Ladies and gentlemen, thank you for standing by, and welcome to the BigCommerce Second Quarter 2024 Earnings Call. At this time, all participants are in a 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 now like to turn the conference over to your first speaker today, Tyler Duncan, Senior Director of Finance and Investor Relations. You may begin.

Good morning, and welcome to BigCommerce's second quarter 2024 earnings call. We will be discussing the results announced in our press release issued before today's market open. With me are BigCommerce's Chief Executive Officer and Chairman, Brent Bellm; and Chief Financial Officer, 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, as well as our expected future business and financial performance, financial condition, and our guidance for both the third quarter of 2024 and the full-year 2024. 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 website at investors.bigcommerce.com. With that, let me turn the call over to Brent.

Thanks Tyler, and thanks everyone for joining us. Our number one priority for 2024 remains efficient revenue growth, and I'm excited to share updates on our progress towards that goal during our call today. First, I'll provide a brief summary of our quarterly results. Following that, I'll highlight some exciting customer launches that showcase the power of our platform. Then, I'll discuss our latest product innovations that fuel growth and innovation for our customers. Finally, I'll look ahead to what's next for the business. Q2 delivered results consistent with our top and bottom line plans. Revenue finished just under $82 million, up 8% year-over-year. Adjusted EBITDA came in at $3 million, or approximately 4% of revenue. We also had a strong quarter from a cash flow perspective, achieving operating cash flow of just under $12 million. We see tremendous upside in this business, and Q2 results highlight our progress and the success that our customers are seeing on our platform. I'm thrilled to announce that The RealReal, the world’s largest online marketplace for authenticated resale luxury goods, has launched on BigCommerce. This implementation allows The RealReal to fully leverage BigCommerce's industry-leading checkout and shopping cart functionality, which they integrated with their existing systems in a phased, composable approach. The result has been a faster and more intuitive checkout process for The RealReal customers and improvements in the brand's new customer purchase conversion rate. TheRealReal nicely demonstrates BigCommerce's continued traction in luxury apparel, composability, complex enterprise implementations, and high-volume sites, in their case selling more than $1 billion online annually. Also just launched on BigCommerce is Bealls, the Florida-based department store chain with more than 600 stores and 100 years of proud history. They achieved a remarkably successful migration of multiple brands from legacy platform HCL Commerce in just three months…

Thanks, Brent. And thank you, everyone, for joining us today. During my prepared remarks, I will cover our Q2 results, provide additional detail on our key areas of operational focus, and offer updated guidance for Q3 and the full-year 2024. In Q2, total revenue was just under $82 million, up 8% year-over-year. Subscription revenue grew 10% year-over-year to approximately $62 million, while partner and services revenue, or PSR, was up 4% year-over-year to just over $20 million. Revenue in the Americas was up 9%, while EMEA revenue grew 7%, and APAC revenue was up 9% compared to the prior year. We remain committed to operating a profitable growth business. Our Q2 non-GAAP operating income was just under $2 million versus a loss of $3 million a year ago. These results represent a nearly 7 point year-over-year improvement to non-GAAP operating margins, increasing from negative 5% in Q2 2023 to positive 2% in Q2 2024. As we did on the previous earnings call, I want to give you an update on where we stand with the three strategic priorities I called out at the beginning of the year. First, we made a commitment to drive efficient revenue growth. In Q1, we had sequential improvements in both gross and net retention from Q4 2023. We saw further sequential improvement in Q2 as well, consistent with our 2024 financial plan. We are seeing strong growth in B2B in particular. B2B ARR finished Q2 up 35% year-over-year, and B2B GMV grew more than 50% year-over-year. We see healthy retention rates in B2B as well with gross retention tracking more than 20% higher than the remainder of the business. Our goal is to reaccelerate revenue growth, and we are optimistic about the trend in retention we are seeing so far in 2024 and are confident…

We will now begin the question-and-answer Session. [Operator Instructions]. The first question comes from Raimo Lenschow with Barclays. Please go ahead.

