Pattern Group Q3 2026 Earnings Call Transcript

Pattern Group (NASDAQ:PTRN) reported third-quarter financial results on Wednesday. The transcript from the company’s third-quarter earnings call has been provided below.

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Summary

Pattern Group reported a record Q3 revenue of $886 million, up 38% year-over-year, with adjusted EBITDA increasing 40% to $57 million.

Net revenue retention rose to 127%, indicating strong brand partnerships, and non-Amazon revenue grew 86%, contributing to 10% of total revenue.

The company increased its full-year revenue outlook to approximately $3.5 billion, representing a 40% year-over-year growth, and adjusted EBITDA to $220 million.

Pattern Group expanded its logistics capabilities and invested heavily in R&D, with expenses up 105% year-over-year, to improve e-commerce infrastructure and brand service.

CEO Dave Wright highlighted the company’s focus on leveraging technology, including Pattern Intelligence, to enhance traffic, conversion, price, and availability for brands.

Full Transcript

Demi (Operator)

Hello, and thank you for standing by. My name is Demi, and I’ll be your conference operator today. At this time, I would like to welcome everyone to the Pattern Group’s third quarter 2026 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad.

If you would like to withdraw your question, press star one again. I would now like to turn the conference over to Jaime Chuang, VP of Finance. You may begin.

Jaime Chuang (Vice President of Finance)

Thank you, operator. Good afternoon, and thank you for joining Pattern Group’s earnings call for the third 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 our actual results to differ materially from those projected.

Please refer to our latest filings with the Securities and Exchange Commission for more information on these risks and uncertainties. We may also refer to certain non-GAAP financial measures. A reconciliation of these non-GAAP measures to the most directly comparable GAAP measures can be found in our earnings release. We’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.

David Wright (Co-Founder & CEO)

Thanks, Jaime, and good afternoon, everyone. We delivered another record quarter and raised our full year outlook. Third quarter revenue reached 886 million, up 38% year over year and more than double where we were two years ago. Adjusting for the timing of promotional marketplace events, revenue growth was approximately 42% in both Q2 and Q3. Adjusted EBITDA increased 40% to 57 million. We also delivered net income of 32 million. Net revenue retention, a key benchmark of how well our model is working for brands, was 127%, up from 122% a year ago.

We delivered our largest quarter on record for new brand partnerships. In Q3 alone, we signed as many large brands as we did in our strongest full year on record. We also continued to expand across channels and geographies. Non-Amazon revenue grew 86%, reaching approximately 10% of total revenue, and international revenue increased 56%. This momentum and our year-to-date performance support our increased full year outlook, which Jason will walk you through the details.

Let me take a step back. The technology landscape is evolving quickly, and I’m excited about the opportunities that pace of change creates for Pattern Group. The decisions we make today will shape our competitive advantage for years to come. We have a phenomenal team, and we’re making excellent progress as we accelerate Pattern Intelligence, or PI. PI is the intelligence layer that brings together our technology, which are the four levers of the e-commerce equation—traffic, conversion, price, and availability—which I’ve mentioned before.

Drawing on 13 years of execution and more than 100 trillion data points, we help brands improve performance wherever consumers shop. As new capabilities emerge across marketplaces, social commerce, direct-to-consumer, and AI platforms, we incorporate these advances into how we serve brands. We are confident in our advantage across the formula, underpinned by our data, technology, inventory management, and logistics infrastructure. As a quick example, Pattern Group annually executes 1.8 billion in total ad spend through Ad Signals, Destiny, and other tools across marketplaces and channels including Meta, Google, TikTok, and ChatGPT. What differentiates our patented approach in advertising is that we optimize paid advertising to improve organic rank over time. The objective is to turn paid investment into lasting organic traffic and sales, helping brands grow without depending on continually higher advertising spend.

Another example: our logistics capabilities compound that momentum. We’ve expanded across prep, middle mile, and last mile, supported by eight dedicated distribution centers across the U.S., Canada, Europe, and Asia. That infrastructure and related technology supports marketplace and direct-to-consumer orders, including returns. These capabilities matter wherever demand originates—in a marketplace, on a brand’s website, through social commerce, or through an AI agent.

