Paymentus (PAY) - 2023 Q3 - Quarterly Report

Special Note Regarding Forward-Looking Statements Forward-Looking Statements Disclaimer This section warns that the report contains forward-looking statements subject to substantial risks and uncertainties that may cause actual results to differ materially from projections - The report contains forward-looking statements that involve known and unknown risks, uncertainties, and other factors that may cause actual results to differ materially from historical results or future projections[7] - Key areas of forward-looking statements include the company's ability to manage growth, attract and retain customers, implement new customers, manage revenue and expenses, adapt to economic conditions (including inflation), integrate acquisitions, and expand into new markets[9] - Readers are cautioned not to place undue reliance on these statements, as they are based on current expectations and projections, and the company undertakes no obligation to update them except as required by law[9][10] PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents Paymentus Holdings, Inc.'s unaudited condensed consolidated financial statements, including balance sheets, statements of operations, stockholders' equity, and cash flows, for the three and nine months ended September 30, 2023 Condensed Consolidated Balance Sheets This section provides a snapshot of the company's financial position, detailing assets, liabilities, and equity at specific reporting dates Condensed Consolidated Balance Sheets (in thousands) | Metric | September 30, 2023 (in thousands) | December 31, 2022 (in thousands) | Change (in thousands) | % Change | | :--------------------------------- | :-------------------------------- | :--------------------------------- | :-------------------- | :------- | | Total assets | $489,341 | $461,539 | $27,802 | 6.02% | | Total liabilities | $71,893 | $64,360 | $7,533 | 11.70% | | Total stockholders' equity | $417,448 | $397,179 | $20,269 | 5.10% | | Cash and cash equivalents | $162,062 | $147,334 | $14,728 | 9.99% | | Capitalized internal-use software development costs, net | $56,488 | $46,032 | $10,456 | 22.71% | | Intangible assets, net | $29,179 | $36,017 | $(6,838) | -18.99% | - Total assets increased by 6.02% from $461.5 million at December 31, 2022, to $489.3 million at September 30, 2023, primarily driven by increases in cash and cash equivalents and capitalized internal-use software development costs[16] - Total liabilities increased by 11.70% from $64.4 million to $71.9 million, mainly due to increases in accounts payable, accrued liabilities, and current contract liabilities[16] Condensed Consolidated Statements of Operations and Comprehensive Income This section details the company's financial performance, including revenue, gross profit, and net income, for the specified periods Consolidated Statements of Operations and Comprehensive Income (in thousands) | Metric (in thousands) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | % Change (YoY) | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | % Change (YoY) | | :-------------------- | :------------------------------ | :------------------------------ | :------------- | :----------------------------- | :----------------------------- | :------------- | | Revenue | $152,423 | $128,152 | 18.9% | $449,690 | $364,825 | 23.3% | | Gross profit | $46,910 | $37,857 | 23.9% | $132,850 | $108,539 | 22.4% | | Income (loss) from operations | $5,311 | $(917) | n/m | $8,953 | $(4,513) | n/m | | Net income (loss) | $6,377 | $(737) | n/m | $12,920 | $(1,470) | n/m | | Basic EPS | $0.05 | $(0.01) | n/m | $0.10 | $(0.01) | n/m | | Diluted EPS | $0.05 | $(0.01) | n/m | $0.10 | $(0.01) | n/m | - For the three months ended September 30, 2023, revenue increased by 18.9% to $152.4 million, and net income significantly improved to $6.4 million from a net loss of $0.7 million in the prior year period[19] - For the nine months ended September 30, 2023, revenue grew by 23.3% to $449.7 million, and the company reported a net income of $12.9 million, a substantial improvement from a net loss of $1.5 million in the same period of 2022[19] Condensed Consolidated Statements of Stockholders' Equity This section outlines changes in the company's equity, including additional paid-in capital and retained earnings, over the reporting period Condensed Consolidated Statements of Stockholders' Equity (in thousands) | Metric (in thousands) | Balances at Dec 31, 2022 | Balances at Sep 30, 2023 | Change (in thousands) | % Change | | :-------------------- | :----------------------- | :----------------------- | :-------------------- | :------- | | Total Stockholders' Equity | $397,179 | $417,448 | $20,269 | 5.10% | | Additional Paid-In Capital | $367,767 | $375,094 | $7,327 | 1.99% | | Retained Earnings | $29,422 | $42,342 | $12,920 | 43.91% | | Stock-based compensation (9 months ended Sep 30, 2023) | N/A | N/A | $6,891 | N/A | | Net income (9 months ended Sep 30, 2023) | N/A | N/A | $12,920 | N/A | - Total stockholders' equity increased by $20.3 million, or 5.10%, from December 31, 2022, to September 30, 2023, primarily driven by net income and stock-based compensation[21] - Retained earnings increased by $12.9 million during the nine months ended September 30, 2023, reflecting the company's net income for the period[21] Condensed Consolidated Statements of Cash Flows This section presents the company's cash inflows and outflows from operating, investing, and financing activities for the specified periods Cash Flow Summary (in thousands) | Cash Flow Activity (in thousands) | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | Change (in thousands) | % Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :-------------------- | :------- | | Net cash provided by operating activities | $44,387 | $5,143 | $39,244 | 763.0% | | Net cash used in investing activities | $(25,850) | $(23,668) | $(2,182) | 9.2% | | Net cash (used in) provided by financing activities | $(1,376) | $42,940 | $(44,316) | -103.2% | | Net increase in cash, cash equivalents and Restricted cash | $17,207 | $24,086 | $(6,879) | -28.6% | - Net cash provided by operating activities significantly increased to $44.4 million for the nine months ended September 30, 2023, compared to $5.1 million in the prior year, driven by improved net income and non-cash adjustments[24][116] - Net cash used in investing activities increased slightly to $25.9 million, primarily due to higher capitalized internal-use software development costs[24][118] - Net cash used in financing activities was $1.4 million for the nine months ended September 30, 2023, a notable shift from $42.9 million provided in the prior year, mainly due to the absence of financial institution funds in-transit in 2023[24][119][120] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements 1. Organization and Description of Business This section describes Paymentus Holdings, Inc.'s core business as a provider of electronic bill presentment and payment services through a SaaS platform - Paymentus Holdings, Inc. provides electronic bill presentment and payment services, enterprise customer communication, and self-service revenue management through a SaaS, secure, omni-channel technology platform[26] - The platform supports various payment types (credit cards, debit cards, eChecks, digital wallets) and channels (online, mobile, IVR, call center, chatbot, voice-based assistants)[26] - The company is headquartered in Charlotte, North Carolina, with additional office locations in Canada and India[26] 2. Basis of Presentation and Summary of Significant Accounting Policies This section outlines the accounting principles and policies used in preparing the unaudited interim condensed consolidated financial statements - The unaudited interim condensed consolidated financial statements are prepared in accordance with GAAP and SEC rules for interim financial reporting, reflecting normal recurring adjustments[27][28] - The company consolidates its wholly-owned subsidiaries and eliminates all intercompany accounts and balances[29] - Management makes estimates and assumptions for revenue recognition, credit losses, asset lives, valuation of acquired intangibles, goodwill impairment, software development costs, stock-based compensation, and income taxes[30] - As of September 30, 2023, cash in custodial accounts held by merchant processors, not legally owned by the company, was $402.7 million, up from $353.9 million at December 31, 2022[31] - The company adopted ASU 2021-08 on January 1, 2023, which did not have a material impact on its condensed consolidated financial statements[38] 3. Revenue, Performance Obligations and Contract Balances This section details the company's revenue recognition, performance obligations, and contract balances, including revenue by type and geographic area Revenue by Type (in thousands) | Revenue Type (in thousands) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :-------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Payment transaction processing revenue | $150,500 | $126,373 | $443,565 | $359,846 | | Other | $1,923 | $1,779 | $6,125 | $4,979 | | Total revenue | $152,423 | $128,152 | $449,690 | $364,825 | Revenue by Geographic Area (in thousands) | Geographic Area (in thousands) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :----------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | United States | $149,526 | $125,655 | $441,029 | $357,088 | | Other | $2,897 | $2,497 | $8,661 | $7,737 | | Total | $152,423 | $128,152 | $449,690 | $364,825 | - As of September 30, 2023, the aggregate amount of transaction price allocated to unsatisfied or partially unsatisfied performance obligations was $8.4 million, with over 79% expected to be recognized within the next two years[40] Contract Balances (in thousands) | Contract Balances (in thousands) | September 30, 2023 | December 31, 2022 | | :------------------------------- | :----------------- | :---------------- | | Total contract assets | $8,047 | $9,661 | | Total contract liabilities | $8,415 | $7,184 | 4. Business Combinations This section describes the acquisition of PROFIT Financial, Inc. and its integration into the company's consolidated financial results - On December 19, 2022, Paymentus acquired PROFIT Financial, Inc. for approximately $4.3 million, net of cash acquired, to increase market opportunities and enhance the PROFIT platform[44] - The revenue and expenses of PROFIT have been included in Paymentus's consolidated financial results since the acquisition date, with no material measurement period adjustments during the three and nine months ended September 30, 2023[45][46] 5. Property and Equipment, Net This section provides details on the company's property and equipment, including depreciation expense and net book value Property and Equipment, Net (in thousands) | Property and Equipment (in thousands) | September 30, 2023 | December 31, 2022 | | :------------------------------------ | :----------------- | :---------------- | | Computer equipment | $5,955 | $5,476 | | Furniture and fixtures | $1,672 | $1,672 | | Leasehold improvements | $391 | $419 | | Total property and equipment | $8,018 | $7,567 | | Less: Accumulated depreciation | $(6,342) | $(5,744) | | Property and equipment, net | $1,676 | $1,823 | - Depreciation expense for property and equipment was $0.2 million for the three months and $0.7 million for the nine months ended September 30, 2023, a decrease from $0.3 million and $1.0 million respectively in 2022[47] Long-lived Assets, Net (in thousands) | Long-lived Assets, Net (in thousands) | September 30, 2023 | December 31, 2022 | | :------------------------------------ | :----------------- | :---------------- | | United States | $627 | $706 | | Other | $1,049 | $1,117 | | Total | $1,676 | $1,823 | 6. Goodwill, Internal-use Software Development Costs and Intangible Assets This section details the company's goodwill, capitalized internal-use software development costs, and other intangible assets, including amortization Goodwill (in thousands) | Goodwill (in thousands) | December 31, 2022 | September 30, 2023 | | :---------------------- | :---------------- | :----------------- | | United States | $131,028 | $131,028 | | Other | $823 | $824 | | Total | $131,851 | $131,852 | - The company capitalized $8.7 million in software development and implementation costs for the three months and $25.3 million for the nine months ended September 30, 2023, an increase from $7.8 million and $22.3 million respectively in 2022[50] Intangible Assets, Net (in thousands) | Intangible Assets, Net (in thousands) | September 30, 2023 | December 31, 2022 | | :------------------------------------ | :----------------- | :---------------- | | Technology | $7,837 | $10,666 | | Customer relationship | $19,343 | $22,093 | | Trademark | $1,951 | $2,707 | | Total | $29,179 | $36,017 | - Amortization expense for intangible assets was $2.1 million for the three months and $6.4 million for the nine months ended September 30, 2023, consistent with prior year periods[52] 7. Accrued Liabilities This section outlines the company's accrued liabilities, including payroll, employee-related expenses, and other accrued amounts Accrued Liabilities (in thousands) | Accrued Liabilities (in thousands) | September 30, 2023 | December 31, 2022 | | :--------------------------------- | :----------------- | :---------------- | | Payroll and employee-related expenses | $12,523 | $9,214 | | Finance leases and other financing obligations | $0 | $1,813 | | Other accrued liabilities | $6,236 | $4,782 | | Total | $18,759 | $15,809 | - Total accrued liabilities increased to $18.8 million at September 30, 2023, from $15.8 million at December 31, 2022, primarily due to higher payroll and employee-related expenses[54] - As of September 30, 2023, the company no longer had any finance leases or insurance premium financing arrangements, which were $1.8 million at December 31, 2022[54] 8. Commitments and Contingencies This section describes the company's non-cancellable agreements, legal proceedings, and indemnification provisions - The company has non-cancellable agreements for software and marketing services, with no material changes to contractual obligations compared to the 2022 Form 10-K[55] - Paymentus is involved in various claims and legal proceedings in the ordinary course of business but believes none will have a material adverse effect on its financial position, results of operations, or cash flows as of September 30, 2023[56] - The company enters into indemnification provisions with business partners, investors, customers, officers, directors, and employees, seeking to limit its exposure[57] 9. Equity This section details the company's equity structure, including warrant agreements and their vesting status - The company has warrant agreements with JPMC, including a May 2021 warrant for up to 509,370 shares and an August 2022 warrant for up to 684,510 shares of Class A common stock, subject to commercial milestones[58][61] - As of September 30, 2023, an aggregate of 588,173 warrants had vested and were exercisable under the outstanding agreements[62] 10. Stock-Based Compensation This section outlines the company's stock-based compensation plans, including stock options, RSUs, and related expenses - The 2021 Equity Incentive Plan reserved 10,459,000 shares of Class A common stock, with an annual increase of 4% of outstanding shares[63] On January 1, 2023, 4,929,646 shares were added[63] Stock Options Activity (in thousands, except per share) | Stock Options Activity (in thousands, except per share) | Outstanding at Dec 31, 2022 | Outstanding at Sep 30, 2023 | | :-------------------------------------- | :-------------------------- | :-------------------------- | | Options Outstanding | 4,155,640 | 3,905,334 | | Weighted-Average Exercise Price per Share | $7.52 | $7.82 | | Options Exercised | N/A | (131,500) | | Options Forfeited | N/A | (34,146) | | Options Expired | N/A | (84,660) | RSU Activity (in thousands) | RSU Activity (in thousands) | Awarded and unvested at Dec 31, 2022 | Awarded and unvested at Sep 30, 2023 | | :-------------------------------------- | :----------------------------------- | :----------------------------------- | | Number of RSUs Outstanding | 1,362,420 | 2,036,051 | | Awards Granted | N/A | 1,145,613 | | Awards Vested | N/A | (319,275) | | Awards Forfeited | N/A | (152,707) | Stock-Based Compensation Expense (in thousands) | Stock-Based Compensation Expense (in thousands) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :---------------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Total stock-based compensation | $2,456 | $2,002 | $6,891 | $4,622 | - Total unrecognized compensation cost for unvested RSUs was $24.2 million at September 30, 2023, expected to be recognized over a weighted-average period of 3.1 years[67] 11. Income Taxes This section presents the company's effective tax rates and the factors influencing its income tax provision Effective Tax Rate | Effective Tax Rate | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2022 | | :----------------- | :------------------------------ | :----------------------------- | :------------------------------ | :----------------------------- | | Effective Tax Rate | 11.4% | 7.2% | (65.2)% | 62.3% | - The effective tax rate for the three and nine months ended September 30, 2023, was 11.4% and 7.2% respectively, primarily differing from the U.S. federal statutory rate of 21% due to a full valuation allowance against net U.S. deferred tax assets[69] - The change in the provision for income taxes compared to the prior year was mainly due to changes in pre-tax earnings and the impact of the full valuation allowance[103][111] 12. Net Income per Share Attributable to Common Stock This section details the basic and diluted net income per share calculations for the company's common stock EPS (per share) | EPS (per share) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :---------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Basic | $0.05 | $(0.01) | $0.10 | $(0.01) | | Diluted | $0.05 | $(0.01) | $0.10 | $(0.01) | - Basic and diluted net income per share for the three months ended September 30, 2023, was $0.05, a significant improvement from a loss of $(0.01) in the prior year[75] - For the nine months ended September 30, 2023, basic and diluted net income per share was $0.10, compared to a loss of $(0.01) in the same period of 2022[75] - The calculation of diluted net income per share excludes anti-dilutive securities, which included stock options, RSUs, and warrants in both 2023 and 2022[73][75] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations, highlighting key performance drivers, economic impacts, non-GAAP measures, liquidity, and critical accounting policies Overview This section provides an overview of Paymentus as a leading cloud-based bill payment technology provider serving numerous clients and consumers - Paymentus is a leading provider of cloud-based bill payment technology and solutions, serving over 1,900 biller businesses and financial institution clients[76] - The platform processed payments for approximately 27 million consumers and businesses in North America in December 2022, across various industry verticals like utilities, financial services, and healthcare[76] - The company's SaaS infrastructure allows for rapid deployment of new features and tools, providing a mission-critical payments operating system that helps clients collect revenue faster and more profitably[77] Transactions Processed This section details the growth in revenue-generating payment transactions processed by the company for the specified periods Transactions Processed (in millions) | Metric (in millions) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | % Growth | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | % Growth | | :------------------- | :------------------------------ | :------------------------------ | :------- | :----------------------------- | :----------------------------- | :------- | | Transactions