Item 1. Financial Statements
Item 1. Financial Statements
BigCommerce Holdings, Inc.
Condensed Consolidated B alance Sheets
(in thousands)
September 30,
December 31,
2024
2023
(unaudited)
Assets
Current assets
Cash and cash equivalents
$
35,441
$
71,719
Restricted cash
1,514
1,126
Marketable securities
132,955
198,415
Accounts receivable, net
43,378
37,713
Prepaid expenses and other assets, net
21,032
24,733
Deferred commissions
9,140
8,280
Total current assets
243,460
341,986
Property and equipment, net
9,374
10,233
Operating lease, right-of-use-assets
2,278
4,405
Prepaid expenses, net of current portion
2,412
1,240
Deferred commissions, net of current portion
5,998
7,056
Intangible assets, net
19,699
27,052
Goodwill
51,927
52,086
Total assets
$
335,148
$
444,058
Liabilities and stockholders’ equity
Current liabilities
Accounts payable
$
8,149
$
7,982
Accrued liabilities
2,771
2,652
Deferred revenue
46,352
32,242
Current portion of operating lease liabilities
2,883
2,542
Other current liabilities
26,432
25,332
Total current liabilities
86,587
70,750
Convertible notes
216,756
339,614
Operating lease liabilities, net of current portion
2,068
7,610
Other long-term liabilities, net of current portion
751
551
Total liabilities
306,162
418,525
Stockholders’ equity
Common stock
7
7
Additional paid-in capital
647,897
620,021
Accumulated other comprehensive income
380
163
Accumulated deficit
( 619,298
)
( 594,658
)
Total stockholders’ equity
28,986
25,533
Total liabilities and stockholders’ equity
$
335,148
$
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 September 30,
For the nine months ended September 30,
2024
2023
2024
2023
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
)
Basic net loss per share
$
( 0.09
)
$
( 0.27
)
$
( 0.32
)
$
( 0.82
)
Shares used to compute basic net loss per share
77,869
75,387
77,319
74,778
(1) Amounts include stock-based compensation expense and associated payroll tax costs, as follows:
For the three months ended September 30,
For the nine months ended September 30,
2024
2023
2024
2023
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
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 September 30,
Nine months ended September 30,
2024
2023
2024
2023
Net loss
$
( 6,993
)
$
( 20,310
)
$
( 24,640
)
$
( 61,495
)
Other comprehensive income (loss):
Net unrealized gain on marketable securities
557
155
217
782
Total comprehensive loss
$
( 6,436
)
$
( 20,155
)
$
( 24,423
)
$
( 60,713
)
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 nine months ended September 30, 2024
Common Stock
Additional
Paid-in
Accumulated
Accumulated
Other
Comprehensive
Stockholders’
Shares
Amount
Capital
Deficit
Income/ (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
Proceeds from exercise of stock options
77
$
0
$
238
$
0
$
0
$
238
Release of restricted stock units
532
0
( 1,086
)
0
0
( 1,086
)
Stock-based compensation
0
0
10,159
0
0
10,159
Total other comprehensive income
0
0
0
0
557
557
Net loss
0
0
0
( 6,993
)
0
( 6,993
)
Balance at September 30, 2024
78,349
$
7
$
647,897
$
( 619,298
)
$
380
$
28,986
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For the three and nine months ended September 30, 2023
Common Stock
Additional
Paid-in
Accumulated
Accumulated
Other
Comprehensive
Stockholders’
Shares
Amount
Capital
Deficit
Income/ (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 income
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
Proceeds from exercise of stock options
485
$
0
$
1,455
$
0
$
0
$
1,455
Release of restricted stock units
404
0
( 1,039
)
0
0
( 1,039
)
Issuance of common stock as consideration for an acquisition
89
0
921
0
0
921
Stock-based compensation
0
0
11,773
0
0
11,773
Total other comprehensive income
0
0
0
0
155
155
Net loss
0
0
0
( 20,310
)
0
( 20,310
)
Balance at September 30, 2023
76,082
$
7
$
611,767
$
( 591,482
)
$
( 417
)
$
19,875
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 September 30,
Nine months ended September 30,
2024
2023
2024
2023
Cash flows from operating activities
Net loss
$
( 6,993
)
$
( 20,310
)
$
( 24,640
)
$
( 61,495
)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization expense
3,484
3,137
10,482
8,981
