Q4 2025 SPS Commerce Inc Earnings Call

February 12, 2026

Speaker #2: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your telephone keypad.

Speaker #2: To withdraw your question, please press star than 2. Please note, this event is being recorded. I would now like to turn the conference over to Irmina Blaszczyk Investor Relations for SPS COMMERCE.

Speaker #2: Please go ahead. Thank you, Kim. Good afternoon, everyone, and thank you for joining us on SPS COMMERCE's fourth quarter and full year 2025 conference call.

Irmina Blaszczyk: Thank you, Kim. Good afternoon, everyone, and thank you for joining us on SPS Commerce Q4 and full year 2025 conference call. We will make certain statements today, including with respect to our expected financial results, go-to-market strategy, and efforts designed to increase our traction and penetration with retailers and other customers. These statements are forward-looking and involve a number of risks and uncertainties that could cause actual results to differ materially. Please note that these forward-looking statements reflect our opinions only as of the date of this call, and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Please refer to our SEC filings, specifically our Form 10-K, as well as our financial results press release for a more detailed description of the risk factors that may affect our results.

Speaker #2: We will make certain statements today, including with respect to our expected financial results, go-to-market strategy, and efforts designed to increase our traction and penetration with retailers and other customers.

Speaker #2: These statements are forward-looking and involve a number of risks and uncertainties that could cause actual results to differ materially. Please note that these forward-looking statements reflect our opinions only as of the date of this call, and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

Speaker #2: Please refer to our SEC filings, specifically our Form 10-K, as well as our financial results press release for a more detailed description of the risk factors that may affect our results.

Speaker #2: These documents are available on our website, spscommerce.com, and at the SEC’s website, sec.gov. In addition, we are providing a historical data sheet for easy reference on the investor relations section of our website, spscommerce.com.

Irmina Blaszczyk: These documents are available at our website, spscommerce.com, and at the SEC's website, sec.gov. In addition, we are providing a historical data sheet for easy reference on the Investor Relations section of our website, spscommerce.com. During our call today, we will discuss Adjusted EBITDA financial measures and non-GAAP income per share. In our press release and our filings with the SEC, each of which is posted on our website, you will find additional disclosures regarding these non-GAAP financial measures, including reconciliations of these measures with comparable GAAP measures. With that, I will turn the call over to Chad.

Speaker #2: During our call today, we will discuss adjusted IBITA financial measures and non-GAAP income per share. In our press release and our filings with the SEC, each of which is posted on our website, you will find additional disclosures regarding these non-GAAP financial measures, including reconciliations of these measures with comparable GAAP measures.

Speaker #2: And with that, I will turn the call over to Chad.

Speaker #3: Thanks, Irina, and good afternoon, everyone. Thank you for joining us today. The fourth quarter of 2025 marks SPS COMMERCE 100th consecutive quarter of revenue growth.

Chad Collins: Thanks, Irmina, and good afternoon, everyone. Thank you for joining us today. Q4 2025 marks SPS Commerce's 100th consecutive quarter of revenue growth, highlighting the company's pivotal role in driving efficient collaboration among trading partners as omni-channel retail has evolved and supply chains have grown increasingly complex. We delivered solid Q4 and full year results, despite a challenging macroeconomic backdrop and tariff-related uncertainty, which contributed to spend scrutiny and delayed purchase decisions throughout the year and continued to impact our customers in Q4. For the full year 2025, revenue grew 18% to $751.5 million. Recurring revenue grew 20%, driven by fulfillment growth of 22% year-over-year.

Speaker #3: Highlighting the company's pivotal role in driving efficient collaboration among trading partners, as omnichannel retail has evolved and supply chains have grown increasingly complex. We delivered solid fourth quarter and full year results, despite a challenging macroeconomic backdrop and tariff-related uncertainty.

Speaker #3: This contributed to spend scrutiny and delayed purchase decisions throughout the year, and continued to impact our customers in the fourth quarter. For the full year 2025, revenue grew 18% to $751.5 million, and recurring revenue grew 20%, driven by fulfillment growth of 22% year over year.

Speaker #3: SPS has sustained and profitable growth, and ongoing expansion of our network demonstrates our success in delivering the products and services that retailers and suppliers depend on to strengthen their collaboration and drive continuous improvement.

Chad Collins: SPS's sustained and profitable growth and ongoing expansion of our network demonstrate our success in delivering the products and services that retailers and suppliers depend on to strengthen their collaboration and drive continuous improvement. In 2025, we acquired Carbon6 to build on the SPS acquisition of SupplyPike in the prior year and extend the reach of our network with clear leadership in revenue recovery solutions. Revenue recovery represents a $750 million addressable market across 1P US sellers and a significant cross-selling opportunity within our network, which we have highlighted throughout the year. For example, Allstar Innovations offers turnkey solutions for taking products from concept to consumer. They have been an SPS fulfillment customer since 2022 and started using the revenue recovery solution last year for several retailers, including Walmart, Target, Home Depot, and Amazon.

Speaker #3: In 2025, we acquired Carbon6 to build on the SPS acquisition of SupplyPike in the prior year and extend the reach of our network with clear leadership in revenue recovery solutions.

Speaker #3: Revenue recovery represents a $750 million addressable market across one PUS sellers and a significant cross-selling opportunity within our network. Which we have highlighted throughout the year.

Speaker #3: For example, All Star Innovations offers turnkey solutions for taking products from concept to consumer, they have been an SPS fulfillment customer since 2022 and started using the revenue recovery solution last year for sub or retailers, including Walmart, Target, Home Depot, and Amazon.

Speaker #3: Cyber power systems, a global manufacturer of power protection and management solutions, is a longstanding fulfillment customer. To drive further efficiencies across their supply chain, they leverage revenue recovery for some of their key customers, including Amazon, Walmart, and Home Depot, and recently added Amazon Canada.

Chad Collins: CyberPower Systems, a global manufacturer of power protection and management solutions, is a long-standing fulfillment customer. To drive further efficiencies across their supply chain, they leverage revenue recovery for some of their key customers, including Amazon, Walmart, and Home Depot, and recently added Amazon Canada. Other recent examples of customers who are realizing the benefits of revenue recovery include Outdoor Cap, one of the world's leading headwear manufacturing and importing companies, TaylorMade, an American sports equipment manufacturing company, and EOS, a beauty and skincare company, and Bunge, a global agribusiness and food company. Over the years, we expanded our portfolio of solutions through acquisitions and product innovation to support the evolving needs of our growing network while strengthening long-standing partnerships, many of which have spanned decades. Since we're celebrating 100 consecutive quarters of growth, I wanted to highlight a customer who has partnered us with us throughout that journey....

Speaker #3: Other recent examples of customers who are realizing the benefits of revenue recovery include outdoor cap, one of the world's leading headwear manufacturing and importing companies.

Speaker #3: Tailor-made, an American sports equipment manufacturing company, and EOS, a beauty and skincare company, and Bungi, a global agribusiness and food company. Over the years, we expanded our portfolio of solutions through acquisitions and product innovation to support the evolving needs of our growing network.

Speaker #3: While strengthening longstanding partnerships—many of which have spanned decades. Next, we're celebrating 100 consecutive quarters of growth. I wanted to highlight a customer who has partnered with us throughout that journey.

Speaker #3: Wolverine Worldwide is a global marketer of branded footwear, apparel, and accessories. They began as a fulfillment customer with a single connection and grew within our network by connecting to additional retailers, and eventually subscribing to analytics.

Chad Collins: Wolverine Worldwide is a global marketer of branded footwear, apparel, and accessories. They began as a fulfillment customer with a single connection, and grew within our network by connecting to additional retailers, and eventually subscribing to analytics. Building on this long-standing relationship, we recently supported Wolverine's expansion into Europe, resulting in a successful go live on fulfillment with over 300 trading partners. Trader Joe's, a national chain of over 600 neighborhood grocery stores, rolled out EDI requirements across the entire vendor base to reduce manual processes, improve order selection efficiencies, reduce shipping errors, and prepare for future growth. With SPS's fulfillment solution, Trader Joe's is accelerating progress toward 100% vendor compliance. Gempler's, a trusted retail brand for farm and home supply products, recently switched to SPS Commerce in an effort to improve order automation and support omni-channel growth.

Speaker #3: Building on this longstanding relationship, we recently supported Wolverine's expansion into Europe. Resulting in a successful go-live on fulfillment with over 300 trading partners. Trader Joe's, a national chain of over 600 neighborhood grocery stores, rolled out EDI requirements across the entire vendor base to reduce manual processes, improve order selection efficiencies, reduce shipping errors, and prepare for future growth.

Speaker #3: With SPS's fulfillment solution, Trader Joe's is accelerating progress toward 100% vendor compliance. Gamblers, a trusted retail brand for farm and home supply products, recently switched to SPS COMMERCE in an effort to improve order automation and support omnichannel growth.

Speaker #3: Gamblers opted for SPS's supply chain performance suite and increased EDI compliance from 3 to nearly 100 vendors. Petco, a pet retailer who operates in over 1,500 locations in the US, Mexico, and Puerto Rico, leveraged SPS's retailer management solution to transition over 700 suppliers to standardized digital supply chain requirements.

