AVIDXCHANGE HOLDINGS, INC.

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08/05AVIDXCHANGE HOLDINGS, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)
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AVIDXCHANGE HOLDINGS, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)

08/05/2022 | 04:28pm EDT
You should read the following discussion and analysis of our financial condition
and results of operations in conjunction with the unaudited interim financial
statements and notes thereto included in this Quarterly Report on Form 10-Q and
with our audited financial statements and notes thereto for the year ended
December 31, 2021 and the related Management's Discussion and Analysis of
Financial Condition and Results of Operations, both of which are contained in
our Annual Report on Form 10-K for the year ended December 31, 2021.

                           Forward Looking Statements
The following discussion and other parts of this Quarterly Report contain
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended, (the "Exchange Act"). All statements other
than statements of historical facts contained in this Quarterly Report,
including statements regarding our future operating results and financial
position, our business strategy and plans, market growth, and our objectives for
future operations, may constitute forward-looking statements. These statements
are often identified by the use of words such as "believe," "may," "will,"
"estimate," "potential," "continue," "anticipate," "intend," "expect," "could,"
"would," "project," "plan," "target," and similar expressions or variations. The
forward-looking statements in this Quarterly Report are only predictions. We
have based these forward-looking statements largely on our current expectations
and projections about future events and financial trends that we believe may
affect our financial condition, operating results, business strategy, short-term
and long-term business operations and objectives. These forward-looking
statements speak only as of the date of this Quarterly Report and are subject to
a number of risks, uncertainties and assumptions, including those described in
Part II, Item 1A under the heading "Risk Factors." The events and circumstances
reflected in our forward-looking statements may not be achieved or occur and
actual results could differ materially from those projected in the
forward-looking statements. Except as required by applicable law, we do not plan
to publicly update or revise any forward-looking statements contained herein,
whether as a result of any new information, future events, changed circumstances
or otherwise.

You should read this Quarterly Report on Form 10-Q, and the documents that we
reference in this Quarterly Report on Form 10-Q and have filed with the SEC,
with the understanding that our actual future results, performance, and events
and circumstances may be materially different from what we expect.

In this Quarterly Report on Form 10-Q, the words "we," "our," "us," "AvidXchange," and "our Company" refer to AvidXchange, Inc. prior to our reorganization, and to AvidXchange Holdings, Inc. and its consolidated subsidiaries following the reorganization, unless the context requires otherwise.



Overview

AvidXchange was founded in 2000 to serve the AP automation needs of the middle
market. In 2012, in response to customer demand for more efficient payment
methods, we launched the AvidPay Network. Since 2012, we have had substantial
growth, both organic and through a series of strategic acquisitions allowing us
to expand the vertical markets that we serve and enter new ones.

Our Business and Revenue Model


We sell our solutions through a hybrid go-to-market strategy that includes
direct and indirect channels. Our direct sales force leverages their deep domain
expertise in select verticals and over 120 referral relationships with
integrated software providers, financial institutions and other partners to
identify and attract buyers that would benefit from our AP software solutions
and the AvidPay Network. Our indirect channel includes reseller partners and
other strategic partnerships such as Mastercard, through MasterCard's B2B Hub,
which includes Fifth Third Bank and Bank of America, and other financial
institutions, such as KeyBank, and third-party software providers such as MRI
Software, RealPage and SAP Concur. Our referral and indirect channel
partnerships provide us greater reach across the market to access a variety of
buyers.

We have a highly visible revenue model based on the durability of our buyer
relationships and the recurring nature of the revenues we earn. Our revenues are
derived from multiple sources, predominantly through software revenue from our
buyers and revenue from payments made to their suppliers. The table below
represents our revenues disaggregated by type of service performed (in
thousands):

                          Three Months Ended June 30,                Six Months Ended June 30,
Disaggregation of
Revenue:                  2022                  2021                2022                  2021
Software revenue     $        24,202       $        21,656     $        48,113       $        42,071
Payment revenue               51,581                36,459              98,049                70,620
Services revenue                 778                   639               1,602                 1,277
Total revenues       $        76,561       $        58,754     $       147,764       $       113,968


Software revenue, payment revenue and services revenue are described below in the section titled "Components of Results of Operations."

