What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-05-12 compared with 2020-11-06 · 111 added, 242 removed, 273 unchanged (56% of the section changed)

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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 allow merchants to build their ecommerce solution their way with the freedom of choice that makes the most sense for their unique business and product offerings.

We power both our customers’ branded ecommerce stores and their cross-channel connections to popular online marketplaces, social networks, and offline POS systems.

As of September 30, 2020, we served approximately 60,000 online stores across industries in approximately 150 countries.

As of March 31, 2021, we served approximately 59,000 online stores across industries in approximately 153 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.

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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.

Our customers include Avery Dennison, Ben & Jerry’s, Burrow, SC Johnson, SkullCandy, and Sony.

We offer access to our platform on a subscription basis.

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Standard, Plus, and Pro, priced at $29.95, $79.95, and $299.95 per month, respectively.

Since our founding, we have achieved several key milestones and implemented important strategic initiatives that impact our business today.

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

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

Headquarters relocate to Austin, Texas.

We raise private capital in a series of investment rounds to fund growth from investors including General Catalyst, Revolution Growth, and Softbank.

Brent Bellm joins as president and chief executive officer.

New executive team expands focus to mid-market and large enterprise customer segments, investing significantly in research and development over the subsequent five-year period.

BigCommerce raises additional rounds of private capital from investors including GGV Capital and Goldman Sachs.

Using an “open SaaS” strategy, we expand our ecosystem of technology and service partners that offer complementary capabilities such as payments, shipping, marketing, and accounting.

ARR surpasses $100 million.

BigCommerce expands go-to-market teams in Europe and Australia, launches a presence in Asia, and scales engineering capacity in Kyiv, Ukraine.

We reach approximately 60,000 stores.

Our “headless” commerce capabilities gain traction across a wide range of leading CMSs and progressive web application frameworks.

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

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.

Our Essentials plans include GMV thresholds with programmatic upgrades built in as merchants exceed each plan’s threshold.

Partners are essential to our open strategy.

We believe we possess one of the deepest and broadest ecosystems of integrated technology solutions in the ecommerce industry.

We strategically partner with, rather than compete against, the leading providers in adjacent categories, including payments, shipping, POS, CMS, CRM, and ERP.

We focus our research and development investments in our core product to create a best-of-breed ecommerce platform and co-market and co-sell with our strategic technology partners to enhance the breadth of the product offering to our customers.

As a result, we earn high-margin revenue share from a subset of our strategic technology partners, which complements the high gross margin of our core ecommerce platform.

Our business has achieved significant growth since our inception.

We had total revenues of $152.4 million, $112.1 million and $91.9 million in 2020, 2019 and 2018, respectively.

We plan to continue to invest in our “Open SaaS” strategy, building new partnerships and continuing to develop a platform that offers best-of-breed functionality with the cost-effectiveness of multi-tenant SaaS.

As we work to develop and deliver this platform for our customers, we will also invest and grow our business by acquiring additional customers to our platform, growing our revenue with existing customers, and expanding our presence in new segments and geographies.

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 year ended December 31, 2020.

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.

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

Our 2017 and 2020 Term Loans converted to Series 1 Common Stock in connection with the IPO, resulting in a $53.9 million reduction of our outstanding long-term debt.

On November 12, 2020, we completed our Secondary Offering, in which we issued and sold 1,000,000 shares of our Series 1 common stock at $68.00 per share.

The Secondary Offering resulted in net proceeds of $65.1 million after deducting underwriting discounts, commissions and other offering costs.

Existing stockholders sold an additional 4,750,000 shares of Series 1 common stock,

including 750,000 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 $68.00 per share.

We did not receive any proceeds from the sale of shares by the selling stockholders in the Secondary Offering.

Additionally, upon completion of the Secondary Offering, we fully repaid approximately $22 million of our outstanding indebtedness under our Credit Facility.

Key factors affecting our performance

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Pre-built integrations connect our platform with leading CMSs such as Acquia, Adobe, Bloomreach, Drupal, Sitecore, and WordPress.

As of December 31, 2019, approximately 10% of our customers use BigCommerce primarily for B2B sales.

As of March 31, 2021, approximately 7.3% 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.

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We calculate CAC as total sales and marketing expense incurred during the associated preceding four quarters.

In 2020, new SMB, Mid-Market and Enterprise customers were added at an estimated LTV to CAC ratio of 4.9:1, up from 4.4:1 in 2019.

Retention and growth of our existing customers

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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 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.

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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.

We enhance usability in new geographies by translating our control panel into local languages and enabling the integration of local payment processors and other local partnerships.

We support the growth of mid-market and large enterprise 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 and 2020, resulting in a 68% and 20% revenue growth rate in EMEA for the years ended December 31, 2020 and 2019, respectively.

Similarly, we expanded our existing sales and marketing team in Sydney, Australia, resulting in a 38% and 28% revenue growth rate in APAC for the years ended December 31, 2020 and 2019, respectively.

2020 brought marked advancements in our international expansion strategy through the launch of new country-specific websites in France, Italy, the Netherlands, and more recently in Mexico, Germany and Spain.

We continue to invest in our global presence and in offering native language web experiences that further strengthen our ability to connect more directly with prospects and customers in each region.

Evolution of our technology partner ecosystem

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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.

Our partners currently offer more than 900 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.

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.

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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.

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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.

(1) contractual monthly recurring revenue at the end of the period, which includes platform subscription fees, invoiced growth adjustments, recurring professional services revenue, and other recurring revenue, multiplied by twelve to prospectively annualize recurring revenue, and (2) the sum of the trailing twelve-month non-recurring and variable revenue, which includes one-time partner integrations, one-time fees, payments revenue share, and any other revenue that is non-recurring and variable.

Accounts with greater than $2,000 ACV

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(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 calculate average revenue per account (“ARPA”) at the end of a period by including customer-billed revenue and an allocation of partner and services revenue.

We bill customers for subscription solutions and professional services, and we include both in ARPA for the reported period.

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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.

Enterprise Account metrics

To measure the effectiveness of our ability to execute against our growth strategy, particularly within the mid-market and enterprise business segments, we calculate ARR attributable to Enterprise Accounts.

We define Enterprise Accounts as 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.

The chart below illustrates certain of our key business metrics as of the periods ended:

September 30,

Total ARR (in thousands)

Accounts with ACV greater than

% of Total ARR attributable to accounts

with ACV greater than $2,000

ARPA attributable to accounts with

ACV greater than $2,000

ARR Attributable to Enterprise Accounts (in thousands)

% of Total ARR attributable to Enterprise Accounts

Net revenue retention

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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.

NRR for accounts with ACV greater than $2,000 was 113% and 106% for the years ended December 31, 2020 and 2019, respectively.

We update our reported NRR at the end of each fiscal year and do not report quarterly changes in NRR.

The chart below illustrates certain of our key business metrics as of or for the three months ended for each of the dates presented, as applicable.

September 30,

ARR (in thousands)

Accounts with ACV greater than

% of ARR attributable to accounts

with ACV greater than $2,000

ARPA attributable to accounts with

ACV greater than $2,000

Enterprise accounts

In addition to tracking our key business metrics identified above, we periodically measure ARR for accounts with at least one unique Enterprise plan subscription (“enterprise accounts”).

These accounts may have more than one Enterprise plan or a combination of Enterprise plans and Essentials plans.

Enterprise account ARR grew 44% to $66.7 million in 2019 and represented 52% of ARR as of December 31, 2019.

As of 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

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We plan to increase our investment in sales and marketing by hiring additional sales and marketing personnel, executing our go-to-market strategy globally, and building our brand awareness.

Incremental sales commissions for new customer contracts are deferred and amortized ratably over the estimated

period of our relationship with such customers.

Incremental sales commissions for new customer contracts are deferred and amortized ratably over the estimated period of our relationship with such customers.

No incremental sales commissions are incurred on renewals of customer contracts.

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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 expect our research and development expenses t o 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.

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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.

Provision for income taxes consists primarily of current income taxes related to certain foreign and state jurisdictions in which we conduct business.

federal income tax purposes and in certain foreign and state jurisdictions, we have NOL carryforwards.

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The following table sets forth our results of operations for the periods presented:

Three months ended September 30,

Nine months ended September 30,

Three months ended March 31,

(in thousands)

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Provision for income taxes

Includes stock-based compensation expense as follows:

Three months ended September 30,

Nine months ended September 30,

Includes stock-based compensation as follows:

Three months ended March 31,

(in thousands)

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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,

Nine Months Ended September 30,

(dollars in thousands)

The composition of our revenue by geographic region during the three months ended March 31, 2021 and 2020 were as follows:

Three months ended March 31,

(dollars in thousands)

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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,

Three months ended March 31,

Adjusted EBITDA

As of September 30,

As of March 31,

As of December 31,

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Total liabilities

Convertible preferred stock

Total stockholders' (deficit) equity

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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.

We define Adjusted EBITDA as our net loss, excluding the impact of stock-based compensation expense and related payroll tax 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.

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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 stock-based compensation expense and payroll tax associated with 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;

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Reconciliation of net loss to Adjusted EBITDA

Three months ended September 30,

Nine months ended September 30,

Depreciation and

Three months ended March 31,

Stock-based compensation expense

Payroll tax associated with stock-based compensation expense

Depreciation and amortization

Interest income

Interest expense

Change in fair value of

financial instrument

Provision for income

Change in fair value of financial instrument

Provision for income taxes

Adjusted EBITDA

Comparison of the three and nine months ended September 30, 2020 and September 30, 2019

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,

Nine months ended September 30,

Comparison of the three months ended March 31, 2021 and March 31, 2020

Three months ended March 31,

(dollars in thousands)

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Total revenue

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

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.

Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020.

Revenue increased $13.5 million, or 40.7%, to $46.7 million for the three months ended March 31, 2021 from $33.2 million for the three months ended March 31, 2020, as a result of increases in both subscription solutions and partner and services revenue.

Subscription solutions revenue increased $8.4 million, or 35.9%, to $32.0 million for the three months ended March 31, 2021 from $23.6 million for the three months ended March 31, 2020, primarily due to growth in subscription sales.

Partner and services revenue increased $5.0 million, or 52.3%, to $14.7 million for the three months ended March 31, 2021 from $9.6 million for the three months ended March 31, 2020, 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,

Nine months ended September 30,

Three months ended March 31,

(dollars in thousands)

Cost of revenue

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.

Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020.

Cost of revenue increased $1.8 million, or 23.7%, to $9.3 million for the three months March 31, 2021 from $7.5 million for the three months ended March 31, 2020, primarily as a result of higher hosting costs resulting from increased transactions processed of $0.3 million and higher personnel costs, including stock-based compensation expense amounting to $1.5 million.

Gross margin increased to 80.2% during the three months ended March 31, 2021 from 77.5% during the three months ended March 31, 2020.

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,

Nine months ended September 30,

Three months ended March 31,

(dollars in thousands)

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Percentage of revenue

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.

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.

Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020.

Sales and marketing expenses increased $5.0 million, or 32.0%, to $20.8 million for the three months ended March 31, 2021 from $15.8 million for the three months ended March 31, 2020, primarily due to higher staffing costs, including stock-based compensation expense and other employee related costs of $3.9 million and higher variable marketing costs of $0.9 million.

As a percentage of total revenue, sales and marketing expenses decreased to 44.6% during the three months ended March 31, 2021 from 47.5% during the three months ended March 31, 2020, 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,

Nine months ended September 30,

Three months ended March 31,

(dollars in thousands)

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Percentage of revenue

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.

Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020.

Research and development expenses increased $2.6 million, or 23.9%, to $13.5 million for the three months ended March 31, 2021 from $10.9 million for the three months ended March 31, 2020, primarily due to higher staffing costs of $1.8 million and higher variable spend of $0.5 million 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.

We continue to see increased leverage resulting from the expansion of our engineering center in Kyiv, Ukraine.

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,

Nine months ended September 30,

Three months ended March 31,

(dollars in thousands)

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Percentage of revenue

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.

Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020.

General and administrative expenses increased $5.1 million, or 79.5%, to $11.6 million for the three months ended March 31, 2021 from $6.5 million for the three months ended March 31, 2020.

The increase was primarily due to increased staffing costs of $2.9 million and fees associated with operating as a public company of $2.5 million.

Interest income

Interest income was insignificant for the three and nine-month periods ended September 30, 2020 and 2019.

Interest income was insignificant for the three-month periods ended March 31, 2021 and 2020.

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.

Interest expense was insignificant for the three-month period March 31, 2021 and was $0.8 million for the three months ended March 31, 2020, primarily as a result of our reliance on debt financing prior to our IPO.

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.

Change in the fair value of financial instrument was insignificant for the three-month period ended March 31, 2021 and was $4.4 million for the three-month period ended March 31, 2020.

Other expense

Other expense was insignificant for the three and nine-month periods ended September 30, 2020 and 2019.

Other expense was insignificant for the three-month periods ended March 31, 2021 and 2020.

Provision for income taxes

Our provision for income taxes was insignificant in the three and nine-months ended September 30, 2020 and 2019.

Our provision for income taxes was insignificant for the three-month periods ended March 31, 2021 and 2020.

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.

We have incurred losses since our inception and have used the $236.2 million raised in our IPO and secondary offering to fund our operations.

As of March 31, 2021, we had an accumulated deficit of $321.9 million, working capital of $205.3 million, and $190.7 million in cash and cash equivalents and restricted cash.

Our debt facilities either expired, were repaid, or terminated in 2020.

Our short-term liquidity needs primarily include working capital for sales and marketing, research and development, and continued innovation.

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As the impact of the COVID-19 pandemic on the global economy and our operations evolves, we will continue to assess our liquidity needs.

The IPO resulted in net proceeds of $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.

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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,

Three months ended March 31,

(in thousands)

Net cash used in operating activities

Net cash (used in) provided by investing activities

Net cash used in investing activities

Net cash provided by financing activities

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

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.

As of March 31, 2021, we had $190.7 million in cash, cash equivalents, and restricted cash, an increase of $156.6 million compared to $34.1 million as of March 31, 2020.

Cash and cash equivalents consist of highly-liquid investments with original maturities of less than three months.

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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.

Net cash used in operating activities for the three months ended March 31, 2021 and 2020 was $12.8 million and $10.0 million, respectively.

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.

Net cash used in investing activities during the three months ended March 31, 2021 and 2020 was $18.9 million and $0.6 million, respectively.

It consisted primarily of purchases of marketable securities of $18.4 million and property and equipment of $0.5 million for 2021 and purchase of property and equipment of $0.6 million for 2020.

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.

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.

Net cash provided by financing activities during the three months ended March 31, 2021 and 2020 was $1.7 million and $35.5 million, respectively.

In the three months ended March 31, 2021, proceeds from the exercise of stock options provided $1.7 million.

In the three months ended, March 31, 2020 bank borrowings provided $40.7 million, and issuance of shares of Series 1 common stock pursuant to the exercise of stock options provided $0.4 million, partially offset by debt repayments of $5.6 million.

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.

Our principal commitments consist of (1) operating leases for office space, and (2) purchase obligations with certain technology providers used to host our platform.

The following table summarizes our commitments to settle contractual obligations as of March 31, 2021.

Payments Due by Period

(in thousands)

Long term debt obligations

Lease obligations

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Off-balance sheet arrangements

We did not have any off-balance sheet arrangements as of September 30, 2020 or December 31, 2019.

We did not have any off-balance sheet arrangements as of March 31, 2021 or December 31, 2020.

Critical accounting policies and estimates

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A discussion of recent accounting pronouncements is included in Note 2 to our consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Quantitative and Qualitati ve Disclosures About Market Risk.

Interest rate risk

Our cash, cash equivalents, restricted cash, and marketable securities consist primarily of interest-bearing accounts.

Such interest-earning instruments carry a degree of interest rate risk.

To minimize interest rate risk in the future, we intend to maintain our portfolio of cash equivalents in a variety of investment-grade securities, which may include commercial paper, money market funds, and government and non-government debt securities.

Because of the short-term maturities of our cash, cash equivalents, restricted cash, and marketable securities, we do not believe that an increase in market rates would have any significant negative impact on the realized value of our investments.

As of 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.

As we expand our sales and operations internationally, we will be more exposed to changes in foreign exchange rates.

Our international revenue is currently collected in U.S.

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

If we decide in the future to denominate international sales in currencies other than the U.S.

dollar, unfavorable movement in the exchange rates between the U.S.

dollar and the currencies in which we conduct foreign sales could have an adverse impact on our revenue.

A portion of our operating expenses are incurred outside the United States and are denominated in foreign currencies, which are subject to fluctuations due to changes in foreign currency exchange rates.

In particular, in our Australia and UK-based operations, we pay payroll and other expenses in Australian dollars and British pounds sterling, respectively.

Our operating results and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates.

However, we believe that the exposure to foreign currency fluctuation from operating expenses is relatively small at this time as the related costs do not constitute a significant portion of our total expenses.

We currently do not hedge foreign currency exposure.

We may in the future hedge our foreign currency exposure and may use currency forward contracts, currency options, and/or other common derivative financial instruments to reduce foreign currency risk.

It is difficult to predict the effect future hedging activities would have on our operating results.

Financial instruments that potentially subject us to concentrations of credit risk consist of cash and cash equivalents, marketable securities, restricted cash, and accounts receivable.

Our investment policy limits investments to high credit quality securities issued by the U.S.

government, U.S.

government-sponsored agencies, and highly rated corporate securities, subject to certain concentration limits and restrictions on maturities.

Our cash and cash equivalents and restricted cash are held by financial institutions that management believes are of high credit quality.

Amounts on deposit may at times exceed FDIC insured limits.

We have not experienced any losses on our deposits of cash and cash equivalents, and accounts are monitored by management to mitigate risk.

We are exposed to credit risk in the event of default by the financial institutions holding our cash and cash equivalents or an event of default by the issuers of the corporate debt securities we hold.

Emerging growth company status

We are an emerging growth company, as defined in the JOBS Act.

Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act, until those standards apply to private companies.

We have not elected to use this extended transition period for complying with new or revised accounting standards.

We will remain an emerging growth company until the earliest of:

(1) the end of the fiscal year in which the fifth anniversary of the closing of this offering occurs, (2) the first fiscal year after our annual gross revenue exceed $1.07 billion, (3) the date on which we have, during the immediately preceding three-year period, issued more than $1.0 billion in non-convertible debt securities, and (4) the

end of any fiscal year in which the market value of our common stock held by non-affiliates exceeds $700 million as of the end of the second quarter of that fiscal year.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis