Welcome to the SPS Commerce 2025 Investor Day. We appreciate you joining us here in person and thank you to all those on the webcast. Today's agenda includes presentations from the SPS leadership team, a moderated customer panel discussion, and at the end of the program we'll open it up for questions. Before we begin, we will look at our forward-looking statement. I'd like to remind everyone that our presentation contains forward-looking statements which are subject to risks and uncertainties as outlined in our SEC filings. We'll also be discussing non-GAAP measures. Reconciliations to comparable GAAP measures can be found at the end of the Investor Day presentation, which will be posted on our investor relations website and on our SEC filings page. Slide to that. We are ready to start, and I'll introduce Chad Collins, CEO of SPS Commerce, to discuss our growth strategy.
Thanks for being out. A very warm welcome from me, especially for those of you who came to my hometown for the last 25 years, Minneapolis, and also our headquarter location and home of about half of our 3,000 employees. About half of them are based in the Minneapolis St. Paul area. Thanks for joining. For those of you who are a little maybe less familiar with the story, SPS Commerce, we operate a network in the cloud and that network connects retailers to all of their suppliers to exchange supply chain information and facilitate collaboration for efficient supply chain processes. We are really servicing three main end market groups. First, retailers, and I'll point out that of course that includes the retailers you traditionally think of like Target. Right down the street here we have a pretty broad definition of retail.
Also included in there are grocers and also included there are distributors. Within distribution, that could be industrial distribution, food service distribution, medical supply distribution. Really large buying organizations that are purchasing finished goods and then reselling them fit into our definition of retailers. Of course, we have all the vendors or suppliers to those organizations and then also the third party logistics providers that often sit in the middle of those transactions between retailers and their suppliers. By using our network, these three market segments really get the benefit of improved speed to market. They can improve their sales growth and the margin on those sales and lots of benefits both on the retail side and the supplier side for reduced operating costs for using our network. Our purpose statement here at SPS is really to power connections that move the world of commerce forward.
Kind of the heart of that is really this idea of connections based on our network and the power of the network and the connections that we make on that network and also the connections we make with customers and one another really powers everything that we do here at SPS. It's frankly quite motivating for our employees. In fact, I joined SPS just about two years ago and I've worked in supply chain software my whole career. First as a consultant putting in systems and then as a leader of other software companies. In all those years I've worked in supply chain software, I've seen all this investment that organizations make, whether it's warehouse management or transportation management, or planning in the four walls of their operation.
I've always felt like supply chain was really inherently multi participant and the right types of technology to solve that multi participant problem is really a network technology. After working in this industry for years, I always saw the power of the network and that was one of the things that really drew me to SPS because when you put multiple participants on the network, that really facilitates the collaboration. I always say, no matter how good your systems are inside the four walls, if you can't get the right product at the right place at the right time from your suppliers, nothing else downstream from that really matters. We'll talk today a lot about the network and Mike, our Chief Product Officer, who's up next, will walk you through all the applications on the network.
I think that is an important thing for you to understand, that although we have a price list of applications, they're all powered by the network and everything we do is connected to that network. Both the things of products we've had like fulfillment for a very long time, and now even the newly acquired products like revenue recovery are getting lots of value by being connected to this network. Think of a set of value added applications that are all benefiting and contributing to that underlying network. Jamie will walk you through. Jamie's our Chief Technology Officer, he'll walk you through a few details on that network. One of the important things that he'll highlight is this idea of being protocol agnostic.
Certainly we do a lot of EDI transactions on the network, but we also do have a lot of endpoints that are API and in some cases for less sophisticated users of the network, they can be file based. For us, how customers connect to the network is a lot less important than getting them connected to the network. Consistently we're chosen over our competition for a few reasons. One is our deep expertise in retail and distribution supply chains. We really have a great understanding and a lot of domain expertise around the expectations that retailers and suppliers have. Retailers and distributors have on their supplier organizations and oftentimes the complex rule sets that are involved in that.
We've then developed internal processes, especially you'll hear today about our retail go to market, where we perfected this process of helping retailers do the outreach and digitally onboard their suppliers and been very unique in that internal process. Of course, our technology platform. What we're seeing increasingly now is customers choosing us because of the actual data inside of that network. There's been a definite view of having more data can help with supply chain decisions, and having more data can help power AI decision making. Increasingly, customers are coming to us because not only do they see the business processes that can run on our network, but they see the power of the data that's in our network. We've had many waves in the retail industry or retail ecosystem that SPS has grown through.
In the early days, there was this effort to fully digitize in the development of e-commerce. We saw that e-commerce then shift into omnichannel fulfillment. Really more advances in e-commerce, the idea that you could use a store as a site of replenishment for e-commerce orders, that also brought in the advancements of buy online, pick up in store. What we saw during the pandemic was really all these retailers had roadmaps for what they were doing in e-commerce. Once the brick and mortar stores had to close or were substantially impacted by the pandemic, we saw a big acceleration of the omnichannel initiatives throughout the pandemic. One of the big accelerations that was there was the rise of dropship e-commerce. That rise of dropship e-commerce really did create an opportunity for SPS Commerce to help facilitate the connecting of lots of suppliers to retailers to facilitate that dropship e-commerce.
Through these waves, they've certainly seen different trends and how they've impacted our business, especially in terms of how we've been able to add customers and increase average revenue per customer through those time periods. In that sort of 2010 through 2016 time period where we have the digitization and the rise of e-commerce, keep in mind here, during the same time period, you have an early penetration of the TAM , right? SPS has always been a leader in getting the long tail, the suppliers digitized. You saw healthy growth rates both in terms of our ability to add customers on a percentage basis, as well as increase the ARPU.
As we sort of saw these early omnichannel initiatives help us penetrate the total addressable market a little bit more in that 2017 through 2019 period, there was a bit of a flattening of some of those growth dynamics. When we had this pull forward in the pandemic, there was a very large acceleration in the customer count, driven not exclusively but very substantially by the rise in the dropship e-commerce that I spoke of earlier. If you look at where we're at right now, we're seeing a bit of a normalization on the omnichannel initiatives of retailers. They had pulled certain things forward. These omnichannel initiatives continue and we will be the beneficiary. We certainly did see some pull forward. Now in this period, 2023 through 2024, we have more of a stabilization of the deployment of those omnichannel initiatives from retailers.
Quite frankly, we have pretty widespread uncertainty related to the current global trade environment. How this has impacted us is we have seen steady growth in our average revenue per customer, but a bit of a slowing on the customer count, especially in the year 2024. Kim will walk you through a little bit more on the dynamics of customer increases over the years and what we're going to see going forward. A question we often get is, especially in light of our new long-term expectation on the top line of high single digits, what are some of the factors that went into this high single digit expectation that you're setting with us now? Certainly there was a bit of a pandemic pull in of demand. You might say, the pandemic was a long time ago. Why was that affecting you? Why didn't we see that sooner?
Because of our land and expand model, that did sort of carry all the way through into the 2023 time period. We've also been impacted by the lower net customer adds in 2024. While this was primarily driven through the 2024 programs focused on retailers, we've historically worked with more revenue of the suppliers that were connected to those retailers but didn't have as much impact on the customer adds. Finally, there's certainly macro uncertainty and global trade uncertainty, which is impacting the entire retail ecosystem at the moment. On the more positive side about the dynamics, I'd say there are some new retail dynamics that are macro factors and longer-term tailwinds for our business, which I'll explain. We do have a large and lots of room to penetrate the total addressable market.
I think the more uncertainty we see in the supply chain once things stabilize, that typically drives an increased need for supply chain collaboration. As a result of that uncertainty and that need for collaboration, it typically drives supply chain technology and software investments. If you look at some of the dynamics that's happening in retail right now, you have a rapid emergence of new brands. The barriers to entry for new consumer brands have probably never been lower. Brands can access consumers directly through Shopify or Amazon Marketplace, and they can promote their brands in unique ways, primarily through social media marketing, and gain access to consumers. We're seeing an increase in the total number of brands in the retail ecosystem.
Often when these brands gain traction on the Amazon Marketplace or via Shopify, they then get contracts with traditional brick and mortar retailers, which introduces all the new requirements to do business and operate the supply chain in the way that the retailers are expecting. We also see quite a bit of expansion into new marketplaces on the retailer side. We're seeing retailers expand their business from the buying and selling goods of just moving into this marketplace model. That creates new opportunities for us in the retail ecosystem. We think longer term, once there's more certainty in the global trade environment, we'll see some degree of supplier rebalancing based on geographies. No one's better positioned to help onboard new suppliers than SPS Commerce and our differentiated approach of helping retailers onboard their suppliers. On the TAM, just under a year ago, we refreshed our total addressable market.
We did a complete bottoms up analysis using specific companies and specific SIC codes in the U.S. and expanding and extrapolating that to the global TAM. We identified that there's a $6.5 billion opportunity for us in the U.S., and that's just over $11 billion on a global basis. The way that works and, I think, a simple way to think about our business is we're adding new customers and we're increasing the average revenue of those customers that are on our network.
We believe through this TAM analysis that there's an opportunity to increase from just over the 50,000 customers we have today to 275,000 customers globally on our network and increase that average revenue per customer from just over $13,000 to over $40,000, primarily driven by increasing their use of the network with new connections and then secondarily by adding and cross selling products to those customers to increase the revenue. We'll talk quite a bit about our go to market strategies, but we really organize our go to market strategies into two categories. One is landing new customers, increasing the number of customers on the network and then expanding the use of those customers. We'll dive into each of these go to market strategies in the go to market section. I want to introduce you to the team.
A lot of you get to only see Kim and I, but there's a great team supporting the whole company here. Next up will be Mike Svatek. He's our Chief Product Officer. Mike, you want to wave your hand in the back there. Mike joined us about eight months ago. He's got a deep background in retail technology and supply chain technology, typically focused on launching innovative new products and managing a portfolio of products. Jamie Thingelstad has been at SPS for quite a while as our Chief Technology Officer. You are going to hear from him today about the power of the network itself and lots of examples of AI use cases that we have in our organization. Many of you will know Kim, our CFO, she'll walk us through the numbers.
Also joining us today is Erica Koenig, our Head of HR, and our new Chief Marketing Officer, Maria Pergolino, who has a deep background in leading the marketing organizations of multiple SaaS companies. Not able to be with us here today because he's got a customer commitment is Dan Jukness, our Chief Revenue Officer. I just want to leave you with one idea and one maybe theme of the day and you're going to hear this kind of throughout the various presentations. SPS has had a nice growth over the years in what I would describe as a sales led growth model, meaning we have lots of salespeople, they're out there running relationship management programs to gain new customers. They're dealing with customers to upsell and cross sell those customers, much more of a traditional manual prospecting and selling approach. We will certainly continue that going forward.
To augment that approach, you'll hear a lot today about a concept that we have called network led growth. This is actually where we're getting demand signals about our customers from their activities on the network itself. That becomes a signal to us for upsell and cross sell opportunities. We can also use the network data itself to prospect new customers. This is very unique in a SaaS model to have these types of insights about the market and about your customers from the data that you have on the network itself. We'll walk you through a few of these examples. I think this is really a powerful, think of it as kind of next chapter of growth opportunity for SPS to actually use our network to identify needs that our customers have.
Although today it's mostly requiring salespeople to intervene with that, over the longer term, we strongly believe there's going to be opportunities to pick up those signals and actually convert customers directly in the product so that they can increase their usage of SPS directly through the product and without actually interacting with the salesperson. What you'll hear a lot about today is this concept of network led growth. With that, I think I'll hand it back to Irmina.
Thank you, Chad. What we heard Chad just talk about is obviously product strategy, network-led growth, and how important that network is to SPS 's differentiation in the market. I'll let Mike come up and dive deeper into the product strategy and the contribution that network has to that.
All right. Good morning, everybody. Good to see everybody here in person. For those who are online, thanks for following along. My name is Mike Svatek. I'm our Chief Product Officer and I'm going to take you through our general thoughts on product strategy and also dive a little bit into some detail around the new products that we've launched, our new retail go-to-market motion, as well as talking about sort of our traditional, if you will, supplier products. Without further ado, we'll jump in. If you think about SPS over the long haul, really we've been focused on the perfect order. Think about supply chain excellence and what that means. It means a retailer putting in an order. It means that supplier receiving that order, acknowledging it, packing it, getting it shipped either directly or through a 3PL carrier, hands it off.
It's received, hopefully right at a retailer, it is then inbounded right into that dock. It's also when it's received, everything shows up right. It's at the right location, it's on time and it's in full. Tht's what essentially the SPS network and our fulfillment products have been built around. A lot of the concepts in that revolve around timeliness of data and automation. Automation is absolutely key and core to what we do at SPS and we continue to invest in there. One of the things I want to land with you today is the critical nature of collaboration in the supply chain and how we're drawing a string through every product and every piece of innovation that we're developing now and for the future to make sure we're bringing forth collaboration in the supply chain. Why does collaboration matter?
When you look at the various roles of different actors in the supply chain, whether you're a 3PL, a retailer or a supplier, or other forms of actors as well, what you have is a complex, highly interdependent value chain, not only within your own business, where the current step depends heavily on the prior step and influences the future step. You also have a situation where we're repeating this process daily, weekly, monthly, sometimes by the dozens, sometimes by the millions. High velocity value chain and one that's interconnected with your trading partners. The opportunity here to automate clearly has been big, and it's what's been driving our business.
The opportunity to collaborate, we think, is even greater in an era where supply chains are being disrupted in an area where there is a requirement just for more agility, not only because of the disruption, but also because the opportunities we're seeing in the market that drives collaboration. The other thing that's driving collaboration is we're now in an era where data is much more available than it's ever been. Back to what Chad said earlier. The power and the value that we see in the data and the network itself is not only encouraging, it's also enabling our customers to collaborate better, to create those kinds of efficiencies they're looking for in their supply chain. We're focused both on collaboration critically, but also critically automation moving ahead.
