0000950170-23-018898.txt : 20230508 0000950170-23-018898.hdr.sgml : 20230508 20230508170323 ACCESSION NUMBER: 0000950170-23-018898 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 72 CONFORMED PERIOD OF REPORT: 20230331 FILED AS OF DATE: 20230508 DATE AS OF CHANGE: 20230508 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Paymentus Holdings, Inc. CENTRAL INDEX KEY: 0001841156 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 000000000 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-40429 FILM NUMBER: 23898743 BUSINESS ADDRESS: STREET 1: 11605 N. COMMUNITY HOUSE ROAD STREET 2: SUITE 300 CITY: CHARLOTTE STATE: NC ZIP: 28277 BUSINESS PHONE: (888) 440-4826 MAIL ADDRESS: STREET 1: 11605 N. COMMUNITY HOUSE ROAD STREET 2: SUITE 300 CITY: CHARLOTTE STATE: NC ZIP: 28277 10-Q 1 pay-20230331.htm 10-Q 10-Q
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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, 2023

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: 001-40429

Paymentus Holdings, Inc.

(Exact Name of Registrant as Specified in its Charter)

Delaware

45-3188251

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

11605 North Community House Road, Suite 300

Charlotte, NC

28277

(Address of principal executive offices)

(Zip Code)

(888) 440-4826

(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 A Common Stock, par value $0.0001 per share

PAY

New York Stock Exchange

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, 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.

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 Exchange Act). Yes No ☒

As of May 1, 2023, the registrant had 20,045,782 shares of Class A Common Stock, $0.0001 par value per share and 103,306,842 shares of Class B Common Stock, $0.0001 par value per share, outstanding.

 


 

Table of Contents

 

 

 

Page

 

Special Note Regarding Forward-Looking Statements

3

 

 

 

PART I.

FINANCIAL INFORMATION

 

 

 

Item 1.

Financial Statements (Unaudited)

 

 

Condensed Consolidated Balance Sheets

5

 

Condensed Consolidated Statements of Operations and Comprehensive Income

6

 

Condensed Consolidated Statements of Stockholders' Equity

7

 

Condensed Consolidated Statements of Cash Flows

8

 

Notes to Condensed Consolidated Financial Statements

9

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

17

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

24

Item 4.

Controls and Procedures

24

 

 

 

PART II.

OTHER INFORMATION

 

 

 

Item 1.

Legal Proceedings

26

Item 1A.

Risk Factors

26

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

26

Item 3.

Defaults Upon Senior Securities

26

Item 4.

Mine Safety Disclosures

26

Item 5.

Other Information

26

Item 6.

Exhibits

27

Signatures

29

 

 

 

 

 


 

Special Note Regarding Forward-Looking Statements

This quarterly report on Form 10-Q for the quarterly period ended March 31, 2023 ("Quarterly Report") contains forward-looking statements within the meaning of the federal securities laws, such as those under the headings "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations," which statements involve substantial risks and uncertainties. Forward-looking statements may involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from historical results or from any future results or projections expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this report include statements about:

our ability to effectively manage our growth and expand our operations;
our ability to further attract, retain and expand our biller, financial institutions, partner and consumer base;
our ability to timely implement and recognize revenue from new customers;
our expectations regarding our revenue, expenses and other operating results;
the impact of widespread health issues or pandemics on our operating results, liquidity and financial condition and on our employees, billers, financial institutions, partners, consumers and other key stakeholders;
our market opportunity and anticipated trends in our business and industry;
our ability to remain competitive as we continue to scale our business;
our ability to develop new product features and enhance our platform;
our ability to hire and retain experienced and talented employees as we grow our business;
general economic conditions, including inflation, and their impact on us, consumer demand, average bill amounts and interchange fees;
our ability to realize the anticipated benefits of past or future acquisitions or strategic investments in complementary companies, products or technologies and our ability to manage the potential business disruption and diversion of management attention caused by such acquisitions;
our ability to maintain and enhance our brand;
our ability to integrate, manage and keep our information systems secure;
our plan to expand into new channels and industry verticals across different markets;
our international expansion plans and ability to expand internationally; and
those factors described in the sections titled “Risk Factors" and “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2022 and the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Quarterly Report.

We caution you that the foregoing list may not contain all of the forward-looking statements made in this report.

You should not place undue reliance on our forward-looking statements as predictions of future events. We have based the forward-looking statements primarily on our current expectations and projections about future events and trends that we believe may affect our business, operating results, financial condition and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors, including those described in the section titled “Risk Factors” and elsewhere in this Quarterly Report. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this report. We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.

