Excellent. Alright. Well, welcome everyone, to Citi's twenty twenty five Global TMT Conference, day two. Good morning. I'm George Kurosawa, software analyst here at Citi. And I'm pleased to be joined by SPS Commerce CEO Chad Collins and CFO Kim Nelson. For those in the room today who are joining us, I will leave time at the end for questions. So if there's anything we don't address, please don't be shy. To start with, Chad, if you wouldn't mind giving us the the SPS story, who are your customers and what do you do? Yeah, absolutely. So at SPS, we operate a network in the cloud, that connects retailers and distributors with all of their suppliers to exchange supply chain information across the network. And, we're unique in operating, the world's largest retail, network doing this. And the fact that we've done and solved this supply chain data exchange problem with a network based approach. The other other way that we're unique is, our go to market approach. We will work with retailers, and surprisingly, retailers don't have all their suppliers digitally connected and we provide an enablement service then to do all the outreach to all these suppliers and take them through a process to help them get digitally connected, to the retailer, and that helps us build out, our network. So as a result of all this, we've added over 50,000, suppliers, to our network, many of them doing trading with multiple partners across our network. Excellent. You recently updated your TAM figures to an $11,000,000,000 opportunity. Maybe you should walk us through kind of the breakdown there. Where do you feel like you are, most underpenetrated? Where's the the opportunity as you see it? Yeah. So as we, refreshed our our TAM, we really did it from a bottoms up analysis looking at all the potential, suppliers that could join, our network, and found, one, a significant opportunity still for, suppliers to be added, to the network, Most of that coming from, suppliers that are not using digital connections to their retail partners and would get benefit from a network, like ours. And we also saw a significant ad, opportunity to add to the average revenue, per customer coming really in two components, the the largest being more connections from existing customers on the network. So, we found that a number of our customers are still further penetration opportunity to add more connections with their trading partners on the network. And then to a smaller degree, also an opportunity to cross sell our broader product portfolio to the customers to increase the average revenue per customer. Excellent. I think we're about a month and change removed from your Q2 print. And I would love to follow-up on a few things there. I think you guys called out some incremental macro headwinds in the quarter, and then you gave some new go forward growth and margin targets. So maybe just to start on the macro side, if you could describe what you saw with that subset of mid market customers. And then just talk about kind of your macro resiliency sensitivity more generally, I think of you guys as a more resilient business model. A couple of things have popped up here. Just how are you thinking about, that component of the business? Sure, sure. So as we've seen a little bit of macro pressure, on the retail industry and, in particular, the suppliers to retailers and then also headwinds coming from the uncertainty from the global trade environment, What we saw was actually pretty steady and consistent demand on the retailer side of what we do. So the pipeline for these enablement campaigns that I mentioned before has remained strong, and, actually, customer additions, which are primarily driven through those enablement campaigns, has been strong here in 2025. On the supplier side, it's been a little bit different, I think, especially driven by the global trade uncertainty. Suppliers that are more small and medium having fewer sources of global supply. They may be single sourced to certain countries. That's created some uncertainty for them, and I believe that uncertainty has been sort of met with, some more scrutiny, not specific to SPS Commerce and their spending with SPS Commerce, but in general, cost scrutiny and looking at all types of recurring costs on the supplier side. And so what that has resulted in for us is just some prolonged sales cycles. Another nice channel for new customer wins for Us is mid market, ERP conversions. That's often the time if they implement new RP new ERP, they'll they'll convert all their digital connections over to our network. We've seen some of those sales cycles, slow down as well. So I'd say, in general, the business has proven to be quite resilient, to to the macro. But what I would say is the time period here has been, I'd say, a little maybe unprecedented, similar to actually what we saw in the first couple months of the pandemic. And then we saw some acceleration generally in retail, which kind of picked things up in the pandemic. So we're optimistic that this was sort of a onetime set of cost scrutiny. And as there becomes more certainty, especially in the global trading environment, the spending on the supplier side of our network, will pick up as it has been steady already on the retail side of our network. Okay. That's that's really helpful color. And then on the upgraded the updated, growth and margin framework, at least high single digit organic growth, two points of EBITDA margin expansion per year, a a point that I think gets, missed quite frequently. Maybe you just talk about how you guys kinda triangulated on those numbers just to start with. Sure. Yep. So to your point, we provided an updated view and it's a, it's a bit of a broader view. So just for context for those that may or may not be as familiar with SPS, every year we guide specifically for the year of what our expectations are. But then periodically, call it, every three to five years, we provide a view that's a little bit more broader of how investors should think about our business in a multiyear time period for both how to think about growth from the top line as well as how to think about profit or EBITDA from the bottom line. So that is what we updated in our last quarter, which was our broader statement of at least high single digits top line with, to your point, 2% margin improvement from