| | | | | | | | | | | |
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) |
767 Fifth Avenue, 9th Floor
New York, NY 10153(609) 235-1010
(Address of principal executive offices)Registrant's telephone number, including area code)
(646) 446-2700
(Issuer’s telephone number)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | | | | | | | |
Title of each classEach Class | | Trading Symbol(s) | | Name of each exchangeEach Exchange on which registered Which Registered |
Units,Class 1 Common Stock, $0.0001 par value
| | BTRS | | The Nasdaq Global Select Market |
Warrants, each consisting ofwhole warrant exercisable for one share of Class A commonstock, $0.0001 par value, and one-half1 Common Stock at an exercise price of one warrant $11.50 per share | | SMMCU BTRSW | | The Nasdaq StockCapital Market LLC
|
Shares of Class A common stock | | SMMC | | The Nasdaq Stock Market LLC |
Warrants | | SMMCW | | The Nasdaq Stock Market LLC |
CheckIndicate by check mark whether the issuerregistrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the pastpreceding 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 electronically 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”,filer,” “accelerated filer”,filer,” “smaller reporting company”,company,” and “emerging"emerging growth company”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 November 16, 2020, 25,000,000August 6, 2021, there were 153,016,018 and 5,223,666 shares of Class A1 and Class 2 common stock par value $0.0001 per share, and 6,250,000 shares of Class B common stock, par value $0.0001 per share, were issued and outstanding.
outstanding, respectively.SOUTH MOUNTAIN MERGER CORP.
BTRS HOLDINGS INC.
INDEX TO FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2020
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| Page Number |
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PART I. FINANCIAL INFORMATION | |
| 1 |
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| | 2 |
| | 3 |
| | 4 |
| | 5 |
| | 14 |
| | 17 |
| | 17 |
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PART II. OTHER INFORMATION | |
| 17 |
| | 17 |
| | 18 |
| | 18 |
| | 19 |
| | 19 |
| | 19 |
| | 19 |
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| 20 |
PART 1 – FINANCIAL INFORMATION
Item 1.
| FINANCIAL STATEMENTS |
SOUTH MOUNTAIN MERGER CORP.
| | September 30, 2020 | | | December 31, 2019 | |
| | (Unaudited) | | | | |
ASSETS | | | | | | |
Current assets | | | | | | |
Cash | | $ | 1,437,999 | | | $ | 1,606,261 | |
Prepaid income taxes | | | 144,461 | | | | 41,921 | |
Prepaid expenses | | | 120,408 | | | | 102,712 | |
Total Current Assets | | | 1,702,868 | | | | 1,750,894 | |
| | | | | | | | |
Marketable securities held in Trust Account | | | 252,287,249 | | | | 251,865,941 | |
TOTAL ASSETS | | $ | 253,990,117 | | | $ | 253,616,835 | |
| | | | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | |
Current liability - Accrued expenses | | $ | 576,351 | | | $ | 366,561 | |
Deferred underwriting fee payable | | | 7,970,375 | | | | 7,970,375 | |
Total Liabilities | | | 8,546,726 | | | | 8,336,936 | |
| | | | | | | | |
Commitments (see Note 6) | | | | | | | | |
| | | | | | | | |
Common stock subject to possible redemption, 23,820,521 and 23,861,949 shares at redemption value at September 30, 2020 and December 31, 2019, respectively | | | 240,443,384 | | | | 240,279,893 | |
| | | | | | | | |
Stockholders’ Equity | | | | | | | | |
Preferred stock, $0.0001 par value; 1,000,000 authorized; none issued and outstanding | | | — | | | | — | |
Class A Common stock, $0.0001 par value; 200,000,000 shares authorized; 1,179,479 and 1,138,051 shares issued and outstanding (excluding 23,820,521 and 23,861,949 shares subject to possible redemption) at September 30, 2020 and December 31, 2019, respectively. | | | 118 | | | | 114 | |
Class B Common stock, $0.0001 par value; 20,000,000 shares authorized; 6,250,000 shares issued and outstanding at September 30, 2020
and December 31, 2019 | | | 625 | | | | 625 | |
Additional paid-in capital | | | 3,432,285 | | | | 3,595,780 | |
Retained earnings | | | 1,566,979 | | | | 1,403,487 | |
Total Stockholders’ Equity | | | 5,000,007 | | | | 5,000,006 | |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | | $ | 253,990,117 | | | $ | 253,616,835 | |
The accompanying notesIn this Quarterly Report on Form 10-Q, unless otherwise stated or as the context otherwise requires, references to “the Company”, “we”, “us”, "our”, "it", 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 of which are an integral partthe 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, endorsement, or sponsorship of us by these other companies.
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 on Form 10-Q, 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 condensed financial statements.
SOUTH MOUNTAIN MERGER CORP.
