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

Thank you for standing by and welcome to Commerce Second Quarter 2026 Earnings Call. I'd like to remind everyone that this call is being recorded and that all lines have been placed in mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again.

Thank you. Good morning, and welcome to Commerce's second quarter of 2026 earnings call. We will be discussing the results announced in our press release issued before today's market open. With me are Commerce's Chief Executive Officer, Travis Hess, and Chief Financial Officer and Chief Operating 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, as well as our expected future business and financial performance, financial condition, and our guidance for both the third quarter of 2026 and the full year 2026. These statements can be identified by words such as expect, anticipate, intend, plan, believe, seek, and plan. 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 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 measure, 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. website at investors.commerce.com. With that, let me turn the call over to Travis.

Q2, 2026 was another quarter of steady execution for commerce. We delivered revenue of $84.5 million within our guidance range and non-GAAP operating income of $8.1 million above the high end of our guidance range of 4 million to 5 million. GMV grew 14% year over year to 8.2 million We generated positive gap net income for the second consecutive quarter, and net revenue retention improved sequentially for the third consecutive quarter to 95.8%. These results reinforce the priority that we've discussed over the past several quarters, building a business with a more durable earnings profile. We believe the structural changes we are making are improving the quality of our revenue, strengthening execution, and positioning commerce for more sustainable long-term growth. As we look to the second half of the year, we are also making several deliberate decisions that affect our near-term outlook. Those decisions reflect both the realities of today's market and where we believe commerce is headed over the long term. Daniel will discuss the financial implications in more detail shortly. Before discussing the quarter further, I want to spend a few minutes on the broader context because it explains both our investment priorities and the decisions we are making today. Commerce is undergoing one of the most significant structural shifts in more than a decade. B2C replatforming activity remains softer than we've seen historically, while AI is changing how merchants evaluate technology investments and delaying monetization across portions of the industry. At the same time, product discovery is becoming increasingly distributed across marketplaces, retail media, AI search, shopping agents, and other emerging buying experiences, rather than beginning and ending on a merchant's website. We believe changes require a different approach. Rather than optimizing for every possible source of near-term revenue, we are concentrating our investments where we believe we have the greatest differentiation, the strongest right to win, and the opportunity to create the most durable long-term value for merchants and shareholders. We believe one of those areas is product intelligence. AI agents, marketplaces, retail media networks, search engines, and emerging buying experiences all depend on structured, enriched, and continuously optimized product data. As commerce becomes more distributed, we believe product intelligence is becoming foundational infrastructure for modern commerce. That is why Feedonomics has become such an important part of our strategy. Today, Feedonomics synthesizes and transforms more than 1 trillion product listings every month, giving us unique insight into how product information is structured, enriched, and optimized across the global commerce ecosystem. We believe that scale positions us to play an increasingly important role as AI-driven discovery and agentic commerce continue to evolve. We've intentionally organized commerce around three complementary layers or control planes that reflect how we believe modern commerce is evolving. If we E-Dynomics is our product intelligence layer, helping merchants structure, enrich, optimize, and distribute product information wherever discovery or emerging buying experiences occur. MakeSwift is our experience layer, enabling merchants to create consistent content and brand experiences across an expanding number of digital touchpoints. Big commerce is our transaction layer, powering pricing, checkout, orders, APIs, and the operational workflows merchants rely on every day. Each layer is designed to operate independently through an open architecture. Our objective is not to replace everything a merchant already has. It is to allow merchants the flexibility to adapt the capabilities that create the most value while preserving flexibility across an increasingly distributed commerce ecosystem. More importantly, this framework shapes how we run the company. As commerce undergoes structural change, we do not believe success comes from trying to participate in every opportunity. It comes from concentrating our capital, engineering resources, and partnerships where we have the greatest differentiation, the clearest right to win, and the opportunity to create the most durable long-term value. That philosophy has led us to make a series of deliberate decisions this year. We have narrowed portions of our partner ecosystem, focused our embedded payment strategy around a smaller group of strategic partners, increased investment in product intelligence and AI, and deliberately kept merchant storefronts broadly accessible to AI agents, even though doing so creates an additional infrastructure cost today. Collectively, those decisions reduce certain near-term revenue opportunities and increase investment in others. They also position commerce more effectively for where we believe the market is heading. trade-offs are reflected in the outlook Daniel will discuss shortly. That operating philosophy is reflected across four priority investment areas. First, AI and agentic commerce. Momentum continued following Commerce Live 2026 as we expanded merchant distribution across leading AI assistance, commerce platforms, and payment ecosystems. We also continued to see growing adoption of Commerce Companion within the BigCommerce platform, helping merchants automate workflows, analyze data, and become more productive. Looking ahead, we remain excited about several new capabilities launching in the second half of this year. In Q3, we expect to introduce new data enrichment offerings across both feedonomics and big commerce that improve and measure how products are discovered across traditional and AI-driven channels. In early Q4, we expect to launch the B2C brand agent and conversational search for BigCommerce. sequencing is intentional. We believe intelligent commerce begins with high-quality product