UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended: September 30, 2024

o 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	41-2015127
(State or other jurisdiction of incorporation or organization)	(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	Trading Symbol	Name of exchange on which registered
Common Stock, par value $0.001 per share	SPSC	The Nasdaq Stock Market LLC (Nasdaq Global Market)

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 x No o

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 x No o

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	x	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	o
		Emerging growth company	o

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. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

The number of shares of the registrant’s common stock, par value $0.001 per share, outstanding at October 17, 2024 was 37,568,061 shares.

SPS COMMERCE, INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)	3
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Comprehensive Income	4
	Condensed Consolidated Statements of Stockholders’ Equity	5
	Condensed Consolidated Statements of Cash Flows	7
	Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
Item 4.	Controls and Procedures	28
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	29
Item 1A.	Risk Factors	29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29
Item 3.	Defaults Upon Senior Securities	29
Item 4.	Mine Safety Disclosures	29
Item 5.	Other Information	30
Item 6.	Exhibits	30
SIGNATURES		31

Unless the context otherwise requires, for purposes of the Quarterly Report on Form 10-Q, the words “we,” “us,” “our,” the “Company,” “SPS,” and “SPS Commerce” refer to SPS Commerce, Inc.

SPS COMMERCE, INC. 2 Form 10-Q for the Quarterly Period ended September 30, 2024

PART I. – FINANCIAL INFORMATION

Item 1. Financial Statements

SPS COMMERCE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except shares)	September 30, 2024		December 31, 2023
ASSETS	(unaudited)
Current assets
Cash and cash equivalents	$	198,842	$	219,081
Short-term investments	6,931		56,359
Accounts receivable	60,044		50,160
Allowance for credit losses	(4,474)		(3,320)
Accounts receivable, net	55,570		46,840
Deferred costs	64,665		62,403
Other assets	18,639		16,758
Total current assets	344,647		401,441
Property and equipment, net	36,148		36,043
Operating lease right-of-use assets	8,412		7,862
Goodwill	423,508		249,176
Intangible assets, net	168,131		107,344
Other assets
Deferred costs, non-current	20,802		20,347
Deferred income tax assets	412		505
Other assets, non-current	1,240		1,126
Total assets	$	1,003,300	$	823,844
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	8,107	$	7,420
Accrued compensation	46,010		41,588
Accrued expenses	8,968		8,014
Deferred revenue	78,883		69,187
Operating lease liabilities	4,363		4,460
Total current liabilities	146,331		130,669
Other liabilities
Deferred revenue, non-current	6,550		6,930
Operating lease liabilities, non-current	8,807		9,569
Deferred income tax liabilities	11,607		8,972
Other liabilities, non-current	640		229
Total liabilities	173,935		156,369
Commitments and contingencies
Stockholders' equity
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 shares authorized; 39,495,411 and 38,971,146 shares issued; and 37,566,443 and 36,820,048 shares outstanding, respectively	39		39
Treasury stock, at cost; 1,928,968 and 2,151,098 shares, respectively	(99,748)		(128,892)
Additional paid-in capital	611,719		537,061
Retained earnings	318,540		259,045
Accumulated other comprehensive gain (loss)	(1,185)		222
Total stockholders’ equity	829,365		667,475
Total liabilities and stockholders’ equity	$	1,003,300	$	823,844

See accompanying notes to these condensed consolidated financial statements.

SPS COMMERCE, INC. 3 Form 10-Q for the Quarterly Period ended September 30, 2024

SPS COMMERCE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands, except per share amounts) (unaudited)	2024		2023		2024		2023
Revenues	$	163,686	$	135,661	$	466,858	$	391,945
Cost of revenues	51,624		45,521		155,129		133,029
Gross profit	112,062		90,140		311,729		258,916
Operating expenses
Sales and marketing	37,577		30,289		109,700		89,722
Research and development	15,292		13,558		45,667		39,438
General and administrative	27,152		21,906		76,575		64,275
Amortization of intangible assets	6,470		3,788		15,648		11,118
Total operating expenses	86,491		69,541		247,590		204,553
Income from operations	25,571		20,599		64,139		54,363
Other income, net	3,778		1,702		10,966		4,859
Income before income taxes	29,349		22,301		75,105		59,222
Income tax expense	5,889		5,459		15,610		12,409
Net income	$	23,460	$	16,842	$	59,495	$	46,813
Other comprehensive income (expense)
Foreign currency translation adjustments	3,332		(2,966)		(886)		(1,446)
Unrealized gain on investments, net of tax of $28, $190, $363 and $459, respectively	84		570		1,089		1,376
Reclassification of gain on investments into earnings, net of tax of $(83), $(137), $(537) and $(390), respectively	(248)		(412)		(1,610)		(1,169)
Total other comprehensive income (expense)	3,168		(2,808)		(1,407)		(1,239)
Comprehensive income	$	26,628	$	14,034	$	58,088	$	45,574
Net income per share
Basic	$	0.63	$	0.46	$	1.60	$	1.28
Diluted	$	0.62	$	0.45	$	1.57	$	1.25
Weighted average common shares used to compute net income per share
Basic	37,447		36,728		37,192		36,584
Diluted	37,996		37,584		37,785		37,417

See accompanying notes to these condensed consolidated financial statements.

SPS COMMERCE, INC. 4 Form 10-Q for the Quarterly Period ended September 30, 2024

SPS COMMERCE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

	Common Stock			Treasury Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Stockholders' Equity
(in thousands, except shares) (unaudited)	Shares	Amount		Shares	Amount
Balances, June 30, 2023	36,646,819	$	39	2,151,098	$	(128,892)	$	508,484	$	223,192	$	(1,842)	$	600,981
Stock-based compensation	—	—		—	—		10,780		—		—		10,780
Shares issued pursuant to stock awards	45,952	—		—	—		705		—		—		705
Employee stock purchase plan activity	3,159	—		—	—		344		—		—		344
Net income	—	—		—	—		—		16,842		—		16,842
Foreign currency translation adjustments	—	—		—	—		—		—		(2,966)		(2,966)
Unrealized gain on investments, net of tax	—	—		—	—		—		—		570		570
Reclassification of gain on investments into earnings, net of tax	—	—		—	—		—		—		(412)		(412)
Balances, September 30, 2023	36,695,930	$	39	2,151,098	$	(128,892)	$	520,313	$	240,034	$	(4,650)	$	626,844
Balances, June 30, 2024	37,086,627	$	39	2,333,099	$	(162,187)	$	574,842	$	295,080	$	(4,353)	$	703,421
Stock-based compensation	—	—		—	—		9,996		—		—		9,996
Shares issued pursuant to stock awards	72,852	—		—	—		1,884		—		—		1,884
Employee stock purchase plan activity	2,833	—		—	—		453		—		—		453
Repurchases of common stock, net of costs	(456)	—		456	(84)		—		—		—		(84)
Reissuances of treasury stock	404,587	—		(404,587)	62,523		24,544		—		—		87,067
Net income	—	—		—	—		—		23,460		—		23,460
Foreign currency translation adjustments	—	—		—	—		—		—		3,332		3,332
Unrealized gain on investments, net of tax	—	—		—	—		—		—		84		84
Reclassification of gain on investments into earnings, net of tax	—	—		—	—		—		—		(248)		(248)
Balances, September 30, 2024	37,566,443	$	39	1,928,968	$	(99,748)	$	611,719	$	318,540	$	(1,185)	$	829,365

SPS COMMERCE, INC. 5 Form 10-Q for the Quarterly Period ended September 30, 2024

	Common Stock			Treasury Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Gain (Loss)		Total Stockholders' Equity
(in thousands, except shares) (unaudited)	Shares	Amount		Shares	Amount
Balances, December 31, 2022	36,158,046	$	38	2,151,098	$	(128,892)	$	476,117	$	193,221	$	(3,411)	$	537,073
Stock-based compensation	—	—		—	—		34,192		—		—		34,192
Shares issued pursuant to stock awards	496,500	1		—	—		5,523		—		—		5,524
Employee stock purchase plan activity	41,384	—		—	—		4,481		—		—		4,481
Net income	—	—		—	—		—		46,813		—		46,813
Foreign currency translation adjustments	—	—		—	—		—		—		(1,446)		(1,446)
Unrealized gain on investments, net of tax	—	—		—	—		—		—		1,376		1,376
Reclassification of gain on investments into earnings, net of tax	—	—		—	—		—		—		(1,169)		(1,169)
Balances, September 30, 2023	36,695,930	$	39	2,151,098	$	(128,892)	$	520,313	$	240,034	$	(4,650)	$	626,844
Balances, December 31, 2023	36,820,048	$	39	2,151,098	$	(128,892)	$	537,061	$	259,045	$	222	$	667,475
Stock-based compensation	—	—		—	—		40,075		—		—		40,075
Shares issued pursuant to stock awards	488,849	—		—	—		4,198		—		—		4,198
Employee stock purchase plan activity	35,416	—		—	—		5,672		—		—		5,672
Repurchases of common stock, net of costs	(205,331)	—		205,331	(37,567)		—		—		—		(37,567)
Reissuances of treasury stock	427,461	—		(427,461)	66,711		24,713		—		—		91,424
Net income	—	—		—	—		—		59,495		—		59,495
Foreign currency translation adjustments	—	—		—	—		—		—		(886)		(886)
Unrealized gain on investments, net of tax	—	—		—	—		—		—		1,089		1,089
Reclassification of gain on investments into earnings, net of tax	—	—		—	—		—		—		(1,610)		(1,610)
Balances, September 30, 2024	37,566,443	$	39	1,928,968	$	(99,748)	$	611,719	$	318,540	$	(1,185)	$	829,365

See accompanying notes to these condensed consolidated financial statements..