Chad Collins: Gempler's adopted SPS's supply chain performance suite and increased EDI compliance from 3 to nearly 100 vendors. Petco, a pet retailer who operates in over 1,500 locations in the US, Mexico, and Puerto Rico, leveraged SPS's retailer management solution to transition over 700 suppliers to standardized digital supply chain requirements. As a result, the retailer reduced manual data reconciliation, delivered measurable efficiency gains, and improved trading partner performance tracking. SPS is committed to ongoing innovation to support customers on their journey to modernize their supply chains. We recently introduced our new agentic capabilities embedded into the SPS supply chain network called Max. Offering new AI functionality, Max draws on hundreds of thousands of trading connections, decades of expertise, proprietary network intelligence, and billions of transactions to help our customers unlock greater value from AI.

Speaker #3: As a result, the retailer reduced manual data reconciliation, delivered measurable efficiency gains, and improved trading partner performance tracking. SPS is committed to ongoing innovation to support customers on their journey to modernize their supply chains.

Speaker #3: We recently introduced our new agentic capabilities embedded into the SPS supply chain network, called MAX. Offering new AI functionality, MAX draws on hundreds of thousands of trading connections, decades of expertise, proprietary network intelligence, and billions of transactions to help our customers unlock greater value from AI.

Speaker #3: Put simply, by leveraging the data across our network, SPS is competitively positioned to deliver more meaningful and scalable AI enhancements across our product portfolio to better address the trends that are shaping the future of supply chain collaboration.

Chad Collins: Put simply, by leveraging the data across our network, SPS is competitively positioned to deliver more meaningful and scalable AI enhancements across our product portfolio to better address the trends that are shaping the future of supply chain collaboration. With that, I'll turn it over to Kim to discuss our financial results.

Speaker #3: With that, I'll turn it over to Kim to discuss our financial results.

Speaker #4: Thanks, Chad. We reported a solid fourth quarter of 2025. Revenue was $192.7 million, a 13% increase over Q4 of last year, and represented our 100th consecutive quarter of revenue growth.

Kim Nelson: Thanks, Chad. We reported a solid fourth quarter of 2025. Revenue was $192.7 million, a 13% increase over Q4 of last year, and represented our 100th consecutive quarter of revenue growth. Recurring revenue grew 14% year-over-year. Adjusted EBITDA increased 22% to $60.5 million. For the year, revenue was $751.5 million, an 18% increase, and recurring revenue grew 20%. The total number of recurring revenue customers was approximately 54,600, as the number of 1P customers was flat sequentially, while the number of 3P customers declined by 350. ARPU for the year increased to approximately $14,350. Adjusted EBITDA grew 24% to $231.4 million.

Speaker #4: Recurring revenue grew 14% year over year, and adjusted EBITDA increased 22% to $60.5 million. For the year, revenue was $751.5 million, an 18% increase, and recurring revenue grew 20%.

Speaker #4: The total number of recurring revenue customers was approximately 54,600. As the number of 1P customers was flat sequentially, the number of 3P customers declined by 350.

Speaker #4: ARPU for the year increased to approximately 14,350. Adjusted EBITDA grew 24% to $231.4 million. We ended the year with total cash and cash equivalents of $151 million.

Kim Nelson: We ended the year with total cash and cash equivalents of $151 million. In 2025, we deployed 76% of free cash flow to repurchase $115 million of SPS shares. In addition, the board of directors approved an increase of $200 million in the current share repurchase program, which came into effect on December 1, 2025, for a total authorization of up to $300 million. This demonstrates our commitment to effectively deploy and return capital to shareholders while maintaining a flexible capital structure. Now, turning to guidance. For Q1 2026, we expect revenue to be in the range of $191.6 million to 193.6 million dollars, which represents approximately 6% year-over-year growth at the midpoint of the guided range.

Speaker #4: In 2025, we deployed 76% of free cash flow to repurchase $115 million of SPS shares. In addition, the board of directors approved an increase of $200 million in the current share repurchase program, which came into effect on December 1st, 2025, for a total authorization of up to $300 million.

Speaker #4: This demonstrates our commitment to effectively deploy and return capital to shareholders, while maintaining a flexible capital structure. Now, turning to guidance. For the first quarter of 2026, we expect revenue to be in the range of $191.6 million to $193.6 million, which represents approximately 6% year-over-year growth at the midpoint of the guided range.

Speaker #4: We expect adjusted EBITDA to be in the range of $55.5 million to $57.5 million. We expect fully diluted earnings per share to be in the range of $0.46 to $0.49, with fully diluted weighted average shares outstanding of approximately 38.2 million shares.

Kim Nelson: We expect Adjusted EBITDA to be in the range of $55.5 to 57.5 million. We expect fully diluted earnings per share to be in the range of $0.46 to $0.49, with fully diluted weighted average shares outstanding of approximately 38.2 million shares. We expect non-GAAP diluted income per share to be in the range of $0.95 to $0.99, with stock-based compensation expense of approximately $17.2 million, depreciation expense of approximately $4.5 million, and amortization expense of approximately $9.6 million. For the full year of 2026, we expect revenue to be in the range of $798.5 to 806.9 million, representing approximately 7% growth over 2025 at the midpoint of the guided range.

Speaker #4: We expect non-GAAP diluted income per share to be in the range of $95 to $99, with stock-based compensation expense of approximately $17.2 million, depreciation expense of approximately $4.5 million, and amortization expense of approximately $9.6 million.

Speaker #4: For the full year 2026, we expect revenue to be in the range of $798.5 million to $806.9 million. Representing approximately 7% growth over 2025 at the midpoint of the guided range.

Speaker #4: We expect adjusted EBITDA to be in the range of $261 million to $265.5 million, representing growth of approximately 13% to 15% over 2025. We expect fully diluted earnings per share to be in the range of $2.50 to $2.58, with fully diluted weighted average shares outstanding of approximately 38.4 million shares.

Kim Nelson: We expect Adjusted EBITDA to be in the range of $261 million to $265.5 million, representing growth of approximately 13% to 15% over 2025. We expect fully diluted earnings per share to be in the range of $2.50 to $2.58, with fully diluted weighted average shares outstanding of approximately 38.4 million shares. We expect non-GAAP diluted income per share to be in the range of $4.42 to $4.50, with stock-based compensation expense of approximately $67.1 million, depreciation expense of approximately $21.6 million, and amortization expense for the year of approximately $38.3 million.

Speaker #4: We expect non-GAAP diluted income per share to be in the range of $4.42 to $4.50, with stock-based compensation expense of approximately $67.1 million, depreciation expense of approximately $21.6 million, and amortization expense for the year of approximately $38.3 million.

Speaker #4: For the remainder of the year, on a quarterly basis, investors should model approximately a 30% effective tax rate, calculated on GAAP pre-tax net earnings.

Kim Nelson: For the remainder of the year, on a quarterly basis, investors should model approximately a 30% effective tax rate calculated on GAAP pre-tax net earnings. I'd like to now turn the call over to Chad for closing remarks.

Speaker #4: I'd like to now turn the call over to Chad for closing remarks.

Speaker #5: Thank you, Kim. Before I conclude my prepared remarks, I'd like to take a moment to acknowledge the announcement in our earnings release that Kim Nelson, our Chief Financial Officer, intends to retire after nearly 20 years with the company.

Chad Collins: Thank you, Kim. Before I conclude my prepared remarks, I'd like to take a moment to acknowledge the announcement in our earnings release that Kim Nelson, our Chief Financial Officer, intends to retire after nearly 20 years with the company... Kim has been a steady and trusted leader through some of the most defining chapters of SPS Commerce's journey, from the IPO to our evolution into a global organization that just achieved 100 consecutive quarters of growth. On behalf of the entire SPS team, I want to thank Kim for her extraordinary contributions and congratulate her on her well-earned retirement. In addition, I'm pleased to welcome Joseph Del Preto, who will assume the CFO role as of March 16, 2026.

Speaker #5: Kim has been a steady and trusted leader through some of the most defining chapters of SPS COMMERCE's journey. From the IPO to our evolution into a global organization that just achieved 100 consecutive quarters of growth, on behalf of the entire SPS team, I want to thank Kim for her extraordinary contributions and congratulate her on her well-earned retirement.

Speaker #5: In addition, I'm pleased to welcome Joseph Del Preto, who will assume the CFO role as of March 16th, 2026. Joe brings more than 20 years of experience leading finance, accounting, and operational strategy for high-growth, publicly traded technology companies.

Chad Collins: Joe brings more than 20 years of experience leading finance, accounting, and operational strategy for high-growth, publicly traded technology companies, most recently serving as Chief Financial Officer and Treasurer of Sprout Social. With a leadership style that upholds our core values, I'm confident Joe will build on the strong foundation Kim created and help guide SPS through our next chapter of growth. Kim will remain at SPS through the transition process to ensure a seamless succession. Today, we also announced the addition of 2 new independent directors to our board, and a cooperation agreement with Anson Funds, following extensive engagement with a number of our large investors, including Anson. We are excited to welcome Mike back to the board, and appoint Fumbi, who together bring valuable experience that will help us advance our strategy.

Speaker #5: Most recently serving Treasurer of Sprout Social. With a leadership style that upholds our core values, I'm confident Joe will build on the strong foundation Kim created and help guide SPS through our next chapter of growth.

Speaker #5: Kim will remain at SPS through the transition process to ensure a seamless succession. Today, we also announced the addition of two new independent directors to our board and a cooperation agreement with Anson Funds, following extensive engagement with a number of our large investors including Anson.

Speaker #5: We are excited to welcome Mike back to the board and appoint Fumbi, who together bring valuable experience that will help us advance our strategy.

Speaker #5: As I pause to reflect on the company's achievements to date, I'd like to take a moment to convey my genuine enthusiasm for the opportunity that lies ahead.

Chad Collins: As I pause to reflect on the company's achievements to date, I'd like to take a moment to convey my genuine enthusiasm for the opportunity that lies ahead. We recently wrapped up our annual field kickoff event, and I was encouraged to see the sales team so highly energized by our recent launch of AI-enabled products, which we believe competitively position SPS to deliver unparalleled value to our customers. In addition, our reimagined retail go-to-market strategy is enabling more strategic conversations with retailers, initiating new engagements, and cross-selling opportunities across our expanded product portfolio. Our competitive differentiation and inherent growth leverage support our revenue growth expectations of at least high single digits without acquisitions beyond 2026.

Speaker #5: We recently wrapped up our annual field kickoff event, and I was encouraged to see the sales team so highly energized by our recent launch of AI-enabled products, which we believe competitively position SPS to deliver unparalleled value to our customers.

Speaker #5: In addition, our reimagined retail go-to-market strategy is enabling more strategic conversations with retailers initiating new engagements and cross-selling opportunities across our expanded product portfolio.

Speaker #5: Our competitive differentiation and inherent growth levers support our revenue growth expectations of at least high single digits, without acquisitions, beyond 2026. We expect to increase our adjusted EBITDA margin by two percentage points annually, as we remain committed to steady margin expansion and free cash flow generation to support ongoing share repurchases and drive shareholder value.

Chad Collins: We expect to increase our Adjusted EBITDA margin by two percentage points annually as we remain committed to steady margin expansion and free cash flow generation to support ongoing share repurchases and drive shareholder value. Lastly, I'd like to recognize that our success to date and prospects for the future growth are a testament to SPS Commerce employees worldwide. Their dedication and commitment to excellence underscores my conviction in our $11 billion global addressable market in our next chapter of growth. With that, I'd like to open the call for questions.

Speaker #5: Lastly, I’d like to recognize that our success to date and prospects for future growth are a testament to SPS Commerce employees worldwide. Their dedication and commitment to excellence underscore my conviction in our $11 billion global addressable market and our next chapter of growth.

Speaker #5: With that, I'd like to open the call for questions.

Speaker #1: We will now begin the question-and-answer session. To ask a question, you may press star, then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys.

Operator 2: We will now begin the question and answer session. To ask a question, you may press star, then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Scott Berg with Needham.

Operator: We will now begin the question and answer session. To ask a question, you may press star, then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Scott Berg with Needham.

Speaker #1: If, at any time, your question has been addressed and you would like to withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster.

Speaker #1: Our first question comes from Scott Berg with Needham.

Speaker #6: Hi everyone. Thanks for taking my questions. Before I get to those, I guess, Kim, it's been a really fun ride. Don't know why now is the right time to look forward to catching up on that later, but just know that you will be missed.

Scott Berg: Hi, everyone. Thanks for taking my questions. Before I get to those, I guess, Kim, it's been a really fun ride. Don't know why now is the right time. I look forward to catching up on that later, but just know that you will be missed. Getting to the quarter here, Chad, you talk about a challenging macro environment that persisted in the fourth quarter. You know, when we look at the numbers, I think we'd all agree they come in maybe a touch weaker, although within guidance than what we are used to and accustomed to. You know, what were some of the challenges in the quarter that might have maybe impacted your expectations, relative to where the numbers kind of ended up?

Speaker #6: Getting to the quarter here, Chad, you talk about a challenging macro environment that persisted in the fourth quarter. When we look at the numbers, I think we'd all agree they come in maybe a touch weaker, although within guidance than what we are used to and accustomed to.

Speaker #6: What were some of the challenges in the quarter that might have maybe impacted your expectations relative to where the numbers kind of ended up?

Kim Nelson: Sure, Scott. So as we established our expectations for Q4, going back a quarter ago, as you can imagine, there was different scenarios or parameters of how that could play out. To your point, on the top line, we ended up at the lower end of our revenue guidance. We ended up at the higher end of our adjusted EBITDA guidance. So specifically on the revenue side, what we saw in Q4 was a continuation of headwinds that we've spoken about in the past. Some of those headwinds with our existing customers, just more challenging time for them, invoice scrutiny, uncertainty, et cetera. And then, specific on the revenue recovery side, we actually, there's nice demand there, so the demand is strong.

Speaker #7: Sure, Scott. So as we established our expectations for Q4 going back a quarter ago, as you can imagine, there was different scenarios or parameters of how that could play out.

Speaker #7: To your point on the top line, we ended up at the lower end of our revenue guidance. We ended up at the higher end of our adjusted EBITDA guidance.

Speaker #7: So specifically on the revenue side, what we saw in Q4 was a continuation of headwinds that we've spoken about in the past. Some of those headwinds with our existing customers just more challenging time for them invoice scrutiny, uncertainty, etc.

Speaker #7: And then, specific on the revenue recovery side, there's actually nice demand there. So, the demand is strong. However, with the take rate model that we have there, we did see more to the lower end of what our expectation would be, along with the Amazon policy changes that have occurred.

Kim Nelson: However, with the Take Rate Model that we have there, we did see more to the lower end of what our expectation would be, along with the Amazon policy changes that have occurred.

Speaker #6: Got it. Helpful there. And then I saw the press release on your new max agentic AI solutions there. I guess, how do we think about the opportunity there?

Scott Berg: Got it. Helpful there. And then, I saw the press release on your new, Max agentic AI solutions there. I guess, how do we think about the, the opportunity there? Is this a, is this some functionality that you think you can monetize on an individual SKU basis, or does this just kind of enhance your, your, your products platform and your competitive positioning relative to other competitors out there?

Speaker #6: Is this some functionality that you think you can monetize on an individual SKU basis, or does this just kind of enhance your product's platform and your competitive positioning relative to other competitors out there?

Speaker #4: Yeah, yeah. So as I mentioned in the prepared remarks, super excited about this new capability that we've launched. So it's really an agentic capability that's built right into the network.

Chad Collins: Yeah. Yeah. So as I mentioned in the prepared remarks, super excited about this new capability that we've launched. So it's really an agentic capability that's built right into the network, so it has access to the network itself, plus all our proprietary information about how retailers work and the requirements that retailers have for their supply chain. So we've sort of surfaced that capability up initially with 3 new features that are in our fulfillment product. The first feature is really a chat feature, which allows the user to have sort of guided workflows into how they process transactions back and forth with their trading partners, as well as full kind of inquiry capabilities around retailer requirements. You know, as example, asking what are the different shipment requirements or acknowledgment requirements that are different between Walmart and Target?...

Speaker #4: So it has access to the network itself, plus all our proprietary information about how retailers work and the requirements that retailers have for their supply chain.

Speaker #4: So we’ve sort of surfaced that capability up initially with three new features that are in our fulfillment product. The first feature is really a chat feature, which allows the user to have sort of guided workflows into how they process transactions back and forth with their trading partners, as well as full kind of inquiry capabilities around retailer requirements. As an example, asking what are the different shipment requirements or acknowledgment requirements that are different between Walmart and Target.

Speaker #4: The second feature is a monitor capability. So think of this almost just like a dedicated agent for a customer that's monitoring all their transaction activities across our network.

Chad Collins: The second feature is a monitor capability. So think of this almost just like a dedicated agent for a customer that's monitoring all their transaction activities across our network. If there's any anomalies, like an order didn't come as expected, or they didn't send an invoice out as expected, that monitor capability is gonna catch that for customers. And then the final feature is allowing agent-to-agent communication. So we know we have a very rich data source in the SPS network, and it's most likely many of our customers will want to interact with that via agent-to-agent communication. So we've launched a model protocol interface into the network, and that gives full capability for agent-to-agent communication.

Speaker #4: If there's any anomalies, like an order didn't come in as expected, or they didn't send an invoice out as expected, that monitor capability is going to catch that for customers.

Speaker #4: And then the final feature is allowing agent-to-agent communication. So we know we have a very rich data source in the SPS network, and it's most likely many of our customers will want to interact with that via agent-to-agent communication.

Speaker #4: So, we've launched a model protocol interface into the network, and that gives full capability for agent-to-agent communication. In terms of the monetization, this is initially available to beta customers, and we do have customers that are using it in the beta format, with very good feedback.

Chad Collins: In terms of the monetization, this is initially available to beta customers, and we do have customers that are using it in the beta format with very good feedback. As we move through that beta, we're going to monitor the customer's usage of that and help that inform the monetization strategy. I absolutely believe this will be a competitive differentiator, well, that will help us on the competitive side of the business and also help us with retention. But as we get to understand more and more about how customers are using this, I think the monetization opportunities will become more clearer as well. These first three features are just the first three areas where we're exposing Max. Because it's built right into the network itself, we fully expect to be exposing Max across the entire product portfolio over time.