We’re also building more ways for brands to connect our content, logistics, and data, including through our offering we refer to as Commerce Infrastructure as a Service, which we discussed last quarter. Let me give you a few examples of what coordinated execution means and looks like for our brand partners. A leading U.S.-based beauty and home fragrance brand had no Amazon presence before joining us in February. In Q3, the revenue we managed grew 72% from Q2 as the catalog expanded from about 220 to more than 380 products. For a professional grooming tools brand, revenue through Pattern Group has tripled in three years as its business expanded from six countries to 11.

A prestige jewelry brand started with us in two markets and now sells through nine marketplaces, with international revenue up 85% this year. And a pet brand whose business had been flat for three years has grown revenue within the U.S. 43% this year alone across nine countries plus China. And we’re getting recognized for it. Walmart Marketplace named Pattern Group the Outstanding Seller in Consumables at its annual Let’s Grow Seller Summit. TikTok recognized us as a Star Partner in October, and Inc. named us as a Power Partner for the fifth consecutive year.

Our business model gives us room to invest in technology while maintaining operating leverage. Excluding stock-based compensation and related taxes, R&D expense for Pattern Group was up 105% year over year in Q3, yet we continue to expand our adjusted EBITDA margins. In the future, we expect those investments to improve efficiency, expand our reach across more geographies and marketplaces, and make Pattern Group an even more attractive partner for our brands.

Over the trailing 12 months, we generated approximately 106 million of free cash flow, up 50% year over year, allowing us to invest for growth and return value to shareholders. We have the people, partners, technology, and balance sheet to continue building. Our focus remains delivering growth for our brands, investing with discipline, and creating long-term value for our shareholders. Jason, over to you.

Jason Beesley (Chief Financial Officer)

Thanks, Dave, and good afternoon, everyone. Q3 was another exciting quarter for Pattern Group on many fronts. We continued to see broad-based strength across brand partners, geographies, and marketplaces, and delivered 886 million of revenue, up 38% year over year. Adjusted EBITDA grew 40%, reflecting our disciplined approach to investing for growth while maintaining effective cost management. As a reminder, these results reflect approximately 4 points of revenue shift from Q3 into Q2 due to the timing of marketplace promotional events, which we talked about last quarter.

Adjusting for that timing shift, Q3 revenue grew approximately 42% year over year. We are pleased that our year-to-date performance, robust tech platform, and ongoing business momentum is enabling us to raise our full year outlook on both the top and bottom line. In Q3 we delivered a strong NRR of 127% for our brand partners. That’s up from 122% a year ago and was driven by technology-driven optimizations, new markets and geographies, and expanding product selection. A few revenue highlights from the quarter: first, we saw strong new brand partner revenue growth in Q3, reflecting the momentum Dave highlighted in our new partner relationships. For the full year, we expect new brand partner revenue to grow at roughly twice the rate it grew in 2025.

Second, while still a smaller portion of our business, we are continuing to gain traction in SaaS, logistics, and other monetization revenue, which grew sequentially from Q2 and increased 136% year over year to 18 million. We are pleased with the momentum we are seeing, which is largely being driven by transaction-based business models. Turning to operating expenses and profitability, adjusted EBITDA was 57 million in Q3, up 30% year over year, representing a 6.5% margin, up from 6.4% a year ago. Excluding stock-based compensation and related taxes, R&D expense was up 105% year over year. We continue to invest ahead of revenue in our data infrastructure and AI capability, while improving cost leverage in other areas such as Sales, G&A, where growth in labor costs was slower than revenue.

Our variable cost components—cost of goods sold, fulfillment, and marketplace commissions—grew in line with revenue. Moving now to the balance sheet and cash flow, we ended Q3 with 352 million in cash and cash equivalents, no outstanding debt, and 150 million of borrowing capacity. For the trailing 12 months ended September 30, we generated 106 million of free cash flow, up 50% year over year. Our robust cash flow and capital-light model is enabling us to continue to invest for growth while returning value to shareholders. During Q3 we bought back 18 million of Series A shares under our 100 million share repurchase program.

Turning to our outlook, we now expect full year revenue to be approximately 3.5 billion, representing approximately 40% growth year over year. This implies over 1 billion of incremental revenue compared to 2025. That’s an exciting milestone for us at Pattern Group. What matters even more is what we deliver for brands. We are extremely pleased with our NRR performance of 127%, and our updated outlook implies that the ending point of our NRR this year will be approximately 124% to 125%.

We are raising our full year adjusted EBITDA outlook to approximately 220 million, representing 44% growth year over year. For the fourth quarter, we expect revenue in the range of 965 to 985 million, representing 34% to 36% growth year over year. We expect Q4 adjusted EBITDA in the range of 54 to 55 million, representing 27% to 29% growth year over year. In closing, as we reflect on one full year as a public company, we are more optimistic than ever. We believe the power of our model, brand, partners, and team—combined with our balance sheet strength—are advantages that will continue to compound, driving durable growth and long-term shareholder value. With that, I’ll turn it back to Dave before we open up the call for questions.

David Wright (Co-Founder & CEO)

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

We’ll now open the call for questions.

Demi (Operator)

Thank you. We will now begin the question-and-answer session. To ask a question, please press star, then the number one on your telephone keypad. To withdraw your question, press star one again. We do request for today’s session that you please limit to one question and one follow-up. We’ll pause for just a moment to compile the Q&A roster. Our first question comes from the line of Justin Patterson with KeyBanc Capital Markets. Your line is open.

Justin Patterson (Analyst at KeyBanc Capital Markets)

Great. Thank you very much and good afternoon. Dave, I was hoping you could talk about just the rise of assistance like Muse and Instinct. These are really some of the first instances where we’ve seen more meaningful use cases of shopping starting to pop up. So I’m curious how that changes your channel opportunity and how you think that could look across the market over the next couple of months. And then secondly, would love to hear a little bit more about just how you’re thinking about product investment as we head into 2027.

Well, BC has really been the next big area to unlock value for merchants. Thank you.

David Wright (Co-Founder & CEO)

Thanks, Justin. Great question. Yes, it’s very exciting to watch. You know, I think we’ve all been pretty engaged with AI in terms of research and we’re now seeing that start to shift into actual product discovery leading to purchases. I think Muse was a great example of that. I think, you know, the on-platform or on-marketplace agents have had some level of traction previous to this, but Muse is unique that way, or, you know, a unique highlight.

So I think for Pattern Group, the key, the ways we think about it is there’s probably the biggest opportunities if you think about which way we face, which is towards the brands. Every day we wake up, we say to ourselves, okay, how do we serve brands better? What do they need now? And if you’re sitting in a brand seat running e-commerce, the landscape is more complex. So every method or channel or way that people used to shop still exists and now we’re just adding some.

And in some cases we’re adding channels every month, every week in some cases. So if you’re sitting in the seat of a brand, Pattern Group becomes uniquely helpful with our Data Mountain technology. So the key areas are probably discovery and then overall fulfillment. And maybe I think we’re going to start talking more and more about what I might refer to as a trust layer, how often people will trust an overall system and decide to execute a purchase there. And I think Pattern Group can influence that. So in the discovery area, I think we have possibly the best data advantage that I know of, which is a robust set of data where we can essentially concatenate SEO into semantic intent and understand, okay, by volume mathematically what matters, what does not matter in terms of content, what is a brand missing?

And then we’re able to A/B test all of those outcomes. As an example, today we run 38.25 million actions a day, actual actions that do something on behalf of brands, through PIE. So if you think of that, I don’t know of any brand who can even contemplate or probably even measure what actions they’re taking. But because we know that number, we can actually measure the outcome. So that will go to discoverability, and then you start getting into fulfillment logistics.

What influences why a consumer picks one brand over another. And that is not just unique to marketplaces; that will expand to all of the agentic platforms. So we’re very excited about the future there. We think we’re positioned very well to help brands gain traction in those markets. And then I guess secondly, in terms of product investment, well, you’ve seen probably our R&D numbers. There’s never been a year in the history of Pattern Group where we’ve increased R&D investment like we have. Excluding stock-based comp, you see the number 105% technology, 84% increase. Really the unique thing is while we’re doing that, we are also increasing our margins. So our business model is allowing us to invest in a major way in technology, take advantage of the opportunities we have there, as well as maintain margins.

And then I talk about some of those outputs of our Pattern Intelligence layer. I think we’re first to market in many ways there, but in terms of scale, I don’t know anyone who’s executing in the realm of millions and millions of actions daily on behalf of brands. It is a very exciting opportunity for us, for the future.

Justin Patterson (Analyst at KeyBanc Capital Markets)

Thank you.

Demi (Operator)

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

Ralph Schackart (Analyst at William Blair)

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

Jason Beesley (Chief Financial Officer)

Thanks, Ralph. On terms of drivers of growth, we’re really happy with how Q3 turned out and that’s why we raised our outlook. You know, if I start first with the biggest part with existing brand revenue and the NRR around that of 127%, that continues to be—the majority of it is driven by the technology optimizations. The geographic expansion was strong as well, and expanding products was a little bit less strong this quarter because we knew we’d be lapping a pretty strong quarter in Q3 last year on that specific vector of growth there.

The other highlight that Dave mentioned and I mentioned in the prepared remarks is new brand partner revenue. We’re really finding that as the world gets more complex, as Dave mentioned in the first question, across the e-commerce formula and different surfaces and different optimizations that need to happen, that the Pattern Group solution in a simple place where we take care of so much on behalf of the brand is resonating even more and we’re signing bigger brands and we’ve got lots of good momentum there.

So those would be the key drivers in terms of the growth. Specifically on your question on the P&G earnings call, we continue to be confident in all our great relationships with Thorne leadership and the many brands that we work with in P&G. All indications continue to be positive and focused on growth, and it’s really just business as usual.

Ralph Schackart (Analyst at William Blair)

Great, thanks, Jason.

Demi (Operator)

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

Eric Sheridan (Analyst at Goldman Sachs)

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

David Wright (Co-Founder & CEO)

Yeah, I think the core thing that every company that will be successful long term has to be focused on is who they serve. So for us it’s the brand. So every day it’s really a question of what will move the needle more for a brand. And we have a development roadmap that just follows that. And of course, you know, it goes across revenue for our brand is traffic, conversion, price, you know, and availability, and, and, and we have to deliver that at a price point that we believe they cannot match.

And I believe we’re there. So, you know, as we invest and as we, you know, in different areas, we do get operating leverage. We’re continuing to see that, we expect that to continue. We also expect to continue to offer better and better pricing to a brand. So I think every company that’s successful long term has to tackle both: how do I offer the best solution at the best price as well as continue to provide operating leverage for shareholders. And I think we’re uniquely positioned simply because of both scale on logistics, scale on data scale, you know, scale of technology.

We don’t have to rebuild it for every brand, every geography, every marketplace, every surface area. The concepts stay the same, which allows us to just get really quite significant operating leverage. And then I know you’re probably familiar with one thing that we highlighted is our SaaS logistics and other bucket grew 136%, which now hit 18.1 million. That is a great business now, and that’s a quarterly number. When we first started, those numbers were quite insignificant. So we’re continuing to see momentum there. That’s a higher margin business in general and will track a little bit closer to our progress on the agentic side. So, I mean, we’re excited on the operating leverage we see for the future.

Eric Sheridan (Analyst at Goldman Sachs)

Thank you.

Demi (Operator)

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

Colin Sebastian (Analyst at Baird)

Great, thanks. Good afternoon, Dave. As brands adopt and ramp up their usage of pie, I’m curious what you’re learning about the capabilities they value the most—maybe where you have opportunities to expand the product there. And then my second question is just looking across international and non-Amazon channels, where you’re seeing the most durable momentum and sort of what maybe explains some of the changes in the growth rates there this quarter.

Thank you.

David Wright (Co-Founder & CEO)

You know, I guess whenever you ask a question about pie, I’m going to talk about largely what happens to be on my mind at the time, which almost changes daily because we have such a robust roadmap there. But one of the unique advantages that we’re looking at that we have with PIE is we cross all the marketplaces and surfaces, including agentic surfaces, and our incentives are perfectly aligned with the brand. So if you think of ad spend, which, you know, we now spend on behalf of brands, you know, $1.8 billion, and we don’t do a take rate on ad spend, which is unique across, you know, because our model is largely, you know, we take inventory, we sell inventory. So when you see a revenue number show up for us, it shows up for a brand somewhere.

What you might not know is of that $1.8 billion, the majority is actually not on Amazon. We have a significant investment there, but cross-platform, that’s where we are continuing to see some great momentum. Discoverability is moving and widening. So that’s where our tools and opportunity in PIE, I think, have the biggest near-term opportunity that we’re focused on right now. Okay, so now if we talk on the international side, I think I’ll turn that question to Jason, who will provide some insight there.

Yeah, Colin. In terms of thinking about both international and marketplace growth, international, we’re very excited about another quarter over 100 million this time — 106. There is some variability in the growth rate this quarter due to some of those marketplace event shifts as well as lapping some tougher comps in Europe. And you’ll remember this time last year we launched Coupang from zero. Long term, we love the international opportunity because you just take a step back and you say, okay, consumer GMV on digital is over half outside the US and currently, even this quarter, our international revenue was only 12% of the total. So that’s just a testament to the long runway. We have to take brands that are working with us in the US to international markets, to sign brands in international markets, and help them be successful there.

On the marketplace side, 86% growth of all of our non-Amazon revenue — still very strong, still much greater than our Amazon-specific revenue there. And that concentration continues to improve. This time last year it was 7% of the business, now it’s 10 again. Long term, it’s a similar hypothesis that we have: we will follow how consumer GMV evolves over time. In certain countries, it’s quite specific to particular marketplaces — it’s specific to Amazon — but that is spreading.

Our capabilities are spreading and it’s just a matter of time. Neither of those are driven by the need to diversify for diversification’s sake. They’re driven by the need to help brands grow and to follow where consumers are spending. So we really like how we’re positioned across all, and we believe that over the long term these things will just continue to happen as we focus on growing for brands.

Colin Sebastian (Analyst at Baird)

Okay, thanks to both of you.

Demi (Operator)

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

Bernie McTernan (Analyst at Needham & Company)

Great, thanks. Just wanted to follow up on the answer to Justin’s question about the services and products that you’re providing brands in an agentic shopping world. And I think, at least I understand the discovery and fulfillment piece, but can you talk about what you can provide brands on a trust layer? Because I think it has really interesting implications. We just would love to have you maybe expand upon the opportunity more.

David Wright (Co-Founder & CEO)

Very early days on the concept of a trust layer. I mean, there’s multiple potential components. I don’t know if you saw, you know, when a merchant partners with, say, Visa or MasterCard, there are limits on, say, a fraudulent charge — you know, generally 2.2%. I think they lowered it to 1.5%. So in an agentic world, if there’s a fraudulent charge, what might a merchant be able to do to provide a guarantee so that an agent chooses one merchant or brand over another?

There’s some interesting trust layer components there. And then things like, what is your track record? I believe that in the long run there’ll be a concept of a brand or service agent and likely a buyer’s agent. So your buyer would know you very well. It would understand what you like, what you don’t like, what your parameters are, what your delivery timelines are. And if a brand or a merchant doesn’t consistently meet those expectations — and they’re quite vast — you know, you have your forward fulfillment, all of your delivery expectations; then you have customer service expectations. How obsessed are you going to be about maintaining your track record for agents? Will you provide a direct API so an agent can actually process some basics of return or report that you got the wrong size without having a human in the loop? How easy are you going to make it and what are the different levers where you can increase trust with that end consumer — whether it be commitment on delivery that you meet consistently, whether it be the returns process, how easy it is, whether it be that you’re willing to guarantee or provide some layer when there’s a fraudulent charge?

There’s a lot of opportunity that we’re discussing on that trust layer. I think that both consumers, brands and everyone — the talk track will start to move to trust quite quickly because capabilities, I think, are there and I think that would be the next sector.

Bernie McTernan (Analyst at Needham & Company)

Thanks, David.

Demi (Operator)

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

Mark Mahaney (Analyst at Evercore ISI)

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

David Wright (Co-Founder & CEO)

Thanks, Mark. A lot to unpack there. Let’s start with the Thorne relationship. You know, Jason mentioned it briefly so far. Just, you know, everything we hear from Thorne — we have great relationships with Thorne, phenomenal brand. I think that Procter & Gamble will be thrilled with the acquisition over the long run. I think they have some, just incredible runway. All relationships at all levels are, I think, fantastic and every indicator is positive.

And as you mentioned, you know, we’ve had similar acquisitions with, you know, some brands into these large CPGs. One of them I think is seven, eight years now — you know, so — and same, you know, business is as usual, which we expect with Thorne. Okay, then on NRR. Jason and I have — you know, we repeatedly say that we believe the long-term target for NRR is 115. And the reason why we think that — I mean, we could adjust our thinking — but the reason why we think it is we essentially say, okay, if e-commerce growth in general is, say, 7% to 9%, if we double that, that would be somewhere around 14% to 18%. And then you take out a little bit of attrition — so some brands will attrit for whatever reason.

In order to maintain an NRR of 115, you have to operate at what we believe to be an extraordinary level. Now we do continue to beat all of those expectations. But if you think long term — now we’re talking, when we say long term, we mean long term — you know, we think that might normalize at 115, and our guidance for the rest of the year is, you know, what Jason mentioned, 124, 125 for the year. Now, the thing that could change that to the upside of course is we continue to improve technology faster than we expect.

We also — you know, agentic commerce — there is some talk track that it might increase overall e-commerce spend or e-commerce adoption by consumers by, say, 11%, 12%. I mean, if that happens, you know, who knows? But those are the, I guess, the main points on NRR. But our numbers right there, I think, are almost unprecedented. We’re really happy with them. But largely anything that is in NRR means our machine is working and a brand is happy. So that’s why we track it.

We don’t really track it on the investor side other than to try to communicate, hey, this is an investment that is very sound and we can prove it with the numbers. Okay, so now on the complexity of Amazon. I mean, Amazon continues to make certain things easier, but large companies — every large company — continues to add vectors of optimization. So anytime Amazon works to optimize, say, fulfillment — they want, and right now I think they just announced 1.5 billion same-day units in the last year. So from a consumer perspective, that’s amazing. We’ve all experienced that. But if you’re on our end or a brand’s end, Amazon is saying, hey, get the product closer to the consumer when you send it in, and we’re going to optimize our supply chain so that we can make that cost less.

And Amazon continues to talk about their cost to serve — they continue to reduce it. So as they continue to optimize that, it usually provides complexity for brands and ourselves, but at the same time their tools get better and better. We get more visibility into data, we’re able to understand the ecosystem better. So those are somewhat offsetting. But as any good company does, like ourselves, we just keep finding different ways to optimize. And at our scale, if we can save 10 basis points — like we just improved overall conversion by 2 full points again over Q3 of last year. Now, 2 points doesn’t sound like a lot, but that is an incredible number in aggregate for the amount of business we manage. So, you know, underneath the covers there is just incredible complexity. So I think we’ll just continue to have those offsets for quite some time. I can’t see a change there. And then of course we mentioned earlier all the new surface areas that brands have to manage where we’re a great fit for.

Mark Mahaney (Analyst at Evercore ISI)

Okay, thank you very much, Dave.

Demi (Operator)

Next question comes from the line of Doug Anmuth with JP Morgan. Your line is open.

Doug Anmuth (Analyst at JPMorgan)

Great, thanks so much for taking questions. I wanted to ask you just a little bit about the new brand partner strength. I know things can be lumpy quarter to quarter, but is there anything that you guys are doing differently in terms of go-to-market or anything that’s kind of working, or strength you’re seeing in certain verticals? And I guess related to that, how are some of the network effects that you’ve had in health and wellness kind of spilling over into some new categories?

And Dave, since you just mentioned the overall conversion increasing by two full points, which is obviously very significant relative to last year, can you just talk a little bit about the drivers there that you’re seeing, if there’s anything specific to call out? Thanks.

Jason Beesley (Chief Financial Officer)

Thanks, Doug. I’ll take the first part and then I’ll throw it over to Dave for the second question. We’re really pleased with how we’re bringing on more brand partnerships and bigger brand partnerships and, really, fundamentally at its core it’s about providing data earlier in those discussions to demonstrate how the brand can improve the e-commerce equation across many different marketplaces. And we built better tools for our sales team to do that.

We’re continuing to incorporate those. We’ll continue to innovate on those. So that’s one thing I would point to. The other one is you notice we’re spending more on agentic tools, and we’re using those agentic tools to onboard the brands faster. There’s quite a lot of complexity that comes when you bring a brand into our model, and we’re able to do that on a quicker, higher-quality basis, which then not only improves the brand experience, but allows us to get to new brand partner revenue in a quicker way. All of those things feel like sustainable changes that will continue to improve in the future.

Specifically on the reputational cycle, we do find generally that kind of the professionals in any one category tend to stick with that category. But it

David Wright (Co-Founder & CEO)

It is fun when there are health and wellness professionals that move to another category and help us gain more strength there. We’re really focused on building that trust cycle in the categories themselves. And as I mentioned, Beauty, Pet, and others like Home and Kitchen are all areas where we’ve seen better fruits there this year than we have in prior years. Yeah, Doug, thanks for the question on conversion. It’s such a significant milestone for us. If you think about it, the vector has become so fun right now because of course you understand our technology is optimized for organic in the past. And you have a set of data or SEO or keywords, keyword phrases that a consumer might type in to solve some problem. And you have multiple sets of lists that you might understand that would be organic ranking. Well, now those lists — there’s almost an infinite amount of metrics to measure now.

