Form 10-Q Paymentus Holdings, Inc. For: Jun 30

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022

OR

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-40429

 

Paymentus Holdings, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware	45-3188251
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
18390 NE 68th St. Redmond, WA	98052
(Address of principal executive offices)	(Zip Code)

(888) 440-4826

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Class A Common Stock, par value $0.0001 per share		PAY		New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer		☐		Accelerated filer		☐
Non-accelerated filer		☒		Smaller reporting company		☐
Emerging growth company		☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of August 2, 2022, the registrant had 19,288,807 shares of Class A Common Stock, $0.0001 par value per share and 103,336,337 shares of Class B Common Stock, $0.0001 par value per share, outstanding.

 

 

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Table of Contents

 

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Operations	5
	Condensed Consolidated Statements of Comprehensive (Loss) Income	6
	Condensed Consolidated Statements of Stockholders' Equity	7
	Condensed Consolidated Statements of Cash Flows	8
	Notes to Unaudited Condensed Consolidated Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34
Item 4.	Controls and Procedures	35
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	36
Item 1A.	Risk Factors	36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 3.	Defaults Upon Senior Securities	36
Item 4.	Mine Safety Disclosures	36
Item 5.	Other Information	37
Item 6.	Exhibits	37
Signatures		38

 

 

 

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Special Note Regarding Forward-Looking Statements

This quarterly report on Form 10-Q for the quarterly period ended June 30, 2022 ("Quarterly Report") contains forward-looking statements within the meaning of the federal securities laws, such as those under the headings "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations," which statements involve substantial risks and uncertainties. Forward-looking statements may involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from historical results or from any future results or projections expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this report include statements about:

We caution you that the foregoing list may not contain all of the forward-looking statements made in this report.

You should not place undue reliance on our forward-looking statements as predictions of future events. We have based the forward-looking statements primarily on our current expectations and projections about future events and trends that we believe may affect our business, operating results, financial condition and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors, including those described in the section titled “Risk Factors” and elsewhere in this Quarterly Report. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this report. We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.

Neither we nor any other person assumes responsibility for the ultimate outcome of any of these forward-looking statements. Moreover, the forward-looking statements made in this report relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this report to reflect events or circumstances after the date of this report or to reflect new information or the occurrence of unanticipated events, except as required by law.

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In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information.

Certain Definitions

In this report, unless the context requires otherwise, all references to “we,” “our,” “us,” “Paymentus,” and the “Company” refer to Paymentus Holdings, Inc., and where appropriate its consolidated subsidiaries.

 

 

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

PAYMENTUS HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(In thousands, except share and per share data)

 

		June 30,				December 31,
		2022				2021
Assets
Current assets
Cash and cash equivalents		$	158,335			$	168,386
Restricted funds held for financial institutions			59,325				33,443
Accounts and other receivables, net of allowance of $284 and $102			52,908				43,935
Income tax receivable			2,661				2,488
Prepaid expenses and other current assets			8,611				8,184
Total current assets			281,840				256,436
Property and equipment, net of accumulated depreciation and    amortization of $5,353 and $4,791			2,048				2,044
Capitalized internal-use software development costs, net			38,725				30,888
Intangible assets, net			38,108				42,088
Goodwill			129,387				129,413
Operating lease right-of-use assets			10,711				7,703
Deferred tax asset			167				163
Other long-term assets			5,176				4,207
Total assets		$	506,162			$	472,942
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable		$	27,789			$	24,748
Accrued liabilities			14,564				12,491
Financial institution funds in-transit			59,325				33,443
Operating lease liabilities			1,559				1,456
Contract liabilities			1,323				2,173
Income tax payable			494				122
Total current liabilities			105,054				74,433
Deferred tax liability			—				3,318
Operating leases, net of current portion			9,546				6,463
Contract liabilities, net of current portion			2,640				1,713
Finance leases and other finance obligations, net of current portion			750				883
Total liabilities			117,990				86,810
Commitments and contingencies (Note 9)
Stockholders’ equity
Preferred stock, $0.0001 par value per share, 5,000,000 shares authorized as of June 30, 2022 and December 31, 2021, respectively; none issued and outstanding as of June 30, 2022 and December 31, 2021, respectively			—				—
Class A common stock, $0.0001 par value per share, 883,950,000 shares authorized as of June 30, 2022 and December 31, 2021, respectively; 19,283,807 and 17,251,079 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively			2				1
Class B common stock, $0.0001 par value per share, 111,050,000 shares authorized as of June 30, 2022 and December 31, 2021, respectively; 103,336,337 and 103,388,082 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively			10				11
Additional paid-in capital			358,939				356,017
Accumulated other comprehensive income			19				168
Retained earnings			29,202				29,935
Total stockholders’ equity			388,172				386,132
Total liabilities and stockholders' equity		$	506,162			$	472,942

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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PAYMENTUS HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(In thousands, except share and per share data)

 

		Three Months Ended June 30,								Six Months Ended June 30,
		2022				2021				2022				2021
Revenue		$	119,969			$	93,495			$	236,673			$	185,717
Cost of revenue			84,141				64,567				165,991				129,242
Gross profit			35,828				28,928				70,682				56,475
Operating expenses
Research and development			10,185				7,921				20,575				15,651
Sales and marketing			17,851				9,505				34,041				17,727
General and administrative			10,017				7,421				19,662				14,163
Total operating expenses			38,053				24,847				74,278				47,541
(Loss) income from operations			(2,225	)			4,081				(3,596	)			8,934
Other income (loss)
Interest income (expense), net			98				(4	)			90				(7	)
Foreign exchange gain (loss)			54				(1	)			80				8
(Loss) income before income taxes			(2,073	)			4,076				(3,426	)			8,935
(Provision for) benefit from income taxes			(378	)			(3,501	)			2,693				(4,722	)
Net (loss) income		$	(2,451	)		$	575			$	(733	)		$	4,213
Undeclared dividends on Series A preferred stock			—				(898	)			--				(2,258	)
Net (loss) income attributable to common stock		$	(2,451	)		$	(323	)		$	(733	)		$	1,955
Net (loss) income per share attributable to common stock
Basic		$	(0.02	)		$	—			$	(0.01	)		$	0.02
Diluted		$	(0.02	)		$	—			$	(0.01	)		$	0.02
Weighted-average number of shares used to compute net (loss) income per share attributable to common stock
Basic			121,637,711				108,970,604				121,269,688				106,240,091
Diluted			121,637,711				108,970,604				121,269,688				112,244,054

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

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PAYMENTUS HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (Unaudited)

(In thousands)

 

		Three Months Ended June 30,								Six Months Ended June 30,
		2022				2021				2022				2021
Net (loss) income		$	(2,451	)		$	575			$	(733	)		$	4,213
Other comprehensive income (loss), net of tax
Foreign currency translation adjustments, net of tax			(104	)			(69	)			(149	)			(48	)
Comprehensive (loss) income		$	(2,555	)		$	506			$	(882	)		$	4,165

The accompanying notes are an integral part of these condensed consolidated financial statements.

