Q1 2025 BigCommerce Holdings Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the BigCommerce First Quarter 2025 Earnings Call.
At this time, all participants are in a listen only mode. [inaudible]
After the speakers presentation, there will be a question and answer session.
Please be advised that today's conference is being recorded.
I would now like to turn the conference over to your first speaker today, Tyler Duncan, Vice President, Finance, and Investor Relations. You may begin.
Speaker Change: Good morning and welcome to BigCommerce's first quarter of 2025 earnings call. We will be discussing the results announced on our press release issued before today's market open. With me, our 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 Security's litigation reform act of 1995.
Speaker Change: Ford-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 second quarter of 2025 and the full year 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. They should not be relied upon as representing our views at any subsequent date. And we do not undertake any duty to make these statements. [inaudible]
Speaker Change: Ford-looking statements by their nature, addressed matters that are subject to risks and uncertainties that could cause actual results to differ materially from expectations.
Speaker Change: For discussion on 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: The reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures, as well as how we define these metrics and the other metrics is included in our earnings press release, which is in 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. Thank you very much.
Travis Hess: Thanks, scholars. Good morning, everyone, and thank you for joining us today.
Travis Hess: I'll open my remarks today by providing an update on our first quarter results. Then I'll finish by outlining our progress against the key initiatives driving our operational transformation in 2025.
Travis Hess: For those of you who are new to our business, we offer three core-owned products in our portfolio today, our flagship commerce platform, BigCommerce, our AI-based product data feed management platform, feedonomics, and our brand and commerce site builder and visual editor, Mixlift. . . .
Our 2025 transformation plans touch each of those core products.
Travis Hess: As I outlined last quarter, I've set three strategic priorities for the business in 2025. Number one, accelerating revenue growth profitably.
Travis Hess: Number two, Disciplined and Focused Operational Execution. Number three, Execution of our Go-to Market Transformation Plan. [inaudible]
Travis Hess: I'm pleased to report that Q1 reflects a solid start. Let's start with the numbers. Let's start with the numbers.
Travis Hess: In Q1, we delivered non-GAAP operating income of $7.6 million, of $530 basis point market improvement year-over-year.
Travis Hess: Annual Revenue Rungray, or ARR, reached 351 million, a year over your improvement of 3%.
Travis Hess: Revenue reached 82.4 million, growing 3% year-over-year, and operating cash flow came in at approximately 400,000, an improvement of nearly 4 million year-over-year.
Travis Hess: We delivered revenue within our previously reported guidance range and profitability well above the high side of our range.
Travis Hess: Even still, these growth rates do not reflect the potential of this business, and accelerating growth is our top priority. [inaudible]
Travis Hess: We see encouraging signs of progress behind our go-to-market transformation efforts.
Travis Hess: We reduced headcount by approximately 10% in Q4, and we reinvested savings to roughly double our quarter carrying sales capacity, which is now substantially complete.
Travis Hess: We saw a strong increase in pipeline across Q-1 behind this effort, B2B in particular. [inaudible]
Travis Hess: To be clear, we still expect 2025 to be challenging but the opportunity that lies ahead of us is tremendous.
Travis Hess: We are continuing to act quickly and boldly to transform the company.
Speaker Change: This type of change is not easy. Current macroeconomic uncertainty adds complexity, which Daniel will discuss in more detail shortly, regardless. We are focused on what we can control, and I see solid leading indicators that the decisive actions we have taken are progressing us as planned. [inaudible]
Travis Hess: I want to provide an update on four key areas of focus.
Travis Hess: One, recruiting top leaders with staff and commerce experience. Two, investing in our core offerings in B2C and B2B.
Three.
Travis Hess: Creating new revenue growth opportunities through key initiatives we introduced at our recent investor day and lastly four, driving value to our customers and shareholders through AI.
Travis Hess: I'll start with recent leadership changes that strengthen our focus on product and innovation.
Speaker Change: Following the departure of our former CTO, Marcus Groff, our Senior Vice President of Engineering, has assumed full leadership of our engineering organization.
Speaker Change: Marcus joined BigCommerce in January and brings a wealth of experience from Amazon, Salesforce Commerce Cloud, and Demandware.
Speaker Change: In addition, we recently welcomed the poll Shaw as our new Chief Product Officer. Vipel joined us in April and brings an extensive background of driving product strategy and innovation, with prior leadership roles at Google, JP Morgan, and PayPal among others.
Speaker Change: Or excited to have both Marcus and Vipple in these critical roles, both of which now report directly to me. I'm confident they will further elevate our product and engineering capabilities. What is?
Speaker Change: Our senior leadership team is now in place, and I believe we have the exact right team of experienced commerce and SaaS professionals to lead our organization forward.
Second
We are continuing to invest in both B2B and B2C.