an EBITDA perspective. So, the puts and takes are how we got there. If we start with the top line, I'll piggyback off of some of the comments Chad just made. So we certainly are in a time period where there are some uncertainties out there as it relates to global trade, environment, our customer spend, etcetera. We did take that into account, but we also do know that there's still a very large opportunity that we have with our TAM for customers to continue to buy more products from us. And the way we go about and getting those customers initially, those are very strong engines for us, the community enablement as well as the channel sales. So various scenarios we put together to evaluate what do we think that could look like, and all of that translated to scenarios that got us comfortable to say at least high single digits. Now, the prior statement that we had made going back about four years ago, we had an all in stated goal of 15%, which did include M and A. So, one notable difference between these two is this comment that we're making excludes M and A. So, the way investors should think about that is that would all be additive or on top of our stated goal. Specific on the bottom line or that EBITDA margin of two percentage points, there's a couple reasons that give us conviction of why we can deliver that. One, being a SaaS business, there are inherent efficiencies that one can get with a SaaS business model. Two, when you have a growth rate expectation of high single digits, we do want to make sure that we are appropriately spending accordingly based on having a growth expectation of high single digits. Simplistic example would be there. We don't necessarily need to add as many additional resources when your top line is growing a little bit less than it otherwise would have been. On top of that, we have made a lot of investments in the customer experience over a multiple year time period, and we're at a point where we're going to be able to start to grow into some of those investments. You're already starting to see that come through in our gross margin in 2025, And we have a stated goal longer term of about low to mid-70s versus mid-60s where we historically have been. So all of that has been taken into account with our belief and conviction of why we can grow at least high single digits top line while delivering approximately two percentage points EBITDA margin expansion on an annual basis. That's excellent color. So you said you have historically updated those numbers on a three to five year basis. I think a lot of people took your comments as like a 2026 guide, which I think is probably the wrong interpretation. Is it fair to think of this more as like a three year outlook? Or is there any sort of how would you frame that? Sure. No, that's a great way to look at it. So as a business, we will provide our official guidance specifically for 2026. We'll do that on our Q4 twenty twenty five earnings call, very similar to what we do, on an annual basis, specific for the year. Yes, George, to your point, that comment is more of a broader statement. It's also why the statement is saying at least high single digits, because there's various scenarios over a multiyear time period that translate to different numbers. And since it's a broader statement, meaning over a multiple year time period, we felt comfortable providing that perspective of saying the at least high single digits. Excellent. So I'd like to unpack that high single digit plus growth and how you kind of get there sustainably. Maybe just to start, if we think about your core North American EDI fulfillment market, if we just think about that business by itself, how far does that get you? Can you achieve high single digit growth with just that before we consider things like international, the cross sell and all these other growth initiatives? So I would say to come up with that number and knowing that there's various scenarios, it takes into account all of our existing portfolio. And then there's assumptions of how that growth will occur over time. So the core fulfillment product is a big contributor, but it also does include our other product offerings. Analytics currently is there's a lot of headwinds on analytics with the uncertain economic times, and that is a product where we have historically seen and we would expect to continue to see more pressure in those more challenging economic times. But we have a new product offering on the revenue recovery side, still pretty new for us. But over multiple years into the future, we certainly do see nice cross sell opportunities. So all of that has been taken into account relative to our expectation. When you translate that and look at it relative to TAM, the biggest chunk of that is the core fulfillment, even though of course there's still opportunities in both revenue recovery as well as analytics. Excellent. Okay, well maybe let's talk revenue recovery. That's a really exciting opportunity, I think. Carbon six and Supplypipe, the two acquisitions there. If you could talk us through the strategy, where you're at on the integration status and how you're thinking about early performance? Yes. So let's start with the problem that our customers have. Our customers are the suppliers to retailers, and retailers put in place very complex rule book, that dictates, how the supply chain needs to operate if you're a supplier to a retailer. It covers everything from these digital transactions and messages that, we've already discussed here to how you need to put the boxes on the pallet, how you need to label the pallet, what transportation carriers you can use, and at what time frame it needs to show up to their distribution centers. If you violate any of these rules, the retailers will charge a penalty for that. And the way the penalty happens is they just short pay, your invoice with a very mysterious sort of penalty code associated with that. Well, that presents big challenges for suppliers. Right? I mean, one, nobody wants to get short paid on their invoice. Two, if you do, you want to understand what the problem was so you can fix it and make sure it doesn't happen again. And then on top of that, we find that about seven to 10% of these chargebacks or penalties are actually errors in the retailer system. So if you have the right supporting