# Commerce.com, Inc. (CMRC) FY 2024 MD&A Verbatim Item 7 Management's Discussion and Analysis from Commerce.com, Inc.'s 10-K for fiscal year 2024. SEC filing source: https://www.sec.gov/Archives/edgar/data/1626450/000095017025029211/bigc-20241231.htm Accession: 0000950170-25-029211 Filing date: 2025-02-27 Report date: 2024-12-31 Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture. Confidence: high Company profile: /company/CMRC/ All MD&A years: /company/CMRC/mda/ Previous year: /company/CMRC/mda/fy2023/ (FY 2023) Next year: /company/CMRC/mda/fy2025/ (FY 2025) Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in “Risk Factors.” See “Special Note Regarding Forward-Looking Statements.” Investors and others should note that we announce material financial information to our investors using our investor relations website (investors.bigcommerce.com), SEC filings, press releases, public conference calls and webcasts. We intend to use our investor relations website as a means of disclosing information about our business, our financial condition and results of operations and other matters and for complying with our disclosure obligations under Regulation FD. The information we post on our investor relations website, including information contained in investor presentations, may be deemed material. Accordingly, investors should monitor our investor relations website, in addition to following our press releases, SEC filings and public conference calls and webcasts. Overview BigCommerce is leading a new era of ecommerce. We provide professional-grade commerce solutions that give businesses the power and agility to build for today with an eye toward tomorrow. Our team of brands—BigCommerce, Feedonomics, and Makeswift—work together to empower our customers with flexible commerce capabilities, powerfully connected data, and engaging digital experiences designed to optimize growth. As of December 31, 2024, we served 5,884 accounts with at least one unique enterprise plan subscription or an enterprise-level feed management subscription (collectively “enterprise accounts”). These accounts may have more than one Enterprise plan or a combination of Enterprise plans and Non-Enterprise plans. We provide our customers with the flexibility to combine the right tools for the right job with a seamless front-and back-end experience. Our industry-leading team of experts, partnering with our customers to provide the speed and agility needed to grow on their own terms. We strive to provide the world’s best software-as-a-service (“SaaS”) ecommerce platform for forward-thinking brands and retailers at all stages of ecommerce growth. Our platform serves customers across a wide variety of sizes, industries, and product categories seeking to differentiate themselves in-market with more tailored commerce experiences. We believe our sophisticated functionality and composable SaaS platform make ecommerce success at scale more economically and operationally achievable than the competition. We lower the financial and operating cost of ecommerce by providing world-class technology as a service, including product, hosting, security, bug fixing, and continuous innovation. We believe no other SaaS platform offers comparable enterprise functionality and flexibility at our price point—an advantage increasingly recognized by the world’s most respected technology analysts. Our partner ecosystem is also central to our business strategy. We believe we possess one of the deepest and broadest ecosystems of integrated technology solutions in the ecommerce industry. We strategically partner with, rather than compete against, the leading providers in adjacent categories, including payments, shipping, point of sale, content management systems, customer relationship management, enterprise resource planning, and omnichannel. Our partner-centric strategy stands in contrast to our largest competitors, which operate complex software stacks that compete across categories. We focus our research and development investments in our core product with an emphasis on composability, empowering our customers to grow and scale on their terms. We plan to continue to invest in our strategic offerings of B2B, B2C, and SB, as well as building new partnerships and continuing to develop our portfolio of professional-grade commerce solutions for forward-focused businesses. We will also invest in and grow our business by acquiring additional customers to our platform, growing our revenue with existing customers, and expanding our presence in new markets while maintaining a focus on profitability. Key factors affecting our performance We believe our future performance will depend on many factors, including the following: Continued growth of ecommerce domestically and globally Ecommerce is rapidly transforming global B2C and B2B commerce. The rapid growth in ecommerce is prompting companies to adopt ecommerce platforms like BigCommerce to create compelling branded ecommerce stores and power cross-channel connections to online marketplaces, social networks, and offline POS systems. 39 Table of Contents Acquisition of new customers The growth of our customer base is important to our continued revenue growth. We believe we are positioned to grow through a combination of our own marketing and sales initiatives, customer referrals from our agency and technology partners, and word-of-mouth referrals from existing customers. We serve customers that represent an array of B2C and B2B retail sectors, including fashion and apparel, home and garden, sports and outdoors, food and beverage, jewelry, health and beauty, automotive, industrial, manufacturing, and more. Our customers sell across channels from online and offline stores to social media platforms to digital marketplaces and countless combinations, connecting with consumers around the world. Our B2C audience includes branded manufacturers, multi-brand online retailers, and store-based retailers. We serve this category of business with a platform offering enterprise-grade functionality, openness, and performance capabilities, allowing B2Cs the flexibility to modernize and customize at a lower total cost of ownership than competitors. Our powerful storefront speed, open partner ecosystem, multi-brand/international capabilities, and robust security make BigCommerce an ideal fit for this group. We cater to a range of B2B businesses, including manufacturers, distributors, wholesalers, professional services, and hybrid B2B/B2C sellers. We support this group with a platform offering anchored on improved operational efficiency and customer experience through digital transformation. With its advanced B2B functionality and flexibility, BigCommerce is uniquely equipped to serve complex B2B use cases, whether businesses are new to online selling, seeking to scale, or looking to expand into new markets and channels. Small businesses using BigCommerce are growth-oriented B2C and B2B businesses typically ranging from $0.5 million to $5 million in total annual revenue. We serve the SB market by providing commerce capabilities that meet their changing needs and increasingly complex use cases as they grow and scale up-market. We serve these lines of business with professional-grade commerce solutions, high-touch experiences and seamless integration, providing dependable, customizable, and scalable tools that drive growth and enable business agility. With a synergistic combination of flexible platform capabilities, powerfully connected data, and visually captivating customer experiences, our BigCommerce, Feedonomics, and Makeswift technologies work together to help businesses transform commerce operations, elevate customer experiences, and optimize revenue across all channels. Retention and growth of our existing customers We believe our long-term revenue growth is correlated with the growth of our existing customers’ commerce businesses. We continue to invest in product functionality to maximize customer success and retention. Our revenue grows with that of our customers. As they generate more online sales, we generate more subscription revenue through automated sales-based upgrades on our Non-Enterprise plans and order adjustments on our Enterprise plans. Typical Enterprise contracts have terms ranging from 12 to 36 months and do not include the ability to terminate for convenience. As our customers’ online sales increase, our partner and services revenue generated by revenue-sharing agreements with our strategic technology partners increases as well. Our ability to retain and grow our customers’ commerce businesses often depends on the continued expansion of our platform and the capabilities of our strategic technology partners to provide revenue generating services to our customers. We continually evaluate prospective and existing partners’ abilities to enhance the capabilities of our customers’ commerce businesses. We add new partners and expand existing partner relationships to enhance the utility of our platform, while creating new opportunities to expand our revenue share in partner and services revenue. As we continue to grow as a platform, we believe our ability to realize more favorable and expansive revenue share agreements will grow as well. We also grow by selling additional stores to existing customers. Our larger customers will often first use our platform to build a single online store that serves a single brand within their portfolio. These customers can then expand their usage of our platform by launching additional stores to serve additional brands, geographies, or use cases (e.g., B2B in addition to B2C). Additionally, we have seen meaningful growth in the lifetime value of our Feedonomics customers, driven by both higher engagement and the increase in the number and variety of stock keeping units ("SKU"s) available to them. The expansion of our Feedonomics SKU offerings has played a crucial role in both retaining existing customers and enabling their growth within our ecosystem. By continuously adding new features, tools, and integrations across our product suite, we have been able to meet the evolving needs of our customers, making it easier for them to expand their use of our platform and adopt additional solutions. As a result, we have experienced a marked increase in customer retention rates. Our ability to offer more tailored solutions through a broader range of SKUs has allowed us to build stronger, more personalized relationships with customers, which in turn has 40 Table of Contents contributed to reduced churn. In particular, customers who have adopted multiple SKUs or upgraded to higher-tier plans have shown increased satisfaction and longer subscription periods. Realizing operating leverage from our investments We have made significant investments in our SaaS platform and our global infrastructure, which we believe will yield future operating leverage and profit margin expansion. Research and development has historically been one of our largest operating expense categories. By expanding our lower-cost engineering in lower-cost international locations, we are increasing development capacity while also driving leverage in engineering cost as a percentage of total revenue. In addition, we believe we will achieve operating leverage in marketing by continuing to emphasize lower-cost inbound techniques and growth in customer referrals from our technology and agency partners, especially as our revenue mix continues to shift to our enterprise plans. While we may see changes in margins from one period to another based on our relative pace of expansion and the associated level of investments required, we believe we will be able to run our business more efficiently as we continue to grow our revenue and gain further operating leverage as we scale. Successful international expansion Our current operations are international in scope and we plan to increase the international portion of our business. We believe our platform's adaptability positions us to capture a larger share of the international market. We enhance our ability to compete in new geographies by ensuring our platform is accessible and user-friendly, through localization efforts such as control panel translations and integration with local payment processors. Evolution of our technology partner ecosystem Our partner ecosystem is also central to our business strategy. We believe we possess one of the deepest and broadest ecosystems of integrated technology solutions in the ecommerce industry. We strategically partner with, rather than compete against, the leading providers in adjacent categories, including payments, shipping, point of sale, content management systems, customer relationship management, enterprise resource planning, and omnichannel. Our partner-centric strategy stands in contrast to our largest competitors, which operate complex software stacks that compete across categories. We focus our research and development investments in our core product with an emphasis on composability, empowering our customers to grow and scale on their terms. Business metrics We review the following business metrics to measure our performance, identify trends affecting our business, formulate business plans, and make strategic decisions. Increases or decreases in our business metrics may not correspond with increases or decreases in our revenue. As an example, some of our business metrics include annual revenue run-rate (“ARR”), subscription annual revenue run-rate (“Subscription ARR”), average revenue per account, and others are calculated as of the end of the last month of the reporting period. Annual revenue run-rate We calculate ARR at the end of each month as the sum of: (1) contractual monthly recurring revenue at the end of the period, which includes platform subscription fees, invoiced growth adjustments, feed management subscription fees, recurring professional services revenue, and other recurring revenue, multiplied by twelve to prospectively annualize recurring revenue, and (2) the sum of the trailing twelve-month non-recurring and variable revenue, which includes one-time partner integrations, one-time fees, payments revenue share, and any other revenue that is non-recurring and variable. Subscription annual revenue run-rate We calculate Subscription ARR at the end of each month as the sum of contractual monthly recurring revenue at the end of the period, which includes platform subscription fees, invoiced growth adjustments, product feed management subscription fees, recurring professional services revenue, and other recurring revenue, multiplied by twelve to prospectively annualize recurring revenue. Average revenue per account We calculate average revenue per account (“ARPA”) at the end of a period by including customer-billed revenue and an allocation of partner and services revenue, where applicable. We bill customers for subscription solutions and professional services, and we include both in ARPA for the reported period. For example, ARPA as of December 31, 2024, includes all subscription solutions and professional services billed between January 1, 2024, and December 31, 2024. We allocate partner revenue, where applicable, primarily based on each customer’s share of GMV processed through that partner’s solution. Partner revenue that is not directly linked to customer usage of a partner’s solution is allocated based on each customer’s share of total platform GMV. Each account’s partner 41 Table of Contents revenue allocation is calculated by taking the account’s trailing twelve-month partner revenue, then dividing by twelve to create a monthly average to apply to the applicable period in order to normalize ARPA for seasonality. Enterprise Account metrics To measure the effectiveness of our ability to execute against our growth strategy, we calculate ARR attributable to Enterprise Accounts. We define Enterprise Accounts as accounts with at least one unique Enterprise plan subscription or an enterprise level feed management subscription (collectively “Enterprise Accounts”). These accounts may have more than one Enterprise plan or a combination of Enterprise plans and non-enterprise plans. The chart below illustrates certain of our key business metrics as of the periods ended. [[GREPCENT_TABLE]] [["","","Year ended December 31,"],["","","2024","","","2023","","","2022"],["Total ARR (in thousands)","","$","349,599","","","$","336,541","","","$","311,670"],["Subscription ARR (in thousands)","","$","264,541","","","$","256,412","","","$","238,395"],["Enterprise account metrics:"],["Number of enterprise accounts","","","5,884","","","","5,994","","","","5,786"],["ARR attributable to enterprise accounts (in thousands)","","$","261,590","","","$","245,100","","","$","223,964"],["ARR attributable to enterprise accounts as a percentage of Total ARR","","75%","","","73%","","","72%"],["ARPA","","$","44,458","","","$","40,891","","","$","38,708"]] [[/GREPCENT_TABLE]] Net revenue retention We use net revenue retention (“NRR”) to evaluate our ability to maintain and expand our revenue with our account base of enterprise customers exceeding the annual contract