Earnings call transcript: SPS Commerce Q2 2025 beats forecasts, stock dips

SPS Commerce Inc. reported stronger-than-expected earnings for the second quarter of 2025, with earnings per share (EPS) at $1.00, surpassing the forecast of $0.91. Revenue reached $187.4 million, slightly above the expected $185.82 million. Despite the positive earnings surprise of 9.89% and revenue surprise of 0.85%, the company’s stock saw a slight decline of 0.39% in after-hours trading, closing at $140.1. According to InvestingPro analysis, the stock is currently trading at elevated multiples, with a P/E ratio of 64.2 and an EV/EBITDA of 35.8, suggesting rich valuations relative to peers.

Key Takeaways

• EPS of $1.00 exceeded expectations by 9.89%.
• Revenue of $187.4 million marked a 22% year-over-year growth.
• Stock dipped 0.39% in after-hours trading despite earnings beat.
• Recurring revenue grew by 24%, with 54,500 recurring revenue customers.
• Adjusted EBITDA increased by 27% to $56.1 million.

Company Performance

SPS Commerce demonstrated robust performance in Q2 2025, continuing its streak of revenue growth for the 98th consecutive quarter. The company’s recurring revenue, a key metric of stability, rose by 24%, underscoring its strong market position and customer retention strategies. The integration of recent acquisitions, Supply Pike and Carbon6, contributed to its expanded product offerings and enhanced operational efficiencies. InvestingPro data shows the company maintains strong financial health with a ’GOOD’ overall score of 2.93, particularly excelling in growth (3.9) and profitability (3.62) metrics.

Financial Highlights

• Revenue: $187.4 million, up 22% year-over-year
• Earnings per share: $1.00, beating forecast by $0.09
• Adjusted EBITDA: $56.1 million, a 27% increase from last year
• Average Revenue Per User (ARPU): $13,200

Earnings vs. Forecast

SPS Commerce’s Q2 2025 earnings per share of $1.00 surpassed the forecasted $0.91, resulting in a 9.89% earnings surprise. Revenue also exceeded expectations, coming in at $187.4 million against a forecast of $185.82 million, marking a 0.85% surprise. This performance is consistent with the company’s historical trend of exceeding market expectations.

Market Reaction

Despite the positive earnings report, SPS Commerce’s stock experienced a slight decline of 0.39% in after-hours trading, closing at $140.1. This movement may reflect broader market trends or investor caution in the current economic climate. The stock remains within its 52-week range, with a high of $218.61 and a low of $120.09. InvestingPro analysis reveals that analysts maintain a bullish outlook, with price targets ranging from $159 to $210, suggesting potential upside. Notably, 8 analysts have recently revised their earnings expectations downward for the upcoming period.

Outlook & Guidance

Looking ahead, SPS Commerce projects full-year 2025 revenue between $759 million and $763 million, indicating growth of 19-20%. The company aims to expand its adjusted EBITDA margin by 2 percentage points annually and expects organic growth to remain in the high single digits. The strategic focus remains on mergers and acquisitions to drive long-term growth. The company has demonstrated strong execution capabilities, maintaining a 5-year revenue CAGR of 18% and a healthy current ratio of 1.64, while operating with minimal debt-to-equity of 0.01, according to InvestingPro data. For deeper insights into SPS Commerce’s growth trajectory and comprehensive financial analysis, investors can access the detailed Pro Research Report, available exclusively to InvestingPro subscribers.

Executive Commentary

Chad, CEO of SPS Commerce, emphasized the company’s unique market position: "SPS Commerce is the only full-service EDI solution on the market uniquely positioned to help suppliers effortlessly maintain EDI compliance." CFO Kim highlighted the company’s acquisition strategy: "We expect to remain acquisitive over time in keeping with our disciplined and effective M&A strategy."

Risks and Challenges

• Supplier-side spending scrutiny, particularly in U.S. markets
• Slowing decision-making in mid-market ERP
• Macroeconomic uncertainty affecting supplier spend
• Potential integration challenges with recent acquisitions
• Competition in the supply chain data network sector

Q&A

During the earnings call, analysts inquired about the impact of macroeconomic uncertainty on supplier spending and the company’s acquisition strategy. Executives noted a healthy retailer pipeline and consistent partnership requests, while acknowledging more cautious spending behavior among U.S. suppliers compared to European and Australian markets.

