The following Management Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") summarizes the significant factors affecting the consolidated operating results, financial condition, liquidity and capital resources ofPaya Holdings Inc. and is intended to help the reader understandPaya Holdings Inc. , our operations and our present business environment. This discussion should be read in conjunction with the Company's audited consolidated financial statements and notes to those statements included in Part II, Item 8 within this Annual Report on Form 10-K. References to "we," "us," "our", "Paya", "Paya Holdings ", or "the Company" refer toPaya Holdings Inc. and its consolidated subsidiaries. Overview We are a leading independent integrated payments and commerce platform providing card, ACH, and check payment processing solutions via software to middle-market businesses inthe United States . Our solutions integrate with customers' core business software to enable payments acceptance, reconcile invoice detail, and post payment information to their core accounting system. In this manner, we enable our customers to collect revenue from their B2C and B2B customers with a seamless experience and high-level of security across payment types.
Recent Developments
Merger of
On
Pursuant to the Merger Agreement, and upon the terms and subject to the conditions thereof, Purchaser agreed to commence the Offer, to purchase all of the shares of common stock, par value$0.001 per share, of the Company issued and outstanding at the Offer Price, in cash, without interest thereon (but subject to applicable withholding). Pursuant to the Merger Agreement, and upon the terms and subject to the conditions thereof, we will consummate the Merger. If the Merger is consummated, the Company's common stock will be delisted from the Nasdaq and the duty to file reports will be suspended under Section 13 and 15(d) of the Exchange Act. OnJanuary 24, 2023 , Purchaser commenced the Offer by filing with theSEC and mailing to the Company's stockholders a Tender Offer Statement on Schedule TO.The Company concurrently filed with theSEC and mailed to stockholders a Solicitation/Recommendation Statement on Schedule 14D-9, which recommended that the Company's stockholders tender their shares to Purchaser pursuant to the Offer. The Offer will initially remain open for a minimum of 20 business days from the date of commencement of the Offer. The Merger Agreement includes customary termination provisions for both the Company and Parent, and provides that, in connection with the termination of the Merger Agreement under specified circumstances, including termination by the Company to accept and enter into an agreement with respect to a Superior Proposal (as defined in the Merger Agreement), the Company will pay Parent a termination fee of approximately$38 million . The parties to the Merger Agreement are also entitled to specifically enforce the terms and provisions of the Merger Agreement. The Merger Agreement provides, among other things, that upon the terms and subject to the conditions set forth in the Merger Agreement, at the effective time of the Merger, each share of the Company's common stock that is not (a) validly tendered and irrevocably accepted for purchase pursuant to the Offer, (b) held by a stockholder who is entitled to demand appraisal and who has properly and validly exercised appraisal rights in accordance with, and who has complied with, applicable law, or (c) held by Parent, Purchaser, or any other direct or indirect wholly owned subsidiary of Parent, will be thereupon converted into the right to receive cash in an amount equal to the Offer Price, on the terms and subject to the conditions set forth in the Merger Agreement. The proposed Merger is expected to close during the first quarter of 2023. 50
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Termination Agreement with Respect to Tax Receivable Agreement ("TRA")
OnJanuary 8, 2023 , in connection with the execution and delivery of the Merger Agreement, the Company and Ultra entered into an agreement (the "Termination Agreement") with respect to the termination of the TRA. The Termination Agreement implements certain provisions of the TRA in connection with the occurrence of the transactions contemplated by the Merger Agreement, including the acceleration of all obligations under the TRA pursuant to its terms resulting in the payment of an early termination fee of approximately$19.5 million to Ultra.
