Bigcommerce Holdings Inc

NASDAQ:BIGC

Earnings Call Transcript 2024-Q1

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to the BigCommerce First Quarter 2024 Earnings Call. [Operator Instructions] 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.

[Tyler Duncan, executive]

Good morning, and welcome to BigCommerce's first quarter 2024 earnings call.We will be discussing the results announced in our press release issued today 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, our expected future business and financial performance and financial condition and our guidance for the second 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.

[Brent Bellm, executive]

Thanks Tyler, and thanks everyone for joining us.Over the last two years, our business has dramatically improved its ability to deliver profitability and positive operating cash flow. As of 2024, our focus shifts to efficient revenue growth, and that imperative is front and center across every team in the company. We have yet to achieve the full growth potential of this business, but we pursue it with urgency and confidence.I will focus my remarks today on improvements underway in how we go to market, key success metrics we're monitoring and improving, and an exciting leadership addition. I will also touch on product innovation that unlocks growth potential.Let me start by briefly summarizing key financial results on the quarter. Q1 results reflected a good start to the year relative to our top and bottom line plans. Revenue finished just above $80 million, up 12% year-over-year. Adjusted EBITDA came in just over $4 million, or approximately 5% of revenue. We also had a solid start to the year from a cash flow perspective, improving free cash flow by more than 25 points as a percentage of revenue year-over-year.Turning now to growth, we recognize the importance of reaccelerating our top line growth profitably, and we are laser-focused on accomplishing that. Let me move into a more detailed discussion of improvements we are making to realize our growth potential.As a reminder, BigCommerce was originally founded to serve the needs of small business customers. In my 9 years as CEO, we have radically improved our product and service capabilities on behalf of the complex needs of midmarket and enterprise businesses, and we have successfully moved our customer base up-market as a result. As part of that progression, certain legacy behaviors, metrics and systems reflective of our roots must advance to incorporate the best practices of world-class enterprise software companies.I'll now describe three examples of these advancements. First, we reorganized our business teams and leadership structure to introduce clear and unified end to end ownership of the customer. Sales, customer success, marketing, and our business development teams have congruent and clear targets that unify their efforts around customer success and growth. In Q4, we centralized end to end customer success ownership under our company President. Our company President now oversees all go-to-market efforts across the business, including the platform product, Feedonomics, and PSR.Second, our internal performance metrics and goals have improved to better reflect our move up-market. As we discussed on our last earnings call, our previous metrics and goals prioritized new customer acquisition as the primary means to fuel top line growth. New customer acquisition remains a priority, of course, but it is now balanced with a strong focus on customer retention, satisfaction, and growth. Target metrics now balance gross retention, net retention, and new customer growth, including a greater focus on portfolio cross-sell of Feedonomics and partner solutions.Third, we are optimizing our data and operational systems to improve the management of net retention and sales pipeline. A new customer master data management system will unify disparate partner and prospect data. We are also rearchitecting our CRM and marketing automation systems to put our platform and Feedonomics sales and marketing teams under one unified architecture, built for account expansion, cross-sell, and multi-product sales growth. We expect these systems investments to be complete by mid-2025, and we are making tactical changes in the meantime to build momentum in our current architecture. We are excited about the growth potential these investments can enable, and we included the associated costs in our financial plans at the outset of the year.These changes are by no means the only enhancements to our go-to-market strategy and operations, but they are illustrative of our transformation in pursuit of becoming a world-class enterprise software company.To help lead this transformation, I'm pleased to welcome Travis Hess as our new company President. Travis brings more than 15 years of exceptional enterprise e-commerce leadership experience involving many of our top platform competitors, and his expertise in service and implementation, ecosystem partnerships, and competitive selling and positioning will help drive our go-to-market transformation and success. He has served on partner advisory boards for Shopify, Klaviyo, SAP Hybris and Rackspace, and he most recently worked at Accenture as a managing director leading their direct-to-consumer e-commerce offering and go-to-market strategy.Travis will target resources and attention on categories in which we are seeing the greatest customer traction and success, including apparel, home and garden, sports and outdoors, and B2B. We have many outstanding customers in these focus categories: companies such as Coldwater Creek, Francesca's, Harvey Nichols and White Stuff in apparel and accessories; Burrow, One Kings Lane and Houzer in home, garden, and furniture; Marucci, Level Nine Sports and Tottenham Hotspur, who recently hosted our EMEA BigSummit, in sports and outdoors; MKM Building Supplies, Imperial Dade and United Aqua Group in B2B. We also continue to be a great fit for brands and B2B businesses in health and beauty, food and beverage, electronics, and other arenas spanning both B2C and B2B.Our R&D investments continue to deliver industry-leading innovation on behalf of our customer promise of enterprise e-commerce simplified. A few weeks ago, we unveiled our inaugural Next Big Thing; an extraordinary collection of more than 100 platform enhancements, new features, and partner integrations. I won't go through all 100 here of course, but I do want to call out a few examples of industry-leading innovation on behalf of our customers and ecosystem partners.I'll start with Catalyst, our next generation storefront technology which we announced in Q1. Catalyst provides a simplified starting point for customers, agency partners, and e-commerce developers to easily and quickly build beautiful, high-performing stores using a headless, composable architecture. It combines a streamlined GraphQL client optimized for the latest version of Next.js and React server components with a reference storefront featuring industry-leading Google Lighthouse scores of 100 out-of-the-box.Catalyst is the culmination of more than 4,000 headless and composable builds on BigCommerce since 2016. It represents the fastest and simplest path to developing extraordinary customer experiences, leveraging the world's highest performing and most popular front-end storefront technologies. Catalyst lowers the technical requirements and complexity of a composable implementation, making it far easier for customers and agencies to realize the store design and performance benefits of composable without added implementation cost and complexity. Customers using Catalyst will set high standards for shopper UX, site performance, and conversion rates while benefiting from faster, higher-quality development.Simply put, with Catalyst, we aim to make composable as easy to use as our native hosting and theming framework, Stencil. Modere, White Stuff, Conn's HomePlus, Brompton, and Bestway Europe are but a few examples of recent launches leveraging BigCommerce's expertise in composable builds. White Stuff in particular, saw an immediate 80% improvement in site speed and 100% on its mobile site after launching its composable store on BigCommerce.Another major area of product innovation featured in Next Big Thing is multi-geography selling, leveraging our multi-storefront product capabilities. Our multi-geo and multi-language functionality enables multi-storefront localizations such as language, content, pricing, payment methods, and promotions. Customers and partners can configure unique checkout experiences for every storefront, all while maintaining one centralized backend for easy and efficient management.We also announced our new Open Source B2B Buyer Portal. Open-sourcing B2B edition's Buyer Portal equips enterprise suppliers, manufacturers, distributors and wholesalers with the tools to deliver a bespoke buyer experience throughout the entire buyer lifecycle from product discovery to sale, service and warranty, directly from a single portal. By leveraging this customizable starting point, B2B brands can tailor their site experience to the unique needs of their business, their customers, and their operational cost minimization. The open sourcing of our B2B Buyer Portal represents another example of the industry-leading flexibility of BigCommerce's platform. Just as our platform-wide APIs and open checkout brought industry-leading flexibility to B2C e-commerce for a SaaS platform, the open sourcing of our Buyer Portal has now done the same for B2B e-commerce. For us, Open SaaS is a philosophy, the foundation of our product strategy, and a major source of competitive advantage.Finally, we announced Instant Commerce from Feedonomics. Instant Commerce represents the enablement by Feedonomics of same-day fulfillment and delivery of orders. Feedonomics provides the catalog, inventory, order, and fulfillment data connectivity between brands and retailers and the third-party marketplaces, like Amazon and Walmart, through which they sell and fulfill. It also supports same-day delivery apps and driver services. For same-day delivery and/or in-store pickup, inventory must be held in a store or warehouse within delivery service proximity of the consumer. As the popularity of same-day delivery explodes, Instant Commerce from Feedonomics connects brands, retailers, and businesses to the leading marketplace and delivery services that enable it.I'll conclude my remarks with a few observations on the macro environment in e-commerce. Consumer spending remains resilient across our major markets, though aggregate e-commerce is growing at lower rates than during and before the pandemic. I'm encouraged overall by the underlying consumption signals that we are seeing in our business. The consumer health that we observed in the 2023 holiday period held up well in Q1, which is a good sign, both for 2024 and long-term e-commerce growth. We believe platform investment spending will inevitably improve, and we're transforming our go-to-market capabilities to capitalize on that.Overall, I am encouraged by our start to the year and see a path to growth reacceleration, fueled by our go-to-market transformation and continued industry-leading product innovation. We already see encouraging improvements in gross and net retention since initiating operational changes in Q4. Our competitive advantage in total cost of ownership is stronger than ever, thanks to price increases taken by our competitors. Our product continues to receive strong reviews and advocacy by customers and partners. With strong competitive advantages in product and service, combined with significantly improved sales, marketing, and service practices, BigCommerce can achieve its full potential for growth and profitability.With that, I'll turn it over to Daniel.

