Q4 2024 BigCommerce Holdings Inc Earnings Call
Speaker Change: Good morning, and welcome to BigCommerce's fourth quarter and fiscal year 2024 earnings call. We will be discussing the results announced in our press release issued before today's market opened. With me are BigCommerce's Chief Executive Officer, Travis Hess, and Chief Financial Officer, Daniel Lentz.
Speaker Change: 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.
Speaker Change: Forward-looking statements include statements concerning financial and business trends, as well as our expected future business and financial performance, financial condition, and our guidance for both the first quarter of 2025 and the full year of 2025.
Speaker Change: These statements can be identified by words such as expect, anticipate, intend, plan, believe, seek, committed, will, or similar words.
Speaker Change: These statements reflect our views as of today only and should not be relied upon as representing our view at any subsequent date, and we do not undertake any duty to update these statements.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: During the call, we will also discuss certain non-GAAP financial measures, which are not prepared in accordance with generally accepted accounting principles.
Speaker Change: 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.
Travis Hess: which has been furnished to the SEC and is also available on our website at investors.bigcommerce.com. With that, let me turn the call over to Travis.
Travis Hess: Good morning, everyone, and thank you for joining us today. I'm excited to share our progress and outline our plans for 2025.
Travis Hess: I joined big commerce in May last year because I believe in its potential to lead modern commerce.
Travis Hess: And when the board asked me to take on the CEO role, I was excited to lead the company and do just that. While we haven't yet achieved the growth this company is capable of, we're taking bold steps to improve our performance. Today, I'll focus on the specifics of those changes.
Travis Hess: First, the numbers. We finished 2024 with non-GAAP operating income exceeding $19 million, a $25 million improvement over 2023, and nearly double our original forecast.
Travis Hess: Our non-GAAP operating margin expanded by 767 basis points, and we generated $26 million in operating cash flow, a $50 million improvement from last year.
Travis Hess: We made these gains by cutting ineffective sales and marketing spend, by reducing head count approximately 10 percent, and by focusing on high-quality bookings with our customers.
Travis Hess: This last year was a reforming one. We made major changes to our management team, re-architected our go-to-market organization, and implemented an operating model for profitable growth.
Travis Hess: It was a year of progress, but not nearly enough to meet our potential.
Travis Hess: We did not achieve our revenue growth targets and that remains our number one priority today.
Travis Hess: We finished 2024 with $333 million in revenue, up 8% year-over-year. Our ARR ended at nearly $350 million, a 4% increase, and average revenue per enterprise account rose by 9%. We can and must do better.
Travis Hess: To get there, step one, we must improve the efficiency and the efficacy of our sales, marketing, customer service, and strategic partnerships. This is crucial to unlock the company's full growth potential.
Travis Hess: Net revenue retention for enterprise accounts finished at 99% which is below past performance and also below what I'm confident we can achieve.
Travis Hess: Non-gap sales and marketing expenses for 36% of revenue, a notable improvement from 41% in 2023 and 46% in 2022. We want growth, but it has to be efficient, and the changes we have been implementing have set us up to do so.
Travis Hess: Now I want to talk about the decisive actions we are taking in three key areas. One, recruiting top leaders with SAS and Commerce expertise.
Travis Hess: Two, revamping our go-to-market organization, sales, marketing, strategic partnerships, customer success, and operations.
3. Transforming our product and market positioning to drive growth.
Let's address each.
First, our leadership team.
Speaker Change: Michelle Suzuki joined as Chief Marketing Officer in January, bringing expertise from Glassbox and Instructure.
Speaker Change: Rob Walter joined as Chief Revenue Officer in late January, bringing extensive experience from Oro, Salesforce Commerce Cloud, and Channel Advisor.
Speaker Change: Marcus Groff, our new SVP of Engineering, joined in January from AWS and formerly Salesforce Commerce Cloud and Demandware. And Tracy Turner, our new SVP of Revenue Operations, joined in November from Hootsuite.
Speaker Change: Together, they bring expertise that will be instrumental in transforming our business.
Speaker Change: Over the last year, we have replaced the majority of senior executive roles in our sales, marketing, operations, and customer success teams. The new team is in place, and I'm excited about the talent and enthusiasm this team has brought to our transformation efforts.
Speaker Change: Second, we have completely re-architected our sales, marketing, strategic partnerships, customer success, and operations organizations.
Speaker Change: We have three owned products in our portfolio today, our flagship commerce product, BigCommerce, our AI-based product data feed management platform, Feedonomics, and our brand and commerce site builder and visual editor, MakeSwift.
Speaker Change: Prior to the fourth quarter of 2024, teams, systems, and operational processes for these three products functioned largely in separate silos.
Speaker Change: We have integrated all three products both operationally and commercially and have organized the teams around three offering groups, B2C, B2B, and small business.
Speaker Change: We have a dedicated general manager over each of these three offerings and our sales and marketing teams are now aligned with these offerings rather than exclusively by product.
Speaker Change: We are leveraging AI to enhance sales efficiency, enabling sellers and account managers to identify opportunities and create targeted outreach. Specifically, AI analyzes customer and prospect attributes, use cases, patterns, and market needs and aligns them to capabilities our products have in market.
Speaker Change: AI is also improving product support and core features from commerce site migration and development in big commerce to optimizing inventory availability, product data and order routing and feedonomics for more profitable and frictionless customer experiences.
Speaker Change: We are ramping up our sales team, adding experienced B2C and B2B sellers to target key opportunities and increasing the number of account managers to drive expansion among our existing customers. We are on track to double our quota-carrying sales team by mid-2025.
Speaker Change: Finally, we are transforming our product and market positioning. The recent launch of Catalyst at the National Retail Federation Conference in New York in January is a prime example.
Speaker Change: Catalyst is our accelerated reference architecture which leverages best in class components and tech partners, taking advantage of the scale and agility of composability at a fraction of the cost, time, and complexity typically associated with composable architectures.
Speaker Change: This means robust capabilities, scale, and industry-leading agility for brands, retailers, manufacturers, and distributors with significantly reduced total cost of ownership.
Speaker Change: Catalyst also provides best-in-class visual editing via MakeSwift for business users and marketers without the need of developers.
Speaker Change: We are planning a hosted version of Catalyst later this year which will also include a self-service version of Fedonomics targeted at lower mid-market and small business B2C and B2B customers.
Speaker Change: The overall response from customers, partners, and commerce industry analysts has been overwhelmingly positive and we plan to introduce more bundled solutions like Catalyst in 2025 tailored to specific markets and industries.
Speaker Change: As we move into 2025, we remain committed to our three strategic priorities. One, reaccelerating revenue growth profitably, our top priority. Two,
Speaker Change: Operate with discipline and focus, eliminating non-core initiatives to drive long-term growth. And three, execute our sales and marketing transformation. We've set the strategy, aligned the teams, and recruited critical leaders. Now it's time to deliver.
Speaker Change: Transformations are challenging, but I believe in big commerce's potential to lead the future of commerce. We have the right team, a differentiated approach, and an immense market opportunity. I remain confident in our path forward and I'm excited to continue this journey with all of you. With that, I'll turn it over to Daniel.
Daniel Lentz: Thank you, Travis, and good morning, everyone. I'm pleased to walk through our Q4 and full year 2024 financial results, highlight key progress areas, and outline our 2025 expectations.
Daniel Lentz: In Q4, we delivered revenue growth in line with expectations and significantly outperformed on profitability. Q4 revenue reached $87 million, up 3% year-over-year, while full-year revenue grew 8% to $333 million.
Non-GAAP operating income, which excludes stock-based compensation, restructuring costs.
Acquisition related costs.
Daniel Lentz: and Amortization of Intangible Assets was just over $10 million in Q4 and $19 million for the year, a strong improvement from $5 million in Q4 2023 and a $6 million loss for the full year 2023.
Daniel Lentz: Our non-gap operating margin improved to nearly 6% in 2024, up from negative 2% in 2023 and negative 17% in 2022.
Daniel Lentz: Cash flow also improved meaningfully. Operating cash flow hit 12 million in Q4 and 26 million for the year, a 50 million dollar swing from 2023's 24 million dollar loss.
Daniel Lentz: For the 12 months ended, basic shares outstanding were $77.6 million, up 3% year over year, and fully diluted shares outstanding were $79.5 million, down 4% year over year.
Daniel Lentz: We closed Q4 with annual revenue run rate, or ARR, of nearly $350 million, up 4% year-over-year. Enterprise ARR grew 7% to $262 million, now representing 75% of total company ARR. Non-enterprise ARR declined 4% to $88 million.
Daniel Lentz: Profitable revenue growth remains our top priority and 2024 marked a transformation across the business. We instilled greater discipline and rigor delivering significant improvements in profitability and cash flow. We streamlined operations, restructured go-to-market teams, and reduced head count by approximately 10% as of the end of the year.
Daniel Lentz: We also repurchased a portion of our 2026 convertible notes by an additional $59 million in early Q1 2025, leaving us with $154.1 million in total convertible debt, $4.1 million maturing in 2026, and $150 million maturing in 2028.
Daniel Lentz: and 126 million in cash, cash equivalents and marketable securities after these repurchases. Net debt now stands at roughly 28 million. Our financial position is strong and our outlook supports servicing and repaying this debt.
Daniel Lentz: For Q1 2025, we expect revenue of $81.2 million to $83.2 million.
Daniel Lentz: We expect non-GAAP operating income of $4 million to $5 million. For the full year 2025, we expect revenue of $342.1 million to $350.1 million, and non-GAAP operating income of $20 million to $24 million.
Daniel Lentz: While we expect an improving pipeline as a result of our go-to-market adjustments and new hires, early 2025 growth will likely mirror Q4 2024 as our transformation actions take root.
Daniel Lentz: We are targeting mid-single-digit growth rates for the full year, with ARR growth gradually accelerating.
Daniel Lentz: We're pleased with our better-than-expected margin expansion in Q4 and are aiming for additional low- to mid-single-digit operating margin expansion in 2025. We plan to reinvest where ROI is strong, balancing continued margin expansion and re-accelerating revenue growth.
Daniel Lentz: Our outlook assumes consumer spending and business investment trends remain consistent with 2024. Given macroeconomic uncertainties, we're taking a conservative stance, but to be clear, we are not satisfied with these projected growth rates.
Daniel Lentz: Transformations like the one we are undertaking take time, but we are laser focused on unlocking this company's full potential and excited about what lies ahead. I look forward to sharing more at our Investor Day in New York on March 11th. Operator, let's move to Q&A.
Speaker Change: Yes, thank you. We will now begin the question-and-answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys.
Daniel Lentz: If at any time your question has been addressed and you would like to withdraw it, please press the star then 2.
Speaker Change: At this time, we will pause momentarily to assemble the roster.
And the first question comes from Ken Wong with Oppenheimer.
Time to execute.
Speaker Change: You know, realizing that revenue will lag some of the progress you make.
Speaker Change: Any any key kind of benchmarks KPIs that you would steer us to to kind of gauge success and any thoughts on a Timeline for when we might see some of these improvements
Speaker Change: Hey Ken, I apologize. You broke up at the beginning part of your question. Would you mind repeating that for us?
Speaker Change: Yeah, I was just saying that, you know, you mentioned that it's it's now time to execute now that you have leadership in place. Just wondering kind of what are the right KPIs, the goalposts that we should be keeping an eye on?
Speaker Change: to gauge that success and what that timeline could look like before we start to see some of those improvements.
Speaker Change: Hey Ken, thanks for the question. Yeah, I think the leading indicator initially is going to be obviously pipeline and quality of pipeline year-over-year, quarter-over-quarter. We're starting to see some of those signs now as we've kind of articulated in previous earnings. We would expect that to translate into improved bookings obviously.
Speaker Change: and expect that to hit kind of halfway through the year. But yeah, the infrastructure is in place, external messaging is gonna start changing here first and probably mid-March around the Shop Talk show.
Speaker Change: And we think that will help accelerate, obviously, pipeline, but pipeline would be the first leading indicator of
Efficacy.
Speaker Change: One thing I would add onto that, Ken, is just from a metrics point of view, as we go throughout the year, we're going to spend a fair amount of time talking about where we are.
Speaker Change: both in a revenue growth rate, but also in an ARR growth rate. We're being pretty deliberate in the commentary that we're putting out there about where we see pace of acceleration. We expect to see modest acceleration across the year. We'd like to see ARR growth rates tipping slightly ahead of revenue, which we think from a metrics perspective is going to be the best leading indicator that we'll be able to talk about on calls. Internally, first focus is pipeline, and I think everything else will flow out from there. But as we said, we expect the front half of the year to look fairly similar
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Speaker Change: Perfect. And then just a quick follow up for you, for you, Daniel, the operating margin, you guys are guiding kind of roughly consistent with where you closed out fiscal 24. As we as we think about the path forward is, is
Speaker Change: Will we need revenue upside in order to see further margin expansion?
Speaker Change: Great question. The endpoint we're aiming for from a profitability perspective in 2025 is exactly where we were expecting and planning when we had our last earnings call. The only thing that's a little different from a growth rate perspective is that we brought forward some of the improvements that we wanted to make ahead early into Q4. So we just got to some of those improvements a little earlier than we expected. I don't think that we need to see material revenue growth beyond what we're guiding in order to get to the margin expansion that we're talking about.
we've called out in our guidance.
Perfect. Thanks a lot, guys.
Speaker Change: Thank you. And the next question comes from Cody Aikido with Bank of America.
Cody Aikido: Hey guys, thanks so much for taking the questions. I wanted to ask a question on sales capacity. I think in the prepared remarks you said
Cody Aikido: You're on track to double your quota sales team by mid 2025.
Speaker Change: So my first thought there was that that really sounds like it's a 2026 event with those new quota carrying reps from a pipeline conversion perspective. So the question here is how to think about sales capacity ramp to pipeline creation and then conversion with your with your sales team going forward.
Speaker Change: Yeah, great question. It's actually fully loaded. I think I mentioned last earnings, we started with the reorganization with folks that had internal experience and tenure here for exactly that purpose to obviously shrink the ramp time. We've also been leveraging a ton of AI as it relates to training and enablement, which has been wildly surprising and how effective that's been, not only enabling folks cross selling products that maybe they didn't have
as we onboard folks.
Speaker Change: just making it a bit more effective and accelerated as we onboard them. But this was all planned. And I'll let Daniel add some color here, but was fully loaded. I would not expect this to trail into 2026. This was all deliberately done to drive efficacy in H2 of this year. Yeah, what I would add to that, from a timing perspective, the
Speaker Change: We expect to see acceleration in the back half of the year, and we're really aiming for acceleration that shows a strong rule of 40 profile as we're exiting the year. It's not going to be where we think the business is capable on a going basis, but we think we can show signs of progress. But it's not such that capacity gets ramped up by the end of Q2, and then you've got another two quarters of ramp after that. We're going through that ramp period now, such that we feel we can start building momentum in the back half of this year.
Speaker Change: Got it. That is very helpful. Thank you for that. And just to follow up here on the guidance, how should we be thinking about tariff risk?
Brent Bellm, Tyler Duncan, Unknown Executive
I wouldn't make it a specific tariff risk.
Speaker Change: From my point of view, at least, I would just say that contributes to our overall conservatism from a macroeconomic point of view.
Speaker Change: There's a lot of things that are in flight right now that are in motion on the macro side of things.
Speaker Change: You know, so I would say we're taking a cautiously optimistic view, but we think it's reasonable and prudent for the exact reasons that you cited to just not get ahead of our skis from a tailwind perspective and building out our outlook and plans for the year.
Thanks, Daniel. Thanks guys for taking the questions.
Speaker Change: Thank you. And the next question comes from D.J. Hines with Canaccord.
D.J. Hines: Hey, good morning, guys. So Travis, you've had a couple questions on direct sales investments. So let me take the other side of that and ask about partners. How has the engagement been with those folks as you've kind of reshuffled the leadership team and what are they asking for from BigCommerce?
D.J. Hines: Yeah, great question. Um, it's been very bullish on the partner side, obviously leading with composability, by definition is in accepting the fact that more disruption and innovation will come by way of third party ISVs and partners.
D.J. Hines: And so our job is really to make the ingestion of those capabilities.
Speaker Change: Unknown Speaker easier, more consumable operationally, technically, commercially. And so I think it's enriched a lot of those partnerships now, as I alluded to, in last earnings.
Speaker Change: We're going to be way more focused about who we double down with. So we've seen an intentional sort of concentration on both the agency and GSI side as to where we're partnering up, as well as the ISV side. So that's probably been the most material change. And I think to the extent
Speaker Change: Yeah, got it. Okay. And then Daniel, what's the right threshold for enterprise NRR in your view? And what needs to happen to get you there?
Speaker Change: Everything that we are doing from a transformation perspective ultimately is designed to bring NRR to levels that we think are best in class and where the business is capable of.
Speaker Change: Results in 2024 were very similar to 2023 and not where we need to be as a business.
Speaker Change: During the pandemic years, we kind of averaged, I think, 113% roughly in NRR. I think it's going to take us some time to get back there. But if you look at the investments that we're making in the product...
Speaker Change: The leaning in on additional ways to bring monetization paths to our base, whether that's a self-serve version of feedonomics.
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Brent Lentz, Brent Bellm, Tyler Duncan, Unknown Executive
Unknown Executive: Thank you. And the next question comes from Parker Lane with Staple.
Hey guys, thanks for taking the question this morning.
Speaker Change: Daniel, you referenced ARR as being the sort of guidepost for you into this year and expecting it to track ahead of overall revenue growth. Looking at that non-enterprise piece declining, exiting the quarter, what is the expectation around that in the framework of your commentary for the first half of the year?
Speaker Change: Meaning for that to be largely flat on a full year basis.
Speaker Change: The priority for us remains moving up market and focusing on enterprise accounts, but we think that we have a lot of room to stabilize and then further grow that portion of the business over time. We have tens of thousands.
Brent Bellm, Tyler Duncan, Unknown Executive
Speaker Change: in particular, are two meaningful ways we feel could drive and payment, potentially meaningful ways to drive more wallet share and more differentiation for that particular segment. Target for that is is probably mid year, maybe into Q3. And so we're being a little conservative in how the excitement level there of how much that's going to impact, especially with holiday season, kind of coming up shortly thereafter. But I think longer term, certainly an important part of our base,
Speaker Change: But also recognizing that there's an opportunity to add a tremendous amount of value there for that core customer base and widen our TAM and create a bit more stickiness with the existing install base in small business.
Speaker Change: Understood thanks for the feedback there and then Travis quick one for you you know the strategic priorities you did reference operating with discipline and focus maybe eliminating other non-core initiatives
Speaker Change: Have there been things that you've identified that you'll continue to de-emphasize throughout this year, or has a lot of that work largely been done here, and we should think about this as being more of a clean slate approach as we progress through 25?
I think Q1 will be the last of Q1.
Speaker Change: sort of some of the cleanup. We had a couple of sort of initiatives that probably don't align to the longer term vision, not that they were deleterious to the business, but certainly preventing us from from leaning more aggressively into things we feel map to our ideal customer profiles and our differentiation and market. So I think the goal was to have that wrapped up by end of Q1 and a clean slate. Unknown Speaker
Got it. Thanks again, guys.
Thank you. Next question comes from Maddy Schrage with KeyBank.
Maddy Schrage: Hey guys, thanks for taking the question. My first one is touching on sales and marketing efficiencies again.
Maddy Schrage: Could you give some specifics about what areas you cut to improve efficiencies and if you're taking those savings and putting those into the quota bearing reps that you added this year?
Maddy Schrage: Great question. Philosophically, we re-architected that entire marketing organization, and in parallel, re-centralized it more into a matrix model as opposed to running it compartmentally within region, which was an opportunity to
Brent Lentz, Brent Bellm, Tyler Duncan, Unknown Executive
Speaker Change: You know, in theory, operating a bit more in arrears and our kind of our legacy state by the time we kind of saw what we were doing, it was kind of a quarter late.
Speaker Change: We're in a much better position now to react in real time, and I'll let Daniel add any additional color. Yeah, Matty, I could give you two specific examples of changes we've made specifically on the spend side as well.
Daniel Lentz: First, from an events perspective, we've been doing many events, sometimes smaller events with really, really high frequency, we're reducing the absolute number of events that we're doing so that we can really, really double down on presence and resonance in a fewer number of much larger events.
Daniel Lentz: So that we're we are generating better leads and sending more referral commissions, frankly, to the agencies that are making our customers the most successful. I could give you other examples as well. But these things, they're not dramatic cuts, they're more like reorientations.
Speaker Change: that allow us to have better efficacy at ultimately a smaller dollar amount. Brent Lentz Yeah, I'll add one last bit of color on the partnership side, too. I think because of the depth of those partnerships and how material they are to our strategic approach around composability, and we'll talk more about this at our Investor Day in New York, we're able to share some of those costs around MDF and other sort of not only outreach, but triangulation around accounts and targeted accounts and events.
Speaker Change: to actually have a lot of those partners help subsidize some of those costs while also driving additional efficacy, which was something that we just weren't able to take advantage of in the past. So that's allowing us to be more effective with less cost and investment there. That's helpful.
Speaker Change: Yeah, very helpful. And I think obviously, that should add some cross sell motion as well. So it seems like you guys are in a good place. And just a quick follow up in terms of the net revenue retention for enterprise accounts.
Speaker Change: Obviously 99%. I'm curious to know what's what's people's main reason for churn and how are you guys going to be addressing that?
Speaker Change: Daniel and I can kind of ham and egg that. One, I think deliberately integrating our two other products.
Speaker Change: and being intentional about a better together story of being able to cross sell and upsell by definition will create more value and more stickiness and greater wallet share for customer I think.
Speaker Change: Not having that just made it very challenging to tell a bigger broader story in market and differentiate So I think that alone is going to make a big difference
Speaker Change: Unknown Speaker And quite frankly, just not being effective in our go to market and cross sell up sell motion in general, which we've talked about exhaustively in the past that we feel we've cleaned up materially, we're in a much better spot to be able to address that.
Speaker Change: Transcripts provided by Transcription Outsourcing, LLC. Readers should consult with a professional financial advisor before making any financial
Thank you, guys.
Speaker Change: Thank you. The next question comes from Andrew Lentz Schauer with Barclays.
Speaker Change: Hey, thanks for screening me in. How dependent are their whole plans on the macro and what are you seeing out there?
and I had one follow-up.
I would say from an overall Outlook perspective,
Speaker Change: As we always have, or at least have, you know, over the last two or three years.
Speaker Change: We have not baked into our outlook a big change in macro trend.
Speaker Change: We tend to take a pretty conservative outlook on how we think about building guidance and building our internal plans because we don't want to be beholden to things that are outside of our control and hitting our commitments to shareholders.
Speaker Change: So, as I said, we're taking the view that we're expecting this year to look a lot like last year. I would say overall, that sentiment, I'd summarize it as cautiously optimistic. We're starting to see a
Speaker Change: Projects starting to resurface, we're starting to see signs of, you know, encouraging pipeline build, we're starting to see buyers start to be a little bit more open to making replatforming decisions, especially if they put off those decisions. That said, we are expecting the need to get to our number through really, really good tactical execution within our go-to-market teams.
Speaker Change: We need salespeople that are working their territories, that are outbounding and building their own pipeline and increasing efficacy on the marketing side, and if we start to see materially different improvements on the macro side, great, that's a tailwind to us that I think gives us upside, but that's not something that we are going to set expectations on when it's not ultimately something that we can control.
Speaker Change: Perfect. Okay, that's really helpful. And then on the on the partner side, like on the one hand, you want to do more with partners. On the other hand, there's probably areas that you kind of want to do more like you mentioned payment. How does that dynamic change for you guys? Because you know, where we've seen it like with Shopify, where
Unknown Speaker Thank you.
