Ladies and gentlemen, thank you for standing by and welcome to the BigCommerce third quarter 2023 earnings call. At this time, all participants are in listen-only mode. After the speakers’ presentation, there will be a question and answer session. Please be advised that today’s conference is being recorded. I would like now to turn the conference over to your first speaker today, Tyler Duncan, Senior Director of Finance. You may begin.

Good morning and welcome to BigCommerce's third quarter 2023 earnings call. We will be discussing the results announced in our press release issued before today's market open. 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 fourth 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 available on our website 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 quarterly performance and the progress we have made against our 2023 financial plan. I will speak to our business momentum and provide an updated view on the macroeconomic environment, and I’ll conclude by discussing our continued move up market and the associated improvements to our go-to-market approach. Daniel will later provide details on our financial performance and spending efficiencies related to the restructuring we announced earlier this morning. Finally, he will end our prepared remarks with an updated view on 2023 financial guidance and provide a first look at our expected financial plans for 2024. In Q3, total revenue was just over $78 million, up 8% year-over-year. Our Q3 non-GAAP operating loss was just over $1 million, which was well ahead of our quarterly guidance and reflects the significant progress we have achieved in operating efficiency over the last several quarters. We came within a photo finish of hitting adjusted EBITDA breakeven a quarter earlier than expected, finishing Q3 at negative $102,000. This reflects a nearly 14.5 percentage point margin improvement in only one year against the backdrop of a tough macroeconomic climate for tech and software. We are committed to driving profitable growth for our shareholders, and I believe we are well positioned to move our business up market with a more efficient organization. We concluded Q3 with an annual revenue run rate, or ARR of approximately $332 million, up 9% year-over-year. That represents a sequential growth in ARR of just over $1 million. Enterprise account ARR was approximately $241 million, up 11% year-over-year. As of the end of Q3, enterprise accounts represent 72% of our total company ARR. Accounts using exclusively our retail plans, which we refer to as non-enterprise accounts, finished with ARR…

Thanks Brent, and thank you everyone for joining us today. During my prepared remarks, I will cover our Q3 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, and provide updated guidance for the remainder of the year. In Q3, total revenue was just above $78 million, up 8% year-over-year. Subscription revenue grew 10% year-over-year to approximately $59 million, while partner and services revenue, or PSR was up 1% year-over-year to just over $19 million. Revenue in all of the Americas was up 7% while EMEA revenue grew 23% and APAC revenue was up 2% compared to prior year. As Brent mentioned previously, we came within a photo finish of adjusted EBITDA breakeven a quarter earlier than previously anticipated, finishing Q3 at negative $102,000, or negative 0.1% adjusted EBITDA margin - that represents a 313 basis point improvement to adjusted EBITDA margin quarter-over-quarter, and we have improved adjusted EBITDA margins 375 basis points on average over each of the past five consecutive quarters. We have also made significant progress on earnings and revenue quality over the last year. This is the third quarter in a row that we have seen notable improvement in deferred revenue. Deferred revenue increased $3 million sequentially compared to Q2 2023 and is up 85% compared to Q3 2022. We have also seen significant improvement in working capital. Prepayment levels are roughly three times higher as a percentage of subscription ARR compared to Q3 2022, and provision for expected credit losses has realized a year-over-year improvement of $5.5 million versus Q3 2022, or an improvement of 302 basis points as a percentage of account receivable over that time period. This progress is continued evidence of our commitment and focus to…

We will now begin the question and answer session. [Operator instructions] Our first question comes from Terry Tillman of Truist Securities. Please go ahead.

Great, good morning guys. This is Connor Passarella on for Terry. Appreciate you taking the questions. First, just wanted to kind of dig into some of the revenue trends for next year. Really appreciate the high level color there, Daniel. Curious in particular on PSR, some of the visibility into next year, maybe some puts and takes around the drivers of this number, and then maybe how the partner ecosystem is kind of progressing there and if there’s any emerging partners that are helping the business on this side.

Yes, I’ll speak to the trends, and then Brent can take the question about the partner ecosystem. I would say similar growth rates to what we outlined in the prepared remarks between subscription and PSR. We’re encouraged by what’s going on there but, again, we’re going to take a little bit of a conservative outlook there, just based on where macro trends are going and heading into next year. We also have a long way to go before we finalize our plans for next year, and we’ll have a lot more to share on that when we get to our call in February.

In terms of the partner categories where we’re seeing lots of great traction, both in what we’re doing strategically with partners as well as what it can mean for PSR, the foundations have always been payments partners, including both all the leading ones in North America, Australia, New Zealand and EMEA, as well as traditional banks and fintechs, shipping and fulfillment partners, ERP partners are growing very substantially with us thanks in part to our leadership capabilities in B2B, and then everything around composable and composable infrastructure like search, content management systems, and even potentially hosting partners for composable builds - those are fantastic categories for us. Then the final unlock that we’re looking forward to next year is the release of automated billing, where we can in essence add third party apps in billing when they are simple and subscription-based to the BigCommerce build, that’s analogous to how it works on your iPhone when you use an app there. The app billing almost always goes through ApplePay or I think comparably for Android phones, and that capability is in the final stages of development for us for beta release early next year. Thanks for the question.

