Commerce.com, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the BigCommerce Third Quarter 2023 Earnings Call. At this time, all participants are in 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 like now to turn the conference over to your first speaker today, Tyler Duncan, Senior Director of Finance. You may begin.

Good morning and welcome to BigCommerce's Third Quarter 2023 Earnings Call. We will be discussing the results announced in our press release issued before today's market open. 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 fourth 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 a 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 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 quarterly performance and the progress we have made against our 2023 financial plan. I will speak to our business momentum and provide an updated view on the macroeconomic environment. And I'll conclude by discussing our continued move up market and the associated improvements to our go-to-market approach. Daniel will later provide details on our financial performance and spending efficiencies related to the restructuring we announced earlier this morning. Finally, he will end our prepared remarks with an updated view on 2023 financial guidance and provide a first look at our expected financial plans for 2024. In Q3, total revenue was just over $78 million, up 8% year-over-year. Our Q3 non-GAAP operating loss was just over $1 million, which was well ahead of our quarterly guidance and reflects the significant progress we have achieved in operating efficiency over the last several quarters. We came within a photo finish of hitting adjusted EBITDA break-even a quarter earlier than expected, finishing Q3 at negative $102,000. This reflects a nearly 14.5 percentage point margin improvement in only one year against the backdrop of a tough macroeconomic climate for tech and software. We are committed to driving profitable growth for our shareholders, and I believe we are well positioned to move our business upmarket with a more efficient organization. We concluded Q3 with an annual revenue run rate, or ARR, of approximately $332 million, up 9% year over year. That represents a sequential growth in ARR of just over $1 million. Enterprise account ARR was approximately $241 million, up 11% year over year. As of the end of Q3, enterprise accounts represent 72% of our total company ARR. Accounts using exclusively our retail plans, which we refer to as non-enterprise accounts, finished with ARR of approximately $92 million, up 3% year over year. Q3 reflected both the progress we have made as a business and some of the challenges that we continue to face in this macro environment. Overall revenue growth and non-enterprise ARR growth were in line with our expectations, and we were pleased to nearly reach our adjusted EBITDA break-even goal one quarter early. Enterprise ARR growth fell a little short of our expectations. We continue to see longer sales cycle times and a tougher sales climate across software. while certain significant new customers elected to move launches post-holiday into Q1 2024. I will speak both to these macro dynamics and actions we are taking to improve go-to-market and financial performance later in my remarks. Our customers are at the heart of everything we do. We work extremely hard to deliver an industry-leading platform that powers growth for the world's most sophisticated and complex brands and retailers. Last week, we were honored with IDC's 2023 SAS Customer Satisfaction Award for Digital Commerce. This recognizes the high customer satisfaction that our product and service achieve. Gartner also named BigCommerce as a challenger in the 2023 Gartner Magic Quadrant for Digital Commerce platforms for the fourth consecutive year. In September, we launched our new B2B edition invoice portal for large B2B suppliers, manufacturers, distributors, and wholesalers to modernize the invoice payment process. The B2B edition invoice portal provides an enterprise-grade, out-of-the-box invoice payment experience. The new invoice portal serves as a vital B2B edition component of a comprehensive suite of functionality that enhances the online selling experience for B2B businesses. A number of exciting new enterprise customers launched in Q3. Notable examples include Coldwater Creek, a leading US women's apparel retailer, which launched a new e-commerce site with a modernized tech stack and elevated brand look. Iconic UK luxury fashion retailer, Harvey Nichols, launched a new headless storefront with BigCommerce. Harvey Nichols' digital transformation improves customer experience, loyalty program integration, and inventory visibility for shipping and in-store pickup. Asahi Beverages, a leading Australian beverage company, launched two new websites on BigCommerce, Club Connect uses our B2B edition product to allow sports clubs to register and purchase beverages and earn credit to be redeemed against future purchases or withdrawn as cash. Drinks Cart is a platform for company staff, friends, and family to purchase Asahi beverages, products at a reduced price, or by redeeming points. Leading UK fashion and apparel brand, Whitestuff, launched a new composable site leveraging big commerce partners, View Storefront, Ampliance, and Adyen. We also added several new customers to the Feedonomics roster, including the Dom, Vista Outdoors, LG, Skullcandy, and Build-A-Bear. This sample of recent customer wins, product announcements, and industry recognition reflect the strength and differentiation of our Open SaaS strategy. We aim to deliver our brand promise of enterprise e-commerce simplified. Our agency and tech partner ecosystem widely agrees that unlike big commerce, Competing enterprise platforms aren't simple, and competing simple platforms aren't enterprise. BigCommerce combines true enterprise functionality and flexibility with unprecedented simplicity. We are differentiated in five key e-commerce imperatives in which we believe BigCommerce possesses industry-leading capabilities. Engage, the first imperative, describes how we enable customers to create compelling, brand-enhancing digital experiences for their consumers. As a leader in both composable commerce and no- and low-code, fully-hosted commerce, we offer the unique capability to create great user experiences leveraging both build models in the same multi-storefront account in Q3 across all enterprise stores using our hosted Stencil platform, checkout, and flagship payment processors. Our customer's site-wide conversion rate averaged 2.69%, which is 34% higher than the Q3 internet average according to IRP Commerce. Simply put, BigCommerce Enterprise customers create and design beautiful sites that, on average, significantly outperform their competition. Attract, the second imperative, describes how our subsidiary, Feedonomics, enables customers to attract incremental site traffic in sales through the world's leading advertising and marketplace channels. On average, Feedonomics customers report a 10% to 20% increase in traffic, conversion, and sales from the channels used, including search, social, display, affiliate, and more than 180 marketplaces. No other enterprise platform has a comparable offering to substantially improve top-line sales and marketing return on ad spend. Convert, the third imperative demonstrates our ability to convert shoppers. In Q3, site-wide checkout conversion for enterprise customers using our native checkout and flagship payment processors averaged 61.4%. That 51% checkout conversion is substantially better than claims made by one of our largest competitors. We deliver higher checkout conversion due to an optimized one-page experience, choice of best-in-market payment providers, optimal integration, and unmatched customization capabilities for a SaaS platform. For B2B conversion, our B2B buyer portal and recently released invoice portal further extend the capabilities that are widely being rated among the best in B2B e-commerce by IDC, Forrester, Paradigm, and G2. Expand, the fourth imperative, focuses on our multi-storefront capabilities. We make it easier than ever to grow from one to many storefronts as companies add new branded sites, geographies, and or segments like B2B plus B2C. Taken to an extreme, our commerce as a service offering even allows customers and partners to serve dozens or hundreds of different stores. Finally, Operate, our fifth imperative, describes the performance, cost, and efficiency advantages of operating on BigCommerce. In a recent total economic impact report, Forrester Research quantified an average 90% reduction in development costs and 30% reduction and catalog and merchandising management costs relative to legacy enterprise platforms. With best-in-class reported uptime, scalability, and security certifications, we simplify the task of achieving world-class performance at low total cost of ownership. To advance our leading capabilities in site design and user experience, we recently completed the acquisition of MakeSwift, the world's most powerful visual editor for Next.js websites. MakeSwift will become an optional component of composable big commerce builds early next year, and thereafter, a part of our natively hosted visual editing toolkit. This is a strategic acquisition for our business that enables us to more fully deliver our promise, enterprise e-commerce simplified. MakeSwift will bring to e-commerce unprecedented true enterprise multi-user visual design, publishing, and no-code editing. Built for Next.js, MakeSwift gives developers the ability to construct and deploy custom React components that push the boundaries of dynamic shopper experience and make any component visually editable. It also makes advanced editing accessible to marketers and merchandisers without code, including animations and optimizations for every device type. The combination of Next.js, React, and MakeSwift powers native Google Lighthouse scores of 99 to 100 out of the box. MakeSwift is fully composable, so it can integrate with leading content management systems to power site content, and it will remain available for purchase directly, including for customers on competing e-commerce platforms. With unprecedented visual editing, collaboration, publishing, and performance capabilities, BigCommerce with MakeSwift is the future of no-code enterprise e-commerce visual design. I am encouraged by the financial and strategic progress we have made in our business this year despite macroeconomic headwinds. I'd now like to share a bit more detail on where those headwinds have been felt and why I have such confidence that we can return to stronger, accelerating growth rates. Broadly speaking, I will classify impacts to first, online consumer spending, and second, business spending and investment. We have seen continued tighter e-commerce order and GMV growth in 2023 than the pre-pandemic trend line. This has led to fewer orders in GMV-based pricing upgrades compared to prior years, and it has impacted partner and services revenue growth more than originally anticipated going into the year. We have also seen the effect of a tight business spending environment. As we discussed on our Q2 call, we have experienced an uptick in existing customers seeking to reduce committed order volumes in exchange for lower pricing. In many cases, we have pursued the same approach ourselves at BigCommerce by renegotiating and reducing our software vendor OpEx costs. In most downgrades, we are successfully retaining customers while negotiating more favorable prepayment and price-per-order terms. Some smaller customers have chosen to delay or cancel projects as a result of macro conditions. Customers are spending more time vetting and evaluating platform investments, and these factors have contributed to enterprise ARR not ramping as quickly as we'd hoped during 2023. I have confidence that this business can return to 20% plus revenue growth and reach a healthy and balanced profitable growth profile as we drive better go-to-market execution and e-commerce settles into a new long-term growth trend line. My intent in providing this commentary is not to attribute performance solely to macro conditions. Ultimately, we are responsible for results no matter the economic conditions. We have much to be proud of in 2023, particularly with respect to improvements in profitability and cash flow, but we have not achieved our full growth potential and we are laser focused on the improvements that can get us there. Leading our go-to-market improvements is our recently hired president, Steven Chung. The foundation for Steven's growth strategy is the success and satisfaction of existing customers. Their success earns the right to expand account relationships, yielding higher net revenue retention, cross-sell and up-sell, and industry evangelization. Stephen and team are focused on three proven growth strategies. First, land and expand, where we grow over time the depth and breadth of our relationship with our successful mid-market and enterprise customers. Second, multi-product sales that leverage feedonomics, makeswift, partner product cross-sell, and new add-on products. Third, improved efficiency of our international expansions. We have arguably been over-indexed historically on new customer acquisition driven by expenditures in digital marketing and sales. Over the last four years, approximately 60 to 70% of subscription ARR expansion has come from acquisition of new customers, with the remaining 30 to 40% coming from expansion of existing accounts. We would like to change this mix in favor of existing account expansion. Greater attention to the success and satisfaction of signed accounts will enable us to expand relationships to incorporate new brands, geographies, customer segments, and business models. This account growth model has the highest relevance to our enterprise customers and can deliver continued improvement in net revenue retention and profitability. To be clear, this account expansion growth model does not lessen our commitment to our small business customers. We will continue to support our small business customers with an efficient, digital-first engagement model. We remain the industry's best platform for fast-growing and sophisticated small businesses that require more flexibility and product capabilities. These customers, in many cases, evolved into strong enterprise accounts as their businesses grow with BigCommerce. 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 Q4 and 2023.