SPS Commerce, Inc. (SPSC) Q4 2024 Earnings Report, Transcript and Summary

Good day and welcome to the SPS Commerce Q4 2024 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be opportunity to ask questions. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Irmina Blaszczyk. Please go ahead.

Thank you, Nick and good afternoon, everyone and thank you for joining us on SPS Commerce fourth quarter and full year 2024 conference call. We will make certain statements today, including with respect to our expected financial results, go-to-market strategy and efforts designed to increase our traction and penetration with retailers and other customers. These statements are forward-looking and involve a number of risks and uncertainties that could cause actual results to differ materially. Please note that these forward-looking statements reflect our opinions only as of the date of 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 or otherwise. Please refer to our SEC filings, specifically our Form 10-K as well as our financial results press release for more detailed description of risk factors that may affect our results. These documents are available at our website, spscommerce.com and at the SEC's website, sec.gov. In addition, we are providing a historical data sheet for easy reference on the Investor Relations section of our website spscommerce.com. During our call today, we will discuss adjusted EBITDA financial measures and non-GAAP income per share. In our press release and our filings with the SEC, each of which is posted on our website, you will find additional disclosures regarding these non-GAAP financial measures, including reconciliations of these measures with comparable GAAP measures. And with that, I will turn the call over to Chad.

Thanks, Irmina, and good afternoon, everyone. Thank you for joining us today. SPS Commerce continues to execute its mission to provide the retail industry with solutions to optimize trading partner relationships. We delivered a strong fourth quarter and another year of solid performance. For the full year 2024, revenue grew 19% to $637.8 million. Recurring revenue grew 20% with fulfillment growth of 20% and analytics growth of 8%. In 2024, we added valuable products to our portfolio with the acquisitions of Vision33's SAP Business One integration technology, Traverse Systems and SupplyPike. And on February 7, we announced the closing of our acquisition of Carbon6, which builds on SPS's acquisition of SupplyPike to extend the reach of our network and positions us with clear leadership in revenue recovery solutions, supporting the supplier communities of the 2 largest global retailers, including the rapidly growing Amazon marketplace. By powering highly collaborative supply chains, SPS builds long-standing partnerships with retailers like Canadian Tire, the number 1 retail brand in Canada. They engaged with SPS in 2001, driven by the need to support various omnichannel fulfillment models across their network, with more than 20 years of partnership supporting a significant growth trajectory Canadian Tire trusts SPS's retail expertise to help them make the right decisions as they strive for supply chain resilience among evolving retail dynamics. GNC is the world's largest global specialty health, wellness products retailer and one of SPS's long-time customers, operating as both a retailer and supplier, GNC partnered with SPS to automate data exchange across their entire supply chain, improving collaboration with over 1,000 vendors and more than 30 retailers and grocers. In addition, using SPS's analytics solution, GNC shares point-of-sale data to enable its vendors to optimize inventory management and sales strategies. GNC was also a Traverse Systems customer prior to our acquisition and leverage the platform to gain complete visibility into every part of the purchaser life cycle. They were able to isolate the root causes of problematic shipments and worked with vendors to raise the advanced shipping notice compliance rate from 76% to 92%. This resulted in better visibility into inbound shipments, allowing GNC to improve time to value of its inventory. BISSELL, a leading manufacturer of home cleaning solutions uses SupplyPike's automated revenue recovery solutions to consolidate data from retailer portals into a single user-friendly platform. This gave BISSELL the visibility they needed to save millions in disputed deductions across multiple retailers. Having access to the data on one platform also helped BISSELL gain actionable insights into deduction trends across retailers, identify areas for improvement and optimize revenue recovery strategies. Canadian Tire, GNC and BISSELL, are great examples that demonstrate the possibility of wallet share expansion across SPS's supplier network. I would now like to spend a couple of minutes on our growth opportunity. Last year, we committed to providing an updated view of our addressable market. Over the last several months, we worked with a third-party strategy consulting firm to evaluate the size of SPS's market opportunity, taking into consideration our current product portfolio. We identified the applicable industries, determined potential customer count and potential wallet share and we currently estimate our addressable market to be $11.1 billion globally, including $6.5 billion in the U.S. The $11.1 billion TAM equates to $275,000 recurring revenue customers on average spending of approximately $40,500 per year. As we look at the global market opportunity, we address the needs of all sizes of customers, small, medium and large. We have included several slides in our investor presentation to demonstrate this updated view of our addressable market. Our expectation is that going forward, we will continue to report the global number of recurring revenue customers and ARPU on a quarterly basis and provide the information related to the penetration levels across our customer categories on an annual basis. To summarize, we are pleased with what we have accomplished in 2024. And I'd like to congratulate the SPS Commerce employees for their unwavering commitment to excellence and exceptional understanding of the retail supply chain. With the depth and breadth of solutions we offer today we are uniquely positioned to support all trading relationships and continue growing our network to move the world of commerce forward. With that, I'll turn it over to Kim to discuss our financial results.

Thanks, Chad. We had a great fourth quarter of 2024. Revenue was $170.9 million, an 18% increase over Q4 of last year. Recurring revenue grew 19% year-over-year. Adjusted EBITDA increased 18% to $49.6 million. For the year, revenue was $637.8 million, a 19% increase and recurring revenue grew 20%. The total number of recurring revenue customers increased to approximately 45,350 and wallet share increased to approximately $13,300. Adjusted EBITDA grew 18% to $186.6 million. We ended the year with total cash and investments of $241 million. Now turning to guidance. For the first quarter of 2025, we expect revenue to be in the range of $178.5 million to $180 million which represents approximately 19% to 20% year-over-year growth. We expect adjusted EBITDA to be in the range of $49.5 million to $50.5 million. We expect fully diluted earnings per share to be in the range of $0.39 to $0.41, with fully diluted weighted average shares outstanding of approximately 38.7 million shares. We expect non-GAAP diluted income per share to be in the range of $0.80 to $0.84, with stock-based compensation expense of approximately $15 million, depreciation expense of approximately $5.4 million and amortization expense of approximately $9.2 million. For the full year 2025, we expect revenue to be in the range of $758 million to $763 million, representing approximately 19% to 20% growth over 2024. We expect adjusted EBITDA to be in the range of $227.5 million to $231 million, representing growth of approximately 22% to 24% over 2024. We expect fully diluted earnings per share to be in the range of $1.93 to $1.99, with fully diluted weighted average shares outstanding of approximately 38.9 million shares. We expect non-GAAP diluted income per share to be in the range of $3.78 to $3.84, with stock-based compensation expense of approximately $63 million, depreciation expense of approximately $23.5 million and amortization expense for the year of approximately $39.8 million. For the year, you should model approximately 30% effective tax rate calculated on GAAP pretax net earnings. In summary, SPS Commerce delivered strong fourth quarter and full year 2024 performance. We believe that SPS' leading retail network and competitive product portfolio position us well to consistently deliver on our target revenue growth and adjusted EBITDA profile which remain unchanged. With that, I'd like to open the call to questions.

[Operator Instructions] And your first question today will come from George Kurosawa with Citi.

Chad, Kim, maybe just to start on this new TAM analysis you guys have rolled out here. It seems like relative to kind of the prior analysis, the big needle mover here was quite a significant step-up in wallet share. I'm curious if you could just talk us through what kind of underpins this new view. I mean, obviously, you have expanded the products but kind of any color on how you guys came up with this number?

Yes, sure, George. So we did a quite extensive set of work over the last several months. You'll recall, in our last earnings call, we made a commitment to deliver an updated view on the opportunity sometime in 2025. And so I'm pleased that we're able to do that here on this call. And so working with this top-tier strategy consulting firm in partnership, we really identified all the industries which were applicable for suppliers on our network. And identified the total population of potential customers in there and then applied what I think is some pretty reasonable addressability factors to bring those numbers down. Then what we did is we looked at our product portfolio and the distribution of our customers in kind of 3 size buckets, small, medium and large and assess what the potential average revenue per customer was there based on current spending levels with certain customers and how addressable the product portfolio is into each one of those sizes. And that really arrived at a kind of step up in 2 areas. One, the total potential customers was larger than -- quite larger than our previous stated potential customer count. And as you noted, a pretty sizable step-up in the potential wallet share with each of the customers. I think that wallet share, in particular, is something that we validated quite closely. And I will point out that in each of these small, medium and large buckets, we already have existing customers that are in excess of our target wallet share. So that does give us confidence that we can bring some of our existing customers up to the target over time and take advantage of this market opportunity.