Got it, that’s super helpful. Appreciate that. Maybe just one quick follow-up. You’ve got a lot of capability in the B2B suite this quarter with B2B invoice portal for enterprise. Just curious on what trends you’ve kind of been seeing in this market that’s giving you the confidence to keep investing there, and then maybe just from a broader perspective as you think about B2B increasingly becoming a bigger part of the story, maybe not just for BigCommerce, how should we think about that for merchants as well as they want to diversify their businesses and sell B2B into the future? Thanks guys.

Yes, the opportunity for us is incredible. Before BigCommerce as a SaaS platform really entered the B2B market a couple of years ago, the options available to industrial companies, B2B sellers were almost entirely on-premise software like Magento, with a generalized platform, or niche B2B specialist platforms that tended to be feature-light and quite expensive and cumbersome. The B2B world truly needed an open SaaS platform that brought all of the ease of use, low ownership costs, but most importantly built in modern user interfaces that could come from a B2C platform, and that’s what we have done. I would really highlight for praise our product and engineering leaders in B2B because their pace of innovation is really extraordinary. I think it’s the best in general ecommerce in B2B, and as well the problems and the way they’ve solved them, the actual usability of our buyer portal and our invoicing portal are exceptional and getting great feedback from the customers, many hundreds if not thousands who have adopted them so far. A final point is around B2B, of course it is in total sales roughly on par with B2C globally, but well behind in its adoption curve. Something like a third of all B2B sellers have yet to adopt ecommerce, and many of those who have, have adopted it rather sub-optimally, and when you just think of the potential for usability improvements for their customers, cost savings efficiency from when fully rolled out, there is a very bright future for B2B and we intend to be the leader in that. Thanks.

Thank you.

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

Hello, thank you for taking the question. Brent, you touched on the mix of ARR that has historically come from new customer acquisition versus up-sell. Wondering if you could maybe give us some insights to where you think you could get that percentage of ARR coming from up-sell in the near term, and if you could help us think about what is the main up-sell path you see for the revenue base today, the biggest opportunity or low-hanging fruit, is that Feedonomics or any other specific up-sell that seems to be the greatest opportunity near term? Then I have one follow-up for Daniel.

Great. Yes, we’re going to focus on both up-sell and cross-sell. Up-sell is when we start with an initial sale to a mid market or large enterprise customer for a single store implementation, and then get that live and successful, the merchant happy, and then explore other brands or sub-brands, other geographies and/or other customer use cases, like adding B2B to B2C. We have extraordinary competitive advantage in this area because of our native multi-storefront capabilities, where you can do any or all of those use cases on a single account, leveraging a common set of integrations, but then very modestly or significantly modifying the actual languages, currencies, user experiences, even integration partners as necessary across the different store fronts. That’s up-sell, and it has the greatest potential with mid market and enterprise customers, although we have also introduced and democratized that multi-storefront capability even for our SMB plans. Cross-sell is when we bring additional partner products, licensed products or owned products to those same accounts, so in the world of owned products, the really big ones are, of course, Feedonomics for omnichannel integrations into leading ad channels and marketplace channels, now Makeswift, the acquisition of which we just announced today, and then we have a number of other internal products related to insights and data management, etc. that we can also cross-sell. Licensed product are then partners products that we can resell at our own pricing and on our own paper, and then third party products, the number one way we get partner revenue is of course payments, followed by shipping, followed by really more than 1,000 apps and partners in our apps marketplace - I answered that question prior to this. But the cross-sell is looking to advise and assist our customers on the ecosystem of capabilities that are most conducive to their growth and profitability and helping them get on those in ways that grow their business and ours as well.

Perfect. Sounds like multiple ways to bring that percentage up, not just, say, the up-sell motion. Daniel, I wanted to ask if you could frame the opex growth after the restructuring. What will you be targeting in terms of opex growth, either sequentially or year-over-year on a like-for-like basis, or maybe said another way, what investment level are you planning for that high single digit or low double digit growth in revenue framework for next year?

Yes, thanks for the question, Clarke. Let me answer that a bit by building on Brent’s point, because I think there’s a really important point to understand about our business and why we’re making this really a focus on cross-sell, up-sell. The fact that we have such a big percentage of our revenue growth coming from new customers, which comes with a higher cost of acquisition particularly in sales and marketing, part of where we’re looking to grow leverage in this business is by getting more in kind of the main strike zone of where B2B SaaS typically is, where more than half, and we’d like to see substantially more than half of our revenue growth come from existing customers, because it comes at a much more favorable sales and marketing leverage point of view. When I think about what that means for us for opex next year, we’re hoping that we can get another up to 5 to 9 points of additional growth in operating margins next year - that’s what’s implied when we talked about the growth numbers for next year. When I step back and just think about the quarter as a whole, kind of the headline from my point of view on this, I think the quarter really reflects the commitment to leverage that we called out very clearly going into the year was going to be the main focus of our efforts this fiscal year. Now, I’d highlight two areas in particular. One, apart from the roughly $33 million final acquisition payment to Feedonomics, which was in operating cash flow, we had positive operating cash flow for the second consecutive quarter, which is a huge improvement versus where we were last year. That also even includes several million dollars in annual payments for this and that, which is really, really strong. Secondly, we got to our profit goal roughly a quarter early, which is a 19-point improvement in operating margins compared to where we were just a little over a year ago, and to be clear, we’re not stopping there. The restructuring that we took, I think reflects the commitment, our ongoing commitment to this. This is not a 2023 thing. Brent and I are very, very committed to running a profitable, growing business with strong operating cash flows, and I think that we can continue to do that. When I look at operating expense growth, I think we’re going to see the most leverage going into next year particularly in sales and marketing. We’ve had really, I think solid results there in R&D and G&A this year, we want to see a little more as well next year. But based on the restructuring that we’ve taken and the playbook that Steven is very excited to lead, I think we’ll see especially disproportionate leverage growth next year in sales and marketing.

