Item 1. Financial Statements
Item 1. Financial Statements
BigCommerce Holdings, Inc.
Condensed Consolidated B alance Sheets
(in thousands)
June 30,
December 31,
2024
2023
(unaudited)
Assets
Current assets
Cash and cash equivalents
$
133,088
$
71,719
Restricted cash
1,120
1,126
Marketable securities
142,712
198,415
Accounts receivable, net
45,054
37,713
Prepaid expenses and other assets, net
24,688
24,733
Deferred commissions
9,119
8,280
Total current assets
355,781
341,986
Property and equipment, net
9,975
10,233
Operating lease, right-of-use-assets
3,647
4,405
Prepaid expenses, net of current portion
2,633
1,240
Deferred commissions, net of current portion
6,408
7,056
Intangible assets, net
22,133
27,052
Goodwill
51,927
52,086
Total assets
$
452,504
$
444,058
Liabilities and stockholders’ equity
Current liabilities
Accounts payable
$
6,686
$
7,982
Accrued liabilities
3,596
2,652
Deferred revenue
42,417
32,242
Current portion of debt
417
547
Current portion of operating lease liabilities
2,424
2,542
Other current liabilities
23,289
24,785
Total current liabilities
78,829
70,750
Long-term portion of debt
340,468
339,614
Operating lease liabilities, net of current portion
6,393
7,610
Other long-term liabilities, net of current portion
703
551
Total liabilities
426,393
418,525
Stockholders’ equity
Common stock
7
7
Additional paid-in capital
638,586
620,021
Accumulated other comprehensive gain (loss)
( 177
)
163
Accumulated deficit
( 612,305
)
( 594,658
)
Total stockholders’ equity
26,111
25,533
Total liabilities and stockholders’ equity
$
452,504
$
444,058
The accompanying notes are an integral part of these condensed consolidated financial statements.
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BigCommerce Holdings, Inc.
Condensed Consolidated Statem ents of Operations
(in thousands, except per share amounts)
(unaudited)
For the three months ended June 30,
For the six months ended June 30,
2024
2023
2024
2023
Revenue
$
81,829
$
75,443
$
162,189
$
147,200
Cost of revenue (1)
19,811
18,756
38,250
36,202
Gross profit
62,018
56,687
123,939
110,998
Operating expenses: (1)
Sales and marketing
34,425
35,593
66,857
69,645
Research and development
20,287
21,403
40,275
42,248
General and administrative
15,436
14,428
30,365
30,922
Amortization of intangible assets
2,452
2,033
4,919
4,066
Acquisition related costs
334
4,125
667
8,250
Restructuring charges
2,572
0
2,572
420
Total operating expenses
75,506
77,582
145,655
155,551
Loss from operations
( 13,488
)
( 20,895
)
( 21,716
)
( 44,553
)
Interest income
3,196
2,825
6,374
5,251
Interest expense
( 720
)
( 722
)
( 1,440
)
( 1,444
)
Other expense
( 111
)
( 63
)
( 443
)
( 32
)
Loss before provision for income taxes
( 11,123
)
( 18,855
)
( 17,225
)
( 40,778
)
Provision for income taxes
( 132
)
( 210
)
( 422
)
( 407
)
Net loss
$
( 11,255
)
$
( 19,065
)
$
( 17,647
)
$
( 41,185
)
Basic net loss per share
$
( 0.15
)
$
( 0.25
)
$
( 0.23
)
$
( 0.55
)
Shares used to compute basic net loss per share
77,456
74,790
77,041
74,468
(1) Amounts include stock-based compensation expense and associated payroll tax costs, as follows:
For the three months ended June 30,
For the six months ended June 30,
2024
2023
2024
2023
Cost of revenue
$
1,028
$
1,290
$
1,684
$
2,479
Sales and marketing
3,138
3,566
5,005
6,433
Research and development
3,273
3,943
6,749
7,446
General and administrative
2,582
2,573
5,174
5,652
The accompanying notes are an integral part of these condensed consolidated financial statements.
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BigCommerce Holdings, Inc.
Condensed Consolidated Statements of Comprehensive Loss
(in thousands)
(unaudited)
Three months ended June 30,
Six months ended June 30,
2024
2023
2024
2023
Net loss
$
( 11,255
)
$
( 19,065
)
$
( 17,647
)
$
( 41,185
)
Other comprehensive income (loss):
Net unrealized gain (loss) on marketable debt securities
( 81
)
( 90
)
( 340
)
627
Total comprehensive loss
$
( 11,336
)
$
( 19,155
)
$
( 17,987
)
$
( 40,558
)
The accompanying notes are an integral part of these condensed consolidated financial statements.
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BigCommerce Holdings, Inc.