Amortization of discount on convertible note
344
494
1,338
1,481
Amortization of convertible note premium
( 240
)
0
( 240
)
0
Stock-based compensation expense
10,159
11,773
28,556
33,550
Provision for expected credit losses
1,289
( 47
)
3,002
1,461
Impairment loss
3,031
0
3,031
0
Gain on lease modification
( 988
)
0
( 988
)
0
Gain on convertible note extinguishment
( 12,110
)
0
( 12,110
)
0
Other
0
171
( 37
)
171
Changes in operating assets and liabilities:
Accounts receivable
445
401
( 8,933
)
( 1,359
)
Prepaid expenses
2,041
( 2,087
)
1,016
( 5,571
)
Deferred commissions
389
( 1,002
)
198
( 1,774
)
Accounts payable
1,022
( 220
)
( 223
)
( 748
)
Accrued and other liabilities
( 235
)
( 26,858
)
( 668
)
( 24,753
)
Deferred revenue
3,935
3,119
14,110
12,534
Net cash provided by (used in) operating activities
5,573
( 31,429
)
13,894
( 37,522
)
Cash flows from investing activities:
Cash paid for acquisition
0
0
( 100
)
0
Purchase of property and equipment
( 1,064
)
( 1,055
)
( 2,934
)
( 3,135
)
Maturity of marketable securities
59,670
83,135
151,635
206,207
Purchase of marketable securities
( 49,355
)
( 55,681
)
( 85,957
)
( 189,075
)
Net cash provided by investing activities
9,251
26,399
62,644
13,997
Cash flows from financing activities:
Proceeds from exercise of stock options
238
1,455
1,483
3,700
Taxes paid related to net share settlement of stock options
( 1,086
)
( 1,039
)
( 2,411
)
( 3,269
)
Proceeds from financing obligation
0
0
0
1,081
Payment of convertible note issuance costs
( 2,520
)
0
( 2,520
)
0
Repayment of convertible notes and financing obligation
( 108,709
)
( 131
)
( 108,980
)
( 131
)
Net cash provided by (used in) financing activities
( 112,077
)
285
( 112,428
)
1,381
Net change in cash and cash equivalents and restricted cash
( 97,253
)
( 4,745
)
( 35,890
)
( 22,144
)
Cash and cash equivalents and restricted cash, beginning of period
134,208
75,631
72,845
93,030
Cash and cash equivalents and restricted cash, end of period
$
36,955
$
70,886
$
36,955
$
70,886
Supplemental cash flow information:
Cash paid for interest
$
2,018
$
442
$
2,463
$
873
Cash paid for taxes
$
93
$
129
$
275
$
341
Noncash investing and financing activities:
Capital additions, accrued but not paid
$
106
$
224
$
224
$
224
Fair value of shares issued as consideration for acquisition
$
0
$
921
$
248
$
921
Principal amount of 2028 Convertible Notes exchanged
$
150,000
$
0
$
150,000
$
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.
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.
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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;
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
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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 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 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
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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 $ 7.8 million as of September 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 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 $ 1.2 million and $ 1.5 million for credit losses related to contract assets as of September 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 $ 3.7 million and $ 26.6 million of previously deferred revenue during the three and nine months ended September 30, 2024.
Remaining performance obligation
As of September 30, 2024 , the Company had $ 184.2 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 September 30, 2024
$
109,420
$
74,818
$
184,238
As of September 30, 2023
93,783
63,408
157,191
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 September 30, 2024 and December 31, 2023 included unbilled receivables of $ 11.2 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
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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
$
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
Provision for expected credit losses
1,289
Write-offs charged against the allowance
( 929
)
Balance at September 30, 2024
$
6,049
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 four years .
