most cases, infrastructure and services
are managed by us.
We have internal and third-party monitoring software that continually checks our cloud-based Platform and
key underlying components for continuous availability and performance, helping ensure that the network is always
available and providing desired service levels. We have a technology engineering team that includes system
provisioning, management, maintenance, monitoring, and back-up.
We operate a service architecture using industry best practices to ensure multiple points of redundancy, high
availability, and scale as needed. Our databases are replicated between locations with a defined recovery point
objective.
Our Customers
As of December 31, 2020, we had approximately 33,000 recurring revenue customers and approximately
95,000 total customers. Our primary source of revenue is from small- to mid-sized suppliers. We also generate
revenues from other members of the supply chain ecosystem, including retailers, distributors, third-party logistics
providers, and other trading partners. 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, 2020, 2019, and 2018.
SPS COMMERCE, INC.
7
Form 10-K for the Annual Period ended December 31, 2020
Competition
Vendors in the supply chain management industry offer solutions through three delivery methods: traditional
on-premise software, cloud-based managed services, and cloud-based full-service solutions.
The market for cloud-based supply chain management solutions is fragmented and rapidly evolving. Cloud
service vendors compete directly with each other based mainly on the following:
•
•
•
•
•
•
•
•
•
the breadth of pre-built connections to retailers, third-party logistics providers, and other trading
partners;
a history of establishing and maintaining reliable connections with trading partners;
a reputation of the cloud service vendor in the supply chain management industry;
price;
specialization in a customer market segment;
speed and quality with which the cloud service vendor can integrate its customers to their trading
partners;
functionality of the cloud service solution, such as the ability to integrate the solution with a customer’s
business systems;
breadth of complementary supply chain management solutions the cloud service vendor offers; and
training and customer support services provided during and after a customer’s initial integration.
We expect to encounter new and increased competition as this market segment consolidates and matures.
Consolidation among cloud service vendors could create a direct competitor that can compete with us more
effectively than the numerous, smaller vendors currently offering cloud service supply chain management solutions.
Increased competition from cloud service vendors could reduce our market share, revenues, and operating margins
or otherwise adversely affect our business.
Cloud service vendors also compete with traditional on-premise software companies. Traditional on-premise
software companies focused on supply chain integration management include IBM Sterling Commerce 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. 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 solutions that allow multiple customers to share information maps with a
retailer.
Managed service providers focused on the supply chain management market include IBM Sterling Commerce,
OpenText, TrueCommerce/B2B Gateway, DiCentral, and many other small providers. These companies offer a
cloud-based solution 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 solutions that customize,
optimize, and operate the technology. This approach offloads the time-intensive process of managing these
solutions, which is not a core competency for most businesses.
Customers of traditional on-premise software providers must typically make significant upfront investments in
the supply chain management solutions these competitors provide, which can decrease the customers’ willingness to
abandon their investments in favor of a cloud service solution. Cloud service vendors compete with these traditional
software solutions based on the total cost of ownership and flexibility.
Intellectual Property and Proprietary Content
SPS Commerce relies on a combination of copyright, trademark, and trade secret laws as well as
confidentiality procedures and contractual provisions to protect our proprietary technology and our brand. We enter
SPS COMMERCE, INC.
8
Form 10-K for the Annual Period ended December 31, 2020
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.
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 do not have any patents, but we have
pending patent applications. Our trade secrets consist primarily of the software we have developed for our SPS
Commerce cloud-based Platform and network. Our software is also protected under copyright law, but we do not
have any registered copyrights.
Human Capital
As of December 31, 2020, we had 1,572 employees, including 737 in cost of revenues based functional areas,
417 in sales and marketing, 281 in research and development and 137 in general and administrative functions. We
also employ independent contractors to support our operations. None of our employees are represented by a labor
union.
We believe our employees have and will continue to be a primary reason for our growth and success. We offer
competitive benefits as well as training, development, review, and feedback programs to develop employees’
expertise and skillsets, as well as strive to provide a safe, harassment-free work environment guided by principles of
fair and equal treatment and prioritize employee engagement. As a result, we believe our employees are committed
to building strong, innovative, and long-term relationships with each other and our organization in order to succeed
together and with our customers. We offer our employees pay and benefits packages, which we believe are
competitive with others throughout our industry, as well as within the local markets in which we operate, and aligns
individual performance with our success. The health of our employees is also very important to us. In response to
the threats of the COVID-19 pandemic, we have, where possible, offered remote work flexibility beginning in
March 2020 which has continued through December 2020, without significant impacts to productivity.
Company Information
We were originally incorporated as St. Paul Software, Inc., a Minnesota corporation, on January 28, 1987. On
May 30, 2001, we reincorporated in Delaware under our current name, SPS Commerce, Inc. Our principal executive
offices are located at 333 South Seventh Street, Suite 1000, Minneapolis, Minnesota 55402, and our telephone
number is (612) 435-9400. Our website address is www.spscommerce.com. Information on our website does not
constitute part of this Annual Report on Form 10-K or any other report we file or furnish with the SEC. We provide
free access to various reports that we file with or furnish to the SEC through our website as soon as reasonably
practicable after they have been filed or furnished. These reports include, but are not limited to, our Annual Reports
on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to these
reports. Our SEC reports can be accessed through the investor relations section of our website or through the SEC’s
website at www.sec.gov. Stockholders may also request copies of these documents from:
SPS Commerce, Inc.
Attention: Investor Relations
333 South Seventh Street
Suite 1000
Minneapolis, MN 55402
SPS COMMERCE, INC.
9
Form 10-K for the Annual Period ended December 31, 2020
Information About our Executive Officers
Set forth below are the names, ages and titles of the persons serving as our executive officers.
Name
Archie C. Black
Kimberly K. Nelson
James J. Frome
Age
58
53
56
Position
Chief Executive Officer and President
Executive Vice President and Chief Financial Officer
Executive Vice President and Chief Operating Officer
Archie C. Black has served as our President and Chief Executive Officer and a director since 2001.
Previously, Mr. Black served as our Senior Vice President and Chief Financial Officer from 1998 to 2001. Prior to
joining us, Mr. Black was a Senior Vice President and Chief Financial Officer at Investment Advisors, Inc. in
Minneapolis, Minnesota and also spent three years at Price Waterhouse.
Kimberly K. Nelson has served as our Executive Vice President and Chief Financial Officer since 2007. Prior
to joining us, Ms. Nelson served as the Finance Director, Investor Relations for Amazon.com from 2005 through
2007 and as the Finance Director, Worldwide Application for Amazon.com’s Technology group from 2003 until
2005. Ms. Nelson also served as Amazon.com’s Finance Director, Financial Planning and Analysis from 2000 until
2003.
James J. Frome has served as our Executive Vice President and Chief Operating Officer since 2012.
Previously, Mr. Frome served as our Executive Vice President and Chief Strategy Officer from 2001 to 2012 and as
our Vice President of Marketing from 2000 to 2001. Prior to joining us, Mr. Frome served as a Divisional Vice
President of Marketing at Sterling Software, Inc. from 1999 to 2000 and as a Senior Product Manager and Director
of Product Management at Information Advantage, Inc. from 1993 to 1999.
SPS COMMERCE, INC.
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Form 10-K for the Annual Period ended December 31, 2020
Item 1A. Risk Factors
Set forth below and elsewhere in this Annual Report on Form 10-K, and in other documents we file with the
SEC, are risks and uncertainties that could cause our actual results to differ materially from the results
contemplated by the forward-looking statements contained in this Annual Report on Form 10-K and in other written
and oral communications from time to time. You should carefully consider all of the following risks and the other
information in this Report and our other filings with the SEC before you decide to invest in our Company or to
maintain or increase your investment. Our business could be harmed by any of these risks. 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 financial statements and related notes.
The risks included in this section are not the only ones we face. We operate in a very competitive and rapidly
changing environment. New risk factors emerge from time-to-time, and it is not possible for management to predict
all such risk factors, nor can it assess the potential impact of all such risk factors on our business or the extent to
which any factor, or combination of factors, may cause actual results to differ materially from those in any forward-
looking statements. If any of the following risks actually occur, our business, results of operations, financial
condition and future prospects would likely suffer. In that case, the trading price of our common stock could decline,
and you may lose all or part of your investment.
Our Business
If we are unable to attract new customers, or sell additional solutions to existing customers, or if our
customers do not increase their use of our solutions, our revenue growth and profitability will be adversely
affected.
To increase our revenues and achieve and maintain profitability, we believe that we must regularly add new
customers, sell additional solutions to existing customers, and our customers must increase their use of the solutions
for which they currently subscribe. We intend to grow our business by retaining and attracting talent, developing
strategic relationships with resellers, including resellers that incorporate our applications in their offerings, and
increasing our marketing activities. If we are unable to hire or retain quality personnel, convert companies that have
been referred to us by our existing network into paying customers, ensure the effectiveness of our marketing
programs, or if our existing or new customers do not perceive our solutions to be of sufficiently high value and
quality, we might not be able to increase sales and our operating results will be adversely affected. If we fail to sell
our solutions to existing or new customers, we will not generate anticipated revenues from these solutions, our
operating results will suffer, and we might be unable to grow our revenues or maintain profitability.
We do not have long-term contracts with most of our recurring revenue customers, and therefore a lack of
success in maintaining or improving forecasted renewal rates will have adverse effects on revenue and
financial results.
Our contracts with our recurring revenue customers typically allow the customer to cancel the contract for any
reason with 30 to 90 days’ notice. Our continued success therefore depends significantly on our ability to meet or
exceed our recurring revenue customers’ expectations because most recurring revenue customers do not make long-
term commitments to use our solutions. In addition, if our reputation in the supply chain management industry is
harmed or diminished for any reason, our recurring revenue customers have the ability to terminate their relationship
with us on short notice and seek alternative supply chain management solutions. We may also not be able to
accurately predict future trends in customer renewals, and our customers’ renewal rates may decline or fluctuate
because of several factors, including their dissatisfaction with our services, the cost of our services compared to the
cost of services offered by our competitors and reductions in our customers’ spending levels. 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.
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. We have experienced, and may experience in the future, reduced spending
SPS COMMERCE, INC.
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Form 10-K for the Annual Period ended December 31, 2020
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. In addition, economic conditions or uncertainty
may cause customers and potential customers to reduce or delay technology purchases, including purchases of our
solutions. Our sales cycle may lengthen if purchasing decisions are delayed as a result of uncertain information
technology or development budgets or contract negotiations become more protracted or difficult as customers
institute additional internal approvals for information technology purchases. Delays or reductions in information
technology spending could have a material adverse effect on demand for our solutions, and consequently our results
of operations and prospects.
Our continued growth could 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. 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. 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.
If we fail to attract, retain, and train members of our senior management team, including our Chief Executive
Officer and other key personnel, our business plan would be impacted, and we might not be able to
implement our plan successfully.
Given the complex nature of the cloud-based technology through which our business operates and the speed
with which such technology advances, our future success is dependent, in large part, upon our ability to attract,
retain and train highly qualified executive, managerial, engineering and sales personnel. Competition for talented
personnel is intense, and we cannot be certain that we can retain our key personnel or that we can attract, assimilate,
or retain such personnel in the future. Additionally, the loss of any key or a significant number of personnel in our
engineering, project management, or sales teams might significantly delay or prevent the achievement of our
business objectives and could materially harm our business, customer relationships, results of operations and
financial condition.
The market for cloud-based supply chain management solutions is at a relatively early stage of development.
If this market does not develop or develops more slowly than we expect, our revenues may decline or fail to
grow and we may incur operating losses.
We derive, and expect to continue to derive, substantially all of our revenues from providing cloud-based
supply chain management solutions to suppliers, retailers, distributors, and logistics firms. The market for these
solutions is in a relatively early stage of development, and it is uncertain whether these solutions will achieve and
sustain high levels of demand and market acceptance. Our success will depend on the willingness of retailers and
their trading partners to accept our solutions as an alternative to traditional licensed hardware and software solutions.
Some suppliers, retailers, distributors, or logistics firms may be reluctant or unwilling to use our cloud-based
solutions for a number of reasons, including their potential significant initial investment to replace existing
investments in supply chain management hardware and licensed software and perceived loss of control over user
data with a cloud-based solution. Other factors that may limit market acceptance of our cloud-based supply chain
management solutions include:
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our ability to maintain high levels of customer satisfaction;
our ability to maintain continuity of service for all users of our cloud-based Platform;
SPS COMMERCE, INC.
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Form 10-K for the Annual Period ended December 31, 2020
•
•
the price, performance, and availability of competing solutions; and
our ability to address suppliers’ confidentiality concerns about information stored within our cloud-
based solutions.
If retailers and their trading partners do not perceive the benefits of our cloud-based supply chain management
solutions, or if retailers and their trading partners are unwilling to accept our cloud-based Platform as an alternative
to the traditional approach, demand for our solutions may not continue to develop or may develop more slowly than
we expect, either of which would significantly adversely affect our revenues and growth prospects.
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 solutions 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.
We face competition from:
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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 information
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. 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
acquisitions, partnerships, or strategic relationships. Any such consolidation, acquisition, alliance or cooperative
relationship could lead to pricing pressure, loss of customers and our loss of market share and could result in a
competitor with greater financial, technical, marketing, service and other resources, all of which could have a
material adverse effect on our business, operating results and financial condition. Increased competition could
reduce our market share, revenues, and operating margins, increase our costs of operations, and otherwise adversely
affect our business.
To remain competitive, we will need to invest continuously in software development, marketing, customer
service and support, product delivery and other cloud-based Platform infrastructure. However, we cannot assure you
that new or established competitors will not offer solutions that are superior to or lower in price than ours or both.
We may not have sufficient resources to continue the investments in all areas of software development, marketing,
customer service and support and infrastructure needed to maintain our competitive position which may diminish
our market share and business prospects.
We may pursue acquisitions and our potential inability to successfully integrate or otherwise operate newly
acquired companies or businesses could adversely affect our financial results.
Our growth plans include evaluations of potential acquisitions of other companies or their businesses. If such
evaluations lead to completed acquisitions, we face many risks commonly encountered with growth through
acquisitions. These risks include:
•
•
•
•
•
•
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;
SPS COMMERCE, INC.
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Form 10-K for the Annual Period ended December 31, 2020
•
•
•
•
becoming subject to adverse tax consequences, substantial depreciation, or deferred compensation
charges;
improper compliance with laws and regulations and exposure to other contingent liabilities;
failing to maintain uniform standards, controls, and policies; and
impairing relationships with employees and customers as a result of changes in management.
Fully integrating an acquired company or business into our operations may take a significant amount of time.
In addition, we may only be able to conduct limited due diligence on an acquired company’s 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. We cannot assure you that we will be
successful in overcoming these risks or any other problems encountered with acquisitions. To the extent we do not
successfully avoid or overcome the risks or problems related to any acquisitions, our results of operations and
financial condition could be adversely affected. Future acquisitions also could impact our financial position and
capital needs and could cause substantial fluctuations in our quarterly and yearly results of operations. Acquisitions
could include significant goodwill and intangible assets, which may result in future impairment charges that would
reduce our stated earnings.
Because our long-term success depends, in part, on our ability to expand the sales of our solutions to
customers located outside of the United States and expand operations to support such expansion, our business
will be susceptible to risks associated with international operations.
Our limited experience in operating our business outside of the United States increases the risk that our current
and any future international expansion efforts will not be successful. 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;
unexpected changes in foreign regulatory requirements;
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 solutions, including translation into foreign languages and associated expenses;
the burdens of complying with a wide variety of foreign laws and different legal standards, including
laws and regulations related to privacy;
increased financial accounting and reporting burdens and complexities;
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.
The occurrence of any one of these risks could negatively affect our international business and, consequently,
our results of operations generally. Additionally, operating in international markets also requires significant
management attention and financial resources. We cannot be certain that the investment and additional resources
required in establishing, acquiring, or integrating operations in other countries will produce desired levels of
revenues or profitability.
SPS COMMERCE, INC.
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Form 10-K for the Annual Period ended December 31, 2020
In addition, we operate in parts of the world, such as Ukraine, that are recognized as having governmental
corruption problems and where local customs and practices may not foster strict compliance with anti-corruption
laws. Our continued operation and potential expansion outside the U.S. could increase the risk of such violations in
the future. Despite our training and compliance programs, we cannot assure you that our internal control policies and
procedures will protect us from unauthorized, reckless, or criminal acts committed by our employees or agents,
including by third parties we utilize in foreign jurisdictions. In the event that we believe, or have reason to believe,
that our employees or agents have or may have violated applicable anti-corruption laws, including the U.S. Foreign
Corrupt Practices Act, we may be required to investigate or have outside counsel investigate the relevant facts and
circumstances, which can be expensive and require significant time and attention from senior management.
Violations of these laws may result in severe civil and criminal sanctions and penalties, which could disrupt our
business and have a material adverse effect on our reputation, results of operations or financial condition.
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. An alternative workforce location may be more
expensive to train, staff, and operate and may cause delays and shortfalls in programming deliverables and services,
thus potentially harming our business.
Products and Service Offerings
Any new solutions and changes to existing solutions we pursue could fail to attract or retain customers or
generate expected revenues.
Our ability to retain, increase and engage our customers and to increase our revenues depends heavily on our
ability to identify, develop, and launch successful new solutions. We may introduce significant changes to our
existing solutions or develop and introduce new and unproven solutions which include or use technologies with
which we have little or no prior development or operating experience. If new or enhanced solutions fail to garner
expected customer demand in a timely manner or at all, we may fail to generate sufficient revenues, operating
margin, or other value to justify our investments and our business may be adversely affected.
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.
Our reputation and ability to attract, retain and serve our customers is dependent upon the reliable
performance of our cloud-based Platform and our underlying technical infrastructure and cloud providers. As our
user base and the amount and types of information shared on our cloud-based Platform continue to grow, we will
need an increasing amount of technical infrastructure, including network capacity and computing power, to continue
to satisfy the needs of our users. It is possible that we or our cloud providers may fail to effectively maintain and
scale our technical infrastructure to accommodate these increased demands. Any failure to effectively maintain and
grow our technical infrastructure could result in interruptions or delays in service which may damage our reputation,
result in a potential loss of customers, and adversely affect our financial results.
Our inability to adapt to rapid technological change could impair our ability to remain competitive.
The industry in which we compete is characterized by rapid technological change, frequent introductions of
new products and evolving industry standards. Existing products can become obsolete and unmarketable when
vendors introduce products utilizing new technologies or new industry standards emerge, and as a result, it is
difficult for us to predict the life cycles of our products. Our ability to attract new customers and increase revenues
from customers will depend in significant part on our ability to anticipate technological changes, and the
corresponding impact on customer needs, evolving requirements, and future industry standards, and to continue to
enhance our existing solutions or introduce or acquire new solutions to keep pace with such technological
developments. The success of our enhanced or new solutions depend on several factors, including the timely
completion, introduction and market acceptance of the enhancement or solution. Any new solution we develop or
acquire might not be introduced in a timely or cost-effective manner and might not achieve the broad market
acceptance necessary to generate expected revenues. If any of our competitors or new market entrants implement
new technologies or upgrades to existing technologies before we are able to implement them, they may be able to
SPS COMMERCE, INC.
15
Form 10-K for the Annual Period ended December 31, 2020
provide more effective solutions than ours at lower prices. Any delay or failure in the introduction of new or
enhanced solutions could adversely affect our business, results of operations and financial condition.
We rely on third party infrastructure, software and services that could take a significant time, and involve a
complex transition, to replace or upgrade.
We rely on infrastructure, software and services licensed from third parties to offer our cloud-based supply
chain management solutions. This infrastructure, software, and services, as well as related maintenance and updates,
may not continue to be available to us on commercially reasonable terms, or at all. If we lose the right to use or
upgrade any of these licenses, our customers could experience delays or be unable to access our solutions until we
can obtain and integrate equivalent technology. There might not always be commercially reasonable alternatives to
the third-party infrastructure, software, and services that we currently license. Any such alternatives could be more
difficult or costly to replace than what we currently license, and integration of the alternatives into our cloud-based
Platform could require significant work and resources and delays. Any delays or failures associated with our cloud-
based Platform could injure our reputation with current and potential customers and have an adverse effect on our
business.
Interruptions or delays from third-party data centers or to the telecommunications infrastructure we use or
rely on could impair the delivery of our solutions and our business could suffer.
We use third-party data centers, located in the U.S. and internationally, as well as provision services from
cloud providers, to conduct our operations. Our ability to deliver our services depends on the development and
maintenance of telecommunications infrastructure by third parties. This includes maintenance of a reliable network
backbone with the necessary speed, data capacity, bandwidth capacity, and security. Our operations depend on the
protection of the equipment and information we store in these third-party centers, or utilize from third-party
providers, against damage or service interruptions that may be caused by fire, flood, severe storm, power loss,
telecommunications failures, natural disasters, war, criminal act, military action, terrorist attack, financial failure of
the service provider, and other events beyond our control. In addition, third party malfeasance, such as intentional
misconduct by computer hackers, unauthorized intrusions, computer viruses, ransomware, or denial of service
attacks, may also cause substantial service disruptions. A prolonged service disruption affecting our solutions could
damage our reputation with potential customers, cause us to lose existing customers, expose us to liability, or
otherwise adversely affect our business. We may also incur significant costs for using alternative equipment or
taking other actions in preparation for, or in reaction to, events that damage the data centers or infrastructure we use
or rely on, including the additional expense of transitioning to substitute facilities or service providers.
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.
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 electronic threats have become more prevalent in our industry. 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 particularly attractive target for such attacks.
Our business involves the collection and use of confidential information of our customers and their trading
partners which sometimes requires our direct access to our customers’ information systems. Our security measures
may be breached as a result of third-party action, including intentional misconduct by computer hackers via cyber-
attacks, employee error, malfeasance, system errors or vulnerabilities, including vulnerabilities of our third-party
vendors, customers, or otherwise and result in someone obtaining unauthorized access to our customers’ information
and information systems. Additionally, third parties may attempt to fraudulently induce employees or customers into
disclosing sensitive information such as usernames, passwords, or other information in order to gain access to our
customers’ data or our data or IT systems. Because the techniques used to obtain unauthorized access, or to sabotage
systems, change frequently and generally are not recognized until launched against a target, we may be unable to
anticipate these techniques or to implement adequate preventative measures. Malicious third parties may also
conduct attacks designed to temporarily deny customers access to our services.
SPS COMMERCE, INC.
16
Form 10-K for the Annual Period ended December 31, 2020
Any failure to maintain performance, reliability, security and availability of our cloud-based Platform and
solutions to the satisfaction of our customers, or any unauthorized access to our customers’ information or systems
is caused by our solutions or cloud-based Platform, may cause service disruptions, harm our reputation, impair our
ability to retain existing customers and attract new customers and expose us to legal claims and government action,
each of which could have a material adverse impact on our financial condition, results of operations and growth
prospects. Although we are allocating more resources to address cyber threats and safeguard our solutions and
services, we cannot assure you that these efforts to protect this confidential information and authorized access to
such information systems will be successful. In addition, because of the critical nature of information security and
system access, any actual or perceived failure of our security measures could cause existing or potential customers
not to use our solutions and harm our reputation.
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. Furthermore,
many U.S. states and international jurisdictions have enacted laws requiring companies to notify consumers of data
security breaches involving their personal data. These mandatory disclosures regarding a data security breach often
lead to widespread negative publicity, which may cause our customers to lose confidence in our solutions and the
effectiveness of our data security measures.
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 solutions, any of which could
adversely affect our business.
Technology solutions like ours may contain undetected defects in the hardware, software, infrastructure, third
party components or processes that are part of the solutions we provide. If these defects lead to service failures, we
could experience delays or lost revenues, diversion of software engineering resources, negative media attention or
increased service costs as a result of performance claims during the period required to correct the cause of the
defects. We cannot be certain that defects will be avoided in our upgraded or new solutions, resulting in loss of, or
delay in, market acceptance, which could have an adverse effect on our business, results of operations and financial
condition.
Because customers use our cloud-based supply chain management solutions for critical business processes,
any defect in our solutions, any disruption to our solutions or any error in execution could cause recurring revenue
customers to cancel their contracts with us, cause potential customers to not join our network and harm our
reputation. We could also be subject to litigation for actual or alleged losses to our customers’ businesses, which
may require us to spend significant time and money in litigation or arbitration or to pay significant settlements or
damages. We do not currently maintain any warranty reserves. Moreover, defending a lawsuit, regardless of its
merit, could be costly and divert management’s attention and could cause our business to suffer.
The insurers under our existing liability insurance policy could deny coverage of a future claim that results
from an error or defect in our technology or a resulting disruption in our solutions, or our existing liability insurance
might not be adequate to cover any or all of the damages and other costs of such a claim. Moreover, we cannot
assure you that our current liability insurance coverage will continue to be available to us on acceptable terms or at
all. The successful assertion against us of one or more large claims that exceeds, or is not insured against by, our
insurance coverage, or the occurrence of changes in our liability insurance policy, including an increase in premiums
or imposition of large deductible or co-insurance requirements, could have an adverse effect on our business,
financial condition and operating results.
If open source, or other no-cost products and services, expand into enterprise application and supply chain
software or solutions, our prices, revenues, and operating results may decline.
The open source community is comprised of many different formal and informal groups of software
developers and individuals who have created a wide variety of software and have made that software available for
use, distribution, and modification, often free of charge. If developers contribute effective and scalable enterprise
and supply chain application software to the open source community, or if competitors make such software or
service available at no cost, we may need to lower our product pricing and alter our distribution strategy to compete
successfully, and our revenues and operating results may decline as a result.
SPS COMMERCE, INC.
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Form 10-K for the Annual Period ended December 31, 2020
The use of open source software in our products may expose us to additional risks and harm our intellectual
property.
Some of our products use or incorporate software that is subject to one or more open source licenses. Open
source software is typically licensed under terms that require making the software freely accessible, usable, and
modifiable. Failure to comply with these licenses may subject us to onerous requirements, such as offering our
solutions that incorporate the open source software for no cost or making the source code we create based upon,
incorporating, or using the open source software available for modifications or derivative works. If an author or third
party that distributes such open source software were to allege that we had not complied with the conditions of one
or more of these licenses, we could be required to incur significant legal expenses defending against such allegations
and could be subject to significant damages, enjoined from the sale of our services that contained the open source
software and required to comply with the foregoing conditions, which could disrupt the distribution and sale of some
of our services.
While we monitor the use of a majority 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 solution, such use could inadvertently occur. Additionally, if a third-party software provider has
incorporated certain types of open source software into software we license from such third party for our products
and solutions, we could, under certain circumstances, be required to disclose the source code to our products and
solutions. 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. 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 issued patents or registered copyrights. Despite our efforts to protect
our proprietary rights, unauthorized parties may attempt to copy or reverse engineer aspects of our technology or to
obtain and use information that we regard as proprietary. We cannot assure you that our means of protecting our
proprietary rights will be adequate or that our competitors will not independently develop similar or superior
technology or design around our intellectual property. In addition, the laws of some foreign countries do not protect
our proprietary rights to the same extent as the laws of the U.S. Intellectual property protections may also be
unavailable, limited or difficult to enforce in some countries, which could make it easier for competitors to capture
market share. Our failure to protect adequately our intellectual property and proprietary rights could adversely affect
our business, financial condition, and results of operations.
In addition, if we resort to legal proceedings to enforce our intellectual property rights or to determine the
validity and scope of the intellectual property or other proprietary rights of others, the proceedings could be
burdensome and expensive, even if we were to prevail. Any such legal proceedings, including litigation, that are
pursued in the future could result in substantial costs and diversion of resources and could have a material adverse
effect on our business, operating results, or financial condition, regardless of whether we prevail in such
proceedings.
An assertion by a third party that we are infringing its intellectual property, whether or not correct, could
subject us to costly and time-consuming litigation or expensive licenses and our business might be materially
harmed.
The supply chain management industry and its enabling technologies are characterized by the existence of a
large number of patents, copyrights, trademarks, and trade secrets and by frequent litigation based on allegations of
infringement or other violations of intellectual property rights. As we seek to extend our solutions, we could be
constrained by the intellectual property rights of others.
SPS COMMERCE, INC.
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Form 10-K for the Annual Period ended December 31, 2020
We might not prevail in any intellectual property infringement litigation given, among other reasons, the
complex technical issues and inherent uncertainties in such litigation. Moreover, defending such claims, regardless
of their merit, could be time-consuming and distracting to management, result in costly litigation or settlement,
cause development delays, require us to enter into royalty or licensing agreements or require us to redesign our
solutions to avoid infringement. If our solutions violate any third-party proprietary rights, we could be required to
withdraw those solutions from the market, re-develop those solutions or seek to obtain licenses from third parties,
which might not be available on reasonable terms or at all. Any efforts to re-develop our solutions, obtain licenses
from third parties on favorable terms or license a substitute technology might be unsuccessful and, in any case,
might substantially increase our costs and harm our business, financial condition and operating results. We also face
risk of infringement or misappropriation claims if we hire an employee or contractor who possesses third party
proprietary information and who decides to use such information in connection with our solutions, services, or
business processes without such third party’s authorization. Regardless of the source of such misuse of third-party
intellectual property, any resulting withdrawal of our solutions from the market might materially harm our business,
financial condition, and operating results.
In addition, we incorporate open source software into our cloud-based Platform. Given the nature of open
source software, third parties might assert copyright and other intellectual property infringement claims against us
based on our use of certain open source software programs. The terms of many open source licenses to which we are
subject have not been interpreted by U.S. or foreign courts, and there is a risk that those licenses could be construed
in a manner that imposes unanticipated conditions or restrictions on our ability to commercialize our solutions. In
that event, we could be required to seek licenses from third parties in order to continue offering our solutions, to re-
develop our solutions or to discontinue sales of our solutions, or to release our proprietary software code under the
terms of an open source license, any of which could have a material adverse effect on our business.
Regulation
Privacy concerns and laws, evolving regulation of cloud computing, cross-border data transfer restrictions
and other domestic or foreign regulations may limit the use and adoption of our solutions and adversely
affect our business.
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 data privacy and the collection, processing,
storage and use of personal information. In some cases, foreign data privacy laws and regulations, such as the
European Union’s General Data Protection Regulation, also governs the processing of personal information. Further,
laws are increasingly aimed at the use of personal information for marketing purposes, such as the European
Union’s e-Privacy Directive, and the country-specific regulations that implement that directive. Such laws and
regulations are subject to differing interpretations and are inconsistent among jurisdictions. These and other
requirements could reduce demand for our solutions or restrict our ability to store and process data or, in some cases,
impact our ability to offer our services and solutions in certain locations.
In addition to government activity, privacy advocacy and other industry groups have established or may
establish new self-regulatory standards that may place additional burdens on us. Our customers may expect us to
meet voluntary certification or other standards established by third parties. If we are unable to maintain these
certifications or meet these standards, it could adversely affect our ability to provide our solutions to certain
customers and could harm our business.
The costs of compliance with and other burdens imposed by laws, regulations and standards are significant
and may limit the use and adoption of our services and reduce overall demand for them, or lead to material fines,
penalties, or liabilities for noncompliance.
Furthermore, concerns regarding data privacy may cause our customers’ customers to resist providing the data
necessary to allow our customers to use our service effectively. Even the perception that the privacy of personal
information is not satisfactorily protected or does not meet regulatory requirements could inhibit sales and adoption
of our cloud-based solutions.
Evolving regulation of the internet may increase our expenditures related to compliance efforts, which may
adversely affect our financial condition.
As e-commerce continues to evolve, increasing regulation by federal, state, or foreign agencies becomes more
likely. We are particularly sensitive to these risks because the internet is a critical component of our cloud-based
SPS COMMERCE, INC.
19
Form 10-K for the Annual Period ended December 31, 2020
business model. In addition, taxation of services provided over the internet or other charges imposed by government
agencies or by private organizations for accessing the internet may adversely impact our business. Any regulation
imposing greater fees for internet use or restricting information exchange over the internet could result in a
deceleration or decline in the use of the internet and the viability of internet-based services, which could materially
harm our business.
Industry-specific regulation is evolving, and unfavorable or burdensome industry-specific laws, regulations
or interpretive positions could harm our business.
Our customers and potential customers do business in a variety of industries. Regulators in certain industries
have adopted and may in the future adopt regulations or interpretive positions regarding the use of cloud computing
and other outsourced services. The costs of compliance with, and other burdens imposed by, industry-specific laws,
regulations and interpretive positions may limit customers’ use and adoption of our services and reduce overall
demand for our services. In addition, an inability to satisfy the standards of certain voluntary third-party certification
bodies that our customers may expect may have an adverse impact on our business. If in the future we are unable to
achieve or maintain these industry-specific certifications or other requirements or standards relevant to our
customers, it may harm our business.
In some cases, industry-specific laws, regulations, or interpretive positions may also apply directly to us as a
service provider. Any failure or perceived failure by us to comply with such requirements could have an adverse
impact on our business.
Ownership of Our Common Stock
Our results of operations may fluctuate in the future, which could result in volatility in our stock price.
Our quarterly revenues and results of operations have varied in the past and may fluctuate in the future.
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:
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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 solutions 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;
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, supporting new customers, performing research and development, or
introducing new solutions;
regulatory compliance costs and unforeseen legal expenses, including litigation and settlement costs;
the timing, size, and integration success of potential future acquisitions;
changes in the payment terms for our solutions; and
system or service failures, security breaches or network downtime.
Due to the foregoing factors, and other risks, including those identified in this “Risk Factors” section,
comparing our operating results on a period-to-period basis may not be meaningful. You should not rely on these
comparisons of our past results of operations as an indication of our future performance.
Our operating results in one or more future quarters may fluctuate, fall below the expectations of securities
analysts and investors, or be less than any guidance we may provide to the market. If this occurs, the trading price of
our common stock could decline significantly.
SPS COMMERCE, INC.
20
Form 10-K for the Annual Period ended December 31, 2020
Our stock price may be volatile.
Shares of our common stock were sold in our April 2010 initial public offering at a split adjusted price of
$6.00 per share, and through December 31, 2020, our common stock has traded as high as a split adjusted price of
$111.63 per share and as low as a split adjusted price of $4.23 per share. An active, liquid, and orderly market for
our common stock may not be sustained, which could depress the trading price of our common stock. Some of the
factors that may cause the market price of our common stock to fluctuate include:
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fluctuations in our guidance and quarterly financial results or the guidance or quarterly financial results
of companies perceived to be similar to us;
fluctuations in our recorded revenue, even during periods of significant sales order activity;
fluctuations in stock market volume;
changes in estimates of our financial results or recommendations by securities analysts;
failure of any of our solutions to achieve or maintain market acceptance;
changes in market valuations of companies perceived to be similar to us;
success of competitive products or services;
changes in our capital structure, such as future issuances of securities or the incurrence of debt;
announcements by us or our competitors of significant solutions, contracts, acquisitions, or strategic
alliances;
regulatory developments in the United States, foreign countries or both;
litigation involving our company, our general industry or both;
additions or departures of key personnel;
investors’ general perception of us; and
changes in general economic, industry and market conditions.
In addition, if the market for software or technology stocks or the stock market in general experiences a loss of
investor confidence, the trading price of our common stock could decline for reasons unrelated to our business,
financial condition, or results of operations. If any of the foregoing occurs, it could cause our stock price to fall and
may expose us to class action lawsuits that, even if unsuccessful, could be costly to defend and a distraction to
management.
Our charter documents and Delaware law may delay, discourage, or inhibit a takeover that stockholders
consider favorable.
Provisions of our certificate of incorporation and bylaws and applicable provisions of Delaware law may
delay, discourage, or inhibit transactions involving an actual or potential change in our control or change in our
management, including transactions in which stockholders might otherwise receive a premium for their shares, or
transactions that our stockholders might otherwise deem to be in their best interests, and may ultimately result in the
market price of our common stock being lower than it would be without these provisions. These provisions:
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permit our board of directors to issue up to 5,000,000 shares of preferred stock, with any rights,
preferences and privileges as our board may designate, including the right to approve an acquisition or
other change in our control;
provide that the authorized number of directors may be changed by resolution of the board of directors;
provide that all vacancies, including newly created directorships, may, except as otherwise required by
law, be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum;
SPS COMMERCE, INC.
21
Form 10-K for the Annual Period ended December 31, 2020
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provide that stockholders seeking to present proposals before a meeting of stockholders or to nominate
candidates for election as directors at a meeting of stockholders must provide notice in writing in a
timely manner, and also specify requirements as to the form and content of a stockholder’s notice; and
do not provide for cumulative voting rights.
In addition, Section 203 of the Delaware General Corporation Law generally limits our ability to engage in
any business combination with certain persons who own 15% or more of our outstanding voting stock or any of our
associates or affiliates who at any time in the past three years have owned 15% or more of our outstanding voting
stock. These provisions may have the effect of entrenching our management team and may deprive you of the
opportunity to sell your shares to potential acquirers at a premium over prevailing prices. This potential inability to
obtain a control premium could reduce the price of our common stock.
We do not intend to declare dividends on our stock in the foreseeable future.
We currently intend to retain all future earnings for the operation and expansion of our business and,
therefore, do not anticipate declaring or paying cash dividends on our common stock in the foreseeable future.
Investors may need to sell all or part of their holdings of our common stock after price appreciation, which may
never occur, as the only way to realize any future gains on their investment. Any payment of future cash dividends
on our common stock will be at the discretion of our board of directors and will depend upon our results of
operations, earnings, capital requirements, financial condition, future prospects, contractual restrictions and other
factors deemed relevant by our board of directors. Therefore, you should not expect to receive dividend income from
shares of our common stock.
General Risks
Our failure to raise additional capital or generate cash flows necessary to expand our operations and invest in
new technologies could reduce our ability to compete successfully and adversely affect our results of
operations.
We may need to raise additional capital due to shortfalls in cash flow or for other reasons, and we may not be
able to obtain debt or additional equity financing on favorable terms, if at all. If we raise additional equity financing,
our security holders may experience significant dilution of their ownership interests and the value of shares of our
common stock could decline. If we engage in debt financing, we may be required to accept terms that restrict our
ability to incur additional indebtedness, force us to maintain specified liquidity or other ratios or restrict our ability
to pay dividends or make acquisitions. If we need additional capital and cannot raise it on acceptable terms, we may
not be able to, among other things:
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develop and enhance our solutions;
continue to expand our technology development, sales and marketing organizations;
acquire complementary technologies, products, or businesses;
hire, train and retain employees; or
respond to competitive pressures or unanticipated working capital requirements.
Our inability to do any of the foregoing could reduce our ability to compete successfully and adversely affect
our results of operations.
SPS COMMERCE, INC.
22
Form 10-K for the Annual Period ended December 31, 2020
Unanticipated changes in effective tax rates or adverse outcomes resulting from examination of our income or
other tax returns could adversely affect our operating results and financial condition.
We are subject to income taxes in the U.S. and various foreign jurisdictions, and our domestic and
international tax liabilities will be subject to the allocation of expenses in differing jurisdictions. Our future effective
tax rates could be subject to volatility or adversely affected by a number of factors, including:
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changes in the valuation of our deferred tax assets and liabilities;
expected timing and amount of the release of tax valuation allowances;
expiration of, or detrimental changes in, research and development tax credit laws;
tax effects of stock-based compensation;
costs related to intercompany restructurings;
changes in tax laws, regulations, accounting principles or interpretations thereof; and
future earnings being lower than anticipated in countries where we have lower statutory tax rates and
higher than anticipated earnings in countries where we have higher statutory tax rates.
In addition, we are subject to audits of our income, sales, and other taxes by the Internal Revenue Service and
other foreign and state tax authorities. Outcomes from these audits could have an adverse effect on our operating
results and financial condition.
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.
Ensuring that we have internal financial and accounting controls and procedures adequate to produce accurate
financial statements on a timely basis is a costly and time-consuming effort that needs to be re-evaluated
periodically. The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal control over
financial reporting and disclosure controls and procedures. In particular, we are required to perform annual system
and process evaluation and testing of our internal control over financial reporting to allow management and our
independent registered public accounting firm to report on the effectiveness of our internal control over financial
reporting, as required by Section 404 of the Sarbanes-Oxley Act. 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. If we are not able to comply with the requirements of Section 404 in
the future, or if material weaknesses are identified, our business could be harmed and investor confidence in our
financial reporting diminished.
The extent to which the COVID-19 outbreak and measures taken in response thereto 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.
Our business operations and financial results may be adversely impacted by health epidemics, pandemics, and
similar outbreaks. 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.
The recent and rapidly spreading COVID-19 pandemic 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 unprecedented
and rapidly evolving situation.
Additionally, the COVID-19 pandemic may continue to cause significant disruptions and changes in the
economic or political conditions in markets in which we operate. This may cause significant volatility in demand for
SPS COMMERCE, INC.
23
Form 10-K for the Annual Period ended December 31, 2020
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’ ability to pay for our
services when due or in full. 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.
Item 1B. Unresolved Staff Comments
None.
Item 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 April 2027. The lease was amended in 2020 with the
previous term through April 2025. We also lease office space in or near Kyiv, Ukraine; Little Falls, New Jersey and
Houston, Texas; Toronto, Canada; Melbourne and Sydney, Australia; and Beijing, Hong Kong, China, and
Amsterdam, Netherlands. We believe that our current facilities are suitable and adequate to meet our current needs
and that suitable additional or substitute space will be available as needed to accommodate expansion of our
operations.
Item 3.
Legal Proceedings
We are not currently subject to any material legal proceedings. From time to time, we may be named as a
defendant in legal actions or otherwise be subject to claims arising from our normal business activities. We believe
that we have obtained adequate insurance coverage or rights to indemnification in connection with potential legal
proceedings that may arise.
Item 4.
Mine Safety Disclosures
Not applicable.
SPS COMMERCE, INC.
24
Form 10-K for the Annual Period ended December 31, 2020
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of
Equity Securities
Market Information. Our common stock has traded on the Nasdaq Global Market under the symbol “SPSC”
since April 22, 2010, the date of our initial public offering.
Stockholders of Record. As of February 10, 2021, 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 historically paid cash dividends on our common stock. We currently intend to retain
our future earnings, if any, to finance the operation and expansion of our business, and, therefore, we do not expect
to pay cash dividends on our common stock in the foreseeable future. Payment of future cash dividends, if any, will
be at the discretion of our board of directors after taking into account various factors, including our financial
condition, operating results, current and anticipated cash needs, outstanding indebtedness and plans for expansion
and restrictions imposed by lenders, if any.
Stock Performance Graph and Cumulative Total Return
Notwithstanding any statement to the contrary in any of our previous or future filings with the SEC, the
following information relating to the price performance of our common stock shall not be deemed to be “filed” with
the SEC or to be “soliciting material” under the Securities Exchange Act of 1934, as amended, (“Exchange Act”),
and it shall not be deemed to be incorporated by reference into any of our filings under the (“Securities Act”) of
1933, as amended, or the Securities Act, or the Exchange Act, except to the extent we specifically incorporate it by
reference into such filing.
The table and graph below compare the cumulative total stockholder return of our common stock with that of
the Nasdaq US Benchmark TR Index and the Nasdaq Computer Index from December 31, 2015 through
December 31, 2020, utilizing the last trading day of each respective year. The return assumes that $100 was invested
in shares of our common stock and the other indexes at the close of market on December 31, 2015, and that
dividends, if any, were reinvested. In our Annual Report on Form 10-K for the year ended December 31, 2019, we
compared our return to the Nasdaq US Benchmark Computer Services TR Index. In 2020, this index ceased
measurement, and thus is no longer used for comparison. The comparisons in this table and graph are based on
historical data and are not intended to forecast or be indicative of future performance of our common stock.
SPS COMMERCE, INC.
25
Form 10-K for the Annual Period ended December 31, 2020
Comparison of Cumulative Total Returns of SPS Commerce, Inc. to Comparable Indexes
Date
12/31/2015
12/30/2016
12/29/2017
12/31/2018
12/31/2019
12/31/2020
SPS Commerce
100.0
99.5
69.2
117.3
157.9
309.3
Nasdaq US
Benchmark
TR Index
100.0
113.0
137.2
129.7
170.1
206.3
Nasdaq
Computer Benchmark Computer
Nasdaq US
Index
100.0
112.3
155.8
150.1
225.6
338.3
Services TR Index
100.0
160.2
129.8
118.7
151.1
N/A
Recent Sales of Unregistered Securities; Use of Proceeds from Sales of Registered Securities
Not applicable.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
On November 2, 2017, our board of directors authorized a program to repurchase up to $50.0 million of
common stock over two years. Under the program we purchased approximately $46.3 million of stock and on
November 2, 2019, $3.7 million expired from the program.
On November 2, 2019, our board of directors authorized a new program to repurchase up to $50.0 million of
common stock. Under the program, purchases may be made from time to time in the open market over two years.
We did not make any purchases in the fourth quarter of 2020. As of December 31, 2020, $31.1 million was available
for future share repurchases under the program.
See Note K to our consolidated financial statements, included in this Annual Report on Form 10-K, for
additional information regarding our stock repurchase program.
Item 6.
Selected Financial Data
Omitted.
SPS COMMERCE, INC.
26
Form 10-K for the Annual Period ended December 31, 2020
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read
together with the section titled “Selected Financial Data” and our audited financial statements and related notes
which are included elsewhere in this Annual Report on Form 10-K. Our actual results could differ materially from
those anticipated in the forward-looking statements included in this discussion as a result of certain factors, including,
but not limited to, those discussed in “Risk Factors” included elsewhere in this Annual Report on Form 10-K.
Overview
SPS Commerce is a leading provider of cloud-based solutions that make it easier for retailers, suppliers,
grocers, distributors, and logistics firms to orchestrate the management of item data, order fulfillment, inventory
control and sales analytics across all channels. The solutions offered by SPS Commerce eliminate the need for on-
premise software and support staff by taking on that capability on the customer’s behalf. We derive the majority of
our revenues from numerous monthly recurring subscriptions from businesses that utilize our solutions.
We plan to continue to grow our business by further penetrating the supply chain management market,
increasing revenues from our customers as their businesses grow, expanding our distribution channels, expanding
our international presence and, from time to time, developing new solutions and applications. We also intend to
selectively pursue acquisitions that will add customers, allow us to expand into new regions or allow us to offer new
functionalities. On December 16, 2020, we acquired D Masons Software, LLC (Data Masons), a leading provider of
EDI System Automation solutions for the Microsoft Dynamics market. Due to the date of acquisition being near
year-end, the acquisition did not have a material impact on operating results.
For the years ended December 31, 2020, 2019, and 2018, we generated revenues of $312.6 million, $279.1
million and $248.2 million, respectively. Our quarter ended December 31, 2020 represented our 80th consecutive
quarter of increased revenues. Recurring revenues from recurring revenue customers accounted for 94%, 94%, and
93% of our total revenues for the years ended December 31, 2020, 2019, and 2018, respectively. 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, 2020, 2019, and 2018.
Impact of COVID-19
Although the global emergence of COVID-19 did not have a material adverse effect on our business,
operating results, and overall financial performance for the year ended December 31, 2020, the future impact
remains uncertain and depends on several factors, including, but not limited to, the pandemic’s duration and
continued spread, impact on our customers, impact on our partners or employees, and impact on the economic
environment and financial markets, all of which are uncertain and cannot be predicted. We have seen shifts in
consumer and retailer behavior during the pandemic. We believe these shifts have not had a material positive or
negative impact on our business as they appear to have increased the demand for EDI services in certain customer
segments and decreased it in others. We will continue to actively monitor the situation and may take further actions
that alter our business operations, as may be required by federal, state, or local authorities, or that we determine are
in the best interests of our employees, customers, partners, and shareholders.
Key Financial Terms and Metrics
Sources of Revenues
Fulfillment. Our Fulfillment solution provides fulfillment automation and replaces or augments an
organization’s existing trading partner electronic communication infrastructure, enabling suppliers to have visibility
into the journey of an order and comply with retailers’ rule books and enabling the electronic exchange of
information among numerous trading partners through various protocols.
Analytics. Our Analytics solution consists of data analytics applications that enable our customers to improve
their visibility across, and analysis of, their supply chains. When focused on point-of-sale data, for example, retailers
and suppliers can ensure inventory is located where demand is highest. Retailers improve their visibility into
supplier performance and their understanding of product sell-through.
SPS COMMERCE, INC.
27
Form 10-K for the Annual Period ended December 31, 2020
Other. We provide several peripheral solutions such as our assortment solution (which enables accurate order
management and rapid fulfillment) and our community solution (which accelerates vendor onboarding and ensures
trading partner adoption of new supply chain requirements). In addition to our solution offerings, we also provide
one-time services such as professional services and testing and certification.
Cost of Revenues and Operating Expenses
Cost of Revenues. Cost of revenues consist primarily of personnel costs for our customer success and
implementation teams, customer support personnel and application support personnel. Cost of revenues also
includes our cost of network services, which is primarily data center costs for the locations where we keep the
equipment that serves our customers, cloud provider services, and connectivity costs that facilitate electronic data
transmission between our customers and their trading partners.
Sales and Marketing Expenses. Sales and marketing expenses consist primarily of personnel costs for our
sales, marketing and product management teams, commissions earned by our sales personnel and marketing costs.
Research and Development Expenses. Research and development expenses consist primarily of personnel
costs for development of new and maintenance of existing solutions, net of amounts capitalized as developed
software. Our research and development group is also responsible for enhancing existing solutions and applications,
internal tools, and developing new information maps that integrate our customers to their trading partners in
compliance with those trading partners’ requirements.
General and Administrative Expenses. General and administrative expenses consist primarily of personnel
costs for finance, human resources, and internal information technology support, as well as legal, accounting, and
other fees, such as bad debt expense and credit card processing fees.
Overhead Allocation. We allocate overhead expenses such as rent, certain employee benefit costs, office
supplies and depreciation of general office assets to cost of revenues and operating expenses categories based on
headcount.
Other Metrics
Recurring Revenue Customers. As of December 31, 2020, we had approximately 33,000 customers with
contracts to pay us recurring fees, which we refer to as recurring revenue customers. We report recurring revenue
customers as of the end of a period. A small portion of our recurring revenue customers consist of separate units
within a larger organization. We treat each of these units, which may include divisions, departments, affiliates and
franchises, as distinct customers.
Average Recurring Revenues Per Recurring Revenue Customer. 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. For interim periods, we annualize this number by multiplying the quotient calculated
above by the quotient of 12 divided by the number of months in the period. We anticipate that average recurring
revenues per recurring revenue customer will continue to increase as we increase the number of solutions we offer
and increase the penetration of those solutions across our customer base.
Non-GAAP Financial Measures. To supplement our financial statements, we also provide investors with
Adjusted EBITDA and non-GAAP income per share, both of which are non-GAAP financial measures. We believe
that these non-GAAP measures provide useful information to management and investors regarding certain financial
and business trends relating to our financial condition and results of operations. Our management uses these non-
GAAP measures to compare the company’s 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. These measures are also presented to our board of directors.
These non-GAAP measures should not be considered a substitute for, or superior to, financial measures
calculated in accordance with GAAP. These non-GAAP financial measures exclude significant expenses and
income that are required by GAAP to be recorded in the Company’s financial statements and are subject to inherent
limitations. Investors should review the reconciliations of non-GAAP financial measures to the comparable GAAP
financial measures that are included in this “Management’s Discussion and Analysis of Financial Condition and
Results of Operations.”
SPS COMMERCE, INC.
28
Form 10-K for the Annual Period ended December 31, 2020
Critical Accounting Policies and Estimates
The discussion of our financial condition and results of operations is based upon our consolidated financial
statements, which are prepared in accordance with GAAP. The preparation of these consolidated financial
statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets,
liabilities, revenues, costs and expenses and related disclosures. On an ongoing basis, we evaluate our estimates and
assumptions. We base our estimates of the carrying value of certain assets and liabilities on historical experience and
on various other assumptions that we believe to be reasonable. Our actual results may differ from these estimates
under different assumptions or conditions.
We believe that our significant accounting policies, which are described in the notes to our consolidated
financial statements, involve a greater degree of judgment and complexity and are material to our financial statement
presentation. A critical accounting policy is one that is both material to the presentation of our financial statements
and requires us to make difficult, subjective, or complex judgments for uncertain matters that could have a material
effect on our financial condition and results of operations. Accordingly, these are the policies we believe are the
most critical to aid in fully understanding and evaluating our financial condition and results of operations.
Revenue Recognition
Revenues are recognized when our services are made available to our customers, in an amount that reflects the
consideration we are contractually and legally entitled to in exchange for those services. Our set-up fees from
customers are one-time revenues that are specific for each connection a customer has with a trading partner and
many of our customers have connections with numerous trading partners. Set-up fees related to our cloud-based
supply chain management solutions are nonrefundable upfront fees that are necessary for our customers to utilize
our cloud-based services. These set-up fees do not provide any standalone value to our customers.
Certain contracts contain set-up fees that constitute a material renewal option right. This material right
provides customers a significant future incentive that would not be otherwise available to that customer unless they
entered into the contract as the set-up fees will not be incurred again upon contract renewal.
For our Fulfillment solution, we have determined that the set-up fees and related costs represent a material
renewal option right to our customers as they will not be incurred again upon renewal. These set-up fees and related
costs are deferred and recognized ratably over two years, which is the estimated period for which a material right is
present for our customers.
For our Analytics solution, we have determined that the set-up fees do not represent a material customer
renewal right and, as such, are deferred and recognized ratably over the estimated initial contract term, which is one
year.
Internal-Use Software
Internal-use software consists of capitalized costs incurred during the application development stage, which
include costs related to the design of the chosen path, coding, installation of the hardware necessary to run the
software, and any testing done before the operational stage. Costs incurred during the preliminary project stage and
post-implementation stage are expensed as incurred. Internal-use software is depreciated over the estimated useful
life, three years, commencing on the date when the asset is ready for its intended use. Depreciation is computed
using the straight-line method. Maintenance and enhancements of internal-use software are expensed as incurred.
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. 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 require
management to make significant estimates and assumptions, especially with respect to intangible assets.
Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash
flows from acquired customers and acquired technology from a market participant perspective, useful lives, and
discount rates. Significant estimates in valuing liabilities for contingent consideration include, but are not limited to,
SPS COMMERCE, INC.
29
Form 10-K for the Annual Period ended December 31, 2020
discount rates, projected financial results of the acquired businesses based on our most recent internal forecasts, and
factors indicating the probability of achieving the forecasted results.
Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are
inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the
measurement period, which is not to exceed one year from the acquisition date, we may record adjustments to the
assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the
measurement period, any subsequent adjustments are recorded to earnings.
Results of Operations
Year Ended December 31, 2020 Compared to Year Ended December 31, 2019
The following table presents our results of operations for the periods indicated:
(dollars in thousands)
Revenues
Cost of revenues
Gross profit
Operating expenses
Year Ended December 31,
2020
% of revenue
2019
% of revenue
Change
%
$ 312,630
99,836
212,794
100.0 % $ 279,124
92,239
31.9
186,885
68.1
100.0 % $ 33,506
7,597
33.0
25,909
67.0
12.0 %
8.2
13.9
Sales and marketing
Research and development
General and administrative
Amortization of intangible assets
Total operating expenses
Income from operations
Other income (expense)
Interest income, net
Other income (expense), net
Change in earn-out liability
Total other income, net
Income before income taxes
Income tax expense
Net income
75,955
31,024
50,119
5,538
162,636
50,158
1,103
1,334
85
2,522
52,680
7,094
$ 45,586
24.3
9.9
16.0
1.8
52.0
16.0
70,140
28,305
44,719
5,315
148,479
38,406
0.4
2,947
0.4
272
0.0
445
0.8
3,664
16.9
42,070
2.3
8,358
14.6 % $ 33,712
25.2
10.1
16.0
1.9
53.2
13.8
5,815
2,719
5,400
223
14,157
11,752
8.3
9.6
12.1
4.2
9.5
30.6
1.0
(1,844 )
(62.6 )
0.1
1,062 390.4
0.2
(80.9 )
(360 )
1.3
(31.2 )
(1,142 )
15.1
25.2
10,610
(15.1 )
3.0
(1,264 )
12.1 % $ 11,874
35.2 %
'% of revenue' subtotals may not foot due to rounding
Revenues. The increase in revenues resulted from two primary factors: the increase in recurring revenue
customers, which is driven 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 8% to 33,151 at December 31, 2020 from 30,771
at December 31, 2019.
Wallet share increased 6% to $9,231 at December 31, 2020 from $8,722 at December 31, 2019. This
was primarily attributable to increased usage of our solutions by our recurring revenue customers.
Recurring revenues from recurring revenue customers increased 13% in 2020, as compared to 2019, and
accounted for 94% of our total revenues in 2020, unchanged from 94% in 2019. We anticipate that the number of
recurring revenue customers and wallet share will continue to increase as we increase the number of solutions we
offer and increase the penetration of those solutions across our customer base.
SPS COMMERCE, INC.
30
Form 10-K for the Annual Period ended December 31, 2020
Cost of Revenues. The increase in cost of revenues was primarily due to increased headcount which resulted in
an increase of $5.5 million in personnel-related costs, such as salaries and benefits, and an increase of $1.1 million
in stock-based compensation expense. Additionally, a $1.5 million increase in depreciation expense pertaining to
continued investment in infrastructure to support our platform contributed to the increase in cost of revenue. Last,
$0.5 million increase in software subscriptions utilized in optimizing internal productivity. The increases were
partially offset by a decrease of $1.0 million in network costs.
Sales and Marketing Expenses. The increase in sales and marketing expense was primarily due to increased
headcount which resulted in increases of $2.7 million in personnel-related costs, such as salaries and benefits, and an
increase of $1.2 million in stock-based compensation expense. The increase was also partially related to a $1.2
million increase in variable compensation earned by referral partners. Additionally, increases of $0.4 million in
promotional expenses and $0.4 million in software subscriptions utilized in optimizing internal productivity.
Research and Development Expenses. The increase in research and development expense was primarily due to
increased headcount which resulted in an increase of $0.7 million in personnel-related costs, such as salaries and
benefits, and an increase of $1.0 million in stock-based compensation expense. The increase was also partially
related to increases in occupancy expense of $0.4 million, depreciation expense of $0.3 million, and $0.3 million in
software subscriptions utilized in optimizing internal productivity.
General and Administrative Expenses. The increase in general and administrative expense was primarily due
to continued business growth which resulted in increases of $2.2 million in bad debt expense and $0.4 million in
credit card fees. Additionally, increases of $2.0 million in charitable donations and $1.0 million in stock-based
compensation expenses led to the overall increase, partially offset by a decrease of $0.2 million in personnel-related
costs.
Amortization of Intangible Assets. The increase in amortization of intangible assets was driven by the
amortization of the acquired intangible assets related to Data Masons.
Other Income (Expense). The decrease in interest income, net, other income (expense), net, and change in
earn-out liability was primarily due to decreased interest income from investments and the decrease in the fair value
of the earn-out liability, offset by increased realized gains from foreign currency on cash and investments held. The
change in fair value of the earn-out liability was driven by an adjustment to the fair value of the EDIAdmin earnout
liability due to actual revenue at the earn-out measurement date of December 31, 2020.
Income Tax Expense. The decrease in income tax expense was primarily due to the increase in excess tax
deductions from stock activity which decreases income tax expense, partially offset by increases in pre-tax net
income. See Note M to our consolidated financial statements, included in this Annual Report on Form 10-K, for
additional information regarding our income taxes.
Adjusted EBITDA. Adjusted EBITDA, which is a non-GAAP measure of financial performance, consists of
net income adjusted for depreciation and amortization, investment income (interest income/expense, realized
investments gain/loss excluding realized gain/loss from foreign currency on investments), income tax expense,
stock-based compensation expense, realized gain/loss from foreign currency on cash and investments held, and other
adjustments as necessary for a fair presentation. Other adjustments included the impact of the fair value adjustment
for the EDIAdmin earn-out liability, returned escrow shares in 2019 related to the acquisition of Toolbox, and
impairment of internally developed software. As part of executing a lease amendment, we incurred accelerated
depreciation, included within Depreciation and Amortization, and offsetting accelerated tenant improvement benefit,
included within Other. The following table provides a reconciliation of net income to Adjusted EBITDA:
(in thousands)
Net income
Depreciation and amortization
Investment income, net
Income tax expense
Stock-based compensation expense
Realized gain from foreign currency on cash and investments held
Other
Adjusted EBITDA
Year Ended December 31,
2019
2020
$
$
45,586 $
18,665
(1,208)
7,094
18,936
(1,753)
(326)
86,994 $
33,712
16,438
(2,947)
8,358
14,690
—
(488)
69,763
SPS COMMERCE, INC.
31
Form 10-K for the Annual Period ended December 31, 2020
Non-GAAP Income per Share. Non-GAAP income per share, which is also a non-GAAP measure of financial
performance, consists of net income plus stock-based compensation expense, amortization expense related to
intangible assets, realized gain/loss from foreign currency on cash and investments held, and other adjustments as
necessary for a fair presentation, divided by the weighted average number of shares of common stock outstanding
during each period. Other adjustments included the impact of the fair value adjustment for the EDIAdmin earn-out
liability, returned escrow shares in 2019 related to the acquisition of ToolBox, and impairment of internally
developed software. As part of executing a lease amendment, we incurred accelerated depreciation, included within
Depreciation and Amortization, and offsetting accelerated tenant improvement benefit, included within Other.
To quantify the tax effects, we recalculated income tax expense excluding the direct book and tax effects of
the specific items constituting the non-GAAP adjustments. The difference between this recalculated income tax
expense and GAAP income tax expense is presented as the income tax effect of the non-GAAP adjustments.
The following table provides a reconciliation of net income to non-GAAP income per share:
(in thousands, except per share amounts)
Net income
Stock-based compensation expense
Amortization of intangible assets
Realized gain from foreign currency on cash and investments held
Other
Income tax effects of adjustments
Non-GAAP income
Shares used to compute non-GAAP income per share
Basic
Diluted
Non-GAAP income per share
Basic
Diluted
Year Ended December 31,
2019
2020
$
$
$
$
45,586 $
18,936
5,538
(1,753)
(326)
(12,285)
55,696 $
35,226
36,285
1.58 $
1.53 $
33,712
14,690
5,315
—
(488)
(7,304)
45,925
35,024
36,002
1.31
1.28
Year Ended December 31, 2019 Compared to Year Ended December 31, 2018
The discussion of our results from operations for the year ended December 31, 2019 compared to the year
ended December 31, 2018 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, 2019.
Liquidity and Capital Resources
At December 31, 2020, our principal sources of liquidity were cash and cash equivalents, certificates of
deposit, and short-term investments totaling $187.5 million, and accounts receivable, net of allowance for credit
losses, of $33.6 million, compared to $213.5 million and $31.5 million, respectively at December 31, 2019.
Certificates of deposit and investments are invested in accordance with our investment policy, with a goal of
maintaining liquidity and capital preservation. Our cash equivalents and short-term investments are held in highly
liquid money market funds, commercial paper, federal agency securities and corporate debt securities.
The table below summarizes the activity within the consolidated statement of cash flows:
(in thousands)
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by (used in) financing activities
Twelve Months Ended
December 31,
2020
2019
$
$
88,562 $
(120,469)
2,328
$
71,794
(14,313)
(12,142)
The discussion of our liquidity and capital resources for the year ended December 31, 2019 compared to
the year ended December 31, 2018 can be found in Part II, Item 7, “Management’s Discussion and Analysis of
SPS COMMERCE, INC.
32
Form 10-K for the Annual Period ended December 31, 2020
Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2019.
Net Cash Flows from Operating Activities
The increase in operating cash flows was primarily driven by continued business growth, which resulted in
increased net income.
Net Cash Flows from Investing Activities
The decrease in cash used in investing activities was primarily due to an additional $87.2 million in cash used
for acquisitions of business and intangible assets, driven by the larger acquisition in 2020 as compared to 2019.
Additionally, the change was due to a $16.1 million increase in purchases of investments, net of maturities in 2020.
Net Cash Flows from Financing Activities
This change was primarily due to the $12.4 million increase in net proceeds from stock option exercises.
Effect of Foreign Currency Exchange 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.
Adequacy of Capital Resources
Our future capital requirements may vary significantly from those now planned and will depend on many
factors, including:
•
•
•
•
•
costs to develop and implement new solutions and applications, if any;
sales and marketing resources needed to further penetrate our market and gain acceptance of new
solutions and applications that we may develop;
expansion of our operations in the U.S. and internationally;
response of competitors to our solutions and applications; and
use of capital for acquisitions, if any.
Historically, we have experienced increases in our expenditures consistent with the growth in our operations
and personnel, and we anticipate that our expenditures will continue to increase as we expand our business.
We believe our cash, cash equivalents, 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.
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.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements, investments in special purpose entities or undisclosed
borrowings or debt. Additionally, we are not a party to any derivative contracts or synthetic leases.
SPS COMMERCE, INC.
33
Form 10-K for the Annual Period ended December 31, 2020
Contractual and Commercial Commitment Summary
Our contractual obligations and commercial commitments as of December 31, 2020 are summarized below:
Payments Due by Period (in thousands)
Contractual Obligations
Operating lease obligations, including imputed interest
Purchase commitments
Recent Accounting Pronouncements
Less Than
1 Year
1-3 Years 3-5 Years
More Than
5 Years
Total
3,728 $
9,130 $
$
$
6,512 $ 11,413 $
$ 10,240 $ 20,543 $
7,785 $
— $
7,785 $
4,753 $ 25,396
17,925
4,753 $ 43,321
—
For information regarding recent accounting pronouncements, refer to Note A, General, in our Notes to
Consolidated Financial Statements in the sections entitled “Recently Adopted Accounting Pronouncements” and
“Accounting Pronouncements Not Yet Adopted” as applicable, included in Part II, Item 8, “Financial Instruments
and Supplementary Data” of this Annual Report on Form 10-K.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Sensitivity Risk. The principal objectives of our investment activities are to preserve principal,
provide liquidity and maximize income consistent with minimizing risk of material loss. We are exposed to market
risk related to changes in interest rates. However, based on the nature and current level of our investments (primarily
cash and cash equivalents, which approximate fair value due to their short maturities, certificates of deposit and
marketable securities), 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, 2020 and 2019. We therefore
do not have any material risk to interest rate fluctuations.
Foreign Currency Exchange Risk. We have revenue, expenses, assets, and liabilities that are denominated in
currencies other than the U.S. dollar, primarily the Australian and Canadian dollars. As of December 31, 2020, we
maintained approximately 7% of our total cash and cash equivalents outside of the U.S. in foreign currencies,
primarily in Australian and Canadian dollars. Our results of operations and cash flows were not materially affected
by fluctuation in foreign currency exchange rates and 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 or result in a material foreign currency loss in the future. As we expand internationally, our results of
operations and cash flows may be impacted by changes in foreign currency exchange rates and would be adversely
impacted when the U.S. dollar appreciates relative to other foreign currencies. 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, 2020
Item 8.
Financial Statements and Supplementary Data
SPS Commerce, Inc. and Subsidiaries Consolidated Financial Statements
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Comprehensive Income
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
36
41
42
43
44
45
SPS COMMERCE, INC.
35
Form 10-K for the Annual Period ended December 31, 2020
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
SPS Commerce, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of SPS Commerce, Inc. and subsidiaries (the
Company) as of December 31, 2020 and 2019, the related consolidated statements of comprehensive income,
stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2020, and the
related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020
and 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended
December 31, 2020, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on
criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission, and our report dated February 23, 2021 expressed an unqualified
opinion on the effectiveness of the Company’s internal control over financial reporting.
Change in Accounting Principle
As discussed in Note A to the consolidated financial statements, the Company has changed its method of accounting
for leases as of January 1, 2019 due to the adoption of Financial Accounting Standards Board’s Accounting
Standards Codification (ASC) Topic 842, Leases.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is
to express an opinion on these consolidated financial statements based on our audits. We are a public accounting
firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with
the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of
material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks
of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the
amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated
financial statements that were communicated or required to be communicated to the audit committee and that: (1)
relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our
especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter
in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by
communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the
accounts or disclosures to which they relate.
SPS COMMERCE, INC.
36
Form 10-K for the Annual Period ended December 31, 2020
Assessment of the capitalized internal costs to develop internal-use software
As discussed in Note A to the consolidated financial statements, the Company capitalizes costs incurred to
develop internal-use software during the application development stage. Capitalized internal-use software
is recorded within property and equipment and depreciated over the estimated useful life.
We identified the assessment of the capitalized internal costs to develop internal-use software as a critical
audit matter. Subjective auditor judgment was required to assess the stage of software development for new
internal-use software or upgrades and enhancements for existing internal-use software, which determines
when costs should be capitalized.
The following are the primary procedures we performed to address this critical audit matter. We evaluated
the design and tested the operating effectiveness of certain internal controls related to the Company’s
internal-use software process. This included controls related to the evaluation and approval of new internal-
use software projects or upgrades and enhancements to existing internal-use software projects, monitoring
of the software development stage, and capitalization of internal costs. We examined a sample of
capitalized internal-use software costs to evaluate costs that were capitalized for new internal-use software
or upgrades and enhancements for existing internal-use software. For each sample, we evaluated the
capitalized costs and assessed the stage of software development by inspecting underlying documentation
and inquiring of the Company’s technology developers performing the internal-use software development
activities regarding the specific nature, stage of completion, and hours incurred on the project.
Evaluation of the acquisition-date fair value of subscriber relationships and developed technology
intangible assets
As discussed in Notes A and B to the consolidated financial statements, on December 16, 2020, the
Company acquired Data Masons for a purchase price of $100 million. The Company records all assets and
liabilities, including intangible assets, acquired in a business combination at fair value. As a result of the
transaction, the Company acquired subscriber relationships and developed technology intangible assets.
The acquisition-date fair value for these assets was $17.6 million and $25.4 million, respectively.
We identified the evaluation of the acquisition-date fair value of subscriber relationships and developed
technology intangible assets as a critical audit matter. A higher degree of subjective auditor judgment was
required in evaluating assumptions regarding future revenue growth rates from acquired subscriber
relationships and acquired technology and discount rates used in the respective fair value measurements.
The following are the primary procedures we performed to address this critical audit matter. We evaluated
the design and tested the operating effectiveness of certain internal controls related to the Company’s
acquisition-date valuation process. This included controls related to the development of the future revenue
growth rates and discount rates. To assess the future revenue growth rates used in the valuations, we
compared forecasted revenue to Data Masons’ historical actual results, and we evaluated the future revenue
growth rates from existing customers by comparing the future revenue growth rates to those of comparable
companies and industry data. In addition, we involved valuation professionals with specialized skills and
knowledge, who assisted in:
— evaluating the discount rates by comparing them against discount rates ranges that were
independently developed using publicly available market data for comparable companies, and
SPS COMMERCE, INC.
37
Form 10-K for the Annual Period ended December 31, 2020
— performing a sensitivity analysis by developing estimates of the acquisition-date fair value of the
subscriber relationships and developed technology intangible assets using reasonably possible
changes to forecasted revenue and the independently developed discount rates, and comparing the
results to the Company’s fair value estimates.
We have served as the Company’s auditor since 2013.
Minneapolis, Minnesota
February 23, 2021
/s/ KPMG LLP
SPS COMMERCE, INC.
38
Form 10-K for the Annual Period ended December 31, 2020
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
SPS Commerce, Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited SPS Commerce, Inc. and subsidiaries’ (the Company) internal control over financial reporting as
of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained,
in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria
established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related
consolidated statements of comprehensive income, stockholders’ equity, and cash flows for each of the years in the
three-year period ended December 31, 2020, and the related notes (collectively, the consolidated financial
statements), and our report dated February 23, 2021, expressed an unqualified opinion on those consolidated
financial statements.
The Company acquired the Data Masons business during 2020, and management excluded from its assessment of
the effectiveness of the Company’s internal control over financial reporting as of December 31, 2020, Data Masons’
internal control over financial reporting associated with total assets of approximately 3% and total revenues of less
than 1%, in the consolidated financial statements of the Company as of and for the year ended December 31, 2020.
Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal
control over financial reporting of the Data Masons business.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and
for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an
opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting
firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with
the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting
was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit
also included performing such other procedures as we considered necessary in the circumstances. We believe that
our audit provides a reasonable basis for our opinion.
SPS COMMERCE, INC.
39
Form 10-K for the Annual Period ended December 31, 2020
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
Minneapolis, Minnesota
February 23, 2021
/s/ KPMG LLP
SPS COMMERCE, INC.
40
Form 10-K for the Annual Period ended December 31, 2020
SPS COMMERCE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except shares)
CURRENT ASSETS
ASSETS
Cash and cash equivalents
Short-term investments
Accounts receivable
Allowance for credit losses
Accounts receivable, net
Deferred costs
Other assets
Total current assets
PROPERTY AND EQUIPMENT, net
OPERATING LEASE RIGHT-OF-USE ASSETS
GOODWILL
INTANGIBLE ASSETS, net
INVESTMENTS
OTHER ASSETS
Deferred costs, non-current
Deferred income tax assets
Other assets, non-current
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable
Accrued compensation
Accrued expenses
Deferred revenue
Operating lease liabilities
Total current liabilities
OTHER LIABILITIES
Deferred revenue, non-current
Operating lease liabilities, non-current
Deferred income tax liabilities
Other liabilities, non-current
Total liabilities
COMMITMENTS and CONTINGENCIES
STOCKHOLDERS’ EQUITY
$
$
$
December 31,
2020
2019
149,692 $
37,786
37,811
(4,233)
33,578
37,988
12,312
271,356
26,432
15,581
134,853
60,230
2,500
12,607
194
2,705
526,458 $
5,354 $
22,872
11,161
37,947
2,798
80,132
2,996
19,672
2,937
—
105,737
179,252
34,284
33,001
(1,469)
31,532
35,274
11,279
291,621
23,752
15,744
76,845
22,668
—
11,667
2,630
2,513
447,440
4,274
22,303
6,207
31,463
3,783
68,030
2,851
20,085
1,193
405
92,564
Preferred stock, $0.001 par value; 5,000,000 shares authorized; 0 shares issued and
outstanding
Common stock, $0.001 par value; 110,000,000 and 55,000,000 shares authorized;
37,100,467 and 36,104,619 shares issued; and 35,487,217 and 34,863,271 shares
outstanding, respectively
Treasury stock, at cost; 1,613,250 and 1,241,348 shares, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Total stockholders’ equity
Total liabilities and stockholders’ equity
$
—
—
37
(65,247)
393,462
93,490
(1,021)
420,721
526,458 $
36
(46,297)
354,115
48,973
(1,951)
354,876
447,440
See accompanying notes to these consolidated financial statements.
SPS COMMERCE, INC.
41
Form 10-K for the Annual Period ended December 31, 2020
SPS COMMERCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands, except per share amounts)
Revenues
Cost of revenues
Gross profit
Operating expenses
Sales and marketing
Research and development
General and administrative
Amortization of intangible assets
Total operating expenses
Income from operations
Other income (expense)
Interest income, net
Other income (expense), net
Change in earn-out liability
Total other income, net
Income before income taxes
Income tax expense
Net income
Other comprehensive income (expense)
Foreign currency translation adjustments
Unrealized gain (loss) on investments, net of tax of ($3), $122
and $132
Reclassification of unrealized gain on investments into
earnings, net of tax of ($52), ($133) and ($91)
Total other comprehensive income (expense)
Comprehensive income
Net income per share
Basic
Diluted
$
$
$
$
$
Year Ended December 31,
2019
279,124 $
92,239
186,885
2020
312,630 $
99,836
212,794
75,955
31,024
50,119
5,538
162,636
50,158
1,103
1,334
85
2,522
52,680
7,094
45,586 $
70,140
28,305
44,719
5,315
148,479
38,406
2,947
272
445
3,664
42,070
8,358
33,712 $
2018
248,240
81,748
166,492
71,719
22,087
41,862
4,093
139,761
26,731
2,329
(626)
(94)
1,609
28,340
4,468
23,872
1,097
1,290
(3,999)
(10)
367
397
(157)
930
46,516 $
(398)
1,259
34,971 $
(273)
(3,875)
19,997
1.29 $
1.26 $
0.96 $
0.94 $
0.69
0.68
Weighted average common shares used to compute net income per
share
Basic
Diluted
35,226
36,285
35,024
36,002
34,392
35,212
See accompanying notes to these consolidated financial statements.
SPS COMMERCE, INC.
42
Form 10-K for the Annual Period ended December 31, 2020
SPS COMMERCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock
Treasury Stock
Shares
Amount
Shares
Amount
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Total
(Accumulated Comprehensive Stockholders'
Deficit)
Income (Loss)
Equity
34,254,012 $
—
34
—
244,294 $
—
(5,815 ) $
—
301,846 $
11,270
(8,611 ) $
—
657 $
—
288,111
11,270
866,398
69,596
2
—
—
—
—
14,342
—
1,745
(579,490 )
—
579,490
(19,864 )
0
—
—
—
—
14,344
—
1,745
—
(19,864 )
—
—
—
—
—
—
—
—
3,371
—
—
23,872
—
—
3,371
23,872
—
—
—
(3,999 )
(3,999 )
—
397
397
—
—
—
—
(273 )
(273 )
823,784 $
—
(25,679 ) $
—
332,574 $
13,365
15,261 $
—
(3,218 ) $
—
318,974
13,365
80,956
—
—
—
—
34,691,472 $
—
536,034
58,851
—
—
—
—
—
36
—
—
—
(417,564 )
—
417,564
(20,618 )
—
—
—
—
6,207
—
2,269
—
—
—
—
—
6,207
2,269
—
(20,618 )
(5,522 )
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(300 )
—
—
33,712
—
—
(300 )
33,712
—
—
—
—
—
—
—
—
1,290
1,290
367
367
(398 )
8
(398 )
8
34,863,271 $
—
36
—
1,241,348 $
—
(46,297 ) $
—
354,115 $
17,382
48,973 $
—
(1,951 ) $
—
354,876
17,382
934,015
61,833
(371,902 )
—
—
—
—
—
1
—
—
—
—
—
—
—
—
—
—
18,591
—
3,374
371,902
—
(18,950 )
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
45,586
—
—
—
18,592
—
—
—
3,374
(18,950 )
45,586
1,097
1,097
(10 )
(10 )
—
(1,069 )
(157 )
—
(157 )
(1,069 )
(in thousands, except shares)
Balances, December 31,
2017
Stock-based compensation
Exercise of stock options
and issuance of restricted
stock
Employee stock purchase
plan
Repurchases of common
stock
Stock issued for
acquisition
Net income
Foreign currency
translation adjustments
Unrealized gain on
investments, net of tax
Reclassification of gain on
investments into earnings,
net of tax
Balances, December 31,
2018
Stock-based compensation
Exercise of stock options
and issuance of restricted
stock
Employee stock purchase
plan
Repurchases of common
stock
Settlement and subsequent
return of shares
Net income
Foreign currency
translation adjustments
Unrealized gain on
investments, net of tax
Reclassification of gain on
investments into earnings,
net of tax
Adoption of ASU 2018-02
Balances, December 31,
2019
Stock-based compensation
Exercise of stock options
and issuance of restricted
stock
Employee stock purchase
plan
Repurchases of common
stock
Net income
Foreign currency
translation adjustments
Unrealized loss on
investments, net of tax
Reclassification of gain on
investments into earnings,
net of tax
Adoption of ASU 2016-13
Balances, December 31,
2020
35,487,217 $
37
1,613,250 $
(65,247 ) $
393,462 $
93,490 $
(1,021 ) $
420,721
See accompanying notes to these consolidated financial statements.
SPS COMMERCE, INC.
43
Form 10-K for the Annual Period ended December 31, 2020
SPS COMMERCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
2019
2018
2020
$
45,586 $
33,712 $
23,872
(in thousands)
Cash flows from operating activities
Net income
Reconciliation of net income to net cash provided by operating
activities
Deferred income taxes
Change in earn-out liability
Depreciation and amortization of property and equipment
Amortization of intangible assets
Provision for credit losses
Stock-based compensation
Other, net
Changes in assets and liabilities, net of effects of
acquisition
Accounts receivable
Deferred costs
Other current and non-current assets
Accounts payable
Accrued compensation
Accrued expenses
Deferred revenue
Deferred rent
Operating leases
Net cash provided by operating activities
Cash flows from investing activities
Purchases of property and equipment
Purchases of investments
Maturities of investments
Acquisition of business and intangible assets, net
Net cash used in investing activities
Cash flows from financing activities
Repurchases of common stock
Net proceeds from exercise of options to purchase common stock
Net proceeds from employee stock purchase plan
Payment for earn-out liability
Net cash provided by (used in) financing activities
Effect of foreign currency exchange rate changes
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental disclosure of cash flow information
Cash paid for income taxes, net
Non-cash financing activities:
$
$
4,241
(85)
13,127
5,538
5,660
18,936
(24)
(5,922)
(3,414)
1,201
1,214
(1,257)
563
4,432
—
(1,234)
88,562
(16,467)
(74,797)
69,461
(98,666)
(120,469)
(18,950)
18,592
3,374
(688)
2,328
19
(29,560)
179,252
149,692 $
7,581
(445)
11,123
5,315
3,499
14,690
(574)
(6,771)
(1,441)
(2,768)
(489)
319
706
6,366
—
971
71,794
(13,585)
(73,700)
84,472
(11,500)
(14,313)
(20,618)
6,207
2,269
—
(12,142)
54
45,393
133,859
179,252 $
2,798
94
8,593
4,093
2,592
12,510
(364)
(4,569)
(5,564)
(3,333)
937
3,957
(135)
7,094
2,440
—
55,015
(13,750)
(81,666)
82,224
(27,273)
(40,465)
(19,864)
14,344
1,745
—
(3,775)
(43)
10,732
123,127
133,859
1,656 $
1,545 $
1,534
Net purchases of property and equipment on account
Common stock issued for business acquisitions
(551)
—
322
—
405
3,371
See accompanying notes to these consolidated financial statements.
SPS COMMERCE, INC.
44
Form 10-K for the Annual Period ended December 31, 2020
SPS COMMERCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A – General
Business Description
SPS Commerce is a leading provider of cloud-based supply chain management solutions that make it easier
for retailers, suppliers, distributors, and logistics firms to orchestrate the management of item data, order fulfillment,
inventory control and sales analytics across all channels. Implementing and maintaining a suite of supply chain
management capabilities is resource intensive and is not a core competency for most businesses.
The services offered by SPS Commerce eliminate the need for on-premise software and support staff by
taking on that capability on the customer’s behalf. The solutions SPS Commerce provides enable our customers to
increase their supply cycle agility, optimize their inventory levels and sell-through, reduce operational costs and gain
increased visibility into customer orders, ensuring that suppliers, distributors, and logistics firms can satisfy retailer
requirements.
Basis of Presentation
The accompanying consolidated financial statements have been prepared in conformity with accounting
principles generally accepted in the United States of America (“GAAP”) and include the accounts of SPS
Commerce, Inc. and its subsidiaries. All intercompany accounts and transactions have been eliminated in the
consolidated financial statements.
Effective January 1, 2020, we adopted Accounting Standards Update (“ASU”) No. 2016-13, Financial
Instruments – Credit Losses (Topic 326) with a modified-retrospective approach and recorded a $1.1 million
cumulative-effect adjustment to retained earnings.
On July 25, 2019, we announced that our board of directors declared a two-for-one stock split of our common
stock, effected in the form of a 100 percent stock dividend as of the record date on August 8, 2019. The stock split
dividend was distributed on August 22, 2019. Earnings per share and weighted average shares outstanding are
presented in this Annual Report on Form 10-K after the effect of the 100 percent stock dividend. The two-for-one
stock split is reflected in the share amounts in all periods presented in this Annual Report on Form 10-K.
Foreign Currency Translation
The functional currency of our foreign operations is generally the applicable local currency. The functional
currency is translated into U.S. dollars for balance sheet accounts using current exchange rates in effect as of the
balance sheet date and for revenue and expense accounts using an average exchange rate during the year. The
translation adjustments are deferred as a component of other comprehensive income within the consolidated
statements of comprehensive income and the consolidated statements of stockholders' equity. Gains or losses
resulting from transactions denominated in foreign currencies, if any, are included in other income (expense), net in
our consolidated statements of comprehensive income.
Use of Estimates
Preparing financial statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
SPS COMMERCE, INC.
45
Form 10-K for the Annual Period ended December 31, 2020
Business Combinations
We recognize the fair value of the assets acquired and the liabilities assumed at the acquisition date, separately
from goodwill. Goodwill as of the acquisition date is measured as the excess of consideration transferred and the
amount of the assets acquired and the liabilities assumed.
Assets acquired include tangible and intangible assets. We use estimates and assumptions that we believe are
reasonable as a part of the purchase price allocation, which includes the process to determine the value and useful
lives of purchased intangible assets and the process to determine the value of any contingent consideration liabilities.
We recorded the acquisition-date fair value of any contingent liabilities, such as earn-out provisions, as part of the
consideration transferred. The earn-out liability fair value is subsequently remeasured at each reporting date. The
Company evaluates each contingent consideration to determine the valuation approach. See Notes B and E for
valuation methods utilized in the fair value remeasurement as of the reporting date.
While we believe these estimates and assumptions are reasonable, they are inherently uncertain and subject to
refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, we
may record adjustments to the fair value of the assets acquired and the liabilities assumed. Any such adjustments
would be recorded as an offset to goodwill or a working capital adjustment as applicable. Upon the conclusion of the
measurement period or final determination of the fair values, whichever comes first, any subsequent adjustments
would be recorded in our consolidated statements of comprehensive income.
Segment Information
We operate in and report on one segment, which is supply chain management solutions.
Risk and Uncertainties
We rely on hardware and software licensed from third parties to offer our on-demand solutions. Our
management believes alternate sources are available; however, disruption or termination of these relationships could
adversely affect our operating results in the near term.
Concentration of Credit Risk
Financial instruments that potentially subject us to concentrations of credit risk consist principally of cash and
cash equivalents in financial institutions in excess of federally insured limits and accounts receivable. Cash and cash
equivalents are held with financial institutions that we believe are subject to minimal risk.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and highly liquid investments with original maturities of less than
90 days. Cash and cash equivalents are stated at fair value.
Investments
Management determines the appropriate classification of certificates of deposit and marketable securities at
the time of purchase and reevaluates such determination at each balance sheet date. Securities are classified as
available for sale and are carried at fair value, with the change in unrealized gains and losses, net of tax, reported as
unrealized gains on investments on the consolidated statements of comprehensive income. Fair value is determined
based on quoted market rates when observable or utilizing data points that are observable, such as quoted prices,
interest rates and yield curves. When a determination has been made that an other-than-temporary decline in fair
value has occurred, the amount of the decline that is related to a credit loss is realized and is included in other
income (expense), net in the consolidated statements of comprehensive income.
SPS COMMERCE, INC.
46
Form 10-K for the Annual Period ended December 31, 2020
Fair Value of Other Financial Instruments
The carrying amounts of our short-term financial instruments, which include cash, cash equivalents, accounts
receivable, and accounts payable, approximates fair value due to their short-term nature.
Accounts Receivable
Accounts receivable are initially recorded upon the sale of solutions to customers. Credit is granted in the
normal course of business without collateral. Accounts receivable are stated net of allowances for credit losses,
which represent estimated losses resulting from the inability of certain customers to make the required payments.
When determining the allowance, we pool our outstanding accounts receivable invoices based on the contractual due
date of payment at the balance sheet date. We take several factors into consideration for estimated credit losses by
pool, primarily our historical credit losses, with additional adjustments made for current and future macro-economic
conditions and retail bankruptcy trends. We write-off accounts receivable when they are determined to be
uncollectible. Changes in the allowance are recorded as bad debt expense and are included in general and
administrative expense in our consolidated statements of comprehensive income.
Property and Equipment
Property and equipment, including assets acquired under capital lease obligations, are stated at cost, net of
accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line
method over the estimated useful lives when placed in service, which are:
Computer equipment and software: 2 to 3 years
Office equipment and furniture: 5 to 7 years
Leasehold improvements: the shorter of the useful life of the asset or the remaining term of the lease
Significant additions or improvements extending asset lives beyond one year are capitalized, while repairs and
maintenance are charged to expense as incurred.
We capitalize and amortize eligible costs to acquire or develop internal-use software that are incurred during
the application development stage. Costs incurred during the preliminary project stage and post-implementation
stage are expensed as incurred. Internal-use software is depreciated over the estimated useful life, three years,
commencing on the date when the asset is ready for its intended use. Depreciation is computed using the straight-
line method. Maintenance and enhancements of internal-use software are expensed as incurred.
The assets and related accumulated depreciation and amortization are adjusted for asset retirements and
disposals and abandoned internal-use software with the resulting gain or loss included in our consolidated statements
of comprehensive income.
Leases
We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-
of-use assets, current operating lease liabilities, and long-term operating lease liabilities in our consolidated balance
sheets.
Right-of-use (“ROU”) assets represent our right to use an underlying asset for the lease term and lease
liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and
liabilities are recognized at commencement date based on the present value of lease payments over the lease term.
We estimate the discount rate for a similar collateralized asset by estimating costs of borrowing. We use the implicit
interest rate when readily determinable. The operating lease ROU asset also includes any lease payments made and
lease incentives that have been incurred. The options to extend our leases are not recognized as part of our ROU
assets and lease liabilities unless it is reasonably certain that we will exercise that option. Lease expense for lease
payments is recognized on a straight-line basis over the lease term. For all leases, we combine non-lease components
with the related lease components and account for it as a single lease component. The ROU assets are subject to the
same impairment process as our long-lived assets. Additionally, we review our lease liabilities for remeasurement
whenever there is a triggering event or when relevant facts and circumstances change.
SPS COMMERCE, INC.
47
Form 10-K for the Annual Period ended December 31, 2020
Research and Development
Research and development costs primarily include maintenance and data conversion activities related to our
cloud-based supply chain management solutions and are expensed as incurred.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired in
business combinations. We test goodwill for impairment annually at November 30, or more frequently if events or
changes in circumstances indicate that the asset might be impaired. The impairment test is conducted by comparing
the fair value of the net assets with the carrying amount of the reporting unit. We determine the fair value of the
reporting unit based on our market capitalization at the testing date. If the carrying amount exceeds the fair value of
the reporting unit, we would recognize an impairment loss in the consolidated statements of comprehensive income,
to the extent that the carrying amount exceeds fair value.
