Pattern Group Inc. Series A Common Stock (PTRN) Q3 2026 Earnings Report, Transcript and Summary

Hello and thank you for standing by. My name is Demi and I will be your conference operator today. At this time, I would like to welcome everyone to the Pattern's Third Quarter 26 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again. I would now like to turn the conference over to Hamish Chung, VP of Finance. You may begin.

Thank you, operator. Good afternoon, and thank you for joining Pattern's earnings call for the third quarter 26. Before we begin, I would like to remind everyone that today's discussion may contain forward-looking statements based on our current expectation, assumptions and forecast about future events. These forward-looking statements are subject to risks and uncertainties that could cause our 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 will focus our remarks today on the key highlights and drivers. Additional detail is available in the earnings release. Joining us today are David 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 will now turn the call over to our CEO, David Wright. David? Please go ahead.

Thanks, Hamish, and good afternoon, everyone. We delivered another record quarter and raised our full year outlook. Third quarter revenue reached $886 million up 38% year over year. And more than double where we were 2 years ago. Adjusting for the timing of promotional marketplace events, revenue growth was approximately 42% in both Q2 and Q3. Adjusted EBITDA increased 40% to $57 million We also delivered net income of $32 million Net revenue retention a key benchmark of how well our model is working for brands was 127%. Up from 122% a year ago. We delivered our largest quarter on record for new brand partnerships. In Q3 alone, we signed as many large brands as we did in our strongest full year on record. We also continue to expand across channels and geographies. Non Amazon revenue grew 86%, reaching approximately 10% of total revenue. And international revenue increased 56%. This momentum and our year-to-date performance support our increased full year outlook. Which Jason will walk you through the details. Let me take a step back. The technology landscape is evolving quickly. And I am excited about the opportunities that pace of change creates for Pattern. Decisions we make today will shape our competitive advantage for years to come. We have a phenomenal team, and we are making excellent progress as we call Pattern Intelligence, or PI. PI is the intelligence layer that brings together our technology, which are the 4 levers of the ecommerce equation. Traffic, conversion, price, and availability, which I have mentioned before. Drawing on 13 years of execution and more than 100 trillion data points, we help brands improve performance wherever consumers shop. As new capabilities emerge across marketplaces, social commerce, direct to consumer, and AI platforms, We incorporate these advances into how we serve brands. We are confident in our advantage across the formula. Underpinned by our data, technology, inventory management and logistics infrastructure. As a quick example, Pattern annually executes 1.8 billion in total ad spend through AdSignals, Destiny, and other tools. Across marketplaces and channels including Meta, Google, TikTok, and ChatGPT. What differentiates our patented approach in advertising is that we optimize paid advertising to improve organic rank over time. The objective is to turn paid investment into lasting organic traffic and sales. Helping brands grow without depending on continually higher advertising spend. Another example, our logistics capabilities compound that momentum. We have expanded across prep, middle mile, and last mile supported by 8 dedicated distribution centers across the US, Canada, Europe, and Asia. That infrastructure and related technology supports marketplace, and direct to consumer orders, including returns. These capabilities matter wherever demand originates. In a marketplace, on a brand's website, through social commerce, or through an AI agent. We are also building more ways for brands to connect our content, logistics, and data. Including through our offering we refer to as Commerce Infrastructure as a Service. Which we discussed last quarter. Let me give you a few examples of what coordinated execution means and looks like for our brand partners. A leading US based beauty and home fragrance brand had no Amazon presence before joining us in February. In Q3, the revenue we managed grew 72% from Q2. As the catalog expanded from about 22 to more than 380 products, For a professional grooming tools brand, revenue through Pattern has tripled in 3 years, as its business expanded from 6 countries to 11. Our prestige jewelry brand started with us in 2 markets, and now sells through 9 marketplaces, with international revenue up 85% this year. And a pet brand whose business had been flat for 3 years, has grown revenue with us 43% this year alone. Across 9 countries plus China. And we are getting recognized for it. Walmart Marketplace named Pattern the #1 seller in consumables at its annual Let's Grow seller summit. TikTok recognized us as a star partner in October and Inc. Named us as a power partner for the 5th consecutive year. Our business model gives us room to invest in technology while maintaining operating leverage. Excluding stock based compensation and related taxes, R&D expense was 105% year over year in Q3. Yet we continue to expand our adjusted EBITDA margins. And in the future, we expect those investments to improve efficiency expand our reach across more geographies and marketplaces, and make Pattern an even more attractive partner for our brands. Over the trailing 12 months, we generated approximately $106 million of free cash flow. Up 50% year over year. Allowing us to invest for growth and return value to shareholders. We have the people, partners, technology, and balance sheet to continue building. Our focus remains delivering growth for our brands. Investing with discipline and creating long term value for our shareholders. Jason, over to you.