SPS COMMERCE, INC. 6 Form 10-Q for the Quarterly Period ended September 30, 2024

SPS COMMERCE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Nine Months Ended September 30,
(in thousands) (unaudited)	2024		2023
Cash flows from operating activities
Net income	$	59,495	$	46,813
Reconciliation of net income to net cash provided by operating activities
Deferred income taxes	(9,918)		(11,906)
Depreciation and amortization of property and equipment	14,010		13,964
Amortization of intangible assets	15,648		11,118
Provision for credit losses	6,239		4,004
Stock-based compensation	42,264		36,097
Other, net	(925)		1,711
Changes in assets and liabilities, net of effects of acquisitions
Accounts receivable	(11,456)		(8,800)
Deferred costs	(2,240)		(7,543)
Other assets and liabilities	(2,258)		2,814
Accounts payable	665		(5,289)
Accrued compensation	458		8,073
Accrued expenses	842		(169)
Deferred revenue	5,424		10,042
Operating leases	(1,412)		(1,417)
Net cash provided by operating activities	116,836		99,512
Cash flows from investing activities
Purchases of property and equipment	(13,832)		(15,467)
Purchases of investments	(85,759)		(102,763)
Maturities of investments	136,765		95,000
Acquisition of businesses, net	(147,401)		(70,218)
Net cash used in investing activities	(110,227)		(93,448)
Cash flows from financing activities
Repurchases of common stock	(37,567)		—
Net proceeds from exercise of options to purchase common stock	4,198		5,524
Net proceeds from employee stock purchase plan activity	5,672		4,481
Net cash provided by (used in) financing activities	(27,697)		10,005
Effect of foreign currency exchange rate changes	849		(260)
Net increase (decrease) in cash and cash equivalents	(20,239)		15,809
Cash and cash equivalents at beginning of period	219,081		162,893
Cash and cash equivalents at end of period	$	198,842	$	178,702

See accompanying notes to these condensed consolidated financial statements.

SPS COMMERCE, INC. 7 Form 10-Q for the Quarterly Period ended September 30, 2024

SPS COMMERCE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE A – General

Business Description

SPS Commerce is a leading provider of cloud-based supply chain management services across our global retail network. Our products make it easier for retailers, grocers, distributors, suppliers, and logistics firms to communicate and collaborate by simplifying how they manage and share item, inventory, order and sales data across omnichannel retail channels. We deliver our products using a full-service model, which includes industry-leading technology and a team of experts that optimize, update, and operate the technology on customers' behalf.

Our products enable customers to increase supply chain performance, optimize inventory levels and sell-through, reduce operational costs, improve order visibility, and satisfy consumer demands for a seamless omnichannel experience.

Basis of Presentation

The accompanying unaudited condensed 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 condensed consolidated financial statements.

This interim financial information has been prepared under the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, these condensed consolidated financial statements do not include all of the information and notes required by GAAP. Therefore, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the Securities and Exchange Commission (“SEC”). We have included all normal recurring adjustments considered necessary to provide a fair presentation of our financial position, results of operations, stockholders’ equity, and cash flows for the interim periods presented. Operating results for these interim periods are not necessarily indicative of the results to be expected for the full year.

Use of Estimates

Preparing financial statements in conformity with GAAP requires management to make estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities, 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.

Significant Accounting Policies

There were no material changes in our significant accounting policies during the nine months ended September 30, 2024. See Note A to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC, for additional information regarding our significant accounting policies.

Accounting Pronouncements Recently Issued and Adopted

Standard	Date of Issuance	Description	Date of Adoption	Effect on the Financial Statements
ASU 2023-07, Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures	November 2023	This amendment requires that an entity disclose significant segment expenses impacting profit and loss that are regularly provided to the chief operating decision maker.	2024	The adoption will result in additional disclosure in our Annual Report on Form 10-K for the year ended December 31, 2024.
ASU 2023-09, Income Taxes (Topic 740) - Improvements to Income Tax Disclosures	December 2023	This amendment requires that an entity disclose specific categories in the effective tax rate reconciliation table as well as provide disclosure of disaggregated information related to income tax expense, income before income taxes, and income taxes paid.	2025	We are currently evaluating the adoption on our financial statements and anticipate the impact will result in additional disclosure.

SPS COMMERCE, INC. 8 Form 10-Q for the Quarterly Period ended September 30, 2024

NOTE B – Business Acquisitions

SupplyPike, Inc.

Effective July 31, 2024, we acquired SupplyPike, Inc. ("SupplyPike"), an automated invoice deduction management and prevention solution, through the purchase of all of the outstanding equity ownership interests of SupplyPike. Pursuant to the definitive agreement and plan of merger, the total consideration transferred at close was $205.8 million, net of cash acquired and subject to customary post-close adjustments. The consideration was comprised of $118.6 million paid in cash and 404,587 shares of SPS common stock (valued at $87.2 million, determined at acquisition close based on the price of SPS common stock). The shares were issued from SPS treasury shares, see Note J - Stockholders' Equity for further detail on the treasury share reissuance. The purchase accounting for the acquisition has not been finalized as of September 30, 2024; provisional amounts are primarily related to intangible assets and tax components. We will finalize the allocation of the purchase price within the one-year measurement period following the acquisition. The goodwill associated with the acquisition is not deductible for income tax purposes.

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.

