Pattern Group Inc. Q3 FY2025 Earnings Call

Good day, and thank you for standing by. Welcome to the Pattern Third Quarter 2025 Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Hamish Chung. Please go ahead.

Thank you, operator. Good afternoon, and thank you for joining Pattern's earnings call for the third quarter 2025. Before we begin, I would like to remind everyone that today's discussion may contain forward-looking statements based on our current expectations, assumptions and forecasts about future events. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. Please refer to our latest filings with the Securities and Exchange Commission for more information on these risks and uncertainties. We may also refer to certain non-GAAP financial measures. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures can be found in our earnings release. Joining us today are Dave Wright, our Co-Founder and Chief Executive Officer; and our Chief Financial Officer, Jason Beesley. Today's earnings is being webcast, and a replay will be available on our Investor Relations website following the call. Following our prepared remarks today, we will open the call to questions. I'll now turn the call over to our CEO, Dave Wright. Dave, please go ahead.

Thanks, Hamish, and good afternoon, everyone. Thank you for joining us today, and welcome to our first earnings call as a public company. In Q3 2025, Pattern delivered record results for our key three metrics: revenue, net revenue retention and adjusted EBITDA. Revenue grew 46% year-over-year to $639.7 million, driven by both new and existing brands. We had strong execution across both U.S. and international markets. Net revenue retention, or NRR, reached an all-time high of 122%. Adjusted EBITDA increased 88% to $41.1 million, reflecting a 6.4% margin, up from 5% a year ago as we continue to gain scale operating leverage across our global network. Our new brand partner pipeline also remains robust and is exceeding expectations, setting us up well for continued momentum. We delivered standout growth across our non-Amazon marketplaces. Total revenue not attributable to Amazon grew 81% year-over-year, reaching $47.1 million in Q3 2025, reflecting the effectiveness of our channel diversification strategy and the strength of our core platform across multiple marketplaces. Revenue outside Amazon represented 7.4% of total revenue in Q3 2025, up from 5.9% in Q3 of 2024. International performance was also robust, underscoring the global demand for our platform that can address the complexities of operating at a global scale. International revenue grew 72% year-over-year to $52.9 million in Q3 2025, representing 8.3% of total revenue, up from 7.0% a year ago. Before Jason walks through the more detailed financials, I'll outline our business model, market position and the secular trends shaping e-commerce and AI, along with our strategic priorities for scalable, profitable growth. Pattern operates as a technology infrastructure layer powering global e-commerce. We provide a thin intelligent layer across global e-commerce, enabling brands to accelerate growth, simplify operations and reach consumers across more than 60 marketplaces and emerging digital surfaces worldwide. Our core strategic differentiator is the intelligent technology and AI layer that powers everything we do. We monetize our technology by purchasing inventory directly from our brand partners and selling through global channels. This inventory-bearing approach reduces friction, aligns incentives and allows brands to focus on what they do best, creating great products and building customer relationships. Our partnerships are deep, long term and highly sticky. This is because we not only drive revenue growth but also manage the complexities that come with selling on marketplaces around the world. Whether customers shop through marketplaces, social platforms or the emerging world of agentic shopping, Pattern plays the same essential role, connecting brands and consumers through a unified data-driven layer that removes friction and maximizes performance across the entire digital commerce ecosystem. We sit squarely at the convergence of e-commerce and artificial intelligence, two of the most powerful forces shaping global e-commerce. Regardless of how or where consumers choose to shop, our role remains consistent. We provide a thin intelligent layer that connects brands to demand across every major marketplace and platform. This channel-agnostic model allows us to remain indifferent to customer channel shifts, whether that's traditional e-commerce or the emerging world of agentic commerce. The consumer remains healthy and secular trends continue to support