Full transcript - SPS Commerce Inc (SPSC) Q2 2025:

Conference Operator: Good day, and welcome to SPS Commerce q two twenty twenty five earnings conference call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing star keys followed by 0. After today’s presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch tone phone.

Please note, this event is being recorded. I would now like to turn the conference over to Ms. Irmina Blaszczyk. Please go ahead.

Irmina Blaszczyk, Investor Relations, SPS Commerce: Thank you, Angie. Good afternoon, everyone, and thank you for joining us on SPS Commerce Second Quarter twenty twenty five 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 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, otherwise.

Please refer to our SEC filings, specifically our Form 10 ks, 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 not 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, CEO, SPS Commerce: Thanks, Ramina, and good afternoon, everyone. Thank you for joining us today. SPS Commerce delivered a strong second quarter results. Second quarter revenue grew 22% to $187,400,000 Recurring revenue grew 24%. Resilience and agility remain top of mind for trading partners across global supply chains, whether a result of tariffs or the need for cost and operational efficiencies.

SPS is dedicated to supporting the supplier community through today’s uncertain times, which we believe will ultimately incentivize them to increase investments in technologies that improve and optimize processes across their vendor networks. SPS Commerce is the only full service EDI solution on the market uniquely positioned to help suppliers effortlessly maintain EDI compliance with retailers frequently changing requirements. Most importantly, our product portfolio enables stronger collaboration between trading partners, unlocking greater efficiency, cost savings and shared success. These are dynamics that we believe position SPS for durable growth. For example, Trader Joe’s, a national chain of over 600 neighborhood grocery stores, has been a longstanding SPS fulfillment customer.

In an effort to reduce manual processes, improve order selection efficiencies, reduce shipping errors and prepare for future growth, Trader Joe’s has recently rolled out EDI compliance requirements across the entire vendor base. By partnering with SPS, Trader Joe’s is accelerating progress toward 100% vendor compliance. Managing supplier relationships remains one of the biggest challenges in retail. Compliance is an important part of managing supplier performance. But a score carding effort with insightful supplier metrics can help both the retailer and its suppliers perform better together.

Research shows that organizations that systematically track and improve supplier performance can see sales increases of up to 10% and margin improvements of up to 12%. When products arrive on time and orders are filled completely, retailers can maximize sales opportunities while keeping operations efficient. Using SPS’ supply chain performance management solution, one of the largest grocery retailers in The United States with nearly 500 locations gained actionable insights into their vendors’ performance and shared the data with their trading partners to improve efficiencies across the board. The grocer boosted on time and in full performance and reduced overall out of stocks, resulting in higher performing and more profitable supply chain in less than one year. Gemplers, a trusted retail brand for farm and home supply products, is another recent example of a retailer who uses SPS’s Supply Chain Performance Suite.

Gemplers switched to SPS Commerce from another EDI provider to increase EDI compliance from three to nearly 100 vendors in an effort to improve order automation and support omni channel growth. The revenue recovery solutions we’ve acquired are beginning to deliver value to SPS fulfillment customers. As we advance the post merger integration of Supply Pike and Carbon six, we’re leveraging our expanded product portfolio to grow wallet share with our existing fulfillment customers. The advantages of a unified platform, amplified by the data across our network are becoming increasingly evident. For example, All Star Innovations offers turnkey solutions for taking products from concept to consumer.

The company has been an SPS fulfillment customer since 2022 and recently started using the revenue recovery solution for retailers including Walmart, Target, Home Depot and Amazon. SPS’ unified platform approach is a competitive differentiator in its coverage of retailers, expertise in retailer deduction complexities, and data on our network. We leverage order data to estimate customers recoverable deductions, giving them greater visibility into potential revenue recovery opportunities with their trading partners. In summary, SPS’ product portfolio addresses the pain points of both retailers and suppliers. Our full service approach is designed to be to successfully implement solutions and improve supply chain partnerships with ongoing support to manage compliance.

As a result, SPS is uniquely and competitively positioned to empower participants of the world’s largest retail network to work better together today while helping them build resilience to meet the challenges of tomorrow. With that, I’ll turn it over to Kim to discuss our financial results.

