Q2 2023 BigCommerce Holdings Inc Earnings Call

August 3, 2023

Ladies and gentlemen, thank you for standing by and welcome to the Big Commerce second quarter 2023 earnings call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session. Please be advised that today's conference is being recorded I would now like to turn the conference over to your first speaker today.

Dawson Senior Director Finance. Please go ahead.

Good afternoon, and welcome to Big Commerce's second quarter 2023 earnings call.

I'll be discussing the results announced in our press release issued after today's market close with me are big Commerce, as CEO and Chairman, Brent Berlin and CFO . Daniel is today's call will contain certain forward looking statements, which are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1095.

Forward looking statements include statements concerning financial and business trends.

Our expected future business and financial performance and financial condition, and our guidance for the third quarter of 2023, and the full year of 2023.

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

These statements reflect our views as of today, only and should not be relied upon as representing our views at any subsequent date and we do not undertake any duty to update these statements.

Forward looking statements by their nature address matters that are subject to risks and uncertainties that could cause actual results to differ materially from expectations.

For a discussion of the material risks and other important factors that could affect our actual results. Please refer to the risks and other disclosures contained in our filings with 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.

A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measure as well as how we define these metrics and other metrics is included in our earnings press release.

Which has been furnished to the SEC and is also available on our website at investors <unk> Big Commerce Dot com.

With that let me turn the call over to Brent.

Thanks, Tyler and thanks, everyone for joining us I'll start today by discussing our Q2 performance and progress at the halfway point of the year. I'll then share my perspective on our growth strategy and provide additional detail on recent leadership changes.

In Q2 total revenue was just over $75 million up 11% year over year. Our Q2 non-GAAP operating loss was just over $3 million, which was ahead of our quarterly guidance and a strong indication of our confidence to reach breakeven on an adjusted EBITDA basis in Q4 of this year.

Later, Daniel will share greater detail on our financial results and conclude the call with a discussion on updated guidance.

I want to highlight two milestones that are business achieved in the quarter first we reached profitability on an adjusted EBITDA basis in the month of June and second we delivered positive free cash flow for the first time driving just under $14 million of free cash flow for the second quarter ended June 32023.

To be clear these milestones are starting points only we have a long way to go to reach our ambitious goals in terms of revenue growth profitability and cash flow, but it is worth noting that we have delivered nearly 600 basis points of improvement in non-GAAP operating margin compared to Q2 2022 and.

Significant improvement in cash flow generation as well in response to one against the backdrop of a difficult macroeconomic climate I would like to thank our entire big commerce team for the hard work that was required to deliver that.

We concluded Q2 with an annual revenue run rate or <unk> of approximately $331 million up 12% year over year that represents a sequential growth in air or adjust over $14 million enterprise account <unk> was approximately $236 million up 14% year over year as of the end of <unk>.

Q2 enterprise accounts represent 71% of our total company <unk> accounts using exclusively our retail plan, which we refer to as non enterprise account finished with <unk> of approximately $95 million.

Just under $7 million sequentially compared to Q1, 2023, and up 6% year over year, delivering our first quarter of non enterprise <unk> growth since Q2 2022.

While total IRR results are close to our mid year target the mix between enterprise and non enterprise accounts has differed from our expectations.

Going into the year, we expected non enterprise accounts to contract by mid to high single digits improvements to cohort retention and pricing adjustments return. This portion of the business to growth in Q2, providing encouraging signs of momentum going into the back half of the year.

Merchants, using our enterprise plan, which we refer to as enterprise accounts come from two parts of the market mid market merchants and traditional large enterprises, we define mid market as merchants doing 1 million to $50 million per year in gross merchandise value or GMT. This part of the market has a large and growing Tam.

And as underserved by many legacy ecommerce providers our share momentum in this part of the market is strong and we are seeing strong results from the mid market relative to our 2023 plants.

Large enterprise merchants, those with <unk> at least $50 million annually, including those up to $1 billion or more are experiencing significant increases in sales cycle duration compared to 2022.

This segment of the industry tends to have lengthier sales cycles and more complicated business requirement.

Here is where the effects of macroeconomic uncertainty, our most noticeable and where a slower than expected increase in enterprise account <unk> can be seen although it will take time to scale up our market penetration in this segment of the industry, we have excellent product market fit for merchants of this size and complexity.

In response, we are increasing our investment in mid market sales generation, where we observed fewer macroeconomic challenges and strong performance Daniel speak in more detail to these dynamics later in his remarks as well.

We have five primary growth levers in our business today.

First we have a healthy and growing small business at nearly $100 million in IRR, we have taken numerous actions to improve efficiency and scalability in this portion of our business, we eliminated aggressive sales promotion.

Incentive advanced payments and increased prices with minimal impact thus far to retention. This has led to strong improvements in cohort health.

De 120 cohort retention rates on our retail plants are 80% to 85% higher on average than where we were at this time last year. In addition, we shifted sales and marketing resources towards enterprise growth.

Improving profitability as we rely more on self serve channels for the SMB portion of the business.

We believe our retail plan to offer market, leading features and functionality and we believe we can grow this business over time profitably as a result of these changes.

Second we have a strong and growing presence with mid market merchants and we have a tremendous runway to grow share in this underserved portion of the market our products provide the functionality large enterprise merchants expect without the cost and complexity of legacy E. Commerce software. This allows midmarket merchants to enjoy the advantages of enterprise E Commerce.

<unk> at a price point for the scale of their business. We believe our product is uniquely positioned to win and grow in this part of the market.

Third we provide market, leading ecommerce and Omnichannel solutions for both <unk> and <unk> merchant. Many BW merchants are adjusting their buying processes to reflect the consumer shopping experiences their customers are used to and our award winning platform delivers outstanding value for merchants in both categories.

<unk> has traditionally been underserved by commerce platforms, and we are investing to win in this market.

Fourth the large enterprise market represents a big opportunity for us and we are expanding up market key recent product launches, including multi storefront and multilocation inventory features reflect the growing capability of big Commerce platform.

In addition, the commerce provides differentiated omnichannel capabilities critical to many large enterprise merchants utilizing <unk> market, leading AI technology to drive merchant growth and ROI through advertising and marketplace channels.

Other competitors offer omnichannel connectivity, but connectivity alone is not enough connectivity and data quality together drive results for merchants and feed and Omics platform agnostic AI driven data feed optimization capabilities deliver one of the best solutions in the world.

In fact in Q2, 2023 feet and Omics customer survey more than 75% of their customers reported up to 50% or more improvement in their omnichannel conversion return on AD spend and revenue.

We believe our platform can disrupt the large enterprise market and we are committed to growth in this market.

Finally international expansion represents a significant growth opportunity for us as well, we expanded our sales and marketing presence to 12, new countries over the last two years.

Our expansion has been particularly focused on India, where we see an opportunity to win share from legacy more expensive ecommerce providers, while we have slowed the pace of new country launches recently, we have not significantly changed the amount of sales and marketing investments in existing markets. Our near term focus is on building scale and profitability.

<unk> and our recently launched countries, where we are truly just scratching the surface of our growth potential we expect to continue our international expansion efforts in the coming years and a disciplined profitable way.

The commerce is fundamentally an open flexible partner first company merchants have freedom to choose among the market, leading commerce technology partner solutions.

Their businesses, including AI, which we'll discuss further in a moment. It also means merchants can drive improved omnichannel growth and ROI, while using our feet anomic solution on other e-commerce platforms as well being.

Being partner first delivers both better go to market results for Big Commerce and improved performance for merchants. Our checkout performance results are an example of the advantages of this open best of breed partner first strategy for our merchants for example, when examining merchant checkout data for May and June 2023, we validated that our native one.

Page checkout delivers a 61, 9% checkout conversion rate. This exceptional result was the average of all enterprise stores using a big commerce storefront, our flagship payment provider such as Braintree, Paypal commerce platforms stripe or add yen, Paypal wallet and Apple pay and our native one page checkout, we <unk>.

Back to publish a third party independent review and validation of the superior checkout results in the coming weeks.

I'd now like to spend some time on two recent leadership changes that I believe will help scale, our business and execute our strategy earlier. This week, we announced the addition of technology industry veteran and ecommerce sales leaders Steven Chung as our company President.

Stephen will oversee our sales marketing and services team aligning our go to market teams to fuel our leadership in global Enterprise E Commerce.

Stephen brings relevant experience from his time at <unk> and Pedro duty and he previously served as global sales leader of demand were back when they moved up market prior to being acquired there is no better person to fill this role and lead our mid market and enterprise growth.

I'm also excited to highlight Daniel lengths as our new CFO , replacing Robert Alvarez, who recently retired after holding that position since 2011.

Our <unk> big shoes to fill but there is no doubt in my mind or the minds of our board members that Daniel is absolutely. The best person for this job fueled our company know our business as well as Daniel and he has extensive experience across a variety of finance roles at Procter <unk> Gamble and enterprise sales experienced a dell that make him a well rounded leader in.

Our business, we have every confidence in his ability to steer the company to long term success.

Now I'd like to shift gears to focus on a couple of merchants that are great. Examples of how our open partner first strategy resonates with mid market and enterprise customers. The first is hauser a U S supplier of kitchen sinks in phosphates for over three decades, <unk> had a solid <unk> presence and they wanted a modern tech stack.

To support their direct to consumer strategy.

They turned to our agency partner coalition technologies and launched a new store in Big Commerce in just 60 days, creating an omnichannel presence was vital for houser and they found that big commerce and fee dynamics with a powerhouse combination they need with the ability to manage products and orders across over 100 channels feed and Omics gave hauser the power to drive.

<unk> channel growth without high price Tag Coalition and Big Commerce helped Hauser quickly migrate that's complex portfolio of products and dramatically increase at site speed, all while maintaining a growing omnichannel presence.

Another notable and represented a big Commerce merchant is MK and building supplies the largest independent builders merchant in the U K with over 100 branches across England, Scotland, and Wales with origins as the neighborhood supply shop in the U K.

<unk> realized that it needed to keep up with digital transformation trends partnering with Big Commerce Agency brain Bison and Cam now has a fully composedly storefront that delivers an online experience to match its offline presence for.

<unk> enlisted global market, leading front end solution view storefront to implement a headless architecture and collaborated with commerce experienced provider bloom reach to drive seamless personalization across the site.