Yeah, we
We think it's a big strategic advantage. I mean, obviously,
Speaker Change: I think customers want optionality now and in the future, and the best thing that we could do is create a more affordable and ingestible capability to pre-compose and bundle those partner capabilities oriented to specific markets and specific industry segments.
and by.
Speaker Change: So you'll see more and more of us in market bundling precomposed capabilities oriented to certain markets, certain industries as accelerators to drive TCO and efficacy. And I think it's encouraging. And we're getting a lot of enthusiasm from those partners, because essentially, we're creating our own marketplace with them and going much deeper with them within spaces that they can also differentiate
Speaker Change: in market by way of us. So I see the partner aspect of this business only getting deeper and stronger going forward. We're philosophically aligned materially with doing that.
Okay, thank you.
Speaker Change: Thank you. And the next question comes from Josh Baer with Morgan Stanley.
Speaker Change: Great, thank you for the question. I wanted to unpack the enterprise account number a little bit. If you could just maybe discuss the competitive landscape impacting that number. Just wondering if you could break down, are some of the challenges around the gross ads? Is there any change to churn?
We can start there. Thanks.
Speaker Change: We've seen stabilization in that over the course of the last couple quarters, but we're not aiming for stabilization. We're aiming for growth.
Speaker Change: We've seen some positive trends obviously on average revenue per account. I think it was up about 9% last year. It's good. It's not as good as it can be. We want to see growth both in the average size of deal as we've been moving up market. I've said often I would be okay having slightly fewer number of customers if we moved up market and had a lot bigger customers because ultimately what we're after is dollarized growth and dollarized net revenue retention.
Speaker Change: That said, we're not pleased with the fact that the numbers been relatively flat over the course of the last few quarters.
Speaker Change: I don't think that there's been a change in trend from a churn perspective over the course of the last year, year and a half, probably. It's looked fairly similar. We expect that to get incrementally better across the year. But again, we're building our plans, assuming that it's going to continue to be tough competitively, and that we need to take really good care of our customers, and we need to do a good job building pipeline and growing from there.
Speaker Change: Okay, got it. So, so you're saying within the enterprise account number within that definition you're moving up market.
Speaker Change: Yes, that's correct there within that account number. Got it. And then on the margin side, you know, I think, I think in your prepared remarks
You mentioned low to mid single digit operating margin expansion.
Brent Lentz, Brent Bellm, Tyler Duncan, Unknown Executive
Speaker Change: We feel that this is a number that we can hit, but we also want to be clear that we're not settling for the guidance because we think and know that we need to do better, both where we are in a revenue growth rate on an expansion basis. We need to reaccelerate growth.
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Got it. Thanks.
Speaker Change: Thank you. And the next question comes from Mark Murphy with J.P. Morgan.
Speaker Change: Hey, this is already on for Martin River. Thanks for taking the question.
Speaker Change: Great question. The settlement has been fantastic. I mean, this has been deliberate in the order by which we've added folks very deliberately as part of the transformation. Obviously, we've been very transparent about where we are in market. We're fortuitous in the sense that there's a lot of talent out there in the street right now due to consolidation and adjacent areas. And so we've been very fortunate to have access to really experienced folks that are coming in that share the vision and see the potential that
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Speaker Change: both our Ameras and EMEA SKOs over the last couple of weeks. So that was nice to get everyone together and a lot of shared enthusiasm. The external facing changes, primarily around web assets and messaging and things like that, you'll start seeing that here in mid-March, which I think will be the most tangible, visible sign outside the four walls of the business. We're excited to share some of that stuff with you all in New York at our Investor Day, and then continue to trickle that out across the remainder of H1.
Speaker Change: which we're really encouraged by. But yeah, we feel really good about the folks here and how they're adjusting.
Unknown Executive: And Daniel, when you can you talk about the assumptions that are going into expectation for AR growth to gradually accelerate throughout the year and maybe what levers or factors could cause that AR growth to kind of accelerate even further than what you're currently contemplating. Thank you.
Unknown Executive: Creating teams focused on driving that revenue retention within our base.
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Unknown Executive: We're staffing to grow, staffing to grow at a far faster rate than what our outlook currently provides because we're taking a prudent approach to the ramp.
Unknown Executive: But we're looking at this as a growth business. We think this is a growth business.
Brent Lentz, Brent Bellm, Tyler Duncan, Unknown Executive
Speaker Change: To Travis's point, most of which have not yet been seen in market. There's a lot that we have going on that we are working on getting out and to market. But to be really clear, this is not the same team. This is not the same operating motion. This looks very, very different than how we've operated before. We have replaced.
Speaker Change: The Lion's Share of the senior executive team across sales, marketing, operations, customer success. We're really enthused about the team that we have. We just need to go off and execute and show that we can do that. Yeah, I'll add one bit of color on that, like as an example, B2B.
Perfect. Thank you.
