Ladies and gentlemen, thank you for standing by and welcome to the BigCommerce third quarter 2022 earnings call. At this time, all participants will be in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your first speaker today, Mr. Daniel Lentz, Head of Investor Relations. You may begin.
Good afternoon, and welcome to BigCommerce's third quarter 2022 earnings call. We will be discussing the results announced in our press release issued after today's market close. With me are BigCommerce's President, CEO, and Chairman, Brent Bellm, and CFO, Robert Alvarez. 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 fourth quarter of 2022 and the full year 2022. 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.
Thanks, Daniel, and thanks, everyone, for joining us. On today's call, RA and I will review our third quarter results, highlight developments in the quarter, and discuss our view on the current operating environment. RA will also provide our view on Q4 and what we expect to see generally in the first half of 2023 in his discussion on updated guidance. First and foremost, I'm pleased to share that we beat the high side of our guidance range for revenue and also outperformed our expectations on non-GAAP operating loss in Q3. Without doubt, we face a challenging operating environment. Appropriately, we are managing our business tightly and remain committed to deliver the growth and operating leverage expectations we provide. Let's discuss the details. In Q3, total revenue grew to $72.4 million, up 22% year-over-year.
Our non-GAAP operating loss was $11.5 million. We concluded Q3 with an annual revenue run rate or ARR at $305 million, up 20% from last year. That represents a sequential growth in ARR of $9.4 million. Enterprise account ARR was $216.2 million, up 35% year-over-year. The enterprise segment now represents 71% of our total company ARR. We believe enterprise can eventually grow to more than 80% of our total company ARR and drive strong financial performance in the coming years. I would like to highlight four areas of encouraging progress and resilient underlying performance in the business in Q3 and thus far in 2022. First, despite macroeconomic and geopolitical uncertainties, we have overperformed revenue expectations every quarter in 2022.
As RA will discuss in our Q4 guidance, we believe we can exceed the 2022 revenue expectations we set at the beginning of the year. We saw continued above-market growth in subscription and partner and services revenue in Q3, driven by strong enterprise retention and durable order volume in GMV. Second, we see tremendous enthusiasm in our partner communities. In August and September, we held a series of three partner summits, one each for our Americas, EMEA, and APAC regions, where we celebrated our joint success and progress and shared our roadmap and priorities for the future. It is clear to us and our partners that the future of enterprise e-commerce is open and composable, and BigCommerce provides the level of composability that B2C and B2B merchants need without the cost and complexities of competitive offerings.
During these summits, we announced the launch of our new Omnichannel Certified Partner Program. This is a new platform-agnostic program for agency channel and technology partners that offers unique benefits to help merchants sell more across more channels. Today's merchants know they need to meet their customers where they shop and spend their time online, but they often struggle to determine the best combination of channels for their business or the best solutions they should utilize to drive the best return on ad spend and conversion on each channel. This program solves that, and we're doing it in a very BigCommerce way by leveraging our strong partner relationships with both agency and tech partners. Our agency partners benefit by leveraging improved product data and listings through feed optimization using Feedonomics, which we acquired last year.
Omnichannel growth consultations with BigCommerce experts and access to exclusive channel partner alpha and beta programs with partners including Amazon Buy with Prime, Google, TikTok, Meta, Snap, Target Plus, and Walmart Marketplace, among others in select regions. We're already seeing substantial demand globally with close to 100 agencies and tech partners in the program since launching it just a few weeks ago. It's a great win-win-win for merchants, partners, channels, and BigCommerce. I would also like to reinforce that this is a platform-agnostic program. We aim to open commerce. We are using the combined expertise of BigCommerce and Feedonomics to help businesses succeed in omni-channel advertising and selling, whether they are using BigCommerce or a competing e-commerce platform.
The more businesses succeed in omnichannel commerce and the more agencies are able to use BigCommerce and Feedonomics expertise to better meet their clients' needs, the stronger our business will become and the faster we will grow. We believe the future of commerce is open, flexible and composable. These great partner programs highlight that conviction. Third, we continue to release features, product improvements and partnerships that resonate with our target market of established and growing businesses. In Q3, we launched the closed beta of multi-location inventory. At the end of 2022, we will launch a set of new and updated APIs that enable merchants to create custom buy online pickup and store experiences. As shoppers increasingly demand flexible, fast and convenient fulfillment options, these foundational APIs enable large enterprise merchants to create complex multi-location inventory scenarios.
In addition, our customer segmentation feature is in open beta, as well as our app extension feature, which allows third parties to deeply integrate into the control panel experience. In August, we announced an expanded partnership with Affirm, enabling merchants of all sizes to be able to use Affirm's Adaptive Checkout. This provides eligible customers with the flexibility and control to choose which payment schedule works best for them. In September, we announced a strategic partnership with cryptocurrency leaders, BitPay and CoinPayments, to easily and securely deliver cryptocurrency payment solutions to BigCommerce merchants. We also announced the launch of BigCommerce on Google Cloud Marketplace, making it easier for global enterprise customers to modernize their e-commerce platform to expand audience reach and drive business growth. This gives businesses powerful e-commerce tools that work within the Google Cloud ecosystem to reach more people and drive sales at every stage of growth.
Earlier this week, we announced our launch of Snapchat for BigCommerce in partnership with Snap Inc. This gives BigCommerce merchants of all sizes the ability to create, manage and optimize Snapchat ad campaigns to showcase products and broaden audience reach to millions of Snapchat users. Also in Q3, we successfully obtained SOC 1 Type 2 and SOC 2 Type 2 certifications, demonstrating commitment to protecting our customers' sensitive and valuable information. These certifications are very important to enterprise merchants and strengthen our reputation with those businesses. Fourth, we are rolling out bigger and more sophisticated enterprise accounts than ever. IAG Loyalty, the loyalty program for British Airways and partner airlines, launched The Wine Flyer, a new online store leveraging BigCommerce's open SaaS API-first platform, where the millions of members of the British Airways Executive Club can exchange loyalty points for wine and earn loyalty points by making purchases.