Kim, CFO, SPS Commerce: Thanks, Chad. We had a great 2025. Revenue was $187,400,000 a 22% increase over Q2 of last year and represented our ninety eighth consecutive quarter of revenue growth. Recurring revenue grew 24% year over year. The total number of recurring revenue customers in Q2 was approximately 54,500 and ARPU was approximately 13,200.

As a reminder, in February, we closed the acquisition of Carbon6, which added approximately 8,500 customers and had an adverse effect on ARPU due to the smaller average customer size. The full quarter Q2 impact to ARPU was approximately $1,400 For the quarter, adjusted EBITDA increased 27 to $56,100,000 compared to $44,200,000 in Q2 of last year. We ended the quarter with total cash and investments of $108,000,000 and repurchased $20,000,000 of SPS shares. Now turning to guidance. For the 2025, we expect revenue to be in the range of 191,700,000.0 $193,200,000 which represents approximately 17% to 18% year over year growth.

We expect adjusted EBITDA to be in the range of $57,900,000 to $59,900,000 We expect fully diluted earnings per share to be in the range of

Irmina Blaszczyk, Investor Relations, SPS Commerce: $0.50 to

Kim, CFO, SPS Commerce: $0.54 with fully diluted weighted average shares outstanding of approximately 38,500,000 shares. We expect non GAAP diluted income per share to be in the range of $0.96 to $1 with stock based compensation expense of approximately $16,000,000 depreciation expense of approximately $5,600,000 and amortization expense of approximately $9,500,000 For the full year 2025, we expect revenue to be in the range of $759,000,000 to $763,000,000 representing approximately 19% to 20% growth over 2024. We expect adjusted EBITDA to be in the range of 230,700,000.0 to $233,700,000 representing growth of approximately 24% to 25% over 2024. We expect fully diluted earnings per share to be in the range of 2.17 to $2.22 with fully diluted weighted average shares outstanding of approximately 38,300,000.0 shares. We expect non GAAP diluted income per share to be in the range of $3.99 to $4.4 with stock based compensation expense of approximately $60,900,000 depreciation expense of approximately $21,800,000 and amortization expense for the year of approximately $37,100,000 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.

Additionally, based on our interactions with investors over the last several months and their interest in better understanding our growth profile given our recent M and A activity, we are providing our growth expectations beyond 2025, excluding future acquisitions. The puts and takes impacting our outlook at this point in time are as follows: On the retail side, demand remains strong, as evidenced by enablement activity so far this year, driven by retailers who are realizing the value of digitized connections to their suppliers and optimizing supply chain performance management of their vendor relationships. Based on our recent TAM analysis and the ongoing push for automation and trading partner collaboration, we expect enablement activity to remain strong. On the supplier side, we are currently seeing dynamics impacting some customers within our network, such as heightened spend scrutiny and delayed purchasing decisions. We are seeing this directly with our customers and through our channel sales, where some companies are also delaying their mid market ERP purchase decisions.

We attribute the cumulative impact of these dynamics to ongoing uncertainties in the macro environment, including tariffs and their potential impact on consumer demand, which we have considered in our growth outlook. As a result, beyond 2025, we expect our revenue growth rate, excluding future acquisitions, to be at least high single digits. We expect to remain acquisitive over time in keeping with our disciplined and effective M and A strategy, which has historically added to our growth rate while strengthening our network and market leadership. As macro dynamics normalize and global trade headwinds stabilize, we remain confident in our ability to capitalize on the growth opportunity across our $11,000,000,000 total addressable market, add new customers to the network both inside and outside The U. S, and drive higher ARPU through incremental network connections and cross selling our broader product portfolio.

In addition, given our history of strong operating leverage and the resilience of our SaaS business model, we expect to expand adjusted EBITDA margin by two percentage points annually, driven by continued improvement in gross margin and operating efficiencies. We are looking forward to sharing more information about our view of retail industry dynamics and how our unified product platform aligns with our addressable market during our September 23 Analyst Day. And with that, I’d like to open the call to questions.

Conference Operator: Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touch tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been answered, you would like to withdraw your questions, please press star then 2.

At this time, we will pause momentarily to assemble our roster. The first question comes from the line of Scott Berg with Needham. Please go ahead.

Scott Berg, Analyst, Needham: Hi, Chad and Kim. Nice quarter here, and thanks for taking my questions here. I guess I wanted to focus on the, we’ll call it intermediate term or post ’25 organic revenue growth rate, Kim, that you laid out in the high single digits. And thank you for the puts and takes there. But how do we think about growth by, I guess, area, whether it’s fulfillment or analytics or however you’re going to think about breaking up the business here on a go forward basis?

Maybe help us construct how we get to 9%, that would be helpful or upper single digits. Thank you.

Kim, CFO, SPS Commerce: Sure, Scott. When you think about what goes into at least that high single digits, it does take into consideration our current product portfolio. When you think about our current product portfolio, and that’s, call it, the core fulfillment aspect of our portfolio, a lot of that is driven by what’s happening with community enablement activity, which to your point, we did give some of those puts and takes. So that would hit sort of on that, call it, that retailer side. On the analytics side, that is a product that, as we’ve discussed in the past, that does have more impact depending on the economy.

So that one has been a bit more negative in growth rate relative to fulfillment. Over time, we see a lot of opportunity for analytics, but we would not anticipate analytics to grow at the same rate of fulfillment. And on our newer product, which is the revenue recovery, we have some cross sell motions in place that we’ve done, but we would expect over time more opportunity to cross sell that product across our customer base in the future.

Scott Berg, Analyst, Needham: Very helpful. Thank you, Kim. And then Chad, as we zoom out a little bit on the broader macro here, Q2 was really the first quarter in this new kind of tariff macro that we’re all seeing in today. And I know you have more data today, days ago than when we spoke at the April. But how do you think about some of the activity of your customers?

I know Kim in the longer term guidance talked about some heightened sense of scrutiny around spend and whatnot. But I guess if you unpack that a little bit, is it really more on just, I don’t know, your core fulfillment products or how they think about, I don’t know, geographic expansion or retailer expansion, obviously, that you benefit from. But maybe just kind of take us through what the last ninety days journey relative to that macro has been like for you. Yes.

Chad, CEO, SPS Commerce: Good question, Scott. I think when we on our last call, we certainly were aware of pending uncertainty and sort of looming uncertainty, I think especially relative to the global trade situation. I’d say what we’ve learned over the last quarter is that that uncertainty, while initially was uncertainty in I’d say business as usual, sort of quickly turned to uncertainty trying to be addressed by a pretty aggressive cost savings measure, specifically on the supplier side. So while we’ve seen activity with retailers, the actual enablement activity, the customer adds very positive from that enablement activity, plus the pipeline on the retailer side, I’d say all steady and strong in that area. The reaction from the supplier side has been a little bit more focused on cost spending initiatives.

And how that’s translated to us is it varies a little bit by product. So on analytics side, as we’ve mentioned in previous calls, it tends to be a little bit more discretionary. So we may see analytics customers turning off certain data feed connections from certain retailers that may be less volume or less strategic as a means to save costs. On the fulfillment side, we really don’t see customers canceling altogether. It’s a very sticky product and very key for them getting their ongoing orders.

But what we have seen is them looking at sort of the document plans or the variable piece of their pricing they have with us, looking at trading partners that potentially they used last year and now maybe they’ve no longer have that relationship with that trading partner. So like a lot of analysis how they could potentially reduce their spend with us. And it also has slowed down a few of the deal cycles, just more approval levels, things going through more signatures and approving. And that’s also the dynamic we’ve seen on revenue recovery is that a little bit more focus on the ongoing cost of these solutions and also a little bit prolonged deal cycle. We’re optimistic that this is a point in time approach that these suppliers are using to deal with the uncertainty, and then as there becomes more clarity, I’d say, in the overall global trade and how it will affect certain suppliers, that will sort of return to normal conditions there.

Scott Berg, Analyst, Needham: Very helpful. Thanks for taking my question.

Conference Operator: Thank you. Next question comes from the line of George Kurosawa with Citi. Please go ahead.

George Kurosawa, Analyst, Citi: Thanks for taking the questions here. I wanted to follow-up on this discussion about the current macro. I think you specifically highlighted channel sales, which I think tend to skew some of your larger customers. Is that fair to say that you saw some difference in behavior between maybe sort of more your up market, mid market customers versus more traditional SMB supplier base? Or just any color on those dynamics?

Chad, CEO, SPS Commerce: Yes, yes. Good question because it was nuanced, George. So what we’ve been seeing is more pressure in kind of the mid market ERP area. So vis a vis customers typically under $300,000,000 in revenue, but kind of over $10,000,000 in revenue and those ERPs that they would typically choose in the mid market. That’s where we’re seeing the kind of prolonged decision making about new ERPs.

And those ERPs, which are a nice catalyst for people to come and join the SPS network, network, because when they change their ERP, it’s typical that they would move to a cloud network approach like we have for all their digital connections. We’ve actually seen fairly healthy demand on the enterprise side, and some of those deals continue. But I just highlight the majority of our business is more in this mid market segment versus the enterprise.

George Kurosawa, Analyst, Citi: Okay, great. That’s helpful. And then on the medium term growth outlook you outlined, it sounds like you’re contemplating some level of the current macro situation that you’ve described here. Is there any way to parse that out and give us a sense for maybe what a medium term growth outlook in a normalized environment might look like?

Chad, CEO, SPS Commerce: Yes, good question. So maybe let’s just kind of maybe take one step back on all this. As Kim and I have engaged with investors over the last several months, there has been a request for us to provide a view on longer term growth without acquisitions. And I think that makes sense, especially given the volume of M and A that we’ve done it have completed in ’twenty ’4 and early ’twenty five. Also, consistent with the way a lot of the other SaaS companies report longer term growth expectations.

We go through a process every summer, sort of June, early July, and recast our strategic plan and our strategic models. And we were doing that work in the height of a very uncertain time when we were seeing some spend scrutiny from customers and certainly factored that into our thinking around the longer term expectations for the business. I think it’s a little difficult to parse exactly how much of the current dynamic is impacting that number and break it into the pieces. But we felt, given the current dynamics that we were seeing in the business, we had quite a bit of confidence still in our 2025 guidance, but felt that this was the right expectation to set over the longer term. I would say if we do see sort of more tailwinds in the macro and maybe more certainty on global trade, we’re optimistic that we’ll see increased level of spending from our supplier customers.

George Kurosawa, Analyst, Citi: Great. Thanks for taking the questions.

Conference Operator: Thank you. Next question comes from the line of Lachlan Brown with Rothschild and Co. Brad Brown, please go ahead.

Lachlan Brown, Analyst, Rothschild and Co: Hi, Chad, Kim. Thanks for the questions. If we take the midpoint of the full year revenue guidance, it implies a deceleration in the second half, but I do appreciate that that does consider cycling out their supply Pike acquisition from August. So I just wanted to check within the guidance, what’s your expectation on organic revenue growth for the second half of the year?

Kim, CFO, SPS Commerce: Sure. So when you think about our expectations for the year, what you’ll notice from what our current guide for the year is compared to where it was at the beginning of the year, so what we guided to on our Q4 earnings call in February, you’ll see the high end of the guidance is the same and the low end has been taken up. So the midpoint is higher than where we were at the beginning of the year. But outside of that, we pretty much just stayed with what our annual expectation is, at least at the high end. So there’s no real change in that sense relative to what our expectations are for the year.

Based on the guidance that we gave in February and based on the expectations of those acquisitions, If you do the reverse math on those numbers that got you to call it a sort of a 10 ish for the year organic growth rate. And again, we’ve maintained the high end and we’ve slightly taken up the bottom end.

Lachlan Brown, Analyst, Rothschild and Co: That’s very clear. Thanks, Kim. And just the theme of supply chain system unification appears to be more of a focal point this year from both vendors and customers. So I

Conference Operator: just wanted to ask, have

Lachlan Brown, Analyst, Rothschild and Co: you seen any notable pickup in third party ERP, OMSWMS vendors desiring to integrate with SBS this year, or even in the way that your existing partners decide to be integrated?

Chad, CEO, SPS Commerce: Yeah. I would agree that the integration of data in supply chain applications and collaboration across the supply chain is a key focus that we’re hearing from the market. I would not say that we’ve seen any substantial increase though in sort of requests for partnerships. I think we’re as having a market leader leading network and a market leading position, it’s been pretty steady and known that SPS is the go to partner for some of these supply chain application companies and consulting companies. And I think we’ve seen those relationships continue to develop over time, but no material change.