Just weeks after going live and Cam saw increased site performance plus increases in online orders average order value new customer accounts and revenue in June <unk> was honored with a mock <unk> impact award from the Moc Alliance a group of independent Tech companies dedicated to advocating for open best of breed technology Eco.

Systems, when moving from legacy infrastructure and go into <unk>.

We also remain committed to continuous innovation last week, we announced a partnership with Google to add new AI powered features to our platform later this year. These.

These features will help merchants improve operational efficiencies elevate customer experiences enhanced product discovery and drive more sales merchants can save time and improve operational efficiency and productivity by using AI algorithms to streamline workflows accelerate product development cycles reduce cost and accelerate time to market.

In partnership with Google, we're committed to using AI responsibly and respect our merchants user data brand and privacy.

We will continue to use AI in a way that is fair unbiased and transparent.

We believe that these principles are central for enterprise merchants to ensure their brand are protected.

Our open approach positions us to be a leading e-commerce platform for AI, even as we add native AI functionality as well we already have over 20 AI applications on our apps marketplace and as our partners continue to build new solutions, they will be easily integrated into our scalable platform.

Our platform received two notable pieces of recognition recently first we achieved 24 out of 24 total metal in the 2023 paradigm <unk> combine for digital Commerce solutions enterprise and mid market additions, increasing our rankings in six categories. We were also awarded the high placement a major contender in Everest group's 2023 digit.

Commerce platform peak matrix, which is F. 'twenty, one digital commerce platform providers around the world.

In Q2, we continued to grow our roster of leading notable brands and merchants on our platform for.

Francesco's, a popular women's clothing, and accessories brand with more than 450 stores is taking advantage of big Commerce page builder tool combined with the customized theme and customized checkout in order to deliver unique free spirited fashion and lifestyle products to its customers.

Barbeques, Galore, and Australia and market, leading seller of grills grilling accessories, and outdoor furniture became the first merchant transacting with <unk> addition, multi storefront going live in just 12 weeks square.

Square units the company behind some of the world's most popular gaming franchises, including final fantasy Dragon Quest and tomb Raider launched multiple new stores to power their multi language and multi currency needs in North America, EMEA and APAC, enabling their customers to purchase games across multiple platforms, including digital games redeem.

Through the scheme marketplace.

BMW group UK, a leading supplier of BMW and mini original parts partnered with auto fixes solutions to launch new stores for both brands, featuring ERP integrations that zinc inventory supplies and pricing data directly with the stores.

I remain incredibly bullish about the long term prospects for profitable growth and market leadership for Big Commerce 2023 is a challenging year throughout tech and I am proud of the progress. We have made we have a long way to go and our team is committed to the hard work needed to deliver strong growth and returns for our shareholders.

I'd like to turn it over to Daniel to discuss our financial results in more detail and conclude with our updated guidance for Q3 and 2023.

Thanks, Brent for your kind remarks, and thank you everyone for joining us today. During my prepared remarks, I will cover our Q2 results in detail and provide additional detail on our progress through the year, both where we're showing strengthening trends and where we need to improve provide updated guidance for the remainder of the year and I'll conclude by speaking to my primary focus.

This area is the CFO .

In Q2 total revenue was just over $75 million up 11% year over year subscription revenue grew 10% year over year to approximately $56 million, while partner in services revenue or <unk> was up 14% year over year to just over $19 million revenue and all of the Americas was up 9%, while EMEA revenue grew 2000.

7% and APAC revenue was up 3% compared to the prior year.

As Brent mentioned previously we had a couple of important milestones in our business in Q2, reaching breakeven on an adjusted EBITDA basis for the month of June and delivering positive free cash flow of nearly $14 million for the first time for the second quarter ended June 32023.

To be clear, we have a lot of work left to do these milestones represent encouraging evidenced that the operating focus driving our 2023 financial plan is making progress, but we recognize that these results are starting points not ending points. We are committed to profitable long term growth in this business and the disciplined use of cap.

<unk> necessary to deliver that.

I'll now review, our non-GAAP Kpis, our <unk> grew to approximately $331 million up 12% year over year that represents a sequential growth in total IRR of just over 14 million.

Enterprise account.

Approximately $236 million up 14% year over year subscription <unk> was up $12 million or 5% versus Q1 and up 13% year over year.

At the end of Q2, we reported 5929 enterprise accounts up 511 accounts or 9% year over year.

<unk> or average revenue per account for enterprise accounts was $39870 up 5% year over year.

I'll now shift to the expense portion of the statement of operations as a reminder, unless otherwise stated all references to our expenses operating results and per share amounts are on a non-GAAP basis.

Q2 total cost of revenue was $17 5 million up approximately $1 2 million sequentially from Q1 Q2 total operating expenses were $61 3 million down $600000 sequentially from Q1 Q2 gross margin was 77% up 12 basis points from the previous year, while gross.

Profit was $58 million up 11% year over year.

In Q2 sales and marketing expenses totaled $32 million down 1% year over year. This represented 43% of revenue down 515 basis points from a year ago.

Research and development expenses were $17 5 million or 23% of revenue down 523 basis points from a year ago and down slightly from Q1.

General and administrative expenses were $11 9 million or 16% of revenue down 509 basis points from a year ago.

In Q2, we reported an operating loss of $3 4 million of negative four 5% operating margin. This compares with an operating loss of $13 7 million or a negative 21% operating margin in the prior year and an operating loss of $6 4 million or a negative 9% operating margin in the prior quarter.

Adjusted EBITDA was negative $2 5 million and negative three 3% adjusted EBITDA margin compared to negative $12 9 million and a negative 18, 9% adjusted EBITDA margin in the prior year.

non-GAAP net loss for Q2 was $1 5 million or negative <unk> <unk> per share compared to negative $14 1 million or negative <unk> 19 per share last year.

We ended Q2 with approximately $299 million in cash cash equivalents restricted cash and marketable securities for the three months ended June 32023, operating cash flow was nearly $15 million compared to negative.

Negative $13 9 million a year ago.

We reported free cash flow of nearly $14 million, which compares to negative $16 million in Q2 2022.

I would now like to share additional color on our 2023 financial plan and my view on our progress thus far in the year.

We are making the tough decisions necessary to stabilize and improve the underlying economics of our non enterprise business. We are focusing the bulk of our sales and marketing spending towards the superior unit economics of Midmarket and enterprise merchants, including investments in new channels and upmarket merchant segments going into 2023, we knew.

These decisions would entail a fundamental shift in our weighted average sales cycle time, and therefore impact near term bookings results at the same time, we took decisive action to accelerate our timeline to adjusted EBITDA profitability and improved cash flows. We took these actions despite the resulting challenges to certain areas of near term performance.

Because it is critical that we invest capital in a focused disciplined and efficient way against our most profitable market opportunities. We are adapting our tactics to a changing operating environment, while staying committed to our long term market strategy.

Our 2023 plan has three primary goals, let me elaborate on the progress and challenges we have seen thus far on each first we are investing to win in the mid market and enterprise markets, while stabilizing the small business portion of our business as well.

Revenue in total our results are largely in line with where we expect it to be at the halfway point of the year, we are being more selective and sales promotions and discounts than in prior years, and we are investing in our quote to cash processes and systems, we see the benefits of these operating changes and investments in our results.

Days sales outstanding or DSO improved by 11 days to 63 days from Q1 to Q2, and we saw our largest sequential increase in deferred revenue ever in the quarter. This operating discipline is leading to higher quality revenue and bookings, which is driving our progress towards profitability and strong cash flows.

While total <unk> results are largely in line with our expectations going into the year the mix between enterprise and non enterprise.

Has been different non enterprise account AAR has exceeded our expectations growing 6% year over year in Q2.

We indicated on our February earnings call that we expected non enterprise <unk> to contract in the mid to high single digits. We now expect non enterprise account <unk> to grow in the low single digits on a full year basis. This is strong progress.

Enterprise <unk> growth fell short of our expectations in Q2.

Sales pipelines continue to grow at a rate similar to what we discussed in Q1 and win rates remains strong non enterprise account. There are is tracking ahead of our expectations and enterprise account is tracking lighter than our expectations.

As Brent mentioned sales cycle times remained considerably elevated compared to prior years with enterprise merchants, while mid market sales cycle times are largely in line with prior years. We also saw an increase in the number of merchants looking to reduce platform spending where order volumes have been impacted by market conditions and this led to a higher volume of pricing adjustments to <unk>.

<unk> merchants than we expected in Q2.

We expect these macroeconomic trends to continue in the back half of the year. We now estimate enterprise account AOR growth to finish the year in the low teens year over year.

Merchant retention rates remained strong our sales pipeline that performance remained healthy and we are encouraged by growing market recognition of the strength of our products. We are confident that these results will improve and we will also provide the accountability necessary to ensure that we see improvements and associated sales and marketing spending efficiency as well.

Second we remain confident in our ability to deliver positive adjusted EBITDA for the full quarter in Q4 of this year.

Q2 sales and marketing R&D and G&A expenses were over 500 basis points lower than Q2 2022.

Operating expenses are down 7% year over year, we delivered the consistent merchant improvement, we committed to averaging nearly 400 basis points of operating margin improvement over each of the last four quarters.

Third we are taking steps to prioritize cash flow improvements to drive healthy consistent cash flow generation as we mentioned on the Q1 call. We are focused on driving cash flow improvements through prioritizing advanced billing on new subscriptions investing in our quote to cash systems and processes and maintaining tight discipline around accounts receivable and collections.

And largely completing planned retail pricing changes to existing customers in June our results are beginning to show the effects of these actions, including improving accounts receivable and DSO healthy growth in deferred revenue and positive free cash flow.

Overall I believe our results at the halfway point reflect cause for optimism and a number of areas margin cash flow and deferred revenue improvements are notable and encouraging.

Non enterprise account performance has exceeded our expectations and revenue and operating loss results have exceeded guidance enterprise AOR growth must improve and as Brent said, we are taking actions to deliver better sales and marketing efficiency to that end as well.

I will now share an updated view on our outlook and guidance for the third quarter and full year 2023.

For the third quarter, we expect total revenue in the range of $76 3 million to $79 3 million, implying a year over year growth rate of 5% to 10% note that we expect subscription revenue to grow in the high single to low double digits and for <unk> to grow in the low single digits for the full year 2023.

We expect total revenue between $340 million to $310 million translating to a year over year growth rate of approximately 9% to 11% for Q3, our non-GAAP operating loss is expected to be between $1 million and $5 million, which reflects a slight increase in planned sales and marketing spending in Q3.

For the full year, we expect a non-GAAP operating loss between 10, 2% and $15 2 million note.

Note that at the midpoint, we are holding our full year revenue outlook in line with prior guidance, while also reflecting our positive momentum and an improved operating loss outlook for the full year.

I would now like to share my focus areas and priorities as CFO .

First we must focus on our core business and manage capital consistent with our core growth levers directing capital in a highly disciplined way and in alignment with these core priorities requires difficult tradeoffs and decisions and I consider this one of my fundamental responsibilities.

Second spending efficiency and operating execution are critical to driving long term profitable growth. While we are making great progress we have a number of areas in our business, where we can and must improve our results.

Finally closely aligning capital allocation decisions with the long term interest of both our shareholders and debt holders has long been a focus of our leadership team and this practice will continue to be core to what we do and how we operate this means tightly managing our cash flow debt stock based compensation and net dilution.

In summary, I'd like to thank the ecommerce as employees and partners for their tireless work to support our merchants and grow. This business. This is an incredible company full of dedicated carrying teammates.

Honored to be a part of this team and serve as the new CFO with that Brett and I are happy to take any of your questions operator.

We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the keys.

To withdraw from the question queue. Please press Star then two.

My first question is from Gabriel let bouygues.

Goldman Sachs. Please go ahead.

Hi, This is <unk> on for Gabriela first question for me is on the international market entered a lot of new markets. There can you talk about what Youre, where youre seeing the most traction in EMEA and then just kind of what youre seeing in terms of overall customer demand in Europe .

Yeah we're.

In EMEA U K remains our powerhouse and original market and it's definitely the engine of growth on the continent.

We continue to see very good traction really across the board, Italy has a particularly strong market for us <unk> and Nordics have.

<unk> been healthy for us.

The Spain, Portugal region is really starting to pick up nicely based on investments last year and we continue to put good wins on the board in France in the German speaking region. The newer countries, we expanded into in eastern Europe , and the middle East reflect markets, where we're already getting.

<unk> organic traction even before we had marketing web sites and we're delighted to see that continuing.

Thank you and then second one for.

EMEA is kind of on the back of the pricing increase that went into effect on June 1st how has the initial response are you seeing more customers moving to annual payments and has there been any impact on churn.

Yes, I would say thanks for the question churn impact has been very negligible, thus far which has been encouraging.

Need to see how those results shake out over the next two to three months, obviously, but.

I'd say, so far again, it's been very encouraging we haven't seen much of an impact and yes, we have seen a big impact and the number of merchants that are electing to prepaid we're probably seeing probably twice as many merchants that are electing to prepay versus where they were before and to be clear about this. The reason we are approaching this is not from the point of view of factoring receivables are trying to accelerate that it's really about.

Cohort health ultimately for us at the end of the day.

That gets to what Brent had mentioned in his remarks that we've seen an 80% to 85% uptick in cohort retention versus where we were last year, which has been a really healthy change for us.

Okay, great. Thank you.

The next question is from Scott Berg of Needham and company. Please go ahead.

Okay. This is Rob Reilly on for Scott Congratulations on the strong quarter.

It looks like enterprises are growth was around 40% for this quarter.

You previously discussed.

Youre anticipating growth of.

Around 20% exiting fiscal year 'twenty three.

And we've found a mid teens, how visible is that goal given what you saw second quarter. Thanks.

This is Brent and all start us off we continue to believe that in.

A challenging global economy like the current one.

20% is in the long run and achievable Gulf target growth target for us and a healthy economy potentially higher.

We.

We saw a couple of dynamics in the second quarter that impacted our ability to achieve that one was some major deals, especially at the enterprise side, where the sales cycles have elongated and they didn't close in quarter at <unk>.

Dynamic, which I think is probably happening across all of software companies are in this economy prioritizing profitability and theyre looking for ways in which to reduce their software spend and that particular dynamic in E. Commerce, we had merchants who are signing up in the <unk>.

Days of 2000, 22021 and potentially.

Anticipated higher.

Sales volumes and they have achieved and signed up for larger limits with us.

Dan.

Have realized since then and so some of them have come back and said I want a REIT structure my contract with the Commerce is not a shocker to us and that we've gone back and looked at all of our software contracts that we spend money on.

Reduced licenses reduce unnecessary expenditures ourselves thats one of the reasons why we're getting such great P&L leverage right now is eliminating unnecessary.

<unk> and so both of those dynamics impacted I think going forward.

Sure.

We're wise not to fixate on the quarterly achievement of a particular target like that in particular, because we have a dynamic and multi segment business.

As Daniel discussed, we're seeing healthy over performance in the SMB side, which in some quarters can make up for something else.

You'd add Daniel I think all I would add to that is.

I think going into the year, we knew as we started to shift more up market. It was like I said in my remarks, we are going to be shifting kind of our weighted average sales cycle time. The increase in sales cycle time on larger opportunities has been kind of stubbornly longer than where we would have liked it to be at this time of the year.

But overall I mean, we're really encouraged by the underlying trends that we see we're very excited about Stephen starting in particular as president. We think he is really going to be able to help accelerate the our move up market into this area. We just think it's prudent based on what we're seeing in a macro climate to be.

Kind of in line with the trend that we're seeing there and focus on what we're doing in the overall business and again I'd just reiterate there's a lot of changes we've made in the practice and the way we're going about things in our business. This year from getting less aggressive on promotions prioritizing pre billing and that's playing it out in earnings earnings quality revenue quality bookings quality.

That is really starting to pick up and show momentum in Q2 results and we had said going into the year. If we had to make some trade offs here and there maybe maybe marginally less growth in exchange for an outsized improvement in quality that would show up in margins and cash flow, we would do that and I think we're seeing that in the results, but our long term view about where are we.

We can be from a growth basis has not changed we think that that is going to be largely driven by growth in mid market and enterprise, but we have not walked away from our small business. It's a large business. It has.

Due to the actions we've taken it has healthy and stable economics, there's a lot of growth vectors for us that we're quite excited about.

Got it.

Responses very helpful. That's all for me.

The next question from Daniel Reagan Canaccord Genuity. Please go ahead.

Hey, guys. This is Dan Regan Entre DJ Hynes, Thanks for taking my question.

So maybe just starting with Brent.

So you guys.

Just hired Steve Chung appears to have.

But really solid background to becoming.

The Big Commerce.

On his experiences from demand wear and Pedro duty I'm.

I'm wondering if you could just discuss the key initiatives or changes you expect them to drive the sales Org and then.

How does that.

Translate to a potential acceleration in.

In the Midmarket and enterprise with your ambitions there.

Yes.

With excitement about the playbook and experience Steven is uniquely able to bring in Tibet commerce.

Common DNA, we had with demand, whereas that Larry bond still on our board with our series a backer and their series de backer.

Way back in the day and Larry.

Really points to Steven as being instrumental as the sales leader and catalyst for demand where right. After they IPO in 2013 successfully moving up market, creating real buzz interest and credibility.

With the world's top brands and largest enterprises and to take on and.

When business against the legacy software Giants of the time, it's that playbook for building.

<unk> end market credibility leveraging existing customers, who others look up to who are highly referenced Apple is going to be unique addition to the depth and strength, we already have in sales marketing and customer support so I'm anticipating.

Growing excitement growing activation within our partner ecosystem.

And.

A lot of businesses, who might not previously have been drawn to consider us relative to what they are using today to come take a look and we've always had high win rates once we get an opportunity to compete for an opportunity hopefully he'll bring in many more opportunities and he's got a lot of.

And a lot of individual techniques that we've talked about in the sales sorry in the recruiting process I think a quarter from now after he started and started to implement certain ones will be able to say more about what specifically is changing.

Excellent. Thanks for that color and then I just had one for Daniel first I wanted to say congrats.

<unk> has always been impressed by the work so it's great to see you in the seat.

I was just wondering if you could help us quantify the full effect of pricing changes.

Across our metrics in Q2, and then also what's the right way to think about growth in a few several quarters. When we eventually lap those pricing changes. Thanks, Scott that's a great. That's a great question. Thanks for the compliment by the way too.

In terms of the total impact if you look at the non enterprise.

Our growth rate sequentially, it was around $7 million I believe.

Quite a bit of that was driven from the pricing action.

And roughly maybe $3 million to $4 million of cash incremental cash flow as well due.

Due to merchants within our base that shows to prepay.

I think what's interesting about the way we approached that portion of our business going forward is that.

Part of what made it may be slightly more difficult for us to put incremental investment into that business was just making sure that we had the cohort health and the underlying economics in a place where it made sense from kind of highest and best use of the next investable dollar to put into that business and I think over time, we will.

We're able to start putting more investment in that area I think the priority for us and differentiation is still going to be mid market and enterprise, but we are really confident in the quality of the product that we have in small business. It's not geared to go for every single portion of the small business market. I mean, we're an open platform. We're focused on merchants that are looking for that kind of.

And that portion of the business I think just based on our spending plans for this year, but we think we can stabilize that more going into planning for next year and then we think we can start to organically grow that and more of a self serve go to market way that's much more cost efficient for us that we can continue to focus our sales and marketing resources market, while still having a.

Healthy and stable growth in that portion of the business well over time.

The next question is from Koji Ikeda with Bank of America. Please go ahead.

Hi, This is George I'm agreeing on for Koji.

Apologies if I missed this.

But in regards to the reaching EBITDA profitability.

And June is that is the kind of expectation for the business to kind of remain.

Yeah.

EBITDA positive going forward.

That's a great great question. George This is Daniel I'll take that one what we are calling out is that for the full month of June we got above breakeven on adjusted EBITDA, but thats not for the full quarter, we anticipate being still below zero for Q3 part of the reason for that is just planned hiring we have a little bit of an increase in sales and marketing.

<unk>, particularly in the mid market that we've had that we had planned and also wanted to take advantage of some opportunities. So we expect to be.

Sequentially better in terms of EBITDA and operating loss and where we were in Q2, but not necessarily about breakeven for the full quarter. We are reiterating our commitment and confidence to get above the breakeven point for Q4, and again I want to reiterate adjusted EBITDA breakeven as a starting point when Brenton I think about how we're running this business, we're thinking about long term.