Really appreciate the color, thank you gentlemen.

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

Hey, this is Rob Morelli on for Scott Berg. Thanks for taking the questions. With 3Q results in mind, any commentary regarding the overall sales environment - you know, how did U.S. perform relative to international, and are you starting to see some of the benefits of your international go-to-market investments that you mentioned a couple of quarters ago? Thanks.

Yes, as is typical, you have certain regions of the world that over-perform in any given quarter and others that are not quite as strong. U.S. was solid, Asia Pacific was particularly strong last quarter, EMEA, it sort of differs from country to country. Overall, what we’re observing in the market is a continued high win rate for us. We have historically had high win rates relative to the average in ecommerce. We continue to have high win rates. The cycle time, though, for enterprise remains elongated, as we’ve commented in prior quarters. It’s elongated even slightly in mid market - hopefully that’s a temporary thing, but as a general rule, sales is going well. I think a thing I would emphasize is our broad set of go-to-market changes that Steven has introduced, which are around value marketing and selling rather than solution marketing and selling, and I went into details on many of our strong value statements in the prepared remarks. The land-and-expand strategy, the fixation of leadership with customer success as the foundation for all of that, and improved engagement of our referencible merchants in events and industry selling opportunities, all of that is meant to be strongly additive to where we are today, to build a much bigger pipeline. I think if we can build a much bigger pipeline and even just maintain our win rates, let alone grow them, then that will be a strong way to add big growth to our existing run rate in the year and years ahead. Thanks for the question.

Thank you, that’s all from me.

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

Hey guys. Brent, I have two questions for you. Look, I think we all know who the key enterprise players are in this space. I’m curious if you’re seeing Shopify starting to show up anymore in your mid market and enterprise RFPs. They’re obviously talking more about composable commerce and headless, so wondering if that’s translating to what you’re seeing in the field.

Less so for headless, yes for mid market. Enterprise, it just depends on the complexity. There are a lot of things that they can’t do in enterprise, like multi-storefront which just disqualifies them from certain opportunities, so we’ll see them a little bit more in that arena. Switching to us, I would highlight as indicators of just how powerful our platform is and what we can do, some of the merchant launches that we announced this quarter. Just taking the apparel category, there were three really extraordinary ones that showcase our strength in enterprise. Harvey Nichols is the iconic leading luxury department store in the U.K. They went live with a really beautiful digital transformation that takes full advantage of buy online pick-up in store. You can actually look up what inventory is in each store, they have the ability when they have just one size of one item in one store, to know that, ship that from the warehouse to the consumer if the consumer isn’t picking up in store. It’s a really great use case. White Stuff, you may not know them here in the U.S., but they’re almost 150 stores across the U.K. and Ireland. That’s a phenomenal transformative best-in-breed composable implementation using partners of ours - Vue Storefront, Amplience for CMS and Adyen for payments. They went live with that full transformation in an extraordinarily fast time, and they loved getting up on stage and saying how easy it is to do headless with a best-of-breed implementation, you just pick the right platform and the right partners, which White Stuff did. Then Coldwater Creek is a great American apparel brand, it’s been around since 1984, so almost 40 years. They did a full transformation with us as well, and these are just great examples of how the commerce is not limited to very simple use cases or direct-to-consumer companies, but really some of the leading store-based retailers and longstanding apparel brands and being able to digitally transform themselves in a way that works with their business models and legacy systems.

Yes, okay. I appreciate the color there. Then a second question, the message is very clear that the focus is going to be on efficient growth, I mean, obviously [indiscernible] today, but it also coincides with your bringing Steven in to drive alignment and improvement in the go-to-market organization, which you touched on. Any worry that this cost efficiency hamstrings his ability to effective change in the organization?

No, it’s the opposite. If somebody comes in and has a really transformative, successful, proven playbook but doesn’t have the opportunity to make major change organizationally, that’s what hamstrings them. It so happens that by doing this restructuring across the company, we have taken out layers and we have done far more organizational actual restructuring, actual optimization than we did a year ago, when it was largely just efficiency and cost reductions. Steven is actually making the structural changes in customer support, in marketing, in sales, and bringing things together around ownership in ways that wouldn’t have been possible before, so I think he’s liberated by this. As hard as it is to say goodbye to great longstanding contributors, including a number of senior leaders who are responsible for getting us to where we are today, this is really an important launching point for the future, where we’re going to enter next year with the structure and the team in place to implement these go-to-market improvements. It’s very helpful in that regard.

