BIGCOMMERCE HOLDINGS, INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that involve risk and uncertainties. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report on Form 10-Q, particularly in "Risk Factors." See "Special Note Regarding Forward-Looking Statements." OverviewBigCommerce is leading a new era of ecommerce. Our SaaS platform simplifies the creation of beautiful, engaging online stores by delivering a unique combination of ease-of-use, enterprise functionality, and flexibility. We power both our customers' branded ecommerce stores and their cross-channel connections to popular online marketplaces, social networks, and offline POS systems. As ofJune 30, 2020 , we served approximately 60,000 online stores across industries in approximately 150 countries. We provide a comprehensive platform for launching and scaling an ecommerce operation, including store design, catalog management, hosting, checkout, order management, reporting, and pre-integration into third-party services like payments, shipping, and accounting. All our stores run on a single code base and share a global, multi-tenant architecture purpose built for security, high performance, and innovation. Our platform serves stores in a wide variety of sizes, product categories, and purchase types, including B2C and B2B. Our customers includeAvery Dennison , Ben & Jerry's, Burrow, SC Johnson,SkullCandy , Sony, and Woolrich. We offer access to our platform on a subscription basis. We serve customers with subscription plans tailored to their size and feature needs. For our larger customers, our Enterprise plan offers our full feature set at a monthly subscription price tailored to each business. For SMBs, BigCommerce Essentials offers three retail plans: Standard, Plus, and Pro, priced at$29.95 ,$79.95 , and$299.95 per month, respectively.
Since our founding, we have achieved several key milestones and implemented important strategic initiatives that impact our business today.
• 2009:
all-in-one ecommerce solution, delivered through the cloud, targeting the
SMB segment.
• 2010: BigCommerce's customer base reaches 10,000 online stores.
• 2011-2014: Headquarters relocate to
capital in a series of investment rounds to fund growth from investors
including General Catalyst, Revolution Growth, and Softbank.
• 2015:
executive team expands focus to mid-market and large enterprise customer
segments, investing significantly in research and development over the
subsequent five-year period.
• 2016-2018:
investors including
strategy, we expand our ecosystem of technology and service partners that
offer complementary capabilities such as payments, shipping, marketing,
and accounting. ARR surpasses
• 2019:
launches a presence in
capabilities gain traction across a wide range of leading CMSs and
progressive web application frameworks.
Our business has experienced strong growth. Our ARR reached$128.5 million as ofDecember 31, 2019 , and$151.8 million as ofJune 30, 2020 . Our ARR growth rate increased from 22.3% in 2018 to 25.8% in 2019 and from 25.1% for the three months endedJune 30, 2019 to 33.3% for the three months endedJune 30, 2020 . Our revenue increased to$112.1 million in 2019. Our revenue growth rate increased from 22.0% in 2019 to 33.0% in the three months endedJune 30, 2020 . During the six months endedJune 30, 2020 and 2019, our revenue was$69.5 million and$52.8 million , respectively. Our gross margin was 75.9% in 2019, and 78.0% and 77.0% for the six months endedJune 30, 2020 and 2019, respectively. We had net losses of$42.6 million in 2019, and$12.5 million and$21.6 million in the six months endedJune 30, 2020 and 2019, respectively. 27
--------------------------------------------------------------------------------
Table of Contents
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 first quarter of 2020. We expect these percentages to return to historical levels as these restrictions are lifted. OnAugust 4, 2020 , we completed our IPO, in which we issued and sold 7,877,500 shares of our Series 1 common stock, including 1,027,500 shares of Series 1 common stock that were sold pursuant to the exercise in full of the underwriters' option to purchase additional shares of Series 1 common stock at$24.00 per share. The IPO resulted in net proceeds of$175.8 million after deducting underwriting discounts and commissions. Expected expenses incurred by us for the IPO were approximately$3.9 million and will be recorded against stockholders' equity. An additional result of the IPO was the conversion of our 2017 and 2020 Term Loans to Series 1 Common Stock resulting in a$53.9 million reduction in the principal of our outstanding long-term debt.
Key factors affecting our performance
We believe our future performance will depend on many factors, including the following:
Continued growth of ecommerce domestically and globally
Ecommerce is rapidly transforming global B2C and B2B commerce. B2C ecommerce was nonexistent in the early-1990s and grew to approximately 10% of all global retail spending in 2017, according to eMarketer. eMarketer estimates that it will take just six years for this percentage to more than double to 21% of global retail spending in 2023. The rapid growth in ecommerce is prompting companies to adopt ecommerce platforms likeBigCommerce to create compelling branded ecommerce stores and power cross-channel connections to online marketplaces, social networks, and offline POS systems. We believe we have a substantial opportunity to serve a larger number of customers as ecommerce continues to grow around the world by extending into new and emerging segments within ecommerce. The following segments are significant areas of potential growth and strategic focus for us:
• Headless commerce. This refers to businesses whose technology strategy is
to decouple their front-end customer experience technology from their
back-end commerce platform. In terms of online strategy, these companies
are typically brand-, marketing-, or experience-led. We serve headless use
cases better than most of our competitors due to years of investment in
our platform APIs and integration capabilities. Pre-built integrations
connect our platform with leading CMSs such as
Drupal, Sitecore, and WordPress.
• B2B. As of
are met using our native functionality, including B2B features like
customer groups and price lists. In other cases, these customers
complement
in the
functionality to both the
feature set.
• Large enterprise. Increasingly, we are successfully competing for large
enterprise sites selling more than
Enterprise plan product feature set, along with our sales, marketing,
solutioning, and service capabilities.
Efficient acquisition of new customers
The growth of our customer base is important to our continued revenue growth. We
believe we are positioned to grow significantly through a combination of our own
marketing and sales initiatives, customer referrals from our agency and
technology partners, and word-of-mouth referrals from existing customers.