Speaker Change: B2B continues to grow as a percentage of our overall business, underscoring our leadership and digital commerce for manufacturers, distributors and wholesalers. [inaudible]
Speaker Change: We welcomed onto our platform industry leaders such as Super Feet, and Vanderbilt packaging, while also celebrating standout launches from Sealy Tools and ISG enterprises.
We also delivered new capabilities tailored to complex B2B needs.
In Q1, we release two major enhancements.
Speaker Change: For example, our new Configure Price Quote system reduces the steps required to respond to a Quote request by up to 75%. This is creating efficiencies by freeing up time for teams to focus on driving revenue. [inaudible]
Speaker Change: Our momentum is particularly strong with brands and underserved operationally complex categories such as direct selling, regulated industries, home decor and others. [inaudible]
Speaker Change: These complex use cases will remain a strategic priority for our business. [inaudible]
Speaker Change: We proudly celebrated the successful launch of Eurooptic, a leading online retailer specializing in high quality sporting optics, ensuring compliance with strict regulatory requirements.
Speaker Change: We also launched Kittery Trading Post, a prominent retailer dedicated to outdoor activities, hunting and adventure deer.
Speaker Change: UK-based fashion brand Ego, known for its trendy women's footwear, clothing and accessories, also faced unique challenges with this legacy platform.
Speaker Change: Additionally, we welcome exciting new brands such as Kong, a trusted pet brand known for its durable
Speaker Change: We have a big opportunity to drive growth by more cost-effectively cross-selling feedenomics to the tens of thousands of customers on the BigCommerce platform.
Speaker Change: This initiative is in beta stage with select customers now and a broader rollout with new paid features will be available to existing customers ahead of the holiday season.
Speaker Change: We're building a self-served version of MakeSwift into the BigCommerce platform with key product of Jack Ball Stones and paid features expected late this year or wholly next year.
Speaker Change: Several additional bundle offerings are currently in development. These product bundles aim to simplify the commercial requirements of customers adoption of best and breed commerce architectures.
Speaker Change: This will build stronger relationships with our partners while creating new revenue opportunities with our customers.
Speaker Change: Our new BigCommerce payments offering remains on track for an early 2026 launch which will be an optional payments offering for small and medium-sized customers looking for a streamlined integrated offering with strong payments processing rates.
Speaker Change: This offering aims to improve our overall monetization and retention rates in the business.
Finally, AI remains a key area of focus.
Speaker Change: We are leveraging AI to deliver major improvements to sales and support efficiency. We have also built internal tools to design tailored architectural recommendations to customers.
Speaker Change: Fedonomics continues to lead embedding AI into workflows to improve data matching and channel performance. More AI-driven enhancements are coming across CX, partner integrations, and merchant enablements.
Speaker Change: This is feedenomics's sweet spot, powering product data syndication for over 30% of the internet retailer 1000.
Speaker Change: As tools like open AI and perplexity drive the next wave of agentic shopping, we're making sure our customers are in a position to lead while driving frictionless customer experiences.
Speaker Change: Looking ahead, we remain focused on creating measurable value for our customers and our shareholders. The changes we've made are working. And we believe they set the foundation for renewed growth in the quarters to come.
Speaker Change: or encouraged by our progress, but we know we still have work to do.
Speaker Change: As we said in our investor day, this is a crucial transformation year for the business.
Speaker Change: With that, I'll hand it over to Daniel to walk through the financials.
Daniel Lentz: Thanks, Travis. Before we dive into my commentary on the quarter, I want to highlight a few areas that demonstrate our market position and improving financial profile.
Daniel Lentz: ARR is 351 million as of the end of Q1 2025, a 3% increase year-over-year, while average revenue per enterprise account finished just over 45,000, a 9% increase year-over-year.
Daniel Lentz: Our non-GAAP gross margin strengthens to 80.3% up 240 basis points year over year, and non-GAAP operating income margin finished Q1 at 9.2% up 530 basis points from Q1 2024, and 1,820 basis points from Q1 2023.
Daniel Lentz: We closed Q1 2025 with a solid balance sheet, including 121.9 million in cash, cash equivalents, and marketable securities.
Daniel Lentz: Our operating efficiency continues to improve, with quarterly operating cash flow of approximately 400,000, up 3.8 million from Q1 2024, and up 21.2 million from Q1 2023.
Daniel Lentz: We have reduced our net debt position to 32.2 million, a 59% decrease year over year, with maturities of approximately 4 million due in 2026 and 150 million due in 2028.
Daniel Lentz: We are making measurable progress on our go-to-market transformation. Our real-line sales organization is now fully structured around our B2B, B2C, and small business offerings. Hiring to double our quote-a-carrying sales capacity is substantially complete, and early signs from pipeline conversion rates are encouraging.
Daniel Lentz: As Travis outlined previously, we're on track for the key initiatives we discussed in our recent investor day, including the launch of a BigCommerce payment solution, launching self-serve versions of feedonomics and makeswift to our existing platform customers,
Daniel Lentz: and Building Bundled Solutions with Key Partners to make it easy for customers to design and deploy solutions with leading technology partners in our industry. These initiatives are key to our wallet share expansion goals and a focus area for Q2 and beyond. . .
