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Item 7. Management’s Discussion and Analysis

2022-03-01 compared with 2021-02-26 · 171 added, 184 removed, 311 unchanged (53% of the section changed)

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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 Annual Report on Form 10-K.

In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs.

In addition to historical consolidated financial information, the following discussion contains forward-looking statements that involve risks and uncertainties.

Our actual results could differ materially from those discussed in the forward-looking statements.

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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 allow merchants to build their ecommerce solution their way with the flexibility to fit 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 December 31, 2020, we served approximately 60,000 online stores across industries in approximately 155 countries.

Our strategy is to provide the world’s best combination of freedom of choice and flexibility in a multi-tenant SaaS platform.

We describe this strategy as “Open SaaS.” As of December 31, 2021, we served approximately 60,000 online stores and 12,754 accounts with greater than $2,000 in annual contract value.

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, and Sony.

Our customers include Avery Dennison, Ben & Jerry’s, Molton Brown, Burrow, SC Johnson, SkullCandy, SoloStove and Vodafone.

We offer access to our platform on a subscription basis.

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

Our differentiated Open SaaS technology approach combines the flexibility and customization potential of open source software with the performance, security, usability, and value benefits of multi-tenant SaaS.

This combination helps businesses turn digital transformation into competitive advantage.

While some software conglomerate providers attempt to lock customers into their proprietary suites, we focus on the configurability and flexibility of our open platform, enabling each business to optimize their ecommerce approach based on their specific needs.

Partners are essential to our open strategy.

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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 had total revenues of $219.9 million , $152.4 million and $112.1 million for the years ended December 31, 2021, 2020 and 2019, 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 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 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.

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, cross-selling owned and partner solutions to existing customers, expanding our presence in new segments and geographies, and considering targeted acquisitions that can enhance our service to customers.

On July 23, 2021, we entered into an asset purchase agreement to acquire substantially all the assets and liabilities of Feedonomics LLC.

Purchase consideration consisted of approximately $146.1 million with $81.1 million paid upon closing and up to $65.0 million in two annual installments of up to $32.5 million each to be paid upon each of the first and second anniversaries of closing or upon the earlier achievement of certain milestones.

The anniversary payments may be paid in shares of our Series 1 common stock or cash based on our discretion.

On September 14, 2021, we issued the Convertible Notes in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act.

The initial conversion price of the Convertible Notes represented a premium of approximately 37.5% over the closing price of our common stock on September 9, 2021, the date the Convertible Notes offering was priced.

The net proceeds from the sale of the Convertible Notes were $335.0 million after deducting the offering expenses.

The Convertible Notes will mature on October 1, 2026, unless earlier converted, redeemed or repurchased.

We used $35.6 million of net proceeds from the Convertible Notes offering to enter into separate capped call instruments (“2021 Capped Call Transactions”) with certain financial institutions.

The 2021 Capped Call Transactions effectively limit the premium for conversion of the 2021 Notes to 100% and are generally expected to reduce potential dilution to our stockholders upon any conversion of the Convertible Notes and/or offset any payments we make upon conversion.

Key factors affecting our performance

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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.

B2C ecommerce was nonexistent in the early-1990s and grew from approximately 10% of all global retail spending in 2017 to 18% in 2020, according to eMarketer.

eMarketer estimates that by 2025, retail ecommerce sales will comprise 24% of worldwide total retail sales.

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.

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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.

Omnichannel .

This is the ability for merchants to conduct commerce anywhere shoppers are - online and offline.

This includes shopping through a merchant’s branded ecommerce store or through online marketplaces and social commerce channels such as Google, Meta (Facebook and Instagram), TikTok, Amazon, Walmart, eBay, Wish and Mercado Libre.

Merchants’ product data is made available and may be optimized for these commerce and related advertising channels through BigCommerce and Feedonomics’ product and service offerings.

According to eMarketer, US ecommerce and ad channel spending was approximately $19 billion in 2020, representing 12% of digital ad spending.

This is expected to grow to more than $41 billion and 15% of digital ad spending by 2024.

US retail marketplace ecommerce sales topped $270 billion in 2020, representing 34% of total ecommerce sales.

This is expected to grow to more than $420 billion by 2023.

BigCommerce and Feedonomics enable merchants to improve and optimize omnichannel shopping and advertising, helping bolster their sales growth.

Efficient acquisition of new customers

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

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.

New SMB, Mid-Market and Enterprise customers were added at an estimated LTV to CAC ratio of 4.9:1 for the years ended December 31, 2021 and 2020.

Retention and growth of our existing customers

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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.

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.

