Commerce.com, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the BigCommerce second quarter 2023 earnings call. At this time, all participants are 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, Tyler Duncan, Senior Director of Finance. Please go ahead.

Good afternoon and welcome to BigCommerce's second quarter 2023 earnings call. We will be discussing the results announced in our press release issued after today's market close. With me are BigCommerce's CEO and Chairman, Brent Bellum, and CFO, Daniel Lentz. 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 third quarter of 2023 and the full year 2023. 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 measure, 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, Tyler, and thanks, everyone, for joining us. I'll start today by discussing our Q2 performance and progress at the halfway point of the year. I'll then share my perspective on our growth strategy and provide additional detail on recent leadership changes. In Q2, total revenue was just over $75 million, up 11% year over year. Our Q2 non-GAAP operating loss was just over $3 million, which was ahead of our quarterly guidance and a strong indication of our confidence to reach breakeven on an adjusted EBITDA basis in Q4 of this year. Later, Daniel will share greater detail on our financial results and conclude the call with a discussion on updated guidance. I want to highlight two milestones that our business achieved in the quarter. First, we reached profitability on an adjusted EBITDA basis in the month of June. And second, we delivered positive free cash flow for the first time, driving just under $14 million of free cash flow for the second quarter and the June 30, 2023. To be clear, these milestones are starting points only. We have a long way to go to reach our ambitious goals in terms of revenue growth, profitability, and cash flow. But it is worth noting that we have delivered nearly 1,600 basis points of improvement in non-GAAP operating margin compared to Q2 2022 and significant improvement in cash flow generation as well. In response to and against the backdrop of a difficult macroeconomic climate, I would like to thank our entire BigCommerce team for the hard work that was required to deliver that. We concluded Q2 with an annual revenue run rate, or ARR, of approximately $331 million, up 12% year over year. That represents a sequential growth in ARR of just over $14 million. Enterprise account ARR was approximately $236 million, up 14% year over year. As of the end of Q2, enterprise accounts represent 71% of our total company ARR. Accounts using exclusively our retail plans which we refer to as non-enterprise accounts, finished with ARR of approximately $95 million, up just under $7 million sequentially compared to Q1 2023, and up 6% year-over-year, delivering our first quarter of non-enterprise ARR growth since Q2 2022. While total ARR results are close to our mid-year target, the mix between enterprise and non-enterprise accounts has differed from our expectations. Going into the year, we expected non-enterprise accounts to contract by mid to high single digits. Improvements to cohort retention and pricing adjustments return this portion of the business to growth in Q2, providing encouraging signs of momentum going into the back half of the year. Merchants using our enterprise plans, which we refer to as enterprise accounts, come from two parts of the market, mid-market merchants and traditional large enterprises. We define mid-market as merchants doing $1 million to $50 million per year in gross merchandise value, or GMV. This part of the market has a large and growing TAM and is underserved by many legacy e-commerce providers. Our share of momentum in this part of the market is strong, and we have seen strong results from the mid-market relative to our 2023 plans. Large enterprise merchants, those with GMV of at least $50 million annually, including those up to $1 billion or more, are experiencing significant increases in sales cycle durations compared to 2022. This segment of the industry tends to have lengthier sales cycles and more complicated business requirements. Here is where the effects of macroeconomic uncertainty are most noticeable and where a slower than expected increase in enterprise account error can be seen. Although it will take time to scale up our market penetration in this segment of the industry, we have excellent product market fit for merchants of this size and complexity. In response, we are increasing our investment in mid-market sales generation, where we observe fewer macroeconomic challenges and strong performance. Daniel will speak in more detail to these dynamics later in his remarks as well. We have five primary growth levers in our business today. First, we have a healthy and growing small business at nearly $100 million in ARR. We have taken numerous actions to improve efficiency and scalability in this portion of our business. We eliminated aggressive sales promotions, incentive advanced payments, and increased prices with minimal impact thus far to retention. This has led to strong improvements in cohort health. Day 120 cohort retention rates on our retail plans are 80% to 85% higher on average than where we were at this time last year. In addition, we shifted sales and marketing resources toward enterprise growth, improving profitability as we rely more on self-serve channels for the SMB