Okay. Really interesting. I appreciate the color. I wanted to ask about your pipeline of enablement campaigns. I know you guys have done some work on improving your visibility into what that pipeline looks like. If you could just talk about how we're set up today? And if there's any kind of color you can give on what that pipeline looks like in terms of how it informs the mix of net new logos versus wallet share for 2025?

Sure, George. When we're looking at 2025, we feel really good about the opportunity we see with our community enablement campaigns. To your point, there's more visibility closer in than out later in the year. But at this point, when we look at that visibility in this upcoming quarter, so Q1, we do see that, that customer count versus wallet share, it will probably be similar customer count to what we experienced in Q4. So still see a lot of opportunity to grow both customer count as well as wallet share like the pipeline we see in community but the mix from customer versus wallet share again, we do expect early on that it's probably closer to what we experienced in Q4.

Your next question today will come from Dylan Becker with William Blair.

Maybe -- and I appreciate the TAM analysis here, maybe kind of double clicking on that one, too. It does sound like there's ample room across both logos and wallet. And if we assume that the long tail there is more SMB-oriented. Maybe how should we think about the unit economics and kind of prioritization within those scales, to your point, Chad, of larger consumers with a greater propensity to spend versus maybe a greater mix of smaller logos that have the only -- the potential for a few number of attached products?

Yes, sure. Great question, Dylan. So I'd say in summary, we found opportunity in each of the small, medium and large customer size categories for still quite a bit of continued addressable customer count in each of those. I think what's important to understand with our business model and the customer buying dynamics here is they do follow a little bit different pattern. So at the small and a little bit into the medium, we're most likely to attract those new customers through our community enablement programs that we run with the retailers. And we do find, especially on the small side, that it's often their first entrance into these types of digital connections. So a little bit more greenfield on the small side. On the large side, obviously, a smaller number of total potential customers there versus the small but higher wallet share potential there. And on the large side, we find that those typical are more on a replacement cycle. So they may have existing solutions, whether those are on-premise, in-house managed software that will be the predominant way. And that's really where our channel go-to-market really fits in because the channel go-to-market allows us to gain access when there is ERP or supply chain system changes which is a very logical time to move from those older historic on-premise approaches to a cloud-based network approach like we offer in those repeat projects at the large end of the market.

Got it. That's very helpful. Maybe, Chad, sticking with you, too, when we were out at NRF, obviously, there's been more of this emphasis on traceability at least in the grocery segment to some extent but maybe that proliferates to other end markets as well. How should we think about kind of traceability mandates impacting fulfillment and tracking, the focus on inventory management, layering into the fold of some of these supplier networks?

Yes. Sure. So anytime that there's a government mandated traceability requirement, we typically see an increased requirement for collaboration between supplying organizations and buying organizations. In particular, we've seen in the last, call it, year to 18 months increased focus on traceability for food safety and that has driven incremental interest, I'd say, in connecting the traceability dots from the suppliers into the buying organizations.

And your next question today will come from Lachlan Brown with Redburn Atlantic.

Given the fluidity of tariff announcements over the last few weeks but also given the uncertainty leading into it, what are you seeing in terms of your customer base? And does this drive the need for your customers to set up more digital connections with SPS? And also do you see much risk of your customers dropping connections that have better international exposure?

Yes. So I think what we typically see is in any time period of uncertainty that there is an increased need for collaboration between suppliers and retailers to avoid any potential supply chain disruptions. And so I'd say the general theme is kind of supply chain uncertainty can be a benefit to these types of investments. And then when the uncertainty has to do with kind of the spending levels or potential demand environment, I'd say we're a little bit isolated from what happened -- can happen in some of those bigger ticket purchases in the supply chain where it uncertainty may have a little bit more negative effect. Because of mission-critical and what we do really enabling the supplier to get their orders from the retailer and a relatively smaller ticket price for our solution versus many other supply chain applications out there. We don't tend to have sort of some of the macro headwinds that could exist from uncertainty that maybe other supply chain applications do.

