##### Table of Contents





UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, D.C.
    20549
 Form 10-K
  (Mark One)þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the Fiscal
    Year Ended: December 31,
    2010o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the Transition Period
    from          to   Commission file number
    001-34702
 SPS COMMERCE, INC.
 (Exact Name of Registrant as
    Specified in its Charter)
  Delaware

41-2015127(State or Other Jurisdiction
    of
    Incorporation or Organization)

(I.R.S. Employer
    Identification No.)   333 South Seventh Street, Suite 1000, Minneapolis, MN
    55402
 (Address of Principal Executive
    Offices, Including Zip Code)
 (612) 435-9400
 (Registrants Telephone
    Number, Including Area Code)
 Securities registered pursuant to Section 12(b) of the
    Act:
  (Title of Each Class)

(Name of Each Exchange on Which Registered)Common stock, par value $0.001 per share

The Nasdaq Stock Market LLC
    (Nasdaq Global Market)   Securities registered pursuant to Section 12(g) of the
    Act:
 None
  o þ
  o þ
  þ o
  Regulation S-T o o
  Regulation S-K Form 10-K Form 10-K. o
  12b-2
  Large
    accelerated
    filer o
    Accelerated
    filer o
    Non-accelerated
    filer o
    Smaller
    reporting
    company þ   Rule 12b-2 o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE
  Form 10-K, Form 10-K.




---



##### 





SPS
    COMMERCE, INC.
  ANNUAL
    REPORT ON
    FORM 10-K
  Table of
    Contents
   
 PagePART IItem 1.

Business


3Item 1A.

Risk Factors


10Item 1B.

Unresolved Staff Comments


20Item 2.

Properties


20Item 3.

Legal Proceedings


20Item 4.

(Removed and Reserved)


20PART IIItem 5.

Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities


21Item 6.

Selected Financial Data


23Item 7.

Managements Discussion and Analysis of
    Financial Condition and Results of Operations


26Item 7A.

Quantitative and Qualitative Disclosures About
    Market Risk


39Item 8.

Financial Statements and Supplementary Data


40Item 9.

Changes in and Disagreements With Accountants on
    Accounting and Financial Disclosure


61Item 9A.

Controls and Procedures


61Item 9B.

Other Information


61PART IIIItem 10.

Directors, Executive Officers and Corporate
    Governance


61Item 11.

Executive Compensation


62Item 12.

Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters


62Item 13.

Certain Relationships and Related Transactions,
    and Director Independence


62Item 14.

Principal Accounting Fees and Services


62PART IVItem 15.

Exhibits, Financial Statement Schedules


62SIGNATURES


63EX-10.9EX-23.1EX-31.1EX-31.2EX-32.1    SPECIAL
    NOTE REGARDING FORWARD-LOOKING INFORMATION
  Form 10-K Risk
    Factors Form 10-K.
 2




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##### Table of Contents



PART I  Item 1.
    Business  Overview
        Our
    Industry
  Supply
    Chain Management Industry Background
      The
    Rule Books  Integration Between Retailers and
    Suppliers
   3




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Traditional
    Supply Chain Management Solutions
  set-up
  Need
    for Effective Analysis of Data for Intelligent Decision
    Making
    Software-as-a-Service
    Solutions Provide Flexibility and Effective Management Across
    the Supply Chain
      SPSCommerce.net:
    Our Platform
  point-to-point hub-and-spoke
   4




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up-to-date point-to-point
    
    Trading Partner Integration.  Our Trading
    Partner Integration solution replaces or augments an
    organizations existing trading partner electronic
    communication infrastructure, enabling suppliers to comply with
    retailers rule books and allowing for the electronic
    exchange of information among numerous trading partners through
    various protocols.
    Trading Partner Enablement.  Our Trading
    Partner Enablement solution helps organizations, typically large
    retailers, implement new integrations with trading partners to
    drive automation and electronic communication across their
    supply chains.
    Trading Partner Intelligence.  In 2009, we
    introduced our Trading Partner Intelligence solution, which
    consists of data analytics applications and allows our customers
    to improve their visibility across, and analysis of, their
    supply chains. Retailers improve their visibility into supplier
    performance and their understanding of product sell-through.
    Other Trading Partner Solutions.  We provide a
    number of peripheral solutions such as barcode labeling and our
    scan and pack application, which helps trading partners process
    information to streamline the picking and packaging process.  Our
    Customer and Sales Sources
    Network
    Effect of SPSCommerce.net
    Customer
    Acquisition Sources
  Trading Partner Enablement.
  Referrals from Trading Partners.
  Channel Partners.
 5




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Our
    Sales Force
    
    Retailer Sales.  We employ a team of sales
    professionals who focus on selling our Trading Partner
    Enablement solution to retailers, grocers and distributors.
    Supplier Sales.  We employ a team of supplier
    sales representatives based in North America. We also maintain
    offices in China, the United Kingdom and France.
    Business Development Efforts.  Our business
    development organization focuses on indirect sales channels.
    This group establishes relationships with resellers, system
    integrators, software providers and other partners.  Our
    Growth Strategy
    
    Further Penetrate Our Current Market.  We
    believe the global supply chain management market is
    underpenetrated 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 utilize our current solutions as
    their businesses grow, 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 direct 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 China represents a significant competitive
    advantage. We plan to increase our international sales efforts
    to obtain new supplier customers around the world. As part of
    this plan, we opened direct sales and support offices in the
    United Kingdom and France in February 2010. 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 suppliers based overseas.
    Enhance and Expand Our Platform.  We intend to
    further improve and develop the functionality and features of
    our platform, including developing new solutions and
    applications. For example, in 2009, we launched our Trading
    Partner Intelligence solution, which delivers data analytics
    applications to suppliers and retailers to improve performance.
    We also introduced a scan and pack application in 2009 that
    helps trading partners process information to streamline the
    picking and packaging process.
    Selectively Pursue Strategic Acquisitions.  The
    fragmented nature of our market provides opportunity for
    selective acquisitions. To complement and accelerate our
    internal growth, we may pursue acquisitions of other supply
    chain management companies to add customers. We also may pursue
    acquisitions that allow us to expand into regions or industries
    where we do not have a significant presence or to offer new
    functionalities we do not currently provide. We plan to evaluate
    potential acquisitions of other supply chain management
    companies primarily based on the number of customers the
    acquisition would provide relative to the purchase price. We
    plan to evaluate potential acquisitions to expand into new
    regions or 6




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industries 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
        Development
    Operations
  back-up
  back-up.
    Our
    Customers
    Competition
   7




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
    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 Software-as-a-Service vendor in the supply
    chain management industry;
    price;
    specialization in a customer market segment;
    speed and quality with which the Software-as-a-Service vendor
    can integrate its customers to their trading partners;
    functionality of the Software-as-a-Service solution, such as the
    ability to integrate the solution with a customers
    business systems;
    breadth of complementary supply chain management solutions the
    Software-as-a-Service vendor offers; and
    training and customer support services provided during and after
    a customers initial integration.          Intellectual
    Property and Proprietary Content
   8




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Employees
    Company
    Information
  (612) 435-9400. Form 10-K Form 10-K, Form 10-Q, Form 8-K www.sec.gov
        Executive
    Officers
    Name

Age

PositionArchie C. Black

48

Chief Executive Officer and PresidentKimberly K. Nelson

43

Executive Vice President and Chief Financial OfficerJames J. Frome

46

Executive Vice President and Chief Strategy OfficerMichael J. Gray

51

Executive Vice President of OperationsDavid J. Novak, Jr.

