10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

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

For the Fiscal Year Ended: December 31, 2017

or

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

For the Transition Period from to

Commission file number 001-34702

SPS COMMERCE, INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware	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:

Common stock, par value $0.001 per share	The Nasdaq Stock Market LLC (Nasdaq Global Market)
(Title of each class)	(Name of each exchange on which registered)

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ☒    No  ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.    Yes  ☐    No  ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒    No  ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer	☒	Accelerated Filer	☐	Non-Accelerated Filer	☐	Smaller Reporting Company	☐
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).  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  ☒

As of June 30, 2017, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of shares of the registrant’s common stock held by non-affiliates of the registrant (based upon the closing sale price of $63.76 per share on the Nasdaq Global Market on such date) was approximately $1.1 billion.

The number of shares of the registrant’s common stock, par value $0.001 per share, outstanding as of February 9, 2018 was 17,250,664 shares.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Company’s definitive Proxy Statement for the Annual Meeting of Stockholders to be held on May 31, 2018 (the “2018 Proxy Statement”), which is expected to be filed within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K, are incorporated by reference in Part III of this Annual Report on Form 10-K.

SPS COMMERCE, INC.

ANNUAL REPORT ON FORM 10-K

Table of Contents

			Page
	PART I
Item 1.		Business	4
Item 1A.		Risk Factors	11
Item 1B.		Unresolved Staff Comments	24
Item 2.		Properties	24
Item 3.		Legal Proceedings	25
Item 4.		Mine Safety Disclosures	25
	PART II
Item 5.		Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	26
Item 6.		Selected Financial Data	28
Item 7.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
Item 7A.		Quantitative and Qualitative Disclosures About Market Risk	43
Item 8.		Financial Statements and Supplementary Data	44
Item 9.		Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	70
Item 9A.		Controls and Procedures	70
Item 9B.		Other Information	71
	PART III
Item 10.		Directors, Executive Officers and Corporate Governance	72
Item 11.		Executive Compensation	72
Item 12.		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	72
Item 13.		Certain Relationships and Related Transactions, and Director Independence	72
Item 14.		Principal Accounting Fees and Services	72
	PART IV
Item 15.		Exhibits, Financial Statement Schedules	73
Item 16.		Form 10-K Summary	73
SIGNATURES			76

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SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION

This Annual Report on Form 10-K contains forward-looking statements regarding us, our business prospects and our results of operations that 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 this Annual Report on    Form 10-K.  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,” “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 Securities and Exchange Commission (“SEC”) that advise interested parties of the risks and factors that may affect our business.

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PARTI

Item 1. Business

Overview

We are a leading provider of cloud-based supply chain management solutions, providing network-proven fulfillment, sourcing and item assortment management solutions, along with comprehensive retail performance analytics to thousands of customers worldwide.  We provide our solutions through the SPS Commerce Platform, a cloud-based product suite that improves the way retailers, suppliers, distributors and logistics firms orchestrate the sourcing, set up of new vendors and items and fulfillment of products that consumers buy.  Implementing and maintaining this suite of supply chain management capabilities is resource intensive and not a core competency for most businesses.  The SPS Commerce Platform eliminates the need for on premise software and support staff, which enables our customers to focus their resources on their core business.  The SPS Commerce Platform enables retailers, suppliers, distributors and logistics firms to increase supply cycle agility, optimize inventory levels and sell-through, reduce costs, increase visibility into customer orders and ensure suppliers, distributors and logistics firms satisfy exacting retailer requirements.

As of December 31, 2017, we had approximately 26,000 customers with contracts to pay us monthly fees, which we refer to as recurring revenue customers.  We have also generated revenues by providing our cloud-based supply chain management solutions to an additional 49,000 organizations that, together with our recurring revenue customers, we refer to as our customers.  Once connected to our Platform, our customers often require integrations to new organizations that represent an expansion of our Platform and new sources of revenues for us.

As a provider of cloud services, we enable our customers to easily interact with their trading partners around the world without the local implementation and servicing of software that traditional on-premise solutions require.  Our delivery model also enables us to offer functionality, integration, analytics and reliability with less cost and risk than traditional solutions.

For the years ended December 31, 2017, 2016 and 2015, we generated revenues of $220.6 million, $193.3 million and $158.5 million, respectively.  Our fiscal quarter ended December 31, 2017 represented our 68th consecutive quarter of increased revenues.  Recurring revenues from recurring revenue customers accounted for 92.5%, 91.6% and 90.8% of our total revenues for the years ended December 31, 2017, 2016 and 2015, respectively.  Our revenues are not concentrated with any customer, as our largest customer represented less than 1.0% of total revenues for the year ended December 31, 2017 and less than 2.0% of total revenues for the years ended December 31, 2016 and 2015.

Our Platform

We operate one of the largest retail trading partner networks through a cloud-based services suite that improves the way suppliers, retailers, logistics firms, distributors and other trading partners manage and fulfill orders, manage sell-through performance and source new items.  Approximately 75,000 customers across more than 60 countries currently use our Platform to improve the performance of their trading relationships.  Our Platform fundamentally changes how organizations use electronic communication to manage their supply chains by replacing the collection of traditional, custom-built, point-to-point integrations with a network model whereby a single integration to our Platform enables an organization to connect seamlessly to the entire SPS Commerce network of trading partners.

From that single connection, a member of our network can make use of the full suite of our solutions, from fulfillment automation, to the analysis and optimization of item sell-through performance, to sourcing new items, retailing relationships or providers of logistics and other services.  This represents a fundamental change to fulfillment automation and enables inherent adaptability and flexibility not possible with traditional supply chain management system architectures.

Our Platform is comprised of a set of coupled cloud services that deliver value as stand-alone offerings, but also provide additional value when used collectively.  Our fulfillment product combines integrations that comply with numerous rule books for retailers and distributors with whom we and our customers have done business.  By maintaining current integrations with retailers, our Platform removes the need for a retailer’s trading partners to continually stay up-to-date with the rule book changes required by retailers.  Moreover, by utilizing a cloud services

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model, we eliminate or greatly reduce the burden on trading partners to support and maintain an on-premise software application, thereby reducing ongoing operating costs.  As the transaction hub for trading partners, we also are able to provide increased performance visibility and data analytics capabilities across their supply chains, each of which is difficult to gain from traditional, point-to-point integration solutions.

The following solutions are enabled through the SPS Commerce cloud services Platform:

• Trading Partner Community Enablement.  Our Community Enablement solution enables organizations, from large to small retailers and suppliers to emerging providers of value-added products and services, to verify that they can electronically trade with their trading partners.

• Trading Partner Fulfillment.  Our Fulfillment solution provides fulfillment automation and replaces or augments an organization’s existing trading partner electronic communication infrastructure, enabling them to have visibility into the journey of an order and comply with retailers’ rule books and enabling the electronic exchange of information among numerous trading partners through various protocols.

• Trading Partner Assortment. Today’s retail marketplace requires the management of tens and even hundreds of individual attributes associated with each item a retailer or supplier sells today.  This information can include supply chain descriptions and measurements, store and shelf dimensions, warehouse dimensions, digital images/video, customer facing descriptions and measurements, and warehouse information.  Our Assortment product provides robust, extensible management of this information, enabling accurate orders and rapid fulfillment.

• Trading Partner Analytics.  Our Analytics solution consists of data analytics applications that enable our customers to improve their visibility across, and analysis of, their supply chains.  When focused on point-of-sale data, for example, retailers and suppliers can ensure inventory is located where demand is highest.  Retailers improve their visibility into supplier performance and their understanding of product sell-through.

• Trading Partner Sourcing.  Through Retail Universe, our social network for the retail industry, retailers can source providers of new items, suppliers can connect with new retailers and the broader retailing community can make connections to expand their business networks and grow.

• Other Trading Partner Solutions.  We provide a number of peripheral solutions such as barcode labeling, planogram services and our scan and pack application, which helps trading partners process information to streamline the picking and packaging process.

Our Customer and Sales Sources

As one of the largest providers of cloud services for supply chain management, the trading partner relationships that we enable among our retailer, supplier and fulfillment customers naturally lead to new customer acquisition opportunities.

“Network Effect”

Once connected to our network, trading partners can exchange electronic supply chain information with each other.  The value of our Platform increases with the number of trading partners connected to the Platform.  The addition of each new customer to our Platform enables that new customer to communicate with our existing customers and enables our existing customers to do business with the new customer.  Additionally, through our Sourcing product, our community now has a social network focused on facilitating connections and business interactions among retailers and suppliers.  This “network effect” of adding an additional customer to our Platform creates a significant opportunity for existing customers to realize incremental sales by working with our new trading partners and vice versa.  As a result of this increased volume of activity amongst our network participants, we earn additional revenues from these participants.

Customer Acquisition Sources

Community Enablement.  As retailers and suppliers reshape how they do business in an omnichannel landscape, they need to bring new capabilities and services to their trading partner networks.  For instance, a

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supplier may wish to collaborate with their retailers around point-of-sale analytics data, or a retailer may decide to change the workflow or protocol by which it interacts with its suppliers.  In each case, the supplier and retailer may engage us to work with its trading partner base to enable the new capability.  Performing these programs on behalf of retailers and suppliers often generates supplier sales leads for us.

Referrals from Our Customers.  We also receive sales leads from our customers seeking to communicate electronically with their trading partners.  For example, a supplier may refer to us its third-party logistics provider or manufacturer which is not in our network.

Channel Partners.  In addition to the customer acquisition sources identified above, we market and sell our solutions through a variety of channel partners including software providers, resellers, system integrators and logistics partners.  For example, software partners such as Microsoft, NetSuite, Oracle, SAP, Sage and their business partner communities generate sales for us as part of broader enterprise resource planning, warehouse management system and/or transportation management system sales efforts.  Our logistics partners also drive new sales both by providing leads and by embedding our solutions as part of their service offerings.

Our Sales Force

We also sell our solutions through a global sales force which is organized as follows:

• Retailer Sales.  We employ a team of sales professionals who focus on selling our cloud services suite to retailers and distributors.

• Supplier Sales.  We employ a team of supplier sales representatives focused on selling our cloud services suite to suppliers.

• Business Development Efforts.  Our business development organization is tasked with finding new sources of revenue and development of new business opportunities through channel partners and other areas that present opportunity for growth.

Our Growth Strategy

Our objective is to be the leading global provider of supply chain management solutions.  Key elements of our strategy include:

• Further Penetrate Our Current Market.  We believe the global supply chain management market is underpenetrated and, as the retail industry continues to respond to the changing requirements of the omnichannel marketplace, and as the supply chain ecosystem becomes more complex and geographically dispersed, the demand for supply chain management solutions will increase, especially among small- and medium-sized businesses.  We intend to continue leveraging our relationships with customers and their trading partners to obtain new sales leads.

• Increase Revenues from Our Customer Base.  We believe our overall customer satisfaction is strong and will lead our customers to further expand their use of the solutions they have currently purchased as well as purchase additional services to continue improving the performance of their trading partner relationships, generating additional revenues for us.  We also expect to introduce new solutions to sell to our customers.  We believe our position as the incumbent supply chain management solution provider to our customers, our integration into our recurring revenue customers’ business systems and the modular nature of our Platform are conducive to deploying additional solutions with customers.

• Expand Our Distribution Channels.  We intend to grow our business by expanding our network of sales representatives to gain new customers.  We also believe there are valuable opportunities to promote and sell our solutions through collaboration with other providers.

• Expand Our International Presence.  We believe our presence in Asia Pacific, as well as Europe, represents a significant competitive advantage.  We plan to increase our international sales efforts to obtain new customers around the world.  We intend to leverage our current international presence to increase the number of integrations we have with retailers in foreign markets to make our Platform more valuable to their trading partners based overseas.

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• Enhance and Expand Our Platform.  We intend to further improve and develop the functionality and features of our Platform, including, from time to time, developing new solutions and applications.

• Selectively Pursue Strategic Acquisitions.  The fragmented nature of our market provides opportunity for selective acquisitions.  In 2014, we purchased substantially all of the assets of Leadtec Systems Australia Pty Ltd (“Leadtec”) and its affiliates, a privately-held provider of cloud-based integration solutions in Australia and New Zealand.  This acquisition expanded our base of recurring revenue customers and added suppliers to our network. In 2016, we purchased Toolbox Solutions, Inc. (Toolbox Solutions), a Canadian based point-of-sale analytics and category management services provider to retailers and consumer packaged goods suppliers in North America.  To complement and accelerate our internal growth, we may pursue acquisitions of other supply chain management companies to add customers or additional functionalities.  We plan to evaluate potential acquisitions of other supply chain management companies primarily based on the number of customers and revenue the acquisition would provide relative to the purchase price.  We also may pursue acquisitions that allow us to expand into regions where we do not have a significant presence or to offer new functionalities we do not currently provide.  We plan to evaluate potential acquisitions to expand into new regions or offer additional functionalities primarily based on the anticipated growth the acquisition would provide, the purchase price and our ability to integrate and operate the acquired business.

Technology, Development and Operations

Technology

We were an early provider of cloud services to the retail supply chain management industry, launching the first version of our Platform in 1997.  We use commercially available hardware and cloud services with a combination of proprietary and commercially available software.

Our cloud Platform treats all customers as logically separate tenants in a common Platform.  As a result, we spread the cost of delivering our solutions across our customer base.  Because we do not manage thousands of distinct applications with their own business logic and database schemes, we believe that we can scale our business faster than traditional software vendors, even those that modified their products to be accessible over the Internet.

Development

Our research and development efforts focus on maintaining, improving and enhancing our existing solutions, as well as developing new solutions and applications.  Our multi-tenant Platform serves all of our customers, which allows us to maintain relatively low research and development expenses and release software updates more frequently compared to traditional on-premise licensed software solutions that support multiple versions.  Our development efforts take place at our U.S. locations in Minnesota and New Jersey, as well as in Toronto, Canada and Kiev, Ukraine.

Operations

We operate our infrastructure in third-party data centers located in Minnesota and New Jersey; Melbourne, Australia; as well as provisioned services in public cloud providers.  In all cases, infrastructure and services are managed by us.

We have internal and third party monitoring software that continually checks our Platform and key underlying components for continuous availability and performance, ensuring our Platform is available and providing adequate service levels.  We have a technology operations team that provides system provisioning, management, maintenance, monitoring and back-up.

We operate a service architecture using industry best practices to insure multiple points of redundancy, high availability and scale as needed.  Our databases are replicated between locations with a defined recovery point objective.

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Our Customers

As of December 31, 2017, we had approximately 26,000 recurring revenue customers and approximately 75,000 total customers.  Our primary source of revenue is from small- to mid-sized suppliers in the consumer packaged goods industry.  We also generate revenues from other members of the supply chain ecosystem, including retailers, distributors, third-party logistics providers and other trading partners.  Our revenues are not concentrated with any customer, as our largest customer represented less than 1.0% of total revenues for the year ended December 31, 2017 and less than 2.0% of total revenues for both the years ended December 31, 2016 and 2015.

Competition

Vendors in the supply chain management industry offer solutions through three delivery methods: on demand or cloud-based, traditional on-premise software and managed services.

The market for cloud-based supply chain management solutions is fragmented and rapidly evolving.  Cloud service vendors compete directly with each other based on the following:

• breadth of pre-built connections to retailers, third-party logistics providers, and other trading partners;

• history of establishing and maintaining reliable integration connections with trading partners;

• reputation of the cloud service vendor in the supply chain management industry;

• price;

• specialization in a customer market segment;

• speed and quality with which the cloud service vendor can integrate its customers to their trading partners;

• functionality of the cloud service solution, such as the ability to integrate the solution with a customer’s business systems;

• breadth of complementary supply chain management solutions the cloud service vendor offers; and

• training and customer support services provided during and after a customer’s initial integration.

We expect to encounter new and increased competition as this market segment consolidates and matures.  Consolidation among cloud service vendors could create a direct competitor that is able to compete with us more effectively than the numerous, smaller vendors currently offering cloud service supply chain management solutions.  Increased competition from cloud service vendors could reduce our market share, revenues, and operating margins or otherwise adversely affect our business.

Cloud service vendors also compete with traditional on-premise software companies and managed service providers.  Traditional on-premise software companies focused on supply chain integration management include IBM-Sterling Commerce and OpenText-GXS.  These companies offer a “do-it-yourself” approach in which customers purchase, install, and manage specialized software, hardware and value-added networks for their supply chain integration needs.  This approach requires customers to invest in staff to operate and maintain the software. Traditional on-premise software companies use a single-tenant approach in which information maps to retailers are built for and used by one supplier, as compared to cloud service solutions that allow multiple customers to share information maps with a retailer.

Managed service providers focused on the supply chain management market include IBM-Sterling Commerce and OpenText-GXS.  These companies combine traditional on-premise software, hardware and value-added networks with professional information technology services to manage these resources.  Like traditional on-premise software companies, managed service providers use a single-tenant approach.

Customers of traditional on-premise software companies and managed service providers typically make significant upfront investments in the supply chain management solutions these competitors provide, which can decrease the customers’ willingness to abandon their investments in favor of a cloud service solution.  Cloud service supply chain management solutions also are at a relatively early stage of development compared to traditional on-premise software and managed service providers.  Cloud service vendors compete with these better established

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solutions based on total cost of ownership and flexibility.  If suppliers do not perceive the benefits of cloud service solutions, or if suppliers are unwilling to abandon their investments in other supply chain management solutions, our business and growth may suffer.  In addition, many traditional on-premise software companies and managed service providers have larger customer bases and may be better capitalized than we are, which may provide them with an advantage in developing, marketing or servicing solutions that compete with ours.

Intellectual Property and Proprietary Content

We rely on a combination of copyright, trademark and trade secret laws as well as confidentiality procedures and contractual provisions to protect our proprietary technology and our brand.  We enter into confidentiality and proprietary rights agreements with our employees, consultants and other third parties and control access to software, documentation and other proprietary information. We have registered trademarks and pending trademark applications in the U.S. and certain foreign countries. Depending on the jurisdiction, trademarks are generally valid as long as they are in use or their registrations are properly maintained and they have not been found to have become generic.  Registrations of trademarks can also generally be renewed indefinitely as long as the trademarks are in use.  We do not have any patents, but we have pending patent applications. Our trade secrets consist primarily of the software we have developed for our SPS Commerce Platform. Our software is also protected under copyright law, but we do not have any registered copyrights.

Employees

As of December 31, 2017, we had 1,336 employees.  We also employ independent contractors to support our operations.  We believe that our continued success will depend on our ability to continue to attract and retain skilled technical and sales personnel.  We have never had a work stoppage, and none of our employees are represented by a labor union.  We believe our relationship with our employees is good.

Company Information

We were originally incorporated as St. Paul Software, Inc., a Minnesota corporation, on January 28, 1987. On May 30, 2001, we reincorporated in Delaware under our current name, SPS Commerce, Inc.  Our principal executive offices are located at 333 South Seventh Street, Suite 1000, Minneapolis, Minnesota 55402, and our telephone number is (612) 435-9400.  Our website address is www.spscommerce.com.  Information on our website does not constitute part of this Annual Report on Form 10-K or any other report we file or furnish with the SEC.  We provide free access to various reports that we file with or furnish to the SEC through our website as soon as reasonably practicable after they have been filed or furnished.  These reports include, but are not limited to, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to these reports.  Our SEC reports can be accessed through the investor relations section of our website or through the SEC’s website at www.sec.gov.  Stockholders may also request copies of these documents from:

SPS Commerce, Inc.

Attention: Investor Relations

333 South Seventh Street

Suite 1000

Minneapolis, MN 55402

Executive Officers

Set forth below are the names, ages and titles of the persons serving as our executive officers.

Name	Age	Position
Archie C. Black	55	Chief Executive Officer and President
Kimberly K. Nelson	50	Executive Vice President and Chief Financial Officer
James J. Frome	53	Executive Vice President and Chief Operating Officer

Archie C. Black has served as our President and Chief Executive Officer and a director since 2001.  Previously, Mr. Black served as our Senior Vice President and Chief Financial Officer from 1998 to 2001.  Prior to joining us, Mr. Black was a Senior Vice President and Chief Financial Officer at Investment Advisors, Inc. in Minneapolis, Minnesota and also spent three years at Price Waterhouse.

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Kimberly K. Nelson has served as our Executive Vice President and Chief Financial Officer since November 2007.  Prior to joining us, Ms. Nelson served as the Finance Director, Investor Relations for Amazon.com from June 2005 through November 2007 and as the Finance Director, Worldwide Application for Amazon.com’s Technology group from April 2003 until June 2005.  Ms. Nelson also served as Amazon.com’s Finance Director, Financial Planning and Analysis from December 2000 until April 2003.

James J. Frome has served as our Executive Vice President and Chief Operating Officer since August 2012.  Previously, Mr. Frome served as our Executive Vice President and Chief Strategy Officer from March 2001 to August 2012 and our Vice President of Marketing from July 2000 to March 2001.  Prior to joining us, Mr. Frome served as a Divisional Vice President of Marketing at Sterling Software, Inc. from 1999 to 2000 and as a Senior Product Manager and Director of Product Management at Information Advantage, Inc. from 1993 to 1999.

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Item 1A. Risk Factors

Set forth below and elsewhere in this Annual Report on Form 10-K, and in other documents we file with the SEC, are risks and uncertainties that could cause our actual results to differ materially from the results contemplated by the forward-looking statements contained in this Annual Report on Form 10-K and in other written and oral communications from time to time.  Our business could be harmed by any of these risks.  The trading price of our common stock could decline due to any of these risks.  In assessing these risks, you should also refer to the other information contained in this Annual Report on Form 10-K, including our financial statements and related notes.

If we are unable to attract new customers, or sell additional solutions, or if our customers do not increase their use of our solutions, our revenue growth and profitability will be adversely affected.

To increase our revenues and achieve and maintain profitability, we must regularly add new customers, sell additional solutions and our customers must increase their use of the solutions for which they currently subscribe.  We intend to grow our business by retaining and attracting talent, developing strategic relationships with resellers, including resellers that incorporate our applications in their offerings, and increasing our marketing activities.  If we are unable to hire or retain quality personnel, convert companies that have been referred to us by our existing network into paying customers, ensure the effectiveness of our marketing programs, or if our existing or new customers do not perceive our solutions to be of sufficiently high value and quality, we might not be able to increase sales and our operating results will be adversely affected.  If we fail to sell our new solutions to existing or new customers, we will not generate anticipated revenues from these solutions, our operating results will suffer and we might be unable to grow our revenues or maintain profitability.

We do not have long-term contracts with most of our recurring revenue customers, and our success therefore depends on our ability to maintain a high level of customer satisfaction and a strong reputation in the supply chain management industry.

Our contracts with our recurring revenue customers typically allow the customer to cancel the contract for any reason with 30 to 90 days’ notice. Our continued success therefore depends significantly on our ability to meet or exceed our recurring revenue customers’ expectations because most recurring revenue customers do not make long-term commitments to use our solutions.  In addition, if our reputation in the supply chain management industry is harmed or diminished for any reason, our recurring revenue customers have the ability to terminate their relationship with us on short notice and seek alternative supply chain management solutions.  We may also not be able to accurately predict future trends in customer renewals, and our customers’ renewal rates may decline or fluctuate because of several factors, including their dissatisfaction with our services, the cost of our services compared to the cost of services offered by our competitors and reductions in our customers’ spending levels.  If a significant number of recurring revenue customers seek to terminate their relationship with us, our business, results of operations and financial condition can be adversely affected in a short period of time.

Our quarterly results of operations may fluctuate in the future, which could result in volatility in our stock price.

Our quarterly revenues and results of operations have varied in the past and may fluctuate as a result of a variety of factors, including the success of our more recent offerings such as our Trading Partner Analytics solution.  If our quarterly revenues or results of operations fluctuate, the price of our common stock could decline substantially.  Fluctuations in our results of operations may be due to a number of factors, including, but not limited to, those listed below and identified throughout this “Risk Factors” section:

• our ability to retain and increase sales to customers and attract new customers, including our ability to maintain and increase our number of recurring revenue customers;

• the timing and success of introductions of new solutions or upgrades by us or our competitors;

• the strength of the economy, in particular as it affects the retail sector;

• the financial condition of our customers;

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• changes in our pricing policies or those of our competitors;

• competition, including entry into the industry by new competitors and new offerings by existing competitors;

• the amount and timing of our expenses, including stock-based compensation and expenditures related to expanding our operations, supporting new customers, performing research and development, or introducing new solutions;

• changes in the payment terms for our solutions; and

• system or service failures, security breaches or network downtime.

Due to the foregoing factors, and the other risks discussed in this Annual Report on Form 10-K, you should not rely on comparisons of our results of operations as an indication of our future performance.

Interruptions or delays from third-party data centers could impair the delivery of our solutions and our business could suffer.

We use third-party data centers, located in Minnesota, New Jersey and Melbourne, as well as provision services in public cloud providers, to conduct our operations.  In all cases, infrastructure and services on which our Platform runs is managed by us.  Our operations depend on the protection of the equipment and information we store in these third-party centers against damage or service interruptions that may be caused by fire, flood, severe storm, power loss, telecommunications failures, natural disasters, war, criminal act, military action, terrorist attack and other similar events beyond our control.  In addition, third party malfeasance, such as intentional misconduct by computer hackers, unauthorized intrusions, computer viruses or denial of service attacks, may also cause substantial service disruptions.  A prolonged service disruption affecting our solutions for any of the foregoing reasons could damage our reputation with current and potential customers, expose us to liability, cause us to lose recurring revenue customers or otherwise adversely affect our business.  We may also incur significant costs for using alternative equipment or taking other actions in preparation for, or in reaction to, events that damage the data centers we use.

Our cloud-based supply chain management solutions are accessed by a large number of customers at the same time.  As we continue to expand the number of our customers and solutions available to our customers, we may not be able to scale our technology to accommodate the increased capacity requirements, which may result in interruptions or delays in service.  In addition, the failure of our third-party data centers to meet our capacity requirements could result in interruptions or delays in our solutions or impede our ability to scale our operations.  In the event that our data center arrangements are terminated, or there is a lapse of service or damage to such facilities, we could experience interruptions in our solutions as well as delays and additional expense in arranging new facilities and services.

Our industry is a prime target for those that seek to steal confidential information and computer malware, viruses, hacking and phishing attacks, and spamming could harm our business and cause us to lose the confidence of our users, which could significantly impact our business and results of operations.

As demonstrated by recent material and high-profile data security breaches within the retail industry, computer malware, viruses, and computer hacking and phishing attacks have become more prevalent in our industry, have occurred on our systems in the past, and may occur on our systems in the future.  Furthermore, given the interconnected nature of the retail supply chain and our significant presence in the retail industry, we believe that we are a particularly attractive target for such attacks.  In addition, our connection to the retail industry could present the opportunity for an attack on our system to serve as a way to obtain access into our users’ systems, which could have a material adverse effect on our financial condition and growth prospectus.  Businesses in our industry have experienced material sales declines after discovering data breaches, and our business could be similarly impacted.  The security costs to reduce the likelihood of an attack are high and may continue to increase.  Reputational value is based in large part on perceptions of subjective qualities.  While reputations may take decades to build, any negative incidents can quickly erode trust and confidence, particularly if they result in adverse mainstream and social media publicity, governmental investigations or litigation.  Though it is difficult to determine what, if any, harm may directly result from any specific interruption or attack, any failure to maintain performance, reliability, security and availability of our products and technical infrastructure to the satisfaction of our users may harm our reputation, impair our ability to retain existing customers and attract new customers and expose us to legal claims and government action, each of which could have a material adverse impact on our financial condition, results of operations and growth prospects.

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A failure to protect the integrity and security of our customers’ information and access to our customers’ information systems could expose us to litigation, materially damage our reputation and harm our business, and the costs of preventing such a failure could adversely affect our results of operations.

Our business involves the collection and use of confidential information of our customers and their trading partners.  The collection and use of this information sometimes requires our direct access to our customers’ information systems.  We cannot assure you that our efforts to protect this confidential information and access will be successful.  Our security measures may be breached as a result of third-party action, including intentional misconduct by computer hackers, employee error, malfeasance or otherwise and result in someone obtaining unauthorized access to our customers’ data or our data, including our intellectual property and other confidential business information, or our IT systems.  Additionally, third parties may attempt to fraudulently induce employees or customers into disclosing sensitive information such as user names, passwords or other information in order to gain access to our customers’ data or our data or IT systems.  Because the techniques used to obtain unauthorized access, or to sabotage systems, change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures.  Malicious third-parties may also conduct attacks designed to temporarily deny customers access to our services.

If any compromise of this information security were to occur, or if we fail to detect and appropriately respond to a significant data security breach, we could be subject to legal claims and government action, experience an adverse effect on our reputation and need to incur significant additional costs to protect against similar information security breaches in the future, each of which could adversely impact our financial condition, results of operations and growth prospects.  Litigation resulting from such claims may be costly, time-consuming and distracting to management.  In addition, because of the critical nature of data security, any perceived breach of our security measures could cause existing or potential customers not to use our solutions and could harm our reputation.

We may experience service failures or interruptions due to defects in the hardware, software, infrastructure, third party components or processes that comprise our existing or new solutions, any of which could adversely affect our business.

Technology solutions as complex as ours may contain undetected defects in the hardware, software, infrastructure, third party components or processes that are part of the solutions we provide.  If these defects lead to service failures, we could experience delays or lost revenues, diversion of software engineering resources, material non-monetary concessions, negative media attention or increased service costs as a result of performance claims during the period required to correct the cause of the defects.  We cannot be certain that defects will not be found in new solutions or upgraded solutions, resulting in loss of, or delay in, market acceptance, which could have an adverse effect on our business, results of operations and financial condition.

Because customers use our cloud-based supply chain management solutions for critical business processes, any defect in our solutions, any disruption to our solutions or any error in execution could cause recurring revenue customers to cancel their contracts with us, prevent potential customers from joining our network and harm our reputation.  Although most of our contracts with our customers limit our liability to our customers for these defects, disruptions or errors, we nonetheless could be subject to litigation for actual or alleged losses to our customers’ businesses, which may require us to spend significant time and money in litigation or arbitration or to pay significant settlements or damages.  We do not currently maintain any warranty reserves.  Defending a lawsuit, regardless of its merit, could be costly and divert management’s attention and could cause our business to suffer.

The insurers under our existing liability insurance policy could deny coverage of a future claim that results from an error or defect in our technology or a resulting disruption in our solutions, or our existing liability insurance might not be adequate to cover all of the damages and other costs of such a claim.  Moreover, we cannot assure you that our current liability insurance coverage will continue to be available to us on acceptable terms or at all.  The successful assertion against us of one or more large claims that exceeds our insurance coverage, or the occurrence of changes in our liability insurance policy, including an increase in premiums or imposition of large deductible or co-insurance requirements, could have an adverse effect on our business, financial condition and operating results.  Even if we succeed in litigation with respect to a claim, we are likely to incur substantial costs and our management’s attention will be diverted from our operations.

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Our business is dependent on our ability to maintain and scale our technical infrastructure, and any failure to effectively maintain and grow our technical infrastructure service could damage our reputation, result in a potential loss of users and engagement, and adversely affect our financial results.

Our reputation and ability to attract, retain and serve our customers is dependent upon the reliable performance of our Platform and our underlying technical infrastructure.  As our user base and the amount and types of information shared on our Platform continue to grow, we will need an increasing amount of technical infrastructure, including network capacity and computing power, to continue to satisfy the needs of our users.  It is possible that we may fail to effectively scale and grow our technical infrastructure to accommodate these increased demands.  Any failure to effectively maintain and grow our technical infrastructure could damage our reputation, result in a potential loss of users and engagement, and adversely affect our financial results.

Our inability to adapt to rapid technological change could impair our ability to remain competitive.

The industry in which we compete is characterized by rapid technological change, frequent introductions of new products and evolving industry standards.  Existing products can become obsolete and unmarketable when vendors introduce products utilizing new technologies or new industry standards emerge, and as a result, it is difficult for us to estimate the life cycles of our products.  Our ability to attract new customers and increase revenues from customers will depend in significant part on our ability to anticipate industry standards and to continue to enhance existing solutions or introduce or acquire new solutions on a timely basis to keep pace with technological developments.  The success of any enhancement or new solution depends on several factors, including the timely completion, introduction and market acceptance of the enhancement or solution.  Any new solution we develop or acquire might not be introduced in a timely or cost-effective manner and might not achieve the broad market acceptance necessary to generate significant revenues.  If any of our competitors implement new technologies before we are able to implement them, those competitors may be able to provide more effective solutions than ours at lower prices.  Any delay or failure in the introduction of new or enhanced solutions could adversely affect our business, results of operations and financial condition.

If we fail to protect our intellectual property and proprietary rights adequately, our business could be adversely affected.

We believe that proprietary technology is essential to establishing and maintaining our leadership position.  We seek to protect our intellectual property through trade secrets, copyrights, confidentiality, non-compete and nondisclosure agreements, trademarks, domain names and other measures, some of which afford only limited protection.  We do not have any patents or registered copyrights.  Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our technology or to obtain and use information that we regard as proprietary.  We cannot assure you that our means of protecting our proprietary rights will be adequate or that our competitors will not independently develop similar or superior technology or design around our intellectual property.  In addition, the laws of some foreign countries do not protect our proprietary rights to as great an extent as the laws of the U.S.  Intellectual property protections may also be unavailable, limited or difficult to enforce in some countries, which could make it easier for competitors to capture market share.  Our failure to protect adequately our intellectual property and proprietary rights could adversely affect our business, financial condition and results of operations.

An assertion by a third party that we are infringing its intellectual property could subject us to costly and time-consuming litigation or expensive licenses and our business might be harmed.

The Internet supply chain management and technology industries are characterized by the existence of a large number of patents, copyrights, trademarks and trade secrets and by frequent litigation based on allegations of infringement or other violations of intellectual property rights.  As we seek to extend our solutions, we could be constrained by the intellectual property rights of others.

