Commerce.com, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. In addition to historical condensed consolidated financial information, the following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report on Form 10-Q, particularly in “Risk Factors.” See “Special Note Regarding Forward-Looking Statements.” Investors and others should note that we announce material financial information to our investors using our investor relations website (investors.bigcommerce.com), SEC filings, press releases, public conference calls and webcasts. We intend to use our investor relations website as a means of disclosing information about our business, our financial condition and results of operations and other matters and for complying with our disclosure obligations under Regulation FD. The information we post on our investor relations website, including information contained in investor presentations, may be deemed material. Accordingly, investors should monitor our investor relations website, in addition to following our press releases, SEC filings and public conference calls and webcasts. Overview BigCommerce is leading a new era of ecommerce. Our SaaS platform simplifies the creation of online stores by delivering a unique combination of ease-of-use, enterprise functionality, composability and flexibility. We allow merchants to build their ecommerce solution their way with the flexibility to fit their unique business and product offerings. We power both our customers’ branded ecommerce stores and their cross-channel connections to popular online marketplaces, social networks, and offline point of sale systems. Our strategy is to provide the world’s best combination of freedom of choice and flexibility in a multi-tenant SaaS platform. We describe this strategy as “Open SaaS.” As of September 30, 2024 we served 5,892 accounts with at least one unique enterprise plan subscription or an enterprise-level feed management subscription (collectively “enterprise accounts”). These accounts may have more than one Enterprise plan or a combination of Enterprise plans and Essentials plans. We provide a comprehensive platform for launching and scaling an ecommerce operation, including store design, catalog management, hosting, checkout, order management, reporting, and pre-integration into third-party services like payments, shipping, and accounting. All of our stores run on a single code base and share a global, multi-tenant architecture purpose built for security, high performance, and innovation. Our platform serves stores in a wide variety of sizes, product categories, and purchase types, including B2C and B2B. We offer access to our platform on a subscription basis. We serve customers with subscription plans tailored to their size and feature needs. For our larger customers, our Enterprise plan offers our full feature set at a subscription price tailored to each business. For small and medium business ("SMBs"), we offer three retail plans: Standard, Plus, and Pro, priced at $29, $79, and $299 per month (our “Essentials” plans) when pre-paid annually, or $39, $105, and $399 per month (our “Essentials plans”), when paid monthly, respectively. Our Essentials plans include GMV thresholds with programmatic upgrades built in as merchants exceed each plan’s threshold. Our differentiated Open SaaS technology approach combines the flexibility and customization potential of open source software with the performance, security, usability, and value benefits of multi-tenant SaaS. This combination helps businesses turn digital transformation into competitive advantage. While some software conglomerate providers attempt to lock customers into their proprietary suites, we focus on the configurability and flexibility of our open platform, enabling each business to optimize their ecommerce approach based on their specific needs. Partners are essential to our open strategy. We believe we possess one of the deepest and broadest ecosystems of integrated technology solutions in the ecommerce industry. We strategically partner with, rather than compete against, the leading providers in adjacent categories, including payments, shipping, point of sale, content management system, customer relationship management, and enterprise resource planning. We focus our research and development investments in our core product to create a best-of-breed ecommerce platform and co-market and co-sell with our strategic technology partners to our mutual prospects and customers. As a result, we earn high-margin revenue share from a subset of our strategic technology partners, which complements the high gross margin of our core ecommerce platform. Our business has achieved significant growth since our inception. We plan to continue to invest in our “Open SaaS” strategy, building new partnerships and continuing to develop a platform that offers best-of-breed functionality with the cost-effectiveness of multi-tenant SaaS. As we work to develop and deliver this platform for our customers, we will also invest and grow our business by acquiring additional customers to our platform, growing our revenue with existing customers, cross-selling owned and partner solutions to existing customers, expanding our presence in new markets and geographies, and considering targeted acquisitions that can enhance our service to customers. 27 Table of Content Key factors affecting our performance Our operational and financial results have been, and will continue to be, affected by a number of factors that present significant opportunities as well as risks and challenges, including those discussed below and elsewhere in this quarterly report and in our Annual Report, particularly in Part I, Item 1A, “Risk Factors” The key factors discussed below impacted our 2023 results or are anticipated to impact our future results . “Go-to-Market” Strategy We reorganized our business teams and leadership structure to introduce clear and unified end to end ownership of the customer. Sales, customer success, marketing, and our business development teams have congruent and clear targets that unify their efforts around customer success and growth. We centralized end to end customer success ownership under our Company's Chief Executive Officer, Travis Hess. Mr. Hess oversees all go-to-market efforts across the business, including the platform product, Feedonomics, and partner and services revenue. Additionally, we appointed Ms. Siminoff as Executive Chair of the Board to work with Mr. Hess and other members of the Company's executive team to provide, among other things, strategic expertise, leadership, and direction to the Board and senior management. We continue to advance efficient revenue growth by ensuring investments spent in our go-to-market strategy yield greater returns for our customers and for us. We are focusing on brand architecture and integration and product strategy to shape our strategy moving forward: • Brand architecture and integration - We are streamlining our brand architecture to focus on integrating the capabilities of our platform with Feedonomics and Makeswift to offer a more comprehensive solution for our customers. • Product strategy - We remain committed to driving value and business growth serving our core customers: mid-market and enterprise B2C and B2B customers, and sophisticated small business customers. We will focus our investments and innovation to serve these customers, including through the continued rollout of Catalyst for our B2C customers, continuing integration of our B2B features into our platform, and the launching of a hosted Catalyst solution that offers our small business customers a more cost-effective, easy-to-use platform. We have made strategic organizational changes that will allow us to scale efficiently to support these initiatives as described below in our results of operations. Macroeconomic environment and customer spend Consumer spending remains resilient across our major markets. We are encouraged overall by the underlying consumption signals that we are seeing in our business. 2024 Restructure As discussed in Note 7 to our condensed consolidated financial statements, on September 30, 2024, we committed to a restructuring plan (the "2024 Restructure") intended to reinvest in product delivery and increase sales capacity, reduce operating costs, improve operating margins and continue to advance our commitment to profitable growth. The 2024 Restructure includes a reduction of our workforce, exits of certain office leases, impairment of certain software development projects and contract amendments and terminations to better align operating expenses with existing economic conditions and the Company’s strategic priorities. Affected employees were notified on November 7, 2024, and are being provided severance arrangements. We anticipate to incur additional expense related to the 2024 Restructure of approximately $3.5 million to $5.7 million through fiscal 2025 relating to severance benefits, contract terminations, accelerated depreciation, right-of-use asset impairments, software impairments, and professional services costs. The additional expenses we expect to incur are subject to assumptions, and actual expenses may differ from the estimates disclosed above. Business metrics We review the following business metrics to measure our performance, identify trends affecting our business, formulate business plans, and make strategic decisions. Increases or decreases in our business metrics may not correspond with increases or decreases in our revenue. As an example, some of our business metrics include annual revenue run-rate (“ARR”), subscription annual revenue run-rate (“Subscription ARR”), average revenue per account, lifetime value (“LTV”) to customer acquisition costs (“CAC”) and others are calculated as of the end of the last month of the reporting period. 28 Table of Content Annual revenue run-rate We calculate ARR at the end of each month as the sum of: (1) contractual monthly recurring revenue at the end of the period, which includes platform subscription fees, invoiced growth adjustments, product feed management subscription fees, recurring professional services revenue, and other recurring revenue, multiplied by twelve to prospectively annualize recurring revenue, and (2) the sum of the trailing twelve-month non-recurring and variable revenue, which includes one-time partner integrations, one-time fees, payments revenue share, and any other revenue that is non-recurring and variable. Subscription annual revenue run-rate We calculate Subscription ARR at the end of each month as the sum of contractual monthly recurring revenue at the end of the period, which includes platform subscription fees, invoiced growth adjustments, product feed management subscription fees, recurring professional services revenue, and other recurring revenue, multiplied by twelve to prospectively annualize recurring revenue. Average revenue per account We calculate average revenue per account (“ARPA”) at the end of a period by including customer-billed revenue and an allocation of partner and services revenue, where applicable. We bill customers for subscription solutions and professional services, and we include both in ARPA for the reported period. For example, ARPA as of September 30, 2024, includes all subscription solutions and professional services billed between January 1, 2024, and September 30, 2024. We allocate partner revenue, where applicable, primarily based on each customer’s share of GMV processed through that partner’s solution. Partner revenue that is not directly linked to customer usage of a partner’s solution is allocated based on each customer’s share of total platform GMV. Each account’s partner revenue allocation is calculated by taking the account’s trailing twelve-month partner revenue, then dividing by twelve to create a monthly average to apply to the applicable period in order to normalize ARPA for seasonality. Enterprise Account metrics To measure the effectiveness of our ability to execute against our growth strategy, particularly within the mid-market and enterprise lines of business, we calculate ARR attributable to Enterprise Accounts. The chart below illustrates certain of our key business metrics as of the periods ended: September 30, 2024 June 30, 2024 March 31, 2024 December 31, 2023 September 30, 2023 ARR (in thousands) $ 347,787 $ 345,832 $ 340,147 $ 336,541 $ 332,245 Subscription ARR (in thousands) $ 263,933 $ 263,526 $ 258,566 $ 256,412 $ 256,518 Enterprise Account metrics: Number of Enterprise Accounts 5,892 5,961 5,970 5,994 5,951 ARR attributable to Enterprise Accounts (in thousands) $ 256,893 $ 253,798 $ 248,236 $ 245,100 $ 240,602 ARR attributable to Enterprise Accounts as a percentage of ARR 74 73 73 73 72 Average Revenue Per Account $ 43,600 $ 42,576 $ 41,581 $ 40,891 $ 40,431 Lifetime value to customer acquisition costs We measure the efficiency of new customer acquisition by comparing the lifetime value of newly-acquired customers to the customer acquisition costs of the associated time period to get an “LTV:CAC ratio.” We calculate LTV as gross profit from new sales during the four quarters of any given year divided by the estimated future subscription churn rate. Net revenue retention We use net revenue retention (“NRR”) to evaluate our ability to maintain and expand our revenue with our account base of enterprise customers exceeding the ACV threshold over time. The total billings and allocated partner revenue, where applicable, for the measured period are divided by the total billings and allocated partner revenue for such accounts, corresponding to the period one year prior. An NRR greater than 100 percent implies positive net revenue retention. This methodology includes stores added to or subtracted from an account’s subscription during the previous twelve months. It also includes changes to subscription and partner and services revenue billings, and revenue reductions from stores or accounts that leave the platform during the previous one-year period. Net new accounts added after the previous one-year period are excluded from our NRR calculations. NRR for enterprise accounts was 100 percent and 111 percent for the years ended December 31, 2023 and 2022, respectively. We update our reported NRR at the end of each fiscal year and do not report quarterly changes in NRR. 29 Table of Content Components of results of operations Revenue We generate revenue from two sources: (1) subscription solutions revenue and (2) partner and services revenue. Subscription solutions revenue consists primarily of platform subscription fees from plans and recurring professional services. Subscription solutions are charged monthly, quarterly, or annually for our customers to sell their products and process transactions on our platform. Subscription solutions are generally charged per online store and are based on the store’s subscription plan. Our Enterprise plan contracts are generally for a fixed term of 12 to 36 months and are non-cancelable. Our pricing strategy provides enterprise merchants a discount for a period of time from their contractual monthly. Merchants have full access to the functionality of our platform upon contract execution, and revenue is recognized ratably over the contract life. Our retail plans are generally month-to-month contracts. Monthly subscription fees for Enterprise plans are adjusted if a customer’s GMV or orders processed are outside of specified plan thresholds on a trailing twelve-month basis. Fixed monthly fees and any transaction charges related to subscription solutions are recognized as revenue in the month they are earned. Through Feedonomics, we provide feed management solutions under service contracts which are generally one year or less and, in many cases, month-to-month. These service types may be sold stand-alone or as part of a multi-service bundle (e.g. both marketplaces and advertising) and are billed monthly in arrears. We generate partner revenue from our technology application ecosystem. Customers tailor their stores to meet their feature needs by integrating applications developed by our strategic technology partners. We enter into contracts with our strategic technology partners that are generally for one year or longer. We generate revenue from these contracts in three ways: (1) revenue-sharing arrangements, (2) technology integrations, and (3) partner marketing and promotion. We recognize revenue on a net basis from