Commerce.com, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that involve risk and uncertainties. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report on Form 10-Q, particularly in “Risk Factors.” See “Special Note Regarding Forward-Looking Statements.” Overview BigCommerce is leading a new era of ecommerce. Our SaaS platform simplifies the creation of beautiful, engaging online stores by delivering a unique combination of ease-of-use, enterprise functionality, and flexibility. We power both our customers’ branded ecommerce stores and their cross-channel connections to popular online marketplaces, social networks, and offline POS systems. As of September 30, 2020, we served approximately 60,000 online stores across industries in approximately 150 countries. We provide a comprehensive platform for launching and scaling an ecommerce operation, including store design, catalog management, hosting, checkout, order management, reporting, and pre-integration into third-party services like payments, shipping, and accounting. All our stores run on a single code base and share a global, multi-tenant architecture purpose built for security, high performance, and innovation. Our platform serves stores in a wide variety of sizes, product categories, and purchase types, including B2C and B2B. Our customers include Avery Dennison, Ben & Jerry’s, Burrow, SC Johnson, SkullCandy, Sony, and Woolrich. We offer access to our platform on a subscription basis. We serve customers with subscription plans tailored to their size and feature needs. For our larger customers, our Enterprise plan offers our full feature set at a monthly subscription price tailored to each business. For SMBs, BigCommerce Essentials offers three retail plans: Standard, Plus, and Pro, priced at $29.95, $79.95, and $299.95 per month, respectively. Since our founding, we have achieved several key milestones and implemented important strategic initiatives that impact our business today. • 2009: BigCommerce launches in Sydney, Australia, with a simple, low-cost, all-in-one ecommerce solution, delivered through the cloud, targeting the SMB segment. • 2010: BigCommerce’s customer base reaches 10,000 online stores. • 2011–2014: Headquarters relocate to Austin, Texas. We raise private capital in a series of investment rounds to fund growth from investors including General Catalyst, Revolution Growth, and Softbank. • 2015: Brent Bellm joins as president and chief executive officer. New executive team expands focus to mid-market and large enterprise customer segments, investing significantly in research and development over the subsequent five-year period. • 2016–2018: BigCommerce raises additional rounds of private capital from investors including GGV Capital and Goldman Sachs. Using an “open SaaS” strategy, we expand our ecosystem of technology and service partners that offer complementary capabilities such as payments, shipping, marketing, and accounting. ARR surpasses $100 million. • 2019: BigCommerce expands go-to-market teams in Europe and Australia, launches a presence in Asia, and scales engineering capacity in Kyiv, Ukraine. We reach approximately 60,000 stores. Our “headless” commerce capabilities gain traction across a wide range of leading CMSs and progressive web application frameworks. • 2020: BigCommerce completes its initial public offering (“IPO”) of its Series 1 common stock resulting in net proceeds of $171.1 million. Our business has experienced strong growth. Our annual revenue run-rate (“ARR”) reached $128.5 million as of December 31, 2019, and $167.0 million as of September 30, 2020. Our ARR growth rate increased from 22.3% in 2018 to 25.8% in 2019 and from 25.8% for the three months ended September 30, 2019 to 37.6% for the three months ended September 30, 2020. Our revenue growth rate increased from 22.0% in 2019 to 40.6% in the three months ended September 30, 2020. During the three months ended September 30, 2019 and 2020, our revenue was $28.3 million and $39.7 million, respectively. During the nine months ended September 30, 2019 and 2020, our revenue was $81.1 million and $109.2 million, respectively. Our gross margin was 75.9% in 2019, and 75.9% and 78.4% for the three months ended September 30, 2019 and 2020, respectively, and 76.6% and 78.1% for the nine months ended September 30, 2019 and 2020, respectively. We had net losses of $42.6 million in 2019, $10.7 million and $10.9 million in the three 24 Table of Contents months ended September 30, 2019 and 2020, respectively , and $ 32.3 million and $ 23.4 million in the nine months ended September 30, 2019 and 2020, respectively. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key business metrics—Annual revenue run-rate” for a description of how we calculate ARR. In addition, as a result of the global travel restrictions and stay-at-home or similar orders in effect due to the COVID-19 pandemic, our sales and marketing, research and development, and general and administrative expenses declined as a percentage of revenue in the nine months ended September 30, 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 $171.1 million after deducting underwriting discounts, commissions and other offering costs. An additional result of the IPO was the conversion of our 2017 and 2020 Term Loans to Series 1 Common Stock resulting in a $53.9 million reduction in the principal of our outstanding long-term debt. Key factors affecting our performance We believe our future performance will depend on many factors, including the following: Continued growth of ecommerce domestically and globally Ecommerce is rapidly transforming global B2C and B2B commerce. B2C ecommerce was nonexistent in the early-1990s and grew to approximately 10% of all global retail spending in 2017, according to eMarketer. eMarketer estimates that it will take just six years for this percentage to more than double to 21% of global retail spending in 2023. The rapid growth in ecommerce is prompting companies to adopt ecommerce platforms like BigCommerce to create compelling branded ecommerce stores and power cross-channel connections to online marketplaces, social networks, and offline POS systems. We believe we have a substantial opportunity to serve a larger number of customers as ecommerce continues to grow around the world by extending into new and emerging segments within ecommerce. The following segments are significant areas of potential growth and strategic focus for us: • Headless commerce . This refers to businesses whose technology strategy is to decouple their front-end customer experience technology from their back-end commerce platform. In terms of online strategy, these companies are typically brand-, marketing-, or experience-led. We serve headless use cases better than most of our competitors due to years of investment in our platform APIs and integration capabilities. Pre-built integrations connect our platform with leading CMSs such as Acquia, Adobe, Bloomreach, Drupal, Sitecore, and WordPress. • B2B . As of December 31, 2019, approximately 10% of our customers use BigCommerce primarily for B2B sales. In many cases, these customers’ needs are met using our native functionality, including B2B features like customer groups and price lists. In other cases, these customers complement BigCommerce with purpose-built B2B extensions and applications in the BigCommerce Apps Marketplace. Over time, we intend to add more B2B functionality to both the BigCommerce Apps Marketplace and our native feature set. • Large enterprise . Increasingly, we are successfully competing for large enterprise sites selling more than $50 million annually online, with our Enterprise plan product feature set, along with our sales, marketing, solutioning, and service capabilities. Efficient acquisition of new customers The growth of our customer base is important to our continued revenue growth. We believe we are positioned to grow significantly through a combination of our own marketing and sales initiatives, customer referrals from our agency and technology partners, and word-of-mouth referrals from existing customers. We measure the efficiency of new customer acquisition by comparing the lifetime value (“LTV”) of newly-acquired customers to the customer acquisition costs (“CAC”) of the associated time period to get an “LTV:CAC ratio.” We calculate LTV as gross profit from new sales during the four quarters of any given year divided by the estimated future subscription churn rate. We calculate CAC as total sales and marketing expense incurred during the associated preceding four quarters. 25 Table of Contents 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 upgrades 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 capabilities 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 partners 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 their 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. 26 Table of Contents Duration and durability of COVID-19’s impact on partner and services revenue Ecommerce sales in our major markets have increased significantly due to the widespread closure of physical stores and behavioral changes associated with social distancing. This increase in sales has bolstered our partner and services revenue, driven predominantly by increases in our partner revenue share streams. We anticipate that our performance will be affected by the duration of COVID-19’s impact on physical stores and consumer preferences and the resulting increase in ecommerce sales. Additionally, we expect the widespread availability of treatment options to impact the trend toward ecommerce, which, in turn, may have a significant impact on our performance. We believe we are well-positioned to continue to benefit from the macro-economic shift to ecommerce that COVID-19 has accelerated, but revenue may be more variable in the near-term as a result. Key business metrics We review the following key business metrics to measure our performance, identify trends affecting our business, formulate business plans, and make strategic decisions. Increases or decreases in our key business metrics may not correspond with increases or decreases in our revenue. Annual revenue run-rate We calculate annual revenue run-rate (“ARR”) at the end of each month as the sum of: (1) the product of the current month’s monthly recurring revenue (“MRR”) multiplied by twelve (to prospectively annualize subscription