Daniel Lentz: Before turning to guidance, I want to briefly address recent developments related to global trade and tariffs. While BigCommerce is not directly involved in the manufacturing or physical movement of goods, many of our customers operate across borders and within effect supply chains. [inaudible]
Daniel Lentz: We're closely monitoring how shifting trade policies and increased tariffs may influence our customers' operating environments, particularly for international sellers and brand sourcing from impacted regions.
Daniel Lentz: Our most direct exposure to the potential impacts of macroeconomic uncertainty and change in this area would be in partner and services revenue or PSR which constitutes approximately 25% of our total revenues and is driven by revenue share on transaction volumes from various technology partners.
Daniel Lentz: Potential effects on business sentiment may affect pipeline generation and conversion rates over time as well
Daniel Lentz: While we have not yet seen a material impact from increasing macroeconomic uncertainty on our performance or pipeline, we are maintaining a cautious view and partnering with our customers provide thoughtful support and flexible solutions in this environment.
Daniel Lentz: Let me transition to a related impact on guidance. Broadly speaking, we believe the current environment increases the potential range of revenue growth results we may see in 2025. To be clear, we built plans expecting 2025 to be a challenging year as we execute transformational change.
Daniel Lentz: We are encouraged by results so far and we see potential upside to our previous revenue growth guidance That said, we also believe increased macroeconomic uncertainty could have a downside impact on growth expectations as well [inaudible]
Daniel Lentz: For Q2, we expect revenue between 82.5 million and 83.5 million, and non-GAAP operating income between 2.7 million and 3.7 million.
Daniel Lentz: We expect non-GAAP operating income between $16 million and $28 million for the full year.
Daniel Lentz: From a profit perspective, we are managing spending carefully to account for macroeconomic risk and also to maintain optionality to reinvest in the business throughout the year to drive growth. We believe this balanced guidance adjustment reasonably represents the range of possible outcomes at this time given the dynamic economic environment. Thank you very much.
Daniel Lentz: Our commitment to operational discipline remains unchanged. We will continue to invest in high ROI areas that deliver durable values, specifically our sales capacity expansion, AI innovation initiatives and core product initiatives to fuel growth in the business. [inaudible]
Daniel Lentz: In closing, we're pleased with our Q1 performance and encouraged by the early moments in our business transformation efforts.
Speaker Change: We remain committed to delivering profitable, sustainable growth that creates lasting value for our shareholders. We look forward to sharing further progress with you in the quarters ahead. With that, Travis and I are happy to take your questions, operator.
We will now begin the question and answer session.
Speaker Change: To ask the question, you may press star and one on your touchstone phone. If you are using a speaker phone, please pick up your handset before pressing the keys.
Speaker Change: If at any time your question has been addressed, and you would like to withdraw your question, please go stars and two.
Speaker Change: At this time, we'll pause momentarily to assemble our roster.
Speaker Change: The first question today comes from Raimo Lenschow with Barclays. Please go ahead.
Ramo Lenchow: Perfect. Thank you. Congrats from a good solid quarter here. I was really encouraged on the science that you kind of mentioned in terms of early progress. Can you kind of discuss that in a little bit more in detail in terms of, you know, what you mentioned here on the pipeline side, etc. And then also maybe as part of that, put it into context in terms of
Ramo Lenchow: Obviously, you're trying to control the controllable. There's tariffs coming in there. How do you get visibility on either end? Thank you.
Ramo Lenchow: No, a great question. Yeah, as far as encouraging signs, I mean, the most notable is obviously size of pipeline, sequentially, quarter over quarter, and year over year, and as I highlighted in...
Ramo Lenchow: and the opening remarks, we've seen that particularly within B2B, which has been consistent momentum-wise in what we've seen in that new bookings over the last. David Hynes, David Hynes, David Hynes, David Hynes,
Ramo Lenchow: and then on the terrace side I'll let Daniel add color. Certainly it's hard, we're keeping a close eye on the macro certainly and it's hard to understand the supply chains of many of our customers. Some may presume to be more obvious than others. We've not seen obvious tangible signs yet where we feel comfortable pining on it but certainly are very consciously aware that... [inaudible]
Let there some exposure there, given some of the macro trends. [inaudible]
Ramo Lenchow: And, Daniel, if you think about it, how do you think about your investment levels in terms of cost, et cetera, as Michael changes one way or the other, I hope flexible are you there. Thank you.
I would say...
Ramo Lenchow: When you look at where we are on the guidance range on non-GAAP operating income for the year, we widened that a little bit compared to where we were before. I'd say there's specific reasons for that. It's because
Ramo Lenchow: There's really opportunity that we see in the business to invest. In the areas we see specifically related to AI, what that can mean for commerce in particular. We want to have dry powder available in order to capitalize on those opportunities throughout the year. And it's moving and changing really quickly in exciting ways, which I'm sure we'll get to later on in Q&A. So part one is we want to make sure that we have...