Condensed Consolidated Statements o f Stockholders’ Equity
(in thousands)
(unaudited)
For the three and six months ended June 30, 2024
Common Stock
Additional
Paid-in
Accumulated
Accumulated
Other
Comprehensive
Stockholders’
Shares
Amount
Capital
Deficit
Loss
Equity
Balance at December 31, 2023
76,410
$
7
$
620,021
$
( 594,658
)
$
163
$
25,533
Proceeds from exercise of stock options
308
0
974
0
0
974
Release of restricted stock units
507
0
( 1,325
)
0
0
( 1,325
)
Stock-based compensation
0
0
8,388
0
0
8,388
Total other comprehensive loss
0
0
0
0
( 259
)
( 259
)
Net loss
0
0
0
( 6,392
)
0
( 6,392
)
Balance at March 31, 2024
77,225
$
7
$
628,058
$
( 601,050
)
$
( 96
)
$
26,919
Proceeds from exercise of stock options
77
0
$
271
0
0
$
271
Release of restricted stock units
397
0
0
0
0
0
Issuance of common stock as consideration for an acquisition
41
0
248
0
0
248
Stock-based compensation
0
0
10,009
0
0
10,009
Total other comprehensive loss
0
0
0
0
( 81
)
( 81
)
Net loss
0
0
0
( 11,255
)
0
( 11,255
)
Balance at June 30, 2024
77,740
$
7
$
638,586
$
( 612,305
)
$
( 177
)
$
26,111
For the three and six months ended June 30, 2023
Common Stock
Additional
Paid-in
Accumulated
Accumulated
Other
Comprehensive
Stockholders’
Shares
Amount
Capital
Deficit
Loss
Equity
Balance at December 31, 2022
73,945
$
7
$
576,851
$
( 529,987
)
$
( 1,199
)
$
45,672
Proceeds from exercise of stock options
246
0
1,103
0
0
1,103
Release of restricted stock units
396
0
( 1,419
)
0
0
( 1,419
)
Stock-based compensation
0
0
10,487
0
0
10,487
Total other comprehensive loss
0
0
0
0
717
717
Net loss
0
0
0
( 22,120
)
0
( 22,120
)
Balance at March 31, 2023
74,587
$
7
$
587,022
$
( 552,107
)
$
( 482
)
$
34,440
Proceeds from exercise of stock options
163
$
0
$
1,156
$
0
$
0
$
1,156
Release of restricted stock units
354
0
( 811
)
0
0
( 811
)
Stock-based compensation
0
0
11,290
0
0
11,290
Total other comprehensive loss
0
0
0
0
( 90
)
( 90
)
Net loss
0
0
0
( 19,065
)
0
( 19,065
)
Balance at June 30, 2023
75,104
$
7
$
598,657
$
( 571,172
)
$
( 572
)
$
26,920
The accompanying notes are an integral part of these condensed consolidated financial statements.
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BigCommerce Holdings, Inc.
Condensed Consolidated Statem ents of Cash Flows
(in thousands)
(unaudited)
Three months ended June 30,
Six months ended June 30,
2024
2023
2024
2023
Cash flows from operating activities
Net loss
$
( 11,255
)
$
( 19,065
)
$
( 17,647
)
$
( 41,185
)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense
3,512
2,940
6,998
5,844
Amortization of discount on debt
497
494
994
987
Stock-based compensation expense
10,009
11,290
18,397
21,777
Provision for expected credit losses
850
433
1,713
1,508
Other
( 37
)
0
( 37
)
0
Changes in operating assets and liabilities:
Accounts receivable
( 6,790
)
6,425
( 9,378
)
( 1,760
)
Prepaid expenses
3,935
751
( 1,025
)
( 3,484
)
Deferred commissions
( 402
)
( 821
)
( 191
)
( 772
)
Accounts payable
( 356
)
( 1,023
)
( 1,245
)
( 528
)
Accrued and other liabilities
4,168
7,027
( 433
)
2,105
Deferred revenue
7,607
6,292
10,175
9,415
Net cash provided by (used in) operating activities
11,738
14,743
8,321
( 6,093
)
Cash flows from investing activities:
Cash paid for acquisition
( 100
)
0
( 100
)
0
Purchase of property and equipment
( 1,064
)
( 1,017
)
( 1,870
)
( 2,080
)
Maturity of marketable securities
62,525
83,643
91,965
123,072
Purchase of marketable securities
( 1,037
)
( 85,351
)
( 36,602
)
( 133,394
)
Net cash provided by (used in) investing activities
60,324
( 2,725
)
53,393
( 12,402
)
Cash flows from financing activities:
Proceeds from exercise of stock options
271
1,156
1,245
2,245
Taxes paid related to net share settlement of stock options
0
( 811
)
( 1,325
)
( 2,230
)
Proceeds from financing obligation
0
1,081
0
1,081
Repayment of debt
( 137
)
0
( 271
)
0
Net cash provided by (used in) financing activities
134
1,426
( 351
)
1,096
Net change in cash and cash equivalents and restricted cash
72,196
13,444
61,363
( 17,399
)
Cash and cash equivalents and restricted cash, beginning of period
62,012
62,187
72,845
93,030
Cash and cash equivalents and restricted cash, end of period
$
134,208
$
75,631
$
134,208
$
75,631
Supplemental cash flow information:
Cash paid for interest
$
6
$
0
$
445
$
431
Cash paid for taxes
$
42
$
60
$
182
$
212
Noncash investing and financing activities:
Capital additions, accrued but not paid
$
117
$
125
$
117
$
190
Fair value of shares issued as consideration for acquisition
$
248
$
0
$
248
$
0
The accompanying notes are an integral part of these condensed consolidated financial statements.