processed | 115.4 | 92.2 | 25.2% | 333.4 | 269.6 | 23.7% | - The number of revenue-generating payment transactions processed increased by 25.2% for the three months and 23.7% for the nine months ended September 30, 2023, compared to the same periods in 2022[78] - This growth was primarily driven by the addition of new billers and financial institutions, as well as increased transactions from existing clients[78] Other Key Factors and Trends Affecting Our Operating Results This section discusses the impact of economic uncertainty, inflation, and interest rates on the company's financial performance - Economic uncertainty, inflationary conditions, and increased interest rates in 2022 and 2023 have impacted financial performance, particularly in the utility sector[80] - Inflationary pressures have led to higher average bills and increased interchange fees, which the company is addressing through pricing adjustments, though these typically lag the impact of inflation[80] Non-GAAP Measures This section explains the company's use of supplemental non-GAAP measures to provide a comprehensive understanding of financial performance - The company uses supplemental non-GAAP measures including contribution profit, adjusted gross profit, adjusted EBITDA, and free cash flow to provide a more comprehensive understanding of its financial performance[81][87] - These measures are used by management and the board to evaluate performance, project future financial results, and facilitate period-to-period comparisons, particularly by excluding items like interchange and assessment fees[87] Contribution Profit This section defines and presents the company's contribution profit, a non-GAAP measure reflecting profitability after certain costs - Contribution profit is calculated as gross profit plus other cost of revenue (cost of revenue less interchange and assessment fees)[83] Contribution Profit (in thousands) | Metric (in thousands) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | % Change (YoY) | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | % Change (YoY) | | :-------------------- | :------------------------------ | :------------------------------ | :------------- | :----------------------------- | :----------------------------- | :------------- | | Gross Profit | $46,910 | $37,857 | 23.9% | $132,850 | $108,539 | 22.4% | | Plus: other cost of revenue | $14,583 | $13,277 | 9.8% | $41,764 | $38,704 | 7.9% | | Contribution Profit | $61,493 | $51,134 | 20.3% | $174,614 | $147,243 | 18.6% | - Contribution profit increased by 20.3% for the three months and 18.6% for the nine months ended September 30, 2023, driven by growth in transaction count and volume, disinflation in the utility sector, pricing improvements, and cost improvement measures[89] Adjusted Gross Profit This section defines and presents the company's adjusted gross profit, a non-GAAP measure adjusted for non-cash items - Adjusted gross profit is calculated as gross profit adjusted for non-cash items, primarily stock-based compensation and amortization of acquisition-related intangible assets and capitalized software development costs[84] Adjusted Gross Profit (in thousands) | Metric (in thousands) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | % Change (YoY) | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | % Change (YoY) | | :-------------------- | :------------------------------ | :------------------------------ | :------------- | :----------------------------- | :----------------------------- | :------------- | | Gross profit | $46,910 | $37,857 | 23.9% | $132,850 | $108,539 | 22.4% | | Adjusted gross profit | $51,268 | $41,043 | 24.9% | $144,919 | $117,114 | 23.7% | - Adjusted gross profit increased by 24.9% for the three months and 23.7% for the nine months ended September 30, 2023, aligning with contribution profit growth and benefiting from economies of scale[90] Adjusted EBITDA This section defines and presents the company's Adjusted EBITDA, a non-GAAP measure of operational performance before certain expenses - Adjusted EBITDA is net income before interest, taxes, depreciation, and amortization, further adjusted for foreign exchange, stock-based compensation, and certain nonrecurring expenses[85] Adjusted EBITDA (in thousands) | Metric (in thousands) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | % Change (YoY) | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | % Change (YoY) | | :-------------------- | :------------------------------ | :------------------------------ | :------------- | :----------------------------- | :----------------------------- | :------------- | | Net income (loss) — GAAP | $6,377 | $(737) | n/m | $12,920 | $(1,470) | n/m | | Adjusted EBITDA | $15,539 | $8,012 | 93.9% | $38,158 | $18,404 | 107.3% | - Adjusted EBITDA increased significantly by 93.9% for the three months and 107.3% for the nine months ended September 30, 2023, driven by transaction growth, utility sector disinflation, pricing improvements, and cost management[92] Free Cash Flow This section defines and presents the company's free cash flow, a non-GAAP measure of cash generated after capital expenditures - Free cash flow is calculated as net cash provided by (used in) operating activities less capital expenditures, other intangible assets acquired, and capitalized internal-use software development costs[86] Free Cash Flow (in thousands) | Metric (in thousands) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | % Change (YoY) | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | % Change (YoY) | | :-------------------- | :------------------------------ | :------------------------------ | :------------- | :----------------------------- | :----------------------------- | :------------- | | Net cash (used in) provided by operating activities | $13,143 | $(1,949) | n/m | $44,387 | $5,143 | 763.0% | | Free cash flow | $4,257 | $(10,235) | n/m | $18,537 | $(18,525) | n/m | - Free cash flow improved significantly to $4.3 million for the three months and $18.5 million for the nine months ended September 30, 2023, from negative figures in the prior year, primarily due to higher cash provided by operating activities[93] Results of Operations This section provides a detailed comparison of the company's financial results for the three and nine months ended September 30, 2023, versus 2022 Consolidated Results of Operations (in thousands) | Metric (in thousands) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | $ Change | % Change | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | $ Change | % Change | | :-------------------- | :------------------------------ | :------------------------------ | :------- | :------- | :----------------------------- | :----------------------------- | :------- | :------- | | Revenue | $152,423 | $128,152 | $24,271 | 18.9% | $449,690 | $364,825 | $84,865 | 23.3% | | Cost of revenue | $105,513 | $90,295 | $15,218 | 16.9% | $316,840 | $256,286 | $60,554 | 23.6% | | Gross profit | $46,910 | $37,857 | $9,053 | 23.9% | $132,850 | $108,539 | $24,311 | 22.4% | | Research and development | $11,035 | $10,350 | $685 | 6.6% | $33,595 | $30,925 | $2,670 | 8.6% | | Sales and marketing | $21,481 | $19,048 | $2,433 | 12.8% | $63,344 | $53,089 | $10,255 | 19.3% | | General and administrative | $9,083 | $9,376 | $(293) | -3.1% | $26,958 | $29,038 | $(2,080) | -7.2% | | Income (loss) from operations | $5,311 | $(917) | $6,228 | n/m | $8,953 | $(4,513) | $13,466 | n/m | | Net income (loss) | $6,377 | $(737) | $7,114 | n/m | $12,920 | $(1,470) | $14,390 | n/m | Consolidated Results of Operations (% of revenue) | Metric (% of revenue) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :-------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Revenue | 100.0% | 100.0% | 100.0% | 100.0% | | Cost of revenue | 69.2% | 70.5% | 70.5% | 70.2% | | Gross profit | 30.8% | 29.5% | 29.5% | 29.8% | | Research and development | 7.2% | 8.1% | 7.5% | 8.5% | | Sales and marketing | 14.1% | 14.9% | 14.1% | 14.6% | | General and administrative | 6.0% | 7.3% | 6.0% | 8.0% | | Income (loss) from operations | 3.5% | -0.7% | 1.9% | -1.2% | | Net income (loss) | 4.2% | -0.6% | 2.8% | -0.4% | Comparison of the Three Months Ended September 30, 2023 and 2022 This section compares the company's revenue, gross margin, operating expenses, and net income for the three months ended September 30, 2023, and 2022 - Revenue increased by 18.9% to $152.4 million, driven by higher transaction volume from new and existing billers and pricing improvements related to inflation management[96] - Gross margin improved to 30.8% from 29.5%, due to adjusted pricing, cost improvement initiatives, and deflation in the utility sector, partially offsetting increased cost of revenue from higher transaction volume[97][98] - Operating expenses saw varied changes: R&D increased by 6.6% due to higher amortization of capitalized software, Sales & Marketing increased by 12.8% due to employee-related costs and agency commissions, while General & Administrative decreased by 3.1% due to lower insurance, acquisition, and legal expenses[99][100][101] - Interest income, net, increased significantly by 278.0% due to rising Federal Reserve rates impacting government securities[94][102] Comparison of the Nine Months Ended September 30, 2023 and 2022 This section compares the company's revenue, gross margin, operating expenses, and net income for the nine months ended September 30, 2023, and 2022 - Revenue increased by 23.3% to $449.7 million, primarily from increased transaction volume and pricing adjustments for inflation[104] - Gross margin slightly decreased to 29.5% from 29.8%, as the increase in cost of revenue (23.6%) outpaced revenue growth, despite some cost improvements from utility sector disinflation[105][106] - Operating expenses increased overall: R&D by 8.6% due to amortization and employee costs, Sales & Marketing by 19.3% from headcount and commissions, while General & Administrative decreased by 7.2% due to slower