What changed in this filing

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Item 1. Financial Statements

2020-11-06 compared with 2020-09-11 · 177 added, 789 removed, 524 unchanged (65% of the section changed)

2 unchanged sentences

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

Consolidated Financial Statements

Condensed Consolidated Balance Sheets

Condensed Consolidated Statements of Operations

Condensed Consolidated Statements of Comprehensive Loss

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)

Condensed Consolidated Statements of Cash Flows

Notes to the Condensed Consolidated Financial Statements

BigCommerce Holdings, Inc.

1 unchanged sentence

(Unaudited, in thousands, except per share amounts)

September 30,

Current assets

8 unchanged sentences

Deferred commissions, net of current portion

Liabilities, convertible preferred stock, and stockholders’

equity (deficit)

Liabilities, convertible preferred stock, and stockholders’ equity (deficit)

Current liabilities

13 unchanged sentences

Convertible preferred stock, $0.0001 par value;

102,030 shares

authorized, issued and outstanding at June 30, 2020,

and December 31, 2019

10,000 and 102,030 shares authorized

at September 30, 2020 and December 31, 2019, respectively;

0 shares and 102,030 shares

issued and outstanding, at September 30, 2020 and December 31, 2019, respectively.

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.

500,000 shares Series 1 and, 5,051 shares Series 2

authorized at September 30, 2020 and 200,000 shares voting and 30,000 shares of

non-voting authorized at December 31, 2019;

62,757, and 18,544 shares Series 1 and

voting issued and, outstanding at September 30, 2020 and December 31, 2019, respectively,

and 5,051 and 0 shares Series 2 and non-voting issued and, outstanding at

September 30, 2020, and December 31, 2019, respectively.

Additional paid-in capital

1 unchanged sentence

Total stockholders’ equity (deficit)

Total liabilities, convertible preferred stock, and stockholders’

equity (deficit)

Total liabilities, convertible preferred stock, and stockholders’ equity (deficit)

The accompanying notes are an integral part of these consolidated financial statements.

2 unchanged sentences

(Unaudited, in thousands, except per share amounts)

Three months ended June 30,

Six months ended June 30,

Three months ended September 30,

Nine months ended September 30,

Cost of revenue

11 unchanged sentences

Provision for income taxes

Cumulative dividends and accretion of issuance costs on Series F

Dividends and accretion of issuance costs on Series F

preferred stock

7 unchanged sentences

(Unaudited, in thousands)

Three months ended June 30,

Six months ended June 30,

Three months ended September 30,

Nine months ended September 30,

Other comprehensive income (loss):

3 unchanged sentences

BigCommerce Holdings, Inc.

Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)

Consolidate d Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(Unaudited, in thousands)

13 unchanged sentences

Balance at June 30, 2019

Exercise of stock options

Stock-based compensation

Accumulated dividend – Series F

Unrealized gain on investments

Accretion of Series F issuance costs

Balance at September 30, 2019

The accompanying notes are an integral part of these consolidated financial statements.

BigCommerce Holdings, Inc.

Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(Unaudited, in thousands)

Convertible Preferred

15 unchanged sentences

Balance at June 30, 2020

Exercise of stock options

Exercise of warrants

Stock-based compensation

Issuance of common stock upon initial public offering, net of underwriting discounts and commissions and other offering costs

Conversion of redeemable preferred stock to common stock upon initial public offering

Conversion of redeemable convertible debt to common stock upon initial public offering

Accumulated dividend – Series F

Payment of Series F Dividend

Accretion of Series F issuance costs

Balance at September 30, 2020

The accompanying notes are an integral part of these consolidated financial statements

2 unchanged sentences

(Unaudited, in thousands)

Six months ended June 30,

Nine months ended September 30,

Cash flows from operating activities:

Adjustments to reconcile net loss to net cash used in operating

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization

18 unchanged sentences

Proceeds from exercise of stock options

Payment of dividends

Proceeds from issuance of common stock upon initial public offering, net of underwriting discounts and commissions and other offering costs

Proceeds from debt

4 unchanged sentences

Cash and cash equivalents and restricted cash, end of period

Supplemental cash flow information:

Cash paid for interest

Noncash investing and financing activities:

Conversion of convertible preferred stock into common stock upon initial public offering

Conversion of convertible debt into common stock upon initial public offering

The accompanying notes are an integral part of these consolidated financial statements.

21 unchanged sentences

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.

The IPO resulted in net proceeds of $171.1 million after deducting underwriting discounts, commissions and other offering costs.

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.

Summary of significant accounting policies

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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.

Operating results for the three and nine months ended September 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.

Summary of significant accounting policies (continued)

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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.

a determination of the deferred tax asset valuation allowance and the valuation of our common stock used to determine stock-based compensation expense prior to our IPO.

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.

10 unchanged sentences

Revenue by geographic region was as follows:

Three months ended June 30,

Six months ended June 30,

Three months ended September 30,

Nine months ended September 30,

(Unaudited, in thousands)

4 unchanged sentences

Long-lived assets by geographic region was as follows:

September 30,

(in thousands)

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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.

The accounts receivable balance at September 30, 2020 and December 31, 2019 included unbilled receivables of $5.7 million and $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.

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Balance at June 30, 2020

Provision for expected credit losses

Accounts written off

Balance at September 30, 2020

Property and equipment

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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.

Summary of significant accounting policies (continued)

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.

Accounts receivable are derived from sales to our customers and our strategic technology partners who operate in a variety of sectors.

1 unchanged sentence

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.

For the nine months ended September 30, 2020 and 2019 one of our strategic partners accounted for 15% and 13% of our revenue, respectively, and accounted for 20% of our accounts receivable balance at September 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.

Advertising costs were $9.0 million and $9.0 million for the nine months ended September 30, 2020 and 2019, respectively.

We determine if an arrangement is a lease or contains a lease at inception.

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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.

Summary of significant accounting policies (continued)

Accounting pronouncements

1 unchanged sentence

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 new guidance is effective for fiscal years, and interim periods within those

Summary of significant accounting policies (continued)

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.

20 unchanged sentences

The following table disaggregates our revenue by major source:

Three months ended June 30,

Six months ended June 30,

Three months ended September 30,

Nine months ended September 30,

(Unaudited, in thousands)

8 unchanged sentences

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,

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.

For most subscription solutions arrangements, we have determined we meet the variable consideration allocation exception and, therefore, 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.

A portion of our Enterprise subscription plans include an upfront promotional period in order to incentivize the customer to enter into a subscription arrangement.

For these Enterprise arrangements, the total subscription fee is recognized on a straight-line basis over the term of the contract.

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.

Revenue recognition and deferred costs (continued)

Contracts with our retail customers are generally month-to-month, while contracts with our enterprise customers generally range from one to three years.

32 unchanged sentences

and allocation of overhead costs.

Revenue recognition and deferred costs (continued)

Deferred revenue

1 unchanged sentence

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.

Revenue recognition and deferred costs (continued)

The net increase in the deferred revenue balance for the nine months ended September 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.

As of September 30, 2020, we had $76.0 million of remaining performance obligations, which represents contracted revenue minimums that have not yet been recognized, including amounts that will be invoiced and recognized as revenue in future periods.

We expect to recognize approximately 53% of the remaining performance obligations as revenue in the following 12-month periods, and the remaining balance in the periods thereafter.

Deferred commissions

5 unchanged sentences

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.

We did not recognize an impairment of deferred commissions for the nine months ended September 30, 2020 and 2019 or the year ended December 31, 2019.

Sales commissions of $2.9 million and $1.8 million were deferred for the nine months ended September 30, 2020 and 2019, respectively;

and deferred commission amortization expense was $1.5 million and $1.1 million for the nine months ended September 30, 2020 and 2019, respectively.

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.

Financial instruments carried at fair value include cash and cash equivalents, restricted cash, marketable securities, and embedded put options.

The carrying amount of accounts receivable approximates fair value due to their relatively short maturities.

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The fair value of debt was measured using Level 2 inputs and approximated its carrying value.

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.

We did not have any cash equivalents or marketable securities as of September 30, 2020 and December 31, 2019.

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 September 30,

As of December 31,

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Property and equipment, net

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.

Depreciation expense on property and equipment was $2.4 million and $1.8 million for the nine months ended September 30, 2020 and 2019, respectively and $0.7 million and $0.6 million for the three months ended September 30, 2020 and 2019, respectively.

Commitments, contingencies, and leases

We had unconditional purchase obligations as of June 30, 2020, as follows:

(in thousands)

2023 and thereafter

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.

4 unchanged sentences

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

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.

We maintain a directors and officers insurance policy to provide coverage in the event of a claim against an officer of director.

We lease certain facilities under operating lease agreements that expire at various dates through 2028.

1 unchanged sentence

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.

Operating and short-term rent expenses was $0.9 million and $1.0 million for each of the three-month periods ended September 30, 2020 and 2019, respectively, and $2.7 million for both nine -month periods ended September 30, 2020 and 2019.

Short-term rent expense was not material for any of the periods presented.

1 unchanged sentence

Cash flow information (in thousands)

Six months ended June 30,

Nine months ended September 30,

Cash paid for operating lease liabilities

Right-of-use assets obtained in exchange for operating lease obligations

Commitments, contingencies, and leases (continued)

Operating lease information

Six months ended June 30,

Nine months ended September 30,

Weighted-average remaining lease-term

2 unchanged sentences

(in thousands)

September 30, 2020

2020 (October 1st through December 31st)

Total minimum lease payments

3 unchanged sentences

The following table summarizes the components of other current liabilities:

As of June 30,

As of September 30,

Year Ended December 31,

5 unchanged sentences

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.

In conjunction with our IPO on August 5, 2020, the bank exercised its purchase right and repaid $1.1 million of previously paid principal This balance, combined with the unpaid principal balance of $18.9 was converted into 2,179,360 shares of Series 1 common stock.

No further borrowings are allowed under this convertible debt agreement.

Interest was 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.

The weighted-average effective interest rate was 5.8%, and 5.6% during the nine-month periods ended September 30, 2020 and 2019, respectively.

Quarterly principal payments of $125 thousand were due and payable from June 1, 2018 through maturity.

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.

In conjunction with our IPO on August 5, 2020, the outstanding principal balance of $35 million was converted into 3,070,174 shares of Series 1 common stock.

No further borrowings are allowed under this convertible debt agreement.

Interest was 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.

Debt (continued)

In addition to the conversion shares on the outstanding principal, this instrument required 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, would 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

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.

Based on the value of the conversion shares issued to the bank upon completion of the IPO, we met the required minimum return under terms of the 2020 Convertible Term Loan and were not required to provide any additional shares or cash.

The put option, with an initial fair value of approximately $4.4 million, was recorded as a derivative liability on the accompanying balance sheet and a corresponding discount to the 2020 Convertible Term Loan.

The discount was accreted to interest expense on the consolidated statement of operations over the term of the 2020 Convertible Term Loan using the effective interest method.

The net balance outstanding under the terms of this agreement was netted against the outstanding principal balance upon conversion to Series 1 Common Stock upon completion of our IPO.

We recorded interest expense related to this instrument of $0.1 million and $0.4 million during the three and nine-month periods ended September 30, 2020, respectively.

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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.

This instrument was extinguished upon the conversion of the 2020 Convertible Term Debt upon completion of our IPO .

Credit Facility

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On June 4, 2019, we amended the Credit Facility to increase the Revolving Line by $5.0 million to $25.0 million.

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 with a further reduction in availability to $10.0 million scheduled for September 30, 2020.

On Septem ber 29, 2020, we entered into an agreement with SVB to defer the reduction in amounts available under the Revolving Line from $20.0 million to $10.0 million from September 30, 2020 to December 31, 2020.

We accounted for the February 28, 2020 amendment and restatement transaction as an extinguishment of debt pursuant to ASC 470-50.

We recorded an immaterial loss on extinguishment during the nine-month period ended September 30, 2020.

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.

The Revolving Line bore interest at a rate equal to the prime rate, and the weighted-average effective interest rate was 3.7%, and 5.6% for the nine months ended September 30, 2020 and 2019, 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.

As of September 30, 2020, and December 31, 2019, we had $20.0 million, and $18.5 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.

The 2018 Term Loan bore interest at a rate equal to the prime rate plus 0.25% and, the weighted-average effective interest rate w as 4.3%, and 5.8% for the nine months ended September 30, 2020 and 2019, respectively.

Interest is calculated on the outstanding principal and is payable monthly.

Monthly principal payments commenced on October 1, 2018.

Monthly principal payments commenced on October 1, 2018 with a maturity date of October 1, 2021.

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.

As of September 30, 2020, and December 31, 2019, we had $1.9 million, and $3.3 million outstanding under the 2018 Term Loan, respectively.

Debt (continued)

In conjunction with our entry into the A&R Credit Facility, our financial covenants were amended.

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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.

Debt (continued)

We were in compliance with all covenants as of September 30, 2020.

Mezzanine Facility Loan

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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%.

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.

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.

As of September 30, 2020, we had no balance outstanding under this agreement and our ability to draw under the Mezzanine Facility terminated.

We formally terminated the Mezzanine Facility effective as of November 6, 2020.

In connection with the Mezzanine Facility, we issued warrants to purchase up to 99,000 shares of common stock with an exercise price of $9.21 per share with the warrants expiring on March 1, 2023.

The warrant was exercisable for half of the shares.

The warrant did not become exercisable for the remaining half of the shares because we did not draw down under the Mezzanine Facility and our ability to draw down under the Mezzanine Facility terminated.

The portion of the warrant that was exercisable was exercised in August 2020 and the portion that did not become exercisable terminated upon the termination of the Mezzanine Facility.

Upon issuance of the warrants, we recorded the fair value of the first tranche of warrants at $0.3 million.

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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.

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.

Net unamortized fees were not material as of September 30, 2020.

Net unamortized fees as of December 31, 2019 amounted to $0.9 million.

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.

During the nine months ended September 30, 2020, the Company granted an aggregate of 1,352,000 shares of stock options, with a weighted average exercise price of $14.44 per share.

The fair value of options granted 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 .71% and (iv) expected dividend yield of 0%.

As of September 30, 2020, there was $10.9 million of unamortized stock-based compensation cost related to unvested stock options, which the Company expects to recognize over a weighted-average period of 2.8 years.

Restricted Stock Units

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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

The qualifying event occurred on August 5, 2020 with the completion of our IPO and the RSU’s vest over the remaining service period of 4 years from the date of grant, subject to the continued employment of the employees.

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.

In September 2020, we began issuing RSU’s to certain employees pursuant to the BigCommerce Holdings, Inc.

2020 Equity Incentive Plan (“2020 Plan”).

During the nine months ended September 30, 2020, we granted an aggregate of 147,000 RSUs with a weighted grant-date fair value of $87.79.

The RSUs vest over the requisite service period of 4 years from the date of grant, subject to the continued employment of the employees.

As of September 30, 2020, there was $13.6 million of unamortized stock-based compensation costs related to unvested RSUs, which the Company expects to recognize over a weighted-average period of 3.7 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

Six months ended

September 30,

Nine months ended

September 30,

(in thousands)

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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)

outstanding as

Series A Stock

Series B Stock

Series C Stock

Series D Stock

Series D-1 Stock

Series E Stock

Series E-1 Stock

Series F Stock

Total Preferred Stock

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.

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.

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.

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.

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.

Stockholders’ equity (deficit) (continued)

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.

As of December 31, 2019, we had six outstanding series of redeemable convertible preferred stock.

These preferred shares were classified as temporary equity within the Company’s consolidated balance sheet as of December 31, 2019.

Immediately upon closing of our IPO, the outstanding preferred stock was automatically converted into an aggregate of 29,390,733 shares of Series 1 common stock and 5,050,555 shares of Series 2 common stock.

Under the terms of Series F preferred stock, dividends were required to be paid at 10 percent, which could be adjusted for the holder’s actual rate of return upon redemption.

Upon completion of our IPO with an offering price of $24 per share, we met the threshold for a reduction of dividends and reduced the required dividend rate to 8 percent.

Due to this reduction in rate, we recorded a dividend benefit for the three-month period ended September 30, 2020.

We utilized a portion of the proceeds from the IPO to pay the cumulative dividends of $12.8 million to the holders of our Series F preferred stock.

As of September 30, 2020, there was no preferred stock issued or outstanding.

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.

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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.

The effective tax rates for the three months ended September 30, 2020 and 2019 were 0.13 % and (0.07) % respectively.

The effective tax rates for the nine months ended September 30, 2020 and 2019 were (0.03) % and (0.07) % respectively.

We file tax returns in the U.S., including various state and local returns, and in other foreign jurisdictions including the Australia and the United Kingdom.

We believe adequate provision has been made for all income tax uncertainties.

1 unchanged sentence

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.

Net loss per share

Carry forward attributes that were generated in tax years prior to fiscal year 2016 remain open to adjustment until the statute of limitations closes for the tax year in which the attributes are utilized.

N et 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.

Holders of Series F preferred stock were 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 were 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 were considered to be participating securities.

The holders of our preferred stock did not have a contractual obligation to share in our losses;

therefore, no amount of total undistributed loss was 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.

N et loss per share (continued)

Because we have reported a net loss for both the three and nine-months ended September 30, 2020, 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.

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

Six months ended

September 30,

Nine months ended

September 30,

(Unaudited, in thousands)

1 unchanged sentence

Stock options outstanding

Restricted stock units

Warrants to purchase common stock

2 unchanged sentences

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.

The IPO resulted in net proceeds of $175.8 million after deducting underwriting discounts and commissions.

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.

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.

On November 3, 2020, the Company terminated the Mezzanine Facility effective as of November 6, 2020.

The Mezzanine Facility remained undrawn as of September 30, 2020 at the expiration of the draw period and was terminated as a result of such expiration.

Special Note Regarding Forward-Looking Statements

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All forward-looking statements attributable to us are expressly qualified by these cautionary statements.

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.”

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.

BigCommerce launches in Sydney, Australia, with a simple, low-cost, all-in-one ecommerce solution, delivered through the cloud, targeting the SMB segment.

BigCommerce’s customer base reaches 10,000 online stores.

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.

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.

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.

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.

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.

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

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.

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.

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.

September 30,

ARR (in thousands)

Accounts with ACV greater than

% of ARR attributable to accounts

with ACV greater than $2,000

ARPA attributable to accounts with

ACV greater than $2,000

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

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.

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.

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,

(in thousands)

Cost of revenue ( 1)

Operating expenses:

Sales and marketing ( 1)

Research and development ( 1)

General and administrative ( 1)

Total operating expenses

Loss from operations

Interest income

Interest expense

Change in fair value of financial instrument

Other expense

Loss before provision for income taxes

Provision for income taxes

Includes stock-based compensation expense as follows:

Three months ended June 30,

Six months ended June 30,

(in thousands)

Cost of revenue

Sales and marketing

Research and development

General and administrative

Total stock-based compensation expense

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,

Six Months Ended June 30,

(dollars in thousands)

Americas – U.S.

Americas – other

Total Revenue

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,

Adjusted EBITDA

As of June 30,

As of December 31,

(in thousands)

Consolidated balance sheet data:

Cash and cash equivalents

Working capital (1)

Total liabilities

Convertible preferred stock

Total stockholders' (deficit) equity

We define working capital as current assets less current liabilities.

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;

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.

Reconciliation of net loss to Adjusted EBITDA

Three months ended June 30,

Six months ended June 30,

Depreciation and

Interest income

Interest expense

Change in fair value of

financial instrument

Provision for income

Adjusted EBITDA

Comparison of the three and six months ended June 30, 2020 and June 30, 2019

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,

Six months ended June 30,

(dollars in thousands)

Subscription solutions

Partner and services

Total revenue

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,

Six months ended June 30,

(dollars in thousands)

Cost of revenue

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,

Six months ended June 30,

(dollars in thousands)

Sales and marketing

Percentage of revenue

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,

Six months ended June 30,

(dollars in thousands)

Research and development

Percentage of revenue

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.

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,

Six months ended June 30,

(dollars in thousands)

General and administrative

Percentage of revenue

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

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.

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.

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,

(in thousands)

Net cash used in operating activities

Net cash (used in) provided by investing activities

Net cash (used in) provided by financing activities

Net increase (decrease) in cash, cash equivalents and restricted cash

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.

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.

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.

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

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;

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.

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

(in thousands)

Long term debt obligations

Lease obligations

Purchase obligations

Total contractual obligations

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.

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;

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.

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.

In the future, as we expand into additional international jurisdictions, we expect that our international sales will be primarily denominated in U.S.

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.

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.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements