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

Do you want to take that, R.A.? Or do you want me to?

I'm happy to. I mean I think what we're hearing and seeing, especially with the merchants that we speak a lot with, Mark, is, sense of urgency is really high. I think 2 or 3 years ago, maybe e-commerce was a separate team, maybe was a secondary initiative. I think today, it's a primary initiative, with 1 team with e-commerce front and center in terms of how they're going to grow their business. I mean, that's the dynamic that we see. I think it pulled in the growth rate of e-commerce for sure throughout last year. This year, they're saying it could be in the low 20s, but I would just say that the sense of urgency, especially for these larger merchants to figure out, all right, if I'm going to bet my digital future that I'm going to run my digital business on for the next 5 to 7 years, we're seeing a higher number of RFPs. We're seeing a higher number of customer requirements. We're seeing a lot of folks that are looking at us and saying, okay, wow, this is a way for us to really future-proof our e-commerce strategy and future-proof our e-commerce business. The larger the merchant, the more complex, the more these best-of-breed solutions really, really matter to them. The smaller merchant out-of-the-box solutions work right. Larger merchants, the best of breeds matter a lot. And I'd argue that if we had an army of 10,000 engineers, it would be really hard for us to develop the very best payments product, the very best point-of-sale product, very best shipping fulfillment product. By us focusing 100% on our open SaaS platform and natively integrating with who we believe are the very best across the ecosystem, well, guess what, our merchants get to benefit from that. These partners, they wake up every day thinking about what's next in their business. They go to bed every night thinking about it. And so that, combined with our open platform, it really does kind of future-proof where this market is headed, and that's why Brent and I are so excited.

So that's a fascinating way of recapping all that change. When you look back on it, I think part of what we've been trying to understand is, what was -- in terms of your drivers last year, were you seeing companies that had absolutely no digital presence, right, that are saying, well, now is the time to get into digital. And so they are kind of starting from the beginning with e-commerce? Or was it more of the customers who had some kind of legacy e-commerce solution? Or I don't know, a solution that's not open, that are kind of now moving to modern maybe the cloud, something like that? In other words, how much of it do you look at and say, well, this is really just greenfield, the beginning of a digital presence?

Yes, at the start of the pandemic, there was a mad rush of companies who were late to the game, got caught flatfooted, meaning they haven't been doing e-commerce before or they were only doing in a subset of their business and suddenly found the rest of it shut down and had to get online fast. And so there were -- it was an influx of late adopters, and those that got caught flatfooted. Those who already had something up and running, they were just sort of hanging on for dear life because now, the firehose started being pointed at their online presence and they wanted to keep it up and running. But as things kind of calm down over time, a lot of those companies are realizing, shoot, what I had built 5 years ago, 10 years ago is no longer ready for the present or especially the future, and they're replatforming. If you're on any of the 500-plus old, outdated legacy platforms around the world, there's a pretty good chance that you, as a company, are actively thinking about replatforming to something that is modern. And how many platforms are really modern and leading edge. It's only 3, I mentioned in SaaS, plus Magento. There are a lot of other platforms out there, but they're just not keeping up. And so we now see things shifted back toward -- at least in the enterprise side, I think more of our customers, more of our opportunities are migrations, than our new initiatives from already large established companies. But that's a big one. There's still plenty of initiatives, new geographies, new brands, maybe adding B2C to B2B or vice versa. There's still plenty of that of big companies, like you go to any very large category-leading company. And even if they're doing e-commerce, what are the odds they're doing it, all their product lines, all their geographies, B2B and B2C, very small. So there's lots more to roll out. However, I would say, the majority of our incoming business at the enterprise are all migrations.

Yes, Mark, the only thing I'd add there is maybe 2 or 3 years ago, we were winning on TCO, right? It's just much cheaper to run your commerce platform on BigCommerce. Today, the enterprise looks at us, we're winning because we allow them to move a lot faster, grow a lot faster, expand into a lot of geographies faster. Skullcandy is a great example. They had 4 sites. They wanted to launch in a lot of different geos. In their old platform, it would take them 6 to 9 months. On BigCommerce, they could launch it in 3 weeks. That speed to market, that speed to grow was really important to them. HMD Global, the leading distributor of Nokia phones, they launched on BigCommerce in 10 weeks with a native integration into SAP, their ERP system. And in, I think, 3 months, they launched into 14 different countries, right? And so if you're looking at your digital future and your -- how do you expand across the globe, that's why we're winning a lot of these bigger deals, is because not only are we the most open and flexible, but we allow them to grow as fast as they want to grow in the markets they want to sell into.