Ramo Lenchow: Spending available to make bets that can pay off, we think in a big way in accelerating growth in the medium term, but on the flip side we're also going to be very cautious about how we're spending money so that we protect margins in a reasonable way, with the amount of uncertainty that we have right now in the market. I mean, and as we said in the prepared marks. [inaudible]
Perfect, thank you.
Speaker Change: The next question comes from Ken Wong with Oppenheimer. Please go ahead.
Great. Thanks for taking my question.
Ken Wong: Travis, it sounds like pipelines are holding in fine. As you engage customers, this quarter, April , May, any color in terms of how those conversations, how close rates.
Speaker Change: Friended from January through May to help us get a sense for how the exit was starting to look.
David Hynes, David Hynes,
Speaker Change: So, we've seen probably a half dozen or so big global deals in the mix over the last couple of months. Obviously, those deals have different dynamics to them. They're typically contractually obligated to legacy partners with...
Speaker Change: with timeframes and things like that. So we would expect a slower sort of conversion. [inaudible]
Speaker Change: I wouldn't say that we're surprised by that. It was an expected outcome. We're pleased to see it. Everything else is sort of as normal, but hard to ignore some of the volatility and some of the presumed headwinds folks might have with supply chains within tariff.
Impact the Territories. So
Speaker Change: Got it, perfect, thanks for the color. And Daniel, definitely pause, you know, look, understandable on the widening of the range, positively surprised that you guys actually raised the upper end as we speak about
Speaker Change: How to get there? Is it simply a matter of status quo and you would see the upper end or something need to happen to get to that upper end?
I would say...
Speaker Change: There's some things that need to not happen and there's some things that need to happen the things that need to not happen is a Recessionary shift or inflationary pressures as a result of change in tariff policy
Speaker Change: If that really starts to manifest itself, and I think it would be challenging for anybody that's moving goods, particularly with
Speaker Change: Concentrated Supply Chains, particularly from China. And so I think if that really plays itself out, that creates a headwind.
Speaker Change: That would be difficult. And what we talked about this at our investor day, we expected the year to be challenging. We did not bake in some sort of macroeconomic tailwind into our assumptions when we built our financial plans for the year. So we just needed to not become a headwind. [inaudible]
Speaker Change: You get to the high end of the range. I'd say it's two things. One, we need to continue to see building pipeline behind the investments that we've made in sales and marketing. Number two, we want to see some really good returns on some step ups that we plan on increasing on marketing spend particularly in Q2 and Q3 behind some of the branding work that we're doing. . . . .
Speaker Change: and, number three, we need to see those play out in good conversion rates and what we're doing particularly in the area of B2B. So, look, as we thought about the guidance and the range, it's not all downside. I mean, I think it's...
Wides and prudent to account for that because that's frankly out of our control. But largely speaking, when we look at where we are versus our internal plans,
Speaker Change: We're kind of where we expected to be at this point. We thought this was going to be a challenging year. We have a lot of change that we're metabolizing that we're excited about.
Koji Aikda: Next question comes from Koji Ikeda with Bank of America. Please go ahead.
Speaker Change: Yeah, hey, good morning. Thanks so much for taking the questions. I wanted to ask the question on.
Really great to hear the payments.
The payment strategy is on track here for 2026 launch.
Speaker Change: But I also saw, you know, press release earlier for me guys about Kolarna being coming up, a global preferred payment partner and so the question here is how to think about your guys' plan for pushing payment options in 2025.
Speaker Change: to your customers and partners, knowing that a new payment offering is coming next year.
Speaker Change: Yeah, no great question. Listen, I think directionally we want to provide optionality to customers. We've been pretty open about this in the technical approach and strategic approach. We want to be able to bring best in class.
Speaker Change: capabilities to customers across all three of our core offerings. That being said, Clarna, obviously a long standing buy-and-out pay later, partner with us, they've moved to a preferred partner status, and we know statistically, BigCommerce customers that use buy-and-out pay later have higher conversion rates that's certainly goodness that we're going to evangelize out to our customer base where that makes sense.
Speaker Change: On the BC Payment side, the thesis there is, we believe that there is a large subset of customers that would benefit from ABC, an ABC Payment option. We've talked time frame on that, really now it's targeted really early next year for optimized customer experience, something that's easy and also lucrative. [inaudible]
Brent Bellm, Unknown Executive
and short order as well.
Speaker Change: Scott, thank you, Travis, and maybe a follow up here for you, or Daniel. So, um...
Speaker Change: I appreciate all the color and the prepared remarks about guidance and PSR in the current macro.
Speaker Change: I was also wondering on how you guys are planning to treat potential speared downgrades this year, just knowing that, you know, that GMV is a component of subscription tiers. And so how do you think about it if GMV is not reaching those certain thresholds and downgrades could potentially happen with your clients?
