Q2 2022 Bigcommerce Holdings Inc Earnings Call

August 4, 2022

Ladies and gentlemen, thank you for standing by and welcome.

The Big Commerce second quarter 2022 earnings call.

At this time, all participants are in listen only mode.

After the speaker presentation, albeit.

There will be a question and answer session.

Please advised that today's conference is being recorded.

I'd like to turn the conference over Europe .

Your first speaker today Nevertheless.

I haven't been past race.

I'll begin start.

Good afternoon, and welcome to Big Commerce's second quarter 2022 earnings call.

We will be discussing the results announced in our press release issued after today's market close with me are big Commerce, as President CEO , and chairman, Brent <unk> and our CFO Robert Alvarez today's call will contain forward looking statements, which are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1090 fives.

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 2022 and the full year 2022.

These statements can be identified by words, such as expect anticipate intend plan believe seek 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.

Our 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 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 <unk>.

Also available on our website at investors that big Commerce Dot com with that let me turn the call over to Brett.

Thanks, Daniel and thanks, everyone for joining us on today's call are Ian I will review, our second quarter results and discuss our priorities and approach to managing through the current conditions of market turbulence. Our eight will also provide detail concerning our view on the back half of the year in his discussion on updated guidance.

First and foremost I'm pleased to share the second quarter was one of the best in our history. A result that encourages us given the macroeconomic climate. Our team continues to deliver on our mission to be the leading open SaaS e-commerce provider empowering <unk> merchants around the globe.

I'll discuss the details.

Q2, total revenue grew to $68 2 million up 39% year over year. This was our 10th consecutive quarter of posting 30% or higher revenue growth, which was bolstered by strong results from the <unk> acquisition in Q3 of 2021.

Our non-GAAP operating loss was $13 7 million, which was also.

Go ahead of our guidance last quarter. We concluded Q2 with an annual revenue run rate or <unk> of $296 million up 41% from last year that represents a sequential growth in <unk>.

$15 $5 million. This increase was driven by our continued success in the enterprise segment Enterprise account <unk> was $206 $6 million of 68% year over year that marks our 15th consecutive quarter of 40% or higher enterprise growth.

Q2 delivered the largest sequential growth in <unk> in our history, excluding the quarter other fee genomics acquisition it was better even than during the height of the pandemic. When we saw strong transaction driven tailwind to partner revenue subscription upgrade an enterprise plan order adjustments.

As I said, our strongest growth is coming from the enterprise segment, which now represents 70% of our total company <unk> compared to 52% just before our IPO only two years ago.

I am often asked about my views on our current progress and where I feel this business can be in three years to five years I am also asked how we need to operate in a challenging climate to deliver sustainably high revenue growth, while hitting our commitments to investors about spending and profitability.

What I want to emphasize from the start as us.

Our underlying business momentum is strong we are winning bigger more complex merchants every quarter, we are delivering our product roadmap. We believe it's best in class and industry analysts and merchants are recognizing our emerging enterprise leadership I have never been more confident about the prospects of this business than I am now.

Over the last few years, you've heard me talk often about our upmarket journey from serving SMB to mid market and enterprise merchants I've given updates on our steps to develop new products and add Apis and graph QL capabilities as part of our differentiated open SaaS approach.

With the launch of our multi storefront functionality to all enterprise merchants in the second quarter, we now offer the key functionality and flexibility that the world's most sophisticated merchants need to be successful we have crossed the transformational line in our journey as a company to become the world's most modern enterprise ecommerce platform we.

Bed commerce are not the only one segment Forrester a leading global market research company named US a strong performer and placed us closer to the leader designation of a relevant competitive set.

<unk> E Commerce Forrester rated us the third highest in terms of the strength of our current <unk> offering. Meanwhile, immersed in Europe named US the top enterprise <unk> platform, and we won 2020 to Australia and solution provider of the year from retail global vendors and partnership just last week, we receive.

Hi honors as the top solution and paradigms BTB combined for both mid market and enterprise receiving 22 out of a possible 24 total metals, we earned six more metals than last year and that marks the third consecutive year, we improved our <unk> ranking with paradigm.

On the three continents that comprise our top markets. The experts are ranking us at the top of their platform evaluations now that we are officially launched in Mexico, and South America, we look forward to competing in those markets as well.

While there is no doubt macroeconomic challenges facing our industry and global markets more broadly. We believe we are still at the front end of a long term upward curve.

Idc's most recent forecasts estimated $8 billion in worldwide digital commerce application revenue this year.

That is projected to climb to $12 billion in 2025 and the good news for US is that spending for on premise applications is projected to decline, whereas spending on SaaS solutions like ours is projected to grow at 28% CAGR, New enterprise store acquisition drives our growth and we continue to see strong demand.

With our recent acquisitions of longtime technology partners bundled <unk> and <unk> Ninja. The commerce has expanded its native <unk> e-commerce functionality to provide a dynamic platform for all <unk> merchants that is easier to use faster than legacy <unk> solutions, and more flexible and powerful than other SaaS platforms at a time when <unk>.

E Commerce is growing faster than <unk>.

In Q2, our international expansion efforts made further progress.

Adding to our operations and the largest western European economies, we launched our formal presence in the Nordic countries of Denmark, Sweden, and Norway and further expanded into the dark region with the addition of Austria, we built on our recent launch in Mexico with expansion to Peru, Our first country in South America in the coming months, we will launch an additional Latin American.

Trees, we're supporting new languages, adding new geographies and integrating new payment methods for local markets. We're in the early innings of global expansion and our growth rates in EMEA APAC and non U S. Americas give us confidence that expansion will pay off in the near and long term.

We continue to add new enterprise merchants to our platform in the second quarter Mountain equipment company, Canada's largest supplier of outdoor gear launched its headless integration using big Commerce checkout support storefronts in English and French well pharmacy, one of the Uk's largest pharmacies is now selling over the counter and.

Medications on its big Commerce store, leveraging our open SaaS and headless capabilities.

Australia and motorcycle helmet brand foresight Thomas deleveraging headless to create is beautifully designed storefront <unk>.

Lifetime brands, a leading global designer developer and marketer of a wide range of household products from Kitchenaid Farberware and other brand launched a new store using <unk> edition.

Warehouse a subsidiary of major UK tile brand top titles launched a pop up storefront to sell clearance tiles directly to consumers leveraging a fulfillment partner to pull through real time inventory and providing custom urls for product categories and attributes.

Finally, two noida the popular German shoe retailer turned to big commerce to internationalize and relaunch its web shop on a modern platform that doesn't require constant upkeep and that can be customized to provide an incredible customer experience.

I would now like to share some thoughts about the current operating environment, which is challenging for us as it is for others. Although the majority of our subscription based business is not directly dependent on the GMB trends of our merchant stores. We are impacted in other ways by downturns and E. Commerce spend that can be caused by the economy return to shopping in physical stores.

And or other adverse economic changes specifically reduced growth rates in our merchant sales impact our partner in services revenue balance of subscription upgrades and downgrades order based enterprise fees and trend line for customer retention and bad debt.

We try our best to make decisions that balance the achievement of our near term financial goals with the maximization of our long term business and shareholder potential. We believe we need to lead with humility grounding decisions and our understanding of customer and partner needs and our mission to make open SaaS. The best solution for the next era of ecommerce along the way.

We have had to respond to unforeseen challenges and occasionally make new bets on opportunities that earn our conviction halfway into this challenging year, we managed to achieve our goals. So far thanks to our management team's collaboration and adjustment. We continue to believe that we will achieve the topline and bottom line guidance, we set at the beginning of the year. Despite the impact current market.

<unk> have on select components of our P&L.

We understand that the market is focused on potential risk areas created by current economic headwinds nearly all ecommerce companies have been talking about these risks to their businesses.

And we to face these risks, but on balance I believe the strength of our business model, our demonstrated well in this market and I'd like to dive deeper into why that is.

70% of our revenue mix comes from enterprise merchants, which are predominantly established successful businesses from a wide range of categories geographies and <unk> and <unk> use cases.

Similarly, but separately, 70% of our revenue comes from recurring subscription revenue, which provides a stable predictable top line. The combination of durability from enterprise customers and predictability from subscriptions makes us less vulnerable to short term economic swings than would be a consumption or GMB based revenue model.

Second the components of our subscription plans that do adjust with <unk> tears order counts are calculated using a trailing 12 month look back. This has a moderating effect against short term and seasonal fluctuations in consumer spending sharp movements upward take time to be fully realized in our pricing and revenue, which we.

Sol during the pandemic, noting that our revenue did not increase as fastest total ecommerce GMB did on the flip side sharp short term movements downward are also dampened by our trailing 12 month convention for us the most immediate direct impact to our revenue from our customers CMV fluctuations occurs in partner and service revenue.

Component being Rev share from our payments partners, we are doing our best to account for ecommerce spending risks in our outlook and we will speak to that in detail shortly.

Third nearly all of our direct sales occur in U S dollars today Foreign exchange risk is limited to partner Rev share like in payments that are earned in non U S. GMB.

Central's plan subscription upgrades prompted by GMB earned in foreign currencies.

Our non U S operating expenses. These FX sensitivities impact a small percentage of our total revenue and expense base today, we do not believe a strong U S dollar as a material risk to us at this time.

Finally, our product is considered mission critical by our merchant success in ecommerce is imperative to all businesses strategically and financially, especially post COVID-19.

Recent CIO surveys indicate continued robust spending in software and we offer a material total cost of ownership advantage over legacy enterprise software competitors.

As merchant budgets tightened our platform should remain attractive and mission critical for most of our customers.

Shifting gears now to our board of directors as we announced earlier. This week. We've added two fantastic new directors to our board Sally Gilligan Chief growth transformation officer of the gap and Satish Malhotra, Chief Executive officer of the container store.

Our goal was to enhance our board with the experience and perspectives of retail veterans.

Sally entities, respectively represent the technical and CEO retail buyer personas to whom we sell while also bringing deep functional expertise to our board governance. We're excited about all they will contribute.

Meanwhile, I want to sincerely, thank Steve Marine Jack Mcdonald for their years of service on our board Steve was a partner at the venture firms, who led our series C and D rounds and served as our lead independent director Jack as IPO and ran two successful public software companies and served as a valued mentor to me through our process.

They were instrumental in our growth to public company status and we're grateful for their leadership and service to Big Commerce.

As I wrap up I would like to reiterate my belief that our team and business performed very well this past quarter. We delivered strong results in a challenging operating environment investments made across our strategic priorities continued to deliver customer and business value. We are increasingly viewed as a true leader in the e-commerce industry and I'm, especially grateful.

For everything our employees and partners have done to earn that during times of dramatic change.

That I will turn it over to our right.

Thanks, Brent and thank you everyone for joining us today.

During my prepared remarks, I will walk through details on our Q2 results in that discussion I'll also speak to how some of our metrics are derived so that investors can more easily understand the underlying trends in revenue and bookings.

In addition, I will provide details on how current conditions are impacting the business efforts, we are taking to optimize their spending and finally I'll provide greater detail on our guidance on back half revenue and profit assumptions.

We always strive for transparency when discussing our results and outlook.

To take extra steps to provide clarity in this current macro economic environment.

In Q2 total revenue was $68 2 million up 39% year over year.

Subscription revenue grew 51% year over year to $51 3 million driven by a mix shift to enterprise accounts.

Supported by strong results from our <unk> acquisition, we have now posted 10 consecutive quarters of 30% or higher total revenue growth and 15 consecutive quarters of 40% or higher enterprise AOR growth.

Partnering services revenue or <unk> was up 12% year over year to $16 9 million.

El platform transaction volumes have largely been in line with the conservative expectations, we set at the beginning of the year.

We saw slightly lower than expected volumes in <unk> in Q2.

Overall, we have been encouraged by the durability that we are seeing in transaction volumes, thus far in the year.

But given the economic climate, we are taking a conservative approach to our <unk> outlook in the back half of the year and I will discuss this in more detail later in the guidance section of my remarks.

Revenue in the Americas was up 41% in the quarter, while EMEA revenue grew 42% and APAC revenue was up 18%.

Our international progress is strong as we entered five new markets in July and.

And I am proud of the traction our teams are delivering overseas.

I'll now review our non-GAAP Kpis.

<unk> grew to $296 million up 41% year over year.

Driven by continued strength in our enterprise customer base.

That represents a sequential growth in total <unk> $15 5 million, which is the highest growth in our company history excluding.

Excluding the quarter of our acquisition of <unk> dynamics.

In particular I would draw your attention to the composition of that big sequential growth in IRR.

As a reminder, we calculate <unk> at the end of each month as the sum of two things.

First it includes our end of period monthly recurring revenue multiplied by 12 to prospectively annualized subscription revenue.

We often refer to this as our subscription.

<unk>.

Second we then add the trailing 12 months of <unk>.

The sum of subscription <unk> in the trailing 12 months of <unk> is our total <unk>.

When looking for leading indicator trends in net bookings investors often look to either changes in deferred revenue or remaining performance obligations or rps.

These metrics are not good indicators of big Commerce is booking trends because most of our merchants today are build month to month and we also see large multi year partnership agreements and deferred revenue or RP O that can make period to period comparisons challenging.

Instead, one of the best ways to see the underlying trend in our net bookings is by looking at the quarter over quarter sequential change in subscription <unk>.

That difference is a reasonable indicator of our change in net bookings in the latest quarter.

In Q2 subscription <unk> increased by $13 7 million, which was 29% higher than our previous record increase in Q4 of 2021 and also higher than any quarter. During the height of the COVID-19 pandemic.

What this means is that we posted our highest sequential growth in our in our history and that growth was driven by gross new subscription bookings growth in enterprise and omni channel, even as we are seeing less tailwind to <unk> and pricing adjustments due to current macroeconomic conditions.

These conditions are largely outside of our control, but what we have tried to control is winning new deals launching merchants on time and providing the best level of service for our merchants, which is how we manage to exceed our growth and your targets and setting a record even the midst of this type of economic uncertainty.

At the end of Q2, we reported 5418 enterprise accounts up 1503 accounts or 38% year over year, including treat and Omics.

ARPA or average revenue per account for enterprise accounts was $38133 up 22% year over year.

Now that our enterprise accounts represent 70% of our total <unk>, we will continue to share details on accounts with greater than $2000 in annual contract value or <unk> in our quarterly filings through the end of the year, but we will not review them and our earnings calls.

I'll now shift to the expense portion of the income statement.

As a reminder, unless otherwise stated.

All references to our expenses operating results and per share amounts are on a non-GAAP basis.

Q2, gross margin was 77% up 131 basis points from the previous quarter.

Meanwhile, we reported gross profit of $52 3 million up 33% over the prior year.

In Q2 sales and marketing expenses totaled $31 2 million up 56% year over year.

This spending represents 46% of revenue up 481 basis points compared to last year.

This increase was driven by additional head count, particularly due to investments in international expansion and enterprise.

Research and development expenses were $19 4 million or 28% of revenue up 144 basis points from a year ago.

Driven by additional hiring to support our investments in our key strategic initiatives.

Finally general and administrative expenses were $15 5 million or 23% of revenue up from 21% of revenue a year ago.

We expect to see growing operating leverage from G&A as we moderate hiring and other expenses in the coming quarters.

In Q2, we reported non-GAAP operating loss of $13 7 million and negative 21% operating margin.

This compares with negative $4 2 million or a negative eight 6% operating margin in Q2 2021.

Adjusted EBITDA was negative $13 2 million or negative 19, 3% adjusted EBITDA margin.

Paired to negative seven 1% in Q2 of 2021.

non-GAAP net loss for Q2 was negative $14 1 million or negative <unk> 19 per share.

Fair to negative $4 2 million.

<unk> <unk> per share last year.

We ended Q2 with $360 million in cash cash equivalents restricted cash and marketable securities.

Year to date operating cash flow was negative $35 9 million declining from negative $17 4 million a year ago.

We reported free cash flow of negative $39 3 million or a negative 29% free cash flow margin.

This compares to negative $19 1 million and a negative 20% free cash flow margin in Q2 2021.

As we discussed in our recent Investor day.

We are committed to reaching breakeven by mid 2024 and continue our path to rule of 40.

Again, 70% of our revenue mix comes from enterprise merchants and separately, 70% of our revenue also comes from consistent recurring subscription revenue.

More than 60% of our total cost sits in staffing, which allows us to moderate spending where necessary by controlling our pace of hiring.

And thereby generate improvements to operating leverage behind or durable recurring revenue stream.

This is a strong growing enterprise business and we are confident we can grow profitably behind our strong merchant base and healthy unit economics.

I would now like to review some measures that we're taking to optimize and prioritize spending.

First we are prioritizing high ROI investments in the enterprise segment and focusing on the key strategic initiatives, we believe will increase our leadership position over time.

Over the past four years, we have seen an average LTV to CAC ratio of eight to one for.

Our enterprise business compared to 201 for our non enterprise business.

We have shifted dollars from non enterprise marketing activities to prioritize enterprise and we also rolled back three months promotions on non enterprise plans during Q2 as well.

Consequently, we are seeing fewer use small business sign ups, but we are seeing improved cohort health and retention higher revenue and improved profitability.

Second we.

We have materially slowed down our pace of hiring.

We exceeded our hiring expectations over the last nine months, even in the midst of a competitive hiring landscape and we have brought on key roles needed for our investment plans in Omnichannel International expansion <unk> had less and largest enterprise.

We are confident we can continue our momentum and capitalize on the benefits of the significant investments we have made in our employees, even as we moderate our pace of hiring.

We estimate that this would generate an exit rate savings of $6 million to $8 million heading into next year.

I am confident that this and many other cost savings initiatives currently underway will keep us on pace to meet the timeline to profitability that I affirmed previously.

Over the course of the last six months I've also received many questions about how inflation is affecting our business and I'd say, we are seeing its effect.

Most directly in labor costs, thus far we.

We are taking necessary steps to offset this through tight budgeting.

Geographically diverse hiring and other cost savings initiatives. We are also managing pricing closely to ensure that we are seeing the full benefit of the value we provide our merchants.

We will continue to take actions as necessary to manage and offset cost pressure in the coming quarters to deliver breakeven by mid 2024.

In conclusion, let's shift to our guidance and outlook for next quarter and the full year 2022.

For the third quarter, we expect total revenue in the range of $68 3 million to $71 2 million, implying a year over year organic growth rate of 15% to 20% with fee dynamics now into 2021 base period for.

For Q3, our non-GAAP operating loss is expected to be $14 4 million to $16 4 million for.

For the full year 2022.

We expect total revenue between $277 million to $282 9 million translating to a year over year growth rate of approximately 26% to 29%.

We expect the non-GAAP operating loss between $48 9 million and $52 9 million.

This reflects a little less than a 1% change to full year revenue at the midpoint to risk adjust the remainder of the year compared to our prior quarter guidance.

Despite this we are holding consistent to our prior quarter guidance on non-GAAP operating loss for the year and tightening our range based on the cost containment efforts we've already taken.

Now I'll provide more context with respect to our current thinking for the back half of the year.

First let me address our assumptions around transaction volumes and their impact on <unk> and subscription pricing adjustments.

Thus far transaction volumes have been largely in line with the conservative expectations on which we based our plans at the beginning of the year.

Additional consumer spending headwinds in the back half could impair year over year growth in transaction volumes and GMB.

We anticipate that this could have a potential negative impact of $3 million to $4 million to revenue.

Primarily in revenue share recapture in <unk>, but also subscription revenue due to potentially fewer pricing upgrades and more downgrades and churn, which we have now factored in.

Second.

We expect the level of competition remained high through the back half of the year and we could see some additional headwinds to new merchant growth showed sales cycles lengthen.

That said, we also see significant total cost of ownership and product advantages against legacy enterprise competition that could actually be a tailwind in a tight merchant spending environment.

We are prioritizing these enterprise merchants and we expect to see a smaller absolute number of new merchant adds in the back half due to the removal of our non enterprise three month promotions. However.

However, we expect to maintain healthy and growing <unk>.

Driven by strong enterprise bookings mix and higher ARPA consistent with our Q2 mix of new merchant wins.

Third we will continue to invest against our strategic priorities.

We will continue to make the crucial investments needed to fuel long term durable revenue growth.

We're also taking steps to pay spending closely with revenue growth to deliver our profit commitments.

Our profit guidance has included the anticipated impact of those efforts throughout the back half and we expect those efforts to begin showing additional momentum and improving operating loss results as we exit the year.

Finally, I would once again like to thank all of our incredible employees merchants and partners.

Delivering strong results even in the midst of a challenging operating environment.

So proud of the work and dedication of this team and the level of commitment and character that continues to shine bright each and every quarter.

With that Brett and I are happy to take any of your questions.

Operator.

Well go to the question and answer session to ask a question you May Press Star then one on your Touchstone phone.

We are using a speakerphone please pick up your handset before pressing the keys.

Draw. Your question. Please press Star then two.

Tom will pause momentarily to assemble our roster.

First question comes from Gabriela Borges Goldman Sachs. Please go ahead.

Good afternoon, and thanks for taking the question.

Brian to start I'm curious, if you're seeing any change in the cans are free platforming cycle and willingness for customers to invest in technology, putting aside the partner services business and really focusing on the subscription solutions business.

Two questions on that one is any change in willingness to invest in the cancer free platforming cycles and two are you seeing any change over the last quarter and the number of rfps or being invited to win rates because of the new technology upgrades, you've announced and multi hub in multi inventory.

Hi, Gabrielle.

The trends we're seeing in Q2 are consistent with the last couple of quarters, meaning a healthy continued.

Demand in Midmarket and enterprise for new and re platform decision.

This is in recent quarters of course down from the first year of the pandemic. When there was a mad rush by companies caught flat footed.

Right to adopt.

But in terms of re platforming cycles, we continue to see that demand.

Healthy.

For small business the demand is not what it was anywhere close to the peak of the pandemic, but for Midmarket and enterprise it strong.

We are noticing ourselves getting into additional and healthy RFP opportunities as a result of the strong tech.

Tech analyst ratings, we've been getting of late including Forrester.

For both <unk> and DSC from paradigm for <unk>.

E Commerce in Europe for <unk>, those are seemingly getting us into additional incremental <unk>.

Consideration cycles, and it's too early to say what those win rates will be because the RFP tend to take some time to.

Work their way through to a decision, but we're optimistic that our win rates could be assisted by that as well. Thanks for the question.

That makes sense. Thank you the follow up as well.

I would love to hear a little bit about the impact that pricing adjustments are upgrades have historically, having a business over the past two to three years.

How do we think about the potential magnitude downside to the extent you see downgrades and your ability to manage through that.

Yeah, Hey, Gary I mean, a lot of cases some of the upgrades like the upgrades. We did in Q1 for pro plans was really just to get the merchants on the right plans, yes, there could be some increase in upgrades, but it really is to get them. The service entitlements and level of service that we feel those merchants need so they can.

Grow into really large enterprise merchants I would say in hindsight over the last two to three years, our upgrades as we move from an SMB platform. The enterprise platform in large part has hasnt been material in terms of our overall revenue.

Being basically putting merchants on the right plans.

And so going forward I think our enterprise pricing is pretty well fine tuned at this point our go to market is pretty fine tuned at this point upgrades for US last year, obviously was impacted by the increase.

Increased transaction levels with Covid.

This year and now we're moderating that a bit.

Especially in the back half but.

Hope that answers your question.

I appreciate the color.

Thank you. Our next question from Clarke Jefferies Piper Sandler. Please go ahead.

Okay.

Thank you for taking the question first is maybe if you could help us walk through the deal composition in the quarter and maybe the occurrence of larger deals.

A couple of new metrics this quarter trying to understand what drove that big sequential growth in subscription IRR and what seems like maybe one of the lighter quarters in terms of raw net adds on the enterprise enterprise account number.

Yes, I mean, I'll start Brent, but Q2 represented a great quarter in terms of our ability to win large deals.

On both big Commerce and fee dynamics.

Both sides closed deals north of $1 million of HCV, which is super encouraging.

12 months into the fee dynamics.

From the <unk> acquisition I'll tell you, we just couldnt be more impressed by the team and the product the use cases of feed and Omics.

Back 12 months ago versus what we're seeing today or are greatly different I think feed and omics.

With Big Commerce, we're able together to expand the total addressable market opportunities. When we think about just Q2 some of the notable wins for Q2 and feed genomics was new enterprise merchants leveraging them for marketplace channel management, including listings on Amazon Walmart target.

Yes.

We had a very large win with a leading same day delivery fulfillment partner in the U S and in Latin America.

Then thinking real time local product information for millions of products.

Also a large win with a global affiliate and advertising platform transforming data at scale for millions of products. So I share that with you because I want to give everybody a sense that these.

These use cases go well beyond just commerce I think what we've learned with feed and Omics plus big Commerce, There's a lot of opportunities in terms of aggregation syndication data transformation at scale for merchants, but also for our agencies, our channel partners, our technology and technology companies. So.

When you look at that sequential increase of third of third of that increase with speed and Omics subscription and two thirds of that was big commerce. So both both sides had a really great quarter in Q.

Two several really large.

Deals.

Excellent helpful color it sounds like Putinomics is really.

<unk>.

Second follow up is just.

Tightening the range on the profitability guidance, but roughly holding the midpoint. It sounds like there was some commentary about a slowing of hiring $6 million to $8 million I'm. Just wondering if there were any investments that are actually going up and offsetting the slowing in hiring to get to you to sort of keep that in line.

Operating income guidance.

No I mean, thankfully I think we really got ahead of it Clarke I mean, we went into the year knowing that it was an investment year for big Commerce.

We feel great about.

Our execution in terms of staffing up our key strategic initiatives, but we also went into the year knowing that next year, we needed to show leverage because we've always had a goal to get to breakeven by mid 2024. So.

I feel great about how we staffed up we executed really well when we look at the five strategic initiatives that we covered at our analyst day I think.

We have executed extremely well across all five.

And so if I take a step back and think about our progress as Brent mentioned.

We believe we are the most modern ecommerce platform in the market today.

Our goal is that we want to be a clear leader in the enterprise category over the five years over the next five years and these are these investments that we're making are how we're going to get there. So let me make no mistake, we're investing for the future, but with the changing macro environment. We're also taking a hard look at the entire business, we're making sure that our spend is.

Focus on the highest ROI areas.

And then we're also looking at optimizing our cost structures cost structures to make sure that our unit economics improve over time.

Our profitability also improves but we went into the year knowing that.

We were going to drive leverage starting to drive leverage in the back half so.

We feel pretty really really good on our ability to to kind of get ahead of it.

We don't feel like we got ahead of our skis, so really proud of the team.

Thanks, Alright appreciate it.

Thank you next question from Terry Tillman. Please go ahead.

Hey, guys. This is actually Connor on for Terry Thanks for taking my question first.

First one from me just on international expansion. So congrats on growing your presence in Europe . The Nordics Latam I know international expansion is one of your key investment areas. This year could you maybe just remind us what you look for in terms of ROI when entering a new geography and have these regions has been mostly consistent with the U S. In terms of enterprise merchant demand or is there maybe a little bit more of a slowdown there.

Yeah.

Hey, Connor.

Go ahead go ahead Bryan why.

Why don't you take the ROI part of it and all I'll answer the second part.

Yes, I mean corner, we covered this on the analyst day, but we're basically we know that we're going to invest in the first year.

We look for a payback anywhere from 18 to 24 months, sometimes when we make heavy heavy investments it could be up to 30, but on average we're kind of want to make sure that these expansion costs, we get paid back in kind of 18 to 24 months in the markets that we entered into.

We test and learn a lot before we make these investments we know theres strong product market fit we've identified.

The agency partners Tech partners to make sure that our product can be ready in those markets and so much like the markets that we've seen such great success in we try to replicate that model.

And I could say that that holds true for the markets that we entered into in Q2.

Yeah, and in terms of performance and market to market, none of them should be benchmarked against.

Made of English speaking countries like the U S, which by the way was our second market not our first Australia was our first way back one for the U K.

I mean, the U K just was a rocket ship, but even when we formally entered the U K, we already have more than 3000 stores. There. We just didn't have a marketing website or employees.

Very new to enter foreign language countries, Italy, France, Spain, Germany, what we are seeing Netherlands, what we're seeing in general is that our markets are in line with our.

Sort of first year second year performance, but there is variability from country to country that can have a lot to do with the early traction or lack thereof that we get with local agency partners and just how strong they are and how heavy they go in with us.

An example of a market that talked a spectacular success is Italy and with every new launch country, where like Italy, then we'd be way ahead of all of our targets, but in general we're on track and that is true in Europe , It's true.

Mexico as well.

Thanks for the question.

I appreciate the color. Thank you guys.

Thank you next question comes from Daniel Reagan Canaccord Genuity. Please go ahead.

Okay.

Forecast for the business just given the macro backdrop, which verticals are cohort types, where you're seeing the most risk in and then also as <unk>.

Volumes come under pressure, how should we be thinking about.

No downgrades.

Any color there would be great.

I got most of the question I don't think I got the beginning but.

I got the gist of it so what we've seen in our aggregate <unk> volume is in the first 18 to 24 months of Covid, we saw a sizable step up in our aggregate GMB.

We have not seen a deterioration of that.

We've seen growth rates that have come down a little bit.

But in terms of aggregate G&P volume pretty much across every major category.

<unk> seen growth and we continue to see growth there are some categories growing faster than others, but overall they are all growing off of a much larger base than they were 12 or 18 months ago.

When we think about the back half obviously you have to factor in <unk> assumptions for same store sales. We also have to factor in the launch of new accounts and I'm really excited about the back half because.

We're actually launching one of our largest accounts ever in our history.

Once fully launched it'll be north of $1 billion on our platform. So when we think about.

And look at the <unk> by category, we're seeing growth across most categories.

Also a factoring in the launch of new accounts with much higher <unk>.

Just like in Q2, as we sign larger and larger merchants were going to be able to add that <unk> on top of the aggregate GMB thats been stepped up over the last 12 months to 24 months. So as I think about the back half of the year. We're looking at same store sales assumptions discounting that slightly and then adding the impact.

Of large accounts.

We're really excited to launch.

Okay.

Gotcha Super helpful.

One thing I'll also add there is.

As our mix is now 70% enterprise. These are established businesses often national brands. These are companies with a wide product catalog that have kind of the durability I think that will allow <unk> to continue to increase on big Commerce. So is that.

<unk> continues to shift even further and further to enterprise.

And then you add on top of that large enterprise accounts that are $1 billion in HCV and accounts that.

We have $1 billion running through the platform.

It's definitely going to help us I think navigate any fluctuations in same store sales or near term economic uncertainty.

Got you Super helpful.

As a follow up and.

And circling back to the re platforming cycle as we think about the chateau displacement opportunity with sunsetting of Amazon can.

Can you just talk a little bit.

How you approach acquiring these customers has evolved now that you have probably a little bit better lay of the land.

And then secondly.

What levers can you pull to accelerate.

Any agency efforts here. Thank you.

Yeah, I mean with time, we keep trying to get better both at the.

Core demand generation tactics that we're already good at which I will highlight as well as <unk>.

Add new trucks that have high ROI.

The things that we already are well experienced that digital marketing.

Outbound and inbound sales development rep sort of lead cultivation account targeting and especially one of the things I think we are.

And the industry out is working with our agency partners.

Good.

Co selling with agencies building joint value proposition with agencies, but one of the big opportunities. We have is to expand our agency network, both within established markets and new markets and particularly at the high end. If you go to the very high end of large enterprise.

Historically, we were competing in mid market and the lower end of large enterprise and the types of agencies that we're doing the multibillion dollar installs and implementations weren't working with US they were working with in years past the Oracle Atg.

IBM websphere or the world, even though those arent sold anymore or magenta enterprise.

Maybe sales force.

And.

Now that many of the tech analysts are actually rating up ahead of those platforms and far ahead of our more SMB centric platforms, we're entering the consideration set and.

In fact, the priority set of many of these top agencies and so we're trying to compete for the full spectrum of opportunities and some of these deals can be very big and needle moving for us.

When we win them, they're also a bunch of other technology partner trucks.

With our existing merchant base to expand our opportunity set that our new trucks for us we're trying to work on.

And finally, we want to increase our presence at.

Of that.

e-commerce events industry of them.

Want the word to get out that where we are the world's most modern enterprise ecommerce platform and be in the consideration set for every relevant decision that big companies.

Small companies are making.

The only that's great Brent the only thing I would add to that point is we launched Omnichannel certified agency partner program.

That's getting a lot of great interest in traction and essentially that allows our agency partners to help merchants on their omni channel initiatives.

Regardless of what platform they are using so regardless if they are on magenta or anything.

Other platform they are able to work with feed and Omics.

It's a great example of how big Commerce and fee dynamics are working together.

Pete and Omics, leveraging our ecosystem is amazing partners, our partners being able to leverage their technology to transform millions of skus of data and syndicate that to it's a lot of feeds at a scale that they just couldn't do on their existing platform. So.

I think feed and Omics in our Omnichannel initiatives and this partner program could be a really good way to incentivize merchants to start working with feed and Omics and then hope.

Hopefully migrate over to big Commerce.

Sooner rather than later.

Thank you. The next question will be from Josh Beck with Keybanc. Please go ahead.

Hey, guys. This is matti on for Josh Thanks for taking my question.

My first question for you is what are you going to be the key factors bridging what today is 15% to 20% organic growth outlook is here to your long term model expectations. Thanks.

Yeah.

Yes, so I'm happy to take that I mean, I'll just point to enterprise so.

Even with feed and Omics in our base period in Q3.

We still feel like we could grow our enterprise.

Potentially over 40%.

Enterprise and feed and Omics as we've mentioned before we expect.

Both segments to grow at a pretty high clip at a very comparable clip.

Knowing we've got some lapping effects this year.

It still gives us a ton of confidence that with the large mix of our revenue tied to subscription that large mix tied to enterprise.

The deals that we're winning today and that we have great pipeline to win in the second half.

We still stand pretty confident that over the next five years. This is a business that will deliver a 25% to 30% CAGR.

For my follow up I'm curious if you guys could give an update on how <unk> bundle acquisitions are tracking and then just overall <unk> momentum.

Yes, they are tracking consistent with their trend line.

Pre acquisition, which is a very healthy trend line and we shared some of those <unk> growth rates.

In our analyst day in Q1.

I should say in May.

The most important thing to note is with bundled <unk> Theres a fair amount of work that we do to now bring that product native into the platform and improve the architected.

And the compatibility of it with all themes with multi storefront.

Additional geographies, so theres re factoring of the products that they have to make it more usable with the best capabilities bolt and full functionality and openness.

Outbound commerce and we are fixated on that in the short term continuing to sell it very successfully.

And then maybe after a year after acquisition will start turning our attention to the addition of additional functionality.

We're just we're very pleased though with where we are at VW in general I mean for paradigm minutes mid market and <unk> combine recognize us as an award winner in 'twenty two out of 24 category. It shows that the product is quite well rounded and mature.

As it is and it's only going to get better.

Awesome, Thanks, guys. Thanks.

Thanks.

Thank you next question will be from Koji Ikeda.

Bank of America. Please go ahead.

Yeah, Hey, thanks, guys. Thanks, Thanks for taking the questions. Just a couple from me I wanted to ask the first question on the guidance and I. Appreciate all of the color on the call regarding the guidance and the way to think about it I guess my question is really about <unk> really thinking about how we should be thinking about this.

<unk> growth in the second half.

I clearly understand the factors that were driving the guidance there but.

Real short question is could <unk> revenue growth be flat or even down in the second half.

No. We don't think so because I mean, when I think about the second half.

We do start with our same store sales assumptions.

And then we add on the impact of the large large accounts that we launch and the impact of <unk>, we do expect that to impact and that kind of part of Q3. Most of Q4. So Q4, I suspect <unk> kind of in the mid to high teens based on that.

Remember, we also have a mix of non GMO related Rev.

Our revenue items in <unk>, but when I think about Q4, I can see that kind of in the mid to high teens. When I think about Q3, we do have to lap a deal couple of partnership deals that we signed in Q2 of last year that could put.

Q3 in the in the single digits, but overall for the back half no I don't I don't see that being negative if anything I see it.

Slightly down in Q3, just for the lapping effect of those deals from last year, and then outpacing based on the large merchant launches in Q4.

Okay got it got it thanks, and then just one follow up there so thinking about the subscription side of that equation.

A little bit.

Slower growth rate there just thats the subscription component for potential downgrades effected by the GMB kind of with the commentary that you had earlier in the call is that is that the right way to kind of think about the the growth algorithm here.

You got it yes, I mean, because the <unk> assumptions effect <unk>, obviously, but.

Definitely touches on assumptions around upgrades downgrades and potential churn the good news is with.

With our large mix of enterprise, our retention metrics still look really good.

But again when you are kind of scenario planning and what if planning.

Around that it does touch touch on churn a little bit but since our mix is so heavily weighted to large enterprise merchants, we feel pretty good about that but it does affect upgrades and downgrades.

Got it thanks, guys. Thanks for taking the questions.

Of course.

Okay.

Thank you. Our next question will be from Parker Lane of Stifel. Please go ahead.

Hi, it's Max on for Parker to staying right there on the potential churn and thinking about the strong enterprise traction and kind of the way you're shifting away from some SMB crude trials and Scott what do you think the churn will be for those smaller customers or is it just a matter of them.

New small customers not coming on and is there an idea of what you think.

Overall percentage of enterprise should be in the long run.

Yes, it wasn't so long ago.

We were saying that enterprise could be 70% and we're here already.

In our analyst day, I mentioned that I think there is a clear path to 80.

<unk>.

Potentially 90% of our revenue could be enterprise on the small business side I don't want anyone to think that we're not still winnings in small business merchants or.

Im not seeing revenue from our small business merchants that promotion.

What we found when we dug into it was a lot of sign ups, but really low conversion after their promo period. So in terms of effective kind of P&L management didn't make a lot of sense to have that hanging out there where you have gross new sign ups that don't convert to revenue, but we're seeing now is we're getting sign ups and theyre converting in there.

We're paying in the revenue from the sign ups that we're getting now for small businesses is actually much greater than the revenue we were getting when the promos were in place. So I think with the promos we attracted.

Probably small businesses that.

<unk> businesses are.

Weren't serious about ecommerce what we're seeing now is small businesses that are serious have real businesses and.

Our growing on our platform. So I think overall I would characterize it as a.

A win in terms of attracting small business merchants that.

Do drive revenue and we expect that that two to one LTV to CAC will get better now that we're doing a better job of identifying those merchant signing up those merchants and not spending too much money on acquiring merchants that won't convert.

Got it that makes a lot of sense and then thinking back to the strength you mentioned in speed and Omics and how well. It's performing are you still intending on investing around $5 million to $6 million that you mentioned during the analyst day or is that potentially going to be lower as you look to cut some costs or is it potentially would be higher.

Given the success.

So it wouldn't be higher I mean fee dynamics is now part of our Omnichannel strategy I mean, they just came off a quarter where.

Were they signed the three largest deals in their history.

So.

No reason for us not to continue to invest in feed and Omics and our omnichannel initiatives Omnichannel and a lot of ways. If you think about.

A potential tightening spending environment we.

We believe big Commerce provides an excellent.

Roy total cost of ownership advantage for merchants around E. Commerce. We also believe feed and Omics is super attractive for merchants, who want an increase in their.

Return on AD spend increasing conversion.

So both of our <unk> business and Big Commerce business I think that there is some really really strong advantages to what we offer for merchants.

We're taking a hard look at mission critical investments that they need to make.

I appreciate the color. Thanks.

Thank you.

Next question will be from smaller Tomorrow Jefferies. Please go ahead.

Great. Thanks for squeezing me in high or a higher Brent maybe just a.

First question.

Just with your existing larger merchants.

They're usually planning for multiple years, even if things are maybe a little bit slower in the short term side, yes, Brett I'm curious when you think about multi store are you seeing customers still adopt it in at least still launching new stores with the eye that this is a transitory change in behavior and that E com.

<unk> is still going to gain share over time or just how are you seeing the behavior of existing customers.

Thinking beyond let's call. It the next couple of quarters as they're building their business for long term.

I mean after the pandemic every business views online and e-commerce as strategically.

Strategically essential to their future, what's so powerful about multi store is it less.

Businesses add brands.

<unk> customer segments like <unk> geographies.

A far easier and more seamless way than they ever could before because they can do it all within one account and leveraging a common set of <unk>.

<unk> and backend integration when we first.

Went into general availability at the end of Q1, it was available only to new stores and therefore, our existing customers were sort of salivating for when it would be ready for them in the last quarter, we launched it now for existing enterprise stores, and we're seeing very healthy demand for this among them.

It's too early to say right now.

At what point, what percentage of our customers will have multiple stores using multi storefront you cannot many of them already have multiple stores that were redundant.

