Commerce.com, Inc. 10-Q

Item 1. Financial Statements. Index to Financial Statements BigCommerce Holdings, Inc. Unaudited Consolidated Financial Statements Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Comprehensive Loss Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) Consolidated Statements of Cash Flows Notes to the Consolidated Financial Statements 2 Table of Contents BigCommerce Holdings, Inc. Consolidated Balance Sheets (Unaudited, in thousands, except per share amounts) June 30, December 31, 2020 2019 Assets Current assets Cash and cash equivalents $ 25,390 $ 7,795 Restricted cash 1,121 1,355 Accounts receivable, net 20,244 15,548 Prepaid expenses and other assets 7,837 5,296 Deferred commissions 1,971 1,677 Total current assets 56,563 31,671 Property and equipment, net 7,608 8,241 Right-of-use-assets 12,888 14,065 Deferred commissions, net of current portion 2,558 2,087 Total assets $ 79,617 $ 56,064 Liabilities, convertible preferred stock, and stockholders’ equity (deficit) Current liabilities Accounts payable $ 5,752 $ 3,881 Accrued liabilities 2,843 5,849 Deferred revenue 11,257 9,399 Current portion of long-term debt 2,215 2,363 Current portion of operating lease liabilities 2,945 2,718 Other current liabilities 13,326 9,704 Total current liabilities 38,338 33,914 Deferred revenue, net of current portion 1,060 1,492 Long-term debt, net of current portion 69,121 38,502 Operating lease liabilities, net of current portion 14,152 15,705 Total liabilities 122,671 89,613 Commitments and contingencies (Note 6) Convertible preferred stock Convertible preferred stock, $0.0001 par value; 102,030 shares authorized, issued and outstanding at June 30, 2020, and December 31, 2019 227,452 223,754 Stockholders’ equity (deficit) Common stock, $0.0001 par value; 205,000 shares voting and 45,000 shares non-voting authorized at June 30, 2020 and December 31, 2019; 19,378, and 18,544 shares voting issued and outstanding at June 30, 2020 and December 31, 2019, respectively, and no shares non-voting issued and outstanding at June 30, 2020, and December 31, 2019. 2 2 Additional paid-in capital 20,571 17,244 Accumulated deficit (291,079 ) (274,549 ) Total stockholders’ equity (deficit) (270,506 ) (257,303 ) Total liabilities, convertible preferred stock, and stockholders’ equity (deficit) $ 79,617 $ 56,064 The accompanying notes are an integral part of these consolidated financial statements. 3 Table of Contents BigCommerce Holdings, Inc. Consolidated Statements of Operations (Unaudited, in thousands, except per share amounts) Three months ended June 30, Six months ended June 30, 2020 2019 2020 2019 Revenue $ 36,316 $ 27,235 $ 69,490 $ 52,819 Cost of revenue 7,837 6,227 15,317 12,152 Gross profit 28,479 21,008 54,173 40,667 Operating expenses: Sales and marketing 16,803 15,963 32,565 30,099 Research and development 11,345 10,468 22,266 21,300 General and administrative 7,714 5,222 14,180 10,221 Total operating expenses 35,862 31,653 69,011 61,620 Loss from operations (7,383 ) (10,645 ) (14,838 ) (20,953 ) Interest income 17 86 18 241 Interest expense (1,152 ) (410 ) (1,914 ) (770 ) Change in fair value of financial instruments — — 4,413 — Other expense 40 (56 ) (163 ) (77 ) Loss before provision for income taxes (8,478 ) (11,025 ) (12,484 ) (21,559 ) Provision for income taxes 3 7 20 14 Net loss $ (8,481 ) $ (11,032 ) $ (12,504 ) $ (21,573 ) Cumulative dividends and accretion of issuance costs on Series F preferred stock $ (1,953 ) $ (1,798 ) $ (3,698 ) $ (3,552 ) Net loss attributable to common stockholders $ (10,434 ) $ (12,830 ) $ (16,202 ) $ (25,125 ) Basic and diluted net loss per share attributable to common stockholders $ (0.54 ) $ (0.73 ) $ (0.86 ) $ (1.43 ) Weighted average shares used to compute basic and diluted net loss per share attributable to common stockholders 19,149 17,592 18,852 17,540 The accompanying notes are an integral part of these consolidated financial statements. 4 Table of Contents BigCommerce Holdings, Inc. Consolidated Statements of Comprehensive Loss (Unaudited, in thousands) Three months ended June 30, Six months ended June 30, 2020 2019 2020 2019 Net loss $ (8,481 ) $ (11,032 ) $ (12,504 ) $ (21,573 ) Other comprehensive income (loss): Net unrealized gain (loss) on marketable debt securities — 14 — 14 Total comprehensive loss $ (8,481 ) $ (11,018 ) $ (12,504 ) $ (21,559 ) The accompanying notes are an integral part of these consolidated financial statements. 5 Table of Contents BigCommerce Holdings, Inc. Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) (Unaudited, in thousands) Convertible Preferred Stock Common Stock Additional Paid-in Accumulated Accumulated Other Comprehensive Stockholders’ Equity Shares Amount Shares Amount Capital Deficit Loss (Deficit) Balance at December 31, 2018 102,030 $ 216,446 17,445 $ 2 $ 13,261 $ (224,725 ) $ (14 ) $ (211,476 ) Exercise of stock options — — 96 — 132 — — 132 Stock-based compensation — — — — 595 — — 595 Accumulated dividend – Series F — 1,736 — — — (1,736 ) — (1,736 ) Accretion of Series F issuance costs — 18 — — (18 ) — — (18 ) Net loss — — — — — (10,541 ) — (10,541 ) Balance at March 31, 2019 102,030 $ 218,200 17,541 $ 2 $ 13,970 $ (237,002 ) $ (14 ) $ (223,044 ) Exercise of stock options — — 360 — 40 — — 40 Stock-based compensation — — — — 821 — — 821 Accumulated dividend – Series F — 1,780 — — — (1,780 ) — (1,780 ) Accretion of Series F issuance costs — 18 — — (18 ) — — (18 ) Net loss — — — — — (11,032 ) — (11,032 ) Balance at June 30, 2019 102,030 $ 219,998 17,901 $ 2 $ 14,813 $ (249,814 ) $ (14 ) $ (235,013 ) Convertible Preferred Stock Common Stock Additional Paid-in Accumulated Accumulated Other Comprehensive Stockholders’ Equity Shares Amount Shares Amount Capital Deficit Loss (Deficit) Balance at December 31, 2019 102,030 $ 223,754 18,544 $ 2 $ 17,244 $ (274,549 ) $ — $ (257,303 ) Exercise of stock options — — 448 — 404 — — 404 Stock-based compensation — — — — 1,026 — — 1,026 Accumulated dividend – Series F — 1,727 — — — (1,727 ) — (1,727 ) Accretion of Series F issuance costs — 18 — — (18 ) — — (18 ) Warrants issued in connection with debt — — — — 297 — — 297 Adoption of new accounting standard - See Note 2 — — — — — (364 ) — (364 ) Net loss — — — — — (4,023 ) — (4,023 ) Balance at March 31, 2020 102,030 $ 225,499 18,992 $ 2 $ 18,953 $ (280,663 ) $ — $ (261,708 ) Exercise of stock options — — 351 — 366 — — 366 Exercise of warrants — — 35 — 126 — — 126 Stock-based compensation — — — — 1,144 — — 1,144 Accumulated dividend – Series F — 1,935 — — — (1,935 ) — (1,935 ) Accretion of Series F issuance costs — 18 — — (18 ) — — (18 ) Net loss — — — — — (8,481 ) — (8,481 ) Balance at June 30, 2020 102,030 $ 227,452 19,378 $ 2 $ 20,571 $ (291,079 ) $ — $ (270,506 ) The accompanying notes are an integral part of these consolidated financial statements. 6 Table of Contents BigCommerce Holdings, Inc. Consolidated Statements of Cash Flows (Unaudited, in thousands) Six months ended June 30, Six months ended June 30, 2020 2019 Cash flows from operating activities Net loss $ (12,504 ) $ (21,573 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,678 1,116 Amortization of discount on debt 389 27 Stock-based compensation 2,170 1,416 Allowance for credit losses 944 494 Accretion on discount to marketable securities — (69 ) Change in fair value of financial instrument (4,413 ) — Changes in operating assets and liabilities: Accounts receivable (6,005 ) (3,748 ) Prepaid expenses (2,253 ) 821 Deferred commissions (764 ) (1,973 ) Accounts payable 1,871 256 Accrued and other current liabilities 468 3,092 Deferred revenue 1,425 (1,017 ) Net cash used in operating activities (16,994 ) (21,158 ) Cash flows from investing activities: Purchase of property and equipment (1,045 ) (4,069 ) Maturity of marketable securities — 23,450 Net cash (used in) provided by investing activities (1,045 ) 19,381 Cash flows from financing activities: Proceeds from exercise of stock options 896 172 Proceeds from debt 40,745 3,677 Repayment of debt (6,241 ) (1,025 ) Net cash provided by financing activities 35,400 2,824 Net change in cash and cash equivalents and restricted cash 17,361 1,047 Cash and cash equivalents and restricted cash, beginning of period 9,150 13,897 Cash and cash equivalents and restricted cash, end of period $ 26,511 $ 14,944 The accompanying notes are an integral part of these consolidated financial statements. 7 Table of Contents BigCommerce Holdings, Inc. Notes to Consolidated Financial Statements 1. Overview BigCommerce is leading a new era of ecommerce. Our software-as-a-service (“SaaS”) platform simplifies the creation of beautiful, engaging online stores by delivering a unique combination of ease-of-use, enterprise functionality, and flexibility. 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. 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 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 business-to-consumer and business-to-business. Our headquarters and principal place of business are in Austin, Texas. We were formed in Australia in December 2003 under the name Interspire Pty Ltd and reorganized into a corporation in Delaware under the name BigCommerce Holdings, Inc. in February 2013. References in these consolidated financial statements to “we,” “us,” “our,” the “Company,” or “BigCommerce” refer to BigCommerce Holdings, Inc. and its subsidiaries, unless otherwise stated. Stock Split and Initial Public Offering On July 24, 2020, we filed with the Secretary of State of the State of Delaware an amendment to our certificate of incorporation that effected a one-for-three reverse stock split of our common stock. All common stock share and per share information for all periods presented has been adjusted to reflect the reverse stock split. The amendment to our certificate of incorporation adjusted the amount of our authorized shares to: 205,000,000 shares of Series 1 common stock, 45,000,000 shares of Series 2 common stock, and 109,030,573 shares of preferred stock. The common stock has a par value of $0.0001 per share. On July 24, 2020, concurrently with the effectiveness of the reverse stock split, the conversion prices applicable to our preferred stock were adjusted proportionately in accordance with our certificate of incorporation. The Series 1 common stock and Series 2 common stock numbers referenced herein and included in this Form 10Q reflect this split. On August 4, 2020, we completed our initial public offering (IPO), in which we issued and sold 7,877,500 shares of our Series 1 common stock, including 1,027,500 shares of Series 1 common stock that were sold pursuant to the exercise in full of the underwriters’ option to purchase additional shares of Series 1 common stock at $24.00 per share. The IPO resulted in net proceeds of $175.8 million after deducting underwriting discounts and commissions. Existing stockholders sold an additional 2,495,000 shares of Series 1 common stock, including 325,435 shares of Series 1 common stock that were sold pursuant to the exercise in full of the underwriters’ option to purchase additional shares of Series 1 common stock at $24.00 per share. We did not receive any proceeds from the sale of shares by the selling stockholders in the IPO. Expected expenses incurred by us for the IPO were approximately $3.9 million and will be recorded against stockholders’ equity. See Note 12 Subsequent Events for additional information. 2. Summary of significant accounting policies Basis of presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, these financial statements contain all adjustments, consisting of normal recurring accruals, necessary to present fairly the financial position, results of operations and cash flows for the periods indicated. Operating results for the three and six months ended June 30, 2020 are not necessarily indicative of results that may be expected for any other interim period or for the year ending December 31, 2020. 8 Table of Contents 2. Summary of significant accounting policies (continued) The accompanying interim financial statements should be read in conjunction with the consolidated financial statements and related notes thereto included in the Company’s final prospectus filed with the SEC pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended, on August 5, 2020 (“Prospectus”). Basis of consolidation The accompanying consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation. Our fiscal year ends on December 31. Use of estimates The preparation of consolidated financial statements in conformity with GAAP requires certain financial instruments to be recorded at fair value; requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenue and expenses during the reporting periods. Significant estimates, judgments, and assumptions in these consolidated financial statements include: allocating variable consideration for revenue recognition; the amortization period for deferred commissions; the allowance for credit losses; a determination of the deferred tax asset valuation allowance and the valuation of our common stock used to determine stock-based compensation expense. Because of the use of estimates inherent in the financial reporting process and given the additional or unforeseen effects from the COVID-19 pandemic, actual results could differ from those estimates, and such differences could be material to our consolidated financial statements. COVID-19, declared a global pandemic by the World Health Organization on March 11, 2020, has caused disruption to the economies and communities of the United States and our target international markets. In the interest of public health, many governments closed physical stores and places of business deemed non-essential. This precipitated a significant shift in shopping behavior from offline to online. Our business has benefited from this shift, both in accelerated sales growth for our existing customers’ stores, and in our sales of new store subscriptions to customers. Nevertheless, we do not have certainty that those trends will continue; the COVID-19 pandemic and the uncertainty it has created in the global economy could materially adversely affect our business, financial condition, and results of operations. Segment and geographic information Our chief operating decision maker is our chief executive officer. Our 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, we have determined that we operate as a single operating and reportable segment. Revenue by geographic region was as follows: Three months ended June 30, Six months ended June 30, (Unaudited, in thousands) 2020 2019 2020 2019 Revenue: Americas – U.S. $ 28,883 $ 22,225 $ 55,616 $ 43,180 Americas – other 1,305 904 2,405 1,773 EMEA 2,871 1,739 5,313 3,361 APAC 3,257 2,367 6,156 4,505 Total revenue $ 36,316 $ 27,235 $ 69,490 $ 52,819 9 Table of Contents 2. Summary of significant accounting policies (continued) Long-lived assets by geographic region was as follows: June 30, December 31, (in thousands) 2020 2019 (Unaudited) Long-lived assets: Americas – U.S. $ 7,038 $ 7,699 Americas – other — — EMEA — — APAC 570 542 Total long-lived assets $ 7,608 $ 8,241 Cash and cash equivalents We consider all highly liquid investments with original maturities of three months or less from the date of purchase to be cash equivalents. Cash equivalents consist of money market funds and investment securities and are stated at fair value. Restricted cash We maintain a portion of amounts collected through our online payment processor with the online payment processor as a security deposit for future chargebacks. Additionally, we have amounts on deposit with certain financial institutions that serve as collateral for letters of credit and lease deposits. Marketable securities All marketable securities have been classified as available-for-sale and are carried at estimated fair value. We determine the appropriate classification of our investments in debt securities at the time of purchase. Securities may have stated maturities greater than one year. All marketable securities are considered available to support current operations and are classified as current assets. Unrealized gains and losses are excluded from earnings and are reported as a component of accumulated other comprehensive loss. Realized gains and losses, and declines in fair value judged to be other than temporary, are included in other expense. The cost of securities sold is based on the specific-identification method. Interest on marketable securities is included in interest income. Accounts receivable Accounts receivable are stated at net realizable value and include unbilled receivables. Unbilled receivables arise primarily when we provide subscriptions services in advance of billing. 