That's very clear. And with Amazon being one of your larger retail partners, the announcement that UPS is significantly cutting back its Amazon package delivery by mid-2026. Are you expecting any impact? And does this change anything on the Carbon6 strategy?

We don't expect any impact there. The majority of the third-party Amazon fulfillment from the Amazon marketplace, there appears to be sufficient capacity in the Amazon parcel network and they are fulfilled by Amazon service which the majority of our third-party sellers utilize that service. So we don't anticipate any disruption there.

And your next question today will come from Parker Lane with Stifel.

Chad, after doing this new TAM analysis and getting more granular view of small, medium and large potential targets for the business. Is that changing any of the philosophy around go-to-market or informing the way you're allocating resources there this year?

No, I'd say if anything, it gave us more conviction in the approaches that we're using. Really, as I highlighted earlier, a conviction that the community enablement go-to-market is a fantastic way to catch these available suppliers that we don't yet have as SPS customers through those enablement programs and that the channel go-to-market in particular, is a great way to catch those more on this replacement cycle. So I'd say, if anything, we feel more confident having done this analysis, that the overall go-to-market motions are the right ones to go out and tackle this opportunity.

Got it. And obviously, we're still pretty early here with SupplyPike and Carbon6 just closed. But when you think about the addition of new retailers to those networks versus just leaning in on what you have there today, how much of a priority is that here in 2025 as you hit the ground running?

Yes. So we're definitely focused on continuing to drive those businesses which have nice healthy growth. And I think anytime that we can -- we get a big benefit from our acquisition strategy by bringing in additional customers that meet our ideal customer profile. So on both SupplyPike and Carbon6, not every single one of those customers but a good portion of those customers will be applicable for our fulfillment and potentially our analytics product as well. And we think that then getting those cross-selling motions in place can just help us expand the wallet share with customers one coming from the SPS side but also the acquired customers coming in from SupplyPike and Carbon6.

And your next question today will come from Joe Vruwink with Baird.

Great. If I strip out Carbon6 from the guidance, it looks like the implied organic revenue growth rate is maybe approaching 10% or 11% through 2025. Just wondering if you can help reconcile some of the year-over-year moderation. How much might simply just be a function of the new customer acquisition that already took place in 2024. But obviously, that has a bearing on 2025 results, maybe any conservatism on retail macro? I know you just addressed that but maybe any additional hedging there or, I guess, other things you had called out in kind of your planning approach?

Sure, Joe. So when you think about our expectations, I'll start with -- as a company, we've set expectations that we believe we can grow 15% or greater on an annual basis. The guidance we just provided for 2025 is well within that set stated goal. Then as it relates to how we determine or come up with the numbers, we will -- we do look and have a view of saying, okay, what do we think will occur in 2025. We take into account what we see for our existing customers, opportunities with them. We look obviously at our community enablement pipeline. We do look overall to say, hey, what's happening in the retail environment. Now again, we tend not to be a great bellwether for that but we certainly do take a look at that and the impact that may or may not have on our products, fulfillment and analytics as an example. And then overall, I'd say our approach to how we determine that annual guidance and how we did that this year is very similar to how we've done it in prior years.

Okay. On the wallet share moving from the old $25,000 to the new 41 -- almost $41,000. Would you say the amount saw an uplift in each of the customer segments, small, medium, large? And is a lot of that uplift, maybe a function of some of the acquired solution areas? Or how much would, I guess, the wallet share number have gone up if you just kind of appreciate what the business has ended up seeing since the TAM definition was created and just fulfillment being so much more applicable in the supply base?

Yes. So the largest driver for the wallet share increase across all 3 of the segments would be the opportunity to increase trading partner connections for the fulfillment product. And that we can look at our existing customers where we do have good penetration in each of the 3 size categories of trading partner connections and show how that does push the average revenue per customer up quite a bit, more in the medium and large. Then that's really where you'd also get some effect from the broader product portfolio, whether that's analytics, adding on the revenue recovery piece of fulfillment, those would contribute but you see those contributing more in medium and large. But for sure, the largest factor is the opportunity we have to drive more trading partner connections per customer.

Your next question today will come from William Jellison with D.A. Davidson.

I have two that I'd like to ask, the first for Chad and a second for Kim. Chad, to start out with you. I'm curious with the customer portion of the new TAM, what impact did adding European geographies after establishing the beachhead with TIE Kinetix have on the way you sized the total customer opportunity?

Yes. The, call it, outside U.S. portion of the total addressable market approach has actually been rather consistent between the 2 methodologies that we used, one many years ago and one now. So I would say there certainly is an increase in outside U.S. potential customer count but it's largely in proportion to the increase we found by doing the deep dive diligence around the total customer population in each one of these small, medium and large. It wasn't really driven by us now having a presence in go-to-market in Europe. That's always been sort of part of our view, TAM. It's always been sort of a global TAM view.

Great. And then, Kim, I was surprised to the upside on the implied EBITDA margin guide for this year, given that the 2 acquisitions you closed most recently and last year were most likely EBITDA margin dilutive in 2025. And so I'm wondering from you, if there's any details you can give on the core SPS business with what you think will drive either nice expense leverage or any cost savings this year?

Sure. Thanks, Will. So to your point, the implied EBITDA growth is between 24% to -- 22% to 24% on an annual basis which is a bit higher than what you saw in 2024. Big driver of that is our expectations of continued improvement in gross margin. That has been an area we've talked about over time saying that we do see an opportunity to scale and grow into various investments we've made there. You started to see a little of it come through in '24. Our expectation is you'll see more come through in '25 as well as in future years. So that doesn't mean there isn't opportunities to continue to scale in each of the line items but gross margin is one area that we would point investors to that we expect to see continued improvement in overall gross margin.

And your next question today will come to Jeff Van Rhee with Craig Hallum.

Just a couple remain for me. On the TAM, just one follow-up on the increased potential customer count. It sounds like it's heavily domestic. Is there any real subsegmentation within retail itself as to where those incremental customers -- potential customers were found, maybe subsegments of retail that you don't have a substantial presence in? I know you said it doesn't take -- Chad said, you don't have a go-to-market changes to make per se but were those perhaps in new subsegments or retail, where you don't have a big footprint now?

I would say we have some level of presence in all the industries that are represented. So the big maybe difference was we really did it from the bottoms up here. So we went into every sort of NAICS code that we believe is applicable for our solution and build that up from -- and those are actually noted in the investor presentation, if you wanted to see those NAICS codes and took that total population of all those applicable industries, mainly on the supplier to retailer side. And then those were some pretty big numbers. And so we work through those and applied certain addressability factors on top of the industries to get to our target customers. So I'd say the majority of these industries are represented in our customer base today but there could be varying levels of penetration which -- inside each one of those NAICS codes.

Yes. Okay. All right. And then, Kim, on Carbon6, it's not that long since we had the initial acquisition call but just curious if anything has changed in terms of revenue EBITDA expectations for the fiscal year? And then more specifically, I know when you bought it, you had a little more discovery to do but any more thoughts on how the $40 million is spread through the year and in particular, seasonality maybe putting a Q4 a little more back-end loaded in the year into Q4?

Sure. So to your point, we just closed that acquisition last week. So the information that we provided at the time we announced our intent to acquire which was $40 million of revenue for the year, approximately $5.5 million adjusted EBITDA for the year. And then specific to Q1, we had said about a little over $5 million. I think it was $5.5 million of revenue in Q1 and breakeven in Q1. Those information, that's the information that we provided at the time of our intent to acquire and we have no update to that number. Think about our consolidated overall guidance would take into account those expectations that we have for Carbon6. As far as sort of the seasonality throughout the year, there's so many -- I mean, there's thousands of customers within Carbon6. And so at any point of the year, there's different types of third parties and first parties that are selling with Amazon. So there really isn't a seasonality per se to provide to you. We provided, again, at time of announcing our intent to acquire our view of what we're anticipating the revenue to be as well as the profit.