We might not prevail in any intellectual property infringement litigation given the complex technical issues and inherent uncertainties in such litigation.  Defending such claims, regardless of their merit, could be time-consuming and distracting to management, result in costly litigation or settlement, cause development delays, require us to enter into royalty or licensing agreements or require us to redesign our products to avoid infringement.  If our solutions violate any third-party proprietary rights, we could be required to withdraw those solutions from the

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market, re-develop those solutions or seek to obtain licenses from third parties, which might not be available on reasonable terms or at all.  Any efforts to re-develop our solutions, obtain licenses from third parties on favorable terms or license a substitute technology might not be successful and, in any case, might substantially increase our costs and harm our business, financial condition and operating results.  Withdrawal of any of our solutions from the market might harm our business, financial condition and operating results.

In addition, we incorporate open source software into our Platform.  Given the nature of open source software, third parties might assert copyright and other intellectual property infringement claims against us based on our use of certain open source software programs.  The terms of many open source licenses to which we are subject have not been interpreted by U.S. or foreign courts, and there is a risk that those licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to commercialize our solutions.  In that event, we could be required to seek licenses from third parties in order to continue offering our solutions, to re-develop our solutions or to discontinue sales of our solutions, or to release our proprietary software code under the terms of an open source license, any of which could adversely affect our business.

Our new products and changes to existing products could fail to attract or retain users or generate revenue.

Our ability to retain, increase and engage our customers and to increase our revenues will depend heavily on our ability to create successful new products.  We may introduce significant changes to our existing products or develop and introduce new and unproven products which include or use technologies with which we have little or no prior development or operating experience.  If new or enhanced products fail to engage customers, we may fail to attract or retain customers or to generate sufficient revenues, operating margin, or other value to justify our investments and our business may be adversely affected.  In the future, we may invest in new products and initiatives to generate revenue, but there is no guarantee these approaches will be successful.  If we are not successful with new approaches to monetization, we may not be able to maintain or grow our revenues as anticipated or recover any associated development costs and our financial results could be adversely affected.

Our software is highly technical, and if it contains undetected errors, our business could be adversely affected.

Our products incorporate software that is highly technical and complex.  Our software has contained, and may now or in the future contain, undetected errors, bugs or vulnerabilities.  Some errors in our software code may only be discovered after the code has been released.  Any defects or errors discovered in our code after release could result in damage to our reputation, loss of customers, loss of revenue or liability for damages, any of which could adversely affect our business and financial results.

The market for cloud-based supply chain management solutions is at an early stage of development.  If this market does not develop or develops more slowly than we expect, our revenues may decline or fail to grow and we may incur operating losses.

We derive, and expect to continue to derive, substantially all of our revenues from providing cloud-based supply chain management solutions to suppliers, retailers, distributors and logistics firms.  The market for cloud-based supply chain management solutions is in an early stage of development, and it is uncertain whether these solutions will achieve and sustain high levels of demand and market acceptance.  Our success will depend on the willingness of retailers and their trading partners to accept our cloud-based supply chain management solutions as an alternative to traditional licensed hardware and software solutions.

Some suppliers, retailers, distributors, or logistics firms may be reluctant or unwilling to use our cloud-based supply chain management solutions for a number of reasons, including existing investments in supply chain management technology.  Supply chain management functions traditionally have been performed using purchased or licensed hardware and software implemented by each supplier.  Because this traditional approach often requires significant initial investments to purchase the necessary technology and to establish systems that comply with retailers’ unique requirements, suppliers may be unwilling to abandon their current solutions for our cloud-based supply chain management solutions.

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Other factors that may limit market acceptance of our cloud-based supply chain management solutions include:

• our ability to maintain high levels of customer satisfaction;

• our ability to maintain continuity of service for all users of our Platform;

• the price, performance and availability of competing solutions; and

• our ability to assuage suppliers’ confidentiality concerns about information stored outside of their controlled computing environments.

If retailers and their trading partners do not perceive the benefits of our cloud-based supply chain management solutions, or if retailers and their trading partners are unwilling to accept our Platform as an alternative to the traditional approach, the market for our solutions might not continue to develop or might develop more slowly than we expect, either of which would significantly adversely affect our revenues and growth prospects.

Privacy concerns and laws, evolving regulation of cloud computing, cross-border data transfer restrictions and other domestic or foreign regulations may limit the use and adoption of our solutions and adversely affect our business.

Regulation related to the provision of services on the Internet is increasing, as federal, state and foreign governments continue to adopt new laws and regulations addressing data privacy and the collection, processing, storage and use of personal information.  In some cases foreign data privacy laws and regulations, such as the European Union’s Data Protection Directive, and the country-specific regulations that implement that directive, also govern the processing of personal information.  Further, laws are increasingly aimed at the use of personal information for marketing purposes, such as the European Union’s e-Privacy Directive, and the country-specific regulations that implement that directive.  Such laws and regulations are subject to differing interpretations and may be inconsistent among jurisdictions. These and other requirements could reduce demand for our solutions or restrict our ability to store and process data or, in some cases, impact our ability to offer our services and solutions in certain locations.

In addition to government activity, privacy advocacy and other industry groups have established or may establish new self-regulatory standards that may place additional burdens on us.  Our customers may expect us to meet voluntary certification or other standards established by third parties.  If we are unable to maintain these certifications or meet these standards, it could adversely affect our ability to provide our solutions to certain customers and could harm our business.

The costs of compliance with and other burdens imposed by laws, regulations and standards may limit the use and adoption of our services and reduce overall demand for them, or lead to significant fines, penalties or liabilities for any noncompliance.

Furthermore, concerns regarding data privacy may cause our customers’ customers to resist providing the data necessary to allow our customers to use our service effectively.  Even the perception that the privacy of personal information is not satisfactorily protected or does not meet regulatory requirements could inhibit sales of our products or services, and could limit adoption of our cloud-based solutions.

Evolving regulation of the Internet may increase our expenditures related to compliance efforts, which may adversely affect our financial condition.

As Internet commerce continues to evolve, increasing regulation by federal, state or foreign agencies becomes more likely.  We are particularly sensitive to these risks because the Internet is a critical component of our cloud-based business model.  For example, we believe that increased regulation is likely in the area of data privacy, and laws and regulations applying to the solicitation, collection, processing or use of personal or consumer information could affect our customers’ ability to use and share data, potentially reducing demand for solutions accessed via the Internet and restricting our ability to store, process and share data with our clients via the Internet.  In addition, taxation of services provided over the Internet or other charges imposed by government agencies or by private organizations for accessing the Internet may be imposed.  Any regulation imposing greater fees for Internet use or restricting information exchange over the Internet could result in a decline in the use of the Internet and the viability of Internet-based services, which could harm our business.

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Industry-specific regulation is evolving and unfavorable industry-specific laws, regulations or interpretive positions could harm our business.

Our customers and potential customers do business in a variety of industries.  Regulators in certain industries have adopted and may in the future adopt regulations or interpretive positions regarding the use of cloud computing and other outsourced services.  The costs of compliance with, and other burdens imposed by, industry-specific laws, regulations and interpretive positions may limit customers’ use and adoption of our services and reduce overall demand for our services.  In addition, an inability to satisfy the standards of certain voluntary third-party certification bodies that our customers may expect may have an adverse impact on our business.  If in the future we are unable to achieve or maintain these industry-specific certifications or other requirements or standards relevant to our customers, it may harm our business.

In some cases, industry-specific laws, regulations or interpretive positions may also apply directly to us as a service provider.  Any failure or perceived failure by us to comply with such requirements could have an adverse impact on our business.

We rely on third party infrastructure, software and services that could take a significant time to replace or upgrade.

We rely on infrastructure, software and services licensed from third parties to offer our cloud-based supply chain management solutions.  This infrastructure, software and services, as well as maintenance rights for this infrastructure, software and services, may not continue to be available to us on commercially reasonable terms, or at all.  If we lose the right to use or upgrade any of these licenses, our customers could experience delays or be unable to access our solutions until we can obtain and integrate equivalent technology.  There might not always be commercially reasonable hardware or software alternatives to the third-party infrastructure, software and services that we currently license.  Any such alternatives could be more difficult or costly to replace than the third-party infrastructure, software and services we currently license, and integration of the alternatives into our Platform could require significant work and substantial time and resources.  Any delays or failures associated with our Platform could injure our reputation with customers and potential customers and result in an adverse effect on our business, results of operations and financial condition.

We may pursue acquisitions and our potential inability to successfully integrate newly acquired companies or businesses could adversely affect our financial results.

We may pursue acquisitions of other companies or their businesses in the future.  If we complete acquisitions, we face many risks commonly encountered with growth through acquisitions.  These risks include:

• incurring significantly higher than anticipated capital expenditures and operating expenses;

• failing to assimilate the operations, customers, and personnel of the acquired company or business;

• disrupting our ongoing business;

• dissipating our management resources;

• dilution to existing stockholders from the issuance of equity securities;

• liabilities or other problems associated with the acquired business;

• incurring debt on terms unfavorable to us or that we are unable to repay;

• becoming subject to adverse tax consequences, substantial depreciation or deferred compensation charges;

• improper compliance with laws and regulations;

• failing to maintain uniform standards, controls and policies; and

• impairing relationships with employees and customers as a result of changes in management.

Fully integrating an acquired company or business into our operations may take a significant amount of time.  We cannot assure you that we will be successful in overcoming these risks or any other problems encountered with

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acquisitions.  To the extent we do not successfully avoid or overcome the risks or problems related to any acquisitions, our results of operations and financial condition could be adversely affected.  Future acquisitions also could impact our financial position and capital needs, and could cause substantial fluctuations in our quarterly and yearly results of operations.  Acquisitions could include significant goodwill and intangible assets, which may result in future impairment charges that would reduce our stated earnings.

Because our long-term success depends, in part, on our ability to expand the sales of our solutions to customers located outside of the U.S., our business will be susceptible to risks associated with international operations.

We have limited experience operating in foreign jurisdictions.  Customers in countries outside of North America accounted for 6.0% of our revenues for each of the years ended December 31, 2017, 2016 and 2015, respectively.  In 2014, we purchased substantially all of the assets of Leadtec, a privately-held provider of cloud-based integration solutions in Australia and New Zealand and in 2016, we acquired all the shares of Toolbox Solutions, Inc., a privately-held provider of cloud-based analytic solutions, which is based in Canada.  We also undertake software development activities in the Ukraine.  Our inexperience in operating our business outside of North America increases the risk that our current and any future international expansion efforts will not be successful.  Conducting international operations subjects us to new risks that, generally, we have not faced in the U.S., including:

• fluctuations in currency exchange rates;

• unexpected changes in foreign regulatory requirements;

• longer accounts receivable payment cycles and difficulties in collecting accounts receivable;

• difficulties in managing and staffing international operations;

• differing technology standards;

• potentially adverse tax consequences, including the complexities of foreign value added tax systems and restrictions on the repatriation of earnings;

• localization of our solutions, including translation into foreign languages and associated expenses;

• the burdens of complying with a wide variety of foreign laws and different legal standards, including laws and regulations related to privacy;

• increased financial accounting and reporting burdens and complexities;

• political, social and economic instability abroad, terrorist attacks and security concerns in general;

• greater potential for corruption and bribery; and

• reduced or varied protection for intellectual property rights in some countries.

The occurrence of any one of these risks could negatively affect our international business and, consequently, our results of operations generally.  Additionally, operating in international markets also requires significant management attention and financial resources.  We cannot be certain that the investment and additional resources required in establishing, acquiring or integrating operations in other countries will produce desired levels of revenues or profitability.

In addition, we operate in parts of the world, such as Ukraine, that are recognized as having governmental corruption problems to some degree and where local customs and practices may not foster strict compliance with anti-corruption laws.  Our continued operation and potential expansion outside the U.S. could increase the risk of such violations in the future.  Despite our training and compliance programs, we cannot assure you that our internal control policies and procedures will protect us from unauthorized reckless or criminal acts committed by our employees or agents.  In the event that we believe or have reason to believe that our employees or agents have or may have violated applicable anti-corruption laws, including the U.S. Foreign Corrupt Practices Act, we may be required to investigate or have outside counsel investigate the relevant facts and circumstances, which can be expensive and require significant time and attention from senior management.  Violations of these laws may result in severe criminal or civil sanctions, which could disrupt our business and result in a material adverse effect on our reputation, business, results of operations or financial condition.

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The use of open source software in our products may expose us to additional risks and harm our intellectual property.

Some of our products use or incorporate software that is subject to one or more open source licenses.  Open source software is typically freely accessible, usable and modifiable.  Certain open source software licenses require a user who intends to distribute the open source software as a component of the user’s software to disclose publicly part or all of the source code to the user’s software.  In addition, certain open source software licenses require the user of such software to make any derivative works of the open source code available to others on unfavorable terms or at no cost.  This can subject previously proprietary software to open source license terms. Furthermore, if we fail to comply with these licenses, we may be subject to certain conditions, including requirements that we offer our services that incorporate the open source software for no cost, that we make available source code for modifications or derivative works we create based upon, incorporating or using the open source software and that we license such modifications or alterations under the terms of the particular open source license. If an author or third party that distributes such open source software were to allege that we had not complied with the conditions of one or more of these licenses, we could be required to incur significant legal expenses defending against such allegations and could be subject to significant damages, enjoined from the sale of our services that contained the open source software and required to comply with the foregoing conditions, which could disrupt the distribution and sale of some of our services.

While we monitor the use of all open source software in our products, processes and technology and try to ensure that no open source software is used in such a way as to require us to disclose the source code to the related product or solution, such use could inadvertently occur.  Additionally, if a third-party software provider has incorporated certain types of open source software into software we license from such third party for our products and solutions, we could, under certain circumstances, be required to disclose the source code to our products and solutions.  This could harm our intellectual property position and have a material adverse effect on our business, results of operations, cash flow and financial condition.

Our operations may be adversely affected by ongoing developments in Ukraine.

The political and civil situation in Ukraine cannot be accurately predicted since the removal of President Yanukovych from power by the Ukrainian parliament in late February 2014, which was followed by reports of Russian military activity in the Crimean region. Ukraine’s political activities remain fluid and beyond our control.  We also cannot predict the outcome of developments there or the reaction to such developments by U.S., European, U.N. or other international authorities.

We currently engage in software development activities in the Ukraine and have an office in Kiev with 64 employees.  We continue to monitor the situation closely.  Prolonged or expanded unrest, military activities, or broad-based sanctions, should they be implemented, could have a material adverse effect on our operations

We have incurred operating losses in the past and may incur operating losses in the future.

We began operating our supply chain management solution business in 1997.  Throughout most of our history, we have experienced net losses and negative cash flows from operations.  As of December 31, 2017, we had an accumulated deficit of $19.9 million.  We expect our operating expenses to continue to increase in the future as we expand our operations and increase our customer base due to expected increased sales and marketing expenses, operations costs, research and development costs and general and administration costs.  If our revenues do not continue to grow to offset these increased expenses, we may not be profitable.  We cannot assure you that we will be able to maintain profitability.  You should not consider recent revenue growth as indicative of our future performance.  In fact, in future periods, we may not have any revenue growth, or our revenues could decline. In addition, our ability to achieve profitability is subject to a number of the risks and uncertainties discussed herein, many of which are beyond our control.

Our ability to use our U.S. net operating loss carryforwards might be limited.

As of December 31, 2017, we had net operating loss carryforwards of $58.5 million for U.S. federal tax purposes.  We also had $10.6 million of various state net operating loss carryforwards.  The net operating loss carryforwards for federal tax purposes will expire between 2020 and 2036 if not utilized.  The net operating loss

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carryforwards for state tax purposes will expire between 2018 and 2036 if not utilized.  To the extent these net operating loss carryforwards are available, we intend to use them to reduce the corporate income tax liability associated with our operations.  Section 382 of the U.S. Internal Revenue Code generally imposes an annual limitation on the amount of net operating loss carryforwards that might be used to offset taxable income when a corporation has undergone significant changes in stock ownership.  We have performed a Section 382 analysis for the time period from our inception through December 8, 2010.  During this time period it was determined that we had six separate ownership changes under Section 382.  We have not updated the Section 382 analysis subsequent to December 8, 2010; however, we believe there have not been any events subsequent to that date that would materially impact the analysis.  We believe that approximately $17.6 million of federal losses will expire unused due to Section 382 limitations.  The maximum annual limitation of federal net operating losses under Section 382 is approximately $1.0 million.  This limitation could be further restricted if any ownership changes occur in future years.  To the extent our use of net operating loss carryforwards is significantly limited, our taxable income could be subject to corporate income tax earlier than it would if we were able to use net operating loss carryforwards, which could result in lower profits.

U.S. federal income tax reform could adversely affect us.

On December 22, 2017, President Trump signed into law the statute commonly referred to as the “Tax Cuts and Jobs Act (“Tax Act”) which enacts a broad range of changes to the Internal Revenue Code of 1986, as amended.  The new legislation, among other things, includes changes to U.S. federal tax rates, imposes significant additional limitations on the deductibility of interest, allows for the expensing of capital expenditures and puts into effect the migration from a ‘worldwide” system of taxation to a territorial system.  We do not expect tax reform to have a material impact to our projection of minimal cash taxes or to our net operating loss carryforward.  Our net deferred tax assets and liabilities have been revalued at the newly enacted U.S. corporate rate and the impact has been recognized in our tax expense in 2017.  We continue to examine the impact this tax reform legislation may have on our business.

The markets in which we participate are highly competitive, and our failure to compete successfully would make it difficult for us to add and retain customers and would reduce or impede the growth of our business.

The markets for supply chain management solutions are increasingly competitive and global.  We expect competition to increase in the future both from existing competitors and new companies that may enter our markets.  Increased competition could result in pricing pressure, reduced sales, lower margins or the failure of our solutions to achieve or maintain broad market acceptance.  We face competition from:

• cloud service providers that deliver business-to-business information systems using a multi-tenant approach;

• traditional on-premise software providers; and

• managed service providers that combine traditional on-premise software with professional information technology services.

To remain competitive, we will need to invest continuously in software development, marketing, customer service and support and product delivery infrastructure.  However, we cannot assure you that new or established competitors will not offer solutions that are superior to or lower in price than ours.  We may not have sufficient resources to continue the investments in all areas of software development and marketing needed to maintain our competitive position.  In addition, some of our competitors are better capitalized than us, which may provide them with an advantage in developing, marketing or servicing new solutions.  Increased competition could reduce our market share, revenues and operating margins, increase our costs of operations and otherwise adversely affect our business.

Mergers or other strategic transactions involving our competitors could weaken our competitive position, which could harm our operating results.

Our industry is highly fragmented, and we believe it is likely that our existing competitors will continue to consolidate or will be acquired.  In addition, some of our competitors may enter into new alliances with each other

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or may establish or strengthen cooperative relationships with systems integrators, third-party consulting firms or other parties.  Any such consolidation, acquisition, alliance or cooperative relationship could lead to pricing pressure, loss of customers and our loss of market share and could result in a competitor with greater financial, technical, marketing, service and other resources, all of which could have a material adverse effect on our business, operating results and financial condition.

Economic weakness and uncertainty could adversely affect our revenue, lengthen our sales cycles and make it difficult for us to forecast operating results accurately.

Our revenues depend significantly on general economic conditions and the health of retailers.  Economic weakness and constrained retail spending adversely affected revenue growth rates in late 2008 and similar circumstances may result in slower growth, or reductions, in revenues and gross profits in the future.  We have experienced, and may experience in the future, reduced spending in our business due to financial turmoil affecting the U.S. and global economy, and other macroeconomic factors affecting spending behavior.  Uncertainty about future economic conditions makes it difficult for us to forecast operating results and to make decisions about future investments.  In addition, economic conditions or uncertainty may cause customers and potential customers to reduce or delay technology purchases, including purchases of our solutions.  Our sales cycle may lengthen if purchasing decisions are delayed as a result of uncertain information technology or development budgets or contract negotiations become more protracted or difficult as customers institute additional internal approvals for information technology purchases.  Delays or reductions in information technology spending could have a material adverse effect on demand for our solutions, and consequently our results of operations, prospects and stock price.

Our continued growth could strain our personnel resources and infrastructure, and if we are unable to implement appropriate controls and procedures to manage our growth, we will not be able to implement our business plan successfully.

We have experienced a period of rapid growth in our headcount and operations.  To the extent that we are able to sustain such growth, it will place a significant strain on our management, administrative, operational and financial infrastructure.  Our success will depend in part upon the ability of our senior management to manage this growth effectively.  To do so, we must continue to hire, train and manage new employees as needed.  If our new hires perform poorly, or if we are unsuccessful in hiring, training, managing and integrating these new employees, or if we are not successful in retaining our existing employees, our business would be harmed.  To manage the expected growth of our operations and personnel, we will need to continue to improve our operational, financial and management controls and our reporting systems and procedures.  The additional headcount we are adding will increase our cost base, which will make it more difficult for us to offset any future revenue shortfalls by reducing expenses in the short term.  If we fail to successfully manage our growth, we will be unable to execute our business plan.

If we fail to retain our Chief Executive Officer and other key personnel, our business would be harmed and we might not be able to implement our business plan successfully.

Given the complex nature of the technology on which our business is based and the speed with which such technology advances, our future success is dependent, in large part, upon our ability to attract and retain highly qualified managerial, technical and sales personnel.  The loss of any member of our senior management team or key personnel might significantly delay or prevent the achievement of our business objectives and could materially harm our business and our customer relationships. In addition, because of the nature of our business, the loss of any significant number of our existing engineering, project management and sales personnel could have an adverse effect on our business, results of operations and financial condition. Competition for talented personnel is intense, and we cannot be certain that we can retain our managerial, technical and sales personnel or that we can attract, assimilate or retain such personnel in the future.  Our inability to attract and retain such personnel could have an adverse effect on our business, results of operations and financial condition.

21

Our failure to maintain adequate internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 or to prevent or detect material misstatements in our annual or interim financial statements in the future could result in inaccurate financial reporting, or could otherwise harm our business.

Ensuring that we have internal financial and accounting controls and procedures adequate to produce accurate financial statements on a timely basis is a costly and time-consuming effort that needs to be re-evaluated frequently.  The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal control over financial reporting and disclosure controls and procedures.  In particular, we are required to perform annual system and process evaluation and testing of our internal control over financial reporting to allow management and our independent registered public accounting firm to report on the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. Furthermore, implementing any appropriate future changes to our internal control over financial reporting may entail substantial costs in order to modify our existing accounting systems, may take a significant period of time to complete and may distract our officers, directors and employees from the operation of our business. If we are not able to comply with the requirements of Section 404 in the future, or if material weaknesses are identified, the market price of our common stock could decline.

Our failure to raise additional capital or generate cash flows necessary to expand our operations and invest in new technologies could reduce our ability to compete successfully and adversely affect our results of operations.

We may need to raise additional funds, and we may not be able to obtain additional debt or equity financing on favorable terms, if at all.  If we raise additional equity financing, our security holders may experience significant dilution of their ownership interests and the value of shares of our common stock could decline.  If we engage in debt financing, we may be required to accept terms that restrict our ability to incur additional indebtedness, force us to maintain specified liquidity or other ratios or restrict our ability to pay dividends or make acquisitions.  If we need additional capital and cannot raise it on acceptable terms, we may not be able to, among other things:

• develop and enhance our solutions;

• continue to expand our technology development, sales and marketing organizations;

• acquire complementary technologies, products or businesses;

• hire, train and retain employees; or

• respond to competitive pressures or unanticipated working capital requirements.

Our inability to do any of the foregoing could reduce our ability to compete successfully and adversely affect our results of operations.

If the open source community expands into enterprise application and supply chain software, our fee revenues may decline.

The open source community is comprised of many different formal and informal groups of software developers and individuals who have created a wide variety of software and have made that software available for use, distribution and modification, often free of charge.  Open source software, such as the Linux operating system, has been gaining in popularity among business users.  If developers contribute enterprise and supply chain application software to the open source community, and that software has competitive features and scale to support business users in our markets, we may need to change our product pricing and distribution strategy to compete successfully, and our fee revenues may decline as a result.

22

Our stock price may be volatile.

Shares of our common stock were sold in our April 2010 initial public offering at a price of $12.00 per share and through December 31, 2017, our common stock has traded as high as $79.98 per share and as low as $8.45 per share.  An active, liquid and orderly market for our common stock may not be sustained, which could depress the trading price of our common stock.  Some of the factors that may cause the market price of our common stock to fluctuate include:

• fluctuations in our quarterly financial results or the quarterly financial results of companies perceived to be similar to us;

• fluctuations in our recorded revenue, even during periods of significant sales order activity;

• fluctuations in stock market volume;

• changes in estimates of our financial results or recommendations by securities analysts;

• failure of any of our solutions to achieve or maintain market acceptance;

• changes in market valuations of similar companies;

• success of competitive products or services;

• changes in our capital structure, such as future issuances of securities or the incurrence of debt;

• announcements by us or our competitors of significant solutions, contracts, acquisitions or strategic alliances;

• regulatory developments in the United States of America, foreign countries or both;

• litigation involving our company, our general industry or both;

• additions or departures of key personnel;

• investors’ general perception of us; and

• changes in general economic, industry and market conditions.

In addition, if the market for software stocks or the stock market in general experiences a loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business, financial condition or results of operations.  If any of the foregoing occurs, it could cause our stock price to fall and may expose us to class action lawsuits that, even if unsuccessful, could be costly to defend and a distraction to management.

If securities or industry analysts cease publishing research or reports about us, our business or our market, or if they publish negative evaluations of our stock, the price of our stock and trading volume could decline.

The trading market for our common stock depends in part on the research and reports that securities or industry analysts publish about us or our business. If one or more of the analysts who covers us downgrades our stock or publishes incorrect or unfavorable research about our business, our stock price would likely decline. In addition, if one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our stock could decrease, which could cause our stock price or trading volume to decline.

Future sales of our common stock by our existing stockholders could cause our stock price to decline.

If our stockholders sell substantial amounts of our common stock in the public market, the market price of our common stock could decrease significantly.  The perception in the public market that our stockholders might sell shares of our common stock could also depress the market price of our common stock.  As of December 31, 2017, we had approximately 4.6 million shares of our common stock issuable under approved equity compensation plans which are covered by effective registration statements.

23

Our charter documents and Delaware law may inhibit a takeover that stockholders consider favorable.

Provisions of our certificate of incorporation and bylaws and applicable provisions of Delaware law may delay or discourage transactions involving an actual or potential change in our control or change in our management, including transactions in which stockholders might otherwise receive a premium for their shares, or transactions that our stockholders might otherwise deem to be in their best interests, and may ultimately result in the market price of our common stock being lower than it would be without these provisions.  These provisions:

• permit our board of directors to issue up to 5,000,000 shares of preferred stock, with any rights, preferences and privileges as our board may designate, including the right to approve an acquisition or other change in our control;

• provide that the authorized number of directors may be changed by resolution of the board of directors;

• provide that all vacancies, including newly created directorships, may, except as otherwise required by law, be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum;

• provide that stockholders seeking to present proposals before a meeting of stockholders or to nominate candidates for election as directors at a meeting of stockholders must provide notice in writing in a timely manner, and also specify requirements as to the form and content of a stockholder’s notice; and

• do not provide for cumulative voting rights.

In addition, Section 203 of the Delaware General Corporation Law generally limits our ability to engage in any business combination with certain persons who own 15% or more of our outstanding voting stock or any of our associates or affiliates who at any time in the past three years have owned 15% or more of our outstanding voting stock.  These provisions may have the effect of entrenching our management team and may deprive you of the opportunity to sell your shares to potential acquirers at a premium over prevailing prices.  This potential inability to obtain a control premium could reduce the price of our common stock.

We do not intend to declare dividends on our stock in the foreseeable future.

We currently intend to retain all future earnings for the operation and expansion of our business and, therefore, do not anticipate declaring or paying cash dividends on our common stock in the foreseeable future.  Investors may need to sell all or part of their holdings of our common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment. Any payment of future cash dividends on our common stock will be at the discretion of our board of directors and will depend upon our results of operations, earnings, capital requirements, financial condition, future prospects, contractual restrictions and other factors deemed relevant by our board of directors.  Therefore, you should not expect to receive dividend income from shares of our common stock.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Our corporate headquarters, including our principal administrative, marketing, sales, technical support and research and development facilities, are located in Minneapolis, Minnesota where we lease approximately 166,000 square feet under an agreement that expires on April 30, 2025.  We have agreed to expand our headquarters premises by approximately 48,000 square feet during 2018 and 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.

We also have operations in or near:

• Little Falls, New Jersey, where we lease approximately 26,000 square feet under an agreement that expires on June 30, 2023.  The lease includes a right of first offer to lease certain additional space and one option to extend the term of the lease for five years at a market rate determined in accordance with the lease.

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• Toronto, Ontario, where we lease approximately 17,000 square feet under an agreement that expires on December 31, 2021.  The lease includes a right of first offer to lease certain additional space and one option to extend the term of the lease for five years at a market rate determined in accordance with the lease.

• Melbourne, Australia, where we lease approximately 11,000 square feet under an agreement that expires on October 15, 2021.  The lease includes one option to extend the term of the lease for three years at a market rate determined in accordance with the lease.

• Sydney, Australia, where we lease approximately 4,000 square feet under an agreement that expires on April 30, 2020.  The lease includes a right of first offer to lease certain additional space and one option to extend the term of the lease for three years at a market rate determined in accordance with the lease.

• Kiev, Ukraine, where we lease approximately 3,000 square feet under an agreement that expires on April 26, 2020.  The lease includes one option to extend the term of the lease for two years and 11 months at a market rate determined in accordance with the lease.

We believe that our current facilities are suitable and adequate to meet our current needs and that suitable additional or substitute space will be available as needed to accommodate expansion of our operations.

Item 3. Legal Proceedings

We are not currently subject to any material legal proceedings.  From time to time, we may be named as a defendant in legal actions or otherwise be subject to claims arising from our normal business activities.  We believe that we have obtained adequate insurance coverage or rights to indemnification in connection with potential legal proceedings that may arise.

Item 4. Mine Safety Disclosures

Not applicable.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information.  Our common stock has traded on the Nasdaq Global Market under the symbol “SPSC” since April 22, 2010, the date of our initial public offering.  The following table sets forth, for the periods indicated, the high and low sales prices for our common stock as reported on the Nasdaq Global Market.

	High		Low
Fiscal 2016
First Quarter	$	69.48	$	38.35
Second Quarter	$	60.72	$	40.94
Third Quarter	$	74.85	$	58.91
Fourth Quarter	$	73.92	$	61.40
Fiscal 2017
First Quarter	$	72.60	$	48.11
Second Quarter	$	64.85	$	53.99
Third Quarter	$	64.40	$	54.65
Fourth Quarter	$	60.95	$	45.02

Stockholders of Record.  As of February 9, 2018, we had 76 stockholders of record of our common stock, excluding holders whose stock is held either in nominee name and/or street name brokerage accounts.

Dividends.  We have not historically paid dividends on our common stock.  We currently intend to retain our future earnings, if any, to finance the operation and expansion of our business, and, therefore, we do not expect to pay cash dividends on our common stock in the foreseeable future.  Payment of future cash dividends, if any, will be at the discretion of our board of directors after taking into account various factors, including our financial condition, operating results, current and anticipated cash needs, outstanding indebtedness and plans for expansion and restrictions imposed by lenders, if any.

Stock Performance Graph and Cumulative Total Return

Notwithstanding any statement to the contrary in any of our previous or future filings with the SEC, the following information relating to the price performance of our common stock shall not be deemed to be “filed” with the SEC or to be “soliciting material” under the Securities Exchange Act of 1934, as amended, (“Exchange Act”), and it shall not be deemed to be incorporated by reference into any of our filings under the (“Securities Act”) of 1933, as amended, or the Securities Act, or the Exchange Act, except to the extent we specifically incorporate it by reference into such filing.

The graph below compares the cumulative total stockholder return of our common stock with that of the Nasdaq US Benchmark TR Index and the Nasdaq US Benchmark Computer Services TR Index from December 31, 2012 through December 31, 2017, utilizing the last trading day of each respective year.  The graph assumes that $100 was invested in shares of our common stock, the Nasdaq US Benchmark TR Index and the Nasdaq US Benchmark Computer Services TR Index at the close of market on December 30, 2012, and that dividends, if any, were reinvested.  The comparisons in this graph are based on historical data and are not intended to forecast or be indicative of future performance of our common stock.

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Comparison of Cumulative Total Returns of SPS Commerce, Inc., NASDAQ US Benchmark TR Index and

NASDAQ US Benchmark Computer Services TR Index

			NASDAQ US		NASDAQ US
			Benchmark		Benchmark Computer
	SPS Commerce		TR Index		Services TR Index
12/31/2012		100.0		100.0		100.0
12/31/2013		175.2		133.5		108.0
12/31/2014		151.9		150.1		102.8
12/31/2015		188.4		150.8		100.6
12/30/2016		187.5		170.5		161.3
12/29/2017		130.4		206.9		130.6

Use of Proceeds from Sales of Registered Securities

Not applicable.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

On November 2, 2017, our board of directors authorized a program to repurchase up to $50.0 million of common stock.  Under the program, purchases may be made from time to time in the open market over the next two years.  During the fourth quarter of 2017, we repurchased 122,147 shares at a cost of $5.8 million.  As of December 31, 2017, $44.2 million of the $50.0 million of the share repurchases authorized was available for future share repurchases.

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The following table presents the total number of shares of our common stock that we purchased during the fourth quarter of 2017, 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		Approximate Dollar Value of Shares that May Yet be Purchased Under the Program
November 2 - 30, 2017		122,147	$	47.61		122,147	$	44,200,000
December 1 - 31, 2017	—		—		—			44,200,000
Total fourth quarter 2017		122,147	$	47.61		122,147	$	44,200,000

See Note H to our consolidated financial statements, included in this Annual Report on Form 10-K, for additional information regarding our stock repurchase program.

Item 6. Selected Financial Data

The following selected financial data should be read together with our audited consolidated financial statements and the related notes and with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” which are included elsewhere in this Annual Report on Form 10-K.  Our historical results are not necessarily indicative of results to be expected for any future period.

The statements of income data for each of the years ended December 31, 2017, 2016, and 2015, the balance sheet data as of December 31, 2017 and 2016, and the operating data relating to Adjusted EBITDA and non-GAAP income per diluted share for each of the years ended December 31, 2017, 2016, and 2015 have been derived from our audited consolidated financial statements, which are included in this Annual Report on Form 10-K.