When you look at the various value chains in our customer base, there's a broad spectrum of places we're already adding value, whether you're a 3PL, a retailer or a supplier. Our customers have enjoyed those benefits, but they're asking more from us. We're having conversations. My team, certainly our sales team, our services team, our executive team, are in constant contact with our customers and our partners looking for where are those next opportunities for us to advance our innovation, to provide even more value to them. As we look at those opportunities, we're following build, buy and partner strategies. Let me kind of unpack why we would approach each and give you an example of each. On the build side, we're looking for those opportunities in the market, in our customer base, where we can extend our core.
From our core, we look at the ability to take native organic development to extend that, not only leveraging the applications we have today, but critically the data and the network that we have today to bring to market something new. A good example of this would be our solution for manufacturing, which we launched earlier this year. If you think about what manufacturing is, if you're a supplier that's on our network today, you're likely trading with a retailer that's the distribution chain. Now we can take our capabilities that were organically built over many years, improved now with manufacturing capabilities, and invert that so that same supplier can now deploy SPS into their supply chains so that they're getting raw materials delivered or potentially finished goods or co-man materials delivered in, where they can then act in the traditional supplier fashion.
Not only on the distribution chain, but now also on the supply chain for the same customer in the same network. That's a great expansion of our organic capabilities through a build motion. On the buy side, we're constantly looking for the highest value opportunities within our customer base to add value, which are highly complementary to our core and are also proven. Examples here are our recent acquisitions of Carbon6 and SupplyPike, where as we looked across our supply base, we saw a significant opportunity to help them accelerate their ability to recover revenue. In the case of a deduction that was perhaps erroneous, the opportunity to identify that in an automated way and then go through the correct dispute processes with those retailers to recover that revenue.
In other cases, going through that process and discovering that the deduction was true and fair and giving them an opportunity to get better as well. This was a great opportunity for us to acquire two of the best platforms in the market, assimilate that into the SPS portfolio, and then connect it to our network to start getting disproportionate value. The last area is partner, and there's a wide range of places where we may partner. What guides our philosophy here again is critically always focusing on the needs of the market and the customer to identify an area where we can add a new capability or potentially a new product line to the mix. One area that, and typically we would do this in an area where the nature of the engineering or the technical work to be done isn't core to us.
Maybe this problem has been solved in a different industry, or maybe there's a horizontal software platform that provides this. We would then adopt that and then apply that in a vertical software motion for our particular industry and then bring that to market. An example here would be a capability that we have launched over the summer, which allows us to extend the range of order channels to the email inbox. If you think about a vast array of suppliers that we have in our network today, you'd be surprised by the number of retailers or the suppliers, rather, that are still receiving orders via their inbox. Now we can immediately and instantly, in real time, attach to that and pull that information right into our network, just like we do with all the other orders. Let's talk about that network as we're pulling orders in.
What's unique about our network? Why are we able to do what we do so well? There are two sort of concepts I want to land real quickly about the network. First of all, our network enjoys classic network effects, meaning that by adding an incremental participant to the network, whatever that participant's role may be—3PL, supplier, retailer—it adds value to the other participants in the network. Classic network effect. There's also a secondary effect here as well, meaning that as we add new applications or an existing participant in the network launches new capabilities in the network through our application, it creates additional value for the participants as well. We have a double network effect happening today. Let me give you an example of the second one.
If you're a retailer who's leveraging SPS to manage your supply chain, you have brought on, potentially through our retail go-to-market motion, many of your suppliers into the network and you're having a very healthy, very productive trading relationship with them through our network. Now, as a retailer, you decide, I'm going to go ahead and unlock my point of sale or my sell-through data into that same network to benefit my supplier base. Why would I want to do that? Through that motion, the suppliers now have access to point of sale data. They have access to basically sale velocity. They can see inventory positions. What that retailer has done is they've unlocked collaboration. They've allowed that supplier to have access to the information that they see.
Therefore, that supplier is spending their energy, their time, their efforts, making sure that their distribution chain—the retailer in this case—has an accurate inventory position. They're not going to sell out, they're not going to stock out, so they're never going to miss a sale. That form of collaboration emerged because that retailer decided to unlock that point of sale data on the network. That's a form of collaboration. A couple of takeaways really, I think, at least at this point in the presentation around the network. In the applications, one is that the applications are fundamentally data powered. What do I mean by that? We're not the type of application that you have where it's a productivity application where you log in, do your work, log out, and it sits there dormant until you get back into it and use it again.
Our applications are deeply and fundamentally connected to the network. They are working for our customers 24 hours a day, 365 days a year to basically progress all of those supply chain use cases that our customers rely on us for. Secondly, they're able to detect within the network signals that are an opportunity for them to improve their business. That may be a signal that allows better sell through, that may be a signal that allows them to recover revenue. It may be a signal that allows them to work with a supplier or in reverse, the supplier worked with their retailer to tune in their performance in the network to make sure that we're getting stuff delivered on time and in full.
Those signals emerge in our network and our applications today and increasingly so in the future we'll be aware of those signals and be able to act on those. Secondly, all of our applications are system integrated. What that means is the network, fundamentally as it's been built out over decades and at an increasing rate, is connected into primary core systems of record at our customers. This is a really important point. We're directly connected to ERPs, we're directly connected to WMSs, TMSs, IMSs, OMSs, as well as e-commerce platforms. The fundamental motion in our customers' businesses is directed into our networks and our applications have access to that. The last part I'll sort of leave you with on the network is that the way that we deliver value through the network is expert led.
Again, based on decades of experience and increasingly with the data aperture that we have and our ability to process that data, we land a customer experience through the deployment of our products, through best practices and prescriptive techniques that ensure that whether you're a supplier through EPL or a retailer, you're not struggling to understand how to get value through our network. We're going to land it with prescriptive recommendations, then we're going to follow that all the way through implementation. Importantly, we're going to continue to monitor and assess the health of that relationship throughout the tenure that they have with SPS . It really is expert led and expert managed most of the way. The primary way to date that we've gotten customers into the network is through our retail go-to-market. For those who've been following SPS for a while, you'll recognize the term Community.
Community has been that very powerful motion where we have a retailer collaborate with us to unlock their supplier base and bring them into the network. That motion certainly continues and it continues to be core to what we do. One of the exciting things we've been able to achieve in the last year is with the notion of collaboration. We saw an opportunity in our customer base to make that not only just bring them into the network to build the network itself to enable collaboration or to enable trading. When you think about once you have that, you want to squeeze every ounce of value out of that relationship you can for both parties. Through that, that rationale led us to acquire Traverse. Traverse is the platform today that's known as SPS Performance Management.
Performance Management is the platform where retailers and suppliers can collaborate at a forensic level and discover areas for improvement, whether that be by SKU, by product category, by location, or something specific to an order or shipping process, etc. Traverse launched us into the collaboration space for the retailer. We call that Performance Management. We then took what traditionally was known as Community and up-leveled and reimagined that entire motion as well. Together with Traverse and what used to be Community, we've reimagined this entire portfolio as essentially retail supply chain performance and, essentially with relationship management, have gone through the process of identifying the nature of the relationship itself as what's core. Again, back to collaboration. It's one thing to get someone into the network, but it's the ongoing, persistent relationship management that lands the best practices and the outcomes that network is looking for.
This is a suite. Our performance suite works together, and it works together really well. The supply chain performance suite essentially can be bought separately or together. What do I mean by that? On the relationship management side, our retailers are already enjoying the benefit of bringing their suppliers into the network, as they have been in our network, our traditional retailers, they can now expand very easily and very quickly by adding Performance Management to that. Conversely, as we land new retailers into our network, they may choose to start with Performance Management because there may be a set number, a small number of relationships where they feel like there's an opportunity to tune the performance. They'll land there, tune that performance with this application.
Once they have that rhythm down and they've got that relationship established in an optimized way, they now want to extend that to the rest of their supply chain and therefore would take advantage of our relationship management offering. It's through these two that are complementary, that work together as a suite where we're enabling retailers to get the right items at the right price, we're keeping the right margin intact and ultimately the right inventory position because we never want to miss a sale. There's one last leg of the stool on the retail go to market and that's bringing our expertise to bear. You might be surprised that a lot of retailers struggle with priorities, they do struggle with execution, they sometimes struggle with alignment on strategy internally, on what to do in terms when it comes to their supply chain.
If you think about how cross functional supply chain is, you've got merchants involved, you've got your buyers involved, you've got your operations involved. Oftentimes when you identify an opportunity to improve your supply chain, it is a cross functional effort to get people to agree. Sometimes you also don't have the data there, sometimes you don't know what the sequence of steps that you should be taking to unlock that value. That's where we've come forth with our expertise and launched a new service offering that we call Supply Chain Health Assessment. The health assessment allows us, whether it be an existing customer or a new customer, to physically go into their office, to work with their executive team, to work with the leadership team across supply chain operations as well to understand day to day, month to month, quarter to quarter, what are their processes.
We also get access to all of their data so we can quantitatively analyze the data ourselves. Through really a consultative approach, we then deliver to that relevant set of leaders within that retailer a prescriptive set of recommendations to improve the performance of their supply chain. Unsurprisingly, as you might imagine, some of those, many of those recommendations do revolve around the types of problems we can solve with our relationship management, our Performance Management offering. Also, in the spirit of being a trusted partner, some of those recommendations are recommendations we can't solve directly, so we'll bring a partner in to help there. Sometimes those recommendations are simple tweaks to how the retailer runs their business or thinks about their business. Those are problems they can correct on their own with our recommendation.
We're very excited about this offering because it really does allow us to be in that position where we can bring our expertise to bear and be a trusted partner to our retailers. If you're a retailer, whether you're large, medium or small, or whether you're unsophisticated or very sophisticated, we've tuned both the service offering as well as the suite itself to be able to accommodate wherever you are in your maturity cycle. We'll meet our retailers where they are and continue to look for those opportunities to advance it one opportunity at a time. I've talked a lot so far about the network. We've also talked about our new retail go to market. I want to spend kind of the last part of the presentation here talking about our supplier products.
We continue to invest significant dollars and significant resources into ensuring that we're world class in terms of our capabilities there. Importantly, our technology remains on the leading edge to kind of refresh a little bit for those who haven't had an opportunity potentially to understand how these products lay out. Our fulfillment product is probably what we're best known for. It's where we got our start. We continue to invest there. We've got some very, very exciting, I think, innovations coming up that Jamie will touch on a little bit later in his technology session. Just know that we continue to plan to be a winner in this space and we're very excited about the AI potential that's going to drive this through our network.
On the assortment side, the assortment continues to be a very important and critical process and product for us that takes that item data from suppliers, it normalizes it, it harmonizes it, and then it allows that data to be distributed through the supply chain. Not only to act to enable supply chain processes, but importantly for the marketing and the sales of those products through other channel. Whether it be a brick and mortar channel, whether it be online, whether it be a marketplace or social, analytics is an area that I am very excited about. If you think about the applications of AI, if you think about the applications of large scale compute with point of sale data married with retail supply chain data, there are a significant number of new insights and capabilities we see coming over time.
With analytics today, you see a product that is really well regarded in our supplier base and it's helping them make those critical decisions around inventory, not only production planning for suppliers themselves, but also helping them stay on top of inventory position through the retail supply chain channel and also allowing them to see and forecast their own demand because they have access to that retail shopping behavior. You'll hear a little bit later on from our panelists on kind of their use of the analytics and how it's helping their businesses. Lastly, an area that I think we're all very excited about is our new revenue recovery offering. This is the combination of SupplyPike and Carbon6. Those two products have been integrated and folded in both organizationally and technologically into the SPS fold. They have access to our network at this point.
As you see the acceleration through many of the macros that Chad pointed out earlier, we're also seeing great opportunity there for those brands to jump into that platform, to jump into that offering tied to our network, to look for those opportunities to not only get paid when they need to, but also get better in terms of their operational execution. I couldn't be more excited about the position that we're in. We have a broader product suite at this point spanning everything from retail to supplier to 3PL to distribution to carrier and so forth. There's quite a few actors in the supply chain that we've got a great offering for each of the areas that you see on here. Continue to get incremental investment every year and every quarter.
We have significant roadmaps ahead, and the key on the roadmap I just want to land with you is that they're focused on these three areas. The roadmaps will include collaboration as a core thread that we're pulling through all of these products. They'll continue to ensure that the products themselves are tightly integrated into the network so that they can be network-driven applications that are running 365, 24/7, and also being able to pick out those signals from the network to act on behalf of the customers. Lastly, we'll deliver those products with the expertise and prescriptive recommendations that our customers expect and that we know will lead to great value for them. As we execute that product strategy and that development, our goal is to ensure that the supply chain is not just working, but it's working as it should through those capabilities.
With that, I'd like to, if I can.
I am a retailer, a supplier, a logistics provider.
My product that you depends on our ability to work together, to pivot, to connect. I use SPS because with them the.
Supply chain doesn't just work, it works as it should.
As a retailer, SPS supports me from day one, getting me up and running quickly. Thanks to their intelligent setup process, I can set shared business goals, get all of my suppliers in sync, and onboard them with ease. I track performance and progress, and even get alerts for next steps.
With SPS 's fulfillment solution, it's easy to flex and follow ever-changing retailer demands. Our data is seamlessly translated into the outputs they need.
I can acknowledge purchase orders and view.
The status of all my orders right here in one place, and even view it in the system I already use every day.
Looks like orders are in.
Warehouse manager's on it. With SPS for 3PLs, we are.
In sync and ready to go.
My team knows exactly how to prepare.
