SPS Commerce at D.A. Davidson Conference: Strategic Growth and Expansion

On Tuesday, 10 June 2025, SPS Commerce (NASDAQ:SPSC) presented at the D.A. Davidson 1st Annual Consumer & Technology Conference. The company shared a strategic overview highlighting its growth strategies, financial performance, and future outlook. While the tone was optimistic, the executives balanced their enthusiasm with a candid discussion of challenges and opportunities in the market.

Key Takeaways

• SPS Commerce updated its Total Addressable Market (TAM) to $11 billion, emphasizing significant growth potential.
• The integration of recent acquisitions, Carbon Six and Supply Pike, aims to enhance revenue recovery solutions.
• The company targets an adjusted EBITDA margin of at least 35%, driven by gross margin improvements.
• Expansion into European markets is a priority following the Thai Kinetics acquisition.
• SPS Commerce is exploring data monetization opportunities to provide insights for demand planning.

Financial Results

• Q1 2024 Performance: SPS Commerce reported a reacceleration in net new customer acquisition, fueled by community enablement programs.
• Revenue Growth: Achieved through new customer acquisition and increased average revenue per customer (ARPU).
• TAM Update: The company updated its TAM to $11 billion, with $6.5 billion in the US, based on a base of 275,000 global suppliers.
• Pricing Model: The fulfillment product’s pricing is primarily a fixed fee per connection, with a variable component based on document exchange.

Operational Updates

• Community Enablement Approach: SPS Commerce partners with retailers to connect suppliers to its network, enhancing customer acquisition and ARPU.
• R&D Investments: Consistent at 10% of sales, focusing on enhancing products and integrating AI for efficiency.
• New Product Development: Launched a manufacturing supply chain performance suite targeting co-packers and manufacturers.

Future Outlook

• Long-Term Financial Targets: Aiming for adjusted EBITDA margins of at least 35%, primarily through gross margin improvements.
• International Growth: Expanding in Europe with community enablement programs, following the Thai Kinetics acquisition.
• Data Monetization: Exploring opportunities to monetize network data for demand planning and forecasting insights.

Q&A Highlights

• Revenue Recovery Integration: The integration of Carbon Six and Supply Pike is in progress, targeting cross-sell opportunities.
• ARPU Growth: Focus on driving the 80% of customers below average ARPU towards the average.
• Retailer Coverage: SPS Commerce has the majority of US large retailers trading on its network.

For more detailed insights, readers are encouraged to refer to the full transcript below.

Full transcript - D.A. Davidson 1st Annual Consumer & Technology Conference:

Will Jelison, Analyst, Davidson: Alright, everyone. Thanks for being here. We’re gonna get started with SPS Commerce. We have the pleasure of Chad Collins, CEO Kim Nelson, CFO of SPS Commerce. I’m Will Jelison.

I cover vertical and back office software for Davidson of which SPS, is one. So thanks for being here.

Kim Nelson, CFO, SPS Commerce: Thank you.

Will Jelison, Analyst, Davidson: I figured it makes sense to start out this conversation with maybe a couple of minutes overview on who SPS is, the problem you solve, and the value proposition.

Chad Collins, CEO, SPS Commerce: Yeah. Sure. So at SPS, we operate a network in the cloud that connects retailers to all their suppliers so they can exchange supply chain information across our network largely related to the ordering process. And so the big benefit of having this network for the retailer is that they can digitally interact with all their suppliers, which gives them visibility to inbound inventory and the commitment time frames of their suppliers and also just a automated way to interact with their suppliers. For the suppliers, the big benefit is also a digital way to receive their orders and interact with the retailers, and the retailers are known for having some pretty strict and frequently changing requirements on how these digital transactions need to work with the suppliers.

So by being connected to a network like SPS, suppliers don’t have to worry about managing retailer by retailer. They just connect once to the network, and then we manage all the complexity that comes from the retailer’s requirements.