The statements of income data for the years ended December 31, 2014 and 2013, the balance sheet data as of December 31, 2015, 2014 and 2013, and the operating data relating to Adjusted EBITDA and non-GAAP income per diluted share for each of the years ended December 31, 2014 and 2013 have been derived from our audited consolidated financial statements which are not included in this Annual Report on Form 10-K, but which have been included in prior Annual Reports on Form 10-K filed with the SEC.

Adjusted EBITDA and non-GAAP income per diluted share are non-GAAP financial measures.  We believe that these non-GAAP measures provide useful information to management and investors regarding certain financial and business trends relating to our financial condition and results of operations.  Our management uses these non-GAAP measures to compare the company’s performance to that of prior periods for trend analyses and planning purposes.  Adjusted EBITDA is also used for purposes of determining executive and senior management incentive compensation.  These measures are also presented to our board of directors.

These non-GAAP measures should not be considered a substitute for, or superior to, financial measures calculated in accordance with generally accepted accounting principles in the United States of America (“GAAP”).  These non-GAAP financial measures exclude significant expenses and income that are required by GAAP to be recorded in the company’s financial statements and are subject to inherent limitations.  Investors should review the reconciliations of these non-GAAP financial measures to the comparable GAAP financial measures that are included below.

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The operating data relating to recurring revenue customers for all periods presented is unaudited and has been derived from our internal records of our operations.

	Year Ended December 31,
	2017			2016		2015			2014			2013
	(In thousands, except per share data)
Statements of Income Data
Revenues	$	220,566		$	193,295	$	158,518		$	127,947		$	104,391
Cost of revenues (1)		73,625			64,346		50,043			39,991			31,781
Gross profit		146,941			128,949		108,475			87,956			72,610
Operating expenses
Sales and marketing (1)		73,295			65,886		55,374			46,990			39,621
Research and development (1)		23,183			21,981		17,954			13,494			10,870
General and administrative (1)		37,461			28,827		24,817			20,233			17,189
Amortization of intangible assets (2)		4,574			4,738		3,307			2,856			3,158
Total operating expenses		138,513			121,432		101,452			83,573			70,838
Income from operations		8,428			7,517		7,023			4,383			1,772
Other income (expense)
Interest income, net		1,032			601		197			187			112
Other income (expense), net (3)		(320	)		732		(145	)		(458	)		(147	)
Total other income (expense), net		712			1,333		52			(271	)		(35	)
Income before income taxes		9,140			8,850		7,075			4,112			1,737
Income tax expense		11,580			3,140		2,436			1,408			686
Net (loss) income	$	(2,440	)	$	5,710	$	4,639		$	2,704		$	1,051
Net (loss) income per share
Basic	$	(0.14	)	$	0.34	$	0.28		$	0.17		$	0.07
Diluted	$	(0.14	)	$	0.33	$	0.27		$	0.16		$	0.07
Weighted average common shares outstanding
Basic		17,183			16,947		16,565			16,236			15,201
Diluted		17,183			17,241		17,032			16,814			15,931

	As of December 31,
	2017		2016		2015		2014		2013
	(In thousands)
Balance Sheet Data
Cash and cash equivalents	$	123,127	$	115,877	$	121,538	$	130,795	$	131,294
Working capital		176,309		153,772		142,552		137,634		137,160
Total assets		335,520		298,229		261,731		243,775		223,330
Long-term liabilities		15,553		16,937		15,312		14,124		11,642
Total stockholders' equity		276,820		249,267		222,185		205,091		192,773

	Year Ended December 31,
	2017		2016		2015		2014		2013
	(Unaudited, adjusted EBITDA in thousands)
Operating Data
Adjusted EBITDA (4)	$	32,617	$	26,502	$	22,620	$	18,160	$	13,774
Non-GAAP income per diluted share with tax adjustments (5)	$	0.96	$	0.72	$	0.63	$	0.48	$	0.36
Recurring revenue customers (6)		25,751		24,805		23,410		21,983		19,690

________________

⁽¹⁾ For 2017, stock-based compensation expense included a $3.6 million charge due to immediate expensing of equity awards upon our Chief Executive Officer meeting certain age and years of service conditions.  Stock-based compensation expense was as follows (in thousands):

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	Year Ended December 31,
	2017		2016		2015		2014		2013
Cost of revenues	$	1,887	$	1,309	$	989	$	614	$	475
Sales and marketing		2,197		2,412		1,978		1,933		1,481
Research and development		949		618		640		444		266
General and administrative		7,694		3,684		2,772		2,405		1,981
Total	$	12,727	$	8,023	$	6,379	$	5,396	$	4,203

⁽²⁾ For 2013, amortization of intangible assets included $0.3 million for the impairment of a certain non-competition agreement.

⁽³⁾ For 2014, other expense included $0.3 million for a one-time Australian stamp duty tax related to the Leadtec acquisition.

⁽⁴⁾ Adjusted EBITDA consists of net income (loss) adjusted for depreciation and amortization, interest expense, interest income, income tax expense, stock-based compensation expense, the discrete impact from tax law change and other adjustments as necessary for a fair presentation.  In 2017, the discrete impact from tax law change included $8.6 million of tax expense related to The Job Cuts and Tax Act (Tax Act”) reduction in the corporate tax rate to 21.0% resulting in a decrease in our net deferred tax assets.  Other adjustments included the impact of the fair value adjustment for the Toolbox Solutions share-based earn-out liability in 2016, a one-time Australian stamp duty tax related to the Leadtec acquisition in 2014, as well as the impact of use tax refunds in 2015, 2014 and 2013 related to items previously expensed.  We use Adjusted EBITDA as a measure of operating performance because it assists us in comparing performance on a consistent basis, as it removes the impact of our capital structure from our operating results.  We believe Adjusted EBITDA is useful to an investor in evaluating our operating performance because it is widely used to measure a company’s operating performance without regard to items such as depreciation and amortization, which can vary depending upon accounting methods and the book value of assets, and to present a meaningful measure of corporate performance exclusive of our capital structure and the method by which assets were acquired.  The following table provides a reconciliation of net income (loss) to Adjusted EBITDA (in thousands):

	Year Ended December 31,
	2017			2016			2015			2014			2013
Net (loss) income	$	(2,440	)	$	5,710		$	4,639		$	2,704		$	1,051
Depreciation and amortization		11,782			11,336			9,572			8,570			8,051
Interest income, net		(1,032	)		(601	)		(197	)		(187	)		(112	)
Income tax expense		2,967			3,140			2,436			1,408			686
Discrete impact from tax law change		8,613			—			—			—			—
Stock-based compensation expense		12,727			8,023			6,379			5,396			4,203
Other		—			(1,106	)		(209	)		269			(105	)
Adjusted EBITDA	$	32,617		$	26,502		$	22,620		$	18,160		$	13,774

⁽⁵⁾ Non-GAAP income per share consists of net income (loss) plus stock-based compensation expense, amortization expense related to intangible assets, the discrete impact from tax law change 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 Toolbox Solutions share-based earn-out liability in 2016.

Pursuant to a Compliance and Disclosure Interpretation published by the U.S. SEC in May 2016, related to the use of non-GAAP financial measures, in 2017, we began including an adjustment to non-GAAP income to reflect the income tax effects of the adjustments to GAAP net income (loss).  To quantify the tax effects, we recalculate 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.

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We believe non-GAAP income per share is useful to an investor because it is widely used to measure a company’s operating performance. The following table provides a reconciliation of net income (loss) to non-GAAP income per share (in thousands, except per share amounts):

	Year Ended December 31,
	2017			2016			2015			2014			2013
Net (loss) income	$	(2,440	)	$	5,710		$	4,639		$	2,704		$	1,051
Stock-based compensation expense		12,727			8,023			6,379			5,396			4,203
Amortization of intangible assets		4,574			4,738			3,307			2,856			3,158
Discrete impact from tax law change		8,613			—			—			—			—
Other		—			(1,106	)		—			—			—
Non-GAAP income as historically reported	N/A			$	17,365		$	14,325		$	10,956		$	8,412
Income tax effects of adjustments		(6,774	)		(4,925	)		(3,566	)		(2,891	)		(2,622	)
Non-GAAP income with tax adjustments	$	16,700		$	12,440		$	10,759		$	8,065		$	5,790
Shares used to compute non-GAAP income per share
Basic		17,183			16,947			16,565			16,236			15,201
Diluted		17,356			17,241			17,032			16,814			15,931
Non-GAAP income per share with tax adjustments
Basic	$	0.97		$	0.73		$	0.65		$	0.50		$	0.38
Diluted	$	0.96		$	0.72		$	0.63		$	0.48		$	0.36
Non-GAAP income per share as historically reported
Basic	N/A			$	1.02		$	0.86		$	0.67		$	0.55
Diluted	N/A			$	1.01		$	0.84		$	0.65		$	0.53

⁽⁶⁾ This reflects the number of recurring revenue customers at the end of the period.  Recurring revenue customers are customers with contracts to pay us monthly fees. A small portion of our recurring revenue customers consists of separate units within a larger organization.  We treat each of these units, which may include divisions, departments, affiliates and franchises, as distinct customers.  Our contracts with our recurring revenue customers typically allow the customer to cancel the contract for any reason with 30 to 90 days’ notice.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read together with the section titled “Selected Financial Data” and our audited financial statements and related notes which are included elsewhere in this Annual Report on Form 10-K. Our actual results could differ materially from those anticipated in the forward-looking statements included in this discussion as a result of certain factors, including, but not limited to, those discussed in “Risk Factors” included elsewhere in this Annual Report on Form 10-K.

Overview

We are a leading provider of cloud-based supply chain management solutions, providing network-proven fulfillment, sourcing and item assortment management solutions, along with comprehensive retail performance analytics to thousands of customers worldwide. We provide our solutions through the SPS Commerce Platform, a cloud-based product suite that improves the way retailers, suppliers, distributors and logistics firms orchestrate the sourcing, set up of new vendors and items and fulfillment of the products that consumers buy. We derive the majority of our revenues from thousands of 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 years ended December 31, 2017, 2016 and 2015, we generated revenues of $220.6 million, $193.3 million and $158.5 million, respectively. Our fiscal quarter ended December 31, 2017 represented our 68th consecutive quarter of increased revenues.  Recurring revenues from recurring revenue customers accounted for 92.5%, 91.6% and 90.8% of our total revenues for the years ended December 31, 2017, 2016 and 2015, respectively.  Our revenues are not concentrated with any customer, as our largest customer represented less than 1.0% of total revenues for the year ended December 31, 2017 and less than 2.0% of total revenues for the years ended December 31, 2016 and 2015.

Key Financial Terms and Metrics

Sources of Revenues

Trading Partner Fulfillment.  Our Fulfillment solution provides fulfillment automation and replaces or augments an organization’s existing trading partner electronic communication infrastructure, enabling suppliers to have visibility into the journey of an order and comply with retailers’ rule books and enabling the electronic exchange of information among numerous trading partners through various protocols.

Trading Partner Analytics.  Our Analytics solution consists of data analytics applications that enable our customers to improve their visibility across, and analysis of, their supply chains.  When focused on point-of-sale data, for example, retailers and suppliers can ensure inventory is located where demand is highest.  Retailers improve their visibility into supplier performance and their understanding of product sell-through.

Trading Partner Assortment. Today’s retail marketplace requires the management of tens and even hundreds of individual attributes associated with each item a retailer or supplier sells today. This information can include digital images/video, customer facing descriptions and measurements and warehouse information.  Our Assortment product provides robust, extensible management of this information, enabling accurate orders and rapid fulfillment.

Trading Partner Sourcing.  Through Retail Universe, our social network for the retail industry, retailers can source providers of new items, suppliers can connect with new retailers and the broader retailing community can make connections to expand their business networks and grow.

Trading Partner Community Development.  Our Community Development solution provides communication programs based on our best practices. These programs enable organizations, from large and small retailers and suppliers to emerging providers of value-added products and services, to establish trading partner relationships with new trading partners to expand their businesses.

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Other Trading Partner Solutions.  We provide a number of peripheral solutions such as barcode labeling, planogram services and our scan and pack application, which helps trading partners process information to streamline the picking and packaging process.

Cost of Revenues and Operating Expenses

Cost of Revenues.  Cost of revenues consist primarily of personnel costs for our customer success and implementation teams, customer support personnel and application support personnel.  Cost of revenues also includes our cost of network services, which is primarily data center costs for the locations where we keep the equipment that serves our customers and connectivity costs that facilitate electronic data transmission between our customers and their trading partners.

Sales and Marketing Expenses.  Sales and marketing expenses consist primarily of personnel costs for our sales, marketing and product management teams, commissions earned by our sales personnel and marketing costs. In order to expand our business, we will continue to add resources to our sales and marketing efforts over time.

Research and Development Expenses.  Research and development expenses consist primarily of personnel costs for development of new and maintenance of existing solutions, net of amounts capitalized as developed software.  Our research and development group is also responsible for enhancing existing solutions and applications as well as internal tools and developing new information maps that integrate our customers to their trading partners in compliance with those trading partners’ requirements.

General and Administrative Expenses.  General and administrative expenses consist primarily of personnel costs for finance, human resources and internal information technology support, as well as legal, accounting and other fees, such as credit card processing fees.

Overhead Allocation. We allocate overhead expenses such as rent, certain employee benefit costs, office supplies and depreciation of general office assets to cost of revenues and operating expenses categories based on headcount.

Other Metrics

Recurring Revenue Customers.  As of December 31, 2017, we had approximately 26,000 customers with contracts to pay us monthly fees, which we refer to as recurring revenue customers.  We report recurring revenue customers at the end of a period.  A small portion of our recurring revenue customers consist of separate units within a larger organization.  We treat each of these units, which may include divisions, departments, affiliates and franchises, as distinct customers.

Average Recurring Revenues Per Recurring Revenue Customer.  We calculate average recurring revenues per recurring revenue customer, which we also refer to as wallet share, by dividing the recurring revenues from recurring revenue customers for the period by the average of the beginning and ending number of recurring revenue customers for the period.  For interim periods, we annualize this number by multiplying the quotient calculated above by the quotient of 12 divided by the number of months in the period.  We anticipate that average recurring revenues per recurring revenue customer will continue to increase as we increase the number of solutions we offer and increase the penetration of those solutions across our customer base.

Non-GAAP Financial Measures.  To supplement our financial statements, we also provide investors with Adjusted EBITDA and non-GAAP income per share, both of which are non-GAAP financial measures.  We believe that these non-GAAP measures provide useful information to management and investors regarding certain financial and business trends relating to our financial condition and results of operations.  Our management uses these non-GAAP measures to compare the company’s performance to that of prior periods for trend analyses and planning purposes.  Adjusted EBITDA is also used for purposes of determining executive and senior management incentive compensation.  These measures are also presented to our board of directors.

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

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Critical Accounting Policies and Estimates

The discussion of our financial condition and results of operations is based upon our financial statements, which are prepared in accordance with GAAP. 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.

We believe that of our significant accounting policies, which are described in the notes to our financial statements, the following accounting policies involve a greater degree of judgment and complexity and are material to our financial statement presentation.  A critical accounting policy is one that is both material to the presentation of our financial statements and requires us to make difficult, subjective or complex judgments for uncertain matters that could have a material effect on our financial condition and results of operations.  Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our financial condition and results of operations.

Revenue Recognition

We generate revenues by providing three types of solutions to our customers; fulfillment, enablement and analytics.  Our cloud-based solutions allow our customers to meet their supply chain management requirements.

Revenues are recognized when all of the following criteria are met: (1) persuasive evidence of an arrangement exists, (2) delivery has occurred, (3) the fee is fixed or determinable, and (4) collectability is probable.  If collection is not considered probable, revenues are recognized when the fees are collected.

Fees related to our fulfillment and analytics solutions consist of two revenue sources: set-up fees and recurring monthly fees.  Set-up fees are specific for each connection a customer has with a trading partner and most of our customers have connections with numerous trading partners.  Set-up fees are nonrefundable upfront fees that do not have standalone value to our customer and are not separable from the recurring monthly fees.  All set-up fees and related costs are deferred and recognized ratably over the average life of the connection between the customer and the trading partner, which is approximately two years.  We begin recognizing set-up fee revenue once the connection is established.  Set-up fees for which connections have not yet been established are classified as long-term.  We continue to evaluate the length of the amortization period as more experience is gained with cancellations and technology changes requested by our customers.  It is possible that, in the future, the period over which such subscription set-up fees and costs are amortized may be adjusted.  Any change in our estimate of the average connection life will affect our future results of operations.  The recurring monthly fees are comprised of both fixed and transaction-based fees that are recognized as earned.

See Note A to our consolidated financial statements, Recent Accounting Pronouncements, included in this Annual Report on Form 10-K, for additional information regarding the impacts to revenue for adoption of ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606).

Income Taxes

We account for income taxes using the liability method, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements.  Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.  Deferred tax assets are reduced by a valuation allowance when, in our judgement, there is a less than a 50% likelihood that the deferred tax asset will be utilized.

We assess our ability to realize our deferred tax assets at the end of each reporting period.  Realization of our deferred tax assets is contingent upon future taxable earnings.  Accordingly, this assessment requires significant estimates and judgment.  If the estimates of future taxable income vary from actual results, our assessment regarding the realization of these deferred tax assets could change.  Future changes in the estimated amount of deferred taxes expected to be realized will be reflected in our consolidated financial statements in the period the estimate is changed, with a corresponding adjustment to our operating results.

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We recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would “more likely than not” sustain the position following an audit.  For tax positions meeting the “more likely than not” threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority.

On December 22, 2017, the Tax Act was signed into law.  The financial information included in the Form 10-K reflects the estimated impact of the enactment of the Tax Act.  See Note J to our consolidated financial statements for additional information regarding the Tax Act.

Results of Operations

Year Ended December 31, 2017 Compared to Year Ended December 31, 2016

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

	Year Ended December 31,
	2017						2016					Change
				% of revenue					% of revenue						%
Revenues	$	220,566			100.0	%	$	193,295		100.0	%	$	27,271			14.1	%
Cost of revenues		73,625			33.4			64,346		33.3			9,279			14.4
Gross profit		146,941			66.6			128,949		66.7			17,992			14.0
Operating expenses
Sales and marketing		73,295			33.2			65,886		34.1			7,409			11.2
Research and development		23,183			10.5			21,981		11.4			1,202			5.5
General and administrative		37,461			17.0			28,827		14.9			8,634			30.0
Amortization of intangible assets		4,574			2.1			4,738		2.5			(164	)		(3.5	)
Total operating expenses		138,513			62.8			121,432		62.8			17,081			14.1
Income from operations		8,428			3.8			7,517		3.9			911			12.1
Other income (expense)
Interest income, net		1,032			0.5			601		0.3			431			71.7
Other income (expense), net		(320	)		(0.1	)		732		0.4			(1,052	)		(143.7	)
Total other income, net		712			0.3			1,333		0.7			(621	)		(46.6	)
Income before income taxes		9,140			4.1			8,850		4.6			290			3.3
Income tax expense		11,580			5.3			3,140		1.6			8,440			268.8
Net (loss) income	$	(2,440	)		(1.1	)%	$	5,710		3.0	%	$	(8,150	)		(142.7	)%

Revenues.  Revenues for 2017 increased $27.3 million, or 14.1%, to $220.6 million from $193.3 million for 2016.  The increase in revenues resulted from two primary factors: the increase in recurring revenue customers and the increase in average recurring revenues per recurring revenue customer, which we also refer to as wallet share.

• The number of recurring revenue customers increased 3.8% to 25,751 at December 31, 2017 from 24,805 at December 31, 2016.

• Average recurring revenues per recurring revenue customer, or wallet share, increased 9.8% to $8,067 2017 from $7,344 for 2016.  This increase in wallet share was primarily attributable to increased fees resulting from increased usage of our solutions by our recurring revenue customers.

Recurring revenues from recurring revenue customers increased 15.2% in 2017, as compared to 2016, and accounted for 92.5% of our total revenues for 2017 and 91.6% for 2016.  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.

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Cost of Revenues.  Cost of revenues for 2017 increased $9.3 million, or 14.4%, to $73.6 million from $64.3 million for 2016.  This increase was primarily due to higher personnel-related costs of approximately$7.3 million, driven by increased headcount. Compared to 2016, stock-based compensation expense increased $0.6 million and direct network costs decreased $0.2 million.  We also incurred higher expenses for software and cloud-based subscriptions of $0.9 million and depreciation expense of $0.7 million for continued investment in the infrastructure supporting our solutions in 2017 as compared to 2016.As a percentage of revenues, cost of revenues was 33.4% for 2017 compared to 33.3% for 2016.  Going forward, we anticipate that cost of revenues will increase in absolute dollars as we continue to expand our business.

Sales and Marketing Expenses.  Sales and marketing expenses for 2017 increased $7.4 million, or 11.2%, to $73.3 million from $65.9 million for 2016.  This increase was primarily due to increased headcount in 2017, which resulted in higher personnel-related costs of $3.0 million and increased commissions of approximately $4.4 million earned by sales personnel and referral partners from generating new business.  We also incurred $0.4 million in higher expenses for promotional expenses and $0.2 million in software and cloud-based subscriptions, offset by $0.3 million in lower expenses for depreciation and $0.2 million in stock-based compensation expense as compared to 2016. As a percentage of revenues, sales and marketing expenses were 33.2% for 2017 compared to 34.1% for 2016.  As we expand our business, we will continue to add resources to our sales and marketing efforts over time, and we expect that these expenses will continue to increase in absolute dollars.

Research and Development Expenses.  Research and development expenses for 2017 increased $1.2 million, or 5.5%, to $23.2 million from $22.0 million for 2016.  This increase was primarily due to higher expenses for software and cloud-based subscriptions of $0.7 million, higher personnel-related costs of $0.2 million and higher stock-based compensation of $0.3 million in 2017 as compared to 2016.  As a percentage of revenues, research and development expenses were 10.5% for 2017 compared to 11.4% for 2016.  As we enhance and expand our solutions and applications, we expect that research and development expenses will continue to increase in absolute dollars.

General and Administrative Expenses.  General and administrative expenses for 2017 increased $8.6 million, or 30.0%, to $37.5 million from $28.8 million for 2016.  This increase was primarily due to a $4.0 million increase in stock-based compensation driven by the immediate expensing of $3.6 million of equity awards upon our Chief Executive Officer meeting certain age and years of service conditions.  Increased headcount in 2017 resulted in higher personnel-related costs of $3.3 million.  These increases were offset by lower charitable contributions and hardware not capitalized and hardware maintenance costs in 2017 as compared to 2016.  As a percentage of revenues, general and administrative expenses were 17.0% for 2017 and 14.9% for 2016.  Going forward, we expect that general and administrative expenses will continue to increase in absolute dollars as we expand our business.

Amortization of Intangible Assets.  Amortization of intangible assets for 2017 decreased $0.2 million, or 3.5%, from 2016. This decrease was due to certain intangible assets becoming fully amortized during 2017.

Other Income (Expense), net.  Other income (expense), net for 2016 included a $1.0 million adjustment to the fair value of the Toolbox Solutions share-based earn-out liability due to a change in our estimate of probability of attainment.  There was no similar charge during 2017 as the contingent consideration arrangement had been resolved.

Income Tax Expense.  Our provisions for income taxes for 2017 and 2016 were $11.6 million and $3.1 million, respectively, and included current federal, state and foreign income taxes as well as deferred federal, state and foreign income taxes.  The increase in income tax expense in 2017 was primarily due to the tax law changes related to the Tax Act.  The 2017 provision included $8.6 million in income tax expense primarily driven by the reduction in the corporate income tax rate to 21.0%, offset by $0.9 million of discrete tax benefits from the adoption of ASU 2016-09 relating to stock-based compensation.  See Note J to our consolidated financial statements, included in this Annual Report on Form 10-K, for additional information regarding our income taxes.

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Adjusted EBITDA.  Adjusted EBITDA, which is a non-GAAP measure of financial performance, consists of net income (loss) adjusted for depreciation and amortization, interest expense, interest income, income tax expense, stock-based compensation expense, the discrete impact from tax law change and other adjustments as necessary for a fair presentation.Other adjustments included the impact of an earn-out adjustment related to the Toolbox Solutions acquisition in 2016.  The following table provides a reconciliation of net income (loss) to Adjusted EBITDA (in thousands):

	Year Ended December 31,
	2017			2016
Net (loss) income	$	(2,440	)	$	5,710
Depreciation and amortization		11,782			11,336
Interest income, net		(1,032	)		(601	)
Income tax expense		2,967			3,140
Discrete impact from tax law change		8,613			—
Stock-based compensation expense		12,727			8,023
Other		—			(1,106	)
Adjusted EBITDA	$	32,617		$	26,502

Non-GAAP Income per Share.  Non-GAAP income per share, which is also a non-GAAP measure of financial performance, consists of net income (loss) plus stock-based compensation expense, amortization expense related to intangible assets, the discrete impact from tax law change 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 Toolbox Solutions share-based earn-out liability in 2016.

Pursuant to a Compliance and Disclosure Interpretation published by the U.S. Securities and Exchange Commission in May 2016, related to the use of non-GAAP financial measures, in 2017, we began including an adjustment to non-GAAP income to reflect the income tax effects of the adjustments to GAAP net income (loss).  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 (loss) to non-GAAP income per share (in thousands, except per share amounts):

	Year Ended December 31,
	2017			2016
Net (loss) income	$	(2,440	)	$	5,710
Stock-based compensation expense		12,727			8,023
Amortization of intangible assets		4,574			4,738
Discrete impact from tax law change		8,613			—
Other		—			(1,106	)
Non-GAAP income as historically reported	N/A			$	17,365
Income tax effects of adjustments		(6,774	)		(4,925	)
Non-GAAP income with tax adjustments	$	16,700		$	12,440
Shares used to compute non-GAAP income per share
Basic		17,183			16,947
Diluted		17,356			17,241
Non-GAAP income per share with tax adjustments
Basic	$	0.97		$	0.73
Diluted	$	0.96		$	0.72
Non-GAAP income per share as historically reported
Basic	N/A			$	1.02
Diluted	N/A			$	1.01

________________

N/A – not applicable

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Year Ended December 31, 2016 Compared to Year Ended December 31, 2015

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

	Year Ended December 31,
	2016					2015						Change
			% of revenue						% of revenue					%
Revenues	$	193,295		100.0	%	$	158,518			100.0	%	$	34,777		21.9	%
Cost of revenues		64,346		33.3			50,043			31.6			14,303		28.6
Gross profit		128,949		66.7			108,475			68.4			20,474		18.9
Operating expenses
Sales and marketing		65,886		34.1			55,374			34.9			10,512		19.0
Research and development		21,981		11.4			17,954			11.3			4,027		22.4
General and administrative		28,827		14.9			24,817			15.7			4,010		16.2
Amortization of intangible assets		4,738		2.5			3,307			2.1			1,431		43.3
Total operating expenses		121,432		62.8			101,452			64.0			19,980		19.7
Income from operations		7,517		3.9			7,023			4.4			494		7.0
Other income (expense)
Interest income, net		601		0.3			197			0.1			404		205.1
Other income (expense)		732		0.4			(145	)		(0.1	)		877		604.8
Total other income, net		1,333		0.7			52			—			1,281	NM
Income before income taxes		8,850		4.6			7,075			4.5			1,775		25.1
Income tax expense		3,140		1.6			2,436			1.5			704		28.9
Net income	$	5,710		3.0	%	$	4,639			2.9	%	$	1,071		23.1	%

________________

NM – not meaningful

Revenues.  Revenues for 2016 increased $34.8 million, or 21.9%, to $193.3 million from $158.5 million for 2015.  The increase in revenues resulted from two primary factors: the increase in recurring revenue customers and the increase in average recurring revenues per recurring revenue customer, which we also refer to as wallet share.

• The number of recurring revenue customers increased 6.0% to 24,805 at December 31, 2016 from 23,410 at December 31, 2015.

• Average recurring revenues per recurring revenue customer, or wallet share, increased 15.8% to $7,344 for 2016 from $6,343 for 2015.  This increase in wallet share was primarily attributable to increased fees resulting from increased usage of our solutions by our recurring revenue customers.

Recurring revenues from recurring revenue customers increased 23.0% in 2016, as compared to 2015, and accounted for 91.6% of our total revenues for 2016 and 90.8% for 2015.  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.  Cost of revenues for 2016 increased $14.3 million, or 28.6%, to $64.3 million from $50.0 million for 2015.  This increase was primarily due to increased headcount in 2016 which resulted in higher personnel-related costs of approximately $10.0 million, occupancy costs of approximately $0.8 million and stock-based compensation expense of $0.3.  We also incurred higher expenses for software and cloud-based subscriptions of $2.2 million and depreciation expense of $0.6 million for continued investment in the infrastructure supporting our solutions in 2016 as compared to 2015.  As a percentage of revenues, cost of revenues was 33.3% for 2016 compared to 31.6% for 2015.

Sales and Marketing Expenses.  Sales and marketing expenses for 2016 increased $10.5 million, or 19.0%, to $65.9 million from $55.4 million for 2015.  This increase was primarily due to increased headcount in 2016, which resulted in higher personnel-related costs of $8.1 million and stock-based compensation expense of $0.4 million, and increased commissions of approximately $2.0 million earned by sales personnel and referral partners from generating new business. As a percentage of revenues, sales and marketing expenses were 34.1% for 2016 compared to 34.9% for 2015.

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Research and Development Expenses.  Research and development expenses for 2016 increased $4.0 million, or 22.4%, to $22.0 million from $18.0 million for 2015.  This increase was primarily due to increased headcount in 2016 which resulted in higher personnel-related costs of $3.5 million.  We also incurred higher expenses for software and cloud-based subscriptions of $0.4 million in 2016 as compared to 2015.  As a percentage of revenues, research and development expenses were 11.4% for 2016 and 11.3%for 2015.

General and Administrative Expenses.  General and administrative expenses for 2016 increased $4.0 million, or 16.2%, to $28.8 million from $24.8 million for 2015.  This increase was primarily due to increased headcount in 2016 which resulted in higher personnel-related costs of $1.4 million and stock-based compensation expense of $0.9 million.  We also incurred higher expenses for software subscription and maintenance of $1.0 million.  We also had increases in our provision for doubtful accounts, credit card fees and legal fees offset by lower charitable contributions in 2016 as compared to 2015.  As a percentage of revenues, general and administrative expenses were 14.9% for 2016 and 15.7% for 2015.

Amortization of Intangible Assets.  Amortization of intangible assets for 2016 increased $1.4 million from 2015. This increase was due to the impact of amortization from the intangible assets acquired in the Toolbox Solutions acquisition in January 2016.

Other Income (Expense), net.  Other income (expense), net for 2016 included a $1.0 million adjustment to the fair value of the Toolbox Solutions share-based earn-out liability due to a change in our estimate of probability of attainment.

Income Tax Expense.  Our provisions for income taxes for 2016 and 2015 were $3.1 million and $2.4 million, respectively, and included current federal, state and foreign income taxes as well as deferred federal and state income taxes.  The increase in income tax expense in 2016 was primarily due to the increase in pretax book income of $1.8 million.  See Note J to our consolidated financial statements, included in this Annual Report on Form 10-K, for additional information regarding our income taxes.

Adjusted EBITDA.  Adjusted EBITDA, which is a non-GAAP measure of financial performance, consists of net income plus 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 an earn-out adjustment related to the Toolbox acquisition in 2016, as well as the impact of use tax refunds in 2015 related to items previously expensed.  The following table provides a reconciliation of net income to Adjusted EBITDA (in thousands):

	Year Ended December 31,
	2016			2015
Net income	$	5,710		$	4,639
Depreciation and amortization		11,336			9,572
Interest income, net		(601	)		(197	)
Income tax expense		3,140			2,436
Stock-based compensation expense		8,023			6,379
Other		(1,106	)		(209	)
Adjusted EBITDA	$	26,502		$	22,620

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 and amortization expense related to intangible assets divided by the weighted average number of shares of common stock outstanding during each period.

Pursuant to a Compliance and Disclosure Interpretation published by the SEC in May 2016, related to the use of non-GAAP financial measures, in 2017, we began including an adjustment to non-GAAP income to reflect the income tax effects of the adjustments to GAAP net income.  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.

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

	Year Ended December 31,
	2016			2015
Net income	$	5,710		$	4,639
Stock-based compensation expense		8,023			6,379
Amortization of intangible assets		4,738			3,307
Other		(1,106	)		—
Non-GAAP income as historically reported	$	17,365		$	14,325
Income tax effects of adjustments		(4,925	)		(3,566	)
Non-GAAP income with tax adjustments	$	12,440		$	10,759
Shares used to compute non-GAAP income per share
Basic		16,947			16,565
Diluted		17,241			17,032
Non-GAAP income per share with tax adjustments
Basic	$	0.73		$	0.65
Diluted	$	0.72		$	0.63
Non-GAAP income per share as historically reported
Basic	$	1.02		$	0.86
Diluted	$	1.01		$	0.84

Liquidity and Capital Resources

At December 31, 2017, our principal sources of liquidity were cash and cash equivalents, certificates of deposit and marketable securities totaling $168.5 million and accounts receivable, net of allowance for doubtful accounts of $24.9 million compared to cash and cash equivalents and marketable securities totaling $146.4 million and accounts receivable, net of allowance for doubtful accounts of $20.7 million at December 31, 2016.  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.

Net Cash Flows from Operating Activities

Net cash provided by operating activities was $31.1 million for 2017 compared to $18.8 million for 2016.  The increase in operating cash flows as compared to 2016 was driven by a $19.1 million increase in non-cash expenses and a $1.3 million increase in changes in assets and liabilities, primarily due to increases in deferred revenues and other current and non-current assets and accounts payable, partially offset by decreases in net income of $8.2 million, accounts receivable, deferred costs and deferred rent as compared to 2016.

Net cash provided by operating activities was $18.8 million for 2016 compared to $14.4 million for 2015.  The increase in operating cash flows as compared to 2015 was driven by a $1.1 million increase in net income, a $0.8 million increase in non-cash expenses and a $2.5 million increase, primarily due to increases in deferred revenues, accrued expenses and accounts payable, partially offset by increases in deferred costs and deferred rent as compared to 2015.