And let me build on that point just a little bit. What I would also add, what we have done in the restructuring and the costs associated with that, the cost savings is a reflection of the form of the restructuring. We are not taking out so much cost that we believe that t this is going to hamstring our ability to re-accelerate revenue growth and really have this be a profitable fast-growing company. Like I said earlier, this model reflects a lower cost of acquisition by focusing on expanding existing customers. We are still going to be investing significantly in continuing to move up market in mid market and enterprise. The cost savings here is really a reflection of the restructure, it’s not a reflection of our intent or desire to pull back on our efforts moving up market and our commitment to expanding revenue growth. That’s a long term commitment and something we’re very, very focused on

Okay, makes sense. Thank you guys.

The next question comes from Raimo Lenschow of Barclays. Please go ahead.

Hey, thank you. Could I stay on that subject for one more second, one more question? How do we think about the pace of customer acquisition? If I look at your enterprise additions in terms of new customers this quarter, it was probably lower than we’ve seen for a while. Is that part of the new strategy and that’s kind of the new run rate we need to think about as you think about more going back to the installed base? Can you just give us some guardrails there maybe? Thank you, and then I have one follow-up.

Yes Raimo, thank you for the question. I’m glad you asked that. I’d like to clarify that a little bit in terms of the adds. The number of adds is a net number. If you look at where we are at this point in the year, we’re not at the revenue numbers or the growth numbers that we wanted going into the year, but we are very close to where we expected to be from a new customer point of view. What we’re really seeing in that number is more of a reflection of macroeconomic conditions, especially on some of our smaller mid market customers where they’ve had to take some decisions, either in cost cutting or they’ve cancelled projects potentially, or if they have a site that hasn’t been profitable, very analogous to some of the cost savings things that we have been doing as well. If I look at the pace of net adds, obviously it was not as much there as we would normally want to see sequentially, but that was more driven by some of the macro conditions with existing customers than it is the pace of adding new customers, which again is not quite where we wanted it to be at this point of the year, but it’s more of a reflection of the macro than it is pace of new customers. Is that helpful, Raimo?

Yes, that’s really helpful. Then maybe one follow-up for Brent. As you think going forward and you keep pushing up in the mid market, what do you see in terms of willingness of customers to kind of move on, because you obviously go against Magento, [indiscernible] more. You know, some of those systems are getting pretty old, but it’s always tough to change systems in an economic downturn. What do you see in terms of maturing of that market or getting ready for that market to kind of move onto more modern [indiscernible]. Thank you and all the best.

Yes, thanks. It’s easy to see from [indiscernible] or others that Magento has been in a--and Adobe have been in a decline in terms of merchant count for probably three, four years now, but they start from such a large base in the hundreds of thousands, really multiples of our own merchant count, that we’re a long way from all of those who once anchored on on-premise software getting of it into SaaS, and they all still want to do that, and many of course will unless they’re so customized and require so much flexibility that they simply have to have the code on premise to modify it all. There’s going to be a lot of exits for years to come and migrations off of various versions of on-premise software, including Magento. Salesforce, it’s harder for me to tell. I don’t have direct visibility. I think the challenge is demand, where when it was an independent company, was truly a market leader and Steven Chung played an instrumental part in helping them become that, and then since Salesforce has bought them, the organization’s been split up, the pace of innovation has been slow, they definitely don’t have modern capabilities like GraphQL across their infrastructure, and so companies who choose them are doing it based on an aggregate, I think, Salesforce relationship, and so there are advantages to that as opposed to the platform itself being market leading, and that’s a great place for us to compete against.

Okay, perfect. Thank you.

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

Hi, this is George on for Koji. Thanks for taking my question. I was hoping to talk about in light of the restructuring, and then could you also speak to maybe other changes in the go-to-market function and how that’s shaping how you’re going to market with enterprise customers, whether that’s changes in incentives or things of that nature?