I think we’ve been known for many years as the go to partner for this for exchange of supply chain data across our network.

Lachlan Brown, Analyst, Rothschild and Co: Makes sense. Thanks for your time.

Conference Operator: Thank you. Next question comes from the line of Matt Van Fleet with Cantor. Please go ahead.

Matt Van Fleet, Analyst, Cantor: Hey, good afternoon. Thanks for taking the question. I know historically, you’ve taken a little bit slower approach to integrate products after acquisition. But on the revenue recovery side, you mentioned some strength there. Curious on how that pipeline looks?

How much are you using the go to market team on a more consolidated basis, knowing that you’re going after a couple different areas of the market there even if the products themselves aren’t fully integrated yet?

Chad, CEO, SPS Commerce: Yeah, the post merger integration for both Supply Pike and Carbon six is going very well and going as expected. Historically, we have taken a little bit longer maybe to bring the go to market teams together in the case of Supply Pike and Carbon six, because they’re going after the same end markets and we would have a much more compelling value proposition where we can offer the supplier revenue recovery solutions across more retailers, it made a lot of sense to pull those solutions and go to market teams together. So we’re in the process now of the supply pike and Carbon six go to market teams coming together, selling a complete solution across all the retailers we support. We have not yet integrated the revenue recovery go to market team with our fulfillment team, But we do have a nice sort of lead sharing and prospect identification program running for our go to market team on fulfillment to identify opportunities where there’s a need for revenue recovery. So the team is doing that.

And then the other thing that’s really nice about our business and our technology is we can use the network itself to identify those opportunities. So we can look into the network and actually see the trading volume, and that can help us identify opportunities for cross selling revenue recovery.

Matt Van Fleet, Analyst, Cantor: Okay, very helpful. And then Kim, curious on what your headcount addition plans are for not only the rest of this year, but sort of built into that 200 basis points of margin expansion annually. Should we think about the rate of headcount additions maybe being lower than in past years? Or how are you guys thinking about that as the business continues to grow?

Kim, CFO, SPS Commerce: Sure, Matt. So as with any year, we will look to say what resources do we need to make sure we’re meeting the needs of our existing customers as well as the opportunities we see in the future. We also continue to work on ways to make sure what we’re doing, we’re doing even more efficiently or as efficiently going forward. All of that gets taken into account as it relates to what our needs are for headcount. So safe to assume that we’ll continue to add headcount and resources as needed to support our customer base and the opportunity we see, but we’re able to do that more efficiently than in historical years.

You definitely also see that come through in already gross margin. So if you look at sort of the first half gross margin this year, compare it to, call it, annual last year, compare it to like annual the year before, you’re starting to see some of that gross margin improvement come through. And simplistically, that’s really growing into various investments we’ve made historically. So the rate of additions we need to add is at a different rate than where it has been historically.

Matt Van Fleet, Analyst, Cantor: Okay. Thank you.

Conference Operator: Thank you. Next question comes from the line of Dylan Baker with William Blair. Please go ahead.

Dylan Baker, Analyst, William Blair: Hey, Chad. Hey, Kim or Mina. Appreciate the questions here. Maybe Chad, starting with you, you talked about kind of a healthy retailer pipeline for enablement campaigns. In light of kind of some of the supplier side of the equation being a bit more cautious on spend, wondering how you’re thinking about kind of the opportunity to I think Kim hinted some of the efficiency side of the equation, but more effective and efficient in your delivery, maybe helping kind of offset that uncertainty and faster time to value, getting those customers live, getting those customers maybe compliant, but you’re thinking about kind of optionality of maybe drawing down against that pipeline a little bit faster as somewhat of an offset through efficiency?

Chad, CEO, SPS Commerce: Yeah, I would say that actually ties directly to some of the investments that Kim’s been speaking of that’s driving some of this gross margin improvement. So, you know, and it’s not really that we’re just doing it solely for the gross margin improvement. It’s a much better customer experience when they can onboard to our network more quickly and start getting the value of that digitized trading partner connection. So we’ve really been focused there honestly over the last couple of years and have seen positive improvements both in terms of the effort and people required to do that, but more importantly, the customer experience and the time to value for the customer. I think that’s an area where we’re going to continue to be able to improve that experience for the customer, keep doing it faster.