Thank you. Congrats for another solid quarter. My first question was on the go-to-market changes and the cadence, how long it will take. Like if you think about the steps that we're taking, how do you think that, that will translate into a pipeline, but then also kind of deal closure and revenue? Just kind of get us on that journey a little bit in terms of like the changes that were made. When does it show up in the top of the funnel and when does it show up in terms of closure rates? I know you can't give like precise numbers, but just give us kind of a framework of how we should think about it. And then I might not be as good on the debt side. Like I had a few questions for investors. You're swapping a 0.25 convertible into like a much higher interest rate vehicle. What kind of drove that desire to do it now versus waiting until rates are coming down? Many thanks.

Thanks, Raimo. It's Brent. As a reminder to all on the call, Travis Hess, our new Global President, started about three months ago in terms of the timing of when we might start seeing improvement in results as a result of changes being made in go-to-market, I would say you're already seeing some of that in gross and net retention, changes that predated his arrival, a focus on that both in terms of internal metrics and operations. We've seen sequential improvements in gross and net retention in Q1 and Q2. And we're optimistic that with more changes coming, we'll keep getting better in those departments. A second major area of change that we're going to see under Travis's leadership is our improvement in brand positioning in the market. I believe there's long been a disparity between the strength and quality of our platform, especially as recognized by third-party tech analysts and authorities who evaluate it and the awareness and perception of that in the market. So it's incumbent on us to make changes in how we message and position BigCommerce to close that gap. One of the big closures of that messaging and positioning frankly went live yesterday. So if you go to our website, which is split between our enterprise offering and our Essentials offering, Essentials is for small business customers doing typically below $1 million of GMV online. We rolled out the new website content last night. As long as you're in the 80% mainstream group and not the 20% control, you'll see the new messaging. I'm proud of what it says and the design. We're positioned as the top rated e-commerce platform for growing businesses. We backed that up and I'm optimistic that that improved positioning as it gets viewed in the market will result in an…

Yes. And then I'll take the question on the debt, Raimo. Thank you for posing that. I think as we approached the restructuring of the debt, there were really three objectives that we wanted to accomplish. Number one, we wanted to lower our overall leverage, number two, we wanted to space out maturities well in advance of the 2026 notes coming due. We wanted to, in so doing, reduce our net debt. And finally, we wanted to do so in a way that kind of minimized market execution risk and potential dilution to shareholders. And we feel really, we did a good job on the balance and how we did that. From the point of view of the yield, where we landed net of the strike price on the new note is very much from a cost of capital point of view in line with what a lot of new market issuances are paying once you factor in the cost of a collar effectively in order to get the strike price where we negotiated in this deal. So, we think it's a competitive market interest rate. It does so in a way that minimized risk and it got way ahead of where we were from maturity basis and sends a signal that we're very confident in the long-term prospects here and also that this also reflects a lot of the improvements we're seeing in cash flow such that we feel that we can manage the increased interest costs that come along with that.

Okay, perfect. Thank you.

The next question comes from Ken Wong with Oppenheimer. Please go ahead.

Fantastic. Thank you for taking my call. Brent, I think I'll take you up on your offer to dig in a little more. I couldn't help but notice that B2B was a particularly strong segment. And when you pair that with the fact that you guys are looking to refine your ideal customer profile, would you characterize that B2B segment has one of the areas that you guys plan to lean it?