Factors Affecting Results of Operations
Factors impacting our business, results of operations, and forecasts
A number of factors impact our business, results of operations, financial condition, and forecasts, including, but not limited to, the following:
•Increased adoption of integrated payments solutions. We generate revenue through volume-based rates and per item fees attributable to payment transactions between our customers and their customers. We expect to grow our customer base by bringing on new software partners, continuing to sell payment capabilities to customers of our existing software partners not yet leveraging our payment integrations, and by adding integrations within existing multi-platform software partners to access additional customer bases. Further, we expect to benefit from the natural growth of our partners who are typically growing franchises within their respective verticals. •Acquisition, retention, and growth of software partnerships.Paya leverages a partner-first distribution network to grow our client base and payment volume. Continuing to innovate and deliver new commerce products and wraparound services is critical to our ability to attract, retain, and grow relationships with software partners in ourPaya verticals and adjacent markets. •Growth in customer life-time value. We benefit from, and aid-in, the growth of online electronic payment transactions to our customers. This is dependent on the sales growth of the customers' businesses, the overall adoption of online payment methods by their customer bases, and the adoption of our additional integrated payment modules such as our proprietary ACH capabilities. Leveraging these solutions helps drive increased customer retention, as well as higher volume and revenue per customer. •Economic conditions. Changes in macro-level consumer spending trends, including due to economic slowdown and or a recession, could affect the amount of volumes processed on our platform, thus resulting in fluctuations to our revenue streams.
Key Components of Revenue and Expenses
The period to period comparisons of our results of operations have been prepared using the historical periods included in our consolidated financial statements. The following discussion should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this document.
Revenue
The Company's business model provides payment services, credit and debit card processing, and ACH processing to customers through enterprise or vertically focused software partners, direct sales, reseller partners, other referral partners, and a limited number of financial institutions. The Company recognizes processing revenues at the time customer transactions are processed and periodic fees over the period the service is performed. Transaction based revenue represents revenue generated from transaction fees based on volume and is recognized on a net basis. Service based fee revenue is generated from charging a service fee, a fee charged to the client for facilitating bankcard processing, and is recognized on a gross basis. The Company also generates service based fees related to ACH inclusive of monthly support and statement fees. 51
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Cost of services
Cost of services includes card processing costs, ACH costs, other fees paid to card networks, and equipment expenses directly attributable to payment processing and related services to customers. These costs are recognized as incurred. Cost of services also includes revenue share amounts paid to reseller and referral partners based on customer activity. These expenses are recognized as transactions are processed. Accrued revenue share represents amounts earned during the month but not yet paid at the end of the period.
Selling general & administrative
Selling, general and administrative expenses consist primarily of salaries, wages, commissions, marketing costs, professional services costs, technology costs, occupancy costs of leased space, and bad debt expense. Stock based compensation expense is also included in this category.
Depreciation & Amortization
Depreciation and amortization consist primarily of amortization of intangible assets, including customer relationships, internal use software, acquired customer lists, trade names, and to a lesser extent, depreciation on our investments in property, equipment, and software. We depreciate and amortize our assets on a straight-line basis. These lives are 3 years for computers and equipment and acquired internal-use software, 5 years for furniture, fixtures, and office equipment, and the lesser of the asset useful life or remaining lease term for leasehold improvements. Repair and maintenance costs are expensed as incurred and included in selling, general and administrative expenses on the consolidated statements of income and comprehensive income. The purchase of customer lists are treated as asset acquisitions, resulting in recording an intangible asset at cost on the date of acquisition. The acquired customer lists intangible assets have a useful life of 5 years, other customer relationships are amortized over a period of 5-15 years, developed technology 5-10 years, and trade names over 5-25 years. Results of Operations The period to period comparisons of our results of operations have been prepared using the historical periods included in our audited consolidated financial statements. The following discussion should be read in conjunction with the audited consolidated financial statements and related notes included elsewhere in this document. 52
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Year Ended
Amount of % Change For the Year Ended Increase Favorable December 31, (Decrease) (Unfavorable) (in millions) 2022 2021 2022 vs. 2021 2022 vs. 2021 Revenue$ 282.7 $ 249.4 $ 33.3 13.4 % Cost of services exclusive of depreciation and amortization (138.7) (119.3) (19.4) (16.3 %) Selling, general & administrative expenses (87.0) (77.5) (9.5) (12.3 %) Depreciation and amortization (31.8) (30.0) (1.8) (6.0 %) Income from operations 25.2 22.6 2.6 11.5 % Other income (expense) Interest expense (14.3) (14.1) (0.2) (1.4 %) Other income (expense) 2.7 (8.0) 10.7 133.8 % Total other income (expense) (11.6) (22.1) 10.5 47.5 % Income (loss) before income taxes 13.6 0.5 13.1 NM Income tax (expense) benefit (5.3) (1.3) (4.0) NM Net income (loss) 8.3 (0.8) 9.1 1137.5 % NM - not meaningful
Comparison of the Years Ended
Revenue Revenue increased by$33.3 , or 13.4%, to$282.7 for the year endedDecember 31, 2022 from$249.4 for the year endedDecember 31, 2021 . The increase was primarily driven by the Integrated Solutions segment, increasing$26.3 or 16.9%. The increase in Integrated Solutions revenue was driven primarily by increased volume from both new and existing customers.