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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.
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
Basis of presentation
The accompanying condensed unaudited 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 the Company's Annual Report on Form 10-K, filed with the SEC on February 29, 2024. The results of operations for the three and six months ended June 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.
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:
• the allowance for credit losses;
• constrained revenue;
• variable consideration for revenue recognition;
• the period of benefit associated with costs capitalized to obtain revenue contracts;
• the useful lives of intangible assets; and
• the recognition, measurement and valuation of current and deferred income taxes and uncertain tax positions;
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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 is currently assessing the impact this standard will have on the Company’s but 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. 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 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. During fiscal year 2023, the Company adopted a new pricing structure that provided a discount to the contractual price for customers who pay quarterly or annually. Prior to this date, enterprise subscription plans included an upfront promotional period in order to incentivize the customer to enter into a subscription arrangement. In both of these scenarios, 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, Google, Facebook, 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
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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 one to three years . Contracts are typically non-cancelable and do not contain refund-type provisions. Revenue is presented net of sales tax and other taxes the Company collects on behalf of governmental authorities.
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 recognize 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 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,
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promotional billing periods, and partner and services revenue agreements that include substantive minimums. Net contract assets were $ 11.5 million as of June 30, 2024 as compared to $ 11.9 million as of December 31, 2023.
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 maintain 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 $ 1.1 million and $ 1.5 million for credit losses related to contract assets as of June 30, 2024 and December 31, 2023, respectively.
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 $ 6.6 million and $ 22.5 million of previously deferred revenue during the three and six months ended June 30, 2024.
Remaining performance obligation
As of June 30, 2024 , the Company had $ 182.0 million of remaining performance obligations, which represents contracted revenue minimums that have not yet been recognized, including amounts that will be invoiced and recognized as revenue in future periods. Remaining performance obligation is subject to future economic risks, including bankruptcies, regulatory changes and other market factors. The Company expects to recognize approximately 60 percent of the remaining performance obligations as revenue in the following 12 month period, and the remaining balance in the periods thereafter.
Remaining performance obligation consisted of the following:
(in thousands)
Current
Noncurrent
Total
As of June 30, 2024
$
110,486
$
71,524
$
182,010
As of June 30, 2023
80,171
53,077
133,248
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 due immediately to due within 90 day s. The accounts receivable balance at June 30, 2024 and December 31, 2023 included unbilled receivables of $ 10.5 million, and $ 11.0 million, respectively.
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 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.
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The allowance for credit losses consisted of the following:
(in thousands)
Balance at December 31, 2023
$
5,997
Provision for expected credit losses
863
Write-offs charged against the allowance
( 821
)
Balance at March 31, 2024
$
6,039
Provision for expected credit losses
850
Write-offs charged against the allowance
( 1,200
)
Balance at June 30, 2024
$
5,689
Stock-based compensation
The Company issues stock 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 four years .
The Company values RSUs at the closing market price on the date of grate. RSUs typically vest in equal installments over a four-year period, subject to continued service, and compensation expense is recognized straight-line over the requisite service period, net of estimated forfeitures.
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 three-year period ranging from 0 percent to 200 percent of the target number of PSUs granted.
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 three annual tranches in a percentage of the target number of shares between 0 percent to 200 percent. The Company recognizes stock-based compensation expense over the performance period, if it is probable that the performance condition will be achieved. Adjustments to stock-based compensation expense are made, as needed, each reporting period based on changes in our estimate of the number of units that are probable of vesting.
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 June 30,
Six months ended June 30,
(in thousands)
2024
2023
2024
2023
Subscription solutions
$
61,796
$
56,135
$
122,755
$
109,943
Partner and services
20,033
19,308
39,434
37,257
Revenue
$
81,829
$
75,443
$
162,189
$
147,200
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Revenue by geographic region was as follows:
Three months ended June 30,
Six months ended June 30,
(in thousands)
2024
2023
2024
2023
Revenue:
Americas – United States
$
62,428
$
57,546
$
123,567
$
112,355
Americas – other (1)
3,777
3,422
7,552
6,773
EMEA
9,281
8,649
18,473
16,633
APAC
6,343
5,826
12,597
11,439
Revenue
$
81,829
$
75,443
$
162,189
$
147,200
(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 76 percent and EMEA was 11 percent d uring the three and six months ended June 30, 2024 and 2023. No single country, other than the United States, represented more than ten percent of total revenue during the three and six months ended June 30, 2024 and 2023.