100% and I would emphasize that B2B is itself not a single category or vertical obviously. It is a very wide range of use cases. It includes manufacturers selling to their business customers, wholesalers, distributors, professional services firms and of course, B2C companies or brands also selling to their wholesale buyers. What I would emphasize is that the commerce is very much like Magento was back in the day. We are a broad ranging B2B platform. We have the functionality to serve each of those four segments and use cases and do that with a user experience in our buyer portal that we believe is the most attractive, usable and frankly, innovative in the world of B2B that is out there, because a lot of our competition is quite old and dated, and we have an extremely fresh and modular and modifiable approach especially with that buyer portal, which you can now basically open source, modify yourself. So B2B is a very big deal for us. And maybe somebody else will ask me a question about the B2C ideal customer profile later. But I want to finish on something that's really fun for us. With the Olympics going on right now in Paris, there is in essence, an Olympics every year in B2B e-commerce platforms. Andy Hore [ph] at Paradigm goes through all B2B platforms and has what he calls a mid-market combine and an enterprise combine, where he awards gold, silver and bronze medals to the B2B platforms of the world. And what was fun for us as a competitor in that each year, for the mid-market combine, we won gold medals in eight out of 12 categories, three silvers, one bronze. So we won medals in every category, but we had the most number of golds overall and the highest aggregate count. That's basically been some. BigCommerce won the Olympics by the best expert out there evaluating mid-market platforms. We were tied for fourth in the enterprise one, but only a couple of points away from second place. And we basically, at this point in time have gone from not even having a full featured B2B platform five years ago to one that is consistently being rated the best in the world for mid-market businesses and increasingly one that is among the very, very best for enterprise. So enormous opportunity in B2B. There is as well in B2C, but I'll save that for maybe another question.

Fantastic. I appreciate the context. Daniel, you kind of alluded to getting inbound inquiries earlier. Can you perhaps provide a little more color on those conversations and what led to the decision to remain an independent entity?

Yes, I appreciate the question. We recognize that there are some rumors that were circulating on this topic as there will be from time-to-time. Obviously, there are some limits to how much we comment on this, but I'd like to provide at least a little extra detail for you on this. As we've stated in the prepared remarks, we received inbound interest in the company and evaluated those options. And this is a great company with a lot of upside. We see that upside as does the Board, our investors and our stakeholders. Our Board's focused on maximizing shareholder value and we're confident that our operating plans will drive efficient revenue growth and meet the potential of the business.

Okay, perfect. Thanks a lot.

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

Hey, guys. Thanks for taking the questions. In the prepared remarks, Brent, you talked about RealReal as one of your big customer wins. So I was wondering if you could walk us through that sales cycle and implementation process. It is such a big marketplace and it does seem to imply a very traditional sales cycle and pretty complex implementation. So curious to hear a little bit more on how you were able to win that deal?

Yes, you're correct. So as background, The RealReal is the world's largest marketplace for authenticated luxury goods, primarily sold on consignment. I love it. My wife loves it. They do more than I think about $1.5 billion in online GMV in 2023. So it's an enormous site. The RealReal ticked us I don't know how many quarters ago, but it was indeed a typical large enterprise lengthy sales cycle. And then in terms of implementation, what we're observing in the market is that there are two approaches to implementation. There's a rip and replace approach and then there is a componentized, let me bring in certain components now, make them work with my existing legacy tech. I'll swap out some and then I'll gradually migrate over time. The RealReal chose the latter approach. And so as said in the press release, they're using BigCommerce for checkout and cart with the intention of bringing more in over time. But the observation I would make, and this is a surprise to many perhaps, we're seeing in the market rip and replace oftentimes go far faster than incremental components at a time. And I would just highlight the Bealls experience, where a lot of people in the industry should pay attention to this. Bealls of Florida, 650 plus stores across multiple brands had been on one of the most legacy of legacy platforms, IBM, WebSphere, now HCL, and they did a rip-and-replace, got off their legacy stack and onto a very modern stack of BigCommerce and Vercel and modern CMS in three months. Now who would have thought that was possible? It actually sort of breaks the record. We've had other really great store based retailers like Francesca's and White Stuff in the U.K. do rip-and-replaces in eight months or less. But to do it in three months is really extraordinary. So I go through this extended explanation simply to say that, The RealReal experience is one model and one we're really proud of, of being so flexible that we can be brought in to start just as checkout and cart with more things to come later. But we can also do radical transformation in a very short time period, where all of a sudden a business who had been strangled by their legacy tech is now on the most modern of platforms with a cost structure that has been slashed by sometimes 70%, 80% overall and do that in record time. And we have multiple store based retailers who have pulled that off in the last year, year and a half. And I hope the industry takes notice, because there's still a lot of phenomenally big important businesses that are on legacy tech, who should realize they can get off that quickly and on to the very best enterprise platform, with much better user experience, conversion and cost structure than ever before.

