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, 2022


☐			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.

(Exact name of registrant as specified in its charter)

_________________________


Delaware									83-3780685
(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 Class

Trading Symbol(s)

Name of Each Exchange on Which Registered

Class 1 Common Stock, $0.0001 par value

BTRS

The Nasdaq Global Select 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.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~May 4,~~August 3, 2022, there were ~~160,016,876~~160,558,452 and 3,395,989 shares of Class 1 and Class 2 common stock outstanding, respectively.

BTRS HOLDINGS INC.

INDEX TO FORM 10-Q


		Page Number
PART I
	Item 1. Financial Statements (Unaudited)	5
	Condensed Consolidated Balance Sheets	5
	Condensed Consolidated Statements of Operations	6
	Condensed Consolidated Statements of Comprehensive Loss	7
	Condensed Consolidated Statements of Stockholders’ Equity	8
	Condensed Consolidated Statements of Cash Flows	910
	Notes to Condensed Consolidated Financial Statements	1112
	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	3536
	Item 3. Quantitative and Qualitative Disclosures About Market Risk	5156
	Item 4. Controls and Procedures	5257
PART II
	Item 1. Legal Proceedings	5358
	Item 1A. Risk Factors	5358
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	5359
	Item 3. Defaults Upon Senior Securities	5359
	Item 4. Mine Safety Disclosures	5359
	Item 5. Other Information	5359
	Item 6. Exhibits	5460

Signatures		5561

In this Quarterly Report on Form 10-Q, unless otherwise stated or as the context otherwise requires, references to “the ~~Company”, “we”, “us”, "our”, "it",~~Company,” “we,” “us,” "our,” "it," and similar references refer to BTRS Holdings Inc., a Delaware corporation, and its consolidated subsidiaries. ItThis Quarterly Report on Form 10-Q also contains registered marks, trademarks, and trade names of other companies, all of which are the property of their respective holders. We do not intend our use or display of other companies’ trade names, trademarks, or service marks to imply a relationship with, endorsement, or sponsorship of us by these other companies.

NOTE REGARDING FORWARD-LOOKING STATEMENTS

This 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,” “potentially,” or the negative of these terms or similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends we believe may affect our financial condition, results of operations, business strategy, and financial needs.

These forward-looking statements are subject to known and unknown risks, uncertainties, and assumptions, including those described in the section titled "Part I, Item 1A. Risk Factors" contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2021 (the "Annual Report on Form 10-K"), as filed with the U.S. Securities and Exchange Commission (the "SEC") on March 9, 2022, including, among other things, risks associated with:

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

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

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

•the advantages and expected growth of our 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;

•unstable market and economic conditions may have serious adverse consequences on our business, financial condition, and share price;

•geopolitical conditions, including the direct or indirect consequences of acts of war, terrorism, or social unrest;

•the timing, outcome, and results of integrating our operations with newly acquired companies;

•any disruption of management time from ongoing business operations due to recent acquisitions;

•creating additional infrastructure to support our operations as a public company, losing emerging growth company 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;

•our growth strategy for expanding our operations both within and outside the United ~~States;~~States and the potential impact of foreign currency exchange rates;

•our ability to acquire or invest in businesses, products, or technologies that may complement or expand our products or platforms, enhance our technical capabilities, or otherwise offer growth opportunities; and

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

These risks are not exhaustive. Additional factors could harm our business and financial 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 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.

PART 1.

Item 1. Financial Statements

BTRS HOLDINGS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except per share amounts)


		March 31, 2022		December 31, 2021			June 30, 2022		December 31, 2021
ASSETS	ASSETS	(Unaudited)				ASSETS	(Unaudited)
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	107,839	$	187,672	Cash and cash equivalents	$	147,970	$	187,672
Marketable securities	Marketable securities	45,156		45,117		Marketable securities	—		45,117
Customer funds	Customer funds	19,385		22,541		Customer funds	23,052		22,541
Accounts receivable, net	Accounts receivable, net	39,226		34,394		Accounts receivable, net	42,305		34,394
Prepaid expenses	Prepaid expenses	7,396		3,715		Prepaid expenses	7,067		3,715
Deferred implementation and commission costs, current portion	Deferred implementation and commission costs, current portion	5,011		5,060		Deferred implementation and commission costs, current portion	5,030		5,060
Other current assets	Other current assets	1,312		1,164		Other current assets	1,625		1,164
Total current assets	Total current assets	225,325		299,663		Total current assets	227,049		299,663
Property and equipment, net	Property and equipment, net	11,813		15,516		Property and equipment, net	11,359		15,516
Operating lease right-of-use assets	Operating lease right-of-use assets	19,852		28,623		Operating lease right-of-use assets	19,261		28,623
Goodwill	Goodwill	127,369		88,148		Goodwill	122,120		88,148
Intangible assets, net	Intangible assets, net	49,827		24,339		Intangible assets, net	46,130		24,339
Deferred implementation and commission costs, net of current portion	Deferred implementation and commission costs, net of current portion	8,982		9,238		Deferred implementation and commission costs, net of current portion	9,240		9,238
Other assets	Other assets	4,152		5,122		Other assets	4,768		5,122
Total assets	Total assets	$	447,320	$	470,649	Total assets	$	439,927	$	470,649
LIABILITIES AND STOCKHOLDERS' EQUITY	LIABILITIES AND STOCKHOLDERS' EQUITY					LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Customer funds payable	Customer funds payable	$	19,385	$	22,541	Customer funds payable	$	23,052	$	22,541
Accounts payable	Accounts payable	3,872		2,968		Accounts payable	2,099		2,968
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	42,429		46,426		Accrued expenses and other current liabilities	47,322		46,426
Deferred revenue, current portion	Deferred revenue, current portion	24,556		24,983		Deferred revenue, current portion	24,958		24,983
Total current liabilities	Total current liabilities	90,242		96,918		Total current liabilities	97,431		96,918
Operating lease liabilities, net of current portion	Operating lease liabilities, net of current portion	33,346		32,461		Operating lease liabilities, net of current portion	32,412		32,461
Customer postage deposits	Customer postage deposits	10,064		10,081		Customer postage deposits	10,128		10,081
Deferred revenue, net of current portion	Deferred revenue, net of current portion	14,032		14,259		Deferred revenue, net of current portion	12,842		14,259
Deferred taxes	Deferred taxes	10,537		4,338		Deferred taxes	9,648		4,338
Other non-current liabilities	Other non-current liabilities	3,389		2,958		Other non-current liabilities	4,660		2,958
Total liabilities	Total liabilities	161,610		161,015		Total liabilities	167,121		161,015
Commitments and contingencies (Note 10)	Commitments and contingencies (Note 10)	0		0		Commitments and contingencies (Note 10)	0		0
Stockholders' equity:	Stockholders' equity:					Stockholders' equity:
Preferred stock, $0.0001 par value,10,000 shares authorized; 0 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively		—		—
Class 1 common stock, $0.0001 par value, 538,000 shares authorized; 159,954 and 159,413 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively		16		15
Class 2 common stock, $0.0001 par value, 27,000 shares authorized; 3,396 shares issued and outstanding at March 31, 2022 and December 31, 2021		1		1
Preferred stock, $0.0001 par value,10,000 shares authorized; 0 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively						Preferred stock, $0.0001 par value,10,000 shares authorized; 0 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively	—		—
Class 1 common stock, $0.0001 par value, 538,000 shares authorized; 160,536 and 159,413 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively						Class 1 common stock, $0.0001 par value, 538,000 shares authorized; 160,536 and 159,413 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively	16		15
Class 2 common stock, $0.0001 par value, 27,000 shares authorized; 3,396 shares issued and outstanding at June 30, 2022 and December 31, 2021						Class 2 common stock, $0.0001 par value, 27,000 shares authorized; 3,396 shares issued and outstanding at June 30, 2022 and December 31, 2021	1		1
Additional paid-in capital	Additional paid-in capital	523,860		516,987		Additional paid-in capital	532,409		516,987
Accumulated deficit	Accumulated deficit	(235,104)		(206,077)		Accumulated deficit	(250,315)		(206,077)
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(3,063)		(1,292)		Accumulated other comprehensive loss	(9,305)		(1,292)

Total stockholders’ equity	Total stockholders’ equity	285,710		309,634		Total stockholders’ equity	272,806		309,634
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	447,320	$	470,649	Total liabilities and stockholders’ equity	$	439,927	$	470,649

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

BTRS HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, amounts in thousands, except per share amounts)


		Three Months Ended March 31,				Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021				2022		2021		2022		2021
Revenues:	Revenues:						Revenues:
Subscription, transaction, and services	Subscription, transaction, and services	$	37,049	$	33,119		Subscription, transaction, and services	$	40,600	$	31,589	$	77,649	$	64,708
Reimbursable costs	Reimbursable costs	8,582		8,817			Reimbursable costs	8,676		8,643		17,258		17,460
Total revenues	Total revenues	45,631		41,936			Total revenues	49,276		40,232		94,907		82,168
Cost of revenues:	Cost of revenues:						Cost of revenues:
Cost of subscription, transaction, and services	Cost of subscription, transaction, and services	10,325		9,253			Cost of subscription, transaction, and services	11,150		9,360		21,474		18,613
Cost of reimbursable costs	Cost of reimbursable costs	8,582		8,817			Cost of reimbursable costs	8,676		8,643		17,258		17,460
Total cost of revenues, excluding depreciation and amortization	Total cost of revenues, excluding depreciation and amortization	18,907		18,070			Total cost of revenues, excluding depreciation and amortization	19,826		18,003		38,732		36,073
Operating expenses:	Operating expenses:						Operating expenses:
Research and development	Research and development	15,105		10,993			Research and development	15,874		11,270		30,979		22,263
Sales and marketing	Sales and marketing	10,716		8,936			Sales and marketing	11,723		9,980		22,439		18,916
General and administrative	General and administrative	14,728		12,450			General and administrative	15,085		10,478		29,813		22,928
Depreciation and amortization	Depreciation and amortization	1,861		1,360			Depreciation and amortization	2,166		1,359		4,027		2,719
Impairment and restructuring	Impairment and restructuring	13,854		—			Impairment and restructuring	30		—		13,884		—
Total operating expenses	Total operating expenses	56,264		33,739			Total operating expenses	44,878		33,087		101,142		66,826
Loss from operations	Loss from operations	(29,540)		(9,873)			Loss from operations	(15,428)		(10,858)		(44,967)		(20,731)
Other income (expense):	Other income (expense):						Other income (expense):
Change in fair value of financial instruments	Change in fair value of financial instruments	22		(9,995)			Change in fair value of financial instruments	(260)		—		(238)		(9,995)
Interest expense and loss on extinguishment of debt	Interest expense and loss on extinguishment of debt	(1)		(2,942)			Interest expense and loss on extinguishment of debt	(6)		(3)		(7)		(2,945)
Other non-operating income	Other non-operating income	67		108			Other non-operating income	188		136		255		244
Total other income (expense)	Total other income (expense)	88		(12,829)			Total other income (expense)	(78)		133		10		(12,696)
Loss before income taxes	Loss before income taxes	(29,452)		(22,702)			Loss before income taxes	(15,506)		(10,725)		(44,957)		(33,427)
Income tax expense (benefit)	Income tax expense (benefit)	(425)		92			Income tax expense (benefit)	(295)		11		(719)		103
Net loss	Net loss	$	(29,027)	$	(22,794)		Net loss	$	(15,211)	$	(10,736)	$	(44,238)	$	(33,530)

Net loss per common share, basic and diluted	Net loss per common share, basic and diluted	$	(0.18)	$	(0.16)		Net loss per common share, basic and diluted	$	(0.09)	$	(0.07)	$	(0.27)	$	(0.22)
Weighted average common shares outstanding, basic and diluted	Weighted average common shares outstanding, basic and diluted	162,974		144,207			Weighted average common shares outstanding, basic and diluted	163,596		157,197		163,287		151,289

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

BTRS HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited, amounts in thousands)


		Three Months Ended March 31,				Three Months Ended June 30,		Six Months Ended June 30,
		2022		2021				2022		2021		2022		2021
Net loss	Net loss	$	(29,027)	$	(22,794)		Net loss	$	(15,211)	$	(10,736)	$	(44,238)	$	(33,530)
Other comprehensive loss from foreign currency translation	Other comprehensive loss from foreign currency translation	(1,771)		—			Other comprehensive loss from foreign currency translation	(6,242)		—		(8,013)		—
Total comprehensive loss	Total comprehensive loss	$	(30,798)	$	(22,794)		Total comprehensive loss	$	(21,453)	$	(10,736)	$	(52,251)	$	(33,530)

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

BTRS HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited, amounts in thousands)


		Three Months Ended March 31, 2022																					Three Months Ended June 30, 2022
		Class 1 Common Stock			Class 2 Common Stock			Additional Paid-in Capital				Accumulated Deficit		Accumulated Other Comprehensive Loss				Total Stockholders’ Equity					Class 1 Common Stock						Class 2 Common Stock			Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity
		Shares	Amount		Shares	Amount											Shares					Amount			Shares			Amount
Balance, December 31 2021		159,413	$	15	3,396	$	1			$	516,987					$	(206,077)			$	(1,292)		$	309,634
Balance, March 31, 2022																					Balance, March 31, 2022		159,954			$	16		3,396	$	1		$	523,860		$	(235,104)		$	(3,063)		$	285,710
Issuance of common stock under stock plans	Issuance of common stock under stock plans	541	1		—	—		795				—		—				796			Issuance of common stock under stock plans		582			—			—	—		1,274			—			—			1,274
Stock-based compensation expense	Stock-based compensation expense	—	—		—	—		6,078				—		—				6,078			Stock-based compensation expense		—			—			—	—		7,275			—			—			7,275
Foreign currency translation	Foreign currency translation	—	—		—	—		—				—		(1,771)				(1,771)			Foreign currency translation		—			—			—	—		—			—			(6,242)			(6,242)
Net loss	Net loss	—	—		—	—		—				(29,027)		—				(29,027)			Net loss		—			—			—	—		—			(15,211)			—			(15,211)
Balance, March 31, 2022		159,954	$	16	3,396	$	1	$	523,860			$	(235,104)	$	(3,063)			$	285,710
Balance, June 30, 2022																					Balance, June 30, 2022		160,536			$	16		3,396	$	1	$	532,409		$	(250,315)		$	(9,305)		$	272,806


		Three Months Ended March 31, 2021																					Three Months Ended June 30, 2021
		Class 1 Common Stock			Class 2 Common Stock			Additional Paid-in Capital				Accumulated Deficit		Accumulated Other Comprehensive Loss				Total Stockholders’ Equity					Class 1 Common Stock						Class 2 Common Stock			Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity
		Shares	Amount		Shares	Amount											Shares					Amount			Shares			Amount
Balance, December 31 2020		92,760	$	9	8,197	$	1			$	148,677					$	(144,877)			$	—		$	3,810
Reverse recapitalization and PIPE financing (Note 3)		44,522	5		(1,659)	—		329,881				—		—				329,886
Fair value of Earnout Shares (Note 3)		—	—		—	—		(230,995)				—		—				(230,995)
Issuance and vesting of Earnout Shares (Note 3)		10,204	1		713	—		237,008				—		—				237,009
Balance, March 31, 2021																					Balance, March 31, 2021		149,315			$	15		7,251	$	1		$	495,429		$	(167,671)		$	—		$	327,774
Issuance of common stock under stock plans	Issuance of common stock under stock plans	1,828	—		—	—		2,032				—		—				2,032			Issuance of common stock under stock plans		1,331			—			—	—		1,868			—			—			1,868
Shares issued for exercise of warrants																					Shares issued for exercise of warrants		2			—			—	—		26			—			—			26
Stock-based compensation expense	Stock-based compensation expense	—	—		—	—		8,826				—		—				8,826			Stock-based compensation expense		—			—			—	—		5,706			—			—			5,706
Net loss	Net loss	—	—		—	—		—				(22,794)		—				(22,794)			Net loss		—			—			—	—		—			(10,736)			—			(10,736)
Balance, March 31, 2021		149,314	$	15	7,251	$	1	$	495,429			$	(167,671)	$	—			$	327,774
Balance, June 30, 2021																					Balance, June 30, 2021		150,648			$	15		7,251	$	1	$	503,029		$	(178,407)		$	—		$	324,638

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

BTRS HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited, amounts in thousands)


	Six Months Ended June 30, 2022
	Class 1 Common Stock			Class 2 Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Stockholders’ Equity
	Shares	Amount		Shares	Amount
Balance, December 31, 2021	159,413	$	15	3,396	$	1	$	516,987	$	(206,077)	$	(1,292)	$	309,634
Issuance of common stock under stock plans	1,123	1		—	—		2,069		—		—		2,070
Stock-based compensation expense	—	—		—	—		13,353		—		—		13,353
Foreign currency translation	—	—		—	—		—		—		(8,013)		(8,013)
Net loss	—	—		—	—		—		(44,238)		—		(44,238)
Balance, June 30, 2022	160,536	$	16	3,396	$	1	$	532,409	$	(250,315)	$	(9,305)	$	272,806


	Six Months Ended June 30, 2021
	Class 1 Common Stock			Class 2 Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Stockholders’ Equity
	Shares	Amount		Shares	Amount
Balance, December 31, 2020	92,760	$	9	8,197	$	1	$	148,677	$	(144,877)	$	—	$	3,810
Reverse recapitalization and PIPE financing (Note 3)	44,522	5		(1,659)	—		329,881		—		—		329,886
Fair value of Earnout Shares (Note 3)	—	—		—	—		(230,995)		—		—		(230,995)
Issuance and vesting of Earnout Shares (Note 3)	10,204	1		713	—		237,008		—		—		237,009
Issuance of common stock under stock plans	3,160	—		—	—		3,900		—		—		3,900
Shares issued for exercise of warrants	2	—		—	—		26		—		—		26
Stock-based compensation expense	—	—		—	—		14,532		—		—		14,532

Net loss	—	—		—	—		—		(33,530)		—		(33,530)
Balance, June 30, 2021	150,648	$	15	7,251	$	1	$	503,029	$	(178,407)	$	—	$	324,638

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

BTRS HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, amounts in thousands)


		Three Months Ended March 31,					Six Months Ended June 30,
		2022		2021			2022		2021
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net loss	Net loss	$	(29,027)	$	(22,794)	Net loss	$	(44,238)	$	(33,530)
Adjustments to reconcile net loss to net cash used in operating activities:	Adjustments to reconcile net loss to net cash used in operating activities:					Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	Depreciation and amortization	1,861		1,360		Depreciation and amortization	4,027		2,719
Provision for bad debts	Provision for bad debts	(29)		54		Provision for bad debts	49		65
Impairments and reduction in carrying amount of operating lease right-of-use assets	Impairments and reduction in carrying amount of operating lease right-of-use assets	10,663		—		Impairments and reduction in carrying amount of operating lease right-of-use assets	11,408		1,350
Impairments of fixed assets	Impairments of fixed assets	3,649		—		Impairments of fixed assets	3,649		—
Loss on extinguishment of debt and amortization of debt discount	Loss on extinguishment of debt and amortization of debt discount	—		2,799		Loss on extinguishment of debt and amortization of debt discount	—		2,799
Stock-based compensation expense	Stock-based compensation expense	6,078		8,826		Stock-based compensation expense	13,353		14,532
Change in fair value of financial instruments and other expenses	Change in fair value of financial instruments and other expenses	8		9,995		Change in fair value of financial instruments and other expenses	63		9,985
Change in fair value of contingent consideration	Change in fair value of contingent consideration	133		—		Change in fair value of contingent consideration	249		—
Deferred income taxes	Deferred income taxes	(430)		92		Deferred income taxes	(725)		92
Changes in assets and liabilities:	Changes in assets and liabilities:					Changes in assets and liabilities:
Accounts receivable	Accounts receivable	(2,694)		(3,743)		Accounts receivable	(6,013)		(6,064)
Prepaid expenses	Prepaid expenses	(3,680)		(3,382)		Prepaid expenses	(3,386)		(2,112)
Deferred implementation and commission costs	Deferred implementation and commission costs	306		132		Deferred implementation and commission costs	29		236
Other assets (current and non-current)	Other assets (current and non-current)	1,053		1,512		Other assets (current and non-current)	(30)		1,475
Accounts payable	Accounts payable	(1,413)		668		Accounts payable	(3,071)		195
Accrued expenses and other	Accrued expenses and other	(4,679)		(2,730)		Accrued expenses and other	1,653		4,165
Operating lease liabilities	Operating lease liabilities	(774)		—		Operating lease liabilities	(1,627)		(1,350)
Deferred revenue	Deferred revenue	(1,782)		(2,604)		Deferred revenue	(2,248)		(4,530)
Other liabilities (current and non-current)	Other liabilities (current and non-current)	629		(102)		Other liabilities (current and non-current)	1,096		(848)
Net cash used in operating activities	Net cash used in operating activities	(20,128)		(9,917)		Net cash used in operating activities	(25,762)		(10,821)
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Purchase of business, net of acquired cash	Purchase of business, net of acquired cash	(59,456)		—		Purchase of business, net of acquired cash	(59,456)		—
Purchases of marketable securities	Purchases of marketable securities	(39)		(25,000)		Purchases of marketable securities	(57)		(45,037)
Proceeds from marketable securities						Proceeds from marketable securities	45,174		—
Purchases of property and equipment	Purchases of property and equipment	(454)		(503)		Purchases of property and equipment	(922)		(1,120)
Net cash used in investing activities	Net cash used in investing activities	(59,949)		(25,503)		Net cash used in investing activities	(15,261)		(46,157)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Payments on borrowings	Payments on borrowings	—		(44,663)		Payments on borrowings	—		(44,663)
Business Combination and PIPE financing	Business Combination and PIPE financing	—		349,638		Business Combination and PIPE financing	—		349,638
Payments of equity issuance costs	Payments of equity issuance costs	—		(19,936)		Payments of equity issuance costs	—		(19,936)
Debt extinguishment costs	Debt extinguishment costs	—		(1,565)		Debt extinguishment costs	—		(1,565)
Payment of deferred purchase price	Payment of deferred purchase price	(557)		—		Payment of deferred purchase price	(557)		—
Change in customer funds payable	Change in customer funds payable	(3,156)		261		Change in customer funds payable	512		3,694
Payments on finance leases	Payments on finance leases	(23)		(65)		Payments on finance leases	(145)		(125)
Proceeds from common stock issued	Proceeds from common stock issued	845		2,032		Proceeds from common stock issued	2,119		4,184
Taxes paid on net share issuance of stock-based compensation	Taxes paid on net share issuance of stock-based compensation	(49)		(4,013)		Taxes paid on net share issuance of stock-based compensation	(50)		(4,271)
Net cash provided by (used in) financing activities		(2,940)		281,689
Net cash provided by financing activities						Net cash provided by financing activities	1,879		286,956
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	Effect of exchange rate changes on cash, cash equivalents, and restricted cash	30		—		Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(45)		—
Net increase (decrease) in cash, cash equivalents, and restricted cash	Net increase (decrease) in cash, cash equivalents, and restricted cash	(82,987)		246,269		Net increase (decrease) in cash, cash equivalents, and restricted cash	(39,189)		229,978
Cash, cash equivalents, and restricted cash, beginning of period	Cash, cash equivalents, and restricted cash, beginning of period	212,809		38,843		Cash, cash equivalents, and restricted cash, beginning of period	212,809		38,843
Cash, cash equivalents, and restricted cash, end of period (Note 2)	Cash, cash equivalents, and restricted cash, end of period (Note 2)	$	129,822	$	285,112	Cash, cash equivalents, and restricted cash, end of period (Note 2)	$	173,620	$	268,821