Thanks, David, and good afternoon, everyone. Q3 was another exciting quarter for Pattern on many fronts. We continue to see broad based strength across brand partners geographies, and marketplaces. And delivered 886 million of revenue, up 38% year over year. Adjusted EBITDA grew 40%. Reflecting our disciplined approach to investing for growth while maintaining effective cost management. As a reminder, these results reflect approximately 4 points of revenue shift from Q3 into Q2 due to the timing of marketplace promotional events, which we talked about last quarter. Adjusting for that timing shift, Q3 revenue grew 42% year over year. We are pleased that our year-to-date performance, robust tech platform, and ongoing business momentum is enabling us to raise our full year outlook on both the top and bottom line. In Q3, we delivered a strong NRR of 127% for our brand partners. that is up from 122% a year ago and was driven by technology driven optimizations, new marketplaces and geographies, and expanding product selection. A few revenue highlights from the quarter. First, we saw strong new brand partner revenue growth in Q3. Reflecting the momentum David highlighted in our new partner relationship. For the full year, we expect new brand partner revenue to grow at roughly twice the rate it grew in 2025. Second, while still a smaller portion of our--we are continuing to gain traction in fast logistics and other monetization revenue. Which grew sequentially from Q2 and increased 136% year over year to $18 million We are pleased with the momentum we have seen, which is largely being driven by SaaS-based business models. Turning to operating expenses and profitability. Adjusted EBITDA was $57 million in Q3, up 30% year over year, representing a 6.5% margin up from 6.4% a year ago. Excluding stock based compensation and related taxes, R&D expense was up 105% year over year. We continue to invest ahead of revenue in our data infrastructure and AI capability while improving cost leverage in other areas such as sales G&A, where growth in labor costs was slower than revenue. Our variable cost components, cost of goods sold, fulfillment, and marketplace commission, grew in line with revenue. Moving now to the balance sheet and cash flow. We ended Q3 with $352 million in cash and cash equivalents, no outstanding debt and $150 million of borrowing capacity. For the trailing 12 months ended in September 30, we generated $106 million of free cash flow up 50% year over year. Our robust cash flow and capital light model is enabling us to continue to invest for growth while returning value to shareholders. During Q3, we bought back $18 million of Series A shares under our $100 million share repurchase program. Turning to our outlook. We now expect full year revenue to be approximately $3.5 billion representing approximately 40% growth year over year. This implies over $1 billion of incremental revenue compared to 2025. that is an exciting milestone for us at Pattern. What matters even more is what we deliver for brands. We are extremely pleased with our NRR performance of 127%. And our updated outlook implies that the ending point of our NRR this year will be approximately 124% to 125%. We are raising our full year adjusted EBITDA outlook to approximately $220 million representing 34% growth year over year. For the fourth quarter, we expect revenue in the range of $965 million to $985 million representing 34% to 36% growth year over year. We expect Q4 adjusted EBITDA in the range of $54 million to $55 million representing 27% to 29% growth year over year. In closing, as we reflect on 1 full year as a public company, we are more optimistic than ever. We believe the power of our model, brand partners, and team. Combined with our balance sheet strength, our advantages that will continue to compound, driving durable growth and long term shareholder value. With that, I will turn it back to David before we open up the call for questions.