Got it. Super clear, Brent. Thank you for that. Wanted to ask one follow-up here. When we look at BigCommerce, there's many different growth vectors to think about within BigCommerce. But I did want to ask it quite from a simple perspective, maybe thinking about the business enterprise, SMB and then PSR revenue, how would you stack rank those categories as growth drivers that you feel as maybe the strongest contributors to growth over the next 12 months? Thanks, guys.

Well, I'm actually really optimistic about what we can do with small business now that we have the new messaging and positioning out on our website that I just mentioned. But unquestionably, enterprise is our giant area of competitive advantage and growth. I believe, especially with Travis's leadership, that we can very quickly establish BigCommerce as the best, most modern enterprise platform in the world, in essence, the successor to the legacy tech of the past, whether it was custom or the software giants. And that is what will really drive our growth in the years ahead. We've been saying that for some time, but I would argue that our messaging, positioning, awareness and go-to-market hasn't been fully up to the potential of the business. And quite frankly, it has taken us time to complete the enterprise offering in a way that can now replace the legacy tech stacks and do it in record time as the Bealls example showcases. So it's really now that we have emerged as a full complete competitive enterprise solution that can do things nobody else can. I think that's going to be our driver in the years ahead.

Thank you. Thank you so much, Brent.

The next question comes from David Hynes with Canaccord. Please go ahead.

Hey, good morning guys. Brent, I wanted to ask about execution in EMEA realizing it's still a relatively small part of the business, but it did seem like that was a particular bright spot in '23. Growth has stalled a bit there over the last couple of quarters. Can you just talk about what's happening there and how you're positioned in that market?

Yes, there are two very specific things that give me a lot of optimism and confidence going forward. The one that's outside of our control is just the state of the European economy. And I think as people know, it has not been growing as quickly as the American economy. That will turn around inevitably. Businesses, even if they in the short term are prioritizing profit and expenditure minimization, they can't do that forever, right? And with every passing quarter that the European businesses maybe put off migrations, you're building a backlog. And eventually, there's going to be that need to catch up, do the migrations, do the modernizations and the transformations. And we're starting to see that demand come back in, into the early stages of our pipeline. That gives us confidence. The thing within our control, and I would say it's partly to explain why the European growth rate came down and it's going to come back up. And that is the completion of our multi geographic selling capabilities. When we rolled out Multi Storefront a couple of years ago, it was feature complete for companies with multiple brands and it was feature complete for companies selling, let's call it, B2C plus B2B. It was not yet feature complete for the most extreme complexities of with each storefront, I want a different country, different language, different payment provider, different shipping provider, a change to checkout, the language changes, you get the complex use case of some countries have tax included in pricing and others excluded. This is sort of a follow on set of functionality that has taken us a couple of years, frankly, to build out and completing that functionality now for many of the use cases is fully live and with others being implemented this year. Having that complete multi-geo functionality is essential for Europe, where established businesses are obviously selling across lots of languages, countries with different payment preferences, currencies, et cetera. And now that we have that complete, we are really ready to rock in Europe and have a strong competitive advantage in these areas against other SMB like platforms who don't have multi storefront and multi-geo capabilities. So, my own team would tell you there's a primary explanation for gross new sales having stalled as we waited for this functionality. And now that the functionality is there, there's a lot of confidence that we can take that to market in Europe and very much get our growth rates back up to very high levels as they were a few years ago.

Yes. Okay. Very clear. A follow-up for you, Daniel, which follows on Ken's question around B2B. Obviously, the GMV growth there was pretty impressive. From a PSR perspective, is there any difference in how you're positioned to monetize B2C versus B2B GMV?

Slightly. We have obviously fewer credit card transactions on B2B than there are on the B2C side, which is a little bit different on the PSR side. But the PSR is also healthy on B2B and we're also building out and rounding out our offering of payment solutions, in particular, on B2B, such that as we continue to grow in B2B, I feel confident that we're going to be able to maintain and potentially even improve our overall take rates that we're seeing in PSR.

Perfect. Thank you, guys.

Thanks.