Cash Flows from Investing Activities

Net cash used in investing activities was $22.6 million for 2017 compared to $34.1 million for 2016.  The decrease in cash used in investing activities as compared to 2016 was primarily due to the prior year acquisition of Toolbox Solutions for $18.0 million and $18.0 million of increased maturities of investments, partially offset by $24.7 million increased purchases of investments.  For the years ended December 31, 2017 and 2016, we had capital expenditures of $7.3 million and $8.0 million, respectively.  Our capital expenditures are for supporting our business growth and existing customer base, as well as for our internal use such as equipment for our employees.

40

Net cash used in investing activities was $34.1 million for 2016 compared to $31.3 million for 2015.  The increase in cash used in investing activities as compared to 2015 was driven by the $18.0 million acquisition of Toolbox Solutions, net of cash acquired, partially offset by $15.0 million in cash provided by maturities of marketable securities.  There was no significant change in the amount of cash used for purchases of marketable securities or capital expenditures in 2016 compared to 2015.

Net Cash Flows from Financing Activities

Net cash used in financing activities for 2017 was $2.5 million which consisted of $5.8 million of repurchases of our common stock, partially offset by $1.4 million and $1.9 million of proceeds from the exercise of stock options and the net proceeds from the employee stock purchase plan, respectively.  Net cash provided by financing activities was $10.1 million and $8.3 million for 2016 and 2015, respectively, all related to the exercise of stock options and proceeds from our employee stock purchase plan.

Effect of Foreign Currency Exchange Rate Changes

Our results of operations and cash flows were not materially affected by fluctuation in foreign currency exchange rates.  We maintained approximately 7.8% 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 U.S. and internationally;

• response of competitors to our solutions and applications; and

• use of capital for acquisitions, if any.

Historically, we have experienced increases in our expenditures consistent with the growth in our operations and personnel, and we anticipate that our expenditures will continue to increase as we expand our business.

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

During the last three years, inflation and changing prices have not had a material effect on our business and we do not expect that inflation or changing prices will materially affect our business in the foreseeable future.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements, investments in special purpose entities or undisclosed borrowings or debt.  Additionally, we are not a party to any derivative contracts or synthetic leases.

41

Contractual and Commercial Commitment Summary

Our contractual obligations and commercial commitments as of December 31, 2017 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	$	24,492	$	3,833	$	6,969	$	6,894	$	6,796

Seasonality

The size and breadth of our customer base mitigates the seasonality of any particular retailer.  As a result, our results of operations are not materially affected by seasonality.

Recently Adopted Accounting Pronouncements

In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2016-09, Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). The new guidance requires excess tax benefits and tax deficiencies to be recorded in the income statement when the awards vest or are settled and provides an accounting policy election to account for forfeitures as they occur. In addition, cash flows related to excess tax benefits will no longer be separately classified as a financing activity apart from other income tax cash flows within operating activities. The standard also allows entities to repurchase more of an employee’s shares for tax withholding purposes without triggering liability accounting and clarifies that all cash payments made on an employee’s behalf for withheld shares should be presented as a financing activity on the statements of cash flows. The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016, with early adoption permitted.

We adopted ASU 2016-09 during the year ended December 31, 2017. The impact to our consolidated balance sheet as of January 1, 2017 was a $16.3 million increase in deferred income tax assets and a corresponding $16.3 million decrease in accumulated deficit. This impact results from the cumulative-effect adjustment for previously unrecognized excess tax benefits using the modified retrospective method required by the new standard. We elected to adopt the changes in cash flow statement presentation prospectively to be consistent with the prospective transition for the treatment of excess tax benefits in the income statement. Accordingly, we no longer classify excess tax benefits as a financing activity subsequent to January 1, 2017.

On December 22, 2017, the Securities and Exchange Commission (“SEC”) staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP related to the enactment of the Tax Act.  This guidance was adopted in the fourth quarter of 2017.

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  This guidance will replace most existing revenue recognition guidance in GAAP when it becomes effective.  These new requirements are effective for annual reporting periods beginning after December 15, 2017, and interim periods within those annual periods.  The new revenue recognition standard will not materially impact our recognition of the primary fees received from customers for our cloud-based supply chain solutions.  The adoption of the new standard will impact our accounting for certain upfront set-up fees and the periods over which the related revenues are recognized, as well as the timing of cost recognition for some sales commissions.  When compared to previously reported amounts, revenue will decrease $0.5 million and $0.1 million for the years ended December 31, 2017 and 2016, respectively.  Commission expense, which is reported in sales and marketing expense, will decrease $2.0 million for the year ended December 31, 2017 and increase $1.0 million for the year ended December 31, 2016.

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In February 2016, the FASB issued ASU 2016-02, Leases, which will supersede existing lease guidance and will require all leases with a term greater than 12 months to be recognized in the statements of financial position and eliminate current real estate-specific lease guidance, while maintaining substantially similar classification criteria for distinguishing between finance leases and operating leases. This standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. We believe the adoption of the new lease accounting standard will materially impact our consolidated financial statements by increasing our non-current assets and non-current liabilities on our consolidated balance sheets in order to record the right of use assets and related lease liabilities for our existing operating leases. We are in the process of determining the financial statement impact and are currently unable to estimate the impact on our consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350), which simplifies the test for goodwill impairment by eliminating step two from the goodwill impairment test. Under the new guidance, an entity should recognize an impairment charge for the amount based on the excess of a reporting unit’s carrying amount over its fair value. The impairment charge will be limited to the amount of goodwill allocated to that reporting unit. This guidance is effective for annual and interim impairment tests performed in periods beginning after December 15, 2019 on a prospective basis, and earlier adoption is permitted for goodwill impairment tests performed on testing dates after January 1, 2017. We believe the adoption of this standard will not have a material impact on our financial statements.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Sensitivity Risk.  The principal objectives of our investment activities are to preserve principal, provide liquidity and maximize income consistent with minimizing risk of material loss.  We are exposed to market risk related to changes in interest rates. However, based on the nature and current level of our investments (primarily cash and cash equivalents, which approximate fair value due to their short maturities, certificates of deposit and marketable securities), we believe there is no material risk exposure. We do not enter into investments for trading or speculative purposes.

We did not have any outstanding debt as of December 31, 2017 and 2016.  We therefore do not have any material risk to interest rate fluctuations.

Foreign Currency Exchange Risk.  We have revenue, expenses, assets and liabilities that are denominated in currencies other than the U.S. dollar, primarily the Australian dollar and Canadian dollar.  As of December 31, 2017, we maintained approximately 7.8% 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. 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 8. Financial Statements and Supplementary Data

SPS Commerce, Inc. and Subsidiaries Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm	45
Consolidated Balance Sheets	47
Consolidated Statements of Comprehensive Income	48
Consolidated Statements of Stockholders’ Equity	49
Consolidated Statements of Cash Flows	50
Notes to Consolidated Financial Statements	51

44

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors
SPS Commerce, Inc.:

Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting

We have audited the accompanying consolidated balance sheets of SPS Commerce, Inc. (and subsidiaries) (the Company) as of December 31, 2017 and 2016, the related consolidated statements of comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2017, and the related notes (collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.  

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Basis for Opinion

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable

45

assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ KPMG LLP

We have served as the Company’s auditor since 2013.

Minneapolis, Minnesota
February 26, 2018

46

SPS COMMERCE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except shares)

	December 31,
	2017			2016
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	123,127		$	115,877
Short-term investments		40,192			23,076
Accounts receivable, net		24,897			20,746
Deferred costs		25,091			19,224
Other current assets		6,149			7,010
Total current assets		219,456			185,933
PROPERTY AND EQUIPMENT, net		16,856			15,314
GOODWILL		51,613			49,777
INTANGIBLE ASSETS, net		16,529			19,788
INVESTMENTS		5,206			7,494
OTHER ASSETS
Deferred costs		6,770			6,086
Deferred income tax asset		17,551			12,446
Other assets		1,539			1,527
Total assets	$	335,520		$	298,365
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable	$	4,463		$	2,302
Accrued compensation		15,886			13,740
Accrued expenses		4,712			3,508
Deferred revenue		16,407			11,055
Deferred rent		1,679			1,556
Total current liabilities		43,147			32,161
OTHER LIABILITIES
Deferred revenue		10,602			10,847
Deferred rent		3,064			4,179
Deferred income tax liability		1,887			1,911
Total liabilities		58,700			49,098
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; 17,249,153 and 17,081,145 shares issued; and 17,127,006 and 17,081,145 outstanding, respectively		17			17
Treasury stock, at cost; 122,147 and 0 shares, respectively		(5,815	)		—
Additional paid-in capital		301,863			286,315
Accumulated deficit		(19,902	)		(33,739	)
Accumulated other comprehensive income (loss)		657			(3,326	)
Total stockholders’ equity		276,820			249,267
Total liabilities and stockholders’ equity	$	335,520		$	298,365

See accompanying notes to these consolidated financial statements.

47

SPS COMMERCE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands, except per share amounts)

	Year Ended December 31,
	2017			2016			2015
Revenues	$	220,566		$	193,295		$	158,518
Cost of revenues		73,625			64,346			50,043
Gross profit		146,941			128,949			108,475
Operating expenses
Sales and marketing		73,295			65,886			55,374
Research and development		23,183			21,981			17,954
General and administrative		37,461			28,827			24,817
Amortization of intangible assets		4,574			4,738			3,307
Total operating expenses		138,513			121,432			101,452
Income from operations		8,428			7,517			7,023
Other income (expense)
Interest income, net		1,032			601			197
Other income (expense), net		(320	)		732			(145	)
Total other income, net		712			1,333			52
Income before income taxes		9,140			8,850			7,075
Income tax expense		11,580			3,140			2,436
Net (loss) income	$	(2,440	)	$	5,710		$	4,639
Net (loss) income per share
Basic	$	(0.14	)	$	0.34		$	0.28
Diluted	$	(0.14	)	$	0.33		$	0.27
Weighted average common shares used to compute net (loss) income per share
Basic		17,183			16,947			16,565
Diluted		17,183			17,241			17,032
Other comprehensive income
Foreign currency translation adjustments		3,944			336			(2,119	)
Unrealized loss on investments, net of tax of $0, $5 and $31		-			(9	)		(59	)
Reclassification of unrealized loss on investments into earnings, net of tax of $24, $0 and $0		39			-			-
Comprehensive income	$	1,543		$	6,037		$	2,461

See accompanying notes to these consolidated financial statements.

48

SPS COMMERCE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(In thousands, except shares)

																	Accumulated
											Additional						Other			Total
	Common Stock					Treasury Stock					Paid-in			Accumulated			Comprehensive			Stockholders'
	Shares			Amount		Shares		Amount			Capital			Deficit			Loss			Equity
Balances, January 1, 2015		16,348,747		$	16		—	$	—		$	250,633		$	(44,088	)	$	(1,470	)	$	205,091
Stock-based compensation		—			—		—		—			6,379			—			—			6,379
Exercise of stock options and issuance of restricted stock		346,885			1		—		—			4,439			—			—			4,440
Excess tax benefit of stock options exercised		—			—		—		—			2,336			—			—			2,336
Employee stock purchase plan		28,362			—		—		—			1,478			—			—			1,478
Net income		—			—		—		—			—			4,639			—			4,639
Foreign currency translation adjustments		—			—		—		—			—			—			(2,119	)		(2,119	)
Unrealized loss on investments		—			—		—		—			—			—			(59	)		(59	)
Balances, December 31, 2015		16,723,994			17		—		—			265,265			(39,449	)		(3,648	)		222,185
Stock-based compensation		—			—		—		—			8,023			—			—			8,023
Exercise of stock options and issuance of restricted stock		279,841			—		—		—			4,303			—			—			4,303
Excess tax benefit of stock options exercised		—			—		—		—			4,070			—			—			4,070
Employee stock purchase plan		33,357			—		—		—			1,732			—			—			1,732
Stock issued for acquisition		43,953			—		—		—			2,922			—			—			2,922
Net income		—			—		—		—			—			5,710			—			5,710
Foreign currency translation adjustments		—			—		—		—			—			—			336			336
Reclassification of losses on investments into earnings		—			—		—		—			—			—			18			18
Unrealized loss on investments		—			—		—		—			—			—			(32	)		(32	)
Balances, December 31, 2016		17,081,145			17		—		—			286,315			(33,739	)		(3,326	)		249,267
Stock-based compensation		—			—		—		—			12,728			—			—			12,728
Exercise of stock options and issuance of restricted stock		135,906			—		—		—			1,410			—			—			1,410
Cumulative-effect adjustment for previously unrecognized excess tax benefits		—			—		—		—			—			16,277			—			16,277
Employee stock purchase plan		40,968			—		—		—			1,933			—			—			1,933
Retirement of escrow shares		(8,866	)		—		—		—			(523	)		—			—			(523	)
Repurchases of common stock		(122,147	)		—		122,147		(5,815	)		—			—			—			(5,815	)
Net (loss)		—			—		—		—			—			(2,440	)		—			(2,440	)
Foreign currency translation adjustments		—			—		—		—			—			—			3,944			3,944
Reclassification of loss on investments into earnings		—			—		—		—			—			—			39			39
Balances, December 31, 2017		17,127,006		$	17		122,147	$	(5,815	)	$	301,863		$	(19,902	)	$	657		$	276,820

See accompanying notes to these consolidated financial statements.

49

SPS COMMERCE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Year Ended December 31,
	2017			2016			2015
Cash flows from operating activities
Net (loss) income	$	(2,440	)	$	5,710		$	4,639
Reconciliation of net (loss) income to net cash provided by operating    activities
Deferred income taxes		10,854			(1,698	)		(38	)
Share-based earn-out liability		—			(1,103	)		—
Depreciation and amortization of property and equipment		7,208			6,598			6,265
Amortization of intangible assets		4,574			4,738			3,307
Provision for doubtful accounts		1,705			1,375			1,271
Stock-based compensation		12,728			8,023			6,379
Other, net		(15	)		—			—
Changes in assets and liabilities, net of effects of    acquisition
Accounts receivable		(5,586	)		(3,735	)		(3,517	)
Deferred costs		(6,548	)		(4,964	)		(3,023	)
Other current and non-current assets		393			(1,911	)		(2,037	)
Accounts payable		832			(382	)		(1,569	)
Accrued compensation		2,073			2,180			1,295
Accrued expenses		1,192			990			(461	)
Deferred revenue		5,107			2,710			587
Deferred rent		(1,027	)		234			1,331
Net cash provided by operating activities		31,050			18,765			14,429
Cash flows from investing activities
Purchases of property and equipment		(7,271	)		(8,008	)		(8,757	)
Purchases of investments		(47,878	)		(23,135	)		(22,527	)
Maturities of investments		33,029			15,018			—
Acquisition of business and intangible assets, net of cash acquired		(500	)		(18,032	)		—
Net cash used in investing activities		(22,620	)		(34,157	)		(31,284	)
Cash flows from financing activities
Repurchases of common stock		(5,815	)		—			—
Net proceeds from exercise of options to purchase common    stock		1,410			4,303			4,440
Excess tax benefit from exercise of options to purchase    common stock		—			4,070			2,336
Net proceeds from employee stock purchase plan		1,933			1,732			1,478
Net cash (used in) provided by financing activities		(2,472	)		10,105			8,254
Effect of foreign currency exchange rate changes		1,292			(374	)		(656	)
Net increase (decrease) in cash and cash equivalents		7,250			(5,661	)		(9,257	)
Cash and cash equivalents at beginning of year		115,877			121,538			130,795
Cash and cash equivalents at end of year	$	123,127		$	115,877		$	121,538
Supplemental disclosure of cash flow information
Cash paid for income taxes, net	$	1,068		$	722		$	114
Non-cash financing activities:
Net purchases of property and equipment on account	$	1,335		$	—		$	—
Common stock issued for business acquisitions	$	—		$	2,922		$	—

See accompanying notes to these consolidated financial statements.

50

SPS COMMERCE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A – General

Business Description

We are a leading provider of cloud-based supply chain management solutions, providing network-proven fulfillment, sourcing and item assortment management solutions, along with comprehensive retail performance analytics to thousands of customers worldwide.  We provide our solutions through the SPS Commerce Platform, a cloud-based product suite that improves the way retailers, suppliers, distributors and logistics firms orchestrate the sourcing, set up of new vendors and items, and fulfillment of the products that consumers buy.  We derive the majority of our revenues from thousands of monthly recurring subscriptions from businesses that utilize our solutions.

Basis of Presentation

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of SPS Commerce, Inc. and its subsidiaries.  All intercompany accounts and transactions have been eliminated in the consolidated financial statements.

Foreign Currency Translation

Assets and liabilities denominated in currencies other than the U.S. dollar are translated into U.S. dollars at the exchange rates in effect at the balance sheet date, with the resulting translation adjustments recorded as a separate component of accumulated other comprehensive loss.  Income and expense accounts are translated at the average exchange rates during the year.  Foreign currency transaction gains and losses, if any, are included in net income (loss).

Use of Estimates

Preparing financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.  Actual results could differ from those estimates.

Business Combinations

We recognize separately from goodwill the fair value of the assets acquired and the liabilities assumed at the acquisition date.  Goodwill as of the acquisition date is measured as the excess of consideration transferred and the net of the acquisition date amounts of the assets acquired and the liabilities assumed.  Assets acquired include tangible and intangible assets.  We use estimates and assumptions that we believe are reasonable as a part of determining the value and useful lives of purchased intangible assets and the purchase price allocation process.  While we believe these estimates and assumptions are reasonable, they are inherently uncertain and subject to refinement.  As a result, during the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the fair value of the assets acquired and the liabilities assumed.  Any such adjustments would be recorded as an offset to goodwill.  Upon the conclusion of the measurement period or final determination of the fair values, whichever comes first, any subsequent adjustments would be recorded in our consolidated statements of comprehensive income.

Segment Information

We operate in and report on one segment, which is supply chain management solutions.

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Risk and Uncertainties

We rely on hardware and software licensed from third parties to offer our on-demand solutions.  Our management believes alternate sources are available; however, disruption or termination of these relationships could adversely affect our operating results in the near term.

Concentration of Credit Risk

Financial instruments that potentially subject us to concentrations of credit risk consist principally of temporary cash and cash equivalents in financial institutions in excess of federally insured limits and trade accounts receivable.  Temporary cash investments are held with financial institutions that we believe are subject to minimal risk.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash and highly liquid investments with original maturities of less than 90 days.  Cash and cash equivalents are stated at fair value.

Investments

Management determines the appropriate classification of certificates of deposit and marketable securities at the time of purchase and reevaluates such determination at each balance sheet date.  Securities are classified as available for sale and are carried at fair value, with the change in unrealized gains and losses, net of tax, reported as a separate component on the consolidated statements of comprehensive income.  Fair value is determined based on quoted market rates when observable or utilizing data points that are observable, such as quoted prices, interest rates and yield curves.  When a determination has been made that an other-than-temporary decline in fair value has occurred, the amount of the decline that is related to a credit loss is realized and is included in other income (expense), net in the consolidated statements of comprehensive income.

Fair Value of Financial Instruments

The carrying amounts of our financial instruments, which include cash, cash equivalents, accounts receivable, accounts payable and other accrued expenses, approximates fair value due to their short maturities.  Marketable securities are recorded at fair value as further described in Note C.

Accounts Receivable

Accounts receivable are initially recorded upon the sale of solutions to customers.  Credit is granted in the normal course of business without collateral.  Accounts receivable are stated net of allowances for doubtful accounts, which represent estimated losses resulting from the inability of certain customers to make the required payments.  When determining the allowances for doubtful accounts, we take several factors into consideration including the overall composition of the accounts receivable aging, our prior history of accounts receivable write-offs, the type of customers and our experience with specific customers.  We write-off accounts receivable when they are determined to be uncollectible.  Changes in the allowances for doubtful accounts are recorded as bad debt expense and are included in general and administrative expense in our consolidated statements of comprehensive income.

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Property and Equipment

Property and equipment, including assets acquired under capital lease obligations, are stated at cost, net of accumulated depreciation and amortization.  Depreciation and amortization are computed using the straight-line method over the estimated useful lives when placed in service, which are:

Computer equipment and software: 2 to 3 years

Office equipment and furniture: 5 to 7 years

Leasehold improvements: the shorter of the useful life of the asset or the remaining term of the lease

Significant additions or improvements extending asset lives beyond one year are capitalized, while repairs and maintenance are charged to expense as incurred.  We also capitalize and amortize eligible costs to acquire or develop internal-use software that are incurred during the development stage.  The assets and related accumulated depreciation and amortization are adjusted for asset retirements and disposals with the resulting gain or loss included in our consolidated statements of comprehensive income.

Research and Development

Research and development costs primarily include maintenance and data conversion activities related to our cloud-based supply chain management solutions and are expensed as incurred.

Goodwill

Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired in business combinations.  We test goodwill for impairment annually at November 30, or more frequently if events or changes in circumstances indicate that the asset might be impaired.  The impairment test is conducted by comparing the fair value of the net assets with the carrying value of the reporting unit.  Fair value is determined using the direct market observation of market price and outstanding equity of the reporting unit at the testing date.  If the carrying value of the goodwill exceeds the fair value of the reporting unit, goodwill may be impaired.  If this occurs, the fair value is then allocated to its assets and liabilities in a manner similar to a purchase price allocation in order to determine the implied fair value of goodwill.  This implied fair value is then compared to the carrying amount of goodwill and, if it is less, we would recognize an impairment loss.

Intangible Assets

Assets acquired in business combinations may include identifiable intangible assets such as subscriber relationships and non-competition agreements.  We recognize separately from goodwill the fair value of the identifiable intangible assets acquired.  We have determined the fair value and useful lives of our purchased intangible assets using certain estimates and assumptions that we believe are reasonable.

The purchased intangible assets are being amortized on a straight-line basis over their estimated useful lives, which are three to nine years for subscriber relationships, two to five years for non-competition agreements and one to four years for technology and other.

Impairment of Long-Lived Assets

We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.  The carrying amount of a long-lived asset is not recoverable if the carrying amount of an asset group exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the assets at the date it is tested for recoverability, whether in use or under development.  An impairment loss is measured as the amount by which the carrying amount of a long-lived asset exceeds its fair value.

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Revenue Recognition

We generate revenues by providing three types of solutions to our customers; fulfillment, enablement and analytics.  Our cloud-based solutions allow our customers to meet their supply chain management requirements.

Revenues are recognized when all of the following criteria are met: (1) persuasive evidence of an arrangement exists, (2) delivery has occurred, (3) the fee is fixed or determinable, and (4) collectability is probable.  If collection is not considered probable, revenues are recognized when the fees are collected.

Fees related to our fulfillment and analytics solutions consist of two revenue sources: set-up fees and recurring monthly fees.  Set-up fees are specific for each connection a customer has with a trading partner and most of our customers have connections with numerous trading partners.  Set-up fees are nonrefundable upfront fees that do not have standalone value to our customer and are not separable from the recurring monthly fees.  All set-up fees and related costs are deferred and recognized ratably over the average life of the connection between the customer and the trading partner, which is approximately two years.  We begin recognizing set-up fee revenue once the connection is established.  Set-up fees for which connections have not yet been established are classified as long-term.  We continue to evaluate the length of the amortization period as more experience is gained with cancellations and technology changes requested by our customers.  It is possible that, in the future, the period over which such subscription set-up fees and costs are amortized may be adjusted.  Any change in our estimate of the average connection life will affect our future results of operations.  The recurring monthly fees are comprised of both fixed and transaction-based fees that are recognized as earned.

Stock-Based Compensation

We recognize the cost of all share-based payments to employees, including grants of employee stock options, in the financial statements based on the grant date fair value of those awards.  This cost is recognized over the period for which an employee is required to provide service in exchange for the award.

We estimate the fair value of options granted using the Black-Scholes option pricing model.  In valuing share-based awards, judgment is required in determining the expected volatility of common stock and the expected term individuals will hold their share-based awards prior to exercising.  The expected volatility of the options is based on the historical volatility of our common stock.  The expected term of the options is based on the simplified method which does not consider historical employee exercise behavior.

Income Taxes

We account for income taxes using the liability method, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements.  Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.  Deferred tax assets are reduced by a valuation allowance when, in our judgement, there is a less than a 50% likelihood that the deferred tax asset will be utilized.

We assess our ability to realize our deferred tax assets at the end of each reporting period.  Realization of our deferred tax assets is contingent upon future taxable earnings.  Accordingly, this assessment requires significant estimates and judgment.  If the estimates of future taxable income vary from actual results, our assessment regarding the realization of these deferred tax assets could change.  Future changes in the estimated amount of deferred taxes expected to be realized will be reflected in our consolidated financial statements in the period the estimate is changed, with a corresponding adjustment to our operating results.

We recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would “more likely than not” sustain the position following an audit.  For tax positions meeting the “more likely than not” threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority.

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Net Income (Loss) Per Share

Basic net income (loss) per share has been computed using the weighted average number of shares of common stock outstanding during each period.  Diluted net income (loss) per share also includes the impact of our outstanding potential common shares, including options, restricted stock units and restricted stock awards.  Potential common shares that are anti-dilutive are excluded from the calculation of diluted net income (loss) per share.

Recently Adopted Accounting Pronouncements

In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-09, Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”).  The new guidance requires excess tax benefits and tax deficiencies to be recorded in the income statement when the awards vest or are settled and provides an accounting policy election to account for forfeitures as they occur.  In addition, cash flows related to excess tax benefits will no longer be separately classified as a financing activity apart from other income tax cash flows within operating activities.  The standard also allows entities to repurchase more of an employee’s shares for tax withholding purposes without triggering liability accounting and clarifies that all cash payments made on an employee’s behalf for withheld shares should be presented as a financing activity on the statements of cash flows.  The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016, with early adoption permitted.

We adopted ASU 2016-09 during the year ended December 31, 2017.  The impact to our consolidated balance sheet as of January 1, 2017 was a $16.3 million increase in deferred income tax assets and a corresponding $16.3 million decrease in accumulated deficit.  This impact results from the cumulative-effect adjustment for previously unrecognized excess tax benefits using the modified retrospective method required by the new standard.  We elected to adopt the changes in cash flow statement presentation prospectively to be consistent with the prospective transition for the treatment of excess tax benefits in the income statement.  Accordingly, we no longer classify excess tax benefits as a financing activity subsequent to January 1, 2017.

On December 22, 2017, the Securities and Exchange Commission (“SEC”) staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP related to the enactment of the comprehensive tax legislation, commonly referred to as the Tax Cut and Jobs Act (“Tax Act”).  This guidance was adopted in the fourth quarter of 2017.  Additional information regarding our adoption of this guidance is contained in Note J.

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  This guidance will replace most existing revenue recognition guidance in GAAP when it becomes effective.  These new requirements are effective for annual reporting periods beginning after December 15, 2017, and interim periods within those annual periods.  The new revenue recognition standard will not materially impact our recognition of the primary fees received from customers for our cloud-based supply chain solutions.  The adoption of the new standard will impact our accounting for certain upfront set-up fees and the periods over which the related revenues are recognized, as well as the timing of cost recognition for some sales commissions.  When compared to previously reported amounts, revenue will decrease $0.5 million and $0.1 million for the years ended December 31, 2017 and 2016, respectively.  Commission expense, which is reported in sales and marketing expense, will decrease $2.0 million for the year ended December 31, 2017 and increase $1.0 million for the year ended December 31, 2016.

In February 2016, the FASB issued ASU 2016-02, Leases, which will supersede existing lease guidance and will require all leases with a term greater than 12 months to be recognized in the statements of financial position and eliminate current real estate-specific lease guidance, while maintaining substantially similar classification criteria for distinguishing between finance leases and operating leases.  This standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted.  We believe the adoption of the new lease accounting standard will materially impact our consolidated financial statements by increasing our non-current assets and non-current liabilities on our consolidated balance sheets in order to record the right of use assets and related lease liabilities for our existing operating leases.  We are in the process of determining the financial statement impact and are currently unable to estimate the impact on our consolidated financial statements.

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In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350), which simplifies the test for goodwill impairment by eliminating step two from the goodwill impairment test.  Under the new guidance, an entity should recognize an impairment charge for the amount based on the excess of a reporting unit’s carrying amount over its fair value.  The impairment charge will be limited to the amount of goodwill allocated to that reporting unit.  This guidance is effective for annual and interim impairment tests performed in periods beginning after December 15, 2019 on a prospective basis, and earlier adoption is permitted for goodwill impairment tests performed on testing dates after January 1, 2017.  We believe the adoption of this standard will not have a material impact on our consolidated financial statements.

NOTE B – Business Acquisitions

Toolbox Solutions, Inc.

On January 5, 2016, we completed our acquisition of all of the outstanding common shares of Toolbox Solutions, Inc. (“Toolbox Solutions”), a privately held company providing point-of-sale analytics and category management services to retailers and consumer packaged goods suppliers in North America. This acquisition expanded our retail network and strengthened our analytics offerings.  Pursuant to the share purchase agreement, we paid $18.0 million in cash and issued $2.9 million in stock, or 43,953 shares of common stock, to the shareholders of Toolbox Solutions. The purchase agreement also allowed the sellers to receive up to 16,222 additional shares of common stock, which would have become payable contingent upon the completion of certain revenue milestones, none of which were met, and therefore, no additional shares were issued.  During the year ended December 31, 2016, we recognized other income of $1.1 million in our consolidated statements of comprehensive income due to the remeasurement of this contingent liability.

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 purchase price consisted of the following (in thousands):

Cash	$	18,032
SPS Commerce, Inc. common stock		2,922
Fair value of share-based earn-out liability		1,043
	$	21,997

The final purchase price was subject to a net working capital adjustment to be determined by the sellers and us, pursuant to the terms of the purchase agreement.  The number of shares of our common stock issued for the acquisition was a net of 43,953 shares, which consisted of 48,668 shares issued at closing, as calculated according to the terms of the purchase agreement, less 4,715 shares that were returned to us from escrow in the fourth quarter of 2016.

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The following table summarizes the estimated fair values of the assets acquired, net of cash acquired of $0.4 million, and liabilities assumed at the acquisition date (in thousands):

Current assets	$	1,253
Property and equipment		56
Goodwill		15,389
Intangible assets		9,070
Current liabilities		(1,249	)
Deferred revenue		(301	)
Deferred income tax liability		(2,221	)
	$	21,997

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)
Subscriber relationships	$	7,400		8
Developed technology		1,200		4
Trade names		70		1
Non-competition agreements		400		5
Total	$	9,070

The purchased intangible assets are being amortized on a straight-line basis over their estimated useful lives.  Amortization expense for the period from January 5, 2016 through December 31, 2016 was $1.4 million.

Acquisition-Related Costs and Post-Acquisition Operating Results

Acquisition-related costs were $0.1 million and are included in our consolidated statement of comprehensive income for the year ended December 31, 2016. The operating results of Toolbox Solutions have been included in our consolidated financial statements since January 5, 2016, the closing date of the acquisition.  For the period from January 5, 2016 through December 31, 2016, approximately $7.9 million of our revenues were derived from Toolbox Solutions’ products and services.  The amount of operating income or loss from Toolbox Solutions was not separately identifiable due to our integration.

Unaudited Pro Forma Financial Information

The unaudited pro forma financial information in the table below presents the combined operating results of SPS Commerce and Toolbox Solutions as if the acquisition had occurred on January 1, 2015.  The unaudited pro forma information includes the historical operating results of each company and pro forma adjustments for the approximately $1.4 million of annual amortization expense related to purchased intangible assets and the additional impact on the provision or benefit for income taxes, resulting from the combined income and intangible amortization expense, using our statutory blended income tax rate of 26.5%.

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The unaudited pro forma financial information is presented for informational purposes only and is not necessarily indicative of the results of operations that would have actually been reported had the acquisition occurred on January 1, 2015, nor is it necessarily indicative of our results of operations for any future periods.

	Year Ended December 31,
(in thousands, except per share data)	2016		2015
Pro forma total revenue	$	193,525	$	166,873
Pro forma net income		5,976		2,400
Pro forma net income per share
Basic		0.35		0.14
Diluted		0.35		0.14

NOTE C – 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 highly liquid investments with original maturities of 90 days or less are classified as cash equivalents.  All investments with original maturities greater than 90 days and remaining maturities 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.

Our short- and long-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.  Consequently, we may or may not keep securities with stated holding periods to maturity.

Our marketable securities are carried at fair value and unrealized gains and losses on these investments, net of taxes, are included in accumulated other comprehensive loss in the consolidated balance sheets.  Realized gains or losses are included in other income (expense), net in the consolidated statements of comprehensive income.  When a determination has been made that an other-than-temporary decline in fair value has occurred, the amount of the decline that is related to a credit loss is realized and is included in other income (expense), net in the consolidated statements of comprehensive income.

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

	December 31,
	2017							2016
	Amortized		Unrealized			Fair		Amortized		Unrealized			Fair
	Cost		Gains (Losses)			Value		Cost		Gains (Losses)			Value
Cash equivalents:
Money market funds	$	104,544	$	—		$	104,544	$	75,375	$	—		$	75,375
Certificate of deposit		7,814		—			7,814		—		—			—
Marketable securities:
Corporate bonds		17,758		(57	)		17,701		15,681		(96	)		15,585
Commercial paper		7,456		20			7,476		4,977		10			4,987
U.S. treasury securities		12,381		26			12,407		7,489		10			7,499
U.S. agency obligations		—		—			—		2,497		3			2,500
	$	149,953	$	(11	)	$	149,942	$	106,019	$	(73	)	$	105,946
Due within one year						$	144,736						$	98,452
Due within two years							5,206							7,494
Total						$	149,942						$	105,946

We do not believe any of the unrealized losses represent an other-than-temporary impairment based on our assessment of available evidence as of December 31, 2017.  We expect to receive the full principal and interest on all of these cash equivalents and short- and long-term investments.

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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.

