19
6. Fair Value Measurements
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company uses a three-tier fair value hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring basis, as well as assets and liabilities measured at fair value on a non-recurring basis, in periods subsequent to their initial measurement. The hierarchy requires the Company to use observable inputs when available, and to minimize the use of unobservable inputs when determining fair value. If a financial instrument uses inputs that fall in different levels of the hierarchy, the instrument will be categorized based upon the lowest level of input that is significant to the fair value calculation. The three-tiers are defined as follows:
•Level 1: Observable inputs based on unadjusted quoted prices in active markets for identical assets or liabilities;
BTRS Holdings Inc.Deferred Commissions
NotesThe Company capitalizes commissions paid to Unauditedsales personnel that are incremental and recoverable costs of obtaining customer contracts. These costs are included in deferred implementation, commissions, and other costs, current in the Condensed Consolidated Financial Statements
(Amounts in thousands, except per shareBalance Sheets. Commission costs are amortized to earnings ratably over four to five years based on the Company's experience with its customers (including initial contract term and share data)
•Level 2: Inputs,renewal periods), the average customer life of acquired customers, future cash flows expected from customers, industry peers, and other than quoted prices in active markets, that are observable either directly or indirectly; andavailable information.
Commissions are earned by sales personnel upon the execution of a sales contract by the customer. Commissions associated with subscription-based arrangements are typically earned when a customer order is received and when the customer is billed for the underlying contractual period. Commissions associated with professional services are typically earned in the month that services are rendered. Substantially all sales commissions are generally paid at one of three points: (1) upon execution of a customer contract, (2) when a customer completes implementation and training processes or commences usage based volume, or (3) after a period of time from three to twelve months thereafter.
•Level 3: Unobservable inputs for which there is little or no market data requiringDuring the six months ended June 30, 2021, the Company capitalized commission costs of $1.7 million and amortized $1.5 million to develop its own assumptions.
Assetssales and Liabilities Measured at Fair Value on a Recurring Basis
The Company evaluates its financial assetsmarketing expense in the Condensed Consolidated Statements of Operations and liabilities subjectComprehensive Loss, in addition to fair value measurements on a recurring basis to determine the appropriate level to classify them for each reporting period. This determination requires significant judgments to be made. The following table summarizes the conclusions reachedcommissions which were expensed as of March 31, 2021 and December 31, 2020 :
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2021 |
| Balance | | Level 1 | | Level 2 | | Level 3 |
Assets: | | | | | | | |
Cash and cash equivalents(1) | $ | 261,013 | | | $ | 261,013 | | | $ | 0 | | | $ | 0 | |
Short-term investments | 25,000 | | | 25,000 | | | 0 | | | 0 | |
Restricted Cash | 2,914 | | | 2,914 | | | 0 | | | 0 | |
| $ | 288,927 | | | $ | 288,927 | | | $ | 0 | | | $ | 0 | |
Liabilities: | | | | | | | |
Contingent consideration(2) | $ | 370 | | | $ | 0 | | | $ | 0 | | | $ | 370 | |
| | | | | | | |
| $ | 370 | | | $ | 0 | | | $ | 0 | | | $ | 370 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| Balance | | Level 1 | | Level 2 | | Level 3 |
Assets: | | | | | | | |
Cash and cash equivalents(1) | $ | 14,642 | | | $ | 14,642 | | | $ | 0 | | | $ | 0 | |
| | | | | | | |
Restricted Cash | 3,277 | | | 3,277 | | | 0 | | | 0 | |
| $ | 17,919 | | | $ | 17,919 | | | $ | 0 | | | $ | 0 | |
Liabilities: | | | | | | | |
Contingent consideration(2) | $ | 660 | | | $ | 0 | | | $ | 0 | | | $ | 660 | |
Warrants to purchase Series C Preferred stock(3) | 1,172 | | | 0 | | | 0 | | | 1,172 | |
| $ | 1,832 | | | $ | 0 | | | $ | 0 | | | $ | 1,832 | |
(1) As of March 31, 2021 and December 31, 2020, cash and cash equivalents included money market obligations measured at fair value using Level 1 inputs.
(2)The Company’s business acquisition of Second Phase is included in contingent consideration. The Company’s valuation of the fair value of contingent considerationincurred related to Second Phase at March 31, 2021 was based on management’s expectations of the achievement of targets related to the contingent consideration.
(3)quotas or other sales performance targets. As of June 30, 2021 and December 31, 2020 the Company had outstanding warrants to purchase Series C stock, as described in Note 9. The determinationapproximately $2.6 million and $2.4 million, respectively, of the fair value of the warrants was estimated using a Black-Scholes option pricing model with the following assumptions: Stock pricecurrent deferred commissions for Series C Preferred stock of $94.22; term of 3.5 years; risk-free rate of 0.21%; volatility of 52%; and a dividend yield of 0.0%. The warrants were exercised and subsequently converted to common stock as part of the Business Combination and are not outstanding as of March 31, 2021.
BTRS Holdings Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(Amounts in thousands, except per share and share data)
Assets Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs
(Level 3)
The following tables presents the changes in the Company’s Level 3 instruments measured at fair value on a recurring basis for the periods ended March 31, 2021 and December 31, 2020:
Warrants Liability:
| | | | | | | | |
Ending balance, December 31, 2020 | | $ | 1,172 | |
Change in fair value (1) | | 256 | |
Exercise of Series C warrants | | (1,428) | |
Ending balance, March 31, 2021 | | $ | 0 | |
Contingent Consideration:
| | | | | | | | |
| | |
| | |
| | |
| | |
Ending balance, December 31, 2020 (current and long-term liabilities) | | $ | 660 | |
| | |
| | |
| | |
Adjustments to contingent consideration | | (290) | |
Ending balance, March 31, 2021 (current and long-term liabilities) | | $ | 370 | |
(1) Amount is included in other expense in the accompanying Statements of Operations and Comprehensive Loss.
7. Goodwill and Intangible Assets, net
The following table represents the changes in goodwill:
| | | | | | | | |
Ending balance, December 31, 2020 | | $ | 36,956 | |
| | |
Changes during the three months ended March 31, 2021 | | 0 | |
Ending balance, March 31, 2021 | | $ | 36,956 | |
All of our goodwill is attributable to our Software and Payments segment as of March 31, 2021.
The gross carrying value, accumulated amortization, and net carrying value of intangible assets as of March 31, 2021 and December 31, 2020 are as follows:
| | | | | | | | | | | | | | | | | |
| March 31, 2021 |
| Gross Carrying Value | | Accumulated amortization | | Net |
Customer relationships | $ | 16,350 | | | $ | (9,111) | | | $ | 7,239 | |
Non-compete agreements | 1,430 | | | (702) | | | 728 | |
Trademarks and trade names | 160 | | | (53) | | | 107 | |
Technology | 1,540 | | | (636) | | | 904 | |
Total | $ | 19,480 | | | $ | (10,502) | | | $ | 8,978 | |
BTRS Holdings Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(Amounts in thousands, except per share and share data)
| | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| Gross Carrying Value | | Accumulated amortization | | Net |
Customer relationships | $ | 16,350 | | | $ | (8,698) | | | $ | 7,652 | |
Non-compete agreements | 1,460 | | | (660) | | | 800 | |
Trademarks and trade names | 160 | | | (47) | | | 113 | |
Technology | 1,540 | | | (571) | | | 969 | |
Total | $ | 19,510 | | | $ | (9,976) | | | $ | 9,534 | |
Aggregate amortization expense for identified intangible assets with definite useful lives for the three months ended March 31, 2021 and 2020 amounted to $556 and $557, respectively, and are included in Depreciation and Amortization in the accompanying Statements of Operations and Comprehensive Loss.
Estimated amortization expense for the next five years and thereafter as of March 31, 2021 is as follows:
| | | | | |
remainder of 2021 | $ | 1,269 | |
2022 | 1,269 | |
2023 | 1,174 | |
2024 | 930 | |
2025 | 737 | |
Thereafter | 3,599 | |
Total | $ | 8,978 | |
8. Property and Equipment, net
Property and equipment, net consists of the following:
| | | | | | | | | | | | | | |
| | March 31, | | December 31, |
| | 2021 | | 2020 |
Assets held under capital leases – computer, print and mail equipment and software | | $ | 3,784 | | | $ | 3,752 | |
Computer, print and mail equipment | | 8,293 | | | 7,998 | |
Furniture and fixtures | | 4,073 | | | 4,073 | |
Leasehold improvements | | 12,133 | | | 12,120 | |
Software | | 1,437 | | | 1,437 | |
Vehicles | | 115 | | | 115 | |
Internal software development | | 2,759 | | | 2,644 | |
Construction in progress | | 157 | | | 79 | |
| | 32,751 | | | 32,218 | |
Less: accumulated depreciation and amortization | | (16,371) | | | (15,568) | |
Total | | $ | 16,380 | | | $ | 16,650 | |
Depreciation and amortization expense of property and equipment was $803 and $854 for the three months ended March 31, 2021 and 2020, respectively, and includes $60 and $75 relating to software and $60 and
BTRS Holdings Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(Amounts in thousands, except per share and share data)
$66 relating to print equipment during the three months ended March 31, 2021 and 2020 respectively, for property and equipment used in the Company’s print facilities. Included in accumulated depreciation and amortization as of March 31, 2021 and December 31, 2020, respectively, is $3,576 and $3,519 related to assets held under capital leases, including amounts for equipment that was subsequently purchased at the end of the lease term. The Company had 0 write-offs or material disposals of fixed assets during three months ended March 31, 2021 and 2020.
9. Current and Long-Term Debt and Capital Lease Obligations
Current and long-term debt and capital lease obligations consist of the following:
| | | | | | | | | | | |
| March 31, | | December 31, |
| 2021 | | 2020 |
Term Loan | $ | 0 | | | $ | 44,663 | |
Unamortized debt issuance costs | 0 | | | (1,234) | |
Revolving Facility Line of Credit | 0 | | | 0 | |
Capital lease obligations | 212 | | | 246 | |
Subtotal | 212 | | | 43,675 | |
Less: current portion, net of unamortized debt issuance costs | (170) | | | (380) | |
| $ | 42 | | | $ | 43,295 | |
2020 Financing Agreement
On January 17, 2020, the Company entered into a Financing Agreement with TPG Specialty Lending, Inc. ("TSL") as administrative agent and lender and Wells Fargo Bank, N.A. ("Wells", and with TSL, the "2020 Lenders") for a $72.5 million facility, secured by substantially all the assets of the Company (the "2020 Financing Agreement"). In connection therewith, the outstanding Term Loan and Revolver under the PacWest Bank Credit Agreement of $28.3 million was paid in full along with related interest and all liens released. Existing Letters of Credit of $2,854 issued by PacWest Bank remained outstanding as of the date of the transaction and were collateralized by cash of $2,914 which will be treated as restricted cash until the underlying Letters of Credit are released.
The 2020 Financing Agreement consisted of the following facilities, all of which mature on January 17, 2025 ("Maturity Date"):
(i) an Initial Term Loan of $45.0 million, which was drawn at closing and used to pay off the PacWest Bank Credit agreement. Principal payments on the Initial Term Loan are due in equal installments of 0.25% of the initial principal amount commencing June 30, 2020 and on the last business day of each quarter thereafter, with the remaining amount due on the Maturity Date
(ii) a Delayed Draw Term Loan ("DDTL") of up to $20.0 million, which is available to draw in minimum increments through July 17, 2021, which after drawn, cannot be repaid without permanently reducing the amount available.
(iii) a Revolving Commitment facility ("Revolver") of $7.5 million, including a sub-limit of up to $4.0 million for issuing additional letters of credit. The Revolver may be repaid and re-borrowed until the Maturity Date.
The Initial Term Loan and DDTL may be prepaid from time to time by the Company. Once an amount is
BTRS Holdings Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(Amounts in thousands, except per share and share data)
prepaid, it may not be reborrowed except for the Revolver. Prepayments are subject to a premium on the principal amount repaid of 3.0% in the first 24 months (2.25% in months 13 through 24 if a change in control occurs, as defined); 1.0% in months 25 to 36, and 0% thereafter. Mandatory prepayments are required upon the occurrence of certain events, as defined in the 2020 Financing Agreement.
In connection with the Business Combination, on January 12, 2021, the Company repaid the entire amount due under the Initial Term Loan, along with a prepayment penalty, and extinguished the 2020 Financing Agreement. In connection therewith, unamortized debt discount of $1,234 and a prepayment penalty and associated costs of $1,575 were recorded as loss on debt extinguishment in interest expense in the accompanying statements of operations and comprehensive loss.
Capital Leases
In current and prior years, the Company entered into several equipment leases to finance equipment purchases, under which $212 remained outstanding as of March 31, 2021. These have been accounted for as capital leases.
10. Stockholders' Equity, Warrants and Redeemable Preferred Stock
The Company issued various shares of Series A through E of preferred stock from various investors from 2006 through 2017. All of the preferred stock equity investments were recorded based on the proceeds received from the sales, which the Company considers to approximate its fair value at the date of each transaction, as agreed between the parties to the transaction. Direct costs incurred in connection with each transaction were accounted for as a reduction in the proceeds of the Preferred stock as a discount. The stock issuance costs associated with the various preferred stock investments are amortized as part of the accretion of the carrying amount of the Preferred stock to each series full redemption amount over a 5-year period from each issuance date, pursuant to FASB ASC Topic 480-10.
Public Warrants
In connection with the Business Combination, Billtrust assumed the publicly traded warrants ("Public Warrants") that had previously been issued by South Mountain. The Public Warrants may only be exercised for a whole number of shares of Common Stock at a price of $11.50 per share. No fractional warrants will be issued upon separation of the Units and only whole warrants will trade. Following the closing of the Business Combination, the Company filed with the SEC a registration statement that was declared effective in February 2021 covering the issuance of the shares of Class 1 common stock issuable upon exercise of the Public Warrants and to maintain a current prospectus relating to those shares of Class A common stock until the warrants expire or are redeemed. Notwithstanding the above, if our Class 1 common stock is at the time of any exercise of a warrant not listed on a national securities exchange such that it satisfies the definition of a “covered security” under Section 18(b)(1) of the Securities Act, we may, at our option, require holders of Public Warrants who exercise their warrants to do so on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act and, in the event we so elect, we will not be required to file or maintain in effect a registration statement, but will use our reasonable best efforts to qualify the shares under applicable blue sky laws to the extent an exemption is not available. The Public Warrants will expire five years after the completion of a Business Combination or earlier upon redemption or liquidation.
Once the warrants become exercisable, the Company may redeem the Public Warrants:
• in whole and not in part;
• at a price of $0.01 per warrant;
• upon a minimum of 30 days’ prior written notice of redemption; and
BTRS Holdings Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(Amounts in thousands, except per share and share data)
• if, and only if, the reported last sale price of the Company’s Class A common stock equals or exceeds $18.00 per share for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date on which the Company sends the notice of redemption to the warrant holders.
If and when the warrants become redeemable by the Company, the Company may exercise its redemption right even if it is unable to register or qualify the underlying securities for sale under all applicable state securities laws.
The Company determined 1) the Public Warrants meet the definition of a derivative pursuant to ASC 815 2) the Public Warrants are indexed to the Company’s common stock pursuant to ASC 815-40-15-7, and 3) the Public Warrants meet all other criteria for equity classification pursuant to ASC 815-40. Therefore, the Public Warrants are accounted for within stockholders' equity as a component of additional paid-in capital as of the Merger date. 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.
11. Incentive Compensation Plans
Incentive Compensation Plans
The Company adopted the 2003 Stock Incentive Plan, as amended (the "2003 Plan"). The 2003 Plan provides for the granting of stock-based awards, including options and restricted stock to its employees, directors, advisers and consultants. In 2014, the 2003 Plan expired and the Company adopted the 2014 Incentive Compensation Plan (the "2014 Plan"). In connection with the Business Combination, the 2003 Plan and 2014 Plans were frozen and no further grants will be made pursuant to those plans, although all outstanding options were converted to options of the Company using the Conversion Rate applied to the number of options and original exercise price, and continue to vest based upon their original terms.
As part of the Business Combination, the shareholders of the Company adopted the 2020 Equity Incentive Plan (the "2020 Plan") and the 2020 Employee Stock Purchase Plan (the "2020 ESPP"). The shareholders and board of directors authorized the issuance of up to 14,526,237 shares of common stock to be granted pursuant to the 2020 Plan in the form of options, restricted stock, RSU's, stock appreciation rights, performance awards or other awards. Additionally, the shareholders and board of directors authorized the issuance of 1,452,623 shares of common stock pursuant to the 2020 ESPP. Such aggregate number of shares of common stock subject to the 2020 Plan and the 2020 ESPP will automatically increase on January 1 of each year for a period of ten years commencing on January 1, 2022 and ending on (and including) January 1, 2031, in an amount equal to 4 percent (for the 2020 Plan) and 1 percent (for the ESPP) of the total number of shares of the Company’s class 1 and class 2 common stock outstanding on December 31 of the preceding year; provided, however that the Board may act prior to January 1st of a given year to provide that the increase for such year will be a lesser number of shares of common stock.
BTRS Holdings Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(Amounts in thousands, except per share and share data)
During the three months ended March 31, 2021, 0 shares were granted or issued pursuant to the 2020 ESPP, but the Company granted an aggregate of 8,114,196 stock options (including 462,596 under the 2014 Plan and 7,651,600 under the 2020 Plan), with weighted average exercise prices of $16.74 per share. The determination of the fair value of the options granted during the three months ended March 31, 2021 was estimated at the date of grant using a Black-Scholes option pricing model with the following assumptions:
| | | | | | | | | | | | | | |
| 2021 | | 2020 | |
Risk-free interest rate | 0.64% - 1.12% | | 1.57% - 1.73% | | | |
Dividend yield | 0 | % | | 0 | % | |
Volatility factor of the expected market price of the Company’s common stock | 41.56% - 41.62% | | 39.44% - 39.93% | | | |
Expected life of option | 5.5 years | | 6.9 years | |
The weighted average grant-date fair value of the options granted during the three months ended March 31, 2021 was $6.52 per option.
