Cloud Hosting

The following discussion and analysis of our financial condition and results ofoperations should be read together with our audited financial statements andrelated notes which are included in Part II, Item 8, "Financial Statements andSupplementary Data" of this Annual Report on Form 10-K. Our actual results coulddiffer materially from those anticipated in the forward-looking statementsincluded in this discussion as a result of certain factors, including, but notlimited to, those discussed in Part I, Item 1A, " Risk Factors " of thisAnnual Report on Form 10-K.

Overview

Key Financial Terms and Metrics

Sources of Revenues

Fulfillment - Our Fulfillment product provides fulfillment automation andreplaces or augments an organization's existing staff and trading partnerelectronic communication infrastructure by enabling easy compliance withretailers' rulebooks, automatic, digital exchange of information among numeroustrading partners through various protocols, and greater visibility into thejourney of an order.

Cost of Revenues and Operating Expenses

Cost of Revenues - Cost of revenues consist primarily of personnel costs for ourcustomer success and implementation teams, customer support personnel, andapplication support personnel as well as network services costs.

Sales and Marketing Expenses - Sales and marketing expenses consist primarily ofpersonnel costs for our sales, marketing and product management teams,commissions earned by our sales personnel and marketing costs.

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

Metrics and Non-GAAP Measures

Critical Accounting Policies and Estimates

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Internal-Use Software

Business Combinations

Results of Operations

Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

Revenues - The increase in revenues resulted from two primary factors: theincrease in recurring revenue customers, which is driven by continued businessgrowth and by business acquisitions, and the increase in average recurringrevenues per recurring revenue customer, which we also refer to as wallet share.

The number of recurring revenue customers increased 13% to 37,500 at

December 31, 2021 from 33,150 at December 31, 2020 due to sales and

marketing efforts to acquire new customers and due to new acquisitions.

Wallet share increased 9% to $10,050 at December 31, 2021 from $9,250 at

December 31, 2020. This was primarily attributable to increased usage of

our products by our recurring revenue customers.

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Cost of Revenues - The increase in cost of revenues was primarily due toincreased headcount which resulted in an increase of $26.3 million inpersonnel-related costs and an increase of $2.8 million in stock-basedcompensation. Additionally, as we continued to invest in the infrastructuresupporting our platform, depreciation expense increased by $1.7 million.

Other Income (Expense) - The change was primarily due to unfavorable foreigncurrency exchange rate changes and decreased investment income.

13,127

5,538

18,936

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

2020

18,936

5,538

Realized (gain) loss from foreign currency on cashand investments held

Year Ended December 31, 2020 Compared to Year Ended December 31, 2019

Liquidity and Capital Resources

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88,562

(120,469 )Net cash provided by (used in) financing activities $ (8,361 ) $ 2,328

Net Cash Flows from Operating Activities

Net Cash Flows from Investing Activities

The decrease in net cash used in investing activities was primarily due todecreased cash used for acquisitions of business and intangible assets, drivenby the larger acquisition in 2020 as compared to 2021.

Net Cash Flows from Financing Activities

The change in net cash flows from financing activities was primarily due to thedecrease in net proceeds from stock option exercises.

Contractual and Commercial Commitment Summary

Future Capital Requirements

Our future capital requirements may vary significantly from those now plannedand will depend on many factors, including:

costs to develop and implement new products and applications, if any;

sales and marketing resources needed to further penetrate our market and

gain acceptance of new products and applications that we may develop;

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

We believe our cash, cash equivalents, investments, and cash flows from ouroperations will be sufficient to meet our working capital and capitalexpenditure requirements for at least the next twelve months.

Off-Balance Sheet Arrangements

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

Foreign Currency Exchange and Inflation Rate Changes

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

Recent Accounting Pronouncements

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SPS COMMERCE INC Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-K) - marketscreener.com