BigCommerce Holdings, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the BigCommerce third quarter 2022 earnings call. At this time, all participants will be in a listen-only mode. After the speaker's presentation, there will be a question and answer session. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your first speaker today, Mr. Daniel Lentz, HIDM Investor Relations. You may begin.

Good afternoon and welcome to BigCommerce's third quarter 2022 earnings call. We will be discussing the results announced in our press release issued after today's market close. With me are BigCommerce's President, CEO and Chairman Brent Bellum and CFO Robert Alvarez. Today's call will contain certain forward-looking statements which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements concerning financial and business trends, our expected future business and financial performance and financial condition, and our guidance for the fourth quarter of 2022 and the full year 2022. These statements can be identified by words such as expect, anticipate, intend, plan, believe, seek, committed, will, or similar words. These statements reflect our views as of today only and should not be relied upon as representing our views at any subsequent date, and we do not undertake any duty to update these statements. Forward-looking statements by their nature address matters that are subject to risks and uncertainties, that could cause actual results to differ materially from expectations. For discussion of the material risks and other important factors that could affect our actual results, please refer to the risks and other disclosures contained in our filings with the Securities and Exchange Commission. During the call, we will also discuss certain non-GAAP financial measures, which are not prepared in accordance with generally accepted accounting principles. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures, as well as how we define these metrics and other metrics, is included in our earnings press release, which has been furnished to the SEC, and is also available on our website at investors.bigcommerce.com. With that, let me turn the call over to Brent.

Thanks, Daniel, and thanks, everyone, for joining us. On today's call, RA and I will review our third quarter results, highlight developments in the quarter, and discuss our view on the current operating environment. RA will also provide our view on Q4 and what we expect to see generally in the front half of 2023 in his discussion on updated guidance. First and foremost, I'm pleased to share that we beat the high side of our guidance range for revenue and also outperformed our expectations on non-GAAP operating loss in Q3. Without doubt, we face a challenging operating environment. We are managing our business tightly and remain committed to deliver the growth and operating leverage expectations we provide. Let's discuss the details. In Q3, total revenue grew to $72.4 million, up 22% year over year. Our non-GAAP operating loss was $11.5 million. We concluded Q3 with an annual revenue run rate, or ARR, at $305 million, up 20% from last year. That represents a sequential growth in ARR of $9.4 million. Enterprise account ARR was $216.2 million, up 35% year-over-year. The enterprise segment now represents 71% of our total company ARR. We believe enterprise can eventually grow to more than 80% of our total company ARR and drive strong financial performance in the coming years. I would like to highlight four areas of encouraging progress and resilient underlying performance in the business in Q3 and thus far in 2022. First, despite macroeconomic and geopolitical uncertainties, we have overperformed revenue expectations every quarter in 2022, and as RA will discuss in our Q4 guidance, we believe we can exceed the 2022 revenue expectations we set at the beginning of the year. We saw continued above-market growth in subscription and partner and services revenue in Q3, driven by strong enterprise retention and durable order volume in GMV. Second, we see tremendous enthusiasm in our partner communities. In August and September, we held a series of three partner summits, one each for our Americas, EMEA, and APAC regions, where we celebrated our joint success and progress and shared our roadmap and priorities for the future. It is clear to us and our partners that that the future of enterprise e-commerce is open and composable, and BigCommerce provides the level of composability that B2C and B2B merchants need without the costs and complexities of competitive offerings. During these summits, we announced the launch of our new Omnichannel Certified Partner Program. This is a new platform agnostic program for agency, channel, and technology partners that offers unique benefits to help merchants sell more across more channels. Today's merchants know they need to meet their customers where they shop and spend their time online, but they often struggle to determine the best combination of channels for their business or the best solutions they should utilize to drive the best return on ad spend and conversion on each channel. This program solves that, and we're doing it in a very big commerce way by leveraging our strong partner relationships with both agency and tech partners. Our agency partners benefit by leveraging improved product data and listings through feed optimization using Feedonomics, which we acquired last year, omnichannel growth consultations with big commerce experts, and access to exclusive channel partner alpha and beta programs with partners including Amazon Buy with Prime, Google, TikTok, Meta, Snap, Target Plus, and Walmart Marketplace, among others in select regions. We're already seeing substantial demand globally with close to 100 agencies, and tech partners in the program since launching it just a few weeks ago. It's a great win-win-win for merchants, partners, channels, and BigCommerce. I would also like to reinforce that this is a platform-agnostic program. We aim to open commerce. We are using the combined expertise of BigCommerce and Feedonomics to help businesses succeed in omnichannel advertising and selling, whether they are using BigCommerce or a competing e-commerce platform. The more businesses succeed in omnichannel commerce, and the more agencies are able to use big commerce and feedonomics expertise to better meet their clients' needs, the stronger our business will become and the faster we will grow. We believe the future of commerce is open, flexible, and composable. These great partner programs highlight that conviction. Third, we continue to release features, product improvements, and partnerships that resonate with our target market of established and growing businesses. In Q3, we launched the closed beta of multi-location inventory. At the end of 2022, we will launch a set of new and updated APIs that enable merchants to create custom buy online pickup and store experiences. As shoppers increasingly demand flexible, fast, and convenient fulfillment options, these foundational APIs enable large enterprise merchants to create complex multi-location inventory scenarios. In addition, our customer segmentation feature is in open beta, as well as our app extension feature, which allows third parties to deeply integrate into the control panel experience. In August, we announced an expanded partnership with Affirm, enabling merchants of all sizes to be able to use Affirm's adaptive checkout. This provides eligible customers with the flexibility and control to choose which payment schedule works best for them. In September, we announced a strategic partnership with cryptocurrency leaders BitPay and CoinPayments, to easily and securely deliver cryptocurrency payment solutions to big commerce merchants. We also announced the launch of BigCommerce on Google Cloud Marketplace, making it easier for global enterprise customers to modernize their e-commerce platform to expand audience reach and drive business growth. This gives businesses powerful e-commerce tools that work within the Google Cloud ecosystem to reach more people and drive sales at every stage of growth. Earlier this week, we announced our launch of Snapchat for BigCommerce in partnership with Snap Inc. This gives BigCommerce merchants of all sizes the ability to create, manage, and optimize Snapchat ad campaigns to showcase products and broaden audience reach to millions of Snapchat users. Also in Q3, we successfully obtained SOC 1 Type 2 and SOC 2 Type 2 certifications, demonstrating commitment to protecting our customers' sensitive and valuable information. These certifications are very important to enterprise merchants and strengthen our reputation with those businesses. Fourth, we are rolling out bigger and more sophisticated enterprise accounts than ever. IAG Loyalty, the loyalty program for British Airways and partner airlines, launched the Wine Flyer, a new online store leveraging BigCommerce's Open SaaS API-first platform, where the millions of members of the British Airways Executive Club can exchange loyalty points for wine and earn loyalty points by making purchases. One Kings Lane, a US-based seller of designer, vintage, and exclusive home furnishings, launched a beautiful custom headless site, taking advantage of our integrations with Avalara, Braintree, and Cybersource. Music Direct, the world's largest online retailer for high-end audio equipment, music, and accessories, is now selling on BigCommerce with a custom order flow built on a custom Azure environment that is seamlessly integrated with its ERP. Hungry Harvest, which nobly reduces food waste by selling rescued produce that otherwise would have been discarded due to surplus, supplier over-purchasing, or physical deformity, took advantage of our multi-storefront functionality to launch two stores, one for their customers' on-demand purchases and another for its subscribers. MKM Building Supply, a prominent UK-based hardware and commercial building supply company, launched a new headless store that allows them to have more flexibility and an improved website design. Jimmy Brings, one of Australia's largest express alcohol delivery services, launched a progressive web app storefront built on BigCommerce's headless architecture that takes advantage of our local Australia-based hosting offering to maximize page speed and minimize the potential for disruptions. And last but not least, Dippin' Dots, the frozen treat brand that our kids no doubt know, launched a new storefront that combines a fun and engaging customer experience with checkout functionality that ensures that temperature-sensitive products are delivered when their buyers want them. Now I would like to address some of the macro-driven challenges we face and our actions to focus resources on our highest ROI opportunities. R.A. will expand on many of these further during his remarks as well. Similar to other e-commerce providers, Booking's growth was a bit slower in Q3 than in previous quarters. We are seeing different dynamics at play here in the enterprise and non-enterprise portions of our business. Enterprise ARR grew sequentially by $9.6 million, which was a positive result in a difficult climate. We are seeing larger and larger enterprise deals in our pipeline, growing tractions with large, sophisticated systems integrators, and outstanding partner engagement momentum. We continue to see high win rates in enterprise as well. However, we are also seeing slightly longer sales cycle times and tighter volume of leads overall, consistent with what normally happens during economic down cycles. With respect to the non-enterprise portion of the business, we are actively shifting our demand generation budgets, both in people cost and variable spending, towards the superior economics delivered by enterprise accounts. We have tested this increased spending prioritization over the past two quarters, and we are moving full speed on this now across all teams and budgets. We are also focusing on ROI and operating leverage by removing most promotions on new non-enterprise bookings. This is increasing revenue and profit, even as it delivers fewer short-term bookings in the non-enterprise business. We will continue to invest in our non-enterprise business, but we plan to focus more on R&D, product excellence, inbound marketing activities, and self-service sign-ups to improve the LTV2CAC for non-enterprise plans. From a retention point of view, We have seen the same level of strong results in enterprise as we saw both during and post-pandemic. As we have discussed in previous calls, however, non-enterprise account retention has not maintained the performance of the pandemic's early quarters. What is different about our business is the strategic focus and merchant concentration in durable, resilient enterprise B2C and B2B customers. Again, the strong unit economics of enterprise accounts are compelling. and we are prioritizing our sales and marketing spending on this segment. As a result, we expect enterprise to continue to grow into a larger and larger share of our ARR in the quarters and years ahead. I'll conclude my discussion about current challenges with an update on our team in Ukraine. On a personal note for our teammates, the continued war remains a hardship for our employees, particularly as attacks on civilian targets have resumed in Kyiv. It is tragic on a human level for our friends and teammates. I'm extremely proud of the resilience of our Ukraine team, as well as how supportive our big commerce team and partner ecosystem has been for them. As an example, at our U.S. partner summit in August, we were able to raise funds to purchase five ambulances to assist with humanitarian aid efforts in Ukraine. I can't say enough about how inspired we are as a company by the bravery of our colleagues in Ukraine. I'd like to conclude by speaking at a high level about how we are building our plans for next year. To repeat, we are doubling down our sales and marketing spending on enterprise accounts. As we highlighted in our investor day in May, our average LTV to CAC for enterprise accounts across the last four years was 8 to 1, compared to 2 to 1 for non-enterprise accounts. We believe we are the world's most modern enterprise e-commerce platform, and we're going all in on this enterprise segment. Next, we remain committed to our open, partner-centric strategy. We believe Open SaaS is a strategy that will win in the enterprise market, which means our business will become more partner focused than ever in 2023. Further, we are basing our 2023 planning activities on the expectation that the macroeconomic and geopolitical challenges that have impacted this year will persist into 2023. To offset this, we will remain disciplined about the pace and size of our investments. As we highlighted on previous calls, 2022 was an investment year for our company. Our 2022 investment plans were modified throughout the year to stay on track to deliver our original top line and bottom line guidance, which we are pleased to have accomplished through the first three quarters. We remain committed to hit breakeven on an adjusted EBITDA basis in the second half of 2024, and 2023 will therefore be an operating leverage year. We are making hard decisions to focus and prioritize our spending on our best ROI investments, and we will continue to do so during 2023. Shifting sales and marketing resources away from shorter sales cycles, the lower retention non-enterprise plans, to longer sales cycle and higher retention enterprise plans is an example of this. This decision may impact bookings growth in the front half of next year as these investments expand our enterprise deal pipeline at the short-term expense of non-enterprise pipeline and retail plan bookings. We believe this is the right decision for our business to deliver long-term growth and returns to our shareholders. RA will discuss this in his remarks. In conclusion, you heard me say last quarter that we have spent the last few years building our enterprise capabilities, and Q2 marked the moment in time when we could say with confidence that BigCommerce had arrived as a true enterprise platform. The merchants I listed earlier reflect that. These are large, prominent brands that chose BigCommerce because of our enterprise capabilities, our open platform, and our strong partner ecosystem. This is a differentiated winning strategy that our partners are as excited about as we are. With that, I'll turn it over to RA.