Q3 2023 BigCommerce Holdings Inc Earnings Call

Yes.

Ladies and gentlemen, thank you for standing by and welcome to the Big Commerce third quarter 2023 earnings call. At this time all participants are in listen only mode. After the speaker's presentation, there will be and there will be a question and answer session. Please be advised that today's conference is being record.

I would like now to turn the conference over to your first speaker today, Tyler Duncan Senior director of Finance you may begin.

Good morning, and welcome to be Commerce as third quarter of 2023 earnings call. We will be discussing the results announced in our press release issued before today's market open with me are big Commerce, as CEO and Chairman, Brent Bell and CFO. Daniel It's 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.

195.

Forward looking statements include statements concerning financial and business trends, our expected future business and financial performance and financial condition and our guidance for the fourth quarter of 2023, and the full year of 2023.

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

<unk> committed will or similar words.

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

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

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

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

Reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measure as well as how we define these metrics and other metrics is included in our earnings press release, which has been furnished to the SEC and is available on our website at investors Dot Big Commerce Dot com with that let me turn the call over to Brett.

Thanks, Tyler and thanks, everyone for joining us I'll start today by discussing our quarterly performance and the progress we have made against our 2023 financial plan I.

I will speak to our business momentum and provide an updated view on the macroeconomic environment and I'll conclude by discussing our continued move upmarket and the associated improvements to our go to market approach.

Daniel will later provide details on our financial performance and spending efficiencies related to the restructuring we announced earlier. This morning. Finally, he will end our prepared remarks with an updated view on 2023 financial guidance and provide a first look at our expected financial plans for 2024.

In Q3 total revenue was just over $78 million up 8% year over year. Our Q3 non-GAAP operating loss was just over $1 million, which was well ahead of our quarterly guidance and reflects the significant progress we have achieved in operating efficiency over the last several quarters, we came within a photo finish up heading adjusted EBITDA.

Breakeven a quarter earlier than expected, finishing Q3 at negative $102000. This reflects a nearly 14.5 percentage point margin improvement in only one year against the backdrop of a tough macroeconomic climate for tech and software we are committed to driving profitable growth for our shareholders.

And I believe we are well positioned to move our business off market with a more efficient organization.

We concluded Q3 with an annual revenue run rate for <unk> of approximately $332 million up 9% year over year that represents a sequential growth in air or of just over $1 million enterprise, a county or are with approximately $241 million up 11% year over year.

As of the end of Q3 enterprise accounts represent 72% of our total company a or accounts using exclusively a retail plan, which we referred to as non enterprise accounts finished with air or of approximately $92 million up 3% year over year.

Q3 reflected both the progress we have made as a business and some of the challenges that we continue to face in this macro environment overall revenue growth and non enterprise. There are growth were in line with our expectation and we were pleased to nearly reach our adjusted EBITDA breakeven goal one quarter early.

Enterprise are our growth fell a little short of our expectations. We continue to see longer sales cycle time, and a tougher sales climate across software, while certain significant new customers elected to move launches post holiday into Q1 2024.

Speak both of these macro dynamics and actions we are taking to improve go to market and financial performance later in my remarks.

Our customers are at the heart of everything we do.

We work extremely hard to deliver an industry, leading platform that powers growth for the world's most sophisticated and complex brands and retailers last week, we were honored with Idc's 2023, SaaS customer satisfaction award for digital Commerce. This recognizes the high customer satisfaction that our product and service to cheat.

Gartner also named Big Commerce as a challenger in the 2023, Gartner Magic quadrant for digital commerce platforms for the fourth consecutive year.

In September we launched our new fee to be addition, invoice portal for large b to b suppliers manufacturers distributors and wholesalers to modernize the invoice payment process. The BW edition invoice portal provides an enterprise grade out of the box invoice payment experience the new invoice portal serves as a vital beam to be addition component of our call.

Prehensile suite of functionality that enhances the online selling experience for beta E businesses.

A number of exciting new enterprise customers launched in Q3.

Notable examples include Cold water Creek, a leading U S women's apparel retailer, which launched a new e-commerce site with a modernized tech stack and elevated brand book.

<unk> U K luxury fashion retailer Harvey Nichols launched a new headless storefront with e-commerce.

Nichols is digital transformation improves customer experience loyalty program integration and inventory visibility for shipping and in store pickup.

He beverages, a leading Australian beverage company launched two new websites on Big Commerce Club connect uses our BTB edition product to allow sports clubs to register on purchase beverages, and our credit to be redeemed against future purchases or withdrawn its cash drinks part as a platform for company staff friends and family to purchase Asahi beverages.

Next at a reduced price or by redeeming points.

Leading UK fashion and apparel brand livestock launched new Composedly site, leveraging big Commerce partners. Your storefront Cam plants and add yen. We also added several new customers to the feed and omics roster, including the Dom Vista outdoors, LG skull candy and build a bear.

This sample of recent customer wins product announcements and industry recognition reflects the strength and differentiation of our open SaaS strategy, we aim to deliver our brand promise up enterprise ecommerce simplify our.

Our agency and tech partner ecosystem widely agrees that unlike the commerce competing enterprise platforms aren't simple.

And competing simple platforms aren't enterprise.

The commerce combines true enterprise functionality and flexibility with unprecedented simplicity.

We're differentiated in five key e-commerce, and Paradise, and which we believe that commerce possesses industry leading capabilities.

Engage the first imperative describes how we enable customers to create compelling brand enhancing digital experiences for their consumers.

As a leader in both compose of all Commerce and no one low code fully hosted commerce, we offer the unique capability to create great user experiences leveraging both build models and the same multi storefront account in Q3 across all enterprise stores, using our hosted <unk> stem cell platform checkout and flagship payment.

Officers.

Our customer's site wide conversion rate averaged $2, six 9%, which is 34% higher than the Q3 Internet average according to IRI ecommerce simply put big Commerce enterprise customers, great and design beautiful sites that on average significantly outperform their competition.

Attract the second imperative described how our subsidiary feed and Omics enables customers to attract incremental site traffic and sales through the world's leading advertising and marketplace channels on.

On average the genomics customers reported 10% to 20% increase in traffic conversion and sales from the channels, including search social display affiliate and more than 180 marketplaces no. Other enterprise platform has a comparable offering to substantially improved top line sales.

And marketing return on Ad spend.

Convert the third and paradigm demonstrates our ability to convert shoppers in.

In Q3, Sitewide checkout conversion for enterprise customers, using our native checkout and flagship payment processors averaged 61, 4%.

That 61% checkout conversion is substantially better and claims made by one of our largest competitors, we deliver higher checkout conversion due to an optimized one page experience choice of best in market payment providers optimal integration and unmatched customization capabilities for SaaS platform.

For <unk> conversion or BTB buyer portal and recently released invoice portal further extend the capabilities that are widely being rated among the best in <unk> E Commerce by IDC Forrester paradigm and G tube.

X span the fourth and paradigm focuses on our multi storefront capabilities, we make it easier than ever to grow from one to many storefronts as companies add new branded sites geographies <unk> segments like B to B plus B to C Tech.

Taken to an extreme our commerce as a service offering even allows customers and partners to serve dozens or hundreds of different stores.

Finally operate our fifth imperative describes the performance cost and efficiency advantages of operating on Big Commerce and a recent total economic impact report Forrester research quantified and averaged 90% reduction in development cost and 30% reduction in catalog and merchandising management costs relative to legacy enterprise.

Platforms with best in class reported uptime scalability and security certification, we simplify the task of achieving world class performance at low total cost of ownership.

To advance, our leading capabilities and site design and user experience. We recently completed the acquisition of make Swift the world's most powerful visual editor for next J S websites make swift will become an optional component of can postpone big Commerce belt early next year and thereafter, a part of our natively hosting.

Editing tool kit. This is a strategic acquisition for our business that enables us to more fully deliver our promise enterprise ecommerce simplified.

It makes lift will bring to ecommerce unprecedented true enterprise multiuser visual design publishing and no code editing Dell for next JF make Swift gives developers the ability to construct and deploy custom react components that push the boundaries of dynamic shopper experience and make any component visually editable.

It also makes advanced editing accessible to marketers and merchandisers without coat, including animation and optimizations for every device type the combination of <unk> react and make Swift Power's native Google lighthouse scores of 99 to 100 out of the box.

<unk> is fully compostable, so it can integrate with leading content management systems to power site content and it will remain available for purchase directly including for customers on competing e-commerce platforms with unprecedented visual editing collaboration publishing and performance capabilities that commerce, what makes what is the fee.

<unk> of no code enterprise ecommerce visual design.

I am encouraged by the financial and strategic progress we have made in our business. This year, despite macro economic headwinds I'd now like to share a bit more detail on where those headwinds have been salt and why I have such confidence that we can return to stronger accelerating growth rate broadly speaking I will classify it impacts two first.

Online consumer spending and second business spending and investment.

We have seen continued tighter e-commerce order and <unk> growth in 2023 than the pre pandemic trend line. This is led to fewer orders and <unk> based pricing upgrades compared to prior years and it has impacted partner and services revenue growth more than originally anticipated going into the year. We have also seen the effect of a tight business spending.

Environment as we discussed on our Q2 call we've experienced an uptick in existing customers seeking to reduce committed order volumes in exchange for lower pricing in many cases, we have pursued the same approach ourselves a big commerce by renegotiating and reducing our software vendor opex costs and most downgrades we are successfully re.

<unk> customers, while negotiating more favorable prepayment and price per order terms.

Smaller customers have chosen to delay or cancel projects as a result of macro conditions customers are spending more time vetting and evaluating platform investments and these factors have contributed to enterprise are are not ramping as quickly as we'd hoped during 2023.

I have confidence that this business can return to 20% plus revenue growth and reach a healthy and balanced profitable growth profile as we drive better go to market execution and ecommerce settled into a new long term growth trend line my.

My intent and providing this commentary is not to attribute performance solely to macro conditions.

Internally, we are responsible for results no matter the economic conditions.

We have much to be proud of in 2023, particularly with respect to improvements in profitability and cash flow, but we have not achieved our full growth potential and we are laser focused on the improvements that can get us there.

Leading our go to market improvements as our recently hired President Steven Chang.

Foundation for Stephens growth strategy is a success and satisfaction of existing customers. Their success earns the right to expand account relationships, yielding higher net revenue retention cross sell and upsell and industry evangelization.

Steven and team are focused on three proven growth strategies first land and expand where we grow overtime the depth and breadth of our relationship with our successful mid market and enterprise customers.

Second multi product sales that leverage feed and Omics make swift partner product cross sell and new add on products.

Third improved efficiency of our international expansion.

We have arguably been over indexed historically on new customer acquisition, driven by expenditures and digital marketing and sales.

Over the last four years, approximately 60% to 70% of subscription <unk> expansion has come from acquisition of new customers with the remaining 30% to 40% coming from expansion of existing accounts we.

We would like to change this mix in favor of existing account expansion.

Greater attention to the success and satisfaction assigned accounts will enable us to expand relationships to incorporate new brands geographies customer segments and business model. This account growth model has the highest relevance to our enterprise customers and can deliver continued improvement in net revenue retention and profitability to.

To be clear this account expansion growth model does not lessen our commitment to our small business customers. We will continue to support our small business customers with an efficient digital first engagement model, we remain the industry best platform for fast growing and sophisticated small businesses that require more flexibility in product capabilities. These customers in.

Many cases evolved into a strong enterprise accounts as their businesses grow with that commerce.

Next I'd like to turn it over to Daniel to discuss our financial results in more detail and conclude with our updated guidance for Q4 and 2023.

Thanks, Brent and thank you everyone for joining us today during my prepared remarks, I will cover our Q3 results in detail and provide additional detail on our progress through the year, both where we are showing strengthening trends and where we need to improve and provide updated guidance for the remainder of the year.

In Q3 total revenue was just above $78 million up 8% year over year.

Subscription revenue grew 10% year over year to approximately $59 million, while partner in services revenue or <unk> was up 1% year over year to just over $19 million.

Revenue in all of the Americas was up 7%, while EMEA revenue grew 23% and APAC revenue was up 2% compared to prior year.

As Brent mentioned previously we came within a photo finish of adjusted EBITDA breakeven a quarter earlier than previously anticipated, finishing Q3 at negative 102000 or negative 0.1% adjusted EBITDA margin that represents a 313 basis point improvement to adjusted EBITDA margin quarter over quarter.

And we have improved adjusted EBITDA margins 375 basis points on average over each of the past five consecutive quarters. We have also made significant progress on earnings and revenue quality over the last year.

This is the third quarter in a row that we have seen notable improvement in deferred revenue deferred revenue increased $3 million sequentially compared to Q2 2023.

And is up 85% compared to Q3 2022, we've also seen significant improvement in working capital prepayment levels are roughly three times higher as a percentage of subscription <unk> compared to Q3 2022 and provision for expected credit losses has realized a year over year improvement of five 5 million versus Q3.

22, or an improvement of 302 basis points as a percentage of accounts receivable over that time period.

This progress is continued evidence of our commitment and focus to operating a profitable long term growth business and as evident in the underlying improvement to our operating cash flow as well.

I'll now review, our non-GAAP Kpis, our <unk> grew to approximately $332 million up 9% year over year that represents a sequential growth in total <unk> of just over $1 million enterprise account <unk> was approximately $241 million up 11% year over year.

Subscription <unk> was up $1 million or 0.4% versus Q2 and up 10% year over year.

At the end of Q3, we reported 5951 enterprise accounts up 391 accounts or 7% year over year ARPA or average revenue per account for enterprise accounts was 4400 $31 up 4% 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.

Q3 total cost of revenue was $17 7 million up approximately 265000 sequentially from Q2 Q3 total operating expenses were $61 5 million also up approximately 178000 sequentially from Q to.

Q3, gross margin was 77% essentially flat versus the previous year, while gross profit was $60 3 million up 8% year over year.

In Q3 sales and marketing expenses totaled $32 6 million down approximately 92000 year over year.

This represented 42% of revenue down 339 basis points from a year ago.

Research and development expenses were $17 6 million or 23% of revenue down 386 basis points from a year ago and down slightly from Q2.

General and administrative expenses were $11 3 million or 14% of revenue down 710 basis points from a year ago.

In Q3, we reported an operating loss of $1 2 million a negative one 5% operating margin. This compares with an operating loss of $11 5 million or a negative $15, 9% operating margin in the prior year and an operating loss of $3 4 million or a negative four 5% operating margin in the <unk>.