One Kings Lane, a U.S.-based seller of designer, vintage, and exclusive home furnishings, launched a beautiful custom headless site, taking advantage of our integrations with Avalara, Braintree, and Cybersource. Music Direct, the world's largest online retailer for high-end audio equipment, music, and accessories, is now selling on BigCommerce with a custom order flow built on a custom Azure environment that is seamlessly integrated with its ERP. Hungry Harvest, which nobly reduces food waste by selling rescued produce that otherwise would have been discarded due to surplus, supplier overpurchasing or physical deformity, took advantage of our Multi-Storefront functionality to launch two stores, one for their customers' on-demand purchases and another for its subscribers. MKM Building Supplies, a prominent U.K.-based hardware and commercial building supply company, launched a new headless store that allows them to have more flexibility and an improved website design.
Jimmy Brings, one of Australia's largest express alcohol delivery services, launched a progressive web app storefront built on BigCommerce's headless architecture that takes advantage of our local Australia-based hosting offering to maximize page speed and minimize the potential for disruptions. Last but not least, Dippin' Dots, the frozen treat brand that our kids no doubt know, launched a new storefront that combines a fun and engaging customer experience with checkout functionality that ensures its temperature-sensitive products are delivered when their buyers want them. Now, I would like to address some of the macro-driven challenges we face and our actions to focus resources on our highest ROI opportunities. RA will expand on many of these further during his remarks as well. Similar to other e-commerce providers, bookings growth was a bit slower in Q3 than in previous quarters.
We are seeing different dynamics at play here in the enterprise and non-enterprise portions of our business. Enterprise ARR grew sequentially by $9.6 million, which was a positive result in a difficult climate. We are seeing larger and larger enterprise deals in our pipeline, growing tractions with large, sophisticated systems integrators, and outstanding partner engagement momentum. We continue to see high win rates in enterprise as well. However, we are also seeing slightly longer sales cycle times and tighter volume of leads overall, consistent with what normally happens during economic down cycles. With respect to the non-enterprise portion of the business, we are actively shifting our demand generation budgets, both in people costs and variable spending, towards the superior economics delivered by enterprise accounts.
We have tested this increased spending prioritization over the past two quarters, and we are moving full speed on this now across all teams and budgets. We are also focusing on ROI and operating leverage by removing most promotions on new non-enterprise booking. This is increasing revenue and profit, even as it delivers fewer short-term bookings in the non-enterprise business. We will continue to invest in our non-enterprise business, but we plan to focus more on R&D, product excellence, inbound marketing activities, and self-service sign-ups to improve the LTV to CAC for non-enterprise plans. From a retention point of view, we have seen the same level of strong results in enterprise as we saw both during and post-pandemic. As we have discussed on previous calls, however, non-enterprise account retention has not maintained the performance of the pandemic's early quarters.
What is different about our business is the strategic focus and merchant concentration in durable, resilient enterprise B2C and B2B customers. Again, the strong unit economics of enterprise accounts are compelling, and we are prioritizing our sales and marketing spending on this segment. As a result, we expect enterprise to continue to grow into a larger and larger share of our ARR in the quarters and years ahead. I'll conclude my discussion about current challenges with an update on our team in Ukraine. On a personal note for our teammates, the continued war remains a hardship for our employees, particularly as attacks on civilian targets have resumed in Kyiv. It is tragic on a human level for our friends and teammates. I'm extremely proud of the resilience of our Ukraine team, as well as how supportive our BigCommerce team and partner ecosystem has been for them.
As an example, at our U.S. Partner Summit in August, we were able to raise funds to purchase five ambulances to assist with humanitarian aid efforts in Ukraine. I can't say enough about how inspired we are as a company by the bravery of our colleagues in Ukraine. I'd like to conclude by speaking at a high level about how we are building our plans for next year. To repeat, we are doubling down our sales and marketing spending on enterprise accounts. As we highlighted in our Investor Day in May, our average LTV to CAC for enterprise accounts across the last four years was 8-to-1, compared to 2-to-1 for non-enterprise accounts. We believe we are the world's most modern enterprise e-commerce platform, and we're going all in on this enterprise segment. Next, we remain committed to our open partner-centric strategy.
We believe open SaaS is a strategy that will win in the enterprise market, which means our business will become more partner-focused than ever in 2023. Further, we are basing our 2023 planning activities on the expectation that the macroeconomic and geopolitical challenges that have impacted this year will persist into 2023. To offset this, we will remain disciplined about the pace and size of our investments. As we highlighted on previous calls, 2022 was an investment year for our company. Our 2022 investment plans were modified throughout the year to stay on track to deliver our original top line and bottom line guidance, which we are pleased to have accomplished through the first three quarters. We remain committed to hit breakeven on an Adjusted EBITDA basis in the second half of 2024, and 2023 will therefore be an operating leverage year.
We are making hard decisions to focus and prioritize our spending on our best ROI investments, and we will continue to do so during 2023. Shifting sales and marketing resources away from shorter sales cycles, but lower retention non-enterprise plans to longer sales cycle and higher retention enterprise plans is an example of this. This decision may impact bookings growth in the front half of next year as these investments expand our enterprise deal pipeline at the short-term expense of non-enterprise pipeline and retail plan bookings. We believe this is the right decision for our business to deliver long-term growth and returns to our shareholders. RA will discuss this in his remarks.