Cost of services exclusive of depreciation and amortization
Cost of services increased by$19.4 or 16.3%, to$138.7 for year endedDecember 31, 2022 from$119.3 for the year endedDecember 31, 2021 . The increase was driven by growth from higher revenue share partners in Integrated Solutions, growth in ACH in Payment Services and the inorganic contribution from Paragon.
Selling, general & administrative
Selling, general & administrative expenses increased by$9.5 , or 12.3%, to$87.0 for the year endedDecember 31, 2022 from$77.5 for the year endedDecember 31, 2021 . The increase is primarily due to$3.6 in stock compensation expense,$2.6 in compensation and benefits,$1.3 in technology related costs, specifically hosting, maintenance and support, and$1.3 in M&A related expense.
Depreciation and amortization
Depreciation and amortization increased by$1.8 , or 6.0%, to$31.8 for the year endedDecember 31, 2022 as from$30.0 for the year endedDecember 31, 2021 . The increase is primarily due to$1.8 in increased amortization related 53
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to the residual buyout of customer lists acquired during 2021 and 2022 and
Interest Expense
Interest expense increased by
Other Income (Expense)
Other income (expense) was$2.7 for the year endedDecember 31, 2022 and other income (expense) was$(8.0) for the year endedDecember 31, 2021 . The change period over period is primarily due to a prepayment penalty of$2.3 and write off of debt issuance costs of$6.2 related to our Prior Credit Agreement in 2021, a$2.9 increase in gains on the interest rate cap agreement in 2022 compared to 2021, and a$0.7 decrease in value of the Tax Receivable Agreement liability. These were offset by a$0.6 gain on contingent consideration in 2021, and a$0.5 lease loss in 2022.
Year Ended
Amount of % Change For the Year Ended Increase Favorable December 31, (Decrease) (Unfavorable) (in millions) 2021 2020 2021 vs. 2020 2021 vs. 2020 Revenue$ 249.4 $ 206.0 $ 43.4 21.1 % Cost of services exclusive of depreciation and amortization (119.3) (102.1) (17.2) (16.8) % Selling, general & administrative expenses (77.5) (63.0) (14.5) (23.0) % Depreciation and amortization (30.0) (24.6) (5.4) (22.0) % Income from operations 22.6 16.3 6.3 38.7 % Other income (expense) Interest expense (14.1) (17.6) 3.5 19.9 % Other income (expense) (8.0) 1.2 (9.2) NM Total other income (expense) (22.1) (16.4) (5.7) (34.8) % Loss before income taxes 0.5 (0.1) 0.6 NM Income tax (expense) benefit (1.3) (0.4) (0.9) NM Net loss (0.8) (0.5) (0.3) (60.0) % NM - not meaningful
Comparison of the Years Ended
For discussion of the comparison of our operating results for the years ended
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Key performance indicators and non-GAAP Financial Measures
Our management uses a variety of financial and operating metrics to evaluate our business, analyze our performance, and make strategic decisions. We believe these metrics and non-GAAP financial measures provide useful information to investors and others in understanding and evaluating our operating results in the same manner as management. However, these measures are not financial measures calculated in accordance with GAAP and should not be considered as substitutes for financial measures that have been calculated in accordance with GAAP. We primarily review the following key performance indicators and non-GAAP measures when assessing our performance:
Revenue
We analyze our revenues by comparing actual revenues to our internal projections for a given period and to prior periods to assess our performance. We believe that revenues are a meaningful indicator of the demand and pricing for our services. Key drivers to change in revenues are primarily by the dollar volume, basis point spread earned, and number of transactions processed in a given period.
