SPSC 10-K & 10-Q changes, risk factors and insider trading

Adopting and utilizing AI and Machine Learning ("ML")-enabled products or services has become increasingly important within our competitive landscape. Such adoption and utilization may expose us to social, ethical, operational and regulatory risks that could result in reputational harm, liability and adverse financial results.

We incorporate AI/ML technologies into our internal operations and into our products and services, and may further expand such use over time. As a result, we face a range of risks associated with the development, deployment, integration, and use of AI/ML technologies. If we fail to develop, deploy, or integrate AI/ML technologies in a timely, effective, and cost-efficient manner, we may fall behind competitors, resulting in the loss of competitive efficiencies, reduced innovation, diminished market share, slower growth trajectories, or missed opportunities within an increasingly AI/ML-driven global landscape. At the same time, the adoption and use of AI/ML technologies may expose us to social and ethical risks, operational challenges, increased costs, or outcomes that are inaccurate, unreliable, or otherwise not aligned with customer expectations, which could result in reputational harm, liability, or technology that is not cost-effective. Further, the regulatory environment regarding AI/ML is evolving and may result in increased liability related to our use of AI/ML technologies and the use or misuse of AI/ML-enabled products and services by our customers or other third parties, including potential liability regarding intellectual property or privacy laws, increase compliance costs and result in inconsistencies in evolving legal frameworks across jurisdictions.

As we strive to exceed our customer expectations by adopting and delivering AI/ML-enabled products and services, ineffective or inadequate deployment or governance may result in incidents that impair the acceptance of the AI/ML-enabled products and services, result in our products and services not working as intended or producing unexpected outcomes or cause brand or reputational harm.

Our AI/ML-enabled products and services, as well as third-party AI/ML technologies, models, or tools that we integrate, rely upon, or make available to customers, may not perform as intended or may interact unpredictably with other AI/ML systems. AI-enabled products and services are known to experience issues such as hallucinations, data leakage, and harmful prompt injections. We may not be able to anticipate, prevent, or promptly remediate all such issues, including where they arise from customer-provided inputs or third-party AI/ML technologies.

Our innovation and development efforts may be unsuccessful in identifying or resolving issues before they arise, subjecting us to additional compliance requirements, regulatory action, competitive harm or legal liability. We may also face risks arising from the use or misuse of our AI/ML-enabled products and services by customers or other third parties in ways that are inconsistent with applicable laws, contractual restrictions, or our acceptable use policies, which could expose us to reputational harm, regulatory scrutiny, or liability, even where such conduct is outside of our direct control. Furthermore, the use of AI/ML-enabled products and services in business operations carries inherent risks to data privacy and security, such as unintended or inadvertent transmission of proprietary or sensitive information.

The incorporation of AI/ML into our products and services, as well as the use of third-party service providers, and other AI/ML -enabled technologies within our business may create additional cybersecurity risks or increase cybersecurity risks, including risks of security breaches and incidents. Further, AI/ML technologies may be used for certain cybersecurity attacks, and may increase their frequency and intensity, resulting in heightened risks of security breaches and incidents. Security incidents affecting ours or our third-party service provider’s information technology systems that compromise the confidentiality, integrity, and availability of our data could result from AI related sensitive data exposure such as insufficient data anonymization during the training process, data poisoning, system misconfiguration, or from cyber-attacks, including, but not limited to, denial-of-service attacks, model or algorithm exploitation or reverse engineering of AI algorithms, web scraping, ransomware attacks, business email compromises, computer malware, viruses, and social engineering (including phishing), which are prevalent in our industry and our customers’ industries.

SPS Commerce is a global supply chain network that connects retailers, brands, distributors, manufacturers, and logistics providers through shared infrastructure built to handle the complexity of modern commerce operations. Our network enables companies to connect once and immediately transact with thousands of trading partners without negotiating standards, building integrations, or maintaining compliance logic.

Our network powers our portfolio of solutions that orchestrate the critical processes, protocols, and data exchanges needed to get the right product, in the right place, at the right time, every time. We have embedded deep expertise, proven processes, and compliance logic built from over 20 years of commerce intelligence into every connection, delivering a full-service experience that empowers partners to move forward faster, together.

Year Ended December 31, 2025 Compared to Year Ended December 31, 2024

Revenues - Revenues increased for the 100th consecutive quarter. The increase in revenue period-over-period resulted from the increase in average recurring revenues per recurring revenue customer, which we also refer to as ARPU. Additionally, the revenue growth was attributable to an increase in recurring revenue customers, which is driven primarily by continued business growth and business acquisitions.