[Daniel Lentz, executive]

Thanks, Brent, and thank you, everyone, for joining us today.During my prepared remarks, I will cover our Q1 results, give additional detail on our key areas of operational focus, and provide updated guidance and our outlook for both the second quarter and for the remainder of the year.As Brent just outlined in his prepared remarks, we are pleased with our execution in the quarter and feel we are off to a good start in 2024. Revenue exceeded the high-end of our guidance range, and non-GAAP operating income also came in above the top of our expected range. We believe we are well-positioned to improve upon these results and advance our execution in the quarters ahead.In Q1, total revenue was $80 million, up 12% year-over-year. Subscription revenue grew 13% year-over-year to approximately $61 million, while partner and services revenue or PSR was up 8% year-over-year to just over $19 million. Revenue in all of the Americas was up 12%, while EMEA revenue grew 15% and APAC revenue was up 11% compared to the prior year.We continue to make positive strides on our commitment to running a profitable growth business. Our Q1 non-GAAP operating income was just over $3 million versus a loss of $6 million a year ago. These results represent a nearly 13 point year-over-year improvement to non-GAAP operating margins, increasing from negative 9% in Q1 2023 to positive 4% in Q1 2024. As we communicated last quarter, we expected operating margins to finish sequentially lower in the first quarter due to strong Q4 holiday results in partner and services revenue and planned spending in Q1.I want to give you an update on where the 3 strategic priorities I called out on our last call currently stand. First, we made a commitment to drive efficient revenue growth. Brent spoke in detail to efforts underway with respect to go-to-market improvements and transformation, so I won't restate the details that he outlined previously. What I will add is that we are already beginning to see encouraging progress in only the first quarter since initiating many of those improvements. Q1 gross and net retention rates improved versus the prior quarter, and I see greater focus on customer success and growth than I have at any other time during my nearly 6 years with BigCommerce.Second, we committed to improve our operating leverage and grow profitability. More specifically, we aim to expand non-GAAP operating margins in the mid single digits on a full year basis in 2024. Q1 non-GAAP operating income and margin finished roughly double our guidance expectation, reflecting the hard work and continued spending discipline that we will exhibit across the year. This includes discipline on stock-based compensation and equity incentives as well. Q1 stock-based compensation expense finished more than 400 basis points lower as a percentage of revenue compared to Q1 2023. We have moved a significant portion of our 2024 executive equity awards to performance-based stock units to further increase alignment between management's incentives and shareholder returns. As our go-to-market efforts drive top line growth acceleration, the business has the potential to grow margins at an accelerated rate as well. Put simply, we have made material improvements to spending and cash discipline, even as top line growth rates did not meet our expectations in 2023. That discipline puts the business in a position to see strong gains to profitability as revenue growth rates improve.Third, we committed to healthy cash flow generation and cash management. I am very encouraged with our progress in this area, and we continue to evaluate all of our spending to look for opportunities to drive improvements in cash flow. Our investments in internal systems and controls along with discipline around accounts receivable and collections are paying off in terms of our working capital and accounts receivable. Deferred revenues have increased year-over-year by $12 million, from $23 million to $35 million while annual plan and subscription deferrals have increased $12 million, from $8 million to $20 million. The current portion of remaining performance obligations, or CRPO, saw an $18 million year-over-year increase, or up 21%, from $87 million to $105 million. Operating cash flow was approximately negative $3 million in Q1, while underlying operating cash flow was around positive $3.5 million apart from sizable software prepayments and annual employee payments made in the first quarter. Again, this was a solid start to the year.I'll now turn to our non-GAAP KPIs. We concluded Q1 with an annual revenue run rate, or ARR, of approximately $340 million, up 7% year-over-year. That represents a sequential growth in ARR of nearly $4 million. Enterprise account ARR was approximately $248 million, up 8% year-over-year. As of the end of Q1, enterprise accounts represent 73% of our total company ARR. Accounts using exclusively our Essentials plans, which we refer to as non-enterprise accounts, finished with ARR slightly over $92 million, or up 5% year-over-year. At the end of Q1, we reported 5,970 enterprise accounts, up 142 accounts or 2% year-over-year. ARPA or average revenue per account for enterprise accounts was $41,581, up 6% year-over-year.Before we move on to guidance, I'd like to share some high-level thoughts on our performance to start the year and how I see 2024 shaping up going forward. Overall, I was pleased with results in Q1 relative to our financial plan. We're off to a good start on revenue, profit, and cash flow, and that builds confidence as we approach the mid-year line. ARR results in Q1 reflected both cause for optimism and highlighted the criticality of the go-to-market transformation Brent outlined in detail earlier. Gross and net retention results beat our internal plans, which reflected early signs of progress in the changes we are making in our go-to-market transformation. We also continue to see challenges in sales cycle times and platform investment spending, which will require continued focus and effort by our team throughout the year.I'll now shift to our outlook and guidance for the second quarter and the full year 2024. For the second quarter, we expect revenue in the range of $79.8 million to $81.8 million, implying a year-over-year growth rate of 6% to 8%. For the full year, we expect revenue between $329.7 million to $335.7 million, translating to a year-over-year growth rate of approximately 7% to 9%. Note that we are increasing our full year revenue outlook, balancing our overall confidence based on a good start to the year with maintaining prudent conservatism with respect to full year guidance.For Q2, our non-GAAP operating income is expected to be between $200,000 and $1.2 million. Note, this is slightly lower than Q1 non-GAAP operating income sequentially due to planned salary increases taking effect out of our annual spring merit and promotion cycle during Q1. For the full year, we expect non-GAAP operating income between $10.2 million and $14.2 million, which also reflects an improvement to our full year outlook based on progress through Q1.Again, I would like to thank everyone for joining us today. As Brent said at the start of the call, our business has delivered notable improvements to profit and cash flow over the last 2 years. Now is the time to do the same in go-to-market and top line results, and our entire team is laser-focused on that goal.With that, Brent and I are happy to take any of your questions. Operator?

[Operator]

[Operator Instructions] And today's first question comes from Ken Wong with Oppenheimer & Company.

[Hoi-Fung Wong, analyst]

The first one for you, Brent. When we think about some of the things that might have kind of held back BigCommerce, I think macro being one of them, second, maybe just a transition in sales leadership here, you guys recently hired Travis. How should we think about that potentially releasing some of the bottleneck? And you mentioned changes to go-to-market in Q4. I mean, should we worry that there's going to be another change in terms of how Travis might want to go to market?

[Brent Bellm, executive]

Ken, we're incredibly excited about the addition of Travis Hess as our global President as well as Thom, our new VP of Enterprise Sales in the U.S. They bring decades of experience in e-commerce, serving all of the leading platforms, including our top competitors. And so it really bolsters our team. With some of the transitions, including unexpected ones over Q4, Q1, we were down to a single senior sales leader in the Americas, who is a VP or higher level. Now we're back to full strength with the addition of those 2, but in particular, with more industry experience than we have ever had in our history in the Americas. And so I'm very bullish on the leadership and the experience that they can bring to our customers and to our partners. I think that will help us to reaccelerate new sales.In terms of the actual go-to-market changes, any President is going to come in and have some level of tweaks and enhancements. But fundamentally, we committed to a true best-in-breed enterprise go-to-market model during Steven's tenure at the end of last year. This is the first year we are implementing that model. And so it's only this year that you will start to see the results of that, and we're already seeing it in things like gross retention, net retention. And we're very excited about the prospects of potentially reaccelerating gross new sales.So all of these trends are putting us in a better place, starting this quarter and going forward than we would have been a couple of quarters ago. And I think you've absolutely asked the right first question. So thanks for that, Ken.

[Hoi-Fung Wong, analyst]

And then, Daniel, just a follow-up. You touched on a lot of improving KPIs. I think maybe the one I wanted to dig into was CRPO up 21%. And this can be a bit of a choppy metric, but should we view this as a good leading indicator for future ARR revenue growth? Or would you steer us in another direction?

[Daniel Lentz, executive]

Yes, I would say that it is. I think what I think has been really key in some of the changes that we've been making over the course of the last year to 2, not just on the go-to-market side, but also how we're approaching contracts and agreements with our customers. I would say the translation from bookings to revenue, revenue to profit and profit to cash flow is the strongest we've seen in this business in the 6 years that I've been here. And that's because we've been prioritizing stronger contracts, longer duration, I'd say, stickier terms and also involving prepayment as a priority. And I think in a lot of ways, our contracts are much more looking like best practice from an enterprise software point of view, and that's playing out in what you see in RPO. You see that in deferred revenue. And ultimately, it gives us a lot of confidence as we look at the changes that Brent just highlighted on the go-to-market side. The business is really positioned to capitalize as we start to see better revenue growth and acceleration with really strong leverage and cash flow that comes out of that due to the changes that we've been making.And I think CRPO is a useful indicator. It's not perfect for the reasons that you described, neither is deferred revenue or other metrics. But now that we're really adopting a lot of these best practices, I think CRPO and deferred revenue are going to become a better leading indicator of where we are from a bookings health than where we've been in the past.