Payment Volume
Payment volume is defined as the total dollar amount of all payments processed by our customers through our services. Volumes for 2022, 2021 and 2020 are shown in the table below: For the year ended December 31, (in millions) 2022 2021 2020 Payment volumes$ 49,533.6 $ 42,924.5 $ 33,272.4 The increase in volume for the year endedDecember 31, 2022 was primarily driven by continued growth in Payment Services, specifically ACH, as well as from strong growth in Integrated Solutions from both new and existing customers and inorganic Paragon contributions.
Adjusted EBITDA and Adjusted Net Income
Adjusted EBITDA is a non-GAAP financial measure that represents earnings before interest and other expense, income taxes, depreciation, and amortization ("EBITDA"), and further adjustments to EBITDA to exclude certain non-cash items and other non-recurring items that we believe are not indicative of ongoing operations to come to Adjusted EBITDA. Adjusted Net Income is a non-GAAP financial measure that represents net income prior to amortization and further adjustments to exclude certain non-cash items and other non-recurring items that management believes are not indicative of ongoing operations to come to Adjusted Net Income. We disclose EBITDA, Adjusted EBITDA, and Adjusted Net Income in this Annual Report because these non-GAAP measures are key measures used by us to evaluate our business, measure our operating performance and make strategic decisions. We believe EBITDA, Adjusted EBITDA, and Adjusted Net Income are useful for investors and others in understanding and evaluating our operations results in the same manner as we do. However, EBITDA, Adjusted EBITDA, and Adjusted Net Income are not financial measures calculated in accordance with GAAP and should not be considered as a substitute for net income, income before income taxes, or any other operating performance measure calculated in accordance with GAAP. Using these non-GAAP financial measures to analyze our business would have material limitations because the calculations are based on the subjective determination of management regarding the nature and classification of events and circumstances that investors may find significant. In addition, although other companies in our industry may report measures titled EBITDA, Adjusted EBITDA and Adjusted Net Income or similar measures, such non-GAAP financial measures may be calculated differently from how we calculate non-GAAP financial measures, which reduces their overall usefulness as 55
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comparative measures. Because of these limitations, you should consider EBITDA, Adjusted EBITDA, and Adjusted Net Income alongside other financial performance measures, including net income and our other financial results presented in accordance with GAAP.
Adjusted EBITDA for the years ended
The following table presents a reconciliation of net income (loss) to EBITDA and Adjusted EBITDA for each of the periods indicated:
For the year ended December 31, (in millions) 2022 2021 2020 Net income (loss) 8.3$ (0.8) $ (0.5) Depreciation & amortization 31.8 30.0 24.6 Income tax expense (benefit) 5.3 1.3 0.4 Interest and other expense 11.6 22.1 16.4 EBITDA 57.0 52.6 40.9 Transaction-related expenses(a) 4.2 3.0 4.6 Stock based compensation(b) 7.2 3.7 1.9 Restructuring costs(c) 2.5 2.2 2.0 Discontinued service costs(d) 0.4 0.2 0.3 Management fees and expenses(e) - - 0.9 Non-recurring public company start-up costs 0.4 1.1 0.9 Non-recurring contingent non-income tax liability 0.5 0.8 - Other costs(f) 1.9 1.6 1.5 Total adjustments 17.1 12.6 12.1 Adjusted EBITDA$ 74.1 $ 65.2 $ 53.0
(a)Represents professional service fees related to mergers and acquisitions such as legal fees, consulting fees, accounting advisory fees, and other costs.
