UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

_________________________

FORM 10-Q

_________________________

(Mark One)

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

For the quarterly period ended March 31, 2021

OR

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

For the transition period from   to

Commission File Number 001-38947

_________________________

BTRS Holdings Inc.

_________________________

(Exact name of registrant as specified in its charter)

Delaware	83-3780685
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1009 Lenox Drive, Suite 101 Lawrenceville, New Jersey	08648
(Address of Principal Executive Offices)	(Zip Code)

(609) 235-1010

(Registrant's telephone number, including area code)

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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class 1 Common Stock, $0.0001 par value per share	BTRS	The Nasdaq Global Select Market
Warrants, each whole warrant exercisable for one share of Class 1 Common Stock at an exercise price of $11.50 per share	BTRSW	The Nasdaq Capital Market

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

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

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

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☒

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

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

As of May 12, 2021, there were 149,653,816 shares of Class 1 Common Stock, $0.0001 par value issued and outstanding and 7,251,307 shares of Class 2 Common Stock, $0.0001 par value issued and outstanding.

BTRS Holdings Inc.

Table of Contents

	Page Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)	6
Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020	7
Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2021 and 2020	8
Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2021 and 2020	9
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020	10
Notes to Unaudited Condensed Consolidated Financial Statements	12
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	39
Item 3. Quantitative and Qualitative Disclosures About Market Risk	57
Item 4. Controls and Procedures	57
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	59
Item 1A. Risk Factors	59
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	59
Item 3. Defaults Upon Senior Securities	59
Item 4. Mine Safety Disclosures	59
Item 5. Other Information	59
Item 6. Exhibits	59
Signatures	61

2

In this Quarterly Report on Form 10-Q, unless otherwise stated or as the context otherwise requires, references to “the Company,” “we,” “us,” our” and similar references refer to BTRS Holdings Inc., a Delaware corporation, and its consolidated subsidiaries.

This Quarterly Report on Form 10-Q also contains registered marks, trademarks and trade names of other companies. All other trademarks, registered marks and trade names appearing in this Quarterly Report are the property of their respective holders. We do not intend our use or display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, these other companies.

3

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report, including statements regarding our future financial condition, business strategy and plans, and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “believe,” “may,” “could,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “seek,” “plan,” “expect,” “should,” “would,” “potentially” or the negative of these terms or similar expressions in this Quarterly Report.

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, results of operations, business strategy and financial needs. These forward-looking statements are subject to a number of known and unknown risks, uncertainties and assumptions, including risks described in the section titled “Risk Factors” contained in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the Securities and Exchange Commission (SEC) on March 24, 2021 including, among other things, risks associated with:

•our financial and business performance, including the financial projections, forecasts and business metrics and any underlying assumptions thereunder;

•changes in our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects and plans;

•the capabilities and benefits to our customers of our technology platform;

•the advantages and expected growth of the Business Payments Network;

•our ability to digitally transform the accounts receivable industry;

•our ability to scale in a cost-effective manner;

•developments and projections relating to our competitors and industry;

•the impact of health epidemics, including the COVID-19 pandemic, on our business and the actions we may take in response thereto;

•expectations regarding the time during which we will be an emerging growth company under the JOBS Act;

•our future capital requirements and sources and uses of cash;

•our ability to obtain funding for our operations;

•our business, expansion plans and opportunities; and

•the outcome of any known and unknown litigation and regulatory proceedings.

4

These risks are not exhaustive. Additional factors could harm our business and financial performance, such as risks associated with the ongoing COVID-19 global pandemic. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in, or implied by, any forward-looking statements. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Unless required by law, we undertake no obligation to update or revise any forward-looking statements to reflect new information or future events or developments. Thus, you should not assume that our silence over time means that actual events are bearing out as expressed or implied in such forward-looking statements. We qualify all of the forward-looking statements in this Quarterly Report by these cautionary statements.

5

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

6

BTRS Holdings Inc.

Condensed Consolidated Balance Sheets

(Amounts in thousands, except per share and share data)

	March 31, 2021		December 31, 2020
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	261,013	$	14,642
Restricted cash	2,914		3,277
Short-term investments	25,000		—
Customer funds	21,185		20,924
Accounts receivable, net of allowance for doubtful accounts of $227 and $409, respectively	26,699		23,009
Prepaid expenses	6,343		2,961
Deferred implementation, commission and other costs, current	4,712		4,718
Other current assets	1,029		831
Total current assets	348,895		70,362
Property and equipment, net of accumulated depreciation of $16,371 and $15,568, respectively	16,380		16,650
Goodwill	36,956		36,956
Intangible assets, net	8,978		9,534
Deferred implementation and commission costs, non-current	8,551		8,677
Other assets	2,437		5,361
Total assets	$	422,197	$	147,540
Liabilities and stockholders’ equity
Current liabilities:
Customer funds payable	21,194		20,924
Current portion of debt and capital lease obligations, net of deferred financing costs	170		380
Accounts payable	2,314		1,646
Accrued expenses and other	24,160		26,341
Deferred revenue	11,311		14,895
Other current liabilities	608		906
Total current liabilities	59,757		65,092
Long-term debt and capital lease obligations, net of current portion and deferred financing costs	42		43,295
Customer postage deposits	10,410		10,418
Deferred revenue, net of current portion	15,841		14,861
Deferred taxes	859		768
Other long-term liabilities	7,778		9,296
Total liabilities	94,687		143,730
Commitments and contingencies (Note 13)
Stockholders' equity:
Class 1 Common stock, $0.0001 par value, 538,000,000 shares authorized; 149,315,319 and 91,420,868 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively	15		9
Class 2 Common stock, $0.0001 par value, 27,000,000 shares authorized; 7,251,307 and 8,196,622 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively	1		1
Additional paid-in capital	522,857		175,327
Accumulated deficit	(195,363)		(171,527)
Total stockholders’ equity	327,510		3,810
Total liabilities, redeemable convertible preferred stock and stockholders’ equity	$	422,197	$	147,540
See accompanying notes to unaudited condensed consolidated financial statements.

7

BTRS Holdings Inc.

Condensed Consolidated Balance Sheets

(Amounts in thousands, except per share and share data)

	Three Months Ended March 31,
	2021		2020
Revenues:
Subscription, transaction and services	$	33,119	$	24,524
Reimbursable costs	8,817		9,621
Total revenues	41,936		34,145
Cost of revenues:
Cost of subscription, transaction and services	9,253		7,890
Cost of reimbursable costs	8,817		9,621
Total cost of revenues, excluding depreciation and amortization	18,070		17,511
Operating expenses:
Research and development	10,993		9,384
Sales and marketing	8,936		6,422
General and administrative	12,450		5,248
Depreciation and amortization	1,360		1,411
Total operating expenses	33,739		22,465
Loss from operations	(9,873)		(5,831)
Other income (expense):
Interest income	103		16
Interest expense and loss on extinguishment of debt	(2,942)		(1,183)
Change in fair value of financial instruments and other income	(9,990)		(19)
Total other expense	(12,829)		(1,186)
Loss before income taxes	(22,702)		(7,017)
Provision for income taxes	(92)		(80)
Net loss and comprehensive loss	$	(22,794)	$	(7,097)
Net loss per share attributable to common stockholders
Basic and diluted	$	(0.16)	$	(0.07)
Weighted average number of shares used to compute net loss per share attributable to common stockholders
Basic and diluted	144,207		99,804

See accompanying notes to unaudited condensed consolidated financial statements.

8

BTRS Holdings Inc.