Higher quarter.

Again, adjusted EBITDA was negative 102000, and negative 0.1% adjusted EBITDA margin compared to negative $10 5 million and a negative 14, 5% adjusted EBITDA margin in the prior year.

non-GAAP net income for Q3 was 686000 or positive <unk> <unk> per share compared to negative $11 2 million or negative <unk> 15 per share last year.

We ended Q3 with approximately $266 million in cash cash equivalents restricted cash and marketable securities for the three months ended September 32023, operating cash flow was negative $31 4 million compared to negative $50 8 million a year ago.

We reported free cash flow of negative $32 5 million, which compares to negative $51 5 million in Q3 2022 notes.

Note that excluding the approximately $33 million.

Our final payment for the <unk> acquisition operating cash flow would have been positive in Q3.

Results also include certain significant annual payments, such as $4 million in insurance premiums, including our D&O cyber and EPL policies.

I would now like to address the progress made against our 2023 financial plan share additional details on our acquisition of mixed Swift and our restructuring and conclude with an updated view on guidance.

Once again, 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 also stabilizing the small business portion of our business as I said last quarter small business has been performing ahead of our expectations and we.

We remain confident that business will remain healthy and build many future enterprise accounts for us as well we have not however, seeing the ramp in mid market and enterprise that we wanted to see by this point of the year <unk>.

Despite the headwinds Brent addressed in his remarks sales pipelines remained healthy and win rates remained strong we continue to make significant improvements to the quality of our results and are seeing encouraging improvements in DSO and deferred revenue. Additionally, we're taking decisive action to ensure our.

Business winds up market, while delivering to spending efficiency. We require for success. We are confident these actions will improve both the pace of growth in this portion of the business and the return on investment of our go to market spending even in a continued challenging macroeconomic climate.

Second we nearly hit our goal of positive adjusted EBITDA, a full quarter early finishing at negative 102000 in Q3 2023.

Operating expenses are down 9% year over year that reflects an improvement of 1442 basis points of adjusted EBITDA margin in just one year and we've averaged a sequential improvement of 375 basis points of operating margin over the last five quarters as a result of the restructuring announced today, we also anticipate.

<unk> margin improvement in Q4, 2023, and beyond which I will discuss in further detail shortly.

Third.

We are taking steps to drive healthy consistent cash flow generation as I mentioned previously we are focused on driving cash flow improvements through prioritizing advanced billing on new subscriptions investing in our quote to cash systems and processes, maintaining tight discipline around accounts receivable and collections and adjusting prices I'm very encouraged by our progress.

In this area as I highlighted earlier and many of the ways the improvement in revenue and earnings quality is evident in our financial results.

As part of our effort to drive improved results and evolve our go to market approach today, we announced a restructuring that affects approximately 7% of our global workforce.

Head count and non head count reductions impact all teams across the company sales and marketing spending we will see the largest impact as a result of the go to market improvement Brent discussed.

Q3, 2023 results include a one time charge of $5 5 million, resulting from severance and other related charges. We also expect associated onetime operating cash flow impacts of approximately $3 1 million in Q4, 2023, and $2 1 billion in fiscal year 2024, respectively.

This was an incredibly difficult decision for Brent and I to make and this affects many outstanding teammates that have made significant contributions to our business. We are confident however that this action best positions Big Commerce for continued profitable growth heading into 2024, even in the prospect of continued macroeconomic challenges.

Finally, we acquired make Swift visual No-code builder for next J S, which makes any react component visually editable.

We believe makes Swift will help propel big commerce forward competitively and site design and user experience.

Price of approximately $9 billion in cash will be reflected in Q4 2023 cash flow results and will not have a material impact to financial results in Q4.

I'll now share an updated view on our outlook and guidance for the fourth quarter and full year 2023 for.

For the fourth quarter, we expect total revenue in the range of $79 8 million to $83 8 million, implying a year over year growth rate of 10% to 16% for the full year 2023, we expect total revenue between 305 million to $309 million translating to a year over year growth rate of approximately nine.

211%.

For Q4, our non-GAAP operating income is expected to be between $1 1 million and $4 1 million.

For the full year, we expect a non-GAAP operating loss between $6 9 million and $9 9 million.

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 conclude my remarks by briefly summarizing where we see the business in 2024, and how we're building our operating plans and budgets.

We are basing our plans on the assumption that macroeconomic conditions remain a headwind in ecommerce these conditions make it imperative to run lean from a spending perspective, so that we can capitalize on the opportunity this environment presents for our business we.

We will continue to prioritize profitable revenue growth and improving cash flows we will not chase marginally higher growth rates at an outsized cost to profit and cash our recent actions to reduce cost improve our profitability and cash flow at a faster rate, while we remain positioned for a jump forward and growth in profit as macroeconomic conditions.

<unk> returned to long term e-commerce trend lines.

While we are still in the early stages of building our 2024 plans I.

I would like to share some high level thoughts on financial expectations before we issue official guidance on our Q4 call in February.

From a revenue growth perspective, we are building internal plans around growth rates in the high single digits to low double digits as discussed we expect to see a continued meaningful uplift in operating margins in Q4 2023 as reflected in our guidance range for the quarter, we expect that improvement to carry forward into Q1 2020.

For as well with operating margins continuing to grow at a slightly more moderate pace sequentially throughout the rest of the year. We also expect to see operating cash flow results track ahead of underlying non-GAAP operating income results apart from relatively small onetime items, such as to make Swift acquisition and modest investments in our go to market systems and data.

Sure.

I am confident in the long term growth prospects for this business without doubt 2023 has been a challenging year, both for big Commerce and the broader global economy. We.

We have made significant progress improving the profitability and cash generation of this business and I would like to give a sincere. Thank you for the tremendous hard work required of our entire big Commerce team that was needed to deliver that we have much to be proud of yet we are far from reaching our potential we can and will drive improved revenue.

Growth in this business and we will do so profitably for our shareholders with that Britain and I are happy to take any of your questions operator.

We will now begin the question and answer session.

I ask a question you May press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.

Okay.

Our first question comes from <unk>.

Please go ahead.

Great. Good morning, guys. This is <unk> on for Terry I appreciate you taking the questions.

First one is kind of dig into that.

Some of the revenue trends for next year really appreciate the high level color there Daniel.

In particular on PSL or some of the visibility into next year, maybe some puts and takes around the drivers of this number and then maybe how the partner ecosystem is kind of progressing there and if theres any emerging partners that are helping the business on the side.

Yeah, I'll speak to the trends and then Brent can take the question about the partner system I would say subscription in PSA, we think can be pretty balanced in terms of similar growth rates to what we outlined in the prepared remarks between subscription and <unk>.

We're encouraged by what's going on there, but again, we're going to take a little bit of a conservative outlook, there and just based on how where macro trends are growing heading any heading into next year. We also have a long way to go before we finalize our plans for next year and we will have a lot more to share on that when we get to our call in February.

In terms of the partner categories, where we're seeing lots of great traction.

Traction both in what we're doing strategically with partners as well as what it can mean for <unk>.

Foundations have always been payments partners, including <unk>.

Both all the leading ones in North America, Australia, New Zealand and EMEA as well as.

Traditional banks and syntax shipping and fulfillment partners.