Well, it's fascinating to hear how the -- that texture and the underlying dynamics have been evolving both from 2 to 3 years back, but also just in the last 12 months, that's interesting to noodle on. The -- coming back to this trend in the business where you have very strong enterprise traction. You had just mentioned this win with WineDirect, Brent, that was my guess was that maybe you were out this way to visit that new customer. Because clearly, you're going to want to get that onboarded. They're -- we're excited about this potential, right, of billions of dollars in GMV over time. How sustainable do you think is that kind of momentum? The -- I guess what I mean is, when you look in the pipeline, do you see or do you expect to see some more of these enterprise opportunities at that kind of $1 billion level?

Yes. And they come in 2 varieties. One is the individual merchant, who is that large. And then the other variety is an aggregator like WineDirect, who is, in essence, a channel partner. So WineDirect themselves were a custom-built e-commerce platform and point-of-sale platform for wineries. They realized that they couldn't keep up with the core commerce engine part of the equation. And so decided, hey, let's -- BigCommerce is so open and flexible and powerful, let's sunset over time, our legacy commerce platform engine, let BigCommerce power that for us. And then what we bring to the table are all the specialized capabilities for the wine industry. Things like shipping and tax compliance, the point-of-sale functionality, allocation lists and mailing lists and futures orders and things like that. There's a lot of specialized capabilities that are unique to wine as a category. So now they get to specialize in those things and let us power the core commerce and they bring, as mentioned, 2,000-plus out of the -- depending on who you ask, 8,000 to 11,000 wineries in the U.S. But there are a lot of other categories where there are a bunch of specialized requirements. There have been legacy platforms built for those categories. And we would love to go into those platforms and say, let us power the [indiscernible] and you bring all the [indiscernible], apps or otherwise, in a partnership model. So will we do more announcements like WineDirect? I hope so. And in some other ways, it's akin to in the past, if you go back into our history, [indiscernible], they had their dozen year-old eBay stores, and that was built for small merchants. They realized, hey, look, This thing is not our core business, and we're not staying competitive with the best SaaS platforms. So who's the best one out there? We're going to sunset eBay stores and refer the merchants to them. They picked BigCommerce back in 2014. This was eBay. That same year, roundabout, Magento platform called Magento. And they realized this isn't our core business, open source is. We want to transition these to what we think is the best SaaS platform on the market. They picked BigCommerce, right? So they're outdated, declining and hopefully, there'll be more who say, let's go partner with BigCommerce, because we can either transition the merchants over to them or we can do a powered by, where we retain specialized services unique to our geography or category and let the core engine be BC. Why do we think that's really attractive? Because we're good at it, because we're open and flexible and we can do that. And in a lot of ways, our competition can't.

When you win a new customer like this, like a WineDirect, how long is that lag before they go live and you kind of have their GMV flowing through BigCommerce?

I'll jump in here, Mark. Looks like we might have lost Brent. Can you hear me, Mark?

I can, yes. We're still live, R.A.

Yes. I mean that deal -- I mean, look, they disclosed it already. I mean they did $2 billion last year across 2,000 sites. We're going to get as many of those sites up and running on BC before the holiday season, but the likelihood is there will be some that get launched in the first half of 2022, just because of the number of sites that they need to launch in us. But we fully expect within 12 months of signing the deal, all 2,000 will be running on BigCommerce.

Okay. Wow, impressive. So R.A., I think Brent's coming back. Well, either one of you the wants to take this. Can you help us maybe to understand what we should be thinking about relative to this direct-to-consumer trend in the world where we think WineDirect goes in that bucket. We know -- I think you've spoken to Burrow as being one of those and ChapStick, you've had companies that have kind of maybe pivoted that way as well. How material is this direct-to-consumer trend, and just in general, as a driver or a phenomenon in the marketplace?

Brent, you want to take that?

