Ladies and gentlemen, thank you for standing by, and welcome to the BigCommerce Second Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your first speaker today, Tyler Duncan, Senior Director of Finance. Please go ahead.

Good afternoon, and welcome to BigCommerce's second quarter 2023 earnings call. We will be discussing the results announced in our press release issued after today's market close. With me are BigCommerce's CEO and Chairman, Brent Bellm; and CFO, Daniel Lentz. Today's call will contain certain forward-looking statements, which are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements concerning financial and business trends, our expected future business and financial performance and financial condition and our guidance for the third quarter of 2023 and the full-year 2023. These statements can be identified by words such as expect, anticipate, intend, plan, believe, seek, committed, will or similar words. These statements reflect our views as of today only and should not be relied upon as representing our views at any subsequent date, and we do not undertake any duty to update these statements. Forward-looking statements, by their nature, address matters that are subject to risks and uncertainties that could cause actual results to differ materially from expectations. For a discussion of the material risks and other important factors that could affect our actual results, please refer to the risks and other disclosures contained in our filings with the Securities and Exchange Commission. During the call, we will also discuss certain non-GAAP financial measures, which are not prepared in accordance with generally accepted accounting principles. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures, as well as how we define these metrics and other metrics is included in our earnings press release, which has been furnished to the SEC and is also available on our Web site at investors.bigcommerce.com. With that, let me turn the call over to Brent.

Thanks, Tyler, and thanks everyone for joining us. I'll start today by discussing our Q2 performance and progress at the halfway point of the year. I'll then share my perspective on our growth strategy and provide additional detail on recent leadership changes. In Q2, total revenue was just over $75 million, up 11% year-over-year. Our Q2 non-GAAP operating loss was just over $3 million, which was ahead of our quarterly guidance and a strong indication of our confidence to reach breakeven on an adjusted EBITDA basis in Q4 of this year. Later, Daniel will share greater detail on our financial results and conclude the call with a discussion on updated guidance. I want to highlight two milestones that our business achieved in the quarter. First, we reached profitability on an adjusted EBITDA basis in the month of June; and second, we delivered positive free cash flow for the first time, driving just under $14 million of free cash flow for the second quarter ended June 30, 2023. To be clear, these milestones are starting points only. We have a long way to go to reach our ambitious goals in terms of revenue growth, profitability, and cash flow. But it is worth noting that we have delivered nearly 1,600 basis points of improvement in non-GAAP operating margin compared to Q2 2022, and significant improvement in cash flow generation as well, in response to and against the backdrop of a difficult macroeconomic climate. I would like to thank our entire BigCommerce team for the hard work that was required to deliver that. We concluded Q2 with an annual revenue run rate, or ARR, of approximately $331 million, up 12% year-over-year. That represents a sequential growth in ARR of just over $14 million. Enterprise account ARR was approximately $236 million, up 14% year-over-year.…

Thanks, Brent, for your kind remarks, and thank you everyone for joining us today. During my prepared remarks, I will cover our Q2 results in detail, provide additional detail on our progress for the year, both where we are showing strengthening trends and where we need to improve, provide updated guidance for the remainder of the year, and I'll conclude by speaking to my primary focus areas as CFO. In Q2, total revenue was just over $75 million, up 11% year-over-year. Subscription revenue grew 10% year-over-year to approximately $56 million, while Partner and services revenue, or PSR, was up 14% year-over-year to just over $19 million. Revenue in all of the Americas was up 9%, while EMEA revenue grew 27% and APAC revenue was up 3% compared to prior year. As Brent mentioned previously, we hit a couple of important milestones in our business in Q2, reaching breakeven on an adjusted EBITDA basis for the month of June and delivering positive free cash flow of nearly $14 million for the first time for the second quarter ended June 30, 2023. To be clear, we have a lot of work left to do. These milestones represent encouraging evidence that the operating focus driving our 2023 financial plan is making progress, but we recognize that these results are starting points - not ending points. We are committed to profitable, long-term growth in this business and the disciplined use of capital necessary to deliver that. I'll now review our non-GAAP KPIs. Our ARR grew to approximately $331 million, up 12% year-over-year. That represents a sequential growth in total ARR of just over $14 million. Enterprise account ARR was approximately $236 million, up 14% year-over-year. Subscription ARR was up $12 million or 5% versus Q1 and up 13% year-over-year. At the end of Q2,…

We will now begin the question-and-answer session. [Operator Instructions] The first question is from Gabriela Borges of Goldman Sachs. Please go ahead.

