10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the Quarterly Period Ended: September 30, 2019

☐ 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  ☒    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	☒	Accelerated filer	☐
Non-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 is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

The number of shares of the registrant’s common stock, par value $0.001 per share, outstanding at October 18, 2019 was 34,839,275 shares.

SPS COMMERCE, INC.

QUARTERLY REPORT ON FORM 10-Q

INDEX

		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	4
	Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018 (Unaudited)	4
	Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2019 and 2018 (Unaudited)	5
	Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2019 and 2018 (Unaudited)	6
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018 (Unaudited)	7
	Notes to Condensed Consolidated Financial Statements (Unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
Item 4.	Controls and Procedures	29
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	30
Item 1A.	Risk Factors	30
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 3.	Defaults Upon Senior Securities	30
Item 4.	Mine Safety Disclosures	30
Item 5.	Other Information	30
Item 6.	Exhibits	31
Signatures		32

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

2

SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION

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.  Factors that could cause or contribute to such differences include, but are not limited to, those described under the heading “Risk Factors” included in our Annual Report on Form 10-K/A for the year ended December 31, 2018 as filed with the Securities and Exchange Commission (“SEC”), as may be updated in our subsequent Quarterly Reports on Form 10-Q from time to time.  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.  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.

3

PART I. – FINANCIAL INFORMATION

Item 1.Financial Statements

SPS COMMERCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited; in thousands, except per share amounts)

	September 30,			December 31,
	2019			2018
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	149,727		$	133,859
Short-term investments		51,446			44,537
Accounts receivable, less allowance for doubtful accounts of $1,500 and $1,392, respectively		29,383			27,488
Deferred costs		34,583			34,502
Other current assets		8,385			9,229
Total current assets		273,524			249,615
PROPERTY AND EQUIPMENT, less accumulated depreciation of $49,168 and $41,175, respectively		20,757			20,957
OPERATING LEASE RIGHT-OF-USE ASSETS		13,648			—
GOODWILL		76,366			69,658
INTANGIBLE ASSETS, net		23,844			22,741
OTHER ASSETS
Deferred costs		10,998			10,973
Deferred income tax asset		4,839			10,456
Other assets		2,621			1,723
Total assets	$	426,597		$	386,123
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable	$	4,367		$	4,440
Accrued compensation		17,660			20,415
Accrued expenses		4,874			4,558
Deferred revenue		30,351			25,328
Deferred rent		—			1,781
Operating lease liabilities		3,281			—
Total current liabilities		60,533			56,522
OTHER LIABILITIES
Deferred revenue		2,601			2,512
Deferred rent		—			5,371
Operating lease liabilities		16,224			—
Deferred income tax liability		1,169			1,376
Other non-current liabilities		1,002			1,368
Total liabilities		81,529			67,149
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; 55,000,000 shares authorized; 36,026,218 and 35,515,256 shares issued; and 34,901,884 and 34,691,472 outstanding, respectively		36			36
Treasury stock, at cost; 1,124,334 and 823,784 shares, respectively		(40,645	)		(25,679	)
Additional paid-in capital		349,014			332,574
Retained earnings		39,811			15,261
Accumulated other comprehensive loss		(3,148	)		(3,218	)
Total stockholders’ equity		345,068			318,974
Total liabilities and stockholders’ equity	$	426,597		$	386,123

Shares and per share data have been adjusted for all periods presented to reflect a two-for-one stock split effective August 22, 2019.

See accompanying notes to these condensed consolidated financial statements.

4

SPS COMMERCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited; in thousands, except per share amounts)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
Revenues	$	70,928		$	62,868		$	206,391		$	183,051
Cost of revenues		23,263			20,411			68,330			60,571
Gross profit		47,665			42,457			138,061			122,480
Operating expenses
Sales and marketing		16,937			16,952			52,404			54,023
Research and development		7,743			5,146			20,444			15,571
General and administrative		10,725			11,174			33,674			31,278
Amortization of intangible assets		1,327			928			3,897			3,086
Total operating expenses		36,732			34,200			110,419			103,958
Income from operations		10,933			8,257			27,642			18,522
Other income (expense)
Interest income, net		843			628			2,233			1,589
Other income (expense), net		(165	)		(219	)		28			(541	)
Change in earn-out liability		22			—			366			—
Total other income, net		700			409			2,627			1,048
Income before income taxes		11,633			8,666			30,269			19,570
Income tax expense		2,692			605			5,719			2,839
Net income	$	8,941		$	8,061		$	24,550		$	16,731
Other comprehensive income (expense)
Foreign currency translation adjustments		(958	)		76		$	73		$	(2,155	)
Unrealized gain on investments, net of tax of $38, $41, $105, and $88, respectively		115			123		$	315		$	264
Reclassification of gain on investments into earnings, net of tax of ($48), ($11), ($109) and ($64), respectively		(145	)		(33	)	$	(326	)	$	(191	)
Total other comprehensive income (expense)		(988	)		166			62			(2,082	)
Comprehensive income	$	7,953		$	8,227		$	24,612		$	14,649
Net income per share
Basic	$	0.26		$	0.23		$	0.70		$	0.49
Diluted	$	0.25		$	0.23		$	0.68		$	0.48
Weighted average common shares used to compute net income per share
Basic		35,015			34,438			34,966			34,334
Diluted		35,932			35,482			35,952			35,114

Shares and per share data have been adjusted for all periods presented to reflect a two-for-one stock split effective August 22, 2019.

See accompanying notes to these condensed consolidated financial statements.

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SPS COMMERCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited; in thousands, except share amounts)

															Accumulated
											Additional				Other			Total
	Common Stock					Treasury Stock					Paid-in		Retained		Comprehensive			Stockholders'
	Shares			Amount		Shares		Amount			Capital		Earnings		Income (Loss)			Equity
Balances, June 30, 2018		34,319,638		$	35		631,082	$	(17,684	)	$	313,869	$	59	$	(1,590	)	$	294,689
Stock-based compensation		—			—		—		—			2,973		—		—			2,973
Exercise of stock options and issuance of restricted stock		338,008			—		—		—			6,680		—		—			6,680
Repurchases of common stock		(52,502	)		—		52,502		(1,998	)		—		—		—			(1,998	)
Net income		—			—		—		—			—		8,061		—			8,061
Foreign currency translation adjustments		—			—		—		—			—		—		76			76
Unrealized gain on investments, net of tax		—			—		—		—			—		—		123			123
Reclassification of gain on investments into earnings, net of tax		—			—		—		—			—		—		(33	)		(33	)
Balances, September 30, 2018		34,605,144		$	35		683,584	$	(19,682	)	$	323,522	$	8,120	$	(1,424	)	$	310,571
Balances, June 30, 2019		34,936,212		$	36		1,007,478	$	(34,645	)	$	344,232	$	30,870	$	(2,160	)	$	338,333
Stock-based compensation		—			—		—		—			2,804		—		—			2,804
Exercise of stock options and issuance of restricted stock		80,350			—		—		—			1,902		—		—			1,902
Employee stock purchase plan		2,178			—		—		—			76		—		—			76
Repurchases of common stock		(116,856	)		—		116,856		(6,000	)		—		—		—			(6,000	)
Net income		—			—		—		—			—		8,941		—			8,941
Foreign currency translation adjustments		—			—		—		—			—		—		(958	)		(958	)
Unrealized gain on investments, net of tax		—			—		—		—			—		—		115			115
Reclassification of gain on investments into earnings, net of tax		—			—		—		—			—		—		(145	)		(145	)
Balances, September 30, 2019		34,901,884		$	36		1,124,334	$	(40,645	)	$	349,014	$	39,811	$	(3,148	)	$	345,068

														Retained			Accumulated
											Additional			Earnings			Other			Total
	Common Stock					Treasury Stock					Paid-in			(Accumulated			Comprehensive			Stockholders'
	Shares			Amount		Shares		Amount			Capital			Deficit)			Income (Loss)			Equity
Balances, December 31, 2017		34,254,012		$	34		244,294	$	(5,815	)	$	301,846		$	(8,611	)	$	657		$	288,111
Stock-based compensation		—			—		—		—			9,040			—			—			9,040
Exercise of stock options and issuance of restricted stock		749,936			1		—		—			11,800			—			—			11,801
Employee stock purchase plan		40,486			—		—		—			836			—			—			836
Repurchases of common stock		(439,290	)		—		439,290		(13,867	)		—			—			—			(13,867	)
Net income		—			—		—		—			—			16,731			—			16,731
Foreign currency translation adjustments		—			—		—		—			—			—			(2,155	)		(2,155	)
Unrealized gain on investments, net of tax		—			—		—		—			—			—			264			264
Reclassification of gain on investments into earnings, net of tax		—			—		—		—			—			—			(190	)		(190	)
Balances, September 30, 2018		34,605,144		$	35		683,584	$	(19,682	)	$	323,522		$	8,120		$	(1,424	)	$	310,571
Balances, December 31, 2018		34,691,472		$	36		823,784	$	(25,679	)	$	332,574		$	15,261		$	(3,218	)	$	318,974
Stock-based compensation		—			—		—		—			10,312			—			—			10,312
Exercise of stock options and issuance of restricted stock		483,492			—		—		—			5,273			—			—			5,273
Employee stock purchase plan		32,992			—		—		—			1,155			—			—			1,155
Repurchases of common stock		(300,550	)		—		300,550		(14,966	)		—			—			—			(14,966	)
Settlement and subsequent return of shares		(5,522	)		—		—		—			(300	)		—			—			(300	)
Net income		—			—		—		—			—			24,550			—			24,550
Foreign currency translation adjustments		—			—		—		—			—			—			73			73
Unrealized gain on investments, net of tax		—			—		—		—			—			—			315			315
Reclassification of gain on investments into earnings, net of tax		—			—		—		—			—			—			(326	)		(326	)
Adoption of ASU 2018-02		—			—		—		—			—			—			8			8
Balances, September 30, 2019		34,901,884		$	36		1,124,334	$	(40,645	)	$	349,014		$	39,811		$	(3,148	)	$	345,068

Shares and per share data have been adjusted for all periods presented to reflect a two-for-one stock split effective August 22, 2019.

See accompanying notes to these condensed consolidated financial statements.

6

SPS COMMERCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; in thousands)

	Nine Months Ended
	September 30,
	2019			2018
Cash flows from operating activities
Net income	$	24,550		$	16,731
Reconciliation of net income to net cash provided by operating activities
Deferred income taxes		5,360			1,934
Change in earn-out liability		(366	)		—
Depreciation and amortization of property and equipment		8,143			6,308
Amortization of intangible assets		3,897			3,086
Provision for doubtful accounts		2,429			1,780
Stock-based compensation		11,316			9,978
Other, net		(551	)		(255	)
Changes in assets and liabilities
Accounts receivable		(3,670	)		(4,279	)
Deferred costs		(151	)		(3,813	)
Other current and non-current assets		(820	)		(681	)
Accounts payable		181			382
Accrued compensation		(3,716	)		(592	)
Accrued expenses		(84	)		(718	)
Deferred revenue		4,929			7,039
Deferred rent		—			647
Operating leases		(487	)		—
Net cash provided by operating activities		50,960			37,547
Cash flows from investing activities
Purchases of property and equipment		(8,387	)		(9,875	)
Purchases of investments		(61,967	)		(64,434	)
Maturities of investments		55,225			60,000
Acquisitions of businesses and intangible assets, net of cash acquired		(11,500	)		(381	)
Net cash used in investing activities		(26,629	)		(14,690	)
Cash flows from financing activities
Repurchases of common stock		(14,966	)		(13,867	)
Net proceeds from exercise of options to purchase common stock		5,273			11,800
Net proceeds from employee stock purchase plan		1,155			836
Net cash used in financing activities		(8,538	)		(1,231	)
Effect of foreign currency exchange rate changes		75			(5	)
Net increase in cash and cash equivalents		15,868			21,621
Cash and cash equivalents at beginning of period		133,859			123,127
Cash and cash equivalents at end of period	$	149,727		$	144,748

See accompanying notes to these condensed consolidated financial statements.

7

SPS COMMERCE, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

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, 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.  The solutions SPS Commerce provides allow 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.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of SPS Commerce, Inc. and its subsidiaries.  All intercompany accounts and transactions have been eliminated in the condensed consolidated financial statements, which have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with 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.  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 shown.  Operating results for these interim periods are not necessarily indicative of the results to be expected for the full year.  For further information, refer to the consolidated financial statements and accompanying notes for the year ended December 31, 2018 included in our Annual Report on Form 10-K/A filed with the SEC.

Effective January 1, 2019, we adopted the requirements of Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), and used the effective date as our date of initial application. Consequently, financial information was not updated and the disclosures required under the new standard were not provided for dates and periods before January 1, 2019.  The new standard provides several optional practical expedients in transition. We elected the “package of practical expedients,” which permits us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. We did not elect the use-of hindsight or the practical expedient pertaining to land easements, the latter not being applicable to us.  The new standard also provides practical expedients for an entity’s ongoing accounting. We elected the short-term lease recognition exemption for all leases that qualify, which means we will not recognize right-of-use (“ROU”) assets or lease liabilities for these leases. This includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition. We also elected the practical expedient to not separate lease and non-lease components for all leases.

On July 25, 2019, the Company announced that its board of directors declared a two-for-one stock split of the Company’s 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 Quarterly Report on Form 10-Q after the effect of 100 percent stock dividend. The two-for-one stock split is reflected in the share amounts in all periods presented in this Quarterly Report on Form 10-Q.  

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, 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.

Lease Policy

We determine if an arrangement is a lease at inception.  Operating leases are included in operating lease ROU assets, current lease liabilities, and long-term lease liabilities in our consolidated balance sheets.

8

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 reviewing quoted 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 right-of-use 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.

Recently Adopted Accounting Pronouncements

Standard	Date of Issuance	Description	Date Adopted	Effect on the Financial Statements
ASU 2016-02, Leases and all related amendments	February 2016	Requires all leases with a term greater than 12 months to be recognized in the statements of financial position and eliminates current real estate-specific lease guidance, while maintaining substantially similar classification criteria for distinguishing between finance leases and operating leases.	January 2019	The adoption of this standard and related amendments resulted in the recognition of approximately $15.7 million in right-of-use assets and lease liabilities on our balance sheet as of January 1, 2019. Comparative periods will continue to be measured and presented under historical guidance, and only the period of adoption and future periods will be subject to this ASU. There was no cumulative effect on retained earnings or other components of equity at the adoption date.  For more information see Note H.
ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220)	February 2018	Allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017 and requires certain disclosures regarding stranded tax effects in accumulated other comprehensive income.	January 2019	The adoption of this standard did not have a material impact on our consolidated financial statements.

9

Accounting Pronouncements Not Yet Adopted

Standard	Date of Issuance	Description	Date of Required Adoption	Effect on the Financial Statements
ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Statements	June 2016	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.	January 2020	We are currently evaluating the impact of the adoption on our condensed consolidated financial statements.
ASU 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement	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.	January 2020	We are currently evaluating the impact of the adoption on our condensed consolidated financial statements.

Significant Accounting Policies

Except for the accounting policy for leases that was updated as a result of adopting ASU 2016-02, there were no material changes in our significant accounting policies during the nine months ended September 30, 2019. See Note A to the consolidated financial statements included in our Annual Report on Form 10-K/A for the year ended December 31, 2018, as filed with the SEC, for additional information regarding our significant accounting policies.

NOTE B – Business Acquisitions

MAPADOC

On August 26, 2019, we completed our asset acquisition of the MAPADOC business, an operating unit of SWK Technologies, Inc., a leading provider of EDI System Automation solutions for the Sage and Acumatica markets. Pursuant to the asset purchase agreement, the purchase price is $11.8 million, of which $11.5 million has been paid in cash and $0.3 million is due to the seller as part of the initial net working capital adjustment. The net working capital adjustment will be paid in cash upon final net working capital settlement.  The purchase accounting for the MAPADOC acquisition has not been finalized as of September 30, 2019. Provisional amounts are primarily related to intangible assets and net working capital. We expect to finalize the allocation of purchase price within the one-year measurement period following the acquisition.

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 purchased intangible assets.  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. The final purchase price is subject to a net working capital adjustment to be determined by the sellers and us, pursuant to the terms of the purchase agreement.

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The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date (in thousands):

Current assets	$	612
Goodwill		6,570
Intangible assets		4,900
Deferred revenue		(300	)
	$	11,782

Purchased Intangible Assets

The following table summarizes the estimated fair value of the purchased intangible assets and their estimated useful lives:

	Estimated		Estimated
	Fair Value		Life
Purchased Intangible Assets	(in thousands)		(in years)
Developed technology	$	3,500		8
Subscriber relationships		1,400		8
	$	4,900

The purchased intangible assets are being amortized on a straight-line basis over their estimated useful lives. Amortization expense for the period from August 26, 2019 through September 30, 2019 was not material.

EDIAdmin

On October 3, 2018, we completed our asset acquisition of EDIAdmin, a privately held company providing end-to-end integration solutions, featuring a dedicated Integration Platform as a Service (“iPaaS”) called Cloud Hybrid Integration Platform (“CHIP”) and collaborative managed services for leading systems and applications, both cloud-based and on-premise. Pursuant to the asset purchase agreement, we paid $7.5 million in cash to the owner of EDIAdmin.  The purchase agreement also allowed the seller to receive up to $1.7 million in cash, which becomes payable in first quarter 2020 and 2021 contingent upon the completion of certain revenue milestones at December 31, 2019 and December 31, 2020.  The fair value of this contingent consideration was $1.3 million at the date of acquisition and $1.0 million at September 30, 2019.  Due to the remeasurement of the contingent liability, we recognized an insignificant amount of income and $0.4 million of income for the three and nine months ended September 30, 2019, respectively, in our condensed consolidated statements of comprehensive income.  See Note E for further disclosures on the remeasurement of the contingent liability.  

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 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.  The purchase accounting for the EDIAdmin acquisition was complete as of December 31, 2018. The consolidated balance sheet as of December 31, 2018 reflects the final allocation of the purchase price to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition.

CovalentWorks

On December 18, 2018, we completed our asset acquisition of CovalentWorks, a privately held company providing cloud-based EDI solutions to small- and medium-sized businesses. Pursuant to the asset purchase agreement, we paid $19.4 million in cash and issued $3.4 million in common stock, or 80,956 shares, as adjusted for the two-for-one stock split, to the owners of CovalentWorks.

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 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.  The purchase accounting, purchase price allocation and net working capital adjustment for the CovalentWorks acquisition were finalized during the first quarter of 2019 and there have been no subsequent adjustments.

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NOTE C – Revenue

We derive our revenues primarily from the following revenue streams (in thousands):  

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Recurring revenues:
Fulfillment	$	55,546	$	48,482	$	161,685	$	140,326
Analytics		9,422		8,750		27,540		25,639
Other		1,458		1,412		4,303		3,969
Recurring Revenues		66,426		58,644		193,528		169,934
One-time revenues		4,502		4,224		12,863		13,117
	$	70,928	$	62,868	$	206,391	$	183,051

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 consists 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 liability 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 under Accounting Standards Codification (“ASC”) 606-10-50-14(a) and will not disclose information about the remaining performance obligations for contracts which have original durations of one year or less.

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.  Except for our Analytics platform, we have determined the set-up fees 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 connection life between the customer and the trading partner.  For our Analytics platform, we have determined 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.

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The table below presents the activity of the portion of the deferred revenue liability relating to set-up fees (in thousands):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
Balances, at beginning of period	$	10,063		$	9,886		$	9,857		$	10,031
Invoiced set-up fees		2,599			2,697			7,965			7,807
Amortized set-up fees		(2,584	)		(2,596	)		(7,744	)		(7,851	)
Balances, at end of period	$	10,078		$	9,987		$	10,078		$	9,987

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 long-term 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 under ASC 606-10-50-14(a) and will not disclose information about the remaining performance obligations for contracts which have original durations of one year or less.

NOTE D – Deferred Costs

Deferred costs consist of costs to obtain customer contracts, such as commissions paid to sales personnel and to third-party partners for customer referrals, and costs to fulfill customer contracts, such as customer implementation costs.

Sales commissions relating to recurring revenues are considered incremental and recoverable costs of obtaining a contract with our customer.  These commissions are calculated based on estimated annual recurring revenue to be generated over the customer’s initial contract year.  These costs are deferred and amortized over the expected period of benefit which we have determined to be two years.  Amortization expense is included in sales and marketing expenses in the accompanying condensed consolidated statements of comprehensive income.

Customer implementation costs are considered incremental and recoverable costs of obtaining a contract with our customer.  These costs are deferred and amortized over the expected period of benefit which we have determined to be two years.  Amortization expense is included in cost of revenues in the accompanying condensed consolidated statements of comprehensive income.

The table below presents the activity of deferred costs and amortization of deferred costs (in thousands):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
Balances, at beginning of period	$	45,528		$	42,544		$	45,475		$	39,933
Incurred deferred costs		12,676			12,391			36,888			36,807
Amortized deferred costs		(12,623	)		(11,204	)		(36,782	)		(33,009	)
Balances, at end of period	$	45,581		$	43,731		$	45,581		$	43,731

NOTE E – Financial Instruments

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.  All investments with remaining maturities of less than one year from the balance sheet date are classified as short-term investments.  Investments with remaining maturities of more than one year from the balance sheet date are classified as long-term investments. As of September 30, 2019 and December 31, 2018, all of our investments held were classified as short-term.

Our short-term marketable securities are classified as available-for-sale.  We 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 condensed consolidated balance sheets.  Realized gains or losses are included in other income (expense), net in the condensed consolidated statements of comprehensive income.  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 condensed consolidated statements of comprehensive income.

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Cash equivalents and short-term investments consisted of the following (in thousands):

	September 30, 2019
	Amortized		Unrealized			Fair
	Cost		Gains (Losses)			Value
Cash equivalents:
Money market funds	$	124,046	$	—		$	124,046
Certificates of deposit		6,747		—			6,747
Marketable securities:
Corporate bonds		19,821		(11	)		19,810
Commercial paper		9,961		41			10,002
U.S. treasury securities		14,778		109			14,887
Total	$	175,353	$	139		$	175,492

	December 31, 2018
	Amortized		Unrealized		Fair
	Cost		Gains		Value
Cash equivalents:
Money market funds	$	109,265	$	—	$	109,265
Certificates of deposit		7,000		—		7,000
Marketable securities:
Corporate bonds		15,194		40		15,234
Commercial paper		9,889		76		9,965
U.S. treasury securities		12,300		38		12,338
Total	$	153,648	$	154	$	153,802

We do not believe any of the unrealized losses represent an other-than-temporary impairment based on our valuation of available evidence as of September 30, 2019.  We expect to receive the full principal and interest on all of these cash equivalents, certificates of deposit, and marketable securities.

Recurring Fair Value Measurements

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.  We obtain the fair values of our level 2 available-for-sale securities from a professional pricing service.

• Level 3 – unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.

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.  Changes in assumptions described above could have an impact on the payout of contingent consideration with a maximum payout being $1.7 million.  The earn-out liability has been measured as Level 3 given the unobservable inputs that are significant to the measurement of the liability.

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The following table presents information about our financial assets 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):

	September 30, 2019
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Money market funds	$	124,046	$	—	$	—	$	124,046
Certificates of deposit		6,747		—		—		6,747
Marketable securities:
Corporate bonds		—		19,810		—		19,810
Commercial paper		—		10,002		—		10,002
U.S. treasury securities		—		14,887		—		14,887
Total	$	130,793	$	44,699	$	—	$	175,492
Liabilities:
Earn-out liability	$	—	$	—	$	1,002	$	1,002
Total	$	—	$	—	$	1,002	$	1,002

	December 31, 2018
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Money market funds	$	109,265	$	—	$	—	$	109,265
Certificates of deposit		7,000		—		—		7,000
Marketable securities:
Corporate bonds		—		15,234		—		15,234
Commercial paper		—		9,965		—		9,965
U.S. treasury securities		—		12,338		—		12,338
Total	$	116,265	$	37,537	$	—	$	153,802
Liabilities:
Earn-out liability	$	—	$	—	$	1,368	$	1,368
Total	$	—	$	—	$	1,368	$	1,368

Nonrecurring Fair Value Measurements

The Company measures certain assets and liabilities at fair value on a nonrecurring basis. Assets and liabilities 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 the Company's business combinations and the related nonrecurring fair value measurement of the assets acquired and liabilities assumed, refer to Note B, Business Acquisitions.

Other Fair Value Disclosures

The carrying values of the Company's short-term financial instruments, including cash and cash equivalents, accounts receivable, and accounts payable, when applicable, approximate their respective fair values due to their short-term nature.

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NOTE F – Goodwill and Intangible Assets, net

The changes in the net carrying amount of goodwill for the nine months ended September 30, 2019 are as follows (in thousands):

	2019
Balance, January 1	$	69,658
Goodwill acquired during the period		6,570
Foreign currency translation adjustments		138
Balance, September 30, 2019	$	76,366

Intangible assets subject to amortization primarily include subscriber relationships, non-competition agreements and acquired technology and are amortized over their respective useful lives (ranging from 1 to 10 years). Intangible assets, net included the following (in thousands):

	September 30, 2019
	Gross					Foreign
	Carrying		Accumulated			Currency
	Amount		Amortization			Translation		Net
Subscriber relationships	$	43,640	$	(26,178	)	$	76	$	17,538
Non-competition agreements		2,495		(2,334	)		7		168
Technology and other		8,502		(2,372	)		8		6,138
	$	54,637	$	(30,884	)	$	91	$	23,844

	December 31, 2018
	Gross					Foreign
	Carrying		Accumulated			Currency
	Amount		Amortization			Translation			Net
Subscriber relationships	$	43,212	$	(23,284	)	$	(623	)	$	19,305
Non-competition agreements		2,560		(2,247	)		(28	)		285
Technology and other		5,199		(2,012	)		(36	)		3,151
	$	50,971	$	(27,543	)	$	(687	)	$	22,741

The estimated annual amortization expense related to intangible assets subject to amortization for the next five years is as follows (in thousands):

Remainder of 2019	$	1,412
2020		5,309
2021		4,471
2022		3,367
2023		3,297
Thereafter		5,988
	$	23,844

NOTE G – Other Assets

The changes in the net amount of capitalized implementation costs for internal-use software from hosting arrangements for the nine months ended September 30, 2019 is as follows (in thousands):

	2019
Balance, January 1	$	455
Capitalized implementation fees		670
Amortization of implementation fees		(52	)
Balance, September 30, 2019	$	1,073

There were no impairment losses in relation to the capitalized implementation costs for the period presented.

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NOTE H – Leases

We are obligated under non-cancellable operating leases, primarily for office space and certain equipment, as follows:

	September 30, 2019
	Remaining		Right-of-Use
	Term (years)		Asset (in thousands)
Minneapolis, MN lease		6	$	10,823
Little Falls, NJ lease		4		1,674
Other leases	< 1 - 3			1,151
			$	13,648

Some of our leases may include options to extend the leases for up to 5 years.  The options to extend our leases are not recognized as part of our ROU assets and lease liabilities as it is not reasonably certain that we will exercise those options.  Additionally, our agreements do not include options to terminate the leases.

On December 20, 2017, we executed the fourth amendment to our lease agreement for our current headquarters located in Minneapolis, Minnesota where we lease approximately 189,000 square feet under an agreement that expires on April 30, 2025.  We have agreed to expand our headquarters premises by approximately 25,000 square feet during 2020. Our lease agreement also includes a further expansion right and a right of first offer to lease certain additional space and two options to extend the term of the lease for five years at a market rate determined in accordance with the lease.  Incentives of $6.4 million are included as a lease component.

On February 25, 2016, we executed the first amendment to our lease agreement for our Little Falls, New Jersey location where we lease approximately 26,000 square feet under an agreement that expires on June 30, 2023. The agreement includes an option to extend the term of the lease for five years at a market rate determined in accordance with the lease.  Incentives of $0.9 million are included as a lease component.

The components of lease expense were as follows (in thousands):  

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2019		2019
Operating lease cost	$	650	$	1,956
Variable lease cost		721		2,360
	$	1,371	$	4,316

Operating lease cost for short-term leases was not material for the three and nine months ended September 30, 2019.

Supplemental cash flow information related to leases was as follows (in thousands):

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2019		2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases		1,109		3,246
ROU assets obtained in exchange for operating lease liabilities		—		—

The ROU assets obtained in exchange for operating lease liabilities excludes the transition amount of $15.7 million.

Supplemental balance sheet information related to leases was as follows:

	September 30, 2019
Weighted-average remaining lease term - operating leases	5.1 years
Weighted-average discount rate - operating leases		4.5	%

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At September 30, 2019, our future minimum payments under operating leases were as follows (in thousands):

Remainder of 2019	$	1,125
2020		3,635
2021		4,483
2022		4,042
2023		3,855
Thereafter		4,816
		21,956
Less: imputed interest		(2,451	)
	$	19,505

At December 31, 2018, our future minimum payments under operating leases were as follows (in thousands):

2019	$	4,209
2020		3,542
2021		4,414
2022		4,042
2023		3,855
Thereafter		4,816
	$	24,878

NOTE I – Stock-Based Compensation

On August 22, 2019, we effected a two-for-one stock split of the Company’s common stock. There was no change in the number of authorized common shares of the Company. All share and per share data have been adjusted for all periods presented to reflect the stock split.

Our equity compensation plans provide for the grant of incentive and nonqualified stock options, as well as other stock-based awards including restricted stock and restricted stock units (“RSU”), to employees, non-employee directors and other consultants who provide services to us.  We also provide an employee stock purchase plan and 401(k) stock match.

Restricted stock awards 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 2019, 2,081,488 additional shares were reserved for future issuance under our 2010 Equity Incentive Plan.  At September 30, 2019, there were approximately 12,255,888 million shares available for grant under approved equity compensation plans.

We recognize stock-based compensation expense on a straight-line basis over the vesting period, except for expense relating to retirement-eligible employees which is recognized immediately upon the employee becoming retirement-eligible.

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

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Cost of revenues	$	778	$	535	$	2,027	$	1,587
Operating expenses
Sales and marketing		784		691		2,208		2,054
Research and development		697		287		1,822		973
General and administrative		888		1,753		5,259		5,364
Total stock-based compensation expense	$	3,147	$	3,266	$	11,316	$	9,978

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Stock-based compensation expense by plan type was as follows (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Stock options	$	619	$	677	$	2,548	$	2,670
Performance share units		152		74		1,226	960
Restricted stock units		1,719		1,976		5,581		4,727
Restricted stock awards		128		137		409		352
Employee stock purchase plan		186		109		547		332
401(k) stock match		343		293		1,005		937
Total stock-based compensation expense	$	3,147	$	3,266	$	11,316	$	9,978

As of September 30, 2019, there was approximately $21.3 million of unrecognized stock-based compensation expense under our equity compensation plans, which is expected to be recognized on a straight-line basis over a weighted average period of 2.6 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:

				Weighted Average
	Options			Exercise Price
	(#)			($/share)
Outstanding at December 31, 2018		1,746,468		$	25.93
Granted		184,194			53.92
Exercised		(309,310	)		21.57
Forfeited		(39,818	)		30.57
Outstanding at September 30, 2019		1,581,534			29.93

Of the total outstanding options at September 30, 2019, 1,129,294 were exercisable with a weighted average exercise price of $27.03 per share. The total outstanding options had a weighted average remaining contractual life of 3.2 years.

The weighted average grant date fair value of options granted during the first nine months of 2019 was $16.86 per share. This was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:

Volatility	33.2	%
Dividend yield	0	%
Life (in years)	4.4
Risk-free interest rate	2.41	%

Performance Share Units and Restricted Stock Units and Awards

In February 2017, our executive officers were granted performance share unit (“PSU”) awards with vesting contingent on successful attainment of pre-determined revenue targets over the course of a three-year performance period (fiscal years 2017 – 2019).  The fair value is measured as the number of performance shares expected to be earned multiplied by the grant date fair value of our shares.  The number of performance shares expected to vest during the current service period is estimated and the fair value of those shares is recognized over the remaining service period less any amounts already recognized.

In February 2018 and 2019, our executive officers were granted PSU awards with vesting contingent on the Company’s total shareholder return as compared to indexed total shareholder return over the course of a three-year performance period (fiscal years 2018 – 2020 and fiscal years 2019 – 2021, respectively).  The grant date fair value was estimated using a Monte Carlo simulation that utilizes multiple input variables that determine the probability of satisfying the performance conditions stipulated in the award and calculates the fair market value for the PSUs granted.  Expense is recognized on a straight-line basis over the vesting period, regardless of whether the market condition is satisfied.

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RSUs vest over four years and, upon vesting, the holder is entitled to receive shares of our common stock.  With restricted stock awards, shares of our common stock are issued when the award is granted and the restrictions lapse over one year.

Activity for our PSUs and RSUs was as follows:

				Weighted Average
	PSUs and RSUs			Grant Date Fair Value
	(#)			($/share)
Outstanding at December 31, 2018		754,670		$	29.95
Granted		272,454			55.90
Vested and common stock issued		(190,624	)		28.76
Forfeited		(28,144	)		33.14
Outstanding at September 30, 2019		808,356			38.86

The number of RSUs outstanding at September 30, 2019 included 88,196 units that have vested, but for which shares of common stock have not yet been issued pursuant to the terms of the agreement.