But the biggest driver right now is Alexa or agentic discovery that is coming into the picture. It’s converting at a much higher rate. So now the optimization moves over to the agentic side and we find that in many cases what might show up as, say, a top 10, top 20 result is non-existent on the agentic side and it’s a new set of solutions or brands or products that are served up. So now the data that you need to provide — but remember on most platforms there’s only a limited set of content that they will land on from all of those different vectors of shopping or discoverability — and you have to mathematically figure out which content will resonate. And now the variables have gone up and so it becomes just a much more fun problem for our teams. And so these two points are just incredible, incredible results for brands and a really significant milestone for us.

Doug Anmuth (Analyst at JPMorgan)

Thank you.

Demi (Operator)

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

Jason Beesley (Chief Financial Officer)

Thanks for the question, Chris. Yeah, we’re really excited about the Pattern Fulfillment business. It’s growing very fast. It’s in that overall 136% growth bucket of our SaaS, logistics and other, and I think the key thing to think about here when you think about investment in this is we are leveraging a logistics infrastructure that we already built for our core business model. The warehouses that are doing Pattern Fulfillment for brands or sellers are the same warehouses that are doing our core business model where we buy and sell the inventory.

Even interesting stat: the trucks themselves, on a cubic foot basis, that go into these various marketplaces have more non–Pattern-owned volume than they do Pattern-owned. So you get these economies of scale that comes with leveraging an infrastructure we’re already building for the core, which is growing nice and fast, getting higher density and higher frequency on the shipping, which then benefits both of those areas — both Pattern Fulfillment and Pattern core — and getting more touch points with brands as an entry point to the Pattern experience. On top of that, it’s helping us build out the infrastructure that’s going to be necessary in the future as we roll out our commerce infrastructure as a service further off the back of the Pattern Fulfillment in the agentic world.

So that’s how it all works. And we’re able to work our general capex trends of growing that Pattern Fulfillment business within our overall core business without a lot of incremental capex.

Demi (Operator)

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

Brian Peetz (Analyst at BMO Capital Markets)

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

I know you’ve got some new brands, but where are you really targeting in the future? Thanks.

David Wright (Co-Founder & CEO)

Yeah, yeah, thanks, Brian. Yeah, great questions. We get the macro question quite a bit, and it would be overstating probably for us to give any real guidance that you could rely on there. But for one, I don’t know if anyone knows exactly, but we’re also quite insulated because if our brands are winning — I mean you see our NRR numbers — so, you know, every time I get this question I’m like, seems great from our vantage point, but we’re also attacking the problem in a very unique way, and we have some really strong brands.

So I think I’ll probably leave the overall question on where that’s headed to people who are deep in that space. We feel very good about it. We aren’t seeing any weakness; we’re seeing strength. And I think as you look at the other retailers, they’re reporting good numbers as well. So I guess we’ll see how that plays out. And then in terms of brand partnerships concentration. Jason, you want to take that one?

Jason Beesley (Chief Financial Officer)

Yeah. I mentioned before, Brian, that we really like the results that we’ve seen in our new brand partnerships this quarter, with a lot of large deals, more than we’ve ever had, and our average deal size going up. That’s across many categories. It doesn’t mean that we’re not signing brands in health and wellness. We still feel that there’s lots of room in that space to sign great brands and help them grow, but there’s lots of room in other categories, and over the long term it’s just a matter of time that we’ll diversify.

But in the immediate, you know, our immediate strategy is just sign great brands wherever they are. And so that’s kind of how we’re thinking about it and how the pipeline’s going. It’s really robust and feeling really good about the future there.

David Wright (Co-Founder & CEO)

Yeah, yeah. The pipeline — maybe I’ll just close with — the pipeline is as strong as probably we’ve ever seen. The results, as I mentioned, we measure one concept where we say, okay, in terms of large brands, which we define as 20 million or above, we signed more — well, equal to any year in history — in the quarter. So phenomenal result there. Our average deal size is up 41% quarter, you know, from Q3 of last year. So overall, phenomenal pipeline, new, new, new brand traction and growth.

And then you see some of our metrics on NRR, conversion. So the machine continues to work. The landscape is getting, you know, ever more complicated, which benefits us. And then scale in terms of cost to serve and what we can deliver at a certain price point to a brand continues to scale. So I guess right now the way we look at it is things look pretty green across our metrics. We’re pretty excited about the future. And thanks, everyone, for joining the call, and we’ll talk to you next quarter.

Demi (Operator)

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

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