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 three years . The Company includes amortization of deferred commissions in sales and marketing expense in the condensed consolidated statements of operations. The Company periodically reviews the carrying amount of deferred commissions to determine whether events or changes in circumstances have occurred that could impact the period of benefit of these deferred costs. The Company did no t recognize an impairment of deferred commissions during the three and six months ended June 30, 2024 and the year ended December 31, 2023.
Sales commissions o f $ 2.8 million and $ 2.5 million were deferred for the three months ended June 30, 2024 and 2023 , respectively; and $ 5.0 million and $ 4.2 million were deferred for the six months ended June 30, 2024 and 2023, respectively.
Deferred commission amortization expense wa s $ 2.4 million and $ 1.7 million for the three months ended June 30, 2024 and 2023 , respectively; and $ 4.7 million an d $ 3.3 million for the six months ended June 30, 2024 and 2023 , respectively.
4. Fair value measurements
Financial instruments carried at fair value include cash and cash equivalents, restricted cash and marketable securities. The fair value of our convertible senior notes is included below for disclosure purposes only.
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:
• Level 1 – Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.
• Level 2 – Inputs are other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
• Level 3 – Inputs are unobservable that are significant to the fair value of the asset or liability and are developed based on the best information available in the circumstances, which might include the Company’s data.
The following table presents information about the Company’s cash equivalents, marketable securities and liabilities that were measured at fair value as of June 30, 2024 and December 31, 2023:
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As of June 30, 2024
(in thousands)
Quoted Prices in
Active Markets
for Identical Assets
(Level 1)
Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total Fair Value
Cash equivalents (1) :
Money market mutual funds & cash equivalents
$
97,897
$
0
0
$
97,897
Marketable securities:
Corporate bonds
0
67,926
0
67,926
U.S. treasury securities
41,955
0
0
41,955
Commercial paper
0
9,911
0
9,911
Agency bonds
0
22,920
0
22,920
Total marketable securities
$
41,955
$
100,757
$
0
$
142,712
Liabilities:
Convertible senior notes due 2026
$
0
$
301,875
$
0
$
301,875
(1) Included in “Cash and cash equivalents” in the accompanying Condensed Consolidated Balance Sheets, in addition t o $ 36.3 million of cash, as of June 30, 2024 .
As of December 31, 2023
(in thousands)
Quoted Prices in
Active Markets
for Identical Assets
(Level 1)
Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total Fair Value
Cash equivalents (1) :
Money market mutual funds & cash equivalents
$
39,754
$
0
$
0
$
39,754
Marketable securities:
Corporate bonds
0
64,545
0
64,545
U.S. treasury securities
48,138
0
0
48,138
Commercial paper
0
30,596
0
30,596
Agency bonds
0
55,136
0
55,136
Total marketable securities
$
48,138
$
150,277
$
0
$
198,415
Liabilities:
Convertible senior notes due 2026
$
0
$
280,658
$
0
$
280,658
(1) Included in “Cash and cash equivalents” in the accompanying Condensed Consolidated Balance Sheets, in addition t o $ 33.1 million of cash, as of December 31, 2023 .
The contractual maturities of the investments classified as marketable securities were as follows:
(in thousands)
As of June 30, 2024
As of December 31, 2023
Due within 1 year
$
118,858
$
183,132
Due in 1 year through 2 years
23,854
15,283
Total marketable securities
$
142,712
$
198,415
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The following tables summarize the gains, losses, and estimated fair value of cash equivalents, marketable securities and liabilities as of June 30, 2024 and December 31, 2023:
As of June 30, 2024
(in thousands)
Amortized Cost/ Principal amount
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair Value
Cash equivalents:
Money market mutual funds & cash equivalents
$
97,897
$
0
$
0
$
97,897
Marketable securities:
Corporate bonds
67,977
13
( 64
)
67,926
U.S. treasury securities
42,050
0
( 95
)
41,955
Commercial paper
9,910
2
( 1
)
9,911
Agency bonds
22,946
0
( 26
)
22,920
Total marketable securities
$
142,883
$
15
$
( 186
)
$
142,712
Liabilities:
Convertible senior notes due 2026
$
345,000
$
0
$
0
$
301,875
As of December 31, 2023
(in thousands)
Amortized Cost/ Principal amount
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair Value
Cash equivalents:
Money market mutual funds & cash equivalents
$
39,754
$
0
$
0
$
39,754
Marketable securities:
Corporate bonds
64,421
157
( 33
)
64,545
U.S. treasury securities
48,061
86
( 9
)
48,138
Commercial paper
30,588
16
( 8
)
30,596
Agency bonds
55,182
24
( 70
)
55,136
Total marketable securities
$
198,252
$
283
$
( 120
)
$
198,415
Liabilities:
Convertible senior notes due 2026
$
345,000
$
0
$
0
$
280,658
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. The total purchase consideration for Makeswift was approximately $ 9.2 million which consisted of the following:
(in thousands)
Amount
Base purchase price
$
11,000
plus: Closing cash
238
minus : Deferred compensation
( 2,000
)
Total purchase consideration (1)
$
9,238
(1) Of the total purchase consideration, $ 1.1 million of cash was held back by the Company for potential breaches of representation and warranties, as well as adjustments to working capital. During the six months ended June 30, 2024 , the Company dispersed $ 0.1 million related to the working capital hold back.