Shipments to meet retailers' needs and carriers.
Can report real-time progress or issues.
Keeping everyone in the loop.
Those updates are critical for my business, giving me a clear sight line into issues and confidence in the process, even in times of uncertainty. Plus, I can drill into performance and address concerns.
There we go. The latest shipment has been delivered exactly when, where, and how it needed to be.
Yes, this process has never been smoother. It's easy to trust SPS because I know they work with so many companies.
Like mine and over 50,000 companies like ours.
Okay.
Invoices automatically sent. If there were any invalid deductions, revenue recovery automatically takes care of it without it becoming my full-time job. Let's see. Time to check on my sales performance. Hmm. They're pacing to plan, and we may even beat forecast.
Better place another order on it. SPS making supply chains work like they should.
All right, thank you, Mike. What we just saw in the video was how SPS products come to life. Mike also talked about how those products help trading partners collaborate better along the value chain, how the SPS network powers products and solutions. He also introduced the new reimagined go-to-market strategy. I'd like to ask Chad to come up and do a deeper dive on that for us.
All right, so we talked about all those great products in the network. What are we doing to get them in the hands of more customers? We have a proven go to market that, quite frankly, has been differentiated for many years that I want to hit on first. This is the way that we work with retailers. Retailers typically have change events in their supply chain. Maybe they're opening a new fulfillment model. Maybe they want more information about particular shipments. Maybe they need to be compliant with a new food safety regulation and therefore get new information from their suppliers. All these are change events that happen on the retail side. SPS will come in and work with that retailer to facilitate communicating the new requirements to the suppliers and then onboarding the suppliers to those new requirements.
Think of this as a mix of people, process, and technology to get that done. By far, a very differentiated lead source for us. These programs are the way that SPS gets the vast majority, not exclusively, but the vast majority of our customers through these retail programs. I will enforce that our win rates remain extremely high. This is a snapshot of win rates in the first half of this year. These trends, within half a percentage, I'd say, or so, have been consistent over the years. You'll see that we are winning 70% of the opportunities. The most common, when we have an opportunity that's a lost opportunity, is that the prospective customer or customer decides not to do anything. You can see a very small portion of those opportunities are lost to competition.
These rates in the first half of this year have been, as I mentioned, consistent over many years before that. Let's dive into some of the specific ways our go to market works. First, on the land, new customers. We have three mechanisms there: retail programs, channel partners, and global expansion. I'll go into how we're expanding with our customers and some of the details of that as well. First, let's get into these retail programs. This is what I mentioned. This is the most differentiated go to market motion that SPS has had. It's never been replicated by one of our competitors. Over 20 years we've advanced this go to market motion and really perfected the way that we work with retailers. We're really enabling critical data exchange for those retailers.
That's facilitated by getting a commitment from the suppliers for new and existing suppliers to that retailer's requirement. That really drives the ability of the retailer to monitor the supply chain performance of their suppliers and get needed information they need in their supply chain to operate the downstream processes. I want to highlight in that blue box there just a few of the elements that are really core to this methodology. First, we work with the retailer and have clear vision lock on what the value of this program will mean to the retailer. We drive solid executive alignment between SPS and the executives on the retailer side because this does tend to be a pretty big change management activity inside the retailer and also with their suppliers. We're committed to getting quality supplier information.
You might be surprised here, but often when we run these programs, there's not good lists of suppliers within the retailers. There's certainly not good contact information for the right people inside the suppliers. We really hone in on getting that supplier data really solid at the retailer. An important element is either the merchandising organization or the buyer organization and the distributor. We really get lock in from them and the support of that organization. It's viewed much more as a business project than it is an IT project. That's critical because if you're going to go out to your vendors or suppliers, they need to know that the buyers that they're working with are in support of this program that's going forward. There's quite a bit of collaboration that happens between the SPS team and the retailer team around all of this. This is a proven methodology.
It's been refined over the last 20 years and everything from the communications that go out to how we handle escalations from vendors, all that's been perfected. Often the processes are enabled by underlying technology in our platform. These retail relationship management programs are really critical to what we do. I just want to point out that when we get a new retail program, that can really result in three ways that the supplier will interact with SPS . The first way is maybe that supplier has never had a digital requirement overall from any of their customers. This is the first time they're getting a digital requirement. That might be common in some of those Shopify brands I mentioned. Now they get an agreement with Target or Walmart, they have to do these digital messages. That's very common.
For that customer to join the SPS network for the first time, they're going to need to meet that digital requirement. The second scenario is we could have an existing SPS customer, and now that we've driven demand through a particular retailer's requirement, they don't yet have that connection for that retailer, and they will add the connection for that retailer on top of their existing SPS connections. Finally, there may be situations where that supplier has some other technological way to meet the requirement. They could have old sort of on-premise software that they're managing themselves. They could be using a smaller competitor. If that's the case, what will happen is that supplier has the option to go through a testing and certification process with SPS .
We are ensuring that they are compliant with the retailer, but they don't join the SPS network at that point in time. What do we do with all those testing and certification customers? We put them into our CRM, we market to them, we put them into our sales territories. We believe over time all those testing and certification customers will convert to add the SPS network because we're the leader in the market and have the broadest network. Let's look at an example of how we've worked with a retailer. This is Williams- Sonoma. Many of you may know them, the home furnishings company. They operate under multiple brands: Williams- Sonoma, Pottery Barn, others. We first started working with them in 2018.
They came to us for support of their dropship e-commerce program across multiple brands, and we ran a program to enable all their dropship e-commerce vendors. We ran another program working with the Pottery Barn brand, and they wanted to get more digital connections for their ship-to-distribution center customers. They have another brand in their portfolio called Rejuvenation. We then added a bunch of suppliers through a program for ship-to-distribution center for that Rejuvenation brand. What we've achieved now with the Pottery Barn brands is the sort of ideal state that we can work with the retailers, and that's what we call ongoing supplier onboarding. That is just where we are baked in to the retailer's vendor onboarding process.
Every time they onboard a new vendor, they notify SPS and then we take them through a process of either being compliant with them by joining our network or taking them through a testing certification process. You can see that based on our relationship here, we have constant lead flow coming from Pottery Barn about potential suppliers to add to our network. We have also identified an opportunity with them for them to share point of sale data with their suppliers and are working with them to do that across our network. This is just a great example of how we get into a retailer. We're successful with one program and then we can expand that and move that into the desired state of this ongoing supplier onboarding, which is sort of evergreen lead generation for SPS Commerce.
The other piece of our go to market where we win new customers is through what we call our channels go to market. Typically, a big change event that drives adoption of the SPS network is the change out of an ERP system or a supply chain system. In this go to market, we work with the systems providers themselves and also all the consultants and VARs that are around these ecosystems. We're identifying when they move ERP systems and that would be most typically moving from an on-premise system to a cloud-based system. That's a very logical time for them to move all their digital connections with their customers at that same time.
The nice thing about these opportunities that are driven through the channels go to market strategy is they tend to be a little bit larger deals for us because if you're going to move all your trading partners at one time, it does tend to be a bigger opportunity. Whereas in the retail relationship management, we may get one connection and then need to expand with that customer. Typically, on the opportunities coming from channel, they tend to be a little bit larger. The new opportunity for us is this global expansion. We have been particularly focused on Europe for the last couple years on the back of our TIE Kinetix acquisition, which really gave us a beachhead into Europe. Keep in mind, SPS has had customers in Europe for many years, thousands of customers frankly, but most of those have been driven from retail relationship programs for U.S.
retailers where the supplier happened to be in Europe and we just sold and serviced them from the U.S. Now we have more focus in on expansion in Europe. We have decided that the SPS fulfillment product and network will be our lead products in Europe. We've retrained the sales force in Europe to lead with those products. We've also embarked on selling retail relationship management programs to retailers in Europe. I'm proud to report that we have won our first retail relationship management program in Europe and we'll be executing on that in the coming months. Those are the ways that we gain new customers and add them to the network. There are lots of opportunities to grow the customers that we already have. The first area is expanding with the customer.
Quite frankly, this tends to be a little bit more customer driven than it tends to be driven through our sales force. Some examples of that are that if we have a supplier on our network and they win new business with a new retailer, typically they will contact us and add the connections for that retailer. That often comes with increased volume on our network and they'd be likely to increase the data plan they have on our network. Also, as suppliers grow, they may increase the use of third party logistics providers. Those are additional connections that we can monetize on our network. We are now seeing increased use of suppliers wanting to sell on multiple marketplaces. That has been a driver of growth and expanded use of the network.
What we see is that as the customer gets on our network and they grow their business, they increase the use of the network. Certainly we need to process these transactions and things, but I describe this much more as a hand raising motion from our customers than a direct selling motion from our customers. There are other situations where we're actually able to use the signals on our network and drive a selling motion into the customer based on activities that happen in our network. This can happen for upselling new trading partner connections. One example is we can see sometimes from our analytics point of sale data that a supplier is doing business with a retailer, but they don't yet have that connection for fulfillment.
Based on that data in the network, it creates an opportunity for us to put in the system and create a lead for our salesperson to then go sell them fulfillment because we know they're doing business with that retailer. A similar example is if we see increased document volume happening across the network, there's a signal to our sales force that they can go out and sell an increased document plan to that customer. There are lots of upselling opportunities driven through the sales force and oftentimes signaled from the network itself. We can also see opportunities for cross selling from the network data and have the sales force incentivized to drive the cross selling as well.
What we can see is if a customer has, as an example, fulfillment, and we know we have point of sale data in our network for the retailers that they're connected to for fulfillment, we can upsell them analytics and highlight the benefit of having that point of sale data for those retailers and what that would mean to those suppliers. Similarly, we can look at the trading volume that suppliers have with the retailers that we support for revenue recovery and oftentimes make a pretty solid prediction based on that volume of what the revenue recovery opportunity would be for that particular customer, and that'll help drive the cross selling of revenue recovery to that customer. Let's take a great example here of how some of those existing customer expansion motions work with a specific customer example. There's a really cool story.
I don't know if you guys have heard of Audien Hearing. They are the first FDA certified over-the-counter hearing aid company, and they're doing extremely well as you see here. They got their first agreement with CVS to sell their hearing aids at CVS, and they contacted SPS because they knew they needed to do business with CVS and have a compliant digital connection with CVS. As their business grew, they got a large agreement with Walmart, a nationwide agreement with Walmart. They also expanded their connection then to Walmart because their distribution volume was growing. They put on their first third-party logistics provider and did that together with SPS .
As their business grew and they needed better financial systems, they implemented a QuickBooks ERP system for all their financials and purchased our QuickBooks adapter so that they could directly connect the network into their QuickBooks system so their orders would automatically flow into their financial system. They also added another third party logistics provider, and then across all the retailers that they were supporting, we were able to identify that we had analytics or point of sale data from many of the retailers that they were working with. We were able to upsell them the analytics product, and now most recently we saw that their volume with Walmart has achieved a certain threshold that there's a good return on investment for revenue recovery for them and have upsold them the revenue recovery product. This is just an example of how we can land with one retailer with a customer.
As their business grows, they come to us for additional growth. We use that network data to identify additional sales opportunities for things like analytics and revenue recovery. To recap, if you think simply about our business and our strategy, we're really trying to do a couple things. We're trying to get more customers on the network, and we're trying to increase the revenue of each customer that's on the network. The strategies that we have to get new customers are the very differentiated retail relationship management programs. Our channel go to market gives us access to these supplier change events. We're growing globally and very excited about the opportunity in front of us with Europe, especially if we can execute on retail relationship management programs in Europe.
Within the existing customer, we can ride some of the natural growth that comes from our customers, but we can also utilize our network to help our sales team prospect and identify opportunities for upselling and cross selling our customers.
At this point, we have heard from both Chad and Mike about SPS 's unique, proven, and optimized go-to-market strategy. The company has multiple inherent growth levers to land and expand its customer base and how we use network-led growth as a driver to upsell and cross-sell growth opportunities. I think this is a good time for a break. We will reconvene at 10:00 A.M., and after the break, we will start with our customer panel. Thank you.
Welcome back everybody. Thank you to the customer panel for joining us today. Mike Svatek will moderate the discussion with the customer panel, and I think Mike will just go ahead and get started.
Yeah, you bet. All right, welcome everybody back. I'm very honored and very happy to have our set of customers up here this morning. Thank you all for joining us. I know you took some time out of your schedule to be here. It's so important for us and hopefully helpful for everyone else online and here in the room. The panel today is really interesting. I think what you have today is a cross section of different types of trading partners in the SPS network. You've got 3PL, you've got retailer, you've got supplier, you've got very large established brands, you've got upstart, hyperscale growth brands, brand if you will.
We've also got partners that are trading with one another, not just the types but the fact that there's interdependent relationships here. We're going to have a really fun time. There are a lot of questions we'll get through and hopefully we'll be able to explore some of the dynamics that you guys are seeing and kind of the strategies you're implementing. Just quickly, we've got Adam from BRUNT . BRUNT is a super interesting newish brand, right? D2C and it's, I won't steal your thunder, but super exciting, high growth brand. We've got Ken Ratterree who is from KEEN, CFO, probably a well-known brand that you guys know and just really enjoyed learning about business last night. You guys are doing some interesting stuff.
Deb Conklin, who's the CEO of KeHE , you probably know KeHE , but nationally a distributor of foods here, very sophisticated, very large operation. We learn a lot from her as a client. Scheels, we've got Tony Duerr who runs operations for Scheels. Fascinating business. If you've not had an opportunity to be in a Scheels store, it is, if you don't mind, it's part amusement park and it's part amazing sports retailer and outdoor and you name it, right? It's a really, really interesting customer experience there. I'm excited that there's one ten minutes from my home that's going up right now. Last but not least, certainly we have Aaron Rubin who is joining us from a 3PL partner as well as also a customer in ShipHero. He's got kind of a dual hat that he wears.