Speaker Change: I think we need to see again how it plays out in the macro. For folks on the call that may be new to us or unfamiliar with how we handle pricing a little bit of background maybe helpful here because it's different than how other folks in our space do this. What's sometimes common among some of our larger competitors is their pricing is basis points on GMV. I'm sorry. I'm sorry. I'm sorry. I'm sorry. I'm sorry.
Speaker Change: and there's advantages to that model, there's downsides to that model, it tends to make pricing more elastic to short-term sudden changes in volumes.
Speaker Change: To your point, we could see downgrade pressure on pricing, but it's more moderated and how it hits us and how fast it hits us. Now, that's good for us as a company because it makes our revenue line item I would argue perhaps a little bit more durable and less prone to sudden shocks and swings, but also makes pricing more predictable for our customers because they don't see month to month changes in their pricing. [inaudible]
Speaker Change: But we need to see how this plays out. I don't, you know, if I knew how to predict what was going to happen in this area of the macro economy, there's a lot of other ways that I could be trading options and be different from what I do today.
David, thank you. Thank you.
Speaker Change: The next question comes from David Hynes with Cannecourt. Please go ahead.
Speaker Change: Hey guys, Travis Cumbrats on making quite a bit of headway on the Salesforce growth, nice receiving investments, logic complete there. I'd be curious to get some commentary on
Speaker Change: kind of the profile and the experience of the reps that you've added and you know how long do you think it will take to tell if the new reps you've onboarded are a good fit for BigCommerce. [inaudible]
Speaker Change: Yeah, we've got, that's a great question, David. Listen, the profile of reps obviously varies based on the line of business and the market. Clearly I've been pretty public in hedging towards more experienced folks.
Speaker Change: Having come out of commerce myself in 20 years, I think the market is such that yeah, there are aspects of it that are commoditized around features and functions, it's now very business outcome oriented and I think experience. I think it's a very good experience.
Speaker Change: is an added advantage as we kind of navigate the proliferation of channels and the inventory, orchestration and distribution in the back office and lots of really interesting things that are happening with AI in particular. So that's been on the enterprise side, there's a lot of, the good news is a lot of talent on the street.
Speaker Change: So a lot of experienced folks have been in space for a long time. There's been a couple of trip ups with some of our competitors so that's...
to onboard folks faster and more effectively than we probably would have had in the past. As far as the onboarding...
Speaker Change: Again, I would expect an experience rep to onboard and hit stride faster than maybe a less experienced rep, Daniel as quite credibly built all of this into kind of the model as we've staggered foes but generally speaking we look at roughly, you know, a six months
Brent Bellm, Unknown Executive
on the new business front, if that's helpful.
Speaker Change: Yeah, notice. Thank you. And then Daniel, maybe one for you, look, I understand kind of the optimism, you know, the progress with some of the changes that you guys have implemented, but I look at, you know, the number of enterprise accounts and it's declined again more significantly in Q1. It's five three quarters of kind of sequential declines.
Speaker Change: For us to see a re-exceleration revenue growth, do we need to see the number of enterprise accounts growing on a sequential basis before that happens?
I would say it's a mixed...
Speaker Change: The story on that, let me describe what I mean by that. We have had five quarters of…
Travis Hess: You will never hear Travis Rice say we are okay with that. So let's just start with that. We're not okay with that. On the flip side we've also had six consecutive quarters of accelerating growth and average revenue per account.
Travis Hess: and our focus is very much on the dollarized aspect of growth more so than the unit count. [inaudible]
As we said before, we want to see both.
Travis Hess: We expected the front half of the year in particular to be challenging. You're bringing on a bunch of new reps. You're asking them to work territories differently than we have in the past. We've got a significantly different marketing team in terms of size, remit, leadership group. We expected the front half to be challenging. So I'm not surprised at all on where that landed and certainly the economic noise doesn't help. It doesn't make it any easier. But in order to accelerate growth the way that we want, yes, that number needs to increase.
Travis Hess: We need to see unit numbers increasing, but I don't think it needs to increase quite as much as you may think. If, again, if you get back to the fact we've got six consecutive quarters of accelerating average revenue per account, and we don't even have a market yet, all the initiatives that we're working on intended to grow wallet share and never ever new retention with our existing accounts. We're working on a self-sterversion of feed dynamics that can go to our base where they get some of the benefits of feed dynamics on a free version with the paywall features behind it. Same thing for MakeSwift. We're working on a self-sterversion of feed dynamics on a free version with the paywall features behind it. We're working on a self-sterversion of feed dynamics on a free version with the paywall features behind it.
Travis Hess: BigCommerce payment solution, working on bundles. I mean, there's so many things that we're looking at that I think can provide a tailwind to the dollarized number that I don't think unit count has to increase as much as people think but I will never be satisfied until both are growing. Yeah, perfect. Thank you guys. Thank you.
You bet.