42

Executive Vice President of Business Development   Archie C. Black
  Kimberly K. Nelson
 9




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##### Table of Contents



James J. Frome
  Michael J. Gray
  David J. Novak, Jr.
  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 Securities and Exchange
    Commission, 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.
  The
    market for on-demand 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.
        
    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. 10




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We do
    not have long-term contracts with 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.
    Continued
    economic weakness and uncertainty could adversely affect our
    revenue, lengthen our sales cycles and make it difficult for us
    to forecast operating results accurately.
    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.
    Our
    quarterly results of operations may fluctuate in the future,
    which could result in volatility in our stock
    price.
   11




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
    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;
    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; and
    changes in the payment terms for our solutions.  Form 10-K,
  We
    have incurred operating losses in the past and may incur
    operating losses in the future.
    Our
    inability to adapt to rapid technological change could impair
    our ability to remain competitive.
    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.
   12




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Interruptions
    or delays from third-party data centers could impair the
    delivery of our solutions and our business could
    suffer.
      A
    failure to protect the integrity and security of our
    customers information 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.
   13




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Evolving
    regulation of the Internet may increase our expenditures related
    to compliance efforts, which may adversely affect our financial
    condition.
    If we
    fail to protect our intellectual property and proprietary rights
    adequately, our business could be adversely
    affected.
    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.
       14




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We
    rely on third party hardware and software that could take a
    significant time to replace or upgrade.
    We may
    pursue acquisitions and our potential inability to successfully
    integrate newly acquired companies or businesses could adversely
    affect our financial results.
    
    incurring significantly higher than anticipated capital
    expenditures and operating expenses;
    failing to assimilate the operations and personnel of the
    acquired company or business;
    disrupting our ongoing business;
    dissipating our management resources;
    failing to maintain uniform standards, controls and
    policies; and
    impairing relationships with employees and customers as a result
    of changes in management.    Our
    ability to use U.S. net operating loss carryforwards might be
    limited.
   15




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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.
    
    Software-as-a-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.    Mergers
    or other strategic transactions involving our competitors could
    weaken our competitive position, which could harm our operating
    results.
  e-commerce
  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.
   16




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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.
    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.
      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.
    
    develop and enhance our solutions;
    continue to expand our technology development, sales and
    marketing organizations; 17




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
    hire, train and retain employees; or
    respond to competitive pressures or unanticipated working
    capital requirements.    Because
    our long-term success depends, in part, on our ability to expand
    the sales of our solutions to customers located outside of the
    United States, our business will be susceptible to risks
    associated with international operations.
    
    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;
    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; and
    reduced or varied protection for intellectual property rights in
    some countries.    Our
    stock price may be volatile.
    
    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;
    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; 18




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
    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, 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.    Future
    sales of our common stock by our existing stockholders could
    cause our stock price to decline.
    Our
    charter documents and Delaware law may inhibit a takeover that
    stockholders consider favorable.
    
    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;
    divide our board of directors into three classes;
    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. 19




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We do
    not intend to declare dividends on our stock in the foreseeable
    future.
    Our
    directors, executive officers and their affiliates have
    substantial control over us and could delay or prevent a change
    in corporate control.
    
    delaying, deferring or preventing a change in corporate control;
    impeding a merger, consolidation, takeover or other business
    combination involving us; or
    discouraging a potential acquirer from making a tender offer or
    otherwise attempting to obtain control of us.  Item 1B.
    Unresolved
    Staff Comments    Item 2.
    Properties      Item 3.
    Legal
    Proceedings    Item 4.
    (Removed
    and Reserved)   20




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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.
  High

LowFiscal 2010Second Quarter (from April 22, 2010)

$
14.50


$
10.90Third Quarter

$
12.83


$
8.45Fourth Quarter

$
15.98


$
11.59   Stockholders of Record. and/or
  Dividends.
 21




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Stock Performance Graph and Cumulative Total Return
  Notwithstanding any statement to the contrary in any of our
    previous or future filings with the Securities and Exchange
    Commission, or 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, or the Exchange Act, and it shall not be deemed to be
    incorporated by reference into any of our filings under the
    Securities Act or the Exchange Act, except to the extent we
    specifically incorporate it by reference into such filing.
    Comparison
    of Cumulative Total Returns of SPS Commerce, Inc., Nasdaq
    Composite Index and
    Nasdaq Computer & Data Processing Index
  4/22/2010



6/30/2010



9/30/2010



12/31/2010SPS Commerce, Inc.


$
100.0



$
85.4



$
94.3



$
116.2Nasdaq Composite Index



100.0




84.1




94.6




106.2Nasdaq Computer & Data Processing Index



100.0




80.8




95.4




108.3   
  Unregistered
    Sales of Equity Securities
    Use of
    Proceeds from Sales of Registered Securities
  Form S-1 No. 333-163476),
 22




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Form S-1 No. 333-170544),
      Stock
    Repurchases
    Item 6.
    Selected
    Financial Data  Managements Discussion and Analysis of
    Financial Condition and Results of Operations Form 10-K.
  Form 10-K.
  Form 10-K.
     23




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##### Table of Contents



Year Ended December 31,2006


2007


2008


2009


2010(In thousands, except per share data)Statement of Operations DataRevenues

$
19,859


$
25,198


$
30,697


$
37,746


$
44,597Cost of revenues(1)


5,219



6,379



9,258



11,715



12,626Gross profit


14,640



18,819



21,439



26,031



31,971Operating expensesSales and marketing(1)


8,098



11,636



12,493



13,506



16,601Research and development(1)


3,190



3,546



3,640



4,305



4,349General and administrative(1)