Healthy margins with very very healthy free cash flow generation just to be very unambiguous about that when we think about planning for this business. It's a milestone but it is a milestone on a path to where we think this business can be from a cash flow generation basis important I think is a milestone for where we track progress this year and I'm, particularly proud.

Just very consistent improvements in operating leverage that we've shown for four quarters in a row that we've had over 400 basis points on average of operating leverage just as we said we would in a very consistent way as we're approaching that goal in Q4 and I'm confident we can continue to do so it's not easy we've got to execute but we're excited to get to that.

Starting point in Q4, and then have a healthy balanced growth profile profitably going into next year.

Okay awesome.

I can follow up with another question.

There is.

Sizable sequential step up in partners and service revenue.

How should we think about drivers of this revenue going forward and maybe things to keep in mind on this on this lineup yes, that's it.

Great question.

The improvements in <unk> were largely just due to underlying improvements in consumption I.

I think what we're seeing is very much in line with probably broader macro trends in terms of the volumes, but it's important to understand as we've said before.

<unk> does not track perfectly with <unk> growth for us its one factor of many we have a lot of different economic arrangements to underlying DSR, which makes things a little difficult sometimes to project out from a year over year growth rate from one quarter to the next because we have slotting fee arrangements that may hit on a Rev rec basis more in one quarter than another if that's true as well in Q3.

<unk> for example, where we anticipate having growth rates in the low single digits largely for that reason that kind of a base period effect in more of a mixed difference between some of those.

Large onetime arrangements versus kind of more consumption driven stuff, but.

We're encouraged by what we can see we think we can do a lot better whereby no means where we think we can get to in terms of overall attach rates growth in terms of <unk>. We have a number of really fantastic merchants that we signed recently many of which we've talked about that we have not fully ramped we are working on getting those up and running by holiday, where we think we can see it pick up.

In Q4, as well, which you can see is kind of implied in the guidance as well so not where we think we can be but we are certainly encouraged by the progress.

Awesome. Thank you.

Welcome.

The next question is from Parker Lane of Stifel. Please go ahead.

Hi, This is Matthew checker for Parker, Thanks for taking my questions.

To start when you look at the non enterprise cohort would you say logo retention or pricing adjustments are having the most pronounced impact on the momentum you're seeing there.

I'd say, it's a combination of the two so if you look at the.

The pace of contraction that we've seen over the.

Quarters prior to Q2, it was slowing even as we approached Q2 you saw like.

And kind of the forward outlook, we were giving on that we went into the year thinking would contract in the mid to high single digits into Q1, we kind of moderated that a bit we thought it would contract maybe in the single digits. Now we think it can be positive and the reason for that is it's not just pricing that's driving the improvements in health that we're seeing.

Even apart from pricing, we're seeing really really healthy improvements in retention and part of that is because we're being very disciplined about who we are really marketing to I mean, we are directing our dollars in sales and marketing spend towards mid market, which has a spillover effect into the upper end of small business, maybe a little bit less in the entrepreneurial set but it.

Tableau small businesses that really get a lot of value out of the product. These are stable sticky small business merchants and.

We're just we're being a lot more careful about the types of promotions that we're offering in order to bring them in so it's a little bit of both I mean, obviously pricing is a big impact to that but the underlying improvements we're seeing are.

<unk> health, it's not just pricing.

Okay. That's good to hear and then moving back over to the enterprise category.

What are the primary cause.

And factors the long duration of the sales cycles. There is kind of like a budget issue or a lack of interest in re platforming and do you have any expectations on when that can turn back around.

Well by definition, an elongated sales cycle.

<unk> when somebody expresses interest in migrating alright. So the interest we believe is out there in the market companies are just taking longer to negotiate and come net on large projects that are quite expensive for them.

Imagine you are seeing that across many enterprise software companies in various categories.

Okay.

Okay. Thank you.

Yeah.

The next question is from Matthew shrank of Keybanc. Please go ahead.

Hey, guys. Thanks for taking my question and congrats Daniel on the new role.

Was just wondering if you guys could talk about the investments that you're making in <unk> would you say that this is primarily on the sales team side. If theres more R&D features you guys need to build out or if that's really a marketing push and do you see any differences in terms of LTE LTV to CAC.

With any of those customers. Thanks.

Yeah.

<unk> keeps growing.

As a driver of our overall sales, but our sales teams.

Capable of serving any merchant on b to b or b to C and our sales contacts and indeed quite a few of our.

Customers are using us for both of those and so theres not really a distinction in sales and growing <unk>. The product is advancing very quickly under an incredibly talented product and engineering team that frankly isn't all that big that's incredible just how efficient.

They are.

And if you see that buyer portal that we released at the beginning of Q2, it's really industry, leading it's one of the reasons why on G to the world's businesses right is by far their favorite <unk> platform. They love the product.

As soon as Thats out they go to multi storefront compatibility that go onto invoice incorporation into it it's a very rapid expansion of what our already market leading capabilities. The other nice thing about the <unk> industry is so much of our competition is very much legacy software oftentimes <unk> only.

Platforms that don't have all of the incredible flexibility functionality user experience that we have from our b to C origins and the combo of the two <unk> specific functionality, but all the flexibility and usability from B to C is winter.

In the market.

And then I'll address the question on LTV to CAC as well.

Don't really see a very big difference between the LTV to CAC on a traditional BDC versus <unk> opportunity.

B to B volumes, they tend to have maybe a little bit fewer credit card transactions. Then you might see on a beta site, which has a little bit of a flow through effect into <unk> nothing material.

We pay attention to it but it doesn't necessarily adjust our planning.

And then the acquisition cost actually are quite good and <unk> as well. So I mean from my perspective, as we think about building out plans for the future I get equally excited about opportunities, whether there'd be <unk> or even our hybrid where honestly I think we're very uniquely positioned as well.

Got it that's super helpful and I, just wanted to touch a little bit about the investments that you're making on the enterprise side.

Obviously, you've called out some <unk> that we're seeing kind of in those top very super large.

Merchants, just wondering why now I guess, how long you're expecting.

The ramp with Steven now in his seat to take to kind of fueled this new engine that you guys have.

Yes. This is Dan I'll address that one.

I would say, we are making significant progress compared to where we were a year ago in that upper end of the market for us and again.

Large enterprise opportunities for us today are smaller than where they will look five years from now as an example, right.

It's taking a little bit longer to ramp, but it's still materially improved versus where we've been in past years, we knew going into the year, we would be shifting dollars from very short sales cycle times small business leads and pivoting them into things that can take multiple months. Its just a very different sales and marketing motion than small business in it.

Teams theyre, having to ramp up spending in new channels.

So I think we're very proud of the work that that team is doing we think Stephen's leadership is really going be able to help pull together, what we're doing across sales and marketing and customer support and we think it's going to improve over the course of the next several quarters, but just to be clear. This is something that we're committed to long term this isn't something where.

A little more difficult in the back half of the year than we had expected going into the year it doesn't impact or change our strategy of moving up market. We think the upper end of enterprise ecommerce is ripe for disruption and we think that our platform is the platform to do it and it may take time to build share in that area, but this is something that we are <unk>.

And Vince we can win in what we're going to do is be very measured and we're going to be very disciplined in how we are planning capital against that because we're going to be very much operate wisely with how we're thinking about profit and cash flow, but this is an area again, we're convinced we can win and we're committed to do so.

I appreciate the time guys.

Welcome.

The next question is from Keith Weiss of Morgan Stanley . Please go ahead.

Thanks for taking the question. This is Ryan on for Keith.

I'm just kind of curious in the broader scheme of things now that you've had a few quarters into your enterprise sales realignment, how you feel about sales efficiency relative to expectations and kind of what incremental benefit that could provide gone from here.

Yes, I would say.

As I said going into the year, we knew that fundamentally we would see.

Less strong sales and marketing efficiency resulted in where we were last year purely because of the change in pipeline duration right. I mean, the amount of youre going to be spending money for multiple quarters as youre building pipeline and the upper end of enterprise and so we knew it was going to be a difficult decision going into the year, but we made it any way because we're <unk>.

Vince it's the best long term decision for our shareholders I mean, I would say is as I said in my remarks, we have definite room to improve and what were seeing in that area, but it's not specific it's not just related to rate of acquisition I mean, I still think there's room for us to continue to improve and what we're doing in terms of expansion of existing customers. The.

<unk> of contracts that Brent spoke to a downgrade perspective also impacts how that metrics performing as well.

So theres a number of things, where we know that that can get better over time, and it's something that our leaders within sales and marketing and support are also very very focused on as well.

Helpful. Thanks, and one quick follow up to clarify a point when you say enterprise gross expected to finish the year in the low teens at an exit rate or just the overall year growth.

The way, we calculate the metric it's essentially a spot metric as of the end of the year. So the exit and the full year number actually the same.

Helpful. Thank you.

The next question is from Brian Peterson of Raymond James. Please go ahead.

Hi, Thanks for taking our question. This is John on for Brian on the mid market strength I'm. Just curious if you could speak to maybe any areas that you've noticed outside strength there and also on the planned investments in that area can you speak to geographically, where those investments will be made and then I have a quick follow up.

And mid market.

Really across the board volume coming and we're seeing it in every category.

Gory from.

<unk>, which is very healthy and industrial apparel consumer electronics.

Uh huh.

Home and beauty.

Food and beverage health and beauty, it's really across the board.

Net market and then it's lumpier with large enterprise.

But I think two great. Examples in large enterprise highlighting just what we can do they're worthy announced go lives for Francesco.

<unk> I think.

Many people know us in most of the malls of the United States 450, plus stores and <unk>.

Just how well we can serve a very large very complex apparel retailer with a large store footprint and then on the industrial side MK and building supplies demonstrates on the <unk> just what a great job we can do for.

A leader in the UK with more than 100 locations there.

Realize you just did a price increase I am curious as we move forward, how we should think about pricing as a gross level. Thank you.

What I think about it differently, whether you were talking about our retail plans our enterprise plans.

For our retail plans, we think where they're priced right now from a value perspective is very strong.

Up until this pricing action, we had very minimal pricing changes for several years.

And we don't we don't take pricing changes lately, because we know they are impactful for our merchants, but we felt there was definitely warranted based on just the changes in the product and the launches and everything that we've had on the enterprise side. Obviously those prices are far more opaque because they operate off of list price, we've actually taken pricing in different ways and pockets multiple times over the last several years.