Let me take just a moment and allow each of our panelists to go through, give a more thorough introduction if you like, and then would love to hear in your own words a little bit about your business, more so than I instructed. Also, just, you know, is there, I'm not going to say something that keeps you up at night necessarily, but what's the one or two things that you're thinking about that's always on the forefront of your mind? Kick it off on Adam.
Yeah.
I'm Adam Shuman, Director of Operations at BRUNT Workwear where I oversee our supply chain. BRUNT, we're a five-year-old company. This will be our fifth full year in business. We're a modern workwear brand. We make boots and apparel for the hard-working men and women in the trades who wake up every day to, I guess, literally build this country that we live in. Something that keeps me up at night is probably just making sure we have the latest and greatest tech or AI that's going to help us make sure the right products are at the right place at the right time to meet customers in both channels as we get into wholesale.
So.
All right, so I'm Ken Ratterree, I'm the CFO of KEEN. We're a global footwear brand based in Portland, Oregon. We've been around about 22 years. We've been working with SPS for I think about 14. I probably have 20+ years of experience across four brands with SPS . So bunch of footwear, footwear knowledge there. I mean, I guess what keeps me up is going to be a shocker to you all. I'm sure it's not on any of your minds, but it's the current situation we're in right now. You know, footwear is one of the highest tariff industries. Really my job right as the CFO is really to try to figure out how to balance everything. We're really looking for all of the efficiencies.
A lot of the stuff that Adam was talking about, you know, how do we become more efficient, how do we do more at the last and how do we lean on some of our partners. That's really, I'd say main right now and just maintaining the momentum that we have and competing with BRUNT. We compete with BRUNT. Yeah, for sure.
Good morning. My name is Deb Conklin. I'm the CEO of KeHE Distributors. We are one of the nation's largest distributors of natural, organic, specialty, and fresh products and a very complex business. About 85% of natural organic brands fail within the first two years of coming to market, which creates a crazy amount of churn in our business. I would tell you that we are actually a curator of brands who happens to distribute, and that's really what differentiates us compared to a lot of our competition. We're also an ESOP, which puts us in a position where we really can drive major transformation in an industry that's growing. We get our employees who show up with employee owner on their shirt to do deliveries. They just behave differently.
The thing that keeps me awake now more than ever is how AI is going to be used for nefarious behaviors around cybersecurity. I think we've all felt like no matter how hard we work on cybersecurity, there's always something that we're missing. Now I worry about the iteration that happens even faster as AI gets involved in breaking down the doors when nobody's looking. That keeps me awake at night.
Thank you, Deb. Tony Duerr with Scheels. I lead our supply chain operations for Scheels. We are a retail sporting goods retailer. Obviously, two great brands that we sell at our stores. A little bit about our stores: we're 34 stores throughout the greater Midwest. When I say that, I also preface a little bit. Our average store footprint size is about 240,000 sq ft, so not a small retail footprint by any means. When we say that we are a collection of our brands and we are an employee-owned company as well, which is great from an employee ownership side. With that, as I say, our portfolio of our brands that we do sell, we have probably 300 or 3,000 active brands, and over a given calendar year we will manage over a million unique SKUs through our supply chain.
Very diverse from a retail vendor relationship side to keep all that active within our system as well. As far as, to echo what these guys said, it's the same things that keep us up at night: how can we connect to our suppliers, have the product at the right time, our customers demand that product. Just the ever-changing landscape of a supply chain, it doesn't feel like there's been a normal year. I think that's just what the normal is. You're always going to be adjusting to something that's happening within the supply chain.
Good morning everyone. Glad to be here talking about supply chain. My name is Aaron Rubin. I am the Founder and CEO of ShipHero. Our primary business is warehouse management software. We provide the software to brands and third party logistics companies that serve those brands. We have about 10,000 brands that use us, many of which are very small, all the way up to some public companies. We also have a captive third party logistics company that we use primarily for testing and R&D, but it does operate about a million square feet of warehouses across the U.S. and Canada. What keeps me awake is certainly cybersecurity is insane these days. The other thing I think is going faster. Our industry logistics tends to move slowly and that adoption of just cloud SaaS from on-prem and homegrown is still way behind basically the rest of the entire economy.
Trying to get things to go a little bit quicker is probably what I think of about the most.
Yeah, great.
Yeah, lots of themes popping out. I'm going to give you the softball question first and we'll just send this to a few folks. I think maybe Tony, we'll start with you. Everyone here has got a relationship with SPS and we certainly appreciate that. Tony, you've had a relationship for a long time and as you guys have continued to scale and grow, what is it about your relationship with SPS that's worked really well and what's kept the relationship so strong?
Yeah, I'll kind of speak to a little bit. We've started down the journey with SPS about 14 years ago in 2011. It was really driven by some of our vendor partners. Some of our larger vendor partners at that time had really kind of started and pushed us along that pathway, and we sought out SPS at that time, just, you know, very similar to what Chad had said earlier with just the network, the expertise in that background, because we just were looking for that because it was all new to us. I mean, we were still a, we felt a small entity at that point and were just needing some expertise in that area.
As we grew into that, that could work from anybody from a very small, as I call them, mom and pop vendor, because we're very regionalized with our locations, to a larger entity like a Nike, a KEEN, that are really driving ahead of where we were at that point in time with that EDI journey. I think the benefit is, you know, we've been with SPS for 14 years. We've just been able to grow with them, and it's been a very give and take relationship, partnership, you know, and we're very big from a partnership side in our business model. I mean, we look at, we want to drive things through a partnership than through anything else. We are not a, I always say, not a chargeback company. We will work directly with our vendor partners to provide and solve problems and drive solutions.
SPS is, you know, willing to work with us in that unique model and help us along that journey. I think the strength in that is it's just been very consistent throughout those 14 years. I mean, we've done several different smaller enablements as we've driven technology changes with them. At the same time, it's a very consistent, I call it, user experience from a vendor partner side. As we continue to grow, on average, we still bring in about anywhere from, I always say brands, but we add about 500 new brands to our portfolio every year.
You give and take some every year. To have somebody that has that expertise that you know is an extension of your business and the partnerships you want to create with the vendors is very important to us. To have them be that extension and treat our partners like we want them to be treated is very important. That's helped maintain that relationship through the 14 years to where we're at today.
Super. Really a theme of that relationship management sort of pulling through, not just an offering, but how we think about partnering together on that. The collaboration aspects are just, you know, phenomenal. Yeah. Over to you, Ken. Question about, in particular, actually what I really find interesting about Ken's background is Ken's worked in footwear for a while. He's been at some really impressive brands, including the one he is at today. You've picked SPS or worked with SPS at each of these. I'm curious, as you've had an opportunity to go somewhere else and look at the options, what keeps bringing you back to SPS?
That's a great question. I mean, I'd echo a lot of what Tony said. A lot of it's about the partnership and just the network and the other thing. I mean, SPS , you know, owns the EDI space. If you just look at EDI, or at least that's what they've convinced me of. Good job. You know, let's believe it. No, because really there's an economy of scale.
Right.
Because I think a lot of it's partnership. It's also the economy of scale that SPS brings, you know, because it's impossible for a brand like us to manage all the different connections and all the different work on our own, whether it's working with our own 3PLs or working with transportation suppliers globally. It's been a huge thing. The other piece I really appreciate about SPS is their proactivity and the ability to problem solve. Tony mentioned that a little bit too. We've worked on global implementations and even expanding business into new regions together as partners. I used to work with Adidas, and that was one of the big things we did there, really expanding into Europe and getting European retailers more on the analytics side of the house and just really going in and trying to win together has been a huge thing.
I mean, your team was visiting me last week and the conversation is incredible because they come in and say, hey, you know, what are you worried about? It wasn't just about the momentum comment I made earlier, but it's about efficiency and just different creative ways and solutions. I mean, SPS is always willing to partner and to think outside the box. We have a saying within KEEN that is kind of a motto we live by. It's called truth, trust and transparency. That's really the way we work. Tony's the same way.
Right.
We love to work with our retail partners that way, all of our partners. I really think SPS lives those values along with us.
Great. Super happy to have you guys in the fold. We learn a lot from you guys as well, so it's good stuff. Aaron, how about a different perspective? We've got a great retail perspective, great brand perspective. How about from a software partner perspective, and maybe from a 3PL perspective as well, since that's part of the business.
Yeah, sure. I got to meet Deb as part of this, so I'm going to use a mutual customer as an example. Anyone here eat at a restaurant called Momofuku or order their food? I got a couple of people nodding. Okay, that's a mutual customer of ours. Momofuku was a chain of restaurants that went into CPG, created 20 or 30 SKUs of noodles and their chili crunches, one of the things they're famous for, started selling on Shopify Plus, used us. We're the largest WMS partner in the Shopify ecosystem. We were working with them and then they had big, exciting news. One, they signed their first national distributor, which was Deb's company, and they're like, what do we do now? Like, you know, we integrate with Shopify and Amazon and their other partners. They're like, hey, do we integrate with KeHE? It's like, no, we use EDI.
I know that it's going to be obvious to everyone in the room, but it's not obvious to a lot of these brands. Chad spoke about these Shopify brands that grow really quickly on Meta and TikTok these days. They don't know the trading world.
Right.
They know e-commerce. After a couple years, it's time for them to work with national distributors or retailers. The conversation is, hey, we need to trade with this partner. What do we do? Now EDI is like, it's a standard. You don't have to use SPS, even though KE uses SPS. You can use another provider, but it's way easier to just work with the same provider. The compliance will be faster, certification will be faster. These are very large POS for small companies, and it's a really scary process, starting with EDI. You want to go with the vendor you trust that's already working with the retailer. We say, hey, this is, you know, SPS is the partner we recommend. They always say, we're actually trying to also sell to three or four other ones later this year or next year.
SPS probably works with them directly, and if not, they work with everyone because EDI is a platform that allows them to work with everyone. That's, you know, 95% probably of our customers end up using SPS just because of those reasons.
Yeah, yeah, phenomenal. The power of the network, keeping trading partners connected, keeping it fresh, making sure the connections are established and maintained. It goes a long way. Certainly. Let's change gears a little bit. Let's just talk about the complexity in supply chain for a moment. If I think about everyone up here, I know everyone's got different aspects of complexity. They're managing different scales of complexity, different nature of complexity. Deb, I've got to imagine you're probably at the top of that list in terms of complexity. I mean, big operations, you've got inbound, you've got outbound, you're sitting right in the middle as a distributor of all the supply chain goodness. Take me through a little bit of how you're thinking about complexity, what you're doing to manage that complexity. To the extent that SPS is p art of that.
Y ou know, I think about our product line models for startups, folks that are just figuring out a new formulation to crack a code in functional beverage, mushroom beverages, and like all the crazy things that you can think of. What that means is not only do they not understand the process of going, you know, into distribution, there's also a ton of churn. We have over 80,000 SKUs in each of our DCs, 18 DCs across the United States and Canada. A lot of churn, a lot of complexity, and the consumer changes their mind tomorrow. What you think might be hitting is now no longer the coolest thing on the block and you've got the next innovation cycle on top of it. Natural organic hasn't been in the forefront of technology.
Things that I would tell you that I was doing in the 1990s out of college were things that KeHE hadn't even started to think about doing. Having SPS as our digital commerce trading partner, the ability for 6,500 suppliers and 80,000 SKUs with 20,000 new ones coming in and out every year allowed us to standardize the playbook. Instead of every different flavor of ice cream, it allowed us to have a playbook that was repeatable. As you can imagine, that drives efficiencies, that drives scale. It also becomes that one way of working in a way that when a new product comes out through a new supplier, it's easier to onboard, massive improvements in both our throughput and efficiency. One of our most important parts of our strategy is what we call partner success.
Easy to do business with and for, and that was never in this industry was important. This has truly allowed us to have a playbook that allows us to get to market faster. The other thing that resonated with me a lot with the SPS model is we had mapped all of the gaps in our process and then we sat with the SPS team and they mapped all the different tools and systems they could bring to bear for us. It was amazing the overlap that they already had a solution available or in flight that we could put to work quicker. KeHE wanted to build everything from scratch and the ability to partner with somebody who's the expert. We're the curator of brands, they're the digital commerce experts for our supply base.
That has us each in our own proper wheelhouse moving faster and adding a ton of value. I honestly do believe we couldn't do it the way we do it without our partnership with SPS .
Thank you for that. It's that type of insight that we get when we do customer visits, when we understand and try to become really a partner in a true sense of understanding the business and how to move the needle. It provides great feedback for us from a product roadmap and a strategy perspective. Good stuff. You've got an interesting story. From a complexity perspective, you started pure digital online. You moved to wholesale and now even more is happening. How are you dealing with all the complexity?
Nearly as complex as Deb and her business. Like I said, five-year-old company or this is our fifth full year in business. First three years we were exclusively direct to consumer, one set of requirements. It was nice overnight about 18 months ago when we decided to get into wholesale, we got a dozen plus different requirements from our retailers and now all of a sudden we're trying to take their systems and process our systems and process and work together. SPS does that by standardizing everything. They're able to reduce or simplify that complexity so that we're really able to then get off the ground running and go into wholesale with a lean team. I had one dedicated headcount when we launched that wholesale, but they're centralizing our EDI connections. They're integrating into our ERP system.
Instead of having to hire a whole slew of people to manually enter orders, it's in our system. We have fields in our ERP that's account specific that drive all those different nuances that are automated. ASN generation, invoice creation. Really our end-to-end entire fulfillment process is streamlined so we don't have to think about that and we can do the fun stuff like being good partners to our partners and growing the business so that one day when we all are as complex and big as these guys, we're good to go. I echo the sentiment that without SPS , we wouldn't have been able to get off the ground running and move as quickly as we've been moving.
Was one other thing you shared with me last night at dinner. Do you want to talk about that at all, or are we keeping that in the pocket about your location coming up? You've got a physical. You're going into physical.
Yeah, we are. Yes, we are going into, you know, I got a lot of stuff going on.
Yeah.
Simone, some possibility of going to our own and operated retail, exploring that.
Exploring that.
Yeah.
Yeah, just to add a little more complexity to the plate because you're not full yet. Yeah, that's good.
Exactly.
That's good. Cool. Maybe Aaron, I know a great, great answer to the other question. Every time I talk to you, I learn more. Are there any gaps that you're seeing in your customer base where SPS is really coming in to fill that gap? Just from a complexity perspective, you're seeing it on all sides of the complexity, right? Being in a 3PL and also as the WMS itself, which is managing inventory, no doubt, and fulfilling those processes. Where's that complexity? Where are you gapped out on that complexity and what holes are we plugging for you?
Yeah, so when we're a technology company, right, we build a lot of software, we kind of with platforms, shippers, ERPs, all that stuff, right. We're not afraid of building. I was talking earlier about the speed and trying to make things go faster, and the days of like, hey, yeah, we're going to onboard someone and go live in six months, like that just, you can't do that. I still hear it, like there are people still doing that. We want to be live in like two weeks with a new connection, and our team puts live dozens every week of new connections of retailer and suppliers, and the ability for us to build all that quickly is impossible. By having a partner who, you know, it's not like there's just one connection and it's just like you build it once and it's going to work for everything.
Of course there's work to do, and we have a team that manages as we keep adding people on both sides of the equation, but it's, you know, 10x, 100x faster working with a partner that knows what they're doing and has the technology. It's all about speed and the quantity we can put live that we just, we can never do anywhere close to that pace on our own.
Yeah, yeah. Maximizing speed, minimizing complexity if you will. Just move faster basically. Yep, just move faster. Cool. Let's pivot to another kind of conversation topic here, which is, as all of you, as a trading partner of one or many other partners, you're working to collaborate and be a better trading partner to them. I'm curious from a Scheels perspective. You mentioned a little bit earlier in your earlier statement, but how is SPS enabling you to be a better trading partner to your suppliers?
Yeah, I think there are a couple different ways. I'd say one is, and I will go back to, it's just consistency. I mean, when you have so many systems that are tied in from the EDI and from the vendor side, there is a lot of complexity there, but it is very simple from that standpoint. I say consistency because if you don't have consistency in that data and a platform that can handle the amount of data flow, it would be very challenging for us to be able to maintain our efficiencies on a day in and day out basis. I think the second part, kind of going to a little bit of the collaboration piece, would be some of the analytics. We are a private company, so we don't share a lot of analytics.
Some of it is on purpose, but we do do that strategically with partners through SPS, and that helps streamline. They are able to use that on their end to provide insights. Because when you're analyzing millions of dollars and thousands of brands, sometimes it's easy to miss, whether it be BRUNT coming into the workplace and disrupting what's going on or consistency with KEEN from a partnership that has always performed well, that sometimes you miss some of those nuances. Unless you have a second set of eyes that are equally invested in our performance from a vendor side because they want to see their brand perform well and we want to see that brand perform well.
I think that's where the analytic side is kind of that two-way street in all of this by leveraging some of that point of sale data, where they may see things that, in all honesty, sometimes we gloss over because of the complexity of the business. I think those are probably the two biggest things that we notice on a day in and day out basis: that consistency and then that two-way partnership back and forth.
Yeah, great. It's remarkable to hear from our retailers how often just how diverse the set of activities they're taking on are. They can't pay attention to every single SKU and every single product category that they have. Getting that support from the supplier who’s got eyes on that really helps drive sell through so well. Actually, just on the other side of that coin, let's hear about your experience. Working with Scheels, how is SPS helping with that, and to the extent you can, talk about analytics or other forms of your relationship.
Yeah, Tony told us that KEEN and BRUNT are the two favorite vendors of Scheels. Out of the 3,000 we've made the top two. As being the new guy in the space, SPS, from the start, gave us that credibility that we could execute operationally. People might go into the store and ask Scheels to carry BRUNT because they saw the product, saw the marketing, but we have to then be able to execute operationally or it's going to be a short-lived thought into going into wholesale. Being on the SPS network removes all those friction points in our end-to-end order fulfillment process so that we're able to fulfill Scheels orders with speed, with accuracy, doing it compliantly so that they then place those reorders and just a nice little cycle. It really truly allows us to collaborate much more efficiently.
The advantage it gives, it's a good example where we start out in a few doors and we expanded to 100% of their doors in a very short period of time. Even if the demand was there, we probably wouldn't have been able to answer that request without being on SPS because they're able to standardize and have our two ways of working connect with each other. On the analytics side of things, it's super helpful for us because we've had three years' worth of data from the direct-to-consumer side of the business, but it's a different channel and we've gotten a lot of learnings on size curve differences, color preferences, a mix in our toe type or work boots, whether it's soft toe or comp toe.
It allows us to get ahead of things and see how things are selling so we can have the right product for them to reorder and for expansion.
Visibility is key.
It's everything.
Great. Maybe Deb, to you. You're onboarding tons of new SKUs, certainly new items, new suppliers as well. I imagine the grocers themselves are pulling on you for new assortments and you've got to go out and source and sort of, you're in this constant process of onboarding. How do you do it and what role are we able to help you play in that?
There is no doubt that that is the life we live. We are truly a curator of brands. It's the ability to understand what need state each different customer has for the specific natural, organic product that we're talking about. We see over 120,000 new SKUs a year and we onboard somewhere in the neighborhood of 20,000 a year. One of the things that has been very differentiated for us is the fact that some of these come in ebbs and flows, and the ability to have a standard process that's automated that gives us flex capacity has been phenomenal for us. You talk about it, you know, it used to be we're going to go live with this in six months. No, no, no, we want it tomorrow. You've got to figure out how to accelerate from a thumbs up to an on shelf experience in weeks.
If not, you could miss the trend, and having that flex capacity, that partner that we can look to that help us automate it. Even if you think about it, just wrap your head around hundreds of thousands of transactions a month because we serve, you know, 30,000 customer doors with 80,000 SKUs. Just you start to think about those numbers and then you think about the innovation that on top of that, we used to do that all by keystroke. Just the mathematical error of, you know, no matter how good you are, you're not going to be perfect. That being automated is a game changer from an accuracy standpoint.
From us, you know, there are other next generation things that we're now doing as well, which I can't believe in 2025, I'm saying that KeHE never accepted advanced shipping notices, but we did not accept advanced shipping notices, and now that's a requirement. With one scan, we can receive a load, as opposed to having to manually check the difference between salted peanuts and unsalted peanuts on a case that looks exactly alike. There is a lot of progress that is really helping KeHE move a lot faster in an industry that has evolution of change that is at light speed.
Yeah. Great. I love the peanut example. I mean, it really kind of grounds it, like, this is what, this is operations, right? This is what folks have to deal with. That's great. You've got a huge retail channel. You've got a lot of retailers you're working with, over 100+ .
Yeah, I'd say thousands globally.
Thousands globally, right. Each of those retailers have a different flavor of what they want from you, different requirements. How are you able to keep up with all of that? How are you able to be a good supplier and a good trading partner with literally thousands of retailers?
Sounds like a rhetorical question. No, I think it's, I mean, that's, you know, you've heard it, right? I mean, that's where SPS comes in. There are a lot of brands not on the EDI side, but even if you think about analytics that think they can do it on their own, right? Anybody that tries to manage that amount of information on their own, it's literally impossible. We, similar to what we're hearing here, kind of let the experts do their thing. SPS really helps everything run.
Right.
I mean, Tony mentioned just the reliability and all of that scalability. For us, you know, EDI is not a—I think I'm allowed to say this—EDI is not sexy at all. It's kind of one of the things that you want. Sorry, it's one of the things that you want. You want it, you want it to work.
Right.
It's an amazing technology, but it's one of the things that when you're not complaining about it and it just happens, you can get quick connections and have everything set up and it works smoothly. It allows us to focus on running the business.
Right.
That's a huge thing. On the analytics side, we like taking Scheels, for example. We obviously want to sell product to Tony.
Right.
We want to sell product to Scheels, but that's not the end goal. The end goal is to get more shoes on people's feet. We really care about sales to the end consumer through whichever channel that happens. Being able to read trends, being able to make sure that happens, helps make Scheels happy, makes us happy when we get it right. Also, being able to make sure we know where inventory is comes back to what we heard about earlier, about the whole product, price, place, promotion. That really helps us manage inventory and manage a lot of our other strategies around it. Whether it's product launches, all of those things really help us. The data that we receive from SPS.
Really helps us out, no doubt.
Yeah.
I don't know how you do it without the automation. It's just not possible.
No, it's not really.
Yeah, it really isn't. Let's talk. Let's kind of pivot to our last topic for the day, which is really like super exciting ROI. We all are here because, you know, you've invested in technology and people and process, right, to drive business outcomes. At the end of the day, it's about the return. Maybe, Tony, if you want to give us a thought on how do you think about, you know, return on investment in terms of, you know, not only SPS investment, but kind of the processes that we're associated with. Easy question.
Easy question.
I don't like to think about it because it just happens.
Okay.
No, it's. There's a lot of different, you know, again, if we didn't have the technology in place, there would be significant labor hours that have to be invested everywhere. From our end, it's integral to what we do from a business side of things. One of the unique models is we're not 100% of a DC company, so we do a lot of ship to store with that. That obviously adds complexity to our vendor partners, but it also adds additional documents and all the different things that happen. You can start from purchase order error rates that add return investment because you're going to have people keying all those in from a vendor side of things to same things from a receiving side. We're able to receive large amounts in our store through that same 856 advanced ship notice process.
We don't have to touch every single item that comes into the back of our door. You just think of our speed. The floor within our stores is most things that come in our back door now can be sales floor ready within 24 hours, which is huge for our stores. You can meet the customer needs and we can be very lean in our assortment, in our inventory levels to then the last part of that automation that from a return on investment, it's the invoicing side, whether you want to, you know, the vast majority of our invoicing does not even get touched from a reconciliation side of things through the EDI, the cross referencing.
We're able to do all of that with the complexity of the amount of purchase orders, the amount of vendors that it just flows through our system right into the back into the ERP. There is so much efficiency within the operational side that, you know, that's all the given ROI and then just you continue to look and say where can you build upon that, whether it be additional automation, different processes that SPS is bringing to us. It's exciting to see, you know, we're going to go through a lot of some more automation processes with receiving even yet further on our side, which is exciting that again, without the technology and the consistency in the data flow, you just won't even consider because you're managing other problems instead of being forward thinking.
Yeah, great point. It's a financial question. I've got to go to our resident financial officer over here. So KEN, how do you think about ROI for KEEN? Again, put your big CFO hat on like you're looking across the entire organization. How do you think about it?
Yeah, I mean, Tony mentioned part of it. We're on the other side of that PO invoice thing, so just a lack of issues there and the fluidity with which SPS helps us manage that is a big one. I love the analytics side, and another example is it helps us manage our marketing investments.
Right.
We can actually see what's selling through where, when, which colors, which SKUs across multiple retail partners. If we do a product launch, we've used SPS 's data in the past to say, hey, we're coming out with this new product. How do we judge if it's successful or not? How do we know if we're winning or we're losing or where we're winning and losing? We'll take products that we have data on from the past and kind of model against those using SPS sell-through data. I think that's a phenomenal, maybe a little bit more outside-the-box use of the data, but it's really just taking advantage of, I don't know, I think of SPS as almost the connective technology tissue amongst all of us.
It really links everything, and if you look at it the right way, there are so many use cases in there that are really interesting. The investment and kind of measuring investments from a different way is super important. If you ever ask anybody to measure a marketing ROI, it's.
Yeah, right. See, it's tough.
It's really hard.
Right?
This data helps us do that. One example.
Yeah, super. I guess on the BRUNT side, how do you think about it? I'm really, really curious to using this data for production scheduling and sort of demand forecasting and things like, I know you have a ton of e-com data to go off of, but how do you take that ROI?
Actually, we just internally were discussing this and we broke it out into four different groups. I'll fly through. I know we're running out of time, but first one is cost savings. We're able to not have to automate. I mean, sorry, we're able to automate and we don't have to do all these manual orders. We don't have to. We can aggressively grow wholesale without having to scale our headcount at the same rate. We have efficiencies, so we're reducing that complexity. We're getting cleaner data, which allows us to create orders faster. On the scalability side, we're able to onboard partners. We've had numerous onboard partners. We've onboarded in seven to 10 days when people tell us months. On the visibility side, like it's huge.
It's.
I mean, we also do the same thing with marketing launches. I think one of the bigger pieces that's a little tougher to put a dollar against to, like, exactly know your ROI. We've talked a lot about, or everyone has, on the network and the systems and the tech. The people side of SPS , like, truly mean it when I say their people are just as good, if not better, than their tech side of things. The support we get on our daily questions, the chat feature is awesome. That's huge. We want to align ourselves with someone who's going to help us grow as much as we want to grow.
Yeah, super. We've got about a minute left. Who's got an exciting ROI story?
I just want to point out that Tony's the only one to mention a document number so far all day, so congratulations on that.
Yeah, good. Deb, any last thoughts there?
First, me. This was just a cost of doing business. We had to do it. The good news is there are plenty of ROIs. We've reduced our time from thumbs up to shelf by 25% just by what we've talked about. I could list you 30 more, but I'm an engineer by trade, so it's absolutely in my DNA to worry about the measurables. We just couldn't have run our business and grown it if we didn't have our partnership.
