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, a 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.
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 Act). Yes ☐ No ☒
As of August 6, 2021, there were 153,016,018 and 5,223,666 shares of Class 1 and Class 2 common stock outstanding, respectively.
In this Quarterly Report on Form 10-Q, unless otherwise stated or as the context otherwise requires, references to “the Company”, “we”, “us”, "our”, "it", and similar
references refer to BTRS Holdings Inc., a Delaware corporation, and its consolidated subsidiaries.
This Quarterly Report on Form 10-Q also contains registered marks, trademarks, and trade names of other companies, all of which are the property of their respective holders.
We do not intend our use or display of other companies’ trade names, trademarks, or service marks to imply a relationship with, endorsement, or sponsorship of us by these other companies.
Retroactive Adjustments Related to Reverse Recapitalization
On May 14, 2021, the Company filed its Quarterly Report on Form 10-Q with the SEC for the three months ended March 31, 2021 and 2020, with such interim financial statements
reflecting the reverse recapitalization of Billtrust (as described in Note 1 - Organization and Nature of Business and Note 3 - Business Combination) as if it had
occurred as of the beginning of each period presented. As a result, in conformity with U.S. GAAP, the Company has retroactively adjusted its financial statements and related notes herein, as of the year ended December 31, 2020, and as of and for
the three and six months ended June 30, 2020 to reflect the aforementioned reverse recapitalization as follows:
|
•
|
Within the Condensed Consolidated Balance Sheets, redeemable convertible preferred stock in mezzanine equity was converted into Class 1 and 2 common stock and classified in permanent
equity.
|
|
•
|
The Statements of Redeemable Convertible Preferred Stock and Stockholders’ Deficit were renamed the Condensed Consolidated Statements of Stockholders’ Equity.
|
|
•
|
Within the Condensed Consolidated Statements of Stockholders’ Equity:
|
|
◦
|
Redeemable convertible preferred stock, common stock, share activity, and per share amounts were converted to Class 1 and 2 common stock at an exchange ratio of 7.2282662 shares per
share of Legacy Billtrust common stock (the "Conversion Rate").
|
|
◦
|
Preferred stock dividends and accretion of preferred stock to redemption value for the six months ended June 30, 2020 in the amount $4.3 million has been reclassified from redeemable
convertible preferred stock to accumulated deficit.
|
|
•
|
Within the Condensed Consolidated Statements of Operations and Comprehensive Loss, net loss per share and the weighted average number of shares used to compute net loss per share were
adjusted based on the converted number of Class 1 and 2 common shares.
|
|
•
|
Within the Notes to Financial Statements:
|
|
◦
|
In Note 6 - Loss Per Share, all per share and share amounts for the 2020 periods presented were adjusted based on (1) the converted number of
Class 1 and 2 common shares, and (2) the removal of the preferred stock dividends and accretion to redemption value.
|
|
◦
|
In Note 7 - Stockholders' Equity and Stock-Based Compensation, stock options outstanding at December 31, 2020 and the weighted average fair
value of stock options granted during the six months ended June 30, 2020 before the Business Combination have been adjusted using the Conversion Rate.
|
Except as otherwise noted, the financial statements and related notes included herein have not been adjusted.
Concentrations of Credit Risk
The Company maintains its deposits of cash, cash equivalents, restricted cash, and customer funds with high-credit quality financial institutions and the amounts of these
balances may exceed federally insured limits. The Company’s accounts receivable are reported in the Condensed Consolidated Balance Sheets net of allowances for uncollectible accounts. The Company believes that the concentration of credit risk with
respect to accounts receivable is limited due to the large number of companies and diverse industries comprising its customer base. On-going credit evaluations are performed, generally with a focus on new customers or customers with whom the
Company has no prior collections history, and collateral is generally not required. The Company maintains reserves for potential losses based on customer specific situations as well as on historic experience and such losses, in the aggregate, have
not exceeded management’s expectations. As of June 30, 2021 and December 31, 2020 the allowances for uncollectible accounts were $0.3 million and $0.4 million, respectively.
For the six months ended June 30, 2021 and 2020, no individual customer accounted for 10% or greater of total revenues. As of June 30, 2021 and December 31, 2020, no
individual customer had a balance of 10% or greater of accounts receivable.
Presentation of Restricted Cash
The following table summarizes the period ending cash and cash equivalents from the Company's Condensed Consolidated Balance Sheets and the total cash, cash equivalents, and
restricted cash as presented on the Condensed Consolidated Statements of Cash Flows (in thousands):
|
|
Six Months Ended June 30,
|
|
|
|
2021
|
|
|
2020
|
|
Cash and cash equivalents
|
|
$
|
241,607
|
|
|
$
|
7,164
|
|
Restricted cash (1)
|
|
|
2,596
|
|
|
|
3,276
|
|
Total cash, cash equivalents, and restricted cash
|
|
$
|
244,203
|
|
|
$
|
10,440
|
|
(1)
|
Restricted cash consists of collateral for letters of credit required for leased office space. At June 30, 2021 restricted cash is included in other assets in the
Condensed Consolidated Balance Sheets. At December 31, 2020 restricted cash is included in other current assets in the Condensed Consolidated Balance Sheets. The short-term or long-term classification is determined in accordance with the
expiration of the underlying letters of credit.
|
Recent Accounting Pronouncements
Accounting Pronouncements Issued and Adopted
In November 2019, the Financial Accounting Standards Board ("FASB") Issued Accounting Standards Update ("ASU") 2019-08, Compensation -
Stock Compensation (Topic 718): Improvements to Non-employee Share-Based Payment Accounting, which requires share-based payment awards granted to a customer to be measured and classified in accordance with Topic 718. Accordingly, the
amount that will be recorded as a reduction in the transaction price should be based on the grant-date fair value of the share-based payment award. The new guidance was adopted by the Company on January 1, 2021 and the adoption did not have a
material impact on its Consolidated Financial Statements.
In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and
Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) to simplify the accounting for convertible instruments by eliminating large sections of the existing guidance and eliminating several triggers for derivative accounting, including
a requirement to settle certain contracts by delivering registered shares. The new guidance was adopted by the Company on January 1, 2021 and the adoption did not impact its Consolidated Financial Statements.
Accounting Pronouncements Issued but not yet Adopted
As an EGC, the JOBS Act permits the Company an extended transition period for complying with new or revised accounting pronouncements affecting public companies. The Company
has elected to use this extended transition period and adopts certain new accounting pronouncements on the private company timeline, which means that its financial statements may not be comparable to the financial statements of public companies
that comply with such new or revised accounting pronouncements on a non-delayed basis. The Company will cease to qualify as an EGC effective December 31, 2021 unless the eligibility standards are modified. Loss of EGC status will result in the
Company losing the extended transition period noted above and will require it to adopt new accounting pronouncements within the same time periods as public companies.
In February 2016, the FASB issued ASU 2016-02 Leases (Topic 842), which outlines a comprehensive lease accounting model and
supersedes the current lease guidance. Topic 842 requires lessees to recognize almost all of their leases on the balance sheet by recording a lease liability and a corresponding right-of-use ("ROU") asset for all leases longer than 12 months. It
also changes the definition and classification of a lease, with the classification affecting the pattern of expense recognition, and expands the qualitative and quantitative disclosure requirements of lease arrangements.
The two permitted transition methods under the new standard are both modified retrospective methods. Under the first method, the standard is applied to all leases that
existed at, or subsequently commenced after, the beginning of the earliest comparative period presented in the financial statements, with a cumulative effect adjustment recorded at the beginning of the earliest comparative period for all leases
that commenced prior to such date. Under the second method, comparative periods are not adjusted and the cumulative effect of applying the standard is recorded at the date of initial application.
As a result of losing EGC status effective as of December 31, 2021, the Company will be required to adopt the standard for annual reporting on December 31, 2021 and for
quarterly reporting beginning with the first quarter of 2022. While the Company is currently in the process of quantifying the full impact of the new guidance, the adoption of this standard is expected to have a material impact on the Company's
financial position as most operating leases longer than 12 months will be recorded on the balance sheets as a ROU asset and a lease liability. The standard is not expected to have a material impact on the Company's results of operations or
liquidity. The Company is currently evaluating the changes related to this standard on its future financial reporting and disclosures, as well as designing and implementing related processes and controls related to Topic 842.
In June 2016, the FASB issued ASU 2016-13 Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial
Instruments. Topic 326 requires an entity to utilize a new impairment model known as the current expected credit loss ("CECL") model to estimate its lifetime "expected credit loss" using a forward-looking approach and record an allowance
that, when deducted from the amortized cost basis of the financial asset, presents the net amount expected to be collected on the financial asset. The CECL model is expected to result in more timely recognition of credit losses. Topic 326 also
requires new disclosures for financial assets measured at amortized cost, loans, and available-for-sale debt securities. The standard requires an entity to record a cumulative-effect adjustment to retained earnings as of the beginning of the first
reporting period in which the guidance is adopted. As a result of losing EGC status effective as of December 31, 2021, the Company will be required to adopt the standard for annual reporting on December 31, 2021 and for quarterly reporting
beginning with the first quarter of 2022. The Company is currently evaluating the impact of this standard on its Consolidated Financial Statements.
In January 2017, the FASB issued ASU No. 2017-04 Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill
Impairment, which simplifies the accounting for goodwill impairment by removing Step 2 of the goodwill impairment test and requires an entity to write down the carrying value of goodwill up to the amount by which the carrying amount of a
reporting unit exceeds its fair value. As a result of losing EGC status effective as of December 31, 2021, the Company will be required to adopt the standard for annual reporting on December 31, 2021 and for quarterly reporting beginning with the
first quarter of 2022. The Company is currently evaluating the impact of this standard on its Consolidated Financial Statements.
In August 2018, the FASB issued ASU 2018-15 Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that
Is a Service Contract, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or
obtain internal-use software (and hosting arrangements that include an internal-use software license). As a result of losing EGC status effective as of December 31, 2021, the Company will be required to adopt the standard for annual reporting on
December 31, 2021 and for quarterly reporting beginning with the first quarter of 2022. The Company is currently evaluating the impact that the pronouncement will have on its Consolidated Financial Statements.
In December 2019, the FASB issued ASU 2019-12 Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies various aspects related to accounting for income taxes. As a result losing EGC status effective as of December 31, 2021, the Company will be required to adopt the standard for annual reporting on
December 31, 2021 and for quarterly reporting beginning with the first quarter of 2022. The adoption of this standard is not expected to have a material impact on the Company's Consolidated Financial Statements.
Note 3 - Business Combination
Closing of Business Combination, Accounted for as a Reverse Recapitalization
On January 12, 2021, Billtrust consummated the previously announced Business Combination pursuant to the Agreement dated October 18, 2020 and amended as of December 13, 2020.
As a result of the Agreement, Billtrust stockholders received aggregate consideration with a value equal to approximately $1,190.0 million, which consists of:
|
i.
|
Approximately $90.1 million in cash to certain Billtrust shareholders who elected to receive cash for shares of Billtrust common stock at closing of the Business Combination,
accounted for as a reverse recapitalization; and
|
|
ii.
|
Approximately $1,099.0 million in South Mountain Class A and Class C common stock at closing of the Business Combination, accounted for as a reverse recapitalization, or 109,944,090
shares (including 15,175,967 shares issuable pursuant to outstanding vested and unvested options from the 2003 and 2014 Plans), converted at an exchange ratio of 7.2282662 shares per share of Legacy Billtrust common stock based on an
assumed share price of $10.00 per share.
|
As of the completion of the Business Combination, accounted for as a reverse recapitalization, on January 12, 2021, the merged companies, BTRS Holdings Inc. and subsidiaries,
had the following outstanding securities:
|
i.
|
138,728,373 shares of Class 1 common stock, including 2,375,000 shares to prior South Mountain shareholders that are subject to the vesting and forfeiture provisions based upon the
same share price targets described below in the First Earnout and Second Earnout. During the first quarter of 2021, all of these shares vested;
|
|
ii.
|
6,537,735 shares of Class 2 common stock; and
|
|
iii.
|
12,500,000 warrants, each exercisable for one share of Class 1 common stock at a price of $11.50 per share (the "Public Warrants", refer to Note 7 -
Stockholders' Equity and Stock-Based Compensation).
|
In connection with the Merger:
|
i.
|
Each issued and outstanding South Mountain Class A and Class B share was converted into 1.0 share of Class 1 common stock of the Company; and
|
|
ii.
|
All 6,954,500 private placement warrants of South Mountain were cancelled and are no longer outstanding.
|
Immediately prior to the Closing, each issued and outstanding share of Legacy Billtrust preferred stock converted into equal shares of Legacy Billtrust common stock. At the
closing of the Business Combination, each stockholder of Legacy Billtrust received 7.2282662 shares of the Company’s Class 1 common stock, par value $0.0001 per share (“Common Stock”), for each share of Legacy Billtrust common stock, par value
$0.001 per share, that such stockholder owned, except for one investor who requested to receive shares of Class 2 common stock, which is the same in all respects as Class 1 common stock except it does not have voting rights.
Upon the closing of the Business Combination, the Company’s certificate of incorporation was amended and restated to, among other things, increase the total number of
authorized shares of capital stock to 575,000,000 shares, of which 538,000,000 shares were designated Class 1 common stock, $0.0001 par value per share; 27,000,000 shares were designated Class 2 common stock, $0.0001 par value per share; and
10,000,000 shares were designated preferred stock, $0.0001 par value per share.
Concurrently with the completion of the Business Combination, on the Closing Date 20,000,000 new shares of Common Stock were issued (such purchases, the “PIPE”) for an
aggregate purchase price of $200.0 million.
In connection with the Business Combination, 9,005,863 shares of Common Stock were repurchased for cash from Legacy Billtrust shareholders (after conversion) at a price of
$10.00 per share. Additionally, in connection with a previous loan agreement in July 2014, the Company issued a lender a warrant to purchase shares of the Company’s Series C preferred stock. In connection with Business Combination, the warrant was
exercised and converted into 85,004 shares of Common Stock.
The following table reconciles the elements of the Business Combination, accounted for as a reverse recapitalization, to the Condensed Consolidated Statements of Cash Flows
and the Condensed Consolidated Statements of Stockholders' Equity for the six months ended June 30, 2021 (in thousands):
|
|
Reverse
Recapitalization
|
|
Cash - South Mountain (net of redemptions and non-contingent expenses)
|
|
$
|
240,670
|
|
Cash - PIPE investors
|
|
|
200,000
|
|
Cash electing shares of Legacy Billtrust shareholders
|
|
|
(90,061
|
)
|
Fees to underwriters and other transaction costs
|
|
|
(20,200
|
)
|
Net cash received from reverse recapitalization
|
|
|
330,409
|
|
Net assets acquired and other adjustments
|
|
|
255
|
|
Net contributions from reverse recapitalization
|
|
$
|
330,664
|
|
The number of shares of Class 1 and Class 2 common stock of BTRS Holdings Inc. issued immediately following the consummation of the Business Combination, accounted for as a
reverse recapitalization, is summarized as follows:
|
|
Number of
Shares
|
|
Common Stock outstanding prior to Business Combination
|
|
|
25,000,000
|
|
South Mountain founder shares
|
|
|
5,500,000
|
|
Redemption of South Mountain shares
|
|
|
(2,015
|
)
|
Common stock of South Mountain
|
|
|
30,497,985
|
|
Shares issued from PIPE
|
|
|
20,000,000
|
|
Legacy Billtrust shareholders' shares purchased for cash
|
|
|
(9,005,863
|
)
|
Recapitalization shares
|
|
|
41,492,122
|
|
Legacy Billtrust stockholders' shares
|
|
|
103,773,986
|
|
Total Shares
|
|
|
145,266,108
|
|
Earnout Consideration
Following the closing of the Merger, holders of Billtrust common stock (including all redeemable preferred shareholders whose shares were converted into common stock at the
closing of the Merger) and holders of stock options and restricted stock pursuant to the 2003 Plan and the 2014 Plan (as defined in the Business Combination Agreement) had the contingent right to receive, in the aggregate, up to 12,000,000 shares
of Class 1 common stock if, from the closing of the Merger until the fifth anniversary thereof, the average closing price of BTRS Holdings Inc. Common Stock exceeds certain thresholds. The first issuance of 6,000,000 earnout shares is based on the
volume-weighted average price of Common Stock exceeding $12.50 for any 20 trading days within any 30 trading day period (the “First Earnout”). The second issuance of 6,000,000 earnout shares is based on the volume weighted average price of Common
Stock exceeding $15.00 for any 20 trading days within any 30 trading day period (the “Second Earnout” and together with the First Earnout, the "Earnout Shares").
Subsequent to the closing of the Merger and in the first quarter of 2021, 10,917,736 shares of Class 1 and Class 2 common stock were issued associated with attainment of the
First Earnout and the Second Earnout thresholds.
The difference in the Earnout Shares issued and the aggregate amounts defined in the Merger Agreement is primarily attributable to 836,208 unissued shares reserved for future
issuance to holders of unvested options in the form of restricted stock units (the "Earnout RSU's"), which are subject to the same vesting terms and conditions as the underlying unvested stock options, and are not replacement awards. Additionally,
246,056 shares of common stock were withheld from employees to satisfy the mandatory tax withholding requirements, for which the company remitted cash of $4.0 million to the appropriate tax authorities.
As of the Closing date, the prior holders of South Mountain stock agreed that of their existing issued and outstanding shares of Class 1 common stock, 2,375,000 shares would
be subject to vesting conditions based upon the same price milestones in the First Earnout (1,187,500 shares) and Second Earnout (1,187,500 shares) as discussed above ("Sponsor Vesting Shares").
The Company determined that the Earnout Shares issued to non-employee shareholders and to holders of BTRS Holdings Inc. common stock, vested options from the 2003 Plan and
2014 Plan, and the Sponsor Vesting Shares do not meet the criteria for equity classification under Accounting Standards Codification ("ASC") 815-40. Accordingly, these shares are required to be classified as a liability and recorded at their fair
values, with the remeasurement of their fair values at each reporting period recorded in earnings. Upon closing of the Business Combination, the fair value of the shares was determined using a Monte Carlo simulation (using the same assumptions as
Earnout RSUs discussed below), resulting in a fair value of $16.80 per share. The shares were remeasured at their fair values through the dates the First Earnout and Second Earnout were achieved in the first quarter of 2021. The liability
associated with the Earnout Shares delivered to the equity holders and the Vesting Shares that vested upon achievement of the First Earnout and Second Earnout during the first quarter of 2021 were then reclassified to equity as shares issued, with
the appropriate allocation to common stock at par value and additional paid-in capital.
The following table is a reconciliation of the liability balance at the Closing Date and the changes therein for the six months ended June 30, 2021 (in thousands):
|
|
Earnout Shares
|
|
|
Sponsor Vesting
Shares
|
|
|
Total
|
|
Fair value on Closing Date
|
|
$
|
191,095
|
|
|
$
|
39,900
|
|
|
$
|
230,995
|
|
Fair value adjustment (1)
|
|
|
8,246
|
|
|
|
1,780
|
|
|
|
10,026
|
|
Amount paid for tax withholding
|
|
|
(4,013
|
)
|
|
|
—
|
|
|
|
(4,013
|
)
|
Amount reclassified to equity
|
|
|
(195,328
|
)
|
|
|
(41,680
|
)
|
|
|
(237,008
|
)
|
Ending balance, June 30, 2021
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
(1)
|
Included in change in fair value of financial instruments and other income in the Condensed Consolidated Statements of Operations and Comprehensive Loss.
|
Earnout RSU's issued based on the amount of the unvested options are recognized in earnings as stock-based compensation expense under ASC 718. The fair value of the Earnout
RSU's was determined using a Monte Carlo simulation, including the stock price on the Closing Date of $16.80, a risk free rate of 0.5%, and a volatility rate of 42%. Stock-based compensation expense is recorded over the vesting period of the
Earnout RSU's.
For the three and six months ended June 30, 2021, $2.0 million and $4.1 million of expense, respectively, was recognized for the Earnout RSU's and is included in operating
expenses and cost of subscription, transaction and services in the Condensed Consolidated Statements of Operations and Comprehensive Loss.
Offering Costs
In accordance with ASC 340-10-S99-1, offering costs, consisting principally of underwriters fees and professional, printing, filing, regulatory, and other costs, were charged
to additional paid-in capital upon completion of the Business Combination. As of December 31, 2020, of $2.8 million of these costs were accrued and deferred in other assets on the Condensed Consolidated Balance Sheets.
Note 4 - Goodwill and Intangible Assets
Goodwill
Goodwill represents the excess of the purchase price of acquired businesses over the estimated fair values of the tangible and identifiable intangible net assets acquired.
Goodwill is not amortized; however, it is required to be tested for impairment annually, which requires assessment of the potential impairment at the reporting unit level. Testing for impairment is also required on an interim basis if an event or
circumstance indicates it is more likely than not an impairment loss has been incurred.
The Company performed its annual impairment testing as of October 1, 2020 utilizing a qualitative assessment to determine if it was more likely than not that the fair values
of each of its reporting units was less than their respective carrying values and concluded that no impairment existed. Subsequent to completing the annual test and through June 30, 2021, there were no events or circumstances that required an
interim impairment test. Additionally, as of June 30, 2021, the Company had no accumulated goodwill impairment losses.
All of the Company's goodwill is attributable to its Software and Payments segment. There were no changes to the carrying amount of goodwill during the six months ended June
30, 2021.
Finite-Lived Intangible Assets
The gross carrying values, accumulated amortization, and net carrying values of finite-lived intangible assets as of June 30, 2021 and December 31, 2020 are as follows (in
thousands):
|
|
June 30, 2021
|
|
|
|
Gross Carrying
Value
|
|
|
Accumulated Amortization
|
|
|
Net Carrying
Value
|
|
Customer relationships
|
|
$
|
16,350
|
|
|
$
|
(9,524
|
)
|
|
$
|
6,826
|
|
Non-compete agreements
|
|
|
1,430
|
|
|
|
(773
|
)
|
|
|
657
|
|
Trademarks and trade names
|
|
|
160
|
|
|
|
(60
|
)
|
|
|
100
|
|
Technology
|
|
|
1,540
|
|
|
|
(700
|
)
|
|
|
840
|
|
Total
|
|
$
|
19,480
|
|
|
$
|
(11,057
|
)
|
|
$
|
8,423
|
|
|
|
December 31, 2020
|
|
|
|
Gross Carrying
Value
|
|
|
Accumulated Amortization
|
|
|
Net Carrying
Value
|
|
Customer relationships
|
|
$
|
16,350
|
|
|
$
|
(8,698
|
)
|
|
$
|
7,652
|
|
Non-compete agreements
|
|
|
1,460
|
|
|
|
(660
|
)
|
|
|
800
|
|
Trademarks and trade names
|
|
|
160
|
|
|
|
(47
|
)
|
|
|
113
|
|
Technology
|
|
|
1,540
|
|
|
|
(571
|
)
|
|
|
969
|
|
Total
|
|
$
|
19,510
|
|
|
$
|
(9,976
|
)
|
|
$
|
9,534
|
|
Amortization expense for finite-lived intangible assets was $0.6 million for both the three months ended June 30, 2021 and 2020, and $1.1 million for both the six months
ended June 30, 2021 and 2020.
Estimated amortization expense for each of the next five years and thereafter is as follows (in thousands):
2021 (remainder)
|
|
$
|
714
|
|
2022
|
|
|
1,269
|
|
2023
|
|
|
1,174
|
|
2024
|
|
|
930
|
|
2025
|
|
|
737
|
|
Thereafter
|
|
|
3,599
|
|
Total
|
|
$
|
8,423
|
|
Note 5 - Revenue and Related Matters
Disaggregated Revenue
The Company disaggregates revenue as set forth in the following table (in thousands):
Revenue by Type
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
Revenues:
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Subscription and transaction fees
|
|
$
|
29,072
|
|
|
$
|
23,809
|
|
|
$
|
59,255
|
|
|
$
|
46,935
|
|
Services and other
|
|
|
2,517
|
|
|
|
1,837
|
|
|
|
5,453
|
|
|
|
3,235
|
|
Subscription, transaction, and services
|
|
$
|
31,589
|
|
|
$
|
25,646
|
|
|
$
|
64,708
|
|
|
$
|
50,170
|
|
Contract Assets and Liabilities
Accounts Receivable
Accounts receivable includes amounts billed and currently due from customers. The Company’s payment terms and conditions vary by contract type and generally require payment
of 25% to 100% of total contract consideration upon signing. Also included in accounts receivable are unbilled amounts resulting from revenue exceeding the amount billed to the customer, where the right to payment is unconditional. If the right to
payment for services performed was conditional on something other than the passage of time, the unbilled amount would be recorded as a separate contract asset. There were no contract assets as of June 30, 2021 or 2020.
In addition, since payment is generally expected within one year from the transfer of products and services, the Company does not adjust its receivables or transaction prices
for the effects of a significant financing component.
Deferred Revenue
Amounts billed to clients in excess of revenue recognized are contract liabilities (referred to as deferred revenue in the Condensed Consolidated Balance Sheets). Deferred
revenue primarily relates to implementation fees for new customers or for new services. These fees are recognized ratably over the estimated term of the customer relationship, which is five years for the Company's SaaS products, and two to four
years for services sold from acquired companies, billing data storage fees, and annual maintenance services agreements.
During the three months ended June 30, 2021 and 2020, the Company recognized $4.9 million and $4.1 million of revenue, respectively, related to its deferred revenue balance
at the beginning of each such period. During the six months ended June 30, 2021 and 2020, the Company recognized $11.5 million and $5.4 million of revenue, respectively, related to its deferred revenue balance at the beginning of each such period.
To determine revenue recognized in each period, the Company first allocates revenue to the deferred revenue balance outstanding at the beginning of each period, until the revenue equals that balance.
The amount of revenue recognized in the six months ended June 30, 2021 included $2.5 million in the first quarter of 2021 related to the acceleration of previously paid and
deferred revenue from a customer that terminated its contract in the first quarter of 2021.
Remaining Performance Obligations
As of June 30, 2021, the Company had approximately $33.3 million of remaining performance obligations, primarily from multi-year contracts for the Company's services, which
includes both the deferred revenue balance and amounts that will be invoiced and recognized as revenue in future periods. The Company expects to recognize revenue for approximately 95% of this amount during the next 36 months, and the remainder
thereafter.
To determine the amount of remaining performance obligations, the Company applies the practical expedient which allows for the exclusion of (1) amounts from contracts with an
original expected duration of one year or less, and (2) variable consideration allocated to unsatisfied performance obligations for which variable consideration is allocated entirely to a wholly unsatisfied performance obligation, or to a wholly
unsatisfied promise to transfer a distinct good or service, that forms part of a single performance obligation.
Deferred Commissions
The Company capitalizes commissions paid to sales personnel that are incremental and recoverable costs of obtaining customer contracts. These costs are included in deferred
implementation, commissions, and other costs, current in the Condensed Consolidated Balance Sheets. Commission costs are amortized to earnings ratably over four to five years based on the Company's experience with its customers (including initial
contract term and renewal periods), the average customer life of acquired customers, future cash flows expected from customers, industry peers, and other available information.
Commissions are earned by sales personnel upon the execution of a sales contract by the customer. Commissions associated with subscription-based arrangements are typically
earned when a customer order is received and when the customer is billed for the underlying contractual period. Commissions associated with professional services are typically earned in the month that services are rendered. Substantially all sales
commissions are generally paid at one of three points: (1) upon execution of a customer contract, (2) when a customer completes implementation and training processes or commences usage based volume, or (3) after a period of time from three to
twelve months thereafter.
During the six months ended June 30, 2021, the Company capitalized commission costs of $1.7 million and amortized $1.5 million to sales and marketing expense in the Condensed
Consolidated Statements of Operations and Comprehensive Loss, in addition to commissions which were expensed as incurred related to the achievement of quotas or other sales performance targets. As of June 30, 2021 and December 31, 2020 the Company
had approximately $2.6 million and $2.4 million, respectively, of current deferred commissions for amounts expected to be recognized in the next 12 months, and $5.3 million and $5.2 million, respectively, of non-current deferred commissions for
amounts expected to be recognized thereafter.
The Company evaluates the recoverability of deferred commissions at each balance sheet date and there were no impairments recorded during the six months ended June 30, 2021
or 2020.
Note 6 - Loss Per Share
The Company's basic and diluted earnings per share are computed using the two-class method in accordance with ASC 260. The two-class method is an earnings allocation that
determines net income (loss) per share for each class of common stock. Per share amounts are calculated by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the
period, without consideration for potentially dilutive securities as they do not share in losses. During periods when the Company is in a net loss position, basic net loss per share attributable to common stockholders is the same as diluted net
loss per share attributable to common stockholders as the effects of potentially dilutive securities are antidilutive given the net loss of the Company.
The following table sets forth the computation of the basic and diluted net loss per share attributable to the Class 1 and Class 2 common stockholders, which have the same
rights and privileges, except for voting rights, for the periods presented (in thousands, except per share and share amounts):
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(10,736
|
)
|
|
$
|
(2,902
|
)
|
|
$
|
(33,530
|
)
|
|
$
|
(9,999
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding
|
|
|
157,196,511
|
|
|
|
99,853,968
|
|
|
|
151,289,243
|
|
|
|
99,828,779
|
|
Net loss per share attributable to common stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.07
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.22
|
)
|
|
$
|
(0.10
|
)
|
Since the Company was in a loss position for all periods presented, basic net loss per share is the same as diluted net loss per share as the inclusion of all potential
common shares outstanding would have been anti-dilutive. Potentially dilutive securities that were not included in the diluted per share calculations because they would be antidilutive, were as follows as of the dates presented, based on the
underlying shares and not considering all factors that would be involved in determining the common stock equivalents:
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Stock options
|
|
|
21,082,614
|
|
|
|
16,913,426
|
|
|
|
21,082,614
|
|
|
|
16,913,426
|
|
Restricted stock units
|
|
|
706,471
|
|
|
|
—
|
|
|
|
706,471
|
|
|
|
—
|
|
Warrants
|
|
|
12,497,700
|
|
|
|
12,500,000
|
|
|
|
12,497,700
|
|
|
|
12,500,000
|
|
|
|
|
34,286,785
|
|
|
|
29,413,426
|
|
|
|
34,286,785
|
|
|
|
29,413,426
|
|
Note 7 - Stockholders' Equity and Stock-Based Compensation
Public Warrants
In connection with the Business Combination (refer to Note 3 - Business Combination), Billtrust assumed the Public Warrants that had
previously been issued by South Mountain. The Public Warrants may only be exercised for a whole number of shares of Class 1 common stock at a price of $11.50 per share. No fractional warrants will be issued upon separation of the units and only
whole warrants will trade. Following the closing of the Business Combination, the Company filed a registration statement with the SEC that was declared effective in February 2021 covering the issuance of the shares of Class 1 common stock issuable
upon exercise of the Public Warrants and to maintain a current prospectus until the Public Warrants expire or are redeemed. Notwithstanding the above, if the Company's Class 1 common stock is not listed on a national securities exchange such that
it satisfies the definition of a “covered security” under Section 18(b)(1) of the Securities Act at the time of any exercise of a Public Warrant, the Company may, at its option, require holders of Public Warrants who exercise their warrants to do
so on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act. In the event the Company so elects, it will not be required to file or maintain in effect a registration statement, but will use its reasonable best efforts to
qualify the shares under applicable blue sky laws to the extent an exemption is not available. The Public Warrants expire five years after the completion of a business combination or earlier upon redemption or liquidation.
Once the Public Warrants become exercisable, the Company may redeem them as follows:
|
i.
|
In whole and not in part;
|
|
ii.
|
At a price of $0.01 per warrant;
|
|
iii.
|
Upon a minimum of 30 days’ prior written notice of redemption; and
|
|
iv.
|
If, and only if, the reported last sale price of the Company’s Class 1 common stock equals or exceeds $18.00 per share for any 20 trading days within a 30-trading day period ending on
the third trading day prior to the date on which the Company sends the notice of redemption to the warrant holders.
|
The Company determined (1) the Public Warrants meet the definition of a derivative pursuant to ASC 815, (2) the Public Warrants are indexed to the Company’s common stock
pursuant to ASC 815-40-15-7, and (3) the Public Warrants meet all other criteria for equity classification pursuant to ASC 815-40. Therefore as of the Closing Date, the Public Warrants were accounted for within stockholders' equity as a component
of additional paid-in capital in the Condensed Consolidated Balance Sheets. As part of this assessment, it was concluded only events that would constitute a fundamental change of ownership could require the Company to settle the warrants for cash.
Common Stock
Each share of Class 1 common stock has the right to one vote. The holders of the common stock are also entitled to receive dividends whenever funds are legally available and
if/when declared by the Board of Directors. No dividends have been declared or paid since inception. Each share of Class 2 common stock is the same in all respects as Class 1 common stock, except it does not have voting rights.
Preferred Stock
As of June 30, 2021, the Board of Directors had authorized 10,000,000 shares of preferred stock, par value $0.0001, of which no shares were issued and outstanding.
Equity Incentive Plans
As part of the Business Combination (refer to Note 3 - Business Combination), the Company adopted the 2020 Equity Incentive Plan
(the "2020 Plan") and 2020 Employee Stock Purchase Plan (the "2020 ESPP"). These plans are administered by the Board of Directors, which has the authority to designate participants and determine the number and type of awards to be granted and any
other terms or conditions of the awards. Awards eligible to be granted include incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance awards, and other
awards. The Board of Directors authorized up to 14,526,237 shares of common stock to be granted pursuant to the 2020 Plan and 1,452,623 shares of common stock to be issued pursuant to the 2020 ESPP. Such aggregate number of shares automatically
increase on January 1 of each year, for a period of ten years commencing on January 1, 2022 and ending on (and including) January 1, 2031, in an amount equal to four percent (for the 2020 Plan) and one percent (for the 2020 ESPP) of the total
number of shares of the Company’s Class 1 and Class 2 common stock outstanding on December 31 of the preceding year. The Board of Directors may act prior to January 1st of a given year to restrict the increase for such year to a lesser number of
shares.
In connection with adopting the 2020 Plan and 2020 ESPP, the 2003 Stock Incentive Plan and the 2014 Incentive Compensation Plan (together, the "Prior Plans") were frozen and
no further grants can be made pursuant to the Prior Plans. All outstanding options under the Prior Plans were converted to options of the Company using the Conversion Rate applied to the number of options and original exercise price. The converted
options continue to vest based upon their original terms.
Stock Options
Stock option activity for the six months ended June 30, 2021 is presented below (in thousands, except share, per share, and contractual life amounts):
|
|
Number of
Shares
|
|
|
Weighted-
Average
Exercise Price
|
|
|
Weighted-
Average
Remaining
Contractual
Life (in Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at December 31, 2020
|
|
|
16,170,738
|
|
|
$
|
2.69
|
|
|
|
|
|
|
|
Granted
|
|
|
8,251,638
|
|
|
|
16.70
|
|
|
|
|
|
|
|
Exercised
|
|
|
(3,046,982
|
)
|
|
|
1.39
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(292,780
|
)
|
|
|
10.24
|
|
|
|
|
|
|
|
Outstanding at June 30, 2021
|
|
|
21,082,614
|
|
|
$
|
8.26
|
|
|
|
8.2
|
|
|
$
|
125,232
|
|
Vested and expected to vest at June 30, 2021
|
|
|
18,285,991
|
|
|
$
|
7.36
|
|
|
|
8.0
|
|
|
$
|
120,570
|
|
Exercisable at June 30, 2021
|
|
|
7,122,553
|
|
|
$
|
2.97
|
|
|
|
6.4
|
|
|
$
|
70,029
|
|
Restricted Stock Units
Restricted stock units ("RSU's") represent the right to receive one share of Billtrust common stock upon meeting the vesting conditions. Shares are delivered to the grantee
upon vesting, less shares for the payment of withholding taxes. The fair value of RSU's is determined based on the closing price of the common stock on the grant date.
Restricted stock unit activity for the six months ended June 30, 2021 is presented below:
|
|
Number of
Shares
|
|
|
Weighted-
Average
Grant Date
Fair Value
|
|
Unvested at December 31, 2020
|
|
|
—
|
|
|
$
|
—
|
|
Granted (1)
|
|
|
847,888
|
|
|
|
16.77
|
|
Vested
|
|
|
(134,823
|
)
|
|
|
16.58
|
|
Forfeited
|
|
|
(27,492
|
)
|
|
|
16.80
|
|
Unvested at June 30, 2021
|
|
|
685,573
|
|
|
$
|
16.80
|
|
(1)
|
No RSU's were granted prior to the Business Combination. 836,208 of the granted shares represent the Earnout RSU's issued as part of the Business Combination (refer to Note 3 - Business Combination for further discussion).
|
Additionally, 21,898 shares of common stock were withheld from employees to satisfy the mandatory tax withholding requirements, for which the Company remitted cash of $0.3
million to the appropriate tax authorities.
Employee Stock Purchase Plan ("ESPP")
Under the terms of the 2020 ESPP, on May 26, 2021, the Board of Directors approved the Company's ESPP offering program. With certain limitations, all Billtrust employees
whose customary employment is more than 20 hours per week are eligible to participate in the ESPP.
The initial offering period, which consists of one purchase period, will commence on July 1, 2021 and run through November 30, 2021. Thereafter, each offering period will run
for approximately six months, consisting of a single six month purchase period commencing on each successive June 1 and December 1. At the end of each purchase period, employee payroll contributions are used to purchase shares of the Company's
common stock. Employees can elect to have up to 15% of their eligible compensation withheld for the purpose of purchasing shares under the ESPP. During an offering period, employees may decrease their contributions to, or withdraw from, the ESPP by
the 20th day of the month in which the purchase period ends, and receive a refund of their accumulated payroll contributions.
During each purchase period, the maximum number of shares of common stock that may be purchased by an employee is limited to the number of shares equal to $12,500 divided by
the common stock closing price on the first day of a purchase period. The number of shares purchased on any single date, by any one employee, cannot exceed 5,000 shares. The purchase price for each share of common stock purchased is the lower of:
(1) 85% of the closing price of the common stock on the first day of the purchase period, or (2) 85% of the closing price of the common stock on the last day of the purchase period.
During the six months ended June 30, 2021, no shares were purchased or issued pursuant to the 2020 ESPP.
Stock-Based Compensation Expense
The Company records stock-based compensation expense related to all of the Company’s stock-based awards over the requisite service period of the individual grantee, which is
generally equal to the vesting period. Stock-based compensation expense was recorded in the following categories in the Condensed Consolidated Statements of Operations and Comprehensive Loss (in thousands):
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Cost of subscription, transaction, and services
|
|
$
|
405
|
|
|
$
|
57
|
|
|
$
|
848
|
|
|
$
|
88
|
|
Research and development
|
|
|
1,091
|
|
|
|
139
|
|
|
|
2,314
|
|
|
|
237
|
|
Sales and marketing
|
|
|
961
|
|
|
|
117
|
|
|
|
2,292
|
|
|
|
193
|
|
General and administrative
|
|
|
3,249
|
|
|
|
367
|
|
|
|
9,078
|
|
|
|
643
|
|
Total
|
|
$
|
5,706
|
|
|
$
|
680
|
|
|
$
|
14,532
|
|
|
$
|
1,161
|
|
The fair value of RSU's was estimated based on the closing market price of the Company's common stock on the date of grant. As of June 30, 2021, the total unrecognized
stock-based compensation expense related to RSUs was $10.6 million. These costs are expected to be recognized over a weighted-average period of 2.5 years.
The fair value of stock options granted was estimated at the date of grant using the Black-Scholes valuation model with the following assumptions:
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Risk-free interest rate
|
|
|
1.3% - 1.4
|
%
|
|
|
0.5% - 0.7
|
%
|
|
|
0.6% - 1.4
|
%
|
|
|
0.5% - 1.6
|
%
|
Expected dividend yield
|
|
|
—
|
%
|
|
|
—
|
%
|
|
|
—
|
%
|
|
|
—
|
%
|
Expected volatility
|
|
|
41
|
%
|
|
|
39% -44
|
%
|
|
|
41% - 42
|
%
|
|
|
39% - 44
|
%
|
Expected life (in years)
|
|
|
5.5
|
|
|
|
6.9
|
|
|
|
5.5
|
|
|
|
6.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average grant date fair value
|
|
$
|
6.61
|
|
|
$
|
0.97
|
|
|
$
|
7.47
|
|
|
$
|
1.14
|
|
As of June 30, 2021, the total unrecognized stock-based compensation expense related to stock options was $39.2 million. These costs are expected to be recognized over a
weighted average period of 3.1 years.
Note 8 - Defined Contribution Plan
The Company sponsors a 401(k) defined contribution benefit plan. Participation in the plan is available to substantially all employees. Company contributions to the plan are
discretionary and are subject to vesting requirements based on four years of continuing employment. The Company generally makes matching contributions of one-half of the first 6% of employee contributions. During the three months ended June 30,
2021 and 2020 the Company contributed $0.4 million and $0.1 million, respectively. During the six months ended June 30, 2021 and 2020 the Company contributed $0.9 million and $0.4 million, respectively.
Note 9 - Debt and Capital Lease Obligations
The following table summarizes the Company's total debt and capital lease obligations as of the dates indicated (in thousands):
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
Term Loan
|
|
$
|
—
|
|
|
$
|
44,663
|
|
Unamortized debt issuance costs
|
|
|
—
|
|
|
|
(1,234
|
)
|
Capital lease obligations (Note 10)
|
|
|
152
|
|
|
|
246
|
|
Net carrying amounts
|
|
|
152
|
|
|
|
43,675
|
|
2020 Financing Agreement
On January 17, 2020, the Company entered into a Financing Agreement (the "2020 Financing Agreement") for a $72.5 million credit facility, secured by substantially all the
assets of the Company. In connection therewith, the previously outstanding Term Loan and Revolver of $28.3 million was paid in full and the related liens were released.
The 2020 Financing Agreement consisted of the following facilities:
|
i.
|
An Initial Term Loan of $45.0 million, which was drawn at closing and used to pay off previously outstanding borrowings;
|
|
ii.
|
A Delayed Draw Term Loan of up to $20.0 million, which was available to draw in minimum increments through July 17, 2021; and
|
|
iii.
|
A Revolving Commitment facility of $7.5 million, including a sub-limit of up to $4.0 million for issuing additional letters of credit.
|
In connection with the Business Combination on January 12, 2021 (refer to Note 3 - Business Combination), the Company paid the
outstanding facilities in full, along with a prepayment penalty, and extinguished the 2020 Financing Agreement. In connection therewith, the unamortized debt discount of $1.2 million and a prepayment penalty and associated costs of $1.6 million
were recorded in interest expense and loss on extinguishment of debt in the Condensed Consolidated Statements of Operations and Comprehensive Loss.
Note 10 - Commitments and Contingencies
Lease Commitments
The majority of the Company's leases are operating leases for its office space and print facilities.
In August 2017, the Company entered into a lease agreement for its Company headquarters consisting of 88,759 square feet of office space in Lawrenceville, New Jersey. The
term of this lease is 15 years, 6 months subject to early termination if (1) there is not sufficient space for expansion beyond the initial space, starting 6 years, 6 months after lease commencement, which will require an early termination payment
that declines from $7.5 million at such date by $0.7 million per year after such date, or (2) upon advance notice by the Company, at 12 years, 6 months after lease commencement, which will require an early termination payment of $3.6 million. The
lease contains an option to lease up to 61,000 additional square feet, starting 6 years, 6 months after lease commencement, and also contains two extension periods of 5 years each. The lease commenced in June 2018 and the Company recognizes rent
expense on a straight-line basis over the initial term of the lease, including the free rent period.
The Company has capitalized approximately $5.7 million of costs related to leasehold improvements, furniture and fixtures, and computer equipment associated with this office
space. Additionally, in 2018 the landlord paid for approximately $5.8 million of costs and related improvements to modify the existing space to meet the Company's requirements. This lease incentive was recorded as an asset and other long term
liability as of the date the lease commenced. The asset is being amortized over term of the lease, and the long term liability is being recorded as a reduction to rent expense over the same period of time.
The Company also leases equipment under capital lease agreements. The capital leases have stated or implied interest rates between 5% and 11% and maturity dates into 2024.
The equipment financed under the capital leases serves as collateral, and certain leases contain casualty loss values if the equipment is not returned in working order at the end of the lease term.
Future minimum lease payments under non-cancelable operating and capital leases as of June 30, 2021 are as follows (in thousands):
|
|
Operating
Leases
|
|
|
Capital
Leases
|
|
2021 (remainder)
|
|
$
|
2,333
|
|
|
$
|
91
|
|
2022
|
|
|
4,563
|
|
|
|
52
|
|
2023
|
|
|
4,284
|
|
|
|
13
|
|
2024
|
|
|
4,138
|
|
|
|
1
|
|
2025
|
|
|
4,115
|
|
|
|
—
|
|
Thereafter
|
|
|
28,136
|
|
|
|
—
|
|
Total minimum lease payments
|
|
$
|
47,569
|
|
|
$
|
157
|
|
Less: Amounts representing interest
|
|
|
|
|
|
|
(5
|
)
|
Present value of lease payments
|
|
|
|
|
|
|
152
|
|
Less: Current portion
|
|
|
|
|
|
|
(124
|
)
|
Long-term portion of minimum lease payments
|
|
|
|
|
|
$
|
28
|
|
Total rent expense for both the six months ended June 30, 2021 and 2020 amounted to $2.6 million.
Purchase Commitments
The Company enters into purchase commitments with certain vendors to secure pricing for paper, envelopes, and similar products necessary for its print operations. As of June
30, 2021, the Company did not have a material balance remaining under such purchase orders.
Legal Contingencies, Claims, and Assessments
During the normal course of business, the Company is occasionally involved with various claims and litigation. Reserves are established for such matters when a loss is
probable and the amount of such loss can be reasonably estimated, including for indemnifications with customers or other parties as a result of contractual agreements. Currently, the Company is not party to any such matters that, in the opinion of
management, would individually or taken together have a material adverse effect on its business, operating results, financial condition, or cash flows. Accordingly, no material reserves have been recorded.
Note 11 - Income Taxes
The Company is subject to federal and various state income taxes in the United States. The Company’s provision for income taxes during interim periods is determined using an
estimate of the Company’s annual effective tax rate, which is adjusted for certain discrete tax items during interim periods.
Income taxes for the six months ended June 30, 2021 and 2020 are primarily due to tax amortization of indefinite-lived assets and state income taxes.
Section 382 of the Internal Revenue Code of 1986, as amended, imposes an annual limitation on the amount of net operating loss carryforwards that may be
used to offset federal taxable income and federal tax liabilities when a corporation has undergone significant changes in its ownership. The Company is evaluating the ownership change as a result of the Business Combination (refer to Note 3 - Business Combination) to determine any impact on utilization of net operating loss carryforwards.
Note 12 - Short Term Investments
The Company’s investments at June 30, 2021 consist entirely of certificates of deposit with a financial institution, and have maturity dates of twelve months or less.
Management determines the appropriate classification of investments at the time of purchase and re-evaluates such designation as of each balance sheet date. Investments are
classified as held-to-maturity when the Company has the positive intent and ability to hold the securities to maturity. Held-to-maturity securities are stated at amortized cost, adjusted for amortization of premiums and accretion of discounts to
maturity, with related amortization included in interest income (expense) in the Condensed Consolidated Statements of Operations and Comprehensive Loss. The Company uses the specific identification method to determine the cost basis of securities
sold and realized gains or losses are included in earnings.
The Company did not have any investments classified as held-to-maturity as of June 30, 2021 or December 31, 2020.
Investments are impaired when a decline in fair value is judged to be other-than-temporary. The Company evaluates an investment for impairment by considering the length of
time and extent to which market value has been less than cost or amortized cost, the financial condition and near-term prospects of the issuer, specific events or circumstances that may influence the operations of the issuer, and the Company’s
intent to sell the security, or the likelihood that it will be required to sell the security, before recovery of the entire amortized cost. Once a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded and
a new costs basis in the investment is established.
Note 13 - Fair Value Measurements
The carrying amounts reflected in the Condensed Consolidated Balance Sheets for cash, cash equivalents, restricted cash, accounts receivable, funds held for customers, other
current assets, other assets, accounts payable, accrued expenses (excluding the contingent consideration and warrants discussed below), other current liabilities, and other liabilities approximate fair value due to their short-term maturities.
Additionally, the Company measures certain financial assets and liabilities at fair value on a recurring basis including short term investments, contingent consideration, and
warrants to purchase Series C preferred stock (refer to Note 3 - Business Combination). The fair values of these financial assets and liabilities have been classified as Level 1, 2, or 3 within the fair
value hierarchy as described in the accounting standards for fair value measurements:
|
•
|
Level 1: Observable inputs based on unadjusted quoted prices in active markets for identical assets or liabilities.
|
|
•
|
Level 2: Inputs, other than Level 1 inputs, that are observable either directly or indirectly, such as quoted prices for similar assets or liabilities, quotes prices in markets that
are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
|
|
•
|
Level 3: Unobservable inputs for which there is little or no market data, requiring the Company to develop its own estimates and assumptions
|
The following tables present the Company's fair value hierarchy for its financials assets and liabilities that are measured at fair value on a recurring basis (in thousands):
|
|
June 30, 2021
|
|
|
|
Balance
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments
|
|
|
45,037
|
|
|
|
45,037
|
|
|
|
—
|
|
|
|
—
|
|
Total Assets
|
|
$
|
45,037
|
|
|
$
|
45,037
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration (1)
|
|
$
|
370
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
370
|
|
Total Liabilities
|
|
$
|
370
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
370
|
|
|
|
December 31, 2020
|
|
|
|
Balance
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration (1)
|
|
$
|
660
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
660
|
|
Warrants to purchase Series C Preferred Stock (2)
|
|
|
1,172
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,172
|
|
Total Liabilities
|
|
$
|
1,832
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,832
|
|
(1)
|
The acquisition of Second Phase, LLC in April 2019 included a contingent consideration arrangement that required additional consideration to be paid to the sellers annually based
meeting certain recurring revenue growth and profitability targets (together, "the Financial Targets") during the three-year period beginning May 1, 2019. No amounts were paid during 2020 or 2021 for the first or second year as the
Financial Targets were not met. The year three amount, if any, is expected to be finalized and paid to the sellers by the end of 2022. The range of outcomes for the year three amount cannot be estimated as the amount payable is a percentage
of the growth in the Financial Targets. The fair value of the remaining contingent consideration is included in other current liabilities in the Condensed Consolidated Balance Sheets.
|
(2)
|
The Company had outstanding warrants to purchase Series C stock, as described in Note 3 - Business Combination. The amount was included in
other long term liabilities in the Condensed Consolidated Balance Sheets.
|
During the six months ended June 30, 2021 and 2020, the Company did not transfer assets or liabilities between levels of the fair value hierarchy. Additionally, there have
been no changes to the valuation techniques for Level 2 or Level 3 liabilities.
The following tables present the changes in the Company’s Level 3 financial instruments measured at fair value on a recurring basis (in thousands):
|
|
Contingent
Consideration
|
|
Ending balance, December 31, 2020
|
|
$
|
660
|
|
Fair value adjustment to contingent consideration (1)
|
|
|
(290
|
)
|
Ending balance, June 30, 2021
|
|
$
|
370
|
|
|
|
Warrants
|
|
Ending balance, December 31, 2020
|
|
$
|
1,172
|
|
Change in fair value (2)
|
|
|
256
|
|
Exercise of Series C warrants (3)
|
|
|
(1,428
|
)
|
Ending balance, June 30, 2021
|
|
$
|
—
|
|
(1)
|
Subsequent to the acquisition of Second Phase, LLC, the changes in the fair value of the contingent consideration were primarily due to management's estimates and the achievements of
the Financial Targets during each period. Increases or decreases in the inputs would have resulted in higher or lower fair value adjustments. This amount was recognized in change in fair value of financial instruments and other income in
the Condensed Consolidated Statements of Operations and Comprehensive Loss.
|
(2)
|
Included in change in fair value of financial instruments and other expenses in the Condensed Consolidated Statements of Operations and Comprehensive Loss.
|
(3)
|
As part of the Business Combination on January 12, 2021 (refer to Note 3 - Business Combination), the warrants were exercised and
subsequently converted to common stock.
|
Note 14 - Property and Equipment
Property and equipment, net consists of the following (in thousands):
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
Assets held under capital leases
|
|
$
|
3,784
|
|
|
$
|
3,752
|
|
Computer, print and mail equipment
|
|
|
8,777
|
|
|
|
7,998
|
|
Furniture and fixtures
|
|
|
4,073
|
|
|
|
4,073
|
|
Leasehold improvements
|
|
|
12,133
|
|
|
|
12,120
|
|
Software
|
|
|
1,437
|
|
|
|
1,437
|
|
Vehicles
|
|
|
115
|
|
|
|
115
|
|
Internal software development
|
|
|
2,959
|
|
|
|
2,644
|
|
Construction in progress
|
|
|
90
|
|
|
|
79
|
|
Total property and equipment
|
|
|
33,368
|
|
|
|
32,218
|
|
Less: accumulated depreciation and amortization
|
|
|
(17,174
|
)
|
|
|
(15,568
|
)
|
Total property and equipment, net
|
|
$
|
16,194
|
|
|
$
|
16,650
|
|
Depreciation and amortization expense of property and equipment, including amortization of software development costs and depreciation of capital leases, was $0.8 million and
$0.9 million for the three months ended June 30, 2021 and 2020, respectively and $1.6 million and $1.7 million for the six months ended June 30, 2021 and 2020, respectively.
The Company had no material write-offs or disposals of fixed assets during the six months ended June 30, 2021 and 2020.
Note 15 - Accrued Expenses and Other
Accrued expenses and other consist of the following (in thousands):
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
Accrued expenses
|
|
$
|
14,152
|
|
|
$
|
11,749
|
|
Accrued compensation
|
|
|
10,059
|
|
|
|
9,513
|
|
Accrued professional services and other
|
|
|
5,707
|
|
|
|
3,569
|
|
Accrued business combination expense
|
|
|
1,137
|
|
|
|
1,510
|
|
Total accrued expenses and other
|
|
$
|
31,055
|
|
|
$
|
26,341
|
|
Note 16 - Segment Information
The Company's operations are grouped into two reportable segments: (1) Print, and (2) Software and Payments. The Company's Chief Operating Decision Maker (“CODM”) is the
Chief Executive Officer ("CEO"), who reviews discrete financial and other information presented for print services and software and payment services for purposes of allocating resources and evaluating the Company's financial performance.
|
•
|
Print – The Print segment is primarily responsible for printing customer invoices and optimizing the amount of time and costs associated with
billing customers via mail.
|
|
•
|
Software and Payments – The Software and Payments segment primarily operates using software and cloud based services, optimizes electronic
invoice presentment, electronic payments, credit decisioning, collections automation, cash application and deduction management, and e-commerce of B2B customers.
|
“All other” represents implementation, services, and other business activities which are not reviewed by CODM on regular basis.
The Company evaluates segment performance and allocates resources based on revenues, cost of revenues, and gross profit. The accounting policies used by the reportable
segments are the same as those used by the Company. All of the revenues shown in the reportable segments is revenue from external customers; there is no revenue from transactions with other operating segments. Segment expenses include the direct
expenses of each segment's operations and exclude sales and marketing expenses, research and development expenses, general and administrative expenses, depreciation and amortization expense, stock-based compensation expense, interest income
(expense), and certain other identified costs that the Company does not allocate to its segments for purposes of evaluating operational performance.
Given the nature of the Company’s business, the amount of assets does not provide meaningful insight into the operating performance of the Company. As a result, the Company
does not identify or allocate assets by reportable segment and total assets are not included in the Company’s segment financial information.
The following tables include a reconciliation of segment revenues, cost of revenues, and gross profits to loss before income taxes (in thousands):
|
|
Three Months Ended June 30, 2021
|
|
|
|
Print
|
|
|
Software and
Payments
|
|
|
All other
|
|
|
Consolidated
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription and transaction
|
|
$
|
4,490
|
|
|
$
|
24,582
|
|
|
$
|
—
|
|
|
$
|
29,072
|
|
Services and other
|
|
|
—
|
|
|
|
—
|
|
|
|
2,517
|
|
|
|
2,517
|
|
Subscription, transaction, and services
|
|
|
4,490
|
|
|
|
24,582
|
|
|
|
2,517
|
|
|
|
31,589
|
|
Reimbursable costs
|
|
|
8,643
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,643
|
|
Total revenues
|
|
|
13,133
|
|
|
|
24,582
|
|
|
|
2,517
|
|
|
|
40,232
|
|
Cost of Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of subscription, transaction, and services revenue
|
|
|
1,900
|
|
|
|
3,679
|
|
|
|
3,781
|
|
|
|
9,360
|
|
Cost of reimbursable costs
|
|
|
8,643
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,643
|
|
Total cost of revenues
|
|
|
10,543
|
|
|
|
3,679
|
|
|
|
3,781
|
|
|
|
18,003
|
|
Gross profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment gross profit (loss)
|
|
$
|
2,590
|
|
|
$
|
20,903
|
|
|
$
|
(1,264
|
)
|
|
$
|
22,229
|
|
Total segment gross margin
|
|
|
20
|
%
|
|
|
85
|
%
|
|
|
(50
|
)%
|
|
|
55
|
%
|
Subscription, transaction, and services gross margin
|
|
|
58
|
%
|
|
|
85
|
%
|
|
|
(50
|
)%
|
|
|
70
|
%
|
Unallocated amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales, marketing, research, development, and administrative expenses
|
|
|
|
|
|
|
|
(31,728
|
)
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,359
|
)
|
Interest, loss on extinguishment of debt, changes in fair value of financial instruments, and other income (expenses)
|
|
|
|
|
|
|
|
133
|
|
Loss before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(10,725
|
)
|
|
|
Three Months Ended June 30, 2020
|
|
|
|
Print
|
|
|
Software and
Payments
|
|
|
All other
|
|
|
Consolidated
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription and transaction
|
|
$
|
4,448
|
|
|
$
|
19,361
|
|
|
$
|
—
|
|
|
$
|
23,809
|
|
Services and other
|
|
|
—
|
|
|
|
—
|
|
|
|
1,837
|
|
|
|
1,837
|
|
Subscription, transaction, and services
|
|
|
4,448
|
|
|
|
19,361
|
|
|
|
1,837
|
|
|
|
25,646
|
|
Reimbursable costs
|
|
|
8,945
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,945
|
|
Total revenues
|
|
|
13,393
|
|
|
|
19,361
|
|
|
|
1,837
|
|
|
|
34,591
|
|
Cost of Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of subscription, transaction, and services revenue
|
|
|
2,297
|
|
|
|
2,880
|
|
|
|
2,456
|
|
|
|
7,633
|
|
Cost of reimbursable costs
|
|
|
8,945
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,945
|
|
Total cost of revenues
|
|
|
11,242
|
|
|
|
2,880
|
|
|
|
2,456
|
|
|
|
16,578
|
|
Gross profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment gross profit (loss)
|
|
$
|
2,151
|
|
|
$
|
16,481
|
|
|
$
|
(619
|
)
|
|
$
|
18,013
|
|
Total segment gross margin
|
|
|
16
|
%
|
|
|
85
|
%
|
|
|
(34
|
)%
|
|
|
52
|
%
|
Subscription, transaction, and services gross margin
|
|
|
48
|
%
|
|
|
85
|
%
|
|
|
(34
|
)%
|
|
|
70
|
%
|
Unallocated amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales, marketing, research, development, and administrative expenses
|
|
|
|
|
|
|
|
(18,778
|
)
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,410
|
)
|
Interest, loss on extinguishment of debt, changes in fair value of financial instruments, and other expenses
|
|
|
|
|
|
|
|
(690
|
)
|
Loss before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(2,865
|
)
|
|
|
Six Months Ended June 30, 2021
|
|
|
|
Print
|
|
|
Software and
Payments
|
|
|
All other
|
|
|
Consolidated
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription and transaction
|
|
$
|
8,988
|
|
|
$
|
50,267
|
|
|
$
|
—
|
|
|
$
|
59,255
|
|
Services and other
|
|
|
—
|
|
|
|
—
|
|
|
|
5,453
|
|
|
|
5,453
|
|
Subscription, transaction, and services
|
|
|
8,988
|
|
|
|
50,267
|
|
|
|
5,453
|
|
|
|
64,708
|
|
Reimbursable costs
|
|
|
17,460
|
|
|
|
—
|
|
|
|
—
|
|
|
|
17,460
|
|
Total revenues
|
|
|
26,448
|
|
|
|
50,267
|
|
|
|
5,453
|
|
|
|
82,168
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of subscription, transaction, and services revenue
|
|
|
3,826
|
|
|
|
7,391
|
|
|
|
7,396
|
|
|
|
18,613
|
|
Cost of reimbursable costs
|
|
|
17,460
|
|
|
|
—
|
|
|
|
—
|
|
|
|
17,460
|
|
Total cost of revenues
|
|
|
21,286
|
|
|
|
7,391
|
|
|
|
7,396
|
|
|
|
36,073
|
|
Gross profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment gross profit (loss)
|
|
$
|
5,162
|
|
|
$
|
42,876
|
|
|
$
|
(1,943
|
)
|
|
$
|
46,095
|
|
Total segment gross margin
|
|
|
20
|
%
|
|
|
85
|
%
|
|
|
(36
|
)%
|
|
|
56
|
%
|
Subscription, transaction, and services gross margin
|
|
|
57
|
%
|
|
|
85
|
%
|
|
|
(36
|
)%
|
|
|
71
|
%
|
Unallocated amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales, marketing, research, development, and administrative expenses
|
|
|
|
|
|
|
|
(64,107
|
)
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,719
|
)
|
Interest, loss on extinguishment of debt, changes in fair value of financial instruments, and other expenses
|
|
|
|
|
|
|
|
(12,696
|
)
|
Loss before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(33,427
|
)
|
|
|
Six Months Ended June 30, 2020
|
|
|
|
Print
|
|
|
Software and
Payments
|
|
|
All other
|
|
|
Consolidated
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription and transaction
|
|
$
|
9,234
|
|
|
$
|
37,701
|
|
|
$
|
—
|
|
|
$
|
46,935
|
|
Services and other
|
|
|
—
|
|
|
|
—
|
|
|
|
3,235
|
|
|
|
3,235
|
|
Subscription, transaction, and services
|
|
|
9,234
|
|
|
|
37,701
|
|
|
|
3,235
|
|
|
|
50,170
|
|
Reimbursable costs
|
|
|
18,566
|
|
|
|
—
|
|
|
|
—
|
|
|
|
18,566
|
|
Total revenues
|
|
|
27,800
|
|
|
|
37,701
|
|
|
|
3,235
|
|
|
|
68,736
|
|
Cost of Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of subscription, transaction, and services revenue
|
|
|
4,508
|
|
|
|
5,994
|
|
|
|
5,021
|
|
|
|
15,523
|
|
Cost of reimbursable costs
|
|
|
18,566
|
|
|
|
—
|
|
|
|
—
|
|
|
|
18,566
|
|
Total cost of revenues
|
|
|
23,074
|
|
|
|
5,994
|
|
|
|
5,021
|
|
|
|
34,089
|
|
Gross profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment gross profit (loss)
|
|
$
|
4,726
|
|
|
$
|
31,707
|
|
|
$
|
(1,786
|
)
|
|
$
|
34,647
|
|
Total segment gross margin
|
|
|
17
|
%
|
|
|
84
|
%
|
|
|
(55
|
)%
|
|
|
50
|
%
|
Subscription, transaction, and services gross margin
|
|
|
51
|
%
|
|
|
84
|
%
|
|
|
(55
|
)%
|
|
|
69
|
%
|
Unallocated amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales, marketing, research, development, and administrative expenses
|
|
|
|
|
|
|
|
(39,832
|
)
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,821
|
)
|
Interest, loss on extinguishment of debt, changes in fair value of financial instruments, and other expenses
|
|
|
|
|
|
|
|
(1,876
|
)
|
Loss before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(9,882
|
)
|
Note 17 - Related Party Transactions
A member of the Company's Board of Directors is also an executive at a company (the "Related Party Customer") that purchases certain of Billtrust's services under an ongoing
commercial relationship. During the three months ended June 30, 2021 and 2020, the Related Party Customer generated total revenues of approximately $78 thousand and $64 thousand, respectively. During the six months ended June 30, 2021 and 2020, the
Related Party Customer generated total revenues of approximately $150 thousand and $147 thousand, respectively. At June 30, 2021 and December 31, 2020, Billtrust had open receivable balances from the Related Party Customer of $64 thousand and $46
thousand, respectively.
The Company also has ongoing commercial agreements with several of Bain Capital Ventures, LLC's ("Bain") portfolio companies ("Portfolio Companies"). Bain is a greater than
5% shareholder of the Company's outstanding common stock at June 30, 2021, and one of the members of the Company's Board of Directors is also an executive at Bain. During the three months ended June 30, 2021 and 2020, the Company incurred expenses
to the Portfolio Companies of approximately $122 thousand and $85 thousand, respectively. During the six months ended June 30, 2021 and 2020, the Company incurred expenses to the Portfolio Companies of approximately $226 thousand and $159 thousand,
respectively. At June 30, 2021 and December 31, 2020, Billtrust had open payables balances to the Portfolio Companies of zero and $102 thousand, respectively. Additionally, during the three months ended June 30, 2021 and 2020, the Portfolio
Companies generated total revenues of approximately $46 thousand and $26 thousand, respectively. During the six months ended June 30, 2021 and 2020, the Portfolio Companies generated total revenues of approximately $85 thousand and $48 thousand,
respectively. At June 30, 2021 and December 31, 2020, Billtrust had open receivables balances from Portfolio Companies of $30 thousand and $25 thousand, respectively.
Refer to Note 18 - Subsequent Events for a description of costs the Company paid for on behalf of several of its selling security
holders associated with the secondary offering that closed in July 2021.
Note 18 - Subsequent Events
The Company reviews events and transactions that occur after the balance sheet date, but before this Quarterly Report on Form 10-Q is filed with the SEC, to identify
matters that require additional disclosure or to provide additional support relative to certain estimates made in preparing the financial statements. The Company has evaluated subsequent events through August 12, 2021, and except as discussed
below, the Company is not aware of any subsequent events which would require recognition or disclosure in the financial statements.
On July 6, 2021, the Company completed an underwritten secondary offering (the "Offering") of 10,350,000 shares of the Company's Class 1 common stock at a public offering
price of $12.25 per share. All of the Class 1 common stock was offered by existing shareholders. No new shares were issued and Billtrust did not receive any proceeds from the Offering. The gross proceeds from the Offering, before deducting
underwriting discounts and commissions, was $126.8 million.
During the three months ended June 30, 2021, the Company incurred $0.5 million of costs directly related to the Offering, consisting principally of professional,
printing, filing, regulatory and other costs. These costs were recorded in general and administrative expenses in the Condensed Consolidated Statements of Operations and Comprehensive Loss since the Offering did not generate any proceeds to the
Company, and therefore the costs do not qualify to be deferred or charged to additional paid-in capital under ASC 340-10-S99-1. Additionally, as no new shares were issued, the shares transacted as part of the Offering would not have impacted the
number of common shares outstanding at the end of June 30, 2021 for the purposes of calculating earnings per share as of that date.
Item 2.
|
Management's Discussion and Analysis of Financial Condition and Results of Operations
|
You should read this section in conjunction with the Condensed Consolidated Financial Statements and related notes included in Part I. Item 1 of this
Quarterly Report on Form 10-Q, our Annual Report on Form 10-K for the year ended December 31, 2020 (the "Annual Report on Form 10-K"), as filed with the US Securities and Exchange Commission (the "SEC") on March 24, 2021, the Company's Amendment
No. 1 to the Current Report on Form 8-K (the "Amendment on Form 8-K"), as filed with the SEC on March 24, 2021, and the Company's Registration Statement on Form S-1 as amended (File No. 333-257488), originally filed with the SEC on June 28, 2021.
Certain figures, such as interest rates and other percentages, included in this section have been rounded for ease of presentation. Percentage figures
included in this section have not in all cases been calculated on the basis of such rounded figures but on the basis of such amounts prior to rounding. For this reason, percentage amounts in this section may vary slightly from those obtained by
performing the same calculations using the figures in our Condensed Consolidated Financial Statements or in the Notes to Condensed Consolidated Financial Statements. Certain other amounts that appear in this section may similarly not sum due to
rounding.
Forward Looking Statements
This discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking statements are identified by words such as “believe”, “may”, “could", “will”, “estimate”, “continue”, “anticipate”, “intend”, “seek”, “plan”, “expect”, “should”,
“would”, “potentially”, or the negative of these terms or similar expressions in this Quarterly Report on Form 10-Q. You should read these statements carefully because they discuss future expectations, contain projections of future results of
operations or financial condition, or state other “forward-looking” information. These statements relate to our future plans, objectives, expectations, intentions, and financial performance and the assumptions that underlie these statements. These
forward-looking statements are subject to certain risks and uncertainties that could cause a difference include, but are not limited to, those discussed under the caption “Risk Factors” in our Annual Report on Form 10-K, the Amendment on Form 8-K,
the Company's Registration Statement on Form S-1, and elsewhere in this Quarterly Report (refer to the section titled “Special Note Regarding Forward-Looking Statements”). Forward-looking statements are based on management’s current beliefs and
assumptions and based on information currently available. These statements, like all statements in this Quarterly Report on Form 10-Q, speak only as of their date, and we undertake no obligation to update or revise these statements in light of
future developments, except as required by law.
Business Overview
We are a leading provider of cloud-based software and integrated payment processing solutions that simplify and automate B2B commerce. Accounts receivable (“AR”) is broken
and relies on conventional processes that are outdated, inefficient, manual, and largely paper-based. We are at the forefront of the digital transformation of AR, providing mission-critical solutions that span credit decisioning and monitoring,
online ordering, invoicing, cash application, and collections. Our solutions provide our customers accelerated savings, faster realization of cash, and a better user experience.
Companies throughout the world have the daunting task of capturing and applying payments from hundreds or thousands of their customers, all via different channels and payment
types. Larger buyers, or their outsourced accounts payable ("AP") providers, offer their portals as a means for suppliers to be paid. Suppliers, on the other hand, prefer a single source of payments with clean remittance or payment instructions. To
address this large and increasingly growing pain point for suppliers, we created a leading, two-sided B2B payments network, the Business Payments Network ("BPN") that connects buyers and suppliers. We built integrations with leading enterprise
resource planning ("ERP") and accounting systems, banks, and AP software providers to offer an online supplier business directory, programmatic payment preferences, payment flexibility, and streamlined reconciliation of remittance data.
Customers use our integrated AR platform to automate credit decisioning, online ordering, invoice delivery, payment capture, cash application, and collections. Our solutions
integrate with a number of ecosystem players, including financial institutions, ERP systems, and AP software platforms, to help customers accelerate cash flow and generate sales more quickly and efficiently.
Our proprietary technology also offers our customers multiple ways to send invoices (via print, fax, email, online, and AP portals) and receive payments (via paper check,
ACH, email, phone, and credit card). Our electronic solutions team that works closely with customers to transition their users from paper invoices and payments to electronic, helping them convert from expensive paper invoicing and check acceptance
to efficient electronic billing and payments.
We have expanded our product reach and customer base over the past years and scaled our business operations in recent periods. Our total revenues were $82.2 million and $68.7
million for the six months ended June 30, 2021 and 2020, respectively. As a result of our focus on product development and sales and marketing, we have generated net losses of $33.5 million and $10.0 million for the six months ended June 30, 2021
and 2020, respectively.
Business Combination with South Mountain Merger Corporation ("SMMC")
On October 18, 2020, as amended on December 13, 2020, South Mountain Merger Corp., a Delaware corporation (“South Mountain”), BT Merger Sub I, Inc., a Delaware corporation
and a direct, wholly owned subsidiary of South Mountain (“First Merger Sub”), BT Merger Sub II, LLC, a Delaware limited liability company and a direct, wholly owned subsidiary of South Mountain (“Second Merger Sub”) and the Company ("Billtrust"),
entered into a Business Combination Agreement (“BCA”), pursuant to which (i) First Merger Sub was merged with and into Billtrust (the “First Merger”), with Billtrust surviving the First Merger as a wholly owned subsidiary of South Mountain
(“Surviving Corporation”) and (ii) the Surviving Corporation merged with and into Second Merger Sub (the “Second Merger”, and together with the First Merger, the “Mergers”), with Second Merger Sub surviving the Second Merger as a wholly owned
subsidiary of South Mountain (such Mergers, collectively with the other transactions described in the BCA, the “Business Combination”).
In connection with the execution of the Business Combination, on October 18, 2020, South Mountain entered into separate subscription agreements (“Subscription Agreements”)
with a number of investors (“PIPE Investors”), pursuant to which the PIPE Investors agreed to purchase, and South Mountain sold to the PIPE Investors, an aggregate of 20,000,000 shares of South Mountain Class A common stock, for a purchase price of
$10.00 per share and at an aggregate purchase price of $200.0 million, in a private placement (“PIPE Financing”).
The Business Combination and PIPE Financing closed on January 12, 2021 (the "Closing Date"). The Business Combination was accounted for as a reverse recapitalization in
accordance with the generally accepted accounting principles in the United States of America ("U.S. GAAP"). Under this method of accounting, South Mountain was treated as the “acquired” company for financial reporting purposes. For accounting
purposes, we were the accounting acquirer in the transaction and, consequently, the transaction was treated as a recapitalization of Billtrust (i.e., a capital transaction involving the issuance of stock by South Mountain for the stock of
Billtrust). Accordingly, the assets, liabilities, and results of operations of Billtrust became the historical financial statements of "New Billtrust", which was renamed BTRS Holdings Inc., and South Mountain’s assets, liabilities, and results of
operations were consolidated with Billtrust beginning on the Closing Date. All amounts of BTRS Holdings Inc. reflect the historical amounts of Billtrust carried over at book value with no step up in basis to fair value. After the Business
Combination, our common stock began trading on the Nasdaq stock exchange under the ticker symbol BTRS.
Impact of COVID-19 on Billtrust's Business
In March 2020, the United States declared a State of National Emergency due to the COVID-19 pandemic. Since then, our business has continued to operate despite the disruption
to many of our customer's operations. The pandemic has served to increase awareness and urgency around accelerating the digital transformation of AR through our products and platforms. While this helped us avoid significant business, bookings, or
revenue disruptions thus far, during the three months ended June 30, 2020, the pandemic did cause a decrease in our transaction fee revenues for certain customers. This was a result of the pandemic's broader economic impact on some companies in
heavily transaction based industries and the related slowing of their business activity. These revenues started rebounding in the second half of 2020 and into 2021, which we expect to continue.
We are unable to predict the full impact the COVID-19 pandemic will have on our future results of operations, liquidity, and financial condition due to numerous
uncertainties, including the duration, severity, and spread of the virus, actions that may be taken by government authorities, the impact to our customers, employees, and suppliers, and various other factors beyond our knowledge and control. The
pandemic has caused us to modify our business practices, such as employee travel restrictions, cancellation of physical participation in meetings, events and conferences, and requiring employees to work remotely. We may take further actions as may
be required by government authorities or that we determine are in the best interests of our employees and customers. We have previously implemented certain cost savings measures, some of which have ended, such as reducing employee incentive
compensation programs, and others are continuing, such as restricted travel and reduced discretionary spend in certain areas. We will continue to monitor the situation and adjust our response accordingly.
Key Factors Affecting Our Performance
We believe our performance and future growth depends on a number of factors that present significant opportunities, but also pose risks and challenges, including those
discussed below and in the section titled “Risk Factors” in our Annual Report on Form 10-K, our Amendment on Form 8-K, and our Registration Statement on Form S-1. For additional information related to key performance metrics we use to evaluate the
health of our business, identify trends affecting our growth, formulate goals and objectives, and make strategic decisions, please see the section within this Quarterly Report on Form 10-Q titled “Key Performance Metrics.” We believe the most
significant factors affecting our results of operations include:
Investment in Technology
Our goal is to transform the way businesses send and capture payments in order to be the leader in the order-to-cash process by digitizing areas including credit decisioning,
ordering, invoicing, payments, cash application, and collections. We continue to invest in technology and the digitizing of our platforms. Further, we continue to invest in certain internal initiatives targeted at improving internal processes and
enhancing the efficiency, security, and scalability of our platforms. Our investment in technology is expected to have a positive impact on our long-term profitability and operations. 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 on our ability to successfully develop, market, and sell existing and new products.
Acquisition of New Customers
We reach new business-to-business and business-to-consumer customers through our proven go-to-market strategies, which include digital marketing campaigns, our direct sales
force, and partnerships with financial institutions and other complementary companies. Our growth largely depends on our ability to acquire new customers.
As of June 30, 2021, we had customers across a wide variety of industries and geographies, including distributors of building materials, electrical, plumbing and technology
equipment, healthcare, construction, and consumer products, primarily located in North America. We continue to invest in our sales, marketing, and go-to-market strategies in order to acquire customers in our target markets. Our marketing efforts
are campaign and content driven and targeted depending on the size and industry of the customer. Marketing initiatives focus on demand generation and include promotional activity and emphasis on online digital marketing programs (e.g. webinars,
virtual events). There is a long-term opportunity to expand into large, new markets with compatible trends.
Our ability to attract new customers depends on a number of factors, including the effectiveness and pricing of our products, our competitors' offerings, and successfully
executing our marketing efforts. Our financial performance depends in large part on the overall demand for our platforms, and acquisition of new customers is expected to have a positive impact on our long-term profitability and operations.
Expansion of Relationships with Existing Customers
Our revenue growth depends on our customers’ usage of our range of products. Our ability to monetize transactions and payments is an important part of our business model. As
we solve customers’ problems and become more integrated into their daily businesses, we see an increased opportunity to cross-sell to these existing customers. This strategy is achieved by driving adoption of an existing solution across different
divisions and / or subsidiaries of an existing customer and then expanding the scope of service with additional solutions. Our ability to influence customers to process more transactions and payments on our platforms will have a direct impact on
our revenue.
Our revenue from existing customers is generally reliable due to both the pricing structure and the business-critical nature of the functions our products support for
customers. For the six months ended June 30, 2021 and 2020, 95% or more of our subscription and transaction fees revenue came from customers who had entered into contracts prior to the start of each such calendar year. We expand within our existing
customer base by selling additional products on our platform, adding divisions, increasing transactions per customer through proven e-solutions, as well as through effective pricing and packaging our services. Our ability to increase sales to
existing customers depends on a number of factors, including our customers’ satisfaction with our solutions, competition, pricing, and overall changes in our customers’ spending levels with us.
Key Performance Metrics
We monitor the following key metrics to help us evaluate the health of our business, identify trends affecting our growth, formulate goals and objectives, and make strategic
decisions.
Total Payment Volume
Total Payment Volume (“TPV”) is the dollar value of customer payment transactions that we process on our platform during a particular period. TPV is made up of the two
payment categories:
|
▪
|
TPV - ACH/Wire - payments made via our software, portals, gateways, and our Business Payments Network that are processed via automated
clearing house ("ACH") or wire transfers.
|
|
▪
|
TPV - Card - payments through our software, portals, gateways, and third party processors, and includes our payment facilitator (“PayFac”)
customers.
|
To grow payments revenue from customers, we must deliver software platforms that both simplifies the process of accepting electronic payments and streamlines the
reconciliation of remittance data. Additionally, as we increase the digital delivery of invoices, it increases the probability that the digitally delivered invoices will be paid electronically by our customers’ end customers. The more customers use
our software platforms, the more payments transactions they are likely to process through our various products. TPV provides an important indication of the dollar value of transactions that customers are completing on the platform and is helpful to
investors as an indicator of our ability to generate revenue from our customers.
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
(in billions)
|
|
Total Payment Volume
|
|
$
|
18.8
|
|
|
$
|
12.7
|
|
|
$
|
33.9
|
|
|
$
|
24.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TPV - ACH/Wire
|
|
|
12.2
|
|
|
|
8.9
|
|
|
|
21.9
|
|
|
|
16.7
|
|
TPV - Card
|
|
$
|
6.6
|
|
|
$
|
3.9
|
|
|
$
|
12.0
|
|
|
$
|
7.4
|
|
The increase in TPV for the three and six months ended June 30, 2021 compared to the prior year periods was primarily due to the addition of new customers on our PayFac
platform as well as an increase in existing customer transactions on both our card and ACH/Wire platforms (including an expansion of our product platforms for ACH transactions).
Number of Electronic Invoices Presented
Electronic invoices presented is the number of invoices sent via email, fax, or loaded to a presentment or AP portal, and includes volumes from acquired platforms, where
volumes are normalized to best match equivalents on our platform. The measure also includes invoices that are charged on a per transaction basis for legacy customer agreements, as well as for subscription customers with defined tiers of electronic
transactions for a fixed price. Electronic invoices presented is a key indicator of the growth of our Software and Payments segment revenues, as well as the future opportunity for an electronic payment on those invoices.
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
(in millions)
|
|
Number of electronic invoices presented
|
|
|
77
|
|
|
|
63
|
|
|
|
148
|
|
|
|
128
|
|
The increase in the number of electronic invoices presented for the three and six months ended June 30, 2021 compared to the prior year periods was primarily due to growth in
existing customer transactions on our platforms as well as new customer volumes.
Components of Results of Operations
Revenues
Billtrust generates revenue from three sources: (1) Subscription and Transaction Fees, (2) Services, and (3) Reimbursable Costs.
Subscription and Transaction Fees
Subscription revenues are primarily derived from our hosted software as a service (“SaaS”) platforms that enable billings and payment processing on behalf of customers,
credit decisioning and monitoring, online ordering, invoicing, cash application, and collections. Our SaaS solutions do not provide a perpetual license or the right to take possession of our software. Our platforms are billed as a subscription fee
on a monthly, quarterly, or annual basis as a part of an overall service agreement with a customer. Subscription revenues from the SaaS solutions are recognized ratably over the customer agreement term, beginning on the date each solution is made
available to the customer.
Transaction fees for certain services are billed monthly based on the volume of items processed each month at a contractual rate per item processed. Transaction revenue is
recognized in the same period as the transactions are processed. Recurring transaction revenue is recognized monthly as these services are performed based on the volume of transactions processed and are recognized as revenue in the period when the
usage amounts are determined and reported.
Services
Services revenues consists of fees for professional services provided to our customers related to implementing our platforms and post-implementation change requests.
Professional services are billed on a time and materials or fixed fee basis. Services revenues are recognized ratably over the estimated period of the customer relationship, which is estimated to be five years.
Reimbursable Costs
Reimbursable costs revenues consists primarily of amounts charged to our customers for postage on printed and mailed invoices to their end customers. The related revenues are
recorded on a gross basis, with an offsetting amount recorded as a cost of revenue.
Cost of Revenues
Costs of Subscription, Transaction, and Services
Cost of subscription, transaction, and services consists primarily of personnel-related costs, including stock-based compensation expenses, for our customer success,
professional services, file, and payment operations teams, print operations equipment costs, costs directly attributed to processing customers’ transactions (such as the cost of printing and mailing invoices, excluding postage), expenses for
processing payments (ACH and credit card), direct and amortized costs for implementing and integrating our cloud-based platforms with customers’ systems, cloud hosting and related costs for the infrastructure directly associated with production
platforms, rent and utilities expense for our leased print operations facilities, and allocated overhead costs. Cost of subscription, transaction, and services excludes depreciation and amortization. We expect that cost of subscription,
transaction, and services will increase in absolute dollars, but may fluctuate as a percentage of total revenues from period to period, as we continue to invest in growing our business.
Cost of Reimbursable Costs
Cost of reimbursable costs consists of fees for postage related costs, primarily paid to the United States Postal Service or third parties associated with printed and mailed
invoice deliveries for our customers, and are recorded at no incremental margin on reimbursable costs revenues.
Operating Expenses
Research and Development
Research and development expenses consist primarily of personnel-related expenses, including stock-based compensation expenses, incurred in developing and engineering new
products or enhancing existing products, quality assurance and testing of new and existing product technology, maintenance, and enhancement of our existing technology and infrastructure, and allocated overhead costs. We capitalize certain software
development costs that are attributable to developing new products and adding incremental functionality to our platforms, and amortize such costs over the estimated life of the new product or incremental functionality, which is generally four
years.
In accordance with U.S. GAAP, we expense a substantial portion of research and development expenses as incurred. We expect our research and development expenses to increase
in absolute dollars, but they may fluctuate as a percentage of total revenues from period to period as we continue to expand our research and development team to develop new products and product enhancements as well as to support our growing
infrastructure.
Sales and Marketing
Sales and marketing expenses consist primarily of personnel-related expenses, including stock-based compensation expenses, sales commissions, marketing program expenses,
travel-related expenses, and costs to market and promote our platforms through advertisements, marketing events, partnership arrangements, direct customer acquisition, and allocated overhead costs. Sales commissions that are incremental to
obtaining customer contracts are deferred and amortized ratably over the estimated period of the customer relationship, which is estimated to be five years.
Our sales and marketing efforts are focused on increasing revenue from the acquisition of new customers, the expansion of subscription revenue from existing customers, and
from facilitating increased electronic adoption and resulting digital processing activity between our customers and their end customers. Sales and marketing expenses may fluctuate from period to period based on a variety of factors, including
changes in the broader economic environment and our return on this spend.
General and Administrative
General and administrative expenses consist of personnel-related expenses, including stock-based compensation expenses associated with our executive team, talent (human
resources), finance, procurement, legal and compliance, and other administrative functions, facility costs (including rent and utilities expense for our leased real estate offices, excluding those used in our print operations) and allocated
overhead costs. We expect to incur additional general and administrative expenses as a result of operating as a public company, including expenses to comply with the rules and regulations applicable to companies listed on a national securities
exchange, expenses related to compliance, and reporting obligations pursuant to the rules and regulations of the SEC, as well as higher expenses for director and officer insurance, investor relations, and professional services. We also expect to
increase the size of our general and administrative functions to support the growth in our business. As a result, we expect that our general and administrative expenses will increase in absolute dollars but may fluctuate as a percentage of total
revenues from period to period.
Depreciation and Amortization
Depreciation and amortization expense includes the costs associated with depreciating our owned furniture and fixtures, computer equipment, software, and technology assets,
as well as amortization of leasehold improvements, capitalized software, and amortizable intangible assets.
Interest Income
Interest income consists primarily of income earned on our cash, cash equivalents, and short term investments.
Interest Expense and Loss on Extinguishment of Debt
Interest expense and loss on extinguishment of debt consists of interest on any outstanding debt, amortization of associated debt issuance costs, payment of early termination
fees, and writing off unamortized debt discounts associated with repaying our outstanding debt facilities prior to maturity.
Change in Fair Value of Financial Instruments and Other Income
Change in fair value of financial instruments and other income consists primarily of the change in the fair value of equity instruments that do not meet the criteria to be
classified as equity (including Earnout Shares issued in connection with the Business Combination), changes in the fair value of contingent consideration, and gains (losses) related to foreign exchange and other non-operating income (expense).
Provision for Income Taxes
Provision for income taxes consists primarily of income taxes related to state jurisdictions in which we conduct business. Income tax benefit, if any, is primarily related to
the release of valuation allowances for deferred tax assets, partially offset by income taxes related to state jurisdictions. We maintain a full valuation allowance on net deferred tax assets for our U.S. federal taxes and certain state taxes as we
have concluded that it is not more likely than not that the deferred assets will be utilized.
Segments
Our operations are grouped into two reportable segments: (1) Print, and (2) Software and Payments. Our Chief Operating Decision Maker (“CODM”) is the Chief Executive Officer
("CEO"), who reviews discrete financial and other information presented for print services and software and payment services for purposes of allocating resources and evaluating the Company's financial performance. The accounting policies used by
the reportable segments are the same as those used in our Condensed Consolidated Financial Statements.
|
•
|
Print – The Print segment is primarily responsible for printing customer invoices and optimizing the amount of time and costs associated with
billing customers via mail.
|
|
•
|
Software and Payments – The Software and Payments segment primarily operates using software and cloud based services, optimizes electronic
invoice presentment, electronic payments, credit decisioning, collections automation, cash application and deduction management, and e-commerce of B2B customers.
|
We evaluate segment performance and allocate resources based on revenues, cost of revenues, and gross profit. All of the revenues shown in the reportable segments is revenue
from external customers; there is no revenue from transactions with other operating segments. Segment expenses include the direct expenses of each segment's operations and exclude sales and marketing expenses, research and development expenses,
general and administrative expenses, depreciation and amortization expense, stock-based compensation expense, and certain other identified costs that we do not allocate to the segments for purposes of evaluating their operational performance.
Given the nature of our business, the amount of assets does not provide meaningful insight into our operating performance. As a result, we do not identify or allocate assets
by reportable segment and total assets are not included in our segment financial information.
Results of Operations
The following tables set forth select Condensed Consolidated Statements of Operations data, and such data as a percentage of total revenues, for each of the periods indicated
(in thousands, except percentages):
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription, transaction, and services
|
|
$
|
31,589
|
|
|
|
79
|
%
|
|
$
|
25,646
|
|
|
|
74
|
%
|
|
$
|
64,708
|
|
|
|
79
|
%
|
|
$
|
50,170
|
|
|
|
73
|
%
|
Reimbursable costs
|
|
|
8,643
|
|
|
|
21
|
|
|
|
8,945
|
|
|
|
26
|
|
|
|
17,460
|
|
|
|
21
|
|
|
|
18,566
|
|
|
|
27
|
|
Total revenues
|
|
|
40,232
|
|
|
|
100
|
|
|
|
34,591
|
|
|
|
100
|
|
|
|
82,168
|
|
|
|
100
|
|
|
|
68,736
|
|
|
|
100
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of subscription, transaction, and services
|
|
|
9,360
|
|
|
|
23
|
|
|
|
7,633
|
|
|
|
22
|
|
|
|
18,613
|
|
|
|
23
|
|
|
|
15,523
|
|
|
|
23
|
|
Cost of reimbursable costs
|
|
|
8,643
|
|
|
|
21
|
|
|
|
8,945
|
|
|
|
26
|
|
|
|
17,460
|
|
|
|
21
|
|
|
|
18,566
|
|
|
|
27
|
|
Total cost of revenues
|
|
|
18,003
|
|
|
|
45
|
|
|
|
16,578
|
|
|
|
48
|
|
|
|
36,073
|
|
|
|
44
|
|
|
|
34,089
|
|
|
|
50
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
11,270
|
|
|
|
28
|
|
|
|
8,778
|
|
|
|
25
|
|
|
|
22,263
|
|
|
|
27
|
|
|
|
18,162
|
|
|
|
26
|
|
Sales and marketing
|
|
|
9,980
|
|
|
|
25
|
|
|
|
5,129
|
|
|
|
15
|
|
|
|
18,916
|
|
|
|
23
|
|
|
|
11,551
|
|
|
|
17
|
|
General and administrative
|
|
|
10,478
|
|
|
|
26
|
|
|
|
4,871
|
|
|
|
14
|
|
|
|
22,928
|
|
|
|
28
|
|
|
|
10,119
|
|
|
|
15
|
|
Depreciation and amortization
|
|
|
1,359
|
|
|
|
3
|
|
|
|
1,410
|
|
|
|
4
|
|
|
|
2,719
|
|
|
|
3
|
|
|
|
2,821
|
|
|
|
4
|
|
Total operating expenses
|
|
|
33,087
|
|
|
|
82
|
|
|
|
20,188
|
|
|
|
58
|
|
|
|
66,826
|
|
|
|
81
|
|
|
|
42,653
|
|
|
|
62
|
|
Loss from operations
|
|
|
(10,858
|
)
|
|
|
(27
|
)
|
|
|
(2,175
|
)
|
|
|
(6
|
)
|
|
|
(20,731
|
)
|
|
|
(25
|
)
|
|
|
(8,006
|
)
|
|
|
(12
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
131
|
|
|
|
—
|
|
|
|
1
|
|
|
|
—
|
|
|
|
234
|
|
|
|
—
|
|
|
|
17
|
|
|
|
—
|
|
Interest expense and loss on extinguishment of debt
|
|
|
(3
|
)
|
|
|
—
|
|
|
|
(1,102
|
)
|
|
|
(3
|
)
|
|
|
(2,945
|
)
|
|
|
(4
|
)
|
|
|
(2,285
|
)
|
|
|
(3
|
)
|
Change in fair value of financial instruments and other income
|
|
|
5
|
|
|
|
—
|
|
|
|
411
|
|
|
|
1
|
|
|
|
(9,985
|
)
|
|
|
(12
|
)
|
|
|
392
|
|
|
|
1
|
|
Total other income (expense)
|
|
|
133
|
|
|
|
—
|
|
|
|
(690
|
)
|
|
|
(2
|
)
|
|
|
(12,696
|
)
|
|
|
(15
|
)
|
|
|
(1,876
|
)
|
|
|
(3
|
)
|
Loss before income taxes
|
|
|
(10,725
|
)
|
|
|
(27
|
)
|
|
|
(2,865
|
)
|
|
|
(8
|
)
|
|
|
(33,427
|
)
|
|
|
(41
|
)
|
|
|
(9,882
|
)
|
|
|
(14
|
)
|
Provision for income taxes
|
|
|
(11
|
)
|
|
|
—
|
|
|
|
(37
|
)
|
|
|
—
|
|
|
|
(103
|
)
|
|
|
—
|
|
|
|
(117
|
)
|
|
|
—
|
|
Net loss and comprehensive loss
|
|
$
|
(10,736
|
)
|
|
|
(27
|
)%
|
|
$
|
(2,902
|
)
|
|
|
(8
|
)%
|
|
$
|
(33,530
|
)
|
|
|
(41
|
)%
|
|
$
|
(9,999
|
)
|
|
|
(15
|
)%
|
Comparison of Results of Operations for the Three Months Ended June 30, 2021 and 2020
Total Revenues
|
|
Three Months Ended June 30,
|
|
|
Change
|
|
|
|
2021
|
|
|
2020
|
|
|
Amount
|
|
|
%
|
|
|
|
(in thousands)
|
|
|
|
|
Subscription and transaction fees
|
|
$
|
29,072
|
|
|
$
|
23,809
|
|
|
$
|
5,263
|
|
|
|
22
|
%
|
Services and other
|
|
|
2,517
|
|
|
|
1,837
|
|
|
|
680
|
|
|
|
37
|
%
|
Subscription, transaction, and services
|
|
|
31,589
|
|
|
|
25,646
|
|
|
|
5,943
|
|
|
|
23
|
%
|
Reimbursable costs
|
|
|
8,643
|
|
|
|
8,945
|
|
|
|
(302
|
)
|
|
|
(3
|
)%
|
Total revenues
|
|
$
|
40,232
|
|
|
$
|
34,591
|
|
|
$
|
5,641
|
|
|
|
16
|
%
|
The increase in total revenues during the three months ended June 30, 2021 compared to the prior year period was primarily due to (1) a $5.2 million increase in subscription
and transaction fees as a result of contracting with new customers, existing customers purchasing additional products, and increased transaction volumes, primarily from payments, and (2) a $0.7 million increase in services revenue from existing
customers purchasing additional professional services consulting engagements and a shift to providing more services on an hourly rate basis as compared to more fixed pricing arrangements in the prior period.