•ARPU increased 8% to approximately $14,350 for the year ended December 31, 2025 from approximately $13,300 for the year ended December 31, 2024. This was primarily attributable to increased usage of our products by our recurring revenue customers, partially offset by the addition of 3P recurring revenue customers, which generally have lower ARPU.

•The number of recurring revenue customers increased 20% to approximately 54,600 at December 31, 2025 from approximately 45,350 at December 31, 2024. Of the total recurring revenue customers at December 31, 2025, approximately 46,900 are 1P recurring revenue customers and the remainder are 3P recurring revenue customers. The increase in recurring revenue customers is primarily due to recent acquisitions of 3P recurring revenue customers. New recurring revenue customers do not have a meaningful contribution to revenue at the beginning of their tenure, and therefore, a majority of the increased revenue was generated from existing recurring revenue customers.

•Approximately 50 1P recurring revenue customers were added in May 2024 due to the acquisition of the existing customer base of Traverse Systems LLC ("Traverse Systems") and approximately 200 1P recurring revenue customers were added in July 2024 due to the acquisition of the existing customer base of SupplyPike Inc. ("SupplyPike"). Additionally, approximately 8,500 recurring revenue customers were added in February 2025 due to the acquisition of the existing customer base of Carbon6, of which approximately 300 are 1P recurring revenue customers and the remainder are 3P recurring revenue customers.

Recurring revenues increased 20% to $718.0 million for the year ended December 31, 2025, as compared to the same period in 2024, and accounted for 96% and 94% of our total revenues in 2025 and 2024, respectively. We anticipate that the number of recurring revenue customers and ARPU will continue to increase as we execute our growth strategy focused on further penetration of our market.

Cost of Revenues - The increase in cost of revenues was primarily due to increased headcount, which resulted in an increase of $12.4 million in personnel-related costs and an increase in software subscriptions of $5.2 million due to general growth of our business.

Sales and Marketing Expenses - The increase in sales and marketing expense was primarily due to increased headcount, which resulted in an increase of $14.9 million in personnel-related costs. Additionally, channel partner and referral fees increased by $3.9 million, primarily driven by the acquisition of Carbon6.

Research and Development Expenses - The increase in research and development expense was primarily due to increased headcount and third-party personnel, which resulted in an increase of $9.5 million in personnel-related costs, partially offset by $5.2 million due to higher capitalization of software development costs.

General and Administrative Expenses - The increase in general and administrative expense was primarily due to increased headcount and third-party personnel, which resulted in an increase of $15.2 million in personnel-related costs. Additionally, other items contributing to the increase related to costs for continued support of our growing operations including the closing and on-going integration of acquisitions.

Other Income, Net - The decrease in other income, net was primarily due to a decrease in investment income.

Income Tax Expense - The increase in income tax expense was primarily driven by the increase in pre-tax book income and reduction in tax benefits recognized from equity award exercise and settlement activity due to the fluctuations in share price. The increase was partially offset with increased benefit for Research & Development tax credits.

Adjusted EBITDA - Adjusted EBITDA consists of net income adjusted for income tax expense, depreciation and amortization expense, stock-based compensation expense, realized gain or loss from investments held and foreign currency impact on cash and investments, investment income, and other adjustments as necessary for a fair presentation. Other adjustments for the year ended December 31, 2025 included the expense impacts from disposals of certain capitalized internally developed software, disposals of other equipment, remeasurement of acquired earn-out payments, and one-time acquisition-related insurance costs. Other adjustments for the year ended December 31, 2024 included the expense impacts from disposals of certain capitalized internally developed software and one-time acquisition-related insurance costs. Net income is the most directly comparable GAAP measure of financial performance.

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

Non-GAAP Income per Share - Non-GAAP income per share consists of net income adjusted for stock-based compensation expense, amortization expense related to intangible assets, realized gain from investments held and foreign currency impact on cash and investments, other adjustments as necessary for a fair presentation, including for the year ended December 31, 2025 the expense impacts from disposals of certain capitalized internally developed software, disposals of other equipment, remeasurement of acquired earn-out payments, and one-time acquisition-related insurance costs, and for the year ended December 31, 2024 the expense impacts from disposals of certain capitalized internally developed software and one-time acquisition-related insurance costs, and the corresponding tax impacts of the adjustments to net income, divided by the weighted average number of shares of common and diluted stock outstanding during each period. Net income per share, the most directly comparable GAAP measure of financial performance, consists of net income divided by the weighted average number of shares of common and diluted stock outstanding during each period. To quantify the tax effects, we recalculated income tax expense excluding the direct book and tax effects of the specific items constituting the non-GAAP adjustments. The difference between this recalculated income tax expense and GAAP income tax expense is presented as the income tax effect of the non-GAAP adjustments.