As of March 31, 2021, there was approximately $41,744 of total unrecognized compensation costs related to stock options. These costs are expected to be recognized over a weighted average period of 3.2 years. At March 31, 2021, an aggregate of 8,040,902 shares were authorized for future grants under the Company’s 2020 Plan.
The Company included stock compensation expense related to all of the Company’s stock option awards in various expense categories for the for the three months ended March 31, 2021 and 2020, as follows:
| | | | | | | | | | | |
| 2021 | | 2020 |
Cost of subscription, transaction and other revenue | $ | 443 | | | $ | 33 | |
Research and development | 1,223 | | | 100 | |
Sales and marketing | 1,333 | | | 74 | |
General and administrative | 5,827 | | | 274 | |
| $ | 8,826 | | | $ | 481 | |
Restricted Stock Units
In connection with the Business Combination, and authorized as part of the 2020 Plan, the Company may issue RSUs to certain employees and nonemployee board members. During the three months ended March 31, 2021, the Company granted an aggregate of 836,208 RSUs with a weighted grant-date fair value of $16.80 per unit in connection with the First Earnout and the Second Earnout (the "Earnout RSUs"), as further discussed in. The fair value of the RSUs was estimated based upon the market closing price of the Company’s common stock on the date of grant. The Earnout RSUs vest over the requisite service period, which range between 1 month and 4 years from the date of grant, subject to the continued employment of the employees and services of the nonemployee board members.
As of March 31, 2021, the total unamortized stock-based compensation expense related to the unvested RSUs was $12,415, which the Company expects to amortize over a weighted-average period of 2.7 years.
Defined Contribution Benefit 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. The Company generally
BTRS Holdings Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(Amounts in thousands, except per sharenext 12 months, and share data)
makes matching contributions$5.3 million and $5.2 million, respectively, of one-half of the first 6% of employee contributions, which totaled $497 and $352non-current deferred commissions for the three months ended March 31, 2021 and 2020, respectively, and are subject to vesting requirements based on four years of continuing employment.
12. Income Taxes
The provision for income taxes for the three months ended March 31, 2021 and 2020 pertains primarily to tax amortization of indefinite-lived asset and state income taxes.
Section 382 of the Internal Revenue Code of 1986, as amended, imposes an annual limitation on the amount of net operating loss carryforwards that may be used to offset federal taxable income and federal tax liabilities when a corporation has undergone significant changes in its ownership. The Company is evaluating the ownership change as a result of the Business Combination to determine if there is any impact on utilization of net operating loss carryforwards.
13. Commitments and Contingencies
Lease Commitments
The Company rents its facilities and some equipment under operating and capital lease agreements. The capital leases have stated or implied interest rates between 5% and 10.6% and maturity dates through April 2026. The equipment financed under the capital leases serves as collateral, and certain leases contain casualty loss values if the equipment is not returned in working order at the end of the lease term.
In August 2017, the Company entered into a 15 years, 6 months lease agreement, as amended, with a landlord for a new Company headquarters that consists of 88,759 square feet of office space, located in Lawrenceville, New Jersey. The Company determined that the lease qualifies for treatment as an operating lease pursuant to ASC 840. In addition, pursuant to ASC 840, the Company determined that it did not meet any of the requirements of build-to-suit lease accounting and the Company was not consideredamounts expected to be the owner of an asset during the construction period as the Company did not have substantially all of the construction period risks and the respective leasehold improvements were determined to be normal tenant improvements. The Company has incurred and capitalized approximately $5.7 million related to leasehold improvements, furniture and fixtures, and computer equipment as of December 31, 2018, associated with this new leased headquarters facility. Furthermore, as part of the lease, the landlord paid for approximately $5.8 million of costs and related improvements in 2018 to modify the existing space to meet the Company's requirements in the existing 88,759 square feet of space subject to the lease agreement, as amended. This landlord lease incentive of $5.8 million was recorded as an asset and other long term liability as of the date the lease commenced and is being amortized over the estimated life of 15 years, and the long term liability is being recognized a lease incentive and reducing rent expense over the same period of time.thereafter.
The lease contains an option to lease up to 61,000 additional square feet, starting six years, six months after lease commencement. In connection with entering into the lease, the Company issued a letter of credit under its Credit Agreement in favor of the landlord in the amount of $2,725 as an additional security deposit.
The term of this lease is 15 years, 6 months subject to early termination if (i) there is not sufficient space for expansion beyond the initial space, starting 6 years, 6 months after lease commencement, which will require an early termination payment that declines from $7.5 million at such date by $650 per year after such date, or (ii) upon advance notice by the Company, at 12 years, 6 months after lease commencement, which will require an early termination payment of $3.6 million. Additionally, the lease contains 2
BTRS Holdings Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(Amounts in thousands, except per share and share data)
extension periods of 5 years each. The lease commenced in June 2018, with a monthly lease rate (excluding taxes and operating expenses) in the initial year of $226, effective after an initial free rent period of six months. The base rent increases each year thereafter up to $281 per month in months 181 through 186 of the lease. The Company is expensing this rent on a straight-line basis over the initial term of the lease, including the free rent period.
Future minimum lease payments under operating and capital leases that have initial or remaining non-cancelable lease terms in excess of one year at March 31, 2021 and expire through 2033 are as follows:
| | | | | | | | | | | |
March 31, 2021 | Operating Leases | | Capital Leases |
remainder of 2021 | $ | 3,567 | | | $ | 153 | |
2022 | 4,716 | | | 52 | |
2023 | 4,444 | | | 13 | |
2024 | 4,089 | | | 1 | |
2025 | 4,055 | | | 0 | |
Thereafter | 30,811 | | | 0 | |
Total minimum lease payments | $ | 51,682 | | | $ | 219 | |
Less amounts representing interest | | | (7) | |
Present value of lease payments | | | 212 | |
Less current portion | | | (170) | |
Long-term portion of minimum lease payments | | | $ | 42 | |
Total rent expense for the three months ended March 31, 2021 and 2020 amounted to $1,284 and $1,349 respectively.
Purchase Commitments
The Company enters into purchase commitments with certain vendors to secure pricing for paper, envelopes and similar products necessary for its operations. As of March 31, 2021, the balance remaining under such purchase orders approximated $374.
Legal Contingencies, Claims and Assessments
During the normal course of business, the Company is occasionally involved with various claims and litigation. Reserves are established in connection with such matters when a loss is probable and the amount of such loss can be reasonably estimated, including for indemnifications with customers or other parties as a result of contractual agreements.
At March 31, 2021, no material reserves were recorded. No reserves are established for losses which are only reasonably possible. The determination of probability and the estimation of the actual amount of any such loss is inherently unpredictable, and it is therefore possible that the eventual outcome of such claims and litigation could exceed the estimated reserves, if any. Based upon the Company’s experience, current information and applicable law, it does not believe it is reasonably possible that any proceedings or possible related claims will have a material effect on its financial statements.
BTRS Holdings Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(Amounts in thousands, except per share and share data)
14. Segment Information
The Company has determined that it has 2 reportable segments - Print and Software/Payments. The Company's chief operating decision maker (“CODM”) is the Chief Executive Officer ("CEO") who reviews discrete financial and other information presented for print services and software and payment services for purposes of allocating resources and evaluating the Company's financial performance. The Company evaluates the operating performancerecoverability of its segments based on financial measures such as revenue, cost of revenue,deferred commissions at each balance sheet date and gross profit.there were no impairments recorded during the six months ended June 30, 2021 or 2020.
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 the electronic invoice presentment, electronic payments, credit decisioning, collections automation, cash application and deduction management, and eCommerce of B2B customers.
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 amount of the Company’s assets is not subject to segment allocation and total assets are not included within the disclosure of the Company’s segment financial information.
All of the revenues shown below in the reportable segments is revenue from external customers, there is no revenue from transactions with other operating segments.
Note 6 - Loss Per Share
The following tables include a reconciliation of revenue, cost of revenue, and segment gross profit to loss before income taxes. “All other” represents implementation, services and other business activities which are not reviewed by CODM on regular basis.
The Company’s segment information is as follows:
BTRS Holdings Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(Amounts in thousands, except per share and share data)
| | | | | | | | | | | | | | |
| March 31, 2021 |
| Print | Software and Payments | All other | Total |
Revenues: | | | | |
Subscription and transaction | $ | 4,498 | | $ | 25,685 | | $ | 0 | | $ | 30,183 | |
Services and other | 0 | | 0 | | 2,936 | | 2,936 | |
Subscription, transaction and services | 4,498 | | 25,685 | | 2,936 | | 33,119 | |
Reimbursable costs | 8,817 | | 0 | | 0 | | 8,817 | |
Total revenues | 13,315 | | 25,685 | | 2,936 | | 41,936 | |
| | | | |
Cost of Revenues: | | | | |
Cost of subscription, transaction and services revenue | 1,926 | | 3,711 | | 3,616 | | 9,253 | |
Cost of reimbursable costs | 8,817 | | 0 | | 0 | | 8,817 | |
Total cost of revenues, excluding depreciation and amortization | 10,743 | | 3,711 | | 3,616 | | 18,070 | |
| | | | |
Segment gross profit - subscription, transaction and services | 2,572 | | 21,974 | | (680) | | 23,866 | |
Segment gross profit - reimbursable costs | 0 | | 0 | | 0 | | 0 | |
Total segment gross profit, excluding depreciation and amortization | $ | 2,572 | | $ | 21,974 | | $ | (680) | | $ | 23,866 | |
| | | | |
Total segment gross margin, excluding depreciation and amortization | 19.3 | % | 85.6 | % | (23.2) | % | 56.9 | % |
Segment gross margin - subscription, transaction and services | 57.2 | % | 85.6 | % | (23.2) | % | 72.1 | % |
| | | | |
Unallocated amounts: | | | | |
Sales and marketing | | | | $ | 8,936 | |
Research and development | | | | 10,993 | |
General and administrative | | | | 12,450 | |
Depreciation and amortization | | | | 1,360 | |
Interest income | | | | (103) | |
Interest expense and loss on extinguishment of debt | | | | 2,942 | |
Change in fair value and other income (expense), net | | | | 9,990 | |
Loss before income taxes | | | | $ | (22,702) | |
BTRS Holdings Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(Amounts in thousands, except per share and share data)
| | | | | | | | | | | | | | |
| March 31, 2020 |
| Print | Software and Payments | All other | Total |
Revenues: | | | | |
Subscription and transaction | $ | 4,786 | | $ | 18,339 | | $ | 0 | | $ | 23,125 | |
Services and other | 0 | | 0 | | 1,399 | | 1,399 | |
Subscription, transaction and services | 4,786 | | 18,339 | | 1,399 | | 24,524 | |
Reimbursable costs | 9,621 | | 0 | | 0 | | 9,621 | |
Total revenues | 14,407 | | 18,339 | | 1,399 | | 34,145 | |
| | | | |
Cost of Revenues: | | | | |
Cost of subscription, transaction and services revenue | 2,211 | | 3,114 | | 2,565 | | 7,890 | |
Cost of reimbursable costs | 9,621 | | 0 | | 0 | | 9,621 | |
Total cost of revenues, excluding depreciation and amortization | 11,832 | | 3,114 | | 2,565 | | 17,511 | |
| | | | |
Segment gross profit - subscription, transaction and services | 2,575 | | 15,225 | | (1,166) | | 16,634 | |
Segment gross profit - reimbursable costs | 0 | | 0 | | 0 | | 0 | |
Total segment gross profit, excluding depreciation and amortization | $ | 2,575 | | $ | 15,225 | | $ | (1,166) | | $ | 16,634 | |
| | | | |
Total segment gross margin, excluding depreciation and amortization | 17.9 | % | 83.0 | % | (83.3) | % | 48.7 | % |
Segment gross margin - subscription, transaction and services | 53.8 | % | 83.0 | % | (83.3) | % | 67.8 | % |
| | | | |
Unallocated amounts: | | | | |
Sales and marketing | | | | $ | 6,422 | |
Research and development | | | | 9,384 | |
General and administrative | | | | 5,248 | |
Depreciation and amortization | | | | 1,411 | |
Interest income | | | | (16) | |
Interest expense and loss on extinguishment of debt | | | | 1,183 | |
Change in fair value and other income (expense), net | | | | 19 | |
Loss before income taxes | | | | $ | (7,017) | |
BTRS Holdings Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(Amounts in thousands, except per share and share data)
15. Related Party Transactions
The Company has an ongoing commercial relationship with a customer, who has an executive who is also on the Company's board of directors, which purchases certain of the Company’s services. This related party customer generated total revenues of approximately $70 and $77 for the three months ended March 31, 2021 and 2020, respectively.
The Company has several agreements with a portfolio company of one of the Company’s preferred shareholders who also has a representative on the Company's board of directors ("Portfolio Company"). The Company incurred expenses to the Portfolio Company of approximately $48 and $16 related to these agreements for the three months ended March 31, 2021 and 2020, respectively. Additionally, the same customer generated revenues of $40 for the three months ended March 31, 2021.
16. Loss per Share
Our basic and diluted earnings per share are computed using the two-class method in accordance with ASC 260. The two-class method is an earnings allocation that determines net loss (or income if applicable)(loss) per share for each class of common stock. Per share amounts are calculated by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period, without consideration for potentially dilutive securities as they do not share in losses. During periods when the Company is in a net loss position, basic net loss per share attributable to common stockholders is the same as diluted net loss per share attributable to common stockholders as the effects of potentially dilutive securities are antidilutive given the net loss of the Company.
As a result of the Business Combination, the Company has retrospectively adjusted the weighted average number of common shares outstanding for all periods presented prior to January 12, 2021, by multiplying them by the Conversion Rate used to determine the number of common shares into which they converted.
The following table sets forth the computation of the basic and diluted net loss per share attributable to the Class 1 and Class 2 common stockholders, which have the same rights and privileges, except for voting rights, for the for the three months ended March 31, 2021 and 2020periods presented (in thousands, except per share amounts):
| | | | | | | | | | | |
| March 31, |
| 2021 | | 2020 |
Numerator: | | | |
Net loss | $ | (22,794) | | | $ | (7,097) | |
| | | |
| | | |
| | | |
Denominator: | | | |
Weighted-average common shares outstanding | 144,207 | | | 99,804 | |
Net loss per share attributable to common | | | |
stockholders (Class 1 and Class 2), basic and diluted | $ | (0.16) | | | $ | (0.07) | |
BTRS Holdings Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(Amounts in thousands, except per share and share data)amounts):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Numerator: | | | | | | | |
Net loss | $ | (10,736) | | | $ | (2,902) | | | $ | (33,530) | | | $ | (9,999) | |
| | | | | | | |
Denominator: | | | | | | | |
Weighted-average common shares outstanding | 157,196,511 | | | 99,853,968 | | | 151,289,243 | | | 99,828,779 | |
Net loss per share attributable to common stockholders: | | | | | | | |
Basic and diluted | $ | (0.07) | | | $ | (0.03) | | | $ | (0.22) | | | $ | (0.10) | |
Since the Company was in a loss position for all periods presented, basic net loss per share is the same as diluted net loss per share for all periods as the inclusion of all potential common shares outstanding would have been anti-dilutive. Potentially dilutive securities that were not included in the diluted per share calculations because they would be antidilutive, were as follows as of the dates presented, based on the underlying shares and not considering all factors that would be involved in determining the common stock equivalents:
| | | | | | | | | | | |
| March 31, |
| 2021 | | 2020 |
Options to purchase common stock | 22,383,267 | | | 12,870,603 | |
Restricted Stock Units (RSU's) | 834,228 | | | 0 | |
Warrants | 12,500,000 | | | 12,500,000 | |
| 35,717,495 | | | 25,370,603 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Stock options | 21,082,614 | | | 16,913,426 | | | 21,082,614 | | | 16,913,426 | |
Restricted stock units | 706,471 | | | 0 | | | 706,471 | | | 0 | |
Warrants | 12,497,700 | | | 12,500,000 | | | 12,497,700 | | | 12,500,000 | |
| 34,286,785 | | | 29,413,426 | | | 34,286,785 | | | 29,413,426 | |
Note 7 - Stockholders' Equity and Stock-Based Compensation
Public Warrants
In connection with the Business Combination (refer to Note 3 - Business Combination), Billtrust assumed the Public Warrants that had previously been issued by South Mountain. The Public Warrants may only be exercised for a whole number of shares of Class 1 common stock at a price of $11.50 per share. No fractional warrants will be issued upon separation of the units and only whole warrants will trade. Following the closing of the Business Combination, the Company filed a registration statement with the SEC that was declared effective in February 2021 covering the issuance of the shares of Class 1 common stock issuable upon exercise of the Public Warrants and to maintain a current prospectus until the Public Warrants expire or are redeemed. Notwithstanding the above, if the Company's Class 1 common stock is not listed on a national securities exchange such that it satisfies the definition of a “covered security” under Section 18(b)(1) of the Securities Act at the time of any exercise of a Public Warrant, the Company may, at its option, require holders of Public Warrants who exercise their warrants to do so on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act. In the event the Company so elects, it will not be required to file or maintain in effect a registration statement, but will use its reasonable best efforts to qualify the shares under applicable blue sky laws to the extent an exemption is not available. The Public Warrants expire five years after the completion of a business combination or earlier upon redemption or liquidation.
Once the Public Warrants become exercisable, the Company may redeem them as follows:
i.In whole and not in part;
ii.At a price of $0.01 per warrant;
iii.Upon a minimum of 30 days’ prior written notice of redemption; and
iv.If, and only if, the reported last sale price of the Company’s Class 1 common stock equals or exceeds $18.00 per share for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date on which the Company sends the notice of redemption to the warrant holders.