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

910


		Three Months Ended March 31,					Six Months Ended June 30,
		2022		2021			2022		2021
Supplemental Disclosure of Cash Flow Information:	Supplemental Disclosure of Cash Flow Information:					Supplemental Disclosure of Cash Flow Information:
Cash paid for interest	Cash paid for interest	$	—	$	133	Cash paid for interest	$	—	$	135

Noncash Investing & Financing Activities:	Noncash Investing & Financing Activities:					Noncash Investing & Financing Activities:

Equity issuance costs charged to additional paid-in-capital	Equity issuance costs charged to additional paid-in-capital	$	—	$	1,624	Equity issuance costs charged to additional paid-in-capital	$	—	$	1,624
Issuance and vesting of Earnout Shares (Note 3)	Issuance and vesting of Earnout Shares (Note 3)	$	—	$	237,008	Issuance and vesting of Earnout Shares (Note 3)	$	—	$	237,008
Reclassification of stock warrant liability to equity (Note 3)	Reclassification of stock warrant liability to equity (Note 3)	$	—	$	1,433	Reclassification of stock warrant liability to equity (Note 3)	$	—	$	1,433
Deferred purchase price (Note 3)	Deferred purchase price (Note 3)	$	586	$	—	Deferred purchase price (Note 3)	$	586	$	—
Net assets acquired in Business Combination and other	Net assets acquired in Business Combination and other	$	—	$	255	Net assets acquired in Business Combination and other	$	—	$	255

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

1011

BTRS HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 - Organization and Nature of Business

BTRS Holdings Inc., formerly known as Factor Systems, Inc. ("Legacy Billtrust"), utilizing the trade name Billtrust (the "Company” or “Billtrust”), was incorporated on September 4, 2001 in the State of Delaware and maintains its headquarters in Lawrenceville, New Jersey, with additional domestic offices orand print facilities in Colorado ~~Illinois,~~ and California, and international offices in Belgium, the Netherlands, Germany, and Poland.

The Company provides a comprehensive suite of order-to-cash software as a service ("SaaS") solutions with integrated payments, including credit decisioning and monitoring, online ordering, invoicing, cash application and collections. In addition, Billtrust founded the Business Payments Network ("BPN") as part of its strategic relationship with VISA, Inc., which combines remittance data with business-to-business ("B2B") payments and facilitates straight-through payment processing. Billtrust primarily serves B2B companies and integrates the key areas of the order-to-cash process: credit decisioning, e-commerce solutions, invoice presentment, invoice payment, cash application, and collections workflow management, helping its clients connect with their customers and cash.

Business Combination Agreement

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

In connection with the execution of the Business Combination, on October 18, 2020, South Mountain entered into separate subscription agreements (“Subscription Agreements”) with a number of investors (“PIPE Investors”), pursuant to which the PIPE Investors agreed to purchase, and South Mountain sold to the PIPE Investors, an aggregate of 20.0 million shares of South Mountain Class A common stock, for a purchase price of $10.00 per share and at an aggregate purchase price of $200.0 million, in a private placement (“PIPE Financing”).

As described in Note 3 - Business Combination & Acquisitions, the Business Combination and PIPE Financing closed on January 12, 2021 (the "BCA Closing Date"). The Business Combination was accounted for as a reverse recapitalization in accordance with the generally accepted accounting principles in the United States of America ("U.S. GAAP"). Under this method of accounting, South Mountain was treated as the “acquired” company for financial reporting purposes. For accounting purposes, Billtrust was the accounting acquirer in the transaction and, consequently, the transaction was treated as a recapitalization of Billtrust (i.e., a capital transaction involving the issuance of stock by South Mountain for the stock of Billtrust). Accordingly, the assets, liabilities, and results of operations of Billtrust became the historical financial statements of "New Billtrust", which was renamed BTRS Holdings Inc., and South Mountain’s assets, liabilities, and results of operations were consolidated with Billtrust beginning on the BCA Closing Date. All amounts of BTRS Holdings Inc. reflect the historical amounts of Billtrust carried over at book value with no step up in basis to fair value. After the Business Combination, the Company’s Class 1 common stock began trading on the Nasdaq ~~stock exchange~~Global Select Market under the ticker symbol "BTRS".

Note 2 - Summary of Significant Accounting Policies

Basis of Presentation

The accompanying Condensed Consolidated Financial Statements have been prepared in accordance with U.S. GAAP and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission ("SEC") regarding interim financial reporting on Form 10-Q. Accordingly, certain information and disclosures required for complete financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant

to such rules and regulations. These Condensed Consolidated Financial Statements and notes should be read in

conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2021 (as filed with the SEC on March 9, 2022). Since the date of that filing, there have been no changes or updates to the Company's significant accounting policies, other than those described below.

In the opinion of management, the accompanying Condensed Consolidated Financial Statements contain all normal recurring adjustments necessary for a fair statement of financial position, results of operations, comprehensive loss, and cash flows as of the dates and for the interim periods presented. The results of operations for the three and six months ended ~~March 31,~~June 30, 2022 may not be indicative of the results for the full fiscal year ended December 31, 2022 or any other period. The Condensed Consolidated Balance Sheet as of December 31, 2021 included herein was derived from the audited financial statements as of that date, but does not include all disclosures required by U.S. GAAP on an annual reporting basis. Certain prior period amounts have been reclassified to conform to the current period presentation.

The Company's fiscal year is the twelve-month period from January 1 through December 31 and all references to "2022", “2021”, and “2020” refer to the fiscal year unless otherwise noted.

Principles of Consolidation

The Condensed Consolidated Financial Statements include the accounts of BTRS Holdings Inc. and its wholly owned subsidiaries. All intercompany transactions have been eliminated in consolidation.

Use of Estimates

The preparation of the Condensed Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities reported, disclosure about contingent liabilities, and the reported amounts of revenues and expenses in the financial statements and accompanying notes. Such estimates include, but are not limited to, revenue recognition, leases, valuation of goodwill, intangible assets, other long-lived assets, and ~~acquired~~other assets and liabilities from acquisitions, recoverability of deferred tax assets, ongoing impairment reviews of goodwill, intangible assets, and other long-lived assets, contingent consideration, and stock-based compensation. The Company bases its estimates on historical experience, known trends, market specific information, or other relevant factors it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates and changes in estimates are recorded in the period in which they become known. Actual results may differ from these estimates.

Foreign Currency

The functional currency of the Company’s subsidiaries is their respective local currencies. These subsidiary financial statements are translated to U.S. dollars using the period-end exchange rates for assets and liabilities, average exchange rates during the corresponding period for revenues and expenses, and historical rates for equity. The effects of foreign currency translation adjustments are recorded in accumulated other comprehensive income (loss) within stockholders’ equity on the Condensed Consolidated Balance Sheets.

Foreign currency transaction gains (losses) are included in other non-operating income (expense) on the Condensed Consolidated Statements of Operations. Foreign exchange gains and losses were not material during the three and six months ended ~~March 31,~~June 30, 2022 and 2021.

Liquidity

For the ~~three~~six months ended ~~March 31,~~June 30, 2022, the Company incurred a net loss of ~~$29.0~~$44.2 million and used cash in operations of ~~$20.1~~$25.8 million. As of ~~March 31,~~June 30, 2022, the Company had cash and cash equivalents of ~~$107.8 million, marketable securities of $45.2~~$148.0 million and an accumulated deficit of ~~$235.1~~$250.3 million. Based on the Company’s business plan, existing cash and cash equivalents, ~~and marketable securities,~~ the Company expects to satisfy its working capital requirements for at least the next 12 months after the date that these Condensed Consolidated Financial Statements are issued.

Impact of COVID-19 and Other Macroeconomic Events

During 2021 and the ~~three~~six months ended ~~March 31,~~June 30, 2022, the COVID-19 pandemic did not adversely impact the Company, as evidenced by the continued growth in ~~revenues across its~~ subscription and ~~transactional offerings.~~transaction revenues. The Company's focus remains on investing in its products and supporting its long-term growth, including global expansion. Since the start of the pandemic, the Company has continued to operate despite the disruption to some of its customer's operations. The pandemic has served to increase awareness and urgency around accelerating the digital transformation of accounts receivable through the Company's platform and offerings, which has helped avoid significant business, bookings, or revenue disruptions thus far. Additionally, shifts from in-person buying and

1213

~~in-person buying and~~ traditional payment methods (such as cash or check) towards e-commerce and digital payments, and the related increase in consumer and B2B demand for safer payment and delivery solutions, have benefited the Company as it has further ingrained its platform in its customers’ critical day-to-day order-to-cash operations. In response to the pandemic, the Company has modified some of its business practices, such as enabling and encouraging its employees to work from anywhere and establishing health and safety protocols in its offices.

In addition, the spread of COVID-19 and its variants has contributed to a global slowdown of economic activity, increased unemployment, supply chain disruptions, higher rates of inflation, higher interest rates, increased volatility in foreign currency exchange rates, and ~~inflation,~~increased volatility in the global capital markets, among other macroeconomic events. The Company is unable to predict the impact the COVID-19 pandemic or other macroeconomic events will have on its future results of operations, liquidity, financial condition, ability to access capital markets, and business practices due to numerous uncertainties, including the duration, severity, and spread of the virus and its variants, actions that may be taken by government authorities, the impact to the Company's employees, customers, and partners, prolonged macroeconomic uncertainty, volatility, and disruption, and various other factors beyond the Company's knowledge or control. The Company continues to monitor these situations and may take further actions as may be required by government authorities or that it determines are in the best interests of its employees, customers, and partners.

Retroactive Adjustments Related to Change in Filing Status

Based on the closing share price and the market value of the Company's common stock held by non-affiliates as of June 30, 2021, the Company was deemed to be a large accelerated filer as of December 31, 2021. As a result, on December 31, 2021, the Company no longer qualified as an emerging growth company (“EGC”) under the Jumpstart Our Business Startups Act (“JOBS Act”). The previous EGC status allowed the Company an extended transition period to adopt new or revised accounting pronouncements until such pronouncements were applicable to private companies. The ~~effect of the~~ loss of ECG status required the Company to adopt the following new accounting pronouncements retroactively to January 1, 2021 in ~~it's~~its 2021 Annual Report on Form 10-K:

•Accounting Standards Update ("ASU") 2016-02, Leases (Topic 842), including subsequently issued ASUs (collectively, "Topic 842");

•ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments, including subsequently issued ASUs (collectively, "Topic 326");

•ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes; and

•ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.

As a result, in conformity with U.S. GAAP, the Company has retroactively adjusted its quarterly financial statements and related notes thereto, as of, and for the three and six months ended ~~March 31,~~June 30, 2021 to reflect the adoption of these new accounting standards as follows:

•Within the Condensed Consolidated Statements of Cash Flows, financial statement lines for (1) impairments and reduction in carrying amount of operating lease right-of-use assets and (2) operating lease liabilities were included in the net change in operating activities in accordance with Topic 842.

•Within the Notes to Condensed Consolidated Financial Statements, Note 9 - Leases was updated to include the required disclosures under Topic 842.

Except as otherwise noted, the adoption of the accounting pronouncements listed above did not have a material impact on the Company's financial position, or results of operations, ~~as of, and for the three months ended, March 31, 2021, and~~or the financial statements and related notes included ~~herein have not been adjusted.~~herein.

Concentrations of Credit Risk

The financial instruments that potentially subject the Company to concentrations of credit risk are cash, cash equivalents, ~~marketable securities,~~ restricted cash, accounts receivable, and customer funds. The Company maintains its deposits of cash and cash ~~equivalent,~~equivalents, restricted cash, and customer funds with high-credit quality financial institutions. The Company’s cash and cash ~~equivalent,~~equivalents, restricted cash, and customer funds may exceed federally insured limits.

The Company’s accounts receivable are reported on the Condensed Consolidated Balance Sheets net of allowances for uncollectible accounts. The Company believes that the concentration of credit risk with respect to

accounts receivable is limited due to the large number of companies and diverse industries comprising its

customer base. Ongoing credit evaluations are performed, with a focus on new customers or customers with whom the Company has no prior collections history, and collateral is generally not required. The Company maintains reserves for potential losses based on customer specific situations, historical experience, and expectations of forward-looking loss estimates. Such losses, in the aggregate, have not exceeded management’s expectations. As of ~~March 31,~~June 30, 2022 and December 31, 2021, the allowances for uncollectible accounts were $0.3 million and $0.4 million, respectively.

For the ~~three~~six months ended ~~March 31,~~June 30, 2022 and 2021, no individual customer accounted for 10% or greater of total revenues. As of ~~March 31,~~June 30, 2022 and December 31, 2021, no individual customer had a balance of 10% or greater of accounts receivable.

Presentation of Restricted Cash

The following table summarizes the period ending cash and cash equivalents as presented on the Company's Condensed Consolidated Balance Sheets and the total cash, cash equivalents, and restricted cash as presented on the Condensed Consolidated Statements of Cash Flows (in thousands):


		Three Months Ended March 31,					Six Months Ended June 30,
		2022		2021			2022		2021
Cash and cash equivalents	Cash and cash equivalents	$	107,839	$	261,013	Cash and cash equivalents	$	147,970	$	241,607
Customer funds	Customer funds	19,385		21,185		Customer funds	23,052		24,618
Restricted cash (1)	Restricted cash (1)	2,598		2,914		Restricted cash (1)	2,598		2,596
Total cash, cash equivalents, and restricted cash	Total cash, cash equivalents, and restricted cash	$	129,822	$	285,112	Total cash, cash equivalents, and restricted cash	$	173,620	$	268,821

(1)Restricted cash consists of collateral for letters of credit required for leased office ~~space. At both March 31, 2022~~space and ~~December 31, 2021, restricted cash~~ is included in other assets in the Condensed Consolidated Balance Sheets. The short-term or long-term classification is determined in accordance with the expiration of the underlying letters of credit.

Recent Accounting Pronouncements

Accounting Pronouncements Issued and Adopted

On January 1, 2022, the Company adopted ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40). The amendments in this ASU simplify the accounting for convertible instruments by eliminating large sections of the existing guidance and eliminating several triggers for derivative accounting, including a requirement to settle certain contracts by delivering registered shares. The adoption of this standard did not have an impact on the Company's financial position or results of operations.

Accounting Pronouncements Issued but not yet Adopted

In November 2021, the FASB issued ASU No. 2021-10, Government Assistance (Topic 832), Disclosures by Business Entities about Government Assistance. The amendments in this ASU require entities to annually disclose information about certain government assistance they receive. The rule will be effective for public entities for annual periods beginning after December 15, 2021. The adoption of ASU is currently not expected to have a material impact on the Company’s financial statement disclosures.

Note 3 - Business Combination & Acquisitions

2022

Acquisition of Anachron Beheer BV

On February 14, 2022, Billtrust acquired 100% of the outstanding shares of Anachron Beheer BV and subsidiaries, d/b/a Order2Cash ("Order2Cash"), a privately-held company headquartered in Amsterdam, the Netherlands. Order2Cash is a European B2B order-to-cash platform provider. Their enterprise customer base, global interoperability capabilities, and established connections to over 70 B2B and business-to-government (“B2G”) e-invoicing networks broaden BPN’s reach to deliver fully compliant and secure e-invoicing across multiple markets. The acquisition is part of Billtrust's strategic plan to continue expanding its physical presence in ~~the European market~~Europe while also enhancing its global invoicing and payments capabilities. The acquisition of

Order2Cash was determined to be an acquisition of a business under ASC 805, Business Combinations. Pursuant to the terms of the purchase agreement, the Company paid an initial amount of $59.9 million in cash at closing.

Total Consideration Transferred

The following table summarizes the fair value of the aggregate consideration paid for Order2Cash (in thousands):


Cash paid at close (1)	$	59,878
Deferred purchase price (2)	586
Total purchase consideration	$	60,464

(1)Cash paid at close represents the gross contractual amounts paid. Net cash paid, which accounts for cash acquired of $0.4 million, was $59.5 million and is reflected as an investing activity on the Condensed Consolidated Statements of Cash Flows.

(2)An additional $0.6 million is payable within four years of the closing date upon achievement of certain conditions. This amount is recognized as purchase price. Refer to Note 13 - Fair Value Measurements for ~~further~~ information on ~~the determination of~~determining the fair value.

Additionally, the acquisition included earnout consideration to be paid to the sellers based on the amount and timing of Order2Cash's achievement of certain conditions. These amounts may be earned by the sellers during periods following the closing date based on the financial performance of Order2Cash during 2022, and each of the 12-month periods ending June 30, 2023 and June 30, 2024. Under ASC 805, the Company determined that ~~this~~the earnout consideration arrangement is compensation and ~~are~~ therefore recognized separately from the acquisition transaction.

~~The preliminary acquisition date fair value of the total earnout liability was $11.5 million.~~ In accordance with ASC 710, Compensation, the amount will be recognized over the arrangement period and ~~will be~~is recorded in general and administrative expenses on the Condensed Consolidated Statements of Operations.

The ~~amount expensed for~~preliminary acquisition date fair value of the ~~three months ended March 31,~~total earnout consideration was $11.5 million. At June 30, 2022, the fair value of the total earnout consideration was ~~$1.0~~$4.3 million, ~~and is~~which was included in accrued expenses and other current liabilities and other non-current liabilities on the ~~Company’s~~ Condensed Consolidated Balance Sheets. The determination of the fair value included the following significant inputs; projected revenue, a risk adjusted discount rate, and estimated volatility. Increases or decreases in the inputs would have resulted in a higher or lower fair value measurement. The range of undiscounted amounts that could be payable under the earnout arrangement is 0 to $23.7 million. The amount expensed for the six months ended June 30, 2022 was $1.0 million.

Preliminary Allocation of Purchase Price

The following table summarizes the preliminary allocation of the purchase price to the fair value of the assets acquired and liabilities assumed for the acquisition of Order2Cash (in thousands):


Assets:
Cash and cash equivalents	$	422
Accounts receivable	2,189
Property and equipment	184
Operating lease right-of-use assets	569
Goodwill (1)	40,838
Intangible assets (2)	27,238
Other assets (current and ~~non current)~~non-current)	—
Total Assets	$	71,440
Liabilities:
Accounts payable	$	861
Accrued expenses and other current liabilities	1,510
Operating lease liabilities	569
Deferred revenue	1,226
Deferred taxes	6,810
Total Liabilities	10,976
Net assets acquired	$	60,464

1516

(1)Goodwill represents the expected revenue synergies from combining Order2Cash with Billtrust, as well as the value of the acquired workforce. The goodwill is not expected to be deductible for income tax purposes.

(2)All of the intangible assets are expected to be finite lived.

The determination of the fair value of the finite-lived intangible assets ~~required~~requires management judgment and the consideration of a number of factors. The Company ~~relied~~relies on income, market, and replacement cost valuation methodologies, which ~~included~~include estimates related to projected cash flows ~~related to~~for each asset, discount rates, useful lives of each asset, and published industry benchmark data. Based on the preliminary valuation, the intangible assets acquired were (in thousands):


		Fair Value		Useful Life (in Years)		Fair Value		Useful Life (in Years)
Customer relationships	Customer relationships	$	22,471	20	Customer relationships	$	22,471	13 - 14
Developed technology	Developed technology	3,405		7	Developed technology	3,405		5
Trade names	Trade names	1,362		10	Trade names	1,362		6
Total intangible assets	Total intangible assets	$	27,238		Total intangible assets	$	27,238

The weighted average amortization period of all the acquired intangible assets is ~~17.9~~13.4 years.

Due to the timing of the acquisition in the first quarter of 2022, the purchase price allocation is preliminary with respect to the valuation of acquired assets, liabilities assumed (including income taxes), intangible assets, and ~~the related useful lives, and~~ goodwill. The Company continues to obtain the information to complete the purchase price allocation and will record adjustments, if any, during the 12 month measurement ~~period.~~period from the acquisition date. No purchase price adjustments were recorded during the six months ended June 30, 2022.