Will Jelison, Analyst, Davidson: Great. And then starting off with the network, Chad, I’d like to start with asking you a high level question, which is to begin with, SPS has the largest EDI network in North America. Can you speak to the importance of the community approach that SPS takes and the different kinds of stakeholders like suppliers, logistics, retailers who depend upon the network?

Chad Collins, CEO, SPS Commerce: Yeah. Yeah. So one of the very unique and strategically important decisions that were made long before I got to SPS was to enable this what we call community enablement go to market. And that’s where we go to the retailers and we work with the retailers and highlight the need for the retailer to have all their suppliers digitally connected. And then we have a program with that retailer where we we get the mandate from the retailer to do all the outreach to their suppliers to ensure that they get those digital connections in place.

So a big benefit to the retailer in that they get all the efficiencies of having these digital connections with all their suppliers in place. Also, a big benefit to us because that’s like built in lead generation. We’re getting a list of hundreds or thousands of suppliers that are all in our ideal customer profile. And then we partner with the retailer, and we have a team that calls through all that list of suppliers, and they can meet the retail requirement by joining our network. But they don’t we have a open network approach.

So they if they have another method to meet the the retailer’s digital requirement, we’ll take them through a testing and certification process. But at the end of this, even if those suppliers go through a testing and certification process and don’t join our network at that time, we put them on our CRM, we continue to market to them. And then for the retailer, the big benefit of this program is then they have all those digital connections in a compliant fashion with all of their suppliers.

Will Jelison, Analyst, Davidson: Great. And then if I look at the first quarter, which you reported a little over a month ago, on an organic basis, excluding the customers you brought in from the Carbon six acquisition, which I’ll get back to in a few questions, the 300 net new customers on an organic basis was two quarters in a row of nice reacceleration the network expansion, and it sounds like we have visibility towards a similarly strong second quarter as well. Can you speak to what’s driving success in expanding the network in the first half of this year?

Chad Collins, CEO, SPS Commerce: Yeah. So, you know, there’s really two two ways for us to, you know, ways the revenue score shows up on our scorecard. Of course, it can be via a new customer acquisition, and it can be through increasing the average revenue per customer. And the mix of that in any given time period, a quarter as example, is really gonna be driven by the nature of these community pro community enablement programs that I was just speaking of. So if we have a situation where we are working with a retailer to run these enablement programs where we’ve worked with that retailer quite a bit in the past, there is an opportunity to to monetize the suppliers in those programs.

But because we’ve worked at that retailer in the past, there tends to be a higher proportion of existing customers inside that program. So we do monetize them. It just shows up a little bit more on that average revenue per customer side of the scorecard versus the customer count scorecard. Conversely, if we’re working with a retailer who we have not worked with in the past, there’s a higher likelihood that we’ll find new suppliers that are not our customers inside that program, gives us a higher chance of adding new customers through that program. So in any given quarter, if you see it show up, our growth show up more on average revenue or count, it really just is based on the mix of those programs.

And so what we saw in q one of this year was a bit more a shift towards some community enablement programs that were with retailers we hadn’t worked with in the past, therefore, drove a higher customer count. If you look back to 2024, we had a higher proportion of retailers that we have very strategic relationships work with and have worked with many times. Therefore, it it it drove it more on the average revenue per customer.

Will Jelison, Analyst, Davidson: Great. So, Kim, SPS resized its TAM recently. I should say updated the TAM it post for investors earlier this year. As you went through that exercise in sizing the $11,000,000,000 TAM, how did you think about just how fast the overall EDI market is growing and what role did that play in in the TAM you eventually published?

Kim Nelson, CFO, SPS Commerce: Yeah. So just a little bit of context, we had a prior version of TAM which was we believe the opportunity was at least 5,000,000,000, so 5,000,000,000 or greater. Now that was quite dated, call it a decade plus old. So we knew we had an opportunity to even though it’s still very large opportunity, take the time to actually go through and refresh and update that. Our starting point on that was really looking to say what is the population of potential suppliers out there that could benefit from our product services and offering.

