Bigmerce (BIGC) - 2024 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents BigCommerce Holdings, Inc.'s condensed consolidated financial statements and related notes for the periods ended June 30, 2024, and December 31, 2023 Item 1. Financial Statements This section presents BigCommerce's condensed consolidated financial statements and detailed notes for the periods ended June 30, 2024, and December 31, 2023 Condensed Consolidated Balance Sheets This section presents the Company's condensed consolidated balance sheets as of June 30, 2024, and December 31, 2023 Condensed Consolidated Balance Sheets (in thousands) | (in thousands) | June 30, 2024 (unaudited) | December 31, 2023 | |:---------------|:--------------------------|:------------------| | Assets | | | | Total current assets | $355,781 | $341,986 | | Total assets | $452,504 | $444,058 | | Liabilities and stockholders' equity | | | | Total current liabilities | $78,829 | $70,750 | | Total liabilities | $426,393 | $418,525 | | Total stockholders' equity | $26,111 | $25,533 | | Total liabilities and stockholders' equity | $452,504 | $444,058 | - Total assets increased by $8.4 million (1.9%) from $444.06 million at December 31, 2023, to $452.50 million at June 30, 2024, primarily driven by an increase in cash and cash equivalents[4] - Total liabilities increased by $7.87 million (1.9%) from $418.53 million at December 31, 2023, to $426.39 million at June 30, 2024[4] Condensed Consolidated Statements of Operations This section presents the Company's condensed consolidated statements of operations for the three and six months ended June 30, 2024 and 2023 Condensed Consolidated Statements of Operations (in thousands, except per share amounts) | (in thousands, except per share amounts) | Three months ended June 30, 2024 | Three months ended June 30, 2023 | Six months ended June 30, 2024 | Six months ended June 30, 2023 | |:-----------------------------------------|:---------------------------------|:---------------------------------|:-------------------------------|:-------------------------------|\n| Revenue | $81,829 | $75,443 | $162,189 | $147,200 | | Gross profit | $62,018 | $56,687 | $123,939 | $110,998 | | Loss from operations | $(13,488) | $(20,895) | $(21,716) | $(44,553) | | Net loss | $(11,255) | $(19,065) | $(17,647) | $(41,185) | | Basic net loss per share | $(0.15) | $(0.25) | $(0.23) | $(0.55) | - Revenue increased by 8.5% YoY for the three months ended June 30, 2024, and by 10.2% YoY for the six months ended June 30, 2024[6] - Net loss decreased significantly by 40.9% YoY for the three months ended June 30, 2024, and by 57.2% YoY for the six months ended June 30, 2024, indicating improved profitability[6] Condensed Consolidated Statements of Comprehensive Loss This section presents the Company's condensed consolidated statements of comprehensive loss for the three and six months ended June 30, 2024 and 2023 Condensed Consolidated Statements of Comprehensive Loss (in thousands) | (in thousands) | Three months ended June 30, 2024 | Three months ended June 30, 2023 | Six months ended June 30, 2024 | Six months ended June 30, 2023 | |:---------------|:---------------------------------|:---------------------------------|:-------------------------------|:-------------------------------|\n| Net loss | $(11,255) | $(19,065) | $(17,647) | $(41,185) | | Other comprehensive income (loss): Net unrealized gain (loss) on marketable debt securities | $(81) | $(90) | $(340) | $627 | | Total comprehensive loss | $(11,336) | $(19,155) | $(17,987) | $(40,558) | - Total comprehensive loss decreased by 40.8% for the three months ended June 30, 2024, and by 55.7% for the six months ended June 30, 2024, primarily due to the reduction in net loss[8] Condensed Consolidated Statements of Stockholders' Equity This section presents the Company's condensed consolidated statements of stockholders' equity for the six months ended June 30, 2024 Condensed Consolidated Statements of Stockholders' Equity (in thousands) | (in thousands) | Balance at December 31, 2023 | Balance at June 30, 2024 | |:---------------|:-----------------------------|:-------------------------|\n| Common Shares | 76,410 | 77,740 | | Additional Paid-in Capital | $620,021 | $638,586 | | Accumulated Deficit | $(594,658) | $(612,305) | | Total Stockholders' Equity | $25,533 | $26,111 | - Total stockholders' equity increased by $0.578 million from December 31, 2023, to June 30, 2024, primarily due to an increase in additional paid-in capital from stock-based compensation and stock option exercises, partially offset by net loss[9] - Stock-based compensation contributed $18.397 million to additional paid-in capital for the six months ended June 30, 2024[9] Condensed Consolidated Statements of Cash Flows This section presents the Company's condensed consolidated statements of cash flows for the three and six months ended June 30, 2024 and 2023 Condensed Consolidated Statements of Cash Flows (in thousands) | (in thousands) | Three months ended June 30, 2024 | Three months ended June 30, 2023 | Six months ended June 30, 2024 | Six months ended June 30, 2023 | |:---------------|:---------------------------------|:---------------------------------|:-------------------------------|:-------------------------------|\n| Net cash provided by (used in) operating activities | $11,738 | $14,743 | $8,321 | $(6,093) | | Net cash provided by (used in) investing activities | $60,324 | $(2,725) | $53,393 | $(12,402) | | Net cash provided by (used in) financing activities | $134 | $1,426 | $(351) | $1,096 | | Net change in cash and cash equivalents and restricted cash | $72,196 | $13,444 | $61,363 | $(17,399) | - Net cash provided by operating activities decreased by $3.0 million for the three months ended June 30, 2024, but significantly improved from a net cash used of $6.093 million to a net cash provided of $8.321 million for the six months ended June 30, 2024[11] - Net cash provided by investing activities saw a substantial increase, moving from a net cash used of $2.725 million to a net cash provided of $60.324 million for the three months ended June 30, 2024, primarily due to marketable securities maturities[11] Notes to Condensed Consolidated Financial Statements This section provides detailed notes to the condensed consolidated financial statements, explaining significant accounting policies and financial details 1. Overview This note provides an overview of BigCommerce Holdings, Inc.'s business, focusing on its SaaS e-commerce platform and market strategy - BigCommerce Holdings, Inc. operates a software-as-a-service (SaaS) platform for e-commerce, simplifying online store creation with ease-of-use, enterprise functionality, and flexibility[12] - The platform supports branded e-commerce stores and cross-channel connections to marketplaces, social networks, and POS systems, serving various business sizes and types (B2C and B2B) on a single, multi-tenant code base[12] 2. Summary of significant accounting policies This note details the significant accounting policies used in preparing the condensed unaudited consolidated financial statements - The condensed unaudited consolidated financial statements are prepared in accordance with GAAP for interim financial information, with certain disclosures omitted per SEC rules[13] - Management makes significant estimates for allowance for credit losses, constrained revenue, variable consideration, period of benefit for capitalized revenue contract costs, useful lives of intangible assets, and income taxes[15] - The Company operates as a single operating and reportable segment, with the CEO acting as the chief operating decision maker (CODM)[19] - Subscription solutions revenue is primarily from platform subscription fees and recurring professional services, recognized monthly or ratably over the contract term, with variable fees recognized as earned[20] - Partner and services revenue includes revenue share, partner technology integrations, and marketing services, recognized when earning activity is complete or ratably over the contract length[22] - Remaining performance obligations totaled $182.0 million as of June 30, 2024, with approximately 60% expected to be recognized as revenue in the next 12 months[27] Allowance for Credit Losses (in thousands) | (in thousands) | Amount | |:---------------|:-------|\n| Balance at December 31, 2023 | $5,997 | | Provision for expected credit losses | $863 | | Write-offs charged against the allowance | $(821) | | Balance at March 31, 2024 | $6,039 | | Provision for expected credit losses | $850 | | Write-offs charged against the allowance | $(1,200) | | Balance at June 30, 2024 | $5,689 | 3. Revenue recognition and deferred costs This note provides details on the Company's revenue recognition policies and deferred costs, including revenue by source and geography Revenue by Major Source (in thousands) | (in thousands) | Three months ended June 30, 2024 | Three months ended June 30, 2023 | Six months ended June 30, 2024 | Six months ended June 30, 2023 | |:---------------|:---------------------------------|:---------------------------------|:-------------------------------|:-------------------------------|\n| Subscription solutions | $61,796 | $56,135 | $122,755 | $109,943 | | Partner and services | $20,033 | $19,308 | $39,434 | $37,257 | | Total Revenue | $81,829 | $75,443 | $162,189 | $147,200 | - Subscription solutions revenue increased by 10.1% and 11.7% for the three and six months ended June 30, 2024, respectively, driven by enterprise, mid-market, and Feedonomics activity[33] Revenue by Geographic Region (in thousands) | (in thousands) | Three months ended June 30, 2024 | Three months ended June 30, 2023 | Six months ended June 30, 2024 | Six months ended June 30, 2023 | |:---------------|:---------------------------------|:---------------------------------|:-------------------------------|:-------------------------------|\n| Americas – United States | $62,428 | $57,546 | $123,567 | $112,355 | | Americas – other | $3,777 | $3,422 | $7,552 | $6,773 | | EMEA | $9,281 | $8,649 | $18,473 | $16,633 | | APAC | $6,343 | $5,826 | $12,597 | $11,439 | | Total Revenue | $81,829 | $75,443 | $162,189 | $147,200 | - The United States accounted for 76% of total revenue, and EMEA for 11%, during both the three and six months ended June 30, 2024 and 2023[35] - Deferred sales commissions increased to $2.8 million for the three months ended June 30, 2024 (from $2.5 million in 2023) and to $5.0 million for the six months ended June 30, 2024 (from $4.2 million in 2023)[36] 4. Fair value measurements This note describes the Company's fair value measurements for financial instruments, including cash equivalents, marketable securities, and convertible notes - The Company's financial instruments carried at fair value include cash equivalents, marketable securities, and convertible senior notes, categorized into Level 1 and Level 2 inputs[37] Fair Value of Financial Instruments (June 30, 2024, in thousands) | (in thousands) | Level 1 | Level 2 | Total Fair Value | |:---------------|:--------|:--------|:-----------------|\n| Money market mutual funds & cash equivalents | $97,897 | $0 | $97,897 | | Corporate bonds | $0 | $67,926 | $67,926 | | U.S. treasury securities | $41,955 | $0 | $41,955 | | Commercial paper | $0 | $9,911 | $9,911 | | Agency bonds | $0 | $22,920 | $22,920 | | Total marketable securities | $41,955 | $100,757 | $142,712 | | Convertible senior notes due 2026 | $0 | $301,875 | $301,875 | - Marketable securities decreased from $198.4 million at December 31, 2023, to $142.7 million at June 30, 2024, with a shift in maturities, as $118.9 million are due within 1 year as of June 30, 2024[40][42] 5. Business combinations This note details the accounting for business combinations, specifically the Makeswift acquisition, including purchase consideration and goodwill - The Company acquired Makeswift for a total purchase consideration of $9.238 million, with $1.1 million held back for potential breaches and working capital adjustments[43] Makeswift Acquisition Fair Value of Assets Acquired and Liabilities Assumed (in thousands) | (in thousands) | Amount | |:---------------|:-------|\n| Tangible assets acquired | $1,370 | | Right-of-use asset | $147 | | Intangible assets acquired | $7,890 | | Liabilities assumed | $(1,311) | | Deferred tax liability | $(885) | | Lease liability | $(150) | | Net assets acquired, excluding goodwill | $7,061 | | Total purchase consideration | $9,238 | | Goodwill | $2,177 | - Goodwill of $2.177 million is primarily attributed to expected synergies and expanded market opportunities from the Makeswift integration and assembled workforce[45] - Acquisition-related compensation of $2.0 million is subject to clawback and recognized as compensation expense over an 18-month service period, with $0.3 million and $0.7 million incurred for the three and six months ended June 30, 2024, respectively[45] 6. Goodwill and intangible assets This note provides information on goodwill and intangible assets, including amortization policies and carrying amounts - Goodwill is not amortized but tested for impairment annually; no impairment was recognized as of June 30, 2024[46] - Intangible assets are amortized on a straight-line basis over their useful lives, with amortization expense of $2.5 million and $4.9 million for the three and six months ended June 30, 2024, respectively[46] Intangible Assets (June 30, 2024, in thousands) | (in thousands) | Net carrying amount (June 30, 2024) | Net carrying amount (December 31, 2023) | Weighted average remaining useful life (years) | |:---------------|:------------------------------------|:----------------------------------------|:-----------------------------------------------|\n| Developed technology | $9,188 | $11,566 | 3.1 | | Customer relationship | $11,746 | $13,939 | 2.8 | | Tradename | $1,096 | $1,352 | 2.2 | | Non-compete agreement | $3 | $30 | 0.1 | | Other intangibles | $100 | $165 | 1.5 | | Total intangible assets | $22,133 | $27,052 | | - Expected amortization expense for intangible assets is $4.816 million for the remaining six months of 2024 and $8.046 million for 2025[48] 7. Commitments, contingencies, and leases This note outlines the Company's commitments, contingencies, and lease obligations, including legal proceedings and restructuring charges - The Company is not currently a party to any legal proceedings that would have a material adverse effect on its financial statements[49] Unconditional Purchase Obligations (June 30, 2024, in thousands) | (in thousands) | June 30, 2024 | |:---------------|:--------------|\n| Remaining six months of 2024 | $4,815 | | 2025 | $16,902 | | 2026 | $4,976 | | 2027 and thereafter | $0 | | Total | $26,693 | - Operating lease expense was $0.8 million and $1.3 million for the three and six months ended June 30, 2024, respectively[51] - Restructuring charges of $2.6 million were incurred for the three and six months ended June 30, 2024, primarily for professional services related to capital structure alternatives[52] Restructuring Charges Liability (June 30, 2024, in thousands) | (in thousands) | Amount | |:---------------|:-------|\n| Liability, as of December 31, 2023 | $1,516 | | Additional charges | $2,572 | | Payments | $(1,699) | | Liability, as of June 30, 2024 | $2,389 | 8. Other liabilities This note details the components of other current liabilities, including sales tax, payroll, and restructuring-related charges Components of Other Current Liabilities (in thousands) | (in thousands) | As of June 30, 2024 | As of December 31, 2023 | |:---------------|:--------------------|:------------------------|\n| Sales tax payable | $1,691 | $1,632 | | Payroll and payroll related expenses | $11,988 | $13,080 | | Acquisition related compensation | $0 | $403 | | Restructuring related charges | $1,961 | $1,516 | | Other | $7,649 | $8,154 | | Total Other current liabilities | $23,289 | $24,785 | - Total other current liabilities decreased by $1.496 million from December 31, 2023, to June 30, 2024, primarily due to a decrease in payroll and acquisition-related compensation[54] 9. Debt This note provides information on the Company's debt, primarily the 0.25% convertible senior notes due 2026 and related interest expenses - The Company has $345.0 million aggregate principal amount of 0.25% convertible senior notes due 2026, issued in September 2021[55] Net Carrying Amount of Debt (in thousands) | (in thousands) | Outstanding Principal (June 30, 2024) | Carrying Value (June 30, 2024) | Carrying Value (December 31, 2023) | |:---------------|:--------------------------------------|:-------------------------------|:-----------------------------------|\n| 2026 Convertible Senior Notes | $345,000 | $340,468 | $339,473 | | 2023 Term Debt | $417 | $417 | $688 | | Total carrying value of debt | | $340,885 | $340,161 | | Less: current portion of debt | | $(417) | $(547) | | Total long-term portion of debt | | $340,468 | $339,614 | - Interest expense for the three and six months ended June 30, 2024, was $0.719 million and $1.439 million, respectively, primarily from contractual interest and amortization of issuance costs[57] - The Company entered into Capped Call Transactions in connection with the 2026 Convertible Notes to reduce potential dilution, with an initial cap price of approximately $106.34 per share[58] 10. Stockholders' equity This note details changes in stockholders' equity, including common shares, additional paid-in capital, and stock-based compensation plans - The 2020 Equity Incentive Plan authorized 3,873,885 shares initially, with automatic annual increases. As of June 30, 2024, 1,096,370 shares remain available for future issuance[60] Stock Option Activity (Six months ended June 30, 2024, in thousands) | (in thousands) | Outstanding | Weighted-Average Exercise Price | |:---------------|:------------|:--------------------------------|\n| Balance as of December 31, 2023 | 5,109 | $9.54 | | Options granted under all plans | 662 | $7.25 | | Exercised | (385) | $2.94 | | Plan shares expired or canceled | (633) | $16.12 | | Balance as of June 30, 2024 | 4,753 | $8.88 | - The weighted-average grant date fair value of options for the six months ended June 30, 2024, was $4.54, with a risk-free interest rate of 4.10% and expected volatility of 64.53%[62] Restricted Stock Unit Activity (Six months ended June 30, 2024, in thousands) | (in thousands) | Outstanding | Grant Date Fair Value | |:---------------|:------------|:----------------------|\n| Balance as of December 31, 2023 | 6,725 | $15.86 | | Granted – restricted stock units | 1,409 | $7.59 | | Granted – market-based and performance-based restricted stock units | 400 | $8.91 | | Canceled | (865) | $14.31 | | Vested and converted to shares | (1,094) | $17.09 | | Balance as of June 30, 2024 | 6,575 | $13.36 | - Remaining stock-based compensation expense for stock options is $7.4 million (over 2.54 years) and for RSUs is $58.1 million (over 2.34 years)[63][65] 11. Income taxes This note explains the Company's income tax position, including effective tax rates, valuation allowances, and uncertain tax positions - The effective tax rate was (1.16)% and (2.45)% for the three and six months ended June 30, 2024, respectively, lower than the U.S. federal statutory rate of 21% due to valuation allowance offsetting loss benefits[66] - A valuation allowance is provided against most deferred tax assets due to historical pretax net losses[66] - Uncertain tax positions amounted to approximately $0.4 million as of June 30, 2024, unchanged from December 31, 2023[66] 12. Net loss per share This note presents the calculation of basic and diluted net loss per share, including the impact of potentially dilutive securities Net Loss Per Share (in thousands, except per share amounts) | (in thousands, except per share amounts) | Three months ended June 30, 2024 | Three months ended June 30, 2023 | Six months ended June 30, 2024 | Six months ended June 30, 2023 | |:-----------------------------------------|:---------------------------------|:---------------------------------|:-------------------------------|:-------------------------------|\n| Net loss | $(11,255) | $(19,065) | $(17,647) | $(41,185) | | Shares used to compute basic net loss per share | 77,456 | 74,790 | 77,041 | 74,468 | | Basic net loss per share | $(0.15) | $(0.25) | $(0.23) | $(0.55) | - Potentially dilutive securities, including stock options, RSUs, and convertible debt, were excluded from diluted EPS calculation due to the reported net loss, making them antidilutive[67][69] 13. Subsequent Event This note describes a significant subsequent event regarding the exchange and repurchase of convertible senior notes after the reporting period - On August 1, 2024, the Company entered an exchange agreement to issue $150.0 million of 7.5% convertible senior notes due 2028 in exchange for approximately $161.2 million of 2026 Convertible Notes[70] - Additionally, the Company repurchased approximately $120.6 million aggregate principal amount of 2026 Convertible Notes for approximately $108.7 million in cash[70] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses BigCommerce's financial condition, operational results, 'Open SaaS' strategy, key metrics, and liquidity, including recent debt restructuring Overview This section provides an overview of BigCommerce's SaaS e-commerce platform, its 'Open SaaS' strategy, and its focus on enterprise accounts - BigCommerce leads a new era of e-commerce with its SaaS platform, offering ease-of-use, enterprise functionality, composability, and flexibility for online stores and cross-channel connections[73] - The 'Open SaaS' strategy combines open-source flexibility with multi-tenant SaaS benefits, serving 5,961 enterprise accounts as of June 30, 2024[73] - The Company partners with leading technology providers to offer a deep ecosystem of integrated solutions, generating high-margin revenue share[73] Key factors affecting our performance This section discusses key factors influencing the Company's performance, including its 'Go-to-Market' strategy shift and e-commerce market trends - The 'Go-to-Market' strategy has shifted focus to mid-market and enterprise businesses, reorganizing teams for unified customer success and growth, including cross-selling Feedonomics and partner solutions[75] - The Company achieved its largest sequential growth in enterprise ARR in the last twelve months, with improving net retention rates and increased go-to-market spending efficiency[75] - Consumer spending remains resilient, but e-commerce growth rates are lower than during the pandemic, leading to longer sales cycles and elevated scrutiny on platform investment spending[76] Business metrics This section defines and presents key business metrics such as Annual Revenue Run-Rate (ARR), Subscription ARR, and Average Revenue Per Account (ARPA) - Annual Revenue Run-Rate (ARR) is calculated as annualized contractual monthly recurring revenue plus trailing twelve-month non-recurring and variable revenue[78] - Subscription ARR focuses solely on annualized contractual monthly recurring revenue[79] - Average Revenue Per Account (ARPA) includes customer-billed subscription solutions and professional services, plus allocated partner revenue[80] Key Business Metrics (in thousands) | Metric | June 30, 2024 | March 31, 2024 | December 31, 2023 | September 30, 2023 | June 30, 2023 | |:-------|:--------------|:---------------|:------------------|:-------------------|:--------------|\n| ARR (in thousands) | $345,832 | $340,147 | $336,541 | $332,245 | $331,103 | | Subscription ARR (in thousands) | $263,526 | $258,566 | $256,412 | $256,518 | $255,552 | | Number of Enterprise Accounts | 5,961 | 5,970 | 5,994 | 5,951 | 5,929 | | ARR attributable to Enterprise Accounts (in thousands) | $253,798 | $248,236 | $245,100 | $240,602 | $236,386 | | ARR attributable to Enterprise Accounts as a percentage of ARR | 73% | 73% | 73% | 72% | 71% | | Average Revenue Per Account | $42,576 | $41,581 | $40,891 | $40,431 | $39,870 | - Net Revenue Retention (NRR) for enterprise accounts was 100% for the year ended December 31, 2023, down from 111% in 2022, and is updated annually[83] Components of results of operations This section details the components of the Company's results of operations, including revenue sources, cost of revenue, and operating expenses - Revenue is generated from subscription solutions (platform fees, recurring professional services, Feedonomics) and partner and services (revenue-sharing, technology integrations, marketing)[84][85][86] - Cost of revenue includes personnel, hosting, platform maintenance, payment processing fees, feed management costs, and allocated overhead[87] - Sales and marketing expenses include personnel, commissions, marketing programs, and allocated overhead, with efforts focused on lead generation and brand promotion[88] - Research and development expenses primarily consist of personnel costs for platform enhancements, with continued investment expected to attract new customers[89] - General and administrative expenses cover finance, legal, HR personnel, external professional services, and allocated overhead[90] - Acquisition related expenses include third-party costs and contingent compensation from acquisitions, while restructuring charges cover severance, lease termination, and capital alternative costs[91][92] - Interest income is earned on cash, cash equivalents, and marketable securities, while interest expense is primarily from convertible notes and financing agreements[94][95] Results of operations This section analyzes the Company's consolidated results of operations, including revenue, gross profit, and net loss for the reported periods Consolidated Statement of Operations Data (in thousands) | (in thousands) | Three months ended June 30, 2024 | Three months ended June 30, 2023 | Six months ended June 30, 2024 | Six months ended June 30, 2023 | |:---------------|:---------------------------------|:---------------------------------|:-------------------------------|:-------------------------------|\n| Revenue | $81,829 | $75,443 | $162,189 | $147,200 | | Gross profit | $62,018 | $56,687 | $123,939 | $110,998 | | Loss from operations | $(13,488) | $(20,895) | $(21,716) | $(44,553) | | Net loss | $(11,255) | $(19,065) | $(17,647) | $(41,185) | - Total revenue increased by 8.5% to $81.8 million for Q2 2024 and by 10.2% to $162.2 million for H1 2024, driven by growth in subscription solutions (enterprise, mid-market, Feedonomics) and partner and services revenue[101] - Gross margin improved to 75.8% for Q2 2024 (from 75.1%) and 76.4% for H1 2024 (from 75.4%), primarily due to cost-cutting measures from the 2023 Restructure[102] - Sales and marketing expenses decreased by 3.3% for Q2 2024 and 4.0% for H1 2024, mainly due to reduced variable marketing costs and lower personnel expenses from restructuring[103][104] - Research and development expenses decreased by 5.2% for Q2 2024 and 4.7% for H1 2024, also attributed to the 2023 Restructure[104] - Acquisition-related expenses significantly decreased by 91.9% for both Q2 and H1 2024, as prior year costs related to other transactions and Feedonomics were not repeated[108] - Restructuring charges were $2.6 million for Q2 and H1 2024, primarily from professional services related to capital structure alternatives[109] - Interest income increased by 13.1% for Q2 2024 and 21.4% for H1 2024, driven by higher cash, cash equivalents, and marketable securities balances[110] Liquidity and capital resources This section discusses the Company's liquidity and capital resources, including cash flow generation, debt obligations, and recent restructuring activities - The Company is committed to cash flow generation and management through operational discipline and transitioning customers to more favorable payment terms, which has improved cash receipts and reduced churn[112] - Existing cash, cash equivalents, and operating cash flows are expected to be sufficient for working capital and capital expenditure needs for at least the next twelve months[112] - A recently announced convertible notes restructuring will reduce liquidity but optimize maturities and decrease overall debt leverage, though semi-annual interest payments will significantly increase[112] Summary of Cash Flows (in thousands) | (in thousands) | Three months ended June 30, 2024 | Three months ended June 30, 2023 | Six months ended June 30, 2024 | Six months ended June 30, 2023 | |:---------------|:---------------------------------|:---------------------------------|:-------------------------------|:-------------------------------|\n| Net cash provided by (used in) operating activities | $11,738 | $14,743 | $8,321 | $(6,093) | | Net cash provided by (used in) investing activities | $60,324 | $(2,725) | $53,393 | $(12,402) | | Net cash provided by (used in) financing activities | $134 | $1,426 | $(351) | $1,096 | | Net increase (decrease) in cash, cash equivalents and restricted cash | $72,196 | $13,444 | $61,363 | $(17,399) | - As of June 30, 2024, cash, cash equivalents, and restricted cash totaled $134.2 million, an increase of $58.6 million from June 30, 2023[114] - Net cash provided by investing activities for the six months ended June 30, 2024, was $53.4 million, a significant improvement from ($12.4) million in the prior year, primarily due to marketable securities maturities[116] - The 2026 Convertible Notes have a principal amount of $345.0 million, accrue interest at 0.25% per annum, and mature on October 1, 2026. They are senior, unsecured obligations[120] - The Company had no material off-balance sheet arrangements as of June 30, 2024, or December 31, 2023[122] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section details the Company's exposure to market risks, including interest rate, foreign currency, and credit risks, and their management Interest rate risk This section assesses the Company's exposure to interest rate risk, particularly concerning its cash, cash equivalents, and convertible notes - The Company's cash, cash equivalents, and restricted cash are primarily in interest-bearing accounts, and an immediate 100 basis point change in interest rates at June 30, 2024, could result in a $2 million market value reduction or increase[124] - The 2028 Convertible Notes, with a 7.5% interest rate, are expected to significantly increase annual interest expense after the restructuring[124] - The fair value of the 2026 and future 2028 Convertible Notes is subject to interest rate and market risk due to their conversion features, but these changes do not impact financial position, cash flows, or results of operations due to the fixed nature of the debt[124] Foreign currency exchange risk This section discusses the Company's exposure to foreign currency exchange risk from international operations and local currency expenses - A majority of revenue, expense, and capital purchasing activities are transacted in U.S. dollars, but international expansion increases exposure to foreign exchange rate fluctuations[125] - Operating expenses in Mexico, Australia, and the UK are denominated in local currencies (Mexican pesos, Australian dollars, British pounds sterling), creating foreign currency exposure, though currently considered relatively small[125] - The Company does not currently hedge foreign currency exposure but may use derivative financial instruments in the future[125] Credit risk This section outlines the Company's credit risk concentrations in cash, cash equivalents, and accounts receivable, and mitigation strategies - Concentrations of credit risk exist in cash and cash equivalents, restricted cash, and accounts receivable[126] - Investment