Commerce.com, Inc. 10-Q

Item 1. Financial Statements. Index to Financial Statements BigCommerce Holdings, Inc. 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 2 Table of Contents BigCommerce Holdings, Inc. Consolidated Balance Sheets (Unaudited, in thousands, except per share amounts) September 30, December 31, 2020 2019 Assets Current assets Cash and cash equivalents $ 178,846 $ 7,795 Restricted cash 1,133 1,355 Accounts receivable, net 21,458 15,548 Prepaid expenses and other assets 9,259 5,296 Deferred commissions 2,224 1,677 Total current assets 212,920 31,671 Property and equipment, net 7,242 8,241 Right-of-use-assets 12,345 14,065 Deferred commissions, net of current portion 2,995 2,087 Total assets $ 235,502 $ 56,064 Liabilities, convertible preferred stock, and stockholders’ equity (deficit) Current liabilities Accounts payable $ 5,566 $ 3,881 Accrued liabilities 2,584 5,849 Deferred revenue 11,842 9,399 Current portion of long-term debt 11,895 2,363 Current portion of operating lease liabilities 3,074 2,718 Other current liabilities 17,516 9,704 Total current liabilities 52,477 33,914 Deferred revenue, net of current portion 1,127 1,492 Long-term debt, net of current portion 10,000 38,502 Operating lease liabilities, net of current portion 13,400 15,705 Total liabilities 77,004 89,613 Commitments and contingencies (Note 6) Convertible preferred stock Convertible preferred stock, $0.0001 par value; 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. — 223,754 Stockholders’ equity (deficit) Common stock, $0.0001 par value; 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. 7 2 Additional paid-in capital 457,681 17,244 Accumulated deficit (299,190 ) (274,549 ) Total stockholders’ equity (deficit) 158,498 (257,303 ) Total liabilities, convertible preferred stock, and stockholders’ equity (deficit) $ 235,502 $ 56,064 The accompanying notes are an integral part of these consolidated financial statements. 3 Table of Contents BigCommerce Holdings, Inc. Consolidated Statements of Operations (Unaudited, in thousands, except per share amounts) Three months ended September 30, Nine months ended September 30, 2020 2019 2020 2019 Revenue $ 39,735 $ 28,264 $ 109,225 $ 81,083 Cost of revenue 8,593 6,806 23,910 18,958 Gross profit 31,142 21,458 85,315 62,125 Operating expenses: Sales and marketing 19,328 15,346 51,893 45,445 Research and development 12,124 10,862 34,390 32,162 General and administrative 9,745 5,527 23,925 15,748 Total operating expenses 41,197 31,735 110,208 93,355 Loss from operations (10,055 ) (10,277 ) (24,893 ) (31,230 ) Interest income 2 4 20 245 Interest expense (741 ) (359 ) (2,655 ) (1,129 ) Change in fair value of financial instruments — — 4,413 — Other expense (75 ) (86 ) (238 ) (163 ) Loss before provision for income taxes (10,869 ) (10,718 ) (23,353 ) (32,277 ) Provision for income taxes (14 ) 7 6 21 Net loss $ (10,855 ) $ (10,725 ) $ (23,359 ) $ (32,298 ) Dividends and accretion of issuance costs on Series F preferred stock $ 2,732 $ (1,865 ) $ (962 ) $ (5,417 ) Net loss attributable to common stockholders $ (8,123 ) $ (12,590 ) $ (24,321 ) $ (37,715 ) Basic and diluted net loss per share attributable to common stockholders $ (0.16 ) $ (0.70 ) $ (0.83 ) $ (2.13 ) Weighted average shares used to compute basic and diluted net loss per share attributable to common stockholders 49,355 17,959 29,145 17,681 The accompanying notes are an integral part of these consolidated financial statements. 4 Table of Contents BigCommerce Holdings, Inc. Consolidated Statements of Comprehensive Loss (Unaudited, in thousands) Three months ended September 30, Nine months ended September 30, 2020 2019 2020 2019 Net loss $ (10,855 ) $ (10,725 ) $ (23,359 ) $ (32,298 ) Other comprehensive income (loss): Net unrealized gain (loss) on marketable debt securities — 14 — 14 Total comprehensive loss $ (10,855 ) $ (10,711 ) $ (23,359 ) $ (32,284 ) The accompanying notes are an integral part of these consolidated financial statements. 5 Table of Contents BigCommerce Holdings, Inc. Consolidate d Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) (Unaudited, in thousands) Convertible Preferred Stock Common Stock Additional Paid-in Accumulated Accumulated Other Comprehensive Stockholders’ Equity Shares Amount Shares Amount Capital Deficit Loss (Deficit) Balance at December 31, 2018 102,030 $ 216,446 17,445 $ 2 $ 13,261 $ (224,725 ) $ (14 ) $ (211,476 ) Exercise of stock options — — 96 — 132 — — 132 Stock-based compensation — — — — 595 — — 595 Accumulated dividend – Series F — 1,736 — — — (1,736 ) — (1,736 ) Accretion of Series F issuance costs — 18 — — (18 ) — — (18 ) Net loss — — — — — (10,541 ) — (10,541 ) Balance at March 31, 2019 102,030 $ 218,200 17,541 $ 2 $ 13,970 $ (237,002 ) $ (14 ) $ (223,044 ) Exercise of stock options — — 360 — 40 — — 40 Stock-based compensation — — — — 821 — — 821 Accumulated dividend – Series F — 1,780 — — — (1,780 ) — (1,780 ) Accretion of Series F issuance costs — 18 — — (18 ) — — (18 ) Net loss — — — — — (11,032 ) — (11,032 ) Balance at June 30, 2019 102,030 $ 219,998 17,901 $ 2 $ 14,813 $ (249,814 ) $ (14 ) $ (235,013 ) Exercise of stock options — — 206 — 299 — — 299 Stock-based compensation — — — — 815 — — 815 Accumulated dividend – Series F — 1,846 — — — (1,846 ) — (1,846 ) Unrealized gain on investments — — — — — — 14 14 Accretion of Series F issuance costs — 19 — — (19 ) — — (19 ) Net loss — — — — — (10,725 ) — (10,725 ) Balance at September 30, 2019 102,030 $ 221,863 18,107 $ 2 $ 15,908 $ (262,385 ) $ — $ (246,475 ) The accompanying notes are an integral part of these consolidated financial statements. 6 Table of Contents BigCommerce Holdings, Inc. Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) (Unaudited, in thousands) Convertible Preferred Stock Common Stock Additional Paid-in Accumulated Accumulated Other Comprehensive Stockholders’ Equity Shares Amount Shares Amount Capital Deficit Loss (Deficit) Balance at December 31, 2019 102,030 $ 223,754 18,544 $ 2 $ 17,244 $ (274,549 ) $ — $ (257,303 ) Exercise of stock options — — 448 — 404 — — 404 Stock-based compensation — — — — 1,026 — — 1,026 Accumulated dividend – Series F — 1,727 — — — (1,727 ) — (1,727 ) Accretion of Series F issuance costs — 18 — — (18 ) — — (18 ) Warrants issued in connection with debt — — — — 297 — — 297 Adoption of new accounting standard - See Note 2 — — — — — (364 ) — (364 ) Net loss — — — — — (4,023 ) — (4,023 ) Balance at March 31, 2020 102,030 $ 225,499 18,992 $ 2 $ 18,953 $ (280,663 ) $ — $ (261,708 ) Exercise of stock options — — 351 — 366 — — 366 Exercise of warrants — — 35 — 126 — — 126 Stock-based compensation — — — — 1,144 — — 1,144 Accumulated dividend – Series F — 1,935 — — — (1,935 ) — (1,935 ) Accretion of Series F issuance costs — 18 — — (18 ) — — (18 ) Net loss — — — — — (8,481 ) — (8,481 ) Balance at June 30, 2020 102,030 $ 227,452 19,378 $ 2 $ 20,571 $ (291,079 ) $ — $ (270,506 ) Exercise of stock options — — 511 — 1,051 — — 1,051 Exercise of warrants — — 349 — — — — — Stock-based compensation — — — — 2,868 — — 2,868 Issuance of common stock upon initial public offering, net of underwriting discounts and commissions and other offering costs — — 7,878 1 171,128 — — 171,129 Conversion of redeemable preferred stock to common stock upon initial public offering (102,030 ) (211,902 ) 34,442 3 211,899 — — 211,902 Conversion of redeemable convertible debt to common stock upon initial public offering — — 5,250 1 50,172 — — 50,173 Accumulated dividend – Series F — (2,744 ) — — — 2,744 — 2,744 Payment of Series F Dividend — (12,814 ) — — — — — — Accretion of Series F issuance costs — 8 — — (8 ) — — (8 ) Net loss — — — — — (10,855 ) — (10,855 ) Balance at September 30, 2020 — — 67,808 $ 7 $ 457,681 $ (299,190 ) $ — $ 158,498 The accompanying notes are an integral part of these consolidated financial statements 7 Table of Contents BigCommerce Holdings, Inc. Consolidated Statements of Cash Flows (Unaudited, in thousands) Nine months ended September 30, Nine months ended September 30, 2020 2019 Cash flows from operating activities: Net loss $ (23,359 ) $ (32,298 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 2,377 1,751 Amortization of discount on debt 480 41 Stock-based compensation 5,038 2,231 Allowance for credit losses 1,198 741 Accretion on discount to marketable securities — (69 ) Change in fair value of financial instrument (4,413 ) — Changes in operating assets and liabilities: Accounts receivable (7,473 ) (3,587 ) Prepaid expenses (3,675 ) 1,612 Deferred commissions (1,454 ) (2,482 ) Accounts payable 1,685 (1,050 ) Accrued and other current liabilities 4,319 2,920 Deferred revenue 2,077 (920 ) Net cash used in operating activities (23,200 ) (31,110 ) Cash flows from investing activities: Purchase of property and equipment (1,378 ) (5,326 ) Maturity of marketable securities — 23,450 Net cash (used in) provided by investing activities (1,378 ) 18,124 Cash flows from financing activities: Proceeds from exercise of stock options 1,947 471 Payment of dividends (12,814 ) — Proceeds from issuance of common stock upon initial public offering, net of underwriting discounts and commissions and other offering costs 171,128 — Proceeds from debt 41,861 8,591 Repayment of debt (6,715 ) (1,538 ) Net cash provided by financing activities 195,407 7,524 Net change in cash and cash equivalents and restricted cash 170,829 (5,462 ) Cash and cash equivalents and restricted cash, beginning of period 9,150 13,897 Cash and cash equivalents and restricted cash, end of period $ 179,979 $ 8,435 Supplemental cash flow information: Cash paid for interest $ 1,519 $ 1,117 Noncash investing and financing activities: Conversion of convertible preferred stock into common stock upon initial public offering $ 211,902 $ — Conversion of convertible debt into common stock upon initial public offering $ 50,173 $ — The accompanying notes are an integral part of these consolidated financial statements. 8 Table of Contents BigCommerce Holdings, Inc. Notes to Consolidated Financial Statements 1. Overview BigCommerce is leading a new era of ecommerce. Our software-as-a-service (“SaaS”) platform simplifies the creation of beautiful, engaging online stores by delivering a unique combination of ease-of-use, enterprise functionality, and flexibility. We power both our customers’ branded ecommerce stores and their cross-channel connections to popular online marketplaces, social networks, and offline point-of-sale systems. We provide a comprehensive platform for launching and scaling an ecommerce operation, including store design, catalog management, hosting, checkout, order management, reporting, and pre-integration into third-party services like payments, shipping, and accounting. All our stores run on a single code base and share a global, multi-tenant architecture purpose built for security, high performance, and innovation. Our platform serves stores in a wide variety of sizes, product categories, and purchase types, including business-to-consumer and business-to-business. Our headquarters and principal place of business are in Austin, Texas. We were formed in Australia in December 2003 under the name Interspire Pty Ltd and reorganized into a corporation in Delaware under the name BigCommerce Holdings, Inc. in February 2013. References in these consolidated financial statements to “we,” “us,” “our,” the “Company,” or “BigCommerce” refer to BigCommerce Holdings, Inc. and its subsidiaries, unless otherwise stated. Stock Split and Initial Public Offering On July 24, 2020, we filed with the Secretary of State of the State of Delaware an amendment to our certificate of incorporation that effected a one-for-three reverse stock split of our common stock. All common stock share and per share information for all periods presented has been adjusted to reflect the reverse stock split. The amendment to our certificate of incorporation adjusted the amount of our authorized shares to: 205,000,000 shares of Series 1 common stock, 45,000,000 shares of Series 2 common stock, and 109,030,573 shares of preferred stock. The common stock has a par value of $0.0001 per share. On July 24, 2020, concurrently with the effectiveness of the reverse stock split, the conversion prices applicable to our preferred stock were adjusted proportionately in accordance with our certificate of incorporation. The Series 1 common stock and Series 2 common stock numbers referenced herein and included in this Form 10-Q reflect this split. On August 4, 2020, we completed our initial public offering (IPO), in which we issued and sold 7,877,500 shares of our Series 1 common stock, including 1,027,500 shares of Series 1 common stock that were sold pursuant to the exercise in full of the underwriters’ option to purchase additional shares of Series 1 common stock at $24.00 per share. The IPO resulted in net proceeds of $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. 