And based on that, that gave us a view of how many potential customers or recurring revenue suppliers, recurring revenue customers there would be. Our view of that is globally about 275,000 of which The US is a 147,000 of the two seventy five. We also then had a view of how much revenue on average do we think that that customer will translate to us over time, getting us to that combined 11,000,000,000 you mentioned on The US 6 and a half billion of the 11,000,000,000. So I start there because it wasn’t started with what is the pace of growth that we’re seeing, it was really based on who do we see out there as prospects or potential companies that would benefit from our product services and offering. That being said, our belief right or wrong, because there’s not a lot of great data candidly out there to really try to understand what’s happening here.

Our our belief is that we’re probably growing at a rate faster than what the overall market is growing just because we believe we’re the clear leader in this product offering and have the the broadest sort of depth and breadth of our portfolio as well as the network itself.

Will Jelison, Analyst, Davidson: Great. And can you talk a bit about how you decided to slice the customer cohorts into small, medium, and large?

Kim Nelson, CFO, SPS Commerce: Yeah. No. That’s a great point. So that was one thing that what we realized as we have evolved over the years, our product offering really does meet the needs of any size customer. So when we started two plus decades ago, we really focused on really that small size supplier.

Now from a quantity of opportunity, small suppliers are the largest. However, over that two plus decades, our product offering also we some customers that are more medium sized suppliers, some customers that are more larger sized suppliers. So as we were updating our view of total addressable market, we recognize that there was an opportunity for us to help explain that to investors that might not know our story quite as well and that there are different dynamics depending on what size customer you are. So in our investor deck which is available on our website, we have one slide that says specific for The US, how do we think about that opportunity? So think of it of that 6 and a half billion dollar opportunity, and it shows the quantity of potential small sized suppliers, medium sized suppliers, and large sized suppliers.

As you would expect, the largest quantity in number of customers are gonna skew to the small. When you think about how much on average the revenue per customer is as you’d expect that gets bigger as you as you go to the right on that page. So the larger size prospect or potential supplier for us has the most average revenue per that size. So it basically, if you start on the small size on the the smaller size customer, biggest quantity over a 100,000 in size, and then as you grow the how much average revenue per customer, the medium sized customers about a rounding a bit, but about a triple the opportunity size to the small, and then the largest about a doubling in what that opportunity sizes from the medium.

Will Jelison, Analyst, Davidson: Great, thanks. Chad, we’ve spoken about this a few times before but I think it’s worth reiterating for the audience. Can you speak to the components of the core EDI pricing model and how that pricing model is structured so as to relatively minimize the revenue sensitivity to things like consumer spend, which might be top of mind right now?

Chad Collins, CEO, SPS Commerce: Yes. So the way our fulfillment product, which is the product that is the bulk of the revenue in the company is priced is based on the number of connections you have in our network. So if you’re a supplier with fulfillment, that’s really the number of retailers that you’re doing business with, and there’s a fixed fee per connection. So really scale is primarily based on that connection. So think of that as probably 80% of what the customer is paying us.

And then on top of that, there is a small variable component that’s based on the documents that are being exchanged. And, usually, the document equates to an order. So an order will be one document. The acknowledgment will be another document. The advanced shipment notice another document.

And the and the interesting thing about doing it on a document basis is, actually the the frequency of orders is actually pretty consistent even if the quantities that retailers are ordering is going up or down inside that based on certain economic conditions. So we really see, one, this big fixed fee component tied to the connections, which is the bulk of the pricing, and then we also see relatively stable documents with our customers, but still gives us an opportunity to get some growth with the customer. And so all that leads to a very predictable revenue model based on the way the product is priced.

Will Jelison, Analyst, Davidson: Great. Kim, I’ll ask you this one. So R and D spend has been both efficient and consistent at about 10% sales, that’s gap for the last several years. As we sit here today, how is SPS balancing r and d resources towards generative AI, machine learning from all the data flowing through your network, increasing speed to compliance or newer products?

Kim Nelson, CFO, SPS Commerce: Sure. So when you think about our r and d spend, typically that has been spent on continuing to enhance our existing product offerings. So we want don’t wanna just assume because we’ve had a product offering out there that it’s going to we don’t need to continue to make enhancements and make it more robust for our customers. So there’s an aspect of r and d that goes into the enhancing existing products. There’s an aspect of r and d that goes think of it almost like an investment internally in our own tools and technology, and how can we be spending some money there to ultimately make what we’re doing as the employees of the company to be more efficient in that task or that work.

That aspect, there is an element of certainly AI that that you do benefit from in there as well. And then there’s an aspect of r and d that’s just building out these rule books, so as a retailer has rules and expectations of how they want to place an order to all the way to get that order fulfilled, those are those rule books that we talk about and there tends to be lots of different rule books and we the r and d function make sure we’re building those out and then maintaining those. That’s also another area where we can leverage AI in that. Now, as a business, we haven’t had as much r and d in new product development. We’ve that that aspect with product development has been more on enhanced of existing products.

Now over time, should we find ourselves in a position where it makes sense to build a new product offering? Certainly, there would be some r and d component to it, but historically when you look at what our spend has been as a percent of revenue, it’s primarily been again enhancing existing products, investing in back end tools and technology, and also building out the various rule books. Specific on the AI side in two of those three I mentioned, those are great opportunities for us to leverage AI. We are leveraging AI and we do think that that benefit of AI ultimately will have a benefit in the overall customer experience because things can be done in a more efficient way, but the AI investment primarily has been more the internal focus versus a commercial external focus up to this point.

Will Jelison, Analyst, Davidson: Great. Thanks, Kim. Speaking of new products, Chad, I wanted to ask you, just a month ago, SPS announced the new manufacturing supply chain performance suite. It’s an EDI toolkit focused specifically on co packers, manufacturers, and manufacturers. Can you talk about why you decided that this was a product worth building and and releasing and what kind of problems it solves?

Chad Collins, CEO, SPS Commerce: Yeah. So this, if you think about our network today, the the vast majority of transactions that happen on our network are between retailers and distributors and their suppliers. So you have sort of finished goods that are being bought by one organization and sold to another organization. What we don’t have a lot on our our network is a lot of manufacturing type transactions. But if you think of our 50,000 supplier customers, a good portion of them are actually involved in the manufacturing process.

So this solution is actually addressing that sort of upstream component of the supply chain, right, dealing with the suppliers to our supplier customers and giving us another potential cross sell opportunity to to increase revenue and solution and value to those supplier customers. We’re very early on this. And but what I would say is one of the benefits is from a technology standpoint, it’s actually very similar. This can all be done with similar transaction sets in a similar way the network works. So it’s not a situation where we have a big outlay of r and d to make a product like this work.

However, the way that it’s sold, implemented, the terminology that’s used, the value proposition and business case are all different when you’re dealing with the manufacturing supply chain versus the finished goods supply chain. So we had had needed to put a lot of effort in there to enable our sales force around this, which is just a small subset of our sales force focused on this, and also the portion of our customer success team that’s dealing with this manufacturing part of the supply chain versus the finished good part of

Unidentified speaker: the supply chain.

Will Jelison, Analyst, Davidson: Great. So another new product that’s been important to SPS that you ultimately decided to buy instead of build is revenue recovery. I have a few questions about it, I think it’d be helpful to start out with what is revenue recovery software and and why is it important?

Chad Collins, CEO, SPS Commerce: Yeah. So probably makes sense to start with, you know, how this works in the retail ecosystem and that said, the retailers publish a thing called the retailer rule book, which is basically a very thick guide that you need to if you’re a supplier to a retailer, it defines all the rules that are required from a supply chain perspective to do business with that retailer. So it could cover things like payment terms. It covers all the digital transactions like the ones across our network, but it also includes a lot of the physical things like how you put product in the box, how the boxes go on the pallets, how the things get labeled, what transportation providers you can use. And if you’re a supplier and you violate any of these rules, then the retailer will charge you a penalty or a chargeback.

