Pattern Group Inc. Q4 FY2025 Earnings Call

Thank you for standing by, and welcome to Pattern's Fourth Quarter and Full Year 2025 Earnings Conference Call. I would now like to hand the call over to Hamish Chung, VP of Finance. Please go ahead.

Thank you, operator. Good afternoon, and thank you for joining Pattern's earnings call for the fourth quarter and full year 2025, our first full year-end call as a public company. Before we begin, I'd 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 these non-GAAP measures to the most directly comparable GAAP measures can be found in our earnings release. We'll focus our remarks today on the key highlights and drivers. Additional detail is available in the earnings release. Joining us today are Dave Wright, our Co-Founder and Chief Executive Officer; and Jason Beesley, our Chief Financial Officer. Today's earnings call is being webcast, and a replay will be available on our Investor Relations website following the call. Following our prepared remarks, 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. 2025 was a defining year for Pattern, marked by record revenue, record retention and expanding profitability as a public company. For the full year, revenue increased 39% to $2.5 billion. Jason will walk through the specifics of our margin expansion, cash generation and our new share repurchase program in a moment. But I want to start by outlining four strategic metrics from our results that highlight our accelerating momentum. First, net revenue retention or NRR. We delivered a record NRR of 124% for the year, up from 116% in 2024. As brands work with Pattern, the benefits compound and they are leaning heavier into our platform. Second, international growth. Expanding our global footprint is paying off. International revenue increased 63% for the full year. That momentum accelerated in Q4 with international revenue up 69% year-over-year. Third, non-Amazon growth. Our channel diversification strategy is scaling rapidly. Non-Amazon revenue grew 60% for the full year and surged 94% in the fourth quarter. And fourth, SaaS services and logistics. We are successfully augmenting our core business of marketplace acceleration. This part of the business grew 58% for the full year and an impressive 162% in Q4. While still a smaller portion of revenue, this performance reflects strong platform build-out, accelerating adoption and continued expansion into higher-margin offerings. Taken together, these results reflect not just growth, but increasing momentum across the entire e-commerce equation. Stepping away from the specific financial results, I'd like to talk about e-commerce overall. We are entering a new era of e-commerce where traditional buying channels face simultaneous headwinds and tailwinds. At the center of this shift is the rapid adoption of large language models and AI-driven discovery, which is fundamentally rewiring how consumers conduct product research and beginning to evolve the purchase path. Today's consumer is highly empowered using these technologies to instantly synthesize reviews and compare global specifications. This shift is compressing the funnel, moving consumers from research to transaction within a single interface and bypassing the traditional multi-stop shopping journey. As this evolves into agentic shopping, where agents move beyond research to execute purchase decisions, Pattern is uniquely positioned to empower brands in this new ecosystem. In this hyper-transparent environment, brands must focus on product quality and consumer delight to survive. We use our 66 trillion data points to give brands deep visibility into consumer intent and category white space. By partnering with Pattern on the full product life cycle, we arm our partners with the predictive data needed to innovate faster and capture share. This expanding value proposition is a direct contributing factor to our record NRR. Through this evolution, Pattern's role remains resolutely brand-focused and channel agnostic. Whether a transaction originates from a marketplace search, an LLM query, social commerce or an autonomous agent, our objective remains the same: ensure our brand partners are optimized and winning the transaction wherever demand originates. What sets us apart in this environment of both AI acceleration and AI disruption is our moat built on a foundation of data, international breadth, logistics scale and speed. In the world of AI, speed is a critical differentiator. It starts with our data density. Our Pattern intelligence layer is now powered by more than 66 trillion data points, up significantly from 47 trillion just six months ago. Our technology allows us to execute at a significant scale. In 2025, our automation engine executed 5.53 billion marketplace bid changes and 40 million price changes in real time. But intelligence alone isn't enough. You have to be able to execute globally. We pair that digital speed with the extensive international breadth of our platform, spanning 22 global offices and supporting expansion across more than 70 marketplaces. This reach is underpinned by our inventory purchase model. By owning the goods and managing the physical goods flow, we provide our partners with a level of agility and skin in the game that traditional service models simply cannot match. In an era of AI disruption, this operational control becomes a strategic advantage. In 2025, we scaled our operations, increasing shipment volume and density while meaningfully improving speed. Products now reach marketplaces in approximately 1.5 days. Furthermore, our focus on operational efficiency resulted in our days inventory outstanding, or DIO, improving to 72 days, reflecting a 10-day reduction year-over-year. Pattern is built for where e-commerce is going. As AI reshapes discovery and automation accelerates execution, our platform combines intelligence with operational scale to help brands win. We are entering 2026 with momentum, a durable model and a clear focus on profitable growth. We are confident in our ability to create long-term value for our brand partners and shareholders. With that, I'll turn it over to Jason to walk through the financials. Jason, over to you.