policy limits investments to high credit quality securities, and cash balances are held by high-credit-quality financial institutions, with accounts monitored to mitigate risk[126] Item 4. Controls and Procedures This section evaluates disclosure controls, identifies a material weakness in IT general controls, and outlines remediation efforts Evaluation of disclosure controls and procedures This section presents the evaluation of the Company's disclosure controls and procedures, noting a material weakness in IT general controls - As of June 30, 2024, the Company's disclosure controls and procedures were not effective due to a material weakness in internal control over financial reporting[127] - The material weakness identified relates to information technology (IT) general controls, specifically concerning user access, program change management for financial applications, and IT operations controls[127] Status of Remediation Efforts This section details the ongoing efforts to remediate the identified material weakness in the Company's IT general controls - Management, with Audit Committee oversight, is dedicating significant efforts and resources throughout 2024 to remediate the identified material weakness in IT general controls[128] Changes in internal control over financial reporting This section reports on changes in internal control over financial reporting, noting no significant changes beyond remediation efforts - No significant changes in internal controls over financial reporting occurred during the three months ended June 30, 2024, other than the implementation of remediation plans for the ineffective disclosure controls[129] PART II. OTHER INFORMATION This section provides updates on legal proceedings, risk factors, equity sales, debt defaults, and other relevant disclosures Item 1. Legal Proceedings The Company is not currently involved in any legal proceedings with a material adverse effect on its financial condition - The Company is not presently a party to any legal proceedings that, if determined adversely, would have a material adverse effect on its condensed consolidated financial statements[49][131] Item 1A. Risk Factors This section updates risk factors, focusing on new risks from the convertible notes restructuring, including increased interest and reduced liquidity - The proposed convertible notes restructuring and elevated interest rates pose a risk of insufficient cash flow to meet debt obligations, potentially requiring alternative financing or asset sales[132] - The 2028 Convertible Notes Indenture will impose restrictive covenants, limiting the Company's ability to incur additional indebtedness (e.g., revolving credit facility indebtedness exceeding $25 million) and issue certain equity securities, which could hinder growth and operational flexibility[133] - A breach of covenants under the 2028 or 2026 Convertible Notes Indenture could lead to an event of default, potentially accelerating debt repayment and impacting the Company's ability to repay indebtedness[135] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered equity sales, use of proceeds, or share repurchases occurred during the reporting period - There were no unregistered sales of equity securities, use of proceeds, or repurchases during the period[135][136] Item 3. Defaults Upon Senior Securities No defaults upon senior securities occurred during the reporting period - There were no defaults upon senior securities[136] Item 4. Mine Safety Disclosures Mine safety disclosures are not applicable to the Company - Mine safety disclosures are not applicable[136] Item 5. Other Information No director or officer adopted or terminated Rule 10b5-1 trading arrangements during the three months ended June 30, 2024 - No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the three months ended June 30, 2024[136] Item 6. Exhibits This section provides an index of exhibits filed with the Quarterly Report on Form 10-Q, including key organizational and debt documents - The exhibit index includes the Seventh Amended and Restated Certificate of Incorporation, Second Amended and Restated Bylaws, Indenture for 0.25% Convertible Senior Notes due 2026, various Performance Unit Agreements, and certifications (31.1, 31.2, 32.1)[137][138][139][140] Signatures This section contains the required signatures for the Quarterly Report on Form 10-Q by authorized officers - The report is signed by Brent Bellm, Chairman and Chief Executive Officer, and Daniel Lentz, Chief Financial Officer, on August 1, 2024[142]