UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~March 31, 2021~~September 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 ~~001-819881~~001-39627

Paya Holdings Inc.

(Exact Name of Registrant as Specified in Charter)


Delaware						85-2199433
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

303 Perimeter Center North, Suite 600, Atlanta, Georgia 30346

(Address, including zip code, of principal executive offices)

(800) 261-0240

(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
Common stock, par value ~~$0.0001~~$0.001 per share	PAYA	The Nasdaq Capital Market
~~Warrants to purchase common stock~~	~~PAYAW~~	~~The Nasdaq Capital Market~~

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer

☐☒

Accelerated filer

☒☐

Non-accelerated filer

☐

Smaller reporting company

☒☐

Emerging growth company

☒☐

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

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

There were ~~126,697,492~~132,214,528 shares of Common Stock, par value ~~$0.0001~~$0.001 per share, issued and outstanding as of ~~March 31, 2021.~~November 1, 2022.

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Paya Holdings Inc.

TABLE OF CONTENTS

Quarterly Report on FORM 10-Q

~~March 31, 2021~~September 30, 2022

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Part I

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Cautionary Statement Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements relate to expectations for future financial performance, business strategies or expectations for the ~~post-combination business.~~Company. Specifically, forward-looking statements may include statements relating to:

•operational, economic, political and regulatory ~~risks;~~risks, including those related to the war in Ukraine, heightened inflation, slower growth or recession, changes to fiscal and monetary policy, higher interest rates, currency fluctuations and challenges in the supply chain;

•natural disasters and other business disruptions including outbreaks of epidemic or pandemic disease;

•changes in demand within a number of key industry end-markets and geographic regions;

•failure to retain key personnel;

•our inability to recognize deferred tax assets and tax loss carry forwards;

•our future operating results fluctuating, failing to match performance or to meet expectations;

•unanticipated changes in our tax obligations;

•our obligations under various laws and regulations;

•the effect of litigation, judgments, orders or regulatory proceedings on our business;

•our ability to successfully acquire and integrate new operations;

•global or local economic and political movements;

•our ability to effectively manage our credit risk and collect on our accounts receivable;

•our ability to fulfill our public company obligations;

•any failure of our management information ~~systems;~~systems and data security;

•our ability to meet our debt service requirements and obligations;

•changes in the payment processing market in which Paya ~~competes~~competes;

•changes in the vertical markets that Paya ~~targets~~targets;

•risks relating to Paya’s relationships within the payment ~~ecosystem~~ecosystem;

•~~Paya’s~~risk that Paya may not be able to execute its growth ~~strategies~~strategies;

•risks relating to data security

•changes in accounting policies applicable to Paya; ~~and~~

•the ~~development~~risk that Paya may not be able to remediate the existing material weakness related to the income tax provision or develop and ~~maintenance of~~maintain effective internal ~~controls~~controls; and

•other risks and ~~uncertainties.~~uncertainties discussed in the section titled “Risk Factors,” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021, Part II, Item 1A of this Quarterly Report on Form 10-Q and our other filings with the Securities and Exchange Commission.

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These forward-looking statements are based on information available as of the date of this Quarterly Report on Form 10-Q and our management’s current expectations, forecasts and assumptions, and involve a number of judgments, risks and uncertainties. Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date. We undertake no obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

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~~Part I~~

Item 1. Unaudited ~~Condensed~~ Consolidated Financial Statements

Paya Holdings Inc.

~~Condensed~~ Consolidated Statements of Income and Other Comprehensive Income

(In thousands ~~Unaudited)~~except per share data)

Three Months Ended March 31,
2021 2020
Revenue $ 55,255 $ 49,139
Cost of services exclusive of depreciation and amortization (26,137) (24,498)
Selling, general & administrative expenses (16,914) (15,580)
Depreciation and amortization (7,032) (5,996)
Income from operations 5,172 3,065
Other income (expense)
Interest expense (4,043) (4,645)
Other income (expense) 492 (17)
Total other expense (3,551) (4,662)
Income (loss) before income taxes 1,621 (1,597)
Income tax (expense) benefit (576) 922
Net income (loss) $ 1,045 $ (675)
Weighted average shares outstanding of common stock 117,808,563 54,534,022
Basic net income (loss) per share $ 0.01 $ (0.01)
Diluted net income (loss) per share $ 0.01 $ (0.01)
(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Revenue	$	71,366	$	63,058	$	209,851	$	182,297
Cost of services exclusive of depreciation and amortization	(35,486)		(30,504)		(102,470)		(86,840)
Selling, general & administrative expenses	(21,067)		(18,718)		(66,414)		(56,478)
Depreciation and amortization	(8,353)		(7,891)		(24,041)		(22,442)
Income from operations	6,460		5,945		16,926		16,537
Other income (expense)
Interest expense	(3,487)		(3,137)		(9,664)		(11,002)
Other income (expense)	(189)		(67)		1,422		(8,042)
Total other expense	(3,676)		(3,204)		(8,242)		(19,044)
Income (loss) before income taxes	2,784		2,741		8,684		(2,507)
Income tax expense	(1,434)		(5,702)		(3,476)		(2,563)
Net income (loss)	$	1,350	$	(2,961)	$	5,208	$	(5,070)

Weighted average shares outstanding of common stock	126,417,577		128,429,090		126,397,360		124,523,217
Basic net income (loss) per share	$	0.01	$	(0.02)	$	0.04	$	(0.04)
Weighted average diluted shares outstanding of common stock	127,023,562		128,429,090		126,697,871		124,523,217
Diluted net income (loss) per share	$	0.01	$	(0.02)	$	0.04	$	(0.04)

See accompanying notes to the unaudited ~~condensed~~ consolidated financial statements.

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Paya Holdings Inc.
Condensed Consolidated Balance Sheets
(In thousands, Unaudited)
March 31, December 31,
2021 2020
Assets
Current assets:
Cash and cash equivalents $ 133,824 $ 23,617
Trade receivables, net 22,060 17,493
Prepaid expenses 2,766 2,218
Income taxes receivable 541 541
Other current assets 636 457
Total current assets before funds held for clients 159,827 44,326
Funds held for clients 69,430 78,505
Total current assets $ 229,257 $ 122,831
Noncurrent assets:
Property and equipment, net 14,057 12,805
Goodwill 206,337 206,308
Intangible assets, net 133,287 132,616
Other long-term assets 756 781
Total Assets $ 583,694 $ 475,341
Liabilities and stockholders’ equity
Current liabilities:
Trade payables 2,918 3,967
Accrued liabilities 10,419 10,435
Accrued revenue share 8,351 7,535
Income taxes payable 744 0
Other current liabilities 2,985 3,071
Total current liabilities before client funds obligations 25,417 25,008
Client funds obligations 68,990 78,658
Total current liabilities $ 94,407 $ 103,666
Noncurrent liabilities:
Deferred tax liability, net 14,453 14,618
Long-term debt 219,795 220,152
Tax receivable agreement liability 19,175 19,627
Other long-term liabilities 1,105 1,246
Total liabilities $ 348,935 $ 359,309
Stockholders’ Equity:
Common stock, $0.0001 par value; 500,000,000 authorized; 126,697,492 and 116,697,441 issued and outstanding as of March 31, 2021 and December 31, 2020, respectively 13 12
Additional Paid-in-Capital 247,134 129,453
Accumulated deficit (12,388) (13,433)
Total stockholders’ equity 234,759 116,032
Total liabilities and stockholders’ equity $ 583,694 $ 475,341


Paya Holdings Inc.
Consolidated Balance Sheets
(In thousands except share data) (Unaudited)
	September 30,		December 31,
	2022		2021
Assets
Current assets:
Cash and cash equivalents	$	155,958	$	146,799
Trade receivables, net	26,965		23,163
Prepaid expenses	3,042		2,407
Income taxes receivable	1,580		460
Other current assets	3,761		922
Total current assets before funds held for clients	191,306		173,751
Funds held for clients	105,570		99,815
Total current assets	$	296,876	$	273,566
Non-current assets:
Property and equipment, net	14,432		14,011
Goodwill	223,181		221,117
Intangible assets, net	126,769		136,708
Operating lease ROU assets, net of amortization	3,099		4,495
Other non-current assets	928		1,149
Total Assets	$	665,285	$	651,046
Liabilities and stockholders’ equity
Current liabilities:
Trade payables	1,474		3,127
Accrued liabilities	16,355		13,686
Accrued revenue share	12,797		11,002

Current operating lease liabilities	1,236		1,302
Other current liabilities	4,090		3,422
Total current liabilities before client funds obligations	35,952		32,539
Client funds obligations	104,569		99,125
Total current liabilities	$	140,521	$	131,664
Non-current liabilities:
Deferred tax liability, net	9,222		11,723
Long-term debt	240,562		241,872
Tax receivable agreement liability	19,166		19,502
Non-current lease liabilities	2,830		3,941
Other non-current liabilities	418		419
Total liabilities	$	412,719	$	409,121
Stockholders’ Equity:
Common stock, $0.001 par value; 500,000,000 authorized; 132,113,603 and 132,059,879 issued and outstanding as of September 30, 2022 and December 31, 2021, respectively	132		132
Additional Paid-in-Capital	261,419		255,986
Accumulated deficit	(8,985)		(14,193)

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Total stockholders’ equity	252,566		241,925
Total liabilities and stockholders’ equity	$	665,285	$	651,046

See accompanying notes to the unaudited ~~condensed~~ consolidated financial statements.

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Paya Holdings Inc.

~~Condensed~~ Consolidated Statements of Changes in Stockholders’ Equity

(In thousands ~~Unaudited)~~except share data)

Common stock
Shares Amount Additional
paid-in-capital Retained earnings Total stockholders’ equity
Balance at December 31, 2019 as recast 54,534,022 $ 5 $ 147,268 $ (12,909) $ 134,364
Net loss — — — (675) (675)
Stock based compensation - Class C incentive units — — 392 — 392
Balance at March 31, 2020 54,534,022 $ 5 $ 147,660 $ (13,584) $ 134,081
Balance at December 31, 2020 116,697,441 $ 12 $ 129,453 $ (13,433) $ 116,032
Net income — — — 1,045 1,045
Stock based compensation - Class C incentive units — — 259 — 259
Stock based compensation - Common stock — — 451 — 451
Equity offering 10,000,000 1 116,970 — 116,971
Warrant exercise 51 — 1 — 1
Balance at March 31, 2021 126,697,492 $ 13 $ 247,134 $ (12,388) $ 234,759
(Unaudited)


	Common stock
	Shares	Amount		Additional paid-in-capital		Accumulated deficit		Total stockholders’ equity
Balance at December 31, 2020	116,697,441	$	12	$	129,453	$	(13,433)	$	116,032
Net income	—	—		—		1,045		1,045
Stock-based compensation - Class C incentive units	—	—		259		—		259
Stock-based compensation - Common stock	—	—		451		—		451
Equity offering	10,000,000	1		116,970		—		116,971
Cumulative effect of adoption of new accounting standard	—	—		—		51		51
Warrant exercise	51	—		1		—		1
Balance at March 31, 2021	126,697,492	$	13	$	247,134	$	(12,337)	$	234,810
Net loss	—	—		—		(3,154)		(3,154)
Stock based compensation - Class C incentive units	—	—		74		—		74
Stock based compensation - Common stock	—	—		790		—		790
Equity offering	—	—		(206)		—		(206)
Par value of common stock adjustment	—	113		(113)		—		—
Shares issued for acquisition	682,892	1		7,499		—		7,500
Balance at June 30, 2021	127,380,384	$	127	$	255,178	$	(15,491)	$	239,814
Net loss	—	—		—		(2,961)		(2,961)
Stock based compensation - Class C incentive units	—	—		247		—		247
Stock based compensation - Common stock	—	—		675		—		675
Warrant exchange	4,597,848	5		(1,732)		—		(1,727)
Shares issued under equity compensation plan	29,136	—		(199)		—		(199)
Warrant exercise	2,450	—		—		—		—
Recapitalization transaction	—	—		743		—		743
Balance at September 30, 2021	132,009,818	$	132	$	254,912	$	(18,452)	236,592

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	Common stock
	Shares	Amount		Additional paid-in-capital		Accumulated deficit		Total stockholders’ equity
Balance at December 31, 2021	132,059,879	$	132	$	255,986	$	(14,193)	$	241,925
Net income	—	—		—		2,212		2,212
Stock-based compensation - Class C incentive units	—	—		231		—		231
Stock-based compensation - Common stock	—	—		1,271		—		1,271
Shares issued under equity compensation plan	7,234	—		—		—		—
Balance at March 31, 2022	132,067,113	$	132	$	257,488	$	(11,981)	$	245,639
Net income	—	—		—		1,646		1,646
Stock-based compensation - Class C incentive units	—	—		193		—		193
Stock-based compensation - Common stock	4,812	—		1,786		—		1,786
Shares issued under equity compensation plan	—	—		(14)		—		(14)
Balance at June 30, 2022	132,071,925	$	132	$	259,453	$	(10,335)	$	249,250
Net income	—	—		—		1,350		1,350
Stock-based compensation - Class C incentive units	—	—		186		—		186
Stock-based compensation - Common stock	—	—		1,957		—		1,957
Shares issued under equity compensation plan	41,678	—		(177)		—		(177)
Balance at September 30, 2022	132,113,603	$	132	$	261,419	$	(8,985)	$	252,566

See accompanying notes to the unaudited ~~condensed~~ consolidated financial statements.

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Paya Holdings Inc.

~~Condensed~~ Consolidated Statements of Cash Flows

(In ~~thousands, Unaudited)~~thousands)

Three Months Ended March 31,
2021 2020
Cash flows from operating activities:
Net income (loss) $ 1,045 $ (675)
Depreciation & amortization expense 7,032 5,996
Loss on disposal of property and equipment 0 98
Deferred taxes (164) 952
Bad debt expense 226 441
Stock based compensation 710 392
Gain on tax receivable agreement liability (452) 0
Amortization of debt issuance costs 259 274
Changes in assets and liabilities, net of impact of business acquisitions:
Trade receivables (4,792) (2,919)
Prepaid expenses (549) (886)
Other current assets (179) 234
Trade payables (1,050) (1,076)
Accrued liabilities (16) (3,980)
Accrued revenue share 816 192
Income tax payable/receivable, net 745 (1,873)
Other current liabilities (86) (149)
Movements in cash held on behalf of customers, net (594) 452
Other long-term liabilities 31 (38)
Net cash provided by (used in) operating activities $ 2,982 $ (2,565)
Cash flows from investing activities:
Purchases of property and equipment (2,290) (963)
Purchases of customer lists (6,865) (85)
Net cash (used in) investing activities $ (9,155) $ (1,048)
Cash flows from financing activities:
Payments on long-term debt (591) (591)
Borrowings under Credit Facility 0 25,000
Distribution to Ultra 0 (555)
Proceeds from equity offering 116,970 0
Net cash provided by financing activities $ 116,379 $ 23,854
Effect of foreign currency exchange rates on cash and cash equivalents
1 0
Net change in cash and cash equivalents 110,207 20,241
Cash and cash equivalents, beginning of period 23,617 25,957
Cash and cash equivalents, end of period $ 133,824 $ 46,198
Supplemental disclosures:
Cash interest paid $ 3,727 $ 4,318
Cash taxes paid, including estimated payments $ 0 $ 3
(Unaudited)


	Nine Months Ended September 30,
	2022		2021
Cash flows from operating activities:
Net income	$	5,208	$	(5,070)
Depreciation & amortization expense	24,041		22,442
Deferred taxes	(2,501)		(500)
Bad debt expense	1,325		899
Stock-based compensation	5,624		2,496
Non-cash change in tax receivable agreement liability	257		(286)
Change in fair value of derivative	(2,543)		—
Non-cash lease expense	1,332		1,091
Gain on contingent consideration	—		(180)
Amortization of debt issuance costs	726		687
Loss on debt extinguishment	—		6,187
Changes in assets and liabilities, net of impact of business acquisitions:
Trade receivables	(5,042)		(5,881)
Prepaid expenses	(607)		165
Other current assets	(294)		29
Other non-current assets	76		(76)
Trade payables	(1,654)		(4,104)
Accrued liabilities	1,647		720
Accrued revenue share	1,774		2,638
Income tax payable/receivable, net	(1,121)		(455)
Other current liabilities	658		1,124
Lease liabilities	(1,120)		(1,084)
Other non-current liabilities	(2)		9
Net cash provided by operating activities	$	27,784	$	20,851
Cash flows from investing activities:
Purchases of property and equipment	(4,236)		(4,955)
Purchases of customer lists	(5,387)		(15,951)
Acquisition of business, net of cash received	(6,034)		(18,309)
Net cash (used in) investing activities	$	(15,657)	$	(39,215)
Cash flows from financing activities:
Payments on non-current debt	(1,875)		(228,677)

Borrowings under non-current debt	—		250,000
Payment of debt issuance costs	—		(6,390)
Proceeds from equity offering	—		116,764
Repurchase of restricted stock to satisfy tax withholding obligations	(191)		(199)
Warrant exchange	—		(1,431)
Payment on tax receivable agreement liability	(592)		—
Movements in cash held on behalf of customers, net	4,657		4,949
Net cash provided by financing activities	$	1,999	$	135,016

Effect of foreign currency exchange rates on cash and cash equivalents	1		—

Net change in cash and cash equivalents	14,126		116,652
Cash and cash equivalents, beginning of period	198,391		63,408
Cash and cash equivalents, end of period	$	212,518	$	180,060

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Reconciliation of cash, cash equivalents, and restricted cash
Cash and cash equivalents	155,958		133,144
Restricted cash included in funds held for clients	56,560		46,916
Total cash, cash equivalents, and restricted cash	$	212,518	$	180,060

Supplemental disclosures:
Cash interest paid	$	9,342	$	10,105
Cash taxes paid, including estimated payments	$	7,102	$	3,242

Non-cash investing activity:
Non-cash primary stock issuance related to Paragon acquisition	$	—	$	7,500

See accompanying notes to the unaudited ~~condensed~~ consolidated financial statements.