And the way that they do that is they just short pay your invoice and put a often very mysterious charge code on that to reflect the fact that they’re short paying the the invoice. So you can imagine it’s very difficult for suppliers. They don’t exactly know why they had this deduction, and they certainly don’t always trace that back to their supply chain and where the the problem was caused. And in addition to that, the industry average would say that about seven to 10% of these deductions are actually errors on the retailer systems, and you should have never had that deduction in the place. So the kinda old fashioned approach to dealing with this is you might have a accounts receivable person who would receive these invoices, see that had the penalty, attempt to dispute it with the retailer, very manual back and And over the last three or four years, there’s been an emerging category of SaaS solutions, which have been developed and have built into them all the complex rules of these chargeback programs that retailers have, but help you dispute the ones that are sent to you or given to you erroneously.

And we call that, you know, get paid. So get paid where the retailer made the mistake, not you, but then get better. So it helps you go back to the root cause problem in your supply chain so you don’t make that mistake again and you can avoid these penalties. And so we certainly discovered this and we’re aware of this problem from our supplier customers. And through all that work, discovered two companies, one that was very deep in Walmart and Target and Lowe’s and Home Depot and some of those retailers, another one that was very deep in Amazon.

And we acquired those two companies kind of in 2024 and the very beginning of this year, and now we’re putting those together into a common revenue recovery offering that we can, one, because this is an emerging category of software, we think we’ll be able to get new customers, but we also believe we have a pretty significant cross selling opportunity to a portion of our 50,000 fulfillment customers because many of them have this problem with revenue recovery and this solution will help them.

Will Jelison, Analyst, Davidson: Right. And that cross sell is is is a two way cross sell opportunity as well. Right? Can you talk about the two different ways?

Chad Collins, CEO, SPS Commerce: Yeah. So probably the largest way will be of the 50,000 fulfillment customers having them adopt the revenue recovery solution. So we expect most of it to go that way. But there’s also an opportunity for the customers that came with the Carbon six and Supplypike acquisitions that are not yet SPS fulfillment users to become SPS fulfillment users.

Will Jelison, Analyst, Davidson: Great. And is there a target customer, whether it’s by amount of business done or number of employees, that really represents the sweet spot for cross selling revenue recovery into?

Chad Collins, CEO, SPS Commerce: Yeah. So it really depends on how much volume they’re doing with the retailers that have these chargeback programs. So typically, we like to see we’ll we’ll see a stronger business case if they’re doing at least 2,000,000 of GMV with a particular retailer, then there’s typically a very compelling business case to add revenue recovery for that retailer.

Unidentified speaker: Got it.

Will Jelison, Analyst, Davidson: And prior to SPS’ acquisitions respectively, Carbon six and Supply Pike were priced a little bit differently. Carbon six on a take rate basis and Supply Pike on a subscription basis. Now that they’re under the SPS family, are they going to be priced consistently?

Chad Collins, CEO, SPS Commerce: Yeah. So as we’re bringing these together, one is we’re combining the retailer coverage. So if you you know, previous to us pulling these together, if you were selling to Walmart and Target, you probably would have to go buy from Supply Pike and go buy from Carbon six to get the retailers. So we’re combining that. And as you mentioned, Will, they had different revenue models, but they also had different service delivery models.

So the there’s kind of and and now we’re able to position this as the customer wants it. So one model is you use it as platform. So you you have the software, but you have your own team that uses the software, and then you manage the interaction back and with the retailers around all the disputes. There’s another model where it’s more of a service that we provide, a little bit more of a white glove service where we’ll use our own platform, but manage more of the dispute back and with the retailer on your behalf. And then that is really where the the the revenue or pricing model comes in.