revenue), and (2) the trailing twelve-month partner and services revenue, including non-recurring services revenue, such as one-time partner integration fees and store-launch services. MRR includes BigCommerce platform subscription fees and invoiced growth adjustments as customers’ businesses grow past contracted order thresholds after a threshold has been met. It also includes recurring professional services revenue, such as recurring technical account management services and product training services. Accounts with greater than $2,000 ACV We track the total number of accounts with annual contract value (“ACV”) greater than $2,000 (the “ACV threshold”) as of the end of a monthly billing period. To define this $2,000 ACV cohort, we include only subscription plan revenue and exclude partner and services revenue and recurring services revenue. We consider all stores added and subtracted as of the end of the monthly billing period. This metric includes accounts that may have either one single store above the ACV threshold or multiple stores that together exceed the ACV threshold. Accordingly, this cohort would include: (1) customers on Enterprise plans, (2) customers on Pro plans, and (3) customers with multiple plans that together exceed the ACV threshold. As of September 30, 2020, accounts above the ACV threshold represented 81% of our ARR, up from 77% as of September 30, 2019. 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 September 30, 2020, the ARPA for accounts above the ACV threshold was $13,792, up from $10,512 as of September 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 wa s 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. 27 Table of Contents The chart below illustrates certain of our key business metrics as of or for the three months ended for each of the dates presented, as applicable. September 30, 2019 December 31, 2019 March 31, 2020 June 30, 2020 September 30, 2020 ARR (in thousands) $ 121,346 $ 128,522 $ 137,080 $ 151,814 $ 167,022 Accounts with ACV greater than $2,000 8,918 9,090 8,988 9,378 9,777 % of ARR attributable to accounts with ACV greater than $2,000 77 % 78 % 79 % 80 % 81 % ARPA attributable to accounts with ACV greater than $2,000 $ 10,512 $ 11,098 $ 12,094 $ 12,936 $ 13,792 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 September 30, 2020, enterprise account ARR grew 48% year-over-year to $89.8 million, up from $60.7 million as of September 30, 2019. Enterprise accounts represented 54% and 50% of ARR as of September 30, 2020 and 2019, respectively. Components of results of operations Revenue We generate revenue from two sources: (1) subscription solutions revenue and (2) partner and services revenue. Subscription solutions revenue consists primarily of platform subscription fees from all plans. It also includes recurring professional services and sales of SSL certificates. Subscription solutions are charged monthly, quarterly, or annually for our customers to sell their products and process transactions on our platform. Subscription solutions are generally charged per online store and are based on the store’s subscription plan. Our Enterprise plan contracts are generally for a fixed term of one to three years and are non-cancelable. Our retail plans are generally month-to-month contracts. Monthly subscription fees for Pro and Enterprise plans are adjusted if a customer’s GMV or orders processed are outside of specified plan thresholds on a trailing twelve-month basis. Fixed monthly fees and any transaction charges related to subscription solutions are recognized as revenue in the month they are earned. We generate partner revenue from our technology application ecosystem. Customers tailor their stores to meet their feature needs by integrating applications developed by our strategic technology partners. We enter into contracts with our strategic technology partners that are generally for one year or longer. We generate revenue from these contracts in three ways: (1) revenue-sharing arrangements, (2) technology integrations, and (3) partner marketing and promotion. We recognize revenue on a net basis from revenue-sharing arrangements when the underlying transaction occurs. We also generate revenue from non-recurring professional services that we provide to complement the capabilities of our customers and their agency partners. Our services help improve customers’ time-to-market and the success of their businesses using BigCommerce. Our non-recurring services include education packages, launch services, solutions architecting, implementation consulting, and catalog transfer services. Cost of revenue Cost of revenue consists primarily of: (1) personnel-related costs (including stock-based compensation expense) for our customer success teams, (2) costs that are directly related to hosting and maintaining our platform, (3) fees for processing customer payments, and (4) the allocation of overhead costs. We expect that cost of revenue will increase in absolute dollars, but may fluctuate as a percentage of total revenue from period to period. Sales and marketing Sales and marketing expenses consist primarily of: (1) personnel-related expenses (including stock-based compensation expense), (2) sales commissions, (3) marketing programs, (4) travel-related expenses, and (5) allocated overhead costs. We focus our sales and marketing efforts on creating sales leads and establishing and promoting our brand. We plan to increase our investment in sales and marketing by hiring additional sales and marketing personnel, executing our go-to-market strategy globally, and building our brand awareness. Incremental sales commissions for new customer contracts are deferred and amortized ratably over the estimated 28 Table of Contents 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. For U.S. federal income tax purposes and in certain foreign and state jurisdictions, we have NOL carryforwards. The foreign jurisdictions in which we operate have different statutory tax rates than those of the United States. Additionally, certain of our foreign earnings may also be currently taxable in the United States. Accordingly, our effective tax rate will vary depending on the relative proportion of foreign to domestic income, use of foreign tax credits, changes in the valuation of our deferred tax assets and liabilities, applicability of any valuation allowances, and changes in tax laws in jurisdictions in which we operate. 29 Table of Contents Results of operations The following table sets forth our results of operations for the periods presented: Three months ended September 30, Nine months ended September 30, 2020 2019 2020 2019 (in thousands) Revenue $ 39,735 $ 28,264 $ 109,225 $ 81,083 Cost of revenue (1) 8,593 6,806 23,910 18,958 Gross profit 31,142 21,458 85,315 62,125 Operating expenses: Sales and marketing (1) 19,328 15,346 51,893 45,445 Research and development (1) 12,124 10,862 34,390 32,162 General and administrative (1) 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 instrument — — 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 ) (1) Includes stock-based compensation expense as follows: Three months ended September 30, Nine months ended September 30, 2020 2019 2020 2019 (in thousands) 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 Revenue by geographic region The composition of our revenue by geographic region during the three and nine months ended September 2020 and 2019 were as follows: Three months ended September 30, Change Nine Months Ended September 30, Change 2020 2019 Amount % 2020 2019 Amount % (dollars in thousands) (dollars in thousands) Revenue Americas – U.S. $ 31,483 $ 22,842 $ 8,641 37.8 $ 87,099 $ 66,022 $ 21,077 31.9 Americas – other 1,422 949 473 49.8 3,827 2,722 1,105 40.6 EMEA 3,180 1,899 1,281 67.5 8,493 5,260 3,233 61.5 APAC 3,650 2,574 1,076 41.8 9,806 7,079 2,727 38.5 Total Revenue $ 39,735 $ 28,264 $ 11,471 40.6 $ 109,225 $ 81,083 $ 28,142 34.7 30 Table of Contents 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 September 30, Nine months ended September 30, 2020 2019 2020 2019 Adjusted EBITDA $ (6,563 ) $ (8,913 ) $ (17,716 ) $ (27,411 ) As of September 30, As of December 31, 2020 2019 (in thousands) Consolidated balance sheet data: Cash and cash equivalents $ 178,846 $ 7,795 Working capital (1) 160,443 (2,243 ) Total assets 235,502 56,064 Total liabilities 77,004 89,613 Convertible preferred stock - 223,754 Total stockholders' (deficit) equity 158,498 (257,303 ) (1) 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; 31 Table of Contents • Adjusted EBITDA does not reflect the cash requirements necessary to service interest on our debt which affects the cash available to us; • Adjusted EBITDA does not reflect the monies earned from our investments since it does not reflect our core operations; • Adjusted EBITDA does not reflect change in fair value of financial instruments including derivatives since it does not reflect our core operations and is a non-cash expense; • Adjusted EBITDA does not reflect income tax expense that affects cash available to us; and • the expenses and other items that we exclude in our calculations of Adjusted EBITDA may differ from the expenses and other items, if any, that other companies may exclude from Adjusted EBITDA when they report their operating results. In addition, other companies may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison. The following table reconciles Adjusted EBITDA to net loss, the most directly comparable financial measure calculated and presented in accordance with GAAP. Reconciliation of net loss to Adjusted EBITDA Three months ended September 30, Nine months ended September 30, 2020 2019 2020 2019 Net loss $ (10,855 ) $ (10,725 ) $ (23,359 ) $ (32,298 ) Stock-based compensation expense 2,868 815 5,038 2,231 Depreciation and amortization 699 635 2,377 1,751 Interest income (2 ) (4 ) (20 ) (245 ) Interest expense 741 359 2,655 1,129 Change in fair value of financial instrument — — (4,413 ) — Provision for income taxes (14 ) 7 6 21 Adjusted EBITDA $ (6,563 ) $ (8,913 ) $ (17,716 ) $ (27,411 ) Comparison of the three and nine months ended September 30, 2020 and September 30, 2019 Revenue The components of our revenue during the three and nine months ended September 30, 2020 and 2019 were as follows: Three months ended September 30, Change Nine months ended September 30, Change 2020 2019 Amount % 2020 2019 Amount % (dollars in thousands) Revenue Subscription solutions $ 26,545 $ 21,021 $ 5,524 26.3 % $ 74,041 $ 60,406 $ 13,635 22.6 % Partner and services 13,190 7,243 5,947 82.1 % 35,184 20,677 14,507 70.2 % Total revenue $ 39,735 $ 28,264 $ 11,471 40.6 % $ 109,225 $ 81,083 $ 28,142 34.7 % Three Months Ended September 30, 2020 Compared to Three Months Ended September 30, 2019. Revenue increased $11.5 million, or 40.6%, to $39.7 million for the three months ended September 30, 2020 from $28.2 million for the three months ended September 30, 2019, as a result of increases in both subscription solutions and partner and services revenue. Subscription solutions revenue increased $5.5 million, or 26.3%, to $26.5 million for the three months ended September 30, 2020 from $21.0 million for the three months ended September 30, 2019, primarily due to growth in subscription sales. Partner and services revenue increased $5.9 million, or 82.1%, to $13.2 million for the three months ended September 30, 2020 from $7.2 million for the 32 Table of Contents three months ended September 30, 2019, primarily as a result of increases in revenue-sharing activity with our technology partners and improved monetization of partner revenue share. Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019. Revenue increased $28.1 million, or 34.7%, to $109.2 million for the nine months ended September 30, 2020 from $81.1 million for the nine months ended September 30, 2019, as a result of increases in both subscription solutions and partner and services revenue. Subscription solutions revenue increased $13.6 million, or 22.6%, to $74.0 million for the nine months ended September 30, 2020 from $60.4 million for the nine months ended September 30, 2019, primarily due to growth in subscription sales. Partner and services revenue increased $14.5 million, or 70.2%, to $35.2 million for the nine months ended September 30, 2020 from $20.7 million for the nine months ended September 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 nine months ended September 30, 2020 and 2019 were as follows: Three months ended September 30, Change Nine months ended September 30, Change 2020 2019 Amount % 2020 2019 Amount % (dollars in thousands) Cost of revenue $ 8,593 $ 6,806 $ 1,787 26.3 $ 23,910 $ 18,958 $ 4,952 26.1 Gross profit $ 31,142 $ 21,458 $ 9,684 45.1 $ 85,315 $ 62,125 $ 23,190 37.3 Gross margin 78.4 % 75.9 % 78.1 % 76.6 % Three Months Ended September 30, 2020 Compared to Three Months Ended September 30, 2019. Cost of revenue increased $1.8 million, or 26.3%, to $8.6 million for the three months September 30, 2020 from $6.8 million for the three months ended September 30, 2019, primarily as a result of higher hosting costs resulting from increased transactions processed of $0.6 million and higher personnel costs, including stock-based compensation expense amounting to $1.2 million. Gross margin increased to 78.4% during the three months ended September 30, 2020 from 75.9% during the three months ended September 30, 2019. Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019. Cost of revenue increased $5.0 million, or 26.1%, to $23.9 million for the nine months ended September 30, 2020 from $19.0 million for the nine months ended September 30, 2019, primarily as a result of higher hosting costs resulting from increased transactions processed of $1.8 million and higher personnel costs, including stock-based compensation expense amounting to $2.7 million. Gross margin increased to 78.1% during the nine months ended September 30, 2020 from 76.6% during the nine months ended September 30, 2019. Operating expenses Sales and marketing Sales and marketing expenses during the three and nine months ended September 30, 2020 and 2019 were as follows: Three months ended September 30, Change Nine months ended September 30, Change 2020 2019 Amount % 2020 2019 Amount % (dollars in thousands) Sales and marketing $ 19,328 $ 15,346 $ 3,982 25.9 $ 51,893 $ 45,445 $ 6,448 14.2 Percentage of revenue 48.6 % 54.3 % 47.5 % 56.0 % Three Months Ended September 30, 2020 Compared to Three Months Ended September 30, 2019. Sales and marketing expenses increased $4.0 million, or 25.9%, to $19.3 million for the three months ended September 30, 2020 from $15.3 million for the three months ended September 30, 2019, primarily due to higher staffing costs, including stock-based compensation expense and other employee related costs of $3.6 million and higher variable marketing costs of $0.9 million offset by a reduction in travel and other event related expenditures of $0.5 million. As a percentage of total revenue, sales and marketing expenses decreased to 48.6% during the three months ended September 30, 2020 from 54.3% during the three months ended September 30, 2019, primarily due to increased operating leverage from revenue growth. 33 Table of Contents Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019. Sales and m arketing expenses increased $ 6. 4 million, or 14.2 %, to $51.9 million for the nine months ended September 30, 2020 from $45.4 million fo r the nine months ended September 30, 2019, primarily due to higher staffing costs, including stock-based compensation expense and bonuses of $ 8 .6 million offset by a reduction in travel r elated expenditures of $0.9 million and a reduction in marketing expenditures of $1.2 million due to shifts in event timing due to the COVID-19 pandemic . As a percentage of total revenue, sales and mark eting expenses decreased to 47.5% during the nine mont hs ended September 30, 2020 from 56 .0 % duri ng the nine months ended September 30, 2019, primarily due to increased operating leverage from revenue growth. Research and development Research and development expenses during the three and nine months ended September 30, 2020 and 2019 were as follows: Three months ended September 30, Change Nine months ended September 30, Change 2020 2019 Amount % 2020 2019 Amount % (dollars in thousands) Research and development $ 12,124 $ 10,862 $ 1,262 11.6 $ 34,390 $ 32,162 $ 2,228 6.9 Percentage of revenue 30.5 % 38.4 % 31.5 % 39.7 % Research and development expenses increased $2.2 million, or 6.9%, to $34.4 million for the nine months ended September 30, 2020 from $32.2 million for the nine months ended September 30, 2019, primarily due to higher staffing costs. 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 nine months ended September 30, 2020 and 2019 were as follows: Three months ended September 30, Change Nine months ended September 30, Change 2020 2019 Amount % 2020 2019 Amount % (dollars in thousands) General and administrative $ 9,745 $ 5,527 $ 4,218 76.3 $ 23,925 $ 15,748 $ 8,177 51.9 Percentage of revenue 24.5 % 19.6 % 21.9 % 19.4 % Three Months Ended September 30, 2020 Compared to Three Months Ended September 30, 2019. General and administrative expenses increased $4.2 million, or 76.3%, to $9.7 million for the three months ended September 30, 2020 from $5.5 million for the three months ended September 30, 2019. The increase was primarily due to increased staffing and fees associated with preparation for our initial public offering amounting to $3.4 million. Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019. General and administrative expenses increased $8.2 million, or 51.9%, to $23.9 million for the nine months ended September 30, 2020 from $15.7 million for the nine months ended September 30, 2019. The increase was primarily due to increased staffing and fees and additional public company compliance costs amounting to $6.8 million. Interest income Interest income was insignificant for the three and nine-month periods ended September 30, 2020 and 2019. Interest expense Interest expense increased $0.3 million, or 75.0%, to $0.7 million for the three months ended September 30, 2020 from $0.4 million for the three months ended September 30, 2019, and increased $1.6 million, or 145.5%, to $2.7 million for the nine months ended September 30, 2020 from $1.1 million for the nine months ended September 30, 2019, primarily as a result of increased bank borrowings used to fund operations. 34 Table of Contents Change in fair value of financial instrument The increase of $4.4 million in the fair value of financial instrument for the nine months ended September 30, 2020 was the result of a change 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 nine-month periods ended September 30, 2020 and 2019. Provision for income taxes Our provision for income taxes was insignificant in the three and nine-months ended September 30, 2020 and 2019. Liquidity and capital resources We have incurred losses since our inception. Prior to our IPO, our operations have been financed primarily through net proceeds from the sale of convertible preferred stock and borrowings under our debt instruments. As of September 30, 2020, we had an accumulated deficit of $299.2 million, working capital of $160.4 million, $180.0 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 many factors, including our growth rate, levels of revenue, the expansion of sales and marketing activities, market acceptance of our platform, the results of business initiatives, the timing of new product introductions, and the impact of the COVID-19 pandemic on the global economy and our business, financial condition, and results of operations. As the impact of the COVID-19 pandemic on the global economy and our operations evolves, we will continue to assess our liquidity needs. On August 4, 2020, we completed our IPO, in which we issued and sold 7,877,500 shares of our Series 1 common stock, including 1,027,500 shares of Series 1 common stock that were sold pursuant to the exercise in full of the underwriters’ option to purchase additional shares of Series 1 common stock at $24.00 per share. The IPO resulted in net proceeds of $171.1 million after deducting underwriting discounts, commissions and other offering costs. 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. 35 Table of Contents Cash flows The following table sets forth a summary of our cash flows for the periods indicated. Three months ended September 30, Nine months ended September 30, 2020 2019 2020 2019 (in thousands) Net cash used in operating activities $ (6,206 ) $ (9,953 ) $ (23,200 ) $ (31,110 ) Net cash (used in) provided by investing activities $ (333 ) $ (1,257 ) $ (1,378 ) $ 18,124 Net cash provided by financing activities $ 160,007 $ 4,701 $ 195,407 $ 7,524 Net increase (decrease) in cash, cash equivalents and restricted cash $ 153,468 $ (6,509 ) $ 170,829 $ (5,462 ) As of September 30, 2020, we had $180.0 million in cash, cash equivalents, and restricted cash, an increase of $171.6 million compared to $8.4 million as of September 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 September 30, 2020 and 2019 was $6.2 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 nine months ended September 30, 2020 and 2019 was $23.2 million and $31.1 million, respectively. This consisted primarily of our net losses adjusted for certain non-cash items including depreciation and amortization, stock-based compensation, debt discount amortization, bad debt expense, and the effect of changes in working capital. Investing activities Net cash used in investing activities during the three months ended September 30, 2020 and 2019 was $0.3 million and $1.3 million, respectively. It consisted primarily of purchases of property and equipment of $0.3 million and $1.3 million for 2020 and 2019, respectively. Net cash used in investing activities during the nine months ended September 30, 2020 was $1.4 million. It consisted primarily of purchases of property and equipment of $1.4 million. Net cash provided by investing activities during the nine months ended September 30, 2019 was $18.1 million. It consisted primarily of purchases of property and equipment of $5.4 million , offset by proceeds from the maturities and sale of marketable securities of $23.5 million. Financing activities Net cash provided by financing activities during the three months ended September 30, 2020 and 2019 was $160.0 million and $4.7 million, respectively. In the three months ended September 30, 2020, the issuance of common stock upon initial public offering, net of underwriting discounts, commissions and other offering costs provided $171.1 million. Proceeds from the issuance of shares of Series 1 common stock pursuant to the exercise of stock options and from debt and line of credit provided $1.0 million and $1.1 million, respectively. This was partially offset by the payment of dividends and repayment of debt amounting to $12.8 million and $0.5 million, respectively. In the three months ended September 30, 2019, bank borrowings and proceeds from the issuance of shares of Series 1 common stock pursuant to the exercise of stock options provided $4.9 million and $0.3 million, respectively, which was partially offset by debt repayments of $0.5 million. Net cash provided by financing activities during the nine months ended September 30, 2020 and 2019 was $195.4 million and $7.5 million, respectively. In the nine months ended September 30, 2020, initial public offering proceeds, net of offering costs, provided $171.1 million, bank borrowings provided $41.9 million and issuance of shares of Series 1 common stock pursuant to the exercise of stock options provided $1.9 million, which was partially offset by the payment of dividends and repayment of debt for $12.8 million and $6.7 million, respectively. In the nine months ended September 30, 2019, bank borrowings provided $8.5 million, and 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 $1.5 million. 36 Table of Contents Indebtedness Credit facility On October 27, 2017, we entered into our Credit Facility with SVB, which we subsequently amended in August 2018 and June 2019. The Credit Facility provided a $25.0 million revolving line of credit with a maturity date of October 27, 2021 (the “Revolving Line”), a $5.0 million term loan with a maturity date of September 1, 2021 (the “2018 Term Loan”), and an undrawn $5.0 million term loan. In February 2020, we entered into the A&R Credit Facility, which amended and restated the Credit Facility. Among other amendments, the A&R Credit Facility reduced the amount available under the Revolving Line by $5.0 million to $20.0 million, effective concurrent with the funding of the 2020 Convertible Term Loan. We entered into a first amendment to the A&R Credit Facility on Septem ber 29, 2020, which delayed the planned decrease in the Revolving Line to $10.0 million until December 31, 2020. As of September 30, 2020, we had $20.0 million outstanding under the Revolving Line and $1.9 million outstanding under the 2018 Term Loan, respectively. We were in compliance with all A&R Credit Facility covenants as of September 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 in cur additional indebtedness, 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 3.7% and 5.3% for the Revolving Line for the nine months ended September 30, 2020, and the year ended December 31, 2019, respectively. The weighted-average interest rate was 4.3% and 5.3% for the 2018 Term Loan, for the nine months ended September 30, 2020, and the year ended December 31, 2019, 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. 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 expired 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 September 30, 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. We formally terminated the Mezzanine Facility effective as of November 6, 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, (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 September 30, 2020. Payments Due by Period Total Less than 1 year 1 – 3 Years 3 – 5 Years More than 5 years (in thousands) Long term debt obligations $ 21,901 $ 11,901 $ 10,000 $ — $ — Lease obligations 19,519 959 6,941 4,685 6,934 Purchase obligations 8,387 175 8,212 — — Total contractual obligations $ 49,807 $ 13,035 $ 25,153 $ 4,685 $ 6,934 37 Table of Contents Off-balance sheet arrangements We did not have any off-balance sheet arrangements as of September 30, 2020 or December 31, 2019. 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 Analysis 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. 38 Table of Contents Item 3. Quantitative and Qualitati ve Disclosures About Market Risk. Interest rate risk Our cash, cash equivalents, restricted cash, and marketable securities consist primarily of interest-bearing accounts. Such interest-earning instruments carry a degree of interest rate risk. To minimize interest rate risk in the future, we intend to maintain our portfolio of cash equivalents in a variety of investment-grade securities, which may include commercial paper, money market funds, and government and non-government debt securities. Because of the short-term maturities of our cash, cash equivalents, restricted cash, and marketable securities, we do not believe that an increase in market rates would have any significant negative impact on the realized value of our investments. As of September 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 September 30, 2020, we had borrowings of $20.0 million outstanding under the Revolving Line, and $1.9 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 September 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. Foreign currency exchange risk All of our revenue and a majority of our expense and capital purchasing activities are transacted in U.S. dollars. As we expand our sales and operations internationally, we will be more exposed to changes in foreign exchange rates. Our international revenue is currently collected in U.S. dollars. In the future, as we expand into additional international jurisdictions, we expect that our international sales will be primarily denominated in U.S. dollars. If we decide in the future to denominate international sales in currencies other than the U.S. dollar, unfavorable movement in the exchange rates between the U.S. dollar and the currencies in which we conduct foreign sales could have an adverse impact on our revenue. A portion of our operating expenses are incurred outside the United States and are denominated in foreign currencies, which are subject to fluctuations due to changes in foreign currency exchange rates. In particular, in our Australia and UK-based operations, we pay payroll and other expenses in Australian dollars and British pounds sterling, respectively. Our operating results and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates. However, we believe that the exposure to foreign currency fluctuation from operating expenses is relatively small at this time as the related costs do not constitute a significant portion of our total expenses. We currently do not hedge foreign currency exposure. We may in the future hedge our foreign currency exposure and may use currency forward contracts, currency options, and/or other common derivative financial instruments to reduce foreign currency risk. It is difficult to predict the effect future hedging activities would have on our operating results. Credit risk Financial instruments that potentially subject us to concentrations of credit risk consist of cash and cash equivalents, marketable securities, restricted cash, and accounts receivable. Our investment policy limits investments to high credit quality securities issued by the U.S. government, U.S. government-sponsored agencies, and highly rated corporate securities, subject to certain concentration limits and restrictions on maturities. Our cash and cash equivalents and restricted cash are held by financial institutions that management believes are of high credit quality. Amounts on deposit may at times exceed FDIC insured limits. We have not experienced any losses on our deposits of cash and cash equivalents, and accounts are monitored by management to mitigate risk. We are exposed to credit risk in the event of default by the financial institutions holding our cash and cash equivalents or an event of default by the issuers of the corporate debt securities we hold. Emerging growth company status We are an emerging growth company, as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act, until those standards apply to private companies. We have not elected to use this extended transition period for complying with new or revised accounting standards. We will remain an emerging growth company until the earliest of: (1) the end of the fiscal year in which the fifth anniversary of the closing of this offering occurs, (2) the first fiscal year after our annual gross revenue exceed $1.07 billion, (3) the date on which we have, during the immediately preceding three-year period, issued more than $1.0 billion in non-convertible debt securities, and (4) the 39 Table of Contents 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.