Within enterprise will continue to do so as we move up market and also have different features and launches. So I view pricing, obviously, it's something that we look at closely at as a growth lever for us, but it's probably not going to be something that we're going to cite as a separable number and how much we're expecting to get from it. It's just something we're going to manage well and carefully as we're moving up in up market, where we have a.

Really strong <unk> advantage and frankly, we don't have to price Super aggressively in order to have a very compelling tcl advantages, we're moving further and further up market and enterprise. So we're going to strike a good balance on that we want to obviously maximize the value of the opportunities that we get while still maintaining that advantage.

Thank you very much.

The next question is from Mark Murphy of Jpmorgan. Please go ahead.

Hi, This is already on for Mark Thanks for taking the question congrats on the quarter and congrats Dan on the.

Overall.

My first question is and I think you guys kind of answered this but just to ask it directly.

This upside you are shown with the non enterprise side that seems to be mostly driven by actions you guys have taken in terms of pricing go to market et cetera, no not really kind of indicating that that segment is doing better in terms of demand or overall right.

I mean, what I would say is.

We very deliberately shifted our sales and marketing dollars into mid market and enterprise and the growth that we're seeing there is due to improvements in cohort retention, because we're still continuing to get volume there, which we're excited about and pricing I would say I do think it.

I do think it's encouraging I think it's a good indication of health, but just to be clear like we're not spending a lot of our sales and marketing resources out of pocket to drive demand. There today, we're focusing those resources and mid market and enterprise.

Got it so maybe a little bit of improvement in how they're just performing on their own.

And then second question when you guys talked about these customers who are.

The enterprise.

<unk> core.

Kind of re re forecasting their sales and having to adjust some of their spending.

Is this also a dynamic where it's split more towards the larger end of the enterprise versus mid market or is it spread evenly there I know the sales cycles are a little bit different but just specifically on the spending adjustments.

I think it's spread pretty evenly.

Think.

Lots of companies like us in Tech I've talked about the way. This is playing out whether it's businesses that operate on seat licenses, where theyre seeing changes to the number of contracted seat licenses orders in our case and to be Frank I mean, we've pulled millions out of our own spend this year from Brenton I doing exactly the same thing with our own vendors. So I think this is something that.

I think it's something that it's pretty widely spread within our base not unexpected I think the part that was a little bit just different was the degree of it that we saw in Q2, and we're reflecting that to be more conservative as we think about the back half outlook as well.

Perfect. Thanks for the insight.

Youre welcome.

The next question is from Ken Wong of Oppenheimer. Please go ahead.

Great.

I wanted to maybe dig in on the exit run rate. So at low teens, I guess, it arguably as flat to a downward trajectory I guess I just wanted to kind of chicken with you guys should we think of that as a as a floor or is there more downward to go.

I can take that one Kevin I think it's a reasonable expectation I think of it more of as a floor than a lot of downside theres always macro conditions are things that can change that could have to have it turn out differently, but based on what we see right now we feel good about that number and we think theres a lot of opportunity for us to do better than that and also really kind of.

Accelerate out of that going into next year as well, we just think it's important to reflect that conservatively and how we're thinking about the back half of the year and again going into the year. We had some pretty significant changes we're pleased with what we're seeing in the non enterprise part of the business. We think this other portion obviously can and will do better.

But I think from our perspective going into the year, we really had three things we're focused on here we wanted to maintain growth.

As we're going up market.

And we wanted to see really big improvements in profitability and cash flow I think we've done that I think thats definitely on track, but to be clear as Brett and I are thinking about this and this is about profitable growth and I want to make sure to articulate that we're very much thinking about where we can make concentrated investments.

To really power the growth rates and trajectory of the business, but we're going to do it in a way that's very disciplined and focused on maintaining a balance between growth and profitability, but I don't want to give the impression that we're kind of over correcting one way or the other we knew going in going into the year striking a balance was going to be important we think so far we've done a pretty good job of that but we're not satisfied we know there is a.

A lot of areas, where we think we can improve.

Got it and then maybe second just in terms of the reduction in platform spend.

I mean should we view that as largely mechanical also obviously as volumes come down sales trends transactions come down.

They will probably reach out to price down or are there any deliberate actions like you hear a lot in the cloud vendors customers optimizing their their workloads and whatnot are there any are there any.

Deliberate things that a customer might be doing to try to drive down that spend that we should be thinking about.

It's both but it's very similar dynamics for us as to what you described you're hearing from other places Ken.

Seeing obviously, just kind of the organic changes as volumes change on a trailing 12 month basis.

Up or down for us and we're also seeing more of where folks are making some deliberate cost saving actions and calling in to talk to those things with us again very similar to what we're doing ourselves.

And then maybe last just kind of just more of a detail on that kind of trailing volume.

Would you say we are on the front end of that or kind of emerging because obviously last year was just a bad year for everyone. So we just kind of now seeing the catch up or what.

The front end of it.

That's a great question, Ken I think the change that we observed in Q2 was more related to deliberate actions from merchants, reaching out to renegotiate. It was not an acceleration of some sort of downward macro related order volume trend I think what's gone on there has been very much in line with what we expected going into the year.

<unk> is not some sort of underlying erosion, it's really more of kind of deliberate renegotiations on behalf of our merchants.

Got it okay fantastic thanks for the color guys welcome.

That concludes our question and answer session I would like to turn the conference over to Brent Baum for closing remarks.

Yes, I just want to sort of finish by saying thanks to everybody who has joined us on this.

A transformation of the company from a growth centric one to now one that is balancing growth and strong move towards profitability Q2 was a very significant step forward for us with our first full quarter of extremely high free cash flow.

Reiterating our confidence in achieving our first full quarter in Q4 of adjusted EBITDA profitability and we very much look forward to the years ahead, where youll see.

We're expanding profitability.

And solid growth from us. So thanks, again and look forward to talking again a quarter from now.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

[music].

Ladies and gentlemen, thank you for standing by and welcome to the Big Kalmar second quarter 23 earnings call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session. Please be advised that today's conference is being recorded I would now like to turn the conference over to your first speaker.

Today Pilar Dolphin senior director of Finance. Please go ahead.

Good afternoon, and welcome to Big Commerce's second quarter 2023 earnings call, we will be discussing the results announced in our press release issued after today's market close.

With me are big Commerce, as CEO , and Chairman, Brent Bell and CFO . Daniel is today's call will contain certain forward looking statements, which are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.

Forward looking statements include statements concerning financial and business trends are.

Our expected future business and financial performance and financial condition, and our guidance for the third quarter of 2023, and the full year 2023.

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

These statements reflect our views as of today, only and should not be relied upon as representing our views at any subsequent date and we do not undertake any duty to update these statements.

Forward looking statements by their nature address matters that are subject to risks and uncertainties that could cause actual results to differ materially from expectations.

During the call. We will also discuss certain non-GAAP financial measures, which are not prepared in accordance with generally accepted accounting principles.

Which has been furnished to the SEC and is also available on our website at investors <unk> Commerce Dot com.

With that let me turn the call over to Brent.

Thanks, Tyler and thanks, everyone for joining us I'll start today by discussing our Q2 performance and progress at the halfway point of the year I will then share my perspective on our growth strategy and provide additional detail on recent leadership changes.

In Q2 total revenue was just over $75 million up 11% year over year for Q2, non-GAAP operating loss was just over $3 million, which was ahead of our quarterly guidance and a strong indication of our confidence to reach breakeven on an adjusted EBITDA basis in Q4 of this year.

Later, Daniel will share greater detail on our financial results and conclude the call with a discussion on updated guidance.

Want to highlight two milestones that are business achieved in the quarter first we reached profitability on an adjusted EBITDA basis in the month of June and second we delivered positive free cash flow for the first time driving just under $14 million of free cash flow for the second quarter ended June 32023.

Improvement in cash flow generation as well in response to one against the backdrop of a difficult macroeconomic climate I would like to thank our entire big commerce team for the hard work that was required to deliver that.

We concluded Q2 with an annual revenue run rate or <unk> of approximately $331 million up.

Up 12% year over year that represents a sequential growth in air or adjust over $14 million.

Enterprise account <unk> was approximately $236 million up 14% year over year as of the end of Q2 enterprise accounts represent 71% of our total company <unk> accounts using exclusively our retail plants, which we refer to as non enterprise account finished with <unk> of approximately <unk> 95.

Million.

Just under $7 million sequentially compared to Q1, 2023, and up 6% year over year, delivering our first quarter of non enterprise <unk> growth since Q2 2022.

While total IRR results are close to our mid year target the mix between enterprise and non enterprise accounts has differed from our expectations going into the year, we expected non enterprise accounts to contract by mid to high single digits improvements to cohort retention and pricing adjustments return. This portion of the business to growth in Q2, providing encouraged.

Signs of momentum going into the back half of the year.

As part of the market has a large and growing Tam and is underserved by many legacy e-commerce providers our share momentum in this part of the market is strong and we are seeing strong results from the mid market relative to our 2023 plants.

Large enterprise merchants, those with GMB of at least $50 million annually, including those up to $1 billion or more are experiencing significant increases in sales cycle duration as compared to 2022.

This segment of the industry tends to have lengthier sales cycles and more complicated business requirement.

Here is where the effects of macroeconomic uncertainty, our most noticeable and where a slower than expected increase in enterprise account <unk> can be seen although it will take time to scale up our market penetration in this segment of the industry. We have excellent product market set for merchants of this size and complexity.

We have five primary growth levers in our business today.

First we have a healthy and growing small business at nearly $100 million.

We have taken numerous actions to improve efficiency and scalability in this portion of our business, we eliminated aggressive sales promotion.

Incentive advanced payments and increased prices with minimal impact thus far to retention. This has led to strong improvements in cohort health.

120 cohort retention rates on our retail plants are 80% to 85% higher on average than where we were at this time last year.

We shifted sales and marketing resources towards enterprise growth.

Improving profitability as we rely more on self serve channels for the SMB portion of the business.

We believe our retail plans offer market, leading features and functionality and we believe we can grow this business over time profitably as a result of these changes.

This allows midmarket merchants to enjoy the advantages of enterprise E Commerce software at a price point set for the scale of their business. We believe our product is uniquely positioned to win and grow in this part of the market.