The Company values RSUs at the closing market price on the date of grant. 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.
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
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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 deferre d 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
$
62,826
$
58,709
$
185,582
$
168,652
Partner and services
20,884
19,336
60,317
56,593
Revenue
$
83,710
$
78,045
$
245,899
$
225,245
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
$
63,682
$
60,019
$
187,249
$
172,374
Americas – other (1)
3,893
3,499
11,445
10,273
EMEA
9,709
8,631
28,182
25,263
APAC
6,426
5,896
19,023
17,335
Revenue
$
83,710
$
78,045
$
245,899
$
225,245
(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 12 percent for the three and nine months ended September 30, 2024. No single region, other than the United States and EMEA, represented more than ten percent of total revenue during the three and nine months ended September 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 nine months ended September 30, 2024 and the year ended December 31, 2023.
Sales commissions o f $ 2.2 million and $ 3.0 million were deferred for the three months ended September 30, 2024 and 2023 , respectively; and $ 7.0 million and $ 7.3 million were deferred for the nine months ended September 30, 2024 and 2023, respectively.
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Deferred commission amortization expense wa s $ 2.6 million and $ 1.9 million for the three months ended September 30, 2024 and 2023 , respectively; and $ 7.3 million an d $ 5.2 million for the nine months ended September 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 (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:
• 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, 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
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
$
3,948
$
0
$
0
$
3,948
Marketable securities:
Corporate bonds
0
40,322
0
40,322
U.S. treasury securities
80,327
0
0
80,327
Agency bonds
0
12,306
0
12,306
Total marketable securities
$
80,327
$
52,628
$
0
$
132,955
(1) Included in “Cash and cash equivalents” in the accompanying Condensed Consolidated Balance Sheets, in addition t o $ 33.0 million of cash, as of September 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
(1) Included in “Cash and cash equivalents” in the accompanying Condensed Consolidated Balance Sheets, in addition t o $ 33.1 million
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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
$
113,469
$
183,132
Due in 1 year through 2 years
19,486
15,283
Total marketable securities
$
132,955
$
198,415
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
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair Value
Cash equivalents:
Money market mutual funds & cash equivalents
$
3,948
$
0
$
0
$
3,948
Marketable securities:
Corporate bonds
40,102
220
( 0
)
40,322
U.S. treasury securities
80,183
150
( 6
)
80,327
Agency bonds
12,290
20
( 4
)
12,306
Total marketable securities
$
132,575
$
390
$
( 10
)
$
132,955
As of December 31, 2023
(in thousands)
Amortized Cost
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
5. Business combination s
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 nine months ended September 30, 2024, the Compan y 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 adjust ments of $ 0.2 million recorded 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 fiscal 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-c ombination expense over the 18 month service period on a straight-line basis. The Company incurred $ 0.3 million and $ 1.0 million of compensation costs during the three and nine months ended September 30, 2024, respectively. The Company ha s $ 0.8 million of unvested amounts of cash r etention payments recorded in prepaid expenses and other current assets and other assets on the condensed consolidated balance sheet as of September 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 September 30, 2024.
Intangible assets are amortized on a straight-line basis over the useful life. Intangible assets amortization was $ 2.4 million and $ 2.0 million for the three months ended September 30, 2024 and 2023 , respectively and was $ 7.4 million and $ 6.1 million for the nine months ended September 30, 2024 and 2023, respectively. There was no impairment of intangible assets as of September 30, 2024.