Your next question today will come from Quinton Gabrielli with Piper Sandler.

Chad, maybe for you. You've outlined the international expansion as a key driver for SPS to capture more of this TAM that really just got the outline of. Obviously, there's going to be organic and inorganic investment. But can you remind us the mix right now of enablement campaign contribution for international customers today versus channel? And then kind of how you think about that moving forward? Is there opportunity to accelerate or add more enablement campaigns, specifically for the international market?

When you kind of think about our approach for Europe, in particular, I'd say, still a large source of customers for us is U.S. retailers running enablement campaigns where the suppliers are in Europe. And we've had this for years, the ability to add them to our network. The second piece would be our move to run community enablement programs in Europe. That was really the go-to-market strategy that we developed and determined as we integrated TIE Kinetix into the business which was something that we intended to launch in Europe here in 2025. And then the channel would be kind of a third leg to that and probably something we'd be able to focus on more after we kind of put the second leg in place of getting the community enablement programs going in Europe.

Got it. That's helpful. Kim and maybe for you. Gross margins were fairly resilient here in Q4. Is there anything with product mix or anything onetime here that we wouldn't be able to expect kind of this level of gross margin to continue into fiscal '25?

Sure. So gross margin is one that's probably best to look at on an annual basis. There is some noise when you're looking at it on a specific quarter sometimes. However, I'd take you back to our overall statement that we believe there's opportunity to continue to show gross margin improvement. You started to see that in the latter half of 2024 and we have expectations in '25 based on our implied guidance of EBITDA that we'll continue to see some improvement on gross margin.

Your next question today will come from Mark Schappel with Loop Capital Markets.

Chad, could you just talk about the key priorities for investments in the coming year?

Sure. So -- one, I would say is we always continue to invest in the scale and resiliency of our network as we continue to add customers to our network, we want to ensure that we can continue the high level of transaction processing that our customers trust us for. We're also spending quite a bit of time ensuring that we integrate properly the acquisitions we did in 2024 and take advantage of all the cross-selling potential that is -- expect a small modest amount in 2025 but really that were set up for continuing and taking advantage of that cross-selling opportunity for the long term. And then we're always looking at aligning our sales and marketing capabilities in the best way to meet the global market opportunity, whether that's, as I mentioned earlier, getting the traction with the new go-to-market in Europe or driving additional trading partner connections through cross-selling and up-selling existing customers but always kind of continually with that sales and marketing investment that we do make, making sure it's aligned to take advantage of the market opportunity.

And then on the analytics front, the 8% analytics growth this year. It's down from about 10% during the past 2 years, 10% growth over the past 2 years. Can you discuss just some of the puts and takes around analytics growth this year that you would expect and maybe what we should expect?

When you think about the analytics product, we think that's a very valuable and important product offering for our customers. However, that is a product that does have a little bit more sensitivity depending on what's happening in the retail environment. So analytics of 8% for the year, you're correct, that compares to 10% from the prior year. Again, depending on what's happening in uncertainty in retail macro environment, et cetera, that one is a little bit more susceptible to customer buying behavior. So our expectation for 2025 is somewhat similar to what we've seen in 2024. We still see great long-term opportunity for the products. But again, that is a portion that is the one part of our portfolio that is a little bit more susceptible depending on what's happening in the macro environment.

Your next question today will come from Ian Black [ph] with Needham & Company.

This is Ian Black [ph] on for Scott Berg. With the addition of Carbon6's marketplace solution, should we be expecting higher customer adds in 2025, even with the similar fulfillment mix on campaigns?

Ian, for the Carbon6 acquisition at the time we announced our intent to acquire, we had said we anticipated it would add about 6,500 customers. So that's a much larger quantity of customers than you would typically see from us and the majority, a large part of that number, it really has to do with the third-party marketplace side of the Amazon sellers. So that would be -- now that the acquisition is closed in Q1, all else being equal, that's what you would expect to see for the net customer adds in Q1. Now do keep in mind that they do have a smaller price point, so we'd also mentioned at the time of the acquisition that all else being equal, you'd anticipate the wallet share to go down by about $1,000. So you get a nice uptick in a large quantity but the amount of revenue per customer is lower. So that's what you'd expect now that we closed that acquisition. And then we'll continue to, obviously -- by owning the Carbon6 product, we'll continue to make sure that we are selling that product to existing and future customers as well.

Given the company's current growth rate, should we be seeing an additional 3 million to 4 million [ph] customer adds in Q2 through Q4 from Carbon6 on top of that?

So it's probably premature as far as what you'd expect for a customer adds for Carbon6. We -- again, we -- since we just closed the transaction, it is probably a little premature to give that specificity. As far as our expectations of what overall revenue will be, that has been taken into account in our guidance. And then obviously, every quarter, we'll provide all in what our customer count as well as wallet share is.

[Operator Instructions] And your next question today will come from Nehal Chokshi with Northland Capital Markets.

And I see the updated slide deck, really nice detail on the new TAM breakup. I do have a question on that. But first, I wanted to ask, how big is an Amazon-only supplier community in terms of your potential customer account?

So, in the -- in our updated number of the approximately 275,000 that takes into account the first-party side, not the third-party space.

And how big is that first-party side?

That would be captured in our overall view of what that product offering or revenue recovery is. So at the time we announced the SupplyPike acquisition, we have provided a view of what we felt that opportunity was which is about $750 million in the U.S. As we went through the more detailed exercise here, we were able to validate that, recognizing that globally, it's a little bit higher than that. So that has been factored in. But do you want to talk...

Yes. What was not is the first-party revenue recovery is included in this TAM analysis. When we started the TAM analysis, we did own SupplyPike and so we included that portion of the market. Therefore, the one party side of Carbon6 would be included in those figures that Kim just stated. The third party was not in the scope of this. If we did a refresh in the future, we'd probably include that. Just some of our analysis from doing Carbon6 told us that there was north of 200,000 Amazon third-party sellers doing at least 1 million of GMV on Amazon Marketplace. That would give us a sense for how many are out there.

Got it. Okay. So that could be potentially a significant incremental TAM there?

Yes. However, the average revenue per customer on that third-party seller is quite a bit lower than what we would find as a potential average revenue for 1 party seller where we might have fulfillment in analytics and revenue recovery, all addressable to that 1 party seller.

As well as many more connections per customer?

Correct. Correct.

Yes. Okay. All right. And then going to this new TAM analysis, looking at Pages 13 and 15. You already alluded to this, you do have customers over that $40,500 threshold, less than 10% of customers but nevertheless, that's still a big number of customers. Of those, say, 10% of customers that are in that $40,500 range already, what percent are actually in that small-sized company bucket?

Yes. So the best way to probably take a look at that is to look at Slides 13, 15 together. And Slide 13, there is footnoted that the distribution of customers really fits for each of the size small, medium and large. So you could take the small size information on Slide 15 and sort of overlay this distribution that you find on 13 because that distribution fits for each of the 3 size groups.

Okay. So I mean approximately, it looks like small represents 90% of the customer opportunity, maybe 85% of the customer opportunity. And so therefore, of these customers that are at the $40,500, almost 85% would be small customers. Is that correct?

The way you should interpret the Slide 13, that's showing overall across all of our customers and then where they are relative to that wallet share ARPU what the -- where we're at as of the end of '24 which is at $13,300. And then the stated opportunity of $40,500. So to your point, we're illustrating that there is up to or a little less than 10% of customers already at that amount. Then to Chad's point, the footnote talks about, if you were to look at this chart which we're showing this in total, we're not showing it by small, medium and large. But if you were to look at it by small, medium and large, you would see somewhat of a similar underlying distribution, not the exact numbers but underlying. So that point was made to show that there's a similar concept when you're looking at small, medium and large as it relates to customers in each of those buckets that some are below, some are at and some are above.

This will conclude today's question-and-answer session as well as conference call. Thank you for attending today's presentation. You may now disconnect your lines and have a great day.