Q3 2020 Bigcommerce Holdings, Inc. Earnings Call
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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.
Can you to disrupt the mid market in large enterprise segments of the market. Our continued progress and moving upmarket was reflected in our enterprise account, a our our growth rate, which was up 48% year over year in Q3, we'd.
We delivered these results through a disciplined investment framework that is both intentional and purposeful.
I'm proud of the improving efficiency and our financial model that we delivered in Q3 rich represents a 15 point year over year improvement in our adjusted EBITDA margin.
That's in Q3.
Feature that makes it easier for merchants to manage their comprehensive omnichannel sales presence.
We recently launched a partnership with wish one of the largest and fastest growing global E Commerce market places and the latest to join the Big Commerce partner ecosystem, which helps expand big commerce merchants visibility to 100 million monthly active users across more than 100 countries.
His efforts, we signed new partnerships with Sun Commerce wish sure done feed anomic and deliver the upload will our merchants ability to sell cross channel.
Turn it over to Robert for a deeper discussion of our financial results.
Thanks, Brent and thanks again to everyone for joining us today before discussing detailed financial results I'd like to point out that in addition to our GAAP results I'll also be discussing certain non-GAAP results are GAAP financial results along with the reconciliation between gap and non-GAAP results can be found in our earnings release.
Is Brent mentioned, we generate a total revenue in Q3 of 39 7 million up 41% year over year.
Therefore, we will continue to take a prudent approach in forecasting the cobot impact.
Section in this segment of the market.
I sent a year ago.
We have invested aggressively and product and engineering, while also showing improving leverage we know the investments are working as evidenced by the accelerating growth rates in our enterprise a R.
$38.7 million this.
This represents an increase of over $1 million at the midpoint compared to what our previously issued guidance implied.
Our Q4 guidance assumes that our Q4 subscription revenue will grow in the mid Twentys similar to Q3, while partnered services is expected to grow in the 20% range.
PSR revenue has more quarter to quarter variability than subscription revenue and our assumption is that it will be down sequentially from the better than expected performance in Q3.
This assumption takes into account the fact that the Rev share arrangement with one of our AD partners is being adjusted in the fourth quarter with a new level of contribution being consistent with our previous expectations overall.
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Our first question or comment comes from the line of Stanislawski for Morgan Stanley. Your line is open.
Hey, guys. This is Chris on first Dan Congrats on Dakota, I wanted to ask about P. S are in and I saw that dollar amount and percentage growth basis, both accelerated sequentially, which is really awesome to see within P. S or did you see a stronger attach of solutions outside of just the payments red.
Sure and I guess like the follow up question to that is what is your of cell emotion. How do you make sure that your emergency taking more than just payments cause I'm, assuming when they take more than just payments. There's a level of durability that you know you can.
Kind of Guy too and see within the within the merchants as they grow more than a platform. Thank you.
Yeah, Hey, Chris then burnt let me take the first one you can take the second one so when we look at our.
Sars, we've talked about over the past couple of years, we've definitely entered into partnerships beyond payments. You know if you think about our ecosystem. Our best of breed partners now span well beyond just payments payments is obviously the most mature one of the partners that is really started to produce a good amount of red.
GNU for US is our largest AD partner, we talked about this during our last call that we were expecting the renegotiation in queue for that guidance remains the same but we saw with an increase in Rev share from that AD partner in Q3, well beyond our expectations, but as we.
Think about queue for and beyond we we feel great about the partnership we feel about great about that revenue stream and you you know what we feel great about our ability to monetize partners beyond payments over time, it's just a little bit noisy for Q4 as the new agreement kicks in it and goes into effect.
This is Brian I'd add that the way we approach partnerships is with a real sense of commitment to our technology partners to help them present their best version of themselves to our.
Customers and in our marketplace of apps, we organized by vertical so we've got a team around payments and point of sale and E. R. P. Flashback office, B email marketing and other marketing out et cetera Watson different parts.
That are supported by our partner marketing team and our customer marketing teams as well as team within the company, whose fulltime jobs are basically to assist our merchants in selecting and adopting the best partner solutions for them. So we are really simultaneously across all.
All of the various verticals trying to assist our best partners and promoting their capabilities and driving adoption.
Got it thanks guys.
Thank you. Our next question or comment comes from the line Oh Ramos <unk> from Barclays. Your line is open.
Hey, Thank you the two questions Uhm first Brent if I look at.
And the partner revenue in the grocery store this quarter I mean, I'm aware that obviously things are normalizing eventually et cetera, but but what are you seeing like that 82% <unk> is better than we saw last quarter. So what does it tell us about like E. Commerce adoption and you know a lot of how you Cromer's is playing like a new role and just kind of new economy alright.
<unk> your living on now and then the follow up is more for all but then it's like so if I think about the grocery store.
Maybe reminders of the put some takes around subscription because we had a couple of programs at the beginning of the year. It's now starting to inflict higher but you know tell us a little bit about the drivers there again and kind of I'm trying to relate to the to the partner revenue. Thank you.
Everyone in partner revenue the single biggest component is Rev sure from our payments partners.
And of course, the largest driver of that is actual sales volume or G. M. D for our customers and we continue to see your on your growth rates.
N a customer sales and therefore rubbed sure hold up very strong we keep planning for internally and in our external guidance.
Some kind of a return to a new normal trendline.
But that return keeps being delayed with each passing week and really that's the biggest reason why P. S. R has stood up so strong and was 82 per cent year on year in the last quarter.
Okay, Yeah, Ramo, Hey, Hey, Ramos Yeah on the on your second question just to remind everybody.
That we we had a 90 day promo that we talked a lot about last time, which we wound down in July.
And we were setting expectations that subscription revenue would would bounce back in Q3 as those stores would convert to pay stores. So we were very pleased when to <unk> to deliver 26% year over year on the subscription line, we expect similar <unk>.
Realistic units there are that you could gain from that.
Yeah, we.
Last time I shall I mean, you can go to one dealt with.
Dot com and do a look up of how many stores are still out there when they scan all sites that are publicly available on the internet and running.
Various versions of Magento, one the last time I looked if I remember right. There were something like 90000 of them out there and that was after June 30, so clearly because its downloaded or on premise software.
Theres nobody can that can easily stop a merchant from still running their installed version of Magento, one and I'm certain that there are still many many many tens of thousands of sites out there that are on it we continue to generate very good sales.
For magenta, one customers converting off of that and on to us. So I think that thats, one that until it trickles down to much closer to zero Theres lots of continued sales opportunities for us.
Great and then Robert maybe a follow up for you.
The accounts with HCV greater than 2000, the growth rate there continue to accelerate even as the comp got tougher I'm curious if you can maybe peel that back a little bit of how much of that was from existing customers typically into a bigger category versus the strength in new customer adds.
Yes, I mean, we had another great quarter bookings some odd so if you look at our change in a are you can see a really strong bookings quarter for us So I think the mix.
The major driver of this is just that.
Continued demand that we're seeing and and you book new bookings that.
We've been able to deliver.
Great. Thanks for taking my question is really a great to see an impressive performance guys take care.
Thanks, a lot.
Thank you. Our next question or comment comes from the line of Josh Beck from KBC, Jim Your line is open.
Thank you for taking the question team.
I wanted to ask about.
Really the.
Any context, you can share on these new bookings is pretty unusual for a company to see shrinking sales cycle. So.
In your conversations is there any increased urgency is it anything to do with maybe the awareness of the company, though that your public just.
Any other context that you can share.
Really what's driving the strong new bookings that you're seeing.
Drink strategy is really night and day relative to what it was before August and and so how much does that help we can't quantify it but.
We have a belief that that's really beneficial to our customers and our ecosystem.
Thanks, and then maybe a follow up on G. O V. Robert It certainly sounds like you want to err on the conservative side of things as you contemplate guide is I'm just curious when you look at the data.
<unk>, maybe some issues of deceleration add some of these.
Lockdowns ease or is it just more simply that.
It's very difficult to predict.
Metric like this and you'd rather see it a bit conservative.
Yeah, Hey, J B.
No we as we talked about a lot before March April we we saw a really big spike in GMB and transactions you know the strengths really carried through two two we still we still saw strong performance maybe not at the peak of what it was.
<unk> back in March April.
But again, you know going into Q for which is our holiday season in a typical year our holiday season would be the the best quarter Uhm for us, but you know and this year. We're just again, yeah, having to take a really prudent approach on what the G. M V levels are gonna be through the end of this year and.
Kind of going into next year. So what we're doing is we're just taking a ramp down approach over the next three to six months and in Q1 next year closer to where pre Covid G. M V levels were and but I you know I guess, we'll we'll just have to see how cute for plays out.
Mmm makes sense makes good thanks.
Thanksgiving.
Thank you. Our next question or comment comes from the line of David Hi Fi Canaccord. Your line is open.
Hey, guys congrats on the results and and thanks for taking my questions Uhm.
Wanted to ask about the new customer adds and that two K plus cohort curious if you're seeing any any shift in the mix of.
First time E Commerce participants versus you know re platforming wins, I guess, you know compared to kind of pre covid and and maybe any implications about what that tells us about the current environment.
Hey, David we don't we don't closely tracked us for.
Every customer.
Under normal times, we estimate the next to be about 50, 50 re platforms versus new from scratch sites.
It was our belief and understanding that for the first several months of the pandemic thing shifted in the direction of new sites and companies that needed a really adopt as quickly as possible.
And those who are on existing sites, where sort of clinging by their fingernails trying to keep them up handling the volumes, but now that folks have readjusted to working <unk>.
And remote environments or if they're lucky able to to kind of go back with colleagues. It's a lot easier to start thinking about your future and the importance of being on the right platform and some migrations are certainly.
You know.
Back and probably a a pretty big part of the total next but I don't have a number specifically to be able to share on that.
Thanks for the question.
Yeah that makes sense and then maybe it's just a follow up so I think.
Obviously, we know you guys are are well positioned in that mid market enterprise market I I I think one of the benefits. If you will of of Covid as you've kind of seen a resurgence of gross in the S. M V segment as well so I'm curious if.
If that's driven any change in terms of how you're you're thinking about kind of investment allocation going Florida I don't know if that's a better question for you Brenda or are you all right, but they're just.
Hey, D J I'll start Brandon and you can finish, but yeah, clearly, where we're seeing strong bookings for our enterprise accounts, but you know since March we've we've seen really strong bookings across our S. M. B segment and you know I.
Think that in terms of investments I think the the way, we're deploying funds and how we're going to market. There's a lot of things that benefit both segments and we feel like the balance that we have today is is driving growth in in both and so no <unk> no major changes, but definitely please with the.
[noise] performance of our of our S. M B teams.
Yeah, Yeah. It makes sense, okay, great. Thanks, guys.
Thank you. Our next question or comment comes with online a Scott Berg from <unk> Company. Your line is open.
Hi, Brian <unk> and alrighty, congrats on a good quarter and thanks for taking my questions I guess too for me first of all let's start off with.
Uhm your op market transactions, whether there'd be to be you're on the enterprise side. Brent are you seeing any like commonality and what's driving customers to move. Besides just the general modernization you kind of like type of comment I didn't know if it was maybe no particular vendor that had some aging technology that you're seeing more of those cut.
<unk> tried to Russia mask with the current E Commerce transfer if there's a particular type of functionality that maybe those customers are missing that I was really attracted them. During this pandemic to see what the big Commerce platform has.
Yeah, I think the dynamics and thanks for the question.
Scott are are are different depending on whether the company is on legacy on premise software or on an old and outdated SaaS platform if you're on.
On premise software you typically buy a license dark customizing it.
Find it increasingly hard over time to do upgrades and patches you find out that the version you're on can't be modernized to take advantage of the latest functionality and trends and as a result of that.
It seems like every year that internet retailer clear.
Queries companies on whether they are planning to re platform in the next 12 months or is this iron clad rule that the numbers always 20 to 25 per cent say, yes in other words the lifespan of.
On from a software seems to be about four to five years before it so outdated buggy.
Poor performing the companies crap that and start over.
And that hasn't changed.
In addition to that the sort of the older.