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PAYMENTUS HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)

(In thousands, except share amounts)

										Additional								Other				Total
		Common Stock								Paid-In				Retained				Comprehensive				Stockholders’
		Shares				Amount				Capital				Earnings				Income				Equity
Balances at December 31, 2021			120,639,161			$	12			$	356,017			$	29,935			$	168			$	386,132
Stock-based compensation			—				—				1,276				—				—				1,276
Issuance of Class A common stock for stock option exercises			412,222				—				13				—				—				13
Other comprehensive loss			—				—				—				—				(45	)			(45	)
Net income			—				—				—				1,718				—				1,718
Balances at March 31, 2022			121,051,383			$	12			$	357,306			$	31,653			$	123			$	389,094
Stock-based compensation			—				—				1,344				—				—				1,344
Issuance of Class A common stock for stock-based awards			1,568,761				—				289				—				—				289
Other comprehensive loss			—				—				—				—				(104	)			(104	)
Net loss			—				—				—				(2,451	)			—				(2,451	)
Balances at June 30, 2022			122,620,144			$	12			$	358,939			$	29,202			$	19			$	388,172

 

		Series A																Additional												Other				Total
		Preferred Stock								Common Stock								Paid-In				Treasury				Retained				Comprehensive				Stockholders’
		Shares				Amount				Shares				Amount				Capital				Stock				Earnings				Income				Equity
Balances at December 31, 2020			23,013			$	—				103,479,239			$	517			$	29,175			$	(579	)		$	55,047			$	216			$	84,376
Stock-based compensation			—				—				—				—				563				—				—				—				563
Repayment of related party loan    receivable			—				—				—				—				813				—				—				—				813
Other comprehensive income			—				—				—				—				—				—				—				21				21
Net income			—				—				—				—				—				—				3,638				—				3,638
Balances at March 31, 2021			23,013			$	—				103,479,239			$	517			$	30,551			$	(579	)		$	58,685			$	237			$	89,411
Issuance of Class A common stock in connection with initial public offering and private placement, net of offering costs, underwriting discounts and commissions			—				—				13,880,950				1				272,633				—				—				—				272,634
Conversion of common stock to Class B common stock in connection with initial public offering			—				—				—				(506	)			506				—				—				—				—
Redemption of Series A preferred stock in connection with initial public offering			(23,013	)			—				—				—				(23,013	)			—				—				—				(23,013	)
Payment of dividends on Series A preferred stock in connection with redemption upon initial public offering			—				—				—				—				—				—				(34,412	)			—				(34,412	)
Issuance of warrant			—				—				—				—				4,498				—				—				—				4,498
Retirement of treasury stock in connection with initial public offering			—				—				—				—				(579	)			579				—				—				—
Stock-based compensation			—				—				—				—				568				—				—				—				568
Other comprehensive loss			—				—				—				—				—				—				—				(69	)			(69	)
Net income			—				—				—				—				—				—				575				—				575
Balances at June 30, 2021			—			$	—				117,360,189			$	12			$	285,164			$	—			$	24,848			$	168			$	310,192

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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PAYMENTUS HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In thousands)

 

		Six Months Ended June 30,
		2022				2021
Cash flows from operating activities
Net (loss) income		$	(733	)		$	4,213
Adjustments to reconcile net income to net cash provided by operating    activities
Depreciation and amortization			11,360				4,940
Deferred income taxes			(3,322	)			2,413
Stock-based compensation			2,620				1,131
Non-cash lease expense			1,120				1,648
Amortization of contract asset			818				177
Provision for credit losses			187				—
Change in operating assets and liabilities
Accounts and other receivables			(9,205	)			(4,944	)
Prepaid expenses and other current and long-term assets			(910	)			(905	)
Accounts payable			3,205				3,541
Accrued liabilities			2,615				543
Operating lease liabilities			(942	)			(1,573	)
Contract liabilities			75				301
Income taxes receivable, net of payable			204				1,272
Net cash provided by operating activities			7,092				12,757
Cash flows from investing activities
Other intangible assets acquired			(123	)			—
Purchases of property and equipment			(795	)			(564	)
Capitalized internal-use software development costs			(14,464	)			(8,736	)
Net cash used in investing activities			(15,382	)			(9,300	)
Cash flows from financing activities
Proceeds from initial public offering, net of underwriter's discounts and commissions			—				224,595
Proceeds from private placement			—				50,000
Redemption of Series A preferred stock			—				(23,013	)
Payment of dividends on Series A preferred stock			—				(34,412	)
Proceeds from repayment of related party loan			—				813
Proceeds from exercise of stock options			302				—
Financial institution funds in-transit			25,882				—
Payments of deferred offering costs			—				(856	)
Payments on other financing obligations			(1,831	)			(767	)
Payments on finance leases			(135	)			(136	)
Net cash provided by financing activities			24,218				216,224
Foreign currency effect on cash, cash equivalents and restricted cash			(97	)			43
Net increase in cash, cash equivalents and restricted cash			15,831				219,724
Cash, cash equivalents and restricted cash
Beginning of period			201,829				46,666
End of period		$	217,660			$	266,390
Supplemental disclosure of cash flow information:
Cash paid for income taxes, net of refunds		$	184			$	950
Non-cash investing activities:
Property and equipment purchases in accounts payable		$	83			$	202
Software purchases in accounts payable			48				—
Non-cash financing activities:
Prepaid insurance funded through short-term borrowings		$	1,349			$	2,135
Issuance of warrant			—				4,498
Unpaid deferred offering costs			—				1,105

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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PAYMENTUS HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (continued)

(In thousands)

 

 

		Six Months Ended June 30,
		2022				2021
		(in thousands)
The below table reconciles cash, cash equivalents, and restricted cash in the condensed consolidated balance sheets to the total of the same amounts shown in the condensed consolidated statements of cash flows:
Cash and cash equivalents		$	158,335			$	266,390
Restricted funds held for financial institutions			59,325				—
Total cash, cash equivalents and restricted cash as shown in the condensed consolidated statements of cash flows		$	217,660			$	266,390

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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PAYMENTUS HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

 

The Company enters into indemnification provisions under agreements with other parties in the ordinary course of business, including business partners, investors, contractors, customers, and the Company’s officers, directors, and certain employees. The Company has agreed to indemnify and defend the indemnified party claims and related losses suffered or incurred by the indemnified party from actual or threatened third-party claims due to the Company’s activities or non-compliance with obligations or representations made by the Company. The Company seeks to limit, or cap, its indemnification exposure in its commercial and other contracts. It is not possible to determine the maximum potential loss under these indemnification provisions due to the Company’s limited history of prior indemnification claims and the unique facts and circumstances involved in each particular provision.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Overview

We are a leading provider of cloud-based bill payment technology and solutions. We deliver our next-generation product suite through a modern technology stack to more than 1,700 biller business and financial institution clients. Our platform was used by approximately 21 million consumers and businesses in North America in December 2021 to pay their bills, make money movements and engage with our clients. We serve billers of all sizes that primarily provide non-discretionary services across a variety of industry verticals, including utilities, financial services, insurance, government, telecommunications and healthcare. We also serve financial institutions by providing them with a modern platform that their customers use for bill payment, account-to-account transfers and person-to-person transfers. By powering this comprehensive network of billers and financial institutions, each with their own set of bill payment requirements, we believe we have created an enviable feedback loop that enables us to continuously drive innovation, grow our business and uniquely improve the electronic bill payment experience for participants in the bill payment ecosystem.

Our platform provides our clients with easy-to-use, flexible and secure electronic bill payment experiences powered by an omni-channel payment infrastructure that allows consumers to pay their bills using their preferred payment type and channel. Because our biller platform is developed on a single code base and leverages a SaaS infrastructure, we can rapidly deploy new features and tools to our entire biller base simultaneously. Through a single point of integration to our billers’ core financial and operating systems, our mission-critical solutions provide our billers with a payments operating system that helps them collect revenue faster and more profitably and empower their consumers with the information and transparency needed to control their finances.

We generate substantially all of our revenue from payment transaction fees and have achieved significant growth through our capital efficient model. We rely on a diversified go-to-market strategy to reach new billers. We acquire new billers through direct sales channels, software and strategic partnerships and our Instant Payment Network, or IPN, which together promote rapid adoption of our platform through partnerships with leading business networks. Through these channels, our platform reaches millions of consumers, driving transaction growth.

We believe our revenue is highly visible. We derive the majority of our revenue from a fee paid per transaction by the consumer, the biller or a combination of both. Our usage-based monetization strategy aligns our economic success with the success of our billers and partners. Since we benefit from increased transactional volume, we do not charge separate license fees or implementation fees. In addition, our modern platform architecture allows us to provide integration, implementation, maintenance and upgrades at no additional cost to billers.

In 2022, the United States economy has experienced inflationary conditions, increased interest rates and two consecutive quarters of decreased gross domestic product. While we believe our business is resilient and can generally weather unusual levels of inflation, the economic uncertainty and inflationary pressures have had some impact on our expected 2022 financial performance. For example, some of our clients have deferred anticipated 2022 implementations into 2023, which will delay expected revenue correspondingly. We intend to continue to manage through this uncertain economic environment by working closely with clients on implementations. In addition, we are seeing ongoing wage pressure in our current workforce due to the levels of inflation, which is also putting some short-term pressure on our EBITDA margins.

Impact of the COVID-19 Pandemic

The COVID-19 pandemic, including its variants, and efforts to control its spread have at times significantly curtailed the movement of people, goods and services in the United States, where we generate substantially all of our revenue, and worldwide, where we are targeting future growth. It has also caused extreme societal, economic and financial market volatility, resulting in business shutdowns and a global economic downturn. The magnitude and duration of the COVID-19 pandemic and the magnitude and duration of its effect on business activity cannot be predicted with any certainty.

In light of the uncertainty relating to the spread of COVID-19, we have taken precautionary measures intended to reduce the risk of the virus spreading to our employees, billers and partners, and we may take further precautionary measures. In particular, governmental authorities have at times instituted, and in the future may institute, shelter-in-place policies and other restrictions in many jurisdictions in which we operate, including in Redmond, Washington, where our headquarters are located, and Toronto, Canada, Charlotte, North Carolina and Delhi, India, where we maintain significant operations, which policies and restrictions have at times required our employees to work remotely. Even though many of the shelter-in-place policies or other governmental restrictions have been lifted, we are taking, and expect to continue to take, a measured and careful approach to having employees return to offices and travel for business. To the extent our employees are required to work from our offices, we may experience turnover from employees unwilling to return to the office. These precautionary measures and policies could negatively impact employee productivity, training and

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collaboration or otherwise disrupt our business operations. In addition, such restrictions impact certain of our sales efforts, marketing efforts and implementations, adversely affecting the effectiveness of such efforts in some cases and potentially inhibiting future growth.

In addition, the COVID-19 pandemic has disrupted and may continue to disrupt the operations of our billers and partners for an indefinite period of time, which in turn could negatively impact our business and operating results. Widespread remote work arrangements may also negatively impact our billers’ and partners’ operations, and the operations of third-party service providers who perform critical services for us, and, by extension, our operations.

We will continue to evaluate the nature and extent of the COVID-19 pandemic’s potential impact on our business, operating results and financial condition.

Components of Results of Operations

Revenue

We generate substantially all of our revenue from payment transaction fees. Transaction fees are fees collected for each transaction processed through our platform, on either a fixed basis or variable basis based on the transaction value, with the actual fees dependent on type of transaction, payment or transaction channel and industry vertical. However, irrespective of these factors, the transaction fees that we receive are generally consistent across transaction types, payment and transaction channels and industry verticals. We receive such transaction fees directly from billers, financial institutions, partners or, in some cases, from consumers as a convenience fee.

Cost of Revenue, Gross Profit and Gross Margin

Cost of revenue consists of certain direct costs that are directly attributed to processing transactions on our platform. This includes interchange, assessment and network expenses incurred for processing payments as well as costs of servicing our clients through product support, implementations and customer care. Cost of revenue also includes an allocation of hosting and data center costs for our infrastructure and platform environment, telecommunication expenses used by sales and customer support teams and a portion of amortization of capitalized internal-use software development costs and a portion of amortization of intangible assets, including amortization of intangible assets acquired as part of our acquisitions of other businesses. We expect that cost of revenue will increase in absolute dollars, but it may fluctuate as a percentage of revenue from period to period, as our transaction mix changes and we continue to invest in growing our business across all geographical segments, including through the acquisition of other businesses.

There are external factors that impact interchange fees, such as the average transaction amount in a particular month or quarter. For example, hot summers and cold winters tend to increase utility bills, and property taxes result in two larger payments per year, each of which increases our interchange cost.

Gross profit is equal to our revenue less cost of revenue. Gross profit as a percentage of our revenue is referred to as gross margin. Our gross margin has been and will continue to be affected by a number of factors, including average transaction value, payment type and payments and transactions through our IPN.

Operating Expenses

Research and Development

Research and development expenses consist of personnel-related expenses, including stock-based compensation expenses, incurred in developing new products or enhancing existing products and are expensed as incurred, unless they qualify as internal-use software development costs, which are capitalized and amortized. We expect our research and development expenses to increase in absolute dollars, but they may fluctuate as a percentage of revenue from period to period as we expand our research and development team to develop new products and product enhancements. Over the longer term, we expect research and development expenses to decrease as a percentage of revenue as we leverage the scale of our business.

Sales and Marketing

Sales and marketing expenses consist primarily of personnel-related expenses, including stock-based compensation expenses for sales and marketing personnel, sales commissions, partner fees, marketing program expenses, travel-related expenses and costs to market and promote our platform through advertisements, marketing events, partnership arrangements and direct biller acquisition as well as amortization of intangible assets acquired as part of our acquisitions of other businesses. We expect our sales and marketing expenses to increase in absolute dollars, but they may fluctuate as a percentage of revenue from period to period.

General and Administrative

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General and administrative expenses consist primarily of personnel-related expenses, including stock-based compensation expenses for finance, risk management, legal and compliance, human resources, information technology and facilities personnel. General and administrative expenses also include costs incurred for external professional services and other corporate expenses. We expect to incur additional general and administrative expenses as a result of operating as a public company, and to support the growth in our business. We expect that our general and administrative expenses will increase in absolute dollars, but they may fluctuate as a percentage of revenue from period to period. Over the longer term, we expect general and administrative expenses to decrease as a percentage of revenue as we leverage the scale of our business.

Factors Affecting Our Performance

The discussion below includes a number of forward-looking statements regarding our future performance. For a discussion of important factors, including the continuing development of our business and other factors which could cause actual results to differ materially from matters referred to below, see the discussions under “Risk Factors” and “Special Note Regarding Forward-Looking Statements” herein and in our Form 10-K for the year ended December 31, 2021 or the “2021 Form 10-K”.

Increased Adoption of Electronic Bill Payment Solutions

As the number of financial transactions online continues to increase, electronic bill payment is becoming a greater share of the bill payment market. We have observed that consumers demand a frictionless electronic bill payment experience and increasingly prefer more flexible and innovative digital payment options. We expect this trend to continue, providing us with a greater opportunity to provide next-generation bill and digital payment technology and power more transactions, further fueling our growth.

Acquiring New and Maintaining Existing Billers and Financial Institutions

Our future growth depends on the continued adoption of our platform by new billers and financial institutions, as well as maintaining our existing billers and financial institutions. We intend to continue investing in our efficient go-to-market strategies, increasing brand awareness and driving adoption of our platform and products. We had more than 1,700 billers and financial institution clients as of December 31, 2021, including billers of all sizes and across numerous vertical markets and financial institutions of all sizes. Our ability to attract new, and maintain existing, billers and financial institutions and drive adoption of our platform will depend on a number of factors, including the effectiveness and pricing of our products, offerings of our competitors and the effectiveness of our marketing efforts. Our growth and performance also depends on our ability to promptly implement and begin recognizing revenues from our new billers and financial institutions.

Expanding Usage of Our Platform with Existing Billers and Financial Institutions

We believe our large base of existing billers and financial institutions represents a significant opportunity for further consumption of our platform. We believe our solutions create a superior experience for consumers and accelerate revenue realization for billers, which drives increased usage of our platform. We intend to continue investing in this value proposition. Leveraging our platform to capture more transactions from our existing biller and financial institution base is expected to organically drive transaction growth at lower cost.

Growing Our Partner Base

We believe there is a significant opportunity to increase the transactions on our platform through expanding our base of software, strategic and IPN partners. While revenue derived from or through our IPN partnerships has not been significant historically, we expect that the revenue contribution from our IPN will grow over time. As our IPN partner base expands, and new partners use our platform to power bill payment experiences within their ecosystems, we expect to organically expand the reach of our platform to millions of new consumers and thereby drive new, revenue-generating transactions to our platform. We intend to invest in the expansion of our partner base, including the addition of new IPN partners, because our ability to secure new partners will have a direct impact on our transaction growth.

Investing in Sales and Marketing

We will continue to expand efforts to market our platform through our diversified sales and marketing strategy. We intend to invest in sales and marketing strategies that we believe will drive further brand awareness and preference among our billers, financial institutions, partners and consumers. Given the nature of our biller, financial institution and partner base, our investment in sales and marketing in a given period may not impact results until subsequent periods. We approach sales and marketing spend strategically to maintain efficient biller and partner acquisition.

Innovation and Enhancement of Our Platform

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We will continue to invest in our platform and IPN to maintain our position as a leading provider of biller communication and payments. To drive adoption and increase penetration of our platform, we intend to continue to introduce new products and features. We believe that investment in research and development will contribute to our long-term growth, but may also negatively impact our short-term profitability. We will continue to leverage emerging technologies and invest in the development of more features and better functionality for consumers.

Key Performance and Non-GAAP Measures

We use the following metrics to measure our performance, identify trends affecting our business, prepare financial projections and make strategic decisions. We believe that these key performance and non-GAAP measures provide meaningful supplemental information for management and investors in assessing our historical and future operating performance. The calculation of the key performance and non-GAAP measures discussed below may differ from other similarly titled metrics used by other companies, securities analysts or investors.

Transactions Processed

 

	Three Months Ended June 30,												Six Months Ended June 30,
	2022				2021				% Growth				2022				2021				% Growth
	(in millions)												(in millions)
Transactions processed		89.5				64.2				39.4				177.4				126.6				40.2

We define transactions processed as the number of revenue generating payment transactions, such as checks, credit card and debit card transactions, automated clearing house, or ACH, items and emerging payment types, which are initiated and generally processed through our platform during a period. The number of transactions also includes account-to-account and person-to-person transfers. The number of transactions processed during the three and six months ended June 30, 2022 increased approximately 39.4% and 40.2%, respectively, as compared to the same periods in 2021. The increase was primarily driven by the addition of new billers and financial institutions and increased transactions from our existing billers and financial institutions.

Non-GAAP Measures

We use supplemental measures of our performance that are derived from our consolidated financial information but which are not presented in our consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles, or GAAP. These supplemental non-GAAP measures include contribution profit, adjusted gross profit, adjusted EBITDA and free cash flow.

Contribution Profit

We calculate contribution profit as gross profit plus other cost of revenue. Other cost of revenue equals cost of revenue less interchange and assessment fees paid by us to our payment processors.

Adjusted Gross Profit

We calculate adjusted gross profit as gross profit adjusted for non-cash items, primarily stock-based compensation and amortization.

Adjusted EBITDA

We calculate adjusted EBITDA as net income before other income (expense) (which consists of interest income (expense), net and foreign exchange gain (loss)), depreciation and amortization, income taxes, adjusted to exclude the effects of stock-based compensation expense and certain nonrecurring expenses that management believes are not indicative of ongoing operations, consisting primarily of professional fees and other indirect charges associated with our IPO.

Free Cash Flow

We calculate free cash flow as net cash provided by (used in) operating activities less capital expenditures and software and capitalized internal-use software development costs.

How we use Non-GAAP Measures

We use non-GAAP measures to supplement financial information presented on a GAAP basis. We believe that excluding certain items from our GAAP results allows management and our board of directors to more fully understand our consolidated financial performance from period to period and helps management project our future consolidated financial performance as forecasts are developed at a level of detail different from that used to prepare GAAP-based

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financial measures. Moreover, we believe these non-GAAP measures provide our investors with useful information to help them evaluate our operating results by facilitating an enhanced understanding of our operating performance and enabling them to make more meaningful period-to-period comparisons. In particular, we exclude interchange and assessment fees in the presentation of contribution profit because we believe inclusion is less directly reflective of our operating performance as we do not control the payment channel used by consumers, which is the primary determinant of the amount of interchange and assessment fees. We use contribution profit to measure the amount available to fund our operations after interchange and assessment fees, which are directly linked to the number of transactions we process and thus our revenue and gross profit. There are limitations to the use of the non-GAAP measures presented in this report. Our non-GAAP measures may not be comparable to similarly titled measures of other companies; other companies, including companies in our industry, may calculate non-GAAP measures differently than we do, limiting the usefulness of those measures for comparative purposes. These non-GAAP measures should not be considered in isolation from or as a substitute for financial measures prepared in accordance with GAAP.

We also urge you to review the reconciliation of these non-GAAP financial measures included below. To properly and prudently evaluate our business, we encourage you to review the condensed consolidated financial statements and related notes included elsewhere in this report and to not rely on any single financial measure to evaluate our business.

Contribution Profit

	Three Months Ended June 30,								Six Months Ended June 30,
	2022				2021				2022				2021
	(in thousands)
Gross profit	$	35,828			$	28,928			$	70,682			$	56,475
Plus: other cost of revenue		12,896				8,513				25,427				16,075
Contribution profit	$	48,724			$	37,441			$	96,109			$	72,550

In general, contribution profit is driven by the number of transactions we process offset by network fees associated with processing those transactions. The amount of contribution profit per transaction may vary due to a variety of factors including client size, type and industry as well as whether the client is a biller, financial institution or other partner. Contribution profit for the three and six months ended June 30, 2022 increased approximately 30.1% and 32.5%, respectively, as compared to the same period in 2021. The increase was primarily driven by the addition of new billers and financial institutions and increased transactions from our existing billers and financial institutions. For the three and six months ended June 30, 2022, contribution profit increased at a slower rate than transactions due to a continued mix shift to larger clients.

Adjusted Gross Profit

	Three Months Ended June 30,								Six Months Ended June 30,
	2022				2021				2022				2021
	(in thousands)
Gross profit	$	35,828			$	28,928			$	70,682			$	56,475
Stock-based compensation		—				—				—				—
Amortization		2,879				1,164				5,389				2,212
Adjusted gross profit	$	38,707			$	30,092			$	76,071			$	58,687

Adjusted gross profit for the three and six months ended June 30, 2022 increased approximately 28.6% and 29.6%, respectively, as compared to the same period in 2021. Adjusted gross profit is driven primarily by the same factors that impact gross profit with the exception of excluding the amortization in cost of revenue. The percentage increase in adjusted gross profit is lower than the percentage increase in contribution profit due to additional other cost of revenue recorded related to the PayVeris, LLC or Payveris, and Finovera, Inc., or Finovera, acquisitions. The increase in amortization was driven by additional capitalization of software costs as well as amortization of acquired intangibles associated with our acquisitions of Payveris and Finovera.

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Adjusted EBITDA

	Three Months Ended June 30,								Six Months Ended June 30,
	2022				2021				2022				2021
	(in thousands)
Net (loss) income	$	(2,451	)		$	575			$	(733	)		$	4,213
Excluding
Interest (income) expense, net		(98	)			4				(90	)			7
Provision for (benefit from) income taxes		378				3,501				(2,693	)			4,722
Depreciation and amortization		5,886				2,548				11,360				4,940
Foreign exchange (gain) loss		(54	)			1				(80	)			(8	)
Stock-based compensation		1,344				568				2,620				1,131
Other nonrecurring expenses(1)		—				1,115				—				2,711
Adjusted EBITDA	$	5,005			$	8,312			$	10,384			$	17,716

As adjusted EBITDA is a measure of profitability, it would generally be expected to move in line with revenue, contribution profit, gross profit and adjusted gross profit. Adjusted EBITDA decreased as compared to the same period in 2021 due to our investment in sales and marketing and research and development in order to drive future growth of the business as well as the increased costs associated with being a public company and the impact of the Payveris and Finovera acquisitions.

Free Cash Flow

	Three Months Ended June 30,								Six Months Ended June 30,
	2022				2021				2022				2021
	(in thousands)
Net cash provided by operating activities	$	3,844			$	5,580			$	7,092			$	12,757
Purchases of property and equipment and software		(365	)			(408	)			(918	)			(564	)
Capitalized internal-use software development costs		(7,733	)			(4,480	)			(14,464	)			(8,736	)
Free cash flow	$	(4,254	)		$	692			$	(8,290	)		$	3,457
Net cash used in investing activities(1)	$	(8,098	)		$	(4,888	)		$	(15,382	)		$	(9,300	)
Net cash provided by financing activities	$	21,855			$	216,319			$	24,218			$	216,224

Results of Operations

The following table sets forth our condensed consolidated statements of operations for the periods presented:
 

		Three Months Ended June 30,								Six Months Ended June 30,
		2022				2021				2022				2021
		(in thousands)
Revenue		$	119,969			$	93,495			$	236,673			$	185,717
Cost of revenue(1)			84,141				64,567				165,991				129,242
Gross profit			35,828				28,928				70,682				56,475
Operating expenses
Research and development(1)			10,185				7,921				20,575				15,651
Sales and marketing(1)			17,851				9,505				34,041				17,727
General and administrative(1)			10,017				7,421				19,662				14,163
Total operating expenses			38,053				24,847				74,278				47,541
(Loss) income from operations			(2,225	)			4,081				(3,596	)			8,934
Other income (expense)
Interest income (expense), net			98				(4	)			90				(7	)
Foreign exchange gain (loss)			54				(1	)			80				8
(Loss) income before income taxes			(2,073	)			4,076				(3,426	)			8,935
(Provision for) benefit from income taxes			(378	)			(3,501	)			2,693				(4,722	)
Net (loss) income		$	(2,451	)		$	575			$	(733	)		$	4,213