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):

	Level 1		Level 2		Level 3		Total
Assets at December 31, 2017:
Cash equivalents:
Money market funds	$	104,544	$	—	$	—	$	104,544
Certificate of deposit		7,814		—		—		7,814
Marketable securities:
Corporate bonds		—		17,700		—		17,700
Commerical paper		—		7,477		—		7,477
U.S. treasury securities		—		12,407		—		12,407
	$	112,358	$	37,584	$	—	$	149,942
Assets at December 31, 2016:
Cash equivalents:
Money market funds	$	75,375	$	—	$	—	$	75,375
Marketable securities:
Corporate bonds		—		15,585		—		15,585
Commerical paper		—		4,987		—		4,987
U.S. treasury securities		—		7,499		—		7,499
U.S. agency obligations		—		2,500		—		2,500
	$	75,375	$	30,571	$	—	$	105,946

NOTE D – Allowance for Doubtful Accounts

The allowance for doubtful accounts activity, included in accounts receivable, net, was as follows (in thousands):

	2017			2016			2015
Balances, January 1	$	515		$	446		$	279
Provision for doubtful accounts		1,705			1,375			1,271
Write-offs, net of recoveries		(1,457	)		(1,306	)		(1,104	)
Balances, December 31	$	763		$	515		$	446

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NOTE E–Property and Equipment, net

Property and equipment, net included the following (in thousands):

	December 31,
	2017			2016
Computer equipment and software	$	35,326		$	29,270
Office equipment and furniture		7,439			7,087
Leasehold improvements		8,042			7,844
		50,807			44,201
Less: accumulated depreciation and amortization		(33,951	)		(28,887	)
	$	16,856		$	15,314

At December 31, 2017 and 2016, property and equipment, net included approximately $2.2million and $2.1million, respectively, of assets held at subsidiary and office locations outside of the U.S.

NOTE F – Goodwill and Intangible Assets, net

The changes in the net carrying amount of goodwill for the years ended December 31, 2017 and 2016 are as follows (in thousands):

	2017		2016
Balances, January 1	$	49,777	$	33,848
Additions from business acquisitions		—		15,389
Foreign currency translation		1,836		540
Balances, December 31	$	51,613	$	49,777

Intangible assets, net included the following (in thousands):

	December 31, 2017
	Carrying Amount		Accumulated Amortization			Foreign Currency Translation		Net
Subscriber relationships	$	34,350	$	(19,592	)	$	614	$	15,372
Non-competition agreements		2,499		(2,058	)		45		486
Technology and other		2,130		(1,518	)		59		671
	$	38,979	$	(23,168	)	$	718	$	16,529

	December 31, 2016
	Carrying Amount		Accumulated Amortization			Foreign Currency Translation		Net
Subscriber relationships	$	33,736	$	(15,708	)	$	295	$	18,323
Non-competition agreements		2,234		(1,818	)		17		433
Technology and other		2,089		(1,120	)		63		1,032
	$	38,059	$	(18,646	)	$	375	$	19,788

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Amortization expense was $4.6million, $4.7million and $3.3million for the years ended December 31, 2017, 2016 and 2015, respectively.  At December 31, 2017, future amortization expense for intangible assets was as follows (in thousands):

2018	$	4,022
2019		3,730
2020		3,365
2021		2,520
2022		1,449
Thereafter		1,443
	$	16,529

NOTE G – Commitments and Contingencies

Operating Leases

We are obligated under non-cancellable operating leases primarily for office space.  Rent expense for all operating leases, which includes minimum lease payments and other charges such as common area maintenance fees, charged to operations was $4.9million, $5.0million and $4.6 million for the years ended December 31, 2017, 2016 and 2015, respectively.

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 166,000 square feet under an agreement that expires on April 30, 2025.  We have agreed to expand our headquarters premises by approximately 48,000 square feet during 2018 and 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.  We received $3.2 million in incentives upon execution of the amendment which have been incorporated into our deferred rent calculation.

At December 31, 2017, our future minimum payments under operating leases were as follows (in thousands):

2018	$	3,833
2019		3,847
2020		3,122
2021		3,624
2022		3,270
Thereafter		6,796
	$	24,492

Other Contingencies

We may be involved in various claims and legal actions in the normal course of business.  Our management believes that the outcome of any such claims and legal actions will not have a material effect on our financial position, results of operations or cash flows.

NOTE H – Stockholders’ Equity

Common Stock Issued

In connection with the acquisition of Toolbox Solutions (see Note B), we issued a net of 43,953 shares which consisted of 48,668 shares issued at closing, as calculated according to the terms of the purchase agreement, less 4,715 shares that were returned to us from escrow in the fourth quarter of 2016.  The fair value of the shares we issued, approximately $2.9 million, was determined using the closing price of our common stock on January 5, 2016.

During the second quarter of 2017, 8,866 shares were returned from escrow pursuant to the agreement with Toolbox Solutions.

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Stock Repurchase Program

On November 2, 2017, our board of directors authorized a program to repurchase up to $50.0 million of common stock.  Under the program, purchases may be made from time to time in the open market over the next two years.  The number of shares to be purchased and the timing of purchases will be based on the price of our common stock, general business and market conditions and other investment considerations and factors.

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

During the fourth quarter of 2017, we repurchased 122,147 shares at a cost of $5.8 million. As of December 31, 2017, $44.2 million of the $50.0 million share repurchases authorized was available for future share repurchases.

NOTE I – Stock-Based Compensation

Our equity compensation plans provide for the grant of incentive and nonqualified stock options, as well as other stock-based awards including restricted stock and restricted stock units, to employees, non-employee directors and other consultants who provide services to us.  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 2017 and February 2016, 1,024,868 and 1,003,439 additional shares, respectively, were reserved for future issuance under our 2010 Equity Incentive Plan.  At December 31, 2017, there were approximately 4.6 million shares available for grant under approved equity compensation plans.

We recorded stock-based compensation expense of $12.7million, $8.0 million and $6.4 million for the years ended December 31, 2017, 2016 and 2015, respectively.  During the year ended December 31, 2017, stock-based compensation expense included a $3.6 million charge due to immediate expensing of equity awards upon our Chief Executive Officer meeting certain age and years of service conditions. Stock-based compensation expense was allocated as follows (in thousands):

	Year Ended December 31,
	2017		2016		2015
Cost of revenues	$	1,887	$	1,309	$	989
Operating expenses
Sales and marketing		2,197		2,412		1,978
Research and development		949		618		640
General and administrative		7,694		3,684		2,772
Total stock-based compensation expense	$	12,727	$	8,023	$	6,379

As of December 31, 2017, there was approximately $11.6million 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 2.5 years.

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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 January 1, 2015		1,085,463		$	26.53
Granted		181,487			67.50
Exercised		(305,106	)		14.55
Forfeited		(18,741	)		45.82
Outstanding at December 31, 2015		943,103			37.91
Granted		340,609			48.58
Exercised		(221,630	)		19.42
Forfeited		(46,070	)		55.58
Outstanding at December 31, 2016		1,016,012			44.72
Granted		172,697			55.87
Exercised		(65,502	)		21.53
Forfeited		(25,876	)		55.93
Outstanding at December 31, 2017		1,097,331			47.60

Of the total outstanding options at December 31, 2017, 743,471were exercisable with a weighted average exercise price of $44.58per share.  The total outstanding options had a weighted average remaining contractual life of 4.0 years.

The fair value of options that vested during the years ended December 31, 2017, 2016 and 2015 was $4.2million, $3.4million and $3.1million, respectively.

The intrinsic value of options exercised during the years ended December 31, 2017, 2016 and 2015 was $2.8million, $8.6million and $16.8million, respectively.  The intrinsic value of outstanding options at December 31, 2017, 2016 and 2015 was $7.3million, $25.6million and $30.5 million, respectively.

The weighted-average fair values per share of options granted during the years ended December 31, 2017, 2016 and 2015 were $18.85, $16.13 and $23.09, respectively.  The fair values of the options granted were estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:

	Year Ended December 31,
	2017			2016			2015
Volatility		38	%		38	%		39	%
Dividend yield		—			—			—
Life (in years)		4.51			4.54			4.52
Risk-free interest rate		1.85	%		1.19	%		1.36	%

The expected volatility of the options is based on the historical volatility of our common stock. We have not issued dividends on our common stock and do not expect to do so in the foreseeable future.  The expected term of the options is based on the simplified method which does not consider historical employee exercise behavior.  The risk-free interest rate is based on the U.S. Treasury rates at the date of grant with maturity dates approximately equal to the expected life at the grant date.

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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 predetermined revenue targets over the course of a three-year performance period.  No expense for PSU awards was recognized during the year ended December 31, 2017 as the probability of attainment of the revenue target decreased.

Restricted stock units (“RSU”) vest over four years and, upon vesting, the holder is entitled to receive shares of our common stock.  With restricted stock awards (“RSA”), shares of our common stock are issued when the award is granted and the restrictions lapse over one year.

Our PSU and RSU activity was as follows:

				Weighted Average
	PSUs and RSUs			Grant Date Fair
	(#)			Value ($/share)
Outstanding at January 1, 2015		115,133		$	45.25
Granted		68,159			67.50
Vested and common stock issued		(37,669	)		40.91
Forfeited		(5,058	)		54.28
Outstanding at December 31, 2015		140,565			56.88
Granted		115,896			48.32
Vested and common stock issued		(52,133	)		48.19
Forfeited		(15,286	)		55.48
Outstanding at December 31, 2016		189,042			54.14
Granted		211,168			55.62
Vested and common stock issued		(64,950	)		53.64
Forfeited		(13,348	)		55.39
Outstanding at December 31, 2017		321,912			55.16

The number of PSUs and RSUs outstanding at December 31, 2017 included 44,177units that have vested, but the shares of common stock have not yet been issued pursuant to the terms of the agreement.

Our RSA activity was as follows:

				Weighted Average
	RSAs			Grant Date Fair
	(#)			Value ($/share)
Outstanding at January 1, 2015		1,338		$	51.74
Restricted common stock issued		4,110			67.37
Restrictions lapsed		(4,416	)		62.63
Outstanding at December 31, 2015		1,032			67.39
Restricted common stock issued		6,078			52.27
Restrictions lapsed		(5,586	)		55.06
Outstanding at December 31, 2016		1,524			52.28
Restricted common stock issued		5,454			58.29
Restrictions lapsed		(5,610	)		56.65
Outstanding at December 31, 2017		1,368			58.29

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Employee Stock Purchase Plan

Effective July 1, 2012, we adopted 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.  A total of 1.0million shares of common stock are remaining for issuance under the plan.

For the offering periods in 2017, 2016 and 2015, we withheld approximately $1.9 million, $1.7 million and $1.5 million, respectively, from employees participating in the plan and purchased 40,968 shares, 33,357 shares and 28,362 shares, respectively, on their behalf.  

For the years ended December 31, 2017, 2016 and 2015, we recorded approximately $0.7million, $0.6million and $0.4 million, respectively, of stock-based compensation expense associated with the employee stock purchase plan.  The fair value was estimated based on the market price of our common stock at the beginning of each offering period and using the Black-Scholes option pricing model with the following weighted-average assumptions:

	Year Ended December 31,
	2017			2016			2015
Volatility		32	%		37	%		30	%
Dividend yield		—			—			—
Life (in years)		0.50			0.50			0.50
Risk-free interest rate		0.90	%		0.42	%		0.12	%

NOTE J – Income Taxes

Our provisions for income taxes included current federal, foreign and state income tax expense, as well as deferred tax expense as follows (in thousands):

	Year Ended December 31,
	2017			2016			2015
Current
Federal	$	(184	)	$	3,684		$	2,066
State		258			555			289
Foreign		652			599			119
Deferred
Federal		11,551			(988	)		103
State		(342	)		(133	)		(141	)
Foreign		(355	)		(577	)		—
	$	11,580		$	3,140		$	2,436

The current federal provision in the table above includes a $0.4 million reclass of alternative minimum tax (“AMT”) credit carryforwards from the deferred federal provision. These unutilized AMT credit carryforwards become partially refundable in 2019, 2020 and 2021 and fully refundable in 2022.

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A reconciliation of the expected federal income tax at the statutory rate to the provision for income taxes was as follows (in thousands):

	Year Ended December 31,
	2017			2016			2015
Expected federal income tax at statutory rate	$	3,107		$	3,011		$	2,404
State income taxes, net of federal tax effect		366			320			246
Tax impact of foreign activity		(105	)		(115	)		39
Permanent book/tax differences		460			372			67
Change in valuation allowance		16			(35	)		(27	)
Change in state deferred rate		(134	)		(67	)		(118	)
Research and development credit		(227	)		(261	)		(200	)
Tax impact of Tax Cuts and Jobs Act		8,613			—			—
Tax impact of stock activity		(925	)		—			—
Other		409			(85	)		25
Total provision for income taxes	$	11,580		$	3,140		$	2,436

The tax provision for the year ended December 31, 2017 includes tax benefits of $0.9 million for the excess tax deduction from stock activity.  It also includes tax expense of $8.6 million related to The Job Cuts and Tax Act (“Tax Act”), primarily due to the reduction in corporate tax rate to 21.0% resulting in a decrease in our U.S. net deferred tax assets.

Differences between our effective tax rate and statutory tax rates are primarily due to the impact of the Tax Act, as well as permanently non-deductible expenses partially offset by the federal research and development credit.  Additionally, under ASU 2016-09, excess tax benefits generated upon settlement or exercise of stock awards are now recognized as a reduction to income tax expense as a discrete tax item in the period that the event occurs creating potentially significant fluctuation in tax expense by year.

The significant components of our deferred tax assets (liabilities) were as follows (in thousands):

	December 31,
	2017						2016
Deferred tax assets
Net operating loss and credit carryforwards	$	11,067					$	4,614
Deferred operations		—						799
Stock-based compensation expense		4,273						4,085
Accounts receivable allowances		307						363
Accrued expenses		2,293						2,704
Other		182						297
Gross deferred tax asset					18,122						12,862
Less: valuation allowance		(602	)					(649	)
Total net deferred tax asset					17,520						12,213
Deferred tax liability
Deferred operations		(163	)					—
Foreign operations		(133	)					(350	)
Depreciation and amortization		(1,536	)					(1,328	)
Other		(24	)					—
Total deferred tax liability					(1,856	)					(1,678	)
Net deferred tax assets				$	15,664					$	10,535

As of December 31, 2017, we had net operating loss carryforwards of $58.5million for U.S. federal tax purposes.  We also had $10.6million of various state net operating loss carryforwards.  The loss carryforwards for federal tax purposes will expire between 2020 and 2036 if not utilized.  The loss carryforwards for state tax purposes will expire between 2018 and 2036 if not utilized.

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Section 382 of the U.S. Internal Revenue Code generally imposes an annual limitation on the amount of net operating loss carryforwards that might be used to offset taxable income when a corporation has undergone significant changes in stock ownership.  We have performed a Section 382 analysis for the time period from our inception through December 8, 2010.  During this time period it was determined that we had six separate ownership changes under Section 382.  We have not updated the Section 382 analysis subsequent to December 8, 2010, however, we believe there have not been any events subsequent to that date that would materially impact the analysis.  We believe that approximately $17.6 million of federal losses will expire unused due to Section 382 limitations.  The maximum annual limitation of federal net operating losses under Section 382 is approximately $1.0 million.  This limitation could be further restricted if any ownership changes occur in future years.  Accordingly, our deferred tax assets are reported net of the excess tax deductions for stock compensation and Section 382 limitations.

As of December 31, 2017 we had federal research and development credit carryforwards, net of Section 383 limitations, of $1.2 million, which, if not utilized, will begin to expire in 2030.  We had state research and development credit carryforwards of $0.6 million which, if not utilized, will begin to expire in 2025.

As of December 31, 2017, we had a valuation allowance against our deferred tax assets of $0.6 million.  The valuation allowance is established for state net operating loss and credit carryforwards that we do not expect to utilize based on our current expectations of future state taxable income.

We are subject to income taxes in the U.S. federal, various state and international jurisdictions.  We are generally subject to U.S. federal and state tax examinations for all prior tax years due to our net operating loss carryforwards and the utilization of the carryforwards in years still open under statute.

As of December 31, 2017, we do not have any unrecognized tax benefits.  It is our practice to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense.  We do not expect any material changes in our unrecognized tax positions over the next 12 months.

Tax Act

The Tax Act, which was enacted on December 22, 2017, includes broad and complex changes to the U.S tax code.  The Tax Act reduces the corporate federal income tax rate to 21.0% effective January 1, 2018 and establishes a mandatory tax on previously untaxed foreign earnings and profits (“E&P”).  The Tax Act expands the limitations for executive compensation under Section 162(m) and includes transition rules for previously awarded compensation.  

Accounting Standard Codification 740 requires a company to record the effects of a tax law change in the period of enactment, however, the SEC staff issued SAB 118, which allows a company to record a provisional amount when it does not have the necessary information available, prepared or analyzed in reasonable detail to complete its accounting for the change in the tax law.  The measurement period ends when the company has obtained, prepared and analyzed the information necessary to finalize its accounting, but cannot extend beyond one year.

We have finalized our accounting for the corporate rate reduction and have recorded a decrease to our net deferred tax assets of $8.6 million with a corresponding adjustment to deferred tax expense for the year ended December 31, 2017.  We have estimated that there is no tax on mandatory deemed repatriation due to a net foreign E&P deficit.  We are continuing to evaluate the impact of the Tax Act on the taxation of previously untaxed foreign E&P and the deferred tax liability for withholding taxes on dividends.  We are also continuing to evaluate the impact the expanded Section 162(m) limitations and related transition rules have on our deferred tax assets related to stock compensation.

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NOTE K – Net Income (Loss) Per Share

The following table presents the components of the computation of basic and diluted net income (loss) per share for the periods indicated (in thousands, except per share amounts):

	Year Ended December 31,
	2017			2016		2015
Numerator
Net (loss) income	$	(2,440	)	$	5,710	$	4,639
Denominator
Weighted average common shares outstanding, basic		17,183			16,947		16,565
Options to purchase common stock		—			267		437
Restricted stock units		—			27		27
Employee stock purchase plan		—			—		3
Weighted average common shares outstanding, diluted		17,183			17,241		17,032
Net (loss) income per share
Basic	$	(0.14	)	$	0.34	$	0.28
Diluted	$	(0.14	)	$	0.33	$	0.27

For the years ended December 31, 2017, 2016 and 2015, the effect of approximately 283,000, 5,000 and 4,000 outstanding potential common shares, respectively, were excluded from the calculation of diluted net income (loss) per share as they were anti-dilutive.

NOTE L – Retirement Savings Plan

We sponsor a 401(k) retirement savings plan for our U.S. employees. Employees can contribute up to 100% of their compensation, subject to the limits established by law. We match 25% of the employee’s contribution up to the first 6% of pre-tax annual compensation. Additionally, we make statutory contributions to retirement plans as required by local foreign government regulations. Our contributions to the plans, which vest immediately, were $1.6million, $1.4million and $1.1million for the years ended December 31, 2017, 2016 and 2015, respectively.

NOTE M – Related Party Transactions

SPS Commerce Foundation (the “Foundation”) is a Minnesota non-profit organization exempt from federal taxation under Section 501(c)(3) of the Internal Revenue Code. The Foundation was formed in 2015 to engage in, advance, support, promote and administer charitable activities. The directors of the Foundation are also our officers. These officers receive no compensation from the Foundation for the management services performed for the Foundation. The Foundation is not a subsidiary of ours and the financial results of the Foundation are not consolidated with our financial statements. We made contributions of $0.2 million and $0.3 million to the Foundation for the years ended December 31, 2017 and 2016, respectively. We have no current legal obligations for future commitments to the Foundation.

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NOTE N – Selected Quarterly Financial Data (Unaudited)

The following table presents our selected unaudited quarterly statements of comprehensive income data (in thousands, except per share amounts):

	For the Three Months Ended
2017	Mar 31		Jun 30		Sep 30		Dec 31
Revenues	$	51,932	$	54,284	$	56,150	$	58,200
Gross profit		34,602		36,093		37,505		38,741
Income (loss) from operations		3,376		2,727		2,846		(521	)
Net income (loss)		2,971		1,825		1,865		(9,101	)
Diluted earnings (loss) per share	$	0.17	$	0.11	$	0.11	$	(0.53	)

	For the Three Months Ended
2016	Mar 31		Jun 30		Sep 30		Dec 31
Revenues	$	45,599	$	47,351	$	49,284	$	51,061
Gross profit		30,718		31,379		33,113		33,739
Income from operations		1,314		880		2,670		2,653
Net income		1,044		352		2,509		1,805
Diluted earnings per share	$	0.06	$	0.02	$	0.14	$	0.10

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Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2017, the end of the period covered by this Annual Report on Form 10-K.  This evaluation was done under the supervision and with the participation of management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”).  Disclosure controls and procedures means controls and other procedures that are designed to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under Exchange Act, such as this Annual Report on Form 10-K, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC.  Disclosure controls and procedures include, without limitation, controls and procedures designed such that information is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.  Based on this evaluation, our CEO and CFO have concluded that as of December 31, 2017, our disclosure controls and procedures were effective.

Management’s Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting.  Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act as a process designed by, or under the supervision of, our principal executive and principal financial officer and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those policies and procedures that:

• pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

• provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and

• provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Under the supervision and with the participation of management, including our principal executive and financial officers, we assessed our internal control over financial reporting as of December 31, 2017, based on criteria for effective internal control over financial reporting established in the Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

Based on this assessment, management concluded that we maintained effective internal control over financial reporting as of December 31, 2017 based on the specified criteria.

The effectiveness of our internal control over financial reporting as of December 31, 2017 has been audited by KPMG LLP, our independent registered public accounting firm, as stated in their report, which is included under Item 8 of this Annual Report on Form 10-K.

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Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the most recent fiscal quarter ended December 31, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information

None.

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PART III

Item 10. Directors, Executive Officers and Corporate Governance

The information required by this item with respect to executive officers is contained in Item 1 of this Annual Report on Form 10-K under the heading “Executive Officers” and with respect to other information relating to our directors and executive officers will be set forth in our 2018 Proxy Statement under the caption “Item 1 – Election of Directors,” which will be filed no later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K, and is incorporated herein by reference.

The information required by this item under Item 405 of Regulation S-K is incorporated herein by reference to the section titled “Section 16(a) Beneficial Ownership Reporting Compliance” of our 2018 Proxy Statement, which will be filed no later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.

The information required by this item under Item 407(d)(4) and (d)(5) of Regulation S-K is incorporated herein by reference to the section titled “Information Regarding the Board of Directors and Corporate Governance—Board Committees—Audit Committee” of our 2018 Proxy Statement, which will be filed no later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.

We have adopted a code of business conduct applicable to our directors, officers (including our principal executive officer and principal financial officer) and employees.  The Code of Conduct is available on our website at www.spscommerce.com under the Investor Relations section.  We plan to post on our website at the address described above any future amendments or waivers of our Code of Conduct.

Item 11. Executive Compensation

The information required by this item is incorporated herein by reference to the sections titled “Executive Compensation,” “Director Compensation” and “Certain Relationships and Related Transactions—Compensation Committee Interlocks and Insider Participation” of our 2018 Proxy Statement, which will be filed no later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information related to security ownership required by this item is incorporated herein by reference to the section titled “Security Ownership” of our 2018 Proxy Statement, which will be filed no later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information required by this item is incorporated herein by reference to the sections titled “Certain Relationships and Related Transactions,” and “Information Regarding the Board of Directors and Corporate Governance—Director Independence” of our 2018 Proxy Statement, which will be filed no later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.

Item 14. Principal Accounting Fees and Services

The information required by this item is incorporated herein by reference to the section titled “Audit Committee Report and Payment of Fees to Our Independent Auditor” of our 2018 Proxy Statement, which will be filed no later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.

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PART IV

Item 15. Exhibits, Financial Statement Schedules

The following documents are filed as a part of this Annual Report on Form 10-K:

(a)  Financial Statements: The financial statements filed as a part of this report are listed in Part II, Item 8.

(b)  Financial Statement Schedules: The schedules are either not applicable or the required information is presented in the consolidated financial statements or notes thereto.

(c)  Exhibits: The exhibits incorporated by reference or filed as a part of this Annual Report on Form 10-K are listed in the Exhibit Index prior to the signatures to this report.

Item 16. Form 10-K Summary

None.

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EXHIBIT INDEX

		Incorporated By Reference
Exhibit Number	Exhibit Description	Form	File Number	Date of First Filing	Exhibit Number	Filed Herewith
3.1	Amended and Restated Certificate of Incorporation	S-3	333-182097	06/13/2012	4.1
3.2	Amended and Restated Bylaws	8-K	001-34702	10/17/2017	3.1
10.1	2001 Stock Option Plan**	S-1/A	333-163476	01/11/2010	10.3
10.2	Form of Incentive Stock Option Agreement under 2001 Stock Option Plan**	S-1/A	333-163476	01/11/2010	10.4
10.3	Form of Non-Statutory Stock Option Agreement (Director) under 2001 Stock Option Plan**	S-1/A	333-163476	01/11/2010	10.5
10.4	2010 Equity Incentive Plan, as amended effective October 29, 2014**	10-K	001-34702	02/20/2015	10.6
10.5	Form of Incentive Stock Option Agreement under 2010 Equity Incentive Plan**	8-K	001-34702	02/17/2012	10.2
10.6	Form of Non-Statutory Stock Option Agreement (Employee) under 2010 Equity Incentive Plan**	8-K	001-34702	02/17/2012	10.3
10.7	Form of Non-Statutory Stock Option Agreement (Director) under 2010 Equity Incentive Plan**	8-K	001-34702	02/17/2012	10.4
10.8	Form of Restricted Stock Unit Award Agreement under 2010 Equity Incentive Plan**	8-K	001-34702	02/15/2017	99.2
10.9	Form of Restricted Stock Award Agreement under 2010 Equity Incentive Plan**	10-Q	001-34702	05/08/2012	10.6
10.10	Form of Performance Stock Unit Agreement under 2010 Equity Incentive Plan**	8-K	001-34702	02/18/2018	10.1
10.11	Non-Employee Director Compensation Policy**					X
10.12	Form of Indemnification Agreement for Independent Directors	S-1/A	333-163476	01/11/2010	10.18
10.13	Form of Indemnification Agreement for Archie C. Black**	S-1/A	333-163476	01/11/2010	10.19
10.14	Employment Agreement between the Company and Archie C. Black**	S-1/A	333-163476	03/05/2010	10.20

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		Incorporated By Reference
Exhibit Number	Exhibit Description	Form	File Number	Date of First Filing	Exhibit Number	Filed Herewith
10.15	Form of Executive Severance and Change in Control Agreement**	S-K	001-34702	02/03/2016	10.1
10.16	Standard Form Office Lease, dated as of February 14, 2012, by and between the registrant and CSDV-MN Limited Partnership	8-K	001-34702	02/17/2012	10.1
10.17	Management Incentive Plan**	8-K	001-34702	02/03/2016	10.2
10.18	Executive Severance and Change in Control Agreement	8-K	001-34702	11/17/2017	10.1
21.1	Subsidiaries of the registrant					X
23.1	Consent of KPMG LLP					X
24.1	Power of Attorney (included on signature page)					X
31.1	Certification of Principal Executive Officer pursuant to Rules 13a-14(a) under the Securities Exchange Act of 1934, as amended					X
31.2	Certification of Principal Financial Officer pursuant to Rules 13a-14(a) under the Securities Exchange Act of 1934, as amended					X
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					X
101	Interactive Data Files Pursuant to Rule 405 of Regulation S-T					X

** Indicates management contract or compensatory plan or arrangement.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: February 26, 2018	SPS COMMERCE, INC.
	By:	/s/ ARCHIE C. BLACK
		Archie C. Black
		President and Chief Executive Officer

Each of the undersigned hereby appoints Archie C. Black and Kimberly K. Nelson, and each of them (with full power to act alone), as attorneys and agents for the undersigned, with full power of substitution, for and in the name, place and stead of the undersigned, to sign and file with the Securities and Exchange Commission under the Securities Exchange Act of 1934, any and all amendments and exhibits to this annual report on Form 10-K and any and all applications, instruments, and other documents to be filed with the Securities and Exchange Commission pertaining to this annual report on Form 10-K or any amendments thereto, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary or desirable.  Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on February 26, 2018.

Name and Signature	Title
/s/ ARCHIE C. BLACK	Chief Executive Officer, President and Director
Archie C. Black	(principal executive officer)
/s/ KIMBERLY K. NELSON	Executive Vice President and Chief Financial Officer
Kimberly K. Nelson	(principal financial and accounting officer)
/s/ MARTIN J. LEESTMA	Director
Martin J. Leestma
/s/ JAMES B. RAMSEY	Director
James B. Ramsey
/s/ TAMI L. RELLER	Director
Tami L. Reller
/s/ MICHAEL A. SMERKLO	Director
Michael A. Smerklo
/s/ PHILIP E. SORAN	Director
Philip E. Soran
/s/ SVEN A. WEHRWEIN	Director
Sven A. Wehrwein

76

EX-10.11

Exhibit 10.11

SPS COMMERCE, INC.

NON-EMPLOYEE DIRECTOR COMPENSATION PLAN

Adopted: March 10, 2016

Director annual retainer: Annual retainer, payable in case, of $31,000 per director except for the chairperson who shall receive $45,000

Committee chairs annual retainer: Annual retainers, payable in cash, of:

Audit Committee:	$	17,000
Compensation Committee:		10,000
Governance and Nominating Committee:		7,000

Committee member annual retainer: Annual retainers, payable in cash, of:

Audit Committee:	$	7,000
Compensation Committee:		5,000
Governance and Nominating Committee:		3,000

Annual non-statutory stock option grants:

• To purchase up to $53,000 of common stock calculated as the grant date fair value of the stock-based awards computed in accordance with FASB ASC 718 on the date of the Company’s annual meeting of stockholders using the closing sale price for a share of the Company’s common stock on the Nasdaq Global Market on the date of the annual meeting of stockholders

• Granted to directors who are elected to the board at the annual meeting of stockholders

• Exercise price per share equal to the closing sales price for a share on the Nasdaq Global Market on the date of the annual meeting of stockholders

• Vest in four equal installments on the last day of each fiscal quarter with the first vesting occurring on June 30, provided the recipient remains a member of the board as of the vesting date

• Maximum term of seven years measured from the date of grant

Annual restricted stock grants:

• To acquire up to $53,000 of restricted common stock calculated by dividing this amount by the closing sale price for a share of the Company’s common stock on the Nasdaq Global Market on the date of the Company’s annual meeting of stockholders

• Granted to directors who are elected to the board at the annual meeting of stockholders

• Vests in four equal installments on the last day of each fiscal quarter with the first vesting occurring on June 30, provided the recipient remains a member of the board as of the vesting date

Reimbursement of expenses: The Company shall reimburse directors for reasonable expenses incurred in connection with attending board and committee meetings.

Initial non-statutory stock option grants: Each director receives a non-statutory stock option grant to purchase up to $111,000 of common stock calculated as the grant date fair value of the stock-based awards computed in accordance with FASB ASC 718 in connection with initial appointment or election to the board.   The grant is made on the date of initial appointment or election to the board.  Exercise price per share equal to the closing sales price for a share on the Nasdaq Global Market on the effective date of the appointment or election of the director.  Vest in equal monthly installments commencing on the first day of the calendar month following the initial appointment or election to the board, provided the recipient remains a member of the board as of the vesting date.  Maximum term of seven years measured from the date of grant.

EX-21.1

Exhibit 21.1

List of SPS Commerce, Inc. Subsidiaries

Name of Company	State or Other Jurisdiction of Incorporation/Organization
SPS Commerce Australia Pty Ltd	Australia
SPS Commerce Hong Kong Limited	Hong Kong
SPS International, Inc.	Delaware
SPS Europe Limited	England and Wales
Edifice Japan G.K.	Japan
SPS Ukraine LLC	Ukraine
SPS Commerce Canada, Ltd.	Ontario

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

The Board of Directors

SPS Commerce, Inc.:

We consent to the incorporation by reference in the registration statements on Form S-3 (No. 333-192392, 333-182097 and 333-174026) and on Form S-8 (Nos. 333-222438, 333-222435, 333-216288, 333-209721, 333-201673, 333-193544, 333-185972, 333-182007, 333-179236, 333-172073, 333-167315 and 333-167314) of SPS Commerce, Inc. of our report dated February 26, 2018, with respect to the consolidated balance sheets of SPS Commerce, Inc. and subsidiaries as of December 31, 2017 and 2016, and the related consolidated statements of comprehensive income, stockholders’ equity and cash flows for the each of the years in the three-year period ended December 31, 2017, and the effectiveness of internal control over financial reporting as of December 31, 2017, which report appears in the December 31, 2017 annual report on Form 10‑K of SPS Commerce, Inc.

/s/ KPMG LLP

Minneapolis, Minnesota

February 26, 2018

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 Annual Report on Form 10-K 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)

February 26, 2018

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 Annual Report on Form 10-K 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)

February 26, 2018

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 Annual Report on Form 10-K of SPS Commerce, Inc. (the “Company”) for the period ended December 31, 2017, 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

/s/ KIMBERLY K. NELSON

Kimberly K. Nelson
Executive Vice President and Chief Financial Officer

February 26, 2018

XML

Document and Entity Information - USD ($) $ in Billions	12 Months Ended
	Dec. 31, 2017	Feb. 09, 2018	Jun. 30, 2017
Document And Entity Information [Abstract]
Document Type	10-K
Amendment Flag	false
Document Period End Date	Dec. 31, 2017
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	FY
Trading Symbol	SPSC
Entity Registrant Name	SPS COMMERCE INC
Entity Central Index Key	0001092699
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	Yes
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		17,250,664
Entity Public Float			$ 1.1

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
CURRENT ASSETS
Cash and cash equivalents	$ 123,127	$ 115,877
Short-term investments	40,192	23,076
Accounts receivable, net	24,897	20,746
Deferred costs	25,091	19,224
Other current assets	6,149	7,010
Total current assets	219,456	185,933
PROPERTY AND EQUIPMENT, net	16,856	15,314
GOODWILL	51,613	49,777
INTANGIBLE ASSETS, net	16,529	19,788
INVESTMENTS	5,206	7,494
OTHER ASSETS
Deferred costs	6,770	6,086
Deferred income tax asset	17,551	12,446
Other assets	1,539	1,527
Total assets	335,520	298,365
CURRENT LIABILITIES
Accounts payable	4,463	2,302
Accrued compensation	15,886	13,740
Accrued expenses	4,712	3,508
Deferred revenue	16,407	11,055
Deferred rent	1,679	1,556
Total current liabilities	43,147	32,161
OTHER LIABILITIES
Deferred revenue	10,602	10,847
Deferred rent	3,064	4,179
Deferred income tax liability	1,887	1,911
Total liabilities	58,700	49,098
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; 17,249,153 and 17,081,145 shares issued; and 17,127,006 and 17,081,145 outstanding, respectively	17	17
Treasury stock, at cost; 122,147 and 0 shares, respectively	(5,815)
Additional paid-in capital	301,863	286,315
Accumulated deficit	(19,902)	(33,739)
Accumulated other comprehensive income (loss)	657	(3,326)
Total stockholders’ equity	276,820	249,267
Total liabilities and stockholders’ equity	$ 335,520	$ 298,365

XML

Consolidated Balance Sheets (Parenthetical) - $ / shares	Dec. 31, 2017	Dec. 31, 2016
Statement Of Financial Position [Abstract]
Preferred stock, par value	$ 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	$ 0.001	$ 0.001
Common stock, shares authorized	55,000,000	55,000,000
Common stock, shares issued	17,249,153	17,081,145
Common stock, shares outstanding	17,127,006	17,081,145
Treasury stock, shares	122,147	0

XML

Consolidated Statements of Comprehensive Income - USD ($) shares in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Income Statement [Abstract]
Revenues	$ 220,566	$ 193,295	$ 158,518
Cost of revenues	73,625	64,346	50,043
Gross profit	146,941	128,949	108,475
Operating expenses
Sales and marketing	73,295	65,886	55,374
Research and development	23,183	21,981	17,954
General and administrative	37,461	28,827	24,817
Amortization of intangible assets	4,574	4,738	3,307
Total operating expenses	138,513	121,432	101,452
Income from operations	8,428	7,517	7,023
Other income (expense)
Interest income, net	1,032	601	197
Other income (expense), net	(320)	732	(145)
Total other income, net	712	1,333	52
Income before income taxes	9,140	8,850	7,075
Income tax expense	11,580	3,140	2,436
Net (loss) income	$ (2,440)	$ 5,710	$ 4,639
Net (loss) income per share
Basic	$ (0.14)	$ 0.34	$ 0.28
Diluted	$ (0.14)	$ 0.33	$ 0.27
Weighted average common shares used to compute net (loss) income per share
Basic	17,183	16,947	16,565
Diluted	17,183	17,241	17,032
Other comprehensive income
Foreign currency translation adjustments	$ 3,944	$ 336	$ (2,119)
Unrealized loss on investments, net of tax of $0, $5 and $31		(9)	(59)
Reclassification of unrealized loss on investments into earnings, net of tax of $24, $0 and $0	39
Comprehensive income	$ 1,543	$ 6,037	$ 2,461

XML

Consolidated Statements of Comprehensive Income (Parenthetical) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Income Statement [Abstract]
Unrealized loss on investments, tax	$ 0	$ 5	$ 31
Reclassification of unrealized loss on investments into earnings, tax	$ 24	$ 0	$ 0

XML

Consolidated Statements of Stockholders' Equity - USD ($) $ in Thousands	Total	Common Stock [Member]	Treasury Stock [Member]	Additional Paid-in Capital [Member]	Accumulated Deficit [Member]	Accumulated Other Comprehensive Loss [Member]
Beginning balance at Dec. 31, 2014	$ 205,091	$ 16		$ 250,633	$ (44,088)	$ (1,470)
Beginning balance, shares at Dec. 31, 2014		16,348,747
Stock-based compensation	6,379			6,379
Exercise of stock options and issuance of restricted stock	4,440	$ 1		4,439
Exercise of stock options and issuance of restricted stock, shares		346,885
Excess tax benefit of stock options exercised	2,336			2,336
Employee stock purchase plan	1,478			1,478
Employee stock purchase plan, shares		28,362
Net income (loss)	4,639				4,639
Foreign currency translation adjustments	(2,119)					(2,119)
Unrealized loss on investments	(59)					(59)
Ending balance at Dec. 31, 2015	222,185	$ 17		265,265	(39,449)	(3,648)
Ending balance, shares at Dec. 31, 2015		16,723,994
Stock-based compensation	8,023			8,023
Exercise of stock options and issuance of restricted stock	4,303			4,303
Exercise of stock options and issuance of restricted stock, shares		279,841
Excess tax benefit of stock options exercised	4,070			4,070
Employee stock purchase plan	1,732			1,732
Employee stock purchase plan, shares		33,357
Stock issued for acquisition	2,922			2,922
Stock issued for acquisition, Shares		43,953
Net income (loss)	5,710				5,710
Foreign currency translation adjustments	336					336
Reclassification of losses on investments into earnings	18					18
Unrealized loss on investments	(32)					(32)
Ending balance at Dec. 31, 2016	249,267	$ 17		286,315	(33,739)	(3,326)
Ending balance, shares at Dec. 31, 2016		17,081,145
Stock-based compensation	12,728			12,728
Exercise of stock options and issuance of restricted stock	1,410			1,410
Exercise of stock options and issuance of restricted stock, shares		135,906
Cumulative-effect adjustment for previously unrecognized excess tax benefits	16,277				16,277
Employee stock purchase plan	1,933			1,933
Employee stock purchase plan, shares		40,968
Retirement of escrow shares	(523)			(523)
Retirement of escrow shares, shares		(8,866)
Repurchases of common stock	(5,815)		$ (5,815)
Repurchases of common stock, shares		(122,147)	122,147
Net income (loss)	(2,440)				(2,440)
Foreign currency translation adjustments	3,944					3,944
Reclassification of losses on investments into earnings	39					39
Ending balance at Dec. 31, 2017	$ 276,820	$ 17	$ (5,815)	$ 301,863	$ (19,902)	$ 657
Ending balance, shares at Dec. 31, 2017		17,127,006	122,147

XML

Consolidated Statements of Cash Flows - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Cash flows from operating activities
Net (loss) income	$ (2,440)	$ 5,710	$ 4,639
Reconciliation of net (loss) income to net cash provided by operating activities
Deferred income taxes	10,854	(1,698)	(38)
Share-based earn-out liability		(1,103)
Depreciation and amortization of property and equipment	7,208	6,598	6,265
Amortization of intangible assets	4,574	4,738	3,307
Provision for doubtful accounts	1,705	1,375	1,271
Stock-based compensation	12,728	8,023	6,379
Other, net	(15)
Changes in assets and liabilities, net of effects of acquisition
Accounts receivable	(5,586)	(3,735)	(3,517)
Deferred costs	(6,548)	(4,964)	(3,023)
Other current and non-current assets	393	(1,911)	(2,037)
Accounts payable	832	(382)	(1,569)
Accrued compensation	2,073	2,180	1,295
Accrued expenses	1,192	990	(461)
Deferred revenue	5,107	2,710	587
Deferred rent	(1,027)	234	1,331
Net cash provided by operating activities	31,050	18,765	14,429
Cash flows from investing activities
Purchases of property and equipment	(7,271)	(8,008)	(8,757)
Purchases of investments	(47,878)	(23,135)	(22,527)
Maturities of investments	33,029	15,018
Acquisition of business and intangible assets, net of cash acquired	(500)	(18,032)
Net cash used in investing activities	(22,620)	(34,157)	(31,284)
Cash flows from financing activities
Repurchases of common stock	(5,815)
Net proceeds from exercise of options to purchase common stock	1,410	4,303	4,440
Excess tax benefit from exercise of options to purchase common stock		4,070	2,336
Net proceeds from employee stock purchase plan	1,933	1,732	1,478
Net cash (used in) provided by financing activities	(2,472)	10,105	8,254
Effect of foreign currency exchange rate changes	1,292	(374)	(656)
Net increase (decrease) in cash and cash equivalents	7,250	(5,661)	(9,257)
Cash and cash equivalents at beginning of year	115,877	121,538	130,795
Cash and cash equivalents at end of year	123,127	115,877	121,538
Supplemental disclosure of cash flow information
Cash paid for income taxes, net	1,068	722	$ 114
Non-cash financing activities:
Net purchases of property and equipment on account	$ 1,335
Common stock issued for business acquisitions		$ 2,922

XML

General

12 Months Ended

Dec. 31, 2017

Organization Consolidation And Presentation Of Financial Statements [Abstract]

General

NOTE A – General

Business Description

We are a leading provider of cloud-based supply chain management solutions, providing network-proven fulfillment, sourcing and item assortment management solutions, along with comprehensive retail performance analytics to thousands of customers worldwide.  We provide our solutions through the SPS Commerce Platform, a cloud-based product suite that improves the way retailers, suppliers, distributors and logistics firms orchestrate the sourcing, set up of new vendors and items, and fulfillment of the products that consumers buy.  We derive the majority of our revenues from thousands of monthly recurring subscriptions from businesses that utilize our solutions.

Basis of Presentation

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of SPS Commerce, Inc. and its subsidiaries.  All intercompany accounts and transactions have been eliminated in the consolidated financial statements.

Foreign Currency Translation

Assets and liabilities denominated in currencies other than the U.S. dollar are translated into U.S. dollars at the exchange rates in effect at the balance sheet date, with the resulting translation adjustments recorded as a separate component of accumulated other comprehensive loss.  Income and expense accounts are translated at the average exchange rates during the year.  Foreign currency transaction gains and losses, if any, are included in net income (loss).

Use of Estimates

Preparing financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.  Actual results could differ from those estimates.

Business Combinations

We recognize separately from goodwill the fair value of the assets acquired and the liabilities assumed at the acquisition date.  Goodwill as of the acquisition date is measured as the excess of consideration transferred and the net of the acquisition date amounts of the assets acquired and the liabilities assumed.  Assets acquired include tangible and intangible assets.  We use estimates and assumptions that we believe are reasonable as a part of determining the value and useful lives of purchased intangible assets and the purchase price allocation process.  While we believe these estimates and assumptions are reasonable, they are inherently uncertain and subject to refinement.  As a result, during the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the fair value of the assets acquired and the liabilities assumed.  Any such adjustments would be recorded as an offset to goodwill.  Upon the conclusion of the measurement period or final determination of the fair values, whichever comes first, any subsequent adjustments would be recorded in our consolidated statements of comprehensive income.

Segment Information

We operate in and report on one segment, which is supply chain management solutions.

Risk and Uncertainties

We rely on hardware and software licensed from third parties to offer our on-demand solutions.  Our management believes alternate sources are available; however, disruption or termination of these relationships could adversely affect our operating results in the near term.

Concentration of Credit Risk

Financial instruments that potentially subject us to concentrations of credit risk consist principally of temporary cash and cash equivalents in financial institutions in excess of federally insured limits and trade accounts receivable.  Temporary cash investments are held with financial institutions that we believe are subject to minimal risk.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash and highly liquid investments with original maturities of less than 90 days.  Cash and cash equivalents are stated at fair value.

Investments

Management determines the appropriate classification of certificates of deposit and marketable securities at the time of purchase and reevaluates such determination at each balance sheet date.  Securities are classified as available for sale and are carried at fair value, with the change in unrealized gains and losses, net of tax, reported as a separate component on the consolidated statements of comprehensive income.  Fair value is determined based on quoted market rates when observable or utilizing data points that are observable, such as quoted prices, interest rates and yield curves.  When a determination has been made that an other-than-temporary decline in fair value has occurred, the amount of the decline that is related to a credit loss is realized and is included in other income (expense), net in the consolidated statements of comprehensive income.

Fair Value of Financial Instruments

The carrying amounts of our financial instruments, which include cash, cash equivalents, accounts receivable, accounts payable and other accrued expenses, approximates fair value due to their short maturities.  Marketable securities are recorded at fair value as further described in Note C.

Accounts Receivable

Accounts receivable are initially recorded upon the sale of solutions to customers.  Credit is granted in the normal course of business without collateral.  Accounts receivable are stated net of allowances for doubtful accounts, which represent estimated losses resulting from the inability of certain customers to make the required payments.  When determining the allowances for doubtful accounts, we take several factors into consideration including the overall composition of the accounts receivable aging, our prior history of accounts receivable write-offs, the type of customers and our experience with specific customers.  We write-off accounts receivable when they are determined to be uncollectible.  Changes in the allowances for doubtful accounts are recorded as bad debt expense and are included in general and administrative expense in our consolidated statements of comprehensive income.

Property and Equipment

Property and equipment, including assets acquired under capital lease obligations, are stated at cost, net of accumulated depreciation and amortization.  Depreciation and amortization are computed using the straight-line method over the estimated useful lives when placed in service, which are:

Computer equipment and software: 2 to 3 years

Office equipment and furniture: 5 to 7 years

Leasehold improvements: the shorter of the useful life of the asset or the remaining term of the lease

Significant additions or improvements extending asset lives beyond one year are capitalized, while repairs and maintenance are charged to expense as incurred.  We also capitalize and amortize eligible costs to acquire or develop internal-use software that are incurred during the development stage.  The assets and related accumulated depreciation and amortization are adjusted for asset retirements and disposals with the resulting gain or loss included in our consolidated statements of comprehensive income.

Research and Development

Research and development costs primarily include maintenance and data conversion activities related to our cloud-based supply chain management solutions and are expensed as incurred.

Goodwill

Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired in business combinations.  We test goodwill for impairment annually at November 30, or more frequently if events or changes in circumstances indicate that the asset might be impaired.  The impairment test is conducted by comparing the fair value of the net assets with the carrying value of the reporting unit.  Fair value is determined using the direct market observation of market price and outstanding equity of the reporting unit at the testing date.  If the carrying value of the goodwill exceeds the fair value of the reporting unit, goodwill may be impaired.  If this occurs, the fair value is then allocated to its assets and liabilities in a manner similar to a purchase price allocation in order to determine the implied fair value of goodwill.  This implied fair value is then compared to the carrying amount of goodwill and, if it is less, we would recognize an impairment loss.

Intangible Assets

Assets acquired in business combinations may include identifiable intangible assets such as subscriber relationships and non-competition agreements.  We recognize separately from goodwill the fair value of the identifiable intangible assets acquired.  We have determined the fair value and useful lives of our purchased intangible assets using certain estimates and assumptions that we believe are reasonable.

The purchased intangible assets are being amortized on a straight-line basis over their estimated useful lives, which are three to nine years for subscriber relationships, two to five years for non-competition agreements and one to four years for technology and other.

Impairment of Long-Lived Assets

We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.  The carrying amount of a long-lived asset is not recoverable if the carrying amount of an asset group exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the assets at the date it is tested for recoverability, whether in use or under development.  An impairment loss is measured as the amount by which the carrying amount of a long-lived asset exceeds its fair value.

Revenue Recognition

We generate revenues by providing three types of solutions to our customers; fulfillment, enablement and analytics.  Our cloud-based solutions allow our customers to meet their supply chain management requirements.

Revenues are recognized when all of the following criteria are met: (1) persuasive evidence of an arrangement exists, (2) delivery has occurred, (3) the fee is fixed or determinable, and (4) collectability is probable.  If collection is not considered probable, revenues are recognized when the fees are collected.

Fees related to our fulfillment and analytics solutions consist of two revenue sources: set-up fees and recurring monthly fees.  Set-up fees are specific for each connection a customer has with a trading partner and most of our customers have connections with numerous trading partners.  Set-up fees are nonrefundable upfront fees that do not have standalone value to our customer and are not separable from the recurring monthly fees.  All set-up fees and related costs are deferred and recognized ratably over the average life of the connection between the customer and the trading partner, which is approximately two years.  We begin recognizing set-up fee revenue once the connection is established.  Set-up fees for which connections have not yet been established are classified as long-term.  We continue to evaluate the length of the amortization period as more experience is gained with cancellations and technology changes requested by our customers.  It is possible that, in the future, the period over which such subscription set-up fees and costs are amortized may be adjusted.  Any change in our estimate of the average connection life will affect our future results of operations.  The recurring monthly fees are comprised of both fixed and transaction-based fees that are recognized as earned.

Stock-Based Compensation

We recognize the cost of all share-based payments to employees, including grants of employee stock options, in the financial statements based on the grant date fair value of those awards.  This cost is recognized over the period for which an employee is required to provide service in exchange for the award.

We estimate the fair value of options granted using the Black-Scholes option pricing model.  In valuing share-based awards, judgment is required in determining the expected volatility of common stock and the expected term individuals will hold their share-based awards prior to exercising.  The expected volatility of the options is based on the historical volatility of our common stock.  The expected term of the options is based on the simplified method which does not consider historical employee exercise behavior.

Income Taxes

We account for income taxes using the liability method, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements.  Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.  Deferred tax assets are reduced by a valuation allowance when, in our judgement, there is a less than a 50% likelihood that the deferred tax asset will be utilized.

We assess our ability to realize our deferred tax assets at the end of each reporting period.  Realization of our deferred tax assets is contingent upon future taxable earnings.  Accordingly, this assessment requires significant estimates and judgment.  If the estimates of future taxable income vary from actual results, our assessment regarding the realization of these deferred tax assets could change.  Future changes in the estimated amount of deferred taxes expected to be realized will be reflected in our consolidated financial statements in the period the estimate is changed, with a corresponding adjustment to our operating results.

We recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would “more likely than not” sustain the position following an audit.  For tax positions meeting the “more likely than not” threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority.

Net Income (Loss) Per Share

Basic net income (loss) per share has been computed using the weighted average number of shares of common stock outstanding during each period.  Diluted net income (loss) per share also includes the impact of our outstanding potential common shares, including options, restricted stock units and restricted stock awards.  Potential common shares that are anti-dilutive are excluded from the calculation of diluted net income (loss) per share.

Recently Adopted Accounting Pronouncements

In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-09, Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”).  The new guidance requires excess tax benefits and tax deficiencies to be recorded in the income statement when the awards vest or are settled and provides an accounting policy election to account for forfeitures as they occur.  In addition, cash flows related to excess tax benefits will no longer be separately classified as a financing activity apart from other income tax cash flows within operating activities.  The standard also allows entities to repurchase more of an employee’s shares for tax withholding purposes without triggering liability accounting and clarifies that all cash payments made on an employee’s behalf for withheld shares should be presented as a financing activity on the statements of cash flows.  The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016, with early adoption permitted.

We adopted ASU 2016-09 during the year ended December 31, 2017.  The impact to our consolidated balance sheet as of January 1, 2017 was a $16.3 million increase in deferred income tax assets and a corresponding $16.3 million decrease in accumulated deficit.  This impact results from the cumulative-effect adjustment for previously unrecognized excess tax benefits using the modified retrospective method required by the new standard.  We elected to adopt the changes in cash flow statement presentation prospectively to be consistent with the prospective transition for the treatment of excess tax benefits in the income statement.  Accordingly, we no longer classify excess tax benefits as a financing activity subsequent to January 1, 2017.

On December 22, 2017, the Securities and Exchange Commission (“SEC”) staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP related to the enactment of the comprehensive tax legislation, commonly referred to as the Tax Cut and Jobs Act (“Tax Act”).  This guidance was adopted in the fourth quarter of 2017.  Additional information regarding our adoption of this guidance is contained in Note J.

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  This guidance will replace most existing revenue recognition guidance in GAAP when it becomes effective.  These new requirements are effective for annual reporting periods beginning after December 15, 2017, and interim periods within those annual periods.  The new revenue recognition standard will not materially impact our recognition of the primary fees received from customers for our cloud-based supply chain solutions.  The adoption of the new standard will impact our accounting for certain upfront set-up fees and the periods over which the related revenues are recognized, as well as the timing of cost recognition for some sales commissions.  When compared to previously reported amounts, revenue will decrease $0.5 million and $0.1 million for the years ended December 31, 2017 and 2016, respectively.  Commission expense, which is reported in sales and marketing expense, will decrease $2.0 million for the year ended December 31, 2017 and increase $1.0 million for the year ended December 31, 2016.

In February 2016, the FASB issued ASU 2016-02, Leases, which will supersede existing lease guidance and will require all leases with a term greater than 12 months to be recognized in the statements of financial position and eliminate current real estate-specific lease guidance, while maintaining substantially similar classification criteria for distinguishing between finance leases and operating leases.  This standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted.  We believe the adoption of the new lease accounting standard will materially impact our consolidated financial statements by increasing our non-current assets and non-current liabilities on our consolidated balance sheets in order to record the right of use assets and related lease liabilities for our existing operating leases.  We are in the process of determining the financial statement impact and are currently unable to estimate the impact on our consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350), which simplifies the test for goodwill impairment by eliminating step two from the goodwill impairment test.  Under the new guidance, an entity should recognize an impairment charge for the amount based on the excess of a reporting unit’s carrying amount over its fair value.  The impairment charge will be limited to the amount of goodwill allocated to that reporting unit.  This guidance is effective for annual and interim impairment tests performed in periods beginning after December 15, 2019 on a prospective basis, and earlier adoption is permitted for goodwill impairment tests performed on testing dates after January 1, 2017.  We believe the adoption of this standard will not have a material impact on our consolidated financial statements.

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Business Acquisitions

12 Months Ended

Dec. 31, 2017

Business Combinations [Abstract]

Business Acquisitions

NOTE B – Business Acquisitions

Toolbox Solutions, Inc.

On January 5, 2016, we completed our acquisition of all of the outstanding common shares of Toolbox Solutions, Inc. (“Toolbox Solutions”), a privately held company providing point-of-sale analytics and category management services to retailers and consumer packaged goods suppliers in North America. This acquisition expanded our retail network and strengthened our analytics offerings.  Pursuant to the share purchase agreement, we paid $18.0 million in cash and issued $2.9 million in stock, or 43,953 shares of common stock, to the shareholders of Toolbox Solutions. The purchase agreement also allowed the sellers to receive up to 16,222 additional shares of common stock, which would have become payable contingent upon the completion of certain revenue milestones, none of which were met, and therefore, no additional shares were issued.  During the year ended December 31, 2016, we recognized other income of $1.1 million in our consolidated statements of comprehensive income due to the remeasurement of this contingent liability.

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 purchase price consisted of the following (in thousands):

Cash	$	18,032
SPS Commerce, Inc. common stock		2,922
Fair value of share-based earn-out liability		1,043
	$	21,997

The final purchase price was subject to a net working capital adjustment to be determined by the sellers and us, pursuant to the terms of the purchase agreement.  The number of shares of our common stock issued for the acquisition was a net of 43,953 shares, which consisted of 48,668 shares issued at closing, as calculated according to the terms of the purchase agreement, less 4,715 shares that were returned to us from escrow in the fourth quarter of 2016.

The following table summarizes the estimated fair values of the assets acquired, net of cash acquired of $0.4 million, and liabilities assumed at the acquisition date (in thousands):

Current assets	$	1,253
Property and equipment		56
Goodwill		15,389
Intangible assets		9,070
Current liabilities		(1,249	)
Deferred revenue		(301	)
Deferred income tax liability		(2,221	)
	$	21,997

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)
Subscriber relationships	$	7,400		8
Developed technology		1,200		4
Trade names		70		1
Non-competition agreements		400		5
Total	$	9,070

The purchased intangible assets are being amortized on a straight-line basis over their estimated useful lives.  Amortization expense for the period from January 5, 2016 through December 31, 2016 was $1.4 million.

Acquisition-Related Costs and Post-Acquisition Operating Results

Acquisition-related costs were $0.1 million and are included in our consolidated statement of comprehensive income for the year ended December 31, 2016. The operating results of Toolbox Solutions have been included in our consolidated financial statements since January 5, 2016, the closing date of the acquisition.  For the period from January 5, 2016 through December 31, 2016, approximately $7.9 million of our revenues were derived from Toolbox Solutions’ products and services.  The amount of operating income or loss from Toolbox Solutions was not separately identifiable due to our integration.

Unaudited Pro Forma Financial Information

The unaudited pro forma financial information in the table below presents the combined operating results of SPS Commerce and Toolbox Solutions as if the acquisition had occurred on January 1, 2015.  The unaudited pro forma information includes the historical operating results of each company and pro forma adjustments for the approximately $1.4 million of annual amortization expense related to purchased intangible assets and the additional impact on the provision or benefit for income taxes, resulting from the combined income and intangible amortization expense, using our statutory blended income tax rate of 26.5%.

The unaudited pro forma financial information is presented for informational purposes only and is not necessarily indicative of the results of operations that would have actually been reported had the acquisition occurred on January 1, 2015, nor is it necessarily indicative of our results of operations for any future periods.

	Year Ended December 31,
(in thousands, except per share data)	2016		2015
Pro forma total revenue	$	193,525	$	166,873
Pro forma net income		5,976		2,400
Pro forma net income per share
Basic		0.35		0.14
Diluted		0.35		0.14

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Financial Instruments

12 Months Ended

Dec. 31, 2017

Financial Instruments Owned At Fair Value [Abstract]

Financial Instruments

NOTE C – 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 highly liquid investments with original maturities of 90 days or less are classified as cash equivalents.  All investments with original maturities greater than 90 days and remaining maturities 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.

Our short- and long-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.  Consequently, we may or may not keep securities with stated holding periods to maturity.

Our marketable securities are carried at fair value and unrealized gains and losses on these investments, net of taxes, are included in accumulated other comprehensive loss in the consolidated balance sheets.  Realized gains or losses are included in other income (expense), net in the consolidated statements of comprehensive income.  When a determination has been made that an other-than-temporary decline in fair value has occurred, the amount of the decline that is related to a credit loss is realized and is included in other income (expense), net in the consolidated statements of comprehensive income.

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

	December 31,
	2017							2016
	Amortized		Unrealized			Fair		Amortized		Unrealized			Fair
	Cost		Gains (Losses)			Value		Cost		Gains (Losses)			Value
Cash equivalents:
Money market funds	$	104,544	$	—		$	104,544	$	75,375	$	—		$	75,375
Certificate of deposit		7,814		—			7,814		—		—			—
Marketable securities:
Corporate bonds		17,758		(57	)		17,701		15,681		(96	)		15,585
Commercial paper		7,456		20			7,476		4,977		10			4,987
U.S. treasury securities		12,381		26			12,407		7,489		10			7,499
U.S. agency obligations		—		—			—		2,497		3			2,500
	$	149,953	$	(11	)	$	149,942	$	106,019	$	(73	)	$	105,946
Due within one year						$	144,736						$	98,452
Due within two years							5,206							7,494
Total						$	149,942						$	105,946

We do not believe any of the unrealized losses represent an other-than-temporary impairment based on our assessment of available evidence as of December 31, 2017.  We expect to receive the full principal and interest on all of these cash equivalents and short- and long-term investments.

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.

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):

	Level 1		Level 2		Level 3		Total
Assets at December 31, 2017:
Cash equivalents:
Money market funds	$	104,544	$	—	$	—	$	104,544
Certificate of deposit		7,814		—		—		7,814
Marketable securities:
Corporate bonds		—		17,700		—		17,700
Commerical paper		—		7,477		—		7,477
U.S. treasury securities		—		12,407		—		12,407
	$	112,358	$	37,584	$	—	$	149,942
Assets at December 31, 2016:
Cash equivalents:
Money market funds	$	75,375	$	—	$	—	$	75,375
Marketable securities:
Corporate bonds		—		15,585		—		15,585
Commerical paper		—		4,987		—		4,987
U.S. treasury securities		—		7,499		—		7,499
U.S. agency obligations		—		2,500		—		2,500
	$	75,375	$	30,571	$	—	$	105,946

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Allowance for Doubtful Accounts

12 Months Ended

Dec. 31, 2017

Receivables [Abstract]

Allowance for Doubtful Accounts

NOTE D – Allowance for Doubtful Accounts

The allowance for doubtful accounts activity, included in accounts receivable, net, was as follows (in thousands):

	2017			2016			2015
Balances, January 1	$	515		$	446		$	279
Provision for doubtful accounts		1,705			1,375			1,271
Write-offs, net of recoveries		(1,457	)		(1,306	)		(1,104	)
Balances, December 31	$	763		$	515		$	446

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Property and Equipment, net

12 Months Ended

Dec. 31, 2017

Property Plant And Equipment [Abstract]

Property and Equipment, net

NOTE E – Property and Equipment, net

Property and equipment, net included the following (in thousands):

	December 31,
	2017			2016
Computer equipment and software	$	35,326		$	29,270
Office equipment and furniture		7,439			7,087
Leasehold improvements		8,042			7,844
		50,807			44,201
Less: accumulated depreciation and amortization		(33,951	)		(28,887	)
	$	16,856		$	15,314

At December 31, 2017 and 2016, property and equipment, net included approximately $2.2million and $2.1million, respectively, of assets held at subsidiary and office locations outside of the U.S.

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Goodwill and Intangible Assets, net

12 Months Ended

Dec. 31, 2017

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 years ended December 31, 2017 and 2016 are as follows (in thousands):

	2017		2016
Balances, January 1	$	49,777	$	33,848
Additions from business acquisitions		—		15,389
Foreign currency translation		1,836		540
Balances, December 31	$	51,613	$	49,777

Intangible assets, net included the following (in thousands):

	December 31, 2017
	Carrying Amount		Accumulated Amortization			Foreign Currency Translation		Net
Subscriber relationships	$	34,350	$	(19,592	)	$	614	$	15,372
Non-competition agreements		2,499		(2,058	)		45		486
Technology and other		2,130		(1,518	)		59		671
	$	38,979	$	(23,168	)	$	718	$	16,529

	December 31, 2016
	Carrying Amount		Accumulated Amortization			Foreign Currency Translation		Net
Subscriber relationships	$	33,736	$	(15,708	)	$	295	$	18,323
Non-competition agreements		2,234		(1,818	)		17		433
Technology and other		2,089		(1,120	)		63		1,032
	$	38,059	$	(18,646	)	$	375	$	19,788

Amortization expense was $4.6million, $4.7million and $3.3million for the years ended December 31, 2017, 2016 and 2015, respectively.  At December 31, 2017, future amortization expense for intangible assets was as follows (in thousands):

2018	$	4,022
2019		3,730
2020		3,365
2021		2,520
2022		1,449
Thereafter		1,443
	$	16,529

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Commitments and Contingencies

12 Months Ended

Dec. 31, 2017

Commitments And Contingencies Disclosure [Abstract]

Commitments and Contingencies

NOTE G – Commitments and Contingencies

Operating Leases

We are obligated under non-cancellable operating leases primarily for office space.  Rent expense for all operating leases, which includes minimum lease payments and other charges such as common area maintenance fees, charged to operations was $4.9million, $5.0million and $4.6 million for the years ended December 31, 2017, 2016 and 2015, respectively.

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 166,000 square feet under an agreement that expires on April 30, 2025.  We have agreed to expand our headquarters premises by approximately 48,000 square feet during 2018 and 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.  We received $3.2 million in incentives upon execution of the amendment which have been incorporated into our deferred rent calculation.

At December 31, 2017, our future minimum payments under operating leases were as follows (in thousands):

2018	$	3,833
2019		3,847
2020		3,122
2021		3,624
2022		3,270
Thereafter		6,796
	$	24,492

Other Contingencies

We may be involved in various claims and legal actions in the normal course of business.  Our management believes that the outcome of any such claims and legal actions will not have a material effect on our financial position, results of operations or cash flows.

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Stockholders' Equity

12 Months Ended

Dec. 31, 2017

Equity [Abstract]

Stockholders’ Equity

NOTE H – Stockholders’ Equity

Common Stock Issued

In connection with the acquisition of Toolbox Solutions (see Note B), we issued a net of 43,953 shares which consisted of 48,668 shares issued at closing, as calculated according to the terms of the purchase agreement, less 4,715 shares that were returned to us from escrow in the fourth quarter of 2016.  The fair value of the shares we issued, approximately $2.9 million, was determined using the closing price of our common stock on January 5, 2016.

During the second quarter of 2017, 8,866 shares were returned from escrow pursuant to the agreement with Toolbox Solutions.

Stock Repurchase Program

On November 2, 2017, our board of directors authorized a program to repurchase up to $50.0 million of common stock.  Under the program, purchases may be made from time to time in the open market over the next two years.  The number of shares to be purchased and the timing of purchases will be based on the price of our common stock, general business and market conditions and other investment considerations and factors.

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

During the fourth quarter of 2017, we repurchased 122,147 shares at a cost of $5.8 million. As of December 31, 2017, $44.2 million of the $50.0 million share repurchases authorized was available for future share repurchases.

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Stock-Based Compensation

12 Months Ended

Dec. 31, 2017

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Stock-Based Compensation

NOTE I – Stock-Based Compensation

Our equity compensation plans provide for the grant of incentive and nonqualified stock options, as well as other stock-based awards including restricted stock and restricted stock units, to employees, non-employee directors and other consultants who provide services to us.  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 2017 and February 2016, 1,024,868 and 1,003,439 additional shares, respectively, were reserved for future issuance under our 2010 Equity Incentive Plan.  At December 31, 2017, there were approximately 4.6 million shares available for grant under approved equity compensation plans.

We recorded stock-based compensation expense of $12.7million, $8.0 million and $6.4 million for the years ended December 31, 2017, 2016 and 2015, respectively.  During the year ended December 31, 2017, stock-based compensation expense included a $3.6 million charge due to immediate expensing of equity awards upon our Chief Executive Officer meeting certain age and years of service conditions. Stock-based compensation expense was allocated as follows (in thousands):

	Year Ended December 31,
	2017		2016		2015
Cost of revenues	$	1,887	$	1,309	$	989
Operating expenses
Sales and marketing		2,197		2,412		1,978
Research and development		949		618		640
General and administrative		7,694		3,684		2,772
Total stock-based compensation expense	$	12,727	$	8,023	$	6,379

As of December 31, 2017, there was approximately $11.6million 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 2.5 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 January 1, 2015		1,085,463		$	26.53
Granted		181,487			67.50
Exercised		(305,106	)		14.55
Forfeited		(18,741	)		45.82
Outstanding at December 31, 2015		943,103			37.91
Granted		340,609			48.58
Exercised		(221,630	)		19.42
Forfeited		(46,070	)		55.58
Outstanding at December 31, 2016		1,016,012			44.72
Granted		172,697			55.87
Exercised		(65,502	)		21.53
Forfeited		(25,876	)		55.93
Outstanding at December 31, 2017		1,097,331			47.60

Of the total outstanding options at December 31, 2017, 743,471were exercisable with a weighted average exercise price of $44.58per share.  The total outstanding options had a weighted average remaining contractual life of 4.0 years.