(b)Represents non-cash charges associated with stock-based compensation expense, which has been, and will continue to be for the foreseeable future, a significant recurring expense in our business and an important part of our compensation strategy.
(c)Represents costs associated with restructuring plans designed to streamline operations and reduce costs including costs associated with the relocation of facilities, certain staff restructuring charges including severance, certain executive hires, and acquisition related restructuring charges.
(d)Represents costs incurred to retire certain tools, applications and services that are no longer in use.
(e)Represents advisory fees that we will not be required to pay going forward.
(f)Represents non-operational gains or losses, non-standard project expense, non-operational legal expense and legal debt refinancing expense.
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Adjusted Net Income for the years ended
The following table presents a reconciliation of net income (loss) to Adjusted Net Income for each of the periods indicated:
For the year ended December 31, (in millions) 2022 2021 2020 Net income (loss) 8.3 (0.8) (0.5) Amortization add back 26.6 25.4 20.7 Debt refinancing interest expense(a) - 9.5 - Transaction-related expenses(b) 4.2 3.0 4.6 Stock based compensation(c) 7.2 3.7 1.9 Restructuring costs(d) 2.5 2.2 2.0 Discontinued IT service costs(e) 0.4 0.2 0.3 Management fees and expenses(f) - - 0.9 Non-recurring public company start-up costs 0.4 1.1 0.9 Non-recurring contingent non-income tax liability 0.5 0.8 - Other costs(g) 1.9 1.6 1.5 Total adjustments 43.7 47.5 32.8 Tax effect of adjustments(h) (3.5) (4.1) - Adjusted Net Income$ 48.5 $ 42.6 $ 32.3
(a)Represents one-time debt refinancing expenses for the prepayment penalty and write-off of debt issuance costs in connection with our Prior Credit Agreement.
(b)Represents professional service fees related to mergers and acquisitions such as legal fees, consulting fees, accounting advisory fees, and other costs.
(c)Represents non-cash charges associated with stock-based compensation expense, which has been, and will continue to be for the foreseeable future, a significant recurring expense in our business and an important part of our compensation strategy.
(d)Represents costs associated with restructuring plans designed to streamline operations and reduce costs including costs associated with the relocation of facilities, certain staff restructuring charges including severance, certain executive hires, and acquisition related restructuring charges.
(e)Represents costs incurred to retire certain tools, applications and services that are no longer in use.
(f)Represents advisory fees that we will not be required to pay going forward.
(g)Represents non-operational gains or losses, non-standard project expense, non-operational legal expense and legal debt refinancing expense.
(h)Represents pro forma income tax adjustment effect, at the anticipated blended rate, for all items expected to have a cash tax impact (i.e. items that were not originally recorded through goodwill). Any impact to the valuation allowance assessment for these adjustments has not been considered. The Company has not applied a pro forma tax adjustment in 2020 due to the different ownership structure. Segments We provide our services through two reportable segments 1) Integrated Solutions and 2) Payment Services. The Company's reportable segments are the same as the operating segments.
More information about our two reportable segments:
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•Integrated Solutions - Our Integrated Solutions segment represents the delivery of our credit and debit card payment solutions, and to a lesser extent, ACH processing solutions to customers via integrations with software partners across our strategic vertical markets. Our Integrated Solutions partners include vertical focused front-end Customer Relationship Management software providers as well as back-end Enterprise Resource Planning and accounting solutions. •Payment Services - Our Payment Services segment represents the delivery of card payment processing solutions to our customers through resellers, as well as ACH, check, and gift card processing. Card payment processing solutions in this segment do not originate via a software integration but still utilizePaya's core technology infrastructure. ACH, check, and gift card processing may or may not be integrated with third-party software.
All segment revenue is from external customers.