(1) Operating lease obligations include imputed interest and are presented net of lease incentives deemed payable at lease commencement. We expect to utilize approximately $23 million of the available lease incentives under the sixth amendment to our current headquarters lease during the year ending December 31, 2027, with the approximately remaining $9 million to be utilized thereafter.

Results of Operations

Three Months Ended June 30, 2026 Compared to Three Months Ended June 30, 2025

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

Revenues - The increase in revenue period-over-period resulted from an increase in 1P recurring revenue customers that was driven primarily by business acquisitions and continued business growth in our core markets.

•ARPU increased 14% to approximately $15,100 for the three months ended June 30, 2026. The increase was driven by the increased usage of our products by our 1P recurring revenue customers as well as the divestiture of our 3P revenue recovery business.

•The number of recurring revenue customers decreased 14% to approximately 46,650 at June 30, 2026. The decrease was driven by the divestiture of the 3P revenue recovery business, which resulted in a decrease of approximately 8,200 3P recurring revenue customers. As of June 30, 2026, all recurring revenue customers are 1P.

Recurring revenues increased 6% to $190.4 million for the three months ended June 30, 2026 compared to the three months ended June 30, 2025. Recurring revenues accounted for 96% of our total revenues for both the three months ended June 30, 2026 and 2025. We anticipate that the number of recurring revenue customers and ARPU will increase as we execute our growth strategy focused on further penetration of our market.

Cost of Revenues - The decrease in cost of revenues was primarily attributable to $1.7 million lower third-party personnel costs and $0.9 million lower software costs due to platform consolidation, partially offset by a $1.5 million increase in depreciation expense.

Sales and Marketing Expenses - The increase in sales and marketing expense was primarily attributable to a $1.2 million increase in third-party personnel costs, partially offset by a $0.7 million decrease in marketing spend.

Research and Development Expenses - The decrease in research and development expense was primarily driven by a $0.4 million decrease in depreciation expense resulting from lower capitalized research and development activities related to an acquired business.

General and Administrative Expenses - The increase in general and administrative expense was primarily driven by a $2.8 million increase in stock-based compensation expense, partially attributable to the contractual acceleration of equity awards upon executive retirement. Personnel-related costs also increased by $2.2 million due to higher consulting costs supporting internal initiatives and increased headcount, while hardware and software costs increased by $1.1 million, primarily due to higher amortization expense related to system implementations. These increases were partially offset by a $0.5 million decrease in charitable contribution expense.

Amortization of Intangible Assets - The decrease in amortization expense was primarily due to the normal run-off of amortization related to finite-lived intangible assets.

Loss on Sale of Business - The loss on sale of business was due to the divestiture of the 3P portion of the revenue recovery business. Refer to Note B – Business Acquisitions and Other Transactions for more information regarding the divestiture.

Other Income, Net - The increase in other income, net was primarily due to higher investment income, the favorable remeasurement of an acquisition-related earn-out liability, and an increase in unrealized foreign currency gains.

Income Tax Expense - The decrease in income tax expense was primarily driven by the reduction in pre-tax book income related to the loss on sale of business. The decrease was partially offset by the reduction in tax benefits recognized from equity award exercise and settlement activity due to the fluctuations in share price.

Adjusted EBITDA - Adjusted EBITDA consists of net income adjusted for income tax expense, depreciation and amortization expense, stock-based compensation expense, realized gain from investments and foreign currency transactions, investment income, loss on sale of business, and other adjustments as necessary for a fair presentation. Other adjustments for the three months ended June 30, 2026, included the expense impact from disposals of other equipment, remeasurement of an acquired earn-out liability, and one-time divestiture exit and disposal costs. Net income is the most directly comparable GAAP measure of financial performance.

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

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

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

Non-GAAP Income per Share - Non-GAAP income per share consists of net income adjusted for stock-based compensation expense, amortization expense related to intangible assets, realized gain from investments and foreign currency transactions, loss on sale of business, and other adjustments as necessary for a fair presentation, including for the three months ended June 30, 2026, the expense impact from disposals of other equipment, remeasurement of an acquired earn-out liability, and one-time divestiture exit and disposal costs, and the corresponding tax impacts of the adjustments to net income, divided by the weighted average number of shares of common and diluted stock outstanding during each period. Net income per share, the most directly comparable GAAP measure of financial performance, consists of net income divided by the weighted average number of shares of common and diluted stock outstanding during each period. To quantify the tax effects, we recalculated income tax expense excluding the direct book and tax effects of the specific items constituting the non-GAAP adjustments. The difference between this recalculated income tax expense and GAAP income tax expense is presented as the income tax effect of the non-GAAP adjustments.