[Operator]

And our next question comes from Koji Ikeda with Bank of America.

[Koji Ikeda, analyst]

I wanted to maybe follow up on Ken's question here and ask it a different way. You did call out changes in the sales organization or some potential changes in the sales organization, definitely some changes to internal systems but also a commitment to operating leverage. And all that sounds good for efficiency and margins, but it does seem like the business is on an upward trajectory here. And so how are you thinking about balancing profit, while making sure you're not leaving money on the table if the demand environment quickly shifts positively in BigCommerce's favor?

[Daniel Lentz, executive]

Great question. I would say that what we're really focused on right now is how can we operate and run in the most efficient manner that we can so that we are growing efficiently and identifying the areas in the business where we're seeing strong ROI and organizing ourselves in a way to capitalize on that ROI where we see it so that as we start to see improving demand signals, particularly on platform spending, we're in a position to take advantage of that and capitalize on that. And while I agree with you, I do think we're in an upward trajectory, we also are not satisfied with what we're seeing from a growth rate perspective. We think there's a lot of room to improve the efficiency and the returns that we're getting from the dollars that we're putting in. And we're really confident that we're going to be able to do that, and we think Travis' leadership is really going to accelerate that as well.But I would just say, what we're really looking for is balance. There's a reason why we're talking about efficient revenue growth. We're not going to go back to thex where it was chasing revenue growth at any cost. We are going to run a business that's going to grow profitably. We're going to expand margins. We're going to focus on cash flow, and we're going to run this in a disciplined healthy way. That's our commitment and that's not going to change.

[Koji Ikeda, analyst]

Got it. And just a follow-up here on the guidance. When looking at the second quarter guidance and also comparing it to what we've heard from other of the commerce vendors out there, I look at your guidance, it's calling for a sequential growth of about $400,000 at the midpoint. Growth is a big deceleration from first quarter. So just trying to understand what's embedded in the guidance from a market dynamic play versus just your typical conservatism?

[Daniel Lentz, executive]

Yes. Great question. I think part of the difference on a sequential basis when looking at the year-over-year is the fact that we actually had pricing actions in the base period, both in 2023 and in 2022. So you get a little bit of noise in the year-over-year and that plays itself out sequentially. And I think that's part of why we're there. I mean, in years past, I think we've gotten a little bit more of a sequential bump in Q2 versus Q1 versus what I would probably deem as normal. I'd say, for where we are thus far on the year, very encouraged by what we're seeing in terms of consumer volume and spending. There's a reason why we chose to describe it as resilient. It's not where it was pre-pandemic necessarily, but we're still seeing healthy signs there, and we're still growing on a same-store GMV basis, I think at a premium to e-commerce as a whole. So I'd say that's encouraging. That gives me optimism going into the back half of the year.We're also continuing to see some of the same challenges and opportunities on platform investment spending and bookings that are making us really, really be focused on the changes that we've been talking about. So that's an area where we want to see things doing a little better than what we've seen so far. We expected that to be a challenge. There's a reason why we're making the changes that we're making. But I just think overall, it's kind of a balanced good start to the year, but we have a long way to go still.

[Operator]

And our next question comes from DJ Hynes with Canaccord.

[David Hynes, analyst]

Brent, you called out the cross-sell opportunity for Feedonomics and some of the changes being made there to better capitalize on the opportunity. When I hear about changes, it makes me think that something isn't going great. I didn't think that was the case with Feedonomics. So I guess the question really is like has that business been performing up to expectations?

[Brent Bellm, executive]

Yes. Feedonomics has been performing up to expectations. It hasn't been beating expectations, but it continues to deliver both top line growth and bottom line profitability. Overall, relative to what we would have expected at the time of acquisition, it's absolutely performed above what I would say would have been reasonable expectations. It's the market leader globally in both the enablement of high ROI ad spending as well as marketplaces expansion for the biggest brands all around the world. It's a true enterprise leader, and it gives us what none of our other platform competitors have, which is a compelling argument that we can drive top line sales growth for our customers, both through the world's largest ad channels and largest marketplaces channels.

[David Hynes, analyst]

Got it. And then, Daniel, a follow-up for you. So I hear the comments on improving gross retention, improving net retention. But I look at the enterprise customer count, it declined sequentially, right? It's the first time I've ever seen that in the model. So just, can you unpack what's going on with customer count at the enterprise level?

[Daniel Lentz, executive]

Yes. When we're talking about gross and net retention improvements, I'm looking at it on a dollarized basis, which is the key way that we look at it. I want both to be doing better. And obviously, we were -- we're not satisfied with what we saw from an account basis on the quarter. Part of that is a mix effect as we're mixing up a little bit. But part of that is just the dynamics that we've been seeing in e-commerce as a whole, where we've had some downgrades. We've had some project cancellations. We're continuing to see good growth in mid-market and the lower end of enterprise. We'll keep focusing there. And we're confident that the changes and improvements we're making on the go-to-market side are going to also pull up where we are from account basis as well. But obviously, not satisfied with that and laser-focused on making the improvements that will turn that around.

[Operator]

And our next question comes from Raimo Lenschow with Barclays.

[Raimo Lenschow, analyst]

Can I -- if you think about the changes you've done to the business, there's obviously the action and then there's a result. And there's usually a time lag in terms of having the whole organization kind of running at the kind of the new speed. Like, where are we on that journey in terms of, like -- you've done all the changes, but in terms of kind of hitting your full potential, where are we on that journey? And then I had one follow-up.