Cost of Revenues
|
|
Three Months Ended June 30,
|
|
|
Change
|
|
|
|
2021
|
|
|
2020
|
|
|
Amount
|
|
|
%
|
|
|
|
(in thousands)
|
|
|
|
|
Cost of subscription, transaction, and services
|
|
$
|
9,360
|
|
|
$
|
7,633
|
|
|
$
|
1,727
|
|
|
|
23
|
%
|
Cost of reimbursable costs
|
|
|
8,643
|
|
|
|
8,945
|
|
|
|
(302
|
)
|
|
|
(3
|
)%
|
Total cost of revenues
|
|
$
|
18,003
|
|
|
$
|
16,578
|
|
|
$
|
1,425
|
|
|
|
9
|
%
|
The increase in total cost of revenues during the three months ended June 30, 2021 compared to the prior year period was primarily due to a $2.1 million increase in
personnel-related costs, including non-cash stock based compensation expense resulting from the grant of stock options to substantially all employees in January 2021 and the impact of Earnout RSU's associated with the Business Combination. The
increased personnel-related costs also include reinstating incentive programs that were eliminated as part of the cost-reduction measures implemented in 2020 as a result of the COVID-19 pandemic, and amortization of deferred service costs for
personnel providing implementation and consulting services to our customers. These increases were partially offset by a $0.4 million decrease in print related costs resulting from efficiencies in our operations and slightly lower print
transactional volumes as a result of existing customers converting to electronic invoicing.
Research and Development
|
|
Three Months Ended June 30,
|
|
|
Change
|
|
|
|
2021
|
|
|
2020
|
|
|
Amount
|
|
|
%
|
|
|
|
(in thousands)
|
|
|
|
|
Research and development
|
|
$
|
11,270
|
|
|
$
|
8,778
|
|
|
$
|
2,492
|
|
|
|
28
|
%
|
The increase in research and development expenses during the three months ended June 30, 2021 compared to the prior year period was due primarily to a $2.5 million
increase in personnel-related costs, including non-cash stock-based compensation expense of $1.0 million resulting from the grant of stock options to substantially all employees in January 2021 and the impact of Earnout RSU's associated with the
Business Combination. The increased personnel-related costs also include reinstating incentive programs that were eliminated as part of the cost-reduction measures implemented in 2020 as a result of the COVID-19 pandemic.
Sales and Marketing
|
|
Three Months Ended June 30,
|
|
|
Change
|
|
|
|
2021
|
|
|
2020
|
|
|
Amount
|
|
|
%
|
|
|
|
(in thousands)
|
|
|
|
|
Sales and marketing
|
|
$
|
9,980
|
|
|
$
|
5,129
|
|
|
$
|
4,851
|
|
|
|
95
|
%
|
The increase in selling and marketing expenses during the three months ended June 30, 2021 compared to the prior year period was due primarily to a $4.2 million increase in
personnel-related cost, including non-cash stock based compensation of $0.8 million resulting from the grant of stock options to substantially all employees in January 2021 and the impact of Earnout RSU's associated with the Business Combination.
The increased personnel-related costs also include reinstating incentive programs that were eliminated as part of the cost-reduction measures implemented in 2020 as a result of the COVID-19 pandemic. An additional $0.6 million of the increase is
due to marketing expenses related to announcements of product enhancements and our annual virtual Summit.
General and Administrative
|
|
Three Months Ended June 30,
|
|
|
Change
|
|
|
|
2021
|
|
|
2020
|
|
|
Amount
|
|
|
%
|
|
|
|
(in thousands)
|
|
|
|
|
General and administrative
|
|
$
|
10,478
|
|
|
$
|
4,871
|
|
|
$
|
5,607
|
|
|
|
115
|
%
|
The increase in general and administrative expenses during the three months ended June 30, 2021 compared to the prior year period was due primarily to a $4.9 million increase
in personnel-related costs, including non-cash stock-based compensation of $2.9 million resulting from the grant of stock options to substantially all employees in January 2021 and the impact of Earnout RSU's associated with the Business
Combination. The increased personnel-related costs also include reinstating incentive programs that were eliminated as part of the cost-reduction measures implemented in 2020 as a result of the COVID-19 pandemic. An additional $0.9 million of the
increase is due to professional and consulting fees for reporting and compliance requirements as a result of becoming a public company in 2021.
Depreciation and Amortization
|
|
Three Months Ended June 30,
|
|
|
Change
|
|
|
|
2021
|
|
|
2020
|
|
|
Amount
|
|
|
%
|
|
|
|
(in thousands)
|
|
|
|
|
Depreciation and amortization
|
|
$
|
1,359
|
|
|
$
|
1,410
|
|
|
$
|
(51
|
)
|
|
|
(4
|
)%
|
Depreciation and amortization expense during the three months ended June 30, 2021 was consistent with the prior year period as we did not have a material change in purchases,
capitalization, write offs, or impairments of property, equipment, or intangible assets during either period.
Total other income (expense)
|
|
Three Months Ended June 30,
|
|
|
Change
|
|
|
|
2021
|
|
|
2020
|
|
|
Amount
|
|
|
%
|
|
|
|
(in thousands)
|
|
|
|
|
Total other income (expense)
|
|
$
|
133
|
|
|
$
|
(690
|
)
|
|
$
|
823
|
|
|
|
119
|
%
|
The increase in other income during the three months ended June 30, 2021 compared to the prior year period was due primarily to a reduction in interest expense as all of our
outstanding borrowings were paid off in the first quarter of 2021 as part of the Business Combination.
Provision for Income Taxes
|
|
Three Months Ended June 30,
|
|
|
Change
|
|
|
|
2021
|
|
|
2020
|
|
|
Amount
|
|
|
%
|
|
|
|
(in thousands)
|
|
|
|
|
Provision for income taxes
|
|
|
(11
|
)
|
|
|
(37
|
)
|
|
$
|
26
|
|
|
|
70
|
%
|
The provision for income taxes for the three months ended June 30, 2021 is consistent with the prior year period due to a low effective tax rate resulting from our net
operating losses. We maintain a valuation allowance on our deferred taxes.
Comparison of Results of Operations for the Six Months Ended June 30, 2021 and 2020
Total Revenues
|
|
Six Months Ended June 30,
|
|
|
Change
|
|
|
|
2021
|
|
|
2020
|
|
|
Amount
|
|
|
%
|
|
|
|
(in thousands)
|
|
|
|
|
Subscription and transaction fees
|
|
$
|
59,255
|
|
|
$
|
46,935
|
|
|
$
|
12,320
|
|
|
|
26
|
%
|
Services and other
|
|
|
5,453
|
|
|
|
3,235
|
|
|
|
2,218
|
|
|
|
69
|
%
|
Subscription, transaction, and services
|
|
|
64,708
|
|
|
|
50,170
|
|
|
|
14,538
|
|
|
|
29
|
%
|
Reimbursable costs
|
|
|
17,460
|
|
|
|
18,566
|
|
|
|
(1,106
|
)
|
|
|
(6
|
)%
|
Total revenues
|
|
$
|
82,168
|
|
|
$
|
68,736
|
|
|
$
|
13,432
|
|
|
|
20
|
%
|
The increase in total revenues during the six months ended June 30, 2021 compared to the prior year period was primarily due to (1) a $12.6 million increase in subscription
and transaction fees as a result of contracting with new customers, existing customers purchasing additional products, and increasing transaction volume, primarily from payments, and (2) a $2.2 million increase in services revenue from existing
customers purchasing additional professional services consulting engagements and a shift to providing more services on an hourly rate basis as compared to more fixed pricing arrangements in the prior period. These increases were partially offset by
a $1.1 million decrease in reimbursable costs due to lower transactional volumes.
Cost of Revenues
|
|
Six Months Ended June 30,
|
|
|
Change
|
|
|
|
2021
|
|
|
2020
|
|
|
Amount
|
|
|
%
|
|
|
|
(in thousands)
|
|
|
|
|
Cost of subscription, transaction, and services
|
|
$
|
18,613
|
|
|
$
|
15,523
|
|
|
$
|
3,090
|
|
|
|
20
|
%
|
Cost of reimbursable costs
|
|
|
17,460
|
|
|
|
18,566
|
|
|
|
(1,106
|
)
|
|
|
(6
|
)%
|
Total cost of revenues
|
|
$
|
36,073
|
|
|
$
|
34,089
|
|
|
$
|
1,984
|
|
|
|
6
|
%
|
The increase in total cost of revenues during the six months ended June 30, 2021 compared to the prior year period was primarily due to a $3.8 million increase in
personnel-related costs, including non-cash stock based compensation expense of $0.8 million resulting from the grant of stock options to substantially all employees in January 2021 and the impact of Earnout RSU's associated with the Business
Combination. The increased personnel-related costs also include reinstating incentive programs that were eliminated as part of the cost-reduction measures implemented in 2020 as a result of the COVID-19 pandemic, and amortization of deferred
service costs for personnel providing implementation and consulting services to our customers. These increases were partially offset by an $0.8 million decrease in print related costs resulting from efficiencies in our operations and slightly lower
print transactional volumes as a result of existing customers converting to electronic invoicing.
Research and Development
|
|
Six Months Ended June 30,
|
|
|
Change
|
|
|
|
2021
|
|
|
2020
|
|
|
Amount
|
|
|
%
|
|
|
|
(in thousands)
|
|
|
|
|
Research and development
|
|
$
|
22,263
|
|
|
$
|
18,162
|
|
|
$
|
4,101
|
|
|
|
23
|
%
|
The increase in research and development expenses during the six months ended June 30, 2021 compared to the prior year period was due to a $4.1 million increase in
personnel-related costs, including non-cash stock based compensation expense of $2.1 million resulting from the grant of stock options to substantially all employees in January 2021 and impact of Earnout RSU's associated with the Business
Combination. The increased personnel-related costs also include reinstating incentive programs that were eliminated as part of the cost-reduction measures implemented in 2020 as a result of the COVID-19 pandemic.
Sales and Marketing
|
|
Six Months Ended June 30,
|
|
|
Change
|
|
|
|
2021
|
|
|
2020
|
|
|
Amount
|
|
|
%
|
|
|
|
(in thousands)
|
|
|
|
|
Sales and marketing
|
|
$
|
18,916
|
|
|
$
|
11,551
|
|
|
$
|
7,365
|
|
|
|
64
|
%
|
The increase in sales and marketing expenses during the six months ended June 30, 2021 compared to the prior year period was due primarily to a $7.0 million increase in
personnel-related cost, including non-cash stock based compensation of $2.1 million resulting from the grant of stock options to substantially all employees in January 2021, as well as the impact of certain Earnout RSU's associated with the
Business Combination. The increased personnel-related costs also include reinstating incentive programs that were eliminated as part of the cost-reduction measures implemented in 2020 as a result of the COVID-19 pandemic. An additional $0.4 million
of the increase is due to marketing expenses related to announcements of product enhancements and our annual virtual Summit.
General and Administrative
|
|
Six Months Ended June 30,
|
|
|
Change
|
|
|
|
2021
|
|
|
2020
|
|
|
Amount
|
|
|
%
|
|
|
|
(in thousands)
|
|
|
|
|
General and administrative
|
|
$
|
22,928
|
|
|
$
|
10,119
|
|
|
$
|
12,809
|
|
|
|
127
|
%
|
The increase in general and administrative expenses during the six months ended June 30, 2021 compared to the prior year period was due primarily to a $12.1 million increase
in personnel-related costs, including non-cash stock-based compensation of $8.4 million resulting from the grant of stock options to substantially all employees in January 2021 and the impact of certain Earnout RSU's associated with the Business
Combination and the increased personnel-related costs also include reinstating incentive programs that were eliminated as part of the cost-reduction measures implemented in 2020 as a result of the COVID-19 pandemic. And additional $1.0 million of
the increase is due to professional and consulting fees for reporting and compliance requirements as a result of becoming a public company in 2021.
Depreciation and Amortization
|
|
Six Months Ended June 30,
|
|
|
Change
|
|
|
|
2021
|
|
|
2020
|
|
|
Amount
|
|
|
%
|
|
|
|
(in thousands)
|
|
|
|
|
Depreciation and amortization
|
|
$
|
2,719
|
|
|
$
|
2,821
|
|
|
$
|
(102
|
)
|
|
|
(4
|
)%
|
Depreciation and amortization expense during the six months ended June 30, 2021 was consistent with the prior year period as we did not have a material change in purchases,
capitalization, write offs, or impairments of property, equipment, or intangible assets during either period.
Total other income (expense)
|
|
Six Months Ended June 30,
|
|
|
Change
|
|
|
|
2021
|
|
|
2020
|
|
|
Amount
|
|
|
%
|
|
|
|
(in thousands)
|
|
|
|
|
Total other income (expense)
|
|
$
|
(12,696
|
)
|
|
$
|
(1,876
|
)
|
|
$
|
(10,820
|
)
|
|
|
(577
|
)%
|
The increase in other expenses during the six months ended June 30, 2021 compared to the prior year period was due primarily to a $10.0 million increase in the fair value of
Earnout Shares and a $2.8 million a loss on extinguishment of debt associated with the early payment of all of our outstanding borrowings, both as part of the Business Combination. These increases were partially offset by a reduction in interest
expense as all of our outstanding borrowings were paid off in the first quarter of 2021.
Provision for Income Taxes
|
|
Six Months Ended June 30,
|
|
|
Change
|
|
|
|
2021
|
|
|
2020
|
|
|
Amount
|
|
|
%
|
|
|
|
(in thousands)
|
|
|
|
|
Provision for income taxes
|
|
$
|
(103
|
)
|
|
$
|
(117
|
)
|
|
$
|
14
|
|
|
|
12
|
%
|
The provision for income taxes for the six months ended June 30, 2021 is consistent with the prior year period due to a low effective tax rate resulting from our net
operating losses. We maintain a valuation allowance on our deferred taxes.
Liquidity and Capital Resources
Our principal sources of liquidity are cash, cash equivalents, short-term investments, cash flows from financing activities, and, since becoming a public company, through
public offerings of equity securities. As of June 30, 2021, we had cash and cash equivalents of $241.6 million and short-term investments of $45.0 million. Our primary uses of liquidity are operating expenses, capital expenditures, and acquiring
businesses. We believe our current cash, cash equivalents, short-term investments, and cash flows from financing activities are sufficient to meet our working capital and capital expenditure requirements for a period of at least twelve months from
the date of this Quarterly Report.
The following table summarizes our cash flows for the periods presented (in thousands, except percentages):
|
|
Six Months Ended June 30,
|
|
|
Change
|
|
|
|
2021
|
|
|
2020
|
|
|
Amount
|
|
|
%
|
|
Net cash used in operating activities
|
|
$
|
(10,821
|
)
|
|
$
|
(7,438
|
)
|
|
$
|
(3,383
|
)
|
|
|
(45
|
)%
|
Net cash used in investing activities
|
|
|
(46,157
|
)
|
|
|
(1,310
|
)
|
|
|
(44,847
|
)
|
|
|
(3,423
|
)%
|
Net cash provided by financing activities
|
|
|
283,262
|
|
|
|
14,452
|
|
|
|
268,810
|
|
|
|
1,860
|
%
|
Net increase in cash, cash equivalents, and restricted cash
|
|
$
|
226,284
|
|
|
$
|
5,704
|
|
|
|
|
|
|
|
|
|
Operating Activities
Cash flows from operations have historically been negative as we continue to invest in our product features and platform, develop new products, and increase our sales and
marketing efforts to sign contracts with new customers and expand the product breadth within existing customers. We do not expect this trend to change on an annual basis, although we do see quarterly shifts where cash flows from operations may be
positive, primarily associated with invoicing and collecting subscription fees from customers which are typically payable in advance.
The $3.4 million decrease in cash provided by operating activities for the six months ended June 30, 2021 compared to the prior year period was primarily due to a $10.6
million decrease in cash generated from accounts receivable and deferred revenue offset by a $3.1 million increase in cash used for working capital (excluding accounts receivable and deferred revenue), and, combined with the effect of non-cash
items, a $3.3 million decrease in net loss.