documentation, you can dispute them and get your money back. So that's the big problem that we were hearing from our customers. As we looked at how we might address this problem, we found that there were some newer SaaS companies that had been built that were solving this problem for suppliers to retailers. And the way they were doing that is kinda building out, around solutions for specific retailers. So the first one, that we found was SupplyPike. SupplyPike had started solving this problem for suppliers to Walmart and grown out to Target and Lowe's and Home Depot and CVS and a few other retailers. And, that was our first acquisition in this space. We felt that it was more efficient to, from a time to market perspective, to acquire in this space versus, build or partner. And shortly after that, we engaged further with Carbon six. And and Carbon six had deeper penetration with Amazon, which was not yet built out on the supply pike side. So we felt that by combining, supply pike and Carbon six, we could get the broadest retailer coverage. And there's a tremendous opportunity for us to cross sell these solutions over to our fulfillment customers that we already have on the SPS network. So where we're at with the integration, it is important that we go to market not as Amazon solution or a Walmart solution, where we bring all the retailers together. So we have unified the go to market for revenue recovery, have one go to market that covers all the retailers. We also offer it in a couple of different formats. If you want to use our platform and manage the recoveries yourself, you can do that just with a straight platform subscription fee. If you prefer for us to handle on more of a white glove service basis the recoveries on your behalf, we can do that for you as well. In that case, we take a percentage of the recoveries for that more white glove service. So we've integrated that whole go to market. We have those teams selling together now. And we've kicked off early cross selling opportunities back to our SPS fulfillment customers. But I'd say we're in early days and expect that to ramp up more over the next several years. Okay. Excellent. And when you think about the sort of pace of rolling that out to your sales force and ramping up that cross sell, you framed it as the next several years. Is it can kind of walk us through, is it fair to think of 2026 as kind of a sea change from what you saw last year where you're doing more of the product integration, turning on the cross sell in 2026? Or is it going to take a little longer than that? Yes. So I'd say what we've seen in 2025 is some early success. Even in our earning in our last earnings call, we highlighted a customer, Allstar Products, who've been a long time SPS fulfillment customer. They were introduced to the revenue recovery solutions and selected it for recoveries for a broad range of their retailers. So those types of proof points show that there's definitely opportunity here for the cross selling. I'd say at this point in time, it's been a bit more in an opportunistic and pilot phase as we ramp up the knowledge of our fulfillment customer account managers on the solution to help identify opportunities for revenue recovery. As that becomes to get more programmatic in 2026, we should see an increase in that cross selling. I'd say the other benefit that we have in this cross selling approach is that we're a network company, So we see all the data that's flowing and and understand the transactions that are processing between a supplier and a retailer, which can really help, us do kinda back end, prospecting based on that data to help the sales team identify those opportunities in a more programmatic way. Really interesting. As it relates to the Amazon ecosystem, I think that's an area we've gotten some questions about some of the changes they've made to their ecosystem, particularly on the 3P side, which I know is not kind of the core focus of what you're doing there. But just anything in terms of implications or impacts that you've seen? Yes. So we see tremendous growth in the Amazon marketplace continue to see more and more sellers there, which just increases our opportunity for revenue recovery. There has been a few maybe more well publicized on the Amazon changes in their policies relative to what can and cannot be recovered. And what I'd say is that these retailers are always changing their policies around their penalty programs, and it really is driven by their need to modify their own supply chain performance and supply chain scorecards. So that really is the benefit of a supplier being on a SaaS platform like this, than needing to keep up with all the rules from all the retailers when these policies change. If you're on a SaaS platform, we maintain the compliance with all those rule changes and support it on the platform, then you get it through the technology. And so in this ever changing policy and rules changes relative to these chargebacks and penalties, that's really a huge driver of why you want to be on a SaaS platform rather than try to manage this all yourself. That makes perfect sense. Really analogous, I think, to your EDI value proposition in a lot of ways. The fact that these roles can change and do change is part of the value proposition. Okay. International, I think another really interesting long term growth opportunity. I think from our perspective, the question is really around kind of pacing of how you are thinking about rolling that out. It seems like you guys are thinking more kind of country by country. Maybe if you could just talk to us about what the current strategy is there? Yes. So maybe just where we are in our current business internationally. So we have had a business for several years in Australia. We run retail enablement programs in Australia. It's a good business for us. Australia is it kind of fits the size of the GDP in Australia, we're a major player there, but it's relative to our total business, not massively impactful. We also have a team in Beijing that handles sales and customer service for our Asian customers. It's very common when we run retail enablement programs in The U. S. That a good portion of those suppliers will be in Asia. And so we'll add those Asian suppliers to the SPS network through that team in Beijing. We also have a revenue