I think a lot of it, too, just in closing, is about opportunity costs and what we wouldn't have if we didn't have a problem partner that, you know, and great people that help us bring it all together. That's it, I guess.
Yeah. Limited time. We got to pick our projects, right? For sure.
25% of our customers are on EDI. Those 25% over the last 18 months have scaled to represent 65% of our total doors because it's significantly easier to grow when we're utilizing SPS 's network. Otherwise, we have to kind of pick and choose where we grow.
And it's.
It's SPS accounts.
Yeah. Good. We're kind of picking up a vibe of infrastructure. It's commerce infrastructure to help you guys scale, grow, automate, reduce error, be predictive, give you the data you need to draw your own predictions from. All those things. I want to thank you guys each for being a great partner, great customers for us. I hope that everyone here got some great takeaways. I certainly have got some great takeaways. I know you can spend your time in lots of ways. We just appreciate you, man, making the trip and sharing your insight. Give our panelists a round of applause, please. Yeah.
Thank you.
Thank you.
You're being so long.
You start, you think of documents, move.
All right, wonderful panel. A lot of insightful commentary about SPS products, how SPS contributes to the infrastructure these customers are building. I think this is a great time to have Jamie Thingelstad come up and talk about network strategy and how that further puts SPS in a great position to help its customers.
Thank you, Irmina. Such a great session. It's always amazing to hear how our customers benefit from being part of the retail network. As you've heard throughout the morning today, really at the core of SPS is the world's retail network. For the last 25 years, we've been building that network retailer by retailer, supplier by supplier, partner by partner, and creating this ecosystem that allows people to dynamically connect with each other with agility and flexibility. That network gains power every single time that we add another member to it. That scalable, global, and secure network is the foundation of everything that we build on here at SPS . Let's talk about some numbers first. In that network, we have over 300,000 trading partner relationships. Across those 300,000 trading partner relationships, we have over $650 billion of transaction volume.
In the last 12 months alone, we've seen over 33 million product SKUs and processed over 780 million documents or messages between those members of the retail network. There are many features of the network that make the network so powerful, but I want to highlight three of them for you today. First is this idea of protocol-agnostic. You heard many people talk about EDI, and EDI is a great place to start, but it's not enough. We also have data that arrives via XML or JSON or CSV or many proprietary formats that have been built in-house. That data moves between trading partners in the network in a variety of different ways. Some customers may use things like managed file transfer. Others may use APIs. By the way, inside of those protocols, those protocols do different things.
For example, some of those protocols are very opinionated about the transactions that they include. Other protocols are unopinionated and leave it up to the author to decide how they want to represent that information. It's the job of the network to connect all that data together. We may have partners on one end using a JSON API and partners on another end using EDI and a managed file transport, but we make that all smooth and seamless and bridge those gaps inside the retail network. It's one of the key capabilities that we have. Additionally, the network is AI-enabled. We already are able to use AI to add members into the network easier and be able to test and validate that information is flowing between those data networks faster than we could otherwise.
We can also look at an entire industry and analyze what that industry is doing to understand better, for example in a category what's typical. For example, we could even look at a single retailer and work with that retailer who might want to change a business process and help them understand how complicated that will be for their suppliers to meet.
Last.
Lastly is the scale and security. Retail is dynamic. We heard that just today, just right now on the panel, and so is the network. As we enter the holiday period, many retailers are preparing for orders of magnitude change in their volume. It's critical that the network be able to adapt and scale along with them. It does that. Security is also more critical than it's ever been in retail. Making sure that we meet those security requirements of retail is absolutely key. How do we prove that security and that reliability? First is our trust center, where we share with prospects and customers all of the details of our security program, including our security certifications, most recent audits, etc., so that they know that the way that we handle their data will meet their requirements.
We also were the first in our industry to make our real-time status available for all of our products and network capabilities and still are the only provider that provides real-time insight into our network performance. Using that, our customers and members of the network can at any time know that the network is performing and meeting what their needs are. All of that is possible with just one secure connection to the world's retail network. There are many things that the network gives us, but I want to highlight three of them for you today. First is data as a differentiator. Secondly, how we achieve faster time to value for our customers. Third, how we can use the network for network-led growth opportunities. Let's start first with data. Retailers publish rules, rulebooks that are the foundation for how their suppliers can connect with them.
Those retail rule books don't have everything that you need to know. They often lack some of the business processes or the other requirements that a retailer may have. For example, what is the retailer's expected turnaround time for an order, or when they do request an order, how should that order be shipped to them? What carriers should be used? If a pallet's required, do they have specific requirements about how the contents are placed on the pallet? By the way, make sure that you get that advanced ship notice to them before the package arrives. Retail rule books are a great place to start sometimes. There's also a vendor guide, but not often. You always have to wonder as a supplier, is this accurate? Is it up to date? As you heard, retail changes frequently.
All of this is very difficult for retailers and suppliers to keep up to date with. This is where we can use the network to do this differently. By using data in the network, we're able to see what retailers do in addition to what they say. For example, we may be able to look at a retailer and see that that retailer typically receives an acknowledgement of their orders within an hour. We can then understand that pattern, and using AI, build that pattern into our network. The ultimate result of that is that members of the retail network gain a deeper understanding of the retailer's goals and what their expectations are, and as a result, have more successful trading partner connections. To build that capability, we use three different things. First, the information contained in those retailer rulebooks, which helps us understand the structure of the data.
Then we look at the network data itself, which allows us to understand what's actually happening between those different trading partners. As you heard referenced, we bring our retail expertise to that. Bringing all those together in combination with AI allows us to bring a number of different use cases to retail members and into our products. Let me talk next about how we achieve faster time to value. As we bring new customers onto the network, we use a prescriptive process to bring them on using those rulebooks that we have built into the retail network. First, we start with a discovery process that allows us to understand what are the trading partners that this supplier is going to work with, what are the fulfillment models that they have, what business systems are involved, and what are the problems that they're seeking to solve.
We then build a prescription that we can then show will solve all of the specific things that they're looking for by looking at our overall product capabilities. When we get to the point of configuring that solution, we don't do that point to point in the network, we do that by each solution. We bring them online and then ultimately validate those solutions to make sure that they meet the requirements of all the trading partners. By doing that, we provide a very fast and easy way to bring new members into the network. All of that is well designed for us to then bring agentic extensions to that onboarding process. For example, in discovery we can use AI to create a unique discovery process for each individual customer, looking at their specific requirements and only asking the things that are critical to their business process.
We can also then validate that that prescription covers all of the necessary things that they're looking to do. In configure, we can use an agent that can work alongside a number of other agents to help team SPS get that customer set up faster. Ultimately, using our testing agent that can work along with the information that we have in the retailer rule books and network data to even, for example, generate its own test data so that we're never blocked on any part of a trading partner connection to provide us information to move forward with them. This is incredible power that only comes when you have a retail network. Last, let me talk about network-led growth opportunities that we have. We've talked about some of the signals that are in the network, and we listen to those signals to identify a number of opportunities for us.
For example, we may see a supplier who's had a recent uptick in their training activity with Walmart. We know then that there's probably an opportunity to work with them with revenue recovery to help them gain improvements in that connection. We may have a fulfillment customer that's working with a retailer but isn't then getting the analytics information from that retailer, or the vice versa, getting analytics information but not actually using the network to trade them there to use fulfillment. We may have somebody who tested with a retailer but isn't actually using the world's retail network to actually do their fulfillment with them. Using those signals, we can drive opportunities into our sales organization to then reach out to those customers and add more value for them.
Those same signals can also be used by network agents that are working with customers to answer questions about the network itself. For example, you can prompt in plain English to understand what's happening in the retail network for you, what information you need on which orders, and what exceptions you may need to deal with. You could actually have that same agent identify reports and analysis that can help you drive business decisions. Ultimately, exposing that agent via protocols like MCP will allow us to extend that agentic capability right into our advanced customers who are already using agent technology in their trading partner ecosystem. There are a vast number of benefits that we get from the retail network and all that we're doing with it. We have also identified a number of internal efficiencies that we believe are possible with AI along with the data that we have.
Earlier, I talked about the customer onboarding use cases. In addition to that, we also see an ability to use agentic engineering capabilities to explore, prototype, and build faster to just get more capability to our customers. We also see an opportunity to use agents along with networking data and CRM activity to help us engage prospects and work with new customers in a more efficient manner. In fact, we've already started doing much of that. We have our own internal agent platform that's already connected up to many of these different systems. For example, we have access to our CRM data or access to conversational data that we're having with our customers. These internal agents can connect that all together to deliver more value for our team.
That combination of internal data along with commercial information and then also what the network knows about those trading partner relationships is incredibly powerful. In closing for all of you, I've actually been at SPS for over a decade and I've always been incredibly excited about the opportunity to build the world's retail network. I am incredibly excited about what we can do with agentic technology on top of that to create even more value for our customers. It's a really incredible time. With that, I'm going to hand it back to Irmina.
Thank you, Jamie.
All right, so we have established sort of network is important, data is important, and ultimately it is protocol-agnostic, AI-enabled, scalable, and secure. All right, with that I will invite Kim to provide the financial review and the final presentation for the day.
Okay, thank you, Irmina. Great to see so many people here in the audience. Some folks have been investors for over a decade, some are newer investors or just taking the opportunity to get a refreshed look at SPS. Really appreciate everybody here today and really appreciate everybody online as well. I'm Kim Nelson. I think most of you have had an opportunity to connect with me, but again, really appreciate the opportunity that you're taking to get just a better understanding of our story. I have really three key messages for you to walk away with. First, that strong foundation of durable growth. Second, that huge opportunity to go after a very large total addressable market based on our go-to-market strategies that we have. Third, our conviction as it relates to sustained and profitable growth. We'll spend a few minutes going through each of these. First, our durable growth.
What you'll see here is we have a very long track record, many years of being able to deliver nice top line growth as well as nice bottom line growth or adjusted EBITDA dollar growth. What you'll also see here during that time period with that balanced growth, we've also been able to drive a lot of efficiencies in margin expansion that you also see on the bottom here. With that EBITDA margin over this time period, over this basically decade timeframe, you'll see we've delivered about 17% top line growth and 27% EBITDA dollar growth, which also helps to drive that EBITDA margin expansion as well. As Chad talked about in his section, we have had different dynamics that have happened in the retail space during this time period. The next slide is just going to overlay some of the expectations that we've had during that time period.
What you'll notice on the box on the left here is that was during a time period where there was some change happening in the retail space. At that point in time we had a stated expectation of approximately 10% top line growth and delivering approximately 20% adjusted EBITDA dollar growth. You'll also notice that during that pandemic time period, as Chad talked about, there was really a pull forward, there was a lot of momentum, a lot of activity happening in the retail space and that drove a great tailwind for us as a business. During that time period, we took the opportunity to update our expectations over a multi-year time period to 15% or greater top line, including M&A. We slightly expanded the expectation on the EBITDA side, from just approximately 20% EBITDA growth to approximately 15%- 25% EBITDA growth.
What you'll see throughout all of these time periods is we've successfully executed and delivered in helping our retailers, our suppliers, our third party logistics providers, and delivering on this balanced growth. The two components that ultimately drive that revenue are how many customers we have and what those customers pay us, or what we refer to as the ARPU. What you'll see is during that same time period, both have been very important contributors to that overall revenue growth. There are certainly some time periods where one may grow a bit faster than the other, but the combination of the two is really what's driving that top level growth. Next, I want to take a moment and double click down on the customer side. In this case, what this is showing is what has happened to our customer adds over various time periods.
This chart excludes M&A so that you can get a sense of what are the drivers of customer adds excluding M&A. What you'll notice here is there are really three time periods that we have highlighted: pre-pandemic, pandemic, and post-pandemic. Your takeaway here is we had a very consistent engine in how we get the majority of our new customers, and that is through that relationship management program. What you'll see is pre-pandemic, that averaged on an annual basis approximately 1,300 new customers joining the SPS Commerce network. Then you'll notice pretty obviously here is during the pandemic you saw that number increased significantly. During the pandemic time period, the customer adds excluding M&A was approximately 2,100. For those of you that have followed the SPS story for quite some time, you do know that acceleration. We've talked about that pretty consistently, that occurred during that pandemic.
Great for us as a business, but quite a bit of an outlier during that time period of that acceleration. Next, you'll see on the latter third of the chart, post-pandemic. What you'll notice during that time period is there has been a little bit different in some of the years how many customers we've added, but if you look at roughly 1,000 as the average post-pandemic of net customer adds. There is a caveat on this slide as it relates; you'll see that little orange bar on the far right. Since we only have information through the first half of the year that's been provided, the orange line is simply extrapolating forward. If the second half of 2025 ends up being the same as the first half of 2025, that is where that line would end up.
What you'll see is that is trending closer to where we were from a net customer adds of approximately 1,300 pre-pandemic. You'll also notice on here that 2024, and Chad did speak to that, but that was a pretty low customer add year for us. Again, overall we're trending a little bit closer to where we were pre-pandemic. Next, huge total addressable market. We have over $11 billion opportunity in front of us. We're going to spend a little bit of time now to double click in this area as well. First, this slide you saw from Chad earlier today, this shows where we're currently at through the first half of the year versus this very large opportunity we have in front of us. What I'm now going to do is go a little bit deeper on the U.S. side of that opportunity. That's that $6.5 billion total addressable market.
What this slide does is not only does it show the total U.S. opportunity, but it actually breaks it into different size customers. As you probably know by now, we are able to service all size customers, but there are different dynamics depending on what size as you are. What this chart shows is for the small customers, the medium customers, as well as the large customers, what do we see is the opportunity for both how many customers and how much that average revenue per customer will be. Those are those circles and then you'll see the little darker shade colors in each of those areas. That represents through the end of 2024 how much of this opportunity do we already have.