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)

(Amounts in thousands, except share data)

	Redeemable Convertible Preferred Stock			Class 1  Common Stock			Class 2  Common Stock			Additional Paid-in Capital		Accumulated  Deficit		Total Stockholders’ Equity
	Shares	Amount		Shares	Amount		Shares	Amount
Balance, December 31, 2019, Pre-Conversion	68,382,882	$	150,358	31,234,610	$	3	—	$	—	$	11,933	$	(145,830)	$	(133,892)
Retroactive application of reverse recapitalization (Note 4)	(68,382,882)	(150,358)		60,186,260	6		8,196,623	1		150,349		—		150,356
Adjusted balance, beginning of period	—	—		91,420,870	9		8,196,623	1		162,282		(145,830)		16,464
Stock-based compensation from option grants	—	—		—	—		—	—		481		—		481
Exercise of stock options	—	—		232,761	—		—	—		123		—		123
Net loss	—	—		—	—		—	—		—		(7,097)		(7,097)
Balance, March 31, 2020	—	$	—	91,653,631	$	9	8,196,623	$	1	$	162,886	$	(152,927)	$	9,971

	Redeemable Convertible Preferred Stock			Class 1  Common Stock			Class 2  Common Stock			Additional Paid-in Capital		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount		Shares	Amount		Shares	Amount
Balance, December 31, 2020	68,382,882	$	159,028	32,574,218	$	3	—	$	—	$	16,301	$	(171,527)	$	(155,223)
Retroactive application of reverse recapitalization (Note 4)	(68,382,882)	(159,028)		60,186,260	6		8,196,622	1		159,026		—		159,033
Adjusted balance, December 31, 2020	—	—		92,760,478	9		8,196,622	1		175,327		(171,527)		3,810
Reverse recapitalization and PIPE Financing (Note 4)	—	—		44,522,375	5		(1,658,887)	—		330,659		(1,042)		329,622
Fair value of earnout share liabilities (Note 4)	—	—		—	—		—	—		(230,995)		—		(230,995)
Issuance and vesting of earnout shares at fair value (Note 4)	—	—		10,204,164	1		713,572	—		237,008		—		237,009
Stock-based compensation from option and restricted stock unit grants	—	—		—	—		—	—		8,826		—		8,826
Exercise of stock options	—	—		1,828,302	—		—	—		2,032		—		2,032
Net loss	—	—		—	—		—	—		—		(22,794)		(22,794)
Balance, March 31, 2021	—	$	—	149,315,319	$	15	7,251,307	$	1	$	522,857	$	(195,363)	$	327,510

See accompanying notes to unaudited condensed consolidated financial statements.

9

BTRS Holdings Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(Amounts in thousands, except share amounts)

	Three Months Ended March 31,
	2021		2020
Operating activities:
Net loss	$	(22,794)	$	(7,097)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	1,360		1,411
Provision for bad debts	54		16
Loss on extinguishment of debt and amortization of debt discount	2,799		105
Stock-based compensation expense	8,826		481
Change in fair value of earnout and contingent consideration liabilities	9,995		—
Deferred income taxes	92		80
Changes in operating assets and liabilities:
Accounts receivable	(3,743)		(325)
Prepaid expenses	(3,382)		(752)
Other assets (current and non-current)	1,512		(27)
Accounts payable	668		(1,001)
Accrued expenses	(2,730)		(2,569)
Deferred revenue	(2,604)		799
Deferred implementation, commissions and other costs	132		(27)
Other liabilities (current and non-current)	(102)		45
Net cash used in operating activities	(9,917)		(8,861)
Investing activities:
Purchases of short-term investments	(25,000)		—
Capitalized software development	(115)		(236)
Purchases of property and equipment	(388)		(629)
Net cash used in investing activities	(25,503)		(865)
Financing activities:
Issuance of long-term debt	—		45,000
Financing costs paid upon issuance of long-term debt	—		(1,446)
Proceeds from line of credit	—		3,000
Payments on long-term debt	(44,663)		(28,583)
Payments on capital lease obligations	(65)		(68)
Proceeds from exercise of stock options	2,032		123
Business combination and PIPE financing	349,902		—
Payments of equity issuance costs	(20,200)		—
Debt extinguishment costs	(1,565)		—
Cash paid to satisfy tax withholding on net share issuance	(4,013)		—
Net cash provided by financing activities	281,428		18,026
Net increase in cash and cash equivalents and restricted cash	246,008		8,300
Cash and cash equivalents and restricted cash, beginning of period	17,919		4,736
Cash and cash equivalents and restricted cash, end of period	$	263,927	$	13,036
Reconciliation of cash, cash equivalents, and restricted cash to the condensed balance sheets
Cash and cash equivalents	$	261,013	$	9,761
Restricted cash	2,914		3,275
Total cash, cash equivalents, and restricted cash	$	263,927	$	13,036

10

BTRS Holdings Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(Amounts in thousands, except share amounts)

Supplemental Disclosure of Cash Flow Information:
Cash paid for interest	$	133	$	1,071
Noncash Investing & Financing Activities:
Reclassification of Series C preferred stock warrant liability to equity in connection with Business Combination	$	1,433	$	—
Net assets acquired in Business Combination and other	$	255	$	—
Deferred and accrued equity issuance costs in other assets and accrued expenses charged to additional paid-in-capital	$	1,888	$	—
Issuance and vesting of earnout shares at fair value	$	237,008	$	—

See accompanying notes to unaudited condensed consolidated financial statements.

11

BTRS Holdings Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(Amounts in thousands, except per share and share data)

1. Organization and Nature of Business

BTRS Holdings Inc., formerly known as Factor Systems, Inc. ("Legacy Billtrust"), utilizing the trade name Billtrust (the "Company” or “Billtrust”), was incorporated on September 4, 2001 in the State of Delaware and maintains its headquarters in Lawrenceville, New Jersey, with additional offices or print facilities in Colorado, Illinois and California.

The Company provides a comprehensive suite of order to cash software as a service ("SaaS") solutions with integrated payments, including credit and collections, invoice presentment and cash application services to its customers primarily based in North America, but with global operations. In addition, Billtrust founded the business payments network ("BPN") in its strategic relationship with VISA, which combines remittance data with B2B payments and facilitates straight-through processing. Billtrust serves businesses across both business-to-business and business-to-consumer segments. Billtrust integrates the key areas of the order-to-cash process: credit decisioning, e-commerce solutions, bill presentment, bill payment, cash application, and collections workflow management, helping its clients connect with their customers and cash.

Business Combination Agreement

On October 18, 2020, as amended December 13, 2020, South Mountain Merger Corp., a Delaware corporation (“South Mountain”), BT Merger Sub I, Inc., a Delaware corporation and a direct, wholly owned subsidiary of South Mountain (“First Merger Sub”), BT Merger Sub II, LLC, a Delaware limited liability company and a direct, wholly owned subsidiary of South Mountain (“Second Merger Sub”) and the Company ("Billtrust"), entered into a Business Combination Agreement (the “BCA”), pursuant to which (i) First Merger Sub was merged with and into Billtrust (the “First Merger”), with Billtrust surviving the First Merger as a wholly owned subsidiary of South Mountain (the “Surviving Corporation”) and (ii) the Surviving Corporation merged with and into Second Merger Sub (the “Second Merger” and together with the First Merger, the “Mergers”), with Second Merger Sub surviving the Second Merger as a wholly owned subsidiary of South Mountain (such Mergers, collectively with the other transactions described in the BCA, the “Business Combination”).

In connection with the execution of the BCA, on October 18, 2020, South Mountain entered into separate subscription agreements (the “Subscription Agreements”) with a number of investors (the “PIPE Investors”), pursuant to which the PIPE Investors agreed to purchase, and South Mountain has sold to the PIPE Investors, an aggregate of 20,000,000 shares of South Mountain Class A Common Stock, for a purchase price of $10.00 per share and at an aggregate purchase price of $200 million, in a private placement (the “PIPE Financing”).

As noted in Note 4, the Business Combination and PIPE Financing closed on January 12, 2021. The Business Combination was accounted for as a reverse recapitalization in accordance with US GAAP. Under this method of accounting, South Mountain is treated as the “acquired” company for financial reporting purposes. For accounting purposes, Billtrust is deemed to be the accounting acquirer in the transaction and, consequently, the transaction has been treated as a recapitalization of Billtrust (i.e., a capital transaction involving the issuance of stock by South Mountain for the stock of Billtrust). Accordingly, the assets, liabilities and results of operations of Billtrust became the historical financial statements of "New Billtrust", which was renamed BTRS Holdings Inc., and South Mountain’s assets, liabilities and results of operations were consolidated with Billtrust beginning on the acquisition date. All amounts of BTRS Holdings Inc. reflect the historical amounts of Billtrust carried over at book value with no step up in basis to fair value. After the Business Combination, the Company’s common stock began trading on the Nasdaq stock exchange under the ticker symbol BTRS.

12

BTRS Holdings Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(Amounts in thousands, except per share and share data)

Concentrations of Credit Risk

The Company maintains its deposits of cash and cash equivalent balances, restricted cash and customer funds with high-credit quality financial institutions. The Company’s cash and cash equivalent balances, restricted cash and customer funds may exceed federally insured limits. The Company’s accounts receivable are reported in the accompanying Balance Sheets net of allowances for uncollectible accounts. The Company believes that the concentration of credit risk with respect to accounts receivable is limited due to the large number of companies and diverse industries comprising the customer base. On-going credit evaluations are performed, generally with a focus on new customers or customers with whom the Company has no prior collections history, and collateral is generally not required. The Company maintains reserves for potential losses based on customer specific situations as well as on historic experience and such losses, in the aggregate, have not exceeded management’s expectations. As of March 31, 2021 and December 31, 2020, and for the for the three months ended March 31, 2021 and 2020, there were no customers that individually accounted for 10% or greater of accounts receivable or total revenues, respectively.

2. Summary of Significant Accounting Policies

Significant Accounting Policies

Billtrust’s significant accounting policies are discussed in the audited financial statements included in the Company's Form 8-K/A filed with the Securities and Exchange Commission ("SEC") on March 24, 2021.

Emerging Growth Company

As an emerging growth company (“EGC”), the Jumpstart Our Business Startups Act (“JOBS Act”) allows the company to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are applicable to private companies. The Company has elected to use the extended transition period under the JOBS Act until such time the Company is not considered to be an EGC. The adoption dates are discussed below to reflect this election.

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared using accounting principles generally accepted in the United States ("US GAAP") and regulations of the SEC regarding interim financial reporting. Accordingly, certain information and note disclosures normally included in the financial statements prepared in accordance with US GAAP have been condensed or omitted pursuant to such rules and regulations. The accompanying condensed consolidated financial statements for periods ended prior to January 12, 2021 reflect Billtrust and its capital structure prior to the Business Combination, and do not reflect New Billtrust or SMMC.

The condensed consolidated balance sheet as of December 31, 2020, included herein, was derived from the audited financial statements as of that date, but does not include all disclosures including certain notes required by US GAAP on an annual reporting basis. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, comprehensive loss and cash flows for the interim periods, but are not necessarily indicative of the results to be expected for the full fiscal year or any other period.

13

BTRS Holdings Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(Amounts in thousands, except per share and share data)

COVID-19

In March 2020, the United States (U.S.) declared a State of National Emergency due to the COVID-19 outbreak. In addition, many jurisdictions in the U.S. have limited, and are considering to further limit, social mobility and gathering. Many business establishments have closed due to restrictions imposed by the government and many governmental authorities have closed most public establishments. Some of our customers have been, and may continue to be, negatively impacted by the shelter-in-place and other similar state and local orders, the closure of manufacturing sites and country borders, and the increase in unemployment. The COVID-19 pandemic has caused us to modify our business practices (including employee travel and cancellation of physical participation in meetings, events and conferences), all of our employees are currently working remotely, and we may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, partners, and customers. The extent of this business disruption on our operational and financial performance will depend on these developments and the duration and spread of the outbreak, all of which are uncertain and cannot be predicted. The Company has previously implemented certain cost savings measures, some of which have ended and others are continuing, such as restricted travel and reduced discretionary spend in certain areas and will continue to monitor and adjust accordingly.

On March 27, 2020, President Trump signed into law the “Coronavirus Aid, Relief, and Economic Security (CARES) Act.” The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions, technical corrections to tax depreciation methods for qualified improvement property, and appropriate of funds for the SBA Paycheck Protection Program. The Company, through its outsourced payroll provider, has elected to defer employer side social security payments effective as of April 2020, and expects to pay in the next year, the amount due for 2020 of approximately $2,309, which is included in Accrued Expenses and Other in the accompanying condensed consolidated balance sheets as of March 31, 2021 and December 31, 2020, respectively. We continue to assess the impact that COVID-19 may have on our business. Although we saw a decline in certain transaction revenues during the second quarter of 2020, we are unable to determine the ultimate impact that the CARES Act, and/or COVID-19 will have on our future financial condition, results of operations, or liquidity.

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported in the financial statements and accompanying notes. Estimates include, but are not limited to, revenue recognition, allowances for doubtful accounts, recoverability of deferred tax assets, determining the fair value associated with acquired assets and liabilities including deferred revenue, intangible asset and goodwill impairment, contingent consideration liabilities, stock based compensation and certain other of the Company’s accrued liabilities. The Company bases its estimates on historical experience, known trends, and other market specific or other relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates, as there are changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results may differ from those estimates or assumptions.

Due to the COVID-19 global pandemic, the global economy and financial markets have been disrupted and there is a significant amount of uncertainty about the length and severity of the consequences caused by the pandemic. The Company has considered information available to it as of the date of issuance of these financial statements and has not experienced any significant impact to its estimates and assumptions as a result of the COVID-19 pandemic. On an ongoing basis, the Company will continue to closely monitor the COVID-19 impact on its estimates and assumptions.

14

BTRS Holdings Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(Amounts in thousands, except per share and share data)

Revenue Recognition

The Company determines revenue recognition through the following five-step framework:

1.Identification of the contract, or contracts, with a customer;

2.Identification of the performance obligations in the contract;

3.Determination of the transaction price;

4.Allocation of the transaction price to the performance obligations in the contract; and

5.Recognition of revenue when, or as, the Company satisfies a performance obligation

The following is a description of principal activities from which the Company generates revenue, as well as a further breakdown of the components of subscription, transaction and services revenues for the three months ended March 31, 2021 and 2020:

	2021		2020
Subscription and transaction fees	$	30,183	$	23,125
Services and other	2,936		1,399
Subscription, transaction and services	$	33,119	$	24,524

Subscription and Transaction Fee Revenue

Subscription and transaction fee revenue is derived primarily from a hosted software as a service (SaaS) platform that enables billings and payment processing on behalf of customers. The Company’s services are billed on a subscription basis monthly, quarterly or annually. Transaction fees for certain services are billed monthly based on the volume of items processed each month at a contractual rate per item processed.

Hosted solutions are provided without licensing perpetual rights to the software. The hosted solutions are integral to the overall service arrangement and are billed as a subscription fee as part of the overall service agreement with the customer. Subscription fees from hosted solutions are recognized monthly over the customer agreement term beginning on the date the Company’s solution is made available to the customer.