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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
$
1,370
Right-of-use asset
147
Intangible assets acquired
7,890
Liabilities assumed
( 1,311
)
Deferred tax liability (1)
( 885
)
Lease liability
( 150
)
Net assets acquired, excluding goodwill
$
7,061
Total purchase consideration
$
9,238
Goodwill (1)
$
2,177
(1) Measurement period adjustments of $ 0.2 million recorded during the three months ended June 30, 2024 is primarily attributable to tax liabilities with a corresponding net decrease to goodwill. The measurement period adjustment was a result of the purchase price allocation finalization as the Company filed the Makeswift tax return for the period ended October 31, 2023 during the three months ended June 30, 2024 .
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
$
6,600
5.0
Customer relationships
1,200
3.0
Tradename
90
5.0
Total acquisition-related intangible assets
$
7,890
The $ 2.2 m illion goodwill balance is primarily attributable to synergies and expanded market opportunities that are expected to be achieved from the integration of Makeswift with the Company’s offerings and assembled workforce. The goodwill balance is not deductible for income taxes purposes.
As part of the Makeswift merger agreement, $ 2.0 million of the purchase consideration is subject to clawback if any of the key Makeswift employees voluntarily terminate their employment within 18 months after the closing date of the transaction. The $ 2.0 million is accounted for as compensation expense and therefore not included in the purchase consideration. The related compensation is recognized as post-combination expense over the 18 month service period on a straight-line basis. The Company incurre d $ 0.3 million and $ 0.7 million of compensation costs during the three and six months ended June 30, 2024, respectively. The Company has $ 1.1 million of unvested amounts of cash retention payments recorded in prepaid expenses and other current assets and other assets on the condensed consolidated balance sheet as of June 30, 2024 .
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 no impairment of goodwill as of June 30, 2024.
Intangible assets are amortized on a straight-line basis over the useful life. Intangible assets amortization was $ 2.5 million and $ 2.0 million for the three months ended June 30, 2024 and 2023 , respectively and was $ 4.9 million and $ 4.1 million for the six months ended June 30, 2024 and 2023 , respectively.
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Intangible assets consists of the following:
June 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 June 30, 2024 (in years)
Developed technology
$
19,967
$
( 10,779
)
$
9,188
$
19,967
$
( 8,401
)
$
11,566
3.1
Customer relationship
23,725
( 11,979
)
11,746
23,725
( 9,786
)
13,939
2.8
Tradename
2,560
( 1,464
)
1,096
2,560
( 1,208
)
1,352
2.2
Non-compete agreement
162
( 159
)
3
162
( 132
)
30
0.1
Other intangibles
200
( 100
)
100
485
( 320
)
165
1.5
Total intangible assets
$
46,614
$
( 24,481
)
$
22,133
$
46,899
$
( 19,847
)
$
27,052
As of June 30, 2024, expected amortization expense for intangible assets was as follows:
(in thousands)
June 30, 2024
Remaining six months of 2024
$
4,816
2025
8,046
2026
5,100
2027
3,056
2028
1,115
Thereafter
0
Total
$
22,133
7. Commitments, contingencies, and leases
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 one to three years . The Company had unconditional purchase obligations as of June 30, 2024 as follows:
(in thousands)
June 30, 2024
Remaining six months of 2024
$
4,815
2025
16,902
2026
4,976
2027 and thereafter
0
Total
$
26,693
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Leases
The Company leases certain facilities under operating lease agreements that expire at various dates through 2028 . Some of these arrangements contain renewal options and require the Company to pay taxes, insurance and maintenance costs. Renewal options were not included in the right-of-use asset and lease liability calculation. As of June 30, 2024 , there were no finance leases.
Operating expense relating to leases was $ 0.8 million and $ 0.7 million for the three months ended June 30, 2024 and 2023 , respectively, and was $ 1.3 million and $ 1.5 million for the six months ended June 30, 2024 and 2023, respectively.
The future maturities of operating lease liabilities are as f ollows:
(in thousands)
As of June 30, 2024
Remaining six months of 2024
$
1,428
2025
2,838
2026
2,555
2027
2,133
2028
718
Thereafter
0
Total minimum lease payments
$
9,672
Less imputed interest
( 855
)
Total lease liabilities
$
8,817
Restructuring charges
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. Facilities costs related to contracts or leases without future benefit are recognized at the earlier of the contract termination or the cease-use dates. Additionally, restructuring charges include considerations of various capital alternatives which include asset impairments, professional services, and other costs relating to significant items that are nonrecurring or unusual are recognized as incurred.
In September 2023, the Company commenced a restructuring plan (the “2023 Restructure”) which includes a reduction of the Company’s workforce that is intended to advance the Company’s ongoing commitment to profitable growth. The 2023 Restructuring plan has substantially been completed as of June 30, 2024.
For the three months ended June 30, 2024, the Company incurred approximately $ 2.6 million of restructuring charges primarily 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.
The following table summarizes the activities related to restructuring charges as of June 30, 2024:
(in thousands)
Liability, as of December 31, 2023
$
1,516
Additional charges
2,572
Payments
( 1,699
)
Liability, as of June 30, 2024
$
2,389
8. Other liabilities
The following table summarizes the components of other current liabilities:
As of June 30,
As of December 31,
(in thousands)
2024
2023
Sales tax payable
$
1,691
$
1,632
Payroll and payroll related expenses
11,988
13,080
Acquisition related compensation
0
403
Restructuring related charges
1,961
1,516
Other
7,649
8,154
Other current liabilities
$
23,289
$
24,785
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9. Debt
2026 Convertible Senior Notes
In September 2021, the Company issued $ 345.0 million aggregate principal amount of 0.25 percent convertible senior notes due 2026 (t he “2026 Convertible Notes”). The 2026 Convertible Notes were issued in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”). The net proceeds from the sales of the 2026 Convertible Notes was approximately $ 335.0 million after deducting offering and issuance costs related to the 2026 Convertible Notes and before the 2021 Capped Call transactions, as described below.
The 2026 Convertible Notes are the Company’s senior, unsecured obligations and 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. The 2026 Convertible Notes will mature on October 1, 2026 , unless earlier converted, redeemed or repurchased by us. Before July 1, 2026, noteholders will have the right to convert their Notes only under the following circumstances: (1) during any calendar quarter (and only during such calendar quarter) commencing after the calendar quarter ending on December 31, 2021, if the Last Reported Sale Price (as defined in the indenture for the 2026 Convertible Notes) per share of Common Stock (as defined in the indenture for the Notes) exceeds one hundred and thirty percent ( 130 percent) of the Conversion Price (as defined in the indenture for the 2026 Convertible Notes) for each of at least twenty ( 20 ) Trading Days (as defined in the indenture for the notes) (whether or not consecutive) during the thirty ( 30 ) consecutive Trading Days ending on, and including, the last Trading Day of the immediately preceding calendar quarter; (2) during the five (5) consecutive Business Days (as defined in the indenture for the 2026 Convertible Notes) immediately after any ten (10) consecutive Trading Day period (such ten (10) consecutive Trading Day period, the “Measurement Period”) if the Trading Price per $ 1,000 principal amount of Notes for each Trading Day of the Measurement Period was less than ninety-eight percent ( 98 percent) of the product of the Last Reported Sale Price per share of Common Stock on such Trading Day and the Conversion Rate (as defined in the indenture for the 2026 Convertible Notes) on such Trading Day; (3) if the Company calls any or all of the 2026 Convertible Notes for redemption, such Notes called for redemption may be converted any time prior to the close of business on the second business day immediately before the redemption date; or (4) upon the occurrence of specified corporate events. From and after July 1, 2026, noteholders may convert their Notes at any time at their election until the close of business on the second scheduled trading day immediately before the maturity date. As of June 30, 2024 and December 31, 2023, no conditions for the notes to convert have been called or met.
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 for the 2026 Convertible Notes is 13.68 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 will be subject to adjustment upon the occurrence of certain events, such as distribution of stock dividends or stock splits.
The Company may not redeem the 2026 Convertible Notes prior to October 7, 2024. The 2026 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, 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 the Company’s 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 the Company sends the related redemption notice; and (ii) the trading day immediately before the date the Company sends 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, up to, but excluding, the redemption date. Pursuant to the Partial Redemption Limitation (as defined in the indenture for the 2026 Convertible Notes), the company may not elect to redeem less than all of the outstanding Notes unless at least $ 150.0 million aggregate principal amount of Notes are outstanding and not subject to redemption as of the time the Company sends the related redemption notice.
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 Notes for cash. The repurchase price will be equal to the principal amount of the 2026 Convertible Notes to be repurchased, plus accrued and unpaid interest, if any, up to, but excluding, the applicable repurchase date.