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Notes to Unaudited ~~Condensed~~ Consolidated Financial Statements

(In Thousands, unless otherwise noted)

1.Organization, basis of presentation and summary of accounting policies

Organization

Paya Holdings Inc. (“we,” “us,” “Paya” or the “Company”), a Delaware corporation, conducts operations through its wholly-owned subsidiaries. These operating subsidiaries are comprised of Paya, Inc., Paya EFT, Inc., Stewardship Technology, Inc., First Mobile Trust, LLC, ~~and~~ The Payment Group, ~~LLC.~~

~~On October 16, 2020, we consummated the business combination (the “Business Combination”) contemplated by that certain Agreement~~LLC, Blue Parasol Group, LLC (Paragon Payment Solutions), and Plan of Merger, dated as of August 3, 2020 (“Merger Agreement”), by and among Paya Holdings Inc. (f/k/a FinTech Acquisition Corp. III Parent Corp.) (“we,” “us,” “Paya” or the “Company”), FinTech Acquisition Corp. III (“FinTech”), FinTech III Merger Sub Corp. (“Merger Sub”), GTCR-Ultra Holdings,JS Innovations LLC ~~(“Ultra”), GTCR-Ultra Holdings II, LLC (n/k/a Paya Holdings II, LLC, “Holdings”), GTCR/Ultra Blocker, Inc. and GTCR Fund XI/C LP ("Fund")~~(VelocIT). ~~See Note 3, Business combination for more information.~~

The Company is ~~a leading~~an independent integrated payments platform providing card, ACH, and check payment processing solutions via software to middle-market businesses in the United States. Paya’s solutions integrate with customers’ core business software to enable payments acceptance, reconcile invoice detail, and post payment information to their core accounting system. ~~In this manner, Paya enables its customers to collect revenue from their B2C and B2B customers with a seamless experience and high-level of security across payment types.~~

The Company is headquartered in Atlanta, Georgia and also has operations in Reston, VA, Fort Walton Beach, FL, Mount Vernon, OH, ~~Miamisburg, OH~~ and Dallas, TX.

Basis of presentation

The Company’s unaudited ~~condensed~~ consolidated financial statements have been prepared in accordance with the requirements of the U.S. Securities and Exchange Commission (“SEC”) for interim financial information. As permitted under accounting principles generally accepted in the United States of America (“U.S. GAAP”), certain notes and other information have been omitted from the interim unaudited ~~condensed~~ consolidated financial statements presented in this Quarterly Report on Form 10-Q. Therefore, these financial statements should be read in conjunction with the Company’s ~~most recent~~ Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC.

In management’s opinion, the ~~condensed~~ consolidated financial statements include all normal and recurring adjustments necessary for a fair presentation of the Company’s financial position, results of operations and cash flows. The results of operations for any interim period are not necessarily indicative of the operating results that may be expected for the full fiscal year ending December 31, ~~2021~~2022 or any future period.

~~Emerging growth company~~

The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities Act”), as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a

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Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard.

Use of estimates

The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. These estimates are based on management’s best knowledge of current events and actions that the Company may undertake in the future. The more significant estimates made by management relate to the determination of the fair value of intangible assets acquired in a business combination, allowance for ~~doubtful accounts,~~credit losses, income taxes, tax receivable agreement liability, and impairment of intangibles and long-lived assets. ~~The Company periodically evaluates the methodologies employed in making its estimates.~~

Principles of Consolidation

These ~~condensed~~ consolidated financial statements include the accounts of the Company and its subsidiary companies. All significant intercompany accounts and transactions have been eliminated in consolidation.

Upon acquisition of a company, we determine if the transaction is a business combination defined by ASC 805, which is accounted for using the acquisition method of accounting. Under the acquisition method, once control is obtained of a business, the assets acquired, and liabilities assumed, including amounts attributed to noncontrolling interests, are recorded at fair value. We use our best estimates and assumptions to assign fair value to the tangible

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and intangible assets acquired and liabilities assumed at the acquisition date. One of the most significant estimates relates to the determination of the fair value of these assets and liabilities, specifically intangible assets such as internal use software, tradenames and trademarks, and customer relationships. The determination of the fair values is based on estimates and judgments made by management with the assistance of a third-party valuation firm. Significant assumptions for intangible assets include the discount rate, projected revenue growth rates and margin, customer retention factors, obsolescence rates and royalty rate used to calculate the expected future cash flows. Our estimates of fair value are based upon assumptions we believe to be reasonable, but which are inherently uncertain and unpredictable. Measurement period adjustments are reflected at the time identified, up through the conclusion of the measurement period, which is the time at which all information for determination of the values of assets acquired and liabilities assumed is received and is not to exceed one year from the acquisition date. We may record adjustments to the fair value of these tangible and intangible assets acquired and liabilities assumed, with the corresponding offset to goodwill. Qualitative factors that contribute to the recognition of goodwill include certain intangible assets that are not recognized as separate identifiable intangible assets.

Additionally, uncertain tax positions and tax-related valuation allowances are initially recorded in connection with a business combination as of the acquisition date. We continue to collect information and reevaluate these estimates and assumptions periodically and record any adjustments to preliminary estimates to goodwill, provided we are within the measurement period. If outside of the measurement period, any subsequent adjustments are recorded to the consolidated statement of income and other comprehensive income.

Cash and cash equivalents

Cash and cash equivalents are short-term, highly liquid investments with a maturity of ninety days or less at the time of purchase. The fair value of our cash and cash equivalents approximates carrying value. At times, cash and cash equivalents exceed the amount insured by the Federal Deposit Insurance Corporation.

Concentration of credit risk

Our cash, cash equivalents, trade receivables, funds receivable and customer accounts are potentially subject to concentration of credit risk. The Company performs ongoing credit evaluations of its customers’ financial condition and generally requires no collateral from its customers. No individual customers represented more than 10% of the Company’s revenue. Generally, these deposits may be redeemed upon demand, and therefore, bear minimal default risk.

Trade receivables, net

Trade receivables are recorded at net realizable value, which includes allowances for ~~doubtful accounts.~~credit losses. The Company estimates an allowance for ~~doubtful accounts~~credit losses related to balances that it estimates it cannot collect from merchants. These uncollectible amounts relate to chargebacks, uncollectible merchant fees, and ACH transactions that have been rejected subsequent to the payout date. The Company uses a loss-rate method, which utilizes historical write-off data, to estimate expected credit losses ~~incurred~~ relating to uncollectible accounts. The allowance for ~~doubtful accounts~~credit losses was ~~$1.3 million~~$1,470 and ~~$1.2 million~~$1,449 at ~~March 31, 2021~~September 30, 2022 and December 31, ~~2020,~~2021, respectively.

Prepaid expenses

Prepaid expenses primarily consist of ~~prepaid~~ insurance, ~~rent~~software licenses and other prepaid supplier invoices.

Other current assets

Other current assets primarily consist of current deferred ~~tax assets, current deferred~~ debt issuance costs ~~for~~related to the ~~revolving~~line of credit, ~~facility (the “Revolver”),~~ other receivables, and equipment inventory.

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Funds held for clients and client funds obligation

Funds held for clients and client funds obligations result from the Company’s processing services and associated settlement activities, including settlement of payment transactions. Funds held for clients represent assets that are restricted for use solely for the purposes of satisfying the obligations to remit funds relating to the Company’s processing services, which are classified as client funds obligations on our consolidated balance sheets. Funds held for clients are generated principally from merchant services transactions and are comprised of both settlements’ receivable and cash as of period end. Certain merchant settlement assets that relate to settlement obligations accrued by the Company are held by partner banks. The Company classified funds held for clients as a current asset since these funds are held solely for the purpose of satisfying the client funds obligations.

The Company records corresponding settlement obligations for amounts payable to merchants and for payment instruments not yet presented for ~~settlement.~~settlement as client funds obligations. Client funds obligations represent the Company's contractual obligations to remit funds to satisfy clients' settlement obligations. The client funds obligations represent liabilities that will be repaid within one year of the balance sheet date. Differences in the funds held for clients and client funds obligation are due to timing differences between when transactions are settled and when payment instruments are presented for settlement and are considered to be immaterial. The changes in settlement assets and obligations are presented on a net basis within ~~operating~~financing activities in the ~~condensed~~ consolidated statements of cash flows.

The composition of funds held for clients was as follows:


	September 30,		December 31,
	2022		2021
Funds held for clients
Cash held to satisfy client funds obligations	$	56,560	$	51,592
Receivables held to satisfy client funds obligations	49,010		48,223
Total	$	105,570	$	99,815

Property and equipment, net

Property and equipment, is stated at cost less accumulated depreciation. Depreciation of property and equipment is computed using the straight-line method over the estimated useful lives of the assets. These lives are 3 years for computers and equipment, 5 years for furniture, fixtures, and office equipment, and the lesser of the asset useful life or remaining lease term for leasehold improvements. Also, the Company capitalizes software development costs and website development costs incurred in accordance with ASC 350-40, Internal Use Software. The useful lives are 3 to 5 years for internal-use software. Repair and maintenance costs are expensed as incurred and included in selling, general and administrative expenses on the ~~condensed~~ consolidated statements of income and other comprehensive income.

Leases

On January 1, 2021, the Company adopted Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842) using the modified retrospective transition approach. We applied the new standard to all material leases existing at the date of initial application. Refer to the discussion under Note 11 Commitments and Contingencies.

We determine if a contract is a leasing arrangement at inception. Leases with an initial term of 12 months or less are not recorded on the balance sheet. Right-of-use (ROU) assets and lease liabilities are recognized at the commencement date based on the present value of remaining lease payments over the lease term. For this purpose, the Company considers only payments that are fixed and determinable at the time of commencement. The Company calculates the present value of future payments by using an estimated incremental borrowing rate, which approximates the rate at which the Company would borrow, on a secured basis and over a similar term. ROU assets represent our right to control the use of an identified asset for the lease term and lease liabilities represent our

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obligation to make lease payments arising from the lease. We use the incremental borrowing rate on the commencement date in determining the present value of our lease payments. We recognize operating lease expense for our operating leases on a straight-line basis over the lease term.

The Company’s lease agreements may contain variable costs such as common area maintenance, insurance, real estate taxes, or other costs. Variable lease costs are expensed as incurred on the consolidated statements of income and other comprehensive income.

Impairment of long-lived assets

The Company evaluates the recoverability of its long-lived assets in accordance with the provisions of ASC 360, Property, Plant and Equipment (“(“ASC 360”). ASC 360 requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets is measured by comparing the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. There was no impairment of long-lived assets recognized in any period presented in the ~~condensed~~ consolidated financial statements.

Goodwill and other intangible assets, net

Goodwill represents the premium paid over the fair value of the net tangible and identifiable intangible assets acquired in the Company’s business combinations. The Company evaluates goodwill and intangible assets in accordance with ASC 350, Goodwill and Other Intangible Assets (“(“ASC 350”). ASC 350 requires goodwill to be either qualitatively or quantitatively assessed for impairment annually (or more frequently if impairment indicators arise) for each reporting unit. The Company tests goodwill and intangible assets annually for impairment, ~~as of September 30 of each year,~~ and at interim periods, ~~upon a potential indication of impairment,~~ using a qualitative approach. ~~The Company tests goodwill for impairment by comparing~~Our annual evaluation assesses qualitative factors to determine whether it is more likely than not the ~~estimated~~ fair value is less than the carrying value of the ~~reporting units~~asset. If the Company is unable to conclude that goodwill and intangible assets, net are not impaired during its qualitative assessment, the ~~related carrying value. If~~Company will perform a quantitative assessment by estimating the fair value of the ~~reporting units is lower than its carrying amount, goodwill is written down for~~assets and comparing the ~~amount by which~~fair value to the carrying ~~amount exceeds~~value. As of September 30, 2022 and 2021, it was more likely than not that the fair ~~value. The loss recognized cannot exceed the~~value of goodwill and intangible assets, net exceeded their carrying ~~amount of the goodwill. There~~value and as such, there was no goodwill impairment recognized in ~~any~~either period presented in the ~~condensed~~ consolidated financial statements.

Intangible assets with finite lives consist of ~~developed technology~~internal use software, trade names, customer lists and customer relationships and are amortized on a straight-line basis over their estimated useful lives. From time to time, the Company acquires customer lists from sales agents in exchange for an upfront cash payment. The purchase of customer lists are treated as asset ~~acquisition,~~acquisitions, resulting in recording an intangible asset at cost on the date of acquisition. The acquired customer lists intangible assets have a useful life of 5 years. Factors that could trigger an impairment review include significant under-performance relative to expected historical or projected future operating results, significant changes in the manner of our use of the acquired assets or the strategy for our overall business or significant negative industry or economic trends. If this evaluation indicates that the value of the intangible asset may be impaired, the Company makes an assessment of the recoverability of the net book value of the asset over its remaining useful life. If this assessment

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indicates that the intangible asset is not recoverable, based on the estimated undiscounted future cash flows of the asset over the remaining amortization period, the Company reduces the net book value of the related intangible asset to fair value and may adjust the remaining amortization period.

The Company evaluates its intangible assets with finite lives for indications of impairment whenever events or changes in circumstances indicate that the net book value may not be recoverable. There were no indicators of impairment identified nor was impairment recognized in intangible assets in any period presented in the ~~condensed~~ consolidated financial statements.

Long-term debt and issuance costs

Eligible debt issuance costs associated with the Company's credit facilities are deferred and amortized to interest expense over the term of the related debt using the effective interest method. Debt issuance costs associated with

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Company's term debt are presented on the Company's ~~condensed~~ consolidated balance sheets as a direct reduction in the carrying value of the associated debt liability.

Revenue

The Company’s business model provides payment services, card processing, and ACH, to merchants through enterprise or vertically focused software partners, direct sales, reseller partners, other referral partners, and a limited number of financial institutions. The Company recognizes processing revenues on bankcard merchant accounts and ACH merchant accounts at the time merchant transactions are processed, and periodic fees over the period the service is performed. See Note 2, Revenue recognition for more information on the Company's revenue recognition policy.

Cost of services exclusive of depreciation and amortization

Cost of services includes card processing costs, ACH costs, and other fees paid to card networks, and equipment expenses directly attributable to payment processing and related services to merchants. These costs are recognized as incurred. Cost of services also includes revenue share amounts paid to reseller and referral ~~partners and are calculated monthly based on monthly merchant activity.~~partners. These expenses are recognized as transactions are processed. Accrued revenue share represent amounts earned during the period but not yet paid at the end of the period.

Selling, general and administrative expenses

Selling, general and administrative expenses consist primarily of salaries, ~~stock based compensation expense,~~ wages, commissions, marketing costs, professional services costs, technology costs, occupancy costs of leased space, and bad debt expense. Stock-based compensation expense is also included in this category.

Depreciation & Amortization

Depreciation and amortization consist primarily of amortization of intangible assets, mainly including customer relationships, internal-use software, customer lists, trade names and to a lesser extent depreciation on our investments in property, equipment, and software. We depreciate and amortize our assets on a straight-line basis in accordance with our accounting policies. These lives are 3 years for computers and equipment and acquired internal-use software, 5 years for furniture, fixtures, and office equipment, and the lesser of the asset useful life or remaining lease term for leasehold improvements. Repair and maintenance costs are expensed as incurred and included in selling, general and administrative expenses on the ~~condensed~~ consolidated statements of income and other comprehensive income. Customer lists and customer relationships are amortized over a period of 5-15 years, ~~depending on the intangible,~~ developed technology ~~3-5~~5-10 years, and trade names ~~over 25~~5-25 years.

Derivative financial instruments

The Company accounts for its derivative instruments in accordance with ASC 815, Derivatives and Hedging. ASC 815 establishes accounting and reporting standards for derivative instruments requiring the recognition of all derivative instruments as assets or liabilities in the Company’s ~~condensed~~ consolidated balance sheets at fair value.

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The Company records its derivative instruments as assets or liabilities, depending on its rights or obligations under the applicable derivative contract. Changes in fair value are recognized in earnings in the affected period.

The Company uses an interest rate cap contract to manage risk from fluctuations in interest rates on its Term ~~Loan credit agreement.~~Loan. Interest rate caps involve the receipt of variable-rate amounts beyond a specified strike price over the life of the agreement without exchange of the underlying principal amount. The interest rate cap is not designated as a hedging instrument. Changes in the fair value of the interest rate cap are recorded through other income (expense) in the ~~condensed~~ consolidated statement of income and other comprehensive income, other current assets and other current liabilities on the ~~condensed~~ consolidated balance ~~sheet,~~sheets, and in changes in other current assets in the ~~combined~~consolidated statement of cash flows.

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Income taxes

The Company utilizes the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized principally for the expected tax consequences of temporary differences between the tax basis of assets and liabilities and their reported amounts, using currently enacted tax rates. The measurement of a deferred tax asset is reduced, if necessary, by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized.

The Company recognizes a tax benefit for uncertain tax positions if the Company believes it is more likely than not that the position will be upheld on audit based solely on the technical merits of the tax position. The Company evaluates uncertain tax positions after the consideration of all available information. Such tax positions must initially and subsequently be estimated as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authorities, assuming full knowledge of the position and relevant facts. The Company's policy is to recognize any interest and penalties related to income taxes as income tax expense in the relevant period.

Fair-Value Measurements

The Company follows ASC 820, Fair Value Measurements, which defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The determination of fair value is based on the principal or most advantageous market in which the Company could participate and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. Also, determination of fair value assumes that market participants will consider the highest and best use of the asset.

The Company uses the hierarchy prescribed in ASC 820 for fair value measurements, based on the available inputs to the valuation and the degree to which they are observable or not observable in the market.

The three levels of the hierarchy are as follows:

Level 1 Inputs—Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date;

Level 2 Inputs—~~Other~~Inputs are quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; inputs other than quoted prices, ~~included in Level 1 inputs~~but that are observable for the asset or liability ~~either directly~~(e.g., interest rates; yield curves); and inputs that are derived principally from or ~~indirectly, for substantially the full term of the asset~~corroborated by observable market data by correlation or ~~liability;~~by other means (i.e., market corroborated inputs); and

Level 3 Inputs—Unobservable inputs for the asset or liability used to measure fair ~~value allowing for~~value. These inputs ~~reflecting~~reflect the Company’s own assumptions about what other market participants would use in pricing the asset or ~~liability, including assumptions about risk.~~liability. These are based on the best information available and can include the Company's own data.

Recently Issued Pronouncements Not Yet Adopted

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial

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Reporting which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this ASU are effective for all entities as of March 12, 2020 through December 31, 2022. An entity may elect to apply the amendments for contract modifications by Topic or Industry Subtopic as of any date from the beginning an interim period that includes or is subsequent to March 12, 2020, or prospectively from the date that the financial statements are available to be issued. Once elected for a Topic or an Industry Subtopic, the amendments must be applied prospectively for all eligible contract modifications for that Topic or Industry Subtopic. The Company may apply ASU 2020-04 as its contracts referenced in London Interbank Offered Rate (“LIBOR”) are impacted by

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reference rate reform. The Company is currently evaluating the effect of ASU 2020-04 on its ~~condensed~~ consolidated financial statements.

~~In December 2019, the FASB issued ASU 2019-12,~~ ~~Income Taxes (Topic 740):Simplifying the Accounting for Income Taxes~~, which is intended to enhance and simplify various aspects of the accounting for income taxes. The amendments in this update remove certain exceptions to the general principles in Topic 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12 also clarifies and amends existing guidance to improve consistent application of the accounting for franchise taxes, enacted changes in tax laws or rates and transactions that result in a step-up in the tax basis of goodwill. ASU 2019-12 is effective for annual and interim periods beginning after December 15, 2021, with early adoption permitted. The Company is currently evaluating the effect of ASU 2019-12 on our condensed consolidated financial statements.