The following table presents the purchase consideration and estimated fair values of acquired assets and liabilities recorded in the Company's condensed consolidated balance sheet as of the acquisition date:

(in thousands)
Cash paid	$	124,769
Equity consideration	87,156
Total consideration	$	211,925
Estimated fair value of assets and liabilities acquired:
Cash	$	6,118
Other assets	3,659
Intangible assets
Subscriber relationships	16,500
Developed technology	49,500
Deferred revenue	(2,297)
Other liabilities	(2,643)
Deferred income tax liabilities, net	(11,580)
Total fair value of assets and liabilities acquired	$	59,257
Goodwill	$	152,668

The following table summarizes the preliminary estimated useful lives for each acquired intangible asset:

	Useful Life
Subscriber relationships	7.0 years
Developed technology	8.0 years

Traverse Systems

Effective May 8, 2024, we entered into an asset purchase agreement to acquire certain assets of Traverse Systems LLC ("Traverse Systems"), an industry-leading provider in retailer supply chain performance and vendor management. Total consideration transferred at close was $29.4 million, subject to customary post-close adjustments, which was comprised of $25.0 million paid in cash and 22,874 shares of SPS common stock (valued at $4.4 million, determined at acquisition close based on the price of SPS common stock). The shares were issued from SPS treasury shares, see Note J - Stockholders' Equity for further detail on the treasury share reissuance.

SPS COMMERCE, INC. 9 Form 10-Q for the Quarterly Period ended September 30, 2024

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. Assets acquired primarily comprised of subscriber relationships and developed technology intangible assets, totaling $7.7 million and $3.6 million of estimated fair value, respectively, and $18.4 million was allocated to goodwill. The remainder of the consideration transferred was allocated to net assets acquired other than the intangible assets. The purchase accounting for the acquisition was finalized as of September 30, 2024. The goodwill associated with the acquisition is deductible for income tax purposes.

Other Acquisition Activity

Effective April 10, 2024, the Company entered into an asset purchase agreement to acquire Vision33's SAP Business One SPS Integration Technology. Pursuant to the definitive agreement, the purchase price, denominated in Canadian dollars ("CAD"), was $5.8 million CAD ($4.3 million U.S. dollars ["USD"] at the Agreement date exchange rate), of which $4.5 million CAD ($3.3 million USD) was paid in cash at close, with the remainder payable in cash within two years, subject to certain closing conditions. Assets acquired were primarily comprised of developed technology and subscriber relationships, totaling $1.7 million USD and $0.4 million USD of estimated fair value, respectively. The remainder of the consideration transferred, $2.2 million USD, was allocated to goodwill. The purchase accounting for the acquisition was finalized as of June 30, 2024. The goodwill associated with the acquisition is deductible for income tax purposes.

NOTE C – Revenue

We derive our revenues from the following revenue streams:

	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2024		2023		2024		2023
Recurring revenues:
Fulfillment	$	135,290	$	110,900	$	382,654	$	318,069
Analytics	13,838		13,098		41,361		38,177
Other	5,328		3,373		14,107		9,949
Recurring revenues	154,456		127,371		438,122		366,195
One-time revenues	9,230		8,290		28,736		25,750
Total revenue	$	163,686	$	135,661	$	466,858	$	391,945

Revenues are the amount that reflects the consideration we are contractually and legally entitled to, as well as the amount we expect to collect, in exchange for those services.

Revenue by Geographic Area

Domestic revenue, which we define as revenue that was attributable to customers based within the United States ("U.S."), was as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Domestic revenue	83	%	84	%	83	%	84	%

No single jurisdiction outside of the U.S. had revenues in excess of 10%.

Recurring Revenues

Recurring revenues consist of recurring subscriptions from customers that utilize our Fulfillment, Analytics, and Other supply chain management products. Revenue for these products 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, generally 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 generally are either in advance or within 30 days of the service being performed.

SPS COMMERCE, INC. 10 Form 10-Q for the Quarterly Period ended September 30, 2024

Given that the recurring revenue contracts are generally for one year or less, we have applied the optional exemption to not disclose information about the remaining performance obligations for recurring revenue contracts.

One-time Revenues

One-time revenues consist of set-up fees and miscellaneous fees from customers.

Set-up revenues

Set-up fees are specific for each connection a customer has with a trading partner. These nonrefundable fees are necessary for our customers to utilize our services and do not provide any standalone value. Many of our customers have connections with numerous trading partners.

Set-up fees constitute a material renewal option right that provide 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. As such, set-up fees and related costs are deferred and recognized ratably generally over two years which is the estimated period for which a material right is present for our customers.

The table below presents the activity of the portion of the deferred revenue liability relating to set-up fees. We expect to recognize $13.5 million of the balance as of September 30, 2024 as revenue over the next 12 months with the remaining amount recognized thereafter.

	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2024		2023		2024		2023
Balance, beginning of period	$	18,360	$	16,978	$	17,603	$	14,999
Invoiced set-up fees	3,866		4,496		13,387		14,493
Recognized set-up fees	(4,519)		(4,225)		(13,283)		(12,243)
Balance, end of period	$	17,707	$	17,249	$	17,707	$	17,249

Miscellaneous one-time revenues

Miscellaneous one-time fees consist of professional services and testing and certification.

The contract period for these one-time fees is 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 miscellaneous one-time fee contracts since they have original durations of one year or less.

Deferred Revenue

We recognized revenue of $61.8 million and $52.4 million in the nine months ended September 30, 2024 and 2023, respectively, from amounts included in deferred revenue at the beginning of the period.

NOTE D – Deferred Costs

The deferred costs activity was as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2024		2023		2024		2023
Balance, beginning of period	$	84,928	$	75,255	$	82,750	$	70,179
Incurred deferred costs	22,532		20,094		67,483		57,632
Amortized deferred costs	(21,993)		(16,303)		(64,766)		(48,765)
Balance, end of period	$	85,467	$	79,046	$	85,467	$	79,046

SPS COMMERCE, INC. 11 Form 10-Q for the Quarterly Period ended September 30, 2024

NOTE E – Fair Value Measurements

Cash equivalents and investments, as measured at fair value on a recurring basis, consisted of the following:

	September 30, 2024							December 31, 2023
	Fair Value Level	Amortized Cost		Unrealized Gains (Losses), net		Fair Value		Fair Value Level	Amortized Cost		Unrealized Gains (Losses), net		Fair Value
(in thousands)
Cash equivalents:
Money market funds	Level 1	$	135,700	$	—	$	135,700	Level 1	$	161,233	$	—	$	161,233
Investments:
Certificates of deposit	Level 2	6,931		—		6,931		Level 1	6,805		—		6,805
Marketable securities:
Commercial paper	Level 2	—		—		—		Level 2	48,860		694		49,554
		$	142,631	$	—	$	142,631		$	216,898	$	694	$	217,592

NOTE F – Allowance for Credit Losses

The allowance for credit losses activity, included in accounts receivable, net, was as follows:

	Nine Months Ended September 30,
(in thousands)	2024		2023
Balance, beginning of period	$	3,320	$	3,066
Provision for credit losses	6,239		4,004
Write-offs, net of recoveries	(5,085)		(3,993)
Balance, end of period	$	4,474	$	3,077

NOTE G – Property and Equipment, Net

Property and equipment, net consisted of the following:

(in thousands)	September 30, 2024		December 31, 2023
Internally developed software	$	69,727	$	60,396
Computer equipment	35,904		34,402
Leasehold improvements	15,381		15,387
Office equipment and furniture	10,980		10,966
Property and equipment, cost	131,992		121,151
Less: accumulated depreciation and amortization	(95,844)		(85,108)
Total property and equipment, net	$	36,148	$	36,043

Property and equipment, net located at subsidiary and office locations outside of the U.S. was as follows:

	September 30, 2024		December 31, 2023
International property and equipment	18	%	15	%

SPS COMMERCE, INC. 12 Form 10-Q for the Quarterly Period ended September 30, 2024

NOTE H – Goodwill and Intangible Assets, Net

Goodwill

The activity in goodwill was as follows:

(in thousands)	Nine Months Ended September 30, 2024
Balance, beginning of period	$	249,176
Addition from business acquisitions	173,164
Foreign currency translation	(649)
Remeasurement from provisional purchase accounting amount	1,817
Balance, end of period	$	423,508

Intangible Assets

Intangible assets, net consisted of the following:

	September 30, 2024
($ in thousands)	Gross Carrying Amount		Accumulated Amortization		Foreign Currency Translation		Net		Weighted Average Remaining Amortization Period
Subscriber relationships	$	126,423	$	(41,513)	$	(138)	$	84,772	6.2 years
Developed technology	105,518		(22,151)		(8)		83,359		6.6 years
	$	231,941	$	(63,664)	$	(146)	$	168,131	6.4 years

	December 31, 2023
($ in thousands)	Gross Carrying Amount		Accumulated Amortization		Foreign Currency Translation		Net		Weighted Average Remaining Amortization Period
Subscriber relationships	$	105,228	$	(32,097)	$	724	$	73,855	6.6 years
Developed technology	48,843		(15,669)		315		33,489		5.0 years
	$	154,071	$	(47,766)	$	1,039	$	107,344	6.1 years

The estimated future annual amortization expense related to intangible assets is as follows:

(in thousands)
Remainder of 2024	$	7,231
2025	28,792
2026	27,788
2027	27,314
2028	25,974
Thereafter	51,032
Total future amortization	$	168,131

SPS COMMERCE, INC. 13 Form 10-Q for the Quarterly Period ended September 30, 2024

NOTE I – Commitments and Contingencies

Leases

The components of lease expense were as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2024		2023		2024		2023
Operating lease cost	$	884	$	729	$	2,496	$	2,306
Variable lease cost	824		909		2,743		2,787
	$	1,708	$	1,638	$	5,239	$	5,093

Supplemental cash flow information related to leases was as follows:

	Nine Months Ended September 30,
(in thousands)	2024		2023
Cash paid for amounts included in the measurement of lease liabilities
Operating cash outflows from operating leases	$	3,801	$	3,835
Right-of-use assets obtained in exchange for operating lease liabilities	2,554		1,072

Supplemental balance sheet information related to operating leases was as follows:

	September 30, 2024		December 31, 2023
Weighted-average remaining lease term	2.6 years		3.1 years
Weighted-average discount rate	4.2	%	4.0	%

At September 30, 2024, our future minimum payments under operating leases were as follows:

(in thousands)
Remainder of 2024	$	1,716
2025	5,460
2026	4,784
2027	1,740
Thereafter	240
Total future gross payments	$	13,940
Less: imputed interest	(770)
Total operating lease liabilities	$	13,170

Purchase Commitments

We have entered into separate noncancelable agreements with computing infrastructure, productivity software, customer relationship management, and performance and security data analytics vendors for services through 2026. At September 30, 2024, our remaining purchase commitments and estimated purchase timing were as follows:

(in thousands)
Remainder of 2024	$	2,890
2025	14,187
2026	4,692
Total estimated future purchases	$	21,769

SPS COMMERCE, INC. 14 Form 10-Q for the Quarterly Period ended September 30, 2024

NOTE J – Stockholders’ Equity

Share Repurchase Programs

Our board of directors has authorized multiple non-concurrent programs to repurchase our common stock. Details of the programs and activity thereunder through September 30, 2024 were as follows:

(in thousands)	Effective Date	Expiration Date	Share Value Authorized for Repurchase		Share Value Repurchased		Unused & Expired Share Repurchase Value		Share Value Available for Future Repurchase
2022 Program	August 2022	July 2024	$	50,000	$	40,556	$	9,444	N/A
2024 Program	August 2024	July 2026	100,000		—		N/A		$	100,000

Share repurchases are accounted for as the trade date occurs and are reflected in the condensed consolidated financial statements net of the costs incurred to acquire the shares. Share repurchases that have not yet settled in cash are included in accrued expenses in the condensed consolidated balance sheet. The share repurchase activity by period was as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands, except shares and per share amounts)	2024		2023		2024		2023
Number of shares repurchased	456		—		205,331		—
Total share repurchased cost	$	84	$	—	$	37,567	$	—
Average total cost per repurchased share	$	184.21	$	—	$	182.96	$	—

Treasury Stock Reissuance

In connection with the acquisitions of SupplyPike and Traverse Systems, the Company re-issued treasury shares as part of the purchase considerations (see Note B – Business Combinations for further information). Treasury stock reissuances are accounted for using the specific identification method, with gains (or losses to the extent of previously recognized gains) recognized in additional paid-in capital and any remaining loss recorded in retained earnings.

NOTE K – 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 performance share units (“PSUs”), restricted stock awards (“RSAs”), restricted stock units (“RSUs”), and deferred stock units (“DSUs”), to employees, non-employee directors and other consultants who provide services to us. We also provide an employee stock purchase plan (“ESPP”) and 401(k) match to eligible participants.

We recognize stock-based compensation expense based on grant date award fair value. This cost is recognized over the period for which the employee is required to provide service in exchange for the award or the award performance period, except for expenses relating to retirement-eligible employees. If retirement-eligible employees have not given their required notice, expense is recognized on a pro-rata basis over the notice period prior to retirement; if they have given their notice, expense is recognized over the notice period; if they have given their notice and completed the notice period, expense is recognized upon grant. At September 30, 2024, there were 12.3 million shares available for grant under approved equity compensation plans.

SPS COMMERCE, INC. 15 Form 10-Q for the Quarterly Period ended September 30, 2024

Stock-based compensation expense was allocated in the condensed consolidated statements of comprehensive income as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2024		2023		2024		2023
Cost of revenues	$	1,412	$	2,506	$	8,224	$	7,595
Operating expenses
Sales and marketing	2,820		2,428		9,776		7,379
Research and development	1,939		1,798		7,001		5,387
General and administrative	4,581		4,704		17,263		15,736
	$	10,752	$	11,436	$	42,264	$	36,097

Stock-based compensation expense by grant type or plan was as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2024		2023		2024		2023
Stock options	$	514	$	487	$	1,517	$	1,472
PSUs	2,260		2,812		7,149		10,236
RSUs & DSUs	6,309		6,722		28,751		20,165
RSAs	112		122		329		345
ESPP	800		637		2,323		1,974
401(k) stock match	757		656		2,195		1,905
	$	10,752	$	11,436	$	42,264	$	36,097

As of September 30, 2024, there was $78.9 million of unrecognized stock-based compensation expense under our equity compensation plans, which is expected to be recognized on a primarily straight-line basis over a weighted average period of 2.5 years.

Stock Options

Our stock option activity was as follows:

	Nine Months Ended September 30, 2024
	Options (#)	Weighted Average Exercise Price ($/share)
Outstanding, beginning of period	346,822	$	80.02
Granted	36,993	197.42
Exercised	(85,364)	49.18
Forfeited	(2,094)	158.63
Outstanding, end of period	296,357	$	103.01

Of the total outstanding options at September 30, 2024, 0.2 million were exercisable. The outstanding and exercisable options had a weighted average exercise price of $83.65 per share and a weighted average remaining contractual life of 3.0 years.

SPS COMMERCE, INC. 16 Form 10-Q for the Quarterly Period ended September 30, 2024

The weighted average grant date fair value of options granted during the nine months ended September 30, 2024 was $69.82 per share. This was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:

Life (in years)	4.1
Volatility	36.7	%
Dividend yield	—
Risk-free interest rate	4.3	%

Performance Share Units, Restricted Stock Units and Awards, and Deferred Stock Units

In each of the quarters ended March 31, 2024, 2023, 2022, and 2021 we granted PSU awards with a target performance level. These awards are earned based upon our Company’s total shareholder return as compared to an indexed total shareholder return over the course of a fiscal based three-year performance period, starting in the year of grant. Earned awards vest in the quarter following the conclusion of the performance period. In the three months ended March 31, 2024, PSU awards granted in 2021 vested at the maximum performance level and 0.1 million shares of common stock were issued.