value ("ACV") threshold over time. The total billings and allocated partner revenue, where applicable, for the measured period are divided by the total billings and allocated partner revenue for such accounts, corresponding to the period one year prior. An NRR greater than 100 percent implies positive net revenue retention. This methodology includes stores added to or subtracted from an account’s subscription during the previous twelve months. It also includes changes to subscription and partner and services revenue billings, and revenue reductions from stores or accounts that leave the platform during the previous one-year period. Net new accounts added after the previous one-year period are excluded from our NRR calculations. NRR for enterprise accounts was 99 percent and 100 percent for the years ended December 31, 2024 and 2023, respectively. We update our reported NRR at the end of each fiscal year and do not report quarterly changes in NRR. Components of results of operations Revenue We generate revenue from two sources: (1) subscription solutions revenue and (2) partner and services revenue. Subscription solutions revenue consists primarily of platform subscription fees from plans and recurring professional services. Subscription solutions are typically charged annually for our customers to sell their products and process transactions on our platform. Subscription solutions are generally charged per online store and are based on the store’s subscription plan. Our Enterprise plan contracts are generally for a fixed term of 12 to 36 months and are non-cancelable. Our pricing strategy provides enterprise merchants a discount for a period of time from their contractual obligations. Merchants have full access to the functionality of our platform upon contract execution, and revenue is recognized ratably over the contract life. Our retail plans are generally month-to-month contracts. Monthly subscription fees for Enterprise plans are adjusted if a customer’s GMV or orders processed are outside of specified plan thresholds on a trailing twelve-month basis. Fixed monthly fees and any transaction charges related to subscription solutions are recognized as revenue in the month they are earned. Through Feedonomics, we provide feed management solutions under service contracts which are generally one year or less and, in many cases, month-to-month. These service types may be sold stand-alone or as part of a multi-service bundle (e.g. both marketplaces and advertising) and are billed monthly in arrears. We generate partner revenue from our technology application ecosystem. Customers tailor their stores to meet their feature needs by integrating applications developed by our strategic technology partners. We enter into contracts with our strategic technology partners that are generally for one year or longer. We generate revenue from these contracts in three ways: (1) revenue-sharing arrangements, (2) technology integrations, and (3) partner marketing and promotion. We recognize revenue on a net basis from revenue-sharing arrangements when the underlying transaction occurs. 42 Table of Contents We also generate revenue from non-recurring professional services that we provide to complement the capabilities of our customers and their agency partners. Our services help improve customers’ time-to-market and the success of their businesses using BigCommerce. Our non-recurring services include education packages, launch services, solutions architecting, implementation consulting, and catalog transfer services. Cost of revenue Cost of revenue consists primarily of: (1) personnel-related costs (including stock-based compensation expense and associated payroll costs) for our customer success teams, (2) costs that are directly related to hosting and maintaining our platform, (3) fees for processing customer payments such as credit card processing charges, (4) personnel and other costs related to feed management, and (5) allocated costs, such as, amortization of purchased intangibles, depreciation, technology and facility costs. Sales and marketing Sales and marketing expenses consist primarily of: (1) personnel-related expenses (including stock-based compensation expense and associated payroll costs), (2) sales commissions, (3) marketing programs, (4) travel-related expenses, and (5) allocated overhead sales and support costs such as technology and facility costs. We focus our sales and marketing efforts on creating sales leads and establishing and promoting our brand. We plan to increase our investment in sales and marketing by executing our go-to-market strategy globally and building our brand awareness. Incremental sales commissions for new customer contracts are deferred and amortized ratably over the estimated period of our relationship with such customers. Research and development Research and development expenses consist primarily of personnel-related expenses (including stock-based compensation expense and associated payroll costs) incurred in maintaining and developing enhancements to our ecommerce platform and allocated overhead costs. Software development costs associated with internal use software which are incurred during the application development phase and meet other requirements are capitalized. General and administrative General and administrative expenses consist primarily of: (1) personnel-related expenses (including stock-based compensation expense and associated payroll costs) for finance, legal and compliance, and human resources, (2) external professional services, and (3) allocated overhead costs, such as technology and facility costs. Acquisition related expenses Acquisition related expenses consists of cash payments for third-party acquisition costs and other acquisition related expenses, including contingent compensation arrangements entered into in connection with acquisitions. Restructuring charges Restructuring charges consist primarily of severance benefits, right-of-use asset impairments, lease termination gain, software impairments, accelerated depreciation and amortization, and professional services costs. Amortization of intangible assets Amortization of intangible assets consist of amortization of developed technology and acquired intangible assets which were recognized as a result of business combinations. These assets are being amortized over their expected useful life. Gain on convertible notes extinguishment Gains recorded net of proportionate share of unamortized debt issuance costs and certain third party transaction costs relate to the repurchase transactions of the 2026 Convertible Notes and exchange transaction of the 2026 Convertible Notes for the 2028 Convertible Notes. Interest income Interest income is earned on our cash, cash equivalents and marketable securities. Interest expense 43 Table of Contents Interest expense consists primarily of the interest expense from the amortization of the debt issuance costs and coupon interest attributable to our 2028 and 2026 Convertible Notes with offsetting amortization of the debt premium related to the 2028 Convertible Notes. Other expenses Other expense primarily consists of foreign currency translation adjustments. Provision for income taxes Our provision for income taxes consists primarily of current state and foreign jurisdictions in which we conduct business, deferred income taxes associated with amortization of tax deductible goodwill. For U.S. federal income tax purposes and in certain foreign and state jurisdictions, we have NOL carryforwards. The foreign jurisdictions in which we operate have different statutory tax rates than those of the United States. Additionally, certain of our foreign earnings may also be currently taxable in the United States. Accordingly, our effective tax rate will vary depending on the relative proportion of foreign to domestic income, use of foreign tax credits, changes in the valuation of our deferred tax assets and liabilities, applicability of any valuation allowances, and changes in tax laws in jurisdictions in which we operate. Results of operations The following table summarizes our historical consolidated statement of operations data. The period-to-period comparison of operating results is not necessarily indicative of results for future periods. [[GREPCENT_TABLE]] [["","","Year ended December 31,"],["","","2024","","","2023","","","2022"],["","","(in thousands)"],["Revenue","","$","332,927","","","$","309,394","","","$","279,075"],["Cost of revenue (1)(2)","","","77,589","","","","74,202","","","","69,980"],["Gross profit","","","255,338","","","","235,192","","","","209,095"],["Operating expenses: (1)(2)"],["Sales and marketing","","","129,602","","","","140,230","","","","141,342"],["Research and development","","","80,879","","","","83,460","","","","88,253"],["General and administrative","","","61,794","","","","58,838","","","","69,441"],["Amortization of intangible assets","","","9,736","","","","8,422","","","","8,078"],["Acquisition related costs","","","1,334","","","","10,252","","","","35,216"],["Restructuring charges","","","13,677","","","","6,434","","","","7,332"],["Total operating expenses","","","297,022","","","","307,636","","","","349,662"],["Loss from operations","","","(41,684",")","","","(72,444",")","","","(140,567",")"],["Gain on convertible note extinguishment","","","12,110","","","","0","","","","0"],["Interest income","","","10,568","","","","11,493","","","","4,198"],["Interest expense","","","(6,051",")","","","(2,884",")","","","(2,828",")"],["Other expenses","","","(958",")","","","(836",")","","","(227",")"],["Loss before provision for income taxes","","","(26,015",")","","","(64,671",")","","","(139,424",")"],["Provision for income taxes","","","(1,015",")","","","0","","","","(495",")"],["Net loss","","$","(27,030",")","","$","(64,671",")","","$","(139,919",")"]] [[/GREPCENT_TABLE]] (1) Amounts include stock-based compensation expense and associated payroll tax costs, as follows: [[GREPCENT_TABLE]] [["","","Year ended December 31,"],["","","2024","","","2023","","","2022"],["","","(in thousands)"],["Cost of revenue","","$","3,533","","","$","4,949","","","$","4,226"],["Sales and marketing","","","9,252","","","","13,474","","","","13,551"],["Research and development","","","13,614","","","","13,478","","","","12,388"],["General and administrative","","","10,000","","","","9,785","","","","12,821"],["Total stock-based compensation expense and associated payroll tax costs","","$","36,399","","","$","41,686","","","$","42,986"]] [[/GREPCENT_TABLE]] (2) Amounts include depreciation as follows: 44 Table of Contents [[GREPCENT_TABLE]] [["","","Year ended December 31,"],["","","2024","","","2023","","","2022"],["","","(in thousands)"],["Cost of revenue","","$","282","","","$","550","","","$","722"],["Sales and marketing","","","308","","","","612","","","","888"],["Research and development","","","1,257","","","","897","","","","404"],["General and administrative","","","2,228","","","","2,000","","","","1,330"],["Total depreciation expense","","$","4,075","","","$","4,059","","","$","3,344"]] [[/GREPCENT_TABLE]] Revenue by geographic region The composition of our revenue by geographic region during the years ended December 31, 2024 and 2023 were as follows: [[GREPCENT_TABLE]] [["","","Year ended December 31,","","","Change"],["","","2024","","","2023","","","Amount","","","Percent"],["","","(in thousands)"],["Revenue"],["Americas \u2013 U.S.","","$","253,484","","","$","236,502","","","$","16,982","","","","7.2","","%"],["Americas \u2013 other(1)","","","15,662","","","","14,103","","","","1,559","","","","11.1"],["EMEA","","","38,031","","","","34,661","","","","3,370","","","","9.7"],["APAC","","","25,750","","","","24,128","","","","1,622","","","","6.7"],["Total Revenue","","$","332,927","","","$","309,394","","","$","23,533","","","","7.6","","%"]] [[/GREPCENT_TABLE]] (1)Americas-other revenue includes revenue from North and South America, other than the U.S. Comparison of years ended December 31, 2024 and 2023 Revenue The following table presents the components of our revenue for each of the periods indicated: [[GREPCENT_TABLE]] [["","","Year ended December 31,","","","Change"],["","","2024","","","2023","","","Amount","","","Percent"],["","","(dollars in thousands)"],["Revenue"],["Subscription solutions","","$","247,870","","","$","229,265","","","$","18,605","","","","8.1","","%"],["Partner and services","","","85,057","","","","80,129","","","","4,928","","","","6.2"],["Total revenue","","$","332,927","","","$","309,394","","","$","23,533","","","","7.6","","%"]] [[/GREPCENT_TABLE]] Total revenue increased $23.5 million, or 7.6 percent, to $332.9 million for the year ended December 31, 2024 from $309.4 million for the year ended December 31, 2023, due to an increase in both subscription solutions and partner and services revenue. Subscription solutions revenue increased $18.6 million, or 8.1 percent, to $247.9 million for the year ended December 31, 2024 from $229.3 million for the year ended December 31, 2023, primarily due to the increases in SB and enterprise customers along with increases from Feedonomics revenue. Partner and services revenue increased $4.9 million, or 6.2 percent, to $85.1 million for the year ended December 31, 2024 from $80.1 million for the year ended December 31, 2023, primarily as a result of increases in revenue- sharing activity offset by decreases in stand ready hosting and integration activity. Cost of revenue, gross profit, and gross margin The following table presents our cost of revenue, gross profit, and gross margin for each of the periods indicated: [[GREPCENT_TABLE]] [["","","Year ended December 31,","","","","Change"],["","","2024","","","","2023","","","","Amount","","","Percent"],["","","(dollars in thousands)"],["Cost of revenue","","$","77,589","","","","$","74,202","","","","$","3,387","","","","4.6","","%"],["Gross profit","","","255,338","","","","","235,192","","","","","20,146","","","","8.6"],["Gross margin percentage","","","76.7","","%","","","76.0","","%"]] [[/GREPCENT_TABLE]] 45 Table of Contents Cost of revenue increased $3.4 million, or 4.6 percent, to $77.6 million for the year ended December 31, 2024 from $74.2 million for the year ended December 31, 2023, primarily as a result of higher hosting costs of $3.1 million. Gross margin increased to 76.7 percent during 2024 from 76.0 percent during 2023, due to increased efficiency in customer service staffing and spending and the 2024 Restructure. We expect that cost of revenue will likely decrease in the near term as a percentage of revenue due to reductions in headcount related costs as a result of the 2024 and 2023 Restructures, leading to improved gross margins. Operating expenses The following tables present our operating expenses for each of the periods indicated: [[GREPCENT_TABLE]] [["","","Year ended December 31,","","","","Change"],["","","2024","","","As a % of Total Revenue","","","","2023","","","As a % of Total Revenue","","","","Amount","","","Percent"],["","","(dollars in thousands)"],["Sales and marketing","","$","129,602","","","","38.9","","%","","$","140,230","","","","45.3","","%","","$","(10,628",")","","","(7.6",")","%"],["Research and development","","","80,879","","","","24.3","","","","","83,460","","","","27.0","","","","","(2,581",")","","","(3.1",")"],["General and administrative","","","61,794","","","","18.6","","","","","58,838","","","","19.0","","","","","2,956","","","","5.0"],["Amortization of intangible assets","","","9,736","","","","2.9","","","","","8,422","","","","2.7","","","","","1,314","","","","15.6"],["Acquisition related expenses","","","1,334","","","","0.4","","","","","10,252","","","","3.3","","","","","(8,918",")","","","(87.0",")"],["Restructuring charges","","","13,677","","","","4.1","","","","","6,434","","","","2.1","","","","","7,243","","","","112.6"],["Total operating expenses","","","297,022","","","","89.2","","%","","$","307,636","","","","99.4","","%","","$","(10,614",")","","","(3.5",")","%"]] [[/GREPCENT_TABLE]] Sales and marketing Sales and marketing expenses decreased for the year ended December 31, 2024 primarily due to a decrease of $6.4 million in personnel-related costs, including stock-based compensation expense and associated payroll costs as part of the 2024 Restructure, and a decrease of $4.5 million in variable marketing spend due to efforts to reduce expenditures including the 2024 Restructure. We expect that sales and marketing expenses will increase in absolute dollars and may slightly increase as a percentage of revenue near term as we reinvest in our go-to-market organization as part of the 2024 Restructure. We do not expect sales and marketing expenses to increase as much as our revenue growth in future periods. Research and development Research and development expenses decreased for the year ended December 31, 2024 from December 31, 2023, primarily due to a decrease in staffing costs of $1.0 million, including stock-based compensation and associated payroll costs, and a decrease of $1.4 million in professional services. We expect that research and development expenses will likely decrease as a percentage of revenue in the near term primarily due to reductions in headcount related costs relating to the 2024 Restructure. General and administrative General and administrative expenses increased for the year ended December 31, 2024 from December 31, 2023. The increase was primarily due to a $2.2 million increase in bad debt expense, and a $1.0 million increase in professional services fees, including legal and accounting fees associated with growth in the business. We expect that general and administrative expenses will likely decrease as a percentage of revenue in the near term due to reductions in headcount related costs relating to the 2024 Restructure. Amortization of intangible assets Amortization of intangible assets increased for the year ended December 31, 2024 from December 31, 2023. The increase was due to amortization of Makeswift intangible assets. Acquisition related expenses Acquisition related expense decreased for the year ended December 31, 2024 from December 31, 2023.The decrease was primarily attributable to the completion of the recognition period related to the Makeswift acquisition that occurred in fiscal 2023. 