Pattern Group Q3 2026 Earnings Call Transcript

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Provided by Quartr
November 4, 2026

Key Takeaways

  • Positive Sentiment: Pattern reported record Q3 revenue of $886 million, up 38% year over year, and adjusted EBITDA of $57 million, up 30% (40% on the CEO’s stated comparison). The company raised its full-year outlook to approximately $3.5 billion in revenue and $220 million in adjusted EBITDA.
  • Positive Sentiment: Brand expansion remained strong: net revenue retention was 127%, up from 122% a year earlier, and Pattern signed a record number of large brand partnerships for a quarter. Management said its full-year NRR is expected to end around 124%–125%, while noting its long-term target is 115%.
  • Positive Sentiment: Growth is broadening beyond Amazon and the U.S.: non-Amazon revenue grew 86% and reached 10% of total revenue, while international revenue rose 56%. Fast logistics and other monetization revenue increased 136% year over year to $18 million.
  • Positive Sentiment: Pattern is investing heavily in technology and AI, with R&D expense excluding stock-based compensation and related taxes up 105% year over year, while adjusted EBITDA margin edged up to 6.5%. Trailing 12-month free cash flow rose 50% to $106 million; the company also repurchased $18 million of shares in Q3.
  • Negative Sentiment: Q4 adjusted EBITDA guidance of $54 million–$55 million implies 27%–29% year-over-year growth, below the forecast 34%–36% revenue growth, suggesting profitability may grow more slowly than sales in the quarter.
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Earnings Conference Call
Pattern Group Q3 2026
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Operator

Hello, and thank you for standing by. My name is Demi, and I will be your conference operator today. At this time, I would like to welcome everyone to Pattern's Third Quarter 2026 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's 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 Hamish Chung, VP of Finance. You may begin.

Hamish Chung
Hamish Chung
VP of Finance at Pattern Group

Thank you, operator. Good afternoon, and thank you for joining Pattern's Earnings Call for the Third Quarter 2026. 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 our actual results to differ materially from those projected. Please refer to our latest filings with the Securities and Exchange Commission for more information on these risks and uncertainties. We may also refer to certain non-GAAP financial measures. A reconciliation of these non-GAAP measures to the most directly comparable GAAP measures can be found in our earnings release. We will focus our remarks today on the key highlights and drivers. Additional detail is available in the earnings release.

Hamish Chung
Hamish Chung
VP of Finance at Pattern Group

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 will now turn the call over to our CEO, Dave Wright. Dave, please go ahead.

Dave Wright
Dave Wright
Co-Founder and CEO at Pattern Group

Thanks, Hamish, and good afternoon, everyone. We delivered another record quarter and raised our full-year outlook. Third quarter revenue reached $886 million, up 38% year-over-year, and more than double where we were 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%.

Dave Wright
Dave Wright
Co-Founder and CEO at Pattern Group

This momentum and our year-to-date performance support our increased full-year outlook, which Jason will walk you through the details. Let me take a step back. The technology landscape is evolving quickly, and I am excited about the opportunities that pace of change creates for Pattern. The decisions we make today will shape our competitive advantage for years to come. We have a phenomenal team, and we are making excellent progress as we 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 have mentioned before. Drawing on 13 years of execution and more than 100 trillion data points, we help brands improve performance wherever consumers shop. As new capabilities emerge across marketplaces, social commerce, direct to consumer, and AI platforms, we incorporate these advances into how we serve brands.

Dave Wright
Dave Wright
Co-Founder and CEO at Pattern Group

We are confident in our advantage across the formula, underpinned by our data, technology, inventory management, and logistics infrastructure. As a quick example, Pattern annually executes $1.8 billion in total ad spend through 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. As another example, our logistics capabilities compound that momentum. We have expanded across prep, middle mile, and last mile, supported by eight dedicated distribution centers across U.S., Canada, Europe, and Asia. That infrastructure and related technology supports marketplace and direct to consumer orders, including returns.

Dave Wright
Dave Wright
Co-Founder and CEO at Pattern Group

These capabilities matter wherever demand originates, in a marketplace, on a brand's website, through social commerce, or through an AI agent. We are also building more ways for brands to connect our content, logistics, and data, including through our offering we refer to as Commerce Infrastructure as a Service, which we discussed last quarter. Let me give you a few examples of what coordinated execution means and looks like for our brand partners. A leading 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 has tripled in three years as its business expanded from six countries to 11.

Dave Wright
Dave Wright
Co-Founder and CEO at Pattern Group

A prestige jewelry brand started with us in two markets and now sells through nine marketplaces, with international revenue up 85% this year. A pet brand, whose business had been flat for three years, has grown revenue with us 43% this year alone across nine countries plus China. We are getting recognized for it. Walmart Marketplace named Pattern 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 was up 105% year-over-year in Q3, yet we continue to expand our adjusted EBITDA margins.

Dave Wright
Dave Wright
Co-Founder and CEO at Pattern Group

In the future, we expect those investments to improve efficiency, expand our reach across more geographies and marketplaces, and make Pattern an even more attractive partner for our brands. Over the trailing 12 months, we generated approximately $106 million of free cash flow, up 50% year-over-year, allowing us to invest for growth and return value to shareholders. We have the people, partners, technology, and balance sheet to continue building. Our focus remains delivering growth for our brands, investing with discipline, and creating long-term value for our shareholders. Jason, over to you.

Jason Beesley
Jason Beesley
CFO at Pattern Group

Thanks, Dave, and good afternoon, everyone. Q3 was another exciting quarter for Pattern 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 four 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.

Jason Beesley
Jason Beesley
CFO at Pattern Group

That's up from 122% a year ago and was driven by technology-driven optimizations, new marketplaces and geographies, and expanding product selection. A few revenue highlights from the quarter. First, we saw strong new brand partner revenue growth in Q3, reflecting the momentum 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 fast logistics and other monetization revenue, which grew sequentially from Q2 and increased 136% year-over-year to $18 million. We are pleased with the momentum we're 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 40% year-over-year, representing a 6.5% margin, up from 6.4% a year ago.

Jason Beesley
Jason Beesley
CFO at Pattern Group

Excluding stock-based compensation and related taxes, R&D expense was up 105% year-over-year. We continue to invest ahead of revenue in our data infrastructure and AI capability while improving cost leverage in other areas, such as sales G&A, where growth in labor costs was slower than revenue. Our variable cost components, cost of goods sold, fulfillment, and marketplace commission, grew in line with revenue. Moving now to the balance sheet and cash flow. We ended Q3 with $352 million in cash and cash equivalent, no outstanding debt, and $150 million of borrowing capacity. For the trailing 12 months ended in September 30, we generated $106 million of free cash flow, up 50% year-over-year. Our robust cash flow and capital-light model is enabling us to continue to invest for growth while returning value to shareholders.

Jason Beesley
Jason Beesley
CFO at Pattern Group

During Q3, we bought back $18 million of Series A shares under our $100 million share repurchase program. Turning to our outlook, we now expect full-year revenue to be approximately $3.5 billion, representing approximately 40% growth year-over-year. This implies over $1 billion of incremental revenue compared to 2025. That is an exciting milestone for us at Pattern. What matters even more is what we deliver for brands. We are extremely pleased with our NRR performance of 127%, and our updated outlook implies that the ending point of our NRR this year will be approximately 124%-125%. We are raising our full-year adjusted EBITDA outlook to approximately $220 million, representing 34% growth year-over-year. For the fourth quarter, we expect revenue in the range of $965 million-$985 million, representing 34%-36% growth year-over-year.

Jason Beesley
Jason Beesley
CFO at Pattern Group

We expect Q4 adjusted EBITDA in the range of $54 million-$55 million, representing 27%-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 will turn it back to Dave before we open up the call for questions.

Dave Wright
Dave Wright
Co-Founder and CEO at Pattern Group

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 and our future. Thank you for your continued support. We will now open the call for questions.

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 will 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
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 assistants 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. I am curious how that changes your channel opportunity and how you think that could look across the market over the next couple of months. Secondly, would love to hear a little bit more about just how you are thinking about product investment as we head into 2027. What do you see as really the next big areas to unlock value for merchants? Thank you.

Dave Wright
Dave Wright
Co-Founder and CEO at Pattern Group

Thanks, Justin. Great question. Yes, it is very exciting to watch. I think we have all been pretty engaged with AI in terms of research, and we are now seeing that start to shift into actual product discovery, leading to purchases. I think Muse was a great example of that. I think the on-platform or on-marketplace agents have had some level of traction previous to this, but Muse is unique that way or been a unique highlight. I think for Pattern, the ways we think about it is there is probably the biggest opportunities, if you think about which way we face, which is towards the brand. Every day we wake up, we say to ourselves, Okay, how do we serve brands better? What do they need? Now, if you are sitting in a brand seat running e-commerce, the landscape is more complex.

Dave Wright
Dave Wright
Co-Founder and CEO at Pattern Group

Every method or channel or way that people used to shop still exists, and now we are just adding some, and in some cases, we are adding channels every month, every week in some cases. If you are sitting in the seat of a brand, Pattern becomes uniquely helpful with our data moat and technology. The key areas are probably discovery and then overall fulfillment, and maybe I think we are 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 can influence that.

Dave Wright
Dave Wright
Co-Founder and CEO at Pattern Group

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 content and understand, okay, by volume, mathematically, what matters, what does not matter in terms of content, what is a brand missing, and then we are able to 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 PI. If you think of that, I do not know of any brand who can even contemplate or probably even measure what actions they are taking, but because we know that number, we can actually measure the outcome.

Dave Wright
Dave Wright
Co-Founder and CEO at Pattern Group

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. We are very excited about the future there. We think we are positioned very well to help brands gain traction in those markets. Then I guess secondly, in terms of product investment, you have seen probably our R&D numbers. There has never been a year in the history of Pattern where we have increased R&D investment like we have. Excluding stock-based comps, you see the number 105%, technology 84% increase. The unique thing is, while we are doing that, we are also increasing our margins.

Dave Wright
Dave Wright
Co-Founder and CEO at Pattern Group

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. Then I talk about some of those outputs of our Pattern Intelligence layer. I think we are first to market in many ways there. But in terms of scale, I do not know anyone who is executing 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
Justin Patterson
Analyst at KeyBanc Capital Markets

Thank you.

Operator

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

Ralph Schackart
Ralph Schackart
Analyst at William Blair

Good afternoon, and thanks for taking my 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. 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. What are the potential implications for Pattern overall? How does this relationship progress for Pattern? Thanks a lot.

Jason Beesley
Jason Beesley
CFO at Pattern Group

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. 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.

Jason Beesley
Jason Beesley
CFO at Pattern Group

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 solution in a simple place where we take care of so much on behalf of the brand is resonating even more. We're signing bigger brands, and we got lots of good momentum there. So, those would be the key drivers in terms of the growth. Specifically on your kind of quote of 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
Ralph Schackart
Analyst at William Blair

Great. Thanks, Jason.

Operator

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

Eric Sheridan
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.

Dave Wright
Dave Wright
Co-Founder and CEO at Pattern Group

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

Dave Wright
Dave Wright
Co-Founder and CEO at Pattern Group

How do I offer the best solution at the best price, as well as continue to provide operating leverage for shareholders? I think we're uniquely positioned simply because of both scale on logistics, scale on data, 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. 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. 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 we'll track a little bit closer to our progress on the agentic side.

Dave Wright
Dave Wright
Co-Founder and CEO at Pattern Group

So, we are excited on the operating leverage we see for the future.

Eric Sheridan
Eric Sheridan
Analyst at Goldman Sachs

Great. Thank you.

Operator

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

Colin Sebastian
Colin Sebastian
Analyst at Baird

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

Dave Wright
Dave Wright
Co-Founder and CEO at Pattern Group

I guess whenever you ask a question about PI, I am going to talk about largely what happens to be on my mind at the time, which almost changes daily because we have such a robust roadmap there. One of the unique advantages that we are looking at that we have with PI is we cross all the marketplaces and surfaces, including agentic surfaces. Our incentives are perfectly aligned with brands. If you think of ad spend, which we now spend on behalf of brands, $1.8 billion, and we do not do a take rate on ad spend, which is unique across, because our model is largely, we take inventory, we sell inventory. 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.

Dave Wright
Dave Wright
Co-Founder and CEO at Pattern Group

We have a significant investment there, but cross-platform, that is where we are continuing to see some great momentum. Discoverability is moving and widening, so that is where our tools and opportunity and PI, I think, have the biggest near-term opportunity that we are focused on right now. Okay, so now if we talk on the international side, I think I will turn that question to Jason, who will probably give some insight there.

Jason Beesley
Jason Beesley
CFO at Pattern Group

Yeah, Colin. In terms of thinking about both international and marketplace growth, international, we are very excited about another quarter over $100 million, this time $106 million. 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. You will 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 U.S. Currently, even this quarter, our international revenue was only 12% of the total. That is just a testament to the long runway we have to take brands that are working with us in the U.S. to international markets, to sign brands in international markets and help them be successful there.

Jason Beesley
Jason Beesley
CFO at Pattern Group

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. That concentration continues to improve. This time last year, it was 7% of the business. Now it is 10%. Again, long term, it is a similar hypothesis that we have is, we will follow how consumer GMV evolves over time. In certain countries, it is quite specific to particular marketplaces. It is specific to Amazon, but that is spreading. Our capabilities are spreading, and it is just a matter of time. It's not driven, neither of those are driven by the need to diversify for diversification's sake. They are driven by the need to help brands grow and to follow where consumers are spending.

Jason Beesley
Jason Beesley
CFO at Pattern Group

We really like how we are positioned across all, and we believe that over the long term, these things will just continue to happen as we focus on growing for brands.

Colin Sebastian
Colin Sebastian
Analyst at Baird

Okay. Thanks to both of you.

Operator

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

Bernie McTernan
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 you're providing brands in an agentic shopping world. 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? I think it has really interesting implications. We just would love to have you maybe expand upon the opportunity more.

Dave Wright
Dave Wright
Co-Founder and CEO at Pattern Group

We're very early days on the concept of a trust layer. There's multiple potential components. I don't know if you saw, when a merchant partners with, say, a Visa or Mastercard, there are limits on, say, a fraudulent charge. 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. 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.

Dave Wright
Dave Wright
Co-Founder and CEO at Pattern Group

If a brand or a merchant doesn't consistently meet those expectations, they're quite vast. 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, what are the different levers where you can increase trust with that end consumer? Whether it be commitment on deliveries 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.

Dave Wright
Dave Wright
Co-Founder and CEO at Pattern Group

I think that both consumers, brands, everyone, the talk track will start to move to trust quite quickly because capabilities, I think, are there, I think that'll be the next vector.

Bernie McTernan
Bernie McTernan
Analyst at Needham & Company

Thanks, Dave.

Operator

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

Mark Mahaney
Mark Mahaney
Analyst at Evercore

Okay. Let me try a couple of questions, please. Any update on the Thorne relationship, or just speak broadly about companies that you have worked with that have gone through acquisitions and their stickiness with the Pattern platform? Any change at all in terms of the long-term NRR goal for the company? Finally, just on the complexity of the Amazon marketplace, 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.

Dave Wright
Dave Wright
Co-Founder and CEO at Pattern Group

Thanks, Mark. A lot to unpack there. Let's start with the Thorne relationship. Jason mentioned it briefly. So far, 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 incredible runway. All relationships at all levels are, I think, fantastic, and every indicator is positive. As you mentioned, we have had similar acquisitions with some brands into these large CPGs. One of them, I think, is seven, eight years now, and same business as usual, which we expect with Thorne. Okay. On NRR, Jason and I have, we repeatedly say that we believe the long-term target for NRR is 115%.

Dave Wright
Dave Wright
Co-Founder and CEO at Pattern Group

The reason why we think that, I mean, we could adjust our thinking, but the reason why we think that is we essentially say, okay, if e-commerce growth in general is, say, 7%-9%, if we double that would be somewhere around 14%-18%. 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 are talking, when we say long term, we mean long term. We think that might normalize at 115%. Our guidance for the rest of the year is what Jason mentioned, 124%, 125% for the year.

Dave Wright
Dave Wright
Co-Founder and CEO at Pattern Group

The thing that could change that to the upside, of course, is we continue to improve technology faster than we expect. We also, agentic commerce, there is some talk track that it might increase overall e-comm spend or e-comm adoption by consumers by, say, 11%, 12%. I mean, if that happens, who knows? Those are the, I guess, the main points on NRR. Our numbers right there, I think, are almost unprecedented. We are really happy with them. Largely, anything that is NRR means our machine is working and a brand is happy. So that is why we track it.

Dave Wright
Dave Wright
Co-Founder and CEO at Pattern Group

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. 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. Anytime Amazon works to optimize, say, fulfillment, they want. Right now, I think they just announced they did 1.5 billion same-day units in the last year. From a consumer perspective, that's amazing. We've all experienced that.

Dave Wright
Dave Wright
Co-Founder and CEO at Pattern Group

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. Amazon continues to talk about their cost to serve. They continue to reduce it. 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. Those are somewhat offsetting. As any good company does, like ourselves, we just keep finding different ways to optimize. At our scale, if we can save 10 basis points, like we just improved overall conversion by two full points again over Q3 of last year.

Dave Wright
Dave Wright
Co-Founder and CEO at Pattern Group

Now, two points doesn't sound like a lot, but that is an incredible number in aggregate for the amount of business we manage. Underneath the covers there is just incredible complexity. I think we'll just continue to have those offsets for quite some time. I can't see a change there. 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
Mark Mahaney
Analyst at Evercore

Thank you very much, Dave.

Operator

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

Doug Anmuth
Doug Anmuth
Analyst at JPMorgan

Great. Thanks so much for taking the questions. I wanted to talk or ask you just a little bit about the new brand partner strength. I know things can be lumpy quarter-to-quarter, but is there anything that you guys are doing differently in terms of go-to-market or anything that's kind of working or strength you're seeing in certain verticals? 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? 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
Jason Beesley
CFO at Pattern Group

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. 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. We built better tools for our sales team to do that. We're continuing to incorporate those. We'll continue to innovate on those. That's one thing I would point to. The other one is, you've noticed we're spending more on agentic tools, and we're using those agentic tools to onboard the brands faster.

Jason Beesley
Jason Beesley
CFO at Pattern Group

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 a 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 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.

Jason Beesley
Jason Beesley
CFO at Pattern Group

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.

Dave Wright
Dave Wright
Co-Founder and CEO at Pattern Group

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. 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.

Dave Wright
Dave Wright
Co-Founder and CEO at Pattern Group

So, now the optimization moves over to the agentic side, and we find that in many cases, what might show up as, say, a top 10, top 20 result is nonexistent on the agentic side, and it'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. So, these two points are just incredible results for brands and a really significant milestone for us.

Doug Anmuth
Doug Anmuth
Analyst at JPMorgan

Thank you.

Operator

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

Analyst at Jefferies

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

Jason Beesley
Jason Beesley
CFO at Pattern Group

Thanks for the question, Chris. We are really excited about the Pattern Fulfillment business. It is growing very fast. It is in that overall 136% growth bucket of our SaaS, logistics, and other. 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.

Jason Beesley
Jason Beesley
CFO at Pattern Group

You get this economies of scale that comes with leveraging an infrastructure we are already building for the core, which is growing nice and fast, getting higher density and higher frequency on the shipping, which then benefits both of those areas, both Pattern Fulfillment and Pattern Core, right. Getting more touch points with brands as an entry point to the Pattern experience. On top of that, it is helping us build out the infrastructure that is going to be necessary in the future as we roll out our Commerce Infrastructure as a Service further off the back of the Pattern Fulfillment in the agentic world. That is how it all works. We are able to work our general CapEx trends of growing that Pattern Fulfillment business within our overall core business without a lot of incremental CapEx.

Operator

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

Brian Pitz
Brian Pitz
Analyst at BMO Capital Markets

Thanks for the questions. Maybe first more broadly, any insights on the broader consumer concerns and the K-shaped economy? I know it sounds like your outlook's pretty strong, but how are you thinking about exposure to your brands with respect to discretionary expenses versus non-discretionary? 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.

Dave Wright
Dave Wright
Co-Founder and CEO at Pattern Group

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. 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 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. I think as you look at the other retailers, they're reporting good numbers as well.

Dave Wright
Dave Wright
Co-Founder and CEO at Pattern Group

I guess we'll see how that plays out. Then in terms of brand partnerships concentration, Jason, you want to take that one?

Jason Beesley
Jason Beesley
CFO at Pattern Group

Yeah. I mean, I mentioned before, Brian, that we really like the results that we have seen in our new brand partnerships this quarter with a lot of large deals, more than we have ever had, and our average deal size going up. That is across many categories. It does not mean that we are not signing brands in health and wellness. We still feel that there is lots of room in that space to sign great brands and help them grow. There is lots of room in other categories. Over the long term, it is just a matter of time that we will diversify. In the immediate, our immediate strategy is just sign great brands wherever they are. That is kind of how we are thinking about it and how the pipeline is going. It is really robust and feeling really good about the future there.

Dave Wright
Dave Wright
Co-Founder and CEO at Pattern Group

Yeah. The pipeline, maybe I will just close with, the pipeline is as strong as probably we have 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 from Q3 of last year. So overall, phenomenal pipeline, new brand traction and growth. Then you see some of our metrics on NRR conversion. So the machine continues to work. The landscape is getting ever more complicated, which benefits us. Then scale, in terms of cost to serve, and what we can deliver at a certain price point to a brand continues to scale.

Dave Wright
Dave Wright
Co-Founder and CEO at Pattern Group

I guess right now, the way we look at it is things look pretty green across our metrics. We are pretty excited about the future. Thanks everyone for joining the call, and we will talk to you next quarter.

Operator

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

Executives
    • Hamish Chung
      Hamish Chung
      VP of Finance
    • Dave Wright
      Dave Wright
      Co-Founder and CEO
    • Jason Beesley
      Jason Beesley
      CFO
Analysts
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