RP partners are growing very substantially with us. Thanks in part to our leadership capabilities in B to B and then everything around composer Bowl and compose the bowl.

Infrastructure like search content management systems and even.

Potentially hosting partners for Composedly build those are fantastic categories for us and then the final unlocked that we're looking forward to next year is the release of <unk>.

The automated billing, where we can and thats.

<unk> add third party apps and billing when they are simple and subscription based to the big Commerce spill, that's analogous to how it works on your iPhone when you use an app there.

Billing almost always goes through Apple pay or you know I think comparably for Android phones and that capability is in the final stages of development for us for sort of beta release early next year.

Got it thanks for the question I appreciate that.

Yes of course.

Maybe just one quick follow up you've had a lot of capability of the <unk> suite this quarter with BP invoice portal for enterprise just.

Curious on what trends you've been seeing in this market, that's kind of giving you the confidence to keep investing there and then maybe just from a broader perspective as you think about <unk> to be increasingly becoming a bigger part of the story, maybe not just forbid commerce.

Should we think of that for merchants as well as they want to kind of diversify their business isn't albeit a bit into the future. Thanks guys.

Yeah, the opportunity for US is incredible before big Commerce as a SaaS platform really entered the <unk> market a couple of years ago. The.

The options available to industrial companies be sellers were almost entirely on premise software like magenta is a generalized platform or niche <unk> specialist platforms that tended to be feature light and quite expensive and cumbersome.

The b to B world truly needed in open SaaS platform that bought all of the ease of use low ownership costs.

But most importantly built in modern user interfaces that can come from our BDC platform and Thats. What we have done I would really highlight for praise our product and engineering leaders in b to b because their pace of innovation is really extraordinary I think it's the best in general ecommerce and B to B.

And as well the problems and the way they've solved them naturally usability of our buyer portal and our invoicing portal are exceptional and getting great feedback from the customers. Many hundreds if not thousands who have adopted him so far.

The final point is around B to B of course, it is in total sales roughly on par with b to C globally, but well behind in its adoption curve something like a third of all.

<unk> to be sellers have yet to adopt e-commerce and many of those who have have adopted it rather sub optimally and when you just think of the potential for usability improvements for their customers.

Cost savings efficiency from when fully rolled out there is a very bright future for <unk> and we intend to be the leader in that.

Thanks.

Thank you.

Yes.

The next question comes from Clarke Jeffries from Piper Sandler. Please go ahead.

Hello, Thank you for taking the question.

Brent you touched on the mix of that it has historically come from new customer acquisition versus up sell.

I was wondering if you could maybe.

Give us some insight to where you think you could get that percentage of IRR coming from up selling in the near term.

And if you could help us think about what is the main up sell path you see for the revenue base today that the biggest opportunity or low hanging fruit is that fee dynamics or any other specific upsell that seems to be the greatest opportunity near term and then I have one falls for Daniel.

Great, Yes, we're going to focus on both upsell and cross sell upsell is when we start with an initial sale to mid market or a large enterprise customer for a single store implementation.

And then get that live and successful the merchant happy.

And then explore other brands or sub brands other geographies and or other customer use cases, like adding b to b to b to C. We have extraordinary competitive advantage in this area because of our native multi storefront capabilities, where you can do any or all of those use cases on a single <unk>.

Leveraging a common set of integrations, but then very modestly or significantly more.

<unk> the actual languages currencies user experiences.

Even integration partners as necessary across the different storefronts. So that's upsell and it has the greatest potential with mid market and enterprise customers. Although we have also introduced and democratized that multi storefront capability even for our SMB plans Cross sell is then when we bring in.

Additional.

Our partner products.

Licensed products, our own products to those same account so in the world of owned products. The really big ones are of course feed anomic for Omnichannel.

Integrations into leading AD channels and marketplace channels now makes with the acquisition of which we just announced today and then we have a number of other internal products related to insights and data management et cetera that we can also cross sell licensed products are then partner products that we can.

We sell out our own pricing and on our own paper and then third party products. The number one way we get partner revenue was of course payments followed by shipping followed by.

Really more than a thousand apps and partners and our apps marketplace I answered that question prior to death, but the cross sell is looking to advise and assist our customers on the ecosystem.

The capabilities that are most conducive to their growth and profitability and helping them get on those and ways to grow their business and ours as well.

Perfect. So it sounds like multiple ways to bring that percentage up not just say the.

Phil motion.

Daniel I wanted to ask if you could frame that.

Opex growth after the restructuring.

What will you be targeting in terms of opex growth either sequentially or year over year.

On a like for like basis, or maybe said another way what investment level are you planning for that high single digit or low double digit.

Gross revenue framework for next year.

Yeah. Thanks for the question Clarke, let me answer that a bit by building on Brents point, because I think there's a really important point to understand about our business and why we're making this.

Really a focus on cross sell upsell. The fact that we have such a big percentage of our revenue growth coming from new customers, which comes with a higher cost of acquisition, particularly in sales and marketing part of where we're looking to grow leverage in this business is by getting more in kind of the main strike zone of where <unk> SaaS typically is where more.

More than half and we'd like to see substantially more than half of our revenue growth come from existing customers because it comes at a much more favorable.

Sales and marketing leverage point of view and then when I think about what that means for us for Opex next year, we're hoping that we can get another up to five to nine points of additional <unk>.

Growth in operating margins next year, that's what's implied when we talked about the growth numbers for next year.

When I step back and just think about the quarter as a whole kind of the headline from my point of view on this.

I think the quarter really reflects the commitment to leverage that we called out very clearly going into the year. It was going to be the main focus of our efforts this fiscal year.

Highlight two areas in particular one.

Apart from the roughly $33 million of final acquisition payment to feed a nymex, which was an operating cash flow. We had positive operating cash flow for the second consecutive quarter, which is a huge improvement versus where we were last year that also even includes several million dollars in annual payments for this and that.

Which is really really strong secondly.

We got to our profit go roughly a quarter early which is a 19 point improvement in operating margins compared to where we were just a little over a year ago and to be clear, we're not stopping there the restructuring that we took I think reflects the commitment.

Our ongoing commitment to this this is not a 2023 thing Brett and I are very very committed to running a profitable growing business with strong operating cash flows and I think that we can continue to do that and I. When I look at operating expense growth I think we're going to see the most leverage going into next year, particularly in sales and marketing we've had really.

I think solid results there in R&D and G&A. This year, we want to see a little more as well next year, but based on the restructuring we've taken in the playbook that Steven is very excited to lead I think we'll see especially disproportionate leverage growth extra in sales and marketing.

Really appreciate the color.

Yep.

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

Hi, This is robin really after Scott. Thanks for taking the question with three key results in mind any commentary regarding the overall sales environment and how to use perform relative to international.

You're starting to see some of the benefits of your international go to market investments that you've mentioned a couple of quarters ago.

Yeah.

As is typical you have certain.

Regions of the world that over perform in any given quarter and others that are not quite as strong U S was solid Asia Pacific was particularly strong last quarter.

Sort of differs from country to country overall, what we're observing in the market is a continued high win rate for US we have historically had high win rates relative to the average in E. Commerce, we continue to have high win rates.

<unk>.

Cycle time, though for enterprise remains a long dated as we've commented in prior quarters, it's elongated even slightly in midmarket hopefully that's a temporary thing, but as a general rule.

