# Xometry, Inc.: Form 10-Q for the period ended Sep 30, 2023

- Company: [Xometry, Inc.](/companies/xmtr.md) (CIK 1657573)
- Form: 10-Q
- Filed: 2023-11-09
- Accepted by EDGAR: Nov 9, 2023, 16:15 ET
- Period: 2023-09-30
- Accession: 0000950170-23-062075
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1657573/000095017023062075/xmtr-20230930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1657573/000095017023062075/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $118.9m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $335.3m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $72.7m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2023-01-01 to 2023-09-30 | $206.1m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2023-07-01 to 2023-09-30 | $46.2m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2023-01-01 to 2023-09-30 | $129.2m | us-gaap:GrossProfit |
| Research and development | 3 months, 2023-07-01 to 2023-09-30 | $8.5m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2023-01-01 to 2023-09-30 | $25.6m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | −$13.2m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | −$61.0m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | $139.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $208.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | −$12.0m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | −$56.9m | us-gaap:NetIncomeLoss |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | −$28.6m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $12.1m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-09-30 | $44.4m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $357.3m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $700.5m | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $67.8m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $363.6m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-09-30 | $335.8m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 57,433 characters.

*The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q. The discussion contains forward-looking statements that are based on the beliefs of management, as well as assumptions made by, and information currently available to, our management. Actual results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors, including those discussed in Part II, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022. Our historical results are not necessarily indicative of the results that may be expected in the future and our current quarterly results are not necessarily indicative of the results expected for the full year or any other period.*

### Overview

Xometry, Inc. (“Xometry”, “Company”, “our” or “we”) was incorporated in the State of Delaware in May 2013. Xometry is a global online marketplace connecting buyers with suppliers of manufacturing services, transforming one of the largest industries in the world. We use our proprietary technology to create a marketplace that enables buyers to efficiently source manufactured parts and assemblies, and empower suppliers of manufacturing services to grow their businesses. Xometry’s corporate headquarters is located in North Bethesda, Maryland.

Our AI-enabled technology platform is powered by proprietary machine learning algorithms and dataset, resulting in a sophisticated two-sided marketplace that is rapidly digitizing the manufacturing industry. As a result, buyers can procure the products they want on demand, and suppliers can source new manufacturing opportunities that match their specific capabilities and capacity. Interactions on our marketplace provide rich data insights that allow us to continuously improve our AI models and create new products and services, fueling powerful network effects as we scale.

We use proprietary technology to enable product designers, engineers, buyers, and supply chain professionals to instantly access the capacity of a global network of manufacturing facilities. The Company’s platform makes it possible for buyers to quickly receive pricing, expected lead times, manufacturability feedback and place orders on the Company’s platform. The network allows the Company to provide high volumes of unique parts, including custom components and assemblies for its buyers.

Our mission is to accelerate innovation by providing real time, equitable access to global manufacturing capacity and demand. Our vision is to drive efficiency, sustainability and innovation for industries worldwide by lowering the barriers to entry to the manufacturing ecosystem.

Our business benefits from a virtuous network liquidity effect, because adding buyers to our platform generates greater demand on our marketplace which in turn attracts more suppliers to the platform, allowing us to rapidly scale and increase the number of manufacturing processes offered on our platform. In order to continue to meet the needs of buyers and remain highly competitive, we expect to continue to add suppliers to our platform that have new and innovative manufacturing processes. Thus, our platform is unbounded by the in-house manufacturing capacity and processes of our current suppliers.

We define “buyers” as individuals who have placed an order to purchase on-demand parts or assemblies on our marketplace. Our buyers include engineers, product designers, procurement and supply chain personnel, inventors and business owners from businesses of a variety of sizes, ranging from self-funded start-ups to Fortune 100 companies. We define “accounts” as an individual entity, such as a sole proprietor with a single buyer or corporate entities with multiple buyers, having purchased at least one part on our marketplace. We define “suppliers” as individuals or businesses who have been approved by us to either manufacture a product on our platform for a buyer or have utilized our supplier services, including our financial services or the purchase of supplies.

The majority of our revenue is derived from the sale of part(s) and assemblies to our customers on our marketplace, which we refer to as marketplace revenue. The suppliers on our platform offer a diversified and expanding mix of manufacturing processes. These manufacturing processes include computer numerical control (“CNC”) manufacturing, sheet metal forming, sheet cutting, 3D printing (including fused deposition modeling, direct metal laser sintering, PolyJet, stereolithography, selective laser sintering, binder jetting, carbon digital light synthesis, multi jet fusion and lubricant sublayer photo-curing), die casting, stamping, injection molding, urethane casting, tube cutting, tube bending, as well as finishing services, rapid prototyping and high-volume production. Xometry's extensible technology platform allows the Company to add new technologies and processes to gain more wallet share with our buyers. We enable buyers to source these processes to meet complex and specific design and order needs across several industries, including Aerospace, Healthcare, Robotics, Defense, Industrial, Energy, Automotive, Government, Education and Consumer Goods.

We empower suppliers to grow their manufacturing businesses and improve machine uptime by providing access to an extensive, diverse base of buyers. We also offer suppliers supporting products and services to meet their unique needs. We offer suppliers digital advertising and marketing services and data solutions. In addition, our suite of supplier services includes financial service products to stabilize and enhance cash flow and a cloud-based manufacturing execution system (“Workcenter”) to help suppliers optimize their productivity.

In 2021, we acquired Thomas Publishing Company (“Thomas”) and Fusiform, Inc. (d/b/a FactoryFour) (“FactoryFour”), expanding our basket of supplier services to include advertising and marketing services and Workcenter to help suppliers optimize their productivity. Our revenue from Thomas is primarily advertising revenue.

On January 2, 2023, the Company acquired Tridi Teknoloj A.S. (“Tridi”) located in Istanbul, Türkiye pursuant to a Share Purchase Agreement. The acquisition of Tridi extends our marketplace capabilities in Europe and provides us access to the Turkish market.

In May 2023, the Company reduced its workforce by approximately 4% to help manage its operating expenses. During the second quarter of 2023, the Company incurred $0.7 million for employee termination costs related to the May 2023 restructuring.

In addition, the Company previously provided suppliers with access to competitively priced tools, material and supplies in the United States. As a result of exiting the supplies business during the second quarter of 2023, the Company recognized $0.6 million of costs associated with its closure, of which $0.2 million is recognized in cost of revenue and $0.4 million is recognized in operations and support on the Condensed Consolidated Statements of Operations and Comprehensive Loss.

Unfavorable conditions in the economy both in the United States and abroad may negatively affect the growth of our business and our results of operations. For example, macroeconomic events, including changes in inflation, the U.S. Federal Reserve raising interest rates, disruptions in access to bank deposits or lending commitments due to bank failures, geopolitical tensions and the COVID-19 pandemic, have led to economic uncertainty globally. Historically, during periods of economic uncertainty and downturns, businesses may slow spending on information technology and manufacturing, which may impact our business and our customers’ businesses.

The effect of macroeconomic conditions may not be fully reflected in our results of operations until future periods. If, however, economic uncertainty increases or the global economy worsens, our business, financial condition and results of operations may be harmed. For further discussion of the potential impacts of macroeconomic events on our business, financial condition, and operating results, see the section titled “Risk Factors.”

### Key Marketplace Operational and Business Metrics

In addition to the measures presented in our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, we use the following key operational and business metrics to help us evaluate our marketplace business, measure our performance, identify trends affecting our business, formulate business plans and develop forecasts, and make strategic decisions:

### Active Buyers

We define Active Buyers as the number of buyers who have made at least one purchase on our marketplace during the last twelve months. An increase or decrease in the number of Active Buyers is a key indicator of our ability to attract, retain and engage buyers on our platform.

Active Buyers has consistently grown over time. The number of Active Buyers on our platform reached 52,467 as of September 30, 2023, up 43% from 36,789 as of September 30, 2022. The key drivers of Active Buyer growth are continued account and buyer engagement and the success of our strategy to attract new buyers.

### Percentage of Revenue from Existing Accounts

We define an existing account as an account where at least one buyer has made a purchase on our marketplace. We believe the efficiency and transparency of our business model leads to increasing account stickiness and spend over time. Buyers can utilize our marketplace for both one-off and recurring manufacturing opportunities. For example, a buyer may choose to utilize our marketplace’s CNC manufacturing processes to manufacture a discrete component for a prototype, and then may choose to later use our marketplace to mass produce that same component. A buyer may also recommend our marketplace to other engineers within their organizations who are designing other products and who may use an entirely different set of manufacturing processes, deepening our reach and stickiness with an account.

For the quarter ended September 30, 2023, 96% of our revenue was generated from existing accounts. We believe the repeat purchase activity from existing accounts reflects the underlying strength of our business and provides us with substantial revenue visibility and predictability.

### Accounts with Last Twelve-Month Spend of At Least $50,000

Accounts with Last Twelve-Month, or LTM, Spend of At Least $50,000 means an account that has spent at least $50,000 on our marketplace in the most recent twelve-month period. We view the acquisition of an account as a foundation for the addition of long-term buyers to our marketplace. Once an account joins our platform, we aim to expand the relationship and increase engagement and spending activities from that account over time. The number of accounts with LTM Spend of at least $50,000 on our platform reached 1,223 as of September 30, 2023, up 26% from 974 as of September 30, 2022.

### Active Paying Suppliers

We define Active Paying Suppliers as individuals or businesses who have purchased one or more of our supplier services, including digital marketing services, data services, financial services or supplies on our platforms during the last twelve months. An increase or decrease in the number of Active Paying Suppliers is a key indicator of our ability to engage suppliers on our platform.

Active Paying Suppliers has grown over time. The number of Active Paying Suppliers on our platform reached 7,415 as of September 30, 2023, down 2% from 7,557 as of September 30, 2022. The key drivers of Active Paying Suppliers are continued supplier engagement and the success of our strategy to attract new suppliers. The decline during the quarter ended September 30, 2023 is due to our exit from the supplies business. Excluding the supplies business, Active Paying Suppliers on our platform reached 7,337 as of September 30, 2023, up 4% from 7,092 as of September 30, 2022.

### Adjusted EBITDA

We define Adjusted EBITDA as net loss, adjusted for interest expense, interest and dividend income and other expenses, income tax provision (benefit), and certain other non-cash or non-recurring items impacting net loss from time to time, principally comprised of depreciation and amortization, amortization of lease intangible, stock-based compensation, charitable contributions of common stock, income from an unconsolidated joint venture, impairment of assets, lease abandonment, restructuring charges, costs to exit the supplies business and acquisition and other adjustments not reflective of the Company's ongoing business, such as adjustments related to purchase accounting, the revaluation of contingent consideration and transaction costs. Adjusted EBITDA is a performance measure that we use to assess our operating performance and the operating leverage in our business. Adjusted EBITDA Margin is calculated by dividing Adjusted EBITDA for a period by revenue for the same period.

For the three months ended September 30, 2023, Adjusted EBITDA loss was $(4.2) million, as compared to Adjusted EBITDA loss of $(6.5) million for the same quarter in 2022. For the quarter ended September 30, 2023, Adjusted EBITDA Margin was (4)% of revenue, as compared to (6)% of revenue for the same quarter in 2022, driven primarily by increased operating efficiencies as we continue to grow our revenue and margins faster than our expenses.

For the nine months ended September 30, 2023, Adjusted EBITDA loss was $(24.6) million, as compared to Adjusted EBITDA loss of $(27.5) million for the same period in 2022. For the nine months ended September 30, 2023, Adjusted EBITDA Margin was (7)% of revenue, as compared to (10)% of revenue for the same period in 2022, driven primarily by increased operating efficiencies as we continue to grow our revenue and margins faster than our expenses.

|  | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Net loss | $(12,010) | $(15,041) | $(56,912) | $(51,585) |
| Add (deduct) |  |  |  |  |
| Interest expense, interest and dividend income and other expenses | (1,192) | 139 | (3,896) | 2,991 |
| Depreciation and amortization | 2,478 | 1,909 | 7,939 | 5,716 |
| Amortization of lease intangible | 180 | 333 | 770 | 999 |
| Provision (benefit) for income taxes | 139 | — | 208 | (559) |
| Stock based compensation | 5,730 | 5,113 | 16,222 | 14,048 |
| Lease abandonment | — | — | 8,706 | — |
| Acquisition and other | 117 | 42 | 343 | (1,242) |
| Charitable contribution of common stock | 326 | 987 | 696 | 2,272 |
| Income from unconsolidated joint venture | (134) | (297) | (437) | (600) |
| Impairment of assets | 151 | 325 | 397 | 444 |
| Restructuring charge | — | — | 738 | — |
| Costs to exit the supplies business | — | — | 586 | — |
| Adjusted EBITDA | $(4,215) | $(6,490) | $(24,640) | $(27,516) |