sustained e-commerce growth. E-commerce continues to gain share across major markets, and we expect this trend to accelerate as global logistics improve, driving greater efficiency and accessibility. Emerging technologies such as robotics, autonomous delivery and drones will further reduce costs and increase fulfillment speed, while consumer-facing innovations like agentic commerce simplify the shopping experience. Collectively, these advances are driving a global shift towards digital commerce. At the same time, AI is reshaping digital discovery, transforming how consumers find, evaluate and purchase products. These dynamics reward precision, brands that manage content, pricing and availability dynamically to meet consumers where they are. That's where Pattern excels. Our platform leverages over 46 trillion customer journey data points across search, discoverability, content, pricing, logistics and behavior. Each signal strengthens our continuous optimization loops, making our model smarter and delivering measurable, repeatable impact for our brand partners. Even modest gains in visibility or conversion can translate into millions of dollars in additional sales for our brands, and we capture those improvements consistently at scale. At the core of our approach is a simple but powerful formula: revenue for a brand equals traffic times conversion times price times availability. I will now outline our four strategic priorities for sustained growth and operational scale across the evolving global e-commerce landscape. Number one, investing in the intelligence layer. We continue to invest in our core technology and AI infrastructure, the intelligence layer that powers Pattern's model. This layer is advancing to support agentic workflows that are nondeterministic and capable of executing complex tasks at a fraction of traditional costs. As consumer behavior shifts towards agentic and automated purchasing, our platform's ability positions us to lead this evolution. These investments also strengthen our marketplace and international expansion capabilities, reinforcing our ability to scale efficiency. Number two, expanding channels and markets. Channel diversification remains a key growth driver across international and non-Amazon platforms. Growth from Coupang accelerated in Q3 faster than any other marketplace onboarding in our company's history, up more than 150 times from the prior quarter. We also see strong growth potential in TikTok and other emerging social platforms where user engagement has become a core differentiator. As logistics advantages become increasingly commoditized, engagement metrics such as time spent on platform will become stronger indicators of future sales. We expect social and LLM-driven ecosystems to capture a growing share of consumer discovery and transactions. Number three, reducing brand friction. Our focus is on making it easier, faster and more cost-effective for brands to execute global platform-agnostic e-commerce. We accomplished this through integrated technology, scalable logistics and exceptional service levels that simplify complexity. As vast amounts of data become more accessible, consumers will increasingly distinguish between products that are truly exceptional and those built primarily on marketing. Our goal is to free up our partners' time and resources so they can focus on building great products and advancing R&D. As consumers become more discerning, brands that innovate and deliver genuine quality will capture outsized sustainable growth. Number four, driving scale and efficiency. Scale is a strategic moat and a key source of our value for our brand partners. With Pattern's technology, logistics and global scale, we operate at a cost structure and price point for brands that we believe the brand simply cannot achieve on their own. Each transaction strengthens our data models, enhances our efficiency and increases our operating leverage. Pattern is built for the future of e-commerce. The forces reshaping our industry, AI-driven discovery, social engagement, automation and global logistics innovation are accelerating faster than ever. We are not just adapting to these shifts. We're helping to define them. Our platform stands at the intersection of intelligence and execution, connecting brands and consumers seamlessly across every digital surface. As technology and data continue to advance, we see an era where speed, precision and creativity determine the winners. Pattern is positioned to lead that future, empowering brands, capturing opportunity and driving the next wave of global e-commerce growth. With that, I'll hand it over to Jason to walk through our financial results in more detail. Jason, take it away.