revenue-sharing arrangements when the underlying transaction occurs. We also generate revenue from non-recurring professional services that we provide to complement the capabilities of our customers and their agency partners. Our services help improve customers’ time-to-market and the success of their businesses using BigCommerce. Our non-recurring services include education packages, launch services, solutions architecting, implementation consulting, and catalog transfer services. Cost of revenue Cost of revenue consists primarily of: (1) personnel-related costs (including stock-based compensation expense and associated payroll costs) for our customer success teams, (2) costs that are directly related to hosting and maintaining our platform, (3) fees for processing customer payments such as credit card processing charges, (4) personnel and other costs related to feed management, and (5) allocated costs, such as, depreciation, technology and facility costs. As a result of our growth plans and integration of our previously acquired businesses, we have incurred expenses for equity and amortization of purchased intangibles. Sales and marketing Sales and marketing expenses consist primarily of: (1) personnel-related expenses (including stock-based compensation expense and associated payroll costs), (2) sales commissions, (3) marketing programs, (4) travel-related expenses, and (5) allocated overhead sales and support costs such as technology and facility costs. We focus our sales and marketing efforts on creating sales leads and establishing and promoting our brand. We plan to increase our investment in sales and marketing by executing our go-to-market strategy globally and building our brand awareness. Incremental sales commissions for new customer contracts are deferred and amortized ratably over the estimated period of our relationship with such customers. Research and development Research and development expenses consist primarily of personnel-related expenses (including stock-based compensation expense and associated payroll costs) incurred in maintaining and developing enhancements to our ecommerce platform and allocated overhead costs. Software development costs associated with internal use software which are incurred during the application development phase and meet other requirements are capitalized. We believe delivering new functionality is critical to attracting new customers and enhancing the success of existing customers. We expect to continue to make investments in research and development. 30 Table of Content General and administrative General and administrative expenses consist primarily of: (1) personnel-related expenses (including stock-based compensation expense and associated payroll costs) for finance, legal and compliance, and human resources, (2) external professional services, and (3) allocated overhead costs, such as technology and facility costs. Acquisition related expenses Acquisition related expenses consists of cash payments for third-party acquisition costs and other acquisition related expenses, including contingent compensation arrangements entered into in connection with acquisitions. Restructuring charges Restructuring charges consist primarily of severance payments, right-of-use asset impairments, lease termination gain, software impairments, and professional services costs. Amortization of intangible assets Amortization of intangible assets consist of amortization of acquired intangible assets which were recognized as a result of business combinations and are being amortized over their expected useful life. Gain on convertible notes extinguishment Gains recorded net of proportionate share of unamortized debt issuance costs and certain third party transaction costs relate to the repurchase transactions of the 2026 Convertible Notes and exchange transaction of the 2026 Convertible Notes for the 2028 Convertible Notes. Interest income Interest income is earned on our cash, cash equivalents and marketable securities. Interest expense Interest expense consists primarily of the interest expense from the amortization of the debt issuance costs and coupon interest attributable to our 2028 and 2026 Convertible Notes with offsetting amortization of the debt premium related to the 2028 Convertible Notes, as well as interest associated with a financing agreement entered into in the first half of 2023. Other expense Other expense primarily consists of foreign currency translation adjustments. Provision for income taxes Our provision for income taxes consists primarily of deferred income taxes associated with amortization of tax deductible goodwill and current income taxes related to certain foreign and state jurisdictions in which we conduct business. For U.S. federal income tax purposes and in certain foreign and state jurisdictions, we have NOL carryforwards. The foreign jurisdictions in which we operate have different statutory tax rates than those of the United States. Additionally, certain of our foreign earnings may also be currently taxable in the United States. Accordingly, our effective tax rate will vary depending on the relative proportion of foreign to domestic income, use of foreign tax credits, changes in the valuation of our deferred tax assets and liabilities, applicability of any valuation allowances, and changes in tax laws in jurisdictions in which we operate. 31 Table of Content Results of operations The following table summarizes our historical consolidated statement of operations data. The period-to-period comparison of operating results is not necessarily indicative of results for future periods. Three months ended September 30, Nine months ended September 30, 2024 2023 2024 2023 (in thousands) Revenue $ 83,710 $ 78,045 $ 245,899 $ 225,245 Cost of revenue (1) 19,863 19,054 58,113 55,256 Gross profit 63,847 58,991 187,786 169,989 Operating expenses: (1) Sales and marketing 33,140 36,253 99,997 105,898 Research and development 20,841 21,703 61,116 63,951 General and administrative 16,435 14,342 46,800 45,264 Amortization of intangible assets 2,434 2,033 7,353 6,099 Acquisition related costs 334 1,067 1,001 9,317 Restructuring charges 9,880 5,795 12,452 6,215 Total operating expenses 83,064 81,193 228,719 236,744 Loss from operations (19,217 ) (22,202 ) (40,933 ) (66,755 ) Gain on convertible note extinguishment 12,110 0 12,110 0 Interest income 2,433 3,059 8,807 8,310 Interest expense (1,908 ) (721 ) (3,348 ) (2,165 ) Other expense (142 ) (301 ) (585 ) (333 ) Loss before provision for income taxes (6,724 ) (20,165 ) (23,949 ) (60,943 ) Provision for income taxes (269 ) (145 ) (691 ) (552 ) Net loss $ (6,993 ) $ (20,310 ) $ (24,640 ) $ (61,495 ) (1) Amounts include stock-based compensation expense and associated payroll tax costs, as follows: Three months ended September 30, Nine months ended September 30, 2024 2023 2024 2023 (in thousands) Cost of revenue $ 1,114 $ 1,323 $ 2,798 $ 3,802 Sales and marketing 3,327 3,626 8,332 10,059 Research and development 3,766 4,124 10,515 11,570 General and administrative 2,685 3,028 7,859 8,680 Revenue by geographic region The composition of our revenue by geographic region during the three and nine months ended September 30, 2024 and September 30, 2023 were as follows: Three months ended September 30, Change Nine months ended September 30, Change 2024 2023 Amount Percent 2024 2023 Amount Percent (dollars in thousands) Revenue Americas – U.S. $ 63,682 $ 60,019 $ 3,663 6.1 % $ 187,249 $ 172,374 $ 14,875 8.6 % Americas – other (1) 3,893 3,499 394 11.3 11,445 10,273 1,172 11.4 EMEA 9,709 8,631 1,078 12.5 28,182 25,263 2,919 11.6 APAC 6,426 5,896 530 9.0 19,023 17,335 1,688 9.7 Total Revenue $ 83,710 $ 78,045 $ 5,665 7.3 % $ 245,899 $ 225,245 $ 20,654 9.2 % 32 Table of Content (1) Americas-other revenue includes revenue from North and South America, other than the U.S. Comparison of the three and nine months ended September 30, 2024 and 2023, Revenue The following table presents the components of our revenue for each of the periods indicated: Three months ended September 30, Change Nine months ended September 30, Change 2024 2023 Amount Percent 2024 2023 Amount Percent (dollars in thousands) Revenue Subscription solutions $ 62,826 $ 58,709 $ 