Activity for our PSUs, RSUs, RSAs, and DSUs in aggregate was as follows:

	Nine Months Ended September 30, 2024
	#	Weighted Average Grant Date Fair Value ($/share)
Outstanding, beginning of period	773,414	$	147.50
Granted	409,843	185.73
Vested and common stock issued	(403,291)	124.30
Forfeited	(33,725)	180.49
Outstanding, end of period	746,241	$	179.54

The number of PSUs, RSUs, RSAs, and DSUs outstanding at September 30, 2024 included less than 0.1 million units that have vested, but the shares of common stock have not yet been issued, pursuant to the terms of the underlying agreements.

Employee Stock Purchase Plan

Our ESPP activity was as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands, except shares)	2024		2023		2024		2023
Amounts for shares purchased	$	453	$	344	$	5,672	$	4,481
Shares purchased	2,833		3,159		35,416		41,384

A total of 1.6 million shares of common stock are reserved for issuance under the plan at September 30, 2024.

The fair value was estimated based on the market price of our common stock at the beginning of the offering period using the following assumptions:

Life (in years)	0.5
Volatility	30.9	%
Dividend yield	—
Risk-free interest rate	5.3	%

SPS COMMERCE, INC. 17 Form 10-Q for the Quarterly Period ended September 30, 2024

NOTE L – Income Taxes

We record our interim provision for income taxes by applying our estimated annual effective tax rate to our year-to-date pre-tax income and adjust the provision for discrete tax items recorded in the period. Our provisions for income taxes includes current federal, state, and foreign income tax expense, as well as deferred tax expense.

Differences between our effective tax rate and statutory tax rates are primarily due to the impact of permanently non-deductible expenses partially offset by the federal research and development credits and tax benefits associated with foreign-derived intangible income. Additionally, excess tax benefits generated upon settlement or exercise of stock awards are recognized as a reduction to income tax expense as a discrete tax item in the quarter that the event occurs, creating potentially significant fluctuation in tax expense by quarter and by year.

NOTE M – Other Income and Expense

Other income, net included the following:

	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2024		2023		2024		2023
Investment income	$	2,704	$	2,635	$	8,377	$	5,372
Realized gain from foreign currency on cash and investments held	1,077		98		2,636		525
Other expense, net	(3)		(1,031)		(47)		(1,038)
Total other income, net	$	3,778	$	1,702	$	10,966	$	4,859

NOTE N – Net Income Per Share

The components and computation of basic and diluted net income per share were as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands, except per share amounts)	2024		2023		2024		2023
Numerator
Net income	$	23,460	$	16,842	$	59,495	$	46,813
Denominator
Weighted average common shares outstanding, basic	37,447		36,728		37,192		36,584
Options to purchase common stock and ESPP	145		256		159		279
PSUs, RSUs, RSAs, and DSUs	404		600		434		554
Weighted average common shares outstanding, diluted	37,996		37,584		37,785		37,417
Net income per share
Basic	$	0.63	$	0.46	$	1.60	$	1.28
Diluted	$	0.62	$	0.45	$	1.57	$	1.25

The number of outstanding potential common shares that were excluded from the calculation of diluted net income per share as they were anti-dilutive was as follows:

	Three Months Ended September 30,		Nine Months Ended September 30,
(in thousands)	2024	2023	2024	2023
Anti-dilutive shares	130	40	118	43

SPS COMMERCE, INC. 18 Form 10-Q for the Quarterly Period ended September 30, 2024

Item 2.    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 in conjunction with our condensed consolidated financial statements in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2023. This Quarterly Report on Form 10-Q 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 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,” “assume,” “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” appearing in our Annual Report on Form 10-K for the year ended December 31, 2023, 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 SEC that advise interested parties of the risks and factors that may affect our business.

Overview

SPS Commerce is a leading provider of cloud-based supply chain management services across our global retail network. Our products make it easier for retailers, grocers, distributors, suppliers, and logistics firms to communicate and collaborate by simplifying how they manage and share item, inventory, order and sales data across omnichannel retail channels. We deliver our products using a full-service model, which includes industry-leading technology and a team of experts that optimize, update, and operate the technology on customers' behalf.

Our products enable customers to increase supply chain performance, optimize inventory levels and sell-through, reduce operational costs, improve order visibility, and satisfy consumer demands for a seamless omnichannel experience.

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 products 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.

Key Financial Terms, Metrics and Non-GAAP Measures

We have several key financial terms, metrics, and non-GAAP measures as discussed in our Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC, under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

To supplement our condensed consolidated financial statements, we provide investors with Adjusted EBITDA, Adjusted EBITDA Margin, and non-GAAP income per share, all of which are non-GAAP financial measures. We believe that these non-GAAP financial measures provide useful information to our management, Board of Directors, and investors regarding certain financial and business trends relating to our financial condition and results of operations.

Our management uses these non-GAAP financial measures to compare our performance to that of prior periods for trend analyses and planning purposes. Adjusted EBITDA is also used for purposes of determining executive and senior management incentive compensation. We believe these non-GAAP financial measures are useful to an investor as they are widely used in evaluating operating performance. Adjusted EBITDA and Adjusted EBITDA Margin are used to measure operating performance without regard to items such as depreciation and amortization, which can vary depending upon accounting methods and the book value of assets, and to present a meaningful measure of corporate performance exclusive of capital structure and the method by which assets were acquired.