hiring, lower insurance, lease, legal, and acquisition costs[107][108][109] - Interest income, net, surged by 742.3% due to higher Federal Reserve rates[94][110] Liquidity and Capital Resources This section discusses the company's cash position, financing sources, and cash flow activities from operations, investing, and financing - As of September 30, 2023, the company had $162.1 million in unrestricted cash and cash equivalents, which is believed to be sufficient for working capital and capital expenditures for at least the next 12 months[112] - Operations have been primarily financed through equity sales and revenue from payment transaction fees and subscriptions, with principal uses of cash being operations and capital expenditures[112] - The company may explore additional financing sources, but there is no assurance of availability on acceptable terms, and any new financing could dilute existing stockholders or impose restrictive covenants[113] Cash Flow Summary (in thousands) | Cash Flow Activity (in thousands) | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $44,387 | $5,143 | | Net cash used in investing activities | $(25,850) | $(23,668) | | Net cash (used in) provided by financing activities | $(1,376) | $42,940 | | Net increase in cash, cash equivalents and restricted cash | $17,207 | $24,086 | Net Cash Provided by Operating Activities This section details the net cash generated from the company's core business operations for the specified periods - Net cash provided by operating activities was $44.4 million for the nine months ended September 30, 2023, significantly up from $5.1 million in 2022[116][117] - The increase was driven by net income of $12.9 million and $32.9 million in non-cash charges (depreciation, amortization, stock-based compensation), partially offset by $1.4 million in changes in operating assets and liabilities[116] Net Cash Used in Investing Activities This section outlines the cash used for capital expenditures and software development in the company's investing activities - Net cash used in investing activities was $25.9 million for the nine months ended September 30, 2023, primarily for $25.3 million in capitalized software development costs and $0.5 million in property and equipment purchases[118] - This represents an increase from $23.7 million used in the prior year, which included $22.3 million for software development and $1.2 million for property and equipment[118] Net Cash (Used in) Provided by Financing Activities This section describes the cash flows related to the company's financing activities, including debt and equity transactions - Net cash used in financing activities was $1.4 million for the nine months ended September 30, 2023, including payments on financing obligations and finance leases, partially offset by proceeds from stock-based awards[119] - This contrasts with $42.9 million provided by financing activities in 2022, which included a significant increase in financial institution funds in-transit[120] Critical Accounting Policies and Estimates This section confirms no material changes to the company's critical accounting policies and estimates since December 31, 2022 - There have been no material changes in the company's critical accounting policies and estimates since December 31, 2022[121] Recent Accounting Pronouncements This section refers to Note 2 for details on recent accounting pronouncements and their impact on the financial statements - For a full description of recent accounting pronouncements, including adoption dates and effects, refer to Note 2, 'Basis of Presentation and Summary of Significant Accounting Policies,' in the unaudited condensed consolidated financial statements[122] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section confirms no material changes in the company's exposure to market risks, including interest rate, foreign currency, and inflation, since December 31, 2022 - There have been no material changes in the company's exposures to market risk, including interest rate, foreign currency exchange, and inflation risks, since December 31, 2022[123] Item 4. Controls and Procedures This section details management's evaluation of disclosure controls and procedures, concluding they were ineffective due to material weaknesses in internal control over financial reporting, and outlines remediation plans Evaluation of Disclosure Controls and Procedures This section presents management's conclusion on the effectiveness of disclosure controls and procedures, noting material weaknesses - Management concluded that, as of September 30, 2023, the company's disclosure controls and procedures were not effective at the reasonable assurance level due to material weaknesses in internal control over financial reporting[124] - Despite the material weaknesses, management performed additional analyses and procedures, concluding that the unaudited condensed consolidated financial statements fairly state the financial position, results of operations, and cash flows in conformity