UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________ to __________
Commission File Number:
(Exact Name of Registrant as Specified in its Charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of November 5, 2024, the registrant had
Table of Contents
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Page |
PART I. |
2 |
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Item 1. |
2 |
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Condensed Consolidated Balance Sheets as of September 30, 2024 and December 31, 2023 |
2 |
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3 |
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4 |
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5 |
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7 |
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8 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
27 |
Item 3. |
41 |
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Item 4. |
41 |
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PART II. |
43 |
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Item 1. |
43 |
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Item 1A. |
43 |
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Item 2. |
44 |
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Item 3. |
44 |
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Item 4. |
45 |
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Item 5. |
45 |
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Item 6. |
45 |
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46 |
i
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
BigCommerce Holdings, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
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September 30, |
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December 31, |
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2024 |
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2023 |
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(unaudited) |
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Assets |
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Current assets |
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Cash and cash equivalents |
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$ |
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$ |
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Restricted cash |
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Marketable securities |
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Accounts receivable, net |
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Prepaid expenses and other assets, net |
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Deferred commissions |
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Total current assets |
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Property and equipment, net |
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Operating lease, right-of-use-assets |
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Prepaid expenses, net of current portion |
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Deferred commissions, net of current portion |
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Intangible assets, net |
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Goodwill |
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Total assets |
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$ |
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$ |
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Liabilities and stockholders’ equity |
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Current liabilities |
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Accounts payable |
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$ |
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$ |
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Accrued liabilities |
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Deferred revenue |
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Current portion of operating lease liabilities |
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Other current liabilities |
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Total current liabilities |
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Convertible notes |
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Operating lease liabilities, net of current portion |
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Other long-term liabilities, net of current portion |
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Total liabilities |
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Stockholders’ equity |
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Common stock |
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Additional paid-in capital |
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Accumulated other comprehensive income |
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Accumulated deficit |
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( |
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( |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
2
BigCommerce Holdings, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)
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For the three months ended September 30, |
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For the nine months ended September 30, |
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2024 |
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2023 |
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2024 |
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2023 |
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Revenue |
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$ |
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$ |
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$ |
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$ |
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Cost of revenue (1) |
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Gross profit |
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Operating expenses: (1) |
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Sales and marketing |
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Research and development |
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General and administrative |
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Amortization of intangible assets |
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Acquisition related costs |
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Restructuring charges |
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Total operating expenses |
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Loss from operations |
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( |
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( |
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( |
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( |
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Gain on convertible note extinguishment |
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Interest income |
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Interest expense |
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( |
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( |
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( |
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( |
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Other expense |
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( |
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( |
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( |
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( |
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Loss before provision for income taxes |
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( |
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( |
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( |
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( |
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Provision for income taxes |
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( |
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( |
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( |
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( |
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Net loss |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Basic net loss per share |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Shares used to compute basic net loss per share |
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(1)
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For the three months ended September 30, |
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For the nine months ended September 30, |
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2024 |
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2023 |
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2024 |
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2023 |
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Cost of revenue |
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$ |
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$ |
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$ |
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$ |
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Sales and marketing |
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Research and development |
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General and administrative |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
3
BigCommerce Holdings, Inc.
Condensed Consolidated Statements of Comprehensive Loss
(in thousands)
(unaudited)
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Three months ended September 30, |
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Nine months ended September 30, |
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2024 |
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2023 |
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2024 |
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2023 |
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Net loss |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Other comprehensive income (loss): |
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Net unrealized gain on marketable securities |
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Total comprehensive loss |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
4
BigCommerce Holdings, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(in thousands)
(unaudited)
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For the three and nine months ended September 30, 2024 |
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Common Stock |
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Additional |
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Accumulated |
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Accumulated |
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Stockholders’ |
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Shares |
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Amount |
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Capital |
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Deficit |
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Income/ (Loss) |
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Equity |
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Balance at December 31, 2023 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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Proceeds from exercise of stock options |
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Release of restricted stock units |
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( |
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( |
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Stock-based compensation |
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0 |
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Total other comprehensive loss |
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0 |
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( |
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( |
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Net loss |
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0 |
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( |
) |
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( |
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Balance at March 31, 2024 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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Proceeds from exercise of stock options |
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$ |
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$ |
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Release of restricted stock units |
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Issuance of common stock as consideration for an acquisition |
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Stock-based compensation |
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0 |
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Total other comprehensive loss |
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0 |
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( |
) |
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( |
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Net loss |
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0 |
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( |
) |
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( |
) |
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Balance at June 30, 2024 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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Proceeds from exercise of stock options |
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$ |
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$ |
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$ |
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$ |
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$ |
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Release of restricted stock units |
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( |
) |
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( |
) |
||||
Stock-based compensation |
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0 |
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Total other comprehensive income |
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0 |
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Net loss |
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0 |
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( |
) |
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( |
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Balance at September 30, 2024 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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$ |
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5
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For the three and nine months ended September 30, 2023 |
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Common Stock |
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Additional |
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Accumulated |
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Accumulated |
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Stockholders’ |
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Shares |
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Amount |
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Capital |
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Deficit |
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Income/ (Loss) |
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Equity |
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Balance at December 31, 2022 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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Proceeds from exercise of stock options |
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Release of restricted stock units |
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( |
) |
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( |
) |
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Stock-based compensation |
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0 |
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Total other comprehensive income |
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0 |
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Net loss |
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0 |
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( |
) |
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( |
) |
|||
Balance at March 31, 2023 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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Proceeds from exercise of stock options |
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$ |
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$ |
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$ |
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$ |
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$ |
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Release of restricted stock units |
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( |
) |
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( |
) |
||||
Stock-based compensation |
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0 |
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Total other comprehensive loss |
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0 |
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( |
) |
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( |
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Net loss |
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0 |
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( |
) |
|
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( |
) |
|||
Balance at June 30, 2023 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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Proceeds from exercise of stock options |
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$ |
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$ |
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$ |
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$ |
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$ |
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||||||
Release of restricted stock units |
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( |
) |
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( |
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||||
Issuance of common stock as consideration for an acquisition |
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Stock-based compensation |
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0 |
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Total other comprehensive income |
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0 |
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Net loss |
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0 |
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( |
) |
|
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( |
) |
|||
Balance at September 30, 2023 |
|
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$ |
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|
$ |
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$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
BigCommerce Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
||||||||||
|
2024 |
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2023 |
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2024 |
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2023 |
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||||
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Cash flows from operating activities |
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Net loss |
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
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Depreciation and amortization expense |
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Amortization of discount on convertible note |
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Amortization of convertible note premium |
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( |
) |
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( |
) |
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Stock-based compensation expense |
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Provision for expected credit losses |
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|
( |
) |
|
|
|
|
|
|
|||
Impairment loss |
|
|
|
|
|
|
|
|
|
|
|
||||
Gain on lease modification |
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Gain on convertible note extinguishment |
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Other |
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
||||
Accounts receivable |
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
||
Prepaid expenses |
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Deferred commissions |
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Accounts payable |
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Accrued and other liabilities |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Deferred revenue |
|
|
|
|
|
|
|
|
|
|
|
||||
Net cash provided by (used in) operating activities |
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
||||
Cash paid for acquisition |
|
|
|
|
|
|
( |
) |
|
|
|||||
Purchase of property and equipment |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Maturity of marketable securities |
|
|
|
|
|
|
|
|
|
|
|
||||
Purchase of marketable securities |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Net cash provided by investing activities |
|
|
|
|
|
|
|
|
|
|
|
||||
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
||||
Proceeds from exercise of stock options |
|
|
|
|
|
|
|
|
|
|
|
||||
Taxes paid related to net share settlement of stock options |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Proceeds from financing obligation |
|
|
|
|
|
|
|
|
|
|
|
||||
Payment of convertible note issuance costs |
|
( |
) |
|
|
|
|
( |
) |
|
|
||||
Repayment of convertible notes and financing obligation |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Net cash provided by (used in) financing activities |
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Net change in cash and cash equivalents and restricted cash |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Cash and cash equivalents and restricted cash, beginning of period |
|
|
|
|
|
|
|
|
|
|
|
||||
Cash and cash equivalents and restricted cash, end of period |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
||||
Cash paid for interest |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Cash paid for taxes |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Noncash investing and financing activities: |
|
|
|
|
|
|
|
|
|
|
|
||||
Capital additions, accrued but not paid |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Fair value of shares issued as consideration for acquisition |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Principal amount of 2028 Convertible Notes exchanged |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
BigCommerce Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
1. Overview
BigCommerce Holdings, Inc. (the “Company”) is leading a new era of ecommerce. The Company’s software-as-a-service (“SaaS”) platform simplifies the creation of engaging online stores by delivering a unique combination of ease-of-use, enterprise functionality, and flexibility. The Company empowers both its customers’ branded ecommerce stores and their cross-channel connections to popular online marketplaces, social networks, and offline point-of-sale systems.
The Company empowers businesses to turn digital transformation into a competitive advantage, and allows merchants to build their ecommerce solution their way with the flexibility to fit their unique business and product offerings. The Company provides a comprehensive platform for launching and scaling an ecommerce operation, including store design, catalog management, hosting, checkout, order management, reporting, and pre-integration into third-party services like payments, shipping, and accounting. All of the Company’s stores run on a single code base and share a global, multi-tenant architecture purpose built for security, high performance, and innovation. The Company’s platform serves stores in a wide variety of sizes, product categories, and purchase types, including business-to-consumer and business-to-business.
On September 30, 2024, the Board of Directors of the Company notified Brent Bellm that his employment as the Company’s Chief Executive Officer was terminated. Subsequent to September 30, 2024, the Board appointed Travis Hess, previously President of the Company, to succeed Mr. Bellm as the Company’s Chief Executive Officer, effective October 1, 2024. Concurrently, the Board elected Mr. Hess as a director of the Company, to fill the vacancy created by Mr. Bellm’s departure.
Additionally, subsequent to September 30, 2024, the Board appointed Ellen F. Siminoff as Executive Chair of the Board. Prior to her appointment as Executive Chair, Ms. Siminoff served as a director of the Company since February 2020 and will continue to serve as Director. The Executive Chair is a newly-created role and in this role, Ms. Siminoff will provide leadership and direction to the Board and work with the Company’s Chief Executive Officer.
References in these condensed consolidated financial statements to “we”, “us”, “our”, the “Company”, or “BigCommerce” refer to BigCommerce Holdings, Inc. and its subsidiaries, unless otherwise stated.
2. Summary of significant accounting policies
There have been no significant changes from the significant accounting policies disclosed in Note 2 of the "Notes to Consolidated Financial Statements" included in our Annual Report on Form 10-K filed with the SEC on February 29, 2024 (our "Annual Report").
Basis of presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information.
In the opinion of management, the accompanying interim unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments, consisting of normal, recurring adjustments, necessary for a fair presentation. Certain information and disclosures normally included in the notes to the annual consolidated financial statements prepared in accordance with GAAP have been omitted from these interim unaudited condensed consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, these interim unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the accompanying notes for the fiscal year ended December 31, 2023, which are included in our Annual Report. The results of operations for the three and nine months ended September 30, 2024, are not necessarily indicative of the results to be expected for the year ending December 31, 2024, or for any other period.
Basis of consolidation
The accompanying condensed consolidated financial statements include the Company’s accounts and the accounts of the Company’s wholly-owned subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation.
The Company’s fiscal year ends on December 31. References to “fiscal 2024,” for example, refer to the fiscal year ended December 31, 2024.
8
Use of estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires the Company’s management to make estimates and assumptions in the Company’s consolidated financial statements and notes thereto.
Significant estimates and assumptions made by management in these consolidated financial statements include:
Because of the use of estimates inherent in financial reporting process actual results could differ and the differences could be material to the Company’s consolidated financial statements.
Recent accounting pronouncements not yet adopted
ASU 2023-07, Segment Reporting (Topic 280)
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. ASU 2023-07 requires all public entities, including those public entities that have a single reportable segment to disclose significant segment expenses and other segment items on an annual and interim basis and to provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually. Additionally, it requires a public entity to disclose the title and position of the individual or the name of the group or committee identified as the chief operating decision maker (“CODM”). ASU 2023-07 is effective for the Company’s fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company has assessed the impact of this standard and does not expect it to have a material impact on the consolidated financial statements.
ASU 2023-09, Income Taxes (Topic 740)
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ASU 2023-09 requires all entities to provide more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. The amendments in this Update also eliminate requirements such as (1) the disclosure of the nature and estimate of the range of the reasonably possible change in the unrecognized tax benefits balance in the next 12 months, (2) or making a statement that an estimate of the range cannot be made, and (3) the disclosure of the cumulative amount of each type of temporary difference when a deferred tax liability is not recognized because of the exceptions to comprehensive recognition of deferred taxes related to subsidiaries and corporate joint ventures. Lastly, the amendments in this Update replace the term ‘public entity’ as currently used in Topic 740 with the term ‘public business entity’. ASU 2023-09 is effective for the Company’s fiscal years beginning after December 15, 2024. The Company is currently assessing the impact this standard will have on the Company but does not expect it to have a material impact on the consolidated financial statements.
Other accounting standard updates effective for interim and annual periods beginning after December 31, 2023 are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.
Segments
The Company’s CODM is the chief executive officer (CEO). The Company’s chief executive officer reviews the financial information presented on a consolidated basis for purposes of making operating decisions, allocating resources, and evaluating financial performance. Accordingly, the Company has determined that it operates as a single operating and reportable segment.
Revenue recognition
Subscription solutions
Subscription solutions revenue consists primarily of platform subscription fees from all plans and recurring professional services. Subscription solutions are charged monthly, quarterly, or annually for the Company’s customers to sell their products and process transactions on the Company’s platform. Subscription solutions are generally charged per online store and are based on the store’s subscription plan. Monthly subscription fees for enterprise plans are adjusted if a customer’s gross merchandise volume (“GMV”) or orders processed are above specified plan thresholds on a trailing twelve-month basis. For most subscription solutions arrangements, excluding enterprise subscription plans, the Company has determined the Company meets the variable consideration allocation
9
exception and, therefore, recognizes fixed monthly fees or a pro-rata portion of quarterly or annual fees and any transaction fees as revenue in the month they are earned. The Company utilizes a pricing structure that provides a discount to the contractual price for customers who pay quarterly or annually. The total subscription fee is recognized on a straight-line basis over the term of the contract. In determining the amount of revenue to be recognized, the Company determines whether collection of the entire transaction price is probable. Only amounts deemed probable are recognized as revenue. Key factors in this determination are historical contract termination rates and general economic factors.
Subscription revenue includes revenue from Feedonomics. Feedonomics provides a technology platform and related services that enables online retailers and other sellers to automate online listings of the sellers’ information across multiple third-party marketplaces and advertisers (such as Amazon, Alphabet, Meta, etc.). The Company provides these services under service contracts which are generally one year or less, and in many cases month-to-month. These service types may be sold stand-alone or as part of a multi-service bundle (e.g. both marketplaces and advertising). Services are performed and fees are determined based on monthly usage and are billed in arrears.
Professional services, which primarily consist of education packages, launch services, solutions architecting, implementation consulting, and catalog transfer services, are generally billed and recognized as revenue when delivered.
Contracts with the Company’s retail customers are generally month-to-month, while contracts with the Company’s enterprise customers generally range from to
Partner and services
The Company’s partner and services revenue includes revenue share, partner technology integrations, and marketing services provided to partners. Revenue share relates to fees earned by the Company’s partners from customers using the Company’s platform, where the Company has an arrangement with such partners to share such fees as they occur. Revenue share is recognized at the time the earning activity is complete, which is generally monthly and variable based on customer usage on the platform. Revenue for partner technology integrations is recorded on a straight-line basis over the life of the contract commencing when the integration has been completed. Revenue for marketing services are recognized either at the time the earning activity is complete, or ratably over the length of the contract, depending on the nature of the obligations in the contract. Payments received in advance of services being rendered are recorded as deferred revenue and recognized when the obligation is completed.
The Company also derives revenue from the sales of website themes and applications upon delivery.
The Company recognizes partner revenue share on a net basis as the Company has determined that the Company is the agent in the Company’s arrangements with third-party application providers. All other revenue is recognized on a gross basis, as the Company has determined the Company is the principal in these arrangements.
Contracts with multiple performance obligations
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment.
The Company’s subscription contracts are generally comprised of a single performance obligation to provide access to the Company’s platform, but can include additional performance obligations. For contracts with multiple performance obligations where the contracted price differs from the standalone selling price (“SSP”) for any distinct good or service, the Company may be required to allocate the contract’s transaction price to each performance obligation using the Company’s best estimate of SSP. Judgment is required to determine the SSP for each distinct performance obligation. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The primary method used to estimate SSP is the observable prices of products or services sold or priced separately in comparable circumstances to similar customers.
Contracts with the Company’s technology solution partners may include multiple performance obligations, which can include integrations and marketing activities. In determining whether integration services are distinct from hosting services the Company considers various factors. These considerations include the level of integration, interdependency, and interrelation between the implementation and hosting services. The Company has concluded that the integration services included in contracts with hosting obligations are not distinct. As a result, the Company defers any arrangement fees for integration services and recognizes such amounts over the life of the hosting obligation commencing when the integration has been completed. To determine if marketing activities are distinct, the Company considers the nature of the promise in the contract, the timing of payment, and the partner expectations. Additional consideration for some partner contracts varies based on the level of customer activity on the platform. Certain agreements contain minimum guarantees of revenue share. These contracts are evaluated to determine if the guaranteed minimum is substantive. If the minimum is deemed substantive, revenue is recognized ratably over the life of the agreement. For most
10
of the Company’s contracts, the Company has determined the variable consideration allocation exception has been met and therefore variable fees are recognized in the period they are earned.
The timing of revenue recognition, billings and cash collections can result in billed accounts receivable, unbilled receivables, contract assets, and deferred revenue.
Contract assets
Billings scheduled to occur after the performance obligation has been satisfied and revenue recognition has occurred result in contract assets. Contract assets are recorded on the condensed consolidated balance sheets at the end of each reporting period in Prepaid expenses and other assets, net. Typically, contract assets arise from agreements that have tiered billings over the contract life, promotional billing periods, and partner and services revenue agreements that include substantive minimums. Net contract assets were $
The Company is exposed to credit losses primarily through sales of products and services to customers and partners. The Company assesses the collectability of outstanding contract assets on an ongoing basis and maintains a reserve which is included in the allowance for credit losses for contract assets deemed uncollectible. The Company analyzes the contract asset portfolio for significant risks by considering historical collection experience and forecasting future collectability to determine what will ultimately be collected from its customers and partners, delinquency level and customer type have been identified as the primary specific risk affecting the Company’s contract assets, and the estimate for losses is analyzed annually and adjusted as necessary. The Company has provisioned $
Deferred revenue
Deferred revenue primarily consists of amounts that have been received from customers in advance of the performance obligation being satisfied. The Company recognizes revenue from deferred revenue when the services are performed and the corresponding revenue recognition criteria are met. Amounts recognized from deferred revenue represent primarily revenue from the sale of subscription solutions, integration, and marketing services. The Company recognized $
Remaining performance obligation
As of September 30, 2024, the Company had $
Remaining performance obligation consisted of the following:
(in thousands) |
|
Current |
|
|
Noncurrent |
|
|
Total |
|
|||
As of September 30, 2024 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
As of September 30, 2023 |
|
|
|
|
|
|
|
|
|
|||
Cost of revenue
Cost of revenue consists primarily of personnel-related costs, including: stock-based compensation expenses for customer support and professional services personnel; costs of maintaining and securing infrastructure and platform; allocation of overhead costs and credit card processing fees; and amortization expense associated with capitalized internal-use software.
Accounts receivable
Accounts receivable are stated at net realizable value and include both billed and unbilled receivables. Accounts receivable are net of an allowance for credit losses, are not collateralized, and do not bear interest. Payment terms range from
The Company assesses the collectability of outstanding accounts receivable on an ongoing basis and maintains an allowance for credit losses for accounts receivable deemed uncollectible. The Company analyzes grouped customers by similar risk profiles, along with the invoiced accounts receivable portfolio and unbilled accounts receivable for significant risks, historical collection activity, and
11
an estimate of future collectability to determine the amount that the Company will ultimately collect. This estimate is analyzed annually and adjusted as necessary.
Identified risks pertaining to the Company’s invoiced accounts receivable include the delinquency level and customer type. The estimate of the amount of accounts receivable that may not be collected is based on aging of the accounts receivable balances, historical customer delinquency, and assessment of the overall portfolio and general economic conditions.
The allowance for credit losses consisted of the following:
(in thousands) |
|
|
|
|
Balance at December 31, 2023 |
|
$ |
|
|
Provision for expected credit losses |
|
|
|
|
Write-offs charged against the allowance |
|
|
( |
) |
Balance at March 31, 2024 |
|
$ |
|
|
Provision for expected credit losses |
|
|
|
|
Write-offs charged against the allowance |
|
|
( |
) |
Balance at June 30, 2024 |
|
$ |
|
|
Provision for expected credit losses |
|
|
|
|
Write-offs charged against the allowance |
|
|
( |
) |
Balance at September 30, 2024 |
|
$ |
|
|
Stock-based compensation
The Company issues stock options ("options"), restricted stock units (“RSUs”) and performance based restricted stock units (“PSUs”) to employees.
The Company values stock options using the Black-Scholes option-pricing model at the date of grant and recognizes the related stock-based compensation expense on a straight-line basis over the service period, net of estimated forfeitures, which is typically
The Company values RSUs at the closing market price on the date of grant. RSUs typically vest in equal installments over a
The Company grants PSUs which provide for shares of common stock to be earned based on the Company's total stockholder return compared to the Russell 2000 index, and referred to as market-based awards. The Company values these market-based awards on the grant date using the Monte Carlo simulation model. The determination of fair value is affected by the Company's stock price and a number of assumptions including the expected volatility and the risk-free interest rate. The Company assumes no dividend yield and recognizes stock-based compensation expense ratably from grant date over the performance period of the award. The market-based awards will cliff-vest at the end of the
The Company also grants PSUs which provide for shares of common stock to be earned based on its attainment of the Company's adjusted earnings before interest, taxes, depreciation and amortization (“adjusted EBITDA”) and revenue relative to a target specified in the applicable agreement, and are referred to as Company performance-based awards. The Company values these awards at the closing market price on the date of grant. The vesting of Company performance-based awards is conditioned upon the achievement of certain targets and will vest in
Restructuring charges
Costs to restructure certain internal operations are accounted for as one-time termination and exit costs. A liability for a cost associated with restructuring activities is recognized and measured at its estimated fair value in our condensed consolidated balance sheet in the period the liability is incurred. All costs relating to restructurings are recorded as "Restructuring charges" in the condensed consolidated statement of operations.
The Company recognizes employee severance costs when payments are probable and amounts are estimable or when notification occurs, depending on whether the severance costs paid are part of the Company’s general plan. When estimating the fair value of facility restructuring activities, assumptions are applied regarding estimated sub-lease payments to be received, which can differ
12
materially from actual results. This may require us to revise our initial estimates which may materially affect our condensed consolidated results of operations and financial position in the period the revision is made. Costs related to contracts without future benefit or contract termination are recognized at the earlier of the contract termination or the cease-use dates. Additionally, restructuring charges include considerations of various capital alternatives or changes in business activities which include expenses related to our change in go-to-market strategy, asset abandonment costs, accelerated depreciation, software impairments, professional services, and other costs.
3. Revenue recognition and deferred costs
Revenue recognition
The Company’s source of revenue consists of subscription solutions fees and partner and services fees. These services allow customers to access the Company’s hosted software over the contract period. The customer is not allowed to take possession of the software or transfer the software. The Company’s revenue arrangements do not contain general rights of refund in the event of cancellations.
Disaggregation of revenue
The following table disaggregates revenue by major source:
|
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
||||||||||
(in thousands) |
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Subscription solutions |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Partner and services |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Revenue by geographic region was as follows:
|
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
||||||||||
(in thousands) |
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Americas – United States |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Americas – other (1) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
EMEA |
|
|
|
|
|
|
|
|
|
|
|
|
||||
APAC |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
(1)Americas-other revenue includes revenue from North and South America, other than the U.S.
Revenue by geographical region is determined based on the region of the customers’ bill-to address. Revenue attributed to the United States was
Deferred commissions
Certain sales commissions earned by the Company’s go-to-market teams are considered incremental and recoverable costs of obtaining a contract with a customer. The Company amortizes deferred sales commissions ratably over the average customer life which is
Sales commissions of $
13
Deferred commission amortization expense was $
4. Fair value measurements
Financial instruments carried at fair value include cash and cash equivalents, restricted cash and marketable securities (see note 9. for convertible notes fair value).
For assets and liabilities measured at fair value, fair value is the price to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. When determining fair value, the Company considers the principal or most advantageous market in which it would transact, and assumptions that market participants would use when pricing asset or liabilities.
The accounting standard for fair value establishes a fair value hierarchy based on three levels of inputs, the first two of which are considered observable and the last unobservable. The standard requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
The three levels of inputs that may be used to measure fair value are as follows:
The following table presents information about the Company’s cash equivalents, and marketable securities that were measured at fair value as of September 30, 2024 and December 31, 2023:
|
|
As of September 30, 2024 |
|
|||||||||||||
(in thousands) |
|
Quoted Prices in |
|
|
Significant Other |
|
|
Significant |
|
|
Total Fair Value |
|
||||
Cash equivalents (1): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market mutual funds & cash equivalents |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Marketable securities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Corporate bonds |
|
|
|
|
|
|
|
|
|
|
||||||
U.S. treasury securities |
|
|
|
|
|
|
|
|
|
|
||||||
Agency bonds |
|
|
|
|
|
|
|
|
|
|
||||||
Total marketable securities |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
(1)
|
|
As of December 31, 2023 |
|
|||||||||||||
(in thousands) |
|
Quoted Prices in |
|
|
Significant Other |
|
|
Significant |
|
|
Total Fair Value |
|
||||
Cash equivalents (1): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market mutual funds & cash equivalents |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Marketable securities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Corporate bonds |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. treasury securities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Commercial paper |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Agency bonds |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total marketable securities |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
(1)
14
of cash, as of December 31, 2023.
The contractual maturities of the investments classified as marketable securities were as follows:
(in thousands) |
|
As of September 30, 2024 |
|
|
As of December 31, 2023 |
|
||
Due within 1 year |
|
$ |
|
|
$ |
|
||
Due in 1 year through 2 years |
|
|
|
|
|
|
||
Total marketable securities |
|
$ |
|
|
$ |
|
||
The following tables summarize the gains, losses, and estimated fair value of cash equivalents, and marketable securities as of September 30, 2024 and December 31, 2023:
|
|
As of September 30, 2024 |
|
|||||||||||||
(in thousands) |
|
Amortized Cost |
|
|
Gross |
|
|
Gross |
|
|
Estimated |
|
||||
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market mutual funds & cash equivalents |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Marketable securities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Corporate bonds |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
U.S. treasury securities |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Agency bonds |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Total marketable securities |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
|
|
As of December 31, 2023 |
|
|||||||||||||
(in thousands) |
|
Amortized Cost |
|
|
Gross |
|
|
Gross |
|
|
Estimated |
|
||||
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market mutual funds & cash equivalents |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Marketable securities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Corporate bonds |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
U.S. treasury securities |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Commercial paper |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Agency bonds |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Total marketable securities |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
5. Business combinations
Acquisition of Makeswift
In October 2023, the Company acquired all issued and outstanding stock of Makeswift, Inc. (“Makeswift”) pursuant to a merger agreement. Makeswift is a leading visual editor for Next.js websites.
(in thousands) |
|
Amount |
|
|
Base purchase price |
|
$ |
|
|
plus: Closing cash |
|
|
|
|
minus: Deferred compensation |
|
|
( |
) |
Total purchase consideration(1) |
|
$ |
|
|
(1) Of the total purchase consideration, $
15
The table below summarizes the fair value of the assets acquired and liabilities assumed in the Makeswift acquisition, at acquisition date:
(in thousands) |
|
October 31, 2023 |
|
|
Tangible assets acquired |
|
$ |
|
|
Right-of-use asset |
|
|
|
|
Intangible assets acquired |
|
|
|
|
Liabilities assumed |
|
|
( |
) |
Deferred tax liability(1) |
|
|
( |
) |
Lease liability |
|
|
( |
) |
Net assets acquired, excluding goodwill |
|
$ |
|
|
Total purchase consideration |
|
$ |
|
|
Goodwill(1) |
|
$ |
|
|
(1) Measurement period adjustments of $
The fair value of identifiable intangible assets acquired at the date of the acquisitions is as follows:
(in thousands) |
|
Fair value |
|
|
Useful life (in years) |
|
||
Developed technology |
|
$ |
|
|
|
|
||
Customer relationships |
|
|
|
|
|
|
||
Tradename |
|
|
|
|
|
|
||
Total acquisition-related intangible assets |
|
$ |
|
|
|
|
||
The $
As part of the Makeswift merger agreement, $
6. Goodwill and intangible assets
Goodwill represents the excess of the purchase price in a business combination over the fair value of net tangible and intangible assets acquired.
