UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
_________________________
FORM 10-Q
_________________________
(Mark One)
 ☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31,June 30, 2021
OR
 ☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from   to
Commission File Number 001-38947
_________________________
BTRS Holdings Inc.
_________________________HOLDINGS INC.
(Exact name of registrant as specified in its charter)
_________________________
Delaware83-3780685
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
1009 Lenox Drive, Suite 101
Lawrenceville, New Jersey
08648
(Address of Principal Executive Offices)(Zip Code)
(609) 235-1010
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classEach ClassTrading Symbol(s)Name of each exchangeEach Exchange on which registeredWhich Registered
Class 1 Common Stock, $0.0001 par value per shareBTRSThe Nasdaq Global Select Market
Warrants, each whole warrant exercisable for one share of Class 1 Common Stock at an exercise price of $11.50 per shareBTRSWThe Nasdaq Capital Market
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.   Yes  ☒  No  ☐ 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes  ☒  No  ☐ 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer☐Accelerated filer ☐
Non-accelerated filer  ☒Smaller reporting company ☒
Emerging growth company ☒



If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes  ☐  No  ☒
As of May 12,August 6, 2021, there were 149,653,816153,016,018 and 5,223,666 shares of Class 1 Common Stock, $0.0001 par value issued and outstanding and 7,251,307 shares of Class 2 Common Stock, $0.0001 par value issued and outstanding.
common stock outstanding, respectively.


BTRS Holdings Inc.
Table of Contents

BTRS HOLDINGS INC.
INDEX TO FORM 10-Q
Page Number
3
PART I. FINANCIAL INFORMATION
(Unaudited)5
Condensed Consolidated Balance Sheets
5
Condensed Consolidated Statements of Operations and Comprehensive Loss
6
Condensed Consolidated Balance Sheets asStatements of March 31, 2021 and December 31, 2020Stockholders’ Equity
7
Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2021 and 2020
8
Condensed Consolidated Statements of Cash FlowsStockholders’ Equity for the three months ended March 31, 2021 and 2020
9
Notes to Condensed Consolidated Financial Statements of Cash Flows for the three months ended March 31, 2021 and 2020
10
Notes to Unaudited Condensed Consolidated Financial Statements
12
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
3934
5750
5750
PART II. OTHER INFORMATION
5952
5952
5953
5953
5953
5953
5954
6155

2


In this Quarterly Report on Form 10-Q, unless otherwise stated or as the context otherwise requires, references to “the Company,” “we,” “us,” our”Company”, “we”, “us”, "our”, "it", and similar references refer to BTRS Holdings Inc., a Delaware corporation, and its consolidated subsidiaries.

This Quarterly Report on Form 10-Q also contains registered marks, trademarks, and trade names of other companies. All other trademarks, registered marks and trade names appearing in this Quarterly Reportcompanies, all of which are the property of their respective holders. We do not intend our use or display of other companies’ trade names, trademarks, or service marks to imply a relationship with, or endorsement, or sponsorship of us by these other companies.













































3






SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

ThisThis Quarterly Report on Form 10-Q contains forward-looking statements about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future financial condition, business strategy and plans, and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements by terminology 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.expressions.

We haveThe Company has based these forward-looking statements largely on ourits current expectations and projections about future events and financial trends that we believeit believes may affect ourits financial condition, results of operations, business strategy, and financial needs. These forward-looking statements are subject to a number of known and unknown risks, uncertainties, and assumptions, including risks described in the section titled “Risk Factors”"Part I, Item 1A. Risk Factors" contained in ourthe Company's Annual Report on Form 10-K for the year ended December 31, 2020 (the "Annual Report on Form 10-K"), as filed with the US Securities and Exchange Commission (SEC)(the "SEC") on March 24, 2021, and the section titled "Risk Factors" contained in both the Company's Amendment No. 1 to the Current Report on Form 8-K (the "Amendment on Form 8-K"), as filed with the SEC on March 24, 2021, and the Company's Registration Statement on Form S-1, as amended (File No. 333-257488), originally filed with the SEC on June 28, 2021 (the "Registration Statement on Form S-1"), including, among other things, risks associated with:

•our financial and business performance, including the financial projections, forecasts and business metrics, and any underlying assumptions thereunder;

•changes in our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, and plans;

•the capabilities and benefits to our customers of our technology platform;

platforms;
•the advantages and expected growth of theour Business Payments Network;

•our ability to digitally transform the accounts receivable industry;

•our ability to scale in a cost-effective manner;

•developments and projections relating to our competitors and industry;

•the impact of health epidemics, including the COVID-19 pandemic, on our business and the actions we may take in response thereto;

•expectations regarding the time during which we will be ancreating additional infrastructure to support our operations as a public company, losing emerging growth company under the JOBS Act;

status, and becoming a large accelerated filer effective as of December 31, 2021;
•our future capital requirements and sources and uses of cash;

•our ability to obtain funding for our operations;

•our business, expansion plans, and opportunities; and

•the outcome of any known and unknown litigation and regulatory proceedings.

4


These risks are not exhaustive. Additional factors could harm our business and financial performance, such as risks associated with the ongoing COVID-19 global pandemic.performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in, or implied by, any forward-looking statements. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Unless required by law, we undertake no obligation to update or revise any forward-looking statements to reflect new information or
3

future events or developments. Thus, you should not assume that our silence over time means that actual events are bearing out as expressed or implied in such forward-looking statements. We qualify all of the forward-looking statements in this Quarterly Report on Form 10-Q by these cautionary statements.
54

PART I. FINANCIAL INFORMATION1.
Item 1. Financial Statements
6
BTRS Holdings Inc.HOLDINGS INC.
Condensed Consolidated Balance SheetsCONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except per share and share data)amounts)
June 30, 2021December 31, 2020
ASSETS(Unaudited)
Current assets:
Cash and cash equivalents$241,607 $14,642 
Short-term investments45,037 0 
Customer funds24,618 20,924 
Accounts receivable, net29,009 23,009 
Prepaid expenses5,072 2,961 
Deferred implementation, commission, and other costs, current4,706 4,718 
Other current assets1,032 4,108 
Total current assets351,081 70,362 
Property and equipment, net16,194 16,650 
Goodwill36,956 36,956 
Intangible assets, net8,423 9,534 
Deferred implementation and commission costs, non-current8,453 8,677 
Other assets5,068 5,361 
Total assets$426,175 $147,540 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Customer funds payable$24,618 $20,924 
Current portion of debt and capital lease obligations, net of deferred financing costs124 380 
Accounts payable1,841 1,646 
Accrued expenses and other31,055 26,341 
Deferred revenue8,012 14,895 
Other current liabilities462 906 
Total current liabilities66,112 65,092 
Long-term debt and capital lease obligations, net of deferred financing costs28 43,295 
Customer postage deposits10,227 10,418 
Deferred revenue, net of current portion17,214 14,861 
Deferred taxes859 768 
Other long-term liabilities7,361 9,296 
Total liabilities101,801 143,730 
Commitments and contingencies (Note 10)00
Stockholders' equity:
Preferred stock, $0.0001 par value,10,000,000 shares authorized; 0 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively0 0 
Class 1 common stock, $0.0001 par value, 538,000,000 shares authorized; 150,648,937 and 92,760,478 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively15 9 
Class 2 common stock, $0.0001 par value, 27,000,000 shares authorized; 7,251,307 and 8,196,622 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively1 1 
Additional paid-in capital502,765 148,677 
Accumulated deficit(178,407)(144,877)
Total stockholders’ equity324,374 3,810 
Total liabilities and stockholders’ equity$426,175 $147,540 
The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.
5

BTRS HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited, amounts in thousands, except per share amounts)
Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Revenues:
Subscription, transaction, and services$31,589 $25,646 $64,708 $50,170 
Reimbursable costs8,643 8,945 17,460 18,566 
Total revenues40,232 34,591 82,168 68,736 
Cost of revenues:
Cost of subscription, transaction, and services9,360 7,633 18,613 15,523 
Cost of reimbursable costs8,643 8,945 17,460 18,566 
Total cost of revenues, excluding depreciation and amortization18,003 16,578 36,073 34,089 
Operating expenses:
Research and development11,270 8,778 22,263 18,162 
Sales and marketing9,980 5,129 18,916 11,551 
General and administrative10,478 4,871 22,928 10,119 
Depreciation and amortization1,359 1,410 2,719 2,821 
Total operating expenses33,087 20,188 66,826 42,653 
Loss from operations(10,858)(2,175)(20,731)(8,006)
Other income (expense):
Interest income131 1 234 17 
Interest expense and loss on extinguishment of debt(3)(1,102)(2,945)(2,285)
Change in fair value of financial instruments and other income5 411 (9,985)392 
Total other income (expense)133 (690)(12,696)(1,876)
Loss before income taxes(10,725)(2,865)(33,427)(9,882)
Provision for income taxes(11)(37)(103)(117)
Net loss and comprehensive loss$(10,736)$(2,902)$(33,530)$(9,999)
Net loss per common share, basic and diluted$(0.07)$(0.03)$(0.22)$(0.10)
Weighted average common shares outstanding, basic and diluted157,197 99,854 151,289 99,829 
The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

6

BTRS HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited, amounts in thousands, except share amounts)
Three Months Ended June 30, 2021
Class 1 Common StockClass 2 Common StockAdditional Paid-in CapitalAccumulated DeficitTotal Stockholders’ Equity
SharesAmountSharesAmount
Balance, March 31, 2021149,315,319 $15 7,251,307 $1 $495,165 $(167,671)$327,510 
Issuance of common stock under stock plans1,331,318 — — — 1,868 — 1,868 
Shares issued for exercise of warrants2,300 — — — 26 — 26 
Stock-based compensation expense— — — — 5,706 — 5,706 
Net loss— — — — — (10,736)(10,736)
Balance, June 30, 2021150,648,937 $15 7,251,307 $1 $502,765 $(178,407)$324,374 

March 31, 2021December 31, 2020
(Unaudited)
Assets
Current assets:
Cash and cash equivalents$261,013 $14,642 
Restricted cash2,914 3,277 
Short-term investments25,000 0 
Customer funds21,185 20,924 
Accounts receivable, net of allowance for doubtful accounts of $227 and $409, respectively26,699 23,009 
Prepaid expenses6,343 2,961 
Deferred implementation, commission and other costs, current4,712 4,718 
Other current assets1,029 831 
Total current assets348,895 70,362 
Property and equipment, net of accumulated depreciation of $16,371 and $15,568, respectively16,380 16,650 
Goodwill36,956 36,956 
Intangible assets, net8,978 9,534 
Deferred implementation and commission costs, non-current8,551 8,677 
Other assets2,437 5,361 
Total assets$422,197 $147,540 
Liabilities and stockholders’ equity
Current liabilities:
Customer funds payable21,194 20,924 
Current portion of debt and capital lease obligations, net of deferred financing costs170 380 
Accounts payable2,314 1,646 
Accrued expenses and other24,160 26,341 
Deferred revenue11,311 14,895 
Other current liabilities608 906 
Total current liabilities59,757 65,092 
Long-term debt and capital lease obligations, net of current portion and deferred financing costs42 43,295 
Customer postage deposits10,410 10,418 
Deferred revenue, net of current portion15,841 14,861 
Deferred taxes859 768 
Other long-term liabilities7,778 9,296 
Total liabilities94,687 143,730 
Commitments and contingencies (Note 13)00
Stockholders' equity:
Class 1 Common stock, $0.0001 par value, 538,000,000 shares authorized; 149,315,319 and 91,420,868 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively15 9 
Class 2 Common stock, $0.0001 par value, 27,000,000 shares authorized; 7,251,307 and 8,196,622 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively1 1 
Additional paid-in capital522,857 175,327 
Accumulated deficit(195,363)(171,527)
Total stockholders’ equity327,510 3,810 
Total liabilities, redeemable convertible preferred stock and stockholders’ equity$422,197 $147,540 
See accompanying notes to unaudited condensed consolidated financial statements.
Three Months Ended June 30, 2020
Class 1 Common StockClass 2 Common StockAdditional Paid-in CapitalAccumulated DeficitTotal Stockholders’ Equity
SharesAmountSharesAmount
Balance, March 31, 202091,653,631 $9 8,196,622 $1 $144,910 $(134,947)$9,973 
Issuance of common stock under stock plans79,511 — — — 129 — 129 
Stock-based compensation expense— — — — 680 — 680 
Net loss— — — — — (2,902)(2,902)
Balance, June 30, 202091,733,142 $9 8,196,622 $1 $145,719 $(137,849)$7,880 
The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.
7

BTRS Holdings Inc.HOLDINGS INC.
Condensed Consolidated Balance SheetsCONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(AmountsUnaudited, amounts in thousands, except per share and share data)
amounts)
Six Months Ended June 30, 2021
Redeemable Convertible Preferred StockClass 1
 Common Stock		Class 2
 Common Stock		Additional Paid-in CapitalAccumulated DeficitTotal Stockholders’ Equity (Deficit)
SharesAmountSharesAmountSharesAmount
Balance, December 31, 202068,382,882 $159,028 32,574,218 $3 0 $0 $16,301 $(171,527)$(155,223)
Retroactive application of reverse recapitalization (Note 3)(68,382,882)(159,028)60,186,260 6 8,196,622 1 132,376 26,650 159,033 
Adjusted balance, December 31, 2020— — 92,760,478 9 8,196,622 1 148,677 (144,877)3,810 
Reverse recapitalization and PIPE Financing (Note 3)— — 44,522,375 5 (1,658,887)— 329,617 0 329,622 
Fair value of Earnout Share liabilities (Note 13)— — — — — — (230,995)— (230,995)
Issuance and vesting of Earnout Shares at fair value (Note 3)— — 10,204,164 1 713,572 — 237,008 — 237,009 
Issuance of common stock under stock plans— — 3,159,620 — — — 3,900 — 3,900 
Shares issued for exercise of warrants— — 2,300 — — — 26 — 26 
Stock-based compensation expense— — — — — — 14,532 — 14,532 
Net loss— — — — — — — (33,530)(33,530)
Balance, June 30, 20210 $0 150,648,937 $15 7,251,307 $1 $502,765 $(178,407)$324,374 
Six Months Ended June 30, 2020
Redeemable Convertible Preferred StockClass 1
 Common Stock		Class 2
 Common Stock		Additional Paid-in CapitalAccumulated
 Deficit		Total Stockholders’ Equity (Deficit)
SharesAmountSharesAmountSharesAmount
Balance, December 31, 201968,382,882 $150,356 31,234,610 $3 0 $0 $11,933 $(145,830)$(133,894)
Retroactive application of reverse recapitalization (Note 3)(68,382,882)(150,356)60,186,260 6 8,196,622 1 132,373 17,980 150,360 
Adjusted balance, December 31, 2019— — 91,420,870 9 8,196,622 1 144,306 (127,850)16,466 
Issuance of common stock under stock plans— — 312,272 — — — 252 — 252 
Stock-based compensation expense— — — — — — 1,161 — 1,161 
Net loss— — — — — — — (9,999)(9,999)
Balance, June 30, 20200 $0 91,733,142 $9 8,196,622 $1 $145,719 $(137,849)$7,880 

Three Months Ended March 31,
20212020
Revenues:
Subscription, transaction and services$33,119 $24,524 
Reimbursable costs8,817 9,621 
Total revenues41,936 34,145 
Cost of revenues:
Cost of subscription, transaction and services9,253 7,890 
Cost of reimbursable costs8,817 9,621 
Total cost of revenues, excluding depreciation and amortization18,070 17,511 
Operating expenses:
Research and development10,993 9,384 
Sales and marketing8,936 6,422 
General and administrative12,450 5,248 
Depreciation and amortization1,360 1,411 
Total operating expenses33,739 22,465 
Loss from operations(9,873)(5,831)
Other income (expense):
Interest income103 16 
Interest expense and loss on extinguishment of debt(2,942)(1,183)
Change in fair value of financial instruments and other income(9,990)(19)
Total other expense(12,829)(1,186)
Loss before income taxes(22,702)(7,017)
Provision for income taxes(92)(80)
Net loss and comprehensive loss$(22,794)$(7,097)
Net loss per share attributable to common stockholders
Basic and diluted$(0.16)$(0.07)
Weighted average number of shares used to compute net loss per share attributable to common stockholders
Basic and diluted144,207 99,804 
SeeThe accompanying notes to unaudited condensed consolidated financial statements.are an integral part of these Unaudited Condensed Consolidated Financial Statements.
8
BTRS Holdings Inc.
Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)
(Amounts in thousands, except share data)

BTRS HOLDINGS INC.
Redeemable Convertible Preferred StockClass 1
 Common Stock		Class 2
 Common Stock		Additional Paid-in CapitalAccumulated
 Deficit		Total Stockholders’ Equity
SharesAmountSharesAmountSharesAmount
Balance, December 31, 2019, Pre-Conversion68,382,882 $150,358 31,234,610 $3 0 $0 $11,933 $(145,830)$(133,892)
Retroactive application of reverse recapitalization (Note 4)(68,382,882)(150,358)60,186,260 6 8,196,623 1 150,349 0 150,356 
Adjusted balance, beginning of period— — 91,420,870 9 8,196,623 1 162,282 (145,830)16,464 
Stock-based compensation from option grants— — — — — — 481 — 481 
Exercise of stock options— — 232,761 — — — 123 — 123 
Net loss— — — — — — — (7,097)(7,097)
Balance, March 31, 20200 $0 91,653,631 $9 8,196,623 $1 $162,886 $(152,927)$9,971 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, amounts in thousands)

Six Months Ended June 30,
20212020
Operating activities:
Net loss$(33,530)$(9,999)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization2,719 2,821 
Provision for bad debts65 20 
Loss on extinguishment of debt and amortization of debt discount2,799 161 
Stock-based compensation expense14,532 1,161 
Change in fair value of financial instruments and other income9,985 (406)
Deferred income taxes92 109 
Changes in assets and liabilities:
Accounts receivable(6,064)(53)
Prepaid expenses(2,112)(1,196)
Deferred implementation, commissions, and other costs236 (380)
Other assets (current and non-current)1,475 184 
Accounts payable195 (1,160)
Accrued expenses and other4,165 (127)
Deferred revenue(4,530)1,305 
Other liabilities (current and non-current)(848)122 
Net cash used in operating activities(10,821)(7,438)
Investing activities:
Purchases of short-term investments(45,037)0 
Purchases of property and equipment(1,120)(1,310)
Net cash used in investing activities(46,157)(1,310)
Financing activities:
Proceeds from borrowings, net of costs0 46,554 
Payments on borrowings(44,663)(31,696)
Business Combination and PIPE financing349,902 0 
Payments of equity issuance costs(20,200)0 
Debt extinguishment costs(1,565)0 
Payments of deferred purchase consideration0 (524)
Payments on capital lease obligations(125)(134)
Proceeds from common stock issued4,184 252 
Taxes paid on net share issuance of stock-based compensation(4,271)0 
Net cash provided by financing activities283,262 14,452 
Net increase in cash, cash equivalents, and restricted cash226,284 5,704 
Cash, cash equivalents, and restricted cash, beginning of period17,919 4,736 
Cash, cash equivalents, and restricted cash, end of period (Note 2)$244,203 $10,440 
Supplemental disclosure of cash flow information:
Cash paid for interest$135 $2,078 
Cash paid for income taxes$0 $8 
Non-cash investing & financing activities:
Reclassification of Series C preferred stock warrant liability to equity (Note 3)$1,433 $0 
Net assets acquired in Business Combination and other$255 $0 
Equity issuance costs in other assets and accrued expenses charged to additional paid-in-capital$1,888 $0 
Issuance and vesting of Earnout Shares at fair value (Note 3)$237,008 $0 
Redeemable Convertible Preferred StockClass 1
 Common Stock		Class 2
 Common Stock		Additional Paid-in CapitalAccumulated DeficitTotal Stockholders’ Equity
SharesAmountSharesAmountSharesAmount
Balance, December 31, 202068,382,882 $159,028 32,574,218 $3 0 $0 $16,301 $(171,527)$(155,223)
Retroactive application of reverse recapitalization (Note 4)(68,382,882)(159,028)60,186,260 6 8,196,622 1 159,026 0 159,033 
Adjusted balance, December 31, 2020— — 92,760,478 9 8,196,622 1 175,327 (171,527)3,810 
Reverse recapitalization and PIPE Financing (Note 4)— — 44,522,375 5 (1,658,887)— 330,659 (1,042)329,622 
Fair value of earnout share liabilities (Note 4)— — — — — — (230,995)— (230,995)
Issuance and vesting of earnout shares at fair value (Note 4)— — 10,204,164 1 713,572 — 237,008 — 237,009 
Stock-based compensation from option and restricted stock unit grants— — — — — — 8,826 — 8,826 
Exercise of stock options— — 1,828,302 — — — 2,032 — 2,032 
Net loss— — — — — — — (22,794)(22,794)
Balance, March 31, 20210 $0 149,315,319 $15 7,251,307 $1 $522,857 $(195,363)$327,510 
SeeThe accompanying notes to unaudited condensed consolidated financial statements.are an integral part of these Unaudited Condensed Consolidated Financial Statements.
9
BTRS Holdings Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Amounts in thousands, except share amounts)


BTRS HOLDINGS INC.
Three Months Ended March 31,
20212020
Operating activities:
Net loss$(22,794)$(7,097)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization1,360 1,411 
Provision for bad debts54 16 
Loss on extinguishment of debt and amortization of debt discount2,799 105 
Stock-based compensation expense8,826 481 
Change in fair value of earnout and contingent consideration liabilities9,995 0 
Deferred income taxes92 80 
Changes in operating assets and liabilities:
Accounts receivable(3,743)(325)
Prepaid expenses(3,382)(752)
Other assets (current and non-current)1,512 (27)
Accounts payable668 (1,001)
Accrued expenses(2,730)(2,569)
Deferred revenue(2,604)799 
Deferred implementation, commissions and other costs132 (27)
Other liabilities (current and non-current)(102)45 
Net cash used in operating activities(9,917)(8,861)
Investing activities:
Purchases of short-term investments(25,000)0 
Capitalized software development(115)(236)
Purchases of property and equipment(388)(629)
Net cash used in investing activities(25,503)(865)
Financing activities:
Issuance of long-term debt0 45,000 
Financing costs paid upon issuance of long-term debt0 (1,446)
Proceeds from line of credit0 3,000 
Payments on long-term debt(44,663)(28,583)
Payments on capital lease obligations(65)(68)
Proceeds from exercise of stock options2,032 123 
Business combination and PIPE financing349,902 0 
Payments of equity issuance costs(20,200)0 
Debt extinguishment costs(1,565)0 
Cash paid to satisfy tax withholding on net share issuance(4,013)0 
Net cash provided by financing activities281,428 18,026 
Net increase in cash and cash equivalents and restricted cash246,008 8,300 
Cash and cash equivalents and restricted cash, beginning of period17,919 4,736 
Cash and cash equivalents and restricted cash, end of period$263,927 $13,036 
Reconciliation of cash, cash equivalents, and restricted cash to the condensed balance sheets
Cash and cash equivalents$261,013 $9,761 
Restricted cash2,914 3,275 
Total cash, cash equivalents, and restricted cash$263,927 $13,036 
10
BTRS Holdings Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Amounts in thousands, except share amounts)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest$133 $1,071 
Noncash Investing & Financing Activities:
Reclassification of Series C preferred stock warrant liability to equity in connection with Business Combination$1,433 $0 
Net assets acquired in Business Combination and other$255 $0 
Deferred and accrued equity issuance costs in other assets and accrued expenses charged to additional paid-in-capital$1,888 $0 
Issuance and vesting of earnout shares at fair value$237,008 $0 
See accompanying notes to unaudited condensed consolidated financial statements.
11
BTRS Holdings Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(Amounts in thousands, except per share and share data)


1.Note 1 - Organization and Nature of Business
BTRS Holdings Inc., formerly known as Factor Systems, Inc. ("Legacy Billtrust"), utilizing the trade name Billtrust (the "Company” or “Billtrust”), was incorporated on September 4, 2001 in the State of Delaware and maintains its headquarters in Lawrenceville, New Jersey, with additional offices or print facilities in Colorado, Illinois, and California.

The Company provides a comprehensive suite of order to cashorder-to-cash software as a service ("SaaS") solutions with integrated payments, including credit and collections, invoice presentment, and cash application services to its customers, primarily based in North America, but with global operations. In addition, Billtrust founded the business payments network ("BPN") in its strategic relationship with VISA, which combines remittance data with B2Bbusiness-to-business ("B2B") payments and facilitates straight-through payment processing. Billtrust serves businesses across both business-to-business and business-to-consumer segments. Billtrust integrates the key areas of the order-to-cash process: credit decisioning, e-commerce solutions, bill presentment, bill payment, cash application, and collections workflow management, helping its clients connect with their customers and cash.

Business Combination Agreement

On October 18, 2020, as amended on December 13, 2020, South Mountain Merger Corp., a Delaware corporation (“South Mountain”), BT Merger Sub I, Inc., a Delaware corporation and a direct, wholly owned subsidiary of South Mountain (“First Merger Sub”), BT Merger Sub II, LLC, a Delaware limited liability company and a direct, wholly owned subsidiary of South Mountain (“Second Merger Sub”), and the Company ("Billtrust"), entered into a Business Combination Agreement (the “BCA”(“BCA”), pursuant to which (i) First Merger Sub was merged with and into Billtrust (the “First Merger”), with Billtrust surviving the First Merger as a wholly owned subsidiary of South Mountain (the “Surviving(“Surviving Corporation”), and (ii) the Surviving Corporation merged with and into Second Merger Sub (the “Second Merger”, and together with the First Merger, the “Mergers”), with Second Merger Sub surviving the Second Merger as a wholly owned subsidiary of South Mountain (such Mergers, collectively with the other transactions described in the BCA, the “Business Combination”).

In connection with the execution of the BCA,Business Combination, on October 18, 2020, South Mountain entered into separate subscription agreements (the “Subscription(“Subscription Agreements”) with a number of investors (the “PIPE(“PIPE Investors”), pursuant to which the PIPE Investors agreed to purchase, and South Mountain has sold to the PIPE Investors, an aggregate of 20,000,000 shares of South Mountain Class A Common Stock,common stock, for a purchase price of $10.00 per share and at an aggregate purchase price of $200$200.0 million, in a private placement (the “PIPE(“PIPE Financing”).

As noteddescribed in Note 4,3 - Business Combination, the Business Combination and PIPE Financing closed on January 12, 2021.2021 (the "Closing Date"). The Business Combination was accounted for as a reverse recapitalization in accordance with US GAAP.the generally accepted accounting principles in the United States of America ("U.S. GAAP"). Under this method of accounting, South Mountain iswas treated as the “acquired” company for financial reporting purposes. For accounting purposes, Billtrust is deemed to bewas the accounting acquirer in the transaction and, consequently, the transaction has beenwas treated as a recapitalization of Billtrust (i.e., a capital transaction involving the issuance of stock by South Mountain for the stock of Billtrust). Accordingly, the assets, liabilities, and results of operations of Billtrust became the historical financial statements of "New Billtrust", which was renamed BTRS Holdings Inc., and South Mountain’s assets, liabilities, and results of operations were consolidated with Billtrust beginning on the acquisition date.Closing Date. All amounts of BTRS Holdings Inc. reflect the historical amounts of Billtrust carried over at book value with no step up in basis to fair value. After the Business Combination, the Company’s common stock began trading on the Nasdaq stock exchange under the ticker symbol BTRS.
Note 2 - Summary of Significant Accounting Policies
Basis of Presentation
The accompanying Condensed Consolidated Financial Statements have been prepared in accordance with U.S. GAAP and pursuant to the rules and regulations of the US Securities and Exchange Commission ("SEC") regarding interim financial reporting on Form 10-Q. Accordingly, certain information and disclosures required for complete financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. These Condensed Consolidated Financial Statements and notes should be read in
10

conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2020 (as filed with the SEC on March 24, 2021), the audited financial statements included in the Company's Amendment No. 1 to the Current Report on Form 8-K (as filed with the SEC on March 24, 2021), and the Company's Registration Statement on Form S-1 (as filed with the SEC on June 28, 2021). Since the date of these filings, there have been no changes or updates to the Company's significant accounting policies, other than those described below.
The accompanying Condensed Consolidated Financial Statements for periods ended prior to January 12, 2021 reflect Legacy Billtrust, which was a single entity, and its capital structure prior to the Business Combination, and do not reflect New Billtrust or South Mountain.
In the opinion of management, the accompanying Condensed Consolidated Financial Statements contain all normal recurring adjustments necessary for a fair statement of financial position, results of operations, comprehensive loss, and cash flows as of the dates and for the interim periods presented. The results of operations for the three and six months ended June 30, 2021 may not be indicative of the results for the full fiscal year ended December 31, 2021 or any other period. The Condensed Consolidated Balance Sheet as of December 31, 2020 included herein was derived from the audited financial statements as of that date, but does not include all disclosures required by U.S. GAAP on an annual reporting basis.
The Company's fiscal year is the twelve-month period from January 1 through December 31. Unless otherwise indicated, all references to a "year" mean the Company's fiscal year.
Reclassification
During the second quarter of 2021, the Condensed Consolidated Balance Sheets were updated to remove restricted cash as a standalone line item and combine it with other current assets or other assets. Prior periods have been reclassified to conform to the current period presentation, which resulted in approximately $3.3 million of restricted cash being reclassified into other current assets for the year ended December 31, 2020. The reclassification had no impact on the amount of total current assets or total assets previously reported.
Impact of COVID-19
In March 2020, the United States declared a State of National Emergency due to the COVID-19 pandemic. Since then, the Company has continued to operate despite the disruption to many of our customer's operations. The pandemic has served to increase awareness and urgency around accelerating the digital transformation of accounts receivable through the Company's products and platforms. While this helped avoid significant business, bookings, or revenue disruptions thus far, during the three months ended June 30, 2020, the pandemic did cause a decrease in the Company's 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 the Company expects to continue.
We are unable to predict the full impact the COVID-19 pandemic will have on our future results of operations, liquidity, and financial condition due to numerous uncertainties, including the duration, severity, and spread of the virus, actions that may be taken by government authorities, the impact to our customers, employees, and suppliers, and various other factors beyond our knowledge and control. The pandemic has caused us to modify our business practices, such as employee travel restrictions, cancellation of physical participation in meetings, events and conferences, and requiring employees to work remotely. We may take further actions as may be required by government authorities or that we determine are in the best interests of our employees and customers. The Company has previously implemented certain cost savings measures, some of which have ended, such as reducing employee incentive compensation programs, and others which are continuing, such as restricted travel and reduced discretionary spend in certain areas. The Company will continue to monitor the situation and adjust its response accordingly.
On March 27, 2020, Congress enacted the Coronavirus Aid, Relief, and Economic Security ("CARES") Act. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions, technical corrections to tax depreciation methods for qualified improvement property, and appropriation of funds for the SBA Paycheck Protection Program. The Company, through its payroll provider, elected to defer employer side social security payments effective as of April 2020. During 2021, the Company expects to pay the entire amount due for 2020 of approximately $2.3 million, which is included in accrued expenses and other in the Condensed Consolidated Balance Sheets as of both June 30, 2021 and December 31, 2020.
11

Change in Filing Status from Emerging Growth Company
Billtrust currently qualifies as an emerging growth company (“EGC”), under the Jumpstart Our Business Startups Act (“JOBS Act”), which allows the Company to delay adoption of new or revised accounting pronouncements until such pronouncements are applicable to private companies. The Company has elected to use the extended transition period under the JOBS Act until such time that the Company is not considered to be an EGC. Based on the closing share price and the market value of the Company's common stock held by non-affiliates as of June 30, 2021, the Company will be deemed a large accelerated filer as of December 31, 2021. As a result, beginning with the Annual Report on Form 10-K for the year ending December 31, 2021, the Company will not be able to rely on the extended transition period noted above and will be required to adopt all new accounting pronouncements within the same time periods as public companies. The effect of the loss of ECG status and impact on the adoption of new accounting pronouncements is discussed further below.
Use of Estimates
The preparation of the Condensed Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities reported, disclosure about contingent liabilities, and the reported amounts of revenues and expenses in the financial statements and accompanying notes. Such estimates include, but are not limited to, revenue recognition, recoverability of deferred tax assets, valuation of acquired assets and liabilities, ongoing impairment reviews of goodwill, intangible assets, and other long-lived assets, contingent consideration, and stock based compensation. The Company bases its estimates on historical experience, known trends, market specific information, or other relevant factors it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates and changes in estimates are recorded in the period in which they become known. Actual results may differ from these estimates.
Retroactive Adjustments Related to Reverse Recapitalization

On May 14, 2021, the Company filed its Quarterly Report on Form 10-Q with the SEC for the three months ended March 31, 2021 and 2020, with such interim financial statements reflecting the reverse recapitalization of Billtrust (as described in Note 1 - Organization and Nature of Business and Note 3 - Business Combination) as if it had occurred as of the beginning of each period presented. As a result, in conformity with U.S. GAAP, the Company has retroactively adjusted its financial statements and related notes herein, as of the year ended December 31, 2020, and as of and for the three and six months ended June 30, 2020 to reflect the aforementioned reverse recapitalization as follows:
•Within the Condensed Consolidated Balance Sheets, redeemable convertible preferred stock in mezzanine equity was converted into Class 1 and 2 common stock and classified in permanent equity.
•The Statements of Redeemable Convertible Preferred Stock and Stockholders’ Deficit were renamed the Condensed Consolidated Statements of Stockholders’ Equity.
•Within the Condensed Consolidated Statements of Stockholders’ Equity:
◦Redeemable convertible preferred stock, common stock, share activity, and per share amounts were converted to Class 1 and 2 common stock at an exchange ratio of 7.2282662 shares per share of Legacy Billtrust common stock (the "Conversion Rate").
◦Preferred stock dividends and accretion of preferred stock to redemption value for the six months ended June 30, 2020 in the amount $4.3 million has been reclassified from redeemable convertible preferred stock to accumulated deficit.
•Within the Condensed Consolidated Statements of Operations and Comprehensive Loss, net loss per share and the weighted average number of shares used to compute net loss per share were adjusted based on the converted number of Class 1 and 2 common shares.
•Within the Notes to Financial Statements:
◦In Note 6 - Loss Per Share, all per share and share amounts for the 2020 periods presented were adjusted based on (1) the converted number of Class 1 and 2 common shares, and (2) the removal of the preferred stock dividends and accretion to redemption value.
◦In Note 7 - Stockholders' Equity and Stock-Based Compensation, stock options outstanding at December 31, 2020 and the weighted average fair value of stock options granted during the six
12
BTRS Holdings Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(Amounts in thousands, except per share and share data)

months ended June 30, 2020 before the Business Combination have been adjusted using the Conversion Rate.
Except as otherwise noted, the financial statements and related notes included herein have not been adjusted.
Concentrations of Credit Risk

The Company maintains its deposits of cash, and cash equivalent balances,equivalents, restricted cash, and customer funds with high-credit quality financial institutions. The Company’s cashinstitutions and cash equivalentthe amounts of these balances restricted cash and customer funds may exceed federally insured limits. The Company’s accounts receivable are reported in the accompanyingCondensed Consolidated Balance Sheets net of allowances for uncollectible accounts. The Company believes that the concentration of credit risk with respect to accounts receivable is limited due to the large number of companies and diverse industries comprising theits customer base. On-going credit evaluations are performed, generally with a focus on new customers or customers with whom the Company has no prior collections history, and collateral is generally not required. The Company maintains reserves for potential losses based on customer specific situations as well as on historic experience and such losses, in the aggregate, have not exceeded management’s expectations. As of March 31,June 30, 2021 and December 31, 2020 the allowances for uncollectible accounts were $0.3 million and for$0.4 million, respectively.
For the for the threesix months ended March 31,June 30, 2021 and 2020, there were no customers that individuallyindividual customer accounted for 10% or greater of accounts receivable or total revenues, respectively.


2. Summaryrevenues. As of Significant Accounting Policies

Significant Accounting Policies

Billtrust’s significant accounting policies are discussed in the audited financial statements included in the Company's Form 8-K/A filed with the Securities and Exchange Commission ("SEC") on March 24, 2021.

Emerging Growth Company

As an emerging growth company (“EGC”), the Jumpstart Our Business Startups Act (“JOBS Act”) allows the company to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are applicable to private companies. The Company has elected to use the extended transition period under the JOBS Act until such time the Company is not considered to be an EGC. The adoption dates are discussed below to reflect this election.

Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared using accounting principles generally accepted in the United States ("US GAAP") and regulations of the SEC regarding interim financial reporting. Accordingly, certain information and note disclosures normally included in the financial statements prepared in accordance with US GAAP have been condensed or omitted pursuant to such rules and regulations. The accompanying condensed consolidated financial statements for periods ended prior to January 12, 2021 reflect Billtrust and its capital structure prior to the Business Combination, and do not reflect New Billtrust or SMMC.

The condensed consolidated balance sheet as of December 31, 2020, included herein, was derived from the audited financial statements as of that date, but does not include all disclosures including certain notes required by US GAAP on an annual reporting basis. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, comprehensive loss and cash flows for the interim periods, but are not necessarily indicative of the results to be expected for the full fiscal year or any other period.

13
BTRS Holdings Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(Amounts in thousands, except per share and share data)

COVID-19
In March 2020, the United States (U.S.) declared a State of National Emergency due to the COVID-19 outbreak. In addition, many jurisdictions in the U.S. have limited, and are considering to further limit, social mobility and gathering. Many business establishments have closed due to restrictions imposed by the government and many governmental authorities have closed most public establishments. Some of our 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. The COVID-19 pandemic has caused us to modify our business practices (including employee travel and cancellation of physical participation in meetings, events and conferences), all of our employees are currently working remotely, and we may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, partners, and customers. The extent of this business disruption on our operational and financial performance will depend on these developments and the duration and spread of the outbreak, all of which are uncertain and cannot be predicted. The Company has previously implemented certain cost savings measures, some of which have ended and others are continuing, such as restricted travel and reduced discretionary spend in certain areas and will continue to monitor and adjust accordingly.

On March 27, 2020, President Trump signed into law the “Coronavirus Aid, Relief, and Economic Security (CARES) Act.” The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions, technical corrections to tax depreciation methods for qualified improvement property, and appropriate of funds for the SBA Paycheck Protection Program. The Company, through its outsourced payroll provider, has elected to defer employer side social security payments effective as of April 2020, and expects to pay in the next year, the amount due for 2020 of approximately $2,309, which is included in Accrued Expenses and Other in the accompanying condensed consolidated balance sheets as of March 31,June 30, 2021 and December 31, 2020, respectively. We continue to assess the impact that COVID-19 may have on our business. Although we sawno individual customer had a decline in certain transaction revenues during the second quarterbalance of 2020, we are unable to determine the ultimate impact that the CARES Act, and/10% or COVID-19 will have on our future financial condition, resultsgreater of operations, or liquidity.accounts receivable.

UsePresentation of Estimates
The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported in the financial statements and accompanying notes. Estimates include, but are not limited to, revenue recognition, allowances for doubtful accounts, recoverability of deferred tax assets, determining the fair value associated with acquired assets and liabilities including deferred revenue, intangible asset and goodwill impairment, contingent consideration liabilities, stock based compensation and certain other of the Company’s accrued liabilities. The Company bases its estimates on historical experience, known trends, and other market specific or other relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates, as there are changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results may differ from those estimates or assumptions.

Due to the COVID-19 global pandemic, the global economy and financial markets have been disrupted and there is a significant amount of uncertainty about the length and severity of the consequences caused by the pandemic. The Company has considered information available to it as of the date of issuance of these financial statements and has not experienced any significant impact to its estimates and assumptions as a result of the COVID-19 pandemic. On an ongoing basis, the Company will continue to closely monitor the COVID-19 impact on its estimates and assumptions.
14
BTRS Holdings Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(Amounts in thousands, except per share and share data)


Revenue Recognition

The Company determines revenue recognition through the following five-step framework:
1.Identification of the contract, or contracts, with a customer;
2.Identification of the performance obligations in the contract;
3.Determination of the transaction price;
4.Allocation of the transaction price to the performance obligations in the contract; and
5.Recognition of revenue when, or as, the Company satisfies a performance obligation

Restricted Cash
The following is a description of principal activitiestable summarizes the period ending cash and cash equivalents from which the Company generates revenue,Company's Condensed Consolidated Balance Sheets and the total cash, cash equivalents, and restricted cash as well as a further breakdown of the components of subscription, transaction and services revenues for the three months ended March 31, 2021 and 2020:


20212020
Subscription and transaction fees$30,183 $23,125 
Services and other2,936 1,399 
Subscription, transaction and services$33,119 $24,524 

Subscription and Transaction Fee Revenue
Subscription and transaction fee revenue is derived primarily from a hosted software as a service (SaaS) platform that enables billings and payment processing on behalf of customers. The Company’s services are billed on a subscription basis monthly, quarterly or annually. Transaction fees for certain services are billed monthly basedpresented on the volume of items processed each month at a contractual rate per item processed.

Hosted solutions are provided without licensing perpetual rights to the software. The hosted solutions are integral to the overall service arrangement and are billed as a subscription fee as part of the overall service agreement with the customer. Subscription fees from hosted solutions are recognized monthly over the customer agreement term beginning on the date the Company’s solution is made available to the customer.

Transaction revenue is recognized concurrent with processing of the related transactions by the Company, which is when revenue is earned. The customer simultaneously receives and consumes the benefits as the Company performs. Transaction fees include per-item processing fees charged at contracted rates based on the number of invoices delivered or payments processed.

Services

Fees associated with upfront services represent a material right under ASC 606 as customers do not incur such fees in subsequent contract terms, and therefore they are considered to be at a discount compared to the initial contract period. Any revenues related to upfront implementation services for new customers or new products for existing customers are recognized ratably over the estimated period of the customer relationship, which is estimated to be five years other than for customer relationships from acquisitions which range from two to four years. Amounts that have been invoiced are recorded in accounts receivable and deferred revenues or revenues, depending on when the services are fulfilled.
In addition to implementation fees, professional services fees also include consulting services provided to customers on a time and materials basis. Revenues from consulting services are recognized as the services are completed based on their standalone value, and costs associated with short term services contracts are deferred and recognized with the corresponding revenue when services are completed.

15
BTRS Holdings Inc.
Notes to Unaudited Condensed Consolidated Financial Statements of Cash Flows (in thousands):
(Amounts
Six Months Ended June 30,
20212020
Cash and cash equivalents$241,607 $7,164 
Restricted cash (1)2,596 3,276 
Total cash, cash equivalents, and restricted cash$244,203 $10,440 
(1) Restricted cash consists of collateral for letters of credit required for leased office space. At June 30, 2021 restricted cash is included in thousands, except per share and share data)

Significant Judgements

The Company determines standalone selling price ("SSP") for all material performance obligations using observable inputs, such asother assets in the price of subsequent years of the contract, standalone sales and historical contract pricing. Some customers have the option to purchase additional subscription or transaction services at a stated price. These options are evaluated on a case-by-case basis but generally do not provide a material right as they are priced within a range of prices provided to other customers for the same products and, as such, would not result in a separate performance obligation.

When the timing of revenue recognition differs from the timing of invoicing, i.e. Implementation services, the Company uses judgment to determine whether the contract includes a significant financing component requiring adjustment to the transaction price. Various factors are considered in this determination including the duration of the contract, payment terms, and other circumstances. Generally, the Company determined that contracts related to upfront Implement services do not include a significant financing component. The Company applies the practical expedient for instances where, at contract inception, the expected timing difference between when promised goods or services are transferred and associated payment will be one year or less.

Reimbursable costs
The Company records reimbursable costs, consisting of postage on a gross basis, since the goods or services giving rise to the reimbursable costs do not transfer a good or service to the customer. Rather, the goods or services are used or consumed by the Company in fulfilling its performance obligation to the customer. Corresponding expenses are recorded on an accrual basis and the costs are allocated based on specific types of postage to customers, but cannot specifically identify each postage invoice to specific customers. Because the cost of such revenue is equal to the revenue, it does not impact loss from operations or net loss.

Sales tax and other

The Company accounts for sales and other related taxes, as well as expenses associated with interchange on credit card transactions from third party card issuers or financial institutions which are a pass through cost, on a net basis, excluding such amounts from revenue. For expenses associated with interchange transactions, the Company has determined that it is acting as an agent with respect to these payment authorization services, based on the following factors: (1) the Company has no discretion over which card issuing bank will be used to process a transaction and is unable to direct the activity of the merchant to another card issuing bank, and (2) interchange and card network rates are pre-established by the card issuers or financial institutions, and the Company has no latitude in determining these fees. Therefore, revenue allocated to the payment authorization performance obligation is presented net of interchange and card network fees paid to the card issuing banks and financial institutions, respectively, for all periods presented.

Deferred Revenue
Amounts billed to clients in excess of revenue earned are recorded as deferred revenue liability. Deferred revenue as of March 31, 2021 andCondensed Consolidated Balance Sheets. At December 31, 2020 relates primarily to implementation fees for new customers or new services, which are being recognized ratably over the estimated term of the customer relationship, which is generally five years for the Company's core billing and payments andrestricted cash application services, and two to four years for other services related to acquisitions in 2018 and 2019; as well as fees received to store billing data and annual maintenance service agreements, which are both being recognized ratably over the term of the service period.