Investing Activities
During the six months ended June 30, 2021 cash used in investing activities was $46.2 million, which consisted of $45.0 million for the purchases of short-term investments
and $1.1 million for purchases of property and equipment. During the six months ended June 30, 2020 cash used in investing activities consisted of $1.3 million for purchases of property and equipment.
Financing Activities
During the six months ended June 30, 2021 cash provided by financing activities was $283.3 million, which primarily consisted of $329.7 million of proceeds from the Business
Combination and PIPE Financing, net of offering costs. These proceeds were partially offset by $46.2 million used to fully repay our outstanding borrowings, including debt extinguishment costs, pursuant to the Business Combination.
During the six months ended June 30, 2020 cash provided by financing activities was $14.5 million, primarily consisting of $46.5 million in proceeds from borrowings, offset
by $31.7 million in repayments on the outstanding borrowings.
Contractual Obligations
There has been a material change to the contractual obligations table as disclosed in our Annual Report on Form 10-K and our Amendment No. 1 to the Current Report on Form
8-K, as filed with the SEC on March 24, 2021, due to the Business Combination. As of June 30, 2021, our future contractual obligations table is as follows (in thousands):
Contractual Obligations (1)
|
|
Total
|
|
|
< 1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
> 5 Years
|
|
Capital leases
|
|
$
|
157
|
|
|
$
|
128
|
|
|
$
|
29
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Operating leases
|
|
|
47,569
|
|
|
|
4,600
|
|
|
|
8,594
|
|
|
|
8,235
|
|
|
|
26,140
|
|
Contingent consideration (2)
|
|
|
370
|
|
|
|
370
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total contractual cash obligations
|
|
$
|
48,096
|
|
|
$
|
5,098
|
|
|
$
|
8,623
|
|
|
$
|
8,235
|
|
|
$
|
26,140
|
|
(1)
|
In connection with the Business Combination on January 12, 2021 we repaid all amounts outstanding on our long term debt. Accordingly, long term debt is no longer shown as a
contractual obligation.
|
(2)
|
The acquisition of Second Phase, LLC in April 2019 included a contingent consideration arrangement that required additional consideration to be paid to the sellers annually based
meeting certain recurring revenue growth and profitability targets (together, "the Financial Targets") during the three-year period beginning May 1, 2019. In May 2021, we determined the second year Financial Targets were not met and
accordingly reduced the amount of remaining contingent consideration payable.
|
Except as noted above, there were no material changes to our contractual obligations.
In addition to the contractual cash commitments included above, we have other payables and liabilities that may be legally enforceable but are not considered contractual
commitments.
Off-Balance Sheet Arrangements
As of June 30, 2021, other than the operating leases described above, we had no off-balance sheet arrangements that have, or are reasonably likely to have, a current or
future material effect on our financial condition, results of operations, liquidity, capital expenditures, or capital.
Non-GAAP Financial Measures
In addition to Billtrust’s results determined in accordance with the generally accepted accounting principles in the United States of America (“U.S. GAAP”), we believe the
following non-GAAP financial measures are useful in evaluating our operating performance.
We present these non-GAAP measures to assist investors in understanding our financial performance from the perspective of management. We believe these measures provide an
additional tool for investors to use in comparing our financial performance over multiple periods with other companies in our industry. While we believe the use of these non-GAAP measures provides useful information to investors and management in
analyzing our financial performance, non-GAAP measures have inherent limitations in that they do not reflect all of the amounts and transactions that are included in our financial statements prepared in accordance with U.S. GAAP. Non-GAAP measures
do not serve as an alternative to U.S. GAAP, nor do we consider our non-GAAP measures in isolation. Accordingly we present non-GAAP financial measures only in connection with U.S. GAAP results. We urge investors to consider non-GAAP measures only
in conjunction with our U.S. GAAP financials and to review the reconciliation of our non-GAAP financial measures to the most comparable U.S. GAAP financial measures, as described below, included in this Quarterly Report on Form 10-Q.
Net Revenue (non-GAAP)
Net revenue (non-GAAP) is defined as total revenues less reimbursable costs revenue, which is equal to subscription, transaction, and services revenue. Reimbursable costs
revenue consists primarily of amounts charged to customers for postage (with an offsetting amount recorded as a cost of revenue) which we do not consider internally when monitoring operating performance.
We believe net revenue (non-GAAP) allows investors to evaluate comparability with our past financial performance and facilitates period-to-period comparisons of core
operations. The most directly comparable U.S. GAAP measure to net revenue (non-GAAP) is total revenues in our Condensed Consolidated Statements of Operations and Comprehensive Loss.
Adjusted Gross Profit (non-GAAP) & Adjusted Gross Margin (non-GAAP)
Adjusted gross profit (non-GAAP) is defined as total revenues less total cost of revenues, plus stock based compensation expense included in total cost of revenues. Adjusted
gross margin (non-GAAP) is defined as our adjusted gross profit (non-GAAP) divided by total revenues less reimbursable costs revenue or net revenue (non-GAAP).
We believe adjusted gross profit (non-GAAP) and adjusted gross margin (non-GAAP) are useful financial measures to investors as they eliminate the impact of certain non-cash
expenses and allow a direct comparison of our cash operations and ongoing operating performance between periods. We expect adjusted gross margin (non-GAAP) to continue to improve over time to the extent that we are able to increase our scale by
successfully growing revenues, both from cross-selling existing customers and upselling current and future offerings. However, our ability to improve adjusted gross margin (non-GAAP) over time is not guaranteed and will be impacted by the factors
affecting our performance discussed above and outlined in the section titled "Risk Factors" in Part II, Item 1. of this Quarterly Report on Form 10-Q. The most directly comparable U.S. GAAP measure to adjusted gross profit (non-GAAP) and adjusted
gross margin (non-GAAP) is total revenues in our Condensed Consolidated Statements of Operations and Comprehensive Loss.
The following table presents a reconciliation of our net revenue (non-GAAP), adjusted gross profit (non-GAAP), and adjusted gross margin (non-GAAP) to their most directly
comparable U.S. GAAP financial measures (in thousands, except percentages):
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Total revenues
|
|
$
|
40,232
|
|
|
$
|
34,591
|
|
|
$
|
82,168
|
|
|
$
|
68,736
|
|
Less: Reimbursable costs revenue
|
|
|
8,643
|
|
|
|
8,945
|
|
|
|
17,460
|
|
|
|
18,566
|
|
Net revenue (non-GAAP)
|
|
$
|
31,589
|
|
|
$
|
25,646
|
|
|
$
|
64,708
|
|
|
$
|
50,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
40,232
|
|
|
$
|
34,591
|
|
|
$
|
82,168
|
|
|
$
|
68,736
|
|
Less: Cost of revenue, excluding depreciation and amortization
|
|
|
18,003
|
|
|
|
16,578
|
|
|
|
36,073
|
|
|
|
34,089
|
|
Gross profit, excluding depreciation and amortization
|
|
|
22,229
|
|
|
|
18,013
|
|
|
|
46,095
|
|
|
|
34,647
|
|
Add: Stock-based compensation expense
|
|
|
405
|
|
|
|
57
|
|
|
|
848
|
|
|
|
88
|
|
Adjusted gross profit (non-GAAP)
|
|
$
|
22,634
|
|
|
$
|
18,070
|
|
|
$
|
46,943
|
|
|
$
|
34,735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin, excluding depreciation and amortization
|
|
|
55.3
|
%
|
|
|
52.1
|
%
|
|
|
56.1
|
%
|
|
|
50.4
|
%
|
Adjusted gross margin (non-GAAP)
|
|
|
71.7
|
%
|
|
|
70.5
|
%
|
|
|
72.5
|
%
|
|
|
69.2
|
%
|
Adjusted EBITDA (non-GAAP)
Adjusted EBITDA (non-GAAP) is defined as net loss and comprehensive loss, plus (1) income tax benefit (expense), (2) the change in fair value of financial instruments and
other income including the change in the fair value of liabilities (for earnout shares, warrants, contingent consideration or other items classified as liabilities), (3) interest expense and loss on extinguishment of debt, (4) depreciation and
amortization, (5) stock-based compensation expense, (6) restructuring and severance costs, (7) acquisition and integration costs, and (8) other capital structure transaction costs, minus (9) interest income.
We believe adjusted EBITDA (non-GAAP) is a key measure for us to understand and evaluate our operating performance, to establish budgets, and to develop operational and
strategic goals. Adjusted EBITDA (non-GAAP) helps identify underlying trends since the expenses we exclude in the calculation may not directly correlate to our overall operating performance in any specific period. Accordingly, we believe adjusted
EBITDA (non-GAAP) also provides useful information to investors in understanding and evaluating our operating results in the same manner as management. The most directly comparable U.S. GAAP measure to adjusted EBITDA (non-GAAP) is net loss and
comprehensive loss in the Condensed Consolidated Statements of Operations and Comprehensive Loss.
We believe that excluding the impact of these expenses in calculating adjusted EBITDA (non-GAAP) can provide a useful measure for period-to-period comparisons of our core
operating performance. We believe it is useful to exclude certain non-cash charges, such as share-based compensation expenses from our non-GAAP financial measures because the amount of such expenses in any specific period may not directly correlate
to the underlying performance of our business operations. Other income (expense), net, includes interest income, loss on asset disposals, and fair value adjustments related to warrants and contingent consideration. Restructuring and severance costs
are associated with realigning our organization. Acquisition and integration expenses are related to the third party costs associated with acquiring companies and internal direct costs associated with integrating their customers onto our platforms.
These costs are not expected to recur within two years, for prior acquisitions, and only reoccur if we have new acquisitions. Our last acquisition was in April 2019. Other capital structure transaction costs are related to third-party fees,
including legal, accounting, and other professional fees, associated with the secondary offering of our common stock, such as the offering completed in July 2021. These costs are not expected to recur over the next two years as the secondary
offering was a one-time transaction between existing and new shareholders, with no new shares being issued or offered by us.
The following table reconciles adjusted EBITDA (non-GAAP) to the most directly comparable U.S. GAAP financial measure (in thousands):
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Net loss and comprehensive loss
|
|
$
|
(10,736
|
)
|
|
$
|
(2,902
|
)
|
|
$
|
(33,530
|
)
|
|
$
|
(9,999
|
)
|
Provision for income taxes
|
|
|
11
|
|
|
|
37
|
|
|
|
103
|
|
|
|
117
|
|
Change in fair value of financial instruments and other income
|
|
|
(5
|
)
|
|
|
(411
|
)
|
|
|
9,985
|
|
|
|
(392
|
)
|
Interest expense and loss on extinguishment of debt
|
|
|
3
|
|
|
|
1,102
|
|
|
|
2,945
|
|
|
|
2,285
|
|
Interest income
|
|
|
(131
|
)
|
|
|
(1
|
)
|
|
|
(234
|
)
|
|
|
(17
|
)
|
Depreciation and amortization
|
|
|
1,359
|
|
|
|
1,410
|
|
|
|
2,719
|
|
|
|
2,821
|
|
Stock-based compensation expense
|
|
|
5,706
|
|
|
|
680
|
|
|
|
14,532
|
|
|
|
1,161
|
|
Restructuring & severance
|
|
|
317
|
|
|
|
101
|
|
|
|
323
|
|
|
|
282
|
|
Acquisition and integration expense
|
|
|
—
|
|
|
|
83
|
|
|
|
—
|
|
|
|
136
|
|
Other capital structure transaction costs
|
|
|
498
|
|
|
|
—
|
|
|
|
498
|
|
|
|
—
|
|
Adjusted EBITDA (non-GAAP)
|
|
$
|
(2,978
|
)
|
|
$
|
99
|
|
|
$
|
(2,659
|
)
|
|
$
|
(3,606
|
)
|
For the three months ended June 30, 2021 adjusted EBITDA decreased $3.1 million compared to the prior year period and for the six months ended June 30, 2021 adjusted EBITDA
improved $0.9 million compared to the prior year period. The change in both periods compared to the prior year periods was driven by the increase in total revenues, as discussed in the Comparison of Results of Operations sections, offset by higher
expenses in the second quarter of 2021 due to (1) stock-based compensation expense resulting from the grant of stock options to substantially all employees in January 2021 and the impact of Earnout RSU's associated with the Business Combination,
(2) reinstating incentive programs that were eliminated as part of the cost-reduction measures implemented in 2020 as a result of the COVID-19 pandemic, and (3) fees associated with the secondary offering of our common stock completed in July 2021.
Free Cash Flow (non-GAAP)
Free cash flow (non-GAAP) is defined as net cash used in operating activities, less purchases of property and equipment (which includes capitalized internal-use software
costs).
We believe free cash flow (non-GAAP) is an important liquidity measure of the cash available for our operational expenses and investment in business growth. It is useful to
investors as a liquidity measure of our ability to generate or use cash to, maintain a strong balance sheet and invest in future growth. The most directly comparable U.S. GAAP measure to free cash flow (non-GAAP) is net cash used in operating
activities in the Condensed Consolidated Statement of Cash Flows.
The following table presents a reconciliation of free cash flow to the most directly comparable U.S. GAAP measure (in thousands):
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Net cash used in operating activities
|
|
$
|
(904
|
)
|
|
$
|
1,423
|
|
|
$
|
(10,821
|
)
|
|
$
|
(7,438
|
)
|
Purchases of property and equipment
|
|
|
(617
|
)
|
|
|
(445
|
)
|
|
|
(1,120
|
)
|
|
|
(1,310
|
)
|
Free cash flow (non-GAAP)
|
|
$
|
(1,521
|
)
|
|
$
|
978
|
|
|
$
|
(11,941
|
)
|
|
$
|
(8,748
|
)
|
Critical Accounting Policies and Procedures
There have been no material changes to the critical accounting policies, significant judgments, or estimates included in our Annual Report on Form 10-K, our Amendment on Form
8-K, or our Registration Statement on Form S-1.
Recent Accounting Pronouncements
As an emerging growth company (“EGC”), the Jumpstart Our Business Startups Act (“JOBS Act”) allows us to delay adoption of new or revised accounting pronouncements applicable
to public companies until such pronouncements are applicable to private companies. We have elected to use the extended transition period under the JOBS Act until such time the Company is not considered to be an EGC. Based on the closing share price
and the market value of our Common Stock held by non-affiliates as of June 30, 2021, we will become a large accelerated filer on December 31, 2021. As a result, beginning with the Annual Report on Form 10-K for the year ended December 31, 2021, we
are required to adopt all new accounting pronouncements within the same time periods as public companies. Refer to Note 1 - Organization and Nature of Business in the Notes to Condensed Consolidated
Financial Statements for a full description of recent accounting pronouncements, including the expected dates of adoption and effects on our Consolidated Financial Statements.
Item 3.
|
Quantitative and Qualitative Disclosures About Market Risk
|
There have been no material changes in our determination of the market risks we are exposed to or our assessment of sensitivity to these market risks since our discussion
included in the section titled "Quantitative and Qualitative Disclosures About Market Risk" contained in our Annual Report on Form 10-K, our Amendment on Form 8-K, or our Registration Statement on Form S-1.
Item 4.
|
Controls and Procedures
|
Evaluation of Disclosure Controls and Procedures
The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act refers to controls and procedures designed to ensure that
information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the
company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Because there are inherent limitations in all
control systems, a control system, no matter how well conceived and operated, can provide only reasonable, as opposed to absolute, assurance that the objectives of the control system are met. These inherent limitations include the realities that
judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management
override of the control. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Our management, with the participation of our chief
executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2021. Based on that evaluation, our chief executive officer and chief financial officer concluded that our
disclosure controls and procedures were effective, at a reasonable assurance level, as of that date.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(d) and 15d-15(f) under the Exchange Act) that have materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting during our quarter ended June 30, 2021. In response to the COVID-19 pandemic, we have undertaken measures to protect our employees, partners, and
clients, including encouraging employees to work remotely, which required us to modify some of our control procedures. These changes have not been material and we are continually monitoring and assessing the COVID-19 situation to minimize the
impact on our internal control design and operating effectiveness.