Thanks, Jason. We remain focused on leveraging our technology and data to optimize the 4 levers of the ecommerce equation for our brand partners. Which are traffic, conversion, price, and availability. We entered Q4 with that focus and with momentum we feel great about. We will continue to provide what I believe to be the most compelling ecommerce infrastructure on the market. This is a very exciting time for Pattern and our future. Thank you for your continued support We will now open the call for questions.

Thank you. We will now begin the question and answer session. We do request for today's session that you please limit to 1 question and 1 follow-up. We will pause for just a moment to compile the Q and A roster. Our first question comes from the line of Justin Patterson with KeyBanc Capital Markets. Your line is open.

Brett. Thank you very much, and good afternoon. David, I was hoping you could talk about just the rise of assistants like Mistral and Inflection. These are really some of the first instances where we have seen more meaningful use cases of shopping starting to pop up. So I am curious how that changes your channel opportunity and how you think that could look across the market over the next couple of months. And then secondly, would love to hear a little bit more about just how you are thinking about product investment as we head into 2027. What do you see is really the next big area to unlock value for merchants? Thank you.

Thanks, Justin. Great question. Yes. So it is very exciting to watch you know, I think we have all been pretty engaged with AI in terms of research, and we are now seeing that start to shift into actual product discovery leading to purchases. I think Mistral was a great example of that. I think, you know, the on platform or on marketplace agents have had some level of traction, you know, previous to this, Mistral is unique that way or. And, you know, a unique highlight So I think for pattern, the key. The ways we think about it is there is probably. The biggest opportunities, if you think about which way we face, which is towards the brand. Every day we wake up, we say to ourselves, okay, how do we serve brands better? What do they need? Now and if you are sitting in a brand seat running ecommerce, the landscape is more complex. So every method or channel or way that people used to shop still exists. And now we have. We are just adding some. And in some cases, we are adding channels every month, every week in some cases. If you are sitting in the seat of a brand, Pattern becomes, you know, uniquely helpful with our data moat and technology. So the key areas are probably discovery. and then overall fulfillment. And maybe I think we are gonna start talking more and more about what I might refer to as a trust layer. How often people will trust an overall system and decide to execute a purchase there, and I think Pattern can influence that. So in the discovery area, I think we have possibly the best data advantage that I know of which is a robust set of data where we can essentially concatenate SEO into semantic intent. And understand, okay, by volume, mathematically, what matters, what does not matter in terms of content. What is a brand missing, And then we are able to AB test all of those outcomes. As an example, today, we run 38.3 million actions a day -- actual actions that do something -- on behalf of brands through PI. So if you think of that. I do not know of any brand who can even contemplate or probably even measure what actions they are taking. But because we know that number, we can actually measure the outcome. So that will go to discoverability. And then you start getting into fulfillment, logistics, what influences why a consumer picks 1 brand over another, And that is not just unique to marketplaces. That will expand to all of the agentic platforms. So, you know, we are very excited about the future there. We think we are positioned very well to help brands gain traction in those markets. And then I guess, secondly, in terms of product investment. Well, you have seen probably our R&D numbers. We have-- there is never been a year on the history of Pattern where we have increased R&D investment like we have. Excluding stock based comp, you see the number a 105%, technology, 84% increase. We are really the unique thing is while we are doing that, we are also increasing our margins. So our business model is allowing us to invest in a major way in technology take advantage of the opportunities we have there, as well as maintain margins, And then I talk about some of those outputs of, you know, our pattern intelligence layer. I think we are first to market in many ways there. But in terms of scale, I do not know anyone who is executing, you know, in the realm of millions and millions of actions daily on behalf of brands. So, I mean, it is a very exciting opportunity for us for the future. Thank you.

Our next question comes from the line of Ralph Schackart with William Blair. Your line is open.

Good afternoon. Thanks for taking the questions. 2, please. Maybe at a high level, if you could walk us through the drivers of the business that continue to drive your outperformance as we think about levers such as technology, geographic expansion, increasing brands and product selection. Some color would be helpful just to better understand your continued strong growth and then another question. Just on the P&G earnings call, there was a question whether Thorn may continue to run separate from P&G's core operations. And P&G may not be integrating Thorn as it does with other brands. Just curious if you could add some perspective on this. You know, what are the potential implications for Pattern overall? You know, how's this relationship progress for Pattern? Thanks a lot.

Thanks, Ralph. In terms of drivers of growth, we are really happy with how Q3 turned out, and that is why we raised our outlook. You know, if I start first with the biggest part with existing brand revenue, and the NRR around that of 127%, That continues to be. The majority of it is driven by the technology optimizations. The geographic expansion was strong as well, and expanding products was a little bit less strong this quarter because we knew we would be lapping a pretty strong quarter in Q3 last year on that specific vector of growth there. The other highlight that David mentioned and I mentioned in the prepared remarks is new brand partner revenue. And we are really finding that as the world gets more complex, as David mentioned in the first question, across the ecommerce formula and different surfaces and different optimizations that need to happen, that the pattern solution in a simple place where we take care of so much on behalf of the brand is resonating even more. We are signing bigger brands, and we have got lots of good momentum there. Those would be the key drivers in terms of the growth. Specifically on the--on your kind of quote of the P&G earnings call, you know, we continue to be confident in all our great relationships with Thorn leadership and the many brands that we work with in P&G. All indications continue to be positive and focused on growth. it is really just business as usual. Great. Thanks, Jason.

Our next question comes from the line of Eric Sheridan with Goldman Sachs. Your line is open.

Thanks so much for taking the question. I want to talk a little bit about the key areas of investment priorities for the company And how should we be thinking about different outcomes in terms of bands of margin for the business when you look out across the second half of this year? But then maybe a broader philosophical question as you go over the longer term? That would be really helpful. Thank you.

Yeah. That I think the core thing that every company that will be successful long term has to be focused on is who they serve. So for us, it is the brand. So every day, it is really a question of what will move the needle more for a brand And we have a development road map that just follows that. And, of course, you know it goes across revenue for our brand, is traffic, conversion, price, and availability. And, you know, and we have to deliver that at a price point that we believe they cannot match. And I believe we are there. So, you know, as we invest, as we-- You know, in different areas, we do get operating leverage. We are continuing to see that. We expect that to continue. We also expect to continue to offer better and better pricing to a brand. So I think every company. The successful long term has to tackle both. How do I offer the best solution at the best price as well as continue to provide operating leverage for shareholders. And I think we are uniquely positioned simply because of both scale and logistics scale on data, scale of technology, We do not have to rebuild it for every brand, every geography, every marketplace. Every surface area. The concepts stay the same, which allows us to just get really quite significant operating leverage. And then I know you are probably familiar with 1 thing that we highlighted is our SaaS logistics and other bucket grew a 136%. Which, you know, now hit 18.1 million. That is a great business. Now that is. That. And that is a quarterly number. You know, when we first started those numbers, were quite insignificant. So we are continuing to see momentum there. that is a higher margin business in general. And we will track a little bit closer to our progress on the AgenTex side. So, I mean, we are excited on the operating leverage we see for the future. Thank you.

Next question comes from the line of Colin Sebastian with Baird. Your line is open.

Brett. Thanks. Good afternoon. David, as brands adopt and ramp up their usage of PI, I am curious what you are learning about the capabilities they value the most, maybe where you have opportunities to expand the product there. And then my second question is just looking across international and non Amazon channels, where you are seeing the most durable momentum and sort of what may explain some of the changes in the growth rates there this quarter? Thank you.