The fair value of options that vested during the years ended December 31, 2017, 2016 and 2015 was $4.2million, $3.4million and $3.1million, respectively.

The intrinsic value of options exercised during the years ended December 31, 2017, 2016 and 2015 was $2.8million, $8.6million and $16.8million, respectively.  The intrinsic value of outstanding options at December 31, 2017, 2016 and 2015 was $7.3million, $25.6million and $30.5 million, respectively.

The weighted-average fair values per share of options granted during the years ended December 31, 2017, 2016 and 2015 were $18.85, $16.13 and $23.09, respectively.  The fair values of the options granted were estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:

	Year Ended December 31,
	2017			2016			2015
Volatility		38	%		38	%		39	%
Dividend yield		—			—			—
Life (in years)		4.51			4.54			4.52
Risk-free interest rate		1.85	%		1.19	%		1.36	%

The expected volatility of the options is based on the historical volatility of our common stock. We have not issued dividends on our common stock and do not expect to do so in the foreseeable future.  The expected term of the options is based on the simplified method which does not consider historical employee exercise behavior.  The risk-free interest rate is based on the U.S. Treasury rates at the date of grant with maturity dates approximately equal to the expected life at the grant date.

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 predetermined revenue targets over the course of a three-year performance period.  No expense for PSU awards was recognized during the year ended December 31, 2017 as the probability of attainment of the revenue target decreased.

Restricted stock units (“RSU”) vest over four years and, upon vesting, the holder is entitled to receive shares of our common stock.  With restricted stock awards (“RSA”), shares of our common stock are issued when the award is granted and the restrictions lapse over one year.

Our PSU and RSU activity was as follows:

				Weighted Average
	PSUs and RSUs			Grant Date Fair
	(#)			Value ($/share)
Outstanding at January 1, 2015		115,133		$	45.25
Granted		68,159			67.50
Vested and common stock issued		(37,669	)		40.91
Forfeited		(5,058	)		54.28
Outstanding at December 31, 2015		140,565			56.88
Granted		115,896			48.32
Vested and common stock issued		(52,133	)		48.19
Forfeited		(15,286	)		55.48
Outstanding at December 31, 2016		189,042			54.14
Granted		211,168			55.62
Vested and common stock issued		(64,950	)		53.64
Forfeited		(13,348	)		55.39
Outstanding at December 31, 2017		321,912			55.16

The number of PSUs and RSUs outstanding at December 31, 2017 included 44,177units that have vested, but the shares of common stock have not yet been issued pursuant to the terms of the agreement.

Our RSA activity was as follows:

				Weighted Average
	RSAs			Grant Date Fair
	(#)			Value ($/share)
Outstanding at January 1, 2015		1,338		$	51.74
Restricted common stock issued		4,110			67.37
Restrictions lapsed		(4,416	)		62.63
Outstanding at December 31, 2015		1,032			67.39
Restricted common stock issued		6,078			52.27
Restrictions lapsed		(5,586	)		55.06
Outstanding at December 31, 2016		1,524			52.28
Restricted common stock issued		5,454			58.29
Restrictions lapsed		(5,610	)		56.65
Outstanding at December 31, 2017		1,368			58.29

Employee Stock Purchase Plan

Effective July 1, 2012, we adopted 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.  A total of 1.0million shares of common stock are remaining for issuance under the plan.

For the offering periods in 2017, 2016 and 2015, we withheld approximately $1.9 million, $1.7 million and $1.5 million, respectively, from employees participating in the plan and purchased 40,968 shares, 33,357 shares and 28,362 shares, respectively, on their behalf.  

For the years ended December 31, 2017, 2016 and 2015, we recorded approximately $0.7million, $0.6million and $0.4 million, respectively, of stock-based compensation expense associated with the employee stock purchase plan.  The fair value was estimated based on the market price of our common stock at the beginning of each offering period and using the Black-Scholes option pricing model with the following weighted-average assumptions:

	Year Ended December 31,
	2017			2016			2015
Volatility		32	%		37	%		30	%
Dividend yield		—			—			—
Life (in years)		0.50			0.50			0.50
Risk-free interest rate		0.90	%		0.42	%		0.12	%

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Income Taxes

12 Months Ended

Dec. 31, 2017

Income Tax Disclosure [Abstract]

Income Taxes

NOTE J – Income Taxes

Our provisions for income taxes included current federal, foreign and state income tax expense, as well as deferred tax expense as follows (in thousands):

	Year Ended December 31,
	2017			2016			2015
Current
Federal	$	(184	)	$	3,684		$	2,066
State		258			555			289
Foreign		652			599			119
Deferred
Federal		11,551			(988	)		103
State		(342	)		(133	)		(141	)
Foreign		(355	)		(577	)		—
	$	11,580		$	3,140		$	2,436

The current federal provision in the table above includes a $0.4 million reclass of alternative minimum tax (“AMT”) credit carryforwards from the deferred federal provision. These unutilized AMT credit carryforwards become partially refundable in 2019, 2020 and 2021 and fully refundable in 2022.

A reconciliation of the expected federal income tax at the statutory rate to the provision for income taxes was as follows (in thousands):

	Year Ended December 31,
	2017			2016			2015
Expected federal income tax at statutory rate	$	3,107		$	3,011		$	2,404
State income taxes, net of federal tax effect		366			320			246
Tax impact of foreign activity		(105	)		(115	)		39
Permanent book/tax differences		460			372			67
Change in valuation allowance		16			(35	)		(27	)
Change in state deferred rate		(134	)		(67	)		(118	)
Research and development credit		(227	)		(261	)		(200	)
Tax impact of Tax Cuts and Jobs Act		8,613			—			—
Tax impact of stock activity		(925	)		—			—
Other		409			(85	)		25
Total provision for income taxes	$	11,580		$	3,140		$	2,436

The tax provision for the year ended December 31, 2017 includes tax benefits of $0.9 million for the excess tax deduction from stock activity.  It also includes tax expense of $8.6 million related to The Job Cuts and Tax Act (“Tax Act”), primarily due to the reduction in corporate tax rate to 21.0% resulting in a decrease in our U.S. net deferred tax assets.

Differences between our effective tax rate and statutory tax rates are primarily due to the impact of the Tax Act, as well as permanently non-deductible expenses partially offset by the federal research and development credit.  Additionally, under ASU 2016-09, excess tax benefits generated upon settlement or exercise of stock awards are now recognized as a reduction to income tax expense as a discrete tax item in the period that the event occurs creating potentially significant fluctuation in tax expense by year.

The significant components of our deferred tax assets (liabilities) were as follows (in thousands):

	December 31,
	2017						2016
Deferred tax assets
Net operating loss and credit carryforwards	$	11,067					$	4,614
Deferred operations		—						799
Stock-based compensation expense		4,273						4,085
Accounts receivable allowances		307						363
Accrued expenses		2,293						2,704
Other		182						297
Gross deferred tax asset					18,122						12,862
Less: valuation allowance		(602	)					(649	)
Total net deferred tax asset					17,520						12,213
Deferred tax liability
Deferred operations		(163	)					—
Foreign operations		(133	)					(350	)
Depreciation and amortization		(1,536	)					(1,328	)
Other		(24	)					—
Total deferred tax liability					(1,856	)					(1,678	)
Net deferred tax assets				$	15,664					$	10,535

As of December 31, 2017, we had net operating loss carryforwards of $58.5million for U.S. federal tax purposes.  We also had $10.6million of various state net operating loss carryforwards.  The loss carryforwards for federal tax purposes will expire between 2020 and 2036 if not utilized.  The loss carryforwards for state tax purposes will expire between 2018 and 2036 if not utilized.

Section 382 of the U.S. Internal Revenue Code generally imposes an annual limitation on the amount of net operating loss carryforwards that might be used to offset taxable income when a corporation has undergone significant changes in stock ownership.  We have performed a Section 382 analysis for the time period from our inception through December 8, 2010.  During this time period it was determined that we had six separate ownership changes under Section 382.  We have not updated the Section 382 analysis subsequent to December 8, 2010, however, we believe there have not been any events subsequent to that date that would materially impact the analysis.  We believe that approximately $17.6 million of federal losses will expire unused due to Section 382 limitations.  The maximum annual limitation of federal net operating losses under Section 382 is approximately $1.0 million.  This limitation could be further restricted if any ownership changes occur in future years.  Accordingly, our deferred tax assets are reported net of the excess tax deductions for stock compensation and Section 382 limitations.

As of December 31, 2017 we had federal research and development credit carryforwards, net of Section 383 limitations, of $1.2 million, which, if not utilized, will begin to expire in 2030.  We had state research and development credit carryforwards of $0.6 million which, if not utilized, will begin to expire in 2025.

As of December 31, 2017, we had a valuation allowance against our deferred tax assets of $0.6 million.  The valuation allowance is established for state net operating loss and credit carryforwards that we do not expect to utilize based on our current expectations of future state taxable income.

We are subject to income taxes in the U.S. federal, various state and international jurisdictions.  We are generally subject to U.S. federal and state tax examinations for all prior tax years due to our net operating loss carryforwards and the utilization of the carryforwards in years still open under statute.

As of December 31, 2017, we do not have any unrecognized tax benefits.  It is our practice to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense.  We do not expect any material changes in our unrecognized tax positions over the next 12 months.

Tax Act

The Tax Act, which was enacted on December 22, 2017, includes broad and complex changes to the U.S tax code.  The Tax Act reduces the corporate federal income tax rate to 21.0% effective January 1, 2018 and establishes a mandatory tax on previously untaxed foreign earnings and profits (“E&P”).  The Tax Act expands the limitations for executive compensation under Section 162(m) and includes transition rules for previously awarded compensation.  

Accounting Standard Codification 740 requires a company to record the effects of a tax law change in the period of enactment, however, the SEC staff issued SAB 118, which allows a company to record a provisional amount when it does not have the necessary information available, prepared or analyzed in reasonable detail to complete its accounting for the change in the tax law.  The measurement period ends when the company has obtained, prepared and analyzed the information necessary to finalize its accounting, but cannot extend beyond one year.

We have finalized our accounting for the corporate rate reduction and have recorded a decrease to our net deferred tax assets of $8.6 million with a corresponding adjustment to deferred tax expense for the year ended December 31, 2017.  We have estimated that there is no tax on mandatory deemed repatriation due to a net foreign E&P deficit.  We are continuing to evaluate the impact of the Tax Act on the taxation of previously untaxed foreign E&P and the deferred tax liability for withholding taxes on dividends.  We are also continuing to evaluate the impact the expanded Section 162(m) limitations and related transition rules have on our deferred tax assets related to stock compensation.

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Net Income (Loss) Per Share

12 Months Ended

Dec. 31, 2017

Earnings Per Share [Abstract]

Net Income (Loss) Per Share

NOTE K – Net Income (Loss) Per Share

The following table presents the components of the computation of basic and diluted net income (loss) per share for the periods indicated (in thousands, except per share amounts):

	Year Ended December 31,
	2017			2016		2015
Numerator
Net (loss) income	$	(2,440	)	$	5,710	$	4,639
Denominator
Weighted average common shares outstanding, basic		17,183			16,947		16,565
Options to purchase common stock		—			267		437
Restricted stock units		—			27		27
Employee stock purchase plan		—			—		3
Weighted average common shares outstanding, diluted		17,183			17,241		17,032
Net (loss) income per share
Basic	$	(0.14	)	$	0.34	$	0.28
Diluted	$	(0.14	)	$	0.33	$	0.27

For the years ended December 31, 2017, 2016 and 2015, the effect of approximately 283,000, 5,000 and 4,000 outstanding potential common shares, respectively, were excluded from the calculation of diluted net income (loss) per share as they were anti-dilutive.

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Retirement Savings Plan

12 Months Ended

Dec. 31, 2017

Compensation And Retirement Disclosure [Abstract]

Retirement Savings Plan

NOTE L – Retirement Savings Plan

We sponsor a 401(k) retirement savings plan for our U.S. employees. Employees can contribute up to 100% of their compensation, subject to the limits established by law. We match 25% of the employee’s contribution up to the first 6% of pre-tax annual compensation. Additionally, we make statutory contributions to retirement plans as required by local foreign government regulations. Our contributions to the plans, which vest immediately, were $1.6million, $1.4million and $1.1million for the years ended December 31, 2017, 2016 and 2015, respectively.

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Related Party Transactions

12 Months Ended

Dec. 31, 2017

Related Party Transactions [Abstract]

Related Party Transactions

NOTE M – Related Party Transactions

SPS Commerce Foundation (the “Foundation”) is a Minnesota non-profit organization exempt from federal taxation under Section 501(c)(3) of the Internal Revenue Code. The Foundation was formed in 2015 to engage in, advance, support, promote and administer charitable activities. The directors of the Foundation are also our officers. These officers receive no compensation from the Foundation for the management services performed for the Foundation. The Foundation is not a subsidiary of ours and the financial results of the Foundation are not consolidated with our financial statements. We made contributions of $0.2 million and $0.3 million to the Foundation for the years ended December 31, 2017 and 2016, respectively. We have no current legal obligations for future commitments to the Foundation.

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Selected Quarterly Financial Data (Unaudited)

12 Months Ended

Dec. 31, 2017

Quarterly Financial Information Disclosure [Abstract]

Selected Quarterly Financial Data (Unaudited)

NOTE N – Selected Quarterly Financial Data (Unaudited)

The following table presents our selected unaudited quarterly statements of comprehensive income data (in thousands, except per share amounts):

	For the Three Months Ended
2017	Mar 31		Jun 30		Sep 30		Dec 31
Revenues	$	51,932	$	54,284	$	56,150	$	58,200
Gross profit		34,602		36,093		37,505		38,741
Income (loss) from operations		3,376		2,727		2,846		(521	)
Net income (loss)		2,971		1,825		1,865		(9,101	)
Diluted earnings (loss) per share	$	0.17	$	0.11	$	0.11	$	(0.53	)

	For the Three Months Ended
2016	Mar 31		Jun 30		Sep 30		Dec 31
Revenues	$	45,599	$	47,351	$	49,284	$	51,061
Gross profit		30,718		31,379		33,113		33,739
Income from operations		1,314		880		2,670		2,653
Net income		1,044		352		2,509		1,805
Diluted earnings per share	$	0.06	$	0.02	$	0.14	$	0.10

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General (Policies)

12 Months Ended

Dec. 31, 2017

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Basis of Presentation

Basis of Presentation

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of SPS Commerce, Inc. and its subsidiaries.  All intercompany accounts and transactions have been eliminated in the consolidated financial statements.

Foreign Currency Translation

Foreign Currency Translation

Assets and liabilities denominated in currencies other than the U.S. dollar are translated into U.S. dollars at the exchange rates in effect at the balance sheet date, with the resulting translation adjustments recorded as a separate component of accumulated other comprehensive loss.  Income and expense accounts are translated at the average exchange rates during the year.  Foreign currency transaction gains and losses, if any, are included in net income (loss).

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 and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.  Actual results could differ from those estimates.

Business Combinations

Business Combinations

We recognize separately from goodwill the fair value of the assets acquired and the liabilities assumed at the acquisition date.  Goodwill as of the acquisition date is measured as the excess of consideration transferred and the net of the acquisition date amounts of the assets acquired and the liabilities assumed.  Assets acquired include tangible and intangible assets.  We use estimates and assumptions that we believe are reasonable as a part of determining the value and useful lives of purchased intangible assets and the purchase price allocation process.  While we believe these estimates and assumptions are reasonable, they are inherently uncertain and subject to refinement.  As a result, during the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the fair value of the assets acquired and the liabilities assumed.  Any such adjustments would be recorded as an offset to goodwill.  Upon the conclusion of the measurement period or final determination of the fair values, whichever comes first, any subsequent adjustments would be recorded in our consolidated statements of comprehensive income.

Segment Information

Segment Information

We operate in and report on one segment, which is supply chain management solutions.

Risk and Uncertainties

Risk and Uncertainties

We rely on hardware and software licensed from third parties to offer our on-demand solutions.  Our management believes alternate sources are available; however, disruption or termination of these relationships could adversely affect our operating results in the near term.

Concentration of Credit Risk

Concentration of Credit Risk

Financial instruments that potentially subject us to concentrations of credit risk consist principally of temporary cash and cash equivalents in financial institutions in excess of federally insured limits and trade accounts receivable.  Temporary cash investments are held with financial institutions that we believe are subject to minimal risk.

Cash and Cash Equivalents

Cash and Cash Equivalents

Cash and cash equivalents consist of cash and highly liquid investments with original maturities of less than 90 days.  Cash and cash equivalents are stated at fair value.

Investments

Investments

Management determines the appropriate classification of certificates of deposit and marketable securities at the time of purchase and reevaluates such determination at each balance sheet date.  Securities are classified as available for sale and are carried at fair value, with the change in unrealized gains and losses, net of tax, reported as a separate component on the consolidated statements of comprehensive income.  Fair value is determined based on quoted market rates when observable or utilizing data points that are observable, such as quoted prices, interest rates and yield curves.  When a determination has been made that an other-than-temporary decline in fair value has occurred, the amount of the decline that is related to a credit loss is realized and is included in other income (expense), net in the consolidated statements of comprehensive income.

Fair Value of Financial Instruments

Fair Value of Financial Instruments

The carrying amounts of our financial instruments, which include cash, cash equivalents, accounts receivable, accounts payable and other accrued expenses, approximates fair value due to their short maturities.  Marketable securities are recorded at fair value as further described in Note C.

Accounts Receivable

Accounts Receivable

Accounts receivable are initially recorded upon the sale of solutions to customers.  Credit is granted in the normal course of business without collateral.  Accounts receivable are stated net of allowances for doubtful accounts, which represent estimated losses resulting from the inability of certain customers to make the required payments.  When determining the allowances for doubtful accounts, we take several factors into consideration including the overall composition of the accounts receivable aging, our prior history of accounts receivable write-offs, the type of customers and our experience with specific customers.  We write-off accounts receivable when they are determined to be uncollectible.  Changes in the allowances for doubtful accounts are recorded as bad debt expense and are included in general and administrative expense in our consolidated statements of comprehensive income.

Property and Equipment

Property and Equipment

Property and equipment, including assets acquired under capital lease obligations, are stated at cost, net of accumulated depreciation and amortization.  Depreciation and amortization are computed using the straight-line method over the estimated useful lives when placed in service, which are:

Computer equipment and software: 2 to 3 years

Office equipment and furniture: 5 to 7 years

Leasehold improvements: the shorter of the useful life of the asset or the remaining term of the lease

Significant additions or improvements extending asset lives beyond one year are capitalized, while repairs and maintenance are charged to expense as incurred.  We also capitalize and amortize eligible costs to acquire or develop internal-use software that are incurred during the development stage.  The assets and related accumulated depreciation and amortization are adjusted for asset retirements and disposals with the resulting gain or loss included in our consolidated statements of comprehensive income.

Research and Development

Research and Development

Research and development costs primarily include maintenance and data conversion activities related to our cloud-based supply chain management solutions and are expensed as incurred.

Goodwill

Goodwill

Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired in business combinations.  We test goodwill for impairment annually at November 30, or more frequently if events or changes in circumstances indicate that the asset might be impaired.  The impairment test is conducted by comparing the fair value of the net assets with the carrying value of the reporting unit.  Fair value is determined using the direct market observation of market price and outstanding equity of the reporting unit at the testing date.  If the carrying value of the goodwill exceeds the fair value of the reporting unit, goodwill may be impaired.  If this occurs, the fair value is then allocated to its assets and liabilities in a manner similar to a purchase price allocation in order to determine the implied fair value of goodwill.  This implied fair value is then compared to the carrying amount of goodwill and, if it is less, we would recognize an impairment loss.

Intangible Assets

Intangible Assets

Assets acquired in business combinations may include identifiable intangible assets such as subscriber relationships and non-competition agreements.  We recognize separately from goodwill the fair value of the identifiable intangible assets acquired.  We have determined the fair value and useful lives of our purchased intangible assets using certain estimates and assumptions that we believe are reasonable.

The purchased intangible assets are being amortized on a straight-line basis over their estimated useful lives, which are three to nine years for subscriber relationships, two to five years for non-competition agreements and one to four years for technology and other.

Impairment of Long-Lived Assets

Impairment of Long-Lived Assets

We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.  The carrying amount of a long-lived asset is not recoverable if the carrying amount of an asset group exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the assets at the date it is tested for recoverability, whether in use or under development.  An impairment loss is measured as the amount by which the carrying amount of a long-lived asset exceeds its fair value.

Revenue Recognition

Revenue Recognition

We generate revenues by providing three types of solutions to our customers; fulfillment, enablement and analytics.  Our cloud-based solutions allow our customers to meet their supply chain management requirements.

Revenues are recognized when all of the following criteria are met: (1) persuasive evidence of an arrangement exists, (2) delivery has occurred, (3) the fee is fixed or determinable, and (4) collectability is probable.  If collection is not considered probable, revenues are recognized when the fees are collected.

Fees related to our fulfillment and analytics solutions consist of two revenue sources: set-up fees and recurring monthly fees.  Set-up fees are specific for each connection a customer has with a trading partner and most of our customers have connections with numerous trading partners.  Set-up fees are nonrefundable upfront fees that do not have standalone value to our customer and are not separable from the recurring monthly fees.  All set-up fees and related costs are deferred and recognized ratably over the average life of the connection between the customer and the trading partner, which is approximately two years.  We begin recognizing set-up fee revenue once the connection is established.  Set-up fees for which connections have not yet been established are classified as long-term.  We continue to evaluate the length of the amortization period as more experience is gained with cancellations and technology changes requested by our customers.  It is possible that, in the future, the period over which such subscription set-up fees and costs are amortized may be adjusted.  Any change in our estimate of the average connection life will affect our future results of operations.  The recurring monthly fees are comprised of both fixed and transaction-based fees that are recognized as earned.

Stock-Based Compensation

Stock-Based Compensation

We recognize the cost of all share-based payments to employees, including grants of employee stock options, in the financial statements based on the grant date fair value of those awards.  This cost is recognized over the period for which an employee is required to provide service in exchange for the award.

We estimate the fair value of options granted using the Black-Scholes option pricing model.  In valuing share-based awards, judgment is required in determining the expected volatility of common stock and the expected term individuals will hold their share-based awards prior to exercising.  The expected volatility of the options is based on the historical volatility of our common stock.  The expected term of the options is based on the simplified method which does not consider historical employee exercise behavior.

Income Taxes

Income Taxes

We account for income taxes using the liability method, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements.  Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.  Deferred tax assets are reduced by a valuation allowance when, in our judgement, there is a less than a 50% likelihood that the deferred tax asset will be utilized.

We assess our ability to realize our deferred tax assets at the end of each reporting period.  Realization of our deferred tax assets is contingent upon future taxable earnings.  Accordingly, this assessment requires significant estimates and judgment.  If the estimates of future taxable income vary from actual results, our assessment regarding the realization of these deferred tax assets could change.  Future changes in the estimated amount of deferred taxes expected to be realized will be reflected in our consolidated financial statements in the period the estimate is changed, with a corresponding adjustment to our operating results.

We recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would “more likely than not” sustain the position following an audit.  For tax positions meeting the “more likely than not” threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority.

Net Income (Loss) Per Share

Net Income (Loss) Per Share

Basic net income (loss) per share has been computed using the weighted average number of shares of common stock outstanding during each period.  Diluted net income (loss) per share also includes the impact of our outstanding potential common shares, including options, restricted stock units and restricted stock awards.  Potential common shares that are anti-dilutive are excluded from the calculation of diluted net income (loss) per share.

Recently Adopted/Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-09, Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”).  The new guidance requires excess tax benefits and tax deficiencies to be recorded in the income statement when the awards vest or are settled and provides an accounting policy election to account for forfeitures as they occur.  In addition, cash flows related to excess tax benefits will no longer be separately classified as a financing activity apart from other income tax cash flows within operating activities.  The standard also allows entities to repurchase more of an employee’s shares for tax withholding purposes without triggering liability accounting and clarifies that all cash payments made on an employee’s behalf for withheld shares should be presented as a financing activity on the statements of cash flows.  The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016, with early adoption permitted.

We adopted ASU 2016-09 during the year ended December 31, 2017.  The impact to our consolidated balance sheet as of January 1, 2017 was a $16.3 million increase in deferred income tax assets and a corresponding $16.3 million decrease in accumulated deficit.  This impact results from the cumulative-effect adjustment for previously unrecognized excess tax benefits using the modified retrospective method required by the new standard.  We elected to adopt the changes in cash flow statement presentation prospectively to be consistent with the prospective transition for the treatment of excess tax benefits in the income statement.  Accordingly, we no longer classify excess tax benefits as a financing activity subsequent to January 1, 2017.

On December 22, 2017, the Securities and Exchange Commission (“SEC”) staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP related to the enactment of the comprehensive tax legislation, commonly referred to as the Tax Cut and Jobs Act (“Tax Act”).  This guidance was adopted in the fourth quarter of 2017.  Additional information regarding our adoption of this guidance is contained in Note J.

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  This guidance will replace most existing revenue recognition guidance in GAAP when it becomes effective.  These new requirements are effective for annual reporting periods beginning after December 15, 2017, and interim periods within those annual periods.  The new revenue recognition standard will not materially impact our recognition of the primary fees received from customers for our cloud-based supply chain solutions.  The adoption of the new standard will impact our accounting for certain upfront set-up fees and the periods over which the related revenues are recognized, as well as the timing of cost recognition for some sales commissions.  When compared to previously reported amounts, revenue will decrease $0.5 million and $0.1 million for the years ended December 31, 2017 and 2016, respectively.  Commission expense, which is reported in sales and marketing expense, will decrease $2.0 million for the year ended December 31, 2017 and increase $1.0 million for the year ended December 31, 2016.

In February 2016, the FASB issued ASU 2016-02, Leases, which will supersede existing lease guidance and will require all leases with a term greater than 12 months to be recognized in the statements of financial position and eliminate current real estate-specific lease guidance, while maintaining substantially similar classification criteria for distinguishing between finance leases and operating leases.  This standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted.  We believe the adoption of the new lease accounting standard will materially impact our consolidated financial statements by increasing our non-current assets and non-current liabilities on our consolidated balance sheets in order to record the right of use assets and related lease liabilities for our existing operating leases.  We are in the process of determining the financial statement impact and are currently unable to estimate the impact on our consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350), which simplifies the test for goodwill impairment by eliminating step two from the goodwill impairment test.  Under the new guidance, an entity should recognize an impairment charge for the amount based on the excess of a reporting unit’s carrying amount over its fair value.  The impairment charge will be limited to the amount of goodwill allocated to that reporting unit.  This guidance is effective for annual and interim impairment tests performed in periods beginning after December 15, 2019 on a prospective basis, and earlier adoption is permitted for goodwill impairment tests performed on testing dates after January 1, 2017.  We believe the adoption of this standard will not have a material impact on our consolidated financial statements.

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Business Acquisitions (Tables)

12 Months Ended

Dec. 31, 2017

Business Combinations [Abstract]

Business Purchase Price

The purchase price consisted of the following (in thousands):

Cash	$	18,032
SPS Commerce, Inc. common stock		2,922
Fair value of share-based earn-out liability		1,043
	$	21,997

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

The following table summarizes the estimated fair values of the assets acquired, net of cash acquired of $0.4 million, and liabilities assumed at the acquisition date (in thousands):

Current assets	$	1,253
Property and equipment		56
Goodwill		15,389
Intangible assets		9,070
Current liabilities		(1,249	)
Deferred revenue		(301	)
Deferred income tax liability		(2,221	)
	$	21,997

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)
Subscriber relationships	$	7,400		8
Developed technology		1,200		4
Trade names		70		1
Non-competition agreements		400		5
Total	$	9,070

Pro Forma Financial Information

	Year Ended December 31,
(in thousands, except per share data)	2016		2015
Pro forma total revenue	$	193,525	$	166,873
Pro forma net income		5,976		2,400
Pro forma net income per share
Basic		0.35		0.14
Diluted		0.35		0.14

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Financial Instruments (Tables)

12 Months Ended

Dec. 31, 2017

Financial Instruments Owned At Fair Value [Abstract]

Summary of Cash Equivalents and Short and Long-term Investments

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

	December 31,
	2017							2016
	Amortized		Unrealized			Fair		Amortized		Unrealized			Fair
	Cost		Gains (Losses)			Value		Cost		Gains (Losses)			Value
Cash equivalents:
Money market funds	$	104,544	$	—		$	104,544	$	75,375	$	—		$	75,375
Certificate of deposit		7,814		—			7,814		—		—			—
Marketable securities:
Corporate bonds		17,758		(57	)		17,701		15,681		(96	)		15,585
Commercial paper		7,456		20			7,476		4,977		10			4,987
U.S. treasury securities		12,381		26			12,407		7,489		10			7,499
U.S. agency obligations		—		—			—		2,497		3			2,500
	$	149,953	$	(11	)	$	149,942	$	106,019	$	(73	)	$	105,946
Due within one year						$	144,736						$	98,452
Due within two years							5,206							7,494
Total						$	149,942						$	105,946

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):

	Level 1		Level 2		Level 3		Total
Assets at December 31, 2017:
Cash equivalents:
Money market funds	$	104,544	$	—	$	—	$	104,544
Certificate of deposit		7,814		—		—		7,814
Marketable securities:
Corporate bonds		—		17,700		—		17,700
Commerical paper		—		7,477		—		7,477
U.S. treasury securities		—		12,407		—		12,407
	$	112,358	$	37,584	$	—	$	149,942
Assets at December 31, 2016:
Cash equivalents:
Money market funds	$	75,375	$	—	$	—	$	75,375
Marketable securities:
Corporate bonds		—		15,585		—		15,585
Commerical paper		—		4,987		—		4,987
U.S. treasury securities		—		7,499		—		7,499
U.S. agency obligations		—		2,500		—		2,500
	$	75,375	$	30,571	$	—	$	105,946

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Allowance for Doubtful Accounts (Tables)

12 Months Ended

Dec. 31, 2017

Receivables [Abstract]

Schedule of Allowance for Doubtful Activity Included in Accounts Receivable Net

The allowance for doubtful accounts activity, included in accounts receivable, net, was as follows (in thousands):

	2017			2016			2015
Balances, January 1	$	515		$	446		$	279
Provision for doubtful accounts		1,705			1,375			1,271
Write-offs, net of recoveries		(1,457	)		(1,306	)		(1,104	)
Balances, December 31	$	763		$	515		$	446

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Property and Equipment, net (Tables)

12 Months Ended

Dec. 31, 2017

Property Plant And Equipment [Abstract]

Schedule of Property and Equipment, Net

Property and equipment, net included the following (in thousands):

	December 31,
	2017			2016
Computer equipment and software	$	35,326		$	29,270
Office equipment and furniture		7,439			7,087
Leasehold improvements		8,042			7,844
		50,807			44,201
Less: accumulated depreciation and amortization		(33,951	)		(28,887	)
	$	16,856		$	15,314

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Goodwill and Intangible Assets, net (Tables)

12 Months Ended

Dec. 31, 2017

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 years ended December 31, 2017 and 2016 are as follows (in thousands):

	2017		2016
Balances, January 1	$	49,777	$	33,848
Additions from business acquisitions		—		15,389
Foreign currency translation		1,836		540
Balances, December 31	$	51,613	$	49,777

Intangible Assets

Intangible assets, net included the following (in thousands):

	December 31, 2017
	Carrying Amount		Accumulated Amortization			Foreign Currency Translation		Net
Subscriber relationships	$	34,350	$	(19,592	)	$	614	$	15,372
Non-competition agreements		2,499		(2,058	)		45		486
Technology and other		2,130		(1,518	)		59		671
	$	38,979	$	(23,168	)	$	718	$	16,529

	December 31, 2016
	Carrying Amount		Accumulated Amortization			Foreign Currency Translation		Net
Subscriber relationships	$	33,736	$	(15,708	)	$	295	$	18,323
Non-competition agreements		2,234		(1,818	)		17		433
Technology and other		2,089		(1,120	)		63		1,032
	$	38,059	$	(18,646	)	$	375	$	19,788

Future Amortization Expense for Intangible Assets

At December 31, 2017, future amortization expense for intangible assets was as follows (in thousands):

2018	$	4,022
2019		3,730
2020		3,365
2021		2,520
2022		1,449
Thereafter		1,443
	$	16,529

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Commitments and Contingencies (Tables)

12 Months Ended

Dec. 31, 2017

Commitments And Contingencies Disclosure [Abstract]

Future Minimum Payments Under Operating Leases

At December 31, 2017, our future minimum payments under operating leases were as follows (in thousands):

2018	$	3,833
2019		3,847
2020		3,122
2021		3,624
2022		3,270
Thereafter		6,796
	$	24,492

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Stock-Based Compensation (Tables)

12 Months Ended

Dec. 31, 2017

Stock-Based Compensation Expense

Stock-based compensation expense was allocated as follows (in thousands):

	Year Ended December 31,
	2017		2016		2015
Cost of revenues	$	1,887	$	1,309	$	989
Operating expenses
Sales and marketing		2,197		2,412		1,978
Research and development		949		618		640
General and administrative		7,694		3,684		2,772
Total stock-based compensation expense	$	12,727	$	8,023	$	6,379

Stock Option Activity

Our stock option activity was as follows:

				Weighted Average
	Options			Exercise Price
	(#)			($/share)
Outstanding at January 1, 2015		1,085,463		$	26.53
Granted		181,487			67.50
Exercised		(305,106	)		14.55
Forfeited		(18,741	)		45.82
Outstanding at December 31, 2015		943,103			37.91
Granted		340,609			48.58
Exercised		(221,630	)		19.42
Forfeited		(46,070	)		55.58
Outstanding at December 31, 2016		1,016,012			44.72
Granted		172,697			55.87
Exercised		(65,502	)		21.53
Forfeited		(25,876	)		55.93
Outstanding at December 31, 2017		1,097,331			47.60