Third we provide market, leading ecommerce and Omnichannel solutions for both <unk> and <unk> merchant. Many VW merchants are adjusting their buying processes to reflect the consumer shopping experiences their customers are used to and our award winning platform delivers outstanding value for merchants in both categories.

<unk> has traditionally been underserved by commerce platforms, and we are investing to win in this market.

Other competitors offer omnichannel connectivity, but connectivity alone is not enough connectivity and data quality together drive results for merchants and <unk> platform agnostic AI driven data feed optimization capabilities.

One of the best solutions in the World.

In fact in Q2, 2023 feet and Omics customer survey more than 75% of their customers reported up to 50% or more improvements in their omnichannel conversion return on AD spend and revenue. We believe our platform can disrupt the large enterprise market and we are committed to growth in this market.

Finally international expansion represents a significant growth opportunity for us as well, we expanded our sales and marketing presence to 12, new countries over the last two years.

Our expansion has been particularly focused on India, where we see an opportunity to win share from legacy more extensive ecommerce providers, while we have slowed the pace of new country launches recently, we have not significantly changed the amount of sales and marketing investments in existing markets. Our near term focus is on building scale and profitability.

And our recently launched countries, where we are truly just scratching the surface of our growth potential we expect to continue our international expansion efforts in the coming years and a disciplined profitable way.

The commerce is fundamentally an open flexible partner first company merchants have freedom to choose among the market, leading commerce technology partner solution that suits their businesses, including AI, which we'll discuss further in a moment. It also means merchants can drive improved omnichannel growth and ROI, while using our feet anomic solution.

On other e-commerce platforms as well being.

Back to publish a third party independent review and validation of the superior checkout results in the coming weeks.

I would now like to spend some time on two recent leadership changes that I believe will help scale, our business and execute our strategy earlier. This week, we announced the addition of technology industry veteran and ecommerce sales leaders Steven Chung as our company President.

Stephen will oversee our sales marketing and services team aligning our go to market teams to fuel our leadership in global Enterprise E Commerce.

Stephen brings relevant experience from his time at <unk> and pager duty and he previously served as global sales leader of demand were back when they moved up market prior to being acquired there is no better person to fill this role and lead our mid market and enterprise growth I'm also excited to highlight Daniel lengths as our new CFO , replacing Robert Alvarez, who recently retired.

After holding that position since 2011.

In our business, we have every confidence in his ability to steer the company to long term success.

<unk> had a solid BBB presence and they wanted a modern tech stack to support their direct to consumer strategy.

They turned to our agency partner coalition technologies and launched a new store on Big Commerce in just 60 days.

And Omnichannel presence was vital for houser and they found the big Commerce and fee dynamics with a powerhouse combination they need with the ability to manage products and orders across over 100 channels feed and Omics gave hauser the power to drive Omnichannel growth without high price Tag Coalition and Big Commerce helped Hauser quickly migrate that's complex portfolio of.

Products and dramatically increase at site speed, all while maintaining a growing omnichannel presence.

Another notable and represented a big Commerce merchant is MKS building supplies, the largest independent builders merchant in the U K with over 100 branches across England, Scotland, and Wales with origins as a neighborhood supply shopped in the UK <unk> realized that it needed to keep up with digital transformation trends partnering with <unk>.

Versus agency brain Bison and Cam now has a fully composedly storefront that delivers an online experience to match its offline presence for advice and enlisted global market, leading front end solution view storefront to implement a headless architecture and collaborated with commerce experienced provider bloom reach to drive seamless.

Personalization across the site just weeks after going live and Cam saw increased site performance plus increases in online orders average order value new customer accounts and revenue in June and Tam was honored with a mock <unk> impact award from the <unk> Alliance a group of independent Tech companies dedicated to advocating for.

Open best of breed technology ecosystems, when moving from legacy infrastructure and go into <unk>.

We also remain committed to continuous innovation last week, we announced a partnership with Google to add new AI powered features to our platform later this year. These.

In partnership with Google, we're committed to using AI responsibly and respect our merchants user data brand and privacy.

We will continue to use AI in a way that is fair unbiased and transparent we.

We believe that these principles are central for enterprise merchants to ensure their brand are protected.

Our platform received two notable pieces of recognition recently first we achieved 24 out of 24 total metals in the 2023 paradigm <unk> combine for digital Commerce solutions enterprise and mid market additions, increasing our rankings in six categories. We were also awarded the high placement a major contender in Everest group's 2023 digital.

Commerce platform peak matrix, which assess 'twenty, one digital commerce platform providers around the world.

In Q2, we continue to grow our roster of leading notable brands and merchants on our platform franchise.

Francesco's, a popular women's clothing, and accessories brand with more than 450 stores.

Taking advantage of Big Commerce page builder tool combined with the customized theme and customized checkout in order to deliver unique free spirited fashion and lifestyle products to its customers.

Barbeques, Galore, and Australia and market, leading seller of girls grilling accessories, and outdoor furniture became the first merchant transacting with <unk> addition, multi storefront going live in just 12 weeks square.

<unk> the company behind some of the world's most popular gaming franchises, including final fantasy Dragon Quest and tomb Raider launched multiple new stores to power their multi language and multi currency needs in North America, EMEA and APAC, enabling their customers to purchase games across multiple platforms, including digital games redeem.

And through the steam marketplace.

BMW group UK, a leading supplier of BMW and mini original parts partnered with auto sector solutions to launch new stores for both brands, featuring ERP integrations that zinc inventory supplies and pricing data directly with the stores.

I'd like to turn it over to Daniel to discuss our financial results in more detail and conclude with our updated guidance for Q3 and 2023.

This area is the CFO .

7% and APAC revenue was up 3% compared to the prior year.

<unk> necessary to deliver that.

I'll now review, our non-GAAP Kpis, our <unk> grew to approximately $331 million up 12% year over year that represents a sequential growth in total IRR of just over 14 million.

Enterprise account.

It's approximately $236 million up 14% year over year subscription <unk>.

<unk> was up $12 million or 5% versus Q1 and up 13% year over year.

At the end of Q2, we reported 5929 enterprise accounts up 511 accounts or 9% year over year.

ARPA or average revenue per account for enterprise accounts was $39870 up 5% year over year.

Profit was $58 million up 11% year over year.

In Q2 sales and marketing expenses totaled $32 million down 1% year over year. This represented 43% of revenue down 515 basis points from a year ago.

Research and development expenses were $17 5 million or 23% of revenue down 523 basis points from a year ago and down slightly from Q1.

General and administrative expenses were $11 9 million or 16% of revenue down 509 basis points from a year ago.

Adjusted EBITDA was negative $2 5 million of negative three 3% adjusted EBITDA margin compared to negative $12 9 million and a negative 18, 9% adjusted EBITDA margin in the prior year.

non-GAAP net loss for Q2 was $1 5 million or negative <unk> <unk> per share compared to negative $14 1 million or negative <unk> 19 per share last year.

<unk>, which compares to negative $16 million in Q2 2022.

I would now like to share additional color on our 2023 financial plan and my view on our progress thus far in the year.

We are making the tough decisions necessary to stabilize and improve the underlying economics of our non enterprise business. We are focusing the bulk of our sales and marketing spending towards the superior unit economics of mid market and enterprise merchants, including investments in new channels and upmarket merchant segments.

Going into 2023, we knew these decisions would entail a fundamental shift in our weighted average sales cycle time, and therefore impact near term bookings results at the same time, we took decisive action to accelerate our timeline to adjusted EBITDA profitability and improved cash flows. We took these actions despite the resulting challenges to certain <unk>.

Areas of near term performance because it is critical that we invest capital in a focused disciplined and efficient way against our most profitable market opportunities. We are adapting our tactics to a changing operating environment, while staying committed to our long term market strategy.

Our 2023 plan has three primary goals, let me elaborate on the progress and challenges we have seen thus far on each first we are investing to win in the Midmarket and enterprise markets, while stabilizing the small business portion of our business as well.

While total <unk> results are largely in line with our expectations going into the year the mix between enterprise and non enterprise.

Has been different non enterprise account AAR has exceeded our expectations growing 6% year over year in Q2, we.

We indicated on our February earnings call that we expected non enterprise to contract in the mid to high single digits. We now expect non enterprise account to grow in the low single digits on a full year basis. This is strong progress.

Enterprise <unk> growth fell short of our expectations in Q2.

Brent mentioned sales cycle times remained considerably elevated compared to prior years with enterprise merchants, while mid market sales cycle times are largely in line with prior years. We also saw an increase in the number of merchants looking to reduce platform spending where order volumes have been impacted by market conditions and this led to a higher volume of pricing adjustments to <unk>.

<unk> merchants than we expected in Q2.

We expect these macroeconomic trends to continue in the back half of the year.

Now estimate enterprise account AOR growth to finish the year in the low teens year over year.

Retention rates remained strong our sales pipeline that performance remained healthy and we're encouraged by growing market recognition of the strength of our products. We are confident that these results will improve and we will also provide the accountability necessary to ensure that we see improvements and associated sales and marketing spending efficiency as well.

Second we remain confident in our ability to deliver positive adjusted EBITDA for the full quarter in Q4 of this year.

Q2 sales and marketing R&D and G&A expenses were over 500 basis points lower than Q2 2022.

Third we are taking steps to prioritize cash flow improvements to drive healthy consistent cash flow generation as we mentioned on the Q1 call. We are focused on driving cash flow improvements through prioritizing advanced billing on new subscriptions investing at our quote to cash systems and processes and maintaining tight discipline around accounts receivable and collections.

Overall I believe our results at the halfway point reflect cause for optimism and a number of areas margin cash flow and deferred revenue improvements are notable and encouraging non enterprise account performance has exceeded our expectations and revenue and operating loss results have exceeded guidance enterprise AOR growth must improve.

And as Brent said, we are taking actions to deliver better sales and marketing efficiency to that end as well.

I will now share an updated view on our outlook and guidance for the third quarter and full year 2023.

Total revenue between $340 million to $310 million translating to a year over year growth rate of approximately 9% to 11%.

For Q3, our non-GAAP operating loss is expected to be between 1 million and $5 million, which reflects a slight increase in planned sales and marketing spending in Q3.

For the full year, we expect a non-GAAP operating loss between 10, 2% and $15 2 million.

I'd now like to share my focus areas and priorities as CFO .