You can sort of look at it and say pretty much between, call it like a quarter or a third in general, that already exists today for us. Sometimes we have investors that ask questions about how does it look overall between our customer size. This is just a simple depiction of the total addressable market and how we believe that will look like by the quantity of customers and then the revenue from those customer size as well. Again, this is specific on the $6.5 billion total addressable market we see in the U.S. This represents approximately 146,000 of the customers and approximately 45,000 of the ARPU, or average revenue per customer. What you'll notice, not surprising, the biggest quantity of our customers we see will be small. You can see that depicted on the left side of this chart with 87% of the quantity of customers being small.
You'll see our expectation of what that looks like for medium and large.
Large.
If you look on the right hand side of the chart here, you'll see the revenue. Your takeaway here is there's meaningful revenue opportunity we see from each size of customers. Not surprising, a smaller quantity we anticipate of large suppliers, but much more meaningful revenue per those large suppliers. On the right you'll see again, approximately 64% of the revenue coming from small, but then pretty equal, about 18% each of what those medium and large customers will equal over time. Next we're going to do a double click down as it relates to each of these customer size. I wanted to provide a perspective of why we have the conviction we do of why there's still such this meaningful large opportunity.
Hopefully from the prior slide you see based on the circle charts or the pie chart charts, there's still a lot of opportunity in each of these areas. What gives us a lot of conviction is not only the TAM analysis we did, but also what we have already actually done in getting those customers and getting that ARPU. In this case, we're going to show you from the last five years. We'll start with small. In the time period from 2019- 2024, how many additional customers have we added that are small? Small during that time period? What you'll notice here is we've added approximately 40% more. We have 40% more customers in 2024 than 2019 that are small. Interestingly, on the bottom, that's the ARPU or that average revenue per those customers. What you'll see here, it's been an 87% increase over that time period.
If you move forward to the medium, you're going to see we've added a healthy amount of customers, 26%, and interestingly, a pretty similar amount of an increase in that ARPU of approximately 85%. If you think back to what you've heard today on sort of the land and expand, this is showing what we've been able to do in landing customers, but meaningfully expanding. Why we have that strong conviction in the very large ARPU and it's accentuated a little bit more in this next group, which is large. On the large side, we've added approximately 9% more customers over that five year time period. You can see that meaningful increase or acceleration in that average revenue per customer. Overall, this translated to very healthy growth in both customers as well as ARPU over this time period, adding approximately 37% more customers and about 90% more of that ARPU.
I wanted to take the opportunity to provide this view so that hopefully you walk away with that same level of conviction that we have internally, internally of what we've actually demonstrated and already done and the meaningful opportunity that's still in front of us to continue to land more customers and expand our relationship with those customers. Sometimes investors will ask us about customer cohorts, what's happening with your customer mix and what does that look like over time. What this slide is showing is the first year where you see a different color. That's the first year that that group or those customers joined us. What you'll see is in future years, how much revenue have we gotten from those cohorts. In 2018, that's the blue line on the bottom. You'll see from 2018 -2 024 what has happened to that revenue over that time period.
You'll see that for each of these time periods here. In general what we've seen is when customers join us, we get at least two to three times more revenue from that same cohort over time. Now do keep in mind we do have churn. It's been a pretty consistent amount of customer churn. That does happen, the part of sort of cost of doing business in the retail space. Your takeaway here is I'll just go to the example of the 2018 sort of book of customers that joined us in 2018. When you look to the far right in 2024, there's fewer customers remaining that joined us in 2018. Of those remaining customers, this represents their revenue that we are getting and helping to support them. For those remaining customers over that time period, their ARPU is obviously much higher.
Your takeaway is over time period, when we land a customer, there's meaningful opportunity to expand those customers even despite the fact that there is some just natural churn that happens as part of in the retail space. Finally, why do we have the conviction we do in this sustained and profitable growth or what I like to refer to as balanced growth. The left hand side talks to our latest expectations that we have provided on our last earnings call. That expectation is that we believe we can grow at that high single digits or greater. What makes that up? Sometimes investors want to understand you have customers and you have our ARPU. We've really demonstrated that both are meaningful in the overall contribution. Sometimes investors want to understand how should they think about what that mix should be.
What you'll see here are expectations of what's going to make up that at least high single digit growth. We expect low single digit growth coming in the form of customer adds and mid to large single digit growth coming in the form of ARPU. Now there's really a couple of reasons for that. One is simply the large numbers. The more customers you have over time, when you're adding additional customers, by default, the percentage of that or the growth of that will be smaller. Think back to that chart that I showed of what we have trended in net customer adds on an annual basis excluding M&A. Think back to that chart of that 1,300, it was up higher over 2,000, and then we've been trending at about that. When you think about just that math, that naturally would get you to a low single digit growth.
If you think back to the presentations that you've heard today, we have ways to land customers, meaningful ways to expand that relationship with customers over time, and that ARPU side, then our expectation is again that mid to high single digits. It also fits in very nicely. When you think back to the total addressable market and the update that we provided, that their meaningful opportunity can continue to grow what that average revenue per customer will be. All of that stated expectation excludes acquisitions, and we have been acquisitive in the past. Should we continue to be acquisitive in the future, this is the lens of how we think about acquisitions, and that would be additive to the top line growth. Mike in his presentation spent a little time on how we think of sort of the build, the buy, and the partner.
To the extent buying makes sense, we'll continue down the path that we have done historically where M&A has been a great way to expand or enhance our product offerings, geographic expansion, as well as consolidation. Think of that as just more of that pure customer acquisition. All of those, we've demonstrated our ability to do those effectively and well. Now on the EBITDA margin, we have demonstrated and proven our ability to drive significant improvement in that adjusted EBITDA margin. What this chart is showing is from, call it, the mid-teens, 2010s to more recent time, we got ourselves from mid-teens to high 20s from an EBITDA margin perspective. We have a stated goal of getting to at least mid-30s or 35%. A big driver of how we've gotten to where we are has been through our sales and marketing efficiencies.
We've spent a lot of time there in being able to do things in a more cost-effective way that has extracted or driven again those sales and marketing efficiencies. That does not mean we haven't gotten efficient in other areas of the business as well. What really stands out has been that sales and marketing side. When we think about the next leg of our growth or margin expansion, there are going to be opportunities across the company, but we're really pointing investors to the gross margin area to be a significant driver in that next leg of growth. Part of that is based on various investments we've made historically that we're able to grow into.
In my next slide, I'll go a little bit deeper in each of those components, so what you'll see here is our stated goal on the bottom of getting to at least 35% adjusted EBITDA margin. You'll see we have ranges of where we think each line item could land on that journey to at least 35% adjusted EBITDA. The revenue growth, I've already talked through our view of how we believe we will get to that high single digits and the makeup of that between how much comes from customer growth and how much comes from ARPU. You'll see on the right-hand side some additional commentary that we provided for each line item, how to think about what's going to drive us there.
As I started to mention on the prior slide for gross margin, we have made a lot of investments over a multi-year time period to reinvest back in that customer experience. We're now at a point where we're starting to deliver and show some of those efficiencies. Think of it simplistically, we're able to grow into some various investments we previously made. As an investor, if you look at our financial statements, you saw that starting in the back half of 2024 and you've also seen that in the front half of 2025. We've also pointed investors for full year 2025, the margin expansion to be primarily from the gross margin side. On top of that, we'll continue to get more efficient in what we're doing. You heard a lot from Jamie today on things we're doing in the AI side.
AI very naturally will be a way for us to continue to drive efficiencies and ultimately delight our customers in getting them onboarded faster and helping them to ultimately do their business better and efficiently, effectively. When you look at the other line items here, R&D, we've been at a range of, call it 9% - 12% historically. We do want to make sure that we are investing back in our existing products as well as an opportunity to invest in future products. However, we think we can do that while getting more efficient in areas like AI to drive underlying inherent efficiencies that will allow us to still keep at that pretty, I'd call it low but tight range of that 9% - 12% from an R&D perspective. Sales and marketing, again, we've driven a lot of efficiencies here. We'll continue, again, AI.
You're going to hear this AI theme. AI will help us drive efficiencies here, but we want to make sure that we are appropriately reinvesting back in the business based on the opportunity that we see. Then G&A, a variety of areas of how we can improve margins here. One, just as the top line grows, there's fixed costs that naturally are going to scale, and then AI. There's certainly a lot of use cases here where AI can help HR, finance, legal be more efficient and effective at what we're doing overall. While we're growing at that high single digits, we expect we can derive and extract approximately 2% or 200 basis points of EBITDA margin on an annual basis. Capital allocation, this is a question that comes up frequently with investors. I think we have been very effective and prudent stewards with our capital.
We are cash flow positive. As CFO, fabulous place to be in to be cash flow positive. We of course will reinvest back in the business to help drive this meaningful opportunity ahead of us. Even after doing that, we still do drive cash. What have we done with our cash? From an investor perspective, you've seen us deploy capital in a couple of ways: 1 in share buybacks, 2 in M&A. We don't look at this as an either or. We look at this as an opportunity. We have to do both. On the capital allocation for the stock buyback side, what you'll see here is in the last six quarters, so 2024 through first half of 2025, about 50% of our free cash flow that's generated has been deployed in stock buyback.
If you look at the first half of 2025, almost 100% of our free cash flow generated has been deployed in stock repurchases. From an M&A perspective, we have capital to deploy if it makes both business and financial sense. The bottom under buy shows those opportunities that we have seen in the past and opportunities we may see in the future to be able to deploy capital for M&A. In summary, hopefully there's three key takeaways you walked away from with my section. First, as it relates to that strong foundation of durable growth to the very, very large total addressable market that we have in front of us and also what we've done and demonstrated and delivered on that path for that large total addressable market.
Finally, really our conviction in again what I refer to as this balanced growth but sustained top line growth as well as profitability. With that, we are going to move into a panel so that you will have the opportunity to ask questions to the executive team and I will turn it over to Irmina.
Thank you, Kim. Just a quick reminder for those of you in the room, we invite your questions. Please raise your hand and we'll run a mic over to you. For those of you on the webcast, please go ahead and submit your questions online.
All right, got us in the hot seat. We've got front row. Hold on, hold on one second. Okay.
All right, thanks. Scott Berg from Needham. Thanks for hosting the day. Appreciate the update as always. I guess I got two questions. I'll start with the one that asks the follow up. Second is Jamie, you talked about agentic.
Use in the product.
I looked at most of the functionality that you talked about was really around onboarding your customers, making the whole product easier for customers to use. How do you think about leveraging some of those technologies in a commercial aspect of actually developing product? It's probably a question for both of you, and the ability to maybe monetize some of those efforts.
Yeah, so mentioned how those network data signals are, we're able to feed that into the system. As you said, we'll use many of those things to power our own onboarding and make it more efficient for us to add new customers. We do see also adding that in so that the customer is directly engaging. Probably first focusing on really exposing data that they send through the network with their training partners and building capability on top of those, and then branching out from that over time.
Yeah, and just to add a bit more color as well, from the product perspective, you know, AI is going to permeate every bit of our roadmaps. I think that probably most people would agree that AI is in the early innings of its development from a commercialization perspective across the industry, across all software. What we know is that AI will be powerful and it will be a part of our offering. What we're not yet, I would say, convinced by is the specific SKU, the specific new product, the specific offering. What we would take that would be a standalone AI capability, but instead we see it infused in all of our products because we're seeing significant potential advantages at each part of the supply chain through our existing products. Certainly one way that, as Jamie mentioned, you'd see it exposed there.
Certainly you think about our data that we have, which was a theme that came out today as being sort of the oil, if you will, that's going to power AI, especially to the extent that data is not accessible to public search engines and other access points and also the network. The fact that we're connected into the systems of record within our customers' operating rhythm, we have an opportunity then to think about the next generation of sort of agentic use cases that is implied by system connectivity and, frankly, data. That's very interesting. That's sort of a stay tuned answer on that front.
Great.
For my follow up, Kim, on your graphic around the three different customer sizes, the large customer segment stood.
Out for two reasons.
One, the ARPU growth was obviously substantially larger, but the customer count growth was slower than I would have expected. I know you've had a lot better success upmarket. As I start to think about that from the history of the company, when I go back to the acquisition of Edifice, a lot of those customers around analytics tended to be larger customers in general. We know analytics is not really growing today.
Right.
The last couple years it's been, you know, we'll call it in the flattish to 10% range annually.
It has been a little bit slower.
To the overall business. If we exclude customers that are maybe only analytics customers upmarket, how do we think about the growth of those?
Customers with respect to the rest of the portfolio? Because I think that's probably, you know.
More interesting because that's really driving that 167% ARPU growth.
If analytics isn't growing, it.
Has to be those other products.
How do we think about the.
Growth of those large non-analytics customers?
If you think back to our go to market strategy, particularly on our fulfillment or core fulfillment product, if you think about the relationship management that drives the largest quantity of net new customers into our network, those tend to be skewed to the smaller size. When you're looking at that growth rate, you saw the highest growth rate coming in in the small that is really contributing or attributable to that relationship management. When you're a supplier that's larger, medium or large, and in particular the large size, you've already had to figure out how to do fulfillment. It's not like you are doing everything in a manual way with retailers. In that case, the way we win that business is usually when there's a change event. That goes back in Chad's section where he was talking about the channel sales, channel partners.
A lot of that really depends on we have to make sure we're getting in front of those larger suppliers at that time they have a meaningful change event and typically that meaningful change event is going to be an ERP change. There's a smaller quantity in total that we think are there and it's also because it's more dependent or historically has been more dependent on that type of change event. That's why you haven't seen as many, I guess percentage wise in ads there. What you are seeing is that meaningful increase that once we land that supplier, how we're able to meaningfully increase their revenue from both the fulfillment side, but also other product offerings.
