Commerce.com, Inc. (CMRC) Earnings Call Transcript & Summary

Good afternoon, and welcome to the 2021 BigCommerce Virtual Annual Meeting of Stockholders. I will now turn the meeting over to BigCommerce CEO, Brent Bellm.

Hello, everyone, and welcome to the BigCommerce Holdings, Inc. 2021 Virtual Annual Meeting of Stockholders. We are pleased that you are able to join us. I'm Brent Bellm, CEO and President of BigCommerce, and I now call this meeting to order. We are excited to be hosting this meeting virtually, which allows us to be more inclusive and reach a greater number of our stockholders. We will conduct the business portion of the meeting first, then provide a brief presentation regarding the company and recent developments, followed by Q&A. The meeting agenda and rules of conduct are available through the meeting web portal, and I ask that everyone adhere to them so that the meeting can proceed in an orderly fashion. I would now like to introduce the members of our Board of Directors and our director nominees who are with us today. We are joined by Steven Murray, our lead independent director; as well as directors, Don Clarke; John or Jack McDonald; and Ellen Siminoff; and also, the directors standing for reelection at today's meeting, Lawrence Bohn; Jeff Richards; and myself. In addition, we have here today a number of the company's executive officers, including Robert Alvarez, Chief Financial Officer; Jeff Mengoli, Chief Legal Officer and Secretary; Daniel Lentz, Senior Vice President of Finance and Investor Relations; and Thomas Aylor, Vice President of Accounting and our Principal Accounting Officer. We are also joined today by representatives of Ernst & Young LLP, our independent auditors. Mr. Mengoli will serve as secretary of the meeting, and I will turn to him with any procedural issues that may arise. Finally, the company has appointed American Election Services to act as inspector of elections. Mr. Chris Woods of American Election Services is with us today and has taken the oath of inspector of elections.

Good afternoon. I'm Jeff Mengoli, and I will serve as secretary of today's meeting. Appropriate notice of this meeting has been sent to all stockholders of record as of March 15, 2021, the record date. I have been advised by Mr. Woods, the inspector of elections for today's meeting, that stockholders of approximately 82% of our shares outstanding as of the record date and entitled to vote at this meeting are present in person or represented by proxy. Accordingly, a quorum is present. A list of registered stockholders of the company entitled to vote at this meeting is available through the web portal for inspection by any stockholder. Copies of the rules of conduct and agenda are also available. It is May 14, 2021 at approximately 12:03 Central Time. I declare the polls open on all the proposals to be voted on at this meeting as contained in our proxy statement and the meeting notice. These are the only proposals properly before the meeting. Any stockholders who have not yet voted or who wish to change their votes may do so by following the voting instructions available through the web portal. Stockholders who have sent in proxies or voted via telephone or Internet and do not want to change their votes do not need to take any further action. The polls are now open for voting on the 2 proposals being considered at this meeting. I will first present the 2 proposals to be voted on. Once all proposals have been presented and everyone has had an opportunity to vote, the polls will be closed. Following that, Brent Bellm, our Chief Executive Officer; and Robert Alvarez, our Chief Financial Officer, will present an overview of the company's strategy and other market insights. We will then have a general question-and-answer session. If you have a general question or comment, please wait until then to raise it. The rules of conduct for this meeting are available from within the web portal. Please abide by these rules, which are in place so we can properly conduct the formal business of the meeting for the benefit of all our stockholders. We'll now turn to the proposals. If you have already cast your vote by mail, phone or Internet, you don't need to vote again unless you want to change your vote. Submitting a ballot today through the web portal will revoke any earlier proxies you may have submitted. The first matter to be voted on is for the election of directors, Brent Bellm, Lawrence Bohn and Jeff Richards. Biographical information and the qualifications of each nominee are presented in the proxy statement. The Board has unanimously recommended that stockholders vote for the election of each of the director nominees. The second matter to be voted on is the ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for fiscal 2021. Pursuant to the recommendation of the Audit Committee, the Board has unanimously recommended that stockholders vote for this proposal. At this time, I ask that anyone who has not yet cast a vote and who desires to do so, please enter your vote through the web portal now. We'll take a quick break for voting. [Voting]

Now that everyone desiring to vote has had an opportunity to do so, I declare the polls closed on all proposals at 12:06 p.m. Central Time. We will provide you with the preliminary voting results on each of the proposals as soon as they are tabulated. R.A., over to you.

