Bigmerce (BIGC) - 2022 Q4 - Annual Report

PART I Business BigCommerce provides a SaaS ecommerce platform, leveraging an 'Open SaaS' strategy and partner ecosystem, with 2022 revenue of $279.1 million - The company operates a SaaS ecommerce platform simplifying online store creation with a unique combination of ease-of-use, enterprise functionality, and flexibility[249] - BigCommerce targets three main business segments based on annual online sales: SMBs (under $1M), the mid-market ($1M to $50M), and large enterprises (over $50M)[279][236][251] Total Revenue (2020-2022) | Year | Total Revenue (in millions) | | :--- | :--- | | 2022 | $279.1 | | 2021 | $219.9 | | 2020 | $152.4 | - The company's strategy relies heavily on its partner ecosystem for adjacent services like payments, shipping, and marketing, allowing focus on core platform R&D and high-margin revenue share[237][238] - As of December 31, 2022, the company had 1,500 full-time employees, with 75% located in the United States[289][286] Risk Factors The company faces significant risks from operating losses, intense competition, partner dependency, security breaches, and international conflicts - The company has a history of operating losses, incurring a net loss of $139.9 million in 2022 and an accumulated deficit of $529.9 million as of December 31, 2022[269] - Competition is intense from established players like Magento (Adobe), Salesforce Commerce Cloud, and Shopify Plus, who may have greater financial and technical resources[334][389] - The business is dependent on its partner-centric strategy; failure to maintain or expand relationships with technology and agency partners could harm revenue growth[273][274] - Security risks are significant, as a compromise of the platform or third-party partner systems could lead to loss of customers, significant liabilities, and reputational harm[340] - Operations at the strategic development center in Kyiv, Ukraine have been impacted by the ongoing military action by Russia, which could materially adversely affect business and operations[445][415] Properties The company's Austin, Texas headquarters is partially subleased, with additional offices in San Francisco, Sydney, and London - The worldwide corporate headquarters is in Austin, Texas, under a lease for 70,682 square feet that expires in 2028[291] - In December 2022, the company decided to put 40,540 square feet of its Austin headquarters up for sublease[463][291] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq under 'BIGC' since August 2020, with no cash dividends paid or anticipated - The common stock trades on the Nasdaq Global Select Market under the symbol "BIGC" since August 5, 2020[467] - The company has never declared or paid cash dividends on its common stock and does not plan to do so in the foreseeable future[468] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses 2022 financial results, highlighting revenue growth, a widened net loss due to increased operating expenses, and sufficient liquidity Key Business Metrics The company tracks key metrics including ARR, enterprise accounts, and NRR, with total ARR reaching $311.7 million in 2022 Key Business Metrics (as of Dec 31, in thousands) | Metric | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Total ARR | $311,670 | $268,665 | $181,166 | | Subscription ARR | $238,395 | $203,743 | $132,504 | | Enterprise Accounts | 5,786 | 5,036 | 3,365 | | Enterprise ARR | $223,964 | $172,858 | $100,771 | | Enterprise ARR % of Total | 72% | 64% | 56% | | Enterprise ARPA | $38,708 | $34,324 | $29,947 | - Net Revenue Retention (NRR) for enterprise accounts was 111% for the year ended December 31, 2022, compared to 118% for 2021[514] Results of Operations In 2022, revenue grew to $279.1 million, but increased operating expenses led to a $140.6 million operating loss and $139.9 million net loss Revenue Breakdown (2020-2022, in thousands) | Revenue Source | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Subscription solutions | $205,800 | $154,933 | $103,706 | | Partner and services | $73,275 | $64,922 | $48,662 | | Total revenue | $279,075 | $219,855 | $152,368 | - Cost of revenue increased 44.4% to $70.0 million in 2022, primarily due to higher hosting and personnel costs, leading to a gross margin decrease to 74.9% from 77.9% in 2021[11] - Sales and marketing expenses increased 35.7% to $134.8 million in 2022, driven by higher personnel costs and additional marketing spend[558] - Research and development expenses grew 36.7% to $88.2 million in 2022, mainly due to higher staffing costs and Feedonomics acquisition expenses[14] - The company incurred restructuring charges of $7.3 million in 2022 related to a reduction in workforce and impairment of a right-of-use asset[16] Liquidity and Capital Resources As of December 2022, the company had $305.0 million in liquidity, with net cash used in operations increasing, supported by convertible senior notes Summary of Cash Flows (in thousands) | Cash Flow Activity | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Net cash used in operating activities | $(89,357) | $(40,300) | $(26,529) | | Net cash used in investing activities | $(116,526) | $(186,877) | $(1,964) | | Net cash provided by financing activities | $209 | $305,274 | $239,950 | - In September 2021, the company issued $345.0 million in 0.25% Convertible Senior Notes due 2026, significantly increasing its liquidity[569][600] - Management believes existing cash and cash equivalents are sufficient to fund operations for at least the next twelve months, despite continued operating losses and negative cash flows[564] Critical Accounting Policies and Estimates Critical accounting policies involve significant judgment in revenue recognition, deferred costs, equity-based compensation, business combinations, and restructuring - Revenue recognition requires significant judgment in identifying distinct performance obligations and allocating transaction prices, especially for contracts with multiple services[634][27] - Deferred sales commissions are amortized over an estimated customer relationship period of approximately four years[573] - Equity-based compensation is valued using the Black-Scholes model, which requires subjective inputs like expected volatility and term[635][574] - Business combination accounting requires management to estimate the fair value of acquired assets and liabilities, with any excess purchase price allocated to goodwill[606] Quantitative and Qualitative Disclosures About Market Risk The company's market risks include minimal interest rate risk, unhedged foreign currency exposure, and managed credit risk - Interest rate risk is considered low due to the short-term maturities of cash, cash equivalents, and marketable securities; a 0.125% change would impact annual interest expense by approximately $0.4 million[55] - Foreign currency exchange risk is present as some operating expenses are in foreign currencies, but all revenue is transacted in U.S. dollars; the company does not currently hedge this exposure[32][609][56] - Credit risk is managed by holding cash and investments with high-credit-quality financial institutions and adhering to an investment policy that limits concentration[33] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for 2020-2022, with an unqualified opinion from Ernst & Young LLP - The financial statements were audited by Ernst & Young LLP, which issued an unqualified opinion on both the financial statements and the company's internal control over financial reporting as of December 31, 2022[105][662] Consolidated Balance Sheets As of December 2022, total assets decreased, liabilities slightly increased, and stockholders' equity significantly decreased Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $91,573 | $297,561 | | Total Assets | $474,056 | $555,460 | | Long-term debt | $337,497 | $335,537 | | Total Liabilities | $428,384 | $417,172 | | Total stockholders' equity | $45,672 | $138,288 | Consolidated Statements of Operations In 2022, total revenue reached $279.1 million, with a $139.9 million net loss, or ($1.91) per share, due to increased operating expenses Consolidated Statement of Operations Highlights (in thousands, except per share data) | Account | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Total Revenue | $279,075 | $219,855 | $152,368 | | Gross Profit | $209,095 | $171,376 | $118,242 | | Loss from Operations | $(140,567) | $(75,943) | $(38,697) | | Net Loss | $(139,919) | $(76,677) | $(37,560) | | Net Loss Per Share | $(1.91) | $(1.08) | $(0.99) | Consolidated Statements of Cash Flows In 2022, net cash used in operating activities increased to $89.4 million, resulting in a net decrease of $205.7 million in cash, ending with $93.0 million Consolidated Statement of Cash Flows Highlights (in thousands) | Cash Flow Activity | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Net cash used in operating activities | $(89,357) | $(40,300) | $(26,529) | | Net cash used in investing activities | $(116,526) | $(186,877) | $(1,964) | | Net cash provided by financing activities | $209 | $305,274 | $239,950 | | Net change in cash | $(205,674) | $78,097 | $211,457 | Controls and Procedures Management concluded disclosure controls were effective as of December 2022, and a material weakness in IT general controls from 2021 was successfully remediated - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2022[642] - A material weakness in IT general controls identified in the fiscal year 2021 was successfully remediated as of December 31, 2022[643] PART III Directors, Executive Officers and Corporate Governance Information for this item is incorporated by reference from the company's 2023 Proxy Statement - The information required by this item will be included in the Proxy Statement for the 2023 annual meeting of stockholders and is incorporated by reference[647] Executive Compensation Information for this item is incorporated by reference from the company's 2023 Proxy Statement - The information required by this item will be included in the Proxy Statement for the 2023 annual meeting of stockholders and is incorporated by reference[618] PART IV Exhibits, Financial Statement Schedules This section lists documents filed as part of the Annual Report on Form 10-K, including consolidated financial statements and an index of all exhibits - This section includes the consolidated financial statements and a schedule of exhibits filed with the report[67][44]