Good morning, everyone. Welcome to the 29th annual Oppenheimer TMT conference. Happy to have with us commerce.com. And joining us is CFO, COO, Daniel Lentz. Sorry for the delay, had some technical difficulties. Daniel, welcome aboard.

Hey, glad to be here. Sorry about the delays. For everybody on the call, to be clear, it was my delay is not Oppenheimer's. So sorry about that this morning.

So, look, I think most people are aware of commerce, but perhaps to start, just some quick background on the company, and then we can dive straight into some Q&A.

Yeah, so commerce.com plays within the e-commerce space. We have two major assets, BigCommerce, which is our platform that actually processes orders and payments and allows customers to build websites to transact online. We describe that as our transaction layer, and the second major part of the business is called Feedonomics. This is the data orchestration layer. This is a business that helps customers take their product catalog and optimize all of its data attributes for discovery and transaction in all of the surfaces where customers are shopping online today, which is becoming increasingly important as the LLMs are really starting to take primary share in actual shopping discovery, which has changed tremendously over the course of the last even just six to nine months, which we believe is a really good thing and a tailwind in the long run for our business. And then finally, the third area of the business is called MakeSwift, which is a very small part of the business. Think about that almost as kind of like the page builder, front-end storefront builder layer of the solution as a whole. It's not a material part of the revenue of the business today, but we are actually in the process of building out that solution as the core storefront design in the core BigCommerce product, which is going to end up really, really doing great things for existing customers and new customers alike when it launches here by the end of the year.

Fantastic. Thank you for that, Daniel. So a lot of changes over the past year. You touched on some of it during the intro. You guys revamped the go-to-market, leadership changes, some pricing tweaks, some corporate rebranding. Can you just level set the audience with a status report here? Where are we on those initiatives? How do some of those changes potentially position you guys going forward?

Yeah, I'd say Travis Hess is our CEO. He took over about two years ago, give or take. And there were kind of four main objectives that Travis called out that he wanted to do when he took over as CEO. Number one, he wanted to make some pretty significant changes to the management team, which is now complete. Second, he wanted to really, really pivot the focus of the business towards net revenue retention, where historically in the past, like a lot of other SaaS businesses, I'd say we over-indexed on new account acquisition as a primary means of driving growth. The third thing that he wanted to do was really unify the brands under one overall brand architecture, and as a part of that, integrate MakeSwift and Feedonomics, which were acquisitions that were made in the last three to five years, which were never really fully integrated, either in operations or in technical architecture. And then finally, and perhaps most importantly, he felt when he took over that commerce was going to be shifting much more towards the battleground being discovery and the data orchestration part of the business. And that very much has proven the case. I think it's gone a little faster than what we expected maybe two years ago. And what I mean by that is really, if you think about commerce historically, e-commerce in particular, I mean, it's really been about a very kind of set funnel that leads to transactions. Customers go through and do discovery through search, SEO search, typically through Google. That traffic then leads a browsing experience direct to the front door of a customer's website, their branded website. And then from there, it leads to product pages, which leads to shopping carts and leads to checkouts and transactions. That's really been changing over the course of the last few years. I think that started with a lot of discovery being on different surfaces outside of the core branded website. We talked about this a few years back. You'd hear this term thrown around all the time called omni-channel within e-commerce. That was really just a way of saying, look, we need to get your product cataloged so that it may be discovered in either social channels or marketplaces as well as digital ad channels. But it's even changing further now with how much AI is really starting to take over product discovery where the surfaces in which products are being discovered in browsing experience is becoming increasingly disparate. And that funnel now looks quite different. The customer's branded website is still a very, very important channel, but the top of funnel aspect of that, it's one of many, many channels. You may go to OpenAI or you may go to Perplexity or Gemini, any number of LLM-based search tools. You may go through and say, look, I'm taking a hiking trip in three weeks. I need a new pair of boots. You give it the criteria, and you say, based on what you know about me, what would you recommend? And that LLM needs to be able to access the product data in a way that works for the algorithm itself, and it's best if it has direct access to that catalog, and it'll recommend two or three different sets of boots. And then in most cases, the customer will then outclick from that semantic search result directly to the product page on that customer website and then go to card and transaction and go from there. But in what I just described, it actually in many cases bypasses the front door of that merchant website. And so now e-commerce is moving much more toward a notion of where what we really are doing is running and powering discovery and transaction of product catalogs, and the branded website is one channel of many. And increasingly, more and more, we think this is where e-commerce is going to shift. Now, it's primarily, I would say, a discovery path today. I think the amount of transactions going through agentic discovery is, quite frankly, fairly overblown. The volumes are fairly immaterial across the industry, but I don't think that'll be the case probably three or four years ago. But right now, it's very, very much taking over discovery in a material way.

Got it. And that's a perfect segue into my next question. With this shifting battleground, and you guys have obviously reoriented your business to hopefully attack the battleground in a way that best serves you guys. how has this transition kind of weighed on your different business lines and how does that have you guys reprioritize where you put your resources so when we think across the big commerce the feedonomics and the makes with pieces kind of where have you seen some you know negative disruption where have you maybe seen some positive disruption that's a great question let me break it into two pieces piece one let me just address changes that we needed to make in the core business apart from this trend towards agentic.

And then secondly, let me discuss what agentic means in particular. The changes within the core business, we really, really, really needed to focus more on existing customers, existing customer retention, and creating more monetization paths to expand existing customers, which is why we started disclosing total business net revenue retention starting in Q1 and overall platform G&B as well. When you look at where our business is moving, we continue to grow in strength, particularly with B2B and B2C hybrid customers on the platform side of things under big commerce. And what I mean by that is you have traditional manufacturers and distributors within the B2B space, and then you also have B2C customers where we do very, very well that have B2B-like complexity in how they have to approach their business. That can be regulated industries. It can be multi-level marketing businesses and things like that. That's really where the business is trending and where we have particular strength. I mean, today, B2B and hybrid customers represent the majority of platform ARR. They are greater than 50% of GMV. They have higher win rates, higher gross retention rates, higher net retention rates. So the business is definitely moving in that direction. The only headwind that comes in that mixed change is simply the fact that those customers tend to have fewer credit card transactions on a like-for-like basis than a B2C customer. And so we've got a little bit of a mixed headwind that you see in the spread between underlying platform GMV growth and revenue growth. And in order to attack that problem, obviously, we need to have more ways of monetizing those types of customers outside of not just the core subscription but also on the credit card transaction side of things. Within the platform area, that's really where that trend is moving. On the agentic side of things, this really plays to an area of strength for us already with feedonomics, where we've been optimizing catalogs for ad and social and marketplace channels for a long time. And then in the next quarter, we're actually going to be launching new data enrichment capabilities specifically targeted towards LLMs, both in feedonomics, not only for feedonomics customers, but also for big commerce platform customers as well. So if you go to the second bucket, then you say, all right, we'll take a step back and look at this move towards a Gentic. Where has it been a help to the business? Where has it caused a reprioritization? I would say it's really – we've really, really, really had to focus on the opportunity that's in front of us, particularly in data enrichment, where an area of strength for us for a long time has been helping catalogs be discoverable and transactable in all of these different surfaces. that's now more important for customers than it was before, and it's important for customers of all sizes. And so we've needed to look at the business and say, okay, how can we get this capability into the hands of smaller customers? So for example, we launched Feedonomics Surface, which is an app that we launched in Q4 of last year that extends some of that catalog optimization capability that Feedonomics traditionally offered to kind of lower end of enterprise and true gigantic, you know, retailer and B2C customers within Fedonomics, we needed to extend that capability to a price point that small businesses could pay. And that's what Surface was. So we've needed to redirect, that's one example of where we've needed to really direct our R&D dollars as towards capabilities in that area to lower price points so that we could extend those benefits towards big commerce customers, which tend to be more mid-market size and kind of an average than Fedonomics customers, which tend to be a little bit bigger.

And we've seen that across the business.

That's true on Fedonomics. Within B2B, we've redirected and refocused the development towards agentic operational capabilities for B2B customers. So, for example, for those merchants, it's less of a change in how their product is discovered, but it creates a huge opportunity in how they run their business. So we have in beta today a purchase order agent, as an example, that's going to be GA'd, I think, hopefully by the end of the year, where B2B customers can take a PDF purchase order, drop it into a tool that we provide that allows that PDF purchase order to be auto-written into ERP systems so that they don't have to have people doing manual data entry, as an example. And we're developing a whole suite of B2B operational agents that our merchants can take advantage of as well. And that doesn't sound like rocket science, but B2B merchants spend hundreds of thousands of dollars a year on people doing manual data entry still, copying over from fax machine inbound purchase orders and getting it in the ERP system. So it looks a little different whether you're talking about a B2B customer versus a B2C customer, but the opportunity is huge for both.