~~In August 2017, the FASB issued ASU 2017-12,~~ ~~Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting for Hedging Activities.~~ The new guidance amends the hedge accounting model in Accounting Standards Codification (“ASC”) 815 to better portray the economic results of an entity’s risk management activities in its financial statements and simplifies the application of hedge accounting in certain situations. The ASU eliminates the requirement to separately measure and report hedge ineffectiveness. The ASU is effective for annual periods beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2021. Early adoption is permitted. The Company does not expect the adoption of this ASU to have a significant impact on its condensed consolidated financial statements.

~~In January 2017, the FASB issued Accounting Standards Update (“ASU”) 2017-04,~~ ~~Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.~~ The ASU simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test which measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount. As a result, an impairment charge will be recorded based on the excess of a reporting unit's carrying amount over its fair value. The amendments of this ASU are effective for reporting periods beginning after December 15, 2022. Early adoption of this ASU is permitted for interim and annual impairment tests performed on testing dates after January 1, 2017. The Company does not expect the adoption of this ASU to have a significant impact on its condensed consolidated financial statements.

~~In June 2016, the FASB issued ASU 2016-13,~~ ~~Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments~~. This ASU presents a new methodology for calculating credit losses on financial instruments (e.g. trade receivables) based on expected credit losses and expands the types of information companies must use when calculating expected losses. This ASU is effective for annual periods beginning after December 15, 2021 and interim periods within those annual periods, with early adoption permitted. The Company is currently evaluating the impact of this ASU on its condensed consolidated financial statements.

~~In February 2016, the FASB issued ASU 2016-02,~~ ~~Leases (Topic 842)~~. The ASU requires lessees to put most leases on their balance sheets. The guidance also modifies the classification criteria and the accounting for sales-type and direct financing leases for lessors and provides new presentation and disclosure requirements for both lessees and lessors. In June 2020, the FASB issued ASU 2020-05 which delayed the effective date of ASC 842. This standard is effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early adoption is permitted. The Company plans to adopt this ASU on January 1, 2022 and does not expect the adoption of this ASU to have a significant impact on its condensed consolidated financial statements.

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2. Revenue recognition

~~In May 2014, the FASB issued~~The Company follows ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASC 606”)~~. ASC 606 supersedes the revenue recognition requirements in ASC 605, Revenue Recognition (“ASC 605”). The new standard provides~~ and performs a five-step analysis of transactions to determine when and how revenue is recognized, based upon the core principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ~~The new standard also requires additional disclosures regarding the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.~~

The Company adopted ASC 606 on January 1, 2019 using the modified retrospective approach. As a result of adopting the new standard, the Company did not have material changes to the timing of its revenue recognition, nor an impact to the financial statements.

At contract inception, the Company assesses the goods and services promised in its contracts with customers and identifies performance obligations for each promise to transfer to the customer a good or service that is distinct. The Company’s performance obligation relating to its payment processing services revenue is to provide continuous access to the Company’s system to process as much as its customers require. Since the number or volume of transactions to be processed is not determinable at contract inception, the Company’s payment processing services consist of variable consideration under a stand-ready service of distinct days of service that are substantially the same with the same pattern of transfer to the customer. As such, the stand-ready obligation is accounted for as a single-series performance obligation whereby the variability of the transaction value is satisfied daily as the performance obligation is performed. In addition, the Company applies the right to invoice practical expedient to payment processing services as each performance obligation is recognized over time and the amounts invoiced are reflective of the value transferred to the customer.

The Company uses each day as a time-based measure of progress toward satisfaction of the single performance obligation of each contract. This method most accurately depicts the pattern by which services are transferred to the merchant, as performance depends on the extent of transactions processed for that merchant on a given day. Likewise, consideration to which the Company expects to be entitled is determined according to our efforts to provide service each day.

ASC 606 requires disclosure of the aggregate amount of the transaction price allocated to unsatisfied performance obligations; however, as permitted by the standard, the Company has elected to exclude from this disclosure any contracts with an original duration of one year or less and any variable consideration that meets specified criteria. As discussed above, the Company’s core performance obligation is a stand-ready obligation comprised of a series of distinct days of service, and revenue related to this performance obligation is generally billed and recognized as the services are performed. The variable consideration allocated to this performance obligation meets the specified criteria for disclosure exclusion. The aggregate fixed consideration portion of customer contracts with an initial contract duration greater than one year is not material.

The Company’s customers are all domestic, small to medium size businesses who are underwritten to the credit standards of the Company and who each have merchant processing agreements. The Company, through its risk informed bad debt and allowance accounting, appropriately reserves for any potential risk to its revenue and cash flows. Since the cash is collected for the majority of transactions within a month, there is not a significant time lag or risk of uncollectibility in the recognition of revenue.

We do not have any material contract assets or liabilities for any period presented and we did not recognize any impairments of any contract assets or liabilities for the three and nine months ended ~~March 31,~~September 30, 2022 and 2021, ~~and 2020,~~ respectively.

The Company generates its revenue from three revenue sources which include Transaction based revenue, Service based fee revenue and Equipment revenue and are defined below:

Transaction based revenue

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Transaction based revenue represents revenue generated from transaction fees based on volume, including interchange fees and convenience based fees. The Company generates transaction based revenue from fees charged to merchants for card-based processing volume and ACH transactions. Transaction based revenues are recognized on a net basis equal to the full amount billed to the bankcard merchant, net of interchange fees and assessments. Interchange fees are fees paid to card-issuing banks and assessments paid to payment card networks. Interchange fees are set, and collected, by credit card networks based on various factors, including the type of bank card, card brand, merchant transaction processing volume, the merchant’s industry and the merchant’s risk profile and are recognized at the time merchant transactions are processed. Transaction based revenue was recorded net of interchange fees and assessments of ~~$104,519~~$133,308 and ~~$101,041~~$391,256 for the three and nine months ended ~~March 31,~~September 30,

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2022, respectively. Transaction based revenue was recorded net of interchange fees and assessments of $124,157 and $351,920 for the three and nine months ended September 30, 2021 ~~and 2020,~~ respectively.

Service based fee revenue

Service based fee revenue represents revenue generated from recurring and periodic service fees. The Company generates service based fee revenue from charging a service fee, a fee charged to the client for facilitating bankcard processing, which ~~are~~is recognized on a gross basis. The Company also generates service based fees related to ACH inclusive of monthly support fees and monthly statement fees.

Equipment revenue

Equipment revenue comprises sales of equipment which primarily consists of payment terminals.

The Company generates its revenue from two segments which are Integrated Solutions and Payment Services and are defined below:

Integrated Solutions

Our Integrated Solutions segment represents the delivery of our credit and debit card payment solutions, and to a lesser extent, ACH processing solutions to customers via integrations with software partners across our strategic vertical markets. Our Integrated Solutions partners include vertical focused front-end Customer Relationship Management software providers as well as back-end Enterprise Resource Planning and accounting solutions.

Payment Services

Our Payment Services segment represents the delivery of card payment processing solutions to our customers through resellers, as well as ACH, check, and gift card processing. Card payment processing solutions in this segment do not originate via a software integration but still utilize Paya’s core technology infrastructure. ACH, check, and gift card processing may or may not be integrated with third-party software.

The following table presents the Company's revenue disaggregated by segment and by source as follows:


		Integrated Solutions					Integrated Solutions
		Three Months Ended March 31,					Three Months Ended September 30,				Nine Months Ended September 30,
		2021		2020			2022		2021		2022		2021
Revenue from contracts with customers	Revenue from contracts with customers					Revenue from contracts with customers
Transaction based revenue	Transaction based revenue	$	30,178	$	26,562	Transaction based revenue	$	42,698	$	36,955	$	124,863	$	104,180
Service based fee revenue	Service based fee revenue	2,646		2,765		Service based fee revenue	2,966		2,568		8,672		7,684
Equipment revenue	Equipment revenue	67		62		Equipment revenue	54		117		245		232
Total revenue	Total revenue	$	32,891	$	29,389	Total revenue	$	45,718	$	39,640	$	133,780	$	112,096

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		Payment Services					Payment Services
		Three Months Ended March 31,					Three Months Ended September 30,				Nine Months Ended September 30,
		2021		2020			2022		2021		2022		2021
Revenue from contracts with customers	Revenue from contracts with customers					Revenue from contracts with customers
Transaction based revenue	Transaction based revenue	$	18,052	$	15,747	Transaction based revenue	$	21,124	$	19,061	$	62,411	$	57,270
Service based fee revenue	Service based fee revenue	4,293		3,972		Service based fee revenue	4,506		4,306		13,561		12,830
Equipment revenue	Equipment revenue	19		31		Equipment revenue	18		51		99		101
Total revenue	Total revenue	$	22,364	$	19,750	Total revenue	$	25,648	$	23,418	$	76,071	$	70,201

3. Business ~~combination & acquisitions~~combinations

~~Business combination~~JS Innovations LLC transaction overview

On ~~October 16, 2020, FinTech consummated~~January 19, 2022, the ~~Business Combination pursuant~~Company closed on the acquisition of JS Innovations LLC (VelocIT) which provides fully integrated, omnichannel payment solutions to accounting and ERP partners. The acquisition was accounted for as a business combination as defined by ASC 805, and the ~~terms~~aggregate purchase price was $7,079 consisting of $6,079 cash paid at closing and $1,000 cash to be paid in January 2023, which is recorded in accrued liabilities on the ~~Merger Agreement and acquired all of the issued and outstanding equity interests in Paya. As of March 31, 2021, there have been no material changes outside the ordinary course of business~~consolidated balance sheets. Transaction costs related to the ~~Business Combination~~acquisition of VelocIT totaled $397 and are recorded in selling, general and administrative expenses on the consolidated statement of income and other comprehensive income for 2022.

Goodwill of $2,064 resulted from the ~~amounts reported within our Annual Report on Form 10-K~~acquisition and is deductible for ~~the year ended December 31, 2020.~~tax purposes. The measurement period remains open as of September 30, 2022.

The ~~Payment Group transaction overview~~following table summarizes the fair value of the assets acquired and liabilities assumed by the Company and resulting goodwill as of September 30, 2022:


Assets
Current Assets:
Cash and cash equivalents	$	45
Trade receivables, net	85
Prepaid expenses	28
Total current assets	$	158
Other assets:
Goodwill	2,064
Intangible assets, net	4,900
Total assets	$	7,122

Liabilities
Current liabilities:
Accrued liabilities	21
Accrued revenue share	22
Total current liabilities	$	43
Total liabilities	$	43

Net assets	$	7,079

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~~Paya purchased The~~Paragon Payment ~~Group, LLC ("TPG" or "The~~Solutions transaction overview

On April 23, 2021, the Company closed the acquisition of Paragon Payment ~~Group"~~Solutions (“Paragon”)~~. on October 1, 2020 for total cash consideration of $22,270,~~, which was accounted for as a business combination as defined by ASC 805. The aggregate purchase price was $26,624, consisting of $19,124 in cash and $7,500 of common stock.

Goodwill of $14,780 resulted from the acquisition and is partially deductible for tax purposes. Intangible assets not recognized apart from goodwill consist primarily of the expected revenue synergies. The measurement period was closed as of March 31, 2022.

The following table summarizes the acquisition date fair value of the assets acquired and liabilities assumed ~~are recorded at their respective fair values~~by the Company and resulting goodwill as of the date of the acquisition with the excess of the purchase price over those fair values recorded as goodwill. The determination of the fair values of the acquired assets and assumed liabilities required significant judgment, including estimates impacting the determination of estimated lives of tangible and intangible assets, and their related fair values. The fair values were determined considering the income, market and cost approaches. The fair value measurement is based on significant inputs that are not observable in the market and, therefore represents a Level 3 measurement.September 30, 2022:


Assets
Current Assets:
Cash and cash equivalents	$	816
Trade receivables, net	2,653
Prepaid expenses	174
Other current assets	199
Funds held for clients	3,846
Total current assets	$	7,688
Other assets:
Property and equipment, net	$	52
Goodwill	14,780
Intangible assets	12,510
Other non-current assets	60
Total assets	$	35,090

Liabilities
Current liabilities:
Trade payables	1,407
Accrued liabilities	2,118
Accrued revenue share	80
Other current liabilities	58
Client funds obligations	4,266
Total current liabilities	$	7,929
Non-current liabilities:
Deferred tax liability, net	390
Other non-current liabilities	147
Total liabilities	$	8,466

Net assets	$	26,624

Table of March 31, 2021, there have been no material changes outside the ordinary course of business related to the TPG acquisition from the amounts reported within our Annual Report on Form 10-K for the year ended December 31, 2020, other than those resulting from changes in goodwill as discussed below, as the measurement period remains open, primarily due to continued refinement of intangibles valuation. In the three months ended March 31, 2021, the Company made measurement period adjustments totaling $29 to increase goodwill to reflect facts and circumstances in existence as of the effective date of the acquisition.Contents

4. Property and equipment, net

Property and equipment, net consists of the following:

March 31, 2021 December 31, 2020
Computers and equipment $ 7,635 $ 7,134
Internal-use software 12,430 10,708
Office equipment 141 130
Furniture and fixtures 1,320 1,320
Leasehold improvements 1,360 1,353
Other equipment 26 26
Total property and equipment 22,912 20,671
Less: accumulated depreciation (8,855) (7,866)
Total property and equipment, net $ 14,057 $ 12,805

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	September 30, 2022		December 31, 2021
Computers and equipment	$	8,896	$	8,528
Internal-use software	18,927		14,949
Office equipment	141		141
Furniture and fixtures	1,165		1,357
Leasehold improvements	1,135		1,396
Other equipment	26		26
Total property and equipment	30,290		26,397
Less: accumulated depreciation	(15,858)		(12,386)
Total property and equipment, net	$	14,432	$	14,011

Depreciation and amortization expense, including ~~depreciation of assets under capital leases and~~ internal-use software, totaled ~~$1,038~~$1,312 and ~~$980~~$3,815 for the three and nine months ended ~~March 31,~~September 30, 2022, respectively. Depreciation and amortization expense, including internal-use software, totaled $1,282 and $3,395 for the three and nine months ended September 30, 2021, ~~and 2020,~~ respectively.

5. Goodwill and other intangible assets, net

Goodwill recorded in the ~~condensed~~ consolidated financial statements was ~~$206,337~~$223,181 and ~~$206,308~~$221,117 as of ~~March 31, 2021~~September 30, 2022 and December 31, ~~2020,~~2021, respectively. There were no indicators of impairment noted in the periods presented.

The following table presents changes to goodwill for the ~~three~~nine months ended ~~March 31, 2021:~~September 30, 2022:

Integrated Solutions Payments Services Total
Balance at December 31, 2020 $ 152,408 $ 53,900 $ 206,308
Measurement period adjustment (Note 3) 29 0 29
Balance at March 31, 2020 $ 152,437 $ 53,900 $ 206,337


	Integrated Solutions		Payments Services		Total
Balance at December 31, 2021	$	162,783	$	58,334	$	221,117
Acquisition - VelocIT (Note 3)	2,064		—		2,064
Balance at September 30, 2022	$	164,847	$	58,334	$	223,181

Intangible assets other than goodwill at ~~March 31, 2021~~September 30, 2022 included the following:


		Weighted Average Useful Life (Years)	Useful Lives	Gross Carrying Amount at March 31, 2021		Accumulated Amortization		Net Carrying Value as of March 31, 2021			Weighted Average Useful Life (Years)	Useful Lives	Gross Carrying Amount at September 30, 2022		Accumulated Amortization		Net Carrying Value as of September 30, 2022
Customer Relationships	Customer Relationships	10.4	5-15 years	$	173,823	$	(55,010)	$	118,813	Customer Relationships	8.8	5-15 years	$	189,931	$	(86,359)	$	103,572
Developed Technology	Developed Technology	4.3	3-5 years	25,520		(14,854)		10,666		Developed Technology	5.8	5-10 years	41,520		(22,646)		18,874
Trade name	Trade name	25.0	25 years	4,190		(382)		3,808		Trade name	13.8	5-25 years	5,260		(937)		4,323
		8.0		$	203,533	$	(70,246)	$	133,287		8.3		$	236,711	$	(109,942)	$	126,769

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Intangible assets other than goodwill at December 31, ~~2020~~2021 included the following:


		Weighted Average Useful Life (Years)	Useful Lives	Gross Carrying Amount at December 31, 2020		Accumulated Amortization		Net Carrying Value as of December 31, 2020			Weighted Average Useful Life (Years)	Useful Lives	Gross Carrying Amount at December 31, 2021		Accumulated Amortization		Net Carrying Value as of December 31, 2021
Customer Relationships	Customer Relationships	10.4	5-15 years	$	167,158	$	(50,477)	$	116,681	Customer Relationships	10.4	5-16 years	$	184,544	$	(70,222)	$	114,322
Developed Technology	Developed Technology	4.2	3-5 years	25,520		(13,435)		12,085		Developed Technology	5.1	3-7 years	36,620		(18,843)		17,777
Trade name	Trade name	25.0	25 years	4,190		(340)		3,850		Trade name	15.8	5-25 years	5,260		(651)		4,609
		8.6		$	196,868	$	(64,252)	$	132,616		8.4		$	226,424	$	(89,716)	$	136,708

Amortization expense totaled ~~$5,994~~$7,040 and ~~$5,016~~$20,226 for the three and nine months ended ~~March 31,~~September 30, 2022, respectively, and $6,609 and $19,047 for the three and nine months ended September 30, 2021, ~~and 2020,~~ respectively.

The following table shows the expected future amortization expense for intangible assets at ~~March 31, 2021:~~September 30, 2022:

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		Expected Future Amortization Expense			Expected Future Amortization Expense
2021 - remaining		$	17,213
2022		21,363
2022 - remaining				2022 - remaining	$	6,780
2023	2023	21,161		2023	26,924
2024	2024	19,541		2024	25,304
2025	2025	18,585		2025	24,341
2026				2026	19,534
Thereafter	Thereafter	35,424		Thereafter	23,886
Total expected future amortization expense	Total expected future amortization expense	$	133,287	Total expected future amortization expense	$	126,769

6. Long-term debt

As disclosed in Note 7 under Item 8 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, on June 25, 2021, the Company entered into a new credit agreement which governs new senior secured credit facilities, consisting of a $250 million senior secured term loan facility (the “Term Loan”). The Company repaid its prior credit agreement (the “Prior Credit Agreement”) with Antares Capital LP, as administrative agent, in full.