4,117 7.0 % $ 185,582 $ 168,652 $ 16,930 10.0 % Partner and services 20,884 19,336 1,548 8.0 $ 60,317 $ 56,593 3,724 6.6 Total revenue $ 83,710 $ 78,045 $ 5,665 7.3 % $ 245,899 $ 225,245 $ 20,654 9.2 % Total revenue increased $5.7 million, or 7.3 percent, to $83.7 million for the three months ended September 30, 2024, from $78.0 million for the three months ended September 30, 2023, as a result of increases in both subscription solutions and partner and services revenue. Subscription solutions revenue increased $4.1 million, or 7.0 percent, to $62.8 million for the three months ended September 30, 2024, from $58.7 million for the three months ended September 30, 2023, primarily due to increases in enterprise, mid-market, and Feedonomics activity. Partner and services revenue increased $1.5 million, or 8.0 percent, to $20.9 million for the three months ended September 30, 2024, from $19.3 million for the three months ended September 30, 2023, primarily as a result of increases in revenue share offset by decreases in stand ready and integration activity. Total revenue increased $20.7 million, or 9.2 percent, to $245.9 million for the nine months ended September 30, 2024 from $225.2 million for the nine months ended September 30, 2023, as a result of increases in both subscription solutions and partner and services revenue. Subscription solutions revenue increased $16.9 million or 10.0 percent, to $185.6 million for the nine months ended September 30, 2024, from $168.7 million for the nine months ended September 30, 2023, primarily due to growth in enterprise, mid-market, and Feedonomics activity. Partner and services revenue increased $3.7 million, or 6.6 percent, to $60.3 million for the nine months ended September 30, 2024 , from $56.6 million for the nine months ended September 30, 2023, primarily as a result of increases in in revenue share offset by decreases in stand ready and integration activity. Cost of revenue, gross profit, and gross margin Three months ended September 30, Change Nine months ended September 30, Change 2024 2023 Amount Percent 2024 2023 Amount Percent (dollars in thousands) Cost of revenue $ 19,863 $ 19,054 $ 809 4.2 % $ 58,113 $ 55,256 $ 2,857 5.2 % Gross profit 63,847 58,991 4,856 8.2 187,786 169,989 17,797 10.5 Gross margin percentage 76.3 75.6 76.4 75.5 Cost of revenue increased $0.8 million, or 4.2 percent, to $19.9 million for the three months ended September 30, 2024, from $19.1 million for the three months ended September 30, 2023, primarily as a result of higher software costs and credit card processing fees of $0.9 million driven by associated increased in revenue. Gross margin increased to 76.3 percent from 75.6 percent, primarily as a result of cost cutting measures from the 2023 Restructure. Cost of revenue increased $2.9 million, or 5.2 percent, to $58.1 million for the nine months ended September 30, 2024, from $55.3 million for the nine months ended September 30, 2023 primarily as a result of higher software costs and credit card processing fees of $3.0 million. Gross margin increased to 76.4 percent from 75.5 percent, primarily as a result of cost cutting measures from the 2023 Restructure. We expect that cost of revenue will likely decrease in the near term as a percentage of revenue due to reductions in headcount related costs as a result of the 2024 Restructure, leading to improved gross margins. 33 Table of Content Operating income (expenses) Sales and marketing Three months ended September 30, Change Nine months ended September 30, Change 2024 2023 Amount Percent 2024 2023 Amount Percent (dollars in thousands) Sales and marketing $ 33,140 $ 36,253 $ (3,113 ) (8.6 ) % $ 99,997 $ 105,898 $ (5,901 ) (5.6 ) % Percentage of revenue 39.6 46.5 40.7 47.0 Sales and marketing expenses decreased $3.1 million, or (8.6) percent, to $33.1 million for the three months ended September 30, 2024 from $36.3 million for the three months ended September 30, 2023, primarily due to decreased variable marketing costs of $1.9 million, decreased salaries and share-based compensation expense of $0.8 million driven by cost cutting measures from the 2023 Restructure, and decreased professional services fees of $0.3 million. As a percentage of total revenue, sales and marketing expenses decreased to 39.6 percent from 46.5 percent, primarily as a result of cost cutting measures from the 2023 Restructure. Sales and marketing expenses decreased $5.9 million or (5.6) percent, to $100.0 million for the nine months ended September 30, 2024 from $105.9 million for the nine months ended September 30, 2023, primarily due to lower variable marketing costs of $3.6 million, and decreased salaries and share-based compensation expense of $3.0 million driven by cost cutting measures from the 2023 Restructure. These decreases were partially offset by a $0.7 million increase in other expenses, such as software costs, contract services, and professional fees. As a percentage of total revenue, sales and marketing expenses decreased to 40.7 percent from 47.0 percent, primarily as a result of cost cutting measures from the 2023 Restructure. We expect that sales and marketing expenses will slightly increase near term as we reinvest in sales resources as part of the 2024 Restructure, which we expect to be offset with anticipated future revenue growth. Research and development Three months ended September 30, Change Nine months ended September 30, Change 2024 2023 Amount Percent 2024 2023 Amount Percent (dollars in thousands) Research and development $ 20,841 $ 21,703 $ (862 ) (4.0 ) % $ 61,116 $ 63,951 $ (2,835 ) (4.4 ) % Percentage of revenue 24.9 27.8 24.9 28.4 Research and development decreased $0.9 million, or (4.0) percent, to $20.8 million for the three months ended September 30, 2024 from $21.7 million for the three months ended September 30, 2023, due to the cost cutting measures from the 2023 Restructure. As a percentage of total revenue, research and development expenses decreased to 24.9 percent from 27.8 percent, primarily as a result of cost cutting measures from the 2023 Restructure. Research and development decreased $2.8 million, or (4.4) percent, to $61.1 million for the nine months ended September 30, 2024 from $64.0 million for the nine months ended September 30, 2023, due to the cost cutting measures from the 2023 Restructure. As a percentage of total revenue, research and development expenses decreased to 24.9 percent from 28.4 percent, primarily as a result of cost cutting measures from the 2023 Restructure. We expect that research and development expenses will likely decrease as a percentage of revenue in the near term primarily due to reductions in headcount related costs relating to the 2024 Restructure. General and administrative Three months ended September 30, Change Nine months ended September 30, Change 2024 2023 Amount Percent 2024 2023 Amount Percent (dollars in thousands) General and administrative $ 16,435 $ 14,342 $ 2,093 14.6 % $ 46,800 $ 45,264 $ 1,536 3.4 % Percentage of revenue 19.6 18.4 19.0 20.1 General and administrative expenses increased $2.1 million, or 14.6 percent, to $16.4 million for the three months ended September 30, 2024, from $14.3 million for the three months ended September 30, 2023, primarily due to an increase of $1.2 million 34 Table of Content in bad debt expense and an increase in professional service expenses of $0.9 million. As a percentage of total revenue, general and administrative expenses increased to 19.6 percent from 18.4 percent, primarily as a result of the increase in bad debt expense due to focused collections efforts for the three months ended September 30, 2023. General and administrative expenses increased $1.5 million, or 3.4 percent, to $46.8 million for the nine months ended September 30, 2024 from $45.3 million for the nine months ended September 30, 2023, primarily due to a $1.8 million increase in bad debt expense, $0.9 million increase in professional services, and a $0.4 million increase in variable spend partially offset by $1.2 million decrease in insurance expense due to lower renewal rates. As a percentage of total revenue, general and administrative expenses decreased to 19.0 percent from 20.1 percent, primarily as a result of cost cutting