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Impact of Macroeconomic Events


In 2022, we have continued to see the impact of several macroeconomic events on
our business and on our buyers and suppliers. These events have included, but
are not limited to, the continuing global COVID-19 pandemic including the
emergence of new variants, general economic conditions including fears of a
possible recession, ongoing supply chain disruptions, and geopolitical tensions
including those resulting from the conflict between Russia and Ukraine. We
believe that, as a result of the uncertainty created by these events, many
potential buyers have been reluctant to invest in the purchase and
implementation of our products and services. While we are encouraged by early
indicators in our sales process, the ongoing uncertainty created by these events
could continue to have a negative impact on new sales and lead to longer sales
cycles. These events have made it and may continue to make it more difficult for
us to acquire new buyers and to close new sales opportunities which in turn
adversely impacts revenue growth in future periods.

The U.S. economy is also currently experiencing a higher than normal level of
inflation. The long term impacts of inflation on the economy and our business
are unclear. Our revenue could be positively impacted by inflation as the value
of our customer's payments could rise, increasing our payment volume and the
base on which we earn interchange revenue. Also, inflationary pressure could be
a catalyst for sales acceleration associated with increased interest by
potential customers in automating back-office processing. Conversely, the impact
of inflationary pressures on the macro economy could slow the spending of our
customers and decrease payment volume. Inflation could also negatively impact
our operating costs by increasing costs incurred by us to operate our business
in terms of higher costs from our vendors and increased personnel costs.

Key Financial and Business Metrics


We regularly review several financial and business metrics to measure our
performance, identify trends affecting our business, prepare financial
projections, and make strategic decisions. We believe that these key business
metrics provide meaningful supplemental information for management and investors
in assessing our historical and future operating performance. The calculation of
the key metrics and other measures discussed below may differ from other
similarly-titled metrics used by other companies, securities analysts or
investors.

                                       Three Months Ended June 30,                            Six Months Ended June 30,
                                          2022               2021          Percentage           2022              2021          Percentage
                                                                             Change                                               Change
Transactions Processed                    17,318,593       15,298,886              13.2 %      34,171,082       29,880,127              14.4 %
Transaction Yield                    $          4.42     $       3.84              15.1 %   $        4.32     $       3.81              13.4 %

Total Payment Volume (in millions) $ 16,579 $ 12,190

       36.0 %   $      31,776     $     23,003              38.1 %




Transactions processed
We believe that transactions processed is an important measure of our business
because it is a key indicator of the use by both buyers and suppliers of our
solutions and our ability to generate revenue, since a majority of our revenue
is generated based on transactions processed. We define transactions processed
as the number of invoice transactions and payment transactions, such as
invoices, purchase orders, checks, ACH payments and VCCs, processed through our
platform during a particular period.

Transaction yield
We believe that transaction yield is an important measure of the value of
solutions to buyers and suppliers as we scale. We define transaction yield as
the total revenue during a particular period divided by the total transactions
processed during such period.

Total payment volume
We believe total payment volume is an important measure of our AvidPay Network
business as it quantifies the demand for our payment services. We define total
payment volume as the dollar sum of buyers' AP payments paid to their suppliers
through the AvidPay Network during a particular period.

Components of Results of Operations

Revenue

We generate revenue from the following sources: (i) software, (ii) payments, and (iii) services.


Software Revenue
We generate software revenue from our buyers primarily through (i) fees
calculated based on the number of invoices and payment transactions processed
and (ii) recurring maintenance and SaaS fees. Software revenue is typically
billed to and paid by our buyers on a monthly basis. Our software offerings,
many of which are built for specific verticals, address the needs of buyers and
together they comprise our suite of predominately cloud-based solutions designed
to manage invoices and automate the AP function. We generally sign multi-year
contracts with buyers and revenue is recognized over the term of the contract.
We also receive initial upfront implementation fees and software maintenance fee
revenue for ongoing support, which are recognized ratably over the term of the
applicable support period.

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Payment Revenue
We generate revenue from the payments our buyers make to their suppliers through
(i) offering electronic payment solutions to suppliers, (ii) fees charged to
suppliers from our invoice factoring product, and (iii) interest on funds held
for buyers pending disbursement.

Our electronic payment solutions currently include VCC and an enhanced ACH
payment product, or AvidPay Direct, which eliminate paper checks and increase
the speed to payment for the supplier. AvidPay Direct also provides suppliers
with enhanced remittance data allowing the supplier to reconcile the payment and
the underlying invoice. VCC revenues result from interchange fees applied to the
spend processed and are recorded net of fees and incentives. AvidPay Direct
revenue is based on a per transaction fee that we charge to suppliers that
generally includes a cap and is based on the spend per payment and is recorded
net of incentives.

Our invoice factoring product, Invoice Accelerator, provides certain suppliers
with the opportunity to better manage cash flows and receive payments even
faster by allowing suppliers to receive advance payment on qualifying invoices.
Revenues are generated on a per transaction basis for each payment that is
advanced. We currently fund the purchase of invoices from our balance sheet.

Interest income represents interest received from buyer deposits held during the payment clearing process. We receive interest on funds held through our contractual relationship with our buyers.

Our media payments business includes customers that are involved in political advertising in the U.S. Revenue from these customers is cyclical as it is connected to U.S. election advertising spend which tends to increase during significant election years such as mid-term and presidential elections.

Services Revenue Services revenue includes fees charged to process buyer change in service requests.


Total Revenue
We expect our total revenue to increase year over year due to an increase in the
number of buyers and transactions processed, and that payment revenue will
comprise a greater proportion of total revenue should the volume of transactions
on the AvidPay Network continue to increase.

Cost of Revenues and Operating Expenses


Cost of Revenues
Cost of revenues includes personnel related costs, which include direct
compensation, fringe benefits, short- and long-term incentive plans and
stock-based compensation expense. Cost of revenues includes teams responsible
for buyer and supplier onboarding and setup, invoice processing, payment
operations, money movement execution, and customer service. Personnel costs also
include internal labor associated with the employees who monitor the performance
and reliability of our buyer and supplier solutions and the underlying delivery
infrastructure (i.e., application and data hosting administration, product
support and escalations, payment monitoring and settlement functions).

Cost of revenues also includes external expenses that are directly attributed to
the processing of invoice and payment transactions. These expenses include the
cost of scanning and indexing invoices, printing checks, postage for mailing
checks, expenses for processing payments (ACH, check, and wires), bank fees
associated with buyer deposits held during the payment clearing process, and
other transaction execution costs. Additionally, cost of revenues includes fees
paid to third parties for the use of their technology, data hosting services,
and customer relationship management tools in the delivery of our services or in
supporting the delivery infrastructure and adjustments to the allowance for
uncollectible advancements processed through Invoice Accelerator. Lastly, cost
of revenues includes estimates for treasury losses that occur in treasury
operations. Treasury losses include various unrecoverable internal payment
processing errors that occur in the ordinary course of business, such as
duplicate payments, overpayments, payments to the wrong party and reconciliation
errors.

We have elected to exclude amortization expense of capitalized developed software and acquired technology, as well as allocations of fixed asset depreciation expense and facility expenses from cost of revenues.


Our long-term strategy to transition to public cloud services and decommission
on-premise infrastructure hosted in co-located datacenters was substantially
complete as of June 30, 2022.

We expect our cost of revenues as a percentage of revenue to decrease as we continue to realize operational efficiencies and shift more of our transactions to electronic payments.


Sales and Marketing
Sales and marketing consists primarily of costs related to our direct sales
force and partner channels that are incurred in the process of setting up
go-to-market strategies, generating leads, building brand awareness and
acquiring new buyers and suppliers, including efforts to convert suppliers from
paper check payments to electronic forms of payments and efforts to enroll them
into the Invoice Accelerator solution.

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Personnel costs include salaries, wages, direct and amortized sales commissions,
fringe benefits, short- and long-term incentive plans and stock-based
compensation expense. Most of the commissions paid to the direct sales force are
incremental based upon invoice and payment volume from the acquisition of a new
buyer and are deferred and amortized ratably over an estimated benefit period of
five years.

The partner ecosystem consists of reseller, referral and accounting system partners. Compensation paid to referral and accounting system partners in exchange for the referral and marketing efforts of the partner is classified as sales and marketing expense.