Hi, this Callie Valenti on for Gabriela. And the first question for me is on the international market. You entered a lot of new markets there. Could you talk about where you're seeing the most traction within EMEA? And then what you're seeing in terms of overall customer demand in Europe?

Yes, in EMEA, U.K. remains our powerhouse and original market and it is definitely the engine of growth. On the continent, we continue to see very good traction really across the board. Italy is a particularly strong market for us. Benelux and Nordics have been healthy for us. The Spain, Portugal region is really starting to pick up nicely based on investments last year. And we continue to put good wins on the board in France, in the German-speaking region. The newer countries we expanded into, in Eastern Europe and the Middle East reflect markets where we were already getting strong organic traction even before we had marketing Web sites. And we're delighted to see that continuing.

Thank you. And then second for me is, on the back of the pricing increase that went into effect on June 1, how has the initial response been? Are you seeing more customers moving to annual payments? And has there been any impact on churn?

Yes, I would say -- thanks for the question, churn impact has been very negligible thus far, which has been encouraging. We need to see how those results shake out over the next two to three months, obviously. But I'd say, so far, again, it's been very encouraging. We haven't seen much of an impact. And yes, we have seen a big impact in the number of merchants that are electing to prepay. We're probably seeing probably twice as many merchants that are electing to prepay versus where they were before. And to be clear about this, the reason we're approaching this is not from the point of view of factoring receivable or trying to accelerate that. It's really about cohort health ultimately for us, at the end of the day that gets to what Brent had mentioned in his remarks, that we've seen an 80% to 85% uptick in cohort retention versus where we were last year, which has been a really healthy change for us.

All right, great. Thank you.

The next question is from Scott Berg of Needham & Company. Please go ahead.

Hey, this Rob Morelli on for Scott Berg. Congratulations on the strong quarter. Looks like enterprise ARR growth was around 14% for this quarter. You previously discussed anticipating growth of around 20%, you know, [exiting] (ph) fiscal year '23, now bringing it down to mid-teens, how visible is that goal given what you saw last quarter? Thanks.

This is Brent, and I'll start us off. We continue to believe that in a challenging global economy like the current one, 20% is, in the long-run, an achievable growth target for us, and in a healthy economy, potentially higher. We saw a couple dynamics in the second quarter that impacted our ability to achieve it. One was some major deals, especially with the enterprise side where the sales cycles have elongated, and they didn't close in quarter. A second dynamic which I think is probably happening across all of software; companies are, in this economy, prioritizing profitability and they're looking for ways in which to reduce their software spend. And the particular dynamic in ecommerce, we had merchants who were signing up in the go-go days of 2020, 2021, and potentially anticipated higher sales volumes, and they have achieved and signed up for larger limits with us. And they have realized, since then. And so, some of them have come back and said, "I want to restructure my contract with BigCommerce." And it's not a shocker to us, in that we've gone back and looked at all of our software contracts that we spend money on; reduce licenses, reduce unnecessary expenditures ourselves. That's one of the reasons why we're getting such great P&L leverage right now is eliminating unnecessary expenditures, and so, both of those dynamics impacted. I think, going forward, we're wise not to fixate on the quarterly achievement of a particular target like that, in particular because we have a dynamic and multi-segment business. And as Daniel discussed, we're seeing healthy over-performance in the SMB side, which in some quarters can make up for something else. Anything you'd add, Daniel?