4,199



5,458



6,716



6,339



7,985Total operating expenses


15,487



20,640



22,849



24,150



28,935Income (loss) from operations


(847
)


(1,821
)


(1,410
)


1,881



3,036Other income (expense)Interest expense


(558
)


(439
)


(419
)


(270
)


(74
)Interest income


















158Other income (expense)


108



120



28



(358
)


(144
)Total other expense


(450
)


(319
)


(391
)


(628
)


(60
)Income tax expense


(4
)


(16
)


(94
)


(91
)


(92
)Net income (loss)

$
(1,301
)

$
(2,156
)

$
(1,895
)

$
1,162


$
2,884Net income (loss) per shareBasic

$
(10.93
)

$
(11.65
)

$
(6.45
)

$
3.53


$
0.36Diluted

$
(10.93
)

$
(11.65
)

$
(6.45
)

$
0.13


$
0.25Weighted average common shares outstandingBasic


119



185



294



329



8,036Diluted


119



185



294



9,268



11,596   As of December 31,2006

2007

2008

2009

2010(In thousands)Balance Sheet DataCash, cash equivalents and short-term investments

$
1,942


$
6,117


$
3,715


$
5,931


$
40,473Working capital


(647
)


4,535



3,995



4,973



42,552Total assets


12,228



20,687



19,197



21,919



57,880Long-term liabilities


5,167



5,550



5,950



5,317



5,283Total debt(2)


5,018



4,992



4,471



2,694



122Total redeemable convertible preferred stock


58,520



65,964



65,964



65,778



Total stockholders equity (deficit)


(58,046
)


(60,111
)


(61,844
)


(60,466
)


(62,768
)   24




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##### Table of Contents



Year Ended December 31,2006

2007

2008

2009

2010(Unaudited, adjusted EBITDA in thousands)Operating DataAdjusted EBITDA(3)

$
748


$
103


$
763


$
3,206


$
5,175Non-GAAP net income (loss) per diluted share(4)

$
(6.38
)

$
(7.41
)

$
(3.23
)

$
0.17


$
0.31Recurring revenue customers(5)


7,940



9,496



10,076



11,003



12,399     (1)
    
    Includes stock-based compensation expense as follows (in
    thousands):  Year Ended December 31,2006


2007


2008


2009


2010Cost of revenues

$



$
2


$
19


$
53


$
103Sales and marketing






33



60



91



211Research and development






2



4



4



20General and administrative


6



9



74



80



416Total

$
6


$
46


$
157


$
228


$
750    (2)
    
    Total debt consists of our current and long-term capital lease
    obligations, current and long-term equipment and term loans,
    line of credit, interest payable and, as of December 31,
    2006, mezzanine debt.(3)
    
    EBITDA consists of net income (loss) plus depreciation and
    amortization, interest expense, interest income and income tax
    expense. Adjusted EBITDA consists of EBITDA plus our non-cash,
    stock-based compensation expense. We use Adjusted EBITDA as a
    measure of operating performance because it assists us in
    comparing performance on a consistent basis, as it removes from
    our operating results the impact of our capital structure. 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 31,2006


2007


2008


2009


2010Net income (loss)

$
(1,301
)

$
(2,156
)

$
(1,895
)

$
1,162


$
2,884Depreciation and amortization


1,481



1,758



1,988



1,455



1,533Interest expense


558



439



419



270



74Interest income


















(158
)Income tax expense


4



16



94



91



92EBITDA


742



57



606



2,978



4,425Stock-based compensation expense


6



46



157



228



750Adjusted EBITDA

$
748


$
103


$
763


$
3,206


$
5,175    (4)
    
    Non-GAAP net income (loss) per share consists of net income
    (loss) plus non-cash, 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. We believe non-GAAP net income (loss) 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
    net income (loss) per share (in thousands, except per share
    amounts):  25




---



##### Table of Contents



Year Ended December 31,2006


2007


2008


2009


2010Net income (loss)

$
(1,301
)

$
(2,156
)

$
(1,895
)

$
1,162


$
2,884Stock-based compensation expense


6



46



157



228



750Amortization of intangible assets


536



740



788



155



Non-GAAP net income (loss)

$
(759
)

$
(1,370
)

$
(950
)

$
1,545


$
3,634Non-GAAP net income (loss) per shareBasic

$
(6.38
)

$
(7.41
)

$
(3.23
)

$
4.70


$
0.45Diluted

$
(6.38
)

$
(7.41
)

$
(3.23
)

$
0.17


$
0.31Shares used to compute non-GAAP net income (loss) per shareBasic


119



185



294



329



8,036Diluted


119



185



294



9,268



11,596    (5)
    
    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 minority 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 days prior notice.  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
    point-to-point hub-and-spoke
     26




---



##### Table of Contents



Key
    Financial Terms and Metrics
  Sources
    of Revenues
  Trading Partner Integration. set-up
  Trading Partner Enablement.
  Trading Partner Intelligence.
  Other Trading Partner Solutions. picking-and-packaging
  Cost
    of Revenues and Operating Expenses
  Overhead Allocation.
  Cost of Revenues.
  Sales and Marketing Expenses.
  Research and Development Expenses.
  General and Administrative Expenses.
 27




---



##### Table of Contents



Other Income (Expense).
  Other
    Metrics
  Recurring Revenue Customers.
  Average Recurring Revenues Per Recurring Revenue
    Customer.
  Monthly Subscription and Transaction-Based
    Fees.
  Non-GAAP Financial Measures.
    Critical
    Accounting Policies and Estimates
     28




---



##### Table of Contents



Revenue
    Recognition
  set-up
  Revenue Recognition in
    Financial Statements
  Set-up set-up
  Allowance
    for Doubtful Accounts
    Income
    Taxes
  Income Taxes
   29




---



##### Table of Contents



Stock-Based
    Compensation
  Compensation  Stock
    Compensation
    Significant
    Factors Used in Determining Fair Value of Our Common
    Stock
     30




---



##### Table of Contents



Research
    and Development
  ASC 350-40, Intangibles  Goodwill and Other
    Valuation
    of Goodwill
   31




---



##### Table of Contents



Results
    of Operations
  Year
    Ended December 31, 2010 Compared to Year Ended
    December 31, 2009
    Year Ended December 31,2010