CONDENSED STATEMENTS OF OPERATIONS(Unaudited)
| | Three Months Ended September 30, | | | Nine Months Ended September 30, | | | For the Period from February 28, 2019 (inception) through September 30, | |
| | 2020 | | | 2019 | | | 2020 | | | 2019 | |
| | | | | | | | | | | | |
Operating and formation costs | | $ | 207,011 | | | $ | 222,295 | | | $ | 696,703 | | | $ | 289,103 | |
Loss from operations | | | (207,011 | ) | | | (222,295 | ) | | | (696,703 | ) | | | (289,103 | ) |
| | | | | | | | | | | | | | | | |
Other income: | | | | | | | | | | | | | | | | |
Interest income on marketable securities held in Trust Account | | | 20,326 | | | | 1,245,883 | | | | 903,655 | | | | 1,332,389 | |
| | | | | | | | | | | | | | | | |
(Loss) income before income taxes | | | (186,685 | ) | | | 1,023,588 | | | | 206,952 | | | | 1,043,286 | |
Benefit (provision) for income taxes | | | 39,204 | | | | (214,953 | ) | | | (43,460 | ) | | | (219,090 | ) |
Net (loss) income | | $ | (147,481 | ) | | $ | 808,635 | | | $ | 163,492 | | | $ | 824,196 | |
| | | | | | | | | | | | | | | | |
Weighted average shares outstanding, basic and diluted (1) | | | 7,422,844 | | | | 7,363,896 | | | | 7,403,146 | | | | 6,657,747 | |
| | | | | | | | | | | | | | | | |
Basic and diluted net loss per common share (2) | | $ | (0.02 | ) | | $ | (0.02 | ) | | $ | (0.07 | ) | | $ | (0.02 | ) |
(1) | Excludes an aggregate of 23,820,521 and 23,890,787 shares subject to possible redemption at September 30, 2020 and 2019, respectively.
|
(2) | Net loss per common share – basic and diluted excludes interest income of $9,080 and $676,674 attributable to common stock subject to possible redemption for the three and nine months ended September 30, 2020, respectively, and $937,377 and $968,309 attributable to common stock subject to possible redemption for the three months ended September 30, 2019 and for the period from February 28, 2019 (inception) through September 30, 2019, respectively.
|
The accompanying notes are an integral part of these condensed financial statements.
SOUTH MOUNTAIN MERGER CORP.
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)(Unaudited)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020
| | Class A Common Stock | | | Class B Common Stock | | | Additional Paid-in | | | Retained | | | Total Stockholders’ | |
| | Shares | | | Amount | | | Shares | | | Amount | | | Capital | | | Earnings | | | Equity | |
Balance – January 1, 2020 | | | 1,138,051 | | | $ | 114 | | | | 6,250,000 | | | $ | 625 | | | $ | 3,595,780 | | | $ | 1,403,487 | | | $ | 5,000,006 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Change in value of common stock subject to possible redemption | | | 10,277 | | | | 1 | | | | — | | | | — | | | | (427,612 | ) | | | — | | | | (427,611 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | | — | | | | — | | | | — | | | | — | | | | — | | | | 427,614 | | | | 427,614 | |
Balance – March 31, 2020 | | | 1,148,328 | | | | 115 | | | | 6,250,000 | | | | 625 | | | | 3,168,168 | | | | 1,831,101 | | | | 5,000,009 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Change in value of common stock subject to possible redemption | | | 24,516 | | | | 2 | | | | — | | | | — | | | | 116,638 | | | | — | | | | 116,640 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | (116,641 | ) | | | (116,641 | ) |
Balance – June 30, 2020 | | | 1,172,844 | | | $ | 117 | | | | 6,250,000 | | | $ | 625 | | | $ | 3,284,806 | | | $ | 1,714,460 | | | $ | 5,000,008 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Change in value of common stock subject to possible redemption | | | 6,635 | | | | 1 | | | | — | | | | — | | | | 147,479 | | | | — | | | | 147,480 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | (147,481 | ) | | | (147,481 | ) |
Balance – September 30, 2020 | | | 1,179,479 | | | $ | 118 | | | | 6,250,000 | | | $ | 625 | | | $ | 3,432,285 | | | $ | 1,566,979 | | | $ | 5,000,007 | |
THREE MONTHS ENDED SEPTEMBER 30, 2019 AND
FOR THE PERIOD FROM FEBRUARY 28, 2019 (INCEPTION) THROUGH SEPTEMBER 30, 2019
| | Class A Common Stock | | | Class B Common Stock | | | Additional Paid-in | | | (Accumulated Deficit)/ Retained | | | Total Stockholders’ (Deficit)/ | |
| | Shares | | | Amount | | | Shares | | | Amount | | | Capital | | | Earnings | | | Equity | |
Balance – February 28, 2019 (inception) | | | — | | | $ | — | | | | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | �� | | | | | | | | | | | | | | | | |
Net loss | | | | | | | | | | | — | | | | — | | | | — | | | | (1,000 | ) | | | (1,000 | ) |
Balance – March 31, 2019 | | | — | | | | — | | | | — | | | | — | | | | — | | | | (1,000 | ) | | | (1,000 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Issuance of Class B common stock to Sponsor | | | — | | | | — | | | | 6,468,750 | | | | 647 | | | | 24,353 | | | | — | | | | 25,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Sale of 25,000,000 Units, net of underwriting discount and offering expenses | | | 25,000,000 | | | | 25,000 | | | | — | | | | — | | | | 236,894,412 | | | | — | | | | 236,896,912 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Sale of 6,954,500 Private Placement Warrants | | | — | | | | — | | | | — | | | | — | | | | 6,954,500 | | | | — | | | | 6,954,500 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock subject to possible redemption | | | (23,886,104 | ) | | | (2,389 | ) | | | — | | | | — | | | | (238,889,578 | ) | | | — | | | | (238,891,967 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | | | | | | | | | | — | | | | — | | | | — | | | | 16,561 | | | | 16,561 | |
Balance – June 30, 2019 | | | 1,113,896 | | | $ | 111 | | | | 6,468,750 | | | $ | 647 | | | $ | 4,983,687 | | | $ | 15,561 | | | $ | 5,000,006 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Forfeiture of founder shares | | | — | | | | — | | | | (218,750 | ) | | | (22 | ) | | | 22 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Change in value of common stock subject to possible redemption | | | (4,683 | ) | | | — | | | | — | | | | — | | | | (808,640 | ) | | | — | | | | (808,640 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | | — | | | | — | | | | — | | | | — | | | | — | | | | 808,635 | | | | 808,635 | |
Balance – September 30, 2019 | | | 1,109,213 | | | $ | 111 | | | | 6,250,000 | | | $ | 625 | | | $ | 4,175,069 | | | $ | 824,196 | | | $ | 5,000,001 | |
The accompanying notes are an integral part of the condensed financial statements.
SOUTH MOUNTAIN MERGER CORP.
CONDENSED STATEMENTS OF CASH FLOWS(Unaudited)
| | Nine Months Ended September 30, 2020 | | | For the Period from February 28, 2019 (Inception) Through September 30, 2019 | |
Cash Flows from Operating Activities: | | | | | | |
Net income | | $ | 163,492 | | | $ | 824,196 | |
Adjustments to reconcile net income to net cash used in operating activities: | | | | | | | | |
Interest earned on marketable securities held in Trust Account | | | (903,655 | ) | | | (1,332,389 | ) |
Changes in operating assets and liabilities: | | | | | | | | |
Prepaid expenses | | | (17,696 | ) | | | (94,288 | ) |
Prepaid income taxes | | | (102,540 | ) | | | (135,910 | |
Accrued expenses | | | 209,790 | | | | 185,508 | |
Net cash used in operating activities | | | (650,609 | ) | | | (552,883 | ) |
| | | | | | | | |
Cash Flows from Investing Activities: | | | | | | | | |
Cash withdrawn from Trust Account to pay taxes and regulatory compliance costs | | | 482,347 | | | | 402,846 | |
Investment of cash in Trust Account | | | — | | | | (250,000,000 | ) |
Net cash provided by (used in) investing activities | | | 482,347 | | | | (249,597,154 | ) |
| | | | | | | | |
Cash Flows from Financing Activities: | | | | | | | | |
Proceeds from issuance of Class B common stock to Sponsor | | | — | | | | 25,000 | |
Proceeds from sale of Units, net of underwriting discounts paid | | | — | | | | 245,445,500 | |
Proceeds from sale of Private Placement Warrants | | | — | | | | 6,954,500 | |
Proceeds from promissory notes – related party | | | — | | | | 175,000 | |
Repayment of promissory notes – related party | | | — | | | | (175,000 | ) |
Payment of offering costs | | | — | | | | (578,213 | ) |
Net cash provided by financing activities | | | — | | | | 251,846,787 | |
| | | | | | | | |
Net Change in Cash | | | (168,262 | ) | | | 1,696,750 | |
Cash – Beginning | | | 1,606,261 | | | | — | |
Cash – Ending | | $ | 1,437,999 | | | $ | 1,696,750 | |
| | | | | | | | |
Supplemental cash flow information: | | | | | | | | |
Cash paid for income taxes | | $ | 146,000 | | | $ | 355,000 | |
| | | | | | | | |
Non-cash investing and financing activities: | | | | | | | | |
Initial classification of common stock subject to possible redemption | | $ | — | | | $ | 238,875,410 | |
Change in value of common stock subject to possible redemption | | $ | 163,491 | | | $ | 825,197 | |
Deferred underwriting fee payable | | $ | — | | | $ | 7,970,375 | |
Offering costs included in accrued offering costs | | $ | — | | | $ | — | |
The accompanying notes are an integral part of these condensed financial statements.
SOUTH MOUNTAIN MERGER CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTSSEPTEMBER 30, 2020
(Unaudited)
Note 1—Description of Organization and Business Operations
South Mountain Merger Corp. (the “Company”) was incorporated in Delaware as a blank check company on February 28, 2019. The Company was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganizationterms or similar business combination with one or more businesses (the “Business Combination”).
Although the Company is not limited to a particular industry or geographic region for purposes of consummating a Business Combination, the Company intends to focus on businesses in the financial technology segment of the broader financial services industry. The Company is an early stage and emerging growth company and, as such, the Company is subject to all of the risks associated with early stage and emerging growth companies.
As of September 30, 2020, the Company had not yet commenced any operations. All activity through September 30, 2020 relates to the Company’s formation, the initial public offering (the “Initial Public Offering”), which is described below, identifying a target company for a Business Combination and activities in connection with the proposed acquisition of Factor Systems, Inc. (d/b/a Billtrust) (“Billtrust”) (see Note 9).
The registration statement for the Company’s Initial Public Offering was declared effective on June 19, 2019. On June 24, 2019, the Company consummated the Initial Public Offering of 25,000,000 units (the “Units” and, with respect to the shares of Class A common stock included in the Units sold, the “Public Shares”), which includes a partial exercise by the underwriter of the over-allotment option to purchase an additional 2,500,000 Units, at $10.00 per Unit, generating gross proceeds of $250,000,000, which is described in Note 3.
Simultaneously with the closing of the Initial Public Offering, the Company consummated the sale of 6,954,500 warrants (the “Private Placement Warrants”) at a price of $1.00 per Private Placement Warrant in a private placement to our sponsor, South Mountain LLC (the “Sponsor”), generating gross proceeds of $6,954,500, which is described in Note 4.
Transaction costs amounted to $13,103,088, consisting of $4,554,500 of underwriting fees, $7,970,375 of deferred underwriting fees and $578,213 of other offering costs. In addition, as of September 30, 2020, cash of $1,437,999 was held outside of the Trust Account (as defined below) and is available for working capital purposes.
Following the closing of the Initial Public Offering on June 24, 2019, an amount of $250,000,000 ($10.00 per Unit) from the net proceeds of the sale of the Units in the Initial Public Offering and the sale of the Private Placement Warrants was placed in a trust account (the “Trust Account”) which was invested in U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act of 1940, as amended (the “Investment Company Act”), with a maturity of 185 days or less or in any open-ended investment company that holds itself out as a money market fund selected by the Company meeting the conditions of Rule 2a-7 of the Investment Company Act, as determined by the Company, until the earlier of: (i) the completion of a Business Combination or (ii) the distribution of the Trust Account, as described below, except that interest earned on the Trust Account can be released to the Company to fund its regulatory compliance costs and to pay its tax obligations (“permitted withdrawals”).
The Company’s management has broad discretion with respect to the specific application of the net proceeds of the Initial Public Offering and the sale of the Private Placement Warrants, although substantially all of the net proceeds are intended to be applied generally toward consummating a Business Combination. The Company’s initial Business Combination must be with one or more target businesses that together have a fair market value equal to at least 80% of the balance in the Trust Account (excluding the deferred underwriting fees and taxes payable on interest earned) at the time of the signing an agreement to enter into a Business Combination. The Company will only complete a Business Combination if the post-transaction company owns or acquires 50% or more of the outstanding voting securities of the target or otherwise acquires a controlling interest in the target sufficient for it not to be required to register as an investment company under the Investment Company Act. There is no assurance that the Company will be able to complete a Business Combination successfully.
expressions.
The Company will providehas based these forward-looking statements largely on its holders of the outstanding Public Shares (the “public stockholders”) with the opportunity to redeem all or a portion of their Public Shares upon the completion of a Business Combination either (i) in connection with a stockholder meeting called to approve the Business Combination or (ii) by means of a tender offer. The decision as to whether the Company will seek stockholder approval of a Business Combination or conduct a tender offer will be made by the Company, solely incurrent expectations and projections about future events and financial trends it believes may affect its discretion. The public stockholders will be entitled to redeem their Public Shares for a pro rata portion of the amount then on deposit in the Trust Account ($10.00 per Public Share, plus any pro rata interest, net of amounts withdrawn to fund permitted withdrawals). The per-share amount to be distributed to public stockholders who redeem their Public Shares will not be reduced by the deferred underwriting commissions the Company will pay to the underwriter (as discussed in Note 6). There will be no redemption rights upon the completion of a Business Combination with respect to the Company’s warrants.
SOUTH MOUNTAIN MERGER CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(Unaudited)
The Company will proceed with a Business Combination if the Company has net tangible assets of at least $5,000,001 upon such consummation of a Business Combination and, if the Company seeks stockholder approval, a majority of the outstanding shares voted are voted in favor of the Business Combination. If a stockholder vote is not required by law and the Company does not decide to hold a stockholder vote for business or other legal reasons, the Company will, pursuant to its Amended and Restated Certificate of Incorporation, conduct the redemptions pursuant to the tender offer rules of the U.S. Securities and Exchange Commission (the “SEC”) and file tender offer documents with the SEC prior to completing a Business Combination. If, however, stockholder approval of the transaction is required by law, or the Company decides to obtain stockholder approval for business or legal reasons, the Company will offer to redeem Public Shares in conjunction with a proxy solicitation pursuant to the proxy rules and not pursuant to the tender offer rules. If the Company seeks stockholder approval in connection with a Business Combination, the Company’s Sponsor has agreed to vote its Founder Shares (as defined below in Note 5) and any Public Shares purchased during or after the Initial Public Offering in favor of approving a Business Combination. Additionally, each public stockholder may elect to redeem their Public Shares irrespective of whether they vote for or against the proposed transaction.