Goodwill amounts are not amortized but tested for impairment on an annual basis or more often when circumstances indicate that goodwill may not be recoverable. There was
Intangible assets are amortized on a straight-line basis over the useful life. Intangible assets amortization was $
16
|
|
September 30, 2024 |
|
|
December 31, 2023 |
|
|
|
|
|||||||||||||||||||
(in thousands) |
|
Gross amount |
|
|
Accumulated amortization |
|
|
Net carrying amount |
|
|
Gross amount |
|
|
Accumulated amortization |
|
|
Net carrying amount |
|
|
Weighted average remaining useful life as of September 30, 2024 (in years) |
|
|||||||
Developed technology |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
|
|
|||||
Customer relationships |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||||
Tradename |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||||
Non-compete agreement |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
||||||
Other intangibles |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||||
Total intangible assets |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
|
|
|||||
As of September 30, 2024, expected amortization expense for intangible assets was as follows:
(in thousands) |
|
September 30, 2024 |
|
|
Remaining three months of 2024 |
|
$ |
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
Thereafter |
|
|
||
Total |
|
$ |
|
|
7. Commitments, contingencies, leases, and restructuring charges
Legal proceedings
From time to time, the Company may become involved in legal proceedings arising in the ordinary course of its business. In general, the resolution of a legal matter could prevent the Company from offering its service to others, could be material to the Company’s financial condition or cash flows, or both, or could otherwise adversely affect the Company’s reputation and future operating results.
In the ordinary course of business, the Company makes a provision for a liability relating to legal matters when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, estimated settlements, legal rulings, advice of legal counsel and other information and events pertaining to a particular matter. The outcomes of legal proceedings and other contingencies are, however, inherently unpredictable and subject to significant uncertainties. The Company is not presently a party to any legal proceedings that, if determined adversely to the Company, would have a material adverse effect on the Company’s condensed consolidated financial statements.
Purchase obligations
The Company has contractual commitments for services with third-parties related to hosting and internal software systems. These commitments are non-cancellable and expire within to
(in thousands) |
|
September 30, 2024 |
|
|
Remaining three months of 2024 |
|
$ |
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 and thereafter |
|
|
||
Total |
|
$ |
|
|
Leases
The Company leases certain facilities under operating lease agreements that expire at various dates through
17
Operating expense relating to leases was $
The future maturities of operating lease liabilities are as follows:
(in thousands) |
|
As of September 30, 2024 |
|
|
Remaining three months of 2024 |
|
$ |
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
Thereafter |
|
|
|
|
Total minimum lease payments |
|
$ |
|
|
Less imputed interest |
|
|
( |
) |
Total lease liabilities |
|
$ |
|
|
Restructuring charges
In September 2024, the Company commenced a restructuring plan (the “2024 Restructure”) intended to reinvest in product delivery and increase sales capacity, to reduce operating costs, improve operating margins and continue to advance the Company's ongoing commitment to profitable growth. The 2024 Restructure includes a reduction of the Company's workforce, exits of certain office leases, impairment of certain software development projects and contract amendments and terminations to better align operating expenses with existing economic conditions and the Company's strategic priorities. In connection with the 2024 Restructure, the Company incurred $
In September 2024, the Company executed the early lease termination clause (the "Lease Termination") for its corporate headquarters in Austin, Texas that resulted in a one-time lease termination fee of approximately $
The 2024 Restructure included the decision to cease use of the Company's existing leased office space in San Francisco and made such office space available for sublease in August 2024. As a result, the Company impaired approximately $
The Company previously implemented certain business transformation initiatives, including moving certain operations to an integrated technology platform. As part of the 2024 Restructure, the Company determined certain costs related to these initiatives will not be recoverable which resulted in an impairment of capitalized internal use software costs of $
In June 2024, the Company started incurring restructuring charges, related to its capital structure and various alternatives associated with inbound inquiries and interest in the Company. These charges include such items as professional services and other related costs. As of September 30, 2024, the Company has incurred approximately $
In September 2023, the Company commenced a restructuring plan (the “2023 Restructure”) which included a reduction of the Company’s workforce intended to advance the Company’s ongoing commitment to profitable growth. In fiscal 2024, the Company made payments of $
18
2023 Restructure. As of September 30, 2024, a liability for severance benefits of approximately $
The following table summarizes the activities related to the Company's restructurings charges:
|
As of September 30, 2024 |
|
|
As of December 31, 2023 |
|
||||||||||||||||||||||||||
(in thousands) |
Workforce reduction |
|
|
Impairment Costs and Lease Termination |
|
|
Other Restructuring Charges (1) |
|
|
Total |
|
|
Workforce reduction |
|
|
Impairment Costs and Lease Reassessment |
|
|
Other Restructuring Charges |
|
|
Total |
|
||||||||
Liability, beginning of the period |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Additional charges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Impairment loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Gain on lease termination |
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Payments |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
||
Non-cash items |
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
||||
Liability, end of the period |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
(1) Other restructuring charges of $
8. Other liabilities
The following table summarizes the components of other current liabilities:
|
|
As of September 30, |
|
|
As of December 31, |
|
||
(in thousands) |
|
2024 |
|
|
2023 |
|
||
Sales tax payable |
|
$ |
|
|
$ |
|
||
Payroll and payroll related expenses |
|
|
|
|
|
|
||
Acquisition related compensation |
|
|
|
|
|
|||
Restructuring related charges |
|
|
|
|
|
|
||
Short-term financing obligation |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Other current liabilities |
|
$ |
|
|
$ |
|
||
9. Convertible Notes
The Company's convertible note obligations, including the level within the fair value hierarchy (see note 4. Fair Value Measurements), are as follows:
|
|
As of September 30, 2024 |
|
As of December 31, 2023 |
|
||||||||||||||||||||||||||
|
|
Outstanding Principal |
|
Unamortized convertible note premium and issuance costs |
|
Net Carrying Value |
|
Fair Value |
|
Outstanding Principal |
|
Unamortized convertible note premium and issuance costs |
|
Net Carrying Value |
|
Fair Value |
|
||||||||||||||
(in thousands) |
|
|
|
|
|
|
|
Amount |
|
Level |
|
|
|
|
|
|
|
Amount |
|
Level |
|
||||||||||
2028 Convertible Notes* |
|
$ |
|
$ |
|
$ |
|
$ |
|
|
3 |
|
$ |
|
$ |
|
$ |
|
$ |
|
|
|
|||||||||
2026 Convertible Notes** |
|
|
|
|
( |
) |
|
|
|
|
|
2 |
|
|
|
|
( |
) |
|
|
|
|
|
2 |
|
||||||
Total carrying value of convertible notes (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
(1) Included in “Convertible Notes” in the accompanying Condensed Consolidated Balance Sheets, is $
19
obligation
(*) The fair value was calculated using a binomial lattice model which incorporates the terms and conditions of the convertible notes and market-based risk measurement that are indirectly observable, such as market credit spread, and therefore are Level 3 investments. The lattice model produced an estimated fair value based on changes in the price of the underlying common share price over successive periods of time. An estimated yield based on market data was used to discount straight debt cash flows.
The following table presents details of the Company's convertible notes as of September 30, 2024, which are further discussed below:
|
|
Date of Issuance |
Maturity Date |
Contractual Interest Rate |
|
Outstanding Principal |
|
Conversion Rate for Each $1,000 Principal |
|
Initial Conversion Price per Share |
|
||||
2028 Convertible Notes |
|
August 2024 |
|
% |
$ |
|
$ |
|
$ |
|
|||||
2026 Convertible Notes |
|
September 2021 |
|
% |
$ |
|
$ |
|
$ |
|
|||||
The total interest expense recognized related to the Company’s convertible notes and financing obligation consists of the following:
|
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
||||||||||
(in thousands) |
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Contractual interest expense |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Amortization of premium and issuance costs |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
2028 Convertible Notes
In
The 2028 Convertible Notes are senior, initially unsecured obligations of the Company and accrue interest at a rate of
20
The Company may not redeem the 2028 Convertible Notes prior to October 7, 2026. The 2028 Convertible Notes will be redeemable, in whole or in part (subject to certain limitations), for cash at the Company’s option at any time, and from time to time, on or after October 7, 2026 and on or before the 25th scheduled trading day immediately before the maturity date, but only if the last reported sale price per share of the Company’s common stock exceeds 130 percent of the conversion price for a specified period of time and certain other conditions are satisfied. The redemption price will be equal to the principal amount of the 2028 Convertible Notes to be redeemed, plus accrued and unpaid interest, if any, up to, but excluding, the redemption date. In addition, calling any 2028 Convertible Note for redemption will constitute a Make-Whole Fundamental Change with respect to that 2028 Convertible Note, in which case the conversion rate applicable to the conversion of that 2028 Convertible Note will be increased in certain circumstances if it is converted after it is called for redemption. Pursuant to the Partial Redemption Limitation, the Company may not elect to redeem less than all of the outstanding 2028 Convertible Notes unless at least $
If a “fundamental change” (as defined in the indenture for the 2028 Convertible Notes) occurs, then, subject to a limited exception, noteholders may require the Company to repurchase their 2028 Convertible Notes for cash. The repurchase price will be equal to the principal amount of the 2028 Convertible Notes to be repurchased, plus accrued and unpaid interest, if any, up to, but excluding, the applicable repurchase date.
Upon entering into the Exchange Agreement, the Company recorded the $
2026 Convertible Notes
In
In August 2024, in addition to the Exchange Agreement, the Company entered into separate, privately negotiated repurchase agreements with a limited number of holders of its outstanding 2026 Convertible Notes to repurchase (the "Repurchase Transactions") approximately $
Following the Repurchase Transactions, approximately $
The remaining outstanding 2026 Convertible Notes will mature on
21
negotiated repurchases or exchanges of the notes if the yield to maturity of the notes is less than
The Company will settle conversions by paying or delivering, as applicable, cash, shares of its common stock or a combination of cash and shares of its common stock, at the Company’s election. The initial conversion rate of the remaining outstanding 2026 Convertible Notes is
The remaining outstanding 2026 Convertible Notes may be redeemed, in whole or in part (subject to certain limitations), for cash at the Company’s option at any time, and from time to time, on or before the 25th scheduled trading day immediately before the maturity date, but only if the last reported sale price per share of the Company’s common stock exceeds 130 percent of the conversion price on (i) each of at least
If a “fundamental change” (as defined in the indenture for the 2026 Convertible Notes) occurs, then, subject to a limited exception, noteholders may require the Company to repurchase their 2026 Convertible Notes for cash. The repurchase price will be equal to the principal amount of the remaining outstanding 2026 Convertible Notes to be repurchased, plus accrued and unpaid interest, if any, up to, but excluding, the applicable repurchase date.
The Company is in compliance with the terms of the indenture, and has not experienced any events that would constitute an Event of Default under the 2026 Convertible Notes.
2021 Capped Call Transactions
In connection with the pricing of the 2026 Convertible Notes, the Company used $
The Capped Call Transactions are generally expected to reduce potential dilution to holders of the Company’s common stock upon any conversion of the 2026 Convertible Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of the 2026 Convertible Notes upon conversion of the 2026 Convertible Notes in the event that the market price per share of the Company’s common stock is greater than the strike price of the Capped Call Transactions with such reduction and/or offset subject to a cap.
The Capped Call Transactions have an initial cap price of approximately $
The Capped Call Transactions do not meet the criteria for separate accounting as a derivative as they are indexed to the Company’s common stock. The premiums paid for the Capped Call Transaction have been included as a net reduction to additional paid-in capital within stockholders’ equity.
22
10. Stockholders’ equity
2020 Equity incentive plan
In 2020, the Company adopted the 2020 Equity Incentive Plan, or “2020 Plan”, under which stock options, stock appreciation rights, restricted stock, restricted stock units, performance-based restricted stock units and other cash-based or stock-based awards may be granted to employees, consultants and directors. Shares of common stock that are issued and available for issuance under the 2020 Plan consist of authorized, but unissued or reacquired shares of common stock or any combination thereof. The Company has granted awards of stock options, restricted stock units, and market-based and performance-based restricted stock units under the 2020 Plan.
A total of
Stock options
Stock options generally vest and become exercisable over a service period of
|
|
Nine months ended September 30, |
|
Nine months ended September 30, |
|
|
|
|
2024 |
|
2023 |
|
|
Weighted-average grant date fair value of options |
$ |
|
$ |
|
||
Risk-free interest rate |
|
|
|
|||
Expected volatility |
|
|
|
|||
Expected life in years |
|
|
|
|||
The Company estimated its future stock price volatility using a combination of its observed option-implied volatilities and its peer historical volatility calculations. Management believes this is the best estimate of the expected volatility over the expected life of its stock options. The estimated life for the stock options is based on the weighted average of the remaining vesting term and the remaining contractual life of each award. The risk-free interest rate is based on the rate for a U.S. government security with the same estimated life at the time of the option grant. The estimated forfeiture rate applied is based on historical forfeiture rates. The Company does not anticipate paying any cash dividends in the foreseeable future and therefore uses an expected dividend yield of zero in the option pricing model.
Stock option activity for the nine months ended September 30, 2024 was as follows: |
|
|||||||||||
|
|
|
|
|
|
|
|
|
|
|||
(in thousands) |
|
Outstanding |
|
|
Weighted-Average Exercise Price |
|
|
Aggregate Intrinsic Value |
|
|||
Balance as of December 31, 2023 |
|
|
|
|
$ |
|
|
$ |
|
|||
Options granted under all plans |
|
|
|
|
|
|
|
|
|
|||
Exercised |
|
|
( |
) |
|
|
|
|
|
|
||
Plan shares expired or canceled |
|
|
( |
) |
|
|
|
|
|
|
||
Balance as of September 30, 2024 |
|
|
|
|
$ |
|
|
$ |
|
|||
Vested and expected to vest |
|
|
|
|
$ |
|
|
$ |
|
|||
Exercisable as of September 30, 2024 |
|
|
|
|
$ |
|
|
$ |
|
|||
The expected stock-based compensation expense remaining to be recognized as of September 30, 2024 is $
Restricted stock units
23
Restricted stock unit activity for the nine months ended September 30, 2024 was as follows: |
|
|||||||||||
|
|
|
|
|
|
|
|
|
|
|||
(in thousands) |
|
Outstanding |
|
|
Grant Date Fair Value |
|
|
Aggregate Intrinsic Value |
|
|||
Balance as of December 31, 2023 |
|
|
|
|
$ |
|
|
$ |
|
|||
Granted – restricted stock units |
|
|
|
|
|
|
|
|
|
|||
Granted – market-based and performance-based restricted stock units |
|
|
|
|
|
|
|
|
|
|||
Canceled |
|
|
( |
) |
|
|
|
|
|
|
||
Vested and converted to shares |
|
|
( |
) |
|
$ |
|
|
$ |
|
||
Balance as of September 30, 2024 |
|
|
|
|
$ |
|
|
$ |
|
|||
Vested and expected to vest |
|
|
|
|
$ |
|
|
$ |
|
|||
The grant date fair value of the market-based awards was $
|
|
Nine months ended September 30, |
|
|
2024 |
Volatility |
|
|
Risk-free interest rate |
|
|
Dividend yield |
|
As of September 30, 2024,
The aggregate expected stock-based compensation expense remaining to be recognized as of September 30, 2024 is $
11. Income taxes
The income tax expense for the three and nine months ended September 30, 2024 is based on the estimated annual effective tax rate for fiscal 2024. The Company’s provision for income taxes is based on estimated effective tax rates derived from an estimate of annual consolidated earnings before taxes, adjusted for nondeductible expenses, other permanent items, valuation allowances, and any applicable income tax credits.