Intangible assets consists of the following:
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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
$
19,967
$
( 11,969
)
$
7,998
$
19,967
$
( 8,401
)
$
11,566
3.0
Customer relationships
23,725
( 13,075
)
10,650
23,725
( 9,786
)
13,939
2.6
Tradename
2,560
( 1,592
)
968
2,560
( 1,208
)
1,352
2.0
Non-compete agreement
0
0
0
162
( 132
)
30
0.0
Other intangibles
200
( 117
)
83
485
( 320
)
165
1.3
Total intangible assets
$
46,452
$
( 26,753
)
$
19,699
$
46,899
$
( 19,847
)
$
27,052
As of September 30, 2024, expected amortization expense for intangible assets was as follows:
(in thousands)
September 30, 2024
Remaining three months of 2024
$
2,382
2025
8,046
2026
5,100
2027
3,056
2028
1,115
Thereafter
0
Total
$
19,699
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 one to three years . The Company had unconditional purchase obligations as of September 30, 2024 as follows:
(in thousands)
September 30, 2024
Remaining three months of 2024
$
3,729
2025
16,667
2026
4,976
2027 and thereafter
0
Total
$
25,372
Leases
The Company leases certain facilities under operating lease agreements that expire at various dates through 2029 . 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 September 30, 2024 , there were no finance leases. There was no impairment of right-of-use assets, excepted as discussed in the restructuring charges footnote, as of September 30, 2024.
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Operating expense relating to leases w as $ 0.6 million and $ 0.7 million for the three months ended September 30, 2024 and 2023 , respectively, and was $ 2.0 million and $ 2.1 million for the nine months ended September 30, 2024 and 2023, respectively.
The future maturities of operating lease liabilities are as f ollows:
(in thousands)
As of September 30, 2024
Remaining three months of 2024
$
791
2025
2,718
2026
890
2027
425
2028
444
Thereafter
346
Total minimum lease payments
$
5,614
Less imputed interest
( 663
)
Total lease liabilities
$
4,951
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 $ 9.8 million of restructuring charges for the three months ended September 30, 2024 consisting primarily of severance benefits, right-of-use asset impairments, lease termination gain, software impairments, and professional services costs. Within the condensed consolidated balance sheet, the liability for severance benefits of $ 6.2 million as of September 30, 2024 is recorded to other current liabilities and $ 0.5 million of professional services costs are recorded in accounts payable and other current liabilities. The Company expects to incur additional costs relating 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.
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 $ 1.9 million. The Company plans to continue to lease the property through September 2025. Upon termination of the lease, the Company recognized a gain of approximately $ 1.0 million, representing the lease liability remeasurement of approximately $ 2.9 million, net of the $ 1.9 million carrying value of the right-of-use asset.
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 $ 0.7 million in right-of-use asset and the associated furniture, equipment, and leasehold improvements of $ 0.2 million. These amounts are recorded in restructuring charges on the accompanying condensed consolidated statement of operations for the three and nine months ended September 30, 2024.
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 $ 2.1 million.
In June 2024, the Company started incurring restructuring charges, rela ted 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 $ 2.7 million of costs related to these activities.
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 ongoi ng commitment to profitable growth. In fiscal 2024, the Company made payments of $ 1.4 million related to previously recognized expenses and has not recorded any additional charges related to the
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2023 Restructure. As of September 30, 2024, a liability for severance benefits of approximately $ 0.1 million was recorded in Other current liabilities within the condensed consolidated balance sheet. The 2023 Restructure is substantially complete.
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
$
1,516
$
0
$
0
$
1,516
$
0
$
0
$
0
$
0
Additional charges
6,923
138
3,348
10,409
5,595
0
0
5,595
Impairment loss
0
3,031
0
3,031
0
0
0
0
Gain on lease termination
0
( 988
)
0
( 988
)
0
0
0
0
Payments
( 2,142
)
( 38
)
( 2,805
)
( 4,985
)
( 3,944
)
0
0
( 3,944
)
Non-cash items
0
( 2,042
)
0
( 2,042
)
( 135
)
0
0
( 135
)
Liability, end of the period
$
6,297
$
101
$
543
$
6,941
$
1,516
$
0
$
0
$
1,516
(1) Other restructuring charges o f $ 3.3 million recorded during the nine months ended September 30, 2024 is comprised of $ 2.7 million of inbound inquiries and interest in the Company and $ 0.6 million of professional services costs associated with the new go-to-market approach.
