OLO INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q. The discussion contains forward-looking statements, including with respect to the durability of the acceleration we have experienced in the near term on consumer preferences for digital ordering, transaction volumes, and customer adoption of multi-modules, that are based on the beliefs of management, as well as assumptions made by, and information currently available to, our management. Actual results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Quarterly Report on Form 10-Q, particularly in the sections entitled "Risk Factors" and "Special Note Regarding Forward-Looking Statements." Overview We are a leading on-demand commerce platform powering the restaurant industry's digital transformation. Restaurant brands rely on our platform to enable digital ordering and delivery, while strengthening and enhancing their direct consumer relationships. Consumers today expect more on-demand convenience and personalization from restaurants, particularly through digital channels, but many restaurants lack the in-house infrastructure and expertise to satisfy this increasing demand in a cost-effective manner. We provide restaurants with a business-to-business-to-consumer, enterprise-grade, open SaaS platform to manage their complex digital businesses and enable fast and more personalized experiences for their customers. Our platform and application programming interfaces, or APIs, seamlessly integrate with a wide range of solutions, unifying disparate technologies across the restaurant ecosystem. Restaurant brands rely on us to increase their digital and in-store sales, maximize profitability, establish and maintain direct consumer relationships, and collect, protect, and leverage valuable consumer data. Our well-established platform has led many of the major publicly traded and top 50 fastest growing private restaurant brands, measured by overall sales, inthe United States to work with us and has been a factor in our high dollar-based net revenue retention rate. Further, industry-recognized outlets, including Restaurant Business Online,QSR Magazine , andAP News , have also deemed Olo a leading food ordering platform for the restaurant industry. We built Olo with the goal of being the leading SaaS platform for the restaurant industry by aligning the solutions we have developed with the needs of our customers. Our platform initially focused on enabling digital ordering, through the deployment of white label on-demand commerce websites and applications, and tools for digital order management. We then expanded our platform by launching Dispatch, our delivery enablement module, and Rails, our aggregator and channel management module. We believe our solution is the only independent SaaS platform for restaurants to provide seamless digital ordering and efficient delivery enablement, offering centralized management of a restaurant's entire digital business. The key milestones in our corporate history are the following: •2005: Founder & CEONoah Glass accepted$0.5 million in Series A funding to startMobo . •2010: We renamed our product as Olo and shifted our focus to enterprise customers. •2013: We surpassed$50 million in GMV and expanded our executive leadership team. •2014: We surpassed$100 million in GMV, and restaurateurDanny Meyer joined our board of directors. •2015: We launched Dispatch, our first significant product extension. •2016: We surpassed$500 million in GMV. •2017: We launched Rails and surpassed$1 billion in GMV. •2018: We surpassed$2 billion in GMV. •2019: We surpassed$5 billion in GMV. •2020: We reached nearly$14.6 billion in GMV. •2021: We completed our initial public offering, or IPO, and listed on theNew York Stock Exchange . 25
-------------------------------------------------------------------------------- Leading restaurant brands trust our enterprise-grade platform for its capabilities, reliability, security, scalability, and interoperability. We continually invest in architectural improvements so our system can scale in tandem with our continued growth. Additionally, both internal and external security experts frequently test our system for vulnerabilities. We have never experienced a material breach of customer or consumer data. Our open SaaS platform integrates with over 100 restaurant technology solutions including point-of-sale, or POS, systems, aggregators, delivery service providers, or DSPs, payment processors, user experience, or UX, and user interface, or UI, providers, and loyalty programs, giving our customers significant control over the configuration and features of their distinct digital offering. We are the exclusive direct digital ordering provider for our leading brands across all service models of the restaurant industry, including quick service, fast casual, casual, family, and snack food. Our average initial contract length is generally three years with continuous one-year automatic renewal periods, providing visibility into our future financial performance. Our enterprise brands, meaning those brands having 50 or more locations, are also highly loyal. We have a highly efficient go-to-market model as a result of our industry thought leadership, partnership approach with our restaurant customers, and experienced enterprise sales, customer success, and deployment teams. Unlike other enterprise software businesses, where the sales team works to add a single location or division and expand to others, we enter into relationships at the brand's corporate level and secure exclusivity across all company-owned and franchise locations. This enables us to deploy our modules across all new and existing brand locations without any additional sales and marketing costs, and upsell new offerings to the brand itself, rather than each individual location. We refer to our business model as a transactional SaaS model as it includes both subscription and transaction-based revenue streams, and we designed it to align with our customers' success. Our model allows our customers to forego the cost of building, maintaining, and securing their own digital ordering and delivery platforms and to retain direct relationships with their consumers while maximizing profitability. Our hybrid-pricing model provides us with a predictable revenue stream and enables us to further grow our revenue as our customers increase their digital order volume. We generate subscription revenue from our Ordering module and transaction revenue from our Rails and Dispatch modules. We charge our customers a fixed monthly subscription fee per restaurant location for access to our Ordering module. In addition, a growing portion of our customers purchase an allotment of monthly orders for a fixed monthly fee and pay us an additional fee for each excess order, which we also consider to be subscription revenue. Our transaction revenue includes revenue generated from our Rails and Dispatch modules. Customers who subscribe to our Rails and Dispatch modules pay a fee on a per transaction basis. In most cases, we also charge aggregators, channel partners, and other service providers in our ecosystem on a per transaction basis for access to our Rails and Dispatch modules. We also derive transactional revenue from other products, including Network, which allows brands to take orders from non-aggregator digital channels (e.g.,Wisely Inc. OnOctober 21, 2021 , we entered into an Agreement and Plan of Reorganization, or the Merger Agreement, withSparty Merger Sub I, Inc. , aDelaware corporation and our wholly owned subsidiary,Sparty Merger Sub II, LLC , aDelaware limited liability company and our wholly owned subsidiary,Wisely Inc. , aDelaware corporation, or Wisely, andFortis Advisors LLC , solely in its capacity as the representative of Wisely's security holders. The transaction, which we refer to as the Wisely Acquisition, closed onNovember 4, 2021 pursuant to the terms set forth in the Merger Agreement. Wisely is a leading customer intelligence and engagement platform that enables restaurant brands to personalize the guest experience and maximize customer lifetime value. With a growing list of enterprise and emerging enterprise customers, Wisely's leading software solutions include an all-in-one Customer Relationship Management system with email and SMS marketing automation features; Host, a table management, waitlist, and reservations solution; a guest sentiment tracker with aggregated and annotated guest reviews and feedback; and a Customer Data Platform purpose-built for restaurants. The Wisely Acquisition expands our platform capabilities, creating new offerings that will unlock our ability to directly serve restaurant brands' marketing efforts, empowering restaurant brands to derive actionable insights from their data more readily in order to better understand their guests. Upon the closing of the Wisely Acquisition, we paid to Wisely security holders approximately$187 million , consisting of$77 million in cash and$110 million in Class A common stock, based on a price per share of$29.85 . 26 --------------------------------------------------------------------------------
Key Factors Affecting Our Performance
Add New Large Multi-Location and High-Growth Restaurant Brands
We believe there is a substantial opportunity to continue to grow our customer base across theU.S. restaurant industry, adding to our over 500 existing brands across approximately 76,000 active locations as ofSeptember 30, 2021 , up from approximately 60,000 active locations as ofSeptember 30, 2020 . We define active locations as a unique restaurant location that is utilizing one or more modules in a given quarterly period. We consider each specific restaurant brand to be a customer, even if owned by a parent organization that owns multiple restaurant brands, and define active locations as a location where at least one of our modules is deployed. We intend to continue to drive new customer growth by leveraging our brand and experience within the industry, and expanding our sales and marketing efforts. We have also historically pursued and will continue to target the most well-capitalized, fastest-growing restaurant brands in the industry. Our ability to attract new customers will depend on a number of factors, including our ability to innovate, the effectiveness and pricing of our new and existing modules, the growth of digital ordering, and the success of our marketing efforts.
Expand Within Our Existing Customer Base
Our large base of enterprise customers and transactional SaaS revenue model
represent an opportunity for further revenue expansion from the sale of
additional modules, and the addition of new restaurant locations. A key factor
to our success in executing our expansion strategy will be our ability to retain
our existing and future restaurant customers. Our exclusive, long-term, direct
digital ordering contracts with our customers provide us the opportunity to form
unique, trusted partnerships with our restaurant brands, further enhancing our
ability to satisfy and retain our customers. Our average initial contract length
is generally three years, providing visibility into our future performance. One
indication of our ability to grow within our customer base through the
development of our products that our customers value is our average revenue per
unit, or ARPU. We calculate average revenue per unit by dividing the total
platform revenue in a given period by the average active locations in that same
period. We believe this demonstrates our ability to grow within our customer
base through the development of our products that our customers value.
The following summarizes our ARPU and number of active locations for the three
months ended, or as of each of the dates presented.
Three Months Ended September 30,
2021 2020
Average Revenue Per Unit $ 484 $ 450
Ending Active Locations 76,000 60,000
A further indication of the propensity of our customers to continue to work with
and expand their relationship with us over time is our dollar-based net revenue
retention rate, which compares our revenue from the same set of active customers
in one period to the prior year period. We calculate dollar-based NRR as of a
period-end by starting with the revenue, defined as platform revenue, from the
cohort of all active customers as of 12 months prior to such period-end, or the
prior period revenue. We then calculate the platform revenue from these same
customers as of the current period-end, or the current period revenue. Current
period revenue includes any expansion and is net of contraction or attrition
over the last 12 months, but excludes platform revenue from new customers in the
current period. We then divide the total current period revenue by the total
prior period revenue to arrive at the point-in-time dollar-based net revenue
retention. For the period ending September 30, 2021 , we continued to maintain an
NRR above 120%. While we have maintained this high NRR over the past three
years, we are also seeing a trend where customers are purchasing all of our
products at signing, which provides us with more platform revenue from the
beginning of the arrangement, but leaves less room for expansion.
Enable Higher Transaction Volume
Transaction revenue will continue to be an important source of our growth. We
intend to continue to work with our existing restaurant customers to enable
higher transaction volume at their locations, which may enable us to generate
additional subscription and transaction revenue. As on-demand commerce grows to
represent a larger share of total off-premise food consumption, we expect to
significantly benefit from this secular trend as we capture a portion of this
increased on-demand commerce order volume. Not only does our software create the
opportunity to drive more orders for our customers, but also we expect that the
industry's secular tailwinds will help increase transaction order volume as more
consumers order food for off-premise consumption. As transaction volume
increases, the subscription revenue we receive from our Ordering module may also
increase as customers subscribe for higher tier ordering packages to enable more
transactions. Additionally, as we continue
27
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to expand our product offerings and improve our current software, we also
believe that we may be able to increase our share of the transaction revenue
that flows through our platform. Our ability to increase transaction volume is
dependent on the continued shift to digital ordering for off-premise food
consumption and our ability to capture a meaningful portion of that shift.
Investment in Innovation and Growth
We have invested and intend to continue to invest in expanding the functionality of our current platform and broadening our capabilities to address new market opportunities, particularly around payments, catering, and data analytics. We also intend to continue to invest in enhancing awareness of our brand and developing more modules, features, and functionality that expand our capabilities to facilitate the extension of our platform to new use cases and industry verticals. We believe this strategy will provide new avenues for growth and allow us to continue to deliver differentiated, high-value outcomes to both our customers and stockholders. Specifically, we intend to invest in research and development to expand existing and build new modules, sales and marketing to promote our modules to new and existing customers and in existing and expanded geographies, professional services to ensure the success of our customers' implementations of our platform, and other operational and administrative functions to support our expected growth and our transition to a public company. We expect our total operating expenses will increase over time and, in some cases, have short-term negative impacts on our operating margin. We also intend to continue to evaluate strategic acquisitions and investments in businesses and technologies to drive product and market expansion. Our future success is dependent, in part, on our ability to successfully develop, market, and sell new and existing modules to new and existing customers. Grow Our Ecosystem We plan to expand our current ecosystem of third-party partners to better support our customers. Our platform is highly configurable and deeply embedded into our customers' disparate existing infrastructures. Our platform seamlessly integrates with technology providers across the restaurant ecosystem, including most POS systems, DSPs, aggregators, payment processors, and loyalty programs. We believe that we can leverage these unique partnerships to deliver additional value to our customers. We see opportunity to further broaden our partnership group and build upon the integrations we currently offer. We plan to continue to invest and expand our ecosystem of compatible third-party technology providers to allow us to service a broader network of restaurant brands. We believe that these technology partnerships make us a critical component for restaurant brands looking to enhance their digital ordering and delivery platforms. We intend to continue to invest in building functionality that further integrates our platform with additional third-party technology providers, which expands our capabilities and facilitates the extension of our platform to new use cases and industry verticals. Our future success is dependent on our ability to continue to integrate with third-party technology providers in the restaurant ecosystem.
Expand Our Longer-Term Market Opportunity
While we have not made any significant investments in this area to date, we believe there is an opportunity to partner with small and medium businesses to enable their on-demand commerce presence. Additionally, as many of our customers operate internationally, we believe there is a significant opportunity to expand the usage of our platform outside ofthe United States . We also believe that our platform can be applied to other commerce verticals beyond the restaurant industry that are undergoing a similar digital transformation to deliver real-time experiences and on-demand fulfillment to consumers. For example, we currently partner with a number of grocery chains who use our Ordering module to help their consumers order ready-to-eat meals and may potentially expand these or other partnerships in the future. We anticipate that our operating expenses will increase as a result of these initiatives. 28
-------------------------------------------------------------------------------- Components of Results of Operations Revenue We generate revenue primarily from platform fees and professional services. Platform Platform revenue primarily consists of fees that provide customers access to one or more of our modules and standard customer support. Our contracts typically begin with a minimum three-year term and auto-renew on an annual basis thereafter. We bill monthly in arrears. A majority of our platform revenue is derived from subscription fees from our Ordering module. Customers with subscriptions to our Ordering module can pay either a monthly flat fee or a reduced flat fee with a minimum, fixed number of monthly orders for a monthly fee once active with a module. Customers who elect the fixed number of monthly orders pay an additional fee for each excess order, which is also treated as subscription revenue. We also generate platform revenue primarily from transaction revenue from our Rails, Dispatch, and other modules. Customers who subscribe to our Rails and Dispatch modules pay a fee on a per transaction basis. We may also charge third-party aggregators and other service providers in our ecosystem a per transaction fee for access to our Rails and Dispatch modules. With the onset of COVID-19, we saw an increase in transaction volumes as consumers turned to online ordering as compared to in-person dining. This shift began at the end of the first quarter of 2020 and has continued through the balance of the third quarter of 2021. We have also experienced an increase in our penetration of our Rails and Dispatch modules, as evidenced by an increase from 44% in 2019 to 71% in 2020 of our customers using all three of our modules. The combination of increased transaction volumes and increased multi-module adoption resulted in an increase in transaction revenue as a percentage of platform revenue. While we have benefited from the acceleration of demand for off-premise dining, our business and financial results could be materially adversely affected in the future if these trends do not continue. For example, as the effects of shelter-in-place orders abate with the continued roll-out of vaccines inthe United States and consumers potentially return to pre-COVID digital ordering preferences and habits, the trends we experienced in 2020 and through the third quarter of 2021 on multi-module adoption, number of active locations, and transaction volume may not continue and our revenue may fluctuate in the near term. Professional Services and Other Professional services and other revenue primarily consists of fees paid to us by our customers for the implementation of our platform. The majority of our professional service fees are billed on a fixed fee basis upon execution of our agreement. While we expect professional services and other to increase primarily as a result of continued deployment of additional active locations, we expect that this increase will be offset as our deployment teams become more efficient and more familiar with customer systems and shorten deployment periods. Cost of Revenue Platform Platform cost of revenue primarily consists of costs directly related to our platform services, including expenses for customer support and infrastructure personnel, including salaries, taxes, benefits, bonuses, and stock-based compensation, which we refer to as personnel costs, third-party software licenses, hosting, amortization of internal-use software, and allocated overhead. We expect platform cost of revenue to increase in absolute dollars in order to support additional customer and transaction volume growth on our platform. Professional Services and Other Professional services and other cost of revenue primarily consists of the personnel costs of our deployment team associated with delivering these services and allocated overhead. 29
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Gross Profit
Gross profit, or revenue less cost of revenue, has been, and will continue to
be, affected by various factors, including revenue fluctuations, our mix of
revenue associated with various modules, the timing and amount of investments in
personnel, increased hosting capacity to align with customer growth, and
third-party licensing costs.
Operating Expenses
Our operating expenses consist of research and development, general and
administrative, and sales and marketing expenses. Personnel costs are the most
significant component of operating expenses.
Research and Development
Research and development expenses primarily consist of engineering and product
development personnel costs and allocated overhead costs. Research and
development costs exclude capitalized software development costs as they are
capitalized as a component of property and equipment, net and amortized to
platform cost of revenue over the term of their useful life. We anticipate
investments in this area to increase on a dollar basis and as a percent of
revenue in the short-term as we continue to invest in innovative solutions to
support our customers rapidly evolving needs.
General and Administrative
General and administrative expenses primarily consist of personnel costs and
contractor fees for finance, legal, human resources, information technology, and
other administrative functions. In addition, general and administrative expenses
include travel-related expenses and allocated overhead. We expect that our
general and administrative expenses will continue to grow on a dollar basis
while decline as a percentage of revenue as we continue to scale our operations
over time. We also expect to incur additional general and administrative
expenses as a result of operating as a public company.
Sales and Marketing
Sales and marketing expenses primarily consist of sales, marketing, and other
personnel costs, commissions, general marketing and promotional activities, and
allocated overhead costs. Sales commissions earned by our sales force are
deferred and amortized on a straight-line basis over the expected benefit
period. We plan to continue to invest in sales and marketing by expanding our
go-to-market activities, hiring additional sales representatives, and sponsoring
additional marketing events and trade shows. We expect our sales and marketing
expenses to increase on an absolute dollar basis and as a percent of revenue in
the short-term as we continue to invest in our ability to sell new products and
increase the visibility of our brand to new and existing customers.
Other Expenses
Interest Expense
Interest expense consists of interest incurred on our outstanding borrowings
under our outstanding debt facility. In 2021, we amended our loan agreement for
our revolving line of credit. See-"Liquidity and Capital Resources."
Other (Expense) Income, Net
Other (expense) income, net consists primarily of income earned on our
money-market funds in cash and cash equivalents.
Change in Fair Value of Redeemable Convertible Preferred Stock Warrant Liability
The change in the fair value of warrant liability relates to warrants issued to
purchase our convertible preferred stock that are classified as liabilities on
the balance sheet. Prior to the IPO, warrants to purchase 1,682,847 shares of
our outstanding redeemable convertible preferred stock were exercised and
converted into redeemable convertible preferred stock. Upon completion of the
IPO, all shares of our outstanding redeemable convertible preferred stock,
inclusive of the shares issued
30
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pursuant to these warrant exercises, converted into 100,196,780 shares of Class
B common stock. As a result, we will no longer have a change in fair value of
redeemable convertible preferred stock warrant liability.
Provision for Income Taxes
Provision for income taxes primarily relates to U.S. state income taxes where we
conduct business.
Results of Operations
The following tables set forth our results of operations for the periods
presented.
Three Months Ended Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
(in thousands)
Revenue:
Platform $ 36,084 $ 26,197 $ 105,533 $ 63,525
Professional services and other 1,306 1,307 3,876 4,352
Total revenue 37,390 27,504 109,409 67,877
Cost of revenue:
Platform (1) 6,632 3,583 18,419 10,191
Professional services and other (1) 1,532 1,196 3,958 3,191
Total cost of revenue 8,164 4,779 22,377 13,382
Gross Profit 29,226 22,725 87,032 54,495
Operating expenses:
Research and development (1) 14,485 7,871 42,872 22,715
General and administrative (1) (2) 21,270 5,461 53,034 15,137
Sales and marketing (1) 4,728 2,002 12,265 6,089
Total operating expenses 40,483 15,334 108,171 43,941
(Loss) income from operations (11,257) 7,391 (21,139) 10,554
Other expenses, net:
Interest expense - - - (157)
Other (expense) income, net (15) (3) (23) 15
Change in fair value of warrant liability - (2,234) (18,930) (4,251)
Total other expenses, net (15) (2,237) (18,953) (4,393)
(Loss) income before taxes (11,272) 5,154 (40,092) 6,161
Provision for income taxes 36 47 110 142
Net (loss) income and comprehensive (loss)
income (11,308) 5,107 (40,202) 6,019
Accretion of redeemable convertible
preferred stock to redemption value - (17) (14) (52)
Undeclared 8% dividend on participating
securities - (5,090) - (5,967)
Net loss attributable to Class A and Class
B common stockholders $ (11,308) $ - $ (40,216) $ -
(1) Includes stock-based compensation expense as follows (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
Cost of revenue - platform $ 762 $ 140 $ 1,942 $ 348
Cost of revenue - professional services and
other 116 33 362 72
Research and development 2,570 413 8,522 940
General and administrative 3,907 681 12,002 1,884
Sales and marketing 512 111 1,436 221
Total stock-based compensation expense $ 7,867 $ 1,378 $ 24,264 $ 3,465
31-------------------------------------------------------------------------------- (2) Includes charitable donation expense of$8.0 million and$13.1 million for the three and nine months endedSeptember 30, 2021 , respectively. The following table sets forth our statements of operations data expressed as a percentage of total revenue for the periods presented: Three Months Ended Nine Months Ended September 30, September 30, 2021 2020 2021 2020 Revenue: Platform 96.5 % 95.2 % 96.5 % 93.6 % Professional services and other 3.5 4.8 3.5 6.4 Total revenue 100.0 100.0 100.0 100.0 Cost of revenue: Platform 17.7 13.0 16.8 15.0 Professional services and other 4.1 4.3 3.6 4.7 Total cost of revenue 21.8 17.4 20.5 19.7 Gross Profit 78.2 82.6 79.5 80.3 Operating expenses: Research and development 38.7 28.6 39.2 33.5 General and administrative 56.9 19.9 48.5 22.3 Sales and marketing 12.6 7.3 11.2 9.0 Total operating expenses 108.3 55.8 98.9 64.7 (Loss) income from operations (30.1) 26.9 (19.3) 15.5 Other expenses, net: Interest expense 0.0 0.0 0.0 (0.2) Other (expense) income, net 0.0 0.0 0.0 0.0 Change in fair value of warrant liability 0.0 (8.1) (17.3) (6.3) Total other expenses, net 0.0 (8.1) (17.3) (6.5) (Loss) income before taxes (30.1) 18.7 (36.6) 9.1 Provision for income taxes 0.1 0.2 0.1 0.2 Net (loss) income and comprehensive (loss) income (30.2) 18.6 (36.7) 8.9 Accretion of redeemable convertible preferred stock to redemption value 0.0 (0.1) 0.0 (0.1) Undeclared 8% dividend on participating securities 0.0 (18.5) 0.0 (8.8) Net loss attributable to Class A and Class B common stockholders (30.2) % 0.0 % (36.8) % 0.0 % 32
-------------------------------------------------------------------------------- Comparison of the Three Months EndedSeptember 30, 2021 and 2020 Revenue Three Months Ended September 30, Change 2021 2020 $ % (in thousands, except percentages) Revenue: Platform$ 36,084 $ 26,197 $ 9,887 37.7 % Professional services and other 1,306 1,307 (1) (0.1) Total Revenue$ 37,390 $ 27,504 $ 9,886 35.9 % Platform Total platform revenue increased$9.9 million , or 37.7%, to$36.1 million for the three months endedSeptember 30, 2021 from$26.2 million for the three months endedSeptember 30, 2020 . This increase was primarily the result of continued increases in active locations coming onto the platform, as well as increases in ARPU due to increased multi-product adoption and increased transaction volumes. Active customer locations increased to approximately 76,000 as ofSeptember 30, 2021 from approximately 60,000 as ofSeptember 30, 2020 , and ARPU increased to approximately$484 for the three months endedSeptember 30, 2021 from approximately$450 for the three months endedSeptember 30, 2020 . For the three months endedSeptember 30, 2021 and 2020, 47.2% and 44.9% of our platform revenue was subscription revenue, respectively, and 52.8% and 55.1% was transaction revenue, respectively. Professional Services and Other Total professional services and other revenue were flat at$1.3 million for the three months endedSeptember 30, 2021 and 2020. While we expect professional services and other to increase primarily as a result of continued deployment of additional active locations, this increase will be offset as our deployment teams become more efficient and more familiar with customer systems and shorten deployment periods. Cost of Revenue, Gross Profit, and Gross Margin Three Months Ended September 30, Change 2021 2020 $ % (in thousands, except percentages) Cost of revenue: Platform$ 6,632 $ 3,583 $ 3,049 85.1 % Professional services and other 1,532 1,196 336 28.1 Total cost of revenue$ 8,164 $ 4,779 $ 3,385 70.8 % Percentage of revenue: Platform 17.7 % 13.0 % Professional services and other 4.1 4.3 Total cost of revenue 21.8 % 17.4 % Gross Profit$ 29,226 $ 22,725 $ 6,501 28.6 % Gross Margin 78.2 % 82.6 % Platform Total platform cost of revenue increased$3.0 million , or 85.1%, to$6.6 million for the three months endedSeptember 30, 2021 from$3.6 million for the three months endedSeptember 30, 2020 . This increase was primarily the result of 33 -------------------------------------------------------------------------------- higher hosting costs due to increased transaction volume as well as higher compensation costs associated with additional personnel to support growth in active locations. Professional Services and Other Total professional services and other cost of revenue increased$0.3 million , or 28.1%, to$1.5 million for the three months endedSeptember 30, 2021 from$1.2 million for the three months endedSeptember 30, 2020 . This increase was primarily the result of increased compensation costs to support growth in active locations. Gross Profit Gross profit margin decreased to 78.2% for the three months endedSeptember 30, 2021 from 82.6% for the three months endedSeptember 30, 2020 . Decreases in gross profit margin were driven by higher platform and professional services and other compensation costs to support rapid growth in active locations coming onto the platform. Operating Expenses Research and Development Three Months Ended September 30, Change 2021 2020 $ % (in thousands, except percentages) Research and development$ 14,485 $ 7,871 $ 6,614 84.0 % Percentage of total revenue 38.7 % 28.6 % Research and development expense increased$6.6 million , or 84.0%, to$14.5 million for the three months endedSeptember 30, 2021 from$7.9 million for the three months endedSeptember 30, 2020 . This increase was primarily the result of higher compensation costs associated with additional personnel and an increase in the use of software tools to support further investments in our platform development and continued product innovation. As a percent of total revenue, research and development expenses increased to 38.7% for the three months endedSeptember 30, 2021 from 28.6% for the three months endedSeptember 30, 2020 . General and Administrative Three Months Ended September 30, Change 2021 2020 $ % (in thousands, except percentages) General and administrative$ 21,270 $ 5,461 $ 15,809 289.5 % Percentage of total revenue 56.9 % 19.9 % General and administrative expense increased$15.8 million , or 289.5%, to$21.3 million for the three months endedSeptember 30, 2021 from$5.5 million for the three months endedSeptember 30, 2020 . This increase was primarily a result of increased compensation costs due to increased headcount to support the growth and stage of the organization, as well as, increased insurance costs and professional fees incurred due to operating as a public company. Additionally, we incurred a non-cash charge of$8.0 million for the three months endedSeptember 30, 2021 related to the donation of 172,918 shares of our Class A common stock to a charitable donor-advised fund. We intend to donate additional shares to this fund in conjunction with our Olo for Good initiative. As a percent of total revenue, general and administrative expenses increased to 56.9% for the three months endedSeptember 30, 2021 from 19.9% for the three months endedSeptember 30, 2020 . Sales and Marketing Three Months Ended September 30, Change 2021 2020 $ % (in thousands, except percentages) Sales and marketing$ 4,728 $ 2,002 $ 2,726 136.2 % Percentage of total revenue 12.6 % 7.3 % 34
-------------------------------------------------------------------------------- Sales and marketing expense increased$2.7 million , or 136.2%, to$4.7 million for the three months endedSeptember 30, 2021 from$2.0 million for the three months endedSeptember 30, 2020 . This increase was primarily the result of additional compensation costs, inclusive of commission costs, professional and consulting services, and associated technology spend due to increases in headcount to support the growth and stage of the organization. As a percent of total revenue, sales and marketing expense increased to 12.6% for the three months endedSeptember 30, 2021 from 7.3% for the three months endedSeptember 30, 2020 . Other Expenses Three Months Ended September 30, Change 2021 2020 $ % (in thousands, except percentages) Other expenses, net: - Other (expense) income, net (15) (3) (12) 400.0 % Percentage of total revenue - % - % Change in fair value of warrant liability - (2,234) 2,234 (100.0) % Percentage of total revenue - % (8.1) % Total other expenses, net$ (15) $ (2,237) $ 2,222 (99.3) % Percentage of total revenue - % (8.1) % Change in Fair Value of Warrant Liability We had no warrants outstanding during the three months endedSeptember 30, 2021 . For the three months endedSeptember 30, 2020 , the$2.2 million in the fair value of warrant liability was the result of an increase in value of our redeemable convertible preferred stock warrant liability which is directly related to our stock valuation increase over the same period. Provision for Income Taxes Three Months Ended September 30, Change 2021 2020 $ % (in thousands, except percentages) Provision for income taxes$ 36 $ 47 $ (11) (23.4) % Percentage of total revenue 0.1 % 0.2 % Provision for income taxes primarily consists of state income taxes for the three months endedSeptember 30, 2021 and 2020. We maintain a full valuation allowance on our net federal and state deferred tax assets as we have concluded that it is not more likely than not that the deferred tax assets will be realized. 35
-------------------------------------------------------------------------------- Comparison of the Nine Months EndedSeptember 30, 2021 and 2020 Revenue Nine Months Ended September 30, Change 2021 2020 $ % (in thousands, except percentages) Revenue: Platform$ 105,533 $ 63,525 $ 42,008 66.1 % Professional services and other 3,876 4,352 (476) (10.9) Total Revenue$ 109,409 $ 67,877 $ 41,532 61.2 % Platform Total platform revenue increased$42.0 million , or 66.1%, to$105.5 million for the nine months endedSeptember 30, 2021 from$63.5 million for the nine months endedSeptember 30, 2020 . This increase was primarily the result of continued increases in active locations coming onto the platform, as well as increases in ARPU due to increased multi-product adoption and increased transaction volumes. Active customer locations increased to approximately 76,000 as ofSeptember 30, 2021 from approximately 60,000 as ofSeptember 30, 2020 , and ARPU increased to approximately$1,509 for the nine months endedSeptember 30, 2021 from approximately$1,242 for the nine months endedSeptember 30, 2020 . For the nine months endedSeptember 30, 2021 and 2020, 45.4% and 50.0% of our platform revenue was subscription revenue, respectively, and 54.6% and 50.0% was transaction revenue, respectively. Professional Services and Other Total professional services and other revenue decreased$0.5 million , or 10.9%, to$3.9 million for the nine months endedSeptember 30, 2021 from$4.4 million for the nine months endedSeptember 30, 2020 . While we expect professional services and other to increase primarily as a result of continued deployment of additional active locations, this increase will be offset as our deployment teams become more efficient resulting in shortened deployment periods. Cost of Revenue, Gross Profit, and Gross Margin Nine Months Ended September 30, Change 2021 2020 $ % (in thousands, except percentages) Cost of revenue: - Platform$ 18,419 $ 10,191 $ 8,228 80.7 % Professional services and other 3,958 3,191 767 24.0 Total cost of revenue$ 22,377 $ 13,382 $ 8,995 67.2 % Percentage of revenue: Platform 16.8 % 15.0 % Professional services and other 3.6 4.7 Total cost of revenue 20.5 % 19.7 % Gross Profit$ 87,032 $ 54,495 $ 32,537 59.7 % Gross Margin 79.5 % 80.3 % Platform
Total platform cost of revenue increased
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of higher hosting costs due to increased transaction volume as well as higher
compensation costs associated with additional personnel to support growth in
active locations.
Professional Services and Other
Total professional services and other cost of revenue increased $0.8 million , or
24.0%, to $4.0 million for the nine months ended September 30, 2021 from $3.2
million for the nine months ended September 30, 2020 . This increase was
primarily the result of increased consulting costs and higher compensation costs
to support growth in active locations.
Gross Profit
Gross profit margin decreased to 79.5% for the nine months ended September 30,
2021 from 80.3% for the nine months ended September 30, 2020 . Decreases in gross
profit margin were driven by higher platform and professional services and other
compensation costs to support rapid growth in transactions and active locations
coming onto the platform.