Notwithstanding the foregoing, if the Company seeks stockholder approval of a Business Combination and it does not conduct redemptions pursuant to the tender offer rules, the Amended and Restated Certificate of Incorporation provides that a public stockholder, together with any affiliate of such stockholder or any other person with whom such stockholder is acting in concert or as a “group” (as defined under Section 13 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), will be restricted from redeeming its shares with respect to more than an aggregate of 15% of the Public Shares, without the prior consent of the Company.
The Sponsor and the Company’s officers and directors have agreed (a) to waive their redemption rights with respect to their Founder Shares and Public Shares held by them in connection with the completion of a Business Combination and (b) not to propose an amendment to the Amended and Restated Certificate of Incorporation (a) that would modify the substance or timing of the Company’s obligation to redeem 100% of its Public Shares if the Company does not complete a Business Combination or (b) with respect to any other provision relating to stockholders’ rights or pre-initial Business Combination activity, unless the Company provides the public stockholders with the opportunity to redeem their Public Shares in conjunction with any such amendment.
The Company will have until June 24, 2021 to consummate a Business Combination (the “Combination Period”). If the Company is unable to complete a Business Combination within the Combination Period, the Company will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem the Public Shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest (net of permitted withdrawals and up to $100,000 of interest to pay dissolution expenses), divided by the number of then outstanding Public Shares, which redemption will completely extinguish the public stockholders’ rights as stockholders (including the right to receive further liquidating distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the Company’s remaining stockholders and the Company’s board of directors, dissolve and liquidate, subject in each case to the Company’s obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law. There will be no redemption rights or liquidating distributions with respect to the Company’s warrants, which will expire worthless if the Company fails to complete a Business Combination within the Combination Period.
The Sponsor has agreed to waive its liquidation rights with respect to the Founder Shares if the Company fails to complete a Business Combination within the Combination Period. However, if the Sponsor or any of the Company’s officers, directors or any of their affiliates acquires Public Shares in or after the Initial Public Offering, they will be entitled to liquidating distributions from the Trust Account with respect to such Public Shares if the Company fails to complete a Business Combination within the Combination Period. The underwriter has agreed to waive its rights to its deferred underwriting commission (see Note 6) held in the Trust Account in the event the Company does not complete a Business Combination within the Combination Period and, in such event, such amounts will be included with the other funds held in the Trust Account that will be available to fund the redemption of the Public Shares. In the event of such distribution, it is possible that the per share value of the assets remaining available for distribution will be less than the Initial Public Offering price per Unit ($10.00).
In order to protect the amounts held in the Trust Account, the Sponsor has agreed to be liable to the Company if and to the extent any claims by a third party (other than the Company’s independent registered public accounting firm) for services rendered or products sold to the Company, or a prospective target business with which the Company has discussed entering into a definitive agreement, reduce the amount of funds in the Trust Account to below (i) $10.00 per share or (ii) such lesser amount per Public Share held in the Trust Account as of the date of the liquidation of the Trust Account due to reductions in the value of the trust assets, in each case net of the permitted withdrawals. This liability will not apply with respect to any claims by a third party who executed a waiver of any and all rights to seek access to the Trust Account or to any claims under the Company’s indemnity of the underwriter of the Initial Public Offering against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the “Securities Act”). Moreover, in the event that an executed waiver is deemed to be unenforceable against a third party, the Sponsor will not be responsible to the extent of any liability for such third-party claims. The Company will seek to reduce the possibility that the Sponsor will have to indemnify the Trust Account due to claims of creditors by endeavoring to have all vendors, service providers, prospective target businesses or other entities with which the Company does business, execute agreements with the Company waiving any right, title, interest or claim of any kind in or to monies held in the Trust Account.
Risks and Uncertainties
In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic which continues to spread throughout the United States and the World. As of the date the financial statements were available to be issued, there was considerable uncertainty around the expected duration of this pandemic. We have concluded that while it is reasonably possible that COVID-19 could have a negative effect on identifying a target company for a Business Combination, the specific impact is not readily determinable as of the date of these financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
SOUTH MOUNTAIN MERGER CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(Unaudited)
Note 2—Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X of the SEC. Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a complete presentation of financial position,condition, results of operations, or cash flows. Inbusiness 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 opinion of management,section titled "Part I, Item 1A. Risk Factors" contained in the accompanying unaudited condensed financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented.