Sales is.

<unk> is going well and I think I think I would emphasize is our broad set of go to market changes that Steven has introduced.

Our around value marketing and selling rather than solution marketing and selling and I went into details on many of our strong value statements in the prepared remarks, the land and expand strategy the.

Fixation and leadership up with customer success is the foundation for all of that.

And improved engagement of our reference of all merchants.

Events and industry selling opportunities all of that is meant to be strongly additive to where we are today to build a much bigger pipeline I think if we can build a much bigger pipeline than even just maintain our win rates let alone grow them, then that will be a strong way to add.

<unk>.

Big growth to our existing run rate in the year and years ahead.

Thanks for the question.

Thank you that's all for me.

The next question comes from D. J Hynes of Canaccord. Please go ahead.

Hey, guys.

Two questions for you so.

Look I think we all know who the key enterprise players are in this space I'm curious if youre seeing shopify is starting to show up any more on your mid market and enterprise Rfps I mean, they're obviously talking more about compose about commerce and had less so I'm wondering if that's translating to what youre seeing in the field.

Less so for headless, yes for mid market.

Enterprise It just depends on the complexity there are a lot of things that they can't do on enterprise like multi storefront, which just disqualify them from certain opportunities.

So we'll see them a little bit more in that arena I would sort of switching to us I would highlight as indicators of just how powerful our platform is and what we can do some of the merchant launches that we announced this quarter I'm just taking the apparel category there were three really extraordinary.

Scenario ones that.

That showcase our strength in enterprise Harvey Nichols.

Is the iconic leading luxury department store in the UK.

They went live with a really beautiful digital transformation that takes full advantage of buy online pickup in store that you can actually look up what inventory is in each store. They have the ability when they have just one size of one item and one store to know that ship that from the warehouse to the consumer if the consumer isn't picking up in store.

It's a really great use case white stuff you may not know them here in the U S, but they're almost 150 stores across the.

The U K and Ireland.

Phenomenal.

Transformative best in breed compose the bowl implementation using partners of ours <unk> storefront.

Cam plants for CMS and add yearn for payments.

Went live with that full transformation in an extraordinarily fast time, and they love getting up on stage and saying how easy it is.

Do had less with our best of breed implementation, we just picked the right platform and the right partners, which white stuff did and then Coldwater creek's a great American apparel brand that's been around since 1984, so almost 40 years and they did a full transformation with us as well and these are just great examples of how.

The commerce is not limited to.

Very simple use cases or direct to consumer companies, but really some of the leading store base retailers and long standing apparel brands.

And being able to digitally transform themselves in a way that works with their business models and legacy systems.

Okay I appreciate the color there and then the second question.

Look the message is very clear that the focus is going to be an efficient growth I mean, obviously you announced the restructuring today.

But it also coincides with you are bringing Stephen into drive alignment and improvement in the go to market organization with you would you touched on any worry that this.

Kind of cost efficiency kind of hamstrings visibility to effect change in the organization.

No it's the opposite.

If somebody comes in and has a really transformative successful proven playbook.

But it doesn't have the opportunity to make.

Major change organizationally, that's what hamstring some and it so happens that by doing this restructuring across the company, we have taken out layers and we have done far more organizational.

Sort of actual restructuring actual optimization, then we did a year ago. When it was largely just efficiency and cost.

Reduction so Stephen is actually making the structural changes in customer support and marketing in sales and bringing things together around ownership in ways that wouldn't have been possible before so I think he's liberated by des and it's.

As hard as it is to say goodbye to great long standing contributors, including a number of senior leaders, who are responsible for getting us to where we are today. This is really an important launching point for the future, where we're going to enter next year with the structure and the team in place to implement.

These go to market improvements, it's very helpful. In that regard, let me build on that point, just a little bit what I would also add.

What we have done in the restructuring and the cost associated with that the cost savings is a reflection of the form of the restructuring we are not taking out so much cost that we believe that this is going to hamstring our ability to reaccelerate revenue growth and really have this be a profitable fast growing company.

I said earlier this model reflects a lower cost of acquisition by focusing on expanding existing customers, we are still going to be investing.

Significantly in continuing to move up market and Midmarket in enterprise the cost savings here is really a reflection of the restructure its not a reflection of our.

Intent or <unk>.

A desire to pull back on our efforts moving up market and our commitment to expanding revenue growth. That's a long term commitment and something we're very very focused on.

Oh, Okay that makes sense. Thank you guys.

Okay.

The next question comes from Raimo <unk> with Barclays. Please go ahead.

Hey, Thank you.

Can I stay on that subject for one more second and one more question.

How do we think about then the ego of customer acquisitions, if I look at your enterprise additions in terms of like new customers this quarter with probably lower than we've seen for a while is that kind of part of the new strategy and that's kind of a new run rate you need to think about as you think about more kind of going back.

<unk> installed base can you just give us some some godfrey to spirit.

Maybe thank you then I have one follow up.

Yeah, all right well. Thank you for the question I'm glad you asked that I would like to clarify that a little bit in terms of the ads. The the number of ads as a net number if you look at where we are at this point in the year.

Not at the the revenue numbers the growth numbers that we want it going into the year.

But we are very close to where we expect it to be from a new customer point of view, what we're really seeing in that number is more of a reflection of macroeconomic conditions, especially on some of our smaller mid market customers, where they've had to take some decisions either in cost cutting where they've canceled projects potentially where if they have a site that hasnt been profitable very analogous to some of the cost savings things that we have been.

<unk> as well so if I look at the pace of net adds obviously it was not as.

Not as much there as we would normally want to see sequentially, but that was more driven by some of the macro conditions with existing customers than it is the pace of adding new customers, which again is not quite where we wanted it to be at this point of the year, but you would.

It's more of a reflection of the macro then it is pace of new customers is that helpful. Right, Yes, yes.

Yes, that's really helpful. And then maybe one follow up for Brent.

If you think as you think going forward and you keep pushing up in the mid market what do you see in terms of.

The willingness of customers to kind of move on because you're obviously going to get magenta.

And then more some of those systems are getting pretty old.

But it's always tough to change systems.

And the economic downturn, but what do you see in terms of maturing of that market or like getting ready of that market's going to move onto more more than like Europe. Thank you.

All the best.

Yeah. Thanks, it's easy to see from belt with there are others that are in the Genco has been in a an adobe has been in a decline in terms of merchant count for probably three or four years now, but they start from such a large base in the hundreds of thousands you know really multiples of our own merchant count.

That.

We're a long way from all of those who once anchored on on premise software getting off it into SaaS and they all still want to do that and many of course will unless theyre, so customized and require so much flexibility they simply have to have.

The code on premise to modify at all so there's there's going to be a lot of exits for years to come and migrations off of various versions of on premise software, including magenta.

Salesforce, it's harder for me to tell I don't have direct visibility.

I think the challenge is demand where when it was an independent company was truly a market leader and Steven Chung was.

Played an instrumental part in helping them become that and then since Salesforce has bought them. The organization spend split up the pace of innovation has been slow there definitely don't have modern capabilities like graph QL across their infrastructure.

And so companies, who choose them or doing it based on an aggregate I think salesforce relationship and so on there are advantages to that as opposed to the platform itself.