Great. Thanks, Jeff. I will now provide a detailed view of the state of the business and our latest Q1 performance. This discussion will contain 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 and our expected future business and financial performance and financial condition. These statements can be identified by words such as expect, anticipate, intend, plan, believe, seek, 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, I'll turn it over to Brent to start a review of our latest investor presentation.

Thanks, R.A. And as a reminder, this presentation is updated quarterly and can be found in the Investor Relations section of our website. Let's go ahead and forward to the next page. Great. BigCommerce is positioned as the world's leading and trying to be the best open SaaS platform for all stages of e-commerce growth. In terms of our strategy, the really operative words in that statement are open SaaS in all stages of e-commerce growth. With open SaaS, we strive to make our platform more flexible to meet the needs of complex, fast-growing and diverse businesses all around the world. And all stages of e-commerce growth reflects our disruptive strategy to be not only a solution for brand-new companies and start-ups paying $30 a month, but also serve growth all the way up to the world's largest brands and companies. Today, we serve more than 30 that are on the Forbes Global 2000 list, and we're proud that anybody can start on BigCommerce and scale to enormous heights with us. Next page? Based on the recently announced Q1 financial results, you can see that the BigCommerce annual revenue run rate is now approaching $200 million, with growth rates in ARR above 40%, which compared to growth rates a year ago in the Q1 quarter in the 20% -- upper 20% range. We are now in our fourth consecutive year of increasing revenue growth rates, a characteristic that is very rare for recurring revenue software businesses, and we're quite proud of that. In terms of the segments that we serve, there are really 2 of them: Enterprise and small business or Essentials. So Essentials is designed -- our plan is at $30 a month, $80 a month, $300 a month, is designed for businesses that are selling less than $1 million of GMV annually. This was our original segment of customers before we expanded into Enterprise, which are businesses selling more than 1 million online per year. And now, the majority of our business is, in fact, Enterprise. I'm sorry, 1 second. With 57% of ARR accounted by that. It's notable that the growth rate, the other way we break things out, is by accounts who have more than $2,000 of annual contract value. This segment for us is growing very, very rapidly. It's more than 51% of growth rate in the Q1 quarter, which is up from 33% 1 year ago. Next page? The market we compete in is global e-commerce. This page reflects the business-to-consumer side of that as opposed to business-to-business. As you can see, the global market is in the several trillion-dollar range, and estimates are that almost 20% of global consumer spending in the year 2021 will be online. We're optimistic and expect that percentage to increase further in the years ahead, potentially to much higher levels. Next page? When our market for e-commerce platform software is disaggregated, you can see that it is a market in the roughly $5.6 billion range in 2021. The segment that -- our model is a SaaS model, which here is represented by public cloud services. This is, in fact, the majority model preferred by businesses today and is, in fact, gaining not just relative share but absolute volume relative to the legacy model of on-premise software. One can also split out purchases of e-commerce software between B2B and B2C businesses. You can see that roughly 2/3 of the industry are B2C businesses purchasing software, but B2B is growing faster than B2C. Notably, BigCommerce competes for both types of businesses today. Why BigCommerce wins? So there are really 5 reasons. Open SaaS, which is our strategy to open up a SaaS platform and not limit it just to the functionality exposed over the web but via APIs, software development kits and other open strategies, introduce the type of flexibility, configurability and customization that historically was only possible when businesses own and manage their own software. We keep introducing Enterprise features and applications and think we are very, very competitive with the leading platforms around the world. And outside agencies like Forrester, IDC and Gartner are recognizing and acknowledging BigCommerce for our Enterprise capabilities. Cross-channel commerce is how we enable our customers to simultaneously sell in a coordinated and integrated way, not just on their branded website, but everywhere consumers may be shopping for them online and off-line. That includes integration in the leading advertising platforms like Google, leading social network platforms like Facebook and Instagram, leading marketplaces like Walmart, Amazon, eBay and Wish as well as leading point-of-sale software platforms like Square, like Clover, like Heartland and Teamwork. We offer a lower total cost of ownership than legacy on-premise software. And our performance, when benchmarked, is oftentimes near industry leadership in terms of uptime site speed and native security, conforming to the ISO 27001 standards as well as PCI-DSS Level 1 security. On the next page, we show that although BigCommerce has customers in every category you can imagine across our 60,000-plus customers, on this page, we highlight some of the leading brands in all categories. So if you look across the top, you're going to see brands you recognize in health and beauty, in apparel, in electronics, in home and garden. This list is representative of brands who allow us the rights to share their brands, and there are many others who, although they don't, are still running very successfully on BigCommerce. And notable, even the most complex categories, like automotive, B2B and industrial at the bottom of the page, we have very strong presence with great, great sites and brands. And then finally for me, this last page talks about our open strategy with respect to ecosystem partners and other players who technologically integrate into us. This page highlights new partners in Q1 of this year, including integration and a publicly announced partnership with Walmart's Marketplace capabilities, where to go in the UPS company and many other names that may not be familiar to you but are quite well-established and important in the ecosystem of e-commerce and enablement of successful merchants online. So with that, we'll now transition into the financials, which Robert or R.A. will present. R.A.?