So where you’re doing it with your own people, you just pay a subscription fee for the platform. If you’re using more of the white glove service, then we will actually take a portion of the revenue recovered.

Will Jelison, Analyst, Davidson: Great. Great. Kim, I have one for you. So over the last few quarters, we’ve started to see some very nice gross margin accretion, which we probably expect will continue through this year. And that’s a consequence of SPS scaling some investments it made over the past couple of years.

Can you talk about what those investments were and, you know, how you’re now growing into them and driving leverage?

Kim Nelson, CFO, SPS Commerce: Sure. So over a multiyear time period, we’ve invested in the overall customer experience simplistically from a financial lens that would mean the amount of dollars in cost of goods sold was either at or sometimes higher than what that revenue growth was occurring in that particular time period. So it so it made the gross margins be flat, and then sometimes we were investing even at a faster clip. So we think about those types of the investments we’ve been making on the customer experience. A lot of it was focused on time to value, last mile integration.

Think of it as when you sign up to do business with SPS Commerce, how do we make it as quick and easy for you to get that full value of up and running on our platform. We’ve also done things if you think about as our customer size has evolved over time. If you if you’re a smaller size supplier, we’ve certainly made some investments in how do we make it easier when you’re in that tool and application to be able to use it, if you have questions sort of a self-service q and a, etcetera. And then if you skew to more of the larger size supplier or customer, there’s more of a proactive outreach that can happen to that customer size to make sure they’re getting the full value and utilizing our products and services to the full extent. So those would be just some examples of investments we’ve made.

We’ll continue to invest in the customer experience going forward, but simplistically that rate of investment or the amount of bodies to be added in the future is not at that same clip that it has been historically and therefore, you’ll over time you’ll start to see a gradual improvement in our gross margin.

Will Jelison, Analyst, Davidson: Great. And then can we build upon that by talking about the overall target financial metrics that you look at in the long term?

Kim Nelson, CFO, SPS Commerce: Sure. So we have a stated goal long term for adjusted EBITDA margins to be at least 35%. We’re currently call it more upper twenties ish and that next leg we’re primarily pointing investors to gross margin. That does not mean there isn’t room for improvement in other line items as well. The caveat is probably not in r and d.

We do think that’s appropriate level of investment, but each of the other line items are certainly opportunity for improvement, but we’ve already extracted a lot of efficiencies out of sales and marketing as an example. So that next leg of the journey is primarily in gross margin and to put that in context, we’ve been call it mid sixties ish from a gross margin perspective for multi year time period, and we have a stated goal of sort of low to mid seventies. And that low to mid seventies equates to our stated goal of 35% or greater from an adjusted EBITDA margin perspective.

Will Jelison, Analyst, Davidson: Great. And then how about the revenue growth model and how do you think about the different drivers of that between wallet share, net new customers, and M and A?

Kim Nelson, CFO, SPS Commerce: Yeah. So there’s multiple ways in which we can deliver that revenue or top line growth. The the mix of that will candidly vary depending on the year, but maybe if we talk about some of the different components there. So our community go to market, that is a that has been a very strong lead gen engine for us for our last two plus decades that we expect to be in place for the next two plus decades and that tends to bring us for our initial interaction with the prospect, it tends to skew to those smaller size suppliers. We also get a lot of outreach to already an existing customer through those community enable campaigns in which case it’ll show up on that ARPU versus the customer account.

So that remains alive and well. Our channel sales team going after those larger size prospects when they’re making an ERP change, that remains alive and well. We have multiple ways of cross sell over time into our existing customer base and then we also have the opportunity to be acquisitive. We have been acquisitive in the past. If it meets certain business needs that we see, we’ll continue to be acquisitive going forward and all of those contribute to what our overall growth is at any point in time.

Will Jelison, Analyst, Davidson: Great. Chad, as of the most recent 10 k, SPS sits at about 17% of sales internationally, growing a little bit faster than the domestic customer base. Where does SPS stand with its international growth ambitions?

