SPS Commerce, Inc.

Good day and welcome to the SPS Commerce Q1 2026 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the call over to Irmina Blaszczyk. Please go ahead.

Thank you. Good afternoon everyone and thank you for joining us on SPS Commerce first 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 attraction 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 the 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. And with that, I will turn the call over to Chad.

Thanks, Armina, and good afternoon, everyone. Thank you for joining us today. SPS Commerce delivered a solid first quarter. Q1 revenue grew 6% to $192.1 million. Recurring revenue grew 7%, driven by fulfillment growth of 8%. Amid rapidly evolving global supply networks, SPS innovations are critical in addressing trading partner needs across the supply chains of manufacturers, retailers, logistics providers, and brands. Tariffs, geopolitics, and risk mitigation are fundamentally restructuring global trade. In this environment, supply chain partners need real-time coordination to respond to disruptions, demand shifts, and capacity constraints. And SPS is uniquely positioned to deliver the AI optimized automation trading partners need at scale. Before I provide an update on how customers are leveraging our AI enabled solutions, all review current business dynamics across our product portfolio. First, with respect to our revenue recovery business, we continue to manage the headwinds from Amazon's policy changes. For example, to better align pricing with the value we deliver, we are introducing a subscription platform fee to our 3P take rate customers. Joe will be providing further detail. Second, We are pleased with our cross-selling momentum among 1P customers, and I'll share some examples of that shortly. And third, our business without revenue recovery is performing in line with our expectations, with early indications that the invoice scrutiny we observed last year as a result of tariff and macro headwinds is subsiding. We continue to expect these transitory headwinds will be largely behind us by the end of the second quarter as we remain focused on delivering the solutions our customers need to succeed in a dynamic trade environment. A great example of how suppliers are realizing value from the SPS portfolio is Siete Foods, a customer since 2018. Over the past year, Siete made the transition from a high-growth emerging brand into an enterprise-scale operation. driven by their acquisition by PepsiCo and rapid expansion across mass retailers like Walmart, Target, Whole Foods, and Costco. As their scale increased, so did the complexity of their supply chain. We worked closely with CSA to modernize their operations and support their goal of full supplier compliance, while integrating tightly with their ERP to ensure they're able to handle higher volumes and evolving retail requirements with greater data consistency across orders, shipments, and invoicing workflows. Recently, CSA became an early adopter of MAX, SPS's AI agent, embedding our proprietary network intelligence directly into day-to-day operations. Their team is using MAX to quickly diagnose issues that previously required manual investigation, such as identifying why shipments failed or invoices were rejected, before those issues impact their retail partners. MAX is also helping CTA surface broader operational patterns across thousands of transactions to address root cause of inefficiencies, enabling them to scale and handle greater order volume with stronger compliance without adding operational overhead. This customer engagement demonstrates how a SPS partnership evolves beyond trading partner connectivity and compliance to become a core intelligence layer within our customer supply chains. Siete Foods is one of many brands participating in the MAX beta release, providing valuable insight into how agentic capabilities are being applied and where customers are realizing value across their workflows. For Siete, by catching undetected inventory failures, MAX is projected to protect up to 8% of revenue that would otherwise be lost to stock outs. Based on feedback from more than 400 Max beta customers, the biggest impact AI can have on trading partner collaboration is identifying issues early before they cause disruptions. Max is already demonstrating its ability to do exactly that. SPS is also leveraging agents to improve operational efficiency. Early applications within our agentic network are already driving measurable gains in customer treatment strategies, reinforcing our competitive mode through proprietary network data and intelligence, and reducing onboarding and setup time from weeks to days. In parallel, product engineering has advanced significantly, with much of our software development now agent-driven, accelerating innovation cycles and improving productivity. In sales, our data-powered growth strategy is using demand signals from customer activity across our network to identify upsell and cross-sell opportunities. As we continue to advance our network-led go-to-market motion, cross-selling momentum continues to build across our customer base. For example, fulfillment customers are expanding into revenue recovery, while revenue recovery customers are adopting fulfillment, reinforcing the strength of our network and the value of our integrated solutions. Explore Scientific, a precision optics company that designs and manufactures telescopes, binoculars, and other scientific instruments, was a supply pike revenue recovery customer. After spending over a year with a different EDI provider during their NetSuite ERP implementation, they faced ongoing usability challenges, unreliable workflows, and incomplete automation, at times requiring manual order processing just to keep pace. More importantly, these inefficiencies created downstream financial impact with inconsistent data and limited visibility leading to shipment failures, invoice rejections, delayed payments, and revenue loss through deductions and write-offs. By transitioning to SPS, Explore Scientific reestablished a reliable operational foundation with a fully functioning ERP integration and standardized workflows across orders, shipments, and invoices, they gained consistent, accurate data flowing across their business. This shift enabled their team to move from reactive problem solving to proactive management, identifying issues earlier, understanding root causes, and preventing disruptions before they impact financial outcomes. As their operations stabilized, Explore Scientific expanded their use of SPS solutions. adding analytics and system automation to operate with greater confidence and control. What began as a need to fix operational gaps has evolved into a broader transformation, positioning Explore Scientific not just to process transactions more efficiently, but to actively protect and recover revenue. Explore Scientific's experience highlights how customers are realizing meaningful value on the SPS network by restoring operational stability and visibility. In addition to cross-selling our products, we are unlocking incremental growth opportunities by unifying them. For example, Walmart suppliers using SPS fulfillment can now recover overages directly in the SPS solution. This underscores the value of the platform approach and enables trading partners to collaborate better along the entire value chain. In closing, SPS is well-positioned to capitalize on significant growth opportunities ahead. our product portfolio continues to advance with AI-driven solutions for both suppliers and retailers, powered by proprietary data that improves efficiency and unlock meaningful value across supply chains. As a result, SPS is the leading intelligent supply chain network, embedded in the daily flow of commerce, driving automation, insights, and increasingly AI-powered optimization. Lastly, Over the past 16 months, we have added seasoned SaaS leaders to the SPS team who bring the operational rigor necessary to scale our product and go-to-market strategy. And today, I am pleased to formally introduce Joe DelPretto as our new CFO. Joe joined us on March 16th, and we're excited to have his expertise on board as we enter this next phase of our journey. Welcome, Joe.