Thanks, Dave, and thank you, everyone, for joining us today. We delivered strong financial results for the third quarter 2025, reflecting broad-based strength across our platform. Revenue was $640 million and adjusted EBITDA was $41 million, representing year-over-year growth of 46% and 88%, respectively. We also achieved record NRR of 122%. What we think is so exciting about our business model is that we grow existing brand partner revenue in three primary ways: one, optimizing existing product growth through our technology; two, launching new products; and three, expanding across marketplaces and geographies. First, technology optimization of the e-commerce equation is a large portion of what continues to drive our base NRR. In Q3, growth was primarily attributable to traffic and conversion improvements. Traffic is driven by our advertising tool, Destiny, which executes over 14 million bid changes per day, and conversion is driven by content optimization tools such as our content brief and improved product imagery via the portal. Second, new product launches. The acceleration of our year-over-year growth was primarily attributed to brand partners launching new products this quarter. While the timing for new product launches is driven by brand partners, we focus on perfecting the execution of launching those products to e-commerce marketplaces globally. Third, new marketplaces and geographies. While Amazon is still our biggest marketplace, revenue from non-Amazon marketplaces was up 90% year-over-year, which drove total revenue not attributable to Amazon up 81%. We believe this progress demonstrates the runway ahead of us and our ability to drive marketplace diversification over time. Total international revenue was $53 million, up 72% year-over-year, driven by particular strength in Europe, China and the Middle East. Our international growth was driven by both new and existing brand partners, with each cohort contributing approximately half of total international growth in Q3. We are also happy with our pace of new brand partner wins and expansions. We added new partners in a range of categories, including pet supplies, baby products, home and kitchen, office products, electronics and health and wellness. We improved our year-over-year revenue growth rate in new brand partners compared to the prior quarter. As a reminder, revenue from new partners can fluctuate quarter-to-quarter and is dependent on many factors, such as existing inventory positions, the cleanliness of the distribution channel and the brand partners' readiness, which is why we evaluate the contribution from new brand partner revenue on an annual basis. Turning to operating expenses. We achieved operating leverage across all expense lines while simultaneously investing in R&D to fuel future growth. We realized $92 million in stock-based compensation and related tax charges in the quarter related to our IPO. Excluding the impact of the IPO-related costs, total expenses would have been approximately 94.2% of revenue compared to 95.9% in Q3 last year. To go deeper into our underlying cost drivers, we look at disaggregated expense categories, including cost of goods sold, fulfillment costs, marketplace commissions, technology and SG&A. Operational efficiencies, combined with product and marketplace mix drove favorability year-over-year in our variable categories such as cost of goods sold, fulfillment and marketplace commissions. Excluding the indirect initial public offering costs we realized in the third quarter, SG&A would have been $52 million or 8.1% of revenue compared to 8.6% in Q3 2024. The improvement as a percent of revenue was driven by leverage from new initiatives and to some extent, timing of hiring. We expect to continue to realize efficiencies while making strategic investments that we believe will drive future growth, namely in sales and R&D. GAAP net loss was $59 million, which includes a number of IPO charges, including SBC and related taxes. Adjusted EBITDA was $41 million, up 88% from $22 million in Q3 2024. Net income attributable to common and preferred shareholders was negative $223 million in the third quarter. This is inclusive of one-time dividend adjustments that were triggered by the conversion of certain shares as part of the IPO. This resulted in a GAAP loss per share of negative $2.19 based on 102 million average weighted basic and diluted shares outstanding. Turning to cash flows. We look at cash flows over a 12-month period as a result of the timing of marketplace payments we receive and payments for our inventory from brand partners. Last 12-month free cash flow, which is a combination of operating cash flow minus investing cash flow was $71 million, up from $49 million in Q3 '24, driven by profit flow-through, offset by investments in continued warehouse automation and the launch of our West Coast fulfillment center in Las Vegas. This performance aligns with our strategy of generating strong cash flow growth and keeping our business model capital-light. Turning to our balance sheet. We raised $135 million net of fees and expenses in our September IPO. And as of quarter end, we had $313 million in cash and cash equivalents with zero debt. Stepping back to give you a broader perspective on the capital efficiency of the business prior to our IPO, Pattern raised a total of $229 million since inception to build out our global e-commerce business and support our $150 million investment into our technology stack. As of June 30, we had $215 million in cash and cash equivalents with zero debt. Adding in free cash flow generation for Q3 means that excluding IPO proceeds, we generated more cash than we have raised. Despite the new infusion of capital from our IPO and the massive opportunity ahead of us, we will remain stewards of capital, balancing high growth, strong profitability and positive cash flow generation with a market opportunity in the trillions. Before I discuss our outlook, I first want to quickly address the macroeconomic landscape. So far, as our results indicate, we have not seen any material effects on our business or decreased consumer demand for products in our portfolio. The potential direct impact of trade policy changes to our business is minimal, but it's difficult to predict the consumer reaction to what will likely result in higher prices as well as potential supply chain disruptions. We could encounter potential future headwinds in light of consumer sentiment or behavior changes related to economic and geopolitical factors. We're closely tracking developments as the landscape continues to evolve, but again, we are not currently seeing an impact. We are having a record year and are pleased to see the momentum continue into the fourth quarter. For the fourth quarter, we expect revenue in the range of $680 million to $700 million, representing 32% to 36% growth year-over-year and adjusted EBITDA in the range of $38 million to $40 million, representing 44% to 48% growth. Our guidance reflects continued success across our three vectors of growth with existing brand partners as well as traction adding new brand partners. As it relates to expenses, our investment priorities are: one, further strengthen our technology moat in AI-driven technology and automation, optimize decision making and improve efficiency across the platform; and two, accelerate our go-to-market as we continue to deepen our penetration in existing and expand into new categories, marketplaces and geographies. Our Q4 guidance implies a 5.7% adjusted EBITDA margin at the midpoint, up year-over-year, but down from Q3. Quarterly margin fluctuations are typical in our business due to variables such as product and marketplace mix. Overall, it's important to view our margin in the context of our strategic philosophy, disciplined execution, continuing to invest in technology and sales to capture growth while maintaining profitability. Zooming out, based on the midpoint of our Q4 outlook, we anticipate full year 2025 revenue growth of 37%, coupled with 48% adjusted EBITDA growth. We have a business model that delivers growth, profits and generates cash, and we operate in a massive space. We believe that is the winning formula for success, and our team is executing to drive outsized growth. I'll turn things back to Dave before we open the call for questions.

Thanks, Jason. We're really happy with our results so far and excited for the future. In closing, we continue to deliver market-leading growth, positive cash flow and sustainable profitability. We are part of defining and redefining the future of e-commerce through AI, unlocking significant opportunities for innovation and growth. We're adding new brand partners, deepening our existing partnerships, launching innovative solutions and scaling globally. It's an exciting time to be in the digital commerce space. It's changed more in the past 2 years than in the previous 10, creating incredible opportunities for innovative, fast-moving companies like Pattern. Our formula is working, and we are just getting started. I want to thank the entire Pattern team for their hard work and dedication. The results we've achieved reflect their relentless commitment to excellence, and I couldn't be more thrilled with what we're building together. With that, we'll now open the call to your questions.

Our first question comes from Doug Anmuth with JPMorgan.

One for Dave and one for Jason. Dave, can we get your views on agentic commerce more broadly and just how you expect it to shape the shopping path in coming years? And then what the puts and takes are on the big marketplaces and then also for Pattern? And then, Jason, can you provide some more color just on revenue growth from existing and new brands? I don't think there was a breakout unless I missed it. But just trying to get a little more color there and then how you're doing in terms of diversifying vertical mix as well.

Thank you, Doug. It's fascinating to observe the developments in agentic shopping. While the future is uncertain, it's clear that significant changes are occurring. Currently, about 38% of people in the U.S. are utilizing platforms like ChatGPT for shopping-related activities. Of that, 53% is focused on product research, while around 30% involves creating shopping lists. It's evident that where people invest their time, purchasing is likely to follow. As we look at our behaviors, it's apparent we've moved towards large language models. If these tools can provide convenience, trust, and solid logistics, we can expect a considerable shift towards this agentic approach. I believe this evolution will yield significant success for certain players in the market.

Great. And then, Doug, on your question on revenue growth, I would say, as far as existing, that was the strongest part of our growth as demonstrated by the 122% record NRR that we had. And that was across all the three vectors that we talked about growing there, particularly tech was strong in the world of traffic and conversion. We also had product line expansions this quarter in Q3 that were bigger than they were in Q2. So that helped accelerate the growth. And then, of course, you saw in our prepared remarks, the very strong international growth and marketplace growth and diversification there. On the new brand side, we did have extended growth year-over-year when you compare the quarterly growth rates. So that improved year-over-year in Q3 versus Q2 year-over-year growth. And on the category mix side, we're seeing growth across all the categories. If I was to pick out two categories that were particularly exciting this time around, it would be beauty and DIY tools, which both grew over 100%, which we're excited about there. So we continue to mix up our categories, mix up our marketplaces and diversify across the board.

The next question comes from the line of Ralph Schackart with William Blair.