measures from the 2023 Restructure. We expect that general and administrative expenses will likely decrease as a percentage of revenue in the near term due to reductions in headcount related costs relating to the 2024 Restructure. Acquisition related expenses Acquisition related expense decreased $0.7 million, or (68.7) percent, to $0.3 million for the three months ended September 30, 2024, from $1.1 million for the three months ended September 30, 2023, and decreased $8.3 million, or 89.3 percent, to $1.0 million for the nine months ended September 30, 2024, from $9.3 million for the nine months ended September 30, 2023. Acquisition costs recognized for the three and nine months ended September 30, 2024 represent the amortization of deferred compensation for the Makeswift acquisition. Acquisition costs in prior years related to other transactions and acquisition costs for Feedonomics were recognized during the three and nine months ended September 30, 2023. Restructuring charges Restructuring charges were $9.9 million and $5.8 million for the three months ended September 30, 2024 and 2023, respectively, and were $12.5 million and $6.2 million for the nine months ended September 30, 2024 and 2023, respectively. The $9.9 million is a result of $6.9 million of severance and related charges, $2.1 million of capitalized software related charges due to impairment of software due to change in market strategy, $1.1 million of real estate related charges, $0.6 million of professional services related to our change in market strategy as described above in relation to the 2024 Restructure, and $0.2 million of professional services related to our capital structure and various alternatives associated with inbound inquiries partially offset by a $1.0 million gain on real estate modification. The charges for the three months and nine months ended September 30, 2023 were primarily related to charges from the 2023 Restructure which included a one time charge of $5.5 million resulting from severance and other related charges. Gain on convertible note extinguishment Gain on convertible note extinguishment was $12.1 million for the three months ended September 30, 2024. The $12.1 million consisted of a $10.4 million gain on the repurchase of 2026 Convertible Notes and $1.7 million gain on the exchange of 2028 Convertible Notes. Interest income Interest income decreased $0.7 million, or 20.5 percent, to $2.4 million for the three months ended September 30, 2024, from $3.1 million for the three months ended September 30, 2023. This decrease was primarily a result of lower cash, cash equivalents and marketable securities balance during the three months ended September 30, 2024 due to cash outflows for financing activities. Interest income increased $0.5 million, or 6.0 percent to $8.8 million for the nine months ended September 30, 2024 from $8.3 million for the nine months ended September 30, 2023. This increase was primarily a result of higher cash, cash equivalents and marketable securities balances for the nine months ended September 30, 2024 Interest expense Interest expense was $1.9 million and $0.7 million for the three months ended September 30, 2024 and 2023, respectively, and was $3.3 million and $2.2 million for the nine months ended September 30, 2024 and 2023. The increase in interest expense for the three and nine months ended September 30, 2024 compared to the three and nine months ended September 30, 2023 was primarily a result of the issuance of the 2028 Convertible Notes that have a higher effective interest rate than the 2026 Convertible Notes. Liquidity and capital resources We are committed to cash flow generation and cash management by focusing on operational discipline, and we continue to evaluate all of our spending to look for opportunities to drive improvements in cash flow. Our success in transitioning our customer base from legacy month-to-month contracts to annual contracts has continued to result in better cash flow as these efforts have increased the timing of our cash receipts and reduced our overall subscription churn rate. 35 Table of Content Our operational short-term liquidity needs primarily include working capital for sales and marketing, research and development, and continued innovation. Our future capital requirements will depend on many factors, including our growth rate, levels of revenue, the expansion of sales and marketing activities, market acceptance of our platform, the results of business initiatives including our efforts in transitioning our customers to annual billings, continued reduction in churn, the timing of new product introductions, the continued impact of the inflation on the global economy, market risk due to elevated interest rates, our business, financial condition, and results of operations. We believe that our existing cash and cash equivalents and our cash flows from operating activities will be sufficient to meet our working capital and capital expenditure needs for at least the next twelve months. In the future, we may attempt to raise additional capital through the sale of additional equity or debt financing. Additionally, with our convertible notes restructuring, there was a reduction in liquidity. However, we believe as a result of the renegotiation and extension of the remaining obligation, we have decreased our overall debt leverage and better optimized our maturities. The restructuring of the convertible notes requires semi-annual interest payments and increases our contractual interest rate to 7.50 percent. From time to time, we may seek to repurchase, redeem or otherwise retire our convertible notes through cash repurchases and/or exchanges for equity securities, in open market repurchases, privately negotiated transactions, tender offers or otherwise. Such repurchases, redemptions or other transactions, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions, and other factors. The amounts involved may be material. We do not have any material off-balance sheet arrangements that we expect would materially affect our liquidity and capital resources . Cash flows The following table sets forth a summary of our cash flows for the periods indicated. Three months ended September 30, Nine months ended September 30, 2024 2023 2024 2023 (in thousands) Net cash provided by (used in) operating activities $ 5,573 $ (31,429 ) $ 13,894 $ (37,522 ) Net cash provided by investing activities 9,251 26,399 62,644 13,997 Net cash provided by (used in) financing activities (112,077 ) 285 (112,428 ) 1,381 Net decrease in cash, cash equivalents and restricted cash $ (97,253 ) $ (4,745 ) $ (35,890 ) $ (22,144 ) As of September 30, 2024, we had approximately $37.0 million in cash, cash equivalents, and restricted cash, a decrease of $33.9 million compared to $70.9 million as of September 30, 2023. Cash and cash equivalents consist of highly-liquid investments with original maturities of less than three months. Our restricted cash balance of $1.5 million and $1.1 million at September 30, 2024 and 2023, respectively, consisted of security deposits for future chargebacks and amounts on deposit with certain financial institutions. Our marketable securities balance of $133.0 million and $195.6 million at September 30, 2024 and 2023 respectively, consisted of investments in corporate and US treasury securities. We maintain cash account balances in excess of Federal Deposit Insurance Corporation (FDIC) insured limits. Operating activities Net cash provided by (used in) operating activities for the three months ended September 30, 2024 and 2023 was $5.6 million and ($31.4) million, respectively. This consisted primarily of our net losses adjusted for certain non-cash items including depreciation, amortization of intangible assets, convertible note premium and convertible note issuance costs amortization, stock-based compensation, bad debt expense, impairment losses, gains on settlement of lease liabilities, gain on extinguishment of convertible notes, and the effect of changes in working capital. The increase in cash flows provided by operating activities for the three months ended September 30, 2024 was driven by cost reductions associated with the 2023 Restructure and focus on reduction of variable spend. Net cash provided by (used in) operating activities for the nine months ended September 30, 2024 and 2023 was $13.9 million and ($37.5) million respectively. This consisted primarily of our net losses adjusted for certain non-cash items including depreciation, amortization of intangible assets, convertible note premium and convertible note issuance costs amortization, stock-based compensation, bad debt expense, impairment losses, gains on settlement of lease liabilities, gain on extinguishment of convertible notes, and the effect of changes in working capital. The increase in cash flows provided by operating activities for the nine months ended September 30, 2024 was driven by cost reductions associated with the 2023 Restructure and focus on reduction of variable spend. 