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

Thank you, everyone, for joining us for the early afternoon, if you're on the East Coast, maybe a bit earlier the day if you're on the West Coast presentation. My name is Josh Beck with KeyBanc Research team. We're incredibly happy to have BigCommerce join us for a fireside chat. We have Brent Bellm, the CEO; and Robert Alvarez, the CFO. It's about 30 minutes. If you do have questions, you can enter them at the bottom of the window, and I can also work those into the conversation. But I think I'll just turn it over to the team for a quick introduction, then we can get into some Q&A.

Great. Hi, I'm Brent Bellm, CEO. A little background on BigCommerce. We were founded in 2009 by 2 already e-commerce veterans, Eddie and Mitch, who were based in Sydney, Australia. And they created a SaaS e-commerce platform to serve SMBs after having had an on-premise shopping cart before that. The business took off almost overnight, had 10,000-plus customers in a year or 2, most in North America. And consequently, in 2011, they moved the headquarters to the U.S., picked Austin, Texas, thankfully for RA and me. By 2015, the company had risen to be the second largest SaaS e-commerce platform in the world after Shopify. That's the good news. The bad news, though, is Shopify had a [ head ] start on us and had already IPO-ed by mid-2015, Eddie, the CEO and the Board decided, hey, let's get a U.S.-based CEO to build from here. And they brought me in. My background is now 23 years in counting in e-commerce. I was an e-commerce consultant in the late '90s, before that a retail consultant with McKinsey. When I pulled the plug on consulting at the end of '99, beginning of 2000, I joined one of the first ever SaaS e-commerce platforms called Escalate. This was back in the era when it was not called SaaS, it was called ASP. There were maybe a handful of us in the world, Yahoo! Stores, Volusion, Blue Martini and Escalate. That first effort was not a success of mine. But by attempt #2 in 2015, when I came in, I looked at the situation and had real clarity on what we needed to do to be a successful, not just e-commerce platform, but one of the true disruptors and innovators and leaders in the world of e-commerce, and that was classic disruptive innovation. It was extend upmarket into the mid-market, where Magento, which is open source on-premise software was the 800-pound gorilla. Magento, in 5 short years, had risen to be the biggest platform in the world for merchants, small, medium and large, B2C and B2B, all major geographies because it was the most open and the most flexible. But it's Achilles heel as it on-premise software. The businesses had to license and manage themselves and secure themselves and make performing. So my thesis was that the world needed an open SaaS platform to compete with open source. Basically, a SaaS platform that had the built-in cost and continuously updated and performance benefits of SaaS, but with the enterprise functionality and openness of Magento. And so in short, the thesis around BigCommerce, the strategy of BigCommerce is what we call open SaaS. Open is we have taken every part of the platform and decomposed it in the micro services with its own API and SDK layer, that, in essence, let's merchants who want to adapt and optimize e-commerce for their specific business needs, they can do that with us. And this stands in contrast to SaaS competitors who are conglomerates and closed, who don't have this API flexibility and functionality and who, in essence, compete as conglomerates trying to sell simultaneously their e-com platform, but a whole bunch of other products that they make more money on, like payments, like CRM, like CMS, a long list of things. We are, in essence, the only company in the world doing in SaaS, what Magento did 5, 10 years ago, in on-premise software, which is optimized for openness and flexibility. And so we best serve that part of the world's businesses who, instead of following a cookie-cutter playbook all handed to them by a single conglomerate, they instead want the best SaaS platform in the world, combined with payments of their choice, point-of-sale of their choice, accounting, lending, email marketing, you can figure it and optimize it for your business needs. That's open SaaS. Sorry. That was not a quick intro. That was a long intro, Josh.

Hey, folks, I'm Robert Alvarez. I'm the CFO. I've been at BigCommerce, Gosh, since 2011. Eddie and Mitch raised our first round of funding with General Catalyst. I joined soon after on my 10th year here and never been more excited about the company, the market and what's in store for us. So good to see everybody.

Excellent. Well, with that thorough introduction, let's jump into COVID because that is the topic du jour, obviously, for the entire world. And obviously, really challenging personally and such for a number. But within tech, certainly, there's been some acceleration of secular trends that probably were already in place. Some saying e-comm could have been accelerated as much as 3 to 5 years. So maybe just take us back to the early days or even if you want to go pre-COVID, but just what some of the early response was from your customers? Maybe how that evolves through last year and where things stand now?

We could have never anticipated the pandemic or the response, but it has been overwhelmingly positive, not just so far for our business, but I think long term. Right out of the gates as soon as lockdowns began in March of last year, we saw the gross merchandise sales of our customers begin to skyrocket. Growth added 10 points, 20 points, 30, 40, 50, reach points above 100% growth during Q2 of last year and really has sustained a pretty high level ever since. That's existing customers. In terms of new customers, there was an absolute flood in the early -- in the first couple of months of SMBs. The SMB part of our business, which had been growing in the teens, low-teens, suddenly became a high-growth business again when enterprise had always been a high-growth business. Enterprise is the majority of our revenue today and growing, as we reported earlier this week, 51% ARR coming out of last year. The enterprise sales took a brief pause in the first, let's call it, 1.5 months of the pandemic, not that they stopped, but the high-growth rate, we saw deals that we're pushing a little bit because companies were trying to figure out how to shift to work from home and respond to operations. But as soon as they got their feet back under them, the urgency of adding e-commerce if you were caught flat-footed, improving your e-commerce, if you already had a foundation, it really came back. And I think where we are today, if there are any so whats, number one, the U.S. Census Bureau just came out with their year-end e-commerce report for 2020. And e-commerce grew in the U.S. for the year, if I remember right, 32%. But the important thing is their estimate of total U.S. consumer spending online was 14%, which is up massively from 11% the year before. So it took the internet 26 years from 1994 to 2019 to go from 0% to 11% share. And we went from 11% to 14% in just 1 year. We're still very early days. There's no doubt. Nobody should have any doubt at this point, no business, no consumer that the 14% is going to go over time to something much larger, 20%, 25%, 30%, 35%, 40%. The big parts of the economy, people used to think, well, that's not really addressable by e-commerce, like groceries, like DIY. Well, we've all now experienced with that stuff. You can buy online, pick up in store. You can buy online, have delivered, really, almost everything is addressable. And so this part of the economy globally that is in the teens today, I think over time is going to percentages that are radically higher than where we are at today. And the real question is what platform or business is going to run their e-commerce on, and we think we're best positioned for anybody with complexity or wanting to optimize.