2009


Change% of revenue





% of revenue


$


%Revenues

$
44,597



100.0
%

$
37,746



100.0
%

$
6,851



18.2
%Cost of revenues


12,626



28.3



11,715



31.0



911



7.8Gross profit


31,971



71.7



26,031



69.0



5,940



22.8Operating expenses:Sales and marketing


16,601



37.2



13,506



35.8



3,095



22.9Research and development


4,349



9.8



4,305



11.4



44



1.0General and administrative


7,985



17.9



6,339



16.8



1,646



26.0Total operating expenses


28,935



64.9



24,150



64.0



4,785



19.8Income from operations


3,036



6.8



1,881



5.0



1,155



61.4Other income (expense):Interest expense


(74
)


(0.2
)


(270
)


(0.7
)


196



(72.6
)Interest income


158



0.4











158




*Other expense


(144
)


(0.3
)


(358
)


(0.9
)


214




*Total other income (expense), net


(60
)


(0.1
)


(628
)


(1.7
)


568



(90.4
)Income tax expense


(92
)


(0.2
)


(91
)


(0.2
)


(1
)


1.1Net income

$
2,884



6.5


$
1,162



3.1



1,722



148.2     Due to rounding, totals may not equal the sum of the line items
    in the table above.*
    
    Percentage is not meaningful.  Revenues.
  Cost of Revenues.
  Sales and Marketing Expenses.
 32




---



##### Table of Contents



Research and Development Expenses.
  General and Administrative Expenses.
  Other Income (Expense).
  Income Tax Expense.
  Adjusted EBITDA.
    Year EndedDecember 31,2010


2009Net income

$
2,884


$
1,162Depreciation and amortization


1,533



1,455Interest expense


74



270Interest income


(158
)


Income tax expense


92



91EBITDA


4,425



2,978Stock-based compensation expense


750



228Adjusted EBITDA

$
5,175


$
3,206  33




---



##### Table of Contents



Non-GAAP Net Income per Share.
    Year EndedDecember 31,2010


2009Net income

$
2,884


$
1,162Stock-based compensation expense


750



228Amortization of intangible assets






155Non-GAAP net income

$
3,634


$
1,545Non-GAAP net income per shareBasic

$
0.45


$
4.70Diluted

$
0.31


$
0.17Shares used to compute non-GAAP net income per shareBasic


8,036



329Diluted


11,596



9,268   Year
    Ended December 31, 2009 Compared to Year Ended
    December 31, 2008
    Year Ended December 31,2009


2008


Change% of revenue





% of revenue


$


%Revenues

$
37,746



100.0
%

$
30,697



100.0
%

$
7,049



23.0
%Cost of revenues


11,715



31.0



9,258



30.2



2,457



26.5Gross profit


26,031



69.0



21,439



69.8



4,592



21.4Operating expenses:Sales and marketing


13,506



35.8



12,493



40.7



1,013



8.1Research and development


4,305



11.4



3,640



11.9



665



18.3General and administrative


6,339



16.8



6,716



21.9



(377
)


(5.6
)Total operating expenses


24,150



64.0



22,849



74.4



1,301



5.7Income (loss) from operations


1,881



5.0



(1,410
)


(4.6
)


3,291




*Other income (expense):Interest expense


(270
)


(0.7
)


(419
)


(1.4
)


149



(35.6
)Interest income























*Other income (expense)


(358
)


(0.9
)


28



0.1



(386
)



*Total other expense, net


(628
)


(1.7
)


(391
)


(1.3
)


(237
)


60.6Income tax expense


(91
)


(0.2
)


(94
)


(0.3
)


3



(3.2
)Net income (loss)

$
1,162



3.1


$
(1,895
)


(6.2
)


3,057




*     Due to rounding, totals may not equal the sum of the line items
    in the table above.*
    
    Percentage is not meaningful. 34




---



##### Table of Contents



Revenues.
  Cost of Revenues.
  Sales and Marketing Expenses.
  Research and Development Expenses.
  General and Administrative Expenses.
  Other Income (Expense).
  Adjusted EBITDA.
 35




---



##### Table of Contents



Year EndedDecember 31,2009


2008Net income (loss)

$
1,162


$
(1,895
)Depreciation and amortization


1,455



1,988Interest expense


270



419Interest income






Income tax expense


91



94EBITDA


2,978



606Stock-based compensation expense


228



157Adjusted EBITDA

$
3,206


$
763   Non-GAAP Net Income per Share.
    Year EndedDecember 31,2009


2008Net income (loss)

$
1,162


$
(1,895
)Stock-based compensation expense


228



157Amortization of intangible assets


155



788Non-GAAP net income (loss)

$
1,545


$
(950
)Non-GAAP net income (loss) per shareBasic

$
4.70


$
(3.23
)Diluted

$
0.17


$
(3.23
)Shares used to compute non-GAAP net income (loss) per shareBasic


329



294Diluted


9,268



294   Liquidity
    and Capital Resources
  set-up
 36




---



##### Table of Contents




    $34.5 million increase in cash and cash equivalents,
    primarily representing the net proceeds from our initial public
    and secondary stock offerings in April and December 2010;
    $800,000 increase in net accounts receivable, due to new
    business in 2010;
    $600,000 increase in deferred costs, current for expenses
    related to increased implementation resources and commission
    payments for new business;
    $600,000 decrease in prepaid expenses and other current assets,
    as prepaid expenses related to our initial public offering were
    recognized;
    $300,000 decrease in accounts payable, and $400,000 decrease in
    accrued expenses and other current liabilities, as payments were
    made on invoices and accruals related to our initial public
    offering;
    $600,000 increase in accrued compensation and benefits, due
    primarily to increased salary and bonus accruals;
    $200,000 increase in current deferred revenue, due to new
    business in 2010; and
    $2.2 million decrease in the current portion of long-term
    debt and line of credit, as amounts were repaid with proceeds
    from our initial public offering.  Net
    Cash Flows from Operating Activities
        Net
    Cash Flows from Investing Activities
      Net
    Cash Flows from Financing Activities
   37




---



##### Table of Contents



Credit
    Facility
    Adequacy
    of Capital Resources
        Off-Balance
    Sheet Arrangements
    Contractual
    and Commercial Commitment Summary
    Payments Due By PeriodLess Than


1-3


3-5


More ThanContractual Obligations

Total


1 Year


Years


Years


5 Years(In thousands)Capital lease obligations

$
122


$
122


$



$



$
Operating lease obligations


1,916



920



996







Other long-term liabilities(1)


5,140







Total

$
7,178


$
1,042


$
996


$



$
     (1)
    
    Consists of the long-term portion of deferred revenues and
    deferred tax liability.  Seasonality
    New
    Accounting Pronouncements
  No. 2009-13, Revenue Recognition (ASC Topic 605), Multiple-Deliverable
    Revenue Arrangements, a consensus of the FASB Emerging Issues
    Task Force. 605-25, Revenue Recognition-Multiple Element Arrangements,
 38