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
$
1,443
$
1,632
Payroll and payroll related expenses
10,190
13,080
Acquisition related compensation
0
403
Restructuring related charges
6,653
1,516
Short-term financing obligation
279
547
Other
7,867
8,154
Other current liabilities
$
26,432
$
25,332
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*
$
150,000
$
4,360
$
154,360
$
157,515
3
$
0
$
0
$
0
$
0
2026 Convertible Notes**
63,132
( 736
)
62,396
55,912
2
345,000
( 5,527
)
339,473
280,658
2
Total carrying value of convertible notes (1)
216,756
339,473
(1) Included in “Convertible Notes” in the accompanying Condensed Consolidated Balance Sheets, is $ 0.1 million of 2023 financing
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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 fair value is influenced by interest rates, the Company's stock price and is determined by prices observed in market trading. Since the market for trading of the 2026 Convertible Notes is not considered to be an active market, the estimated fair value is based on Level 2 inputs.
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
(in thousands)
Conversion Rate for Each $1,000 Principal
Initial Conversion Price per Share
2028 Convertible Notes
August 2024
10/1/2028
7.50
%
$
150,000
$
62.50
$
16.00
2026 Convertible Notes
September 2021
10/1/2026
0.25
%
$
63,132
$
13.68
$
73.11
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
$
1,804
$
226
$
2,249
$
684
Amortization of premium and issuance costs
104
495
1,099
1,481
Total
$
1,908
$
721
$
3,348
$
2,165
2028 Convertible Notes
In August 2024 , the Company entered into a privately negotiated exchange agreement (the "Exchange Agreement") with a holder of its 0.25 percent unsecured convertible senior notes due 2026 (the "2026 Convertible Notes"). Pursuant to the Exchange Agreement, the Company exchanged (the "Exchange Transaction") approximately $ 161.2 million in aggregate principal amount of the 2026 Convertible Notes for $ 150.0 million in aggregate principal amount of new 7.50 percent convertible senior notes due 2028 (the “2028 Convertible Notes”) and approximately $ 0.1 million in cash, with such payment representing the accrued and unpaid interest on such 2026 Convertible Notes. This transaction resulted in a net gain on extinguishment of the 2026 Convertible Notes of $ 1.7 million, net of a $ 2.0 million write-off of unamortized debt issuance costs, which was recorded in Gain on convertible note extinguishment in the condensed consolidated statements of operations.
The 2028 Convertible Notes are senior, initially unsecured obligations of the Company and 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 by the Company. 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 delivery, 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 2028 Convertible Notes will be convertible with an initial conversion rate of 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, when certain conditions are met. The conversion rate and conversion price will be subject to adjustments related to standard anti-dilution provisions upon the occurrence of certain events.
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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 $ 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 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 $ 150.0 million aggregate principal amount of 2028 Convertible Notes at fair value of $ 157.5 million and related debt issuance costs as a reduction to the fair value of $ 3.0 million. Debt issuance costs are recorded as a contra-liability and amortized over the term of the 2028 Convertible Notes utilizing an effective interest rate of 8.03 percent. The $ 7.5 million premium related to the fair value adjustment of the 2028 Convertible Notes is amortized using an effective interest rate of 6.12 percent. The Company is in compliance with the terms of the indenture, and has not experienced any events that would constitute an event of default.
2026 Convertible Notes
In September 2021 , the Company issued $ 345.0 million aggregate principal amount of its 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. Interest on the 2026 Convertible Notes accrue at a rate of 0.25 percent per annum, payable 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. This transaction resulted in a net gain on extinguishments of debt of $ 10.4 million, net of a $ 1.5 million write-off of unamortized debt issuance costs which was recorded in Gain on debt extinguishment in the Statement of Operations.
Following the Repurchase Transactions, approximately $ 63.1 million principal amount of 2026 Convertible Notes remain outstanding. The remaining unamortized debt issuance costs are recorded as a contra-liability and are amortized utilizing the effective interest rate of 0.84 percent over the term of the 2026 Convertible Notes.
