Ibotta Inc

On our balance sheet, we have a user redemption liability balance that is an accumulation of direct-to-consumer redeemers’ account balances net of estimated breakage. Consumers’ accounts that have no activity for six months are considered inactive and charged a $3.99 per month maintenance fee (i.e., breakage) until the balance is reduced to zero or new activity ensues. Every month the user redemption liability increases by the amount credited to D2C redeemers for redemptions and is offset by D2C redeemer cash outs, actual inactivity maintenance fees, and estimated breakage. We estimate breakage at the time of user redemption and reduce the user redemption liability accordingly.

In 2023, we made an update to fix a software error to correctly charge maintenance fees to all inactive D2C redeemers on a go-forward basis. This change resulted in a short-term benefit to U.S. GAAP revenue in 2023. For the three and six months ended June 30, 2023, the breakage benefit to revenue totaled $9.4 million and $10.6 million, respectively. There was no breakage benefit associated with the three and six months ended June 30, 2024.

Components of Results of Operations

Revenue

We provide a platform to CPG brands to deliver digital promotions to consumers. The majority of our revenues are derived from the fees we charge to clients when consumers redeem offers on the IPN by purchasing promoted products. We also derive revenue from the sale of ad products to customers to promote their offers, as well as from data products.

We expect our redemption revenue to increase as a percentage of revenue as we continue to grow the IPN.

Cost of revenue

Cost of revenue consists primarily of personnel-related costs attributable to personnel in our engineering department who maintain our platform, data hosting costs, revenue share with third-party publishers, amortization of platform-related software development costs, certain user award costs net of breakage, software licensing costs, and processing fees. Personnel-related costs include salaries, benefits, stock-based compensation, and bonuses. User award costs net of breakage recorded in cost of revenue are associated with awards earned from gift card purchases and sponsored user awards earned from watching an advertising video. Breakage represents the undistributed earnings of consumers never expected to be cashed out due to inactivity. User award costs also include user awards that are cashed out and subsequently identified as violating our terms of use.

We expect that cost of revenue will increase as we continue to invest in our infrastructure and acquire new publishers and customers.

Operating expenses

Sales and marketing expenses consist primarily of personnel-related costs for our sales and marketing departments, common stock warrant expense, self-funded user awards, net of the related breakage, B2B marketing, media spend, software licensing costs, market research, and public relations. Self-funded user awards are awards related to campaigns and other incentive bonuses on our D2C properties that are funded directly by Ibotta as part of our customer acquisition and retention strategy. Personnel-related costs include salaries, stock-based compensation, bonuses, benefits, taxes, and travel.

We expect that sales and marketing may increase as we as we continue to invest in marketing efforts to increase engagement and brand awareness. However, we expect sales and marketing expenses to decrease as a percentage of total revenue over time due to growth in revenue from third-party publishers, although they may fluctuate as a percentage of total revenue from period to period.

Research and development expenses consist primarily of personnel-related costs for our technology departments, software licensing costs, impairment of certain capitalized software development costs, and professional fees. Personnel-related costs include salaries, stock-based compensation, benefits, taxes, bonuses, and travel. We capitalize certain software development costs that are attributable to developing new features and adding incremental functionality to our platform or infrastructure. Costs incurred during the preliminary project stage and post-implementation operation stage are expensed as incurred in research and development expenses. In addition, impairment of in-progress software projects for which completion is subsequently determined not to be probable is recorded in research and development expenses.

We expect research and development may increase as we focus on further improvements to, and maintenance of, our platform. However, we expect our research and development expenses to decrease as a percentage of total revenue over time, although they may fluctuate as a percentage of total revenue from period to period.

General and administrative expenses consist primarily of personnel-related costs for our administrative departments, software licensing costs, professional fees for external legal, accounting and other consulting services, facilities costs, corporate insurance, bad debt, and taxes and licenses. Personnel-related costs include stock-based compensation, salaries, benefits, travel, bonuses, and taxes.

We expect to increase the size of our general and administrative function to support the growth of our business and may incur additional expenses as a result of operating as a public company, including costs to comply with the rules and regulations applicable to companies listed on a U.S. securities exchange and costs related to compliance and reporting obligations pursuant to the rules and regulations of the SEC. In addition, as a public company, we expect to incur increased expenses such as insurance, investor relations, and professional services. As a result, we expect the dollar amount of our general and administrative expenses to increase. However, we expect our general and administrative expenses to decrease as a percentage of total revenue over time, although they may fluctuate as a percentage of total revenue from period to period.

We expect additional operating expenses following the IPO due to stock-based compensation expenses associated with stock awards for which liquidity event-based vesting conditions will be satisfied or probable upon such effectiveness.

Depreciation and amortization consists of amortization of intangible assets, including infrastructure-related software development costs and acquired technology, and depreciation of property and equipment.

Interest income (expense), net

Interest income (expense), net consists of interest income earned on cash and cash equivalents, net of interest expense incurred on outstanding debt instruments.

Other expense, net consists primarily of the loss incurred upon extinguishment of the convertible notes derivative liability, gains and losses incurred on both the convertible notes derivative liability, and disposals of assets and leases and penalties.

Provision for income taxes consists primarily of income taxes related to state jurisdictions in which we conduct business. Due to uncertainty as to the realization of benefits from our deferred tax assets, we have a full valuation allowance reserved against such assets. Based on our assessment of current income and anticipated future earnings, there is a reasonable possibility that we will have sufficient evidence to release the valuation allowance within the next 12 months. However, our judgment regarding future earnings and the exact timing of the valuation allowance release is subject to change due to many factors, including future market conditions and the ability to successfully execute our business plans.