Hey, great. Thanks, Brent. Hi, everyone. Yes, if we can go to the next page, please? So we're really excited. Q1 represented our fourth consecutive year of accelerating revenue growth. I'm going to walk you through some of the underlying growth drivers that we're seeing, especially around our Enterprise plans and our focus areas around that mid-market and Enterprise segment. We're driving very healthy gross margins. Q1 represented an 81% gross margin profile for the company. And we're already seeing great leverage across the board in the areas where we spend as well as great efficiencies as we continue to optimize our go-to-market. 1 minute. Got to roll with the punches. Next slide, please? Sorry, everyone. It's very fitting that, that happened given what we've all been through. All right. Let's talk about top line revenue. Top line revenue growth has accelerated. As you can see on this page on the left, you'll see annual revenue for '18, '19 and '20 and then a quarterly revenue breakdown. What's really exciting is both of our revenue line items have accelerated very nicely. Subscription revenue, as you can see in Q4 last year, accelerated 33%. Q1 delivered a 36% revenue growth year-over-year, total revenue of 41% in Q1. Our PSR line is where we monetize our GMV through rev share agreements with our partners. Last year, obviously, resulted in great PSR revenue growth for us. And in Q1, we also delivered north of 50% revenue growth across PSR. Next slide? Great. Really excited to share this slide. This is a view of our Enterprise account ARR. We have seen a great product mix shift in our business. Again, we focus on established businesses, mid-market and Enterprise. Our Enterprise plan growth really represents that product market fit, now almost 60% of our revenue. You can see how fast our Enterprise plans are growing. Q1 delivered 58% year-over-year growth, and that's on top -- or on the heels of 51% in Q4. Our Enterprise account ARR now represents $112 million. And we love the unit economics in this business. These are larger merchants that can really leverage the platform in a lot of ways and all carry great retention profiles and much higher long-term value. Next slide? From a gross profit standpoint, you can see 2020 was a great year for us. We hit north of -- in the high 70s in terms of gross profit margins. It increased 40%. For Q1, our gross profit increased 47%. Again, Q1 was a quarter where we exceeded 80% gross margin. So as we scale the business, we feel great about our ability to drive our margins and our cost structure going forward. Terrific. In terms of operating expenses, pre-IPO, we educated investors in terms of how we looked at leverage in the business and our confidence in driving leverage in the business. You can see, in the quarters of 2020, we improved that. In Q1, we delivered great leverage across all of our spend areas. We're getting more and more efficient around sales and marketing. We're seeing great leverage in R&D as we scale our offshore dev teams. And G&A, as we scale, will also show leverage. A lot of G&A spend had to incur last year for public company costs, but really proud to see the leverage really across the board here. Great. We provide this view as well in terms of our recent cohorts. You can see our '19 cohort and 2020 cohort really represents this nice mix shift to more established businesses, higher GMV merchants. I mentioned our efficiencies around go-to-market. We delivered an LTV to CAC last year of 4.9:1. That's an improvement of -- from the prior year of 4.4. Retention across the board remains strong and only improving. Our NRR as of our last reported year was 113%, and we feel great about where that trend is headed as that mix continues to shift to larger and larger merchants. Excellent. So I'm going to walk you through really quickly the 5 key metrics. We provide these metrics for investors because it really represents the merchants that we're really focused on and where our sweet spot, we believe, in the market is. So our accounts greater than $2,000 represent all of our Enterprise accounts as well as our higher-end pro plan. These accounts are accounts with ACV greater than $2,000. And I'm going to walk you through the trends that we're seeing around the run rate as well as some other key metrics that really represent the healthy KPIs that we like to present to investors on a quarterly basis. From an ARR standpoint, as Brent mentioned, we're close to $200 million as of March 31. You can see the acceleration from an ARR perspective. 43% is what we delivered in Q1 on top of 41% in Q4. So extremely pleased by the pace and acceleration of our ARR growth. And this is really a reflection of gross new bookings as well as improved retention -- net revenue retention from our base. Next slide? Great. Here are the accounts greater than $2,000. You can see as well they're growing at a really nice clip, 51% in Q1, on the heels of 48% in Q4. That's -- this cohort now represents 83% of our ARR, which we're really excited about. Next slide? Terrific. So here are -- here's the 83%. You can see this is really a reflection of the mix shift. So on a quarter-by-quarter basis, it's trending consistently higher in terms of percentage of revenue. And we expect that to continue as our focus areas continue to be that mid-market and Enterprise segment. Next slide? Great. So not only is the number of accounts increasing, but our average revenue per these accounts have also increased. So consistently, our ARPA is growing nicely and you can see in Q1, actually accelerated from Q4 in terms of the absolute dollar amount increase for this cohort. Next slide? Terrific. So in terms of the number of accounts greater than $2,000, we delivered roughly 10,500 of them in Q1, representing a 17% year-over-year growth. Again, number of accounts are increasing in this cohort, but so is the ARPA, which is exactly what we wanted to see. Great. For my last slide, I'll just end with we just believe that this is a tremendous opportunity for the company. This is a market that is evolving very quickly. It took 20-plus years for e-commerce to be 10% of total retail. In 4 years, that's now going to be 20%. The pace of growth is only accelerating. I think everyone is -- can see that, that pace is, at some point, is going to get to 30%, 40%. What I'll also say is the pace that we've seen of innovation in the last 5 years is going to -- has been massive, but will only pale in comparison to the pace of innovation that we see for the next 5 to 10 years. This is where we believe our open SaaS platform, our approach to our partner ecosystem, being able to offer our merchants the best-of-breed technologies so that they can continue to innovate and really focus on growing their digital footprint and e-commerce business, we believe we are a way for them to future-proof their commerce platform. Excited about the mix shift in Enterprise, we expect that to continue, both in the U.S. and abroad. Gross margins will remain strong. And we've committed to investors that by the end of 2022, we'll get to a breakeven point, and we're going to manage that breakeven point with investing in our growth drivers that we see fit and taken a very prudent approach in terms of where we spend dollars, but we'll spend it the right way with investments that generate really strong ROI and are also directly tied to the strategic initiatives that we're all executing against. With that, Brent, I'll turn it back over to you.