No, I think all I would add to that is just, I think going into the year we knew, as we started to shift dollars more up-market, it was, like I said in my remarks, we're going to be shifting our weighted average sales cycle time. The increase in sales cycle time on larger opportunities has been kind of stubbornly longer than where we would have liked it to be at this time of the year. But overall, we're really encouraged by the underlying trends that we see. We're very excited about Steven starting, in particular as President. We think he's really going to be able to help accelerate our more up-market into this area. We think it's prudent, based on what we're seeing in a macro climate, to just be kind of in line with the trend that we're seeing there, and focus on what we're doing in the overall business. And again, I'd just reiterate, there's a lot of changes we've made in the practice and the way we're going about things in our business this year, from getting less aggressive on promotions, prioritizing pre-billing. And it's playing it out in earnings quality, revenue quality, bookings quality, that is really starting to pick up and show momentum in Q2 results. And we have said, going into the year, if we had to make some tradeoffs here and there, maybe marginally less growth in exchange for an outsized improvement in quality that would show up in margins and cash flow, we would do that. And I think we're seeing that in the results. But our long-term view about where we think we can be from a growth basis has not changed. We think that that is going to be largely driven by growth in mid-market and enterprise. But we've not walked away from our small business; it's a large business. Due to the actions we've taken, it has healthy and stable economics. So, there are a lot of growth vectors for us that we're quite excited about.

Got it. Thanks for the response, it was very helpful. That's all for me.

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

Hey, guys, this is Dan Reagan on for DJ Hynes. Thanks for taking my question. So maybe just starting with Brent, so you guys just hired Steve Chung; he appears to have a really solid background to be coming to BigCommerce, drawing on his experiences from Demandware and PagerDuty. I'm wondering if you could just discuss the key initiatives or changes you expect him to drive in the sales org? And then how does that translate to a potential acceleration in the mid-market and enterprise, with your ambitions there?

Yes, I'm giddy with excitement about the playbook and experience Steven is uniquely able to bring into BigCommerce. The common DNA we had with Demandware is that Larry Bohn, still on our Board, was our Series A backer and their Series A backer way back in the day. And Larry really points to Steven as being instrumental as the sales leader and catalyst for Demandware right after they IPO-ed in 2013, successfully moving up market, creating real buzz, interest, and credibility with the world's top brands and largest enterprises, and to take on and really win business against the legacy software giants of the time. It's that playbook for building excitement in market, credibility, leveraging existing customers who others look up to; who are highly referenceable is going to be a unique addition to the depth and strength we already have in sales, marketing, and customer support. So, I'm anticipating growing excitement, growing activation within our partner ecosystem, and a lot of businesses who might not previously have been drawn to consider us, relative to what they're using today, to come take a look. And we've always had high win rates. Once we get an opportunity to compete for an opportunity, hopefully he'll bring in many more opportunities. And he's got a lot of experience and a lot of individual techniques that we've talked about in the recruiting process. I think a quarter from now, after he started and then started to implement certain ones, we'll be able to say more about what specifically is changing.

Excellent, thanks for that color. And then I just had one for Daniel. First, I wanted to say congrats; our team has always been impressed by your work, so it's great to see you in the seat. I was just wondering if you could help us quantify the full effect of pricing changes across ARR metrics in Q2. And then also, what's the right way to think about growth in several quarters, when we eventually lap those pricing changes? Thanks, guys.

Yes, that's a great question, and thanks for the compliment, by the way, too. In terms of the total impact, if you look at the non-enterprise ARR growth rate, sequentially, it was around $7 million, I believe. And then quite a bit of that was driven from the pricing action. And roughly, maybe $3 million to $4 million of incremental cash flow as well due to merchants within our base that chose to prepay. I think what's interesting about the way we approach that portion of our business, going forward, is that part of what made it maybe slightly more difficult for us to put incremental investment into that business was just making sure that we had the cohort health and the underlying economics in a place where it made sense from kind the highest and best use of the next investable dollar to put into that business. And I think, over time, we will be able to start putting more investment in that area. I think the priority for us where -- and differentiation is still going to be mid-market and enterprise, so we really confident in the quality of the produce that we have in small business. It's not geared to go for every single portion of the small business market. I mean, we're an open platform; we're focused on merchants that are looking for that kind best-of-breed functionality with each of expansion, omni-channel interest, and things like that. So I think, over time, it gives us some opportunities to do so. I think over the course of the next couple quarters, I don't anticipate us adding sequentially a lot of ARR in that portion of the business just based on our spending plans for this year. But we think we can stabilize that more going into planning for next year. And then we think we can start to organically grow that in more of a self-serve go-to-market way that's much more cost-efficient for us so we can continue to focus our sales and marketing resources up-market, while still having healthy and stable growth in that portion of the business well over time.