Thanks, Dave, and thank you to everyone for joining us today. 2025 was an exceptional year for Pattern with strong momentum carrying through the fourth quarter. For the full year, revenue grew 39% to $2.5 billion. In the fourth quarter, revenue increased 40% year-over-year to $723 million. We achieved record net revenue retention of 124%, up from 116% last year. Existing brand partner revenue reached a record $2.2 billion, up 42% year-over-year. New brand partner revenue was $282 million, up 22% year-over-year, a double-digit acceleration from 2024. As a reminder, our growth is driven by three primary levers. First, technology-driven optimization remains foundational to NRR and is the primary driver of growth. As brands work with Pattern, the benefits from our ongoing investment in optimizing the e-commerce equation compound. Improvements across content, advertising, pricing and supply chain drive higher conversion and greater efficiency. For example, we launched a Destiny update that improved traffic performance by expanding the breadth of campaigns we can manage and increasing automation to drive greater speed and optimization. Second, new marketplaces and geographies. We continued expanding our global footprint and now operate in more than 70 marketplaces worldwide. As Dave shared, our non-Amazon revenue grew 60% for the full year and 94% in the fourth quarter. That momentum was driven in part by triple-digit year-over-year growth in Q4 on Coupang, TikTok Shop and Walmart. More than two-thirds of our brands partner with Pattern across multiple marketplaces. This diversified presence deepens brand relationships and expands our growth opportunity. Third, adding product depth. As our relationships with our brand partners grow, we expand the product lines we sell and help launch new products into marketplaces with the benefit of deep brand knowledge and brand-specific optimization road maps. These expansions accelerated growth relative to 2024 and were meaningful contributors to NRR in 2025. These growth vectors layer and the compounding effect is why many of our largest and longest tenured partners continue to accelerate their growth year after year. In 2025, more than 53% of our revenue was attributable to brand partners who have worked with Pattern for over five years, demonstrating how growth compounds over time. Turning to operating expenses and profitability. For the full year, we achieved adjusted EBITDA of $153 million or 6.1% adjusted EBITDA margin, reflecting 52% growth year-over-year. Excluding stock-based compensation, we saw leverage in our operations and G&A expense line. Sales and marketing grew in line with revenue, while we accelerated investment in R&D, which grew 46% year-over-year. We expect to continue to strategically invest in technology to fuel future growth. Looking at disaggregated expenses, our variable cost components of cost of goods sold, marketplace commissions and fulfillment grew slightly slower than revenue growth. In the fourth quarter, adjusted EBITDA was $43 million or a 5.9% margin, growing 59% year-over-year. We realized some margin benefit in the quarter due to the timing of hiring with certain roles shifting into Q1. For the full year, we generated $99 million of operating cash flow, up 41% year-over-year and $79 million of free cash flow, up 58% year-over-year, representing a 52% adjusted EBITDA to free cash flow conversion rate. We ended the period with $289 million in cash and cash equivalents, no outstanding debt and $150 million of borrowing capacity available under our revolving credit facility. As Dave mentioned, we announced that our Board of Directors has authorized a share repurchase program of up to $100 million. We believe our repurchase program demonstrates our confidence in our ability to continue to deliver outsized growth, profitability and cash flow generation. To quickly recap, we exited 2025 with record results and strong momentum. Growth in the back half of the year benefited from incremental optimizations across the e-commerce equation as well as new product launches that performed exceptionally well, enabling us to deliver world-class NRR of 124% in 2025. We are on pace to eclipse $3 billion in revenue in 2026. Specifically, we expect revenue in the range of $710 million to $720 million in Q1, representing 31% to 33% growth year-over-year and total revenue for the year of $3.12 billion to $3.16 billion, up 25% to 26%. There are a few things to consider as we think about the year ahead. First, we're entering the year with strong momentum, but that means we will face difficult comps in the second half of the year as we lap our record 40% plus growth rates. We also expect a more normalized cadence of new product expansions in the coming year. And as is typical in our forecasting methodology, we are taking a middle-of-the-road approach in our assumptions for new brand partner revenue in 2026 due to sales variations. As a reminder, NRR is a trailing 12-month metric. We are extremely happy with our recent NRR performance in excess of 120%. But zooming out, we view 115% as an exceptional long-term target. As it relates to expenses, we expect to increase our investment in R&D this year as we look to further strengthen our technology moat in AI-driven technology and automation, optimize decision-making and improve efficiency across the platform. We will also invest to accelerate our go-to-market as we continue to deepen our penetration in existing and expand into new categories, marketplaces and geographies. As such, we expect adjusted EBITDA in the range of $41 million to $42 million in Q1, representing 22% to 24% growth. And we expect full year adjusted EBITDA to be approximately $180 million to $182 million or 5.8% of expected revenue, representing 17% to 19% growth. Stepping back, we are pleased with our results and remain committed to accelerating growth for our brand partners. We have a high degree of visibility into the underlying product performance and consumer behavior on a SKU-by-SKU basis, which underpins our forecasting methodology. We are operating from a position of strength and are committed to deliver long-term value to our shareholders. With that, I'll turn it back to Dave before we open the call for questions.