And I think certainly an area where as we’re starting to introduce generative AI and agentic AI into those processes, we’re very optimistic that we’ll be able to continue the improvement there for the customers.

Dylan Baker, Analyst, William Blair: Okay, very helpful. And then maybe for Kim, I know there’s some questions obviously on kind of the medium term framework here, but maybe slicing it as well too, apologies if you mentioned this, but in light of some of the supplier side being a bit more cautious, how do you think about the mix of kind of that eight or that, let’s call it that high single digit build between the opportunity that we’ve highlighted in the past around kind of wallet expansion paired alongside what seems to be a slight uptick or some improvement sequentially in the new logo side of the equation to maybe kind of the two pillars that gets you to that high single digit framework? Thank you.

Kim, CFO, SPS Commerce: Sure. So we see opportunities for both to continue to grow over time, adding customers as well as growing that ARPU with customers. To your point, there tends to be a bit more of a correlation depending on what’s happening on the community side with the customer adds. As it relates to community, we have a healthy pipeline this year as far as what that mix is between what ultimately translates into customer add versus an upsell or an ARPU, really don’t have that granularity until closer in to like basically think of it as like a ninety day out window. So in the shorter term, if we think about Q3 as an example, our sort of initial view is probably similar customer adds to Q2.

I realize you’re asking the question from more of a medium term lens. From a medium term lens, we would expect that growth is coming from both areas, but it’s challenging to give you exact percentage between the two because that customer to growth side is so correlated with what’s happening with community enablement activity.

Dylan Baker, Analyst, William Blair: Perfectly fair. No, that’s very helpful. Thanks, Tim.

Conference Operator: Thank you. Next question comes from the line of Park Lane with Stifel. Please go ahead.

Park Lane, Analyst, Stifel: Hey, thanks for taking the questions. Staying with the same theme here, Chad, on supplier side, when you look at the different geographies you work in and the sub verticals of suppliers, is there any particular areas that stand out as seeing incremental cautiousness or is this really across the board that you’re picking up on these trends?

Chad, CEO, SPS Commerce: It’s primarily in The U. S. Based suppliers. Now that’s the largest proportion of our customers, but we have not seen the same level of spend scrutiny in Europe and Australia that we have seen in The U. S.

Park Lane, Analyst, Stifel: Understood. And then for you, Kim, on the adjusted EBITDA margin of 2% annually, is that regardless of any M and A activity such that if you bought a dilutive asset, you would still be delivering 2% annually? Or is that just 2% organic and we could potentially see the all in performance slightly lower in a given year?

Kim, CFO, SPS Commerce: Sure. So the expectations that we provided as that we expect at least high single digits and also being able to deliver that two percentage points of EBITDA margin. Those statements that we said sort of excludes acquisitions. With acquisitions, however, we typically are able to within a twelve month time period make those accretive. So we have a lot of, I’ll call it, confidence and conviction in our ability to drive that healthy margin expansion in the medium term.

Park Lane, Analyst, Stifel: Great. Thanks for the feedback here. Appreciate it.

Conference Operator: Thank you. Next question comes from the line of Jeff Rhee with Craig Hallum. Please go ahead.

Irmina Blaszczyk, Investor Relations, SPS Commerce0: Hey, this is Daniel Hibschmann on for Jeff Van Rhee. Chad, Tim, thanks for the transparency and just the color on 26, very helpful. Maybe just one more on the customer adds. Just wanting to confirm on that Carbon six customer count that, that was fully reflected in the Q1 numbers, so those three fifty adds this quarter. So that’s the organic number to sort of look at as sort of the trend going into Q3, Q4?

Kim, CFO, SPS Commerce: That’s correct. So the Carbon six added approximately 8,500 customers that was fully reflected in Q1. So the sequential from Q1 to Q2 of approximately three fifty, think about that as primarily driven by that community enablement activity, so the first party customer adds.