2. Summary of significant accounting policies Basis of presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, these financial statements contain all adjustments, consisting of normal recurring accruals, necessary to present fairly the financial position, results of operations and cash flows for the periods indicated. Operating results for the three and 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. 9 Table of Contents 2. Summary of significant accounting policies (continued) The accompanying interim financial statements should be read in conjunction with the consolidated financial statements and related notes thereto included in the Company’s final prospectus filed with the SEC pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended, on August 5, 2020 (“Prospectus”). Basis of consolidation The accompanying consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation. Our fiscal year ends on December 31. Use of estimates The preparation of consolidated financial statements in conformity with GAAP requires certain financial instruments to be recorded at fair value; requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenue and expenses during the reporting periods. Significant estimates, judgments, and assumptions in these consolidated financial statements include: allocating variable consideration for revenue recognition; the amortization period for deferred commissions; the allowance for credit losses; a determination of the deferred tax asset valuation allowance and the valuation of our common stock used to determine stock-based compensation expense 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. COVID-19, declared a global pandemic by the World Health Organization on March 11, 2020, has caused disruption to the economies and communities of the United States and our target international markets. In the interest of public health, many governments closed physical stores and places of business deemed non-essential. This precipitated a significant shift in shopping behavior from offline to online. Our business has benefited from this shift, both in accelerated sales growth for our existing customers’ stores, and in our sales of new store subscriptions to customers. Nevertheless, we do not have certainty that those trends will continue; the COVID-19 pandemic and the uncertainty it has created in the global economy could materially adversely affect our business, financial condition, and results of operations. Segment and geographic information Our chief operating decision maker is our chief executive officer. Our chief executive officer reviews the financial information presented on a consolidated basis for purposes of making operating decisions, allocating resources, and evaluating financial performance. Accordingly, we have determined that we operate as a single operating and reportable segment. Revenue by geographic region was as follows: Three months ended September 30, Nine months ended September 30, (Unaudited, in thousands) 2020 2019 2020 2019 Revenue: Americas – U.S. $ 31,483 $ 22,842 $ 87,099 $ 66,022 Americas – other 1,422 949 3,827 2,722 EMEA 3,180 1,899 8,493 5,260 APAC 3,650 2,574 9,806 7,079 Total revenue $ 39,735 $ 28,264 $ 109,225 $ 81,083 10 Table of Contents 2. Summary of significant accounting policies (continued) Long-lived assets by geographic region was as follows: September 30, December 31, (in thousands) 2020 2019 (Unaudited) Long-lived assets: Americas – U.S. $ 6,703 $ 7,699 Americas – other — — EMEA — — APAC 539 542 Total long-lived assets $ 7,242 $ 8,241 Cash and cash equivalents We consider all highly liquid investments with original maturities of three months or less from the date of purchase to be cash equivalents. Cash equivalents consist of money market funds and investment securities and are stated at fair value. Restricted cash We maintain a portion of amounts collected through our online payment processor with the online payment processor as a security deposit for future chargebacks. Additionally, we have amounts on deposit with certain financial institutions that serve as collateral for letters of credit and lease deposits. Marketable securities All marketable securities have been classified as available-for-sale and are carried at estimated fair value. We determine the appropriate classification of our investments in debt securities at the time of purchase. Securities may have stated maturities greater than one year. All marketable securities are considered available to support current operations and are classified as current assets. Unrealized gains and losses are excluded from earnings and are reported as a component of accumulated other comprehensive loss. Realized gains and losses, and declines in fair value judged to be other than temporary, are included in other expense. The cost of securities sold is based on the specific-identification method. Interest on marketable securities is included in interest income. Accounts receivable Accounts receivable are stated at net realizable value and include unbilled receivables. Unbilled receivables arise primarily when we provide subscriptions services in advance of billing. Accounts receivable are net of an allowance for credit losses, are not collateralized, and do not bear interest. Payment terms range from due immediately to due within 60 days. The accounts receivable balance at 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. Upon adoption of ASU 2016-13, we analyzed the accounts receivable portfolio for significant risks, historical activity, and an estimate of future collectability to determine the amount that will ultimately be collected. This estimate is analyzed quarterly and adjusted as necessary. Identified risks pertaining to our accounts receivable include the delinquency level, customer type, and current economic environment. Due to the short-term nature of such receivables, the estimate of the amount of accounts receivable that may not be collected is based on aging of the accounts receivable balances and the financial condition of customers. Adoption of ASU 2016-13 resulted in an increase in the allowance for credit losses of approximately $0.4 million as of January 1, 2020, primarily related to unbilled receivables. 11 Table of Contents 2. Summary of significant accounting policies (continued) The allowance for credit losses consisted of the following: (Unaudited, in thousands) Balance at December 31, 2019 $ 1,167 Cumulative effect adjustment upon adoption 364 Provision for expected credit losses 589 Accounts written off (236 ) Balance at March 31, 2020 1,884 Provision for expected credit losses 355 Accounts written off (583 ) Balance at June 30, 2020 1,656 Provision for expected credit losses 254 Accounts written off (49 ) Balance at September 30, 2020 $ 1,861 Property and equipment Property and equipment are stated at cost, net of accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method over the estimated useful lives or the related lease terms (if shorter). The estimated useful lives of property and equipment are as follows: Estimated Useful Life Computer equipment 3 years Computer software 3 years Furniture and fixtures 5 years Leasehold improvements 1-10 years Maintenance and repairs that do not enhance or extend the asset’s useful life are charged to operating expenses as incurred. The carrying values of property and equipment are reviewed for impairment whenever events or changes in circumstances indicate that their net book value may not be recoverable. When such factors and circumstances exist, we compare the projected undiscounted future cash flows associated with groups of assets used in combination over their estimated useful lives against their respective carrying amounts. If projected undiscounted future cash flows are less than the carrying value of the asset group, impairment is recorded for any excess of the carrying amount over the fair value of those assets in the period in which the determination is made. Research and development and internal use software Research and development expenses consist primarily of personnel and related expenses for our research and development staff, which include: salaries, benefits, bonuses, and stock-based compensation; the cost of certain third-party contractors; and allocated overhead. Expenditures for research and development, other than internal use software costs, are expensed as incurred. Software development costs associated with internal use software, which are incurred during the application development phase and meet other requirements under the guidance are capitalized. To date, software costs eligible for capitalization have not been significant. Concentration of credit risks, significant clients, and suppliers Financial instruments that potentially subject us to concentrations of credit risk consist of cash and cash equivalents, marketable securities, restricted cash, and accounts receivable. Our investment policy limits investments to high credit quality securities issued by the U.S. government, U.S. government-sponsored agencies, and highly rated corporate securities, subject to certain concentration limits and restrictions on maturities. Our cash and cash equivalents and restricted cash are held by financial institutions that management believes are of high credit quality. Amounts on deposit may at times exceed federally insured limits. We have not 12 Table of Contents 2. 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. We do not require collateral. Estimated credit losses are provided for in the consolidated financial statements and historically have been within management’s expectations. 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 costs were $9.0 million and $9.0 million for the nine months ended September 30, 2020 and 2019, respectively. Leases We determine if an arrangement is a lease or contains a lease at inception. At the commencement date of a lease, we recognize a liability to make lease payments and an asset representing the right to use the underlying asset during the lease term. The lease liability is measured at the present value of lease payments over the lease term. As our leases typically do not provide an implicit rate, we use our incremental borrowing rate for most leases. The right-of-use (“ROU”) asset is measured at cost, which includes the initial measurement of the lease liability and initial direct costs incurred and excludes lease incentives. Lease terms may include options to extend or terminate the lease. We record a ROU asset and a lease liability when it is reasonably certain that we will exercise that option. Operating lease costs are recognized on a straight-line basis over the lease term. We also lease office space under short-term arrangements and have elected not to include these arrangements in the ROU asset or lease liabilities. Income taxes We account for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax balances are adjusted to reflect tax rates based on currently enacted tax laws, which will be in effect in the years in which the temporary differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period of the enactment date. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets unless it is more likely than not that those assets will be realized. To date, we have provided a valuation allowance against all of our deferred tax assets as we believe the objective and verifiable evidence of our historical pretax net losses outweighs any positive evidence of its forecasted future results. We will continue to monitor the positive and negative evidence, and we will adjust the valuation allowance as sufficient objective positive evidence becomes available. We account for uncertain tax positions in accordance with ASC 740, “Income Taxes”, which clarifies the accounting for uncertainty in tax positions. These provisions require recognition of the impact of a tax position in our financial statements only if it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. Any interest and penalties related to uncertain tax positions will be reflected as a component of income tax expense . Stock-based compensation We issue stock options and restricted stock units ("RSUs"). Stock-based compensation related to stock options is measured at the date of grant and is recognized on a straight-line basis over the service period, net of estimated forfeitures. We use the Black-Scholes option-pricing model to estimate the fair value of stock options awarded at the date of grant. Stock- based compensation related to restricted stock units is measured at the date of grant and recognized using the accelerated attribution method, net of forfeitures, over the remaining service period. Accounting pronouncements In June 2018, the FASB Issued ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The new guidance is effective for fiscal years, and interim periods within those 13 Table of Contents 2. 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. In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326)” which modifies the measurement of expected credit losses of certain financial instruments. Credit losses on trade and other receivables, available-for-sale debt securities, and other instruments will reflect our current estimate of the expected credit losses and will generally result in the earlier recognition of allowance for losses. The new guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. The adoption of the new standard resulted in the recording of a cumulative-effect adjustment to accumulated deficit of $0.4 million on January 1, 2020. We will continue to actively monitor the impact of the recent COVID-19 pandemic on expected credit losses. In August 2018, the FASB issued ASU No. 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40) , which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). We adopted this guidance on January 1, 2020 on a prospective basis, which did not result in a material impact to our consolidated financial statements. In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes,” as part of its initiative to reduce complexity in the accounting standards. The amendments in ASU 2019-12 eliminate certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12 also clarifies and simplifies other aspects of the accounting for income taxes. Although the amendments in ASU 2019-12 become effective for fiscal years beginning after December 15, 2020, we elected to early adopt the ASU as of January 1, 2019 on a prospective basis. There is no material tax impact of the early adoption of ASU 2019-12 on our financial position and results of operations. 3. Revenue recognition and deferred costs Revenue recognition Our sources of revenue consist of subscription solutions fees and partner and services fees. These services allow customers to access our hosted software over the contract period. The customer is not allowed to take possession of the software or transfer the software. Our revenue arrangements do not contain general rights of refund in the event of cancellations. The following table disaggregates our revenue by major source: Three months ended September 30, Nine months ended September 30, (Unaudited, in thousands) 2020 2019 2020 2019 Subscription solutions $ 26,545 $ 21,021 $ 74,041 $ 60,406 Partner and services 13,190 7,243 35,184 20,677 Total revenue $ 39,735 $ 28,264 $ 109,225 $ 81,083 Subscription solutions Subscription solutions revenue consists primarily of platform subscription fees from all plans. It also includes recurring professional services and sales of SSL certificates. Subscription solutions are charged monthly, quarterly, or annually for our customers to sell their products and process transactions on our platform. Subscription solutions are generally charged per online store and are based on the store’s subscription plan. Monthly subscription fees for Pro and Enterprise plans are adjusted if a customer’s gross merchandise volume or orders processed are above specified plan thresholds on a trailing twelve-month basis. For most subscription solutions arrangements, we have determined we meet the variable consideration allocation exception and, therefore, 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. 14 Table of Contents 3 . 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. Contracts are typically non-cancellable and do not contain refund-type provisions. Revenue is presented net of sales tax and other taxes we collect on behalf of governmental authorities. Partner and services Our partner and services revenue consists of revenue share, partner technology integrations, and marketing services provided to partners. Revenue share relates to fees earned by our partners from customers using our platform, where we have an arrangement with such partner to share such fees as they occur. Revenue share is recognized at the time the earning activity is complete, which is generally monthly. Revenue for partner technology integrations is recorded on a straight-line basis over the life of the contract commencing when the integration has been completed. Fees for marketing services are recognized either at the time the earning activity is complete, or ratably over the length of the contract, depending on the nature of the obligations in the contract. Payments received in advance of services being rendered are recorded as deferred revenue and recognized when the obligation is completed. We also derive revenue from the sales of website themes and applications upon delivery. We recognize revenue share, and revenue from the sales of third-party applications, on a net basis as we have determined that we are the agent in our arrangements with third-party application providers. All other revenue is recognized on a gross basis, as we have determined we are the principal in these arrangements. Contracts with multiple performance obligations A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. Our subscription contracts are generally comprised of a single performance obligation to provide access to our platform, but can include additional performance obligations. For contracts with multiple performance obligations where the contracted price differs from the standalone selling price (“SSP”) for any distinct good or service, we may be required to allocate the contract’s transaction price to each performance obligation using our best estimate of SSP. Contracts with our technology solution partners often include multiple performance obligations. In determining whether integration services are distinct from hosting services we consider various factors. These considerations included the level of integration, interdependency, and interrelation between the implementation and hosting service, as well as any promises in the contract. We have concluded that the integration services included in contracts with hosting obligations are not distinct. As a result, we defer any arrangement fees for integration services and recognize such amounts over the life of the hosting obligation. Additional consideration for some partner contracts varies based on the level of customer activity on the platform. We have determined we meet the variable consideration allocation exception and therefore recognize these variable fees in the period they are earned. Judgment is required to determine the SSP for each distinct performance obligation. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The primary method used to estimate SSP is the expected cost-plus margin approach, which considers margins achieved on standalone sales of similar products, market data related to historical margins within an industry, industry sales price averages, market conditions, and profit objectives. Cost of revenue Cost of revenue consists primarily of personnel-related costs, including: stock-based compensation expenses for customer support and professional services personnel; costs of maintaining and securing our infrastructure and platform; amortization expense associated with capitalized internal-use software; and allocation of overhead costs. Deferred revenue Deferred revenue primarily consists of amounts that have been billed to or received from customers in advance of performing the associated services. We recognize revenue from deferred revenue when the services are performed, and the corresponding revenue recognition criteria are met. 15 Table of Contents 3. 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 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 Certain sales commissions earned by our sales force are considered incremental and recoverable costs of obtaining a contract with a customer. Sales commissions are not paid on subscription renewals. We amortize deferred sales commissions ratably over the estimated period of our relationship with customers of approximately four years. Based on historical experience, we determine the average life of our customer relationship by taking into consideration our customer contracts and the estimated technological life of our platform and related significant features. We include amortization of deferred commissions in Sales and marketing expense in the consolidated statements of operations. We periodically review the carrying amount of deferred commissions to determine whether events or changes in circumstances have occurred that could impact the period of benefit of these deferred costs. We did not recognize an impairment of deferred commissions 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. 4. Fair value measurements 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. For assets and liabilities measured at fair value, fair value is the price to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. When determining fair value, we consider the principal or most advantageous market in which it would transact, and assumptions that market participants would use when pricing asset or liabilities. The accounting standard for fair value establishes a fair value hierarchy based on three levels of inputs, the first two of which are considered observable and the last unobservable. The standard requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels of inputs that may be used to measure fair value are as follows: • Level 1 – Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date. • Level 2 – Inputs are other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. • Level 3 – Inputs are unobservable that are significant to the fair value of the asset or liability and are developed based on the best information available in the circumstances, which might include our data. The fair value of debt was measured using Level 2 inputs and approximated its carrying value. We did not have any cash equivalents or marketable securities as of September 30, 2020 and December 31, 2019. 16 Table of Contents 5. Property and equipment Property and equipment, which includes software purchased or developed for internal use, is composed of the following: As of September 30, As of December 31, (in thousands) 2020 2019 (Unaudited) Computer software $ 2,043 $ 1,788 Computer equipment 7,660 6,816 Furniture and fixtures 2,380 2,198 Leasehold improvements 7,935 7,834 20,018 18,636 Less: accumulated depreciation and amortization (12,776 ) (10,395 ) Property and equipment, net $ 7,242 $ 8,241 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. 6. Commitments, contingencies, and leases Liabilities for loss contingencies arising from claims, assessments, litigation, fines, penalties, and other sources are recorded when it is probable that a liability has been incurred and that the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred. From time to time, we are subject to various claims that arise in the normal course of business. In the opinion of management, we are unaware of any pending or unasserted claims that would have a material adverse effect on our financial position, liquidity, or results. Certain executive officers are entitled to payments in the event of termination of employment in connection with a certain change in control. Our certificate of incorporation and certain contractual arrangements provide for indemnification of our officers and directors for certain events or occurrences. We maintain a directors and officers insurance policy to provide coverage in the event of a claim against 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 September 30, 2020 or December 31, 2019. Leases We lease certain facilities under operating lease agreements that expire at various dates through 2028. Some of these arrangements contain renewal options and require us to pay taxes, insurance and maintenance costs. Renewal options were not included in the ROU asset and lease liability calculation. 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. Supplemental lease information Cash flow information (in thousands) Nine months ended September 30, Nine months ended September 30, 2020 2019 Cash paid for operating lease liabilities $ 2,684 $ 2,345 Right-of-use assets obtained in exchange for operating lease obligations $ — $ 2,834 17 Table of Contents 6. Commitments, contingencies, and leases (continued) Operating lease information Nine months ended September 30, Nine months ended September 30, 2020 2019 Weighted-average remaining lease-term 6.17 7.1 Weighted-average discount rate 5.46 % 5.52 % The future maturities of operating lease liabilities are as follows: (in thousands) September 30, 2020 2020 (October 1st through December 31st) $ 959 2021 3,903 2022 3,037 2023 2,459 2024 2,227 Thereafter 6,934 Total minimum lease payments $ 19,519 Less imputed interest (3,069 ) Total lease liabilities $ 16,450 7. Other liabilities The following table summarizes the components of other current liabilities: As of September 30, Year Ended December 31, (in thousands) 2020 2019 (Unaudited) Sales tax payable $ 644 $ 551 Payroll and payroll related expenses 13,324 6,126 Other 3,548 3,027 Other current liabilities $ 17,516 $ 9,704 8. Debt Convertible Term Loans On October 27, 2017, we entered into a contingent convertible debt agreement (the “Convertible Term Loan”) with Silicon Valley Bank (“SVB”) providing for a term loan of $20.0 million. 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 5.8%, 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. 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. 18 Table of Contents 8. 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. 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. 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. This instrument was extinguished upon the conversion of the 2020 Convertible Term Debt upon completion of our IPO . Credit Facility On October 27, 2017, we amended and restated our loan and security agreement (as amended, the “Credit Facility”) with SVB. The Credit Facility provided a $20.0 million revolving line of credit (the “Revolving Line”) and a $5.0 million term loan (the “2018 Term Loan”). On June 4, 2019, we amended the Credit Facility to increase the Revolving Line by $5.0 million to $25.0 million. 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 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 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 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 with a maturity date of October 1, 2021. The principal amortizes equally from the time of the draw to the maturity date. 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. 19 Table of Contents 8. Debt (continued) In conjunction with our entry into the A&R Credit Facility, our financial covenants were amended. We are required to maintain a revenue growth rate of 118% each quarter compared to the same quarter in the prior year. The other covenant requires us to maintain a minimum liquidity ratio of 1.5:1. The liquidity ratio is calculated as unrestricted and unencumbered cash plus sixty percent of net accounts receivable to balance outstanding under the Revolving Line. We were in compliance with all covenants as of September 30, 2020. Mezzanine Facility Loan On February 28, 2020, we entered into a mezzanine loan and security agreement (the “Mezzanine Facility”) with WestRiver Innovation Lending Fund VIII, L.P. (“WestRiver”) providing for a term loan of $10.0 million. The Mezzanine Facility maturity date is March 1, 2023. Our obligations under the Mezzanine Facility are secured by substantially all of our assets. The Mezzanine Facility contains restrictive covenants, including limits on additional indebtedness, liens, asset dispositions, dividends, investments, and distributions. Borrowings under the Mezzanine Facility bear interest at the greater of (i) 10.0% or (ii) the prime rate then in effect plus 5.25%. Interest is calculated on the outstanding principal on a 360-day year basis, payable monthly. 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. The value of the warrants issued was recorded as a discount on the carrying value of the debt instruments, which was amortized to interest expense over the life of the debt instruments as an adjustment to (increase in) the effective interest rate. Debt fees Lender fees that were paid upfront to the lenders and debt issuance fees paid to third parties are recorded as a discount from the debt carrying amount and are being amortized to interest expense over the life of the debt. Interest expense related to debt discount amortization was not material for any of the periods presented. Net unamortized fees were not material as of September 30, 2020. Net unamortized fees as of December 31, 2019 amounted to $0.9 million. 9. Stockholders’ equity (deficit) Equity Incentive Plans – Stock Options 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 In May 2020, our board of directors granted an aggregate of 1,216,000 RSUs to officers and employees pursuant to the 2013 Plan with a per share fair value of $15.51. The RSUs vest and settle upon the satisfaction of both a service condition and a liquidity event condition. The service condition for the awards is satisfied over four years. The liquidity event condition is satisfied upon the occurrence of a qualifying event, defined as the effectiveness of an initial public offering or the consummation of a change of control transaction. 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. 20 Table of Contents 9. Stockholders’ equity (deficit) (continued) 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 September 30, Nine months ended September 30, (in thousands) 2020 2019 2020 2019 Cost of revenue $ 179 $ 62 $ 334 $ 121 Sales and marketing 871 241 1,511 572 Research and development 582 186 1,216 415 General and administrative 1,236 326 1,977 1,123 Total stock-based compensation expense $ 2,868 $ 815 $ 5,038 $ 2,231 Preferred stock 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. 10. Income taxes Our provision for income taxes is based on estimated effective tax rates derived from an estimate of annual consolidated earnings before taxes, adjusted for nondeductible expenses, other permanent items, and any applicable income tax credits. The difference in the 21% U.S. statutory tax rate and the annual forecasted effective tax rate is primarily a result of the jurisdictional mix of earnings and losses as well as valuation allowances offsetting the benefit of forecasted losses in the U.S., Australia, and the United Kingdom. Forecasted tax expense is related to non-U.S. jurisdictions where we are profitable along with state income taxes. The effective tax rates for the three months ended 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. We are not currently under audit in any filing jurisdiction. Fiscal years 2016 through 2019 remain open to examination by the major taxing jurisdictions to which we are subject. 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. 21 Table of Contents 11. 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 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 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 September 30, Nine months ended September 30, (Unaudited, in thousands) 2020 2019 2020 2019 Preferred stock as-converted — 34,442 — 34,442 Stock options outstanding 9,391 9,422 9,391 9,422 Restricted stock units 1,363 — 1,363 — Warrants to purchase common stock — 364 — 364 Convertible debt — 2,180 — 2,180 Total potentially dilutive securities 10,754 46,408 10,754 46,408 12. Subsequent events 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. 22 Table of Contents Special Note Regarding Forward-Looking Statements This Quarterly Report on Form 10-Q contains forward-looking statements. Any statements about our expectations, beliefs, plans, predictions, forecasts, objectives, assumptions, or future events or performance are not historical facts and may be forward-looking. These statements are often, but not always, made through the use of words or phrases such as “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “ongoing,” “plan,” “potential,” “predict,” “project,” “should,” “will,” and similar words or phrases. These forward-looking statements include statements concerning the following: • the impact of the COVID-19 pandemic and the associated economic uncertainty on us, our customers, and our partners, and our response thereto; • our expectations regarding our revenue, expenses, sales, and operations; • anticipated trends and challenges in our business and the markets in which we operate; • our ability to compete in our industry and innovation by our competitors; • our ability to anticipate market needs or develop new or enhanced services to meet those needs; • our ability to manage growth and to expand our infrastructure; • our ability to establish and maintain intellectual property rights; • our ability to manage expansion into international markets and new industries; • our ability to hire and retain key personnel; • our expectations regarding the use of proceeds from our initial public offering; • our ability to successfully identify, manage, and integrate any existing and potential acquisitions; • our ability to adapt to emerging regulatory developments, technological changes, and cybersecurity needs; • our anticipated cash needs and our estimates regarding our capital requirements and our need for additional financing; and • other statements described in this Quarterly Report on Form 10-Q under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Although we believe the expectations reflected in these forward-looking statements are reasonable, these statements are not guarantees of future performance and involve risks and uncertainties which are subject to change based on various important factors, some of which are beyond our control. For more information regarding these risks and uncertainties as well as certain additional risks that we face, refer to “Risk Factors,” as well as factors more fully described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report on Form 10-Q. If one or more of the factors affecting the expectations reflected in our forward-looking information and statements proves incorrect, our actual results, performance, or achievements could differ materially from those expressed in, or implied by, forward-looking information and statements. Therefore, we caution the reader not to place undue reliance on any forward-looking information or statements. The effect of these factors is difficult to predict. Factors other than these also could adversely affect our results, and the reader should not consider these factors to be a complete set of all potential risks or uncertainties. New factors emerge from time to time, and management cannot assess the impact of any such factor on our business or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statement. Any forward-looking statements only speak as of the date of this document, and we undertake no obligation to update any forward-looking information or statements, whether written or oral, to reflect any change, except as required by law. All forward-looking statements attributable to us are expressly qualified by these cautionary statements. 23 Table of Contents