portion of the business. We believe our retail plans offer market-leading features and functionality, and we believe we can grow this business over time profitably as a result of these changes. Second, we have a strong and growing presence with mid-market merchants, and we have a tremendous runway to grow share in this underserved portion of the market. Our products provide the functionality large enterprise merchants expect without the cost and complexity of legacy e-commerce software. This allows mid-market merchants to enjoy the advantages of enterprise e-commerce software at a price point fit for the scale of their business. We believe our product is uniquely positioned to win and grow in this part of the market. Third, we provide market-leading e-commerce and omnichannel solutions for both B2C and B2B merchants. Many B2B merchants are adjusting their buying processes to reflect the consumer shopping experiences their customers are used to, and our award-winning platform delivers outstanding value for merchants in both categories. B2B has traditionally been underserved by commerce platforms, and we are investing to win in this market. Fourth, the large enterprise market represents a big opportunity for us, and we are expanding up market. Key recent product launches, including multi-storefront and multi-location inventory features, reflect the growing capability of BigCommerce's platform. In addition, BigCommerce provides differentiated omnichannel capabilities critical to many large enterprise merchants utilizing Feedonomics market-leading AI technology to drive merchant growth and ROI through advertising and marketplace channels. Other competitors offer omnichannel connectivity, but connectivity alone is not enough. Connectivity and data quality together drive results for merchants, and Feedonomics platform-agnostic AI-driven data feed optimization capabilities deliver one of the best solutions in the world. In fact, In a Q2 2023 Feedonomics customer survey, more than 75% of their customers reported up to 50% or more improvements in their omnichannel conversion, return on ad spend, and revenue. We believe our platform can disrupt the large enterprise market, and we are committed to growth in this market. Finally, international expansion represents a significant growth opportunity for us as well. We expanded our sales and marketing presence to 12 new countries over the last two years. Our expansion has been particularly focused on EMEA, where we see an opportunity to win share from legacy, more expensive e-commerce providers. While we have slowed the pace of new country launches recently, we have not significantly changed the amount of sales and marketing investments in existing markets. Our near-term focus is on building scale and profitability in our recently launched countries, where we are truly just scratching the surface of our growth potential. We expect to continue our international expansion efforts in the coming years in a disciplined, profitable way. E-commerce is fundamentally an open, flexible, partner-first company. Merchants have freedom to choose among the market-leading commerce technology partner solutions that suit their businesses, including AI, which we'll discuss further in a moment. It also means merchants can drive improved omnichannel growth in ROI while using our feedonomics solution on other e-commerce platforms as well. Being partner-first delivers both better go-to-market results for big commerce and improved performance for merchants. Our checkout performance results are an example of the advantages of this open, best-of-breed, partner-first strategy for our merchants. For example, when examining merchant checkout data from May and June 2023, we validated that our native one-page checkout delivers a 61.9% checkout conversion rate. This exceptional result was the average of all enterprise stores using a big commerce storefront, a flagship payment provider, such as Braintree, PayPal Commerce Platform, Stripe, or Adyen, PayPal Wallet, and Apple Pay, and our native one-page checkout. We expect to publish a third-party independent review and validation of these superior checkout results in the coming weeks. I'd now like to spend some time on two recent leadership changes that I believe will help scale our business and execute our strategies. Earlier this week, we announced the addition of technology industry veteran and e-commerce sales leader, Steven Chung, as our company president. Steven will oversee our sales, marketing, and services teams, aligning our go-to-market teams to fuel our leadership in global enterprise e-commerce. Steven brings relevant experience from his time at Delphix and PagerDuty, and he previously served as global sales leader at Demandware, back when they moved up market prior to being acquired. There is no better person to fill this role and lead our mid-market and enterprise growth. I'm also excited to highlight Daniel Lentz as our new CFO, replacing Robert Alvarez, who recently retired after holding that position since 2011. RA left big shoes to fill, but there is no doubt in my mind or the minds of our board members that Daniel is absolutely the best person for this job. Few in our company know our business as well as Daniel. and he has extensive experience across a variety of finance roles at Procter & Gamble and enterprise sales experience at Dell that make him a well-rounded leader in our business. We have every