<unk> platform, some of which date from the nineties or early two thousands simply have an invested haven't kept up they are nowhere close to where we are and capabilities and performance. They don't have the partnerships like the ones we keep announcing.
And if you're on one of those maybe on south, but you're still losing ground every month and those companies eventually we'll move off.
As well.
You know if you want to stay at the forefront of e-commerce are really only a few multi tennis asked platforms at our investing to do that and of course, where one of those but we are distinguished because we're the only one that is focus only on R. E commerce platform or not a software conglomerate you know our platform is not a mine.
Alrighty are a small minority of our revenue would drives everything for us and so we think that we are the most focus company.
Company in the world out delivering the best E Com platform.
And one that's always innovating password our competition.
Got it helpful. And then from a follow up perspective, maybe this is farrar a cause you're looking at your P. S are revenues and maybe what the shift in those revenues looks like or interest from your customers. During this pandemic. If you were to look out two or three years, obviously payments is big chunk of that and continues to do well I'm just driven by G. M B.
<unk> and you talk about AD revenues, but is there another type of of of partner functionality. There that you would kind of look back and say hey, This is starting to see some trash and then can help grow those revenues maybe more than what we thought pre pandemic.
Yes, I mean long term you know I'll I'll start with just just talking about our ecosystem I mean, if you think about our best of breed partners that we go to market with there's.
A solid list of of categories that you know we are now getting Rev. Sure on today and it's a byproduct of partnerships we've entered into in the past 12 to 24 months, but longterm. We think about it is share of wallet in payments as a line item that again is the most.
Mature, but if you think about shipping receiving about tax if you think about omnichannel marketplaces advertising all of those opportunities are in front of big Commerce and <unk>.
When the revenue will materialize in in a in a big way, it's it's a hard to predict but the opportunity is definitely.
There.
Great. That's all I have thanks for taking my questions. Thanks, Scott.
Thank you our next question or comment comes from the line Mister Brian Peterson from Raymond James. Please go ahead Sir.
Hi, gentlemen, thanks, that's taking the question and congrats on a really strong results. So what I wanted to get an international so the 67 per cent Grossman Amir that's pretty impressive talk about what's driving that success and how you think the platform is position to solve some of the challenges for merchants in that region.
Yeah, the success and growth in EMEA is overwhelmingly driven by the U K and Northern Europe, you know a little bit of the other ones in Scandinavia higher one, but it's northern Europe that is driving it and what we have found is that we hired the right team the right.
People out of the gates too solution and work with companies effectively one thing I would say that is different about e-commerce in Europe relative to the U S is that.
Traditional brands traditional retailers.
R a bigger part relatively.
I'll be commerce in Europe than they are in the United States work, New startups, new brand new online retailers.
Have a higher share and that greater complexity of pre existing businesses favors our platforms flexibility is openness. It's adaptability, we seem more headless implementations in Europe than we do in other regions.
So really really bullish on where we can go from there because with that strength, we're now starting to target Continental Europe as well, we announced the launch of our marketing websites in France, Italy, and the Netherlands, and it's just the very early days of what will hopefully be very strong <unk>.
<unk> from us.
Continental Europe, you know eastern Europe, Middle East and Africa, ultimately, we'd really like to serve great companies and every part of the world and hope that that northern Europe success is indicative of what we can do elsewhere.
Thanks for the question.
Great. Thanks Bye.
One follow up and obviously that but a lot of upside this quarter of curious what what have you guys seen from an L. T V to tack perspective at where are the areas, where you're really looking to kind of pick up the investments as we think of could I have your 2021. Thank you.
Yeah, Hey, B P. I mean, as you know uhm as that makes our mixed continues to shift to enterprise accounts R. R. L. T V to <unk>, you know economics get even better and so we're <unk>. We're definitely seeing that you know we're still very focused on how we.
Drive leaves and demand for our enterprise accounts and you know that efficiency held true in Q3 and continues to hold true and you know we we drive a lot of leads to tech partner agency partner initiatives inbound marketing and direct sales and I think those motions or are are working well and and you know.
They're they're showing up in our in our improving metrics very much in line with the the continued growth and enterprise accounts.
Good to get one thing one thing one thing I'll also share B P. As you know as we go to market with more of our tech partners and and the ecosystem. They drive merchants in Leeds over to Big Commerce, and that'd been if it's not <unk> not just midmarket.
Nice, but it also <unk> benefits are small business segment.
Got it thank you.
Thanks P P.
Thank you. Our next question or comment comes from the line of Terry Tilman from Truest. Please go ahead Sir.
Yeah I'll go the congratulations Brenton alright, and thanks for taking my question and and then I had a follow up I guess, maybe just looking at the product front you guys provide nice color each quarter on new innovations, maybe maybe just going back to last quarter. Brent in terms of page builder. It was an important new innovation what have you seen from your customers and how they're.
Swimming that and how that's helping their web storefronts and then I had a follow up.
Yeah, all the feedback we've received has been incredibly positive and thanks for the question Terry It was.
First went out in beta in April and for a few months was available only on new stores. It's now available to existing stores. Its whole general availability. It was one of these somewhat magical product releases for us because despite being big and complex. It went out on time and bug free the user experience.
So it's been great and we're just gonna keep adding to it because as we enhance the capabilities you know makes.
Making it <unk>.
Globally available across pages, adding more grass U L. A P is the individual sort of widget components, it's only going to get better with time and so we're we're really thrilled with page builder as a foundation for creating beautiful <unk>.
Web pages that convert without having to go into the source code to modify things and feedback has been great.
Thanks for the question I'm, sorry to hear Yeah, Yeah, and then the follow up is just related to maybe already for you in terms of enterprise. They are growth accelerated a 48% up from 44% you guys still have a lot of <unk> go to market investments that are still baking from last year and even the end of this year, you're you're not public product enhancements market tailwind is there a.
A certain kind of threshold that you're looking for a kind of a minimal growth rate in enterprise. They are or is there even still the potential for it to continue accelerating thank you and again I shop.
Hey, Thanks, Cherry I mean, if you just look at our past quarterly trend our enterprise account a R. R has been growing north of 40% pretty consistently.
That that mix shift continues to accelerate so yeah I I was very very happy with the continued performance of our enterprise go to market teams and a lot of the investments that we're making and the product are <unk> are obviously driving this investments that we've made in the park.
Dinner ecosystem or helping to drive this so.
Yeah, it's pretty consistently above 40, and it was really good to you know deliver almost 50% year over year growth and enterprise this past quarter.
Alright, thank you.
Thanks <unk>.
Thank you. Our next question My comment comes from a line of you go a rooney in from Wedbush Security. Your line is open.
Hey, guys. Thanks for taking the questions, let's start with.
Oh Darling into four Q Butler volumes and partner revenue and are you thinking about you know how volumes kind of trend as we continued through.
Through through the pandemic, particularly around the comments or on holiday. It's still I think generally speaking of expectations are for very strong holiday sales for for E. Commerce talking about a lot of carrier constraints, an earlier start to the holiday season anything you're seeing from from your emergence that would give you confidence that.
Uhm holiday, it's gonna be a strong part for the.
The holiday sales season for them as well.
Alright, you want to pay right now.
Kind of relates to.
Guidance.
Yeah, Yeah sure I mean, I you know for I.
I mean, what we're seeing across both SNB mid market enterprises is obviously, a sense of urgency to get ready for the holiday season, we're seeing our sales cycles come down as merchants try to get online to get ahead of the holiday season.
Clearly E. Commerce is is no longer a nice to have it is a must have when we think about G. M V levels for queue for.
We're ramping it down more so just to get and things kind of it back to closer to pre covid levels by Q1 of of of next year, but yeah. We're we're definitely seeing the sign ups for for merchants to get ahead of queue for and we'll we'll see how the G M B and.
Transaction volumes.
Mm pulled up in Q4 versus Q4 last year, where we saw pretty.
Big quarter and volumes in the holiday season back in 2019.
Okay. Thanks, and then maybe related to that someone just as we think about new customer growth since the beginning of the pandemic you guys talked a lot about those are kind of caught flatfooted and coming on board and you know sell it into different reasons and that kind of thing and that that's all I mean.