Transaction revenue is recognized concurrent with processing of the related transactions by the Company, which is when revenue is earned. The customer simultaneously receives and consumes the benefits as the Company performs. Transaction fees include per-item processing fees charged at contracted rates based on the number of invoices delivered or payments processed.

Services

Fees associated with upfront services represent a material right under ASC 606 as customers do not incur such fees in subsequent contract terms, and therefore they are considered to be at a discount compared to the initial contract period. Any revenues related to upfront implementation services for new customers or new products for existing customers are recognized ratably over the estimated period of the customer relationship, which is estimated to be five years other than for customer relationships from acquisitions which range from two to four years. Amounts that have been invoiced are recorded in accounts receivable and deferred revenues or revenues, depending on when the services are fulfilled.

In addition to implementation fees, professional services fees also include consulting services provided to customers on a time and materials basis. Revenues from consulting services are recognized as the services are completed based on their standalone value, and costs associated with short term services contracts are deferred and recognized with the corresponding revenue when services are completed.

15

BTRS Holdings Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(Amounts in thousands, except per share and share data)

Significant Judgements

The Company determines standalone selling price ("SSP") for all material performance obligations using observable inputs, such as the price of subsequent years of the contract, standalone sales and historical contract pricing. Some customers have the option to purchase additional subscription or transaction services at a stated price. These options are evaluated on a case-by-case basis but generally do not provide a material right as they are priced within a range of prices provided to other customers for the same products and, as such, would not result in a separate performance obligation.

When the timing of revenue recognition differs from the timing of invoicing, i.e. Implementation services, the Company uses judgment to determine whether the contract includes a significant financing component requiring adjustment to the transaction price. Various factors are considered in this determination including the duration of the contract, payment terms, and other circumstances. Generally, the Company determined that contracts related to upfront Implement services do not include a significant financing component. The Company applies the practical expedient for instances where, at contract inception, the expected timing difference between when promised goods or services are transferred and associated payment will be one year or less.

Reimbursable costs

The Company records reimbursable costs, consisting of postage on a gross basis, since the goods or services giving rise to the reimbursable costs do not transfer a good or service to the customer. Rather, the goods or services are used or consumed by the Company in fulfilling its performance obligation to the customer. Corresponding expenses are recorded on an accrual basis and the costs are allocated based on specific types of postage to customers, but cannot specifically identify each postage invoice to specific customers. Because the cost of such revenue is equal to the revenue, it does not impact loss from operations or net loss.

Sales tax and other

The Company accounts for sales and other related taxes, as well as expenses associated with interchange on credit card transactions from third party card issuers or financial institutions which are a pass through cost, on a net basis, excluding such amounts from revenue. For expenses associated with interchange transactions, the Company has determined that it is acting as an agent with respect to these payment authorization services, based on the following factors: (1) the Company has no discretion over which card issuing bank will be used to process a transaction and is unable to direct the activity of the merchant to another card issuing bank, and (2) interchange and card network rates are pre-established by the card issuers or financial institutions, and the Company has no latitude in determining these fees. Therefore, revenue allocated to the payment authorization performance obligation is presented net of interchange and card network fees paid to the card issuing banks and financial institutions, respectively, for all periods presented.

Deferred Revenue

Amounts billed to clients in excess of revenue earned are recorded as deferred revenue liability. Deferred revenue as of March 31, 2021 and December 31, 2020 relates primarily to implementation fees for new customers or new services, which are being recognized ratably over the estimated term of the customer relationship, which is generally five years for the Company's core billing and payments and cash application services, and two to four years for other services related to acquisitions in 2018 and 2019; as well as fees received to store billing data and annual maintenance service agreements, which are both being recognized ratably over the term of the service period.

16

BTRS Holdings Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(Amounts in thousands, except per share and share data)

Deferred Commissions

Commissions are recorded when earned and are included as a component of sales and marketing expense. Commission costs can be associated specifically with subscription and professional services arrangements. Commissions earned by the Company’s sales personnel are considered incremental and recoverable costs of obtaining a contract with a customer. Commission costs are deferred and then amortized over a period of benefit of four to five years. The Company determined the period of benefit by taking into consideration its past experience with customers and the average customer life of acquired customers (four years, compared to five years for all remaining customers), future cash flows expected from customers, industry peers and other available information.

Commissions are earned by sales personnel upon the execution of the sales contract by the customer. Substantially all sales commissions are generally paid at one of three points: (i) upon execution of a customer contract, (ii) when a customer completes implementation and training processes or commences usage based volume, or (iii) after a period of time from three to twelve months thereafter. Commissions associated with subscription-based arrangements are typically earned when a customer order is received and when the customer is billed for the underlying contractual period. Commissions associated with professional services are typically earned in the month that services are rendered.

The Company capitalized commission costs of $712 and amortized $747 to sales and marketing expense in the accompanying statements of operations during the three months ended March 31, 2021, in addition to commissions which were expensed as incurred related to the achievement of quotas or other performance obligations. As of March 31, 2021 and December 31, 2020 the Company had approximately $2,490 and $2,431 of current deferred commissions for amounts expected to be recognized in the next 12 months, $5,139 and $5,233 of noncurrent deferred commissions for amounts expected to be recognized thereafter.

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. The carrying value of these instruments approximates their fair value. At March 31, 2021 and December 31, 2020, the Company’s cash equivalents consisted primarily of money market funds.

Short-term investments

The Company’s investments at March 31, 2021 consist of certificates of deposit with a financial institution, with a maturity date of twenty four months or less at the time of purchase. Management determines the appropriate classification of investments at the time of purchase and re-evaluates such designation as of each balance sheet date. Investments are classified as held-to-maturity when the Company has the positive intent and ability to hold the securities to maturity. Held-to-maturity securities are stated at amortized cost, adjusted for amortization of premiums and accretion of discounts to maturity, with related amortization is included in interest income, although no such amounts were held for the period ended March 31, 2021. Interest on securities classified as held-to-maturity is included in interest income.

Investments are impaired when a decline in fair value is judged to be other-than-temporary. The Company evaluates an investment for impairment by considering the length of time and extent to which market value has been less than cost or amortized cost, the financial condition and near-term prospects of the issuer as well as specific events or circumstances that may influence the operations of the issuer and the Company’s intent to sell the security or the likelihood that it will be required to sell the security before recovery of the entire amortized cost. Once a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded to other income (expense) and a new costs basis in the investment is established.

17

BTRS Holdings Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(Amounts in thousands, except per share and share data)

The Company uses the specific identification method to determine the cost basis of securities sold. The carrying value of these instruments approximates their fair value.

Customer Funds

In connection with providing electronic invoice presentment and payment facilitation services for its customers, the Company may receive client funds via Automated Clearing House (“ACH”) payment to the Company’s cash accounts at its contracted financial institution. The contractual agreements with the Company’s customers stipulate a period of up to three days for processing ACH returns and obligate the customer to reimburse the Company for returned payments. Timing differences in customer deposits into and disbursements from the Company’s separate cash account results in a balance of funds to be remitted to customers, which is reflected as customer funds payable in the accompanying Balance Sheets.

Customer Postage Deposits

The Company requires its customers to maintain a minimum level of postage deposits on account. Customer postage deposits are presented as a liability in the accompanying Balance Sheets and generally do not change unless customer postage usage significantly changes, new customers are added, or existing customers cancel services.

Accrued Expenses and Other

Accrued expenses includes items such as vendor invoices which have not been received as well as other payroll, bonus and related items, which are expected to be paid in the subsequent twelve months.

Offering Costs

The Company complies with the requirements of the ASC 340-10-S99-1. Offering costs of $2,845 were accrued and deferred as of December 31, 2020 and consisted principally of professional, printing, filing, regulatory and other costs that were charged to additional paid-in capital upon completion of the business combination.