SPS COMMERCE, INC. 19 Form 10-Q for the Quarterly Period ended September 30, 2024

These non-GAAP financial measures should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP. These non-GAAP financial measures exclude significant expenses and income that are required by GAAP to be recorded in our condensed consolidated financial statements and are subject to inherent limitations. Investors should review the reconciliations of non-GAAP financial measures to the comparable GAAP financial measures that are included in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Results of Operations

Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023

The following table presents our results of operations for the periods indicated:

	Three Months Ended September 30,
	2024				2023				Change
($ in thousands)	$		% of revenue(1)		$		% of revenue(1)		$		%(2)
Revenues	$	163,686	100	%	$	135,661	100	%	$	28,025	21	%
Cost of revenues	51,624		32		45,521		34		6,103		13
Gross profit	112,062		68		90,140		66		21,922		24
Operating expenses
Sales and marketing	37,577		23		30,289		22		7,288		24
Research and development	15,292		9		13,558		10		1,734		13
General and administrative	27,152		17		21,906		16		5,246		24
Amortization of intangible assets	6,470		4		3,788		3		2,682		71
Total operating expenses	86,491		53		69,541		51		16,950		24
Income from operations	25,571		16		20,599		15		4,972		24
Other income, net	3,778		2		1,702		1		2,076		NM
Income before income taxes	29,349		18		22,301		16		7,048		32
Income tax expense	5,889		4		5,459		4		430		8
Net income	$	23,460	14	%	$	16,842	12	%	$	6,618	39	%
(1) Amounts in column may not foot due to rounding
(2) NM = not meaningful

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

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

•The number of recurring revenue customers increased 2% to approximately 45,200 at September 30, 2024 from approximately 44,500 at September 30, 2023, primarily due to sales and marketing efforts to acquire new customers and recent acquisitions. New recurring revenue customers do not have a meaningful contribution to revenue at the beginning of their tenure as our recurring revenue customer, and therefore a majority of the increased revenue was generated from existing recurring revenue customers.

SPS COMMERCE, INC. 20 Form 10-Q for the Quarterly Period ended September 30, 2024

•Approximately 1,000 recurring revenue customers were added in September 2023 due to the acquisition of the existing customer base of TIE Kinetix. Additionally, approximately 50 recurring revenue customers were added in May 2024 due to the acquisition of the existing customer base of Traverse Systems, and approximately 200 recurring revenue customers were added in July 2024 due to the acquisition of the existing customer base of SupplyPike.

Recurring revenues increased 21% to $154.5 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. Recurring revenues accounted for 94% of our total revenues for the three months ended September 30, 2024 and 2023. We anticipate that the number of recurring revenue customers and wallet share will continue to increase as we execute our growth strategy focused on further penetration of our market.

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

Sales and Marketing Expenses - The increase in sales and marketing expense was primarily due to increased headcount, which resulted in an increase of $5.0 million in personnel-related costs.

Research and Development Expenses - The increase in research and development expense was primarily due to increased headcount, which resulted in an increase of $2.4 million in personnel-related costs.

General and Administrative Expenses - The increase in general and administrative expense was primarily due to increased headcount, which resulted in an increase of $1.7 million in personnel-related costs. Additionally, there was an expense increase of $1.1 million associated with current and projected future credit losses and overall business growth.

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

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

Income Tax Expense - The increase in income tax expense was primarily driven by increases in pre-tax income and our US state effective rate, as partially offset by favorable return to provision adjustments made in the current period.

Adjusted EBITDA - Adjusted EBITDA consists of net income adjusted for income tax expense, depreciation and amortization expense, stock-based compensation expense, realized gain or loss from foreign currency on cash and investments held, investment income, and other adjustments as necessary for a fair presentation. Other adjustments for the three months ended September 30, 2024 included the expense impacts from disposals of certain capitalized internally developed software and one-time acquisition-related insurance costs. Other adjustments for the three months ended September 30, 2023 included the expense impact from acquisition-related employee severance costs. Net income is the comparable GAAP measure of financial performance.

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

	Three Months Ended September 30,
(in thousands)	2024		2023
Net income	$	23,460	$	16,842
Income tax expense	5,889		5,459
Depreciation and amortization of property and equipment	4,633		4,675
Amortization of intangible assets	6,470		3,788
Stock-based compensation expense	10,752		11,436
Realized gain from foreign currency on cash and investments held	(1,077)		(98)
Investment income	(2,704)		(2,635)
Other	978		1,036
Adjusted EBITDA	$	48,401	$	40,503

SPS COMMERCE, INC. 21 Form 10-Q for the Quarterly Period ended September 30, 2024

Adjusted EBITDA Margin - Adjusted EBITDA Margin consists of Adjusted EBITDA divided by revenue. Margin, the comparable GAAP measure of financial performance, consists of net income divided by revenue.

The following table provides a comparison of Margin to Adjusted EBITDA Margin:

	Three Months Ended September 30,
(in thousands, except Margin and Adjusted EBITDA Margin)	2024			2023
Revenue	$	163,686		$	135,661
Net income	23,460			16,842
Margin	14		%	12		%
Adjusted EBITDA	48,401			40,503
Adjusted EBITDA Margin	30