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

Great. Thanks. This is Katie Keeser [ph] on for Josh Baer this morning. You spoke to leveraging AI to enhance customer growth. It would be helpful to get a sense of how your AI capabilities are differentiated relative to your e-commerce peers? And then what might be yours becoming more table stakes in the industry relative to where you may have a competitive advantage? Thank you.

Yes, I'd boldly assert we have the most scaled and most impactful AI in the entire world of e-commerce and it is a core of what makes our subsidiary, Feedonomics, such a large and successful doseness. In a nutshell, Feedonomics is the world's largest enterprise platform for helping businesses not just sync, but optimize their catalog feeds into the leading advertising channels and marketplace channels. So ad channels like Google and Microsoft Search, the major social networks, the major affiliate networks, the major display ad networks and then marketplaces like Amazon, Walmart, Target and the other retailer marketplace businesses. AI is the core differentiator of what Feedonomics does, because it is used to take a merchant's catalog, which on average maybe only be a 60% optimization match for Google schema, and get that to very close to a 100%, and then humans do the remaining work. On average their customers were the biggest brands in the world like Patagonia just announced, will see a 20% lift as a result in sales through the channels used like Google, and then they'll add more channels. And so what other AI in the world is delivering 20% sales lift through the very biggest advertising and marketplace channels, there's not anything out there I don't believe. So we are a very much leader in AI there. And then very briefly, in terms of core platform capabilities, we keep emphasizing things that I think matter a lot to merchants, including reducing cost such as through the Big AI Copywriter, lifting sales on the website where we have product recommendations powered by Google AI that product is out. And frankly, our own customer service, our customers love the fact that they have the option of typing in the chat questions. And 25% of the time, we're using AI going through our knowledge base and answering those questions perfectly the first time in a way that the customer never has to talk to one of our live reps on the phone, because they get a perfect answer using AI. We have a very open approach. Our ecosystem is also developing AI products that go into our e-commerce marketplace. We're partnering with the major AI creators and MLMs. So very much innovating in the world of AI, but I'd go back and emphasize what Feedonomics does is at scale more powerful, power beneficial to merchant growth than any other platforms AI.

That's super helpful. Thank you. Also wanted to just quickly drill in on the consumer spending and macro backdrop. If any notable trends emerge in the quarter and what, if any assumptions from a macro or consumer spending perspective underpin that go-forward outlook would be helpful? Thank you.

Yes, I'll take that one. With respect to consumer spending, we use the word resilient in the prepared remarks to describe what we're seeing on the consumer spend side. Use the term deliberately like it's not demonstrably improving versus where it's been in terms of prior quarters, but we're not seeing it really eroding or getting significantly worse. That said, we look at the same kind of macroeconomic details that everybody else does and what we're seeing in retail and restaurants and other. I think largely what we've seen so far this year has been pretty in line though with what we planned and expected going into the year. So perhaps some of the reason why we are a little bit more optimistic in describing this is perhaps, because we're more conservative going into the year maybe than others were. But overall, I'd say it's been pretty healthy. We're still taking a cautious optimism point of view towards the holiday period, and we're reflecting that caution in the guidance clearly. We want to be careful with that. But overall, I'd say it's been still fairly healthy.

I'd add at a macro level, U.S. Department of Commerce and Census Bureau have been reporting e-commerce consumer growth rates in the U.S. in the single-digits since late 2021. That continued to be the case in Q1. We get Q2 reported later this month. And is it great to have single-digit e-commerce growth rates when before the pandemic they were always double-digits? No, it's not. I mean, it'd be delightful to have double-digit growth rates in consumer spend again online, but that's just not the world we've been in for the last three years. And frankly, I don't necessarily see something that's going to change that going forward.

Makes sense. Thank you.

The next question comes from Mark Murphy with JPMorgan. Please go ahead.

Thank you so much. So, Brent, you did mention a number of wins and go live. I'm curious which e-commerce platforms you see customers are most commonly migrating away from at this juncture. In other words, how often is it Magento, which I think you mentioned, how often is it Shopify? IBM, HCL, I think you mentioned as well, WooCommerce and others. Which of those platforms are feeling relatively more legacy and vulnerable out there? And then I've got a quick follow-up?