The Company’s provision for income taxes reflected an effective tax rate of (
For the three and nine months ended September 30, 2024 and 2023, the Company’s effective tax rate was lower than the U.S. federal statutory rate of
The Company has provided a valuation allowance against most of the Company’s deferred tax assets as it believes the objective and verifiable evidence of the Company’s historical pretax net losses outweighs any positive evidence of forecasted future results. The Company will continue to monitor the positive and negative evidence and will adjust the valuation allowance as sufficient objective positive evidence becomes available.
As of September 30, 2024, the Company had approximately $
24
12. Net loss per share
Basic net loss per share is computed by dividing net loss by the number of shares of common stock outstanding for the period. Because the Company has reported a net loss for the three and nine months ended September 30, 2024, and 2023, the number of shares used to calculate diluted net loss per share is the same as the number of shares used to calculate basic net loss per share for the period presented because the potentially dilutive shares would have been antidilutive if included in the calculation.
|
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
||||||||||
(in thousands) |
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net loss per share available to shareholders |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average shares outstanding |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Net loss per share |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
The following potentially dilutive securities outstanding have been excluded from the computation of basic weighted-average shares outstanding because such securities have an antidilutive impact due to losses reported:
|
|
As of September 30, |
|
|||||
(in thousands) |
|
2024 |
|
|
2023 |
|
||
Stock options outstanding |
|
|
|
|
|
|
||
Restricted stock units |
|
|
|
|
|
|
||
Acquisition related compensation |
|
|
|
|
|
|
||
Convertible notes |
|
|
|
|
|
|
||
Total potentially dilutive securities |
|
|
|
|
|
|
||
25
Special note regarding forward-looking statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1993, as amended (“the Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Any statements about our expectations, beliefs, plans, predictions, forecasts, objectives, assumptions, or future events or performance are not historical facts and may be forward-looking. These statements are often, but not always, made through the use of words or phrases such as “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “ongoing,” “plan,” “potential,” “predict,” “project,” “should,” “will,” and similar words or phrases. These forward-looking statements include statements concerning the following:
Although we believe the expectations reflected in these forward-looking statements are reasonable, these statements are not guarantees of future performance and involve risks and uncertainties which are subject to change based on various important factors, some of which are beyond our control. For more information regarding these risks and uncertainties as well as certain additional risks that we face, refer to “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K filed with the SEC on February 29, 2024 (our "Annual Report") and “Risk Factors,” in this Quarterly Report on Form 10-Q as well as factors more fully described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report on Form 10-Q.
If one or more of the factors affecting the expectations reflected in our forward-looking information and statements proves incorrect, our actual results, performance, or achievements could differ materially from those expressed in, or implied by, forward-looking information and statements. Therefore, we caution the reader not to place undue reliance on any forward-looking information or statements. The effect of these factors is difficult to predict. Factors other than these also could adversely affect our results, and the reader should not consider these factors to be a complete set of all potential risks or uncertainties. New factors emerge from time to time, and management cannot assess the impact of any such factor on our business or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statement. Any forward-looking statements only speak as of the date of this document, and we undertake no obligation to update any forward-looking information or statements, whether written or oral, to reflect any change, except as required by law. All forward-looking statements attributable to us are expressly qualified by these cautionary statements.
26
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. In addition to historical condensed consolidated financial information, the following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report on Form 10-Q, particularly in “Risk Factors.” See “Special Note Regarding Forward-Looking Statements.”
Investors and others should note that we announce material financial information to our investors using our investor relations website (investors.bigcommerce.com), SEC filings, press releases, public conference calls and webcasts. We intend to use our investor relations website as a means of disclosing information about our business, our financial condition and results of operations and other matters and for complying with our disclosure obligations under Regulation FD. The information we post on our investor relations website, including information contained in investor presentations, may be deemed material. Accordingly, investors should monitor our investor relations website, in addition to following our press releases, SEC filings and public conference calls and webcasts.
Overview
BigCommerce is leading a new era of ecommerce. Our SaaS platform simplifies the creation of online stores by delivering a unique combination of ease-of-use, enterprise functionality, composability and flexibility. We allow merchants to build their ecommerce solution their way with the flexibility to fit their unique business and product offerings. We power both our customers’ branded ecommerce stores and their cross-channel connections to popular online marketplaces, social networks, and offline point of sale systems. Our strategy is to provide the world’s best combination of freedom of choice and flexibility in a multi-tenant SaaS platform. We describe this strategy as “Open SaaS.” As of September 30, 2024 we served 5,892 accounts with at least one unique enterprise plan subscription or an enterprise-level feed management subscription (collectively “enterprise accounts”). These accounts may have more than one Enterprise plan or a combination of Enterprise plans and Essentials plans.
We provide a comprehensive platform for launching and scaling an ecommerce operation, including store design, catalog management, hosting, checkout, order management, reporting, and pre-integration into third-party services like payments, shipping, and accounting. All of our stores run on a single code base and share a global, multi-tenant architecture purpose built for security, high performance, and innovation. Our platform serves stores in a wide variety of sizes, product categories, and purchase types, including B2C and B2B.
We offer access to our platform on a subscription basis. We serve customers with subscription plans tailored to their size and feature needs. For our larger customers, our Enterprise plan offers our full feature set at a subscription price tailored to each business. For small and medium business ("SMBs"), we offer three retail plans: Standard, Plus, and Pro, priced at $29, $79, and $299 per month (our “Essentials” plans) when pre-paid annually, or $39, $105, and $399 per month (our “Essentials plans”), when paid monthly, respectively. Our Essentials plans include GMV thresholds with programmatic upgrades built in as merchants exceed each plan’s threshold.
Our differentiated Open SaaS technology approach combines the flexibility and customization potential of open source software with the performance, security, usability, and value benefits of multi-tenant SaaS. This combination helps businesses turn digital transformation into competitive advantage. While some software conglomerate providers attempt to lock customers into their proprietary suites, we focus on the configurability and flexibility of our open platform, enabling each business to optimize their ecommerce approach based on their specific needs.
Partners are essential to our open strategy. We believe we possess one of the deepest and broadest ecosystems of integrated technology solutions in the ecommerce industry. We strategically partner with, rather than compete against, the leading providers in adjacent categories, including payments, shipping, point of sale, content management system, customer relationship management, and enterprise resource planning. We focus our research and development investments in our core product to create a best-of-breed ecommerce platform and co-market and co-sell with our strategic technology partners to our mutual prospects and customers. As a result, we earn high-margin revenue share from a subset of our strategic technology partners, which complements the high gross margin of our core ecommerce platform.
Our business has achieved significant growth since our inception. We plan to continue to invest in our “Open SaaS” strategy, building new partnerships and continuing to develop a platform that offers best-of-breed functionality with the cost-effectiveness of multi-tenant SaaS. As we work to develop and deliver this platform for our customers, we will also invest and grow our business by acquiring additional customers to our platform, growing our revenue with existing customers, cross-selling owned and partner solutions to existing customers, expanding our presence in new markets and geographies, and considering targeted acquisitions that can enhance our service to customers.
27
Key factors affecting our performance
Our operational and financial results have been, and will continue to be, affected by a number of factors that present significant opportunities as well as risks and challenges, including those discussed below and elsewhere in this quarterly report and in our Annual Report, particularly in Part I, Item 1A, “Risk Factors” The key factors discussed below impacted our 2023 results or are anticipated to impact our future results.
“Go-to-Market” Strategy
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. We centralized end to end customer success ownership under our Company's Chief Executive Officer, Travis Hess. Mr. Hess oversees all go-to-market efforts across the business, including the platform product, Feedonomics, and partner and services revenue. Additionally, we appointed Ms. Siminoff as Executive Chair of the Board to work with Mr. Hess and other members of the Company's executive team to provide, among other things, strategic expertise, leadership, and direction to the Board and senior management.
We continue to advance efficient revenue growth by ensuring investments spent in our go-to-market strategy yield greater returns for our customers and for us. We are focusing on brand architecture and integration and product strategy to shape our strategy moving forward:
We have made strategic organizational changes that will allow us to scale efficiently to support these initiatives as described below in our results of operations.
Macroeconomic environment and customer spend
Consumer spending remains resilient across our major markets. We are encouraged overall by the underlying consumption signals that we are seeing in our business.
2024 Restructure
As discussed in Note 7 to our condensed consolidated financial statements, on September 30, 2024, we committed to a restructuring plan (the "2024 Restructure") intended to reinvest in product delivery and increase sales capacity, reduce operating costs, improve operating margins and continue to advance our commitment to profitable growth. The 2024 Restructure includes a reduction of our workforce, exits of certain office leases, impairment of certain software development projects and contract amendments and terminations to better align operating expenses with existing economic conditions and the Company’s strategic priorities. Affected employees were notified on November 7, 2024, and are being provided severance arrangements.
We anticipate to incur additional expense related to the 2024 Restructure of approximately $3.5 million to $5.7 million through fiscal 2025 relating to severance benefits, contract terminations, accelerated depreciation, right-of-use asset impairments, software impairments, and professional services costs. The additional expenses we expect to incur are subject to assumptions, and actual expenses may differ from the estimates disclosed above.
Business metrics
We review the following business metrics to measure our performance, identify trends affecting our business, formulate business plans, and make strategic decisions. Increases or decreases in our business metrics may not correspond with increases or decreases in our revenue. As an example, some of our business metrics include annual revenue run-rate (“ARR”), subscription annual revenue run-rate (“Subscription ARR”), average revenue per account, lifetime value (“LTV”) to customer acquisition costs (“CAC”) and others are calculated as of the end of the last month of the reporting period.
28
Annual revenue run-rate
We calculate ARR at the end of each month as the sum of: (1) contractual monthly recurring revenue at the end of the period, which includes platform subscription fees, invoiced growth adjustments, product feed management subscription fees, recurring professional services revenue, and other recurring revenue, multiplied by twelve to prospectively annualize recurring revenue, and (2) the sum of the trailing twelve-month non-recurring and variable revenue, which includes one-time partner integrations, one-time fees, payments revenue share, and any other revenue that is non-recurring and variable.
Subscription annual revenue run-rate
We calculate Subscription ARR at the end of each month as the sum of contractual monthly recurring revenue at the end of the period, which includes platform subscription fees, invoiced growth adjustments, product feed management subscription fees, recurring professional services revenue, and other recurring revenue, multiplied by twelve to prospectively annualize recurring revenue.
Average revenue per account
We calculate average revenue per account (“ARPA”) at the end of a period by including customer-billed revenue and an allocation of partner and services revenue, where applicable. We bill customers for subscription solutions and professional services, and we include both in ARPA for the reported period. For example, ARPA as of September 30, 2024, includes all subscription solutions and professional services billed between January 1, 2024, and September 30, 2024. We allocate partner revenue, where applicable, primarily based on each customer’s share of GMV processed through that partner’s solution. Partner revenue that is not directly linked to customer usage of a partner’s solution is allocated based on each customer’s share of total platform GMV. Each account’s partner revenue allocation is calculated by taking the account’s trailing twelve-month partner revenue, then dividing by twelve to create a monthly average to apply to the applicable period in order to normalize ARPA for seasonality.
Enterprise Account metrics
To measure the effectiveness of our ability to execute against our growth strategy, particularly within the mid-market and enterprise lines of business, we calculate ARR attributable to Enterprise Accounts.
The chart below illustrates certain of our key business metrics as of the periods ended:
|
|
September 30, |
|
|
June 30, |
|
|
March 31, |
|
|
December 31, |
|
|
September 30, |
|
|||||
ARR (in thousands) |
|
$ |
347,787 |
|
|
$ |
345,832 |
|
|
$ |
340,147 |
|
|
$ |
336,541 |
|
|
$ |
332,245 |
|
Subscription ARR (in thousands) |
|
$ |
263,933 |
|
|
$ |
263,526 |
|
|
$ |
258,566 |
|
|
$ |
256,412 |
|
|
$ |
256,518 |
|
Enterprise Account metrics: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Number of Enterprise Accounts |
|
|
5,892 |
|
|
|
5,961 |
|
|
|
5,970 |
|
|
|
5,994 |
|
|
|
5,951 |
|
ARR attributable to Enterprise Accounts (in thousands) |
|
$ |
256,893 |
|
|
$ |
253,798 |
|
|
$ |
248,236 |
|
|
$ |
245,100 |
|
|
$ |
240,602 |
|
ARR attributable to Enterprise Accounts as a percentage of ARR |
|
|
74 |
|
|
|
73 |
|
|
|
73 |
|
|
|
73 |
|
|
|
72 |
|
Average Revenue Per Account |
|
$ |
43,600 |
|
|
$ |
42,576 |
|
|
$ |
41,581 |
|
|
$ |
40,891 |
|
|
$ |
40,431 |
|
Lifetime value to customer acquisition costs
We measure the efficiency of new customer acquisition by comparing the lifetime value of newly-acquired customers to the customer acquisition costs of the associated time period to get an “LTV:CAC ratio.” We calculate LTV as gross profit from new sales during the four quarters of any given year divided by the estimated future subscription churn rate.
Net revenue retention
We use net revenue retention (“NRR”) to evaluate our ability to maintain and expand our revenue with our account base of enterprise customers exceeding the ACV threshold over time. The total billings and allocated partner revenue, where applicable, for the measured period are divided by the total billings and allocated partner revenue for such accounts, corresponding to the period one year prior. An NRR greater than 100 percent implies positive net revenue retention. This methodology includes stores added to or subtracted from an account’s subscription during the previous twelve months. It also includes changes to subscription and partner and services revenue billings, and revenue reductions from stores or accounts that leave the platform during the previous one-year period. Net new accounts added after the previous one-year period are excluded from our NRR calculations. NRR for enterprise accounts was 100 percent and 111 percent for the years ended December 31, 2023 and 2022, respectively. We update our reported NRR at the end of each fiscal year and do not report quarterly changes in NRR.
29
Components of results of operations
Revenue
We generate revenue from two sources: (1) subscription solutions revenue and (2) partner and services revenue.