Dave, obviously, a lot of attention and investor focus on agentic e-commerce. Just maybe kind of follow up on Doug's question there. It seems like you're in a pretty strong position to help your brands with this transition given the technology you have and insights you have. Maybe you could sort of provide some perspective how you could help brands during this transition. And then maybe just on net revenue retention, exceptionally strong this quarter. It sounds like a lot of positive things are coming together. But how should we think about this metric going forward?

Okay, I have a few thoughts. I'll quickly address the Net Revenue Retention, and then Jason will elaborate. We're very well positioned in the agentic space due to our technology platform, which is a thin layer that remains agnostic to consumer choices. Essentially, we're supporting brands to achieve success wherever they can. We’ve gathered valuable bottom-of-funnel data, and recently released our GEO Scorecard. This tool utilizes that bottom-of-funnel data, specifically keywords and phrases, and transforms it into questions that guide brands on their reach. It analyzes their visibility during searches across various LLMs, assesses their ranking against competitors, and gauges sentiment. This insight can influence strategies for improvement. I expect significant achievements in this area, as any challenges in the digital landscape will likely favor Pattern for our brands. Our data advantage, built over 12 years, aligns perfectly with timing. I anticipate continued excellent outcomes. We're eager to see live results from the LLMs, as we've noted great developments with the ACP announcement. Currently, the only active marketplace is Etsy, and it's still challenging to navigate those channels effectively. However, once that evolves, we're prepared with a lineup of brands ready to launch. When that opportunity arises, we'll activate revenue generation. Regarding Net Revenue Retention, I'm particularly enthusiastic about this metric because success here allows us to predict future revenue. It indicates the effectiveness of our operations beyond just sales efforts. Anyone can create a sales strategy, but having a robust retention foundation shows that our operations are sound, providing a platform for sustainable growth. Jason will share more details, but we will remain highly focused on this number, especially given the remarkable results we achieved this quarter.

Definitely. Yes, Ralph, to David's point, 122% is the most we've ever had. We're obsessed with growing our brand partners over a very long period of time through the technology innovations and other levers that we have as part of that formula. I think in terms of going forward, it's important to consider even a three-year average going forward would put us an elite company on this metric when you compare it to how other companies do. And of course, we're going to have the lapping impact that we need to think about when we look into the future. We're not providing guidance at this point on NRR or forward-looking stuff there, but those are things you would want to keep in mind.

The next question comes from the line of John Colantuoni with Jefferies.

Great. So as you continue building international capabilities, talk about key areas of investments needed to help activate on the opportunity and give us your perspective on how you envision geographic diversification contributing to new and longer-term growth? And number two, in terms of guidance, maybe you could just talk to what's embedded in your outlook for Q4 revenue in terms of contribution from new and existing brand partners. It looks like the midpoint implies a high single-digit percentage sequential increase relative to the third quarter, which is a bit less than what you've done in the past couple of years. So I'm just curious if you're embedding some conservatism into that.

Thank you, John, for the question about international growth. It's an area that often doesn't get enough attention. When considering gross merchandise value globally, Pattern’s potential for growth is significant. Our model serves as a strong advantage because it’s challenging for individual brands to maintain a cost-effective structure relative to their sales opportunities. This is where Pattern's scale really shines. For instance, we saw Europe grow by 73%, APAC by 68%, and MENA by 222%. This impressive international growth is contributing positively to our overall performance, and I expect to see this trend continue in the coming years. We have made critical investments in this area. Our technology is modular, allowing us to adapt our core systems to specific needs, such as those of Walmart or Coupang, with relatively low additional investment. Furthermore, we operate with a lightweight logistics model, leveraging existing infrastructure to enhance our capabilities. As global logistics continue to improve, we will take advantage of those developments, positioning ourselves for greater success in the digital space.

Thanks, Dave. John, yes, regarding guidance for Q4, we believe that a growth range of 32% to 36% is impressive, especially considering the comparison to last year's strong Q4 performance. Additionally, we expect adjusted EBITDA to grow between 44% and 48%, which indicates that we're again gaining leverage year-over-year. Regarding our approach to guidance and new brand partner revenue, we will focus on the overall trend rather than a single quarter. Our pipeline looks promising, and we remain confident. However, when setting guidance, we will avoid incorporating more speculative elements to establish a solid foundation for expectations. It's also worth noting that in our guidance, the EBITDA is projected to grow at a faster rate than revenue, highlighting the effectiveness of our overall model. Looking at the context of Q4 guidance along with our year-to-date performance, we anticipate nearly $2.5 billion in revenue with a growth rate in the high 30 percentage range and a 6% adjusted EBITDA margin. We are very pleased with these results, and we believe it positions us well for the upcoming year and beyond.