 

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		Three Months Ended June 30,								Six Months Ended June 30,
		2022				2021				2022				2021
		(in thousands)
Cost of revenue		$	—			$	—			$	—			$	—
Research and development			288				15				573				31
Sales and marketing			227				19				450				36
General and administrative			829				534				1,597				1,064
Total stock-based compensation		$	1,344			$	568			$	2,620			$	1,131

The following table presents the components of our condensed consolidated statements of operations for the periods presented as a percentage of revenue:

 

		Three Months Ended June 30,								Six Months Ended June 30,
		2022				2021				2022				2021
Revenue			100.0	%			100.0	%			100.0	%			100.0	%
Cost of revenue			70.1				69.1				70.1				69.6
Gross profit			29.9				30.9				29.9				30.4
Operating expenses
Research and development			8.5				8.5				8.7				8.4
Sales and marketing			14.9				10.2				14.4				9.5
General and administrative			8.3				7.9				8.3				7.6
Total operating expenses			31.7				26.6				31.4				25.5
(Loss) income from operations			(1.8	)			4.3				(1.5	)			4.9
Other income (expense)
Interest income (expense), net			0.1				—				—				—
Foreign exchange gain (loss)			—				—				—				—
(Loss) income before income taxes			(1.7	)			4.3				(1.5	)			4.9
(Provision for) benefit from income taxes			(0.3	)			(3.7	)			1.2				(2.6	)
Net (loss) income			(2.0	%)			0.6	%			(0.3	%)			2.3	%

Comparison of the Three Months Ended June 30, 2022 and 2021

Revenue

		Three Months Ended June 30,								Change
		2022				2021				Amount				%
		(dollars in thousands)
Revenue		$	119,969			$	93,495			$	26,474				28.3

The increase in revenue was primarily due to an increase in the number of transactions processed, which was driven by the implementation of new billers, increased transactions from our existing billers and additional transactions as a result of the Payveris and Finovera acquisitions, offset by the decrease in revenue we received per transaction on a blended basis.

Cost of Revenue, Gross Profit and Gross Margin

		Three Months Ended June 30,								Change
		2022				2021				Amount				%
		(dollars in thousands)
Cost of revenue		$	84,141			$	64,567			$	19,574				30.3
Gross profit		$	35,828			$	28,928			$	6,900				23.9
Gross margin			29.9	%			30.9	%

The increase in cost of revenue was driven by the increase in revenue and transactions processed as it consists primarily of interchange fees and processor costs as well as other direct and indirect costs associated with making our platform available to our billers.

Gross margin decreased for the three months ended June 30, 2022 due to an increase in amortization expense included in cost of revenue associated with the Payveris and Finovera acquisitions.

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Operating Expenses

		Three Months Ended June 30,								Change
		2022				2021				Amount				%
		(dollars in thousands)
Operating expenses
Research and development		$	10,185			$	7,921			$	2,264				28.6
Sales and marketing			17,851				9,505				8,346				87.8
General and administrative			10,017				7,421				2,596				35.0
Total operating expenses		$	38,053			$	24,847			$	13,206
Percentage of total revenue
Research and development			8.5	%			8.5	%
Sales and marketing			14.9	%			10.2	%
General and administrative			8.3	%			7.9	%

Research and Development Expenses

The increase in research and development expenses was primarily due to an increase in employee-related costs, including benefits due to an increase in headcount as we continued to invest in building and adding additional features and functionality to our platform. Additionally, we incurred increased hosting costs as we transitioned from data center to the cloud and an increase in stock-based compensation expense associated with routine grants.

Sales and Marketing Expenses

The increase in sales and marketing expenses was primarily due to an increase in employee-related costs, including benefits, as we continued to expand our sales and marketing efforts with additional headcount in order to continue to drive our growth. In addition, we incurred amortization expense related to the identifiable intangible assets from the Payveris and Finovera acquisitions as well as increased stock-based compensation associated with routine grants.

General and Administrative Expenses

The increase in general and administrative expenses was primarily due to increased costs of operating as a public company, including significant increases in our directors and officers insurance premiums, and increases in employee-related costs, including benefits and stock-based compensation, due to an increase in general and administrative headcount.

Included in the operating expenses above, in the three months ended June 30, 2022 we began to experience a level of wage inflation driven by the broader economic inflationary environment that resulted in higher employee-related costs.

Other Income (Loss)

		Three Months Ended June 30,								Change
		2022				2021				Amount				%
		(dollars in thousands)
Interest income (expense), net		$	98			$	(4	)		$	102			n/m
Foreign exchange gain (loss)			54				(1	)			55			n/m

___________

n/m – not meaningful

The changes in interest income (expense), net and foreign exchange gain (loss) were immaterial.

Income Taxes

		Three Months Ended June 30,								Change
		2022				2021				Amount				%
		(dollars in thousands)
Provision for (benefit from) income taxes		$	(378	)		$	(3,501	)		$	3,123				(89.2	)

The change in (provision for) benefit from income taxes for the three months ended June 30, 2022 as compared to the same period in the prior year, was primarily due to changes in pre-tax (loss) and income and the result of excess tax benefits on stock-based compensation, state taxes, foreign income taxed at different rates and permanent tax adjustments related to nondeductible executive compensation, in addition to a valuation allowance recorded against the net deferred tax assets.

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Comparison of the Six Months Ended June 30, 2022 and 2021

Revenue

		Six Months Ended June 30,								Change
		2022				2021				Amount				%
		(dollars in thousands)
Revenue		$	236,673			$	185,717			$	50,956				27.4

The increase in revenue was primarily due to an increase in the number of transactions processed, which was driven by the implementation of new billers, increased transactions from our existing billers and additional transactions as a result of the Payveris and Finovera acquisitions, offset by the decrease in revenue we received per transaction on a blended basis.

Cost of Revenue, Gross Profit and Gross Margin

		Six Months Ended June 30,								Change
		2022				2021				Amount				%
		(dollars in thousands)
Cost of revenue		$	165,991			$	129,242			$	36,749				28.4
Gross profit		$	70,682			$	56,475			$	14,207				25.2
Gross margin			29.9	%			30.4	%

The increase in cost of revenue was driven by the increase in revenue and transactions processed as it consists primarily of interchange fees and processor costs as well as other direct and indirect costs associated with making our platform available to our billers.

Gross margin decreased for the six months ended June 30, 2022 due to an increase in amortization expense included in cost of revenue associated with the Payveris and Finovera acquisitions.

 

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Operating Expenses

		Six Months Ended June 30,								Change
		2022				2021				Amount				%
		(dollars in thousands)
Operating expenses
Research and development		$	20,575			$	15,651			$	4,924				31.5
Sales and marketing			34,041				17,727				16,314				92.0
General and administrative			19,662				14,163				5,499				38.8
Total operating expenses		$	74,278			$	47,541			$	26,737
Percentage of total revenue
Research and development			8.7	%			8.4	%
Sales and marketing			14.4	%			9.5	%
General and administrative			8.3	%			7.6	%

Research and Development Expenses

The increase in research and development expenses was primarily due to an increase in employee-related costs, including benefits due to an increase in headcount as we continued to invest in building and adding additional features and functionality to our platform. Additionally, we incurred increased hosting costs as we transitioned from data center to the cloud and an increase in stock-based compensation expense associated with routine grants.

Sales and Marketing Expenses

The increase in sales and marketing expenses was primarily due to an increase in employee-related costs, including benefits, as we continued to expand our sales and marketing efforts with additional headcount in order to continue to drive our growth. In addition, we incurred amortization expense related to the identifiable intangible assets from the Payveris and Finovera acquisitions as well as increased stock-based compensation associated with routine grants.

General and Administrative Expenses

The increase in general and administrative expenses was primarily due to increased costs of operating as a public company, including significant increases in our directors and officers insurance premiums, and increases in employee-related costs, including benefits and stock-based compensation, due to an increase in general and administrative headcount.

Included in the operating expenses above, in the three months ended June 30, 2022 we began to experience a level of wage inflation driven by the broader economic inflationary environment that resulted in higher employee-related costs.

Other Income (Loss)

		Six Months Ended June 30,								Change
		2022				2021				Amount				%
		(dollars in thousands)
Interest income (expense), net		$	90			$	(7	)		$	97			n/m
Foreign exchange gain			80				8				72			n/m

___________

n/m – not meaningful

The changes in interest income (expense), net and foreign exchange gain were immaterial.

Income Taxes

		Six Months Ended June 30,								Change
		2022				2021				Amount				%
		(dollars in thousands)
Benefit from (provision for) income taxes		$	2,693			$	(4,722	)		$	7,415				(157.0	)

The change in benefit from (provision for) income taxes for the six months ended June 30, 2022 as compared to the same period in the prior year, was primarily due to changes in pre-tax (loss) and income and the result of excess tax benefits on stock-based compensation, state taxes, foreign income taxed at different rates and permanent tax adjustments related to nondeductible executive compensation, in addition to a valuation allowance recorded against the net deferred tax assets.

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Liquidity and Capital Resources

Sources and Uses of Funds

As of June 30, 2022, we had $158.3 million of unrestricted cash and cash equivalents. We believe that existing unrestricted cash and cash equivalents will be sufficient to support our working capital and capital expenditure requirements for at least the next 12 months. Since inception, we have financed operations primarily through the sale of equity securities and revenue from payment transaction fees and subscriptions. Our principal uses of cash are funding operations and capital expenditures.

From time to time, we may explore additional financing sources and means to lower our cost of capital, which could include equity, equity-linked and debt financing. We cannot assure you that any additional financing will be available to us on acceptable terms, or at all. The inability to raise capital would adversely affect our ability to achieve our business objectives. If we raise additional funds by issuing equity or equity-linked securities, the ownership of our existing stockholders will be diluted. If we raise additional financing by the incurrence of indebtedness, we may be subject to increased fixed payment obligations and could be subject to additional restrictive covenants, such as limitations on our ability to incur additional debt, and other operating restrictions that could adversely impact our ability to conduct our business or execute our growth strategy. Any future indebtedness we incur may result in terms that could be unfavorable to equity investors.

Historical Cash Flows

The following table summarizes our condensed consolidated cash flows.

		Six Months Ended June 30,
		2022				2021
		(in thousands)
Net cash provided by (used in)
Operating activities		$	7,092			$	12,757
Investing activities			(15,382	)			(9,300	)
Financing activities			24,218				216,224
Effects of foreign exchange on cash			(97	)			43
Net increase in cash, cash equivalents and restricted cash		$	15,831			$	219,724

Net Cash Provided by Operating Activities

Our primary source of operating cash is revenue from payment transaction fees. Our primary uses of operating cash are personnel-related costs, payments to third parties to fulfill our payment transactions and payments to sales and marketing partners. Net cash provided by operating activities mainly consists of our net income adjusted for certain non-cash items, including depreciation and amortization, stock-based compensation, other non-cash income and expense items, and net changes in operating assets and liabilities.

Net cash provided by operating activities for the six months ended June 30, 2022 was $7.1 million. Net loss was $0.7 million, adjusted for non-cash charges of $12.8 million consisting primarily of depreciation and amortization, stock-based compensation, and non-cash lease expense, which contributed positively to operating activities. This was offset by net cash outflows of $4.9 million provided by changes in our operating assets and liabilities.

Net cash provided by operating activities for the six months ended June 30, 2021 was $12.8 million. Net income was $4.2 million, adjusted for non-cash charges of $10.2 million consisting primarily of depreciation and amortization, stock-based compensation, and non-cash lease expense, which contributed positively to operating activities. This was offset by net cash outflows of $1.8 million provided by changes in our operating assets and liabilities.

Net Cash Used in Investing Activities

Cash used in our investing activities consists primarily of cash paid for acquisitions, capitalized internal-use software development costs, purchases of property and equipment and intangible assets.

Net cash used in investing activities for the six months ended June 30, 2022 consisted of $14.5 million of capitalized internal-use software development costs and $0.8 million of purchases of property and equipment.

Net cash used in investing activities for the six months ended June 30, 2021 consisted of $8.7 million of capitalized internal-use software development costs and $0.6 million of purchases of property and equipment.

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Net Cash Provided by Financing Activities

Cash provided by financing activities consists primarily of proceeds from the IPO and private placement and proceeds from stock option exercises offset by the redemption of the Series A preferred stock, payment of deferred offering costs related to the IPO, changes in financial institution funds in-transit, and payments on capital lease and other financing arrangements and principal payments on debt.

Net cash provided by financing activities for the six months ended June 30, 2022 consisted of an increase in financial institution funds in-transit of $25.9 million and proceeds from stock option exercises of $0.3.million, offset by $1.9 million of payments on finance leases and other financing obligations.

Net cash provided financing activities for the six months ended June 30, 2021 consisted of proceeds from the IPO of $224.6 million, proceeds from the private placement of $50.0 million and proceeds of $0.8 million from the repayment of a related party loan, offset by $23.0 million for the redemption of the Series A preferred stock, $34.4 million for the repayment of dividends on the Series A preferred stock, $0.9 million of payments on finance leases and other financing obligations and $0.9 million of payments of deferred offering costs directly related to our IPO.