The following table provides a reconciliation of net income per share to non-GAAP income per share:

Six Months Ended June 30, 2026 Compared to Six Months Ended June 30, 2025

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

Revenues - The increase in revenue period-over-period resulted from an increase in 1P recurring revenue customers that was driven primarily by business acquisitions and continued business growth in our core markets.

•ARPU increased 5% to approximately $14,800 for the six months ended June 30, 2026. The increase was driven by the increased usage of our products by our 1P recurring revenue customers as well as the divestiture of our 3P revenue recovery business.

•The number of recurring revenue customers decreased 14% to approximately 46,650 at June 30, 2026. The decrease was driven by the divestiture of the 3P revenue recovery business (initially acquired in February 2025 as part of the Carbon6 acquisition), which resulted in a decrease of approximately 8,200 3P recurring revenue customers. As of June 30, 2026, all recurring revenue customers are 1P.

Recurring revenues increased 7% to $374.9 million for the six months ended June 30, 2026 compared to the six months ended June 30, 2025. Recurring revenues accounted for 96% and 95% of our total revenues for the six months ended June 30, 2026 and 2025, respectively. We anticipate that the number of recurring revenue customers and ARPU will increase as we execute our growth strategy focused on further penetration of our market.

Cost of Revenues - The increase in cost of revenues was primarily driven by a $2.1 million increase in depreciation expense and a $1.3 million increase in deferred costs due to lower capitalization associated with slower hiring. These increases were partially offset by a $0.9 million decrease in personnel-related costs and $1.1 million of lower software costs due to platform consolidation.

Sales and Marketing Expenses - The increase in sales and marketing expense was primarily driven by a $2.4 million increase in stock-based compensation expense, partially attributable to equity awards granted to executives hired in the prior year, and a $1.3 million increase in third-party personnel costs.

Research and Development Expenses - Research and development expense remained relatively consistent compared to the prior year period.

General and Administrative Expenses - The increase in general and administrative expense was primarily driven by a $4.9 million increase in stock-based compensation expense, partially attributable to the contractual acceleration of equity awards upon executive retirement. In addition, personnel-related costs increased by $5.0 million, primarily due to increased headcount and non-capitalizable activities supporting system implementations, as well as consulting costs related to internal initiatives.

Amortization of Intangible Assets - The increase in amortization of intangible assets was driven by an additional month of amortization related to intangible assets acquired from Carbon6 in February 2025.

Loss on Sale of Business - The loss on sale of business was due to the divestiture of the 3P portion of the revenue recovery business. Refer to Note B – Business Acquisitions and Other Transactions for more information regarding the divestiture.

Other Income, Net - The increase in other income, net was primarily due to the remeasurement of an acquisition-related earn-out liability.

Income Tax Expense - The decrease in income tax expense was primarily driven by the reduction in pre-tax book income related to the loss on sale of business. The decrease was partially offset by the reduction in tax benefits recognized from equity award exercise and settlement activity due to the fluctuations in share price.

Adjusted EBITDA - Adjusted EBITDA consists of net income adjusted for income tax expense, depreciation and amortization expense, stock-based compensation expense, realized gain from investments and foreign currency transactions, investment income, loss on sale of business, and other adjustments as necessary for a fair presentation. Other adjustments for the six months ended June 30, 2026 included the expense impact from disposals of other equipment, remeasurement of an acquired earn-out liability, and one-time divestiture exit and disposal costs. Net income is the most directly comparable GAAP measure of financial performance.

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

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

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

Non-GAAP Income per Share - Non-GAAP income per share consists of net income adjusted for stock-based compensation expense, amortization expense related to intangible assets, realized gain from investments and foreign currency transactions, loss on sale of business, and other adjustments as necessary for a fair presentation, including for the six months ended June 30, 2026, the expense impact from disposals of other equipment, remeasurement of an acquired earn-out liability, and one-time divestiture exit and disposal costs, and the corresponding tax impacts of the adjustments to net income, divided by the weighted average number of shares of common and diluted stock outstanding during each period. Net income per share, the most directly comparable GAAP measure of financial performance, consists of net income divided by the weighted average number of shares of common and diluted stock outstanding during each period. To quantify the tax effects, we recalculated income tax expense excluding the direct book and tax effects of the specific items constituting the non-GAAP adjustments. The difference between this recalculated income tax expense and GAAP income tax expense is presented as the income tax effect of the non-GAAP adjustments.

The following table provides a reconciliation of net income per share to non-GAAP income per share: