SPS Commerce (SPSC) Q2 2026 Earnings Call Transcript

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DATE

Thursday, July 30, 2026 at 4:30 p.m. ET

CALL PARTICIPANTS

• Investor Relations - Irmina Blaszczyk
• Chief Executive Officer - Chad Collins
• Executive Vice President and Chief Financial Officer - Joseph Del Preto

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TAKEAWAYS

• Revenue -- $198 million, representing a 6% increase due to upsell and cross-sell momentum within the core 1P supplier base.
• Core Business Growth -- High single digits, excluding the impact of the divested 3P revenue recovery business.
• Adjusted EBITDA -- $66.6 million, reflecting improved process efficiencies and the realization of previous scale investments.
• Recurring Revenue -- 6% growth year over year, driven by higher average revenue per customer.
• Divestiture Impact -- The sale of the 3P revenue recovery business resulted in a $23.5 million loss on sale in the second quarter.
• Divestiture Cash Proceeds -- $9.5 million in cash received at the closing of the 3P business sale on June 30, 2026.
• Recurring Revenue Customers -- Approximately 46,600 at quarter end, including the reduction of approximately 7,300 customers associated with the 3P divestiture.
• Average Revenue Per Customer (ARPU) -- $15,100, a figure that skewed higher due to the divestiture occurring on the final day of the period.
• Free Cash Flow -- $57.4 million for the quarter, supporting capital return initiatives.
• Trailing 12-Month Free Cash Flow -- $198.7 million, an increase of 40% year over year.
• Share Repurchases -- $51.2 million deployed to buy back stock, representing nearly 90% of quarterly free cash flow.
• Cash and Cash Equivalents -- $173 million as of June 30, 2026, providing liquidity for future AI and platform investments.
• Q3 2026 Revenue Guidance -- $196.3 million to $198.3 million, factoring in a revenue reduction from the 3P divestiture.
• Q3 2026 Adjusted EBITDA Guidance -- $67.4 million to $69.4 million, with the divestiture expected to be neutral to EBITDA in the second half.
• Full-Year 2026 Revenue Guidance -- $788 million to $793.4 million, representing approximately 5% growth over 2025.
• Full-Year 2026 Adjusted EBITDA Guidance -- $265 million to $269.1 million, reflecting a 34% margin at the midpoint.
• Adjusted EBITDA Margin Expansion -- 300 basis points of growth expected for the full year compared to 2025.
• AI Efficiency ROI -- Branch Furniture achieved 90% weekly time savings in managing overdue orders using the MAX AI agent.
• Automated Deduction Recovery -- Chosen Foods recovered approximately 30% of outstanding deductions from major retailers through automated dispute management.
• MAX AI Anomaly Detection -- The platform flagged a $290,000 invoice failure caused by an incorrect UPC code during its beta phase.
• Revenue Recovery Performance -- Owlet recovered $1.4 million within six months, including a 100% recovery rate on a recent $423,000 settlement.
• Full-Year Amortization Expense -- Approximately $35.6 million, with depreciation expense expected to be $23.4 million.
• Second-Half Revenue Headwind -- A reduction of approximately $10.5 million to revenue in the second half of 2026 due to the 3P business sale.

SUMMARY

SPS Commerce (NASDAQ:SPSC) management reported second-quarter revenue of $198 million, representing 6% growth driven by high single-digit expansion in the core 1P supplier business. The company completed the divestiture of its 3P revenue recovery business to focus on multiretailer wholesale relationships and the deployment of its MAX AI agent. Management noted that the sale resulted in a $23.5 million loss but is expected to be neutral to adjusted EBITDA in the second half of the year. The company is transitioning its AI capabilities from beta to general availability, focusing on automating onboarding and supply chain anomaly detection to drive ARPU expansion. Guidance for the full year 2026 was adjusted to reflect the divestiture while projecting a 300-basis-point increase in adjusted EBITDA margins.

• CEO Collins stated that the SPS network has become a "massive, interconnected retail ecosystem" connecting 3,500 buying organizations over 25 years of development.
• The company completed its first "fully Agentic onboarding," utilizing AI to reduce account provisioning and pre-sale contacts from days to minutes.
• Management reported that 100% of surveyed customers indicated that "without the SPS network, they would need more headcount, more tools, and more time" to operate at their current scale.
• CFO Del Preto noted that the divestiture of 7,300 customers on the final day of the quarter caused ARPU to "skew higher" to $15,100 because the calculation used the average of beginning and ending customer counts.
• Collins indicated that the 3P business was divested due to a lack of "overlap with the other parts of our portfolio" and changes in Amazon's policy that favored a 1P focus.
• The analytics business launched on a new platform designed to support growing data volumes and future AI-predictive capabilities.
• Management identified that users of the MAX chat interface are "more likely to explore advanced MAX features," providing a clear path for future AI monetization.

INDUSTRY GLOSSARY

• 1P (First-Party): Suppliers who sell products directly to retailers as wholesalers, often managing complex multiretailer relationships.
• 3P (Third-Party): Sellers who sell products directly to consumers on a marketplace, such as Amazon, rather than through a wholesale model.
• MAX: An AI agent built into the SPS platform that diagnoses supply chain issues and automates compliance actions.
• Agentic technology: Software systems that use AI to act autonomously or semi-autonomously to complete specific business workflows like onboarding.
• Fulfillment solution: A cloud-based service that automates order processing and ensures compliance with retailer-specific digital data exchange protocols.
• Revenue Recovery: A service that identifies and disputes financial deductions or fines levied by retailers against suppliers.
• Retail Enablement Programs: Campaigns run by retailers to onboard their supplier base onto a standardized digital trading network.

