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Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2021

The accompanying Consolidated Financial Statements have been prepared in accordance with U.S. GAAP and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission ("SEC") regarding annual financial reporting on Form 10-K. Certain prior period amounts have been reclassified to conform to the current period presentation.

Except as noted in the section titled "Retroactive Adjustments Related to Reverse Recapitalization", the accompanying Consolidated Financial Statements for periods ended prior to January 12, 2021 reflect Legacy Billtrust, which was a single entity, and its capital structure prior to the Business Combination, and do not reflect New Billtrust or South Mountain.

The Company's fiscal year is the twelve-month period from January 1 through December 31 and all references to “2021”, “2020”, “2019”, and “2018” refer to the fiscal year unless otherwise noted.

Principles of Consolidation

The accompanying Consolidated Financial Statements include the accounts of BTRS Holdings Inc. and its wholly owned subsidiaries. All intercompany transactions have been eliminated in consolidation.

Use of Estimates

The preparation of the Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities reported, disclosure about contingent liabilities, and the reported amounts of revenues and expenses in the financial statements and accompanying notes. Such estimates include, but are not limited to, revenue recognition, leases, valuation of goodwill, intangible, other long-lived assets, and acquired assets and liabilities from acquisitions, recoverability of deferred tax assets, ongoing impairment reviews of goodwill, intangible assets, and other long-lived assets, contingent consideration, and stock-based compensation. The Company bases its estimates on historical experience, known trends, market specific information, or other relevant factors it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates and changes in estimates are recorded in the period in which they become known. Actual results may differ from these estimates.

Foreign Currency

The functional currency of the Company’s subsidiaries is their respective local currency. These subsidiary financial statements are translated to U.S. dollars using the period-end exchange rates for assets and liabilities, average exchange rates during the corresponding period for revenues and expenses, and historical rates for equity. The effects of foreign currency translation adjustments are recorded in accumulated other comprehensive income (loss) within stockholders’ equity on the Consolidated Balance Sheets.

Foreign currency transaction gains and losses are included in change in fair value of financial instruments and other expenses on the Consolidated Statements of Operations.

Accounting Pronouncements Issued and Adopted and Accounting Pronouncements Issued but not yet Adopted

Accounting Pronouncements Issued and Adopted

Based on the closing share price and the market value of the Company's common stock held by non-affiliates as of June 30, 2021, the Company was deemed to be a large accelerated filer as of December 31, 2021. As a result, the Company no longer qualifies as an emerging growth company (“EGC”) under the Jumpstart Our Business Startups Act (“JOBS Act”). The previous EGC status allowed the Company an extended transition period to adopt new or revised accounting pronouncements until such pronouncements were applicable to private companies. The effect of the loss of ECG status and impact on the adoption of new accounting pronouncements that the Company previously elected to use the extended transition period for is discussed further below.

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases (Topic 842), with subsequent ASUs issued to clarify certain aspects of the guidance and to provide certain practical expedients that entities can elect upon adoption (collectively, "Topic 842"). Topic 842 outlines a comprehensive lease accounting model and supersedes the current lease guidance. The standard requires lessees to recognize almost all of their leases on the balance sheet by recording a lease liability and a corresponding right-of-use ("ROU") asset. It also changes the definition and classification of a lease, with the classification affecting the pattern of expense recognition, and expands the qualitative and quantitative disclosure requirements of lease arrangements.

As a result of losing EGC status effective as of December 31, 2021, the Company was required to adopt Topic 842 retroactively to January 1, 2021. The Company adopted the standard utilizing the modified retrospective method in which comparative periods are not adjusted. Adoption of the standard resulted in the recognition of operating lease ROU assets of $29.3 million and operating lease liabilities of $36.7 million on January 1, 2021. The difference of $7.4 million between the operating lease ROU assets and operating lease liabilities relates to deferred rent and lease incentives that were included on our Consolidated Balance Sheets prior to the adoption of Topic 842. This amount was eliminated upon adoption of the standard and was recorded as a reduction to the gross operating lease ROU assets. Additionally, upon adoption, there were no significant changes in the carrying values of assets and liabilities related to the Company’s finance leases, which were referred to as capital leases under the prior guidance.