16
BTRS Holdings Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(Amounts in thousands, except per share and share data)

Deferred Commissions

Commissions are recorded when earned and are included as a component of sales and marketing expense. Commission costs can be associated specifically with subscription and professional services arrangements. Commissions earned by the Company’s sales personnel are considered incremental and recoverable costs of obtaining a contract with a customer. Commission costs are deferred and then amortized over a period of benefit of four to five years. The Company determined the period of benefit by taking into consideration its past experience with customers and the average customer life of acquired customers (four years, compared to five years for all remaining customers), future cash flows expected from customers, industry peers and other available information.

Commissions are earned by sales personnel upon the execution of the sales contract by the customer. Substantially all sales commissions are generally paid at one of three points: (i) upon execution of a customer contract, (ii) when a customer completes implementation and training processes or commences usage based volume, or (iii) after a period of time from three to twelve months thereafter. 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.

The Company capitalized commission costs of $712 and amortized $747 to sales and marketing expense in the accompanying statements of operations during the three months ended March 31, 2021, in addition to commissions which were expensed as incurred related to the achievement of quotas or other performance obligations. As of March 31, 2021 and December 31, 2020 the Company had approximately $2,490 and $2,431 of current deferred commissions for amounts expected to be recognized in the next 12 months, $5,139 and $5,233 of noncurrent deferred commissions for amounts expected to be recognized thereafter.

Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. The carrying value of these instruments approximates their fair value. At March 31, 2021 and December 31, 2020, the Company’s cash equivalents consisted primarily of money market funds.

Short-term investments

The Company’s investments at March 31, 2021 consist of certificates of deposit with a financial institution, with a maturity date of twenty four months or less at the time of purchase. 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 is included in interest income, although no such amounts were held forother current assets in the period ended March 31, 2021. Interest on securities classified as held-to-maturityCondensed Consolidated Balance Sheets. The short-term or long-term classification is includeddetermined in interest income.

Investments are impaired when a decline in fair value is judged to be other-than-temporary. The Company evaluates an investment for impairment by consideringaccordance with the length of time and extent to which market value has been less than cost or amortized cost, the financial condition and near-term prospectsexpiration of the issuer as well as specific events or circumstances that may influence the operationsunderlying letters 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 to other income (expense) and a new costs basis in the investment is established.

17
BTRS Holdings Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(Amounts in thousands, except per share and share data)

The Company uses the specific identification method to determine the cost basis of securities sold. The carrying value of these instruments approximates their fair value.

Customer Funds
In connection with providing electronic invoice presentment and payment facilitation services for its customers, the Company may receive client funds via Automated Clearing House (“ACH”) payment to the Company’s cash accounts at its contracted financial institution. The contractual agreements with the Company’s customers stipulate a period of up to three days for processing ACH returns and obligate the customer to reimburse the Company for returned payments. Timing differences in customer deposits into and disbursements from the Company’s separate cash account results in a balance of funds to be remitted to customers, which is reflected as customer funds payable in the accompanying Balance Sheets.

Customer Postage Deposits
The Company requires its customers to maintain a minimum level of postage deposits on account. Customer postage deposits are presented as a liability in the accompanying Balance Sheets and generally do not change unless customer postage usage significantly changes, new customers are added, or existing customers cancel services.

Accrued Expenses and Other
Accrued expenses includes items such as vendor invoices which have not been received as well as other payroll, bonus and related items, which are expected to be paid in the subsequent twelve months.

Offering Costs
The Company complies with the requirements of the ASC 340-10-S99-1. Offering costs of $2,845 were accrued and deferred as of December 31, 2020 and consisted principally of professional, printing, filing, regulatory and other costs that were charged to additional paid-in capital upon completion of the business combination.

credit.
Recent Accounting Pronouncements
Accounting pronouncements issuedPronouncements Issued and adoptedAdopted

In November 2019, the Financial Accounting Standards Board ("FASB") Issued ASUAccounting Standards Update ("ASU") 2019-08, Compensation - Stock Compensation (Topic 718): Improvements to NonemployeeNon-employee Share-Based Payment Accounting, which requires share-based payment awards granted to a customer to be measured and classified in accordance with Topic 718. Accordingly, the amount that will be recorded as a reduction in the transaction price should be based on the grant-date fair value of the share-based payment award. As an emerging growth company, ASU 2019-08 may be adopted by the Company effective in fiscal years beginning after December 15, 2019, and interim periods within annual periods beginning after December 15, 2020; however, early adoption is permitted. This new guidance will be effective for the Company for annual reporting period beginning January 1, 2021 and interim periods beginning January 1, 2022. The new guidance was adopted by the Company effectiveon January 1, 2021 and the adoption did not have a material impact on its consolidated financial statements.Consolidated Financial Statements.

In August 2020, the FASB issued ASU 2020-06, “Debt—Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40)" to simplify the accounting for convertible instruments by eliminating large sections of the existing guidance and eliminating several triggers for derivative accounting, including a requirement to settle certain contracts by
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BTRS Holdings Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(Amounts in thousands, except per share and share data)

delivering registered shares. This update is effective for fiscal years beginning after December 15, 2021, including interim periods within those years, and early adoption is permitted for years beginning after December 15, 2020. The new guidance was adopted by the Company effectiveon January 1, 2021 and the adoption did not impact its consolidated financial statements.

Consolidated Financial Statements.
Accounting pronouncements issuedPronouncements Issued but not yet adoptedAdopted
As an EGC, the JOBS Act permits the Company an extended transition period for complying with new or revised accounting pronouncements affecting public companies. The Company has elected to use this extended
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transition period and adopts certain new accounting pronouncements on the private company timeline, which means that its financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting pronouncements on a non-delayed basis. The Company will cease to qualify as an EGC effective December 31, 2021 unless the eligibility standards are modified. Loss of EGC status will result in the Company losing the extended transition period noted above and will require it to adopt new accounting pronouncements within the same time periods as public companies.
In February 2016, the FASB issued Accounting Standards UpdateASU 2016-02 Leases (“Topic 842”)(Topic 842), which outlines a comprehensive lease accounting model and supersedes the current lease guidance. The new guidanceTopic 842 requires lessees to recognize almost all of their leases on the balance sheet by recording a lease liability and a corresponding right-of-use assets("ROU") asset for all leases with lease terms greaterlonger than 12 months. It also changes the definition and classification of a lease, with the classification affecting the pattern of expense recognition, and expands the qualitative and quantitative disclosure requirements of lease arrangements. As per the latest ASU 2020-05, issued by FASB, the entities who have not yet issued or made available for issuance the financial statements as of June 3, 2020 can defer
The two permitted transition methods under the new guidance for one year, thusstandard are both modified retrospective methods. Under the Company expectsfirst method, the standard is applied to adopt this guidance for the annual reporting period beginning January 1, 2022, and interim reporting periods within annual reporting period beginning January 1, 2023, and will require application of the new accounting guidanceall leases that existed at, or subsequently commenced after, the beginning of the earliest comparative period presented in the yearfinancial statements, with a cumulative effect adjustment recorded at the beginning of adoption, although it maythe earliest comparative period for all leases that commenced prior to such date. Under the second method, comparative periods are not adjusted and the cumulative effect of applying the standard is recorded at the date of initial application.
As a result of losing EGC status effective as of December 31, 2021, the Company will be required to adopt this guidance effectivethe standard for the year endedannual reporting on December 31, 2020. The2021 and for quarterly reporting beginning with the first quarter of 2022. While the Company is currently in the process of quantifying the full impact of the new guidance, the adoption of this standard is expected to have a material impact on the Company's financial position as most operating leases longer than 12 months will be recorded on the balance sheets as a ROU asset and a lease liability. The standard is not expected to have a material impact on the Company's results of operations or liquidity. The Company is currently evaluating the impact that the pronouncement will havechanges related to this standard on its consolidatedfuture financial statements.reporting and disclosures, as well as designing and implementing related processes and controls related to Topic 842.

In June 2016, the FASB issued ASU 2016-13 Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments. ASU 2016-13Instruments. Topic 326 requires an entity to utilize a new impairment model known as the current expected credit loss ("CECL") model to estimate its lifetime "expected credit loss" using a forward-looking approach and record an allowance that, when deducted from the amortized cost basis of the financial asset, presents the net amount expected to be collected on the financial asset. The CECL model is expected to result in more timely recognition of credit losses. ASU 2016-13Topic 326 also requires new disclosures for financial assets measured at amortized cost, loans, and available-for-sale debt securities. As per the latest ASU 2020-02, FASB deferred the timelines for certain small public and private entities, thus the new guidance will be adopted by the Company for the annual reporting period beginning January 1, 2023, including interim periods within that annual reporting period. The standard will apply asrequires an entity to record a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. As a result of losing EGC status effective as of December 31, 2021, the Company will be required to adopt the standard for annual reporting on December 31, 2021 and for quarterly reporting beginning with the first quarter of 2022. The Company is in the process ofcurrently evaluating the impact of the adoption of ASU 2016-13this standard on the its consolidated financial statements and disclosures.Consolidated Financial Statements.

In January 2017, the FASB issued ASU No. 2017-04 "IntangiblesIntangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment"Impairment, which simplifies the accounting for goodwill impairment by removing Step 2 of the goodwill impairment test and requires an entity to write down the carrying value of goodwill up to the amount by which the carrying amount of a reporting unit exceeds its fair value. TheAs a result of losing EGC status effective as of December 31, 2021, the Company will be required to adopt the standard is effective for fiscal years beginning afterannual reporting on December 15,31, 2021 and interim periods within those fiscal years and early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.quarterly reporting beginning with the first quarter of 2022. The Company is currently evaluating the impact of this standard on its consolidated financial statements.Consolidated Financial Statements.

In August 2018, the FASB issued ASU 2018-15 “Customer’sCustomer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that Is a Service Contract”, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). This new guidanceAs a result of losing EGC status effective as of December 31, 2021, the Company will be effective forrequired to adopt the Companystandard for annual reporting period beginning January 1,on December 31, 2021 and interim periodsfor quarterly reporting beginning January 1,with the first quarter of 2022. The Company is currently evaluating the impact that the pronouncement will have on its consolidated financial statements.Consolidated Financial Statements.
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BTRS Holdings Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(Amounts in thousands, except per share and share data)


In December 2019, the FASB issued Accounting Standards Update ("ASU")ASU 2019-12 “IncomeIncome Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” The ASU is intended to simplifyTaxes, whichsimplifies various aspects related to accounting for income taxes. TheAs a result losing EGC status effective as of December 31, 2021, the Company is expectingwill be required to adopt the guidance fromstandard for annual periods beginning afterreporting on December 15, 2021 and interim period beginning December 15, 2022. The Company is currently evaluating the impact that the pronouncement will have on its consolidated financial statements.


3. Contingent Consideration
The Company records contingent consideration in the accompanying condensed consolidated balance sheets related to acquisitions that have future payments due after the closing date.

The following table presents the changes in the Company’s contingent consideration liabilities for the three months ended March 31, 2021 and 2020:


Ending Balance December 31, 2019 (current and long-term liabilities)$1,066 
Fair value adjustments to contingent consideration0 
Ending Balance March 31, 2020 (current and long-term liabilities)$1,066 
Ending Balance December 31, 2020 (current and long-term liabilities)$660 
Fair value adjustments to contingent consideration(290)
Ending balance, March 31, 2021 (current and long-term liabilities)$370 



for quarterly reporting beginning with the first quarter of 2022. The adoption of this standard is not expected to have a material impact on the Company's Consolidated Financial Statements.
4.Note 3 - Business Combination

Closing of Business Combination, Accounted for as a Reverse Recapitalization

On January 12, 2021, Billtrust consummated the previously announced Business Combination pursuant to the Agreement dated October 18, 2020 and amended as of December 13, 2020. As a result of the Agreement, Billtrust stockholders received aggregate consideration with a value equal to $1,190approximately $1,190.0 million, which consists of:

i.Approximately $90$90.1 million in cash to certain Billtrust shareholders who elected to receive cash for shares of Billtrust common stock at Closingclosing of the Business Combination, accounted for as a reverse recapitalization,recapitalization; and

ii.Approximately $1,099$1,099.0 million in South Mountain Class A and Class C Common Stockcommon stock at Closingclosing of the Business Combination, accounted for as a reverse recapitalization, or 109,944,090 shares (including 15,175,967 shares issuable pursuant to outstanding vested and unvested options from the 2003 and 2014 Plans), converted at an exchange ratio of 7.2282662 shares per share of Legacy Billtrust common stock (the "Conversion Rate"), based on an assumed share price of $10.00 per share.

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As of the completion of the Business Combination, accounted for as a reverse recapitalization, on January 12, 2021, the merged companies, - BTRS Holdings Inc. and subsidiaries, had the following outstanding securities:

i.approximately 138,728,373 shares of Class 1 Common Stock,common stock, including 2,375,000 shares to prior South Mountain shareholders that are subject to the vesting and forfeiture provisions based upon the same share price targets described below in the First Earnout and Second Earnout. During the first quarter of 2021, all of these shares were vested.

vested;
ii.approximately 6,537,735 shares of Class 2 Common Stock;common stock; and

iii.12,500,000 warrants, each exercisable for 1 share of Class 1 Common Stockcommon stock at a price of $11.50 per share (the “Warrants” or "Public Warrants", see refer to Note 10)7 - Stockholders' Equity and Stock-Based Compensation).

iv.In connection with the Merger, eachMerger:
i.Each issued and outstanding South Mountain Class A and Class B share was converted into 1.0 sharesshare of Class 1 Common Stockcommon stock of the Company.Company; and
v.ii.In connection with the Merger, allAll 6,954,500 private placement warrants of South Mountain were cancelled and are no longer outstanding.

Immediately prior to the Closing, each issued and outstanding share of Legacy Billtrust preferred stock converted into equal shares of Legacy Billtrust common stock. At the effective timeclosing of the Business Combination, (the “Closing”), each stockholder of Legacy Billtrust received 7.2282662 shares of the Company’s Class 1 common stock, par value $0.0001 per share (the "Class 1 (“Common Stock" or “Common Stock”), for each share of Legacy Billtrust common stock, par value $0.001 per share, that such stockholder owned, except for one investor who requested to receive shares of Class 2 Common Stock,common stock, which is the same in all respects as Class 1 Common Stockcommon stock except it does not have voting rights.

Upon the closing of the Business Combination, the Company’s certificate of incorporation was amended and restated to, among other things, increase the total number of authorized shares of capital stock to 575,000,000 shares, of which 538,000,000 shares were designated Class 1 Common Stock;common stock, $0.0001 par value per share; 27,000,000 shares were designated Class 2 Common Stock, $.0001common stock, $0.0001 par value per share ("Class 2 Common Stock");share; and 10,000,000 shares were designated preferred stock, $0.0001 par value per share.

Concurrently with the completion of the Business Combination, on the Closing Date 20,000,000 newly-issuednew shares of Common Stock were issued (such purchases, the “PIPE” concurrently with the completion of the Business Combination (the “Closing”) on the Closing Date for an aggregate purchase price of $200$200.0 million.