intelligence, and each of these capabilities becomes more valuable as the underlying catalog becomes richer, more complete, and better optimized. Second, Feedonomics Surface and MakeSwift. Surface continues extending the power of Feedonomics to SMB and mid-market merchants through a self-service experience, making enterprise-grade product intelligence accessible to a much broader segment of the market. We continue to see encouraging adoption and stronger GMV growth among surface merchants, reinforcing our conviction that product intelligence should be accessible regardless of merchant size. MakeSwift also remains on track for a year-end freemium launch within BigCommerce, bringing modern visual editing directly into the platform. Together, Surface and MakeSwift expand our addressable market, strengthen our product-led growth strategy, and create additional opportunities to increase customer adoption over time. Third, BigCommerce payments. BigCommerce payments continued building momentum following its US launch earlier this year. Merchant adoption and payment volume continue to exceed our expectations. We have expanded availability to additional merchant cohorts and we remain on track for a UK launch later this year. Strategically, payments represents much more than another product offering. It expands how commerce participates in the growing volume of commerce flowing across our platform. GMV grows, payments creates an opportunity to deepen merchant relationships, increase monetization, and further strengthen the long-term economics of our business. Finally, B2B. We also continued investing in the capabilities that matter most for manufacturers, distributors, and other complex commerce businesses. remains one of the areas where we believe we have a durable competitive advantage and we continue to invest accordingly. That leadership was recognized again this quarter as BigCommerce earned all 24 possible medals across the enterprise and mid-market editions of the 2026 Paradigm B2B Combine for the fourth consecutive year, including recognition for vision and strategy, ability to execute, and customer support. Taken together, these investments reflect a common theme. We are concentrating our resources behind the areas where we believe commerce has the strongest differentiation, the clearest right to win, and the greatest opportunity to create durable long-term value for both merchants and shareholders. Beyond our product roadmap, we also continue to see encouraging execution across the business. Our strategic partnership with Accenture continued to build momentum during the quarter, including a product intelligence win with one of the world's largest branded footwear and apparel manufacturers. As we've said before, we believe our product intelligence and agentic suite creates a significant long-term opportunity to expand our relationship with Accenture, and we look forward to sharing more as that process progresses. partnership continues to evolve. We also announced a strategic distribution partnership with WP Engine that enables high-growth brands to add BigCommerce's commerce capabilities while preserving their existing WordPress content, SEO, and customer experiences. We believe this is another strong example of the advantages of our open architecture, allowing merchants to modernize incrementally rather than forcing costly, disruptive platform replacements. Across the quarter, we continued adding global customers spanning B2B and consumer commerce, demonstrating the breadth of businesses our platform supports. While the industries and use cases vary considerably, they share a common need for flexibility, openness and increasingly product intelligence. We believe those strengths continue to differentiate commerce in the market. Earlier this year, we introduced our updated pricing and packaging strategy, including big commerce payments and a more focused embedded payments ecosystem. Those changes became effective on June 1st and remain aligned with the broader operating philosophy I've discussed today. This was never intended to be a broad-based price increase. It was a strategic decision designed to deepen alignment with a focus group of embedded payment partners, improve the long-term economics of the platform, and better position commerce to participate in the growing payment volume flowing across our ecosystem. As I step back, I believe the first half of 2026 demonstrates that our strategy continues to evolve in exactly the direction we've been discussing over the past several quarters. We are executing against our roadmap. Product adoption continues to expand. GMV continues to grow. Profitability continues to improve. Net revenue retention has sequentially improved. And we're making disciplined decisions to concentrate our investments behind the areas where we believe commerce has the strongest differentiation and the clearest right to win. Some of these decisions affect our near-term outlook, but they do not change our strategy. They reinforce it. We believe they strengthen the quality of the business, improve our long-term economics, and position commerce to create greater value over time. With that, I will turn the call over to Daniel. Thanks, Travis. Let me start with some additional detail on our financial results in the quarter. Q2 revenue was $84.5 million. Subscription solutions revenue was $63.1 million, and partner and services revenue was $21.4 million. Non-GAAP operating income was $8.1 million, above the high end of our guidance range of $4 million to $5 million. Our non-GAAP operating margin in Q2 was 9.6%, up nearly 400 basis points year-over-year. ARR ended the quarter at $360.5 million, up sequentially from $359.8 million in the prior quarter. We delivered positive GAAP net income for the second consecutive quarter, and we remain on track to deliver GAAP profitability for the full year 2026. Our balance sheet remains strong. We ended the quarter with just over $157 million in cash, cash equivalents, restricted cash, and marketable securities. This reflects significant improvement in cash generation in this business. with our net cash position up nearly 22 million year over year. Our cash and investments continue to exceed our long term debt outstanding with no material debt maturities until 2028. For the first half of 2026 we generated operating cash flow of 23.5 million and free cash flow of 14.1 million compared to 14 million and 9 million a year ago respectively. In Q2, operating cash flow was $5.1 million and free cash flow was $0.1 million, the difference being capital expenditures, which stepped up to $5 million from $1.7 million a year ago as we fund our 2026 product investment. On GMV, we delivered 14% growth year-over-year, reaching nearly $8.8 billion. Over the prior four quarters, we facilitated nearly $34 billion in GMV. B2B GMV growth was particularly strong, increasing 17% year-over-year. Our current GMV mix is weighted towards B2B, where card-based payment volume represents a smaller portion of transactions and generates less partner revenue share. As