I guess whenever you ask a question about PIE, I am going to talk about largely what happens to be on my mind at the time, which almost changes daily. Because we have such a robust road map there. But, 1 of the unique advantages that we are looking at that we have with Pye is we cross all the marketplaces, and we are on surfaces, including agentic surfaces. And we do not have. Our incentives are perfectly aligned with brand. So if you think of ad spend, which you know, we now spend on behalf of brands, you know, $1.8 billion and we do not do a take rate on ad spend which is unique across. You know, because, you know, our model is largely, you know, we take inventory. We sell inventory. So when you see a revenue number show up for us, it shows up for a brand somewhere. What you might not know is of that 1.8 billion the majority is actually not on Amazon. We have a significant investment there. But cross platform, that is where we are continuing to see some great momentum You know, discoverability is moving and widening. that is where our tools and opportunity in PI, I think, have the biggest, you know, near term opportunity that we are focused on right now. Okay. So now if we talk about the international side, I think I will turn that question to Jason who will provide some insight there.

Yeah, Colin. In terms of thinking about both international and marketplace growth, You know, international, we are very excited about another quarter over a 100 million. This time, a 106. There is some variability in the growth rate this quarter due to some of those marketplace event shifts as well as lapping some tougher comps in Europe, And you will remember this time last year, we launched Coupang from zero. You know, long term, we love the international opportunity because you just take a step back and you say, okay. Consumer GMV on digital is over half outside the US. And currently, even, you know, this quarter, our international revenue was only 12% of the total. So that is just a testament to the long runway we have to take brands that are working with us in the US to international markets to sign brands in international markets, and help them be successful there. On the marketplace side, you know, 86% growth of all of our non Amazon revenue, you know, still very strong, still much greater than our Amazon specific revenue there. And that concentration continues to improve. This time last year, it was 7% of the business. Now it is 10. Again, long term, it is a similar hypothesis that we have is we will follow how consumer GMV you know, evolves over time. In certain countries, it is quite specific to specific particular marketplaces. it is specific to Amazon, but that is spreading. Our capabilities are spreading. And it is just a matter of time. it is not driven. Neither of those are driven by the need to diversify for diversification's sake. They are driven by the need to help brands grow and to follow where consumers are spending. So we really like how we are positioned across all and we believe that over the long term, these things will just continue to happen. As we focus on growing for brands. Okay. Thanks to both of you.

Next question comes from the line of Bernie McTernan with Needham and Company. Your line is open.

Brett. Thanks. Just wanted to follow-up on the answer to Justin's question about services and products that you are providing brands, then agenda shopping world. And I think, at least, I understand the discovery and fulfillment piece, but can you talk about what you can provide brands on a trust layer? Because I think that is. it is. I think it has really interesting implication We just would love to have you, maybe expand upon the opportunity more.

We are very early days on the concept of a trust layer. I mean, there is multiple potential components I do not know if you saw, you know, there. When a merchant partners would say a Visa or Mastercard there are limits on, say, you know, a fraudulent charge. You know, generally, 2.2%. I think they lowered it to 1.5 percent. So in an agentic world, if there is a fraudulent charge, you know, how--what might a merchant be able to do to provide a guarantee so that an, you know, an agent chooses 1 merchant or brand over another. there is some interesting trust layer components there. And then things like what is your track record? I believe that in the long run, there will be a concept of a brand or service agent and likely a buyer's agent. So, you know, your buyer would know you very well. It would understand what you like, what you do not like, what your parameters are, what your delivery time lines are. And if a brand or a merchant does not consistently meet those expectations, and they are quite vast. You know, you have your forward fulfillment, all of your delivery expectations. Then you have customer service expectations. How obsessed are you going to be about maintaining your track record for agents? Will you provide a direct API so an agent can actually process some basics of or report that you got the wrong size without having a human in the loop. How easy are you gonna make it, and what are the different levers where you can increase trust with that end consumer, whether it be you know, commitment on delivery that you meet consistent whether it be the returns process, how easy it is, whether it be you know, that you are willing to guarantee or provide some layer when there is a fraudulent charge. there is a lot of opportunity that we are discussing on that trust layer. I think that, you know, both consumers, brands, everyone, the talk track will start to move to trust quite quickly. Because capabilities, I think, are there. And I think that would be the next sector. Thanks, David.

