UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2023
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-40429
Paymentus Holdings, Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware
45-3188251
(State or other jurisdiction of
incorporation or organization)
(I.R.S. EmployerIdentification No.)
11605 North Community House Road, Suite 300
Charlotte, NC
28277
(Address of principal executive offices)
(Zip Code)
(888) 440-4826
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading
Symbol(s)
Name of each exchange on which registered
Class A Common Stock, par value $0.0001 per share
PAY
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of August 1, 2023, the registrant had 20,207,215 shares of Class A Common Stock, $0.0001 par value per share and 103,306,842 shares of Class B Common Stock, $0.0001 par value per share, outstanding.
Table of Contents
Page
Special Note Regarding Forward-Looking Statements
3
PART I.
FINANCIAL INFORMATION
Item 1.
Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets
5
Condensed Consolidated Statements of Operations and Comprehensive Income
6
Condensed Consolidated Statements of Stockholders' Equity
7
Condensed Consolidated Statements of Cash Flows
8
Notes to Condensed Consolidated Financial Statements
9
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
18
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
24
Item 4.
Controls and Procedures
PART II.
OTHER INFORMATION
Legal Proceedings
26
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Defaults Upon Senior Securities
Mine Safety Disclosures
Item 5.
Other Information
Item 6.
Exhibits
27
Signatures
28
2
This quarterly report on Form 10-Q for the quarterly period ended June 30, 2023 (“Quarterly Report”) contains forward-looking statements within the meaning of the federal securities laws, such as those under the headings “Risk Factors” and “Management's Discussion and Analysis of Financial Condition and Results of Operations,” which statements involve substantial risks and uncertainties. Forward-looking statements may involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from historical results or from any future results or projections expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this report include statements about:
We caution you that the foregoing list may not contain all of the forward-looking statements made in this report.
You should not place undue reliance on our forward-looking statements as predictions of future events. We have based the forward-looking statements primarily on our current expectations and projections about future events and trends that we believe may affect our business, operating results, financial condition and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors, including those described in the section titled “Risk Factors” and elsewhere in this Quarterly Report. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this report. We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.
Neither we nor any other person assumes responsibility for the ultimate outcome of any of these forward-looking statements. Moreover, the forward-looking statements made in this report relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this report to reflect events or circumstances after the date of this report or to reflect new information or the occurrence of unanticipated events, except as required by law.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information.
Certain Definitions
In this report, unless the context requires otherwise, all references to “we,” “our,” “us,” “Paymentus,” and the “Company” refer to Paymentus Holdings, Inc., and where appropriate its consolidated subsidiaries.
4
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
PAYMENTUS HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
(Unaudited)
June 30,
December 31,
2023
2022
Assets
Current assets
Cash and cash equivalents
$
159,068
147,334
Restricted cash and cash equivalents
3,400
2,351
Accounts and other receivables, net of allowance for expected credit losses of $122 and $370, respectively
67,179
67,789
Income tax receivable
2,376
1,493
Prepaid expenses and other current assets
8,998
9,994
Total current assets
241,021
228,961
Property and equipment, net
1,743
1,823
Capitalized internal-use software development costs, net
53,234
46,032
Intangible assets, net
31,274
36,017
Goodwill
131,866
131,851
Operating lease right-of-use assets
10,166
9,561
Deferred tax asset
117
116
Other long-term assets
5,965
7,178
Total assets
475,386
461,539
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable
30,545
29,232
Accrued liabilities
15,519
15,809
Current portion of operating lease liabilities
1,677
1,462
Contract liabilities
3,414
4,358
Income tax payable
106
635
Total current liabilities
51,261
51,496
Deferred tax liability
864
680
Operating lease liabilities, less current portion
8,991
8,608
Contract liabilities, less current portion
5,626
2,826
Finance leases and other finance obligations, net of current portion
200
750
Total liabilities
66,942
64,360
Stockholders’ equity
Preferred stock, $0.0001 par value per share, 5,000,000 shares authorized as of June 30, 2023 and December 31, 2022, respectively; none issued and outstanding as of June 30, 2023 and December 31, 2022, respectively
—
Class A common stock, $0.0001 par value per share, 883,950,000 shares authorized as of June 30, 2023 and December 31, 2022, respectively; 20,199,947 and 19,934,331 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively
Class B common stock, $0.0001 par value per share, 111,050,000 shares authorized as of June 30, 2023 and December 31, 2022, respectively; 103,306,842 shares issued and outstanding as of June 30, 2023 and December 31, 2022
10
Additional paid-in capital
372,403
367,767
Accumulated other comprehensive income (loss)
64
(22
)
Retained earnings
35,965
29,422
Total stockholders’ equity
408,444
397,179
Total liabilities and stockholders' equity
The accompanying notes are an integral part of these condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
Three Months Ended June 30,
Six Months Ended June 30,
Revenue
148,939
119,969
297,267
236,673
Cost of revenue
103,077
84,141
211,327
165,991
Gross profit
45,862
35,828
85,940
70,682
Operating expenses
Research and development
10,907
10,185
22,560
20,575
Sales and marketing
21,599
17,851
41,863
34,041
General and administrative
8,730
10,017
17,875
19,662
Total operating expenses
41,236
38,053
82,298
74,278
Income (loss) from operations
4,626
(2,225
3,642
(3,596
Other income (expense)
Interest income, net
1,658
98
3,098
90
Foreign exchange (loss) gain
(7
54
(15
80
Income (loss) before income taxes
6,277
(2,073
6,725
(3,426
(Provision for) benefit from income taxes
(438
(378
(182
2,693
Net income (loss)
5,839
(2,451
6,543
(733
Net income (loss) per share
Basic
0.05
(0.02
(0.01
Diluted
Weighted-average number of shares used to compute net income per share
123,378,128
121,637,711
123,334,277
121,269,688
124,012,107
123,836,815
Comprehensive income
Foreign currency translation adjustments, net of tax
93
(104
86
(149
Comprehensive income (loss)
5,932
(2,555
6,629
(882
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except share amounts)
Additional
Other
Total
Common Stock
Paid-In
Retained
Comprehensive
Stockholders’
Shares
Amount
Capital
Earnings
Income (Loss)
Equity
Balances at December 31, 2022
123,241,173
12
Stock-based compensation
2,159
Issuance of Class A common stock for stock-based awards
104,991
Other comprehensive income (loss)
Net income
704
Balances at March 31, 2023
123,346,164
369,931
30,126
(29
400,040
2,276
160,625
196
Balances at June 30, 2023
123,506,789
Balances at December 31, 2021
120,639,161
356,017
29,935
168
386,132
1,276
412,222
13
(45
1,718
Balances at March 31, 2022
121,051,383
357,306
31,653
123
389,094
1,344
1,568,761
289
Net loss
Balances at June 30, 2022
122,620,144
358,939
29,202
19
388,172
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Cash flows from operating activities
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization
14,542
11,360
Deferred income taxes
187
(3,322
4,435
2,620
Non-cash lease expense
904
1,120
Amortization of contract asset
1,441
818
Provision for expected credit losses
(234
Change in operating assets and liabilities
Accounts and other receivables
865
(9,205
Prepaid expenses and other current and long-term assets
797
(910
1,350
3,205
891
2,615
Operating lease liabilities
(916
(942
1,857
75
Income taxes receivable, net of payable
(1,418
204
Net cash provided by operating activities
31,244
7,092
Cash flows from investing activities
Other intangible assets acquired
(123
Purchases of property and equipment
(353
(795
Capitalized software development costs
(16,611
(14,464
Net cash used in investing activities
(16,964
(15,382
Cash flows from financing activities
Proceeds from exercise of stock-based awards
201
302
Financial institution funds in-transit
25,882
Payments on other financing obligations
(1,709
(1,831
Payments on finance leases
(102
(135
Net cash (used in) provided by financing activities
(1,610
24,218
Effect of exchange rate changes on Cash and cash equivalents and Restricted cash
113
(97
Net increase in cash, cash equivalents and Restricted cash
12,783
15,831
Cash and cash equivalents and Restricted cash beginning of period
149,685
201,829
Cash and cash equivalents and Restricted cash end of period
162,468
217,660
Reconciliation of Cash and cash equivalents and Restricted Cash:
Cash and cash equivalents at beginning of period
168,386
Restricted cash at beginning of period
Restricted funds held for financial institutions at beginning of period
33,443
Cash and cash equivalents and Restricted cash at beginning of period
Cash and cash equivalents at end of period
158,335
Restricted cash at end of period
Restricted funds held for financial institutions at end of period
59,325
Cash and cash equivalents and Restricted cash at end of period
Supplemental disclosure of cash flow information:
Cash paid for income taxes, net of refunds
1,269
184
Property and equipment purchases in accounts payable
83
Software purchases in accounts payable
48
Prepaid insurance funded through short-term borrowings
1,349
Right-of-use assets obtained in exchange of operating lease obligations
1,356
4,151
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Description of Business
Description of Business
Paymentus Holdings, Inc. and its wholly owned subsidiaries (“Paymentus” or the “Company”) provides electronic bill presentment and payment services, enterprise customer communication and self-service revenue management to billers through a Software-as-a-Service (“SaaS”), secure, omni-channel technology platform. The platform seamlessly integrates into a biller’s core financial and operating systems to provide flexible and secure access to payment processing of credit cards, debit cards, eChecks and digital wallets across a significant number of channels including online, mobile, IVR, call center, chatbot and voice-based assistants. Paymentus was incorporated in the state of Delaware on September 2, 2011 with office locations in Charlotte, North Carolina, Richmond Hill, Ontario (Canada), and Delhi and Bangalore (India). The Company is currently headquartered in Charlotte, North Carolina and continues to evaluate reestablishing its headquarters in or around the Seattle, Washington area in the future.
2. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited interim condensed consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and applicable rules and regulations of the United States Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. Accordingly, they do not include all disclosures normally required in annual consolidated financial statements prepared in accordance with GAAP. Therefore, these unaudited condensed consolidated financial statements and related notes should be read in conjunction with the audited consolidated financial statements and the related notes included in the Company's Form 10-K for the year ended December 31, 2022 filed with the SEC on March 3, 2023 (the “2022 Form 10-K”).
These unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual financial statements and reflect all adjustments, which include only normal recurring adjustments necessary for the fair statement of the Company’s financial position, results of operations, comprehensive income, changes in stockholders' equity and cash flows for the periods presented. The results of operations for the three and six months ended June 30, 2023 and 2022 are not necessarily indicative of the results to be expected for the full year or any other future interim or annual period.
Principles of Consolidation
The unaudited interim condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and balances have been eliminated upon consolidation.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Such estimates include revenue recognition, the allowance for credit losses, the lives of tangible and intangible assets, the valuation of acquired intangible assets and the recoverability or impairment of intangible assets, including goodwill, internal-use software development costs, valuation of stock warrants issued, stock-based compensation, and accounting for income taxes. The Company bases its estimates on historical experience and also on assumptions that management considers reasonable. The Company assesses these estimates on a regular basis; however, actual results could differ from these estimates.
Custodial Accounts
The Company has established a relationship with its merchant processors to act as collection and paying agents, whereby a merchant processor receives funds from customers and forwards such funds to the respective Paymentus client, based on the instructions received from the Company. These merchant processors act as custodians of the cash received, and the Company has no legal ownership rights to the funds held in such custodial accounts and does not control the use of these funds. As the Company does not take ownership of the funds, these custodial accounts are not included in the Company’s consolidated balance sheets. The balance of cash in the custodial accounts held by these merchant processors was $112.6 million and $353.9 million as of June 30, 2023 and December 31, 2022, respectively.
Restricted Funds Held for Financial Institutions and Financial Institution Funds In-Transit
Restricted funds held for financial institutions and the corresponding liability of financial institution funds in-transit represent the timing differences arising between the amounts the Company's sponsor bank receives from the sending financial institutions and the amounts disbursed to the recipient financial institutions. The restricted funds held for financial institutions' account is a transaction account maintained at the Company’s sponsor bank for clearing payments from financial institutions (as defined by the U.S. Treasury’s Financial Crimes Enforcement Network) to other financial institutions. Restricted funds held for financial institutions represent restricted cash that, based upon the Company's intent, are restricted solely for satisfying the corresponding obligations to send funds to the various financial institutions. During the fourth quarter 2022, the Company entered into an agreement with a financial institution whereby the financial institution would take over the legal ownership of these funds and operate as the custodial service provider. Once these funds were moved to custodial accounts, the Company no longer had legal ownership or control over these funds, and as such the Company no longer has Restricted Funds held for Financial Institutions and Financial Institution Funds In-Transit on the consolidated balance sheet as of June 30, 2023 and December 31, 2022.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to credit risk primarily consist of cash, cash equivalents and accounts receivable. The Company maintains its cash and cash equivalents with high-quality financial institutions with investment-grade ratings. For accounts receivable, the Company is exposed to credit risk in the event of nonpayment by customers to the extent of the amounts recorded in the consolidated balance sheets. No customer accounted for more than 10% of revenue for either of the three and six months ended June 30, 2023 and 2022. As of June 30, 2023 and December 31, 2022, one customer accounted for more than 10% of accounts receivable.
Segment Information
Operating segments are defined as components of an enterprise for which separate financial information is available and evaluated regularly by the chief operating decision maker (“CODM”) in deciding how to make operating decisions, allocate resources and assess performance. The Company has three operating segments based on geography. The United States segment represents the vast majority of the Company’s consolidated net sales and gross profit. The additional two operating segments, Canada and India, do not meet the quantitative thresholds for separate reporting, either individually or in the aggregate. None of the operating segments qualified for aggregation. The Company’s CODM is its chief executive officer. The CODM evaluates the performance of the Company’s operating segments based on revenue and gross profit. The Company does not analyze discrete segment balance sheet information related to long-term assets. All other financial information is presented on a consolidated basis. For information regarding the Company’s long-lived assets and revenue by geographic area, see Note 5 and Note 3, respectively.
Summary of Significant Accounting Policies
The Company’s significant accounting policies are discussed in Note 2, “Basis of Presentation and Summary of Significant Accounting Policies,” in the Notes to Consolidated Financial Statements as of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020 included in the 2022 Form 10-K. There have been no significant changes to these policies during the three and six months ended June 30, 2023.
Recently Adopted Accounting Standards
The Company is provided the option to adopt new or revised accounting guidance as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 either (1) within the same periods as those otherwise applicable to public business entities, or (2) within the same time periods as non-public business entities, including early adoption when permissible. With the exception of standards the Company elected to early adopt, when permissible, the Company has elected to adopt new or revised accounting guidance within the same time period as non-public business entities, as indicated below.
ASUs not listed below were assessed and determined to be either not applicable or are not expected to have a material impact on the consolidated financial statements.
In October 2021, the FASB issued ASU 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers” (“ASU 2021-08”). ASU 2021-08 will require companies to apply the definition of a performance obligation under ASU 2014-09, Revenue from contracts with customers (“Topic 606”) to recognize and measure contract assets and contract liabilities relating to contracts with customers that are acquired in a business combination. Under current U.S. GAAP, an acquirer generally recognizes assets acquired and liabilities assumed in a business combination, including contract assets and contract liabilities arising from revenue contracts with customers, at fair value on the acquisition date. ASU 2021-08 will result in the acquirer recording acquired contract assets and liabilities on the same basis that would have been recorded by the acquiree before the acquisition under ASU Topic 606. The Company adopted this ASU on January 1, 2023, and its adoption did not have a material impact on its condensed consolidated financial statements.
3. Revenue, Performance Obligations and Contract Balances
Disaggregation of Revenue
The following table presents a disaggregation of revenue from contracts with customers (in thousands):
Payment transaction processing revenue
146,677
118,512
293,065
233,474
2,262
1,457
4,202
3,199
Total revenue
Revenue by geographic area, based on the location of the Company’s users, was as follows (in thousands):
United States
145,946
117,473
291,503
231,433
2,993
2,496
5,764
5,240
Remaining Performance Obligations
As of June 30, 2023, the aggregate amount of transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied was $9.0 million, of which the Company expects to recognize over 80% within the next two years, 16% between two to four years and the remainder thereafter. The timing of revenue recognition within the next four years is largely dependent upon the go-live dates of the Company's customers under the Company’s contracts.
As of June 30, 2023, the Company has contractual rights under its commercial agreements to receive $51.5 million of fixed consideration related to the future minimum guarantees through 2026. As permitted, the Company has elected to exclude from this disclosure any variable consideration that meets specified criteria. Accordingly, the total unsatisfied or partially unsatisfied performance obligations related to processing services is significantly higher than the amount disclosed.
Contract Balances
Contract balances consist of the following:
Contract Assets
Costs to fulfill (prepaid expenses and other current assets)
2,862
2,732
Costs to fulfill (other long-term assets)
5,712
6,929
Total contract assets
8,574
9,661
Contract Liabilities
Total contract liabilities
9,040
7,184
During the three months ended June 30, 2023 and 2022, the Company reduced revenue and the related contract assets by $0.7 million and $0.4 million, respectively. During the six months ended June 30, 2023 and 2022, the Company reduced revenue and the related contract assets by $1.4 million and $0.8 million, respectively.
Revenue recognized during the three months ended June 30, 2023 and 2022 that was included in the contract liabilities balance at the beginning of each of the periods was $0.7 million and $0.5 million, respectively. Revenue recognized during the six months ended June 30, 2023 and 2022 that was included in the contract liabilities balance at the beginning of each of the periods was $1.3 million and $0.8 million, respectively.
11
4. Business Combinations
PROFIT Financial, Inc.
On December 19, 2022, the Company completed its acquisition of PROFIT Financial, Inc. (“PROFIT”) by acquiring all outstanding shares of PROFIT for a total purchase price of approximately $4.3 million, net of cash acquired, comprised of $3.3 million cash of which $0.1 million is included as a short term payable at December 31, 2022 and $0.6 million is being held back by the Company for a period of 12 to 24 months following the transaction close date and is recorded in finance leases and other finance obligations, net of current portion in the consolidated balance sheets. PROFIT is a financial and accounting software company with offerings to small business. The acquisition of PROFIT is expected to increase market opportunities for the Company's existing solutions while enhancing the PROFIT platform.
The Company will record adjustments to the fair value of net assets acquired and goodwill within 12 months of the measurement period, if necessary. There were no measurement period adjustments to the purchase price allocation during the three and six months ended June 30, 2023.
The revenue and expenses of PROFIT have been included in the Company's consolidated financial results since the acquisition date. Pro forma results of operations related to the acquisition have not been presented for the three and six months ended June 30, 2022 because the effects of this acquisition were not material to the Company's overall operations.
5. Property and Equipment, Net
Property and equipment, net consisted of the following (in thousands):
Computer equipment
5,855
5,476
Furniture and fixtures
1,693
1,672
Leasehold improvements
396
419
Total property and equipment
7,944
7,567
Less: Accumulated depreciation
(6,201
(5,744
Depreciation expense recorded for property and equipment was $0.1 million and $0.3 million for the three months ended June 30, 2023 and 2022, respectively, and $0.5 million and $0.6 million for the six months ended June 30, 2023 and 2022, respectively.
Long-lived assets include property and equipment, net. The geographic locations of the Company’s long-lived assets, net, based on physical location of the assets were as follows (in thousands):
628
706
1,115
1,117
6. Goodwill, Internal-use Software Development Costs and Intangible Assets
The changes in the carrying amount of goodwill by reporting unit were as follows (in thousands):
UnitedStates
Balance as of December 31, 2022
131,028
823
Foreign currency translation adjustments
15
Balance as of June 30, 2023
838
Internal-use Software Development Costs
During the three months ended June 30, 2023 and 2022, the Company capitalized $8.4 million and $7.7 million in software development and implementation costs, respectively, and during the six months ended June 30, 2023 and 2022, the Company capitalized $16.6 million and $14.5 million in software development and implementation costs, respectively.
During the three months ended June 30, 2023 and 2022, the Company recorded $3.2 million and $2.1 million of amortization expense in cost of revenue, respectively, and $1.9 million and $1.4 million of amortization expense in operating expenses, respectively. During the six months ended June 30, 2023 and 2022, the Company recorded $6.0 million and $3.7 million of amortization expense in cost of revenue, respectively, and $3.8 million and $2.9 million of amortization expense in operating expenses, respectively.
Intangible Assets
Intangible assets, net consisted of the following (in thousands):
June 30, 2023
GrossCarryingAmount
AccumulatedAmortization
NetCarryingAmount
Technology
21,844
(13,065
8,779
License
2,568
(2,568
Customer relationship
32,006
(11,771
20,235
Software
455
(398
57
Trademark
4,038
(1,835
2,203
60,911
(29,637
December 31, 2022
22,631
(11,965
10,666
2,503
(2,503
33,788
(11,695
22,093
1,212
(661
551
4,238
(1,531
2,707
64,372
(28,355
Amortization expense of intangible assets was $2.0 million and $2.1 million for the three months ended June 30, 2023 and 2022, respectively, and $4.3 million and $4.2 million for the six months ended June 30, 2023 and 2022, respectively.
As of June 30, 2023, future expected amortization expense is as follows (in thousands):
Years Ending December 31,
2023 (remaining six months)
4,116
2024
8,082
2025
6,620
2026
3,738
2027
3,269
Thereafter
5,449
Total future amortization expense
There were no impairments of goodwill, internal-use software development costs or intangible assets in the three or six months ended June 30, 2023 and 2022.
7. Accrued Liabilities
The composition of accrued liabilities is as follows (in thousands):
Payroll and employee-related expenses
10,102
9,214
Finance leases and other financing obligations
1,813
Other accrued liabilities
5,417
4,782
As of December 31, 2022, finance leases and other financing obligations included the then current portion of finance leases related to the acquisition of computer equipment and short-term insurance premium financing arrangements. As of June 30, 2023 the Company no longer had any finance leases or insurance premium financing arrangements.
8. Commitments and Contingencies
Other Commitments
The Company has entered into certain non-cancellable agreements for software and marketing services that specify all significant terms, including fixed or minimum services to be used, pricing provisions and the approximate timing of the transaction. Obligations under contracts that are cancellable or with remaining terms of 12 months or less are not included. There have been no material changes to the Company's contractual obligations or commitments outside of the ordinary course of business as compared to those described in the 2022 Form 10-K.
Legal Matters
The Company is involved from time to time in various claims and legal proceedings arising in the ordinary course of business. While it is not feasible to predict or determine the ultimate outcome of these matters, the Company believes that, as of June 30, 2023, none of its current claims and legal proceedings will have a material adverse effect on its financial position, results of operations, or cash flows.
Indemnification
The Company enters into indemnification provisions under agreements with other parties in the ordinary course of business, including business partners, investors, contractors, customers, and the Company’s officers, directors, and certain employees. The Company has agreed to indemnify and defend the indemnified party claims and related losses suffered or incurred by the indemnified party from actual or threatened third-party claims due to the Company’s activities or non-compliance with obligations or representations made by the Company. The Company seeks to limit, or cap, its indemnification exposure in its commercial and other contracts. It is not possible to determine the maximum potential loss under these indemnification provisions due to the Company’s limited history of prior indemnification claims and the unique facts and circumstances involved in each particular provision.
14
9. Stock-Based Compensation
In May 2021, the Company’s board of directors adopted, and its stockholders approved, the 2021 Equity Incentive Plan (the “2021 Plan”), which became effective in connection with the IPO. The 2021 Plan provides for the grant of incentive stock options, within the meaning of Section 422 of the Internal Revenue Code, to the Company’s employees and any of its parent or subsidiary corporations’ employees, and for the grant of non-statutory stock options, restricted stock, restricted stock units, stock appreciation rights, and performance awards to the Company’s employees, directors and consultants and any of its parent or subsidiary corporations’ employees and consultants. A total of 10,459,000 shares of the Company’s Class A common stock have been reserved for issuance under the 2021 Plan in addition to (i) an annual increase of 4% of the outstanding shares of the Company's common stock, with Class A and Class B common stock taken together, on the first day of each fiscal year, subject to the Compensation Committee of the Board exercising discretion to increase or decrease such amount (the “Evergreen Addition”), and (ii) upon the expiration, forfeiture, cancellation, or reacquisition of any shares of Class B common stock underlying outstanding stock awards granted under the 2012 Equity Incentive Plan, an equal number of shares of Class A common stock, such number of shares not to exceed 7,563,990. On January 1, 2023, pursuant to the Evergreen Addition, 4,929,646 shares of Class A common stock were added to the 2021 Plan issuance reserve. At June 30, 2023, there were 17,831,302 remaining shares available for the Company to grant under the 2021 Plan.
Stock Options
A summary of the Company’s option activity during the six months ended June 30, 2023 was as follows (in thousands, except share and per share amounts):
Weighted-
Average
Remaining
Aggregate
Options
Exercise Price
Contractual
Intrinsic
Outstanding
per Share
Life (years)
Value
Outstanding at December 31, 2022
4,155,640
7.52
5.87
4,420
Options granted
Options exercised
(90,333
2.53
Options forfeited
(32,501
8.70
Options expired
(84,660
0.03
Outstanding at June 30, 2023
3,948,146
7.79
5.54
10,948
Exercisable at June 30, 2023
3,468,334
7.66
5.48
10,049
There were no options granted during the three and six months ended June 30, 2023 and 2022. Aggregate intrinsic value represents the difference between the exercise price of the options and the fair value of the Company’s common stock.
Restricted Stock Units (“RSUs”)
A summary of the Company’s RSU activity during the six months ended June 30, 2023 was as follows:
Number of
Grant Date
RSUs Outstanding
Fair Value
Awarded and unvested at December 31, 2022
1,362,420
18.03
Awards granted
1,136,613
9.20
Awards vested
(182,551
18.85
Awards forfeited
(140,758
20.01
Awarded and unvested at June 30, 2023
2,175,724
13.21
The fair value of RSU grants is determined based upon the market closing price of the Company’s Class A common stock on the date of grant. RSUs vest over the requisite service period, which generally ranges between four years and five years from the date of grant for employees and one to three years for directors, subject to continued employment for employees and provision of services for nonemployees.
Stock-based compensation expense included in the condensed consolidated statements of operations was as follows (in thousands):
29
74
462
288
1,009
573
691
227
1,406
450
1,094
829
1,946
1,597
Total stock-based compensation
At June 30, 2023, there was $1.3 million of total unrecognized compensation cost related to unvested stock options granted under the 2012 Equity Incentive Plan, which is expected to be recognized over a remaining weighted-average period of 0.9 years.
At June 30, 2023, there was $26.3 million of total unrecognized compensation cost related to unvested RSUs granted under the 2021 Plan, which is expected to be recognized over a remaining weighted-average period of 3.3 years.
10. Income Taxes
The Company computes its tax provision for the quarter ended June 30, 2023 by applying the year-to-date actual effective tax rate from recurring operations as the best estimate of its annual effective tax rate. The Company continues to record a valuation allowance against its net deferred tax assets (“DTA”) in the U.S. as it is not more likely than not to be realized given near break-even operations and prior year significant tax deductions for stock-based compensation.
The Company’s effective tax rate for the three and six months ended June 30, 2023 was 7.0% and 2.7%, respectively. The difference between the Company’s effective tax rate and the U.S. federal statutory rate of 21% was primarily the result of the full valuation allowance recorded against the Company's net U.S., deferred tax assets. The Company’s effective tax rate for the three and six months ended June 30, 2022 was (17.5)% and 78.7%, respectively. In 2022, the difference between the Company’s effective tax rate and the U.S. federal statutory rate of 21% was primarily the result of tax benefits from stock-based compensation, and the initial recording of the full valuation allowance in the second quarter of 2022.
11. Net Income per Share Attributable to Common Stock
Basic net income per share attributable to common stock is computed by dividing net income for the period by the weighted average number of common shares outstanding during the period.
Diluted net income per share attributable to common stock is computed by giving effect to all potentially dilutive common stock equivalents to the extent they are dilutive. The dilutive effect of outstanding options, RSUs and warrants is reflected in diluted net income per share attributable to common stock by application of the treasury stock method. The calculation of diluted net income per share attributable to common stock excludes all anti-dilutive common shares.
The rights of the holders of Class A and Class B common stock are identical, except with respect to voting and conversion. As the liquidation and dividend rights are identical, the undistributed earnings are allocated on a proportionate basis to each class of common stock and the resulting basic and diluted net income per share attributable to common stockholders are, therefore, the same for both Class A and Class B common stock on both an individual and combined basis.
16
The following table sets forth the computation of basic and diluted net income per share attributable to common stock (in thousands except share and per share data):
Numerator:
Denominator:
Weighted-average shares of common stock — basic
Dilutive effect of stock options to purchase common stock
521,818
445,183
Dilutive effect of RSUs
112,161
57,355
Weighted-average shares of common stock — diluted
The following table summarizes the weighted average securities that were excluded from the computation of diluted net income per share attributable to common stock as their inclusion would have been antidilutive:
Stock options to purchase common stock
211,922
5,819,439
3,578,915
6,195,625
RSUs
1,260,566
624,260
1,285,901
588,426
Warrants
588,173
397,944
17
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Overview
We are a leading provider of cloud-based bill payment technology and solutions. We deliver our next-generation product suite through a modern technology stack to more than 1,900 biller business and financial institution clients. Our platform was used by approximately 27 million consumers and businesses in North America in December 2022 to pay their bills, make money movements and engage with our clients. We serve billers of all sizes that primarily provide non-discretionary services across a variety of industry verticals, including utilities, financial services, insurance, government, telecommunications and healthcare. We also serve financial institutions by providing them with a modern platform that their customers use for bill payment, account-to-account transfers and person-to-person transfers. By powering this comprehensive network of billers and financial institutions, each with their own set of bill payment requirements, we believe we have created an enviable feedback loop that enables us to continuously drive innovation, grow our business and uniquely improve the electronic bill payment experience for participants in the bill payment ecosystem.
Our platform provides our clients with easy-to-use, flexible and secure electronic bill payment experiences powered by an omni-channel payment infrastructure that allows consumers to pay their bills using their preferred payment type and channel. Because our biller platform is developed on a single code base and leverages a SaaS infrastructure, we can rapidly deploy new features and tools to our entire biller base simultaneously. Through a single point of integration to our billers’ core financial and operating systems, our mission-critical solutions provide our billers with a payments operating system that helps them collect revenue faster and more profitably and empower their consumers with the information and transparency needed to control their finances.
Transactions Processed
% Growth
(in millions)
Transactions processed
109.5
89.5
22.3
%
218.0
177.4
22.9
We define transactions processed as the number of revenue generating payment transactions, such as checks, credit card and debit card transactions, automated clearing house, or ACH, items and emerging payment types, which are initiated and generally processed through our platform during a period. The number of transactions also includes account-to-account and person-to-person transfers. The number of transactions processed during the three and six months ended June 30, 2023 increased approximately 22.3% and 22.9%, respectively, as compared to the same periods in 2022. The increase was primarily driven by the addition of new billers and financial institutions and increased transactions from our existing billers and financial institutions.
Other Key Factors and Trends Affecting Our Operating Results
The discussion below includes a number of forward-looking statements regarding our future performance. For a discussion of important factors, including the continuing development of our business and other factors which could cause actual results to differ materially from matters referred to below, see the discussions under “Risk Factors” and “Special Note Regarding Forward-Looking Statements” herein and in our Form 10-K for the year ended December 31, 2022 or the “2022 Form 10-K” and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 or the “March 2023 Form 10-Q”.
Impact of Economic and Inflationary Trends
In 2022 and continuing into 2023, the United States economy has experienced inflationary conditions, increased interest rates and consecutive quarters of decreased gross domestic product. While we believe our business is resilient and can generally weather unusual levels of inflation, the economic uncertainty and continuing inflationary pressures, which have been particularly acute in the utility sector, impacted our fiscal 2022 and first half of 2023 financial performance and are expected to impact our 2023 financial performance. Inflationary pressure is resulting in higher average bills, particularly in the utility sector, and increased interchange fees. While we are seeking to adjust our prices to address the inflationary pressures, our ability to do so typically lags behind the impact of inflation on our clients, the increase in average bill amounts and increased interchange fees. We intend to continue to manage through this uncertain economic environment by working closely with clients on implementations and price adjustments.
Non-GAAP Measures
We use supplemental measures of our performance that are derived from our consolidated financial information but which are not presented in our consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles, or GAAP. These supplemental non-GAAP measures include contribution profit, adjusted gross profit, adjusted EBITDA and free cash flow.
Contribution Profit
We calculate contribution profit as gross profit plus other cost of revenue. Other cost of revenue equals cost of revenue less interchange and assessment fees paid by us to our payment processors.
Adjusted Gross Profit
We calculate adjusted gross profit as gross profit adjusted for non-cash items, primarily stock-based compensation and amortization of acquisition-related intangible assets and capitalized software development costs.
Adjusted EBITDA
We calculate adjusted EBITDA as net income before other income (expense) (which consists of interest income (expense), net and foreign exchange gain (loss)), depreciation and amortization of acquisition-related intangible assets and capitalized software development costs, and income taxes, adjusted to exclude the effects of stock-based compensation expense and certain nonrecurring expenses that management believes are not indicative of ongoing operations.
Free Cash Flow
We calculate free cash flow as net cash provided by (used in) operating activities less capital expenditures and software and capitalized internal-use software development costs.
How we use Non-GAAP Measures
We use non-GAAP measures to supplement financial information presented on a GAAP basis. We believe that excluding certain items from our GAAP results allows management and our board of directors to more fully understand our consolidated financial performance from period to period and helps management project our future consolidated financial performance as forecasts are developed at a level of detail different from that used to prepare GAAP-based financial measures. Moreover, we believe these non-GAAP measures provide our investors with useful information to help them evaluate our operating results by facilitating an enhanced understanding of our operating performance and enabling them to make more meaningful period-to-period comparisons. In particular, we exclude interchange and assessment fees in the presentation of contribution profit because we believe inclusion is less directly reflective of our operating performance as we do not control the payment channel used by consumers, which is the primary determinant of the amount of interchange and assessment fees. We use contribution profit to measure the amount available to fund our operations after interchange and assessment fees, which are directly linked to the number of transactions we process and thus our revenue and gross profit. There are limitations to the use of the non-GAAP measures presented in this report. Our non-GAAP measures may not be comparable to similarly titled measures of other companies; other companies, including companies in our industry, may calculate non-GAAP measures differently than we do, limiting the usefulness of those measures for comparative purposes. These non-GAAP measures should not be considered in isolation from or as a substitute for financial measures prepared in accordance with GAAP.
We also urge you to review the reconciliation of these non-GAAP financial measures included below. To properly and prudently evaluate our business, we encourage you to review the condensed consolidated financial statements and related notes included elsewhere in this report and to not rely on any single financial measure to evaluate our business.
(in thousands)
Gross Profit
Plus: other cost of revenue
13,728
12,896
27,181
25,427
59,590
48,724
113,121
96,109
In general, contribution profit is driven by the number of transactions we process offset by network fees associated with processing those transactions. The amount of contribution profit per transaction may vary due to a variety of factors substantially outside of our control, including client size, type and industry as well as whether the client is a biller, financial institution or other partner. Contribution profit for the three and six months ended June 30, 2023 increased approximately 22.3% and 18.0%, respectively, as compared to the same periods in 2022. The increase was primarily driven by growth in transaction count and volume driven by the addition of new billers and financial institutions and increased transactions from our existing billers and financial institutions, together with improvements resulting from disinflation in the utility sector on a year over year basis, pricing improvements from customers related to our inflation management and implementing certain cost improvement measures.
Amortization of capitalized software development costs
3,241
2,050
5,980
3,732
Amortization of acquisition-related intangibles
1,657
Adjusted gross profit
49,961
38,707
93,651
76,071
Adjusted gross profit for the three and six months ended June 30, 2023 increased 29.1% and 23.1%, respectively, as compared to the same periods in 2022. Adjusted gross profit improved in line with Contribution Profit. Adjusted gross profit as a percentage improved as a result of economies of scale. Adjusted gross profit is driven primarily by the same factors that impact gross profit with the exception of excluding the amortization in cost of revenue. The increase in amortization was driven by additional capitalization of software costs.
Net income (loss) — GAAP
(1,658
(98
(3,098
(90
Provision for (benefit from) income taxes
438
378
182
(2,693
5,120
3,520
9,813
6,626
2,040
2,031
4,264
4,062
Depreciation
143
335
465
672
EBITDA
11,922
3,715
18,169
7,844
Adjustments
Foreign exchange loss (gain)
(54
(80
14,205
5,005
22,619
10,384
Adjusted EBITDA is a measure of profitability and generally is expected to move in line with revenue, contribution profit, gross profit and adjusted gross profit. Adjusted EBITDA increased 183.8% and 117.8% in the three and six months ended June 30, 2023 as compared to the same periods in 2022. The increase was primarily driven by growth in transaction count and volume driven by the addition of new billers and financial institutions and increased transactions from our existing billers and financial institutions, together with improvements resulting from disinflation in the utility sector on a year over year basis, pricing improvements from customers related to our inflation management and implementing certain cost improvement measures.
26,481
3,844
Purchases of property and equipment and software
(286
(265
(100
(8,392
(7,733
Free cash flow
17,803
(4,254
14,280
(8,290
(8,678
(8,098
(488
21,855
The increase in free cash flow for the three and six months ended June 30, 2023 was driven by higher cash provided by operating activities.
20
Results of Operations
The following table sets forth our condensed consolidated statements of operations for the periods presented:
Change
(Dollars in thousands)
28,970
24.1
60,594
25.6
18,936
22.5
45,336
27.3
10,034
28.0
15,258
21.6
Gross margin (1)
30.8
29.9
28.9
722
7.1
1,985
9.6
3,748
21.0
7,822
23.0
(1,287
-12.8
(1,787
-9.1
3,183
8.4
8,020
10.8
6,851
n/m
7,238
1,560
3,008
(61
-113.0
(95
-118.8
8,350
10,151
Benefit from (provision for) income taxes
(60
15.9
(2,875
-106.8
8,290
7,276
____________
n/m - not meaningful
(1) Gross margin is calculated as gross profit divided by revenue.
The following table presents the components of our condensed consolidated statements of operations for the periods presented as a percentage of revenue:
100.0
69.2
70.1
71.1
7.3
8.5
7.6
8.7
14.5
14.9
14.1
14.4
5.9
6.0
8.3
27.7
31.8
31.4
3.1
-1.9
1.2
-1.5
1.1
0.1
1.0
0.0
4.2
-1.7
2.3
-1.4
-0.3
-0.1
3.9
-2.0
2.2
Comparison of the Three Months Ended June 30, 2023 and 2022
The increase in revenue was primarily driven by an increase in the number of transactions processed, which was driven by the implementation of new billers and increased transactions from our existing billers, and by an increase in revenue we received per transaction on a blended basis. Revenue increase was also driven by pricing improvements from customers related to our inflation management.
21
Cost of Revenue, Gross Profit and Gross Margin
The increase in cost of revenue was driven by the increase in revenue and transactions processed, as it consists primarily of interchange fees and processor costs, driven by higher average bill amounts due primarily to inflation, as well as other direct costs associated with making our platform available to our billers. These higher costs were partially offset by cost improvements resulting from disinflation in the utility sector and certain cost improvement initiatives.
Gross margin improved for the three months ended June 30, 2023 due to adjusted pricing for certain existing customers.
Research and Development Expenses
The increase in research and development expenses was primarily due to an increase in employee-related costs, including benefits due to an increase in headcount as we continued to invest in developing and adding additional features and functionality to our platform. Additionally, we incurred increased stock-based compensation expense associated with routine and new hire grants.
Sales and Marketing Expenses
The increase in sales and marketing expenses was primarily due to an increase in employee-related costs, including benefits, as we continued to expand our sales and marketing efforts with additional headcount in order to continue to drive our growth. In addition, we incurred increased stock-based compensation associated with routine and new hire grants.
General and Administrative Expenses
The decrease in general and administrative expenses was primarily due to slower hiring, lower costs for our directors and officers insurance and corporate premiums, a reduction in lease costs and lower legal expenses.
Other Income (Expense)
The changes in other income (expense) was primarily due to the increase in interest income, net as a result of increases in the Federal Reserve rates which increased interest income on our government issued securities, which are included in cash and cash equivalents on the balance sheet.
Income Taxes
The change in provision for income taxes for the three months ended June 30, 2023 as compared to the same period in the prior year, was primarily due to the change in the pre-tax earnings and the impact of the full valuation allowance.
Comparison of the Six Months Ended June 30, 2023 and 2022
Gross margin decreased for the six months ended June 30, 2023 due to increases in cost of revenues for other direct costs associated with making our platform available to our billers.
The increase in sales and marketing expenses was primarily due to an increase in employee-related costs, including benefits, as we continued to expand our sales and marketing efforts with additional headcount in order to continue to drive our growth. In addition, we incurred stock-based compensation associated with routine and new hire grants.
22
The change in provision for income taxes for the six months ended June 30, 2023 as compared to the same period in the prior year, was primarily due to the change in the pre-tax earnings and the impact of the full valuation allowance.
Liquidity and Capital Resources
Sources and Uses of Funds
As of June 30, 2023, we had $159.1 million of unrestricted cash and cash equivalents. We believe that existing unrestricted cash and cash equivalents will be sufficient to support our working capital and capital expenditure requirements for at least the next 12 months. Since inception, we have financed operations primarily through the sale of equity securities and revenue from payment transaction fees and subscriptions. Our principal uses of cash are funding operations and capital expenditures.
From time to time, we may explore additional financing sources and means to lower our cost of capital, which could include equity, equity-linked and debt financing. We cannot assure you that any additional financing will be available to us on acceptable terms, or at all. The inability to raise capital would adversely affect our ability to achieve our business objectives. If we raise additional funds by issuing equity or equity-linked securities, the ownership of our existing stockholders will be diluted. If we raise additional financing by the incurrence of indebtedness, we may be subject to increased fixed payment obligations and could be subject to additional restrictive covenants, such as limitations on our ability to incur additional debt, and other operating restrictions that could adversely impact our ability to conduct our business or execute our growth strategy. Any future indebtedness we incur may result in terms that could be unfavorable to equity investors.
Historical Cash Flows
The following table summarizes our condensed consolidated cash flows.
Net cash provided by (used in)
Operating activities
Investing activities
Financing activities
Effects of foreign exchange on cash
Net increase in cash, cash equivalents and restricted cash
Net Cash Provided by Operating Activities
Our primary source of operating cash is revenue from payment transaction fees. Our primary uses of operating cash are personnel-related costs, payments to third parties to fulfill our payment transactions and payments to sales and marketing partners. Net cash provided by operating activities for the six months ended June 30, 2023 was $31.2 million. Net income was $6.5 million, adjusted for non-cash charges of $21.3 million consisting primarily of depreciation and amortization, stock-based compensation, amortization of contract assets and non-cash lease expense, which contributed positively to operating activities. This was increased by net cash inflows of $3.4 million provided by changes in our operating assets and liabilities.
Net cash provided by operating activities for the six months ended June 30, 2022 was $7.1 million. Net loss was $0.7 million, adjusted for non-cash charges of $12.8 million consisting primarily of depreciation and amortization, stock-based compensation, and non-cash lease expense, which contributed positively to operating activities. This was offset by net cash outflows of $4.9 million provided by changes in our operating assets and liabilities.
Net Cash Used in Investing Activities
Net cash used in investing activities for the six months ended June 30, 2023 consisted of $16.6 million of capitalized software development costs and $0.4 million of purchases of property and equipment.
23
Net cash used in investing activities for the six months ended June 30, 2022 consisted of $14.5 million of capitalized software development costs and $0.8 million for purchases of property and equipment.
Net Cash (Used in) Provided by Financing Activities
Net cash used in financing activities for the six months ended June 30, 2023 consisted of $1.7 million of payments on other financing obligations and $0.1 million of payments on finance leases.
Net cash provided by financing activities for the six months ended June 30, 2022 consisted of an increase in financial institution funds in-transit of $25.9 million and proceeds from stock option exercises of $0.3 million, offset by $1.9 million of payments on finance leases and other financing obligations.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and disclosures of contingencies at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Our significant accounting policies are described in Note 2, “Basis of Presentation and Summary of Significant Accounting Policies” to our consolidated financial statements included in our 2022 Form 10-K. There have been no material changes in our critical accounting policies and estimates since December 31, 2022.
Recent Accounting Pronouncements
See Note 2 “Basis of Presentation and Summary of Significant Accounting Policies” in the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report for a full description of recent accounting pronouncements, including the respective dates of adoption or expected adoption and effects on our condensed consolidated financial statements contained in Item 1 of this Quarterly Report.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
There have been no material changes in our exposures to market risk since December 31, 2022. For details on the Company’s interest rate, foreign currency exchange, and inflation risks, see Part I, Item 7A. “Quantitative and Qualitative Information About Market Risk” in our 2022 Form 10-K.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated, as of the end of the period covered by this Quarterly Report on Form 10-Q, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act). Based on that evaluation, and as a result of the material weaknesses in internal control over financial reporting described below, our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2023, our disclosure controls and procedures were not effective at the reasonable assurance level. In light of this fact, our management has performed additional analyses, reconciliations, and other post-closing procedures and has concluded that, notwithstanding the material weaknesses in our internal control over financial reporting, the unaudited condensed consolidated financial statements for the periods covered by and included in this Quarterly Report on Form 10-Q fairly state, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with GAAP.
Material Weaknesses in Internal Control over Financial Reporting
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis. As of June 30, 2023, our material weaknesses were as follows:
Remediation Plan
We believe we have made significant progress toward remediation of the material weaknesses described above. We have completed the following remediation measures:
Additional remediation measures are ongoing and include the following:
While we believe these efforts will remediate the material weaknesses, these material weaknesses cannot be considered fully remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended June 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
25
PART II—OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we may be involved in claims, regulatory examinations or investigations and legal proceedings arising in the ordinary course of our business. The outcome of any such claims or proceedings, regardless of the merits, and the Company’s ultimate liability, if any, is inherently uncertain. Furthermore, we may become subject to stockholder inspection demands under Delaware law and derivative or other similar litigation. We are not currently party to any material legal proceedings, and we are not aware of any pending or threatened legal proceeding against us that we believe could have a material adverse effect on our business, operating results, cash flows or financial condition.
Item 1A. Risk Factors.
There have been no material changes in the risk factors previously disclosed in Item 1A. of our 2022 Form 10-K and our March 2023 Form 10-Q.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults upon Senior Securities.
Item 4. Mine Safety Disclosures.
Not Applicable.
Item 5. Other Information.
During the quarter ended June 30, 2023, none of the Company’s directors or officers adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as such terms are defined in Item 408(a) of Regulation S‑K.
Item 6. Exhibits.
(a) Exhibits
Incorporated by Reference
Exhibit
Number
Description
Form
File No.
Filing Date
Filed/
Furnished Herewith
3.1.1
Amended and Restated Certificate of Incorporation of Paymentus Holdings, Inc.
8-K
001-40429
May 28, 2021
3.1.2
Amendment to Amended and Restated Certificate of Incorporation of Paymentus Holdings, Inc.
X
3.2
Amended and Restated Bylaws of Paymentus Holdings, Inc.
November 14, 2022
19.1
Paymentus Holdings, Inc. Insider Trading Policy
31.1
Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*
Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*
Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.
101.SCH
Inline XBRL Taxonomy Extension Schema Document
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
104
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
* The certifications attached as Exhibit 32.1 and 32.2 that accompany this report are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Paymentus Holdings, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this report, irrespective of any general incorporation language contained in such filing.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: August 7, 2023
By:
/s/ Dushyant Sharma
Dushyant Sharma
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
/s/ Sanjay Kalra
Sanjay Kalra
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)