The operating results of Order2Cash have been included in the Company’s financial statements since the acquisition date. Order2Cash’s operating results and the goodwill resulting from the acquisition are reported in the Company’s Software and Payments segment. The acquisition added approximately ~~$1.4~~$4.2 million of additional revenue and ~~$1.4~~$5.1 million of direct expenses ~~including intangible amortization for~~during the ~~three~~six months ended ~~March 31,~~June 30, 2022. Had the Company acquired Order2Cash in prior periods, the Company's operating results would have been materially different. As a result, the following unaudited pro forma financial information is presented as if Order2Cash had been acquired by the Company on January 1, 2021 (in thousands):


		Three Months Ended March 31,					Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021			2022		2021		2022		2021
Pro forma total revenue	Pro forma total revenue	$	46,983	$	44,999	Pro forma total revenue	$	49,276	$	43,333	$	94,275	$	88,333
Pro forma net loss	Pro forma net loss	$	(29,194)	$	(24,965)	Pro forma net loss	$	(14,985)	$	(11,491)	$	(39,949)	$	(36,456)

The pro forma results have been prepared in accordance with U.S. GAAP and include the following pro forma adjustments: (1) an increase for amortization expense for the three and six months ended ~~March 31,~~June 30, 2022 and 2021 as a result of the preliminary purchase price allocation for finite-lived intangible assets, (2) an increase in operating costs for the for the three and six months ended ~~March 31,~~June 30, 2021 to recognize non-recurring acquisition costs incurred to close the transaction, and (3) an increase in the estimated tax benefits as a result of the pro forma adjustments. These pro forma results do not necessarily reflect the combined actual results of operations of the Company and Order2Cash that would have been achieved, nor are they necessarily indicative of future results of operations.

2021

Closing of Business Combination, Accounted for as a Reverse Recapitalization

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

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

1617

ii.Approximately $1,099.0 million in South Mountain Class A and Class C common stock at closing of the Business Combination, accounted for as a reverse recapitalization, or 109.9 million shares (including 15.2 million shares issuable pursuant to outstanding vested and unvested options from the 2003 and 2014 Plans), converted at an exchange ratio of 7.2282662 shares (the "Conversion Rate") per share of Legacy Billtrust common stock based on an assumed share price of $10.00 per share.

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

i.138.7 million shares of Class 1 common stock, including 2.4 million shares to prior South Mountain shareholders that are subject to the vesting and forfeiture provisions based upon the same share price targets described below in the First Earnout and Second Earnout. During the first quarter of 2021, all of these shares vested;

ii.6.5 million shares of Class 2 common stock; and

iii.12.5 million warrants, each exercisable for 1 share of Class 1 common stock at a price of $11.50 per share (the "Warrants", refer to Note 7 - Stockholders' Equity and Stock-Based Compensation).

In connection with the Merger:

i.Each issued and outstanding South Mountain Class A and Class B share was converted into 1 share of Class 1 common stock of the Company; and

ii.All 7.0 million private placement warrants of South Mountain were cancelled and were no longer outstanding.

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

Upon the closing of the Business Combination, the Company’s certificate of incorporation was amended and restated to, among other things, increase the total number of authorized shares of capital stock to 575.0 million shares, of which 538.0 million shares were designated Class 1 common stock, $0.0001 par value per share; 27.0 million shares were designated Class 2 common stock, $0.0001 par value per share; and 10.0 million shares were designated preferred stock, $0.0001 par value per share.

Concurrently with the completion of the Business Combination, on the BCA Closing Date 20.0 million new shares of Common Stock were issued (such purchases, the “PIPE”) for an aggregate purchase price of $200.0 million.

In connection with the Business Combination, 9.0 million shares of common stock were repurchased for cash from Legacy Billtrust shareholders (after conversion) at a price of $10.00 per share. Additionally, in connection with a previous loan agreement in July 2014, the Company issued a lender a warrant to purchase shares of the Company’s Series C preferred stock. In connection with Business Combination, the warrant was exercised and converted into 0.1 million shares of Common Stock.

1718

The following table reconciles the elements of the Business Combination, accounted for as a reverse recapitalization, to the Condensed Consolidated Statements of Cash Flows and the Condensed Consolidated Statements of Stockholders' Equity for the ~~three~~six months ended ~~March 31,~~June 30, 2021 (in thousands):


	Reverse Recapitalization
Cash - South Mountain (net of redemptions and non-contingent expenses)	$	240,670
Cash - PIPE investors	200,000
Cash electing shares of Legacy Billtrust shareholders	(90,061)
Fees to underwriters and other transaction costs	(19,936)
Net cash received from reverse recapitalization	330,673
Net assets acquired and other adjustments	255
Net contributions from reverse recapitalization	$	330,928

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


			Number of Shares
Common Stock outstanding prior to Business Combination			25,000
South Mountain founder shares			5,500
Redemption of South Mountain shares			(2)
Common stock of South Mountain			30,498
Shares issued from PIPE			20,000
Legacy Billtrust shareholders' shares purchased for cash			(9,006)
Recapitalization shares			41,492
Legacy Billtrust stockholders' shares			103,774
Total shares			145,266

Earnout Consideration

Following the closing of the Merger, holders of Billtrust common stock (including all redeemable preferred shareholders whose shares were converted into common stock at the closing of the Merger) and holders of stock options and restricted stock pursuant to the 2003 Plan and the 2014 Plan (as defined in the Business Combination Agreement) had the contingent right to receive, in the aggregate, up to 12.0 million shares of Class 1 common stock if, from the closing of the Merger until the fifth anniversary thereof, the average closing price of BTRS Holdings Inc. Common Stock exceeds certain thresholds. The first issuance of 6.0 million earnout shares is based on the volume-weighted average price of Common Stock exceeding $12.50 for any 20 trading days within any 30 trading day period (the “First Earnout”). The second issuance of 6.0 million earnout shares is based on the volume weighted average price of Common Stock exceeding $15.00 for any 20 trading days within any 30 trading day period (the “Second Earnout” and together with the First Earnout, the "Earnout Shares").

Subsequent to the closing of the Merger and in the first quarter of 2021, 10.9 million shares of Class 1 and Class 2 common stock were issued associated with attainment of the First Earnout and the Second Earnout thresholds.

The difference in the Earnout Shares issued and the aggregate amounts defined in the Merger Agreement is primarily due to 0.8 million unissued shares reserved for future issuance to holders of unvested options in the form of restricted stock units (the "Earnout RSUs"), which are subject to the same vesting terms and conditions as the underlying unvested stock options and are not replacement awards. Additionally, 0.2 million shares of Common Stock were withheld from employees to satisfy the mandatory tax withholding requirements, for which the company remitted cash of $4.0 million to the appropriate tax authorities.

As of the BCA Closing Date, the prior holders of South Mountain stock agreed that of their existing issued and outstanding shares of Class 1 common stock, 2.4 million shares would be subject to vesting conditions based upon the same price milestones in the First Earnout (1.2 million shares) and Second Earnout (1.2 million shares) as discussed above ("Sponsor Vesting Shares").

1819

The Company determined that the Earnout Shares issued to non-employee shareholders and to holders of BTRS Holdings Inc. common stock, vested options from the 2003 Plan and 2014 Plan, and the Sponsor Vesting Shares did not meet the criteria for equity classification under Accounting Standards Codification ("ASC") 815-40. Accordingly, these shares were required to be classified as a liability and recorded at their fair values, with the remeasurement of their fair values at each reporting period recorded in earnings. Upon closing of the Business Combination, the fair value of the shares was determined using a Monte Carlo simulation (using the same assumptions as Earnout RSUs discussed below), resulting in a fair value of $16.80 per share. The shares were remeasured at their fair values through the dates the First Earnout and Second Earnout were achieved in the first quarter of 2021. The liability associated with the Earnout Shares delivered to the equity holders and the Vesting Shares that vested upon achievement of the First Earnout and Second Earnout during the first quarter of 2021 was then reclassified to equity as the shares issued, with the appropriate allocation to common stock at par value and additional paid-in capital.

The following table is a reconciliation of the liability balance at the BCA Closing Date and the changes therein for the ~~three~~six months ended ~~March 31,~~June 30, 2021 (in thousands):


	Earnout Shares		Sponsor Vesting Shares		Total
Fair value on Closing Date	$	191,095	$	39,900	$	230,995
Fair value adjustment (1)	8,246		1,780		10,026
Amount paid for tax withholding	(4,013)		—		(4,013)
Amount reclassified to equity	(195,328)		(41,680)		(237,008)
Balance, March 31, 2021	$	—	$	—	$	—

(1) Included in change in fair value of financial instruments on the Condensed Consolidated Statements of Operations.

Earnout RSUs issued based on the amount of the unvested options are recognized in earnings as stock-based compensation expense under ASC 718. The fair value of the Earnout RSUs was determined using a Monte Carlo simulation, including the stock price on the BCA Closing Date of $16.80, a risk free rate of 0.5%, and a volatility rate of 42%.

Offering Costs

In accordance with ASC 340-10-S99-1, the offering costs, consisting principally of ~~underwriters~~underwriters' fees and professional, printing, filing, regulatory, and other costs, were charged to additional paid-in capital upon completion of the Business Combination.

Repayment of Financing Agreement

In connection with the Business Combination, the Company paid all of its outstanding debt facilities in full. In connection therewith, the unamortized debt discount of $1.2 million and a prepayment penalty and associated costs of $1.6 million were recorded in interest expense and loss on extinguishment of debt on the Condensed Consolidated Statements of Operations.

Acquisition of iController BV

On October 7, 2021, Billtrust acquired 100% of the outstanding shares of iController BV ("iController"), a privately-held company based in Ghent, Belgium and Amsterdam, the Netherlands. iController is a ~~business-to-business~~B2B provider of SaaS intelligent solutions for collections management. Their SaaS offerings enable a wide range of users, from credit and collections managers to chief financial officers, to see payment and collections information and communication in real time, providing visibility into cash flow management. The acquisition is part of Billtrust's strategic plan to expand its physical presence in ~~the European market~~Europe while enhancing its global collections capabilities. The acquisition of iController was determined to be an acquisition of a business under ASC 805, Business Combinations.

Pursuant to the terms of the purchase agreement, the Company paid an initial amount of $57.0 million in cash at closing, which was subject to a closing working capital adjustment and typical indemnity provisions from the seller.

1920

Total Consideration Transferred

The following table summarizes the fair value of the aggregate consideration paid for iController (in thousands):


Cash paid at close (1)	$	57,020
Contingent consideration (2)	5,085
Deferred purchase price (3)	579
Total purchase consideration	$	62,684

(1)The cash paid at close represents the gross contractual amounts paid. Net cash paid, which accounts for cash acquired of $0.2 million, was $56.8 million and is reflected as an investing activity on the Condensed Consolidated Statements of Cash Flows.

(2)The acquisition of iController included contingent ~~cash~~ consideration to be paid in cash to the seller based on the amount and timing of iController’s achievement of certain recurring revenue growth targets over a three year period subsequent to the acquisition date. The fair value of this contingent consideration on the closing date was $5.1 million, which is recognized as purchase price. Refer to Note 13 - Fair Value Measurements for ~~further information.~~information on determining the fair value.

(3)The deferred purchase price was paid in ~~January~~the first quarter of 2022 upon ~~the~~ completion of certain conditions.

Preliminary Allocation of Purchase Price

The following table summarizes the preliminary allocation of the purchase price to the fair value of the assets acquired and liabilities assumed for the acquisition of iController (in thousands):


Assets:
Cash and cash equivalents	$	187
Accounts receivable	1,217
Property and equipment	439
Operating lease right-of-use assets	651
Goodwill (1)	52,386
Intangible assets (2)	17,385
Other assets (current and ~~non current)~~non-current)	76
Total Assets	$	72,341
Liabilities:
Accounts payable	$	524
Accrued expenses and other current liabilities	641
Operating lease liabilities, net of current portion	917
Deferred revenue	3,775
Deferred taxes	3,800
Total Liabilities	9,657
Net assets acquired	$	62,684

(1)Goodwill represents the expected revenue synergies from combining iController with Billtrust, as well as the value of the acquired workforce. The goodwill is not expected to be deductible for income tax purposes.

(2)All of the intangible assets are finite lived.

2021

~~discount rates, useful~~ lives of each asset, and published industry benchmark data. Based on the valuation, the intangible assets acquired were (in thousands):


	Fair Value		Useful Life (in Years)
Customer relationships	$	14,256	15
Developed technology	2,202		6
Trade names	927		6
Total intangible assets	$	17,385

The weighted average amortization period of all the acquired intangible assets is 13.4 years.

The purchase price allocation is preliminary with respect to the valuation of acquired assets, liabilities assumed (including income taxes), intangible assets, and goodwill. The Company continues to obtain the information to complete the purchase price allocation and will record adjustments, if any, during the 12 month measurement ~~period.~~period from the acquisition date. No purchase price adjustments were recorded since the acquisition date or during the ~~three~~six months ended ~~March 31,~~June 30, 2022.

The operating results of iController have been included in the Company’s financial statements since the acquisition date and are not material to the Company’s consolidated financial results. iController’s operating results and the goodwill resulting from the acquisition are reported in the Company’s Software and Payments segment.

Acquisition Costs

The Company recognized ~~$0.7~~$0.3 million and no$2.0 million of acquisition costs during the three and six months ended ~~March 31,~~June 30, 2022, ~~and 2021, respectively related its acquisitions.~~respectively. These costs primarily consisted of legal, accounting, ~~and~~ tax professional fees, and the Order2Cash earnout consideration, and are included in general and administrative expenses on the Condensed Consolidated Statements of Operations. The Company did not have acquisition costs in three and six months ended June 30, 2021.

Note 4 - Goodwill and Intangible Assets

Goodwill

Goodwill represents the amount an acquisition’s purchase price exceeds the fair value of the assets acquired, including identifiable intangible assets, and liabilities assumed. Goodwill is not amortized; however it is required to be tested for impairment annually at the reporting unit level. Testing for impairment is also required on an interim basis if ~~an event of circumstance indicates~~events or circumstances indicate it is more likely than not that an impairment loss has been incurred.

The Company performed its annual impairment test as of October 1, 2021, utilizing a qualitative assessment to determine if it was more likely than not that the fair ~~values~~value of each of its reporting units was less than their respective carrying values, and concluded that no impairment existed. Subsequent to completing the annual test and through ~~March 31,~~June 30, 2022, there were no events or circumstances that required an interim impairment test. Additionally, as of ~~March 31,~~June 30, 2022, the Company had no accumulated goodwill impairment losses.

All of the Company's goodwill is attributable to its Software and Payments segment. A summary of goodwill and the changes in its carrying amount isare shown in the following table (in thousands):


	Consolidated Goodwill
Balance at December 31, 2021	$	88,148
~~Additions~~Addition from acquisition (1)	40,838
Foreign translation adjustments	~~(1,617)~~(6,866)
Balance at ~~March 31,~~June 30, 2022	$	~~127,369~~122,120

(1)The entire increase is related to the acquisition of Order2Cash (refer to Note 3 - Business Combination & Acquisitions).

2122

Finite-Lived Intangible Assets

The gross carrying values, accumulated amortization, and net carrying values (reduced for fully amortized intangibles) of finite-lived intangible assets as of ~~March 31,~~June 30, 2022 and December 31, 2021, are as follows (in thousands):


		March 31, 2022							June 30, 2022
		Gross Carrying Value		Accumulated Amortization		Net Carrying Value			Gross Carrying Value		Accumulated Amortization		Net Carrying Value
Customer relationships	Customer relationships	$	45,440	$	(4,137)	$	41,303	Customer relationships	$	43,366	$	(4,834)	$	38,532
Non-compete agreements	Non-compete agreements	1,430		(988)		442		Non-compete agreements	1,430		(1,060)		370
Trademarks and trade names	Trademarks and trade names	2,387		(172)		2,215		Trademarks and trade names	2,258		(269)		1,989
Technology	Technology	6,997		(1,130)		5,867		Technology	6,681		(1,442)		5,239
Total	Total	$	56,254	$	(6,427)	$	49,827	Total	$	53,735	$	(7,605)	$	46,130


	December 31, 2021
	Gross Carrying Value		Accumulated Amortization		Net Carrying Value
Customer relationships	$	23,621	$	(3,524)	$	20,097
Non-compete agreements	1,430		(917)		513
Trademarks and trade names	1,066		(111)		955
Technology	3,692		(918)		2,774
Total	$	29,809	$	(5,470)	$	24,339

Amortization expense was ~~$1.0~~$1.3 million and $0.6 million for the three months ended ~~March 31,~~June 30, 2022 and 2021, respectively, and $2.2 million and $1.1 million for the six months ended June 30, 2022 and 2021, respectively.

Estimated amortization expense for each of the next five years and thereafter is as follows (in thousands):


2022 (remainder)	2022 (remainder)	$	3,298	2022 (remainder)	$	2,511
2023	2023	4,302		2023	3,481
2024	2024	4,058		2024	3,237
2025	2025	3,865		2025	3,044
2026	2026	3,828		2026	3,006
Thereafter	Thereafter	30,476		Thereafter	30,851
Total	Total	$	49,827	Total	$	46,130

Note 5 - Revenue and Related Matters

Disaggregated Revenue

The Company disaggregates revenue as set forth in the following table (in thousands):


		Three Months Ended March 31,				Three Months Ended June 30,				Six Months Ended June 30,
Revenues by Type:	Revenues by Type:	2022		2021			Revenues by Type:	2022		2021		2022		2021
Subscription and transaction fees	Subscription and transaction fees	$	34,102	$	30,183		Subscription and transaction fees	$	37,617	$	29,072	$	71,719	$	59,255
Services and other	Services and other	2,947		2,936			Services and other	2,983		2,517		5,930		5,453
Subscription, transaction, and services	Subscription, transaction, and services	$	37,049	$	33,119		Subscription, transaction, and services	$	40,600	$	31,589	$	77,649	$	64,708

Contract Assets and Liabilities

There were no contract assets as of ~~March 31,~~June 30, 2022 or December 31, 2021.

2223

Deferred Revenue

Amounts billed to clients in excess of revenue recognized are contract liabilities (referred to as deferred revenue inon the Condensed Consolidated Balance Sheets). Deferred revenue primarily relates to implementation fees for new customers or for new ~~services.~~services and subscription fees billed in advance.

During the three months ended ~~March 31,~~June 30, 2022 and 2021, the Company recognized ~~$5.5~~$5.7 million and ~~$6.7~~$4.9 million of revenue, respectively, related to its deferred revenue balance at the beginning of each such period. During the six months ended June 30, 2022 and 2021, the Company recognized $11.2 million and $11.5 million, respectively, related to its deferred revenue balance at the beginning of each such period. To determine revenue recognized in each period, the Company first allocates revenue to the deferred revenue balance outstanding at the beginning of each period, until the revenue equals that balance.

The amount of revenue recognized in the ~~three~~six months ended ~~March 31,~~June 30, 2021 included $2.5 million related to the acceleration of previously paid and deferred revenue from a customer that terminated its contract in the first quarter of 2021.

Remaining Performance Obligations

As of ~~March 31,~~June 30, 2022, the Company had approximately ~~$38.6~~$40.6 million of remaining performance obligations, primarily from multi-year contracts for the Company's services, which includes both the deferred revenue balance and amounts that will be invoiced and recognized as revenue in future periods. The Company expects to recognize revenue for approximately ~~95%~~94% of this amount during the next 36 months, and the remainder thereafter.

Deferred Commissions and Implementation Costs

The current and non-current portions of deferred implementation and commission costs on the Condensed Consolidated Balance Sheets ~~were~~are as follows (in thousands):


		March 31,		December 31,			June 30,		December 31,
		2022		2021			2022		2021
Current portion of deferred costs:	Current portion of deferred costs:					Current portion of deferred costs:
Deferred commissions, current	Deferred commissions, current	$	2,999	$	2,997	Deferred commissions, current	$	3,044	$	2,997
Deferred implementation costs, current	Deferred implementation costs, current	2,012		2,063		Deferred implementation costs, current	1,986		2,063
Deferred implementation and commission costs, current portion	Deferred implementation and commission costs, current portion	$	5,011	$	5,060	Deferred implementation and commission costs, current portion	$	5,030	$	5,060

Non-current portion of deferred costs:	Non-current portion of deferred costs:					Non-current portion of deferred costs:
Deferred commissions, net of current portion	Deferred commissions, net of current portion	$	6,353	$	6,392	Deferred commissions, net of current portion	$	6,803	$	6,392
Deferred implementation costs, net of current portion	Deferred implementation costs, net of current portion	2,629		2,846		Deferred implementation costs, net of current portion	2,437		2,846
Deferred implementation and commission costs, net of current portion	Deferred implementation and commission costs, net of current portion	$	8,982	$	9,238	Deferred implementation and commission costs, net of current portion	$	9,240	$	9,238

Amortization of commissions was $0.8 million and $0.6 million during the three months ended ~~March 31,~~June 30, 2022 and 2021, ~~respectively.~~respectively, and $1.5 million during both the six months ended June 30, 2022 and 2021. Amortization of implementation costs was ~~$0.8~~$0.7 million and ~~$0.9~~$0.8 million during the three months ended ~~March 31,~~June 30, 2022 and 2021, respectively, and $1.4 million and $2.0 million during the six months ended June 30, 2022 and 2021, respectively.

The Company evaluates the recoverability of deferred commissions and implementation costs at each balance sheet date and there were no impairments recorded during the ~~three~~six months ended ~~March 31,~~June 30, 2022 or 2021.