A lot of a lot of the girls early early on anything that you've seen uhm over the past couple of months or is he going to four two in terms of cadence or maybe P can demand in terms of sign up.
Maybe seeing some of that pull forward.
Kind of playing out or or continuing to some strength.
Businesses is you know new new businesses come online and all businesses bold and all the mixed up we're seeing in the economy. Today Uhm is there can be strength.
Going forward, where we maybe haven't seen the the pecan demand of new start yet.
I would characterize it as our seeing strength relative.
Relative to pre pandemic still in all segments S M B midmarket and large enterprise the.
Fastest responding.
Segment, when the pandemic started with small business the the new sales skyrocketed and it's come down from its peak, but it's still trending in a way that is materially stronger than where it had been pre pandemic.
What was slower to respond was call it upper mid market and large enterprise and that's the part we say now picking up it's kind of hard for us to determine how much of that.
<unk>.
And evolved pandemic response from larger more complex companies and how much of it is and stabbed for us he added.
<unk> credibility, we got by being.
Public now wish that sentiment really cares about or the third factor is if you go back pretty for May you know that was before we had all of these incredibly favorable ratings from Gartner Forester I D C and paradigm be to be we've now racked up all you know a whole bunch of.
Very very strong reviews, and larger enterprises factor that into their decision, making and that may also be.
Helping to drive the.
The further acceleration at the upper end of the market we serve.
That that last point is.
Pretty interesting the way those those reviews can help document uhm.
Uhm. Thanks, I appreciate the address.
Thanks.
Thank you. Our next question or comment comes from the line of Kim long from Guggenheim. Your line is open.
Great. Thanks for taking my question guys I wanted to I could also focus on that enterprise account level. Obviously, you guys have seen a good amount of new activity. There. Some graduation from neighborhood installed. It just wondering on that graduation side, how does the kind of the lag impact from P. S. R. A fan.
Doctor in going forward, just wondering like just how how should we think about when the subscription line or see a more a more meaningful uptake or is that starting to already rolling.
Uhm hurting yeah.
I'll I'll, let you follow up on this and we're supposed to Posner alright, So I'll I'll tackle I see.
It's already rolling in but it's gradual because remember the way our adjustments work, whether it's on an S. M. B plan or it's on an enterprise plan. It's trailing 12 months that we look at so suddenly a business of sales spike relative to the past.
Well the first month, you only have one month of a spice, but we're looking trailing 12 months and will that one month spike pushed a business over a threshold hasn't S. M b.
Upgrade them to a higher plan or does it take two or three months. It all really depends where they were before relative to the bright quaint and how big their spike was so it's a gradual thing that will keep flowing.
Through overtime.
Alright anything you down.
No that was perfect P D.
<unk> Super Super Helpful. And then the second point, you know kind of with this this really strong sales momentum that we are seeing how should we think about the the pace of sales and marketing going forward is that something that you expect to.
You know any kind of rough framework for how it should look relative to to a our our growth our top line growth, what's what's a good way for us to to think about that number.
Are you talking about sales and marketing investments or just said the splits of of the revenue.
The sales and marketing investments just I guess, that's something I should you know I mean, you guys are looking for leverage but it does something that will be maybe like half of half of error or a growth and you're just rough framework or or do you think we should just expect it to increase or so many color there would be great.
Yeah, I mean, we're happy with the leverage that we're delivering across sales and marketing you know we did have periods, where we invested in international expansion and go to market teams outside of the U S.
Clearly with the results that we're seeing in EMEA and a pack. We're really excited about international we think it's gonna be a growth leather for our business for many many years to come and they'll definitely be periods, where we're gonna invest where the demand is and we'll we'll update.
You in in the our investors it as we do that on a quarterly basis.
Great. Thank you guys.
Mhm.
Thank you I'm sure know additional questions and make sure at this time I'd like to turn the conference back forward to Mister <unk> Bellum President.
Chairman Oh for any closing remarks.
<unk> thanks, everyone for joining us we look forward to talking to you on our next call have a good one until then and have a wonderful holiday season.
Ladies and gentlemen, thank you for participating in today's conference Fish concludes the program you may now disconnect everyone have a wonderful day.
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