with GAAP[124] Material Weaknesses in Internal Control over Financial Reporting This section identifies specific material weaknesses in the company's internal control over financial reporting - The company lacked a sufficient number of trained professionals with appropriate accounting knowledge to analyze, record, and disclose accounting matters, including capitalized internal-use software, reporting units, foreign currency translation, deferred compensation, EPS calculation, and account classification[125] - Ineffective controls were identified over verifying the appropriate review and approval of journal entries[126] - Ineffective IT general controls for information systems were noted, specifically regarding program change management and user access controls to ensure segregation of duties and restricted access to financial applications[126] Remediation Plan This section outlines the company's ongoing plan to address and remediate the identified material weaknesses in internal controls - The company has made significant progress in remediation, including updating general ledger system design for restricted access and segregation of duties, implementing management review controls over journal entries, securing the general ledger with Single Sign-On (SSO), and implementing additional change management and access controls for IT applications[127][130] - Ongoing remediation measures include implementing controls to review activities of users with privileged access and continuing to hire additional personnel with public company experience for the accounting and finance function[127][130] - Material weaknesses will be considered fully remediated once remedial controls operate for a sufficient period and are tested effectively by management[127] Changes in Internal Control over Financial Reporting This section reports no material changes in internal control over financial reporting during the three months ended September 30, 2023 - There were no changes in internal control over financial reporting during the three months ended September 30, 2023, that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[128] Inherent Limitations on Effectiveness of Controls This section acknowledges the inherent limitations of disclosure controls and internal control over financial reporting - Management acknowledges that disclosure controls and internal control over financial reporting can only provide reasonable, not absolute, assurance and may not prevent or detect all errors and fraud due to inherent limitations[129] PART II. OTHER INFORMATION Item 1. Legal Proceedings This section confirms the company is not currently involved in any material legal proceedings or aware of any threatened actions that could adversely affect its financials - The company is not currently involved in any material legal proceedings and is unaware of any pending or threatened legal actions that could materially adversely affect its business, operating results, cash flows, or financial condition[132] Item 1A. Risk Factors This section indicates no material changes to the risk factors previously disclosed in the company's 2022 Form 10-K and subsequent Form 10-Qs - There have been no material changes in the risk factors previously disclosed in the company's 2022 Form 10-K and subsequent Form 10-Qs[133] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports no unregistered sales of equity securities or use of proceeds during the reporting period - There were no unregistered sales of equity securities or use of proceeds during the reporting period[134] Item 3. Defaults Upon Senior Securities This section confirms no defaults upon senior securities during the reporting period - There were no defaults upon senior securities during the reporting period[135] Item 4. Mine Safety Disclosures This section states that mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable to the company[136] Item 5. Other Information This section reports that no directors or officers adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the quarter - No directors or officers adopted or terminated a 'Rule 10b5-1 trading arrangement' or 'non-Rule 10b5-1 trading arrangement' during the quarter ended September 30, 2023[137] Item 6. Exhibits This section provides a list of exhibits filed with the Form 10-Q, including organizational documents, executive certifications, and XBRL documents - The exhibits include the Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws, certifications of principal executive and financial officers (pursuant to Rules 13a-14(a) and 15d-14(a) and 18 U.S.C. Section 1350), and Inline XBRL documents[139] Signatures Report Signatures This section contains the signatures of the company's Principal Executive Officer and Principal Financial and Accounting Officer, certifying the report filing on November 6, 2023 - The report was signed on November 6, 2023, by Dushyant Sharma, Chairman, President and Chief Executive Officer, and Sanjay Kalra, Senior Vice President and Chief Financial Officer[143]