10-Q 1 pay-20220331.htm 10-Q 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended March 31, 2022

OR

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

For the transition period from to

Commission File Number: 001-40429

 

Paymentus Holdings, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

45-3188251

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

18390 NE 68th St.

Redmond, WA

98052

(Address of principal executive offices)

(Zip Code)

(888) 440-4826

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Class A Common Stock, par value $0.0001 per share

 

PAY

 

New York Stock Exchange

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

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

Large accelerated filer

 

 

Accelerated filer

 

Non-accelerated filer

 

 

Smaller reporting company

 

Emerging growth company

 

 

 

 

 

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

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

As of May 3, 2022, the registrant had 18,038,296 shares of Class A Common Stock, $0.0001 par value per share and 103,336,337 shares of Class B Common Stock, $0.0001 par value per share, outstanding.

 

 


 

Table of Contents

 

 

 

Page

 

 

 

PART I.

FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements (Unaudited)

 

 

Condensed Consolidated Balance Sheets

4

 

Condensed Consolidated Statements of Operations

5

 

Condensed Consolidated Statements of Comprehensive Income (Loss)

6

 

Condensed Consolidated Statements of Stockholders' Equity

7

 

Condensed Consolidated Statements of Cash Flows

8

 

Notes to Unaudited Condensed Consolidated Financial Statements

10

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

22

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

31

Item 4.

Controls and Procedures

32

 

 

 

PART II.

OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

33

Item 1A.

Risk Factors

33

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

33

Item 3.

Defaults Upon Senior Securities

33

Item 4.

Mine Safety Disclosures

33

Item 5.

Other Information

33

Item 6.

Exhibits

34

Signatures

35

 

 

 

i


 

Special Note Regarding Forward-Looking Statements

This quarterly report on Form 10-Q for the three months ended March 31, 2022 ("Quarterly Report") contains forward-looking statements within the meaning of the federal securities laws, such as those under the heading "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations", which statements involve substantial risks and uncertainties. Forward-looking statements may involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from historical results or from any future results or projections expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this report include statements about:

our ability to effectively manage our growth and expand our operations;
our ability to further attract, retain and expand our biller, financial institutions, partner and consumer base;
our expectations regarding our revenue, expenses and other operating results;
the continued impact of the COVID-19 pandemic on our operating results, liquidity and financial condition and on our employees, billers, financial institutions, partners, consumers and other key stakeholders;
our market opportunity and anticipated trends in our business and industry;
our ability to remain competitive as we continue to scale our business;
our ability to develop new product features and enhance our platform;
our ability to hire and retain experienced and talented employees as we grow our business;
general economic conditions and their impact on consumer demand;
the expected impact of our recent acquisitions of Payveris LLC, or Payveris and Finovera, Inc., or Finovera;
our future acquisitions or strategic investments in complementary companies, products or technologies;
our ability to maintain and enhance our brand;
our plan to expand into new channels and industry verticals across different markets; and
our international expansion plans and ability to expand internationally, and
those factors described in the sections titled “Risk Factors" and “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2021 and the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Quarterly Report.

We caution you that the foregoing list may not contain all of the forward-looking statements made in this report.

You should not place undue reliance on our forward-looking statements as predictions of future events. We have based the forward-looking statements primarily on our current expectations and projections about future events and trends that we believe may affect our business, operating results, financial condition and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors, including those described in the section titled “Risk Factors” and elsewhere in this Quarterly Report. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this report. We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.

Neither we nor any other person assumes responsibility for the ultimate outcome of any of these forward-looking statements. Moreover, the forward-looking statements made in this report relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this report to reflect events or circumstances after the date of this report or to reflect new information or the occurrence of unanticipated events, except as required by law.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this report, and while we believe

ii


 

such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information.

Certain Definitions

In this report, unless the context requires otherwise, all references to “we,” “our,” “us,” “Paymentus,” and the “Company” refer to Paymentus Holdings, Inc., and where appropriate its consolidated subsidiaries.