Thank you, Chad, for a warm welcome. This is my first earnings call as SPS CFO. I'd like to take the opportunity to express my excitement and share my reasons for joining SPS Commerce at such a pivotal time. First, I believe SPS is uniquely positioned to capitalize on the dynamics that are driving a growing need for supply chain optimization. Second, with a large global market opportunity, disciplined capital allocation, and a clear path to scale, SPS is well equipped to deliver durable growth, margin expansion, and long-term shareholder value creation. Lastly, and most importantly, having engaged with the management team and many SPS employees, I'm truly impressed by the strength of the organization's culture. I look forward to being part of such an energetic, driven, and highly collaborative team. I share in the organization's strong sense of momentum and enthusiasm for the opportunities that lie ahead. Now let's review our Q1 results. We report a solid first quarter of 2026. The core business was strong and continued to show momentum throughout the quarter. However, as Chad called out, we continue to see headwinds in the Amazon portion of our revenue recovery business. Revenue was $192.1 million, a 6% increase over Q1 of last year. Recurring revenue grew 7% year over year. The total number of recurring revenue customers in Q1 was approximately 54,200. Consistent with our expectations, the number of 1P customers was flat sequentially, while the number of 3P customers declined by 400. Our pool was approximately 13,550. As Chad mentioned earlier, we're generating cross-selling momentum across our network, and we remain strategically focused on servicing and expanding the 1P customer base where we see the greatest cross-selling potential for our products. To improve profitability across our smaller customer cohorts, We are in the process of introducing a subscription platform fee to our 3P take rate customers to better align pricing with the value delivered while helping offset servicing and infrastructure costs associated with these accounts. We expect this change to increase churn within this cohort with the projected decline of up to 4,000 3P suppliers in 2026. We do not anticipate this action to result in a material impact to revenue. Adjusted EBITDA increased to $57.9 million, and we ended the quarter with total cash and cash equivalents of $154 million. In Q1 2026, we deployed nearly 100% of free cash flow to repurchase $47.1 million of SPS shares. Now turning to guidance. For the second quarter of 2026, we expect revenue to be in the range of $194.5 million to $196.5 million. which represents approximately 4% year-over-year growth at the midpoint of the guided range. We expect adjusted EBITDA to be in the range of $60.9 million to $62.4 million. We expect fully diluted earnings per share to be in the range of 53 to 56 cents, with fully diluted weighted average shares outstanding for approximately 37.3 million shares. We expect non-GAAP diluted income per share to be in the range of $1.06 to $1.09. with stock-based compensation expense of approximately $19.0 million, depreciation expense of approximately $5.2 million, and amortization expense of approximately $9.4 million. As we look to the rest of the year, three dynamics are shaping our outlook. First, we continue to expect headwinds impacting the Amazon revenue recovery business. Second, excluding Amazon, we expect the revenue recovery business to continue to outpace overall company growth. Third, we expect our business without revenue recovery to continue to perform in line with our expectations. For the full year 2026, we expect revenue to be in the range of $796.0 million to $802.0 million, representing approximately 6% growth over 2025 at the midpoint of the guided range. We expect adjusted EBITDA to be in the range of $262.8 million to $267.3 million, representing growth of approximately 14 to 16% over 2025. We expect fully diluted earnings per share to be in the range of $2.66 to $2.69, with fully diluted weighted average shares outstanding approximately 37.3 million shares. We expect non-GAAP diluted income per share to be in the range of $4.73 to $4.76. with stock-based compensation expense of approximately $69.8 million, depreciation expense of approximately $23.0 million, and amortization expense for the year of approximately $37.4 million. For the remainder of the year, on a quarterly basis, investors should model approximately 30% effective tax rate calculated on a GAAP pre-tax net earnings. To wrap up, I'm encouraged by our momentum entering the year. I'm excited to be part of this driven team, and I'm committed to maintain the rigor and discipline necessary to scale our success and fully capitalize on the market opportunity in front of us.

With that, I'd like to open the call to questions.

We will now begin the question and answer session.

Please limit yourself to one question and one follow-up. To ask a question, you may press star then one on your touchtone phone. 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 the 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 & Company.

Please go ahead.

Hi, this is Ian Blackdown for Scott Berg. When should we expect to see the 3P revenue recovery business start to trough? I'm sorry, start to what? Start to trough. I can take that question.

And this is Joe. I think on the 3P, the way we're kind of explaining a little bit more is the Amazon revenue recovery side of the business. You know, right now that continues on a negative trajectory. It probably drops somewhere in the middle of this year, towards the end of this year. As we enter into 2027, we probably see a little bit more momentum in that business. But right now, we still see a lot of headwinds in 2026 as it relates to that business.

Thank you.

And then you guys reported some delayed enablement campaigns exiting 2025. What's the progress of those campaigns?

Yeah, so overall, our pipeline and activity on the retail relationship management campaigns is quite strong. Some of the specific campaigns that we cited in Q4 that we're going to carry into 2026 have now either closed or are near closure. So that momentum has continued. As these programs sort of affect customer count, keep in mind there is some delay to actually run the program and get the suppliers on and initiate the invoicing with those suppliers. So we do expect that to affect customer count and be more impactful in the second half of the year versus the first half of the year.

Awesome. Thank you so much.

Our next question comes from Parker Lane with Stiefel. Please go ahead.

Hey, guys. Good afternoon. Thanks for taking the question. Chad, I think you said tariff and macro headwinds that you started to see in the middle of last year should start to dissipate as we last spent this year. Obviously, we've seen more conflict in the Middle East and some talk about what that could mean for global supply chain. Any thoughts on what your customers could be facing or are facing? As a result of that, is there any belief that, you know, as you look through the year, that that could have any follow-through effect that maybe knocks that recovery timeline off of the 2Q that you outlined?

Absolutely. So we are seeing some of the contract scrutiny driven by the cost pressures from the tariffs from our customers begin to dissipate. You'll remember that most of that took effect beginning the latter half of Q2 last year. So we are cautious in watching sort of how we run through the final renewals that may be more susceptible to that on the annual renewal part of our business. As it relates to the broader kind of global situation, not yet seen any indicators on that. And as I reflect on this situation versus the tariff situation, We were hearing from our customers more directly that the tariffs were a bit more acute to their business, just immediate impact on their cost of goods sold. And we're not hearing that type of thing from our customers at this point in time, given some of the more global situations that we have out there right now.

Understood. And, Joe, maybe one for you. Welcome aboard here, by the way. I think you said about 4,000 third-party customers could churn off the platform as a result of the changes you guys are making. Comparing that to the roughly 7,300 today, what is it about those customers? Is it the smallest of them in nature that would churn off most sensitive to cost, or is there something else that you would characterize amongst that base that puts them in the category of likely to churn?

Yeah, so these are the very smallest of our 3P take rate only Amazon customers. And so they're one thing just not having a high volume of recovery opportunities for us. So they're very, very low revenue customers. And so when we introduced this subscription fee to them, which is quite modest at $19.99 a month, we could find ourselves in some situations with those customers where they periodically process a recovery but don't feel there's enough volume there to pay a $19.99 per month subscription fee. And that's how we arrived at our churn number. So they're very, very small revenue customers. And in fact, you know, we have a cost to service those customers because they're up on the platform or monitoring their activity, all those things. So we do think that there's some benefit to us from a cost perspective to not service those very low revenue customers if, in fact, they do churn as a result of this platform fee.

Got it. Thanks for the color.

Our next question comes from Dylan Becker with William Blair.

Please go ahead.