36 Table of Content Investing activities Net cash provided by investing activities during the three months ended September 30, 2024 and 2023 was $9.3 million and $26.4 million, respectively. For the three months ended September 30, 2024, this consisted primarily of the sale and maturity of marketable securities of $59.7 million offset by the purchase of property and equipment of $1.1 million and the purchase of marketable securities of $49.4 million. In the three months ended September 30, 2023, this consists primarily of the sale and maturity of marketable securities of $83.1 million and the purchases of property and equipment of $1.1 million and the purchase of marketable securities of $55.7 million. Net cash provided by investing activities during the nine months ended September 30, 2024 and 2023 was $62.6 million and $14.0 million, respectively. In the nine months ended September 30, 2024, this consists primarily of the sale and maturity of marketable securities of $151.6 million offset by the purchase of property and equipment of $2.9 million and the purchase of marketable securities of $86.0 million. In the nine months ended September 30, 2023, this consists primarily of the sale and maturity of marketable securities of $206.2 million and the purchase of property and equipment of $3.1 million and the purchase of marketable securities of $189.1 million. Financing activities Net cash provided by (used in) financing activities during the three months ended September 30, 2024 and 2023 was ($112.1) million and $0.3 million, respectively. In the three months ended September 30, 2024, this was attributable to repayment of convertible notes and financing obligations of $108.7 million, payments of convertible note issuance and related third party costs of $2.5 million, and taxes paid related to the settlement of stock options and restricted stock units of $1.1 million, partially offset by proceeds from exercise of stock options of $0.2 million. In the three months ended September 30, 2023, this was attributable to proceeds from exercise of stock options of $1.5 million offset by withholdings from the issuance of shares of common stock pursuant to the exercise of stock options and vesting of restricted stock units of $1.0 million and repayments of financing obligations of $0.1 million. Net cash provided by (used in) financing activities during the nine months ended September 30, 2024 and 2023 was ($112.4) million and $1.4 million, respectively. In the nine months ended September 30, 2024, this was attributable to $109.0 million of payments related to the repurchase and repayment of convertible notes and refinancing obligations, $2.5 million of payments for convertible note issuance and related third-party costs, and $1.5 million of taxes paid related to the settlement of stock options and restricted stock units, partially offset by proceeds from exercise of stock options of $1.5 million. In the nine months ended September 30, 2023, this was attributable to proceeds from the exercise of stock options of $3.7 million and proceeds from the issuance of convertible note of $1.1 million offset by withholdings from the issuance of shares of common stock pursuant to the exercise of stock options and vesting of restricted stock units of $3.3 million and repayment of financing obligations of $0.1 million. Indebtedness 2028 Convertible Notes In August 2024, we issued $150.0 million in aggregate principal amount of the Company’s new 7.50 percent convertible senior notes due 2028 (the “2028 Convertible Notes”). The 2028 Convertible Notes were issued pursuant to, and are governed by, an indenture (the “2028 Convertible Notes Indenture”), dated as of August 7, 2024, between the Company and U.S. Bank Trust Company, National Association, as trustee. The 2028 Convertible Notes are the Company’s senior, initially unsecured obligations and will accrue interest at a rate of 7.50 percent per annum, payable semi-annually in arrears on April 1 and October 1 of each year, beginning on October 1, 2024. The 2028 Convertible Notes will mature on October 1, 2028, unless earlier converted, redeemed or repurchased. Before July 3, 2028, noteholders will have the right to convert their 2028 Convertible Notes only upon the occurrence of certain events. From and after July 3, 2028, noteholders may convert their 2028 Convertible Notes at any time at their election until the close of business on the second scheduled trading day immediately before the maturity date. The Company will settle conversions by paying or delivering, as applicable, cash, shares of its common stock or a combination of cash and shares of its common stock, at the Company’s election. The initial conversion rate is 62.5000 shares of common stock per $1,000 principal amount of 2028 Convertible Notes, which represents an initial conversion price of $16.00 per share of common stock. The conversion rate and conversion price will be subject to customary adjustments upon the occurrence of certain events. In addition, if certain corporate events that constitute a “Make-Whole Fundamental Change” (as defined in the 2028 Convertible Notes Indenture) occur, then the conversion rate will, in certain circumstances, be increased for a specified period of time. The Company may not redeem the 2028 Convertible Notes at its option at any time before October 7, 2026. The 2028 Convertible Notes will be redeemable, in whole or in part (subject to the “Partial Redemption Limitation” (as defined in the 2028 Convertible Notes Indenture)), at the Company’s option at any time, and from time to time, on or after October 7, 2026 and on or before the 25th 37 Table of Content scheduled trading day immediately before the maturity date, but only if the last reported sale price per share of the Company’s common stock exceeds 130 percent of the conversion price for a specified period of time and certain other conditions are satisfied. The redemption price will be equal to the principal amount of the 2028 Convertible Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. In addition, calling any 2028 Convertible Note for redemption will constitute a Make-Whole Fundamental Change with respect to that 2028 Convertible Note, in which case the conversion rate applicable to the conversion of that 2028 Convertible Note will be increased in certain circumstances if it is converted after it is called for redemption. Pursuant to the Partial Redemption Limitation, the Company may not elect to redeem less than all of the outstanding 2028 Convertible Notes unless at least $100.0 million aggregate principal amount of 2028 Convertible Notes are outstanding and not subject to redemption as of the time the Company sends the related redemption notice. If certain corporate events that constitute a “Fundamental Change” (as defined in the 2028 Convertible Notes Indenture) occur, then, subject to a limited exception for certain cash mergers, noteholders may require the Company to repurchase their 2028 Convertible Notes at a cash repurchase price equal to the principal amount of the 2028 Convertible Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date. The definition of Fundamental Change includes certain business combination transactions involving the Company and certain de-listing events with respect to the Company’s common stock. The 2028 Convertible Notes have customary provisions relating to the occurrence of “Events of Default” (as defined in the 2028 Convertible Notes Indenture), which include the following: (i) certain payment defaults on the 2028 Convertible Notes (which, in the case of a default in the payment of interest on the 2028 Convertible Notes, will be subject to a 30-day cure period); (ii) the Company’s failure to send certain notices under the 2028 Convertible Notes Indenture within specified periods of time; (iii) the Company’s failure to comply with certain covenants in the 2028 Convertible Notes Indenture relating to the Company’s ability to consolidate with or merge with or into, or sell, lease or otherwise transfer, in one transaction or a series of transactions, all or substantially all of the assets of the Company and its subsidiaries, taken as a whole, to another person; (iv) a default by the Company in its other obligations or agreements under the 2028 Convertible Notes Indenture or the 2028 Convertible Notes if such default is not cured or waived within 60 days after notice is given in accordance with the 2028 Convertible Notes Indenture; (v) certain payment defaults on the Company’s credit facility if the Company has entered into the Security Documents (as defined in the 2028 Convertible Notes Indenture), (vi) certain defaults by the Company or any of its significant subsidiaries with respect to indebtedness for borrowed money of at least $20,000,000; and (vii) certain events of bankruptcy, insolvency and reorganization involving the Company or any of its significant subsidiaries. If an Event of Default involving bankruptcy, insolvency or reorganization events with respect to the Company (and not solely with respect to a significant subsidiary of the Company) occurs, then the principal amount of, and all accrued and unpaid interest on, all of the 2028 Convertible Notes then outstanding will immediately become due and payable without any further action or notice by any person. If any other Event of Default occurs and is continuing, then, the Trustee, by notice to the Company, or noteholders of at least 25 percent of the aggregate principal amount of 2028 Convertible Notes then outstanding, by notice to the Company and the trustee, may declare the principal amount of, and all accrued and unpaid interest on, all of the 2028 Convertible Notes then outstanding to become due and payable immediately. However, notwithstanding the foregoing, the Company may elect, at its option, that the sole remedy for an Event of Default relating to certain failures by the Company to comply with certain reporting covenants in the Indenture consists exclusively of the right of the noteholders to receive special interest on the 2028 Convertible Notes for up to 180 days at a specified rate per annum not exceeding 0.50 percent on the principal amount of the 2028 Convertible Notes. The 2028 Convertible Notes Indenture contains a number of restrictive covenants and limitations, including restrictions on the Company’s ability to incur certain indebtedness, as further described in the Indenture. In addition, to the extent the Company incurs subordinated indebtedness pursuant to the terms of the Indenture, it will be required to secure the 2028 Convertible Notes, subject only to prior security interests in favor of lenders under any senior secured revolving credit facility, if then outstanding. 2026 Convertible Notes In September 2021, we issued $345.0 million principal amount of 0.25 percent convertible notes due 2026 (the “2026 Convertible Notes”). The 2026 Convertible Notes were issued pursuant to, and are governed by, an indenture (the “2026 Convertible Notes Indenture”), dated as of September 14, 2021, between us and U.S. Bank National Association, as trustee. The 2026 Convertible Notes accrue interest at a rate of 0.25 percent per annum, payable semi-annually in arrears on April 1 and October 1 of each year, beginning on April 1, 2022. In August 2024, in addition to the Exchange Agreement, the Company entered into separate, privately negotiated repurchase agreements with a limited number of holders of its outstanding 2026 Convertible Notes to repurchase (the "Repurchase Transactions") approximately $120.6 million aggregate principal amount of the 2026 Convertible Notes for aggregate cash consideration of approximately $108.7 million, including accrued but unpaid interest of approximately $0.2 million on such 2026 Convertible Notes. The Repurchase Transactions settled in August 2024. Following the Repurchase Transactions, approximately $63.1 million principal amount of 2026 Convertible Notes remain outstanding. 38 Table of Content The 2026 Convertible Notes are our senior, unsecured obligations and are (i) equal in right of payment with our future senior, unsecured indebtedness; (ii) senior in right of payment to our future indebtedness that is expressly subordinated to the 2026 Convertible Notes in right of payment; (iii) effectively subordinated to our future secured indebtedness, to the extent of the value of the collateral securing that indebtedness; and (iv) structurally subordinated to all future indebtedness and other liabilities, including trade payables, and (to the extent we are not a holder thereof) preferred equity, if any, of our subsidiaries. The remaining outstanding 2026 Convertible Notes will mature on October 1, 2026, unless earlier repurchased, redeemed or converted. Before July 1, 2026, noteholders have the right to convert the remaining outstanding 2026 Convertible Notes only upon the occurrence of certain events. From and after July 1, 2026, noteholders may convert their 2026 Convertible Notes at any time at their election until the close of business on the second scheduled trading day immediately before the maturity date. We will settle conversions by paying or delivering, as applicable, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election. The initial conversion rate of the remaining outstanding 2026 Convertible Notes was 13.6783 shares of common stock per $1,000 principal amount of 2026 Convertible Notes, which represents an initial conversion price of approximately $73.11 per share of common stock. The conversion rate and conversion price are subject to customary adjustments upon the occurrence of certain events. In addition, if certain corporate events that constitute a “Make-Whole Fundamental Change” (as defined in the 2026 Convertible Notes Indenture) occur, then the conversion rate will, in certain circumstances, be increased for a specified period of time. The remaining outstanding 2026 Convertible Notes are redeemable, in whole or in part (subject to the “Partial Redemption Limitation” (as defined in the 2026 Convertible Notes Indenture)), at our option at any time, and from time to time, on or after October 7, 2024 and on or before the 25th scheduled trading day immediately before the maturity date, but only if the last reported sale price per share of our common stock exceeds 130 percent of the conversion price on (i) each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the trading day immediately before the date we send the related redemption notice; and (ii) the trading day immediately before the date we send such notice. The redemption price will be a cash amount equal to the principal amount of the 2026 Convertible Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. In addition, calling any 2026 Convertible Note for redemption will constitute a Make-Whole Fundamental Change with respect to that 2026 Convertible Note, in which case the conversion rate applicable to the conversion of that 2026 Convertible Note will be increased in certain circumstances if it is converted after it is called for redemption. Pursuant to the Partial Redemption Limitation, we may not elect to redeem less than all of the outstanding 2026 Convertible Notes unless at least $150.0 million aggregate principal amount of 2026 Convertible Notes are outstanding and not subject to redemption as of the time we send the related redemption notice. If certain corporate events that constitute a “Fundamental Change” (as defined in the 2026 Convertible Notes Indenture) occur, then, subject to a limited exception for certain cash mergers, noteholders may require us to repurchase their Notes at a cash repurchase price equal to the principal amount of the remaining