Speaker #4: And as we move through that beta, we're going to monitor the customers' usage of that and help that inform the monetization strategy. I absolutely believe this will be a competitive differentiator that will help us on the competitive side of the business, and also help us with retention.

Speaker #4: But as we get to understand more and more about how customers are using this, I think the monetization opportunities will become more clear as well.

Speaker #4: And these first three features are just the first three areas where we're exposing max because it's built right into the network itself. We fully expect to be exposing max across the entire product portfolio over time.

Speaker #6: Understood. Thanks. And congratulations on a good quarter.

Scott Berg: Understood. Thanks, and congratulations on a good quarter.

Speaker #1: Our next question comes from Matt Van Vliet with Cantor.

Operator 2: Our next question comes from Matt Van Vliet with Cantor.

Operator: Our next question comes from Matt Van Vliet with Cantor.

Speaker #8: Good afternoon. Thanks for taking the questions. Congrats on the retirement, Kim. I guess as we look forward in terms of reviving growth here to maybe levels you're more expecting, what maybe additional resources or investments do you think can be made and drive sort of above-average returns?

Matt VanVliet: Good afternoon. Thanks for taking the questions. Congrats on the retirement, Kim. I guess as we look forward in terms of reviving growth here to maybe levels you're more expecting, what maybe additional resources or investments do you think can be made and drive, you know, sort of above average returns, maybe even pushing beyond some of the community events? Anything that you're already working on and expect to be rolling out here shortly that can help drive the top line performance?

Matt Van Vliet: Good afternoon. Thanks for taking the questions. Congrats on the retirement, Kim. I guess as we look forward in terms of reviving growth here to maybe levels you're more expecting, what maybe additional resources or investments do you think can be made and drive, you know, sort of above average returns, maybe even pushing beyond some of the community events? Anything that you're already working on and expect to be rolling out here shortly that can help drive the top line performance?

Speaker #8: Maybe even pushing beyond some of the community events? Anything that you're already working on and expect to be rolling out here shortly that can help drive the top line performance?

Speaker #4: Sure. Yeah. So, we do expect that, with increasing customer count over time, our unique go-to-market with the retail enablement programs will continue to drive a lot of that.

Chad Collins: Sure. Yeah. So, you know, we do expect that for increasing customer count over time, our unique go-to-market with the retail enablement programs will continue to drive a lot of that, and we continue to invest in that area and refine those approaches there. In addition to that, you may have noticed that we brought on a new Chief Marketing Officer, and we're advancing the maturity of our marketing capabilities as a way to, one, attract new customers in ways outside of the retail enablement program. So that would be incremental to what we already get with the retail programs.

Speaker #4: And we continue to invest in that area and refine those approaches there. In addition to that, you may have noticed that we brought on a new chief marketing officer, and we're advancing the maturity of our marketing capabilities as a way to, one, attract new customers in ways outside of the retail enablement program.

Speaker #4: So that would be incremental to what we already get with the retail programs, as well as market back to our existing customers—highlighting the broad product portfolio and the opportunity that we have with existing customers, both for the cross-sell opportunity for analytics and revenue recovery, but also the further penetration within fulfillment, adding more trading partners.

Chad Collins: As well as market to our existing customers, highlighting the broad product portfolio and the opportunity that we have with existing customers, both for the cross-sell opportunity for analytics revenue recovery, but also the further penetration within fulfillment, adding more trading partners. So, you know, 2025 was a tough year in our end market. We did see, you know, a lot of challenges, and the main driver our customers were telling us about was global trade. So as we sort of lap some of those effects in 2026, have more of the cross-selling momentum from the products going forward, we expect all these will continue to drive long-term growth for SPS.

Speaker #4: So, 2025 was a tough year in our end market. We did see a lot of challenges, and the main driver our customers were telling us about was global trade.

Speaker #4: So as we sort of lapse some of those effects in 2026, have more of the cross-selling momentum from the products going forward, we expect all these will continue to drive long-term growth for SPS.

Speaker #8: All right, very helpful. And then, given the changes at Amazon in particular, is there a thought of maybe pulling back some of the resources for the revenue recovery—maybe waiting to see how that plays out a little more in the market over the next several quarters, and sort of reassess from there?

Matt VanVliet: All right. Very helpful. And then, given the changes at Amazon in particular, you know, is there a thought of maybe pulling back some of the resources for the revenue recovery, maybe waiting to see how that plays out a little more in the market, over the next several quarters and sort of reassess from there? Or I guess, what is the approach to thinking about continuing to invest in a business that's been underperforming your expectations?

Matt Van Vliet: All right. Very helpful. And then, given the changes at Amazon in particular, you know, is there a thought of maybe pulling back some of the resources for the revenue recovery, maybe waiting to see how that plays out a little more in the market, over the next several quarters and sort of reassess from there? Or I guess, what is the approach to thinking about continuing to invest in a business that's been underperforming your expectations?

Speaker #8: Or, I guess, what is the approach to thinking about continuing to invest in a business that's been underperforming your expectations?

Speaker #4: Yeah. So I think what you'll see from us with revenue recovery is we do see strong demand for this product in the market. So in terms of our ability to cross-sell it to our fulfillment customers, and especially the demand that we're seeing from the one-piece sellers, which the one-piece sellers on Amazon line up much more with our ideal customer profile and our typical fulfillment and analytics customer, that's going well.

Chad Collins: Yeah. So, I think what you'll see from us with revenue recovery is we do see strong demand for this product in the market. So in terms of, you know, our ability to cross-sell it to our fulfillment customers, and especially the demand that we're seeing from the 1P sellers, which the 1P sellers on Amazon line up much more with our ideal customer profile and our typical fulfillment and analytics customer, that's going well. So I think what you'll see is us continue to invest in that 1P area of the business, where it very much fits our strategy, lines up with our ideal customer profile.

Speaker #4: So I think what you'll see is us continue to invest in that one-piece area of the business where it very much fits our strategy, lines up with our ideal customer profile, and on the third-party side, not that we won't continue to manage that product as well, but probably won't get the same level of total focus as the one-piece will.

Chad Collins: And on the third-party side, not that we won't continue to manage that, and there is demand for that product as well, but probably won't get the same level of total focus as the 1P will. And you know, I think over time, there's probably some opportunities as well in this business to drive the mix a little bit more from the take rate model to the subscription model, but that will come over time.

Speaker #4: And I think, over time, there's probably some opportunities as well in this business to drive the mix a little bit more from the take-rate model to the subscription model, but that will come over time.

Speaker #8: All right. Great. Thank you.

Matt VanVliet: Very great. Thank you.

Matt Van Vliet: Very great. Thank you.

Speaker #1: Our next question comes from Dylan Becker with William Blair.

Operator 2: Our next question comes from Dylan Becker with William Blair.

Operator: Our next question comes from Dylan Becker with William Blair.

Speaker #6: Hey, Chad. Hey, Kim. Kim, welcome. My congrats on the retirement. I'm looking forward to catching up and hearing what's next. Maybe for you, and also for Chad as well too, but as we think about kind of the broader demand backdrop and what we've talked about in the past with some of those initial projects that were pushed into 2026, I guess, could you give us any update on how those have continued to progress and maybe what's implied kind of in the outlook for 2026 as it pertains to kind of your expectations on the mix of the net new customer side of the equation?

Dylan Becker: ... Hey, Chad. Hey, Kim. Kim, I want to go my congrats on, on the retirement and looking forward to catching up and hearing what's next.

Dylan Becker: Maybe, maybe for you, or, and also for Chad as well, too, but as we think about kind of the broader demand backdrop and what we've talked about in the past of some of those initial projects that were pushed into 2026, I guess, could you give us any update on how those have continued to progress and maybe what's implied kind of in the outlook for 2026 as it pertains to kind of your expectations on the mix of the net new customer side of the equation, as that had stepped up in 2025, if that continues, as well as kind of some of the cross-selling efforts, as that's been a, an area of more kind of resource dedication as well, too?

Speaker #6: Is that had stepped up in 2025? If that continues, as well as kind of some of the cross-selling efforts as that's been an area of more kind of resource dedication as well too.

Kim Nelson: Sure, Dylan. I'll take that last one first, and then I'll hit your other two. So we would continue to expect that the majority of the revenue growth is coming from that ARPU side of the equation. That does not mean we will not continue to add customers. Our retail go-to-market, as Chad talked about, is a great way through those retailer relationship management programs to get us in front of new customers. But the mix between the two will continue to be more heavily skewed on the ARPU side. When we think about some of the dynamics as it relates to the retailer relationship campaigns, we still see strong demand for that.

Speaker #5: Sure, Dylan. I'll take that last one first, and then I'll hit your other two. So we would continue to expect that the majority of the revenue growth is coming from that ARPU side of the equation.

Speaker #5: That does not mean we will not continue to add customers. Our retail go-to-market, as Chad talked about, is a great way through those relationship retailer relationship management programs to if you get us in front of new customers, but the mix between the two will continue to be more heavily skewed on the ARPU side.