The Company determined (1) the Public Warrants meet the definition of a derivative pursuant to ASC 815, (2) the Public Warrants are indexed to the Company’s common stock pursuant to ASC 815-40-15-7, and (3) the Public Warrants meet all other criteria for equity classification pursuant to ASC 815-40. Therefore as of the Closing Date, the Public Warrants were accounted for within stockholders' equity as a component of additional paid-in capital in the Condensed Consolidated Balance Sheets. As part of this assessment, it was concluded only events that would constitute a fundamental change of ownership could require the Company to settle the warrants for cash.
Common Stock
Each share of Class 1 common stock has the right to one vote. The holders of the common stock are also entitled to receive dividends whenever funds are legally available and if/when declared by the Board of Directors. No dividends have been declared or paid since inception. Each share of Class 2 common stock is the same in all respects as Class 1 common stock, except it does not have voting rights.
Preferred Stock
As of June 30, 2021, the Board of Directors had authorized 10,000,000 shares of preferred stock, par value $0.0001, of which no shares were issued and outstanding.
Equity Incentive Plans
As part of the Business Combination (refer to Note 3 - Business Combination), the Company adopted the 2020 Equity Incentive Plan (the "2020 Plan") and 2020 Employee Stock Purchase Plan (the "2020 ESPP"). These plans are administered by the Board of Directors, which has the authority to designate participants and determine the number and type of awards to be granted and any other terms or conditions of the awards. Awards eligible to be granted include incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance awards, and other awards. The Board of Directors authorized up to 14,526,237 shares of common stock to be granted pursuant to the 2020 Plan and 1,452,623 shares of common stock to be issued pursuant to the 2020 ESPP. Such aggregate number of shares automatically increase on January 1 of each year, for a period of ten years commencing on January 1, 2022 and ending on (and including) January 1, 2031, in an amount equal to 4 percent (for the 2020 Plan) and 1 percent (for the 2020 ESPP) of the total number of shares of the Company’s Class 1 and Class 2 common stock outstanding on December 31 of the preceding year. The Board of Directors may act prior to January 1st of a given year to restrict the increase for such year to a lesser number of shares.
In connection with adopting the 2020 Plan and 2020 ESPP, the 2003 Stock Incentive Plan and the 2014 Incentive Compensation Plan (together, the "Prior Plans") were frozen and no further grants can be made pursuant to the Prior Plans. All outstanding options under the Prior Plans were converted to options of the Company using the Conversion Rate applied to the number of options and original exercise price. The converted options continue to vest based upon their original terms.
Stock Options
Stock option activity for the six months ended June 30, 2021 is presented below (in thousands, except share, per share, and contractual life amounts):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Number of Shares | | Weighted-Average Exercise Price | | Weighted-Average Remaining Contractual Life (in Years) | | Aggregate Intrinsic Value |
Outstanding at December 31, 2020 | | 16,170,738 | | | $ | 2.69 | | | | | |
Granted | | 8,251,638 | | | 16.70 | | | | | |
Exercised | | (3,046,982) | | | 1.39 | | | | | |
Forfeited | | (292,780) | | | 10.24 | | | | | |
Outstanding at June 30, 2021 | | 21,082,614 | | | $ | 8.26 | | | 8.2 | | $ | 125,232 | |
Vested and expected to vest at June 30, 2021 | | 18,285,991 | | | $ | 7.36 | | | 8.0 | | $ | 120,570 | |
Exercisable at June 30, 2021 | | 7,122,553 | | | $ | 2.97 | | | 6.4 | | $ | 70,029 | |
Restricted Stock Units
Restricted stock units ("RSU's") represent the right to receive one share of Billtrust common stock upon meeting the vesting conditions. Shares are delivered to the grantee upon vesting, less shares for the payment of withholding taxes. The fair value of RSU's is determined based on the closing price of the common stock on the grant date.
Restricted stock unit activity for the six months ended June 30, 2021 is presented below:
| | | | | | | | | | | | | | |
| | Number of Shares | | Weighted-Average Grant Date Fair Value |
Unvested at December 31, 2020 | | 0 | | | $ | 0 | |
Granted (1) | | 847,888 | | | 16.77 | |
Vested | | (134,823) | | | 16.58 | |
Forfeited | | (27,492) | | | 16.80 | |
Unvested at June 30, 2021 | | 685,573 | | | $ | 16.80 | |
(1) No RSU's were granted prior to the Business Combination. 836,208 of the granted shares represent the Earnout RSU's issued as part of the Business Combination (refer to Note 3 - Business Combination for further discussion).
Additionally, 21,898 shares of common stock were withheld from employees to satisfy the mandatory tax withholding requirements, for which the Company remitted cash of $0.3 million to the appropriate tax authorities.
Employee Stock Purchase Plan ("ESPP")
Under the terms of the 2020 ESPP, on May 26, 2021, the Board of Directors approved the Company's ESPP offering program. With certain limitations, all Billtrust employees whose customary employment is more than 20 hours per week are eligible to participate in the ESPP.
The initial offering period, which consists of one purchase period, will commence on July 1, 2021 and run through November 30, 2021. Thereafter, each offering period will run for approximately six months, consisting of a single six month purchase period commencing on each successive June 1 and December 1. At the end of each purchase period, employee payroll contributions are used to purchase shares of the Company's common stock. Employees can elect to have up to 15% of their eligible compensation withheld for the purpose of purchasing shares under the ESPP. During an offering period, employees may decrease their contributions to, or withdraw from, the ESPP by the 20th day of the month in which the purchase period ends, and receive a refund of their accumulated payroll contributions.
During each purchase period, the maximum number of shares of common stock that may be purchased by an employee is limited to the number of shares equal to $12,500 divided by the common stock closing price on the first day of a purchase period. The number of shares purchased on any single date, by any one employee, cannot exceed 5,000 shares. The purchase price for each share of common stock purchased is the lower of: (1) 85% of the closing price of the common stock on the first day of the purchase period, or (2) 85% of the closing price of the common stock on the last day of the purchase period.
During the six months ended June 30, 2021, 0 shares were purchased or issued pursuant to the 2020 ESPP.
Stock-Based Compensation Expense
The Company records stock-based compensation expense related to all of the Company’s stock-based awards over the requisite service period of the individual grantee, which is generally equal to the vesting period. Stock-based compensation expense was recorded in the following categories in the Condensed Consolidated Statements of Operations and Comprehensive Loss (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
Cost of subscription, transaction, and services | | $ | 405 | | | $ | 57 | | | $ | 848 | | | $ | 88 | |
Research and development | | 1,091 | | | 139 | | | 2,314 | | | 237 | |
Sales and marketing | | 961 | | | 117 | | | 2,292 | | | 193 | |
General and administrative | | 3,249 | | | 367 | | | 9,078 | | | 643 | |
Total | | $ | 5,706 | | | $ | 680 | | | $ | 14,532 | | | $ | 1,161 | |
The fair value of RSU's was estimated based on the closing market price of the Company's common stock on the date of grant. As of June 30, 2021, the total unrecognized stock-based compensation expense related to RSUs was $10.6 million. These costs are expected to be recognized over a weighted-average period of 2.5 years.
The fair value of stock options granted was estimated at the date of grant using the Black-Scholes valuation model with the following assumptions:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, | | | |
| | 2021 | | 2020 | | 2021 | | 2020 | |
Risk-free interest rate | | 1.3% - 1.4% | | 0.5% - 0.7% | | 0.6% - 1.4% | | 0.5% - 1.6% | | | |
Expected dividend yield | | 0 | % | | 0 | % | | 0 | % | | 0 | % | |
Expected volatility | | 41 | % | | 39% -44% | | 41% - 42% | | 39% - 44% | | | |
Expected life (in years) | | 5.5 | | 6.9 | | 5.5 | | 6.9 | |
| | | | | | | | | | | |
Weighted average grant date fair value | | $ | 6.61 | | | $ | 0.97 | | | $ | 7.47 | | | $ | 1.14 | | | | |
As of June 30, 2021, the total unrecognized stock-based compensation expense related to stock options was $39.2 million. These costs are expected to be recognized over a weighted average period of 3.1 years.
Note 8 - Defined Contribution Plan
The Company sponsors a 401(k) defined contribution benefit plan. Participation in the plan is available to substantially all employees. Company contributions to the plan are discretionary and are subject to vesting requirements based on four years of continuing employment. The Company generally makes matching contributions of one-half of the first 6% of employee contributions. During the three months ended June 30, 2021 and 2020 the Company contributed $0.4 million and $0.1 million, respectively. During the six months ended June 30, 2021 and 2020 the Company contributed $0.9 million and $0.4 million, respectively.
Note 9 - Debt and Capital Lease Obligations
The following table summarizes the Company's total debt and capital lease obligations as of the dates indicated (in thousands):
| | | | | | | | | | | |
| June 30, | | December 31, |
| 2021 | | 2020 |
Term Loan | $ | 0 | | | $ | 44,663 | |
Unamortized debt issuance costs | 0 | | | (1,234) | |
Capital lease obligations (Note 10) | 152 | | | 246 | |
Net carrying amounts | 152 | | | 43,675 | |
2020 Financing Agreement
On January 17, 2020, the Company entered into a Financing Agreement (the "2020 Financing Agreement") for a $72.5 million credit facility, secured by substantially all the assets of the Company. In connection therewith, the previously outstanding Term Loan and Revolver of $28.3 million was paid in full and the related liens were released.
The 2020 Financing Agreement consisted of the following facilities:
i.An Initial Term Loan of $45.0 million, which was drawn at closing and used to pay off previously outstanding borrowings;
ii.A Delayed Draw Term Loan of up to $20.0 million, which was available to draw in minimum increments through July 17, 2021; and
iii.A Revolving Commitment facility of $7.5 million, including a sub-limit of up to $4.0 million for issuing additional letters of credit.
In connection with the Business Combination on January 12, 2021 (refer to Note 3 - Business Combination), the Company paid the outstanding facilities in full, along with a prepayment penalty, and extinguished the 2020 Financing Agreement. In connection therewith, the unamortized debt discount of $1.2 million and a prepayment penalty and associated costs of $1.6 million were recorded in interest expense and loss on extinguishment of debt in the Condensed Consolidated Statements of Operations and Comprehensive Loss.
Note 10 - Commitments and Contingencies
Lease Commitments
The majority of the Company's leases are operating leases for its office space and print facilities.
In August 2017, the Company entered into a lease agreement for its Company headquarters consisting of 88,759 square feet of office space in Lawrenceville, New Jersey. The term of this lease is 15 years, 6 months subject to early termination if (1) there is not sufficient space for expansion beyond the initial space, starting 6 years, 6 months after lease commencement, which will require an early termination payment that declines from $7.5 million at such date by $0.7 million per year after such date, or (2) upon advance notice by the Company, at 12 years, 6 months after lease commencement, which will require an early termination payment of $3.6 million. The lease contains an option to lease up to 61,000 additional square feet, starting 6 years, 6 months after lease commencement, and also contains 2 extension periods of 5 years each. The lease commenced in June 2018 and the Company recognizes rent expense on a straight-line basis over the initial term of the lease, including the free rent period.
The Company has capitalized approximately $5.7 million of costs related to leasehold improvements, furniture and fixtures, and computer equipment associated with this office space. Additionally, in 2018 the landlord paid for approximately $5.8 million of costs and related improvements to modify the existing space to meet the Company's requirements. This lease incentive was recorded as an asset and other long term liability as of the date the lease commenced. The asset is being amortized over term of the lease, and the long term liability is being recorded as a reduction to rent expense over the same period of time.
The Company also leases equipment under capital lease agreements. The capital leases have stated or implied interest rates between 5% and 11% and maturity dates into 2024. The equipment financed under the capital leases serves as collateral, and certain leases contain casualty loss values if the equipment is not returned in working order at the end of the lease term.
Future minimum lease payments under non-cancelable operating and capital leases as of June 30, 2021 are as follows (in thousands):
| | | | | | | | | | | |
| Operating Leases | | Capital Leases |
2021 (remainder) | $ | 2,333 | | | $ | 91 | |
2022 | 4,563 | | | 52 | |
2023 | 4,284 | | | 13 | |
2024 | 4,138 | | | 1 | |
2025 | 4,115 | | | 0 | |
Thereafter | 28,136 | | | 0 | |
Total minimum lease payments | $ | 47,569 | | | $ | 157 | |
Less: Amounts representing interest | | | (5) | |
Present value of lease payments | | | 152 | |
Less: Current portion | | | (124) | |
Long-term portion of minimum lease payments | | | $ | 28 | |
Total rent expense for both the six months ended June 30, 2021 and 2020 amounted to $2.6 million.
Purchase Commitments
The Company enters into purchase commitments with certain vendors to secure pricing for paper, envelopes, and similar products necessary for its print operations. As of June 30, 2021, the Company did not have a material balance remaining under such purchase orders.
Legal Contingencies, Claims, and Assessments
During the normal course of business, the Company is occasionally involved with various claims and litigation. Reserves are established for such matters when a loss is probable and the amount of such loss can be reasonably estimated, including for indemnifications with customers or other parties as a result of contractual agreements. Currently, the Company is not party to any such matters that, in the opinion of management, would individually or taken together have a material adverse effect on its business, operating results, financial condition, or cash flows. Accordingly, no material reserves have been recorded.
Note 11 - Income Taxes
The Company is subject to federal and various state income taxes in the United States. The Company’s provision for income taxes during interim periods is determined using an estimate of the Company’s annual effective tax rate, which is adjusted for certain discrete tax items during interim periods.
Income taxes for the six months ended June 30, 2021 and 2020 are primarily due to tax amortization of indefinite-lived assets and state income taxes.
Section 382 of the Internal Revenue Code of 1986, as amended, imposes an annual limitation on the amount of net operating loss carryforwards that may be used to offset federal taxable income and federal tax liabilities when a corporation has undergone significant changes in its ownership. The Company is evaluating the ownership change as a result of the Business Combination (refer to Note 3 - Business Combination) to determine any impact on utilization of net operating loss carryforwards.
Note 12 - Short Term Investments
The Company’s investments at June 30, 2021 consist entirely of certificates of deposit with a financial institution, and have maturity dates of twelve months or less.
Management determines the appropriate classification of investments at the time of purchase and re-evaluates such designation as of each balance sheet date. Investments are classified as held-to-maturity when the Company has the positive intent and ability to hold the securities to maturity. Held-to-maturity securities are stated at amortized cost, adjusted for amortization of premiums and accretion of discounts to maturity, with related amortization included in interest income (expense) in the Condensed Consolidated Statements of Operations and Comprehensive Loss. The Company uses the specific identification method to determine the cost basis of securities sold and realized gains or losses are included in earnings.
The Company did not have any investments classified as held-to-maturity as of June 30, 2021 or December 31, 2020.
Investments are impaired when a decline in fair value is judged to be other-than-temporary. The Company evaluates an investment for impairment by considering the length of time and extent to which market value has been less than cost or amortized cost, the financial condition and near-term prospects of the issuer, specific events or circumstances that may influence the operations of the issuer, and the Company’s intent to sell the security, or the likelihood that it will be required to sell the security, before recovery of the entire amortized cost. Once a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded and a new costs basis in the investment is established.
Note 13 - Fair Value Measurements
The carrying amounts reflected in the Condensed Consolidated Balance Sheets for cash, cash equivalents, restricted cash, accounts receivable, funds held for customers, other current assets, other assets, accounts payable, accrued expenses (excluding the contingent consideration and warrants discussed below), other current liabilities, and other liabilities approximate fair value due to their short-term maturities.
Additionally, the Company measures certain financial assets and liabilities at fair value on a recurring basis including short term investments, contingent consideration, and warrants to purchase Series C preferred stock (refer to Note 3 - Business Combination). The fair values of these financial assets and liabilities have been
classified as Level 1, 2, or 3 within the fair value hierarchy as described in the accounting standards for fair value measurements:
•Level 1: Observable inputs based on unadjusted quoted prices in active markets for identical assets or liabilities.
•Level 2: Inputs, other than Level 1 inputs, that are observable either directly or indirectly, such as quoted prices for similar assets or liabilities, quotes prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
•Level 3: Unobservable inputs for which there is little or no market data, requiring the Company to develop its own estimates and assumptions
The following tables present the Company's fair value hierarchy for its financials assets and liabilities that are measured at fair value on a recurring basis (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2021 |
| Balance | | Level 1 | | Level 2 | | Level 3 |
Assets: | | | | | | | |
Short-term investments | 45,037 | | | 45,037 | | | 0 | | | 0 | |
Total Assets | $ | 45,037 | | | $ | 45,037 | | | $ | 0 | | | $ | 0 | |
| | | | | | | |
Liabilities: | | | | | | | |
Contingent consideration (1) | $ | 370 | | | $ | 0 | | | $ | 0 | | | $ | 370 | |
| | | | | | | |
Total Liabilities | $ | 370 | | | $ | 0 | | | $ | 0 | | | $ | 370 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| Balance | | Level 1 | | Level 2 | | Level 3 |
Liabilities: | | | | | | | |
Contingent consideration (1) | $ | 660 | | | $ | 0 | | | $ | 0 | | | $ | 660 | |
Warrants to purchase Series C Preferred Stock (2) | 1,172 | | | 0 | | | 0 | | | 1,172 | |
Total Liabilities | $ | 1,832 | | | $ | 0 | | | $ | 0 | | | $ | 1,832 | |
17.(1) The acquisition of Second Phase, LLC in April 2019 included a contingent consideration arrangement that required additional consideration to be paid to the sellers annually based meeting certain recurring revenue growth and profitability targets (together, "the Financial Targets") during the three-year period beginning May 1, 2019. No amounts were paid during 2020 or 2021 for the first or second year as the Financial Targets were not met. The year three amount, if any, is expected to be finalized and paid to the sellers by the end of 2022. The range of outcomes for the year three amount cannot be estimated as the amount payable is a percentage of the growth in the Financial Targets. The fair value of the remaining contingent consideration is included in other current liabilities in the Condensed Consolidated Balance Sheets.
(2) The Company had outstanding warrants to purchase Series C stock, as described in Note 3 - Business Combination. The amount was included in other long term liabilities in the Condensed Consolidated Balance Sheets.
During the six months ended June 30, 2021 and 2020, the Company did not transfer assets or liabilities between levels of the fair value hierarchy. Additionally, there have been no changes to the valuation techniques for Level 2 or Level 3 liabilities.
The following tables present the changes in the Company’s Level 3 financial instruments measured at fair value on a recurring basis (in thousands):
| | | | | | | | |
| | Contingent Consideration |
| | |
| | |
| | |
| | |
Ending balance, December 31, 2020 | | $ | 660 | |
| | |
| | |
| | |
Fair value adjustment to contingent consideration (1) | | (290) | |
Ending balance, June 30, 2021 | | $ | 370 | |
| | | | | | | | |
| | Warrants |
Ending balance, December 31, 2020 | | $ | 1,172 | |
Change in fair value (2) | | 256 | |
Exercise of Series C warrants (3) | | (1,428) | |
Ending balance, June 30, 2021 | | $ | 0 | |
(1) Subsequent to the acquisition of Second Phase, LLC, the changes in the fair value of the contingent consideration were primarily due to management's estimates and the achievements of the Financial Targets during each period. Increases or decreases in the inputs would have resulted in higher or lower fair value adjustments. This amount was recognized in change in fair value of financial instruments and other income in the Condensed Consolidated Statements of Operations and Comprehensive Loss.
(2) Included in change in fair value of financial instruments and other expenses in the Condensed Consolidated Statements of Operations and Comprehensive Loss.
(3) As part of the Business Combination on January 12, 2021 (refer to Note 3 - Business Combination), the warrants were exercised and subsequently converted to common stock.
Note 14 - Property and Equipment
Property and equipment, net consists of the following (in thousands):
| | | | | | | | | | | | | | |
| | June 30, | | December 31, |
| | 2021 | | 2020 |
Assets held under capital leases | | $ | 3,784 | | | $ | 3,752 | |
Computer, print and mail equipment | | 8,777 | | | 7,998 | |
Furniture and fixtures | | 4,073 | | | 4,073 | |
Leasehold improvements | | 12,133 | | | 12,120 | |
Software | | 1,437 | | | 1,437 | |
Vehicles | | 115 | | | 115 | |
Internal software development | | 2,959 | | | 2,644 | |
Construction in progress | | 90 | | | 79 | |
Total property and equipment | | 33,368 | | | 32,218 | |
Less: accumulated depreciation and amortization | | (17,174) | | | (15,568) | |
Total property and equipment, net | | $ | 16,194 | | | $ | 16,650 | |
Depreciation and amortization expense of property and equipment, including amortization of software development costs and depreciation of capital leases, was $0.8 million and $0.9 million for the three months ended June 30, 2021 and 2020, respectively and $1.6 million and $1.7 million for the six months ended June 30, 2021 and 2020, respectively.
The Company had 0 material write-offs or disposals of fixed assets during the six months ended June 30, 2021 and 2020.
Note 15 - Accrued Expenses and Other
Accrued expenses and other consist of the following:following (in thousands):
| | | | | | | | | | | | | | |
| | June 30, | | December 31, |
| | 2021 | | 2020 |
Accrued expenses | | $ | 14,152 | | | $ | 11,749 | |
Accrued compensation | | 10,059 | | | 9,513 | |
Accrued professional services and other | | 5,707 | | | 3,569 | |
Accrued business combination expense | | 1,137 | | | 1,510 | |
Total accrued expenses and other | | $ | 31,055 | | | $ | 26,341 | |
Note 16 - Segment Information
The Company's operations are grouped into 2 reportable segments: (1) Print, and (2) Software and Payments. The Company's Chief Operating Decision Maker (“CODM”) is the Chief Executive Officer ("CEO"), who reviews discrete financial and other information presented for print services and software and payment services for purposes of allocating resources and evaluating the Company's financial performance.
•Print – The Print segment is primarily responsible for printing customer invoices and optimizing the amount of time and costs associated with billing customers via mail.
•Software and Payments – The Software and Payments segment primarily operates using software and cloud based services, optimizes electronic invoice presentment, electronic payments, credit decisioning, collections automation, cash application and deduction management, and e-commerce of B2B customers.
“All other” represents implementation, services, and other business activities which are not reviewed by CODM on regular basis.
The Company evaluates segment performance and allocates resources based on revenues, cost of revenues, and gross profit. The accounting policies used by the reportable segments are the same as those used by the Company. All of the revenues shown in the reportable segments is revenue from external customers; there is no revenue from transactions with other operating segments. Segment expenses include the direct expenses of each segment's operations and exclude sales and marketing expenses, research and development expenses, general and administrative expenses, depreciation and amortization expense, stock-based compensation expense, interest income (expense), and certain other identified costs that the Company does not allocate to its segments for purposes of evaluating operational performance.
Given the nature of the Company’s business, the amount of assets does not provide meaningful insight into the operating performance of the Company. As a result, the Company does not identify or allocate assets by reportable segment and total assets are not included in the Company’s segment financial information.
| | | | | | | | | | | |
| March 31, 2021 | | December 31, 2020 |
Accrued expenses | $ | 11,907 | | | $ | 11,749 | |
Accrued compensation | 7,337 | | | 9,513 | |
Accrued professional services and other | 4,070 | | | 3,569 | |
Accrued business combination expense | 846 | | | 1,510 | |
Total accrued expenses and other | $ | 24,160 | | | $ | 26,341 | |
The following tables include a reconciliation of segment revenues, cost of revenues, and gross profits to loss before income taxes (in thousands): | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2021 |
| Print | | Software and Payments | | All other | | Consolidated |
Revenues: | | | | | | | |
Subscription and transaction | $ | 4,490 | | | $ | 24,582 | | | $ | 0 | | | $ | 29,072 | |
Services and other | 0 | | | 0 | | | 2,517 | | | 2,517 | |
Subscription, transaction, and services | 4,490 | | | 24,582 | | | 2,517 | | | 31,589 | |
Reimbursable costs | 8,643 | | | 0 | | | 0 | | | 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 | | | 0 | | | 0 | | | 8,643 | |
Total cost of revenues | 10,543 | | | 3,679 | | | 3,781 | | | 18,003 | |
Gross profit: | | | | | | | |
| | | | | | | |
| | | | | | | |
Total segment gross profit (loss) | $ | 2,590 | | | $ | 20,903 | | | $ | (1,264) | | | $ | 22,229 | |
Total segment gross margin | 20 | % | | 85 | % | | (50) | % | | 55 | % |
Subscription, transaction, and services gross margin | 58 | % | | 85 | % | | (50) | % | | 70 | % |
Unallocated amounts: | | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Sales, marketing, research, development, and administrative expenses | | | | (31,728) | |
Depreciation and amortization | | | | | | | (1,359) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Interest, loss on extinguishment of debt, changes in fair value of financial instruments, and other income (expenses) | | | | 133 | |
Loss before income taxes | | | | | | | $ | (10,725) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2020 |
| Print | | Software and Payments | | All other | | Consolidated |
Revenues: | | | | | | | |
Subscription and transaction | $ | 4,448 | | | $ | 19,361 | | | $ | 0 | | | $ | 23,809 | |
Services and other | 0 | | | 0 | | | 1,837 | | | 1,837 | |
Subscription, transaction, and services | 4,448 | | | 19,361 | | | 1,837 | | | 25,646 | |
Reimbursable costs | 8,945 | | | 0 | | | 0 | | | 8,945 | |
Total revenues | 13,393 | | | 19,361 | | | 1,837 | | | 34,591 | |
Cost of Revenues: | | | | | | | |
Cost of subscription, transaction, and services revenue | 2,297 | | | 2,880 | | | 2,456 | | | 7,633 | |
Cost of reimbursable costs | 8,945 | | | 0 | | | 0 | | | 8,945 | |
Total cost of revenues | 11,242 | | | 2,880 | | | 2,456 | | | 16,578 | |
Gross profit: | | | | | | | |
| | | | | | | |
| | | | | | | |
Total segment gross profit (loss) | $ | 2,151 | | | $ | 16,481 | | | $ | (619) | | | $ | 18,013 | |
Total segment gross margin | 16 | % | | 85 | % | | (34) | % | | 52 | % |
Subscription, transaction, and services gross margin | 48 | % | | 85 | % | | (34) | % | | 70 | % |
Unallocated amounts: | | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Sales, marketing, research, development, and administrative expenses | | | | (18,778) | |
Depreciation and amortization | | | | | | | (1,410) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Interest, loss on extinguishment of debt, changes in fair value of financial instruments, and other expenses | | | | (690) | |
Loss before income taxes | | | | | | | $ | (2,865) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2021 |
| Print | | Software and Payments | | All other | | Consolidated |
Revenues: | | | | | | | |
Subscription and transaction | $ | 8,988 | | | $ | 50,267 | | | $ | 0 | | | $ | 59,255 | |
Services and other | 0 | | | 0 | | | 5,453 | | | 5,453 | |
Subscription, transaction, and services | 8,988 | | | 50,267 | | | 5,453 | | | 64,708 | |
Reimbursable costs | 17,460 | | | 0 | | | 0 | | | 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 | | | 0 | | | 0 | | | 17,460 | |
Total cost of revenues | 21,286 | | | 7,391 | | | 7,396 | | | 36,073 | |
Gross profit: | | | | | | | |
| | | | | | | |
| | | | | | | |
Total segment gross profit (loss) | $ | 5,162 | | | $ | 42,876 | | | $ | (1,943) | | | $ | 46,095 | |
Total segment gross margin | 20 | % | | 85 | % | | (36) | % | | 56 | % |
Subscription, transaction, and services gross margin | 57 | % | | 85 | % | | (36) | % | | 71 | % |
Unallocated amounts: | | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Sales, marketing, research, development, and administrative expenses | | | | (64,107) | |
Depreciation and amortization | | | | | | | (2,719) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Interest, loss on extinguishment of debt, changes in fair value of financial instruments, and other expenses | | | | (12,696) | |
Loss before income taxes | | | | | | | $ | (33,427) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2020 |
| Print | | Software and Payments | | All other | | Consolidated |
Revenues: | | | | | | | |
Subscription and transaction | $ | 9,234 | | | $ | 37,701 | | | $ | 0 | | | $ | 46,935 | |
Services and other | 0 | | | 0 | | | 3,235 | | | 3,235 | |
Subscription, transaction, and services | 9,234 | | | 37,701 | | | 3,235 | | | 50,170 | |
Reimbursable costs | 18,566 | | | 0 | | | 0 | | | 18,566 | |
Total revenues | 27,800 | | | 37,701 | | | 3,235 | | | 68,736 | |
Cost of Revenues: | | | | | | | |
Cost of subscription, transaction, and services revenue | 4,508 | | | 5,994 | | | 5,021 | | | 15,523 | |
Cost of reimbursable costs | 18,566 | | | 0 | | | 0 | | | 18,566 | |
Total cost of revenues | 23,074 | | | 5,994 | | | 5,021 | | | 34,089 | |
Gross profit: | | | | | | | |
| | | | | | | |
| | | | | | | |
Total segment gross profit (loss) | $ | 4,726 | | | $ | 31,707 | | | $ | (1,786) | | | $ | 34,647 | |
Total segment gross margin | 17 | % | | 84 | % | | (55) | % | | 50 | % |
Subscription, transaction, and services gross margin | 51 | % | | 84 | % | | (55) | % | | 69 | % |
Unallocated amounts: | | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Sales, marketing, research, development, and administrative expenses | | | | (39,832) | |
Depreciation and amortization | | | | | | | (2,821) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Interest, loss on extinguishment of debt, changes in fair value of financial instruments, and other expenses | | | | (1,876) | |
Loss before income taxes | | | | | | | $ | (9,882) | |
Note 17 - Related Party Transactions
A member of the Company's Board of Directors is also an executive at a company (the "Related Party Customer") that purchases certain of Billtrust's services under an ongoing commercial relationship. During the three months ended June 30, 2021 and 2020, the Related Party Customer generated total revenues of approximately $78 thousand and $64 thousand, respectively. During the six months ended June 30, 2021 and 2020, the Related Party Customer generated total revenues of approximately $150 thousand and $147 thousand, respectively. At June 30, 2021 and December 31, 2020, Billtrust had open receivable balances from the Related Party Customer of $64 thousand and $46 thousand, respectively.
The Company also has ongoing commercial agreements with several of Bain Capital Ventures, LLC's ("Bain") portfolio companies ("Portfolio Companies"). Bain is a greater than 5% shareholder of the Company's outstanding common stock at June 30, 2021, and one of the members of the Company's Board of Directors is also an executive at Bain. During the three months ended June 30, 2021 and 2020, the Company incurred expenses to the Portfolio Companies of approximately $122 thousand and $85 thousand, respectively. During the six months ended June 30, 2021 and 2020, the Company incurred expenses to the Portfolio Companies of approximately $226 thousand and $159 thousand, respectively. At June 30, 2021 and December 31, 2020, Billtrust had open payables balances to the Portfolio Companies of 0 and $102 thousand, respectively. Additionally, during the three months ended June 30, 2021 and 2020, the Portfolio Companies generated total revenues of approximately $46 thousand and $26 thousand, respectively. During the six months ended June 30, 2021 and 2020, the Portfolio Companies generated total revenues of approximately $85 thousand and $48 thousand, respectively. At June 30, 2021 and December 31, 2020, Billtrust had open receivables balances from Portfolio Companies of $30 thousand and $25 thousand, respectively.
Refer to Note 18 - Subsequent Events for a description of costs the Company paid for on behalf of several of its selling security holders associated with the secondary offering that closed in July 2021.
Note 18 - Subsequent Events
The Company reviews events and transactions that occur after the balance sheet date, but before this Quarterly Report on Form 10-Q is filed with the SEC, to identify matters that require additional disclosure or to provide additional support relative to certain estimates made in preparing the financial statements. The Company has evaluated subsequent events through August 12, 2021, and except as discussed below, the Company is not aware of any subsequent events which would require recognition or disclosure in the financial statements.
On July 6, 2021, the Company completed an underwritten secondary offering (the "Offering") of 10,350,000 shares of the Company's Class 1 common stock at a public offering price of $12.25 per share. All of the Class 1 common stock was offered by existing shareholders. No new shares were issued and Billtrust did not receive any proceeds from the Offering. The gross proceeds from the Offering, before deducting underwriting discounts and commissions, was $126.8 million.
During the three months ended June 30, 2021, the Company incurred $0.5 million of costs directly related to the Offering, consisting principally of professional, printing, filing, regulatory and other costs. These costs were recorded in general and administrative expenses in the Condensed Consolidated Statements of Operations and Comprehensive Loss since the Offering did not generate any proceeds to the Company, and therefore the costs do not qualify to be deferred or charged to additional paid-in capital under ASC 340-10-S99-1. Additionally, as no new shares were issued, the shares transacted as part of the Offering would not have impacted the number of common shares outstanding at the end of June 30, 2021 for the purposes of calculating earnings per share as of that date.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
You should read this section in conjunction with the unaudited interim consolidated financial statementsCondensed Consolidated Financial Statements and related notes included in Part I. Item 1 of this Quarterly Report on Form 10-Q, and our audited consolidated financial statements and related notes thereto and management’s discussion and analysis of financial condition and results of operationsAnnual Report on Form 10-K for the year ended December 31, 2020 included in(the "Annual Report on Form 10-K"), as filed with the US Securities and Exchange Commission (the "SEC") on March 24, 2021, the Company's Amendment No. 1 to the Current Report on Form 8-K (the "Amendment on Form 8-K"), as filed with the Securities and Exchange Commission (the "SEC")SEC on March 24, 2021, and the Company's Registration Statement on Form S-1 as amended (File No. 333-257488), originally filed with the SEC on June 28, 2021.
Certain figures, such as interest rates and other percentages, included in this section have been rounded for ease of presentation. Percentage figures included in this section have not in all cases been calculated on the basis of such rounded figures but on the basis of such amounts prior to rounding. For this reason, percentage amounts in this section may vary slightly from those obtained by performing the same calculations using the figures in Billtrust’s financial statementsour Condensed Consolidated Financial Statements or in the associated text.Notes to Condensed Consolidated Financial Statements. Certain other amounts that appear in this section may similarly not sum due to rounding.
FORWARD-LOOKING STATEMENTS
Forward Looking Statements
This discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking statements are identified by words such as “believe,” “may,” “could,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “seek,” “plan,” “expect,” “should,” “would,”“believe”, “may”, “could", “will”, “estimate”, “continue”, “anticipate”, “intend”, “seek”, “plan”, “expect”, “should”, “would”, “potentially”, or the negative of these terms or similar expressions in this Quarterly Report on Form 10-Q. You should read these statements carefully because they discuss future expectations, contain projections of future results of operations or financial condition, or state other “forward-looking” information. These statements relate to our future plans, objectives, expectations, intentions, and financial performance and the assumptions that underlie these statements. These forward-looking statements are subject to certain risks and uncertainties that could cause a difference include, but are not limited to, those discussed under the caption “Risk Factors” in our Annual Report on Form 10-K, for the year ended December 31, 2020Amendment on Form 8-K, the Company's Registration Statement on Form S-1, and elsewhere in this Quarterly Report. SeeReport (refer to the section titled “Special Note Regarding Forward-Looking Statements.”Statements”). Forward-looking statements are based on our management’s current beliefs and assumptions and based on information currently available to our management.available. These statements, like all statements in this Quarterly Report on Form 10-Q, speak only as of their date, and we undertake no obligation to update or revise these statements in light of future developments, except as required by law.
Business Overview
BUSINESS OVERVIEW
Billtrust isWe are a leading provider of cloud-based software and integrated payment processing solutions that simplify and automate B2B commerce. Accounts receivable (“AR”) is broken and relies on conventional processes that are outdated, inefficient, manual, and largely paper-based. Billtrust isWe are at the forefront of the digital transformation of AR, providing mission-critical solutions that span credit decisioning and monitoring, online ordering, invoicing, cash application, and collections. Billtrust’sOur solutions integrate with a number of ecosystem players, including financial institutions, enterprise resource planning (“ERP”) systems, and accounts payable (“AP”) software platforms, to helpprovide our customers accelerate cash flow and generate sales more quickly and efficiently. Customers use Billtrust’s platform to transition from expensive paper invoicing and check acceptance to efficient electronic billing and payments, which generates cost savings and provides a better user experience.
Billtrust is mission-critical to its customers’ AR operations, helping them convert from expensive paper invoicing and check acceptance to efficient electronic billing and payments. Billtrust’s proprietary technology platform offers Billtrust’s customers multiple ways to send invoices (print, fax, email, online, and AP portal) and receive payments (paper check, ACH, email, phone, and credit card). Billtrust has an electronic solutions (eSolutions) team that works closely with Billtrust’s customers to transition their users from paper invoices and payments to electronic, which results in accelerated savings, faster realization of cash, and a better user experience. Customers use Billtrust’s integrated AR platform to automate credit decisioning, online ordering, invoice delivery, payment capture, cash application, and collections. In
addition to driving cost savings for customers, Billtrust benefits from margin expansion and incremental revenue throughCompanies throughout the monetization of electronic payments.
Billtrust’s customersworld have athe daunting task of capturing and applying payments from hundreds or thousands of their buyer customers, all via different channels and payment types. Larger buyers, or their outsourced APaccounts payable ("AP") providers, offer their portals as a means for suppliers to be paid. Suppliers, on the other hand, prefer a single source of payments with clean remittance or payment instructions. To address this large and increasingly growing pain point for suppliers, Billtrustwe created a leading, two-sided B2B payments network, the Business Payments Network (BPN)("BPN") that connects buyers and suppliers. BilltrustWe built integrations with leading ERPenterprise resource planning ("ERP") and accounting systems, banks, and AP software providers to offer an online supplier business directory, programmatic payment preferences, payment flexibility, and streamlined reconciliation of remittance data.
Customers use our integrated AR platform to automate credit decisioning, online ordering, invoice delivery, payment capture, cash application, and collections. Our solutions integrate with a number of ecosystem players, including financial institutions, ERP systems, and AP software platforms, to help customers accelerate cash flow and generate sales more quickly and efficiently.
Segments and Financial Summary
Billtrust has determinedOur proprietary technology also offers our customers multiple ways to send invoices (via print, fax, email, online, and AP portals) and receive payments (via paper check, ACH, email, phone, and credit card). Our electronic solutions team that it has two reportable segments - the Print segmentworks closely with customers to transition their users from paper invoices and the Softwarepayments to electronic, helping them convert from expensive paper invoicing and Payments segment. Billtrust's chief operating decision maker is Billtrust’s chief executive officer who reviews discrete financialcheck acceptance to efficient electronic billing and other information presented for print services and software and payment services for purposes of allocating resources and evaluating Billtrust’s financial performance. Billtrust’s accounting policies are described in Note 2 to its accompanying unaudited financial statements.payments.
Billtrust hasWe have expanded itsour product reach and customer base over the past years and scaled itsour business operations in recent periods. Billtrust’sOur total revenues were $41.9$82.2 million and $34.1$68.7 million for the threesix months ended March 31,June 30, 2021 and 2020, respectively. As a result of our focus on product development and sales and marketing, we have generated net losses of $33.5 million and $10.0 million for the six months ended June 30, 2021 and 2020, respectively.
As a result of Billtrust’s continued expenditures for product development, sales and marketing, and expansion of its leased facilities, Billtrust has generated net losses of $22.8 million and $7.1 million for the three months ended March 31, 2021 and 2020, respectively. Billtrust’s net loss decrease for the 2021 period was due, in part, to cost containment measures and other modified business practices adopted in March 2020 as a result of the COVID-19 pandemic. For more information on how Billtrust was affected by and responded to COVID-19, see the section entitled “--Impact of COVID-19 on Billtrust’s Business.”
RECENT DEVELOPMENTS
Merger Combination with South Mountain
Merger Corporation ("SMMC")
On January 12, 2021 (the “Closing Date”), SMMC consummated the previously announced mergers (the “Closing”) pursuant to that certain Business Combination Agreement, dated October 18, 2020, (asas amended on December 13, 2020, the “BCA”South Mountain Merger Corp., a Delaware corporation (“South Mountain”), by and among SMMC, BT Merger Sub I, Inc., a Delaware corporation and a direct, wholly owned subsidiary of SMMCSouth Mountain (“First Merger Sub”), BT Merger Sub II, LLC, a Delaware limited liability company and a direct, wholly owned subsidiary of SMMCSouth Mountain (“Second Merger Sub”) and the Company ("Billtrust"), and Billtrust. The Company’s stockholders approved theentered into a Business Combination (as defined below) at a special meeting of stockholders held on January 12, 2021 (the “Special Meeting”Agreement (“BCA”).
Pursuant, pursuant to the terms of the BCA, a business combination between SMMC and Billtrust was effected through the merger of (a)which (i) First Merger Sub was merged with and into Billtrust (the “First Merger”), with Billtrust surviving the First Merger as a wholly-ownedwholly owned subsidiary of SMMC (Billtrust, in its capacity as the surviving corporation of the merger, the “SurvivingSouth Mountain (“Surviving Corporation”) (the “First Merger”) and (b)(ii) the Surviving Corporation merged with and into Second Merger Sub with Second Merger Sub being the surviving entity of the Second Merger, which ultimately resulted in Billtrust becoming a wholly-owned direct subsidiary of SMMC (the “Second Merger”, and together with the First Merger, the “Mergers” and,), 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”). On
In connection with the Closing Date,execution of the registrant changed its name from “SouthBusiness Combination, on October 18, 2020, South Mountain Merger Corp.”entered into separate subscription agreements (“Subscription Agreements”) with a number of investors (“PIPE Investors”), pursuant to “BTRS Holdings Inc.”which the PIPE Investors agreed to purchase, and South Mountain sold to the PIPE Investors, an aggregate of 20,000,000 shares of South Mountain Class A common stock, for a purchase price of $10.00 per share and at an aggregate purchase price of $200.0 million, in a private placement (“PIPE Financing”).
The Business Combination and PIPE Financing closed on January 12, 2021 (the "Closing Date"). The Business Combination was accounted for as a reverse recapitalization and Billtrustin accordance with the generally accepted accounting principles in the United States of America ("U.S. GAAP"). Under this method of accounting, South Mountain was treated as the “acquired” company for financial reporting purposes. For accounting purposes, we were the accounting acquirer.
On October 18, 2020,acquirer in the transaction and, consequently, the transaction was treated as a numberrecapitalization of purchasers (each,Billtrust (i.e., a “Subscriber”) agreed to purchase an aggregatecapital transaction involving the issuance of 20,000,000 shares ofstock by South Mountain Class A Common Stock (the “PIPE Shares”)for the stock of Billtrust). Accordingly, the assets, liabilities, and results of operations of Billtrust became the historical financial statements of "New Billtrust", for a purchase pricewhich was renamed BTRS Holdings Inc., and South Mountain’s assets, liabilities, and results of $10.00 per share and an aggregate purchase priceoperations were consolidated with Billtrust beginning on the Closing Date. All amounts of $200,000,000, pursuantBTRS Holdings Inc. reflect the historical amounts of Billtrust carried over at book value with no step up in basis to separate Subscription Agreements (each, a “Subscription Agreement”) entered into effective as of October 18, 2020. The sale of PIPE Shares was consummated concurrently with the closing offair value. After the Business Combination.
Billtrust's cashCombination, our common stock began trading on hand after giving effect to these transactions will be used for general corporate purposes, including investments in sales and marketing efforts, advancement of Billtrust’s research and development efforts, general and administrative matters, and capital expenditures. Billtrust may also use the proceeds forNasdaq stock exchange under the acquisition of, or investment in, technologies, solutions, or businesses that complement its business.
ticker symbol BTRS.
IMPACT OF COVID-19 ON BILLTRUST’S BUSINESS
On January 30, 2020, the World Health Organization declared the COVID-19 outbreak a “Public Health Emergency of International Concern” and on March 11, 2020, declared it to be a pandemic. Actions taken around the world to help mitigate the spreadImpact of COVID-19 include restrictions on travel, quarantines in certain areas and forced closures for certain types of public places and businesses. COVID-19 and actions taken to mitigate its spread have had and are expected to continue to have an adverse impact on the economies and financial markets of many countries. Billtrust's Business
In March 2020, the United States declared a State of National Emergency due to the COVID-19 outbreak. In addition, many jurisdictions in the United States have limited, and are considering to further limit, social mobility and gathering. Manypandemic. Since then, our business establishments have closed due to restrictions imposed by the government and many governmental authorities have closed most public establishments.
Billtrust’s business continueshas continued to operate despite the disruption to many of many business operations in the United States and its decision to require employees to work from remote locations.our customer's operations. The pandemic has served to increase the awareness and urgency around accelerating the digital transformation of AR through Billtrust’sour products and platform. Although Billtrust has not experiencedplatforms. While this helped us avoid significant business, bookings, or revenue disruptions thus far, from the COVID-19 pandemic, Billtrust saw its transaction fees, including those in the print segment, decrease year over year for certain customers. This decrease was seen most acutely induring the three months ended June 30, 2020. Billtrust is2020, the pandemic did cause a decrease in our transaction fee revenues for certain customers. This was a result of the pandemic's broader economic impact on some companies in heavily transaction based industries and the related slowing of their business activity. These revenues started rebounding in the second half of 2020 and into 2021, which we expect to continue.
We are unable to predict the full impact that the COVID-19 pandemic will have on itsour future results of operations, liquidity, and financial condition due to numerous uncertainties, including the duration, severity, and spread of the pandemic, thevirus, actions that may be taken by government authorities, across the United States, the impact to itsour customers, employees, and suppliers, and various other factors described in the section titled “Risk Factors” in the Annual Report on Form 10-K for the year ended December 31, 2020. These factors are beyond Billtrust’sour knowledge and control and, as a result, at this time, Billtrust is unable to predict the ultimate impact, both in terms of severity and duration, that the COVID-19 pandemic will have on Billtrust’s business, operating results, cash flows and financial condition.
Some of Billtrust’s customers have been, and may continue to be, negatively impacted by the shelter-in-place and other similar state and local orders, the closure of manufacturing sites and country borders, and the increase in unemployment.control. The COVID-19 pandemic has caused Billtrustus to modify itsour business practices, (includingsuch as employee travel andrestrictions, cancellation of physical participation in
meetings, events and conferences), all of itsconferences, and requiring employees are currently working remotely, and itto work remotely. We may take further actions as may be required by government authorities or that Billtrust determineswe determine are in the best interests of itsour employees and customers. These modified business practicesWe have led to expense reductions in personnel and marketing related costs. The extent of this business disruption on Billtrust’s operational and financial performance will depend on these developments and the duration and spread of the outbreak, allpreviously implemented certain cost savings measures, some of which have ended, such as reducing employee incentive compensation programs, and others are uncertaincontinuing, such as restricted travel and cannot be predicted.reduced discretionary spend in certain areas. We will continue to monitor the situation and adjust our response accordingly.
Key Factors Affecting Our Performance
Billtrust believes that itsWe believe our performance and future growth depends on a number of factors that present significant opportunities, but also pose risks and challenges, including those discussed below and in
the section titled “Risk Factors” in theour Annual Report on Form 10-K, for the year ended December 31, 2020.our Amendment on Form 8-K, and our Registration Statement on Form S-1. For additional information related to key performance metrics used by Billtrustwe use to help it evaluate the health of itsour business, identify trends affecting itsour growth, formulate goals and objectives, and make strategic decisions, please see the section entitled “—Keywithin this Quarterly Report on Form 10-Q titled “Key Performance Metrics.” Billtrust believes thatWe believe the most significant factors affecting itsour results of operations include:
Investment in Technology
Billtrust’sOur goal is to transform the way businesses send and capture payments in order to be the leader in the order-to-cash process. Billtrust continuesprocess by digitizing areas including credit decisioning, ordering, invoicing, payments, cash application, and collections. We continue to invest in technology and the digitizing of its platform. Billtrust’s investment in technology is aimed at upgrading the conventional (largely paper based) AR and order-to-cash processes. Billtrust’s model is digitizing the order-to-cash process in areas such as credit, ordering, invoicing, payments, cash application and collections.
Billtrust continues to invest in improving each product and offering more digital capability to its customers.our platforms. Further, Billtrust is continuingwe continue to invest in certain internal initiatives targeted to improveat improving internal processes and enhanceenhancing the efficiency, security, and scalability of its platform. Billtrust’sour platforms. Our investment in technology is expected to have a positive impact on itsour long-term profitability and operations. BilltrustWe also intendsintend to continue to evaluate strategic acquisitions and investments in businesses and technologies to drive product and market expansion. Billtrust’sOur future success is dependent on itsour ability to successfully develop, market, and sell existing and new products to both new and existing customers.
products.
Acquisition of New Customers
Billtrust efficiently reaches B2BWe reach new business-to-business and business-to-consumer customers through itsour proven go-to-market strategies. Billtrust acquires customers directly throughstrategies, which include digital marketing campaigns, itsour direct sales force, and indirectly by partneringpartnerships with financial institutions and other complementary companies. Billtrust’sOur growth largely depends on itsour ability to acquire new customers.
As of March 31,June 30, 2021, Billtrustwe had over 1,800 customers across a wide variety of industries and geographies, including distributors of building materials, electrical, plumbing and technology equipment, healthcare, construction, and consumer products, among others, primarily domiciledlocated in North America. Billtrust continuesWe continue to invest in itsour sales, marketing, and go-to market strategygo-to-market strategies in order to acquire customers in itsour target market. Billtrust’smarkets. Our marketing efforts are campaign and content driven and targeted depending on the size and industry of the customer. Marketing initiatives are focusedfocus on demand generation and include promotional activity and emphasis on online digital marketing programs (e.g. webinars, virtual events). There is a long-term opportunity to expand into large, new markets with compatible trends.
Billtrust’sOur ability to attract new customers will dependdepends on a number of factors, including the effectiveness and pricing of itsour products, our competitors' offerings, of Billtrust’s competitors, and the effectiveness of itssuccessfully executing our marketing efforts. Billtrust’sOur financial performance will dependdepends in large part on the overall demand for its platform,our platforms, and acquisition of new customers is expected to have a positive impact on Billtrust’sour long-term profitability and operations.
Expansion of Relationships with Existing Customers
Billtrust’sOur revenue growth depends on itsour customers’ usage of itsour range of products. Billtrust’sOur ability to monetize transactions and payments is an important part of itsour business model. As Billtrust solveswe solve customers’ problems and becomesbecome more integrated into their daily businesses, it seeswe see an increased opportunity to cross-sell to these existing customers. This strategy is achieved by driving adoption of an existing Billtrust solution across different divisions and / or subsidiaries of an existing customer and then expanding the scope of service with additional solutions. Billtrust’sOur ability to influence customers to process more transactions and payments on its platformour platforms will have a direct impact on Billtrust’sour revenue.
Billtrust’sOur revenue from existing customers is generally reliable due to both the pricing structure and the business-critical nature of the functions Billtrustour products support for customers. For the threesix months ended March 31,June 30, 2021 and 2020, 95% or more of Billtrust’sour subscription and transaction fees revenue came from customers who had entered into contracts prior to the start of theeach such calendar year. Billtrust expandsWe expand within our existing customer base by selling
its existing customer base by selling additional products on itsour platform, adding divisions, increasing transactions per customer through proven e-solutions, as well as through effective pricing and packaging itsour services. Billtrust’sOur ability to increase sales to existing customers will dependdepends on a number of factors, including itsour customers’ satisfaction with its solution,our solutions, competition, pricing, and overall changes in Billtrust’sour customers’ spending levels with Billtrust. For a full definition of subscription and transaction fees, please see the section entitled “--Components of Results of Operations.”
us.
Key Performance Metrics
KEY PERFORMANCE METRICS
Billtrust monitorsWe monitor the following key metrics to help itus evaluate the health of itsour business, identify trends affecting itsour growth, formulate goals and objectives, and make strategic decisions.
Total Payment Volume
Total Payment Volume (“TPV”) is the dollar value of customer payment transactions that Billtrust processeswe process on itsour platform during a particular period. TPV is further disaggregated between “TPVmade up of the two payment categories:
▪TPV - Card”, which includesACH/Wire - payments made via our software, portals, gateways, and our Business Payments Network that are processed via automated clearing house ("ACH") or wire transfers.
▪TPV - Card - payments through our software, portals, gateways, and third party processors, and includes our Payment Facilitatorpayment facilitator (“PayFac”) customers. “TPV - ACH/Wire” includes payments made via our software, portals, gateways, and our business payments network that are processed via automated clearing house (ACH) or wire transfers.