Neither we nor any other person assumes responsibility for the ultimate outcome of any of these forward-looking statements. Moreover, the forward-looking statements made in this report relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this report to reflect events or circumstances after the date of this report or to reflect new information or the occurrence of unanticipated events, except as required by law.

 


 

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information.

Certain Definitions

In this report, unless the context requires otherwise, all references to “we,” “our,” “us,” “Paymentus,” and the “Company” refer to Paymentus Holdings, Inc., and where appropriate its consolidated subsidiaries.

 

 

 


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

PAYMENTUS HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

March 31,

 

 

December 31,

 

 

 

2023

 

 

2022

 

Assets

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

143,637

 

 

$

147,334

 

Restricted cash and cash equivalents

 

 

1,386

 

 

 

2,351

 

Accounts and other receivables, net of allowance for expected credit losses of $117 and $370, respectively

 

 

76,381

 

 

 

67,789

 

Income tax receivable

 

 

2,141

 

 

 

1,493

 

Prepaid expenses and other current assets

 

 

9,082

 

 

 

9,994

 

Total current assets

 

 

232,627

 

 

 

228,961

 

Property and equipment, net

 

 

1,668

 

 

 

1,823

 

Capitalized internal-use software development costs, net

 

 

49,482

 

 

 

46,032

 

Intangible assets, net

 

 

33,808

 

 

 

36,017

 

Goodwill

 

 

131,854

 

 

 

131,851

 

Operating lease right-of-use assets

 

 

10,453

 

 

 

9,561

 

Deferred tax asset

 

 

117

 

 

 

116

 

Other long-term assets

 

 

6,533

 

 

 

7,178

 

Total assets

 

$

466,542

 

 

$

461,539

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Accounts payable

 

$

32,573

 

 

$

29,232

 

Accrued liabilities

 

 

12,288

 

 

 

15,809

 

Current portion of operating lease liabilities

 

 

1,643

 

 

 

1,462

 

Contract liabilities

 

 

4,639

 

 

 

4,358

 

Income tax payable

 

 

268

 

 

 

635

 

Total current liabilities

 

 

51,411

 

 

 

51,496

 

Deferred tax liability

 

 

772

 

 

 

680

 

Operating lease liabilities, less current portion

 

 

9,313

 

 

 

8,608

 

Contract liabilities, less current portion

 

 

4,606

 

 

 

2,826

 

Finance leases and other finance obligations, net of current portion

 

 

400

 

 

 

750

 

Total liabilities

 

 

66,502

 

 

 

64,360

 

Stockholders’ equity

 

 

 

 

 

 

Preferred stock, $0.0001 par value per share, 5,000,000 shares authorized as of March 31, 2023 and December 31, 2022, respectively; none issued and outstanding as of March 31, 2023 and December 31, 2022, respectively

 

 

 

 

 

 

Class A common stock, $0.0001 par value per share, 883,950,000 shares authorized as of March 31, 2023 and December 31, 2022, respectively; 20,039,322 and 19,934,331 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively

 

 

2

 

 

 

2

 

Class B common stock, $0.0001 par value per share, 111,050,000 shares authorized as of March 31, 2023 and December 31, 2022, respectively; 103,306,842 shares issued and outstanding as of March 31, 2023 and December 31, 2022

 

 

10

 

 

 

10

 

Additional paid-in capital

 

 

369,931

 

 

 

367,767

 

Accumulated other comprehensive loss

 

 

(29

)

 

 

(22

)

Retained earnings

 

 

30,126

 

 

 

29,422

 

Total stockholders’ equity

 

 

400,040

 

 

 

397,179

 

Total liabilities and stockholders' equity

 

$

466,542

 

 

$

461,539

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 


 

PAYMENTUS HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(In thousands, except share and per share data)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2023

 

 

2022

 

Revenue

 

$

148,328

 

 

$

116,704

 

Cost of revenue

 

 

108,250

 

 

 

81,850

 

Gross profit

 

 

40,078

 

 

 

34,854

 

Operating expenses

 

 

 

 

 

 

Research and development

 

 

11,653

 

 

 

10,390

 

Sales and marketing

 

 

20,264

 

 

 

16,190

 

General and administrative

 

 

9,145

 

 

 

9,645

 

Total operating expenses

 

 

41,062

 

 

 

36,225

 

Loss from operations

 

 