Got it. So perhaps that B2B end market, not as attractive from a credit card monetization perspective, but considering they're a little behind the technological curve, hopefully commerce will be able to provide some hand-holding support with agents that you can monetize down the line.

Yeah, I think it's a great way of putting it. I think we are thinking about B2B expansion of revenue a little different than B2C simply due to the credit card difference, the credit card mix difference. But there's ways to make better spreads on credit card transactions if you want to continue to go down the fintech path towards becoming a PSP, which is something we're evaluating. But there's also, to your point, a lot of other ways that you can monetize B2B customers once they are on the platform outside of credit cards that we are looking to build and develop. I mean, ultimately, B&B customers and hybrid customers are outstanding customers. They're sticky. There's fewer competitors that have products that can really work for their level of complexity. And we have outsized right to win there. And competitively, we do very, very well in that area. That's not going to be the exclusive focus of the business going forward.

But I think two to three years from now, our business is going to look, the substantial majority is going to look like customers in that that fit that that description understood and perhaps shifting gears a little bit to the more near term you guys just reported earnings last week you had called out you know some you know a more cautious new bookings landscape out there uh you just refresh us on what what you guys saw in the quarter uh you know What are some potential dynamics that you guys are looking to rectify in the back half?

Yeah, specifically what we were talking about there is new account B2C bookings were weaker in the front half than where we wanted them to be. I don't think that's particularly surprising. I know a lot of folks within the industry are kind of facing the same dynamic. We're not seeing that same softness on the B2B side of things necessarily as much. But B2C in particular, if you want to think about the most important thing right now for a B2C customer heading into holiday is how can they get their top of funnel under control where they understand how they can drive volume to their product pages and checkout when the front door going through SEO to their main website and going through that browse and discovery experience. that's changing really, really rapidly. And so for a lot of those customers, they're less concerned about replatforming right now and they're much more concerned about shopping discovery when SEO volumes are dropping like they are. And so I just think in general, there's just a weaker demand environment for B to C customers in particular. And we wanted to see better ramp in the front half of the year with that type of customer from a replatforming point of view than what we did. And ultimately we felt we needed to reflect that softness in the guide going forward.

Got it. And on that dynamic, one question we're getting asked is how much of that is just, as you mentioned, maybe a little bit of a kind of pullback on the new, how much of it is lengthening sales cycles versus maybe changing win rates, competitive dynamics? What are you seeing in that B2C pipeline to help us get some comfort that that could potentially rebound down the line?

Yeah, good question. We're not seeing a change in win rates. What we're seeing is fewer at-bats in general, which we hear the same thing also from our partner ecosystem, by the way, right now as well. There's just not as much B2C replatforming activity as where there was a year ago. Now, when and how that rebounds, it's hard to say. I would be more worried, I guess I would say, if we saw a degradation in win rates, but we're not seeing that. That said, we're going to continue to push resources towards the area where we're seeing the most growth in the short term and really good long term retention, which is on the B2B and the hybrid side of things. We're not going to neglect the B2C side of things necessarily, but we don't need that to rebound tremendously for us to feel like we can get our growth rate into a better place. Just the sourcing and composition of that, I think, is going to look more like hybrids and B2Bs than B2C. But, you know, I just I think if I just think about how I approach this myself within the business, I don't want to be buying a whole lot of software right now. I want to be consolidating and trying to simplify as much as possible. and the amount of scrutiny that I'm, I mean, anytime we buy software, I'm ultimately the one that has to approve it for all of our internal decisions. And I'm agreeing too far less of it than I was two years ago, because I'm wanting to understand how we can consolidate and simplify, not necessarily because I feel like we can bide code our own versions of everything. I think that's a little bit overblown, to be frank. And I don't think that really affects us in a lot of ways in our business, because we're really infrastructure software, and we're not middleware that's easily disintermediated. But I think just in general, there's just a lot more scrutiny on capital decisions going towards software and replatforming in particular. It's not an ideal time to do it heading into holiday and certainly not at a time where merchants are trying to get their top of funnel under control first and foremost.

