SPS Commerce delivered another profitability-driven beat in the third quarter, and it again came with a lower top-line outlook. Non-GAAP earnings of $1.39 per share topped the $1.22 consensus and the $1.30 Earnings Whisper number, a 6.9% surprise, and grew 20.9% year over year. Revenue of $197.65 million was essentially in line, beating consensus by 0.2%, but growth slowed to 4.1% from 6% in each of the first two quarters. That is the central tension: earnings and margin guidance keep moving higher while full-year revenue guidance has fallen at every report this year.
The beat came from operating leverage, not volume. Gross profit rose to $140.5 million from $132.0 million, while total operating expenses were roughly flat at $100.6 million versus $100.8 million, with R&D and G&A both lower year over year. Adjusted EBITDA rose 17% to $70.9 million, a 36% margin versus 32% a year ago. That beat the company's own $67.4 to $69.4 million guide and topped its 35% long-term target. GAAP results also improved, with net income of $0.85 per share versus $0.67, despite a higher tax rate. The capital return deserves scrutiny as a contributor. Diluted shares fell to 36.2 million from 38.0 million, and buybacks totaled $48.8 million in the quarter and $147.2 million year to date. Part of the per-share growth reflects a shrinking denominator. Still, cash generation supports it. Nine-month operating cash flow rose to $185.7 million from $132.9 million, and trailing free cash flow reached $202.6 million, up 37%.
Beneath the revenue line, the picture is more mixed than the headline deceleration suggests. Management attributed roughly 500 basis points of drag to the 3P Revenue Recovery divestiture, about $10.5 million of second-half revenue, and to the Amazon 1P take-rate business. Recurring revenue growth slowed to 4% from 6% in the second quarter and 7% in the first. Retail enablement campaigns were strong, gross retention improved, and ARPU climbed to $16,200 from $15,100 last quarter. Management guided underlying fourth-quarter growth to 8% to 9%. The soft spot is customer acquisition. The customer count is roughly flat at about 46,700 excluding the divestiture, and the mid-market ERP channel remains slow. For now, growth is coming from monetizing existing customers more than from adding new ones.
The guidance cut is where bears have legitimate ammunition. Full-year revenue is now expected at $786.9 to $788.9 million. That is below the prior $788.4 to $793.4 million range and well below the $798.5 to $806.9 million range that opened the year. The fourth-quarter revenue guide of $199.3 to $201.3 million came in below estimates and below the level implied in July. Management said the entire cut stemmed from new Amazon policy changes, including short shipments and a re-dispute process, along with faster-than-expected conversion of take-rate customers to subscriptions. It said guidance otherwise would have been raised. That explanation is credible, but Amazon policy risk has now surfaced on three calls this year. The company says it must keep the take-rate model to stay competitive for enterprise customers, so the exposure is not going away. Meanwhile, the non-GAAP EPS guide rose to $5.05 to $5.11 from $4.84 to $4.93, and the EBITDA guide rose for a third straight call. Expected margin expansion is now about 330 basis points.
The forward catalysts lean on AI execution. The MAX agentic platform is now generally available across fulfillment customers. About 20 customers are co-developing agents, an early-adopter program is expanding to roughly 200, and a paid SKU is planned for 2027. Management credited agentic onboarding with multiple competitive wins, including complex ERP integrations completed in under 30 days. It said the margin benefit has barely begun and should build over 12 to 18 months, and it promised an updated, likely higher, margin target on the fourth-quarter call. Risks include potential slippage in some fourth-quarter retail enablement programs that had not yet kicked off.
The market setup is more complicated than the surprise implies. Shares closed at $85.59 ahead of the report. That is up 19.4% from the open after the July release and 25.3% above the 200-day moving average, though 7.8% below the $92.82 inter-earnings high set just days earlier. Investor sentiment, however, remained deeply negative and was roughly unchanged at -0.596 versus -0.610. The price recovery has not translated into conviction. Earnings Whispers trend signals for price, sequential growth, momentum and AVWAP are all positive, consistent with the stock's rebound.
The bottom line is that SPS Commerce is executing well on profitability, cash flow and AI product rollout, and its core retail network looks healthier than reported growth implies. Until Amazon-related revenue stops eroding the guide and customer growth resumes, however, the quarter reads as a margin story with an unresolved top-line question.