We opened our first European office in London, UK in 2018 and expanded it throughout 2021 and 2020, resulting in a 68% revenue growth rate in EMEA for the years ended December 31, 2021 and 2020.

We expanded our existing sales and marketing team in Sydney, Australia, resulting in a 52% and 38% revenue growth rate in APAC for the years ended December 31, 2021 and 2020, respectively.

We advanced our international expansion strategy in 2021 through the launch of new country-specific websites in France, Italy, the Netherlands, and more recently in Mexico, Germany and Spain.

We plan to formally launch in the Nordic countries and South America and expand further in the DACH region in late 2022 as well.

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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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.

By expanding our 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, especially as our revenue mix continues to shift to our enterprise plans.

We believe we will be able to run our business more efficiently as we continue to grow our revenue and gain further operating scale.

While we may see changes in margins from one period to another based on our relative pace of expansion and the associated level of investments required, we believe we will be able to run our business more efficiently as we continue to grow our revenue and gain further operating leverage as we scale.

Duration and durability of COVID-19’s impact on partner and services revenue

Ecommerce sales in our major markets have increased significantly due to the widespread closure of physical stores and behavioral changes associated with social distancing.

Ecommerce sales in our major markets have increased significantly due to the impact on 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.

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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.

While we believe we are well-positioned to continue to benefit from the macro-economic shift to ecommerce that COVID-19 has accelerated, the impact of COVID-19 on our business, including with respect to customer demand, is becoming more difficult to isolate or quantify.

It is not possible to determine the duration and scope of the pandemic, the scale and rate of economic recovery from the pandemic, any ongoing effects on consumer demand and spending patterns, supply chain disruptions, and labor availability and costs, or the impact of other indirect factors that may be attributable to the pandemic, and the extent to which these or other currently unanticipated consequences of the pandemic are reasonably likely to materially affect our results of operations.

Key business metrics

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Increases or decreases in our key business metrics may not correspond with increases or decreases in our revenue.

We have included the activity of Feedonomics in our key business metrics from the acquisition date of July 23, 2021 through December 31, 2021.

Our key business metrics, such as annual revenue run-rate, average revenue per account and others are calculated as of the end of the last month of the reporting period.

We have excluded any activity pertaining to Feedonomics from our key business metrics for all periods presented that precede its acquisition.

As a result, year over year or quarter over quarter metrics will not include Feedonomics’ impact in the base period.

Period over period results will be fully comparable after the one-year anniversary of the acquisition.

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.

(1) contractual monthly recurring revenue at the end of the period, which includes platform subscription fees, invoiced growth adjustments, product feed management subscription fees, 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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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.

We consider all stores and brands added and subtracted as of the end of the monthly billing period.

This metric includes accounts that may have either one single store or brand above the ACV threshold or multiple stores or brands that together exceed the ACV threshold.

Average revenue per account

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 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, where applicable.

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, 2021 includes all subscription solutions and professional services billed between January 1, 2021 and March 31, 2021.

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 season ality .

We allocate partner revenue, where applicable, primarily based on each customer’s share of GMV processed through that partner’s solution.

Partner revenue that is not directly linked to customer usage of a partner’s solution is allocated based on each customer’s share of total platform GMV.

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”).

We define Enterprise Accounts as accounts with at least one unique Enterprise plan subscription or an enterprise level feed management subscription (collectively “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 years ended December 31, 2020, 2019 and 2018.

The chart below illustrates certain of our key business metrics as of the period ended.

Total ARR (in thousands)

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% of Total ARR attributable to accounts with ACV greater

ARR attributable to accounts with ACV greater than $2,000 (in thousands)

ARPA attributable to accounts with ACV greater

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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.

The total billings and allocated partner revenue, where applicable, for the measured period are divided by the total billings and allocated partner revenue for such accounts, corresponding to the period one year prior.

An NRR greater than 100% implies positive net revenue retention.

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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.

Net new accounts added after the previous one-year period are excluded from our NRR calculations.

NRR for accounts with ACV greater than $2,000 was 116% and 113% for the years ended December 31, 2021 and 2020, respectively.

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Components of results of operations

We generate revenue from two sources:

W e generate revenue from two sources:

(1) subscription solutions revenue and (2) partner and services revenue.

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Fixed monthly fees and any transaction charges related to subscription solutions are recognized as revenue in the month they are earned.

Subsequent to our acquisition of Feedonomics on July 23, 2021, subscription revenue also includes revenue from Feedonomics.

Through Feedonomics, BigCommerce provides feed management solutions under service contracts which are generally one year or less and, in many cases, month-to-month.