Intangible Assets
Assets acquired in business combinations may include identifiable intangible assets such as subscriber
relationships, developed technology, and non-competition agreements. We recognize the fair value of the
identifiable intangible assets acquired separately from goodwill. We have determined the fair value and useful lives
of our purchased intangible assets using certain estimates and assumptions that we believe are reasonable.
The purchased intangible assets are being amortized on a straight-line basis over their estimated useful lives,
which are seven to ten years for subscriber relationships, three to five years for non-competition agreements and
three to ten years for acquired technology.
Third Party Implementation Assets
Third party implementation costs are capitalized assets included in Other Assets and relate to implementation
costs incurred for software hosting arrangements.
Capitalized implementation costs are recognized on a straight-line basis beginning when the application is
ready for its intended use and ending on the expected termination date of the hosting arrangement, including
consideration of the noncancelable contractual term and reasonably certain renewals.
The terms are between four and six years for our current hosting arrangements. Recognized expense is
reported in general and administrative expense, which is where the hosting arrangement subscriptions are reported.
Impairment of Long-Lived Assets
We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. The carrying amount of a long-lived asset is not recoverable if the carrying
amount of an asset group exceeds the sum of the undiscounted cash flows expected to result from the use and
eventual disposition of the assets at the date it is tested for recoverability, whether in use or under development. An
impairment loss is measured as the amount by which the carrying amount of a long-lived asset exceeds its fair value.
Revenue Recognition
Revenues are recognized when our services are made available to our customers, in an amount that reflects the
consideration we are contractually and legally entitled to in exchange for those services.
SPS COMMERCE, INC.
48
Form 10-K for the Annual Period ended December 31, 2020
We determine revenue recognition through the following steps:
•
•
Identification of the contract, or contracts, with a customer
Identification of the performance obligations in the contract
• Determination of the transaction price
• Allocation of the transaction price to the performance obligations in the contract
•
Recognition of revenue when, or as, we satisfy a performance obligation
See Note C for further descriptions of our revenue recognition policy.
Deferred Costs
Deferred costs are those that are incurred to fulfill or obtain customer contracts and that are considered
incremental and recoverable costs. These consist primarily of customer implementation costs, commissions paid to
sales personnel and third-party partners for customer referrals, respectively. These costs are deferred and amortized
over the expected period of benefit which we have determined to be two years.
Sales commissions are calculated based on estimated annual recurring revenue to be generated over the
customer’s initial contract period. Amortization expense is included in sales and marketing expenses in the
accompanying consolidated statements of comprehensive income.
Customer implementation costs are based on actual costs incurred. Amortization expense is included in cost
of revenues in the accompanying consolidated statements of comprehensive income.
Stock-Based Compensation
We recognize the cost of all share-based payments to employees, executive officers, and non-employee
members of the Company’s Board of Directors, including grants of incentive and nonqualified stock options,
performance share units (“PSUs”), restricted stock awards (“RSAs”), restricted stock units (“RSUs”), deferred stock
units (“DSUs”), employee stock purchase plan (“ESPP”), and 401(k) stock match in the consolidated financial
statements based on the grant date fair value of those awards. This cost is recognized over the period for which an
employee is required to provide service in exchange for the award or the performance period, as applicable.
In valuing share-based awards, excluding PSUs, judgment is required in determining the expected volatility of
common stock and the expected term individuals will hold their share-based awards prior to exercising. The
expected volatility of the options is based on the historical volatility of our common stock. Beginning with awards
granted in 2020, the expected term of the options is derived from historical data on employee exercises and post-
vesting employment termination behavior. For awards granted prior to 2020, the expected term of the options was
based on the simplified method which does not consider historical employee exercise behavior. Additional valuation
inputs include our expected non-issuance of future common stock dividends and the risk-free interest rate that is
based on the U.S. Treasury rates at the date of grant with maturity dates approximately equaling the expected life at
the grant date. For PSUs, the grant date fair value is estimated using a Monte Carlo simulation that utilizes multiple
input variables that determine the probability of satisfying the performance conditions stipulated in the award. For
all awards, we recognize forfeitures as they occur.
Income Taxes
We account for income taxes using the asset and liability method, which requires recognition of deferred tax
assets and liabilities for the expected future tax consequences of events that have been included in the financial
statements. Under this method, deferred tax assets and liabilities are determined based on the difference between the
financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance when, in our
judgement, it is more likely than not that some or all of the deferred tax asset will not be realized.
We assess our ability to realize our deferred tax assets at the end of each reporting period. Realization of our
deferred tax assets is contingent upon future taxable earnings. Accordingly, this assessment requires estimates and
SPS COMMERCE, INC.
49
Form 10-K for the Annual Period ended December 31, 2020
judgment. If the estimates of future taxable income vary from actual results, our assessment regarding the realization
of these deferred tax assets could change. Future changes in the estimated amount of deferred taxes expected to be
realized will be reflected in our consolidated financial statements in the period the estimate is changed, with a
corresponding adjustment to our operating results.
We recognize the financial statement benefit of a tax position only after determining that the relevant tax
authority would “more likely than not” sustain the position following an audit. For tax positions meeting the “more
likely than not” threshold, the amount recognized in the financial statements is the largest benefit that has a greater
than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority.
Net Income Per Share
Basic net income per share has been computed using the weighted average number of shares of common stock
outstanding during each period. Diluted net income per share also includes the impact of our outstanding potential
common shares, including options, RSUs, RSAs, PSUs, and DSUs. Potential common shares that are anti-dilutive
are excluded from the calculation of diluted net income per share.
SPS COMMERCE, INC.
50
Form 10-K for the Annual Period ended December 31, 2020
Recently Adopted Accounting Pronouncements
Date of
Issuance
June
2016
Standard
ASU 2016-13,
Financial
Instruments -
Credit Losses
(Topic 326),
Measurement
of Credit
Losses on
Financial
Statements
Description
The amendment in this update
replaces the incurred loss
impairment methodology in
current GAAP with a
methodology that reflects
expected credit losses on
instruments within its scope,
including trade receivables. This
update is intended to provide
financial statement users with
more decision-useful information
about the expected credit losses.
August 2018 This ASU adds, modifies and
removes several disclosure
requirements relative to the three
levels of inputs used to measure
fair value in accordance with
Topic 820, Fair Value
Measurement.
Date Adopted Effect on the Financial Statements
January 2020 The adoption of this standard did
not have a material impact on our
consolidated financial statements.
See above under "Accounts
Receivable" for significant inputs
for the allowance for credit losses.
January 2020 The adoption of this standard did
not have a material impact on our
consolidated financial statements.
January 2017 This amendment eliminates Step 2
from the goodwill impairment
test.
January 2020 The adoption of this standard did
not have a material impact on our
consolidated financial statements.
ASU 2018-13,
Fair Value
Measurement
(Topic 820),
Disclosure
Framework -
Changes to the
Disclosure
Requirements
for Fair Value
Measurement
ASU 2017-04,
Intangibles -
Goodwill and
Other (Topic
350),
Simplifying the
Test for
Goodwill
Impairment
SPS COMMERCE, INC.
51
Form 10-K for the Annual Period ended December 31, 2020
NOTE B – Business Acquisitions
Data Masons
On December 16, 2020, we acquired all of the outstanding equity ownership interests of D Masons Software,
LLC (“Data Masons”), a leading provider of EDI System Automation solutions for the Microsoft Dynamics market.
Pursuant to the membership interest purchase agreement, given a target working capital level, the total transaction
price was $100 million. $98.7 million was paid in cash at closing and $0.4 million is due from the sellers as part of
the initial net working capital adjustment. Additionally, the agreement allows for up to $1.9 million of contingent
consideration based on the outcome of the PPP loan forgiveness as described below. The purchase accounting for
the acquisition has not been finalized as of December 31, 2020. Provisional amounts are primarily related to
intangible assets, net working capital, and tax positions. We expect to finalize the allocation of the purchase price
within the one-year measurement period following the acquisition.
In May 2020, prior to acquisition, Data Masons received a loan (“PPP Loan”) of $1.9 million pursuant to the
Paycheck Protection Program (“PPP”) as established by the Coronavirus Aid, Relief, and Economic Security
(“CARES”) Act. Amounts outstanding under the loan bear interest of 1.0% per annum with a maturity date two
years from the commencement date. The PPP Loan is subject to forgiveness under the PPP to the extent proceeds of
the loan are used for eligible expenditures. In November 2020, Data Masons applied for full forgiveness of the PPP
Loan. As of the acquisition date and December 31, 2020, there had not been determination from the Small Business
Administration as to whether the Company will be eligible for forgiveness, in whole or in part. In conjunction with
the provisions of the PPP loan program for a business combination, Data Masons placed the balance of the PPP
Loan and accrued interest of $1.9 million in cash escrow with the lender. To the extent the PPP Loan is forgiven,
this cash escrow will be released to the Company.
Additionally, the Company has a contingent liability with the former owners of Data Masons, that will require
an additional $1.9 million payment in the event the PPP loan is forgiven. While it is unknown, the Company has
determined that it is probable that Data Masons’ use of the PPP Loan proceeds will meet the conditions for full
forgiveness under the PPP. As such, the Company has recorded $1.9 million of contingent consideration as part of
the total transaction price, included in accrued expenses on the consolidated balance sheet. The Company has also
recorded the $1.9 million PPP loan with the lender within accrued expenses, as well as a $1.9 million government
grant receivable within other current assets on the consolidated balance sheet. The payout of the contingent liability
will be determined based upon the PPP Loan forgiveness application ruling, which is expected to occur in 2021. If
the ruling results in partial forgiveness or no forgiveness of the PPP loan, the contingent liability and the government
grant receivable will each be reduced by an equal and offsetting amount of the unforgiven portion of the PPP loan.
Purchase Price Allocation
We accounted for the acquisition as a business combination. We allocated the purchase price to the tangible
and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values as of the
acquisition date. We engaged a third-party valuation firm to assist us in the determination of the value of the
recognized intangible assets and certain liabilities assumed. The excess of the purchase price over the fair value of
net tangible and identifiable intangible assets acquired was recorded as goodwill. Goodwill is attributed to a trained
workforce and other buyer-specific value resulting from expected synergies, including long-term cost savings, which
are not included in the fair values of identifiable assets. All recorded goodwill is expected to be deductible for tax
purposes.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the
acquisition date (in thousands):
Cash
Accounts receivable
Other current and non-current assets
Goodwill
Intangible assets
Current liabilities
Deferred revenue
$
$
2,949
3,801
2,246
56,960
43,000
(3,593)
(2,196)
103,167
SPS COMMERCE, INC.
52
Form 10-K for the Annual Period ended December 31, 2020
Purchased Intangible Assets
The following table summarizes the estimated fair value of the purchased intangible assets and their estimated
useful lives:
Purchased Intangible Assets
Subscriber relationships
Developed technology
Total
NOTE C – Revenue
Estimated
Fair Value
(in thousands)
Estimated
Life
(in years)
$
$
17,600
25,400
43,000
8
8
We derive our revenues primarily from the following revenue streams:
(in thousands)
Recurring revenues:
Fulfillment
Analytics
Other
Recurring Revenues
One-time revenues
Year Ended December 31,
2020
2019
2018
$
$
251,272
38,824
4,920
295,016
17,614
312,630
$
$
219,297
37,038
5,671
262,006
17,118
279,124
$
$
190,783
34,447
5,424
230,654
17,586
248,240
Revenues are recognized when our services are made available to our customers, in an amount that reflects the
consideration we are contractually and legally entitled to in exchange for those services.
We determine revenue recognition through the following steps:
•
•
Identification of the contract, or contracts, with a customer
Identification of the performance obligations in the contract
• Determination of the transaction price
• Allocation of the transaction price to the performance obligations in the contract
•
Recognition of revenue when, or as, we satisfy a performance obligation
Recurring Revenues
Recurring revenues consist of recurring subscriptions from customers that utilize our Fulfillment, Analytics
and Other cloud-based supply chain management solutions. Revenue for these solutions is generally recognized on a
ratable basis over the contract term beginning on the date that our service is made available to the customer. Our
contracts with our recurring revenue customers are recurring in nature, ranging from monthly to annual, and
generally allow the customer to cancel the contract for any reason with 30 to 90 days’ notice. Timing of billings
varies by customer and by contract type and are either in advance or within 30 days of the service being performed.
The deferred revenue liabilities for recurring revenue contracts are for one year or less and recognized on a
ratable basis over the contract term. We have applied the optional exemption to not disclose information about the
remaining performance obligations for contracts which have original durations of one year or less.
SPS COMMERCE, INC.
53
Form 10-K for the Annual Period ended December 31, 2020
One-time Revenues
One-time revenues consist of set-up fees from customers and miscellaneous one-time fees.
Set-up fees are specific for each connection a customer has with a trading partner and many of our customers
have connections with numerous trading partners. Set-up fees related to our cloud-based supply chain management
solutions are nonrefundable upfront fees that are necessary for our customers to utilize our cloud-based services.
These set-up fees do not provide any standalone value to our customers.
Certain contracts contain set-up fees that constitute a material renewal option right. This material right
provides customers a significant future incentive that would not be otherwise available to that customer unless they
entered into the contract, as the set-up fees will not be incurred again upon contract renewal.
For our Fulfillment solution, we have determined that the set-up fees and related costs represent a material
renewal option right to our customers as they will not be incurred again upon renewal. These set-up fees and related
costs are deferred and recognized ratably over two years, which is the estimated period for which a material right is
present for our customers.
For our Analytics solution, we have determined that the set-up fees do not represent a material customer
renewal right and, as such, are deferred and recognized ratably over the estimated initial contract term, which is
generally one year.
The table below presents the activity of the portion of the deferred revenue liability relating to set-up fees:
(in thousands)
Balance, beginning of year
Invoiced set-up fees
Amortized set-up fees
Balance, end of year
Year Ended December 31,
2020
2019
$
$
10,518 $
11,410
(10,810)
11,118 $
9,857
11,056
(10,395)
10,518
The entire balance of set-up fees will be recognized within two years and, as such, current amounts will be
recognized in the next 1-12 months and non-current amounts will be recognized in the next 13-24 months.
Miscellaneous one-time fees consist of professional services and testing and certification. The deferred
revenue liability for these one-time fees are for one year or less and recognized at the time service is provided. We
have applied the optional exemption to not disclose information about the remaining performance obligations for
contracts which have original durations of one year or less.
NOTE D – Deferred Costs
The table below presents the activity of deferred costs and amortization of deferred costs:
(in thousands)
Balance, beginning of year
Incurred deferred costs
Amortized deferred costs
Balance, end of year
NOTE E – Financial Instruments
Cash equivalents and investments
Year Ended December 31,
2020
2019
$
$
46,941 $
54,421
(50,767)
50,595 $
45,475
49,883
(48,417)
46,941
We invest primarily in money market funds, certificates of deposit, highly liquid debt instruments of the U.S.
government and U.S. corporate debt securities. Highly liquid investments with original maturities of 90 days or less are
classified as cash equivalents. Investments with remaining maturities of less than one year from the balance sheet date
are classified as short-term investments whereas those with remaining maturities of more than one year from the
balance sheet date are classified as investments. Our marketable securities are classified as available-for-sale. We
SPS COMMERCE, INC.
54
Form 10-K for the Annual Period ended December 31, 2020
intend to hold marketable securities until maturity; however, we may sell these securities at any time for use in current
operations or for other purposes.
Our marketable securities are carried at fair value and unrealized gains and losses on these investments, net of
taxes, are included in accumulated other comprehensive loss in the consolidated balance sheets. Realized gains or
losses are included in other income (expense), net in the consolidated statements of comprehensive income. Certain
securities accrue interest that is included in other income (expense), net. The unrealized gains (losses) noted below
are exclusive of previously recognized interest income.
Cash equivalents and investments consisted of the following:
December 31,
2020
2019
(in thousands)
Cash equivalents:
Money market funds
Certificate of deposit
Marketable securities:
Corporate bonds
Commercial paper
U.S. treasury securities
Maturing within one year
Maturing within one to two years
Total
Recurring Fair Value Measurements
Amortized Unrealized
Fair
Losses, net Value
Cost
Amortized Unrealized
Fair
Gains, net Value
Cost
$112,907 $
7,708
— $112,907 $151,266 $
—
7,030
7,708
— $151,266
—
7,030
5,069
7,569
20,051
$153,304 $
9,785
5,040
(29)
7,503
(55)
7,514
(27) 20,024
9,855
(111) $153,193 $185,439 $
$150,693
2,500
$153,193
9,805
20
—
7,503
91
9,946
111 $185,550
$185,550
—
$185,550
We measure certain financial assets at fair value on a recurring basis based on a fair value hierarchy that requires
us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A
financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is
significant to the fair value measurement. The three levels of inputs that may be used to measure fair value are:
•
•
•
Level 1 – quoted prices in active markets for identical assets or liabilities.
Level 2 – observable inputs other than Level 1 prices, such as (a) quoted prices for similar assets or
liabilities, (b) quoted prices in markets with insufficient volume or infrequent transactions (less active
markets), or (c) model-derived valuations in which all significant inputs are observable or can be
derived principally from or corroborated by observable market data for substantially the full term of the
assets or liabilities.
Level 3 – unobservable inputs to the valuation methodology that are significant to the measurement of
fair value of assets or liabilities.
We obtain the fair values of our level 2 available-for-sale securities from a professional pricing service.
For the earn-out liability related to the EDIAdmin acquisition, the Company utilized the Monte Carlo
simulation method to estimate the fair value of this contingent liability as of the reporting date. Thousands of
iterations of the simulation were performed using forecasted revenues to develop a distribution of future values of
recurring revenue which, in turn, provide indicated earn-out payments. The total estimated fair value equals the sum
of the average present values of the indicated earn-out payments.
SPS COMMERCE, INC.