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 60 days. The accounts receivable balance at June 30, 2020 and December 31, 2019 included unbilled receivables of $5.0 million, $4.0 million, respectively. We assess the collectability of outstanding accounts receivable on an ongoing basis and maintain an allowance for credit losses for accounts receivable deemed uncollectable. Upon adoption of ASU 2016-13, we analyzed the accounts receivable portfolio for significant risks, historical activity, and an estimate of future collectability to determine the amount that will ultimately be collected. This estimate is analyzed quarterly and adjusted as necessary. Identified risks pertaining to our accounts receivable include the delinquency level, customer type, and current economic environment. Due to the short-term nature of such receivables, the estimate of the amount of accounts receivable that may not be collected is based on aging of the accounts receivable balances and the financial condition of customers. Adoption of ASU 2016-13 resulted in an increase in the allowance for credit losses of approximately $0.4 million as of January 1, 2020, primarily related to unbilled receivables. 10 Table of Contents 2. Summary of significant accounting policies (continued) The allowance for credit losses consisted of the following: (Unaudited, in thousands) Balance at December 31, 2019 $ 1,167 Cumulative effect adjustment upon adoption 364 Provision for expected credit losses 589 Accounts written off (236 ) Balance at March 31, 2020 $ 1,884 Provision for expected credit losses 355 Accounts written off (583 ) Balance at June 30, 2020 $ 1,656 Property and equipment Property and equipment are stated at cost, net of accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method over the estimated useful lives or the related lease terms (if shorter). The estimated useful lives of property and equipment are as follows: Estimated Useful Life Computer equipment 3 years Computer software 3 years Furniture and fixtures 5 years Leasehold improvements 1-10 years Maintenance and repairs that do not enhance or extend the asset’s useful life are charged to operating expenses as incurred. The carrying values of property and equipment are reviewed for impairment whenever events or changes in circumstances indicate that their net book value may not be recoverable. When such factors and circumstances exist, we compare the projected undiscounted future cash flows associated with groups of assets used in combination over their estimated useful lives against their respective carrying amounts. If projected undiscounted future cash flows are less than the carrying value of the asset group, impairment is recorded for any excess of the carrying amount over the fair value of those assets in the period in which the determination is made. Research and development and internal use software Research and development expenses consist primarily of personnel and related expenses for our research and development staff, which include: salaries, benefits, bonuses, and stock-based compensation; the cost of certain third-party contractors; and allocated overhead. Expenditures for research and development, other than internal use software costs, are expensed as incurred. Software development costs associated with internal use software, which are incurred during the application development phase and meet other requirements under the guidance are capitalized. To date, software costs eligible for capitalization have not been significant. Concentration of credit risks, significant clients, and suppliers Financial instruments that potentially subject us to concentrations of credit risk consist of cash and cash equivalents, marketable securities, 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 federally insured limits. We have not experienced any losses on our deposits of cash and cash equivalents. We are exposed to credit risk in the event of default by the financial institutions holding our cash and cash equivalents and bond issuers. 11 Table of Contents 2. Summary of significant accounting policies (continued) Accounts receivable are derived from sales to our customers and our strategic technology partners who operate in a variety of sectors. We do not require collateral. Estimated credit losses are provided for in the consolidated financial statements and historically have been within management’s expectations. One of our strategic partners accounted for 12% of our revenue for the year ended December 31, 2019 and accounted for 20% of our accounts receivable balance at December 31, 2019. For the six months ended June 30, 2020 and 2019 one of our strategic partners accounted for 17% and 12%, respectively, of our revenue and accounted for 23% of our accounts receivable balance at June 30, 2020. Advertising costs We expense advertising costs as incurred. Advertising expenses were approximately $11.8 million for the year ended December 31, 2019. Advertising costs were $2.9 million and $3.3 million for the six months ended June 30, 2020 and 2019, respectively. Leases We determine if an arrangement is a lease or contains a lease at inception. At the commencement date of a lease, we recognize a liability to make lease payments and an asset representing the right to use the underlying asset during the lease term. The lease liability is measured at the present value of lease payments over the lease term. As our leases typically do not provide an implicit rate, we use our incremental borrowing rate for most leases. The right-of-use (“ROU”) asset is measured at cost, which includes the initial measurement of the lease liability and initial direct costs incurred and excludes lease incentives. Lease terms may include options to extend or terminate the lease. We record a ROU asset and a lease liability when it is reasonably certain that we will exercise that option. Operating lease costs are recognized on a straight-line basis over the lease term. We also lease office space under short-term arrangements and have elected not to include these arrangements in the ROU asset or lease liabilities. Income taxes We account for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax balances are adjusted to reflect tax rates based on currently enacted tax laws, which will be in effect in the years in which the temporary differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period of the enactment date. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets unless it is more likely than not that those assets will be realized. To date, we have provided a valuation allowance against all of our deferred tax assets as we believe the objective and verifiable evidence of our historical pretax net losses outweighs any positive evidence of its forecasted future results. We will continue to monitor the positive and negative evidence, and we will adjust the valuation allowance as sufficient objective positive evidence becomes available. We account for uncertain tax positions in accordance with ASC 740, “Income Taxes”, which clarifies the accounting for uncertainty in tax positions. These provisions require recognition of the impact of a tax position in our financial statements only if it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. Any interest and penalties related to uncertain tax positions will be reflected as a component of income tax expense . Stock-based compensation We issue stock options and restricted stock units ("RSUs"). Stock-based compensation related to stock options is measured at the date of grant and is recognized on a straight-line basis over the service period, net of estimated forfeitures. We use the Black-Scholes option-pricing model to estimate the fair value of stock options awarded at the date of grant. Stock- based compensation related to restricted stock units is measured at the date of grant and recognized using the accelerated attribution method, net of forfeitures, over the remaining service period. 12 Table of Contents 2. Summary of significant accounting policies (continued) Accounting pronouncements In June 2018, the FASB Issued ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The new guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The adoption of this standard on January 1, 2020 did not have a material impact on our consolidated financial statements. In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326)” which modifies the measurement of expected credit losses of certain financial instruments. Credit losses on trade and other receivables, available-for-sale debt securities, and other instruments will reflect our current estimate of the expected credit losses and will generally result in the earlier recognition of allowance for losses. The new guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. The adoption of the new standard resulted in the recording of a cumulative-effect adjustment to accumulated deficit of $0.4 million on January 1, 2020. We will continue to actively monitor the impact of the recent COVID-19 pandemic on expected credit losses. In August 2018, the FASB issued ASU No. 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40) , which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). We adopted this guidance on January 1, 2020 on a prospective basis, which did not result in a material impact to our consolidated financial statements. In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes,” as part of its initiative to reduce complexity in the accounting standards. The amendments in ASU 2019-12 eliminate certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12 also clarifies and simplifies other aspects of the accounting for income taxes. Although the amendments in ASU 2019-12 become effective for fiscal years beginning after December 15, 2020, we elected to early adopt the ASU as of January 1, 2019 on a prospective basis. There is no material tax impact of the early adoption of ASU 2019-12 on our financial position and results of operations. 3. Revenue recognition and deferred costs Revenue recognition Our sources of revenue consist of subscription solutions fees and partner and services fees. These services allow customers to access our hosted software over the contract period. The customer is not allowed to take possession of the software or transfer the software. Our revenue arrangements do not contain general rights of refund in the event of cancellations. The following table disaggregates our revenue by major source: Three months ended June 30, Six months ended June 30, (Unaudited, in thousands) 2020 2019 2020 2019 Subscription solutions $ 23,943 $ 20,137 $ 47,496 $ 39,384 Partner and services 12,373 7,098 21,994 13,435 Total revenue $ 36,316 $ 27,235 $ 69,490 $ 52,819 Subscription solutions Subscription solutions revenue consists primarily of platform subscription fees from all plans. It also includes recurring professional services and sales of SSL certificates. 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. Monthly subscription fees for Pro and Enterprise plans are adjusted if a customer’s gross merchandise volume or orders processed are above specified plan thresholds on a trailing twelve-month basis. For most subscription solutions arrangements, we have determined we meet the variable consideration allocation exception and, therefore, 13 Table of Contents 3. Revenue recognition and deferred costs (continued) recognize 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. 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 our retail customers are generally month-to-month, while contracts with our enterprise customers generally range from one to three years. Contracts are typically non-cancellable and do not contain refund-type provisions. Revenue is presented net of sales tax and other taxes we collect on behalf of governmental authorities. Partner and services Our partner and services revenue consists of revenue share, partner technology integrations, and marketing services provided to partners. Revenue share relates to fees earned by our partners from customers using our platform, where we have an arrangement with such partner to share such fees as they occur. Revenue share is recognized at the time the earning activity is complete, which is generally monthly. 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. Fees 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. We also derive revenue from the sales of website themes and applications upon delivery. We recognize revenue share, and revenue from the sales of third-party applications, on a net basis as we have determined that we are the agent in our arrangements with third-party application providers. All other revenue is recognized on a gross basis, as we have determined we are 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. Our subscription contracts are generally comprised of a single performance obligation to provide access to our 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, we may be required to allocate the contract’s transaction price to each performance obligation using our best estimate of SSP. Contracts with our technology solution partners often include multiple performance obligations. In determining whether integration services are distinct from hosting services we consider various factors. These considerations included the level of integration, interdependency, and interrelation between the implementation and hosting service, as well as any promises in the contract. We have concluded that the integration services included in contracts with hosting obligations are not distinct. As a result, we defer any arrangement fees for integration services and recognize such amounts over the life of the hosting obligation. Additional consideration for some partner contracts varies based on the level of customer activity on the platform. We have determined we meet the variable consideration allocation exception and therefore recognize these variable fees in the period they are earned. 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 expected cost-plus margin approach, which considers margins achieved on standalone sales of similar products, market data related to historical margins within an industry, industry sales price averages, market conditions, and profit objectives. 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 our infrastructure and platform; amortization expense associated with capitalized internal-use software; and allocation of overhead costs. 14 Table of Contents 3. Revenue recognition and deferred costs (continued) Deferred revenue Deferred revenue primarily consists of amounts that have been billed to or received from customers in advance of performing the associated services. We recognize revenue from deferred revenue when the services are performed, and the corresponding revenue recognition criteria are met. The net increase in the deferred revenue balance for the six months ended June 30, 2020 is primarily due to increases in SaaS related subscriptions. Amounts recognized from deferred revenue represent primarily revenue from the sale of subscription solutions, integration, and marketing services. As of December 31, 2019, and June 30, 2020, we had $47.8 million and $73.5 million, respectively, 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. We expect to recognize approximately 60% and 52%, respectively, of the remaining performance obligations as revenue in the following 12-month periods, and the remaining balance in the periods thereafter. Deferred commissions Certain sales commissions earned by our sales force are considered incremental and recoverable costs of obtaining a contract with a customer. Sales commissions are not paid on subscription renewals. We amortize deferred sales commissions ratably over the estimated period of our relationship with customers of approximately four years. Based on historical experience, we determine the average life of our customer relationship by taking into consideration our customer contracts and the estimated technological life of our platform and related significant features. We include amortization of deferred commissions in Sales and marketing expense in the consolidated statements of operations. We periodically review 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. We did not recognize an impairment of deferred commissions during the year ended December 31, 2019 or the six months ended June 30, 2020 and 2019. Sales commissions of $2.5 million were deferred for the year ended December 31, 2019; and deferred commission amortization expense was $1.6 million for the year ended December 31, 2019, respectively. Sales commissions of $1.76 million and $1.12 million were deferred for the six months ended June 30, 2020 and 2019, respectively; and deferred commission amortization expense was $0.97 million and $0.75 million for the six months ended June 30, 2020 and 2019, respectively. 