46 Table of Contents Restructuring charges Restructuring charges increased for the year ended December 31, 2024 from December 31, 2023. The current year restructuring included severance and related charges for a reduction in workforce, consulting costs associated with changes in go-to-market approach, accelerated depreciation and charges for the write-down of capitalized software charges no longer expected to be put into use due to changes in go-to-market strategy, real-estate related charges due to planned headquarters move and change in real estate footprint, and charges associated with a strategic review while the prior year included only a reduction in workforce. Other income The following tables present our other income/(expenses) for each of the periods indicated: [[GREPCENT_TABLE]] [["","","Year Ended December 31,","","","","Change"],["","","2024","","","2023","","","","Amount","","","Percent"],["","","(dollars in thousands)"],["Gain on convertible note extinguishment","","$","12,110","","","","0","","","","","12,110","","","","100.0","","%"],["Interest income","","","10,568","","","","11,493","","","","","(925",")","","","(8.0",")"],["Interest expense","","","(6,051",")","","","(2,884",")","","","","(3,167",")","","","109.8"],["Other expenses","","","(958",")","","","(836",")","","","","(122",")","","","14.6"],["Total Other income","","$","15,669","","","$","7,773","","","","$","7,896","","","","101.6","","%"]] [[/GREPCENT_TABLE]] Gain on convertible note extinguishment increased for the year ended December 31, 2024 from December 31, 2023. The increase consisted of a $10.4 million gain on the repurchase of 2026 Convertible Notes and $1.7 million gain on the exchange of 2028 Convertible Notes. Interest income decreased for the year ended December 31, 2024 from December 31, 2023. This decrease was due to lower yields on our cash equivalents and marketable securities in 2024 primarily as a result of less cash, cash equivalents, and marketable securities during the period. Interest expense increased for the year ended December 31, 2024 from December 31, 2023. This increase was the due to the exchange of 2026 Convertible Notes for 2028 Convertible Notes at a higher effective interest rate in the third quarter of 2024. Other expenses increased for the year ended December 31, 2024 from December 31, 2023. This increase was due to the impact of foreign currency exchange rates. Provision for income taxes Our provision for income taxes increased approximately $1 million for the year ended December 31, 2024 from December 31, 2023. This increase was due to additional state and foreign tax expense. Cash flows The following table sets forth a summary of our cash flows for the periods indicated. [[GREPCENT_TABLE]] [["","","Year ended December 31,"],["","","2024","","","2023","","","2022"],["","","(in thousands)"],["Net cash provided by (used in) operating activities","","$","26,254","","","$","(24,243",")","","$","(89,357",")"],["Net cash provided by (used in) investing activities","","","105,293","","","","2,816","","","","(116,526",")"],["Net cash provided by (used in) financing activities","","","(114,036",")","","","1,242","","","","209"],["Net increase (decrease) in cash, cash equivalents and restricted cash","","$","17,511","","","$","(20,185",")","","$","(205,674",")"]] [[/GREPCENT_TABLE]] As of December 31, 2024, we had $179.6 million in cash, cash equivalents, restricted cash, and marketable securities, a decrease of $91.7 million compared to $271.3 million for the year ended December 31, 2023. Cash and cash equivalents consist of highly-liquid investments with original maturities of less than three months. Our restricted cash balance of $1.5 million and $1.1 million at December 31, 2024 and December 31, 2023, respectively, consists of security deposits for future chargebacks and amounts on deposit with certain financial institutions. Our marketable securities balance of $89.3 million and $198.4 million at December 31, 2024 and December 31, 2023, respectively, consists of investments in corporate and U.S. treasury securities. We maintain cash account balances in excess of Federal Deposit Insurance Corporation (FDIC) insured limits. 47 Table of Contents Operating activities Net cash provided by (used in) operating activities for the years ended December 31, 2024 and 2023 was $26.3 million and ($24.2) million, respectively. This consisted primarily of our net losses adjusted for certain non-cash items including depreciation, amortization of intangible assets, convertible note premium and convertible note issuance costs amortization, stock-based compensation, bad debt expense, impairment losses and accelerated depreciation associated with restructuring, gains on settlement of lease liabilities, gain on extinguishment of convertible notes, and the effect of changes in working capital. Investing activities Net cash provided by investing activities during the year ended December 31, 2024 was $105.3 million. It consisted primarily of the sale and maturity of marketable securities of $205.2 million offset by the purchase of property, equipment, leasehold improvements and capitalized internal-use software of $3.7 million and the purchase of marketable securities of $96.1 million. Net cash used in investing activities during the year ended December 31, 2023 was $2.8 million. It consisted primarily of the cash paid for the acquisition of $7.9 million, the purchases of marketable securities of $228.3 million and the purchases of property, equipment, leasehold improvements, and capitalized internal-use software of $4.2 million, offset by the maturity of marketable securities of $243.2 million. Financing activities Net cash provided by (used in) financing activities during the year ended December 31, 2024 was ($114.0) million primarily consisting of repayment of convertible notes and financing obligations of $109.1 million, payment of issuance costs of $3.2 million related to the Convertible Notes, and taxes paid related to net share settlement of stock options and restricted stock units of $2.4 million. Net cash provided by financing activities during the year ended December 31, 2023 was $1.2 million primarily consisting of an increase in net debt of $0.7 million and issuance of shares of common stock pursuant to the exercise of stock options and restricted stock units of $0.5 million. Fiscal Year Ended December 31, 2023 and 2022 For a discussion of the year ended December 31, 2023 compared to the year ended December 31, 2022, refer to Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2023. Liquidity and capital resources We are committed to cash flow generation and cash management by focusing on operational discipline, and we continue to evaluate all of our spending to look for opportunities to drive improvements in cash flow. Our success in transitioning our customer base from legacy month-to-month contracts to annual contracts has continued to result in better cash flow as these efforts have increased the timing of our cash receipts and reduced our overall subscription churn rate. Our operational short-term liquidity needs primarily include working capital for sales and marketing, research and development, and continued innovation. Our future capital requirements will depend on many factors, including our growth rate, levels of revenue, the expansion of sales and marketing activities, market acceptance of our platform, the results of business initiatives including our efforts in transitioning our customers to annual billings, continued reduction in churn, the timing of new product introductions, the continued impact of the inflation on the global economy, market risk due to elevated interest rates, our business, financial condition, and results of operations. We believe that our existing cash and cash equivalents and our cash flows from operating activities will be sufficient to meet our working capital and capital expenditure needs for at least the next twelve months. Additionally, with our 2026 Convertible Notes restructuring, there was a reduction in liquidity. However, we believe as a result of the renegotiation and extension of the remaining obligation, we have decreased our overall debt leverage and better optimized our maturities. The restructuring of the convertible notes requires semi-annual interest payments and increases our contractual interest rate to 7.50 percent. From time to time, we may seek to repurchase, redeem or otherwise retire our Convertible Notes through cash repurchases and/or exchanges for equity securities, in open market repurchases, privately negotiated transactions, tender offers or otherwise. Such repurchases, redemptions or other transactions, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions, and other factors. The amounts involved may be material. We do not have any material off-balance sheet arrangements that we expect would materially affect our liquidity and capital resources. 48 Table of Contents Indebtedness 2028 Convertible Notes In August 2024, we issued $150.0 million in aggregate principal amount of the Company’s new 7.50 percent convertible senior notes due 2028 (the “2028 Convertible Notes”). The 2028 Convertible Notes were issued pursuant to, and are governed by, an indenture (the “2028 Convertible Notes Indenture”), dated as of August 7, 2024, between the Company and U.S. Bank Trust Company, National Association, as trustee. The 2028 Convertible Notes are our senior, initially unsecured obligations and will accrue interest at a rate of 7.50 percent per annum, payable semi-annually in arrears on April 1 and October 1 of each year. The 2028 Convertible Notes will mature on October 1, 2028, unless earlier converted, redeemed or repurchased. Before July 3, 2028, noteholders will have the right to convert their 2028 Convertible Notes only upon the occurrence of certain events. From and after July 3, 2028, noteholders may convert their 2028 Convertible Notes at any time at their election until the close of business on the second scheduled trading day immediately before the maturity date. We will settle conversions by paying or delivering, as applicable, cash, shares of its common stock or a combination of cash and shares of its common stock, at the Company’s election. The initial conversion rate is 62.5000 shares of common stock per $1,000 principal amount of 2028 Convertible Notes, which represents an initial conversion price of $16.00 per share of common stock. The conversion rate and conversion price will be subject to customary adjustments upon the occurrence of certain events. In addition, if certain corporate events that constitute a “Make-Whole Fundamental Change” (as defined in the 2028 Convertible Notes Indenture) occur, then the conversion rate will, in certain circumstances, be increased for a specified period of time. We may not redeem the 2028 Convertible Notes at its option at any time before October 7, 2026. The 2028 Convertible Notes will be redeemable, in whole or in part (subject to the “Partial Redemption Limitation” (as defined in the 2028 Convertible Notes Indenture)), at the Company’s option at any time, and from time to time, on or after October 7, 2026 and on or before the 25th scheduled trading day immediately before the maturity date, but only if the last reported sale price per share of the Company’s common stock exceeds 130 percent of the conversion price for a specified period of time and certain other conditions are satisfied. The redemption price will be equal to the principal amount of the 2028 Convertible Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. In addition, calling any 2028 Convertible Note for redemption will constitute a Make-Whole Fundamental Change with respect to that 2028 Convertible Note, in which case the conversion rate applicable to the conversion of that 2028 Convertible Note will be increased in certain circumstances if it is converted after it is called for redemption. Pursuant to the Partial Redemption Limitation, we may not elect to redeem less than all of the outstanding 2028 Convertible Notes unless at least $100.0 million aggregate principal amount of 2028 Convertible Notes are outstanding and not subject to redemption as of the time the Company sends the related redemption notice. If certain corporate events that constitute a “Fundamental Change” (as defined in the 2028 Convertible Notes Indenture) occur, then, subject to a limited exception for certain cash mergers, noteholders may require the Company to repurchase their 2028 Convertible Notes at a cash repurchase price equal to the principal amount of the 2028 Convertible Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date. The definition of Fundamental Change includes certain business combination transactions involving the Company and certain de-listing events with respect to the Company’s common stock. The 2028 Convertible Notes have customary provisions relating to the occurrence of “Events of Default” (as defined in the 2028 Convertible Notes Indenture), which include the following: (i) certain payment defaults on the 2028 Convertible Notes (which, in the case of a default in the payment of interest on the 2028 Convertible Notes, will be subject to a 30-day cure period); (ii) the Company’s failure to send certain notices under the 2028 Convertible Notes Indenture within specified periods of time; (iii) the Company’s failure to comply with certain covenants in the 2028 Convertible Notes Indenture relating to the Company’s ability to consolidate with or merge with or into, or sell, lease or otherwise transfer, in one transaction or a series of transactions, all or substantially all of the assets of the Company and its subsidiaries, taken as a whole, to another person; (iv) a default by the Company in its other obligations or agreements under the 2028 Convertible Notes Indenture or the 2028 Convertible Notes if such default is not cured or waived within 60 days after notice is given in accordance with the 2028 Convertible Notes Indenture; (v) certain payment defaults on the Company’s credit facility if the Company has entered into the Security Documents (as defined in the 2028 Convertible Notes Indenture), (vi) certain defaults by the Company or any of its significant subsidiaries with respect to indebtedness for borrowed money of at least $20,000,000; and (vii) certain events of bankruptcy, insolvency and reorganization involving the Company or any of its significant subsidiaries. If an Event of Default involving bankruptcy, insolvency or reorganization events with respect to the Company (and not solely with respect to a significant subsidiary of the Company) occurs, then the principal amount of, and all accrued and unpaid interest on, all of the 2028 Convertible Notes then outstanding will immediately become due and payable without any further action or notice by any person. If any other Event of Default occurs and is continuing, then, the Trustee, by notice to the Company, or noteholders of at least 25 percent of the aggregate principal amount of 2028 Convertible Notes then outstanding, by notice to the Company and the trustee, may declare the principal amount of, and all accrued and unpaid interest on, all of the 2028 Convertible Notes then outstanding to become due and payable immediately. However, notwithstanding the foregoing, the Company may elect, at its option, that the sole 49 Table of Contents remedy for an Event of Default relating to certain failures by the Company to comply with certain reporting covenants in the Indenture consists exclusively of the right of the noteholders to receive special interest on the 2028 Convertible Notes for up to 180 days at a specified rate per annum not exceeding 0.50 percent on the principal amount of the 2028 Convertible Notes. The 2028 Convertible Notes Indenture contains a number of restrictive covenants and limitations, including restrictions on the Company’s ability to incur certain indebtedness, as further described in the Indenture. In addition, to the extent the Company incurs subordinated indebtedness pursuant to the terms of the Indenture, it will be required to secure the 2028 Convertible Notes, subject only to prior security interests in favor of lenders under any senior secured revolving credit facility, if then outstanding. 2026 Convertible Notes In September 2021, we issued $345.0 million principal amount of 0.25 percent convertible notes due 2026 (the “2026 Convertible Notes”). The 2026 Convertible Notes were issued pursuant to, and are governed by, an indenture (the “2026 Convertible Notes Indenture”), dated as of September 14, 2021, between us and U.S. Bank National Association, as trustee. The 2026 Convertible Notes accrue interest at a rate of 0.25 percent per annum, payable semi-annually in arrears on April 1 and October 1 of each year, beginning on April 1, 2022. In August 2024, in addition to the Exchange Agreement, we entered into separate, privately negotiated repurchase agreements with a limited number of holders of our outstanding 2026 Convertible Notes to repurchase (the "Repurchase Transactions") approximately $120.6 million aggregate principal amount of the 2026 Convertible Notes for aggregate cash consideration of approximately $108.7 million, including accrued but unpaid interest of approximately $0.2 million on such 2026 Convertible Notes. The Repurchase Transactions settled in August 2024. Subsequent to December 31, 2024, we entered into separate, privately negotiated repurchase agreements with a limited number of holders of our outstanding 2026 Convertible Notes to repurchase approximately $59.1 million aggregate principal amount of the 2026 Convertible Notes for aggregate cash consideration of approximately $54.4 million, including accrued by unpaid interest of approximately $0.5 million on such 2026 Convertible Notes. This transaction resulted in a net gain on repurchases of debt of approximately $4.1 million, net of a $0.6 million write-off of unamortized debt issuance costs. Following the separate privately negotiated repurchases of approximately $59.1 million aggregate principal amount of the 2026 Convertible Notes, approximately $4.0 million principal amount of 2026 Convertible Notes remain outstanding. The 2026 Convertible Notes are our senior, unsecured obligations and are (i) equal in right of payment with our future senior, unsecured indebtedness; (ii) senior in right of payment to our future indebtedness that is expressly subordinated to the 2026 Convertible Notes in right of payment; (iii) effectively subordinated to our future secured indebtedness, to the extent of the value of the collateral securing that indebtedness; and (iv) structurally subordinated to all future indebtedness and other liabilities, including trade payables, and (to the extent we are not a holder thereof) preferred equity, if any, of our subsidiaries. The remaining outstanding 2026 Convertible Notes will mature on October 1, 2026, unless earlier repurchased, redeemed or converted. Before July 1, 2026, noteholders have the right to convert the remaining outstanding 2026 Convertible Notes only upon the occurrence of certain events. From and after July 1, 2026, noteholders may convert their 2026 Convertible Notes at any time at their election until the close of business on the second scheduled trading day immediately before the maturity date. We will settle conversions by paying or delivering, as applicable, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election. The initial conversion rate of the remaining outstanding 2026 Convertible Notes was 13.6783 shares of common stock per $1,000 principal amount of 2026 Convertible Notes, which represents an initial conversion price of approximately $73.11 per share of common stock. The conversion rate and conversion price are subject to customary adjustments upon the occurrence of certain events. In addition, if certain corporate events that constitute a “Make-Whole Fundamental Change” (as defined in the 2026 Convertible Notes Indenture) occur, then the conversion rate will, in certain circumstances, be increased for a specified period of time. The remaining outstanding 2026 Convertible Notes are redeemable, in whole or in part (subject to the “Partial Redemption Limitation” (as defined in the 2026 Convertible Notes Indenture)), at our option at any time, and from time to time, on or after October 7, 2024 and on or before the 25th scheduled trading day immediately before the maturity date, but only if the last reported sale price per share of our common stock exceeds 130 percent of the conversion price on (i) each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the trading day immediately before the date we send the related redemption notice; and (ii) the trading day immediately before the date we send such notice. The redemption price will be a cash amount equal to the principal amount of the 2026 Convertible Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. In addition, calling any 2026 Convertible Note for redemption will constitute a Make-Whole Fundamental Change with respect to that 2026 Convertible Note, in which case the conversion rate applicable to the conversion of that 2026 Convertible Note will be increased in certain circumstances if it is converted after it is called for redemption. Pursuant to the Partial Redemption Limitation, we may not elect to redeem less than all of the outstanding 2026 Convertible Notes unless at least $150.0 million aggregate principal amount of 2026 Convertible Notes are outstanding and not subject to redemption as of the time we send the related redemption notice. 50 Table of Contents If certain corporate events that constitute a “Fundamental Change” (as defined in the 2026 Convertible Notes Indenture) occur, then, subject to a limited exception for certain cash mergers, noteholders may require us to repurchase their Notes at a cash repurchase price equal to the principal amount of the remaining outstanding 2026 Convertible Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date. The definition of Fundamental Change includes certain business combination transactions involving us and certain de-listing events with respect to our common stock. The 2026 Convertible Notes have customary provisions relating to the occurrence of “Events of Default” (as defined in the Convertible Notes Indenture), which include the following: (i) certain payment defaults on the 2026 Convertible Notes (which, in the case of a default in the payment of interest on the 2026 Convertible Notes, will be subject to a 30-day cure period); (ii) our failure to send certain notices under the 2026 Convertible Notes Indenture within specified periods of time; (iii) our failure to comply with certain covenants in the 2026 Convertible Notes Indenture relating to our ability to consolidate with or merge with or into, or sell, lease or otherwise transfer, in one transaction or a series of transactions, all or substantially all of the assets of us and our subsidiaries, taken as a whole, to another person; (iv) a default by us in our other obligations or agreements under the 2026 Convertible Notes Indenture or the 2026 Convertible Notes if such default is not cured or waived within 60 days after notice is given in accordance with the 2026 Convertible Notes Indenture; (v) certain defaults by us or any of our significant subsidiaries with respect to indebtedness for borrowed money of at least $65.0 million; and (vi) certain events of bankruptcy, insolvency and reorganization involving us or any of our significant subsidiaries. If an Event of Default involving bankruptcy, insolvency or reorganization events with respect to us (and not solely with respect to a significant subsidiary of us) occurs, then the principal amount of, and all accrued and unpaid interest on, all of the 2026 Convertible Notes then outstanding will immediately become due and payable without any further action or notice by any person. If any other Event of Default occurs and is continuing, then, the trustee, by notice to us, or noteholders of at least 25 percent of the aggregate principal amount of 2026 Convertible Notes then outstanding, by notice to us and the trustee, may declare the principal amount of, and all accrued and unpaid interest on, all of the 2026 Convertible Notes then outstanding to become due and payable immediately. However, notwithstanding the foregoing, we may elect, at our option, that the sole remedy for an Event of Default relating to certain failures by us to comply with