Full Conference Call Transcript

Operator: Good day, and welcome to the SPS Commerce second-quarter 2026 earnings conference call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. I would now like to turn the conference over to Irmina Blaszczyk, Investor Relations for SPS Commerce. Please go ahead.

Irmina Blaszczyk: Good afternoon, everyone. And thank you for joining us on SPS Commerce second-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 the call, and we undertake no obligation to publicly update and 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 risks 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.

And with that, I will turn the call over to Chad.

Chad Collins: Thanks, Irmina, and good afternoon, everyone. Thank you for joining us today. At SPS Commerce, our foundation has always been our cloud-based supply chain network. Today, our network stands as a massive, interconnected retail ecosystem of tens of thousands of suppliers and 3,500 buying organizations. Including all the major retailers and distributors in North America. We work with more than 2,000 logistics providers and over 400 technology partners. Which enables us to integrate our network with all of our customer supply chain and business systems. We are protocol agnostic and enable fulfillment models and channels with grade-A security certifications. That foundation makes everything that follows possible and represents our AI use case on our network.

The SPS Commerce network took over 25 years to get to where it is today. Through its network and scale, we are building partnerships, supporting evolving supply chains, helping our customers grow. Having recently divested the 3P revenue recovery business, we have sharpened our focus on strategic relationships with 1P suppliers who operate multi-retailer trading relationships and benefit from our intelligent supply chain and portfolio solutions. As the network expands, we continue to capture proprietary intelligence from trading partner activity. Transaction patterns, digital specifications, and compliance rules. Strengthening the supply chain rules engine that powers MAX, SPS's AI agent.

By leveraging SPS's network intelligence, within everyday workflows, Max enables customers to interact with their supply chains in a more intuitive, proactive, and connected way. Users can instantly compare business requirements and business performance between major retailers like Target and Costco. With proactive monitoring, Max serves as a 24/7 extension of a customer's team, detecting anomalies and flagging critical business errors. Max puts the expertise of the SPS network at the customer's fingertips, to instantly diagnose business issues and determine actionable solutions. Shortening the time it takes to address risks in trading partner relationships. For example, Branch Furniture is a fast-growing wholesale brand selling to major retailers like Williams-Sonoma, Lumens, and Office Depot.

They rely on SPS Commerce to manage order flows across multiple channels and have already experienced significant efficiencies using MAX to resolve order issues in minutes as opposed to days. For 1 of their key retail partners, Max helped achieve 90% weekly time savings in managing overdue orders. Other customers have recognized tangible results since MAX's beta-phase launch. Max successfully caught a $290,000 invoice failure due to an incorrect UPC code. It identified 100 stalled dropship orders for an outdoor brand. It flagged $70,000 in unacknowledged purchase orders for a food manufacturer. Delivering this immediate ROI, MAX is quickly becoming the default starting point for customers inside the SPS user interface.

They trust Max's proprietary supply chain expertise, and they are increasingly allowing it to take automated actions on their behalf. Continually improving operational efficiencies with their trading partners. By pairing SPS' network intelligence with our Agentic capabilities, we completed our first AI-powered customer onboarding, including pre-sale contacts and account provisioning. We are working toward a future where Agentic technology can engage a new customer immediately after a deal closes with more of the onboarding processes shifting to AI as we continue to reduce the time it takes for customers to transact with their trading partners.

Agent-assisted customer functions and onboarding as well as the agentification of our internal operations, are the 2 pillars in our agent strategy already in motion at SPS. We are also exploring new AI-powered use cases and products, which we believe will drive ARPU expansion and increase the size of our addressable market. The initial launch of Max to all SPS Fulfillment customers is expected by the end of the summer. And we plan to launch additional products at scale later this year.

1 of the key learnings from our beta program is that users of MAX through the chat interface are more likely to explore advanced MAX features and we expect this usage trend will define the path to monetization of our AI solutions. We are excited about these AI capabilities and the immense value they will bring to our network. And so are our customers. In a recent study of SPS customers, we quantified and validated the value and impact SPS delivers to their business. 83% of customers said that the data in the SPS network improved their AI readiness. 87% cited improved scalability.

And 100% of the surveyed customers said that without the SPS network, they would need more headcount, more tools, and more time, or in some cases, simply could not operate at the scale they do today. They see SPS as a strategic partner in navigating increasing supply chain complexity, while they expand their business and trading network. Chosen Foods, a premier food and beverage company, best known as America's No. 1 avocado oil brand, needed a supply chain that could keep pace with growth across their US and Canadian operations. Over their decade-long relationship with SPS Commerce, they have scaled from 1 trading partner to dozens of customers, multiple 3PLs, and a growing supplier network.

To prepare for their next phase of growth, Chosen Foods migrated to a new ERP and trusted SPS to manage the transition. Through a fully integrated Acumatica deployment, SPS Commerce delivered a unified approach across their order-to-cash, procure-to-pay, and revenue recovery workflows ahead of schedule and with zero operational downtime. Crucially, with growing deduction complexities across major retailers like Walmart, Amazon, and Target, SPS's automated dispute management successfully recovered approximately 30% of outstanding deductions. Which represents hundreds of thousands of dollars while helping Chosen Foods identify why these deductions occurred and how to prevent them.

Other customers realizing real ROI from SPS Revenue Recovery include Owlet, a leader in infant health technology, which recovered $1.4 million within 6 months of using the solution, including 100% recovery on a recent settlement totaling $423,000. Serta Simmons Bedding, one of North America's largest bedding manufacturers, recovered $200,000 by successfully challenging a post audit with a large retailer. Turning to our analytics business. SPS's new analytics solution is now running on a new, enhanced platform that delivers significant gains in both power and scale. This new platform brings an improved user experience, while enabling faster time to insight so customers can move seamlessly from data to decisions.

It expands what is possible for customers supporting growing data volumes, broader use cases, and future AI-predictive capabilities. With these platform enhancements, our analytics solution helps customers protect revenue, margin, and shelf space by catching risks early while uncovering new growth opportunities across products, customers, markets, and distribution. It also gives teams the agility and efficiency to act sooner, align inventory, forecasting, and planning while strengthening retailer relationships with a single view of performance. RuffleButts, a children's clothing company based in Texas, is leveraging the platform to gain significantly better sell-through visibility into 1 of the nation's largest retailers. Capturing critical insights from data across more than 400 retail locations and the retailer's e-commerce channel.

To sustain this momentum, automated data feeds and scheduled reporting will drive ongoing day-to-day analysis. Early feedback from RuffleButts on the platform's granular product and location insights has been highly positive prompting this supplier to consider adding another major retailer to their reporting. In summary, SPS' customer success stories demonstrate that navigating today's increasingly complex supply chain requires an intelligent network. As businesses continue to expand across technology platforms, and connect with new trading partners, they view SPS Commerce as a vital partner for scaling their operations and improving AI readiness.

No other company can match the unique combination of AI capabilities, 25 years of proprietary data, deep domain expertise, and an expansive network access to drive this kind of tangible value and collaboration that SPS offers today. With that, I will turn it over to Joe to discuss our financials.

Joseph Del Preto: Thank you, Chad, and welcome, everyone.

Joseph Del Preto: We reported a strong second quarter of 2026. SPS Commerce's core business, excluding the divested 3P revenue recovery business, grew in the high single digits. Driven by the acceleration of 1P customer ARPU growth resulting from continued upsell and cross-sell momentum. On June 30, we announced the sale of the 3P revenue recovery business. We believe this divestiture sharpens our focus on the strategic opportunity with 1P suppliers, who operate multi-retailer trading relationships, and are positioned to benefit from our intelligent supply chain network and purchase additional solutions like fulfillment, revenue recovery, and analytics.

SPS Commerce received a cash payment of $9.5 million at closing, and we incurred a loss on sale of $23.5 million in Q2 2026 in connection with the transaction. Now let's review our Q2 results. Revenue was $198 million, a 6% increase over Q2 of last year. Recurring revenue grew 6% year-over-year. As a result of the sale of the 3P revenue recovery business, and its approximately 7,300 customers, the total number of recurring revenue customers in Q2 was approximately 46,600 and an average revenue per customer of $15,100. In Q2, ARPU skewed higher due to the divestiture's impact on our ARPU calculation. Which used an average of beginning and end of quarter customer counts.

Because the quarter-end divestiture significantly reduced our final customer count, Q2 ARPU reflects full period revenue divided by a lower customer base. Adjusted EBITDA increased to $66.6 million highlighting the health of our business as we scale. Strong operational execution, the realization of past investments and benefits of improving process efficiencies. Turning to liquidity and cash flow. We ended the quarter with total cash and cash equivalents of $173 million. Free cash flow for the quarter was $57.4 million bringing our trailing 12-month free cash flow to $198.7 million up 40% year-over-year. In Q2 2026, we deployed nearly 90% of free cash flow to repurchase $51.2 million of SPS shares. Now turning to guidance.

As a reminder, as a result of the divestiture of the 3P revenue recovery business, on June 30, 2026, guidance factors in a reduction of approximately $10.5 million to revenue in the second half of 2026. The divestiture is expected to be neutral to adjusted EBITDA in the second half of 2026. For the third quarter of 2026, expect revenue to be in the range of $196.3 million to $198.3 million. We expect adjusted EBITDA to be in the range of $67.4 million to $69.4 million. We expect fully diluted earnings per share to be in the range of $0.72 to $0.76 with fully diluted weighted-average shares outstanding of approximately 36.8 million.

We expect non-GAAP diluted income per share to be in the range of $1.20 to $1.23, with stock-based compensation expense of approximately $16.4 million, depreciation expense of approximately $5.4 million, and amortization expense of approximately $8.5 million. For the full-year 2026, we expect revenue to be in the range of $788 million to $793.4 million, representing approximately 5% growth over 2025 at the midpoint of the guided range. Excluding the impact of the divested business, we expect our core business revenue to grow high single digits.

We expect adjusted EBITDA to be in the range of $265 million to $269.1 million, reflecting adjusted EBITDA margin of 34% at the midpoint, an increase of approximately 300 basis points compared to full-year 2025. We expect fully diluted earnings per share to be in the range of $2.24 to $2.33 with fully diluted weighted-average shares outstanding of approximately 36.9 million shares. We expect non-GAAP diluted income per share to be in the range of $4.84 to $4.93, with stock-based compensation expense of approximately $69.8 million, depreciation expense of approximately $23.4 million and amortization expense for the year of approximately $35.6 million.

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. In summary, SPS' strong second quarter performance reflects the strength of our core business driven by upsell and cross-sell momentum. We continue to demonstrate operational rigor, exceeding our margin expansion goals while simultaneously rolling out our AI strategy across our network. With that, I would like to open the call to questions.

Operator: Thank you. And ladies and gentlemen, we will now begin the question-and-answer session. 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 *2. First question today will come from Scott Berg with Needham. Please go ahead.

Scott Berg: Hi, Chad. Hi, Joe. Nice quarter here. Got a couple of questions. Chad, first of all, I want to talk about the divestiture of the third-party revenue recovery business. You have been pretty positive on the long-term outlook for revenue recovery in general. And I know that part has been a little bit of a thorn in your side, but why divest it? Why divest it now? Or, obviously, a month ago, Just help us understand the thought process to move on from that side.

Chad Collins: Yeah, Scott. So, overall, we remain very confident in revenue recovery We are seeing the cross-selling to our fulfillment customers. Be good and also seeing new business come in as this is kind of a new emerging category of SaaS solutions. Where more of that positivity was, though, is on the 1P supplier side. So those that are selling primarily wholesale to multiple retailers, Amazon being one of those. But the 1P suppliers really can use our whole portfolio revenue solutions across multiple retailers whereas the 3P business was, those were more Amazon sellers. There did not turn out to be a lot of overlap with the other parts of our portfolio for those customers.

Think that combined with the take rate revenue model and some of the policy changes in 3P we saw from Amazon all clearly pointed out that the 1P side of this business is much more attractive for us and has much more overlap with our ideal customer profile than the 3P side does.

Scott Berg: Got it. Helpful. And then Joe, yeah, I think we kind of probably understand the number of customers that are leaving the platform. Know, with the divestiture. ARPU seems to be moving around. But, yeah, I guess, a couple of questions on the ARPU side is, 1, are you calculating it any differently than how the company has before? And I only ask is, you took a bunch of revenue in the quarter, but obviously lower customer accounts exiting the quarter. And then I guess, secondly, in conjunction with that, how do we think about the impact going into Q3 because of the revenue step down?

Joseph Del Preto: Yeah. So we did not calculate it any differently. And I think, you know, because we kept the calculation consistent, it kind of skewed in the quarter. And the reason for that was if you think about the way the calculation works, Scott, it is the average customer count in the beginning and the ending of the period. And so we had those 7,300 3P customers in the beginning customer count, but they were not in the ending customer count. And then that is compared against the revenue in the quarter and the, you know, the full 3P revenue was in the quarter. But not the ending customer count.

And so because of that, the ARPU overall skewed higher than it normally would have. And so that is just you know, it is more of the impact in the quarter going forward. If you think about it, we will just have, you know, 1P customers in the beginning and end of the period. And so it will be a little bit more consistent going forward than it has been in than it was in Q2.

Scott Berg: Awesome. And if I may, a quick third question here. Sorry. Out of that again, Joe, can you quantify what the third-party revenue recovery revenues were in the second half of 2025? I know you said the business is going to grow high single digits here the rest of the year, kind of excluding that. But any further kind of modification of that number, I think, would be helpful. Thank you.

Joseph Del Preto: Yeah, Scott. So the only other color we are providing on the 3P business outside of the fact that, to your point, that outside of the divested business, then we would be growing high single digits. I think the other thing that color on the full year is we pulled out the $10.5 million in the second half of the year. And you can assume the first half of this year was slightly lower than that, you can kind of get a full run rate of the business for 2026. Thank you.

Operator: And our next question will come from Dylan Tyler Becker with William Blair. Please go ahead.

Jackson Bogli: Hey, guys. This is Jackson Bogli on for Dylan. Maybe sticking on the revenue recovery side, now that the focus is solely on the 1P side of that business, how are you thinking about the level of resources and investment dedicated to that business going forward? Like, is that-- is there more resources being redeployed toward fulfillment and analytics, or does the retained 1P opportunity still warrant the incremental investment from here?

Chad Collins: Yeah. So, Jackson, the 1P business, I would say is nearing consistency with our overall margin profiles. And the business overall. It was not that way right out of the gate with the divestiture, with the acquisition of SupplyPike and Carbon6. But as that has gotten more integrated into our overall business, it is more approaching our overall margin, profile. So I would not say it is an area of our business that is sort of receiving, you know, oversized investment at this point in time. And I think the divestiture of the 3P side of that business really helps us.

I mean, because there is quite a bit of good customer overlap, product portfolio overlap on the network with the 1P side. And definitely, you know, think that revenue recovery business is definitely in line with the margin profile of our overall business.

Jackson Bogli: Got it. Super helpful. And then maybe as a follow-up, with ERP migration still creating a little bit of timing noise, I mean, I would just be curious to get your thoughts if you guys are seeing any change in like, onboarding duration. I know you guys talked about the AI-enabled customer onboarding. So is that changing anything with, like, the customer readiness or attach rates once those projects are complete? Or maybe are there areas where migration delays are building like, pent-up expansion demand that could release once, once these go-lives? Thanks.

Chad Collins: Yeah. So we are super excited about the progress around Agentic onboarding. We did have in the prepared remarks that we did the first fully Agentic onboarding. Now, keep in mind, that is with the more kind of simple onboarding, that we have. You know, that is really taking things that would have been previously done in days, getting down to minutes. With the more complex onboarding, which is really where we have all the ERP integrations, we do expect that we will continue to make great progress there.

You know, we have been making progress there over the last couple years, speeding that up. that is led to a better customer experience. it is also helped us on the gross margin. And as that was really done all before this Agentic capability was applied. So we do expect to speed up those more complex ERP onboarding as well. there is just still a little bit more work to do there. Once we have that in place, that time to transact on the network can be a barrier for, adopting the SPS network. So we think any efficiencies we gain there will help with customers and speed up that access to the network.

I would not necessarily say that there is substantial pent-up demand just kind of waiting for this. Admittedly, the ERP market has been a little bit slower in 2025 and so far this year, especially at that kind of medium to large end of that market. But I do think our speed of onboarding with ERP onboarding, is gonna be a massive differentiator for us and really speed up customer time to value.

Operator: And our next question will come from Christopher Quintero with Morgan Stanley. Please go ahead.

Christopher Quintero: Hey, Chad. Hey, Joe. Thanks for taking the questions, and congrats on the nice execution here. I want to hear your thoughts on maybe the macro environment and kind of what you are hearing from your customers. You know, we are hearing about, higher fuel costs, higher freight costs, the K-shaped economy. So just curious kind of what you are hearing and seeing high level from your customers from a macro perspective.

Chad Collins: Yeah, Christopher. I mean, I would say, no substantial headwinds we are hearing from our customers relative to the macro. We were coming off a tougher 2025, especially on the supplier side of our network where they did cite some headwinds. Related to tariffs and that did cause some contract rightsizing last year. We anticipated that would dissipate this year as we kind of did get those contracts rightsized, and they were one-time, and that is playing out as we had expected. And so I would say, you know, no overwhelming headwind, in the macro.

Of course, things like the fuel prices and still a little bit of looming tariff uncertainty things that we continue to monitor, but those things are not coming up in our engagement with customers right now.

Christopher Quintero: Got it. And then maybe, Joe, for you, on the 1P customer counts, if I have my math right, it seems like that went down or down around 200 quarter over quarter. Is that right? And if so, curious what you are seeing on the you know? Community enablement side of things and new customer adds.

Joseph Del Preto: Yeah. No. that is your calculation there is right. We were down a little over 200 sequentially on customer count. The driver of that was really just the timing effect of some of the retail enablement programs. Keep in mind, you know, those customers that are typically, churning or adding are primarily affecting that customer count tend to be the real low ARPU customers. that is why we are able to still deliver the financial results, even having that customer count there.

The overall pipeline for an enablement activity right now is strong. there is programs that we are running now that will contribute in the second half plus the remaining pipeline that is to be closed in the second half. Looks positive. That said, I would expect for the year, we are kind of flat to slightly positive on customer count. But I do expect some of that momentum from the second half enablement programs will carry into early 2027.

Christopher Quintero: Excellent. Thank you so much.

Operator: And our next question will come from George Kurosawa with Citi. Please go ahead.

George Kurosawa: Okay, great. Thanks for taking the questions here. Maybe if I could just ask about the MAX beta. You had some interesting anecdotes of customers saving, in some cases, sounds like hundreds of thousands of dollars. I think you have done some work on market sizing. Maybe you could just share updated thoughts there on how you are thinking about a potential uplift, maybe in a best-case scenario or for a median customer? And then how that maybe has evolved your overall thinking on packaging and pricing as the product portfolio continues to expand?

Chad Collins: Yeah. Absolutely. So, yeah, as you noted and was in the script, seeing customers really identify different supply chain anomalies and disruptions using Max, which today is through the chat feature. that is what they have access to in the beta. And using that chat feature, they are able to get to some of those, those problems in the supply chain, get them resolved, and that is resulting in hard ROI savings for them. What we have seen through the good adoption of chat here is that a lot of the things that customers are doing via chat would be possible to automate with an agent.

So today, you know, it may take them 20 prompts in the chat to get to the right answer. We are seeing that is something that actually could be automatic, automatically detect, and potentially, in some cases, automatically resolve. Which is, which is great because we are developing those types of agents on top of this max technology now, and we believe that those agents that can do things more autonomously in terms of identifying these anomalies in many cases, resolving them, not only finds the kinda hard ROI and the supply chain savings, but also is gonna be a very favorable kind of headcount and efficiency impact for our customers.

So what we are in the process of now is converting the chat piece from the beta into a general availability. All newly deployed customers as of the last month have been onboarded with Max, included. And over the course of the next several weeks here, kind of through the summer, we will be making it available to all our other fulfillment customers. And we will be doing that as part of their standard subscription. But what we believe the major monetization activity will be is when we deliver those agents on top that are more autonomous and self-acting, that customers will be willing to pay for that. And that is really where the monetization would come in.

And the way that would work is there would be certain tiering or bundling of the packaging of those autonomous agents running on top, and then we would monetize the customers through subscriptions to those bundles. But what I would say is gives us high confidence in this approach is we are already seeing customers using MAX Chat to get to these benefits in their supply chain and the things that they are finding and doing. We have high confidence we will be able to automate with the Agentic architecture over the top.

George Kurosawa: Okay. that is great color. And then one for Joe, if I may. Just looking at the change in guidance for the second half, it looks like from what we can tell, the on the revenue side, it looks like, basically, the Q2 beat flowed through excluding the divestiture impact. On the EBITDA side, looks like the full beat was not flowed through. So wonder if you could just maybe comment if there is any incremental spending, expense timing, conservatism, anything we should keep in mind on the EBITDA line?

Joseph Del Preto: Yeah for sure. I think on the EBITDA side, I think there is a couple of things to contemplate. 1, there was some movement of some of the expenses that moved out of Q2 into Q3 and Q4. So that was some of it. I think the other piece is we want to make sure we are being very prudent with the way we are approaching our internal AI cost.

As we are building out this stuff for Max, as we are building out our internal agents, on the things we are doing internally, we want to make sure we give ourselves enough room to make those investments and make sure that, you know, we have got enough flexibility in the cost structure And so that is the other part of that and why we did not flow all that through the year.

George Kurosawa: Okay. Makes sense. Thanks for taking the question.

Operator: And our next question will come from Parker Lane with Stifel. Please go ahead.

Parker Lane: Yes. Good afternoon. Thanks for taking the questions here. Chad, you talked about some of the advances you are making on the analytics side of the house. It sounds like there is a new enhanced platform there. So it is good to see that. I think that the revenue side, it was up maybe a percent in the first half of the year. Can you just talk about what you are seeing from a demand perspective around that? I know you had mentioned that historically, it is been seen as maybe more discretionary, and that was an impact to that business last year. But looking to the second half of the year, what are your expectations around analytics?

Chad Collins: Yeah. So we are really excited about this new technology revamp. I mean, I do think it will help us on the sales side, some of the previous technology had gotten a little stale, a little dated. Our feedback from customers who are up and running on this new, capability is 1, you know, just the look and feel and ability to use the system and the prebuilt capabilities are much stronger than they were Plus, there is more tooling for customers to kinda do more on their own.

And then probably the most important thing in all this is it really changes the underlying data architecture of that which now sets it up for many more AI features that we will be able to add to that over time. So we are optimistic about that outlook for the analytics business. I think the fact that it is a little bit more discretionary is true still, but I think with this replatforming, not only will we be in a maybe a little bit stronger competitive position, but we should also be in a position then to add more AI features, which I believe will be, we will be able to monetize over time.

Parker Lane: Got it. And we are, we are coming up on two years of the entry into the first party revenue recovery. Space with the SupplyPike deal? I think at the time, was about 3 customers that overlapped with SPS. How have you, how have attach rates or adoption rates trended at the two-year mark relative to back then? And what are some of the learnings you guys have had on the go-to-market front on how to effectively cross-sell both into the historical SupplyPike base and back into SPS' base.

Chad Collins: Yeah. Absolutely. So we have had success in both directions, selling fulfillment to SupplyPike customers. Obviously, that is not as big a population. So it is been a little bit less impactful. But the big win has been selling the SupplyPike and really now the Amazon 1 p that came out of Carbon6, to the fulfillment customers. And, you know, we have kinda hardened that muscle, I would say, cross-selling in the organization. We have done some things organizationally, to have that work a little better. We have done some things with the sales team's incentives. And what I think is really powerful in all this is just the signals we get from the network.

So the network actually tells us based on trading volumes and trading partner relationships who are the most likely candidates. In fulfillment for revenue recovery. And using that data, we are able to specifically go and target those customers, in some cases, to them with an estimate even just based on our network data on what the potential is for them to recover. And I think this is this is critical for us going forward.

I mean, we have been clear that we expect to drive higher proportion of our growth on the ARPU of course, there is a big opportunity, for more connections for fulfillment customers, but cross-selling our analytics and revenue recovery solutions to those fulfillment customers is key to that ARPU growth as well.

Parker Lane: Great. Thanks, Chad.

Operator: And our next question will come from Matthew Van Vliet with Cantor. Please go ahead.

Matthew VanVliet: Hey. Good afternoon. Thanks for taking the question. I guess, following up on some of your comments, Chad, about the MAX monetization. I guess curious on what you are kind of baking in terms of the cycle for existing customers. And then when do you plan to have some of these bundles in place in. You know, I guess, stage, but what do you expect the uplift if existing customers plan to adopt you know, whether it is a middle or high-tier, what kind of uplift can they get on an annual basis?

Chad Collins: Yeah. Yeah. Great question. So in terms of the adoption, I mean, if we are to judge it based on the max Chat adoption, I believe we will have real strong agent adoption because we are already seeing customers sort of if they are onboarded with MAX Chat, it is quickly becoming the main interface point that they use when using any of our applications. They are just starting in MAX Chat. And, you know, through that, then I believe that as some of the things that they are doing in MAX Chat, we are able to automate with agents?

There will be strong interest in having that all be automated so they do not even need to interact that much with chat interface. They still can, but some of the things that are happening on a daily basis or weekly basis will just get automated with the agents. In terms of the timing of all that, we expect that we will be in a position to be selling agents kind of by late Q4 of this year. Now obviously, that will take some time to flow through to revenue, but we do think we will be in a position where we are actually monetizing this agent architecture still here this year.

Now, the degree to which we are able to do uplift on ARPU, that is some of the details that we are working through right now. I do think the first set of agents that we put out are gonna be probably more addressable for the more highly complex customers with more trading relationships. And over time, we are able to bring that back down to more of our medium and small customers over time. Alright.

Matthew VanVliet: Helpful. And then, Joe, you mentioned on some of the cost structure where it sounded like internal AI use maybe just help us with the timeline for when internally you were really pushing that aggressively. For a good portion of the employee base. Just to get a sense for sort of when we might lap that. And when growth, could provide some operating leverage in the model, whether it is you know, later this year, into next year, beyond that?