Travis Hess: The next question comes from Parker Lane with Stiefel. Please go ahead.
Parker Lane: Looking at 2Q, Operating Income Guidance, just trying to understand how much of the improvement year-rear is going to come from gross margin gains versus some OPEX leverage.
Parker Lane: Gross margins are definitely healthy. I'm pleased worth the word they are. It's important to call out. We also have some expenses that we used to classify and cost of revenue that we needed to move into sales and marketing starting this quarter. That's not why margins by themselves are improving, but we've called that out in RQ. That just has to do with some sales enablements and some stuff that we felt we needed to move around. But overall, we're seeing good results and what we're spending and hosting. We're seeing strong results and what we're spending and support. We're seeing strong results and support. We're seeing strong results and support.
Parker Lane: I think that the improvements in gross margin are sustainable throughout the year. If I look at where we would see growth in operating margins overall, I think more so that will be driven by revenue growth acceleration and continue discipline on what we're doing in operating expenses. That's it.
Parker Lane: We are expecting and the guidance reflects that we're going to see a step up in OPEX and Q2. We do our annual merit salary and merit increase in Q1s. You see the effect of that in Q2, which is why there's a sequential step up in OPEX for us in Q2 every year. But we also have planned investments and go to market particularly in marketing that are stepping up in Q2 and Q3 as well. So I really encourage what we're doing. I think structurally we're in a good place. We're in a good place. We are in a good place. We are in a good place.
Parker Lane: We need to get to the revenue targets and manage through an uncertain macro, but I feel good about where we are overall. [inaudible] I'm sorry, I'm sorry, I'm sorry
Parker Lane: I understand, appreciate that feedback. And then on, on partner and services, you know, you mentioned that would be an area that you see, any potential cracks in the macro, more quickly than in subscription. Just looking at this particular quarter Q1, was that just normal seasonality in line with your expectations? Or was there anything that was influencing that number, quarter of a quarter, whether it be, you know, partner specific partner agreements, et cetera, that would try that performance? Yeah.
Parker Lane: I would say what we saw in Q1 was pretty normal. I think where the noise started kicking in more was after the announcements on all of the different specific changes and tariff rates. We saw kind of a little noisy during that week on a day-to-day basis. Some days were up quite a bit compared to year-to-year, there are other days that were down. It kind of settled back into what I would consider normal after the noise of that first week, but it's only been a few weeks, and that's a lot of choppyness to manage, which is why I think we're just being cautious about how we're thinking about this for the rest of the year. I'm sorry. I'm sorry. I'm sorry.
Parker Lane: So far so good, but we need to see how people adjust supply chains, does this end up inflationary, you know, we'll see
All righty, appreciate it. Thank you.
Speaker Change: The next question comes from Maddie Schrage with Keybank Capital Market. Please go ahead.
Maddie Scrooge: Hey guys, thank you for taking my question. Daniel, you kind of touched on this a little bit earlier, but I'm wondering if you guys could talk about the progress that you've made on your freemium offerings with make switch and feedenomics and maybe how far away you are from launching those.
Maddie Scrooge: And then my second question is about Gross Margin upside. Obviously, you'd kind of just touched on moving some of those expenses into sales and marketing. And I'm wondering if that changes kind of your 80% target that you guys have previously set for where you think Gross Margin should shake out. Thanks.
Speaker Change: Thanks for the question, Maddie, I'll handle the first one that turn over to Daniel.
Speaker Change: on the Fedo and Fedonomics and MakeSwipfront. Progress has been great. We're in beta right now with self-serve Fedonomics.
Speaker Change: with a small subset of customers. I would expect to see that out in the wild here sooner rather than later. And lots of other AI enhancements coming there as well across that broader product suite and partnerships. Thank you.
Speaker Change: We've been actively engaged with around open AI and perplexity, Microsoft, Google, and others as we continue to enhance.
and Surface, both catalog data and inventory data for clients.
Speaker Change: The makeswift is makeswift self-service is a bit farther down the road. We've I think announced late this year, early next year, which we feel really good about. That's progressing as intended, and we'll continue to keep, obviously everybody updated as we progress quarter over quarter, but both those are on track as expected since the beginning of the year. And Daniel, turn it to you for the other.
Daniel: Yeah, from a margin basis, Mattie, we factored this into our discussions on margins when we were at our investor day. I think that we can sustain
Speaker Change: Great and then just one quick follow up you guys can touch on what it would take to get to the high end of guidance and I'm. Just curious what you baked into the low end I'm guessing from a macro perspective, how bad do things have to get.
Daniel: To get to the low end, we would need to see.
Daniel: Increases in churn rates in particular beyond what we are seeing right now in order to get there our plans bacon assumptions that we are going to make improvements in grocer, even as we are making efforts to expand wallet share.
Daniel: What I said about our pricing model you'd have to see not just a downturn, but a fairly sustained one in order for that to really play itself out in downgrades and what we see in subscription revenue, if we see a sharp macroeconomic downturn.
Daniel: Two areas that we would see it obviously PSR being the first the second would actually be in conversion rates on new deals and new opportunity if that bleeds over into business sentiment and their willingness to pursue either you know business with feet economics, or the big Commerce platform product.
Daniel: So the growth side with new customers and again, we haven't seen that to this point. So I don't want to overemphasize the downside because again, we haven't seen it at this at this point, but I just think it's wise to call that out given the climate.
Daniel: Totally understand thank you guys.
Speaker Change: [noise]. The next question comes from Josh Bair with Morgan Stanley. Please go ahead.
Speaker Change: Thanks for the question Daniel you were alluding to some areas of potential investment for which you wanted to keep some dry powder just hoping you could review some of those what's most exciting as far as opportunity and then the follow up like what would it take for you.
Speaker Change: Forward with those investments something you'd be looking for from a demand perspective or growth perspective before ramping those investments. Thanks.
Speaker Change: Yes, I would say.
Speaker Change: The largest area of opportunity right now we feel really bullish about is AI I just alluded to it a few minutes ago in Mattie's question around Phenomics I think in the in the new World Order, obviously and.
Speaker Change: Across markets across different channels by which customers expect and want to receive things and we are already doing that today with phedonomics across 30% of the Internet retailer 1000, So there's a lot of.
Speaker Change: Partnerships with Microsoft in Google and many of our Premier payment partners that is by and large the largest area of potential increased investment as quickly as all of that is progressing so excited to hear more about that as it.
Travis Hess: This call and then if you want to add any color to that yeah. All I would just elaborate on a little bit is just to Travis's point. This isn't just about go to market investment. This is about product investment and if we where we do this it will be moderated and wise, we're not going to have huge swings of what we're talking about.
Travis Hess: Why we set guidance the way that we do but I'm really excited about the possibilities in this business and how we can power AI as it takes on comp I think there's a huge opportunity in this area and we're already in active conversations with all the leading players in this area as Travis talked about so I think that.
Travis Hess: Part of it also is we've got a lot of good exciting things coming with respect to branding what we're doing in go to market you know in a lot of ways as we kind of contemplated the front half of the year, we knew going into the front half of the year that it was was going to be challenging in many ways and we haven't.
Travis Hess: We're so excited about that folks haven't seen and so I think there's a lot of investments that we have planned we're excited about with our team and marketing what we can do in product, we just need to be disciplined and choiceful about how we do that what do we choose to build what we choose to partner I think that's good for our customers.
Travis Hess: The next question comes from Mark Murphy with Jpmorgan. Please go ahead.
Mark Murphy: The complex category. The company is that include direct sell and regulated industry and home decor can you describe a little bit about what's giving you guys. The success in that space and when you talk about the strong momentum there is that kind of a continuation of a trend or are you seeing kind of a picked up traction. Thanks.
Mark Murphy: It's a good it's a great question I would say, it's it's a continuation I think we've historically had success in some of these niches for a myriad of reasons. The most notable of which is they oftentimes require some semblance of.
Mark Murphy: You know reasonably complex use cases the thing we're focused on is making those those use cases easier to deal with more efficient to deal with over time, and we think just that the nature and architecture the platform and the product suite maps quite nicely to.
Mark Murphy: So we've been there before we haven't talked about it at the level that we're talking about and now we're being much more deliberately focused and going deeper within those respective areas and trying to create more tangible examples in use cases, so it's a bit more obvious.
Mark Murphy: To to focus on the call and investors out there as to why it's a great fit because there is a massive market. There. It also lends itself into the btwob side of the business as well, which is also by by definition, a very complicated sort of.
Mark Murphy: As far as what people need relative to the platform. So I would expect us to do more there more around pre composed accelerators and industry specific solutions that will come with bundles of other technology partners pre.
Mark Murphy: Becomes just an essential barrier of entry that obviously will widen our Tam as we continue to progress down that road.
Speaker Change: I'm very helpful. Thank you and then Daniel I know you talked about not seeing any material impact to your business right now from from tariffs or the macro in general, but curious are you seeing customers talk about it more or do they kind of see more and more from you.
Speaker Change: Are you surprised that that was kind of been no impact from you know what I'd characterize as pretty volatile you know macro and tariffs. Thanks.
Speaker Change: Where are we hear about it it's from customers that have supply chain challenges based on how diverse their sourcing is so.
Speaker Change: I'm very optimistic about where the business is but I'm also very cautious about a wait and see on how this can play out until folks get through their inventories and figure out how they're gonna replenish those inventories on a high tariff environment, we're not out of the woods and I think anybody who would say different is.
Speaker Change: [noise], maybe not as cautious as maybe they should be so I think that's kind of the wait and see aspect of this is I I don't know that we've really seen the full effect of how that can affect inventories and that's not something we see very clearly on our side, we see finished goods transactions to consumers.