Thanks, Jason. 2025 was a milestone year for Pattern, not just in terms of performance, but in strengthening the foundation of our model. As a newly public company, we demonstrated that we can scale growth, profitability and cash generation while continuing to invest in our long-term differentiation. E-commerce is evolving rapidly, driven by AI, automation, social commerce and global scale, and Pattern is built to operate at the center of that change. Our focus remains clear: optimize the e-commerce equation, remove friction for brands and deliver measurable outcomes at scale. We enter 2026 with strong momentum and confidence in our ability to deliver durable long-term value. Thank you for your support. We'll now open the call for questions.

Our first question comes from the line of Eric Sheridan of Goldman Sachs.

In terms of the way you would frame the year forward for 2026, can you help us better understand how much of that growth is being contributed by elements of existing brand partners or the potential to expand the scope of brand partners on your platform based on the backlog of conversations you're having today?

Yes, I'll take that one. Thanks, Eric. So when we look at our guidance, there are a few things that we keep in mind here. So the first is the second half was great performance, and that was across both existing brand partners and new as well as we had a lot of great optimizations that hit and some product launches that hit in the second half. So we're pretty excited about all that. When we look at the future, what we're talking about for the full year is $3.1 billion plus, growing 25% to 26%, with existing brand partner NRR converging to 115% by the end of the year, generally as our long-term target that we believe is really strong. Now that convergence won't happen immediately in Q1. As a reminder, NRR is a mathematical equation that takes the last 12 months over the prior last 12 months. So as those stronger comps move into the equation on the denominator, that's where that convergence will happen mathematically. On new brand partners, we really like the performance that we had in 2025. Our guidance takes more of a middle-of-the-road approach, looking at both the 2024 and 2025 growth rates and takes that into consideration. In terms of the pipeline, we've got $460 billion in target opportunity list that we're attacking methodically over time, and we're growing sales and marketing resources to attack that. We really like what we're seeing around the world, and we're confident in what we can do.

Maybe just one follow-up then building upon that. When you think about the exit philosophy, you had very strong growth in Q4 around non-Amazon channels. How should we be thinking about the momentum around non-Amazon channels continuing to build as well into 2026? I'll leave it there.

Thanks, Eric. Yes, we really think that the growth in the non-Amazon channels just points to how big the opportunity is. We really only started moving into that space in the last five years, and the growth rate continues to increase as we add resources and focus on that. So yes, we think that will be a nice tailwind to the future year.