Next question comes from the line of Mark Stephen Mahaney with Evercore. Your line is open.

Okay. Let me try a couple of questions, please. Any update on the Thorn relationship? And or just speak broadly about companies that you have that you have worked with that have gone through acquisitions in their stickiness with the Pattern platform? And then, any change at all in terms of the long term NRR goal? For the company? And then finally, just on the complex of the Amazon marketplace, and I think that complexity has been something of a selling point for Pattern. Anything in particular strike you as unusual over the last you know, 3 to 6 months in terms of new initiatives there that have made your value proposition stronger or even weaker on Amazon's marketplace? to your customers? Thank you very much.

Thanks, Mark. Yeah. Lot to unpack there. Let's start with the Thorn relationship. Jason mentioned it briefly. So far, just, you know, everything we hear from Thorn, we have great relationships with Thorn, phenomenal brand. I think that Procter and Gamble will be thrilled with the acquisition or over the long run. I think they have some incredible runway All relationships of all levels are, I think, fantastic. And every indicator is positive. And as you mentioned, you know, we have had similar acquisitions with, you know, into the. These large CPGs. 1 of them, I think, is 7, 8 years now. You know? So. And same, you know, businesses is as usual, which we expect with Thorne. Okay. Then on NRR, Jason and I have, you know, we repeatedly say that we believe the long term target for NRR is 115. And the reason why we think that I mean, we could adjust our thinking, but the reason why we think it is we essentially say, okay. If ecommerce growth in general is say, 7% to 9%, If we double that, that is. That would be, you know, somewhere around, you know, 14 to 18%. And then you take out a little bit of attrition, So, you know, some brands, you know, will trip for whatever reason. In order to maintain an NRR of 115, you have to operate at what we believe to be an extraordinary level. Now we do continue to beat all of those expectations But if you think long term. Now we are talking. When we say long term, we mean long term. You know, we think that might normalize at 15. And our guidance for the rest of the year is, you know, what Jason mentioned, 124, 125 for the year. Now the thing that could change that to the upside, of course, is we continue to improve technology faster than we expect. We also. You know, AgenTek commerce, there is quite. There is some talk track that it might increase overall ecomm spend or ecomm adoption by consumers by, say, 11%-12% I mean, if that happens, you know, who knows? But those are the I guess, the main points at. On NRR. But our numbers right there, I think, are almost unprecedented. We are really happy with them. But largely, anything that is in NRR means our machine is working and a brand is happy. So that is why we track it. We do not really track it to. You know, for you know, for on the investor side other than to try to communicate, hey. This is an investment that is very sound. And we can prove it with the numbers. Okay. So now on the complexity of Amazon, I mean, Amazon continues to make certain things easier. But large companies, every large company, continues to add vectors of optimization. So anytime Amazon, works to optimize, say, fulfillment. They want. And right now, I think they just announced it in 1.5 billion same day units in the last year. So from a consumer perspective, that is that is amazing. We have all experienced that. But if you are on our end or a brand's end, Amazon is saying, hey. Get the product closer to the consumer when you send it in. And we are gonna optimize our supply chain so that we can make that cost less and Amazon continues talk about their cost to serve. They continue to reduce it. So as they continue to optimize that, it usually provides for brands. And ourselves, but at the same time, they have. You know, their tools get better and better. We get more visibility into data. We are able to, you know, understand the ecosystem better. So those are somewhat offsetting. But, you know, as any good company does like ourselves, we just keep finding different ways to optimize you know, the and at our scale, if we can save 10 basis points like, we just improved overall conversion by 2 full points again over Q3 of last year. Now 2 points does not sound like a lot, but that is a number in aggregate for the for the amount of business we manage. So, you know, Underneath the covers, there is just incredible complexity. So I think we will just continue to have those offsets for quite some time. I cannot see a change there. And then, of course, we mentioned earlier all the new surface areas that brands have to manage where we are a great fit for. Okay. Thank you very much, David.