Yes, I’ll take that. Let me start by saying the foundation for our new go-to-market model is customer success, customer ownership all the way through from the presale and sale process to implementation, to post implementation, then relationship building and up-sell and cross-sell. Historically we had organizational silos between marketing, sales and customer success - it’s all now part of one organization, and the AE and the solutions engineer who sell a customer are going to retain not just customer ownership through implementation and post implementation, but also the actual metrics, right? We are changing the metrics for ownership to include retained account ownership, they’re responsible for net retention, that meaning you suffer if there are downgrades or churn and you benefit when there is up-sell, cross-sell, etc., account growth in terms of volumes. That’s really important, so I’ve gotten to the cross-functional ownership of customers and customer success as a foundation, land-and-expand including the metrics that will go and stay with sales, and customer support in that. I talked a lot about value selling, and so this doesn’t go to metrics that we manage our employees with, it instead goes to the metrics that we put on our website and that we incorporate into the sales process with customers. I would really emphasize that as we analyze our own enterprise customers across the company, they do have site-wide conversion that is 34% above the internet average in Q3 - that’s extraordinary. Checkout conversion of 61.4% in Q3, that is far above any stated benchmarks for the internet and competition. The Feedonomics statistics of 10% to 20% sales traffic and conversion lift through the leading omnichannel ad networks and marketplaces that merchants use, we’re really bringing statistics into the sales process and into how we optimize our own product and service delivery to the benefit of our customers. A final point I would say is, historically, we’re much more of an inbound-oriented sales company, and going forward Steven’s bringing his excellence in outbound in sort of hunting and knocking on doors, in opportunity creation by the sales team, and what was really magical in the Demandware days is the way they brought their own existing referencible happy merchants to industry events and to sales opportunities, and that’s a part of the playbook that we want to leverage ourselves because we do have really great customer happiness and success. I’ll just conclude this point by going back to two of the recent awards that were in the earnings script - one was IDC giving us a SaaS C-Sat award in digital commerce, and then--so that’s for real quotable enterprise customers, and then Trust Radius for the fourth straight year naming us top rated, which is our merchants going and saying on Trust Radius that they love our service. We haven’t historically brought those happy merchants into the event and sales process the way Steven and Demandware did back in the day, and we’re going to do that here. Thanks.

Thank you, that was very helpful.

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

Hi guys, thanks for taking the question here. Brent, you called out certain new customers pushing launches into 1Q after the holiday season. I’m curious, is that simply a cost dynamic, perhaps trying to save money on the services side, or if there’s something else at play there.

No. These customers are so large that they were nervous about doing something--you know, doing a launch a month or two before peak holiday season. It was just their own sense of we want to be 100% ready, have 100% of all, you know, sort of regressions tested, every bit of functionality ready to rock and roll, and let’s just manage through the holiday season, nail it and then launch in January, so the hope and expectation is that’s what happens.

That’s all from me, thanks.

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

Hey guys, this is Jeremy on for Samad. Maybe on the macro weakness, has that worsened at all from the close of the quarter through October or November, and can you talk about what you’re seeing there?

Thanks for the question, Jeremy. I’d say no. I’d say it’s been pretty consistent. We have seen--the dynamics that we talked about in the prepared remarks, I think we’ve seen pretty consistently across the year. I’ve been paying attention to different results that have been coming out from peers as well, commentary from economists and banks and the like. I’d say it’s pretty consistent. We’re not seeing things getting worse, but we’re also not seeing things get substantially better, which is part of why we put in our remarks and our early outlook for next year that we are basing our plans on the expectation that we need to run the business in similar conditions to what we’ve experienced this year. What I would add on top of that, and something that I’ve been pretty pleased about, is just from a financial management point of view, we’ve really positioned ourselves very, very well going into next year, I would argue from a macro point of view. The way that we are approaching billings with customers, the way that we are managing collections, the way that we are handling costs. We’ve gotten to profitability a quarter earlier than we expected without hitting some of the top line goals that we set as a company at the beginning of the year, and that’s just been through really tenacious cost management and discipline in how we’re running the business, which is something that Brent and I made a point of stressing throughout the company, throughout the year, and we’re really, really proud of the work that our teams accomplished in doing that. What I think that does going into next year, however, is if we’re running our business that way and we’re set up financially such that we can get to the profit expansion we talked about, re-accelerating revenue growth the way that we’ve talked about while doing so in potentially a persistent challenging macroeconomic climate, when we start getting back to our long term growth trends in ecommerce, we’re really positioned with a really high gross margin business to throw off a lot of additional leverage on top of that, once we start getting back to what I would argue are more normal revenue growth rates for us. I think in a lot of ways, this has been a year that’s been about getting lean, getting efficient, and weathering through some tight conditions that we expect to continue going into next year, and I’ll be pleasantly surprised if it gets better a little faster than we’re planning.

Got it, that’s useful color. I guess on a previous question, I had the same one, maybe asked a slightly different way, can you size the impact of those pushed deals on the quarter, and is there any chance of them getting pushed out further than 1Q?

I’d say it’s probably around a point of growth, maybe a little bit less than that, not so material that it would have dramatically changed the quarter necessarily. It’s material but--I mean, it matters but it doesn’t change the overall themes of the quarters. Could it push potentially? Sure, that’s possible. We don’t anticipate that, but we’ll see how things go with these particular customers once we get out of the holiday period. The larger point is we want to make sure they are ready and they are successful when they go live, and if that’s a month later than I would want as the CFO, if that’s what’s right for the customer, that’s what we’re going to encourage the customer to do.

That’s useful color. Thanks guys.

Our next question comes from Maddie Schrage from Keybanc Capital Markets. Please go ahead.

Hey guys, thanks for taking the questions. I was just wondering, my first question is could you guys comment a bit on what you’re seeing in terms of consumer spending starting in 4Q, a bit between October and November that you’re seeing so far? Thanks.