These service types may be sold stand-alone or as part of a multi-service bundle (e.g.

both marketplaces and advertising) and are billed monthly in arrears.

We generate partner revenue from our technology application ecosystem.

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(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.

We expect that cost of revenue will increase in absolute dollars, but may fluctuate as a percentage of total revenue from period to period as our mix between business lines change and we build out additional localized support as we expand internationally.

With our acquisition of Feedonomics on July 23, 2021, cost of revenue also includes personnel and other costs related to feed management along with other customer support personnel.

Sales and marketing

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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 expense research and development expenses as incurred.

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(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.

We incur additional general and administrative expenses as a result of operating as a public company and have increased the size of our general and administrative functions to support the growth of our business.

As a result, we expect that general and administrative expenses will increase in absolute dollars but may fluctuate as a percentage of total revenue from period to period.

Acquisition related expenses

Acquisition related expenses consists primarily of cash payments for third-party acquisition costs and other acquisition related expenses, including contingent compensation arrangements entered into in connection with acquisitions.

Amortization of intangible assets

Amortization of intangible assets consist of non-cash amortization of acquired intangible assets which were recognized as a result of business combinations and are being amortized over their expected useful life.

Other expenses, net

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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 deferred income taxes associated with amortization of tax deductible goodwill and 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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General and administrative (1)

Acquisition related expenses

Amortization of intangible assets

Total operating expenses

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Total revenue

Revenue increased $67.5 million, or 44.3%, to $219.9 million for the year ended December 31, 2021 from $152.4 million for the year ended December 31, 2020, as a result of increases in both subscription solutions and partner and services revenue as well as revenue pertaining to the acquisition of Feedonomics.

Subscription solutions revenue increased $51.2 million, or 49.4%, to $154.9 million for the year ended December 31, 2021 from $103.7 million for the year ended December 31, 2020, primarily due to the increase in mid-market and large enterprise customers and our international expansion efforts.

Feedonomics contributed $14.4 million in subscription revenue for the year ended December 31, 2021.

Partner and services revenue increased $16.3 million, or 33.4%, to $65.0 million for the year ended December 31, 2021 from $48.7 million for the year ended December 31, 2020, primarily as a result of increases in revenue-sharing activity with our technology partners and improved monetization of partner revenue share.

Revenue increased $40.3 million, or 35.9%, to $152.4 million for the year ended December 31, 2020 from $112.1 million for the year ended December 31, 2019, as a result of increases in both subscription solutions and partner and services revenue.

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Partner and services revenue increased $19.2 million, or 65.4%, to $48.7 million for the year ended December 31, 2020 from $29.4 million for the year ended December 31, 2019, primarily as a result of increases in revenue-sharing activity with our technology partners and improved monetization of partner revenue share.

Revenue increased $20.2 million, or 22%, to $112.1 million in 2019 from $91.9 million in 2018, as a result of increases in both subscription solutions and partner and services revenue.

Subscription solutions revenue increased $12.2 million, or 17.3%, to $82.7 million in 2019 from $70.5 million in 2018, primarily due to the increase in mid-market and large enterprise customers and our international expansion efforts.

Partner and services revenue increased $8.0 million, or 37.6%, to $29.4 million in 2019 from $21.4 million in 2018, primarily as a result of increases in revenue-sharing activity with our technology partners.

Cost of revenue, gross profit, and gross margin

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Cost of revenue

Cost of revenue increased $14.4 million, or 42.1%, to $48.5 million for the year ended December 31, 2021 from $34.1 million for the year ended December 31, 2020, primarily as a result of higher hosting costs of $1.6 million as a result of increased transactions processed and increases in personnel-related costs of $7.2 million, including stock-based compensation expense, for personnel involved in providing customer support and professional services and Feedonomics related expenses of $5.5 million.

Gross margin increased to 77.9% during 2021 from 77.6% during 2020.

Cost of revenue increased $7.1 million, or 26.3%, to $34.1 million for the year ended December 31, 2020 from $27.0 million for the year ended December 31, 2019, primarily as a result of higher hosting costs of $2.4 million as a result of increased transactions processed and higher personnel costs of $4.5 million, including stock-based compensation expense.

Gross margin increased to 77.6% during the year ended December 31, 2020 from 75.9% during the year ended December 31, 2019.

Cost of revenue increased $5.1 million, or 23.2%, to $27.0 million in 2019 from $21.9 million in 2018, primarily as a result of higher hosting costs of $1.3 million as a result of increased transactions processed and increases in personnel-related costs of $3.6 million, including stock-based compensation expense, for personnel involved in providing customer support and professional services.