To grow payments revenue from customers, Billtrustwe must deliver a software platformplatforms that both simplifies the process of accepting electronic payments and streamlines the reconciliation of remittance data. Additionally, as Billtrust increaseswe increase the digital delivery of invoices, it increases the probability that theythe digitally delivered invoices will be paid electronically by Billtrust’sour customers’ end customers. The more customers use the Billtrustour software platform,platforms, the more payments transactions they are likely to process through Billtrust’sour various products. This metricTPV provides an important indication of the dollar value of transactions that customers are completing on the platform and is helpful to investors as an indicator of Billtrust’sour ability to generate revenue from itsour customers.
| | | Three Months Ended March 31, | | | Three Months Ended June 30, | | Six Months Ended June 30, | |
| | 2021 | | 2020 | | | 2021 | | 2020 | | 2021 | | 2020 | |
| | ($ in billions) | | (in billions) | |
Total Payment Volume | Total Payment Volume | $ | 15.1 | | | $ | 11.4 | | | Total Payment Volume | $ | 18.8 | | | $ | 12.7 | | | $ | 33.9 | | | $ | 24.1 | | |
| TPV - ACH/Wire | TPV - ACH/Wire | $ | 9.7 | | | $ | 7.8 | | | TPV - ACH/Wire | 12.2 | | | 8.9 | | | 21.9 | | | 16.7 | | |
TPV - Card | TPV - Card | $ | 5.4 | | | $ | 3.6 | | | TPV - Card | $ | 6.6 | | | $ | 3.9 | | | $ | 12.0 | | | $ | 7.4 | | |
The increase in TPV for the three and six months ended March 31,June 30, 2021 was $15.1 billion compared to $11.4 billion in the same period in 2020, 33% growthprior year over year. TPV - ACH/Wire for the three months ended March 31, 2021 was $9.7 billion compared to $7.8 billion in 2020, 25% growth year over year. TPV - Card for the three months ended March 31, 2021 was $5.4 billion compared to $3.6 billion in the same period in 2020, 52% growth year over year. The growth in TPV was driven by the increase in TPV - Card whichperiods was primarily due to the addition of new customers andon our PayFac platform as well as an increase in existing customer transactions.
transactions on both our card and ACH/Wire platforms (including an expansion of our product platforms for ACH transactions).
Number of Electronic Invoices Presented
Electronic invoices presented tracksis the number of invoices sent via email, fax, or loaded to a presentment or AP portal, and includes volumes from acquired platforms, where volumes are normalized to best match equivalents on the Billtrustour platform. ItThe measure also includes invoices that are charged on a per transaction basis for certain legacy customer agreements, as well as for the current pricing model which includes subscriptionssubscription customers with defined tiers of electronic transactions for a fixed price. Electronic invoices presented is a key indicator as it contributes toof the growth of Billtrust’sour Software and Payments segment revenues, and
is a helpful indicator to management and investors ofas well as the future opportunity for an electronic payment on those invoices.
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2021 | | 2020 | | | | |
Number of electronic invoices presented (in millions) | 71 | | | 64 | | | | | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, | | |
| 2021 | | 2020 | | 2021 | | 2020 | | |
| (in millions) | | |
Number of electronic invoices presented | 77 | | | 63 | | | 148 | | | 128 | | | |
Billtrust’sThe increase in the number of electronic invoices presented for the three and six months ended March 31,June 30, 2021 was 71 million compared to 64 million for the three months ended March 31, 2020, an increase of 10% year over year. The increase is primarily driven by increased adoption for existing customers as well as the addition of new customers, offset by the impact of customers who terminated services.
Non-GAAP Financial Measures
In addition to Billtrust’s results determined in accordance with accounting principles generally accepted in the United States of America (“GAAP”), Billtrust believes the following non-GAAP financial measures are useful in evaluating its operating performance.
Billtrust presents these non-GAAP measures to assist investors in understanding Billtrust’s financial performance from the perspective of Billtrust’s management. Billtrust believes that these measures provide an additional tool for investors to use in comparing Billtrust’s core financial performance over multiple periods with other companies in its industry. While we believe the use of these non-GAAP measures provides useful information to investors and management in analyzing our financial performance, non-GAAP measures have inherent limitations in that they do not reflect all of the amounts and transactions that are included in our financial statements prepared in accordance with GAAP. Non-GAAP measures do not serve as an alternative to GAAP nor do we consider our non-GAAP measures in isolation, accordingly we present non-GAAP financial measures only in connection with GAAP results. We urge investors to consider non-GAAP measures only in conjunction with our GAAP financials and to review the reconciliation of our non-GAAP financial measures to the comparable GAAP financial measures, which are included in this Quarterly Report on Form 10-Q.
Net Revenue (non-GAAP)
Net Revenue (non-GAAP) is defined as total revenues less reimbursable costs revenue, which is equal to subscription, transaction and services revenue. Reimbursable costs revenue consists primarily of amounts charged to customers for postage (with an offsetting amount recorded as a cost of revenue) which Billtrust does not consider internally when monitoring operating performance. Billtrust believes this measure allows investors to evaluate comparability with its past financial performance and facilitate period-to-period comparisons of core operations. The most directly comparable GAAP measure to Net Revenue (non-GAAP) is total revenues.
Adjusted Gross Profit & Adjusted Gross Margin
Adjusted Gross Profit is defined as total revenues less total cost of revenues, excluding depreciation and amortization, plus stock based compensation expense included in total cost of revenues. Adjusted Gross Margin is defined as Billtrust’s Adjusted Gross Profit divided by its total revenues less reimbursable costs revenue or Net Revenue (non-GAAP). Billtrust expects Adjusted Gross Margin to continue to improve over time to the extent that Billtrust is able to increase its scale by successfully growing revenues, both from cross-selling existing customers and upselling current and future offerings. However, Billtrust’s ability to improve Adjusted Gross Margin over time is not guaranteed and will be impacted by the factors affecting our performance discussed above and the risks outlined in the section of the Annual Report on Form 10-K for the year ended December 31, 2020 titled "Risk Factors." Billtrust believes Adjusted Gross Profit and Adjusted Gross Margin are useful financial measures to investors, as they eliminate the impact of certain non-cash expenses and allow a direct comparison of Billtrust’s cash operations and ongoing operating performance between periods.
The following table presents a reconciliation of Billtrust’s Net Revenue (non-GAAP), Adjusted Gross Profit and Adjusted Gross Margin to their most directly comparable GAAP financial measures.
| | | | | | | | | | | | | | |
| | Three Months Ended March 31, |
| | 2021 | | 2020 |
| | (in thousands) |
Total revenues | | $ | 41,936 | | | $ | 34,145 | |
Less: Reimbursable costs revenue | | 8,817 | | | 9,621 | |
Net Revenue (non-GAAP) | | $ | 33,119 | | | $ | 24,524 | |
| | | | |
Total revenues | | $ | 41,936 | | | $ | 34,145 | |
Less: Cost of revenue, excluding depreciation and amortization | | 18,070 | | | 17,511 | |
Gross profit, excluding depreciation and amortization | | 23,866 | | | 16,634 | |
Add: Stock based compensation expense | | 443 | | | 33 | |
Adjusted Gross Profit | | $ | 24,309 | | | $ | 16,667 | |
| | | | |
Gross margin, excluding depreciation and amortization | | 56.9 | % | | 48.7 | % |
Adjusted Gross Margin | | 73.4 | % | | 68.0 | % |
Adjusted EBITDA
Adjusted EBITDA is a non-GAAP financial measure used by Billtrust’s management to evaluate the performance of the business. Billtrust monitors and presents Adjusted EBITDA because it is a key measure used by its management to understand and evaluate its operating performance, to establish budgets and to develop operational and strategic goals for managing its business. Billtrust believes Adjusted EBITDA helps identify underlying trends in its business that may otherwise be masked by the effect of the expenses that Billtrust excludes in the calculation of Adjusted EBITDA. Accordingly, Billtrust believes Adjusted EBITDA provides useful information to investors and others in understanding and evaluating its operating results in the same manner as management. The most directly comparable GAAP measure to Adjusted EBITDA is Net loss and comprehensive loss. Adjusted EBITDA is not prepared in accordance with GAAP and should not be considered in isolation of, or as an alternative to, measures prepared in accordance with GAAP.
Adjusted EBITDA is defined as Net loss and comprehensive loss, plus (i) provision (benefit) for income taxes, (ii) change in fair value of financial instruments and other income including the change in the fair value of liabilities (for earnout shares, warrants, contingent consideration or other items classified as liabilities), (iii) interest expense and loss on extinguishment of debt, (iv) depreciation and amortization, (v) stock-based compensation expense, (vi) restructuring and severance costs, (vii) acquisition and integration costs, and (viii) minus interest income. Billtrust believes that excluding the impact of these expenses in calculating Adjusted EBITDA can provide a useful measure for period-to-period comparisons of its core operating performance. Billtrust believes it is useful to exclude certain non-cash charges, such as share-based compensation expenses from its non-GAAP financial measures because the amount of such expenses in any specific period may not directly correlate to the underlying performance of Billtrust’s business operations. Other income (expense), net, includes interest income, loss on asset disposals and fair value adjustments related to warrants and contingent consideration. The restructuring and severance costs are associated with realigning Billtrust’s organization or lease footprint. Acquisition and integration expenses are related to the third party costs associated with acquiring companies and internal direct costs associated with integrating their customers onto Billtrust’s platforms. These costs are not expected to recur within two years for prior acquisitions and only reoccur if Billtrust has new acquisitions. Billtrust’s last acquisition was in April 2019.
The following table reconciles Adjusted EBITDA to Net loss and comprehensive loss, the most directly comparable financial measures calculated and presented in accordance with GAAP.
Reconciliation of Net Loss and Comprehensive Loss to Adjusted EBITDA:
| | | | | | | | | | | | |
| Three Months Ended March 31, | |
| 2021 | | 2020 | |
| (in thousands) | |
Net loss and comprehensive loss | $ | (22,794) | | | $ | (7,097) | | |
Provision for income taxes | 92 | | | 80 | | |
Change in fair value of financial instruments and other income | 9,990 | | | 19 | | |
Interest expense and loss on extinguishment of debt | 2,942 | | | 1,183 | | |
Interest income | (103) | | | (16) | | |
Depreciation and amortization | 1,360 | | | 1,411 | | |
Stock-based compensation expense | 8,826 | | | 481 | | |
Restructuring & severance | 6 | | | 181 | | |
Acquisition and integration expense | — | | | 53 | | |
| | | | |
Adjusted EBITDA | $ | 319 | | | $ | (3,705) | | |
For the three months ended March 31, 2021, Adjusted EBITDA was $0.3 million, an increase of $4.0 million compared to the prior year loss driven by the increaseperiods was primarily due to growth in total revenues as further described below,existing customer transactions on our platforms as well as lower expenses associated primarily with limited travel and remote work for a majority of employees associated with the ongoing impact of COVID-19. For more information on how Billtrust was affected by and responded to COVID-19, see the section entitled “--Impact of COVID-19 on Billtrust’s Business.”
new customer volumes.
Free Cash Flow
Free cash flow is defined as net cash used in operating activities less purchases of property and equipment, and less capitalization of internal-use software costs. Billtrust believes free cash flow is an important liquidity measure of the cash (if any) that is available for operational expenses and investment in its business, after purchases of property and equipment and capitalization of internal-use software costs. Free cash flow is useful to investors as a liquidity measure because it measures the ability to generate or use cash. Once Billtrust’s business needs and obligations are met, cash can be used to maintain a strong balance sheet and invest in future growth. The following table presents a reconciliation of free cash flow to net cash used in operating activities, the most directly comparable GAAP measure, for the periods presented:
| | | | | | | | | | | | | | |
| | Three Months Ended March 31, |
| | 2021 | | 2020 |
| | (in thousands) |
Net cash used in operating activities | | $ | (9,917) | | | $ | (8,861) | |
Purchases of property and equipment | | (388) | | | (629) | |
Capitalized Software Development | | (115) | | | (236) | |
Free cash flow | | $ | (10,420) | | | $ | (9,726) | |
Components of Results of Operations
Total Revenues
Billtrust generates revenue from three sources: (1) subscriptionSubscription and transaction fees,Transaction Fees, (2) services and other,Services, and (3) reimbursable costs.
Subscription and transaction fees
Reimbursable Costs.
Subscription and transaction feesTransaction Fees
Subscription revenues are primarily derived from aour hosted software as a service (“SaaS”) platformplatforms that enablesenable billings and payment processing on behalf of customers. Billtrust’s services are billed oncustomers, credit decisioning and monitoring, online ordering, invoicing, cash application, and collections. Our SaaS solutions do not provide a subscription basis monthly, quarterlyperpetual license or annually. These are hosted solutions provided without licensing perpetual rightsthe right to thetake possession of our software. The hosted solutions are integral to the overall service arrangement andOur platforms are billed as a subscription fee on a monthly, quarterly, or annual basis as a part of thean overall service agreement with thea customer. Subscription feesrevenues from hostedthe SaaS solutions are recognized monthlyratably over the customer agreement term, beginning on the date Billtrust’seach solution is made available to the customer.
Transaction fees for certain services are billed monthly based on the volume of items processed each month at a contractual rate per item processed. Transaction revenue is recognized over timein the same period as the transactions are processed by Billtrust.processed. Recurring transaction revenue is recognized monthly as these services are performed based on the volume of transactions processed and are recognized as revenue in the period when the usage amounts are determined and reported.
Services
Services and other
Services and other revenues consists of fees associated with upfrontfor professional services provided to Billtrust’sour customers to implement its systems. Any revenues related to upfront implementationimplementing our platforms and post-implementation change requests. Professional services for new customersare billed on a time and materials or new products for existing customersfixed fee basis. Services revenues are recognized ratably over the estimated period of the customer relationship, which is estimated to be five years. In general, revenue is recognized when the earnings process is complete and collectability is reasonably assured. Professional service fees are also included which includes consulting services provided to customers on a time and material or fixed fee basis.
During 2019, other revenues were associated with a one-time perpetual license fee to a customer associated with a legacy platform Billtrust no longer supports.
Reimbursable costs
Costs
Reimbursable costs revenues consists primarily of amounts charged to our customers for postage which ison printed and mailed invoices to their end customers. The related revenues are recorded on a gross basis, with an offsetting amount recorded as a cost of revenue, and consists of amounts charged to Billtrust’s customers associated with postage on printed and mailed invoices of its customers.
revenue.
Cost of revenuesRevenues
CostCosts of subscription, transactionSubscription, Transaction, and services
Services
Cost of subscription, transaction, and services consists primarily of personnel-related costs, including stock basedstock-based compensation expenses, for Billtrust’sour customer success, professional services, file, and payment operations teams, print operations personnel and equipment costs, and certain costs that are directly attributed to processing customers’ transactions (such as the cost of printing and mailing invoices, excluding postage), expenses for processing payments (ACH and credit card), direct and amortized costs for implementing and integrating itsour cloud-based platformplatforms with customers’ systems, and cloud hosting and related costs for the infrastructure directly associated with production platforms.platforms, rent and utilities expense for our leased print operations facilities, and allocated overhead costs. Cost of subscription, transaction, and services excludes depreciation and amortization. Billtrust expectsWe expect that cost of subscription, transaction, and services will increase in absolute dollars, but may fluctuate as a percentage of total revenues from period to period, as Billtrust continueswe continue to invest in growing itsour business.
Cost of reimbursable costs
Reimbursable Costs
Cost of reimbursable costs consists of fees for postage related costs, associated with postage, primarily paid to the United States Postal Service or third parties associated with printed and mailed invoice deliverydeliveries for our customers, and are recorded at no incremental margin on reimbursable costs for Billtrust customers.
revenues.
Operating expenses
Expenses
Research and development
Development
Research and development expenses consist primarily of personnel-related expenses, including stock-based compensation expenses, incurred in developing and engineering new products or enhancing existing products. Additionally, personnel-related costs associated withproducts, quality assurance and testing of new and existing product technology, maintenance, and enhancement of Billtrust’sour existing technology and infrastructure. Billtrust capitalizesinfrastructure, and allocated overhead costs. We capitalize certain software development costs that are attributable to developing new products and adding incremental functionality to its platformour
platforms, and amortizesamortize such costs over the estimated life of the new product or incremental functionality, which is generally four years.
Billtrust expensesIn accordance with U.S. GAAP, we expense a substantial portion of research and development expenses as incurred. Billtrust believes that delivering new functionality is critical to attract new customers and expand its relationship with existing customers. Billtrust expects to continue to make investments in and expand its offerings to enhance its customers’ experience and satisfaction, and to attract new customers. Billtrust expects itsWe expect our research and development expenses to increase in absolute dollars, but they may fluctuate as a percentage of total revenues from period to period as it expands thewe continue to expand our research and development team to develop new products and product enhancements as well as to support itsour growing infrastructure.
Sales and marketing
Marketing
Sales and marketing expenses consist primarily of personnel-related expenses, including stock basedstock-based compensation expenses, sales commissions, marketing program expenses, travel-related expenses, and costs to market and promote Billtrust’s platformour platforms through advertisements, marketing events, partnership arrangements, direct customer acquisition, and allocated overhead costs. Sales commissions that are incremental to obtaining customer contracts are deferred and amortized ratably over the estimated period of Billtrust’sthe customer relationship, with the customers, which is generallyestimated to be five years.
Billtrust’sOur sales and marketing efforts are focused on increasing revenue from the acquisition of new customers, the expansion of subscription revenue from existing customers, and from facilitating increased electronic adoption and resulting digital processing activity between Billtrust’sour customers and their end customers. Sales and marketing spendexpenses may fluctuate from period to period based on a variety of factors, including changes in the broader economic environment and Billtrust’sour return on this spend.
General and administrative
Administrative
General and administrative expenses consist of personnel-related expenses, including allocated benefits,stock-based compensation expenses associated with Billtrust’sour executive team, talent (human resources), finance, procurement, legal and compliance, facilitiesand other administrative functions, facility costs (including rent and utilities expense for itsour leased real estate offices, excluding those used in Billtrust’sour print operations) and other administrative functions. Billtrust expectsallocated overhead costs. We expect to incur additional general and administrative expenses as a result of operating as a public company, including expenses to comply with the rules and regulations applicable to companies listed on a national securities exchange, expenses related to compliance, and reporting obligations pursuant to the rules and regulations of the SEC, as well as higher expenses for director and officer insurance, investor relations, and professional services. BilltrustWe also expectsexpect to increase the size of itsour general and administrative functions to support the growth in itsour business. As a result, Billtrust expectswe expect that itsour general and administrative expenses will increase in absolute dollars but may fluctuate as a percentage of total revenues from period to period.