Speaker #5: When we think about some of the dynamics as it relates to the retail relationship campaigns, we still see strong demand for that. What we're seeing, however, is that that is probably going to be a bit more, call it back half versus front half, just the timing of when those are coming in.

Kim Nelson: What we're seeing, however, is that that is probably gonna be a bit more, call it, back half versus front half, just the timing of when those are coming in. So still very strong demand, but a bit more later in the year versus earlier in the year. And then, as it relates to just some assumptions in our guidance, you may or may not have picked up if you think about the Q1, sort of the midpoint is 6% on top line growth. For the full year, the midpoint is about 7% of top line growth.

Speaker #5: So, still very strong demand, but a bit more later in the year versus earlier in the year. And then, as it relates to just some assumptions in our guidance—you may or may not have picked up—if you think about Q1, sort of the midpoint is 6% on top-line growth.

Speaker #5: For the full year, the midpoint is about 7% of top line growth. We are still lapping some of those headwinds that we've talked about in 2025 across our business.

Kim Nelson: We are still lapping some of those headwinds that we've talked about in 2025 across our business, and we really get to a point in the back half of the year where we are then, that we have lapped those headwinds. So we're still facing some of that, those. Again, it's the headwinds in the year-over-year compares in the front half of the year that we then have lapped in the back half.

Speaker #5: And we really get to a point in the back half of the year where we are then—that we have lapped those headwinds. So we're still facing some of those, again, it's the headwinds and the year-over-year compares in the front half of the year that we then have lapped in the back half.

Speaker #8: Very helpful. Thank you, Kim. And then maybe for Chad, kind of sticking with the topic or the idea of AI—Max is obviously a part of it—but it does feel like there’s been more of an emphasis on kind of an accelerated product momentum, and we've talked in the past about how you guys can leverage the network to deliver value.

Dylan Becker: Very helpful. Thank you, Kim. And then maybe for Chad, kind of sticking with the, the topic or the idea of AI, Max is obviously a part of it, but it does feel like there's been more of an emphasis on kind of an accelerated product momentum. And we've talked in the past about how you guys can leverage the network to deliver value, but maybe how you're thinking about that innovation cadence kind of ticking up and how that can contribute to a lot of the parts that maybe you guys kind of touched on, but obviously customer retention, potential pricing power, serving as that carrot for kind of incremental customer adoption, but really leaning into more of that AI initiative to help kind of continue to support some of the pipeline momentum that you're seeing. Thank you.

Speaker #8: But maybe how you're thinking about that innovation cadence kind of ticking up, and how that can contribute to a lot of the parts that maybe you guys kind of touched on—but obviously customer retention potential, pricing power, serving as that carrot for kind of incremental customer adoption—but really leaning into more of that AI initiative to help kind of continue to support some of the pipeline momentum that you're seeing.

Speaker #8: Thank you.

Speaker #6: Yeah, absolutely, Dylan. So, what we're hearing from our customers is that data is absolutely key to their AI initiatives, and we're a tremendous source of data.

Chad Collins: Yeah, absolutely, Dylan. So what we're hearing from our customers is that data is absolutely key to their AI initiatives, and we're a tremendous source of data. So in our, you know, our network with our fulfillment product, that generates massive amounts of retail and distribution data. Obviously, our analytics business is based on data itself, and so we're just uncovering more and more use cases where we can expose that utilizing agentic capability. So I mentioned a few that are showing up in fulfillment now. I will also mention that we are doing a major technology replatforming to our analytics product, which really allows that data that's in that analytics product to fit just being on some more modern technologies in our customers' AI use cases a lot more effectively.

Speaker #6: So in our network with our fulfillment product that generates massive amounts of retail and distribution data, obviously our analytics business is based on data itself.

Speaker #6: And so we're just uncovering more and more use cases where we can expose that utilizing agentic capability. So I mentioned a few that are showing up in fulfillment now.

Speaker #6: I will also mention that we are doing a major technology replatforming to our analytics product, which really allows that data that's in that analytics product to fit just being on some more modern technologies in our customers' AI use cases.

Speaker #6: A lot more effectively. And I do think that you'll continue to see innovation from us, but at the heart of that is really the data that's on the network and the insights that customers can get from that.

Chad Collins: You know, I do think that you'll continue to see innovation from us, but at the heart of that is really the data that's on the network and the insights that customers can get from that. It's just with the way the agent technology is moving forward, the speed at which that could come. I mean, it is really moving quickly. Very pleased with what the team has done and the timeframe they've done it to get Max into market.

Speaker #6: And it's just with the way the agent technology is moving forward, the speed at which that could come I mean, it is really moving quickly.

Speaker #6: Very pleased with what the team has done and the timeframe they've done it to get Max into market.

Speaker #8: Terrific. Thank you both.

Dylan Becker: Terrific. Thank you, both.

Speaker #1: Our next question comes from Lachlan Brown with Rothschild & Company Redburn.

Operator 2: Our next question comes from Lachlan Brown with Rothschild and Company Redburn.

Operator: Our next question comes from Lachlan Brown with Rothschild and Company Redburn.

Speaker #9: Hi, excellent tenure. As CFO, on M&A, your last transaction was over 12 months ago now. So, how is the M&A environment at the moment?

Kim Nelson: Hi, Chad, Kim. Congrats on the excellent tenure as CFO. On M&A, your last transaction was over 12 months ago now. So how is the M&A environment at the moment? Conscious that publicly traded software is materially derated over the last few months, are you seeing this reflected at all in private valuations? And how competitive are the bidding process at the moment? Are you seeing much private equity?

Lachlan Bannerman: Hi, Chad, Kim. Congrats on the excellent tenure as CFO. On M&A, your last transaction was over 12 months ago now. So how is the M&A environment at the moment? Conscious that publicly traded software is materially derated over the last few months, are you seeing this reflected at all in private valuations? And how competitive are the bidding process at the moment? Are you seeing much private equity?

Speaker #9: Conscious that publicly traded software is materially derated over the last few months, are you seeing this reflected at all in private valuations? And how competitive are the bidding processes at the moment?

Speaker #9: Are you seeing much private equity?

Speaker #6: Yeah. So we continue to manage an M&A pipeline and stay active in that market. What I would say is we also have work remaining as we integrate the revenue recovery business into everything we're doing at SPS COMMERCE, especially on the go-to-market side.

Chad Collins: Yeah, so we continue to manage an M&A pipeline and stay active in that market. What I would say is we also have, you know, work remaining as we integrate the revenue recovery business into everything we're doing at SPS Commerce, especially on the go-to-market side. And, you know, at this point in time as well, a share repurchase is an attractive use of the capital that we have. So we're just balancing out all of those factors. You will see the board authorized another $200 million of share repurchase, bringing that total to $300 million that they've authorized. And so, you know, that can be a definite attractive use of the tremendous free cash flow that this business generates.

Speaker #6: And at this point in time as well, a share repurchase is an attractive use of the capital that we have. So we're just balancing out all of those factors.

Speaker #6: You will see the board authorized another $200 million of share repurchase, bringing that total to $300 million that they've authorized. And so that can be a definite attractive use of the tremendous free cash flow that this business generates.

Speaker #9: That's clear. Thanks. And on Max Connect, which supports MCP and agent agents communication, presumably great for supporting the SPS ecosystem and your customers. But given your moat, is the retail network data how do you manage AI ERP peers taking that strategic data out and using it to that benefit?

Lachlan Brown: ... That's clear. Thanks. And on Max Connect, which supports, MCP and agent-to-agent communication, presumably great for supporting the SBS ecosystem and your customers. But giving you a moat is the retail network data. How do you manage AI ERP peers taking that strategic data out and using it to their benefit? And also, could you potentially look to price this MCP access?

Lachlan Bannerman: ... That's clear. Thanks. And on Max Connect, which supports, MCP and agent-to-agent communication, presumably great for supporting the SBS ecosystem and your customers. But giving you a moat is the retail network data. How do you manage AI ERP peers taking that strategic data out and using it to their benefit? And also, could you potentially look to price this MCP access?

Speaker #9: And also, could you potentially look to price this MCP access?

Speaker #6: Yeah, I think we will price the MCP access. At our field kickoff event, we...

Chad Collins: Yeah, I think we will price the MCP access. At our field kickoff event we had last week, we did a live demo for our sales team of this MCP interface that where we were connected to one of our ERP partners and their agent-to-agent communication, and then we utilized, in this case, was Claude. It could have been any type of chat-based LLM capability. And actually showing how that Claude was able to connect data out of the SPS network and this particular ERP provider's data, and put that together in a way that was very helpful for many customer use cases.

Speaker #1: He had last week . We did a a a . A live demo for our sales team of this MCP interface that where we .

Speaker #1: Were connected to one of our ERP partners and their agent agent communication . And then we utilized in this case , was Claude .

Speaker #1: It could have been any any type of chat based LM capability . And actually showing how that Claude was able to connect data out of the SPS network .

Speaker #1: And this particular ERP providers data and put that together in a way that was very helpful for many customer use cases . So I think it just exemplifies that this , you know , we'll have use cases that are directly interacting with with Max , our agent .