In conclusion, you heard me say last quarter that we have spent the last few years building our enterprise capabilities, and Q2 marked the moment in time when we could say with confidence that BigCommerce had arrived as a true enterprise platform. The merchants I listed earlier reflect that. These are large, prominent brands that chose BigCommerce because of our enterprise capabilities, our open platform, and our strong partner ecosystem. This is a differentiated winning strategy that our partners are as excited about as we are. With that, I'll turn it over to RA.
Thanks, Brent, and thank you everyone for joining us today. During my prepared remarks, I'll walk through our Q3 results and provide details on how current conditions are impacting elements of the business, such as bookings and partner and services revenue. I'll also provide details on our Q4 revenue and profit guidance and our current views on 2023 and our long-term financial outlook. In Q3, total revenue was $72.4 million, up 22% year-over-year. Subscription revenue grew 26% year-over-year to $53.2 million, driven by our continued mix shift to enterprise accounts. Partner and services revenue, or PSR, was up 12% year-over-year to $19.2 million. Both subscription revenue and PSR beat our expectations, driven by healthy enterprise MRR retention rates and durable order volumes in GMV.
We are incredibly encouraged by the resiliency of the enterprise business in a tough climate. We will continue to take a careful, conservative approach to the forecast, and I'll address this further later in my remarks when discussing our Q4 guidance. Revenue in the Americas was up 23% in the quarter, while EMEA revenue grew 31%, and APAC revenue was up 2% compared to prior year. We see strong growth in enterprise accounts and bookings in EMEA, and we are also encouraged by early signs in our expansion markets. Our APAC presence today remains focused on Australia and New Zealand. We hope to drive growth in the coming year as we build additional partnerships more broadly across the APAC region. I'll now review our non-GAAP KPIs.
Our ARR grew to $305 million, up 20% year-over-year, driven by continued strength in our enterprise customer base. That represents a sequential growth in total ARR of $9.4 million. Enterprise account ARR was $216.2 million, up 35% year-over-year. As I outlined on our last call, the change in total subscription ARR, which can be calculated by subtracting the trailing twelve months of PSR from total ARR, is a good indicator of our underlying change in net bookings during the period. Subscription ARR was up $7.4 million versus Q2 and up 21% year-over-year. As Brent mentioned, this growth was a bit slower than previous quarters.
We expect changes in net bookings to have wider variance period to period in the future as we mix more and more towards higher ARPA, longer sales cycle enterprise accounts, and shift sales and marketing spending into building an even larger enterprise pipeline. At the end of Q3, we reported 5,560 enterprise accounts, up 758 accounts or 16% year-over-year, including Feedonomics. ARPA, or average revenue per account, for enterprise accounts was $38,885, up 17% year-over-year. I'll now shift to the expense portion of the income statement. As a reminder, unless otherwise stated, all references to our expenses, operating results, and per share amounts are on a non-GAAP basis. Q3 gross margin was 77%, up 57 basis points from the previous quarter.
Meanwhile, we reported gross profit of $56 million, up 19% over the prior year. In Q3, sales and marketing expenses totaled $31.5 million, up 31% year-over-year. This represented 44% of revenue, up 288 basis points compared to last year. This increase was driven by additional headcount, particularly due to investments in international expansion and enterprise go-to-market efforts. Research and development expenses were $19.1 million or 26% of revenue, up 124 basis points from a year ago, driven by additional hiring to support investments in our key strategic initiatives. Finally, general administrative expenses were $16.9 million or 23% of revenue, up from 20% of revenue a year ago. This includes finance and accounting, legal, human resources, some operations spending, bad debt expense, etc.
We expect this to decline as a percentage of revenue during 2023 as we limit hiring and moderate expenses in the coming year. In Q3, we reported a non-GAAP operating loss of $11.5 million, a -15.9% operating margin. This compares with -$3.8 million or a -6.5% operating margin in Q3 2021, and a -$13.7 million or a -20.1% operating margin in the prior quarter. Adjusted EBITDA was -$10.9 million, a -15.1% adjusted EBITDA margin compared to -5.2% in Q3 of 2021. Non-GAAP net loss for Q3 was -$11.2 million or -$0.15 per share compared to -$4.2 million or -$0.06 per share last year.
We ended Q3 with $308 million in cash equivalents, restricted cash, and marketable securities. Year-to-date operating cash flow was negative $86.7 million, declining from negative $31.5 million a year ago. We reported free cash flow of negative $90.9 million or a negative 44% free cash flow margin, which includes $32.5 million paid during the quarter as part of the Feedonomics first anniversary acquisition-related payment. This compares to negative $33.8 million and a negative 22% free cash flow margin in Q3 2021. I'd now like to transition to a more detailed discussion on several areas of the business, starting with subscription ARR and bookings in Q3. We saw different dynamics at play in our enterprise and non-enterprise businesses in Q3. We are extremely encouraged by our success in enterprise.
We continue to see strong momentum and performance, though we are also seeing some challenges with respect to sales cycle time and the volume of deals in the pipeline. Again, this is not an unexpected dynamic in enterprise software during a down economic cycle, and we are offsetting this by redoubling our focus on this segment and actively shifting sales and marketing spending here and away from the non-enterprise business. As a result, we expect to see flat to slightly contracting non-enterprise ARR in the coming quarters. This is due to a combination of macroeconomic factors and deliberate spending choices. On the macro front, recent economic data highlights the challenges small businesses are experiencing in the United States and abroad.
For example, according to the Census Bureau and NFIB, new business formation has slowed significantly over the past 12 months, while the Small Business Optimism Index is at its lowest level in 48 years. Additionally, we are also very deliberately shifting spending away from the non-enterprise to the enterprise segment in our business. This is driven by the underlying differences in ROI that we've shared and our commitment to hit breakeven on an Adjusted EBITDA basis at or near mid-2024. Managing this investment transition further towards enterprise will be key to our 2023 results and driving strong growth in our business overall. Again, 2022 was an investment year. 2023 will be an operating leverage year. We view driving leverage as both a short-term drive to profitability and making long-term investment decisions to maximize economic value to shareholders.
Balancing the short-term effect of this enterprise prioritization on the PNL against the long-term shareholder value this higher ROI will deliver will be key to our 2023 plans. In addition, Q3 order volume in GMV was resilient given the tough macro climate. Even so, we are taking a conservative approach to our guidance for Q4. Given persistently high inflation and geopolitical issues, we expect headwinds to consumer spending and PSR to persist into the front half of 2023 and are building our plans accordingly. Maintaining strong operating discipline will be crucial heading into next year. We have materially reduced our pace of hiring and are diversifying our geographical employee footprint to bring in high-performing team members from geographies with more favorable cost bases as well.
We are making tough priority calls to focus our spending on the highest long-term LTV to CAC, and we will remain disciplined about equity compensation and dilution as well. We will also remain disciplined about sales promotions to attract new merchants. We have materially reduced the volume and value of promotions on our non-enterprise plans to focus on revenue and profitability. We have also maintained tight discipline around enterprise plan promotions, which often take the form of free promotional months in the early period of agreements. As we mix more and more towards enterprise accounts, we are seeing success signing deals that have longer multiyear durations and prenegotiated step-ups in pricing. We will continue to work towards long-term enterprise contracts that create consistent, durable revenue to BigCommerce and predictable negotiated pricing for our merchants, all while maintaining tight discipline on the level of sales promotions we offer to merchants.
Now let's shift to our guidance and outlook for Q4 and full year 2022, then conclude with a discussion about our preliminary view on 2023 and our long-term financial outlook. For the fourth quarter, we expect total revenue in the range of $72.4 million-$74.2 million, implying a year-over-year growth rate of 12%-14%. For Q4, our non-GAAP operating loss is expected to be $12.3 million-$14.3 million. For the full year of 2022, we expect total revenue between $279.1 million-$280.9 million, translating to a year-over-year growth rate of approximately 27%-28%. We expect a non-GAAP operating loss between $49.9 million and $51.9 million.
Note, we are holding our full-year revenue guidance flat at the midpoint based on the conservative view we are taking on Q4 PSR and bookings as we discussed previously. I would like to conclude my remarks by sharing thoughts on 2023 and our long-term performance. We are leading through a challenging cyclical environment while making the right decisions to maximize long-term shareholder value. As we discussed, our prioritization of enterprise by shifting both people costs and variable costs away from non-enterprise to enterprise demand generation activities may create a period of slower bookings and potentially revenue growth in the front half of next year as those resources build an even larger enterprise deal pipeline. We are confident we can manage through the transition and the current macroeconomic climate with tight spending discipline, focus, and execution.
We are still in the process of setting up our 2023 plan, and we plan to provide detailed guidance on our February 2023 earnings call. That said, we wanna be transparent and give you a preliminary glimpse into how we are thinking about the business next year. Importantly, we continue to target the 25%-30% multiyear revenue CAGR that we outlined in our May investor day. However, we expect our 2023 growth rate to be below our target CAGR as we shift sales and marketing demand generation spending more fully to enterprise accounts. To be more specific, we believe that we can continue to deliver enterprise ARR growth rates materially above our total ARR growth rates, offset by flat to contracting non-enterprise ARR in the near term.
We believe that enterprise can grow to 80% of total ARR or higher by the end of 2024. Over time, as non-enterprise becomes a smaller and smaller percentage of the business, there will be less divergence between the overall growth rate of the business and the enterprise growth rate of the business. We also remain committed to the mid-2024 Adjusted EBITDA breakeven timeline that we discussed in our May investor day. Improvements in the overall macro climate would help us meet this timeline given the impact on high-margin PSR. We are aiming to hit at or near that timeline even in the current climate and will continue to make the tough choices necessary to deliver that. Finally, I'd once again like to thank all of our incredible employees, merchants, and partners.
While the past year has certainly brought many unexpected challenges, I'm tremendously proud of the commitment and execution of the BigCommerce team and our partners. With that, Brent and I are happy to take any of your questions. Operator?
Thank you. We will now begin the question-and-answer session. To ask a question, you may press star then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we'll pause momentarily to assemble our roster. The first question will come from Gabriela Borges with Goldman Sachs. Please go ahead.
Good afternoon. Thank you. I have three, and they're related, so I'll ask them together. Number one, the reallocation that you're making an investment towards the enterprise segment, how long do you think before those dollars start to be incremental to demand generation and to revenue in the enterprise segment? Number two, the commentary around the tighter volume of leads, maybe a little more detail on what you're seeing there. I would have thought that with the new enterprise functionality, you would be seeing better deal volume. I imagine there's an offset with replatforming cycles or push-outs, so it'd be great to learn more about that. The third is, do you think your enterprise growth rate will be in line with your 25%-30% CAGR next year? Thank you.
Yeah. Hey, Gabby. I'll start with that last question. If we were guiding on our enterprise business, and if it was 100% of the business, this would be a lot easier. As we think about that 25%-30% CAGR, that is gonna be driven by our enterprise growth. I mean, if you think about the last 17 quarters, we've grown enterprise north of 35%. Even this quarter, you know, we grew 35%. What's weighing us down is the non-enterprise growth. If I think about the spend necessary to build pipeline, we've already started deploying that spend. You know, we're not waiting for Q1 to do that. We're, as we think about the last couple of quarters, we took action with the promos.