4. Fair value measurements Financial instruments carried at fair value include cash and cash equivalents, restricted cash, marketable securities, and embedded put options separated from the 2020 Convertible Term Loan. The carrying amount of accounts receivable approximates fair value due to their relatively short maturities. 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, we consider 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 our data. The fair value of debt was measured using Level 2 inputs and approximated its carrying value. 15 Table of Contents 4. Fair value measurements (continued) We did not have any cash equivalents or marketable securities as of December 31, 2019 and June 30, 2020. As of the date of issuance of the Convertible Loan, we valued an embedded lenders’ put option that was bifurcated from the 2020 Convertible Loan. In accordance with accounting guidance, the put option is required to be reported at fair value and any changes in fair value are recognized as a gain or loss in our consolidated statements of operations. The fair value of this financial instrument was measured using Level III inputs, including the fair market value of our common stock and the probability of various expected exit events. This instrument was initially valued at $4.4 million upon issuance and deemed to have no value at June 30, 2020. The change in fair value resulted in a gain of $4.4 million for the six months ended June 30, 2020. 5. Property and equipment Property and equipment, which includes software purchased or developed for internal use, is composed of the following: As of June 30, As of December 31, (in thousands) 2020 2019 (Unaudited) Computer software $ 1,928 $ 1,788 Computer equipment 7,451 6,816 Furniture and fixtures 2,374 2,198 Leasehold improvements 7,931 7,834 19,684 18,636 Less: accumulated depreciation and amortization (12,076 ) (10,395 ) Property and equipment, net $ 7,608 $ 8,241 Depreciation expense on property and equipment was $1.7 million and $1.1 million for the six months ended June 30, 2020 and 2019, respectively and $0.8 million and $0.6 million for the three months ended June 30, 2020 and 2019, respectively. 6. Commitments, contingencies, and leases We had unconditional purchase obligations as of June 30, 2020, as follows: (in thousands) 2020 $ 306 2021 5,504 2022 4,333 2023 and thereafter — Total $ 10,143 Liabilities for loss contingencies arising from claims, assessments, litigation, fines, penalties, and other sources are recorded when it is probable that a liability has been incurred and that the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred. From time to time, we are subject to various claims that arise in the normal course of business. In the opinion of management, we are unaware of any pending or unasserted claims that would have a material adverse effect on our financial position, liquidity, or results. Certain executive officers are entitled to payments in the event of termination of employment in connection with a certain change in control. Our certificate of incorporation and certain contractual arrangements provide for indemnification of our officers and directors for certain events or occurrences. We maintain a directors and officers insurance policy to provide coverage in the event of a claim against 16 Table of Contents 6. Commitments, contingencies, and leases (continued) an officer of director. Historically, we have not been obligated to make any payments for indemnification obligations, and no liabilities have been recorded for these obligations on the consolidated balance sheets as of December 31, 2019 or June 30, 2020. Leases We lease certain facilities under operating lease agreements that expire at various dates through 2028. Some of these arrangements contain renewal options and require us to pay taxes, insurance and maintenance costs. Renewal options were not included in the ROU asset and lease liability calculation. We adopted ASC Topic 842, Leases, on January 1, 2019. Operating and short-term rent expenses was $.9 million and $.9 million for each of the three-month periods ended June 30, 2019 and 2020, respectively, and $1.7 million and $1.8 million for the six-month periods ended June 30, 2019 and 2020 respectively. Short-term rent expense was not material for any of the periods presented. Supplemental lease information Cash flow information (in thousands) Six months ended June 30, Six months ended June 30, 2020 2019 Cash paid for operating lease liabilities $ 1,780 $ 1,451 Right-of-use assets obtained in exchange for operating lease obligations $ — $ — Operating lease information Six months ended June 30, Six months ended June 30, 2020 2019 Weighted-average remaining lease-term 6.33 7.52 Weighted-average discount rate 5.46 % 5.53 % The future maturities of operating lease liabilities are as follows: (in thousands) June 30, 2020 2020 $ 1,863 2021 3,903 2022 3,037 2023 2,459 2024 2,227 Thereafter 6,934 Total minimum lease payments $ 20,423 Less imputed interest (3,296 ) Total lease liabilities $ 17,127 17 Table of Contents 7. Other liabilities The following table summarizes the components of other current liabilities: As of June 30, Year Ended December 31, (in thousands) 2020 2019 (Unaudited) Sales tax payable $ 542 $ 551 Payroll and payroll related expenses 8,830 6,126 Other 3,954 3,027 Other current liabilities $ 13,326 $ 9,704 8. Debt Convertible Term Loans On October 27, 2017, we entered into a contingent convertible debt agreement (the “Convertible Term Loan”) with Silicon Valley Bank (“SVB”) providing for a term loan of $20.0 million. The Convertible Term Loan maturity date is October 27, 2022. Interest is calculated on the outstanding principal, with interest payable monthly. The initial interest rate was equal to the prime rate and changes to a rate of prime plus 2.0% on and after January 1, 2020, a rate of prime plus 4.0% on and after January 1, 2021, and a rate of prime plus 6.0% on and after January 1, 2022. The weighted-average effective interest rate was 5.4%, and 5.6% during the years ended December 31, 2019 and for the six months ended June 30, 2020, respectively. Quarterly principal payments of $125 thousand are due and payable from June 1, 2018 through maturity. As of December 31, 2019, and June 30, 2020, we had $19.1 million, and $18.9 million outstanding under the Convertible Term Loan, respectively. The conversion feature grants the bank rights to convert part or all of the outstanding principal, plus accrued and unpaid interest into shares of Series F preferred stock at a conversion price of $3.059 per share. The conversion rights may be exercised at the lenders’ option in the event of a change of control, initial public offering, or when the note matures. The Convertible Term Loan also provides lenders rights to purchase Series F preferred stock at $3.059 per share in an aggregate amount of principal previously repaid. The conversion rights and the purchase rights expire after the Convertible Term Loan’s maturity date. On February 28, 2020 we entered into a contingent convertible term loan (the “2020 Convertible Loan”) with SVB, providing for a convertible term loan in an amount of $35.0 million. The 2020 Convertible Term Loan matures on February 28, 2025. Interest is calculated on the outstanding principal, with interest payable monthly. The 2020 Convertible Term Loan bears interest at (a) 4.5% prior to January 1, 2022, (b) 6.5% from January 1, 2022 and prior to January 1, 2023, (c) 8.5% from January 1, 2023 and prior to January 1, 2024, and (d) 10.5% from and after January 1, 2024. Principal payments are not due until maturity. As of June 30, 2020, we had $35.0 million outstanding under the 2020 Convertible Term Loan. The conversion feature grants the bank rights to convert part or all of the outstanding principal, plus accrued and unpaid interest into shares of common stock at a conversion price of $3.80 per share, which was adjusted to $11.40 per share as a result of the one-for-three reverse stock split effected on July 24, 2020. The conversion rights may be exercised at the lenders’ option in the event of a change of control, initial public offering, or when the note matures. In addition to the conversion shares on the outstanding principal, this instrument requires a deficiency payment if the value of the conversion shares does not meet an applicable required minimum return of (a) 1.25 if converted within 18 months of the agreement, (b) 1.32 if converted between 18 months and 24 months, and (c) 1.55 if converted between 24 months and maturity. The deficiency payment, at the election of the holder, will be settled either (i) by issuance of additional shares of common stock equal to the difference between the minimum return and the conversion value or (ii) in cash in a single installment in the amount of such difference. Management determined that the required minimum return as defined above represented, in substance, an embedded lenders’ put option designed to provide the investor with a fixed monetary amount, settleable in either additional shares or cash. Management determined that this put option should be separated and accounted for as a derivative primarily because the put option met the net settlement criterion and the settlement provisions were not consistent with a fixed-for-fixed equity instrument. The put option, with a fair value of approximately $4.4 million, was initially recorded as a derivative liability on the accompanying balance sheet and a corresponding discount to the 2020 Convertible Term Loan. The discount will be accreted to interest expense on the consolidated statement of operations over the term of the 2020 Convertible Term Loan using the effective 18 Table of Contents 8. Debt (continued) interest method. We recorded interest expense related to this instrument of $0.2 million and $0.3 million during the three and six-month periods ended June 30, 2020, respectively. The estimated fair value of the put option was determined using a multi-scenario probability weighted expected return method analysis in which the future probability of exit events was weighted for its respective probability. Key assumptions included time to exit event, fair value of common stock, and a discount rate. At March 31, 2020, we determined the put option had no fair value due to an increase in market conditions that would make any amounts due under the redemption feature remote. As a result, we recorded a gain in the amount of $4.4 million in the three-month period ending March 31, 2020, which was recorded in the accompanying consolidated statements of operations. As of June 30, 2020, we determined the put option still had no fair value, therefore, no adjustment was required in the accompanying consolidated statement of operations for the three-month period ending June 30, 2020. The estimated fair value of the put option was determined using a multi-scenario probability weighted expected return method analysis in which the future probability of exit events was weighted for its respective probability. Key assumptions included time to exit event, fair value of common stock, and a discount rate. At March 31, 2020, we determined the put option had no fair value due to an increase in market conditions that would make any amounts due under the redemption feature remote. As a result, we recorded a gain in the amount of $4.4 million in the three-month period ending March 31, 2020, which was recorded in the accompanying consolidated statements of operations. As of June 30, 2020, we determined the put option still had no fair value, therefore, no adjustment was required in the accompanying consolidated statement of operations for the three-month period ending June 30, 2020. Credit Facility On October 27, 2017, we amended and restated our loan and security agreement (as amended, the “Credit Facility”) with SVB. The Credit Facility provided a $20.0 million revolving line of credit (the “Revolving Line”) and a $5.0 million term loan (the “2018 Term Loan”). On June 4, 2019, we amended the Credit Facility to increase the Revolving Line by $5.0 million to $25.0 million. The Revolving Line has a maturity date of October 27, 2021. The Revolving Line bore interest at a rate equal to the prime rate, and the weighted-average effective interest rate was 5.3%, and 3.3% during the years ended December 31, 2019 and for the six months ended June 30, 2020, respectively. Interest is calculated on the outstanding principal and is payable monthly. As of December 31,2019, and June 30, 2020, we had $18.5 million, and $20.0 million outstanding under the Revolving Line, respectively. Borrowings from the 2018 Term Loan mature 36 months after each draw. The 2018 Term Loan bore interest at a rate equal to the prime rate plus 0.25% and, the weighted-average effective interest rate was 5.3%, and 3.9% during the years ended December 31, 2019 and for the six months ended June 30, 2020, respectively. Interest is calculated on the outstanding principal and is payable monthly. Monthly principal payments commenced on October 1, 2018. The principal amortizes equally from the time of the draw to the maturity date. As of December 31, 2019, and June 30, 2020, we had $3.3 million, and $2.4 million outstanding under the 2018 Term Loan, respectively. Advances under the Credit Facility are collateralized by all of our assets. The Credit Facility includes two financial covenants. One requires us to maintain a revenue growth rate of 110% each quarter compared to the same quarter in the prior year. The other covenant requires us to maintain a minimum of $10 million in cash plus available amounts under the Credit Facility. We were in compliance with all covenants as of June 30, 2020. Amended and Restated Credit Facility On February 28, 2020, we amended and restated our loan and security agreement (the “A&R Credit Facility”) with SVB. The A&R Credit Facility reduces the amount available under the Revolving Line by $5.0 million to $20.0 million. On September 30, 2020, the amount available under the Revolving Line will be reduced to $10.0 million. We accounted for this transaction as an extinguishment of debt pursuant to ASC 470-50. We recorded an immaterial loss on extinguishment during the six-month period ended June 30, 2020. In conjunction with our entry into the A&R Credit Facility, our financial covenants were amended. We are required to maintain a revenue growth rate of 118% each quarter compared to the same quarter in the prior year. The other covenant requires us to maintain a minimum liquidity ratio of 1.5:1. The liquidity ratio is calculated as unrestricted and unencumbered cash plus sixty percent of net accounts receivable to balance outstanding under the Revolving Line. We were in compliance with all covenants as of June 30, 2020. 