Our restricted stock awards activity was as follows:

	Restricted Stock			Weighted Average Grant
	Awards (#)			Date Fair Value ($/share)
Outstanding at December 31, 2018		3,664		$	37.22
Restricted common stock issued		9,840			51.80
Restrictions lapsed		(8,584	)		45.58
Forfeited		—			—
Outstanding at September 30, 2019		4,920		$	51.80

Employee Stock Purchase Plan

We have an employee stock purchase plan which 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, respectively.  A total of 2.0 million shares of common stock are reserved for issuance under the plan.

For the offering periods that began on January 1, 2019 and January 1, 2018, we withheld approximately $1.2 million and $0.8 million from employees participating in the plan. For the offering periods that began on July 1, 2019 and July 1, 2018, we withheld approximately $0.7 million and $0.5 million from employees participating in the plan as of September 30, 2019 and 2018, respectively.

The fair value was estimated based on the market price of our common stock at the beginning of the offering period using the Black-Scholes option pricing model with the following assumptions:

Volatility	40	%
Dividend yield	0	%
Life (in years)	0.5
Risk-free interest rate	2.56	%

401(k) Stock Match

We sponsor a 401(k) retirement savings plan for our U.S. employees where employees can contribute up to 80% of their compensation, subject to the limits established by law.  We match 50% of the employee’s elective deferrals, up to the first 6% of the employee’s pre-tax compensation for each pay period.  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.   

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NOTE J – Income Taxes

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

As of September 30, 2019, we do not have any unrecognized tax benefits nor any material accrued interest or tax penalties.

NOTE K – 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, PSUs, RSUs and restricted awards.  Potential common shares that are anti-dilutive are excluded from the calculation of diluted 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):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Numerator
Net income	$	8,941	$	8,061	$	24,550	$	16,731
Denominator
Weighted average common shares outstanding, basic		35,015		34,438		34,966		34,334
Options to purchase common stock		634		790		687		586
PSUs, RSUs and restricted stock awards		283		254		299		194
Weighted average common shares outstanding, diluted		35,932		35,482		35,952		35,114
Net income per share
Basic	$	0.26	$	0.23	$	0.70	$	0.49
Diluted	$	0.25	$	0.23	$	0.68	$	0.48
Antidilutive shares (in thousands)		240		—		164		54

Shares and per share data have been adjusted for all periods presented to reflect a two-for-one stock split effective August 22, 2019.

NOTE L – Subsequent Event

Subsequent to September 30, 2019, the Company’s board of directors authorized an increase and extension of its previously announced stock repurchase program pursuant to which the Company may, from time to time, purchase shares of its outstanding common stock. The stock repurchase program originally authorized the Company to purchase up to $50.0 million of its outstanding common stock and that amount has been increased by the board to $100.0 million. As of September 30, 2019, $9.3 million remained available under the previously unused stock repurchase program. The board also authorized an extension of the original expiration date of the stock repurchase program from November 2, 2019 to November 2, 2021. The number of shares to be purchased and the timing of purchases will be based on the price of the Company’s common stock, general business and market conditions and other investment considerations and factors.

The program does not obligate the Company to repurchase any specific number of shares and it may be suspended or discontinued at any time without prior notice. The Company intends to finance the share repurchase program with cash on hand.  

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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.

For the three months ended September 30, 2019, our revenues were $70.9 million, an increase of 13% from the comparable period in 2018, and represented our 75th consecutive quarter of increased revenues.  Total operating expenses increased 7% for the same period in 2019 from 2018.  For the nine months ended September 30, 2019, revenues increased 13% and operating expenses increased 6% compared to the same period in 2018.

Key Financial Terms and Metrics

We have several key financial terms and metrics, including annualized average recurring revenues per recurring revenue customer, which we also refer to as wallet share.  During the three and nine months ended September 30, 2019, there were no changes in the definitions of our key financial terms and metrics, which are discussed in more detail under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K/A for the year ended December 31, 2018 as filed with the SEC.

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 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 our 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.”

Critical Accounting Policies and Estimates

This discussion of our financial condition and results of operations is based upon our condensed consolidated financial statements, which are prepared in accordance with GAAP and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.  The preparation of these 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.

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 relating to uncertain matters that could have a material effect on our financial condition and results of operations.  Accordingly, we believe that our policies for revenue recognition and business combinations are the most critical to fully understand and evaluate our financial condition and results of operations.

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During the three and nine months ended September 30, 2019, there were no changes in our critical accounting policies or estimates.  See Note A to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K/A for the year ended December 31, 2018, as filed with the SEC, for additional information regarding our accounting policies.  

Results of Operations

Three months ended September 30, 2019 compared to three months ended September 30, 2018

The following table presents our results of operations for the periods indicated (dollars in thousands):

	Three Months Ended September 30,
	2019						2018						Change
				% of revenue						% of revenue			$			%
Revenues	$	70,928			100.0	%	$	62,868			100.0	%	$	8,060			12.8	%
Cost of revenues		23,263			32.8			20,411			32.5			2,852			14.0
Gross profit		47,665			67.2			42,457			67.5			5,208			12.3
Operating expenses
Sales and marketing		16,937			23.9			16,952			26.9			(15	)		(0.1	)
Research and development		7,743			10.9			5,146			8.2			2,597			50.5
General and administrative		10,725			15.1			11,174			17.8			(449	)		(4.0	)
Amortization of intangible assets		1,327			1.9			928			1.5			399			43.0
Total operating expenses		36,732			51.8			34,200			54.4			2,532			7.4
Income from operations		10,933			15.4			8,257			13.1			2,676			32.4
Other income (expense)
Interest income, net		843			1.2			628			1.0			215			34.2
Other expense, net		(165	)		(0.2	)		(219	)		(0.3	)		(54	)		(24.7	)
Change in earn-out liability		22			0.0			—			0.0			22			100.0
Total other income, net		700			1.0			409			0.7			291			71.1
Income before income taxes		11,633			16.4			8,666			13.8			2,967			34.2
Income tax expense		2,692			3.8			605			1.0			2,087			345.0
Net income	$	8,941			12.6	%	$	8,061			12.8	%	$	880			10.9	%

Revenues.  The increase in revenues resulted from two primary factors: the increase in recurring revenue customers and the retainment of annualized average recurring revenues per recurring revenue customer, which we also refer to as wallet share.

• The number of recurring revenue customers increased 14% to 30,551 at September 30, 2019 from 26,869 at September 30, 2018.

• Annualized average recurring revenues per recurring revenue customer, or wallet share, decreased slightly to $8,793 for the three months ended September 30, 2019 from $8,838 for the same period in 2018. The slight decrease in wallet share is due to the increase in recurring revenue customers.

Recurring revenues from recurring revenue customers accounted for 94% of our total revenues for the three months ended September 30, 2019, increasing from 93% for the same period in 2018. We anticipate that the number of recurring revenue customers and wallet share will increase as we increase the number of solutions we offer and increase the penetration of those solutions across our customer base.

Cost of Revenues.  The increase in cost of revenues for the three months ended September 30, 2019 was primarily due to an increase in personnel-related costs of $1.9 million, driven by increased salaries and benefits due to business growth and by increased headcount, consulting, and contract labor. As we continued to invest in the infrastructure supporting our platform, depreciation expense increased by $0.6 million.

Sales and Marketing Expenses.  The decrease in sales and marketing expense for the three months ended September 30, 2019 was primarily due to a decrease of $0.3 million in variable compensation earned by sales personnel and referred partners, offset by an increase of $0.1 million in salaries and benefits and an increase of $0.1 in stock-based compensation  

Research and Development Expenses.  The increase in research and development expense for the three months ended September 30, 2019 was primarily due to increased headcount which resulted in an increase in personnel costs of $2.0 million and an increase in stock-based compensation expense of $0.4 million.

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General and Administrative Expenses.  The decrease in general and administrative expense for the three months ended September 30, 2019 was driven by a decrease in stock-based compensation of $0.9 million primarily due to the timing of the Chief Executive Officer’s 2019 RSU grants compared to his 2018 RSU grants, offset by an increase of $0.2 million in cloud-based and software subscriptions and an increase of $0.2 million in miscellaneous service fees.

Other Income (Expense).  Interest income, net, other expense, net, and change in earn-out liability for the three months ended September 30, 2019 increased primarily due to increased interest income from investments, offset by realized foreign currency exchange gains, and decrease in the fair value of the earn-out liability.  The change in fair value of the earn-out liability for the three months ended September 30, 2019 was driven by an adjustment to the fair value of the EDIAdmin earnout liability due to estimated revenue at the earn-out measurement dates, December 31, 2019 and December 31, 2020.

Income Tax Expense.  The increase in income tax expense for the three months ended September 30, 2019 was primarily due to an increase in pre-tax income, as well as a decrease of $1.5 million in third quarter discrete tax benefits, primarily driven by a decrease in stock activity. Under ASU 2016-09, excess tax benefits generated upon the settlement or exercise of stock awards are recognized as a reduction to income tax expense and, as a result, we expect that our annual effective income tax rate will be volatile.

Adjusted EBITDA.  Adjusted EBITDA, which is a non-GAAP measure of financial performance, consists of net income adjusted for depreciation and amortization, interest expense, interest income, income tax expense, stock-based compensation expense, 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.  The following table provides a reconciliation of net income to Adjusted EBITDA (in thousands):

	Three Months Ended
	September 30,
	2019			2018
Net income	$	8,941		$	8,061
Depreciation and amortization of property and equipment		2,819			2,132
Amortization of intangible assets		1,327			928
Interest income, net		(843	)		(628	)
Income tax expense		2,692			605
Stock-based compensation expense		3,147			3,266
Other		(22	)		—
Adjusted EBITDA	$	18,061		$	14,364

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, 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. The following table provides a reconciliation of net income to non-GAAP income per share (in thousands, except per share amounts):

	Three Months Ended
	September 30,
	2019			2018
Net income	$	8,941		$	8,061
Stock-based compensation expense		3,147			3,266
Amortization of intangible assets		1,327			928
Other		(22	)		—
Income tax effects of adjustments		(1,606	)		(3,008	)
Non-GAAP income	$	11,787		$	9,247
Shares used to compute non-GAAP income per share
Basic		35,015			34,438
Diluted		35,932			35,482
Non-GAAP income per share
Basic	$	0.34		$	0.27
Diluted	$	0.33		$	0.26

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Nine months ended September 30, 2019 compared to nine months ended September 30, 2018

The following table presents our results of operations for the periods indicated (dollars in thousands):

	Nine Months Ended September 30,
	2019					2018						Change
			% of revenue						% of revenue			$			%
Revenues	$	206,391		100.0	%	$	183,051			100.0	%	$	23,340			12.8	%
Cost of revenues		68,330		33.1			60,571			33.1			7,759			12.8
Gross profit		138,061		66.9			122,480			66.9			15,581			12.7
Operating expenses
Sales and marketing		52,404		25.4			54,023			29.5			(1,619	)		(3.0	)
Research and development		20,444		9.9			15,571			8.5			4,873			31.3
General and administrative		33,674		16.3			31,278			17.1			2,396			7.7
Amortization of intangible assets		3,897		1.9			3,086			1.7			811			26.3
Total operating expenses		110,419		53.5			103,958			56.8			6,461			6.2
Income from operations		27,642		13.4			18,522			10.1			9,120			49.2
Other income (expense)
Interest income, net		2,233		1.1			1,589			0.9			644			40.5
Other income (expense), net		28		0.0			(541	)		(0.3	)		569			105.2
Change in earn-out liability		366		0.2			—			—			366			100.0
Total other income (expense), net		2,627		1.3			1,048			0.6			1,579			150.7
Income before income taxes		30,269		14.7			19,570			10.7			10,699			54.7
Income tax expense		5,719		2.8			2,839			1.6			2,880			101.4
Net income	$	24,550		11.9	%	$	16,731			9.1	%	$	7,819			46.7	%

Revenues. The increase in revenues resulted from two primary factors: the increase in recurring revenue customers and the retainment of annualized average recurring revenues per recurring revenue customer, which we also refer to as wallet share.

• The number of recurring revenue customers increased 14% to 30,551 at September 30, 2019 from 26,869 at September 30, 2018.

• Annualized average recurring revenues per recurring revenue customer, or wallet share, stayed level at $8,622 for the nine months ended September 30, 2019 compared to $8,612 for the same period in 2018.  The consistent wallet share is due to the increase in recurring revenue customers.

Recurring revenues from recurring revenue customers accounted for 94% of our total revenues for the nine months ended September 30, 2019, increasing from 93% for the same period in 2018.  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.

Cost of Revenues.  The increase in cost of revenues for the nine months ended September 30, 2019 was primarily due to an increase of $5.4 million in personnel-related costs and $0.4 million in stock-based compensation, driven by continued business growth and by an increase in headcount and contractor labor. As we continued to invest in the infrastructure supporting our platform, depreciation expense increased by $1.6 million compared to the same period in 2018.

Sales and Marketing Expenses.  The decrease in sales and marketing expenses for the nine months ended September 30, 2019 was primarily due to decreased headcount which resulted in a decrease of $1.8 million of personnel-related costs, offset by a $0.2 million increase in stock-based compensation.

Research and Development Expenses.  The increase in research and development expenses for the nine months ended September 30, 2019 was primarily due to increased headcount which resulted in an increase in personnel costs of $3.6 million and an increase of stock-based compensation of $0.8 million.

General and Administrative Expenses.  The increase in general and administrative expenses for the nine months ended September 30, 2019 was driven by continued business growth which resulted in an increase in personnel-related costs of $1.0 million, software subscriptions costs of $0.8 million and bad debt expense of $0.6 million.

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Other Income (Expense), net.  Interest income, net, other expense, net, and change in earn-out liability for the nine months ended September 30, 2019 increased over the same period in 2018 primarily due to increased income from investments and settlement and subsequent return of escrowed shared from the acquisition of Toolbox Solutions, Inc. (“Toolbox”) in 2016, offset by realized foreign currency exchange gains, and decrease in fair value of the earn-out liability. The change in earn-out liability for the nine months ended September 30, 2019 was $0.4 million in income driven by an adjustment to the fair value of the EDIAdmin earnout liability due to estimated revenue at the earn-out measurement dates, December 31, 2019 and December 31, 2020.

Income Tax Expense.  The increase in income tax expense for the nine months ended September 30, 2019, as compared to the same period in 2018, was primarily due to an increase in pre-tax income, as well as a decrease of $0.3 million in discrete tax benefits, primarily driven by a decrease in stock activity. Under ASU 2016-09, excess tax benefits generated upon the settlement or exercise of stock awards are recognized as a reduction to income tax expense and, as a result, we expect that our annual effective income tax rate will be volatile.

Adjusted EBITDA.  Adjusted EBITDA, which is a non-GAAP measure of financial performance, consists of net income adjusted for depreciation and amortization, interest expense, interest income, income tax expense, stock-based compensation expense, 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 related to the Toolbox acquisition, and an impairment of internally developed software.  The following table provides a reconciliation of net income to Adjusted EBITDA (in thousands):

	Nine Months Ended
	September 30,
	2019			2018
Net income	$	24,550		$	16,731
Depreciation and amortization of property and equipment		8,143			6,308
Amortization of intangible assets		3,897			3,086
Interest income, net		(2,233	)		(1,589	)
Income tax expense		5,719			2,839
Stock-based compensation expense		11,316			9,978
Other		(483	)		—
Adjusted EBITDA	$	50,909		$	37,353

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, 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 related to the Toolbox acquisition, and an impairment of internally developed software.  The following table provides a reconciliation of net income to Non-GAAP income per share (in thousands, except per share amounts):

	Nine Months Ended
	September 30,
	2019			2018
Net income	$	24,550		$	16,731
Stock-based compensation expense		11,316			9,978
Amortization of intangible assets		3,897			3,086
Other		(483	)		—
Income tax effects of adjustments		(5,972	)		(5,188	)
Non-GAAP income	$	33,308		$	24,607
Shares used to compute non-GAAP income per share
Basic		34,966			34,334
Diluted		35,952			35,114
Non-GAAP income per share
Basic	$	0.95		$	0.72
Diluted	$	0.93		$	0.70

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Liquidity and Capital Resources

At September 30, 2019, our principal sources of liquidity were cash, cash equivalents, certificates of deposit and marketable securities of $201.2 million and accounts receivable, net of allowance for doubtful accounts of $29.4 million.  Certificates of deposit and marketable securities are invested in accordance with our investment policy, with a goal of maintaining liquidity and capital preservation.  Our cash equivalents and marketable securities are held in highly liquid money market funds, commercial paper, federal agency securities and corporate debt securities.

The below table summarizes the activity within the statement of cash flows:

	Nine Months Ended
	September 30,
	2019			2018
Net cash provided by operating activities	$	50,960		$	37,547
Net cash used in investing activities		(26,629	)		(14,690	)
Net cash used in financing activities	$	(8,538	)	$	(1,231	)

Net Cash Flows from Operating Activities

The increase in operating cash flows was driven by continued business growth which resulted in increased net income and decreased deferred tax assets and was driven by continued acquisitions and business expansions which resulted in increased depreciation and amortization, offset by increased compensation due to an increase in headcount.

Net Cash Flows from Investing Activities

The change in net cash used in investing activities was primarily due to $11.5 million used for the MAPADOC acquisition.

Net Cash Flows from Financing Activities

The change in net cash used in financing activities was primarily due to the decrease in net proceeds from stock option exercises, offset by an increase in cash used for share repurchases.

Effect of Foreign Currency Exchange Rate Changes

Our results of operations and cash flows were not materially affected by fluctuations in foreign currency exchange rates.  We maintain approximately 5% of our total cash and cash equivalents outside of the U.S. in foreign currencies, primarily in Australian and Canadian dollars.  We believe that a significant change in foreign currency exchange rates or an inability to access these funds would not affect our ability to meet our operational needs.

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 United States 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 we anticipate that our expenditures will continue to increase as we expand our business.

We believe our cash, cash equivalents, certificates of deposit, marketable securities and our cash flows from operations will be sufficient to meet our working capital and capital expenditure requirements for at least the next twelve months.

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Inflation and changing prices did not have a material effect on our business during the nine months ended September 30, 2019 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.

Contractual and Commercial Commitment Summary

Our contractual obligations and commercial commitments as of September 30, 2019 are summarized below:

	Payments Due By Period (in thousands)
			Less Than						More Than
Contractual Obligations	Total		1 Year		1-3 Years		3-5 Years		5 Years
Operating lease obligations, including imputed interest	$	21,956	$	3,966	$	8,286	$	7,581	$	2,123

Our contractual obligations and commercial commitments as of December 31, 2018 are summarized below:

	Payments Due By Period (in thousands)
			Less Than						More Than
Contractual Obligations	Total		1 Year		1-3 Years		3-5 Years		5 Years
Operating lease obligations, including imputed interest	$	24,878	$	4,209	$	7,956	$	7,896	$	4,817

Item 3. 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 outstanding debt as of September 30, 2019. Therefore, we 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 dollar and Canadian dollar.  As of September 30, 2019, we maintained approximately 5% of our total cash and cash equivalents outside of the U.S. in foreign currencies.  We believe that a significant change in foreign currency exchange rates or an inability to access these funds would not affect our ability to meet our operational needs.  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.

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, our management has evaluated, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934).  Disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.  Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2019.

For the year ended December 31, 2018, management’s assessment of internal control over financial reporting excluded the internal control of EDIAdmin and CovalentWorks, which were acquired on October 3, 2018 and December 18, 2018, respectively. 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 EDIAdmin or CovalentWorks. Our assessment of the effectiveness of internal control over financial reporting as of December 31, 2019 will include EDIAdmin and CovalentWorks. As of December 31, 2018, EDIAdmin and CovalentWorks represented approximately 2% and 6% of our total consolidated assets, respectively, and each represented less than 1% of our consolidated revenues as of and for the year ended December 31, 2018.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended September 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Disclosure regarding changes, if any, in internal control over financial reporting resulting from the acquisitions described will be included in the annual report in which the Company’s assessment that encompasses the acquired business is included.

For the quarter ended September 30, 2019, management’s assessment of our internal control over financial reporting excluded the internal control over financial reporting of the MAPADOC business, an operating unit of SWK Technologies, Inc., which was acquired on August 26, 2019. 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 MAPADOC. For the three and nine months ended September 30, 2019, MAPADOC represented approximately 3% of our total consolidated assets and less than 1% of our consolidated revenues.

29

PART II. – OTHER INFORMATION

Item 1. 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.  Any such actions, even those that lack merit, could result in the expenditure of significant financial and managerial resources.  We believe that we have obtained adequate insurance coverage or rights to indemnification in connection with potential legal proceedings that may arise.

Item 1A. Risk Factors

There have been no material changes in our risk factors from those disclosed under the heading “Risk Factors” in our Annual Report on Form 10-K/A for the year ended December 31, 2018 as filed with the SEC.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(c) Share Repurchases

The following table presents the total number of shares of our common stock that we purchased during the third quarter of 2019, the average price paid per share, the number of shares that we purchased as part of our publicly announced repurchase program and the approximate dollar value of shares that still could be repurchased at the end of the applicable period.

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Program (1)		Approximate Dollar Value of Shares that May Yet be Purchased Under the Program (1)(2)
July 1 - 31, 2019		72,384	$	51.28		72,384	$	11,643,000
August 1 - 31, 2019		44,472	$	51.45		44,472	$	9,355,000
September 1 - 30, 2019		—		—		—	$	9,355,000
Total third quarter 2019		116,856	$	51.35		116,856	$	9,355,000

(1) Pursuant to a $50.0 million share repurchase program that was announced by our board of directors on November 2, 2017. Under the program, purchases may be made from time to time in the open market through November 2, 2019.

(2) Subsequent to September 30, 2019, our board of directors amended our share repurchase program to increase the amount of outstanding common stock it is authorized to purchase to $100.0 million and to extend the original expiration date of the program to November 2, 2021. For further information, see Note L.

Shares and per share data have been adjusted for all periods presented to reflect a two-for-one stock split effective August 22, 2019.

Item 3. Defaults Upon Senior Securities

Not Applicable.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

Not Applicable.

30

Item 6. Exhibits

Number	Description
3.1	Certificate of Incorporation (incorporated by reference to Exhibit 4.1 to our Registration Statement on Form S-3 (File No. 333-182097) filed with the Commission on September 13, 2012).
3.2	Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K (File No. 001-34702) filed with the Commission on October 12, 2017).
31.1	Certification of Principal Executive Officer pursuant to Rules 13a-14(a) under the Securities Exchange Act of 1934, as amended (filed herewith).
31.2	Certification of Principal Financial Officer pursuant to Rules 13a-14(a) under the Securities Exchange Act of 1934, as amended (filed herewith).
32.1	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 (filed herewith).
101	Interactive Data Files Pursuant to Rule 405 of Regulation S-T (filed herewith). The XBRL instance document does not appear in the Interactive Data File because its tags are embedded within the Inline XBRL document.
104	The cover page from the Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, formatted in Inline XBRL.

31

SIGNATURES

Pursuant to the requirements 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: October 25, 2019	SPS COMMERCE, INC.
	/s/ KIMBERLY K. NELSON
	Kimberly K. Nelson
	Executive Vice President and Chief Financial Officer
	(principal financial and accounting officer)

32

EX-31.1

EXHIBIT 31.1

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT

I, Archie C. Black, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of SPS Commerce, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

c. Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

/s/ ARCHIE C. BLACK

Archie C. Black

President and Chief Executive Officer

(principal executive officer)

October 25, 2019

EX-31.2

EXHIBIT 31.2

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT

I, Kimberly K. Nelson, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of SPS Commerce, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

c. Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

/s/ KIMBERLY K. NELSON

Kimberly K. Nelson

Executive Vice President and Chief Financial Officer

(principal financial and accounting officer)

October 25, 2019

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. §1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of SPS Commerce, Inc. (the “Company”) for the period ended September 30, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, the Chief Executive Officer and the Chief Financial Officer of the Company, hereby certify, pursuant to and for purposes of 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ ARCHIE C. BLACK

Archie C. Black

President and Chief Executive Officer

(principal executive officer)

/s/ KIMBERLY K. NELSON

Kimberly K. Nelson

Executive Vice President and Chief Financial Officer

(principal financial and accounting officer)

October 25, 2019

XML

Revenue (Tables)

9 Months Ended

Sep. 30, 2019

Revenue From Contract With Customer [Abstract]

Summary of Revenues by Revenue Stream

We derive our revenues primarily from the following revenue streams (in thousands):  

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Recurring revenues:
Fulfillment	$	55,546	$	48,482	$	161,685	$	140,326
Analytics		9,422		8,750		27,540		25,639
Other		1,458		1,412		4,303		3,969
Recurring Revenues		66,426		58,644		193,528		169,934
One-time revenues		4,502		4,224		12,863		13,117
	$	70,928	$	62,868	$	206,391	$	183,051

Summary of Deferred Revenue Liability Relating to Set-Up Fees

The table below presents the activity of the portion of the deferred revenue liability relating to set-up fees (in thousands):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
Balances, at beginning of period	$	10,063		$	9,886		$	9,857		$	10,031
Invoiced set-up fees		2,599			2,697			7,965			7,807
Amortized set-up fees		(2,584	)		(2,596	)		(7,744	)		(7,851	)
Balances, at end of period	$	10,078		$	9,987		$	10,078		$	9,987

XML

Other Assets (Tables)

9 Months Ended

Sep. 30, 2019

Other Assets [Abstract]

Summary of Changes in Net Amount of Capitalized Implementation Costs for Internal-use Software from Hosting Arrangements

The changes in the net amount of capitalized implementation costs for internal-use software from hosting arrangements for the nine months ended September 30, 2019 is as follows (in thousands):

	2019
Balance, January 1	$	455
Capitalized implementation fees		670
Amortization of implementation fees		(52	)
Balance, September 30, 2019	$	1,073

XML

Stock-Based Compensation - Fair Value Estimation of Common Stock Using Black-Scholes Option Pricing Model, Assumptions (Detail) - Employee Stock Purchase Plan [Member]	9 Months Ended
	Sep. 30, 2019
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Volatility	40.00%
Dividend yield	0.00%
Life (in years)	6 months
Risk-free interest rate	2.56%

XML

Subsequent Event - Additional Information (Detail) - Common Stock [Member] - USD ($) $ in Millions		9 Months Ended
	Oct. 01, 2019	Sep. 30, 2019
Subsequent Event [Line Items]
Stock repurchase program, authorized amount		$ 50.0
Stock repurchase program, expiration date		Nov. 02, 2019
Stock repurchase program, remaining available amount		$ 9.3
Subsequent Event [Member]
Subsequent Event [Line Items]
Stock repurchase program, authorized amount	$ 100.0
Stock repurchase program, expiration date	Nov. 02, 2021

XML

Goodwill and Intangible Assets, net - Estimated Annual Amortization Expense Related to Intangible Assets Subject to Amortization (Detail) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Goodwill And Intangible Assets Disclosure [Abstract]
Remainder of 2019	$ 1,412
2020	5,309
2021	4,471
2022	3,367
2023	3,297
Thereafter	5,988
Net	$ 23,844	$ 22,741

XML

Financial Instruments - Summary of Financial Assets Measured at Fair Value on a Recurring Basis (Detail) - Fair Value, Measurements, Recurring [Member] - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Assets fair value	$ 175,492	$ 153,802
Liabilities fair value	1,002	1,368
Money Market Funds [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Assets fair value	124,046	109,265
Certificates of Deposit [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Assets fair value	6,747	7,000
Corporate Bonds [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Assets fair value	19,810	15,234
Commercial Paper [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Assets fair value	10,002	9,965
U.S. Treasury Securities [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Assets fair value	14,887	12,338
Level 1 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Assets fair value	130,793	116,265
Level 1 [Member] | Money Market Funds [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Assets fair value	124,046	109,265
Level 1 [Member] | Certificates of Deposit [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Assets fair value	6,747	7,000
Level 2 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Assets fair value	44,699	37,537
Level 2 [Member] | Corporate Bonds [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Assets fair value	19,810	15,234
Level 2 [Member] | Commercial Paper [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Assets fair value	10,002	9,965
Level 2 [Member] | U.S. Treasury Securities [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Assets fair value	14,887	12,338
Level 3 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Liabilities fair value	$ 1,002	$ 1,368

XML

Leases - Schedule of Supplemental Balance Sheet Information Related to Leases (Detail)	Sep. 30, 2019
Leases [Abstract]
Weighted-average remaining lease term - operating leases	5 years 1 month 6 days
Weighted-average discount rate - operating leases	4.50%

XML

Stock-Based Compensation - Stock Option Activity (Detail)	9 Months Ended
	Sep. 30, 2019 $ / shares shares
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]
Options Outstanding, Beginning balance | shares	1,746,468
Options, Granted | shares	184,194
Options, Exercised | shares	(309,310)
Options, Forfeited | shares	(39,818)
Options Outstanding, Ending balance | shares	1,581,534
Weighted Average Exercise Price, Outstanding, Beginning Balance | $ / shares	$ 25.93
Weighted Average Exercise Price, Granted | $ / shares	53.92
Weighted Average Exercise Price, Exercised | $ / shares	21.57
Weighted Average Exercise Price, Forfeited | $ / shares	30.57
Weighted Average Exercise Price, Outstanding, Ending Balance | $ / shares	$ 29.93

XML

Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) $ in Thousands	Sep. 30, 2019 USD ($) $ / shares shares	Dec. 31, 2018 USD ($) $ / shares shares
Statement Of Financial Position [Abstract]
Allowance for doubtful accounts | $	$ 1,500	$ 1,392
Accumulated depreciation | $	$ 49,168	$ 41,175
Preferred stock, par value | $ / shares	$ 0.001	$ 0.001
Preferred stock, shares authorized	5,000,000	5,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value | $ / shares	$ 0.001	$ 0.001
Common stock, shares authorized	55,000,000	55,000,000
Common stock, shares issued	36,026,218	35,515,256
Common stock, shares outstanding	34,901,884	34,691,472
Treasury stock, shares	1,124,334	823,784

XML

Revenue - Additional Information (Detail)	9 Months Ended
	Sep. 30, 2019
Disaggregation Of Revenue [Line Items]
Latest timing of billings	30 days
Estimated period for material rights present to customers	2 years
Set up fees recognized period	2 years
Maximum recognition period for miscellaneous one-time fee	1 year
Analytics Solution [Member]
Disaggregation Of Revenue [Line Items]
Set up fees recognized period	1 year
Minimum [Member]
Disaggregation Of Revenue [Line Items]
Customer contract cancellation period	30 days
Current amount recognition period of set up fees	1 month
Long term amount recognition period of set up fees	13 months
Maximum [Member]
Disaggregation Of Revenue [Line Items]
Customer contract cancellation period	90 days
Deferred revenue recognition period	1 year
Contract period for remaining performance obligations for contracts in which the optional exemption under ASC 606-10-50-14(a) was applied	1 year
Current amount recognition period of set up fees	12 months
Long term amount recognition period of set up fees	24 months

XML

Business Acquisitions - Additional Information (Detail)						9 Months Ended
	Aug. 26, 2019 USD ($)	Aug. 22, 2019	Aug. 08, 2019	Dec. 18, 2018 USD ($) shares	Oct. 03, 2018 USD ($)	Sep. 30, 2019 USD ($)
Business Acquisition [Line Items]
Stock split description						two-for-one stock split
Stock split ratio		2	2
MAPADOC [Member]
Business Acquisition [Line Items]
Total purchase price	$ 11,782,000
Payments to acquire business	11,500,000
Purchase price part of net working capital adjustment	$ 300,000
E D I Admin [Member]
Business Acquisition [Line Items]
Payments to acquire business					$ 7,500,000
Maximum payout of contingent consideration					1,700,000
Fair value of contingent consideration					$ 1,300,000	$ 1,000,000.0
E D I Admin [Member] | Contingent Consideration Liability [Member]
Business Acquisition [Line Items]
Other income						$ 400,000
CovalentWorks [Member]
Business Acquisition [Line Items]
Payments to acquire business				$ 19,400,000
Stock issued for acquisition				$ 3,400,000
Stock issued for acquisition, Shares | shares				80,956
Stock split description						two-for-one stock split
Stock split ratio				2

XML

Condensed Consolidated Statements of Stockholders' Equity (Parenthetical)	Aug. 22, 2019	Aug. 08, 2019
Statement Of Stockholders Equity [Abstract]
Stock split ratio	2	2

XML

Revenue

9 Months Ended

Sep. 30, 2019

Revenue From Contract With Customer [Abstract]

Revenue

NOTE C – Revenue

We derive our revenues primarily from the following revenue streams (in thousands):  

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Recurring revenues:
Fulfillment	$	55,546	$	48,482	$	161,685	$	140,326
Analytics		9,422		8,750		27,540		25,639
Other		1,458		1,412		4,303		3,969
Recurring Revenues		66,426		58,644		193,528		169,934
One-time revenues		4,502		4,224		12,863		13,117
	$	70,928	$	62,868	$	206,391	$	183,051

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 consists 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 liability 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 under Accounting Standards Codification (“ASC”) 606-10-50-14(a) and will not disclose information about the remaining performance obligations for contracts which have original durations of one year or less.

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.  Except for our Analytics platform, we have determined the set-up fees 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 connection life between the customer and the trading partner.  For our Analytics platform, we have determined 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.

The table below presents the activity of the portion of the deferred revenue liability relating to set-up fees (in thousands):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
Balances, at beginning of period	$	10,063		$	9,886		$	9,857		$	10,031
Invoiced set-up fees		2,599			2,697			7,965			7,807
Amortized set-up fees		(2,584	)		(2,596	)		(7,744	)		(7,851	)
Balances, at end of period	$	10,078		$	9,987		$	10,078		$	9,987

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 long-term 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 under ASC 606-10-50-14(a) and will not disclose information about the remaining performance obligations for contracts which have original durations of one year or less.

XML

Other Assets

9 Months Ended

Sep. 30, 2019

Other Assets [Abstract]

Other Assets

NOTE G – Other Assets

The changes in the net amount of capitalized implementation costs for internal-use software from hosting arrangements for the nine months ended September 30, 2019 is as follows (in thousands):

	2019
Balance, January 1	$	455
Capitalized implementation fees		670
Amortization of implementation fees		(52	)
Balance, September 30, 2019	$	1,073

There were no impairment losses in relation to the capitalized implementation costs for the period presented.

XML

Net Income Per Share

9 Months Ended

Sep. 30, 2019

Earnings Per Share [Abstract]

Net Income Per Share

NOTE K – 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, PSUs, RSUs and restricted awards.  Potential common shares that are anti-dilutive are excluded from the calculation of diluted 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):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Numerator
Net income	$	8,941	$	8,061	$	24,550	$	16,731
Denominator
Weighted average common shares outstanding, basic		35,015		34,438		34,966		34,334
Options to purchase common stock		634		790		687		586
PSUs, RSUs and restricted stock awards		283		254		299		194
Weighted average common shares outstanding, diluted		35,932		35,482		35,952		35,114
Net income per share
Basic	$	0.26	$	0.23	$	0.70	$	0.49
Diluted	$	0.25	$	0.23	$	0.68	$	0.48
Antidilutive shares (in thousands)		240		—		164		54

Shares and per share data have been adjusted for all periods presented to reflect a two-for-one stock split effective August 22, 2019.

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Leases - Schedule of Supplemental Cash Flow Information Related to Leases (Detail) - USD ($) $ in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$ 1,109	$ 3,246

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Stock-Based Compensation - Stock-Based Compensation Expense (Detail) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Stock-based compensation expense	$ 3,147	$ 3,266	$ 11,316	$ 9,978
Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Stock-based compensation expense	619	677	2,548	2,670
Performance Share Unit [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Performance Share Units	152	74	1,226	960
Restricted Stock Units [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Stock-based compensation expense	1,719	1,976	5,581	4,727
Restricted Stock Award [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Stock-based compensation expense	128	137	409	352
Employee Stock Purchase Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Stock-based compensation expense	186	109	547	332
401(k) Stock Match [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Stock-based compensation expense	343	293	1,005	937
Cost of Revenues [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Stock-based compensation expense	778	535	2,027	1,587
Sales and Marketing [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Stock-based compensation expense	784	691	2,208	2,054
Research and Development [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Stock-based compensation expense	697	287	1,822	973
General and Administrative [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Stock-based compensation expense	$ 888	$ 1,753	$ 5,259	$ 5,364

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Condensed Consolidated Balance Sheets (Unaudited) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
CURRENT ASSETS
Cash and cash equivalents	$ 149,727	$ 133,859
Short-term investments	51,446	44,537
Accounts receivable, less allowance for doubtful accounts of $1,500 and $1,392, respectively	29,383	27,488
Deferred costs	34,583	34,502
Other current assets	8,385	9,229
Total current assets	273,524	249,615
PROPERTY AND EQUIPMENT, less accumulated depreciation of $49,168 and $41,175, respectively	20,757	20,957
OPERATING LEASE RIGHT-OF-USE ASSETS	13,648
GOODWILL	76,366	69,658
INTANGIBLE ASSETS, net	23,844	22,741
OTHER ASSETS
Deferred costs	10,998	10,973
Deferred income tax asset	4,839	10,456
Other assets	2,621	1,723
Total assets	426,597	386,123
CURRENT LIABILITIES
Accounts payable	4,367	4,440
Accrued compensation	17,660	20,415
Accrued expenses	4,874	4,558
Deferred revenue	30,351	25,328
Deferred rent		1,781
Operating lease liabilities	3,281
Total current liabilities	60,533	56,522
OTHER LIABILITIES
Deferred revenue	2,601	2,512
Deferred rent		5,371
Operating lease liabilities	16,224
Deferred income tax liability	1,169	1,376
Other non-current liabilities	1,002	1,368
Total liabilities	81,529	67,149
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; 55,000,000 shares authorized; 36,026,218 and 35,515,256 shares issued; and 34,901,884 and 34,691,472 outstanding, respectively	36	36
Treasury stock, at cost; 1,124,334 and 823,784 shares, respectively	(40,645)	(25,679)
Additional paid-in capital	349,014	332,574
Retained earnings	39,811	15,261
Accumulated other comprehensive loss	(3,148)	(3,218)
Total stockholders’ equity	345,068	318,974
Total liabilities and stockholders’ equity	$ 426,597	$ 386,123

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Revenue - Summary of Deferred Revenue Liability Relating to Set-Up Fees (Detail) - Set-Up Fees [Member] - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Deferred Revenue Arrangement [Line Items]
Balances, at beginning of period	$ 10,063	$ 9,886	$ 9,857	$ 10,031
Invoiced set-up fees	2,599	2,697	7,965	7,807
Amortized set-up fees	(2,584)	(2,596)	(7,744)	(7,851)
Balances, at end of period	$ 10,078	$ 9,987	$ 10,078	$ 9,987

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Business Acquisitions - Estimated Fair Values of Assets Acquired and Liabilities Assumed at Acquisition Date (Detail) - USD ($) $ in Thousands	Sep. 30, 2019	Aug. 26, 2019	Dec. 31, 2018
Business Combination, Recognized Identifiable Assets Acquired, Goodwill, and Liabilities Assumed, Net
Goodwill	$ 76,366		$ 69,658
MAPADOC [Member]
Business Combination, Recognized Identifiable Assets Acquired, Goodwill, and Liabilities Assumed, Net
Current assets		$ 612
Goodwill		6,570
Intangible assets		4,900
Deferred revenue		(300)
Total purchase price		$ 11,782

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Condensed Consolidated Statements of Stockholders' Equity - USD ($) $ in Thousands	Total	Common Stock [Member]	Treasury Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings (Accumulated Deficit) [Member]	Accumulated Other Comprehensive Income (Loss) [Member]
Beginning balance at Dec. 31, 2017	$ 288,111	$ 34	$ (5,815)	$ 301,846	$ (8,611)	$ 657
Beginning balance, shares at Dec. 31, 2017		34,254,012	244,294
Stock-based compensation	9,040			9,040
Exercise of stock options and issuance of restricted stock	11,801	$ 1		11,800
Exercise of stock options and issuance of restricted stock, shares		749,936
Employee stock purchase plan	836			836
Employee stock purchase plan, shares		40,486
Repurchases of common stock	(13,867)		$ (13,867)
Repurchases of common stock, shares		(439,290)	439,290
Net income	16,731				16,731
Foreign currency translation adjustments	(2,155)					(2,155)
Unrealized gain on investments, net of tax	264					264
Reclassification of gain on investments into earnings, net of tax	(190)					(190)
Ending balance at Sep. 30, 2018	310,571	$ 35	$ (19,682)	323,522	8,120	(1,424)
Ending balance, shares at Sep. 30, 2018		34,605,144	683,584
Beginning balance at Jun. 30, 2018	294,689	$ 35	$ (17,684)	313,869	59	(1,590)
Beginning balance, shares at Jun. 30, 2018		34,319,638	631,082
Stock-based compensation	2,973			2,973
Exercise of stock options and issuance of restricted stock	6,680			6,680
Exercise of stock options and issuance of restricted stock, shares		338,008
Repurchases of common stock	(1,998)		$ (1,998)
Repurchases of common stock, shares		(52,502)	52,502
Net income	8,061				8,061
Foreign currency translation adjustments	76					76
Unrealized gain on investments, net of tax	123					123
Reclassification of gain on investments into earnings, net of tax	(33)					(33)
Ending balance at Sep. 30, 2018	310,571	$ 35	$ (19,682)	323,522	8,120	(1,424)
Ending balance, shares at Sep. 30, 2018		34,605,144	683,584
Beginning balance at Dec. 31, 2018	318,974	$ 36	$ (25,679)	332,574	15,261	(3,218)
Beginning balance, shares at Dec. 31, 2018		34,691,472	823,784
Stock-based compensation	10,312			10,312
Exercise of stock options and issuance of restricted stock	5,273			5,273
Exercise of stock options and issuance of restricted stock, shares		483,492
Employee stock purchase plan	1,155			1,155
Employee stock purchase plan, shares		32,992
Repurchases of common stock	(14,966)		$ (14,966)
Repurchases of common stock, shares		(300,550)	300,550
Settlement and subsequent return of shares	(300)			(300)
Settlement and subsequent return of shares, shares		(5,522)
Net income	24,550				24,550
Foreign currency translation adjustments	73					73
Unrealized gain on investments, net of tax	315					315
Reclassification of gain on investments into earnings, net of tax	(326)					(326)
Adoption of ASU 2018-02	8					8
Ending balance at Sep. 30, 2019	345,068	$ 36	$ (40,645)	349,014	39,811	(3,148)
Ending balance, shares at Sep. 30, 2019		34,901,884	1,124,334
Beginning balance at Jun. 30, 2019	338,333	$ 36	$ (34,645)	344,232	30,870	(2,160)
Beginning balance, shares at Jun. 30, 2019		34,936,212	1,007,478
Stock-based compensation	2,804			2,804
Exercise of stock options and issuance of restricted stock	1,902			1,902
Exercise of stock options and issuance of restricted stock, shares		80,350
Employee stock purchase plan	76			76
Employee stock purchase plan, shares		2,178
Repurchases of common stock	(6,000)		$ (6,000)
Repurchases of common stock, shares		(116,856)	116,856
Net income	8,941				8,941
Foreign currency translation adjustments	(958)					(958)
Unrealized gain on investments, net of tax	115					115
Reclassification of gain on investments into earnings, net of tax	(145)					(145)
Ending balance at Sep. 30, 2019	$ 345,068	$ 36	$ (40,645)	$ 349,014	$ 39,811	$ (3,148)
Ending balance, shares at Sep. 30, 2019		34,901,884	1,124,334

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Income Taxes

9 Months Ended

Sep. 30, 2019

Income Tax Disclosure [Abstract]

Income Taxes

NOTE J – Income Taxes

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

As of September 30, 2019, we do not have any unrecognized tax benefits nor any material accrued interest or tax penalties.

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Business Acquisitions

9 Months Ended

Sep. 30, 2019

Business Combinations [Abstract]

Business Acquisitions

NOTE B – Business Acquisitions

MAPADOC

On August 26, 2019, we completed our asset acquisition of the MAPADOC business, an operating unit of SWK Technologies, Inc., a leading provider of EDI System Automation solutions for the Sage and Acumatica markets. Pursuant to the asset purchase agreement, the purchase price is $11.8 million, of which $11.5 million has been paid in cash and $0.3 million is due to the seller as part of the initial net working capital adjustment. The net working capital adjustment will be paid in cash upon final net working capital settlement.  The purchase accounting for the MAPADOC acquisition has not been finalized as of September 30, 2019. Provisional amounts are primarily related to intangible assets and net working capital. We expect to finalize the allocation of purchase price within the one-year measurement period following the acquisition.

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 purchased intangible assets.  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. The final purchase price is subject to a net working capital adjustment to be determined by the sellers and us, pursuant to the terms of the purchase agreement.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date (in thousands):

Current assets	$	612
Goodwill		6,570
Intangible assets		4,900
Deferred revenue		(300	)
	$	11,782

Purchased Intangible Assets

The following table summarizes the estimated fair value of the purchased intangible assets and their estimated useful lives:

	Estimated		Estimated
	Fair Value		Life
Purchased Intangible Assets	(in thousands)		(in years)
Developed technology	$	3,500		8
Subscriber relationships		1,400		8
	$	4,900

The purchased intangible assets are being amortized on a straight-line basis over their estimated useful lives. Amortization expense for the period from August 26, 2019 through September 30, 2019 was not material.

EDIAdmin

On October 3, 2018, we completed our asset acquisition of EDIAdmin, a privately held company providing end-to-end integration solutions, featuring a dedicated Integration Platform as a Service (“iPaaS”) called Cloud Hybrid Integration Platform (“CHIP”) and collaborative managed services for leading systems and applications, both cloud-based and on-premise. Pursuant to the asset purchase agreement, we paid $7.5 million in cash to the owner of EDIAdmin.  The purchase agreement also allowed the seller to receive up to $1.7 million in cash, which becomes payable in first quarter 2020 and 2021 contingent upon the completion of certain revenue milestones at December 31, 2019 and December 31, 2020.  The fair value of this contingent consideration was $1.3 million at the date of acquisition and $1.0 million at September 30, 2019.  Due to the remeasurement of the contingent liability, we recognized an insignificant amount of income and $0.4 million of income for the three and nine months ended September 30, 2019, respectively, in our condensed consolidated statements of comprehensive income.  See Note E for further disclosures on the remeasurement of the contingent liability.  

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 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.  The purchase accounting for the EDIAdmin acquisition was complete as of December 31, 2018. The consolidated balance sheet as of December 31, 2018 reflects the final allocation of the purchase price to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition.

CovalentWorks

On December 18, 2018, we completed our asset acquisition of CovalentWorks, a privately held company providing cloud-based EDI solutions to small- and medium-sized businesses. Pursuant to the asset purchase agreement, we paid $19.4 million in cash and issued $3.4 million in common stock, or 80,956 shares, as adjusted for the two-for-one stock split, to the owners of CovalentWorks.

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 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.  The purchase accounting, purchase price allocation and net working capital adjustment for the CovalentWorks acquisition were finalized during the first quarter of 2019 and there have been no subsequent adjustments.

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Goodwill and Intangible Assets, net

9 Months Ended

Sep. 30, 2019

Goodwill And Intangible Assets Disclosure [Abstract]

Goodwill and Intangible Assets, net

NOTE F – Goodwill and Intangible Assets, net

The changes in the net carrying amount of goodwill for the nine months ended September 30, 2019 are as follows (in thousands):

	2019
Balance, January 1	$	69,658
Goodwill acquired during the period		6,570
Foreign currency translation adjustments		138
Balance, September 30, 2019	$	76,366

Intangible assets subject to amortization primarily include subscriber relationships, non-competition agreements and acquired technology and are amortized over their respective useful lives (ranging from 1 to 10 years). Intangible assets, net included the following (in thousands):

	September 30, 2019
	Gross					Foreign
	Carrying		Accumulated			Currency
	Amount		Amortization			Translation		Net
Subscriber relationships	$	43,640	$	(26,178	)	$	76	$	17,538
Non-competition agreements		2,495		(2,334	)		7		168
Technology and other		8,502		(2,372	)		8		6,138
	$	54,637	$	(30,884	)	$	91	$	23,844

	December 31, 2018
	Gross					Foreign
	Carrying		Accumulated			Currency
	Amount		Amortization			Translation			Net
Subscriber relationships	$	43,212	$	(23,284	)	$	(623	)	$	19,305
Non-competition agreements		2,560		(2,247	)		(28	)		285
Technology and other		5,199		(2,012	)		(36	)		3,151
	$	50,971	$	(27,543	)	$	(687	)	$	22,741

The estimated annual amortization expense related to intangible assets subject to amortization for the next five years is as follows (in thousands):

Remainder of 2019	$	1,412
2020		5,309
2021		4,471
2022		3,367
2023		3,297
Thereafter		5,988
	$	23,844

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Business Acquisitions (Tables) - MAPADOC [Member]

9 Months Ended

Sep. 30, 2019

Business Acquisition [Line Items]

Estimated Fair Values of Assets Acquired and Liabilities Assumed at Acquisition Date

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date (in thousands):

Current assets	$	612
Goodwill		6,570
Intangible assets		4,900
Deferred revenue		(300	)
	$	11,782

Estimated Fair Value of Purchased Intangible Assets and Estimated Useful Lives

The following table summarizes the estimated fair value of the purchased intangible assets and their estimated useful lives:

	Estimated		Estimated
	Fair Value		Life
Purchased Intangible Assets	(in thousands)		(in years)
Developed technology	$	3,500		8
Subscriber relationships		1,400		8
	$	4,900

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Goodwill and Intangible Assets, net (Tables)

9 Months Ended

Sep. 30, 2019

Goodwill And Intangible Assets Disclosure [Abstract]

Schedule of Changes in Net Carrying Amount of Goodwill

The changes in the net carrying amount of goodwill for the nine months ended September 30, 2019 are as follows (in thousands):

	2019
Balance, January 1	$	69,658
Goodwill acquired during the period		6,570
Foreign currency translation adjustments		138
Balance, September 30, 2019	$	76,366

Intangible Assets

Intangible assets subject to amortization primarily include subscriber relationships, non-competition agreements and acquired technology and are amortized over their respective useful lives (ranging from 1 to 10 years). Intangible assets, net included the following (in thousands):

	September 30, 2019
	Gross					Foreign
	Carrying		Accumulated			Currency
	Amount		Amortization			Translation		Net
Subscriber relationships	$	43,640	$	(26,178	)	$	76	$	17,538
Non-competition agreements		2,495		(2,334	)		7		168
Technology and other		8,502		(2,372	)		8		6,138
	$	54,637	$	(30,884	)	$	91	$	23,844

	December 31, 2018
	Gross					Foreign
	Carrying		Accumulated			Currency
	Amount		Amortization			Translation			Net
Subscriber relationships	$	43,212	$	(23,284	)	$	(623	)	$	19,305
Non-competition agreements		2,560		(2,247	)		(28	)		285
Technology and other		5,199		(2,012	)		(36	)		3,151
	$	50,971	$	(27,543	)	$	(687	)	$	22,741

Estimated Annual Amortization Expense Related to Intangible Assets Subject to Amortization

The estimated annual amortization expense related to intangible assets subject to amortization for the next five years is as follows (in thousands):

Remainder of 2019	$	1,412
2020		5,309
2021		4,471
2022		3,367
2023		3,297
Thereafter		5,988
	$	23,844

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Stock-Based Compensation - Restricted Stock Awards (Detail) - Restricted Stock Award [Member]	9 Months Ended
	Sep. 30, 2019 $ / shares shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock awards, Outstanding, Beginning Balance | shares	3,664
Restricted common stock issued, stock awards | shares	9,840
Restrictions lapsed, stock awards | shares	(8,584)
Stock awards, Outstanding, Ending Balance | shares	4,920
Weighted average grant date fair value, Outstanding, Beginning Balance | $ / shares	$ 37.22
Restricted common stock issued, Weighted Average Grant Date Fair Value | $ / shares	51.80
Restrictions lapsed, Weighted Average Grant Date Fair Value | $ / shares	45.58
Weighted average grant date fair value, Outstanding, Ending Balance | $ / shares	$ 51.80

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Net Income Per Share - Additional Information (Detail)			9 Months Ended
	Aug. 22, 2019	Aug. 08, 2019	Sep. 30, 2019
Net Income Per Share [Abstract]
Stock split description			two-for-one stock split
Stock split ratio	2	2

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Other Assets - Summary of Changes in Net Amount of Capitalized Implementation Costs for Internal-use Software from Hosting Arrangements (Detail) $ in Thousands	9 Months Ended
	Sep. 30, 2019 USD ($)
Capitalized Computer Software Net [Abstract]
Balance, January 1	$ 455
Capitalized implementation fees	670
Amortization of implementation fees	(52)
Balance, September 30, 2019	$ 1,073

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Goodwill and Intangible Assets, net - Schedule of Changes in Net Carrying Amount of Goodwill (Detail) $ in Thousands	9 Months Ended
	Sep. 30, 2019 USD ($)
Goodwill And Intangible Assets Disclosure [Abstract]
Balance, January 1	$ 69,658
Goodwill acquired during the period	6,570
Foreign currency translation adjustments	138
Balance, September 30, 2019	$ 76,366

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Leases - Additional Information (Detail) $ in Millions			9 Months Ended
	Dec. 20, 2017 ft² Option	Feb. 25, 2016 ft²	Sep. 30, 2019 USD ($)	Dec. 31, 2020 ft²
Lessee Lease Description [Line Items]
Lease extension period, number of years			5 years
ASU 2016-02 [Member]
Lessee Lease Description [Line Items]
Transition amount | $			$ 15.7
Little Falls, NJ Lease [Member]
Lessee Lease Description [Line Items]
Lease extension period, number of years		5 years
Current leased space | ft²		26,000
Lease agreement expires, date		Jun. 30, 2023
Incentives | $			0.9
Current Headquarters [Member]
Lessee Lease Description [Line Items]
Lease extension period, number of years	5 years
Lease agreement expires, date	Apr. 30, 2025
Number of options to extend term of the lease | Option	2
Incentives | $			$ 6.4
Current Headquarters [Member] | Minneapolis, Minnesota [Member]
Lessee Lease Description [Line Items]
Current leased space | ft²	189,000
Current Headquarters [Member] | Scenario, Forecast [Member] | Minneapolis, Minnesota [Member]
Lessee Lease Description [Line Items]
Future expansion of headquarters premises | ft²				25,000

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Leases - Schedule of Future Minimum Payments Under Operating Leases (Detail) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Leases [Abstract]
Remainder of 2019	$ 1,125
2020	3,635
2021	4,483
2022	4,042
2023	3,855
Thereafter	4,816
Future minimum payments	21,956
Less: imputed interest	(2,451)
Operating lease liability	$ 19,505
2019		$ 4,209
2020		3,542
2021		4,414
2022		4,042
2023		3,855
Thereafter		4,816
Operating leases, total		$ 24,878

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Stock-Based Compensation - Weighted Average Grant Date Fair Value of Options Granted, Assumptions (Detail) - Stock Options [Member]	9 Months Ended
	Sep. 30, 2019
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Volatility	33.20%
Dividend yield	0.00%
Life (in years)	4 years 4 months 24 days
Risk-free interest rate	2.41%

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Deferred Costs

9 Months Ended

Sep. 30, 2019

Deferred Costs [Abstract]

Deferred Costs

NOTE D – Deferred Costs

Deferred costs consist of costs to obtain customer contracts, such as commissions paid to sales personnel and to third-party partners for customer referrals, and costs to fulfill customer contracts, such as customer implementation costs.

Sales commissions relating to recurring revenues are considered incremental and recoverable costs of obtaining a contract with our customer.  These commissions are calculated based on estimated annual recurring revenue to be generated over the customer’s initial contract year.  These costs are deferred and amortized over the expected period of benefit which we have determined to be two years.  Amortization expense is included in sales and marketing expenses in the accompanying condensed consolidated statements of comprehensive income.

Customer implementation costs are considered incremental and recoverable costs of obtaining a contract with our customer.  These costs are deferred and amortized over the expected period of benefit which we have determined to be two years.  Amortization expense is included in cost of revenues in the accompanying condensed consolidated statements of comprehensive income.

The table below presents the activity of deferred costs and amortization of deferred costs (in thousands):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
Balances, at beginning of period	$	45,528		$	42,544		$	45,475		$	39,933
Incurred deferred costs		12,676			12,391			36,888			36,807
Amortized deferred costs		(12,623	)		(11,204	)		(36,782	)		(33,009	)
Balances, at end of period	$	45,581		$	43,731		$	45,581		$	43,731

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Leases

9 Months Ended

Sep. 30, 2019

Leases [Abstract]

Leases

NOTE H – Leases

We are obligated under non-cancellable operating leases, primarily for office space and certain equipment, as follows:

	September 30, 2019
	Remaining		Right-of-Use
	Term (years)		Asset (in thousands)
Minneapolis, MN lease		6	$	10,823
Little Falls, NJ lease		4		1,674
Other leases	< 1 - 3			1,151
			$	13,648

Some of our leases may include options to extend the leases for up to 5 years.  The options to extend our leases are not recognized as part of our ROU assets and lease liabilities as it is not reasonably certain that we will exercise those options.  Additionally, our agreements do not include options to terminate the leases.

On December 20, 2017, we executed the fourth amendment to our lease agreement for our current headquarters located in Minneapolis, Minnesota where we lease approximately 189,000 square feet under an agreement that expires on April 30, 2025.  We have agreed to expand our headquarters premises by approximately 25,000 square feet during 2020. Our lease agreement also includes a further expansion right and a right of first offer to lease certain additional space and two options to extend the term of the lease for five years at a market rate determined in accordance with the lease.  Incentives of $6.4 million are included as a lease component.

On February 25, 2016, we executed the first amendment to our lease agreement for our Little Falls, New Jersey location where we lease approximately 26,000 square feet under an agreement that expires on June 30, 2023. The agreement includes an option to extend the term of the lease for five years at a market rate determined in accordance with the lease.  Incentives of $0.9 million are included as a lease component.

The components of lease expense were as follows (in thousands):  

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2019		2019
Operating lease cost	$	650	$	1,956
Variable lease cost		721		2,360
	$	1,371	$	4,316

Operating lease cost for short-term leases was not material for the three and nine months ended September 30, 2019.

Supplemental cash flow information related to leases was as follows (in thousands):

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2019		2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases		1,109		3,246
ROU assets obtained in exchange for operating lease liabilities		—		—

The ROU assets obtained in exchange for operating lease liabilities excludes the transition amount of $15.7 million.

Supplemental balance sheet information related to leases was as follows:

	September 30, 2019
Weighted-average remaining lease term - operating leases	5.1 years
Weighted-average discount rate - operating leases		4.5	%

At September 30, 2019, our future minimum payments under operating leases were as follows (in thousands):

Remainder of 2019	$	1,125
2020		3,635
2021		4,483
2022		4,042
2023		3,855
Thereafter		4,816
		21,956
Less: imputed interest		(2,451	)
	$	19,505

At December 31, 2018, our future minimum payments under operating leases were as follows (in thousands):

2019	$	4,209
2020		3,542
2021		4,414
2022		4,042
2023		3,855
Thereafter		4,816
	$	24,878

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Deferred Costs - Summary of Deferred Costs and Amortization of Deferred Costs (Detail) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Deferred Costs [Abstract]
Balances, at beginning of period	$ 45,528	$ 42,544	$ 45,475	$ 39,933
Incurred deferred costs	12,676	12,391	36,888	36,807
Amortized deferred costs	(12,623)	(11,204)	(36,782)	(33,009)
Balances, at end of period	$ 45,581	$ 43,731	$ 45,581	$ 43,731

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Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018
Cash flows from operating activities
Net income	$ 24,550	$ 16,731
Reconciliation of net income to net cash provided by operating activities
Deferred income taxes	5,360	1,934
Change in earn-out liability	(366)
Depreciation and amortization of property and equipment	8,143	6,308
Amortization of intangible assets	3,897	3,086
Provision for doubtful accounts	2,429	1,780
Stock-based compensation	11,316	9,978
Other, net	(551)	(255)
Changes in assets and liabilities
Accounts receivable	(3,670)	(4,279)
Deferred costs	(151)	(3,813)
Other current and non-current assets	(820)	(681)
Accounts payable	181	382
Accrued compensation	(3,716)	(592)
Accrued expenses	(84)	(718)
Deferred revenue	4,929	7,039
Deferred rent		647
Operating leases	(487)
Net cash provided by operating activities	50,960	37,547
Cash flows from investing activities
Purchases of property and equipment	(8,387)	(9,875)
Purchases of investments	(61,967)	(64,434)
Maturities of investments	55,225	60,000
Acquisitions of businesses and intangible assets, net of cash acquired	(11,500)	(381)
Net cash used in investing activities	(26,629)	(14,690)
Cash flows from financing activities
Repurchases of common stock	(14,966)	(13,867)
Net proceeds from exercise of options to purchase common stock	5,273	11,800
Net proceeds from employee stock purchase plan	1,155	836
Net cash used in financing activities	(8,538)	(1,231)
Effect of foreign currency exchange rate changes	75	(5)
Net increase in cash and cash equivalents	15,868	21,621
Cash and cash equivalents at beginning of period	133,859	123,127
Cash and cash equivalents at end of period	$ 149,727	$ 144,748

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Revenue - Summary of Revenues by Revenue Stream (Detail) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Revenue Recognition [Line Items]
Revenues	$ 70,928	$ 62,868	$ 206,391	$ 183,051
Recurring Revenues [Member]
Revenue Recognition [Line Items]
Revenues	66,426	58,644	193,528	169,934
One-time Revenues [Member]
Revenue Recognition [Line Items]
Revenues	4,502	4,224	12,863	13,117
Fulfillment [Member] | Recurring Revenues [Member]
Revenue Recognition [Line Items]
Revenues	55,546	48,482	161,685	140,326
Analytics [Member] | Recurring Revenues [Member]
Revenue Recognition [Line Items]
Revenues	9,422	8,750	27,540	25,639
Other [Member] | Recurring Revenues [Member]
Revenue Recognition [Line Items]
Revenues	$ 1,458	$ 1,412	$ 4,303	$ 3,969

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General - Additional Information (Detail) $ in Thousands	Aug. 22, 2019	Aug. 08, 2019	Sep. 30, 2019 USD ($)	Jan. 01, 2019 USD ($)
Schedule Of Accounting Policies [Line Items]
Stock split ratio	2	2
Percentage of stock dividend from stock split		100.00%
Operating leases, right of use assets			$ 13,648
Operating leases, lease liabilities			$ 19,505
ASU 2016-02 [Member]
Schedule Of Accounting Policies [Line Items]
Operating leases, right of use assets				$ 15,700
Operating leases, lease liabilities				$ 15,700

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Condensed Consolidated Statements of Comprehensive Income (Unaudited) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Income Statement [Abstract]
Revenues	$ 70,928	$ 62,868	$ 206,391	$ 183,051
Cost of revenues	23,263	20,411	68,330	60,571
Gross profit	47,665	42,457	138,061	122,480
Operating expenses
Sales and marketing	16,937	16,952	52,404	54,023
Research and development	7,743	5,146	20,444	15,571
General and administrative	10,725	11,174	33,674	31,278
Amortization of intangible assets	1,327	928	3,897	3,086
Total operating expenses	36,732	34,200	110,419	103,958
Income from operations	10,933	8,257	27,642	18,522
Other income (expense)
Interest income, net	843	628	2,233	1,589
Other income (expense), net	(165)	(219)	28	(541)
Change in earn-out liability	22		366
Total other income, net	700	409	2,627	1,048
Income before income taxes	11,633	8,666	30,269	19,570
Income tax expense	2,692	605	5,719	2,839
Net income	8,941	8,061	24,550	16,731
Other comprehensive income (expense)
Foreign currency translation adjustments	(958)	76	73	(2,155)
Unrealized gain on investments, net of tax of $38, $41, $105, and $88, respectively	115	123	315	264
Reclassification of gain on investments into earnings, net of tax of ($48), ($11), ($109) and ($64), respectively	(145)	(33)	(326)	(191)
Total other comprehensive income (expense)	(988)	166	62	(2,082)
Comprehensive income	$ 7,953	$ 8,227	$ 24,612	$ 14,649
Net income per share
Basic	$ 0.26	$ 0.23	$ 0.70	$ 0.49
Diluted	$ 0.25	$ 0.23	$ 0.68	$ 0.48
Weighted average common shares used to compute net income per share
Basic	35,015	34,438	34,966	34,334
Diluted	35,932	35,482	35,952	35,114

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Subsequent Event

9 Months Ended

Sep. 30, 2019

Subsequent Events [Abstract]

Subsequent Event

NOTE L – Subsequent Event

Subsequent to September 30, 2019, the Company’s board of directors authorized an increase and extension of its previously announced stock repurchase program pursuant to which the Company may, from time to time, purchase shares of its outstanding common stock. The stock repurchase program originally authorized the Company to purchase up to $50.0 million of its outstanding common stock and that amount has been increased by the board to $100.0 million. As of September 30, 2019, $9.3 million remained available under the previously unused stock repurchase program. The board also authorized an extension of the original expiration date of the stock repurchase program from November 2, 2019 to November 2, 2021. The number of shares to be purchased and the timing of purchases will be based on the price of the Company’s common stock, general business and market conditions and other investment considerations and factors.

The program does not obligate the Company to repurchase any specific number of shares and it may be suspended or discontinued at any time without prior notice. The Company intends to finance the share repurchase program with cash on hand.  

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Deferred Costs (Tables)

9 Months Ended

Sep. 30, 2019

Deferred Costs [Abstract]

Summary of Deferred Costs and Amortization of Deferred Costs

The table below presents the activity of deferred costs and amortization of deferred costs (in thousands):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
Balances, at beginning of period	$	45,528		$	42,544		$	45,475		$	39,933
Incurred deferred costs		12,676			12,391			36,888			36,807
Amortized deferred costs		(12,623	)		(11,204	)		(36,782	)		(33,009	)
Balances, at end of period	$	45,581		$	43,731		$	45,581		$	43,731

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Leases (Tables)

9 Months Ended

Sep. 30, 2019

Leases [Abstract]

Summary of Non-Cancellable Operating Leases, Primarily for Office Space and Certain Equipment

We are obligated under non-cancellable operating leases, primarily for office space and certain equipment, as follows:

	September 30, 2019
	Remaining		Right-of-Use
	Term (years)		Asset (in thousands)
Minneapolis, MN lease		6	$	10,823
Little Falls, NJ lease		4		1,674
Other leases	< 1 - 3			1,151
			$	13,648

Components of Lease Expense

The components of lease expense were as follows (in thousands):  

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2019		2019
Operating lease cost	$	650	$	1,956
Variable lease cost		721		2,360
	$	1,371	$	4,316

Schedule of Supplemental Cash Flow Information Related to Leases

Supplemental cash flow information related to leases was as follows (in thousands):

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2019		2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases		1,109		3,246
ROU assets obtained in exchange for operating lease liabilities		—		—

Schedule of Supplemental Balance Sheet Information Related to Leases

Supplemental balance sheet information related to leases was as follows:

	September 30, 2019
Weighted-average remaining lease term - operating leases	5.1 years
Weighted-average discount rate - operating leases		4.5	%

Schedule of Future Minimum Payments Under Operating Leases

At September 30, 2019, our future minimum payments under operating leases were as follows (in thousands):

Remainder of 2019	$	1,125
2020		3,635
2021		4,483
2022		4,042
2023		3,855
Thereafter		4,816
		21,956
Less: imputed interest		(2,451	)
	$	19,505

Schedule of Future Minimum Payments Under Operating Leases

At December 31, 2018, our future minimum payments under operating leases were as follows (in thousands):

2019	$	4,209
2020		3,542
2021		4,414
2022		4,042
2023		3,855
Thereafter		4,816
	$	24,878

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Leases - Summary of Non-Cancellable Operating Leases, Primarily for Office Space and Certain Equipment (Detail) $ in Thousands	Sep. 30, 2019 USD ($)
Lessee Lease Description [Line Items]
Right-of-Use Asset	$ 13,648
Minneapolis, MN Lease [Member]
Lessee Lease Description [Line Items]
Remaining Term (years)	6 years
Right-of-Use Asset	$ 10,823
Little Falls, NJ Lease [Member]
Lessee Lease Description [Line Items]
Remaining Term (years)	4 years
Right-of-Use Asset	$ 1,674
Other Leases [Member]
Lessee Lease Description [Line Items]
Right-of-Use Asset	$ 1,151
Other Leases [Member] | Minimum [Member]
Lessee Lease Description [Line Items]
Remaining Term (years)	1 year
Other Leases [Member] | Maximum [Member]
Lessee Lease Description [Line Items]
Remaining Term (years)	3 years

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Goodwill and Intangible Assets, net - Intangible Assets (Detail) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	$ 54,637	$ 50,971
Accumulated Amortization	(30,884)	(27,543)
Foreign Currency Translation	91	(687)
Net	23,844	22,741
Subscriber Relationships [Member]
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	43,640	43,212
Accumulated Amortization	(26,178)	(23,284)
Foreign Currency Translation	76	(623)
Net	17,538	19,305
Non-competition Agreements [Member]
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	2,495	2,560
Accumulated Amortization	(2,334)	(2,247)
Foreign Currency Translation	7	(28)
Net	168	285
Technology and Other [Member]
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	8,502	5,199
Accumulated Amortization	(2,372)	(2,012)
Foreign Currency Translation	8	(36)
Net	$ 6,138	$ 3,151

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Financial Instruments - Additional Information (Detail) - E D I Admin [Member]	Oct. 03, 2018 USD ($)
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Maximum payout of contingent consideration	$ 1,700,000
Level 3 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Maximum payout of contingent consideration	$ 1,700,000

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Income Taxes - Additional Information (Detail)	Sep. 30, 2019 USD ($)
Income Tax Disclosure [Abstract]
Unrecognized tax benefits	$ 0
Accrued interest or tax penalties	$ 0

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Stock-Based Compensation (Tables)

9 Months Ended

Sep. 30, 2019

Stock-Based Compensation Expense

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

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Cost of revenues	$	778	$	535	$	2,027	$	1,587
Operating expenses
Sales and marketing		784		691		2,208		2,054
Research and development		697		287		1,822		973
General and administrative		888		1,753		5,259		5,364
Total stock-based compensation expense	$	3,147	$	3,266	$	11,316	$	9,978

Stock-based compensation expense by plan type was as follows (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Stock options	$	619	$	677	$	2,548	$	2,670
Performance share units		152		74		1,226	960
Restricted stock units		1,719		1,976		5,581		4,727
Restricted stock awards		128		137		409		352
Employee stock purchase plan		186		109		547		332
401(k) stock match		343		293		1,005		937
Total stock-based compensation expense	$	3,147	$	3,266	$	11,316	$	9,978

Stock Option Activity

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:

				Weighted Average
	Options			Exercise Price
	(#)			($/share)
Outstanding at December 31, 2018		1,746,468		$	25.93
Granted		184,194			53.92
Exercised		(309,310	)		21.57
Forfeited		(39,818	)		30.57
Outstanding at September 30, 2019		1,581,534			29.93

Weighted Average Grant Date Fair Value of Options Granted, Assumptions

The weighted average grant date fair value of options granted during the first nine months of 2019 was $16.86 per share. This was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:

Volatility	33.2	%
Dividend yield	0	%
Life (in years)	4.4
Risk-free interest rate	2.41	%

Fair Value Estimation of Common Stock Using Black-Scholes Option Pricing Model, Assumptions

The fair value was estimated based on the market price of our common stock at the beginning of the offering period using the Black-Scholes option pricing model with the following assumptions:

Volatility	40	%
Dividend yield	0	%
Life (in years)	0.5
Risk-free interest rate	2.56	%

PSUs and RSUs [Member]

PSUs and RSUs and Restricted Stock Awards

Activity for our PSUs and RSUs was as follows:

				Weighted Average
	PSUs and RSUs			Grant Date Fair Value
	(#)			($/share)
Outstanding at December 31, 2018		754,670		$	29.95
Granted		272,454			55.90
Vested and common stock issued		(190,624	)		28.76
Forfeited		(28,144	)		33.14
Outstanding at September 30, 2019		808,356			38.86

Restricted Stock Award [Member]

PSUs and RSUs and Restricted Stock Awards

Our restricted stock awards activity was as follows:

	Restricted Stock			Weighted Average Grant
	Awards (#)			Date Fair Value ($/share)
Outstanding at December 31, 2018		3,664		$	37.22
Restricted common stock issued		9,840			51.80
Restrictions lapsed		(8,584	)		45.58
Forfeited		—			—
Outstanding at September 30, 2019		4,920		$	51.80

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General (Policies)

9 Months Ended

Sep. 30, 2019

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Business Description

Business Description

SPS Commerce is a leading provider of cloud-based supply chain management 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.  The solutions SPS Commerce provides allow 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.

Basis of Presentation

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of SPS Commerce, Inc. and its subsidiaries.  All intercompany accounts and transactions have been eliminated in the condensed consolidated financial statements, which have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with 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.  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 shown.  Operating results for these interim periods are not necessarily indicative of the results to be expected for the full year.  For further information, refer to the consolidated financial statements and accompanying notes for the year ended December 31, 2018 included in our Annual Report on Form 10-K/A filed with the SEC.

Effective January 1, 2019, we adopted the requirements of Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), and used the effective date as our date of initial application. Consequently, financial information was not updated and the disclosures required under the new standard were not provided for dates and periods before January 1, 2019.  The new standard provides several optional practical expedients in transition. We elected the “package of practical expedients,” which permits us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. We did not elect the use-of hindsight or the practical expedient pertaining to land easements, the latter not being applicable to us.  The new standard also provides practical expedients for an entity’s ongoing accounting. We elected the short-term lease recognition exemption for all leases that qualify, which means we will not recognize right-of-use (“ROU”) assets or lease liabilities for these leases. This includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition. We also elected the practical expedient to not separate lease and non-lease components for all leases.

On July 25, 2019, the Company announced that its board of directors declared a two-for-one stock split of the Company’s 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 Quarterly Report on Form 10-Q after the effect of 100 percent stock dividend. The two-for-one stock split is reflected in the share amounts in all periods presented in this Quarterly Report on Form 10-Q.  

Use of Estimates

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, 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.

Lease Policy

Lease Policy

We determine if an arrangement is a lease at inception.  Operating leases are included in operating lease ROU assets, current lease liabilities, and long-term lease liabilities in our consolidated balance sheets.

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 reviewing quoted 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 right-of-use 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.

Recently Adopted Accounting Pronouncements

Recently Adopted Accounting Pronouncements

Standard	Date of Issuance	Description	Date Adopted	Effect on the Financial Statements
ASU 2016-02, Leases and all related amendments	February 2016	Requires all leases with a term greater than 12 months to be recognized in the statements of financial position and eliminates current real estate-specific lease guidance, while maintaining substantially similar classification criteria for distinguishing between finance leases and operating leases.	January 2019	The adoption of this standard and related amendments resulted in the recognition of approximately $15.7 million in right-of-use assets and lease liabilities on our balance sheet as of January 1, 2019. Comparative periods will continue to be measured and presented under historical guidance, and only the period of adoption and future periods will be subject to this ASU. There was no cumulative effect on retained earnings or other components of equity at the adoption date.  For more information see Note H.
ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220)	February 2018	Allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017 and requires certain disclosures regarding stranded tax effects in accumulated other comprehensive income.	January 2019	The adoption of this standard did not have a material impact on our consolidated financial statements.

Accounting Pronouncements Not Yet Adopted

Accounting Pronouncements Not Yet Adopted

Standard	Date of Issuance	Description	Date of Required Adoption	Effect on the Financial Statements
ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Statements	June 2016	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.	January 2020	We are currently evaluating the impact of the adoption on our condensed consolidated financial statements.
ASU 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement	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.	January 2020	We are currently evaluating the impact of the adoption on our condensed consolidated financial statements.

Significant Accounting Policies

Significant Accounting Policies

Except for the accounting policy for leases that was updated as a result of adopting ASU 2016-02, there were no material changes in our significant accounting policies during the nine months ended September 30, 2019. See Note A to the consolidated financial statements included in our Annual Report on Form 10-K/A for the year ended December 31, 2018, as filed with the SEC, for additional information regarding our significant accounting policies.

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Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2019

Financial Instruments Owned At Fair Value [Abstract]

Summary of Cash Equivalents and Short-term Investments

Cash equivalents and short-term investments consisted of the following (in thousands):

	September 30, 2019
	Amortized		Unrealized			Fair
	Cost		Gains (Losses)			Value
Cash equivalents:
Money market funds	$	124,046	$	—		$	124,046
Certificates of deposit		6,747		—			6,747
Marketable securities:
Corporate bonds		19,821		(11	)		19,810
Commercial paper		9,961		41			10,002
U.S. treasury securities		14,778		109			14,887
Total	$	175,353	$	139		$	175,492

	December 31, 2018
	Amortized		Unrealized		Fair
	Cost		Gains		Value
Cash equivalents:
Money market funds	$	109,265	$	—	$	109,265
Certificates of deposit		7,000		—		7,000
Marketable securities:
Corporate bonds		15,194		40		15,234
Commercial paper		9,889		76		9,965
U.S. treasury securities		12,300		38		12,338
Total	$	153,648	$	154	$	153,802

Summary of Financial Assets Measured at Fair Value on a Recurring Basis

The following table presents information about our financial assets 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):

	September 30, 2019
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Money market funds	$	124,046	$	—	$	—	$	124,046
Certificates of deposit		6,747		—		—		6,747
Marketable securities:
Corporate bonds		—		19,810		—		19,810
Commercial paper		—		10,002		—		10,002
U.S. treasury securities		—		14,887		—		14,887
Total	$	130,793	$	44,699	$	—	$	175,492
Liabilities:
Earn-out liability	$	—	$	—	$	1,002	$	1,002
Total	$	—	$	—	$	1,002	$	1,002

	December 31, 2018
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Money market funds	$	109,265	$	—	$	—	$	109,265
Certificates of deposit		7,000		—		—		7,000
Marketable securities:
Corporate bonds		—		15,234		—		15,234
Commercial paper		—		9,965		—		9,965
U.S. treasury securities		—		12,338		—		12,338
Total	$	116,265	$	37,537	$	—	$	153,802
Liabilities:
Earn-out liability	$	—	$	—	$	1,368	$	1,368
Total	$	—	$	—	$	1,368	$	1,368

XML

Goodwill and Intangible Assets, net - Additional Information (Detail)	9 Months Ended
	Sep. 30, 2019
Minimum [Member]
Finite-Lived Intangible Assets [Line Items]
Intangible assets useful life	1 year
Maximum [Member]
Finite-Lived Intangible Assets [Line Items]
Intangible assets useful life	10 years

XML

Financial Instruments - Summary of Cash Equivalents and Short-term Investments (Detail) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Money Market Funds [Member]
Schedule of Financial Instruments [Line Items]
Amortized Cost	$ 124,046	$ 109,265
Fair Value	124,046	109,265
Certificates of Deposit [Member]
Schedule of Financial Instruments [Line Items]
Amortized Cost	6,747	7,000
Fair Value	6,747	7,000
Corporate Bonds [Member]
Schedule of Financial Instruments [Line Items]
Amortized Cost	19,821	15,194
Unrealized Gains (Losses)	(11)	40
Fair Value	19,810	15,234
Commercial Paper [Member]
Schedule of Financial Instruments [Line Items]
Amortized Cost	9,961	9,889
Unrealized Gains (Losses)	41	76
Fair Value	10,002	9,965
U.S. Treasury Securities [Member]
Schedule of Financial Instruments [Line Items]
Amortized Cost	14,778	12,300
Unrealized Gains (Losses)	109	38
Fair Value	14,887	12,338
Financial Instruments [Member]
Schedule of Financial Instruments [Line Items]
Amortized Cost	175,353	153,648
Unrealized Gains (Losses)	139	154
Fair Value	$ 175,492	$ 153,802

XML

Other Assets - Additional Information (Detail)	9 Months Ended
	Sep. 30, 2019 USD ($)
Capitalized Computer Software Net [Abstract]
Impairment losses on capitalized implementation costs	$ 0

XML

Net Income Per Share - Components of Computation of Basic and Diluted Net Income Per Share (Detail) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Numerator
Net income	$ 8,941	$ 8,061	$ 24,550	$ 16,731
Denominator
Weighted average common shares outstanding, basic	35,015	34,438	34,966	34,334
Options to purchase common stock	634	790	687	586
PSUs, RSUs and restricted stock awards	283	254	299	194
Weighted average common shares outstanding, diluted	35,932	35,482	35,952	35,114
Net income per share
Basic	$ 0.26	$ 0.23	$ 0.70	$ 0.49
Diluted	$ 0.25	$ 0.23	$ 0.68	$ 0.48
Antidilutive shares (in thousands)	240		164	54

XML

Stock-Based Compensation - PSUs and RSUs (Detail) - PSU's and RSU's [Member]	9 Months Ended
	Sep. 30, 2019 $ / shares shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock awards, Outstanding, Beginning Balance | shares	754,670
Granted, stock units | shares	272,454
Vested and common stock issued, stock units | shares	(190,624)
Forfeited, stock units | shares	(28,144)
Stock awards, Outstanding, Ending Balance | shares	808,356
Weighted average grant date fair value, Outstanding, Beginning Balance | $ / shares	$ 29.95
Granted, Weighted Average Grant Date Fair Value | $ / shares	55.90
Vested and common stock issued, Weighted Average Grant Date Fair Value | $ / shares	28.76
Forfeited, Weighted Average Grant Date Fair Value | $ / shares	33.14
Weighted average grant date fair value, Outstanding, Ending Balance | $ / shares	$ 38.86

XML

Leases - Components of Lease Expense (Detail) - USD ($) $ in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2019
Leases [Abstract]
Operating lease cost	$ 650	$ 1,956
Variable lease cost	721	2,360
Lease expense	$ 1,371	$ 4,316

XML

Stock-Based Compensation - Additional Information (Detail) $ / shares in Units, $ in Millions			1 Months Ended			3 Months Ended		9 Months Ended
	Aug. 22, 2019 shares	Aug. 08, 2019	Feb. 28, 2019 shares	Feb. 28, 2018	Feb. 28, 2017	Sep. 30, 2019 USD ($) Offering $ / shares shares	Sep. 30, 2018 USD ($)	Sep. 30, 2019 USD ($) Offering $ / shares shares	Sep. 30, 2018 USD ($)
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock split ratio	2	2
Change in number of common stock, shares authorized	0
Shares available for grant						12,255,888,000,000		12,255,888,000,000
Unrecognized stock-based compensation expense | $						$ 21.3		$ 21.3
Unrecognized stock-based compensation, expected to be recognized, weighted average period								2 years 7 months 6 days
Employee Stock Purchase Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Additional shares reserved for issuance under the plan						2,000,000.0		2,000,000.0
Purchase price as a percentage of fair market value								85.00%
Number of offerings per year | Offering						2		2
Amount withheld from employees | $						$ 0.7	$ 0.5	$ 1.2	$ 0.8
Equity Incentive Plan [Member] | 2010 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Additional shares reserved for issuance under the plan			2,081,488
Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period								4 years
Stock options exercisable						1,129,294		1,129,294
Weighted average exercise price | $ / shares						$ 27.03		$ 27.03
Weighted average remaining contractual life								3 years 2 months 12 days
Weighted average fair value per share of options granted | $ / shares								$ 16.86
Stock Options [Member] | Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock options contractual term range								7 years
Stock Options [Member] | Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock options contractual term range								10 years
Performance Share Unit [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period			3 years	3 years	3 years
Restricted Stock Units [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period								4 years
Number of RSU's vested and not issued during the period								88,196
Restricted Stock Award [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Restricted stock awards units vest over, period								1 year
401(k) Stock Match [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Maximum allowable contribution by employee percentage								80.00%
Defined benefit plan employer matching contribution percent								50.00%
Maximum annual contribution per employee, percent								6.00%

XML

Financial Instruments

9 Months Ended

Sep. 30, 2019

Disclosure Text Block Supplement [Abstract]

Financial Instruments

NOTE E – Financial Instruments

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.  All investments with remaining maturities of less than one year from the balance sheet date are classified as short-term investments.  Investments with remaining maturities of more than one year from the balance sheet date are classified as long-term investments. As of September 30, 2019 and December 31, 2018, all of our investments held were classified as short-term.