Yes, I’d say overall it’s been steady. It hasn’t been--I think what we’re seeing is for the most part pretty in line with what ecommerce prints that I’ve read in general have been putting out. I’d like to see it a little bit stronger, obviously, compared to where we wanted it to be going into the year, but I don’t think that the trend is getting any worse. I think it’s been pretty consistent with where it’s been throughout the year. We’re cautiously optimistic going into the holiday period, but honestly, until we get through Cyber Week, you really can’t read too much into what’s going on in October. You really need to get to the end of November.

Super helpful, and then my second question for you guys is could you talk a bit about some of the characteristics of the businesses that you’re seeing, that are slowing their implementation or dropping off completely? I know you guys have mentioned that some of it’s some of the smaller businesses, but wondering if also some of the larger enterprise businesses are in that mix. Thanks.

For downgrades, the most common scenario is a customer who came on with us in the go-go years of 2020 and 2021, where the pandemic had the economy shut down and there was a temporary over-indexation to ecommerce, for all the reasons we understand. They negotiated contracts with expectations of certain volumes, and of course the higher the contract you negotiate, the lower the cost per transaction per order, and now as we’ve gotten a couple years since then, for those companies who happened to negotiate something that was significantly out of line with the realized volumes, the thing that all companies are doing in and out of ecommerce is going back and looking at their software and renegotiating. BigCommerce wants to always do right by our customers, and when they come to us in those circumstances, we’ll work with them in the spirit of partnership and typically renegotiate in a way that is also favorable to us. They might get the average monthly cost down, but we’ll get advanced prepayment as we improve our free cash flow and the efficiency of collections, maybe it’s with an increase in revenue per order on our side, but that’s the most typical scenario for a downgrade. The most typical scenario for churn are companies who also in that period contracted to launch a site, and now in their own profit and loss management realize, hm, maybe I’m better off not launching that site and going through the cost not just of the implementation, but then the whole operation, organization to scale up an ecommerce enterprise, they just decide it no longer fits within their P&L for this year, or some companies who’ve launched a site years ago are looking at the profitability of that operation and saying, the profitability isn’t there and I’d rather not own it. Very, very rarely do we see churn from a live site to a competitor - that is still a very rare exception, and it’s our hope that the downgrades and the churn that we’re seeing are in some ways a temporary reflection of the state of the economy, and the backlog of some of these contracts that were signed a couple of years ago, when companies just over-forecast their own volumes, and if those cycle through and return down to more normal trend lines for downgrades and churn, then that would do wonderful things for our ARR growth rate, so we’re hoping that happens but not factoring that into our forecast in the near term.

Very helpful, thanks guys.

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

Thanks for the question. It sounds like efficiency is one of the main factors that’s driving that change in focus a little bit toward existing account expansion. Just wondering if that’s a permanent shift, even if the macro environment got easier and you eventually saw sales cycles improve and growth accelerate, or is it more of a temporary reaction to the current environment and around efficiency?

I think efficiency is one aspect. Effectiveness is the bigger one. Steven really had at Demandware the most effective go-to-market of arguably any enterprise ecommerce platform in history. They were really, really at anchoring on customer success first as the foundation at Demandware and then building land-and-expand off of that. It aligns the company processes and interests with those of the merchant. There’s no gap in that focus on customer success between sales and go-live, and that’s a real partnership between us and the customer. I believe that these changes are absolutely permanent and will be quite effective, because they’re proven in ecommerce and they’re proven across enterprise B2B software companies. We’re not doing anything that is earth shatteringly new, this is just an evolution, and the final stage of evolution of a company that originally began as an SMB-focused company and shifted to mid market and enterprise, and this is the final step of bringing true enterprise excellence in go-to-market to our organization, so it’s permanent, I think.

Got it, that’s helpful. Then is there an amount of time that’s needed for Steven and the teams and the up-sell motion to be in a place that’s kind of ready to deliver? Is there still an investment and training path ahead?

Yes, we expect it’s going to take a couple of quarters to kind of make some of these adjustments. These things don’t necessarily happen and change overnight. We’ve factored that in when we’ve kind of given a first look on how we’re thinking about 2024. We’ll be able to talk a lot more in detail about this in February, but yes, it’s going to require some new training but we have a really good team here that’s long tenured, that we are really excited about, that I think is really going to be able to really thrive in this. We think that that is going to play itself out in our numbers in acceleration and good things for next year. We’ll need some time, but it’s normal over time.

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

Hi, thanks for taking the question. I’ll keep it to one. It sounds like the Feedonomics deals this quarter were--or the bookings were pretty strong. I’d love to get an update on that cross-sell opportunity or maybe how penetrated Feedonomics is into the base, and how do you think about that cadence of potential cross-sell going forward? Thanks guys.