The following table shows our segment income statement data and selected performance measures for the periods indicated:
Year Ended
For the year ended December 31, Change (in millions, except for Amount % percentages) 2022 2021 Integrated Solutions Segment revenue $ 181.5$ 155.2 $ 26.3 16.9 % Segment gross profit(1) $ 90.0 $ 81.7$ 8.3 10.2 % Segment gross profit margin 49.6 % 52.6 % Payment Services Segment revenue $ 101.3 $ 94.2$ 7.1 7.5 % Segment gross profit(1) $ 53.9 $ 48.4$ 5.5 11.4 % Segment gross profit margin 53.3 % 51.4 %
(1)Segment gross profit is revenue less cost of services excluding depreciation and amortization
Comparison of the Years Ended
Integrated Solutions
Revenue for the Integrated Solutions segment was$181.5 for the year endedDecember 31, 2022 as compared to$155.2 for the year endedDecember 31, 2021 . The increase of$26.3 was primarily due to an increase in payment volume from both new and existing customers. Gross profit for the Integrated Solutions segment was$90.0 resulting in a gross profit margin of 49.6% for the year endedDecember 31, 2022 as compared to$81.7 with a gross profit margin of 52.6% for the year endedDecember 31, 2021 . The increase of$8.3 , or 10.2% improvement in segment gross profit was primarily due to revenue growth partially offset by growth from higher revenue share partners resulting in a 3.0% decrease in gross profit margin from 2021 to 2022.
Payment Services
Revenue for the Payment Services segment was
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Gross profit for the Payment Services segment was$53.9 for the year endedDecember 31, 2022 as compared to$48.4 for the year endedDecember 31, 2021 . The increase of$5.5 , or 11.4% increase in segment gross profit was primarily due to a ACH growth resulting in a 1.9% increase in gross profit margin from 2021 to 2022.
Year Ended
For the year ended December 31, Change (in millions, except for Amount % percentages) 2021 2020 Integrated Solutions Segment revenue $ 155.2$ 122.3 $ 32.9 26.9 % Segment gross profit(1) $ 81.7 $ 65.3$ 16.4 25.1 % Segment gross profit margin 52.6 % 53.4 % Payment Services Segment revenue $ 94.2 $ 83.7$ 10.5 12.5 % Segment gross profit(1) $ 48.4 $ 38.7$ 9.7 25.1 % Segment gross profit margin 51.4 % 46.2 %
(1)Segment gross profit is revenue less cost of services excluding depreciation and amortization
Comparison of the Years Ended
For discussion of the comparison of our operating results for the years ended
Liquidity and Capital Resources
Sources
We have historically sourced our liquidity requirements primarily with cash flow from operations and, when needed, with borrowings under our Credit Facilities and in 2021 with an equity issuance. We have historically sourced our acquisitions mostly with cash flow from operations and borrowings under our Credit Facilities, and prior to becoming a publicly traded company, with capital infusions from Ultra. As ofDecember 31, 2022 , we had$168.8 of unrestricted cash and cash equivalents on hand and borrowing capacity of$45.0 from our 2021 Revolving Credit Facility. We believe our existing cash and cash provided by our ongoing operations together with funds available under our Credit Facilities will be sufficient to meet our working capital, capital expenditures and cash needs for the next 12 months and beyond. Uses
Our material cash requirements from known contractual and other obligations primarily relate to the commitment fees related to our Credit Facilities, interest on long-term debt and operating lease obligations. Expected timing of these payments are as follows:
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Table of Contents Payments due by period (in millions) Total 1 year 2 - 3 years 4 - 5 years More than 5 years Long-term debt(1)$ 246.9 $ 2.5 $
5.0
56.1 10.5 20.6 20.2 4.8 Operating leases(3) 4.0 1.3 2.0 0.7 - Total$ 307.0 $ 14.3 $ 27.6 $ 25.9 $ 239.2 (1)Reflects contractual principal payments. See Note 8. Long-term debt in the notes to the consolidated financial statements for discussion of the new Term Loan. (2)Reflects minimum interest payable under the Term Loan. We have assumed a Eurodollar rate of 0.75% plus a spread of 3.25% for purposes of calculating interest payable on the Term Loan. Payments herein are subject to change as payments for variable rate debt have been estimated. (3)We lease certain property and equipment for various periods under non-cancelable operating leases.