Matt Van Vliet from Cantor, thanks for doing this.
I guess you mentioned the product led.
Growth as sort of a new engine that you're going to explore a little more of. What are you doing today already on that front? Maybe what's holding you back from doing or executing the plan that you want to have ahead, and how do you fill that gap in between?
Yeah, so you know, there's very little product led growth in the company. Even when we add a new customer through a relationship management program, that does require a salesperson and a sales transaction. It's a fairly junior salesperson that can handle that, and they can handle a lot of volume, so it is efficient. Unlike some other SaaS companies that can actually convert customers automatically using the product, we're not at that stage. As we've looked at this and formed the product strategy, we feel the biggest opportunity is actually to leverage these signals that are coming from the network first, and then we can automate that and serve that to salespeople. That would be sort of stage one and a lot of what we talked about here. Over time, there should be ways that can automatically happen in the product.
We're getting those same signals, and the conversion opportunity for a customer is right in the product. Imagine logging into our fulfillment portal and it says, you know, we see that you're trading with Home Depot. We know that 90% of our Home Depot suppliers also trade with Lowe's. Would you like to sign up for the Lowe's service? We think the fastest path to opportunity is actually giving those signals to our existing salespeople and then moving forward to the product led growth.
Maybe just one more on.
The M & A strategy. How have the priorities changed between the three drivers you mentioned? Maybe for the next several years versus what's gotten the company here to this point? Are you more focused on expanding the product and that ARPU opportunity, the geographic side, or are you at a scale now that maybe just buying the market consolidation players is the most efficient?
Of those three categories of M&A that we think about, one is sort of this market consolidation, other EDI providers. The second, product line expansion on products like what we did with revenue recovery, where we know it's a strong fit for ideal customer profile. The third being the geographic expansion. To the extent there is further consolidation opportunities, we like those types of acquisitions and what we find is that customers get a huge benefit because they're able to then join the world's largest retail network and get all the benefits of the network. What I'd say is the industry is less fragmented because of some of the consolidation that's happened in the industry. There still are opportunities out there. They just might not be as plentiful as they once were.
We also like the opportunities around the product line extensions and I think the work that we've done in revenue recovery is a good example of that. I'm confident that the work that Mike and his team is doing, really focusing on the details of each of those three market segments we serve, will uncover new opportunities. I'd say on the geographic expansion at this point in time, we have a lot on our plate right now with Europe. We've integrated TIE into our business but we have relaunched a whole new product portfolio in Europe and our early days in these relationship management programs in Europe. I think if we get traction there, I could see further geographic build out in Europe as a means to get there quickly.
What I'd say right now is we really kind of have a lot on our plate right now with the things that we are doing with Europe. Early positive signs, but a lot to do with what we have there.
Perfect. Thank you, everybody. Dylan Becker with William Blair. Maybe for Mike or Jamie.
We spent a lot of time.
Talking about the value of the network, we don't know what AI monetization is directly going to look like. How are you guys thinking about it?
Kind of the compounding value of that ecosystem in embedding intelligence in the.
Existing processes, how that can maybe fuel greater supplier connectivity, incremental adoption.
You can solve kind of more pain points.
I'm sure there's a stickiness and a.
Retention dynamic there too.
The network today is valuable.
It reads as if it's only going to become increasingly more valuable with your position in AI. Would love your thoughts there?
Yeah, I mean, I'd start with saying one of the unique things about the retail network. I mentioned that we have 300,000 trading partner connections. Every single one of those trading partner connections has kind of a unique signature. They all are very specific to between those different entities. That's an area, for example, where using AI we can put an incredible more kind of insight into each one of those to gain network-like growth signals to come back to the customers with new opportunities or even just understand their business context better. There's significant potential that we see in being able to pull more out of those signals that are in the network.
Yeah, no doubt. Maybe just to add a little bit more, if you think about all of the, the way I think about it is what are all, what is the sum total of all manual decisions that need to be made in a supply chain? We ask ourselves the question, could you apply either deterministic or predictive models to those series of events? If you go back to maybe the chevron slide, it's going to be one of the earlier slides in my presentation. Each step in the value chain, there are one or many human decisions that are made throughout that supply chain. We're asking ourselves, okay, given the network that we have, given the data that we have, and then a determination on do we want a rule-driven, deterministic approach to solve that or is prediction good enough?
Imagine like if you're in MarTech or something like that where you don't have to be 100% accurate, better is better. Sometimes in supply chain different is worse. You've got to be careful with predictive models. I think that there's a tremendous amount of opportunity. I would say directionally we're thinking about how to create automation at every human step in the supply chain across all participants for which we have visibility. We're sort of going to score that and we're going to start kind of working down the list of where we deliver the greatest value. You can kind of imagine where that leads to.
Great, thank you.
Maybe one for Kim too.
The customer cohort analysis, very helpful.
Kind of the segmentation as you think.
About the delineation between small customer, large customer, and the debate.
Between customer count and ARPU expansion, it's very clear that enterprise has a.
Couple benefits to it.
Is it maybe make the conversation around pure net logo ads less relevant?
Going forward, when an enterprise customer could.
Be indicative of 10 SMBs in the future, and they have a higher.
Propensity to buy more across the platform.
We'd just love your perspective there. Thanks.
Yeah, no, that's a great question. We want to make sure we're servicing suppliers of any size, and historically that focus has really been more on the small, and then as we've grown and evolved, we've got from small to medium to large. To your point, Dylan, they're not equal in what they can contribute. If you think back to that pie chart, about 18% of our revenue we think will come from large as well as medium, even though the percentage of that customer count is much smaller. What we wanted to do by providing that level between small, medium, and large is to really help investors understand there are some differences there. We do have traction in each of them, but the way that's going to end up resulting in our overall mix of revenue or contributor of revenue, it is different there.
That is one thing that we will continue to evaluate if sharing a total customer number is the most appropriate and relevant for the next decade plus or not.
Hi, this is Palak for George Kurosawa from Citi. Thank you so much for taking our questions. The first is on go to market. Should we think of retail relationship management programs as an evolution to community enablement, or is this a whole new sales? What is fundamentally different? Where do you see the revenue opportunity from this motion?
You should think of the relationship management as the same motion that we've had as community, but augmented by the things we can do for retailers as a result of having the Performance Management product that we acquired from Traverse. What we've done with the sales team is historically they've just gone in with a value proposition around the community and the value in getting the digital connections to the suppliers established. Now, when we go in and engage with a retailer, we're able to talk to them about the overall performance of the supply chain, of their inbound supply chain and how their suppliers are performing, including the scorecarding capabilities that exist with Performance Management. Of course, one of the best ways to drive better performance of your suppliers is to have them digitally connected so you can effectively communicate and collaborate with them.
The core offering on relationship management is the same as you've known from community, but now what we're able to do is when we bundle it together with that Performance Management, have a much more meaningful discussion with the retailer about their overall supply chain performance. What we found is we're able to open a lot more doors, frankly, with this whole broader message about supply chain performance and not just about the digital enablement that's historically come through community, which is now relationship management.
Perfect.
My second was that one of the barriers to collaboration vision was the willingness of, you know, to.
Share data with other players.
Have you seen any improvement on that front as you're better able to convey the value proposition for collaboration? Collaboration, yeah.
In some areas, especially the more transactional areas like this order and shipment and item exchange, we see a high degree of willingness to collaborate. I would say where people tend to be a little bit more guarded with their data is around point of sale data and driving more of that point of sale data from retailers into our network. For our analytics solution, we've been very successful doing that in certain industries like footwear, apparel, sporting goods. In some other areas we've been less successful getting the retailer to share the data across our network.
Perfect.
Thank you.
Chris Quintero from Morgan Stanley, thanks too.
very much for the event here.
Want to hit on the customer cohort breakout. Chad, I think you mentioned like during the pandemic, obviously a lot of drop.
Shipping and you saw that in the.
Small customer count growth. As we look forward, how should we think about where the growth comes between all the different cohorts? Should it be more balanced? Is there one that you think is going to drive more of the growth? How should we think about that?
Sure. I think as you think about it, I'll take it back a step and just look at the total market opportunity. I would say if you look at that market opportunity, we are relatively equally penetrated in small and medium and maybe a little underpenetrated in the large compared to the other two, but not substantially. For the most part, it's fairly equal. I think the nice thing about our business is we're uniquely positioned to get to the small with the retail relationship management programs, and there's still remaining opportunity in the small and large. On the enterprise replacement cycle that Kim mentioned, it has not historically been the focus of the company. If you look at the evolution of the company, it very much started in the small and having the unique sort of Internet portal way approach to get to the long tail.
We were then able to move more into the medium as we built out our product portfolio around the ERP adapters and the ERP connectors that really unlocked more of the medium for us. I'd say although we've had some success in the large, we haven't had a dedicated go-to-market strategy per se to really tackle that replacement market. We do see still some more legacy approaches, more do-it-yourself approaches in that enterprise area. It remains a nice part of the market remaining for us to focus on in the future.
Got it. That's super helpful and kind of a follow up. I don't know if Maria's in the room too, but just, you know, we heard a lot about the sales side. How do we think about the marketing side? You know, historically you haven't been in that large side, but you also have all these new brands on the smaller side. How do you think about the marketing for, you know, those two segments?
Great question. If Maria had a microphone, I think she'd be all over it. Let me give a little context of one, first having Maria in the business and then what I think is possible on the marketing side. SPS , unlike a lot of SaaS software companies, hasn't had to heavily utilize traditional digital marketing strategies. That's really come from the strength of these retail relationship management programs and the strength of the channel go to market. Quite frankly, one of the observations that I had when I came in is that if we can move more to best-in-class digital marketing strategies, that would present another great lead source for the company. We went out and found best-in-class SaaS marketing expert.
I'd say we're early on this journey, but I think especially as you think about the things that we can do with these network signals and how we convert those into digital marketing campaigns and digital engagement approaches with customers and prospective customers. I think that there's a big lever to be pulled in digital marketing and doing all that without sacrificing anything that we're doing on the relationship management side or the channel go to market side.
Nehal Chokshi working on Capital Markets. A couple of quick questions. Within the small customer cohort, has the land size been increasing over that timeframe that you showed that the ARPU was also increasing as the what the land size.
As you onboarded new customers in.
That small cohort, has the land size been increasing as well, or has it been landing at the original size and you're just simply expanding even faster?
So meaning is our view of how many potential customers there are, has that changed in the small size? I f I think about. So if we look at our TAM that we refreshed earlier this year. Prior to that we had a TAM view, albeit it was, it was a bit dated. When we look at the older TAM that basically had, we thought about, call it 100,000 potential customers in the U.S. The refreshed TAM shows that that number is 146,000. Because the biggest quantity of the opportunity and the biggest quantity of our customers are small, it is safe to assume that that land size of what that opportunity looks like is greater than what we initially thought. Part of that I think also is if you think about the retail space, there's so much change that's happening there.
You heard from the customer panel, there's different brands coming in, they're looking at different selection of products to bring on board. So that opportunity of how many potential prospects or customers for SPS is larger than what we initially thought.
Okay, what I really want to get at is the ARPU of a new small customer. Has that gone up over that five year period that you've shown that the ARPU of the overall small customer has?
Gone up as well?
Yep. That would be the case there as well. I bring you back to the total addressable market. If you think about what the opportunity is, on our prior version we thought the overall average ARPU was around $25,000. In the refreshed version, the overall is $40,500. Within the U.S. it's approximately $45,000. Now, of course, that does have medium and large in it, but even if you looked at that small component, the ARPU opportunity is greater than what we.
Initially thought.
And that was driven by the additional SKUs?
A couple of things. One, the broadest I would say is just as things have changed in the retail space and the quantity of SKUs that retailers are now looking to source product from. The second is the way we came up with it the second time around. We actually leveraged some external data as well as just looking at our internal data. Overall, that opportunity is larger than we originally thought.
The other question I have here.
For Jamie, it was great to.
See how you talked about the various examples on how you're going to be bringing agentic AI into the SPS platform. It seems like you are implementing this not from a ground up basis, but plugging it in in areas where you can find leverage. Why not actually look at agentic AI from a ground up basis instead of plugging it in where you know it could, where you could get leverage from?
I would say that we're doing both. I mean, I'd say we showed examples of where we're able to bring AI capability alongside our existing products to make that customer experience better. We also then are internally looking at different business processes or different ways that the network operates in order to figure out how we can pull in and do that kind of a ground up basis. I'd say that we're doing both. How that shows up to our customer and the market we'll see over the course of the next product delivery.
Hey, Parker Lane at Stifel. Chad, you talked about different expansion drivers to the business, cross sell, upsell, as well as the supplier driven expansion activities. Just wondering if you square on that part. The supplier driven activities, the predictability of that, and the trends you're seeing there. How sensitive is that relative to the cross sell and upsell piece in light of the macro trends you talked.
About on the last earnings call?
Yeah, I mean, I think this is one of the unique dynamics that we have in the retail ecosystem, that there's constant share exchange going on within our customers. There certainly are opportunities to expand with brands as they open up more channels. It's certainly a tailwind that we have the overall increase in brands in the retail ecosystem based on the lower barriers. I think the one thing to keep in mind with our business is sometimes that share increase of a customer is coming at a share decrease of another customer. Right. Overall, we're optimistic about the more brands and the more opportunities and the large TAM . If you look at it at a micro level, there can be situations where some customer's increase means another customer's loss of share. Damn.
Right.
I think we're at the time for Q & A. Thank you very much for all your questions. Thank you everyone on the webcast for participating, and thank you to our speakers.