The accompanying unaudited condensed financial statements should be read in conjunction with the Company’sCompany's Annual Report on Form 10-K for the year ended December 31, 20192020 (the "Annual Report on Form 10-K"), as filed with the US Securities and Exchange Commission (the "SEC") on March 24, 2021, and the section titled "Risk Factors" contained in both the Company's Amendment No. 1 to the Current Report on Form 8-K (the "Amendment on Form 8-K"), as filed with the SEC on March 20, 2020, which contains24, 2021, and the auditedCompany's Registration Statement on Form S-1, as amended (File No. 333-257488), originally filed with the SEC on June 28, 2021 (the "Registration Statement on Form S-1"), including, among other things, risks associated with:
•our financial statements and notes thereto. Thebusiness performance, including the financial informationprojections, 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 platforms;
•the advantages and expected growth of our 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;
•creating additional infrastructure to support our operations as a public company, losing emerging growth company status, and becoming a large accelerated filer effective as of December 31, 20192021;
•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.
These risks are not exhaustive. Additional factors could harm our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is derivednot 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 auditedforward-looking statements in this Quarterly Report on Form 10-Q by these cautionary statements.
PART 1.
Item 1. Financial Statements
BTRS HOLDINGS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except per share and share amounts)
| | | | | | | | | | | |
| June 30, 2021 | | December 31, 2020 |
ASSETS | (Unaudited) | | |
Current assets: | | | |
Cash and cash equivalents | $ | 241,607 | | | $ | 14,642 | |
Short-term investments | 45,037 | | | 0 | |
Customer funds | 24,618 | | | 20,924 | |
Accounts receivable, net | 29,009 | | | 23,009 | |
Prepaid expenses | 5,072 | | | 2,961 | |
Deferred implementation, commission, and other costs, current | 4,706 | | | 4,718 | |
Other current assets | 1,032 | | | 4,108 | |
Total current assets | 351,081 | | | 70,362 | |
Property and equipment, net | 16,194 | | | 16,650 | |
Goodwill | 36,956 | | | 36,956 | |
Intangible assets, net | 8,423 | | | 9,534 | |
Deferred implementation and commission costs, non-current | 8,453 | | | 8,677 | |
Other assets | 5,068 | | | 5,361 | |
Total assets | $ | 426,175 | | | $ | 147,540 | |
LIABILITIES AND STOCKHOLDERS' EQUITY | | | |
Current liabilities: | | | |
Customer funds payable | $ | 24,618 | | | $ | 20,924 | |
Current portion of debt and capital lease obligations, net of deferred financing costs | 124 | | | 380 | |
Accounts payable | 1,841 | | | 1,646 | |
Accrued expenses and other | 31,055 | | | 26,341 | |
Deferred revenue | 8,012 | | | 14,895 | |
Other current liabilities | 462 | | | 906 | |
Total current liabilities | 66,112 | | | 65,092 | |
Long-term debt and capital lease obligations, net of deferred financing costs | 28 | | | 43,295 | |
Customer postage deposits | 10,227 | | | 10,418 | |
Deferred revenue, net of current portion | 17,214 | | | 14,861 | |
Deferred taxes | 859 | | | 768 | |
Other long-term liabilities | 7,361 | | | 9,296 | |
Total liabilities | 101,801 | | | 143,730 | |
Commitments and contingencies (Note 10) | 0 | | 0 |
Stockholders' equity: | | | |
Preferred stock, $0.0001 par value,10,000,000 shares authorized; 0 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively | 0 | | | 0 | |
Class 1 common stock, $0.0001 par value, 538,000,000 shares authorized; 150,648,937 and 92,760,478 shares issued and outstanding at June 30, 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 June 30, 2021 and December 31, 2020, respectively | 1 | | | 1 | |
Additional paid-in capital | 502,765 | | | 148,677 | |
Accumulated deficit | (178,407) | | | (144,877) | |
Total stockholders’ equity | 324,374 | | | 3,810 | |
Total liabilities and stockholders’ equity | $ | 426,175 | | | $ | 147,540 | |
The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.