We've also taken action with allocation of spend in sales and marketing away from non-enterprise to enterprise. It just takes time, especially as we are entering into larger and larger deals. If I were to highlight some things for Q3, I'd say that we are getting opportunities for much larger deals in B2C and B2B. Those do take longer. The deals that we have been into, you know, we may not have closed them in Q3, but that doesn't mean we're not gonna close them in Q4. Again, excited about enterprise. What was your first question, Gabby?
How long before the new dollars being allocated to the enterprise start to drive incremental revenue in the enterprise segment?
Yeah. I mean, the way we think about it is you deploy the dollars in one quarter, you likely see the pipe in the following quarter, and then you apply kinda sales cycles and closing times against that. As we think about next year, that's why we're, you know, looking at the front half of the year differently than we're looking at the back half of the year. The pipe is gonna get built. Those deals will likely close hopefully by mid next year. You know, I think we have a good shot at the second half of next year showing much better growth rates than the first half. Then also keep in mind, we've got bigger base periods in Q1 and Q2 that we have to be mindful of.
The non-enterprise business, as you've seen in Q3, we expect that dynamic to play out in Q4 and likely in the front half of next year, which is why we're, you know, as you think about, revisiting 2023 numbers, we wanna be very transparent as to how we're thinking about it. When we present the kind of guidance for the full year next year, that those are the things that we're contemplating.
Just a little bit of color on the tighter volume of deals. Are you seeing pushouts? Are you seeing lengthening replatforming cycles? Any color there?
Hey, Gabriela, it's Brent. Primarily on the pipeline, the quantity of opportunities is down from trend line due to the economic environment, but that's primarily driven by small business and the lower end of the market. It's a bit tighter at enterprise, but we actually are seeing large opportunities at sizes that are bigger than ever for us. Why was, for example, Q2 such a great quarter? We closed a whole bunch of a number of opportunities that were the largest in our history. So we are, in most quarters this year, we're more than making up with quality what might be lacking in quantity, in particular at the low end of the business. It just demonstrates that we're able to compete for ever higher ends of the market than we have in our history.
We're very bullish on that trend continuing next year and beyond.
Thank you.
Operator, next question, please. We don't know where our operator is. I hear the operator, so just pause one moment. We're just waiting.
Pardon me. Our next question will come from Mr. Clarke Jeffries with Piper Sandler. Please go ahead.
Hello. Thank you for taking the question. RA, you know, I wanted to touch on the expectations of flat to slightly contracting non-enterprise ARR in the coming quarters. Just really off of the fact that we've kind of been in a flat to slight contraction paradigm for the past few quarters. Wondering if you could more clearly illuminate, you know, what's the new change happening and whether you would expect it to be more of a maintenance of where we've been at or a change based off of this redeployment of demand generation.
Hey, Clarke. When I think about the retention profile of non-enterprise versus enterprise, I'll highlight that our enterprise retention remains really strong. Our non-enterprise retention, when we look at our churn, usually happens within the first 12 months, right? In the, you know, when you look at last year and the prior quarters this year, we were spending money to acquire non-enterprise merchants. You know, whether it was through the promotions or sign-ups, we also had to look at the retention profile of those merchants.
As I think about Q4 in the front half of next year, I suspect that the flat to declining trends would continue, but I do expect it to moderate as the non-enterprise sign-ups that we do have likely are gonna get past that 12-month mark, and we see great retention once they do that.
Understood. Maybe the cohorts that we're churning in the first half of the year might look different than the cohorts going forward in non-enterprise. The second question is really around pricing as a lever in this environment. Certainly, having more discipline around promotions is one way to achieve a sort of pricing outcome. But, you know, as you continue to innovate and deliver more functionality for the platform, the contract values for the enterprise may be tied to order volume. You know, do you believe pricing might be something worth seriously pursuing in this environment? Or any thoughts you have on that topic?
Hey, Clarke, it's Brent. For sure, every year, we modify our rate cards that our salespeople quote on enterprise plans. There are changes ongoing that reflect the state of inflation and the economy as well as the extraordinary capabilities and ever-increasing enterprise functionality of the core platform. Yes, folks should assume that in the background, one of the things that drives our continued growth in average revenue per enterprise customer is in fact the reflection of the capabilities. I would also stress that pricing isn't the only thing that drives revenue per customer. There's also the sales of incremental features and functionality.
What's exciting to us about 2023 will be the rollout of our automated billing capabilities, which let us not just bill for third-party applications from our tech apps marketplace, but also additional own products that we roll out. We have talked about Multi-Storefront becoming self-serve. You click a button, you add a storefront, and we are able to incorporate that into a bill. Feedonomics self-serve is coming. Our acquisitions B2B Ninja, BundleB2B, et cetera. There is a lot of opportunity to, you know, sell additional revenue-driving features, functionality, capabilities to our customers that improves revenue per customer, but is in fact not pricing related. Thanks for the question.
Yeah. Thank you.
The next question will come from Terry Tillman with Truist. Please go ahead.
Yeah. Thanks, Brent, RA, and Daniel. Good afternoon. Maybe the first question is, I don't know if this is for you, Brent or RA, but I think you described it's not like wholesale weakening of the volume of leads in enterprise, but you did say tightening of volume. If that's the case, then I'm assuming some of these sales cycles can go on a while. Do you see kind of an ongoing kind of hangover in enterprise subscription bookings? For example, could it get worse, do you think, before it gets better as early here as the fourth quarter? Just a little bit more on kind of how the implication would be of the tighter volume of leads in the enterprise side, and then I had a follow-up.
Yeah. I mean, do I expect it to get worse? I do not because ultimately, a fair chunk of enterprise opportunities are either migrations where companies have existing businesses and the need to migrate doesn't go away, the cycle of migration doesn't go away. If there's a short-term delay in migrations by large companies trying to manage investment and cash flow, those come back later on. Like, nothing's changing the laws of physics around the need for, you know, enterprises to get off of legacy underperforming platforms. That eventually catches up, and time is really the driver of those needs accumulating. That said, in all fairness, can it get worse? Well, yeah.
I mean, if we hit a deep recession, then, relative to any trend line, companies will save costs, delay migrations, delay launches of new businesses relative to what would be happening in, you know, a better economic time. It could get worse, but it's not my anticipation. You know, I think, you know, new store launches and migrations that might have been happening, you know, at a higher pace at this point in the year eventually will come back as either the economy strengthens or at least, settles into current trends.
Hey, Terry. I just add that when we talk about that, we're talking about the tightening of leads in our pipe. One of the initiatives that we've talked a lot about this year is Commerce as a Service. We're actually seeing really strong opportunities with folks that are actually inbounding to us and looking for opportunities to modernize their e-commerce offering or their storefronts, which obviously it's hard to predict when those deals would close, but could have you know pretty material impact in terms of our bookings and revenue.
Yeah, we have a great pipeline of strong Commerce as a Service deals and, you know, we'd be very excited if some of those close this quarter.
Yep, understood. Maybe just a follow-up question. It's tough, but you are giving us a little bit of color, RA, though, for 2023. I can't help myself in terms of
Yeah
You have tougher comps for sure as we move into the first half of the year of 2023 to deal with, and then it obviously gets easier as you anniversary Feedonomics, et cetera. I mean, I'm just trying to get a sense on with kind of the shift away from non-enterprise and retail and some of these other dynamics, you know, just trying to understand like relative growth rates in the first half to second half. And/or said another way, you know, could the growth actually get lighter than what we're talking about here in 4Q? Thank you.
Yeah, Terry, obviously more details to come on that front on our next call in February. You know, as of today, we believe that the dynamics that contributed to the guide and the range for Q4 will likely persist into the front half of next year, where we also face those tough comps in the base period. We believe those growth rates can accelerate though in the second half of 2023. You know, it's gonna be as we build out our plans, obviously with the focus in the investment in enterprise, that'll only increase our chances to, you know, really get those growth rates higher in the back half.
Understood. Thank you.
The next question will come from Scott Berg with Needham. Please go ahead.
Hey, guys. This is Josh on for Scott. Thanks for taking my questions. Curious, are you seeing any divergence in B2B versus B2C e-commerce GMV trends here over the last few quarters? What specifically can you tell us on how GMV trends have trended here in the month of October and I guess maybe the first week of November? Are things worsening materially or what are you seeing?
I'll take that, Josh. We don't have commentary broken out on B2B versus B2C trend line, split. On the aggregate GMV, what we're seeing is steady, and solid. Certainly better now than it was in the first half of the year.
Yeah, Josh, I'll add that, you know, Q3 PSR came in higher than we were expecting. We did see better than expected orders in GMV. But having said that, this holiday season, there's a lot of uncertainty around order volumes and GMV with the holidays. We're not gonna be aggressive in those forecasts, but we have seen them hold pretty steady and definitely above industry average.
Got it. That's helpful. Maybe just one follow-up. Is there any characteristics of the non-enterprise customers that have had a bit higher churn rate that maybe you can identify in your sales and marketing process to, you know, kind of weed out those opportunities versus some higher value non-enterprise customers? Thanks, guys.
100%, I think we commented on this last quarter. When we were running one-month and even with select partners, three-month free promotions, that encouraged a set of customers to come in who probably weren't real businesses or intending to transact long term. As soon as they came in, they kinda went out before they ever paid us. They were never really quality merchants. With the elimination of that type of promotion, we believe that type of merchant is no longer coming into our ecosystem. Certainly the quality of all of the small business we're signing up is higher.
The most important thing to say to everybody is no matter how you cut it, the LTV to CAC on small business is materially lower than the very attractive LTV to CAC on enterprise. There are subsegments of small business that have, you know, extremely high value because you spend no money to acquire them, and we've got a lot of those. I'll just give you an example. If the blended average LTV to CAC on small business is 2 -to- 1, you get that because you spend a whole bunch where it's zero, right? There's no real return on it and just stop spending money on the zero return, right?
The LTV to CAC is gonna go way up because we get a lot of business through partner channels, organically, word of mouth, high net promoter score that we don't have to market, and we don't have to sell, and they're great businesses. We wanna keep acquiring all of that and divert the variable marketing into very high LTV to CAC enterprise segment.
Yeah. The way to think about non-enterprise for us going forward, I wanna make it crystal clear, we're not abandoning small business. We're just gonna get really smart in terms of how much sales and marketing we're spending to acquire them. A lot of the investments we'll make is to optimize self-serve, really try to route leads that need to talk to salespeople. Solo Stove is a great example. You know, they started out on a retail plan, and a couple years later, 2-3 years later, they're one of our largest merchants doing hundreds of millions of dollars on BigCommerce. We clearly don't wanna move away from acquiring more and more Solo Stoves. Just wanted to make that clear for everybody.
All right. Next question.
The next question will come from DJ Hynes with Canaccord Genuity.
Hi, this is Dan Regan on for DJ. Thanks for taking our question. Maybe one for Brent. When we think about this story, Multi-Storefront has really opened the door to more enterprise opportunities. Just a couple questions there. As you shift your sales efforts, and you build the pipeline, what does that mix of RFPs look like in terms of general replatforming, maybe sunsetting of Magento? Is there any piece of greenfield in there? Secondly, when you see legacy players in the RFP process, like Salesforce, Demandware, are you seeing more customers choose these legacy players as more of a platform consolidation play? Any color there would be great.