55
Form 10-K for the Annual Period ended December 31, 2020
The following table presents information about our financial assets and liabilities that are measured at fair
value on a recurring basis and indicates the fair value hierarchy of the valuation techniques utilized to determine
such fair value:
(in thousands)
Assets:
Cash equivalents:
Money market funds
Certificate of deposit
Marketable securities:
Corporate bonds
Commercial paper
U.S. treasury securities
Liabilities:
Data Masons Contingent Consideration
(in thousands)
Assets:
Cash equivalents:
Money market funds
Certificate of deposit
Marketable securities:
Corporate bonds
Commercial paper
U.S. treasury securities
Liabilities:
EDIAdmin Earn-out liability
Level 1
Level 2
Level 3
Total
December 31, 2020
$
112,907 $
7,708
— $
—
— $
—
112,907
7,708
$
$
$
—
—
—
120,615 $
5,040
7,514
20,024
32,578 $
—
—
—
— $
5,040
7,514
20,024
153,193
— $
— $
— $
— $
1,878 $
1,878 $
1,878
1,878
December 31, 2019
Level 1
Level 2
Level 3
Total
$
151,266 $
7,030
— $
—
— $
—
151,266
7,030
—
—
—
158,296 $
9,805
7,503
9,946
27,254 $
—
—
—
— $
9,805
7,503
9,946
185,550
— $
— $
— $
— $
405 $
405 $
405
405
$
$
$
During the year ending December 31, 2020, we recognized a gain of $0.1 million in our consolidated
statements of comprehensive income due to the remeasurement of the EDIAdmin contingent liability and paid $0.7
million for a portion of the contingent liability. The remaining portion of the earn-out liability that is expected to be
paid in the first quarter of 2021 has been determined to be $0.1 million, given the completion of certain revenue
milestones for the year ending December 31, 2020. As such, $0.1 million of the earn-out consideration is included in
accrued expenses in the consolidated balance sheet at December 31, 2020 and transferred from the Level 3 earn-out
liability.
Other than the transfer relating to the EDIAdmin contingent consideration, there were no other transfers in or
out of our Level 1, 2, or 3 assets or liabilities during the years ended December 31, 2020 and 2019.
Nonrecurring Fair Value Measurements
We measure certain assets and liabilities at fair value on a nonrecurring basis. Assets that are measured at fair
value on a nonrecurring basis include long-lived assets, goodwill, and indefinite-lived intangible assets, which
would generally be recorded at fair value as a result of an impairment charge. Assets acquired and liabilities
assumed as part of business combinations are measured at fair value. For additional information on our business
SPS COMMERCE, INC.
56
Form 10-K for the Annual Period ended December 31, 2020
combinations and the related nonrecurring fair value measurement of the assets acquired and liabilities assumed,
refer to Note B.
NOTE F – Allowance for Credit Losses
The allowance for credit losses activity, included in accounts receivable, net, was as follows:
(in thousands)
Balance, beginning of year
Adoption of ASU 2016-13
Allowance for Data Masons acquired receivables
Provision for credit losses
Write-offs, net of recoveries
Balance, end of year
2020
2019
2018
$
$
1,469 $
1,069
354
5,660
(4,319)
4,233 $
1,392 $
—
—
3,499
(3,422)
1,469 $
763
—
—
2,592
(1,963)
1,392
NOTE G – Property and Equipment, net
Property and equipment, net included the following:
(in thousands)
Computer equipment and software
Office equipment and furniture
Leasehold improvements
Less: accumulated depreciation and amortization
December 31,
2020
2019
63,225 $
9,613
12,746
85,584
(59,152)
26,432 $
54,030
9,205
11,091
74,326
(50,574)
23,752
$
$
Depreciation and amortization expense of property and equipment for the years ended December 31, 2020,
2019, and 2018 was $13.1 million, $11.1 million, and $8.6 million, respectively.
NOTE H – Goodwill and Intangible Assets, net
Goodwill
The changes in the net carrying amount of goodwill was as follows:
(in thousands)
Balance, beginning of year
Additions from business acquisitions
Foreign currency translation
Balance, end of year
Intangible Assets
Intangible assets, net included the following:
2020
2019
$
$
76,845 $
56,960
1,048
134,853 $
69,658
6,372
815
76,845
(in thousands)
Subscriber relationships
Non-competition agreements
Acquired technology
SPS COMMERCE, INC.
December 31, 2020
Gross
Carrying
Amount
Accumulated
Amortization
Foreign
Currency
Translation
54,447
698
33,195
88,340 $
(24,792)
(691)
(2,724)
(28,207) $
101 $
(4)
-
97 $
Net
29,756
3
30,471
60,230
Form 10-K for the Annual Period ended December 31, 2020
$
57
(in thousands)
Subscriber relationships
Non-competition agreements
Acquired technology
December 31, 2019
Gross
Carrying
Amount
Accumulated
Amortization
Foreign
Currency
Translation
$
$
43,640 $
2,495
8,602
54,737 $
(27,287) $
(2,371)
(2,643)
(32,301) $
214 $
10
8
232 $
Net
16,567
134
5,967
22,668
The estimated annual amortization expense related to intangible assets subject to amortization for the next five
years and thereafter was as follows:
(in thousands)
2021
2022
2023
2024
2025
Thereafter
$
$
9,942
8,838
8,758
7,476
7,337
17,879
60,230
NOTE I – Other Assets
The changes in the net amount of capitalized implementation costs for software hosting arrangements was as
follows:
(in thousands)
Balance, beginning of year
Capitalized implementation fees
Amortization of implementation fees
Balance, end of year
NOTE J – Commitments and Contingencies
Leases
2020
2019
$
$
1,166 $
127
(112)
1,181 $
455
797
(86)
1,166
We are obligated under non-cancellable operating leases, primarily for office space and certain equipment, as
follows:
December 31, 2020
December 31, 2019
(In thousands, except remaining term)
Minneapolis, MN lease
Kyiv, Ukraine lease
Other leases
Remaining
Term (years)
Right-of-Use
Asset
6
4
<1 - 5
$
$
10,992
1,930
2,659
15,581
Remaining
Term (years)
5
5
<1 - 5
Right-of-Use
Asset
$
$
10,704
2,316
2,724
15,744
SPS COMMERCE, INC.
58
Form 10-K for the Annual Period ended December 31, 2020
In December 2020, we executed the fifth amendment to our lease agreement for our current headquarters
located in Minneapolis, Minnesota where we lease approximately 198,000 square feet under an agreement that
expires in April 2027. The lease also has two options to extend the term for five years each at a market rate
determined in accordance with the lease. Incentives of $2.4 million are included as a lease component.
In December 2019, we executed a lease agreement for a new Kyiv, Ukraine location, where we lease
approximately 17,000 square feet under an agreement that expires on May 31, 2025. The lease includes one option
to extend the term for five years and six months at a market rate determined in accordance with the lease.
The components of lease expense were as follows:
(in thousands)
Operating lease cost
Variable lease cost
Year Ended December 31,
2020
2019
$
$
2,719
3,578
6,297
$
$
2,569
3,390
5,959
Rent expense for all operating leases, which includes minimum lease payments and other charges such as
common area maintenance fees, charged to operations was as follows:
(in thousands)
Rent expense
Supplemental cash flow information related to leases was as follows:
(in thousands)
Cash paid for amounts included in the measurement of lease
liabilities
Year Ended December 31,
2018
$
5,577
December 31,
2020
2019
Operating cash flows from operating leases
$
ROU assets obtained in exchange for operating lease liabilities
4,134
12,801
$
4,383
2,537
Supplemental balance sheet information related to leases was as follows:
Weighted-average remaining lease term - operating leases
Weighted-average discount rate - operating leases
December 31, 2020
5.6 years
December 31, 2019
5.0 years
4.1%
4.5%
At December 31, 2020, our future minimum payments under operating leases were as follows:
(in thousands)
2021
2022
2023
2024
2025
Thereafter
Less: imputed interest
$
$
3,728
4,699
4,431
4,070
3,715
4,753
25,396
(2,926)
22,470
SPS COMMERCE, INC.
59
Form 10-K for the Annual Period ended December 31, 2020
Purchase Commitments
In 2020, we entered into separate noncancelable agreements with computing infrastructure and customer
relationship management vendors for services through 2023. At December 31, 2020, the total remaining purchase
commitment was $17.9 million.
Contingencies
We may be involved in various claims and legal actions in the normal course of business. We believe that the
outcome of any such claim or legal action is not expected to have a material effect on our financial position, results
of operations or cash flows.
NOTE K – Stockholders’ Equity
Stock Split
On August 22, 2019, we effected a two-for-one stock split of our common stock. There was no change in the
number of our authorized common shares. All share and per share data have been adjusted for all periods presented
to reflect the stock split.
Stock Repurchase Program
On November 2, 2017, our board of directors authorized a program to repurchase up to $50.0 million of
common stock over two years. On November 2, 2019, $3.7 million expired from the program. On November 2,
2019, our board of directors authorized a new program to repurchase up to $50 million of common stock. Under the
program, purchases may be made from time to time in the open market over two years. As of December 31, 2020,
$31.1 million of the share repurchase authorized was available for future share repurchases.
Under the programs, we purchased 0.4 million, 0.4 million, and 0.6 million shares at costs of $19.0 million,
$20.6 million, and $19.9 million for the years ended December 31, 2020, 2019, and 2018, respectively.
NOTE L – Stock-Based Compensation
Our equity compensation plans provide for the grant of incentive and nonqualified stock options, as well as
other stock-based awards including PSUs, RSAs, RSUs, and DSUs, to employees, non-employee directors and other
consultants who provide services to us. We also provide an ESPP and 401(k) stock match.
RSAs result in the issuance of new shares when granted. For other stock-based awards, new shares are issued
when the award is exercised, vested, or released according to the terms of the agreement. In February 2020,
February 2019, and January 2018, 2.1 million additional shares were reserved for future issuance under our 2010
Equity Incentive Plan. At December 31, 2020 there were approximately 15.8 million shares available for grant under
approved equity compensation plans.
Stock-based compensation expense was allocated as follows:
(in thousands)
Cost of revenues
Operating expenses
Sales and marketing
Research and development
General and administrative
Year Ended December 31,
2019
2018
2020
$
3,948 $
2,819 $
2,168
4,119
3,626
7,243
18,936 $
2,946
2,651
6,274
14,690 $
2,675
1,505
6,162
12,510
$
SPS COMMERCE, INC.
60
Form 10-K for the Annual Period ended December 31, 2020
Stock-based compensation expense by type was as follows:
(in thousands)
Stock options
PSUs
RSUs
RSAs and DSUs
ESPP
401(k) stock match
Year Ended December 31,
2019
2018
2020
$
$
2,232 $
3,219
10,367
446
1,117
1,555
18,936 $
3,211 $
1,379
7,553
519
701
1,327
14,690 $
3,355
1,034
5,930
487
466
1,238
12,510
As of December 31, 2020, there was $24.1 million of unrecognized stock-based compensation expense under
our equity compensation plans, which is expected to be recognized over a weighted-average period of 2.4 years.
Stock Options
Stock options generally vest over four years and have a contractual term of seven to ten years from the date of
grant. Our stock option activity was as follows:
Outstanding at December 31, 2017
Granted
Exercised
Forfeited
Outstanding at December 31, 2018
Granted
Exercised
Forfeited
Outstanding at December 31, 2019
Granted
Exercised
Forfeited
Outstanding at December 31, 2020
Options
(#)
2,194,662
362,944
(688,668)
(122,470)
1,746,468
184,434
(346,098)
(40,892)
1,543,912
127,974
(712,074)
(14,926)
944,886
Weighted Average
Exercise Price
($/share)
23.80
29.94
20.83
28.34
25.93
53.92
21.98
30.74
30.03
59.02
26.11
43.14
36.71
Of the total outstanding options at December 31, 2020, 0.7 million were exercisable. The outstanding and
exercisable options had a weighted average exercise price of $32.35 per share and a weighted average remaining
contractual life of 3.4 years.
The table below presents the intrinsic value of options exercised and outstanding and factors related to our
stock options:
(in thousands, except per share data)
Fair value of options vested
Intrinsic value of options exercised
Intrinsic value of options outstanding
Weighted-average fair value per share of options granted
$
Year Ended December 31,
2019
2018
2020
3,000 $
31,737
67,918
16.18
3,393 $
11,103
39,194
16.86
3,689
14,852
26,654
9.74
SPS COMMERCE, INC.
61
Form 10-K for the Annual Period ended December 31, 2020
The fair values of the options granted were estimated on the date of grant using the Black-Scholes option
pricing model with the following weighted-average assumptions:
Volatility
Dividend yield
Life (in years)
Risk-free interest rate
Year Ended December 31,
2019
2018
2020
33%
—
4.01
0.99%
33%
—
4.43
2.41%
35%
—
4.44
2.54%
Performance Share Units, Restricted Stock Units and Awards, and Deferred Stock Units
In February 2020, 2019, and 2018, our executive officers were granted PSU awards with vesting contingent
on our total shareholder return as compared to indexed total shareholder return over the course of a fiscal based
three-year performance period, starting in the year of grant. Expense is recognized on a straight-line basis over the
performance period, regardless of whether the market condition is satisfied as the likelihood of the market condition
being met is included in the fair-value measurement of the award.
In February 2017, our executive officers were granted PSU awards with vesting contingent on successful
attainment of pre-determined revenue targets over the course of a three-year performance period (fiscal 2017 –
2019). The awards were forfeited in 2020 as the targets were not met.
RSUs generally vest over four years and, upon vesting, the holder is entitled to receive shares of our common
stock.
RSAs vest over one year and, upon vesting, the holder is entitled to receive shares of our common stock. In
lieu of RSAs, a participant may elect to receive DSUs with one year vesting, but the participant directs delayed
receipt of common shares of up to ten years after the end of service to us.
Activity for our PSU, RSU, RSA, and DSU was as follows:
Outstanding at December 31, 2017
Granted
Vested and common stock issued
Forfeited
Outstanding at December 31, 2018
Granted
Vested and common stock issued
Forfeited
Outstanding at December 31, 2019
Granted
Vested and common stock issued
Forfeited
Outstanding at December 31, 2020
Weighted Average
Grant Date Fair
Value (per share)
27.59
33.19
28.74
27.52
29.99
55.69
31.05
34.67
38.80
62.78
36.06
30.09
52.37
(#)
646,560
360,198
(176,802)
(71,622)
758,334
288,462
(217,424)
(31,826)
797,546
331,264
(222,606)
(167,782)
738,422
SPS COMMERCE, INC.
62
Form 10-K for the Annual Period ended December 31, 2020
The number of PSUs, RSUs, and DSUs outstanding at December 31, 2020 included 122,910 units that have
vested, but the shares of common stock have not yet been issued, pursuant to the terms of the agreement.
Employee Stock Purchase Plan
Our ESPP allows participating employees to purchase shares of our common stock at a discount through
payroll deductions. The plan is available to all employees subject to certain eligibility requirements. Participating
employees may purchase common stock, on a voluntary after-tax basis, at a price that is the lower of 85% of the fair
market value of one share of common stock at the beginning or end of each stock purchase period. The plan consists
of two six-month offering periods, beginning on January 1 and July 1 of each calendar year. A total of 1.9 million
shares of common stock are remaining for issuance under the plan at December 31, 2020.
Our ESPP activity was as follows:
(in thousands, except share data)
Amounts for shares purchased
Shares purchased
Year Ended December 31,
2019
2018
2020
$
3,374 $
61,833
2,270 $
58,851
1,745
69,596
The fair value was estimated based on the market price of our common stock at the beginning of each offering
period and using the Black-Scholes option pricing model with the following weighted-average assumptions:
Volatility
Dividend yield
Life (in years)
Risk-free interest rate
NOTE M – Income Taxes
Year Ended December 31,
2019
2018
2020
43%
—
0.50
0.96%
36%
—
0.50
2.36%
26%
—
0.50
1.77%
Our provisions for income taxes included current federal, foreign, and state income tax expense, as well as
deferred tax expense as follows:
(in thousands)
Current
State
Foreign
Deferred
Federal
State
Foreign
Year Ended December 31,
2019
2018
2020
$
$
1,249 $
1,608
4,462
244
(469)
7,094 $
599 $
169
6,595
1,156
(161)
8,358 $
1,103
540
3,011
224
(410)
4,468
A reconciliation of the expected federal income tax at the statutory rate to the provision for income taxes was
as follows:
SPS COMMERCE, INC.
63
Form 10-K for the Annual Period ended December 31, 2020
(in thousands)
Expected federal income tax at statutory rate
State income taxes, net of federal tax effect
Tax impact of foreign activity
Nondeductible executive compensation
Foreign derived intangible income
Nondeductible expenses
Change in valuation allowance
Change in state deferred rate
Research and development credit
Tax impact of stock activity
Other
2020
Year Ended December 31,
2019
2018
$
$
11,063 $
2,382
233
928
(710)
234
—
32
(294)
(6,807)
33
7,094 $
8,835 $
1,933
(108)
940
—
329
—
47
(1,252)
(2,518)
152
8,358
$
5,951
1,293
57
902
—
351
(4)
38
(1,843)
(2,438)
161
4,468
Differences between our effective tax rate and statutory tax rates are primarily due to tax benefits generated
upon settlement or exercise of stock awards as such activities are recognized as a reduction to income tax expense as
a discrete tax item in the period that such events occur, creating potentially significant fluctuations in tax expense by
period. Additionally, federal research and development credit benefits are partially offset by permanently non-
deductible expenses contributing to the difference in effective and statutory tax rates.
The significant components of our deferred tax assets and liabilities were as follows:
(in thousands)
Deferred tax assets
Net operating loss and credit carryforwards
Stock-based compensation expense
Accounts receivable allowances
Accrued expenses
Deferred revenue
Lease liabilities
Other
Gross deferred tax assets
Less: valuation allowance
Total net deferred tax assets
Deferred tax liabilities
Deferred costs
Right-of-use assets
Foreign operations
Depreciation and amortization
Other
Total deferred tax liabilities
Net deferred tax assets (liabilities)
$
2020
4,539
3,605
1,228
3,200
695
5,435
660
(1,582)
(12,561)
(3,754)
(228)
(3,980)
—
December 31,
$
19,362
17,780
2019
9,122
3,944
496
2,916
668
5,995
9
(1,068)
(11,436)
(4,047)
(144)
(4,975)
(43)
23,150
22,082
(20,523)
(2,743)
$
(20,645)
1,437
$
As of December 31, 2020, we had net operating loss carryforwards of $17.5 million for U.S. federal tax
purposes and $1.5 million for state tax purposes. If not utilized, the loss carryforwards will expire between 2021 and
2024 for federal tax purposes and between 2028 and 2031 for state tax purposes. Section 382 of the U.S. Internal
Revenue Code generally imposes an annual limitation on the amount of net operating loss carryforwards that might
be used to offset taxable income when a corporation has undergone significant changes in stock ownership. As of
December 31, 2020, all $17.5 million of our net operating loss carryforwards are subject to Section 382 limitations,
of which we believe $14.6 million of federal losses will expire unused due to Section 382 limitations. Accordingly,
our deferred tax assets are reported net of the Section 382 limitations.