Understood. And then lastly, on just the more near-term makeup of the business, You guys provided a revised revenue growth range, negative two plus one in probably the number one question I was getting asked after the earnings event is, how de-risked is that guidance range now that you've lowered it again? And what has to happen, good or bad, to be on one end or the other of the spectrum?

I feel really good about the guide for the back half of the year and what that means going into next year on the revenue side of things. I feel like it's very prudently de-risked. We put that in the prepared remarks, and we're pretty careful with our wording for that reason. For it to fall below that, I think we would need to see a little bit of a degradation from what we've seen over the last 12 months in terms of what new account bookings would look like. And also, we need to see a fairly weak holiday period. I don't anticipate either of those things. I think the guidance reflects a pretty good steady view of what we've seen so far this year, and I think it's a prudent representation of the outlook going forward. To get above it, I think we need to see a little bit better acceleration in bookings. We have a lot of products that we're shipping in the back half of the year. I want to see that really start to turn the needle further in net revenue retention and also in ARR as a whole, but I think that's more of an exit rate benefit. If the bookings are coming late in a quarter, you don't get a ton of revenue benefit if you're signing the deal late in the quarter. So I guess for me, the main signals I'm looking at is three things. One, continued health and GMV. Number two, I want to see that we're shipping all the products that we have lined up to go out the door. And then I want to see a good holiday period. And some of that's somewhat out of our control from a macro point of view. But so far, so good in that respect, I think, in the year. There's been a lot of noise, to say the least, on the geopolitical front. and from a lot of disruption, but we don't need to see that turn around dramatically or anything like that for us to feel good about the prudent guidance adjustment we made for the back half of the year.

Got it. Okay, perfect. Shifting back over to the payment side, so I think you touched on the broader payment categories, but you guys also recently launched BigCommerce Payments kind of underneath the big commerce brand uh you know i think on the surface you guys aren't getting the gross revenue uplift which are generally empty calories anyways you know but we do get asked from time to time what what's the strategic rationale here for for for commerce what what could we potentially see what is the potential benefit from uh from a monetization perspective longer term if not the accounting impact?

Yeah, I mean, look, let's talk about where we are today and then where we are considering moving. Where we are today, from an accounting point of view, it's recognized on a net basis, not a gross basis. If you move further in the integration path of a full payment service provider setup, you're not doing it for accounting reasons. You do it because you think that you can capture additional stickiness with those customers and that you think you can ultimately capture incremental spreads out of interchange. If you're just doing it for accounting reasons, that's silly. I mean, you said low calorie. I think that's a fair way of putting it. Our current branded solution has incrementally better margins and revenue and spreads essentially or BIPs that we are capturing than where we were before because it is effectively still a referral model, but with a buy and a sell rate. So we're operating as a reseller. We are evaluating whether or not we go more fully down the PFP route. If we do that, I think the main reason why we would do it, though, would be because we think we can make more money off of it and that it's ultimately stickier. I think the strategic rationale I don't think should really be that surprising to anyone because I think a lot of competitors in our space have demonstrated this quite well. The more you're involved in the transaction flows, including the movement of payments for those merchants, if you can differentiate that, I think it leads to stickier outcomes and stickier customers. And so, I mean, we've seen really, really good adoption so far of big commerce payments. It's still a small portion of the mix because it's geared towards small and medium-sized customers, and it's not focusing on really, really large customers, at least not in the near term. So I'm not expecting this to take over our GMV mix anytime soon, but I do think it can become a substantial contributor over time, and then we can capture gradually better economics over time. But I do think we will continue to evaluate how we can have a more fulsome offering in that area, whether it ends up being a full PSP offering. We haven't made any decisions on that just yet.

Understood. And then there was maybe some recent noise around the payment product. You guys also streamlined some of your partners from, you know, from the offering. Any customer pushback and, you know, I guess any potential impact to your business just broadly as you, again, streamlined off some of the, you know, long tail partners here?