[Brent Bellm, executive]

Yes. I'd say we're already seeing positive results in the journey on gross retention. We're seeing, relative to last year, real improvements in year-on-year gross retention in terms of churn and downgrades. We're also seeing already early signs of improvement in our ability to cross-sell within our existing merchant base, which improves net revenue retention. That's not something that historically we focused on for really [ incented ] sales or customer support fully. Where we have the most gain is in gross new sales. And as I mentioned in a prior comment, we were really down in terms of sales leadership in the U.S. down to 1 senior leader. We're now back to full strength with the addition of Thom and with Travis. And so that upside is all still to come in terms of how they help us sort of grow both top of pipeline and conversions over the next year.So if I were to put it on a percentage basis in terms of both how we have instrumented the new go-to-market motions as well as the results, probably no more than 1/4 of the results would actually be appearing and that we anticipate in our current numbers. We expect to get a lot more out of all these go-to-market changes in the quarters ahead.

[Raimo Lenschow, analyst]

Okay. Perfect. And then it's a -- that's the follow-up, actually. If you think about it, and you talk a lot about profitable growth, once you're up in full swing, like I guess the assumption is that we're growing at this faster rate, like how do you think about growth? And obviously, you can't give a number because you'd guide then. But like, how do you think about your growth versus kind of the industry growth when it's all done and dusted? And congrats from me as well.

[Daniel Lentz, executive]

I think based on where we are, our expectation and our ambition is to be growing at a premium to the market that represents a healthy growth in market share in the areas where we are choosing to focus and compete. I think that, that can get back to growth rates in the teens and approach 20%. That continues to be our goal and our ambition. We think that, that is sustainable, especially at our size, there's a lot of growth runway ahead of us. We're not hitting a scaling issue where you're trying to run into the law of large numbers. We've got a long way to go and a lot of upside opportunity here that we're excited about.And when we look at where we're investing and where we're spending and we see opportunities all over the business to really, really fully take advantage of the amazing staff that we have here and the leadership that we have here. We think that there's just a lot of growth that we can unlock with the outstanding people that we have by taking better care of our customers and really focusing on their growth and their success and giving them the freedom to choose solutions that work for their business and not try to pigeonhole them into things that they don't need. And we think that, that can really unlock a lot of growth. And with the changes that we've made in the way that we're operating, that in turn will turn to profit and cash flow in a way that's very, very healthy for the business, and will deliver good returns for our shareholders.

[Operator]

And our next question comes from Parker Lane at Stifel.

[J. Lane, analyst]

Brent, how would you classify the improvements you saw in gross and net retention rates over the quarter here? Is that more reflective of the consumer health you guys called out in the prepared remarks or the internal changes or a combination of both?

[Brent Bellm, executive]

On gross retention, I think it's a combination both of the -- working through the macro cycle. We talked in a fair number of quarters last year about the, let's call it, the post-pandemic trough of customers who had potentially over-bought when the economy was locked down during the pandemic and then wanted to right-size their contracts as the economy reopened. And secondarily, with high interest rates and a focus on profitability, we saw some subsets of customers basically cancel e-commerce stores and projects that were unprofitable for them or sometimes even cancel planned migrations and launch in order to achieve short-term profitability goals.I think we have worked our way through the trough of that post-pandemic drought in that -- so part of what we're seeing is just a return to normal. But the second thing that we're also observing is a real strong focus and ownership of the customer within BigCommerce. We truly are owning customer success end to end. It's a shared commitment across sales, service and marketing. And so every time we sign a customer now, job #1 is to help that customer get launched and growing as quickly as possible so that, that's the foundation of their success and our success if we want to earn the right to cross-sell, upsell or at least get positive referrals and recommendations from our customers.So it's the combination of those 2 things. The first one is somewhat out of our control as the economy returns to normal, but the second one is completely within our control. And we think there's still positive upside to come from that.

[J. Lane, analyst]

Got it. Makes sense. And then one for you, Daniel. Just how significant should we think about the investments around the rearchitecting of your CRM and marketing automation systems? And is that largely a 2024 phenomenon or is that extended to '25?

[Daniel Lentz, executive]

That's 2024 and 2025. In the big scheme of things, it's not very material, like it's not going to swing our numbers. We've already got it baked into our guidance. It's material for us. It matters a lot. I mean, it gets -- there's 3 big legs to this. We're getting into a master data management system. We're improving our marketing automation platform. We're getting all of our sales teams into one CRM. I mean there's a lot of really great unlocks that come out of that, but it's not something that our shareholders need to be worried about from a cash flow or a capital investment point of view. It's big enough that it matters, but it's not so big that it's an outlier that investors really need to worry about.

[Operator]

And our next question comes from Maddie Schrage with KeyBanc.

[Madison Schrage, analyst]

I was wondering if you could talk about how you're thinking about ARPU growth this year. I would assume with kind of the new go-to-market and cross-sell opportunities, this should help ARPU growth, but just wondering if you could size it for us.

[Daniel Lentz, executive]

Yes. I think that -- I mean, we've been kind of in the mid single digits from an ARPU growth perspective for the last several quarters. The way that we're building out our financial plan assumes that stays relatively similar throughout the rest of the year. But I do think that there's upside to that as our systems changes take hold next year and as we're making a lot of internal changes in the meantime, Obviously, we're really, really architecting ourselves around account success and growth, which will give us better results in cross-sell, which -- we added Makeswift, which gives us the ability to cross-sell that as a part of the Catalyst initiative. So there's definitely ways that we can see tailwinds to ARPU growth. I just think it's going to take some time for that to really take hold and start to play itself through the numbers. But I see that as an upside item for us as we're exiting the year and going into 2025.

[Madison Schrage, analyst]

Great. And just a follow-up. I'm wondering if you guys could talk about where you're seeing the most operational leverage. And then from a go-to-market perspective, is there any more senior hiring that you need to do to have a more complete org or is everything complete now?