recovery team now in Shenzhen that's selling to a lot of Chinese sellers on Amazon. And then Europe, we've historically attracted customers in Europe through enablement programs in The U. S. And Canada, where those suppliers are in Europe. We've done all that from The U. S, so we've sold them and serviced them from The U. S. A couple of years ago, we made the acquisition of Tide Kinetics, a European based EDI company, really to get a beach hold and a foothold in the European market. And we successfully integrated that business now, and those sales and service teams there are direct selling in the region as well as taking, the management of of the Thai kinetics customers plus all the customers we had on the SPS side. What's also interesting about Europe now is we're, doing retail enablement programs in Europe, and this is critical for us. So if we are successful running retail enablement programs in Europe, I believe we'll be able to grow the network even faster in Europe, and Europe presents a good opportunity for us. I do think that there's a few headwinds in Europe that we don't face in The U. S. Running these enablement programs. One being just the sort of balance of power between the supplier and the retailers, a little bit different in Europe. You have a lot smaller retailers in Europe, just given the geographic coverage. Most of them tend to be country specific or region specific. So their ability to enforce compliance rules on their suppliers is a little bit different in Europe, and that's something we'll work through. Also, just running the program itself operationally across multiple regions and multiple languages and multiple business cultures in Europe, that's something that we have not faced when we run those programs in The U. S, and we'll have to work through there. So early days. We're actively running these enablement programs there. The rate at which we'll get traction with that, I think, will determine determine the the rate rate at at which which our business can grow out and the network can grow out in Europe. Makes perfect sense. The analytics product, I think you kind of alluded to that as maybe a little more macro sensitive. It has been a bit of a drag on growth recently. Just maybe what do you expect from that business in the near term? And what's kind of the strategy for picking up the growth profile there? Yes. So overall, I'll point out that the analytics business is a pretty small portion of our total business, but has been slower growing over the last couple of years than the rest of the business. And part of that is it does tend to be a little bit more discretionary. The analytics product's really delivering point of sale data from retailers to their suppliers so they can make better decisions about their assortment and their supply chain planning. Well, you can imagine that if you're facing some cost pressures and you have lower volume retailers where you're subscribed to this point of sale data, it may be logical to turn that off for a point in time, whereas you can keep it running with your higher volume retailers that you're working with. But so because we offer customers that flexibility, we have seen some customers sort of down sell on that product, not necessarily churn, but turn off data feeds from certain retailers. There's some exciting things going on now with the product road map of that product as well in terms of how we manage the data, how customers gain access to the data. We've done some product partnerships in that area with some of the big data providers that we're seeing our customers use just to make it easier for customers to access that data. And we have some new advancements in the user interface for that product as well, which I think all these factors will contribute to, over time, stabilization of the analytics business. Excellent. So you alluded to kind of your advantage your advantages from a data perspective. Maybe you could weigh in on the the AI discussion here. I know from a product perspective, is it know, you guys haven't been as forthright on that front. Most of your initiatives have been more internal facing. Do you see opportunities for AI products in your future? And then maybe we can pivot after that to the internal AI discussion. Yeah, absolutely. So, a few areas that, we're working on, and getting into the product road map. One is, obviously, all the data that we exchange integrity of the transactions that we process for our customers is a great use case for using AgenTik AI. Think of it as a transaction quality assurance expert that's an agent that is really there and ensuring that all your transactions are accurately processed, if there is a piece of data that's missing, you're proactively notified. So it's really like getting an expert who can validate certain things on the processing of the network, so there are definitely use cases there. I think as software in general moves from less forms based user interfaces and people sitting in front of a screen doing their activities to more chat and voice based interactions with software, we should be very well positioned there as well. And then the massive amount of data that we have going across our network as we're applying AI and, in particular, AgenTik AI on top of that, really gain some insights for our customers around their business and their business performance and their market share within particular areas that all should lead to potential new solutions that we'd be able to bring to market for customers. And that would be all on top of what I believe is just going be massive efficiency gains for software companies. If you look at all the work that typically goes on in a software customer from prospecting and marketing customers to selling customers to servicing customers to onboarding customers. There'll be big efficiency gains to come from AI for all software companies, including SPS Commerce. Excellent. And then what are you guys doing there? Any kind of specific initiatives you can point to on the internal use of AI? Know that's been a big focus for you all. And if you could connect that, maybe is there a component of your margin outlook that is related to efficiencies from some of these initiatives? Yes. So we've had a number of use cases, especially on the customer, support and service side, where we're using AI, on