Our short-term marketable securities are classified as available-for-sale.  We 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 condensed consolidated balance sheets.  Realized gains or losses are included in other income (expense), net in the condensed consolidated statements of comprehensive income.  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 condensed consolidated statements of comprehensive income.

Cash equivalents and short-term investments consisted of the following (in thousands):

	September 30, 2019
	Amortized		Unrealized			Fair
	Cost		Gains (Losses)			Value
Cash equivalents:
Money market funds	$	124,046	$	—		$	124,046
Certificates of deposit		6,747		—			6,747
Marketable securities:
Corporate bonds		19,821		(11	)		19,810
Commercial paper		9,961		41			10,002
U.S. treasury securities		14,778		109			14,887
Total	$	175,353	$	139		$	175,492

	December 31, 2018
	Amortized		Unrealized		Fair
	Cost		Gains		Value
Cash equivalents:
Money market funds	$	109,265	$	—	$	109,265
Certificates of deposit		7,000		—		7,000
Marketable securities:
Corporate bonds		15,194		40		15,234
Commercial paper		9,889		76		9,965
U.S. treasury securities		12,300		38		12,338
Total	$	153,648	$	154	$	153,802

We do not believe any of the unrealized losses represent an other-than-temporary impairment based on our valuation of available evidence as of September 30, 2019.  We expect to receive the full principal and interest on all of these cash equivalents, certificates of deposit, and marketable securities.

Recurring Fair Value Measurements

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.  We obtain the fair values of our level 2 available-for-sale securities from a professional pricing service.

• Level 3 – unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.

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.  Changes in assumptions described above could have an impact on the payout of contingent consideration with a maximum payout being $1.7 million.  The earn-out liability has been measured as Level 3 given the unobservable inputs that are significant to the measurement of the liability.

The following table presents information about our financial assets 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):

	September 30, 2019
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Money market funds	$	124,046	$	—	$	—	$	124,046
Certificates of deposit		6,747		—		—		6,747
Marketable securities:
Corporate bonds		—		19,810		—		19,810
Commercial paper		—		10,002		—		10,002
U.S. treasury securities		—		14,887		—		14,887
Total	$	130,793	$	44,699	$	—	$	175,492
Liabilities:
Earn-out liability	$	—	$	—	$	1,002	$	1,002
Total	$	—	$	—	$	1,002	$	1,002

	December 31, 2018
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Money market funds	$	109,265	$	—	$	—	$	109,265
Certificates of deposit		7,000		—		—		7,000
Marketable securities:
Corporate bonds		—		15,234		—		15,234
Commercial paper		—		9,965		—		9,965
U.S. treasury securities		—		12,338		—		12,338
Total	$	116,265	$	37,537	$	—	$	153,802
Liabilities:
Earn-out liability	$	—	$	—	$	1,368	$	1,368
Total	$	—	$	—	$	1,368	$	1,368

Nonrecurring Fair Value Measurements

The Company measures certain assets and liabilities at fair value on a nonrecurring basis. Assets and liabilities 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 the Company's business combinations and the related nonrecurring fair value measurement of the assets acquired and liabilities assumed, refer to Note B, Business Acquisitions.

Other Fair Value Disclosures

The carrying values of the Company's short-term financial instruments, including cash and cash equivalents, accounts receivable, and accounts payable, when applicable, approximate their respective fair values due to their short-term nature.

XML

Stock-Based Compensation

9 Months Ended

Sep. 30, 2019

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Stock-Based Compensation

NOTE I – Stock-Based Compensation

On August 22, 2019, we effected a two-for-one stock split of the Company’s common stock. There was no change in the number of authorized common shares of the Company. All share and per share data have been adjusted for all periods presented to reflect the stock split.

Our equity compensation plans provide for the grant of incentive and nonqualified stock options, as well as other stock-based awards including restricted stock and restricted stock units (“RSU”), to employees, non-employee directors and other consultants who provide services to us.  We also provide an employee stock purchase plan and 401(k) stock match.

Restricted stock awards 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 2019, 2,081,488 additional shares were reserved for future issuance under our 2010 Equity Incentive Plan.  At September 30, 2019, there were approximately 12,255,888 million shares available for grant under approved equity compensation plans.

We recognize stock-based compensation expense on a straight-line basis over the vesting period, except for expense relating to retirement-eligible employees which is recognized immediately upon the employee becoming retirement-eligible.

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

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Cost of revenues	$	778	$	535	$	2,027	$	1,587
Operating expenses
Sales and marketing		784		691		2,208		2,054
Research and development		697		287		1,822		973
General and administrative		888		1,753		5,259		5,364
Total stock-based compensation expense	$	3,147	$	3,266	$	11,316	$	9,978

Stock-based compensation expense by plan type was as follows (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Stock options	$	619	$	677	$	2,548	$	2,670
Performance share units		152		74		1,226	960
Restricted stock units		1,719		1,976		5,581		4,727
Restricted stock awards		128		137		409		352
Employee stock purchase plan		186		109		547		332
401(k) stock match		343		293		1,005		937
Total stock-based compensation expense	$	3,147	$	3,266	$	11,316	$	9,978

As of September 30, 2019, there was approximately $21.3 million of unrecognized stock-based compensation expense under our equity compensation plans, which is expected to be recognized on a straight-line basis over a weighted average period of 2.6 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:

				Weighted Average
	Options			Exercise Price
	(#)			($/share)
Outstanding at December 31, 2018		1,746,468		$	25.93
Granted		184,194			53.92
Exercised		(309,310	)		21.57
Forfeited		(39,818	)		30.57
Outstanding at September 30, 2019		1,581,534			29.93

Of the total outstanding options at September 30, 2019, 1,129,294 were exercisable with a weighted average exercise price of $27.03 per share. The total outstanding options had a weighted average remaining contractual life of 3.2 years.

The weighted average grant date fair value of options granted during the first nine months of 2019 was $16.86 per share. This was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:

Volatility	33.2	%
Dividend yield	0	%
Life (in years)	4.4
Risk-free interest rate	2.41	%

Performance Share Units and Restricted Stock Units and Awards

In February 2017, our executive officers were granted performance share unit (“PSU”) awards with vesting contingent on successful attainment of pre-determined revenue targets over the course of a three-year performance period (fiscal years 2017 – 2019).  The fair value is measured as the number of performance shares expected to be earned multiplied by the grant date fair value of our shares.  The number of performance shares expected to vest during the current service period is estimated and the fair value of those shares is recognized over the remaining service period less any amounts already recognized.

In February 2018 and 2019, our executive officers were granted PSU awards with vesting contingent on the Company’s total shareholder return as compared to indexed total shareholder return over the course of a three-year performance period (fiscal years 2018 – 2020 and fiscal years 2019 – 2021, respectively).  The grant date fair value was estimated using a Monte Carlo simulation that utilizes multiple input variables that determine the probability of satisfying the performance conditions stipulated in the award and calculates the fair market value for the PSUs granted.  Expense is recognized on a straight-line basis over the vesting period, regardless of whether the market condition is satisfied.

RSUs vest over four years and, upon vesting, the holder is entitled to receive shares of our common stock.  With restricted stock awards, shares of our common stock are issued when the award is granted and the restrictions lapse over one year.

Activity for our PSUs and RSUs was as follows:

				Weighted Average
	PSUs and RSUs			Grant Date Fair Value
	(#)			($/share)
Outstanding at December 31, 2018		754,670		$	29.95
Granted		272,454			55.90
Vested and common stock issued		(190,624	)		28.76
Forfeited		(28,144	)		33.14
Outstanding at September 30, 2019		808,356			38.86

The number of RSUs outstanding at September 30, 2019 included 88,196 units that have vested, but for which shares of common stock have not yet been issued pursuant to the terms of the agreement.

Our restricted stock awards activity was as follows:

	Restricted Stock			Weighted Average Grant
	Awards (#)			Date Fair Value ($/share)
Outstanding at December 31, 2018		3,664		$	37.22
Restricted common stock issued		9,840			51.80
Restrictions lapsed		(8,584	)		45.58
Forfeited		—			—
Outstanding at September 30, 2019		4,920		$	51.80

Employee Stock Purchase Plan

We have an employee stock purchase plan which 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, respectively.  A total of 2.0 million shares of common stock are reserved for issuance under the plan.

For the offering periods that began on January 1, 2019 and January 1, 2018, we withheld approximately $1.2 million and $0.8 million from employees participating in the plan. For the offering periods that began on July 1, 2019 and July 1, 2018, we withheld approximately $0.7 million and $0.5 million from employees participating in the plan as of September 30, 2019 and 2018, respectively.

The fair value was estimated based on the market price of our common stock at the beginning of the offering period using the Black-Scholes option pricing model with the following assumptions:

Volatility	40	%
Dividend yield	0	%
Life (in years)	0.5
Risk-free interest rate	2.56	%

401(k) Stock Match

We sponsor a 401(k) retirement savings plan for our U.S. employees where employees can contribute up to 80% of their compensation, subject to the limits established by law.  We match 50% of the employee’s elective deferrals, up to the first 6% of the employee’s pre-tax compensation for each pay period.  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.   

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2019	Oct. 18, 2019
Cover [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2019
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q3
Trading Symbol	SPSC
Entity Registrant Name	SPS COMMERCE INC
Entity Central Index Key	0001092699
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Common Stock, Shares Outstanding		34,839,275
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Shell Company	false
Entity File Number	001-34702
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	41-2015127
Entity Address, Address Line One	333 South Seventh Street
Entity Address, Address Line Two	Suite 1000
Entity Address, City or Town	Minneapolis
Entity Address, State or Province	MN
Entity Address, Postal Zip Code	55402
City Area Code	612
Local Phone Number	435-9400
Title of 12(b) Security	Common Stock, par value $0.001 per share
Security Exchange Name	NASDAQ
Document Quarterly Report	true
Document Transition Report	false

XML

Business Acquisitions - Estimated Fair Value of Purchased Intangible Assets and Estimated Useful Lives (Detail) - MAPADOC [Member] $ in Thousands	Aug. 26, 2019 USD ($)
Finite-Lived Intangible Assets [Line Items]
Estimated Fair Value	$ 4,900
Developed Technology [Member]
Finite-Lived Intangible Assets [Line Items]
Estimated Fair Value	$ 3,500
Estimated Life (in years)	8 years
Subscriber Relationships [Member]
Finite-Lived Intangible Assets [Line Items]
Estimated Fair Value	$ 1,400
Estimated Life (in years)	8 years

XML

Net Income Per Share (Tables)

9 Months Ended

Sep. 30, 2019

Earnings Per Share [Abstract]

Components of Computation of Basic and Diluted 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):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Numerator
Net income	$	8,941	$	8,061	$	24,550	$	16,731
Denominator
Weighted average common shares outstanding, basic		35,015		34,438		34,966		34,334
Options to purchase common stock		634		790		687		586
PSUs, RSUs and restricted stock awards		283		254		299		194
Weighted average common shares outstanding, diluted		35,932		35,482		35,952		35,114
Net income per share
Basic	$	0.26	$	0.23	$	0.70	$	0.49
Diluted	$	0.25	$	0.23	$	0.68	$	0.48
Antidilutive shares (in thousands)		240		—		164		54

XML

Condensed Consolidated Statements of Comprehensive Income (Unaudited) (Parenthetical) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019 USD ($)	Sep. 30, 2018 USD ($)	Sep. 30, 2019 USD ($)	Sep. 30, 2018 USD ($)
Income Statement [Abstract]
Unrealized gain on investments, tax	$ 38	$ 41	$ 105	$ 88
Reclassification of gain on investments into earnings, tax	$ (48)	$ (11)	$ (109)	$ (64)

XML

Deferred Costs - Additional Information (Detail)	9 Months Ended
	Sep. 30, 2019
Deferred Costs [Abstract]
Deferred commission expected amortization period	2 years
Deferred customer implementation costs expected amortization period	2 years

XML

General

9 Months Ended

Sep. 30, 2019

Organization Consolidation And Presentation Of Financial Statements [Abstract]

General

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, 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.  The solutions SPS Commerce provides allow 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.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of SPS Commerce, Inc. and its subsidiaries.  All intercompany accounts and transactions have been eliminated in the condensed consolidated financial statements, which have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with 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.  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 shown.  Operating results for these interim periods are not necessarily indicative of the results to be expected for the full year.  For further information, refer to the consolidated financial statements and accompanying notes for the year ended December 31, 2018 included in our Annual Report on Form 10-K/A filed with the SEC.

Effective January 1, 2019, we adopted the requirements of Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), and used the effective date as our date of initial application. Consequently, financial information was not updated and the disclosures required under the new standard were not provided for dates and periods before January 1, 2019.  The new standard provides several optional practical expedients in transition. We elected the “package of practical expedients,” which permits us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. We did not elect the use-of hindsight or the practical expedient pertaining to land easements, the latter not being applicable to us.  The new standard also provides practical expedients for an entity’s ongoing accounting. We elected the short-term lease recognition exemption for all leases that qualify, which means we will not recognize right-of-use (“ROU”) assets or lease liabilities for these leases. This includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition. We also elected the practical expedient to not separate lease and non-lease components for all leases.

On July 25, 2019, the Company announced that its board of directors declared a two-for-one stock split of the Company’s 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 Quarterly Report on Form 10-Q after the effect of 100 percent stock dividend. The two-for-one stock split is reflected in the share amounts in all periods presented in this Quarterly Report on Form 10-Q.  

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, 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.

Lease Policy

We determine if an arrangement is a lease at inception.  Operating leases are included in operating lease ROU assets, current lease liabilities, and long-term lease liabilities in our consolidated balance sheets.

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 reviewing quoted 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 right-of-use 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.

Recently Adopted Accounting Pronouncements

Standard	Date of Issuance	Description	Date Adopted	Effect on the Financial Statements
ASU 2016-02, Leases and all related amendments	February 2016	Requires all leases with a term greater than 12 months to be recognized in the statements of financial position and eliminates current real estate-specific lease guidance, while maintaining substantially similar classification criteria for distinguishing between finance leases and operating leases.	January 2019	The adoption of this standard and related amendments resulted in the recognition of approximately $15.7 million in right-of-use assets and lease liabilities on our balance sheet as of January 1, 2019. Comparative periods will continue to be measured and presented under historical guidance, and only the period of adoption and future periods will be subject to this ASU. There was no cumulative effect on retained earnings or other components of equity at the adoption date.  For more information see Note H.
ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220)	February 2018	Allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017 and requires certain disclosures regarding stranded tax effects in accumulated other comprehensive income.	January 2019	The adoption of this standard did not have a material impact on our consolidated financial statements.

Accounting Pronouncements Not Yet Adopted

Standard	Date of Issuance	Description	Date of Required Adoption	Effect on the Financial Statements
ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Statements	June 2016	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.	January 2020	We are currently evaluating the impact of the adoption on our condensed consolidated financial statements.
ASU 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement	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.	January 2020	We are currently evaluating the impact of the adoption on our condensed consolidated financial statements.

Significant Accounting Policies

Except for the accounting policy for leases that was updated as a result of adopting ASU 2016-02, there were no material changes in our significant accounting policies during the nine months ended September 30, 2019. See Note A to the consolidated financial statements included in our Annual Report on Form 10-K/A for the year ended December 31, 2018, as filed with the SEC, for additional information regarding our significant accounting policies.