Hey, gentlemen. I appreciate it here. Maybe, Chad, starting with you on kind of early takeaways from the MAX program and how customers are kind of implementing it and seeing value of the network, I guess, just any kind of incremental color you can provide. I know you had a couple ROI case studies. but maybe also the opportunity outside of the pre-built agents that you guys are kind of spinning up and offering to clients, maybe the opportunity for those clients to kind of get their hands on it and build their own agents over time, but just kind of how you think about maybe custom-built versus kind of pre-built deployment over time there as well. Thanks.

Yeah, great question, Dylan. So let's start with what's happening in the max beta. We have 400 customers in the beta now, and the feedback from the customers has been particularly strong. What is interesting is where they're finding a lot of value out of this is when, with the tool, they're able to combine their data in our network, with the proprietary databases that we have on the major retailers and distributors' supply chain expectations for their suppliers. So if you think about the differences that you have in the various rules in terms of shipping an order to a Target or a Walmart or a Costco, When you can combine the nuances of some of those rules with your specific data, it allows you to answer questions around, hey, what's the difference for me to acknowledge an order from Target versus the time I need to acknowledge an order from Walmart, and how may that affect my workflow? So it's actually really interesting the things that customers are doing where they're combining these two data sources together. And a good example here would be like the one we had in our earnings script called Siete Foods. where they were actually able to use MAX to determine that they had actually more inventory than they – I'm sorry, less inventory than they believed that they had. It turned out to be some transactions they were doing with one of their supply chain partners where there were some very detailed things on lot codes and expiration dates. that Max helped them identify and then get their inventory position corrected so that they can make more commitments to sales to their customers. So that's just kind of a hard ROI example where Max was able to help them with their inventory position and in turn generate sales. I think the second part of your question was around kind of customers building agents versus using the agents in the tool. Our approach here is really with the Max Connect product that we launched, which is really an MCP endpoint that gives customers access to their network data as well as these proprietary databases that we have around retailer supply chain expectations. We believe that some customers will utilize MAX right within the product itself, but there'll be other situations where the customers will want agent-to-agent interaction. And that's where our MAX Connect product fits in, and that is able to handle agent-to-agent communication using MAX Connect.

Fantastic. Thank you, Chad. And maybe for Joe, understand kind of the dynamics on third party, but the core business continuing sounds like to kind of track relative to plan. I guess if we think about some of the levers from a margin perspective, We talked historically about gross margin kind of being the biggest one, but it sounds like you have other initiatives underway and kind of maybe improving the unit economics of the third-party piece of the puzzle. I guess, simplistically, how reliant is kind of the 200 basis point target on the growth side of the equation, and how many kind of levers do you have to sustain that trajectory as we kind of navigate through some of these idiosyncratic dynamics? Thanks.

Yeah, Dylan, thanks for the question. What I would say is some of the stuff that Chad was talking about, some of the savings on the 3P side, that's a pretty small probably impact on the EBITDA and our ability to drive the 200 basis points. I think a couple of things, and you saw this even in Q1, the ability to kind of overperform the guidance we gave. I think there's a couple levers we have, and Chad mentioned some of this earlier. on his prepared remarks related to how we're using AI internally. We've seen some really initial success on the time to onboard customers and how much more efficient we can be when we onboard customers internally. He talked about the efficiencies we're seeing on the product engineering side and our ability to iterate much faster. And so I think what you'll see over the rest of this year as we progress, and there's a huge focus internally on how we can use AI to be more efficient. And that's one of the things I'm really focused on. I think it's, you know, for me, it's really important that the CFO is working very closely with the IT team on where AI can add the most value internal. And so I do think you're going to end up seeing levers across sales and marketing, R&D, and G&A throughout the year. So I think there'll be more to come on future calls on where we're leveraging, you know, AI internally to drive margin.

Great. Thank you both. Appreciate it.

Our next question comes from Chris Quintero with Morgan Stanley.

Please go ahead.

Hey, Chad. Joe, welcome to the call here. I want to ask about the medium-term targets, obviously, at least high single digits, guiding Q2 to 4% to 5% and totally understand the Amazon headwinds that you're seeing right now. But just curious, is that still the right framework we should be thinking about? And if so, how should we think about the path to getting back to that high single-digit growth rate?

Yeah, Chris. I mean, we do believe that the high single digits over the mid to long term is the appropriate growth rate for the business. As we both mentioned in the prepared remarks, the headwind is really coming very specifically from this Amazon revenue recovery piece. If you look at the other portions of our business, the revenue recovery without Amazon is growing faster than the overall business. And the business kind of excluding all revenue recovery is really executing per our expectations. So, you know, if you take out that headwind, you're definitely back in that high single digit range, which is consistent with our mid to long term expectation for the business.