the, support side to triage tickets, engage and decide on customer sentiment and prioritize support tickets. We've also found use cases to simplify the customer onboarding to our network. And I believe we're also now using quite a bit of AI to monitor what's happening in the selling process and in our conversations and engagement with customers to suss out certain trends, also to help with training of the sales force and make sure they're having the right conversations with customers and prospective customers. We have provided longer term margin expectations for our business. And I'd say there's an underlying theme that we will get some efficiencies through AI in that longer term margin expectation that we've outlined. Okay. Excellent. On the competitive side, I think about some of the legacy incumbents that you guys have been displacing really since your inception. Have you seen any changes there in terms of them as a source of bookings or of growth? Any adaptations that they've been making to compete better against you guys? And anything from the new entrants side or anything like that, that you have your eyes on? Yes. So as we in general, a consistent pattern of where we're finding and who we're finding in competitors. And as we think about our competitors, we really think about those large historical incumbents that have historically served the enterprise on both the retailer side and the supplier side. And they've done this traditionally with more of a do it yourself approach versus a network based approach. And we do see that those customers are on a replacement cycle as they modernize their IT infrastructure or they have certain EDI experts that leave their business, those companies are looking for a more full service and network based approach. It's just they need to be on a certain replacement cycle to change out more of that enterprise technology. Then on the lower end of the market, there are a lot of smaller companies that tend to be focused around a certain maybe ERP ecosystem or a certain category of suppliers within retailers. And that environment, there's some of the same players there, but there are new entrants and then some fall out. And I think our sales team is very effective in carrying the message about the benefit of a network based approach and the benefit of a full and managed service approach, especially in that SMB area. Right. A few minutes left. I wanted to open it up if there's anyone in the audience that has a question. We have a mic runner. Please. Good morning. Just a quick question on the gross margin expansion. You spent most of the last decade between 6668%. You acquired these revenue recovery businesses that are, call it, 8%, 9% of revenue for this year. What's the big step function to get you into the low 70s? Sure. So when we think about the gross margin, and to your point, there was multiple years where that gross margin has been in that mid-60s ish range, and we have a stated goal of low to mid-70s. As a business, we've spent many years investing back in the overall customer experience. And a simple way to think about that is that means that there's points in times where the amount of spend back in the customer experience, which hits cost of goods sold, so therefore it hits gross margin has been at or greater than what our top line growth has been in that particular year. So it put some pressure on those margins staying in, call it that mid-60s. Examples of what we've done there in the customer experience has been sort of last mile integration. So if you're a customer that you want to be connected into your back end ERP, how do we do that even more efficiently so that you're getting time to value quicker? We've also made a lot of investments in that overall onboarding experience as well as just the ongoing relationship with the customers. With that, we're now at a point where we feel like we can start to grow into those various investments we've made. So simplistically, the amount of resources that we need to add incrementally is fewer than what we've historically had to add. And therefore, there's an inherent gross margin expansion that will come out. Just that's growing into various investments and natural scaling and efficiencies. Longer term, we also do think by some of the comments that Chad made, there's multiple ways we can continue to leverage AI to even get more efficient in what we're doing. The combination of all of that translates into our expectation of low to mid-70s gross margin. And you've already started to see some of that come through. So in the back half of 2024, we said you're going to start to see some of that gross margin expansion, and you started to see it in the back half of 2024. If you look at our implied expectations for 2025, which does, based on our guidance, get to an EBITDA margin expansion in the year, we pointed investors to gross margin. And through the first half of the year, you can also start to see some of that gross margin expansion relative to historical. So not only do we what I'm stating as the reasons why you're also actually starting to see that reflect and come through the financials. Just to double click on the revenue recovery. Are the changes that Amazon made, so those are good for you because, people have changed their policies and they wanna get a new good system like yours. But also was it also hard? Because it did Amazon tighten, like, the money that's available to the suppliers. So net net net, how does that is that all good? Or is it make it harder or more even neutral? Yeah. There's always puts and takes. So sometimes the policy changes are more favorable to create a bigger opportunity for recoveries. And sometimes the policy changes reduce the opportunity for recoveries. I'd say in the whole, across all the retailers and all the policy changes, we see it probably neutral to positive because as they put in place more, structure around these rules and more penalties to drive their supply chain performance, overall, over the long term, that should create more opportunity. But certain policy changes can be more of a headwind and certain can be more of a tailwind. Great. I think they're playing the music on us, so we'll get off stage. Thank you all for coming, and thank you guys for being here. Thank you. Thanks, Josh. Thanks, Chad. Yes. Good to see