In connection with the Closing,Business Combination, 9,005,863 shares of common stockCommon Stock were repurchased for cash from Legacy Billtrust shareholders (after conversion) at a price of $10.00 per share of $10.00.share. Additionally, in connection
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with a previous loan agreement in July 2014, the Company issued a lender a warrant to purchase shares of the Company’s Series C Preferredpreferred stock. In connection with Business Combination, the warrant was exercised and converted into 85,004 shares of Common Stock.

The following table reconciles the elements of the Business Combination, accounted for as a reverse recapitalization, to the condensed consolidated statementCondensed Consolidated Statements of cash flowsCash Flows and the consolidated statementCondensed Consolidated Statements of changes in redeemable preferred stock and stockholders' equityStockholders' Equity for the periodsix months ended March 31, 2021:



June 30, 2021 (in thousands):
Reverse Recapitalization
(in thousands)
Cash - South Mountain (net of redemptions and non-contingent expenses)$240,670 
Cash - PIPE investors200,000 
Cash electing shares of Legacy Billtrust shareholders(90,061)
Less feesFees to underwriters and other transaction costs(20,200)
Net cash received from reverse recapitalization330,409 
Net assets acquired and other adjustments255 
Net contributions from reverse recapitalization$330,664 

The number of shares of Class 1 and Class 2 common stock of BTRS Holdings Inc. issued immediately following the consummation of the Business Combination, accounted for as a reverse recapitalization, is summarized as follows:

Number of Shares
Common Stock outstanding prior to Business Combination25,000,000 
Shares from South Mountain Founder Sharesfounder shares5,500,000 
Less redemptionRedemption of South Mountain Sharesshares(2,015)
Common Stockstock of South Mountain30,497,985 
Shares issued from PIPE20,000,000 
Less: Shares of Legacy Billtrust shareholdersshareholders' shares purchased for cash(9,005,863)
Recapitalization shares41,492,122 
Legacy Billtrust stockholdersstockholders' shares103,773,986 
Total Shares145,266,108 

Earnout Consideration

Following the closing of the Merger, holders of Billtrust common stock (including all redeemable preferred shareholders whose shares were converted into common stock at the closing of the Merger) and holders of stock options and restricted stock pursuant to the 2003 Plan and the 2014 Plan (as defined in the Business Combination Agreement, as amended)Agreement) had the contingent right to receive, in the aggregate, up to 12,000,000 shares of Common StockClass 1 common stock if, from the closing of the Merger until the fifth anniversary thereof, the average closing price of BTRS Holdings Inc. Common Stock exceeds certain thresholds. The first issuance of 6,000,000 earnout shares is based on the volume-weighted average price of Common Stock exceeding $12.50 for any 20 trading days within any 30 trading day period (the “First Earnout”). The second issuance of 6,000,000 earnout shares is based on the volume weighted average price of Common Stock exceeding $15.00 for any 20 trading days within any 30 trading day period (the “Second Earnout”) (collectively and together with the First Earnout, the "Earnout Shares").

Subsequent to the closing of the Merger and in the earnout pricefirst quarter of Common stock was met, and the2021, 10,917,736 shares of Class 1 and Class 2 common stock were issued associated with attainment of the First Earnout and the Second Earnout thresholds were issued in the first quarter of 2021.



thresholds.
The difference in the Earnout Shares issued and the aggregate amounts defined in the Merger Agreement above areis primarily attributable to 836,208 unissued shares reserved for future issuance to holders of unvested options in the form of restricted stock units or RSU's (the "Earnout RSU's"), which are subject to the same vesting terms and conditions as the underlying unvested stock options, and are not replacement awards. Additionally, approximately 246,056 shares of common stock were withheld from employees to satisfy the mandatory tax withholding requirements, for which the company remitted cash of $4,013$4.0 million to the appropriate tax authorities. The Company has determined that the earnout shares issued to non-employee shareholders and to holders of BTRS Holdings Inc. common stock and vested options from the 2003 Plan and 2014 Plan do not meet the criteria for equity classification under ASC 815-40. These earnout shares were initially measured at fair value upon closing
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As of the Business Combination, using a Monte Carlo simulation (using the same assumptions as Earnout RSUs discussed below) resulting in a fair value of $16.80 per share, and recorded as a liability, along with estimated withholding taxes, of $191,095. Upon the attainment of the share price targets in the first quarter of 2021, since all earnout shares were determined to be liability classified, the earnout shares were remeasured at fair value through theClosing date, the First Earnout and Second Earnout were achieved, with a corresponding other expense of $8,246 for the increase in the fair value from the date the Business Combination closed.

Additionally, the prior holders of South Mountain stock agreed that of their existing issued and outstanding shares of Class 1 common stock, as of the Closing Date, 2.375 million2,375,000 shares of would be subject to vesting conditions based upon the same price milestones in the First Earnout (1.1875 million(1,187,500 shares) and Second Earnout (1.1875 million(1,187,500 shares) as discussed above ("Sponsor Vesting Shares").
The Company determined that the Earnout Shares issued to non-employee shareholders and to holders of BTRS Holdings Inc. common stock, vested options from the 2003 Plan and 2014 Plan, and the Sponsor Vesting Shares do not meet the criteria for equity classification under ASCAccounting Standards Codification ("ASC") 815-40. TheseAccordingly, these shares were initially measuredare required to be classified as a liability and recorded at their fair value uponvalues, with the remeasurement of their fair values at each reporting period recorded in earnings. Upon closing of the Business Combination, and recorded as a liability of $39,900. Upon the attainmentfair value of the share price targetsshares was determined using a Monte Carlo simulation (using the same assumptions as Earnout RSUs discussed below), resulting in the first quartera fair value of 2021, since all Sponsor Vesting Shares were determined to be liability classified, the earnout$16.80 per share. The shares were remeasured at their fair valuevalues through the datedates the First Earnout and Second Earnout were achieved with a corresponding other expense of $1,780 for the increase in the fair value from the date the Business Combination closed.

first quarter of 2021. The liability associated with the Earnout Shares delivered to the equity holders and the Vesting Shares that vested upon achievement of the First Earnout and Second Earnout during the first quarter of 2021 were then reclassified to equity as shares issued, with the appropriate allocation to common stock at par value and additional paid-in capital. Below
The following table is a reconciliation of the liability balance at the Closing Date and the changes therein for the threesix months ended March 31, 2021:June 30, 2021 (in thousands):

Earnout SharesSponsor Vesting SharesTotal
Fair value on Closing Date$191,095 $39,900 $230,995 
Fair value adjustment (1)8,246 1,780 10,026 
Amount paid for tax withholding(4,013)0 (4,013)
Amount reclassified to equity(195,328)(41,680)(237,008)
Ending balance, June 30, 2021$0 $0 $0 
Earnout SharesSponsor Vesting SharesTotal
Fair value on Closing Date$191,095 $39,900 $230,995 
Change in fair value during the period (included in Other expense)8,246 1,780 10,026 
Amount paid for tax withholding(4,013)0 (4,013)
Amount reclassified to equity(195,328)(41,680)(237,008)
Ending balance$0 $0 $0 
(1) Included in change in fair value of financial instruments and other income in the Condensed Consolidated Statements of Operations and Comprehensive Loss.

For the Earnout RSU's issuableissued based on the amount of the unvested options the Company has determined that they are subject torecognized in earnings as stock-based compensation expense under ASC 718, and therefore, there was no impact as of the date the Business Combination was closed and the718. The fair value of the Earnout RSU's werewas determined based on a valuation using a Monte Carlo simulation, along withincluding the stock price on the Closing Date of $16.80, a risk free rate of 0.5%, and a volatility rate of 42%. Subsequently, stockStock-based compensation expense has beenis recorded over the vesting period of the Earnout RSU's, which totaled $2,171RSU's.
For the three and six months ended June 30, 2021, $2.0 million and $4.1 million of expense, respectively, was recognized for the three


months ended March 31, 2021,Earnout RSU's and is included in operating expenses and cost of subscription, transaction and services in the accompany condensed consolidated statementsCondensed Consolidated Statements of operationsOperations and comprehensive loss.Comprehensive Loss.
Offering Costs
In accordance with ASC 340-10-S99-1, offering costs, consisting principally of underwriters fees and professional, printing, filing, regulatory, and other costs, were charged to additional paid-in capital upon completion of the Business Combination. As of December 31, 2020, of $2.8 million of these costs were accrued and deferred in other assets on the Condensed Consolidated Balance Sheets.
Note 4 - Goodwill and Intangible Assets
Goodwill
Goodwill represents the excess of the purchase price of acquired businesses over the estimated fair values of the tangible and identifiable intangible net assets acquired. Goodwill is not amortized; however, it is required to be tested for impairment annually, which requires assessment of the potential impairment at the reporting unit level. Testing for impairment is also required on an interim basis if an event or circumstance indicates it is more likely than not an impairment loss has been incurred.
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The Company performed its annual impairment testing as of October 1, 2020 utilizing a qualitative assessment to determine if it was more likely than not that the fair values of each of its reporting units was less than their respective carrying values and concluded that no impairment existed. Subsequent to completing the annual test and through June 30, 2021, there were no events or circumstances that required an interim impairment test. Additionally, as of June 30, 2021, the Company had no accumulated goodwill impairment losses.
All of the Company's goodwill is attributable to its Software and Payments segment. There were no changes to the carrying amount of goodwill during the six months ended June 30, 2021.
Finite-Lived IntangibleAssets
The gross carrying values, accumulated amortization, and net carrying values of finite-lived intangible assets as of June 30, 2021 and December 31, 2020 are as follows (in thousands):
June 30, 2021
Gross Carrying ValueAccumulated AmortizationNet Carrying Value
Customer relationships$16,350 $(9,524)$6,826 
Non-compete agreements1,430 (773)657 
Trademarks and trade names160 (60)100 
Technology1,540 (700)840 
Total$19,480 $(11,057)$8,423 
December 31, 2020
Gross Carrying ValueAccumulated AmortizationNet Carrying Value
Customer relationships$16,350 $(8,698)$7,652 
Non-compete agreements1,460 (660)800 
Trademarks and trade names160 (47)113 
Technology1,540 (571)969 
Total$19,510 $(9,976)$9,534 
Amortization expense for finite-lived intangible assets was $0.6 million for both the three months ended June 30, 2021 and 2020, and $1.1 million for both the six months ended June 30, 2021 and 2020.
Estimated amortization expense for each of the next five years and thereafter is as follows (in thousands):
2021 (remainder)$714 
20221,269 
20231,174 
2024930 
2025737 
Thereafter3,599 
Total$8,423 
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5.Note 5 - Revenue from Contracts with Customersand Related Matters

Disaggregated Revenue
The Company disaggregates revenue as set forth in the following table (in thousands):
Revenue by Type
Three Months Ended June 30,Six Months Ended June 30,
Revenues:2021202020212020
Subscription and transaction fees$29,072 $23,809 $59,255 $46,935 
Services and other2,517 1,837 5,453 3,235 
Subscription, transaction, and services$31,589 $25,646 $64,708 $50,170 
Contract BalancesAssets and Liabilities

Accounts Receivable
The timing of revenue recognition, billingsAccounts receivable includes amounts billed and collections may result in billed account receivables and customer advances and deposits (contract liabilities).currently due from customers. The Company’s payment terms and conditions vary by contract type although termsand generally include a requirement ofrequire payment of 25% to 100% of total contract consideration upon signing and receipt of an invoice or within 30 days, depending uponsigning. Also included in accounts receivable are unbilled amounts resulting from revenue exceeding the solution and negotiated terms. In instancesamount billed to the customer, where the timingright to payment is unconditional. If the right to payment for services performed was conditional on something other than the passage of revenue recognition differstime, the unbilled amount would be recorded as a separate contract asset. There were no contract assets as of June 30, 2021 or 2020.
In addition, since payment is generally expected within one year from the timingtransfer of invoicing,products and services, the Company has determined thatdoes not adjust its contracts generally do not includereceivables or transaction prices for the effects of a significant financing component.

Deferred Revenue
The amountAmounts billed to clients in excess of revenue recognized duringare contract liabilities (referred to as deferred revenue in the Condensed Consolidated Balance Sheets). Deferred revenue primarily relates to implementation fees for new customers or for new services. These fees are recognized ratably over the estimated term of the customer relationship, which is five years for the Company's SaaS products, and two to four years for services sold from acquired companies, billing data storage fees, and annual maintenance services agreements.
During the three months ended March 31,June 30, 2021 and 2020, that were included in the Company recognized $4.9 million and $4.1 million of revenue, respectively, related to its deferred revenue balance at the beginning of each such period. During the six months ended June 30, 2021 and 2020, the Company recognized $11.5 million and $5.4 million of revenue, respectively, related to its deferred revenue balance at the beginning of each such period. To determine revenue recognized in each period, was $6,665 and $1,300, respectively, including $2,470the Company first allocates revenue to the deferred revenue balance outstanding at the beginning of each period, until the revenue equals that balance.
The amount of revenue recognized in the six months ended June 30, 2021 included $2.5 million in the first quarter of 2021 related to the acceleration of previously paid and deferred revenue from a customer whothat terminated duringits contract in the first quarter of 2021.

Remaining Performance Obligations

On March 31,As of June 30, 2021, the Company had approximately $30.5$33.3 million of remaining performance obligations, that are unsatisfied (or partially unsatisfied), primarily from multi-year contracts for the Company's services, which includes both the deferred revenue balance and amounts that will be invoiced and recognized as revenue in future periods. The Company expects to recognize revenue for approximately 96%95% of its remaining performance obligations as revenue in withinthis amount during the next 3 years,36 months, and the remainder thereafter.

TheTo determine the amount of remaining performance obligations, the Company applies the practical expedient and excludes a) information about remaining performance obligations that havewhich allows for the exclusion of (1) amounts from contracts with an original expected duration of one year or less, and b) transaction price(2) variable consideration allocated to unsatisfied performance obligations for which variable consideration is allocated entirely to a wholly unsatisfied performance obligation, or to a wholly unsatisfied promise to transfer a distinct good or service, that forms part of a single performance obligation in accordance with the series guidance.obligation.