---



##### Table of Contents



No. 2009-14, Software (ASC Topic 985), Certain Revenue Arrangements That
    Include Software Elements, a consensus of the FASB Emerging
    Issues Task Force. 965-605, Software-Revenue Recognition,
  No. 2009-13 No. 2009-14
  No. 2010-06, Improving Disclosures about Fair Value Measurements No. 2010-06 No. 2010-06
  No. 2010-20, Disclosures about the Credit
    Quality of Financing Receivables and the Allowance for Credit
    Losses No. 2010-20
  Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk  Interest Rate Sensitivity Risk.
  Foreign Currency Exchange Risk.
 39




---



##### Table of Contents



Item 8.
    Financial
    Statements and Supplementary Data  SPS Commerce, Inc. Consolidated Financial StatementsReport of Independent Registered Public
    Accounting Firm


41Consolidated Balance Sheets


42Consolidated Statements of Operations


43Consolidated Statements of Redeemable Convertible
    Preferred Stock and Stockholders Equity (Deficit)


44Consolidated Statements of Cash Flows


45Notes to Consolidated Financial Statements


46  40




---



##### Table of Contents



Report of
    Independent Registered Public Accounting Firm           GRANT
    THORNTON LLP
    41




---



##### Table of Contents



SPS
    COMMERCE, INC.
  CONSOLIDATED BALANCE SHEETS
  December 31,2010


2009(In thousands, except share amounts)ASSETSCURRENT ASSETSCash and cash equivalents

$
40,473


$
5,931Accounts receivable, less allowance for doubtful accounts of
    $209 and $226


5,574



4,766Deferred costs, current


4,720



4,126Prepaid expenses and other current assets


874



1,440Total current assets


51,641



16,263PROPERTY AND EQUIPMENTComputer equipment and purchased software


6,678



8,542Office equipment and furniture


1,840



1,678Leasehold improvements


720



6099,238



10,829Less: accumulated depreciation and amortization


(6,478
)


(8,309
)Total property and equipment, net


2,760



2,520GOODWILL


1,166



1,166INTANGIBLE ASSETS, net


290



290OTHER ASSETSDeferred costs, net of current portion


1,943



1,617Other non-current assets


80



63$
57,880


$
21,919LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK
    AND STOCKHOLDERS EQUITY (DEFICIT)CURRENT LIABILITIESLine of credit, net of discount

$



$
1,500Capital lease obligations, current


122



338Equipment loans, current






499Accounts payable


998



1,345Accrued compensation and benefits


3,577



3,005Accrued expenses and other current liabilities


807



1,196Deferred revenue, current


3,585



3,407Total current liabilities


9,089



11,290LONG-TERM DEBT, less current portionCapital lease obligations






122Equipment loans






233Total long-term debt






355OTHER LIABILITIESDeferred revenue, less current portion


5,002



4,025Convertible preferred stock warrant liability






569Other non-current liabilities


281



368Total liabilities


14,372



16,607REDEEMABLE CONVERTIBLE PREFERRED STOCKSeries A redeemable convertible preferred stock,
    $0.001 par value, 0 and 1,182,217 shares authorized; 0
    and 1,154,151 shares issued and outstanding; aggregate
    liquidation preference of $0 and $10,000, respectively






37,676Series B redeemable convertible preferred stock,
    $0.001 par value, 0 and 6,274,329 shares authorized; 0
    and 5,688,116 shares issued and outstanding; aggregate
    liquidation preference of $0 and $21,112, respectively






20,658Series C redeemable convertible preferred stock,
    $0.001 par value, 0 and 1,602,000 shares authorized; 0
    and 1,251,559 shares issued and outstanding; aggregate
    liquidation preference of $0 and $7,500, respectively






7,444Total redeemable convertible preferred stock






65,778STOCKHOLDERS EQUITY (DEFICIT)Preferred stock, $0.001 par value; 5,000,000 and
    0 shares authorized; 0 shares issued and outstanding






Common stock, $0.001 par value; 55,000,000 and
    13,442,303 shares authorized; 11,849,572 and
    327,113 shares issued and outstanding, respectively


12



Additional paid-in capital


106,264



5,186Accumulated deficit


(62,768
)


(65,652
)Total stockholders equity (deficit)


43,508



(60,466
)$
57,880


$
21,919    42




---



##### Table of Contents



SPS
    COMMERCE, INC.
  CONSOLIDATED STATEMENTS OF OPERATIONS
  Year Ended December 31,2010


2009


2008(In thousands, exceptper share amounts)Revenues

$
44,597


$
37,746


$
30,697Cost of revenues


12,626



11,715



9,258Gross profit


31,971



26,031



21,439Operating expensesSales and marketing


16,601



13,506



12,493Research and development


4,349



4,305



3,640General and administrative


7,985



6,339



6,716Total operating expenses


28,935



24,150



22,849Income (loss) from operations


3,036



1,881



(1,410
)Other income (expense)Interest expense


(74
)


(270
)


(419
)Interest income


158







Other income (expense)


(144
)


(358
)


28Total other expense


(60
)


(628
)


(391
)Income tax expense


(92
)


(91
)


(94
)Net income (loss)

$
2,884


$
1,162


$
(1,895
)Net income (loss) per shareBasic

$
0.36


$
3.53


$
(6.45
)Diluted

$
0.25


$
0.13


$
(6.45
)Weighted average common shares used to compute net income (loss)
    per shareBasic


8,036



329



294Diluted


11,596



9,268



294    43




---



##### Table of Contents



SPS
    COMMERCE, INC.
  CONSOLIDATED
    STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
    STOCKHOLDERS EQUITY (DEFICIT)
  Redeemable Convertible Preferred Stock


Stockholders Equity (Deficit)TotalAdditional





StockholdersSeries A


Series B


Series C





Common Stock


Paid-in


Accumulated


EquityShares


Amount


Shares


Amount


Shares


Amount


Total


Shares


Amount


Capital


Deficit


(Deficit)(In thousands, except share amounts)Balances, January 1, 2008


1,154,151


$
37,676



5,759,246


$
20,844



1,251,559


$
7,444


$
65,964



246,762


$



$
4,808


$
(64,919
)

$
(60,111
)Stock-based compensation






































157







157Exercise of warrants






























2,232















Exercise of stock options






























82,151







5







5Net loss










































(1,895
)


(1,895
)Balances, December 31, 2008


1,154,151



37,676



5,759,246



20,844



1,251,559



7,444



65,964



331,145







4,970



(66,814
)


(61,844
)Stock-based compensation






































228







228Exercise of stock options






























15,640







2







2Repurchase of redeemable convertible preferred and common stock










(71,130
)


(186
)










(186
)


(19,672
)






(14
)






(14
)Net income










































1,162



1,162Balances, December 31, 2009


1,154,151



37,676



5,688,116



20,658



1,251,559



7,444



65,778



327,113







5,186



(65,652
)


(60,466
)Stock-based compensation






































750







750Exercise of warrants






























49,224















Exercise of stock options






























149,905







43







43Conversion of redeemable convertible preferred stock


(1,154,151
)


(37,676
)


(5,688,116
)


(20,658
)


(1,251,559
)


(7,444
)


(65,778
)


8,093,826



8



65,770







65,778Conversion of warrants to purchase redeemable convertible
    preferred stock






































596







596Initial public offering, net of costs






























3,114,504



3



32,899







32,902Secondary stock offering, net of costs






























115,000







1,020







1,020Net income










































2,884



2,884Other


































1











1Balances, December 31, 2010





$







$







$



$




11,849,572


$
12


$
106,264


$
(62,768
)

$
43,508    44




---



##### Table of Contents



SPS
    COMMERCE, INC.
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  Year Ended December 31,2010


2009


2008(In thousands)Cash flows from operating activitiesNet income (loss)

$
2,884


$
1,162


$
(1,895
)Reconciliation of net income (loss) to net cash provided by
    (used in) operating activitiesDepreciation and amortization


1,533



1,445



1,963Provision for doubtful accounts


274



439



396Amortization of debt issue costs


1



10



25Stock-based compensation


750



228



157Change in carrying value of preferred stock warrants


27



381



45Non-cash interest expense










33Changes in assets and liabilitiesAccounts receivable


(1,081
)


(641
)


(811
)Prepaid expenses and other current assets


567



(655
)


232Other assets


(17
)


(6
)


(8
)Deferred costs


(919
)


(98
)


(1,659
)Accounts payable


(347
)


541



(319
)Interest payable






(34
)


(4
)Deferred revenue


1,155



844



1,526Deferred tax liability






28



82Accrued compensation and benefits


572



1,121



(510
)Deferred rent


(109
)


(112
)


27Accrued expenses and other current liabilities


(371
)


505



(87
)Net cash provided by (used in) operating activities


4,919



5,158



(807
)Cash flows from investing activitiesPurchases of property and equipment


(1,772
)


(1,000
)


(884
)Maturities of short-term investments










1,263Net cash provided by (used in) investing activities


(1,772
)


(1,000
)


379Cash flows from financing activitiesBorrowings on line of credit


4,450



16,325



10,425Payments on line of credit


(5,950
)


(16,125
)


(10,125
)Proceeds from equipment loans










855Payments on equipment loans


(732
)


(730
)


(721
)Payments on term loan






(679
)


(621
)Payments of capital lease obligations


(338
)


(534
)


(529
)Net proceeds from initial public offering


32,902







Net proceeds from secondary stock offering


1,020







Net proceeds from exercise of stock options


43



2



5Purchase of preferred and common stock






(201
)


Net cash provided by (used in) financing activities


31,395



(1,942
)


(711
)Net increase (decrease) in cash and cash equivalents


34,542



2,216



(1,139
)Cash and cash equivalents at beginning of period


5,931



3,715



4,854Cash and cash equivalents at end of period

$
40,473


$
5,931


$
3,715Supplemental disclosure of cash flow informationCash paid for interest

$
62


$
285


$
374Non cash investing and financing activitiesCapital lease obligations incurred

$



$



$
166    45




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##### Table of Contents



SPS
    COMMERCE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
  NOTE A 
    General  Business
    Description
    Basis
    of Presentation
    Use of
    Estimates
    Risk
    and Uncertainties
    Cash
    and Cash Equivalents
    Concentration
    of Credit Risk
    Accounts
    Receivable
  day-to-day
 46




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##### Table of Contents



SPS
    COMMERCE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Property
    and Equipment
            Research
    and Development
  ASC 350-40, Intangibles  Goodwill and Other
    Long-Lived
    Assets
    Income
    Taxes
   47




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##### Table of Contents



SPS
    COMMERCE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Revenue
    Recognition
  set-up ASC 605-45, Revenue Recognition,
  Revenue Recognition in
    Financial Statements,
  Set-up set-up
  Net
    Income (Loss) Per Share
    Stock-Based
    Compensation
  Compensation  Stock Compensation,
   48




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##### Table of Contents



SPS
    COMMERCE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Advertising
    Costs
    Goodwill
    Intangible
    Assets
  not-to-compete. not-to-compete
  Debt
    Issue Costs
    Segment
    Information
  ASC 280-10, Segment Reporting.
  Fair
    Value of Financial Instruments
   49




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##### Table of Contents



SPS
    COMMERCE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Recent
    Accounting Pronouncements
  No. 2009-13, Multiple-Deliverable
    Revenue Arrangements, a consensus of the FASB Emerging Issues
    Task Force. 605-25, Revenue Recognition-Multiple Element Arrangements,
  No. 2009-14, Certain Revenue Arrangements That
    Include Software Elements, a consensus of the FASB Emerging
    Issues Task Force. 965-605, Software-Revenue Recognition,
  No. 2009-13 No. 2009-14
  No. 2010-06, Improving Disclosures about Fair Value Measurements No. 2010-06 No. 2010-06
  No. 2010-20, Disclosures about the Credit
    Quality of Financing Receivables and the Allowance for Credit
    Losses No. 2010-20
  NOTE B 
    Financial
    Statement Components  Allowance
    for Doubtful Accounts
    2010


2009


2008Balances, January 1

$
226


$
308


$
198Provision for doubtful accounts


274



439



396Write-offs, net of recoveries


(291
)


(521
)


(286
)Balances, December 31

$
209


$
226


$
308  50




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##### Table of Contents



SPS
    COMMERCE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Intangible
    Assets
    December 31,2010


2009Carrying


Accumulated





Carrying


AccumulatedAmount


Amortization


Net


Amount


Amortization


NetSubscriber relationships

$
1,930


$
(1,930
)

$



$
1,930


$
(1,930
)

$
Covenants
    not-to-compete


580



(290
)


290



580



(290
)


290$
2,510


$
(2,220
)

$
290


$
2,510


$
(2,220
)

$
290     Debt
    Issue Costs
    December 31,2010


2009Debt issue costs

$
119


$
119Accumulated amortization


(119
)


(115
)$



$
4     Accounts
    Payable
    December 31,2010


2009Costs incurred for initial public offering

$



$
318Other accounts payable


998



1,027$
998


$
1,345   Accrued
    Expenses and Other Current Liabilities
    December 31,2010


2009Costs accrued for initial public offering

$



$
377Other accrued expenses and other current liabilities


807



819$
807


$
1,196  51




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##### Table of Contents



SPS
    COMMERCE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  NOTE C 
    Fair
    Value of Financial Instruments  Fair Value Measurements and Disclosures
  
    Level 1  quoted prices in active markets for
    identical assets and liabilities.
    Level 2  observable inputs other than quoted
    prices in active markets for identical assets and liabilities.
    Level 3  unobservable inputs in which there is
    little or no market data available, which require the reporting
    entity to develop its own assumptions.    Total


Level 1


Level 2


Level 3Cash and cash equivalents

$
40,473


$
40,473


$



$
     Total


Level 1


Level 2


Level 3Cash and cash equivalents

$
5,931


$
5,931


$



$
Preferred stock warrants

$
569


$



$



$
569     Balance at January 1, 2009





$
188Total losses recognized






381Balance at December 31, 2009






569Total losses recognized






27Converted into warrants to purchase common stock and liability
    transferred to additional paid-in capital






(596
)Balance at December 31, 2010





$
   NOTE D 
    Debt     52




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##### Table of Contents



SPS
    COMMERCE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
            December 31,2010


2009Various equipment loans  interest ranging from 11.49%
    to 12.53% and originally due at dates through January 1,
    2012

$



$
732Less: current maturities






(499
)Total long-term debt

$



$
233   NOTE E 
    Commitments
    and Contingencies  Capital
    Leases
    December 31,2010


2009Computer equipment and purchased software

$
888


$
1,664Accumulated amortization


(470
)


(892
)$
418


$
772     2011





$
125Less: amount representing interest






(3
)Present value of minimum lease payments






122Less: current portion






(122
)$
  53




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##### Table of Contents



SPS
    COMMERCE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Operating
    Leases
      2011

$
9202012


996$
1,916   Management
    Incentive Agreements
    Other
    Contingencies
    NOTE F 
    Redeemable
    Convertible Preferred Stock and Stockholders Equity
    (Deficit)  Reverse
    Stock Split
    Initial
    Public Offering
     54




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##### Table of Contents



SPS
    COMMERCE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Secondary
    Stock Offering
    Preferred
    Stock Warrants
      Redeemable
    Convertible Preferred Stock
         55




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##### Table of Contents



SPS
    COMMERCE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    NOTE G 
    Stock-Based
    Compensation      Year Ended December 31,2010


2009


2008Cost of revenues

$
103


$
46


$
18Operating expenses:Sales and marketing


211



91



59Research and development


20



4



4General and administrative


416



88



76Total stock-based compensation expense

$
750


$
229


$
157       Weighted AverageOptions


Exercise Price(#)


($/share)Outstanding at January 1, 2008


1,240,465


$
2.48Granted


46,191



4.62Exercised


(82,151
)


0.37Forfeited


(16,922
)


3.67Outstanding at December 31, 2008


1,187,583



2.69Granted


339,187



2.86Exercised


(15,640
)


0.37Forfeited


(262,925
)


7.98Outstanding at December 31, 2009


1,248,205



1.65Granted


479,691



11.87Exercised


(157,056
)


0.82Forfeited


(21,496
)


23.92Outstanding at December 31, 2010


1,549,344



4.59    56




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##### Table of Contents



SPS
    COMMERCE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2010

2009

2008Weighted-average volatility

46% - 49%

49% - 53%

53%Expected dividends





Expected life (in years)

6.25

4.0 - 7.0

7.0Weighted-average risk-free interest rate

1.79% - 3.14%

2.71% - 4.01%

4.0%         Weighted


Weighted





WeightedAverage


Average





AverageOptions


Remaining


Exercise


Options


ExerciseOutstanding


Contractual


Price


Exercisable


PriceExercise Price per Share

(#)


Life (Years)


($/share)


(#)


($/share)$0.37


620,320



3.3


$
0.37



620,320


$
0.37$0.41 - $7.45


451,900



6.6


$
2.84



327,745


$
2.87$7.49 - $11.24


49,885



7.0


$
9.23



16,818


$
7.84$11.99 - $13.28


427,239



9.3


$
12.03



15,304


$
12.001,549,344











980,187   NOTE H 
    Income
    Taxes    Year Ended December 31,2010


2009


2008CurrentFederal

$
41


$
36


$
State


23



27



12DeferredFederal


26



26



75State


2



2



7$
92


$
91


$
94  57




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##### Table of Contents



SPS
    COMMERCE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Year Ended December 31,2010


2009


2008Expected federal income tax at statutory rate

$
1,013


$
420


$
(612
)State income taxes, net of federal tax effect


75



52



(52
)Meals and entertainment


16



13



16Stock compensation expense


77



67



53Stock warrants


9



129



15Change in valuation allowance


(6,485
)


(805
)


614Section 382 limitation


6,427







Change in state deferred rate


10



54



Prior year true up


69



100



AMT expense


71



36



General business credit


(107
)






State net operating loss adjustment


(1,087
)






Other


4



25



60Total provision for income taxes

$
92


$
91


$
94      58




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##### Table of Contents



SPS
    COMMERCE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    December 31,2010


2009Current:Accounts receivable allowances

$
115


$
115Accrued expenses


346



285Total current deferred tax asset


461



400Valuation allowance


(461
)


(400
)Net current deferred tax asset

$



$
Noncurrent:Net operating loss credit carryforwards

$
12,636


$
19,096Deferred revenue


801



761Depreciation and amortization


444



527Total noncurrent deferred tax asset


13,881



20,384Valuation allowance


(14,019
)


(20,494
)Net noncurrent deferred tax liability

$
(138
)

$
(110
)       NOTE I 
    Net
    Income (Loss) Per Share    Year Ended December 31,2010


2009


2008Numerator:Net income (loss)

$
2,884


$
1,162


$
(1,895
)Denominator:Weighted average common shares outstanding, basic


8,036



329



294Options and warrants to purchase common and preferred stock


973



791



Redeemable convertible preferred stock


2,587



8,148



Weighted average common shares outstanding, diluted


11,596



9,268



294Net income (loss) per share:Basic

$
0.36


$
3.53


$
(6.45
)Diluted

$
0.25


$
0.13


$
(6.45
)  59




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##### Table of Contents



SPS
    COMMERCE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year Ended December 31,2010