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

Hi, this is George [indiscernible] on for Koji. Apologies if I missed this but in regards to the reaching EBITDA profitability in June, is the expectation for the business to remain EBITDA-positive going forward?

That's a great question, George. This is Daniel, I'll take that one. What we were calling out is that, for the full month of June, we got above breakeven on adjusted EBITDA, but that's not for the full quarter. We anticipate being still below zero for Q3. Part of the reason for that is just planned hiring; we have a little bit of an increase in sales and marketing expenditures, particularly in the mid-market that we had planned and also wanted to take advantage of some opportunities. So, we expect to be sequentially better in terms of EBITDA and operating loss than where we were in Q2, but not necessarily above breakeven for the full quarter. We are reiterating our commitment and confidence to get above the breakeven point for Q4. And again, I want to reiterate, adjusted EBITDA breakeven is a starting point. When Brent and I think about how we're running this business we're thinking about long-term healthy margins with very, very healthy free cash flow generation. Just to be very unambiguous about that. When we think about planning for this business, it's a milestone. But it is a milestone on a path to where we think this business can be from a cash flow generation basis. Important, I think is a milestone for where we track progress this year. And I'm particularly proud of the just very consistent improvements in operating leverage that we've shown for four quarters in a row. We've had over 400 basis points, on average, of operating leverage just as we said we would, in a very consistent way as we're approaching that goal in Q4. And I'm confident we can continue to do so. It's not easy, and we've got to execute, but we're excited to get to that kind of starting point, in Q4, and then have a healthy, balanced growth profile, profitability, going into next year.

Yes, awesome. And if I could follow up with another question, there's a sizable sequential step-up in partners and service revenue. How should we think about drivers of this revenue, going forward, and maybe things to keep in mind on this line item?

Yes, that's a great question. The improvements in PSR were largely just due to underlying improvements in consumption. I think what we're seeing is very much in line with probably broader macro trends in terms of the volumes. But it's important to understand, as we've said before, PSR does not track perfectly with GMV growth for us; it's one factor of many. We have a lot of different economic arrangements to the underlying PSR, which makes things a little difficult sometimes to project out from a year-over-year growth rate from one quarter to the next because we have slotting fee arrangements that may hit on a rev-rec basis more in one quarter than other. That's true as well in Q3, for example, where we anticipate having growth rates in the low single digits. Largely for that reason, it's kind of a base period effect and more of a mix difference between some of those large one-time arrangements versus more consumption-driven stuff. But we're encouraged by what we can see. We think we can do a lot better. We're by no means where we think we can get to in terms of overall attach rates, growth in terms of PSR. And we have a number of really fantastic merchants that we signed recently, many of which we talked about that we have not fully ramped. We're working on getting those up and running by holiday, where we think we can see a pickup in Q4 as well, which you can see is kind of implied in the guidance as well. So, not where we think we can be, but we are certainly encouraged by the progress.

Awesome. Thank you.

You're welcome.

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

Hi, this is [indiscernible] on for Parker. Thanks for taking my questions. To start, when you look at the non-enterprises cohort, would you say logo retention or pricing adjustments are having the most pronounced impact on momentum you're seeing there?

I'd say it's a combination of the two. So, if you look at the pace of contraction that we've seen over the quarters prior to Q2, it was slowing, even as we approached Q2. You saw in the forward outlook we were giving on that. We went into the year thinking it would contract in the mid-to-high single digits. Into Q1, we moderated that a bit. We thought it contract maybe in the single digits; now we think it can be positive. And the reason for that is it's not pricing that's driving the improvements and the health that we're seeing. Even apart from pricing, we're seeing really, really healthy improvements in retention. And part of that is because we're being very disciplined about who we are really marketing to, I mean we're directing our dollars in sales and marketing spend towards mid-market which has a spillover effect into the upper end of small business, maybe a little bit less in the entrepreneurial set, but established small businesses that really get a lot of value out of the product. These are stable, sticky small-business merchants, and we're being a lot more careful about the types of promotions that we're offering in order to bring them in. So, it's a little bit of both. Obviously, pricing is a big impact to that. But the underlying improvements we're seeing are baseline health, it's not just pricing.