In addition, we focus on generating awareness of our platform and products
through a variety of sponsorships, user conferences, trade shows, and integrated
marketing campaigns. Costs associated with these efforts, including travel
expenses, external consulting services, and various technology applications are
included in sales and marketing as well.

We expect our sales and marketing expenses to increase in absolute dollars while
remaining fairly consistent as a percentage of revenue as we continue to expand
our market presence, grow our customer base, and continue to develop new
offerings to sell to our buyers and suppliers. We are focused on the efficient
deployment of marketing resources to drive our sales efforts and expect to
continue to increase marketing activities over the coming periods.

Research and Development
Research and development efforts focus on the development of new products and
business intelligence tools or enhancements to existing products and
applications, as well as large scale infrastructure projects that improve the
underlying architecture of our technology.

The main contributors of research and development costs are (i) personnel
related expenses, including fringe benefits, short- and long-term incentive
plans and stock-based compensation expense, and (ii) fees for outsourced
professional services. We capitalize certain internal and external development
costs that are attributable to new products or new functionality of existing
products and amortize such costs to depreciation and amortization on a
straight-line basis over an estimated useful life, which is generally three
years.

We also incur research and development costs attributable to the use of software
tools and technologies required to facilitate the research and development
activities. Examples of such costs include fees paid to third parties to host
lower technical environments and the associated virtual machine ware fees paid
to support agile development efforts, and fees paid for software tools and
licenses used in quality control testing and code deployment activities.

We expect our research and development expense to increase in absolute dollars,
but to decrease as a percentage of revenue as we are able to efficiently deploy
our development resources against a larger revenue base.

General and Administrative
General and administrative expenses consist primarily of our finance, human
resources, legal and compliance, facilities, information technology,
administration, and information security organizations. Significant cost
contributors are (i) personnel expenses, including fringe benefits, short- and
long-term incentive plans and stock-based compensation expense, and (ii) costs
of software applications, including end user computing solutions, and various
technology tools utilized by these organizations. Occupancy expenses, which
include personnel, rent, maintenance and property tax costs are not allocated to
other components of the statements of operations and remain in general and
administrative expenses. General and administrative expenses are reduced by
incentives we have received from state and local government agencies as part of
various local job development investment grants.

We expect our general and administrative expenses to increase in absolute
dollars over the next two years, as we continue to build out our infrastructure
to support our operations as a public company, and to support a greater customer
base. During this period, we expect these expenses to decrease as a percentage
of revenue as a large portion of this public company infrastructure investment
is comprised of fixed costs.

Impairment and Write-Off of Intangible Assets
Impairment and write-off of intangible assets is the reduction from carrying
value to fair value for assets or asset groups whose carrying value is not
recoverable and also includes charges determined based on our estimation of the
amount of obsolescence of previously capitalized software development costs.

Depreciation and Amortization
Depreciation and amortization expense includes depreciation of property and
equipment over the estimated useful life of the applicable asset, as well as
amortization of acquired intangibles (i.e., technology, customer list and
tradename) with a useful life between 3 and 15 years, and amortization of
capitalized software development costs with an estimated benefit of 3 years.

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Other Income (Expense) Other income (expense) consists primarily of interest expense on our bank borrowings and headquarters finance leases, offset by interest income on non-customer corporate funds. Additionally in periods before our IPO, other income (expense) included changes in the fair value of our derivative instrument, which required adjustments to fair value each reporting period.


Income Tax Expense (Benefit)
Income tax expense (benefit) consists of federal and state income taxes.