2009


2008Options and warrants to purchase common and preferred stock






19



1,256Redeemable convertible preferred stock










8,165   NOTE J 
    Employee
    Benefit Plan    NOTE K 
    Guarantees    NOTE L 
    Selected
    Quarterly Financial Data (Unaudited)    For the Three Months Ended2010

Mar 31


Jun 30


Sep 30


Dec 31Revenue

$
10,243


$
10,944


$
11,491


$
11,919Gross profit


7,262



7,843



8,280



8,586Operating income


1,047



679



868



442Net income


919



638



886



441Diluted earnings per share


0.10



0.05



0.07



0.04   For the Three Months Ended2009

Mar 31


Jun 30


Sep 30


Dec 31Revenue

$
8,531


$
9,600


$
9,634


$
9,981Gross profit


5,694



6,704



6,625



7,008Operating income (loss)


(77
)


734



464



760Net income (loss)


(54
)


657



346



213Diluted earnings (loss) per share


(0.16
)


0.07



0.04



0.02  60




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##### Table of Contents



Item 9.
    Changes
    in and Disagreements With Accountants on Accounting and
    Financial Disclosure    Item 9A.
    Controls
    and Procedures  Evaluation
    of Disclosure Controls and Procedures
  Form 10-K. Form 10-K,
  Managements
    Report on Internal Control over Financial Reporting
  Form 10-K
  Changes
    in Internal Control over Financial Reporting
    Item 9B.
    Other
    Information   PART III  Item 10.
    Directors,
    Executive Officers and Corporate Governance  Form 10-K Form 10-K,
  Regulation S-K Form 10-K. Regulation S-K Form 10-K.
   61




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##### Table of Contents



www.spscommerce.com
  Item 11.
    Executive
    Compensation  Form 10-K.
  Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters  Form 10-K. Form 10-K.
  Item 13.
    Certain
    Relationships and Related Transactions, and Director
    Independence  Form 10-K.
  Item 14.
    Principal
    Accounting Fees and Services  Form 10-K.
 PART IV  Item 15.
    Exhibits,
    Financial Statement Schedules  Form 10-K:
      Form 10-K
 62




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##### Table of Contents



SIGNATURES      SPS COMMERCE, INC.
  By:
    /s/  ARCHIE
    C. BLACK   President and Chief Executive Officer
  Form 10-K Form 10-K
  Name and Signature

Title/s/  ARCHIE
    C. BLACKArchie
    C. Black

Chief Executive Officer, President and Director
    (principal executive officer)/s/  KIMBERLY
    K. NELSONKimberly
    K. Nelson

Executive Vice President and Chief Financial Officer
    (principal financial and accounting officer)/s/  MICHAEL
    B. GORMANMichael
    B. Gorman

Director/s/  MARTIN
    J. LEESTMAMartin
    J. Leestma

Director/s/  PHILIP
    E. SORANPhilip
    E. Soran

Director/s/  GEORGE
    H. SPENCER, IIIGeorge
    H. Spencer, III

Director/s/  SVEN
    A. WEHRWEINSven
    A. Wehrwein

Director  63




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##### Table of Contents



EXHIBIT INDEX
  Incorporated By ReferenceDate ofExhibit





File

First

Exhibit

FiledNumber

Exhibit Description

Form

Number

Filing

Number

Herewith3.1

Amended and Restated Certificate of Incorporation

S-1/A

333-163476

04/13/2010

3.13.2

Amended and Restated Bylaws

S-1/A

333-163476

03/05/2010

3.24.1

Registration rights agreement dated April 10, 2007

S-1/A

333-163476

01/11/2010

4.210.1

1999 Equity Incentive Plan**

S-1/A

333-163476

01/11/2010

10.110.2

Form of Option Agreement under 1999 Equity Incentive Plan**

S-1/A

333-163476

01/11/2010

10.210.3

2001 Stock Option Plan**

S-1/A

333-163476

01/11/2010

10.310.4

Form of Incentive Stock Option Agreement under 2001 Stock Option
    Plan**

S-1/A

333-163476

01/11/2010

10.410.5

Form of Non-Statutory Stock Option Agreement (Director) under
    2001 Stock Option Plan**

S-1/A

333-163476

01/11/2010

10.510.6

2010 Equity Incentive Plan**

S-1/A

333-163476

03/05/2010

10.610.7

Form of Incentive Stock Option Agreement under 2010 Equity
    Incentive Plan**

S-1/A

333-163476

03/05/2010

10.710.8

Form of Non-Statutory Stock Option Agreement (Employee) under
    2010 Equity Incentive Plan**

S-1/A

333-163476

03/05/2010

10.810.9

Form of Non-Statutory Stock Option Agreement (Director) under
    2010 Equity Incentive Plan**









X10.10

2002 Management Incentive Agreement between the Company and
    Archie C. Black**

S-1/A

333-163476

01/11/2010

10.1410.11

2002 Management Incentive Agreement between the Company and
    James J. Frome**

S-1/A

333-163476

01/11/2010

10.1510.12

Non-Employee Director Compensation Policy**

S-1/A

333-163476

02/12/2010

10.1610.13

Form of Indemnification Agreement for Steve A. Cobb, Michael B.
    Gorman, and George H. Spencer, III

S-1/A

333-163476

01/11/2010

10.1710.14

Form of Indemnification Agreement for Martin J. Leestma, Philip
    E. Soran and Sven A. Wehrwein

S-1/A

333-163476

01/11/2010

10.1810.15

Form of Indemnification Agreement for Archie C. Black**

S-1/A

333-163476

01/11/2010

10.1910.16

Employment Agreement between the Company and Archie C. Black**

S-1/A

333-163476

03/05/2010

10.20 64




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##### Table of Contents



Incorporated By ReferenceDate ofExhibit





File

First

Exhibit

FiledNumber

Exhibit Description

Form

Number

Filing

Number

Herewith10.17

Form of At-will Confidentiality Agreement Regarding Certain
    Terms and Conditions of Employment for Kimberly K. Nelson, James
    J. Frome, Michael J. Gray and David J. Novak, Jr.**

S-1/A

333-163476

03/05/2010

10.2121.1

Subsidiaries of the registrant

S-1/A

333-170544

11/30/2010

21.123.1

Consent of Grant Thornton LLP









X24.1

Power of Attorney (included on signature page)









X31.1

Certification of Principal Executive Officer pursuant to
    Rules 13a-14(a)
    under the Securities Exchange Act of 1934, as amended









X31.2

Certification of Principal Financial Officer pursuant to
    Rules 13a-14(a)
    under the Securities Exchange Act of 1934, as amended









X32.1

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     **
    
    Indicates management contract or compensatory plan or
    arrangement. 65