[Daniel Lentz, executive]

Yes. I would say, on the leverage side, it's pretty broad-based. When we've gone through restructurings over the course of the last couple of years, that was -- those were changes felt by all organizations within the company. And where we've seen leverage is not just in headcount changes. It's also in whether we're using a mixture of high and low-cost geographies, mixture of contractors and internal employees. We've made a lot of changes and improvements that have reduced bad debt expense. Our collections and DSO has gotten way better. So we're seeing leverage in a lot of areas. We're also continuing to look at what we can do on the sales and marketing side of things, not necessarily because we're aiming to have big decreases in spending. We want to see better growth out of the dollars that we're putting in. And we have really great leadership on that side that's really, really laser-focused on that. It's an area where transparently, I think we can do a lot better. And I think it's something that we recognize is not best-in-class, and it's something that we're focused on. And we think we can get better top line leverage out of what we're putting in on the sales and marketing side, and we're excited about that.From a leadership perspective, there may be a couple of roles here and there, and Travis will have a lot to say on that when he joins, but we're really happy with the team that we have, and we think we're positioned well for success.

[Operator]

And our next question today comes from Josh Baer of Morgan Stanley.

[Josh Baer, analyst]

I wanted to double-click on the account -- the enterprise accounts sequentially. Just wondering if you could talk a little bit about the gross customer adds versus logo churn. Is one of the two having more of an impact?

[Daniel Lentz, executive]

On the quarter, it was more about new logo adds than it was about where we were from a gross churn perspective. And we saw improvements on dollarized gross retention and net retention, which is good. The amount that we saw in terms of exiting the platform is pretty consistent with where we've seen in the past. We just -- we want to see a little bit better results on where we are from a new customer add point of view. But in the long run, again, we're really trying to get to a better balance between new customer adds and expansion of existing customers. And so when I think about talent, obviously, that's a great healthy leading indicator for the business, but it's also the most expensive way of growing the top line as well. And so we want to see both doing well. And so we're not going to overreact or anything and have some sort of a reflexive correction when we look at the count. We're steady as she goes in what we're doing. We're looking at a good balance between expansion and new customer adds. And as we do that and get better with that, especially with bringing in new leadership, I think, it's going to turn around the count as well.

[Josh Baer, analyst]

Okay. Great. That makes sense. That's helpful. And then I just wanted to ask about the competitive landscape. Any changes that you're seeing out there? Anything having an impact on the business?

[Brent Bellm, executive]

I think it was quite beneficial to us that our largest competitor raised their plus pricing by as much as 60% last quarter, that came as a surprise. It really improves our already strong total cost of ownership position relative to them. And really, they're the only competitor that has historically been in our same advantageous TCO position. So we love that they increased pricing, and we have not, and we think our offering is super competitive. As a result of that, we're seeing incoming interest both from their customers and from customers considering both of us, that's helped our win rates against them when we're head to head. So that's one of the biggest competitive dynamic.The other thing I would really highlight on our side was our Next Big Thing announcement from, I guess, about 3 weeks ago, where it's a semiannual announcement, our first time ever of more than 100 new features that were released across the platform or are being released in the first half of this year. We really think it's industry-leading innovation in B2C and B2B and in composable in those target segments where we want to be the best in the world. We don't see anybody who is introducing as meaningful innovations as we have. And I lead that with Catalyst and Makeswift and what we're doing in B2B. So we think that we're enhancing our competitive advantage on the product side of things. We're enhancing our competitive advantage on go-to-market with the experience we're bringing in to the organization. And our competitor -- our key competitor has gotten more expensive relative to us. So across the board, that bodes well to our ability to compete in the quarters ahead.

[Operator]

And our next question comes from Mark Murphy at JPMorgan.

[Sonak Kolar, analyst]

This is Sonak Kolar on for Mark Murphy. Brent, on the macro environment, you mentioned that consumer spending remains resilient, which is encouraging to hear. I'm curious if you can drill down on the macro backdrop a little bit more for us. Were there any particular segments or geos that were pockets of strength or weakness relative to others in Q1?

[Brent Bellm, executive]

Yes. And when we say resilient, again, put this in the context of where e-commerce was pre-pandemic, it was growing in the double digits, very consistently year after year 12% to 15%. And for the last couple of years, I think we're now in the third straight year where it's been growing in the mid to high single digits, which is consistent and solid. It's not where it has -- it used to be. And our own same-store sales of our merchants, same-store sales, meaning ones that have been with us for more than a year, and you're comparing where they were a year ago to now, it's growing for us slightly ahead of where it is in e-commerce. And it's well -- it's doing well, first quarter this year relative to last year and the year before. So that's the resilience that we are seeing. It's not something that would merit an even stronger word than resilient, meaning it's on an upswing, macro or within our business, but it's very consistent resilient and slight improvements to where we had been.In terms of geography, America is just an amazing economy, right? It just -- the consumer keeps spending no matter what happens to interest rates and inflation. Consumer always is strong in America. And so we continue to see good strength in our American-based businesses. Europe, frankly, is a little softer for us on the macro than where it had been in the last couple of years, but we think we can explain that. And it's because the strength of Europe relies on our multi-storefront and multi-geography product, that multi-geography product is now being released in its full functionality as of this year, meaning the ability to have different storefronts, serving different countries in Europe, each with their own localized content and language, currency, payment methods, tax calculation. All of that sort of extraordinary functionality is now being released in the sort of full availability in Europe, and we think that's going to help us to reaccelerate our growth rates in Europe.So what I would talk about there in terms of the 15% growth rate, that's less to do with macro and more about the upside potential now that our multi-storefront product is reaching completion.

[Sonak Kolar, analyst]

Understood. That's very helpful. And then as a quick follow-up, Daniel, I wanted to ask you how you're thinking about headcount growth for the business. Are there any plans to ramp hiring to meet some of the goals to accelerate top line revenue growth? Or do you kind of feel that the sales and R&D teams are rightsized because of some of the other efficiencies you're generating in the business?

[Daniel Lentz, executive]

At this point, I'd describe it as rightsized. I think if we're going to have -- what headcount increases we would have, I think they're modest. I think that we can get still improvements in better top line growth out of the dollars that we're putting in, and we don't anticipate ramping hiring aggressively in the near future.

[Operator]

And our next question today comes from Scott Berg at Needham & Company.

[Robert Morelli, analyst]

This is Rob Morelli on for Scott. Congrats on the quarter. Quick question to start. How should we think about pricing for the Instant Commerce Feedonomics functionality? Is that a separate SKU? And could a brand purchase it without purchasing the core Feedonomics platform?

[Brent Bellm, executive]

You would have to purchase the core Feedonomics platform. And just to remind everybody what Instant Commerce is and what Feedonomics is, so Feedonomics enable the business to get their product catalog data from whatever their source of truth is into the primary advertising and marketplace channels that they use. The big difference between a marketplace channel and an ad channel is that a marketplace channel like Amazon marketplaces, Walmart, Target marketplaces, 200 of them, the marketplace channels have to know inventory count, and they have to know -- have an order synchronization as well. The further complication around Instant Commerce, which is when Amazon is taking a marketplace order and then actually picking up and fulfilling locally within the same day or Walmart is doing that, they have to know the location of the inventory relative to the location of the consumer. And so there's this added complexity.But fundamentally, this is still a variant on the core Feedonomics marketplaces solution. It's just serving the particular need of when a marketplace or a delivery service like a DoorDash or a Uber or a Deliveroo in Europe is going to pick up the inventory from the warehouse or store of the brand or retailer and be able to deliver at that same day to a local consumer. So it's a different use case, but you're using the core Feedonomics solution to enable it.

[Robert Morelli, analyst]

Got it. Helpful. And then just quickly on the cross-sell efforts. As you say, this is one of the metrics you're measured by, high-level, where are you today with these efforts to sell within the base? How much more effective do you think the company can be over the next year or two? And what is that ideal balance between cross-sell and new sell that you're trying to achieve?

[Brent Bellm, executive]

Well, yes...

[Daniel Lentz, executive]

On the cross-sell...

[Brent Bellm, executive]

Go ahead, Daniel.

[Daniel Lentz, executive]

Sorry about that. I was going to say, on the cross-sell side, making good progress there. Ideally, I'd like to get to a point where our revenue growth is more like 50-50 between new logos and expansion of existing logos. In the past, it's been disproportionately new logo-driven, which I think is a sign of strength in BigCommerce that we're continuing to add logos in a challenging environment. Not every e-commerce platform can say that certainly. It's just an expensive way to be powering your top line growth. And I think that the more we're focused on customer success, ultimately as our guiding principle, that's going to lead not just to better expansion of existing customers, but it also leads to better referenceability, which will ultimately lead to better new logo acquisition as well. And so I think that there's ways that we need to train and enable our sales teams in order to think that way, systems investments that we need to make. We're managing this business for long-term growth, and we're not -- we're really, really focused on making sure that that's a healthy balance.

[Operator]

And our next question today comes from Terry Tillman at Truist.

[Connor Passarella, analyst]

Connor Passarella on for Terry. Just 1 for me. I wanted to go back to some of the commentary on B2B. Could you maybe just speak to any puts and takes around the demand trends with businesses that want to upgrade their commerce systems and sell that way as it relates to maybe the commentary around broader e-commerce growth? And just curious on how does B2B stack up as a priority for customers that are looking to add additional revenue streams.

[Brent Bellm, executive]

Yes. B2B remains a very strong segment for us, as we've said in the past, at roughly 40% of our gross new sales, and that's in line with the aggregate total addressable market, which is roughly 40% of platform spend for B2B and 60% for B2C. Now, when we calculate that, the note is that any customer that is a hybrid doing both B2C and B2B were -- then they have to use our B2B product and we're crediting all of that to the B2B side of things. We see a lot of good upsell and cross-sell from customers who begin with us on B2C and then have the B2B capabilities, that certainly happens a fair amount.But a large portion of our B2B business is coming from true industrial companies, that's distributors, manufacturers, wholesalers, companies that B2C is not even relevant for them because we serve full spectrum B2B, agricultural companies, industrial manufacturers, transportation companies, right? And so the real opportunity with companies like that is not to add B2C to what we're doing on B2B or vice versa, just to expand to multiple brands within their -- maybe if they're industrial conglomerate, it's to add additional geographies or additional use cases and customer segments that they want to serve. So there's a lot of expansion opportunity that is not necessarily of the B2B plus B2C variety.

[Daniel Lentz, executive]

One point I would add on that, too, Connor, as well, is just from the financial point of view. B2B is a very, very healthy segment for us. We have strong win rates. I mean, GMV that ran through B2B edition grew 50% year-over-year, north of 50% for us last quarter. So this is an area where we see really, really strong, not only, competitive advantage, but it's an area of product investment, and it's an area that I get really excited about, just from a financial health as well. The more we continue to mix and grow in that direction, it's a good thing for us from a market share and from a financial health point of view.

[Operator]

And our next question today comes from Jeremy Sahler with Jefferies.

[Jeremy Sahler, analyst]

I'm on for Samad Samana. Most of my questions have already been answered, but maybe 2 quick ones. You called out probably about a year ago that your expectations for enterprise accounts should comprise about 80% of ARR by 2024. Is that still kind of in the cards for 2024? Or do you think maybe that will take a little longer?