Yeah. When we look at where business comes in, it's a mix. It's closer to 50/50 than a giant swing in either direction between new stores that are net new creations and migrations. You know, a lot of these new stores are existing companies that might already have other e-commerce stores, or they might be new to e-commerce as opposed to brand new businesses starting up. Of the migrations, the number one source is, last time I checked, actually not Magento, it's custom. Magento is by far number two, and then, you know, you're not gonna see as many from like a Salesforce because they don't have as many, and they're far larger. We get those two, we'll get some Shopify, and we'll get any of the long tail of 500 other platforms around the world.
We really do believe just, though, in conclusion, we have the most modern, flexible SaaS platform for enterprise, both B2C and B2B. You'll continue to see us win deals, you know, really, migrations from platforms of all sizes as well as net new.
Thanks. Awesome. Then maybe just one for RA. As you continue to deemphasize small accounts, you have the removal of free trials, you're shifting your sales efforts towards enterprise. Is it fair to think that the next several quarters will be a bit of a transitory period, maybe fewer small merchants joining, some churn? Secondly, as you bring on higher GMV merchants, what's the right way to think about PSR growth and the resulting impact to margin expansion, given that a lot of PSR is super high gross margin? Thanks, guys.
Yeah. I mean, when you look at Q3, you know, our enterprise ARR grew 35%. Our non-enterprise ARR contracted a little bit. I suspect that dynamic is gonna likely continue for the next 2-3 quarters. I do feel like it will moderate because, as I mentioned, when the non-enterprise plans do churn, it's usually within that first, you know, 12 months. The GMV mix is, you know, 90% plus of our GMV is from our enterprise accounts. The more we sign and close bigger and bigger deals in both B2C and B2B, that GMV is only going to increase. Those orders are only going to increase. If you're talking to our partners, our agency partners, our tech partners, we try to highlight this in the script, but open commerce is resonating.
Being able to have composability without causing complexity is resonating. There are a lot of merchants that are now looking at their legacy platforms that are about to expire, and as they evaluate what platforms that they wanna use to power their e-commerce for the next five years, the openness of our platform, the composability of our platform, I think is really just gonna continue to help us win more and more deals in the enterprise. I'll tell you, our enterprise win rates are extremely good. Again, this gives us a lot of confidence that now is the time to really focus on enterprise. A year ago, we probably weren't ready to do this because the product investments, we didn't launch Multi-Storefront yet, multi-location inventory.
We didn't have the pieces in place that we do now. Now that we have all those pieces in place, I think the opportunity for us to continue to lead in B2B, lead in omnichannel, lead in composability and headless, we wanna continue to increase our leadership position across those because that's, in the end, I think that's how enterprise becomes, you know, 80% of our ARR by the end of 2024, and likely 90% of our ARR or more, over the next five years.
Operator, next question, please.
The next question will come from Koji Ikeda with Bank of America.
Hey, guys. Thanks for taking my questions. I kinda wanted to follow up, RA, with you on some of the commentary you gave on the non-enterprise revenue stream here, or the ARR stream. You know, earlier in the call, you talked about, I guess, expecting flat to contracting ARR for this segment. But I just kinda wanted to understand a little bit more, you know, are you going to be investing sales and marketing to keep ARR in this segment within a tight range so we could, you know, from a modeling perspective, we have, you know, a good expectations of where this segment should shake out, you know, on a quarterly or annually basis? Yeah, I guess that is the first question.
You know, are you investing to keep that ARR growth really in that flat to contracting, you know, what is it, like 5% or, you know, maybe even a little bit more than that on a quarterly basis? Thanks, guys.
Yeah, Koji, I would expect that to, again, moderate a bit in the coming quarters. Look, we're really serious about getting to that break-even point by the second half of 2024. When we think about the path to get there, we just have to be really smart on where we're investing our dollars, especially around sales and marketing. Marketing efforts to drive pipeline for mid-market and enterprise is where we're gonna focus, and our sales teams and go-to-market teams are gonna be very much focused on enterprise. In the past, we probably would spend digital marketing dollars to acquire both small business and enterprise accounts.
At the end of the day, the retention dynamics and the ROI just doesn't play out favorably enough to still allow us to kinda get to that break-even point.
Got it. Okay. Then just one follow-up for me. I wanted to go back to the very first question from Gabriela and follow up here. So I just wanted to fully understand, you know, you are shifting resources from non-enterprise to enterprise. Is that transition essentially done internally? You know, is there more shifting to go? And if it is already done, are we heading into a period of do we need to ramp those employees, or are they all fully ramped and now we're heading into 2023 with this, you know, kind of a go-get motion for them?
Yeah, no, we've operationalized this. We're heading into 2023 with that focus. The alignment across all the teams is squarely in place. Yeah, we're not waiting. This is all something that we've operationalized and are completely aligned on.
Got it. Thanks, RA. Thanks for taking the questions.
The next question will come from Keith Weiss with Morgan Stanley. Please go ahead. Mr. Weiss, your line is open.
Hi. You have Ryan on for Keith Weiss here. Thanks for taking my question. Maybe just following up on your earlier comments around lengthening deal cycles on the macro scene. There's been some discussion this earnings season about software customers increasingly looking to prioritize lower total cost of ownership as a way to navigate the environment. Have you seen any shift in your customer base's behavior as a result of this theme? If so, how is BigCommerce positioned to help enterprise customers deal with this?
Well, that's a nice layup. We've always been a higher value, lower cost platform than the other enterprise platforms, substantially so on total cost of ownership, whether you're comparing to Magento or Salesforce or legacies like SAP and Oracle. This has always been a strength of ours. You know, right now that strength is valued probably more than ever, especially relative to the pandemic side. You know, I think our competitive advantages are only improved in the current economic environment. That said, it's still up to companies to make the commitments to do migrations and launch new stores. That's the overriding driver of lead opportunities.
Thanks.
Thanks.
Helpful. Thank you. Just one more quickly. You've launched in quite a few markets this past year in Europe and Latin America. Just curious if you have any feedback as to which markets you're seeing the most traction in so far and how their various payback periods are differing, if any?
Yeah. One thing I really can call out 'cause it will be in the footnotes of our report, the non-U.S. Americas, which is primarily Latin America and Canada, it's everything ex-U.S., grew 56%. It's not an insubstantial amount. It's more than half the size of APAC and almost half the size of EMEA. Latin America's off to a nice start led by Mexico. Europe continues to do very well. We're excited about the emerging interest we're seeing in the Middle East and some of the deals there. Asia's really all upside for us because when you look at our APAC business, it's overwhelmingly Australia, New Zealand. That's our most mature market. We originally founded out of Sydney, Australia in 2009. We're excited about adding Asia.
In particular, you know, we had major activities launching with a partner in Korea within the last couple of months, and we're doing similarly in China. Lots of upside potential there, you don't see it anywhere in the numbers quite yet.
Thanks.
Thank you.
The next question will come from Brian Peterson with Raymond James. Please go ahead.
Thanks, gentlemen, for taking the question. I actually wanna follow up on Brian's first question in the TCO dynamics. Brent, if we're thinking about the idea of kinda value or price or everything else from these migrations, is that becoming more important? Like, is that something you're stressing in even more so now, and is that a better source of deals? You know, I know it's been a great growth vector for you guys overall, but I'm just wondering if that actually becomes more important and the win rates actually go up this year, even if the kind of the overall activity may be down in an uncertain macro. I'd love to unpack that a little bit.
Yeah. I mean, win rates are high this year. They've always been high for us, but they're excellent this year when deals actually close, and some deals are just pushing, taking longer. I would note in terms of value, I think in the world of e-commerce platforms, there are three truly modern platforms that are growing, you know, in excess of the rate of e-commerce or well in excess of e-commerce in our case, in commercetools. They're us, commercetools, and Shopify, who's stronger at the low end, are extraordinary values in terms of the functionality of what we deliver and how easy it is to deploy.
They get the polar opposite extreme of commercetools for somebody going pure headless, and we think we are the faster, easier, more economical way to do headless right for 98% of the world's businesses, and then 2% might tackle commercetools at the other end. For sure, value, SaaS, ease of use, flexibility, that's what's winning right now in e-commerce.
Thanks. Got it. Maybe to unpack kind of the enterprise trends, I know you guys mentioned some slowing sales cycles. Any help on how that trended over the course of the quarter? Any perspective on linearity would be helpful. Thanks, guys.
Yeah. I mean, I would say Q3 was weaker than Q1, Q2, and you know, we closed a bunch of really big deals and had, I thought, excellent quarters of ARR growth Q1, Q2. You know, we're hoping for and trying to achieve a rebound in Q4.
Thanks, Brent.
The next question will come from Ken Wong with Oppenheimer. Please go ahead.
Hi, this is Nancy Liu on for Ken. Thanks for taking our question. Just one quick question from me. So I heard you mention that even in the current macro environment, you aim to hit break even or at or near break even by fiscal 2024. Is that assuming there's any recovery in the macro environment in order to reach that break even goal?
Well, it sure would make it easier, but no, we're gonna operate under these conditions going into next year.
Okay, great. Thank you.
This concludes our question and answer session. I would like to turn the conference back over to our President, CEO, and Chairman, Mr. Brent Bellm, for any closing remarks. Please go ahead.
Great. Thanks everybody for listening in. I think, final big picture comment that I would make is everybody in the world of e-commerce or who follows it knows that this has been a challenging year, not just because of lapping the highs of the pandemic, but also because of the macroeconomic environment and high inflation, potentially crowding out purchases, discretionary purchases that are the bulk of e-commerce. In fact, some agencies like Statista and Salesforce are even forecasting flat to negative global GMV in e-commerce for the year. Despite that, our revenue grew 42% in Q1, 39% in Q2, and when we were done with lapping the addition of Feedonomics revenue, 22% in Q3. All of those growth rates are dramatically in excess of e-commerce in general. It shows we're gaining share at a very strong clip.
We also began this year with guidance for full year revenue at the midpoint of $277 million. We beat top line and bottom line Q1, Q2, Q3. Our final full year guide at the midpoint is $280 million, so up. You have to search far and wide for other public e-commerce companies that haven't lowered their full year guidance from beginning to end and have managed to beat each quarter. We've done all that without layoffs or other dramatic changes, which shows that the original plan we have, we've been able to execute despite the tough environment. We're proud of that. We wish that the economy were even stronger. We'd surely have many more points of growth, and that would be wonderful for all involved.
I think, you know, some folks just say, "Well, you know, the e-commerce sector is struggling this year, and it's a bad place to invest." You know, I think our growth rate's well ahead of the industry, and our performance relative to guidance across quarters shows that we're bucking the general trend. We're executing, we're adapting to the macroclimate and doing that pretty successfully. I hope, you know, folks who invest and hope folks who follow us as partners and customers, you know, see that the trend lines are very strong. We're growing. We're, you know, sort of leading the charge in e-commerce and, you know, the future, we believe, is very bright. Thanks all for tuning in.
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