 

 

iii


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

PAYMENTUS HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(In thousands, except share and per share data)

 

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Assets

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

163,384

 

 

$

168,386

 

Restricted funds held for financial institutions

 

 

36,782

 

 

 

33,443

 

Accounts and other receivables, net of allowance of $192 and $102

 

 

51,913

 

 

 

43,935

 

Income tax receivable

 

 

8,583

 

 

 

2,488

 

Prepaid expenses and other current assets

 

 

7,366

 

 

 

8,184

 

Total current assets

 

 

268,028

 

 

 

256,436

 

Property and equipment, net of accumulated depreciation and
   amortization of $
5,147 and $4,791

 

 

2,155

 

 

 

2,044

 

Capitalized internal-use software development costs, net

 

 

34,513

 

 

 

30,888

 

Intangible assets, net

 

 

40,039

 

 

 

42,088

 

Goodwill

 

 

129,417

 

 

 

129,413

 

Operating lease right-of-use assets

 

 

7,702

 

 

 

7,703

 

Deferred tax asset

 

 

1,052

 

 

 

163

 

Other long-term assets

 

 

4,707

 

 

 

4,207

 

Total assets

 

$

487,613

 

 

$

472,942

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Accounts payable

 

$

29,527

 

 

$

24,748

 

Accrued liabilities

 

 

12,503

 

 

 

12,491

 

Financial institution funds in-transit

 

 

36,782

 

 

 

33,443

 

Operating lease liabilities

 

 

1,356

 

 

 

1,456

 

Contract liabilities

 

 

1,253

 

 

 

2,173

 

Income tax payable

 

 

1,579

 

 

 

122

 

Total current liabilities

 

 

83,000

 

 

 

74,433

 

Deferred tax liability

 

 

5,600

 

 

 

3,318

 

Operating leases, net of current portion

 

 

6,552

 

 

 

6,463

 

Contract liabilities, net of current portion

 

 

2,581

 

 

 

1,713

 

Finance leases and other finance obligations, net of current portion

 

 

786

 

 

 

883

 

Total liabilities

 

 

98,519

 

 

 

86,810

 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

Preferred stock, $0.0001 par value per share, 5,000,000 shares authorized as of March 31, 2022 and December 31, 2021, respectively; none issued and outstanding as of March 31, 2022 and December 31, 2021, respectively

 

 

 

 

 

 

Class A common stock, $0.0001 par value per share, 883,950,000 shares authorized as of March 31, 2022 and December 31, 2021, respectively; 17,715,046 and 17,251,079 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively

 

 

2

 

 

 

1

 

Class B common stock, $0.0001 par value per share, 111,050,000 shares authorized as of March 31, 2022 and December 31, 2021, respectively; 103,336,337 and 103,388,082 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively

 

 

10

 

 

 

11

 

Additional paid-in capital

 

 

357,306

 

 

 

356,017

 

Accumulated other comprehensive income

 

 

123

 

 

 

168

 

Retained earnings

 

 

31,653

 

 

 

29,935

 

Total stockholders’ equity

 

 

389,094

 

 

 

386,132

 

Total liabilities and stockholders' equity

 

$

487,613

 

 

$

472,942

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

4


 

PAYMENTUS HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(In thousands, except share and per share data)

 

 

 

Three Months Ended March 31,

 

 

 

 

2022

 

 

2021

 

 

Revenue

 

$

116,704

 

 

$

92,222

 

 

Cost of revenue

 

 

81,850

 

 

 

64,675

 

 

Gross profit

 

 

34,854

 

 

 

27,547

 

 

Operating expenses

 

 

 

 

 

 

 

Research and development

 

 

10,390

 

 

 

7,730

 

 

Sales and marketing

 

 

16,190

 

 

 

8,222

 

 

General and administrative

 

 

9,645

 

 

 

6,742

 

 

Total operating expenses

 

 

36,225

 

 

 

22,694

 

 

(Loss) income from operations

 

 

(1,371

)

 

 

4,853

 

 

Other income (loss)

 

 

 

 

 

 

 

Interest expense, net

 

 

(8

)

 

 

(3

)

 

Foreign exchange gain

 

 

26

 

 

 

9

 

 

(Loss) income before income taxes

 

 

(1,353

)

 

 

4,859

 

 

Benefit from (provision for) income taxes

 

 

3,071

 

 

 

(1,221

)

 

Net income

 

$

1,718

 

 

$

3,638

 

 

Undeclared dividends on Series A preferred stock

 

 

 

 

 

(1,360

)

 

Net income attributable to common stock

 

$

1,718

 

 

$

2,278

 

 

Net income per share attributable to common stock

 

 

 

 

 

 

 

Basic

 

$

0.01

 

 

$

0.02

 

 

Diluted

 

$

0.01

 

 

$

0.02

 

 

Weighted-average number of shares used to compute net income per share attributable to common stock

 

 

 

 

 

 

 

Basic

 

 

120,897,576

 

 

 

103,479,239

 

 

Diluted

 

 

125,986,510

 

 

 

106,303,894

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

5


 

PAYMENTUS HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(In thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Net income

 

$

1,718

 

 

$

3,638

 

Other comprehensive income (loss), net of tax

 

 

 

 

 

 

Foreign currency translation adjustments, net of tax

 

(45

)

 

 

21

 

Comprehensive income

 

$

1,673

 

 

$

3,659

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

6


 

PAYMENTUS HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)

(In thousands, except share amounts)

 

 

 

 

 

Additional

 

 

 

 

 

Other

 

 

Total

 

 

 

Common Stock

 

 

Paid-In

 

 

Retained

 

 

Comprehensive

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Income

 

 

Equity

 

Balances at December 31, 2021

 

 

120,639,161

 

 

$

12

 

 

$

356,017

 

 

$

29,935

 

 

$

168

 

 

$

386,132

 

Stock-based compensation

 

 

 

 

 

 

 

 

1,276

 

 

 

 

 

 

 

 

 

1,276

 

Issuance of Class A common stock for stock option exercises

 

 

412,222

 

 

 

 

 

 

13

 

 

 

 

 

 

 

 

 

13

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(45

)

 

 

(45

)

Net income

 

 

 

 

 

 

 

 

 

 

 

1,718

 

 

 

 

 

 

1,718

 

Balances at March 31, 2022

 

 

121,051,383

 

 

$

12

 

 

$

357,306

 

 

$

31,653

 

 

$

123

 

 

$

389,094

 

 

 

 

Series A

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

Other

 

 

Total

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Paid-In

 

 

Treasury

 

 

Retained

 

 

Comprehensive

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Stock

 

 

Earnings

 

 

Income

 

 

Equity

 

Balances at December 31, 2020

 

 

23,013

 

 

$

 

 

 

103,479,239

 

 

$

517

 

 

$

29,175

 

 

$

(579

)

 

$

55,047

 

 

$

216

 

 

$

84,376

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

563

 

 

 

 

 

 

 

 

 

 

 

 

563

 

Repayment of related party loan
   receivable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

813

 

 

 

 

 

 

 

 

 

 

 

 

813

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

21

 

 

 

21

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,638

 

 

 

 

 

 

3,638

 

Balances at March 31, 2021

 

 

23,013

 

 

$

 

 

 

103,479,239

 

 

$

517

 

 

$

30,551

 

 

$

(579

)

 

$

58,685

 

 

$

237

 

 

$

89,411

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

7


 

PAYMENTUS HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities

 

 

 

 

 

 

Net income

 

$

1,718

 

 

$

3,638

 

Adjustments to reconcile net income to net cash provided by operating
   activities

 

 

 

 

 

 

Depreciation and amortization

 

 

5,474

 

 

 

2,392

 

Deferred income taxes

 

 

1,406

 

 

 

757

 

Stock-based compensation

 

 

1,276

 

 

 