In accounting for the issuance of the 2026 Convertible Notes, the Company recorded the 2026 Convertible Notes as a liability at face value. The effective interest rate for the 2026 Convertible Notes was 0.84 percent. Transaction costs of $ 10.0 million, attributable to the issuance of the 2026 Convertible Notes were recorded as a direct deduction from the related debt liability in the Consolidated Balance Sheet and are amortized to interest expense over the term of the 2026 Convertible Notes.
The net carrying amount of the Company’s debt consists of the following:
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(in thousands)
Date of Issuance
Maturity Date
Contractual Interest Rate
Outstanding Principal as of June 30, 2024
Carrying Value as of June 30, 2024
Carrying Value as of December 31, 2023
2026 Convertible Senior Notes
September 2021
10/1/2026
0.25
%
$
345,000
$
340,468
$
339,473
2023 Term Debt
June 2023
3/1/2025
4.40
%
417
417
688
Total carrying value of debt
340,885
340,161
Less: current portion of debt
( 417
)
( 547
)
Total long-term portion of debt
$
340,468
$
339,614
The total interest expense recognized related to the Company’s debt consists of the following:
Three months ended June 30,
Six months ended June 30,
(in thousands)
2024
2023
2024
2023
Contractual interest expense
$
222
$
228
$
445
$
457
Amortization of issuance costs
497
494
994
987
Total
$
719
$
722
$
1,439
$
1,444
Lender fees that were paid upfront to the lenders and debt issuance fees paid to third parties are recorded as a discount to the carrying amount of debt and are being amortized to interest expense over the life of the debt.
2021 Capped Call Transactions
In connection with the pricing of the 2026 Convertible Notes, the Company used $ 35.6 million of the net proceeds from the 2026 Convertible Notes to enter into privately negotiated capped call transactions (the “Capped Call Transactions”) with certain financial institutions.
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 $ 106.34 per share, which represents a premium of 100 percent over the last reported sale prices of the Company’s common stock of $ 53.17 per share on September 9, 2021, and is subject to certain adjustments under the terms of the Capped Call Transactions. Collectively, the Capped Call Transactions cover, initially, the number of shares of the Company’s common stock underlying the 2026 Convertible Notes, subject to anti-dilution adjustments substantially similar to those applicable to the 2026 Convertible Notes.
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.
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Table of Content
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 3,873,885 shares of common stock were initially authorized and reserved for issuance under the 2020 Plan. This share reserve automatically increased on January 1, 2021, 2022, and 2023 and will increase on each subsequent January 1st through and including January 1, 2031, by an amount equal to the smaller of (a) 5 % of the number of shares of common stock issued and outstanding on the immediately preceding December 31 and (b) an amount determined by the board of directors. On January 1, 2024, 2023 and January 1, 2022 the share reserve increased by 3,820,681 shares, 3,695,569 shares and 3,616,312 shares, respectively. The Company registered an additional 9,548,587 shares on Form S-8 on May 9, 2024. As of June 30, 2024 , a total of 1,096,370 registered shares of common stock remain available for future issuance under the 2020 Plan.
Stock options
Stock options generally vest and become exercisable over a service period of 4 years from the date of grant, subject to continued service. The following table summarizes the weighted-average grant date value of options and the assumptions used to develop their fair value.
Six months ended June 30,
2024
Weighted-average grant date fair value of options
$
4.54
Risk-free interest rate
4.10 %
Expected volatility
64.53 %
Expected life in years
6.10 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 six months ended June 30, 2024 was as follows:
(in thousands)
Outstanding
Weighted-Average Exercise Price
Aggregate Intrinsic Value
Balance as of December 31, 2023
5,109
$
9.54
$
20,571
Options granted under all plans
662
7.25
0
Exercised
( 385
)
2.94
1,954
Plan shares expired or canceled
( 633
)
16.12
20
Balance as of June 30, 2024
4,753
$
8.88
$
14,079
Vested and expected to vest
4,565
$
8.85
$
13,985
Exercisable as of June 30, 2024
3,456
$
7.94
$
13,543
The expected stock-based compensation expense remaining to be recognized as of June 30, 2024 is $ 7.4 million, which reflects outstanding stock option awards that are vested and outstanding stock option awards that are expected to vest. This expense will be recognized over a weighted-average period of 2.54 years.
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Restricted stock units
Restricted stock unit activity for the six months ended June 30, 2024 was as follows:
(in thousands)
Outstanding
Grant Date Fair Value
Aggregate Intrinsic Value
Balance as of December 31, 2023
6,725
$
15.86
$
65,436
Granted – restricted stock units
1,409
7.59
10,693
Granted – market-based and performance-based restricted stock units
400
8.91
2,901
Canceled
( 865
)
14.31
6,178
Vested and converted to shares
( 1,094
)
$
17.09
$
8,413
Balance as of June 30, 2024
6,575
$
13.36
$
55,579
Vested and expected to vest
5,438
$
14.05
$
43,826
The grant date fair value of the market-based awards was $ 9.91 . Significant assumptions used in the Monte Carlo simulation model for the market-based awards granted are as follows:
Six months ended June 30,
2024
Volatility
75.43 %
Risk-free interest rate
4.31 %
Dividend yield
0.00 %
As of June 30, 2024 , no market-based or performance-based restricted stock units have been canceled or vested. Stock compensation expense recognized for the market-based and performance-based awards was $ 0.1 million and $ 0.3 million for the three months ended June 30, 2024 , respectively, and was $ 0.2 million and $ 0.3 million for the six months ended June 30, 2024, respectively.