The Company elected the package of practical expedients, including the related disclosure requirements, that permits the use of historical lease classification and accounting under the previous guidance for all leases that existed as of the adoption date. Additionally, the Company elected to exempt all leases with a lease term upon commencement of 12 months or less from recognition of ROU assets and lease liabilities, and elected not to separate lease and non-lease components within its leases.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments, with subsequent ASU's issued that clarify the guidance (collectively, "Topic 326"). Topic 326 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" using a forward-looking approach and to 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. Topic 326 also requires new disclosures for financial assets measured at amortized cost, loans, and available-for-sale debt securities.

As a result of losing EGC status effective as of December 31, 2021, the Company was required to adopt Topic 326 retroactively to January 1, 2021. The Company adopted the standard using the modified retrospective method in which prior periods are not adjusted and the cumulative effect of applying the standard is recorded at the date of initial application.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies various aspects related to accounting for income taxes. As a result of losing EGC status effective as of December 31, 2021, the Company was required to adopt Topic 740 retroactively to January 1, 2021. The adoption of this standard did not have an impact on the Company’s financial position or results of operations.

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 in the amount by which the carrying amount of a reporting unit exceeds its fair value. As a result of losing EGC status effective as of December 31, 2021, the Company was required to adopt Topic 350 retroactively to January 1, 2021. The adoption of this standard did not have an impact on the Company’s financial position or results of operations.

In October 2021, the FASB issued ASU 2021-08, Business Combinations: Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (Topic 805). The amendments in this ASU require that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 606, Revenue from Contracts with Customers. The ASU is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years and should be applied prospectively to business combinations occurring on or after the effective date of the amendments. Early adoption is permitted. The Company has chosen to early adopt the standard as of January 1, 2021. Adoption of the standard was applied to the Company’s acquisition of iController BV in October 2021 (refer to Note 3 - Business Combination & Acquisitions) and was the Company’s only acquisition in 2021.

On January 1, 2021, the Company adopted ASU 2019-08, Compensation - Stock Compensation (Topic 718): Improvements to Non-employee 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, amounts recorded as a reduction in transaction price are based on the grant-date fair value of share-based payment awards. The adoption of this standard did not have an impact on the Company’s financial position or results of operations.

On January 1, 2021, the Company adopted ASU 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that Is a Service Contract, using the prospective method. The ASU 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). The adoption of this standard did not have an impact on the Company’s financial position or results of operations.

On January 1, 2020, the Company adopted ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. The ASU amends ASC 230 to add and clarify guidance on the classification and presentation of restricted cash on the statement of cash flows. The new standard requires cash and cash equivalents balances on the statement of cash flows to include restricted cash and cash equivalent balances. The standard also requires a company to provide appropriate disclosures about its accounting policies pertaining to restricted cash in accordance with U.S. GAAP. Additionally, changes in restricted cash and restricted cash equivalents that results from transfers between cash, cash equivalents, restricted cash, and restricted cash equivalents are not to be presented as cash flow activities on the statement of cash flows. Changes required upon adoption are included in subsequent sections of Note 2 - Significant Accounting Policies and did not impact on the Company’s financial position or results of operations.

On January 1, 2020, the Company adopted ASU 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. The amendments in this update expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. An entity must apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost (that is, the period of time over which share-based payment awards vest and the pattern of cost recognition over that period). The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or

services to customers as part of a contract accounted for under ASC 606, Revenue from Contracts with Customers. The adoption of this standard did not have a material impact on the Company’s financial position or results of operations.

On January 1, 2020, the Company adopted the guidance in ASU 2018-13, Fair Value Measurement Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. The new standard modifies fair value measurements under Topic 820, Fair Value Measurement, including changes to transfers between fair value levels, and Level 3 fair value measurements. Changes required upon adoption are included in Note 13 - Fair Value Measurements and did not impact the Company’s financial position or results of operations.

Accounting Pronouncements Issued but not yet Adopted

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). The amendments in this ASU 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 delivering registered shares. The update is effective for fiscal years beginning after December 15, 2021, including interim periods with those years, and early adoption is permitted for years beginning after December 15, 2020. The Company is currently evaluating the impact that the standard will have on its financial statements.

In November 2021, the FASB issued ASU No. 2021-10, Government Assistance (Topic 832), Disclosures by Business Entities about Government Assistance. The amendments in this ASU require entities to annually disclose information about certain government assistance they receive. The rule will be effective for public entities for annual periods beginning after December 15, 2021. The adoption of ASU is currently not expected to have a material impact on the Company’s financial statement disclosures.