563

 

Non-cash lease expense

 

 

755

 

 

 

791

 

Amortization of contract asset

 

 

467

 

 

 

 

Provision for credit losses

 

 

95

 

 

 

 

Change in operating assets and liabilities

 

 

 

 

 

 

Accounts and other receivables

 

 

(8,082

)

 

 

(5,596

)

Prepaid expenses and other current and long-term assets

 

 

(161

)

 

 

(77

)

Accounts payable

 

 

4,916

 

 

 

4,770

 

Accrued liabilities

 

 

862

 

 

 

(67

)

Operating lease liabilities

 

 

(770

)

 

 

(725

)

Contract liabilities

 

 

(57

)

 

 

883

 

Income taxes receivable, net of payable

 

 

(4,651

)

 

 

(152

)

Net cash provided by operating activities

 

 

3,248

 

 

 

7,177

 

Cash flows from investing activities

 

 

 

 

 

 

Other intangible assets acquired

 

 

(23

)

 

 

 

Purchases of property and equipment

 

 

(530

)

 

 

(156

)

Capitalized internal-use software development costs

 

 

(6,731

)

 

 

(4,256

)

Net cash used in investing activities

 

 

(7,284

)

 

 

(4,412

)

Cash flows from financing activities

 

 

 

 

 

 

Proceeds from repayment of related party loan

 

 

 

 

 

813

 

Proceeds from exercise of stock options

 

 

13

 

 

 

 

Financial institution funds in-transit

 

 

3,339

 

 

 

 

Payments of deferred offering costs

 

 

 

 

 

(457

)

Payments on other financing obligations

 

 

(915

)

 

 

(383

)

Payments on finance leases

 

 

(74

)

 

 

(68

)

Net cash provided by (used in) financing activities

 

 

2,363

 

 

 

(95

)

Foreign currency effect on cash, cash equivalents and restricted cash

 

 

10

 

 

 

33

 

Net (decrease) increase in cash, cash equivalents and restricted cash

 

 

(1,663

)

 

 

2,703

 

Cash, cash equivalents and restricted cash

 

 

 

 

 

 

Beginning of period

 

 

201,829

 

 

 

46,666

 

End of period

 

$

200,166

 

 

$

49,369

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Cash paid for income taxes, net of refunds

 

$

173

 

 

$

616

 

Non-cash investing activities:

 

 

 

 

 

 

Property and equipment purchases in accounts payable

 

 

123

 

 

 

75

 

Non-cash financing activities:

 

 

 

 

 

 

Unpaid deferred offering costs

 

 

 

 

 

190

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

8


 

PAYMENTUS HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (continued)

(In thousands)

 

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

 

 

(in thousands)

 

The below table reconciles cash, cash equivalents, and restricted cash in the condensed consolidated balance sheets to the total of the same amounts shown in the condensed consolidated statements of cash flows:

 

 

 

 

 

 

 Cash and cash equivalents

 

$

163,384

 

 

$

49,369

 

 Restricted funds held for financial institutions

 

 

36,782

 

 

 

 

 Total cash, cash equivalents and restricted cash as shown in the condensed consolidated statements of cash flows

 

$

200,166

 

 

$

49,369

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

9


 

PAYMENTUS HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1. Organization and Description of Business

Description of Business

Paymentus Holdings, Inc. and its wholly owned subsidiaries (“Paymentus” or the "Company”) provides electronic bill presentment and payment services, enterprise customer communication and self-service revenue management to billers through a Software-as-a-Service, (“SaaS”), secure, omni-channel technology platform. The platform seamlessly integrates into a biller’s core financial and operating systems to provide flexible and secure access to payment processing of credit cards, debit cards, eChecks and digital wallets across a significant number of channels including online, mobile, IVR, call center, chatbot and voice-based assistants. Paymentus was incorporated in the state of Delaware on September 2, 2011 with office locations in Charlotte, North Carolina, Richmond Hill, Ontario (Canada), Blacksburg, Virginia, Cromwell, Connecticut, Redmond, Washington and Delhi and Bangalore (India). The Company was headquartered in Charlotte, North Carolina until 2020 when the Company moved its headquarters to Redmond, Washington.

Initial Public Offering and Private Placement

In May 2021, the Company completed its initial public offering (“IPO”), in which the Company issued and sold 11,500,000 shares of its Class A common stock at $21.00 per share, including 1,500,000 shares issued upon the exercise of the underwriters’ option to purchase additional shares. The Company received net proceeds of $224.6 million after deducting underwriting discounts and commissions of $16.9 million. The Company incurred direct offering expenses of $2.0 million.

In connection with the IPO:

all 103,479,239 shares of the Company’s outstanding common stock automatically converted into an equivalent number of shares of Class B common stock on a one-to-one basis; and
entities affiliated with Accel-KKR purchased 2,380,950 shares of the Company’s Class A common stock at $21.00 per share in a concurrent private placement that closed immediately subsequent to the closing of the IPO. The Company received aggregate proceeds of $50.0 million in this concurrent private placement and did not pay underwriting discounts or commissions with respect to the shares of Class A common stock that were sold in the private placement.

2. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and applicable rules and regulations of the United States Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. Accordingly, they do not include all disclosures normally required in annual consolidated financial statements prepared in accordance with GAAP. Therefore, these unaudited condensed consolidated financial statements and related notes should be read in conjunction with the audited consolidated financial statements and the related notes included in the Company's Form 10-K for the year ended December 31, 2021 filed with the SEC on March 3, 2022, (the "2021 Form 10-K").

These unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual financial statements and reflect all adjustments, which include only normal recurring adjustments necessary for the fair statement of the Company’s financial position, results of operations, comprehensive income, changes in stockholders' equity and cash flows for the periods presented. The results of operations for the three months ended March 31, 2022 and 2021 are not necessarily indicative of the results to be expected for the full year or any other future interim or annual period.

Stock Split

On May 10, 2021, the Company effected a 5-for-1 forward stock split of its common stock. In connection with the forward stock split, each issued and outstanding share of common stock, automatically and without action on the part of the holders, became five shares of common stock. The par value per share of common stock was not adjusted. All share, per share and related information presented in the unaudited interim condensed consolidated financial statements and accompanying notes have been retroactively adjusted, where applicable, to reflect the impact of the stock split.

10


 

Principles of Consolidation

The unaudited interim condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and balances have been eliminated upon consolidation.

Segment Information

Operating segments are defined as components of an enterprise for which separate financial information is available and evaluated regularly by the chief operating decision maker (“CODM”) in deciding how to make operating decisions, allocate resources and assess performance. The Company has three operating segments based on geography. The United States segment represents the vast majority of the Company’s consolidated net sales and gross profit. The additional two operating segments, Canada and India, do not meet the quantitative thresholds for separate reporting, either individually or in the aggregate. None of the operating segments qualified for aggregation. The Company’s CODM is its Chief Executive Officer. The CODM evaluates the performance of the Company’s operating segments based on revenue and gross profit. The Company does not analyze discrete segment balance sheet information related to long-term assets. All other financial information is presented on a consolidated basis. For information regarding the Company’s long-lived assets and revenue by geographic area, see Note 15.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Such estimates include revenue recognition, the allowance for credit losses, the lives of tangible and intangible assets, the valuation of acquired intangible assets and the recoverability or impairment of intangible assets, including goodwill, internal-use software development costs, valuation of stock warrants issued, stock-based compensation, and accounting for income taxes. The Company bases its estimates on historical experience and also on assumptions that management considers reasonable. The Company assesses these estimates on a regular basis; however, actual results could differ from these estimates.

Custodial Accounts

The Company has established a relationship with its merchant processors to act as collection and paying agents, whereby a merchant processor receives funds from customers and forwards such funds to the respective Paymentus client, based on the instructions received from the Company. These merchant processors act as custodians of the cash received and the Company has no legal ownership rights to the funds held in such custodial accounts and does not control the use of these funds. As the Company does not take ownership of the funds, these custodial accounts are not included in the Company’s consolidated balance sheets. The balance of cash in the custodial accounts held by these merchant processors was $43.4 million and $47.4 million as of March 31, 2022 and December 31, 2021, respectively.

Restricted Funds Held for Financial Institutions and Financial Institution Funds In-Transit

Restricted funds held for financial institutions and the corresponding liability of financial institution funds in-transit represent the timing differences arising between the amounts the Company's sponsor bank receives from the sending financial institutions and the amounts disbursed to the recipient financial institutions. The restricted funds held for financial institutions' account is a transaction account maintained at the Company’s sponsor bank for clearing payments from financial institutions (as defined by the U.S. Treasury’s Financial Crimes Enforcement Network) to other financial institutions. Restricted funds held for financial institutions represent restricted cash that, based upon the Company's intent, are restricted solely for satisfying the corresponding obligations to send funds to the various financial institutions.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to credit risk primarily consist of cash, cash equivalents, and accounts receivable. The Company maintains its cash and cash equivalents with high-quality financial institutions with investment-grade ratings. For accounts receivable, the Company is exposed to credit risk in the event of nonpayment by customers to the extent of the amounts recorded in the consolidated balance sheets. No customer accounted for more than 10% of revenue for either of the three months ended March 31, 2022 and 2021. No customer accounted for more than 10% of accounts receivable as of March 31, 2022, while one customer accounted for more than 10% of accounts receivable as of December 31, 2021.

Summary of Significant Accounting Policies

The Company’s significant accounting policies are discussed in Note 2, “Basis of Presentation and Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements as of December 31, 2021 and 2020

11


 

and for the years ended December 31, 2021 and 2020 included in the 2021 Form 10-K. There have been no significant changes to these policies during the three months ended March 31, 2022.

Accounting Pronouncements

The Company is provided the option to adopt new or revised accounting guidance as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 either (1) within the same periods as those otherwise applicable to public business entities, or (2) within the same time periods as non-public business entities, including early adoption when permissible. With the exception of standards the Company elected to early adopt, when permissible, the Company has elected to adopt new or revised accounting guidance within the same time period as non-public business entities, as indicated below.

Accounting Pronouncements Not Yet Adopted

In October 2021, the FASB issued ASU 2021-08, "Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers" ("ASU 2021-08"). ASU 2021-08 will require companies to apply the definition of a performance obligation under ASU 2014-09, Revenue from contracts with customers (“Topic 606”) to recognize and measure contract assets and contract liabilities relating to contracts with customers that are acquired in a business combination. Under current U.S. GAAP, an acquirer generally recognizes assets acquired and liabilities assumed in a business combination, including contract assets and contract liabilities arising from revenue contracts with customers, at fair value on the acquisition date. ASU 2021-08 will result in the acquirer recording acquired contract assets and liabilities on the same basis that would have been recorded by the acquiree before the acquisition under ASU Topic 606. ASU 2021-08 is effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The Company is currently evaluating the impact of this ASU on its condensed consolidated financial statements.

3. Revenue, Performance Obligations and Contract Balances

Disaggregation of Revenue

The following table presents a disaggregation of revenue from contracts with customers (in thousands):

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Payment transaction processing revenue

 

$

114,962

 

 

$

91,200

 

Other

 

 

1,742

 

 

 

1,022

 

Total revenue

 

$

116,704

 

 

$

92,222

 

Remaining Performance Obligations

ASU Topic 606 requires disclosure of the aggregate amount of the transaction price allocated to unsatisfied performance obligations. The purpose of this disclosure is to provide additional information about the amounts and expected timing of revenue to be recognized from the remaining performance obligations in our existing contracts.

As of March 31, 2022, the aggregate amount of transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied was $3.8 million, which the Company expects to recognize over 80% within the next four years. The timing of revenue recognition within the next year is largely dependent upon the go-live dates of the Company's contracts.