Recent Accounting Pronouncements

Accounting pronouncements issued and adopted

In November 2019, the Financial Accounting Standards Board ("FASB") Issued ASU 2019-08, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which requires share-based payment awards granted to a customer to be measured and classified in accordance with Topic 718. Accordingly, the amount that will be recorded as a reduction in the transaction price should be based on the grant-date fair value of the share-based payment award. As an emerging growth company, ASU 2019-08 may be adopted by the Company effective in fiscal years beginning after December 15, 2019, and interim periods within annual periods beginning after December 15, 2020; however, early adoption is permitted. This new guidance will be effective for the Company for annual reporting period beginning January 1, 2021 and interim periods beginning January 1, 2022. The new guidance was adopted by the Company effective January 1, 2021 and did not have a material impact on its consolidated financial statements.

In August 2020, the FASB issued ASU 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40)" to simplify the accounting for convertible instruments by eliminating large sections of the existing guidance and eliminating several triggers for derivative accounting, including a requirement to settle certain contracts by

18

BTRS Holdings Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(Amounts in thousands, except per share and share data)

delivering registered shares. This update is effective for fiscal years beginning after December 15, 2021, including interim periods within those years, and early adoption is permitted for years beginning after December 15, 2020. The new guidance was adopted by the Company effective January 1, 2021 and did not impact its consolidated financial statements.

Accounting pronouncements issued but not yet adopted

In February 2016, the FASB issued Accounting Standards Update 2016-02, Leases (“Topic 842”) which outlines a comprehensive lease accounting model and supersedes the current lease guidance. The new guidance requires lessees to recognize almost all of their leases on the balance sheet by recording a lease liability and corresponding right-of-use assets for all leases with lease terms greater than 12 months. It also changes the definition of a lease and expands the disclosure requirements of lease arrangements. As per the latest ASU 2020-05, issued by FASB, the entities who have not yet issued or made available for issuance the financial statements as of June 3, 2020 can defer the new guidance for one year, thus the Company expects to adopt this guidance for the annual reporting period beginning January 1, 2022, and interim reporting periods within annual reporting period beginning January 1, 2023, and will require application of the new accounting guidance at the beginning of the earliest comparative period presented in the year of adoption, although it may be required to adopt this guidance effective for the year ended December 31, 2020. The Company is in the process of evaluating the impact that the pronouncement will have on its consolidated financial statements.

In June 2016, FASB issued ASU 2016-13 Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires an entity to utilize a new impairment model known as the current expected credit loss ("CECL") model to estimate its lifetime "expected credit loss" and record an allowance that, when deducted from the amortized cost basis of the financial asset, presents the net amount expected to be collected on the financial asset. The CECL model is expected to result in more timely recognition of credit losses. ASU 2016-13 also requires new disclosures for financial assets measured at amortized cost, loans and available-for-sale debt securities. As per the latest ASU 2020-02, FASB deferred the timelines for certain small public and private entities, thus the new guidance will be adopted by the Company for the annual reporting period beginning January 1, 2023, including interim periods within that annual reporting period. The standard will apply as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The Company is in the process of evaluating the impact of the adoption of ASU 2016-13 on the its consolidated financial statements and disclosures.

In January 2017, the FASB issued ASU No. 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment" which simplifies the accounting for goodwill impairment by removing Step 2 of the goodwill impairment test and requires an entity to write down the carrying value of goodwill up to the amount by which the carrying amount of a reporting unit exceeds its fair value. The standard is effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years and early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating the impact of this standard on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that Is a Service Contract,” which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). This new guidance will be effective for the Company for annual reporting period beginning January 1, 2021 and interim periods beginning January 1, 2022. The Company is currently evaluating the impact that the pronouncement will have on its consolidated financial statements.

19

BTRS Holdings Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(Amounts in thousands, except per share and share data)

In December 2019, the FASB issued Accounting Standards Update ("ASU") 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” The ASU is intended to simplify various aspects related to accounting for income taxes. The Company is expecting to adopt the guidance from annual periods beginning after December 15, 2021 and interim period beginning December 15, 2022. The Company is currently evaluating the impact that the pronouncement will have on its consolidated financial statements.

3. Contingent Consideration

The Company records contingent consideration in the accompanying condensed consolidated balance sheets related to acquisitions that have future payments due after the closing date.

The following table presents the changes in the Company’s contingent consideration liabilities for the three months ended March 31, 2021 and 2020:

Ending Balance December 31, 2019 (current and long-term liabilities)	$	1,066
Fair value adjustments to contingent consideration	—
Ending Balance March 31, 2020 (current and long-term liabilities)	$	1,066
Ending Balance December 31, 2020 (current and long-term liabilities)	$	660
Fair value adjustments to contingent consideration	(290)
Ending balance, March 31, 2021 (current and long-term liabilities)	$	370

4. Business Combination

Closing of Business Combination, Accounted for as a Reverse Recapitalization

On January 12, 2021, Billtrust consummated the previously announced Business Combination pursuant to the Agreement dated October 18, 2020 and amended as of December 13, 2020. As a result of the Agreement, Billtrust stockholders received aggregate consideration with a value equal to $1,190 million, which consists of:

i.Approximately $90 million in cash to certain Billtrust shareholders who elected to receive cash for shares of Billtrust common stock at Closing of the Business Combination, accounted for as a reverse recapitalization, and

ii.Approximately $1,099 million in South Mountain Class A and Class C Common Stock at Closing of the Business Combination, accounted for as a reverse recapitalization, or 109,944,090 shares (including 15,175,967 shares issuable pursuant to outstanding vested and unvested options from the 2003 and 2014 Plans), converted at an exchange ratio of 7.2282662 shares per share of Legacy Billtrust common stock (the "Conversion Rate"), based on an assumed share price of $10.00 per share.

20

As of the completion of the Business Combination, accounted for as a reverse recapitalization, on January 12, 2021, the merged companies - BTRS Holdings Inc. and subsidiaries, had the following outstanding securities:

i.approximately 138,728,373 shares of Class 1 Common Stock, including 2,375,000 shares to prior South Mountain shareholders that are subject to the vesting and forfeiture provisions based upon the same share price targets described below in the First Earnout and Second Earnout. During the first quarter of 2021, all of these shares were vested.

ii.approximately 6,537,735 shares of Class 2 Common Stock; and

iii.12,500,000 warrants, each exercisable for one share of Class 1 Common Stock at a price of $11.50 per share (the “Warrants” or "Public Warrants", see Note 10)

iv.In connection with the Merger, each issued and outstanding South Mountain Class A and Class B share was converted into 1.0 shares of Class 1 Common Stock of the Company.

v.In connection with the Merger, all 6,954,500 private placement warrants of South Mountain were cancelled and are no longer outstanding.

Immediately prior to the Closing, each issued and outstanding share of Legacy Billtrust preferred stock converted into equal shares of Legacy Billtrust common stock. At the effective time of the Business Combination (the “Closing”), each stockholder of Legacy Billtrust received 7.2282662 shares of the Company’s Class 1 common stock, par value $0.0001 per share (the "Class 1 Common Stock" or “Common Stock”), for each share of Legacy Billtrust common stock, par value $0.001 per share, that such stockholder owned, except for one investor who requested to receive shares of Class 2 Common Stock, which is the same in all respects as Class 1 Common Stock except it does not have voting rights.

Upon the closing of the Business Combination, the Company’s certificate of incorporation was amended and restated to, among other things, increase the total number of authorized shares of capital stock to 575,000,000 shares, of which 538,000,000 shares were designated Class 1 Common Stock; 27,000,000 shares were designated Class 2 Common Stock, $.0001 par value per share ("Class 2 Common Stock"); and 10,000,000 shares were designated preferred stock, $0.0001 par value per share.

20,000,000 newly-issued shares of Common Stock were issued (such purchases, the “PIPE” concurrently with the completion of the Business Combination (the “Closing”) on the Closing Date for an aggregate purchase price of $200 million.

In connection with the Closing, 9,005,863 shares of common stock were repurchased for cash from Legacy Billtrust shareholders (after conversion) at a price per share of $10.00. Additionally, in connection with a previous loan agreement in July 2014, the Company issued a lender a warrant to purchase shares of the Company’s Series C Preferred stock. In connection with Business Combination, the warrant was exercised and converted into 85,004 shares of Common Stock.

The following table reconciles the elements of the Business Combination, accounted for as a reverse recapitalization, to the condensed consolidated statement of cash flows and the consolidated statement of changes in redeemable preferred stock and stockholders' equity for the period ended March 31, 2021:

	Reverse Recapitalization
	(in thousands)
Cash - South Mountain (net of redemptions and non-contingent expenses)	$	240,670
Cash - PIPE investors	200,000
Cash electing shares of Legacy Billtrust shareholders	(90,061)
Less fees to underwriters and other transaction costs	(20,200)
Net cash received from reverse recapitalization	330,409
Net assets acquired and other adjustments	255
Net contributions from reverse recapitalization	$	330,664

The number of shares of Class 1 and Class 2 common stock of BTRS Holdings Inc. issued immediately following the consummation of the Business Combination, accounted for as a reverse recapitalization, is summarized as follows:

	Number of Shares
Common Stock outstanding prior to Business Combination	25,000,000
Shares from South Mountain Founder Shares	5,500,000
Less redemption of South Mountain Shares	(2,015)
Common Stock of South Mountain	30,497,985
Shares issued from PIPE	20,000,000
Less: Shares of Legacy Billtrust shareholders purchased for cash	(9,005,863)
Recapitalization shares	41,492,122
Legacy Billtrust stockholders	103,773,986
Total Shares	145,266,108

Earnout Consideration

Following the closing of the Merger, holders of Billtrust common stock (including all redeemable preferred shareholders whose shares were converted into common stock at the closing of the Merger) and holders of stock options and restricted stock pursuant to the 2003 Plan and the 2014 Plan (as defined in the Business Combination Agreement, as amended) had the contingent right to receive, in the aggregate, up to 12,000,000 shares of Common Stock if, from the closing of the Merger until the fifth anniversary thereof, the average closing price of BTRS Holdings Inc. Common Stock exceeds certain thresholds. The first issuance of 6,000,000 earnout shares is based on the volume-weighted average price of Common Stock exceeding $12.50 for any 20 trading days within any 30 trading day period (the “First Earnout”). The second issuance of 6,000,000 earnout shares is based on the volume weighted average price of Common Stock exceeding $15.00 for any 20 trading days within any 30 trading day period (the “Second Earnout”) (collectively the "Earnout Shares").

Subsequent to the closing of the Merger, the earnout price of Common stock was met, and the 10,917,736 shares of Class 1 and Class 2 common stock associated with attainment of the First Earnout and the Second Earnout thresholds were issued in the first quarter of 2021.

The difference in the Earnout Shares issued and the aggregate amounts defined in the Merger Agreement above are primarily attributable to 836,208 unissued shares reserved for future issuance to holders of unvested options in the form of restricted stock units, or RSU's (the "Earnout RSU's"), which are subject to the same vesting terms and conditions as the underlying unvested stock options, and are not replacement awards. Additionally, approximately 246,056 shares of common stock were withheld from employees to satisfy the mandatory tax withholding requirements, for which the company remitted cash of $4,013 to the appropriate tax authorities. The Company has determined that the earnout shares issued to non-employee shareholders and to holders of BTRS Holdings Inc. common stock and vested options from the 2003 Plan and 2014 Plan do not meet the criteria for equity classification under ASC 815-40. These earnout shares were initially measured at fair value upon closing of the Business Combination, using a Monte Carlo simulation (using the same assumptions as Earnout RSUs discussed below) resulting in a fair value of $16.80 per share, and recorded as a liability, along with estimated withholding taxes, of $191,095. Upon the attainment of the share price targets in the first quarter of 2021, since all earnout shares were determined to be liability classified, the earnout shares were remeasured at fair value through the date the First Earnout and Second Earnout were achieved, with a corresponding other expense of $8,246 for the increase in the fair value from the date the Business Combination closed.

Additionally, the prior holders of South Mountain stock agreed that of their existing issued and outstanding shares of Class 1 common stock as of the Closing Date, 2.375 million shares of would be subject to vesting conditions based upon the same price milestones in the First Earnout (1.1875 million shares) and Second Earnout (1.1875 million shares) as discussed above ("Sponsor Vesting Shares"). The Company determined that the Sponsor Vesting Shares do not meet the criteria for equity classification under ASC 815-40. These shares were initially measured at fair value upon closing of the Business Combination and recorded as a liability of $39,900. Upon the attainment of the share price targets in the first quarter of 2021, since all Sponsor Vesting Shares were determined to be liability classified, the earnout shares were remeasured at fair value through the date the First Earnout and Second Earnout were achieved, with a corresponding other expense of $1,780 for the increase in the fair value from the date the Business Combination closed.

The liability associated with the Earnout Shares delivered to the equity holders and the Vesting Shares that vested upon achievement of the First Earnout and Second Earnout during the first quarter of 2021 were then reclassified to equity as shares issued, with the appropriate allocation to common stock at par value and additional paid-in capital. Below is a reconciliation of the liability balance at the Closing Date and the changes therein for the three months ended March 31, 2021:

	Earnout Shares		Sponsor Vesting Shares		Total
Fair value on Closing Date	$	191,095	$	39,900	$	230,995
Change in fair value during the period (included in Other expense)	8,246		1,780		10,026
Amount paid for tax withholding	(4,013)		—		(4,013)
Amount reclassified to equity	(195,328)		(41,680)		(237,008)
Ending balance	$	—	$	—	$	—

For the Earnout RSU's issuable based on the amount of the unvested options, the Company has determined that they are subject to stock-based compensation expense under ASC 718, and therefore, there was no impact as of the date the Business Combination was closed and the fair value of the Earnout RSU's were determined based on a valuation using a Monte Carlo simulation, along with the stock price on the Closing Date of $16.80, a risk free rate of 0.5%, and a volatility rate of 42%. Subsequently, stock compensation expense has been recorded over the vesting period of the Earnout RSU's, which totaled $2,171 for the three

months ended March 31, 2021, and is included in operating expenses and cost of subscription, transaction and services in the accompany condensed consolidated statements of operations and comprehensive loss.

5. Revenue from Contracts with Customers

Contract Balances

The timing of revenue recognition, billings and collections may result in billed account receivables and customer advances and deposits (contract liabilities). The Company’s payment terms and conditions vary by contract type, although terms generally include a requirement of payment of 25% to 100% of total contract consideration upon signing and receipt of an invoice or within 30 days, depending upon the solution and negotiated terms. In instances where the timing of revenue recognition differs from the timing of invoicing, the Company has determined that its contracts generally do not include a significant financing component.

The amount of revenue recognized during the three months ended March 31, 2021 and 2020 that were included in the deferred revenue balance at the beginning of the period was $6,665 and $1,300, respectively, including $2,470 related to the acceleration of previously paid and deferred revenue from a customer who terminated during the first quarter of 2021.