Joseph Del Preto: What I would say there, Matthew, is a lot of the leverage we are seeing out of the business right now is not based on some of the AI internal use cases that we are starting to talk about. I think a lot of the efficiency you have seen in this business have really been driven by economies of scale, just being more operationally efficient over the last 12 months. People looking internally and making sure we are optimizing each of our processes. So feel really good about how we somewhat structurally changed this business going forward without using AI.

And if I think of the go-forward and some of the things we have talked about the onboarding process, on the go-to-market side, we believe that those will all be additive to some of the things we have already been able to accomplish without the internal use of AI. So we feel good about the trajectory of the of the margin going forward, not only this year, but going into next year. And as we exit this year, Matthew will have a little bit more color on how we think that, you know, probably impacts more of the longer term focus of the business.

Matthew VanVliet: Alright. Great. Thank you.

Operator: And our next question will come from Mark Schappel with Loop Capital. Please go ahead.

Mark William Schappel: Thank you for taking my question. Chad, you have had a new Chief Commercial Officer on board now for a couple of quarters. Wondering if you could just talk a little bit about maybe some of the changes that have been made or adjustments that have been made to the sales structure, maybe like, customer segmentation or just even the coverage model for that matter?

Chad Collins: Yeah. I would say we did evolve certain things in the go-to-market. They were kind of in conjunction--it happened to be in conjunction with Eduardo's arrival, but I think he is all in line with that. You know, some of the things I mentioned earlier around driving a little bit more focus on cross-sell and aligning that as part of our incentive structure. We have also done some things to segment the sales force a little bit more between new and existing customers. That has worked effectively, especially on the on the retail side.

And, you know, the other thing I would say is, you know, Eduardo and his team on our customer success are also responsible for all the customer onboarding activity and, that is an area where we have seen quite a bit of success. And are continuing to drive more success as we automate that onboarding process. So very pleased with the way that Eduardo's come in. He has brought some new ideas to the organization, having worked at some previous very scaled software businesses, and just helping us overall mature our capabilities around go-to-market And I will add too. Part of that is marketing. We brought in a new chief marketing officer.

She's really helped us on some of the demand generation things. I mean, the company's been kind of in a luxury position to, you know, pretty much solely rely on these retail enablement programs as a source for new customers. We believe that there over time will be an opportunity to drive more new customers through more traditional digital marketing capabilities. And that is something that Maria has brought into our organization. So the combination is working quite well. Thank you.

Operator: And our next question will come from Jeff Van Rhee with Craig Hallum. Please go ahead.

Jeff Van Rhee: Hey, this is Daniel on for Jeff Van Rhee. On the beat this quarter, the last few quarters have been a little bit more in line. Congrats on this quarter, real nice beat on the top and the bottom. Just what played out in the quarter that drove the more than expected strength here in Q2?

Joseph Del Preto: Yeah. I think a couple of things. 1, we talked about coming out of Q1. We are not, you know, we are not seeing the same amount of pressure especially on the down sell and growth retention that we saw throughout 2025. So GRR continues to be a real strength of ours. That continues to grow year-over-year and feel really good about the progress we are making on that front. And then we start to see more momentum within our existing customer base and adding new trading partners. I think we have talked about the land and expand model. Continues to be a big driver of our growth overall.

And so I think the combination of our ability to expand training partners within our existing customer base and then, you know, the positive momentum on the GRR side with were the two big drivers on the revenue overperformance.

Jeff Van Rhee: Okay. And then on the customer count, obviously, that is skewed by the 3P customers exiting the account. But in terms of just the 1P count being down 52 sequentially, just thoughts on that? Any updated thinking on expectations for customer growth? Any that changed there? Thanks.

Joseph Del Preto: Yeah. That was just really due to some timing of the retail enablement programs and how they contributed to customer count in the quarter. I would say overall, the retail programs that are up and running and those are in the pipeline that we have high confidence in for the second half, That all looks pretty positive. So I would expect the second half to contribute sort of a positive customer count. But kind of coming in on the year, probably kinda flat to slightly positive on the customer count.

Daniel: Okay. Thanks, Chad. Thanks, Joe.

Operator: And our next question will come from Lachlan Brown with Rothschild & Co. Please go ahead.

Lachlan Brown: Hi, Chad, Joe. Thanks for the questions. With your max beta customers, just walk us through your confidence in being able to convert them, when you made max generally available at the end of the summer? Could you talk us through the go-to-market playbook that is in place to transition these accounts at launch? And, yeah, I guess any feedback from preliminary customer discussions would be helpful. Thanks.

Chad Collins: Yeah. So let me start with the preliminary customer discussions. In this beta, we have been very engaged customers. I think you can see from some of the detailed examples that we shared in the prepared remarks, we are really engaged with customers, understanding the ROI that they are getting out of out of Max. And I would say, you know, this is 1 of the nice things about having a tool like this. I mean, we see all of their interactions They are able to score their interactions. We have a separate agent that on top of their scoring goes in and scores the interaction.

So we really can narrow in and see where customers are getting value out of the MAX Chat capability. In terms of kind of then upselling them from MAX Chat, which we are using kind of as a gateway into our overall Max architecture, you know, we are gonna target those probably larger, more complex customers that have high usage of MAX Chat. And, and utilize work with them, to convert some of the things they are doing with MAX Chat into autonomous agents that will just take care of those things, automatically for them.