The opportunity is huge, and we’re still relatively early days. One of the things I like a lot about Steven’s mindset coming in is he is absolutely chomping at the bit to go from solid but still modest penetration to very high penetration. When he was at Demandware, it was a one-product company. All they had to sell was Demandware, and when he came in, he’s like, I’ve got at least three massive products to sell: a BigCommerce subscription, a Feedonomics subscription which helps companies grow their top line through all major ad and marketplace channels, and then partner solutions, especially payments and shipping. Makeswift now makes a fourth as we’ve added that, so that’s going to be a big focus in his revised go-to-market model in really encouraging us and every one of our material mid market and enterprise customers to explore the advertising channels and/or the marketplace channels that are most important to each merchant, doing consultations on what Feedonomics might be able to do to lift their top line traffic and sales generation through those channels, and helping those merchants to figure out how to optimally adopt Feedonomics, so big potential upside still there.

Thanks Brent.

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

Hi, thank you very much. Brent, I’m interested in how widespread is the trend of accepting lower pricing in downgrades that came up a moment ago. If you could just help us to quantify the number of customers engaging in that, and what is the percentage change you’re seeing in the pricing you’re getting post downgrades?

Mark, this is Daniel. I’ll take that one. We haven’t shared the exact number of customers that are impacted by that - those are specific to those merchants and those contracts. What I would say, we saw the sharpest impact of this in Q2, we’ve seen a moderating impact of this in Q3. Where we’ve seen adjustment, it varies - it could be anywhere from the maybe 10% to 20% difference in price. It’s not that we’re having situations necessarily where the volumes were dramatically off, it’s just the trend line has been a little different than where in some cases customers expected them to be when those agreements were signed during the pandemic. But what we’re seeing is really good success in retaining those customers and landing in a place where we actually have stronger agreements with those customers when we come out of that. We’ve worked with the customers to help them save money, which is important to them. They’ve worked with us in getting to a place where we have better prepayment terms, and we’re always going to make sure that our pricing is set based upon volumes, so if you’re committed to lower volumes, you’re not going to get quite as advantageous a discount. But these are normal back-and-forths that are--we’re always going to have these types of discussions with customers. When we sign customers, this is a multi-year commitment that we’re making to the success of their business. When I look at the trend line on that, it has been a meaningful impact on the year, but it’s one of two or three ways that we’re seeing the macro play out in the business, but we’re seeing improvements in that and kind of a lessening impact There’s only so much of this that you need to kind of get through your base when you’re making these adjustments, so we factored that into our outlook for next year. But this isn’t something that is--you know, it’s one factor we’re looking at when we think about planning next year, but it’s not something that’s necessarily keeping me up at night at the greater expense of anything else that we’re thinking through.

Okay, yes. That makes sense. Then as a follow-up, I’m wondering if you could just look a little deeper on how you’re reading the health of the consumer in this lead-up to Black Friday and Cyber Monday, because--you know, are you expecting it’s going to be a little tougher season than last year and then pre-pandemic in the context of--you know, we have the student debt loan moratorium ending, there was the autoworkers strike, you’ve got the credit card delinquencies increasing, there’s some bankruptcies that are rising. I think you sounded a little more--maybe a little more calm on that topic than I might have thought, so how are you--what are you factoring into the forecast here for Q4 along those lines?

This is Brent, and as a humble economics major 30 years ago, I would say in my 30-plus years of following the American consumer, I would say that there is nothing on planet Earth more consistently powerful than the American consumers’ desire to maintain their living standards and continue spending through economic ups and downs. In every recession we have had, the American consumer has kept spending and kept being the engine of health, not just to our economy but the global economy. That’s happening right now in a high interest rate, high inflation environment, so the American consumer generally stays strong and keeps spending. Now, the big question for us is how much of that spend if offline versus online, and what we have seen since the reopening of the economy is that there is significantly above-trend line growth in point of sale and offline spending, and below trend line spend in ecommerce. We’ve been single digit, call it 6%, 7% year-on-year U.S. B2C ecommerce growth now for the last, maybe it’s two years running, and the trend line before the pandemic was in the 12% to 15% growth range every year, so ecommerce has not been the beneficiary of consumer strength, store-based retail has been for the last year and a half plus. What are we assuming? No real break in trend line for Q4, and we’re being similarly conservative going into next year. We hope that there can be surprise to the upside on that, but we’re not banking on that. We’re staying conservative.

Understood, thank you very much.

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

Fantastic, thanks for taking my question. With this pivot to trying to drive growth in existing customers, I’m wondering if you could maybe give us color in terms of what percentage of customer expansions historically has been driven by moving up utilization bands versus penetrating across more brands and regions with those existing customers, and then any rough sense of what your penetration of your customers’ total GNV might be at this stage?