Subscription solutions revenue consists primarily of platform subscription fees from plans and recurring professional services. Subscription solutions are charged monthly, quarterly, or annually for our customers to sell their products and process transactions on our platform. Subscription solutions are generally charged per online store and are based on the store’s subscription plan. Our Enterprise plan contracts are generally for a fixed term of 12 to 36 months and are non-cancelable. Our pricing strategy provides enterprise merchants a discount for a period of time from their contractual monthly. Merchants have full access to the functionality of our platform upon contract execution, and revenue is recognized ratably over the contract life. Our retail plans are generally month-to-month contracts. Monthly subscription fees for Enterprise plans are adjusted if a customer’s GMV or orders processed are outside of specified plan thresholds on a trailing twelve-month basis. Fixed monthly fees and any transaction charges related to subscription solutions are recognized as revenue in the month they are earned.
Through Feedonomics, we provide feed management solutions under service contracts which are generally one year or less and, in many cases, month-to-month. These service types may be sold stand-alone or as part of a multi-service bundle (e.g. both marketplaces and advertising) and are billed monthly in arrears.
We generate partner revenue from our technology application ecosystem. Customers tailor their stores to meet their feature needs by integrating applications developed by our strategic technology partners. We enter into contracts with our strategic technology partners that are generally for one year or longer. We generate revenue from these contracts in three ways: (1) revenue-sharing arrangements, (2) technology integrations, and (3) partner marketing and promotion. We recognize revenue on a net basis from revenue-sharing arrangements when the underlying transaction occurs.
We also generate revenue from non-recurring professional services that we provide to complement the capabilities of our customers and their agency partners. Our services help improve customers’ time-to-market and the success of their businesses using BigCommerce. Our non-recurring services include education packages, launch services, solutions architecting, implementation consulting, and catalog transfer services.
Cost of revenue
Cost of revenue consists primarily of: (1) personnel-related costs (including stock-based compensation expense and associated payroll costs) for our customer success teams, (2) costs that are directly related to hosting and maintaining our platform, (3) fees for processing customer payments such as credit card processing charges, (4) personnel and other costs related to feed management, and (5) allocated costs, such as, depreciation, technology and facility costs.
As a result of our growth plans and integration of our previously acquired businesses, we have incurred expenses for equity and amortization of purchased intangibles.
Sales and marketing
Sales and marketing expenses consist primarily of: (1) personnel-related expenses (including stock-based compensation expense and associated payroll costs), (2) sales commissions, (3) marketing programs, (4) travel-related expenses, and (5) allocated overhead sales and support costs such as technology and facility costs. We focus our sales and marketing efforts on creating sales leads and establishing and promoting our brand. We plan to increase our investment in sales and marketing by executing our go-to-market strategy globally and building our brand awareness. Incremental sales commissions for new customer contracts are deferred and amortized ratably over the estimated period of our relationship with such customers.
Research and development
Research and development expenses consist primarily of personnel-related expenses (including stock-based compensation expense and associated payroll costs) incurred in maintaining and developing enhancements to our ecommerce platform and allocated overhead costs. Software development costs associated with internal use software which are incurred during the application development phase and meet other requirements are capitalized.
We believe delivering new functionality is critical to attracting new customers and enhancing the success of existing customers. We expect to continue to make investments in research and development.
30
General and administrative
General and administrative expenses consist primarily of: (1) personnel-related expenses (including stock-based compensation expense and associated payroll costs) for finance, legal and compliance, and human resources, (2) external professional services, and (3) allocated overhead costs, such as technology and facility costs.
Acquisition related expenses
Acquisition related expenses consists of cash payments for third-party acquisition costs and other acquisition related expenses, including contingent compensation arrangements entered into in connection with acquisitions.
Restructuring charges
Restructuring charges consist primarily of severance payments, right-of-use asset impairments, lease termination gain, software impairments, and professional services costs.
Amortization of intangible assets
Amortization of intangible assets consist of amortization of acquired intangible assets which were recognized as a result of business combinations and are being amortized over their expected useful life.
Gain on convertible notes extinguishment
Gains recorded net of proportionate share of unamortized debt issuance costs and certain third party transaction costs relate to the repurchase transactions of the 2026 Convertible Notes and exchange transaction of the 2026 Convertible Notes for the 2028 Convertible Notes.
Interest income
Interest income is earned on our cash, cash equivalents and marketable securities.
Interest expense
Interest expense consists primarily of the interest expense from the amortization of the debt issuance costs and coupon interest attributable to our 2028 and 2026 Convertible Notes with offsetting amortization of the debt premium related to the 2028 Convertible Notes, as well as interest associated with a financing agreement entered into in the first half of 2023.
Other expense
Other expense primarily consists of foreign currency translation adjustments.
Provision for income taxes
Our provision for income taxes consists primarily of deferred income taxes associated with amortization of tax deductible goodwill and current income taxes related to certain foreign and state jurisdictions in which we conduct business. For U.S. federal income tax purposes and in certain foreign and state jurisdictions, we have NOL carryforwards. The foreign jurisdictions in which we operate have different statutory tax rates than those of the United States. Additionally, certain of our foreign earnings may also be currently taxable in the United States. Accordingly, our effective tax rate will vary depending on the relative proportion of foreign to domestic income, use of foreign tax credits, changes in the valuation of our deferred tax assets and liabilities, applicability of any valuation allowances, and changes in tax laws in jurisdictions in which we operate.
31
Results of operations
The following table summarizes our historical consolidated statement of operations data. The period-to-period comparison of operating results is not necessarily indicative of results for future periods.
|
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
|
(in thousands) |
|
|||||||||||||
Revenue |
|
$ |
83,710 |
|
|
$ |
78,045 |
|
|
$ |
245,899 |
|
|
$ |
225,245 |
|
Cost of revenue (1) |
|
|
19,863 |
|
|
|
19,054 |
|
|
|
58,113 |
|
|
|
55,256 |
|
Gross profit |
|
|
63,847 |
|
|
|
58,991 |
|
|
|
187,786 |
|
|
|
169,989 |
|
Operating expenses: (1) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Sales and marketing |
|
|
33,140 |
|
|
|
36,253 |
|
|
|
99,997 |
|
|
|
105,898 |
|
Research and development |
|
|
20,841 |
|
|
|
21,703 |
|
|
|
61,116 |
|
|
|
63,951 |
|
General and administrative |
|
|
16,435 |
|
|
|
14,342 |
|
|
|
46,800 |
|
|
|
45,264 |
|
Amortization of intangible assets |
|
|
2,434 |
|
|
|
2,033 |
|
|
|
7,353 |
|
|
|
6,099 |
|
Acquisition related costs |
|
|
334 |
|
|
|
1,067 |
|
|
|
1,001 |
|
|
|
9,317 |
|
Restructuring charges |
|
|
9,880 |
|
|
|
5,795 |
|
|
|
12,452 |
|
|
|
6,215 |
|
Total operating expenses |
|
|
83,064 |
|
|
|
81,193 |
|
|
|
228,719 |
|
|
|
236,744 |
|
Loss from operations |
|
|
(19,217 |
) |
|
|
(22,202 |
) |
|
|
(40,933 |
) |
|
|
(66,755 |
) |
Gain on convertible note extinguishment |
|
|
12,110 |
|
|
|
0 |
|
|
|
12,110 |
|
|
|
0 |
|
Interest income |
|
|
2,433 |
|
|
|
3,059 |
|
|
|
8,807 |
|
|
|
8,310 |
|
Interest expense |
|
|
(1,908 |
) |
|
|
(721 |
) |
|
|
(3,348 |
) |
|
|
(2,165 |
) |
Other expense |
|
|
(142 |
) |
|
|
(301 |
) |
|
|
(585 |
) |
|
|
(333 |
) |
Loss before provision for income taxes |
|
|
(6,724 |
) |
|
|
(20,165 |
) |
|
|
(23,949 |
) |
|
|
(60,943 |
) |
Provision for income taxes |
|
|
(269 |
) |
|
|
(145 |
) |
|
|
(691 |
) |
|
|
(552 |
) |
Net loss |
|
$ |
(6,993 |
) |
|
$ |
(20,310 |
) |
|
$ |
(24,640 |
) |
|
$ |
(61,495 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
(1) Amounts include stock-based compensation expense and associated payroll tax costs, as follows:
|
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
|
(in thousands) |
|
|||||||||||||
Cost of revenue |
|
$ |
1,114 |
|
|
$ |
1,323 |
|
|
$ |
2,798 |
|
|
$ |
3,802 |
|
Sales and marketing |
|
|
3,327 |
|
|
|
3,626 |
|
|
|
8,332 |
|
|
|
10,059 |
|
Research and development |
|
|
3,766 |
|
|
|
4,124 |
|
|
|
10,515 |
|
|
|
11,570 |
|
General and administrative |
|
|
2,685 |
|
|
|
3,028 |
|
|
|
7,859 |
|
|
|
8,680 |
|
Revenue by geographic region
The composition of our revenue by geographic region during the three and nine months ended September 30, 2024 and September 30, 2023 were as follows:
|
|
Three months ended September 30, |
|
|
Change |
|
|
|
Nine months ended September 30, |
|
|
Change |
|
|
||||||||||||||||||||
|
|
2024 |
|
|
2023 |
|
|
Amount |
|
|
Percent |
|
|
|
2024 |
|
|
2023 |
|
|
Amount |
|
|
Percent |
|
|
||||||||
|
|
(dollars in thousands) |
|
|
||||||||||||||||||||||||||||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Americas – U.S. |
|
$ |
63,682 |
|
|
$ |
60,019 |
|
|
$ |
3,663 |
|
|
|
6.1 |
|
% |
|
$ |
187,249 |
|
|
$ |
172,374 |
|
|
$ |
14,875 |
|
|
|
8.6 |
|
% |
Americas – other (1) |
|
|
3,893 |
|
|
|
3,499 |
|
|
|
394 |
|
|
|
11.3 |
|
|
|
|
11,445 |
|
|
|
10,273 |
|
|
|
1,172 |
|
|
|
11.4 |
|
|
EMEA |
|
|
9,709 |
|
|
|
8,631 |
|
|
|
1,078 |
|
|
|
12.5 |
|
|
|
|
28,182 |
|
|
|
25,263 |
|
|
|
2,919 |
|
|
|
11.6 |
|
|
APAC |
|
|
6,426 |
|
|
|
5,896 |
|
|
|
530 |
|
|
|
9.0 |
|
|
|
|
19,023 |
|
|
|
17,335 |
|
|
|
1,688 |
|
|
|
9.7 |
|
|
Total Revenue |
|
$ |
83,710 |
|
|
$ |
78,045 |
|
|
$ |
5,665 |
|
|
|
7.3 |
|
% |
|
$ |
245,899 |
|
|
$ |
225,245 |
|
|
$ |
20,654 |
|
|
|
9.2 |
|
% |
32
(1)Americas-other revenue includes revenue from North and South America, other than the U.S.
Comparison of the three and nine months ended September 30, 2024 and 2023,
Revenue
The following table presents the components of our revenue for each of the periods indicated:
|
|
Three months ended September 30, |
|
|
Change |
|
|
|
Nine months ended September 30, |
|
|
Change |
|
|
||||||||||||||||||||
|
|
2024 |
|
|
2023 |
|
|
Amount |
|
|
Percent |
|
|
|
2024 |
|
|
2023 |
|
|
Amount |
|
|
Percent |
|
|
||||||||
|
|
(dollars in thousands) |
||||||||||||||||||||||||||||||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Subscription solutions |
|
$ |
62,826 |
|
|
$ |
58,709 |
|
|
$ |
4,117 |
|
|
|
7.0 |
|
% |
|
$ |
185,582 |
|
|
$ |
168,652 |
|
|
$ |
16,930 |
|
|
|
10.0 |
|
% |
Partner and services |
|
|
20,884 |
|
|
|
19,336 |
|
|
|
1,548 |
|
|
|
8.0 |
|
|
|
$ |
60,317 |
|
|
$ |
56,593 |
|
|
|
3,724 |
|
|
|
6.6 |
|
|
Total revenue |
|
$ |
83,710 |
|
|
$ |
78,045 |
|
|
$ |
5,665 |
|
|
|
7.3 |
|
% |
|
$ |
245,899 |
|
|
$ |
225,245 |
|
|
$ |
20,654 |
|
|
|
9.2 |
|
% |
Total revenue increased $5.7 million, or 7.3 percent, to $83.7 million for the three months ended September 30, 2024, from $78.0 million for the three months ended September 30, 2023, as a result of increases in both subscription solutions and partner and services revenue. Subscription solutions revenue increased $4.1 million, or 7.0 percent, to $62.8 million for the three months ended September 30, 2024, from $58.7 million for the three months ended September 30, 2023, primarily due to increases in enterprise, mid-market, and Feedonomics activity. Partner and services revenue increased $1.5 million, or 8.0 percent, to $20.9 million for the three months ended September 30, 2024, from $19.3 million for the three months ended September 30, 2023, primarily as a result of increases in revenue share offset by decreases in stand ready and integration activity.
Total revenue increased $20.7 million, or 9.2 percent, to $245.9 million for the nine months ended September 30, 2024 from $225.2 million for the nine months ended September 30, 2023, as a result of increases in both subscription solutions and partner and services revenue. Subscription solutions revenue increased $16.9 million or 10.0 percent, to $185.6 million for the nine months ended September 30, 2024, from $168.7 million for the nine months ended September 30, 2023, primarily due to growth in enterprise, mid-market, and Feedonomics activity. Partner and services revenue increased $3.7 million, or 6.6 percent, to $60.3 million for the nine months ended September 30, 2024 , from $56.6 million for the nine months ended September 30, 2023, primarily as a result of increases in in revenue share offset by decreases in stand ready and integration activity.
Cost of revenue, gross profit, and gross margin
|
|
Three months ended September 30, |
|
|
Change |
|
|
|
Nine months ended September 30, |
|
|
Change |
|
|
||||||||||||||||||||
|
|
2024 |
|
|
2023 |
|
|
Amount |
|
|
Percent |
|
|
|
2024 |
|
|
2023 |
|
|
Amount |
|
|
Percent |
|
|
||||||||
|
|
(dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Cost of revenue |
|
$ |
19,863 |
|
|
$ |
19,054 |
|
|
$ |
809 |
|
|
|
4.2 |
|
% |
|
$ |
58,113 |
|
|
$ |
55,256 |
|
|
$ |
2,857 |
|
|
|
5.2 |
|
% |
Gross profit |
|
|
63,847 |
|
|
|
58,991 |
|
|
|
4,856 |
|
|
|
8.2 |
|
|
|
|
187,786 |
|
|
|
169,989 |
|
|
|
17,797 |
|
|
|
10.5 |
|
|
Gross margin percentage |
|
|
76.3 |
|
|
|
75.6 |
|
|
|
|
|
|
|
|
|
|
76.4 |
|
|
|
75.5 |
|
|
|
|
|
|
|
|
||||
Cost of revenue increased $0.8 million, or 4.2 percent, to $19.9 million for the three months ended September 30, 2024, from $19.1 million for the three months ended September 30, 2023, primarily as a result of higher software costs and credit card processing fees of $0.9 million driven by associated increased in revenue. Gross margin increased to 76.3 percent from 75.6 percent, primarily as a result of cost cutting measures from the 2023 Restructure.