Chad Collins, CEO, SPS Commerce: Yeah. So for a long time, SPS was able to to win suppliers onto our network that are outside The US, but it was always primarily driven by community enablement programs with US retailers, and the suppliers to those retailers just happen to be outside The US. So we had a mechanism in Asia for us to sell and service those customers that were Asian suppliers to US retailers. And in Europe, we would actually sell and service them from The US. About two years ago, we made an acquisition of a company called Thai Kinetics, and Thai brought us a presence in Europe.

And we’ve been now transforming that go to market so we can sell directly in Europe and service customers directly in Europe. And we’re in the beginning stages of launching the community enablement go to market in Europe.

Will Jelison, Analyst, Davidson: Great. At this point, I’ll I have more questions, but I’ll press pause, open it up to the audience, see if any of you have things that you wanna ask Chad or Kim.

Unidentified speaker: You guys put out I’m sorry. You put out on the top one of retailers retailers where you are and what that opportunity is. So I guess the question is, is that the opportunity or is it the, like, the revenue recovery software and the cross sell opportunity there? Where’s the bigger go forward opportunity?

Chad Collins, CEO, SPS Commerce: Yeah. So we have the majority of The US large retailers trading on our network. And so from a network perspective, we’re supporting the major retailers. And then there’s another way that we can work with those retailers by running these community enablement programs. That tends to be a little less binary, meaning at any given point in time, we can go run a community enablement program with a retailer.

So that’s kind of ongoing activity we do with the retailers. So but what that does then is if we work with those retailers, it drives the market penetration on the supplier side. And we we definitely, to Kim’s comments earlier on where we’re gonna increase the wallet share the most, we think the largest opportunity is increasing existing customer connections on the network. And that will be driven though by the programs that we run with the retailers. And then the cross sell of our analytics and revenue recovery products are important, but secondary to adding new connections on the network.

Unidentified speaker: So have you integrated the two acquisitions for one pricing structure?

Chad Collins, CEO, SPS Commerce: That is literally in process as we speak. Yeah. So we closed on the of those two at the January, and that’s been a big focus of our post merger integration to combine those sales forces, combine the message to the market, and combine the pricing models.

Unidentified speaker: And regarding the message to

Unidentified speaker: the market, so one of them was

Unidentified speaker: evident in very wedded to Amazon. So Amazon’s got a buy into high end pricing. Right?

Chad Collins, CEO, SPS Commerce: Yeah. So we have a great relate

Unidentified speaker: I have a lot of input at least.

Chad Collins, CEO, SPS Commerce: So because so we have a good relationship with Amazon. They see the value of having this type of offering to their suppliers. But Amazon does not necessarily dictate our pricing model, right, because this is a mechanism that we provide that if Amazon makes mistakes, you can recover your your money from Amazon. So while it’s a positive relationship with Amazon, they’re definitely not dictating our pricing model.

Unidentified speaker: And and and is the cross haul with 50,000 customers, is that material or revenue recovery?

Chad Collins, CEO, SPS Commerce: Yeah. So what I would say there is it’s not gonna be addressable to all those 50,000. So I mentioned this kind of $2,000,000 GMV level that would be ideal to prove out the ROI. So a lot of our 50,000 customers are below that level. But when you get into kind of the medium and large portion of that 50,000, it’s very addressable to them.

Unidentified speaker: Matt? I’m looking at this the ARPU slide in your presentation, and I’m kinda curious. The concentration of customers that are below your average Yeah. But then there’s a smaller number that is in a big gap. Which would you rather see move further to

Unidentified speaker: the right? Like, you rather have

Unidentified speaker: the high number customers slide to the right, or is that 10 to 15% kind of, like, incremental margin lift in those of the size of the companies that can actually get to that that goal? I guess, if you understand that.