SPS COMMERCE, INC.
64
Form 10-K for the Annual Period ended December 31, 2020
As of December 31, 2020, we had federal research and development (“R&D”) credit carryforwards, net of
Section 383 limitations, of $2.2 million, which, if not utilized, will begin to expire in 2039. We had state research
and development credit carryforwards of $1.6 million which, if not utilized, will begin to expire in 2025.
As of December 31, 2020, we had a valuation allowance against our deferred tax assets of $1.6 million. The
valuation allowance is established for state credit carryforwards that we do not expect to utilize based on our current
expectations of future state taxable income.
We are subject to income taxes for U.S. federal and various state and international jurisdictions. We are
generally subject to U.S. federal and state tax examinations for most prior tax years due to our net operating loss and
R&D credit carryforwards and the utilization of the carryforwards in years still open under statute.
As of December 31, 2020, we do not have any unrecognized tax benefits. It is our practice to recognize
interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. We do not
expect any material changes in our unrecognized tax positions over the next 12 months.
NOTE N – Net Income Per Share
The following table presents the components of the computation of basic and diluted net income per share for
the periods indicated:
(in thousands, except per share amounts)
Numerator
Net income
Denominator
Year Ended December 31,
2019
2018
2020
$
45,586 $
33,712 $
23,872
Weighted average common shares outstanding, basic
Options to purchase common stock
PSUs, RSUs, RSAs, and DSUs
Weighted average common shares outstanding, diluted
35,226
611
448
36,285
35,024
680
298
36,002
34,392
612
208
35,212
Net income per share
Basic
Diluted
$
$
1.29 $
1.26 $
0.96 $
0.94 $
0.69
0.68
The following table presents the effect of the outstanding potential common shares that were excluded from
the calculation of diluted net income per share as they were anti-dilutive:
(in thousands)
Antidilutive shares
Year Ended December 31,
2019
2018
2020
26
181
1
NOTE O – Retirement Savings Plan
We sponsor a 401(k) retirement savings plan for our employees. Employees can contribute up to 80% of their
compensation, subject to the limits established by law, and we match 50% of the employee’s contribution up to the
first 6% of pre-tax annual compensation. A portion of our match is in company stock, which is purchased from the
open market by our plan provider and immediately deposited into the employee’s 401(k) account. Additionally, we
make statutory contributions to retirement plans as required by local foreign government regulations. Our total
contributions to the plan were $3.9 million, $3.3 million and $2.9 million for the years ended December 31, 2020,
2019, and 2018, respectively.
NOTE P – Related Party Transactions
SPS Commerce Foundation (the “Foundation”) is a Minnesota non-profit organization exempt from federal
taxation under Section 501(c)(3) of the Internal Revenue Code. The Foundation was formed in 2015 to engage in,
advance, support, promote and administer charitable activities. The directors of the Foundation are also our officers.
SPS COMMERCE, INC.
65
Form 10-K for the Annual Period ended December 31, 2020
These officers receive no compensation from the Foundation for the management services performed for the
Foundation. The Foundation is not a subsidiary of ours and the financial results of the Foundation are not
consolidated with our financial statements. For the years ended December 31, 2020, 2019, and 2018, we
made contributions to the Foundation of $1.8 million, less than $0.1 million, and $0.7 million, respectively. We have
no current legal obligations for future commitments to the Foundation.
NOTE Q – Geographic Information
For the years ended December 31, 2020, 2019, and 2018, 85%, 85%, and 83%, respectively, of our revenue
was attributable to customers based within the United States. No single jurisdiction outside of the U.S. had revenues
in excess of 10%.
At December 31, 2020 and 2019, 15% and 8%, respectively, of property and equipment, net was located at
subsidiary and office locations outside of the United States.
SPS COMMERCE, INC.
66
Form 10-K for the Annual Period ended December 31, 2020
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of
December 31, 2020, the end of the period covered by this Annual Report on Form 10-K. This evaluation was done
under the supervision and with the participation of management, including our Chief Executive Officer (“CEO”) and
Chief Financial Officer (“CFO”). Disclosure controls and procedures means controls and other procedures that are
designed to provide reasonable assurance that information required to be disclosed in the reports that we file or
submit under Exchange Act, such as this Annual Report on Form 10-K, is recorded, processed, summarized and
reported within the time periods specified in the rules and forms of the SEC. Disclosure controls and procedures
include, without limitation, controls and procedures designed such that information is accumulated and
communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding
required disclosure. Based on this evaluation, our CEO and CFO have concluded that as of December 31, 2020, our
disclosure controls and procedures were effective.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange
Act as a process designed by, or under the supervision of, our principal executive and principal financial officer and
effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
GAAP and includes those policies and procedures that:
•
•
•
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the
transactions and dispositions of our assets;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with GAAP, and that our receipts and expenditures are being made
only in accordance with authorizations of our management and directors; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use
or disposition of our assets that could have a material effect on our financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
Under the supervision and with the participation of management, including our principal executive and
financial officers, we assessed our internal control over financial reporting as of December 31, 2020, based on
criteria for effective internal control over financial reporting established in the Internal Control — Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on this assessment, management concluded that we maintained effective internal control over financial
reporting as of December 31, 2020 based on the specified criteria.
For the year ended December 31, 2020, management’s assessment of our internal control over financial
reporting excluded the internal control over financial reporting of the Data Masons business, which was acquired on
December 16, 2020. Pursuant to the SEC’s general guidance that an assessment of a recently acquired business may
be omitted from our scope for a period not to exceed one year from the date of acquisition, the scope of our most
recent assessment did not include Data Masons. Our assessment of the effectiveness of internal control over
financial reporting as of December 31, 2021 will include Data Masons. As of and for the three and twelve months
ended December 31, 2020, excluding net intangible assets and goodwill, Data Masons represented approximately
3% of our total consolidated assets and less than 1% of our consolidated revenues.
SPS COMMERCE, INC.
67
Form 10-K for the Annual Period ended December 31, 2020
The effectiveness of our internal control over financial reporting as of December 31, 2020 has been audited by
KPMG LLP, our independent registered public accounting firm, as stated in their report, which is included under
Item 8 of this Annual Report on Form 10-K.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the most recent fiscal quarter
ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
Item 9B. Other Information
None.
SPS COMMERCE, INC.
68
Form 10-K for the Annual Period ended December 31, 2020
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this item with respect to executive officers is contained in Item 1 of this Annual
Report on Form 10-K under the heading “Information About our Executive Officers” and with respect to other
information relating to our directors and executive officers will be set forth in the 2021 Proxy Statement under the
caption “Item 1 – Election of Directors,” which will be filed no later than 120 days after the end of the fiscal year
covered by this Annual Report on Form 10-K, and is incorporated herein by reference.
The information required by this item under Item 407(c)(3) of Regulation S-K is incorporated herein by
reference to the section titled “Information Regarding the Board of Directors and Corporate Governance—
Procedures for Selecting and Nominating Director Candidates” of the 2021 Proxy Statement.
The information required by this item under Item 407(d)(4) and (d)(5) of Regulation S-K is incorporated
herein by reference to the section titled “Information Regarding the Board of Directors and Corporate
Governance—Board Committees” of the 2021 Proxy Statement.
We have adopted a code of business conduct applicable to our directors, officers (including our principal
executive officer and principal financial officer) and employees. The Code of Conduct is available on our website at
www.spscommerce.com under the Investor Relations section. We plan to post on our website at the address
described above any future amendments or waivers of our Code of Conduct.
Item 11.
Executive Compensation
The information required by this item is incorporated herein by reference to the sections titled “Executive
Compensation,” “Information Regarding the Board of Directors and Corporate Governance—Director
Compensation” and “Certain Relationships and Related Transactions—Compensation Committee Interlocks and
Insider Participation” of the 2021 Proxy Statement.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
The information required by this item is incorporated herein by reference to the section titled “Security
Ownership” of the 2021 Proxy Statement.
Equity Compensation Plan Information
The following table summarizes the number of shares of our common stock to be issued upon exercise of
outstanding stock options and settlement of restricted stock unit awards granted under our equity plans as of
December 31, 2020. The table also includes the weighted-average exercise price of outstanding stock options and
the number of shares of our common stock remaining available for future issuance under the plans for all awards.
Plan Category
Equity compensation plans
approved by stockholders(1)(2)
Equity compensation plans not
approved by stockholders
Number of shares
to be issued upon
exercise of
outstanding
options, warrants
and rights
Weighted-
average
exercise price of
outstanding
options, warrants
and rights
Number of shares
remaining available
for future issuance
under equity
compensation plans
(excluding shares
in first column)
1,819,750 (3)
36.71 (4)
15,757,726 (5)
None
N/A
None
(1) Includes the 2001 Stock Option Plan, the 2010 Equity Incentive Plan and the Employee Stock Purchase Plan.
(2) The 2010 Equity Incentive Plan contains an “evergreen” provision, pursuant to which the number of shares of
common stock reserved for issuance under the 2010 Equity Incentive Plan shall be increased on January 1 of
SPS COMMERCE, INC.
69
Form 10-K for the Annual Period ended December 31, 2020
each year beginning in 2011 and ending on January 1, 2020 in an amount equal to the lesser of 6% of the total
number of our shares outstanding as of December 31 of the immediately preceding calendar year or a number of
shares determined by our board of directors; provided, however, no more than 2,403,000 shares of our common
stock may be issued upon the exercise of incentive stock options.
(3) Includes 944,886 shares subject to outstanding and unexercised stock options and 874,864 shares issuable in
settlement of RSU and PSU awards.
(4) The weighted average exercise price reflects only the outstanding stock options, as the other forms of awards
disclosed in this note entail the issuance of shares for the payment of no consideration.
(5) Includes 1,852,748 shares remaining available for future issuance under the Employee Stock Purchase Plan.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item is incorporated herein by reference to the sections titled “Certain
Relationships and Related Transactions,” and “Information Regarding the Board of Directors and Corporate
Governance—Director Independence” of the 2021 Proxy Statement.
Item 14.
Principal Accounting Fees and Services
The information required by this item is incorporated herein by reference to the section titled “Audit
Committee Report and Payment of Fees to Our Independent Auditor” of the 2021 Proxy Statement.
SPS COMMERCE, INC.
70
Form 10-K for the Annual Period ended December 31, 2020
Item 15.
Exhibits, Financial Statement Schedules
The following documents are filed as a part of this Annual Report on Form 10-K:
PART IV
(a)
(b)
(c)
Financial Statements: The financial statements filed as a part of this report are listed in Part II, Item 8.
Financial Statement Schedules: The schedules are either not applicable or the required information is
presented in the consolidated financial statements or notes thereto.
Exhibits: The exhibits incorporated by reference or filed as a part of this Annual Report on Form 10-K
are listed in the Exhibit Index prior to the signatures to this report.
Item 16.
Form 10-K Summary
None.
SPS COMMERCE, INC.
71
Form 10-K for the Annual Period ended December 31, 2020
EXHIBIT INDEX
Exhibit
Number
Exhibit Description
Form
Incorporated By Reference
Date of
First
Filing
Exhibit
Number
Filed
Herewith
Membership Interest Purchase Agreement,
dated December 16, 2020
8-K
2.1
3.1
3.2
4.1
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.13
10.14
Ninth Amended and Restated Certificate
of Incorporation
Amended and Restated Bylaws
Description of Capital Stock
2001 Stock Option Plan**
Form of Incentive Stock Option
Agreement under 2001 Stock Option
Plan**
Form of Non-Statutory Stock Option
Agreement (Director) under 2001 Stock
Option Plan**
2010 Equity Incentive Plan, as amended
effective October 29, 2014**
Form of Incentive Stock Option
Agreement under 2010 Equity Incentive
Plan**
Form of Non-Statutory Stock Option
Agreement (Employee) under 2010 Equity
Incentive Plan**
Form of Non-Statutory Stock Option
Agreement (Director) under 2010 Equity
Incentive Plan**
Form of Restricted Stock Unit Award
Agreement under 2010 Equity Incentive
Plan**
Form of Restricted Stock Award
Agreement under 2010 Equity Incentive
Plan**
Form of Performance Stock Unit
Agreement under 2010 Equity Incentive
Plan**
Form of Deferred Stock Unit Agreement
under 2010 Equity Incentive Plan
Form of Indemnification Agreement for
Independent Directors
Form of Indemnification Agreement for
Archie C. Black**
12/17/2020
05/21/2020
10/17/2017
01/11/2010
01/11/2010
2.1
3.2
3.1
10.3
10.4
X
8-K
8-K
S-1/A
S-1/A
S-1/A
01/11/2010
10.5
10-K
02/20/2015
10.6
8-K
02/17/2012
10.2
8-K
02/17/2012
10.3
8-K
02/17/2012
10.4
8-K
02/15/2017
99.2
10-Q
05/08/2012
10.6
8-K
02/18/2018
10.1
10-Q
04/26/2019
10.2
S-1/A
01/11/2010
10.18
S-1/A
01/11/2010
10.19
SPS COMMERCE, INC.
72
Form 10-K for the Annual Period ended December 31, 2020
Exhibit
Number
10.18
10.19
10.20
10.21
21.1
23.1
24.1
31.1
31.2
32.1
101
104
Exhibit Description
Management Incentive Plan**
Amended and Restated Executive
Severance and Change in Control
Agreement between the Company and
Archie C. Black**
Form of Amended and Restated Executive
Severance and Change in Control
Agreement**
Non-Employee Director Compensation
Summary**
Subsidiaries of the registrant
Consent of KPMG LLP
Power of Attorney (included on signature
page)
Certification of Principal Executive
Officer pursuant to Rules 13a-14(a) under
the Securities Exchange Act of 1934, as
amended
Certification of Principal Financial Officer
pursuant to Rules 13a-14(a) under the
Securities Exchange Act of 1934, as
amended
Certification of Chief Executive Officer
and Chief Financial Officer pursuant to 18
U.S.C. Sec. 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of
2002
Interactive Data Files Pursuant to Rule
405 of Regulation S-T
The cover page from the Annual Report
on Form 10-K for the year ended
December 31, 2020, formatted in Inline
XBRL.
Incorporated By Reference
Date of
First
Filing
02/03/2016
Exhibit
Number
10.2
02/18/2020
10.1
Form
8-K
8-K
Filed
Herewith
8-K
02/18/2020
10.2
10-Q
04/30/2020
10.3
X
X
X
X
X
X
X
X
**
Indicates management contract or compensatory plan or arrangement.
SPS COMMERCE, INC.
73
Form 10-K for the Annual Period ended December 31, 2020
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: February 23, 2021
SPS COMMERCE, INC.
By: /s/ ARCHIE C. BLACK
Archie C. Black
President and Chief Executive Officer
Each of the undersigned hereby appoints Archie C. Black and Kimberly K. Nelson, and each of them (with
full power to act alone), as attorneys and agents for the undersigned, with full power of substitution, for and in the
name, place and stead of the undersigned, to sign and file with the Securities and Exchange Commission under the
Securities Exchange Act of 1934, any and all amendments and exhibits to this annual report on Form 10-K and any
and all applications, instruments, and other documents to be filed with the Securities and Exchange Commission
pertaining to this annual report on Form 10-K or any amendments thereto, with full power and authority to do and
perform any and all acts and things whatsoever requisite and necessary or desirable. Pursuant to the requirements of
the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on February 23, 2021.
Name and Signature
/s/ ARCHIE C. BLACK
Archie C. Black
/s/ KIMBERLY K. NELSON
Kimberly K. Nelson
/s/ MARTIN J. LEESTMA
Martin J. Leestma
/s/ JAMES B. RAMSEY
James B. Ramsey
/s/ MARTY M. RÉAUME
Marty M. Réaume
/s/ TAMI L. RELLER
Tami L. Reller
/s/ PHILIP E. SORAN
Philip E. Soran
/s/ ANNE SEMPOWSKI WARD
Anne Sempowski Ward
/s/ SVEN A. WEHRWEIN
Sven A. Wehrwein
Title
Chief Executive Officer, President and Director
(principal executive officer)
Executive Vice President and Chief Financial Officer
(principal financial and accounting officer)
Director
Director
Director
Director
Director
Director
Director
SPS COMMERCE, INC.
74
Form 10-K for the Annual Period ended December 31, 2020
Executive Officers
Archie Black, Chief Executive Officer and President
Kim Nelson, Executive Vice President and Chief Financial Officer
Jim Frome, Executive Vice President and Chief Operating Officer
Board of Directors
Archie Black
Marty Leestma
James Ramsey
Marty Réaume
Tami Reller
Phil Soran
Anne Sempowski Ward
Sven Wehrwein
Corporate Headquarters
333 South Seventh Street, Suite 1000
Minneapolis, MN 55402 USA
Toll-free phone: 866-245-8100
Market Listing
Nasdaq Global Market Symbol: SPSC
Annual Meeting
Wednesday May 19, 2021
Independent Public Accountants
KPMG LLP
4200 Wells Fargo Center
90 South Seventh Street
Minneapolis, MN 55402 USA
Transfer Agent & Registrar
EQ Shareowner Services
1110 Centre Point Curve
Suite 101
Mendota Heights, MN 55120 USA
1-800-468-9716
shareowneronline.com
Legal Counsel
Faegre Drinker Biddle & Reath, LLP
2200 Wells Fargo Center
90 South Seventh Street
Minneapolis, MN 55402 USA
SPS COMMERCE
CORPORATE HEADQUARTERS
333 South Seventh Street, Suite 1000
Minneapolis, MN 55402 USA
Toll-free: (866) 245-8100
Main: (612) 435-9400
AMSTERDAM: +31 020 8881723
BEIJING: +86 4006 233 251
HONG KONG: +852 5808 6596
KYIV: +3 8044 594 80 89
MELBOURNE: +61 3 9847 7000
TORONTO: 888 550 8665
SYDNEY: +61 2 8073 8209
spscommerce.com