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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
BalanceLevel 1Level 2Level 3
Assets:
Cash and cash equivalents(1)
$261,013 $261,013 $0 $0 
Short-term investments25,000 25,000 0 0 
Restricted Cash2,914 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
BalanceLevel 1Level 2Level 3
Assets:
Cash and cash equivalents(1)
$14,642 $14,642 $0 $0 
Restricted Cash3,277 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.
25
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, 20210 
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 ValueAccumulated amortizationNet
Customer relationships$16,350 $(9,111)$7,239 
Non-compete agreements1,430 (702)728 
Trademarks and trade names160 (53)107 
Technology1,540 (636)904 
Total$19,480 $(10,502)$8,978 
26
BTRS Holdings Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(Amounts in thousands, except per share and share data)


December 31, 2020
Gross Carrying ValueAccumulated amortizationNet
Customer relationships$16,350 $(8,698)$7,652 
Non-compete agreements1,460 (660)800 
Trademarks and trade names160 (47)113 
Technology1,540 (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 
20221,269 
20231,174 
2024930 
2025737 
Thereafter3,599 
Total$8,978 


8. Property and Equipment, net

Property and equipment, net consists of the following:
March 31,December 31,
20212020
Assets held under capital leases – computer, print and mail equipment and software$3,784 $3,752 
Computer, print and mail equipment8,293 7,998 
Furniture and fixtures4,073 4,073 
Leasehold improvements12,133 12,120 
Software1,437 1,437 
Vehicles115 115 
Internal software development2,759 2,644 
Construction in progress157 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
27
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,
20212020
Term Loan$0 $44,663 
Unamortized debt issuance costs0 (1,234)
Revolving Facility Line of Credit0 0 
Capital lease obligations212 246 
Subtotal212 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
28
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
29
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.
30
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:

20212020
Risk-free interest rate0.64% - 1.12%1.57% - 1.73%
Dividend yield0 %0 %
Volatility factor of the expected market price of the Company’s common stock41.56% - 41.62%39.44% - 39.93%
Expected life of option5.5 years6.9 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:

20212020
Cost of subscription, transaction and other revenue$443 $33 
Research and development1,223 100 
Sales and marketing1,333 74 
General and administrative5,827 274 
$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
31
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
32
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, 2021Operating LeasesCapital Leases
remainder of 2021$3,567 $153 
20224,716 52 
20234,444 13 
20244,089 1 
20254,055 0 
Thereafter30,811 0 
Total minimum lease payments$51,682 $219 
Less amounts representing interest(7)
Present value of lease payments212 
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.


33
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:


34
BTRS Holdings Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(Amounts in thousands, except per share and share data)

March 31, 2021
PrintSoftware and PaymentsAll otherTotal
Revenues:
Subscription and transaction$4,498 $25,685 $0 $30,183 
Services and other0 0 2,936 2,936 
Subscription, transaction and services4,498 25,685 2,936 33,119 
Reimbursable costs8,817 0 0 8,817 
Total revenues13,315 25,685 2,936 41,936 
Cost of Revenues:
Cost of subscription, transaction and services revenue1,926 3,711 3,616 9,253 
Cost of reimbursable costs8,817 0 0 8,817 
Total cost of revenues, excluding depreciation and amortization10,743 3,711 3,616 18,070 
Segment gross profit - subscription, transaction and services2,572 21,974 (680)23,866 
Segment gross profit - reimbursable costs0 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 amortization19.3 %85.6 %(23.2)%56.9 %
Segment gross margin - subscription, transaction and services57.2 %85.6 %(23.2)%72.1 %
Unallocated amounts:
Sales and marketing$8,936 
Research and development10,993 
General and administrative12,450 
Depreciation and amortization1,360 
Interest income(103)
Interest expense and loss on extinguishment of debt2,942 
Change in fair value and other income (expense), net9,990 
Loss before income taxes$(22,702)


35
BTRS Holdings Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(Amounts in thousands, except per share and share data)

March 31, 2020
PrintSoftware and PaymentsAll otherTotal
Revenues:
Subscription and transaction$4,786 $18,339 $0 $23,125 
Services and other0 0 1,399 1,399 
Subscription, transaction and services4,786 18,339 1,399 24,524 
Reimbursable costs9,621 0 0 9,621 
Total revenues14,407 18,339 1,399 34,145 
Cost of Revenues:
Cost of subscription, transaction and services revenue2,211 3,114 2,565 7,890 
Cost of reimbursable costs9,621 0 0 9,621 
Total cost of revenues, excluding depreciation and amortization11,832 3,114 2,565 17,511 
Segment gross profit - subscription, transaction and services2,575 15,225 (1,166)16,634 
Segment gross profit - reimbursable costs0 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 amortization17.9 %83.0 %(83.3)%48.7 %
Segment gross margin - subscription, transaction and services53.8 %83.0 %(83.3)%67.8 %
Unallocated amounts:
Sales and marketing$6,422 
Research and development9,384 
General and administrative5,248 
Depreciation and amortization1,411 
Interest income(16)
Interest expense and loss on extinguishment of debt1,183 
Change in fair value and other income (expense), net19 
Loss before income taxes$(7,017)






36
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,
20212020
Numerator:
Net loss$(22,794)$(7,097)
Denominator:
Weighted-average common shares outstanding144,207 99,804 
Net loss per share attributable to common
stockholders (Class 1 and Class 2), basic and diluted$(0.16)$(0.07)


37
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,
2021202020212020
Numerator:
Net loss$(10,736)$(2,902)$(33,530)$(9,999)
Denominator:
Weighted-average common shares outstanding157,196,511 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)
20

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,
20212020
Options to purchase common stock22,383,267 12,870,603 
Restricted Stock Units (RSU's)834,228 0 
Warrants12,500,000 12,500,000 
35,717,495 25,370,603 
Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Stock options21,082,614 16,913,426 21,082,614 16,913,426 
Restricted stock units706,471 0 706,471 0 
Warrants12,497,700 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.
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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 SharesWeighted-Average Exercise PriceWeighted-Average Remaining Contractual Life (in Years)Aggregate Intrinsic Value
Outstanding at December 31, 202016,170,738 $2.69 
Granted8,251,638 16.70 
Exercised(3,046,982)1.39 
Forfeited(292,780)10.24 
Outstanding at June 30, 202121,082,614 $8.26 8.2$125,232 
Vested and expected to vest at June 30, 202118,285,991 $7.36 8.0$120,570 
Exercisable at June 30, 20217,122,553 $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.
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Restricted stock unit activity for the six months ended June 30, 2021 is presented below:
Number of SharesWeighted-Average Grant Date Fair Value
Unvested at December 31, 20200 $0 
Granted (1)847,888 16.77 
Vested(134,823)16.58 
Forfeited(27,492)16.80 
Unvested at June 30, 2021685,573 $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,
2021202020212020
Cost of subscription, transaction, and services$405 $57 $848 $88 
Research and development1,091 139 2,314 237 
Sales and marketing961 117 2,292 193 
General and administrative3,249 367 9,078 643 
Total$5,706 $680 $14,532 $1,161 
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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,
2021202020212020
Risk-free interest rate1.3% - 1.4%0.5% - 0.7%0.6% - 1.4%0.5% - 1.6%
Expected dividend yield0 %0 %0 %0 %
Expected volatility41 %39% -44%41% - 42%39% - 44%
Expected life (in years)5.56.95.56.9
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,
20212020
Term Loan$0 $44,663 
Unamortized debt issuance costs0 (1,234)
Capital lease obligations (Note 10)152 246 
Net carrying amounts152 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.
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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 LeasesCapital Leases
2021 (remainder)$2,333 $91 
20224,563 52 
20234,284 13 
20244,138 1 
20254,115 0 
Thereafter28,136 0 
Total minimum lease payments$47,569 $157 
Less: Amounts representing interest(5)
Present value of lease payments152 
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.
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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
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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
BalanceLevel 1Level 2Level 3
Assets:
Short-term investments45,037 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
BalanceLevel 1Level 2Level 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.
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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,
20212020
Assets held under capital leases$3,784 $3,752 
Computer, print and mail equipment8,777 7,998 
Furniture and fixtures4,073 4,073 
Leasehold improvements12,133 12,120 
Software1,437 1,437 
Vehicles115 115 
Internal software development2,959 2,644 
Construction in progress90 79 
Total property and equipment33,368 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.
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Note 15 - Accrued Expenses and Other

Accrued expenses and other consist of the following:following (in thousands):
June 30,December 31,
20212020
Accrued expenses$14,152 $11,749 
Accrued compensation10,059 9,513 
Accrued professional services and other5,707 3,569 
Accrued business combination expense1,137 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.
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March 31, 2021December 31, 2020
Accrued expenses$11,907 $11,749 
Accrued compensation7,337 9,513 
Accrued professional services and other4,070 3,569 
Accrued business combination expense846 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
PrintSoftware and PaymentsAll otherConsolidated
Revenues:
Subscription and transaction$4,490 $24,582 $0 $29,072 
Services and other0 0 2,517 2,517 
Subscription, transaction, and services4,490 24,582 2,517 31,589 
Reimbursable costs8,643 0 0 8,643 
Total revenues13,133 24,582 2,517 40,232 
Cost of Revenues:
Cost of subscription, transaction, and services revenue1,900 3,679 3,781 9,360 
Cost of reimbursable costs8,643 0 0 8,643 
Total cost of revenues10,543 3,679 3,781 18,003 
Gross profit:
Total segment gross profit (loss)$2,590 $20,903 $(1,264)$22,229 
Total segment gross margin20 %85 %(50)%55 %
Subscription, transaction, and services gross margin58 %85 %(50)%70 %
Unallocated amounts:
Sales, marketing, research, development, and administrative expenses(31,728)
Depreciation and amortization(1,359)
Interest, loss on extinguishment of debt, changes in fair value of financial instruments, and other income (expenses)133 
Loss before income taxes$(10,725)
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Three Months Ended June 30, 2020
PrintSoftware and PaymentsAll otherConsolidated
Revenues:
Subscription and transaction$4,448 $19,361 $0 $23,809 
Services and other0 0 1,837 1,837 
Subscription, transaction, and services4,448 19,361 1,837 25,646 
Reimbursable costs8,945 0 0 8,945 
Total revenues13,393 19,361 1,837 34,591 
Cost of Revenues:
Cost of subscription, transaction, and services revenue2,297 2,880 2,456 7,633 
Cost of reimbursable costs8,945 0 0 8,945 
Total cost of revenues11,242 2,880 2,456 16,578 
Gross profit:
Total segment gross profit (loss)$2,151 $16,481 $(619)$18,013 
Total segment gross margin16 %85 %(34)%52 %
Subscription, transaction, and services gross margin48 %85 %(34)%70 %
Unallocated amounts:
Sales, marketing, research, development, and administrative expenses(18,778)
Depreciation and amortization(1,410)
Interest, loss on extinguishment of debt, changes in fair value of financial instruments, and other expenses(690)
Loss before income taxes$(2,865)
Six Months Ended June 30, 2021
PrintSoftware and PaymentsAll otherConsolidated
Revenues:
Subscription and transaction$8,988 $50,267 $0 $59,255 
Services and other0 0 5,453 5,453 
Subscription, transaction, and services8,988 50,267 5,453 64,708 
Reimbursable costs17,460 0 0 17,460 
Total revenues26,448 50,267 5,453 82,168 
Cost of revenues:
Cost of subscription, transaction, and services revenue3,826 7,391 7,396 18,613 
Cost of reimbursable costs17,460 0 0 17,460 
Total cost of revenues21,286 7,391 7,396 36,073 
Gross profit:
Total segment gross profit (loss)$5,162 $42,876 $(1,943)$46,095 
Total segment gross margin20 %85 %(36)%56 %
Subscription, transaction, and services gross margin57 %85 %(36)%71 %
Unallocated amounts:
Sales, marketing, research, development, and administrative expenses(64,107)
Depreciation and amortization(2,719)
Interest, loss on extinguishment of debt, changes in fair value of financial instruments, and other expenses(12,696)
Loss before income taxes$(33,427)
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Six Months Ended June 30, 2020
PrintSoftware and PaymentsAll otherConsolidated
Revenues:
Subscription and transaction$9,234 $37,701 $0 $46,935 
Services and other0 0 3,235 3,235 
Subscription, transaction, and services9,234 37,701 3,235 50,170 
Reimbursable costs18,566 0 0 18,566 
Total revenues27,800 37,701 3,235 68,736 
Cost of Revenues:
Cost of subscription, transaction, and services revenue4,508 5,994 5,021 15,523 
Cost of reimbursable costs18,566 0 0 18,566 
Total cost of revenues23,074 5,994 5,021 34,089 
Gross profit:
Total segment gross profit (loss)$4,726 $31,707 $(1,786)$34,647 
Total segment gross margin17 %84 %(55)%50 %
Subscription, transaction, and services gross margin51 %84 %(55)%69 %
Unallocated amounts:
Sales, marketing, research, development, and administrative expenses(39,832)
Depreciation and amortization(2,821)
Interest, loss on extinguishment of debt, changes in fair value of financial instruments, and other expenses(1,876)
Loss before income taxes$(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.
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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.
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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
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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
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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.

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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
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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
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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
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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,
202120202021202020212020
($ in billions)(in billions)
Total Payment VolumeTotal 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/Wire12.2 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
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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,
20212020
Number of electronic invoices presented (in millions)71 64 
Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
(in millions)
Number of electronic invoices presented77 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.
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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,
20212020
(in thousands)
Total revenues$41,936 $34,145 
Less: Reimbursable costs revenue8,817 9,621 
Net Revenue (non-GAAP)$33,119 $24,524 
Total revenues$41,936 $34,145 
Less: Cost of revenue, excluding depreciation and amortization18,070 17,511 
Gross profit, excluding depreciation and amortization23,866 16,634 
Add: Stock based compensation expense443 33 
Adjusted Gross Profit$24,309 $16,667 
Gross margin, excluding depreciation and amortization56.9 %48.7 %
Adjusted Gross Margin73.4 %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.

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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,
20212020
(in thousands)
Net loss and comprehensive loss$(22,794)$(7,097)
Provision for income taxes92 80 
Change in fair value of financial instruments and other income9,990 19 
Interest expense and loss on extinguishment of debt2,942 1,183 
Interest income(103)(16)
Depreciation and amortization1,360 1,411 
Stock-based compensation expense8,826 481 
Restructuring & severance6 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.
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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,
20212020
(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.
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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
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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.
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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
39

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.
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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):

Three Months Ended March 31,% change
202120202021
(in thousands)
Revenues:
Subscription, transaction and services$33,119$24,52435 %
Reimbursable costs8,8179,621(8)%
  Total revenues41,93634,14523 %
  Cost of revenues:
Cost of subscription, transaction and services9,2537,89017 %
Cost of reimbursable costs8,8179,621(8)%
  Total cost of revenues, excluding depreciation and amortization18,07017,5113 %
  Operating expenses:
Research and development10,9939,38417 %
Sales and marketing8,9366,42239 %
General and administrative12,4505,248137 %
Depreciation and amortization1,3601,411(4)%
Total operating expenses33,73922,46550 %
Loss from operations(9,873)(5,831)69 %
Other income (expense):
Interest income10316544 %
Interest expense and loss on extinguishment of debt(2,942)(1,183)149 %
Change in fair value of financial instruments and other income(9,990)(19)52479 %
Total other income (expense)(12,829)(1,186)982 %
Loss before income taxes(22,702)(7,017)224 %
Provision for income taxes(92)(80)15 %
Net loss and comprehensive loss$(22,794)$(7,097)221 %


Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Revenues:
Subscription, transaction, and services$31,589 79 %$25,64674 %$64,70879 %$50,17073 %
Reimbursable costs8,64321 8,94526 17,46021 18,56627 
Total revenues40,232100 34,591100 82,168100 68,736100 
Cost of revenues:
Cost of subscription, transaction, and services9,36023 7,63322 18,61323 15,52323 
Cost of reimbursable costs8,64321 8,94526 17,46021 18,56627 
Total cost of revenues18,00345 16,57848 36,07344 34,08950 
Operating expenses:
Research and development11,27028 8,77825 22,26327 18,16226 
Sales and marketing9,98025 5,12915 18,91623 11,55117 
General and administrative10,47826 4,87114 22,92828 10,11915 
Depreciation and amortization1,3593 1,4104 2,7193 2,8214 
Total operating expenses33,08782 20,18858 66,82681 42,65362 
Loss from operations(10,858)(27)(2,175)(6)(20,731)(25)(8,006)(12)
Other income (expense):
Interest income131— 1— 234— 17— 
Interest expense and loss on extinguishment of debt(3)— (1,102)(3)(2,945)(4)(2,285)(3)
Change in fair value of financial instruments and other income5— 4111 (9,985)(12)3921 
Total other income (expense)133— (690)(2)(12,696)(15)(1,876)(3)
Loss before income taxes(10,725)(27)(2,865)(8)(33,427)(41)(9,882)(14)
Provision for income taxes(11)— (37)— (103)— (117)— 
Net loss and comprehensive loss$(10,736)(27)%$(2,902)(8)%$(33,530)(41)%$(9,999)(15)%
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Comparison of Results of Operations for the Three Months Ended March 31,June 30, 2021 and 2020

Total Revenues

Three Months Ended March 31,Change
20212020Amount%
(in thousands)
Subscription and transaction fees$30,183 $23,125 $7,058 31 %
Services and other2,936 1,399 1,537 110 %
Subscription, transaction and services$33,119 $24,524 $8,595 35 %
Reimbursable costs8,817 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%.

Three Months Ended June 30,Change
20212020Amount%
(in thousands)
Subscription and transaction fees$29,072 $23,809 $5,263 22 %
Services and other2,517 1,837 680 37 %
Subscription, transaction, and services31,589 25,646 5,943 23 %
Reimbursable costs8,643 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
Three Months Ended June 30,Change
20212020Amount%
(in thousands)
Cost of subscription, transaction, and services$9,360$7,633$1,727 23 %
Cost of reimbursable costs8,6438,945(302)(3)%
Total cost of revenues$18,003$16,578$1,425 9 %
The increase in total cost of revenues during the three months ended June 30, 2021 compared to the prior year period was primarily due to a $2.1 million increase in personnel-related costs, including non-cash stock based compensation expense resulting from the grant of stock options to substantially all employees in January 2021 and the impact of Earnout RSU's associated with the Business Combination. The increased personnel-related costs also include reinstating incentive programs that were eliminated as part of the cost-reduction measures implemented in 2020 as a result of the COVID-19 pandemic, and amortization of deferred service costs for personnel providing implementation and consulting services to our customers. These increases were partially offset by a $0.4 million decrease in print related costs resulting from efficiencies in our operations and slightly lower print transactional volumes as a result of existing customers converting to electronic invoicing.
Research and Development
Three Months Ended June 30,Change
20212020Amount%
(in thousands)
Research and development$11,270 $8,778 $2,492 28 %
The increase in research and development expenses during the three months ended June 30, 2021 compared to the prior year period was due primarily to a $2.5 million increase in personnel-related costs, including non-cash stock-based compensation expense of $1.0 million resulting from the grant of stock options to substantially all employees in January 2021 and the impact of Earnout RSU's associated with the Business Combination. The increased personnel-related costs also include reinstating incentive programs that were eliminated as part of the cost-reduction measures implemented in 2020 as a result of the COVID-19 pandemic.
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Sales and Marketing
Three Months Ended June 30,Change
20212020Amount%
(in thousands)
Sales and marketing$9,980 $5,129 $4,851 95 %
The increase in selling and marketing expenses during the three months ended June 30, 2021 compared to the prior year period was due primarily to a $4.2 million increase in personnel-related cost, including non-cash stock based compensation of $0.8 million resulting from the grant of stock options to substantially all employees in January 2021 and the impact of Earnout RSU's associated with the Business Combination. The increased personnel-related costs also include reinstating incentive programs that were eliminated as part of the cost-reduction measures implemented in 2020 as a result of the COVID-19 pandemic. An additional $0.6 million of the increase is due to marketing expenses related to announcements of product enhancements and our annual virtual Summit.
General and Administrative
Three Months Ended June 30,Change
20212020Amount%
(in thousands)
General and administrative$10,478 $4,871 $5,607 115 %
The increase in general and administrative expenses during the three months ended June 30, 2021 compared to the prior year period was due primarily to a $4.9 million increase in personnel-related costs, including non-cash stock-based compensation of $2.9 million resulting from the grant of stock options to substantially all employees in January 2021 and the impact of Earnout RSU's associated with the Business Combination. The increased personnel-related costs also include reinstating incentive programs that were eliminated as part of the cost-reduction measures implemented in 2020 as a result of the COVID-19 pandemic. An additional $0.9 million of the increase is due to professional and consulting fees for reporting and compliance requirements as a result of becoming a public company in 2021.
Depreciation and Amortization
Three Months Ended June 30,Change
20212020Amount%
(in thousands)
Depreciation and amortization$1,359 $1,410 $(51)(4)%
Depreciation and amortization expense during the three months ended June 30, 2021 was consistent with the prior year period as we did not have a material change in purchases, capitalization, write offs, or impairments of property, equipment, or intangible assets during either period.
Total other income (expense)
Three Months Ended June 30,Change
20212020Amount%
(in thousands)
Total other income (expense)$133 $(690)$823 119 %
The increase in other income during the three months ended June 30, 2021 compared to the prior year period was due primarily to a reduction in interest expense as all of our outstanding borrowings were paid off in the first quarter of 2021 as part of the Business Combination.
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Provision for Income Taxes
Three Months Ended June 30,Change
20212020Amount%
(in thousands)
Provision for income taxes(11)(37)$26 70 %
The provision for income taxes for the three months ended June 30, 2021 is consistent with the prior year period due to a low effective tax rate resulting from our net operating losses. We maintain a valuation allowance on our deferred taxes.
Comparison of Results of Operations for the Six Months Ended June 30, 2021 and 2020
Total Revenues
Six Months Ended June 30,Change
20212020Amount%
(in thousands)
Subscription and transaction fees$59,255 $46,935 $12,320 26 %
Services and other5,453 3,235 2,218 69 %
Subscription, transaction, and services64,708 50,170 14,538 29 %
Reimbursable costs17,460 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.


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lower transactional volumes.
Cost of Revenues
Three Months Ended March 31,Change
20212020Amount%
(in thousands)
Cost of subscription, transaction and services$9,253$7,890$1,363 17 %
Cost of reimbursable costs8,8179,621(804)(8)%
  Total cost of revenues, excluding depreciation and amortization$18,070$17,511$559 3 %


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.

Six Months Ended June 30,Change
20212020Amount%
(in thousands)
Cost of subscription, transaction, and services$18,613$15,523$3,090 20 %
Cost of reimbursable costs17,46018,566(1,106)(6)%
Total cost of revenues$36,073$34,089$1,984 6 %
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.

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Research and development

Three Months Ended March 31,Change
20212020Amount%
(in thousands)
Research and development$10,993 $9,384 $1,609 17 %
Percentage of total revenues26 %27 %


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.
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Research and Development
Six Months Ended June 30,Change
20212020Amount%
(in thousands)
Research and development$22,263 $18,162 $4,101 23 %
The increase in research and development expenses during the six months ended June 30, 2021 compared to the prior year period was due to a $4.1 million increase in personnel-related costs, including non-cash stock based compensation expense of $2.1 million resulting from the grant of stock options to substantially all employees in January 2021 and impact of Earnout RSU's associated with the Business Combination. The increased personnel-related costs also include reinstating incentive programs that were eliminated as part of the cost-reduction measures implemented in 2020 as a result of the COVID-19 pandemic.
Sales and Marketing
Six Months Ended June 30,Change
20212020Amount%
(in thousands)
Sales and marketing$18,916 $11,551 $7,365 64 %
The increase in sales and marketing expenses during the six months ended June 30, 2021 compared to the prior year period was due primarily to a $7.0 million increase in personnel-related cost, including non-cash stock based compensation of $2.1 million resulting from the grant of stock options to substantially all employees in January 2021, as well as the impact of certain Earnout RSU's associated with the Business Combination.

Sales and marketing
Three Months Ended March 31,Change
20212020Amount%
(in thousands)
Sales and marketing$8,936 $6,422 $2,514 39 %
Percentage of total revenues21 %19 %


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
Six Months Ended June 30,Change
20212020Amount%
(in thousands)
General and administrative$22,928 $10,119 $12,809 127 %
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
Six Months Ended June 30,Change
20212020Amount%
(in thousands)
Depreciation and amortization$2,719 $2,821 $(102)(4)%
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
Three Months Ended March 31,Change
20212020Amount%
(in thousands)
General and administrative$12,450 $5,248 $7,202 137 %
Percentage of total revenues30 %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 $5.6 million, resulting from the grant of stock options to substantially allintangible assets during either period.
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employeesTotal other income (expense)
Six Months Ended June 30,Change
20212020Amount%
(in thousands)
Total other income (expense)$(12,696)$(1,876)$(10,820)(577)%
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
Three Months Ended March 31,Change
20212020Amount%
(in thousands)
Depreciation and amortization$1,360 $1,411 $(51)(4)%
Percentage of total revenues3 %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)
Three Months Ended March 31,Change
20212020Amount%
(in thousands)
Total other income (expense)$(12,829)$(1,186)$(11,643)982 %
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
Three Months Ended March 31,Change
20212020Amount%
(in thousands)
Provision for income taxes$(92)$(80)$(12)15 %
Percentage of total revenues(0.2)%(0.2)%
Six Months Ended June 30,Change
20212020Amount%
(in thousands)
Provision for income taxes$(103)$(117)$14 12 %


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

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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
2021202020212020Amount%
Net cash used in operating activitiesNet 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 activitiesNet 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 activitiesNet cash provided by financing activities281,428 18,026 Net cash provided by financing activities283,262 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 cashNet increase in cash, cash equivalents, and restricted cash$226,284 $5,704 


Net cash used in operating activities

Operating Activities
Cash flows from operations have historically been historically negative as Billtrust continueswe continue to invest in itsour product features and platform, develop new products, and increase itsour sales and marketing efforts to sign contracts with new customers and expand the product breadth ofwithin existing customers. Billtrust doesWe do not expect this trend to change on an annual basis, although Billtrust doeswe do see quarterly shifts where cash flows from operations may be positive, primarily associated with invoicing and collecting advance subscription fees from customers.customers which are typically payable in advance.

ForThe $3.4 million decrease in cash provided by operating activities for the threesix months ended March 31,June 30, 2021 net cash used in operating activities was $9.9 million. Operating cash flow was driven primarily by higher net losses than incompared to the prior year period was primarily due to a $10.6 million decrease in cash generated from accounts receivable and deferred revenue offset by favorable adjustmentsa $3.1 million increase in cash used for depreciation and amortization, stock based compensation, and changes in the fair value of liabilities, as well as changes in working capital that include(excluding accounts receivable and deferred revenue), and, combined with the timingeffect of payments of prepaid expensesnon-cash items, a $3.3 million decrease in net loss.
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(including costs associated with becoming a public company), accrued expenses andInvesting Activities
During the collection of deferred revenue and accounts receivable.

For the threesix months ended March 31, 2020, net cash used in operating activities was $8.9 million. Operating cash flow was driven primarily by adjustments for depreciation and amortization and stock-based compensation expense, as well as changes in working capital that relate primarily to the timing of payments of accrued expenses and the collection of deferred revenue.

Cash used in operating activities increased by $1.1 million for the three months ended March 31,June 30, 2021 compared to 2020, primarily due to higher net losses from cost savings measures offset by noncash expenses such as stock based compensation and change in fair value of liabilities, and uses of cash for working capital net of the impact of deferred revenues and costs.

Net cash used in investing activities

For the three months ended March 31, 2021, net cash used in investing activities was $25.5 million. Investing cash flow was driven primarily by$46.2 million, which consisted of $45.0 million for the purchases of short-term investments. In addition, this includes capitalized software developmentinvestments and $1.1 million for purchases of property and equipment. During the six months ended June 30, 2020 cash used in investing activities consisted of $1.3 million for purchases of property and equipment.
Financing Activities
ForDuring the threesix months ended March 31, 2020, net cash used in investing activities was $0.9 million. Investing cash flow was driven primarily by purchases of property and equipment.

Cash used by investing activities decreased by $24.6 million forJune 30, 2021 compared to 2020, primarily due to short-term investments made during the first quarter of 2021 totaling $25.0 million.

Net cash provided by financing activities

For the three months ended March 31, 2021, net cash provided by financing activities was $281.4 million. Net cash provided by financing activities during 2021$283.3 million, which primarily consisted of $329.7 million of proceeds from the Business Combination and PIPE Financing, net of offering costs,costs. These proceeds were partially offset by the payment in full of the long-term$46.2 million used to fully repay our outstanding borrowings, including debt extinguishment costs, pursuant to our Financing Agreement in January 2021. Additional cash provided by financing activities is related to proceeds from the exercise price related to stock option exercises.Business Combination.

ForDuring the threesix months ended March 31,June 30, 2020 net cash provided by financing activities was $18.0 million. Net cash provided by financing activities during 2020 consisted$14.5 million, primarily consisting of borrowings under the Financing Agreement$46.5 million in January 2020, which increased the total long-term debt outstanding, partiallyproceeds from borrowings, offset by $31.7 million in repayments of loans payableon the outstanding borrowings.
Contractual Obligations
There has been a material change to the contractual obligations table as disclosed in our Annual Report on Form 10-K and our Amendment No. 1 to the line of credit under Billtrust’s prior credit facility.

Cash provided by financing activities increased by $263.4 million forCurrent Report on Form 8-K, as filed with the SEC on March 24, 2021, compared to 2020, primarily due to proceeds from the Business Combination and PIPE Financing.Combination. As of June 30, 2021, our future contractual obligations table is as follows (in thousands):

Contractual Obligations (1)Total< 1 Year1-3 Years3-5 Years> 5 Years
Capital leases$157 $128 $29 $— $— 
Operating leases47,569 4,600 8,594 8,235 26,140 
Contingent consideration (2)370 370 — — — 
Total contractual cash obligations$48,096 $5,098 $8,623 $8,235 $26,140 

Financing Agreement

On January 17, 2020, Billtrust 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 Billtrust (the “Financing Agreement”).(1) In connection with entering into the Financing Agreement, the prior term loan and revolver under the PacWest Bank Credit Agreement of $28.3 million was paid in full in January 2020, along with related interest and all liens released.

Existing letters of credit of $2.9 million issued by PacWest Bank remained outstanding and were collateralized by cash of $2.9 million which is restricted cash until the underlying letters of credit are released.

In connection with the consummation of the Business Combination on January 12, 2021 Billtrustwe repaid the indebtedness consisting of $44.7 million of principal amountall amounts outstanding on the Initial Term Loan, terminated the DDTL and the Revolver, and all associated liens were subsequently released. Billtrust incurred a debt prepayment fee in cash of $1.6 million that was paid on January 12, 2021.
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Contractual Obligations

As of December 31, 2021, Billtrust’s contractual cash obligations were as follows:

As noted above in the section “Financing Agreement”, in connection with the Business Combination, Billtrust extinguished itsour long term debt. Accordingly, long term debt by payingis no longer shown as a contractual obligation.
(2) The acquisition of Second Phase, LLC in April 2019 included a contingent consideration arrangement that required additional consideration to be paid to the gross principalsellers annually based meeting certain recurring revenue growth and profitability targets (together, "the Financial Targets") during the three-year period beginning May 1, 2019. In May 2021, we determined the second year Financial Targets were not met and accordingly reduced the amount outstanding of $44.7 million in full, along with a cash prepayment penalty of $1,575 million, in January 2021. Other than the long-term debt,remaining contingent consideration payable.
Except as noted above, there were no material changes in itsto our contractual obligations.
In addition to the contractual cash obligations during the three months ended March 31, 2021.

commitments included above, we have other payables and liabilities that may be legally enforceable but are not considered contractual commitments.
Off-Balance Sheet Arrangements

As of March 31,June 30, 2021, Billtrustother than the operating leases described above, we had no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on itsour financial condition, results of operations, liquidity, capital expenditures, or capital.
Non-GAAP Financial Measures
In addition to Billtrust’s results determined in accordance with the generally accepted accounting principles in the United States of America (“U.S. GAAP”), we believe the following non-GAAP financial measures are useful in evaluating our operating performance.
We present these non-GAAP measures to assist investors in understanding our financial performance from the perspective of management. We believe these measures provide an additional tool for investors to use in comparing our financial performance over multiple periods with other companies in our industry. While we believe the use of these non-GAAP measures provides useful information to investors and management in analyzing our financial performance, non-GAAP measures have inherent limitations in that they do not reflect all
47

of the amounts and transactions that are included in our financial statements prepared in accordance with U.S. GAAP. Non-GAAP measures do not serve as an alternative to U.S. GAAP, nor do we consider our non-GAAP measures in isolation. Accordingly we present non-GAAP financial measures only in connection with U.S. GAAP results. We urge investors to consider non-GAAP measures only in conjunction with our U.S. GAAP financials and to review the reconciliation of our non-GAAP financial measures to the most comparable U.S. GAAP financial measures, as described below, included in this Quarterly Report on Form 10-Q.
Net Revenue (non-GAAP)
Net revenue (non-GAAP) is defined as total revenues less reimbursable costs revenue, which is equal to subscription, transaction, and services revenue. Reimbursable costs revenue consists primarily of amounts charged to customers for postage (with an offsetting amount recorded as a cost of revenue) which we do not consider internally when monitoring operating performance.
We believe net revenue (non-GAAP) allows investors to evaluate comparability with our past financial performance and facilitates period-to-period comparisons of core operations. The most directly comparable U.S. GAAP measure to net revenue (non-GAAP) is total revenues in our Condensed Consolidated Statements of Operations and Comprehensive Loss.
Adjusted Gross Profit (non-GAAP) & Adjusted Gross Margin (non-GAAP)
Adjusted gross profit (non-GAAP) is defined as total revenues less total cost of revenues, plus stock based compensation expense included in total cost of revenues. Adjusted gross margin (non-GAAP) is defined as our adjusted gross profit (non-GAAP) divided by total revenues less reimbursable costs revenue or net revenue (non-GAAP).
We believe adjusted gross profit (non-GAAP) and adjusted gross margin (non-GAAP) are useful financial measures to investors as they eliminate the impact of certain non-cash expenses and allow a direct comparison of our cash operations and ongoing operating performance between periods. We expect adjusted gross margin (non-GAAP) to continue to improve over time to the extent that we are able to increase our scale by successfully growing revenues, both from cross-selling existing customers and upselling current and future offerings. However, our ability to improve adjusted gross margin (non-GAAP) over time is not guaranteed and will be impacted by the factors affecting our performance discussed above and outlined in the section titled "Risk Factors" in Part II, Item 1. of this Quarterly Report on Form 10-Q. The most directly comparable U.S. GAAP measure to adjusted gross profit (non-GAAP) and adjusted gross margin (non-GAAP) is total revenues in our Condensed Consolidated Statements of Operations and Comprehensive Loss.
The following table presents a reconciliation of our net revenue (non-GAAP), adjusted gross profit (non-GAAP), and adjusted gross margin (non-GAAP) to their most directly comparable U.S. GAAP financial measures (in thousands, except percentages):
Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Total revenues$40,232 $34,591 $82,168 $68,736 
Less: Reimbursable costs revenue8,643 8,945 17,460 18,566 
Net revenue (non-GAAP)$31,589 $25,646 $64,708 $50,170 
Total revenues$40,232 $34,591 $82,168 $68,736 
Less: Cost of revenue, excluding depreciation and amortization18,003 16,578 36,073 34,089 
Gross profit, excluding depreciation and amortization22,229 18,013 46,095 34,647 
Add: Stock-based compensation expense405 57 848 88 
Adjusted gross profit (non-GAAP)$22,634 $18,070 $46,943 $34,735 
Gross margin, excluding depreciation and amortization55.3 %52.1 %56.1 %50.4 %
Adjusted gross margin (non-GAAP)71.7 %70.5 %72.5 %69.2 %
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Adjusted EBITDA (non-GAAP)
Adjusted EBITDA (non-GAAP) is defined as net loss and comprehensive loss, plus (1) income tax benefit (expense), (2) the change in fair value of financial instruments and other income including the change in the fair value of liabilities (for earnout shares, warrants, contingent consideration or other items classified as liabilities), (3) interest expense and loss on extinguishment of debt, (4) depreciation and amortization, (5) stock-based compensation expense, (6) restructuring and severance costs, (7) acquisition and integration costs, and (8) other capital structure transaction costs, minus (9) interest income.
We believe adjusted EBITDA (non-GAAP) is a key measure for us to understand and evaluate our operating performance, to establish budgets, and to develop operational and strategic goals. Adjusted EBITDA (non-GAAP) helps identify underlying trends since the expenses we exclude in the calculation may not directly correlate to our overall operating performance in any specific period. Accordingly, we believe adjusted EBITDA (non-GAAP) also provides useful information to investors in understanding and evaluating our operating results in the same manner as management. The most directly comparable U.S. GAAP measure to adjusted EBITDA (non-GAAP) is net loss and comprehensive loss in the Condensed Consolidated Statements of Operations and Comprehensive Loss.
We believe that excluding the impact of these expenses in calculating adjusted EBITDA (non-GAAP) can provide a useful measure for period-to-period comparisons of our core operating performance. We believe it is useful to exclude certain non-cash charges, such as share-based compensation expenses from our non-GAAP financial measures because the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations. Other income (expense), net, includes interest income, loss on asset disposals, and fair value adjustments related to warrants and contingent consideration. Restructuring and severance costs are associated with realigning our organization. Acquisition and integration expenses are related to the third party costs associated with acquiring companies and internal direct costs associated with integrating their customers onto our platforms. These costs are not expected to recur within two years, for prior acquisitions, and only reoccur if we have new acquisitions. Our last acquisition was in April 2019. Other capital structure transaction costs are related to third-party fees, including legal, accounting, and other professional fees, associated with the secondary offering of our common stock, such as the offering completed in July 2021. These costs are not expected to recur over the next two years as the secondary offering was a one-time transaction between existing and new shareholders, with no new shares being issued or offered by us.
The following table reconciles adjusted EBITDA (non-GAAP) to the most directly comparable U.S. GAAP financial measure (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Net loss and comprehensive loss$(10,736)$(2,902)$(33,530)$(9,999)
Provision for income taxes11 37 103 117 
Change in fair value of financial instruments and other income(5)(411)9,985 (392)
Interest expense and loss on extinguishment of debt3 1,102 2,945 2,285 
Interest income(131)(1)(234)(17)
Depreciation and amortization1,359 1,410 2,719 2,821 
Stock-based compensation expense5,706 680 14,532 1,161 
Restructuring & severance317 101 323 282 
Acquisition and integration expense— 83 — 136 
Other capital structure transaction costs498 — 498 — 
Adjusted EBITDA (non-GAAP)$(2,978)$99 $(2,659)$(3,606)
For the three months ended June 30, 2021 adjusted EBITDA decreased $3.1 million compared to the prior year period and for the six months ended June 30, 2021 adjusted EBITDA improved $0.9 million compared to the prior year period. The change in both periods compared to the prior year periods was driven by the increase in total revenues, as discussed in the Comparison of Results of Operations sections, offset by higher expenses in the second quarter of 2021 due to (1) stock-based compensation expense resulting from the grant of stock options to substantially all employees in January 2021 and the impact of Earnout RSU's associated with the Business
49

Combination, (2) reinstating incentive programs that were eliminated as part of the cost-reduction measures implemented in 2020 as a result of the COVID-19 pandemic, and (3) fees associated with the secondary offering of our common stock completed in July 2021.
Free Cash Flow (non-GAAP)
Free cash flow (non-GAAP) is defined as net cash used in operating activities, less purchases of property and equipment (which includes capitalized internal-use software costs).
We believe free cash flow (non-GAAP) is an important liquidity measure of the cash available for our operational expenses and investment in business growth. It is useful to investors as a liquidity measure of our ability to generate or use cash to, maintain a strong balance sheet and invest in future growth. The most directly comparable U.S. GAAP measure to free cash flow (non-GAAP) is net cash used in operating activities in the Condensed Consolidated Statement of Cash Flows.
The following table presents a reconciliation of free cash flow to the most directly comparable U.S. GAAP measure (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Net cash used in operating activities$(904)$1,423 $(10,821)$(7,438)
Purchases of property and equipment(617)(445)(1,120)(1,310)
Free cash flow (non-GAAP)$(1,521)$978 $(11,941)$(8,748)
Critical Accounting Policies and Procedures

TheThere have been no material changes to the critical accounting policies, significant judgments, andor estimates included in (i) our Annual Report on Form 10-K, our Amendment on Form 8-K, or our Registration Statement on Form S-1.
Recent Accounting Pronouncements
As an emerging growth company (“EGC”), the Jumpstart Our Business Startups Act (“JOBS Act”) allows us to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are applicable to private companies. We have elected to use the extended transition period under the JOBS Act until such time the Company is not considered to be an EGC. Based on the closing share price and the market value of our Common Stock held by non-affiliates as of June 30, 2021, we will become a large accelerated filer on December 31, 2021. As a result, beginning with the Annual Report on Form 10-K for the fiscal year ended December 31, 20202021, we are required to adopt all new accounting pronouncements within the same time periods as public companies. Refer to Note 1 - Organization and (ii) Amendment No. 1 to the Current Report on Form 8-K filed with the SEC on March 24, 2021Nature of Business have not materially changed.in the Notes to Condensed Consolidated Financial Statements for a full description of recent accounting pronouncements, including the expected dates of adoption and effects on our Consolidated Financial Statements.

JOBS Act Accounting Election

The JOBS Act permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.There have been no material changes in our determination of the market risks we are exposed to or our assessment of sensitivity to these market risks since our discussion included in the section titled "Quantitative and Qualitative Disclosures About Market Risk" contained in our Annual Report on Form 10-K, our Amendment on Form 8-K, or our Registration Statement on Form S-1.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act refers to controls and procedures 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
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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
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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.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(d) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting during our quarter ended 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.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we may become involved in litigation relating to claims arising fromDuring the ordinarynormal course of business. Ourbusiness, we are 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, we are not party to any such matters that, in the opinion of management, believes that there are currently no claimswould individually or actions pending against us, the ultimate disposition of which wouldtaken together have a material adverse effect on our business, operating results, of operations, financial condition, or cash flows. Accordingly no material reserves have been recorded.
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:
ThereWe will no longer qualify as an “emerging growth company” after December 31, 2021, and as a result, we will have beento comply with increased disclosure and compliance requirements.
We are currently an emerging growth company ("EGC") as defined in the Jumpstart Our Business Startups Act (the "JOBS Act"). However, based on the market value of our common stock held by non-affiliates exceeding $700 million as of the last business day of our second fiscal quarter of 2021, we will no material changeslonger qualify as an EGC but instead will be deemed a large accelerated filer as of December 31, 2021.
As a large accelerated filer, we will be subject to certain disclosure and compliance requirements that apply to other public companies but did not previously apply to us due to our status as an emerging growth company. These requirements include, but are not limited to:
•the requirement that our independent registered public accounting firm attest to the effectiveness of our internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act of 2002:
•compliance with any requirement that may be adopted by the PCAOB regarding mandatory audit firm rotation or a supplement to the auditor's report providing additional information about the audit and the financial statements;
•the requirement that we provide full and more detailed disclosures regarding executive compensation; and
•the requirement that we hold a non-binding advisory vote on executive compensation and obtain stockholder approval of any golden parachute payments not previously approve.
An EGC also may elect to delay the adoption of new accounting pronouncements to when they become applicable to private companies, rather than when public companies must adopt them. We have elected to use this extended transition period and adopt certain new accounting pronouncements on the private company timeline, which means that our financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting pronouncements on a non-delayed basis. We will cease to qualify as an EGC effective December 31, 2021, unless the eligibility standards are modified. Loss of EGC status will result in our losing the extended transition period noted above and will require us to adopt new accounting pronouncements within the same time periods as public companies.
We expect that the loss of EGC status and compliance with the additional requirements of being a large accelerated filer will increase our legal and financial compliance costs and cause management and other personnel to divert attention from operational and other business matters to devote substantial time to public company reporting requirements. In addition, if we are not able to comply with changing requirements in a timely manner, the risk factorsmarket price of our stock could decline and we could be subject to sanctions or investigations
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by the stock exchange on which our common stock is listed, the SEC or other regulatory authorities, which would require additional financial and management resources.
The risks described in "Part I, Item 1A. Risk Factors” of our Annual Report on Form 10-K, forand the year ended December 31, 2020.section titled "Risk Factors" in both our Amendment on Form 8-K and Registration Statement on Form S-1, and the updated risks within this Form 10-Q are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
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.
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Item 6. Exhibits
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Exhibit
Number		Description
3.1Second Amended and Restated Certificate of Incorporation of the Company, dated January 12, 2021 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on January 14, 2021).
3.2Amended and Restated Bylaws of the Company, dated January 12, 2021(incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed with the SEC on January 14, 2021).
4.1Form of Common Stock Certificate of the Company (incorporated by reference to Exhibit 4.1 filed to the Company’s Current Report on Form 8-K filed with the SEC on January 14, 2021).
4.2Form of Warrant Certificate of the Company (incorporated by reference to Exhibit 4.2 filed to the Company’s Current Report on Form 8-K filed with the SEC on January 14, 2021).
4.3Amended and Restated Registration Rights Agreement, dated October 18, 2020, by and among the Company and certain stockholders of the Company (incorporated by reference to Exhibit 4.4 filed to the Company’s Current Report on Form 8-K filed with the SEC on January 14, 2021).
4.4Form of Lock-Up Agreement (incorporated by reference to Exhibit 4.5 filed to the Company’s Current Report on Form 8-K filed with the SEC on January 14, 2021).
31.1
Certification of Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification of Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*32.1
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*32.2
Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INSXBRL Instance Document
101.SCHXBRL Taxonomy Extension Schema Document
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
101.DEFXBRL Definition Linkbase Document
101.LABXBRL Taxonomy Extension Labels Linkbase Document
101.PREXBRL Taxonomy Extension Presentation Linkbase Document

*    (1)    Furnished herewith and not deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.


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SIGNATURES

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



May 14,August 12, 2021BTRS Holdings Inc.
By:/s/ Mark Shifke
Name:Mark Shifke
Title:Chief Financial Officer
(Principal Financial Officer)
    
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