AVIDXCHANGE HOLDINGS, INC. 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 endedDecember 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 endedDecember 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 theSEC , 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,"
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OverviewAvidXchange 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 includesFifth Third Bank and Bank of America, and other financial institutions, such asKeyBank , and third-party software providers such asMRI 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 betweenRussia andUkraine . 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. TheU.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)
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
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 ofJune 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
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 inOctober 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
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)
(84.7 )%
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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 inOctober 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 inOctober 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 ofJune 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 ofJune 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.
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