As of March 31, 2022, the Company has contractual rights under its commercial agreements to receive $31.6 million of fixed consideration related to the future minimum guarantees through March 2026. As permitted, the Company has elected to exclude from this disclosure any variable consideration that meets specified criteria. Accordingly, the total unsatisfied or partially unsatisfied performance obligations related to processing services is significantly higher than the amount disclosed.

Contract Balances

The contract asset balances at March 31, 2022 and December 31, 2021 were $6.2 million and $5.6 million, respectively of which $1.8 million and $1.7 million was included in prepaid expenses and other current assets and $4.4 million and $3.9 million was included in other long-term assets in the condensed consolidated balance sheets, respectively. During the three months ended March 31, 2022, the Company reduced revenue and the related contract assets by $0.5 million. There were no contract assets as of March 31, 2021.

The Company recorded $3.8 million and $3.9 million of contract liabilities in the condensed consolidated balance sheets as of March 31, 2022 and December 31, 2021, respectively, of which $2.8 million is related to acquisitions during

12


 

the year ended December 31, 2021 and the remaining amount related to legacy contracts obtained from prior acquisitions associated with the Company’s insignificant other revenue stream and other payments the Company received in advance for services. The change in the contract liabilities is primarily the result of the Payveris acquisition and timing differences between payment from the customer and the Company’s satisfaction of each performance obligation. The revenue recognized during the three months ended March 31, 2022 and 2021 that was included in the contract liabilities balance at the beginning of each of the periods was $0.7 million and $0.6 million, respectively.

4. Business Combinations

Payveris, LLC

On September 1, 2021, the Company completed its acquisition of Payveris, LLC ("Payveris") by acquiring all outstanding equity interests for a total purchase price of approximately $145.5 million, comprised of $85.1 million in cash and 2,364,270 shares of the Company's Class A common stock with a fair value of approximately $60.4 million, of which 2,471 shares of the Company's Class A common stock with an approximate value of $0.06 million are subject to final issuance and are currently recorded in accrued liabilities in the condensed consolidated balance sheets. Payveris is a payments processing company for financial institutions. The acquisition is expected to increase the addressable market opportunity for the Company's existing solutions while also enhancing Payveris’ platform with real-time capabilities, enhanced electronic bill presentment and additional payment options for banks, credit unions and financial institutions of all sizes.

The acquisition was accounted for as a business combination and, accordingly, the total fair value of purchase consideration was allocated to the tangible and intangible assets acquired and liabilities assumed based on their fair values on the acquisition date. The major classes of assets and liabilities to which the Company has allocated the fair value of purchase consideration were as follows (in thousands):

Accounts receivable

$

1,026

 

Prepaid expenses and other current assets

 

237

 

Intangible assets, includes software acquired

 

38,498

 

Property and equipment

 

77

 

Goodwill

 

108,950

 

Restricted funds held for financial institutions

 

31,459

 

Financial institution funds in-transit

 

(31,459

)

Accounts payable

 

(194

)

Accrued liabilities

 

(265

)

Deferred revenue

 

(2,805

)

Total

$

145,524

 

The purchase price allocation is preliminary. The Company continues to collect information with regard to its estimates and assumptions, including potential liabilities and contingencies. The Company will record adjustments to the fair value of the net assets acquired and goodwill within the twelve months measurement period, if necessary. The Company recorded a measurement period adjustment of $8.5 million during the fourth quarter of 2021 to decrease trademarks and increase goodwill related to the refinement of inputs in the acquisition valuation. There were no measurement period adjustments during the three months ended March 31, 2022.

The goodwill recognized was primarily attributed to increased synergies that are expected to be achieved from the integration of Payveris and the assembled workforce. The goodwill is deductible for income tax purposes.

The fair values and estimated useful lives of the acquired intangible assets by category were as follows (in thousands, except years):

 

Fair Value

 

 

Useful Life
(Years)

 

 Customer Relationships