Cost of revenue increased $2.9 million, or 5.2 percent, to $58.1 million for the nine months ended September 30, 2024, from $55.3 million for the nine months ended September 30, 2023 primarily as a result of higher software costs and credit card processing fees of $3.0 million. Gross margin increased to 76.4 percent from 75.5 percent, primarily as a result of cost cutting measures from the 2023 Restructure.
We expect that cost of revenue will likely decrease in the near term as a percentage of revenue due to reductions in headcount related costs as a result of the 2024 Restructure, leading to improved gross margins.
33
Operating income (expenses)
Sales and marketing
|
|
Three months ended September 30, |
|
|
Change |
|
|
|
Nine months ended September 30, |
|
|
Change |
|
|
||||||||||||||||||||
|
|
2024 |
|
|
2023 |
|
|
Amount |
|
|
Percent |
|
|
|
2024 |
|
|
2023 |
|
|
Amount |
|
|
Percent |
|
|
||||||||
|
|
(dollars in thousands) |
||||||||||||||||||||||||||||||||
Sales and marketing |
|
$ |
33,140 |
|
|
$ |
36,253 |
|
|
$ |
(3,113 |
) |
|
|
(8.6 |
) |
% |
|
$ |
99,997 |
|
|
$ |
105,898 |
|
|
$ |
(5,901 |
) |
|
|
(5.6 |
) |
% |
Percentage of revenue |
|
|
39.6 |
|
|
|
46.5 |
|
|
|
|
|
|
|
|
|
|
40.7 |
|
|
|
47.0 |
|
|
|
|
|
|
|
|
||||
Sales and marketing expenses decreased $3.1 million, or (8.6) percent, to $33.1 million for the three months ended September 30, 2024 from $36.3 million for the three months ended September 30, 2023, primarily due to decreased variable marketing costs of $1.9 million, decreased salaries and share-based compensation expense of $0.8 million driven by cost cutting measures from the 2023 Restructure, and decreased professional services fees of $0.3 million. As a percentage of total revenue, sales and marketing expenses decreased to 39.6 percent from 46.5 percent, primarily as a result of cost cutting measures from the 2023 Restructure.
Sales and marketing expenses decreased $5.9 million or (5.6) percent, to $100.0 million for the nine months ended September 30, 2024 from $105.9 million for the nine months ended September 30, 2023, primarily due to lower variable marketing costs of $3.6 million, and decreased salaries and share-based compensation expense of $3.0 million driven by cost cutting measures from the 2023 Restructure. These decreases were partially offset by a $0.7 million increase in other expenses, such as software costs, contract services, and professional fees. As a percentage of total revenue, sales and marketing expenses decreased to 40.7 percent from 47.0 percent, primarily as a result of cost cutting measures from the 2023 Restructure.
We expect that sales and marketing expenses will slightly increase near term as we reinvest in sales resources as part of the 2024 Restructure, which we expect to be offset with anticipated future revenue growth.
Research and development
|
|
Three months ended September 30, |
|
|
Change |
|
|
|
Nine months ended September 30, |
|
|
Change |
|
|
||||||||||||||||||||
|
|
2024 |
|
|
2023 |
|
|
Amount |
|
|
Percent |
|
|
|
2024 |
|
|
2023 |
|
|
Amount |
|
|
Percent |
|
|
||||||||
|
|
(dollars in thousands) |
||||||||||||||||||||||||||||||||
Research and development |
|
$ |
20,841 |
|
|
$ |
21,703 |
|
|
$ |
(862 |
) |
|
|
(4.0 |
) |
% |
|
$ |
61,116 |
|
|
$ |
63,951 |
|
|
$ |
(2,835 |
) |
|
|
(4.4 |
) |
% |
Percentage of revenue |
|
|
24.9 |
|
|
|
27.8 |
|
|
|
|
|
|
|
|
|
|
24.9 |
|
|
|
28.4 |
|
|
|
|
|
|
|
|
||||
Research and development decreased $0.9 million, or (4.0) percent, to $20.8 million for the three months ended September 30, 2024 from $21.7 million for the three months ended September 30, 2023, due to the cost cutting measures from the 2023 Restructure. As a percentage of total revenue, research and development expenses decreased to 24.9 percent from 27.8 percent, primarily as a result of cost cutting measures from the 2023 Restructure.
Research and development decreased $2.8 million, or (4.4) percent, to $61.1 million for the nine months ended September 30, 2024 from $64.0 million for the nine months ended September 30, 2023, due to the cost cutting measures from the 2023 Restructure. As a percentage of total revenue, research and development expenses decreased to 24.9 percent from 28.4 percent, primarily as a result of cost cutting measures from the 2023 Restructure.
We expect that research and development expenses will likely decrease as a percentage of revenue in the near term primarily due to reductions in headcount related costs relating to the 2024 Restructure.
General and administrative
|
|
Three months ended September 30, |
|
|
Change |
|
|
|
Nine months ended September 30, |
|
|
Change |
|
|
||||||||||||||||||||
|
|
2024 |
|
|
2023 |
|
|
Amount |
|
|
Percent |
|
|
|
2024 |
|
|
2023 |
|
|
Amount |
|
|
Percent |
|
|
||||||||
|
|
(dollars in thousands) |
||||||||||||||||||||||||||||||||
General and administrative |
|
$ |
16,435 |
|
|
$ |
14,342 |
|
|
$ |
2,093 |
|
|
|
14.6 |
|
% |
|
$ |
46,800 |
|
|
$ |
45,264 |
|
|
$ |
1,536 |
|
|
|
3.4 |
|
% |
Percentage of revenue |
|
|
19.6 |
|
|
|
18.4 |
|
|
|
|
|
|
|
|
|
|
19.0 |
|
|
|
20.1 |
|
|
|
|
|
|
|
|
||||
General and administrative expenses increased $2.1 million, or 14.6 percent, to $16.4 million for the three months ended September 30, 2024, from $14.3 million for the three months ended September 30, 2023, primarily due to an increase of $1.2 million
34
in bad debt expense and an increase in professional service expenses of $0.9 million. As a percentage of total revenue, general and administrative expenses increased to 19.6 percent from 18.4 percent, primarily as a result of the increase in bad debt expense due to focused collections efforts for the three months ended September 30, 2023.
General and administrative expenses increased $1.5 million, or 3.4 percent, to $46.8 million for the nine months ended September 30, 2024 from $45.3 million for the nine months ended September 30, 2023, primarily due to a $1.8 million increase in bad debt expense, $0.9 million increase in professional services, and a $0.4 million increase in variable spend partially offset by $1.2 million decrease in insurance expense due to lower renewal rates. As a percentage of total revenue, general and administrative expenses decreased to 19.0 percent from 20.1 percent, primarily as a result of cost cutting measures from the 2023 Restructure.
We expect that general and administrative expenses will likely decrease as a percentage of revenue in the near term due to reductions in headcount related costs relating to the 2024 Restructure.
Acquisition related expenses
Acquisition related expense decreased $0.7 million, or (68.7) percent, to $0.3 million for the three months ended September 30, 2024, from $1.1 million for the three months ended September 30, 2023, and decreased $8.3 million, or 89.3 percent, to $1.0 million for the nine months ended September 30, 2024, from $9.3 million for the nine months ended September 30, 2023. Acquisition costs recognized for the three and nine months ended September 30, 2024 represent the amortization of deferred compensation for the Makeswift acquisition. Acquisition costs in prior years related to other transactions and acquisition costs for Feedonomics were recognized during the three and nine months ended September 30, 2023.
Restructuring charges
Restructuring charges were $9.9 million and $5.8 million for the three months ended September 30, 2024 and 2023, respectively, and were $12.5 million and $6.2 million for the nine months ended September 30, 2024 and 2023, respectively. The $9.9 million is a result of $6.9 million of severance and related charges, $2.1 million of capitalized software related charges due to impairment of software due to change in market strategy, $1.1 million of real estate related charges, $0.6 million of professional services related to our change in market strategy as described above in relation to the 2024 Restructure, and $0.2 million of professional services related to our capital structure and various alternatives associated with inbound inquiries partially offset by a $1.0 million gain on real estate modification. The charges for the three months and nine months ended September 30, 2023 were primarily related to charges from the 2023 Restructure which included a one time charge of $5.5 million resulting from severance and other related charges.
Gain on convertible note extinguishment
Gain on convertible note extinguishment was $12.1 million for the three months ended September 30, 2024. The $12.1 million consisted of a $10.4 million gain on the repurchase of 2026 Convertible Notes and $1.7 million gain on the exchange of 2028 Convertible Notes.
Interest income
Interest income decreased $0.7 million, or 20.5 percent, to $2.4 million for the three months ended September 30, 2024, from $3.1 million for the three months ended September 30, 2023. This decrease was primarily a result of lower cash, cash equivalents and marketable securities balance during the three months ended September 30, 2024 due to cash outflows for financing activities. Interest income increased $0.5 million, or 6.0 percent to $8.8 million for the nine months ended September 30, 2024 from $8.3 million for the nine months ended September 30, 2023. This increase was primarily a result of higher cash, cash equivalents and marketable securities balances for the nine months ended September 30, 2024
Interest expense
Interest expense was $1.9 million and $0.7 million for the three months ended September 30, 2024 and 2023, respectively, and was $3.3 million and $2.2 million for the nine months ended September 30, 2024 and 2023. The increase in interest expense for the three and nine months ended September 30, 2024 compared to the three and nine months ended September 30, 2023 was primarily a result of the issuance of the 2028 Convertible Notes that have a higher effective interest rate than the 2026 Convertible Notes.
Liquidity and capital resources
We are committed to cash flow generation and cash management by focusing on operational discipline, and we continue to evaluate all of our spending to look for opportunities to drive improvements in cash flow. Our success in transitioning our customer base from legacy month-to-month contracts to annual contracts has continued to result in better cash flow as these efforts have increased the timing of our cash receipts and reduced our overall subscription churn rate.
35
Our operational short-term liquidity needs primarily include working capital for sales and marketing, research and development, and continued innovation. Our future capital requirements will depend on many factors, including our growth rate, levels of revenue, the expansion of sales and marketing activities, market acceptance of our platform, the results of business initiatives including our efforts in transitioning our customers to annual billings, continued reduction in churn, the timing of new product introductions, the continued impact of the inflation on the global economy, market risk due to elevated interest rates, our business, financial condition, and results of operations.
We believe that our existing cash and cash equivalents and our cash flows from operating activities will be sufficient to meet our working capital and capital expenditure needs for at least the next twelve months. In the future, we may attempt to raise additional capital through the sale of additional equity or debt financing.
Additionally, with our convertible notes restructuring, there was a reduction in liquidity. However, we believe as a result of the renegotiation and extension of the remaining obligation, we have decreased our overall debt leverage and better optimized our maturities. The restructuring of the convertible notes requires semi-annual interest payments and increases our contractual interest rate to 7.50 percent.
From time to time, we may seek to repurchase, redeem or otherwise retire our convertible notes through cash repurchases and/or exchanges for equity securities, in open market repurchases, privately negotiated transactions, tender offers or otherwise. Such repurchases, redemptions or other transactions, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions, and other factors. The amounts involved may be material. We do not have any material off-balance sheet arrangements that we expect would materially affect our liquidity and capital resources.
Cash flows
The following table sets forth a summary of our cash flows for the periods indicated.
|
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
|
(in thousands) |
|
|||||||||||||
Net cash provided by (used in) operating activities |
|
$ |
5,573 |
|
|
$ |
(31,429 |
) |
|
$ |
13,894 |
|
|
$ |
(37,522 |
) |
Net cash provided by investing activities |
|
|
9,251 |
|
|
|
26,399 |
|
|
|
62,644 |
|
|
|
13,997 |
|
Net cash provided by (used in) financing activities |
|
|
(112,077 |
) |
|
|
285 |
|
|
|
(112,428 |
) |
|
|
1,381 |
|
Net decrease in cash, cash equivalents and restricted cash |
|
$ |
(97,253 |
) |
|
$ |
(4,745 |
) |
|
$ |
(35,890 |
) |
|
$ |
(22,144 |
) |
As of September 30, 2024, we had approximately $37.0 million in cash, cash equivalents, and restricted cash, a decrease of $33.9 million compared to $70.9 million as of September 30, 2023. Cash and cash equivalents consist of highly-liquid investments with original maturities of less than three months. Our restricted cash balance of $1.5 million and $1.1 million at September 30, 2024 and 2023, respectively, consisted of security deposits for future chargebacks and amounts on deposit with certain financial institutions. Our marketable securities balance of $133.0 million and $195.6 million at September 30, 2024 and 2023 respectively, consisted of investments in corporate and US treasury securities. We maintain cash account balances in excess of Federal Deposit Insurance Corporation (FDIC) insured limits.
Operating activities
Net cash provided by (used in) operating activities for the three months ended September 30, 2024 and 2023 was $5.6 million and ($31.4) million, respectively. This consisted primarily of our net losses adjusted for certain non-cash items including depreciation, amortization of intangible assets, convertible note premium and convertible note issuance costs amortization, stock-based compensation, bad debt expense, impairment losses, gains on settlement of lease liabilities, gain on extinguishment of convertible notes, and the effect of changes in working capital. The increase in cash flows provided by operating activities for the three months ended September 30, 2024 was driven by cost reductions associated with the 2023 Restructure and focus on reduction of variable spend.
Net cash provided by (used in) operating activities for the nine months ended September 30, 2024 and 2023 was $13.9 million and ($37.5) million respectively. This consisted primarily of our net losses adjusted for certain non-cash items including depreciation, amortization of intangible assets, convertible note premium and convertible note issuance costs amortization, stock-based compensation, bad debt expense, impairment losses, gains on settlement of lease liabilities, gain on extinguishment of convertible notes, and the effect of changes in working capital. The increase in cash flows provided by operating activities for the nine months ended September 30, 2024 was driven by cost reductions associated with the 2023 Restructure and focus on reduction of variable spend.
36
Investing activities
Net cash provided by investing activities during the three months ended September 30, 2024 and 2023 was $9.3 million and $26.4 million, respectively. For the three months ended September 30, 2024, this consisted primarily of the sale and maturity of marketable securities of $59.7 million offset by the purchase of property and equipment of $1.1 million and the purchase of marketable securities of $49.4 million. In the three months ended September 30, 2023, this consists primarily of the sale and maturity of marketable securities of $83.1 million and the purchases of property and equipment of $1.1 million and the purchase of marketable securities of $55.7 million.