Sort of independent accounts, but now having single account multiple storefronts, we don't know what long term maturity will be in terms of penetration and number per but I think it will be quite large because most of our mid market enterprise customers are big they are complex. They do have multiple brands geographies <unk>.

<unk> to sell into.

And so we think we're early days of a long term adoption trend there.

Great I appreciate that thank you.

Thanks for the question.

Thank you next question comes from.

Emil and trial of Barclays. Please go ahead.

Hey.

Thanks for meters for squeezing me in more of a bigger picture question.

If you think about the biggest global in the industry and we just saw the Big News Ed.

Ed.

Shopify.

How do you think from an industry perspective are we still on the.

The kind of a hangover to some degree from the from the pandemic on the beef boom in E Commerce, and we kind of everyone kind of scales up too quickly.

And now we're kind of suffering from that or are we kind of be way.

Beyond that and this is no more getting ready for what's going to happen to the economy like could you just kind of see how you frame it in your mind. Thank.

Thank you Ed.

I've received the question probably more than any other question over the last couple of years and my answer is pretty consistent if you look at the data.

Just take the U S.

Initial flash public data sources in the U S census, which comes out with its quarterly E Commerce estimates for BDC.

In 2020, the year of the pandemic.

<unk> grew 32% in the U S.

If trend line growth rate had been 13% to 15% Alright lets just say that average is 14.

Well.

32 isn't even one and a half years of accelerated growth.

Then when you got to 2021, so alright, you're you've accelerated by about a year and a half in terms of e-commerce adoption at the height of the pandemic.

Q1 continue to have.

Growth rates north of 40% because they were lapping.

Some months pre pandemic.

And then by the end of the year, you dropped down to 10% growth rates in the last couple of quarters of last year and the year averaged 14% which was.

Smack Dab normal pre pandemic.

So you're already back to pre pandemic levels, you've only booked about a year and a half worth of acceleration.

You are now growing at a rate lower than you were pre pandemic as you lap. The high Q1 was six 6% Q2 is not yet reported.

My point is that the net of all of that is that.

DTC has accelerated by about a year.

Through these two plus years of pandemic.

It's our expectation by the end of this year that the.

Lapping of the peaks from a year ago and the return to store will be done we will hopefully be back to normal growth rates in that call it 12% to 15% range.

The end of this year.

But it was never a five to 10 year acceleration.

We didn't run our business as if it were.

We're eager to see those growth rates return I think the biggest thing happening right now it's just the softness in the economy.

Anybody would say well if we were 10% growth in Q3 Q4 of last year, but six 6% in Q1 of this year.

Reason to believe that the softness in the economy is responsible for several of those points of Gms the reduction and at some point. The economy comes back comes back we cycled through all of them.

In the long run.

The expectation at a macro level at a global level it's.

It's going to continue to be one to two points of total share gain per year of online relative to offline.

And that's likely to persist for many years to come so again, you won't find an economic history. Many.

Bigger larger transformations over time, it's happening at a quite steady rate. It was almost the metronomic, 13% to 15% growth rate a year pre pandemic.

And if we can get back to those metronomic growth rates ever.

Well look it was a very attractive predictable.

Long term macro trends.

Okay, Yes makes total sense. Thank you and then Robert one quick last question for me.

As we go into macro downturn like obviously, you talked about like some of the enterprise contracts that might hit the volumes et cetera could you hadn't been kind of.

Step down et cetera can you remind us like how tightly all these contracts negotiated within a lot of buffer in there or are they kind of close to.

Just kind of a relatively realistically negotiated in him.

There is a that.

There's quite a few step downs like how should we think about that.

Thank you.

Characterize it is we try to build in kind of a good estimate.

As we negotiate them kind of in the kind of what they expect what we expect in the first 12 months in terms of number of orders remember, our enterprise contracts or base, our order base.

Now if there if volumes are elevated they could get there faster.

And again, we're using kind of a trailing 12 month view.

Moderator.

Tempered down any kind of swings in the near term.

In terms of like the next tier of orders, it's really based off the first year that we negotiate so some of our contracts are.

Low average order volume value high average order values. So you really have to do it its merchant specific and it's really working with the merchants in terms of what they are expecting to sell and what their history.

Sales have been.

Okay perfect. Thank you.

Thank you next question will be from Matt Bob.

William Blair. Please go ahead.

Hey, Greg for fitting me in guys I. Appreciate it wanted to just follow up on your comments around competition was there any changes in competition that drove those comments and then if there are any changes or the specific to any of your segments. Thanks.

Yes, I mean that I don't think the usual suspects are still the same I think.

What we're finding with the.

Omni channel partner program that we've launched is we're finding ways to.

Allow merchants and our partners to.

To leverage our omnichannel capabilities, that's platform agnostic. So you don't even have to be on big Commerce.

To take advantage of that and I think it's.

For us what we're seeing is there is a high demand.

If youre on an old legacy.

E Commerce platform, if you're on a platform that doesn't have the capabilities to optimize feeds and drive.

Great transaction flow through all the different channels.

We're very frustrated because you need to grow your business.

You want to look for ways to do that and Pete and Omics as I think a clear leader.

And their ability to help merchants with that and so our ability to work with them our ability to open up our ecosystem have our partners.

Sell fee dynamics into their base of merchants.

Is I think for us just.

A really pleasant surprise, it's not something that we thought we would have an opportunity to do 12 months ago, but we have a strong opportunity to do that today.

Okay, great. Thanks, guys.

Thank you next question will come from Kevin.

Oh Morgan Stanley . Please go ahead.

Hi, This is actually Ryan <unk> on for Keith Weiss. Thanks for taking my question.

Maybe just first you've talked before about the cross selling economics into your installed base provides an average ARPA uplift of 20% to 40%.

At the time of the acquisition you had maybe 1000 customers overlapping.

How those trended since and where can this go over time that <unk> has got a better view of the business.

Yes, I mean, we still feel really good about.

Those stats I would say that.

The teams have really leaned in are.

<unk>.

Be more proud of our big Commerce team leaning in with feed and Omics I'll tell you 12 months. After the acquisition, it's pretty rare that the teams are intact are excited our motivated the culture at fee dynamics is super strong the excitement within big Commerce to self economics is incredibly high.

<unk>.

Merchants are enterprise merchants are are really interested so we're seeing good pipeline, we're seeing good adoption, but we had to build the cross sell motion. So operationally, we had to get that motion in place the system in place.

Once we did that I feel like we're seeing some really good demand signals to stand behind that.

Stats that you mentioned.

I'd add to that.

I'd add that the other big opportunity is when we release self serve versions of seat and Omics, which are targeted at small and mid market merchants, but frankly, even a larger merchant could start taking advantage of a subset of feed and omics capabilities out.

Reasonable initial cost once we have that version out so when we have.

For fee dynamics will target a few initial channels to be announced probably advertising channels that are most popular and most widely used.

And back to drive the count of adoption up very substantially once it's released.

Helpful. Thank you and then maybe on that same line of thought have you kind of evaluated what the average uplift is for cross selling storefront omnichannel <unk> in those other areas you've talked about that could drive.

Growth of 10% of revenue overtime.

I don't think we have a number off the top of our heads to share.

Or even if we thought about it exactly that way but.

Yes, no nothing no specifics to share there.

That front I mean, what we are seeing is.

Continued strong pipeline.

<unk>.

Fancy merchants that come to big commerce, or BTB and they realize how strong our <unk> offering is and they can run everything on one platform. So we still see a large number of opportunities.

Fit that use case.

We've talked a lot about omnichannel.

Headless typically is a new new deal new sale new opportunity when.

When we respond to rfps or when merchants really want headless solution.

But I'd say overall across kind of all of those initiatives, where we're really seeing strong demand in.

Signals that give us confidence that those areas, we'll need to continue to invest in.

Okay.

Thank you I appreciate it.

Yes.

Thank you next question will come from Brian Peterson Raymond James. Please go ahead.

Hi, Thanks for taking the question. This is John on for Brian just a follow up on the international expansion question asked earlier, given you that officially expanded into call. It 11, plus nations over the last year as we think about 2023 and beyond how should we think about the pace of international expansion and the investments there and then just as a quick follow up maybe Clare.

Probably a bit of a comments from earlier on longer sales cycles.

Thus far are you seeing any lengthening in sales cycles and if so are they tied to any specific geos. Thank you.

In 2023, I think the balance of our emphasis and investment will be <unk>.

Growth in the markets that we have already.

Expanded into building out personnel potentially in language customer support and select countries and building, our marketing and sales effectiveness in those countries.

We have a lighter weight model that we call test and learn which can involve putting up a marketing website, but doesn't involve the same investment in.

Actual people and infrastructure end market.

And I think we will.

Ramp more of that.

Relative to big coal country launches in 2023.

So.

The rate of announcing countries.

Determined as we finalize our plan, but I'm looking at geographies like Asia, and Africa, where we don't have many flags planted and still see a lot of long term opportunity there.

Second question.

Yes in terms of our sales cycle as we look at it with our mid market team and our enterprise team.

Not seeing.

<unk>.

Lengthening of cycles. Some of the deals that we are now working on are just much larger deal. So the nature of those deals likely take a little longer but when we kind of take a step back and think about alright. If we are going to have to face that headwind could there be a little bit longer sales cycles.

Potentially but.

If that happens if those sales cycles lengthen for those reasons then Theres also reasons, where <unk> advantage is really going to shine. So I think what we're hearing and what we're seeing.

From our agency partners and our merchants that were working with.

That that Tcl advantages is really really powerful and a tight spending environment like I know that big Commerce, we're looking at our our spend on software and the mission critical software and if you can provide me software that is 30% to 50% cheaper is better and more flexible and more modern.

You got my attention, so I think who knows how it's going to play out, but I think any lengthening of sales cycles could be balanced out with.

Maybe even higher pipeline.

Perfect. Thank you very much.

Thank you. The next question will be from Ken Wong of Oppenheimer. Please go ahead.

Hi, This is Nick <unk> on for Ken.

Great.

At the end.

Just one quick question from me you highlighted at Analyst day that had with sales grew 34% last year and accounted for about 90% of new sales and there are in the year can you give us a little color on how this is trending in 2022.

And our new sales for head count growing about three times faster than our U K team.

That was it.

<unk> disclosure I'm not sure we'll update it on a quarterly basis, but I can absolutely confirm that.

That tablet demand days.

Very strong at Big Commerce, and it's at all sizes. It's both at the low end of the market.

Maybe customers, who are creating a front end on wordpress.

To the high end of the market, where they're using leading cms's like content stack content, Paul Blum reach or sort of custom frameworks and react in next.

It's really fantastic user experience of that.

Businesses are creating and it's our belief that this approach to compose of all our headlights.

Viewed as sort of a leading edge and the most modern approach for companies that are capable of pulling it off and certainly the tech analysts are saying the same thing. So so demand is strong and I'll leave it to <unk>. When we next provide formal data updates on that.

Thanks for the question.

Thank you.

That concludes our question and answer session.

I would now like to turn the call back over to Mr. Brett <unk>.

<unk> CEO and chairman for closing remarks.

Great. Thanks, everybody, who listened in and I want to conclude with three quick.

Takeaways worth emphasizing the first is.

Q2, again was our largest and best ever quarter of subscription.

Our growth and we did that.

A market environment that is not the most favorable I think thats a great indication of just how strong our core business momentum those.

We also now have posted two quarters, where we are.

So far this year, where we beat on the topline and bottom line guidance, while holding firm to our full year guidance to the street. This was in a context, where many other ecommerce players have disappointed or seeing their own trend lines fall behind and so we're really confident in the underlying strength of.

Our business in the <unk>.

Things, we have done to adapt to it to stay true to our full year guidance, because we certainly see headwinds in parts of our P&L as we outlined in the prepared remarks and then the third thing is we're really excited about the increasing recognition, we're getting from tech analysts and experts the big Commerce is today the world's most.

Modern enterprise ecommerce platform, we're hoping that increasingly leads to ever more consideration and adoption in the quarters ahead. So thanks again, everybody for joining in we thought it was a good quarter and we look forward to talking to you again in three months.

Thank you <unk> Conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Wait listed.

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Ladies and gentlemen, thank you for standing Brian Welcome the Big Commerce second quarter 2020 earnings call.

All participants are in listen only mode.

After the speaker presentation.

A question and answer session. Please advised that today's conference is being recorded.

I would like to turn the conference over Europe .

Your first speaker today Nonetheless.

Head of Investor Relations you May now begin Sir.

Good afternoon, and welcome to Big Commerce's second quarter 2022 earnings call.

We will be discussing the results announced in our press release issued after today's market close with me are big Commerce, as President CEO , and Chairman, Brent Berlin, and our CFO Robert Alberta.

Today's call will contain forward looking statements, which are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.

Sure 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.

It is also available on our website at investors that big Commerce Dot com with that let me turn the call over to Brett.

We'll also provide detailed concerning our view on the back half of the year in his discussion on updated guidance.

First and foremost I'm pleased to share that the second quarter was one of the best in our history. A result that encourages us given the macroeconomic climate. Our team continues to deliver on our mission to be the leading open SaaS e-commerce provider empowering <unk> merchants around the globe.

Let's discuss the details.

In Q2 total revenue grew to $68 $2 million.

Up 39% year over year. This was our 10th consecutive quarter of posting 30% or higher revenue growth, which was bolstered by strong results from the <unk> acquisition in Q3 of 2021.

Our non-GAAP operating loss was $13 7 million, which was also ahead of our guidance last quarter. We concluded Q2 with an annual revenue run rate or <unk> of $296 million up 41% from last year that represents a sequential growth in <unk>.

A $15 5 million. This increase was driven by our continued success in the enterprise segment Enterprise account <unk> was $206 6 million of.

Of 68% year over year that marks our 15th consecutive quarter of 40% or higher enterprise growth.

Q2 delivered the largest sequential growth in <unk> in our history, excluding the quarter of the <unk> acquisition. It was better even than during the height of the pandemic. When we saw strong transaction driven tailwind to partner revenue subscription upgrade an enterprise plan order adjustment.

As I said, our strongest growth is coming from the enterprise segment, which now represents 70% of our total company <unk> compared to 52% just before our IPO only two years ago.

What I want to emphasize from the start as us.

Over the last few years.

Let me talk often about our upmarket journey from serving SMB to mid market and enterprise merchants have given updates on our steps to develop new products and add Apis and graph QL capabilities as part of our differentiated open SaaS approach.

<unk> commerce are not the only one segment Forrester a leading global market research company named US a strong performer and placed us closest to the leader designation of a relevant competitive set.

Hi honors as the top solution and paradigms BTB combine for both mid market and enterprise receiving 22 out of a possible 24 total metals, we earned six more metals than last year and that marks the third consecutive year, we improved our <unk> ranking with paradigm.

On the three continents that comprise our top markets the experts of ranking us at the top of their platform evaluations now that we are officially launched in Mexico, and South America, we look forward to competing in those markets as well.

While there is no doubt macroeconomic challenges facing our industry and global markets more broadly. We believe we are still at the front end of a long term upward curve.

Idc's most recent forecasts estimated $8 billion in worldwide digital commerce application revenue this year.

That is projected declined to $12 billion in 2025 and the good news for US is that spending for on premise applications is projected to decline, whereas spending on SaaS solutions like ours is projected to grow at 28% CAGR.

New enterprise store acquisition drives our growth and we continue to see strong demand.

With our recent acquisitions of longtime technology partners bundled <unk> and <unk> Ninja. The commerce has expanded its native <unk> e-commerce functionality to provide a dynamic platform for all of <unk> merchants that is easier to use faster than legacy <unk> solutions and more flexible and powerful that other SaaS platforms at a time when <unk>.

E Commerce is growing faster than <unk>.

In Q2, our international expansion efforts made further progress.

Adding to our operations and the largest western European economy, we launched our formal presence in the Nordic countries of Denmark, Sweden, and Norway and further expanded into the dark region with the addition of Austria, we built on our recent launch in Mexico with expansion to Peru, Our first country in South America in the coming months, we'll launch in additional Latin American countries.

We're supporting new languages, adding new geographies and integrating new payment methods for local markets. We're in the early innings of global expansion and our growth rates in EMEA APAC and non U S. Americas give us confidence that expansion will pay off in the near and long term.

We continue to add new enterprise merchants to our platform in the second quarter Mountain equipment company, Canada's largest supplier of outdoor gear launches headless integration using big Commerce checkout support storefronts in English and French well pharmacy, one of the Uk's largest pharmacies is now selling over the counter and prescription.