Headcount for such personnel as of December 31, 2019 was 180 compared to 145 as of December 31, 2018.

Gross margin decreased to 75.9% during 2019 from 76.1% during 2018.

Operating expenses

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Percentage of revenue

Sales and marketing expenses increased $26.9 million, or 37.1%, to $99.4 million for the year ended December 31, 2021 from $72.5 million for the year ended December 31, 2020, primarily due to an increase of $12.9 million in personnel-related costs, including stock-based compensation expense, for personnel engaged in acquiring new customers and marketing our products and services.

The increase was also attributable to $10.1 million in additional marketing spend to support revenue growth coupled with $3.3 million in sales and marketing spending attributable to the acquisition of Feedonomics.

Sales and marketing expenses increased $11.7 million, or 19.3%, to $72.5 million for the year ended December 31, 2020 from $60.7 million for the year ended December 31, 2019, primarily due to higher staffing costs of $13.7 million, including stock-based compensation expense and bonuses, offset by a reduction in travel and marketing related expenditures of $2.4 million due to shifts in event timing due to the COVID-19 pandemic.

As a percentage of total revenue, sales and marketing expenses decreased to 47.6% during the year ended December 31, 2020 from 54.2% during the year ended December 31, 2019, primarily due to increased operating leverage from revenue growth.

Sales and marketing expenses increased $14.8 million, or 32.3%, to $60.7 million in 2019 from $45.9 million in 2018, primarily due to an increase of $11.1 million in personnel-related costs, including stock-based compensation expense, for personnel engaged in acquiring new customers and marketing our products and services.

Total sales and marketing headcount as of December 31, 2019 was 181 compared to 155 as of December 31, 2018.

The increase was also attributed to a $3.3 million increase in marketing program spend to continue the promotion of our products and services globally.

As a percentage of total revenue, sales and marketing expenses increased to 54.2% during 2019 from 50.0% during 2018, primarily due to investments in sales and marketing teams in London, UK and Sydney, Australia.

Research and development

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Percentage of revenue

Research and development expenses increased $5.2 million, or 12.1%, to $48.3 million for the year ended December 31, 2020 from $43.1 million for the year ended December 31, 2019, primarily due to higher staffing costs of $5.4 million including stock-based compensation and bonuses, however 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.

Research and development expenses were relatively unchanged in absolute dollars for the year ended December 31, 2019 compared to December 31, 2018, however declined as a percentage of revenue, which is reflective of our efforts to leverage the 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, further driving leverage in research and development spend as a percentage of revenue.

Total research and development headcount as of December 31, 2019 was 190 compared to 191 as of December 31, 2018.

Research and development expenses increased $16.2 million, or 33.5%, to $64.5 million for the year ended December 31, 2021 from $48.3 million for the year ended December 31, 2020, primarily due to higher staffing costs of $9.2 million, including stock-based compensation and bonuses, additional spend to support engineering projects of $2.6 million, and expenses related to the acquisition of Feedonomics of $4.1 million;

however, these expenses declined as a percentage of revenue.

General and administrative

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General and administrative expenses increased $20.7 million, or 57.3%, to $56.8 million for the year ended December 31, 2021 from $36.1 million for the year ended December 31, 2020.

The increase was primarily due to an increase of $10.5 million in personnel-related expense, including stock-based compensation expense, fees associated with operating as a public company of $6.0 million, equipment related costs for personnel of $2.2 million and expenses related to the acquisition of Feedonomics of $1.4 million.

General and administrative expenses increased $13.9 million, or 62.7%, to $36.1 million for the year ended December 31, 2020 from $22.2 million for the year ended December 31, 2019.

The increase was primarily due to increased staffing costs of $11.0 million, including stock-based compensation expense and bonuses, and additional public company compliance costs including, but not limited to director and officer insurance amounting to $2.3 million.

General and administrative expenses increased $2.7 million, or 13.9%, to $22.2 million in 2019 from $19.5 million in 2018.

The increase was primarily due to an increase of $2.4 million in personnel-related expense, including stock-based compensation expense, resulting from the hiring of

additional general and administrative personnel.

Total general and administrative headcount as of December 31, 2019 was 139 compared to 111 as of December 31, 2018.

Acquisition related expenses

Acquisition related expense was $23.3 million for the year ended December 31, 2021 primarily as a result of acquisition related compensation in conjunction with our business combination.

Interest income

Interest income was insignificant for the years ended December 31, 2021 and 2020.

Interest income decreased $0.4 million, or 62.5%, to $0.2 million in 2019 from $0.7 million in 2018, primarily as a result of lower balances in marketable securities.

Interest expense

Interest expense decreased $2.3 million, or 73.3%, to $0.8 million for the year ended December 31, 2021 from $3.1 million for year ended December 31, 2020, primarily as a result of paying down our lines of credit.

Interest expense increased $1.5 million, or 92.5%, to $3.1 million for the year ended December 31, 2020 from $1.6 million for year ended December 31, 2019, primarily as a result of increased bank borrowings used to fund operations.

Interest expense increased $0.1 million, or 8.3%, to $1.6 million in 2019 from $1.5 million in 2018, primarily as a result of increased bank borrowings used to fund operations.

Change in fair value of financial instrument

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Other expense was insignificant in the years ended December 31, 2021, 2020 and 2019.

Other expense was insignificant in the years ended December 31, 2019 and 2018.

Provision for income taxes

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Liquidity and capital resources

We have incurred losses since our inception.

Prior to our IPO, our operations were financed primarily through net proceeds from the sale of convertible preferred stock and borrowings under our debt instruments.

As of December 31, 2020, we had an accumulated deficit of $313.4 million, working capital of $208.2 million and $220.6 million in cash and cash equivalents and restricted cash.

Additionally, in December 2020 we fully repaid all outstanding borrowings under our debt facilities and terminated 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 incurred losses since our inception and anticipate continuing to generate negative operating cash flow, however we believe we have sufficient cash and cash equivalents and marketable securities to continue to fund operations.

During the year ended December 31, 2021, we issued approximately $335.0 million in convertible debt, net of offering costs and used $35.6 million of the proceeds to enter into capped call transactions.

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

Additionally, $81.1 million of cash was used to pay for our acquisition of Feedonomics on July 23, 2021.

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.

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.

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.

We believe that our exi sting cash and cash equivalents and our cash flows from operating activi ties will be sufficient to meet our working capital and capital expenditure ne eds 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.

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 continued impact of the COVID-19 pandemic on the global economy and our business, financial condition, and results of operations.

We believe that our existing cash and cash equivalents and our cash flows from operating activities will be sufficient to meet our working capital and capital expenditure needs 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 financin g.

In particular, our acquisition of Feedonomics also requires up to $65.0 million in two annual installments of up to $32.5 million each, within ten business days after the first and second anniversary dates of the acquisition, or the earlier achievement of certain product and financial milestones.

We may elect, in our sole discretion, to make these post-closing payments partially or entirely in cash or shares of BigCommerce Series 1 common stock.

If we choose to issue stock to settle these payments, we will be required to register these shares with the Securities and Exchang e Commission .

The sale of additional equity would be dilutive to our stockholders.

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Net cash provided by financing activities

As of December 31, 2020, we had $220.6 million in cash, cash equivalents, and restricted cash, an increase of $211.4 million compared to $9.2 million in 2019.

As of December 31, 2021, we had $401.0 million in cash, cash equivalents, restricted cash, and marketable securities, an increase of $180.4 million compared to $220.6 million for the year ended December 31, 2020.

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.

Our restricted cash balance of $1.1 million and $1.2 million at December 31, 2021 and December 31, 2020, respectively, consists of security deposits for future chargebacks and amounts on deposit with certain financial institutions.

Our marketable securities balance of $102.3 million at December 31, 2021, consists of investments in debt securities.

There were no marketable securities at December 31, 2020.

We maintain cash account balances in excess of FDIC-insured limits.

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Net cash used in investing activities during the year ended December 31, 2021 was $186.9 million.

It consisted primarily of the cash paid for an acquisition of $81.1 million, the purchases of marketable securities of $107.0 million and the purchases of property and equipment of $3.3 million, partially offset by the maturity of marketable securities of $4.5 million.

Net cash used in investing activities during the year ended December 31, 2020 was $2.0 million.

It consisted primarily of purchases of property and equipment of $2.0 million.

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It consisted primarily of proceeds from the sale and maturity of marketable securities of $23.5 million, partially offset by purchases of property and equipment of $5.6 million.

Net cash used in investing activities during the year ended December 31, 2018 was $26.5 million.

It consisted primarily of purchases of marketable securities of $33.6 million and purchases of property and equipment of $3.3 million, partially offset by proceeds from the maturities and sale of marketable securities of $10.4 million.

Financing activities

Net cash provided by financing activities during the year ended December 31, 2021 was $305.3 million.

In the year ended December 31, 2021, $345.0 million was provided by the issuance of the Convertible Notes and the issuance of shares of Series 1 common stock pursuant to the exercise of stock options provided $5.9 million, partially offset by the purchase of capped calls of $35.6 million and the payment of debt issuance costs of $10.0 million.

Net cash provided by financing activities during the year ended December 31, 2020 was $240.0 million.

In the year ended December 31, 2020, our IPO and Secondary Offering proceeds, net of underwriting discounts, commissions and other offering costs, provided $236.2 million, bank borrowings provided $41.9 million and issuance of shares of Series 1 common stock pursuant to the exercise of stock options provided $3.3 million, which was partially offset by the payment of dividends and repayment of debt for $12.8 million and $28.6 million respectively.

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In the year ended December 31, 2019, bank borrowings provided $18.5 million, and issuance of shares of Series 1 common stock pursuant to the exercise of stock options provided $0.9 million, slightly offset by debt repayments of $2.0 million.

Net cash provided by financing activities during the year ended December 31, 2018 was $64.2 million, respectively.

In the year ended December 31, 2018, $63.6 million was provided by the issuance of convertible preferred stock and the issuance of shares of Series 1 common stock pursuant to the exercise of stock options of $0.6 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 September 29, 2020, which delayed the planned decrease in the Revolving Line to $10.0 million until December 31, 2020.

We repaid all borrowings outstanding under this agreement in December 202 0 and terminated this faci lity effective as of December 29 , 2020 .

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 remained undrawn as of 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.

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 December 31, 2020.

Payments due by period

(in thousands)

Long term debt obligations

Lease obligations

Purchase obligations

Total contractual obligations

2021 Convertible senior notes

In September 2021, we issued $345,000,000 principal amount of 0.25% Convertible Senior Notes due 2026 (the “Convertible Notes”).

The Convertible Notes were issued pursuant to, and are governed by, an indenture (the “Convertible Notes Indenture”), dated as of September 14, 2021, between us and U.S.

Bank National Association, as trustee.

The Convertible Notes are our senior, unsecured obligations and are (i) equal in right of payment with our future senior, unsecured indebtedness;

(ii) senior in right of payment to our future indebtedness that is expressly subordinated to the Convertible Notes in right of payment;

(iii) effectively subordinated to our future secured indebtedness, to the extent of the value of the collateral securing that indebtedness;

and (iv) structurally subordinated to all future indebtedness and other liabilities, including trade payables, and (to the extent we are not a holder thereof) preferred equity, if any, of our subsidiaries.

The Convertible Notes accrue interest at a rate of 0.25% per annum, payable semi-annually in arrears on April 1 and October 1 of each year, beginning on April 1, 2022.

The Convertible Notes will mature on October 1, 2026, unless earlier repurchased, redeemed or converted.

Before July 1, 2026, noteholders have the right to convert their Convertible Notes only upon the occurrence of certain events.

From and after July 1, 2026, noteholders may convert their Convertible Notes at any time at their election until the close of business on the second scheduled trading day immediately before the maturity date.

We will settle conversions by paying or delivering, as applicable, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election.

The initial conversion rate was 13.6783 shares of common stock per $1,000 principal amount of Convertible Notes, which represents an initial conversion price of approximately $73.11 per share of common stock.

The conversion rate and conversion price are subject to customary adjustments upon the occurrence of certain events.

In addition, if certain corporate events that constitute a “Make-Whole Fundamental Change” (as defined in the Convertible Notes Indenture) occur, then the conversion rate will, in certain circumstances, be increased for a specified period of time.

We may not redeem the Convertible Notes at our option at any time before October 7, 2024.

The Convertible Notes will be redeemable, in whole or in part (subject to the “Partial Redemption Limitation” (as defined in the Convertible Notes Indenture)), at our option at any time, and from time to time, on or after October 7, 2024 and on or before the 25th scheduled trading day immediately before the maturity date, but only if the last reported sale price per share of our common stock exceeds 130% of the conversion price on (i) each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the trading day immediately before the date we send the related redemption notice;

and (ii) the trading day immediately before the date we send such notice.

The redemption price will be a cash amount equal to the principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date.

In addition, calling any Convertible Note for redemption will constitute a Make-Whole Fundamental Change with respect to that Convertible Note, in which case the conversion rate applicable to the conversion of that Convertible Note will be increased in certain circumstances if it is converted after it is called for redemption.

Pursuant to the Partial Redemption Limitation, we may not elect to redeem less than all of the outstanding Convertible Notes unless at least $150.0 million aggregate principal amount of Convertible Notes are outstanding and not subject to redemption as of the time we send the related redemption notice.

If certain corporate events that constitute a “Fundamental Change” (as defined in the Convertible Notes Indenture) occur, then, subject to a limited exception for certain cash mergers, noteholders may require us to repurchase their Convertible Notes at a cash repurchase price equal to the principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date.

The definition of Fundamental Change includes certain business combination transactions involving us and certain de-listing events with respect to our common stock.

The Convertible Notes have customary provisions relating to the occurrence of “Events of Default” (as defined in the Convertible Notes Indenture), which include the following:

(i) certain payment defaults on the Convertible Notes (which, in the case of a default in the payment of interest on the Convertible Notes, will be subject to a 30-day cure period);

(ii) our failure to send certain notices under the Convertible Notes Indenture within specified periods of time;

(iii) our failure to comply with certain covenants in the Convertible Notes Indenture relating to our ability to consolidate with or merge with or into, or sell, lease or otherwise transfer, in one transaction or a series of transactions, all or substantially all of the assets of us and our subsidiaries, taken as a whole, to another person;

(iv) a default by us in our other obligations or agreements under the Convertible Notes Indenture or the Convertible Notes if such default is not cured or waived within 60 days after notice is given in accordance with the Convertible Notes Indenture;

(v) certain defaults by us or any of our significant subsidiaries with respect to indebtedness for borrowed money of at least $65,000,000;

and (vi) certain events of bankruptcy, insolvency and reorganization involving us or any of our significant subsidiaries.

If an Event of Default involving bankruptcy, insolvency or reorganization events with respect to us (and not solely with respect to a significant subsidiary of us) occurs, then the principal amount of, and all accrued and unpaid interest on, all of the Convertible Notes then outstanding will immediately become due and payable without any further action or notice by any person.

If any other Event of Default occurs and is continuing, then, the trustee, by notice to us, or noteholders of at least 25% of the aggregate principal amount of Convertible Notes then outstanding, by notice to us and the trustee, may declare the principal amount of, and all accrued and unpaid interest on, all of the Convertible Notes then outstanding to become due and payable immediately.

However, notwithstanding the foregoing, we may elect, at our option, that the sole remedy for an Event of Default relating to certain failures by us to comply with certain reporting covenants in the Convertible Notes Indenture consists exclusively of the right of the noteholders to receive special interest on the Convertible Notes for up to 180 days at a specified rate per annum not exceeding 0.50% on the principal amount of the Convertible Notes.

Off-balance sheet arrangements

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Actual results may differ from these estimates.

Except for changes resulting from the acquisition of Feedonomics in July 2021, including purchase price allocation and valuation of acquired intangibles, 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 our Annual Report on Form 10-K for the year ended December 31, 2020.

While our significant accounting policies are described in the notes to our included consolidated financial statements, we believe the following critical accounting policies are most important to understanding and evaluating our reported financial results.

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We recognize revenue on a net basis from revenue-sharing arrangements when the underlying transaction occurs.

We recognize revenue from technology integration fees ratably over the contract term because technology integration and platform access are deemed to be a single performance obligation.

We recognize revenue from technology integration fees ratably over the contractual term because technology integration and platform access are deemed to be a single performance obligation.

Revenue from partner marketing and promotion and non-recurring professional services is recognized as the service is performed.

Subsequent to our acquisition of Feedonomics on July 23, 2021, subscription revenue also includes revenue from Feedonomics.

We recognize revenue from Feedonomics’ technology platform and related services under service contracts which are generally one year or less, and in many cases month-to-month.

These service types may be sold stand-alone or as part of a multi-service bundle (e.g.

both marketplaces and advertising) and constitute a single combined performance obligation.

Services are performed and fees are determined based on monthly usage and are billed in arrears.

We adopted Financial Accounting Standards Board (“FASB”), Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“Topic 606”), effective January 1, 2018, using the full retrospective method of adoption.

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A performance obligation is a promise in a contract to transfer a distinct good or service to the customer.

When distinct performance obligations exist,

we allocate the contract transaction price to each distinct performance obligation.

When distinct performance obligations exist, we allocate the contract transaction price to each distinct performance obligation.

The standalone selling price, or our best estimate of standalone selling price, is used to allocate the transaction price to the separate performance obligations.

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Equity-based compensation

We have granted stock options to certain employees, consultants, and members of our board of directors.

Stock-based compensation related to stock options is measured based on the fair value of the awards on the grant date.

It is recognized in our consolidated statements of operations over the period the recipient is required to perform services in exchange for the award.

This period is generally the vesting period.

We estimate the fair value of stock options granted using the Black-Scholes option-pricing model.

Our option-pricing model requires the input of highly subjective assumptions, including:

(1) the fair value of the underlying shares, (2) the expected term of the awards, (3) the expected volatility of the price of our shares, (4) risk-free interest rates, and (5) the expected dividend yield of our shares.