We measure the efficiency of new customer acquisition by comparing the lifetime
value ("LTV") of newly-acquired customers to the customer acquisition costs
("CAC") of the associated time period to get an "LTV:CAC ratio." We calculate
LTV as gross profit from new sales during the four quarters of any given year
divided by the estimated future subscription churn rate. We calculate CAC as
total sales and marketing expense incurred during the associated preceding four
quarters.
Retention and growth of our existing customers
We believe our long-term revenue growth is correlated with the growth of our
existing customers' ecommerce businesses. We strive to maintain industry-leading
service levels and platform capabilities to maximize customer success and
retention. Our revenue grows with that of our customers. As they generate more
online sales, we generate more subscription revenue through automated
28--------------------------------------------------------------------------------
Table of Contents
sales-based upgrades on our Essentials plans and order adjustments on our Enterprise plans. Typical enterprise contracts have terms ranging from 12 to 36 months and do not include the ability to terminate for convenience. As our customers' online sales increase, our partner and services revenue generated by revenue-sharing agreements with our strategic technology partners increases as well. Our ability to retain and grow our customers' ecommerce businesses often depends on the continued expansion of our platform and the capabilities of our strategic technology partners to provide revenue generating services to our customers. We continually evaluate prospective and existing partners' abilities to enhance the capabilities of our customers' ecommerce businesses. We add new partners and expand existing partner relationships to enhance the utility of our platform, while creating new opportunities to expand our revenue share in partner and services revenue. As we continue to grow as a platform, we believe our ability to realize more favorable and expansive revenue share agreements will grow as well. We also grow by selling additional stores to existing customers. Our larger customers will often first use our platform to build a single online store that serves a single brand within their portfolio. These customers can then expand their usage of our platform by launching additional stores to serve additional brands, geographies, or use cases (e.g., B2B in addition to B2C).
Successful rollout of new geographies
We believe our platform can compete successfully around the world. We enhance self-serve usability in new geographies by translating our control panel into local languages and enabling the integration of local payment processors. We support the growth of mid-market and large enterprise customers around the world by expanding our regional sales and marketing capabilities. We opened our first European office inLondon, 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 inSingapore in early 2019 and expanded our existing sales and marketing team inSydney, 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 likeChina , we are developing relationships with strategic agency partners in lieu of having a direct local employee presence.
Evolution of our technology partner ecosystem
A key part of our strategy is to build a thriving technology partner ecosystem. We focus on collaborating with, not competing against, partners in our ecosystems. This strategy contrasts with our largest competitors, who operate software stacks with multiple vertically integrated adjacent services that potentially compete with offerings from technology partners in their ecosystems. Our customers benefit from the expertise and best-of-breed offerings of our partners, the flexibility to choose without penalty the best offerings for their needs, and the tailored programs developed with our strategic partners. Through significant investment, we have developed a marketplace of integrated application and technology solutions that is one of the largest of any ecommerce platform. Our partners currently offer more than 600 pre-built applications and integrations spanning major categories relevant to ecommerce, including shipping, tax, accounting and ERP, marketing, fulfillment, cross-channel commerce, and POS systems, with additional applications and integrations for merchandising, locations, and payments under development. We intend to grow partner-sourced revenue by expanding the value and scope of existing partnerships, selling and marketing partner solutions to our customer base, and acquiring and cultivating new, high-value relationships. Partner referrals of customers are increasingly becoming an efficient customer acquisition strategy for us as we expand our programs for cross-marketing and cross-selling with our partners.
Realizing operating leverage from our investments
We have made significant investments in our SaaS platform and our global infrastructure, which we believe will yield future operating leverage and profit margin expansion. Research and development has historically been one of our largest operating expense categories. By opening and expanding a lower-cost engineering center inKyiv, 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. 29
--------------------------------------------------------------------------------
Table of Contents
Duration and durability of COVID-19's impact on partner and services revenue
Ecommerce sales in our major markets have increased significantly due to the widespread closure of physical stores and behavioral changes associated with social distancing. This increase in sales has bolstered our partner and services revenue, driven predominantly by increases in our partner revenue share streams. We anticipate that our performance will be affected by the duration of COVID-19's impact on physical stores and consumer preferences and the resulting increase in ecommerce sales. Additionally, we expect the widespread availability of treatment options to impact the trend toward ecommerce, which, in turn, may have a significant impact on our performance. We believe we are well-positioned to continue to benefit from the macro-economic shift to ecommerce that COVID-19 has accelerated, but revenue may be more variable in the near-term as a result.
Key business metrics
We review the following key business metrics to measure our performance, identify trends affecting our business, formulate business plans, and make strategic decisions. Increases or decreases in our key business metrics may not correspond with increases or decreases in our revenue.
Annual revenue run-rate
We calculate annual revenue run-rate ("ARR") at the end of each month as the sum
of: (1) the product of the current month's monthly recurring revenue ("MRR")
multiplied by twelve (to prospectively annualize subscription revenue), and (2)
the trailing twelve-month partner and services revenue, including non-recurring
services revenue, such as one-time partner integration fees and store-launch
services. MRR includes BigCommerce platform subscription fees and invoiced
growth adjustments as customers' businesses grow past contracted order
thresholds after a threshold has been met. It also includes recurring
professional services revenue, such as recurring technical account management
services and product training services.
Accounts with greater than
We track the total number of accounts with annual contract value ("ACV") greater
than $2,000 (the "ACV threshold") as of the end of a monthly billing period. To
define this $2,000 ACV cohort, we include only subscription plan revenue and
exclude partner and services revenue and recurring services revenue. We consider
all stores added and subtracted as of the end of the monthly billing period.
This metric includes accounts that may have either one single store above the
ACV threshold or multiple stores that together exceed the ACV threshold.
Accordingly, this cohort would include: (1) customers on Enterprise plans,
(2) customers on Pro plans, and (3) customers with multiple plans that together
exceed the ACV threshold. As of June 30, 2020 , accounts above the ACV threshold
represented 80% of our ARR, up from 76% as of June 30, 2020 .
Average revenue per account
We calculate average revenue per account ("ARPA") for accounts above the ACV
threshold at the end of a period by including customer-billed revenue and an
allocation of partner and services revenue. We bill customers for subscription
solutions and professional services, and we include both in ARPA for the
reported period. For example, ARPA as of March 31, 2019 includes all
subscription solutions and professional services billed between January 1, 2019
and March 31, 2019 . We allocate partner revenue primarily based on each
customer's share of GMV processed through that partner's solution. For partner
revenue that is not directly linked to customer usage of a partner's solution,
we allocate such revenue based on each customer's share of total platform GMV.
Each account's partner revenue allocation is calculated by taking the account's
trailing twelve-month partner revenue, then dividing by twelve to create a
monthly average to apply to the applicable period in order to normalize ARPA for
seasonality. As of June 30, 2020 , the ARPA for accounts above the ACV threshold
was $12,936 , up 29% from $10,002 as of June 30, 2019 .
Net revenue retention
We use net revenue retention ("NRR") to evaluate our ability to maintain and
expand our revenue with our account base of customers exceeding the ACV
threshold over time. The total billings and allocated partner revenue for the
measured period are divided by the total billings and allocated partner revenue
for such accounts, corresponding period one year prior. An NRR greater than 100%
implies positive net revenue retention. This methodology includes stores added
to or subtracted from an account's subscription during the previous twelve
months. It also includes changes to subscription and partner and services
revenue billings, and revenue reductions from stores or accounts that leave the
platform during the previous one-year period. Net new accounts added after the
previous one-year period are excluded in our NRR calculations. NRR for accounts
with ACV greater than $2,000 was 108% and 106% for 2018 and 2019, respectively.
We update our reported NRR at the end of each fiscal year and do not report
quarterly changes in NRR.
30--------------------------------------------------------------------------------
Table of Contents
The chart below illustrates certain of our key business metrics as of or for the three months ended for each of the dates presented, as applicable.
June 30, September 30, December 31, March 31, June 30,
2019 2019 2019 2020 2020
ARR (in thousands) $ 114,826 $ 121,346 $ 128,522 $ 137,080 $ 151,814
Accounts with ACV greater
than
$2,000 8,737 8,918 9,090 8,988 9,378
% of ARR attributable to
accounts
with ACV greater than
$2,000 76 % 77 % 78 % 79 % 80 %
ARPA attributable to
accounts with
ACV greater than $2,000 $ 10,002 $ 10,512 $ 11,098 $ 12,094 $ 12,936
Enterprise accounts
In addition to tracking our key business metrics identified above, we
periodically measure ARR for accounts with at least one unique Enterprise plan
subscription ("enterprise accounts"). These accounts may have more than one
Enterprise plan or a combination of Enterprise plans and Essentials plans.
Enterprise account ARR grew 44% to $66.7 million in 2019 and represented 52% of
ARR as of December 31, 2019 . As of June 30, 2020 , enterprise account ARR grew
44% year-over-year to $79.8 million , up from $55.3 million as of June 30, 2019 .
Enterprise accounts represented 53% and 48% of ARR as of June 30, 2020 and 2019,
respectively.
Components of results of operations
Revenue
We generate revenue from two sources: (1) subscription solutions revenue and (2) partner and services revenue.
Subscription solutions revenue consists primarily of platform subscription fees from all plans. It also includes recurring professional services and sales of SSL certificates. Subscription solutions are charged monthly, quarterly, or annually for our customers to sell their products and process transactions on our platform. Subscription solutions are generally charged per online store and are based on the store's subscription plan. Our Enterprise plan contracts are generally for a fixed term of one to three years and are non-cancelable. Our retail plans are generally month-to-month contracts. Monthly subscription fees for Pro and Enterprise plans are adjusted if a customer's GMV or orders processed are outside of specified plan thresholds on a trailing twelve-month basis. Fixed monthly fees and any transaction charges related to subscription solutions are recognized as revenue in the month they are earned. We generate partner revenue from our technology application ecosystem. Customers tailor their stores to meet their feature needs by integrating applications developed by our strategic technology partners. We enter into contracts with our strategic technology partners that are generally for one year or longer. We generate revenue from these contracts in three ways: (1) revenue-sharing arrangements, (2) technology integrations, and (3) partner marketing and promotion. We recognize revenue on a net basis from revenue-sharing arrangements when the underlying transaction occurs. We also generate revenue from non-recurring professional services that we provide to complement the capabilities of our customers and their agency partners. Our services help improve customers' time-to-market and the success of their businesses usingBigCommerce . Our non-recurring services include education packages, launch services, solutions architecting, implementation consulting, and catalog transfer services.
Cost of revenue
Cost of revenue consists primarily of: (1) personnel-related costs (including stock-based compensation expense) for our customer success teams, (2) costs that are directly related to hosting and maintaining our platform, (3) fees for processing customer payments, and (4) the allocation of overhead costs. We expect that cost of revenue will increase in absolute dollars, but may fluctuate as a percentage of total revenue from period to period.
Sales and marketing
Sales and marketing expenses consist primarily of: (1) personnel-related
expenses (including stock-based compensation expense), (2) sales commissions,
(3) marketing programs, (4) travel-related expenses, and (5) allocated overhead
costs. We focus our sales and marketing efforts on creating sales leads and
establishing and promoting our brand. We plan to increase our investment in
sales and marketing by hiring additional sales and marketing personnel,
executing our go-to-market strategy globally, and building our brand awareness.
Incremental sales commissions for new customer contracts are deferred and
amortized ratably over the estimated period of our relationship with such
customers. No incremental sales commissions are incurred on renewals of customer
contracts. We expect our sales and marketing expenses will increase in absolute
dollars, but will decrease as a percentage of total revenue over time.
31--------------------------------------------------------------------------------
Table of Contents Research and development Research and development expenses consist primarily of personnel-related expenses (including stock-based compensation expense) incurred in maintaining and developing enhancements to our ecommerce platform and allocated overhead costs. To date, software development costs eligible for capitalization have not been significant. We believe delivering new functionality is critical to attracting new customers and enhancing the success of existing customers. We expect to continue to make substantial investments in research and development. We expect our research and development expenses to increase in absolute dollars, but decrease as a percentage of total revenue over time, as we continue to leverage and expand our lower-cost engineering center inKyiv, Ukraine . We expense research and development expenses as incurred.
General and administrative
General and administrative expenses consist primarily of: (1) personnel-related expenses (including stock-based compensation expense) for finance, legal and compliance, human resources, and IT, (2) external professional services, and (3) allocated overhead costs. We expect to incur additional general and administrative expenses as a result of operating as a public company. We also expect to increase the size of our general and administrative functions to support the growth of our business. As a result, we expect that our general and administrative expenses will increase in absolute dollars but may fluctuate as a percentage of total revenue from period to period.
Other expenses, net
Other expenses, net consists primarily of interest expense on our bank borrowings partially offset by interest income on corporate funds invested in money market instruments and highly liquid short-term investments.
Provision for income taxes
Provision for income taxes consists primarily of income taxes related to certain foreign and state jurisdictions in which we conduct business. ForU.S. federal income tax purposes and in certain foreign and state jurisdictions, we have NOL carryforwards. The foreign jurisdictions in which we operate have different statutory tax rates than those ofthe United States . Additionally, certain of our foreign earnings may also be currently taxable inthe United States . Accordingly, our effective tax rate will vary depending on the relative proportion of foreign to domestic income, use of foreign tax credits, changes in the valuation of our deferred tax assets and liabilities, applicability of any valuation allowances, and changes in tax laws in jurisdictions in which we operate.
Results of operations
The following table sets forth our results of operations for the periods
presented:
Three months ended June 30, Six months ended June 30,
2020 2019 2020 2019
(in thousands)
Revenue $ 36,316 $ 27,235 $ 69,490 $ 52,819
Cost of revenue (1) 7,837 6,227 15,317 12,152
Gross profit 28,479 21,008 54,173 40,667
Operating expenses:
Sales and marketing (1) 16,803 15,963 32,565 30,099
Research and development (1) 11,345 10,468 22,266 21,300
General and administrative (1) 7,714 5,222 14,180 10,221
Total operating expenses 35,862 31,653 69,011 61,620
Loss from operations (7,383 ) (10,645 ) (14,838 ) (20,953 )
Interest income 17 86 18 241
Interest expense (1,152 ) (410 ) (1,914 ) (770 )
Change in fair value of financial instrument - - 4,413 -
Other expense 40 (56 ) (163 ) (77 )
Loss before provision for income taxes (8,478 ) (11,025 ) (12,484 ) (21,559 )
Provision for income taxes 3 7 20 14
Net loss $ (8,481 ) $ (11,032 ) $ (12,504 ) $ (21,573 )
32
--------------------------------------------------------------------------------
Table of Contents
(1) Includes stock-based compensation expense as follows:
Three months ended June 30, Six months ended June 30,
2020 2019 2020 2019
(in thousands)
Cost of revenue $ 81 $ 37 $ 154 $ 59
Sales and marketing 352 198 641 331
Research and development 330 158 634 229
General and administrative 381 428 741 797
Total stock-based compensation expense $ 1,144
Revenue by geographic region
The composition of our revenue by geographic region during the three and six
months ended
Three months ended June 30, Change Six Months Ended June 30, Change
2020 2019 Amount % 2020 2019 Amount %
(dollars in thousands) (dollars in thousands)
Revenue
Americas - U.S. $ 28,883 $ 22,225 $ 6,658 30.0 $ 55,616 $ 43,180 $ 12,436 28.8
Americas - other 1,305 904 401 44.4 2,405 1,773 632 35.6
EMEA 2,871 1,739 1,132 65.1 5,313 3,361 1,952 58.1
APAC 3,257 2,367 890 37.6 6,156 4,505 1,651 36.6
Total Revenue $ 36,316 $ 27,235 $ 9,081 33.3 $ 69,490 $ 52,819 $ 16,671 31.6
Adjusted EBITDA
In addition to our consolidated statements of operations data as determined in
accordance with GAAP, we believe the following non-GAAP measure is useful in
evaluating our business performance.
Three months ended June 30, Six months ended June 30,
2020 2019 2020 2019
Adjusted EBITDA $ (5,428 ) $ (9,297 ) $ (11,153 ) $ (18,498 )
As of June 30, As of December 31,
2020 2019
(in thousands)Consolidated balance sheet data:
Cash and cash equivalents $ 25,390 $ 7,795 Working capital (1) 18,225 (2,243 ) Total assets 79,617 56,064 Total liabilities 122,671 89,613 Convertible preferred stock 227,452
223,754
Total stockholders' (deficit) equity (270,506 ) (257,303 )
(1) We define working capital as current assets less current liabilities.
33--------------------------------------------------------------------------------
Table of Contents Non-GAAP financial measures To supplement our financial statements presented in accordance with GAAP and to provide investors with additional information regarding our financial results, we have presented in this Quarterly Report on Form 10-Q Adjusted EBITDA, a non-GAAP financial measure. Adjusted EBITDA is not based on any standardized methodology prescribed by GAAP and is not necessarily comparable to similarly titled measures presented by other companies. We define Adjusted EBITDA as our net loss, excluding the impact of stock-based compensation expense, depreciation and amortization expense, interest income, interest expense, change in fair value of financial instruments, and our provision for income taxes. The most directly comparable GAAP measure is net loss. We monitor and have presented in this Quarterly Report on Form 10-Q Adjusted EBITDA because it is a key measure used by our management and board of directors to understand and evaluate our operating performance, to establish budgets, and to develop operational goals for managing our business. In particular, we believe excluding the impact of these expenses in calculating Adjusted EBITDA can provide a useful measure for period-to-period comparisons of our core operating performance. We believe Adjusted EBITDA helps identify underlying trends in our business that could otherwise be masked by the effect of the expenses that we include in net loss. Accordingly, we believe Adjusted EBITDA provides useful information to investors, analysts, and others in understanding and evaluating our operating results, enhancing the overall understanding of our past performance and future prospects.
Adjusted EBITDA is not prepared in accordance with GAAP and should not be considered in isolation of, or as an alternative to, measures prepared in accordance with GAAP. There are a number of limitations related to the use of Adjusted EBITDA rather than net loss, which is the most directly comparable financial measure calculated and presented in accordance with GAAP. Some of these limitations are:
• Adjusted EBITDA excludes stock-based compensation expense as it has
recently been, and will continue to be for the foreseeable future, a
significant recurring non-cash expense for our business;
• Adjusted EBITDA excludes depreciation and amortization expense and,
although this is a non-cash expense, the assets being depreciated and
amortized may have to be replaced in the future;
• Adjusted EBITDA does not reflect the cash requirements necessary to
service interest on our debt which affects the cash available to us;
• Adjusted EBITDA does not reflect the monies earned from our investments
since it does not reflect our core operations;
• Adjusted EBITDA does not reflect change in fair value of financial
instruments including derivatives since it does not reflect our core
operations and is a non-cash expense;
• Adjusted EBITDA does not reflect income tax expense that affects cash
available to us; and
• the expenses and other items that we exclude in our calculations ofAdjusted EBITDA may differ from the expenses and other items, if any, that
other companies may exclude from Adjusted EBITDA when they report their
operating results.
In addition, other companies may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison.
The following table reconciles Adjusted EBITDA to net loss, the most directly comparable financial measure calculated and presented in accordance with GAAP.
34--------------------------------------------------------------------------------
Table of Contents
Reconciliation of net loss to Adjusted EBITDA
Three months ended June 30, Six months ended June 30,
2020 2019 2020 2019
Net loss $ (8,481 ) $ (11,032 ) $ (12,504 ) $ (21,573 )
Stock-based
compensation
expense 1,144 821 2,170 1,416
Depreciation and
amortization 771 583 1,678 1,116
Interest income (17 ) (86 ) (18 ) (241 )
Interest expense 1,152 410 1,914 770Change in fair value of
financial instrument - - (4,413 ) - Provision for income taxes 3 7 20 14 Adjusted EBITDA$ (5,428 ) $ (9,297 ) $
(11,153 )$ (18,498 )
Comparison of the three and six months ended
Revenue
The components of our revenue during the three and six months ended
Three months ended June 30, Change Six months ended June 30, Change
2020 2019 Amount % 2020 2019 Amount %
(dollars in thousands)
Revenue
Subscription solutions $ 23,943 $ 20,137 $ 3,806 18.9 % $ 47,496 $ 39,384 $ 8,112 20.6 %
Partner and services 12,373 7,098 5,275 74.3 % 21,994 13,435 8,559 63.7 %
Total revenue $ 36,316 $ 27,235 $ 9,081 33.3 % $ 69,490 $ 52,819 $ 16,671 31.6 %
Three Months Ended June 30, 2020 Compared to Three Months Ended June 30, 2019 .
Revenue increased $9.1 million , or 33.3%, to $36.3 million for the three months
ended June 30, 2020 from $27.2 million for the three months ended June 30, 2019 ,
as a result of increases in both subscription solutions and partner and services
revenue. Subscription solutions revenue increased $3.8 million , or 18.9%, to
$23.9 million for the three months ended June 30, 2020 from $20.1 million for
the three months ended June 30, 2019 , primarily due to growth in subscription
sales. Partner and services revenue increased $5.3 million , or 74.3%, to
$12.4 million for the three months ended June 30, 2020 from $7.1 million for the
three months ended June 30, 2019 , primarily as a result of increases in
revenue-sharing activity with our technology partners and improved monetization
of partner revenue share.
Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019 .
Revenue increased $16.7 million , or 31.6%, to $69.5 million for the six months
ended June 30, 2020 from $52.8 million for the six months ended June 30, 2019 ,
as a result of increases in both subscription solutions and partner and services
revenue. Subscription solutions revenue increased $8.1 million , or 20.6%, to
$47.5 million for the six months ended June 30, 2020 from $39.4 million for the
six months ended June 30, 2019 , primarily due to growth in subscription sales.
Partner and services revenue increased $8.6 million , or 63.7%, to $22.0 million
for the six months ended June 30, 2020 from $13.4 million for the six months
ended June 30, 2019 , primarily as a result of increases in revenue-sharing
activity with our technology partners and improved monetization of partner
revenue share.
Cost of revenue, gross profit, and gross margin
Cost of revenue, gross profit, and gross margin during the three and six months
ended
Three months ended June 30, Change Six months ended June 30, Change
2020 2019 Amount % 2020 2019 Amount %
(dollars in thousands)
Cost of revenue $ 7,837 $ 6,227 $ 1,610 25.9 $ 15,317 $ 12,152 $ 3,165 26.0
Gross profit $ 28,479 $ 21,008 $ 7,471 35.6 $ 54,173 $ 40,667 $ 13,506 33.2
Gross margin 78.4 % 77.1 % 78.0 % 77.0 %
35
--------------------------------------------------------------------------------
Table of Contents Three Months EndedJune 30, 2020 Compared to Three Months EndedJune 30, 2019 . Cost of revenue increased$1.6 million , or 25.9%, to$7.8 million for the three months endedJune 30, 2020 from$6.2 million for the three months endedJune 30, 2019 , primarily as a result of higher hosting costs resulting from increased transactions processed of$0.7 million and higher personnel costs, including stock-based compensation expense amounting to$0.9 million . Gross margin increased to 78.4% during the three months endedJune 30, 2020 from 77.1% during the three months endedJune 30, 2019 . Six Months EndedJune 30, 2020 Compared to Six Months EndedJune 30, 2019 . Cost of revenue increased$3.2 million , or 26.0%, to$15.3 million for the six months endedJune 30, 2020 from$12.1 million for the six months endedJune 30, 2019 , primarily as a result of higher hosting costs resulting from increased transactions processed of$1.1 million and higher personnel costs, including stock-based compensation expense amounting to$1.6 million . Gross margin increased to 78.0% during the six months endedJune 30, 2020 from 77.0% during the six months endedJune 30, 2019 .
Operating expenses
Sales and marketing
Sales and marketing expenses during the three and six months ended
Three months ended June 30, Change Six months ended June 30, Change
2020 2019 Amount % 2020 2019 Amount %
(dollars in thousands)
Sales and marketing $ 16,803 $ 15,963 $ 840 5.3 $ 32,565 $ 30,099 $ 2,466 8.2
Percentage of revenue 46.3 % 58.6 % 46.9 % 57.0 %
Three Months Ended June 30, 2020 Compared to Three Months Ended June 30, 2019 .
Sales and marketing expenses increased $.8 million , or 5.3%, to $16.8 million
for the three months ended June 30, 2020 from $16.0 million for the three months
ended June 30, 2019 , primarily due to higher staffing costs, including
stock-based compensation expense of $1.7 million offset by a reduction in travel
and other event related expenditures of $0.9 million . As a percentage of total
revenue, sales and marketing expenses decreased to 46.3% during the three months
ended June 30, 2020 from 58.6% during the three months ended June 30, 2019 ,
primarily due to increased operating leverage from revenue growth.
Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019 . Sales
and marketing expenses increased $2.5 million , or 8.2%, to $32.6 million for the
six months ended June 30, 2020 from $30.1 million for the six months ended
June 30, 2019 , primarily due to higher staffing costs, including stock-based
compensation expense of $2.7 million offset by a reduction in travel related
expenditures of $0.4 million . As a percentage of total revenue, sales and
marketing expenses decreased to 46.9% during the six months ended June 30, 2020
from 57.0% during the six months ended June 30, 2019 , primarily due to increased
operating leverage from revenue growth.
Research and development
Research and development expenses during the three and six months ended
Three months ended June 30, Change Six months ended June 30, Change
2020 2019 Amount % 2020 2019 Amount %
(dollars in thousands)
Research and development $ 11,345 $ 10,468 $ 877 8.4 $ 22,266 $ 21,300 $ 966 4.5
Percentage of revenue 31.2 % 38.4 % 32.0 % 40.3 %
Research and development expenses were relatively unchanged in absolute dollars
from period to period but declined as a percentage of revenue. This decline
reflects our leverage of previous enhancements to our platform capabilities and
prior development of new product offerings. By opening and expanding an
engineering center in Kyiv, Ukraine in 2019, we increased our lower-cost
development capacity driving leverage in research and development spend as a
percentage of revenue.
36
--------------------------------------------------------------------------------
Table of Contents General and administrative
General and administrative expenses during the three and six months ended
Three months ended June 30, Change Six months ended June 30, Change
2020 2019 Amount % 2020 2019 Amount %
(dollars in thousands)
General and
administrative $ 7,714 $ 5,222 $ 2,492 47.7 $ 14,180 $ 10,221 $ 3,959 38.7
Percentage of
revenue 21.2 % 19.2 % 20.4 % 19.4 %
Three Months Ended June 30, 2020 Compared to Three Months Ended June 30, 2019 .
General and administrative expenses increased $2.5 million , or 47.7%, to
$7.7 million for the three months ended June 30, 2020 from $5.2 million for the
three months ended June 30, 2019 . The increase was primarily due to increased
staffing and fees associated with preparation for our initial public offering
amounting to $2.1 million .
Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019 .
General and administrative expenses increased $4.0 million , or 38.7%, to
$14.2 million for the six months ended June 30, 2020 from $10.2 million for the
six months ended June 30, 2019 . The increase was primarily due to increased
staffing and fees associated with preparation for our initial public offering
amounting to $3.3 million .
Interest income
Interest income was insignificant for the three and six-month periods ended
Interest expense
Interest expense increased$0.7 million , or 181.0%, to$1.1 million for the three months endedJune 30, 2020 from$0.4 million for the three months endedJune 30, 2019 , and increased$1.1 million , or 148.6%, to$1.9 million for the six months endedJune 30, 2020 from$0.8 million for the six months endedJune 30, 2019 , primarily as a result of increased bank borrowings used to fund operations.
Change in fair value of financial instrument
The increase of$4.4 million in the fair value of financial instrument in the six months endedJune 30, 2020 was the result of a decrease in fair value of the embedded lenders' put option on our 2020 Convertible Term Loan.
Other expense
Other expense was insignificant for the three and six-month periods ended
Provision for income taxes
Our provision for income taxes was insignificant in the three and six months
ended
Liquidity and capital resources
We have incurred losses since our inception. Our operations have been financed primarily through net proceeds from the sale of convertible preferred stock and borrowings under our debt instruments. As ofJune 30, 2020 , we had an accumulated deficit of$291.1 million , working capital of$18.2 million ,$26.5 million in cash and cash equivalents and restricted cash, and no availability under our A&R Credit Facility. Our short-term liquidity needs primarily include working capital for sales and marketing, research and development, and continued innovation. We have generated significant operating losses and negative cash flows from operations as reflected in our accumulated deficit and condensed consolidated statements of cash flows. We expect to continue to incur operating losses and negative cash flows from operations in the future and may require additional capital resources to execute strategic initiatives to grow 37
--------------------------------------------------------------------------------
Table of Contents
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. OnAugust 4, 2020 , we completed our IPO, in which we issued and sold 7,877,500 shares of our Series 1 common stock, including 1,027,500 shares of Series 1 common stock that were sold pursuant to the exercise in full of the underwriters' option to purchase additional shares of Series 1 common stock at$24.00 per share. The IPO resulted in net proceeds of$175.8 million after deducting underwriting discounts and commissions. Expected expenses incurred by us for the IPO were approximately$3.9 million and will be recorded against stockholders' equity. An additional result of the IPO was the conversion of our 2017 and 2020 Term Loans to Series 1 Common Stock resulting in a$53.9 million reduction in the principal of our outstanding long-term debt. We believe that our existing cash and cash equivalents, our cash flows from operating activities, and our borrowing capacity under our credit facilities will be sufficient to meet our working capital and capital expenditure needs and debt service obligations for at least the next twelve months. In the future, we may attempt to raise additional capital through the sale of additional equity or debt financing. The sale of additional equity would be dilutive to our stockholders. Additional debt financing could result in increased debt service obligations and more restrictive financial and operational covenants. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, operating results and financial condition could be adversely affected.
Cash flows
The following table sets forth a summary of our cash flows for the periods
indicated.
Three months ended June 30, Six months ended June 30,
2020 2019 2020 2019
(inthousands)
Net cash used in operating activities$ (7,004 ) $ (10,032 ) $ (16,994 ) $ (21,158 ) Net cash (used in) provided by investing activities$ (448 ) $ 8,390$ (1,045 ) $ 19,381 Net cash (used in) provided by financing activities$ (149 ) $ (560 )$ 35,400 $ 2,824 Net increase (decrease) in cash, cash equivalents and restricted cash$ (7,601 ) $ (2,202 ) $ 17,361 $ 1,047 As ofJune 30, 2020 , we had$26.5 million in cash, cash equivalents, and restricted cash, an increase of$11.6 million compared to$14.9 million as ofJune 30, 2019 . Cash and cash equivalents consist of highly-liquid investments with original maturities of less than three months. Restricted cash consists of security deposits for future chargebacks and amounts on deposit with certain financial institutions. We maintain cash account balances in excess ofFDIC -insured limits.
Operating activities
Net cash used in operating activities for the three months ended
Net cash used in operating activities for the six months endedJune 30, 2020 and 2019 was$17.0 million and$21.2 million , respectively. This consisted primarily of our net losses adjusted for certain non-cash items including depreciation and amortization, stock-based compensation, debt discount amortization, bad debt expense, and the effect of changes in working capital.
Investing activities
Net cash used in investing activities during the three months ended
Net cash provided by investing activities during the three months endedJune 30, 2019 was$8.4 million . It consisted primarily of purchases of property and equipment of$2.9 million , partially offset by proceeds from the maturities and sale of marketable securities of$11.3 million . 38
--------------------------------------------------------------------------------
Table of Contents
Net cash used in investing activities during the six months endedJune 30, 2020 was$1.0 million . It consisted primarily of purchases of property and equipment of$1.0 million . Net cash provided by investing activities during the six months endedJune 30, 2019 was$19.4 million . It consisted primarily of purchases of property and equipment of$4.1 million , offset by proceeds from the maturities and sale of marketable securities of$23.5 million .
Financing activities
Net cash used in financing activities during the three months endedJune 30, 2020 and 2019 was$0.1 million and$0.6 million , respectively. In the three months endedJune 30, 2020 , the issuance of shares of Series 1 common stock pursuant to the exercise of stock options provided$0.5 million , partially offset by debt repayments of$0.6 million . In the three months endedJune 30, 2019 , bank borrowings provided$.09 million , and issuance of shares of Series 1 common stock pursuant to the exercise of stock options provided$0.04 million , partially offset by debt repayments of$0.5 million . Net cash provided by financing activities during the six months endedJune 30, 2020 and 2019 was$35.4 million and$2.8 million , respectively. In the six months endedJune 30, 2020 , bank borrowings provided$40.7 million and issuance of shares of Series 1 common stock pursuant to the exercise of stock options provided$0.9 million , partially offset by debt repayments of$6.2 million . In the six months endedJune 30, 2019 , bank borrowings provided$3.7 million , and issuance of shares of Series 1 common stock pursuant to the exercise of stock options provided$0.2 million , partially offset by debt repayments of$1.0 million . Indebtedness Credit facility OnOctober 27, 2017 , we entered into our Credit Facility with SVB, which we subsequently amended inAugust 2018 andJune 2019 . The Credit Facility provided a$25.0 million revolving line of credit with a maturity date ofOctober 27, 2021 (the "Revolving Line"), a$5.0 million term loan with a maturity date ofSeptember 1, 2021 (the "2018 Term Loan"), and an undrawn$5.0 million term loan. InFebruary 2020 , we entered into the A&R Credit Facility, which amended and restated the Credit Facility. Among other amendments, the A&R Credit Facility reduced the amount available under the Revolving Line by$5.0 million to$20.0 million , effective concurrent with the funding of the 2020 Convertible Term Loan. The Revolving Line will be further reduced to$10.0 million onSeptember 30, 2020 . As ofJune 30, 2020 , we had$20.0 million outstanding under the Revolving Line and$2.4 million outstanding under the 2018 Term Loan, respectively. We were in compliance with all A&R Credit Facility covenants as ofJune 30, 2020 . Our obligations under the A&R Credit Facility are secured by substantially all of our assets. The A&R Credit Facility contains various covenants, which include: (1) a minimum recurring revenue covenant, (2) a minimum liquidity covenant, (3) a covenant limiting our ability to incur additional 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 5.3% and 3.3% for the Revolving Line during the year endedDecember 31, 2019 and the six months endedJune 30, 2020 , respectively. The weighted-average interest rate was 5.3% and 3.9% for the 2018 Term Loan, during the year endedDecember 31, 2019 and six months endedJune 30, 2020 , respectively. The A&R Credit Facility is subject to customary fees for loan facilities of this type, including ongoing commitment fees at a rate of 0.25% per annum on the daily undrawn balance of the Revolving Line.