2324

Note 6 - Loss Per Share

The following table sets forth the computation of the basic and diluted net loss per share attributable to the Class 1 and Class 2 common stockholders (in thousands, except per share amounts):


		Three Months Ended March 31,				Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021				2022		2021		2022		2021
Numerator:	Numerator:						Numerator:
Net loss	Net loss	$	(29,027)	$	(22,794)		Net loss	$	(15,211)	$	(10,736)	$	(44,238)	$	(33,530)
Denominator:	Denominator:						Denominator:
Weighted-average common shares outstanding	Weighted-average common shares outstanding	162,974		144,207			Weighted-average common shares outstanding	163,596		157,197		163,287		151,289
Net loss per share attributable to common stockholders, basic and diluted	Net loss per share attributable to common stockholders, basic and diluted	$	(0.18)	$	(0.16)		Net loss per share attributable to common stockholders, basic and diluted	$	(0.09)	$	(0.07)	$	(0.27)	$	(0.22)

Since the Company was in a loss position for all periods presented, basic net loss per share is the same as diluted net loss per share as the inclusion of all potential common shares outstanding would have been anti-dilutive. Potentially dilutive securities that were not included in the diluted per share calculations because they would be antidilutive, were as follows ~~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 (in thousands):


		Three Months Ended March 31,		Three Months Ended June 30,			Six Months Ended June 30,
		2022	2021			2022	2021	2022	2021
Stock options	Stock options	19,340	22,383		Stock options	18,631	21,083	18,631	21,083
Restricted stock units	Restricted stock units	2,534	834		Restricted stock units	4,348	706	4,348	706
Warrants	Warrants	—	12,500		Warrants	—	12,498	—	12,498
		21,874	35,717			22,979	34,287	22,979	34,287

Note 7 - Stockholders' Equity and Stock-Based Compensation

Warrants

In connection with the Business Combination (refer to Note 3 - Business Combination & Acquisitions), Billtrust assumed the Warrants that had previously been issued by South Mountain. Following the closing of the Business Combination, the Company filed a registration statement with the SEC that was declared effective in February 2021 covering the issuance of the shares of Common Stock issuable upon exercise of the Warrants and to maintain a current prospectus until the Warrants expired or were redeemed.

The Company determined the Public Warrants met the definition of a derivative as they were indexed to the Company’s Common Stock pursuant to ASC 815-40-15-7 and met all other criteria for equity classification pursuant to ASC 815-40. Therefore, as of the BCA Closing Date, the Public Warrants were accounted for within stockholders' equity as a component of additional ~~paid-in-capital~~paid-in capital on the Condensed Consolidated Balance Sheets. As part of this assessment, it was concluded only events that would constitute a fundamental change of ownership could require the Company to settle the warrants for cash.

Warrant Exchange Offer

On November 18, 2021, the Company commenced a tender offer (the “Warrant Exchange Offer”) to each holder of its outstanding Warrants the opportunity to exchange their warrants for shares of the Company’s Common Stock, par value $0.0001 per share. Each holder was set to receive 0.30 shares of Common Stock in exchange for each outstanding Warrant tendered by the holder and exchanged pursuant to the terms of the Warrant Exchange Offer. Concurrently with the Warrant Exchange Offer, the Company solicited consents from holders of the Warrants to amend the Warrant Agreement (“Warrant Amendment”) dated June 19, 2019, to permit the Company to require that each Warrant outstanding upon the closing of the Warrant Exchange Offer be converted into 0.27 shares of Common Stock, which is a ratio 10% less than the exchange ratio applicable to the

Warrant Exchange Offer. Pursuant to the terms of the Warrant Agreement, an amendment required the written consent of at least 50% of the holders of the Warrants.

On December 17, 2021, the Company concluded the Warrant Exchange Offer with approximately 99.2% of the outstanding Warrants validly tendered and not withdrawn in the Warrant Exchange Offer. Additionally, the Company received the approval of approximately 99.2% of the outstanding Warrants for the Warrant Amendment. Accordingly, the Company exchanged all outstanding Warrants and issued 3.7 million shares of its Common Stock. All Warrants were exchanged as of December 31, 2021 and as a result, Nasdaq halted trading in the Warrants and subsequently agreed with the Company to delist them as none remained outstanding.

Equity Incentive Plans

As part of the Business Combination (refer to Note 3 - Business Combination & ~~Acquisitions)~~Acquisitions), the Company adopted the 2020 Equity Incentive Plan (the "2020 Plan") and 2020 Employee Stock Purchase Plan (the "2020 ESPP"). These plans are administered by the Board of Directors, which has the authority to designate participants and determine the number and type of awards to be granted and any other terms or conditions of the awards.

During the ~~three~~six months ended ~~March 31,~~June 30, 2022, the Board of Directors authorized an ~~annual~~ increase of 2.0 million shares for the 2020 Plan and 1.6 million shares for the ~~ESPP,~~2020 ESPP. As of ~~March 31,~~June 30, 2022, ~~6.8~~5.2 million shares of Common Stock ~~remained to be granted~~remain available for issuance pursuant to the 2020 Plan and ~~3.0~~2.8 million shares of Common Stock ~~to be issued~~remain available for issuance pursuant to the 2020 ESPP.

In connection with adopting the 2020 Plan and 2020 ESPP, the 2003 Stock Incentive Plan and the 2014 Incentive Compensation Plan (together, the "Prior Plans") were frozen and no further grants can be made pursuant to the Prior Plans. All outstanding options under the Prior Plans were converted to options of the Company using the Conversion Rate applied to the number of options and original exercise price. The converted options continue to vest based upon their original terms.

Stock Options

Stock option activity for the ~~three~~six months ended ~~March 31,~~June 30, 2022 is presented below (in thousands, except per share and contractual life amounts):

Number of Shares Weighted-Average Exercise Price Weighted-Average Remaining Contractual Life (in Years) Aggregate Intrinsic Value
Outstanding at December 31, 2021 20,025 $ 8.51 7.8 $ 60,223
Granted — —
Exercised (480) 1.69
Forfeited (205) 10.87
Outstanding at March 31, 2022 19,340 $ 8.65 7.5 $ 53,286
Vested and expected to vest at March 31, 2022 17,278 $ 8.14 7.4 $ 51,006
Exercisable at March 31, 2022 9,529 $ 5.84 6.6 $ 37,083


	Number of Shares	Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Life (in Years)	Aggregate Intrinsic Value
Outstanding at December 31, 2021	20,025	$	8.51	7.8	$	60,223
Exercised	(765)	1.67
Forfeited	(629)	13.02
Outstanding at June 30, 2022	18,631	$	8.64	7.1	$	26,199
Vested and expected to vest at June 30, 2022	16,982	$	8.21	7.0	$	25,346
Exercisable at June 30, 2022	9,974	$	5.81	6.2	$	20,231

No stock options were granted during the six months ended June 30, 2022.

Restricted Stock Units

Restricted stock unit ("RSUs") activity for the ~~three~~six months ended ~~March 31,~~June 30, 2022 is presented below (in thousands, except per share amounts):


		Number of Shares	Weighted-Average Grant Date Fair Value			Number of Shares	Weighted-Average Grant Date Fair Value
Unvested at December 31, 2021	Unvested at December 31, 2021	613	$	15.08	Unvested at December 31, 2021	613	$	15.08
Granted	Granted	1,996	6.28		Granted	4,154	6.91
Released	Released	(60)	15.21		Released	(166)	15.51
Vested	Vested	(15)	16.80		Vested	(253)	8.23
Unvested at March 31, 2022		2,534	$	8.27
Unvested at June 30, 2022					Unvested at June 30, 2022	4,348	$	7.73

2526

Employee Stock Purchase Plan ("ESPP")

Under the terms of the 2020 ESPP, on May 26, 2021, the Board of Directors approved the Company's ESPP offering program. With certain limitations, all Billtrust employees whose customary employment is more than 20 hours per week are eligible to participate in the ESPP.

The initial offering period, which consisted of 1 purchase period, commenced on July 1, 2021 and ran through November 30, 2021. Thereafter, each offering period runs for approximately six months, consisting of a single six month purchase period commencing on each successive June 1 and December 1. At the end of each purchase period, employee payroll contributions are used to purchase shares of the Company's Common Stock. The purchase price for each share of Common Stock purchased is the lower of: (1) 85% of the closing price of the Common Stock on the first day of the purchase period, or (2) 85% of the closing price of the Common Stock on the last day of the purchase period.

During the ~~three~~six months ended ~~March 31,~~June 30, 2022, noemployees purchased 190,706 shares ~~were purchased or issued~~ pursuant to the 2020 ESPP.

Stock-Based Compensation Expense

Stock-based compensation expense was recorded in the following categories inon the Condensed Consolidated Statements of Operations (in thousands):


		Three Months Ended March 31,				Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021				2022		2021		2022		2021
Cost of subscription, transaction, and services	Cost of subscription, transaction, and services	$	438	$	443		Cost of subscription, transaction, and services	$	621	$	405	$	1,059	$	848
Research and development	Research and development	1,225		1,222			Research and development	1,493		1,091		2,718		2,314
Sales and marketing	Sales and marketing	754		1,332			Sales and marketing	971		961		1,725		2,292
General and administrative	General and administrative	3,661		5,829			General and administrative	4,190		3,249		7,851		9,078
Total	Total	$	6,078	$	8,826		Total	$	7,275	$	5,706	$	13,353	$	14,532

The fair value of the Company's stock options granted and purchase rights to the ESPP were estimated using the Black-Scholes valuation model with the following assumptions:


		Three Months Ended March 31,							Three Months Ended June 30,						Six Months Ended June 30,
		2022			2021				2022			2021			2022			2021
Stock Options:	Stock Options:									Stock Options:
Risk-free interest rate	Risk-free interest rate	—			0.6% - 1.1%					Risk-free interest rate		—		%	1.3% - 1.4%			—		%	0.6% - 1.4%
Expected dividend yield	Expected dividend yield	—			—		%	Expected dividend yield	—		%	—		%	—		%	—		%
Expected volatility	Expected volatility	—			42%					Expected volatility		—		%	41%			—		%	41% - 42%
Expected life (in years)	Expected life (in years)	—			5.5			Expected life (in years)	—			5.5			—			5.5
Weighted average grant date fair value	Weighted average grant date fair value	—			$	6.52				Weighted average grant date fair value		$	—		$	5.81		$	—		$	6.51

Employee Stock Purchase Plan:	Employee Stock Purchase Plan:									Employee Stock Purchase Plan:
Risk-free interest rate	Risk-free interest rate	0.1%			—					Risk-free interest rate		0.1% - 1.6%			—		%	0.1% - 1.6%			—		%
Expected dividend yield	Expected dividend yield	—		%	—					Expected dividend yield		—		%	—		%	—		%	—		%
Expected volatility	Expected volatility	40%			—					Expected volatility		40% - 43%			—		%	40% - 43%			—		%
Expected life (in years)	Expected life (in years)	0.5			—					Expected life (in years)		0.5			—			0.5			—
Weighted average grant date fair value	Weighted average grant date fair value	$	1.83		—					Weighted average grant date fair value		$	1.67		$	—		$	1.75		$	—

As of ~~March 31,~~June 30, 2022, the total unrecognized stock-based compensation expense related to stock options and RSU's was ~~$40.7~~$34.8 million and ~~$19.3~~$30.2 million, respectively. These costs are expected to be recognized over a weighted-average period of ~~2.5~~2.3 years for stock options and ~~2.9~~4.2 years for RSUs.

2627

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 ~~March 31,~~June 30, 2022 and 2021, the Company contributed ~~$0.6~~$0.5 million and ~~$0.5~~$0.4 million, respectively. During the six months ended June 30, 2022 and 2021, the Company contributed $1.1 million and $0.9 million, respectively.

Note 9 - Leases

The components of lease expense were as follows (in thousands):


		Three Months Ended March 31,					Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021			2022		2021		2022		2021
Finance lease right-of-use assets amortization		$	71	$	62
Finance lease assets amortization						Finance lease assets amortization	$	80	$	58	$	152	$	121
Finance lease interest expense	Finance lease interest expense	4		3		Finance lease interest expense	4		2		8		6
Total finance lease cost	Total finance lease cost	75		65		Total finance lease cost	84		60		160		127
Operating lease cost	Operating lease cost	1,192		1,088		Operating lease cost	1,158		1,097		2,351		2,184
Short-term lease cost	Short-term lease cost	32		50		Short-term lease cost	30		24		61		73
Variable lease cost	Variable lease cost	254		237		Variable lease cost	61		201		249		438
Sublease income	Sublease income	(83)		(80)		Sublease income	(82)		(80)		(165)		(160)
Total lease cost	Total lease cost	$	1,470	$	1,360	Total lease cost	$	1,251	$	1,302	$	2,656	$	2,662

The weighted-average remaining lease term and discount rate for operating and finance leases as of ~~March 31,~~June 30, 2022 are as follows:

Operating Leases

Finance Leases

Operating Leases

Finance Leases

Weighted-average remaining lease term

10.0 years

2.2 years

Weighted-average remaining lease term

9.8 years

2.1 years

Weighted-average discount rate

5.4

3.6

Weighted-average discount rate

5.4

3.6

The following table indicates the financial statement lines where the Company's operating and finance lease ~~liabilities~~assets and ~~right-of-use ("ROU") assets~~liabilities are included inon the Condensed Consolidated Balance Sheets (in thousands):


	As of ~~March 31,~~June 30, 2022		Balance Sheet Classification
Assets:
Operating lease ~~ROU~~right-of-use assets	$	~~19,852~~19,261	Operating lease right-of-use assets
Finance lease ~~ROU~~ assets	~~512~~419		Property and equipment, net
Total lease assets	$	~~20,364~~19,680

Liabilities:
Current operating lease liabilities	$	~~3,458~~3,495	Accrued expenses and other current liabilities
Current finance lease liabilities	~~274~~224		Accrued expenses and other current liabilities
Non-current operating lease liabilities	~~33,346~~32,412		Operating lease liabilities, net of current portion
Non-current finance lease liabilities	~~255~~241		Other non-current liabilities
Total lease liabilities	$	~~37,333~~36,372

2728

Supplemental cash flow information related to leases is as follows (in thousands):


	~~Three~~Six Months Ended ~~March 31,~~June 30, 2022
Cash paid for amounts included in the measurement of operating lease liabilities:
Operating cash flows from operating leases	$	~~1,264~~2,580
Operating cash flows from finance leases	$	38
Finance cash flows from finance leases	$	23145
ROU assets obtained in exchange for new operating lease liabilities:	$	1,896
~~ROU assets~~Assets obtained in exchange for new finance lease liabilities:	$	~~292~~307

Future minimum lease payments under non-cancellable operating and finance leases as of ~~March 31,~~June 30, 2022 are as follows (in thousands):


		Operating Leases		Finance Leases			Operating Leases		Finance Leases
2022 (remainder)	2022 (remainder)	$	3,973	$	230	2022 (remainder)	$	2,649	$	139
2023	2023	5,419		189		2023	5,404		215
2024	2024	5,037		100		2024	5,030		97
2025	2025	4,613		28		2025	4,609		26
2026	2026	4,342		3		2026	4,342		4
Thereafter	Thereafter	24,698		—		Thereafter	24,668		—
Total minimum lease payments	Total minimum lease payments	48,082		550		Total minimum lease payments	46,702		481
Less: Amounts representing interest	Less: Amounts representing interest	(11,281)		(21)		Less: Amounts representing interest	(10,795)		(16)
Present value of lease payments	Present value of lease payments	$	36,801	$	529	Present value of lease payments	$	35,907	$	465

Amounts listed in the future minimum lease payments table above do not include sublease income.

Impairment of ~~ROU~~Right-of-Use ("ROU") Assets and Restructuring Charges

During Q1the first quarter of 2022, the Company approved a strategic plan to optimize its structure and costs related to its leased facilities and print operations. As part of the plan, the Company approved a formal work from anywhere policy due to high interest in allowing employees to work remotely and investments in the Company's operating environments and technology enabling seamless day-to-day execution and increased productivity across a distributed workforce. Additionally, the Company closed one of its print locations due to the continued decline in customer print volumes and efficiencies gained through streamlining its print operations. The overall plan included vacating some or all of several of the Company's leased office facilities and one of its leased print operations facilities and making them available for sublease. The Company ceased using all of the leased facility space ~~included~~outlined in the plan by March 31, 2022.

As a result, during the three months ended March 31, 2022, the Company incurred $10.0 million of ROU asset impairments and $3.6 million of leasehold improvement and fixed asset impairments, which were recorded in impairment and restructuring on the Condensed Consolidated Statements of Operations. In calculating the impairment amount, the fair value of each asset was determined using an income approach based on the present value of future cash flows from estimated sublease income. This approach required the use of certain estimates, including a discount rate, sublease rental rates, period of vacancy, and sublease incentives, which were based in part by local real estate industry data. As these are subjective estimates based on unobservable inputs, the fair value of the assets ~~are~~have been classified in Level 3 of the fair value hierarchy (refer to Note 13 - Fair Value Measurements).

Additionally, in accordance with ASC 420, Exit or Disposal Cost Obligations, the Company recognized exit obligation costs related to closing the print operations ~~facilities,~~facility, including one-time employee severance benefits, contract termination costs, and other costs associated with exiting the facility. These costs were recorded in impairment and restructuring on the Condensed Consolidated Statements of Operations, and were allocated to the Company's Print segment. Total costs recognized during ~~three~~six months ended ~~March 31,~~June 30, 2022,

which included estimates of future costs to be incurred under the plan, were not ~~material to~~material.

During the ~~Company's financial statements. The~~second quarter of 2022, the Company approved an expansion of the strategic plan to ~~close~~further vacate an additional portion of its leased office space. As the ~~facility was substantially complete~~space had not been vacated by ~~March 31,~~June 30, 2022, 0 further impairments were required or recognized during the three months ended June 30, 2022. Upon the cease-use date of this additional space, which is expected to occur in the third or fourth quarter of 2022, the Company will evaluate if an additional impairment charge is required.

In the future if the Company determines it no longer intends to utilize some or all of its other remaining leased ~~office space,~~facility spaces, the Company may be required to record additional impairment or restructuring charges.

Note 10 - Commitments and Contingencies

Purchase Commitments

The Company enters into purchase commitments with certain vendors to secure materials necessary for its print operations. As of ~~March 31,~~June 30, 2022, the Company had approximately ~~$0.4~~$0.6 million remaining under such purchase orders.

Legal Contingencies, Claims, and Assessments

From time to time, the Company may become involved in legal proceedings or be subject to claims arising in the ordinary course of its business. The Company ~~is not~~accrues estimates for legal and other contingencies when losses are probable and estimable. Although the results of current litigation and claims cannot be predicted with certainty, the Company currently ~~a party to any legal proceedings,~~believes that the final outcome of ~~which, if determined adversely to it, would individually or in the aggregate~~any current matters will not have a material adverse effect on ~~its~~the Company’s business, operating results, financial condition, or results of operations. Regardless of the outcome, litigation can have a material adverse effect on the Company due to defense and settlement costs, diversion of management resources, and other factors.

Note 11 - Income Taxes

The Company is subject to taxation in the United States (federal and ~~various states~~state) and foreign jurisdictions. The Company’s provision (benefit) for income taxes during interim periods is determined using an estimate of the Company’s annual effective tax rate, which is adjusted for certain discrete tax items during interim periods.

Income tax expense (benefit) for the ~~three~~six months ended ~~March 31,~~June 30, 2022 and 2021 ~~are~~is primarily due to the tax amortization of indefinite-lived assets, state income taxes, and foreign income taxes.

Section 382 of the Internal Revenue Code of 1986, as amended, imposes an annual limitation on the amount of net operating loss carryforwards that may be used to offset federal taxable income and federal tax liabilities when a corporation has undergone significant changes in its ownership. The Company does not believe that an ownership change in connection with the Business Combination would have a material impact to ~~consolidated financial statements~~its Condensed Consolidated Financial Statements and management will continue to monitor the potential impact.

Note 12 - Marketable Securities

The ~~Company’s~~Company did not have any marketable securities at ~~March~~June 30, 2022 as they all matured in the second quarter of 2022. At December 31, ~~2022 and~~ 2021, ~~consist~~marketable securities consisted entirely of certificates of deposit with a financial institution and ~~have~~had maturity dates of 12 months or less.

As the Company ~~views~~viewed its marketable securities as available to support its current operations, ~~and does not have the intent to hold the securities to maturity,~~ it ~~has~~ classified them as available-for-sale. All marketable securities are recorded at their fair value (see Note 13 - Fair Value Measurements) with any unrealized gains or losses (except those related to credit losses) recorded in accumulated other comprehensive income (loss). There were no unrealized gains or losses during the ~~three~~six months ended ~~March 31,~~June 30, 2022 and 2021. Realized gains and losses, including interest earned, are recorded in other non-operating income (expense) on the Condensed Consolidated Statements of Operations and were not material ~~for both~~during the ~~three~~six months ended ~~March 31,~~June 30, 2022 and 2021.

The Company did not record any impairments during the ~~three~~six months ended ~~March 31,~~June 30, 2022 and 2021.

Note 13 - Fair Value Measurements

The carrying amounts reflected on the Condensed Consolidated Balance Sheets for cash, restricted cash, accounts receivable, customer funds, other current assets, other assets, accounts payable, accrued expenses, other current liabilities (excluding ~~contingent consideration and~~ deferred purchase ~~price)~~price, contingent and earnout consideration), and customer postage deposits approximate their fair value due to their short-term maturities.

Additionally, the Company measures certain financial assets and liabilities at fair value on a recurring basis including cash equivalents, marketable securities, deferred purchase price, and contingent consideration. The fair ~~values~~value of these financial

assets and liabilities have been classified as Level 1, 2, or 3 within the fair value hierarchy as described in the accounting standards for fair value measurements:

•Level 1: Observable inputs based on unadjusted quoted prices in active markets for identical assets or liabilities.

•Level 2: Inputs, other than Level 1 inputs, that are observable either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

•Level 3: Unobservable inputs for which there is little or no market data, requiring the Company to develop its own estimates and assumptions.