Speaker Change: Thank you. And the next question comes from Scott Berg with Needham.
Scott Berg: Hey, everyone. Thanks for taking my questions here. I get to
Speaker Change: Travis, let's start with the new CRO, Ron, that just came in and I think it was late January.
Speaker Change: Oftentimes we see CROs come in and make some of their own changes.
Speaker Change: You, of course, were brought in last year to revamp sales, go-to-market efforts, and I guess you've obviously made a lot through our discussions there, but should we expect Ryan to make further changes and create some disruption in kind of what you've all done, or is he just running the playbook that's already been implemented?
Thank you.
Speaker Change: Yeah, it's a great, it's a great question. I think it was a unique
Speaker Change: It's a unique remit in the sense that I kind of came in and made a lot of those changes. So largely, Rob's going to execute against it. However, I would argue Rob's got a lot of skill sets bigger and greater than mine. Quite frankly, I find them to be very complementary to what it is that I do. What's unique about him is he actually has quite tangible experience across all three of our product lines.
Speaker Change: was a channel advisor, was at Ambliance for a long time, was at Salesforce Commerce Cloud, and most recently at Auro.
Speaker Change: That was one of the attractive aspects of it. He's got a rich history with several other leaders within the organization, and also philosophically aligned with the motion we had already put in place starting last summer and the strategy that we're kind of executing again. So all of that kind of perfectly aligned. It was what I'd love to have had in two months prior. Yeah, selfishly, of course.
Speaker Change: But really fortunate to have him. He's excited to be here. And yeah, I would not expect any disruptive changes or things like that. The infrastructure and the framework is in place. It's all about accelerated execution at this point.
Speaker Change: Understood. And then, you know, from a follow-up, Daniel, I saw the announcement on the CARNA partnership.
Speaker Change: didn't see if there's any, you know, kind of economic relationship or benefit to you all. Can you maybe help explain, you know, I guess what that is and if there is any sort of, you know, benefit if that's fruitful going forward. Thanks.
Speaker Change: All right, Scott, real quick clarifying question. You broke up just a little bit. You saw which announcement? The Klarna announcement in the press release about your partnership with them.
Thank you.
Speaker Change: Yeah, I mean, it's obviously something we're really excited about. And I think it's something we'll probably talk about in a lot more detail at our investor day in New York.
Got it. Thank you.
Speaker Change: Thank you. And once again, if you would like to ask a question, please press star then one on your touchtone phone.
Speaker Change: And the next question comes from Brian Peterson with Raymond James.
Brian Peterson: Hey guys, thanks for taking the question. So Travis, I wanted to follow up on the stat you gave on B2B being half of new bookings this year. You know, I'd be curious what you're seeing in terms of the inertia in that market, maybe what you guys are displacing. And as you think about incremental B2B investments, how quickly can that kind of ramp up into 2025 and 2026? Thanks, guys.
Brian Peterson: No, great question. And just for clarity, that 12,000 accounts, that is obviously a combination of retail or small business accounts along with enterprise accounts, just for those doing the math behind the scenes.
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Daniel Lentz: Starting there, building it out and then evangelizing it kind of a land and expand strategy within those larger global organizations, the days of the Big Bang, rip something out and replace it with something else are long over. I think our approach with composability is Lentz.
Daniel Lentz: to be able to be very effective in doing it, but.
Daniel Lentz: Cost Savings Dynamic of eliminating FTE labor, making field sales teams more effective, driving out call center costs, and also automating and synthesizing back office operations typically centered around multiple sources of truth, while also serving as a framework through future M&A to kind of ingest new businesses onto that same framework. So very transformational in nature, very meaty for services providers,
Daniel Lentz: partners as well. And certainly a place we feel we've got material differentiation and a right to win. Obviously, if you can't tell from my tone of voice, despite the caffeine, very enthusiastic about that space.
Appreciate the color. Thanks, guys.
Unidentified Moderator: Thank you. And the next presentation is Gabrielle Borges with Goldman Sachs.
Hey, good morning. Thanks for taking the question.
Speaker Change: Travis, I wanted to follow up on some of your comments on Shopify from earlier and competition more broadly. Maybe just give us the lay of the land as you've gotten dug in over the last several months.
and you look at the pipeline and enterprise.
Speaker Change: Level set us as to where you think you're winning versus your enterprise competitors more broadly. I know you already mentioned the the closed versus open versus Shopify And then maybe as part of that the new logos in your enterprise pipeline Where are they coming from versus some of your competitors or homegrown home-built solutions? Thank you
Speaker Change: Great question Gabriella. I would say let's delineate between B2B and B2C. I just kind of talked about the B2B side where we're seeing that, we're seeing it upmarket, you're seeing both kind of mid-market B2B taking advantage of our kind of out-of-the-box capabilities there.