The remaining outstanding 2026 Convertible Notes will mature on October 1, 2026 , unless earlier converted, redeemed or repurchased by the Company. Before July 1, 2026, noteholders will have the right to convert the remaining outstanding 2026 Convertible Notes only under the following circumstances: (1) during any calendar quarter, 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 2026 Convertible 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 2026 Convertible 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 2026 Convertible 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 2026 Convertible 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 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. As of September 30, 2024 and December 31, 2023 , no conversion for the remaining outstanding 2026 Convertible notes have been called or met. In addition to the above conditions, the Company must not consummate any privately
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negotiated repurchases or exchanges of the notes if the yield to maturity of the notes is less than 5.23 percent (calculated at the time the definitive documentation is executed).
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 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 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 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. In connection with the Exchange Transaction, the Company agreed that it will not consummate any privately negotiated repurchases or exchanges of 2026 Convertible Notes on or before April 7, 2025 if the yield to maturity (as defined in the Exchange Agreement) of 2026 Convertible Notes in such a transaction is greater than 5.23 percent, calculated at the time definitive documentation related to such transaction is executed. 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 2026 Convertible 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 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 $ 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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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, 2023, and 2024 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 September 30, 2024 , a total of 9,996,094 , 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.
Nine months ended September 30,
Nine months ended September 30,
2024
2023
Weighted-average grant date fair value of options
$
4.54
$
6.56
Risk-free interest rate
4.10 %
3.65 % - 4.30 %
Expected volatility
64.53 %
65.27 % - 66.57 %
Expected life in years
6.10 years
6.06 - 6.11 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
5,109
$
9.54
$
20,571
Options granted under all plans
662
7.25
0
Exercised
( 462
)
2.97
2,226
Plan shares expired or canceled
( 676
)
16.70
29
Balance as of September 30, 2024
4,633
$
8.83
$
7,924
Vested and expected to vest
4,362
$
8.77
$
7,924
Exercisable as of September 30, 2024
3,416
$
8.12
$
7,924
The expected stock-based compensation expense remaining to be recognized as of September 30, 2024 is $ 5.5 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 2.39 years.
Restricted stock units
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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
6,725
$
15.86
$
65,436
Granted – restricted stock units
1,502
7.48
11,236
Granted – market-based and performance-based restricted stock units
400
8.91
2,901
Canceled
( 978
)
14.07
6,849
Vested and converted to shares
( 1,799
)
$
18.43
$
12,686
Balance as of September 30, 2024
5,850
$
12.45
$
36,101
Vested and expected to vest
4,792
$
13.11
$
28,031
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:
Nine months ended September 30,
2024
Volatility
75.43 %
Risk-free interest rate
4.31 %
Dividend yield
0.00 %
As of September 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 September 30, 2024 , and was $ 0.3 million and $ 0.6 million for the nine months ended September 30, 2024.
The aggregate expected stock-based compensation expense remaining to be recognized as of September 30, 2024 is $ 48.1 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 2.18 years.
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 ( 4.00 ) percent and ( 0.72 ) percent for the three months ended September 30, 2024 and 2023, respectively. For the nine months ended September 30, 2024 and 2023, the Company had an effective tax rate of ( 2.89 ) percent and ( 0.91 ) p ercent, respectively.
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 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 September 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 2020 remain open to adjustment until the statute of limitations closes for the tax year in which the net operating losses are utilized. Tax years 2020 through 2023 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 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
$
( 6,993
)
$
( 20,310
)
$
( 24,640
)
$
( 61,495
)
Denominator:
Weighted average shares outstanding
77,869
$
75,387
77,319
$
74,778
Net loss per share
$
( 0.09
)
$
( 0.27
)
$
( 0.32
)
$
( 0.82
)
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
4,633
5,300
Restricted stock units
5,850
6,500
Acquisition related compensation
0
42
Convertible notes
10,239
4,719
Total potentially dilutive securities
20,722
16,561
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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;
• the anticipated benefits and opportunities related to past and ongoing restructuring may not be realized or may take longer to realize than expected;
• our ability to manage key executive succession and retention or continue to attract qualified personnel;
• 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 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.
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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.