These estimates involve inherent uncertainties and the application of judgment.

The assumptions are based on the following:

Expected volatility .

Since we have no significant trading history by which to determine the volatility of our stock price, we estimate volatility for option grants by evaluating the average historical volatility of peer group companies for the period immediately preceding the option grant.

Risk-free interest rate .

The risk-free interest rate was based on the United States Treasury zero-coupon issues with remaining terms similar to the expected term of the options.

Dividend yield .

We used an expected dividend yield of zero.

We have never declared or paid any cash dividends on our common stock and do not plan to pay cash dividends on our common stock in the foreseeable future.

Average expected life .

We elected to use the simplified method to compute the expected term.

We have limited history of exercise activity and our stock options meet the criteria of “plain-vanilla” options as defined by the SEC.

The simplified method calculates the expected term by taking the average of the vesting term and the original contractual term of the awards.

Fair value of common stock .

Given the absence of an active market for our shares of common stock prior to our IPO, we estimated the fair value of our shares of common stock.

Subsequent to the IPO, the BOD determines the fair value of each share based on the closing price on the date of grant on the Nasdaq.

We estimate the expected forfeiture rate and only recognize expense for those shares of common stock expected to vest.

We measure stock-based compensation for stock options at fair value on the date of grant using the Black-Scholes option pricing model.

We measure stock-based compensation for restricted stock units (RSUs) based on the fair market value of the common stock on the grant date.

Compensation cost is recognized on a straight-line basis over the requisite service period.

Stock compensation costs are reduced by the estimated forfeitures at the date of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

We estimate the forfeiture rate based on historical experience.

To the extent our actual forfeiture rate is different from our estimate, stock-based compensation expense is adjusted accordingly.

If any assumptions used in the Black-Scholes option-pricing model change significantly, stock option compensation expense for future awards may differ materially compared with the expense for awards granted previously.

Commencing in 2020, we also have granted restricted stock units (“RSUs”).

Stock-based compensation related to RSUs is measured based on the fair value of the common stock on the grant date.

It is recognized in our consolidated statement of operations over the period the recipient is required to perform services in exchange for the award, which is generally the vesting period.

The expense of these awards is determined by applying a forfeiture rate to the fair value of common stock on the date of grant.

The Black-Scholes O ption-pricing model requires the input of highly subjective assumptions, which determine the fair value of stock-based awards.

These assumptions include:

Expected volatility - Since we have no significant trading history by which to determine the volatility of our stock price, we estimate volatility for option grants by evaluating the average historical volatility of peer group companies for the period immediately preceding the option grant.

Risk-free interest rate - The risk-free interest rate was based on the United States Treasury zero-coupon issues with remaining terms similar to the expected term of the options.

Dividend yield - We used an expected dividend yield of zero.

We have never declared or paid any cash dividends on our common stock and do not plan to pay cash dividends on our common stock in the foreseeable future.

Expected term - We elected to use the simplified method to compute the expected term.

We have a limited history of exercise activity and our stock options meet the criteria of “plain-vanilla” options as defined by the SEC.

The simplified method calculates the expected term by taking the average of the vesting term and the original contractual term of the awards.

Business combination

We record tangible and intangible assets acquired and liabilities assumed in business combinations under the acquisition method of accounting.

We use best estimates and assumptions, including but not limited to, future expected cash flows, expected asset lives, and discount rates, to assign a fair value to the tangible and intangible assets acquired and liabilities assumed in business combinations as of the acquisition date.

These estimates are inherently uncertain and subject to refinement.

We allocate any excess purchase price over the fair value of the tangible and identifiable intangible assets acquired and liabilities assumed to goodwill.

During the measurement period, which may be up to one year from the acquisition date, adjustments to the fair value of these tangible and intangible assets acquired and liabilities assumed may be recorded, with the corresponding offset to goodwill.

Upon the conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our condensed consolidated statements of operations.

Recent accounting pronouncements

A discussion of recent accounting pronouncements is included in Note 2 to our included audited consolidated financial statements.

Quantitative and Qualitati ve Disclosures About Market Risk.

Interest rate risk

Our cash, cash equivalents and restricted cash, 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.

Foreign currency exchange risk

All of our revenue and a majority of our expense and capital purchasing activities for the year ended December 31, 2020 were 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, 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) December 31, 2025, (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.

Financial Statements and Supplementary Data.

The information required by this item is incorporated by reference to the consolidated financial statements and accompanying notes set forth on pages F-1 through F-23 of this Annual Report on Form 10-K.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

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-K

Item 7. Management’s Discussion and Analysis