[Daniel Lentz, executive]

I'll take that one. I think it's going to take a little bit longer. I think that's partially because of the fact that we've just seen a little bit of the macro-driven pressure on replatforming spend that we've talked about over the course of the last year to 1.5 years. That's true across all enterprise software as much as it is for us. I think that's part 1. Part 2, I think the go-to-market changes and improvements that we're making are going to really help get that back on that track. And #3, I'd also add, our Essentials plans have been healthier in some ways than where we thought they would be maybe 1.5 years or so ago. We saw a 5% growth in ARR from that portion of the business on the quarter. Part of that is driven by pricing changes, but a lot of that is also driven by a lot of improvements in fundamental cohort health and just the gross and net retention that we're seeing from that part of the business as well. I think that's a good outcome because while I still think that the business is going to shift to 80% and potentially beyond that on enterprise accounts, that will be, I think, alongside a healthy Essentials plan portion of the business as well that we feel is stabilizing, and we can start to get healthy growth out of in the future as well.

[Jeremy Sahler, analyst]

Got it. That's useful color. And then I hear you on competitive pricing. I don't know if someone asked about Feedonomics specifically. But can you maybe remind us how you're thinking about pricing as a growth lever, whether that's in the shorter term or as part of the broader strategy?

[Daniel Lentz, executive]

We're going to continue to look for opportunities to take pricing where we think that makes sense. We've taken pricing 2 or 3x probably over the course of the last several years. When we do that, it's going to be in pockets, it's going to be how we think about discounting levels with new customers. What we are going to continue to do, because this is just the way we operate as a company, we are going to continue to operate the company in a way that gives customers the freedom to choose the solutions that are best for their business. We are going to be opinionated and offer them good counsel on how we think they can best optimize their stack to help their customers be successful and we offer commerce solutions that can do that.What we're not going to do is put a pricing structure in place that penalizes them or pressures them into using solutions that may be good for our P&L, but not good for theirs. And we're going to focus our pricing efforts in that way where we're going to make sure that our pricing ramps with their growth. We're going to offer them the ability to negotiate a lot of those discounts in advance with volume changes that grow alongside their business while giving them the freedom to pick the solutions that make the best sense for them, whether that's on the payment side, whether that's on tax or any other solution as well.So as a growth lever, I do think that's an area where we can continue to see growth in the business, but we're going to do so in an opportunistic way, in a way that we think is congruent not only with our success, but also for the success of our customers rather than it being at their expense.

[Operator]

And our next question comes from Brian Peterson with Raymond James.

[John Messina, analyst]

This is John Messina on for Brian. On sales cycles, so just a quick one there. You've mentioned elongated sales cycles the past few quarters, but I'm curious if the second derivative there is improving. Have you seen any stabilization or improvement in the cycles? Or are they elongated further? And then I have a quick follow-up.

[Daniel Lentz, executive]

Quick answer. They've been essentially the same. Some months are a little bit higher, some months are a little bit low, but if you draw a trend line across it, it's been largely the same for several quarters in a row going back into 2023.

[John Messina, analyst]

Okay. Perfect. That was helpful. And then double-clicking on the macro commentary embedded in guidance. So during the prepared remarks, you referenced consumer health holding up in Q1, but I'm curious, to what degree that stance is reflected in the current guidance outlook. Basically trying to get at, if consumer trends do weaken, how much conservatism have you baked in to the forecast there?

[Daniel Lentz, executive]

Good question. I think we baked in appropriate conservatism. What we haven't baked in is the assumption that we're going to see a holiday period in Q4 of this year necessarily the way that we saw last year. We had a really, really good holiday period in Q4. We also -- we hit a performance bonus with one of our technology partners that was big enough to matter, but not necessarily the reason why the quarter was outstanding. But if you just look at the front half to the back half mix of revenue baked into the guide compared to where we've been in years past, you'll see that our back half guidance looks a little bit conservative relative to the front half back half mix that we've seen in the past. That's reflective of our conservatism and the fact that, frankly, I don't want to get over our skis from a guidance perspective on the consumer spending side of things before we start to see some signals from the holiday period.So again, as Brent said, there's a reason why we're choosing the word resilient. It's not perfect, but it's certainly been encouraging, gives us reason for optimism, but we're going to continue to manage guidance conservatively, especially as we want to see continued improvements in new bookings growth, which I really think is a key signal for us as we think about the rest of the year.

[Operator]

And our next question today comes from Gabriela Borges with Goldman Sachs.

[Kevin Kumar, analyst]

This is Kevin Kumar on for Gabriela. Brent, can you talk a bit about the partner channel and how they're performing in terms of driving new business and bringing in top-of-funnel [indiscernible]?

[Brent Bellm, executive]

Yes. The partner channel for enterprise has consistently, over time, delivered about 35% to 40% of our sales volume, meaning they source that. And on an equivalent basis, we source enterprise deals and they feed them back into the partner channel. So collectively, gets in the 70% to 80% range of our enterprise customers who are using an agency partner. So overall, agency partners are absolutely essential to the success of enterprise e-commerce. We also see that our customers who use an agency partner have faster implementations and more successful implementations. So we want to be the best partner in the industry and working with the best agencies in the industry of all size.The agencies themselves have been reporting to us, whether they are our partners or serving competitive platforms, that they've seen a slowdown in aggregate level migrations and new e-commerce launches since the end of the pandemic. And so aggregate sort of new demand in the industry overall is down to where it has been historically. And that's a little bit tough on agencies. But we're hoping that BigCommerce can keep growing both aggregate share and competitiveness so that our agency partners are the most successful in the industry. That's our shared goal with them.

[Operator]

And this concludes our question-and-answer session. I'd like to turn the conference back over to Brent Bellm for closing remarks.

[Brent Bellm, executive]

Yes, I'd just say, as we look to the back half of the year, we're excited about the competitiveness of our products in mid-market and enterprise B2C and B2B and composable. We also believe that now with Travis' incoming leadership, we have the right -- and are implementing the right enterprise-level go-to-market motions from sales, marketing and service as befits the product. And so those 2 in combination give us optimism that we can achieve our goal of reaccelerating top line growth now on a foundation of very solid profitability. That's what we're looking forward to in the back half of the year, and we're grateful to all of our customers, partners and shareholders who have tuned into this call and have followed the company. Thanks.

[Operator]

Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.