Pattern Group Stock

Okay. We're going to kick off day 3. Thanks, everyone, for coming. It's my pleasure to welcome the team from Pattern Group, David Wright, CEO. Dave, this is your first Communacopia. Thank you for coming to the conference. You were going through a process a year ago during this conference, and you've been a public company for just around a year now.

Yes, yes. It's been a great journey.

Well, welcome to the conference. Let me start by reading the safe harbor I have to read, and then we're going to get into a conversation. Before we begin, I'd like to remind everyone that today's presentation and webcast may contain forward-looking statements based on the company's current expectations and assumptions about future events. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from what the company discusses today. Please refer to the company's latest filings with the SEC for more information on these risks and uncertainties. With that, let's get started.

So I would like to take a step back before we take a step forward. You've been on a journey in terms of the company you've built and scaled. As you said, you've now been a public company for just about a year. Talk to us a little bit about setting the stage for the journey you've been on and what you've been trying to build and scale.

Well, it's been quite fun, but I just like solving problems. And so it seems very much the same as pre-IPO. For all intents and purposes, we're doing the exact same thing. As a matter of fact, the stock will go up sometimes and stock will go down and we get praised when it goes up and we get hit when it goes down and we do the exact same thing as we did the whole time. So it's been a lot of fun, been an interesting journey. But the core of what we do, if you think about it, we are just trying to build a technology-driven intelligence layer that's very thin, operationally efficient for brands across digital surfaces. And those surfaces are becoming broader than we ever expected back when we started. When we started, I think 10% -- because we help on the digital side, 10% of all goods were sold digitally when we started the company.

Now it's 24%, 25%. So just that has been a boom for us. And then the surface area has got -- it used to be -- even when we went public a year ago, we were 94% Amazon. If you think about your own purchase behavior, you probably are somewhat similar. This last quarter, we were 9.35%. So almost 10% non-Amazon and that surface area is complex and evolving quickly. So it's just -- so building technology around that and operational efficiency, moving the box is just a highly complex challenge that brands need to do at a price point they can afford.

Yes. So talk to us a little bit about that environment, right? Because as we look at it, the e-commerce landscape is only getting more complicated, not less complicated. So for your existing brands and when you have conversations with where brands are today and coming into your ecosystem, what are you trying to solve for? What are the most often questions you get? Where do you think some of these solutions have to go to meet the landscape and the shifting of the sands?

Well, the core has just always stayed the same. A brand has some product idea. They need to get it into the mind and the hands of a consumer through all means necessary. And that landscape is complex. And they need to be able to do it at the lowest possible price. So if you think of Pattern, we track what we call -- internally, what we call cost to serve. So how much does it cost us to run $1 of revenue through the entire machine across all service areas for a brand. And then, of course, I estimate, and we have some pretty good numbers on what it might cost a brand to do it on their own because that's sort of who we compete with. And I don't believe at the scale we're at, a brand can do it at the same price point.

I'll give you one example. If you just take logistics, in many cases, a brand will do the final mile delivery, and in many cases, they'll send into a marketplace, usually like Fulfilled by Amazon or some network. For us, just that inbound process to just marketplaces, we do 95% of the time full truckloads at $0.11 a unit. If for that final 5%, it's split between parcel and partial trucks. Just partial trucks is $0.44, 4x the cost. So if you think if you're sitting in a brand's shoes, imagine a brand, I don't know, think of one, Pandora Jewelry, even TUMI luggage, both of which are brands that work with us, they can rarely send in a full truckload to 18 locations a week. It's near impossible. So that thin layer becomes -- we're just trying to do it as efficiently and in an optimized way for a brand at a price point that we don't believe they can do on their own.

Maybe just sticking with that as a theme and just sticking with the framework of what you've built. Talk to us a little bit about what you do for those who know it less, what you do for brands on generating business for them, helping on the inventory side of the equation, helping them on the intelligence side of the equation running their business, just so we can level set with some of the key kernels of where you touch these brands and how you help them grow and scale.

Yes. Maybe if we go back to the starting of the company, the start of the company was, my cousin had this little girl's headband brand. And we got talking about how she might grow that brand. And it's quite simple. My background is all in the tech data side. I had never worked with a brand. I had never sold a widget. I didn't enjoy that work at all. I didn't think. And then I got working on that, and it was a formula. It's -- revenue for the headbands is traffic, how many eyeballs can you get to see a product times conversion, times price, times availability. Is the good available close to the consumer? So our entire tech stack, 44 patents either issued or pending now is built on that and that alone.

Revenue for a brand is traffic, conversion, price. And then we just measure. We know if our machine works because our NRR, so net revenue retention of brands, which includes any brand that might leave us, is running now at 129%. That means that, that optimization engine and the logistics engine and the price point that a brand is willing to pay and can pay is all working. So we focus on that number. If we can -- if that NRR number is high, you will see us win for a very long time. Because for one, we don't have to go out and resell. We have a built-in 30% growth or 29% or whatever it was last quarter. So -- and then it's easy for a sales team to go and close deals because we can say the machine works.

Okay. Understood. You talked a little bit earlier about the percentage of the mix of the business that's Amazon today, but you have faster growth in the non-Amazon part of the business. Another element of the e-commerce landscape is the rise of these other marketplaces, not only in the U.S. but globally. Talk a little bit about how the marketplace landscape is changing and how that opens up potential for you to work with brands as they think about changing their geographic SKU and even their seller-based marketplace SKU.

Yes. There's a lot of marketplaces out there. There are some very interesting things. I mean Walmart is one of them, been around for a very long time. They're making a play that's quite interesting. We've 3x'd on the platform in the last 12 months. And I think based on talking to their leadership over the last while, I think they're going to be very interesting. But they're not alone. I mean, Coupang in South Korea. Internationally, it's quite varied. And imagine if you're sitting in a brand's seat and you say to yourself, okay, hey, Walmart is like 4% of your business. You're like, okay. Well, what do I do with that?

Well, I cannot run Walmart. So you got to put people. You got to run all of the advertising technology. Anything that Walmart comes up with, you need to build around. And then you need to layer that in with -- you got TikTok, you got social commerce, you've got all the LLM discovery elements that are coming up, agentic commerce. It doesn't matter if they're small amounts of revenue for a brand, they have to manage it. So all of those surface areas becomes a place where they say, okay, Pattern, we just -- we don't have enough people in seat to run that.

Understood. AI has certainly been central to what you've talked about with investors. You've introduced a lot of product innovation, especially at your own event earlier this year. Talk a little bit about the impact that AI might have in terms of what you're building and scaling and how your platform might change as a result of it.

Well, I mean it's -- I mean, we're betting -- you could say we're almost betting the farm on that, but we sort of have been all along. We had patents on classic machine learning before AI was even relevant or anyone was even talking about it, and that would fall under the AI umbrella. But if you go forward a little bit on just building, what we have to build or what brands have to build is traffic times conversion times price across all geographies and all marketplaces. And there's no way to shortcut it.

You have to break down, okay, what are all the drivers of traffic? And what are the innovations all the marketplaces are thinking of? What are all the different ways people do discovery now in an agentic world? And then how do you convert them and how -- now rather than just keywords, keyword phrases, SEO, you start -- we're leaning into semantic intent. I mean that surface area is getting very complex. The road map, if you think globally for us was we figured 7 to 10 years to even get parity with where we are just in the U.S. And we've doubled our output on engineering, software factory-wise. And we expect that to accelerate even faster and be a massive enabler for brands at a very low price point. So very exciting where that's headed for us.

Okay. Understood. Talk to us a little bit -- you talked earlier about net dollar retention. Talk to us a little bit about what you've learned about brands on the platform and how the relationships and the unit economics of those brands evolve as their relationship deepens with you, day 1 versus how these relationships evolve into the second and third year of those relationships?

Yes. I think everyone measures their concept of NPS, all of our metrics get better with time, which is interesting. So I don't know if that's -- maybe our sales guys could do a little better on the pitch. But overall, the relationships get stronger and stronger. 53% of our revenue now comes from brands that have been with us longer than 5 years, which is up from every year, that number seems to climb, which you would expect now that we're 13 years in business as a company as long as you build a machine that works.

But if you look across the landscape of people we compete with, it is very hard to continue the innovation pipeline to continue winning for brands. A lot of companies will build or get a patent on a thing and win for a little while until you've exhausted that area of what you happen to be good at. And Pattern has demonstrated that year-on-year, but we just obsess on that formula, and it's changing every day. And so that will lead to the longer you're in seat with us, the more trust you get that we're going to keep doing that, and that's where those numbers come from.

Understood. When you think about what you're building and where you sit in the ecosystem, how do you think about the competitive landscape, like who you're competing against? Because you touch a lot of different areas of the e-commerce ecosystem. And where do you find that -- where you sit within the broader competitive landscape and how you would assess who you're competing against right now?

Yes. Well, I guess there's a few areas where we try to stay out. Because we're a thin layer that sits on top of any marketplace, we don't care who it is. We don't really compete for the consumer, which is great when you're in the room with Amazon, TikTok, Walmart, they don't see us as a competitor as they do each other. So a lot of them are building tools to try to enable brands, but no one's building one layer down where it's just helping brands across any geography. If you take Mexico as an example, Mercado Libre, Amazon is about 50-50 market share on each.

From a Pandora perspective, as an example, they don't really care which -- they just want to sell more of their products regardless of the platform. That's where Pattern comes in. So that's where we've decided we aren't going to compete. We don't want to be a marketplace. And then if you think about our competitors, we have a logistics arm and we have a technology arm. The logistics arm, you would see largely with distributors and whatnot, but they rarely crossed into the technology side.

The opposite is also true. The people who are great at the technology rarely do anything on logistics. I think the technology folks will have to start moving a little bit more into the logistics side to protect their moat from an AI in a world where maybe, say, software becomes more commoditized. I think you will have to move atoms. So Pattern is -- it wasn't on purpose 10 years ago, but now we've positioned ourselves very well in that spot where scale begets lower costs, lower costs means you sign more brands and keep more brands. And it's a flywheel that I think is -- right now, I can't see anyone that I'm scared of right now.

One of the other things that was unique as I learned more about the company is just the idea that in many ways, you're trying to displace the idea that brands can do this for themselves, right? You have a lot of examples of brands that try, hire a couple of people, give it a go, and it's really, really difficult to manage internally. Talk a little bit about how the conversation develops of when a brand is new to you, new to your platform of educating them about how you can deliver return to them relative to almost the alternative is you have to do it for yourself and manage selling across all these channels and geographies.

Well, the brands are incredibly smart, and they know what they're talking about. So I think premise #1 is you almost have to start with this idea that the person across the table from you will understand very well what you do and what they are capable of doing and what they're not. And I think that has just continued to play out, the more conversations we have. A lot of times, we'll talk to a brand 2 years later, they'll call us up and they'll say, "Hey, we just can't scale this like you guys can." But they're usually good at something that brings them hundreds of millions of dollars.

A lot of these brands will be built on one channel, one expertise. It might be a dynamic TikTok brand that literally goes from 0 to $100 million, and that's how they did it. And then they look around and they say, now that we've built a real brand here, let's take it worldwide. Let's take it across the marketplaces. Maybe we get into retail. Some of those things we help them. We don't help them get into retail. We help them with the digital side. But usually, once they build a really innovative product, they do something, and then they realize, okay, we know what we're good at. Now we need help on the rest. And that's generally where we come in.

Okay. Sticking with that as a theme, though, and you talked about it earlier with relation to AI. When you have these conversations with brands and you think about where you want to take the platform for the longer term, what some of the technology innovations or product road maps that you're the most excited about in terms of scaling and putting in front of brands the way you can when you think about how the nature of this business could change?

Well, probably 2 areas that I love right now. Well, there's a lot, but let's just take the advertising technology we've built. I think when you have a background just on the data side, you get talking to folks on the advertising side, and they start throwing around words like halo effect. Like don't worry, throw up the road sign. And once people drive by it 17x, something is going to click and they're going to buy. That drives data people insane. And so we've spent many years trying to figure out what is the true return on ad spend. And you know our business model. Our business model is generally, not always, but we'll buy the product and we will sell it across all these marketplaces. So a take-inventory model.