Off-Balance Sheet Arrangements

We have not entered into any off-balance sheet arrangements and do not have any holdings in variable interest entities.

Critical Accounting Policies and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, net sales, expenses and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates.

There have been no material changes to our critical accounting policies as compared to the critical accounting policies and significant judgments and estimates disclosed in our 2021 Form 10-K.

Emerging Growth Company Status

Section 107 of the Jumpstart Our Business Startups Act of 2012, as amended, or the JOBS Act, provides that an “emerging growth company” may take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” may delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. Section 107 of the JOBS Act provides that any decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable. We have elected to use this extended transition period under the JOBS Act.

Recent Accounting Pronouncements

See Note 2 to our condensed consolidated financial statements included elsewhere in this report for more information regarding recently issued accounting pronouncements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

We are exposed to market risk 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 the result of fluctuations in interest rates and foreign currency exchange rates.

Interest Rate Risk

Our cash and cash equivalents consist of bank deposits and money market funds with original maturities of three months or less. Our cash and cash equivalents are held for working capital purposes. We do not enter into investments for trading or speculative purposes. Our cash equivalents and our investment portfolio are subject to market risk due to changes in interest rates. We do not believe, as of June 30, 2022, that a hypothetical 10% increase or decrease in interest rates would have had a material impact on the value of our cash equivalents or investment portfolio.

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Foreign Currency Exchange Risk

Certain of our operations are conducted in foreign currencies. While we have generated substantially all of our revenue from billers in the United States, we have foreign currency risks related to revenue denominated in other currencies, such as the Canadian dollar. In addition, we have significant operations outside of the United States, particularly in Canada and India, where expenses are denominated in the local currency. Decreases in the relative value of the U.S. dollar to other currencies may negatively affect revenue and other operating results as expressed in U.S. dollars. We have not engaged in the hedging of foreign currency transactions, although we may do so in the future. We do not believe, as of June 30, 2022, that a hypothetical 10% increase or decrease in the relative value of the U.S. dollar to other currencies would have had a material effect on operating results.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated, as of the end of the period covered by this Quarterly Report on Form 10-Q, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act). Based on that evaluation, and as a result of the material weaknesses in internal control over financial reporting described below, our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2022, our disclosure controls and procedures were not effective at the reasonable assurance level. In light of this fact, our management has performed additional analyses, reconciliations, and other post-closing procedures and has concluded that, notwithstanding the material weaknesses in our internal control over financial reporting, the unaudited condensed consolidated financial statements for the periods covered by and included in this Quarterly Report on Form 10-Q fairly state, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with GAAP.

Material Weaknesses in Internal Control over Financial Reporting

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis. As of June 30, 2022, our material weaknesses were as follows:

Remediation Plan

We believe we have made significant progress toward remediation of the material weaknesses described above. We have implemented a new general ledger accounting system, including the design of permissions within that system which allow for effective restricted access and segregation of duties to govern the preparation and review of journal entries. Additional remediation measures are ongoing and include the following:

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While we believe these efforts will remediate the material weaknesses, these material weaknesses cannot be considered fully remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended June 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we are involved in legal proceedings and subject to claims that arise in the ordinary course of our business, which may include claims relating to contractual disputes, product liability, tort or personal injury, employment, intellectual property or other commercial or regulatory matters. In addition, if current or future government regulations are interpreted or enforced in a manner adverse to us or our business, including among other things, those with security and privacy laws, we may be subject to enforcement actions, penalties, damages, material limitations on our business and reputational harm. Furthermore, as a public company, we may become subject to stockholder inspection demands under Delaware law and derivative or other similar litigation. Although the results of legal proceedings and claims cannot be predicted with certainty, we are not currently party to any legal proceedings or claims that we believe, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results or financial condition.

Item 1A. Risk Factors.

Investing in our Class A common stock involves a high degree of risk. We operate in a rapidly changing environment that involves a number of risks that could materially affect our business, financial condition or future results, some of which are beyond our control. You should carefully consider the risks described under the heading “Risk Factors” in Part I, Item 1A of our 2021 Form 10-K, the other information in this Quarterly Report on Form 10-Q, including our unaudited condensed consolidated financial statements and the related notes, as well as our other public filings with the SEC, before deciding to invest in our Class A common stock. During the six months ended June 30, 2022, there were no material changes to the risk factors as described in our 2021 Form 10-K. The occurrence of any of the events described therein could harm our business, financial condition, results of operations, liquidity or prospects. In such an event, the market price of our Class A common stock could decline, and you may lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not Applicable.

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Item 5. Other Information.

None.

Item 6. Exhibits.

(a) Exhibits

Incorporated by Reference

Exhibit Number

Description

Form

File No.

Exhibit

Filing Date

Filed/ Furnished Herewith

10.1+

Form of Restricted Stock Unit Award Agreement for under the 2021 Equity Incentive Plan

8-K

001-40429

10.1

June 24, 2022

31.1

Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

X

31.2

Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

X

32.1*

Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

X

32.2*

Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

X

101.INS

Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.

101.SCH

Inline XBRL Taxonomy Extension Schema Document

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

+ Indicates a management contract or compensatory plan or arrangement.

* The certifications attached as Exhibit 32.1 and 32.2 that accompany this report are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Paymentus Holdings, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this report, irrespective of any general incorporation language contained in such filing.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

		PAYMENTUS HOLDINGS, INC.
Date: August 5, 2022		By:	/s/ Dushyant Sharma
			Dushyant Sharma
			Chairman, President and Chief Executive Officer
			(Principal Executive Officer)
Date: August 5, 2022		By:	/s/ Matt Parson
			Matt Parson
			Chief Financial Officer
			(Principal Financial and Accounting Officer)

 

 

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Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO

RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002.

 

I, Dushyant Sharma, certify that:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 5, 2022		By:	/s/ Dushyant Sharma
			Dushyant Sharma
			Chairman, President and Chief Executive Officer
			(Principal Executive Officer)

 

 

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Exhibit 31.2

 

 

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO

RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Matt Parson, certify that:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 5, 2022		By:	/s/ Matt Parson
			Matt Parson
			Chief Financial Officer
			(Principal Financial Officer)

 

 

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Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Paymentus Holdings, Inc. (the “Company”) for the period ended June 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

 

(2)		The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

Date: August 5, 2022		By:	/s/ Dushyant Sharma
			Dushyant Sharma
			Chairman, President and,
			Chief Executive Officer
			(Principal Executive Officer)

 

 

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Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Paymentus Holdings, Inc. (the “Company”) for the period ended June 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

 

(2)		The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: August 5, 2022		By:	/s/ Matt Parson
			Matt Parson
			Chief Financial Officer
			(Principal Financial Officer)

 

 

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