Being market, leading and that's a great place for us to compete against.

Okay perfect. Thank you.

Okay.

The next question comes from Koji Ikeda from Bank of America Securities. Please go ahead.

Hi, This is George on for Koji. Thanks for taking my question.

I was hoping you.

You know to talk about in light of.

The restructuring and then you know.

Could you also speak to you know maybe other changes in the go to market function.

And how that's shaping how you're going to market.

With enterprise customers, whether that changes in incentives or things of that nature.

Yeah, I'll take that so let me start by saying the foundation for our new go to market model is customer success customer ownership.

All the way through from the pre sale and sale process.

<unk> implementation to post implementation then relationship building.

And upsell and cross sell.

Historically, we had organizational silos between marketing sales and customer success. It's all now part of one organization and the AE and the solutions engineer, who sell our customer are going to retain not just customer ownership.

Through implementation and post implementation, but also the actual metrics right and so we are changing the metrics for ownership to include retained account ownership, they're responsible for net retention not meaning.

You suffer if there are downgrades or churn in your benefit when there is upsell cross sell at cetera account growth in terms of volumes, that's really important so I've gotten to the cross functional ownership of customers and customer success is the foundation land and expand including the metrics that will go in and stay.

With sales and customer support and that.

I talked a lot about value selling and so this doesn't go to metrics that we manage our employees with.

Instead goes to the metrics that we put on our website and that we incorporate into.

The sales process with customers I would really emphasize that.

As we analyze our own enterprise customers across the company. They do have sitewide conversion that is 34% above the internet average.

In Q3, that's extraordinary checkout conversion of 61, 4% in Q3 that is far above any stated benchmarks for the internet and competition.

The feed and Omics.

Statistics of 10% to 20% sales traffic and conversion left through.

Through the leading Omnichannel AD networks and marketplaces that merchants use.

We're really bringing stick.

Statistics into the sales process and into how we optimize our own product and service delivery to the benefit of our customers and a final point I would say is.

Historically.

We.

We're much more of an inbound.

<unk> sales company.

And going forward Stephens, bringing his excellence and outbound and sort of hunting in knocking on doors in opportunity creation by the sales team and what was really magical into demand where days as the way they brought their own existing rep.

<unk> are all happy merchants to industry events and to sales opportunities and that's a part of the playbook that we want to leverage ourselves because we do have.

Great customer happiness and success I'll just conclude this point by pointing back to two of the recent awards that were in the earnings script, one was IDC, giving us a SaaS seats out award in digital Commerce and then so that's for real Quotable enterprise customers and then trust radios for the fourth straight year.

Naming us top rated which is our merchants going and saying on trust radius that they love our service.

We haven't historically brought those happy merchants into the event and sales process the way Steven and demand we're dead back in the day and we're going to do that here.

Thanks.

Thank you. Thank you that's very helpful.

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

Hey, guys. Thanks for taking the question here, Brent you called out certain new customers pushing launch it into a <unk>. After the holiday season, I'm curious is that simply a cost dynamic perhaps trying to save money on the servicing side or if there's something else at play there.

No. These customers are so large.

That.

They were nervous about doing something doing a launch a month or two before peak holiday season that was just their own sense of if we want to be 100% ready.

Have a 100% of all.

You know sort of progressions tested every bit of functionality ready to rock and roll and.

I'll just mention the holiday season nail it and then launch in January so the hope and expectation is that's what happens.

Got it thanks.

Yeah.

The next question comes from Samad Samana of Jefferies. Please go ahead.

Hey, guys. This is Jeremy on for some models.

Maybe on the macro weakness.

Has that worsened at all from the close of the quarter through October or November can you talk about what youre seeing there.

Thanks for the question, Jeremy I'd say no I'd say, it's been pretty consistent we have seen the dynamics that we talked about in the prepared remarks, I think we've seen pretty consistently across the year I've been paying attention to different.

Results that have been coming out from peers as well commentary from economists and banks and the like I'd say, it's pretty consistent we're not seeing things getting worse, but we're also not seeing things get substantially better which is part of why we put in our remarks in our kind of early outlook for next year that we are basing our plans on the expectation that we need to run.

The business in similar conditions to what we've experienced this.

This year, what I would add on top of that and something that I've been pretty pleased about it just from a financial management point of view, we've really positioned ourselves very very well going into next year I would argue from a macro point of view the way that we're approaching.

Billings with customers the way that we are managing collections. The way that we are handling cost we've gotten to profitability a quarter earlier than we have expected without the hitting some of the topline goals that we set as a company at the beginning of the year and Thats just been through really tenacious cost management and disciplined in how we're running the business, which is something that Brent and I.

I made a point of stressing throughout the company throughout the year and we're really really proud of the work that our team has accomplished in doing that but I think that does going into next year. However, as if we're running our business that way and we're set up financially such that we can get to the profit expansion, we talked about re accelerating revenue growth the way that we've talked about while doing so in potentially.

Persistent.

Challenging macroeconomic climate, when we start getting back to our long term growth trends in E. Commerce, we're really positioned with a really high gross margin business to throw off a lot of additional leverage on top of that once we start getting back to what I would argue a more normal revenue growth rates for us. So I think in a lot of ways. This has been a year, that's been about getting lean getting efficient and weathering through some tight.

Conditions that we expect to continue going into next year and I'll be.

Pleasantly surprised if it gets better or faster than we're planning.

Got it that's useful color.

I guess on that previous question I have to say one maybe asked a slightly different way can you size the impact of those pushed deals on the quarter.

Is there any chance on getting pushed out further than <unk>.

I'd say, it's probably around a point of growth, maybe a little bit less than that not so material that it would have dramatically changed the quarter necessarily.

Material, but I mean, it matters, but it doesn't.

James the overall themes of the quarters could it push potentially I mean sure. If that's possible, we don't anticipate that but we'll see how things go with with these particular customers once we get out of the holiday period.

Does that mean, the larger point is we want to make sure. They are ready and they are successful when they go live and if that's a loop a month later than I would want as the CFO if thats whats right for the customer that's what we're going to encourage the customer to do.

That's useful color thanks, guys.

Our next question comes from Maddie Schrage of Keybanc capital markets. Please go ahead.

Hey, guys and thanks for taking the question I was just wondering my first question is could you guys comment a bit on what you're seeing in terms of consumer spending.

Starting in <unk> that between October and November that Youre seeing so far thanks.

I'd say overall, it's been steady.

It hasn't been I think what we're seeing is for the most part pretty in line with what ecommerce prints that I've read in general have been putting out.

Like to see it a little bit stronger, obviously compared to where we were going for where we wanted it to be going into the year, but I don't think that the trend is getting any worse I think it's been pretty consistent with where it's been throughout the year.

Cautiously optimistic going into the holiday period, but honestly until we get through cyber week, you really can't read too much into what's going on in October you really need to get to the end of November.

Super Helpful. And then my second question for you guys could you talk a bit about some of the characteristics of the businesses that you're seeing that are slowing their implementation or dropping off completely.

I know you guys had mentioned that some of it some of the smaller businesses, but wondering if also some of the larger enterprise businesses are in that mix. Thanks.

For downgrades.

The most common scenario.

As a customer who came on with us in the.

Gogo years, 'twenty, 2020 'twenty, one where the pandemic have the economy shut down and.