Yeah, and Chris, I'll add a couple more data points there to maybe help you with your question. One, some of the Q2 growth rate, if you think about it sequentially, a lot of that on a year-over-year basis has to do with, you know, Q2 this year has the first full year, you know, year-over-year account for carbon-6, and so I do think that growth rate is probably not directionally where we're headed. If you look at our full year guide and the growth rate there, and you kind of do the implied growth rate in Q3 and Q4 to get to the annual guide, you actually see pretty strong reacceleration of growth in the business. I think the last thing I'll call out is, and Chad alluded to this, if you remove the Amazon revenue recovery, for example, for our Q1 numbers, you would actually, the rest of the business is actually already growing in the high single digits. And so I think there's a huge, huge part of our business that is growing and at high single digits. You just can't see it because we're facing these growth headwinds with this Amazon revenue recovery part of our business.

Got it. That's super helpful color and detail there on the core business. Maybe as a follow-up, I want to dive a little bit deeper on MaxConnect. We're increasingly hearing that businesses are choosing vendors based on their API strategy and how interoperable they are with, you know, broader agents, third-party agents. And so just curious how you're thinking about the openness of MaxConnect and, you know, maybe the monetization as agents, you know, leverage your network and your data.

Yeah, absolutely. So, I mean, at first I'd say we have been a very open and API-friendly organization. In our product strategy, in fact, many of the ways our network connects to retailers, especially on the e-commerce and marketplace side, is through APIs. So I think sometimes we're pigeonholed as EDI being the only way we do it, but we're very open, very familiar with API approaches. And, of course, customers have always been able to access our network through APIs and specific to the kind of agentic API or kind of more MCP type approach. Yeah, we think this is very important. We realize that agent-to-agent workflows are the thing of the future. We're already seeing that inside our business as we deploy internal agents. And we think with that the data that we have, both the transactional data, but I will really highlight these databases that we have of retailer and distributor supply chain expectations. very robust and you know there are things that we built up over 20 years our customers tell us they can't find this information that we have built up over 20 years anywhere else and that information we're even seeing through the max beta is becoming very valuable and so I think exposing the combination of the network data and these proprietary supply chain databases together is are also going to be powerful on the agent-to-agent communication coming through MaxConnect. And we will definitely be monetizing those interactions with MaxConnect over time once we get through this beta period.

Excellent. Thanks so much, Chad.

Our next question comes from George Kurosawa with Citi. Please go ahead.

Okay, great. Thanks for taking the questions. And Joe, looking forward to working with you here. Maybe just to start on approach to guidance, this is a few quarters in a row where at least the revenue side has come in towards the lower end of the range. Maybe you can just talk through, has there been any learnings or shift in approach in terms of embedding more conservatism? It sounds like spend scrutiny is improving. I'm curious if maybe that's something that has not been baked in. It could be a source of upside. Just any thoughts there?

Yeah, what I would say, and great to meet you as well, George, and looking forward to working with you as well. What I would say is there's no major change in our guidance philosophy. I think one thing, though, that I want to call out especially on the annual guide, is, you know, I kind of mentioned this in my prepared remarks, you know, the Amazon revenue recovery business is really posing a pretty strong headwind for us. And so when we thought about the full year guide, we wanted to make sure that we were factoring all the risks we're seeing in that part of the business. If you were to take that part of the business out, actually the performance of the rest of the business is in line with our expectations. We actually saw some momentum coming out of Q1 into Q2. So we feel really good about that part of the business. So I think as it relates to guidance, I think the only change now is just making sure we're factoring all the risks related to this Amazon revenue recovery. I do think to your point, though, you know, on the EBITDA side, I do think there's going to be upside. You know, we raised the full year guide. We're exploring internally, you know, other use cases of AI. But overall, I would say, George, there's not a major change in like guidance philosophy.

Okay, got it. That's really helpful. And then I did want to double-click on the Amazon revenue recovery. Can you just give us some details on the timing of the rollout of those pricing changes and just maybe the translation of that into churn just so we can get a sense of that 4,000 customer number, when we expect to see that start to flow in through the metrics?

Yeah, so we will begin rolling that program out in the Q2, and the rollout will go into Q3 a little bit. I, you know, I do think, though, the churn may happen over time. So, you know, we've thought about that. Even though we're rolling it out in Q2 and early Q3, the churn may come kind of throughout the year.

Okay, great. Thanks for taking the questions.

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

Please go ahead.

Hi, Chad, Jo. Thanks for the questions. I appreciate that we're coming up to the cycling of the second quarter 25, where we began to see the lower document volumes within fulfillment. How have these trends been as we exit the first quarter, and just what's the confidence that we'll see strong growth year in, year out? in the volume-based component of the business as we head into the coming quarters?

Yeah, we definitely have seen a dissipation of that headwind-related contract scrutiny, which had customers looking at their document plans and any trading partners that they were able to reduce from their contracts. As we've moved here into 2026, we just haven't seen that same level of pressure that we've seen in 2025. And as we've engaged with customers who have future renewals through the year, that does give us more confidence about that dynamic in 2026 versus what was definitely a challenge in 2025. Thanks.

And with those 400 customers on Max, how has their consumption usage been through the beta stage? Has that been over or under expectations? And just given you probably have a better understanding of that usage, has that been helpful in formulating that monetization strategy for Max?

Yeah, absolutely. So first off, I would say the 400 number was above our internal targets. And I think that just speaks to, you know, one, the communication of this to our customers, but also them being able to see the benefits to their business of using this even in a beta format. And, you know, like with everything, we've seen some customers where there was really heavy use cases. And, you know, some that may be typically with smaller customers, they're using it, but there's not a ton of volume, just there's not a lot of volume in their business. But all that's going into all of our thinking about how we plan to monetize that. In fact, our current thinking right now, although we haven't formally come to a conclusion, is that we will try to include Macs in a lot of our base subscriptions just to get customers using the feature, but their usage would be throttled somehow, and then based on incremental usage, we'd have an uptick in their subscriptions based on that incremental usage.

That's very helpful. Thanks for the questions.

Our next question comes from Joe Vrewink with Baird. Please go ahead.

Great. Thanks for taking my questions. Just on the topic of AI increasing development velocity, you obviously spoke to that and how it's moving forward inside the company, but Curious what you're seeing maybe outside the company in terms of suppliers or newer competitors maybe wielding that capability as well. And I'm wondering to what extent maybe AI making automation easier to build could start to remove a supplier or the type of supplier that maybe in the past would look to SVS Commerce to simplify operations. their supply chain complexity and is now maybe thinking of doing that internally?

Yeah, Joe, I think it's a good question. I mean, what we're seeing is, you know, there is still this sort of fundamental difference between a do-it-yourself approach with these connections and being in a proactively managed network like SPS. So the majority of our competitors facilitate a do-it-yourself approach where you do need to go in and manage the connections. Now, they do give you good tooling to do that. And more recently, they've given AI tooling to help manage those maps yourself. But you still do need to manage it yourself, even if you have some level of agents or AI automating that. And we don't believe that for most customers, especially in the small to medium size, which is really the bulk of our customers, that they would ever get the efficiencies from a do-it-yourself approach that they would have in a managed approach, the managed network approach. or we can make one change that a retailer has and it immediately cascades to all our customers, just generally leads to a more efficient approach. The second thing I would say is, you know, we're right around the $13,000 average revenue per year for our customers. If a customer is really dedicated to writing out a lot of their enterprise IT stack, I think they're going to go to work on some bigger spend applications before they come down to their $13,000 a year connection to the SPS network. And I think that gives us some protection as well.

Okay, great. That's helpful. Joe, maybe one for you just to clear this up. You say the subscription platform change in the Amazon 3P business is That's going to yield logo term, but I think I also heard not a material revenue impact. That's the clarification because the revenue guide is also coming down and it relates to revenue recovery. So are you really saying that there are headwinds, but they're being absorbed in the 1Q, 2Q timeframe and that's really the source of change?

Yeah, so, Joe, I'll take that one. So kind of two different topics here. I'd say specific to the subscription fee and the churn of those customers, the reason why that's not that material to revenue, although the count seems high at $4,000, the revenue from those $4,000s is quite modest. And for the ones that remain and absorb this platform fee, again, it would be modest, but there's some potential here for even a small revenue uplift there. So if you kind of net those effects out, that's why we're saying that even with this new policy and the customer churn, there's not a revenue impact there. As it comes to the guide, the guide is really, in the reduction in the guide, that's really related to overall headwinds from this Amazon space which relate to the policy changes that Amazon has made. That's not really related to the amount of we can recover for our customers. It's not specific to this introduction of the platform.

Okay, great. Thanks.

Our next question comes from Matt VanVleet with Cantor Fitzgerald.

Please go ahead.

Hey, good afternoon. Thanks for taking the question. Welcome aboard, Joe. Look forward to working with you again here. Um, I guess when you, when you look at the overall product roadmap that you had out, um, you know, over the last several months, maybe how is, uh, the ability to, to get product to market faster using AI tooling and in the development? area, maybe pulled forward some of those ideas that were on kind of the nice to have list, but weren't high enough priority? Where in the business do you think you'll eventually sort of roll out functionality and be able to expand on that 13,000 per year average customer?

Yeah, absolutely. So I'd highlight a few different areas that are pretty key to us driving higher ARPU on our customers. So one area would be in the broader revenue recovery business, we continue to execute on our strategy to build out to more retailers. So the more retailers we can support with revenue recovery, the more market that opens up for us there. And so that's been a key part of what we're doing. We're also making a number of enhancements to our analytics product and the underlying technology there in our analytics product. to provide some more data access and even AI capabilities within the analytics product, which we're optimistic about, and then continue to advance our strategies around ERP connections. As an example, we've had a longstanding partnership with NetSuite, making some investments in our NetSuite technology, so customers using NetSuite together with the SPS networks can get more full features there. So those would be a few examples of things that are underway in our product roadmap and have benefited from some of the velocity changes we're experiencing using agentic engineering.

All right, helpful. And then maybe on the other side of that, how has it sort of raised the bar in terms of an appetite for M&A and maybe what the type of targets you're looking for and ultimately sort of what the outcomes and potential synergies of any future M&A might look like. And Joe would love to hear kind of your initial viewpoint on what the M&A strategy might evolve into.

Maybe I'll start first, and then Chad can talk about, you know, what areas might be interesting. What I would say right now, though, Matt, overall, you know, we're really focused on running the business. And then I think after that, from a capital allocation standpoint, you know, we're focused on buying stock back. And, you know, you notice we bought almost, you know, $50 million back, about $47 million in Q1. The board has authorized up to $300 million in total. And so I think from that standpoint, that's going to be our major focus right now, run the business. buyback shares, and then I'll let, you know, Chad talk about, you know, if we were to get back in M&A, what that might look like or the areas that might be interesting.

Yeah, I mean, I think Joe's absolutely right. I mean, the most efficient use of our capital today is buying back shares. But certainly over the long term, we view M&A as part of our strategy, really, you know, coming from three different areas. I mean, there's still room to further consolidate in the EDI market. There remains players there. And every time we've added an EDI company, the customers have got more benefit in moving to the SPS network. And those have been very efficient transactions for us, and there's still opportunities out there. The other area would be broadening our product solutions for our supplier customers. You know, as we are driving more and more cross-selling now, and that discipline on cross-selling and expanding the ARPU is really getting built into our go-to-market teams. I think we'll have more confidence over time of adding to the product portfolio for those cross-sell opportunities. And, you know, activity outside the U.S. has been strong and was strong in 2025 as well. And I think as those businesses outside the U.S. scale, there could be longer-term opportunities to have more scale with acquisitions outside the U.S.

All right, great. Thank you.

Our next question comes from Jeff Van Ree with Craig Hallam Capital Group.

Please go ahead.

Hey, this is Daniel on for Jeff Van Rie. In regards to the pricing increase for 3P customers, Chad, just the timetable of that, how, when you came to that conclusion, and particularly the degree to which that had already been anticipated in the guidance.

Thanks. So I'd say overall, I'll answer kind of strategically and Joe can comment on what was and was not contemplated in the guidance. So if you look at revenue recovery, if you go all the way back to, you know, we first entered this with SupplyPike. And SupplyPike was a 100% subscription business and gave us a broad retailer coverage and a lot in Walmart, but not much in Amazon. We thought there was an opportunity to quickly gain the world's two largest retailers in Amazon and Walmart by acquiring Carbon 6th. The carbon fixed revenue model was more of a take rate model where we just took a portion of what we recovered from customers. So we've always had these two revenue models, and we did have a belief that there were probably portions of the 100% take rate business then we might be able to convert over to a more predictable subscription model or kind of a hybrid model over time. So that's always been a part of our thesis. And so where we decided to start on that was with the very small 3P customers, and in particular those that, because they're small in revenue, you know, had some cost to serve question relative to the revenue that we were getting from them. So that's really how that all started. all came about, and I'll defer to Joe on how that was impacted in the guide.

Yeah, on the guidance, I think Chad briefly mentioned this earlier, it's kind of revenue neutral. We believe that there will be some churn, and these customers are, you know, pretty low value, but I think that will be offset by the customers that do accept the fee. And so I think from a guidance standpoint, you could pretty much assume like a net zero impact to revenue for the rest of the year.

Okay, that's helpful. And then just for you, Joe, as you're coming on board here, just if you could share some of your thoughts on the opportunity you see at SPS, the two you hear, and then any of your top priorities. I know you're early in the seat, but any of your top priorities as you see them stepping into the role?

Yeah, I think for me, the things I'm focused on are a couple of things. One, I'm ramping on the business as fast as I can in the industry. I want to make sure I have enough understanding to help drive the real strategic business decisions that we need to be making here at SPS. I think the second area is to keep driving the EBITDA that we've seen in this business. They've done a really good job historically driving EBITDA. Driving EBITDA, and I want to make sure we stay on that course. I mentioned this earlier. I think there's real opportunity on the AI front internally to drive leverage, and that'll be something I'll be laser focused on. So those are probably, you know, the two top priorities for me. I think at the highest level, to your point, like what are the opportunities? I think, you know, Chad has touched on this, that, you know, the network that we've built between the retailers and suppliers and our ability to use that data and that proprietary data that we have and apply AI against it is a huge opportunity. I know we're very early on the Mac side, but I think there's a lot of upside on where this business can go when you start introducing AI into the product set.

Thank you.

Thanks, Ed.

Our next question comes from Mark Chappell with Loop Capital Markets.

Please go ahead.

Hi, thanks for taking my question. Chad, question for you. There's a new chief commercial officer on board. He's been on board for a little over a quarter now. With the recent expansion of your product portfolio into revenue recovery and AI, maybe you could just talk a little bit about how the commercial team is kind of streamlining the cross motion just to ensure that these products are effectively adopted by your current client base.

Yeah, yeah, great question. You know, I would go back and say a lot of the go-to-market motion at SPS historically was focused on acquiring new customers. And as we've established the market-leading position that we have and moved a little bit further in the TAM, there certainly is an opportunity for new customers. You know, but we've been quite open that the larger driver of growth is for us to expand ARPU with our customers. First and foremost, expanding their total usage of the network. So the majority of these are fulfillment customers where there's still an opportunity to add more connections and features on fulfillment for them to use. And then secondarily, the cross-sell of revenue recovery and analytics. And as we move into the monetization of MAX, obviously the cross-selling aspect. So in response to that strategy, I would say both from a sales and marketing standpoint, we focus quite a bit on the engagement with customers and the relationships that we have there, looking after the full customer lifecycle and making investments there on customer treatment strategies. so that we can retain and grow our customers. And it's not to say there wasn't a track record of doing that, but I think there's just a new operational rigor that Eduardo, together with our new Chief Marketing Officer Maria, have brought to the organization around those muscles for expansion within existing customers, while simultaneously having a very strong motion, especially on the retail side, to continue to add new customers.

Thank you.

Again, if you have a question, please press star then 1.

Our next question comes from Nahal Chokshi with Northland Capital Markets. Please go ahead.

Is your line muted?

We're unable to hear you.

Yeah, thank you for that reminder. Thank you for the question. And good to see that the guidance implies on the back half of 26 that there will be an inflection of overall revenue growth rate. Now, given that the core business, or I guess excluding the Amazon 3P, is already growing high single digits, what is the driver for the inflection and the growth rate that is implicitly being projected here?

Yeah, so, Nihao, I think the right way to think about the dynamics of the business right now is we have an Amazon revenue recovery portion of the business where there is strong headwinds. That's, frankly, reflective of coming in at the lower end of our range this quarter and the reduction in guidance. driven by that effect. That effect is based on policy changes that Amazon has made, which have reduced the amount of revenue that we're able to recover on behalf of our customers there. Then think about the next portion of our businesses. All of our revenue recovery business, excluding the Amazon, so this is for all the other retailers, Walmart, Target, Lowe's, Home Depot, all of them, This is growing very nicely. We're seeing great cross-selling momentum in this part of the business. And this part of the revenue recovery is growing faster than the overall business. And that was consistent with our strategy when we entered the revenue recovery area. Then think of kind of our core business or kind of all of our business without revenue recovery. That is growing consistent with our expectations, and we're seeing some positivity in that some of the challenges we saw in 2025 with downsell and contract scrutiny are not at the same level in 2026, and our forward visibility on that is quite positive for the balance of 2026.

So as you think about those sort of three segments, are you basically saying the core business is inflecting up in growth because you're basically anniversarying this for me in 3Q26?

Yeah, that's a large effect of why that's there. We're sort of, yeah, lapping some of the negative effects we had in 2025. It appears that those are more one-time in nature for 2025 and That will lead to a reacceleration in the back half of 26.

And so if the business excluding the Amazon 3P is already at high single digits, does that then imply that it's going to influx further up beyond high single digits in 3P26? Yes.

Yeah, right now we're probably not getting into that. You know, outside of our guidance, I think that's what we're committed to. And to the extent that we, you know, throughout the year, you know, are getting ahead of that guidance, we'll update you. But right now I would say is that we would stick with the annual guide that we gave you and where the business will come in and then understanding where, you know, where the current business is outside of the Amazon revenue recovery. But, you know, if that changes throughout the year, we'll let you know.

Okay. Thank you.

At this time, there are no more questions.

And this concludes our question and answer session. Thank you for attending today's presentation. The conference is now concluded. You may now disconnect.