(984

)

 

 

(1,371

)

Other income (loss)

 

 

 

 

 

 

Interest income (expense), net

 

 

1,440

 

 

 

(8

)

Foreign exchange (loss) gain

 

 

(8

)

 

 

26

 

Income (loss) before income taxes

 

 

448

 

 

 

(1,353

)

Benefit from income taxes

 

 

256

 

 

 

3,071

 

Net income

 

$

704

 

 

$

1,718

 

Net income per share

 

 

 

 

 

 

Basic

 

$

0.01

 

 

$

0.01

 

Diluted

 

$

0.01

 

 

$

0.01

 

Weighted-average number of shares used to compute net income per share

 

 

 

 

 

 

Basic

 

 

123,289,584

 

 

 

120,897,576

 

Diluted

 

 

123,792,741

 

 

 

125,986,510

 

Comprehensive income

 

 

 

 

 

 

Net income

 

 

704

 

 

 

1,718

 

Foreign currency translation adjustments, net of tax

 

 

(7

)

 

 

(45

)

Comprehensive income

 

$

697

 

 

$

1,673

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 


 

PAYMENTUS HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except share amounts)

(Unaudited)

 

 

 

 

 

 

Additional

 

 

 

 

 

Other

 

 

Total

 

 

 

 

Common Stock

 

 

Paid-In

 

 

Retained

 

 

Comprehensive

 

 

Stockholders’

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Loss

 

 

Equity

 

 

Balances at December 31, 2022

 

 

123,241,173

 

 

$

12

 

 

 

367,767

 

 

$

29,422

 

 

$

(22

)

 

$

397,179

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

2,159

 

 

 

 

 

 

 

 

 

2,159

 

 

Issuance of Class A common stock for stock-based awards

 

 

104,991

 

 

 

 

 

 

5

 

 

 

 

 

 

 

 

 

5

 

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7

)

 

 

(7

)

 

Net income

 

 

 

 

 

 

 

 

 

 

 

704

 

 

 

 

 

 

704

 

 

Balances at March 31, 2023

 

 

123,346,164

 

 

$

12

 

 

 

369,931

 

 

$

30,126

 

 

$

(29

)

 

$

400,040

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

Other

 

 

Total

 

 

 

Common Stock

 

 

Paid-In

 

 

Retained

 

 

Comprehensive

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Income (loss)

 

 

Equity

 

Balances at December 31, 2021

 

 

120,639,161

 

 

$

12

 

 

$

356,017

 

 

$

29,935

 

 

$

168

 

 

$

386,132

 

Stock-based compensation

 

 

 

 

 

 

 

 

1,276

 

 

 

 

 

 

 

 

 

1,276

 

Issuance of Class A common stock for stock-based awards

 

 

412,222

 

 

 

 

 

 

13

 

 

 

 

 

 

 

 

 

13

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(45

)

 

 

(45

)

Net income

 

 

 

 

 

 

 

 

 

 

 

1,718

 

 

 

 

 

 

1,718

 

Balances at March 31, 2022

 

 

121,051,383

 

 

$

12

 

 

$

357,306

 

 

$

31,653

 

 

$

123

 

 

$

389,094

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 


 

PAYMENTUS HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2023

 

 

2022

 

Cash flows from operating activities

 

 

 

 

 

 

Net income

 

$

704

 

 

$

1,718

 

Adjustments to reconcile net income to net cash provided by operating
   activities

 

 

 

 

 

 

Depreciation and amortization

 

 

7,239

 

 

 

5,474

 

Deferred income taxes

 

 

92

 

 

 

1,406

 

Stock-based compensation

 

 

2,159

 

 

 

1,276

 

Non-cash lease expense

 

 

462

 

 

 

755

 

Amortization of contract asset

 

 

696

 

 

 

467

 

Provision for expected credit losses

 

 

(239

)

 

 

95

 

Change in operating assets and liabilities

 

 

 

 

 

 

Accounts and other receivables

 

 

(8,333

)

 

 

(8,082

)

Prepaid expenses and other current and long-term assets

 

 

861

 

 

 

(161

)

Accounts payable

 

 

3,297

 

 

 

4,916

 

Accrued liabilities

 

 

(2,749

)

 

 

862

 

Operating lease liabilities

 

 

(469

)

 

 

(770

)

Contract liabilities

 

 

2,061

 

 

 

(57

)

Income taxes receivable, net of payable

 

 

(1,018

)

 

 

(4,651

)

Net cash provided by operating activities

 

 

4,763

 

 

 

3,248

 

Cash flows from investing activities

 

 

 

 

 

 

Other intangible assets acquired

 

 

 

 

 

(23

)

Purchases of property and equipment

 

 

(67

)

 

 

(530

)

Capitalized internal-use software development costs

 

 

(8,219

)

 

 

(6,731

)

Net cash used in investing activities

 

 

(8,286

)

 

 

(7,284

)

Cash flows from financing activities

 

 

 

 

 

 

Proceeds from exercise of stock-based awards

 

 

5

 

 

 

13

 

Financial institution funds in-transit

 

 

 

 

 

3,339

 

Payments on other financing obligations

 

 

(1,025

)

 

 

(915

)

Payments on finance leases

 

 

(102

)

 

 

(74

)

Net cash (used in) provided by financing activities

 

 

(1,122

)

 

 

2,363

 

Effect of exchange rate changes on Cash and cash equivalents and Restricted cash

 

 

(17

)

 

 

10

 

Net decrease in cash, cash equivalents and Restricted cash

 

 

(4,662

)

 

 

(1,663

)

Cash and cash equivalents and Restricted cash beginning of period

 

 

149,685

 

 

 

201,829

 

Cash and cash equivalents and Restricted cash end of period

 

 

145,023

 

 

$

200,166

 

Reconciliation of Cash and cash equivalents and Restricted Cash:

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

 

147,334

 

 

 

168,386

 

Restricted cash at beginning of period

 

 

2,351

 

 

 

 

Restricted funds held for financial institutions at beginning of period

 

 

 

 

 

33,443

 

Cash and cash equivalents and Restricted cash at beginning of period

 

$

149,685

 

 

$

201,829

 

Cash and cash equivalents at end of period

 

 

143,637

 

 

 

163,384

 

Restricted cash at end of period

 

 

1,386

 

 

 

 

Restricted funds held for financial institutions at end of period

 

 

 

 

 

36,782

 

Cash and cash equivalents and Restricted cash at end of period

 

$

145,023

 

 

$

200,166

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Cash paid for income taxes, net of refunds

 

$

616

 

 

$

173

 

Non-cash investing activities:

 

 

 

 

 

 

Property and equipment purchases in accounts payable

 

$

119

 

 

$

123

 

Right-of-use assets obtained in exchange of operating lease obligations

 

$

1,356

 

 

$

297

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 


 

PAYMENTUS HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Organization and Description of Business

Description of Business

Paymentus Holdings, Inc. and its wholly owned subsidiaries (“Paymentus” or the "Company”) provides electronic bill presentment and payment services, enterprise customer communication and self-service revenue management to billers through a Software-as-a-Service (“SaaS”), secure, omni-channel technology platform. The platform seamlessly integrates into a biller’s core financial and operating systems to provide flexible and secure access to payment processing of credit cards, debit cards, eChecks and digital wallets across a significant number of channels including online, mobile, IVR, call center, chatbot and voice-based assistants. Paymentus was incorporated in the state of Delaware on September 2, 2011 with office locations in Charlotte, North Carolina, Richmond Hill, Ontario (Canada), and Delhi and Bangalore (India). The Company is currently headquartered in Charlotte, North Carolina and continues to evaluate reestablishing its headquarters in or around the Seattle, Washington area in 2023.

2. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and applicable rules and regulations of the United States Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. Accordingly, they do not include all disclosures normally required in annual consolidated financial statements prepared in accordance with GAAP. Therefore, these unaudited condensed consolidated financial statements and related notes should be read in conjunction with the audited consolidated financial statements and the related notes included in the Company's Form 10-K for the year ended December 31, 2022 filed with the SEC on March 3, 2023 (the "2022 Form 10-K").

These unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual financial statements and reflect all adjustments, which include only normal recurring adjustments necessary for the fair statement of the Company’s financial position, results of operations, comprehensive income, changes in stockholders' equity and cash flows for the periods presented. The results of operations for the three months ended March 31, 2023 and 2022 are not necessarily indicative of the results to be expected for the full year or any other future interim or annual period.

Principles of Consolidation

The unaudited interim condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and balances have been eliminated upon consolidation.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Such estimates include revenue recognition, the allowance for credit losses, the lives of tangible and intangible assets, the valuation of acquired intangible assets and the recoverability or impairment of intangible assets, including goodwill, internal-use software development costs, valuation of stock warrants issued, stock-based compensation, and accounting for income taxes. The Company bases its estimates on historical experience and also on assumptions that management considers reasonable. The Company assesses these estimates on a regular basis; however, actual results could differ from these estimates.