Operating Expenses
Research and Development
Nine Months Ended
September 30, Change
2021 2020 $ %
(in thousands, except percentages)
Research and development $ 42,872 $ 22,715 $ 20,157 88.7 %
Percentage of total revenue 39.2 % 33.5 %
Research and development expense increased $20.2 million , or 88.7%, to $42.9
million for the nine months ended September 30, 2021 from $22.7 million for the
nine months ended September 30, 2020 . This increase was primarily the result of
higher compensation costs associated with additional personnel and an increase
in the use of software tools to support further investments in our platform
development and continued product innovation. Additionally, we incurred a
non-cash charge of $1.8 million in March 2021 related to the vesting and
settlement of SARs in connection with the IPO. As a percent of total revenue,
research and development expenses increased to 39.2% for the nine months ended
September 30, 2021 from 33.5% for the nine months ended September 30, 2020 .
General and Administrative
Nine Months Ended
September 30, Change
2021 2020 $ %
(in thousands, except percentages)
General and administrative $ 53,034 $ 15,137 $ 37,897 250.4 %
Percentage of total revenue 48.5 % 22.3 %
General and administrative expense increased $37.9 million , or 250.4%, to $53.0
million for the nine months ended September 30, 2021 from $15.1 million for the
nine months ended September 30, 2020 . This increase was primarily a result of
increased compensation costs due to increased headcount to support the growth
and stage of the organization, IPO-related bonus awards, vesting and settlement
of stock appreciation rights, or SARs, in connection with the IPO, as well as
increased insurance costs and professional fees incurred in preparation for
becoming and operating as a public company. Additionally, we incurred a non-cash
charge of $13.1 million for the nine months ended September 30, 2021 related to
the donation of 345,836 shares of our Class A common stock to a charitable
donor-advised fund. We intend to donate additional shares to this fund in
conjunction with our Olo for Good initiative. As a percent of total revenue,
general and administrative expenses increased to 48.5% for the nine months ended
September 30, 2021 from 22.3% for the nine months ended September 30, 2020 .
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Sales and Marketing
Nine Months Ended
September 30, Change
2021 2020 $ %
(in thousands, except percentages)
Sales and marketing $ 12,265 $ 6,089 $ 6,176 101.4 %
Percentage of total revenue 11.2 % 9.0 %
Sales and marketing expense increased $6.2 million , or 101.4%, to $12.3 million
for the nine months ended September 30, 2021 from $6.1 million for the nine
months ended September 30, 2020 . This increase was primarily the result of
additional compensation costs, inclusive of commission costs, due to increases
in headcount, as well as increased marketing spend associated with our annual
user conference, professional services fees, various software, and IPO-related
costs. Sales and marketing spend increases were offset by a reduction in travel
and entertainment costs as of April 2020 due to travel restrictions as a result
of COVID-19. As a percent of total revenue, sales and marketing expense
increased to 11.2% for the nine months ended September 30, 2021 from 9.0% for
the nine months ended September 30, 2020 .
Other Expenses
Nine Months Ended
September 30, Change
2021 2020 $ %
(in thousands, except percentages)
Other expenses, net: -
Interest expense $ - $ (157) $ 157 (100.0) %
Percentage of total revenue - % (0.2) %
Other (expense) income, net (23) 15 (38) (253.3) %
Percentage of total revenue - % - %
Change in fair value of warrant liability (18,930) (4,251) (14,679) 345.3 %
Percentage of total revenue (17.3) % (6.3) %
Total other expenses, net $ (18,953) $ (4,393) $ (14,560) 331.4 %
Percentage of total revenue (17.3) % (6.5) %
Interest Expense
We had no debt outstanding during the nine months ended September 30, 2021 . As
of March 31, 2020 , we had an outstanding balance of $18.5 million on the line of
credit, resulting in interest expense of $0.2 million . All outstanding debt was
repaid by April 30, 2020 .
Change in Fair Value of Warrant Liability
The increase of $14.7 million in the fair value of warrant liability for the
nine months ended September 30, 2021 was the result of an increase in value of
our redeemable convertible preferred stock warrant liability which is directly
related to our stock valuation increase during the first quarter of 2021. Prior
to our IPO, all outstanding warrants were exercised to purchase shares of our
outstanding redeemable convertible preferred stock and converted into redeemable
convertible preferred stock. Upon completion of the IPO, all shares of our
outstanding redeemable convertible preferred stock, inclusive of the shares
issued pursuant to these warrant exercises, converted into shares of Class B
common stock.
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Provision for Income Taxes
Nine Months Ended
September 30, Change
2021 2020 $ %
(in thousands, except percentages)
Provision for income taxes $ 110 $ 142 $ (32) (22.5) %
Percentage of total revenue 0.1 % 0.2 %
Provision for income taxes primarily consists of state income taxes for the nine
months ended September 30, 2021 and 2020. We maintain a full valuation allowance
on our net federal and state deferred tax assets as we have concluded that it is
not more likely than not that the deferred tax assets will be realized.
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Liquidity and Capital Resources
General
As of September 30, 2021 , our principal source of liquidity was cash and cash
equivalents totaling $597.7 million , which was held for working capital
purposes, as well as the available balance of our revolving line of credit,
described further below.
We have financed our operations primarily through sales of our equity securities
in our completed IPO, conversions of our redeemable preferred stock, payments
received from customers, and borrowings under our credit facility.
On March 19, 2021 , we completed our IPO in which we issued and sold 20,700,000
shares of our Class A common stock at the public offering price of $25.00 per
share. We received net proceeds of approximately $485.5 million after deducting
underwriting discounts and commissions.
We believe our existing cash and cash equivalents and amounts available under
our outstanding credit facility will be sufficient to support our working
capital and capital expenditure requirements for at least the next twelve
months. Our future capital requirements will depend on many factors, including
but not limited to our obligation to repay any balance under our credit facility
if we were to borrow against the facility in the future, our platform revenue
growth rate, receivable and payable cycles, the timing and extent of investments
in research and development, sales and marketing, and general and
administrative.
Credit Facility
In May 2012 , we entered into a Loan and Security Agreement with Pacific Western
Bank (formerly Square 1), or the Loan Agreement, for a revolving line of credit
with a maturity date of May 15, 2013 . Since the original agreement, we have
executed subsequent amendments to extend the maturity date until February 2022 .
Advances under the Formula Line bear interest equal to the greater of (A) 0.20%
above Pacific Western Bank's prime rate then in effect; or (B) 4.50%. Advances
under the Non-Formula Line bear interest equal to the greater of (A) 0.75% above
Pacific Western Bank's prime rate then in effect; or (B) 5.00%. Interest is due
and payable monthly in arrears. We may prepay advances under the credit facility
in whole or in part at any time without premium or penalty, and the credit
facility matures on February 11, 2022 . As of September 30, 2021 , there were no
outstanding borrowings. The interest rate applicable on any outstanding balance
as of December 31, 2020 was 5.00%. Our obligations under the Loan Agreement are
secured by substantially all of our assets.
In April 2021 , we amended the Loan Agreement and exercised our option to
increase our available line of credit from $25.0 million to $35.0 million , or
the First Amendment. Additionally, we amended our minimum EBITDA and minimum net
revenue covenants which reset each annual period. On May 6, 2021 , we issued a
letter of credit to DoorDash, Inc., or DoorDash, in the amount of $25.0 million
in connection with our Restated Delivery Network Agreement. The First Amendment
contains various affirmative and negative covenants and we were in compliance
with these covenants as of September 30, 2021 . See Note 12 to the notes to our
condensed financial statements included in Part I, Item 1 of this Quarterly
Report on Form 10-Q for further details. In August 2021 , we further amended the
Loan Agreement to maintain the lesser of at least $75.0 million or an amount
equal to 50% of all of our cash deposits with any bank and to extend certain
reporting requirements from 30 to 45 days after each quarter end. The foregoing
description of the material terms of the Second Amendment does not purport to be
complete and is subject to, and is qualified in its entirety by, reference to
the full terms of the Second Amendment, which we have filed as an exhibit to
this Quarterly Report on Form 10-Q. We refer to the Loan Agreement as amended by
the First Amendment and the Second Amendment as the Amended Loan Agreement.
We currently have $8.6 million available under the revolving line of credit due
to our outstanding $25.0 million letter of credit to DoorDash and our
outstanding $1.4 million letter of credit on the lease of our headquarters. As
of September 30, 2021 , we had no outstanding borrowings under the line of
credit. As of September 30, 2021 , no amounts have been drawn against any of our
letters of credit.
The Amended Loan Agreement contains customary affirmative and negative
covenants, including covenants that require Pacific Western Bank's consent to,
among other things, merge or consolidate or acquire assets outside the ordinary
course of business, make investments, incur additional indebtedness or guarantee
indebtedness of others, pay dividends and redeem and repurchase our capital
stock, enter into transactions with affiliates outside the ordinary course of
business and create liens on our assets. We are also required to comply with
certain minimum EBITDA and minimum revenue covenants.
40
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The Amended Loan Agreement also contains events of default that include, among
other things, non-payment defaults, covenant defaults, insolvency defaults,
cross-defaults to other indebtedness and material obligations, judgment
defaults, inaccuracy of representations and warranties, and a material adverse
change default. Any default that is not cured or waived could result in the
acceleration of the obligations under the credit facility, an increase in the
applicable interest rate under the credit facility to a per annum rate equal to
5.00% above the applicable interest rate, and would permit Pacific Western Bank
to exercise remedies with respect to all of the collateral that is securing the
credit facility.
The Amended Loan Agreement will continue in full force and effect for so long as
any obligations remain outstanding thereunder, provided, that, Pacific Western
Bank has the right to terminate its obligation to make further advances to us
immediately and without notice upon the occurrence and during the continuance of
an event of default. We may terminate the formula revolving line or the
non-formula revolving line at any time prior to the maturity date, upon two
business days written notice to Pacific Western Bank , at which time all then
outstanding obligations arising under the Amended Loan Agreement, including any
unpaid interest thereon, will accelerate and become immediately due and payable.
Cash Flows
The following table summarizes our cash flows for the periods presented:
Nine Months Ended
September 30,
2021 2020
(in thousands)
Net cash provided by operating activities
(1,195) (989)
Net cash provided by financing activities
Operating Activities For the nine months endedSeptember 30, 2021 , net cash provided by operating activities was$26.2 million , primarily due to net loss of$40.2 million adjusted for non-cash charges of$57.4 million and a net increase in our operating assets and liabilities of$9.0 million . The non-cash adjustments primarily relate to stock-based charges of$24.3 million , inclusive of vesting of SARs of$2.8 million , the change in the fair value of redeemable convertible preferred stock warrants of$18.9 million , and a charge related to a charitable donor-advised fund of$13.1 million . The net increase in operating assets and liabilities is primarily driven by a net increase in accrued expenses and accounts payable of$6.6 million related primarily to higher fees owed to delivery service providers and vendors as well as employee compensation accruals, inclusive of payables related to our 2021 Employee Stock Purchase Plan, and a decrease in accounts receivable of$5.0 million due to improved collections. This increase was offset by an increase in prepaid expenses of$3.3 million primarily due to insurance payments, and increases in contract assets and deferred contracts costs of$1.5 million primarily due to the growth our revenue. For the nine months endedSeptember 30, 2020 , net cash provided by operating activities was$3.4 million , primarily due to a net income of$6.0 million adjusted for non-cash charges of$8.7 million and a net decrease in our operating assets and liabilities of$11.3 million . The non-cash adjustments primarily relate to the change in the fair value of redeemable convertible preferred stock warrants of$4.3 million and stock-based compensation of$3.5 million . The net decrease in operating assets and liabilities is primarily driven by a net increase in accounts payable and accrued expenses of$20.5 million related primarily to higher fees owed to delivery service providers and vendors, and an increase in deferred rent of$0.7 million related to timing of rent cash payments. This increase is offset by an increase in accounts receivable of$30.4 million and an increase in deferred contract costs of$1.6 million due to the growth in our revenue. Investing Activities Cash used in investing activities was$1.2 million during the nine months endedSeptember 30, 2021 , due to the development of internal software and purchases of computer and office equipment to support further product development and to expand our employee base to support our operations. Cash used in investing activities was$1.0 million during the nine months endedSeptember 30, 2020 , due to the development of internal software and purchases of computer and office equipment to support further product development and to expand our employee base to support our operations. 41 -------------------------------------------------------------------------------- Financing Activities Cash provided by financing activities was$497.0 million during the nine months endedSeptember 30, 2021 , reflecting$485.5 million of net proceeds from the issuance of Class A common stock in our IPO (net of underwriters' discounts and commissions),$8.3 million of net proceeds from the exercise of stock options,$7.0 million net proceeds received from employee tax withholdings as a result of the exercise of stock options, and$0.4 million of net proceeds from the exercise of warrants. Increases were partially offset by payment of deferred offering costs of$4.1 million during the nine months endedSeptember 30, 2021 . Cash provided by financing activities was$46.9 million during the nine months endedSeptember 30, 2020 , primarily related to$50.0 million in proceeds from the issuance of preferred stock and$1.7 million of net proceeds from the exercise of stock options, offset by$3.5 million net repayment of proceeds borrowed inMarch 2020 under the Amended Loan Agreement and payment of deferred offering costs of$1.1 million during the nine months endedSeptember 30, 2020 . Certain Non-GAAP Financial Measures We report our financial results in accordance with generally accepted accounting principles inthe United States , or GAAP. To supplement our financial statements, we provide investors with non-GAAP operating income (loss) and free cash flow, each of which is a non-GAAP financial measure. Non-GAAP Operating Income (Loss) Non-GAAP operating income (loss) is defined as operating income (loss), adjusted for the impact of stock-based compensation expense, charitable donations of common stock, amortization of internally developed software expense, and transaction costs related to acquisition and integration costs. Management believes that it is useful to exclude certain non-cash charges and non-core operational charges from non-GAAP operating income (loss) because (1) the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations; and (2) such expenses can vary significantly between periods as a result of the timing of new stock-based awards. The presentation of the non-GAAP financial measures is not intended to be considered in isolation, or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. The following table presents a reconciliation of GAAP operating (loss) income to non-GAAP operating income for the following periods: Three Months Ended Nine Months Ended September 30, September 30, 2021 2020 2021 2020 (in
thousands)
Operating Income (loss) reconciliation: Operating (loss) income, GAAP$ (11,257) $ 7,391 $ (21,139) $ 10,554 Plus: Stock-based compensation expense 7,867 1,378 24,264 3,465 Plus: Charitable donation of Class A common stock 7,982 - 13,107 - Plus: Internally developed software amortization 138 65 413 130 Plus: Transaction costs 343 - 343 - Operating income, non-GAAP$ 5,073 $ 8,834 $ 16,988 $ 14,149 Percentage of revenue: Operating margin, GAAP (30) % 27 % (19) % 16 % Operating margin, non-GAAP 14 % 32 % 16 % 21 % Non-GAAP Free Cash Flow Free cash flow represents net cash used in operating activities, reduced by purchases of property and equipment, and capitalization of internally developed software. Free cash flow is a measure used by management to understand and evaluate our liquidity and to generate future operating plans. The reduction of capital expenditures facilitates comparisons of our liquidity on a period-to-period basis and excludes items that we do not consider to be indicative of our liquidity. We believe that free cash flow is a measure of liquidity that provides useful information to investors and others in understanding and evaluating the strength of our liquidity and future ability to generate cash that can be used for strategic opportunities or investing in our 42 -------------------------------------------------------------------------------- business in the same manner as our management and board of directors. Nevertheless, our use of free cash flow has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our financial results as reported under GAAP. Further, our definition of free cash flow may differ from the definitions used by other companies and therefore comparability may be limited. You should consider free cash flow alongside our other GAAP-based financial performance measures, such as net cash provided by operating activities, and our other GAAP financial results. The following table presents a reconciliation of free cash flow to net cash provided by operating activities, the most directly comparable GAAP measure, for each of the periods indicated. Three Months Ended Nine Months Ended September 30, September 30, 2021 2020 2021 2020 (in thousands) Net cash provided by operating activities$ 10,738 $ 4,091 $ 26,209 $ 3,390 Purchase of property and equipment (53) (152) (324) (268) Capitalization of internally developed software (482) (439) (871) (721) Non-GAAP free cash flow$ 10,203 $ 3,500 $ 25,014 $ 2,401 Contractual Obligations and Commitments There were no material changes in our contractual obligation and commitments as ofSeptember 30, 2021 from the contractual obligations and commitments disclosed in our final prospectus filed with theSecurities and Exchange Commission , orSEC , onMarch 18, 2021 , or the Prospectus, pursuant to Rule 424(b) under the Securities Act of 1933, as amended, or the Securities Act. See Note 12 of the notes to our condensed financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information regarding contractual obligations and commitments. Off-Balance Sheet Arrangements We did not have during the periods presented, and we do not currently have, any off-balance sheet financing arrangements or any relationships with unconsolidated entities or financial partnerships, including entities sometimes referred to as structured finance or special purpose entities, that were established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Critical Accounting Policies and Estimates Our discussion and analysis of financial condition and results of operations are based upon our financial statements included elsewhere in this Quarterly Report on Form 10-Q. The preparation of our financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. Actual results may differ from those estimates. There have been no material changes to our critical accounting policies and estimates as compared to those disclosed under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies" in our Prospectus. Recent Accounting Pronouncements See Note 2 to our condensed financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for all recently issued standards impacting our condensed financial statements. JOBS Act Accounting Election and Smaller Reporting Company Status We qualify as an "emerging growth company" pursuant to the provisions of the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. For as long as we are an "emerging growth company," we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not "emerging growth companies," including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, exemptions from the requirements of holding advisory "say-on-pay" votes on executive compensation and stockholder advisory votes on golden parachute compensation. 43 -------------------------------------------------------------------------------- The JOBS Act also permits an emerging growth company like us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We have elected to "opt-in" to this extended transition period for complying with new or revised accounting standards and, therefore, we will not be subject to the same new or revised accounting standards as other public companies that comply with such new or revised accounting standards on a non-delayed basis. We are also a smaller reporting company as defined in the Securities Exchange Act of 1934, as amended, or the Exchange Act. We may continue to be a smaller reporting company even after we are no longer an emerging growth company. We may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as (i) the market value of our voting and non-voting common stock held by non-affiliates is less than$250 million measured on the last business day of our second fiscal quarter or (ii) our annual revenue is less than$100 million during the most recently completed fiscal year and the market value of our voting and non-voting common stock held by non-affiliates is less than$700 million measured on the last business day of our second fiscal quarter. We expect to cease to qualify as a smaller reporting company at the end of 2021. Item 3. Quantitative and Qualitative Disclosures about Market Risk. We are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of exposure to potential changes in interest rates. We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure. Interest Rate Risk Our primary market risk exposure is changing interest rates in connection with the Amended Loan Agreement. Interest rate risk is highly sensitive due to many factors, includingU.S. monetary and tax policies,U.S. and international economic factors and other factors beyond our control. As ofSeptember 30, 2021 , advances under the formula revolving line bear interest equal to the greater of (A) 0.75% above the Prime Rate then in effect; or (B) 5.00%. As ofSeptember 30, 2021 , we had no outstanding debt under our credit facility. Our interest-earning instruments also carry a degree of interest rate risk. As ofSeptember 30, 2021 , we had cash and cash equivalents of$597.7 million . Foreign Currency Exchange Risks Our revenue and costs are denominated inU.S. dollars and are not subject to foreign currency exchange risk. However, to the extent we commence generating revenue outside ofthe United States that is denominated in currencies other than theU.S. dollar, our results of operations could be impacted by changes in exchange rates. Inflation Risk We do not believe that inflation has had a material effect on our business, results of operations, or financial condition. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, results of operations and financial condition. 44
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