Thanks, R.A. At this time, we invite any stockholder present who has questions related to the company to submit those questions through the web portal. To ensure that we are able to address questions from as many stockholders as possible and consistent with the rules of conduct provided to you, I ask that each stockholder observe a one-question -- I say that, but it's kind of comical because I'm told that, frequently, there are a few, if any, questions in these Annual Stockholder Meetings. So don't be shy. This will end quickly if you don't submit questions. We will attempt to answer as many questions as time allows, but only questions that are germane to the meeting or the business of the company will be addressed. So while we wait to see if any questions come in, I'll pose the first question to R.A. R.A., we've been on a pandemic lockdown for over a year now, and rarely have I heard your dog barking in the middle of meetings like this one. What is your dog barking at this time?

Every delivery that -- an e-commerce delivery actually, Brent? So we buy more stuff online, it's delivered, and I can always guarantee that he'll let me know.

Great. Does he bark more favorably when the merchant purchased from is a BigCommerce merchant?

Definitely, definitely.

Meanwhile, I'm watching my 2 dogs who are lining at the door because if they see someone coming, you'll get actually a symphony of barking as they try to outdo one another with the volume of their barking. All right. We are still filling time because I see no investor or stockholder Q&A quite yet. We'll give it a few more seconds. If you have a question, please get it in. You're making this too easy for us. Okay. Well, what is it, 60-second rule? We have no questions submitted by stockholders. And so with that, let's go ahead and continue on with the meeting to the announcement of preliminary voting results. I believe we now have the preliminary voting results from the inspector of elections. Mr. Mengoli, our Chief Legal Officer and secretary of the meeting, will announce them. Jeff?

Thanks, Brent. These results are preliminary. Final voting results will be provided in a Form 8-K that we will file following this meeting. The preliminary voting results show that each of the nominees for election to the Board has been duly elected, and the appointment of Ernst & Young LLP as the company's independent registered public accounting firm for fiscal 2021 has been ratified. We would like to thank you for joining us today. As there are no further matters to come before the meeting, I hereby declare this meeting adjourned.

Thank you all for joining us today. The meeting is now closed.