Speaker Change: Where people are sourcing that inventory from and I, just think it's going to take still a few weeks to see how that plays out.
Speaker Change: That's super awful and just just to one very quick follow up there are you, saying that perhaps some of the inventory levels that customers have is what's given them. Some resiliency like at least in the short term I mean I'm not in the economist I don't I only want to go so far out on a limb on this.
Speaker Change: I mean, I've I've worked in CPG I've worked in other industries I've looked at how you have to move inventories around you can't move supply chains on a time and so I think that's really the question for me is how much stock did folks have how successful are they in moving inventory around and.
Speaker Change: Before we start to see that in the numbers I don't think we're there yet we'll see.
Speaker Change: I appreciate it thank you.
Speaker Change: As a reminder, if you would like to ask a question. Please press Star then one to be joined into the question queue. The next question comes from Scott Berg with Needham. Please go ahead.
Scott Berg: [noise] hi, everyone. Thanks for taking my question I didn't really hear anyone ask this travis but as you look at your you know kind of new sales pipelines here in April after all the you know tariff promotion you know started to fire up are you seeing a change in behavior specifically U.
Scott Berg: 30 days or or is that spelled maybe you know you had to play out this quarter about too early to play out no. We haven't seen I mean, I think again. This is somewhat conjecture, obviously I alluded to earlier, we've seen obviously b to be notably Inc.
Scott Berg: If someone asked me why I thought that was I would argue often times in the BTB focused areas that tends to be a cost savings thesis. So there I would assume there'd be a sense of urgency there as smaller folks looking to five.
Scott Berg: Particularly around FTE labor and moving that into more of a digitized solution or consolidating oftentimes complex backends and back offices. So I suspect just with the macro environment, when there's a cost savings and.
Scott Berg: Transform the presumption would be there'd be a sense of urgency there to increase pipeline too early to tell to see if that's a that's a real trend, but we're also starting to see some of these larger deals that I alluded to earlier. Many of those are also looking to create some savings.
Scott Berg: To materialize across pipeline. So we'll keep obviously folks updated across earnings next quarter and what trends that we're seeing but we are we are operating as expected as we've alluded to we're seeing nice trends in the business, but too soon to really tell.
Speaker Change: Great helpful. And then Daniel as you think of your guidance for the year I know you talked about impact number one would be P. S. R and two one net new business just wanted to clarify on on the guidance. The increased range is that all.
Speaker Change: Excellent. Thank you.
Speaker Change: The next question comes from Bryard Bryant Peterson with Raymond James. Please go ahead.
Speaker Change: Oh, Hi, gentlemen, thanks for taking the question. So one thing that's come out of earnings so far over the last couple of weeks is the idea of search traffic and how that's changed as you've talked to your customer base have they talked about any changes in traffic coming to their websites and as you think about how you.
Speaker Change: Is there anything that you're doing on the product portfolio to to really help address that yeah, I can't speak tangibly to specific clients coming to us on on those specific challenges, but I can tell you, yes, proactively I kind of alluded to a couple times around obviously more search traffic.
Speaker Change: And things like that obviously, we are very actively involved in optimizing those capabilities for discoverability for our merchants across those mechanisms by which people are searching against versus the traditional mechanisms. We're also.
Speaker Change: This giant proliferation of channels, and where customers want to discover product independent of industry or market and so this is a fundamental.
Speaker Change: Element of our product strategy and product suite strategy of allowing organizations, our merchants basically to go to customers independent of channel with a mergin and value and allowing them to experience. The the brand the product the service across.
Speaker Change: Regardless of how they order it or buy it and so yes, there are nuances to that it oftentimes does come down to the optimization of product and catalog data and having that optimized across those particular mediums and channels, which we do day in and day out through feed economics, and then also looking at servicing.
Speaker Change: Inventory available, where we ultimately want to service the most profitable available inventory based on where our customer wants to or expects to receive a certain product service are good and then orchestrate that on the back end, so you're going to see more and more of that come up as folks start.
Speaker Change: It's going to be a different motion and a lot of it is going to come down to the cleanliness and optimization around the product and fee data. So we'll continue to share more about that as it evolves, but yes that is a heavy investment area heavy trend and heavy efforts.
Speaker Change: On specific use cases and clients coming to us asking for things I. Appreciate the color. Thanks, guys Yeah of course.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Travis Hess CEO for any closing remarks.
Speaker Change: Thanks, so much I want to thank everyone for joining today appreciate the involvement and the questions. We feel really good about where we are we are on track against our broader plan that we've outlined over the last couple of quarters, including our investment day, we are.
Speaker Change: Encouraging signs and shoots within pipeline and access to business that we've not yet seen previously at rates. We're really pleased about seating the entire senior leadership team. Most recently over the last couple of weeks so.
Speaker Change: Certainly next quarter and keeping everybody posted on our progress.
Speaker Change: The conference is now concluded. Thank you for attending today's presentation you may now disconnect.