confidence in his ability to steer the company to long-term success. Now, I'd like to shift gears to focus on a couple of merchants that are great examples of how our open, partner-first strategy resonates with mid-market and enterprise customers. The first is Hauser, a U.S. supplier of kitchen sinks and faucets for over three decades. Hauser Syncs had a solid B2B presence, and they wanted a modern tech stack to support their direct-to-consumer strategy. They turned to our agency partner, Coalition Technologies, and launched a new store in BigCommerce in just 60 days. Creating an omnichannel presence was vital for Hauser, and they found that BigCommerce and Feedonomics was the powerhouse combination they needed. With the ability to manage products and orders across over 100 channels, Feedonomics gave Hauser the power to drive omnichannel growth without a high price tag. Coalition and BigCommerce helped Hauser quickly migrate its complex portfolio of products and dramatically increase its site speed, all while maintaining a growing omnichannel presence. Another notable and representative BigCommerce merchant is MKM Building Supplies, the largest independent builders merchant in the UK, with over 100 branches across England, Scotland, and Wales. With origins as a neighborhood supply shop in the UK, MKM realized that it needed to keep up with digital transformation trends. Partnering with big commerce agency Brave Bison, MKM now has a fully composable storefront that delivers an online experience to match its offline presence. Brave Bison enlisted global market-leading front-end solution View Storefront to implement a headless architecture and collaborated with commerce experience provider Bloomreach to drive seamless personalization across the site. Just weeks after going live, MKM saw increased site performance plus increases in online orders, average order value, new customer accounts, and revenue. In June, MKM was honored with a Mock B2B Impact Award from the Mock Alliance, a group of independent tech companies dedicated to advocating for open, best-of-breed technology ecosystems when moving from legacy infrastructure and going composable. We also remain committed to continuous innovation. Last week we announced a partnership with Google to add new AI-powered features to our platform later this year. These features will help merchants improve operational efficiencies, elevate customer experiences, enhance product discovery, and drive more sales. Merchants can save time and improve operational efficiency and productivity by using AI algorithms to streamline workflows, accelerate product development cycles, reduce costs, and accelerate time to market. In partnership with Google, We're committed to using AI responsibly and respect our merchants' user data, brand, and privacy. We will continue to use AI in a way that is fair, unbiased, and transparent. We believe that these principles are essential for enterprise merchants to ensure their brands are protected. Our open approach positions us to be a leading e-commerce platform for AI, even as we add native AI functionality as well. We already have over 20 AI applications in our apps marketplace. And as our partners continue to build new solutions, they will be easily integrated into our scalable platform. Our platform received two notable pieces of recognition recently. First, we achieved 24 out of 24 total medals in the 2023 Paradigm B2B Combine for Digital Commerce Solutions Enterprise and Mid-Market Edition, increasing our rankings in six categories. We were also awarded the high placement of Major Contender and Everest Group's 2023 Digital Commerce Platform Peak Matrix, which assess 21 digital commerce providers around the world. In Q2, we continue to grow our roster of leading, notable brands and merchants on our platform. Francesca's, a popular women's clothing and accessories brand with more than 450 stores, is taking advantage of BigCommerce's page builder tool, combined with a customized theme and customized checkout, in order to deliver unique, free-spirited fashion and lifestyle products to its customers. Barbecue's Galore, an Australian market-leading seller of grills, grilling accessories, and outdoor furniture, became the first merchant transacting with B2B edition multi-storefront, going live in just 12 weeks. Square Enix, the company behind some of the world's most popular gaming franchises, including Final Fantasy, Dragon Quest, and Tomb Raider, launched multiple new stores to power their multi-language and multi-currency needs in North America, EMEA, and APAC, enabling their customers to purchase games across multiple platforms, including digital games redeemed through the Steam Marketplace. BMW Group UK, a leading supplier of BMW and many original parts, partnered with AutoFixit Solutions to launch new stores for both brands, featuring ERP integrations that sync inventory supplies and pricing data directly with the stores. I remained incredibly bullish about the long-term prospects for profitable growth and market leadership for BigCommerce. 2023 is a challenging year throughout tech, and I am proud of the progress we have made. We have a long way to go, and our team is committed to the hard work needed to deliver strong growth and returns for our shareholders. Next, I'd like to turn it over to Daniel to discuss our financial results in more detail and conclude with our updated guidance for Q3 and 2023.