Remaining Performance Obligations

On March 31, 2021, the Company had approximately $30.5 million of remaining performance obligations that are unsatisfied (or partially unsatisfied), primarily from multi-year contracts for the Company's services, which includes both the deferred revenue balance and amounts that will be invoiced and recognized as revenue in future periods. The Company expects to recognize approximately 96% of its remaining performance obligations as revenue in within the next 3 years, and the remainder thereafter.

The Company applies the practical expedient and excludes a) information about remaining performance obligations that have an original expected duration of one year or less and b) transaction price allocated to unsatisfied performance obligations for which variable consideration is allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied promise to transfer a distinct good or service that forms part of a single performance obligation in accordance with the series guidance.

6. Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company uses a three-tier fair value hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring basis, as well as assets and liabilities measured at fair value on a non-recurring basis, in periods subsequent to their initial measurement. The hierarchy requires the Company to use observable inputs when available, and to minimize the use of unobservable inputs when determining fair value. If a financial instrument uses inputs that fall in different levels of the hierarchy, the instrument will be categorized based upon the lowest level of input that is significant to the fair value calculation. The three-tiers are defined as follows:

•Level 1: Observable inputs based on unadjusted quoted prices in active markets for identical assets or liabilities;

BTRS Holdings Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(Amounts in thousands, except per share and share data)

•Level 2: Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and

•Level 3: Unobservable inputs for which there is little or no market data requiring the Company to develop its own assumptions.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The Company evaluates its financial assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level to classify them for each reporting period. This determination requires significant judgments to be made. The following table summarizes the conclusions reached as of March 31, 2021 and December 31, 2020 :

	March 31, 2021
	Balance		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents(1)	$	261,013	$	261,013	$	—	$	—
Short-term investments	25,000		25,000		—		—
Restricted Cash	2,914		2,914		—		—
	$	288,927	$	288,927	$	—	$	—
Liabilities:
Contingent consideration(2)	$	370	$	—	$	—	$	370
	$	370	$	—	$	—	$	370

	December 31, 2020
	Balance		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents(1)	$	14,642	$	14,642	$	—	$	—
Restricted Cash	3,277		3,277		—		—
	$	17,919	$	17,919	$	—	$	—
Liabilities:
Contingent consideration(2)	$	660	$	—	$	—	$	660
Warrants to purchase Series C Preferred stock(3)	1,172		—		—		1,172
	$	1,832	$	—	$	—	$	1,832

(1) As of March 31, 2021 and December 31, 2020, cash and cash equivalents included money market obligations measured at fair value using Level 1 inputs.

(2)The Company’s business acquisition of Second Phase is included in contingent consideration. The Company’s valuation of the fair value of contingent consideration related to Second Phase at March 31, 2021 was based on management’s expectations of the achievement of targets related to the contingent consideration.

(3) As of December 31, 2020, the Company had outstanding warrants to purchase Series C stock, as described in Note 9. The determination of the fair value of the warrants was estimated using a Black-Scholes option pricing model with the following assumptions: Stock price for Series C Preferred stock of $94.22; term of 3.5 years; risk-free rate of 0.21%; volatility of 52%; and a dividend yield of 0.0%. The warrants were exercised and subsequently converted to common stock as part of the Business Combination and are not outstanding as of March 31, 2021.

25

BTRS Holdings Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(Amounts in thousands, except per share and share data)

Assets Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs

(Level 3)

The following tables presents the changes in the Company’s Level 3 instruments measured at fair value on a recurring basis for the periods ended March 31, 2021 and December 31, 2020:

Warrants Liability:

Ending balance, December 31, 2020	$	1,172
Change in fair value (1)	256
Exercise of Series C warrants	(1,428)
Ending balance, March 31, 2021	$	—

Contingent Consideration:

Ending balance, December 31, 2020 (current and long-term liabilities)	$	660
Adjustments to contingent consideration	(290)
Ending balance, March 31, 2021 (current and long-term liabilities)	$	370

(1) Amount is included in other expense in the accompanying Statements of Operations and Comprehensive Loss.

7. Goodwill and Intangible Assets, net

The following table represents the changes in goodwill:

Ending balance, December 31, 2020	$	36,956
Changes during the three months ended March 31, 2021	—
Ending balance, March 31, 2021	$	36,956

All of our goodwill is attributable to our Software and Payments segment as of March 31, 2021.

The gross carrying value, accumulated amortization, and net carrying value of intangible assets as of March 31, 2021 and December 31, 2020 are as follows:

	March 31, 2021
	Gross Carrying Value		Accumulated amortization		Net
Customer relationships	$	16,350	$	(9,111)	$	7,239
Non-compete agreements	1,430		(702)		728
Trademarks and trade names	160		(53)		107
Technology	1,540		(636)		904
Total	$	19,480	$	(10,502)	$	8,978

26

BTRS Holdings Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(Amounts in thousands, except per share and share data)

	December 31, 2020
	Gross Carrying Value		Accumulated amortization		Net
Customer relationships	$	16,350	$	(8,698)	$	7,652
Non-compete agreements	1,460		(660)		800
Trademarks and trade names	160		(47)		113
Technology	1,540		(571)		969
Total	$	19,510	$	(9,976)	$	9,534

Aggregate amortization expense for identified intangible assets with definite useful lives for the three months ended March 31, 2021 and 2020 amounted to $556 and $557, respectively, and are included in Depreciation and Amortization in the accompanying Statements of Operations and Comprehensive Loss.

Estimated amortization expense for the next five years and thereafter as of March 31, 2021 is as follows:

remainder of 2021	$	1,269
2022	1,269
2023	1,174
2024	930
2025	737
Thereafter	3,599
Total	$	8,978

8. Property and Equipment, net

Property and equipment, net consists of the following:

	March 31,		December 31,
	2021		2020
Assets held under capital leases – computer, print and mail equipment and software	$	3,784	$	3,752
Computer, print and mail equipment	8,293		7,998
Furniture and fixtures	4,073		4,073
Leasehold improvements	12,133		12,120
Software	1,437		1,437
Vehicles	115		115
Internal software development	2,759		2,644
Construction in progress	157		79
	32,751		32,218
Less: accumulated depreciation and amortization	(16,371)		(15,568)
Total	$	16,380	$	16,650

Depreciation and amortization expense of property and equipment was $803 and $854 for the three months ended March 31, 2021 and 2020, respectively, and includes $60 and $75 relating to software and $60 and

27

BTRS Holdings Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(Amounts in thousands, except per share and share data)

$66 relating to print equipment during the three months ended March 31, 2021 and 2020 respectively, for property and equipment used in the Company’s print facilities. Included in accumulated depreciation and amortization as of March 31, 2021 and December 31, 2020, respectively, is $3,576 and $3,519 related to assets held under capital leases, including amounts for equipment that was subsequently purchased at the end of the lease term. The Company had no write-offs or material disposals of fixed assets during three months ended March 31, 2021 and 2020.

9. Current and Long-Term Debt and Capital Lease Obligations

Current and long-term debt and capital lease obligations consist of the following:

	March 31,		December 31,
	2021		2020
Term Loan	$	—	$	44,663
Unamortized debt issuance costs	—		(1,234)
Revolving Facility Line of Credit	—		—
Capital lease obligations	212		246
Subtotal	212		43,675
Less: current portion, net of unamortized debt issuance costs	(170)		(380)
	$	42	$	43,295

2020 Financing Agreement

On January 17, 2020, the Company entered into a Financing Agreement with TPG Specialty Lending, Inc. ("TSL") as administrative agent and lender and Wells Fargo Bank, N.A. ("Wells", and with TSL, the "2020 Lenders") for a $72.5 million facility, secured by substantially all the assets of the Company (the "2020 Financing Agreement"). In connection therewith, the outstanding Term Loan and Revolver under the PacWest Bank Credit Agreement of $28.3 million was paid in full along with related interest and all liens released. Existing Letters of Credit of $2,854 issued by PacWest Bank remained outstanding as of the date of the transaction and were collateralized by cash of $2,914 which will be treated as restricted cash until the underlying Letters of Credit are released.