Chad Collins: So I think it just exemplifies that, this, you know, we'll have use cases that are directly interacting with Max, our agent, but we'll also have many use cases where we're just a participant in the customer's agent-to-agent workflow. And I'm confident that our data that we're sort of bringing to that workflow will be valuable enough that we'll be able to monetize over time those types of agent-to-agent communications.

Speaker #1: But we'll also have many use cases where we're just a participant in the customer's agent-to-agent workflow. And I'm confident that our data that we're sort of bringing to that workflow will be valuable enough that we'll be able to monetize time.

Speaker #1: Those types of agent-to-agent communications.

Speaker #2: Makes sense. Thanks for the questions.

Lachlan Brown: Makes sense. Thanks for the questions.

Lachlan Bannerman: Makes sense. Thanks for the questions.

Speaker #3: Our next question comes from George Karasawa with Citi.

Operator 2: Our next question comes from George Kurosawa with Citi.

Operator: Our next question comes from George Kurosawa with Citi.

Speaker #4: Okay , great . Thanks for taking the questions . Want to echo ? Congratulations to Kim . I wanted to follow up on a discussion from last quarter about some enablement campaigns that from a timing perspective , pushed out of Q4 into the into the first half of 26 , I wanted to just follow up on when you expect to execute on those just looking at the guide , it seems like possibly maybe some of those are skewing more towards Q2 than Q1 .

George Kurosawa: Okay, great. Thanks for taking the questions. I want to echo congratulations to Kim. I wanted to follow up on the discussion from last quarter about some enablement campaigns that, from a timing perspective, pushed out of Q4 and into the first half of 2026. I wanted to just follow up on when you expect to execute on those. Just looking at the guide, it seems like possibly maybe some of those are skewing more towards Q2 than Q1. Just any color on that trend?

Speaker #4: Just any color on that trend.

Speaker #1: Yeah . So those particular ones that did slip here into 2026 are still moving forward . And some of them are actually kind of running at this point in time .

Chad Collins: Yeah. So those particular ones that did slip here into 2026 are still moving forward. And some of them are actually kind of running at this point in time. What I would say, though, is keep in mind, as those programs affect customer count, there can be a little lag in that. So, because we actually-- they don't really affect the customer count until we're fully up and running and billing those customers. You know, those programs are continuing, but I would expect them to drive more customer count in the, you know, probably latter stages of Q2 and more in Q3 than they will in the first half of the year.

Speaker #1: What I would say , though , is keep in mind , as those programs affect customer count , there can be a little a little lag in that .

Speaker #1: So because we actually they don't really affect the customer count until we're , we're fully up and running and building those customers . So you know , those programs are continuing .

Speaker #1: But I would expect them to drive more customer count in the, you know, probably the latter stages of Q2 and more in Q3 than they will in the first half of the year.

Speaker #4: Okay . That's helpful . Color . And then on the Q3 , excuse me , the £0.03 customers for carbon six , I think you had , you know , guided to about 150 net declining customers .

George Kurosawa: Okay, that's helpful color. And then on the Q3, excuse me, the 3P customers for Carbon6, I think you had guided to about 150 net decline in customers. It seems like it came in a little below that. Maybe just any color on your line of sight to maybe those headwinds normalizing and or how long you expect those to persist for? Thanks.

Speaker #4: It seems like it came in a little below that . Maybe just any color on on your line of sight to maybe those headwinds normalizing or how long you expect those to persist for .

Speaker #4: Thanks .

Speaker #1: Yeah . So , you know , we really do think about the the one p customer count and the £0.03 customer count quite differently given the comments I made earlier about just the strategic focus .

Chad Collins: Yeah. So, you know, we really do think about the 1P customer count and the 3P customer count quite differently, given the comments I made earlier about just the strategic focus. So you'll see in our results, we're flat from a 1P customer count, and then down 350 in the 3P side. As we focus more on the 1P side of revenue recovery, which is really where our ideal customer profile lies, on the 3P side, the dynamics there are, you know, our focus is on 1P. We're attracting 1P customers in. Often, those 1P customers that we attract are existing customers, right? Because of this ideal customer profile, so they're not gonna positively impact the customer count.

Speaker #1: So you'll see our in our results . We're flat from A1P customer count . And then down 350 in the in the £0.03 side as we focus more on the one p side of revenue recovery , which is really where our ideal customer profile lies .

Speaker #1: On the £0.03 side , the dynamics there are , you know , our focus is on one P . We're attracting one P customers in often those one P customers that we attract are existing customers right .

Speaker #1: Because of this ideal customer profile . So they're not going to positively impact the customer count . Whereas on the £0.03 side these are much smaller businesses .

Chad Collins: Whereas on the 3P side, these are much smaller businesses. They do have a higher churn rate, and, so there is going to be, just some natural churn based on the size of the customer there. So you kinda have this dynamic with a little bit higher churning 3P, and then 1P, which, might not always increment up on the customer count side, because sometimes these are existing SPS customers just taking on the revenue recovery solution. So hopefully that's a little bit more color on those dynamics on customer count between 1P and 3P.

Speaker #1: They do have a higher churn rate . And so so there is going to be just some natural churn based on the size of the customer .

Speaker #1: There . So you kind of have this dynamic with a little bit higher churning £0.03 and then one p , which might not always increment up on the customer account side , because sometimes these are existing PSPS customers just taking on the revenue recovery solution .

Speaker #1: So hopefully that's a little bit more color on those dynamics . On on customer count between one p and £0.03 .

Speaker #4: Very helpful . Thanks . Thanks for taking the questions

George Kurosawa: Very helpful. Thanks, thanks for taking the questions.

Speaker #3: Our next question comes from Chris Quintero with Morgan Stanley

Operator 2: Our next question comes from Chris Quintero with Morgan Stanley.

Operator: Our next question comes from Chris Quintero with Morgan Stanley.

Speaker #5: Hey , Chad Kim , congrats on the well-deserved retirement here . I wish you all all the best . I actually wanted to follow up on the enablement campaign commentary .

David Brown: Hey, Chad, Kim, congrats on the well-deserved retirement here. I wish you all the best. I actually wanted to follow up on the enablement campaign commentary. So last quarter, you talked about those moving into the first half of this year, and now we're talking about those moving to the second half of the year. So I guess, what gives you the confidence that those will actually, you know, commit in the second half of the year versus, you know, potentially pushing out again to 2027?

Chris Quintero: Hey, Chad, Kim, congrats on the well-deserved retirement here. I wish you all the best. I actually wanted to follow up on the enablement campaign commentary. So last quarter, you talked about those moving into the first half of this year, and now we're talking about those moving to the second half of the year. So I guess, what gives you the confidence that those will actually, you know, commit in the second half of the year versus, you know, potentially pushing out again to 2027?

Speaker #5: So last quarter you talked about those moving into the first half of this year . And now we're talking about moves , those moving to the second half of the year .

Speaker #5: So I guess what gives you the confidence that those will actually commit in the second half of the year versus potentially pushing out again to 2027 ?

Speaker #1: Yeah , they definitely moving forward . Chris , what I was really when I mentioned maybe pushing out , it was more about just the timing effects of when we start building those customers .

Chad Collins: Yeah, they're definitely moving forward, Chris. What I was really... When I mentioned maybe pushing out, it was more about just the timing effects of when we start billing those customers, right? So, you know, we kind of need to complete the program, the retailer has to go live, and then we kick in with the invoicing. So, it's not that the programs themselves are directly getting delayed, but just providing a little outlook that the actual customer count impact may come a little bit later.

Speaker #1: Right ? So , you know , we kind of need to complete the program . The retailer has go live . And then we kick in with the invoicing .

Speaker #1: So it's not that the programs themselves are directly getting delayed , but just providing a little outlook that the actual customer count impact may come a little bit later

Speaker #5: Got it . That's that's helpful Chad . And then I want to ask about the cell activity . You know , reducing the number of connections , reducing the number of document volumes , like how far through we are in terms of how much more downside there is to that action ?

David Brown: ... Got it. That's, that's helpful, Chad. And then I wanted to ask about the downsell activity, you know, reducing the number of connections, reducing the number of document volumes. Like, how far through we are in terms of, you know, how much more downside there is to that action? Or is this something that's gonna continue throughout the rest of the year? What's your best, you know, guess, or expectation around, you know, the trajectory of those trends?

Chris Quintero: ... Got it. That's, that's helpful, Chad. And then I wanted to ask about the downsell activity, you know, reducing the number of connections, reducing the number of document volumes. Like, how far through we are in terms of, you know, how much more downside there is to that action? Or is this something that's gonna continue throughout the rest of the year? What's your best, you know, guess, or expectation around, you know, the trajectory of those trends?

Speaker #5: Or is this something that's going to continue throughout the rest of the year ? What's your best ? You guess or expectation around , you know , the trajectory of those trends ?

Speaker #6: Sure. So, we started to see some of the down cell activity in Q2 of '25, sort of the latter part of Q2 of '25.

Kim Nelson: Sure. So we started to see some of the downsell activity in Q2 of 2025, sort of the latter part of Q2 of 2025. So our belief is that we'll have lapped the headwinds by the end of the first half of 2026, if that makes sense, because that's basically a full year then of that those headwinds. So our belief is in the second half of 2026, we've lapped that downsell activity and those headwinds that we've experienced, and we have that philosophy we have that is incorporated into our guidance.

Speaker #6: So our belief is that we'll have lapped the headwinds by the end of the first half of '26, if that makes sense, because that's basically a full year.

Speaker #6: Then , of that , those headwinds . So our belief is in the second half of 26 , we've lapped that down . Cell activity and those headwinds that we've experienced , and we have that that philosophy , we have that is incorporated into our guidance

Speaker #5: Got it . Thank you . Kim

David Brown: Got it. Thank you, Kim.

Speaker #3: Our next question comes from Parker Lane with Stifel

Operator 2: Our next question comes from Parker Lane with Stifel.

Operator: Our next question comes from Parker Lane with Stifel.

Speaker #7: Hi . This is Matthew Parker . I'm for Parker . Thank you for taking my questions . Kim , congratulations on the retirement as well .

Matthew Kikkert: Hi, this is Matthew Kickert, for Parker. Thank you for taking my questions. Kim, congratulations on the retirement as well. My first question, I'm curious, what levers are you targeting, to pull to achieve the EBITDA margin expansion in 2026? A little color there would be helpful.

Parker Lane: Hi, this is Matthew Kickert, for Parker. Thank you for taking my questions. Kim, congratulations on the retirement as well. My first question, I'm curious, what levers are you targeting, to pull to achieve the EBITDA margin expansion in 2026? A little color there would be helpful.

Speaker #7: My first question: I'm curious, what levers are you targeting to pull to achieve EBITDA margin expansion in 2026? Well, that would be helpful.

Kim Nelson: Yes, happy to answer that. So a lot of it's really a continuation of some of the dynamics that you've seen in 25. So when you think about... I'll start with gross margin as an example. So you may or may not recall that over a multiyear time period, we've made a lot of investments in the overall customer experience, and all right things to do for customers today and customers in the future. But we got ourselves to a position where we were able to now start seeing some of the benefits of that and drive more of the gross margin and those efficiencies. Simply stated, don't necessarily need to add as many folks as we've had to do historically.

Speaker #6: Yep . Happy to answer that . So a lot of it's really a continuation of some of the dynamics that you've seen in 25 .

Speaker #6: So when you think about I'll start with gross margin as an example . So you may or may not recall that over a multi multi year time period .

Speaker #6: We've made a lot of investments in the overall customer experience . And all right things to do for customers today . And customers in the future .

Speaker #6: But we got ourselves to a position where we were able to now start seeing some of the benefits of that, and drive more of the gross—those efficiencies.

Speaker #6: Simply stated, don't necessarily need to add as many folks as we've had to do historically. You start to see that, call it, very later.

Kim Nelson: You started to see that, call it, very later part of 2024; you saw that through 2025, and that continues into 2026. So gross margin expansion is a meaningful component of that overall anticipated, call it, 2% of EBITDA margin expansion. That being said, we do see opportunities in other line items as well, in particular in the sales and marketing as well as G&A side. R&D, we do think our level of spend as a percent of revenue is appropriate. We aren't really looking to get more efficient there in total. But the larger component in 2026 of the two percentage points of EBITDA margin expansion, you would expect to come through gross margin.

Speaker #6: Part of 24 . You saw that through 25 , and that continues into into 26 . So gross margin expansion is a meaningful component of that overall anticipated call it 2% of EBITDA margin expansion .

Speaker #6: That being said , we do see opportunities in other line items as well . In particularly in the sales and marketing as well as G&A side R&D .

Speaker #6: We do think our level of spend as a percent of revenue is appropriate . We aren't really looking to get more efficient there .

Speaker #6: In total, but the larger component in 26 of the two percentage points of EBITDA margin expansion, you would expect to come through gross margin.

Speaker #7: Okay . And then secondly , looking at the delays in the enablement pipeline , are you seeing any bright spots from specific verticals or different size of vendors ?

Matthew Kikkert: Okay. And then secondly, looking at the delays in the enablement pipeline, are you seeing any, any bright spots from specific verticals or different size of vendors, or are the delays pretty much across the board?

Parker Lane: Okay. And then secondly, looking at the delays in the enablement pipeline, are you seeing any, any bright spots from specific verticals or different size of vendors, or are the delays pretty much across the board?

Speaker #7: Or are the delays pretty much across the board?

Chad Collins: I'd say that pretty consistent across all the- You know, we have pretty broad definition of retail, which includes kind of the mass merchant, retail, grocery, distribution. I'd say pretty consistent behavior across all those. Things food-related, there has been some favorable dynamics from some of the food safety activities, there have been regulations there, but overall, pretty consistent across.

Speaker #1: I'd say the pretty consistent across all the , you know , we have pretty broad definition of retail , which includes kind of the mass merchant , retail , grocery distribution , I'd say pretty consistent behavior across all those things .

Speaker #1: Food related . There has been some favorable dynamics from some of the the food safety activities that have been regulations there . But overall , pretty consistent across .

Speaker #7: Okay . Thank you

Matthew Kikkert: Okay. Thank you.

Parker Lane: Okay. Thank you.

Speaker #3: Our next question comes from Jeff Van Rhee with Craig-hallum .

Operator 2: Our next question comes from Jeff Van Riel with Craig-Hallum.

Operator: Our next question comes from Jeff Van Riel with Craig-Hallum.

Speaker #8: Great . Thanks for taking the questions . Maybe just a couple left for me . As you look at the overall softness in the outlook for the quarter and in the in the forward guide , can you can you quantify it ?

Jeff Van Rhee: Great, thanks for taking the questions. Maybe just a couple left for me. As you look at the overall softness in the outlook for the quarter and in the forward guide, can you quantify it maybe and break it down between two drivers, one just being the macro/general softening at your customers and the willingness to spend, versus the percent that is coming from the revenue recovery dynamics? If you had to allocate the weakness in the guide to those two factors, how would you weight that?

Jeff Van Riel: Great, thanks for taking the questions. Maybe just a couple left for me. As you look at the overall softness in the outlook for the quarter and in the forward guide, can you quantify it maybe and break it down between two drivers, one just being the macro/general softening at your customers and the willingness to spend, versus the percent that is coming from the revenue recovery dynamics? If you had to allocate the weakness in the guide to those two factors, how would you weight that?

Speaker #8: Maybe and break it down between two drivers ? One just being the macro general softening at your customers and the willingness to spend versus the percent that is coming from the revenue recovery dynamics .

Speaker #8: If you had to allocate the weakness in the guide to those two factors, how would you weigh that?

Speaker #6: So hi , Jeff , what I would say is both of those are important in the numbers . Think of it as how we exited 25 impacts .

Kim Nelson: So, hi, Jeff. What I would say is both of those are important in the numbers. Think of it as how we exited 25, impacts your starting point then in 26, and so that has an impact then, obviously, you know, in your, your Q1, your beginning of 26. And then implied in our guidance, we are lapping, those, those headwinds, and those headwinds actually are both of what, what you hit upon there, right? It's, right sizing of some contracts, as well as some of the dynamics, we've seen on the, Amazon policy changes. And we do believe that those headwinds, by the second half of the year, we've, we've sort of lapped that, and so that is implied within our guidance for a, you know, slight, increase in our overall revenue growth second half of the year.

Speaker #6: Your starting point . Then in 26 . And so that has an impact . Then obviously you know in your your Q1 your beginning of 26 and then implied in our guidance , we are lapping those those headwinds and those headwinds actually are both of what you hit upon there .

Speaker #6: Right . It's right sizing of some contracts as well as some of the dynamics we've seen on the Amazon policy changes . And we do believe that those headwinds by the second half of the year , we've sort of lapped that .

Speaker #6: And so that is implied within our guidance for a slight increase in our overall revenue growth . Second half of the year .

Jeff Van Rhee: Hmm, okay. And then just maybe secondly, on the pricing front, when you look at individual customers, understanding people have maybe downsized the number of connections, but if you look at the pricing and potential pricing pressure on a per connection basis, is there anything you would call out in terms of the customers, maybe getting more price sensitive on a per connection basis? And kind of along those lines, I remember over the years, periodically, things would pop up about EDI versus more real-time API-based connectivity. Have you seen any shift in the base and thereby pricing pressure accordingly?

Jeff Van Riel: Hmm, okay. And then just maybe secondly, on the pricing front, when you look at individual customers, understanding people have maybe downsized the number of connections, but if you look at the pricing and potential pricing pressure on a per connection basis, is there anything you would call out in terms of the customers, maybe getting more price sensitive on a per connection basis? And kind of along those lines, I remember over the years, periodically, things would pop up about EDI versus more real-time API-based connectivity. Have you seen any shift in the base and thereby pricing pressure accordingly?

Speaker #8: Okay . And then just maybe secondly , the on the pricing front , when you look at individual customers understanding people have maybe downsized the number of connections , but if you look at the pricing and potential pricing pressure on a per connection basis , is there anything you would call out in terms of the customers maybe getting more price sensitive on a per connection basis and kind of along those lines , I remember over the years , periodically things would pop up about EDI versus more real time API .

Speaker #8: API based connectivity . Have you seen any shift in the in the base and thereby pricing pressure accordingly ?