outstanding 2026 Convertible Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date. The definition of Fundamental Change includes certain business combination transactions involving us and certain de-listing events with respect to our common stock. The 2026 Convertible Notes have customary provisions relating to the occurrence of “Events of Default” (as defined in the Convertible Notes Indenture), which include the following: (i) certain payment defaults on the 2026 Convertible Notes (which, in the case of a default in the payment of interest on the 2026 Convertible Notes, will be subject to a 30-day cure period); (ii) our failure to send certain notices under the 2026 Convertible Notes Indenture within specified periods of time; (iii) our failure to comply with certain covenants in the 2026 Convertible Notes Indenture relating to our ability to consolidate with or merge with or into, or sell, lease or otherwise transfer, in one transaction or a series of transactions, all or substantially all of the assets of us and our subsidiaries, taken as a whole, to another person; (iv) a default by us in our other obligations or agreements under the 2026 Convertible Notes Indenture or the 2026 Convertible Notes if such default is not cured or waived within 60 days after notice is given in accordance with the 2026 Convertible Notes Indenture; (v) certain defaults by us or any of our significant subsidiaries with respect to indebtedness for borrowed money of at least $65.0 million; and (vi) certain events of bankruptcy, insolvency and reorganization involving us or any of our significant subsidiaries. If an Event of Default involving bankruptcy, insolvency or reorganization events with respect to us (and not solely with respect to a significant subsidiary of us) occurs, then the principal amount of, and all accrued and unpaid interest on, all of the 2026 Convertible Notes then outstanding will immediately become due and payable without any further action or notice by any person. If any other Event of Default occurs and is continuing, then, the trustee, by notice to us, or noteholders of at least 25 percent of the aggregate principal amount of 2026 Convertible Notes then outstanding, by notice to us and the trustee, may declare the principal amount of, and all accrued and unpaid interest on, all of the 2026 Convertible Notes then outstanding to become due and payable immediately. However, notwithstanding the foregoing, we may elect, at our option, that the sole remedy for an Event of Default relating to certain failures by us to comply with certain reporting covenants in the 2026 Convertible Notes Indenture consists exclusively of the right of the noteholders to receive special interest on the 2026 Convertible Notes for up to 180 days at a specified rate per annum not exceeding 0.50 percent on the principal amount of the 2026 Convertible Notes. 39 Table of Content Off-balance sheet arrangements We did not have any off-balance sheet arrangements as of September 30, 2024 or as of December 31, 2023. Critical accounting policies and estimates Our condensed consolidated financial statements have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities. We also make estimates and assumptions on the reported revenue generated and reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. There have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” set forth in our Annual Report. Recent accounting pronouncements A discussion of recent accounting pronouncements is included in Note 2 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. 40 Table of Content Item 3. Quantitative and Qualitati ve Disclosures About Market Risk. Interest rate risk Our cash, cash equivalents and restricted cash, consist primarily of interest-bearing accounts. Such interest-earning instruments carry a degree of interest rate risk. To minimize interest rate risk in the future, we intend to maintain our portfolio of cash equivalents in a variety of investment-grade securities, which may include commercial paper, money market funds, and government and non-government debt securities. Because of the short-term maturities of our cash, cash equivalents, restricted cash, and marketable securities, we do not believe that an increase in market rates would have any significant negative impact on the realized value of our investments. An immediate increase or decrease in interest rates of 100 basis points at September 30, 2024 could result in a $1.3 million market value reduction or increase of the same amount. In September 2021, we issued the 2026 Convertible Notes with an aggregate principal amount of $345.0 million, of which $63.1 million remains outstanding as of September 30, 2024. The 2026 Convertible Notes have a fixed interest rate of 0.25 percent; we do not face variable interest rate risk with respect to the 2026 Convertible Notes. The fair value of the 2026 Convertible Notes changes when the market price of our stock fluctuates or market interest rates change. In August 2024, we issued the 2028 Convertible Notes with an aggregate principal amount of $150.0 million, the full amount of which is outstanding as of September 30, 2024. The 2028 Convertible Notes have a fixed interest rate of 7.50 percent; we do not face variable interest rate risk with respect to the 2028 Convertible Notes. The fair value of the 2028 Convertible Notes changes when the market price of our stock fluctuates or market interest rates change. Foreign currency exchange risk All of our revenue and a majority of our expense and capital purchasing activities for the three months ended September 30, 2024 were transacted in U.S. dollars. As we expand our sales and operations internationally, we will be more exposed to changes in foreign exchange rates. Our international revenue is currently collected in U.S. dollars. In the future, as we expand into additional international jurisdictions, we expect that our international sales will be primarily denominated in U.S. dollars. If we decide in the future to denominate international sales in currencies other than the U.S. dollar, unfavorable movement in the exchange rates between the U.S. dollar and the currencies in which we conduct foreign sales could have an adverse impact on our revenue. A portion of our operating expenses are incurred outside the United States and are denominated in foreign currencies, which are subject to fluctuations due to changes in foreign currency exchange rates. In particular, in our Mexico, Australia and UK-based operations, we pay payroll and other expenses in Mexican pesos, Australian dollars and British pounds sterling, respectively. Our operating results and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates. However, we believe that the exposure to foreign currency fluctuation from operating expenses is relatively small at this time as the related costs do not constitute a significant portion of our total expenses. We currently do not hedge foreign currency exposure. We may in the future hedge our foreign currency exposure and may use currency forward contracts, currency options, and/or other common derivative financial instruments to reduce foreign currency risk. It is difficult to predict the effect future hedging activities would have on our operating results. Credit risk Financial instruments that potentially subject us to concentrations of credit risk consist of cash and cash equivalents, restricted cash, and accounts receivable. Our investment policy limits investments to high credit quality securities issued by the U.S. government, U.S. government-sponsored agencies, and highly rated corporate securities, subject to certain concentration limits and restrictions on maturities. Our cash and cash equivalents and restricted cash are held by financial institutions that management believes are of high credit quality. Amounts on deposit may at times exceed FDIC insured limits. We have not experienced any losses on our deposits of cash and cash equivalents, and accounts are monitored by management to mitigate risk. We are exposed to credit risk in the event of default by the financial institutions holding our cash and cash equivalents or an event of default by the issuers of the corporate debt securities we hold.