Custodial Accounts

The Company has established a relationship with its merchant processors to act as collection and paying agents, whereby a merchant processor receives funds from customers and forwards such funds to the respective Paymentus client, based on the instructions received from the Company. These merchant processors act as custodians of the cash received, and the Company has no legal ownership rights to the funds held in such custodial accounts and does not control the use of these funds. As the Company does not take ownership of the funds, these custodial accounts are not included in the Company’s consolidated balance sheets. The balance of cash in the custodial accounts held by these merchant processors was $94.1 million and $353.9 million as of March 31, 2023 and December 31, 2022, respectively.

 

9


 

Restricted Funds Held for Financial Institutions and Financial Institution Funds In-Transit

Restricted funds held for financial institutions and the corresponding liability of financial institution funds in-transit represent the timing differences arising between the amounts the Company's sponsor bank receives from the sending financial institutions and the amounts disbursed to the recipient financial institutions. The restricted funds held for financial institutions' account is a transaction account maintained at the Company’s sponsor bank for clearing payments from financial institutions (as defined by the U.S. Treasury’s Financial Crimes Enforcement Network) to other financial institutions. Restricted funds held for financial institutions represent restricted cash that, based upon the Company's intent, are restricted solely for satisfying the corresponding obligations to send funds to the various financial institutions. During the fourth quarter 2022, the Company entered into an agreement with a financial institution whereby the financial institution would take over the legal ownership of these funds and operate as the custodial service provider. Once these funds were moved to custodial accounts, the Company no longer had legal ownership or control over these funds, and as such the Company no longer has Restricted Funds held for Financial Institutions and Financial Institution Funds In-Transit on the consolidated balance sheet as of March 31, 2023 and December 31, 2022.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to credit risk primarily consist of cash, cash equivalents, and accounts receivable. The Company maintains its cash and cash equivalents with high-quality financial institutions with investment-grade ratings. For accounts receivable, the Company is exposed to credit risk in the event of nonpayment by customers to the extent of the amounts recorded in the consolidated balance sheets. No customer accounted for more than 10% of revenue for either of the three months ended March 31, 2023 and 2022. As of March 31, 2023 and December 31, 2022 one customer accounted for more than 10% of accounts receivable.

Segment Information

Operating segments are defined as components of an enterprise for which separate financial information is available and evaluated regularly by the chief operating decision maker (“CODM”) in deciding how to make operating decisions, allocate resources and assess performance. The Company has three operating segments based on geography. The United States segment represents the vast majority of the Company’s consolidated net sales and gross profit. The additional two operating segments, Canada and India, do not meet the quantitative thresholds for separate reporting, either individually or in the aggregate. None of the operating segments qualified for aggregation. The Company’s CODM is its chief executive officer. The CODM evaluates the performance of the Company’s operating segments based on revenue and gross profit. The Company does not analyze discrete segment balance sheet information related to long-term assets. All other financial information is presented on a consolidated basis. For information regarding the Company’s long-lived assets and revenue by geographic area, see Note 5 and Note 3, respectively.

Summary of Significant Accounting Policies

The Company’s significant accounting policies are discussed in Note 2, “Basis of Presentation and Summary of Significant Accounting Policies,” in the Notes to Consolidated Financial Statements as of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020 included in the 2022 Form 10-K. There have been no significant changes to these policies during the three months ended March 31, 2023.

Recently Adopted Accounting Standards

The Company is provided the option to adopt new or revised accounting guidance as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 either (1) within the same periods as those otherwise applicable to public business entities, or (2) within the same time periods as non-public business entities, including early adoption when permissible. With the exception of standards the Company elected to early adopt, when permissible, the Company has elected to adopt new or revised accounting guidance within the same time period as non-public business entities, as indicated below.

ASUs not listed below were assessed and determined to be either not applicable or are not expected to have a material impact on the consolidated financial statements.

In October 2021, the FASB issued ASU 2021-08, "Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers" ("ASU 2021-08"). ASU 2021-08 will require companies to apply the definition of a performance obligation under ASU 2014-09, Revenue from contracts with customers (“Topic 606”) to recognize and measure contract assets and contract liabilities relating to contracts with customers that are acquired in a business combination. Under current U.S. GAAP, an acquirer generally recognizes assets acquired and liabilities assumed in a business combination, including contract assets and contract liabilities arising from revenue contracts with customers, at fair value on the acquisition date. ASU 2021-08 will result in the acquirer recording acquired contract assets and liabilities on the same basis that would have been recorded by the acquiree before the acquisition under ASU Topic 606. The Company adopted this ASU on January 1, 2023, and its adoption did not have a material impact on its condensed consolidated financial statements.