In those models, we don't care if a brand spends 25% or 2% on ad spend. We make no extra money. That's all pure pass-through. So one of our -- a chase that we're -- we've made some great progress on. We finally got a patent to go through on what we call True ROAS, so true return on ad spend. And it's -- I think we're one of the few companies on the planet that don't care about how much a brand spends on advertising because we make no money that way. So we're just trying to tell a brand here's the answer. Here's the platform that we believe you're getting the best bang for your buck on.

So the MMMs, we believe we have some very interesting technology there, but we also just don't have a dog in that fight. We don't take a percent of ad spend. So that's very exciting. The logistics side has become -- is really heating up. We were quite anti-robotics and, I guess, warehouse automation because a lot of people -- it's almost a cool factor. And we were more efficient than most -- everyone we talk to.

And I mean, our warehouses are quite automated in terms of conveyance and whatnot. But we're starting to see some real progress on robotics that I think is interesting and could lower cost. It will only be for those at scale. So it positions us very well there. And then I guess, lastly, conversion when you get into the -- what causes a human or a robot, AI, an agent, to make a purchase, right? And so analyzing that and you have to cover all those surface areas has been very fun as well.

Understood. Sticking with this theme of fulfillment. Talk to us a little bit about the competitive advantage that you think can be built around fulfillment over the medium and long term from where you are today, where you want to take fulfillment and how that feeds back into the level of service offering that you can bring to the brands?

Yes. Well, I guess the landscape -- where the landscape is changing the most, probably in agentic commerce, even though it's a very small amount of purchases today. Well, I'll give you one example. We estimate about 20%, 19.3% of all goods purchased are returned. So say you're OpenAI or you're facilitating a transaction where you -- unlike an Amazon where they have a machine around returns and whatnot, say there's 14, 20 LLMs where people make purchase decisions and possibly buy on those platforms. The rest of that infrastructure, so reverse logistics, consolidation, say you sell a T-shirt and you can return the product to -- you can send a used product to a consumer, but you need a lint remover.

If you have to make one more hop in that process of returns, you zero out the shirt. It's worth 0 versus being worth, say, $50. So we believe that there's a pretty big opportunity there at scale, the whole reverse logistics piece because we're calling it Commerce Infrastructure as a Service. You probably -- in our earnings, we're starting to talk about it more and more. So we believe that's interesting. Middle mile is also interesting where -- so if you take in the early days of when we started, you now have Amazon FBA, you have Fulfilled by TikTok, you have Fulfilled by Walmart.

So if you're a brand, just FBA, which is one of those 3 big ones, on a weekly basis, you have to send to -- it used to be 1, then it became 3 locations. Now it's 14 to 18. Everyone is trying to get it closer to the consumer. Even Fulfilled by TikTok is getting more complex. So if you're a brand, you cannot afford to do that parcel or partial trucks. It has to be full trucks. That will require pretty incredible scale. Pattern will have that across its set of brands. And then you go international. So just those 2 things, probably middle mile, reverse logistics, I think there's a big opportunity there for Pattern.

Okay. Good points. You sit at the intersection of what the consumer is doing. There's been a healthy debate here about the state of the consumer at this conference. We kicked it off with our global economist, and he and I had a conversation. From your vantage point, what does the consumer look like to you right now in terms of behavior patterns and shopping habits?

Honest answer probably is, I think we just -- it's hard to tell because we do about $3.5 billion in revenue, and we have an entire machine about winning. So the consumer looks very strong to us, but it's a biased view because we're optimizing traffic conversion. So when we're talking, everyone is very positive about the consumer, we think it's great. But the broader -- we read all the same reports everyone reads. And so far, I mean, everything looks pretty good and pretty healthy. I think the main concern is just inflation. I think we'll see where all that goes. But if you -- from our lens, which is a smaller piece of the big pie, and it's a piece we are optimizing, looks great. So it's hard to dissect that and get a view on the broader landscape, if I'm being honest.

Okay. Totally understood. One of the debates into and out of the last earnings was we saw the acquisition of Thorne by P&G, and that raised some questions among investors about concentration of brands and what would happen if brands got acquired by larger companies. I thought you gave a really interesting answer to this on the last earnings call. But just to level set because I think it does come up as an investor question. How do you think about the array of brands on the platform and what the life cycle of brands are and how to think about what those opportunities and challenges are when you think about the size and scope of brands inside the company?

I think investors will probably go on the same journey I went on quite a few years ago. I thought our platform would be geared towards small, mid-size brands. I didn't really expect us to be able to provide a service at a price point where Procter & Gamble and Nestle, the big CPGs, the Panasonics. But we have a lot of those companies now working with us and have been -- like one of our other brands was acquired by Nestle in 2018, very large brand, and they're still with us today, almost a decade later.

I expect the same. It's just when you get into the nuances of what we do at the price point we do it, it's even for the mega CPGs, they're pretty happy with the results at the price -- at that price point. And so I sort of expect us to expand into those areas more than to see any shrinkage. But it's a fair thought process an investor will have. I had it years ago. It's hard to imagine that a company of our size could provide that value, but I think we're going to prove it over time.

Okay. Maybe we only have a few minutes left, but maybe if I can squeeze in 2 more financial-oriented questions. Obviously, you've been producing better growth and better revenue retention than what people thought a year ago. When you think about the incremental dollar of growth and the choices between growth investments into the company versus incremental margins, how do you think about striking the balance there in terms of producing outcomes for investors?

Well, I mean the space is huge. I think at the end of the day, an investor wants gross dollars to go up. We're continuing to get operating leverage. We're doing all of it. If you look at the numbers, we're 4 straight quarters now of 40% revenue growth, about 50% EBITDA growth. And that is at a point where we're investing more heavily in the technology than we have ever invested in a pure percent of growth, I think 80 -- mid-80% tech investment growth.

And at the same time, we're still getting better overall margins to investors as a percentage. It's not really our focus. The focus is we have -- I mean, it's trillions of dollars of potential out there for us to chase. And if we provide a phenomenal solution at a great price point, at scale, then investors will have the sheer dollar growth. I believe we can do all of it at the same time, but the focus is on tackling the market and producing the growth dollars for investors. But we might be able to do more of it than people think at the same time.

Maybe the last one for you, just building on that. When you think about the allocation of capital inside the business, maybe frame it as an end question as what are you the most intrigued by investing in the business from a growth standpoint going forward? And the counterbalancing fact is how should investors and shareholders think about potentially getting capital return out of the business over the longer term?

Well, I mean, I think it's a pretty unique company if you look at it, for one, we have $346 million as of the end of last quarter on the balance sheet. We have 0 debt. We have a $150 million revolver that we could tap into on credit. So cash is not an issue. And then you have the opportunity, and we're continuing to win. So we're producing cash, free cash flow, growing 40%. I think it's one of the -- and it's quite at scale. At one point, I had our BlackRock guy do -- because people like me love to compare themselves against other companies. So I take -- look at all the other public companies out there that are at scale, let's call it, say, $1 billion in revenue.

What would be considered, say, the top 5% in terms of growth CAGRs over, say, a 3-year run once you hit that scale. And we estimate we're in the top few percent. And we're doing it with 0 debt, free cash flow. And I think it's a very compelling story with the TAM that is enormous. And then you have a shift that is, hey, if I was pure software before, is that scary? Maybe, maybe not. But if you -- 99% of our business is tied to moving atoms. So we move the box. We're 98-point-something percent of our revenue. So we are a bit AI-proof wherever that goes, and I'm not making a prediction there, but regardless of which way it goes, I feel pretty good about where we sit. And so the overall thesis, I think, is just pretty strong.

Okay. All right. Well, I think we're going to leave it there. Thanks so much for being part of the conference. Hope this will be the first of many appearances at Communacopia in the years ahead. Please join me in thanking Pattern for being part of the conference.

Good day, and thank you for standing by. Welcome to the Pattern Second Quarter 2026 Earnings Conference Call. [Operator Instructions] 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, VP of Finance. Please go ahead.

Thank you, operator. Good afternoon, and thank you for joining Pattern's earnings call for the second quarter 2026. 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 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.

Thank you, Hamish, and good afternoon, everyone. We delivered another record quarter. In Q2, revenue grew 47% year-over-year to $877 million. Adjusted EBITDA grew faster still, up 54% to $54 million. That is the fourth consecutive quarter of adjusted EBITDA outpacing revenue. Before Jason takes you through the details, let me start with net revenue retention, then I will discuss the mix of that revenue.

NRR is how we measure how well the machine is working. In Q2, NRR reached another record at 129%, up from 127% last quarter and 118% a year ago. Against a long-term target of 115%, those are pretty extraordinary numbers. We hold ourselves to NRR because it measures what matters most, the outcomes we deliver for our brands. When our brands win, we win. They stay with us, they expand with us and that record is the most persuasive thing our teams bring to the next brand considering Pattern.

Strong partner results create a reinforcing cycle. Rising revenue across new marketplaces and geographies generates both data and logistics scale. The data gives us higher signal density. The scale gives us lower cost and faster transit times across the network. All of it starts and ends with being obsessed with our brand's outcomes. Inside the 47% revenue growth, 3 strategic highlights are worth calling out.

First, international. International revenue grew 87% year-over-year to $110 million, our first quarter ever above $100 million. Second, non-Amazon. Non-Amazon revenue grew 93% year-over-year with strength across Tmall, TikTok Shop, Walmart and Coupang. And third, SaaS, logistics and other. That line grew 123% year-over-year to $17 million. It is still a small share of revenue, but it deepens what we do for each brand and gives us optionality as a business.

In short, our model is working. We delivered another quarter of record results, and we are again raising our outlook for the full year. Jason will walk you through the specifics. Since day 1, our objective has been the same: achieve exceptional brand outcomes by optimizing the 4 levers that drive commerce, traffic, conversion, price and availability. What makes that repeatable is an ontology, and we believe ours is one of the most robust in e-commerce.

The AI models will keep improving. The ontology keeps compounding regardless. Our ontology has 3 layers and 44 patents issued or pending across them. Number one, the data layer. 91 trillion data points accumulated across 13 years of execution in hundreds of brands, geographies and marketplaces. Second, the semantic layer, the entities and the mapped relationships between them, price against inventory, competitive position against conversion. This is what makes the data reasoning-ready rather than merely stored. And third, the execution layer. Pattern Intelligence, or Pi, which we launched in May. Pi runs a sensor-actor framework across those relationships and writes governed actions back to the marketplace, millions a day, on behalf of our brand partners. With Pi's release, brand partners also have interactive visibility into that execution. They can review, approve and modify inputs.

Measurement runs in the execution layer. As part of our advancement in that layer, in Q2, we were awarded a U.S. patent covering True ROAS, our true return on ad sales methodology. True ROAS isolates what an ad actually generated, net of organic conditions, competitive dynamics and long-term incrementality, so actions can be graded on incrementality, not just attribution. True ROAS pairs with Destiny, our patented ad tech platform. Measurement feeds allocation and allocation drives durable organic ranking.

In April, we were named TikTok Shop's Strategic Partner of the Year. More than 100 of our brand partners now sell on TikTok Shop, and that number is growing every quarter. Social commerce has become a meaningful channel for new brand partner acquisition, particularly in beauty and fashion. As of last week, through ROI Hunter, which we acquired last December, our brand partners can advertise in ChatGPT. From a single platform, they can reach consumers across Meta, Google, Snap, TikTok and now ChatGPT.

Now I'd like to give you a few examples of brand successes. We accelerated a U.S.-based prestige skin care brand from $5 million to $15 million in revenue over 3 years. These results were driven by a combination of improvements, including increasing conversion from 9% to 13%, a 36% lift, improving in-stock from 91% to 99% and Subscribe & Save revenue doubled. And one more example, a U.K.-based sports nutrition brand started with us on a single marketplace in Australia. Today, we manage their e-commerce business across 13 countries, including their flagship market in the U.K. That's a pattern we see consistently. Brands start with us in one market and expand globally as their confidence in Pattern grows.

Zooming out to our long-term strategic positioning, we are tracking the shift from discovery to transaction within LLMs closely, and we are making 2 long-term investments to position Pattern to win in both. The first is commerce Infrastructure as a Service. Every agentic transaction has to be fulfilled with real-time inventory, forward and reverse logistics and customer interactions. We operate that layer today, and we are extending it to agentic shopping.

The second is our plan to continue expanding our brand agentic commerce acceleration capabilities, which optimize brands for LLM surfaces and carries that same infrastructure underneath. Pattern is building for both: the intelligence to win on LLM surfaces and the infrastructure to meet customer expectations.

Before I hand it over to Jason, I'll close with the point I care about most. E-commerce is a team sport. As a matter of fact, all businesses are a team sport. Everything you heard today came from an exceptional team at Pattern. Culture and execution are the same thing. In the last few months, U.S. News & World Report named Pattern one of the best companies to work for in '26. We also ranked #9 on America's Top 100 Most Loved Workplaces of 2026, our second year in the top 100. I am proud of what we are building and even more proud of the team building it.

Jason, over to you.

Thanks, Dave, and good afternoon, everyone. Q2 was another record quarter for Pattern on many fronts. We continue to see broad-based strength across brand partners, geographies and marketplaces and delivered $877 million of revenue, up 47% year-over-year.

Adjusted EBITDA grew 54%, outpacing revenue growth for the fourth consecutive quarter. Our performance gives us confidence to increase our full year outlook for both revenue and adjusted EBITDA.

Regarding Q2 growth, I'll start with our biggest revenue driver, existing brand partner revenue. We're excited to report that we delivered another record NRR of 129% for our brand partners, up from 127% in Q1 and 118% a year ago. We have 3 distinct drivers of that growth. Technology-driven optimization remains the foundation of our growth formula and primary driver. Our unified AI native intelligence layer monitors and acts across the marketplaces we operate in, driving stronger conversion, traffic and availability. Because it operates across multiple variables simultaneously, the impact compounds.

We also grow by expanding marketplaces and geographies. Embedded in our international revenue growth of 87% to $110 million in the second quarter is a milestone worth noting. This is our first quarter with international revenue above $100 million.

One highlight across our international regions is Asia. We entered our first Asian marketplace in 2019. And over the past 7 years, we've grown and now operate in 20 marketplaces across China, Hong Kong, Korea, Malaysia, Japan and Singapore. Not only are we building on our success in existing markets, we are expanding into new markets and continuing to accelerate our growth. On top of our financial success in the region, we also established ourselves as a key partner for domestic marketplaces. For example, Pattern was the only non-China-based company named a Gold Star service provider for the health category by Tmall.

Finally, expanding product selection from our brand partners, introducing more product lines and new products on existing marketplaces is another growth driver. These opportunities come every year and can vary in timing across quarters.

We are pleased with revenue growth related to new brand partners across many categories, which tracked at a similar pace to last year. We also grew SaaS, logistics and other monetization revenue, up 123% in Q2 to $17 million.

Turning to operating expenses and profitability. Adjusted EBITDA was $54 million in Q2, up 54% year-over-year. Of note, we realized costs in the quarter related to Accelerate, our annual Global E-commerce Summit, start-up costs related to our East Coast facility and increased R&D investment. Our East Coast fulfillment facility is now operational and early throughput is in line with our goals. Excluding stock-based compensation and related taxes, R&D expense was $12 million, up 89% year-over-year.

We continue to invest ahead of revenue in our data infrastructure, Pi expansion and AI capabilities while improving cost leverage in other areas.

Variable cost components, cost of goods sold, marketplace commissions and fulfillment, grew slightly slower than revenue, consistent with Q1. This was primarily driven by revenue mix across various products and other monetization strategies.

Turning to cash flow. For the trailing 12 months ended June 30, we generated $136 million of operating cash flow, up 76% year-over-year and $106 million of free cash flow, up 92% year-over-year. This was driven by our operating results, improved inventory turns and tax-related benefits from the stock-based compensation expenses recognized at last year's IPO. We ended Q2 with $346 million in cash and cash equivalents, no outstanding debt and $150 million of borrowing capacity. Our balance sheet continues to be a strategic asset.

Turning to our outlook. The outperformance in Q2 was broad-based, existing brand partner revenue acceleration, new brand partner revenue growth, strong non-Amazon international results and overall healthy execution across the platform.

Our recent performance and the momentum we are carrying into the back half gives us confidence to raise our full year outlook. We now expect full year revenue in the range of $3.4 billion to $3.5 billion, representing approximately 37% to 38% growth year-over-year.

As I mentioned previously, our year-over-year comps get harder in the second half. We will lap the record growth rates from last year in Q3 and Q4, and we expect year-over-year revenue growth to moderate to the 30%-plus range, which is reflected in our outlook.

We are also raising our full year adjusted EBITDA outlook to approximately $211 million to $213 million, representing approximately 38% to 40% growth year-over-year. We are continuing to grow the company in balance, and we expect full year adjusted EBITDA margin accretion even as we continue to accelerate our R&D investment.

We are extremely pleased with our NRR performance of 129%, and our updated outlook implies that the ending point of NRR this year will be approximately 123% to 124%, above our long-term target of 115%. We continue to expect NRR to slowly moderate over the next few quarters based on the tougher comparables I already mentioned. When looking at Q3, it is important to note that Q2 benefited from large marketplace promotional events such as Amazon Prime Day, Walmart Deals and Target Circle moving from the third quarter into the second quarter this year. This represented approximately 4 points of growth shift from Q3 to Q2, affecting both revenue and adjusted EBITDA.

For the third quarter, we expect revenue in the range of $840 million to $860 million, representing approximately 31% to 34% growth year-over-year. We expect Q3 adjusted EBITDA in the range of $51 million to $53 million, growing 25% to 29% year-over-year.

In closing, this is our fourth quarter reporting earnings as a public company. And in that time, we've delivered 4 consecutive quarters of 40%-plus revenue growth with 50%-plus adjusted EBITDA growth. Over that same last 12-month time period, our free cash flow has grown 92%. We are delivering significant revenue growth outpaced by adjusted EBITDA and free cash flow growth in a market with significant runway remaining. We believe this is a formula for long-term value creation and puts us in a unique group of companies that grow sustainably at scale.

At the end of the day, what matters most is that we are delivering growth for our brand partners. NRR at 129% reflects that.

With that, I'll turn it back to Dave before we open up the call for questions.

Thanks, Jason. Q2 was our fourth consecutive quarter of 40%-plus revenue growth. Also in Q2, NRR hit a record of 129%. International revenue was above $100 million for the first time. Pi is running at scale, and our brands can now reach consumers on ChatGPT. We enter Q3 with a platform and pipeline we feel great about. The surface area of e-commerce keeps expanding, and Pattern will continue to complement brands in their execution and management of these vast surface areas.

Pattern is built for both the intelligence to win in that environment and the infrastructure to fulfill what it generates. We remain focused on optimizing the e-commerce equation on behalf of brands, removing friction for brands and delivering measurable outcomes at scale.

Thank you for your continued support. We'll now open the call for questions.

[Operator Instructions] Our first question comes from Brian Pitz from BMO Financial Group.

Maybe with P&G's announced acquisition of Thorne, you can discuss whether a change of control creates any considerations for your relationship with Thorne. And maybe more broadly, how you think about customer retention when brands are acquired by larger strategic owners with more established distribution capabilities? And then I have a follow-up.

Thanks, Brian. I appreciate your question. First off, I want to start with the congrats to the Thorne team and the P&G team. Regarding the sale that was announced yesterday, we found out about that at the same time as the market and have no comments on the specifics of that transaction. However, it's important to note that we already work with other brands in the P&G portfolio. And of course, we look forward to working with them in the future. We discussed this yesterday with Thorne management, and we both reiterated the importance of our partnership and our confidence in the future. What it means now is business as usual with Thorne.

To your specific question, Brian, there is no change of control provision in our agreement, and we believe we've got runway to demonstrate our value to the partnership going forward.

I'll turn it over to Dave for maybe the second part of your first question and probably a broader context.

Yes, yes. It's a great outcome. If you step back a little, we often have -- we do what we call a joint business plan with brands at the beginning of all significant time periods. And of course, we have discussions with the brands to say, what are your objectives? What are you hoping for? And I think all brands would agree as they watch Thorne, this has been a successful outcome. And I believe we played a small part in that. The team has done a tremendous job.

One of the things, over the years, we've worked with lots of brands who've had this type of success and have been acquired by larger CPG companies. Some of our best and longest partnerships are inside those CPG conglomerates. Some of them started there and some of them have landed there via acquisitions, successful brand outcomes, I believe. So I mean, I guess one of the things we're excited about is when this happens, generally, you have significant knowledge, resources, investment that go into the asset, into the teams.

We expect that will come from this partnership. Thorne is just a tremendous brand, high quality. I expect that they'll continue to differentiate themselves with any brands that are just obsessed about their consumers. So I think at the end of the day, this will just be a great outcome for the consumers of Thorne. We're excited about the future, and we see it as business as usual.

You mentioned the second part. Brian?

Yes. And just a real quick one, as you look across your customer base, how are brands balancing either marketplace participation or DTC investment? And what does that imply for the long-term risk of client attrition or channel shift? Any insights there? Because there's obviously a lot of options for some of the brands that are out there.

Yes. I mean there is some, of course, conversations you always have where you say, hey, will one cannibalize the other? If a brand is successful on a direct-to-consumer, their site, will it cannibalize marketplace revenue and so forth. We just -- we haven't seen that as yet. So we're generally highly -- we're always encouraging that collaboration. We believe that when they're successful in any of their channels, it tends to raise marketplace awareness and tends to do a great job there. I don't know if that answers your question, but I think our goal is just what's best for a brand in terms of their outcomes and anything that we can do to support that is where we go. And it's usually best for Pattern as well.

Our next question comes from Eric Sheridan from Goldman Sachs.

I know this is a topic we've talked about before, but maybe just to pull on the thread a little bit given the results you keep putting up, the net revenue retention numbers just keep kind of moving up. Kind of a 2-parter. One, what is the signal you're getting about any ceiling that might exist in the business in terms of NRR among the existing and older cohorts that we should be thinking about? And conversely, as the business becomes more diversified over time away from Amazon into more international markets, how do we think about a countervailing factor of faster growth in newer cohorts or newer verticals as diluting NRR, but also contributing wider to revenue growth for the platform?

Yes. I mean the NRR numbers are sort of astounding if you take a look back and you say, okay, total digital growth is, say, 7% to 9% and we're rolling at 129%. But we have some help. I mean the -- our ability to execute on a technology road map, we believe, has approximately doubled our expectation from, say, 12 months ago. And that is essentially software factory, our ability to leverage AI in that process. And we can go into some details there if you're interested.

So overall, that allows us to hit more marketplaces. If you think of the problem we're solving, we need to solve for a brand how do we optimize revenue, which will be traffic, conversion, availability, price, of course, globally, hundreds of countries, hundreds of marketplaces. So the further we can get down a very complex technology road map, the better for brands, better for Pattern. And I think you'll just continue to see acceleration there.

We just have some tailwinds and some inflection that most companies are probably experiencing right now with AI. We're just -- luckily, we're positioned to sort of naturally be good there from day 1. We had patents that were -- that we had submitted around what you would refer to as AI back then just classic machine learning before it even became interesting. So as those technology have progressed, we've naturally progressed rapidly with it, and we're just seeing that in the results.

Maybe, Eric, I'll add just a little bit more on kind of the cohort question of existing and older cohorts and new cohorts. We believe that one of the most powerful things about Pattern is that even brands who have been with us for many, many years can still outgrow the market in a significant way. And that is a testament to what Dave talked about on technology optimizations as well as there are still so many levers to help brands grow by expanding in marketplaces and geographies.

To your question about kind of newer cohorts diluting NRR, that's always a possibility, but we're not seeing anything meaningful there. And again, we're just feeling like we're just getting started in a large opportunity set. So we're going to keep going at it as fast as we can, expanding and bringing on more brands and more marketplaces to keep that going.

Our next question comes from Mark Mahaney from Evercore.

This is Austin Riddick on for Mark Mahaney. I just wanted to ask one in terms of Amazon concentration. I think non-Amazon revenue of $82 million still implies over 90% of total revenue still runs through Amazon. So I just wanted to get your thoughts on where do you see that non-Amazon share going in 1 to 2 years? Any color there would be helpful.

Okay. Mark (sic) [ Austin ] , I'll start with that one. It was a little hard to hear you, so I'm going to do my best to kind of fill in the gaps there. But it sounded like you were asking about non-Amazon revenue concentration, where do we see it going. Generally speaking, we love operating on Amazon. It's a great platform, very innovative, great for consumers, great for sellers, things like that. But there obviously is a GMV split around the world that is lower in terms of Amazon's percentage of GMV than what we're currently at. And so as we grow and go where the consumer is at, it's a natural thing for us to diversify away from Amazon.

I think some of the stats we shared in the prepared remarks is really strong non-Amazon growth, really strong international growth. Those stats continue to be very strong, high double digits, sometimes triple digits on good numbers. And I think when you take a step back and even just look at a year ago, our non-Amazon revenue was 7% of our total business, and now it's 9% of our total business. And that's in just 1 year.

We've got growth rates in everything, excluding Amazon at double or sometimes triple what the growth on Amazon is. So we're not providing a specific projection on where that will go, but we like the trend primarily because it's where the customers are trending, and we want to help brands find customers wherever they are.

Yes. Maybe just 2 points of color I'll throw out there. The biggest single line item of the non-Amazon growth, if we break it down by individual marketplace and so forth, is quite simply our SaaS logistics and other bucket. So that continues at a pace that's tremendous, gives us a lot of optionality. We're very excited about that piece. And then one thing that is just somewhat remarkable is to watch a Walmart. Walmart is making tremendous progress. From 2 years ago, our business on Walmart is up 3.4x what it was 2 years ago. And that's a combination, of course, our ability to execute there, but Walmart continues to do amazing things.

So I guess it's just fun to watch the ecosystem evolve. I think we'll be talking more and more about LLMs and agentic surfaces in the years to come. And I'm sure there will be winners that we're talking about and excited to partner with.

Again, one of the key strategic points on Pattern is we are agnostic to the channel. We're helping -- we're primarily focused on a brand. So as the channel shift and folks do a better job with the consumer, then they will grow, and we will grow with them. And as that shifts, we expect to shift. And Jason's point on GMV is fantastic because if you look at GMV around the world, you'll continue to see our diversification quite simply because that's where consumers are -- we started in the U.S. on Amazon largely. And as we continue to get larger and more scale and just more geographic reach, then you'll just continue to see those numbers diversify.

Our next question comes from Ralph Schackart from William Blair.

Just on the overall growth profile of the business that's really been exceeding expectations since you've gone public. Maybe if you could walk through where you're seeing this really strong outperformance for the categories that you outlined between technology, I think geography and marketplaces and selection. I think it would be kind of helpful to understand what's driving outperformance.

And then maybe a second question related to that is this business continues to scale rapidly, can you just kind of walk us through sort of the infrastructure needs that you will need and currently have to support the continued really strong growth?

Yes. Thanks, Ralph. Great question. I mean, largely, the bulk of our performance always comes from the technology stack. There's just simply not a way to outperform a machine, especially when you're talking about millions of actions taken a day is just impossible to do. So it's not just about, hey, how much can we automate to reduce cost, but any automation is often better execution. And you see that in the results.

Now in terms of infrastructure, we have a phenomenal team there, one of the best in the business, I believe. And they're continuing to look forward on what is needed. You saw that we launched Bethlehem, Pennsylvania this year. We have some both hardware and software innovations there that are increasing our throughput, what we believe is currently at 2x, which is sort of astounding given where we already are. And those teams just continue to ideate and build technology around moving that forward.

And we have pretty -- I would say you might look at it and call it aggressive, but the team makes sure that they're measured growth in those areas. I don't think you've ever seen us what you maybe refer to as an overbuild. And I think that's just a tribute to that team. They do a phenomenal job there. So I think we're in a great spot on infrastructure. Now we're very bullish on the movement of boxes and this becoming a much more complex problem in the future.

So the more surface area you get, the more people who win there, think of forward logistics is one thing. But the number I have, I don't believe it's been independently verified is 19.3% of all goods globally are returned. So that's a complex problem that a lot of marketplaces have solved and some are still working to solve it. But as we move into an agentic surfaces, that problem has to be resolved. And that's a very interesting problem, very fun problem to solve. And I think that our commerce infrastructure to service, we're laying the foundation to do that.

Our next question comes from Doug Anmuth from JPMorgan.

This is Maggie on for Doug. Just following up on that, any chance you could provide some more color on the investments you're making across commerce, Infrastructure as a Service and then also those agentic commerce acceleration capabilities?

Sure. Yes, thanks for the question. On the infrastructure piece, we're very excited about it. But it's sort of a natural problem that we have to solve. It's not particularly interesting, no one's thought of. If you go to buy a good, if you think of what might surround that, where is my inventory? What do my inventory pools look like? How many units do I have that are close to a consumer? And how fast can I get it there? Okay, check that box. Once you have it there, maybe a consumer -- maybe they need to redirect it, so there's a process that would be involved there. And then they might decide, hey, I bought the wrong size. And that would just be an exchange or maybe it's a full return. There's an entire process around that.

Customer experience is very important. That is infrastructure that we think will be more broadly used. And if you think of some of the cost reductions that may come in the future, think -- I mean, this is a bit down the line, but we like to think about them anyway, autonomous driving, robotics. We believe there will be better customer experiences in the future.

If you can imagine, there's already great experience that exists today, but we're investing to be prepared to service that infrastructure for people who aren't quite as advanced as some of the most advanced marketplaces in the world. So that's commerce infrastructure.

And then on the agentic commerce enablement and acceleration side, of course, we have some phenomenal advantages. If you think about that problem, it's more about semantic intent. So what you won't find in the SEO world, you can piece it together if you start contaminating SEO. But if someone say -- I use the example of a blanket, they're like, "Hey, I want to buy a blanket that sits underneath the seat of an airplane." Well, if -- when you build the product descriptions and your product catalog for that blanket, if you don't include dimensions and size and someone infers that as their intent to buy the blanket, you will get skipped in an LLM world.

So the mapping of that intent, which you can map if you start looking -- if you start really thinking deeply about our mode of data around SEO, it is incredibly useful to understand what that mapping might look like. You can probably understand where I'm going here with this. So we're positioned very well to help brands accelerate on those surfaces just from a data perspective. And then it's just execution. So we're very excited about the future there.

Our next question comes from Bernie McTernan from Needham & Company.

Just wanted to ask about margin trends. You mentioned 4 consecutive quarters of margin expansion with adjusted EBITDA growing faster than revenue. I think the 3Q guide and the implied 4Q guide given the annual guidance implies year-over-year margin contraction. So I just wanted to see if there's any specific drivers of those trends.

Thanks for the question, Bernie. Appreciate it. I think it's pretty important to just double-click on what I mentioned in the prepared comments about the calendar shift of marketplace events. That causes some noise between Q2 and Q3 on both the revenue and the EBITDA side on a pretty flow-through margin basis. So when you control for that, both the growth rate in Q3 and the margin rate in Q3 make a lot more sense.

And also, when you look at the growth rate in Q3 with that extra 4 points of growth compared to the growth rate in Q3 last year of 46%, it all starts to kind of line up with what we've been saying all year about tougher comps in the second half. Specifically in the fourth quarter, there's always some seasonal pressure on EBITDA margin percentage. We see that every year. It's just a bit more expensive to do business in the holiday period, whether that's storage or moving logistics or promotional funding, things like that. So that's expected when you look at it from a Q3 to Q4 perspective.

And then the only real drag year-over-year is what we've been saying kind of throughout the year is increased investment in R&D faster than revenue. So overall, you take a step back, you look at the full year and you're still looking at margin accretion on a full year basis, with adjusted EBITDA growing faster than revenue. And interestingly, revenue growing almost at the same rate of where we grew revenue last year on a much smaller base. So feeling pretty good about the overall picture of it, and those are some explanations on your specific questions.

[Operator Instructions] Our next question comes from Justin Patterson from KeyBanc.

Dave, it looks like the number of data points on your platform has increased about 38% year-to-date to 91 trillion. Could you talk about how that drives the pace of A/B tests and deep into the product velocity across the business? It seems like that could be one of the key variables behind just the compounding of the business and the NRR.

And then for Jason, I was hoping you could talk a little bit more about vertical performance. How is the health and wellness category comparing versus the other verticals you're in?

Yes. I mean, of course, we run A/B tests. I mean what might be best in the world at in e-com possibly is just building a framework for measurement. So we don't -- I don't think anyone knows exactly what will work and will not in aggregate for a consumer. So you might target a given persona and say, "Hey, I think I know what will resonate best." But if you have 5 to 10 personas in aggregate, what is the messaging that will drive the most dollars? I mean it's a very difficult problem to solve.

So of course, the data and the data moat that we have is invaluable at this point and is continuing to grow. And of course, it just keeps compounding because as brands -- our brands have success with us, they expand with us. And then brands -- other brands see that success join the Pattern Pi platform, and that provides us more data. So it's almost this virtuous cycle where we just get better and better, can provide better outcomes for brands, which strengthens the data moat. I mean, I think that's -- everyone understands that. Of course, there's exceptional nuance in the data, and we get better and better at running any A/B tests, but you almost have to think about them as aggregated A/B tests. I think it just is showing in the results.

Great. And then just on your question for me, Justin. As it relates to verticals or categories, maybe just as a general reminder, our focus is for every brand to just maximize the outcome that they're trying to get in whatever category they're in. So we're in no way managing the category mix from the standpoint of brand results. Even in the world of health and wellness, we still consider ourselves very small when you consider the total GMV, and we love that space. It's great for e-commerce. And obviously, you can see based on transaction yesterday that there's a lot of interest in that premium space.

I would say there's always great highlights about diversification. One of the ones I'd call out is beauty and TikTok. We mentioned that we were named Strategic Partner of the Year. We mentioned that a lot of our beauty inbound is coming through the TikTok channel. And the fun part about that is when we do very well for them on TikTok, then we can bring them into the other marketplaces that we represent around the world on that side.

So as just a data point, beauty grew in the quarter 85%. Pet supplies continues to be fun at over 100% growth. And then in the new business side, and again, I'll just reiterate, this is happening naturally similar to our marketplace diversification because we're going after so much GMV. We have a target opportunity list of $505 billion that we're attacking with many categories. But that new business, if you look at health and wellness as a percent of the new business, that's lower than the overall business.

So it feels like all of the theses that we had, which is you get into a category, you establish yourself with a track record of performance, that yields a reputation within the category that can take years. But then as you have that flywheel of reputation, you sign more brands, you get better and better data and expertise in the category, and it keeps going. So we feel like those same green shoots and growth we have in health and wellness is happening across many other categories, and we like how the business is performing in that space.

Our last question comes from Colin Sebastian from Baird.

I guess 2 questions for me. First, Dave, on Amazon's call, they talked pretty positively about the performance of their first-party AI interface in terms of conversion rates and overall engagement. So curious, just given some of your efforts with AEO or GEO, if that's an area on the marketplace you're able to take an advantage of.

And then as a second question on Pattern Intelligence, what's the near-term road map there to drive more engagement with brands? And is this something that we could see showing up as a measurable growth and margin lever in the relatively near term?

Yes. I mean our data confirms what Amazon indicated on the call. I guess it's not a surprise. It just allows you to get a better understanding of the consumer and what they're hoping the outcome is for the problem or solution they're looking for -- looking to solve, which will be a product. The one thing that I think is important as a general call out for the future where I think that you'll probably see a pretty incredible differentiation.

The brands that are focused on quality, we're entering a world of much higher transparency. So the brands that over the years have been obsessed about R&D, customer experiences, they will be paid back on. And I think it's probably part of the thesis of why Procter & Gamble acquired Thorne, which will be a tremendous asset for them is that there's many other brands that also fit that category of just over the years, they've focused on great customer experiences, great products.

If you think of an LLM world rather than surfacing hundreds of pages of search results, you're starting to narrow in, okay, what does that customer really intend for and how might I shrink the surface area of what they have to review in order to make a decision and product quality, all of those things.

Also, the infrastructure bit, so they do factor on delivery time lines, the promise. Those things will all become, I think, paramount and they will stay with the brands for the long term and will be harder to shake negative experiences. So I think where the world is going there will serve consumers better. And so I think that's where you're seeing Amazon's results. The more they invest there, the better the results will be. So that's been great to see.

Maybe specifically on your second question, in terms of Pi, Dave talked about a lot of the road map. We're doing 24/7 feature offers, a lot of outcomes happening. It's built on 13 years of everything we've built. It's a better interface layer for the brands with more transparency. Our focus is primarily the effectiveness that comes out of that and driving revenue growth, but there will obviously be efficiencies that will come out of that in the future. We haven't put specific numbers on it, but we just know as we automate and make everything much more agentic that, that will be a natural output. And then what we do with those resources is completely up to us.

Yes. One bit of color I might add on the Pi point, Jason, just overall development in general. A unit of work that we think about for a developer would be a pull request or a unit of work that a developer would accomplish. For us, we've doubled those units year-to-date as of last year. So you're starting to see software factories come into play and accelerate results in general. So I think it will be -- it's just a fun place to be. The digital economy is growing. And I think we couldn't be more excited about the future, both for Pattern and consumers getting over the next 3, 5, 10 years.

This concludes the question-and-answer session. Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.

Good day, and thank you for standing by. Welcome to Pattern's First Quarter 2026 Earnings Conference Call. [Operator Instructions] 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, Vice President of Finance. Please go ahead.

Thank you, operator. Good afternoon, and thank you for joining Pattern's earnings call for the first quarter 2026. 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 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. We delivered another record quarter to start 2026. In Q1, revenue grew 43% year-over-year to $774 million. Adjusted EBITDA was $54 million, up 59% year-over-year. Before Jason walks through the financials, four metrics stand out to me.

First, net revenue retention. We've said previously that NRR is one of the clearest indicators of the health and durability of our model. In Q1, NRR reached another record at 127%, up from 115% last year, reflecting the impact of optimization, marketplace expansion, and deeper brand relationships. Second, international growth. International revenue increased 101% year-over-year. We are beginning to convert international scale into improved efficiency and profitability, and we expect that to continue.

Third, non-Amazon growth. Non-Amazon revenue grew 119% year-over-year with strength across TikTok Shop, Walmart, and Coupang. And fourth, our other monetization strategies grew 173% year-over-year, reflecting continued momentum beyond our core marketplace offering. To understand the drivers behind these results, it's helpful to step back and look at the platform and data that power them.

E-commerce performance is driven by 4 variables: traffic, conversion, price, and availability. The same e-commerce equation we've referenced previously. These levers are highly interdependent and continuously shifting as changes in one area, like price or availability, dynamically influence performance of others, like conversion or traffic. Optimizing them together is complex. But with scale across brands, data, geographies, logistics, technology, and AI, that complexity becomes an advantage for us. Our platform is designed to operate across these variables simultaneously, marketplaces, geographies and channels.

That scale allows us to improve outcomes for our brand partners while lowering costs across fulfillment, ad spend and operations in ways that are difficult for a single brand to replicate. In our primary monetization model, we purchase inventory, which aligns our incentives with our brand partners' objective to grow consumer sales. We win when they win. The movement of physical goods under this model also creates a durable and competitive moat as AI continues to evolve. AI makes us more efficient rather than commoditizing what we do for brands. In simple terms, we break down a complex system into controllable levers at scale. That becomes both a growth driver and a cost advantage for our brand partners.

Across brands, we see a consistent Pattern. When these levers are aligned, they can unlock a step function improvement in performance. For example, when a premium haircare brand started with us, in-stock was 79.6%. Since then, we improved in-stock to 96.1%, increased conversion 23%, which resulted in revenue growth of more than 15x. For a global tools brand, we launched their products across 25 marketplaces in one year, generating millions in international revenue and selling more than 100,000 units. These outcomes are the result of coordinated optimization across availability, content, pricing, logistics and marketplace execution.

Once the foundation is in place, we expand where demand is shifting across geographies, marketplaces, social commerce, and AI-driven discovery. That is the brand journey on our platform, and it continues to evolve. Two areas changing quickly for brands are social commerce and AI-driven discovery. We were recently named TikTok Shop's strategic partner of the year, reflecting our leadership on the platform. Over the last 12 months, we've launched more than 100 brands on TikTok Shop, activated over 365,000 creators, and grown our social commerce business triple digits again in Q1. One of the most competitive categories on TikTok Shop is beauty. And over the last few months, we've served as a launch partner for some of the largest beauty brands in the world.

Social commerce has become a meaningful contributor for Pattern and the brands we work with. It has become an important entry point. And as these brands grow with us, the opportunity to expand across marketplaces, geographies, and channels grows with them. LLMs are increasingly used at the start of product research. How consumers find, compare, and evaluate products before reaching a marketplace. Both channels operate on intent. Social commerce captures it through creators and content.

LLM surface it through semantic understanding, interpreting what a customer means, not just what they typed. Pattern is built to win in both. While full agentic transactions are developing more gradually than we initially expected, their influence on the customer journey is already meaningful. There are varying ranges and some debate on what percentage of purchases are influenced by LLMs. But I don't think there's much debate on the fact that it's significant and growing. We approach this from a data-first perspective. We have deep bottom-of-funnel search and conversion data across categories, which allows us to identify where brands have the highest probability of winning in LLM-driven discovery.

We also have a strong understanding of consumer personas and intent, which we use to map how products should be positioned in these LLM environments. Taken together, this allows us to evaluate a brand's current presence versus its potential across LLM-driven surfaces and to optimize content positioning and availability accordingly. As agentic shopping develops, brand execution becomes even more important.

Buyers' agents are likely to evaluate not only product relevance, but also whether a brand consistently delivers on what it promises, availability, delivery speed, customer service, returns, and overall brand experience. Those execution signals will have significant staying power in an LLM world, which will have meaningful influence on how products are surfaced and selected over time. We are laser-focused on these key metrics on behalf of our brand partners to ensure they perform well against these metrics for years to come. We are excited about the opportunities ahead and believe Pattern is well positioned as commerce continues to evolve.

With that, I'll turn it over to Jason.

Thanks, Dave, and thank you to everyone for joining us today. We entered this year with a high degree of confidence in our business, and Q1 validated that. Revenue grew 43% year-over-year to $774 million, driven by continued new brand partner revenue growth and healthy expansion within our existing brand partners. What's particularly encouraging is that the strength was broad-based across many brand partners, geographies, and marketplaces. We're just starting the diversification journey and the growth we're seeing further validates the opportunity in front of us.

This strong performance gives us confidence to raise our full year outlook. I'll talk more about our biggest portion of revenue and biggest growth area, existing brand partner revenue. We believe the best measure of this is our NRR, which was 127% in Q1 compared to 115% last year.

We have three distinct drivers of that growth. First, technology-driven optimization. This remains the foundation of our growth formula and primary driver of our growth, representing approximately 3/4 of growth in Q1. Our unified AI-native intelligence layer monitors and acts across every marketplace we operate in, driving stronger conversion, traffic, and availability. Because it operates across multiple variables simultaneously, the impact compounds. A fun example of how these optimizations work together are improvements in our supply chain or availability tech that continues to improve the proportion of same-day and one-day delivery times, which mathematically increases our conversion.

Second, new marketplaces and geographies. In Q1, non-Amazon revenue grew 119%. Three regions we operated in grew over 100% in the quarter, and we had another quarter of triple-digit growth in several marketplaces, including TikTok Shop, Walmart and Coupang. Third, product depth. We also grow by expanding the product selection from our brand partners, either by bringing on more product lines or launching new products on existing marketplaces. We give brands visibility into consumer intent and category white space to help them innovate faster. These opportunities to expand product selection come every year but can vary in timing across quarters.

Turning to operating expenses and profitability. Adjusted EBITDA was $54 million in Q1, representing 59% growth year-over-year, primarily driven by revenue growth, as well as some leverage in our sales, marketing, and operations costs, despite increased R&D spend. Excluding stock-based compensation, R&D was $10.1 million, up 77% year-over-year. We are doubling down on our tech spend, which includes AI token usage, and continue to expect R&D growth to outpace revenue growth. However, as our Q1 results indicate, we're doing so responsibly. This spend as well as our spend in sales and marketing and the start-up costs related to our new East Coast facility, will create some timing variations when looking at quarterly adjusted EBITDA margin. For example, we will expense marketing spend related to our May Accelerate conference in the second quarter.

Our variable cost components, cost of goods sold, marketplace commissions, and fulfillment grew slightly slower than revenue. This was primarily driven by revenue mix across various products and other monetization strategies. We generated $124 million of operating cash flow for the trailing 12-month period and $99 million of free cash flow. We ended Q1 with $344 million in cash and cash equivalents, no outstanding debt, and $150 million of borrowing capacity available under our revolving credit facility.

Before we turn to guidance, I want to briefly address the macro environment and what we're seeing. While the Middle East is an immaterial portion of our revenue today, geopolitical tensions have introduced volatility into global logistics and energy costs, as well as uncertainty around consumer sentiment. In response to increased energy costs, various marketplaces implemented fuel surcharges for sellers during the quarter. Generally, our agreements with brand partners allow us to pass through such cost changes for marketplaces, including fulfillment costs, providing a structural buffer against cost pressure.

On the revenue side, we are not currently seeing any indication of meaningful consumer weakness in the categories or markets in which we operate. We believe our portfolio approach and category diversification leaves us well positioned to weather macro headwinds, including our position in non-discretionary categories, which we believe are less sensitive to potential changes in consumer spending. We will continue to monitor developments across all regions we operate in, and we believe our Q1 results demonstrate our relative resilience.

Turning to our outlook. We had an exceptional start to 2026 and are seeing strong and consistent momentum heading into the rest of the year. We are meaningfully increasing our full year outlook. We now expect revenue of approximately $3.3 billion, up 32% year-over-year, an increase from our prior guidance, which implied approximately 26% growth. We are also raising our full year adjusted EBITDA outlook to approximately $200 million, up 31% year-over-year at the midpoint, an increase from our prior guidance, which implied approximately 18% growth.

Consistent with the guidance framework we laid out in March, there are a few things to keep in mind as you think about the shape of the year. First, as a reminder, we will face stronger comps in the back half of the year as we lap the record growth rates, and therefore expect year-over-year growth to moderate in Q3 and Q4. Second, we are maintaining our middle-of-the-road approach on new brand partner revenue assumptions and new product expansions, given the inherent variability in these factors. Third, we will continue to invest in R&D ahead of revenue growth, consistent with our strategy of strengthening our technology moat and expanding our AI capabilities.

We are extremely pleased with our NRR performance of 127%, and this updated outlook will elevate the ending point of NRR this year to approximately 119%, above our long-term target of 115%. For the second quarter, we expect revenue in the range of $810 million to $820 million, representing 35% to 37% growth year-over-year. We expect Q2 adjusted EBITDA in the range of $45 million to $46 million, up 30% to 33% year-over-year. We expect to see incremental costs in the quarter related to Accelerate, our annual Global E-commerce Summit, our continued investment in R&D and start-up costs related to our East Coast facility.

We're confident that these short-term investments will drive continued growth in the future. We are extremely pleased with the momentum we've seen so far this year. We believe our results and outlook reflect the durable compounding nature of this business. We continue to operate from a position of strength, supported by a healthy balance sheet and robust consumer demand within our categories. We remain fully committed to delivering long-term value to our shareholders.

With that, I'll turn it back to Dave before we open the call for questions.

Thanks, Jason. Q1 was a strong start to the year and a quarter that continues to strengthen the foundation of our model. NRR at a record 127%, international doubling, non-Amazon up 119% and our agentic investments are delivering. We enter Q2 with a pipeline and a platform we feel great about. E-commerce is being built around AI, how products are discovered, how decisions are made, how transactions are completed. Pattern is built to operate at the center of that stage. We remain focused on optimizing the e-commerce equation, removing friction for brands and delivering measurable outcomes at scale. Thank you for your continued support.

We'll now open the call for questions.

[Operator Instructions] Our first question comes from the line of Ralph Schackart of William Blair.

You know, maybe just kind of highlight, if you can, what drove the exceptionally strong performance in the quarter? Is it just a bunch of factors coming together, but the performance is really strong? Any color you could add there? And then, maybe on the non-Amazon channel, that growth was obviously very strong. Maybe talk about more specifically what's driving that? You mentioned some channel partners in the script, but just more color around that and maybe some of the initiatives you have there to keep driving that growth further would be great.

Thanks, Ralph. Yes. Thanks for the question. Yes, Q1 was a great performance. To give you a sense of what drove it, it was really hitting on all cylinders on the many levers we have for growth. I mentioned some of those in the prepared remarks, but with an existing brand, we can grow them with better tech, more marketplaces, more products, and then we're bringing on new brand partners all the time. And you also mentioned there the non-Amazon marketplace growth that hit in a really nice way as well.

So in terms of marketplaces, we called out some of the ones we already had in the prepared remarks, Coupang, TikTok, Walmart, specifically, all of those worked well. I think the biggest takeaway for me is this business model has a lot of ways to help brands grow across multiple vectors. And when we hit on all of them, that gives us confidence to raise the outlook, and that's what we did, with the 32% growth for the full year.

I'll do a quick follow-on. I mean, it's just a tremendous business, quite frankly. And there's very few businesses that have a pipeline of what we measure as $505 billion and growing. The -- Now, of course, that's a long-term pipeline. We're not making any immediate statements there. But if we continue to execute like I know we're capable of, I think you just see measured improvement quarter-over-quarter, better execution, broader reach across geographies, across marketplaces. And then the technology is moving at a speed that we -- of course, I never anticipated two years ago.

The road map and the deliverables that we're able to finish, sometimes we're able to complete things that used to take an entire sprint in hours. So it's just acceleration on all levels. Much of it is just driven in advancements in technology, but then we're just positioned well, and we have the infrastructure and scale to take advantage of them.

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

Maybe building on Ralph's question and asking it a little bit differently. When you look at the exit velocity of the business in Q1 and the backlog of both partners and platforms that you're discussing the business with longer term, how should we think about industry vertical diversification deeper into 2026 and platform diversification as we exit 2026 as well and how some of those could be drivers of the business or even how mix might change?

Yes. We get a lot of questions on category. We -- internally, category diversification is not a primary focus. We're simply focused on the brands. So the brands that would like our help, worldwide, we'll jump in. Now when you think of the technology, of course, we like product sets that are good for e-com, but that set is widening quickly. It used to be that there were some things that were just completely off-limits, like having your Diet Coke delivered to your doorstep. Now many of those things are coming into focus for us. So every time we take another look at the pipeline, we can just see the categories and product sets expanding.

In terms of marketplaces, just to finish on that question there, Eric, we are seeing our non-Amazon platform growth at very much larger rates than our Amazon growth. The good news is the Amazon growth is still very healthy at 38% in Q1. But the non-Amazon growth you saw is over 100%. That will continue to diversify us as we go over time. And we're pretty comfortable that we've got the right initiatives in place to continue that journey, and there's a lot of white space for brands to grow more everywhere across many marketplaces. And we're pretty much just -- long term, our view is that however the consumers are spending online is what our revenue mix should look like long term.

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

This is Bryan Smilek on for Doug. Obviously, good to see the continued supply chain efficiencies. I guess, Dave and Jason, can you just talk about how much more room there is to optimize inbound and outbound fulfillment? And I think specifically, Dave, you had mentioned same-day and one-day delivery capturing a greater share of overall units. Could you just talk to the velocity of delivery speeds improving across the platform? And I guess, more broadly, how that could change with Amazon expanding more multichannel fulfillment more broadly?

Yes. I love the question, very insightful and something we focus on. So in terms of numbers, in Q1, we run at about, I think 37% of our actually -- excuse me, 57% of our total clicks get a same-day delivery -- same or one-day delivery. And that's up from around 52%. So we can see -- and the conversion rate in that group ranges at around 18%, versus if you go to two-day or 2 plus, it comes in at around 9%. So of course, the closer you can get to the consumer, the better your conversion rate is. So it's a dramatic focus for us.

So we're getting better coverage there. And at the same time, we're lowering days of inventory on hand, which was 62 this quarter, an exceptional quarter, minus 13 days from the same quarter last year. So we're continuing to see just great progress across the logistics, which simply can't be done without scale. So the bigger we get, the more opportunity we have to just continually tune fine, just the fine pieces of that equation.

Maybe just to add briefly to that. We do see more room for optimization in the future. That's why we're launching our East Coast facility, which is going to build on the technology advances we had with our Las Vegas facility. We're really excited about how much even more efficient that'll be for ourselves and particularly for our brand partners.

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

With the updated guidance range, I mean, you're pretty close to knocking on the door of doubling your revenue base from 2024 to 2026. What changed about the opportunity set in front of you with scale or any additional opportunities that you have with this kind of step function and scale within the business?

Yes. There's some fun -- some fun milestones coming up based on this new guidance. I'll talk about revenue and maybe just a little bit on adjusted EBITDA as well to get to your scale point. But yes, 84% growth, if you take 2024 versus 2026 guidance, pretty impressive on the revenue side. And it is really the factors that we talked about, taking brands to more marketplaces, more geographies. And then particularly as of recently, Dave mentioned it briefly, the use of agentic tools to optimize the e-commerce equation is going really well for us and for our brand partners.

On the EBITDA side, this is where the scale benefit comes in. Those same data points, 2024, we made $101 million in EBITDA, and our latest guidance has us at $200 million in EBITDA. So basically double off of 84% revenue growth over that timeframe. That's really where you can see when you swoop out, you can see the benefits of the scale that comes as we keep growing. And we're excited about both numbers, top and bottom line, of course.

There's very few places where you have a TAM the size of ours, which is largely all digital goods sold worldwide. And in a way, that's not much of an exaggeration. And if we can perform -- every day, we come into work and we say, okay, how do we make sure that the brand experience is amazing, that their revenue grows?

And at a certain point of scale, we believe we can do it cheaper than a brand can do it themselves because of the combined logistics, the scale, the difficulty, the implementation, execution across global markets. So if we can provide a service that is both better and less expensive with a TAM that is tremendous, I think we'll continue to surprise people on the growth for many years to come.

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

Dave, I was hoping you could dive into AI and image generation in more detail. Obviously, the models continue to make very meaningful progress, even versus just a couple of months ago. So I'm curious if we're now getting to a level where brands are more receptive to you towards working around just creative and hyper-personalization, and how you think that might help just aid international growth, where it seems like that could be pretty meaningful for localization.

Yes, great question. I mean we continue to be just surprised at both what the models can do and what our teams are doing on that front. Conversion overall was up from 17% to 19% year-on-year, which is pretty phenomenal. We've introduced and talked about what we call -- refer to as The Portal, which is where we do -- it's some hardware that we created where we'll take a product and we will take -- it's almost like an AI photo studio where we will take imagery with the idea being we'll train a LoRa model, so a low-rank adaptation model.

Once we're done with, say, 50 to 80 images, we will have enough reference data to take that product globally in any setting, localize it, personalize it. And we will -- we're deploying those in our warehouses. So at a fraction of cost, we can have AI-generated product photography that I believe is unmatched. I haven't heard or know of any place that could do that at the same level of quality. We have quite a bit of patents and interesting intellectual property on how we do that. But it is an incredibly large opportunity for our brands worldwide. Great question.

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

This is Chris on for John. Can you double-click on how new brand partners performed in the quarter? I'm curious to hear more about the pace of new partner acquisition and specifically what you're seeing in the pipeline for the rest of the year.

Thanks for the question. Yes, new brand partner pipeline looks good. As Dave mentioned, we have an opportunity list of $505 billion in GMV that we've identified using our data set of brands that can specifically benefit from working from Pattern with identified scorecard e-commerce metrics that we can improve across the equation for them. In Q1, we had similar momentum to last year. We kept up that same cycle, and we continue to invest in sales and marketing resources to continue to drive that.

I think when we talk about new brand partner revenue, it's important to remember, that's just the first 12 months of our relationship with the brand. And there can be variation in any quarter versus the prior year's first 12 months. But the vast majority of those brands stay with us and go into existing brand partner revenue and then benefit from that NRR on average of 127%. So that's why we like the investment in the sales and marketing. We like the progress that we're making in the pipeline because not only does it deliver revenue in the first year, but it continues for many years thereafter.

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

It's Brian Pitz. So Dave, on the success you're seeing off the Amazon marketplace, can you help us understand how much is from international brands leaning in harder versus brands just starting international presence? And then, more broadly, you called out broad-based strength across existing brand partners. Maybe some additional color on the upside, with different category demand, new product launches, market expansion, existing partner share gains, pricing, et cetera? Can you just help us parse apart that broad-based strength?

Yes. The strength is, as you mentioned, quite broad. In early years for Pattern, it was almost entirely -- because our teams, the sales teams were in the U.S., the near entirety set of brands we found and started working with were U.S. brand. And then probably four or five years ago, we started to ramp teams that would sit internationally. And we began a pretty -- last year, we started an effort called East to West, we refer to it internally, which is we have teams that sit in the APAC regions and work with some phenomenal product manufacturers that deliver a large majority of the goods to U.S. consumers, and we're helping them execute better. As a matter of fact, that was our largest deal signed in 2025 last year came from that East to West effort. So I think we're continuing now to get brands that are both U.S. headquartered and now they're coming from all over the world.

I am showing no further questions at this time. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

Thank you for standing by, and welcome to Pattern's Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] 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 4 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 LLMs 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 decision, 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 6 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 3 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 2/3 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 5 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.

[Operator Instructions] 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 -- we 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 5 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 the -- where that's coming from, 39% of that pipeline is coming from outside the Americas. And so you can really start seeing -- I guess, for any company like ours, this would be expected, where GMV is around the world as we mature and get better and better across platforms and across geographies, we're starting to see even that sales pipeline, those numbers we're tracking start to 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?

Yes. Thanks for the question. I mean the road map is as exciting as I've ever seen it. And I guess really, it comes down to, quite frankly, things that in the early, I guess, 5 to 8 years of the company, now we're 12 years in, I mean there were things that we were really excited about that took a year or 2. We're able to do some of those things in a month now or less just with the capabilities that are available to all companies, you just have to leverage them well. And then we're advantaged in a significant way by the 66 trillion data points.

So I mean, the true differentiation in AI of the future will be data. And so you combine those things. And then I mean, we've had a 7-plus year road map for a long time. And we're just starting to realize, wow, we could maybe compress that 7-year road map into I don't know, a fraction of that amount. So -- and again, our entire road map is based on the e-commerce formula for a brand. We're trying to make a brand win on revenue and revenue for a brand is traffic times conversion rate times availability. So again, there's the logistics piece that you referred to.

So if you look at last year, we broke down -- 35% of our growth, we believe we could tie to optimization. 21% of that 35% came -- or I guess, 21% came from traffic and 11% from conversion that equals that 35%. So I mean, we're just continuing to look and break down that formula and then do it internationally. So it's quite a complex set of technology we're building, but we're making faster progress than ever, and it's accelerating.

Great. And then maybe just to touch on your question, Colin. In terms of the investments, they're really in 2 spaces. First is in the R&D expense line, which historically we've grown in line with revenue. And 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 that 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 fast the tools allow us to run new optimizations.

So we're excited to see even top line benefit in that even 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 of how we're trying to run this business is that we're looking to drive adjusted EBITDA dollar and free cash flow dollar growth with a nice mix of profitability and free cash flow generation as we grow very fast. We're less focused on specific margin percentage in one quarter or year. We're focused on the great opportunity that we have to drive that 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 coding has really changed productivity across the workforce and the pace of product velocity and perhaps just 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.

Yes. Great questions. Without question, we will gain efficiencies. Of course, there's multiple ways to do that. the primary driver for us, I mean, if you think about our space that is in the trillions, the opportunity that we have to go and chase, and we're $2 billion, $3 billion right now. So it's quite exciting to recognize, I guess, part of business is right time at the right place and the right tools and the right technologies that come along to further that. And the -- if you look at the international side, well, maybe I'll just hit the -- in terms of coding, it's not just coding that is being impacted from an AI standpoint. It's almost -- you might almost talk about it as a complete refactoring of all jobs where you start looking at, okay, what is it -- what are the inputs and outputs of this job? What is the task to be done and then what can you create skills around and a framework around executing from a technology standpoint and Agentic execution and what can you not?

And of course, there are some things you can. You can't move the box. And then we're always going to need some people around regulatory, making sure that we're within the guidelines of the law. And the legal framework that we operate in, of course, is quite complex when you start going global. And then -- but beyond that, I mean, I think that we'll see not only a little leverage in terms of efficiency, but I think that will become quite staggering. I would imagine we're not going to be the only company in that area. The ones that are chasing and chasing quickly, they're going to see immediate benefits there.

Our next question comes from the line of Bernie 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 1Q 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.

Yes, sure, sure. So I'll touch on that one first, and then I'll talk more broadly about leverage on the expense buckets, and then I'll go to the buyback. So all marketplaces have slightly higher fees for operating on marketplaces in Q4 versus Q3. So that is just a natural thing that happens when you sell on marketplaces. And we build that into all -- the way we run the business, how we model our deals, all that. There's no real surprise there in terms of a little bit higher marketplace costs in the fourth quarter, particularly around things like storage and deliveries and things like that.

In terms of how our leverage path has been in 2025, if you take out stock-based compensation and IPO-related costs, we did see leverage on the disaggregated expenses in that sales and G&A line. And our variable components were within a normal variance that we see as that's really driven mostly by product mix and specifically to your point on Q4, a little bit of seasonality due to marketplace costs. So we're happy with our leverage. We talked about what it looks like in the future.

Specifically on the buyback, at this point, we think we're in a unique position of one of the few companies that has recently IPO-ed that is delivering great growth, great profitability and generating meaningful cash flow. So our strategy on capital allocation is, first, we're going to invest in growing the business. Second, we're going to invest in M&A opportunities as they come that add to our capabilities. And then third, we like having the lever of a repurchase program to return value back to shareholders on that lever as well. Exactly how we're going to use that and exactly what price we're going to use that will be a facts and circumstances market-driven decision with guidance from our Board.

So I can't speak to exactly how we'll do that. But that's the general principle of why we announced the repurchase program. And we hope that we feel personally that it's a sign of confidence in our ability, and we hope others see that, too.

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

One for Jason and one for Dave. I guess, first, Jason, can you just talk a little bit more about the category priorities in '26? And I think in the past, you've kind of talked about beauty as having some of the characteristics that are similar to health and wellness, but curious on your progress there. And then, Dave, just on Agentic, I know you talked about the benefits of kind of coding and efficiencies and a little bit more on the expense side, but you also said that AI is fundamentally rewiring e-commerce and the purchase path. And curious how this is changing? How you're helping brands and customers at this point? And are you seeing that AI-driven traffic is higher intent or has greater conversion versus Google and anything else that's kind of been more traditionally top of funnel?

Yes, Doug, thanks. Our category priorities are vast. Health and wellness is where we started over 12 years ago. So it benefits from long brand partnerships with a lot of layered optimizations and great trust and respect cycle in the go-to-market for new brands. That's really a category-specific cycle. But we are growing in lots of other categories as well. Beauty, particularly over 100% growth. DIY tools is another fun one. Generally speaking, the way we think about it is that opportunity list that Dave talked about is split by brands. And we have direct outreach sales forces that are looking at different ways to route reach and get traction in categories around the world. And so we're focused on lots of categories. Those are just a few that I would name.

Thanks, Doug. Yes, real quick on how AI is reshaping e-commerce, I mean, it is a fascinating time to be alive. It's very fun to be in our seats. The -- if you think about the LLMs and how much shopping will take place there, I mean that's one piece of Agentic. And I guess, probably last week, we all thought that OpenAI was really going to double down and make the instant checkout process work. I think that they recently have signaled, hey, maybe we're backing away from that a little bit. We'll see where that goes. It appears that Gemini and others are continuing the path that they were on.

So we'll see -- we'll continue to monitor that. But I guess the best way to think about this is, in the last year, Pattern has added 12 marketplaces. And if you really think about and digest these models and these methods, they're quite similar to a marketplace. So for us to add 2 or 3 or 4 or maybe one of them backs off like OpenAI did, maybe it goes from 4 to 3. But the core issue that we're talking the most about with brands is the level of complexity and how quickly it's changing. And it's not probably a day goes by that we don't have a conversation with a brand on what they're looking for and how we can help solve the issues there.

And it plays into our moat very well because it requires logistics, not only logistics, but one of the things we're starting to invest in quite a bit is the reverse logistics infrastructure because that process is -- just needs to be taken care of regardless of how they transact there. So not only do we have the data moat and the ability to execute quickly from a machine learning and tools perspective, but we also have the logistics moat that will allow us to expand quickly globally and help brands wherever the landscape changes or shifts. So we're quite excited about it.

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

I'm sorry, I'm here. I want to ask about marketplaces. You mentioned in your prepared remarks, Coupang, TikTok Shop, Walmart. Can you give a sense of kind of the life cycle of these or how long it takes to get these marketplaces up to kind of material levels? Is this something that you can turn on in is this quarters? Or is this years to get to where you are with those companies? And maybe that will help us think about your ability to successfully and effectively diversify to other marketplaces going to the current ones and to other marketplaces going forward?

Yes. Thanks, Mark. Well, I guess a couple of points there. Two that stand out for us that I think are quite compelling that we mentioned in the prepared remarks. One is TikTok that in if you look at the fourth quarter numbers grew 224% for us and in 2025 overall, 482%. I mean now they're reasonably small numbers, but ramping quickly. I think I'm trying to give an overall number on Coupang because Coupang in 2024 was 0. And in 2025, our number there was $11 million. So I mean, they can ramp quite quickly. And that's just one case in South Korea. Now it's a great marketplace, but there are others that can ramp just as quickly.

And a lot of it is just maturity for us. I would say marketplace #2 for us took a couple of years. And this year, we added 12. So we're just getting much better, and the platform is more modular where we're able to add capability. And of course, when we build a new marketplace or we build our technology for a new marketplace, it's marketplace. We'll build modules that we stack on core modules that we can do quite quickly now.

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

Dave, starting with your opportunity in Agentic Commerce, since Pattern doesn't have internal last-mile delivery capabilities and is currently relying on marketplaces for checkout capabilities, maybe you can help us better understand if you're planning to invest into those capabilities to benefit from Agentic Commerce or if you can lean on your partners' own capabilities in the new channel? And second, regarding first quarter outlook, it looks like revenue is expected flat to down sequentially versus the fourth quarter, which compares to up more like 4% or 5% sequentially in the past couple of years. Is there anything about what you're seeing in the first quarter this year that could result in a divergence from historical seasonality?

Okay. Well, first of all, we do leverage marketplace fulfillment when it exists. Now if you go across the 73 marketplaces, most don't have fulfillment, so we have to solve that problem. So our monthly D2C or final mile delivery today stands at about 140,000 units a month. So we are building capability there. And in the areas of the world where we don't have capability, of course, we partner. I guess the -- at the end of the day, we're building -- we're the interface for the brand, and we're finding the cheapest possible way to operate in a marketplace.

If they have fulfillment, we'll leverage it. But even if a marketplace has fulfillment, like we'll take Amazon as an example, if their oversized offering isn't competitive, we'll fulfill it ourselves or leverage a partner to do it. So I think it's -- another one would be, say, refrigerated products. We handle all of those ourselves because Amazon doesn't have a refrigerated offering. So there's quite a varied set there, but we're getting quite capable, and this isn't your #1 on that.

Great. Thanks, John. Thanks for your question. Specifically, as it relates to Q1, we're really looking at it in the context of the full year growth and what the shape of that growth will be. I understand your point on the kind of seasonality quarter-over-quarter. That's really a function of how much Q4 overperformed versus our expectations. It's pretty impressive. We have a lot of teams working on different growth levers and virtually every single one of them was above our expectations. So our guidance is grounded in not necessarily over exceeding our expectations on every single lever. It's more of a middle-of-the-road approach. We guide to the full year at $3.1 billion, and we look at the shape of the year on Q1 being probably -- Q1 and Q2 being stronger growth rates than Q3 and Q4.

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

Dave, I'd love to get your perspective on the -- there was an article yesterday that OpenAI is changing its instant checkout to pushing people more towards apps within ChatGPT instead of checking out right inside the app natively. I guess from your perspective, does that change anything from your perspective? Does that like kind of signal what's to come for Agentic Commerce? That's the first question. And the second one is just a quick one for you, Jason. I think the first question, you walked through the NRR mechanics for '26. Is the way to interpret that is like it kind of maybe slowly trails off and you end the year at 115%. Is that the right way to think through quarter-by-quarter?

Yes, great question. That was an interesting change by OpenAI. So I guess we'll see where that lands. I guess I will say, first off, this is evolving quickly and changing daily, weekly on the strategy. And so we'll see where that lands. If you take OpenAI as a specific example and you dive into -- there's a lot of complexity there. My understanding from them on the shift is they're starting to realize, okay, I need real-time and live inventory, that will be complicated. I need a reverse logistics process that will be complicated. And I think they're realizing, okay, for now, it's probably better for us to leverage partners here.

We'll see if that lasts. I think I will say -- I will repeat back something TikTok told me in a meeting where they said, "Hey, if I can get you to spend time on my platform, I can get you to buy things." and if you think about where we all are spending time now, we're all spending a significant amount of time on an LLM. My understanding is the rough number is about 22% of purchases over the holiday season had -- were impacted by LLMs. Of course, there was an instant checkout, but they're being impacted nonetheless.

So that is evolving. It is something that we're, of course, taking very, very seriously regardless of how exactly those flows go because they're going in terms of the actual operationalizing of that process, but they're impacting consumer behavior already. And the models today, Google Gemini versus OpenAI, UCP versus ACP have different philosophies there today and probably will continue to ebb and flow over the years.

And then to your second question, yes is what we're saying is that long-term goal is 115%. Our guidance takes that into account in terms of a directional space. But mathematically, since it's last 12 months over prior last 12 months, as those tougher comps move to the denominator, that will put downward pressure sequentially on that NRR metric, not immediate pressure on it, say, in Q1, for example. The last thing I'll just say is these growth rates are -- while they're slightly lower than prior years, it's always on a larger number. And having that law of large numbers pressure on your growth rates is a good problem to have.

[Operator Instructions] Our next question comes from the line of David Lustberg of BMO Financial Group.

I was curious if you guys think about some of the new brand partners you onboarded during the quarter. If you could talk about the makeup of that cohort and if it looks similar to your broader cohort, if you guys are expanding on the brands you're working with some different categories. And then you guys did do a couple of deals in the quarter. Maybe you can kind of just talk through the rationale of those deals and the value prop of Pattern and their business partners.

Yes, sure. I'll take that. So first on new brand partners, really good quarter for signing new brand partners across many categories as well as probably if I was to highlight a few interesting things in the quarter that I would highlight, we're signing more and more brands to do TikTok shops. So that is an emerging trend. Brands are more and more interested on having a more optimized experience there for consumers, and it is very complex and still evolving. So we're really on the forefront of that. The other one I would highlight is we're signing more and more brands outside the U.S. that want to come into the U.S., which is a fun trend and an exciting trend that we're seeing.

And I'll just cover quickly -- I think you're referring to the 2 M&A deals that we did in the quarter, the first being ROI Hunter. That's a phenomenal little gem of a business out of the Czech Republic, 89 people FTE-wise, managing over $1 billion in ad spend across walled gardens with phenomenal data and a great platform to help expand our brand. And they have a very interesting way of thinking about advertising, which is very product-specific and very measurable. So we're really pleased to have them join us and excited about the data and the access that, that gives us. And secondly is a company called NextWave. NextWave is one of the premier TikTok shop operators.

As matter of fact, we found them from a recommendation from TikTok themselves. And just a phenomenal team, great operators and have really expanded our capabilities and our affiliate network across TikTok. So we'll see great -- we believe we'll see great momentum from those 2. And I guess in terms of philosophy, we'll continue to do that. But most of our M&A, as you watch, you won't see us buying revenue or trying to just optimize. We're not going to be doing acquisitions for financial reasons only. They will always be additive to our overall capability set. And so if you really dive into the guts of those, they're quite impressive adds at a very reasonable price.

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.

Good day, and thank you for standing by. Welcome to the Pattern Third Quarter 2025 Earnings Conference Call. [Operator Instructions] 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 3 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, 2 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 4 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 Patterns 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 150x 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 find 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 3 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, 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 onetime 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 0 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 0 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 3 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 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 of what we're building together.

With that, we'll now open the call to your questions. Operator?

[Operator Instructions] Our first question comes from the line of 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.

All right. Thanks, Doug. Okay. So in terms of agentic shopping, I mean, it is just -- it's really fun, I guess, right now to watch that unfold. No one knows exactly where we'll be. But I think in general, we can all be confident in believing the ground is shifting. So just a couple of ideas here. One is we do know that the volume of product search and discovery. The numbers that we have right now is about 38% of all -- in the U.S., people are using the likes of ChatGPT for some sort of what they would consider shopping. Now 53% of that right now is product research. But there's even things like about 30% is just creating shopping lists and so on and so forth.

So I think one thing we can be pretty confident in is where you spend your time, you will likely buy. So if you think of your own behavior and our collective behaviors, I think we've gravitated in a significant way to LLMs. And I think naturally, if they can make it easy and high trust and have a logistics infrastructure that backs it up, I believe we'll see quite a shift into that agentic world. And I think there'll be some very big winners that come out of those changes.

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 3 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 2 categories that were particularly exciting this time around, it would be beauty and DIY tools, which both grew over 100%, which we're excited 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. A couple of thoughts. I'll hit the NRR real quick, and Jason will finish off. In terms of -- I mean, we're fabulously positioned, honestly, in the agentic space because if you think of our technology platform, it's a thin layer. It's agnostic as to where consumers go. So we don't really -- we're just helping brands win wherever they win.

And if you think of some of the data we have, which is bottom of funnel, you probably saw we released our GEO Scorecard, which will essentially take some of that bottom-of-funnel data, keyword, keyword phrase type data and reverse engineer it into questions that can then provide a brand guidance on, okay, what is their reach? Do they show up when a search is done across the different LLMs? What is their rank? How do they stack up against other brands and what's the sentiment? And then how might we go about impacting that?

I believe you'll have really material wins there in that what you might -- anything that becomes a bit of a digital knife bite is where Pattern will likely come out on top for our brands. We just have a data moat we've been amassing over 12 years. It's almost perfect timing.

So I think we'll continue to see tremendous results there. We are waiting to see the talked about results get more live on the LLMs. I know that they've made some great progress with the ACP announcement and so forth. And the only live marketplace to date is Etsy, and it's still quite difficult to find anything on those channels and see how it works in practice. But as soon as that hits, we're ready with our brands. We have a lineup. We have a group of brands that are ready to go. And as soon as that button is pushed, we'll be pressing the revenue button there.

Okay. And I'll just say one thing on NRR because I'm just so -- I like this metric more than any other metric simply because if we win here, for one, we can count on revenue in future quarters. And this is an indicator of our machine works rather than just a sales motion, anybody can build a sales motion. But if you can build a sales motion on top of solid retention, you know that the machine works, then you can really count on long-term growth. So I think you'll -- Jason will walk through the specifics, but you'll continue to see us be just obsessed by this number. And obviously, just phenomenal results this quarter on that front.

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 3-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 in 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 4Q 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.

Yes. Thanks, John. In terms of international, I really appreciate the question. I think it's sometimes overlooked in this world of agentic on the opportunities there. If you think GMV and following GMV around the world, Pattern will naturally grow here. And it is one of our strongest moats simply because it is so hard for a brand to execute within a cost structure that -- relative to the sales opportunity if you're a single brand. This is where the scale of Pattern really starts to come through.

I'll throw a few numbers out at you. Europe grew 73% APAC grew 68% MENA grew 222%. So just tremendous growth internationally and is really helping our overall growth numbers, and you'll see that over the years, I'm sure. So the investment there, we've made many of the key investments. If you think about the structures, now we continue to invest in technology, but the underlying technology is quite modular in that the core of how it operates is the same.

And then we will have a team that we will designate to say, okay, we need to adapt this core underlying set of technologies. We need to have a module that will adapt it for, say, the APIs and the methodologies that a Walmart might use or that a Coupang might use. But the investment is much less. And then if you think logistics, for us, you need quite a light footprint and we can leverage existing logistics infrastructure. I think it's why you'll see us start winning bigger. The faster worldwide logistics infrastructure develops, you'll see us follow that development because that's where digital will start to win in general.

Thanks, Dave. John, yes, on guidance, when we look at Q4 and we think about what's built into that, we think that 32% to 36% growth is very strong when you consider the lapping impact of the strong Q4 we had last year and really take that in the context there. It really is a nice, nice result. It also includes us growing adjusted EBITDA of 44% to 48%, which has us again, year-over-year gaining a bit of leverage.

In terms of our philosophy on guidance and new brand partner revenue, on that, we'll continue to make sure that when we look at that, we will not focus so much specifically on one quarter with that metric as we will the general trend. So our pipeline looks very good there. We're very confident in it. But when we provide guidance, we don't put in what I would call the more speculative portions of that metric because we want to provide a really solid foundation for people's expectations.

The other thing on the guidance that I think is important for people to note is that Q4 is growing -- the EBITDA is growing faster than revenue, which shows that overall, our model continues to work. If you take a step back and just put the guidance in Q4 plus our year-to-date performance in context, we're going to deliver almost $2.5 billion in revenue with a growth rate in the high 30 percentages, 6% adjusted EBITDA margin. We're really, really, really impressed with that. I think it sets us up really nicely for this year and going forward.

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. And 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 4 strategic priorities. And I was just hoping you could detail maybe more of the product road map 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 road map in terms of how that leads to margin expansion going forward.

Yes, Colin, thanks for the question. I've never been more excited product road map-wise. Over the next quarter and the last quarter, I mean, we're working on some things. I guess a couple of principles that you could probably anchor on to think about. One is one of the things we're asking ourselves now in the world of agentic workflows and if you think a nondeterministic workflow as opposed to workflows historically where you define step 1, 2, 3, 4, now you can take data and you can -- has memory, so you can remember interactions that you've had in the past, you can remember what winning and losing looks like.

So the question would be now can we operate a brand without touching a keyboard. That's one of the things that we're testing. And if the data is rich enough, the sensors are rich enough, we believe we can and possibly e-com might be the most ready for an agentic workflow model that I don't know of anyone that's further along right now on that than we are. So we're very, very excited there. You'll see more of that in the future -- in the very near future.

And then in terms of logistics, of course, we continue to build technology there. That would be a long discussion to have. But the technology there is largely geared around efficiency and scale. So can we reduce costs for brands in a way that would be somewhat unprecedented. And we know we're not going to jump in there and compete on the last mile. But there is a space in there in terms of middle mile efficiency where there is enormous dollars to be saved. And I think that's where Pattern can operate at scale and make -- in terms of the complexities that exist out there, we can dramatically simplify it.

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 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 1 year.

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

When you think about building density in certain verticals in e-commerce, can you talk a little bit -- I know it's a bit of a bigger picture question, but can you talk a little bit about building density around SKUs and brands and merchants by vertical and the flywheel effects that, that can create for you as a platform in terms of generating outsized returns over the long term?

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. Well, the largest advantage that you'll see as we continue to grow and scale density there will be data advantages. So for every customer data journey input that we add to the model, it just gets better and better. And of course, as you add verticals and different products, you just -- the models continue to learn and get better. And then just pure scale across both international and U.S. and different verticals just gives you the ability to build technology and logistics infrastructure that a brand just could not build on their own at the same price point.

And small bits of precision -- I'll give you an example. We took our overall conversion rate for Pattern, all products that we support, which is over 100,000 products, and we moved in -- from quarter-over-quarter of last year, conversion at its core from 15% to 17%. And if you think about the dollars that, that drives for brands in both organic winning in just pure mathematical dollars, and then you're not paying for those -- that's not advertising driven. That is figuring out what content converts. And that is a game of enormous amounts of data and precision. So that's where density really comes through and it is just incredibly helpful for brands, and it's why you're seeing a lot of the NRR results that you are.

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. Okay. So Coupang generated -- we attributed $4.5 million in the quarter on Coupang. We expect $11 million for the end of the year. So phenomenal growth, still in the grand scheme of things as yet, still very small. But even inside the U.S., we had some really strong marketplace growth. like Walmart grew 96%. TikTok shops grew 392% off of a small base. But I think where we're really starting to see great traction is our ability to consume information and execute for brands across -- we just continue to expand the marketplace reach. And the numbers are somewhat staggering, but they shouldn't be that surprising. It's where GMV is and it's where the consumers are. And it's why you see such great results.

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. That was one of the benefits of the IPO. So I think the pipeline for us is quite long, honestly. So from the point of initial interaction, it's about 90-plus days for us to close a deal. And then from the point of closing the deal, then we have ramp curves where -- and this is the part that Jason sort of inferred is quite lumpy. So if a brand has -- some brands will have a full 9 months of inventory in a channel and some will run very lean at a couple of months. So we'll sign a deal, and then it will take us anywhere from sometimes 2 months, sometimes even 1.5 months before we'll see a material revenue to -- sometimes it's a year before we see real revenue on the outside end of that.

But what we can tell you is all of our bookings numbers that we track internally look fantastic, and we're exceeding all expectations there. That is what will end up translating into all of that new partner revenue.

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.

Yes. Thanks for the question. I referred earlier to what we call the intelligence layer. That is our top priority. We have the bulk of the company working there. And you can almost think of that as -- well, I'll give you a couple of thoughts here. If I were to say, hey, what is your favorite enterprise application? Usually, when you ask that question, people give almost a blank stare and they want to say none. So I think that the way applications work and the way that our brands and our teams will interact with applications in the future will change dramatically. We will be more chat-based, more chat data based.

And so I think MCP server integration, data across all of our platforms integrated into a reasoning model where we can take all of this data and integrate it into a reasoning model and then be able to execute without any human interaction. That is where we're focused. I see enormous cost advantages there. I see the ability to execute globally that would be somewhat unprecedented for us, even -- I couldn't have dreamed of being able to do what we could do 3 years ago. I probably wouldn't even written up that playbook before the transformer models.

So that is largely where our focus sits is on that intelligence layer, both on the execution side and the interaction side on how we'll actually interact with it. I'll give you one fun example that we're working on. So one of the things that takes a brand a while to get up to speed on is, okay, what's the market look like? Say they're selling a product like a creatine. What is everyone else doing in the space? What could I be doing different? We're going to drop a podcast in the morning that breaks down, okay, here's all your inventory levels.

They can listen to it on the way into work. Here's what everyone else is doing. Here's where you're winning, here's where you're losing, Here's maybe some content ideas. And then when they get to work or they get into their first meeting with Pattern, we can immediately execute on it or they can just verbally say, I like that idea, please execute that strategy. And by that evening, it is done. And so if you -- I mean, it's almost hard to imagine this world, but we're actually seeing the fruits of it come live.

Are you still there, Dave?

Yes.

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

I know this call has been focused a lot about agentic shopping. I was just wondering, is it the same way when you're talking with your customers? And just trying to get a sense in terms of is that -- is this one of the drivers of the strong net revenue retention you're seeing or helping to drive conversion of the new brand partners?

And then second, I just wanted to ask on margins. So EBITDA margin is up 140 basis points year-over-year. I understand that there can be puts and takes on the different variable lines. on the cost structure, but it seems like there was just like a broad outperformance or an aggregate outperformance. I just wanted to get a sense in terms of like what drove it this quarter and how we should think about the 50 basis point improvement year-over-year for next quarter?

Yes, I'll take the first bit of that in terms of NRR. NRR is just -- is an aggregate score of almost winning. So if we take a brand from the U.S. to South Korea on Coupang, that will count as net revenue retention, and we count that as a win. If we can increase traffic for a brand or conversion, that will add to our NRR numbers. All of these things are where brands -- if a brand wants to work with Pattern or continue to work with Pattern, that will be the core driver. Do they feel like they're winning? So I think that's where you'll continue to see us focus is -- but right now, it's broad-based. It's technology-based, it's international based. And then it's on top of that, it's efficient.

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.

Okay. Yes, first question, and it's a great one. And I would say, at the beginning of this year, one of the areas where we were -- we didn't really have a competitive offering was in the oversized space. And that was just simply logistics. Most of the marketplaces don't offer a competitive logistics offering and final mile delivery option for oversight. And pre-IPO, I think this is fine to talk about, but we have a partnership with Chewy. Chewy will manage our large and oversized network. So we'll use 4 of their nodes, one of our nodes. They're going to leverage our fulfillment technology within their warehouses.

And so that gives us the opportunity to almost to expand anywhere, except in areas where you would almost just inherently understand they're not great for e-com. One example is we tried to work with Kellogg's. And if you think cereal, it is just a tough go e-com. You're talking shipping a large box of air and you're trying to beat an in-store at $4. So you're going to lose money there. So I would say, inherently, things that are not e-com friendly will always be hard for us as they will be hard for anybody else. And then -- but everywhere else should be largely, at this point, open and ready 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.

A quick one for me. Just as -- how should we be thinking about EBITDA margins as the mix begins to shift to non-Amazon and international? Is there any, I guess, unit economic differences 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 just 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.