Next question comes from the line of Douglas Anmuth with JPMorgan. Your line is open.

Brett. Thanks so much for taking the questions. I wanted to talk or ask you just a little bit about the new brand partner strength. I know things can be lumpy. Quarter to quarter, but is there anything that you guys are doing differently in terms of go-to-market or anything that is kind of working your strength you are seeing in certain verticals? And I guess related to that, how are some of the network effects that you have had in health and wellness kind of spilling over into some new categories. And David, since you just mentioned the overall conversion increasing by 2 full points, which is obviously very significant relative to last year. Can you just talk a little bit about the drivers there that you are seeing, if there is anything specific to call out? Thanks.

Thanks, Douglas. I will take the first part, and then I will throw it over to David for the second question. You know, we are really pleased with how we are bringing on more brand partnerships and bigger brand partnerships. And, you know, really fundamentally at its core, it is about providing data earlier in those discussions to demonstrate you know, how the brand can improve the ecommerce equation across many different marketplaces. And we built better tools for our sales team to do that. Continuing to incorporate those. We will continue to innovate on those. So that is 1 thing I would point to. The other 1 is you. You have noticed we are spending more on agentic tools, and we are using those agentic tools to onboard the brands faster. there is quite a lot of, you know, complexity that comes when you bring a brand into the into the. You know, our model, and we are able to do that on a quicker, higher quality basis, which then not only improves the brand experience, but allows us to get to, you know, new brand partner revenue in a quicker way. All of those things feel like, you know, sustainable changes that will continue to improve in the future. Specifically on the reputational cycle, you know, we do find generally that kind of the professionals in any 1 category tend to stick with that category. But it is fun when there are health and wellness professionals that move to another category. And help us gain more strength there. We are really focused on building, you know, that trust cycle in the categories themselves And as I mentioned, you know, beauty, pet, and others like home and kitchen, are all areas where we have seen better fruits there this year than we have in prior years.

Yeah. Douglas, thanks. For the question on conversion. it is such a significant milestone for us. If you think about it, the vector has become so fun right now because of course, you understand our technology is optimized for organic in the past. And you have, you know, you have a set of data or SEO or keywords, keyword phrases that a consumer might type in to solve some problem. And you have multiple sets of lists that you might understand that would be organic ranking. Well, now those lists there is almost an infinite amount of metrics to measure now but the biggest driver right now is Alexa or agentic discovery that is coming into the picture. it is converting in a much higher rate. So now the optimization moves over to the agentic side And we find that in many cases, what might show up as, say, a top 10, top 20 result is nonexistent on the agentic side, and it is a new set of solutions or brands or products served up. So now the data that you need to provide. But remember, on most platforms, there is only a limited set of content that they will land on from all of those different vectors of shopping or discoverability. And you have to mathematically figure out which content will resonate And now the variables have gone up. And so it becomes, you know, just a much more fun problem for our teams so these 2 points are just incredible, incredible results for brands. And really significant milestone for us. Thank you.

Next question comes from the line of John Colantuoni with Jefferies. Your line is open.

Hi. Good afternoon. This is Chris on for John. I appreciate you taking our question. I am curious, fulfillment has been an area of investment in recent quarters. Can you talk about your philosophy regarding kind of balancing further-scaling fulfillment capabilities versus delivering leverage on fixed fulfillment costs over the long term? As part of that, if you can remind us what the timing considerations are regarding new facility launches that might have implications for how fulfillment expense trends in the coming quarters that would be super helpful. Thanks for the question, Chris.

Yeah. We are really excited about the pattern fulfillment business. it is growing very fast. In that overall 136% growth, you know, bucket of our SaaS logistics and other. And I think the key thing to think about here when you think about invest in this is we are leveraging a logistics infrastructure that we already built for our core business model. Okay? And so the warehouses that are doing pattern fulfillment for brands or sellers are the same warehouses that are doing our core business model where we buy and sell the inventory. And an even interesting stat, the trucks themselves on a cubic foot basis that go into these various marketplaces have more non-Pattern-owned volume than they do Pattern owned. So you get this economies of scale that comes with leveraging an infrastructure we are already building for the core, which is growing nice and fast. Getting higher density and higher frequency on the shipping, which then benefits both of those areas, both pattern fulfillment and pattern core. Right? And getting more touch points with brands as an entry point to the pattern experience. On top of that, it is helping us build out the infrastructure that is going to be necessary in the future as we roll out our commerce infrastructure as a service further off the back of the pattern fulfillment in the agentic world. So that is how it all works. You know? And we are able to work our general CapEx trends of growing that pattern fulfillment business within our overall core business without a lot of incremental CapEx.

And our final question comes from the line of Brian Pitz with BMO Capital Markets. Your line is open.

Thanks for the questions. Maybe first more broadly, any insights on the broader consumer concerns in the K shaped economy? I know it sounds like your outlook is pretty strong, but how are you thinking about exposure to your brands with respect to discretionary expenses versus nondiscretionary? And then if you look out a bit, can you talk about the potential pipeline of opportunities on the new brand acquisition side? Compared with your historical VMS footprint? I know you have got some new brands, but where are you really targeting in the future? Thanks.

Yeah. Yeah. Yeah. Thanks, Brian. Yeah, great questions. We get the macro question quite a bit. And it would be overstating probably for us to give any real guidance that you could you could rely on there. But for 1, I do not know if anyone knows exactly, but we are also quite insulated because if our brands are winning. I mean, you see our NRR numbers. So, you know, every time I get this question, I am like, seems great from our vantage point. But we are also attacking the problem in a. You know, you very unique way, and we have some really strong brand. So I think I will probably leave the overall question on where that is headed to people who are deep in that space. We feel very good about it. We are not seeing any weakness We are seeing strength. And I think you know, as you look at the other retailers, you know, they are reporting with good numbers as well. So I guess we will we will we will see how that plays out.

And then in terms of brand partnership concentration, Jason, you want to take that 1? Yeah. I mean, I mentioned before, Brian, that, you know, we really like the results that we have seen in our new brand partnerships this quarter. With a lot of large deals more than we have ever had and our average deal size going up. that is across many categories. It does not mean that we are not signing brands in health and wellness. We still feel that there is lots of room in that space to sign great brands and help them grow. But there is lots of room in other categories. And over the long term, it is just a matter of time that will diversify But in the immediate, you know, our immediate strategy is just sign great brands wherever they are. And so that is kind of how we are thinking about it and how the pipeline's going. it is really robust. And feeling really good about the future there.

Yeah. Yeah. The other pipeline. Maybe I will just close with the pipeline is as strong as probably we have ever seen. The results. As I mentioned, you know, we measure 1 concept where we say, okay. In terms of large brands, which we define as $20 million or above, We signed more well, equal to any year in history in the quarter. So phenomenal result there. Our average deal size is up 41% quarter. You know, from Q3 of last year. So, overall, phenomenal pipeline. New brand traction and growth, and then you see some of our metrics on NRR conversion. So the machine continues to work. The landscape is getting, you know, ever more complex, which benefits us. And then scale you know, in terms of cost to serve, and what we can deliver at a certain price point to a brand continues to scale. So I guess right now, you know, the way we look at it, is things look pretty green across our metrics. We are pretty excited about the future, and thanks everyone for joining the call, and we will talk to you next quarter.

Ladies and gentlemen, this concludes today's call. Thank you all for joining, and you may now disconnect.