There was a temporary over indexation to e-commerce for all the reasons, we understand they negotiated contracts with expectations of certain volumes and of course, the higher the contract you negotiate the lower the cost per transaction per order and now as the.

As we've gotten a couple of years since then for those companies who happen to negotiate something that was significantly out of line with the realized volumes.

<unk>.

Thing that all companies are doing in and out of E. Commerce is going back and looking at their software and renegotiating that.

<unk> commerce.

You know want to always do right by our customers and when they come to us in those circumstances will we'll work with them in the spirit of partnership and typically renegotiate in a way that is also favorable to us so they might get the.

The average monthly costs down, but we will get advanced prepayment as we improve our free cash flow and the efficiency of collections, maybe it's with an increase in revenue per order on our side, but that's the most typical scenario for a downgrade and the most typical scenario for churn our compass.

<unk>, who also in that period contracted.

Contracted to launch a site and now in their own profit and loss management realize hmm, maybe I'm better off not launching that site and going through the cost not just of the implementation, but then the whole.

Operation organization to scale up and E Commerce enterprise, They just decided no longer.

<unk> sits within our P&L for this year or some companies who've launched a site years ago are looking at the profitability of that operation and saying the profitability isn't there and I'd rather not own it very very rarely do we see churn.

From a live site.

To a competitor that is still a very rare exception.

And it's our hope that.

The you know sort of the downgrades in the churn that we're seeing are in some ways a <unk>.

And the backlog of some of these contracts that were signed a couple of years ago when companies just over.

<unk> forecast their own volumes and if those cycle through and return down to more sort of normal trend lines for down grades and churn then that would do wonderful things for our <unk>.

Our growth rate and so we're hoping that happens, but not factoring that into our forecast in the near term.

Very helpful. Thanks, guys.

The next question comes from Josh Baer from Morgan Stanley. Please go ahead.

Thanks for the question. So it sounds like efficiency is one of the main.

And what's driving that change.

Change in focus a little bit toward existing account expansion just wondering if that's a permanent shift.

Even if the macro environment got easier and you eventually saw.

All cycles improve in growth accelerate or is it more like a temporary reaction to the current environment and around efficiency.

I think efficiency is one aspect effectiveness is the bigger one Steven really had.

At demand, where the most effective go to market.

<unk> arguably any.

Enterprise ecommerce.

Platform in history, they were really really good at anchoring on customer success first as the foundation at the malware and then building land and expand off of that it aligns the company processes.

And interests with those of the merchants, there's no gap isn't that focus on customer success between sales and go live and that's a real partnership between us and the customer so I believe that these changes.

Our absolutely permanent and will be quite effective because they are proven and ecommerce and their proven across enterprise software company. We're not doing anything that is earth shattering. We knew this is just an evolution.

And the final stage of evolution of our company that originally began as an SMB focused.

Company and shifted the Midmarket and enterprise and this is the final step of bringing true enterprise excellence and go to market to our organization. So I its permanent I think.

Got it that's helpful and then is there.

Out of time, that's needed for Steven and teams.

The upsell motion to be in a place that they are ready to deliver.

Is there still an investment in and training.

Training.

Pat.

Thanks.

Yeah, I mean, I think we expect it's going to take a couple of quarters to kind of make some of these adjustments. These things don't necessarily happen in doesn't change overnight, we factored that in when we've kind of given a first look on how we're thinking about 2024 will be able to talk a lot more in detail about this in February but yes, it's going to require some new training, but we have a really good team here.

Long tenured that we're really excited about that I think is really going to be able to really thrive in this and we think that that is going to play itself out in our numbers and acceleration and good things for next year, we will need some time, but its normal cut over time.

Yeah.

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

Hi, Thanks for taking my question I'll keep it to one so it sounds like a feeder gnomic fuels this quarter or the bookings were pretty strong.

An update on kind of that cross sell opportunity or maybe how penetrated <unk> is into the base and how do you think about that cadence of potential cross sell going forward. Thanks, guys.

The opportunity is huge and we're still relatively early days one of the things I like a lot about Stevens mindset coming in is he is absolutely.

Absolutely chomping at the bit.

To go from solid, but still modest penetration to very high penetration. When he was a demand where he was a one product company. All they had to sell was demand where and when he came in he is like I've got at least three massive products to sell a big commerce subscription.

[noise] anomic subscription, which helps companies grow their top line through all major AD and marketplace channels, and then partner solutions, especially payments and shipping.

Makes with now makes a fourth as we've added that so that's going to be a big focus in his revised go to market model and really encouraging us in every one of our material Midmarket and enterprise.

Enterprise customers to explore the advertising channels and or the marketplace channels that are most important to each merchant doing consultations on what's economics might be able to do to lift their topline traffic and sales generation through those channels and helping those merchants to figure out how to optimally adopt.

Feed and Omics, so big big potential upside still there.

Thanks Brent.

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

Thank you very much Brent.

Interested in how widespread is that trend of accepting lower pricing and downgrades that came up a moment ago.

If you could just help us to quantify the number of customers are engaging in that and what is the percentage change you're seeing in the U S.

And Youre getting put downgrades.

Mark This is Daniel I'll take that one we're not we haven't shared the exact number of customers that are impacted by that those are.

Specific to those merchants and those contracts what I would say.

We saw the sharpest impact of this in Q2, we've seen a moderating impact of this in Q3.

We've seen adjustments it varies it could be anywhere from maybe 10% to 20% difference in price.

Not that we're having situations necessarily where the volumes were dramatically off it's just the trend line has been a little different than where.

In some cases customers expected them to be when those agreements were signed during the pandemic, but what we're seeing is really good success in retaining those customers and landing in a place where we actually have stronger agreements with those customers. When we come out of that we've worked with the customers to help them save money, which is important to them.

They've worked with us in getting to a place where we have better prepayment terms and we're always going to make sure that our pricing is set based upon volume. So if youre committed to lower volumes youre not going to get quite as advantageous to discount, but these are normal back and forth that are always going to have these types of discussions with customers. When we sign customers. This is a multiyear.

Commitment that we're making to the success of their business. So when I look about the trend when I look at the trend line on that.

It has been a meaningful impact on the year, but it's one of two or three ways that we're seeing the macro play out in the business, but we're seeing improvements in that in kind of a lessening impact theres only so much of this that you need to kind of get through your base when you're making these adjustments. So we factored that into our outlook for next year, but this isn't something that is.

It's one factor were looking at when we think about planning next year, but it's not something that's necessarily keeping me up at night at the greater expense or anything else that we're thinking through.

Okay, Yes that makes sense and then.

I have a follow up I'm wondering if you could just click a little deeper on how you are reading the health of the consumer in this lead up to Black Friday, and cyber Monday because.

Are you expecting it is going to be a little tougher season than last year, and then pre pandemic.

In the context of the two.

Shouldn't that loan moratorium ending.

There was the auto workers strike, you've got the credit card delinquencies, increasing theres. Some bankruptcies that are that are rising.

I think you sounded a little more.

So maybe a little more calm on that topic, then I might have thought.

How are you.

What are you factoring into the forecast here for Q4, along those lines.

This is Brent as a humble economics major <unk>.

30 years ago.

I would say in my 30 plus years of following the American consumer.

I would say that there is there is nothing on planet Earth.