Indebtedness
OnJune 25, 2021 ,Paya entered into the 2021 Credit Facility, consisting of a$250 million senior secured term loan facility, and a$45 million senior secured revolving credit facility. Beginning onDecember 31, 2021 , the Company will make quarterly amortization payments on the Term Loan. As ofDecember 31, 2022 ,$246.9 million remains outstanding under the Term Loan and there were no borrowings outstanding under the Revolver.
Cash Flows
The following tables present a summary of cash flows from operating, investing and financing activities for the following comparative periods.
For the year ended December 31, (in millions) 2022 2021 2020 Net cash provided by (used in) operating activities$ 45.5 $ 36.6 $ 21.4 Net cash provided by (used in) investing activities (19.3) (37.3) (33.1) Net cash provided by (used in) financing activities 10.1 135.7 3.8 Change in cash$ 36.3 $ 135.0 $ (7.9)
Comparison of the Years Ended
Operating Activities
Net cash provided by operating activities increased$8.9 to$45.5 for the year endedDecember 31, 2022 compared to$36.6 for the year endedDecember 31, 2021 . The increase in operating cash in 2022 was primarily due to increased revenues.
Investing Activities
Net cash used in investing activities decreased$18.0 to$19.3 for the year endedDecember 31, 2022 compared to$37.3 for the year endedDecember 31, 2021 . The decrease was primarily due to cash paid for customer lists of$6.3 during 2022 compared to$17.1 during 2021. In addition, during 2021 we acquired Paragon Payment Solutions for$14.5 net of cash received, compared to the 2022 acquisition ofJS Innovations LLC for$6.0 net of cash received. 60
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Financing Activities
Net cash provided by financing activities decreased$125.6 to$10.1 for the year endedDecember 31, 2022 compared to$135.7 in the year endedDecember 31, 2021 . The decrease was primarily due to proceeds from the Equity Offering in 2021 of$116.8 . In addition, the Company repaid its long-term debt of$228.1 under its Prior Credit Agreement and borrowed$250.0 under a new Credit Agreement along with payment of debt issuance costs of$6.2 during 2021 compared to$2.5 in debt payments under the new Credit Agreement during 2022.
Comparison of the Years Ended
For discussion of the comparison of our cash flows for the years endedDecember 31, 2021 and 2020, please read section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report on Form 10-K filed with theSecurities and Exchange Commission onMarch 15, 2022 .
Critical Accounting Policies and Estimates
Our discussion and analysis of our historical financial condition and results of operations for the periods described is based on our consolidated financial statements, which have been prepared in accordance withU.S. GAAP. For a discussion of the significant accounting policies and estimates that we use in the preparation of our audited consolidated financial statements, refer to Note 1 of the notes to our audited consolidated financial statements included in Part II, Item 8 within this Annual Report on Form 10-K. The preparation of these historical financial statements in conformity withU.S. GAAP requires management to make estimates, assumptions and judgments in certain circumstances that affect the reported amounts of assets, liabilities and contingencies as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. We evaluate our assumptions and estimates on an ongoing basis. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. These estimates may change as new events occur or additional information is obtained, and we may periodically be faced with uncertainties, the outcomes of which are not within our control and may not be known for a prolonged period of time. Because the use of estimates is inherent in the financial reporting process, actual results may differ from these estimates under different assumptions or conditions. The following critical accounting discussion pertains to accounting policies we believe are most critical to the portrayal of our historical financial condition and results of operations and that require significant, difficult, subjective or complex judgments. Revenue Recognition Application of the accounting principles inU.S. GAAP related to the measurement and recognition of revenue requires us to make judgments and estimates. Complex arrangements with nonstandard terms and conditions may require significant contract interpretation to determine the appropriate accounting. Specifically, the determination of whether we are a principal to a transaction, or an agent, can require considerable judgment. We have concluded that we are the agent in providing merchants access to credit card networks as we are performing this service on behalf of the principal, the card companies. In addition, we are not primarily responsible for fulfilling this promise to the customer, do not bear risk or take possession of funds to be paid to issuing banks for interchange fees, and do not have discretion in setting the price for interchange fees charged by the card companies. For all other aspects of our services provided to merchants, we determined we are the principal as we control the service being provided before transfer to the customer. Additionally, our payment processing services consist of variable consideration under a stand-ready service of distinct days of service that are substantially the same with the same pattern of transfer to the customer. The variable consideration is as a result of the number or volume of transactions to be processed.
We determined to use each day as a time-based measure of progress toward satisfaction of the single performance obligation of each contract. We determined this method most accurately depicts the pattern by which services are transferred to the merchant, as performance depends on the extent of transactions processed for that merchant on a
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given day. Likewise, consideration to which we expect to be entitled is determined according to our efforts to provide service each day. Changes in judgments with respect to these assumptions and estimates could impact the amount of revenue recognized.
Business Combinations
Upon acquisition of a company, we determine if the transaction is a business combination, which is accounted for using the acquisition method of accounting. Under the acquisition method, once control is obtained of a business, the assets acquired, and liabilities assumed, including amounts attributed to noncontrolling interests, are recorded at fair value. We use our best estimates and assumptions to assign fair value to the tangible and intangible assets acquired and liabilities assumed at the acquisition date. One of the most significant estimates relates to the determination of the fair value of these assets and liabilities, specifically intangible assets such as internal-use software, trade names and trademarks, and customer relationships. The determination of the fair values is based on estimates and judgments made by management with the assistance of a third-party valuation firm. Significant assumptions for intangible assets include the discount rate, projected revenue growth rates and margin, customer retention factors, obsolescence rates and royalty rate used to calculate the expected future cash flows. Our estimates of fair value are based upon assumptions we believe to be reasonable, but which are inherently uncertain and unpredictable. Measurement period adjustments are reflected at the time identified, up through the conclusion of the measurement period, which is the time at which all information for determination of the values of assets acquired and liabilities assumed is received and is not to exceed one year from the acquisition date. We may record adjustments to the fair value of these tangible and intangible assets acquired and liabilities assumed, with the corresponding offset to goodwill. Additionally, uncertain tax positions and tax-related valuation allowances are initially recorded in connection with a business combination as of the acquisition date. We continue to collect information and reevaluate these estimates and assumptions periodically and record any adjustments to preliminary estimates to goodwill, provided we are within the measurement period. If outside of the measurement period, any subsequent adjustments are recorded to the consolidated statement of income and comprehensive income.
Income Taxes
Under ASC 740, "Income Taxes," deferred tax assets and liabilities are recognized for the expected future tax consequences attributable to net operating losses, tax credits, and temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, which will result in taxable or deductible amounts in the future. Our income tax expense/benefit, deferred tax assets, valuation allowance and tax receivable agreement liability reflect management's best assessment of estimated current and future taxes. Significant judgments and estimates are required in determining the consolidated income tax expense/benefits, deferred tax assets, valuation allowance and tax receivable agreement liability. In evaluating our ability to recover our deferred tax assets, we consider all available positive and negative evidence, including projected future taxable income and results of recent operations. Estimating future taxable income is inherently uncertain, requires judgment and is consistent with estimates we are using to manage our business. Any increases or decreases to our valuation allowance will be recorded through earnings in the period the determination was made. Principles of Consolidation Refer to Note 1 of the notes to our audited consolidated financial statements included in Part II, Item 8 within this Annual Report on Form 10-K for a discussion of principles of consolidation. Recently Issued Accounting Standards
Refer to Note 1 of the notes to our audited consolidated financial statements included in Part II, Item 8 within this Annual Report on Form 10-K for our assessment of recently issued and adopted accounting standards.
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