Well, it depends whether you're talking total count, which has lots of SMBs in it or at the upper end. I would say at the upper end, Custom and Magento followed by Shopify have been the biggest migrations over time. At the SMB level, it's a wide range. It's WooCommerce, it's Shopify, it's Magento as well. There aren't that many companies out there on the big legacy stacks like IBM and Oracle, SAP, or custom, but boy, do they drive a lot of online GMV. And when we win them, they really move the needle in terms of reputation, spend, et cetera. And I just love examples like the ones I've been giving, because the way I characterize the industry is for the last five years, it's been a little bit paralyzed. The folks who implemented legacy tech 15 years ago, customer one of these platforms, know and want to get off it, but they've been waiting for a modern enterprise platform to show them that they can and that they're betting on the right company for the next 15 years. A modern SaaS platform hasn't been stepping up and really doing that for the most complex use cases. I mean, yes, we and Shopify have been doing it for years, for less complex use cases with branded manufacturers, but the most complex use cases, multi-brand, multi-category online retailers like The RealReal or store-based retailers like Bell's. They've been waiting for a modern SaaS enterprise platform to say "Hey, we can do that, look at these success examples and that's what we're doing now," and that's where I see there being so much upside to our business model going forward.

Okay. Thank you. And then for Daniel, I see the uptick that you mentioned in enterprise net, new ARR, it's nice to see. At the same time, the number of enterprise customers added, it seems like it's pretty severely down to about 32. And I'm trying to remember if, did you reindex? Did you flush out customers at the bottom of that tier? Or is that just shifting towards the larger customer lens? And then going back to kind of tying in with that, and to the prior question, there's just so many large consumer oriented companies that are struggling lately, Starbucks and Nike, we see it in UPS and Tesla and McDonald's. Why do you think that your B2C customers would show more resilience than that? Or why do you think they'd be able to avoid a tougher part of the business cycle where the consumer often does start to roll over 18, 24 months after a fed hiking cycle?

Let me take the last question first, and then I'll get back to the net customer adds. I think on the consumer side, again, just to reinforce that, we're not seeing the type of growth rates in consumer spending that we're used to seeing in e-commerce. We're not saying that we're not seeing the effects. What we're saying is that they're -- what we are seeing is in line with what we expected. I think perhaps we may have, I mean, we have really, really good vertical and sector diversity in our customer base. We're not overly exposed to one sector or another, which may help. But overall, I mean I think that though we are not seeing as much growth as we would like to see in that area, overall, we think it's been relatively healthy. But we're taking a cautious outlook because we're seeing the same macroeconomic data that you're referring to, and we're basing our guidance and building our plans according to that kind of commensurate level of conservatism. With respect to net adds, part of it is that we're trending towards larger customers and we're trending towards healthier comps. I mean, if you look at what we're seeing in deferred revenue and also in RPO as well, I mean, deferred revenue is up 46% year-over-year. RPO was up 37% year-over-year. I mean, we're really, really putting a lot of energy and focus not just in getting higher and mid-market and enterprise customers, but making those contracts healthier and better for shareholders than they have been before. We are seeing really good results and improving trends in gross and net retention. The area that we're struggling a little bit is what we're seeing in new ads, which is where you're seeing that in terms of the net customer adds. We want to see better pipeline growth than what we've seen over the course of the last few quarters. We want to do that with better efficacy and efficiency in the dollars that we're putting at work on the go-to-market side as well. So I mean, I'd say where we wanted to be for gross and net retention, or where we want to be from a contract quality point of view. But to Brent's point, as he was discussing, it's a bit of a tough environment from a migration point of view, and that's kind of impairing a little bit of the net new adds on the new logo side of things.

Makes sense. Thank you so much.

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

Hey, guys. This is Jeremy on for Samad. Thanks for taking my questions. I guess first, how should we think about enterprise ARR as a percent of the mix? Is there any change for the timeline to get to 80%?