And maybe, Eric, thanks for the question. I'll add a little color here. One thing that's interesting, Jason mentioned the $460 billion in pipeline that we have. For that pipeline, it's a defined brand in a defined geography. So when we look at where that's coming from, 39% of that pipeline is coming from outside the Americas. And so you can start seeing, for any company like ours, this would be expected, where GMV is around the world as we mature and get better across platforms and across geographies, we're starting to see the sales pipeline numbers we're tracking normalize more to the marketplaces outside the U.S. and the geographies outside the U.S., further reinforcing your question.

Our next question comes from the line of Colin Sebastian of Baird.

Congrats on another strong quarter. Maybe one for Dave and one for Jason. Dave, obviously, you're benefiting from the moat that you've built with the intelligence layer and the logistics footprint now. But looking ahead, what are the top few areas of product innovation on the road map that you think have the best opportunity to move the needle? And then, Jason, as you sort of lean into some of these investments as we see this year, what's your expectation in terms of when those investments or those initiatives will augment top line growth and then maybe ultimately contribute incrementally to adjusted EBITDA margin?

Thanks for the question. The roadmap is as exciting as I've ever seen it. It comes down to things that in the early five to eight years of the company took a year or two to complete; we can now do in a month or less because of the capabilities that are available. We're advantaged by the 66 trillion data points. True differentiation in AI of the future will be data. We've had a long roadmap for a number of years, and we're starting to realize we can compress that roadmap substantially. Our entire roadmap is based on the e-commerce formula for a brand: revenue equals traffic times conversion rate times availability. There's the logistics piece that you referred to. If you look at last year, we broke down 35% of our growth that we can tie to optimization: 21% came from traffic and 11% from conversion, which equals that 35%. We're continuing to break down that formula and apply it internationally. It's a complex set of technology we're building, but we're making faster progress than ever and it's accelerating.

Maybe just to touch on your question, Colin. In terms of the investments, they're really in two spaces. First is in the R&D expense line, which historically we've grown in line with revenue. That's to build technology, some of which is capitalized. It's also to do experimental work on how we can optimize the equation using large language models, which also uses tokens. So we expect a bit more growth in that ahead of revenue, and that's what's driving a small deleverage in the margin percentage in the short term. The other thing that we're doing is we're going to continue to build out our fulfillment capabilities. Last year, we launched a Las Vegas facility. This year, we'll launch an East Coast facility. We have a great track record of getting operational leverage as we do that. But in this specific year, there may be less leverage because of those back-to-back launches of facilities. Now to your question in terms of when will that show up in top line and leverage, I would say in the top line, it continues to impress us how quickly the tools allow us to run new optimizations. We're excited to see top line benefit in the very near term. As it relates to fulfillment, we'll probably return to leverage in the fulfillment line items and the operations in the following year. Our general thesis is that we're looking to drive adjusted EBITDA dollar and free cash flow dollar growth with a good mix of profitability and free cash flow generation as we grow rapidly. We're less focused on specific margin percentage in one quarter or year and more focused on dollar-based growth.

Our next question comes from the line of Justin Patterson of KeyBanc.

Sticking with AI a bit. Dave, could you talk about just how agentic tooling has changed productivity across the workforce and the pace of product velocity and perhaps whether that changes your views on long-term headcount needs? And then just drilling back a little bit more, I would love to hear about some of the drivers of international growth. We have heard that localization is just getting a lot easier with AI tools. Would love to hear how that's influencing international.

Great questions. We will gain efficiencies. If you think about the opportunity in our space, it's large, and we're only at a small fraction of it today. AI is impacting more than just coding; it's refactoring many jobs by focusing on inputs and outputs of tasks and then building frameworks and skills for Agentic execution where appropriate. Some tasks remain manual, such as physical handling and regulatory compliance, particularly as we go global. We'll still need people for legal and regulatory functions. Beyond that, efficiency gains can be significant and immediate for companies that move quickly. On the international side, localization and AI tools are helping us expand faster by making content and operational localization easier, which supports the strong international growth we are seeing.

Our next question comes from the line of Bernard McTernan of Needham & Company.

Just had a question on the variable cost of the business. Jason, I know you called out how there was leverage on a year-over-year basis, but the cost did tick up sequentially as a percentage of revenue. Can you just remind us of the seasonality that we should expect in Q1 and if that contemplates continued leverage that we've been seeing? And then secondly, just wanted to follow up on the buyback. It was nice to see the $100 million authorization. The stock is below where the IPO was priced at. Should we expect you guys to be buying back stock at these levels?

Sure. Bernie, let me just clarify your question. When you say sequentially, do you mean quarter-over-quarter when you're talking about variable costs?

Exactly, ticking up from almost 85% in the third quarter to a little bit over 86% in the fourth quarter.

So I'll touch on that first, and then I'll talk more broadly about leverage on the expense buckets, and then I'll go to the buyback. All marketplaces have slightly higher fees for operating on marketplaces in Q4 versus Q3. That is a natural seasonal effect when you sell on marketplaces, and we build that into how we run the business and model our deals. There is no real surprise there in terms of a little bit higher marketplace costs in the fourth quarter, particularly around storage and deliveries. In terms of our leverage path in 2025, if you take out stock-based compensation and IPO-related costs, we did see leverage on the disaggregated expenses in the sales and G&A lines. Our variable components were within a normal variance driven mostly by product mix and, specifically in Q4, seasonality due to marketplace costs. So we're happy with our leverage. On the buyback, we think we're in a unique position as one of the few companies that recently IPO-ed that is delivering strong growth, profitability and generating meaningful cash flow. Our capital allocation priorities are: first, invest in growing the business; second, pursue M&A opportunities that add capabilities; and third, use a repurchase program as a lever to return value to shareholders. Exactly how and when we execute repurchases will be a market-driven decision guided by our Board, so I can't speak to specifics now, but the program is a sign of confidence in our ability.

Our next question comes from the line of Doug Anmuth of JPMorgan.

One for Jason and one for Dave. Jason, can you talk a little bit more about the category priorities in 2026? And I think in the past, you've talked about beauty as having characteristics similar to health and wellness, but curious on your progress there. And Dave, on Agentic, I know you talked about benefits on the expense side, but you also said AI is fundamentally rewiring e-commerce and the purchase path. How is this changing behavior today? Are you seeing AI-driven traffic that is higher intent or that has greater conversion versus Google or other traditional top-of-funnel channels?

Our category priorities are broad. Health and wellness is where we started, and it benefits from long brand partnerships and layered optimizations. We're growing in many other categories as well. Beauty is growing particularly strongly, over 100% growth. DIY tools is another area of strong performance. Our opportunity list Dave mentioned is split by brands, and our direct outreach sales forces are targeting categories around the world. We're focused on many categories; those are a few examples.

On how AI is reshaping e-commerce, it's an exciting time. LLMs will be a significant part of shopping, and some platforms are working to enable instant checkout. The landscape is evolving quickly. The core issue we're talking about with brands is the rising complexity and the speed of change. This plays into our moat because it requires not only data and fast decisioning but also logistics and reverse logistics infrastructure. We're investing in reverse logistics because it will be necessary regardless of how transactions occur. We have both the data moat and the logistics moat, which allows us to expand globally and help brands wherever the landscape shifts. We're excited about it.

Our next question comes from the line of Mark Mahaney of Evercore.

I want to ask about marketplaces. You mentioned in your prepared remarks Coupang, TikTok Shop, Walmart. Can you give a sense of the lifecycle of these or how long it takes to get these marketplaces up to material levels? Is this something you can turn on in quarters or is it years to get to where you are with those channels? That will help us think about your ability to diversify to current and future marketplaces.

A couple of points. TikTok Shop ramped very quickly for us, with Q4 growth of 224% and 482% for 2025 overall; those are still relatively small numbers but they ramp fast. Coupang was effectively zero in 2024 and $11 million in 2025 for us, showing quick ramp potential in the right marketplaces. Many marketplaces can ramp quickly. Part of it is maturity for us: the platform is more modular now, and we can add capability faster. When we build for a new marketplace, we develop modules we can stack on core modules, enabling much faster integration now than in the past.

Our next question comes from the line of John Colantuoni of Jefferies.