### Non-GAAP Net Loss

We define Non-GAAP net loss, as net loss adjusted for depreciation and amortization, stock-based compensation expense, amortization of lease intangible, amortization of deferred costs on convertible notes, loss on marketable securities, loss on sale of property and equipment, charitable contributions of common stock, impairment of assets, lease abandonment and termination, restructuring charges, costs to exit the supplies business and acquisition and other adjustments not reflective of the Company's ongoing business, such as adjustments related to purchase accounting, the revaluation of contingent consideration and transaction costs.

| Non-GAAP Net Loss: | For the Three Months Ended September 30, 2023 | 2022 | For the Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Net loss | $(12,010) | $(15,041) | $(56,912) | $(51,585) |
| Add (deduct): |  |  |  |  |
| Depreciation and amortization | 2,478 | 1,909 | 7,939 | 5,716 |
| Stock-based compensation | 5,730 | 5,113 | 16,222 | 14,048 |
| Amortization of lease intangible | 180 | 333 | 770 | 999 |
| Amortization of deferred costs on convertible notes | 466 | 469 | 1,396 | 1,250 |
| Loss on marketable securities | — | 469 | — | 1,659 |
| Acquisition and other | 117 | 42 | 343 | (1,242) |
| Loss on sale of property and equipment | — | — | 92 | 71 |
| Charitable contribution of common stock | 326 | 987 | 696 | 2,272 |
| Lease abandonment and termination | — | — | 8,778 | — |
| Impairment of assets | 151 | 325 | 397 | 444 |
| Restructuring charge | — | — | 738 | — |
| Costs to exit the supplies business | — | — | 586 | — |
| **Non-GAAP Net Loss** | $(2,562) | $(5,394) | $(18,955) | $(26,368) |

For the three months ended September 30, 2023, Non-GAAP net loss was $(2.6) million, as compared to Non-GAAP net loss of $(5.4) million for the same quarter in 2022. For the quarter ended September 30, 2023, Non-GAAP net loss was (2)% of revenue, as compared to (5)% of revenue for the same quarter in 2022.

For the nine months ended September 30, 2023, Non-GAAP net loss was $(19.0) million, as compared to Non-GAAP net loss of $(26.4) million for the same period in 2022. For the nine months ended September 30, 2023, Non-GAAP net loss was (6)% of revenue, as compared to (9)% of revenue for the same period in 2022.

Adjusted EBITDA and Non-GAAP net loss are non-GAAP financial measures that we use, in addition to our GAAP financial measures, to evaluate our business. We have included Adjusted EBITDA and Non-GAAP net loss in this filing because they are key measures used by our management to evaluate our operating performance. Accordingly, we believe that Adjusted EBITDA and Non-GAAP net loss provide useful information to investors and others in understanding and evaluating our operating results in the same manner as our management team and board of directors. Our calculation of Adjusted EBITDA and Non-GAAP net loss may differ from similarly titled non-GAAP measures, if any, reported by our peer companies and therefore may not serve as an accurate basis of comparison among companies. Adjusted EBITDA and Non-GAAP net loss should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP.

### Components of Results of Operations

### Revenue

Our marketplace revenue is primarily comprised of sales to customers through our platform. Buyers purchase specialized CNC manufacturing, sheet metal manufacturing, 3D printing, injection molding, urethane casting, tube cutting, tube bending and finishing services. Customer purchases range from rapid prototyping of single parts to high-volume production on our marketplace. These products are primarily manufactured by our network of suppliers.

Supplier services revenue includes the sale of marketing and advertising services, and to a lesser extent financial service products, SaaS-based solutions and the sale of supplies.

### Cost of Revenue

Marketplace cost of revenue primarily consists of the cost to us of the products that are manufactured or produced by us or our suppliers for delivery to buyers on our platform, internal and external production costs, shipping costs and certain internal depreciation. We expect cost of revenue to increase in absolute dollars to the extent our revenue increases and transaction volume increases. As we grow and add suppliers to our platform, we are able to improve our pricing efficiency, we expect cost of revenue to decline as a percentage of revenue over time.

Cost of revenue for supplier services primarily consists of internal and external production costs and website hosting.

### Gross Profit

Gross profit, or revenue less cost of revenue, is primarily affected by the growth of our revenue. Our gross profit margin is primarily affected by liquidity of our suppliers’ network and the efficiency of our pricing and will be benefited by increasing the use of existing supplier services and the variety of supplier services offerings over time.

### Operating Expenses

Our operating expenses consist of sales and marketing, operations and support, product development and general and administrative functions.

### Sales and Marketing

Sales and marketing expenses are expensed as incurred and include the costs of our digital marketing strategies, branding costs and other advertising costs, certain depreciation and amortization expense, contract acquisition costs and compensation expenses, including stock-based compensation, to our sales and marketing employees. We intend to continue to invest in our sales and marketing capabilities in the future to continue to increase our brand awareness, add new accounts and further penetrate existing accounts. We expect sales and marketing expense to increase in absolute dollars in the future as we grow our business, though in the near-term sales and marketing expenses may fluctuate from period-to-period based on the timing of our investments in our sales and marketing functions as these investments may vary in scope and scale over future periods.

### Operations and Support

Operations and support expenses are the costs we incur in support of the buyers and suppliers on our platform which are provided by phone, email and chat for purposes of resolving buyer and suppliers related matters. These costs primarily consist of compensation expenses of the support staff, including stock-based compensation, certain depreciation and amortization expense and software costs used in delivering buyer and suppliers services. We expect operations and support expense to increase in absolute dollars in the future, though in the near-term operations and support expenses may fluctuate from period-to-period based on total revenue levels and the timing of our investments in our operations and support functions as these investments may vary in scope and scale over future periods.

### Product Development

Product development costs which are not eligible for capitalization are expensed as incurred. This account also includes compensation expenses, including stock-based compensation expenses to our employees performing these functions and certain depreciation and amortization expense. We expect product development expense to increase in absolute dollars in the future, though in the near-term product development expenses may fluctuate from period-to-period based on total revenue levels and the timing of our investments in our product development functions as these investments may vary in scope and scale over future periods.

### General and Administrative

General and administrative expenses primarily consist of compensation expenses, including stock-based compensation expenses, for executive, finance, legal and other administrative personnel, professional service fees and certain depreciation and amortization expense. We expect general and administrative expenses to fluctuate as a result of operating as a public company.

### Other (Expenses) Income

#### Interest Expense

Interest expense consists of interest incurred on our outstanding borrowings under our outstanding convertible notes or other borrowings.

#### Interest and Dividend Income

Interest and dividend income consists of interest and dividends on our cash, cash equivalents and marketable securities.

#### Other Expenses

Other expenses consist primarily of realized and/or unrealized losses and other expenses.

#### Income from Unconsolidated Joint Venture

Income from unconsolidated joint venture consists of our share of the joint venture's income.

### Results of Operations

### Comparison of the Three Months Ended September 30, 2023 and 2022

The following table sets forth our unaudited statements of operations data for the periods indicated:

*(in thousands)*

|  | Three Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Revenue | $118,927 | $103,571 |
| Cost of revenue | 72,678 | 62,670 |
| Gross profit | 46,249 | 40,901 |
| Operating expenses: |  |  |
| Sales and marketing | 23,210 | 21,416 |
| Operations and support | 12,622 | 11,620 |
| Product development | 8,523 | 7,613 |
| General and administrative | 14,940 | 15,126 |
| Impairment of assets | 151 | 325 |
| Total operating expenses | 59,446 | 56,100 |
| Loss from operations | (13,197) | (15,199) |
| Other income (expenses): |  |  |
| Interest expense | (1,205) | (1,194) |
| Interest and dividend income | 2,994 | 1,344 |
| Other expenses | (597) | (289) |
| Income from unconsolidated joint venture | 134 | 297 |
| Total other income (expenses) | 1,326 | 158 |
| Loss before income taxes | (11,871) | (15,041) |
| Provision for income taxes | (139) | — |
| Net loss | (12,010) | (15,041) |
| Net income (loss) attributable to noncontrolling interest | 13 | (4) |
| Net loss attributable to common stockholders | $(12,023) | $(15,037) |

29

The following table sets forth our unaudited statements of operations data expressed as a percentage of total revenue for the periods indicated:

|  | Three Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Revenue | 100.0% | 100.0% |
| Cost of revenue | 61.1% | 60.5% |
| Gross profit | 38.9% | 39.5% |
| Operating expenses: |  |  |
| Sales and marketing | 19.5% | 20.7% |
| Operations and support | 10.6% | 11.2% |
| Product development | 7.2% | 7.4% |
| General and administrative | 12.6% | 14.6% |
| Impairment of assets | 0.1% | 0.3% |
| Total operating expenses | 50.0% | 54.2% |
| Loss from operations | (11.1)% | (14.7)% |
| Other income (expenses): |  |  |
| Interest expense | (1.0)% | (1.2)% |
| Interest and dividend income | 2.5% | 1.3% |
| Other expenses | (0.5)% | (0.3)% |
| Income from unconsolidated joint venture | 0.1% | 0.3% |
| Total other income (expenses) | 1.1% | 0.1% |
| Loss before income taxes | (10.0)% | (14.6)% |
| Provision for income taxes | (0.1)% | —% |
| Net loss attributable to common stockholders | (10.1)% | (14.6)% |
| Net income (loss) attributable to noncontrolling interest | —% | —% |
| Net loss attributable to common stockholders | (10.1)% | (14.6)% |

The following tables present our disaggregated revenue and cost of revenue. Revenue from our marketplace primarily reflects the sales of parts and assemblies on our platform. Revenue from supplier services primarily includes the sale of advertising and to a lesser extent financial service products, SaaS products and supplies.

Revenue and cost of revenue is presented in the following tables for the three months ended September 30, 2023 and 2022 (in thousands):

| Marketplace | For the Three Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Revenue | $102,473 | $84,060 |
| Cost of revenue | 70,578 | 58,479 |
| Gross Profit | $31,895 | $25,581 |
| Gross Margin | 31.1% | 30.4% |
| **Supplier services** |  |  |
| Revenue | $16,454 | $19,511 |
| Cost of revenue | 2,100 | 4,191 |
| Gross Profit | $14,354 | $15,320 |
| Gross Margin | 87.2% | 78.5% |

### Revenue

Total revenue increased $15.4 million, or 15%, from $103.6 million for the three months ended September 30, 2022 to $118.9 million for the three months ended September 30, 2023. This growth was a result of an increase in marketplace revenue, partially offset by a decrease in supplier services revenue. Total revenue from marketplace and supplier services for the three months ended September 30, 2023 was $102.5 million and $16.5 million, respectively, as compared to $84.1 million and $19.5 million, respectively, for the three months ended September 30, 2022. Marketplace revenue increased $18.4 million, or 22% from $84.1 million for the three months ended September 30, 2022 to $102.5 million for the three months ended September 30, 2023. The increase in marketplace revenue was primarily due increased buyer activity on the platform for the three months ended September 30, 2023, as compared to the prior year period.

Supplier services revenue decreased $3.1 million, or 16% from $19.5 million for the three months ended September 30, 2022 to $16.5 million for the three months ended September 30, 2023. The decrease in revenue was primarily due to our exit from the supplies business in the U.S. during the second quarter of 2023.

Total revenue for the three months ended September 30, 2023 and 2022, was $103.4 million and $94.8 million, respectively, for the U.S. operating segment, and $15.5 million and $8.7 million, respectively, for the International operating segment.

### Cost of Revenue

Total cost of revenue increased $10.0 million, or 16%, from $62.7 million for the three months ended September 30, 2022 to $72.7 million for the three months ended September 30, 2023. This increase was the result of an increase in marketplace cost of revenue offset by a decrease in supplier services costs of revenue. Total cost of revenue from marketplace and supplier services for the three months ended September 30, 2023 was $70.6 million and $2.1 million, respectively, as compared to $58.5 million and $4.2 million, respectively for the three months ended September 30, 2022.

Marketplace cost of revenue was driven by increased payments to suppliers on our platform due to order growth and increased activity on our marketplace.

### Gross Profit and Margin

Gross profit increased $5.3 million, or 13%, from $40.9 million for the three months ended September 30, 2022 to $46.2 million for the three months ended September 30, 2023. The increase in gross profit was primarily due to increases in revenue from marketplace and improved marketplace gross margins as compared to the prior year period.

Gross margin for marketplace was 31.1% for the three months ended September 30, 2023, as compared to 30.4% for the three months ended September 30, 2022. The improvement over the prior year period was due in part to our AI-driven platform and increasing supplier selection. Pricing has become more efficient due to the increased number of orders over time, improving the data set and thus making our pricing decisions more accurate. Additionally, we continue to grow our active suppliers resulting in more competition for buyers’ orders and therefore a lower cost of revenue. Gross margin for our supplier services was 87.2% for the three months ended September 30, 2023, as compared to 78.5% for the three months ended September 30, 2022. The increase in gross margin for supplier services is primarily due to a higher mix of marketing services revenue and the exit from the lower margin supplies business. As marketplace revenue continues to grow, our aggregate gross margin will change.

### Operating Expenses

#### Sales and Marketing

Sales and marketing expense increased $1.8 million, or 8%, from $21.4 million for the three months ended September 30, 2022 to $23.2 million for the three months ended September 30, 2023, primarily due to sales commissions resulting from sales growth offset by lower advertising costs. As a percent of total revenue, sales and marketing expenses decreased to 19.5% for the three months ended September 30, 2023 from 20.7% for the three months ended September 30, 2022.

#### Operations and Support

Operations and support expense increased $1.0 million, or 9%, from $11.6 million for the three months ended September 30, 2022 to $12.6 million for the three months ended September 30, 2023, due to increases in consulting costs and hiring additional operations and support employees and their compensation, including stock-based compensation. As a percent of total revenue, operations and support expenses decreased to 10.6% for the three months ended September 30, 2023 from 11.2% for the three months ended September 30, 2022.

#### Product Development

Product development expense increased $0.9 million, or 12%, from $7.6 million for the three months ended September 30, 2022 to $8.5 million for the three months ended September 30, 2023, primarily as result of increases in depreciation expense related to capitalized internal-use software development costs, hiring additional product development employees and their compensation, including stock-based compensation, and additional software costs, offset by a decrease in consulting expense. As a percent of total revenue, product development expenses decreased to 7.2% for the three months ended September 30, 2023 as compared to 7.4% for the three months ended September 30, 2022.

#### General and Administrative

General and administrative expense decreased $0.2 million, or 1%, from $15.1 million for the three months ended September 30, 2022 to $14.9 million for the three months ended September 30, 2023. The decrease is due to a reduction in non-cash charitable contributions of Class A common stock and lower facility cost due to the abandonment of leased offices in the second quarter of 2023. Offsetting these decreases are increased costs for software and maintenance, consulting expense and professional fees. As a percent of total revenue, general and administrative expenses decreased to 12.6% for the for the three months ended September 30, 2023 from 14.6% for the three months ended September 30, 2022.

#### Impairment of Assets

Impairment expense decreased $0.2 million, or 54%, from $0.3 million for the three months ended September 30, 2022 to $0.2 million for the three months ended September 30, 2023. As a percent of total revenue, impairment expense decreased to 0.1% for the for the three months ended September 30, 2023 from 0.3% for the three months ended September 30, 2022.

### Other (Expenses) Income

#### Interest Expense

Interest expense remained flat at $1.2 million for the three months ended September 30, 2022 and for the three months ended September 30, 2023. Interest expense is primarily due to the interest on the 2027 convertible notes issued in February 2022.

#### Interest and Dividend Income

Interest and dividend income increased by $1.7 million, or 123%, from $1.3 million for the three months ended September 30, 2022 to $3.0 million for the three months ended September 30, 2023, primarily due to dividend income from our marketable securities.

#### Other Expenses

Other expenses increased by $0.3 million, or 107%, from $0.3 million for the three months ended September 30, 2022 to $0.6 for the three months ended September 30, 2023.

#### Income from Unconsolidated Joint Venture

Income from unconsolidated joint venture decreased $0.2 million, or 55%, from $0.3 million for the three months ended September 30, 2022 to $0.1 for the three months ended September 30, 2023 due to a decrease in income from our 50% interest in Industrial Media, LLC.

#### Additional Segment Considerations

Total segment loss from our U.S. operating segment for the three months ended September 30, 2023 and 2022, was $7.9 million and $10.7 million, respectively. Total segment loss from our International operating segment for the three months ended September 30, 2023 and 2022, was $4.1 million and $4.3 million, respectively.

### Comparison of the Nine Months Ended September 30, 2023 and 2022

The following table sets forth our unaudited statements of operations data for the periods indicated:

*(in thousands)*

|  | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Revenue | $335,261 | $282,857 |
| Cost of revenue | 206,087 | 171,321 |
| Gross profit | 129,174 | 111,536 |
| Operating expenses: |  |  |
| Sales and marketing | 68,315 | 58,846 |
| Operations and support | 39,450 | 36,158 |
| Product development | 25,570 | 22,698 |
| General and administrative | 56,479 | 43,143 |
| Impairment of assets | 397 | 444 |
| Total operating expenses | 190,211 | 161,289 |
| Loss from operations | (61,037) | (49,753) |
| Other income (expenses): |  |  |
| Interest expense | (3,596) | (3,172) |
| Interest and dividend income | 8,648 | 1,914 |
| Other expenses | (1,156) | (1,733) |
| Income from unconsolidated joint venture | 437 | 600 |
| Total other income (expenses) | 4,333 | (2,391) |
| Loss before income taxes | (56,704) | (52,144) |
| (Provision) benefit for income taxes | (208) | 559 |
| Net loss | (56,912) | (51,585) |
| Net income (loss) attributable to noncontrolling interest | 9 | 17 |
| Net loss attributable to common stockholders | $(56,921) | $(51,602) |

33

The following table sets forth our unaudited statements of operations data expressed as a percentage of total revenue for the periods indicated:

|  | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Revenue | 100.0% | 100.0% |
| Cost of revenue | 61.5% | 60.6% |
| Gross profit | 38.5% | 39.4% |
| Operating expenses: |  |  |
| Sales and marketing | 20.4% | 20.8% |
| Operations and support | 11.8% | 12.8% |
| Product development | 7.6% | 8.0% |
| General and administrative | 16.8% | 15.3% |
| Impairment of assets | 0.1% | 0.2% |
| Total operating expenses | 56.7% | 57.1% |
| Loss from operations | (18.2)% | (17.7)% |
| Other income (expenses): |  |  |
| Interest expense | (1.1)% | (1.1)% |
| Interest and dividend income | 2.6% | 0.7% |
| Other expenses | (0.3)% | (0.6)% |
| Income from unconsolidated joint venture | 0.1% | 0.2% |
| Total other income (expenses) | 1.3% | (0.8)% |
| Loss before income taxes | (16.9)% | (18.5)% |
| (Provision) benefit for income taxes | (0.1)% | 0.2% |
| Net loss | (17.0)% | (18.3)% |
| Net income (loss) attributable to noncontrolling interest | —% | —% |
| Net loss attributable to common stockholders | (17.0)% | (18.3)% |

The following tables present our disaggregated revenue and cost of revenue. Revenue from our marketplace primarily reflects the sales of parts and assemblies on our platform. Revenue from supplier services primarily includes the sale of advertising and to a lesser extent financial service products, SaaS products and supplies.

Revenue and cost of revenue is presented in the following tables for the nine months ended September 30, 2023 and 2022 (in thousands):

| Marketplace | For the Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Revenue | $282,664 | $224,073 |
| Cost of revenue | 196,240 | 158,712 |
| Gross Profit | $86,424 | $65,361 |
| Gross Margin | 30.6% | 29.2% |
| **Supplier services** |  |  |
| Revenue | $52,597 | $58,784 |
| Cost of revenue | 9,847 | 12,609 |
| Gross Profit | $42,750 | $46,175 |
| Gross Margin | 81.3% | 78.6% |

### Revenue

Total revenue increased $52.4 million, or 19%, from $282.9 million for the nine months ended September 30, 2022 to $335.3 million for the nine months ended September 30, 2023. This growth was a result of an increase in marketplace revenue, partially offset by a decrease in supplier services revenue. Marketplace revenue increased $58.6 million, or 26% from $224.1 million for the nine months ended September 30, 2022 to $282.7 million for the nine months ended September 30, 2023. The increase in marketplace revenue was primarily due increased buyers activity on the platform for the nine months ended September 30, 2023, as compared to the prior year period.

Supplier services revenue decreased $6.2 million, or 11% from $58.8 million for the nine months ended September 30, 2022 to $52.6 million for the nine months ended September 30, 2023. The decrease in revenue was primarily due to our exit from the supplies business in the U.S. during the second quarter of 2023.

Total revenue for the nine months ended September 30, 2023 and 2022, was $292.7 million and $258.6 million, respectively, for the U.S. operating segment, and $42.5 million and $24.3 million, respectively, for the International operating segment.

### Cost of Revenue

Total cost of revenue increased $34.8 million, or 20%, from $171.3 million for the nine months ended September 30, 2022 to $206.1 million for the nine months ended September 30, 2023. This increase was the result of an increase in marketplace cost of revenue offset by a decrease in supplier services costs of revenue. Total cost of revenue from marketplace and supplier services for the nine months ended September 30, 2023 was $196.2 million and $9.8 million, respectively, as compared to $158.7 million and $12.6 million, respectively for the nine months ended September 30, 2022.

Marketplace cost of revenue was driven by increased payments to suppliers on our platform due to order growth and increased activity on our marketplace.

### Gross Profit and Margin

Gross profit increased $17.6 million, or 16%, from $111.5 million for the nine months ended September 30, 2022 to $129.2 million for the nine months ended September 30, 2023. The increase in gross profit was primarily due to increases in revenue from marketplace and improved marketplace gross margins as compared to the prior year period.

Gross margin for marketplace was 30.6% for the nine months ended September 30, 2023, as compared to 29.2% for the nine months ended September 30, 2022. The improvement over the prior year period was due in part to our AI-driven platform and increasing supplier selection. Pricing has become more efficient due to the increased number of orders over time, improving the data set and thus making our pricing decisions more accurate. Additionally, we continue to grow our active suppliers resulting in more competition for buyers’ orders and therefore a lower cost of revenue. Gross margin for our supplier services improved to 81.3% for the nine months ended September 30, 2023, as compared to 78.6% for the nine months ended September 30, 2022. The increase in gross margin for supplier services is primarily due to a higher mix of marketing services revenue and the exit from the lower margin supplies business. As marketplace revenue continues to grow, our aggregate gross margin will change.

### Operating Expenses

#### Sales and Marketing

Sales and marketing expense increased $9.5 million, or 16%, from $58.8 million for the nine months ended September 30, 2022 to $68.3 million for the nine months ended September 30, 2023, the increase was primarily due to increases in commissions expense due to increased sales and additional sales and marketing employees and compensation costs, including stock-based compensation. As a percent of total revenue, sales and marketing expenses decreased to 20.4% for the nine months ended September 30, 2023 from 20.8% for the nine months ended September 30, 2022.

#### Operations and Support

Operations and support expense increased $3.3 million, or 9%, from $36.2 million for the nine months ended September 30, 2022 to $39.5 million for the nine months ended September 30, 2023, primarily due to hiring of additional operations and support employees and their compensation costs, including stock-based compensation, and expenses incurred as part of the Company's restructuring and exit from the supplies business. As a percent of total revenue, operations and support expenses decreased to 11.8% for the nine months ended September 30, 2023 from 12.8% for the nine months ended September 30, 2022.

#### Product Development

Product development expense increased $2.9 million, or 13%, from $22.7 million for the nine months ended September 30, 2022 to $25.6 million for the nine months ended September 30, 2023, primarily as result of increases in depreciation expense related to capitalized internal-use software development costs, hiring additional product development employees and their compensation, including stock-based compensation and additional software and maintenance costs. Offsetting these costs were decreases in consulting expenses. As a percent of total revenue, product development expenses decreased slightly to 7.6% for the nine months ended September 30, 2023 from 8.0% for the nine months ended September 30, 2022.

#### General and Administrative

General and administrative expense increased $13.3 million, or 31%, from $43.1 million for the nine months ended September 30, 2022 to $56.5 million for the nine months ended September 30, 2023. The primary driver of the increase was due to the abandonment of multiple company leases resulting in a one-time $8.7 million increase in operating lease expense. In addition, there were higher professional fees related to accounting and legal services, higher software and maintenance costs and consulting expenses. These increases were partially offset by a reduction in non-cash charitable contributions of Class A common stock and insurance costs. As a percent of total revenue, general and administrative expenses increased to 16.8% for the nine months ended September 30, 2023 from 15.3% for the nine months ended September 30, 2022.

#### Impairment of Assets

Impairment expense remained constant at approximately $0.4 million for the nine months ended September 30, 2022 and 2023. As a percent of total revenue, impairments expense decreased to 0.1% for the nine months ended September 30, 2023 from 0.2% for the nine months ended September 30, 2022.

### Other (Expenses) Income

#### Interest Expense

Interest expense increased by $0.4 million, or 13%, from $3.2 million for the nine months ended September 30, 2022 to $3.6 million for the nine months ended September 30, 2023, primarily due to the interest on the 2027 convertible notes issued in February 2022.

#### Interest and Dividend Income

Interest and dividend income increased by $6.7 million, or 352%, from $1.9 million for the nine months ended September 30, 2022 to $8.6 million for the nine months ended September 30, 2023, primarily due to dividend income from our marketable securities.

#### Other Expenses

Other expenses decreased by $0.6 million, or 33%, from $1.7 million for the nine months ended September 30, 2022 to $1.2 million for the nine months ended September 30, 2023, primarily as a result of decreases in unrealized loss on marketable securities.

#### Income from Unconsolidated Joint Venture

Income from unconsolidated joint venture decreased $0.2 million, or 27%, from $0.6 million for the nine months ended September 30, 2022 to $0.4 million for the nine months ended September 30, 2023, primarily due to a decrease in the income from our 50% interest in Industrial Media, LLC.

#### Additional Segment Considerations

Total segment loss from our U.S. operating segment for the nine months ended September 30, 2023 and 2022, was $43.7 million and $37.0 million, respectively. Total segment loss from our International operating segment for the nine months ended September 30, 2023 and 2022, was $13.2 million and $14.6 million, respectively.

### Liquidity and Capital Resources

### General

We have financed our operations primarily through sales of our equity securities and borrowings under our convertible notes. As of September 30, 2023, our cash and cash equivalents and marketable securities totaled $276.8 million. We believe our existing cash and cash equivalents and marketable securities will be sufficient to support our working capital and capital expenditure requirements for at least the next twelve months and over the long-term. We believe we will meet our longer-term expected future cash requirements primarily from a combination of cash flow from operating activities and available cash and cash equivalents and marketable securities. We may also engage in equity or debt financings to secure additional funds. Our future capital requirements will depend on many factors, including our revenue growth rate, receivable and payable cycles, the timing and extent of investments in product development, sales and marketing, operations and support and general and administrative expenses.

Our capital expenditures consist primarily of internal-use software costs, manufacturing equipment, computers and peripheral equipment, furniture and fixtures and leasehold improvements and patents.

### Convertible Notes due 2027

In February 2022, we entered into a purchase agreement with certain counterparties for the sale of an aggregate of $287.5 million principal amount of convertible senior notes due in 2027 (the “2027 Notes”) in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”). The 2027 Notes consisted of a $250 million initial placement and an over-allotment option that provided the initial purchasers of the 2027 Notes with the option to purchase an additional $37.5 million aggregate principal amount of the 2027 Notes, which was fully exercised. The 2027 Notes were issued pursuant to an indenture dated February 4, 2022. The net proceeds from the issuance of the 2027 Notes were $278.2 million, net of debt issuance costs. The debt issuance costs are amortized to interest expense using the effective interest rate method.

The 2027 Notes are unsecured obligations which bear regular interest at 1% per annum and for which the principal balance will not accrete. Interest payment are due on February 1 and August 1 of each year the Notes remain outstanding. The 2027 Notes will mature on February 1, 2027 unless repurchased, redeemed, or converted in accordance with their terms prior to such date.

The 2027 Notes are convertible into cash, shares of our Class A common stock, or a combination of cash and shares of our Class A common stock, at our election, at an initial conversion rate of 17.8213 shares of Class A common stock per $1,000 principal amount of 2027 Notes, which is equivalent to an initial conversion price of approximately $56.11 per share of our Class A common stock. The conversion rate is subject to customary adjustments for certain events as described in the indenture governing the 2027 Notes.

We may redeem for cash all or any portion of the 2027 Notes, at our option, on or after February 5, 2025 if the last reported sale price of our Class A common stock has been at least 130% of the conversion price then in effect for at least 20 trading days at a redemption price equal to 100% of the principal amount of the 2027 Notes to be redeemed, plus accrued and unpaid interest or additional interest, if any.

Holders of the 2027 Notes may convert all or a portion of their 2027 Notes at their option prior to November 1, 2026, in multiples of $1,000 principal amounts, only under the following circumstances:

- if the last reported sale price of our Class A common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on the last trading day of the preceding calendar quarter is greater than or equal to 130% of the applicable conversion price of the 2027 Notes on each such trading day;
- during the five-business day period after any ten consecutive trading day period in which the trading price per $1,000 principal amount of the 2027 Notes for each day of that ten consecutive trading day period was less than 98% of the product of the last reported sale price of our Class A common stock and the applicable conversion rate of the 2027 Notes;
- on a notice of redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date, in which case we may be required to increase the conversion rate for the 2027 Notes so surrendered for conversion in connection with such redemption notice; or
- on the occurrence of specified corporate events.

On or after November 1, 2026, the 2027 Notes are convertible at any time until the close of business on the second scheduled trading day immediately preceding the maturity date.

Holders of the 2027 Notes who convert the 2027 Notes in connection with a make-whole fundamental change, as defined in the indenture governing the 2027 Notes, or in connection with a redemption are entitled to an increase in the conversion rate. Additionally, in the event of a fundamental change, holders of the 2027 Notes may require us to repurchase all or a portion of the 2027 Notes at a price equal to 100% of the principal amount of 2027 Notes, plus any accrued and unpaid special interest, if any.

We accounted for the issuance of the 2027 Notes as a single liability measured at its amortized cost, as no other embedded features require bifurcation and recognition as derivatives.

As of September 30, 2023, the 2027 Notes have a carrying value of $281.3 million with an effective annual interest rate of 1.6%.

We may, from time to time, repurchase our convertible senior notes using cash on hand, either on the open market or in privately negotiated transactions.

### Cash Flows

The following table presents a summary of our cash flows from operating, investing, and financing activities for the nine months ended September 30, 2023 and 2022.

*(in thousands)*

|  | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Net cash used in operating activities | $(28,583) | $(45,510) |
| Net cash provided by (used in) investing activities | 6,181 | (291,336) |
| Net cash provided by financing activities | 1,428 | 281,506 |

### Operating Activities

For the nine months ended September 30, 2023, net cash used in operating activities was $28.6 million, primarily due to a net loss of $(56.9) million adjusted for non-cash charges of $40.3 million and a net decrease in our operating assets and liabilities of $(12.0) million. The non-cash adjustments primarily relate to stock-based compensation of $16.2 million, $13.3 million of reduction to our right of use lease assets, and depreciation and amortization of $7.9 million. The net decrease in operating assets and liabilities is primarily driven by changes in accounts receivable of $14.9 million and lease liabilities of $3.8 million, offset by changes in contract liabilities of $1.2 million, accrued expenses of $1.0 million, prepaid expenses of $2.3 million and other assets of $1.4 million.