Net cash provided by investing activities during the nine months ended September 30, 2024 and 2023 was $62.6 million and $14.0 million, respectively. In the nine months ended September 30, 2024, this consists primarily of the sale and maturity of marketable securities of $151.6 million offset by the purchase of property and equipment of $2.9 million and the purchase of marketable securities of $86.0 million. In the nine months ended September 30, 2023, this consists primarily of the sale and maturity of marketable securities of $206.2 million and the purchase of property and equipment of $3.1 million and the purchase of marketable securities of $189.1 million.
Financing activities
Net cash provided by (used in) financing activities during the three months ended September 30, 2024 and 2023 was ($112.1) million and $0.3 million, respectively. In the three months ended September 30, 2024, this was attributable to repayment of convertible notes and financing obligations of $108.7 million, payments of convertible note issuance and related third party costs of $2.5 million, and taxes paid related to the settlement of stock options and restricted stock units of $1.1 million, partially offset by proceeds from exercise of stock options of $0.2 million. In the three months ended September 30, 2023, this was attributable to proceeds from exercise of stock options of $1.5 million offset by withholdings from the issuance of shares of common stock pursuant to the exercise of stock options and vesting of restricted stock units of $1.0 million and repayments of financing obligations of $0.1 million.
Net cash provided by (used in) financing activities during the nine months ended September 30, 2024 and 2023 was ($112.4) million and $1.4 million, respectively. In the nine months ended September 30, 2024, this was attributable to $109.0 million of payments related to the repurchase and repayment of convertible notes and refinancing obligations, $2.5 million of payments for convertible note issuance and related third-party costs, and $1.5 million of taxes paid related to the settlement of stock options and restricted stock units, partially offset by proceeds from exercise of stock options of $1.5 million. In the nine months ended September 30, 2023, this was attributable to proceeds from the exercise of stock options of $3.7 million and proceeds from the issuance of convertible note of $1.1 million offset by withholdings from the issuance of shares of common stock pursuant to the exercise of stock options and vesting of restricted stock units of $3.3 million and repayment of financing obligations of $0.1 million.
Indebtedness
2028 Convertible Notes
In August 2024, we issued $150.0 million in aggregate principal amount of the Company’s new 7.50 percent convertible senior notes due 2028 (the “2028 Convertible Notes”). The 2028 Convertible Notes were issued pursuant to, and are governed by, an indenture (the “2028 Convertible Notes Indenture”), dated as of August 7, 2024, between the Company and U.S. Bank Trust Company, National Association, as trustee.
The 2028 Convertible Notes are the Company’s senior, initially unsecured obligations and will accrue interest at a rate of 7.50 percent per annum, payable semi-annually in arrears on April 1 and October 1 of each year, beginning on October 1, 2024. The 2028 Convertible Notes will mature on October 1, 2028, unless earlier converted, redeemed or repurchased. Before July 3, 2028, noteholders will have the right to convert their 2028 Convertible Notes only upon the occurrence of certain events. From and after July 3, 2028, noteholders may convert their 2028 Convertible Notes at any time at their election until the close of business on the second scheduled trading day immediately before the maturity date. The Company will settle conversions by paying or delivering, as applicable, cash, shares of its common stock or a combination of cash and shares of its common stock, at the Company’s election. The initial conversion rate is 62.5000 shares of common stock per $1,000 principal amount of 2028 Convertible Notes, which represents an initial conversion price of $16.00 per share of common stock. The conversion rate and conversion price will be subject to customary adjustments upon the occurrence of certain events. In addition, if certain corporate events that constitute a “Make-Whole Fundamental Change” (as defined in the 2028 Convertible Notes Indenture) occur, then the conversion rate will, in certain circumstances, be increased for a specified period of time.
The Company may not redeem the 2028 Convertible Notes at its option at any time before October 7, 2026. The 2028 Convertible Notes will be redeemable, in whole or in part (subject to the “Partial Redemption Limitation” (as defined in the 2028 Convertible Notes Indenture)), at the Company’s option at any time, and from time to time, on or after October 7, 2026 and on or before the 25th
37
scheduled trading day immediately before the maturity date, but only if the last reported sale price per share of the Company’s common stock exceeds 130 percent of the conversion price for a specified period of time and certain other conditions are satisfied. The redemption price will be equal to the principal amount of the 2028 Convertible Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. In addition, calling any 2028 Convertible Note for redemption will constitute a Make-Whole Fundamental Change with respect to that 2028 Convertible Note, in which case the conversion rate applicable to the conversion of that 2028 Convertible Note will be increased in certain circumstances if it is converted after it is called for redemption. Pursuant to the Partial Redemption Limitation, the Company may not elect to redeem less than all of the outstanding 2028 Convertible Notes unless at least $100.0 million aggregate principal amount of 2028 Convertible Notes are outstanding and not subject to redemption as of the time the Company sends the related redemption notice.
If certain corporate events that constitute a “Fundamental Change” (as defined in the 2028 Convertible Notes Indenture) occur, then, subject to a limited exception for certain cash mergers, noteholders may require the Company to repurchase their 2028 Convertible Notes at a cash repurchase price equal to the principal amount of the 2028 Convertible Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date. The definition of Fundamental Change includes certain business combination transactions involving the Company and certain de-listing events with respect to the Company’s common stock.
The 2028 Convertible Notes have customary provisions relating to the occurrence of “Events of Default” (as defined in the 2028 Convertible Notes Indenture), which include the following: (i) certain payment defaults on the 2028 Convertible Notes (which, in the case of a default in the payment of interest on the 2028 Convertible Notes, will be subject to a 30-day cure period); (ii) the Company’s failure to send certain notices under the 2028 Convertible Notes Indenture within specified periods of time; (iii) the Company’s failure to comply with certain covenants in the 2028 Convertible Notes Indenture relating to the Company’s ability to consolidate with or merge with or into, or sell, lease or otherwise transfer, in one transaction or a series of transactions, all or substantially all of the assets of the Company and its subsidiaries, taken as a whole, to another person; (iv) a default by the Company in its other obligations or agreements under the 2028 Convertible Notes Indenture or the 2028 Convertible Notes if such default is not cured or waived within 60 days after notice is given in accordance with the 2028 Convertible Notes Indenture; (v) certain payment defaults on the Company’s credit facility if the Company has entered into the Security Documents (as defined in the 2028 Convertible Notes Indenture), (vi) certain defaults by the Company or any of its significant subsidiaries with respect to indebtedness for borrowed money of at least $20,000,000; and (vii) certain events of bankruptcy, insolvency and reorganization involving the Company or any of its significant subsidiaries.
If an Event of Default involving bankruptcy, insolvency or reorganization events with respect to the Company (and not solely with respect to a significant subsidiary of the Company) occurs, then the principal amount of, and all accrued and unpaid interest on, all of the 2028 Convertible Notes then outstanding will immediately become due and payable without any further action or notice by any person. If any other Event of Default occurs and is continuing, then, the Trustee, by notice to the Company, or noteholders of at least 25 percent of the aggregate principal amount of 2028 Convertible Notes then outstanding, by notice to the Company and the trustee, may declare the principal amount of, and all accrued and unpaid interest on, all of the 2028 Convertible Notes then outstanding to become due and payable immediately. However, notwithstanding the foregoing, the Company may elect, at its option, that the sole remedy for an Event of Default relating to certain failures by the Company to comply with certain reporting covenants in the Indenture consists exclusively of the right of the noteholders to receive special interest on the 2028 Convertible Notes for up to 180 days at a specified rate per annum not exceeding 0.50 percent on the principal amount of the 2028 Convertible Notes.
The 2028 Convertible Notes Indenture contains a number of restrictive covenants and limitations, including restrictions on the Company’s ability to incur certain indebtedness, as further described in the Indenture. In addition, to the extent the Company incurs subordinated indebtedness pursuant to the terms of the Indenture, it will be required to secure the 2028 Convertible Notes, subject only to prior security interests in favor of lenders under any senior secured revolving credit facility, if then outstanding.
2026 Convertible Notes
In September 2021, we issued $345.0 million principal amount of 0.25 percent convertible notes due 2026 (the “2026 Convertible Notes”). The 2026 Convertible Notes were issued pursuant to, and are governed by, an indenture (the “2026 Convertible Notes Indenture”), dated as of September 14, 2021, between us and U.S. Bank National Association, as trustee. The 2026 Convertible Notes accrue interest at a rate of 0.25 percent per annum, payable semi-annually in arrears on April 1 and October 1 of each year, beginning on April 1, 2022.
In August 2024, in addition to the Exchange Agreement, the Company entered into separate, privately negotiated repurchase agreements with a limited number of holders of its outstanding 2026 Convertible Notes to repurchase (the "Repurchase Transactions") approximately $120.6 million aggregate principal amount of the 2026 Convertible Notes for aggregate cash consideration of approximately $108.7 million, including accrued but unpaid interest of approximately $0.2 million on such 2026 Convertible Notes. The Repurchase Transactions settled in August 2024. Following the Repurchase Transactions, approximately $63.1 million principal amount of 2026 Convertible Notes remain outstanding.
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The 2026 Convertible Notes are our senior, unsecured obligations and are (i) equal in right of payment with our future senior, unsecured indebtedness; (ii) senior in right of payment to our future indebtedness that is expressly subordinated to the 2026 Convertible Notes in right of payment; (iii) effectively subordinated to our future secured indebtedness, to the extent of the value of the collateral securing that indebtedness; and (iv) structurally subordinated to all future indebtedness and other liabilities, including trade payables, and (to the extent we are not a holder thereof) preferred equity, if any, of our subsidiaries.
The remaining outstanding 2026 Convertible Notes will mature on October 1, 2026, unless earlier repurchased, redeemed or converted. Before July 1, 2026, noteholders have the right to convert the remaining outstanding 2026 Convertible Notes only upon the occurrence of certain events. From and after July 1, 2026, noteholders may convert their 2026 Convertible Notes at any time at their election until the close of business on the second scheduled trading day immediately before the maturity date. We will settle conversions by paying or delivering, as applicable, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election. The initial conversion rate of the remaining outstanding 2026 Convertible Notes was 13.6783 shares of common stock per $1,000 principal amount of 2026 Convertible Notes, which represents an initial conversion price of approximately $73.11 per share of common stock. The conversion rate and conversion price are subject to customary adjustments upon the occurrence of certain events. In addition, if certain corporate events that constitute a “Make-Whole Fundamental Change” (as defined in the 2026 Convertible Notes Indenture) occur, then the conversion rate will, in certain circumstances, be increased for a specified period of time.
The remaining outstanding 2026 Convertible Notes are redeemable, in whole or in part (subject to the “Partial Redemption Limitation” (as defined in the 2026 Convertible Notes Indenture)), at our option at any time, and from time to time, on or after October 7, 2024 and on or before the 25th scheduled trading day immediately before the maturity date, but only if the last reported sale price per share of our common stock exceeds 130 percent of the conversion price on (i) each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the trading day immediately before the date we send the related redemption notice; and (ii) the trading day immediately before the date we send such notice. The redemption price will be a cash amount equal to the principal amount of the 2026 Convertible Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. In addition, calling any 2026 Convertible Note for redemption will constitute a Make-Whole Fundamental Change with respect to that 2026 Convertible Note, in which case the conversion rate applicable to the conversion of that 2026 Convertible Note will be increased in certain circumstances if it is converted after it is called for redemption. Pursuant to the Partial Redemption Limitation, we may not elect to redeem less than all of the outstanding 2026 Convertible Notes unless at least $150.0 million aggregate principal amount of 2026 Convertible Notes are outstanding and not subject to redemption as of the time we send the related redemption notice.
If certain corporate events that constitute a “Fundamental Change” (as defined in the 2026 Convertible Notes Indenture) occur, then, subject to a limited exception for certain cash mergers, noteholders may require us to repurchase their Notes at a cash repurchase price equal to the principal amount of the remaining outstanding 2026 Convertible Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date. The definition of Fundamental Change includes certain business combination transactions involving us and certain de-listing events with respect to our common stock.
The 2026 Convertible Notes have customary provisions relating to the occurrence of “Events of Default” (as defined in the Convertible Notes Indenture), which include the following: (i) certain payment defaults on the 2026 Convertible Notes (which, in the case of a default in the payment of interest on the 2026 Convertible Notes, will be subject to a 30-day cure period); (ii) our failure to send certain notices under the 2026 Convertible Notes Indenture within specified periods of time; (iii) our failure to comply with certain covenants in the 2026 Convertible Notes Indenture relating to our ability to consolidate with or merge with or into, or sell, lease or otherwise transfer, in one transaction or a series of transactions, all or substantially all of the assets of us and our subsidiaries, taken as a whole, to another person; (iv) a default by us in our other obligations or agreements under the 2026 Convertible Notes Indenture or the 2026 Convertible Notes if such default is not cured or waived within 60 days after notice is given in accordance with the 2026 Convertible Notes Indenture; (v) certain defaults by us or any of our significant subsidiaries with respect to indebtedness for borrowed money of at least $65.0 million; and (vi) certain events of bankruptcy, insolvency and reorganization involving us or any of our significant subsidiaries.
If an Event of Default involving bankruptcy, insolvency or reorganization events with respect to us (and not solely with respect to a significant subsidiary of us) occurs, then the principal amount of, and all accrued and unpaid interest on, all of the 2026 Convertible Notes then outstanding will immediately become due and payable without any further action or notice by any person. If any other Event of Default occurs and is continuing, then, the trustee, by notice to us, or noteholders of at least 25 percent of the aggregate principal amount of 2026 Convertible Notes then outstanding, by notice to us and the trustee, may declare the principal amount of, and all accrued and unpaid interest on, all of the 2026 Convertible Notes then outstanding to become due and payable immediately. However, notwithstanding the foregoing, we may elect, at our option, that the sole remedy for an Event of Default relating to certain failures by us to comply with certain reporting covenants in the 2026 Convertible Notes Indenture consists exclusively of the right of the noteholders to receive special interest on the 2026 Convertible Notes for up to 180 days at a specified rate per annum not exceeding 0.50 percent on the principal amount of the 2026 Convertible Notes.
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Off-balance sheet arrangements
We did not have any off-balance sheet arrangements as of September 30, 2024 or as of December 31, 2023.
Critical accounting policies and estimates
Our condensed consolidated financial statements have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities. We also make estimates and assumptions on the reported revenue generated and reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
There have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” set forth in our Annual Report.
Recent accounting pronouncements
A discussion of recent accounting pronouncements is included in Note 2 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Interest rate risk
Our cash, cash equivalents and restricted cash, consist primarily of interest-bearing accounts. Such interest-earning instruments carry a degree of interest rate risk. To minimize interest rate risk in the future, we intend to maintain our portfolio of cash equivalents in a variety of investment-grade securities, which may include commercial paper, money market funds, and government and non-government debt securities. Because of the short-term maturities of our cash, cash equivalents, restricted cash, and marketable securities, we do not believe that an increase in market rates would have any significant negative impact on the realized value of our investments. An immediate increase or decrease in interest rates of 100 basis points at September 30, 2024 could result in a $1.3 million market value reduction or increase of the same amount.