Dave, on your opportunity in agentic commerce: since Pattern doesn't have internal last-mile delivery capabilities and currently relies on marketplaces for checkout capabilities, can you help us understand whether you plan to invest in those capabilities to benefit from agentic commerce, or can you rely on partners' capabilities in the new channel? Second, regarding the first quarter outlook, revenue is expected flat to down sequentially versus Q4, which compares to up four to five percent sequentially in past years. Is there anything about Q1 this year that could result in a divergence from historical seasonality?

We leverage marketplace fulfillment when it exists. Across 73 marketplaces, most do not have fulfillment, so we solve that by building capability or partnering. Our current final-mile delivery stands at about 140,000 units a month. Where marketplaces have fulfillment, we use it if it is the most cost-effective option, but if their offering isn't competitive for specific product types, such as oversized or refrigerated products, we fulfill ourselves or through partners. We're building capabilities to be the interface for the brand and find the cheapest and most effective way to operate in each marketplace. We're becoming quite capable across these needs.

On Q1, we're looking at the full-year growth shape. Q4 overperformed versus our expectations across many levers. Our guidance is a middle-of-the-road approach that does not assume overperformance on every lever. We guide the full year to $3.1 billion and expect Q1 and Q2 to have stronger growth rates than Q3 and Q4. The apparent sequential flat or down versus Q4 is a function of a very strong Q4 and our conservative shape assumptions for the year.

Our next question comes from the line of Mark Kelley of Stifel.

Dave, there was an article that OpenAI is changing its instant checkout strategy to push people more toward apps within ChatGPT instead of checking out right inside the app natively. From your perspective, does that change anything or signal what's to come for agentic commerce? And Jason, on the NRR mechanics for 2026, is the way to interpret it that NRR will gradually move to 115% by year-end?

That was an interesting change by OpenAI. We'll see where it lands. My understanding is they recognized they need live inventory and reverse logistics to support native checkout, which is complex, and they may prefer leveraging partners for now. We'll monitor it. Different models — Google Gemini, OpenAI, others — have different philosophies and will likely ebb and flow. TikTok said that if they can get users to spend time on their platform, they can convert more purchases. During the holiday season, roughly 22% of purchases were impacted by LLMs, even without universal instant checkout. The core is that consumer behavior is already being impacted. Regardless of exact flows, these models require operationalization, and we are investing in logistics and reverse logistics alongside our data and automation capabilities to serve brands across changing landscapes.

Yes, on your second question: our long-term goal is 115% NRR. Our guidance reflects that directional target. Mathematically, because NRR is last 12 months over prior 12 months, as tougher comps move into the denominator, that will put downward pressure sequentially on the NRR metric, but that is a mathematical effect rather than a signal of underlying performance issues. These growth rates are slightly lower than prior years but on a larger revenue base, which is a positive dynamic.

Our next question comes from the line of David Lustberg of BMO Financial Group.

For some of the new brand partners you onboarded during the quarter, can you talk about the makeup of that cohort and if it looks similar to your broader cohort or if you're expanding into different categories? Also, you did a couple of deals in the quarter. Can you discuss the rationale and the value proposition those deals bring to Pattern and your brand partners?

It was a good quarter for signing new brand partners across many categories. One trend is more brands signing to do TikTok Shop, an emerging channel where brands want a more optimized experience and which is complex and evolving. Another trend is signing more brands outside the U.S. that want to come into the U.S., which is exciting. On the deals, we completed two acquisitions in the quarter that add capabilities rather than just revenue. Those transactions are additive to our capability set.

To add detail on the two acquisitions: the first was ROI Hunter, a team out of the Czech Republic with 89 employees managing over $1 billion in ad spend across walled gardens. They have strong data and a platform that helps expand our advertising capabilities with a product-specific and measurable approach. The second was NextWave, a premier TikTok Shop operator. We found them through a recommendation from TikTok itself. They are great operators and have expanded our TikTok capabilities and affiliate network. Both are excellent additions, and our M&A philosophy is to acquire businesses that are additive to our capabilities, not just for financial engineering. These were attractive additions at reasonable prices.

Thank you. Ladies and gentlemen, that is all the time we have for questions at this time, and that also concludes today's conference call. Thank you for participating. You may now disconnect.