Speaker Change: On the enterprise side, the big meaty stuff, you're seeing it very, very targeted on these global sort of opportunities. These are folks that are typically, you know, running a custom homegrown or they're running something big like SAP and they've got to be really deliberate about what that approach is.
Speaker Change: Usually, and what we're doing this year around the product is kind of expanding our capability around CPQ and making that a bit more broad, I think the more robust that capability gets.
Speaker Change: On the B2C side, I would say to Daniel's points earlier, we are seeing an uptick in larger transformational deals around larger global brand manufacturers, less so retail, although we've seen some of that. And really, the embracement there is around composability. They want the scale, the flexibility, the agility of composability, but without the downsides of cost, time, and risk.
Speaker Change: Unknown Speaker ...sorts of trends, but generally speaking, that's who we see. There is a definitive need or embracement of composability. There's nuances to their business. There are more complicated requirements that can't be achieved through other competitors and what their capabilities are and would lend themselves to look at us.
Hopefully that's helpful.
Speaker Change: And then just briefly, the answer on the logos, it's across a lot of different competitors. I mean, obviously, we spend a lot of time competing with
Speaker Change: Shopify Plus, Salesforce Commerce Cloud, Magento, and a number of other platforms depending upon the region. I'd say from a new logo win perspective, it's across multiple competitors. I wouldn't say it's concentrated specifically with one.
Speaker Change: Yeah, yeah, absolutely. Travis, I think you're also uniquely positioned to give your perspective here on
Speaker Change: What in the macro in any given year makes them more likely versus less likely for a large, larger enterprise to want to change? What I'm getting at is, you know, we've heard
Speaker Change: When consumer environment is strong, that's when enterprises might be less likely to change because while transaction volume is high, but on the flip side, well, when consumer is weaker, then you become more risk averse in making changes. So we'd just love to hear what are the factors that have to align to get enterprises more excited about modernizing and upgrading?
for 2025. Thanks.
Unknown Speaker
Speaker Change: Yeah, I think the biggest thing up market to me is is around risk mitigation quite frankly I think these are large organizations independent of market That are going to lead with mitigating risk
And so a comfort level that we or anyone else.
can address their current and future needs.
Speaker Change: and use cases and requirements. I would think that's the biggest determinant. Certainly there are cyclical things around being locked into a contract with an incumbent and what the timing of that looks like.
I think what
Speaker Change: What folks are starting to realize, Gabriela, is how much faster you can actually implement the technology today versus four years ago, maybe the last time they went about doing this. That might have been a 12 to 18-month cycle. You're starting to see that cut in half now. And getting them comfortable with that thought process of being able to accomplish what they did five years ago in a fraction of the time and cost, I think you're going to see that trend continue and become more normalized. And as you see that happen organically,
Speaker Change: Increased demand, but it all centers around risk mitigation. Do they feel comfortable being able to accomplish that? Because in the old way, like, you know, 18 months, two years to implement a platform is wildly distracting and disruptive to a large brand and manufacturer or retailer. So as that cost and time has come down, I think you're going to see demand sort of peak.
If that's helpful.
Yeah, it is. Thank you.
Speaker Change: Thanks for taking our question. I have a question on the catalyst.
Speaker Change: And maybe just can you talk about the customer feedback since the January launch and NRF and Alexa savings?
Speaker Change: or functionality is resonating with your B2B and B2C customers. Thank you.
Speaker Change: Yeah, for the broader audience, I mean, Catalyst is our accelerated reference architecture that we launched around NRF in mid-January.
Speaker Change: It's not for everyone, not everyone views the world that way and that's okay and we're certainly not.
Speaker Change: Certainly a subset of the market will go run to it. I think the bigger unlock and where you'll see us take it is a some version of catalyst pre composed curated specifically to industries and markets.
Brent Lentz, Brent Bellm, Tyler Duncan, Unknown Executive
Brent Lentz, Brent Bellm, Tyler Duncan, Unknown Executive
Speaker Change: That's where we're kind of taking everything on the catalyst side.
Speaker Change: I appreciate the color, and I'll definitely look to hear more at the investor day and then just a follow up more on the on the financial side. Maybe can you share some of the effects assumption if that's important for your guide or that's a.
Brent Lentz, Tyler Duncan, Unknown Executive
Speaker Change: Yeah, the FX exposure for us is very small. From a long exposure point of view, it's almost exclusively US dollars. We have short exposures in payroll and others.
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Unknown Speaker Hello.
Speaker Change: Thank you. And this concludes our question and answer session. I would like to turn the comments back over to Travis Haas, CEO, for any closing comments.
Speaker Change: I really want to thank everyone for for joining the call today. I'm certainly excited for for where we are and the changes that we've we've made to date.
Travis Haas: And now it's time to get to work and execute, which we've alluded to several times. Really looking forward to seeing many of you at our Investor Day in New York sharing more. And yeah, excited for things to come. Thank you for joining.
Speaker Change: Thank you. The conference is now concluded. Thank you for attending today's presentation.