a result, platform activity is growing faster than revenue, narrowing that gap through payments, monetization, product cross-sell, and higher attach rates remains a top priority for the business. On NRR, net revenue retention was 95.8%, up sequentially compared to 95.4% in Q1 2026. This marked our third consecutive quarter of sequential improvement in NRR for the total business. Remaining performance obligations and deferred revenue were up 11% and 25% year-over-year in Q2, respectively. These remain important forward-looking indicators of contracted customer commitments and the quality and duration of our bookings. We continue to manage dilution and stock-based compensation responsibly as well. Stock-based compensation was a part of the approximately 4.7% of revenue in Q2, down from 8.7% in the same quarter last year, and 7% for the full year 2025. For the three months ended June 30, 2026, we had approximately 82.6 million common shares outstanding and 82.8 million fully diluted shares outstanding. As Travis outlined, we are revising our 2026 guidance to reflect three deliberate management decisions that we believe strengthen the long-term quality of the business, partner ecosystem concentration, targeted R&D investment, and infrastructure support for AI-driven discovery. We are also incorporating a more cautious view of second-half new account bookings, reflecting continued softness and B2C replatforming activity and a broader software spending environment that remains measured. For Q3 2021, we are working with the U.S. we expect revenue between 82.5 million and 85.5 million, and non-GAAP operating income between 3.3 million and 5.3 million. For the full year 2026, we are updating our outlook, reflecting revenue between 336.5 million and $344.5 million, and finally, non-GAAP operating income between $28 million and $34 million. Let me cover the factors behind our updated guidance in a bit more detail. As Travis discussed, we have decided to concentrate our efforts on a smaller number of deeper, healthier technology partner relationships. The ones we believe create the best merchant outcomes and the most durable aligned economics for commerce. In the near term, that means we will forego some partner revenue we would have captured under our prior approach. We're doing this because we believe that revenue was less durable. than the revenue we expect to generate over time through product intelligence, payments, data services, AI-driven discovery, and a more curated partner ecosystem. This does not mean we are limiting choice for our merchants. We remain open and composable. This is a controlled management-led decision that we believe will improve merchant outcomes and the long-term quality of our revenue base. We are also taking a more cautious view of new account bookings in the second half of the year, particularly in areas of the market where B2C replatforming activity remains subdued and customers continue to evaluate how AI affects longer-term technology decisions. We believe the updated outlook is prudent and gives us a foundation from which to execute in the second half of the year. Our current guidance represents an $18 million reduction in revenue at the midpoint compared with our prior outlook, reflecting roughly an even mix between our deliberate partner ecosystem decision and a prudent new account bookings assumption. Our updated non-GAAP operating income outlook represents a $12.5 million reduction at the midpoint, reflecting a $12.5 million reduction in revenue at the midpoint. including the revenue adjustment, as well as targeted R&D investment and higher infrastructure costs associated with AI-driven discovery, which is partially offset by additional operating efficiencies. We continue to see healthy engagement in our strategic areas of focus, particularly B2B, payments, surface, and AI-driven discovery. But the broader software spending environment remains uneven. Sale cycles remain scrutinized, and we believe it is prudent to reflect that environment in our updated outlook rather than assume a sharper second-half recovery. Our incremental product investment is targeted at specific parts of our roadmap, B2B, big commerce payments, AI and agentic capabilities, MakeSwift, and feedonomics surface. These are the areas we believe most directly drive attach rates, retention, and monetization over time. Our non-GAAP gross margin came down sequentially from 77.4% in Q1 to 75.7% in Q2. The primary driver was higher hosting costs to support merchant storefronts, largely due to an increase in traffic from AI crawlers and agents indexing and retrieving product data from our merchant sites. We believe keeping access open is the right decision for our merchants today, because this traffic reflects real and growing demand from the AI surfaces where product discovery increasingly happens. We view this traffic as valuable, not incidental. While it creates incremental cost in the near term, we believe it is the right long-term decision, particularly given the operational efficiencies we have generated elsewhere in the business. Importantly, these decisions are being made from a position of operational strength. We have continued to identify efficiencies across the business and have already redirected those savings towards these strategic investments, allowing us to absorb a meaningful portion of these incremental costs within our updated outlook. To be clear, our long-term financial objectives have not changed. Our near-term path, however, is different from what we previously anticipated. We now expect lower new account bookings in the second half of the year, less revenue from portions of the partner ecosystem, and higher targeted infrastructure in our investment. We believe these changes establish a more prudent operating baseline while preserving our ability to invest in the areas with the greatest long-term monetization potential. We also continue to make good progress with BigCommerce payments. Since launch, merchant adoption has been strong, with GMV running more than 30% ahead of our internal plans. Based on these early results, we have begun expanding availability to select performance plan merchants in the United States. We remain on track for a UK launch later this year, and we continue to enhance the platform with additional payments methods and value-added services. While still early, we are encouraged by both adoption and monetization trends. Let me close with a few reasons we remain confident in commerce's trajectory. GMV growth remains strong, reflecting the health and scale of our platform. NRR is trending in the right direction, with three consecutive quarters of sequential improvement and a clear roadmap of cross-sell and monetization initiatives ahead of us. We operate at approximately 360% of our business. $3.5 million in ARR, and we remain on track to deliver GAAP profitability for the full year. We believe that combination of disciplined execution and continued investment positions commerce for stronger monetization and more consistent growth over time.

With that operator, let's open it up for questions. We will now begin the question and answer session. this session we will allow one question and one follow-up per person. If you would like to ask a question please press star then the number one on your telephone keypad. Please To draw your question, press star 1 again. Our first question comes from the line of Scott Berg from Needham. Please go ahead.

Hi, everyone. Thanks for taking my questions here today. I just want to talk about the re-platforming environment, Travis. Obviously something took at least somewhat of a step down today versus nine days ago. I just wanted to maybe try to have you unpack what's, I guess, a little bit different in the last 90 days. commerce for an extremely long time. You obviously have a really strong background in space, What's driving the lower reply force today, do you think, because this is a short-term part of the cycle? We've seen historically last maybe, I don't know, six to 12 months, it's been kind of a multi-year, with the new wall face, just trying to help them understand, you know, what's different and what actually maybe powers them forward here.

Yes, I don't think it's killed it. It's a good question, Scott. Thanks for the question. It definitely hasn't killed it. We're seeing longer cycles. I think what's contributing to that, I won't opine on macro conditions because I think it would be conjecture, but I think AI most notably, what we're seeing in increased demand and some of the adjacent demand, agentically oriented products, I think is a leading factor to what's making maybe folks deliberate a little bit longer in some of the replatforming. They want to make sure that discoverability right now in agentic is front and center. And I think people have come to the conclusion that replatforming everything is not necessarily addressing that issue specifically. And so I just, Discovery is taking kind of front chair in what people are addressing, and as a result, as a byproduct, you're just seeing decisions take a little bit longer. I think people are evaluating how they themselves are going to leverage AI. I think upmarket, that might be doing more things internally, downmarket, it just might be making sure they get this right. seeing things drop completely out. You're just seeing decisions push, and you're just not seeing as much aggression to do that. And as we obviously get in the back half of the year now, with timing and holidays, obviously, that obviously usually softens this time of year as well, and why we're being a little bit prudent, obviously, in the numbers. Just given what we're shipping, the question is how quickly will people adopt with holiday prep and everything else going on. It's just hard to tell at this point.

Understood. Thank you. And then from a payments perspective, obviously it launched in the quarter and your commentary on initial traction seems to be positive. You're pressing out a little bit more, but I guess what have you seen in terms of wind rates? Is it improving maybe the pipeline, especially with the smaller customers out there, even though the reply forming's been a little bit soft, just any anecdotal evidence on, I don't know, GMB is trending higher, but anything from a competitive dynamic that you think is helping.

Yes, payments specifically, that has exceeded our expectations, quite frankly. Excited about that. I think we've been pretty deliberate about sort of a crawl, walk, run approach there that we've been transparent about since we launched it at the end of Q1. So that's very positive as far as the momentum and ahead of schedule. I think pipeline for us overall, I would describe it as healthy and concentrated where we're investing. B2B has been fantastic. I just alluded to payments earlier. We're seeing a lot of demand and efficacy from Surface, which we launched late last year, and then certainly product intelligence data enrichment, which we're launching next quarter. A tremendous amount of demand. We've been in beta for the last quarter or so on that with a lot of large merchants participating. So all of that's been really healthy. How quickly it monetizes in the second half of the year is still debatable. A lot of the product intelligence stuff is with some of the largest retailers and brand and manufacturers. in the world, so these are big, complicated, heavily matrixed organizations, which is exciting, but at the same time, hard to predict how quickly things get digested and implemented. And Scott, this is Daniel. I would add to that, like we said in our prepared remarks, we're tracking about 30% ahead of our internal targets in terms of GMV on the branded solution, which I think is really important. encouraging. We're seeing really good progress in terms of new accounts using our branded payment solution as well as existing accounts migrating. We've also been pleasantly surprised that some of our larger accounts actually opting to start using it as well, even though the initial versions of the product were very much focused on kind of more small businesses or maybe mid-market businesses as well. So I think that's an encouraging sign. We're about to launch in the UK as well. And then also, very importantly, we're continuing to evaluate what the next phases are in what we're doing in payments. This is very much kind of like a still very low-risk model booked on a net basis. We're going to continue to evaluate what's... the next evolution in that roadmap looks like going into next year. The underlying growth in GMB on the platform is really high. The revenue growth needs to get closer to the underlying platform growth, and this is a very, very big area of focus for us to help close that gap.

Thank you for taking my questions. Our next question comes from the line of Ken Wong from Oppenheimer. Please go ahead.

Fantastic, thanks for taking my question. Travis, I wanted to circle back on the kind of the cautious customer bookings commentary. Yes, it sounds like the way you guys are framing it is maybe it's a bit more of a push out than lost deals. I guess one, I wanted to confirm that. Is there anything changing in terms of your win rates? And then second, you guys did make that pricing tweak that was effective June 1st. I guess any reason to think that there's some correlation there? pushback from customers, any potential turn events that we should be aware of?.

No, thanks for the question, Ken. Good question. I'll unpack the first part of it. I'll turn it over to Daniel. As far as win rates, close rates, no. I would say it's actually ticked up in some segments, but no. There's been nothing material there. As far as win-loss, nothing material there at all. I've said this on earnings, I think the last two quarters, You can check me on that. Maybe it's been three quarters. We've seen some softness in B2C replatforming for a while for us. And we're seeing longer, a bit longer cycles there with evidence that, again, evaluations are taking a little bit longer. People are being a little bit more deliberate about what's going on. They don't always give rationale for it. Maybe it's macro, maybe it's internal things and optics for them internally. But yes, I think that's on the B2C replatforming side is where the softness is. We've seen no material change on B2B or product intelligence, some of the other things that we're doing. It's really been very specific to the B2C. platform, re-platforming. And then I'll turn it to Daniel on the, on the packaging changes. Yes, I can, uh, to the, your question on pricing, we have not seen any indication that the action that we took on pricing has had any effect on pipeline or conversion or anything else. Um, The pricing action, just kind of as a reminder for everybody on the call, it was very small in terms of the amount of ARR in our business that was actually even impacted by that. Any customer on a negotiated agreement, which is the lion's share of our ARR, had no effect whatsoever from that at all. It was really more geared towards our small business plans, and even then it was more more of a change in discount slopes and how we went after payments. So from a price elasticity perspective and how it's affecting pipeline, we're not seeing any effect from that whatsoever. This is really much more macro-driven and in particular in B2C.

Our next question comes from the line of DJ Hines from Canaccord.

Hey guys, thank you. Travis, Shopify talked a lot about catalog yesterday and the importance of that product and the shift towards agentic, which I think feeds into your product intelligence thesis. Can you just remind us the difference between what they're doing with catalog and what you have with feedonomics? And then, Daniel, the follow up to you would be how fast is feedonomics growing and how bad is it?.