More consistently powerful than the American consumers desire to maintain their living standards and continue spending through economic ups and downs in every recession, we have had.

The American consumer has kept spending and kept being the engine of health not just to our economy, but the global economy, that's happening right now in a high interest rate high inflation environment.

So the American consumer generally stays strong and keep spending now the big question for US is how much of that spend is offline versus online and what we have seen.

The reopening of the economy is that there is significantly above trend line growth in point of sale and offline spending and below trend line spend and E. Commerce, we've been single digit call. It six 7%.

Year on year U S B to C e-commerce growth now for the last <unk>.

Maybe it's two years running.

And the trend line before the pandemic was in the 12% to 15% growth range every year.

So e-commerce has not been the beneficiary of consumer strength.

Our bass retail has been for.

For the last year and a half plus.

What are we assuming.

No real break in trend line for Q4, and we're being similarly conservative going into next year, we hope that there can be surprise to the upside on that but we're not banking on that we're just we're staying conservative.

Understood. Thank you very much.

Our next question comes from Ken Wong of Oppenheimer. Please go ahead.

Fantastic Thanks for taking my question.

With this pivot to trying to drive growth from existing customers I'm wondering if you could maybe give us some color in terms of what percentage of customer expansion historically has been driven by moving up utilization.

<unk> versus penetrating across more brands and regions with those existing customers.

And then any rough sense of what your penetration of your customers' total G. M D might be at this stage.

Hey, Ken I would say the majority substantial majority of expansion historically for US has been based on organic growth in those customers in the amount of orders that are coming through the platform number one and number two is through adoption of <unk>.

More.

Partner products with favorable economics towards Big Commerce, where we have not had as much expansion in the past, which is atypical I would say for <unk> SaaS is through product adjacencies or owned and licensed products that the issues that Brent was talking about in terms of the ability to cross sell fee dynamics or now.

Make swift or these things it's been much more when you land the customer that customer organically grows we've had some success in expanding regionally with those existing customers, but we have a lot a lot of upside available to us and taking our core product to additional brands or additional businesses under the parent companies of the stores that we have.

<unk>.

Selling other products. So I would say when you look at the quote unquote normal playbook for what cross sell and upsell looks like within <unk> SaaS a lot of that I really see as Greenfield ahead of us as a business, where we've had strength in the past due to kind of organic expansion with our customers, but we have a ton of upside and very efficient.

Lower cost of acquisition revenue growth that we can see in this business by adopting this model, which I would really say I don't know that I would even characterize it as a pivot I would characterize it as an evolution that is representative of our move up market like Brent said, you know our our roots on the small business side of things you bring in a small business customer.

You've landed that customer and they grow organically, that's a very different motion too.

Acquiring a brand with Procter and Gamble, and then cross selling into all of the other brands with underneath the umbrella Procter and Gamble as an example, so when we talk about this internally with their organization. This is not an about face or a change. This is a continued evolution of the culmination of our move up market and positioning our go to market function.

In line with the strategy that we've taken with the product over several years. So I don't think that this is a change I think that this is something that is going to be very successful and is going to really allow us to accelerate revenue growth and are even more leverage profitable way that gets me really really excited as the CFO.

Got it okay. Appreciate the color there and then maybe if you could just add a little color in terms of how the demand environment might have progressed over the last few months I think a lot of your software peers. When they noticed kind of end of September through October kind of things.

Things materially dropped off just wondering kind of what you guys saw.

That same stretch.

I wouldn't say that we saw anything all that different in September or October versus what we've seen at other points during the year.

Like we said in our prepared remarks, we've seen macro in general is a bit of a headwind for the year in a number of different ways that it's manifested we've offset that by really tight financial discipline in the way we're running the company I don't think that I've seen anything or heard anything that makes me feel like it's getting materially better or worse based on the last couple of months.

That's how we set guidance for Q4, and that's how we're planning financials for next year as well.

Alright, Thank you very much.

Our final question today comes from Chris <unk> of UBS. Please go ahead.

Great. Thanks for taking my question, maybe just following up on that last point just to be clear as we think about that high single digits to low double digit guidance range versus kind of where we're at and for Q at that 10% to 16% year over year revenue growth.

Are you thinking about maybe just specifically on the macro and enterprise opportunity.

So the high end be we'd be thinking about that as a continuation of the current macro environment and the low end would be getting worse and just any more color you can share kind of how enterprise would be fitting into that structure and your initial thoughts. Thanks.

Yes. Good question, Chris what I would say is when we're talking about numbers for next year, we will set guidance officially in February our intention providing those numbers was really just to help everybody understand how we're thinking about internal planning for next year to your point about what macro conditions are embedded in that range. What I would say is kind of at the midpoint of those numbers.

Reflects a continuation of where we've been.

If things get a little worse, we'd be closer to low end of the range things get a little bit better I think we'd be closer to the high end if things get a lot better in terms of going back more towards kind of the long term pre pandemic ecommerce growth rates I think that gives us upside above what we've talked about but we have a long way to go before we get to the February call. When we issue official guidance.

We still have to build out our plans what our commitment is to profitable <unk>.

Accelerating revenue growth, we are a growth company, we wanted to do so profitably and we're confident that we can do that.

Very helpful. Thank you.

Yeah.

This concludes our question and answer session I would like to turn the conference back over to your CEO and Chairman Brent film for any closing remarks.

Thanks, I'll conclude with five main takeaways from the prepared remarks and Q&A. The first is.

We're proud that in Q3, we delivered our second quarter.

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Positive free operating cash flow, excluding acquisitions and breakeven adjusted EBITDA quarter earlier than we had guided to the street.

Second the restructuring that we announced today is being done to continue this path a very rapid improvement in our profitability again, we've added 19 percentage points to our adjusted EBITDA profitability in the last five quarters and the restructuring positions.

To add five to upper single digit.

Growth in our adjusted EBITDA profitability next year.

Going towards our long term goal of 20% or higher third the restructuring is also really valuable to us organizationally because of both D layers the organization and implement the structural changes in Stephens go to market playbook for enterprise.

The fourth is that this go to market is now going to be able to shift from solution marketing and selling to value marketing and selling and it's worth.

Folks really focusing on some of the content of the prepared remarks.

Cause the statistics, we're now sharing about far above.

Internet average performance for our enterprise customers on site wide performance checkout performance sales lift through feed anomic. Those are extraordinary statistics and the types of value improvement that really can attract and convert merchants who are wanting to get the best possible performance and growth.

Out of their ecommerce and then the final point.

Which seem to be lost in the Q&A, but I want to emphasize the acquisition of make Swift.

And the reference architecture going forward for a composer volt with US based on next Js and react which are the most flexible high performing and popular.

Framework for web designed today to make Swift acquisition is extraordinary because it is a true.

Next Js No code visual editor that empowers marketers and merchandisers to make changes and manage extraordinarily dynamic user experiences without a dependency on <unk>.

Developmental changes so that type of leadership with enterprise capabilities for Multiuser editing publishing workflows and permissions is demonstration on how even in a tight financial stewardship for big Commerce off our own P&L, we are innovating.

And the ways that deliver the greatest tools and the greatest performance to our merchants and we're very excited to talk about that as we bring it to market in 2024, so with that thanks, everybody for tuning in and we'll talk again in the quarter.

Yes.

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

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