Okay, that's good to hear. And then, moving back over to the enterprise category, what have been the primary contributing factors to elongation of sales cycle there? Is it kind of like a budget issue or lack of interest in replatforming, and do you have any expectations on when that can turn back around?

Well, by definition, any elongated sales cycle begins when somebody expresses interest in migrating. So, the interest we believe is out there in the market. Companies are just taking longer to negotiate and commit on large projects that are quite expensive for them. I imagine you're seeing that across many enterprise software companies in various categories.

Okay, thank you.

The next question is from Maddie Schrage of KeyBanc. Please go ahead.

Hey, guys, thanks for taking my question, and congrats Daniel on the new role. I was just wondering if you guys could talk about the investments that you are making in B2B. Would you say that this is primarily on like the sales team side, if there is more R&D features you guys need to build out or if it's actually a marketing push? And do you see any differences in terms of LTV to CAC with any of those customers? Thanks.

Yes. B2B keeps growing as a driver of our overall sales, but our sales teams are capable of serving any merchant on B2B or B2C in a sales context, and indeed quite a few of our customers are using us for both of those. And so, there is not really a distinction in sales in growing B2B. The product is advancing very quickly under an incredibly talented product and engineering team frankly isn't all that big, it's incredible just how efficient they are. I mean if you see that buyer portal that we released at the beginning of Q2, it's really industry-leading, it's one of the reasons why on G2 the world's businesses rate us by far their favorable B2B platform. They love the product. And as soon as that's out, they go to multi storefront compatibility, they go on to invoice incorporation into it, it's a very rapid expansion of what are already market-leading capabilities. The other nice thing about the B2B industry is so much of our competition is very much legacy software. Oftentimes B2B-only platform don't have all the incredible flexibility functionality user experience that we have from our B2C origins, and the combo of the two, B2B-specific functionality, but all the flexibility and usability from B2C is winner in the market.

I will address the question on LTV to CAC as well. We don't really see a very big difference between the LTV to CAC a traditional B2C versus B2B opportunity. B2B volumes, they tend to have maybe a little bit to your credit card transaction as you might see on a B2C side, which has a little bit of a flow-through effect into PSR. Nothing material, I mean we pay attention to it, but it doesn't necessarily adjust our planning. And then the acquisition costs actually are quite good in B2B as well. So, I mean from my perspective as we think about building out plans for the future, I get equally excited about opportunities, whether they're B2C, B2B or even hybrid. Honestly, I think we're very uniquely positioned as well.

Got it. That's super helpful. And I just wanted to touch a little bit about the investments that you're making on the enterprise side, you know, obviously you called out some weakness that we are seeing kind of most top very super large merchants, just wondering whey now, I guess how long you are expecting the ramp with Steven now and his team to take to kind of fuel this new engine that you guys have?

Yes, this is Daniel. I will address that one. I would say we are making significant progress compared to where we were a year ago in that upper-end of the market for us. And again, large enterprise opportunities for us today are smaller than where they will look five years from now, as an example, right. It's taking a little bit longer to ramp, but it's still materially improved versus where we've been in past years. When you are going into the year, we would be shifting dollars from very short sales cycle times, small business leads, and pivoting them into things that can take multiple months. That's just a very different sales and marketing motion than small business, and different teams are having to ramp up spending in new channels. So, I think we are very proud of the work that team is doing. We think Steven's leadership is really going to be helpful together what we are doing across sales and marketing and customer support. And we think it's going to improve over the course of the next several quarters. But just to be clear, this is something that we are committed to long-term. This isn't something where if it's a little more difficult in the back-half of the year than we had expected going into the year, it doesn't impact or change our strategy of moving up market. We think the upper-end of enterprise ecommerce is right for disruption and we think that our platform is the platform to do it. And it may take time to build share in that area, but this is something that we are convinced we can win in. What we are going to do is we're very measured, and we are going to be very disciplined in how we are applying capital against that, because we are going to be very much operate wisely with how we are thinking about profit and cash flow. But this is an area, again, we are convinced we can win, and we are committed to do so.

I appreciate the time, guys. Thanks.

You are welcome.