19 Table of Contents 8. Debt (continued) Mezzanine Facility Loan On February 28, 2020, we entered into a mezzanine loan and security agreement (the “Mezzanine Facility”) with WestRiver Innovation Lending Fund VIII, L.P. (“WestRiver”) providing for a term loan of $10.0 million. The Mezzanine Facility maturity date is March 1, 2023. Our obligations under the Mezzanine Facility are secured by substantially all of our assets. The Mezzanine Facility contains restrictive covenants, including limits on additional indebtedness, liens, asset dispositions, dividends, investments, and distributions. Borrowings under the Mezzanine Facility bear interest at the greater of (i) 10.0% or (ii) the prime rate then effect plus 5.25%. Interest is calculated on the outstanding principal on a 360-day year basis, payable monthly. As of June 30, 2020, we had no balance outstanding under this agreement. In connection with the Mezzanine Facility, we issued warrants to purchase up to 99 thousand shares of common stock with an exercise price of $9.21 per share with the warrants expiring on March 1, 2023. The warrant is currently exercisable for half of the shares and would become exercisable for the remaining half of the shares if we were to draw down under the Mezzanine Facility. Upon issuance of the warrants, we recorded the fair value of the first tranche of warrants at $0.3 million. The value of the warrants issued was recorded as a discount on the carrying value of the debt instruments, which was amortized to interest expense over the life of the debt instruments as an adjustment to (increase in) the effective interest rate. Debt fees Lender fees that were paid upfront to the lenders and debt issuance fees paid to third parties are recorded as a discount from the debt carrying amount and are being amortized to interest expense over the life of the debt. Interest expense related to debt discount amortization was not material for any of the periods presented. Net unamortized fees as of December 31, 2019 and June 30, 2020 amounted to $0.9 million, and $0.8 million, respectively. Warrants In connection with debt acquired prior to 2017, we issued warrants to purchase 254.7 thousand shares of common stock with a weighted-average exercise price of $4.20 per share. The exercise prices of the warrants range from $1.65 to $5.55 per share. Warrants to purchase 17.3 thousand shares of common stock expire on July 12, 2023, with the remainder expiring on September 30, 2024. The warrant holder may, at any time, exercise the warrants, in whole or in part, by delivering to us the original warrant, together with a duly executed notice of exercise and the exercise price. Upon issuance of the warrants, we recorded the fair value of the warrants at $0.5 million. The value of the warrants issued was recorded as a discount on the carrying value of the debt instruments, which was amortized to interest expense over the life of the debt instruments as an adjustment to (increase in) the effective interest rate in prior years. 9. Stockholders’ equity (deficit) Equity Incentive Plans – Stock Options During the six months ended June 30, 2020, the Company granted an aggregate of 999 thousand shares of stock options, with a weighted average exercise price of $9.21 per share. The fair value of options granted before the closing of the IPO was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions (i) expected term of 6.0 years, (ii) expected volatility of 50%, (iii) risk-free interest rate .83% and (iv) expected dividend yield of 0%. The Company did not grant any shares during the three months ended June 30, 2020. As of June 30, 2020, there was $9.88 million of unamortized stock-based compensation cost related to unvested stock options, which the Company expects to recognize over a weighted-average period of 2.92 years. Restricted Stock Units In May 2020, our board of directors granted an aggregate of 1,215,890 RSUs to officers and employees pursuant to the 2013 Plan with a per share fair value of $15.51. The RSUs vest and settle upon the satisfaction of both a service condition and a liquidity event condition. The service condition for the awards is satisfied over four years. The liquidity event condition is satisfied upon the occurrence of a qualifying event, defined as the effectiveness of an initial public offering or the consummation of a change of control transaction. Beginning with the satisfaction of the liquidity event condition, we expect to record 20 Table of Contents 9. Stockholders’ equity (deficit) (continued) share-based compensation expense for the RSUs using the accelerated attribution method, net of forfeitures, based on the grant date fair value of the RSUs and over the remaining service periods. In aggregate, we expect to recognize approximately $19 million of expense related to the RSUs, prior to the impact of forfeitures, over a weighted-average requisite service period of approximately four years. Stock-based compensation expense was included in the following line items in the accompanying condensed consolidated statements of operations during the periods presented (in thousands): Three months ended June 30, Six months ended June 30, (in thousands) 2020 2019 2020 2019 Cost of revenue $ 81 $ 37 $ 154 $ 59 Sales and marketing 352 198 641 331 Research and development 330 158 634 229 General and administrative 381 428 741 797 Total stock-based compensation expense $ 1,144 $ 821 $ 2,170 $ 1,416 Preferred stock As of December 31, 2019 and June 30, 2020, the holders of preferred stock (“Series A Stock,” “Series B Stock,” “Series C Stock,” “Series D Stock,” “Series D-1 Stock,” “Series E Stock,” “Series E-1 Stock,” and “Series F Stock”) have various rights and preferences as follows: (in thousands) Shares authorized Shares outstanding Shares outstanding as converted to common stock Liquidation amounts Series A Stock 15,000 15,000 $ 5,000 $ 15,000 Series B Stock 10,611 10,611 3,537 20,116 Series C Stock 16,393 16,393 5,604 40,000 Series D Stock 14,451 14,451 5,082 50,000 Series D-1 Stock 1,445 1,445 508 5,000 Series E Stock 20,307 20,307 6,769 39,000 Series E-1 Stock 195 195 65 400 Series F Stock 23,628 23,628 7,877 68,662 Total Preferred Stock 102,030 102,030 34,442 $ 238,178 Dividends Holders of Series F Stock are entitled to receive cumulative dividends. Dividends on shares of Series F Stock (the “Series F Dividend”) accrue on a daily basis and compound quarterly at a per annum rate of 10% of the Series F Stock original issue price of $2.7086 per share (the “Series F Original Issue Price”). Except for the limited instances identified in our currently effective amended and restated certificate of incorporation with respect to the Series F Stock, we have no obligation to pay any dividends, except when, as and if declared by the board of directors. No dividends on any share of other series of preferred stock or common stock can be paid until the full Series F Dividend then accrued has been paid in full. In the event that the holders of Series F Stock receive proceeds per share of Series F Stock as a result of any deemed liquidation event or any conversion to common stock at the option of the holder or a mandatory conversion event of at least: (a) $6.7715 per share of Series F Stock, then the Series F Dividend shall be reduced from 10% to 9% per annum effective as of the date of issuance, or (b) $8.1258, then the Series F Dividend shall be reduced from 10% to 8% per annum effective as of the date of issuance. As of December 31, 2019, we accrued $11.9 million of dividends for holders of our Series F Stock, or $0.50 per share. As of June 30, 2020 we accrued $15.5 million of dividends for holders of our Series F Stock or $0.66 per share. In connection with our initial public offering, the amount of dividends due to our holders of Series F Stock was adjusted to $12.8 million and was paid with proceeds from the offering. 21 Table of Contents 9. Stockholders’ equi ty (deficit) (continued) Holders of all other series of preferred stock are entitled to participate in dividends on common stock when, as and if declared by the board of directors, based on the number of shares of common stock held on an as-converted basis. From our inception through December 31, 2019, our board of directors had not declared any dividends. Liquidation In the event of any voluntary or involuntary liquidation, dissolution, winding up or deemed liquidation event, the holders of each series of preferred stock are entitled to be paid out of our assets available for distribution to our stockholders before any payment shall be made to the holders of our common stock in the following order: (i) first, the holders of shares of Series F Stock, an amount equal to the Series F Original Issue Price, plus any dividends (other than the Series F Dividend) declared but unpaid, (ii) second, to the holders of Series E Stock and Series E-1 Stock, an amount equal to the Series E Stock original issue price of $1.9242 per share, plus any dividends declared but unpaid thereon, (iii) third, to the holders of Series D Stock and Series D-1 Stock, an amount equal to the Series D Stock original issue price of $3.46 per share, plus any dividends declared but unpaid thereon, (iv) fourth, to the holders of Series A Stock, Series B Stock and Series C Stock, pari passu amongst one another, an amount equal to the Series A Stock original issue price of $1.00 per share, Series B Stock original issue price of $1.8896 per share, and Series C Stock original issue price of $2.44 per share, respectively, in each case, plus any dividends declared but unpaid thereon, (v) fifth, any accrued but unpaid Series F Dividends, and (vi) to the holders of all other series of our preferred stock, pari passu among one another, in an amount equal to (A) the original issue price for such series of preferred stock times (B) 50%. Other than in connection with a deemed liquidation event, the preferred stock is not redeemable by us without the consent of the stockholders. Conversion Each share of preferred stock (other than the Series D-1 Stock and Series E-1 Stock, which are subject to restrictions regarding conversion) shall be convertible, at the option of the holder thereof, at any time, and without the payment of additional consideration by the holder thereof, into such number of fully paid shares of common stock as is determined by dividing the original issue price for such series of preferred stock by the applicable conversion price for such series of preferred stock in effect at the time of conversion. The Series A and Series B are mandatorily convertible upon the election of the holders of a majority of such shares voting together on an as converted to common stock basis. The Series C is mandatorily convertible upon the election of the holders of a majority of such shares. The Series D is mandatorily convertible upon the election of the holders of a majority of such shares. The Series E is mandatorily convertible upon the election of the holders of at least 60% of such shares. The Series F is mandatorily convertible upon the election of the holders of a majority of such shares. In addition, all shares of preferred stock (other than the Series D-1 Stock and Series E-1 Stock) are mandatorily convertible upon the sale of shares of common stock to the public in a firm commitment underwritten public offering of our common stock resulting in (a) at least $50 million in net proceeds (after the underwriting discount and commissions) to us and (b) a price per share that yields (including the payment of the Series F Dividend) an implied value per share of Series F Preferred Stock issued on the original issue date of the Series F of at least $4.0629 (such offering, a “Qualified IPO”). The conversion price per share applicable to: (i) the Series A Stock shall initially be equal to $1.00, (ii) the Series B Stock shall initially be equal to $1.8896, (iii) the Series C Stock shall initially be equal to $2.3793, (iv) the Series D Stock and Series D-1 Stock shall initially be equal to $3.2794, (v) the Series E Stock and Series E-1 Stock shall initially be equal to $1.9242, and (vi) the Series F Stock shall initially be equal to $2.7086. Additionally, upon a mandatory conversion, we shall pay to the holders of Series F Stock, an amount per share of Series F Stock equal to the Series F Dividend or a number of additional shares of non-voting common stock per share of Series F Stock equal to the Series F Dividend based on the price of the common stock in the Qualified IPO. No fractional common stock shall be issued upon conversion of Preferred Stock. The Series C Stock, Series D Stock, and Series D-1 Stock is currently convertible into common stock on a greater than one-to-one basis. Voting Holders of preferred stock are entitled to voting rights equal to holders of common stock, except for holders of Series D-1 Stock, Series E-1 Stock, and Series F Stock held by certain non-voting holders and except as otherwise provided in the amended and restated certificate of incorporation and our voting agreement with certain of our stockholders. The Series F Stock held by Special Situations Investing Group II, LLC will convert to voting shares upon sale or transfer to a third party. A majority of the outstanding shares of preferred stock is necessary for approving certain protective provisions in the amended and restated certificate of incorporation. In addition, the holders of each series of preferred stock have protective provisions which require approval from a majority of the outstanding shares of such series. 22 Table of Contents 9. Stockholders’ equity (deficit) (continued) Redemption Series F Stockholders are allowed to request redemption of their shares on the earlier of: (i) the five-year anniversary of the original issue date of the Series F Stock or (ii) the consummation of an initial public offering of our capital stock that is not a Qualified IPO. A merger or consolidation into another entity in which our stockholders own less than 50% of the voting stock of the surviving company or the sale, transfer or lease of substantially all of our assets shall be deemed a liquidation, dissolution or winding up, and, as a result, a redemption event. As a redemption event is outside of our control, all shares of preferred stock have been presented outside of permanent equity. We have also concluded that since the shares of preferred stock are not mandatorily redeemable, but rather are only contingently redeemable, and given that a redemption event is not certain to occur, the shares have not been accounted for as a liability in any of the periods presented. 10. Income taxes Our 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, and any applicable income tax credits. The difference in the 21% U.S. statutory tax rate and the annual forecasted effective tax rate is primarily a result of the jurisdictional mix of earnings and losses as well as valuation allowances offsetting the benefit of forecasted losses in the U.S., Australia, and the United Kingdom. Forecasted tax expense is related to non-U.S. jurisdictions where we are profitable along with state income taxes. The effective tax rates for the three months ended June 30, 2020 and 2019 were (0.04) % and (0.06) % respectively. The effective tax rates for the six months ended June 30, 2020 and 2019 were (0.16) % and (0.06) % respectively. We file tax returns in the U.S., including various state and local returns, and in other foreign jurisdictions including Australia and the United Kingdom. We believe adequate provision has been made for all income tax uncertainties. We are not currently under audit in any filing jurisdiction. Fiscal years 2016 through 2019 remain open to examination by the major taxing jurisdictions to which we are subject; although, carry forward attributes that were generated in tax years prior to fiscal year 2016 may be adjusted upon examination by the tax authorities if they have been, or will be, used in a future period. 11. Net loss per share Net loss per share Basic and diluted net loss per common share is presented in conformity with the two-class method required for participating securities. Holders of Series F preferred stock are entitled to receive cumulative dividends at the annual rate of 10% compounded quarterly payable prior and in preference to any dividends on any shares of our common stock, subject to certain adjustments as set forth in our certificate of incorporation. In the event a dividend is paid on common stock, the holders of preferred stock are entitled to a proportionate share of any such dividend as if they were holders of common stock (on an as-if converted basis). Accordingly, all of our outstanding series of preferred stock are considered to be participating securities. The holders of our preferred stock do not have a contractual obligation to share in our losses; therefore, no amount of total undistributed loss is allocated to preferred stock. Net loss attributable to common stockholders is calculated as net loss less current period preferred stock dividends. Basic net loss per share attributable to common stockholders is computed by dividing net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding for the period. Because we have reported a net loss for 2018 and 2019, the number of shares used to calculate diluted net loss per share of common stock attributable to common stockholders is the same as the number of shares used to calculate basic net loss per share of common stock attributable to common stockholders for the period presented because the potentially dilutive shares would have been antidilutive if included in the calculation. 23 Table of Contents 11. N et loss per share (continued) The following potentially dilutive securities outstanding have been excluded from the computation of diluted weighted-average shares outstanding because such securities have an antidilutive impact due to losses reported: Three months ended June 30, Six months ended June 30, (Unaudited, in thousands) 2020 2019 2020 2019 Preferred stock as-converted 34,442 34,442 34,442 34,442 Stock options outstanding 9,267 9,476 9,267 9,476 Warrants to purchase common stock 369 364 369 364 Convertible debt 5,250 2,180 5,250 2,180 Total potentially dilutive securities 49,328 46,462 49,328 46,462 12. Subsequent events Initial Public Offering On July 24, 2020, we filed with the Secretary of State of the State of Delaware an amendment to our certificate of incorporation that effected a one-for-three reverse stock split of our common stock. All common stock share and per share information for all periods presented has been adjusted to reflect the reverse stock split. The amendment to our certificate of incorporation adjusted the amount of our authorized shares to: 205,000,000 shares of Series 1 common stock, 45,000,000 shares of Series 2 common stock, and 109,030,573 shares of preferred stock. The common stock has a par value of $0.0001 per share. On July 24, 2020, concurrently with the effectiveness of the reverse stock split, the conversion prices applicable to our preferred stock were adjusted proportionately in accordance with our certificate of incorporation. On August 4, 2020, we completed our initial public offering (IPO), in which we issued and sold 7,877,500 shares of our Series 1 common stock, including 1,027,500 shares of Series 1 common stock that were sold pursuant to the exercise in full of the underwriters’ option to purchase additional shares of Series 1 common stock at $24.00 per share. The IPO resulted in net proceeds of $175.8 million after deducting underwriting discounts and commissions. Existing stockholders sold an additional 2,495,000 shares of Series 1 common stock, including 325,435 shares of Series 1 common stock that were sold pursuant to the exercise in full of the underwriters’ option to purchase additional shares of Series 1 common stock at $24.00 per share. We did not receive any proceeds from the sale of shares by the selling stockholders in the IPO. Expected expenses incurred by us for the IPO were approximately $3.9 million and will be recorded against stockholder’s equity. Immediately prior to the closing of our IPO, we recognized the following transactions related to our preferred stock and 2017 and 2020 Convertible Term Loans: • the outstanding shares of our preferred stock, excluding the shares of Series F preferred stock issuable upon the conversion of the 2017 Convertible Term Loan and the exercise of the Purchase Right (described below), converted into an aggregate of 29,390,733 shares of Series 1 common stock and 5,050,555 shares of Series 2 common stock • the 2017 Convertible Term Loan converted into an aggregate of 6,170,316 shares of our Series F preferred stock, at a conversion price of $3.059 per share ($9.177 on an as-converted to common stock basis, giving effect to the one-for-three reverse stock split) • the exercise of the Purchase right associated with the 2017 Convertible Term Loan resulting in the purchase of 367,766 shares of our Series F preferred stock at a purchase price of $3.059 per share ($9.177 on an as-converted to common stock basis, giving effect to the one-for-three reverse stock split) • the Series F preferred stock issued as a result of the conversion of 2017 Convertible Term Loan and the exercise of the Purchase Right discussed above, automatically converted into 2,179,360 shares of Series 1 common stock The 2020 Convertible Term Loan converted into and aggregate of 3,070,174 shares of our Series 1 common stock, at a conversion price of $11.40 per share. The conversion of the 2017 Convertible Term Loan and 2020 Convertible Term Loan resulted in a $53.9 million reduction in the principal of our outstanding long-term debt. 24 Table of Contents With the proceeds of the IPO, we paid in full accumulated dividends on our previously outstanding shares of Series F preferred stock, which totaled approximately $12.8 million. 25 Table of Contents Special Note Regarding Forward-Looking Statements This Quarterly Report on Form 10-Q contains forward-looking statements. 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: • the impact of the COVID-19 pandemic and the associated economic uncertainty on us, our customers, and our partners, and our response thereto; • our expectations regarding our revenue, expenses, sales, and operations; • anticipated trends and challenges in our business and the markets in which we operate; • 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 growth and to expand our infrastructure; • 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 expectations regarding the use of proceeds from our initial public offering; • 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; • our anticipated cash needs and our estimates regarding our capital requirements and our need for additional financing; 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,” as well as factors more fully described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report on Form 10-Q. If one or more of the factors affecting the expectations reflected in our forward-looking information and statements proves incorrect, our actual results, performance, or achievements could differ materially from those expressed in, or implied by, forward-looking information and statements. Therefore, we caution the reader not to place undue reliance on any forward-looking information or statements. The effect of these factors is difficult to predict. Factors other than these also could adversely affect our results, and the reader should not consider these factors to be a complete set of all potential risks or uncertainties. New factors emerge from time to time, and management cannot assess the impact of any such factor on our business or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statement. Any forward-looking statements only speak as of the date of this document, and we undertake no obligation to update any forward-looking information or statements, whether written or oral, to reflect any change, except as required by law. All forward-looking statements attributable to us are expressly qualified by these cautionary statements. 26 Table of Contents Item 2. Management’s Discussi on 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 consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that involve risk 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.” Overview BigCommerce is leading a new era of ecommerce. Our SaaS platform simplifies the creation of beautiful, engaging online stores by delivering a unique combination of ease-of-use, enterprise functionality, and flexibility. We power both our customers’ branded ecommerce stores and their cross-channel connections to popular online marketplaces, social networks, and offline POS systems. As of June 30, 2020, we served approximately 60,000 online stores across industries in approximately 150 countries. 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 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. Our customers include Avery Dennison, Ben & Jerry’s, Burrow, SC Johnson, SkullCandy, Sony, and Woolrich. 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 monthly subscription price tailored to each business. For SMBs, BigCommerce Essentials offers three retail plans: Standard, Plus, and Pro, priced at $29.95, $79.95, and $299.95 per month, respectively. Since our founding, we have achieved several key milestones and implemented important strategic initiatives that impact our business today. • 2009: BigCommerce launches in Sydney, Australia, with a simple, low-cost, all-in-one ecommerce solution, delivered through the cloud, targeting the SMB segment. • 2010: BigCommerce’s customer base reaches 10,000 online stores. • 2011–2014: Headquarters relocate to Austin, Texas. We raise private capital in a series of investment rounds to fund growth from investors including General Catalyst, Revolution Growth, and Softbank. • 2015: Brent Bellm joins as president and chief executive officer. New executive team expands focus to mid-market and large enterprise customer segments, investing significantly in research and development over the subsequent five-year period. • 2016–2018: BigCommerce raises additional rounds of private capital from investors including GGV Capital and Goldman Sachs. Using an “open SaaS” strategy, we expand our ecosystem of technology and service partners that offer complementary capabilities such as payments, shipping, marketing, and accounting. ARR surpasses $100 million. • 2019: BigCommerce expands go-to-market teams in Europe and Australia, launches a presence in Asia, and scales engineering capacity in Kyiv, Ukraine. We reach approximately 60,000 stores. Our “headless” commerce capabilities gain traction across a wide range of leading CMSs and progressive web application frameworks. Our business has experienced strong growth. Our ARR reached $128.5 million as of December 31, 2019, and $151.8 million as of June 30, 2020. Our ARR growth rate increased from 22.3% in 2018 to 25.8% in 2019 and from 25.1% for the three months ended June 30, 2019 to 33.3% for the three months ended June 30, 2020. Our revenue increased to $112.1 million in 2019. Our revenue growth rate increased from 22.0% in 2019 to 33.0% in the three months ended June 30, 2020. During the six months ended June 30, 2020 and 2019, our revenue was $69.5 million and $52.8 million, respectively. Our gross margin was 75.9% in 2019, and 78.0% and 77.0% for the six months ended June 30, 2020 and 2019, respectively. We had net losses of $42.6 million in 2019, and $12.5 million and $21.6 million in the six months ended June 30, 2020 and 2019, respectively. 27 Table of Contents In addition, as a result of the global travel restrictions and stay-at-home or similar orders in effect due to the COVID-19 pa ndemic, our sales and marketing, research and development, and general and administrative expenses declined as a percentage of revenue in the first quarter of 2020. We expect these percentages to return to historical levels as these restrictions are lifted . On August 4, 2020, we completed our IPO, in which we issued and sold 7,877,500 shares of our Series 1 common stock, including 1,027,500 shares of Series 1 common stock that were sold pursuant to the exercise in full of the underwriters’ option to purchase additional shares of Series 1 common stock at $24.00 per share. The IPO resulted in net proceeds of $175.8 million after deducting underwriting discounts and commissions. Expected expenses incurred by us for the IPO were approximately $3.9 million and will be recorded against stockholders’ equity. An additional result of the IPO was the conversion of our 2017 and 2020 Term Loans to Series 1 Common Stock resulting in a $53.9 million reduction in the principal of our outstanding long-term debt. Key factors affecting our performance We believe our future performance will depend on many factors, including the following: Continued growth of ecommerce domestically and globally Ecommerce is rapidly transforming global B2C and B2B commerce. B2C ecommerce was nonexistent in the early-1990s and grew to approximately 10% of all global retail spending in 2017, according to eMarketer. eMarketer estimates that it will take just six years for this percentage to more than double to 21% of global retail spending in 2023. The rapid growth in ecommerce is prompting companies to adopt ecommerce platforms like BigCommerce to create compelling branded ecommerce stores and power cross-channel connections to online marketplaces, social networks, and offline POS systems. We believe we have a substantial opportunity to serve a larger number of customers as ecommerce continues to grow around the world by extending into new and emerging segments within ecommerce. The following segments are significant areas of potential growth and strategic focus for us: • Headless commerce . This refers to businesses whose technology strategy is to decouple their front-end customer experience technology from their back-end commerce platform. In terms of online strategy, these companies are typically brand-, marketing-, or experience-led. We serve headless use cases better than most of our competitors due to years of investment in our platform APIs and integration capabilities. Pre-built integrations connect our platform with leading CMSs such as Acquia, Adobe, Bloomreach, Drupal, Sitecore, and WordPress. • B2B . As of December 31, 2019, approximately 10% of our customers use BigCommerce primarily for B2B sales. In many cases, these customers’ needs are met using our native functionality, including B2B features like customer groups and price lists. In other cases, these customers complement BigCommerce with purpose-built B2B extensions and applications in the BigCommerce Apps Marketplace. Over time, we intend to add more B2B functionality to both the BigCommerce Apps Marketplace and our native feature set. • Large enterprise . Increasingly, we are successfully competing for large enterprise sites selling more than $50 million annually online, with our Enterprise plan product feature set, along with our sales, marketing, solutioning, and service capabilities. Efficient acquisition of new customers The growth of our customer base is important to our continued revenue growth. We believe we are positioned to grow significantly through a combination of our own marketing and sales initiatives, customer referrals from our agency and technology partners, and word-of-mouth referrals from existing customers. We measure the efficiency of new customer acquisition by comparing the lifetime value (“LTV”) of newly-acquired customers to the customer acquisition costs (“CAC”) 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. We calculate CAC as total sales and marketing expense incurred during the associated preceding four quarters. Retention and growth of our existing customers We believe our long-term revenue growth is correlated with the growth of our existing customers’ ecommerce businesses. We strive to maintain industry-leading service levels and platform capabilities to maximize customer success and retention. Our revenue grows with that of our customers. As they generate more online sales, we generate more subscription revenue through automated 28 Table of Contents sales-based upgrad es on our Essentials plans and order adjustments on our Enterprise plans. Typical enterprise contracts have terms ranging from 12 to 36 months and do not include the ability to terminate for convenience. As our customers’ online sales increase, our partner and services revenue generated by revenue-sharing agreements with our strategic technology partners increases as well. Our ability to retain and grow our customers’ ecommerce businesses often depends on the continued expansion of our platform and the capa bilities of our strategic technology partners to provide revenue generating services to our customers. We continually evaluate prospective and existing partners’ abilities to enhance the capabilities of our customers’ ecommerce businesses. We add new partn ers and expand existing partner relationships to enhance the utility of our platform, while creating new opportunities to expand our revenue share in partner and services revenue. As we continue to grow as a platform, we believe our ability to realize more favorable and expansive revenue share agreements will grow as well. We also grow by selling additional stores to existing customers. Our larger customers will often first use our platform to build a single online store that serves a single brand within th eir portfolio. These customers can then expand their usage of our platform by launching additional stores to serve additional brands, geographies, or use cases (e.g., B2B in addition to B2C). Successful rollout of new geographies We believe our platform can compete successfully around the world. We enhance self-serve usability in new geographies by translating our control panel into local languages and enabling the integration of local payment processors. We support the growth of mid-market and large enterp rise customers around the world by expanding our regional sales and marketing capabilities. We opened our first European office in London, UK in 2018 and expanded it throughout 2019, resulting in a 20% revenue growth rate in 2019 in EMEA. Similarly, we launched our first local sales presence in Singapore in early 2019 and expanded our existing sales and marketing team in Sydney, Australia, resulting in an 28% revenue growth rate in 2019 in APAC. We plan to add local sales support in further select international markets over time. In addition, in select markets like China, we are developing relationships with strategic agency partners in lieu of having a direct local employee presence. Evolution of our technology partner ecosystem A key part of our strategy is to build a thriving technology partner ecosystem. We focus on collaborating with, not competing against, partners in our ecosystems. This strategy contrasts with our largest competitors, who operate software stacks with multiple vertically integrated adjacent services that potentially compete with offerings from technology partners in their ecosystems. Our customers benefit from the expertise and best-of-breed offerings of our partners, the flexibility to choose without penalty the best offerings for their needs, and the tailored programs developed with our strategic partners. Through significant investment, we have developed a marketplace of integrated application and technology solutions that is one of the largest of any ecommerce platform. Our partners currently offer more than 600 pre-built applications and integrations spanning major categories relevant to ecommerce, including shipping, tax, accounting and ERP, marketing, fulfillment, cross-channel commerce, and POS systems, with additional applications and integrations for merchandising, locations, and payments under development. We intend to grow partner-sourced revenue by expanding the value and scope of existing partnerships, selling and marketing partner solutions to our customer base, and acquiring and cultivating new, high-value relationships. Partner referrals of customers are increasingly becoming an efficient customer acquisition strategy for us as we expand our programs for cross-marketing and cross-selling with our partners. Realizing operating leverage from our investments We have made significant investments in our SaaS platform and our global infrastructure, which we believe will yield future operating leverage and profit margin expansion. Research and development has historically been one of our largest operating expense categories. By opening and expanding a lower-cost engineering center in Kyiv, Ukraine, we are increasing development capacity while also driving leverage in engineering cost as a percentage of total revenue. In addition, we believe we will achieve operating leverage in marketing by continuing to emphasize lower-cost inbound techniques and growth in customer referrals from our technology and agency partners. We believe we will be able to run our business more efficiently as we continue to grow our revenue and gain further operating scale. 29 Table of Contents Duration and durability of COVID-19’s impact on partner and services revenue Ecommerce sales in our major markets have increased significantly due to the widespread closure of physical stores and behavioral changes associated with social distancing. This increase in sales has bolstered our partner and services revenue, driven predominantly by increases in our partner revenue share streams. We anticipate that our performance will be affected by the duration of COVID-19’s impact on physical stores and consumer preferences and the resulting increase in ecommerce sales. Additionally, we expect the widespread availability of treatment options to impact the trend toward ecommerce, which, in turn, may have a significant impact on our performance. We believe we are well-positioned to continue to benefit from the macro-economic shift to ecommerce that COVID-19 has accelerated, but revenue may be more variable in the near-term as a result. Key business metrics We review the following key business metrics to measure our performance, identify trends affecting our business, formulate business plans, and make strategic decisions. Increases or decreases in our key business metrics may not correspond with increases or decreases in our revenue. Annual revenue run-rate We calculate annual revenue run-rate (“ARR”) at the end of each month as the sum of: (1) the product of the current month’s monthly recurring revenue (“MRR”) multiplied by twelve (to prospectively annualize subscription revenue), and (2) the trailing twelve-month partner and services revenue, including non-recurring services revenue, such as one-time partner integration fees and store-launch services. MRR includes BigCommerce platform subscription fees and invoiced growth adjustments as customers’ businesses grow past contracted order thresholds after a threshold has been met. It also includes recurring professional services revenue, such as recurring technical account management services and product training services. Accounts with greater than $2,000 ACV We track the total number of accounts with annual contract value (“ACV”) greater than $2,000 (the “ACV threshold”) as of the end of a monthly billing period. To define this $2,000 ACV cohort, we include only subscription plan revenue and exclude partner and services revenue and recurring services revenue. We consider all stores added and subtracted as of the end of the monthly billing period. This metric includes accounts that may have either one single store above the ACV threshold or multiple stores that together exceed the ACV threshold. Accordingly, this cohort would include: (1) customers on Enterprise plans, (2) customers on Pro plans, and (3) customers with multiple plans that together exceed the ACV threshold. As of June 30, 2020, accounts above the ACV threshold represented 80% of our ARR, up from 76% as of June 30, 2020. Average revenue per account We calculate average revenue per account (“ARPA”) for accounts above the ACV threshold at the end of a period by including customer-billed revenue and an allocation of partner and services revenue. We bill customers for subscription solutions and professional services, and we include both in ARPA for the reported period. For example, ARPA as of March 31, 2019 includes all subscription solutions and professional services billed between January 1, 2019 and March 31, 2019. We allocate partner revenue primarily based on each customer’s share of GMV processed through that partner’s solution. For partner revenue that is not directly linked to customer usage of a partner’s solution, we allocate such revenue 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. As of June 30, 2020, the ARPA for accounts above the ACV threshold was $12,936, up 29% from $10,002 as of June 30, 2019. Net revenue retention We use net revenue retention (“NRR”) to evaluate our ability to maintain and expand our revenue with our account base of customers exceeding the ACV threshold over time. The total billings and allocated partner revenue for the measured period are divided by the total billings and allocated partner revenue for such accounts, corresponding period one year prior. An NRR greater than 100% 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 in our NRR calculations. NRR for accounts with ACV greater than $2,000 was 108% and 106% for 2018 and 2019, respectively. We update our reported NRR at the end of each fiscal year and do not report quarterly changes in NRR. 30 Table of Contents The chart below illustrates certain of our key business metrics as of or for the three months ended for each of the dates presented, as applicable. June 30, 2019 September 30, 2019 December 31, 2019 March 31, 2020 June 30, 2020 ARR (in thousands) $ 114,826 $ 121,346 $ 128,522 $ 137,080 $ 151,814 Accounts with ACV greater than $2,000 8,737 8,918 9,090 8,988 9,378 % of ARR attributable to accounts with ACV greater than $2,000 76 % 77 % 78 % 79 % 80 % ARPA attributable to accounts with ACV greater than $2,000 $ 10,002 $ 10,512 $ 11,098 $ 12,094 $ 12,936 Enterprise accounts In addition to tracking our key business metrics identified above, we periodically measure ARR for accounts with at least one unique Enterprise plan subscription (“enterprise accounts”). These accounts may have more than one Enterprise plan or a combination of Enterprise plans and Essentials plans. Enterprise account ARR grew 44% to $66.7 million in 2019 and represented 52% of ARR as of December 31, 2019. As of June 30, 2020, enterprise account ARR grew 44% year-over-year to $79.8 million, up from $55.3 million as of June 30, 2019. Enterprise accounts represented 53% and 48% of ARR as of June 30, 2020 and 2019, respectively. 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 all plans. It also includes recurring professional services and sales of SSL certificates. 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 one to three years and are non-cancelable. Our retail plans are generally month-to-month contracts. Monthly subscription fees for Pro and 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. 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) for our customer success teams, (2) costs that are directly related to hosting and maintaining our platform, (3) fees for processing customer payments, and (4) the allocation of overhead costs. We expect that cost of revenue will increase in absolute dollars, but may fluctuate as a percentage of total revenue from period to period. Sales and marketing Sales and marketing expenses consist primarily of: (1) personnel-related expenses (including stock-based compensation expense), (2) sales commissions, (3) marketing programs, (4) travel-related expenses, and (5) allocated overhead 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 hiring additional sales and marketing personnel, 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. No incremental sales commissions are incurred on renewals of customer contracts. We expect our sales and marketing expenses will increase in absolute dollars, but will decrease as a percentage of total revenue over time. 31 Table of Contents Research and development Research and development expenses consist primarily of personnel-related expenses (including stock-based compensation expense) incurred in maintaining and developing enhancements to our ecommerce platform and allocated overhead costs. To date, software development costs eligible for capitalization have not been significant. We believe delivering new functionality is critical to attracting new customers and enhancing the success of existing customers. We expect to continue to make substantial investments in research and development. We expect our research and development expenses to increase in absolute dollars, but decrease as a percentage of total revenue over time, as we continue to leverage and expand our lower-cost engineering center in Kyiv, Ukraine. We expense research and development expenses as incurred. General and administrative General and administrative expenses consist primarily of: (1) personnel-related expenses (including stock-based compensation expense) for finance, legal and compliance, human resources, and IT, (2) external professional services, and (3) allocated overhead costs. We expect to incur additional general and administrative expenses as a result of operating as a public company. We also expect to increase the size of our general and administrative functions to support the growth of our business. As a result, we expect that our general and administrative expenses will increase in absolute dollars but may fluctuate as a percentage of total revenue from period to period. Other expenses, net Other expenses, net consists primarily of interest expense on our bank borrowings partially offset by interest income on corporate funds invested in money market instruments and highly liquid short-term investments. Provision for income taxes Provision for income taxes consists primarily of 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. Results of operations The following table sets forth our results of operations for the periods presented: Three months ended June 30, Six months ended June 30, 2020 2019 2020 2019 (in thousands) Revenue $ 36,316 $ 27,235 $ 69,490 $ 52,819 Cost of revenue ( 1) 7,837 6,227 15,317 12,152 Gross profit 28,479 21,008 54,173 40,667 Operating expenses: Sales and marketing ( 1) 16,803 15,963 32,565 30,099 Research and development ( 1) 11,345 10,468 22,266 21,300 General and administrative ( 1) 7,714 5,222 14,180 10,221 Total operating expenses 35,862 31,653 69,011 61,620 Loss from operations (7,383 ) (10,645 ) (14,838 ) (20,953 ) Interest income 17 86 18 241 Interest expense (1,152 ) (410 ) (1,914 ) (770 ) Change in fair value of financial instrument — — 4,413 — Other expense 40 (56 ) (163 ) (77 ) Loss before provision for income taxes (8,478 ) (11,025 ) (12,484 ) (21,559 ) Provision for income taxes 3 7 20 14 Net loss $ (8,481 ) $ (11,032 ) $ (12,504 ) $ (21,573 ) 32 Table of Contents (1) Includes stock-based compensation expense as follows: Three months ended June 30, Six months ended June 30, 2020 2019 2020 2019 (in thousands) Cost of revenue $ 81 $ 37 $ 154 $ 59 Sales and marketing 352 198 641 331 Research and development 330 158 634 229 General and administrative 381 428 741 797 Total stock-based compensation expense $ 1,144 $ 821 $ 2,170 $ 1,416 Revenue by geographic region The composition of our revenue by geographic region during the three and six months ended June 2020 and 2019 were as follows: Three months ended June 30, Change Six Months Ended June 30, Change 2020 2019 Amount % 2020 2019 Amount % (dollars in thousands) (dollars in thousands) Revenue Americas – U.S. $ 28,883 $ 22,225 $ 6,658 30.0 $ 55,616 $ 43,180 $ 12,436 28.8 Americas – other 1,305 904 401 44.4 2,405 1,773 632 35.6 EMEA 2,871 1,739 1,132 65.1 5,313 3,361 1,952 58.1 APAC 3,257 2,367 890 37.6 6,156 4,505 1,651 36.6 Total Revenue $ 36,316 $ 27,235 $ 9,081 33.3 $ 69,490 $ 52,819 $ 16,671 31.6 Adjusted EBITDA In addition to our consolidated statements of operations data as determined in accordance with GAAP, we believe the following non-GAAP measure is useful in evaluating our business performance. Three months ended June 30, Six months ended June 30, 2020 2019 2020 2019 Adjusted EBITDA $ (5,428 ) $ (9,297 ) $ (11,153 ) $ (18,498 ) As of June 30, As of December 31, 2020 2019 (in thousands) Consolidated balance sheet data: Cash and cash equivalents $ 25,390 $ 7,795 Working capital (1) 18,225 (2,243 ) Total assets 79,617 56,064 Total liabilities 122,671 89,613 Convertible preferred stock 227,452 223,754 Total stockholders' (deficit) equity (270,506 ) (257,303 ) (1) We define working capital as current assets less current liabilities. 33 Table of Contents Non-GAAP financial measures To supplement our financial statements presented in accordance with GAAP and to provide investors with additional information regarding our financial results, we have presented in this Quarterly Report on Form 10-Q Adjusted EBITDA, a non-GAAP financial measure. Adjusted EBITDA is not based on any standardized methodology prescribed by GAAP and is not necessarily comparable to similarly titled measures presented by other companies. We define Adjusted EBITDA as our net loss, excluding the impact of stock-based compensation expense, depreciation and amortization expense, interest income, interest expense, change in fair value of financial instruments, and our provision for income taxes. The most directly comparable GAAP measure is net loss. We monitor and have presented in this Quarterly Report on Form 10-Q Adjusted EBITDA because it is a key measure used by our management and board of directors to understand and evaluate our operating performance, to establish budgets, and to develop operational goals for managing our business. In particular, we believe excluding the impact of these expenses in calculating Adjusted EBITDA can provide a useful measure for period-to-period comparisons of our core operating performance. We believe Adjusted EBITDA helps identify underlying trends in our business that could otherwise be masked by the effect of the expenses that we include in net loss. Accordingly, we believe Adjusted EBITDA provides useful information to investors, analysts, and others in understanding and evaluating our operating results, enhancing the overall understanding of our past performance and future prospects. Adjusted EBITDA is not prepared in accordance with GAAP and should not be considered in isolation of, or as an alternative to, measures prepared in accordance with GAAP. There are a number of limitations related to the use of Adjusted EBITDA rather than net loss, which is the most directly comparable financial measure calculated and presented in accordance with GAAP. Some of these limitations are: • Adjusted EBITDA excludes stock-based compensation expense as it has recently been, and will continue to be for the foreseeable future, a significant recurring non-cash expense for our business; • Adjusted EBITDA excludes depreciation and amortization expense and, although this is a non-cash expense, the assets being depreciated and amortized may have to be replaced in the future; • Adjusted EBITDA does not reflect the cash requirements necessary to service interest on our debt which affects the cash available to us; • Adjusted EBITDA does not reflect the monies earned from our investments since it does not reflect our core operations; • Adjusted EBITDA does not reflect change in fair value of financial instruments including derivatives since it does not reflect our core operations and is a non-cash expense; • Adjusted EBITDA does not reflect income tax expense that affects cash available to us; and • the expenses and other items that we exclude in our calculations of Adjusted EBITDA may differ from the expenses and other items, if any, that other companies may exclude from Adjusted EBITDA when they report their operating results. In addition, other companies may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison. The following table reconciles Adjusted EBITDA to net loss, the most directly comparable financial measure calculated and presented in accordance with GAAP. 34 Table of Contents Reconciliation of net loss to Adjusted EBITDA Three months ended June 30, Six months ended June 30, 2020 2019 2020 2019 Net loss $ (8,481 ) $ (11,032 ) $ (12,504 ) $ (21,573 ) Stock-based compensation expense 1,144 821 2,170 1,416 Depreciation and amortization 771 583 1,678 1,116 Interest income (17 ) (86 ) (18 ) (241 ) Interest expense 1,152 410 1,914 770 Change in fair value of financial instrument — — (4,413 ) — Provision for income taxes 3 7 20 14 Adjusted EBITDA $ (5,428 ) $ (9,297 ) $ (11,153 ) $ (18,498 ) Comparison of the three and six months ended June 30, 2020 and June 30, 2019 Revenue The components of our revenue during the three and six months ended June 30, 2020 and 2019 were as follows: Three months ended June 30, Change Six months ended June 30, Change 2020 2019 Amount % 2020 2019 Amount % (dollars in thousands) Revenue Subscription solutions $ 23,943 $ 20,137 $ 3,806 18.9 % $ 47,496 $ 39,384 $ 8,112 20.6 % Partner and services 12,373 7,098 5,275 74.3 % 21,994 13,435 8,559 63.7 % Total revenue $ 36,316 $ 27,235 $ 9,081 33.3 % $ 69,490 $ 52,819 $ 16,671 31.6 % Three Months Ended June 30, 2020 Compared to Three Months Ended June 30, 2019. Revenue increased $9.1 million, or 33.3%, to $36.3 million for the three months ended June 30, 2020 from $27.2 million for the three months ended June 30, 2019, as a result of increases in both subscription solutions and partner and services revenue. Subscription solutions revenue increased $3.8 million, or 18.9%, to $23.9 million for the three months ended June 30, 2020 from $20.1 million for the three months ended June 30, 2019, primarily due to growth in subscription sales. Partner and services revenue increased $5.3 million, or 74.3%, to $12.4 million for the three months ended June 30, 2020 from $7.1 million for the three months ended June 30, 2019, primarily as a result of increases in revenue-sharing activity with our technology partners and improved monetization of partner revenue share. Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019. Revenue increased $16.7 million, or 31.6%, to $69.5 million for the six months ended June 30, 2020 from $52.8 million for the six months ended June 30, 2019, as a result of increases in both subscription solutions and partner and services revenue. Subscription solutions revenue increased $8.1 million, or 20.6%, to $47.5 million for the six months ended June 30, 2020 from $39.4 million for the six months ended June 30, 2019, primarily due to growth in subscription sales. Partner and services revenue increased $8.6 million, or 63.7%, to $22.0 million for the six months ended June 30, 2020 from $13.4 million for the six months ended June 30, 2019, primarily as a result of increases in revenue-sharing activity with our technology partners and improved monetization of partner revenue share. Cost of revenue, gross profit, and gross margin Cost of revenue, gross profit, and gross margin during the three and six months ended June 30, 2020 and 2019 were as follows: Three months ended June 30, Change Six months ended June 30, Change 2020 2019 Amount % 2020 2019 Amount % (dollars in thousands) Cost of revenue $ 7,837 $ 6,227 $ 1,610 25.9 $ 15,317 $ 12,152 $ 3,165 26.0 Gross profit $ 28,479 $ 21,008 $ 7,471 35.6 $ 54,173 $ 40,667 $ 13,506 33.2 Gross margin 78.4 % 77.1 % 78.0 % 77.0 % 35 Table of Contents Three Months Ended June 30, 2020 Compared to Three Months Ended June 30, 2019. Cost of revenue increased $1.6 million, or 25.9%, to $7.8 million for the three months ended June 30, 2020 from $6.2 million for the three months ended June 30, 2019, primarily as a result of higher hosting costs resulting from increased transactions processed of $0.7 million and higher personnel costs, including stock-based compensation expense amounting to $0.9 million. Gross margin increased to 78.4% during the three months ended June 30, 2020 from 77.1% during the three months ended June 30, 2019. Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019. Cost of revenue increased $3.2 million, or 26.0%, to $15.3 million for the six months ended June 30, 2020 from $12.1 million for the six months ended June 30, 2019, primarily as a result of higher hosting costs resulting from increased transactions processed of $1.1 million and higher personnel costs, including stock-based compensation expense amounting to $1.6 million. Gross margin increased to 78.0% during the six months ended June 30, 2020 from 77.0% during the six months ended June 30, 2019. Operating expenses Sales and marketing Sales and marketing expenses during the three and six months ended June 30, 2020 and 2019 were as follows: Three months ended June 30, Change Six months ended June 30, Change 2020 2019 Amount % 2020 2019 Amount % (dollars in thousands) Sales and marketing $ 16,803 $ 15,963 $ 840 5.3 $ 32,565 $ 30,099 $ 2,466 8.2 Percentage of revenue 46.3 % 58.6 % 46.9 % 57.0 % Three Months Ended June 30, 2020 Compared to Three Months Ended June 30, 2019. Sales and marketing expenses increased $.8 million, or 5.3%, to $16.8 million for the three months ended June 30, 2020 from $16.0 million for the three months ended June 30, 2019, primarily due to higher staffing costs, including stock-based compensation expense of $1.7 million offset by a reduction in travel and other event related expenditures of $0.9 million. As a percentage of total revenue, sales and marketing expenses decreased to 46.3% during the three months ended June 30, 2020 from 58.6% during the three months ended June 30, 2019, primarily due to increased operating leverage from revenue growth. Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019. Sales and marketing expenses increased $2.5 million, or 8.2%, to $32.6 million for the six months ended June 30, 2020 from $30.1 million for the six months ended June 30, 2019, primarily due to higher staffing costs, including stock-based compensation expense of $2.7 million offset by a reduction in travel related expenditures of $0.4 million. As a percentage of total revenue, sales and marketing expenses decreased to 46.9% during the six months ended June 30, 2020 from 57.0% during the six months ended June 30, 2019, primarily due to increased operating leverage from revenue growth. Research and development Research and development expenses during the three and six months ended June 30, 2020 and 2019 were as follows: Three months ended June 30, Change Six months ended June 30, Change 2020 2019 Amount % 2020 2019 Amount % (dollars in thousands) Research and development $ 11,345 $ 10,468 $ 877 8.4 $ 22,266 $ 21,300 $ 966 4.5 Percentage of revenue 31.2 % 38.4 % 32.0 % 40.3 % Research and development expenses were relatively unchanged in absolute dollars from period to period but declined as a percentage of revenue. This decline reflects our leverage of previous enhancements to our platform capabilities and prior development of new product offerings. By opening and expanding an engineering center in Kyiv, Ukraine in 2019, we increased our lower-cost development capacity driving leverage in research and development spend as a percentage of revenue. 36 Table of Contents General and administrative General and administrative expenses during the three and six months ended June 30, 2020 and 2019 were as follows: Three months ended June 30, Change Six months ended June 30, Change 2020 2019 Amount % 2020 2019 Amount % (dollars in thousands) General and administrative $ 7,714 $ 5,222 $ 2,492 47.7 $ 14,180 $ 10,221 $ 3,959 38.7 Percentage of revenue 21.2 % 19.2 % 20.4 % 19.4 % Three Months Ended June 30, 2020 Compared to Three Months Ended June 30, 2019. General and administrative expenses increased $2.5 million, or 47.7%, to $7.7 million for the three months ended June 30, 2020 from $5.2 million for the three months ended June 30, 2019. The increase was primarily due to increased staffing and fees associated with preparation for our initial public offering amounting to $2.1 million. Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019. General and administrative expenses increased $4.0 million, or 38.7%, to $14.2 million for the six months ended June 30, 2020 from $10.2 million for the six months ended June 30, 2019. The increase was primarily due to increased staffing and fees associated with preparation for our initial public offering amounting to $3.3 million. Interest income Interest income was insignificant for the three and six-month periods ended June 30, 2020 and 2019. Interest expense Interest expense increased $0.7 million, or 181.0%, to $1.1 million for the three months ended June 30, 2020 from $0.4 million for the three months ended June 30, 2019, and increased $1.1 million, or 148.6%, to $1.9 million for the six months ended June 30, 2020 from $0.8 million for the six months ended June 30, 2019, primarily as a result of increased bank borrowings used to fund operations. Change in fair value of financial instrument The increase of $4.4 million in the fair value of financial instrument in the six months ended June 30, 2020 was the result of a decrease in fair value of the embedded lenders’ put option on our 2020 Convertible Term Loan. Other expense Other expense was insignificant for the three and six-month periods ended June 30, 2020 and 2019. Provision for income taxes Our provision for income taxes was insignificant in the three and six months ended June 30, 2020 and 2019. Liquidity and capital resources We have incurred losses since our inception. Our operations have been financed primarily through net proceeds from the sale of convertible preferred stock and borrowings under our debt instruments. As of June 30, 2020, we had an accumulated deficit of $291.1 million, working capital of $18.2 million, $26.5 million in cash and cash equivalents and restricted cash, and no availability under our A&R Credit Facility. Our short-term liquidity needs primarily include working capital for sales and marketing, research and development, and continued innovation. We have generated significant operating losses and negative cash flows from operations as reflected in our accumulated deficit and condensed consolidated statements of cash flows. We expect to continue to incur operating losses and negative cash flows from operations in the future and may require additional capital resources to execute strategic initiatives to grow 37 Table of Contents our business. Our future capital requirements will depend on man y 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, the timing of new product introductions, and the impact of the COVID-19 pandem ic on the global economy and our business, financial condition, and results of operations. As the impact of the COVID-19 pandemic on the global economy and our operations evolves, we will continue to assess our liquidity needs. On August 4, 2020, we completed our IPO, in which we issued and sold 7,877,500 shares of our Series 1 common stock, including 1,027,500 shares of Series 1 common stock that were sold pursuant to the exercise in full of the underwriters’ option to purchase additional shares of Series 1 common stock at $24.00 per share. The IPO resulted in net proceeds of $175.8 million after deducting underwriting discounts and commissions. Expected expenses incurred by us for the IPO were approximately $3.9 million and will be recorded against stockholders’ equity. An additional result of the IPO was the conversion of our 2017 and 2020 Term Loans to Series 1 Common Stock resulting in a $53.9 million reduction in the principal of our outstanding long-term debt. We believe that our existing cash and cash equivalents, our cash flows from operating activities, and our borrowing capacity under our credit facilities will be sufficient to meet our working capital and capital expenditure needs and debt service obligations 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. The sale of additional equity would be dilutive to our stockholders. Additional debt financing could result in increased debt service obligations and more restrictive financial and operational covenants. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, operating results and financial condition could be adversely affected. Cash flows The following table sets forth a summary of our cash flows for the periods indicated. Three months ended June 30, Six months ended June 30, 2020 2019 2020 2019 (in thousands) Net cash used in operating activities $ (7,004 ) $ (10,032 ) $ (16,994 ) $ (21,158 ) Net cash (used in) provided by investing activities $ (448 ) $ 8,390 $ (1,045 ) $ 19,381 Net cash (used in) provided by financing activities $ (149 ) $ (560 ) $ 35,400 $ 2,824 Net increase (decrease) in cash, cash equivalents and restricted cash $ (7,601 ) $ (2,202 ) $ 17,361 $ 1,047 As of June 30, 2020, we had $26.5 million in cash, cash equivalents, and restricted cash, an increase of $11.6 million compared to $14.9 million as of June 30, 2019. Cash and cash equivalents consist of highly-liquid investments with original maturities of less than three months. Restricted cash consists of security deposits for future chargebacks and amounts on deposit with certain financial institutions. We maintain cash account balances in excess of FDIC-insured limits. Operating activities Net cash used in operating activities for the three months ended June 30, 2020 and 2019 was $7.0 million and $10.0 million, respectively. This consisted primarily of our net losses adjusted for certain non-cash items including depreciation and amortization, stock-based compensation, debt discount amortization, bad debt expense, and the effect of changes in working capital. Net cash used in operating activities for the six months ended June 30, 2020 and 2019 was $17.0 million and $21.2 million, respectively. This consisted primarily of our net losses adjusted for certain non-cash items including depreciation and amortization, stock-based compensation, debt discount amortization, bad debt expense, and the effect of changes in working capital. Investing activities Net cash used in investing activities during the three months ended June 30, 2020 was $0.4 million. It consisted primarily of purchases of property and equipment of $0.4 million. Net cash provided by investing activities during the three months ended June 30, 2019 was $8.4 million. It consisted primarily of purchases of property and equipment of $2.9 million , partially offset by proceeds from the maturities and sale of marketable securities of $11.3 million. 38 Table of Contents Net cash used in investing activities during the six month s ended June 30, 2020 was $1.0 million. It consisted primarily of purchases of property and equipment of $1.0 million. Net cash provided by investing activities during the six months ended June 30, 2019 was $19.4 million. It consisted primarily of purchases of property and equipment of $4.1 million , offset by proceeds from the maturities and sale of marketable securities of $23.5 million. Financing activities Net cash used in financing activities during the three months ended June 30, 2020 and 2019 was $0.1 million and $0.6 million, respectively. In the three months ended June 30, 2020, the issuance of shares of Series 1 common stock pursuant to the exercise of stock options provided $0.5 million, partially offset by debt repayments of $0.6 million. In the three months ended June 30, 2019, bank borrowings provided $.09 million, and issuance of shares of Series 1 common stock pursuant to the exercise of stock options provided $0.04 million, partially offset by debt repayments of $0.5 million. Net cash provided by financing activities during the six months ended June 30, 2020 and 2019 was $35.4 million and $2.8 million, respectively. In the six months ended June 30, 2020, bank borrowings provided $40.7 million and issuance of shares of Series 1 common stock pursuant to the exercise of stock options provided $0.9 million, partially offset by debt repayments of $6.2 million. In the six months ended June 30, 2019, bank borrowings provided $3.7 million, and issuance of shares of Series 1 common stock pursuant to the exercise of stock options provided $0.2 million, partially offset by debt repayments of $1.0 million. Indebtedness Credit facility On October 27, 2017, we entered into our Credit Facility with SVB, which we subsequently amended in August 2018 and June 2019. The Credit Facility provided a $25.0 million revolving line of credit with a maturity date of October 27, 2021 (the “Revolving Line”), a $5.0 million term loan with a maturity date of September 1, 2021 (the “2018 Term Loan”), and an undrawn $5.0 million term loan. In February 2020, we entered into the A&R Credit Facility, which amended and restated the Credit Facility. Among other amendments, the A&R Credit Facility reduced the amount available under the Revolving Line by $5.0 million to $20.0 million, effective concurrent with the funding of the 2020 Convertible Term Loan. The Revolving Line will be further reduced to $10.0 million on September 30, 2020. As of June 30, 2020, we had $20.0 million outstanding under the Revolving Line and $2.4 million outstanding under the 2018 Term Loan, respectively. We were in compliance with all A&R Credit Facility covenants as of June 30, 2020. Our obligations under the A&R Credit Facility are secured by substantially all of our assets. The A&R Credit Facility contains various covenants, which include: (1) a minimum recurring revenue covenant, (2) a minimum liquidity covenant, (3) a covenant limiting our ability to incur additional in debtedness, and (4) a covenant limiting our ability to dispose of assets. The A&R Credit Facility also contains other specifically-defined restrictions on our activities, including a restricted payment covenant that limits dividends, investments, and certain distributions. Borrowings under the Revolving Line bear interest at the greater of the prime rate then in effect or 3.25%. Borrowings under the 2018 Term Loan bear interest at the prime rate plus 0.25%. Interest under the A&R Credit Facility is calculated on a 360-day year basis and is payable monthly. The weighted-average interest rate was 5.3% and 3.3% for the Revolving Line during the year ended December 31, 2019 and the six months ended June 30, 2020, respectively. The weighted-average interest rate was 5.3% and 3.9% for the 2018 Term Loan, during the year ended December 31, 2019 and six months ended June 30, 2020, respectively. The A&R Credit Facility is subject to customary fees for loan facilities of this type, including ongoing commitment fees at a rate of 0.25% per annum on the daily undrawn balance of the Revolving Line. 2017 Convertible Term Loan On October 27, 2017, we entered into a contingent convertible debt agreement (the “2017 Convertible Term Loan”) with SVB providing for a term loan of $20.0 million. The 2017 Convertible Term Loan maturity date is October 27, 2022. Our obligations under the 2017 Convertible Term Loan are secured by substantially all of our assets. The 2017 Convertible Term Loan provides the option to convert the outstanding principal, plus accrued and unpaid interest, into shares of our Series F preferred stock at a conversion price of $3.059 per share. The 2017 Convertible Term Loan also provides 39 Table of Contents lenders the right to purchase Series F preferred stock at $3.059 per share in an aggregate amount of principal previously repaid (the “Purchase Right”). The 2017 Convertible Term Loan contains restrictive covenants, including limits on additional indebtedness, liens, asset dispositions, dividends, investments, and distributions. We were in compliance with all covenants under the 2017 Convertible Term Loan as of December 31, 2019 and June 30, 2020. The interest rate for the 2017 Convertible Term Loan is the prime rate then in effect plus a margin of: (a) 2.0% prior to January 1, 2021; (b) 4.0% from January 1, 2021 and prior to January 1, 2022; and (c) 6.0% from and after January 1, 2022. Interest is calculated on the outstanding principal on a 360-day year basis, payable monthly. The weighted-average interest rate was 5.4% and 5.6% for the 2017 Convertible Term Loan during the year ended December 31, 2019 and the six months ended June 30, 2020, respectively. The 2017 Convertible Term Loan is subject to customary fees for loan facilities of this type. As of June 30, 2020, we had $18.9 million outstanding under the 2017 Convertible Term Loan. 2020 Convertible Term Loan On February 28, 2020, we entered into a contingent convertible debt agreement (the “2020 Convertible Term Loan”) with SVB pursuant to which we borrowed a term loan of $35.0 million. The 2020 Convertible Term Loan maturity date is February 28, 2025. Our obligations under the 2020 Convertible Term Loan are secured by substantially all of our assets. The 2020 Convertible Term Loan provides the option to convert the outstanding principal, plus accrued and unpaid interest, into shares of our common stock at a conversion price of $3.80 per share. In addition to the conversion shares on the outstanding principal, the 2020 Convertible Term Loan requires a deficiency payment if the value of the conversion shares does not meet an applicable required minimum return of (a) 1.25 if converted within 18 months of the agreement, (b) 1.32 if converted between 18 months and 24 months, and (c) 1.55 if converted between 24 months and maturity. The deficiency payment, at the election of the lenders, will be settled either (i) by issuance of additional shares of common stock equal to the difference between the minimum return and the conversion value or (ii) in cash in a single installment in the amount of such difference. The 2020 Convertible Term Loan contains restrictive covenants, including limits on additional indebtedness, liens, asset dispositions, dividends, investments, and distributions. The interest rate for the 2020 Convertible Term Loan is: (a) 4.5% prior to January 1, 2022; (b) 6.5% from January 1, 2022 and prior to January 1, 2023; (c) 8.5% from January 1, 2023 and prior to January 1, 2024; and (d) 10.5% from and after January 1, 2024. Interest is calculated on the outstanding principal on a 360-day year basis, payable monthly. As of March 31, 2020, we had $35.0 million outstanding under the 2020 Convertible Term Loan. We were in compliance with all 2020 Convertible Term Loan covenants as of June 30, 2020. On August 4, 2020 in advance of the closing of our IPO, all amounts outstanding under both the 2017 and 2020 Convertible Term Loans were converted into Series 1 Common Stock. Subsequent to our IPO closing, there were no amounts outstanding under these Convertible Term Loans. Mezzanine facility On February 28, 2020, we entered into a mezzanine loan and security agreement (the “Mezzanine Facility”) with WestRiver Innovation Lending Fund VIII, L.P. providing for a term loan of $10.0 million with a draw period that expires on September 30, 2020. The Mezzanine Facility maturity date is March 1, 2023. Our obligations under the Mezzanine Facility are secured by substantially all of our assets. The Mezzanine Facility contains restrictive covenants, including limits on additional indebtedness, liens, asset dispositions, dividends, investments, and distributions. We were in compliance with all Mezzanine Facility covenants as of June 30, 2020. The Mezzanine Facility remained undrawn as of June 30, 2020. Borrowings under the Mezzanine Facility bear interest at the greater of (i) 10.0% or (ii) the prime rate then in effect plus 5.25%. Interest is calculated on the outstanding principal on a 360-day year basis, payable monthly. We have not drawn any amounts under the Mezzanine Facility. 40 Table of Contents Contractual obligations Our principal commitments consist of (1) obligations under our A&R Credit Facility, our 2017 Convertible Term Loan, our 2020 Convertible Term Loan, and our Mezzanine Facility, (2) operating leases for office space, and (3) purchase obligations with certain technology providers used to host our platform. The following table summarizes our commitments to settle contractual obligations as of June 30, 2020. Payments Due by Period Total Less than 1 year 1 – 3 Years 3 – 5 Years More than 5 years (in thousands) Long term debt obligations $ 76,250 $ 2,394 $ 38,856 $ 35,000 $ — Lease obligations 20,423 1,863 6,941 4,685 6,934 Purchase obligations 10,143 306 9,837 — — Total contractual obligations $ 106,816 $ 4,563 $ 55,634 $ 39,685 $ 6,934 Off-balance sheet arrangements We did not have any off-balance sheet arrangements as of December 31, 2019 or as of June 30, 2020. Critical accounting policies and 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 Analy sis of Financial Condition and Results of Operations” set forth in the Prospectus. Recent accounting pronouncements A discussion of recent accounting pronouncements is included in Note 2 to our consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. 41 Table of Contents Item 3. Quantitative and Qualitati ve Disclosures About Market Risk. Interest rate risk Our cash, cash equivalents, restricted cash, and marketable securities 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. As of June 30, 2020, we held no investments in marketable securities. In October 2017, we entered into the Credit Facility, which we amended and restated in February 2020. As of June 30, 2020, we had borrowings of $20.0 million outstanding under the Revolving Line, and $2.4 million outstanding under the 2018 Term Loan. Borrowings under the Revolving Line bear interest at the greater of the prime rate then in effect or 3.25%, and borrowings under the 2018 Term Loan bear interest at the prime rate then in effect plus 0.25%. Based upon the balance outstanding as of June 30, 2020, for every 100 basis point increase in the applicable base rate, we would incur approximately $0.2 million and $0.02 million of additional annual interest expense for the Revolving Line and the 2018 Term Loan, respectively. We currently do not hedge interest rate exposure. In October 2017, we entered into the 2017 Convertible Term Loan. As of June 30, 2020, we had borrowings of $18.9 million outstanding under the 2017 Convertible Term Loan. Borrowings under the 2017 Convertible Term Loan bear interest at the prime rate then in effect plus 2.0% prior to January 1, 2021, 4.0% from January 1, 2021 and prior to January 1, 2022, and 6.0% from and after January 1, 2022. Based upon the balance outstanding as of June 30, 2020, for every 100 basis point increase in the applicable base rate, we would incur approximately $0.2 million of additional annual interest expense for the 2017 Convertible Term Loan. In February 2020, we entered into the 2020 Convertible Term Loan and the Mezzanine Facility. As of June 30, 2020, we had borrowings of $35.0 million outstanding under the 2020 Convertible Term Loan, and no balance outstanding under the Mezzanine Facility. Borrowings under the 2020 Convertible Term Loan bear interest at (a) 4.5% prior to January 1, 2022; (b) 6.5% from January 1, 2022 and prior to January 1, 2023; (c) 8.5% from January 1, 2023 and prior to January 1, 2024; and (d) 10.5% from and after January 1, 2024. Borrowings under the Mezzanine Facility bear interest at the greater of (i) 10.0% or (ii) the prime rate then in effect plus 5.25%. Based upon the balance outstanding as of June 30, 2020, for every 100 basis points increase in the applicable base rate, we would incur approximately $0.4 million and no additional annual interest expense for the 2020 Convertible Term Loan and the Mezzanine Facility, respectively. As noted above, on August 4, 2020 in advance of the closing of our IPO, all amounts outstanding under both the 2017 and 2020 Convertible Term Loans were converted into Series 1 Common Stock. Subsequent to our IPO closing, there were no amounts outstanding under these Convertible Term Loans. Foreign currency exchange risk All of our revenue and a majority of our expense and capital purchasing activities are 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 Australia and UK-based operations, we pay payroll and other expenses in 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. 42 Table of Contents Credit risk Financial instruments that potentially subject us to concentrations of credit risk consist of cash and cash equivalents, marketable securities, 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. Emerging growth company status We are an emerging growth company, as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act, until those standards apply to private companies. We have not elected to use this extended transition period for complying with new or revised accounting standards. We will remain an emerging growth company until the earliest of: (1) the end of the fiscal year in which the fifth anniversary of the closing of this offering occurs, (2) the first fiscal year after our annual gross revenue exceed $1.07 billion, (3) the date on which we have, during the immediately preceding three-year period, issued more than $1.0 billion in non-convertible debt securities, and (4) the end of any fiscal year in which the market value of our common stock held by non-affiliates exceeds $700 million as of the end of the second quarter of that fiscal year.