Commerce.com, Inc.: Form 10-Q for the period ended Sep 30, 2023

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed 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 risks 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.”

Investors and others should note that we announce material financial information to our investors using our investor relations website (investors.bigcommerce.com), SEC filings, press releases, public conference calls and webcasts. We intend to use our investor relations website as a means of disclosing information about our business, our financial condition and results of operations and other matters and for complying with our disclosure obligations under Regulation FD. The information we post on our investor relations website, including information contained in investor presentations, may be deemed material. Accordingly, investors should monitor our investor relations website, in addition to following our press releases, SEC filings and public conference calls and webcasts.

Overview

BigCommerce is leading a new era of ecommerce. Our SaaS platform simplifies the creation of online stores by delivering a unique combination of ease-of-use, enterprise functionality, composability and flexibility. 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. 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 September 30, 2023 we served 5,951 enterprise accounts.

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 of our stores run on a single code base and share a global, multi-tenant architecture purpose built for security, high performance, and innovation. Our platform serves stores in a wide variety of sizes, product categories, and purchase types, including B2C and B2B. Our customers include Molton Brown, Burrow, SC Johnson, SkullCandy, SoloStove and Vodafone.

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, $79, and $299 per month when paid annually, or $39, $105, and $399 per month, when paid monthly, respectively. 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. We believe we possess one of the deepest and broadest ecosystems of integrated technology solutions in the ecommerce industry. We strategically partner with, rather than compete against, the leading providers in adjacent categories, including payments, shipping, point of sale (POS), content management system (CMS), customer relationship management (CRM), and enterprise resource planning (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 our mutual prospects and 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.

Key factors affecting our performance

Our operational and financial results have been, and will continue to be, affected by a number of factors that present significant opportunities as well as risks and challenges, including those discussed below and elsewhere in this quarterly report and in our Annual

Report on 10-K, particularly in Part I, Item 1A, “Risk Factors.” The key factors discussed below impacted our 2023 results or are anticipated to impact our future results.

“Go-to-Market” Strategy and Subscription Expansion

Our go-to-market investments have traditionally focused on acquiring new customers driven by investments in digital marketing and sales. Over the last four years, approximately 60-70 percent of subscription ARR expansion has come from new stores and logos, with the remaining 30-40 percent coming from expansion of existing stores. We expect to focus on a more efficient land and expand business model targeting mid-market and enterprise companies across key verticals, product categories, and use cases. This model will be oriented around the initial sale serving as a platform to more effectively upsell and cross sell additional solutions within the same account. We will employ the same land and expand model in key regions, including US brands which also have global operations.

This go-to-market focus up market on mid-market and enterprise customers does not lessen our commitment to our small business customers. We will continue to support our small business customers with a more efficient, digital-first engagement model. We remain a great technology for fast growing small businesses that require more flexibility and product capabilities. These customers, in many cases, evolve into enterprise accounts as their business grows through our platform as well.

Macroeconomic environment and customer spend

The macroeconomic environment impacts our customers differently, and our success will depend upon our success in providing tailored offerings across our various cohorts of customers. For example, in the current macroeconomic environment, we are experiencing significant increases in sales cycle durations for large enterprise merchants compared to 2022. This cohort of the industry tends to have lengthier sales cycles and more complicated business requirements, which magnify the impact of macroeconomic uncertainty. As a result, we have recently experienced a slower-than-expected increase in enterprise account ARR. Although it will take time to scale up our market penetration in this cohort of the industry, we believe we have product market fit for merchants of this size and complexity. To offset the impact of the current macroeconomic climate on our large enterprise merchants, we are increasing our investment in mid-market sales generation, where we observe fewer macroeconomic challenges and strong performance.

Furthermore, due to current macroeconomic conditions, including high inflation and corresponding increases to interest rates, we have experienced slower ecommerce order and GMV growth in 2023. This has led to fewer orders and GMV-based pricing upgrades compared to prior years, and which also negatively affected partner and services revenue growth.

Similarly, we have also experienced a tighter business spending environment, which has negatively impacted our revenue. Over the last twelve months, we have seen a small increase in existing customers seeking to reduce committed order volumes in exchange for lower pricing. We are successfully retaining key customers while negotiating more favorable prepayment terms and effective price per order increases. Some smaller customers have also chosen to delay or cancel projects as a result of macroeconomic conditions. Customers are spending more time evaluating platform investments, which has contributed to enterprise ARR not increasing as anticipated.

Acquisition Strategy

We plan to continue to reinvest a portion of our income from operations in future periods to grow and innovate our business and service offerings and expand our leadership role in the ecommerce industry and we anticipate that the success of these investments will impact our business performance going forward. We regularly evaluate acquisitions and investment opportunities in complementary businesses, services, technologies and intellectual property rights in an effort to expand our service offerings. Past acquisitions have enabled us to deliver innovative solutions in new categories, including feed management. We continue to evaluate opportunities and expect to continue to make investments and acquisitions in the future, such as our most recent acquisition of Makeswift, the world’s most powerful visual editor for Next.js websites. We expect that Makeswift will become an optional component of composable BigCommerce builds in 2024, and thereafter, a part of our natively hosted visual editing toolkit.

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

Annual revenue run-rate

We calculate annual revenue run-rate (“ARR”) at the end of each month as the sum of: (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.

Subscription annual revenue run-rate

We calculate subscription annual revenue run-rate (“ARR”) at the end of each month as the sum of 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.

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, 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 September 30, 2023, includes all subscription solutions and professional services billed between January 1, 2023, and September 30, 2023. 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. 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.

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 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 periods ended:

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, 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 percent 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 from our NRR calculations. NRR for enterprise accounts was 111 percent and 118 percent for years ended December 31, 2022 and 2021, respectively. We update our reported NRR at the end of each fiscal year and do not report quarterly changes in NRR.

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 secure sockets layer (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 for convenience. In the first half of 2023, we implemented a new pricing strategy that provided enterprise merchants a discount for a period of time from their contractual monthly fee. Prior to this new strategy, certain enterprise agreements contain promotional periods. Under both models, merchants have full access to the functionality of our platform upon contract execution, and revenue is recognized ratably over the contract life. 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.

Through Feedonomics, we provide 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. Customers tailor their stores to meet their feature needs by integrating applications developed by our strategic technology partners. We enter into contracts with our strategic technology partners that are generally for one year or longer. We generate revenue from these contracts in three ways: (1) revenue-sharing arrangements, (2) technology integrations, and (3) partner marketing and promotion. We recognize revenue on a net basis from revenue-sharing arrangements when the underlying transaction occurs.

We also generate revenue from non-recurring professional services that we provide to complement the capabilities of our customers and their agency partners. Our services help improve customers’ time-to-market and the success of their businesses using BigCommerce. Our non-recurring services include education packages, launch services, solutions architecting, implementation consulting, and catalog transfer services.

Cost of revenue

Cost of revenue consists primarily of: (1) personnel-related costs (including stock-based compensation expense) for our customer success teams, (2) costs that are directly related to hosting and maintaining our platform, (3) fees for processing customer payments, (4) personnel and other costs related to feed management, and (5) allocated costs, such as, technology and facility 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.

As a result of our growth plans and integration of our previously acquired businesses, we have incurred expenses for equity and cash retention awards and amortization of purchased intangibles, which has increased our operating loss and increased our use of cash currently and for the remainder of fiscal 2024.

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 and sales support 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 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.

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 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 engineers in other low-cost international locations. 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, and human resources, (2) external professional services, and (3) allocated overhead costs, such as, technology and facility costs. We expect our general and administrative expenses to remain stable.

Acquisition related expenses

Acquisition related expenses consists 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.

Restructuring charges

Restructuring charges are comprised of costs incurred as a result of our 2022 Restructure and the 2023 Plan as well as an impairment of the right-of-use assets triggered by our decision to cease using a significant portion of certain leased facilities as a result of the 2022 Restructure. As a part of our effort to drive improved results and evolve our go to market approach, in September 2023, we commenced a restructuring, the 2023 Plan, that affects approximately 7 percent of our global workforce. While headcount and non-headcount reductions impact all teams across the company, we expect to see the largest improvement in margins reflected in sales and marketing expenses.

Interest income

Interest income is earned on our cash, cash equivalents and investments.

Interest expense

Interest expense consists primarily of the interest from the amortization of the debt issuance costs and coupon interest attributable to our convertible note issued in 2021, as well as interest associated with a financing agreement entered into in the first half of 2023.

Other expenses

Other expenses, net primarily consists of loss from share issuance related to the Bundle acquisition and foreign currency translation adjustments.

Provision for income taxes

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. For U.S. federal income tax purposes and in certain foreign and state jurisdictions, we have NOL carryforwards. The foreign jurisdictions in which we operate have different statutory tax rates than those of the United States. Additionally, certain of our foreign earnings may also be currently taxable in the United States. Accordingly, our effective tax rate will vary depending on the relative proportion of foreign to domestic income, use of foreign tax credits, changes in the valuation of our deferred tax assets and liabilities, applicability of any valuation allowances, and changes in tax laws in jurisdictions in which we operate.

Results of operations

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

(1) Amounts include stock-based compensation expense and associated payroll tax costs, as follows:

(in thousands)

Revenue by geographic region

The composition of our revenue by geographic region during the three and nine months ended September 30, 2023 and September 30, 2022 were as follows:

(in thousands)

(in thousands)

28

Comparison of the three and nine months ended September 30, 2023 and September 30, 2022

Revenue

(dollars in thousands)

Total revenue increased $5.7 million, or 7.8 percent, to $78.0 million for the three months ended September 30, 2023, from $72.4 million for the three months ended September 30, 2022, as a result of increases in both subscription solutions and partner and services revenue. Subscription solutions revenue increased $5.5 million, or 10.3 percent, to $58.7 million for the three months ended September 30, 2023, from $53.2 million for the three months ended September 30, 2022, primarily due to increases in enterprise, mid-market, and Feedonomics activity. Partner and services revenue increased $0.2 million, or 0.9 percent, to $19.3 million for the three months ended September 30, 2023, from $19.2 million for the three months ended September 30, 2022, primarily as a result of increases in stand ready activity offset by decreases in integration, revenue share activity, along with other one-time revenue items recorded in the prior year.

Total revenue increased $18.6 million, or 9.0 percent, to $225.2 million for the nine months ended September 30, 2023 from $206.6 million for the nine months ended September 30, 2022, as a result of increases in both subscription solutions and partner and services revenue. Subscription solutions revenue increased $16.1 million or 10.6 percent, to $168.7 million for the nine months ended September 30, 2023, from $152.5 million for the nine months ended September 30, 2022, primarily due to growth in enterprise, mid-market, and Feedonomics activity. Partner and services revenue increased $2.5 million, or 4.5 percent, to $56.6 million for the nine months ended September 30, 2023, from $54.1 million for the nine months ended September 30, 2022, primarily as a result of increases in stand ready activity offset by decreases in integration, revenue share, along with other one-time events recorded in the prior year.

Cost of revenue, gross profit, and gross margin

(dollars in thousands)

Cost of revenue increased $1.5 million, or 8.7 percent, to $19.1 million for the three months ended September 30, 2023, from $17.5 million for the three months ended September 30, 2022, primarily as a result of higher software costs and processing fees of $0.9 million, and higher salaries and stock based compensation costs of $0.6 million. Gross margin decreased to 75.6 percent from 75.8 percent, primarily as a result of these additional transaction processing costs associated with hosting.

Cost of revenue increased $3.8 million, or 7.3 percent, to $55.3 million for the nine months ended September 30, 2023, from $51.5 million for the nine months ended September 30, 2022, primarily as a result of higher software costs and processing fees of $2.9 million, and higher salaries and stock based compensation costs of $0.6 million. Gross margin increased to 75.5 percent from 75.1 percent, primarily as a result of cost cutting measures from the 2022 Restructure.

Operating expenses

Sales and marketing

(dollars in thousands)

Sales and marketing expenses increased $0.3 million, or 0.8 percent, to $36.3 million for the three months ended September 30, 2023 from $36.0 million for the three months ended September 30, 2022, primarily due to higher variable marketing costs of $0.3 million. As a percentage of total revenue, sales and marketing expenses decreased to 46.5 percent from 49.7 percent, primarily as a result of cost cutting measures from the 2022 Restructure.

Sales and marketing expenses increased $0.3 million or 0.2 percent, to $105.9 million for the nine months ended September 30, 2023 from $105.6 million for the nine months ended September 30, 2022, primarily due to higher variable marketing costs of $0.3 million. As a percentage of total revenue, sales and marketing expenses decreased to 47.0 percent from 51.1 percent, primarily as a result of cost cutting measures from the 2022 Restructure.

Research and development

(dollars in thousands)

Research and development decreased $0.5 million, or 2.4 percent, to $21.7 million for the three months ended September 30, 2023 from $22.2 million for the three months ended September 30, 2022, due to the cost cutting measures from the 2022 Restructure. As a percentage of total revenue, research and development expenses decreased to 27.8 percent from 30.7 percent, primarily as a result of cost cutting measures from the 2022 Restructure.

Research and development decreased $1.6 million, or 2.5 percent, to $64.0 million for the nine months ended September 30, 2023 from $65.6 million for the nine months ended September 30, 2022, due to the cost cutting measures from the 2022 Restructure. As a percentage of total revenue, research and development expenses decreased to 28.4 percent from 31.7 percent, primarily as a result of cost cutting measures from the 2022 Restructure.

General and administrative

(dollars in thousands)

General and administrative expenses decreased $4.6 million, or 24.2 percent , to $14.3 million for the three months ended September 30, 2023 from $18.9 million for the three months ended September 30, 2022, primarily due to decreased bad debt expense of $3.7 million due to focus on collection efforts and decreased spend of $0.9 million in salaries and share-based compensation driven by decreases in headcount. As a percentage of total revenue, general and administrative expenses decreased to 18.4 percent from 26.2 percent, primarily as a result of cost cutting measures from the 2022 Restructure.

General and administrative expenses decreased $7.0 million, or 13.5 percent , to $45.3 million for the nine months ended September 30, 2023 from $52.3 million for the nine months ended September 30, 2022, primarily due to a $5.5 million decrease in bad debt expense due to focus on collection efforts and a $1.4 million decrease in various areas including, but not limited to audit fees, insurance, contracting services, travel As a percentage of total revenue, general and administrative expenses decreased to 20.1 percent from 25.3 percent, primarily as a result of cost cutting measures from the 2022 Restructure.

Acquisition related expenses

Acquisition related expense decreased $5.2 million, or 82.5 percent, to $1.1 million for the three months ended September 30, 2023, from $6.3 million for the three months ended September 30, 2022, and decreased $22.1 million, or 70.4 percent, to $9.3 million for the nine months ended September 30, 2023, from $31.4 million for the nine months ended September 30, 2022. This decrease was primarily as a result of a decrease in acquisition related compensation in conjunction with our Feedonomics business combination.

Restructuring charges

Restructuring charges were $5.8 million for the three months ended September 30, 2023, respectively, and $6.2 million for the nine months ended September 30, 2023. These charges primarily related to charges from the 2023 Plan which included a one time charge of $5.5 million resulting from severance and other related charges.

Interest income

Interest income increased $1.7 million, or 121.4 percent, to $3.1 million for the three months ended September 30, 2023, from $1.4 million for the three months ended September 30, 2022, and increased $6.2 million, or 295.2 percent to $8.3 million for the nine months ended September 30, 2023 from $2.1 million for the nine months ended September 30, 2022. This increase was primarily as a result of investment income reinvested at higher interest rates for our cash, cash equivalents and marketable securities.

Interest expense

Interest expense was $0.7 million and $0.7 million for the three months ended September 30, 2023 and 2022, respectively, and was $2.2 million and $2.1 million for the nine months ended September 30, 2023 and 2022 related to our outstanding debt.

Liquidity and capital resources

We have incurred losses since our inception and may continue to generate negative operating cash flow, however we believe we have sufficient cash and cash equivalents and marketable securities to continue to fund operations.

Our operational 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 for the full year 2023 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 continued impact of the conflict in Ukraine and inflation 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 financing. In connection with our acquisition of Feedonomics, we paid $32.5 million in cash at the first anniversary of closing and in July 2023, we made the final payment of $32.5 million in cash. 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. From time to time, we may seek to repurchase, redeem or otherwise retire our convertible notes through cash repurchases and/or exchanges for equity securities, in open market repurchases, privately negotiated transactions, tender offers or otherwise. Such repurchases, redemptions or other transactions, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions, and other factors. The amounts involved may be material. We do not have any material off-balance sheet arrangements that we expect would materially affect our liquidity and capital resources.

Cash flows

The following table sets forth a summary of our cash flows for the periods indicated.

(in thousands)

As of September 30, 2023, we had $70.9 million in cash, cash equivalents, and restricted cash, a decrease of $31.1 million compared to $102.0 million as of September 30, 2022. Cash and cash equivalents consist of highly-liquid investments with original maturities of less than three months. Our restricted cash balance of $1.1 million and $1.4 million at September 30, 2023 and 2022 respectively, consists of security deposits for future chargebacks and amounts on deposit with certain financial institutions. Our marketable securities balance of $195.6 million and $211.9 million at September 30, 2023 and 2022 respectively, consists of investments in corporate and US treasury securities . We maintain cash account balances in excess of Federal Deposit Insurance Corporation (FDIC) insured limits.

Operating activities

Net cash used in operating activities for the three months ended September 30, 2023 and 2022 was $31.4 million and $50.8 million, respectively. This consisted primarily of our net losses adjusted for certain non-cash items including depreciation, stock-based compensation, debt discount amortization, amortization of intangible assets, bad debt expense, and the effect of changes in working capital. Outflows from operating activities were primarily driven by the Feedonomics anniversary payout of $32.5 million and $4.0 million of payments for directors and officers insurance.

Net cash used in operating activities for the nine months ended September 30, 2023 and 2022 was $37.5 million and $86.7 million, respectively. This consisted primarily of our net losses adjusted for certain non-cash items including depreciation, stock-based compensation, debt discount amortization, amortization of intangible assets, bad debt expense, and the effect of changes in working capital.

Investing activities

Net cash provided by (used in) investing activities during the three months ended September 30, 2023 and 2022 was $26.4 million and ($69.3) million, respectively. In the three months ended September 30, 2023, this consists primarily of the sale and maturity of marketable securities of $83.1 million offset by the purchase of property and equipment of $1.1 million and the purchase of marketable securities of $55.7 million. Of the cash proceeds from the sale of marketable securities, $32.5 million was used to fund acquisition related compensation in conjunction with our business combinations. In the three months ended September 30, 2022, this consists primarily of the purchases of marketable securities of $90.6 million and the purchases of property and equipment of $0.7 million offset by the maturity of marketable securities of $22.1 million.

Net cash provided by (used in) investing activities during the nine months ended September 30, 2023 and 2022 was $14.0 million and ($110.1) million, respectively. In the nine months ended September 30, 2023, this consists primarily of the sale and maturity of marketable securities of $206.2 million offset by the purchase of property and equipment of $3.1 million and the purchase of marketable securities of $189.1 million. In the nine months ended September 30, 2022, this consists primarily of the cash paid for the acquisition of Bundle of $0.7 million, the purchases of marketable securities of $169.9 million and the purchases of property and equipment of $4.2 million offset by the maturity of marketable securities of $64.7 million.

Financing activities

Net cash provided by financing activities during the three months ended September 30, 2023 and 2022 was $0.3 million and $0.2 million, respectively. In the three months ended September 30, 2023, this was attributable to proceeds from exercise of stock options of $1.5 million offset by withholdings from the issuance of shares of common stock pursuant to the exercise of stock options and vesting of restricted stock units of $1.0 million and repayments of debt of $0.1 million. In the three months ended September 30, 2022, this was attributable to proceeds from the issuance of shares of common stock pursuant to the exercise of stock options of $0.2 million

Net cash provided by financing activities during the nine months ended September 30, 2023 and 2022 was $1.4 million and $0.1 million, respectively. In the nine months ended September 30, 2023, this was attributable to proceeds from exercise of stock options of $3.7 million and proceeds from the issuance of debt of $1.1 million offset by withholdings from the issuance of shares of common stock pursuant to the exercise of stock options and vesting of restricted stock units of $3.3 million and repayment of debt of $0.1 million. In the nine months ended September 30, 2022, this was attributable to proceeds from the issuance of shares of common stock pursuant to the exercise of stock options of $0.1 million.

Indebtedness

2021 Convertible senior notes

In September 2021, we issued $345,000,000 principal amount of 0.25 percent 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 percent 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 percent 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 percent 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 percent on the principal amount of the Convertible Notes.

Off-balance sheet arrangements

We did not have any off-balance sheet arrangements as of September 30, 2023 or as of December 31, 2022.

Critical accounting policies and estimates

Our condensed consolidated financial statements have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities. We also make estimates and assumptions on the reported revenue generated and reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these 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 our Annual Report on Form 10-K for the year ended December 31, 2022.

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.

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 nine months ended September 30, 2023 were transacted in U.S. dollars. As the we expand our sales and operations internationally, we will be more exposed to changes in foreign exchange rates. Our international revenue is currently invoiced and collected in U.S. dollars. In the future, as we expand into additional international jurisdictions, we expect that our international sales will be primarily denominated in U.S. dollars. If we decide in the future to denominate international sales in currencies other than the U.S. dollar, unfavorable movement in the exchange rates between the U.S. dollar and the currencies in which we conduct foreign sales could have an adverse impact on our revenue.

A portion of our operating expenses are incurred outside the United States and are denominated in foreign currencies, which are subject to fluctuations due to changes in foreign currency exchange rates. In particular, in our Australia and UK-based operations, we pay payroll and other expenses in Australian dollars, British pounds sterling, Euros and Mexican pesos. Our operating results and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates. However, we believe that the exposure to foreign currency fluctuation from operating expenses is relatively small at this time as the related costs do not constitute a significant portion of our total expenses.

We currently do not hedge foreign currency exposure. We may in the future hedge our foreign currency exposure and may use currency forward contracts, currency options, and/or other common derivative financial instruments to reduce foreign currency risk. It is difficult to predict the effect future hedging activities would have on our operating results.

Credit risk

Financial instruments that potentially subject us to concentration of credit risk consist of cash, cash equivalents, restricted cash, accounts receivable and marketable securities. We invest our cash equivalents in highly rated money market funds. Our marketable securities consist of debt securities issued by highly rated corporate entities, foreign governments, the U.S. federal government or state and local governments. Our exposure to any individual corporate entity is limited by policy. Deposits may exceed federally insured limits, and we are exposed to credit risk on deposits in the event of default by the financial institutions to the extent account balances exceed the amount insured by the FDIC.

Evaluation of disclosure controls and procedures

The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act refers to controls and procedures that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that such information is accumulated and communicated to a company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2023, the end of the period covered by this Quarterly Report on Form 10-Q. Based upon such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of such date.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the nine months ended September 30, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Except as set forth below, as of the date of this report, there are no material changes to our risk factors as previously disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022.

If we fail to adapt and respond effectively to rapidly changing technology, evolving industry standards, and changing customer needs or preferences, our platform may become less competitive.

The software industry is subject to rapid technological change, evolving industry standards and practices, and changing customer needs and preferences. The success of our business will depend, in part, on our ability to adapt and respond effectively to these changes on a timely basis. As the Company develops, acquires, and introduces new services and technologies, including those that may incorporate artificial intelligence and machine learning, we may be subject to new or heightened legal, ethical, and other challenges. If the Company is unable to develop and sell new technology, features, and functionality for our platform that satisfy our customers and that keep pace with rapid technological and industry change, our revenue and operating results could be adversely affected. If new technologies emerge that deliver competitive solutions at lower prices, more efficiently, more conveniently, or more securely, it could adversely impact our ability to compete.

Our platform must also integrate with a variety of network, hardware, mobile, and software platforms and technologies. The Company needs to continuously modify and enhance our platform to adapt to changes and innovation in these technologies. If businesses widely adopt new ecommerce technologies, the Company would have to develop new functionality for our platform to work with those new technologies. This development effort may require significant engineering, marketing and sales resources, all of which would affect our business and operating results. Any failure of our platform to operate effectively with future technologies could reduce the demand for our platform. If the Company is unable to respond to these changes in a cost-effective manner, our platform may become less marketable and less competitive or obsolete, and our operating results may be negatively affected.