The 2020 Financing Agreement consisted of the following facilities, all of which mature on January 17, 2025 ("Maturity Date"):

(i) an Initial Term Loan of $45.0 million, which was drawn at closing and used to pay off the PacWest Bank Credit agreement. Principal payments on the Initial Term Loan are due in equal installments of 0.25% of the initial principal amount commencing June 30, 2020 and on the last business day of each quarter thereafter, with the remaining amount due on the Maturity Date

(ii) a Delayed Draw Term Loan ("DDTL") of up to $20.0 million, which is available to draw in minimum increments through July 17, 2021, which after drawn, cannot be repaid without permanently reducing the amount available.

(iii) a Revolving Commitment facility ("Revolver") of $7.5 million, including a sub-limit of up to $4.0 million for issuing additional letters of credit. The Revolver may be repaid and re-borrowed until the Maturity Date.

The Initial Term Loan and DDTL may be prepaid from time to time by the Company. Once an amount is

28

BTRS Holdings Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(Amounts in thousands, except per share and share data)

prepaid, it may not be reborrowed except for the Revolver. Prepayments are subject to a premium on the principal amount repaid of 3.0% in the first 24 months (2.25% in months 13 through 24 if a change in control occurs, as defined); 1.0% in months 25 to 36, and 0% thereafter. Mandatory prepayments are required upon the occurrence of certain events, as defined in the 2020 Financing Agreement.

In connection with the Business Combination, on January 12, 2021, the Company repaid the entire amount due under the Initial Term Loan, along with a prepayment penalty, and extinguished the 2020 Financing Agreement. In connection therewith, unamortized debt discount of $1,234 and a prepayment penalty and associated costs of $1,575 were recorded as loss on debt extinguishment in interest expense in the accompanying statements of operations and comprehensive loss.

Capital Leases

In current and prior years, the Company entered into several equipment leases to finance equipment purchases, under which $212 remained outstanding as of March 31, 2021. These have been accounted for as capital leases.

10. Stockholders' Equity, Warrants and Redeemable Preferred Stock

The Company issued various shares of Series A through E of preferred stock from various investors from 2006 through 2017. All of the preferred stock equity investments were recorded based on the proceeds received from the sales, which the Company considers to approximate its fair value at the date of each transaction, as agreed between the parties to the transaction. Direct costs incurred in connection with each transaction were accounted for as a reduction in the proceeds of the Preferred stock as a discount. The stock issuance costs associated with the various preferred stock investments are amortized as part of the accretion of the carrying amount of the Preferred stock to each series full redemption amount over a 5-year period from each issuance date, pursuant to FASB ASC Topic 480-10.

Public Warrants

In connection with the Business Combination, Billtrust assumed the publicly traded warrants ("Public Warrants") that had previously been issued by South Mountain. The Public Warrants may only be exercised for a whole number of shares of Common Stock at a price of $11.50 per share. No fractional warrants will be issued upon separation of the Units and only whole warrants will trade. Following the closing of the Business Combination, the Company filed with the SEC a registration statement that was declared effective in February 2021 covering the issuance of the shares of Class 1 common stock issuable upon exercise of the Public Warrants and to maintain a current prospectus relating to those shares of Class A common stock until the warrants expire or are redeemed. Notwithstanding the above, if our Class 1 common stock is at the time of any exercise of a warrant not listed on a national securities exchange such that it satisfies the definition of a “covered security” under Section 18(b)(1) of the Securities Act, we may, at our option, require holders of Public Warrants who exercise their warrants to do so on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act and, in the event we so elect, we will not be required to file or maintain in effect a registration statement, but will use our reasonable best efforts to qualify the shares under applicable blue sky laws to the extent an exemption is not available. The Public Warrants will expire five years after the completion of a Business Combination or earlier upon redemption or liquidation.

Once the warrants become exercisable, the Company may redeem the Public Warrants:

•    in whole and not in part;

•    at a price of $0.01 per warrant;

•    upon a minimum of 30 days’ prior written notice of redemption; and

29

BTRS Holdings Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(Amounts in thousands, except per share and share data)

•    if, and only if, the reported last sale price of the Company’s Class A common stock equals or exceeds $18.00 per share for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date on which the Company sends the notice of redemption to the warrant holders.

If and when the warrants become redeemable by the Company, the Company may exercise its redemption right even if it is unable to register or qualify the underlying securities for sale under all applicable state securities laws.

The Company determined 1) the Public Warrants meet the definition of a derivative pursuant to ASC 815 2) the Public Warrants are indexed to the Company’s common stock pursuant to ASC 815-40-15-7, and 3) the Public Warrants meet all other criteria for equity classification pursuant to ASC 815-40. Therefore, the Public Warrants are accounted for within stockholders' equity as a component of additional paid-in capital as of the Merger date. As part of this assessment, it was concluded only events that would constitute a fundamental change of ownership could require the Company to settle the warrants for cash.

11. Incentive Compensation Plans

Incentive Compensation Plans

The Company adopted the 2003 Stock Incentive Plan, as amended (the "2003 Plan"). The 2003 Plan provides for the granting of stock-based awards, including options and restricted stock to its employees, directors, advisers and consultants. In 2014, the 2003 Plan expired and the Company adopted the 2014 Incentive Compensation Plan (the "2014 Plan"). In connection with the Business Combination, the 2003 Plan and 2014 Plans were frozen and no further grants will be made pursuant to those plans, although all outstanding options were converted to options of the Company using the Conversion Rate applied to the number of options and original exercise price, and continue to vest based upon their original terms.

As part of the Business Combination, the shareholders of the Company adopted the 2020 Equity Incentive Plan (the "2020 Plan") and the 2020 Employee Stock Purchase Plan (the "2020 ESPP"). The shareholders and board of directors authorized the issuance of up to 14,526,237 shares of common stock to be granted pursuant to the 2020 Plan in the form of options, restricted stock, RSU's, stock appreciation rights, performance awards or other awards. Additionally, the shareholders and board of directors authorized the issuance of 1,452,623 shares of common stock pursuant to the 2020 ESPP. Such aggregate number of shares of common stock subject to the 2020 Plan and the 2020 ESPP will automatically increase on January 1 of each year for a period of ten years commencing on January 1, 2022 and ending on (and including) January 1, 2031, in an amount equal to four percent (for the 2020 Plan) and one percent (for the ESPP) of the total number of shares of the Company’s class 1 and class 2 common stock outstanding on December 31 of the preceding year; provided, however that the Board may act prior to January 1st of a given year to provide that the increase for such year will be a lesser number of shares of common stock.

30

BTRS Holdings Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(Amounts in thousands, except per share and share data)

During the three months ended March 31, 2021, no shares were granted or issued pursuant to the 2020 ESPP, but the Company granted an aggregate of 8,114,196 stock options (including 462,596 under the 2014 Plan and 7,651,600 under the 2020 Plan), with weighted average exercise prices of $16.74 per share. The determination of the fair value of the options granted during the three months ended March 31, 2021 was estimated at the date of grant using a Black-Scholes option pricing model with the following assumptions:

	2021		2020
Risk-free interest rate	0.64% - 1.12%		1.57% - 1.73%
Dividend yield	—	%	—	%
Volatility factor of the expected market price of the Company’s common stock	41.56% - 41.62%		39.44% -