 

10


 

3. Revenue, Performance Obligations and Contract Balances

Disaggregation of Revenue

The following table presents a disaggregation of revenue from contracts with customers (in thousands):

 

 

Three Months Ended March 31,

 

 

 

2023

 

 

2022

 

Payment transaction processing revenue

 

$

146,388

 

 

$

114,962

 

Other

 

 

1,940

 

 

 

1,742

 

Total revenue

 

$

148,328

 

 

$

116,704

 

Revenue by geographic area, based on the location of the Company’s users, was as follows (in thousands):

 

 

Three Months Ended March 31,

 

 

 

2023

 

 

2022

 

United States

 

$

145,557

 

 

$

113,960

 

Other

 

 

2,771

 

 

 

2,744

 

Total

 

$

148,328

 

 

$

116,704

 

 

Remaining Performance Obligations

As of March 31, 2023, the aggregate amount of transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied was $9.2 million, of which the Company expects to recognize over 80% within the next two years, 17% between two to four years and the remainder thereafter. The timing of revenue recognition within the next four years is largely dependent upon the go-live dates of the Company's customers under the Company’s contracts.

As of March 31, 2023, the Company has contractual rights under its commercial agreements to receive $53.5 million of fixed consideration related to the future minimum guarantees through 2026. As permitted, the Company has elected to exclude from this disclosure any variable consideration that meets specified criteria. Accordingly, the total unsatisfied or partially unsatisfied performance obligations related to processing services is significantly higher than the amount disclosed.

Contract Balances

Contract balances consist of the following:

 

 

March 31,

 

 

December 31,

 

 

 

 

2023

 

 

2022

 

 

Contract Assets

 

 

 

 

 

 

 

Costs to fulfill (prepaid expenses and other current assets)

 

$

2,742

 

 

$

2,732

 

 

Costs to fulfill (other long-term assets)

 

 

6,283

 

 

 

6,929

 

 

Total contract assets

 

$

9,025

 

 

$

9,661

 

 

Contract Liabilities

 

 

 

 

 

 

 

Contract liabilities

 

$

4,639

 

 

$

4,358

 

 

Contract liabilities, less current portion

 

 

4,606

 

 

 

2,826

 

 

Total contract liabilities

 

$

9,245

 

 

$

7,184

 

 

During the three months ended March 31, 2023 and 2022, the Company reduced revenue and the related contract assets by $0.7 million and $0.5 million, respectively.

Revenue recognized during the three months ended March 31, 2023 and 2022 that was included in the contract liabilities balance at the beginning of each of the periods was $0.7 million in each period.

 

11


 

4. Business Combinations

PROFIT Financial, Inc.

On December 19, 2022, the Company completed its acquisition of PROFIT Financial, Inc. ("PROFIT") by acquiring all outstanding shares of PROFIT for a total purchase price of approximately $4.3 million, net of cash acquired, comprised of $3.3 million cash of which $0.1 million is included as a short term payable at December 31, 2022 and $0.6 million is being held back by the Company for a period of twelve to twenty-four months following the transaction close date and is recorded in finance leases and other finance obligations, net of current portion in the consolidated balance sheets. PROFIT is a financial and accounting software company with offerings to small business. The acquisition of PROFIT is expected to increase market opportunities for the Company's existing solutions while enhancing the PROFIT platform.

The Company will record adjustments to the fair value of net assets acquired and goodwill within 12 months of the measurement period, if necessary. There were no measurement period adjustments to the purchase price allocation during the three months ended March 31, 2023.

The revenue and expenses of PROFIT have been included in the Company's consolidated financial results since the acquisition date. Pro forma results of operations related to the acquisition have not been presented for the three months ended March 31, 2023 and 2022 because the effects of this acquisition were not material to the Company's overall operations.

5. Property and Equipment, Net

Property and equipment, net consisted of the following (in thousands):

 

 

 

 

March 31,

 

 

December 31,

 

 

 

 

2023

 

 

2022

 

Computer equipment

 

 

$

5,529

 

 

$

5,476

 

Furniture and fixtures

 

 

 

1,663

 

 

 

1,672