Weighted Average Fair Value Per Share of Options Granted, Assumptions

The weighted-average fair values per share of options granted during the years ended December 31, 2017, 2016 and 2015 were $18.85, $16.13 and $23.09, respectively.  The fair values of the options granted were estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:

	Year Ended December 31,
	2017			2016			2015
Volatility		38	%		38	%		39	%
Dividend yield		—			—			—
Life (in years)		4.51			4.54			4.52
Risk-free interest rate		1.85	%		1.19	%		1.36	%

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

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

	Year Ended December 31,
	2017			2016			2015
Volatility		32	%		37	%		30	%
Dividend yield		—			—			—
Life (in years)		0.50			0.50			0.50
Risk-free interest rate		0.90	%		0.42	%		0.12	%

Performance Share Units and Restricted Stock Units [Member]

Performance Share Units and Restricted Stock Units and Restricted Stock Awards

Our PSU and RSU activity was as follows:

				Weighted Average
	PSUs and RSUs			Grant Date Fair
	(#)			Value ($/share)
Outstanding at January 1, 2015		115,133		$	45.25
Granted		68,159			67.50
Vested and common stock issued		(37,669	)		40.91
Forfeited		(5,058	)		54.28
Outstanding at December 31, 2015		140,565			56.88
Granted		115,896			48.32
Vested and common stock issued		(52,133	)		48.19
Forfeited		(15,286	)		55.48
Outstanding at December 31, 2016		189,042			54.14
Granted		211,168			55.62
Vested and common stock issued		(64,950	)		53.64
Forfeited		(13,348	)		55.39
Outstanding at December 31, 2017		321,912			55.16

Restricted Stock Award [Member]

Performance Share Units and Restricted Stock Units and Restricted Stock Awards

Our RSA activity was as follows:

				Weighted Average
	RSAs			Grant Date Fair
	(#)			Value ($/share)
Outstanding at January 1, 2015		1,338		$	51.74
Restricted common stock issued		4,110			67.37
Restrictions lapsed		(4,416	)		62.63
Outstanding at December 31, 2015		1,032			67.39
Restricted common stock issued		6,078			52.27
Restrictions lapsed		(5,586	)		55.06
Outstanding at December 31, 2016		1,524			52.28
Restricted common stock issued		5,454			58.29
Restrictions lapsed		(5,610	)		56.65
Outstanding at December 31, 2017		1,368			58.29

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Income Taxes (Tables)

12 Months Ended

Dec. 31, 2017

Income Tax Disclosure [Abstract]

Schedule of Provision for Income Taxes

Our provisions for income taxes included current federal, foreign and state income tax expense, as well as deferred tax expense as follows (in thousands):

	Year Ended December 31,
	2017			2016			2015
Current
Federal	$	(184	)	$	3,684		$	2,066
State		258			555			289
Foreign		652			599			119
Deferred
Federal		11,551			(988	)		103
State		(342	)		(133	)		(141	)
Foreign		(355	)		(577	)		—
	$	11,580		$	3,140		$	2,436

Reconciliation of the Provision for Income Taxes to the Statutory Federal Rate

A reconciliation of the expected federal income tax at the statutory rate to the provision for income taxes was as follows (in thousands):

	Year Ended December 31,
	2017			2016			2015
Expected federal income tax at statutory rate	$	3,107		$	3,011		$	2,404
State income taxes, net of federal tax effect		366			320			246
Tax impact of foreign activity		(105	)		(115	)		39
Permanent book/tax differences		460			372			67
Change in valuation allowance		16			(35	)		(27	)
Change in state deferred rate		(134	)		(67	)		(118	)
Research and development credit		(227	)		(261	)		(200	)
Tax impact of Tax Cuts and Jobs Act		8,613			—			—
Tax impact of stock activity		(925	)		—			—
Other		409			(85	)		25
Total provision for income taxes	$	11,580		$	3,140		$	2,436

Significant Components of Deferred Tax Assets (Liabilities)

The significant components of our deferred tax assets (liabilities) were as follows (in thousands):

	December 31,
	2017						2016
Deferred tax assets
Net operating loss and credit carryforwards	$	11,067					$	4,614
Deferred operations		—						799
Stock-based compensation expense		4,273						4,085
Accounts receivable allowances		307						363
Accrued expenses		2,293						2,704
Other		182						297
Gross deferred tax asset					18,122						12,862
Less: valuation allowance		(602	)					(649	)
Total net deferred tax asset					17,520						12,213
Deferred tax liability
Deferred operations		(163	)					—
Foreign operations		(133	)					(350	)
Depreciation and amortization		(1,536	)					(1,328	)
Other		(24	)					—
Total deferred tax liability					(1,856	)					(1,678	)
Net deferred tax assets				$	15,664					$	10,535

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Net Income (Loss) Per Share (Tables)

12 Months Ended

Dec. 31, 2017

Earnings Per Share [Abstract]

Components of Computation of Basic and Diluted Net Income (Loss) Per Share

The following table presents the components of the computation of basic and diluted net income (loss) per share for the periods indicated (in thousands, except per share amounts):

	Year Ended December 31,
	2017			2016		2015
Numerator
Net (loss) income	$	(2,440	)	$	5,710	$	4,639
Denominator
Weighted average common shares outstanding, basic		17,183			16,947		16,565
Options to purchase common stock		—			267		437
Restricted stock units		—			27		27
Employee stock purchase plan		—			—		3
Weighted average common shares outstanding, diluted		17,183			17,241		17,032
Net (loss) income per share
Basic	$	(0.14	)	$	0.34	$	0.28
Diluted	$	(0.14	)	$	0.33	$	0.27

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Selected Quarterly Financial Data (Unaudited) (Tables)

12 Months Ended

Dec. 31, 2017

Quarterly Financial Information Disclosure [Abstract]

Summary of Unaudited Quarterly Statements of Comprehensive Income Data

The following table presents our selected unaudited quarterly statements of comprehensive income data (in thousands, except per share amounts):

	For the Three Months Ended
2017	Mar 31		Jun 30		Sep 30		Dec 31
Revenues	$	51,932	$	54,284	$	56,150	$	58,200
Gross profit		34,602		36,093		37,505		38,741
Income (loss) from operations		3,376		2,727		2,846		(521	)
Net income (loss)		2,971		1,825		1,865		(9,101	)
Diluted earnings (loss) per share	$	0.17	$	0.11	$	0.11	$	(0.53	)

	For the Three Months Ended
2016	Mar 31		Jun 30		Sep 30		Dec 31
Revenues	$	45,599	$	47,351	$	49,284	$	51,061
Gross profit		30,718		31,379		33,113		33,739
Income from operations		1,314		880		2,670		2,653
Net income		1,044		352		2,509		1,805
Diluted earnings per share	$	0.06	$	0.02	$	0.14	$	0.10

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General - Additional Information (Detail) $ in Millions	12 Months Ended
	Dec. 31, 2017 USD ($) Segment	Dec. 31, 2016 USD ($)	Jan. 01, 2017 USD ($)
Schedule Of Accounting Policies [Line Items]
Number of reportable segments | Segment	1
Average life of connection between customer and trading partner	2 years
ASU 2016-09 [Member] | Deferred Income Tax Assets, Non-Current [Member]
Schedule Of Accounting Policies [Line Items]
Cumulative effect of change due to new accounting pronouncement			$ (16.3)
ASU 2016-09 [Member] | Accumulated Deficit [Member]
Schedule Of Accounting Policies [Line Items]
Cumulative effect of change due to new accounting pronouncement			$ 16.3
ASU 2014-09 [Member]
Schedule Of Accounting Policies [Line Items]
Decrease in revenue	$ 0.5	$ 0.1
ASU 2014-09 [Member] | Sales and Marketing Expense [Member]
Schedule Of Accounting Policies [Line Items]
Increase (decrease) in commission expense	$ (2.0)	$ 1.0
Minimum [Member] | Subscriber Relationships [Member]
Schedule Of Accounting Policies [Line Items]
Estimated useful lives of intangible assets	3 years
Minimum [Member] | Non-competition Agreements [Member]
Schedule Of Accounting Policies [Line Items]
Estimated useful lives of intangible assets	2 years
Minimum [Member] | Technology and Other [Member]
Schedule Of Accounting Policies [Line Items]
Estimated useful lives of intangible assets	1 year
Maximum [Member] | Subscriber Relationships [Member]
Schedule Of Accounting Policies [Line Items]
Estimated useful lives of intangible assets	9 years
Maximum [Member] | Non-competition Agreements [Member]
Schedule Of Accounting Policies [Line Items]
Estimated useful lives of intangible assets	5 years
Maximum [Member] | Technology and Other [Member]
Schedule Of Accounting Policies [Line Items]
Estimated useful lives of intangible assets	4 years
Computer Equipment and Software [Member] | Minimum [Member]
Schedule Of Accounting Policies [Line Items]
Estimated useful lives of property and equipment	2 years
Computer Equipment and Software [Member] | Maximum [Member]
Schedule Of Accounting Policies [Line Items]
Estimated useful lives of property and equipment	3 years
Office Equipment and Furniture [Member] | Minimum [Member]
Schedule Of Accounting Policies [Line Items]
Estimated useful lives of property and equipment	5 years
Office Equipment and Furniture [Member] | Maximum [Member]
Schedule Of Accounting Policies [Line Items]
Estimated useful lives of property and equipment	7 years

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Business Acquisitions - Additional Information (Detail) - USD ($) $ in Thousands		3 Months Ended		12 Months Ended
	Jan. 05, 2016	Jun. 30, 2017	Dec. 31, 2016	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2016	Dec. 31, 2015
Business Acquisition [Line Items]
Stock issued for acquisition					$ 2,922
Amortization expense for purchased intangible assets				$ 4,574	4,738		$ 3,307
Toolbox Solutions, Inc. [Member]
Business Acquisition [Line Items]
Payments to acquire business	$ 18,032
Stock issued for acquisition	$ 2,922
Stock issued for acquisition, shares	43,953		43,953
Number of shares of common stock issuable	16,222
Number of gross shares issued	48,668
Number of shares returned from escrow		8,866	4,715
Cash acquired from acquisition	$ 400
Amortization expense for purchased intangible assets						$ 1,400
Acquisition-related costs					100
Revenues from acquisition						$ 7,900
Proforma adjustments in amortization					$ 1,400
Statutory blended income tax rate					26.50%
Toolbox Solutions, Inc. [Member] | Contingent Consideration Liability [Member]
Business Acquisition [Line Items]
Other income					$ 1,100

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Business Acquisitions - Business Purchase Price (Detail) - USD ($) $ in Thousands		12 Months Ended
	Jan. 05, 2016	Dec. 31, 2016
Business Acquisition [Line Items]
SPS Commerce, Inc. common stock		$ 2,922
Toolbox Solutions, Inc. [Member]
Business Acquisition [Line Items]
Cash	$ 18,032
SPS Commerce, Inc. common stock	2,922
Fair value of share-based earn-out liability	1,043
Total purchase price	$ 21,997

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Business Acquisitions - Estimated Fair Values of the Assets Acquired, Net of Cash acquired and Liabilities Assumed at the Acquisition Date (Detail) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Business Combination, Recognized Identifiable Assets Acquired, Goodwill, and Liabilities Assumed, Net
Goodwill	$ 51,613	$ 49,777	$ 33,848
Toolbox Solutions, Inc. [Member]
Business Combination, Recognized Identifiable Assets Acquired, Goodwill, and Liabilities Assumed, Net
Current assets	1,253
Property and equipment	56
Goodwill	15,389
Intangible assets	9,070
Current liabilities	(1,249)
Deferred revenue	(301)
Deferred income tax liability	(2,221)
Total purchase price	$ 21,997

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Business Acquisitions - Estimated Fair Value of Purchased Intangible Assets and Estimated Useful Lives (Detail) - Toolbox Solutions, Inc. [Member] $ in Thousands	Jan. 05, 2016 USD ($)
Finite-Lived Intangible Assets [Line Items]
Estimated Fair Value	$ 9,070
Subscriber Relationships [Member]
Finite-Lived Intangible Assets [Line Items]
Estimated Fair Value	$ 7,400
Estimated Life (in years)	8 years
Developed Technology [Member]
Finite-Lived Intangible Assets [Line Items]
Estimated Fair Value	$ 1,200
Estimated Life (in years)	4 years
Trade Names [Member]
Finite-Lived Intangible Assets [Line Items]
Estimated Fair Value	$ 70
Estimated Life (in years)	1 year
Non-competition Agreements [Member]
Finite-Lived Intangible Assets [Line Items]
Estimated Fair Value	$ 400
Estimated Life (in years)	5 years

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Business Acquisitions - Pro Forma Financial Information (Detail) - Toolbox Solutions, Inc. [Member] - USD ($) $ / shares in Units, $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Business Acquisition [Line Items]
Pro forma total revenue	$ 193,525	$ 166,873
Pro forma net income	$ 5,976	$ 2,400
Pro forma net income per share, Basic	$ 0.35	$ 0.14
Pro forma net income per share, Diluted	$ 0.35	$ 0.14

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Financial Instruments - Summary of Cash Equivalents and Short and Long-term Investments (Detail) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Financial Instruments [Member]
Schedule of Financial Instruments [Line Items]
Due within one year	$ 144,736	$ 98,452
Amortized Cost	149,953	106,019
Due within two years	5,206	7,494
Unrealized Gains (Losses)	(11)	(73)
Fair Value	149,942	105,946
Money Market Funds [Member]
Schedule of Financial Instruments [Line Items]
Amortized Cost	104,544	75,375
Fair Value	104,544	75,375
Certificate of Deposit [Member]
Schedule of Financial Instruments [Line Items]
Amortized Cost	7,814
Fair Value	7,814
Corporate Bonds [Member]
Schedule of Financial Instruments [Line Items]
Amortized Cost	17,758	15,681
Unrealized Gains (Losses)	(57)	(96)
Fair Value	17,701	15,585
Commercial Paper [Member]
Schedule of Financial Instruments [Line Items]
Amortized Cost	7,456	4,977
Unrealized Gains (Losses)	20	10
Fair Value	7,476	4,987
U.S. Treasury Securities [Member]
Schedule of Financial Instruments [Line Items]
Amortized Cost	12,381	7,489
Unrealized Gains (Losses)	26	10
Fair Value	$ 12,407	7,499
U.S. Agency Obligations [Member]
Schedule of Financial Instruments [Line Items]
Amortized Cost		2,497
Unrealized Gains (Losses)		3
Fair Value		$ 2,500

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Financial Instruments - Summary of Financial Assets Measured at Fair Value on a Recurring Basis (Detail) - Fair Value, Measurements, Recurring [Member] - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Assets fair value	$ 149,942	$ 105,946
Money Market Funds [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Assets fair value	104,544	75,375
Certificate of Deposit [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Assets fair value	7,814
Corporate Bonds [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Assets fair value	17,700	15,585
Commercial Paper [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Assets fair value	7,477	4,987
U.S. Treasury Securities [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Assets fair value	12,407	7,499
U.S. Agency Obligations [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Assets fair value		2,500
Level 1 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Assets fair value	112,358	75,375
Level 1 [Member] | Money Market Funds [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Assets fair value	104,544	75,375
Level 1 [Member] | Certificate of Deposit [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Assets fair value	7,814
Level 2 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Assets fair value	37,584	30,571
Level 2 [Member] | Corporate Bonds [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Assets fair value	17,700	15,585
Level 2 [Member] | Commercial Paper [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Assets fair value	7,477	4,987
Level 2 [Member] | U.S. Treasury Securities [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Assets fair value	$ 12,407	7,499
Level 2 [Member] | U.S. Agency Obligations [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Assets fair value		$ 2,500

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Allowance for Doubtful Accounts - Schedule of Allowance for Doubtful Activity Included in Accounts Receivable Net (Detail) - Allowance for Doubtful Accounts [Member] - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Valuation And Qualifying Accounts Disclosure [Line Items]
Balances, January 1	$ 515	$ 446	$ 279
Provision for doubtful accounts	1,705	1,375	1,271
Write-offs, net of recoveries	(1,457)	(1,306)	(1,104)
Balances, December 31	$ 763	$ 515	$ 446

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Property and Equipment, net - Schedule of Property and Equipment, Net (Detail) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Gross	$ 50,807	$ 44,201
Less: accumulated depreciation and amortization	(33,951)	(28,887)
Net, Total	16,856	15,314
Computer Equipment and Software [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Gross	35,326	29,270
Office Equipment and Furniture [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Gross	7,439	7,087
Leasehold Improvements [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Gross	$ 8,042	$ 7,844

XML

Property and Equipment, net - Additional Information (Detail) - USD ($) $ in Millions	Dec. 31, 2017	Dec. 31, 2016
Outside of U.S [Member]
Revenues From External Customers And Long Lived Assets [Line Items]
Property and equipment, net held at subsidiary and office locations outside of the U.S.	$ 2.2	$ 2.1

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Goodwill and Intangible Assets, net - Schedule of Changes in Net Carrying Amount of Goodwill (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016
Goodwill And Intangible Assets Disclosure [Abstract]
Balances, January 1	$ 49,777	$ 33,848
Additions from business acquisitions		15,389
Foreign currency translation	1,836	540
Balances, December 31	$ 51,613	$ 49,777

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Goodwill and Intangible Assets, net - Intangible Assets (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016
Finite-Lived Intangible Assets [Line Items]
Carrying Amount	$ 38,979	$ 38,059
Accumulated Amortization	(23,168)	(18,646)
Foreign Currency Translation	718	375
Net	16,529	19,788
Subscriber Relationships [Member]
Finite-Lived Intangible Assets [Line Items]
Carrying Amount	34,350	33,736
Accumulated Amortization	(19,592)	(15,708)
Foreign Currency Translation	614	295
Net	15,372	18,323
Non-competition Agreements [Member]
Finite-Lived Intangible Assets [Line Items]
Carrying Amount	2,499	2,234
Accumulated Amortization	(2,058)	(1,818)
Foreign Currency Translation	45	17
Net	486	433
Technology and Other [Member]
Finite-Lived Intangible Assets [Line Items]
Carrying Amount	2,130	2,089
Accumulated Amortization	(1,518)	(1,120)
Foreign Currency Translation	59	63
Net	$ 671	$ 1,032

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Goodwill and Intangible Assets, net - Additional Information (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Goodwill And Intangible Assets Disclosure [Abstract]
Amortization expense	$ 4,574	$ 4,738	$ 3,307

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Goodwill and Intangible Assets, net - Future Amortization Expense for Intangible Assets (Detail) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Goodwill And Intangible Assets Disclosure [Abstract]
2018	$ 4,022
2019	3,730
2020	3,365
2021	2,520
2022	1,449
Thereafter	1,443
Net	$ 16,529	$ 19,788

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Commitments and Contingencies - Additional Information (Detail) $ in Millions		12 Months Ended
	Dec. 20, 2017 USD ($) ft² Option	Dec. 31, 2017 USD ($)	Dec. 31, 2016 USD ($)	Dec. 31, 2015 USD ($)	Dec. 31, 2020 ft²	Dec. 31, 2018 ft²
Commitments And Contingencies [Line Items]
Rent expense charged to operations | $		$ 4.9	$ 5.0	$ 4.6
Current Headquarters [Member]
Commitments And Contingencies [Line Items]
Lease agreement expires, date	Apr. 30, 2025
Number of options to extend term of the lease | Option	2
Lease extension period, number of years	5 years
Incentives received upon execution of amendment | $	$ 3.2
Current Headquarters [Member] | Minneapolis, Minnesota [Member]
Commitments And Contingencies [Line Items]
Current leased space for headquarters | ft²	166,000
Current Headquarters [Member] | Scenario, Forecast [Member] | Minneapolis, Minnesota [Member]
Commitments And Contingencies [Line Items]
Future expansion of headquarters premises | ft²					48,000	48,000

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Commitments and Contingencies - Future Minimum Payments Under Operating Leases (Detail) $ in Thousands	Dec. 31, 2017 USD ($)
Commitments And Contingencies Disclosure [Abstract]
2018	$ 3,833
2019	3,847
2020	3,122
2021	3,624
2022	3,270
Thereafter	6,796
Operating leases, total	$ 24,492

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Stockholders' Equity - Additional Information (Detail) - USD ($) $ in Thousands			3 Months Ended			12 Months Ended
	Nov. 02, 2017	Jan. 05, 2016	Dec. 31, 2017	Jun. 30, 2017	Dec. 31, 2016	Dec. 31, 2017	Dec. 31, 2016
Schedule Of Stockholders Equity [Line Items]
Treasury stock at cost						$ 5,815
Common Stock [Member]
Schedule Of Stockholders Equity [Line Items]
Stock issued for acquisition, Shares							43,953
Stock repurchase program, authorized amount	$ 50,000
Stock repurchase program, period	2 years
Repurchase of treasury shares			122,147			(122,147)
Treasury stock at cost			$ 5,800
Stock repurchase program, available for future repurchases			$ 44,200			$ 44,200
Toolbox Solutions, Inc. [Member]
Schedule Of Stockholders Equity [Line Items]
Stock issued for acquisition, Shares		43,953			43,953
Number of gross shares issued		48,668
Number of shares returned from escrow				8,866	4,715
Fair value of the shares issued		$ 2,900

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Stock-Based Compensation - Additional Information (Detail)	1 Months Ended	12 Months Ended
	Feb. 28, 2017 shares	Dec. 31, 2017 USD ($) Offering $ / shares shares	Dec. 31, 2016 USD ($) $ / shares shares	Dec. 31, 2015 USD ($) $ / shares shares	Feb. 29, 2016 shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares available for grant | shares		4,600,000
Stock-based compensation expense		$ 12,727,000	$ 8,023,000	$ 6,379,000
Unrecognized stock-based compensation expense		$ 11,600,000
Unrecognized stock-based compensation, expected to be recognized, weighted average period		2 years 6 months
Stock options exercisable | shares		743,471
Weighted average exercise price | $ / shares		$ 44.58
Weighted average remaining contractual life		4 years
Fair value of options vested		$ 4,200,000	3,400,000	3,100,000
Intrinsic value of options exercised		2,800,000	8,600,000	16,800,000
Intrinsic value of options outstanding		$ 7,300,000	$ 25,600,000	$ 30,500,000
Weighted average fair value per share of options granted | $ / shares		$ 18.85	$ 16.13	$ 23.09
Employee Stock Purchase Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Additional shares reserved for issuance under the plan | shares		1,000,000
Stock-based compensation expense		$ 700,000	$ 600,000	$ 400,000
Purchase price as a percentage of fair market value		85.00%
Number of offerings per year | Offering		2
Amount withheld from employees		$ 1,900,000	$ 1,700,000	$ 1,500,000
Shares purchased | shares		40,968	33,357	28,362
Chief Executive Officers [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense		$ 3,600,000
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 | shares	1,024,868				1,003,439
Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period		4 years
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 Units [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense		$ 0
Vesting period	3 years
Restricted Stock Units [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period		4 years
Restricted Stock Award [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Restricted stock awards units vest over, period		1 year
Performance Share Units and Restricted Stock Units [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of RSU's vested and not issued during the period | shares		44,177

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Stock-Based Compensation - Stock-Based Compensation Expense (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Stock-based compensation expense	$ 12,727	$ 8,023	$ 6,379
Cost of Revenues [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Stock-based compensation expense	1,887	1,309	989
Sales and Marketing [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Stock-based compensation expense	2,197	2,412	1,978
Research and Development [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Stock-based compensation expense	949	618	640
General and Administrative [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Stock-based compensation expense	$ 7,694	$ 3,684	$ 2,772

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Stock-Based Compensation - Stock Option Activity (Detail) - $ / shares	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]
Options Outstanding, Beginning balance	1,016,012	943,103	1,085,463
Options, Granted	172,697	340,609	181,487
Options, Exercised	(65,502)	(221,630)	(305,106)
Options, Forfeited	(25,876)	(46,070)	(18,741)
Options Outstanding, Ending balance	1,097,331	1,016,012	943,103
Weighted Average Exercise Price, Outstanding, Beginning Balance	$ 44.72	$ 37.91	$ 26.53
Weighted Average Exercise Price, Granted	55.87	48.58	67.50
Weighted Average Exercise Price, Exercised	21.53	19.42	14.55
Weighted Average Exercise Price, Forfeited	55.93	55.58	45.82
Weighted Average Exercise Price, Outstanding, Ending Balance	$ 47.60	$ 44.72	$ 37.91

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Stock-Based Compensation - Weighted Average Fair Value Per Share of Options Granted, Assumptions (Detail) - Stock Options [Member]	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Volatility	38.00%	38.00%	39.00%
Dividend yield	0.00%	0.00%	0.00%
Life (in years)	4 years 6 months 3 days	4 years 6 months 15 days	4 years 6 months 7 days
Risk-free interest rate	1.85%	1.19%	1.36%

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Stock-Based Compensation - Performance Share Units and Restricted Stock Units (Detail) - Performance Share Units and Restricted Stock Units [Member] - $ / shares	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock awards, Outstanding, Beginning Balance	189,042	140,565	115,133
Granted, stock units	211,168	115,896	68,159
Vested and common stock issued, stock units	(64,950)	(52,133)	(37,669)
Forfeited, stock units	(13,348)	(15,286)	(5,058)
Stock awards, Outstanding, Ending Balance	321,912	189,042	140,565
Weighted average grant date fair value, Outstanding, Beginning Balance	$ 54.14	$ 56.88	$ 45.25
Granted, Weighted Average Grant Date Fair Value	55.62	48.32	67.50
Vested and common stock issued, Weighted Average Grant Date Fair Value	53.64	48.19	40.91
Forfeited, Weighted Average Grant Date Fair Value	55.39	55.48	54.28
Weighted average grant date fair value, Outstanding, Ending Balance	$ 55.16	$ 54.14	$ 56.88

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Stock-Based Compensation - Restricted Stock Awards (Detail) - Restricted Stock Award [Member] - $ / shares	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock awards, Outstanding, Beginning Balance	1,524	1,032	1,338
Restricted common stock issued, stock awards	5,454	6,078	4,110
Restrictions lapsed, stock awards	(5,610)	(5,586)	(4,416)
Stock awards, Outstanding, Ending Balance	1,368	1,524	1,032
Weighted average grant date fair value, Outstanding, Beginning Balance	$ 52.28	$ 67.39	$ 51.74
Restricted common stock issued, Weighted Average Grant Date Fair Value	58.29	52.27	67.37
Restrictions lapsed, Weighted Average Grant Date Fair Value	56.65	55.06	62.63
Weighted average grant date fair value, Outstanding, Ending Balance	$ 58.29	$ 52.28	$ 67.39

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Stock-Based Compensation - Fair Value Estimation of Common Stock Using Black-Scholes Option Pricing Model, Weighted-Average Assumptions (Detail) - Employee Stock Purchase Plan [Member]	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Volatility	32.00%	37.00%	30.00%
Dividend yield	0.00%	0.00%	0.00%
Life (in years)	6 months	6 months	6 months
Risk-free interest rate	0.90%	0.42%	0.12%

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Income Taxes - Schedule of Provision for Income Taxes (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Current
Federal	$ (184)	$ 3,684	$ 2,066
State	258	555	289
Foreign	652	599	119
Deferred
Federal	11,551	(988)	103
State	(342)	(133)	(141)
Foreign	(355)	(577)
Total provision for income taxes	$ 11,580	$ 3,140	$ 2,436

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Income Taxes - Additional Information (Detail) - USD ($)	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Income Tax Expense Benefit [Line Items]
Reclass of AMT credit carryforward to current federal expense		$ 400,000
Unutilized alternative minimum tax credit carryforwards partially refundable year one		2019
Unutilized alternative minimum tax credit carryforwards partially refundable year two		2020
Unutilized alternative minimum tax credit carryforwards partially refundable year three		2021
Unutilized alternative minimum tax credit carryforwards fully refundable year		2022
Tax benefits for excess tax deduction from stock activity		$ 925,000
Tax expense related to The Job Cuts and Tax Act (“Tax Act”), primarily due to reduction in corporate tax rate		8,613,000
Valuation allowance against our deferred tax assets		602,000	$ 649,000
Decrease to net deferred tax assets		8,600,000
Estimated tax on mandatory deemed repatriation due to net foreign E&P deficit		0
Domestic Tax Authority [Member]
Income Tax Expense Benefit [Line Items]
Net operating loss carryforward		$ 58,500,000
Expiration of net operating loss carryforwards		Loss carryforwards for federal tax purposes will expire between 2020 and 2036 if not utilized
Losses expected to expire unused		$ 17,600,000
Maximum annual limitation of federal net operating losses		1,000,000
Domestic Tax Authority [Member] | Research and Development [Member]
Income Tax Expense Benefit [Line Items]
Research and development credit carryforwards		$ 1,200,000
Year in which credit carryforward begins to expire		2030
State and Local Jurisdiction [Member]
Income Tax Expense Benefit [Line Items]
Net operating loss carryforward		$ 10,600,000
Expiration of net operating loss carryforwards		Loss carryforwards for state tax purposes will expire between 2018 and 2036 if not utilized
State and Local Jurisdiction [Member] | Net Operating Loss and Credit Carryforwards [Member]
Income Tax Expense Benefit [Line Items]
Valuation allowance against our deferred tax assets		$ 600,000
State and Local Jurisdiction [Member] | Research and Development [Member]
Income Tax Expense Benefit [Line Items]
Research and development credit carryforwards		$ 600,000
Year in which credit carryforward begins to expire		2025
Scenario, Forecast [Member]
Income Tax Expense Benefit [Line Items]
Corporate federal income tax rate	21.00%

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Income Taxes - Reconciliation of Provision for Income Taxes to Statutory Federal Rate (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Income Tax Disclosure [Abstract]
Expected federal income tax at statutory rate	$ 3,107	$ 3,011	$ 2,404
State income taxes, net of federal tax effect	366	320	246
Tax impact of foreign activity	(105)	(115)	39
Permanent book/tax differences	460	372	67
Change in valuation allowance	16	(35)	(27)
Change in state deferred rate	(134)	(67)	(118)
Research and development credit	(227)	(261)	(200)
Tax impact of Tax Cuts and Jobs Act	8,613
Tax impact of stock activity	(925)
Other	409	(85)	25
Total provision for income taxes	$ 11,580	$ 3,140	$ 2,436

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Income Taxes - Significant Components of Deferred Tax Assets (Liabilities) (Detail) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Deferred tax assets
Net operating loss and credit carryforwards	$ 11,067	$ 4,614
Deferred operations		799
Stock-based compensation expense	4,273	4,085
Accounts receivable allowances	307	363
Accrued expenses	2,293	2,704
Other	182	297
Gross deferred tax asset	18,122	12,862
Less: valuation allowance	(602)	(649)
Total net deferred tax asset	17,520	12,213
Deferred tax liability
Deferred operations	(163)
Foreign operations	(133)	(350)
Depreciation and amortization	(1,536)	(1,328)
Other	(24)
Total deferred tax liability	(1,856)	(1,678)
Net deferred tax assets	$ 15,664	$ 10,535

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Net Income (Loss) Per Share - Components of Computation of Basic and Diluted Net Income (Loss) Per Share (Detail) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2017	Sep. 30, 2017	Jun. 30, 2017	Mar. 31, 2017	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Numerator
Net income (loss)	$ (9,101)	$ 1,865	$ 1,825	$ 2,971	$ 1,805	$ 2,509	$ 352	$ 1,044	$ (2,440)	$ 5,710	$ 4,639
Denominator
Weighted average common shares outstanding, basic									17,183	16,947	16,565
Options to purchase common stock										267	437
Restricted stock units										27	27
Employee stock purchase plan											3
Weighted average common shares outstanding, diluted									17,183	17,241	17,032
Net (loss) income per share
Basic									$ (0.14)	$ 0.34	$ 0.28
Diluted	$ (0.53)	$ 0.11	$ 0.11	$ 0.17	$ 0.10	$ 0.14	$ 0.02	$ 0.06	$ (0.14)	$ 0.33	$ 0.27

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Net Income (Loss) Per Share - Additional Information (Detail) - shares shares in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Net (loss) income per share
Outstanding potential common shares excluded from calculation of diluted net income (loss) per share	283	5	4

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Retirement Savings Plan - Additional Information (Detail) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Defined Contribution Pension And Other Postretirement Plans Disclosure [Abstract]
Maximum allowable contribution by employee percentage	100.00%
Defined benefit plan employer matching contribution percent	25.00%
Maximum annual contribution per employee, percent	6.00%
Employer matching contribution amount	$ 1.6	$ 1.4	$ 1.1

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Related Party Transactions - Additional Information (Detail) - SPS Commerce Foundation [Member] - USD ($)	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016
Related Party Transaction [Line Items]
Contributions to Foundation	$ 200,000	$ 300,000
Legal obligations for future commitments to Foundation	0
Directors of Foundation [Member]
Related Party Transaction [Line Items]
Officers' compensation from Foundation	$ 0

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Selected Quarterly Financial Data (Unaudited) - Summary of Unaudited Quarterly Statements of Comprehensive Income Data (Detail) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2017	Sep. 30, 2017	Jun. 30, 2017	Mar. 31, 2017	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Quarterly Financial Information Disclosure [Abstract]
Revenues	$ 58,200	$ 56,150	$ 54,284	$ 51,932	$ 51,061	$ 49,284	$ 47,351	$ 45,599	$ 220,566	$ 193,295	$ 158,518
Gross profit	38,741	37,505	36,093	34,602	33,739	33,113	31,379	30,718	146,941	128,949	108,475
Income (loss) from operations	(521)	2,846	2,727	3,376	2,653	2,670	880	1,314	8,428	7,517	7,023
Net income (loss)	$ (9,101)	$ 1,865	$ 1,825	$ 2,971	$ 1,805	$ 2,509	$ 352	$ 1,044	$ (2,440)	$ 5,710	$ 4,639
Diluted earnings (loss) per share	$ (0.53)	$ 0.11	$ 0.11	$ 0.17	$ 0.10	$ 0.14	$ 0.02	$ 0.06	$ (0.14)	$ 0.33	$ 0.27