The following tables present the Company's fair value hierarchy for its financials assets and liabilities that are measured at fair value on a recurring basis (in thousands):


		March 31, 2022									June 30, 2022
		Balance		Level 1		Level 2		Level 3			Balance		Level 1		Level 2		Level 3
Assets:	Assets:									Assets:
Cash equivalents:	Cash equivalents:									Cash equivalents:
Money market fund (1)	Money market fund (1)	$	25,021	$	25,021	$	—	$	—	Money market fund (1)	$	75,123	$	75,123	$	—	$	—
Marketable securities:
Certificates of deposit (2)		45,156		—		45,156		—
Total assets	Total assets	$	70,177	$	25,021	$	45,156	$	—	Total assets	$	75,123	$	75,123	$	—	$	—

Liabilities:	Liabilities:									Liabilities:
Contingent consideration - Second Phase (3)		$	215	$	—	$	—	$	215
Contingent consideration - iController (4)		5,018		—		—		5,018
Deferred purchase price - Order2Cash (5)		586		—		—		586
Contingent consideration - iController (2)										Contingent consideration - iController (2)	$	5,213	$	—	$	—	$	5,213
Deferred purchase price - Order2Cash (3)										Deferred purchase price - Order2Cash (3)	541		—		—		541
Total liabilities	Total liabilities	$	5,819	$	—	$	—	$	5,819	Total liabilities	$	5,754	$	—	$	—	$	5,754


		December 31, 2021									December 31, 2021
		Balance		Level 1		Level 2		Level 3			Balance		Level 1		Level 2		Level 3
Assets:	Assets:									Assets:
Cash equivalents:	Cash equivalents:									Cash equivalents:
Money market fund (1)	Money market fund (1)	$	25,015	$	25,015	$	—	$	—	Money market fund (1)	$	25,015	$	25,015	$	—	$	—
Marketable securities:	Marketable securities:									Marketable securities:
Certificates of deposit ~~(2)~~(4)	Certificates of deposit ~~(2)~~(4)	45,117		—		45,117		—		Certificates of deposit ~~(2)~~(4)	45,117		—		45,117		—
Total assets	Total assets	$	70,132	$	25,015	$	45,117	$	—	Total assets	$	70,132	$	25,015	$	45,117	$	—

Liabilities:	Liabilities:									Liabilities:
Contingent consideration - Second Phase ~~(3)~~(5)	Contingent consideration - Second Phase ~~(3)~~(5)	$	370	$	—	$	—	$	370	Contingent consideration - Second Phase ~~(3)~~(5)	$	370	$	—	$	—	$	370
Contingent consideration - iController ~~(4)~~(2)	Contingent consideration - iController ~~(4)~~(2)	5,085		—		—		5,085		Contingent consideration - iController ~~(4)~~(2)	5,085		—		—		5,085
Total liabilities	Total liabilities	$	5,455	$	—	$	—	$	5,455	Total liabilities	$	5,455	$	—	$	—	$	5,455

(1)Included in cash and cash equivalents on the Condensed Consolidated Balance Sheets.

(2)~~Certificates of deposit are valued at amortized cost, which approximates fair value.~~

~~(3)~~The acquisition of Second Phase, LLC in April 2019 included a contingent consideration arrangement that requires additional payments to the sellers annually based on meeting certain recurring revenue growth and profitability 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 on the Condensed Consolidated Balance Sheets.~~

~~(4)~~The acquisition of iController in October 2021 included a contingent consideration arrangement that requires additional payments to the seller based on the amount and timing of iController’s achievement of certain recurring revenue growth targets over a three-year period subsequent to the acquisition date. The Monte

Carlo simulation was used to determine the fair value, including the following significant unobservable inputs; projected revenue, a risk adjusted discount rate, and revenue volatility. Increases or decreases in the inputs would have resulted in a higher or lower fair value measurement. The range of outcomes for the amount payable cannot be estimated as it is based on a percentage of the growth in the revenue targets. The fair value of the contingent consideration is included in accrued expenses and other current liabilities and other non-current liabilities on the ~~Company’s~~ Condensed Consolidated Balance Sheets.

~~(5)~~(3)The acquisition of Order2Cash in February 2022 includes deferred purchase price payable within four years of the closing date upon achievement of certain conditions. A discounted cash flow model was used to determine the fair value, including a risk adjusted discount rate, which is an unobservable input. Increases or decreases in the input would have resulted in a higher or lower fair value measurement. The range of undiscounted amounts ~~that could be~~ payable for the deferred purchase price is 0 to $0.7 million. The fair value of the deferred purchase price is included in accrued expenses and other current liabilities and other non-current liabilities on the ~~Company’s~~ Condensed Consolidated Balance Sheets.

(4)Certificates of deposit are valued at amortized cost, which approximates fair value.

(5)The acquisition of Second Phase, LLC in April 2019 included a contingent consideration arrangement that required additional payments to the sellers annually if certain recurring revenue growth and profitability targets during the three-year period beginning May 1, 2019 were met. No amounts were paid during the three-year periods as none of the financial targets were met.

During the ~~three~~six months ended ~~March 31,~~June 30, 2022, the Company did not transfer assets or liabilities between levels of the fair value hierarchy. Additionally, there have been no changes to the valuation techniques for Level 2 or Level 3 liabilities.

The following table presents the changes in the Company’s Level 3 financial instruments measured at fair value on a recurring basis (in thousands):


	Contingent Consideration and Deferred Purchase Price
~~Ending balance,~~Balance, December 31, 2021	$	5,455
~~Fair value adjustment to contingent consideration~~Acquisition of Order2Cash (1)	~~(22)~~586
~~Acquisition of Order2Cash~~Fair value adjustments to contingent consideration (2)	~~586~~249
Foreign translation adjustments	~~(200)~~(536)
~~Ending balance, March 31,~~Balance, June 30, 2022	$	~~5,819~~5,754

(1)Subsequent to the acquisitions of Second Phase, LLC and iController, the change in the fair value of the contingent consideration for each acquisition was primarily due to updates to management's estimates and progress towards achievement of the financial targets during each period. This amount was recorded in change in fair value of financial instruments on the Condensed Consolidated Statements of Operations.

~~(2)~~Refer to Note 3 - Business Combination & Acquisitions. Changes in the fair value of the deferred purchase price are recognized in change in fair value of financial instruments on the Condensed Consolidated Statements of Operations. At ~~March 31,~~June 30, 2022, there were no material changes in the range of expected outcomes or the fair value from the acquisition date.

(2)Subsequent to the acquisitions of Second Phase, LLC and iController, the change in the fair value of the contingent consideration for each acquisition was due to updates to management's estimates and progress towards achievement of the financial targets during each period. This amount was recorded in change in fair value of financial instruments on the Condensed Consolidated Statements of Operations.

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

Certain of the Company’s certain long-lived assets, including identifiable intangible assets, goodwill, ROU assets, and other long-lived assets, are measured at fair value on a nonrecurring basis when there are indicators of impairment. Refer to Note 9 - Leases for a discussion on impairment charges on ROU assets and other long-lived assets related to leased facility space the Company has ceased using.

Note 14 - Property and Equipment

Property and equipment, net (reduced for fully depreciated assets) consists of the following (in thousands):


		March 31,		December 31,			June 30,		December 31,
		2022		2021			2022		2021
Assets held under finance leases	Assets held under finance leases	$	3,801	$	3,509	Assets held under finance leases	$	3,706	$	3,509
Computer, print and mail equipment	Computer, print and mail equipment	8,109		7,857		Computer, print and mail equipment	8,861		7,857
Furniture and fixtures	Furniture and fixtures	1,915		4,275		Furniture and fixtures	2,175		4,275
Leasehold improvements	Leasehold improvements	7,537		12,127		Leasehold improvements	7,471		12,127
Software	Software	1,229		1,222		Software	1,334		1,222
Vehicles	Vehicles	96		95		Vehicles	122		95
Internal software development	Internal software development	3,063		3,011		Internal software development	6,959		3,011

Total property and equipment	Total property and equipment	25,750		32,096		Total property and equipment	30,628		32,096
Less: accumulated depreciation and amortization	Less: accumulated depreciation and amortization	(13,937)		(16,580)		Less: accumulated depreciation and amortization	(19,269)		(16,580)
Total property and equipment, net	Total property and equipment, net	$	11,813	$	15,516	Total property and equipment, net	$	11,359	$	15,516

Depreciation and amortization expense of property and equipment, including amortization of software development costs and finance leases, was $0.9 million and $0.8 million for the three months ended ~~March 31,~~June 30, 2022 and 2021, respectively, and $1.8 million and $1.6 million for the six months ended June 30, 2022 and 2021, respectively.

Refer to Note 9 - Leases for a discussion on impairments of fixed assets for the ~~three~~six months ended ~~March 31,~~June 30, 2022. The Company had no other material impairments or disposals of fixed assets during the ~~three~~six months ended ~~March 31,~~June 30, 2022 and 2021.

Note 15 - Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following (in thousands):


		March 31,		December 31,			June 30,		December 31,
		2022		2021			2022		2021
Accrued expenses	Accrued expenses	$	21,648	$	19,051	Accrued expenses	$	23,565	$	19,051
Accrued compensation (1)	Accrued compensation (1)	8,446		16,093		Accrued compensation (1)	12,990		16,093
Accrued professional services, taxes, and other expenses	Accrued professional services, taxes, and other expenses	8,877		8,057		Accrued professional services, taxes, and other expenses	4,795		7,120
Operating lease liabilities, current portion	Operating lease liabilities, current portion	3,458		3,225		Operating lease liabilities, current portion	3,495		3,225
Accrued earnout and contingent consideration						Accrued earnout and contingent consideration	2,477		937
Total accrued expenses and other current liabilities	Total accrued expenses and other current liabilities	$	42,429	$	46,426	Total accrued expenses and other current liabilities	$	47,322	$	46,426

(1)Includes amounts deferred and accrued under the Coronavirus Aid, Relief, and Economic Security ("CARES") Act enacted by Congress on March 27, 2020. The CARES Act, among other things, included provisions relating to deferment of employer side social security payments. The Company, through its payroll provider, elected to defer employer side social security payments effective as of April 2020 through December 2020. At the end of 2021, the Company paid approximately $1.2 million of the total deferred amount. The Company expects to pay the remaining amount in 2022.

Note 16 - Segment Information

The Company's operations are grouped into 2 reportable segments: (1) Print, and (2) Software and Payments. The Company's Chief Operating Decision Maker (“CODM”) is the ~~Chief Executive Officer,~~chief executive officer, who reviews discrete financial and other information presented for print services and software and payment services for purposes of allocating resources and evaluating the Company's financial performance.

•Print – The Print segment is primarily responsible for printing customer invoices and optimizing the amount of time and costs associated with billing customers via mail.

•Software and Payments – The Software and Payments segment primarily operates using software and cloud based services, optimizes electronic invoice presentment, electronic payments, credit decisioning, collections automation, cash application and deduction management, and e-commerce of B2B customers.

“All other” represents implementation, services, and other business activities which are not reviewed by the CODM on regular basis.

The Company evaluates segment performance and allocates resources based on revenues, cost of revenues, and gross profit. The accounting policies used by the reportable segments are the same as those used by the Company. All of the revenues shown in the reportable segments is revenue from external customers; there is no revenue from transactions with other operating segments. Segment expenses include the direct expenses of each segment's operations and exclude sales and marketing expenses, research and development expenses, general and administrative expenses, depreciation and amortization expense, impairment and restructuring expense, stock-based compensation expense, other income (expense), and certain other identified costs that the Company does not allocate to its segments for purposes of evaluating operational performance.

Given the nature of the Company’s business, the amount of assets does not provide meaningful insight into the operating performance of the Company. As a result, the Company does not identify or allocate assets by reportable segment and total assets are not included in the Company’s segment financial information.

The following tables include a reconciliation of segment revenues, cost of revenues, and gross profits to loss before income taxes (in thousands):


		Three Months Ended March 31, 2022													Three Months Ended June 30, 2022
		Print			Software and Payments			All other			Consolidated				Print			Software and Payments			All other			Consolidated
Revenues:	Revenues:													Revenues:
Subscription and transaction	Subscription and transaction	$	4,241		$	29,861		$	—		$	34,102		Subscription and transaction	$	4,334		$	33,283		$	—		$	37,617
Services and other	Services and other	—			—			2,947			2,947			Services and other	—			—			2,983			2,983
Subscription, transaction, and services revenues	Subscription, transaction, and services revenues	4,241			29,861			2,947			37,049			Subscription, transaction, and services revenues	4,334			33,283			2,983			40,600
Reimbursable costs	Reimbursable costs	8,582			—			—			8,582			Reimbursable costs	8,676			—			—			8,676
Total revenues	Total revenues	12,823			29,861			2,947			45,631			Total revenues	13,010			33,283			2,983			49,276
Cost of revenues:	Cost of revenues:													Cost of revenues:
Cost of subscription, transaction, and services revenue	Cost of subscription, transaction, and services revenue	1,549			4,602			4,174			10,325			Cost of subscription, transaction, and services revenue	1,583			4,846			4,721			11,150
Cost of reimbursable costs	Cost of reimbursable costs	8,582			—			—			8,582			Cost of reimbursable costs	8,676			—			—			8,676
Total cost of revenues	Total cost of revenues	10,131			4,602			4,174			18,907			Total cost of revenues	10,259			4,846			4,721			19,826
Gross profit:	Gross profit:													Gross profit:
Total segment gross profit (loss)	Total segment gross profit (loss)	$	2,692		$	25,259		$	(1,227)		$	26,724		Total segment gross profit (loss)	$	2,751		$	28,437		$	(1,738)		$	29,450
Total segment gross margin	Total segment gross margin	21		%	85		%	(42)		%	59		%	Total segment gross margin	21		%	85		%	(58)		%	60		%
Subscription, transaction, and services gross margin	Subscription, transaction, and services gross margin	63		%	85		%	(42)		%	72		%	Subscription, transaction, and services gross margin	63		%	85		%	(58)		%	73		%
Unallocated amounts:	Unallocated amounts:													Unallocated amounts:
Sales, marketing, research, development, and administrative expenses	Sales, marketing, research, development, and administrative expenses										40,549			Sales, marketing, research, development, and administrative expenses										42,682
Depreciation and amortization	Depreciation and amortization										1,861			Depreciation and amortization										2,166
Impairment and restructuring	Impairment and restructuring										13,854			Impairment and restructuring										30
Other income											(88)
Other expense														Other expense										78
Loss before income taxes	Loss before income taxes										$	(29,452)		Loss before income taxes										$	(15,506)

3334

Three Months Ended March 31, 2021
Print Software and Payments All other Consolidated
Revenues:
Subscription and transaction $ 4,498 $ 25,685 $ — $ 30,183
Services and other — — 2,936 2,936
Subscription, transaction, and services revenues 4,498 25,685 2,936 33,119
Reimbursable costs 8,817 — — 8,817
Total revenues 13,315 25,685 2,936 41,936
Cost of revenues:
Cost of subscription, transaction, and services revenue 1,926 3,711 3,616 9,253
Cost of reimbursable costs 8,817 — — 8,817
Total cost of revenues 10,743 3,711 3,616 18,070
Gross profit:
Total segment gross profit (loss) $ 2,572 $ 21,974 $ (680) $ 23,866
Total segment gross margin 19 % 86 % (23) % 57 %
Subscription, transaction, and services gross margin 57 % 86 % (23) % 72 %
Unallocated amounts:
Sales, marketing, research, development, and administrative expenses 32,379
Depreciation and amortization 1,360
Other expense 12,829
Loss before income taxes $ (22,702)


	Three Months Ended June 30, 2021
	Print			Software and Payments			All other			Consolidated
Revenues:
Subscription and transaction	$	4,490		$	24,582		$	—		$	29,072
Services and other	—			—			2,517			2,517
Subscription, transaction, and services revenues	4,490			24,582			2,517			31,589
Reimbursable costs	8,643			—			—			8,643
Total revenues	13,133			24,582			2,517			40,232
Cost of revenues:
Cost of subscription, transaction, and services revenue	1,900			3,679			3,781			9,360
Cost of reimbursable costs	8,643			—			—			8,643
Total cost of revenues	10,543			3,679			3,781			18,003
Gross profit:
Total segment gross profit (loss)	$	2,590		$	20,903		$	(1,264)		$	22,229
Total segment gross margin	20		%	85		%	(50)		%	55		%
Subscription, transaction, and services gross margin	58		%	85		%	(50)		%	70		%
Unallocated amounts:
Sales, marketing, research, development, and administrative expenses										31,728
Depreciation and amortization										1,359

Other income										(133)
Loss before income taxes										$	(10,725)


	Six Months Ended June 30, 2022
	Print			Software and Payments			All other			Consolidated
Revenues:
Subscription and transaction	$	8,575		$	63,144		$	—		$	71,719
Services and other	—			—			5,930			5,930
Subscription, transaction, and services revenues	8,575			63,144			5,930			77,649
Reimbursable costs	17,258			—			—			17,258
Total revenues	25,833			63,144			5,930			94,907
Cost of revenues:
Cost of subscription, transaction, and services revenue	3,174			9,425			8,875			21,474
Cost of reimbursable costs	17,258			—			—			17,258
Total cost of revenues	20,432			9,425			8,875			38,732
Gross profit:
Total segment gross profit (loss)	$	5,401		$	53,719		$	(2,945)		$	56,175
Total segment gross margin	21		%	85		%	(50)		%	59		%
Subscription, transaction, and services gross margin	63		%	85		%	(50)		%	72		%
Unallocated amounts:
Sales, marketing, research, development, and administrative expenses										83,231
Depreciation and amortization										4,027
Impairment and restructuring										13,884
Other expense										(10)
Loss before income taxes										$	(44,957)


	Six Months Ended June 30, 2021
	Print			Software and Payments			All other			Consolidated
Revenues:
Subscription and transaction	$	8,988		$	50,267		$	—		$	59,255
Services and other	—			—			5,453			5,453
Subscription, transaction, and services revenues	8,988			50,267			5,453			64,708
Reimbursable costs	17,460			—			—			17,460
Total revenues	26,448			50,267			5,453			82,168
Cost of revenues:
Cost of subscription, transaction, and services revenue	3,826			7,391			7,396			18,613
Cost of reimbursable costs	17,460			—			—			17,460
Total cost of revenues	21,286			7,391			7,396			36,073
Gross profit:
Total segment gross profit (loss)	$	5,162		$	42,876		$	(1,943)		$	46,095
Total segment gross margin	20		%	85		%	(36)		%	56		%
Subscription, transaction, and services gross margin	57		%	85		%	(36)		%	71		%
Unallocated amounts:
Sales, marketing, research, development, and administrative expenses										64,107
Depreciation and amortization										2,719

Other income										12,696
Loss before income taxes										$	(33,427)

Note 17 - Related Party Transactions

A member of the Company's Board of Directors is also an executive at a company (the "Related Party Customer") that purchases certain of Billtrust's services under an ongoing commercial relationship. During ~~both~~ the three months ended ~~March 31,~~June 30, 2022 and 2021 and the six months ended June 30, 2022 and 2021 revenues generated from the Related Party Customer were not material. At both ~~March 31,~~June 30, 2022 and December 31, 2021 open receivable balances from the Related Party Customer were not material.

The Company has ongoing commercial agreements with several of Bain Capital Ventures, LLC's ("Bain") portfolio companies ("Portfolio Companies"). Bain is a greater than 5% shareholder of the Company's outstanding ~~common stock~~Common Stock at ~~March 31,~~June 30, 2022, and one of the members of the Company's Board of Directors is also an executive at Bain. During ~~both~~ the three months ended ~~March 31,~~June 30, 2022 and 2021 and the six months ended June 30, 2022 and 2021 revenues generated from and expenses incurred to the Portfolio Companies were not material. At both ~~March 31,~~June 30, 2022 and December 31, 2021 open payables to and open receivables from the Portfolio Companies were not material.

The sellers of Order2Cash, who remain employees with the Company, are 50% owners of a joint venture that provides outsourced managed services to Order2Cash as part of Order2Cash's product offerings. During the three and six months ended ~~March 31,~~June 30, 2022, expenses incurred to the joint venture were ~~not material.~~$0.3 million and $0.7 million, respectively. At ~~March 31,~~June 30, 2022, open net payables to the joint venture were not material.

~~Note 18 - Subsequent Events~~

During April 2022, the Company determined it would further cease using a portion of its headquarters and began implementing a plan to vacate that portion of the leased space. Upon the cease-use date, the Company will evaluate if an impairment charge is required. Refer to ~~Note 9 - Leases~~ ~~for a discussion on impairment charges incurred during the three months ended March 31, 2022.~~

3436

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

You should read this section in conjunction with the Condensed Consolidated Financial Statements and related Notes to Condensed Consolidated Financial Statements included in Part I. Item 1 of this Quarterly Report on Form 10-Q, and our Annual Report on Form 10-K. Unless otherwise stated or as the context otherwise requires, references to “the Company,” “we,” “us,” "our,” "it," and similar references refer to BTRS Holdings Inc., a Delaware corporation, and its consolidated subsidiaries.

Certain figures, such as interest rates and other percentages, ~~included~~ in this section have been rounded for ease of presentation. Percentage figures included in this section have not in all cases been calculated on the basis of such rounded figures but on the basis of such amounts prior to rounding. For this reason, percentage amounts in this section may vary slightly from those obtained by performing the same calculations using the figures in our Condensed Consolidated Financial Statements or Notes to Condensed Consolidated Financial Statements. Certain other amounts that appear in this section may similarly not sum due to rounding.

Forward Looking Statements

This discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking statements are identified by words such as ~~“believe”, “may”, “could", “will”, “estimate”, “continue”, “anticipate”, “intend”, “seek”, “plan”, “expect”, “should”, “would”, “potentially”,~~“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 Part I. Item 1A of our Annual Report on Form ~~10-K.~~10-K and this Quarterly Report on Form 10-Q. Forward-looking statements are based on management’s current beliefs and assumptions and based on information currently available. These statements, like all statements in this Quarterly Report on Form 10-Q, speak only as of their date, and we undertake no obligation to update or revise these statements in light of future developments, except as required by law.

Business Overview

We are a leading provider of cloud-based software and integrated payment processing solutions that simplify and automate business-to-business (“B2B”) commerce. For businesses around the world, there is a high degree of cost, risk, and complexity in timely receiving cash and recognizing revenue; We solve these problems by addressing both sides of the payment equation, delivering an order-to-cash platform that spans credit-to-cash application and collection, integrated with an open network connecting the B2B payments ecosystem.