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

Thanks for taking the question. This is Ryan on for Keith. I was just kind of curious in the broader scheme of things, now you have had a few quarters into your enterprise sales realignment, how you feel about sales efficiency relative to expectations and kind of what incremental benefit that could provide, going from here?

Yes, I would say, as I said, going into the year we knew that fundamentally we would see less strong sales and marketing efficiency results than we were last year, clearly because of the change in pipeline duration, right? I mean the amount of -- you are going to be spending money for multiple quarters as you are building pipeline in the upper-end of enterprise. And so, we knew it was going to be a difficult decision going into the year, but we made it anyway because we are convinced it's the best long-term decision for our shareholders. I mean I would say as I said in my remarks, we have definite room to improve and what we are seeing in that area, but it's not specific -- it's not just related to rate of acquisition. I mean I still think there is room for us to continue to improve in what we are doing in terms of expansion of existing customers, the renegotiation of contracts that Brent spoke to, and from a downgrade perspective it also will impact how that metric is performing as well. So, there're a number of things where we know that can better over time, and it's something that our leaders within sales and marketing, and support are also very, very focused on as well.

Helpful, thanks. And one quick follow-up as to clarify a point, when to say enterprise ARR growth expected to finish the year in the low-teens, is that an exit rate or just the overall year growth?

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

Helpful, thank you.

Welcome.

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

Hi, thanks for taking my question. This is John on for Brian. On the mid-market strength, I'm just curious if you could speak to maybe any areas that you noticed outside strength there? And also on the planned investments in that area, can you speak geographically where those investments were made? And then I have a quick follow-up.

In mid-market, it's really across the board and volume coming in, we are seeing it in every category from B2B which is very healthy, and industrial, apparel, consumer electronics, home and beauty -- sorry, food and beverage, health and beauty, it's really across the board in mid-market. And then it's lumpier with large enterprise, but I think two great examples in large enterprise highlighting just what we can do there were the announced go-lives for Francesca's, I think many people know it's in most of the malls of the United States, 450-plus stores, and it shows just how well we can serve a very large, very complex apparel retailer with a large store footprint. And then, on the industrial side, MKM Building Supplies demonstrates on the B2B just what a great job we can do for a leader in the U.K. with more than 100 locations there.

Okay, thanks, very helpful. And then, as a quick follow-up, Daniel, I would add my congratulations as well, but I have a question on pricing lever moving forward. Given the retention dynamics you referenced, or I realize you just did a pricing increase, I'm curious as we move forward how we should think about pricing as a growth lever? Thank you.

I think about it differently whether you were talking about our retail plans for our enterprise plans, for our retail plans we think where they're priced right now from a value perspective is very strong. Up until this pricing action we had very minimal pricing changes for several years. And we don't take pricing changes lightly, because we know they're impactful for our merchants, but we felt it was definitely warranted based on just the changes in the product and the launches and everything that we've had. On the enterprise side, obviously those prices are far more opaque, because we operate off of a list price; we've actually taken pricing in different ways and pockets multiple times over the last several years within enterprise. We will continue to do so as we move up market, and also have different features and launches. So, I view pricing obviously as something that we look at closely. It is a growth lever for us, but it's probably not going to be something that we are going to side as a separable number and how much we are expecting to get from it. It's just something we're going to manage well and carefully as we are moving up in up-market, where we have a really strong TCO advantage, and frankly, we don't have to price super aggressively in order to have a very compelling TCO advantage as we are moving further and further up-market and enterprise. So, we are going to strike a good balance on that. We want to obviously maximize the value of the opportunities that we get while also maintaining that advantage.

Thank you very much.

The next question is from Mark Murphy of J.P. Morgan. Please go ahead.

Hey, this is [Ardie] (ph) on for Mark. Thanks for taking the question, congrats on the quarter, and Brent, Daniel on the new role. My first question is, I think you guys kind of answered this, but just to ask it directly, this upside you are showing with the non-enterprise side, that seems to be mostly driven by actions you guys have taken in terms of pricing, go-to-market, et cetera, not really kind of indicating that segment is doing better in terms of demand overall, right?

I mean what I would say is we very deliberately shifted our sales and marketing dollars into mid-market and enterprise. The growth that we are seeing there is due to improvements in cohort retention, because we are still continuing to get volume there, which we are excited about, and pricing. I would say I do think it's encouraging, I think it's a good indication of health. But just to be clear, like we're not spending a lot of our sales and marketing resources out of pocket to drive demand there today. We are focusing those resources, and mid-market, and enterprise.

Got it. So, maybe a little bit of improvement in how they're just performing on their own. And then, second question, when you guys talked about these customers who are in the Enterprise segment, who are kind of re-forecasting the sales and having to adjust some of their spending, is that also dynamic or it's put more towards the larger end of the enterprise, in the mid-market is it spread evenly there? I know the sales cycles are little bit different, but just specifically on the spending adjustments.

I think it's spread pretty evenly, and I mean I think lots of companies like us in tech have talked about the way this is playing out, whether it's businesses that operate on fee licenses, where they're seeing changes to number of contracted fee licenses, orders in our case. And to be frank, I mean we pulled millions out of our own spend this year, Brent and I are doing exactly the same thing with our own vendors. So, I think this is something that -- I think it's something that -- it's pretty widely spread within our base, not only expected, I think the part that was a little bit different was the degree of it that we saw in Q2. And we are reflecting that to be more conservative as we think about the back-half outlook as well.

Perfect, thanks for the insight.

You are welcome.

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

Great, fantastic. I wanted to maybe diagnosis in on the exit run rate, so at low-teens, I guess this arguably is flat to a downward trajectory, I guess I just wanted to kind of check in with you guys, so we think of that as a floor or is there more downward to go?

I can take that one, Ken. I think it's a reasonable expectation. I think of it more as a floor than a lot of downside. There is always macro conditions or things that can change that could have it turn out differently, but based on what we see right now, we feel good about that number, and we think there is a lot of opportunity for us to do better than that and also really kind of accelerate out of that going into next year as well. We just think it's important to reflect that conservatively and how we are thinking about the back-half of the year. And again, going into the year we had some pretty significant changes, we are pleased with what we are seeing in the non-enterprise part of the business. We think there're other portions that obviously can and will do better. But I think from our perspective, going into the year, we really had three things we are focused on here, we wanted to maintain growth as I mentioned, we are going up-market, and we wanted to see really big improvements in profitability and cash flow. I think we have done that. I think that's definitely on track, but to be clear, as Brent and I are thinking about this, this is about profitable growth, and I want to make sure to articulate that, and we are very much thinking about where we can make concentrated investments to really power the growth rates and trajectory of the business, but we are going to do it in a way that's very disciplined and focused on maintaining a balance between growth and profitability. But I don't want to give the impression that we're overcorrecting one way or the other. When you're going into the year, striking a balance was going to be important. We think, so far, we've done a pretty good job of that. But we're not satisfied. We know there's a lot of areas where we think we can improve.

Got it. And then maybe a second, in terms of the reduction in platform spend, should we view that as largely mechanical, so as -- obviously, as volumes come down sales transactions come down, they'll probably reach out to price down, or are there any deliberate actions, like you hear a lot in -- with the cloud vendors, customers optimizing their workloads and whatnot. Are there any deliberate things that a customer might be doing to try to drive down that spend that we should be thinking about?

It's both, but it's very similar dynamics for us, is the way you describe you were hearing from other places, Ken. We're seeing, obviously, just kind of the organic changes as volumes change on the trailing 12-month basis, up or down, for us. And we're also seeing more of where folks are making some deliberate cost-saving actions, and calling in to talk through those things with us, again very similar to what we're doing ourselves.

Got it. And then last, just more of a detail on that trailing volumes. Would you say we're on the front-end of that or kind of emerging, because obviously last year was just a bad year for everyone, are we just now seeing the catch-up or we're on the front end of it?

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

Got it. Okay, fantastic. Thanks for the color, guys.

Welcome.

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

Yes, I just want to finish by saying thanks to everybody who has joined us on this transformation of the company from a growth-centric one to, now, one that is balancing growth and a strong move towards profitability. Q2 was a very significant step forward for us with our first full quarter of extremely high free cash flow. We're reiterating our confidence in achieving our first full quarter in Q4 of adjusted EBITDA profitability. And we very much look forward to the years ahead where you'll see ever-expanding profitability and solid growth from us. So, thanks again, and look forward to talking again a quarter from now.

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