For the nine months ended September 30, 2022, net cash used in operating activities was $45.5 million, primarily due to a net loss of $(51.6) million adjusted for non-cash charges of $30.6 million and a net decrease in our operating assets and liabilities of $(24.5) million. The non-cash adjustments primarily relate to stock-based compensation of $14.0 million, depreciation and amortization of $5.7 million, $1.7 million unrealized loss on marketable securities, $2.3 million donation of common stock and $5.4 million of reduction to our right of use lease assets. The net decrease in operating assets and liabilities is primarily driven by changes in accounts receivable of $19.0 million, primarily due to our continued revenue growth, other assets of $3.9 million, inventory of $3.7 million, prepaid expenses of $1.8 million and lease liabilities of $4.2 million, offset by changes in accrued expenses of $5.6 million and contract liabilities of $2.8 million.

### Investing Activities

For the nine months ended September 30, 2023, net cash provided by investing activities was $6.2 million, primarily due to the proceeds from the sale of marketable securities of $30.0 million offset by the purchase of property and equipment (which includes internal-use software development costs) of $12.1 million, $8.6 million for the purchase of marketable securities, and $3.3 million for the acquisition of Tridi.

For the nine months ended September 30, 2022, net cash used by investing activities was $291.3 million, primarily due to the purchase of marketable securities of $281.9 million and $9.6 million for purchases of property and equipment (which includes internal-use software development costs).

### Financing Activities

For the nine months ended September 30, 2023, net cash provided by financing activities was $1.4 million, relating to proceeds from the exercise of stock options.

For the nine months ended September 30, 2022, net cash provided by financing activities was $281.5 million, reflecting $287.5 million of proceeds from the issuance of the 2027 convertible senior notes and $3.3 million of proceeds from the exercise of stock options. These inflows were offset by $9.3 million of convertible note costs incurred in connection with these notes.

### Critical Accounting Estimates

Our condensed consolidated financial statements and accompanying notes have been prepared in accordance with GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Actual results may differ from these estimates. To the extent that there are material differences between these estimates and our actual results, our future financial statements will be affected. For additional information about our critical accounting policies and estimates, see the disclosure included in our Annual Report on Form 10-K as well as Note 2 – Basis of Presentation and Summary of Significant Accounting Policies in the notes to the condensed consolidated financial statements included in Part I, Item 1, of this Quarterly Report on Form 10-Q.

### Recent Accounting Pronouncements

For a description of our recently adopted accounting pronouncements and recently issued accounting standards not yet adopted, see Note 2 – Basis of Presentation and Summary of Significant Accounting Policies in the notes to the condensed consolidated financial statements included in Part I, Item 1, of this Quarterly Report on Form 10-Q.

## Market risk

As filed, 1,298 characters.

We are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of exposure to potential changes in interest rates. We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure.

### Foreign Currency Exchange Risk

Our U.S. revenue and costs are principally denominated in U.S. dollars and are not subject to foreign currency exchange risk. Our International operating segment generates revenue outside of the United States that is denominated in currencies other than the U.S. dollar. Our results of operations are impacted by changes in exchange rates.

### Inflation Risk

We do not believe that inflation has had a material effect on our business, results of operations, or financial condition. If our costs were to become subject to significant inflationary pressures such as those caused by geopolitical tensions, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, results of operations and financial condition.

## Controls and procedures

As filed, 6,269 characters.

### Evaluation of Disclosure Controls and Procedures

We maintain “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms and (ii) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Pursuant to Rules 13a-15(e) and 15d-15(e) under the Exchange Act, our management, with the participation of our principal executive officer and principal financial officer, performed an evaluation of the effectiveness of our disclosure controls and procedures as of September 30, 2023. Based on such evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective at a reasonable assurance level as a result of a material weakness that existed in our internal control over financial reporting as described below. While the Company has implemented remediation steps, the material weakness cannot be considered fully remediated until the controls have been in place and operate for a sufficient period of time.

### Material Weakness in Internal Control Over Financial Reporting

In connection with the audit of our financial statements as of and for the fiscal year ended December 31, 2022, during our implementation of internal control over financial reporting (Sarbanes-Oxley Act of 2002, or “SOX”), we identified a material weakness in our internal control over financial reporting that existed as of December 31, 2022. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

On December 9, 2021, we completed our acquisition of Thomas Publishing, Inc. (“Thomas”). The additional workload on our resources to integrate Thomas contributed to our inability to timely perform an effective risk assessment related to the achievement of its control objectives in certain processes, primarily revenue and costs of revenue. As a result, we were unable to design and operate effective process-level controls as of December 31, 2022.

### Management’s Plan to Remediate the Material Weakness

During the first three quarters of 2023, management implemented remediation steps to address the material weakness and to improve our internal control over financial reporting. Specifically, now that Thomas has been fully integrated, we have improved our review processes over risk assessment, which also includes the documentation to support the operating effectiveness of our controls. While we implemented remediation steps, the material weakness cannot be considered fully remediated until the improved controls have been in place and operate for a sufficient period of time. However, our management, including our principal executive officer and principal financial officer, has concluded that, notwithstanding the identified material weakness in our internal control over financial reporting, the financial statements in this filing fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented in conformity with U.S. GAAP.

During the remainder of fiscal year 2023, management will test and evaluate the related internal controls to ascertain whether they are designed and operating effectively to provide reasonable assurance that they will prevent or detect a material error in the financial statements.

### Changes in Internal Control over Financial Reporting

Other than as discussed above under “Management’s Plan to Remediate the Material Weakness”, there were no changes to our internal control over financial reporting that occurred during the quarter ended September 30, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

### Inherent Limitations on Effectiveness of Controls

Our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

## Risk factors

As filed, 1,225 characters.

Investing in our Class A common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described in our Annual Report on Form 10‑K for the year ended December 31, 2022 under Part I, Item 1A, "Risk Factors,” together with all of the other information in this Quarterly Report on Form 10-Q, including the sections titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our condensed consolidated financial statements and related notes, before making a decision to invest in our Class A common stock. Our business, financial condition, results of operations, or prospects could also be harmed by risks and uncertainties not currently known to us or that we currently do not believe are material. If any of the risks actually occur, our business, financial condition, results of operations, and prospects could be adversely affected. In that event, the market price of our Class A common stock could decline, and you could lose part or all of your investment.

There have been no material changes to our risk factors as previously disclosed in Item 1A. contained in Part I of our Annual Report on Form 10‑K for the year ended December 31, 2022.

Filed Nov 9, 2023.
Source: SEC EDGAR, the filing index for accession 0000950170-23-062075. Last ingested by Listed: Nov 3, 2026, 08:15 ET. No prices; not investment advice.