Chad Collins, CEO, SPS Commerce: Yeah. Yeah. So in each of our small, medium, and large customer segments, we see this common pattern where 80% of the customers are below the average for that segment. So the opportunity for us is to take that 80% and drive them up toward the average because we know there’s customers already that are at the average, and then there’s some way out on the right hand side, which are kind of an ideal state. But definitely with 80% below the average, the big opportunity for us is to move more toward the average.

And, obviously, the average will change as we move

Unidentified speaker: them up. But Well,

Unidentified speaker: what keeps that lid what keeps that percentage down below the average? Is it the size of the customer? Is it maybe you just haven’t had the opportunity to penetrate yet?

Chad Collins, CEO, SPS Commerce: Yeah. No. That’s a great question. So it’s really about the penetration. So, you know, if you think about a lot of application software that’s out there I mean, let’s just take CRM as example.

If a company has Salesforce, all their salespeople are gonna be on Salesforce. Right? It doesn’t really work that way in our business. We may get a customer and they add one connection for one retailer, but for the other retail customers, they have other ways of interacting with those retailers. They could be getting those orders via email.

They could be going out to a retailer portal. They could be using one of our competitors for certain connections. And so the big opportunity for us is to kinda win that battle customer by customer to go get all of their connections they have a streamlined approach connected to our network.

Will Jelison, Analyst, Davidson: I can ask another question about SPS’s acquisition track record. So if you were to look over the course of the last ten years or so, SPS has done a handful of deals that were either focused on expanding the network where it was opportunistic to buy a pool of customers or to bolt on complementary technologies. And thankfully, you’ve never done anything majorly transformative nor do you need to accept relatively beautiful business model. As we sit here today having absorbed a few bolt on technology related deals over the last year, how do you think about the kinds of acquisitions you might pursue moving forward?

Chad Collins, CEO, SPS Commerce: Yeah. Yeah. So if we break those into the categories, a lot of network expansion acquisitions where we’ve been able to take companies that were basically competitors and bring those customers over to our network. And, usually, that’s a big benefit for the customer because they join a bigger network, and then it’s a big opportunity for us to upsell that. And we can take costs of the acquired technology out as we migrate those customers to our network.

So very value creating. The category and and for that category, we will continue to do those types of acquisitions to the extent that we can find those acquisitions. What I would say is the industry has consolidated. We’ve done a lot of that consolidation. There’s still some out there, but I don’t know that we’ll find as many of those in, say, the next ten years as we were able to do in the last ten years.

The other category is as we moved upmarket, we saw the need to have tighter integration with our customers’ ERP systems. And we did acquire some technology there, which gave us adapter technology to connect our network into our customers’ ERP systems. You know, there may be one or two small things that we could still do there. I would say we generally feel like our adapter portfolio for ERPs has been built out at this point. Some of it’s come through m and a.

A lot of it we built out ourselves. And then I would say that we do see more opportunities for things like revenue recovery where there’s a category of software, the strong ROI and business case for the end user, and is very addressable for our current fulfillment customers. And also and we didn’t mention this earlier on revenue recovery. It gets better by being connected to our network. So these revenue recovery solutions before we own them, you know, they had to go out and and get data from lots of different sources.

A lot of that data can come right off our network now. So the actual solution gets better by having that being in being connected by to the network and being owned by SPS. Great. Any others?

Will Jelison, Analyst, Davidson: Alright. Well, I’ll ask one more. Okay. How do you think about SPS? It has network 50,000 suppliers, lots of different three PLs and retailers in that in that network as well.

How do you think about the other ways you might be able to monetize all of the data that’s created from from the commerce flowing through it?

Chad Collins, CEO, SPS Commerce: Yeah. I mean, it’s definitely something that we’re we’re working on. We do see be based on the volume of transactions and the amount of US retail trade that’s going across our network that there’s things that we could do to provide better insights to our customers around how they should be demand planning and forecasting and other patterns based on that data in the network. And I think there’s gonna be over time further monetization opportunities of that network data.

Will Jelison, Analyst, Davidson: Great. Well, thanks everybody for coming. Thank you, Chad and Kim, for being here. Thank you.

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