BTRS HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited, amounts in thousands, except per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Revenues: | | | | | | | |
Subscription, transaction, and services | $ | 31,589 | | | $ | 25,646 | | | $ | 64,708 | | | $ | 50,170 | |
Reimbursable costs | 8,643 | | | 8,945 | | | 17,460 | | | 18,566 | |
Total revenues | 40,232 | | | 34,591 | | | 82,168 | | | 68,736 | |
Cost of revenues: | | | | | | | |
Cost of subscription, transaction, and services | 9,360 | | | 7,633 | | | 18,613 | | | 15,523 | |
Cost of reimbursable costs | 8,643 | | | 8,945 | | | 17,460 | | | 18,566 | |
Total cost of revenues, excluding depreciation and amortization | 18,003 | | | 16,578 | | | 36,073 | | | 34,089 | |
Operating expenses: | | | | | | | |
Research and development | 11,270 | | | 8,778 | | | 22,263 | | | 18,162 | |
Sales and marketing | 9,980 | | | 5,129 | | | 18,916 | | | 11,551 | |
General and administrative | 10,478 | | | 4,871 | | | 22,928 | | | 10,119 | |
Depreciation and amortization | 1,359 | | | 1,410 | | | 2,719 | | | 2,821 | |
Total operating expenses | 33,087 | | | 20,188 | | | 66,826 | | | 42,653 | |
Loss from operations | (10,858) | | | (2,175) | | | (20,731) | | | (8,006) | |
Other income (expense): | | | | | | | |
Interest income | 131 | | | 1 | | | 234 | | | 17 | |
Interest expense and loss on extinguishment of debt | (3) | | | (1,102) | | | (2,945) | | | (2,285) | |
Change in fair value of financial instruments and other income | 5 | | | 411 | | | (9,985) | | | 392 | |
Total other income (expense) | 133 | | | (690) | | | (12,696) | | | (1,876) | |
Loss before income taxes | (10,725) | | | (2,865) | | | (33,427) | | | (9,882) | |
Provision for income taxes | (11) | | | (37) | | | (103) | | | (117) | |
Net loss and comprehensive loss | $ | (10,736) | | | $ | (2,902) | | | $ | (33,530) | | | $ | (9,999) | |
| | | | | | | |
Net loss per common share, basic and diluted | $ | (0.07) | | | $ | (0.03) | | | $ | (0.22) | | | $ | (0.10) | |
Weighted average common shares outstanding, basic and diluted | 157,197 | | | 99,854 | | | 151,289 | | | 99,829 | |
The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.
BTRS HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited, amounts in thousands, except share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2021 |
| | Class 1 Common Stock | | Class 2 Common Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Total Stockholders’ Equity |
| | Shares | | Amount | | Shares | | Amount | |
Balance, March 31, 2021 | | 149,315,319 | | | $ | 15 | | | 7,251,307 | | | $ | 1 | | | $ | 495,165 | | | $ | (167,671) | | | $ | 327,510 | |
Issuance of common stock under stock plans | | 1,331,318 | | | — | | | — | | | — | | | 1,868 | | | — | | | 1,868 | |
Shares issued for exercise of warrants | | 2,300 | | | — | | | — | | | — | | | 26 | | | — | | | 26 | |
Stock-based compensation expense | | — | | | — | | | — | | | — | | | 5,706 | | | — | | | 5,706 | |
Net loss | | — | | | — | | | — | | | — | | | — | | | (10,736) | | | (10,736) | |
Balance, June 30, 2021 | | 150,648,937 | | | $ | 15 | | | 7,251,307 | | | $ | 1 | | | $ | 502,765 | | | $ | (178,407) | | | $ | 324,374 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2020 |
| | Class 1 Common Stock | | Class 2 Common Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Total Stockholders’ Equity |
| | Shares | | Amount | | Shares | | Amount | |
Balance, March 31, 2020 | | 91,653,631 | | | $ | 9 | | | 8,196,622 | | | $ | 1 | | | $ | 144,910 | | | $ | (134,947) | | | $ | 9,973 | |
Issuance of common stock under stock plans | | 79,511 | | | — | | | — | | | — | | | 129 | | | — | | | 129 | |
Stock-based compensation expense | | — | | | — | | | — | | | — | | | 680 | | | — | | | 680 | |
Net loss | | — | | | — | | | — | | | — | | | — | | | (2,902) | | | (2,902) | |
Balance, June 30, 2020 | | 91,733,142 | | | $ | 9 | | | 8,196,622 | | | $ | 1 | | | $ | 145,719 | | | $ | (137,849) | | | $ | 7,880 | |
The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.