The aggregate expected stock-based compensation expense remaining to be recognized as of June 30, 2024 is $ 58.1 million related to RSUs, which reflects outstanding stock awards that are vested and outstanding stock awards that are expected to vest. This expense will be recognized over a weighted-average period of 2.34 years.
11. Income taxes
The income tax expense for the three and six months ended June 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 ( 1.16 ) percent and ( 1.11 ) percent for the three months ended June 30, 2024 and 2023, respectively. For the six months ended June 30, 2024 and 2023, the Company had an effective tax rate of ( 2.45 ) percent and ( 1.00 ) percent, respectively.
For the three and six months ended June 30, 2024 and 2023, the Company’s effective tax rate was lower than the U.S. federal statutory rate of 21 percent primarily due to the Company’s valuation allowance offsetting the benefits of losses. The Company’s current income tax expenses and benefits consist primarily of state current income tax expense, deferred income tax expense relating to the tax amortization of acquired goodwill and current income tax expense from foreign operations.
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 June 30, 2024, the Company had approxim ately $ 0.4 million in uncertain tax positions rep resenting no increase from the balance on December 31, 2023. Operating losses generated in years prior to 2019 remain open to adjustment until the statute of limitations closes for the tax year in which the net operating losses are utilized. Tax years 2019 through 2021 generally remain open to examination by the major taxing jurisdictions to which the Company is subject. The Company is currently not under audit by any taxing jurisdiction.
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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 six months ended June 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 June 30,
Six months ended June 30,
(in thousands)
2024
2023
2024
2023
Numerator:
Net loss per share available to shareholders
$
( 11,255
)
$
( 19,065
)
$
( 17,647
)
$
( 41,185
)
Denominator:
Weighted average shares outstanding
77,456
$
74,790
77,041
$
74,468
Net loss per share
$
( 0.15
)
$
( 0.25
)
$
( 0.23
)
$
( 0.55
)
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 June 30,
(in thousands)
2024
2023
Stock options outstanding
4,753
5,688
Restricted stock units
6,575
6,689
Acquisition related compensation
0
89
Convertible debt
4,719
4,719
Total potentially dilutive securities
16,047
17,185
13. Subsequent Event
On August 1, 2024, the Company entered into a privately negotiated exchange agreement with a holder of the 2026 Convertible Notes. Pursuant to the agreement, in exchange for approximately $ 161.2 million of the 2026 Convertible Notes held by the holder, the Company agreed to issue the holder $ 150.0 million of its 7.5 percent convertible senior notes due 2028 (the “2028 Convertible Notes”). The 2028 Convertible Notes will be the Company’s unsecured obligations and accrue interest at a rate of 7.5 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 by the Company. The 2028 Notes will be convertible with an initial conversion rate of 62.5000 shares of common stock per $ 1,000 principal amount of Notes, which represents an initial conversion price of $ 16.00 per share of common stock, when certain conditions are met.
Additionally, on August 1, 2024, the Company entered into separate, privately negotiated transactions with a limited number of holders of its outstanding 2026 Convertible Notes to repurchase approximately $ 120.6 million aggregate principal amount of the 2026 Convertible Notes for approximately $ 108.7 million of cash.
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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:
• our expectations regarding our revenue, expenses, sales, and operations;
• anticipated trends and challenges in our business and the markets in which we operate;
• the war involving Russia and Ukraine and the potential impact on our operations, global economic and geopolitical conditions;
• our anticipated areas of investments and expectations relating to such investments;
• our anticipated cash needs and our estimates
regarding our capital requirements, interest expense and our need for additional financing or refinancing;
• our ability to compete in our industry and innovation by our competitors;
• our ability to anticipate market needs or develop new or enhanced services to meet those needs;
• our ability to manage efficient revenue growth and profitable growth;
• our ability to establish and maintain intellectual property rights;
• our ability to manage expansion into international markets and new industries;
• our ability to hire and retain key personnel;
• our ability to successfully identify, manage, and integrate any existing and potential acquisitions;
• our ability to adapt to emerging regulatory developments, technological changes, and cybersecurity needs;
• the anticipated effect on our business of litigation to which we are or may become a party
• our ability to remediate the material weakness; and
• other statements described in this Quarterly Report on Form 10-Q under “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
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 for the fiscal year ended December 31, 2023, filed on February 29, 2024 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.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.