SPS Commerce, Inc. (SPSC) Q3 2025 Earnings Call Transcript

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Overview

The earnings call summary presents mixed signals. Financial performance is stable with revenue growth, but concerns about reduced revenue visibility and delayed campaigns weigh negatively. The Q&A section reveals consistent spend scrutiny and delayed purchase decisions, but management is optimistic about global growth and new market strategies. The lack of clear guidance on certain aspects and consistent issues like customer churn and delayed benefits realization balance out the positives, resulting in a neutral sentiment.

Key Financial Performance

Revenue $189.9 million, a 16% increase year-over-year. Recurring revenue grew 18%.

Fulfillment Business Growth 20% year-over-year increase.

Recurring Revenue Customers Approximately 54,950, an increase of 450 from the prior quarter.

Average Revenue Per User (ARPU) Approximately $13,300.

Adjusted EBITDA $60.5 million, a 25% increase compared to $48.4 million in Q3 of last year.

Cash and Investments $134 million.

Share Repurchase $30 million of SPS shares repurchased.

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Operating Highlights

Revenue recovery solution: Cyber Power Systems leveraged SPS's revenue recovery solution to modernize supply chain processes, achieving immediate ROI and exploring further opportunities.

Retailer management solution: Petco transitioned 700 suppliers to standardized digital supply chain requirements using SPS's solution, reducing manual data reconciliation and improving efficiency.

Revenue growth: Third quarter revenue grew 16% to $189.9 million, with recurring revenue up 18%.

Customer base expansion: Net increase of 450 customers in Q3, reaching approximately 54,950 recurring revenue customers.

Operational efficiency: Petco achieved measurable efficiency gains and improved trading partner performance tracking through SPS's retailer management solution.

Leadership transition: Dan Juckniess, Chief Revenue Officer, is retiring, and Eduardo Rosini will join as Chief Commercial Officer to enhance customer lifecycle management.

Strategic acquisitions: SPS made acquisitions over the past two years to expand its product portfolio and market reach.

Go-to-market strategy: Completed combined go-to-market strategy ahead of schedule, positioning SPS to unlock potential in emerging product categories.

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Risk or Challenges

Macroeconomic Uncertainty: Ongoing macroeconomic uncertainty and spend scrutiny are impacting customer behavior and financial performance.

Revenue Recovery Business Challenges: Revenue recovery business came in approximately $3 million below expectations in Q3 due to unexpected seasonality and changes in Amazon's inventory capacity policy for third-party sellers.

Customer Spend Scrutiny: Delayed purchases and invoice scrutiny are affecting spending across fulfillment customers, leading to potential revenue impacts.

Delayed Retail Relationship Management Programs: Several large enablement campaigns have been pushed from Q4 2025 into the first half of 2026, resulting in a decline in one-time revenue from testing and certification fees.

Leadership Transition: The retirement of the Chief Revenue Officer and onboarding of a new Chief Commercial Officer may pose transitional challenges in maintaining sales momentum and customer relationships.

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Guidance & Outlook

Revenue Guidance for Q4 2025: Expected revenue to be in the range of $192.7 million to $194.7 million, representing approximately 13% to 14% year-over-year growth.

Adjusted EBITDA for Q4 2025: Expected to be in the range of $58.8 million to $60.8 million.

Earnings Per Share (EPS) for Q4 2025: Expected fully diluted EPS to be in the range of $0.53 to $0.57.

Non-GAAP Diluted Income Per Share for Q4 2025: Expected to be in the range of $0.98 to $1.02.

Revenue Guidance for Full Year 2025: Expected revenue to be in the range of $751.6 million to $753.6 million, representing approximately 18% growth over 2024.

Adjusted EBITDA for Full Year 2025: Expected to be in the range of $229.7 million to $231.7 million, representing growth of approximately 23% to 24% over 2024.

Earnings Per Share (EPS) for Full Year 2025: Expected fully diluted EPS to be in the range of $2.31 to $2.34.

Non-GAAP Diluted Income Per Share for Full Year 2025: Expected to be in the range of $4.10 to $4.15.

Initial Outlook for 2026 Revenue Growth: Expected to deliver revenue growth of approximately 7% to 8% without future acquisitions.

Adjusted EBITDA Margin Expansion for 2026: Expected to expand by 2 percentage points, driven by continued improvement in gross margin and operating efficiencies.

Long-Term Revenue Growth Expectation: Expected to deliver at least high single-digit annual revenue growth without acquisitions.

Long-Term Adjusted EBITDA Margin Expansion: Expected to achieve 2 percentage points in annual adjusted EBITDA margin expansion.

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Shareholder Return Plan

Share Repurchase: We ended the quarter with total cash and investments of $134 million and repurchased $30 million of SPS shares. In addition, the Board of Directors has authorized a new program to repurchase up to $100 million of common stock, which becomes effective on December 1 this year and is expected to expire on December 1, 2027. We expect to fully utilize the current program before its termination on July 26, 2026.