Irmina Blaszczyk, Investor Relations, SPS Commerce0: Okay. Okay. And then just on as we go forward and we’re seeing some of these headwinds, traditionally growth has been primarily, if you boil it down in fulfillment to the connection growth versus seeing more of the M activity and product development activity emphasizing cross sell. As we think a little bit more about the midterm image that you’re painting for upper single digit growth, is that looking for that to be primarily driven by growth connections? Or are we seeing any of the pivot there to more of the majority of that being driven by cross sell?

Thanks.

Chad, CEO, SPS Commerce: So when you think about our sort of overall growth, there’s a component of it that’s adding new subscribers to our network. And that will largely be driven in count by the from the community enablement programs, where we’re that’s the largest factor for us adding new customers to the network. The second then in terms of ARPU expansion will really come in two buckets, the upselling and the cross selling of solutions. The largest opportunity for us with existing customers is upselling more connections on the network. So increasing with fulfillment customers their use of the network.

That would be the most substantial opportunity for us. And then the cross selling would be a secondary opportunity. Now, in our customer treatment strategy, we’re focused on both of those, but based on the number of customers and the opportunity for remaining connections, it will be the connections as the largest opportunity there.

Irmina Blaszczyk, Investor Relations, SPS Commerce0: Thanks, Chad and Kim.

Conference Operator: Thank you. Next question comes from the line of Mark Chappell with Loop Capital Markets. Please go ahead.

Matt Van Fleet, Analyst, Cantor: Thank you for taking my question. Chad, given what you’re seeing with your supplier base with the delayed purchase decisions, could you just speak to just the general health of your SMB customers and also to the level of churn that you’re seeing?

Chad, CEO, SPS Commerce: Yes. So from a customer churn perspective, it’s actually been very consistent. So we are not seeing an increased level of full cancels. And I think there’s a normal when you’re servicing SMB and you’re servicing retail, there is kind of just a natural churn that happens with those smaller suppliers. But we haven’t seen a difference there.

Where the difference has come is really you know, customers, you know, really studying the invoice they get from SPS Commerce saying, hey, is there any possibility I could get this a little bit lower? Our owner or CFO has asked me to go find any cost in the business right now due to this uncertainty in the tariffs. That’s where we’re seeing more of the pressure with the existing customers. And then we are just seeing the slower deal cycles the new customers and the larger upsells and cross sells. So I wouldn’t attribute this to a massive amount of bankruptcies or insolvencies in the end market at this point, but more just a lot of uncertainty and a strong reaction to that uncertainty by cost savings initiatives within the suppliers.

Matt Van Fleet, Analyst, Cantor: Thank you. That’s helpful. That’s all. Thanks.

Conference Operator: Thank you. Next question comes from the line of Nehal Chokshi with Northland Capital Markets. Please go ahead.

Irmina Blaszczyk, Investor Relations, SPS Commerce1: Yeah. Thank you. I think you guys have already answered my question, but I do have two questions. First one is when we talk about high single digit growth beyond calendar twenty five on an organic basis, is that fair to say that that is basically 7% to 9%?

Kim, CFO, SPS Commerce: We hi, Nehal. We provided our view of our expectations beyond ’25 of at least high single digits. We’re not giving specificity of exactly what the number is, but there’s probably somewhat of a standard, I don’t know, expectation of what that high single digit means. So I can’t really narrow into a particular number for you, but just our expectation is at least high single digits.

Irmina Blaszczyk, Investor Relations, SPS Commerce1: Okay. I do believe that you’ve already answered this question, but I will ask it one more time. The parsing between ARPU and customer adds to get to that high single digit growth, it does sound like the primary driver of the deceleration that you’re expecting from ’25 to ’26 is going to be ARPU. Is that indeed correct here?

Kim, CFO, SPS Commerce: So when you think about what makes up revenue, and therefore the drivers that get us to at least high single digit, our expectation is in the medium term that we’ll continue to have growth coming from both customer adds as well as ARPU. Now the biggest driver we expect to remain on customer adds being as it relates to community. And then the opportunity for ARPU to grow over time, that hits upon what Chad talked about, which there’s a lot of opportunity to continue to upsell existing customers, as well as cross sell those customers over time. So in our expectations beyond ’25, would expect that our growth will come from both customer adds as well as ARPU and those hopefully gave you a little bit of color of some of the dynamics of what will impact each component.

Scott Berg, Analyst, Needham: Thank you.

Conference Operator: Thank you. The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.

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