Yes. And I might just layer on one nerdy data point that I had the team run for us. If we look at all public companies and we said, okay, once they clear $1 billion, let's say that's at scale in terms of revenue. then what are elite growth rates? Our growth rates for this year puts us in the top 3.1 percentile as we calculate it, I'm sure there's probably different ways to look at it, but that's very close. So it's pretty exciting. And the neat thing about our model is as long as those NRR numbers stay strong, we can continue to grow at levels that I think that everyone would historically and in the future, people would say it would be elite levels.

Our next call comes from the line Colin Sebastian with Baird.

Congrats on the IPO and the first results here out of the gate. Dave, I appreciate you outlining the four strategic priorities. And I was just hoping you could detail maybe more of the product roadmap for the intelligence layer and reducing brand friction as you see it unfolding over the next year, including the role that logistics plays, I think, in that. And then, Jason, related to that, maybe tying the pace of investment going forward, the balance between automation internally as well as executing on that product roadmap in terms of how that leads to margin expansion going forward.

Thank you for the question, Colin. I'm really excited about our product roadmap. In the upcoming quarter, we are working on several initiatives. One key concept we're exploring involves agentic workflows, where instead of traditional linear steps, we can use data with memory to recall past interactions and recognize patterns of success and failure. We're investigating whether we can manage a brand without needing to use a keyboard. If our data and sensors are sufficiently advanced, we believe this is possible, and e-commerce could be the most suited for this agentic workflow model, where we are currently leading the industry. You'll see more developments in this area soon. Regarding logistics, we are focusing on enhancing technology primarily for efficiency and scaling operations. Our aim is to find ways to lower costs for brands in a historically unprecedented manner. While we won't compete directly in last-mile delivery, we see significant opportunities in middle-mile efficiency that can yield substantial savings. We believe Pattern can streamline these complexities effectively.

Maybe just building off of Dave's point first. As it relates to logistics, Colin, you asked about, we take a capital-light approach to that. It is very much focused on the software that drives logistics and some of the machinery and automation inside the warehouse, but we don't have a lot of warehouses relative to most logistics groups. We have light cross-dock warehouses. We launched recently our Las Vegas warehouse. We've seen great, great efficiencies there. We're really excited about that. And we'll keep adding those as needed as the volume drives that. But generally speaking, our capital investment is about 1% of revenue. On the technology side, that is where we're very excited in the investment, as you can tell from Dave's comments on the road map. And we actually expect that we'll probably grow that investment faster than revenue in the near future. And that will be a slight drag on margins, but we think it will more than make up for it in the efficiencies we get in the long term and the impact that it has on the e-commerce optimization that ripples across all our brands and supports our world-class NRR. The last thing I'll say just generally about our philosophy is we are very focused on running a fast-growing profitable cash-generating business with a huge opportunity ahead of us. We're not solely focused on a little bit of leverage every quarter. We're going to invest in sales and marketing and tech to drive that bigger EBITDA dollars prize, if you will, versus specific leverage in any one quarter or year.

Our next call comes from the line of Eric Sheridan with Goldman Sachs.

Can you discuss building density in specific e-commerce verticals, particularly regarding SKUs, brands, and merchants? What flywheel effects could this create for your platform in terms of generating substantial long-term returns?

Maybe provide me a little more insight into what you mean around density there.

As you go deeper with respect to a larger array of brands in any particular vertical, talk a little bit about how the scale effects of having a wider array of brands in a specific vertical might make that vertical act differently from a unit economic standpoint?

Yes, that makes sense. The biggest advantage we'll see as we grow and scale is in our data capabilities. Every new customer data journey input we add enhances our model. Additionally, as we incorporate more verticals and products, the models continue to improve. The scale we achieve both internationally and in the U.S. across various verticals enables us to create technology and logistics infrastructure that would be unaffordable for brands to build on their own. For instance, we increased our overall conversion rate for Pattern, covering over 100,000 products, from 15% to 17% quarter-over-quarter compared to last year. This increase significantly impacts revenue for brands through organic growth without relying on advertising. It comes from understanding what content drives conversions, which requires substantial data and precision. This is where density has a tremendous impact, which is evident in the strong net revenue retention results we're experiencing.

Our next call comes from the line of Brian Pitz with BMO Capital Markets.

Dave, growth from revenue generated outside of Amazon was very impressive. I think you said it was up about 81% year-over-year. You talked about that being driven by new marketplaces and geographies. Can you maybe help us understand how important the recent launch of Coupang was and the contribution of that 68% APAC growth? And then any additional color maybe on the Europe growth as well because I think that rate was even higher. And then I've just got a quick follow-on.

Yes, great question. Coupang generated $4.5 million in the quarter, and we expect $11 million by the end of the year. This reflects phenomenal growth, although it is still relatively small in the grand scheme of things. In the U.S., we have also seen strong marketplace growth, with Walmart increasing by 96% and TikTok shops growing by 392% from a small base. We are starting to see significant traction in our ability to gather information and execute for brands as we expand our marketplace reach. The numbers are impressive but not surprising, as they align with where GMV is and where consumers are. This is why the results are so strong.

Awesome. And then maybe just on the new brand partners, a quick comment. Can you talk about the time line to convert some of those partners and verticals? I know you mentioned like pet supplies and home. How long have those been in the pipeline? And did you see any benefits of the IPO on actually raising awareness with those brands to accelerate some of those wins?

Yes, one of the advantages of the IPO has been its impact on our pipeline, which is quite extensive. From the initial interaction to closing a deal typically takes over 90 days. Once a deal is closed, we experience varying ramp-up periods, which can be quite unpredictable. Some brands may have up to nine months of inventory, while others may operate with just a couple of months. After signing a deal, it could take anywhere from two months to as little as one and a half months before we see significant revenue, and in some cases, it may take a year to see substantial revenue. However, I can share that our internal bookings figures are performing exceptionally well and are surpassing our expectations, which will ultimately lead to increased revenue from new partners.

The next call comes from Justin Patterson with KeyBanc.

Dave, I'd love to hear about some of your product priorities into the coming year. Obviously, GenAI is changing at a very rapid pace. So I would love for you to just expand upon some of the tools you're bringing out to advertisers, especially as it pertains to just visual capabilities.

Thank you for the question. Earlier, I mentioned what we refer to as the intelligence layer, which is our top priority. Most of the company is focused on this area. If I were to ask about favorite enterprise applications, people usually look confused and might say none. I believe that the way applications function and how our brands and teams interact with them will change significantly. We will transition to being more chat-based and utilizing chat data. Therefore, integrating MCP server data across all our platforms into a reasoning model will allow us to process this data and execute tasks without human involvement. This is our primary focus, and I see significant cost benefits as well as unprecedented global execution capabilities that we couldn't have imagined three years ago. Before the development of transformer models, I wouldn’t have even drafted a plan for this. Our concentration is on the intelligence layer, both in execution and interaction. For example, when a brand is trying to understand the market for something like creatine, we plan to release a podcast each morning that analyzes their inventory levels, what competitors are doing, where they are succeeding, and where they can improve. They can listen to this on their commute, and when they arrive at work or into a meeting with Pattern, we can promptly act on it. They can even simply express interest in an idea, and we can execute that strategy by that evening. It's almost unimaginable, but we're starting to see this come to life.

Are you still there, Dave?

Yes.

I want to make sure. The next call comes from Bernie McTernan with Needham & Company.

I know this call has focused a lot on agentic shopping. I was wondering if the same concept applies when you engage with your customers. I'm trying to understand whether this is driving the strong net revenue retention you're experiencing or contributing to the conversion of new brand partners. Additionally, I wanted to ask about margins. The EBITDA margin is up 140 basis points year-over-year. I recognize that there can be various factors affecting the cost structure, but it appears there was a general outperformance this quarter. I would like to understand what contributed to this improvement and how we should anticipate the 50 basis point increase year-over-year for the next quarter.

Yes, I will address the first part regarding net revenue retention. Net revenue retention is essentially a measurement of near success. For example, when we expand a brand from the U.S. to South Korea through Coupang, that contributes to our net revenue retention, which we consider a success. Additionally, if we boost traffic for a brand or increase conversion rates, that will positively impact our net revenue retention figures. These aspects are crucial for brands; if they choose to partner with Pattern or maintain their partnership, their perception of success will be a key factor. Our focus will remain on these areas, which currently encompass broad technology and international strategies, along with operational efficiency.

On the margin side, Bernie, I would say the most exciting thing within all of that improvement is if you look at the disaggregated expenses, excluding all IPO-related costs, the SG&A bucket is going from $8.6 million to $8.1 million. A lot of that is being leveraged on our general global agentic costs. That has been under a lot of the force of margin expansion when you look on a regular basis for the past few years. We believe that will continue to happen because we’re constantly looking for a crisis there every year. Where we’re investing the margin is in the sales and marketing technology, particularly technology. We will probably invest faster than we’ve done in the past. The rest of that year-over-year margin improvement we see is generally mixed up across slightly different unique economics, and that will grow across all of our variable costs. That does not have any important order. That is why we are going to be a bit too obsessed with margin expansion in one specific order. We will not look at it on an annual and long-term basis.

The next question comes from the line of Mark Kelley with Stifel.

I just want to ask you about when you look to expand into different verticals and you're receiving inbound requests from newer brands or newer businesses that maybe you haven't worked in that vertical and you look at your distribution and fulfillment footprint, I guess, can you remind us, are there any categories that just don't make sense for you for whatever reason? And I guess I would put your distribution network as maybe one of the reasons. And then second, maybe it's a bit too early to ask you this question, but have you seen any uptick in inbound requests from brands that you haven't worked with as a result of the IPO? I know sometimes that raises people's profile.

At the beginning of this year, we recognized that we lacked a competitive offering in the oversized space, primarily due to logistics challenges. Many marketplaces struggle with competitive logistics and final mile delivery options for oversized items. Before our IPO, we established a partnership with Chewy, which will manage our large and oversized network using four of their nodes and one of ours. They will also utilize our fulfillment technology in their warehouses. This collaboration enables us to expand our reach almost anywhere, excluding areas that are not ideal for e-commerce. For instance, we attempted to partner with Kellogg's, but selling cereal online is challenging due to shipping costs and competition with in-store prices. Consequently, products that are not e-commerce friendly will always pose difficulties for us and others. However, for the most part, our operations should now be open and prepared for business.

The uptick from the IPO, our pipeline is looking great. Yes, we have seen a bit of an uptick. All of that will need to be converted through the funnel, as Dave confirmed and then brought online in terms of real revenue sales in the future.

The last call comes from the line of Austin Riddick with Evercore ISI.

I have a quick question. How should we consider EBITDA margins as the mix starts to shift towards non-Amazon and international markets? Are there any differences in unit economics by region or marketplace?

Good question. Yes, there are differences in unit economics across marketplaces, particularly in the commission side. Fulfillment rates obviously are different in every country. We have a SKU-by-SKU way that we assess those specifics on the variable cost side, and then we solve for the purchase price that we're going to pay to the brands based on those unit economics. So the net impact of that is it does cause mix across the lines, but we're solving generally for the same unit economics. And so as we grow, it scales nicely and you don't have what I would say, EBITDA on bottom line mix there. You just see it on the specific lines in the disaggregated expenses themselves.

Great. Thank you. I'm showing no further questions at this time. I will now send it back to Dave for closing remarks.

Just in closing, I just want to appreciate the team. I mean we talk a lot internally about a concept called T sport. Executives and I think companies in general function as a team. It's almost the ultimate team sport. It's really fun to be part of. And I couldn't be more excited for what we've done and what's to come, especially in this ever-changing landscape. I'm thrilled. And thanks for everyone who joined the call. Thanks for your time. Thanks for your willingness to take a look at Pattern. I think it will be a fun journey ahead of us.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.