Depreciation and amortization
Amortization
Depreciation and amortization expense includes the costs associated with depreciating Billtrust’sour owned furniture and fixtures, computer equipment, for its employees, software, and technology assets, as well as amortization of leasehold improvements, capitalized software, and amortizable intangible assets, primarily customer relationship intangibles.
assets.
Interest income
Income
Interest income consists primarily of interest income earned on Billtrust’s investments in marketable securitiesour cash, cash equivalents, and cash and cash equivalents.
short term investments.
Interest expenseExpense and lossLoss on extinguishmentExtinguishment of debt
Debt
Interest expense and loss on extinguishment of debt consists of interest costs Billtrust has incurred in connection with itson any outstanding debt, agreements and amortization of associated debt issuance costs. It also consists ofcosts, payment of early termination fees, and writing off unamortized debt discounts associated with paying downrepaying our outstanding debt facilities prior to maturity.
Change in fair valueFair Value of financial instrumentsFinancial Instruments and other income
Other Income
Change in fair value of financial instruments and other income consists primarily of the change in the fair value of equity instruments that do not meet the criteria to be classified as equity (including earnout sharesEarnout Shares issued in connection with the Business Combination), changes in the fair value of contingent consideration, as well asand gains and losses(losses) related to foreign exchange and disposal of assets.
other non-operating income (expense).
Provision for income taxes
Income Taxes
Provision for income taxes consists primarily of income taxes related to state jurisdictions in which Billtrust conductswe conduct business. Benefit from income taxesIncome tax benefit, if any, is primarily related to the release of valuation allowances for
deferred tax assets, partially offset by income taxes related to state jurisdictions. Billtrust maintainsWe maintain a full valuation allowance on net deferred tax assets for itsour U.S. federal taxes and certain state taxes as it haswe have concluded that it is not more likely than not that the deferred assets will be utilized.
Segments
Our operations are grouped into two reportable segments: (1) Print, and (2) Software and Payments. Our Chief Operating Decision Maker (“CODM”) is the Chief Executive Officer ("CEO"), who reviews discrete financial and other information presented for print services and software and payment services for purposes of allocating resources and evaluating the Company's financial performance. The accounting policies used by the reportable segments are the same as those used in our Condensed Consolidated Financial Statements.
•Print – The Print segment is primarily responsible for printing customer invoices and optimizing the amount of time and costs associated with billing customers via mail.
•Software and Payments – The Software and Payments segment primarily operates using software and cloud based services, optimizes electronic invoice presentment, electronic payments, credit decisioning, collections automation, cash application and deduction management, and e-commerce of B2B customers.
We evaluate segment performance and allocate resources based on revenues, cost of revenues, and gross profit. All of the revenues shown in the reportable segments is revenue from external customers; there is no revenue from transactions with other operating segments. Segment expenses include the direct expenses of each segment's operations and exclude sales and marketing expenses, research and development expenses, general and administrative expenses, depreciation and amortization expense, stock-based compensation expense, and certain other identified costs that we do not allocate to the segments for purposes of evaluating their operational performance.
Given the nature of our business, the amount of assets does not provide meaningful insight into our operating performance. As a result, we do not identify or allocate assets by reportable segment and total assets are not included in our segment financial information.
Results of Operations
The following tables set forth Billtrust’s resultsselect Condensed Consolidated Statements of operationsOperations data, and such data as a percentage of total revenues, for each of the periods shown:indicated (in thousands, except percentages):
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| Three Months Ended March 31, | | % change |
| 2021 | | 2020 | | 2021 |
| (in thousands) | |
Revenues: | | | | | |
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Subscription, transaction and services | $ | 33,119 | | $ | 24,524 | | 35 | % |
Reimbursable costs | 8,817 | | 9,621 | | (8) | % |
Total revenues | 41,936 | | 34,145 | | 23 | % |
Cost of revenues: | | | | | |
Cost of subscription, transaction and services | 9,253 | | 7,890 | | 17 | % |
Cost of reimbursable costs | 8,817 | | 9,621 | | (8) | % |
Total cost of revenues, excluding depreciation and amortization | 18,070 | | 17,511 | | 3 | % |
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Operating expenses: | | | | | |
Research and development | 10,993 | | 9,384 | | 17 | % |
Sales and marketing | 8,936 | | 6,422 | | 39 | % |
General and administrative | 12,450 | | 5,248 | | 137 | % |
Depreciation and amortization | 1,360 | | 1,411 | | (4) | % |
Total operating expenses | 33,739 | | 22,465 | | 50 | % |
Loss from operations | (9,873) | | (5,831) | | 69 | % |
Other income (expense): | | | | | |
Interest income | 103 | | 16 | | 544 | % |
Interest expense and loss on extinguishment of debt | (2,942) | | (1,183) | | 149 | % |
Change in fair value of financial instruments and other income | (9,990) | | (19) | | 52479 | % |
Total other income (expense) | (12,829) | | (1,186) | | 982 | % |
Loss before income taxes | (22,702) | | (7,017) | | 224 | % |
Provision for income taxes | (92) | | (80) | | 15 | % |
Net loss and comprehensive loss | $ | (22,794) | | $ | (7,097) | | 221 | % |
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| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Revenues: | | | | | | | | | | | | | | | |
Subscription, transaction, and services | $ | 31,589 | | | 79 | % | | $ | 25,646 | | 74 | % | | $ | 64,708 | | 79 | % | | $ | 50,170 | | 73 | % |
Reimbursable costs | 8,643 | | 21 | | | 8,945 | | 26 | | | 17,460 | | 21 | | | 18,566 | | 27 | |
Total revenues | 40,232 | | 100 | | | 34,591 | | 100 | | | 82,168 | | 100 | | | 68,736 | | 100 | |
Cost of revenues: | | | | | | | | | | | | | | | |
Cost of subscription, transaction, and services | 9,360 | | 23 | | | 7,633 | | 22 | | | 18,613 | | 23 | | | 15,523 | | 23 | |
Cost of reimbursable costs | 8,643 | | 21 | | | 8,945 | | 26 | | | 17,460 | | 21 | | | 18,566 | | 27 | |
Total cost of revenues | 18,003 | | 45 | | | 16,578 | | 48 | | | 36,073 | | 44 | | | 34,089 | | 50 | |
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Operating expenses: | | | | | | | | | | | | | | | |
Research and development | 11,270 | | 28 | | | 8,778 | | 25 | | | 22,263 | | 27 | | | 18,162 | | 26 | |
Sales and marketing | 9,980 | | 25 | | | 5,129 | | 15 | | | 18,916 | | 23 | | | 11,551 | | 17 | |
General and administrative | 10,478 | | 26 | | | 4,871 | | 14 | | | 22,928 | | 28 | | | 10,119 | | 15 | |
Depreciation and amortization | 1,359 | | 3 | | | 1,410 | | 4 | | | 2,719 | | 3 | | | 2,821 | | 4 | |
Total operating expenses | 33,087 | | 82 | | | 20,188 | | 58 | | | 66,826 | | 81 | | | 42,653 | | 62 | |
Loss from operations | (10,858) | | (27) | | | (2,175) | | (6) | | | (20,731) | | (25) | | | (8,006) | | (12) | |
Other income (expense): | | | | | | | | | | | | | | | |
Interest income | 131 | | — | | | 1 | | — | | | 234 | | — | | | 17 | | — | |
Interest expense and loss on extinguishment of debt | (3) | | — | | | (1,102) | | (3) | | | (2,945) | | (4) | | | (2,285) | | (3) | |
Change in fair value of financial instruments and other income | 5 | | — | | | 411 | | 1 | | | (9,985) | | (12) | | | 392 | | 1 | |
Total other income (expense) | 133 | | — | | | (690) | | (2) | | | (12,696) | | (15) | | | (1,876) | | (3) | |
Loss before income taxes | (10,725) | | (27) | | | (2,865) | | (8) | | | (33,427) | | (41) | | | (9,882) | | (14) | |
Provision for income taxes | (11) | | — | | | (37) | | — | | | (103) | | — | | | (117) | | — | |
Net loss and comprehensive loss | $ | (10,736) | | (27) | % | | $ | (2,902) | | (8) | % | | $ | (33,530) | | (41) | % | | $ | (9,999) | | (15) | % |
Comparison of Results of Operations for the Three Months Ended March 31,June 30, 2021 and 2020
Total Revenues
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| Three Months Ended March 31, | | Change |
| 2021 | | 2020 | | Amount | | % |
| (in thousands) | | |
Subscription and transaction fees | $ | 30,183 | | | $ | 23,125 | | | $ | 7,058 | | | 31 | % |
Services and other | 2,936 | | | 1,399 | | | 1,537 | | | 110 | % |
Subscription, transaction and services | $ | 33,119 | | | $ | 24,524 | | | $ | 8,595 | | | 35 | % |
Reimbursable costs | 8,817 | | | 9,621 | | | (804) | | | (8) | % |
Total revenues | $ | 41,936 | | | $ | 34,145 | | | $ | 7,791 | | | 23 | % |
Total revenues were $41.9 million for the three months ended March 31, 2021, compared to $34.1 million for the three months ended March 31, 2020, an increase of $7.8 million or 23%.
•Subscription, transaction and services revenue was $33.1 million for the three months ended March 31, 2021, compared to $24.5 million for the three months ended March 31, 2020, an increase of $8.6 million or 35%. Included in revenue was $2.5 million related to the acceleration of previously paid and deferred revenue from a customer who terminated during the first quarter of 2021.
•Reimbursable costs was $8.8 million for the three months ended March 31, 2021, compared to $9.6 million for the three months ended March 31, 2020, a decrease of $0.8 million or 8%.
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| Three Months Ended June 30, | | Change | |
| 2021 | | 2020 | | Amount | | % | |
| (in thousands) | | | |
Subscription and transaction fees | $ | 29,072 | | | $ | 23,809 | | | $ | 5,263 | | | 22 | % | |
Services and other | 2,517 | | | 1,837 | | | 680 | | | 37 | % | |
Subscription, transaction, and services | 31,589 | | | 25,646 | | | 5,943 | | | 23 | % | |
Reimbursable costs | 8,643 | | | 8,945 | | | (302) | | | (3) | % | |
Total revenues | $ | 40,232 | | | $ | 34,591 | | | $ | 5,641 | | | 16 | % | |
The increase in total revenues was attributableduring the three months ended June 30, 2021 compared to the following factors listed below:
•Subscriptionprior year period was primarily due to (1) a $5.2 million increase in subscription and transaction fees related to the Software and Payments segment increased $7.3 million or 40% fromas a result of contracting with new customers, existing customers purchasing additional products, and increased transaction volumes, primarily from payments, and (2) a $0.7 million increase in services revenue from existing customers purchasing additional professional services consulting engagements and a shift to providing more services on an hourly rate basis as compared to more fixed pricing arrangements in the prior period.
Cost of Revenues
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| Three Months Ended June 30, | | Change | |
| 2021 | | 2020 | | Amount | | % | |
| (in thousands) | | | |
Cost of subscription, transaction, and services | $ | 9,360 | | $ | 7,633 | | $ | 1,727 | | | 23 | % | |
Cost of reimbursable costs | 8,643 | | 8,945 | | (302) | | | (3) | % | |
Total cost of revenues | $ | 18,003 | | $ | 16,578 | | $ | 1,425 | | | 9 | % | |
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The increase in total cost of revenues during the three months ended June 30, 2021 compared to the prior year period was primarily due to a $2.1 million increase in personnel-related costs, including non-cash stock based compensation expense resulting from the grant of stock options to substantially all employees in January 2021 and the impact of Earnout RSU's associated with the Business Combination. The increased personnel-related costs also include reinstating incentive programs that were eliminated as part of the cost-reduction measures implemented in 2020 as a result of the COVID-19 pandemic, and amortization of deferred service costs for personnel providing implementation and consulting services to our customers. These increases were partially offset by a $0.4 million decrease in print related costs resulting from efficiencies in our operations and slightly lower print transactional volumes as a result of existing customers converting to electronic invoicing.
Research and Development
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| Three Months Ended June 30, | | Change | |
| 2021 | | 2020 | | Amount | | % | |
| (in thousands) | | | |
Research and development | $ | 11,270 | | | $ | 8,778 | | | $ | 2,492 | | | 28 | % | |
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The increase in research and development expenses during the three months ended June 30, 2021 compared to the prior year period was due primarily to a $2.5 million increase in personnel-related costs, including non-cash stock-based compensation expense of $1.0 million resulting from the grant of stock options to substantially all employees in January 2021 and the impact of Earnout RSU's associated with the Business Combination. The increased personnel-related costs also include reinstating incentive programs that were eliminated as part of the cost-reduction measures implemented in 2020 as a result of the COVID-19 pandemic.
Sales and Marketing
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| Three Months Ended June 30, | | Change | |
| 2021 | | 2020 | | Amount | | % | |
| (in thousands) | | | |
Sales and marketing | $ | 9,980 | | | $ | 5,129 | | | $ | 4,851 | | | 95 | % | |
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The increase in selling and marketing expenses during the three months ended June 30, 2021 compared to the prior year period was due primarily to a $4.2 million increase in personnel-related cost, including non-cash stock based compensation of $0.8 million resulting from the grant of stock options to substantially all employees in January 2021 and the impact of Earnout RSU's associated with the Business Combination. The increased personnel-related costs also include reinstating incentive programs that were eliminated as part of the cost-reduction measures implemented in 2020 as a result of the COVID-19 pandemic. An additional $0.6 million of the increase is due to marketing expenses related to announcements of product enhancements and our annual virtual Summit.
General and Administrative
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| Three Months Ended June 30, | | Change | |
| 2021 | | 2020 | | Amount | | % | |
| (in thousands) | | | |
General and administrative | $ | 10,478 | | | $ | 4,871 | | | $ | 5,607 | | | 115 | % | |
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The increase in general and administrative expenses during the three months ended June 30, 2021 compared to the prior year period was due primarily to a $4.9 million increase in personnel-related costs, including non-cash stock-based compensation of $2.9 million resulting from the grant of stock options to substantially all employees in January 2021 and the impact of Earnout RSU's associated with the Business Combination. The increased personnel-related costs also include reinstating incentive programs that were eliminated as part of the cost-reduction measures implemented in 2020 as a result of the COVID-19 pandemic. An additional $0.9 million of the increase is due to professional and consulting fees for reporting and compliance requirements as a result of becoming a public company in 2021.
Depreciation and Amortization
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| Three Months Ended June 30, | | Change | |
| 2021 | | 2020 | | Amount | | % | |
| (in thousands) | | | |
Depreciation and amortization | $ | 1,359 | | | $ | 1,410 | | | $ | (51) | | | (4) | % | |
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Depreciation and amortization expense during the three months ended June 30, 2021 was consistent with the prior year period as we did not have a material change in purchases, capitalization, write offs, or impairments of property, equipment, or intangible assets during either period.
Total other income (expense)
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| Three Months Ended June 30, | | Change | |
| 2021 | | 2020 | | Amount | | % | |
| (in thousands) | | | |
Total other income (expense) | $ | 133 | | | $ | (690) | | | $ | 823 | | | 119 | % | |
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The increase in other income during the three months ended June 30, 2021 compared to the prior year period was due primarily to a reduction in interest expense as all of our outstanding borrowings were paid off in the first quarter of 2021 as part of the Business Combination.
Provision for Income Taxes
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| Three Months Ended June 30, | | Change | |
| 2021 | | 2020 | | Amount | | % | |
| (in thousands) | | | |
Provision for income taxes | (11) | | | (37) | | | $ | 26 | | | 70 | % | |
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The provision for income taxes for the three months ended June 30, 2021 is consistent with the prior year period due to a low effective tax rate resulting from our net operating losses. We maintain a valuation allowance on our deferred taxes.
Comparison of Results of Operations for the Six Months Ended June 30, 2021 and 2020
Total Revenues
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| Six Months Ended June 30, | | Change | |
| 2021 | | 2020 | | Amount | | % | |
| (in thousands) | | | |
Subscription and transaction fees | $ | 59,255 | | | $ | 46,935 | | | $ | 12,320 | | | 26 | % | |
Services and other | 5,453 | | | 3,235 | | | 2,218 | | | 69 | % | |
Subscription, transaction, and services | 64,708 | | | 50,170 | | | 14,538 | | | 29 | % | |
Reimbursable costs | 17,460 | | | 18,566 | | | (1,106) | | | (6) | % | |
Total revenues | $ | 82,168 | | | $ | 68,736 | | | $ | 13,432 | | | 20 | % | |
The increase in total revenues during the six months ended June 30, 2021 compared to the prior year period was primarily due to (1) a $12.6 million increase in subscription and transaction fees as a result of contracting with new customers, existing customers purchasing additional products, and increasing transaction volume, primarily from payments. Softwarepayments, and Payments segment revenue was $25.7(2) a $2.2 million or 85% of subscription and transaction fees, for the three months ended March 31, 2021, compared to $18.3 million, or 79% of subscription and transaction fees for the three months ended March 31, 2020. Includedincrease in Software and Payments segment revenue was $2.5 million related to the acceleration of previously paid and deferredservices revenue from a customer who terminated during the first quarter of 2021.
