NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Organization and Nature of Business
BTRS Holdings Inc., formerly known as Factor Systems, Inc. ("Legacy Billtrust"), utilizing the trade name Billtrust (the "Company” or “Billtrust”), was incorporated on September 4, 2001 in the State of Delaware and maintains its headquarters in Lawrenceville, New Jersey, with additional domestic offices and print facilities in Colorado and California, and international offices in Belgium, the Netherlands, Germany, and Poland.
The Company provides a comprehensive suite of order-to-cash software as a service ("SaaS") solutions with integrated payments, including credit decisioning and monitoring, online ordering, invoicing, cash application and collections. In addition, Billtrust founded the Business Payments Network ("BPN") as part of its strategic relationship with VISA, Inc., which combines remittance data with business-to-business ("B2B") payments and facilitates straight-through payment processing. Billtrust primarily serves B2B companies and integrates the key areas of the order-to-cash process: credit decisioning, e-commerce solutions, invoice presentment, invoice payment, cash application, and collections workflow management, helping its clients connect with their customers and cash.
Business Combination Agreement
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 20.0 million 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”).
As described in Note 3 - Business Combination & Acquisitions, the Business Combination and PIPE Financing closed on January 12, 2021 (the "BCA 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, Billtrust was 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 BCA 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, the Company’s Class 1 common stock began trading on the Nasdaq Global Select Market under the ticker symbol "BTRS".
Note 2 - Summary of Significant Accounting Policies
Basis of Presentation
The accompanying Condensed Consolidated Financial Statements have been prepared in accordance with U.S. GAAP and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission ("SEC") regarding interim financial reporting on Form 10-Q. Accordingly, certain information and disclosures required for complete financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant
to such rules and regulations. These Condensed Consolidated Financial Statements and notes should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2021 (as filed with the SEC on March 9, 2022). Since the date of that filing, there have been no changes or updates to the Company's significant accounting policies, other than those described below.
In the opinion of management, the accompanying Condensed Consolidated Financial Statements contain all normal recurring adjustments necessary for a fair statement of financial position, results of operations, comprehensive loss, and cash flows as of the dates and for the interim periods presented. The results of operations for the three and six months ended June 30, 2022 may not be indicative of the results for the full fiscal year ended December 31, 2022 or any other period. The Condensed Consolidated Balance Sheet as of December 31, 2021 included herein was derived from the audited financial statements as of that date, but does not include all disclosures required by U.S. GAAP on an annual reporting basis. Certain prior period amounts have been reclassified to conform to the current period presentation.
The Company's fiscal year is the twelve-month period from January 1 through December 31 and all references to "2022", “2021”, and “2020” refer to the fiscal year unless otherwise noted.
Principles of Consolidation
The Condensed Consolidated Financial Statements include the accounts of BTRS Holdings Inc. and its wholly owned subsidiaries. All intercompany transactions have been eliminated in consolidation.
Use of Estimates
The preparation of the Condensed Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities reported, disclosure about contingent liabilities, and the reported amounts of revenues and expenses in the financial statements and accompanying notes. Such estimates include, but are not limited to, revenue recognition, leases, valuation of goodwill, intangible assets, other long-lived assets, and other assets and liabilities from acquisitions, recoverability of deferred tax assets, ongoing impairment reviews of goodwill, intangible assets, and other long-lived assets, contingent consideration, and stock-based compensation. The Company bases its estimates on historical experience, known trends, market specific information, or other relevant factors it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates and changes in estimates are recorded in the period in which they become known. Actual results may differ from these estimates.
Foreign Currency
The functional currency of the Company’s subsidiaries is their respective local currencies. These subsidiary financial statements are translated to U.S. dollars using the period-end exchange rates for assets and liabilities, average exchange rates during the corresponding period for revenues and expenses, and historical rates for equity. The effects of foreign currency translation adjustments are recorded in accumulated other comprehensive income (loss) within stockholders’ equity on the Condensed Consolidated Balance Sheets.
Foreign currency transaction gains (losses) are included in other non-operating income (expense) on the Condensed Consolidated Statements of Operations. Foreign exchange gains and losses were not material during the three and six months ended June 30, 2022 and 2021.
Liquidity
For the six months ended June 30, 2022, the Company incurred a net loss of $44.2 million and used cash in operations of $25.8 million. As of June 30, 2022, the Company had cash and cash equivalents of $148.0 million and an accumulated deficit of $250.3 million. Based on the Company’s business plan, existing cash and cash equivalents, the Company expects to satisfy its working capital requirements for at least the next 12 months after the date that these Condensed Consolidated Financial Statements are issued.
Impact of COVID-19 and Other Macroeconomic Events
During 2021 and the six months ended June 30, 2022, the COVID-19 pandemic did not adversely impact the Company, as evidenced by the continued growth in subscription and transaction revenues. The Company's focus remains on investing in its products and supporting its long-term growth, including global expansion. Since the start of the pandemic, the Company has continued to operate despite the disruption to some of its customer's operations. The pandemic has served to increase awareness and urgency around accelerating the digital transformation of accounts receivable through the Company's platform and offerings, which has helped avoid significant business, bookings, or revenue disruptions thus far. Additionally, shifts from in-person buying and
traditional payment methods (such as cash or check) towards e-commerce and digital payments, and the related increase in consumer and B2B demand for safer payment and delivery solutions, have benefited the Company as it has further ingrained its platform in its customers’ critical day-to-day order-to-cash operations. In response to the pandemic, the Company has modified some of its business practices, such as enabling and encouraging its employees to work from anywhere and establishing health and safety protocols in its offices.
In addition, the spread of COVID-19 and its variants has contributed to a global slowdown of economic activity, increased unemployment, supply chain disruptions, higher rates of inflation, higher interest rates, increased volatility in foreign currency exchange rates, and increased volatility in the global capital markets, among other macroeconomic events. The Company is unable to predict the impact the COVID-19 pandemic or other macroeconomic events will have on its future results of operations, liquidity, financial condition, ability to access capital markets, and business practices due to numerous uncertainties, including the duration, severity, and spread of the virus and its variants, actions that may be taken by government authorities, the impact to the Company's employees, customers, and partners, prolonged macroeconomic uncertainty, volatility, and disruption, and various other factors beyond the Company's knowledge or control. The Company continues to monitor these situations and may take further actions as may be required by government authorities or that it determines are in the best interests of its employees, customers, and partners.
Retroactive Adjustments Related to Change in Filing Status
Based on the closing share price and the market value of the Company's common stock held by non-affiliates as of June 30, 2021, the Company was deemed to be a large accelerated filer as of December 31, 2021. As a result, on December 31, 2021, the Company no longer qualified as an emerging growth company (“EGC”) under the Jumpstart Our Business Startups Act (“JOBS Act”). The previous EGC status allowed the Company an extended transition period to adopt new or revised accounting pronouncements until such pronouncements were applicable to private companies. The loss of ECG status required the Company to adopt the following new accounting pronouncements retroactively to January 1, 2021 in its 2021 Annual Report on Form 10-K:
•Accounting Standards Update ("ASU") 2016-02, Leases (Topic 842), including subsequently issued ASUs (collectively, "Topic 842");
•ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments, including subsequently issued ASUs (collectively, "Topic 326");
•ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes; and
•ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.
As a result, in conformity with U.S. GAAP, the Company has retroactively adjusted its quarterly financial statements and related notes thereto, as of, and for the three and six months ended June 30, 2021 to reflect the adoption of these new accounting standards as follows:
•Within the Condensed Consolidated Statements of Cash Flows, financial statement lines for (1) impairments and reduction in carrying amount of operating lease right-of-use assets and (2) operating lease liabilities were included in the net change in operating activities in accordance with Topic 842.
•Within the Notes to Condensed Consolidated Financial Statements, Note 9 - Leases was updated to include the required disclosures under Topic 842.
Except as otherwise noted, the adoption of the accounting pronouncements listed above did not have a material impact on the Company's financial position, results of operations, or the financial statements and related notes included herein.
Concentrations of Credit Risk
The financial instruments that potentially subject the Company to concentrations of credit risk are cash, cash equivalents, restricted cash, accounts receivable, and customer funds. The Company maintains its deposits of cash and cash equivalents, restricted cash, and customer funds with high-credit quality financial institutions. The Company’s cash and cash equivalents, restricted cash, and customer funds may exceed federally insured limits.
The Company’s accounts receivable are reported on 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. Ongoing credit evaluations are performed, 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, historical experience, and expectations of forward-looking loss estimates. Such losses, in the aggregate, have not exceeded management’s expectations. As of June 30, 2022 and December 31, 2021, the allowances for uncollectible accounts were $0.3 million and $0.4 million, respectively.
For the six months ended June 30, 2022 and 2021, no individual customer accounted for 10% or greater of total revenues. As of June 30, 2022 and December 31, 2021, 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 as presented on 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, |
| 2022 | | 2021 |
| Cash and cash equivalents | $ | 147,970 | | | $ | 241,607 | |
| Customer funds | 23,052 | | | 24,618 | |
| Restricted cash (1) | 2,598 | | | 2,596 | |
| Total cash, cash equivalents, and restricted cash | $ | 173,620 | | | $ | 268,821 | |
(1)Restricted cash consists of collateral for letters of credit required for leased office space and is included in other 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
On January 1, 2022, the Company adopted 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). The amendments in this ASU 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 adoption of this standard did not have an impact on the Company's financial position or results of operations.
Accounting Pronouncements Issued but not yet Adopted
In November 2021, the FASB issued ASU No. 2021-10, Government Assistance (Topic 832), Disclosures by Business Entities about Government Assistance. The amendments in this ASU require entities to annually disclose information about certain government assistance they receive. The rule will be effective for public entities for annual periods beginning after December 15, 2021. The adoption of ASU is currently not expected to have a material impact on the Company’s financial statement disclosures.
Note 3 - Business Combination & Acquisitions
2022
Acquisition of Anachron Beheer BV
On February 14, 2022, Billtrust acquired 100% of the outstanding shares of Anachron Beheer BV and subsidiaries, d/b/a Order2Cash ("Order2Cash"), a privately-held company headquartered in Amsterdam, the Netherlands. Order2Cash is a European B2B order-to-cash platform provider. Their enterprise customer base, global interoperability capabilities, and established connections to over 70 B2B and business-to-government (“B2G”) e-invoicing networks broaden BPN’s reach to deliver fully compliant and secure e-invoicing across multiple markets. The acquisition is part of Billtrust's strategic plan to continue expanding its physical presence in Europe while also enhancing its global invoicing and payments capabilities. The acquisition of Order2Cash was determined to be an acquisition of a business under ASC 805, Business Combinations. Pursuant to the terms of the purchase agreement, the Company paid an initial amount of $59.9 million in cash at closing.
Total Consideration Transferred
The following table summarizes the fair value of the aggregate consideration paid for Order2Cash (in thousands):
| | | | | |
| Cash paid at close (1) | $ | 59,878 | |
| Deferred purchase price (2) | 586 | |
| Total purchase consideration | $ | 60,464 | |
(1)Cash paid at close represents the gross contractual amounts paid. Net cash paid, which accounts for cash acquired of $0.4 million, was $59.5 million and is reflected as an investing activity on the Condensed Consolidated Statements of Cash Flows.
(2)An additional $0.6 million is payable within four years of the closing date upon achievement of certain conditions. This amount is recognized as purchase price. Refer to Note 13 - Fair Value Measurements for information on determining the fair value.
Additionally, the acquisition included earnout consideration to be paid to the sellers based on the amount and timing of Order2Cash's achievement of certain conditions. These amounts may be earned by the sellers during periods following the closing date based on the financial performance of Order2Cash during 2022, and each of the 12-month periods ending June 30, 2023 and June 30, 2024. Under ASC 805, the Company determined that the earnout consideration arrangement is compensation and therefore recognized separately from the acquisition transaction. In accordance with ASC 710, Compensation, the amount will be recognized over the arrangement period and is recorded in general and administrative expenses on the Condensed Consolidated Statements of Operations.
The preliminary acquisition date fair value of the total earnout consideration was $11.5 million. At June 30, 2022, the fair value of the total earnout consideration was $4.3 million, which was included in accrued expenses and other current liabilities and other non-current liabilities on the Condensed Consolidated Balance Sheets. The determination of the fair value included the following significant inputs; projected revenue, a risk adjusted discount rate, and estimated volatility. Increases or decreases in the inputs would have resulted in a higher or lower fair value measurement. The range of undiscounted amounts that could be payable under the earnout arrangement is zero to $23.7 million. The amount expensed for the six months ended June 30, 2022 was $1.0 million.
Preliminary Allocation of Purchase Price
The following table summarizes the preliminary allocation of the purchase price to the fair value of the assets acquired and liabilities assumed for the acquisition of Order2Cash (in thousands):
| | | | | |
| Assets: | |
| Cash and cash equivalents | $ | 422 | |
| Accounts receivable | 2,189 | |
| Property and equipment | 184 | |
| Operating lease right-of-use assets | 569 | |
| Goodwill (1) | 40,838 | |
| Intangible assets (2) | 27,238 | |
| Other assets (current and non-current) | — | |
| Total Assets | $ | 71,440 | |
| Liabilities: | |
| Accounts payable | $ | 861 | |
| Accrued expenses and other current liabilities | 1,510 | |
| Operating lease liabilities | 569 | |
| Deferred revenue | 1,226 | |
| Deferred taxes | 6,810 | |
| Total Liabilities | 10,976 | |
| Net assets acquired | $ | 60,464 | |
(1)Goodwill represents the expected revenue synergies from combining Order2Cash with Billtrust, as well as the value of the acquired workforce. The goodwill is not expected to be deductible for income tax purposes.
(2)All of the intangible assets are expected to be finite lived.
The determination of the fair value of the finite-lived intangible assets requires management judgment and the consideration of a number of factors. The Company relies on income, market, and replacement cost valuation methodologies, which include estimates related to projected cash flows for each asset, discount rates, useful lives of each asset, and published industry benchmark data. Based on the preliminary valuation, the intangible assets acquired were (in thousands):
| | | | | | | | | | | |
| Fair Value | | Useful Life
(in Years) |
| Customer relationships | $ | 22,471 | | | 13 - 14 |
| Developed technology | 3,405 | | | 5 |
| Trade names | 1,362 | | | 6 |
| Total intangible assets | $ | 27,238 | | | |
The weighted average amortization period of all the acquired intangible assets is 13.4 years.
Due to the timing of the acquisition in the first quarter of 2022, the purchase price allocation is preliminary with respect to the valuation of acquired assets, liabilities assumed (including income taxes), intangible assets, and goodwill. The Company continues to obtain the information to complete the purchase price allocation and will record adjustments, if any, during the 12 month measurement period from the acquisition date. No purchase price adjustments were recorded during the six months ended June 30, 2022.
The operating results of Order2Cash have been included in the Company’s financial statements since the acquisition date. Order2Cash’s operating results and the goodwill resulting from the acquisition are reported in the Company’s Software and Payments segment. The acquisition added approximately $4.2 million of additional revenue and $5.1 million of direct expenses during the six months ended June 30, 2022. Had the Company acquired Order2Cash in prior periods, the Company's operating results would have been materially different. As a result, the following unaudited pro forma financial information is presented as if Order2Cash had been acquired by the Company on January 1, 2021 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Pro forma total revenue | $ | 49,276 | | | $ | 43,333 | | | $ | 94,275 | | | $ | 88,333 | |
Pro forma net loss | $ | (14,985) | | | $ | (11,491) | | | $ | (39,949) | | | $ | (36,456) | |
The pro forma results have been prepared in accordance with U.S. GAAP and include the following pro forma adjustments: (1) an increase for amortization expense for the three and six months ended June 30, 2022 and 2021 as a result of the preliminary purchase price allocation for finite-lived intangible assets, (2) an increase in operating costs for the for the three and six months ended June 30, 2021 to recognize non-recurring acquisition costs incurred to close the transaction, and (3) an increase in the estimated tax benefits as a result of the pro forma adjustments. These pro forma results do not necessarily reflect the combined actual results of operations of the Company and Order2Cash that would have been achieved, nor are they necessarily indicative of future results of operations.
2021
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 109.9 million shares (including 15.2 million shares issuable pursuant to outstanding vested and unvested options from the 2003 and 2014 Plans), converted at an exchange ratio of 7.2282662 shares (the "Conversion Rate") 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.138.7 million shares of Class 1 common stock, including 2.4 million 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.6.5 million shares of Class 2 common stock; and
iii.12.5 million warrants, each exercisable for one share of Class 1 common stock at a price of $11.50 per share (the "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 one share of Class 1 common stock of the Company; and
ii.All 7.0 million private placement warrants of South Mountain were cancelled and were 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 575.0 million shares, of which 538.0 million shares were designated Class 1 common stock, $0.0001 par value per share; 27.0 million shares were designated Class 2 common stock, $0.0001 par value per share; and 10.0 million shares were designated preferred stock, $0.0001 par value per share.
Concurrently with the completion of the Business Combination, on the BCA Closing Date 20.0 million 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, 9.0 million 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 0.1 million 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 | (19,936) | |
| Net cash received from reverse recapitalization | 330,673 | |
| Net assets acquired and other adjustments | 255 | |
| Net contributions from reverse recapitalization | $ | 330,928 | |
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 (in thousands):
| | | | | |
| Number of Shares |
| Common Stock outstanding prior to Business Combination | 25,000 | |
| South Mountain founder shares | 5,500 | |
| Redemption of South Mountain shares | (2) | |
| Common stock of South Mountain | 30,498 | |
| Shares issued from PIPE | 20,000 | |
| Legacy Billtrust shareholders' shares purchased for cash | (9,006) | |
| Recapitalization shares | 41,492 | |
| Legacy Billtrust stockholders' shares | 103,774 | |
| Total shares | 145,266 | |
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 12.0 million 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 6.0 million 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 6.0 million 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, 10.9 million 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 due to 0.8 million unissued shares reserved for future issuance to holders of unvested options in the form of restricted stock units (the "Earnout RSUs"), which are subject to the same vesting terms and conditions as the underlying unvested stock options and are not replacement awards. Additionally, 0.2 million 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 BCA Closing Date, the prior holders of South Mountain stock agreed that of their existing issued and outstanding shares of Class 1 common stock, 2.4 million shares would be subject to vesting conditions based upon the same price milestones in the First Earnout (1.2 million shares) and Second Earnout (1.2 million 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 did not meet the criteria for equity classification under Accounting Standards Codification ("ASC") 815-40. Accordingly, these shares were 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 was then reclassified to equity as the 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 BCA 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) | |
| Balance, March 31, 2021 | $ | — | | | $ | — | | | $ | — | |
(1) Included in change in fair value of financial instruments on the Condensed Consolidated Statements of Operations.
Earnout RSUs 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 RSUs was determined using a Monte Carlo simulation, including the stock price on the BCA Closing Date of $16.80, a risk free rate of 0.5%, and a volatility rate of 42%.
Offering Costs
In accordance with ASC 340-10-S99-1, the 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.
Repayment of Financing Agreement
In connection with the Business Combination, the Company paid all of its outstanding debt facilities in full. 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 on the Condensed Consolidated Statements of Operations.
Acquisition of iController BV
On October 7, 2021, Billtrust acquired 100% of the outstanding shares of iController BV ("iController"), a privately-held company based in Ghent, Belgium and Amsterdam, the Netherlands. iController is a B2B provider of SaaS intelligent solutions for collections management. Their SaaS offerings enable a wide range of users, from credit and collections managers to chief financial officers, to see payment and collections information and communication in real time, providing visibility into cash flow management. The acquisition is part of Billtrust's strategic plan to expand its physical presence in Europe while enhancing its global collections capabilities. The acquisition of iController was determined to be an acquisition of a business under ASC 805, Business Combinations.
Pursuant to the terms of the purchase agreement, the Company paid an initial amount of $57.0 million in cash at closing, which was subject to a closing working capital adjustment and typical indemnity provisions from the seller.
Total Consideration Transferred
The following table summarizes the fair value of the aggregate consideration paid for iController (in thousands):
| | | | | |
| Cash paid at close (1) | $ | 57,020 | |
| Contingent consideration (2) | 5,085 | |
| Deferred purchase price (3) | 579 | |
| Total purchase consideration | $ | 62,684 | |
(1)The cash paid at close represents the gross contractual amounts paid. Net cash paid, which accounts for cash acquired of $0.2 million, was $56.8 million and is reflected as an investing activity on the Condensed Consolidated Statements of Cash Flows.
(2)The acquisition of iController included contingent consideration to be paid in cash to the seller based on the amount and timing of iController’s achievement of certain recurring revenue growth targets over a three year period subsequent to the acquisition date. The fair value of this contingent consideration on the closing date was $5.1 million, which is recognized as purchase price. Refer to Note 13 - Fair Value Measurements for information on determining the fair value.
(3)The deferred purchase price was paid in the first quarter of 2022 upon completion of certain conditions.
Preliminary Allocation of Purchase Price
The following table summarizes the preliminary allocation of the purchase price to the fair value of the assets acquired and liabilities assumed for the acquisition of iController (in thousands):
| | | | | |
| Assets: | |
| Cash and cash equivalents | $ | 187 | |
| Accounts receivable | 1,217 | |
| Property and equipment | 439 | |
| Operating lease right-of-use assets | 651 | |
| Goodwill (1) | 52,386 | |
| Intangible assets (2) | 17,385 | |
| Other assets (current and non-current) | 76 | |
| Total Assets | $ | 72,341 | |
| Liabilities: | |
| Accounts payable | $ | 524 | |
| Accrued expenses and other current liabilities | 641 | |
| Operating lease liabilities, net of current portion | 917 | |
| Deferred revenue | 3,775 | |
| Deferred taxes | 3,800 | |
| Total Liabilities | 9,657 | |
| Net assets acquired | $ | 62,684 | |
(1)Goodwill represents the expected revenue synergies from combining iController with Billtrust, as well as the value of the acquired workforce. The goodwill is not expected to be deductible for income tax purposes.
(2)All of the intangible assets are finite lived.
The determination of the fair value of the finite-lived intangible assets requires management judgment and the consideration of a number of factors. The Company relies on income, market, and replacement cost valuation methodologies, which included estimates related to projected cash flows for each asset, discount rates, useful
lives of each asset, and published industry benchmark data. Based on the valuation, the intangible assets acquired were (in thousands):
| | | | | | | | | | | |
| Fair Value | | Useful Life
(in Years) |
| Customer relationships | $ | 14,256 | | | 15 |
| Developed technology | 2,202 | | | 6 |
| Trade names | 927 | | | 6 |
| Total intangible assets | $ | 17,385 | | | |
The weighted average amortization period of all the acquired intangible assets is 13.4 years.
The purchase price allocation is preliminary with respect to the valuation of acquired assets, liabilities assumed (including income taxes), intangible assets, and goodwill. The Company continues to obtain the information to complete the purchase price allocation and will record adjustments, if any, during the 12 month measurement period from the acquisition date. No purchase price adjustments were recorded since the acquisition date or during the six months ended June 30, 2022.
The operating results of iController have been included in the Company’s financial statements since the acquisition date and are not material to the Company’s consolidated financial results. iController’s operating results and the goodwill resulting from the acquisition are reported in the Company’s Software and Payments segment.
Acquisition Costs
The Company recognized $0.3 million and $2.0 million of acquisition costs during the three and six months ended June 30, 2022, respectively. These costs primarily consisted of legal, accounting, tax professional fees, and the Order2Cash earnout consideration, and are included in general and administrative expenses on the Condensed Consolidated Statements of Operations. The Company did not have acquisition costs in three and six months ended June 30, 2021.
Note 4 - Goodwill and Intangible Assets
Goodwill
Goodwill represents the amount an acquisition’s purchase price exceeds the fair value of the assets acquired, including identifiable intangible assets, and liabilities assumed. Goodwill is not amortized; however it is required to be tested for impairment annually at the reporting unit level. Testing for impairment is also required on an interim basis if events or circumstances indicate it is more likely than not that an impairment loss has been incurred.
The Company performed its annual impairment test as of October 1, 2021, utilizing a qualitative assessment to determine if it was more likely than not that the fair value 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, 2022, there were no events or circumstances that required an interim impairment test. Additionally, as of June 30, 2022, the Company had no accumulated goodwill impairment losses.
All of the Company's goodwill is attributable to its Software and Payments segment. A summary of goodwill and the changes in its carrying amount are shown in the following table (in thousands):
| | | | | |
| Consolidated Goodwill |
| Balance at December 31, 2021 | $ | 88,148 | |
| Addition from acquisition (1) | 40,838 | |
| Foreign translation adjustments | (6,866) | |
| Balance at June 30, 2022 | $ | 122,120 | |
(1)The entire increase is related to the acquisition of Order2Cash (refer to Note 3 - Business Combination & Acquisitions).
Finite-Lived Intangible Assets
The gross carrying values, accumulated amortization, and net carrying values (reduced for fully amortized intangibles) of finite-lived intangible assets as of June 30, 2022 and December 31, 2021, are as follows (in thousands):
| | | | | | | | | | | | | | | | | |
| June 30, 2022 |
| Gross Carrying
Value | | Accumulated Amortization | | Net Carrying Value |
| Customer relationships | $ | 43,366 | | | $ | (4,834) | | | $ | 38,532 | |
| Non-compete agreements | 1,430 | | | (1,060) | | | 370 | |
| Trademarks and trade names | 2,258 | | | (269) | | | 1,989 | |
| Technology | 6,681 | | | (1,442) | | | 5,239 | |
| Total | $ | 53,735 | | | $ | (7,605) | | | $ | 46,130 | |
| | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Gross Carrying
Value | | Accumulated Amortization | | Net Carrying Value |
| Customer relationships | $ | 23,621 | | | $ | (3,524) | | | $ | 20,097 | |
| Non-compete agreements | 1,430 | | | (917) | | | 513 | |
| Trademarks and trade names | 1,066 | | | (111) | | | 955 | |
| Technology | 3,692 | | | (918) | | | 2,774 | |
| Total | $ | 29,809 | | | $ | (5,470) | | | $ | 24,339 | |
Amortization expense was $1.3 million and $0.6 million for the three months ended June 30, 2022 and 2021, respectively, and $2.2 million and $1.1 million for the six months ended June 30, 2022 and 2021, respectively.
Estimated amortization expense for each of the next five years and thereafter is as follows (in thousands):
| | | | | |
| 2022 (remainder) | $ | 2,511 | |
| 2023 | 3,481 | |
| 2024 | 3,237 | |
| 2025 | 3,044 | |
| 2026 | 3,006 | |
| Thereafter | 30,851 | |
| Total | $ | 46,130 | |
Note 5 - Revenue and Related Matters
Disaggregated Revenue
The Company disaggregates revenue as set forth in the following table (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| Revenues by Type: | | 2022 | | 2021 | | 2022 | | 2021 |
| Subscription and transaction fees | | $ | 37,617 | | | $ | 29,072 | | | $ | 71,719 | | | $ | 59,255 | |
| Services and other | | 2,983 | | | 2,517 | | | 5,930 | | | 5,453 | |
| Subscription, transaction, and services | | $ | 40,600 | | | $ | 31,589 | | | $ | 77,649 | | | $ | 64,708 | |
Contract Assets and Liabilities
There were no contract assets as of June 30, 2022 or December 31, 2021.
Deferred Revenue
Amounts billed to clients in excess of revenue recognized are contract liabilities (referred to as deferred revenue on the Condensed Consolidated Balance Sheets). Deferred revenue primarily relates to implementation fees for new customers or for new services and subscription fees billed in advance.
During the three months ended June 30, 2022 and 2021, the Company recognized $5.7 million and $4.9 million of revenue, respectively, related to its deferred revenue balance at the beginning of each such period. During the six months ended June 30, 2022 and 2021, the Company recognized $11.2 million and $11.5 million, 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 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, 2022, the Company had approximately $40.6 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 94% of this amount during the next 36 months, and the remainder thereafter.
Deferred Commissions and Implementation Costs
The current and non-current portions of deferred implementation and commission costs on the Condensed Consolidated Balance Sheets are as follows (in thousands):
| | | | | | | | | | | |
| June 30, | | December 31, |
| 2022 | | 2021 |
| Current portion of deferred costs: | | | |
| Deferred commissions, current | $ | 3,044 | | | $ | 2,997 | |
| Deferred implementation costs, current | 1,986 | | | 2,063 | |
| Deferred implementation and commission costs, current portion | $ | 5,030 | | | $ | 5,060 | |
| | | |
| Non-current portion of deferred costs: | | | |
| Deferred commissions, net of current portion | $ | 6,803 | | | $ | 6,392 | |
| Deferred implementation costs, net of current portion | 2,437 | | | 2,846 | |
| Deferred implementation and commission costs, net of current portion | $ | 9,240 | | | $ | 9,238 | |
Amortization of commissions was $0.8 million and $0.6 million during the three months ended June 30, 2022 and 2021, respectively, and $1.5 million during both the six months ended June 30, 2022 and 2021. Amortization of implementation costs was $0.7 million and $0.8 million during the three months ended June 30, 2022 and 2021, respectively, and $1.4 million and $2.0 million during the six months ended June 30, 2022 and 2021, respectively.
The Company evaluates the recoverability of deferred commissions and implementation costs at each balance sheet date and there were no impairments recorded during the six months ended June 30, 2022 or 2021.
Note 6 - Loss Per Share
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 (in thousands, except per share amounts):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Six Months Ended
June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Numerator: | | | | | | | |
| Net loss | $ | (15,211) | | | $ | (10,736) | | | $ | (44,238) | | | $ | (33,530) | |
| Denominator: | | | | | | | |
| Weighted-average common shares outstanding | 163,596 | | | 157,197 | | | 163,287 | | | 151,289 | |
| Net loss per share attributable to common stockholders, basic and diluted | $ | (0.09) | | | $ | (0.07) | | | $ | (0.27) | | | $ | (0.22) | |
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 based on the underlying shares and not considering all factors that would be involved in determining the common stock equivalents (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Six Months Ended
June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Stock options | 18,631 | | | 21,083 | | | 18,631 | | | 21,083 | |
| Restricted stock units | 4,348 | | | 706 | | | 4,348 | | | 706 | |
| Warrants | — | | | 12,498 | | | — | | | 12,498 | |
| 22,979 | | | 34,287 | | | 22,979 | | | 34,287 | |
Note 7 - Stockholders' Equity and Stock-Based Compensation
Warrants
In connection with the Business Combination (refer to Note 3 - Business Combination & Acquisitions), Billtrust assumed the Warrants that had previously been issued by South Mountain. 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 Common Stock issuable upon exercise of the Warrants and to maintain a current prospectus until the Warrants expired or were redeemed.
The Company determined the Public Warrants met the definition of a derivative as they were indexed to the Company’s Common Stock pursuant to ASC 815-40-15-7 and met all other criteria for equity classification pursuant to ASC 815-40. Therefore, as of the BCA Closing Date, the Public Warrants were accounted for within stockholders' equity as a component of additional paid-in capital on 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.
Warrant Exchange Offer
On November 18, 2021, the Company commenced a tender offer (the “Warrant Exchange Offer”) to each holder of its outstanding Warrants the opportunity to exchange their warrants for shares of the Company’s Common Stock, par value $0.0001 per share. Each holder was set to receive 0.30 shares of Common Stock in exchange for each outstanding Warrant tendered by the holder and exchanged pursuant to the terms of the Warrant Exchange Offer. Concurrently with the Warrant Exchange Offer, the Company solicited consents from holders of the Warrants to amend the Warrant Agreement (“Warrant Amendment”) dated June 19, 2019, to permit the Company to require that each Warrant outstanding upon the closing of the Warrant Exchange Offer be converted into 0.27 shares of Common Stock, which is a ratio 10% less than the exchange ratio applicable to the
Warrant Exchange Offer. Pursuant to the terms of the Warrant Agreement, an amendment required the written consent of at least 50% of the holders of the Warrants.
On December 17, 2021, the Company concluded the Warrant Exchange Offer with approximately 99.2% of the outstanding Warrants validly tendered and not withdrawn in the Warrant Exchange Offer. Additionally, the Company received the approval of approximately 99.2% of the outstanding Warrants for the Warrant Amendment. Accordingly, the Company exchanged all outstanding Warrants and issued 3.7 million shares of its Common Stock. All Warrants were exchanged as of December 31, 2021 and as a result, Nasdaq halted trading in the Warrants and subsequently agreed with the Company to delist them as none remained outstanding.
Equity Incentive Plans
As part of the Business Combination (refer to Note 3 - Business Combination & Acquisitions), 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.
During the six months ended June 30, 2022, the Board of Directors authorized an increase of 2.0 million shares for the 2020 Plan and 1.6 million shares for the 2020 ESPP. As of June 30, 2022, 5.2 million shares of Common Stock remain available for issuance pursuant to the 2020 Plan and 2.8 million shares of Common Stock remain available for issuance pursuant to the 2020 ESPP.
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, 2022 is presented below (in thousands, except 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, 2021 | | 20,025 | | | $ | 8.51 | | | 7.8 | | $ | 60,223 | |
| Exercised | | (765) | | | 1.67 | | | | | |
| Forfeited | | (629) | | | 13.02 | | | | | |
| Outstanding at June 30, 2022 | | 18,631 | | | $ | 8.64 | | | 7.1 | | $ | 26,199 | |
| Vested and expected to vest at June 30, 2022 | | 16,982 | | | $ | 8.21 | | | 7.0 | | $ | 25,346 | |
| Exercisable at June 30, 2022 | | 9,974 | | | $ | 5.81 | | | 6.2 | | $ | 20,231 | |
No stock options were granted during the six months ended June 30, 2022.
Restricted Stock Units
Restricted stock unit ("RSUs") activity for the six months ended June 30, 2022 is presented below (in thousands, except per share amounts):
| | | | | | | | | | | | | | |
| | Number of Shares | | Weighted-Average Grant Date Fair Value |
| Unvested at December 31, 2021 | | 613 | | | $ | 15.08 | |
| Granted | | 4,154 | | | 6.91 | |
| Released | | (166) | | | 15.51 | |
| Vested | | (253) | | | 8.23 | |
| Unvested at June 30, 2022 | | 4,348 | | | $ | 7.73 | |
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 consisted of one purchase period, commenced on July 1, 2021 and ran through November 30, 2021. Thereafter, each offering period runs 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. 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, 2022, employees purchased 190,706 shares pursuant to the 2020 ESPP.
Stock-Based Compensation Expense
Stock-based compensation expense was recorded in the following categories on the Condensed Consolidated Statements of Operations (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| Cost of subscription, transaction, and services | | $ | 621 | | | $ | 405 | | | $ | 1,059 | | | $ | 848 | |
| Research and development | | 1,493 | | | 1,091 | | | 2,718 | | | 2,314 | |
| Sales and marketing | | 971 | | | 961 | | | 1,725 | | | 2,292 | |
| General and administrative | | 4,190 | | | 3,249 | | | 7,851 | | | 9,078 | |
| Total | | $ | 7,275 | | | $ | 5,706 | | | $ | 13,353 | | | $ | 14,532 | |
The fair value of the Company's stock options granted and purchase rights to the ESPP were estimated using the Black-Scholes valuation model with the following assumptions:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
June 30, | | Six Months Ended
June 30, | | | |
| | 2022 | | 2021 | | 2022 | | 2021 | |
| Stock Options: | | | | | | | | | | | |
| Risk-free interest rate | | — | % | | 1.3% - 1.4% | | — | % | | 0.6% - 1.4% | | | |
| Expected dividend yield | | — | % | | — | % | | — | % | | — | % | |
| Expected volatility | | — | % | | 41% | | — | % | | 41% - 42% | | | |
| Expected life (in years) | | — | | | 5.5 | | — | | | 5.5 | |
| Weighted average grant date fair value | | $ | — | | | $ | 5.81 | | | $ | — | | | $ | 6.51 | | | | |
| | | | | | | | | | | |
| Employee Stock Purchase Plan: | | | | | | | | | | | |
| Risk-free interest rate | | 0.1% - 1.6% | | — | % | | 0.1% - 1.6% | | — | % | | | |
| Expected dividend yield | | — | % | | — | % | | — | % | | — | % | | | |
| Expected volatility | | 40% - 43% | | — | % | | 40% - 43% | | — | % | | | |
| Expected life (in years) | | 0.5 | | — | | | 0.5 | | — | | | | |
| Weighted average grant date fair value | | $ | 1.67 | | $ | — | | | $ | 1.75 | | $ | — | | | | |
As of June 30, 2022, the total unrecognized stock-based compensation expense related to stock options and RSU's was $34.8 million and $30.2 million, respectively. These costs are expected to be recognized over a weighted-average period of 2.3 years for stock options and 4.2 years for RSUs.
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, 2022 and 2021, the Company contributed $0.5 million and $0.4 million, respectively. During the six months ended June 30, 2022 and 2021, the Company contributed $1.1 million and $0.9 million, respectively.
Note 9 - Leases
The components of lease expense were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Six Months Ended
June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Finance lease assets amortization | $ | 80 | | | $ | 58 | | | $ | 152 | | | $ | 121 | |
| Finance lease interest expense | 4 | | | 2 | | | 8 | | | 6 | |
| Total finance lease cost | 84 | | | 60 | | | 160 | | | 127 | |
| Operating lease cost | 1,158 | | | 1,097 | | | 2,351 | | | 2,184 | |
| Short-term lease cost | 30 | | | 24 | | | 61 | | | 73 | |
| Variable lease cost | 61 | | | 201 | | | 249 | | | 438 | |
| Sublease income | (82) | | | (80) | | | (165) | | | (160) | |
| Total lease cost | $ | 1,251 | | | $ | 1,302 | | | $ | 2,656 | | | $ | 2,662 | |
The weighted-average remaining lease term and discount rate for operating and finance leases as of June 30, 2022 are as follows:
| | | | | | | | | | | |
| Operating Leases | | Finance Leases |
| Weighted-average remaining lease term | 9.8 years | | 2.1 years |
| Weighted-average discount rate | 5.4 | % | | 3.6 | % |
The following table indicates the financial statement lines where the Company's operating and finance lease assets and liabilities are included on the Condensed Consolidated Balance Sheets (in thousands):
| | | | | | | | | | | |
| As of June 30, 2022 | | Balance Sheet Classification |
| Assets: | | | |
| Operating lease right-of-use assets | $ | 19,261 | | | Operating lease right-of-use assets |
| Finance lease assets | 419 | | | Property and equipment, net |
| Total lease assets | $ | 19,680 | | | |
| | | |
| Liabilities: | | | |
| Current operating lease liabilities | $ | 3,495 | | | Accrued expenses and other current liabilities |
| Current finance lease liabilities | 224 | | | Accrued expenses and other current liabilities |
| Non-current operating lease liabilities | 32,412 | | | Operating lease liabilities, net of current portion |
| Non-current finance lease liabilities | 241 | | | Other non-current liabilities |
| Total lease liabilities | $ | 36,372 | | | |
Supplemental cash flow information related to leases is as follows (in thousands):
| | | | | |
| Six Months Ended June 30, 2022 |
| Cash paid for amounts included in the measurement of operating lease liabilities: | |
| Operating cash flows from operating leases | $ | 2,580 | |
| Operating cash flows from finance leases | $ | 8 | |
| Finance cash flows from finance leases | $ | 145 | |
| ROU assets obtained in exchange for new operating lease liabilities: | $ | 1,896 | |
| Assets obtained in exchange for new finance lease liabilities: | $ | 307 | |
Future minimum lease payments under non-cancellable operating and finance leases as of June 30, 2022 are as follows (in thousands):
| | | | | | | | | | | |
| Operating Leases | | Finance Leases |
| 2022 (remainder) | $ | 2,649 | | | $ | 139 | |
| 2023 | 5,404 | | | 215 | |
| 2024 | 5,030 | | | 97 | |
| 2025 | 4,609 | | | 26 | |
| 2026 | 4,342 | | | 4 | |
| Thereafter | 24,668 | | | — | |
| Total minimum lease payments | 46,702 | | | 481 | |
| Less: Amounts representing interest | (10,795) | | | (16) | |
| Present value of lease payments | $ | 35,907 | | | $ | 465 | |
Amounts listed in the future minimum lease payments table above do not include sublease income.
Impairment of Right-of-Use ("ROU") Assets and Restructuring Charges
During the first quarter of 2022, the Company approved a strategic plan to optimize its structure and costs related to its leased facilities and print operations. As part of the plan, the Company approved a formal work from anywhere policy due to high interest in allowing employees to work remotely and investments in the Company's operating environments and technology enabling seamless day-to-day execution and increased productivity across a distributed workforce. Additionally, the Company closed one of its print locations due to the continued decline in customer print volumes and efficiencies gained through streamlining its print operations. The overall plan included vacating some or all of several of the Company's leased office facilities and one of its leased print operations facilities and making them available for sublease. The Company ceased using all of the leased facility space outlined in the plan by March 31, 2022.
As a result, during the three months ended March 31, 2022, the Company incurred $10.0 million of ROU asset impairments and $3.6 million of leasehold improvement and fixed asset impairments, which were recorded in impairment and restructuring on the Condensed Consolidated Statements of Operations. In calculating the impairment amount, the fair value of each asset was determined using an income approach based on the present value of future cash flows from estimated sublease income. This approach required the use of certain estimates, including a discount rate, sublease rental rates, period of vacancy, and sublease incentives, which were based in part by local real estate industry data. As these are subjective estimates based on unobservable inputs, the fair value of the assets have been classified in Level 3 of the fair value hierarchy (refer to Note 13 - Fair Value Measurements).
Additionally, in accordance with ASC 420, Exit or Disposal Cost Obligations, the Company recognized exit obligation costs related to closing the print operations facility, including one-time employee severance benefits, contract termination costs, and other costs associated with exiting the facility. These costs were recorded in impairment and restructuring on the Condensed Consolidated Statements of Operations, and were allocated to the Company's Print segment. Total costs recognized during six months ended June 30, 2022, which included estimates of future costs to be incurred under the plan, were not material.
During the second quarter of 2022, the Company approved an expansion of the strategic plan to further vacate an additional portion of its leased office space. As the space had not been vacated by June 30, 2022, no further impairments were required or recognized during the three months ended June 30, 2022. Upon the cease-use date of this additional space, which is expected to occur in the third or fourth quarter of 2022, the Company will evaluate if an additional impairment charge is required.
In the future if the Company determines it no longer intends to utilize some or all of its other remaining leased facility spaces, the Company may be required to record additional impairment or restructuring charges.
Note 10 - Commitments and Contingencies
Purchase Commitments
The Company enters into purchase commitments with certain vendors to secure materials necessary for its print operations. As of June 30, 2022, the Company had approximately $0.6 million remaining under such purchase orders.
Legal Contingencies, Claims, and Assessments
From time to time, the Company may become involved in legal proceedings or be subject to claims arising in the ordinary course of its business. The Company accrues estimates for legal and other contingencies when losses are probable and estimable. Although the results of current litigation and claims cannot be predicted with certainty, the Company currently believes that the final outcome of any current matters will not have a material adverse effect on the Company’s business, operating results, financial condition, or results of operations. Regardless of the outcome, litigation can have a material adverse effect on the Company due to defense and settlement costs, diversion of management resources, and other factors.
Note 11 - Income Taxes
The Company is subject to taxation in the United States (federal and state) and foreign jurisdictions. The Company’s provision (benefit) 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 tax expense (benefit) for the six months ended June 30, 2022 and 2021 is primarily due to the tax amortization of indefinite-lived assets, state income taxes, and foreign 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 does not believe that an ownership change in connection with the Business Combination would have a material impact to its Condensed Consolidated Financial Statements and management will continue to monitor the potential impact.
Note 12 - Marketable Securities
The Company did not have any marketable securities at June 30, 2022 as they all matured in the second quarter of 2022. At December 31, 2021, marketable securities consisted entirely of certificates of deposit with a financial institution and had maturity dates of 12 months or less.
As the Company viewed its marketable securities as available to support its current operations, it classified them as available-for-sale. All marketable securities are recorded at their fair value (see Note 13 - Fair Value Measurements) with any unrealized gains or losses (except those related to credit losses) recorded in accumulated other comprehensive income (loss). There were no unrealized gains or losses during the six months ended June 30, 2022 and 2021. Realized gains and losses, including interest earned, are recorded in other non-operating income (expense) on the Condensed Consolidated Statements of Operations and were not material during the six months ended June 30, 2022 and 2021.
The Company did not record any impairments during the six months ended June 30, 2022 and 2021.
Note 13 - Fair Value Measurements
The carrying amounts reflected on the Condensed Consolidated Balance Sheets for cash, restricted cash, accounts receivable, customer funds, other current assets, other assets, accounts payable, accrued expenses, other current liabilities (excluding deferred purchase price, contingent and earnout consideration), and customer postage deposits approximate their 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 cash equivalents, marketable securities, deferred purchase price, and contingent consideration. The fair value 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, quoted 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, 2022 |
| Balance | | Level 1 | | Level 2 | | Level 3 |
| Assets: | | | | | | | |
| Cash equivalents: | | | | | | | |
| Money market fund (1) | $ | 75,123 | | | $ | 75,123 | | | $ | — | | | $ | — | |
| Total assets | $ | 75,123 | | | $ | 75,123 | | | $ | — | | | $ | — | |
| | | | | | | |
| Liabilities: | | | | | | | |
| Contingent consideration - iController (2) | $ | 5,213 | | | $ | — | | | $ | — | | | $ | 5,213 | |
| Deferred purchase price - Order2Cash (3) | 541 | | | — | | | — | | | 541 | |
| Total liabilities | $ | 5,754 | | | $ | — | | | $ | — | | | $ | 5,754 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Balance | | Level 1 | | Level 2 | | Level 3 |
| Assets: | | | | | | | |
| Cash equivalents: | | | | | | | |
| Money market fund (1) | $ | 25,015 | | | $ | 25,015 | | | $ | — | | | $ | — | |
| Marketable securities: | | | | | | | |
| Certificates of deposit (4) | 45,117 | | | — | | | 45,117 | | | — | |
| Total assets | $ | 70,132 | | | $ | 25,015 | | | $ | 45,117 | | | $ | — | |
| | | | | | | |
| Liabilities: | | | | | | | |
| Contingent consideration - Second Phase (5) | $ | 370 | | | $ | — | | | $ | — | | | $ | 370 | |
| Contingent consideration - iController (2) | 5,085 | | | — | | | — | | | 5,085 | |
| Total liabilities | $ | 5,455 | | | $ | — | | | $ | — | | | $ | 5,455 | |
(1)Included in cash and cash equivalents on the Condensed Consolidated Balance Sheets.
(2)The acquisition of iController in October 2021 included a contingent consideration arrangement that requires additional payments to the seller based on the amount and timing of iController’s achievement of certain recurring revenue growth targets over a three-year period subsequent to the acquisition date. The Monte
Carlo simulation was used to determine the fair value, including the following significant unobservable inputs; projected revenue, a risk adjusted discount rate, and revenue volatility. Increases or decreases in the inputs would have resulted in a higher or lower fair value measurement. The range of outcomes for the amount payable cannot be estimated as it is based on a percentage of the growth in the revenue targets. The fair value of the contingent consideration is included in accrued expenses and other current liabilities and other non-current liabilities on the Condensed Consolidated Balance Sheets.
(3)The acquisition of Order2Cash in February 2022 includes deferred purchase price payable within four years of the closing date upon achievement of certain conditions. A discounted cash flow model was used to determine the fair value, including a risk adjusted discount rate, which is an unobservable input. Increases or decreases in the input would have resulted in a higher or lower fair value measurement. The range of undiscounted amounts payable for the deferred purchase price is zero to $0.7 million. The fair value of the deferred purchase price is included in accrued expenses and other current liabilities and other non-current liabilities on the Condensed Consolidated Balance Sheets.
(4)Certificates of deposit are valued at amortized cost, which approximates fair value.
(5)The acquisition of Second Phase, LLC in April 2019 included a contingent consideration arrangement that required additional payments to the sellers annually if certain recurring revenue growth and profitability targets during the three-year period beginning May 1, 2019 were met. No amounts were paid during the three-year periods as none of the financial targets were met.
During the six months ended June 30, 2022, 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 table presents the changes in the Company’s Level 3 financial instruments measured at fair value on a recurring basis (in thousands):
| | | | | | | | |
| | Contingent
Consideration and Deferred Purchase Price |
| Balance, December 31, 2021 | | $ | 5,455 | |
| Acquisition of Order2Cash (1) | | 586 | |
| Fair value adjustments to contingent consideration (2) | | 249 | |
| Foreign translation adjustments | | (536) | |
| Balance, June 30, 2022 | | $ | 5,754 | |
(1)Refer to Note 3 - Business Combination & Acquisitions. Changes in the fair value of the deferred purchase price are recognized in change in fair value of financial instruments on the Condensed Consolidated Statements of Operations. At June 30, 2022, there were no material changes in the range of expected outcomes or the fair value from the acquisition date.
(2)Subsequent to the acquisitions of Second Phase, LLC and iController, the change in the fair value of the contingent consideration for each acquisition was due to updates to management's estimates and progress towards achievement of the financial targets during each period. This amount was recorded in change in fair value of financial instruments on the Condensed Consolidated Statements of Operations.
Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis
Certain of the Company’s certain long-lived assets, including identifiable intangible assets, goodwill, ROU assets, and other long-lived assets, are measured at fair value on a nonrecurring basis when there are indicators of impairment. Refer to Note 9 - Leases for a discussion on impairment charges on ROU assets and other long-lived assets related to leased facility space the Company has ceased using.
Note 14 - Property and Equipment
Property and equipment, net (reduced for fully depreciated assets) consists of the following (in thousands):
| | | | | | | | | | | | | | |
| | June 30, | | December 31, |
| | 2022 | | 2021 |
| Assets held under finance leases | | $ | 3,706 | | | $ | 3,509 | |
| Computer, print and mail equipment | | 8,861 | | | 7,857 | |
| Furniture and fixtures | | 2,175 | | | 4,275 | |
| Leasehold improvements | | 7,471 | | | 12,127 | |
| Software | | 1,334 | | | 1,222 | |
| Vehicles | | 122 | | | 95 | |
| Internal software development | | 6,959 | | | 3,011 | |
| | | | |
| Total property and equipment | | 30,628 | | | 32,096 | |
| Less: accumulated depreciation and amortization | | (19,269) | | | (16,580) | |
| Total property and equipment, net | | $ | 11,359 | | | $ | 15,516 | |
Depreciation and amortization expense of property and equipment, including amortization of software development costs and finance leases, was $0.9 million and $0.8 million for the three months ended June 30, 2022 and 2021, respectively, and $1.8 million and $1.6 million for the six months ended June 30, 2022 and 2021, respectively.
Refer to Note 9 - Leases for a discussion on impairments of fixed assets for the six months ended June 30, 2022. The Company had no other material impairments or disposals of fixed assets during the six months ended June 30, 2022 and 2021.
Note 15 - Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following (in thousands):
| | | | | | | | | | | | | | |
| | June 30, | | December 31, |
| | 2022 | | 2021 |
| Accrued expenses | | $ | 23,565 | | | $ | 19,051 | |
| Accrued compensation (1) | | 12,990 | | | 16,093 | |
| Accrued professional services, taxes, and other expenses | | 4,795 | | | 7,120 | |
| Operating lease liabilities, current portion | | 3,495 | | | 3,225 | |
| Accrued earnout and contingent consideration | | 2,477 | | | 937 | |
| Total accrued expenses and other current liabilities | | $ | 47,322 | | | $ | 46,426 | |
(1)Includes amounts deferred and accrued under the Coronavirus Aid, Relief, and Economic Security ("CARES") Act enacted by Congress on March 27, 2020. The CARES Act, among other things, included provisions relating to deferment of employer side social security payments. The Company, through its payroll provider, elected to defer employer side social security payments effective as of April 2020 through December 2020. At the end of 2021, the Company paid approximately $1.2 million of the total deferred amount. The Company expects to pay the remaining amount in 2022.
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, 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 the 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, impairment and restructuring expense, stock-based compensation expense, other 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, 2022 |
| Print | | Software and Payments | | All other | | Consolidated |
| Revenues: | | | | | | | |
| Subscription and transaction | $ | 4,334 | | | $ | 33,283 | | | $ | — | | | $ | 37,617 | |
| Services and other | — | | | — | | | 2,983 | | | 2,983 | |
| Subscription, transaction, and services revenues | 4,334 | | | 33,283 | | | 2,983 | | | 40,600 | |
| Reimbursable costs | 8,676 | | | — | | | — | | | 8,676 | |
| Total revenues | 13,010 | | | 33,283 | | | 2,983 | | | 49,276 | |
| Cost of revenues: | | | | | | | |
| Cost of subscription, transaction, and services revenue | 1,583 | | | 4,846 | | | 4,721 | | | 11,150 | |
| Cost of reimbursable costs | 8,676 | | | — | | | — | | | 8,676 | |
| Total cost of revenues | 10,259 | | | 4,846 | | | 4,721 | | | 19,826 | |
| Gross profit: | | | | | | | |
| Total segment gross profit (loss) | $ | 2,751 | | | $ | 28,437 | | | $ | (1,738) | | | $ | 29,450 | |
| Total segment gross margin | 21 | % | | 85 | % | | (58) | % | | 60 | % |
| Subscription, transaction, and services gross margin | 63 | % | | 85 | % | | (58) | % | | 73 | % |
| Unallocated amounts: | | | | | | | |
| Sales, marketing, research, development, and administrative expenses | | | | | | | 42,682 | |
| Depreciation and amortization | | | | | | | 2,166 | |
| Impairment and restructuring | | | | | | | 30 | |
| Other expense | | | | | | | 78 | |
| Loss before income taxes | | | | | | | $ | (15,506) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| 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 revenues | 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 | |
| | | | | | | |
| Other income | | | | | | | (133) | |
| Loss before income taxes | | | | | | | $ | (10,725) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2022 |
| Print | | Software and Payments | | All other | | Consolidated |
| Revenues: | | | | | | | |
| Subscription and transaction | $ | 8,575 | | | $ | 63,144 | | | $ | — | | | $ | 71,719 | |
| Services and other | — | | | — | | | 5,930 | | | 5,930 | |
| Subscription, transaction, and services revenues | 8,575 | | | 63,144 | | | 5,930 | | | 77,649 | |
| Reimbursable costs | 17,258 | | | — | | | — | | | 17,258 | |
| Total revenues | 25,833 | | | 63,144 | | | 5,930 | | | 94,907 | |
| Cost of revenues: | | | | | | | |
| Cost of subscription, transaction, and services revenue | 3,174 | | | 9,425 | | | 8,875 | | | 21,474 | |
| Cost of reimbursable costs | 17,258 | | | — | | | — | | | 17,258 | |
| Total cost of revenues | 20,432 | | | 9,425 | | | 8,875 | | | 38,732 | |
| Gross profit: | | | | | | | |
| Total segment gross profit (loss) | $ | 5,401 | | | $ | 53,719 | | | $ | (2,945) | | | $ | 56,175 | |
| Total segment gross margin | 21 | % | | 85 | % | | (50) | % | | 59 | % |
| Subscription, transaction, and services gross margin | 63 | % | | 85 | % | | (50) | % | | 72 | % |
| Unallocated amounts: | | | | | | | |
| Sales, marketing, research, development, and administrative expenses | | | | | | | 83,231 | |
| Depreciation and amortization | | | | | | | 4,027 | |
| Impairment and restructuring | | | | | | | 13,884 | |
| Other expense | | | | | | | (10) | |
| Loss before income taxes | | | | | | | $ | (44,957) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| 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 revenues | 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 | |
| | | | | | | |
| Other income | | | | | | | 12,696 | |
| Loss before income taxes | | | | | | | $ | (33,427) | |
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, 2022 and 2021 and the six months ended June 30, 2022 and 2021 revenues generated from the Related Party Customer were not material. At both June 30, 2022 and December 31, 2021 open receivable balances from the Related Party Customer were not material.
The Company 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, 2022, 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, 2022 and 2021 and the six months ended June 30, 2022 and 2021 revenues generated from and expenses incurred to the Portfolio Companies were not material. At both June 30, 2022 and December 31, 2021 open payables to and open receivables from the Portfolio Companies were not material.
The sellers of Order2Cash, who remain employees with the Company, are 50% owners of a joint venture that provides outsourced managed services to Order2Cash as part of Order2Cash's product offerings. During the three and six months ended June 30, 2022, expenses incurred to the joint venture were $0.3 million and $0.7 million, respectively. At June 30, 2022, open net payables to the joint venture were not material.
