SPS Commerce, Inc. 2026 Q3 Earnings Call

Please go ahead, ma'am. Good afternoon, everyone, and thank you for joining us on SPS Commerce third quarter 2026 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.

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.

Thanks, Irmina, and good afternoon, everyone. Thank you for joining us today. Supply chain management has reached a critical inflection point across the retail ecosystem. Brands and retailers are adopting AI to transition from reactive operations to proactive execution, expecting clear and quantifiable return on their investment. While AI unlocks powerful operational efficiencies, its true potential is realized when combined with contextual supply chain data. At SPS Commerce, new agentic AI capabilities are combined with the intelligence of a network built on more than 300,000 trading relationships, nearly three decades of proprietary knowledge, and retailer compliance rules that aren't documented anywhere else. For SPS customers, our agentic AI called MAX plays a central role in driving supply chain efficiencies by embedding the SPS network intelligence directly into trading partner workflows and automation systems. As a result, MAX delivers real ROI today.

Because it runs on network intelligence, that compounds with every new trading connection. It is continually learning to deliver ROI in the future. Building on this foundation, last month, we announced new and expanded capabilities across our product portfolio. These advancements help brands and retailers operate faster and more proactively with greater visibility across their supply chains to achieve immediate and measurable results. MAX, our embedded agentic AI supply chain offering, is now available to all of our Fulfillment customers. Grounded in real-world trading behaviors, MAX guides users through daily supply chain workflows, identifies operational anomalies, and prevents costly errors before they occur. Decision Intelligence, an expansion of SPS Analytics, connects sell-through, inventory, and supply chain signals into a unified view organized around retailers' key weekly inventory and forecasting decisions. Visibility Management connects ERP, warehouse management, transportation management, and carrier systems into a single real-time purchase order status view.

It surfaces potential disruptions before they impact an order or revenue, automatically engaging suppliers to resolve them. While these product innovations represent the next step in our vision for the intelligent supply chain network, the true test is the tangible ROI delivered to our customers. RIP-IT Sports, a high-growth brand selling sporting equipment to major retailers like Dick's Sporting Goods, Walmart, and Amazon, is leaning heavily into AI to expedite efficiency and insight. In its first week live, MAX saved this customer $200,000 by flagging chargebacks and late receivables that the RIP-IT team couldn't see and identified a process error to eliminate future loss. MAX watches every trading partner and explains resolutions in plain language, leveraging retailer-specific compliance patterns that aren't documented elsewhere. MAX recently detected more than 200 shipment status failures between Zevia, a beverage brand, and their 3PL.

In those orders, neither Zevia nor the ERP were being updated automatically with the correct workflow status. For a customer of this size, we estimate up to $3 million in receivables could have been delayed had those shipments not been realized and invoiced on time. Something Inked, a creative merchandising and custom branding company that works with major sports and entertainment brands, uses MAX to accelerate invoice searches and exception monitoring. This customer estimates using MAX will save them hundreds of hours per year and thousands of dollars in overhead. According to their project lead, MAX has become a staple in their daily operations. With MAX now live across all Fulfillment customers, adoption of our advanced AI features is accelerating. Upcoming Q4 product launches keep us on track to monetize AI-powered solutions next year.

SPS Commerce has also embedded agents internally to accelerate Fulfillment customer onboarding from contract close to the first live transaction. Since adopting agentic onboarding, hundreds of suppliers have achieved full compliance with new trading partners within 24 hours. Agentic onboarding is also strengthening our competitive position, particularly when new customers plan to integrate their ERP system with the SPS network. In Q3, this accelerated onboarding capability was a deciding factor in securing multiple new customer wins. We are prepared to move as quickly as our customers need us to, and delivering faster time to value. To date, we have completed many complex ERP integration and onboarding projects in less than 30 days, and we expect to shorten these cycles even further as we advance our agentic capabilities. For example, a manufacturer of safety and fall protection gear needed 21 integrations set up and tested in two weeks.

Accelerated onboarding with AI agents helped meet the deadline, and our validation agent flagged incorrect carrier codes and shipping serial IDs that would have caused advanced shipping notice compliance issues and potential retailer chargebacks. The customer was able to address both errors before production. Similarly, the world's leading dairy company partnered with SPS Commerce following a major acquisition to rapidly onboard over 70 trading partners and avoid delays in order fulfillment of highly perishable products. With agentic onboarding, SPS accelerated testing and business rule configuration for new connections, successfully executing a high-stakes go live in just weeks. In summary, the progress we have made to date with our agentic transformation initiatives, both across our product portfolio and internally, has exceeded my expectations. I want to recognize all of Team SPS for their agentic-first mindset and commitment to this transformation.

Historically, customers have trusted SPS's vast network intelligence to deliver connectivity and compliance with their trading partners. Today, all of our transaction, compliance, and proprietary data is powering our agentic AI solutions, enabling MAX to detect process disruptions and anomalies. This strong, quantifiable ROI will result in direct monetization of our AI capabilities and drive a higher volume of transactions across our network, as customers increasingly rely on SPS solutions as the indispensable intelligence tools they need to manage an efficient supply chain. Notably, we are moving fast while maintaining operational discipline and exceeding our margin targets. With our agentic strategy advancing, we are uniquely positioned to deliver sustainable, profitable growth backed by the combination of AI and SPS's intelligent network, a powerful and durable competitive moat that no one else can match. With that, I'll turn it over to Joe to discuss our financial results.

Thank you, Chad, and welcome everyone. We report a strong third quarter of 2026 as core business growth exceeded expectations while we delivered significant margin expansion. Revenue was $197.6 million, a 4% increase over Q3 of last year. Recurring revenue grew 4% year-over-year. Two factors impacting the growth rate in the quarter. One is the divestiture of the 3P Revenue Recovery business on June 30, 2026, and the second factor is the incremental impact from our 1P Amazon Take Rate business. Together, the divestiture and the Amazon Take Rate business negatively impacted revenue growth by 500 basis points in the quarter. In reference to the divestiture of the 3P Revenue Recovery business, we said on the Q2 call that we expect divestiture to reduce second half 2026 revenue by approximately $10.5 million. We continue to believe the divestiture sharpens our focus on the strategic opportunity with 1P suppliers.

The 1P Amazon opportunity continues to be important to our Revenue Recovery growth strategy for the long term, with a $750 million addressable market. In reference to the impact from the Amazon Take Rate business for the quarter, it was driven by two factors. First, we saw higher than anticipated conversion of take rate revenue to subscription revenue. While this has created a headwind to revenue in the second half of 2026, we expect it to benefit the business in the midterm and align with our long-term strategy for Revenue Recovery. Second, take rate revenue was lower than anticipated, resulting from recent Amazon policy changes that impacted our 1P take rate customers. As a reminder, under the take rate model, revenue is recognized as a percentage of the actual funds successfully recovered from Amazon suppliers, and recovery yields are tied to the retailer policies.

In the quarter, Amazon has implemented certain policy changes which have been unfavorable to recovery yields. While our current go-to-market approach is focused on subscription model, the take rate model remains common in the Amazon Revenue Recovery market and allows us to capture a larger share of enterprise customers. Looking at our customer growth, the total number of recurring revenue customers in Q3 increased sequentially to 46,700, and an average revenue per customer was $16,200. The divestiture reduced our total customer count by approximately 7,300 3P customers who are smaller than our average customer size, which positively impacted ARPU in Q3. Adjusted EBITDA increased 17% to $70.9 million, or 36% of revenue, outperforming our long-term margin target of 35%. This reflects SPS's strong operational execution as we continue to unlock efficiencies across the organization.