Very little. And that's because by design, so what we did is we said that we named a list of call it 20 core payments providers that merchants could use freely without any sort of additional charge. of which our branded solution was one of the roughly 20. And so what we said was, if you're going outside of that core list of 20, then there's a small fee that is an additional fee that helps cover the cost that we face by integrating with all of those partners. But the really important thing to understand is only customers on our self-service plan, core growth and scale plans, are even subject to that. The majority of our GMV and the majority of our ARR on the big commerce side of things is actually on a negotiated what we call a performance plan, which does not face any of that type of fee structure at all. And so when we made those changes by design, it affected a large number of customers, but not a large percent of the business. And for those customers that were impacted, even if they're small, we're going to them essentially saying, look, you can use any one of these 20, and the reason why you should pick one of these 20 is because it actually leads to better conversion, better GMB growth. We have better integrations. So, I mean, we've had some pockets where we've had some customers that maybe are using someone outside of that that are having to maybe make a migration and change to somebody within the list. That's okay, but by and large, I think it's been very well received.

Got it. uh and maybe one area where where you guys have been performing exceptionally well is on the profitability side um you know maybe touch on some of the the progress you've made there getting the gap profitability and then the natural follow-on that i typically get from folks is you know have we picked all the low-hanging fruit do you still have capacity to potentially expand margins going forward especially with some of the pressures on top line um yes we do have further room um i think it's i have uh i feel differently depending on the part of the the business or the pnl that

we're talking about rnd is going to continue to be a focus area for us and not an area where we would look to make any substantial cuts um there's a lot that we're pushing out the door this year so it may not look exactly the same next year from an investment size or rate point of view but I think it would be substantially the same. On the cost of revenue side of things, we had a little bit of a decline sequentially this quarter due to some hosting cost stuff that I already talked about on the earnings call last week. I think we can offset a lot of that over time, though, just in changes and improvements to how we manage our hosting costs and also some cost savings projects, some automation work that we're doing that I think can take further costs out there. So I feel okay about that. I do think over time, we can continue to get G&A down further than where it is right now. We're still having to spend quite a bit on the back end, not just cost of being a publicly traded company, but also what we're doing on the audit side of things with stocks. There's a lot of work that we're doing just in kind of the back end design and cleanup that we're doing that I think, you know, we need a few more months to finish up. And then I think we can get further costs out there. And the big area for me continues to be on the sales and marketing expense line item in particular. I expect us to be down sequentially in sales and marketing expense, about $25 million this year. And I think that a lot of that is just right-sizing what we're doing and what we're spending based on the growth that we are putting out the door. I think there's further efficiencies that we can see in that area for sure. But in some ways, what I would like to do would be to move dollars around if we have efficiencies. If we can see positive ROI in different areas, I'd like to reinvest because more than anything, I'd like to drive up the growth rate. But what I would say is that if we're not going to be growing faster than where we are, most definitely we would have further costs that we would take out. In the short run, though, I think Travis Knight's point of view on this as well as the board is that we really, really want to get the business back growing at a more sustainable and healthy rate. And we want to put dollars to work where we think we can do that. The primary area where we've increased investment this year has been in R&D because we have a lot of product investments and innovations that are coming out the door that come with new monetization paths, particularly in the back half of the year. I want to see how those play out in market and how those do over the course of the next three or four quarters. And if the growth is not accelerating better than where it is right now, then I definitely think we would take a further look at the cost structure to look at other ways to get better profitability to shareholders outside of further revenue growth. But I think the key unlock to re-rate the stock to a place where I think it should be is through growth. And that's our number one focus.

Got it. And that makes a ton of sense as a tech company. I think investors will always prioritize growth over everything else. Lastly, this is a lot of stuff in terms of headlines, but you've had some external interest in the company. And I think investors generally would like to know, how do you, how does the management team, how does the board think about that external interest, whether it's Resolve or others? Any thoughts there before we wrap up?

Yeah, I would just say, I don't mean this as a throwaway line. I mean this sincerely. We take our fiduciary responsibility to the shareholder as our number one and only concern. And so we believe that the internal operating plans that we have can unlock better growth rates, and I think we've shown that we can drive healthy – we have a healthy balance sheet, we're driving better profitability, we're driving good cash flows. We've really, in the last three years, made a ton of progress in that area, and we've done it without enough revenue growth to make that as easy as it could have been. It's a whole lot easier to drive better cash flow and profitability when you're growing substantially. We've kind of done it the hard way. From the management team and the board's point of view, we're going to do whatever we think is the best from a shareholder outcome point of view, whether that's continuing to, you know, be on our existing plan or if there's other opportunities that would make sense. Certainly open to those things. Whatever we think is best for the shareholder is the route that we would take.

Understood. Daniel, thank you for your time. audience sorry for the technical difficulties earlier but we are right up at the at the end of the time slot so for everyone