Honored to be a part of this team and serve as the new CFO with that Brett and I are happy to take any of your questions operator.

To withdraw from the question queue. Please press Star then two.

My first question is from Gabriela Borges.

Goldman Sachs. Please go ahead.

Yeah we're.

In EMEA U K remains our powerhouse and original market and it's definitely the engine of growth on the continent.

We continue to see very good traction really across the board, Italy has a particularly strong market for us <unk> and Nordics have.

<unk> been healthy for us.

<unk> organic traction even before we had marketing websites and we're delighted to see that continuing.

Okay. Thank you and then second one for.

EMEA is kind of on the back of the pricing increase that went into effect on June 1st how does the initial response are you seeing more customers moving to annual payments and has there been any impact on churn.

Yes, I would say thanks for the question churn impact it's been very negligible, thus far which has been encouraging.

Need to see how those results shake out over the next two to three months, obviously, but.

I would say so far again, it's been very encouraging we haven't seen much of an impact and yes, we have seen a big impact and the number of merchants that are electing to prepaid we're probably seeing probably twice as many merchants that are likely to prepay versus where they were before and to be clear about this. The reason we are approaching this is not from the point of view of factoring receivables are trying to accelerate that it's really about.

Cohort health ultimately for us at the end of the day.

That gets to what Brent had mentioned in his remarks that we've seen an 80% to 85% uptick in cohort retention versus where we were last year, which has been a really healthy change for us.

Alright, great. Thank you.

The next question is from Scott Berg with Needham <unk> Company. Please go ahead.

Okay. This is Rob Reilly on for Scott Congratulations on the strong quarter.

It looks like enterprise air growth was around 40% for this quarter.

You previously discussed.

Youre anticipating growth of.

Around 20% exiting fiscal year 'twenty, three now, bringing it down to mid teens, how visible is that goal given what you saw second quarter. Thanks.

This is Brent and all start us off we continue to believe that in.

A challenging global economy like the current one.

20% is in the long run and achievable Gulf target growth target for us and a healthy economy potentially higher.

We were we saw a couple of dynamics in the second quarter that impacted our ability to achieve that one was some major deals, especially at the enterprise side, where the sales cycles have elongated and they didn't close in quarter <unk>.

Days of 2000, 22021 and potentially.

Anticipated higher <unk>.

Sales volumes and they have achieved and signed up for larger limits with us there.

Dan.

Reduced licenses reduce unnecessary expenditures ourselves thats one of the reasons why we're getting such great P&L leverage right now is eliminating unnecessary.

<unk> and so both of those dynamics impacted I think going forward.

Sure.

We're wise not to fixate on the quarterly achievement of a particular target like that in particular, because we have a dynamic and multi segment business.

As Daniel discussed, we're seeing healthy over performance in the SMB side, which in some quarters can make up for something else.

You'd add Daniel I think all I would add to that is.

I think going into the year, we knew as we started to shift dollars more up market. It was like I said in my remarks, we are going to be shifting kind of our weighted average sales cycle time. The increase in sales cycle time on larger opportunities has been kind of stubbornly longer than where we would have liked it to be at this time of the year.

We can be from a growth basis has not changed we think that that is going to be largely driven by growth in midmarket and enterprise, but we have not walked away from our small business. It's a large business. It has.

Due to the actions we've taken it has healthy and stable economics, so theres a lot of growth vectors for us that we're quite excited about.

Got it.

Responses very helpful. That's all for me.

The next question from Daniel Reagan Canaccord Genuity. Please go ahead.

Hey, guys. This is Dan Regan Entre T J.

Thanks for taking my question.

So maybe just starting with Brent.

So you guys.

<unk> just hired Steve Chang appears to have.

But really solid background to becoming.

Big Commerce.

On his experiences from demand we're in Patriot duty I'm.

I'm wondering if you could just discuss the key initiatives or changes you expect them to drive the sales Org and then.

How does that.

Translate to a potential acceleration.

In the mid market and enterprise with your ambitions there.

Yes.

With excitement about the playbook and experience Steven is uniquely able to bring in Tibet commerce.

Common DNA, we had with demand, whereas that Larry bond still on our board with our series a banker and their series a back way back in the day and Larry.

With the world's top brands and largest enterprises and to take on and.

When business against the legacy software Giants of the time.

That playbook for building.

Heitman and market credibility leveraging existing customers, who others look up to who are highly referenced Apple is going to be unique addition to the depth and strength, we already have in sales marketing and customer support so I'm anticipating.

Growing excitement growing activation within our partner ecosystem.

And.

A lot of individual techniques that we've talked about in the sales sorry in the recruiting process I think a quarter from now after he started and started to implement certain ones will be able to say more about what specifically is changing.

Excellent. Thanks for that color and then I just had one for Daniel Firstly I wanted to say congrats team has always been impressed by the work. So it's great to see you in the seat.

I was just wondering if you could help us quantify the full effect of pricing changes.

Across our metrics in Q2, and then also what's the right way to think about growth in a few several quarters. When we eventually lap those pricing changes.

Thanks, Scott that's a great. That's a great question. Thanks for the compliment by the way too.

In terms of the total impact if you look at the non enterprise AOR growth rate sequentially. It was around $7 million I believe quite a bit of that was driven from the pricing action.

And roughly maybe $3 million to $4 million of cash incremental cash flow as well do.

Due to merchants within our base that shows to prepay.

I think what's interesting about the way we approach that portion of our business going forward is that.

Part of what made it maybe slightly more difficult for us to put incremental investment into that business was just making sure that we had the cohort health and the underlying economics and a place where it made sense from kind of the highest and best use of the next investable dollar to put into that business and I think over time, we will be able to store.

Putting more investment in that area I think the priority for us and differentiation is still going to be mid market and enterprise, but we're really confident in the quality of the product that we have in small business. It's not geared to go for every single proportion of the small business market. I mean, we're an open platform. We're focused on merchants that are looking for that kind of.

Best of breed functionality with ease of expansion Omnichannel interest and things like that so I think over time. It gives us some opportunities to do so I think over the course of the next couple of quarters I don't anticipate us adding sequentially a lot of <unk> in that portion of the business I think just based on our spending plans for this year, but we think we can stabilize that.

Going into planning for next year, and then we think we can start to organically grow that and more of a self serve go to market way that's much more cost efficient for us that we can continue to focus our sales and marketing resources up market, while still having.

Healthy and stable growth in that portion of the business well over time.

The next question is from Koji Ikeda with Bank of America. Please go ahead.

Hi, This is George I'm agreeing on per Koji.

Apologies if I missed this.

But in regards to the reaching EBITDA profitability.

In June is that.

<unk> is the kind of the expectation for the business to kind of remain.

EBITDA positive going forward.

That's a great great question Jordan. This is Daniel I'll take that one what were calling out is that for the full month of June we got above breakeven on adjusted EBITDA, but thats not for the full quarter, we anticipate being still below zero for Q3 part of the reason for that is just planned hiring we have a little bit of an increase in sales and marketing expense.

<unk>, particularly in the mid market that we've had that we had planned and also wanted to take advantage of some opportunities. So we expect to be <unk>.

Sequentially better in terms of EBITDA and operating loss and where we were in Q2, but not necessarily about breakeven for the full quarter. We are reiterating our commitment and confidence to get above the breakeven point for Q4, and again I want to reiterate adjusted EBITDA breakeven as a starting point when Brendan I think about how we're running this business, we're thinking about long term.

Healthy margins with very very healthy free cash flow generation just to be very unambiguous about that when we think about planning for this business. It's a milestone but it is a milestone on our path to where we think this business can be from a cash flow generation basis important I think is a milestone for where we track progress this year and I'm, particularly proud of.

Im confident we can continue to do so it's not easy we've got to execute but we're excited to get to that kind of a starting point in Q4, and then have a healthy balanced growth profile profitably going into next year.

Okay.

And if I could follow up with another question.

There is.

Sizable sequential step up in partners and service revenue.

I guess, how should we think about drivers of this revenue going forward and maybe things to keep in mind on this.

Yes.

That's a great question.

The improvements in <unk> were largely just due to underlying improvement in consumption.

I think what we're seeing is very much in line with probably broader macro trends in terms of the volumes, but it's important to understand as we've said before PSS does not track perfectly with <unk> growth for us. Its one factor of many we have a lot of different economic arrangements to underlying DSR, which makes things a little difficult sometimes to project out from a year over year growth rate from one <unk>.

To the next because we have slotting fee arrangements that may hit on a Rev rec basis more in one quarter than another if that's true as well in Q3 for example, where we anticipate having growth rates in the low single digits largely for that reason, that's kind of a base period effect in more of a mixed difference between some of those kind of large onetime arrangements.

<unk> kind of more consumption driven stuff, but.

We're encouraged by what we can see we think we can do a lot better. We're by no means where we think we can get to in terms of overall attach rates growth in terms of <unk>. We have a number of really fantastic merchants that we signed recently many of which we've talked about that we have not fully ramped we are working on getting those up and running by holiday, where we think we can see it pick up.

In Q4, as well, which you can see is kind of implied in the guidance as well so not where we think we can be but we are certainly encouraged by the progress.

Awesome. Thank you Youre.

You're welcome.

The next question is from Parker Lane of Stifel. Please go ahead.

Hi, This is Matthew checker for Parker, Thanks for taking my questions.

To start when you look at the non enterprise cohort would you say logo retention or pricing adjustments are having the most pronounced impact on the momentum you're seeing there.

I'd say, it's a combination of the two so if you look at the.

Pace of contraction that we've seen over the <unk>.

Quarters prior to Q2, it was slowing even as we approached Q2, you saw like in kind of the forward outlook, we were giving on that we went into the year thinking would contract in the mid to high single digits into Q1, we kind of moderated that a bit we thought it would contract maybe in the single digits. Now we think it can be positive and the reason for that is it's not just price.

<unk>, that's driving the improvements in health that we're seeing even.

Even apart from pricing, we're seeing really really healthy improvements in retention and part of that is because we're being very disciplined about who we are really marketing to I mean, we are directing our dollars in sales and marketing spend towards mid market, which has a spillover effect kind of into the upper end of small business, maybe a little bit less in the entrepreneurial set but <unk>.