Results of Operations

The following table sets forth our results of operations for the periods presented (in thousands, except share and per share data):

                                        Three Months Ended June 30,          Six Months Ended June 30,
                                           2022               2021             2022              2021
Revenues                              $        76,561     $     58,754     $     147,764     $    113,968
Cost of revenues (exclusive of
depreciation and amortization
expense)                                       28,979           23,011            56,786           45,551
Operating expenses
Sales and marketing                            20,448           14,547            37,687           28,058
Research and development                       20,107           13,620            40,179           27,553
General and administrative                     19,974           15,770            38,662           29,934
Impairment and write-off of
intangible assets                                   -              574                 -              574
Depreciation and amortization                   8,301            7,093            16,019           14,170
Total operating expenses                       68,830           51,604           132,547          100,289
Loss from operations                          (21,248 )        (15,861 )         (41,569 )        (31,872 )
Other income (expense)
Interest income                                   655              165               875              297
Interest expense                               (5,075 )         (5,086 )         (10,052 )        (10,111 )
Change in fair value of derivative
instrument                                          -           (1,084 )               -             (138 )
Charge for amending financing
advisory engagement letter -
related party                                       -                -                 -          (50,000 )
Other expenses                                 (4,420 )         (6,005 )          (9,177 )        (59,952 )
Loss before income taxes                      (25,668 )        (21,866 )         (50,746 )        (91,824 )
Income tax expense                                 69              133               138              201
Net loss                              $       (25,737 )   $    (21,999 )   $     (50,884 )   $    (92,025 )
Accretion of convertible preferred
stock                                               -           (4,802 )               -           (9,404 )
Net loss attributable to common
stockholders                          $       (25,737 )   $    (26,801 )   $     (50,884 )   $   (101,429 )
Net loss per share attributable to
common stockholders, basic and
diluted                               $         (0.13 )   $      (0.49 )   $       (0.26 )   $      (1.90 )
Weighted average number of common
shares used to compute net loss per
share attributable to common
stockholders, basic and diluted           197,864,993       54,562,145       197,443,615       53,317,276




Comparison of the Three Months Ended June 30, 2022 and 2021

Revenues

             Three Months Ended June 30,             Period-to-Period Change
              2022                 2021             Amount           Percentage
                                     (in thousands)
Revenues $       76,561       $       58,754     $      17,807              30.3 %


The increase in revenues was comprised of an increase in payment revenue of
$15.1 million, or 41.5%, driven primarily by increased electronic payments on
the AvidPay Network with the addition of new buyer payment transaction volume
and the inclusion of $4.5 million of payment revenue associated with the
acquisition of FastPay, which closed in July 2021, and a customer list from
PayClearly which closed in January 2022. Software revenue increased by $2.5
million, or 11.8%, primarily driven by increased invoice and payment transaction
volume from new and existing customers and the inclusion of $0.1 million of
software revenue associated with the acquisition of FastPay.

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Cost of Revenues
                                      Three Months Ended June 30,
                                 2022                             2021
                                   Percentage of                     Percentage of         Period-to-Period Change
                      Amount          Revenue          Amount           Revenue            Amount          Percentage
                                                              (in thousands)
Cost of revenues
(excluding
depreciation and
amortization
expense)             $ 28,979                37.9 %   $  23,011                39.2 %   $      5,968              25.9 %


The increase in cost of revenues (excluding depreciation and amortization
expense) was due primarily to an increase in employee costs of $2.8 million,
including an increase in stock-based compensation of $1.1 million. This increase
includes a $0.6 million impact related to headcount additions from our
acquisition of FastPay, which closed in July 2021. The remainder of the increase
was primarily driven by increases in invoice and check processing fees of $0.7
million, increases in cloud hosting fees of $1.0 million related to a higher
volume of transactions processed through our applications as well as our
on-going transition of services to cloud hosting, increases of $0.3 million in
software maintenance costs, and increases of $0.8 million for misdirected
payments and reserve for Invoice Accelerator purchased invoices as we changed
our estimate for the recoverability of supplier advance receivables. An
additional increase of $0.4 million was attributable to the impact of deferred
implementation costs as amortization costs continue to increase with the
addition of new costs as well as more costs were deferred in the prior year.

Operating Expenses
                                       Three Months Ended June 30,
                                  2022                             2021
                                    Percentage of                     Percentage of          Period-to-Period Change
                       Amount          Revenue          Amount           Revenue           Amount           Percentage
                                                                (in thousands)
Sales and marketing   $ 20,448                26.7 %   $  14,547                24.8 %   $     5,901                40.6 %
Research and
development             20,107                26.3 %      13,620                23.2 %         6,487                47.6 %
General and
administrative          19,974                26.1 %      15,770                26.8 %         4,204                26.7 %
Impairment and
write-off of
intangible assets            -                 0.0 %         574                 1.0 %          (574 )            (100.0 )%
Depreciation and
amortization             8,301                10.8 %       7,093                12.1 %         1,208                17.0 %


Sales and Marketing Expenses
The increase in sales and marketing expenses was due primarily to an increase of
$3.1 million in employee costs (net of capitalized sales commissions), driven by
a $0.7 million impact related to headcount additions from the acquisition of
FastPay and includes an increase in stock-based compensation of $1.2 million. We
experienced increases in marketing costs of $1.4 million and travel expenses of
$0.5 million as events and sales-related travel increased compared to the low
levels we experienced in 2021 due to the pandemic. We experienced increases in
partner commissions of $0.1 million as well as additional increases of $0.4
million in consulting and other costs and $0.3 million in software and
maintenance.

Research and Development Expenses
Research and development expenses increased primarily due to increased employee
costs of $6.8 million. The investments in our platform are intended to increase
the quality, reliability and efficiency of our technology. The increase in
employee costs relates to both headcount and compensation increases and includes
increases of $1.0 million associated with the acquisition FastPay and an
increase in stock-based compensation of $2.0 million. We experienced additional
increases of $0.5 million in cloud hosting fees and software maintenance. These
increases were offset, in part, by a $0.6 million decrease in costs associated
with engaging consultants and contractors and a reduction in expense associated
with capitalization of internally developed software of approximately $0.6
million.

General and Administrative Expenses
The increase in general and administrative expenses is attributable to a $4.3
million increase in employee costs, including an increase in stock-based
compensation of $2.9 million, as well as a $0.2 million increase of professional
and consulting fees and contract labor. The increases reflect the growth in our
business and our transition to operating as a public company. The increases in
employee costs include $0.1 million associated with the acquisition of FastPay,
which closed in July 2021. These increases were offset, in part, by a reduction
in transaction costs of $1.4 million attributable to deal related costs incurred
in the prior year period and decrease of $0.3 million in audit and
accounting-related costs which were higher in the previous year as we ramped up
activity leading up to the IPO. An additional increase of $0.6 million is
attributable to rent and facilities costs, including $0.2 million attributable
to FastPay.

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Impairment and Write-off of Intangible Assets
The impairment and write-off of intangible assets during the three months ended
June 30, 2021 relates to internally developed software projects.

Depreciation and Amortization
Depreciation and amortization increased primarily due to the amortization of
intangible assets associated with the acquisitions of FastPay, which closed in
July 2021, and PayClearly customer assets, which closed in January 2022.

Other Income (Expense)
                                         Three Months Ended June 30,
                                   2022                              2021
                                     Percentage of                      Percentage of           Period-to-Period Change
                        Amount          Revenue           Amount           Revenue             Amount           Percentage
                                                                  (in thousands)
Other Income (Expense) $ (4,420 )              (5.8 )%   $  (6,005 )             (10.2 )%   $      1,585              (26.4 )%


Other expense decreased primarily due to an increase interest income of $0.5
million and a $1.1 million non-cash charge in the prior year period from the
change in the net revaluation of a derivative instrument that was settled in
connection with our IPO.

Income Tax Expense
                                        Three Months Ended June 30,
                                  2022                                 2021
                                       Percentage of                      Percentage of         Period-to-Period Change
                      Amount              Revenue           Amount           Revenue           Amount          Percentage
                                                                (in thousands)
Income tax expense  $        69                   0.1 %   $      133                 0.2 %   $      (64 )             (48.1 )%


The provision for income taxes relates primarily to state income taxes and noncurrent federal taxes related to the non-deductibility of goodwill in the future.


Stock-based Compensation
All of our RSUs outstanding prior to our IPO in October 2021 contained both
service-based and performance-based vesting conditions. The performance
condition was settled in connection with our IPO. No compensation expense was
recognized for RSUs in periods prior to the fourth quarter of 2021.

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

Revenues

           Six Months Ended June 30,            Period-to-Period Change
             2022               2021           Amount           Percentage
                                   (in thousands)
Revenues $     147,764       $  113,968     $      33,796              29.7 %


The increase in revenues was comprised of an increase in payment revenue of
$27.4 million, or 38.8%, driven primarily by increased electronic payments on
the AvidPay Network with the addition of new buyer payment transaction volume
and the inclusion of $7.9 million of payment revenue associated with the
acquisition of FastPay and a customer list from PayClearly which closed in
January 2022. Software revenue increased by $6.0 million, or 14.4%, primarily
driven by increased invoice and payment transaction volume from new and existing
customers and the inclusion of $0.2 million of software revenue associated with
the acquisition of FastPay which closed in July 2021.

Cost of Revenues

                                   Six Months Ended June 30,
                               2022                         2021
                                  Percentage                    Percentage          Period-to-Period Change
                      Amount      of Revenue       Amount       of Revenue         Amount            Percentage
                                                           (in thousands)
Cost of revenues
(excluding
depreciation and
amortization
expense)             $ 56,786            38.4 %   $  45,551            40.0 %   $      11,235               24.7 %


The increase in cost of revenues (excluding depreciation and amortization
expense) was due primarily to an increase in employee costs of $5.3 million,
including an increase in stock-based compensation of $2.0 million. This increase
includes a $1.0 million impact related to headcount additions from our
acquisition of FastPay, which closed in July 2021. The remainder of the increase
was primarily driven by increases in invoice and check processing fees of $1.8
million, increases in cloud hosting fees of $1.4

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million related to a higher volume of transactions processed through our
applications as well as our on-going transition of services to cloud hosting,
increases of $0.3 million in software maintenance costs, and increases of $1.6
million for misdirected payments and reserve for Invoice Accelerator purchased
invoices as we changed our estimate for the recoverability of supplier advance
receivables. An additional increase of $0.9 million was attributable to the
impact of deferred implementation costs as amortization costs continue to
increase with the addition of new costs as well as more costs were deferred in
the prior year.



Operating Expenses
                                   Six Months Ended June 30,
                               2022                         2021
                                  Percentage                    Percentage          Period-to-Period Change
                      Amount      of Revenue       Amount       of Revenue         Amount           Percentage
                                                           (in thousands)
Sales and marketing  $ 37,687            25.5 %   $  28,058            24.6 %   $      9,629                34.3 %
Research and
development            40,179            27.2 %      27,553            24.2 %         12,626                45.8 %
General and
administrative         38,662            26.2 %      29,934            26.3 %          8,728                29.2 %
Impairment and
write-off of
intangible assets           -             0.0 %         574             0.5 %           (574 )            (100.0 )%
Depreciation and
amortization           16,019            10.8 %      14,170            12.4 %          1,849                13.0 %


Sales and Marketing Expenses
The increase in sales and marketing expenses was due primarily to an increase of
$4.5 million in employee costs (net of capitalized sales commissions), driven by
a $1.3 million impact related to headcount additions from the acquisition of
FastPay and includes an increase in stock-based compensation of $2.0 million. We
experienced increases in marketing costs of $2.4 million and travel expenses of
$0.9 million as events and sales-related travel increased compared to the low
levels we experienced in 2021 due to the pandemic. We experienced increases in
partner commissions of $0.5 million as well as an additional increase of $0.9
million in consulting and other costs.

Research and Development Expenses
Research and development expenses increased primarily due to increased employee
costs of $12.8 million. The investments in our platform are intended to increase
the quality, reliability and efficiency of our technology. The increase in
employee costs relates to both headcount and compensation increases and includes
increases of $1.8 million associated with the acquisition of FastPay and an
increase in stock-based compensation of $3.8 million. We experienced additional
increases of $0.8 million in cloud hosting fees and software maintenance and
$0.4 million in travel, recruiting and other costs. These increases were offset,
in part, by a $0.2 million decrease in costs associated with engaging
consultants and contractors and a reduction in expense associated with
capitalization of internally developed software of approximately $1.3 million.

General and Administrative Expenses
The increase in general and administrative expenses is attributable to a $8.0
million increase in employee costs, including an increase in stock-based
compensation of $5.4 million, as well as a $1.5 million increase of professional
and consulting fees, contract labor, and insurance costs. The increases reflect
the growth in our business and our transition to operating as a public company.
The increases in employee costs include $0.2 million associated with the
acquisition of FastPay, which closed in July 2021. These increases were offset,
in part, by a reduction in transaction costs of $2.8 million attributable to
deal related costs incurred in the prior year period. An additional increase of
$1.1 million is attributable to facilities costs and rent, of which $0.4 million
was attributable to FastPay, and a $0.3 million increase is attributable to bad
debt expense.

Impairment and Write-off of Intangible Assets
The impairment and write-off of intangible assets during the six months ended
June 30, 2021 relates to internally developed software projects.

Depreciation and Amortization
Depreciation and amortization increased primarily due to the amortization of
intangible assets associated with the acquisitions of FastPay, which closed in
July 2021, and media customer assets from PayClearly, which closed in January
2022.

Other Income (Expense)
                                      Six Months Ended June 30,
                                 2022                           2021
                                    Percentage                      Percentage            Period-to-Period Change
                        Amount      of Revenue        Amount        of Revenue          Amount            Percentage
                                                               (in thousands)

Other Income (Expense) $ (9,177 ) (6.2 )% $ (59,952 ) (52.6 )% $ 50,775

               (84.7 )%



                                       26
--------------------------------------------------------------------------------

Other expense decreased primarily due to an increase in interest income of $0.6
million and a $50 million non-cash charge in the prior year period related to
amending a financing advisory agreement with a related party which was settled
by issuing common stock.

Income Tax Expense
                                     Six Months Ended June 30,
                               2022                            2021
                                    Percentage                      Percentage         Period-to-Period Change
                     Amount         of Revenue        Amount        of Revenue        Amount          Percentage
                                                            (in thousands)
Income tax
(benefit) expense   $     138               0.1 %   $      201              0.2 %   $      (63 )             (31.3 )%


The provision for income taxes relates primarily to state income taxes and noncurrent federal taxes related to the non-deductibility of goodwill in the future.


Stock-based Compensation
All of our RSUs outstanding prior to our IPO in October 2021 contained both
service-based and performance-based vesting conditions. The performance
condition was settled in connection with our IPO. No compensation expense was
recognized for RSUs in periods prior to the fourth quarter of 2021.

Liquidity and Capital Resources


We do not currently generate positive cash flow through our operations. We have
financed our operations and capital expenditures primarily through sales of
common and preferred stock and borrowings under our 2019 Credit Agreement, as
defined below, and, more recently, our IPO that was completed in October 2021,
which resulted in net proceeds of $621.4 million, including the exercise of the
overallotment option and after deducting underwriting discounts and commissions
of $40.4 million and offering expenses of approximately $11.8 million. As of
June 30, 2022, our principal sources of liquidity are our unrestricted cash and
cash equivalents of approximately $363.3 million, marketable securities of
approximately $147.8 million and funds available under our existing term loan
and revolving credit facilities, which we collectively refer to as the 2019
Credit Agreement. As of June 30, 2022, our unused committed capacity under the
2019 Credit Agreement was $21.2 million comprised of a delayed draw term loan
and a revolving commitment.

We believe that our unrestricted cash, cash equivalents, marketable securities,
and funds available under our 2019 Credit Agreement will be sufficient to meet
our working capital requirements for at least the next twelve months. To the
extent existing cash, marketable securities, cash from operations, and amounts
available for borrowing under the 2019 Credit Agreement are insufficient to fund
future activities, we may need to raise additional capital. In the future, we
may attempt to raise additional capital through the sale of equity securities or
through equity-linked or debt financing arrangements. If we raise additional
capital by issuing equity or equity-linked securities, the ownership of our
existing stockholders will be diluted. If we raise additional capital by the
incurrence of additional indebtedness, we may be subject to increased fixed
payment obligations and could also be subject to additional restrictive
covenants, such as limitations on our ability to incur additional debt, and
other operating restrictions that could adversely impact our ability to conduct
our business. Our ability to raise additional debt may be limited by applicable
regulatory requirements as a licensed money transmitter that require us to meet
certain net worth requirements. Any future indebtedness we incur may result in
terms that could be unfavorable to equity investors. There can be no assurances
that we will be able to raise additional capital. The inability to raise capital
would adversely affect our ability to achieve our business objectives.

© Edgar Online, source Glimpses

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