•Print segment revenue was $13.3 million for the three months ended March 31, 2021, compared to $14.4 million for the three months ended March 31, 2020, a decrease of $1.1 million or 8%. Subscription and transaction fees related to the Print segment decreased $0.3 million or 6% due primarily to lower transactional volumes as a result of existing customers reducing services and converting from paper to electronic invoicing. Subscription and transaction fees related to the Print segment were $4.5 million, or 15% of subscription and transaction fees, for the three months ended March 31, 2021, compared to $4.8 million, or 21% of subscription and transaction fees, for the three months ended March 31, 2020. Reimbursable costs decreased $0.8 million or 8%, due to lower transactional volumes.
•Services and other revenue increased $1.5 million or 110% due primarily to an increase in existing customerpurchasing additional professional services consulting engagements as well asand a shift to providing more services provided on an hourly rate basis as compared to more fixed pricing arrangements in the prior period. Services and other revenue was $2.9These increases were partially offset by a $1.1 million for the three months ended March 31, 2021, compareddecrease in reimbursable costs due to $1.4 million for the three months ended March 31, 2020.
lower transactional volumes.Cost of Revenues
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| Three Months Ended March 31, | | Change |
| 2021 | | 2020 | | Amount | | % |
| (in thousands) | | |
Cost of subscription, transaction and services | $ | 9,253 | | $ | 7,890 | | $ | 1,363 | | | 17 | % |
Cost of reimbursable costs | 8,817 | | 9,621 | | (804) | | | (8) | % |
Total cost of revenues, excluding depreciation and amortization | $ | 18,070 | | $ | 17,511 | | $ | 559 | | | 3 | % |
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Total cost of revenues, excluding depreciation and amortization was $18.1 million or 43% of total revenues for the three months ended March 31, 2021, compared to $17.5 million or 51% of total revenues for the three months ended March 31, 2020, an increase of $0.6 million or 3%.
•Cost of subscription, transaction and services was $9.3 million or 22% of total revenues for the three months ended March 31, 2021, compared to $7.9 million or 23% of total revenues for the three months ended March 31, 2020, an increase of $1.4 million or 17%.
•Cost of reimbursable costs was $8.8 million or 21% of total revenues for the three months ended March 31, 2021, compared to $9.6 million or 28% of total revenues for the three months ended March 31, 2020, a decrease of $0.8 million or 8% due to lower transactional print volumes.
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| Six Months Ended June 30, | | Change | |
| 2021 | | 2020 | | Amount | | % | |
| (in thousands) | | | |
Cost of subscription, transaction, and services | $ | 18,613 | | $ | 15,523 | | $ | 3,090 | | | 20 | % | |
Cost of reimbursable costs | 17,460 | | 18,566 | | (1,106) | | | (6) | % | |
Total cost of revenues | $ | 36,073 | | $ | 34,089 | | $ | 1,984 | | | 6 | % | |
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The increase in total cost of revenues excluding depreciation and amortization was attributable toduring the following factors listed below:
•Cost of subscription, transaction and services related to the Software and Payments segment increased $0.6 million or 19% due primarily to a $0.6 million increase in personnel-related costs, including non-cash stock based compensation expense. Cost of subscription, transaction and services related to the Software and Payments segment were $3.7 million resulting in a segment gross margin of $22.0 million or 86% for the threesix months ended March 31,June 30, 2021 compared to $3.1 million resulting in a segment gross margin of $15.2 million or 83% for the three months ended March 31, 2020. Billtrust expects that cost of subscription, transaction, and services will increase in absolute dollars, but may fluctuate as a percentage of total revenues fromprior year period to period, as Billtrust continues to sell a mix of solutions and services to new and existing customers.
•Cost of revenues related to the Print segment was $10.7 million for the three months ended March 31, 2021, compared to $11.8 million for the three months ended March 31, 2020, a decrease of $1.1 million or 9%. Cost of subscription, transaction and services related to Print decreased $0.3 million or 13% due primarily to a $0.4 million decrease in Print direct costs resulting from lower transactional volumes. Cost of subscription, transaction and services related to the Print segment were $1.9 million resulting in a segment gross margin of $2.6 million or 57% for the three months ended March 31, 2021, compared to $2.2 million resulting in a segment gross margin of $2.6 million or 54% for the three months ended March 31, 2020. Cost of reimbursable costs decreased $0.8 million or 8% due to lower transactional volumes.
•Cost of services and other was $3.6 million for the three months ended March 31, 2021, compared to $2.6 million for the three months ended March 31, 2020, an increase of $1.1 million or 41%. The increase was due to a $1.1 million increase in personnel-related costs, including non-cash stock based compensation expense and amortization of deferred service costs for personnel who were directly engaged in providing implementation and consulting services to Billtrust’s customers.
Research and development
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| Three Months Ended March 31, | | Change |
| 2021 | | 2020 | | Amount | | % |
| (in thousands) | | |
Research and development | $ | 10,993 | | | $ | 9,384 | | | $ | 1,609 | | | 17 | % |
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Percentage of total revenues | 26 | % | | 27 | % | | | | |
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Research and development expenses were $11.0 million for the three months ended March 31, 2021, compared to $9.4 million for the three months ended March 31, 2020, an increase of $1.6 million or 17%. The increase was due primarily to a $1.7$3.8 million increase in personnel-related costs, including non-cash stock based compensation expense of $1.1$0.8 million resulting from the grant of stock options to substantially all employees in January 2021 and the impact of Earnout RSU's associated with the Business Combination. The increased personnel-related costs also include reinstating incentive programs that were eliminated as part of the cost-reduction measures implemented in 2020 as a result of the COVID-19 pandemic, and amortization of deferred service costs for personnel providing implementation and consulting services to our customers. These increases were partially offset by an $0.8 million decrease in print related costs resulting from efficiencies in our operations and slightly lower print transactional volumes as a result of existing customers converting to electronic invoicing.
Research and Development
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| Six Months Ended June 30, | | Change | |
| 2021 | | 2020 | | Amount | | % | |
| (in thousands) | | | |
Research and development | $ | 22,263 | | | $ | 18,162 | | | $ | 4,101 | | | 23 | % | |
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The increase in research and development expenses during the six months ended June 30, 2021 compared to the prior year period was due to a $4.1 million increase in personnel-related costs, including non-cash stock based compensation expense of $2.1 million resulting from the grant of stock options to substantially all employees in January 2021 and impact of Earnout RSU's associated with the Business Combination. The increased personnel-related costs also include reinstating incentive programs that were eliminated as part of the cost-reduction measures implemented in 2020 as a result of the COVID-19 pandemic.
Sales and Marketing
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| Six Months Ended June 30, | | Change | |
| 2021 | | 2020 | | Amount | | % | |
| (in thousands) | | | |
Sales and marketing | $ | 18,916 | | | $ | 11,551 | | | $ | 7,365 | | | 64 | % | |
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The increase in sales and marketing expenses during the six months ended June 30, 2021 compared to the prior year period was due primarily to a $7.0 million increase in personnel-related cost, including non-cash stock based compensation of $2.1 million resulting from the grant of stock options to substantially all employees in January 2021, as well as the impact of certain Earnout RSU's associated with the Business Combination.
Sales and marketing
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| Three Months Ended March 31, | | Change |
| 2021 | | 2020 | | Amount | | % |
| (in thousands) | | |
Sales and marketing | $ | 8,936 | | | $ | 6,422 | | | $ | 2,514 | | | 39 | % |
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Percentage of total revenues | 21 | % | | 19 | % | | | | |
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Sales and The increased personnel-related costs also include reinstating incentive programs that were eliminated as part of the cost-reduction measures implemented in 2020 as a result of the COVID-19 pandemic. An additional $0.4 million of the increase is due to marketing expenses were $8.9 million forrelated to announcements of product enhancements and our annual virtual Summit.
General and Administrative
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| Six Months Ended June 30, | | Change | |
| 2021 | | 2020 | | Amount | | % | |
| (in thousands) | | | |
General and administrative | $ | 22,928 | | | $ | 10,119 | | | $ | 12,809 | | | 127 | % | |
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The increase in general and administrative expenses during the threesix months ended March 31,June 30, 2021 compared to $6.4 million for the three months ended March 31, 2020, an increase of $2.5 million or 39%. The increaseprior year period was due primarily to a $2.7$12.1 million increase in personnel-related cost,costs, including non-cash stock basedstock-based compensation of $1.3$8.4 million resulting from the grant of stock options to substantially all employees in January 2021 as well asand the impact of certain Earnout RSU's associated with the Business Combination. It was offset byCombination and the increased personnel-related costs also include reinstating incentive programs that were eliminated as part of the cost-reduction measures implemented in 2020 as a $0.2 million decrease in other costs resulting from Billtrust’s modified business practices in response toresult of the COVID-19 pandemic, which includedpandemic. And additional $1.0 million of the cancellationincrease is due to professional and consulting fees for reporting and compliance requirements as a result of in-person meetings, eventsbecoming a public company in 2021.
Depreciation and conferences starting in 2020, offset partially by higher spending in other areas inAmortization
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| Six Months Ended June 30, | | Change | |
| 2021 | | 2020 | | Amount | | % | |
| (in thousands) | | | |
Depreciation and amortization | $ | 2,719 | | | $ | 2,821 | | | $ | (102) | | | (4) | % | |
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Depreciation and amortization expense during the current period. For more information on how Billtrust was affected by and responded to COVID-19, see the section entitled “—Impact of COVID-19 on Billtrust’s Business.”
General and administrative
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| Three Months Ended March 31, | | Change |
| 2021 | | 2020 | | Amount | | % |
| (in thousands) | | |
General and administrative | $ | 12,450 | | | $ | 5,248 | | | $ | 7,202 | | | 137 | % |
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Percentage of total revenues | 30 | % | | 15 | % | | | | |
General and administrative expenses were $12.5 million for the threesix months ended March 31,June 30, 2021 compared to $5.2 million forwas consistent with the three months ended March 31, 2020, an increaseprior year period as we did not have a material change in purchases, capitalization, write offs, or impairments of $7.2 millionproperty, equipment, or 137%. The increase was due primarily to a $7.2 million increase in personnel-related costs, including non-cash stock-based compensation of $5.6 million, resulting from the grant of stock options to substantially allintangible assets during either period.
employeesTotal other income (expense)
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| Six Months Ended June 30, | | Change | |
| 2021 | | 2020 | | Amount | | % | |
| (in thousands) | | | |
Total other income (expense) | $ | (12,696) | | | $ | (1,876) | | | $ | (10,820) | | | (577) | % | |
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The increase in January 2021, as well asother expenses during the impact of certain Earnout RSU's associated with the Business Combination.
Depreciation and amortization
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| Three Months Ended March 31, | | Change |
| 2021 | | 2020 | | Amount | | % |
| (in thousands) | | |
Depreciation and amortization | $ | 1,360 | | | $ | 1,411 | | | $ | (51) | | | (4) | % |
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Percentage of total revenues | 3 | % | | 4 | % | | | | |
Depreciation and amortization expense was $1.4 million for the threesix months ended March 31,June 30, 2021 compared to $1.4 million for the three months ended March 31, 2020, a decrease of $51 thousand or 4%. The decreaseprior year period was due primarily to a decline in depreciation expense associated with fully depreciated assets in Billtrust’s Print segment and lower capital expenditures in 2020 relative to assets that were fully depreciated.
Total other income (expense)
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| Three Months Ended March 31, | | Change |
| 2021 | | 2020 | | Amount | | % |
| (in thousands) | | |
Total other income (expense) | $ | (12,829) | | | $ | (1,186) | | | $ | (11,643) | | | 982 | % |
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Percentage of total revenues | (31) | % | | (3) | % | | | | |
Total other income (expense) was $(12.8)$10.0 million for the three months ended March 31, 2021, compared to $(1.2) million for the three months ended March 31, 2020, an increase of $(11.6) million or 982%. The increase was due primarily to an expense associated with an increase in the fair value of certain earnout shares in connection with the Business Combination that were liability classified, of approximately $10.0 million. Additionally,Earnout Shares and a $2.8 million a loss on extinguishment of debt of $2.8 million associated with the early payment of all amountsof our outstanding underborrowings, both as part of the Financing Agreement was includedBusiness Combination. These increases were partially offset by a reduction in 2021, compared to interest expense as all of $(1.2) millionour outstanding borrowings were paid off in the comparable period in the prior year.
first quarter of 2021.
Provision for income taxesIncome Taxes
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| Three Months Ended March 31, | | Change |
| 2021 | | 2020 | | Amount | | % |
| (in thousands) | | |
Provision for income taxes | $ | (92) | | | $ | (80) | | | $ | (12) | | | 15 | % |
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Percentage of total revenues | (0.2) | % | | (0.2) | % | | | | |
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| Six Months Ended June 30, | | Change |
| 2021 | | 2020 | | Amount | | % |
| (in thousands) | | |
Provision for income taxes | $ | (103) | | | $ | (117) | | | $ | 14 | | | 12 | % |
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ProvisionThe provision for income taxes for the threesix months ended March 31,June 30, 2021 and 2020 was $92.0 thousand and $80.0 thousand, respectively. Overall, Billtrust’sis consistent with the prior year period due to a low effective tax rate is low due to itsresulting from our net operating loss position and Billtrust haslosses. We maintain a valuation allowance on itsour deferred taxes.
Liquidity and Capital Resources
LIQUIDITY AND CAPITAL RESOURCES
Billtrust’sOur principal sources of liquidity are cash, cash equivalents, short-term investments, cash flows from operations,financing activities, and, in prior years, from debt borrowings, which were repaid in connection with the Business Combination, as well assince becoming a public company, through public offerings of equity securities since we have become a public company.securities. As of March 31,June 30, 2021, Billtrustwe had cash and cash equivalents of $261.0$241.6 million and short-term investments of $25.0$45.0 million. Billtrust’sOur primary uses of liquidity are operating expenses, capital expenditures, and acquiring businesses.
Billtrust’s cash equivalents are comprised of highly liquid investments with original maturities of three months or less which consist primarily of money market funds. Billtrust believes that its We believe our current cash, cash equivalents, and short-term investments, will beand cash flows from financing activities are sufficient to meet itsour working capital and capital expenditure requirements for a period of at least twelve months from the date of this Quarterly Report. Cash from operations could be affected by various risks and uncertainties, including, but not limited to, the effects of the COVID-19 pandemic. Billtrust’s liquidity is influenced by a variety of factors, including its revenue growth rate, timing of payments and collections, development of new products, the cash paid for businesses, capital expenditures and the issuance of debt and equity securities. Billtrust’s future capital requirements will depend on many factors, including its pace of growth, subscription activity, retention of existing customers, the timing and extent of spend to support development efforts, the expansion of sales and marketing activities, the introduction of new and enhanced services offerings, and the continuing market acceptance of its services. To the extent that its existing cash and cash equivalents and short-term investments are insufficient to fund future activities or requirements to continue operating its business, Billtrust may need to raise additional funds. In the event that additional financing is required from outside sources, Billtrust may not be able to raise it on terms acceptable to it, or at all. If Billtrust is unable to raise additional capital when desired, its business, operating results and financial condition would be adversely affected.
Cash Flows
The following table shows a summary of Billtrust’ssummarizes our cash flows data:for the periods presented (in thousands, except percentages):
| | | Three Months Ended March 31, | | | Six Months Ended June 30, | | Change | |
| | 2021 | | 2020 | | | 2021 | | 2020 | | Amount | | % | |
Net cash used in operating activities | Net cash used in operating activities | $ | (9,917) | | | $ | (8,861) | | | Net cash used in operating activities | | $ | (10,821) | | | $ | (7,438) | | | $ | (3,383) | | | (45) | % | |
Net cash used in investing activities | Net cash used in investing activities | (25,503) | | | (865) | | | Net cash used in investing activities | | (46,157) | | | (1,310) | | | (44,847) | | | (3,423) | % | |
Net cash provided by financing activities | Net cash provided by financing activities | 281,428 | | | 18,026 | | | Net cash provided by financing activities | | 283,262 | | | 14,452 | | | 268,810 | | | 1,860 | % | |
Net increase in cash and cash equivalents and restricted cash | $ | 246,008 | | | $ | 8,300 | | | |
Net increase in cash, cash equivalents, and restricted cash | | Net increase in cash, cash equivalents, and restricted cash | | $ | 226,284 | | | $ | 5,704 | | | |
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act refers to controls and procedures that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to
the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Because there are inherent limitations in all control systems, a control system, no matter how well conceived and operated, can provide only reasonable, as opposed to absolute, assurance that the objectives of the control system are met. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q.June 30, 2021. Based on that evaluation, our chief
executive officer and chief financial officer concluded that our disclosure controls and procedures were effective, at thea reasonable assurance level, as of the end of the period covered by this Quarterly Report.that date.
There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(d) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting during our quarter ended March 31,June 30, 2021. We have not experienced any material impact to our internal control over financial reporting despite the fact that our employees are working remotely dueIn response to the COVID-19 pandemic. Wepandemic, we have undertaken measures to protect our employees, partners, and clients, including encouraging employees to work remotely, which required us to modify some of our control procedures. These changes have not been material and we are continually monitoring and assessing the COVID-19 situation on our internal controls to minimize the impact on theirour internal control design and operating effectiveness.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 1A. Risk Factors
Our business is subject to risks and events that, if they occur, could adversely affect our financial condition and results of operations and the trading price of our securities. In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors described in "Part I, Item 1A. Risk Factors” ofcontained in our Annual Report on Form 10-K for the year ended December 31, 2020.2020 (the "Annual Report on Form 10-K"), as filed with the US Securities and Exchange Commission (the "SEC") on March 24, 2021, the section titled "Risk Factors" contained in both our Amendment No. 1 to the Current Report on Form 8-K (the "Amendment on Form 8-K"), as filed with the SEC on March 24, 2021, and in our Registration Statement on Form S-1, as amended (File No. 333-257488), originally filed with the SEC on June 28, 2021 (the "Registration Statement on Form S-1"), which remain applicable to our business. In addition, we are adding the following risk factor:
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits
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.