The Company’s long-term debt consisted of the following for the ~~three~~nine months ended ~~March 31, 2021~~September 30, 2022 and year ended December 31, ~~2020:~~2021:

March 31, 2021 December 31, 2020
Term loan credit agreement $ 228,086 $ 228,677
Debt issuance costs, net (5,927) (6,161)
Total debt 222,159 222,516
Less: current portion of debt (2,364) (2,364)
Total long-term debt $ 219,795 $ 220,152

In August 2017, Paya Inc. entered into a credit agreement providing for a term loan facility (the “Term Loan”), a revolving credit facility (the “Revolver”) and a delayed term loan that was not utilized. In December 2018, the Company amended the credit agreement and Paya Holdings III, LLC (f/k/a GTCR-Ultra Holdings III, LLC), a wholly-owned subsidiary of the Company, assumed all of Paya Inc.’s right and obligations as “Borrower” under the credit agreement and related documents. The credit agreement currently provides for a $235,500 Term Loan and a $25,000 Revolver and is secured by substantially all of the assets of Paya Holdings II, LLC (f/k/a GTCR-Ultra Holdings II, LLC), the parent of the Borrower, and its subsidiaries. In July 2020, the Company amended the credit agreement to perform the Business Combination, and among other things, extend the maturity of the Revolver to July 24, 2025 and the maturity of the Term Loan to August 1, 2027.


	September 30, 2022		December 31, 2021
Term loan	$	247,500	$	249,375
Debt issuance costs, net	(4,438)		(5,018)
Total debt	243,062		244,357
Less: current portion of debt	(2,500)		(2,485)
Total long-term debt	$	240,562	$	241,872

There were no borrowings outstanding under the ~~Revolver~~senior secured revolving credit facility (the “Revolver”) as of ~~March 31, 2021~~September 30, 2022 and December 31, ~~2020,~~2021, respectively.

The net leverage ratio is the ratio of the Company’s secured indebtedness to the condensed consolidated adjusted EBITDA. The maximum ratio permitted by the financial covenant in the credit agreement is 7.25x as of March 31, 2021.

The current portion of debt was included within other current liabilities on the ~~condensed~~ consolidated balance ~~sheet.~~sheets.

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The Company had ~~$5,927~~$4,438 and ~~$6,161~~$5,018 of unamortized Term Loan debt issuance costs that were netted against the outstanding loan balance and ~~$432~~$728 and ~~$457~~$875 of unamortized costs associated with the Revolver as of ~~March 31, 2021~~September 30, 2022 and December 31, ~~2020,~~2021, respectively. The Revolver debt issuance costs are recorded in other current and other long term assets and are amortized over the life of the Revolver. Amortization of the debt issuance costs are included in interest expense in the ~~condensed~~ consolidated statement of income and other comprehensive income.

~~The~~Borrowings under the Senior Secured Credit Facilities bear interest, equal to (i) an alternative base rate equal to the greater of (a) the prime rate announced by the Agent or the highest interest rate published by the Federal Reserve Board as the “bank prime loan” rate, (b) the Federal Reserve Bank of New York rate plus 0.5% per annum, and (c) the Eurodollar rate for an interest period of one-month beginning on such day plus 100 basis points, plus 2.25% (provided that the ~~Revolver and~~Eurodollar rate applicable to the Term Loan ~~was originally set at LIBOR (with a floor of 1.00%)~~shall not be less than 0.75% per annum); or (ii) the Eurodollar rate (provided that the Eurodollar rate applicable to the Term Loan shall not be less than 0.75% per annum), plus ~~a margin of 6.00% on July 1, 2017. In July 2018, the interest rate was reduced to LIBOR (with a floor of 1.00%) plus~~3.25% .

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~~a margin of 5.25% and remained unchanged at March 31, 2021.~~ Interest expense ~~related to~~on the long-term debt ~~totaled $3,573~~was $2,905 and ~~$4,096~~$8,074 for the three and nine months ~~ending March 31, 2021~~ended September 30, 2022, respectively, and ~~2020, respectively. Unused Revolver borrowings incur administrative agent fees at a rate of 0.50% per annum on the daily average of the unused amount~~$3,137 and ~~are recorded in interest expense. Total interest expense was $4,043 and $4,645~~$11,002 for the three and nine months ended ~~March 31,~~September 30, 2021, ~~and 2020,~~ respectively. ~~This included the long-term debt interest expense of $3,573 and $4,096 for the three months ended March 31, 2021 and 2020, and amortization~~Amortization of debt issuance costs ~~of $259~~were $242 and ~~$274~~$726 for the three and nine months ended ~~March 31, 2021~~September 30, 2022, respectively, and ~~2020, respectively.~~

~~Principal payments on the Term Loan of $591 were paid quarterly~~$242 and $687 for the three and nine months ended ~~March 31,~~September 30, 2021, ~~and 2020.~~ respectively.

Annual principal payments on the Term Loan for the remainder of ~~2021~~2022 and the following years is as follows:


		Future Principal Payments			Future Principal Payments
2021 - remaining		$	1,773
2022		2,364
2022 - remaining				2022 - remaining	$	625
2023	2023	2,364		2023	2,500
2024	2024	2,364		2024	2,500
2025	2025	2,364		2025	2,500
2026				2026	2,500
Thereafter	Thereafter	216,857		Thereafter	236,875
Total future principal payments	Total future principal payments	$	228,086	Total future principal payments	$	247,500

7. Derivatives

The Company ~~utilizes~~has historically utilized derivative instruments to manage risk from fluctuations in interest rates on its Term ~~Loan credit agreement.~~Loan. On February 3, 2021, the Company entered into an interest rate cap agreement with a notional amount of $171,525. The effective date is March 31, 2021 and terminates on March 31, 2023. The Company paid a premium of $67 for the right to receive payments if LIBOR rises above the cap rate of 1.00%. The premium is recorded in other ~~long-term~~current assets on the ~~condensed~~ consolidated balance ~~sheet.~~sheets. The interest rate cap agreement was a derivative not designated as a hedging instrument for accounting purposes. There were no changes to the interest rate cap in connection with the entry into the new Term Loan. The fair value of the interest rate cap agreement was ~~$108~~$2,737 at ~~March 31, 2021.~~September 30, 2022. The Company recognized ~~$(41)~~$60 and $2,543 in other income (expense) for the three and nine months ended ~~March 31, 2021.~~September 30, 2022, respectively, and $22 and $48 for the three and nine months ended September 30, 2021, respectively, from the interest rate cap agreement. The Company received cash payments of $548 for the three and nine months ended September 30, 2022 and $0 for the three and nine months ended September 30, 2021 from the interest rate cap agreement.

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8. Equity

Common Stock

The holders of the Company's common stock are entitled to one vote for each share of common stock held. Of the ~~126,697,492~~132,113,603 shares of common stock outstanding at ~~March 31, 2021,~~September 30, 2022, a total of 5,681,812 are considered contingently issuable ~~as they require~~in two equal tranches if the ~~trading~~closing price of our common stock ~~to exceed~~exceeds certain ~~thresholds.~~price thresholds ($15.00 and $17.50, respectively) for 20 out of any 30 consecutive trading days through October 16, 2025. In addition, ~~should~~14,018,188 shares are contingently issuable in two equal tranches if the closing price of our ~~share price exceed a series of trading~~common stock exceeds certain price thresholds ~~the Company may issue up to an additional 14,018,188 shares~~($15.00 and $17.50, respectively) for 20 out of ~~common stock, for total~~any 30 consecutive trading days through October 16, 2025. Total contingently issuable shares ofare 19,700,000.

On March 17, 2021, the Company priced an offering of 20,000,000 shares of its common stock, $0.0001 par value per share. The Company and the selling stockholder each agreed to sell 10,000,000 shares of common stock to the underwriters at a price of $12.25 per share. The offering closed and the shares were delivered on March 22, 2021. As a result of the offering, the Company received cash proceeds of $122,500, net of transaction costs of $5,530.

Paya Holdings Inc. Omnibus Incentive Plan

On ~~December 22,~~October 16, 2020, the Company adopted the Paya Holdings Inc. Omnibus Incentive Plan, which, as amended on May 31, 2022, allows for issuance of up to ~~8,800,000~~18,800,000 shares of its common stock. The purpose of the plan is to enhance the profitability and value of the Company for the benefit of its stockholders by enabling the Company to offer eligible individual stock and cash-based incentives in order to attract, retain, and reward such individuals and strengthen the mutuality of interest between such individuals and the stockholders. Under the Omnibus Incentive Plan, the Company may grant stock options, stock appreciation rights, restricted shares, performance awards, and other stock-based and cash-based awards to eligible employees, consultants or non-employee directors of the Company. The Company recognized

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~~$451~~ $1,957 and $0$5,014 of share-based compensation for the three and nine months ended ~~March 31,~~September 30, 2022 and $675 and $1,916 for the three and nine months ended September 30, 2021, ~~and 2020, respectively.~~respectively, in selling, general & administrative expenses on the ~~condensed~~ consolidated statement of income and other comprehensive income on a straight-line basis over the vesting periods. As of ~~March 31, 2021,~~September 30, 2022, the Company had 2two stock-based compensation award types granted and outstanding: restricted stock units (RSUs) and stock options.

~~A summary~~RSUs represent the right to receive shares of the Company's common stock at a specified date in the future. RSUs ~~activity~~issued under the Omnibus Incentive Plan isvest over 3 or 5 year periods. RSUs granted under the Omnibus Incentive Plan were as follows:

Number of RSUs Weighted-Average Grant Date Fair Value Weighted-Average Remaining Term
December 31, 2020 balance 230,000 $ 13.73 3.4 years
Granted 104,090 $ 13.87 1.4 years
March 31, 2021 balance 334,090 $ 13.77 2.8 years


			Nine Months Ended September 30, 2022
RSUs granted			2,119,608
Fair value of common stock			$5.12 - $7.25

~~On December 22, 2020, the Company granted 185,000~~The fair value of each stock ~~options under the Omnibus Incentive Plan. These options generally vest in 5 annual installments, starting~~option award is estimated on the ~~first anniversary~~date of the grant, ~~date and have ten-year contractual terms. The grant date fair value of the stock options was $0.8 million based on the use of~~using the Black-Scholes ~~option pricing~~option-pricing model ~~with~~and the assumptions in the following assumptions: expected term of 6.5 years; risk-free interest rate of 0.57%; expected volatility of 29.9%; dividend yield of 0%; and fair value at the grant date and weighted-average strike price of $13.73. No additional stock options were granted in the three months ended March 31, 2021.table:


			Nine Months Ended September 30,
			2022
Stock options granted			1,466,921
Fair value of stock options			$2.76 - $3.88
Expected volatility			51.14% - 53.47%
Dividend yield			—
Expected term			6.5
Risk-free interest rate			2.20% - 2.95%

The risk-free interest rate is based on the yield of a 0zero coupon United States Treasury Security with a maturity equal to the expected life of the stock option from the date of the grant. The assumption for expected volatility is

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based on the historical volatility of a peer group of market participants as the Company has limited historical volatility. It is the Company's intent to retain all profits for the operations of the business for the foreseeable future, as such the dividend yield assumption is 0.zero. The Company applied the simplified method (as described in Staff Accounting Bulletin 110), which is the mid-point between the vesting date and the end of the contract term in determining the expected term of the stock options as the Company has limited historical basis upon which to determine historical exercise periods. All stock options exercised will be settled in common stock.

The following table summarizes stock option activity:


	Number of Options	Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (in years)	Weighted-Average Fair Value
Outstanding, December 31, 2021	682,000	$	10.87	9.49	$	4.74
Granted	1,466,921	5.22			2.79
Exercised	—	—
Forfeited	(140,618)	10.74			3.81
Outstanding, September 30, 2022	2,008,303	$	6.75	9.29	$	3.38

As of December 31, 2021
Vested and expected to vest	682,000	$	10.87	9.49	$	4.74
Exercisable	37,000	$	13.73	8.87	$	4.25

As of September 30, 2022
Vested and expected to vest	2,008,303	$	6.75	9.29	$	3.38
Exercisable	51,400	$	13.15	8.30	$	4.51

The following tables summarize RSU activity for the three and nine months ended September 30, 2022:


Three Months Ended September 30, 2022
	Number of Shares	Weighted-Average Fair Value
Outstanding, June 30, 2022	2,652,022	$	6.72
Granted	32,415	7.25
Vested	(67,570)	13.12
Forfeited	(24,412)	5.12
Outstanding September 30, 2022	2,592,455	$	6.58

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Nine Months Ended September 30, 2022
	Number of Shares	Weighted-Average Fair Value
Outstanding, December 31, 2021	763,645	$	10.89
Granted	2,119,608	5.51
Vested	(79,349)	12.91
Forfeited	(211,449)	9.12
Outstanding September 30, 2022	2,592,455	$	6.58

Class C Incentive Units

~~Ultra provides~~GTCR-Ultra Holdings, LLC (“Ultra”) provided Class C Incentive Units as part of their incentive plan. As certain employees of the Company were recipients of the Class C Incentive Units, the related share-based compensation was recorded by the Company.

The total number of units associated with share-based compensation granted and forfeited during the period from December 31, ~~2019 to March 31, 2020 and December 31,~~ 2020 to ~~March 31, 2021~~September 30, 2022 is as follows:

~~Total Units~~

~~December 31, 2019 balance~~Time Vesting

~~43,451,157~~

~~Granted~~

~~409,181~~

~~Forfeited~~

~~March 31, 2020 balance~~

~~43,860,338~~

December 31, 2020 balance

42,881,437

Granted

—

~~Granted~~Forfeited

0 (3,274,827)

~~Forfeited~~September 30, 2021 balance

039,606,610

~~March~~December 31, 2021 balance

~~42,881,437~~39,074,593

Granted

—

Forfeited

(40,982)

Exercised

(654,976)

September 30, 2022 balance

38,378,635

As of ~~March 31, 2021, 20,357,438~~September 30, 2022, 29,099,211 of the units had vested. The units vest on a straight-line basis over the terms of the agreement as described below.

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	Outstanding as of September 30,
	2022	2021
Time vesting units
5 year vesting period	38,080,635	39,308,610
1 year vesting period	298,000	298,000
Outstanding Incentive Units	38,378,635	39,606,610

There were 42,881,437 and 42,881,437 Class C Incentive Units issued as of March 31, 2021 and December 31, 2020, respectively. Of these units issued as of March 31, 2021, 42,583,141 units were time vesting units with a five-year vesting period (vesting date varies by employee contract) and 298,296 units were time vesting units within a one-year vesting period. Of these units issued as of December 31, 2020, 42,583,437 units were time vesting units with a five-year vesting period (vesting date varies by employee contract) and 298,000 units were time vesting units with a one-year vesting period.

The Company recognized ~~$259~~$186 and ~~$392~~$610 of share-based compensation related to the Class C Incentive Units, for the three and nine months ended ~~March 31,~~September 30, 2022, respectively, and $247 and $580 for the three and nine months ended September 30, 2021, ~~and 2020,~~ respectively, in selling, general & administrative expenses on the ~~condensed~~ consolidated statement of income and other comprehensive income. The Company used the fair value of the awards on the grant date to determine the share-based compensation expense. ~~To determine the fair value of units issued in 2020, Ultra estimated its enterprise value (“EV”) and evaluated the value of units based on the distribution waterfall outlined below.~~

~~To determine the fair value~~

Table of units issued in early 2020, Ultra used a third-party valuation firm to calculate an EV of $574,000 as determined by discounted cash flow, guideline public company, and merger and acquisition valuation methodologies. Ultra used the aggregate implied equity value based on capital contributions and a Black-Scholes Option Pricing Model utilizing certain assumptions, such as the risk-free interest rate and equity volatility, to determine total equity value. A risk-free interest rate of 0.3% was utilized with a 5-year term. Volatility of 60.0% was utilized based on comparable companies publicly traded common stock prices and the capital structure of Ultra. A weighted average cost of capital of 12.0% was used in the discounted cash flow analysis. Multiples of 13.0x EV/Last twelve months (“LTM”) earnings before interest taxes depreciation and amortization (“EBITDA”) and 12.5x EV/2019 EBITDA and 10.5x EV / 2020 EBITDA were utilized in the guideline public company analysis. Multiples of 13.0x EV/LTM EBITDA and 12.5x EV/Next twelve months EBITDA were utilized in the merger and acquisition analysis.Contents

Warrants

The Company ~~currently has 17,714,949~~did not have warrants outstanding as of ~~March 31,~~September 30, 2022 and 2021. ~~Each warrant entitles~~During 2021, the Company completed a registered ~~holder~~exchange offer relating to ~~purchase one whole share~~the Company's 17,714,945 outstanding warrants. In connection therewith, the Company exchanged an aggregate 17,428,489 warrants tendered for shares of the ~~Company's~~Company’s common stock at an exchange ratio of 0.26 shares for each warrant. As a ~~price~~result, at closing in the third quarter of ~~$11.50 per share.~~2021, the Company issued an aggregate of 4,531,407 shares of common stock and separate from the exchange, 2,450 warrants were exercised.

Additionally, on the closing date of the exchange offer in the third quarter of 2021, the Company and Continental Stock Transfer & Trust Company, entered into Amendment No. 1 (the “Warrant Amendment”) to the Warrant Agreement, dated as of November 15, 2018, by and between FinTech Acquisition Corp. III and the warrant agent, governing the warrants. The Warrant Amendment provided the Company with the right to mandatorily exchange the Company’s remaining outstanding warrants ~~will expire on October 16, 2025~~for shares of the Company’s common stock, at an exchange ratio of 0.234 shares for each warrant. Simultaneously with the closing of the warrant exchange offer, the Company notified holders of the remaining warrants that it would exercise its right to exchange the warrants for shares of common stock and, consequently, the 284,006 outstanding warrants that were not tendered in the exchange were converted into an aggregate 66,457 shares of common stock. As a result of these transactions, there were no warrants outstanding as of December 31, 2021 or ~~earlier upon redemption or liquidation.~~September 30, 2022.

Earnings per Share

Earnings per share has been computed by dividing net income ~~or loss~~ available to common stockholders by the weighted average number of common shares outstanding during the respective period. Diluted earnings per share has been computed by dividing net loss available to common stockholders by the weighted average number of common shares and dilutive potential common shares outstanding during the respective period. Diluted earnings per share reflect the assumed exercise, settlement, and vesting of all dilutive securities, except when the effect is anti-dilutive. Diluted earnings per share is calculated as the weighted-average number of common shares outstanding, including the dilutive impact of the Company’s stock option grants, RSU’s and warrants as determined per the treasury stock method. Potentially dilutive securities consist of shares issuable upon the exercise of stock options, issuance of earnout shares, exercise of warrants, and vesting of restricted stock unit awards.

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The following ~~table provides~~tables provide the computation of basic and diluted earnings per share:


	Three Months Ended September 30,		Nine Months Ended September 30,
	2022		2022
Numerator:
Net income	$	1,350	$	5,208
Denominator:
Weighted average common shares - basic	126,417,577		126,397,360

Add effect of dilutive securities:
Stock-based awards	605,985		300,511


Weighted average common shares assuming dilution	127,023,562		126,697,871

Earnings per share:
Basic	$	0.01	$	0.04
Diluted	$	0.01	$	0.04

Anti-dilutive shares excluded from calculation of diluted EPS:
Restricted stock units - granted	595,105		602,605
Stock options - granted	2,008,303		2,008,303

Earnout shares	19,700,000		19,700,000
Total anti-dilutive shares	22,303,408		22,310,908

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		Three Months Ended March 31,					Three Months Ended September 30,		Nine Months Ended September 30,
		2021		2020			2021		2021
Numerator:	Numerator:					Numerator:
Net income (loss)		$	1,045	$	(675)
Net loss						Net loss	$	(2,961)	$	(5,070)
Denominator:	Denominator:					Denominator:
Weighted average common shares		117,808,563		54,534,022
Weighted average common shares - basic						Weighted average common shares - basic	128,429,090		124,523,217

Add effect of dilutive securities:	Add effect of dilutive securities:					Add effect of dilutive securities:
RSUs		6,624		0
Stock-based awards						Stock-based awards	—		—
Warrants	Warrants	1,727,098		0		Warrants	—		—

Weighted average common shares assuming dilution	Weighted average common shares assuming dilution	119,542,285		54,534,022		Weighted average common shares assuming dilution	128,429,090		124,523,217

Earnings per share:	Earnings per share:					Earnings per share:
Basic	Basic	$	0.01	$	(0.01)	Basic	$	(0.02)	$	(0.04)
Diluted	Diluted	$	0.01	$	(0.01)	Diluted	$	(0.02)	$	(0.04)

Anti-dilutive shares excluded from calculation of diluted EPS:	Anti-dilutive shares excluded from calculation of diluted EPS:					Anti-dilutive shares excluded from calculation of diluted EPS:
Restricted stock units - granted	Restricted stock units - granted	50,000		0		Restricted stock units - granted	6,279		9,406
Stock options - granted		185,000		0

Earnout shares	Earnout shares	19,700,000		0		Earnout shares	19,700,000		19,700,000
Total anti-dilutive shares	Total anti-dilutive shares	19,935,000		0		Total anti-dilutive shares	19,706,279		19,709,406

9. Income taxes

The Company’s effective tax rate for the three months ended ~~March 31,~~September 30, 2022 and 2021 was 51.5% and ~~March 31, 2020~~208.0%, respectively. The Company’s effective tax rate for the nine months ended September 30, 2022 and 2021 was ~~49.26%~~40.0% and ~~57.72%~~(102.2)%, respectively. The Company recorded income tax expense of ~~$576~~$1,434 and ~~an income tax benefit of $922~~$3,476 for the three and nine months ended ~~March 31,~~September 30, 2022 and $5,702 and $2,563 for the three and nine months ended September 30, 2021, ~~and March 31, 2020,~~ respectively. The increase in income tax expense was primarily attributable to an increase in pre-tax ~~income and transaction costs anticipated to be non-deductible for tax purposes.~~income. The difference in the Company’s effective income tax rate for the ~~three~~nine months ended ~~March 31, 2021~~September 30, 2022 and its federal statutory tax rate of 21% is primarily ~~related to transaction costs anticipated to be non-deductible for tax purposes and~~driven by state and local income ~~taxes.~~taxes, stock compensation, and an increase in the valuation allowance.

~~During the three months ended March 31, 2021 and March 31, 2020, the Company recognized $740 and $(1,874) of current tax payable related to income tax expense.~~

ASC 740, Income Tax requires deferred tax assets to be reduced by a valuation allowance, if, based on the weight of available positive and negative evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. In accordance with this requirement, the Company regularly reviews the recoverability of its deferred tax assets and establishes a valuation allowance if appropriate. In determining the amount of any required valuation allowance, the Company considers the history of profitability, projections of future profitability, the reversal of future taxable temporary differences, the overall amount of deferred tax assets, and the timeframe necessary to utilize the deferred tax assets prior to their expiration. Based on the weight of all positive and negative quantitative and qualitative evidence available as outlined above, management has concluded that it is more likely than not that the Company will not be able to realize a portion of its federal and state deferred tax assets in the foreseeable future and has recorded a valuation allowance of ~~$9,493~~$10,146 and ~~$9,459~~$9,740 against these assets as of ~~March 31, 2021,~~September 30, 2022, and December 31, ~~2020,~~2021, respectively. The change in the valuation allowance is predominantly a result of the timing differences between the book and tax amortization of intangible assets acquired during the

~~There are no material uncertain tax positions as of March 31, 2021.~~

~~10. Fair Value~~

~~The Company makes recurring fair value measurements for derivative instruments. Refer to Note 7~~. ~~Derivatives for additional information.~~

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year. The ending amount of all unrecognized tax benefits was $229 for both periods as of September 30, 2022, and December 31, 2021.

10. Fair Value

The Company made recurring fair value measurements of contingent liabilities arising from the Paragon acquisition using Level 3 unobservable inputs. These liabilities were related to potential earnout payments in connection with certain growth metrics related to the financial performance of Paragon in the 12 months from April 23, 2021 through April 22, 2022 as laid out in the acquisition agreement. The contingent liability no longer exists as of September 30, 2022.

There were no transfers into or out of Level 3 during the ~~three~~nine months ended ~~March 31, 2021~~September 30, 2022 or the year ended December 31, ~~2020.~~2021.

The Company has determined that the significant inputs used to value the interest rate cap fall within Level 2 of the fair value hierarchy. As a result, the Company has determined that its interest rate cap valuation is classified in Level 2 of the fair value hierarchy as shown in the table below.


	Level 1		Level 2		Level 3
December 31, 2021
Interest rate cap agreement(a)	$	—	$	194	$	—
Total	$	—	$	194	$	—
September 30, 2022
Interest rate cap agreement(a)	$	—	$	2,737	$	—
Total	$	—	$	2,737	$	—

(a) Interest rate cap asset value is included in other current assets on the consolidated balance sheets.

Other financial instruments not measured at fair value on the Company’s ~~condensed~~ consolidated balance sheets at ~~March 31, 2021~~September 30, 2022 and December 31, ~~2020~~2021 include cash, trade receivable, prepaid expenses and other current assets, accounts payable, and accrued expenses and other current liabilities as their estimated ~~carrying~~fair values reasonably approximate their ~~fair~~carrying value as reported on the ~~condensed~~ consolidated balance sheets. The Company’s debt obligations are carried at amortized cost less debt issuance costs. Amortized cost approximates fair value. Fair value has been estimated based on actual trading information, and quoted prices, provided by bond traders and is classified as Level 2.

11. Commitments and contingencies

~~Operating leases~~

As disclosed in Note 12 under Item 8 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, the Company adopted ASC Topic 842, Leases, using a modified retrospective transition approach as of January 1, 2021.

The Company ~~leases certain property~~monitors for events or changes in circumstances that require a reassessment of a lease. During the nine months ended September 30, 2022, the Company terminated one of its lease agreements and ~~equipment for various periods under noncancellable operating leases.~~ recorded an immaterial impairment charge, of approximately $149, in selling, general, and administrative expenses, to derecognize the corresponding ROU asset.

The ~~Company’s future minimum~~Company's total lease ~~payments under such agreements at March 31, 2021 were approximately:~~

Year ending December 31, (In thousands)
2021 - remaining $ 974
2022 1,294
2023 1,271
2024 1,004
2025 899
Thereafter 609
Total $ 6,051

~~Rental expense was $412 and $400~~cost for the three months ended ~~March 31,~~September 30, 2022 and 2021 was $403 and ~~March 31, 2020,~~$498, respectively, which consisted of $290 and $400 in operating lease cost and $113 and $98 in variable lease cost, respectively.

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The Company’s total lease cost for the nine months ended September 30, 2022 and 2021 was $1,236 and $1,378, respectively, which consisted of $926 and $1,093 in operating lease cost and $310 and $285 in variable lease cost, respectively.

As of September 30, 2022, amounts reported in the consolidated balance sheets were as follows:


Operating Leases:	September 30, 2022			December 31, 2021
Right-of-use assets	$	3,099		$	4,495
Lease liability, current	1,236			1,302
Lease liability, noncurrent	2,830			3,941
Total lease liabilities	$	4,066		$	5,243

Weighted-average remaining lease term (in years)	3.40			4.73
Weighted-average discount rate (annual)	4.0		%	4.0		%

Other information related to leases are as follows:


	Three Months Ended September 30,		Nine Months Ended September 30,
	2022	2021	2022	2021
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	367	423	1,120	1,084

Right-of-use assets obtained in exchange for lease liabilities
Operating leases	—	—	—	5,571

The following table presents a maturity analysis of the Company's operating lease liabilities as of September 30, 2022:


	Future Minimum Lease Payments
2022 - remaining	$	344
2023	1,314
2024	1,018
2025	990
2026	587
Thereafter	114
Total Lease payments	$	4,367
Less Imputed Interest	301
Total lease obligations	$	4,066

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Liabilities under Tax Receivable Agreement

The Company is party to athe Tax Receivable Agreement (the “TRA”) under which we are contractually committed to pay Ultra 85% of the amount of any tax benefits that we actually realize, or in some cases are deemed to realize, as a result of certain transactions. The Company is not obligated to make any payments under the TRA until the tax benefits associated with the transaction that gave rise to the payment are realized. Amounts payable under the TRA are contingent upon, among other things, generation of future taxable income over the term of the TRA. If the Company does not generate sufficient taxable income in the aggregate over the term of the TRA to utilize the tax benefits, then the Company would not be required to make the related TRA payments. ~~As of March 31, 2021 and December 31, 2020,~~The Company paid $592 for TRA related payments in the nine months ended September 30, 2022. The Company recognized ~~$19,175 and $19,627~~$19,166 of liabilities ~~respectively,~~ relating to our obligations under the TRA, based on our estimate of the probable amount of future ~~benefit.~~benefit, as of September 30, 2022. The total future potential payments to be made under the TRA, assuming sufficient future taxable income to realize 100% of the tax benefits is ~~$31,849.~~$31,984. Any changes in the value of the TRA liability are recorded in other income (expense) on the ~~condensed~~ consolidated statements of income and other comprehensive income.

Legal matters

From time to time the Company is a party to legal proceedings arising in the ordinary course of business. In accordance with U.S. GAAP, the Company records a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed regularly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular case.

12. Related party transactions

Related party transactions – Antares

~~Table of Contents~~

Antares Capital LP is an investor in GTCR, LLC and was the administrative agent and a lender ofunder the ~~Company’s credit agreement.~~Prior Credit Agreement that was repaid in full during 2021. As such, Antares is considered a related party. The Company recorded interest expense related to the Prior Credit Agreement of ~~$3,573 and $4,096~~$0 in expense on the ~~condensed~~ consolidated statement of income and other comprehensive income for the three months ended ~~March~~September 30, 2022 and 2021, respectively, and $0 and $6,841 for the nine months ended September 30, 2022 and 2021, respectively. As disclosed in Note 7 under Item 8 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, the Company repaid the remaining principal and ~~March 31, 2020, respectively. The outstanding balance of debt at March 31,~~interest on the Prior Credit Agreement on June 25, 2021 and ~~December 31, 2020 respectively recorded on~~as such, Antares is no longer the ~~condensed consolidated balance sheet was $222,159 and $222,516, net of debt issuance costs of $5,927 and $6,161.~~administrative agent or a lender under the Company's current Credit Agreement.

13. Defined contribution plan

The Company maintains a 401(k) Plan as a defined contribution retirement plan for all eligible employees. The 401(k) Plan provides for tax-deferred contributions of employees’ salaries, limited to a maximum annual amount as established by the IRS. The plan enrolls employees immediately with no age or service requirement. The Company matches 50% of employees’ contributions up to the first 7% contributed. Matching contributions made to an employee’s account are 100% vested as of the date of contribution. The 401(k) Plan employer match was ~~$243~~$199 and ~~$232 in~~$178 for the three months ended ~~March 31,~~September 30, 2022 and 2021, respectively, and ~~2020, respectively.~~$735 and $625 for the nine months ended September 30, 2022 and 2021.

14. Segments

The Company determines its operating segments based on ASC 280, Segment Reporting. ~~The Company reorganized its segments in 2020.~~ Based on the manner in which the chief operating decision making group (“CODM”) manages and monitors the performance of the business, ~~in 2020,~~ the Company currently has 2two operating and reportable segments: Integrated Solutions and Payment Services. ~~All prior periods, are presented based on the current segment structure.~~

More information about our two reportable segments:

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•Integrated Solutions - Our Integrated Solutions segment represents the delivery of our credit and debit card payment solutions, and to a lesser extent, ACH processing solutions to customers via integrations with software partners across our strategic vertical markets. Our Integrated Solutions partners include vertical focused front-end Customer Relationship Management software providers as well as back-end Enterprise Resource Planning and accounting solutions.

•Payment Services - Our Payment Services segment represents the delivery of card payment processing solutions to our customers through resellers, as well as ACH, check, and gift card processing. Card payment processing solutions in this segment do not originate via a software integration but still utilize Paya’s core technology infrastructure. ACH, check, and gift card processing may or may not be integrated with third-party software.

All segment revenue is from external customers.

The following table presents total revenues and segment gross profit, excluding depreciation and amortization, for each reportable segment and includes a reconciliation of segment gross profit to total U.S. GAAP operating profit, excluding depreciation and amortization, by including certain corporate-level expenses.

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		Three Months Ended March 31,					Three Months Ended September 30,				Nine Months Ended September 30,
		2021		2020			2022		2021		2022		2021
Integrated Solutions	Integrated Solutions	$	32,891	$	29,389	Integrated Solutions	$	45,718	$	39,640	$	133,780	$	112,096
Payment Services	Payment Services	22,364		19,750		Payment Services	25,648		23,418		76,071		70,201
Total Revenue	Total Revenue	55,255		49,139		Total Revenue	71,366		63,058		209,851		182,297
Integrated Solutions gross profit	Integrated Solutions gross profit	18,200		15,484		Integrated Solutions gross profit	21,894		20,133		66,513		59,485
Payment Services gross profit	Payment Services gross profit	10,918		9,157		Payment Services gross profit	13,986		12,421		40,868		35,972
Total segment gross profit	Total segment gross profit	29,118		24,641		Total segment gross profit	35,880		32,554		107,381		95,457
Selling, general & administrative expenses	Selling, general & administrative expenses	(16,914)		(15,580)		Selling, general & administrative expenses	(21,067)		(18,718)		(66,414)		(56,478)
Depreciation and amortization	Depreciation and amortization	(7,032)		(5,996)		Depreciation and amortization	(8,353)		(7,891)		(24,041)		(22,442)
Interest expense	Interest expense	(4,043)		(4,645)		Interest expense	(3,487)		(3,137)		(9,664)		(11,002)
Other income (expense)	Other income (expense)	492		(17)		Other income (expense)	(189)		(67)		1,422		(8,042)
Income (loss) before income taxes	Income (loss) before income taxes	$	1,621	$	(1,597)	Income (loss) before income taxes	$	2,784	$	2,741	$	8,684	$	(2,507)

Segment assets are not included in the CODM reporting package as they are not considered as part of the CODM’s allocation of resources. The Company does not have any revenue or material assets outside the United States. There ~~were~~was no single ~~customers~~customer from either operating segment that represented 10% or more of the Company’s ~~condensed~~ consolidated revenues for the three and nine months ended ~~March 31, 2021~~September 30, 2022 and ~~2020, respectively. There were no transactions between reportable operating segments for the three months ended March 31, 2021 and 2020, respectively.~~

~~15. Subsequent Events~~

On April 23, 2021, the Company closed the acquisition of Paragon Payment Solutions. The aggregate purchase price paid at closing was $27.5 million, consisting of $20 million in cash and $7.5 million of common stock. In addition, up to $5 million may become payable, subject to the achievement of certain future performance metrics.2021.

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

The following ~~Management~~Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) summarizes the significant factors affecting the consolidated operating results, financial condition, liquidity and capital resources of Paya Holdings Inc. and is intended to help the reader understand Paya Holdings Inc., our operations and our present business environment. This discussion should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in Part II, Item 8 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 and the unaudited ~~condensed~~ consolidated financial statements and notes ~~to those statements~~thereto included in Part I, Item 1 ~~within~~of this Quarterly Report on Form 10-Q. References to “we,” “us,” “our”, “Paya”, “Paya Holdings”, or “the Company” refer to Paya Holdings Inc. and its consolidated subsidiaries.

Overview

We are ~~a leading~~an independent integrated payments platform providing card, ACH, and check payment processing solutions via software to middle-market businesses in the United States. Our solutions integrate with customers’ core business software to enable payments acceptance, reconcile invoice detail, and post payment information to their core accounting system. In this manner, we enable our customers to collect revenue from their B2C and B2B customers with a seamless experience and high-level of security across payment types.

Recent Developments

On ~~March 17, 2021,~~January 19, 2022, the Company ~~priced an offering~~closed on the acquisition of ~~20 million shares of its common stock, $0.0001 par value per share pursuant~~JS Innovations LLC (VelocIT) which provides fully integrated, omnichannel payment solutions to ~~the Underwriting Agreement, by~~accounting and among the Company, the selling stockholder named therein (the “Selling Stockholder”) and Morgan Stanley & Co. LLC and Credit Suisse Securities (USA) LLC, as representatives of the several underwriters listed on Schedule II thereto (the “Underwriters”). The Company and the Selling Stockholder each agreed to sell 10 million shares of Common Stock to the Underwriters at a price of $12.25 per share. The offering closed and the shares were delivered on March 22, 2021. As a result of the offering, the Company received cash proceeds of $122.5 million, net of transaction costs of $5.5 million.ERP partners.

~~Impact of the~~Macro-Economic Conditions and COVID-19 ~~Pandemic~~Update

~~The COVID-19 pandemic~~Adverse macroeconomic conditions, including but not limited to heightened inflation, slower growth or recession, changes to fiscal and ~~subsequent shelter-in-place~~ monetary policy, higher interest rates, currency fluctuationsand ~~social distancing policies, as well as~~challenges in the ~~broader economic decline, had a material~~supply chain could impact macro-level consumer spending trends affecting the amount of volumes processed on our ~~business~~platform, and resulting in ~~2020 and in the first quarter of 2021. Many of~~fluctuations to our customers experienced a decline in transaction volumes from pre COVID-19 levels. However, given many of our customers leverage our payment technology to accept transactions in a card-not-present environment, their business operations were not impacted dramatically. Further, most of our recurring or contractual transactions are B2B and not tied to consumer discretionary spend and, as such, were not significantly impacted. This was evident by stable or growing volumes in our B2B Goods & Services, Government & Utilities, and Non-Profit verticals. Lastly, we benefited from our lack of concentration in end markets which saw steep declines, such as restaurants, travel, hospitality, and brick-and-mortar retail.revenue streams.

In ~~response~~addition, the Federal Reserve Board has raised interest rates and signaled that it will continue to ~~these developments, we took precautionary measures~~raise rates. Our interest expense increased primarily due to ~~ensure~~rising interest rates on the ~~safety of our employees, support our customers, and mitigate~~Term Loan credit facilities from the ~~impact~~higher interest rate environment. We utilize derivative instruments to manage risk from fluctuations in interest rates on our Term Loan. As a result, to date, the effects of rising interest rates on our results of operations and financial ~~position~~condition have not been significant. However, there can be no assurance that our interest rates will not continue to increase and ~~operations. We seamlessly implemented remote working capabilities for our entire organization with minimal disruption~~that we will be able to ~~our operations or key operating performance indicators. We also identified opportunistic expense reductions which increased operating efficiencies and provided additional profitability~~mitigate such increases in the ~~period.~~future.

~~While~~In addition, the war in Ukraine has given rise to potential global security issues that may adversely affect international business and economic conditions as well as economic sanctions imposed by the international community that have impacted the global economy. Certain of our ~~business has been~~customers may be negatively impacted by these events.

In addition, the ~~COVID-19 pandemic, we have demonstrated resilience due to our portfolio of attractive, less-cyclical end markets. The~~ impact that COVID-19 will have on our consolidated results of operations for the remainder of ~~2021 remains~~2022 continues to remain uncertain. While we have not seen a meaningful degradation in new customer enrollment or an increase in existing customer attrition as a result of COVID-19, it is possible that those business trends change if economic hardship across the country forces new or additional business closures or other detrimental actions.

We will continue to evaluate the nature and extent of these potential impacts to our business, consolidated results of operations, and liquidity.

Factors Affecting Results of Operations

A number of factors impact our business, results of operations, financial condition, and forecasts, including, but not limited to, the following:

•Increased adoption of integrated payments solutions. We generate revenue through volume-based rates and per item fees attributable to payment transactions between our customers and their customers. We expect to grow our customer base by bringing on new software partners, continuing to sell payment capabilities to customers of our existing software partners not yet leveraging our payment integrations, and by adding integrations within existing multi-platform software partners to access additional customer bases. Further, we expect to benefit from the natural growth of our partners who are typically growing franchises within their respective verticals.

•Acquisition, retention, and growth of software partnerships. Paya leverages a partner-first distribution network to grow our client base and payment volume. Continuing to innovate and deliver new commerce products and wraparound services is critical to our ability to attract, retain, and grow relationships with software partners in our Paya verticals and adjacent markets.

•Growth in customer life-time value. We benefit from, and aid-in, the growth of online electronic payment transactions to our customers. This is dependent on the sales growth of the customers’ businesses, the overall adoption of online payment methods by their customer bases, and the adoption of our additional integrated payment modules such as our proprietary ACH capabilities. Leveraging these solutions helps drive increased customer retention, as well as higher volume and revenue per customer.

•Pursuit and integration of strategic acquisitions. We look to opportunistically make strategic acquisitions to enhance our scale, expand into new verticals, add product capabilities, and embed payments in vertical software. These acquisitions are intended to increase the long-term growth of the business, while helping us achieve greater scale, but may increase operating expenses in the short-term until full synergies are realized. During October 2020, we completed the previously announced acquisition of The Payment Group (“TPG”). We plan to integrate TPG’s online billing and software applications into Paya Connect. We expect that this acquisition will enhance our suite of integration tools, as well as the commerce solutions Paya Connect is able to provide to Paya’s partners and their clients.

•~~Economic conditions. Changes in macro-level consumer spending~~For additional discussion on trends ~~including those related to COVID-19, could affect~~affecting our results of operations, see "Key Trends Impacting Our Market" under Part 1, Item 1 of the ~~amount of volumes processed~~Company’s Annual Report on ~~our platform, thus resulting in fluctuations to our revenue streams.~~Form 10-K for the year ended December 31, 2021.

Basis of Presentation

We have presented results of operations, including the related discussion and analysis, for the following periods:

•the three months ended ~~March 31, 2021~~September 30, 2022 compared to the three months ended ~~March 31, 2020;~~September 30, 2021.

•the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021.

Key Components of Revenue and Expenses

The period to period comparisons of our results of operations have been prepared using the historical periods included in our condensed consolidated financial statements. The following discussion should be read in conjunction with the condensed consolidated financial statements and related notes included elsewhere in this document.

Revenue

The Company’s business model provides payment services, credit and debit card processing, and ACH processing to customers through enterprise or vertically focused software partners, direct sales, reseller partners, other referral partners, and a limited number of financial institutions. The Company recognizes processing revenues at the time customer transactions are processed and periodic fees over the period the service is performed. Transaction based

revenue represents revenue generated from transaction fees based on volume and ~~are~~is recognized ~~on a~~ net ~~basis.~~of interchange fees and assessments. Service based fee revenue is generated from charging a service fee, a fee charged to the client for facilitating bankcard processing, ~~which are~~and is recognized on a gross basis. The Company also generates service based fees related to ACH inclusive of monthly support and statement fees.

Cost of services

Cost of services includes card processing costs, ACH costs, other fees paid to card networks, and equipment expenses directly attributable to payment processing and related services to customers. These costs are recognized as

incurred. Cost of services also includes revenue share amounts paid to reseller and referral partners ~~and are calculated monthly~~ based on ~~monthly~~ customer activity. These expenses are recognized as transactions are processed. Accrued revenue share represents amounts earned during the month but not yet paid at the end of the period.

Selling general & administrative

Depreciation & Amortization

Depreciation and amortization consist primarily of amortization of intangible assets, including customer relationships, ~~internal-use~~internal use software, acquired customer lists, trade names, and to a lesser extent, depreciation on our investments in property, equipment, and software. We depreciate and amortize our assets on a straight-line basis. These lives are 3 years for computers and equipment and acquired internal-use software, 5 years for furniture, fixtures, and office equipment, and the lesser of the asset useful life or remaining lease term for leasehold improvements. Repair and maintenance costs are expensed as incurred and included in selling, general and administrative expenses on the ~~condensed~~ consolidated statements of income and other comprehensive income. ~~Customer~~The purchase of customer lists are treated as asset acquisitions, resulting in recording an intangible asset at cost on the date of acquisition. The acquired customer lists intangible assets have a useful life of 5 years, other customer relationships are amortized over a period of 5-15 years, ~~depending on the intangible,~~ developed technology ~~3-5~~5-10 years, and trade names over 255-25 years.

Results of Operations

The period to period comparisons of our results of operations have been prepared using the historical periods included in our ~~audited~~unaudited consolidated financial statements. The following discussion should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 and the unaudited ~~condensed~~ consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q.

Three Months Ended ~~March 31, 2021~~September 30, 2022 Compared to Three Months Ended ~~March 31, 2020~~September 30, 2021


(in millions)	Three Months Ended September 30,				Change
	2022		2021		Amount		%
Revenue	$	71.4	$	63.1	$	8.3	13.2	%
Cost of services exclusive of depreciation and amortization	(35.5)		(30.5)		(5.0)		(16.4)	%
Selling, general & administrative expenses	(21.1)		(18.8)		(2.3)		(12.2)	%
Depreciation and amortization	(8.4)		(7.9)		(0.5)		(6.3)	%
Income from operations	6.4		5.9		0.5		8.5	%
Other income (expense)
Interest expense	(3.5)		(3.2)		(0.3)		9.4	%
Other income (expense)	(0.2)		—		(0.2)		182.1	%
Total other expense	(3.7)		(3.2)		(0.5)		15.6	%

Income before income taxes	2.7		2.7		—		—	%
Income tax expense	(1.4)		(5.7)		4.3		75.4	%
Net income (loss)	$	1.3	$	(3.0)	$	4.3	143.3	%

(in millions) Three Months Ended
March 31, Change
2021 2020 Amount %
Revenue $ 55.3 $ 49.1 $ 6.2 12.4 %
Cost of services exclusive of depreciation and amortization (26.1) (24.5) (1.6) (6.7 %)
Selling, general & administrative expenses (17.0) (15.5) (1.5) (8.6 %)
Depreciation and amortization (7.0) (6.0) (1.0) (17.3 %)
     Income from operations 5.2 3.1 2.1 68.7 %
Other income (expense)
     Interest expense (4.0) (4.6) 0.6 13.0 %
     Other income (expense) 0.4 — 0.4 2994.1 %
     Total other expense (3.6) (4.6) 1.0 23.8 %
Income (loss) before income taxes 1.6 (1.5) 3.1 201.5 %
     Income tax benefit (expense) (0.6) 0.9 (1.5) (162.5 %)
Net income (loss) $ 1.0 $ (0.6) $ 1.6 254.8 %

Revenue

Total revenue was ~~$55.3~~$71.4 for the three months ended ~~March 31, 2021~~September 30, 2022 as compared to total revenue of ~~$49.1~~$63.1 for the three months ended ~~March 31, 2020.~~September 30, 2021. The increase of ~~$6.2,~~$8.3, or ~~12.4%~~13.2%, was driven by a ~~$3.5~~$6.0 or ~~11.9%~~15.3% increase in Integrated Solutions, led by growth in the B2B vertical, and ~~$2.7~~a $2.2 or ~~13.2%~~9.5% increase in Payment Services, ~~for the three months ended March 31, 2021.~~led by growth in ACH.

Cost of services exclusive of depreciation and amortization

Cost of services increased by ~~$1.6,~~$5.0, or ~~6.7%~~16.4%, to ~~$26.1~~$35.5 for the three months ended ~~March 31, 2021~~September 30, 2022 from ~~$24.5~~$30.5 for the three months ended ~~March 31, 2020.~~September 30, 2021. The increase was driven by growth from higher ~~processing costs~~revenue share partners in Integrated Solutions and ~~higher revenue share~~growth in ACH in Payment Services.

Selling, general & administrative

Selling, general &and administrative expenses increased by ~~$1.5,~~$2.3, or ~~8.6%~~12.2%, to ~~$17.0~~$21.1 for the three months ended ~~March 31, 2021~~September 30, 2022 from ~~$15.6~~$18.8 for the three months ended ~~March 31, 2020.~~September 30, 2021. The increase is primarily due to ~~transaction~~a $2.6 increase in compensation and benefits. The compensation and benefits increases are primarily due to an increase in share-based compensation awards and restructuring related ~~expenses of $0.8 and additional public company related costs of $0.9 offset by lower travel costs of $0.3.~~expenses.

Depreciation and amortization

Depreciation and amortization increased by ~~$1.0,~~$0.5, or ~~17.3%~~6.3%, to ~~$7.0~~$8.4 for the three months ended ~~March 31, 2021~~September 30, 2022 as compared to ~~$6.0~~$7.9 for the three months ended ~~March 31, 2020.~~September 30, 2021. The increase is primarily due to ~~$0.6~~$0.3 in technology amortization, primarily related to the acquisition of VelocIT.

Interest Expense

Interest expense increased by $0.3, or 9.4%, to $3.5 for the three months ended September 30, 2022 from $3.1 for the three months ended September 30, 2021, primarily due to rising interest rates on the Term Loan credit facilities from a higher interest rate environment in 2022.

Other Income (Expense)

Other income (expense) increased by $0.2 to $(0.2) for the three months ended September 30, 2022 from $0 for the three months ended September 30, 2021. The increase is primarily due to lease restructuring expenses of $0.3 offset by changes in expected payments of the tax receivable agreement and a non-cash change in fair value of the interest rate cap agreement.

Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021


(in millions)	Nine Months Ended September 30,				Change
	2022		2021		Amount		%
Revenue	$	209.9	$	182.3	$	27.6	15.1	%
Cost of services exclusive of depreciation and amortization	(102.5)		(86.8)		(15.7)		(18.1)	%
Selling, general & administrative expenses	(66.4)		(56.6)		(9.8)		(17.3)	%
Depreciation and amortization	(24.1)		(22.4)		(1.7)		(7.6)	%
Income from operations	16.9		16.5		0.4		2.4	%
Other income (expense)
Interest expense	(9.7)		(11.0)		1.3		11.8	%
Other income (expense)	1.4		(8.0)		9.4		117.5	%
Total other expense	(8.3)		(19.0)		10.7		56.3	%

Income (loss) before income taxes	8.6		(2.5)		11.1		NM
Income tax expense	(3.4)		(2.6)		(0.8)		30.8	%
Net income (loss)	$	5.2	$	(5.1)	$	10.3	NM

NM - Not meaningful

Revenue

Total revenue was $209.9 for the nine months ended September 30, 2022 as compared to total revenue of $182.3 for the nine months ended September 30, 2021. The increase of $27.6, or 15.1%, was driven by a $21.7 or 19.3% increase in Integrated Solutions, led by growth in the B2B vertical, and a $5.9 or 8.4% increase in Payment Services, led by growth in ACH. Growth includes inorganic contributions from Paragon for the nine months ended September 30, 2022.

Cost of services exclusive of depreciation and amortization

Cost of services increased by $15.7, or 18.1%, to $102.5 for the nine months ended September 30, 2022 from $86.8 for the nine months ended September 30, 2021. The increase was driven by growth from higher revenue share partners as well as inorganic contributions from Paragon.

Selling, general & administrative

Selling, general and administrative expenses increased by $9.8, or 17.3%, to $66.4 for the nine months ended September 30, 2022 from $56.6 for the nine months ended September 30, 2021. The increase is primarily due to a $8.4 increase in compensation and benefits and $1.0 in technology related expenses. The compensation and benefits increase is primarily due to increased headcount, an increase in share based compensation awards and restructuring related expenses.

Depreciation and amortization

Depreciation and amortization increased by $1.7, or 7.6%, to $24.1 for the nine months ended September 30, 2022 as compared to $22.4 for the nine months ended September 30, 2021. The increase is primarily due to $1.7 in customer list amortization from additional customer list acquisitions and $0.7 in ~~the three months ended March 31, 2021, $0.3~~internally developed software amortization partially offset by a reduction in technology amortization ~~from the The Payment Group acquisition, and $0.3 in internal-use software amortization. This was offset by a decrease in depreciation expense~~ of ~~$0.2 in the three months ended March 31, 2021.~~$0.6.

Interest Expense

Interest expense decreased by ~~$0.6,~~$1.3, or ~~13.0%~~11.8%, to ~~$4.0~~$9.7 for the ~~three~~nine months ended ~~March 31, 2021~~September 30, 2022 from ~~$4.6~~$11.0 for the ~~three~~nine months ended ~~March 31, 2020,~~September 30, 2021, primarily due to lower ~~LIBOR based~~ interest rates on the ~~Revolver and~~ Term Loan credit ~~facilities.~~facilities from a debt refinancing in June 2021.

Other Income (Expense)

Other income (expense) increased by $9.4 to ~~$0.4~~$1.4 for the ~~three~~nine months ended ~~March 31, 2021~~September 30, 2022 from $(8.0) for the nine months ended September 30, 2021. The increase is primarily due to ~~the gain on the~~a non-cash change in fair value of the ~~Tax Receivable~~interest rate cap agreement of $2.6 due to the increase in market interest rates and a prepayment penalty of $2.3, and a write off of debt issuance costs of $6.2 related to our Prior Credit Agreement ~~liability.~~in 2021. This was offset by a $0.5 change in the expected payments of the tax receivable agreement and $0.9 in lease restructuring expenses.

`Key ~~performance indicators~~Performance Indicators and Non-GAAP Financial Measures

Our management uses a variety of financial and operating metrics to evaluate our business, analyze our performance, and make strategic decisions. We believe these metrics and non-GAAP financial measures provide useful information to investors and others in understanding and evaluating our operating results in the same manner as management. However, some of these measures are not financial measures calculated in accordance with U.S. GAAP and should not be considered as substitutes for financial measures that have been calculated in accordance with U.S. GAAP. We primarily review the following key performance indicators and non-GAAP measures when assessing our performance:

Revenue (U.S. GAAP)

We analyze our revenues by comparing actual revenues to our internal projections for a given period and to prior periods to assess our performance. We believe that revenues are a meaningful indicator of the demand and pricing for our services. Key drivers to change in revenues are primarily dollar volume, basis point spread earned, and number of transactions processed in a given period.

Payment Volume

Payment volume is defined as the total dollar amount of all payments processed by our customers through our services. Volumes for the three and nine months ended ~~March 31,~~September 30, 2022 and September 30, 2021 ~~and March 31, 2020~~ are shown in the table below:


		Three Months Ended March 31,				Change				Three Months Ended September 30,				Change
(in millions)	(in millions)	2021		2020		Amount	%		(in millions)	2022		2021		Amount		%
Payment volume	Payment volume	$	9,462.3	$	7,624.5	1,837.8	24.1	%	Payment volume	$	12,633	$	11,054	$	1,579	14.3	%

The increase in volume for the three months ended ~~March 31, 2021~~September 30, 2022 was primarily driven by continued strong growth in Payment Services, specifically ACH, as well as from growth in Integrated Solutions.


	Nine Months Ended September 30,				Change
(in millions)	2022		2021		Amount		%
Payment volume	$	36,584	$	31,201	$	5,383	17.3	%

The increase in volume for the nine months ended September 30, 2022 was primarily driven by continued strong growth in Payment Services, specifically ACH, as well as from growth in Integrated Solutions and inorganic Paragon contributions.

Adjusted EBITDA and Adjusted Net Income

Adjusted EBITDA is a non-GAAP financial measure that represents earnings before interest and other expense, income taxes, depreciation, and amortization ~~or EBITDA,~~(“EBITDA”), and further adjustments to EBITDA to exclude certain non-cash items and other non-recurring items that we believe are not indicative of ongoing operations to come to Adjusted EBITDA.

Adjusted Net Income is a non-GAAP financial measure that represents net income prior to amortization and further adjustments to exclude certain non-cash items and other non-recurring items that management believes are not indicative of ongoing operations to come to Adjusted Net Income.