Our solution is at the forefront of the ongoing digital transformation of accounts receivable (“AR”), providing mission-critical solutions that span credit decisioning and monitoring, online ordering, invoicing, cash application, and collections. Our Business Payments Network (“BPN”) connects B2B buyers and sellers to a community of banks, FinTechs, and card brands. Billtrust automates payments from digital lockbox to final posting in an ERP, bridging receivables with buyers’ payment processes so sellers can manage cash flow more strategically and make it easier for customers to do business with them.

Customers use our software as a service (“SaaS”) platform to transition from expensive paper invoicing and check acceptance to efficient electronic billing and payments, simplifying and accelerating transactions. Our scalable platform lets our customers maximize straight-through processing of invoicing, payments, and cash application while also reducing headcount. The machine learning capabilities and rules engine within our SaaS platform continuously evolve to solve order-to-cash challenges and deliver a higher rate of touchless transactions. We work with industry-leading security partners and take proactive steps to keep data secure from threats. Collectively our platform reduces the complexity of B2B commerce for our customers.

Our secure, proprietary platform offers customers multiple ways to present invoices (online, email, AP portal, and print/mail) and receive payments (credit card, automated clearing house (“ACH”), email, phone and paper check). Our electronic solutions (“eSolutions”) team works closely with our customers to transition their users from paper invoices and payments to electronic, which results in accelerated savings, faster realization of

cash, a reduced environmental footprint, and a better user experience. In turn, we benefit from margin

expansion and incremental revenue through the monetization of electronic payments. We help customers prioritize which problems to solve, regularly assess ROI, optimize the impact of digitization across processes, and drive more value for their companies, allowing AR teams to play a more strategic role in moving a business forward.

We have expanded our product reach and customer base over the past years and scaled our business operations in recent periods. Our total revenues were ~~$45.6~~$49.3 million and ~~$41.9~~$40.2 million for the ~~three~~six months ended ~~March 31,~~June 30, 2022 and 2021, respectively. As a result of our focus on product development and sales and marketing, we have generated net losses of ~~$29.0~~$15.2 million and ~~$22.8~~$10.7 million for the ~~three~~six months ended ~~March 31,~~June 30, 2022 and 2021, respectively.

Business Combination with South Mountain

On October 18, 2020, as amended on December 13, 2020, 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 Legacy Billtrust, entered into a Business Combination Agreement, pursuant to which (i) First Merger Sub was merged with and into Legacy Billtrust (the “First Merger”), with Legacy Billtrust surviving the First Merger as a wholly owned subsidiary of South Mountain (“Surviving Corporation”) and (ii) the Surviving Corporation merged with and into Second Merger Sub (the “Second Merger”, and together with the First Merger, the “Mergers”), with Second Merger Sub surviving the Second Merger as a wholly owned subsidiary of South Mountain.

The Business Combination and PIPE Financing closed on January 12, 2021 (the "BCA Closing Date"). The Business Combination was accounted for as a reverse recapitalization in accordance with the generally accepted accounting principles in the United States of America ("U.S. GAAP"). Under this method of accounting, South Mountain was treated as the “acquired” company for financial reporting purposes. For accounting purposes, we were the accounting acquirer in the transaction and, consequently, the transaction was treated as a recapitalization of Billtrust (i.e., a capital transaction involving the issuance of stock by South Mountain for the stock of Legacy Billtrust). Accordingly, the assets, liabilities, and results of operations of Legacy 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 Legacy Billtrust beginning on the BCA Closing Date. All amounts of BTRS Holdings Inc. reflect the historical amounts of Legacy Billtrust carried over at book value with no step up in basis to fair value. After the Business Combination, our Class 1 common stock ("Common Stock") began trading on the Nasdaq Global Select Market under the ticker symbol “BTRS”.

Recent Developments

Acquisition of Order2Cash

On February 14, 2022, we acquired 100% of the outstanding shares of Anachron Beheer BV and subsidiaries, d/b/a Order2Cash ("Order2Cash"), a privately-held company headquartered in Amsterdam, the Netherlands. Order2Cash is a European B2B order-to-cash platform provider. Their enterprise customer base, global interoperability capabilities, and established connections to over 70 B2B and business-to-government (“B2G”) e-invoicing networks broaden the BPN’s reach to deliver fully compliant and secure e-invoicing across multiple markets. The acquisition is part of our strategic plan to continue expanding our physical presence in the European market while also enhancing our global invoicing and payments capabilities. Pursuant to the terms of the purchase agreement, we paid $59.5 million, net of $0.4 million of acquired cash.

Impairment of Right of Use Assets and Restructuring Charges

During Q1the first quarter of 2022, we approved a strategic plan to optimize our structure and costs related to our leased facilities and print operations. As part of the plan, we approved a formal work from anywhere policy for our employees due to high interest in allowing employees to work remotely and investments in our operating environments and technology enabling seamless day-to-day execution and increased productivity across a

distributed workforce. Additionally, we closed one of our print locations due to the continued decline in

customer print volumes and efficiencies gained through streamlining our print operations. The overall plan included vacating some or all of several of our leased office facilities and one of our leased print operations facilities and making them available for sublease. We ceased using all of the facility space ~~included~~outlined in the plan by March 31, 2022.

As a result, during the three months ended March 31, 2022, we incurred $10.0 million of right of use ("ROU") asset impairments and $3.6 million of leasehold improvement and fixed asset impairments, which were recorded in impairment and restructuring on the Condensed Consolidated Statements of Operations. In calculating the impairment amount, the fair value of each asset was determined using an income approach based on the present value of future cash flows from estimated sublease income. This approach required the use of certain estimates, including a discount rate, sublease rental rates, period of vacancy, and sublease incentives, which were based in part by local real estate industry data. As these are subjective estimates based on unobservable inputs, the fair value of the assets ~~are~~have been classified in Level 3 of the fair value hierarchy (refer to Note 13 - Fair Value Measurements in the Notes to Condensed Consolidated Financial Statements).

Additionally, in accordance with ASC 420, Exit or Disposal Cost Obligations, we recognized exit obligation costs related to closing the print operations facility, including one-time employee severance benefits, contract termination costs, and other costs associated with exiting the facility. These costs were recorded in impairment and restructuring on the Condensed Consolidated Statements of Operations, and are allocated to our Print segment. Total costs recognized during the ~~three~~six months ended ~~March 31,~~June 30, 2022, which included estimates of future costs to be incurred under the plan, were not ~~material to~~material.

During the second quarter of 2022, we approved an expansion of our ~~financial statements. The~~strategic plan to ~~close~~further vacate an additional portion of our leased office space. Upon the ~~facility was substantially complete by March 31. 2022.~~cease-use date of this additional space, which is expected to occur in the third or fourth quarter of 2022, we will evaluate if an additional impairment charge is required.

In the future if we determine we no longer intend to utilize some or all of our remaining leased ~~office~~facility space, we may be required to record additional impairment or restructuring charges.

Impact of COVID-19 and Other Macroeconomic Events

During 2021 and ~~three~~six months ended ~~March 31,~~June 30, 2022, the COVID-19 pandemic did not adversely impact us, as evidenced by the continued growth in ~~revenues across~~ our subscription and ~~transactional offerings.~~transaction revenues. Our focus remains on investing in our products and supporting our long-term growth, including global expansion. Since the start of the pandemic, we have continued to operate despite the disruption to some of our customer's operations. The pandemic has served to increase awareness and urgency around accelerating the digital transformation of accounts receivable through our platform and offerings which has helped avoid significant business, bookings, or revenue disruptions thus far. Additionally, shifts from in-person buying and traditional payment methods (such as cash or check) towards e-commerce and digital payments, and the related increase in consumer and B2B demand for safer payment and delivery solutions, have benefited us as it has further ingrained our platform in our customers’ critical day-to-day order-to-cash operations. In response to the pandemic, we have modified some of our business practices, such as enabling and encouraging our employees to work from anywhere and establishing health and safety protocols in our offices. We continue to monitor the situation and may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers, and partners.

In addition, the spread of COVID-19 and its variants has contributed to a global slowdown of economic activity, increased unemployment, supply chain disruptions, higher rates of inflation, higher interest rates, increased volatility in foreign currency exchange rates, and ~~inflation,~~increased volatility in the global capital markets, among other macroeconomic events. We are unable to predict the impact the COVID-19 pandemic or other macroeconomic events will have on our future results of operations, liquidity, financial condition, ability to access capital markets, and business practices due to numerous uncertainties, including the duration, severity, and spread of the virus and its variants, actions that may be taken by government authorities, the impact to our employees, customers, and partners, prolonged macroeconomic uncertainty, volatility, and disruption, and various other factors beyond our knowledge or control. We continue to monitor these situations and may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers, and partners.

Key Factors Affecting Our Performance

We believe our performance and future growth depends on a number of factors that present significant opportunities, but also pose risks and challenges, including those discussed below and Part I. Item 1A. "Risk Factors" in our Annual Report on Form ~~10-K.~~10-K and this Quarterly Report on Form 10-Q. For additional information related to key performance metrics we use to evaluate the health of our business, identify trends affecting our growth, formulate goals and objectives,

and make strategic decisions, please see the section within this Quarterly Report on Form 10-Q titled “Key Performance Metrics”. We believe the most significant factors affecting our results of operations include:

Investment in Technology

Our goal is to transform the way businesses send and capture payments in order to be the leader in the order-to-cash process by digitizing areas including credit decisioning, ordering, invoicing, payments, cash application, and collections. We continue to invest in technology and the digitizing of our platforms. Further, we continue to invest in certain internal initiatives targeted at improving internal processes and enhancing the efficiency, security, and scalability of our platforms. Our investment in technology is expected to have a positive impact on our long-term profitability and operations. We also intend to continue to evaluate strategic acquisitions and investments in businesses and technologies to drive product and market expansion. Our future success is dependent on our ability to successfully develop, market, and sell existing and new products.

Acquisition of New Customers

We reach new customers through our proven go-to-market strategies, which include digital marketing campaigns, our direct sales force, and partnerships with financial institutions and other complementary companies. Our growth depends in part on our ability to acquire new customers.

As of ~~March 31,~~June 30, 2022, we had customers across a wide variety of industries and geographies, including distributors of building materials, electrical, plumbing and technology equipment, healthcare, construction, and consumer products, primarily located in North America. We continue to invest in our sales, marketing, and go-to-market strategies in order to acquire customers in our target markets. Our marketing efforts are campaign and content driven and targeted depending on the size and industry of the customer. Marketing initiatives focus on demand generation and include promotional activity and with an emphasis on online digital marketing programs (e.g., webinars, virtual events). We believe there is a long-term opportunity to expand into large, new markets with compatible trends.

Our ability to attract new customers depends on a number of factors, including the effectiveness and pricing of our products, our competitors' offerings, and successfully executing our marketing efforts. Our financial performance depends in large part on the overall demand for our platforms, and acquisition of new customers is expected to have a positive impact on our long-term profitability and operations.

Expansion of Relationships with Existing Customers

Our revenue growth depends on our customers’ usage of our range of products. Our ability to monetize transactions and payments is an important part of our business model. As we solve customers’ problems and become more integrated into their daily businesses, we see an increased opportunity to cross-sell to these existing customers. This strategy is achieved by driving adoption of an existing solution across different divisions and/or subsidiaries of an existing customer and then expanding the scope of service with additional solutions. Our ability to influence customers to process more transactions and payments on our platforms will have a direct impact on our revenue.

Our revenue from existing customers is generally reliable due to both the pricing structure and the business-critical nature of the functions our products support for customers. For the three months ended March 31, 2022 and 2021, 95% or more of our subscription and transaction fees revenue came from customers who had entered into contracts prior to the start of each such calendar year. We expand within our existing customer base by selling additional modules on our platform, adding divisions, increasing transactions per customer through proven e-solutions, as well as through effective pricing and packaging our services. Our ability to increase sales to existing customers depends on a number of factors, including our customers’ satisfaction with our solutions, competition, pricing, and overall changes in our customers’ spending levels with us.

Key Performance Metrics

We monitor the following key metric to help us evaluate the health of our business, identify trends affecting our growth, formulate goals and objectives, and make strategic decisions.

Total Payment Volume

Total Payment Volume (“TPV”) is the dollar value of customer payment transactions that we process on our platform during a particular period. TPV is made up of the two payment categories:

•TPV - ACH/Wire - payments made via our software, portals, gateways, and our Business Payments Network that are processed via ACH or wire transfers.

•TPV - Card - payments through our software, portals, gateways, and third-party processors, and includes our payment facilitator (“PayFac”) customers.

To grow payments revenue from customers, we must deliver software platforms that both simplify the process of accepting electronic payments and streamline the reconciliation of remittance data. Additionally, as we increase the digital delivery of invoices, the probability increases that digitally delivered invoices will be paid electronically by our customers’ end customers. The more customers use our software platforms, the more payments transactions they are likely to process through our various products. TPV provides an important indication of the dollar value of transactions that customers are completing on ~~the~~our platform and is helpful to investors as an indicator of our ability to generate revenue from our customers.


		Three Months Ended March 31,					Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021					2022		2021		2022		2021

		(in billions)				(in billions)
Total Payment Volume	Total Payment Volume	$	22.0	$	15.1			Total Payment Volume	$	26.2	$	18.8	$	48.2	$	33.9

TPV - ACH/Wire	TPV - ACH/Wire	14.3		9.7				TPV - ACH/Wire	17.4		12.2		31.7		21.9
TPV - Card	TPV - Card	$	7.7	$	5.4			TPV - Card	$	8.9	$	6.6	$	16.6	$	12.0

The increase in TPV for the three and six months ended ~~March 31,~~June 30, 2022 compared to the prior year ~~period~~periods was primarily due to the addition of new customers on our PayFac platform, as well as an increase in existing customer transactions on both our card and ACH/Wire platforms (including an expansion of our product platforms for ACH transactions).

Components of Results of Operations

Revenues

We generate revenue from the following sources: (1) Subscription, (2) Transaction, (3) Professional Services, and (4) Reimbursable Costs.

Subscription Revenue

Subscription revenue primarily consists of contractually agreed upon fees to provide ~~our customers~~ access to our cloud-based SaaS platform and modules that automate processes across the accounts receivable function (including electronic invoice presentment, payments solutions, credit decisioning and monitoring, cash application, collections automation, and e-commerce).

Our subscription agreements do not provide ~~the~~a customer with the right to take possession of the software, are typically non-cancellable, and do not contain general rights of returns. Subscription agreements ~~typically~~ have an initial term of one to three years and are typically invoiced in annual installments in advance of each year. After the initial term, subscription agreements renew annually and are typically invoiced in advance of each renewal year. In some cases, subscriptions may be billed on a quarterly or monthly basis in advance. Subscription services are recognized ratably over the contractual term of the arrangement, beginning on the date the service is made available to the customer.

Transaction Revenue

Transaction revenue consists of per-item processing fees charged at contracted rates based on the number of envelopes, invoices delivered, payments processed, or basis points on the amount of credit card payments processed. Our transaction fees are billed monthly based on the volume of items processed each month, at the contractual rate per item processed. Transaction revenue is recognized at the same time as the transactions are processed.

Professional Services Revenue

Professional services ~~revenues~~revenue consists of implementation services for new customers, or implementations of new products for existing customers. It also includes separately contracted project services provided to customers after implementation.

Implementation services are typically sold on a time and materials basis and billed monthly based on actual hours incurred. When our implementation services are not capable of being distinct from the related subscription service, they are combined with the subscription service and recognized over the term of the agreement. In these cases, since the initial contract with a customer includes both the subscription and implementation fees, and is therefore higher than subscription renewal fees in subsequent years, the contract conveys a ‘material right’ to the customer (i.e., an option for the customer to renew the contract at a lower price in relation to the initial contract price). Material rights are treated separately and are recognized over the period which the right is expected to be exercised by a customer.

Project services are considered separate and distinct from other products or services purchased and are recognized at the same time as the services are provided.

Reimbursable Costs

Reimbursable costs revenue ~~consist~~consists primarily of amounts charged to our customers for postage on printed and mailed invoices to their end customers. The related revenues are recorded on a gross basis, with an offsetting amount recorded as a cost of revenue.

Cost of Revenues

Costs of Subscription, Transaction, and Services

Cost of subscription, transaction, and services consists primarily of personnel-related costs, including stock-based compensation expense, for our customer success, professional services, file, and payment operations teams, print operations equipment costs, costs directly attributed to processing customers’ transactions (such as the cost of printing and mailing invoices, excluding postage), expenses for processing payments (ACH and credit card), direct and amortized costs for implementing and integrating our cloud-based platforms with customers’ systems, cloud hosting and related costs for the infrastructure directly associated with production platforms, rent and utilities expense for our leased print operations facilities, and allocated overhead costs. Cost of subscription, transaction, and services excludes depreciation and amortization. We expect that cost of subscription, transaction, and services will increase in absolute dollars, but may fluctuate as a percentage of total revenues from period to period as we continue to invest in growing our business.

Cost of Reimbursable Costs

Cost of reimbursable costs consists of fees for postage related costs, primarily paid to the United States Postal Service or third parties associated with printed and mailed invoice deliveries for our customers, and are recorded at no incremental margin on reimbursable costs revenues.

Operating Expenses

Research and Development

Research and development expense consists primarily of personnel-related expenses, including stock-based compensation expense, incurred in developing and engineering new products or enhancing existing products, quality assurance and testing of new and existing product technology, maintenance, and enhancement of our existing technology and infrastructure, and allocated overhead costs. We capitalize certain software development costs that are attributable to developing new products and adding incremental functionality to our platforms, and amortize such costs over the estimated life of the new product or incremental functionality, which is typically four years.

In accordance with U.S. GAAP, we expense a substantial portion of research and development expenses as incurred. We expect our research and development expenses to increase in absolute dollars, but they may fluctuate as a percentage of total revenues from period to period as we continue to expand our research and development team to develop new products and product enhancements, as well as to support our growing infrastructure.

Sales and Marketing

Sales and marketing expense consists primarily of personnel-related expenses, including stock-based compensation expense, sales commissions, marketing program expenses, travel-related expenses, and costs to market and promote our platforms through advertisements, marketing events, partnership arrangements, direct customer acquisition, and allocated overhead costs. Sales commissions that are incremental to obtaining customer contracts are deferred and amortized on a straight-line basis over the estimated period of the customer relationship, which is estimated to be four to five years.

Our sales and marketing efforts are focused on increasing revenue from the acquisition of new customers, the expansion of subscription revenue from existing customers, and from facilitating increased electronic adoption and resulting digital processing activity between our customers and their end customers. Sales and marketing expenses may fluctuate from period to period based on a variety of factors, including changes in the broader economic environment and our return on this spend.

General and Administrative

General and administrative expense consists of personnel-related expenses, including stock-based compensation expense, for our executive team, talent (human resources), finance, procurement, legal and compliance, and other administrative teams, facility costs (including rent and utilities expense for our leased office space, excluding those used in our print operations) and allocated overhead costs. We expect to incur additional general and administrative expenses as a result of operating as a public company, including expenses to comply with the rules and regulations applicable to companies listed on a national securities exchange, expenses related to compliance, and reporting obligations pursuant to the rules and regulations of the SEC, as well as higher expenses for director and officer insurance, investor relations, and professional services. We also expect to increase the size of our general and administrative functions to support the growth in our business. As a result, we expect that our general and administrative expenses will increase in absolute dollars, but may fluctuate as a percentage of total revenues from period to period.

Depreciation and Amortization

Depreciation and amortization expense includes the costs associated with depreciating our owned furniture and fixtures, computer equipment, software, and technology assets, as well as amortization of leasehold improvements, capitalized software, and amortizable intangible assets.

Impairment and Restructuring

Impairment and restructuring expense consists of asset impairments, including those related to ceasing use of leased facilities, costs associated with involuntary termination benefits provided to employees, certain contract termination costs, and other costs associated with exit or disposal activities.

Other Income (Expense)

Change in Fair Value of Financial Instruments

Change in fair value of financial instruments consists of changes in the fair value of equity instruments that do not meet the criteria to be classified as equity and contingent consideration from acquisitions (excluding arrangements that are treated as compensation expense).

Interest Expense and Loss on Extinguishment of Debt

Interest expense and loss on extinguishment of debt consists of interest on any outstanding debt, amortization of associated debt issuance costs, payment of early termination fees, and writing off unamortized debt discounts associated with repaying our outstanding debt facilities prior to maturity.

Other Non-Operating Income (Expense)

Other non-operating income (expense) consists of interest income earned on our cash, cash equivalents, and marketable securities, foreign exchange gains (losses), and other non-operating income (expense).

Income Taxes

Income taxes consist primarily of income taxes related to federal, state, and foreign jurisdictions in which we conduct business. We maintain a full valuation allowance on net deferred tax assets for our U.S. federal taxes and certain foreign and state taxes as we have concluded that it is not more likely than not that the deferred assets will be utilized.

Segments

Our operations are grouped into two reportable segments: (1) Print, and (2) Software and Payments. Our Chief Operating Decision Maker (“CODM”) is the ~~Chief Executive Officer,~~chief executive officer, who reviews discrete financial and other information presented for print services and software and payment services for purposes of allocating resources and evaluating ~~the Company's~~our 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.

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, impairment and restructuring expense, stock-based compensation expense, other income (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.

4244

Results of Operations

The following tables set forth select Condensed Consolidated Statements of Operations data, and such data as a percentage of total revenues, for each of the periods indicated (in thousands, except percentages):


		Three Months Ended March 31,								Three Months Ended June 30,					Six Months Ended June 30,
		2022				2021					2022		2021				2022				2021
Revenues:	Revenues:											Revenues:
Subscription, transaction, and services	Subscription, transaction, and services	$	37,049	81	%	$	33,119	79	%			Subscription, transaction, and services	$	40,600	82	%	$	31,589	79	%	$	77,649	82	%	$	64,708	79	%
Reimbursable costs	Reimbursable costs	8,582		19		8,817		21				Reimbursable costs	8,676		18		8,643		21		17,258		18		17,460		21
Total revenues	Total revenues	45,631		100		41,936		100				Total revenues	49,276		100		40,232		100		94,907		100		82,168		100
Cost of revenues:	Cost of revenues:											Cost of revenues:
Cost of subscription, transaction, and services	Cost of subscription, transaction, and services	10,325		23		9,253		22				Cost of subscription, transaction, and services	11,150		23		9,360		23		21,474		23		18,613		23
Cost of reimbursable costs	Cost of reimbursable costs	8,582		19		8,817		21				Cost of reimbursable costs	8,676		18		8,643		21		17,258		18		17,460		21
Total cost of revenues, excluding depreciation and amortization	Total cost of revenues, excluding depreciation and amortization	18,907		41		18,070		43				Total cost of revenues, excluding depreciation and amortization	19,826		40		18,003		45		38,732		41		36,073		44
Operating expenses:	Operating expenses:											Operating expenses:
Research and development	Research and development	15,105		33		10,993		26				Research and development	15,874		32		11,270		28		30,979		33		22,263		27
Sales and marketing	Sales and marketing	10,716		23		8,936		21				Sales and marketing	11,723		24		9,980		25		22,439		24		18,916		23
General and administrative	General and administrative	14,728		32		12,450		30				General and administrative	15,085		31		10,478		26		29,813		31		22,928		28
Depreciation and amortization	Depreciation and amortization	1,861		4		1,360		3				Depreciation and amortization	2,166		4		1,359		3		4,027		4		2,719		3
Impairment and restructuring	Impairment and restructuring	13,854		30		—		—				Impairment and restructuring	30		—		—		—		13,884		15		—		—
Total operating expenses	Total operating expenses	56,264		123		33,739		80				Total operating expenses	44,878		91		33,087		82		101,142		107		66,826		81
Loss from operations	Loss from operations	(29,540)		(65)		(9,873)		(24)				Loss from operations	(15,428)		(31)		(10,858)		(27)		(44,967)		(47)		(20,731)		(25)
Other income (expense):	Other income (expense):											Other income (expense):
Change in fair value of financial instruments	Change in fair value of financial instruments	22		—		(9,995)		(24)				Change in fair value of financial instruments	(260)		(1)		—		—		(238)		—		(9,995)		(12)
Interest expense and loss on extinguishment of debt	Interest expense and loss on extinguishment of debt	(1)		—		(2,942)		(7)				Interest expense and loss on extinguishment of debt	(6)		—		(3)		—		(7)		—		(2,945)		(4)
Other non-operating income	Other non-operating income	67		—		108		—				Other non-operating income	188		—		136		—		255		—		244		—
Total other income (expense)	Total other income (expense)	88		—		(12,829)		(31)				Total other income (expense)	(78)		—		133		—		10		—		(12,696)		(15)
Loss before income taxes	Loss before income taxes	(29,452)		(65)		(22,702)		(54)				Loss before income taxes	(15,506)		(31)		(10,725)		(27)		(44,957)		(47)		(33,427)		(41)
Income tax expense (benefit)	Income tax expense (benefit)	(425)		(1)		92		—				Income tax expense (benefit)	(295)		(1)		11		—		(719)		(1)		103		—
Net loss	Net loss	$	(29,027)	(64)	%	$	(22,794)	(54)	%			Net loss	$	(15,211)	(31)	%	$	(10,736)	(27)	%	$	(44,238)	(47)	%	$	(33,530)	(41)	%

Comparison of Results of Operations for the Three Months Ended ~~March 31,~~June 30, 2022 and 2021

Total Revenues


		Three Months Ended March 31,				Change					Three Months Ended June 30,				Change
		2022		2021		Amount		%			2022		2021		Amount		%

		(in thousands)									(in thousands)
Subscription and transaction fees	Subscription and transaction fees	$	34,102	$	30,183	$	3,919	13	%	Subscription and transaction fees	$	37,617	$	29,072	$	8,545	29	%
Services and other	Services and other	2,947		2,936		11		—		Services and other	2,983		2,517		466		19
Subscription, transaction, and services	Subscription, transaction, and services	37,049		33,119		3,930		12		Subscription, transaction, and services	40,600		31,589		9,011		29
Reimbursable costs	Reimbursable costs	8,582		8,817		(235)		(3)		Reimbursable costs	8,676		8,643		33		—
Total revenues	Total revenues	$	45,631	$	41,936	$	3,695	9	%	Total revenues	$	49,276	$	40,232	$	9,044	22	%

The increase in total revenues during the three months ended ~~March 31,~~June 30, 2022 compared to the prior year period was primarily due to a ~~$7.5~~$8.7 million increase in subscription and transaction fees in the ~~software~~Software and ~~payments~~Payments segment as a result of contracting with new customers, existing customers purchasing additional

products, the acquisitions of iController BV ("iController") and Order2Cash, and increased transaction volumes, primarily from payments. The growth in transaction volumes was primarily related to the growth in ~~direct card revenue (variable~~variable transactional fee revenue associated with card payments on our electronic payments processing platforms). We expect direct card revenue to be an important source of revenue growth as our payment mix shifts from legacy gateway to PayFac. The increase in total revenues was partially offset by (1) $3.3 million from the recognition of subscription and transaction fees revenue previously paid and deferred from a customer who terminated during the first quarter of 2021, and (2) a $0.5 million decrease in print segment reimbursable costs, primarily postage, associated with lower print volumes, and lower transactional volumes as a result of existing customers converting to electronic invoicing.platforms.

Cost of Revenues


		Three Months Ended March 31,				Change					Three Months Ended June 30,				Change
		2022		2021		Amount		%			2022		2021		Amount		%

		(in thousands)									(in thousands)
Cost of subscription, transaction, and services	Cost of subscription, transaction, and services	$	10,325	$	9,253	$	1,072	12	%	Cost of subscription, transaction, and services	$	11,150	$	9,360	$	1,790	19	%
Cost of reimbursable costs	Cost of reimbursable costs	8,582		8,817		(235)		(3)		Cost of reimbursable costs	8,676		8,643		33		—
Total cost of revenues, excluding depreciation and amortization	Total cost of revenues, excluding depreciation and amortization	$	18,907	$	18,070	$	837	5	%	Total cost of revenues, excluding depreciation and amortization	$	19,826	$	18,003	$	1,823	10	%

The increase in total cost of revenues during the three months ended ~~March 31,~~June 30, 2022 compared to the prior year period was primarily due to (1) a ~~$1.1~~$1.3 million increase in compensation, ~~benefit,~~benefits, and other personnel-related costs due to increased headcount and (2) the acquisitions of iController and Order2Cash. ~~This increase was~~These increases were partially offset by ~~(1)~~lower print transactional volumes as a ~~$0.3 million~~result of converting existing customers to electronic invoicing and a decrease in ~~third party~~reimbursable costs, ~~related to our software and payments products.~~primarily postage, associated with lower print volumes.

Research and Development

Three Months Ended March 31, Change
2022 2021 Amount %
(in thousands)
Research and development $ 15,105 $ 10,993 $ 4,112 37 %


	Three Months Ended June 30,				Change
	2022		2021		Amount		%

	(in thousands)
Research and development	$	15,874	$	11,270	$	4,604	41	%

The increase in research and development expenses during the three months ended ~~March 31,~~June 30, 2022 compared to the prior year period was primarily due to (1) a ~~$3.2~~$2.3 million increase in compensation, ~~benefit,~~benefits, and other personnel-related costs, expanding eligibility of our bonus program to a larger group of employees, and increased headcount, (2) a $0.4 million increase in stock-based compensation expense, (3) a $0.4 million increase in software expenses directly related to product development activities, and (4) a $1.1 million increase due to the acquisitions of iController and Order2Cash.

Sales and Marketing


	Three Months Ended June 30,				Change
	2022		2021		Amount		%

	(in thousands)
Sales and marketing	$	11,723	$	9,980	$	1,743	17	%

The increase in sales and marketing expenses during the three months ended June 30, 2022 compared to the prior year period was primarily due to (1) a $0.5 million increase in compensation, benefits, and other personnel-related costs and increased headcount and (2) a $0.9 million increase due to the acquisitions of iController and Order2Cash.

General and Administrative


	Three Months Ended June 30,				Change
	2022		2021		Amount		%

	(in thousands)
General and administrative	$	15,085	$	10,478	$	4,607	44	%

The increase in general and administrative expenses during the three months ended June 30, 2022 compared to the prior year period was primarily due to (1) a $1.4 million increase compensation, benefits, and other personnel-related costs and increased headcount, (2) a $0.9 million increase in stock-based compensation expense, (3) a $0.8 million increase in insurance, professional, and consulting fees for reporting, compliance, and other related requirements for continued support of public company operating requirements and as a result of becoming a large accelerated filer for fiscal year 2022, (4) a $0.4 million increase in integration expenses, and (5) a $1.1 million increase due to the acquisitions of iController and Order2Cash.

Depreciation and Amortization


	Three Months Ended June 30,				Change
	2022		2021		Amount		%

	(in thousands)
Depreciation and amortization	$	2,166	$	1,359	$	807	59	%

The increase in depreciation and amortization expense during the three months ended June 30, 2022 compared to the prior year period was primarily due to the amortization of intangible assets from the acquisitions of iController and Order2Cash.

Impairment and Restructuring


	Three Months Ended June 30,				Change
	2022		2021		Amount		%

	(in thousands)
Impairment and restructuring	$	30	$	—	$	30	100	%

Impairment and restructuring expense during the three months ended June 30, 2022 compared to the prior year period was consistent as we did not have any material impairments or restructuring events during either period.

Total Other Income (Expense)


	Three Months Ended June 30,				Change
	2022		2021		Amount		%

	(in thousands)
Total other income (expense)	$	(78)	$	133	$	(211)	159	%

The decrease in other income (expense) during the three months ended June 30, 2022 compared to the prior year period was primarily due to an increase in the fair value of the contingent consideration related to the iController acquisition.

Income Taxes Expense (Benefit)


	Three Months Ended June 30,				Change
	2022		2021		Amount		%

	(in thousands)
Income tax expense (benefit)	$	(295)	$	11	$	(306)	2782	%

The change from income tax expense to income tax benefit during the three months ended June 30, 2022 was primarily due to a decrease in the deferred tax liability related to foreign acquisitions and the ability to utilize certain tax losses in the future. Overall, our effective tax rate is low due to our U.S. net operating loss position. We maintain a valuation allowance on our deferred taxes.

Comparison of Results of Operations for the Six Months Ended June 30, 2022 and 2021

Total Revenues


	Six Months Ended June 30,				Change
	2022		2021		Amount		%

	(in thousands)
Subscription and transaction fees	$	71,719	$	59,255	$	12,464	21	%
Services and other	5,930		5,453		477		9	%
Subscription, transaction, and services	77,649		64,708		12,941		20	%
Reimbursable costs	17,258		17,460		(202)		(1)	%
Total revenues	$	94,907	$	82,168	$	12,739	16	%

The increase in total revenues during the six months ended June 30, 2022 compared to the prior year period was primarily due to (1) a $12.9 million increase in subscription and transaction fees in the Software and Payments segment as a result of contracting with new customers, existing customers purchasing additional products, the acquisitions of iController and Order2Cash, and increased transaction volumes, primarily from payments. The growth in transaction volumes was primarily related to the growth in variable transactional fee revenue associated with card payments on our electronic payments processing platforms.

Cost of Revenues


	Six Months Ended June 30,				Change
	2022		2021		Amount		%

	(in thousands)
Cost of subscription, transaction, and services	$	21,474	$	18,613	$	2,861	15	%
Cost of reimbursable costs	17,258		17,460		(202)		(1)	%
Total cost of revenues, excluding depreciation and amortization	$	38,732	$	36,073	$	2,659	7	%

The increase in total cost of revenues during the six months ended June 30, 2022 compared to the prior year period was primarily due to (1) a $2.2 million increase in compensation, benefits, and other personnel-related costs and increased headcount and (2) the acquisitions of iController and Order2Cash. These increases were partially offset by a $0.4 million decrease in print related costs resulting from efficiencies in our operations and lower print transactional volumes as a result of converting existing customers to electronic invoicing.

Research and Development


	Six Months Ended June 30,				Change
	2022		2021		Amount		%

	(in thousands)
Research and development	$	30,979	$	22,263	$	8,716	39	%

The increase in research and development expenses during the six months ended June 30, 2022 compared to the prior year period was primarily due to (1) a $5.6 million increase in compensation, benefits, and other personnel-related costs, expanding eligibility of our bonus program to a larger group of employees, and increased headcount, (2) a $0.8 million increase in software expenses directly related to product development activities, (3) a $0.4 million increase in stock-based compensation expense, and (4) a $1.5 million increase due to the acquisitions of iController and Order2Cash.

Sales and Marketing

Three Months Ended March 31, Change
2022 2021 Amount %
(in thousands)
Sales and marketing $ 10,716 $ 8,936 $ 1,780 20 %


	Six Months Ended June 30,				Change
	2022		2021		Amount		%

	(in thousands)
Sales and marketing	$	22,439	$	18,916	$	3,523	19	%

The increase in sales and marketing expenses during the ~~three~~six months ended ~~March 31,~~June 30, 2022 compared to the prior year period was primarily due to (1) a ~~$1.0~~$1.5 million increase in compensation, ~~benefit, and other personnel-related costs and increased headcount and (2) a $0.6 million increase due to the acquisitions of iController and Order2Cash.~~

~~General and Administrative~~

Three Months Ended March 31, Change
2022 2021 Amount %
(in thousands)
General and administrative $ 14,728 $ 12,450 $ 2,278 18 %

The increase in general and administrative expenses during the three months ended March 31, 2022 compared to the prior year period was primarily due to (1) a $3.1 million increase compensation, benefit,benefits, and other personnel-related costs, and increased headcount, (2) a ~~$1.0~~$0.4 million increase in marketing initiatives spend related to ~~contingent compensation payable to the sellers of Order2Cash,~~promoting our products and product enhancements, (3) a ~~$0.7~~$0.4 million increase in travel and entertainment expenses due to increased travel as a result of loosening COVID-19 restrictions, and (4) a $1.4 million increase due to the acquisitions of iController and Order2Cash. These increases were partially offset by a ~~$2.1~~$0.6 million decrease in stock-based compensation expense related to the one-time Earnout RSUs granted in 2021 associated with the Business Combination (as such terms are defined in Note 1 - Organization and Nature of Business and Note 3 - Business Combination & Acquisitions in the Notes to Condensed Consolidated Financial Statements).

General and Administrative


	Six Months Ended June 30,				Change
	2022		2021		Amount		%

	(in thousands)
General and administrative	$	29,813	$	22,928	$	6,885	30	%

The increase in general and administrative expenses during the six months ended June 30, 2022 compared to the prior year period was primarily due to (1) a $2.6 million increase in compensation, benefits, and other personnel-related costs, and increased headcount, (2) a $1.3 million increase in insurance, professional, and consulting fees for reporting, compliance, and other related requirements for continued support of public company operating requirements and as a result of becoming a large accelerated filer for fiscal year 2022, (3) a $1.3 million increase in acquisition and integration costs, (4) a $1.0 million increase related to contingent compensation payable to the sellers of Order2Cash, and (5) a $2.8 million increase due to the acquisitions of iController and Order2Cash. These increases were partially offset by a $1.2 million decrease in stock-based compensation expense related to the one-time Earnout RSUs granted in 2021 associated with the Business Combination (as such terms are defined in Note 1 - Organization and Nature of Business and Note 3 - Business Combination & Acquisitionsin the Notes to Condensed Consolidated Financial ~~Statements, respectively)~~Statements).

Depreciation and Amortization

Three Months Ended March 31, Change
2022 2021 Amount %
(in thousands)
Depreciation and amortization $ 1,861 $ 1,360 $ 501 37 %


	Six Months Ended June 30,				Change
	2022		2021		Amount		%

	(in thousands)
Depreciation and amortization	$	4,027	$	2,719	$	1,308	48	%

The increase in depreciation and amortization expense during the ~~three~~six months ended ~~March 31,~~June 30, 2022 compared to the prior year period was primarily due to the amortization of intangible assets from the acquisitions of iController and Order2Cash.

Impairment and Restructuring

Three Months Ended March 31, Change
2022 2021 Amount %
(in thousands)
Impairment and restructuring $ 13,854 $ — $ 13,854 — %


	Six Months Ended June 30,				Change
	2022		2021		Amount		%

	(in thousands)
Impairment and restructuring	$	13,884	$	—	$	13,884	100	%

The increase in impairment and restructuring expense during the ~~three~~six months ended ~~March 31,~~June 30, 2022 compared to the prior year period was primarily due to impairments of operating lease ROU assets, leasehold improvements, and fixed assets incurred as a result of vacating several leased office and print facilities.

Total Other Income (Expense)

Three Months Ended March 31, Change
2022 2021 Amount %
(in thousands)
Total other income (expense) $ 88 $ (12,829) $ 12,917 101 %


	Six Months Ended June 30,				Change
	2022		2021		Amount		%

	(in thousands)
Total other income (expense)	$	10	$	(12,696)	$	12,706	(100)	%

The ~~increase~~decrease in other ~~income (expense)~~expenses during the ~~three~~six months ended ~~March 31,~~June 30, 2022 compared to the prior year period was primarily due to the following one-time costs recorded in the first quarter of 2021 related to the Business Combination: (1) a $10.0 million fair value adjustment from the increase in value of the Earnout Shares and, (2) a $2.8 million loss on extinguishment of debt associated with the early payment of all our outstanding borrowings.

~~Income Taxes Expense (Benefit)~~

4550

Three Months Ended March 31, Change
2022 2021 Amount %
(in thousands)
Income tax expense (benefit) $ (425) $ 92 $ (517) 562 %
Income Taxes Expense (Benefit)


	Six Months Ended June 30,				Change
	2022		2021		Amount		%

	(in thousands)
Income tax expense (benefit)	$	(719)	$	103	$	(822)	(798)	%

The change from income tax expense to income tax benefit during the ~~three~~six months ended ~~March 31,~~June 30, 2022 was primarily due to ~~the~~a decrease in the deferred tax liability related to foreign acquisitions and the ability to utilize certain tax losses in the future. Overall, our effective tax rate is low due to our U.S. net operating loss position. We maintain a valuation allowance on our deferred taxes.

Liquidity and Capital Resources

Our principal sources of liquidity are cash, cash equivalents, ~~marketable securities,~~ and cash flows from financing activities including through a public offering of our equity securities. As of ~~March 31,~~June 30, 2022, we had cash and cash equivalents of ~~$107.8 million and marketable securities of $45.2~~$148.0 million. Our primary uses of liquidity are operating expenses, capital expenditures, and acquiring businesses. The acquisitions of iController and Order2Cash were both funded entirely with cash on hand.

We believe our current cash, cash equivalents, ~~marketable securities,~~ and cash flows from financing activities, including additional consideration payable within the next year, if any, related to our recent acquisitions, are sufficient to meet our working capital and capital expenditure requirements for a period of at least 12 months from the date of this Quarterly Report on Form 10-Q. However, our anticipated results are subject to significant uncertainty and may be affected by events beyond our control, including the prevailing economic, financial, and industry conditions, including from the COVID-19 pandemic and continued volatility and disruption in the global financial markets.

The following table summarizes our cash flows for the periods presented (in thousands, except percentages):


		Three Months Ended March 31,				Change					Six Months Ended June 30,				Change
		2022		2021		Amount		%			2022		2021		Amount		%
Net cash used in operating activities	Net cash used in operating activities	$	(20,128)	$	(9,917)	$	(10,211)	(103)	%	Net cash used in operating activities	$	(25,762)	$	(10,821)	$	(14,941)	(138)	%
Net cash used in investing activities	Net cash used in investing activities	(59,949)		(25,503)		(34,446)		(135)	%	Net cash used in investing activities	(15,261)		(46,157)		30,896		67	%
Net cash provided by (used in) financing activities		(2,940)		281,689		(284,629)		(101)	%
Net cash provided by financing activities										Net cash provided by financing activities	1,879		286,956		(285,077)		(99)	%
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	Effect of exchange rate changes on cash, cash equivalents, and restricted cash	30		—		30		—	%	Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(45)		—		(45)		—	%
Net increase (decrease) in cash, cash equivalents, and restricted cash	Net increase (decrease) in cash, cash equivalents, and restricted cash	$	(82,987)	$	246,269	$	(329,256)	(134)	%	Net increase (decrease) in cash, cash equivalents, and restricted cash	$	(39,189)	$	229,978	$	(269,167)	(117)	%

Operating Activities

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

For the ~~three~~six months ended ~~March 31,~~June 30, 2022, cash used in operating activities was ~~$20.1~~$25.8 million compared to ~~$9.9~~$10.8 million during the prior year period. The increase was primarily due to higher net loss from continued investments in sales and marketing and product development, acquisition and integration costs, and an increase in the use of cash for working ~~capital, net of the impact deferred revenue and accounts receivable.~~capital.

Investing Activities

During the ~~three~~six months ended ~~March 31,~~June 30, 2022 cash used in investing activities was ~~$59.9~~$15.3 million, which consisted primarily of $59.5 million for the purchase of Order2Cash, net of acquired ~~cash.~~cash and was partially offset by $45.2 million of proceeds from the sale of marketable securities.

4651

During the ~~three~~six months ended ~~March 31,~~June 30, 2021 cash used in investing activities was ~~$25.5~~$46.2 million, which consisted primarily of ~~$25.0~~$45.0 million of purchases of marketable securities.

Financing Activities

During the ~~three~~six months ended ~~March 31,~~June 30, 2022 cash ~~used in~~provided by financing activities was ~~$2.9~~$1.9 million, which consisted primarily ~~consisted~~ of ~~a $3.2 million decrease in the amount of customer funds payable.~~proceeds from common stock issued.

During the ~~three~~six months ended ~~March 31,~~June 30, 2021 cash provided by financing activities was ~~$281.7~~$287.0 million, which consisted primarily of $329.7 million of proceeds from the Business Combination and PIPE Financing, net of offering costs. These proceeds were partially offset by $46.2 million used to fully repay our outstanding borrowings, including debt extinguishment costs, pursuant to the Business Combination.