<unk> on its big Commerce store, leveraging our open SaaS and help us capabilities, Australia and.

Motorcycle helmet brand foresight helmets is leveraging <unk> to create its beautifully design storefront.

Time brands, a leading global designer developer and marketer of a wide range of household products from Kitchenaid Farberware and other brand launched a new store using <unk> edition.

Our warehouse a subsidiary of major UK tile brand top titles launched a pop up store front to sell clearance tiles directly to consumers leveraging a fulfillment partner to pull through real time inventory and providing custom urls for product categories and attributes finely tuned noida the popular German shoe retailer.

A big Commerce to internationalize and relaunch its web shop on a modern platform that doesn't require constant upkeep and that can be customized to provide an incredible customer experience.

I'd now like to share some thoughts about the current operating environment, which is challenging for us as it is for others. Although the majority of our subscription based business is not directly dependent on the GMB trends of our merchant stores. We are impacted in other ways by downturns and E. Commerce spend that can be caused by the economy return to shopping in physical store.

<unk> and or other adverse economic changes specifically reduced growth rates in our merchant sales impact our partner in services revenue balance of subscription upgrades and downgrades order based enterprise fees and trend line for customer retention and bad debt.

We try our best to make decisions to balance the achievement of our near term financial goals with the maximization of our long term business and shareholder potential. We believe we need to lead with humility grounding decisions and our understanding of customer and partner needs and our mission to make open SaaS. The best solution for the next era of ecommerce.

Along the way we've had to respond to unforeseen challenges and occasionally make new bets on opportunities that earn our conviction halfway into this challenging year, we managed to achieve our goals. So far thanks to our management team's collaboration and adjustment. We continue to believe that we will achieve the topline and bottom line guidance, we set at the beginning of the year. Despite the.

<unk> current market conditions have on select components of our P&L.

We understand that the market is focused on potential risk areas created by current economic headwinds nearly all ecommerce companies have been talking about these risks to their businesses.

Are we to face these risks, but on balance I believe the strength of our business model, our demonstrated well in this market and I'd like to dive deeper into why that is.

70% of our revenue comes from enterprise merchants, which are predominantly established successful businesses from a wide range of categories geographies and BDC and <unk> use cases.

Similarly, but separately, 70% of our revenue comes from recurring subscription revenue, which provides a stable predictable topline the.

The combination of durability from enterprise customers and predictability from subscription makes us less vulnerable to short term economic swings than would be a consumption or GMB based revenue model.

Second the components of our subscription plans that do adjust with DMV tiers or order counts are calculated using a trailing 12 month look back. This has a moderating effect against short term and seasonal fluctuations in consumer spending sharp movements upward take time to be fully realized in our pricing and revenue, which we saw during the <unk>.

Noting that our revenue did not increase as fastest total ecommerce GMB did on the flip side sharp short term movements downward are also dampened by our trailing 12 month convention for us the most immediate direct impact to our revenue from our customers CMV fluctuations occurs in partner and service revenue the biggest component.

Being Rev share from our payments partners, we are doing our best to account for ecommerce spending risks in our outlook at <unk> will speak to that in detail shortly.

Third nearly all of our direct sales occur in U S dollars today Foreign exchange risk is limited to a partner Rev share like in payments that are earned in non U S. GMB Sn.

Central's planned subscription upgrades prompted by GMB earned in foreign currencies.

And our non U S operating expenses.

<unk> FX sensitivities impact a small percentage of our total revenue and expense base today, we do not believe a strong U S dollar as a material risk to us at this time.

Finally, our product is considered mission critical by our merchant success in ecommerce is imperative to all businesses strategically and financially, especially post COVID-19 recent CIO surveys indicate continued robust spending in software and we offer a material total cost of ownership advantage over legacy enterprise software competitors.

As merchant budgets tightened our platform should remain attractive and mission critical for most of our customers.

Shifting gears now to our board of directors as we announced earlier. This week. We've added two fantastic new directors to our board salary Gilligan Chief growth transformation officer of the gap and Satish Malhotra, Chief Executive officer of the container store.

Our goal is to enhance our board with the experience and perspectives of retail veterans Sally entities, respectively represent the technical and CEO retail buyer personas to whom we sell while also bringing deep functional expertise to our board governance. We're excited about all they will contribute.

Meanwhile, I want to sincerely, thank Steve Marine Jack Mcdonald for their years of service on our board Steve was a partner at the venture firms, who led our series C and D rounds and served as our lead independent director Jack as IPO and ran two successful public software company and served as a valued mentor to me through our process.

Were instrumental in our growth to public company status and we're grateful for their leadership and service to pick commerce.

As I wrap up I would like to reiterate my belief that our team and business performed very well this past quarter. We delivered strong results in a challenging operating environment investments made across our strategic priorities continue to deliver customer and business value. We are increasingly viewed as a true leader in the e-commerce industry and I'm, especially grateful for.

For everything our employees and partners have done to earn that during times of dramatic change.

With that I'll turn it over to our right.

Thanks, Brent and thank you everyone for joining us today.

During my prepared remarks, I will walk through details on our Q2 results.

And that discussion I will also speak to how some of our metrics are derived so that investors can more easily understand the underlying trends in revenue and bookings.

In addition, I'll provide details on how current conditions are impacting the business efforts, we are taking to optimize their spending and finally I'll provide greater detail on our guidance on back half revenue and profit assumptions.

We always strive for transparency when discussing our results and outlook.

To take extra steps to provide clarity in this current macro economic environment.

In Q2 total revenue was $68 2 million up 39% year over year subscription revenue grew 51% year over year to $51 3 million driven by a mix shift to enterprise accounts.

Supported by strong results from our fee dynamics acquisition.

We have now posted 10 consecutive quarters of 30% or higher total revenue growth and 15 consecutive quarters of 40% or higher enterprise AOR growth.

Partnering services revenue or <unk> was up 12% year over year to $16 9 million.

<unk> platform transaction volumes have largely been in line with the conservative expectations, we set at the beginning of the year.

We saw slightly lower than expected volumes in <unk> in Q2.

Overall, we have been encouraged by the durability that we are seeing in transaction volumes, thus far in the year.

Revenue in the Americas was up 41% in the quarter, while EMEA revenue grew 42% and APAC revenue was up 18%.

Our international progress is strong as we entered five new markets in July .

And I'm proud of the traction our teams are delivering overseas.

I'll now review our non-GAAP Kpis.

<unk> grew to $296 million up 41% year over year.

Driven by continued strength in our enterprise customer base.

That represents a sequential growth in total <unk> $15 5 million, which is the highest growth in our company history, excluding the quarter of our acquisition of economics.

In particular I would draw your attention to the composition of that big sequential growth in IRR.

As a reminder, we calculate <unk> at the end of each month as the sum of two things.

First it includes our end of period monthly recurring revenue multiplied by 12 to prospectively annualized subscription revenue.

We often refer to this as our subscription <unk>.

Second we then add the trailing 12 months of <unk>.

The sum of subscription and the trailing 12 months of <unk> is our total IRR.

When looking for leading indicator trends in net bookings investors often look to either changes in deferred revenue or remaining performance obligations or rps.

These metrics are not good indicators of big Commerce is booking trends because most of our merchants today are build month to month and we also see large multiyear partnership agreements and deferred revenue or RPM that can make period to period comparisons challenging.

Instead, one of the best ways to see the underlying trend in our net bookings is by looking at the quarter over quarter sequential change in subscription <unk>.

That difference is a reasonable indicator of our change in net bookings in the latest quarter.

In Q2 subscription are increased by $13 7 million, which was 29% higher than our previous record increase in Q4 of 2021 and also higher than any quarter. During the height of the COVID-19 pandemic.

Those conditions are largely outside of our control, but what we have tried to control is winning new deals.

Launching merchants on time and providing the best level of service for our merchants.

Which is how we managed to exceed our gross new targets and setting a record even the midst of this type of economic uncertainty.

At the end of Q2, we reported 5418 enterprise accounts up 1503 accounts or 38% year over year, including feed and Omics.

ARPA or average revenue per account for enterprise accounts was $38133 up 22% year over year.

Now that our enterprise accounts represent 70% of our total <unk>, we will continue to share details in accounts with greater than $2000 in annual contract value or HCV and our quarterly filings through the end of the year, but we will not review them and our earnings calls.