Fair Value Measurements

The carrying amounts reflected on the Consolidated Balance Sheets for cash, restricted cash, accounts receivable, customer funds, other current assets, other assets, accounts payable, accrued expenses, other current liabilities (excluding contingent consideration), and customer postage deposits approximate their fair value due to their short-term maturities.

Additionally, the Company measures certain financial assets and liabilities at fair value on a recurring basis including cash equivalents, marketable securities, and contingent consideration. The fair values of these financial assets and liabilities have been classified as Level 1, 2, or 3 within the fair value hierarchy as described in the accounting standards for fair value measurements:

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

•Level 2: Inputs, other than Level 1 inputs, that are observable either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

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

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. The Company’s cash equivalents consist primarily of money market funds.

Marketable Securities

The Company’s marketable securities consist of certificates of deposit with a financial institution and mature within twelve months or less.

The Company determines the classification of its marketable securities at the time of purchase and re-evaluates such designation as of each balance sheet date. As the Company views its marketable securities as available to support its current operations and does not have the intent to hold the securities to maturity, it has classified them as available-for-sale. All marketable securities are recorded at their fair value (refer to Note 13 - Fair Value Measurements) with any unrealized gains or losses, except those related to credit losses, recorded in accumulated other comprehensive income (loss). There were no unrealized gains or losses during the year ended December 31, 2021. Realized gains and losses, including interest earned, are recorded in interest income on the Consolidated Statements of Operations and were not material for the year ended December 31, 2021.

Marketable securities are impaired when a decline in fair value is judged to be other-than-temporary. The Company evaluates a security for impairment by considering the length of time and extent to which its market value has been less than cost or amortized cost, the financial condition and near-term prospects of the issuer, 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 and a new costs basis is established.

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 3 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 recorded as customer funds payable on the Consolidated Balance Sheets.

Customer Postage Deposits

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

Concentrations of Credit Risk

The financial instruments that potentially subject the Company to concentrations of credit risk are cash, cash equivalents, marketable securities, restricted cash, accounts receivable, and customer funds. 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 on the accompanying Consolidated 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 its customer base. Ongoing credit evaluations are performed, 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, historic experience, and expectations of forward-looking loss estimates. Such losses, in the aggregate, have not exceeded management’s expectations.

Business Combination and Acquisitions

The Company accounts for business combinations and acquisitions in accordance with the acquisition method of accounting under the provisions of ASC 805, Business Combinations (“Topic 805”). Topic 805 requires the Company to record the identifiable assets acquired, including intangible assets, and liabilities

assumed based on their estimated fair values at their acquisition date. Any excess consideration transferred over the estimated fair value of the net assets acquired is recorded as goodwill.

The determination of the fair values of the assets acquired and liabilities assumed involves judgment in selecting inputs used in a valuation methodology, including expected future cash flows, future changes in technology, estimated replacement costs, covenants not to compete, acquired developed technologies, discount rates, and assumptions about the period of time the acquired brand will continue to be used in the Company’s product portfolio. Estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable. Accordingly, actual results may differ from these estimates. As a result, during the measurement period after an acquisition, which may be up to one year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed with the corresponding adjustment to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded on the Consolidated Statements of Operations.

Direct acquisition related expenses and post-acquisition integration costs are recognized separately from an acquisition and are expensed as incurred.

Goodwill

Goodwill represents the amount an acquisition’s purchase price exceeds the fair value of the assets acquired, including identifiable intangible assets, and liabilities assumed. Goodwill is not amortized; however it is required to be tested for impairment annually at the reporting unit level. Testing for impairment is also required on an interim basis if an event of circumstance indicates it is more likely than not that an impairment loss has been incurred. An impairment loss is recognized to the extent that the carrying amount of goodwill exceeds its implied fair value.

A reporting unit is defined as an operating segment or a component of an operating segment to the extent discrete financial information is available that is reviewed by segment management. The Company has determined it has two reporting units.

Absent an event that indicates a specific impairment may exist, the Company has selected October 1 as the date for performing its annual goodwill impairment test. The impairment test is first performed at the reporting unit level using a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying value. If the reporting unit does not pass the qualitative assessment, then the reporting unit’s carrying value is compared to its fair value. Goodwill is considered impaired if the carrying value of the reporting unit exceeds its fair value.

Intangible Assets

Intangible assets consist of customer relationships, non-compete agreements, trademarks and trade names, and technology resulting from the Company’s acquisitions. Intangible assets are recorded at their estimated fair value, net of accumulated amortization, and are amortized using the straight-line method over their estimated useful lives as follows:


			Useful Life
Customer relationships			7 - 15 years
Non-compete agreements			5 years
Trademarks and trade names			6 years
Technology			6 years

The Company determines the useful life based on evaluating a number of factors, including, but not limited to, the expected use of the asset, historical client retention rates, consumer awareness, trademark and trade name history, and any contractual provisions that could limit or extend an asset's useful life. The

assets are amortized using a method that best matches the periods in which the economic benefits are expected to be realized.

Impairment of Long-Lived Assets

Impairment of Long-Lived AssetsThe Company’s long-lived assets consist primarily of lease ROU assets, property and equipment, and intangible assets. The Company continually evaluates whether events or circumstances have occurred that indicate the estimated useful life may warrant revision or that indicate if the carrying value of these assets may be impaired. To calculate whether an asset has been impaired, the estimated undiscounted future cash flows over the remaining useful life of the asset is compared to its carrying value. If the estimated future cash flows are less than the carrying value, an impairment charge is recognized to write down the asset to its estimated fair value.

Revenue Recognition

The Company follows the five-step framework prescribed by ASC 606, Revenue from Contracts with Customers, to determine revenue recognition:

1.Identify the contract, or contracts, with a customer;

2.Identify the performance obligations in the contract;

3.Determine the transaction price;

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

5.Recognize revenue when, or as, we satisfy a performance obligation.

The Company accounts for a contract when it has approval and commitment from both parties, the fees, payment terms, and rights of the parties regarding the products or services to be transferred are identified, the contract has commercial substance, and collectability of the consideration expected to be transferred is probable. The Company applies judgment in determining a customer’s ability and intention to pay for services expected to be transferred, which is based on factors including the customer’s payment history, management’s ability to mitigate exposure to credit risk (for example, requiring payment in advance of the transfer of products or services, or the ability to stop transferring promised products or services in the event a customer fails to pay consideration when due), and experience selling to similarly situated customers.

Performance obligations within a contract are identified based on the products and services promised to be transferred in the contract. When a contract includes more than one promised product or service, the Company must apply judgment to determine whether the promises represent multiple performance obligations or a single, combined performance obligation. This evaluation requires the Company to determine if the promises are both capable of being distinct, where the customer can benefit from the product or service on its own or together with other resources readily available, and are distinct within the context of the contract, where the transfer of products or services is separately identifiable from other promises in the contract. When both criteria are met, each promised product or service is accounted for as a separate performance obligation.

The Company determines the transaction price of its contracts based on the amount of consideration it expects to be entitled to, which can be variable. Any variable amounts are constrained to the minimum guaranteed contractual amount so that a reversal of cumulative revenue does not occur in future periods. Once there is no longer uncertainty over a variable amount, any incremental fees the Company is entitled to are allocated to the current and future non-cancellable contract term. Additionally, in accordance with ASC 606, performance obligations accounted for under the “right to invoice” practical expedient are excluded from the determination of the transaction price.

Contracts that contain multiple performance obligations require an allocation of the transaction price among the separate performance obligations on a relative basis according to their standalone selling prices (“SSP”). The determination of SSP for each performance obligation requires judgment. The Company determines SSP for its performance obligations based on factors including an analysis of historical standalone sales data, contractual rates and renewal fees, internal pricing objectives, market conditions, factors used to set list prices, and pricing of similar products.

The corresponding allocated revenues are recognized when (or as) the performance obligations are satisfied, as discussed further below.

Subscription Revenue

Subscription revenue primarily consists of contractually agreed upon fees to provide access to the Company’s cloud-based SaaS platform and modules that automate processes across the accounts receivable function (including electronic invoice presentment, payments solutions, credit decisioning and monitoring, cash application, collections automation, and e-commerce).

The Company’s subscription agreements do not provide the customer with the right to take possession of the software, are typically non-cancellable, and do not contain general rights of returns. Subscription agreements typically have an initial term of one to three years and are invoiced in annual installments in advance. After the initial term, subscription agreements renew annually and are typically invoiced in advance of each renewal year. In some cases, subscriptions may be billed in advance on a quarterly or monthly basis.

The Company has concluded that each subscription service represents a stand ready obligation to provide a daily processing service, in which the services are the same each day, every day is distinct, and the customer simultaneously receives and consumes the benefits as the Company transfers control throughout the contract period. Subscription services are recognized ratably over the contractual term of the arrangement, using an output measure of time elapsed, beginning on the date the service is made available to the customer.

Transaction Revenue

Transaction revenue consists of per-item processing fees charged at contracted rates based on the number of envelopes, invoices delivered, payments processed, or basis points on the amount of credit card payments processed. The Company’s transaction fees are billed monthly based on the volume of items processed each month, at the contractual rate per item processed.

The Company recognizes revenue at the same time as the transactions are processed since the customer simultaneously receives and consumes the benefits of the Company’s transaction processing services.

Professional Services Revenue

Professional services revenue consists of implementation services for new customers, or implementations of new products for existing customers. It also includes separately contracted project services provided to customers after implementation. Professional services are typically sold on a time-and-materials basis and billed monthly based on actual hours incurred.

Typically, the Company’s implementation services are not capable of being distinct from the related subscription service, and accordingly, they are combined with the subscription service into a single performance obligation recognized over the term of the agreement. Since the initial contract with a customer includes both the subscription and implementation fees, and is therefore higher than subscription renewal fees in subsequent years, the Company’s contracts convey a ‘material right’ to the customer (i.e. an option for the customer to renew the contract at a lower price in relation to the initial contract price). Material rights are treated as a separate performance obligation and are recognized over the period which the right is expected to be exercised by a customer, which requires judgment and is estimated at four to five years. This period may be different for services sold from acquired companies.

For project services, which are considered a separate performance obligation, the Company recognizes revenue at the same time as the services are performed.

Reimbursable Costs

The Company’s reimbursable costs revenue consist primarily of amounts charged to its customers for postage on printed and mailed invoices to their end customers. These reimbursable costs are recorded 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 (they are used 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, as the expenses cannot be specifically identified to each specific customer. Because the cost of such revenue is equal to the revenue, this 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 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 from credit card payments 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

The Company refers to contract liabilities as deferred revenue on the Consolidated Balance Sheets. Deferred revenue consists of billings in excess of revenue recognized. Similar to accounts receivable, the Company does not record deferred revenue for unpaid invoices on a cancellable contract.

Costs to Obtain Contracts

Commissions associated with subscription and transaction based arrangements are typically earned upon the execution of a sales contract by the customer and when the customer is billed for the underlying contractual period or transactions. Commissions associated with professional services are typically earned in the month that services are rendered. Substantially all sales commissions are paid at one of three points: (1) upon execution of a customer contract, (2) implementation is complete or transactional-based volume commences, and/or (3) after a period of up to twelve months thereafter.

The Company capitalizes commissions paid to sales personnel and related fringe benefit costs that are incremental to obtaining customer contracts. Capitalized commissions costs are included in deferred implementation and commission costs (both current and net of current portion) on the Consolidated Balance Sheets. Deferred commissions are amortized on a straight-line basis over an estimated period of benefit of four to five years and are recorded in sales and marketing expense on the Consolidated Statements of

Operations. The Company determines the period of benefit based on its historical experience with customers (including initial contract term and renewal periods), the average customer life of acquired customers, future cash flows expected from customers, industry peers, and other available information.

Accounts Receivable and Allowance for Doubtful Accounts and Credit Losses

Accounts receivable includes amounts billed and currently due from customers. Since the only condition for payment of the Company’s invoices is the passage of time, the Company records a receivable on the date the invoice is issued. Also included in accounts receivable are unbilled amounts resulting from revenue exceeding the amount billed to the customer, where the right to payment is unconditional. If the right to payment for services performed was conditional on something other than the passage of time, the unbilled amount would be recorded as a separate contract asset. The Company did not have any contract assets as of December 31, 2021 and 2020.

The Company has contracts that are both cancellable and non-cancellable. For contracts that are cancellable by the customer, the Company does not record a receivable when it issues an invoice. The Company records accounts receivable on these contracts only up to the amount of revenue earned but not yet collected.

In addition, since the majority of the Company’s contracts require payment in advance of the subscription term or the month after the completion of services, the Company does not adjust its receivables or transaction price for the effects of a significant financing component.

The Company extends credit to its customers in the normal course of business and maintains an allowance for doubtful accounts to reserve for potentially uncollectible accounts receivable. The Company estimates the amount of uncollectible accounts receivable at the end of each reporting period and provides a reserve when needed. When evaluating the adequacy of the reserve, the Company assesses various factors including the aging of the receivable balances, historical experience, and expectations of forward-looking loss estimates. When developing the expectations of forward-looking loss estimates, the Company takes into consideration forecasts of future economic conditions, information about past events, changes in customer payment terms, and customer-specific circumstances, such as bankruptcies and disputes. Actual results may differ from these estimates. Accounts receivable are written off when deemed uncollectible.

Costs to Obtain Contracts and Deferred Implementation Costs

Deferred Implementation Costs

For arrangements where implementation services are provided before the subscription service is made available to the customer, the Company defers such costs and amortizes them on a straight-line basis over the estimated period of benefit, which is typically four to five years. These amounts are included in cost of subscription, transaction, and services on the Consolidated Statements of Operations.

Leases

The Company enters into both operating and financing leases and determines whether an arrangement is a lease at inception of the arrangement. The Company accounts for a lease when it has the right to control the leased asset for a period of time while obtaining substantially all of the assets’ economic benefits. Leases are classified as operating or finance leases at the lease commencement date. A lease is classified as a finance lease if any one of the following criteria are met:

1.The lease transfers ownership of the asset by the end of the lease term; or

2.The lease contains an option to purchase the asset that is reasonably certain to be exercised; or

3.The lease term is for a major part of the remaining useful life of the underlying asset; or

4.The present value of the lease payments equals or exceeds substantially all of the fair value of the asset; or

5.The underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term.

A lease is classified as an operating lease if it does not meet any one of these criteria. The Company’s operating leases are primarily office space for its employees or facilities for its print operations. The Company’s finance leases are primarily print equipment, computer hardware, and vehicles.

Lease liabilities and ROU assets are recognized at the lease commencement date based on the estimated present value of future minimum lease payments over the lease term, while ROU assets exclude lease incentives and are adjusted for initial direct costs incurred, if any. Lease liabilities represent the Company’s obligation to make lease payments arising from the lease and ROU assets represent the Company’s right to use an underlying asset for the lease term. The discount rate used to determine the present value of the lease payments is the Company’s incremental borrowing rate based on the information available at lease commencement, as generally an implicit rate in the lease is not readily determinable. The Company’s leases do not include residual value guarantees or covenants.

Lease expense for operating leases and leases with a lease term upon commencement of less than 12 months is recognized on a straight-line basis over the lease term. Lease expense for finance leases includes straight-line amortization of ROU assets and interest expense by applying the effective interest rate method to remaining lease liabilities. Most of the Company’s lease agreements also contain variable payments, primarily common area maintenance, utilities, and other costs, which are expensed as incurred and not included in the measurement of the ROU assets and lease liabilities.

Some of the Company’s lease agreements contain options to extend or terminate the lease. When determining the lease term at commencement, these options are included in the measurement and recognition of the ROU asset and liability when it is reasonably certain that the Company will exercise the option. The Company consider various economic factors when making this determination, including, but not limited to, the significance of leasehold improvements incurred in the office space, the difficulty in replacing the lease, underlying contractual obligations, or specific characteristics unique to a particular lease. Subsequent to entering into a lease, if it becomes reasonably certain that the Company will exercise an option that was not included in the lease term, the Company accounts for the change in circumstances as a lease modification, which results in the remeasurement of the ROU asset and liability as of the modification date. The Company continually evaluates whether facts or events indicate it is reasonably certain that it will exercise an option.

Property and Equipment

Property and equipment are stated at cost, net of accumulated amortization and depreciation. Amortization of equipment held under finance leases is included in depreciation expense. The cost of additions and expenditures that extend the useful lives of existing assets are capitalized, while repairs and maintenance costs are charged to expense as incurred. Depreciation is recorded on a straight-line basis over the estimated useful life of the asset as follows:


			Useful Life
Assets held under finance leases			3 - 5 years
Computer, print, and mail equipment			3 - 5 years
Furniture and fixtures			3 - 15 years
Software			3 - 5 years
Vehicles			5 years
Leasehold improvements			Lesser of estimated useful life or the term of the related lease

Capitalized Software Development Costs

The Company capitalizes certain development costs incurred during the application development stage of its software development for new products and services. These costs include external direct costs of services used in the development or internal personnel costs for employees directly associated with the development. The Company capitalizes these costs until the software is substantially complete and ready for its intended use. Capitalized software development costs are recorded in property and equipment on the Consolidated Balance Sheets. Costs incurred in the preliminary stages of development and during post-configuration stages are expensed as incurred.

Capitalized software development costs are amortized on a straight-line basis over the technology’s estimated useful life, which is typically four years, and are included in cost of subscription, transaction, and services on the Consolidated Statements of Operations.

Inventory

Inventory is comprised primarily of paper and envelope stocks and is stated at the lower of cost or net realizable value. Cost for substantially all of the Company’s inventory is determined on a specific identification or first-in, first-out basis. The Company periodically assesses the need for obsolescence provisions and determined that no obsolescence provision was necessary at December 31, 2021 and 2020. Inventory is included in other current assets on the Consolidated Balance Sheets and amounted to $0.8 million and $0.7 million at December 31, 2021 and 2020, respectively.

Stock-Based Compensation

The Company measures and recognizes stock-based compensation expense by calculating the estimated fair value of stock options, restricted stock units (“RSUs”), or purchase rights issued under the Company’s employee stock purchase plan (“ESPP”) on the grant date. The fair value of stock options and purchase rights under the ESPP is estimated using the Black-Scholes option-pricing model. The Black-Scholes model requires the Company to make assumptions about the expected or contractual term of the option or purchase right, the expected volatility, risk-free interest rates, and expected dividend yield. Expected volatility is based on the historic volatility of comparable publicly traded companies over a period equal to the expected term. The fair value of RSUs is determined using the closing market price of the Company’s Common Stock on the grant date.

The Company recognizes stock-based compensation expense on a straight-line basis over the award’s requisite service period, which is typically the vesting period for stock options and RSUs, and the offering period for purchase rights under the ESPP. As applicable, forfeitures are estimated at the grant date and, if necessary, revised in subsequent periods if actual forfeitures differ from those estimates. The Company estimates the forfeiture rate based on historical experience.

Prior to the Business Combination (refer to Note 3 - Business Combination & Acquisitions), as a privately held business, the Company estimated the fair value of its stock-based awards using the value indications

provided by an income approach (a discounted cash flow analysis) and a market approach (a guideline public company analysis and a guideline transaction analysis). Calculating the fair value of the stock awards required the input of subjective assumptions.

Research and Development

Research and development expenses primarily consist of salaries, incentive compensation, stock-based compensation, and other personnel-related costs for the Company’s development, network operations, and engineering personnel, as well as costs related to pre-development and quality assurance testing of new technology, maintenance and enhancement of the Company’s existing technology and infrastructure, consulting, travel, and other related overhead. The Company expenses these costs as incurred.

Advertising

AdvertisingThe Company expenses the cost of advertising and promotions as incurred and records them in sales and marketing expense on the Consolidated Statements of Operations.

Income Taxes

The Company accounts for income taxes under the asset and liability method, which requires deferred tax assets and liabilities to be recognized for the estimated future tax consequences of temporary differences between the financial statement carrying amounts and their respective tax bases, as well as for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which the temporary differences are expected to be reversed. Changes to enacted tax rates would result in either increases or decreases in the provision for income taxes in the period of changes.

The Company reduces the measurement of a deferred tax asset, if necessary, by a valuation allowance if it is more likely than not that the Company will not realize some or all of the deferred tax asset. As a result of the Company’s historical operating performance and the cumulative net losses incurred to date, the Company does not have sufficient objective evidence to support the recovery of the U.S. federal and state net deferred tax assets. Accordingly, the Company has established a valuation allowance against such net deferred tax assets because the Company believes it is more likely than not that these deferred tax assets will not be realized.

The Company records uncertain tax positions using a two-step process whereby; (1) it determines whether it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position; and (2) for tax positions that meets the more-likely-than-not recognition threshold, the Company recognizes the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement with the relevant tax authority. Judgment is required in evaluating the Company’s tax position. Settlement of filing positions that may be challenged by tax authorities could impact the income tax position in the year of resolution. The Company had no material uncertain tax positions at December 31, 2021 and 2020.

The Company classifies interest and penalties related to unrecognized income tax benefits in income tax expense on the Consolidated Statements of Operations.

Income (Loss) per Share

The Company's basic and diluted earnings per share are computed using the two-class method in accordance with ASC 260. The two-class method is an earnings allocation that determines net income (loss) per share for each class of common stock. Per share amounts are calculated by dividing the net income (loss) attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period, without consideration for potentially dilutive securities as they do not share in losses. During periods when the Company is in a net loss position, basic net loss per share attributable to common stockholders is the same as diluted net loss per share attributable to common stockholders as the effects of potentially dilutive securities are antidilutive given the net loss of the Company.