2017 Convertible Term Loan
OnOctober 27, 2017 , we entered into a contingent convertible debt agreement (the "2017 Convertible Term Loan") with SVB providing for a term loan of$20.0 million . The 2017 Convertible Term Loan maturity date isOctober 27, 2022 . Our obligations under the 2017 Convertible Term Loan are secured by substantially all of our assets. The 2017 Convertible Term Loan provides the option to convert the outstanding principal, plus accrued and unpaid interest, into shares of our Series F preferred stock at a conversion price of$3.059 per share. The 2017 Convertible Term Loan also provides 39
--------------------------------------------------------------------------------
Table of Contents
lenders the right to purchase Series F preferred stock at
The 2017 Convertible Term Loan contains restrictive covenants, including limits on additional indebtedness, liens, asset dispositions, dividends, investments, and distributions. We were in compliance with all covenants under the 2017 Convertible Term Loan as ofDecember 31, 2019 andJune 30, 2020 . The interest rate for the 2017 Convertible Term Loan is the prime rate then in effect plus a margin of: (a) 2.0% prior toJanuary 1, 2021 ; (b) 4.0% fromJanuary 1, 2021 and prior toJanuary 1, 2022 ; and (c) 6.0% from and afterJanuary 1, 2022 . Interest is calculated on the outstanding principal on a 360-day year basis, payable monthly. The weighted-average interest rate was 5.4% and 5.6% for the 2017 Convertible Term Loan during the year endedDecember 31, 2019 and the six months endedJune 30, 2020 , respectively. The 2017 Convertible Term Loan is subject to customary fees for loan facilities of this type. As ofJune 30, 2020 , we had$18.9 million outstanding under the 2017 Convertible Term Loan. 2020 Convertible Term Loan OnFebruary 28, 2020 , we entered into a contingent convertible debt agreement (the "2020 Convertible Term Loan") with SVB pursuant to which we borrowed a term loan of$35.0 million . The 2020 Convertible Term Loan maturity date isFebruary 28, 2025 . Our obligations under the 2020 Convertible Term Loan are secured by substantially all of our assets. The 2020 Convertible Term Loan provides the option to convert the outstanding principal, plus accrued and unpaid interest, into shares of our common stock at a conversion price of$3.80 per share. In addition to the conversion shares on the outstanding principal, the 2020 Convertible Term Loan requires a deficiency payment if the value of the conversion shares does not meet an applicable required minimum return of (a) 1.25 if converted within 18 months of the agreement, (b) 1.32 if converted between 18 months and 24 months, and (c) 1.55 if converted between 24 months and maturity. The deficiency payment, at the election of the lenders, will be settled either (i) by issuance of additional shares of common stock equal to the difference between the minimum return and the conversion value or (ii) in cash in a single installment in the amount of such difference. The 2020 Convertible Term Loan contains restrictive covenants, including limits on additional indebtedness, liens, asset dispositions, dividends, investments, and distributions. The interest rate for the 2020 Convertible Term Loan is: (a) 4.5% prior toJanuary 1, 2022 ; (b) 6.5% fromJanuary 1, 2022 and prior toJanuary 1, 2023 ; (c) 8.5% fromJanuary 1, 2023 and prior toJanuary 1, 2024 ; and (d) 10.5% from and afterJanuary 1, 2024 . Interest is calculated on the outstanding principal on a 360-day year basis, payable monthly. As ofMarch 31, 2020 , we had$35.0 million outstanding under the 2020 Convertible Term Loan. We were in compliance with all 2020 Convertible Term Loan covenants as ofJune 30, 2020 . OnAugust 4, 2020 in advance of the closing of our IPO, all amounts outstanding under both the 2017 and 2020 Convertible Term Loans were converted into Series 1 Common Stock. Subsequent to our IPO closing, there were no amounts outstanding under these Convertible Term Loans.
Mezzanine facility
OnFebruary 28, 2020 , we entered into a mezzanine loan and security agreement (the "Mezzanine Facility") withWestRiver Innovation Lending Fund VIII, L.P. providing for a term loan of$10.0 million with a draw period that expires onSeptember 30, 2020 . The Mezzanine Facility maturity date isMarch 1, 2023 . Our obligations under the Mezzanine Facility are secured by substantially all of our assets. The Mezzanine Facility contains restrictive covenants, including limits on additional indebtedness, liens, asset dispositions, dividends, investments, and distributions. We were in compliance with all Mezzanine Facility covenants as ofJune 30, 2020 . The Mezzanine Facility remained undrawn as ofJune 30, 2020 . Borrowings under the Mezzanine Facility bear interest at the greater of (i) 10.0% or (ii) the prime rate then in effect plus 5.25%. Interest is calculated on the outstanding principal on a 360-day year basis, payable monthly. We have not drawn any amounts under the Mezzanine Facility. 40
--------------------------------------------------------------------------------
Table of Contents Contractual obligations Our principal commitments consist of (1) obligations under our A&R Credit Facility, our 2017 Convertible Term Loan, our 2020 Convertible Term Loan, and our Mezzanine Facility, (2) operating leases for office space, and (3) purchase obligations with certain technology providers used to host our platform. The following table summarizes our commitments to settle contractual obligations as ofJune 30, 2020 . Payments Due by Period Less than More than 5 Total 1 year 1 - 3 Years 3 - 5 Years years (in thousands) Long term debt obligations$ 76,250 $ 2,394 $ 38,856 $ 35,000 $ - Lease obligations 20,423 1,863 6,941 4,685 6,934 Purchase obligations 10,143 306 9,837 - -
Total contractual obligations
Off-balance sheet arrangements
We did not have any off-balance sheet arrangements as of
Critical accounting policies and estimates
There have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates described in "Management's Discussion and Analysis of Financial Condition and Results of Operations" set forth in the Prospectus.
Recent accounting pronouncements
A discussion of recent accounting pronouncements is included in Note 2 to our
consolidated financial statements included elsewhere in this Quarterly Report on
Form 10-Q.
41
--------------------------------------------------------------------------------
Table of Contents
© Edgar Online, source