And we think between the ROI that they are driving out of their supply chain, and the efficiencies they get then from converting over from chat into an agent and, an autonomous agent. That gives us pretty high conviction from customers to move over to the more Agentic approach, which will be monetizable.

Lachlan Brown: Thanks. And looking at the implied Q4 revenue from the outlook, it suggests a nice step up from Q3. Could you just help us unpack the main building blocks behind that acceleration? For example, are there any specific enablement campaigns scheduled for later in the year that gives you that visibility?

Joseph Del Preto: Yeah. I just walked through a couple of things. I know Chad talked about a little bit more on the enablement campaigns. I think a couple of things are going on in the business. 1, I just talked about it a little bit earlier. The momentum we are seeing on the GRR side, so we continue to see improvements across our customer base. And so we are in a much better position, I think, going into Q4 and the momentum we are seeing there than we were a year ago. So I think that is a that is the other big driver. And then the second thing is you know, on the enablement side.

We are seeing more of these campaigns come through. We are seeing momentum in the back half of the business. We have a really strong pipeline. And so we believe there is gonna be a solid number of these customers that land in Q4 that is really kind of driving that revenue in the quarter.

Chad Collins: Yeah. I mean, I would just add, you know, although we do see we see some positivity there, you know, kind of the big drivers in our revenue performance to finish out the year here are gonna be more probably driven by the strong GRR that Joe mentioned and the ARPU expansion. We do expect to be positive on the customer count, but the customer count that we drive through these retail programs certainly, while important, we wanna get customers. We wanna further penetrate that TAM. Those tend to be very low ARPU customers when they come in the door. So they are meaningful over the long-term, but not as meaningful in the short term to drive revenue.

Lachlan Brown: that is clear. And congrats on the quarter, guys.

Joseph Del Preto: Thank you. Thanks, Lachlan.

Operator: And our next question will come from Nehal Chokshi with Northland Capital Markets. Please go ahead. Pardon me. Your line is open.

Nehal Chokshi: Sorry about that. Thank you. Congrats on a good quarter. And congrats on the implicit acceleration in the business as well, that the implicit acceleration in the business in the back half, especially in the 4Q here. And sounds like it is going to be driven by the improving GRR that you are seeing. Is that-- is the driver of improving GRR max or is it something else?

Chad Collins: Yeah. I would say it is a combination of, things. I do think a little bit is macro. We did see some headwinds last year in our customer base that drove them to kind of right-size contracts. We are not seeing that this year. The other factor is, I believe, you know, we have made some improvements in our customer treatment strategy. I mentioned that both on onboarding and also the way that we have organized the sales force. To give a little more attention, I would say, to existing customers.

And I think the new innovation that, our customers are seeing us with Max, with adding revenue recovery to the product portfolio, with investing in our analytics product, I think these are all things that, show to our customers that they wanna be a long-term partner with SPS Commerce.

Nehal Chokshi: Great. Thank you very much.

Operator: And once again, if you would like to ask a question, please press *1. Our next question will come from Clark Wright with D.A. Davidson. Please go ahead.

Clark Wright: Hi, thank you. If we look at the growth mix after the 3P revenue recovery divestiture, how much of the growth now do you expect to come from ARPU expansion versus customer additions?

Joseph Del Preto: Yeah. Clark, what we have said is, you know, kind of in our growth algorithm over the long-term, we expect roughly one-third of the growth to come from the customer count side and two-thirds to come from ARPU. This year, it will obviously probably be slightly more on the ARPU side. And then if you were so if you were to take that to our current, expectation for the business, that leads high single digits sort of that low single digits on the customer count and that kind of mid to high on the ARPU growth.

Clark Wright: Got it. that is helpful. And then, can you help me understand in your prepared remarks, you mentioned that SPS Commerce is uniquely positioned to provide agents to automate tasks. Could you could you help me understand why you are uniquely positioned versus other vendors in the market, and what that means going forward as you continue to invest to grow your competitive advantages.

Chad Collins: Yeah. Yeah. So, I mean, we made that comment in the context of we are doing in automating collaboration and supply chain transactions between trading partners. And what we found that is really key to that is the data that we have on the network. So, you know, three main components there. 1, of course, the customer's data on the network. Often, we have more of their supply chain data in our network than they have available to them in the ERP. it is just a broader set of data. We also see all the kind of macro transaction patterns, going across our network.

So, you know, of course, we cannot let 1 customer look at another customer's discrete data, but what we can do is look at, trading, patterns, especially across the major retailers. So we may see some differences in the way that Walmart or Target are handling some of their suppliers and see that at the macro level and translate that into some changes that the suppliers to those retailers need to make. And then maybe most importantly, you know, over this 25 years of doing this, we have built out very deep proprietary databases of supply chain expectations that the major retailers and distributors in the U.S. have around compliance and supply chain expectations.

And a lot of this information we have is stuff that is not going to be available in a downloadable vendor guide that they are gonna provide, and then a lot of them on the network do not even provide these types of vendor guides. And so we are really able to train the agents on this proprietary database, and those agents are really able to guide these suppliers to execute their supply chain. In a way that is gonna be compliant with their retail and distributor customers.

Clark Wright: Got it. that is helpful. Thank you.

Operator: And I am showing no further questions in the queue. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation and have a wonderful day. You may now disconnect your lines at this time.

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