Speaker #1: Yeah , no . If you look at it on a per connection basis , I'd say it's it's consistent and you know , it when when customers are are typically downsizing .

Chad Collins: Yeah, no, if you look at it on a per connection basis, I'd say it's, it's consistent. And, you know, when customers are typically downsizing, it's because, you know, they have lost that, that business with a particular retailer or based on the way their cost of goods have changed. They're deciding not to do business in certain ways with certain retailers. So it tends to be driven more from that. On the API side, you know, in most cases, this isn't a choice of how to connect. It tends to be more of the kind of wholesale-type connections tend to be EDI. If it's more modern in a marketplace, it tends to be more API. And our network does both.

Speaker #1: It's because you know , they have lost that , that that business with a particular retailer or based on the way their cost of goods have changed , they're deciding not to do business in certain ways with certain , certain retailers .

Speaker #1: So it tends to be driven more from that on the on the API side , you know , in most cases , this isn't a choice on how to connect .

Speaker #1: It tends to be more of the kind of wholesale-type connections that tend to be EDI. If it's more modern in a marketplace, it tends to be more API, and our network does both.

Speaker #1: So , you know , we support both types . And in fact , when it's an API connection , a lot of times there's , you know , potentially more value in that for a customer because those API connections tend to be a little bit more complex than the EDI connections

Chad Collins: So, you know, we support both types. And in fact, when it's an API connection, a lot of times there's, you know, potentially more value in that for a customer because those API connections tend to be a little bit more complex than the EDI connections.

Jeff Van Rhee: Mm-hmm. Got it. I'll leave it there. And, Kim, congrats. It's been a, just a really exceptional tenure. You've been a class act all the way along, so certainly wish you all the best.

Jeff Van Riel: Mm-hmm. Got it. I'll leave it there. And, Kim, congrats. It's been a, just a really exceptional tenure. You've been a class act all the way along, so certainly wish you all the best.

Speaker #8: Got it . I'll leave it there . And Kim , congrats . It's been a just a really exceptional tenure . You've been a class act all the way long , so certainly wish you all the best .

Speaker #6: Thank you

Kim Nelson: Thank you.

Speaker #3: Our next question comes from Mark Chappelle with Loop Capital

Operator 2: Our next question comes from Mark Chappell with Loop Capital.

Operator: Our next question comes from Mark Chappell with Loop Capital.

Speaker #9: Hi . This is Tim on for Mark . Thank you for taking my questions . I guess I ask around the go to market strategy .

Tim Monto: Hi, this is Tim Monto, Mark. Thank you for taking my questions. I guess I'll ask around the go-to-market strategy, you know, given the new CCO that you onboarded. Is there any changes that we should expect or anticipate over the coming year?

Speaker #9: You know , given the new the new TCO that you onboarded , is there any changes that we should expect or anticipate over the coming year

Speaker #1: Yeah . Well , super excited to have Eduardo on the team . Obviously he played a pivotal role in our big field kickoff event that we just recently had .

Chad Collins: Yeah, we're so super excited to have Eduardo on the team. Obviously, he played a pivotal role in our big field kickoff event that we just recently had. I wouldn't say you should expect major changes in the go-to-market, but, you know, with this wider product portfolio, the opportunity that we have identified to expand ARPU, you know, definitely more customer practices and things that will help us drive expansion of that ARPU with the customer, is a priority in our go-to-market. Not an exclusive priority, but driving that ARPU, I think, will be a key component of our strategy and therefore a focus going forward.

Speaker #1: I wouldn't say you should expect major changes in the go to market , but you know , with this wider product portfolio , the opportunity that we have identified to expand our rpu , you know , definitely more customer practices and things that will help us drive expansion of that Rpu with the customer Is is a priority in our go to market , not an exclusive priority , but driving that Rpu I think will be a key component of our strategy and therefore a focus going forward

Speaker #9: Okay, I think that's the only question I have.

Tim Monto: Okay, I think that's the only question I have.

Speaker #3: A reminder, if you would like to ask a question, please press star, then one. Our next question comes from Nehal Chomsky with Northland Capital Markets.

Operator 2: A reminder, if you would like to ask a question, please press star, then one. Our next question comes from Nihal Toski with Northland Capital Markets.

Operator: A reminder, if you would like to ask a question, please press star, then one. Our next question comes from Nihal Toski with Northland Capital Markets.

Speaker #10: Yeah . Thank you . A couple questions for me . One is that I'm pretty sure you addressed . But just to be perfectly clear , you know , why did one key customers be flat ?

Nihal Toski: Yeah, thank you. Couple of questions from me. One is that, I'm pretty sure you addressed, but just to be perfectly clear, you know, why did 1P customers be flat Q to Q? Because over the prior two quarters, you know, that was showing good growth again.

Nihal Chokshi: Yeah, thank you. Couple of questions from me. One is that, I'm pretty sure you addressed, but just to be perfectly clear, you know, why did 1P customers be flat Q to Q? Because over the prior two quarters, you know, that was showing good growth again.

Speaker #10: Because prior two quarters, you know, that was showing good growth. Again.

Speaker #6: Hi Nehal , I can answer that . We mentioned this on last quarter's earnings call as well . This has to do with the timing of some of those relationship management formerly known as community enablement programs .

Kim Nelson: Hi, Nihal. I can answer that. We mentioned this on last quarter's earnings call as well. This has to do with the timing of some of those relationship management, formerly known as community enablement programs. So the color we had given a quarter ago was the timing of those, instead of being in Q4, was going to be in the first half of 2026, and as such, we signaled that our expectations were that the 1P customer count would be flat sequentially. And that's and basically, we landed right on with what our expectations were.

Speaker #6: So the color we had given a quarter ago was the timing of those, instead of being in Q4, was going to be in the first half of 2026.

Speaker #6: And as such , we signaled that our expectations were that the one key customer count would be flat sequentially . And that's and basically , we landed right on with what our expectations were .

Speaker #10: Great . Okay . And do you expect the pace of one customer ads to return to what you were seeing in the second quarter or third quarter , as we go through 26 ?

Nihal Toski: Great. Okay. And, do you expect the pace of 1P customer adds to return to what you were seeing in Q2 and Q3, as we go through calendar 2026?

Nihal Chokshi: Great. Okay. And, do you expect the pace of 1P customer adds to return to what you were seeing in Q2 and Q3, as we go through calendar 2026?

Speaker #6: Sure . So the biggest driver , as it relates to the one customer account is related to the relationship management . Again , formerly known as the community enablement programs .

Kim Nelson: Sure. So the biggest driver as it relates to the 1P customer count is related to the relationship management, again, formerly known as the community enablement programs. So the timing of those programs will have an impact in the timing of the customer adds. Some of the dialogue we've had here on the call is we have a strong community enablement pipeline. More of that, however, will be in, call it, the Q2 to second half of the year. We still run them throughout the year, but more of those would be later on, closer to the second half of the year. So at this point in time-

Speaker #6: So the timing of those programs will have an impact in the timing of the customer ads . And so some of the dialogue we've had here on the call is we have a strong community enablement pipeline .

Speaker #6: More of that , however , will be in call it the Q2 to second half of the year . We still run them throughout the year , but more of those would be later on closer to the second half of the year .

Speaker #6: So at this point in time , we would assume that Q1 26 would also probably be flat to Q4 25 due to the timing .

Nihal Toski: All right.

Nihal Chokshi: All right.

Kim Nelson: We would assume that Q1 2026 would also probably be flat to Q4 2025 due to the timing.

Speaker #10: Okay . And then general and administrative , that was up 29% year over year for calendar 25 , whereas sales and marketing and R&D were up in the teens .

Nihal Toski: Okay. And then, General and Administrative, that's, that was up 29% year-over-year for calendar 2025, where Sales and Marketing and R&D were up in the teens. Why is the G&A at such an elevated growth rate right now?

Nihal Chokshi: Okay. And then, General and Administrative, that's, that was up 29% year-over-year for calendar 2025, where Sales and Marketing and R&D were up in the teens. Why is the G&A at such an elevated growth rate right now?

Speaker #10: Why is the genie at such an elevated growth rate right now ?

Speaker #6: Yeah . So when you look at G&A as a percent of revenue , you've seen it be call it like 15 , 16 ish percent of revenue .

Kim Nelson: Yeah, so when you look at G&A, as a percent of revenue, you've seen it be, call it, like 15, 16-ish% of revenue. There's various costs in there, that you would expect. There has been investments we've been making in some of our back-end tools and technology, from both the tools and technology as well as the team, augmenting the team, et cetera. We do have a stated goal of 10 to 15% for G&A over time.

Speaker #6: There's various costs in there that you would expect . There has been investments we've been making in some of our back end tools and technology , from both the tools and technology , as well as the team augmenting the team , etc.

Speaker #6: we do have a stated goal of 10 to 15% for G&A over time

Speaker #10: Thank you

Nihal Toski: Thank you.

Nihal Chokshi: Thank you.

Operator 1: This concludes our question-and-answer session and today's conference call. Thank you for attending today's presentation. You may now disconnect.

Operator: This concludes our question-and-answer session and today's conference call. Thank you for attending today's presentation. You may now disconnect.

Q4 2025 SPS Commerce Inc Earnings Call

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