Future Cash Obligations

In addition to the future cash obligations described below, we have other payables and liabilities that may be legally enforceable but are not considered contractual commitments. Refer to Note 15 - Accrued Expenses and Other Current Liabilities in the Notes to Condensed Consolidated Financial Statements for more information on our payables and liabilities.

Leases

We lease office space for our employees and facilities for our print operations under non-cancellable operating lease agreements (refer to Note 9 - Leases in the Notes to Condensed Consolidated Financial Statements, including a discussion of the impairment of certain facility leases). The remaining duration of non-cancellable operating leases ranges from less than 1 year to 13 years. ~~Remaining~~As of June 30, 2022, remaining non-cancellable lease payments ~~within one year, within two to three years, within four to five years, and after five years from March 31,~~are due as follows: $2.6 million in 2022, ~~are $4.0~~$5.4 million ~~$10.5~~in 2022, $5.0 million ~~$9.0~~in 2023, $4.6 million in 2024, $4.3 million in 2025, and $24.7 million ~~respectively.~~thereafter.

Purchase Obligations

We enter into purchase commitments with certain vendors to secure pricing for materials necessary for our print operations. As of ~~March 31,~~June 30, 2022, we had approximately ~~$0.4~~$0.6 million remaining under such purchase commitments.

Contingent & Earnout Consideration

Our acquisitions of Order2Cash and iController include earnout consideration and contingent ~~cash~~ consideration with estimated fair values at ~~March 31,~~June 30, 2022 of ~~$11.5~~$4.3 million and ~~$5.0~~$5.2 million, ~~respectively,~~respectively. These amounts are to be paid to the sellers based on the amount and timing of each acquired company's achievement of certain recurring revenue growth targets and other certain conditions over a three year period subsequent to each acquisition date.

Deferred Purchase Price

Our acquisition of Order2Cash includes a deferred purchase with an estimated fair value at June 30, 2022 of $0.6 million. This amount is payable within four years of the closing date upon achievement of certain conditions.

Letters of Credit

We have commitments under letters of credit for $2.5 million that are maintained pursuant to certain of our lease arrangements. $2.4 million of the letters of credit expire in 2024, and the remainder expire in greater than five years from ~~March 31,~~June 30, 2022.

Non-GAAP Financial Measures

In addition to our results determined in accordance with U.S. GAAP, we believe the following non-GAAP financial measures are useful in evaluating our operating performance. We present these non-GAAP measures to assist investors in understanding our financial performance from the perspective of management. We believe these measures provide an additional tool for investors to use in comparing our financial performance over multiple periods with other companies in our industry. While we believe the use of these non-GAAP measures provides useful information to investors and management in analyzing our financial performance, non-GAAP measures have inherent limitations in that they do not reflect all of the amounts and transactions that are included in our financial statements prepared in accordance with U.S. GAAP. Non-GAAP measures do not serve as an alternative to U.S. GAAP, nor do we consider our non-GAAP measures in isolation. Accordingly, we present

non-GAAP financial measures only in connection with U.S. GAAP results. We urge investors to consider non-GAAP measures only in conjunction with our U.S. GAAP financials and to review the reconciliation of our non-GAAP

financial measures to the most comparable U.S. GAAP financial measures, as described below, included in this Quarterly Report on Form 10-Q.

Net Revenue (non-GAAP)

Net revenue (non-GAAP) is defined as total revenues less reimbursable costs revenue. 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 on our Condensed Consolidated Statements of Operations.

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, excluding depreciation and amortization, plus stock-based compensation expense included in total cost of revenues. Adjusted gross margin (non-GAAP) is defined as 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 more 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 outlined in the Part I, Item 1a. “Risk Factors” of our Annual Report on Form ~~10-K.~~10-K and in 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 on our Condensed Consolidated Statements of Operations.

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):

Reconciliation of Total Revenues to Net Revenue (non-GAAP), Adjusted Gross Profit (non-GAAP), and Adjusted Gross Margin (Non-GAAP)


		Three Months Ended March 31,						Three Months Ended June 30,					Six Months Ended June 30,
		2022			2021					2022			2021			2022			2021
Total revenues	Total revenues	$	45,631		$	41,936			Total revenues	$	49,276		$	40,232		$	94,907		$	82,168
Less: Reimbursable costs revenue	Less: Reimbursable costs revenue	8,582			8,817				Less: Reimbursable costs revenue	8,676			8,643			17,258			17,460
Net revenue (non-GAAP)	Net revenue (non-GAAP)	$	37,049		$	33,119			Net revenue (non-GAAP)	$	40,600		$	31,589		$	77,649		$	64,708

Total revenues	Total revenues	$	45,631		$	41,936			Total revenues	$	49,276		$	40,232		$	94,907		$	82,168
Less: Cost of revenue, excluding depreciation and amortization	Less: Cost of revenue, excluding depreciation and amortization	18,907			18,070				Less: Cost of revenue, excluding depreciation and amortization	19,826			18,003			38,733			36,073
Gross profit, excluding depreciation and amortization	Gross profit, excluding depreciation and amortization	26,724			23,866				Gross profit, excluding depreciation and amortization	29,450			22,229			56,174			46,095
Add: Stock based compensation expense	Add: Stock based compensation expense	438			443				Add: Stock based compensation expense	621			405			1,059			848
Adjusted gross profit (non-GAAP)	Adjusted gross profit (non-GAAP)	$	27,162		$	24,309			Adjusted gross profit (non-GAAP)	$	30,071		$	22,634		$	57,233		$	46,943

Gross margin, excluding depreciation and amortization	Gross margin, excluding depreciation and amortization	58.6		%	56.9		%		Gross margin, excluding depreciation and amortization	59.8		%	55.3		%	59.2		%	56.1		%
Adjusted gross margin (non-GAAP)	Adjusted gross margin (non-GAAP)	73.3		%	73.4		%		Adjusted gross margin (non-GAAP)	74.1		%	71.7		%	73.7		%	72.5		%

4853

Adjusted EBITDA (non-GAAP) & Adjusted EBITDA Margin (non-GAAP)

Adjusted EBITDA (non-GAAP) is defined as net loss, plus (1) income tax expense (benefit), (2) changes in the fair value of financial instruments that do not meet the criteria to be classified as equity, (3) interest expense and loss on extinguishment of debt, (4) depreciation and amortization, (5) stock-based compensation expense, (6) impairment, restructuring, and related facility costs, (7) acquisition and integration costs, (8) other capital structure transaction costs, and (9) other non-operating expense (income). Adjusted EBITDA margin (non-GAAP) is defined as adjusted EBITDA (non-GAAP) divided by total revenues less reimbursable costs revenue, or net revenue (non-GAAP).

We believe adjusted EBITDA (non-GAAP) and adjusted EBITDA margin (non-GAAP) are key measures for us to understand and evaluate our operating performance, to establish budgets, and to develop operational and strategic goals. Adjusted EBITDA (non-GAAP) and adjusted EBITDA margin (non-GAAP) help 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) and adjusted EBITDA margin (non-GAAP) also provide 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) and adjusted EBITDA margin (non-GAAP) is net loss on the Condensed Consolidated Statements of Operations.

~~We believe that excluding the impact of these expenses in calculating adjusted EBITDA (non-GAAP) and adjusted EBITDA margin (non-GAAP)~~ can provide a useful measure for period-to-period comparisons of our core operating ~~performance. We believe it is useful to~~performance and help identify underlying trends since the expenses we exclude certain non-cash charges, such as share-based compensation expense and changes in the fair value of financial instruments from our non-GAAP financial measures because the amount of such expenses in any specific period may not directly correlate to ~~the underlying~~our primary operating performance in any specific period. Excluded expenses are:

•Certain non-cash charges, such as stock-based compensation expense, depreciation and amortization, and changes in fair value of financial instruments;

•Certain items not related to our primary business ~~operations.~~ activities, such as:

◦Impairment, restructuring, and related facility costs ~~are~~ associated with realigning our organization or cost structure, impairments of ROU assets and other long-lived assets from ceasing use of leased facility ~~space,~~spaces, involuntary termination benefits, ongoing lease expense and related sublease income from facility spaces we have ceased using, and other related ~~costs.~~ costs; and

◦Other non-operating income.

•Non-recurring items that are not expected to recur within the next two years or have not occurred within the prior two years, such as:

◦Acquisition and integration expenses ~~are~~ related to ~~the~~ third-party costs associated with acquiring companies, internal direct costs associated with integrating acquired companies, employees, and their customers, and changes in the fair value of contingent compensation consideration payable to employees of acquired ~~companies. These~~companies;

◦Interest expense and loss on extinguishment of debt resulting from the prepayment penalty and associated costs ~~are not expected to recur within two years for prior acquisitions,~~of repaying all outstanding debt facilities as part of the Business Combination; and ~~will only reoccur for new acquisitions.~~

◦Other capital structure transaction costs ~~are~~ related to third-party fees, including investment banking, legal, accounting, and other professional advisory fees associated with financing transactions, such as the secondary offering of our Class 1 common stock completed in July 2021 (a one-time transaction between existing and new shareholders, with no new shares being issued or offered by us) and the Warrant Exchange Offer ~~(as~~(a one-time transaction to convert all outstanding warrants to Common Stock, as defined in Note 7 - Stockholders' Equity and Stock-Based Compensation in the Notes to Condensed Consolidated Financial Statements) ~~completed in December 2021. These costs are not expected~~.

The most directly comparable U.S. GAAP measure to ~~recur over~~adjusted EBITDA (non-GAAP) and adjusted EBITDA margin (non-GAAP) is net loss on 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, and the Warrant Exchange Offer was a one-time transaction to convert all outstanding warrants to Common Stock.Condensed Consolidated Statements of Operations.

4954

The following table presents a reconciliation of our adjusted EBITDA (non-GAAP) and adjusted EBITDA margin (non-GAAP) to its most directly comparable GAAP financial measure (in thousands):

Reconciliation of Net Loss to Adjusted EBITDA (non-GAAP) and Adjusted EBITDA Margin (non-GAAP)


		Three Months Ended March 31,							Three Months Ended June 30,					Six Months Ended June 30,
		2022			2021						2022			2021			2022			2021

		(in thousands)						(in thousands)
Net loss	Net loss	$	(29,027)		$	(22,794)				Net loss	$	(15,211)		$	(10,736)		$	(44,238)		$	(33,530)
Income tax expense (benefit)	Income tax expense (benefit)	(425)			92					Income tax expense (benefit)	(295)			11			(719)			103
Change in fair value of financial instruments	Change in fair value of financial instruments	(22)			9,995					Change in fair value of financial instruments	260			—			238			9,995
Interest expense and loss on extinguishment of debt	Interest expense and loss on extinguishment of debt	1			2,942					Interest expense and loss on extinguishment of debt	6			3			7			2,945
Depreciation and amortization	Depreciation and amortization	1,861			1,360					Depreciation and amortization	2,166			1,359			4,027			2,719
Stock-based compensation expense	Stock-based compensation expense	6,078			8,826					Stock-based compensation expense	7,275			5,706			13,353			14,532
Impairment, restructuring, and related costs		14,054			6
Impairment, restructuring, and related facility costs										Impairment, restructuring, and related facility costs	825			317			14,855			323
Acquisition and integration costs	Acquisition and integration costs	2,234			—					Acquisition and integration costs	964			—			3,188			—

Other capital structure transaction costs										Other capital structure transaction costs	—			498			—			498
Other non-operating income	Other non-operating income	(67)			(108)					Other non-operating income	(188)			(136)			(255)			(244)
Adjusted EBITDA (non-GAAP)	Adjusted EBITDA (non-GAAP)	$	(5,313)		$	319				Adjusted EBITDA (non-GAAP)	$	(4,198)		$	(2,978)		$	(9,544)		$	(2,659)

Adjusted EBITDA margin (non-GAAP)	Adjusted EBITDA margin (non-GAAP)	(14.3)		%	1.0		%			Adjusted EBITDA margin (non-GAAP)	(10.3)		%	(9.4)		%	(12.3)		%	(4.1)		%

For the three months ended ~~March 31,~~June 30, 2022, adjusted EBITDA (non-GAAP) decreased ~~$5.6~~$1.2 million compared to the prior year period primarily due to higher operating expenses, offset by expenses that are excluded from adjusted EBITDA, including (1) a $1.6 million increase in stock-based compensation expense due to increased headcount and (2) $1.0 million of acquisition and integration expenses from the acquisitions of Order2Cash and iController. These increases in expenses, which led to a decrease in adjusted EBITDA (non-GAAP), were partially offset by growth in total revenues.

For the six months ended June 30, 2022, adjusted EBITDA (non-GAAP) decreased $6.9 million compared to the prior year period primarily due to higher operating expenses, offset by expenses that are excluded from adjusted EBITDA, including (1) $13.6 million in impairment charges from ceasing use of several leased facilities in 2022, (2) $3.2 million in acquisition and integration costs from the ~~acquisition~~acquisitions of ~~Order2Cash.~~Order2Cash and iController, and (3) other operating expenses. These ~~increased~~increases in expenses, which led to a decrease in adjusted EBITDA (non-GAAP), were partially offset by ~~increased~~growth in total revenues and decreases ~~from one time~~to one-time costs ~~incurred~~recorded in the prior year ~~period~~ related to ~~recording~~ the Business Combination: (1) a $10.0 million fair value ~~of stock-based compensation~~adjustment from the ~~Business Combination~~increase in value of the Earnout Shares and ~~losses~~(2) a $2.8 million loss on extinguishment of debt associated with the early ~~extinguishment~~payment of all our outstanding ~~debt.~~borrowings.

Direct Card Revenue (non-GAAP)

Direct card revenue (non-GAAP) is a subset of our software and payments segment revenues and contains variable transactional fee revenue associated with card payments on our electronic payments processing platforms and related fees. Direct card revenue (non-GAAP) is defined as subscription, transaction, and services revenues, less revenues generated from segments other than software and payments (i.e., software and payments segment revenue), less software and payments segment transaction revenue unrelated to card processing and all subscription revenue.

We believe direct card revenue (non-GAAP) allows investors to understand the revenue we earn from processing card payments and better comprehend underlying trends in our payments business. The most directly comparable U.S. GAAP measure to direct card revenue (non-GAAP) is subscription, transaction, and services revenue on the Condensed Consolidated Financial Statements.

5055

The following table presents a reconciliation of our direct card revenue (non-GAAP) to its most directly comparable U.S. GAAP financial measure (in thousands):

Reconciliation of Subscription, Transaction, and Services Revenues to Direct Card Revenue (non-GAAP)


		Three Months Ended March 31,				Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021				2022		2021		2022		2021
Subscription, transaction, and services revenues	Subscription, transaction, and services revenues	$	37,049	$	33,119		Subscription, transaction, and services revenues	$	40,600	$	31,589	$	77,649	$	64,708
Less: Non-software and payments segment revenue	Less: Non-software and payments segment revenue	7,188		7,434			Less: Non-software and payments segment revenue	7,317		7,007		14,505		14,441
Software and payments segment revenue	Software and payments segment revenue	29,861		25,685			Software and payments segment revenue	33,283		24,582		63,144		50,267
Less: Software and payments segment revenue excluding direct card revenue (non-GAAP)	Less: Software and payments segment revenue excluding direct card revenue (non-GAAP)	24,966		22,770			Less: Software and payments segment revenue excluding direct card revenue (non-GAAP)	27,453		20,878		52,420		43,648
Direct card revenue (non-GAAP)	Direct card revenue (non-GAAP)	$	4,895	$	2,915		Direct card revenue (non-GAAP)	$	5,830	$	3,704	$	10,724	$	6,619

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 GAAP measure to free cash flow (non-GAAP) is net cash used in operating activities on the Condensed Consolidated Statements of Cash Flows.

The following table presents a reconciliation of free cash flow to the most directly comparable GAAP measure (in thousands):

Reconciliation of Net Cash Used in Operating Activities to Free Cash Flow (non-GAAP)


		Three Months Ended March 31,					Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021					2022		2021		2022		2021

		(in thousands)				(in thousands)
Net cash used in operating activities	Net cash used in operating activities	$	(20,128)	$	(9,917)			Net cash used in operating activities	$	(5,634)	$	(904)	$	(25,762)	$	(10,821)
Purchases of property and equipment	Purchases of property and equipment	(454)		(503)				Purchases of property and equipment	(468)		(617)		(922)		(1,120)
Free cash flow (non-GAAP)	Free cash flow (non-GAAP)	$	(20,582)	$	(10,420)			Free cash flow (non-GAAP)	$	(6,102)	$	(1,521)	$	(26,684)	$	(11,941)

Critical Accounting Policies and Procedures

There have been no material changes to the critical accounting policies, significant judgments, or estimates included in our Annual Report on Form 10-K.

Recent Accounting Pronouncements

Refer to Note 1 - Organization and Nature of Business in the Notes to Condensed Consolidated Financial Statements for a full description of recent accounting pronouncements, including the expected dates of adoption and effects on our Condensed Consolidated Financial Statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in our determination of the market risks we are exposed to or our assessment of sensitivity to these market risks since our discussion included in the section titled "Quantitative and Qualitative Disclosures About Market Risk" contained in our Annual Report on Form 10-K.

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Item 4. Controls and Procedures

Disclosure Controls and Procedures

Management conducted an evaluation, as of ~~March 31,~~June 30, 2022, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), under the supervision and with the participation of our chief executive officer and chief financial officer. The term “disclosure controls and procedures,” as defined in the Exchange Act refers to controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Based upon the evaluation of our disclosure controls and procedures as of ~~March 31,~~June 30, 2022, our chief executive officer and chief financial officer have concluded that the Company’s disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during the quarter ended ~~March 31,~~June 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we may become involved in legal proceedings or be subject to claims arising in the ordinary course of its business. We accrue estimates for legal and other contingencies when losses are ~~not~~probable and estimable. Although the results of litigation and claims cannot be predicted with certainty, we currently ~~a party to any legal proceedings,~~believe the final outcome of ~~which, if determined adversely to us, would individually or in the aggregate~~any current matters will not have a material adverse effect on our business, operating results, financial condition, ~~and~~or results of operations. Regardless of the outcome, litigation can have a material adverse effect on us due to defense and settlement costs, diversion of management resources, and other factors.

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 price of our Class 1 common stock. 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” contained in our Annual Report on Form 10-K for the year ended December 31, ~~2021. There have been no material changes in the risk factors described within~~2021, which collectively are risks we believe could materially affect our ~~Annual Report on Form 10-K.~~business, financial condition, and future results.

~~The risks described in "Part I, Item 1A. Risk Factors” of our Annual Report on Form 10-K~~These are not the only risks that we face. ~~Additional~~Other risks and uncertainties we are not currently ~~known to us~~aware of or that we currently ~~deem to be~~consider immaterial also may materially adversely affect our business, financial condition and future results. Risks we have identified, but currently consider immaterial, could still materially adversely affect our business, financial condition, and future results if our assumptions about those risks are incorrect or ~~operating results.~~if circumstances change. There were no material changes during the period covered in this report to the risk factors previously disclosed in “Part I, Item 1A, Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2021, except as follows:

Unstable market and economic conditions may have serious adverse consequences on our business, financial condition, and share price.

The global economy, including credit and financial markets, has experienced increased volatility and disruptions, including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates, increases in inflation rates, higher interest rates, increased volatility in foreign currency exchange rates, and uncertainty about economic stability. For example, the COVID-19 pandemic resulted in increased unemployment, economic slowdown, and increased volatility in the capital markets. Similarly, the ongoing military conflict between Russia and Ukraine has created volatility in the global capital markets and is expected to have further global economic consequences, including disruptions of the global supply chain and energy markets. Continued volatility and disruptions may have adverse consequences on us or the third-parties on whom we rely. If the equity and credit markets deteriorate, including as a result of political unrest or war, it may make any necessary debt or equity financing more difficult to obtain in a timely manner or on favorable terms, more costly, or more dilutive. Increased inflation rates can adversely affect us by increasing our costs, including labor and employee benefits costs. In addition, higher inflation and macroeconomic turmoil and uncertainty could also adversely affect our customers, which could reduce demand for our products and services. Any significant increases in inflation, continued economic volatility, and related increase in interest rates could have a material adverse effect on our business, financial condition, and results of operations. Burdens resulting from increased volatility in foreign currency exchange rates and any adverse changes to domestic and foreign tax law could adversely affect us by making it difficult to repatriate earnings and cash. To the extent there is a sustained general economic downturn and our platform is perceived by customers and potential customers as too costly, or too difficult to deploy, or migrate to, our revenue may be disproportionately affected by delays or reductions in customer spending. Also, competitors may respond to market conditions by lowering prices and attempting to lure away our customers. In addition, macroeconomic uncertainty may result in an increased pace of consolidation in certain industries. If this were to occur it may result in reduced overall spending on our platform, particularly if our customers are acquired by organizations that do not use our services. We cannot predict the timing, strength, or duration of any economic slowdown, instability, or recovery, generally or within any particular industry. If the economic conditions of the general economy or the markets in which we operate worsen from present levels, our business, results of operations and financial condition could be materially and adversely affected.

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


Exhibit Number						Description
3.1						Second 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).
3.2						Amended 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).
4.1						Form 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).
4.24.2						Amended 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).
~~10.1*#~~						~~Form of Executive Severance Plan Including in the Event of a Change of Control.~~
31.1						Certification of Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2						Certification of Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1^						Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2^						Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS						XBRL Instance Document
101.SCH						XBRL Taxonomy Extension Schema Document
101.CAL						XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF						XBRL Definition Linkbase Document
101.LAB						XBRL Taxonomy Extension Labels Linkbase Document
101.PRE						XBRL Taxonomy Extension Presentation Linkbase Document
104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

# Indicates management contract or compensatory plan or arrangement.

* Filed herewith.

^ 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 10,~~August 9, 2022	BTRS Holdings Inc.

	By:	/s/ Mark Shifke
	Name:	Mark Shifke
	Title:	Chief Financial Officer
		(Principal Financial Officer)

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