In September 2021, we issued the 2026 Convertible Notes with an aggregate principal amount of $345.0 million, of which $63.1 million remains outstanding as of September 30, 2024. The 2026 Convertible Notes have a fixed interest rate of 0.25 percent; we do not face variable interest rate risk with respect to the 2026 Convertible Notes. The fair value of the 2026 Convertible Notes changes when the market price of our stock fluctuates or market interest rates change.
In August 2024, we issued the 2028 Convertible Notes with an aggregate principal amount of $150.0 million, the full amount of which is outstanding as of September 30, 2024. The 2028 Convertible Notes have a fixed interest rate of 7.50 percent; we do not face variable interest rate risk with respect to the 2028 Convertible Notes. The fair value of the 2028 Convertible Notes changes when the market price of our stock fluctuates or market interest rates change.
Foreign currency exchange risk
All of our revenue and a majority of our expense and capital purchasing activities for the three months ended September 30, 2024 were transacted in U.S. dollars. As we expand our sales and operations internationally, we will be more exposed to changes in foreign exchange rates. Our international revenue is currently collected in U.S. dollars. In the future, as we expand into additional international jurisdictions, we expect that our international sales will be primarily denominated in U.S. dollars. If we decide in the future to denominate international sales in currencies other than the U.S. dollar, unfavorable movement in the exchange rates between the U.S. dollar and the currencies in which we conduct foreign sales could have an adverse impact on our revenue.
A portion of our operating expenses are incurred outside the United States and are denominated in foreign currencies, which are subject to fluctuations due to changes in foreign currency exchange rates. In particular, in our Mexico, Australia and UK-based operations, we pay payroll and other expenses in Mexican pesos, Australian dollars and British pounds sterling, respectively. Our operating results and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates. However, we believe that the exposure to foreign currency fluctuation from operating expenses is relatively small at this time as the related costs do not constitute a significant portion of our total expenses.
We currently do not hedge foreign currency exposure. We may in the future hedge our foreign currency exposure and may use currency forward contracts, currency options, and/or other common derivative financial instruments to reduce foreign currency risk. It is difficult to predict the effect future hedging activities would have on our operating results.
Credit risk
Financial instruments that potentially subject us to concentrations of credit risk consist of cash and cash equivalents, restricted cash, and accounts receivable. Our investment policy limits investments to high credit quality securities issued by the U.S. government, U.S. government-sponsored agencies, and highly rated corporate securities, subject to certain concentration limits and restrictions on maturities. Our cash and cash equivalents and restricted cash are held by financial institutions that management believes are of high credit quality. Amounts on deposit may at times exceed FDIC insured limits. We have not experienced any losses on our deposits of cash and cash equivalents, and accounts are monitored by management to mitigate risk. We are exposed to credit risk in the event of default by the financial institutions holding our cash and cash equivalents or an event of default by the issuers of the corporate debt securities we hold.
Item 4. Controls and Procedures.
Evaluation of disclosure controls and procedures
As of September 30, 2024, and under the direction of our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Exchange Act. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded as of September 30, 2024, that our disclosure
41
controls and procedures were not effective because of the material weakness in our internal control over financial reporting that was disclosed in our Annual Report.
As discussed in Part II, Item 9A, “Controls and Procedures” in our Annual Report, we identified material weaknesses in internal control over financial reporting in the following areas:
We did not maintain effective controls over (i) user access to ensure appropriate segregation of duties and adequately restrict user and privileged access to financial applications, programs and data to the appropriate personnel; (ii) program change management for financial applications to ensure that IT program and data changes affecting financial IT applications and underlying accounting records are identified, tested, authorized and implemented appropriately; and (iii) IT operations controls to ensure that critical interface jobs are monitored.
Status of Remediation Efforts
In response to the material weakness identified and described above, our management, with the oversight of the Audit Committee of our Board of Directors, will continue through 2024 to dedicate significant efforts and resources to further improve our control environment and to take steps to remediate this material weakness.
Changes in internal control over financial reporting
Except for the implementation of our remediation plans in connection with our ineffective disclosure controls and procedures described above, there have been no significant changes in our internal controls over financial reporting that occurred during the three month period ended September 30, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, the Company may become involved in litigation related to claims arising from the ordinary course of our business. The Company believes that there are no claims or actions pending or threatened against us, the ultimate disposition of which would have a material adverse effect on us.
Item 1A. Risk Factors.
Except as set forth below there are no material changes to our risk factors as previously disclosed in Part I, Item
1A of our Annual Report on Form 10-K for the year ended December 31, 2023.
Our failure to generate sufficient cash flow from our business to satisfy the interest rate of our 2028 Convertible Notes would adversely affect our business, financial condition and results of operations.
The interest rate on the $150.0 million aggregate principal amount of the 2028 Convertible Notes outstanding as of
September 30, 2024, is 7.50 percent, payable semi-annually. Our ability to pay interest and required principal payments on our indebtedness depends upon cash flows generated by our operating performance. As a result, prevailing economic conditions and financial, business and other factors, many of which are beyond our control, may affect our ability to make these payments and reduce the level of our indebtedness over time.
If we do not generate sufficient cash flow from operations to satisfy our debt servicing obligations, we may have to undertake alternative financing plans, such as refinancing or restructuring our indebtedness, selling assets or seeking to raise additional capital.
Further, our spending in relation to our debt restructuring combined with elevated interest rates could have significant adverse consequences, including: reducing cash resources available to fund working capital, capital expenditures, product development efforts and other general corporate purposes; impeding our ability to capitalize on strategic opportunities; reducing profitability; increasing our vulnerability to adverse changes in general economic, industry, and market conditions; limiting our flexibility in planning for, or reacting to, changes in our business and our industry; and placing us at a competitive disadvantage compared to our competitors that have less debt or better debt servicing options.
The terms of the indenture (the “2028 Convertible Notes Indenture”) that govern the 2028 Convertible Notes impose restrictions that may limit our current and future operating flexibility, particularly our ability to respond to changes in the economy or our industry or to take certain actions, which could harm our long-term interests.
The 2028 Convertible Notes Indenture and the exchange agreement governing the exchange of 2026 Convertible Notes for 2028 Convertible Notes (to the extent the exchanging holder continues to hold a specified amount of 2028 Convertible Notes) contain a number of restrictive covenants that impose significant operating and financial restrictions on us and limit our ability to engage in acts that may be in our long-term best interest, including restrictions on our ability and the ability of our subsidiaries (to the extent any such subsidiaries incur or guarantee indebtedness) to:
As a result of these restrictions we may be:
These restrictions may hinder our ability to grow in accordance with our strategies. In addition, while we are not permitted to incur any additional senior indebtedness (other than the Senior Secured Revolving Indebtedness), the incurrence of subordinated indebtedness will be subject to the requirement that the 2028 Convertible Notes be secured by all of our assets (subject to customary exceptions) concurrently with any incurrence of subordinated indebtedness.
A breach of the covenants under the 2028 Convertible Notes Indenture or under the 2026 Convertible Notes Indenture could result in an event of default under the applicable indebtedness. Such a default, if not cured or waived, may allow the creditors to accelerate the related debt and may result in the acceleration of any other debt that is subject to an applicable cross-acceleration or cross-default
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provision. Furthermore, if we were unable to repay the amounts due and payable under the 2028 Convertible Notes Indenture and the 2028 Convertible Notes are then secured, holders of the 2028 Convertible Notes could proceed against the collateral securing such indebtedness. If the holders of the 2028 Convertible Notes accelerate the repayment of our borrowings, we and our subsidiaries may not have sufficient assets to repay that indebtedness.
We have undertaken, and may in the future undertake, restructuring activities that could result in disruptions to our business or otherwise materially harm our results of operations or financial condition.
From time to time, we have implemented restructuring plans to support key strategic initiatives which include driving efficient revenue growth and delivering long-term profitability. For example, we initiated a restructuring plan in September 2023, intended to, among other things, advance the Company's ongoing commitment to profitable growth, which was materially complete at the end of fiscal 2023. This follows an earlier restructuring plan we initiated in December 2022 intended to reduce our cost structure through a reduction of Company workforce and office space, which was completed during the third quarter of fiscal year 2023. In September 2024, we implemented a new restructuring plan which will include workforce reductions, reduction in real estate footprint, and costs incurred associated with asset impairments. Our restructuring plans present potential risks that could have a material adverse effect on our operations, financial condition, results of operations, cash flow, or business reputation.
Changes resulting from our strategic restructuring plans and any future initiatives may not be successful in yielding our intended results and may not appropriately address the short-term and long-term strategic objectives for our business. Implementation of the restructuring plans and any other cost-saving initiatives may be costly and disruptive to our business, the expected costs and charges may be greater than we have forecasted, and the estimated cost savings may be lower than we have anticipated. Additionally, certain aspects of the 2024 Restructuring Plan, such as severance costs in connection with reducing our headcount, could negatively impact our cash flows. In addition, our initiatives could result in personnel attrition beyond our planned reduction in headcount or reduced employee morale, which could in turn adversely impact productivity, including through a loss of continuity, loss of accumulated knowledge, inefficiency during transitional periods, or our ability to attract highly skilled employees. If any restructuring activities we have undertaken or undertake in the future fail to achieve some or all of the expected benefits, our business, financial condition, and results of operations could be materially and adversely affected.
Losing key members of our management or operations teams could hinder our ability to attract and retain the necessary talent for continued operations and growth.
Our success depends substantially upon the continued services of our executive officers and other key members of management, particularly our chief executive officer. From time to time, there may be changes in our management team resulting from the hiring, departure or realignment of executives. For example, in September 2024, Brent Bellm, our former CEO and Chairman of our Board of Directors, departed from these positions with the Company. Such changes may be disruptive to our business. Mr. Bellm was with the Company for nine years and during this time developed institutional knowledge and relationships. The departure of Mr. Bellm could lead to a loss of leadership continuity, key relationships, and in-depth understanding of our business, operations, and industry.
Effective succession planning for management is important to our long-term success. While we have a succession plan in place, a new CEO, Travis Hess, even with significant experience, may not possess the same level of institutional knowledge and partner relationships, potentially impacting our decision-making, strategic direction, and overall business performance during the transition period.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
None.
None.
Item 3. Defaults Upon Senior Securities
None.
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Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
The information set forth in Part I, Item 2 "Management's Discussion and Analysis of Financial Condition and Results of Operations—Key factors affecting our performance—2024 Restructure” above is incorporated herein by reference.
Item 2.06 Material Impairments.
The information referred to in Item 2.05 is incorporated by reference into this Item 2.06.
Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers
Effective as of November 4, 2024, the Compensation Committee of the Board of Directors approved certain retention payments for Daniel Lentz, the Company’s Chief Financial Officer, including (i) a cash retention bonus in an amount equal to $50,000 (the “Cash Bonus”) and (ii) a stock option to purchase 16,160 shares of the Company’s common stock with an exercise price per share equal to the fair market value of a share of Company common stock on November 11, 2024, the date of grant (the “Option”). 25% of the Cash Bonus is payable to Mr. Lentz on or as soon as practicable after each of December 31, 2024, and March 31, 2025, and 50% of the Cash Bonus is payable to Mr. Lentz on or as soon as practicable after September 30, 2025 (each a “Retention Date”), in each case, subject to Mr. Lentz’s continued employment with the Company through the applicable Retention Date. The Option will vest as to 25% of the Option shares on each of the first two Retention Dates and 50% on the third Retention Date, subject to Mr. Lentz’s continued employment with the Company through the applicable Retention Date.
In connection with Brent Bellm ceasing to serve as the Company’s Chief Executive Officer as previously disclosed in the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 2, 2024 (the “8-K”), the Company entered into a Separation Agreement and General Release (the “Separation Agreement”) with Mr. Bellm on November 6, 2024. The Separation Agreement contained the material terms described in the 8-K, with the addition of a 90-day extension of the post-termination exercise period of single stock option covering 900,000 shares of the Company’s common stock previously granted to Mr. Bellm.
Item 6. Exhibits
Exhibit Index
Exhibit |
|
Incorporated by Reference |
|
|||
Number |
Description |
Form |
File No. |
Exhibit |
Effective Date |
|
|
|
|
|
|
|
|
3.1 |
Seventh Amended and Restated Certificate of Incorporation of the registrant. |
8-K |
001-39423 |
3.1 |
August 7, 2020 |
|
|
|
|
|
|
|
|
3.2 |
8-K |
001-39423 |
3.2 |
September 1, 2023 |
|
|
|
|
|
|
|
|
|
4.1 |
8-K |
001-39423 |
4.1 |
August 7, 2024 |
|
|
|
|
|
|
|
|
|
4.2 |
8-K |
001-39423 |
4.1 |
August 7, 2024 |
|
|
|
|
|
|
|
|
|
45
10.1# |
8-K |
001-39423 |
10.1 |
July 31, 2024 |
|
|
|
|
|
|
|
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31.1** |
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31.2** |
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32.1† |
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101.INS |
Inline XBRL Instance Document- the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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101.SCH |
Inline XBRL Taxonomy Extension Schema Document with Embedded Linkbases Document. |
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104 |
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
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† |
The certifications attached as Exhibit 32.1 that accompanies this Quarterly Report on Form 10-Q is deemed furnished and not filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of BigCommerce Holdings, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing. |
** |
Filed herewith. |
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Confidential information has been omitted because it is both (i) not material and (ii) is the type of information that the Company treats as private or confidential pursuant to Item 601 (b)(10) of Regulation S-K. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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BigCommerce Holdings, Inc. |
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Date: November 7, 2024 |
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By: |
/s/ Travis Hess |
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Travis Hess |
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Chief Executive Officer |
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Date: November 7, 2024 |
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By: |
/s/ Daniel Lentz |
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Daniel Lentz |
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Chief Financial Officer |
46
Exhibit 31.1
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Travis Hess, certify that:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: November 7, 2024 |
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By: |
/s/ Travis Hess |
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Travis Hess |
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Chief Executive Officer (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Daniel Lentz, certify that:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: November 7, 2024 |
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By: |
/s/ Daniel Lentz |
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Daniel Lentz |
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Chief Financial Officer (Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of BigCommerce Holdings, Inc. (the “Company”) on Form 10-Q for the period ending September 30, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: November 7, 2024 |
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By: |
/s/ Travis Hess |
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Travis Hess |
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Chief Executive Officer (Principal Executive Officer) |
Date: November 7, 2024 |
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By: |
/s/ Daniel Lentz |
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Daniel Lentz |
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Chief Financial Officer (Principal Financial Officer) |