Excellent. So you gave some very helpful context there. I think one of the top investor questions, which you hit on a little bit. But is -- and it's quite frankly, difficult to answer today, I think, in February, but is -- how much of this is going to be structural? So when we're sitting here maybe a year from now, hopefully, things are vaccinated. I've spoken to some management teams in other countries where they're already at over 50%. So that's really a bright signal. But once we get to that point more broadly, globally, how much of this change will be structural as the brick-and-mortar stores do start to reopen more heavily?

I think long term, it's primarily structural. I haven't talked to anybody inside or outside the company who thinks that the changes in consumer business behavior are temporary. I mean people have found so many new ways to shop online that work for them. They won't stop doing that. Businesses in terms of selling, if anything, they're still early in their journeys, and they want to get better and better and better at their ability to sell online in an omnichannel way. So it's our belief, again, that whatever temporary blips we're lapping may occur this year, the 14% for B2C spending is going to go to 20% and 30%, maybe 40% over time. And that there's a similar adoption curve happening on the B2B side of the economy as well.

Excellent. What about new customer prospects? You obviously have done really well, gaining market share, bringing on new customers. Help us understand how it's influenced the top of the funnel, the conversion? And how we should think about some of those factors as we head into this year and next?

Take that one, RA?

Our mix is steadily increasing, Josh, to larger merchants, I mean, you see that in our metrics, right, accounts greater than $2,000, but also the enterprise accounts. And that mix was happening -- mix shift was happening pre-COVID, it accelerated post-COVID. I think what we're seeing today is our differentiation is really resonating in the mid-market and enterprise via ability to customize your store, ability to have freedom of choice in which technologies and solutions you want to implement in your architecture, we do that better than we believe anybody. And so if you're a large merchant driving a lot of online sales and your future is really driven by your ability to expand digitally in the U.S. and abroad, everyone loves the openness of our platform. They love the best-of-breed partners that we bring and they really love the strength of our APIs. I mean we can fit into pretty complex architectures, and they can launch their business a lot faster. I think the conversation has changed from a few years ago. It used to be more of a TCO conversation. I think the conversations we're having now is how do we grow our business? How do we expand our digital footprint? And how can we launch stores and sites faster and more effectively? And that's been a really great dynamic to see over the last 12 to 18 months.

Excellent. So a tag along to the massive secular shift that we've seen. Does it influence your strategic decisions differently? Obviously, going into this year, really last year, early 2020, you had a strategic plan. The whole world changed and the business changed quite a bit, and some things really got moved forward. So when you think about the strategic road map, did it drive any notable shifts or changes? And maybe how you're approaching 2021?

I think the strategic plan we came into last year with was spot on, both for the pandemic and for our emergence as a public company. And there's nothing in the strategy that has been challenged, just proven or fundamentally changed. It's all been confirmed. However, the 2 components of it that in a pandemic, we felt like, boy, we have to accelerate these a lot, our omnichannel and geographic expansion. So geographic expansion, it told me that when the pandemic first broke out in March, the countries hardest hit, France, Italy, Spain, where all countries that we had translated our control panel into those local languages just recently, but we didn't even have marketing sites up in those countries to tell people. So the businesses were suddenly shutdown in France, Italy and Spain and could be using BigCommerce. We weren't even telling them that in their local languages, in their local markets. And so that is something that we got caught flat-footed on. Of course, that was part of the plan, but we just hadn't rolled that out yet. And today, that is a big part of what we're doing. We do have those local sign-up websites in France, Italy, Spain, Netherlands, Germany, Mexico, China. Of course, we already have the English-language countries like U.K. and Australia, in addition to the U.S. And then on the omnichannel side of things, we were unquestionably already a leader in omnichannel. When it comes to pre-build native integrations into the top marketplaces like eBay; Amazon, announced this week; Walmart; Wish; social networks like Facebook and Instagram; and leading ad channels like Google Shopping, we're the market leader in those. We also are a market leader in terms of our pre-built integrations into the most popular point of sale, software systems, think Square, Clover, Vend, mid-market Heartland Retail, Teamwork. But where we got caught flat-footed is we have those integrations, but we didn't have a great buy online, pickup in-store native functionality or app in our apps marketplace, and that is now something that is rolling out. And we think that something that really makes us unique is there's no other SaaS platform that supports so many of the most popular, widely used point-of-sale platforms. And in addition, it now has a really good buy online, pickup in-store app that is integrated with several of them and will be soon with the rest.

Excellent. Shifting gears a little bit to the financial has been a big focus for investors, not surprising. You've seen really good progress. And RA, you mentioned some of it, the ARR acceleration that you've seen that really continued throughout the year. So it seems like visibility has maybe risen with this great progress on this leading indicator. Maybe just help us think through the '21 guidance you recently laid out? And maybe what were some of the key assumptions underneath that?