We disclose EBITDA, Adjusted EBITDA, and Adjusted Net Income ~~(as defined below)~~ in this ~~report~~Quarterly Report because these non-GAAP measures are key measures used by us to evaluate our business, measure our operating performance and make strategic decisions. We believe EBITDA, Adjusted EBITDA, and Adjusted Net Income are useful for investors and others in understanding and evaluating our results of operations in the same manner as we do. However, EBITDA, Adjusted EBITDA, and Adjusted Net Income are not financial measures calculated in accordance with U.S. GAAP and should not be considered as a substitute for net income, income before income taxes, or any other operating performance measure calculated in accordance with U.S. GAAP. Using these non-GAAP financial measures to analyze our business would have material limitations because the calculations are based on the subjective determination of management regarding the nature and classification of events and circumstances that investors may find significant. In addition, although other companies in our industry may report measures titled EBITDA, Adjusted EBITDA and Adjusted Net Income or similar measures, such non-GAAP financial measures may be calculated differently from how we calculate non-GAAP financial measures, which reduces their overall usefulness as comparative measures. Because of these limitations, you should consider EBITDA, Adjusted

EBITDA, and Adjusted Net Income alongside other financial performance measures, including net income and our other financial results presented in accordance with U.S. GAAP. The following table presents a reconciliation of net income (loss) to EBITDA and Adjusted EBITDA for each of the periods indicated:

Adjusted EBITDA for the Three and Nine Months Ended ~~March 31, 2021~~September 30, 2022 Compared to the Three and Nine Months Ended ~~March 31, 2020~~September 30, 2021


		Three Months Ended March 31,					Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	(in millions)	2021		2020		(in millions)	2022		2021		2022		2021
Net income (loss)	Net income (loss)	$	1.0	$	(0.6)	Net income (loss)	$	1.3	$	(3.0)	$	5.2	$	(5.1)
Depreciation & amortization	Depreciation & amortization	7.0		6.0		Depreciation & amortization	8.4		7.9		24.1		22.4
Tax expense (benefit)		0.6		(0.9)
Income tax expense						Income tax expense	1.4		5.7		3.4		2.6
Interest and other expense	Interest and other expense	3.6		4.6		Interest and other expense	3.7		3.2		8.3		19.0
EBITDA	EBITDA	12.2		9.1		EBITDA	14.8		13.8		41.0		38.9

Transaction-related expenses(a)	Transaction-related expenses(a)	0.8		—		Transaction-related expenses(a)	—		0.9		3.0		2.4
Stock based compensation(b)	Stock based compensation(b)	0.7		0.4		Stock based compensation(b)	2.1		0.9		5.6		2.5
Restructuring costs(c)	Restructuring costs(c)	0.2		0.6		Restructuring costs(c)	1.2		0.2		2.4		1.2
Discontinued service costs(d)	Discontinued service costs(d)	0.2		—		Discontinued service costs(d)	0.1		—		0.3		0.2
Management fees and expenses(e)		—		0.2
Business combination costs(f)		0.3		—
Non-recurring public company start-up costs						Non-recurring public company start-up costs	—		0.2		0.4		0.8
Contingent non-income tax liability						Contingent non-income tax liability	—		—		0.1		0.8
Other costs~~(g)~~(e)	Other costs~~(g)~~(e)	0.4		0.3		Other costs~~(g)~~(e)	0.4		0.3		1.4		1.1
Total adjustments	Total adjustments	2.6		1.5		Total adjustments	3.8		2.5		13.2		9.0
Adjusted EBITDA	Adjusted EBITDA	$	14.8	$	10.6	Adjusted EBITDA	$	18.6	$	16.3	$	54.2	$	47.9

(a)Represents professional service fees related to mergers and acquisitions such as legal fees, consulting fees, accounting advisory fees, and other costs.

(b)Representsnon-cash charges associated with stock-based compensation expense, which has been, and will continue to be for the foreseeable future, a significant recurring expense in our business and an important part of our compensation strategy

~~(c)~~Costs associated with restructuring plans designed to streamline operations and reduce costs including costs associated with the relocation of headquarters from Reston, VA to Atlanta, GA and certain staff restructuring charges, including severance.

~~(d)Represents costs incurred to retire certain tools, applications and services that are no longer in use.~~

~~(e)~~Represents advisory fees that we will not be required to pay going forward. See notes to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for more information about these related party transactions.

~~(f)Represents business combination costs.~~

~~(g)Represents non-operational gains or losses, non-standard project expense, non-operational legal expense and other.~~

~~Adjusted Net Income~~

~~Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020~~

Three Months Ended March 31,
(in millions) 2021 2020
Net income (loss) $ 1.0 $ (0.6)
Amortization add back 6.0 5.0
Transaction-related expenses(a)
0.8 —
Stock based compensation(b)
0.7 0.4
Restructuring costs(c)
0.2 0.6
Discontinued service costs(d)
0.2 —
Management fees and expenses(e)
�� 0.2
Business combination costs(f)
0.3 —
Other costs(g)
0.4 0.3
Pro forma taxes at effective rate(h)
(0.4) —
Total adjustments $ 8.2 $ 6.5
Adjusted Net Income $ 9.2 $ 5.9

~~(a)Represents professional service fees related to mergers and acquisitions such as legal fees, consulting fees, accounting advisory fees, and other costs.~~

~~(b)Represents~~non-cash charges associated with stock-based compensation expense, which has been, and will continue to be for the foreseeable future, a significant recurring expense in our business and an important part of our compensation strategy.

(c)~~Costs~~Represents costs associated with restructuring plans designed to streamline operations and reduce costs including costs associated with the relocation of ~~headquarters from Reston, VA to Atlanta, GA and~~facilities, certain staff restructuring charges including ~~severance.~~severance, certain executive hires, and acquisition related restructuring charges.

(d)Represents costs incurred to retire certain tools, applications and services that are no longer in use.

(e)Represents non-operational gains or losses, non-standard project expense, and non-operational legal expense.

Adjusted Net Income for the Three and Nine Months Ended September 30, 2022 Compared to the Three and Nine Months Ended September 30, 2021


	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	2022		2021		2022		2021
Net income (loss)	$	1.3	$	(3.0)	$	5.2	$	(5.1)

Amortization add back	7.0		6.6		20.2		19.0
Debt refinancing interest expense(a)	—		—		—		8.5
Transaction-related expenses(b)	—		0.9		3.0		2.4
Stock based compensation(c)	2.1		0.9		5.6		2.5
Restructuring costs(d)	1.2		0.2		2.4		1.2
Discontinued IT service costs(e)	0.1		—		0.3		0.2
Non-recurring public company start-up costs	—		0.2		0.4		0.8
Contingent non-income tax liability	—		—		0.1		0.8
Other costs(f)	0.4		0.3		1.4		1.1
Total adjustments	10.8		9.1		33.4		36.5
Tax effect of adjustments(g)	(0.8)		(0.6)		(3.1)		(3.0)
Adjusted Net Income	$	11.3	$	5.5	$	35.5	$	28.4

(a)Represents one-time debt refinancing expenses for prepayment penalty and write-off of debt issuance costs in connection with our Prior Credit Agreement.

(b)Represents professional service fees related to mergers and acquisitions such as legal fees, consulting fees, accounting advisory fees, and other costs.

(c)Represents non-cash charges associated with stock-based compensation expense, which has been, and will continue to be for the foreseeable future, a significant recurring expense in our business and an important part of our compensation strategy.

(d)Represents costs associated with restructuring plans designed to streamline operations and reduce costs including costs associated with the relocation of facilities, certain staff restructuring charges including severance, certain executive hires, and acquisition related restructuring charges.

(e)Represents costs incurred to retire certain tools, applications and services that ~~we will not be required to pay going forward. See notes to our condensed consolidated financial statements included elsewhere~~are no longer in ~~this Quarterly Report on Form 10-Q for more information about these related party transactions.~~use.

(f)~~Represents business combination costs.~~

~~(g)~~Represents non-operational gains or losses, non-standard project expense, non-operational legal expense and ~~other.~~legal debt refinancing expense.

~~(h)~~(g)Represents pro forma income tax adjustment effect, at the anticipated blended rate, for all items expected to have a cash tax impact (i.e. items that were not originally recorded through goodwill). Any impact to the valuation allowance assessment for these adjustments has not been considered. ~~The Company has not applied a pro forma tax adjustment in 2020 due to the different ownership structure.~~

Segments

We provide our services through two reportable ~~segments 1)~~segments: (1) Integrated Solutions and 2)(2) Payment Services. The Company’s reportable segments are the same as the operating segments.

More information about our two reportable segments:

•Integrated Solutions — Our Integrated Solutions segment represents the delivery of our credit and debit card payment solutions, and to a lesser extent, ACH processing solutions to customers via integrations with software partners across our strategic vertical markets. Our Integrated Solutions partners include

vertical focused front-end Customer Relationship Management software providers as well as back-end Enterprise Resource Planning and accounting solutions.

•Payment Services — Our Payment Services segment represents the delivery of card payment processing solutions to our customers through resellers, as well as ACH, check, and gift card processing. Card payment processing solutions in this segment do not originate via a software integration but still utilize Paya’s core technology infrastructure. ACH, check, and gift card processing may or may not be integrated with third-party software.

All segment revenue is from external customers.

The following table shows our segment income statement data and selected performance measures for the periods indicated:

Three Months Ended ~~March 31, 2021~~September 30, 2022 Compared to Three Months Ended ~~March 31, 2020~~September 30, 2021


		Three Months Ended March 31,						Change					Three Months Ended September 30,						Change
(in millions)	(in millions)	2021			2020			Amount		%		(in millions)	2022			2021			Amount		%
Integrated Solutions	Integrated Solutions											Integrated Solutions
Segment revenue	Segment revenue	$	32.9		$	29.4		$	3.5	11.9	%	Segment revenue	$	45.7		$	39.7		$	6.0	15.3	%
Segment gross profit(1)	Segment gross profit(1)	$	18.2		$	15.5		$	2.7	17.5	%	Segment gross profit(1)	$	21.9		$	20.1		$	1.8	8.7	%
Segment gross profit margin	Segment gross profit margin	55.3		%	52.7		%					Segment gross profit margin	47.9		%	50.8		%

Payment Services	Payment Services											Payment Services
Segment revenue	Segment revenue	$	22.4		$	19.7		$	2.7	13.2	%	Segment revenue	$	25.6		$	23.4		$	2.2	9.5	%
Segment gross profit(1)	Segment gross profit(1)	$	10.9		$	9.1		$	1.8	19.2	%	Segment gross profit(1)	$	14.0		$	12.4		$	1.6	12.6	%
Segment gross profit margin	Segment gross profit margin	48.8		%	46.4		%					Segment gross profit margin	54.5		%	53.0		%

(1)Segment gross profit is revenue less cost of services excluding depreciation and amortization.

Integrated Solutions

Revenue for the Integrated Solutions segment was ~~$32.9~~$45.7 for the three months ended ~~March 31, 2021~~September 30, 2022 as compared to ~~$29.4~~$39.7 for the three months ended ~~March 31, 2020.~~September 30, 2021. The increase of ~~$3.5~~$6.0 was primarily driven by ~~government and~~ Integrated Card ~~growth.~~growth in the B2B vertical.

Gross profit for the Integrated Solutions segment was ~~$18.2~~$21.9 resulting in a gross profit margin of ~~55.3%~~47.9% for the three months ended ~~March 31, 2021~~September 30, 2022 as compared to ~~$15.5~~$20.1 with a gross profit margin of ~~52.7%~~50.8% for the three months ended ~~March 31, 2020.~~September 30, 2021. The increase of ~~$2.7~~$1.8 in segment gross profit was primarily driven by revenue growth partially offset by higher ~~processing costs.~~revenue share from partner mix.

Payment Services

Revenue for the Payment Services segment was ~~$22.4~~$25.6 for the three months ended ~~March 31, 2021~~September 30, 2022 as compared to ~~$19.7~~$23.4 for the three months ended ~~March 31, 2020.~~September 30, 2021. The increase of ~~$2.7~~$2.2 was ~~primarily~~ driven by ACH growth.

Gross profit for the Payment Services segment was ~~$10.9~~$14.0 resulting in a gross profit margin of ~~48.8%~~54.5% for the three months ended ~~March 31, 2021~~September 30, 2022 as compared to ~~$9.1~~$12.4 with a gross profit margin of ~~46.4%~~53.0% for the three months ended ~~March 31, 2020.~~September 30, 2021. The increase of ~~$1.8~~$1.6 in segment gross profit was primarily driven by ACH growth.

For a reconciliation of segment gross profit to total U.S. GAAP operating profit, excluding depreciation and amortization, and including certain corporate-level expenses, see notes to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021


	Nine Months Ended September 30,						Change
(in millions)	2022			2021			Amount		%
Integrated Solutions
Segment revenue	$	133.8		$	112.1		$	21.7	19.3	%
Segment gross profit(1)	$	66.5		$	59.5		$	7.0	11.8	%
Segment gross profit margin	49.7		%	53.1		%

Payment Services
Segment revenue	$	76.1		$	70.2		$	5.9	8.4	%
Segment gross profit(1)	$	40.9		$	36.0		$	4.9	13.6	%
Segment gross profit margin	53.7		%	51.2		%

(1)Segment gross profit is revenue less cost of services excluding depreciation and amortization.

Integrated Solutions

Revenue for the Integrated Solutions segment was $133.8 for the nine months ended September 30, 2022 as compared to $112.1 for the nine months ended September 30, 2021. The increase of $21.7 was primarily driven by Integrated Card growth, specifically in the B2B vertical, and inorganic Paragon contributions.

Gross profit for the Integrated Solutions segment was $66.5 resulting in a gross profit margin of 49.7% for the nine months ended September 30, 2022 as compared to $59.5 with a gross profit margin of 53.1% for the nine months ended September 30, 2021. The increase of $7.0 in segment gross profit was primarily driven by revenue growth partially offset by growth from higher revenue share partners.

Payment Services

Revenue for the Payment Services segment was $76.1 for the nine months ended September 30, 2022 as compared to $70.2 for the nine months ended September 30, 2021. The increase of $5.9 was driven by ACH growth and inorganic Paragon contributions.

Gross profit for the Payment Services segment was $40.9 resulting in a gross profit margin of 53.7% for the nine months ended September 30, 2022 as compared to $36.0 with a gross profit margin of 51.2% for the nine months ended September 30, 2021. The increase of $4.9 in segment gross profit was primarily driven by ACH growth and inorganic Paragon contributions.

Liquidity and Capital Resources

~~Overview~~Sources

We have historically sourced our liquidity requirements primarily with cash flow from operations and, when needed, with borrowings under our credit ~~facilities.~~facilities and in 2021, with an equity issuance. We have historically sourced our acquisitions with cash flow from operations and ~~when needed, with capital infusions from Ultra and~~ borrowings under our credit facilities. As of ~~March 31, 2021,~~September 30, 2022, we had ~~$133.8 million~~$156.0 of cash and cash equivalents on hand and borrowing capacity of ~~$25.0 million~~$45.0 from our Revolver. We believe ~~that~~ our existing cash ~~on hand~~ and ~~additional availability~~cash provided by our ongoing operations together with funds available under ~~the Revolver, combined with~~our credit facilities will be sufficient to meet our working capital, capital expenditures and cash ~~flows from operations, will enable us to fund our operations and our debt service~~needs for ~~at least~~ the next 12 ~~months. However, our anticipated results are subject to significant uncertainty~~months and ~~may be affected by events beyond our control, including the prevailing economic, financial and industry conditions, including the impact of COVID-19.~~beyond.

On March 17, 2021, the Company priced an offering of 20 million shares of its common stock, $0.0001 par value per share pursuant to the Underwriting Agreement, by and among the Company, the selling stockholder named therein (the “Selling Stockholder”) and Morgan Stanley & Co. LLC and Credit Suisse Securities (USA) LLC, as representatives of the several underwriters listed on Schedule II thereto (the “Underwriters”). The Company and the Selling Stockholder each agreed to sell 10 million shares of Common Stock to the Underwriters at a price of $12.25 per share. The offering closed and the shares were delivered on March 22, 2021. As a result of the offering, the Company received cash proceeds of $122.5 million, net of transaction costs of $5.5 million.Uses

~~The following tables present a summary of cash flows from operating, investing and financing activities for the following comparative periods.~~

~~Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020~~

Three Months Ended
March 31,
2021 2020
(in millions)
Net cash provided (used) by operating activities $ 3.0 $ (2.6)
Net cash provided (used) by investing activities (9.2) (1.1)
Net cash provided (used) by financing activities 116.4 23.9
Change in cash $ 110.2 $ 20.2

~~Operating Activities~~

Net cash provided by operating activities increase $5.6 to $3.0 for the three months ended March 31, 2021 compared to $2.6 used by operating activities for the three months ended March 31, 2020. The increase in net cash provided by operating activities was primarily due to higher volume and EBITDA in the three months ended March 31, 2021.

~~Investing Activities~~

Net cash used in investing activities increased $8.1 to $9.2 in the three months ended March 31, 2021 from $1.1 in the three months ended March 31, 2021. The increase in cash used by investing activities was primarily driven by an increase in purchases of customers lists of $6.8 in the three months ended March 31, 2021. In addition, we used $2.3 for capital expenditures and capitalization of internal use software in the three months ended March 31, 2021 compared to $1.0 in the three months ended March 31, 2020.

~~Financing Activities~~

~~Net~~

Our material cash ~~used in financing activities increased $92.5~~requirements from known contractual and other obligations primarily relate to ~~$116.4 for~~ the ~~three months ended March 31, 2021 from $23.9 for the three months ended March 31, 2020. The increase in~~commitment fees related to our credit facilities, interest on long-term debt and operating lease obligations. For information related to these cash ~~used in financing activities was primarily due~~requirements, refer to ~~proceeds from the Equity Offering~~Note 6 and Note 11 under Part 1, Item 1 of ~~$117.0 in the three months ended March 31, 2021 offset by a decrease in borrowings under the Credit Facility from the three months ended March 31, 2020.~~this quarterly report on Form 10-Q.

Indebtedness

~~In August 2017,~~On June 25, 2021, Paya ~~Inc.~~ entered into a credit agreement ~~providing for a term loan facility (the “Term Loan”), a revolving~~which governs new senior secured credit facility (the “Revolver”) and a delayed term loan that was not utilized. In December 2018, the Company amended the credit agreement and Paya Holdings III, LLC (f/k/a GTCR-Ultra Holdings III, LLC), a wholly-owned subsidiaryfacilities, consisting of the ~~Company, assumed all of Paya Inc.’s right and obligations as “Borrower” under the credit agreement and related documents. The credit agreement currently provides for a $235.5 million~~$250.0 Term Loan, and ~~a $25.0 million Revolver and is secured by substantially all of~~ the ~~assets of Paya Holdings II, LLC (f/k/a GTCR-Ultra Holdings II, LLC), the parent of the Borrower, and its subsidiaries. In July 2020,~~$45.0 Revolver. On December 31, 2021, the Company ~~amended the credit agreement to perform the Business Combination, and among other things, extend the maturity of the Revolver to July 24, 2025 and the maturity of the Term Loan to August 1, 2027.~~

~~The Company makes~~began making quarterly amortization payments on the Term Loan. As of ~~March 31, 2021, $228.1 million~~September 30, 2022, $247.5 remains outstanding under the Term Loan and there were no borrowings outstanding under the Revolver.

The Company’s senior secured first lien net leverage ratio, calculated pursuant to the definitions in the Credit Agreement, was 3.15x on March 31, 2021. The maximum ratio permitted by the financial covenant in the Credit Agreement is 7.25x as of March 31, 2021.

~~Contractual Obligations~~Cash Flows

~~Other than changes which occur~~The following table presents a summary of cash flows from operating, investing and financing activities for the following comparative periods.

Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021


	Nine Months Ended September 30,
	2022		2021
	(in millions)
Net cash provided by operating activities	$	27.8	$	20.9
Net cash used in investing activities	(15.7)		(39.2)
Net cash provided by financing activities	2.0		135.0
Change in cash	$	14.1	$	116.7

Operating Activities

Net cash provided by operating activities increased $6.9 to $27.8 for the nine months ended September 30, 2022 from $20.9 for the nine months ended September 30, 2021. The increase in net cash provided by operating activities was primarily due to higher revenue in the ~~ordinary course~~nine months ended September 30, 2022.

Investing Activities

Net cash used in investing activities decreased $23.6 to $15.7 for the nine months ended September 30, 2022 from $39.2 for the nine months ended September 30, 2021. The decrease in cash used in investing activities was primarily driven by a decrease in cash used for acquisitions of ~~business, as~~$12.3 and a decrease in purchases of ~~March~~customers lists of $10.6 in the nine months ended September 30, 2022. In addition, we used $4.2 for capital expenditures and capitalization of internal use software in the nine months ended September 30, 2022 compared to $5.0 in the nine months ended September 30, 2021.

Financing Activities

Net cash provided by financing activities decreased $133.0 to $2.0 for the nine months ended September 30, 2022 from $135.0 for the nine months ended September 30, 2021. The decrease in cash provided by financing activities was primarily due to net proceeds from an equity offering conducted in 2021 of $116.8, repayment of the Prior Credit Agreement of $228.7 and borrowings under new credit facility of $250.0 in the nine months ended September 30, 2021.

Critical Accounting Estimates

A summary of our critical accounting estimates is included in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year-ended December 31, 2021 ~~there were~~. There have been no ~~significant~~material changes to the ~~contractual obligations reported at December 31, 2020~~critical accounting estimates disclosed in our Annual Report on Form 10-K for the ~~year ended~~ year-ended December 31, ~~2020.~~

~~Off-Balance Sheet Arrangements~~

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

During the periods presented, we did not engage in any off-balance sheet financing activities other than those reflected in the notes to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

~~Critical Accounting Policies and Estimates~~

Our discussion and analysis of our historical financial condition and results of operations for the periods described is based on our condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. For a discussion of the significant accounting policies and estimates that we use in the preparation of our audited and unaudited condensed consolidated financial statements, refer to Note 1 of the notes to our unaudited condensed consolidated financial statements included in Part I, Item 1 within this Quarterly Report on Form 10-Q. The preparation of these historical financial statements in conformity with U.S. GAAP requires management to make estimates, assumptions and judgments in certain circumstances that affect the reported amounts of assets, liabilities and contingencies as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. We evaluate our assumptions and estimates on an ongoing basis. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. These estimates may change as new events occur or additional information is obtained, and we may periodically be faced with uncertainties, the outcomes of which are not within its control and may not be known for

a prolonged period of time. Because the use of estimates is inherent in the financial reporting process, actual results may differ from these estimates under different assumptions or conditions. Additionally, the full impact of COVID-19 is unknown and cannot be reasonably estimated.

The following critical accounting discussion pertains to accounting policies we believe are most critical to the portrayal of our historical financial condition and results of operations and that require significant, difficult, subjective or complex judgments2021.

~~Revenue Recognition~~

Application of the accounting principles in U.S. GAAP related to the measurement and recognition of revenue requires us to make judgments and estimates. Complex arrangements with nonstandard terms and conditions may require significant contract interpretation to determine the appropriate accounting. Specifically, the determination of whether we are a principal to a transaction, or an agent, can require considerable judgment. We have concluded that we are the agent in providing merchants access to credit card networks as we are performing this service on behalf of the principal, the card companies. In addition, we are not primarily responsible for fulfilling this promise to the customer, do not bear risk or take possession of funds to be paid to issuing banks for interchange fees, and do not have discretion in setting the price for interchange fees charged by the card companies. For all other aspects of our services provided to merchants, we determined we are the principal as we control the service being provided before transfer to the customer. Additionally, our payment processing services consist of variable consideration under a stand-ready service of distinct days of service that are substantially the same with the same pattern of transfer to the customer. The variable consideration is as a result of the number or volume of transactions to be processed.

We determined to use each day as a time-based measure of progress toward satisfaction of the single performance obligation of each contract. We determined this method most accurately depicts the pattern by which services are transferred to the merchant, as performance depends on the extent of transactions processed for that merchant on a given day. Likewise, consideration to which we expect to be entitled is determined according to our efforts to provide service each day. Changes in judgments with respect to these assumptions and estimates could impact the amount of revenue recognized.

~~Business Combinations~~

Upon acquisition of a company, we determine if the transaction is a business combination, which is accounted for using the acquisition method of accounting. Under the acquisition method, once control is obtained of a business, the assets acquired, and liabilities assumed, including amounts attributed to noncontrolling interests, are recorded at fair value. We use our best estimates and assumptions to assign fair value to the tangible and intangible assets acquired and liabilities assumed at the acquisition date. One of the most significant estimates relates to the determination of the fair value of these assets and liabilities. The determination of the fair values is based on estimates and judgments made by management. Our estimates of fair value are based upon assumptions we believe to be reasonable, but which are inherently uncertain and unpredictable. Measurement period adjustments are reflected at the time identified, up through the conclusion of the measurement period, which is the time at which all information for determination of the values of assets acquired and liabilities assumed is received and is not to exceed one year from the acquisition date. We may record adjustments to the fair value of these tangible and intangible assets acquired and liabilities assumed, with the corresponding offset to goodwill.

Additionally, uncertain tax positions and tax-related valuation allowances are initially recorded in connection with a business combination as of the acquisition date. We continue to collect information and reevaluate these estimates and assumptions periodically and record any adjustments to preliminary estimates to goodwill, provided we are within the measurement period. If outside of the measurement period, any subsequent adjustments are recorded to the condensed consolidated statement of income and other comprehensive income.

~~Income taxes~~

Under ASC 740, “Income Taxes,” deferred tax assets and liabilities are recognized for the expected future tax consequences attributable to net operating losses, tax credits, and temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, which will result in

taxable or deductible amounts in the future. Our income tax expense/benefit, deferred tax assets and tax receivable liability reflect management’s best assessment of estimated current and future taxes. Significant judgments and estimates are required in determining the consolidated income tax expense/benefits, deferred tax assets and tax receivable agreement liability. In evaluating our ability to recover our deferred tax assets, we consider all available positive and negative evidence, including projected future taxable income and results of recent operations. Estimating future taxable income is inherently uncertain, requires judgment and is consistent with estimates we are using to manage our business. If we determine in the future that we will not be able to fully utilize all or part of the deferred tax assets, we would record a valuation allowance through earnings in the period the determination was made.

Principles of Consolidation

Refer to Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year-ended December 31, 2021. There have been no material changes to our principles of consolidation disclosed in our Annual Report on Form 10-K for the year-ended December 31, 2021.

Recently Issued Accounting Standards

Refer to Note 1 of the notes to our unaudited ~~condensed~~ consolidated financial statements included in Part I,1, Item 1 ~~within this Quarterly Report on Form 10-Q for a discussion~~ of ~~principles of consolidation.~~

~~Recently Issued Accounting Standards~~

~~Refer to Note 1 of the notes to our unaudited condensed consolidated financial statements included in Part I, Item 1 within~~ this Quarterly Report on Form 10-Q for our assessment of recently issued and adopted accounting standards.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our principal market risks are our exposure to effects of inflation and interest rates.

Effects of Inflation

While inflation may impact our revenues and cost of services, we believe the effects of inflation, if any, on our results of operations and financial condition have not been significant. However, there can be no assurance that our results of operations and financial condition will not be materially impacted by inflation in the future.

Interest Rates

Our future income, cash flows and fair values relevant to financial instruments are subject to risks relating to interest rates. We are subject to interest rate risk in connection with our ~~Credit Facilities,~~credit facilities, which have variable interest rates. The interest rates on these facilities are based on a fixed margin plus a market interest rate, which can fluctuate accordingly but is subject to a minimum rate. Interest rate changes do not affect the market value of such debt, but could impact the amount of our interest payments, and accordingly, our future earnings and cash flows, assuming other factors are held constant. The Federal Reserve Board has raised interest rates and signaled that it will continue to raise rates. Our interest expense increased primarily due to rising interest rates on the Term Loan credit facilities from the higher interest rate environment.

The Company utilizes derivative instruments to manage risk from fluctuations in interest rates on its Term Loan. In February 2021, the Company entered into aan interest rate cap agreement with a notional amount of $171.5 million, with an effective date of March 31, 2021, expiring on March 31, 2023. There were no changes to the interest rate cap in connection with the entry into the new Credit Agreement. Refer to Note 7 of the notes to our unaudited ~~condensed~~ consolidated financial statements included in Part I, Item 1 ~~within~~of this Quarterly Report on Form 10-Q for more information. As a result of the interest rate cap agreement, to date, the effects of rising interest rates on our results of operations and financial condition have not been significant. However, there can be no assurance that our interest rates will not continue to increase and that we will be able to mitigate such increases in the future.

We may incur additional borrowings, under our Revolver or otherwise, from time to time for general corporate purposes, including working capital and capital expenditures.

Item 4. Controls and Procedures

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted 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 in Company reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of ~~March 31, 2021.~~September 30, 2022. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rules ~~13a- 15 (e)~~13a-15(e) and ~~15d-15 (e)~~15d-15(e) under the Exchange Act) were not effective as of ~~March~~September 30, 2022 due to the material weakness described below.

Material Weakness in Internal Control over Financial Reporting

During the audit process related to December 31, ~~2021.~~2021, management, in connection with our independent auditors, identified a material weakness in our controls related to the operating effectiveness of the review of the annual income tax provision prepared by a third-party firm, specifically the valuation allowance related to deferred tax

assets. This impacts the timing of realization of a deferred tax asset, while the total projected deferred tax benefit remains unchanged.

Remediation Efforts with Respect to the Material Weakness

We are committed to maintaining a strong internal control environment and we continue to execute the following steps to remediate this material weakness.

a.Refining the scope of the Company’s external tax advisors to provide advice related to complex or unusual items; and

b.Enhancing the design and precision of the Company's controls related to the income tax provision calculations and documentation, including controls related to the valuation allowance assessment.

The material weakness will not be considered remediated until a sustained period of time has passed to allow management to test the design and operational effectiveness of the corrective actions. Until the material weakness is remediated, we plan to continue to perform additional analyses and other procedures to ensure that our Consolidated Financial Statements are prepared in accordance with GAAP.

Changes in Internal Control over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended ~~March 31, 2021~~September 30, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Part II - Other Information

Item 1. Legal Proceedings

We are currently not a party to any legal proceedings that would be expected to have a material adverse effect on our business or financial condition. From time to time, we are subject to litigation incidental to our business, as well as other litigation of a non-material nature in the ordinary course of business.

Item 1A. Risk Factors

There have been no material changes in our risk factors from those disclosed under "Item 1A. Risk Factors" included in our ~~2020~~2021 Annual Report on Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

On May 5, 2021, for purposes of succession planning and with the knowledge and endorsement of the Company’s Board of Directors and the Compensation Committee, GTCR-Ultra Holdings, LLC (“Ultra”) and Mr. Jeffrey Hack agreed to modify the vesting terms of the outstanding Class C Units of Ultra (the “Incentive Units”) previously granted to Mr. Hack.None.

As previously agreed, upon termination of employment (other than for cause or resignation without good reason), 20% of Mr. Hack’s unvested Incentive Units, if any, would vest and any remaining unvested Incentive Units would be immediately forfeited without consideration. As modified, in the event of a succession, any remaining unvested Incentive Units that would have been immediately forfeited are instead treated as follows (i) on the day following the date that a new chief executive officer commences employment as such (the “Change Date”), 50% of such unvested Incentive Units, if any, will vest, and (ii) on the date that is six months following the Change Date, all of Mr. Hack’s remaining unvested Incentive Units, if any, will vest; in each case, subject to Mr. Hack’s cooperation and support with the succession process in good faith.

Item 6. Exhibits


Exhibit No.			Description
~~10.1~~3.1			~~Credit Agreement, dated as~~Amended and Restated Certificate of ~~August 1, 2017, among GTCR-Ultra Intermediate~~Incorporation of Paya Holdings Inc., ~~which was succeeded~~filed with the Secretary of State of the State of Delaware on October 16, 2020 (incorporated by reference to Exhibit 3.1 to Paya Holdings ~~II, LLC, as Holdings; Paya,~~ Inc., which was succeeded by Paya Holdings III, LLC, as Borrower; the subsidiaries party thereto from time to time; the lenders party thereto from time to time; and the administrative agent and collateral agent party thereto.’s Form 8-K filed on October 22, 2020).
~~10.2~~3.2			~~Amendment No. 1~~Amended and Restated Bylaws of Paya Holdings Inc. (incorporated by reference to ~~Credit Agreement, dated as of July 13, 2018~~
~~10.3~~			~~Amendment No. 2~~Exhibit 3.2 to ~~Credit Agreement, dated as of November 1, 2018~~
~~10.4~~			~~Amendment No. 3 to Credit Agreement, dated as of December~~Paya Holdings Inc.’s Form 8-K filed on October 20, ~~2018, including Annex A thereto, which is a restatement of the Credit Agreement through Amendment No. 3~~
~~10.5~~			~~Amendment No. 4 to Credit Agreement, dated as of July 24, 2020~~
~~10.6~~			~~Amendment No. 5 to Credit Agreement, dated as of October 7, 2020~~2020).
31.1			Certification of the Chief Executive Officer pursuant to Exchange Act Rules Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.
31.2			Certification of the Chief Financial Officer pursuant to Exchange Act Rules Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.
31.3			Certification of the Chief Accounting Officer pursuant to Exchange Act Rules Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.
32.1*			Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350.
32.2*			Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350.
32.3*			Certification of the Chief Accounting Officer pursuant to 18 U.S.C. Section 1350.
101.INS			XBRL Instance Document.
101.SCH			Inline XBRL Taxonomy Extension Schema Document.
101.CAL			Inline XBRL Taxonomy Extension Calculation Linkbase Document.
1010.DEF			Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB			Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE			Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104			Cover Page Interactive Data File (Formatted as inline XBRL).

-----------------

* The certifications furnished in ~~Exhibit~~Exhibits 32.1, 32.2 and 32.3 hereto are deemed to accompany this Quarterly Report on Form 10-Q and will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, except to the extent that the registrant specifically incorporates it by reference.

Table of Contents

SIGNATURES

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


Date: ~~May 7, 2021~~November 4, 2022						PAYA HOLDINGS INC.

						/s/ Glenn Renzulli
						Glenn Renzulli
						Chief Financial Officer


PART I
Item 1. Unaudited ~~Condensed~~ Consolidated Financial Statements			45
Item 2 ~~. Management~~’s2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			2635
Item 3 . 3. Quantitative and Qualitative Disclosures About Market Risk			3848
I ~~tem~~Item 4. Controls and Procedures			3848

PART II
Item 1 .1. Legal Proceedings			3950
Item 1 A.1A. Risk Factors			3950
Item 2 .2. Unregistered Sales of Equity Securities and Use of Proceeds			3950
Item 3 .3. Defaults Upon Senior Securities			3950
Item 4. Mine Safety Disclosures			3950
Item 5 ~~. Other~~5. Other Information			3950
Item 6 .6. Exhibits			4051
SIGNATURES			4152


Paya Holdings Inc.
Condensed Consolidated Balance Sheets
(In thousands, Unaudited)
	March 31,		December 31,
	2021		2020
Assets
Current assets:
Cash and cash equivalents	$	133,824	$	23,617
Trade receivables, net	22,060		17,493
Prepaid expenses	2,766		2,218
Income taxes receivable	541		541
Other current assets	636		457
Total current assets before funds held for clients	159,827		44,326
Funds held for clients	69,430		78,505
Total current assets	$	229,257	$	122,831
Noncurrent assets:
Property and equipment, net	14,057		12,805
Goodwill	206,337		206,308
Intangible assets, net	133,287		132,616
Other long-term assets	756		781
Total Assets	$	583,694	$	475,341
Liabilities and stockholders’ equity
Current liabilities:
Trade payables	2,918		3,967
Accrued liabilities	10,419		10,435
Accrued revenue share	8,351		7,535
Income taxes payable	744		0
Other current liabilities	2,985		3,071
Total current liabilities before client funds obligations	25,417		25,008
Client funds obligations	68,990		78,658
Total current liabilities	$	94,407	$	103,666
Noncurrent liabilities:
Deferred tax liability, net	14,453		14,618
Long-term debt	219,795		220,152
Tax receivable agreement liability	19,175		19,627
Other long-term liabilities	1,105		1,246
Total liabilities	$	348,935	$	359,309
Stockholders’ Equity:
Common stock, $0.0001 par value; 500,000,000 authorized; 126,697,492 and 116,697,441 issued and outstanding as of March 31, 2021 and December 31, 2020, respectively	13		12
Additional Paid-in-Capital	247,134		129,453
Accumulated deficit	(12,388)		(13,433)
Total stockholders’ equity	234,759		116,032
Total liabilities and stockholders’ equity	$	583,694	$	475,341


	March 31, 2021		December 31, 2020
Computers and equipment	$	7,635	$	7,134
Internal-use software	12,430		10,708
Office equipment	141		130
Furniture and fixtures	1,320		1,320
Leasehold improvements	1,360		1,353
Other equipment	26		26
Total property and equipment	22,912		20,671
Less: accumulated depreciation	(8,855)		(7,866)
Total property and equipment, net	$	14,057	$	12,805


	March 31, 2021		December 31, 2020
Term loan credit agreement	$	228,086	$	228,677
Debt issuance costs, net	(5,927)		(6,161)
Total debt	222,159		222,516
Less: current portion of debt	(2,364)		(2,364)
Total long-term debt	$	219,795	$	220,152


	Number of RSUs	Weighted-Average Grant Date Fair Value		Weighted-Average Remaining Term
December 31, 2020 balance	230,000	$	13.73	3.4 years
Granted	104,090	$	13.87	1.4 years
March 31, 2021 balance	334,090	$	13.77	2.8 years


Year ending December 31,	(In thousands)
2021 - remaining	$	974
2022	1,294
2023	1,271
2024	1,004
2025	899
Thereafter	609
Total	$	6,051