Tableau small businesses that really get a lot of value out of the product. These are stable sticky small business merchants and we're just we're being a lot more careful about the types of promotions that we're offering in order to bring them in so it's a little bit of both I mean, obviously pricing is a big impact to that but the underlying improvements we're seeing our.

Baseline health, it's not just pricing.

Okay. That's good to hear and then moving back over to the enterprise category.

<unk> been the primary contributing factors so long duration of the sales cycles. There is kind of like a budgeting issue or a lack of interest in re platforming and do you have any expectations on when that can turn back around.

Well by definition, an elongated sales cycle.

<unk> when somebody expresses interest in migrating.

So the interest we believe is out there in the market companies are just taking longer to negotiate and commit on large projects that are quite expensive for them.

Imagine you are seeing that across many enterprise software companies in various categories.

Okay.

Okay. Thank you.

The next question is from Matthew Schrag of Keybanc. Please go ahead.

Hey, guys. Thanks for taking my question and congrats Daniel on the new role.

I was just wondering if you guys could talk about the investments that you're making.

Would you say that this is primarily on the sales team side. If there is more R&D features you guys need to build out or if that's really a marketing push and do you see any differences in terms of LTE LTV to CAC.

With any of those customers. Thanks.

Yeah.

<unk> keeps growing as a driver of our overall sales, but our sales teams.

Are capable of serving any merchant on b to b or b to C and a sales contacts and indeed quite a few of our.

Customers are using us for both of those.

So there's not really a distinction in sales and growing <unk> the product is advancing very quickly.

<unk> and incredibly talented product and engineering team that frankly isn't all that big that's incredible just how efficient they are.

Soon as that's out they go to multi storefront compatibility that go onto invoice incorporation into it it's a very rapid expansion of what our already market leading capabilities. The other nice thing about the <unk> industry is so much of our competition is very much legacy software oftentimes <unk> only.

<unk> is a winner.

In the market.

And then I'll address the question on LTV to CAC as well.

We don't really see a very big difference between the LTV to CAC on a traditional BDC versus <unk> opportunity.

<unk> volumes they tend to have maybe a little bit fewer credit card transactions. Then you might see on a beta site, which has a little bit of a flow through effect into <unk> nothing material.

I mean, we pay attention to it but it doesn't necessarily adjust our planning.

And then the acquisition cost actually are quite good and b to b as well. So I mean from my perspective, as we think about building out plans for the future I get equally excited about opportunities, whether there'd be <unk> or even our hybrid where honestly I think we're very uniquely positioned as well.

Got it that's super helpful and I, just wanted to touch a little bit about the investments that you're making on the enterprise side.

Obviously, you've called out some business that we're seeing kind of in those top very super large merchants just wondering why now I guess, how long you're expecting.

The ramp with Steven now in his seat to take to kind of fueled this new engine that you guys have.

Yes. This is Dan I'll address that one.

I would say, we are making significant progress compared to where we were a year ago in that upper end of the market for us and again.

Large enterprise opportunities for us today are smaller than where they will look five years from now as an example, right.

They are having to ramp up spending in new channels.

It's a little more difficult in the back half of the year than we had expected going into the year it doesn't impact or change our strategy of moving up market. We think the upper end of enterprise ecommerce is ripe for disruption and we think that our platform is the platform to do it and it may take time to build share in that area, but this is something that we are.

Convinced we can win in what we're going to do is be very measured and we're going to be very disciplined in how we are planning capital against that because we're going to be very much operate wisely with how we're thinking about profit and cash flow, but this is an area again, we're convinced we can win and we're committed to do so.

I appreciate the time guys. Thanks.

Welcome.

The next question is from Keith Weiss of Morgan Stanley . Please go ahead.

Thanks for taking the question. This is Ryan on for Keith I was just kind of curious in the broader scheme of things now that you've had a few quarters into your enterprise sales realignment, how you feel about sales efficiency relative to expectations and kind of.

What incremental benefit that could provide gone from here.

Yes, I would say.

We as I said going into the year, we knew that fundamentally we would see.

The best long term decision for our shareholders I would say is as I said in my remarks, we have definite room to improve and what were seeing in that area, but it's not specific it's not just related to rate of acquisition I mean, I still think there's room for us to continue to improve and what we're doing in terms of expansion of existing customers. The.

<unk> of contracts that Brent spoke to a downgrade perspective also impacts how that metrics performing as well so.

So theres a number of things, where we know that that can get better over time, and it's something that our leaders within sales and marketing and support are also very very focused on as well.

Helpful. Thanks, and then one quick follow up to clarify a point when you say enterprise AOR growth expected to finish the year in the low teens that an exit rate or just the overall year growth.

The way, we calculate the metric it's essentially a spot metric as of the end of the year. So the exit and the full year number actually the same.

Helpful. Thank you.

Welcome.

The next question is from Brian Peterson of Raymond James. Please go ahead.

Hi, Thanks for taking our question. This is John on for Brian on the bid market strength I'm. Just curious if you could speak to maybe any areas that you've noticed outside strength there and also on the planned investments in that area can you speak to geographically, where those investments will be made and then I have a quick follow up.

And the mid market.

Really across the board volume coming and we're seeing it in.

Every category from.

<unk>, which is very healthy and industrial apparel consumer electronics.

Uh huh.

Home and beauty.

Food and beverage health and beauty, it's really across the board.

Net market and then it's lumpier with large enterprise.

But I think two great. Examples in large enterprise highlighting just what we can do they're worthy announced go lives for Francesco.

Francesco's.

Many people know us in most of the malls of the United States 450, plus stores and.

It's just how well we can serve a very large very complex apparel retailer with a large store footprint and then on the industrial side <unk>.

<unk> building supplies demonstrates on the <unk>, just what a great job we can do for.

A leader in the UK with more than 100 locations there.

Okay. Thanks, very helpful. And then as a quick follow up Daniel I'd Echo my congratulations as well, but I have a question on pricing as a lever moving forward given the retention dynamics you referenced while I realize you just did a price increase I am curious as we move forward, how we should think about pricing as a gross level. Thank you.

When I think about it differently, whether you were talking about our retail plans our enterprise plans.

For our retail plans, we think where they're priced right now from a value perspective is very strong.

Up until this pricing action, we had very minimal pricing changes for several years.

And we don't we don't take pricing changes lightly because we know they are impactful for our merchants, but we felt there was definitely warranted based on just the changes in the product and the launches everything that we've had on the enterprise side. Obviously those prices are far more opaque because they operate off of list price, we've actually taken pricing in different ways and pockets multiple times over the last several years.

Within enterprise will continue to do so as we move up market and also have different features and launches.

I view pricing, obviously, it's something that we look at closely at as a growth lever for us, but it's probably not going to be something that we're going to cite as a separable number and how much we're expecting to get from it. It's just something we're going to manage well and carefully as we're moving up in up market, where we have a really strong <unk> advantage and frankly, we don't have to price super aggressively in order to have a very.

<unk> advantage is we're moving.

Further and further up market and enterprise. So if we're going to strike a good balance on that we want to obviously maximize the value of the opportunities that we get while still maintaining that advantage.

Thank you very much.

Yeah.

The next question is from Mark Murphy of Jpmorgan. Please go ahead.

Hey, this is already on for Mark Thanks for taking the question congrats on the quarter and congrats Dan on the new role.

My first question is and I think you guys kind of answered this but just to ask it directly.

This upside youre showing with the non enterprise side that seems to be mostly driven by actions you guys have taken in terms of pricing go to market et cetera, no not really kind of indicating that that segment is doing better in terms of demand or overall rate.

I mean, what I would say is.

Got it so maybe a little bit of improvement in how they're just performing on their own.

And then second question when you guys talked about these are customers who are.

The enterprise.

<unk> core.

Kind of re re forecasting their sales and having to adjust some of their spending.

I think it's spread pretty evenly.

We've pulled millions out of our own spend this year from Brenton I doing exactly the same thing with our own vendors. So I think this is something that.

Perfect. Thanks for the insight.

Youre welcome.

The next question is from Ken Wong of Oppenheimer. Please go ahead.

Great. Thanks ethic.

I wanted to maybe dig in on the exit run rate. So at low teens, I guess, it arguably as flat to a downward trajectory I guess I just wanted to check in with you guys should we think of that as a.

As a floor or is there more downward to go.

But I think from our perspective going into the year, we really had three things we're focused on here we wanted to maintain growth.

<unk> as we're going up market.

And we wanted to see really big improvements in profitability and cash flow I think we've done that I think thats definitely on track, but to be clear as Brett and I are thinking about this this is about profitable growth and I want to make sure to articulate that.

Very much thinking about where we can make concentrated investments.

A lot of areas, where we think we can improve.

Got it and then maybe second just in terms of the reduction in platform spend.

I mean should we view that as largely mechanical also obviously as volumes come down sales trends transactions come down.

They will probably reach out to price down or are there any deliberate actions like you hear a lot and with the cloud vendors customers optimizing their their workloads and whatnot are there any are there any.

Deliberate things that a customer might be doing to try to drive down that spend that we should be thinking about it.

It's both but it's very similar dynamics for us as to what you described you're hearing from other places Ken.

Being obviously, just kind of the organic changes as volumes change on a trailing 12 month basis.

Up or down for us and we're also seeing more of where folks are making some deliberate cost saving actions.

Calling in to talk to you those things with US again very similar to what we're doing ourselves.

Yeah, and then maybe last just kind of just more of a detail on that.

Trailing volume.

Would you say we are on the front end of that or kind of emerging because obviously last year was just the <unk>.

<unk> year for everyone. So we just kind of now seeing the catch up or we're in the front end of it.

No.

And is not some sort of underlying erosion, it's really more of kind of deliberate renegotiations on behalf of our merchants.

Got it okay fantastic thanks for the color guys.

Hmm.

This concludes our question and answer question I would now like to turn the conference over to Brent for closing remarks.

Yes, I just want to sort of finish by saying thanks to everybody who has joined us on this.

Transformation of the company.

A growth centric one to now one that is balancing growth and strong move towards profitability Q2 was a very significant step forward for us with our first full quarter of extremely high free cash flow.

Iterating our confidence in achieving our first full quarter in Q4 of adjusted EBITDA profitability and we very much look forward to the years ahead, where youll see ever expanding profitability.

<unk> solid growth from us. So thanks, again and look forward to talking again a quarter from now.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Q2 2023 BigCommerce Holdings Inc Earnings Call

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