certain reporting covenants in the 2026 Convertible Notes Indenture consists exclusively of the right of the noteholders to receive special interest on the 2026 Convertible Notes for up to 180 days at a specified rate per annum not exceeding 0.50 percent on the principal amount of the 2026 Convertible Notes. Off-balance sheet arrangements We did not have any off-balance sheet arrangements as of December 31, 2024 or as of December 31, 2023. Critical accounting policies and estimates Our consolidated financial statements have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities. We also make estimates and assumptions on the reported revenue generated and reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. While our significant accounting policies are described in the notes to our included consolidated financial statements, we believe the following critical accounting policies are most important to understanding and evaluating our reported financial results. Revenue recognition We recognize revenue from two sources: (1) subscription solutions revenue and (2) partner and services revenue. Subscription solutions revenue consists of: (1) platform subscription fees and (2) recurring professional services. We generally recognize platform subscription fees and recurring professional services revenue in the month they are earned. We begin revenue recognition on the date that our service is made available to our customers. Fixed monthly fees and any overage charges related to subscription solutions are recognized as revenue in the month they are earned. Partner and services revenue is derived from: (1) revenue-sharing arrangements, (2) technology integrations, (3) partner marketing and promotion, and (4) non-recurring professional services. We recognize revenue on a net basis from revenue-sharing arrangements when the underlying transaction occurs. We recognize revenue from technology integration fees ratably over the contractual term because technology integration and platform access are deemed to be a single performance obligation. Revenue from partner marketing and promotion and non-recurring professional services is recognized as the service is performed. We recognize revenue from Feedonomics’ technology platform and related services under service contracts which are generally one year or less, and in many cases month-to-month. These service types may be sold stand-alone or as part of a multi-service bundle 51 Table of Contents (e.g. both marketplaces and advertising). Services are performed and fees are determined based on monthly usage and are billed in arrears. Allowance for credit losses We assess the collectability of outstanding accounts receivable on an ongoing basis and maintain an allowance for credit losses for accounts receivable deemed uncollectible. We analyze grouped customers by similar risk profiles, along with the invoiced accounts receivable portfolio and unbilled accounts receivable for significant risks, historical collection activity, and an estimate of future collectability to determine the amount that we will ultimately collect. This estimate is analyzed annually and adjusted as necessary. Equity-based compensation We measure stock-based compensation for stock options at fair value on the date of grant using the Black-Scholes option pricing model. Compensation cost is recognized on a straight-line basis over the requisite service period. Stock compensation costs are reduced by the estimated forfeitures at the date of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. We estimate the forfeiture rate based on historical experience. To the extent our actual forfeiture rate is different from our estimate, stock-based compensation expense is adjusted accordingly. The Black-Scholes Option-pricing model requires the input of highly subjective assumptions, which determine the fair value of stock-based awards. These assumptions include: • Expected volatility - As we have a short trading history for our common stock, we estimate volatility for option grants by evaluating the average historical volatility of peer group companies for the period immediately preceding the option grant. • Risk-free interest rate - The risk-free interest rate was based on the United States Treasury zero-coupon issues with remaining terms similar to the expected term of the options. • Dividend yield - We used an expected dividend yield of zero. We have never declared or paid any cash dividends on our common stock and do not plan to pay cash dividends on our common stock in the foreseeable future. • Expected term - We elected to use the simplified method to compute the expected term. We have a limited history of exercise activity and our stock options meet the criteria of “plain-vanilla” options as defined by the SEC. The simplified method calculates the expected term by taking the average of the vesting term and the original contractual term of the awards. We measure stock-based compensation for restricted stock units (RSUs) based on the fair market value of the common stock on the grant date. RSUs typically vest in equal installments over a four-year period, subject to continued service, and compensation expense is recognized straight-line over the requisite service period, net of estimated forfeitures. We grant PSUs which provide for shares of common stock to be earned based on our total stockholder return compared to the Russell 2000 index, and referred to as market-based awards. We value these market-based awards on the grant date using the Monte Carlo simulation model. The determination of fair value is affected by our stock price and a number of assumptions including the expected volatility and the risk-free interest rate. We assume no dividend yield and recognizes stock-based compensation expense ratably from grant date over the performance period of the award. The market-based awards will cliff-vest at the end of the three-year period ranging from 0 percent to 200 percent of the target number of PSUs granted. We also grant PSUs which provide for shares of common stock to be earned based on its attainment of our adjusted earnings before interest, taxes, depreciation and amortization (“adjusted EBITDA”) and revenue relative to a target specified in the applicable agreement, and are referred to our performance-based awards. We value these awards at the closing market price on the date of grant. The vesting of our performance-based awards are conditioned upon the achievement of certain targets and will vest in three annual tranches in a percentage of the target number of shares between 0 percent to 200 percent. The Company recognizes stock-based compensation expense over the performance period, if it is probable that the performance condition will be achieved. Adjustments to stock-based compensation expense are made, as needed, each reporting period based on changes in our estimate of the number of units that are probable of vesting. Restructuring charges Costs to restructure certain internal operations are accounted for as one-time termination and exit costs. A liability for a cost associated with restructuring activities is recognized and measured at its estimated fair value in our consolidated balance sheet in the period the liability is incurred. All costs relating to restructurings are recorded as "Restructuring charges" in the consolidated statement of operations. We recognize employee severance costs when payments are probable and amounts are estimable or when notification occurs, depending on whether the severance costs paid are part of the our general plan. When estimating the fair value of facility restructuring activities, assumptions are applied regarding estimated sub-lease payments to be received, which can differ materially from actual 52 Table of Contents results. This may require us to revise our initial estimates which may materially affect our consolidated results of operations and financial position in the period the revision is made. Costs related to contracts without future benefit or contract terminations are recognized at the earlier of the contract termination or the cease-use dates. Additionally, restructuring charges include considerations of various capital alternatives or changes in business activities which include expenses related to our change in go-to-market strategy, accelerated depreciation, software impairments, professional services, and other costs. Recent accounting pronouncements A discussion of recent accounting pronouncements is included in Note 2 to our included audited consolidated financial statements.