I guess I'll -- yes, sure. I remember back in '98 when I was working as a consultant for McKinsey and authored their first-ever paper on going direct-to-consumer. At the time, there were mainly only 10 or so big brands doing it like Nike, channel conflict can't risk it. Well, that era is long gone. Selling to consumers, you're in a very rare category. It's direct-to-consumer isn't a core part of what you want to do, because there are so many advantages. You get to know your consumer a lot better, you got... [Audio Gap] Economics are a lot better because you don't have wholesale or retailer markups. There are so many reasons and the companies who were direct-to-consumer digital natives. Those companies were built on and for the Internet. We serve a lot of them like burrow, against -- who will compete against legacy, in their case, furniture providers who grew up in the retail world. You're going to get smoked by those companies if you don't compete against them with your own capabilities online. And the best companies are ones that learn how to... [Audio Gap] Complementary fashion like, Procter & Gamble is really good at testing and learning... [Audio Gap] Brands that are innovating new product lines and launches and variance on how they serve customers, the way they buy with the subscription, they're constant. At the end of the day, can -- some of those innovations, the best ones will go back onto the [indiscernible] rurals help that business, but they've got to be competing in the direct-to-consumer world, otherwise, you're going to lose share to the ones that were built natively going that. A couple of years, they probably said a few years ago, they were losing share in their category, in their [indiscernible]

Excellent. So we are probably down to about 1.5 minutes. Let me -- maybe we can close on a very quick one. I'm corrected, we're down to 1 minute. Maybe R.A., you could just touch on the subscription growth sustainability. You added a lot of ARR last year, and I think you've talked about sustainability of this kind of level of subscription growth. What is the trend you're seeing that's giving you relatively kind of strong confidence and visibility there?

Yes. I mean I'd say pre-IPO, Mark, we had a fast-growing segment in our business already. Our enterprise account was grown -- enterprise accounts were growing north of 40%. I think last year, we accelerated that. I mean our last quarter, it grew 58%, and that was on the heels of Q4, where it grew 51%. So our enterprise business in that segment that we're focused on, we've been growing pre-COVID, pre-IPO, it's on the accelerated post. And I think we're also doing some innovative things to increase MRR from our retail business as well. I mean we launched a product to make it really easy to launch your stores called Page Builder. It gives a really slick user experience to launch your store quick. And so what we've seen since the IPO is acceleration of top line for enterprise. We've seen acceleration for retail. And we've seen great retention. So one thing that I love about this business is the retention profile of our merchants is really strong, whether it's retail or enterprise, our net revenue retention is climbing. It was 113% as of the end of last year, and that's only continued to increase. And so as we start to sign larger and larger companies, as our pipeline starts to produce deals that are over $100 million or maybe even $1 billion, yes, that subscription revenue should only continue to grow up -- grow from here. And that's where we get a pretty good amount of visibility into that subscription. We know what gross new forecasts are. We know what retention looks like. We've got good visibility into upgrades. All of our pricing models are based on growth adjustments for enterprise plans as they increase in orders, they'll pay growth adjustments in our retail plans. It's all based on GMV. So a lot of our land and expand or expansion revenue is kind of built into our pricing. And the more and more that we get referred into deals by our tech partners, the more and more you're going to start to see that in MRR. So really great to see the acceleration in subscription revenue. Last year, obviously, we saw a lot of PSR because the GMV was elevated with COVID. But one of the things that we're excited about is GMV levels remain strong. Same-store sales across the board remains strong. Pipeline is bigger this quarter than it was even last quarter. And so the size of deals that we can now go after and see and have visibility to are starting to bear fruit. One of the things that we wanted out of the IPO is we just wanted an at bat. Once we get a seat at a table and once we get an at bat, we knocked it out of the park. And so the IPO gave us more seats at the table. And now we're getting more at bats. And the more at bats we get, the more confidence that we have that we can continue to grow our subscriptions.

Wonderful. Well, R.A., Brent, I can't thank you enough for taking the time to be with us here today at our conference and sharing some insights into your vision and the level of passion and enthusiasm that you have. It's been It's been very informative for us and also, Brent, to learn that the business travel is definitely back, so.

With the ups and downs, sorry for the connection, we tried to prevent that.

No worries. We caught the vast, vast majority of it. So thank you very much and safe travels and have a wonderful night.

Thanks, Mark.

Thanks, everyone. Bye.