Hey Ken, I would say the majority, substantial majority of expansion historically for us has been based on organic growth in those customers and the amount of orders that are coming through the platform, number one. Number two is through adoption of more partner products with favorable economics towards BigCommerce. Where we have not had as much expansion in the past, which is atypical, I would say for B2B SaaS, is through product adjacencies or owned and licensed products. The issue that Brent was talking about in terms of the ability to cross-sell Feedonomics, or now Makeswift or these things, it’s been much more you lay in the customer, that customer organically grows. We’ve had some success in expanding regionally with those existing customers, but we have a lot - a lot - of upside available to us in taking our core product to additional brands or additional businesses under the parent companies of the stores that we have, selling other products. I would say when you look at the, quote-unquote, normal playbook for what cross-sell and up-sell looks like within B2B SaaS, a lot of that I really see as greenfield ahead of us as a business. We’ve had strength in the past due to organic expansion with our customers, but we have a ton of upside in very efficient lower cost of acquisition revenue growth that we can see in this business by adopting this model, which I would really say--I don’t know that I would even characterize it as a pivot, I would characterize is as an evolution that is representative of our move-up market. Like Brent said, our roots on the small business side of things, you bring in a small business customer, you’ve landed that customer and they grow organically, that’s a very different motion to acquiring a brand with Procter and Gamble and then cross-selling into all of the other brands underneath the umbrella of Procter and Gamble, as an example. When we talk about this internally with our organization, this is not an about-face or a change, this is a continued evolution and a culmination of our move up market, and positioning our go-to-market functions in line with the strategy that we’ve taken with the product over several years, so I don’t think that this is a change. I think that this is something that is going to be very successful and is going to really allow us to accelerate revenue growth in an even more leveraged profitable way, that gets me really, really excited as a CFO.

Got it, okay. Appreciate the color there. Then maybe if you could just add a little color in terms of how the demand environment might have progressed over the last few months. I think a lot of your software peers, they noticed kind of end of September through October, things materially dropped off. Just wondering what you guys saw during that same stretch.

I wouldn’t say that we saw anything all that different in September or October versus what we’ve seen at other points during the year. Like we said in our prepared remarks, we’ve seen macro in general as a bit of a headwind for the year and a number of different ways that it’s manifested. We’ve offset that by really tight financial discipline and the way we’re running the company. I don’t think that I’ve seen anything or heard anything that makes me feel like it’s getting materially better or worse, based on the last couple of months. That’s how we set guidance for Q4, and that’s how we’re planning financials for next year as well.

Thank you very much.

Our final question today comes from Chris Kuntarich of UBS. Please go ahead.

Great, thanks for taking my question. Maybe just following up on that last point, just to be clear, as we think about that high single digits to low double digit guidance range versus where we’re at in 4Q, at that 10% to 16% year-over-year revenue growth, should we be thinking about maybe just specifically on the macro and enterprise opportunity? Should the high end be--we be thinking about that as a continuation of the current macro environment in the low end would be getting worse? Just any more color you can share, kind of how enterprise would be fitting into that structure and your initial thoughts. Thanks.

Yes, good question, Chris. What I would say is when we’re talking about numbers for next year, we’ll set guidance officially in February. Our intent in providing those numbers was really just to help everybody understand how we’re thinking about internal planning for next year. To your point about what macro conditions are embedded in that range, what I would say is kind of the midpoint of those numbers reflects a continuation of where we’ve been. If things get a little worse, we’d be closer to the low end of the range; if things get a little bit better, I think we’d be closer to the high end. If things get a lot better in terms of going back more towards the long term pre-pandemic ecommerce growth rates, I think that gives us upside above what we’ve talked about. But we have a long way to go before we get to the February call, when we issue official guidance. We still have to build out our plans. What our commitment is, is to profitable accelerating revenue growth. We are a growth company, we want to do so profitably, and we’re confident that we can do that.

Very helpful, thank you.

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

Thanks. I’ll conclude with five main takeaways from the prepared remarks and Q&A. The first is we’re proud that in Q3, we delivered our second quarter of positive free operating cash flow, excluding acquisitions, and breakeven adjusted EBITDA a quarter earlier than we guided to the street. Second, the restructuring that we announced today is being done to continue this path of very rapid improvement in our profitability - again, we’ve added 19 percentage points to our adjusted EBITDA profitability in the last five quarters, and the restructuring positions us to add five to upper single digit growth in our adjusted EBITDA profitability next year, going towards our long term goal of 20% or higher. Third, the restructuring is also really valuable to us organizationally because it both de-layers the organization and implements the structural changes in Steven’s go-to-market playbook for enterprise. The fourth is that this go-to-market is now going to be able to shift from solution marketing and selling to value marketing and selling, and it’s worth folks really focusing on some of the content of the prepared remarks because the statistics we’re now sharing about far above internet average performance for our enterprise customers on site-wide performance, checkout performance, sales lift through Feedonomics, those are extraordinary statistics and the types of value improvement that really can attract and convert merchants who are wanting to get the best possible performance and growth out of their ecommerce. Then the final point, which seemed to be lost in the Q&A but I want to emphasize, the acquisition of Makeswift and the reference architecture going forward for composable with us, based on Next.js and React, which are the most flexible, high performing and popular framework for web design today, the Makeswift acquisition is extraordinary because it is a true Next.js no-code visual editor that empowers marketers and merchandisers to make changes and manage extraordinarily dynamic user experiences without a dependency on developmental changes. That type of leadership with enterprise capabilities for multi-user editing, publishing workflows and permissions, is a demonstration on how even in a tight financial stewardship for BigCommerce of our own P&L, we are innovating in the ways that deliver the greatest tools and the greatest performance to our merchants, and we’re very excited to talk about that as we bring it to market in 2024. With that, thanks everybody for tuning in, and we’ll talk at the end of the quarter.

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