I'll take that one. I think that, it's mixed a little less quickly towards enterprise than where we probably would have anticipated a couple of years ago for two reasons. One, the small business portion of the business is stabilizing and doing a little better than what we expected. We thought that we would be able to stabilize that and start turning it back around into growth. I think it's done that a little bit sooner than we expected. That's part one. Part two, I think the trend in the mid-market and enterprises, we're seeing some of the challenges in market that we've discussed already about new customer adds and migrations. It's a little bit of a tough environment that has perhaps slowed that trend up. But when you look at the improvements we're seeing in B2B, in particular, where we think the success that we're seeing with some of the merchant migrations and customer migrations we've been describing, we're really confident that we're still going to continue to mix the business more and more towards enterprise accounts. It just maybe is going a little bit slower by a couple of quarters than what we had anticipated. But the long term trend is the same.

Got you. That's useful color. And then maybe a follow-up on B2B. Can you maybe help contextualize or provide any data on like what percent of the total this accounts for, whether that's on ARR or GMV? And then if not, maybe how big do you think the segments can get?

Yes. I mean, I would say we think over time that B2B can and likely will become a greater percentage of the overall mix for several reasons, which Brent has already discussed. In terms of overall mix of the business, we haven't disclosed which what the exact percentages are. What I can say is that B2B has been a disproportionate grower as a portion of our total mix for probably the last two to three years and we do anticipate that continuing. It's a really, really healthy part of the business, not just in the growth trends, but also in the underlying health. Like as we mentioned in the prepared remarks, what we see in terms of retention rates on those customers tends to also be 20% better than what we see in the remainder of the business, and that's with the ability to continue to maintain the type of take rates that we see over time in PSR. So when we look at the underlying economics and the trends and the product differentiation, it's a clear winner for us and it's going to be an area we continue to invest.

Got it. Makes sense. Thanks, guys.

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

Hi, gentlemen. Thanks for taking the question. So Brent, I'll take you up on your offer on the ideal B2C customer. What does that look like? And as you see the opportunity of other platforms, what does that look like in terms of what might migrate over to BigCommerce?

Yes. Let me talk about the evolution in our business. When we started 15 years ago, we were a small business platform dealt for startups and small businesses. So think of an ICP background of a digitally native direct-to-consumer business or a very small branded manufacturer. When I came in, in 2015 and we started moving upmarket, we expanded our ICP into real true branded manufacturers, businesses that by definition are omnichannel because they sell through third party distribution, they're online and offline in terms of sales, that's a more complex customer. And I would say up until the last couple of years, that has been our sweet spot. The point to emphasize for the market though is by my analysis, if you look at the top 1,000 B2C brands and retailers in the U.S., those two segments combined account for less than 20% of all GMV online. The other 80% are in the two most complex use cases of multi-brand online retailers and store based retailers. Far more complex and businesses that though we had examples of them, let's call it five, 10 years ago, would not have been our sweet spot. Today, with examples like The RealReal, Sole Trader and Sports Shoes, all of which we just announced. Those are examples of multi-brand predominantly online retailers at very, very, very large scale and complexity. And I just gave you three great examples from Europe and the U.S. that you can draw a line through. And then the other example of store-based retailers, like Bell's, like Anderton's, which is a music leader in the U.K., two examples in this earnings release that you can draw a line through for store-based retail. This is where more than 80% of online GMV is located. And historically, these were not the primary areas of growth for us. But because our platform has advanced and matured so significantly, we can now displace the custom platforms and legacy platforms that used to power the biggest online retailers in the world. So what I'm proud to say is in terms of ideal customer profile, there are now big subsets of each of those two areas that we're winning, and I think this last quarter has great examples of both.

That's great color. And as you kind of target that opportunity, I'm curious, you mentioned some comments before on some customers buying components versus a full rip and replace. Has the mix of that changed relative to your expectations? And how do you see that balance of purchasing playing out versus components versus full rip and replace as you look ahead? Thanks, guys.

Vast majority of the time, companies are going to rip and replace rather than do components. Doing components is harder, because you're mixing and matching and it takes longer. That's our experience, doesn't always play out that way, but mostly we think it'll be rip and replace.

Thanks Brent.

[Operator Instructions]. The next question comes from Gabriela Borges with Goldman Sachs. Please go ahead.

Hi, this is Sukumar [ph] on for Gabriela. Thanks for taking my question. We noticed some examples of headless in the press release and prepared remarks. How is the adoption of headless commerce tracking in the industry? And is this a catalyst for new customers to evaluate BigCommerce? Thank you.

Yes. We see composable gaining traction in North America relative to prior years. We see it through the mock alliance. We see it in the industry. And all new reference architecture catalyst based on Next.js and react and/or market leading Next.js visual editor, MakeSwift are really in our opinion, the best offering in the market. Bell's, in particular is a company who implemented catalyst. So you want a perfect example of just how successful you can be, implementing composable in record time, that's what Bell's did. They used Catalyst, Next.js and React. So, we're very excited about the offering we have in market. We'll be showcasing it at Big Summit later this month in Austin and we'll be incorporating it into our core offering evermore. So that going forward, there won't actually be on BigCommerce A choice between composable or not composable will be composable out of the box. Thanks for the question.

Got it. That's helpful. Thank you so much.

The next question comes from Chris Kuntarich with UBS. Please go ahead.

Great. Thanks for taking the question. Brent, you called out further efficiencies in the back half of the year in your prepared remarks. I guess, how should we be thinking about the impact of those further efficiencies on more the go-to-market side versus, really the broader BigCommerce business? I have a follow-up after that. Thanks.

Yes, this is Daniel. I'll take that one. In particular, we're focused on go-to-market efficiency and by that not just the absolute dollars, but the efficiency of the dollars and also the efficacy of where of the results that we're getting out of the money that we're spending. So we talked about this in the prepared remarks. We're really, really laser focused, not just on the growth rate, but the efficiency of how we're getting to that growth rate. And lots of companies similar to us have seen some declines in what they're getting from a go-to-market efficiency point of view. We are laser focused on reaccelerating top-line growth and doing it in a way that's more efficient with the way that we are investing our operating dollars. So I would characterize in what we're doing in go-to-market, not to overuse sports analogies, but we're probably third inning. We've started that process, but there's a lot we have left to do. And as we get through the back half of the year, we're going to continue to build upon the foundation that we've already started, and we're going to continue to do that until we get to reaccelerated top-line and better efficiency in the spend that's driving that.

Got it. That's helpful. And then just maybe one on Big AI Copywriter and the choice of Google and their Gemini model. Could you just talk about what drove that choice to go with Google versus other providers at this point?

Well, even before the overnight boom in AI popularity starting late, I guess 2022. Google has been working on AI models and prioritizing e-commerce in particular as an application area. So we've been working with them on AI and product recommendations for longer than the recent boom in MLM. They've just been a natural partner of ours and a great partner of ours. But by all means, we are not exclusive to any one model, either we -- our customers, or our agency and tech partners, because we're open, can use any models and it's up to the choice of us or customers and partners, which to employ and the collaboration of the actual MLM developers. But I praise Google for leaning into e-commerce use cases and applications. We've done hackathons with them and our ecosystem. They've just been fantastic to work with. The final thing I would note is that unlike some of our competitors who rely primarily on proprietary model, exclusive to their firms that they've branded, or our black boxes on their models. What's different about BigCommerce is with the exception of Feedonomics, where we don't have and rely on proprietary models, and we do tend to be open and transparent about what we're working on and what others are working on. So that's a differentiated approach that I think gets the best from all the innovation happening in AI model development.

Got it. Very helpful. Thank you, Brent.

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

Thanks everybody for dialing in. In summary, I would say the highlight of the last quarter is the operating cash flow delivery, which is up very, very substantially over prior years and shows that we are really gaining momentum as a profitable cash flow generating business. I'm also proud of the continued sequential improvements in gross and net retention. The big opportunity for us is to be growing gross new sales and do that efficiently. And as I've described, I'm very optimistic at our prospects for doing that. Thanks to the changes we're making under Travis's leadership and the big segments of the market, both B2C and B2B, that I think we have emerged to be able to serve distinctively well. So hopefully, more good news to come in the following quarters, and we look forward to talking to you again then.