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Key Q&A

Q:When did the seasonality issue in revenue recovery become apparent, and how does it impact Q4 and fiscal '26 guidance?

A:The seasonality issue became apparent late in Q3 when shipments to Amazon warehouses were lighter than expected. This led to reduced revenue visibility and a $6 million reduction in Q4 revenue guidance. The impact on fiscal '26 guidance includes delayed retailer enablement campaigns now expected in 2026.

Q:What is expected from the new Chief Commercial Officer, Eduardo, and how will his background influence the company?

A:Eduardo is expected to refine the retailer relationship management approach, enhance mid-market ERP channel strategies, and maximize expansion and cross-sell opportunities. His experience with multiple geographies and cultures will support global growth, particularly in Europe.

Q:Are the invoice scrutiny and delayed purchase decisions incremental impacts this quarter compared to the last?

A:The invoice scrutiny and delayed purchase decisions were consistent with Q3 expectations but are expected to continue into Q4. Retailer enablement programs have been delayed to 2026, primarily due to the holiday season.

Q:What investments are being made to support the network-led growth motion, and are there early signs of success?

A:Investments are focused on leveraging network data to identify cross-sell opportunities, such as revenue recovery solutions. Early success includes identifying qualified leads and scaling cross-selling activities.

Q:Is there concern about AI tools enabling companies to build functionality internally rather than using SPS Commerce's solutions?

A:No, there is no concern. The breadth of SPS Commerce's network and compliance capabilities, along with the value of network data for customers' AI strategies, make their solutions complementary rather than replaceable by AI.

Q:Does the slowdown in growth expectations for 2026 affect the M&A strategy?

A:No, the M&A strategy remains focused on consolidating the EDI market, expanding the solution portfolio, and geographic expansion, with a lower priority on the latter due to ongoing European strategy execution.

Q:What is driving the spend scrutiny among customers, and how has it evolved?

A:Spend scrutiny is driven by suppliers absorbing incremental costs without passing them on, leading to cost-saving measures. This trend began in Q2 and continued through Q3, primarily affecting mid-market customers.

Q:How are the SupplyPike and Carbon6 assets performing, and what is the focus for revenue recovery?

A:The 3P side of the business faced headwinds due to shipment volume changes, while the 1P side remains stable and strategic. The focus is on integrating teams and leveraging cross-sell opportunities for long-term growth.

Q:What assumptions are embedded in the 7%-8% growth outlook for 2026?

A:The outlook reflects current year dynamics and optimism for next year, with a mid-case scenario incorporating recurring revenue impacts and business opportunities.

Q:How quickly will the new go-to-market team for revenue recovery show results?

A:Early pipeline development success is evident, but meaningful revenue impact is expected in the second half of 2026 rather than Q4 2025.

Q:What is the activity level for ERP and WMS replacements, and how does it affect new customer acquisition?

A:There is softness in mid-market ERP replacements, slowing new customer acquisition via change events. High-end enterprise and low-end systems are less affected.

Q:What is the momentum for new logo acquisition going into 2026?

A:Net customer adds in 2025 are higher than 2024, driven by retailer relationship management programs. However, Q4 2025 is expected to be flat or slightly down due to program delays. ARPU growth is expected to contribute more to 2026 growth.

Q:How is AI being leveraged to drive operating leverage and network monetization?

A:AI is being applied to customer-facing workflows in marketing, sales, and customer success teams to improve efficiency and customer experience, contributing to margin expansion.

Q:What is the revenue recovery growth assumption within the 7%-8% guidance for 2026?

A:Revenue recovery is expected to grow faster than the core business in 2026, supported by cross-sell opportunities and integrated go-to-market strategies.

Q:What is the trend in 3P customer count, and how does it affect overall customer growth?

A:The 3P customer count declined by approximately 150 in Q3 2025 due to higher churn and nonstrategic product offerings. This trend is expected to continue, with minimal revenue impact. The 1P customer base is growing and more strategic.

Q:Review of Unclear Management Responses

A:Management avoided directly addressing the specific revenue impact of delayed retailer enablement campaigns and the exact contribution of SupplyPike and Carbon6 to the 2026 growth outlook. Additionally, there was limited clarity on the timeline for realizing benefits from the new go-to-market team for revenue recovery.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

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The earnings call summary and Q&A indicate strong financial guidance and strategic initiatives, such as the acquisition of CarbonSix and community enablement programs. However, concerns about macroeconomic pressures, cautious supplier spending, and unclear management responses temper the positive outlook. The guidance suggests organic growth deceleration, but optimistic guidance for 2025 remains. The lack of a market cap and mixed signals from the Q&A session lead to a neutral sentiment prediction.

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