BTRS HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited, amounts in thousands, except share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2021 |
| Redeemable Convertible Preferred Stock | | Class 1 Common Stock | | Class 2 Common Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Total Stockholders’ Equity (Deficit) |
| Shares | | Amount | | Shares | | Amount | | Shares | | Amount | |
Balance, December 31, 2020 | 68,382,882 | | | $ | 159,028 | | | 32,574,218 | | | $ | 3 | | | 0 | | | $ | 0 | | | $ | 16,301 | | | $ | (171,527) | | | $ | (155,223) | |
Retroactive application of reverse recapitalization (Note 3) | (68,382,882) | | | (159,028) | | | 60,186,260 | | | 6 | | | 8,196,622 | | | 1 | | | 132,376 | | | 26,650 | | | 159,033 | |
Adjusted balance, December 31, 2020 | — | | | — | | | 92,760,478 | | | 9 | | | 8,196,622 | | | 1 | | | 148,677 | | | (144,877) | | | 3,810 | |
Reverse recapitalization and PIPE Financing (Note 3) | — | | | — | | | 44,522,375 | | | 5 | | | (1,658,887) | | | — | | | 329,617 | | | 0 | | | 329,622 | |
Fair value of Earnout Share liabilities (Note 13) | — | | | — | | | — | | | — | | | — | | | — | | | (230,995) | | | — | | | (230,995) | |
Issuance and vesting of Earnout Shares at fair value (Note 3) | — | | | — | | | 10,204,164 | | | 1 | | | 713,572 | | | — | | | 237,008 | | | — | | | 237,009 | |
Issuance of common stock under stock plans | — | | | — | | | 3,159,620 | | | — | | | — | | | — | | | 3,900 | | | — | | | 3,900 | |
Shares issued for exercise of warrants | — | | | — | | | 2,300 | | | — | | | — | | | — | | | 26 | | | — | | | 26 | |
Stock-based compensation expense | — | | | — | | | — | | | — | | | — | | | — | | | 14,532 | | | — | | | 14,532 | |
Net loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (33,530) | | | (33,530) | |
Balance, June 30, 2021 | 0 | | | $ | 0 | | | 150,648,937 | | | $ | 15 | | | 7,251,307 | | | $ | 1 | | | $ | 502,765 | | | $ | (178,407) | | | $ | 324,374 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2020 |
| Redeemable Convertible Preferred Stock | | Class 1 Common Stock | | Class 2 Common Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Total Stockholders’ Equity (Deficit) |
| Shares | | Amount | | Shares | | Amount | | Shares | | Amount | |
Balance, December 31, 2019 | 68,382,882 | | | $ | 150,356 | | | 31,234,610 | | | $ | 3 | | | 0 | | | $ | 0 | | | $ | 11,933 | | | $ | (145,830) | | | $ | (133,894) | |
Retroactive application of reverse recapitalization (Note 3) | (68,382,882) | | | (150,356) | | | 60,186,260 | | | 6 | | | 8,196,622 | | | 1 | | | 132,373 | | | 17,980 | | | 150,360 | |
Adjusted balance, December 31, 2019 | — | | | — | | | 91,420,870 | | | 9 | | | 8,196,622 | | | 1 | | | 144,306 | | | (127,850) | | | 16,466 | |
Issuance of common stock under stock plans | — | | | — | | | 312,272 | | | — | | | — | | | — | | | 252 | | | — | | | 252 | |
Stock-based compensation expense | — | | | — | | | — | | | — | | | — | | | — | | | 1,161 | | | — | | | 1,161 | |
Net loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (9,999) | | | (9,999) | |
Balance, June 30, 2020 | 0 | | | $ | 0 | | | 91,733,142 | | | $ | 9 | | | 8,196,622 | | | $ | 1 | | | $ | 145,719 | | | $ | (137,849) | | | $ | 7,880 | |
The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.
BTRS HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, amounts in thousands)
| | | | | | | | | | | |
| Six Months Ended June 30, |
| 2021 | | 2020 |
Operating activities: | | | |
Net loss | $ | (33,530) | | | $ | (9,999) | |
Adjustments to reconcile net loss to net cash used in operating activities: | | | |
Depreciation and amortization | 2,719 | | | 2,821 | |
Provision for bad debts | 65 | | | 20 | |
Loss on extinguishment of debt and amortization of debt discount | 2,799 | | | 161 | |
Stock-based compensation expense | 14,532 | | | 1,161 | |
Change in fair value of financial instruments and other income | 9,985 | | | (406) | |
Deferred income taxes | 92 | | | 109 | |
Changes in assets and liabilities: | | | |
Accounts receivable | (6,064) | | | (53) | |
Prepaid expenses | (2,112) | | | (1,196) | |
Deferred implementation, commissions, and other costs | 236 | | | (380) | |
Other assets (current and non-current) | 1,475 | | | 184 | |
Accounts payable | 195 | | | (1,160) | |
Accrued expenses and other | 4,165 | | | (127) | |
Deferred revenue | (4,530) | | | 1,305 | |
Other liabilities (current and non-current) | (848) | | | 122 | |
Net cash used in operating activities | (10,821) | | | (7,438) | |
Investing activities: | | | |
Purchases of short-term investments | (45,037) | | | 0 | |
Purchases of property and equipment | (1,120) | | | (1,310) | |
Net cash used in investing activities | (46,157) | | | (1,310) | |
Financing activities: | | | |
Proceeds from borrowings, net of costs | 0 | | | 46,554 | |
Payments on borrowings | (44,663) | | | (31,696) | |
Business Combination and PIPE financing | 349,902 | | | 0 | |
Payments of equity issuance costs | (20,200) | | | 0 | |
Debt extinguishment costs | (1,565) | | | 0 | |
Payments of deferred purchase consideration | 0 | | | (524) | |
Payments on capital lease obligations | (125) | | | (134) | |
Proceeds from common stock issued | 4,184 | | | 252 | |
Taxes paid on net share issuance of stock-based compensation | (4,271) | | | 0 | |
Net cash provided by financing activities | 283,262 | | | 14,452 | |
Net increase in cash, cash equivalents, and restricted cash | 226,284 | | | 5,704 | |
Cash, cash equivalents, and restricted cash, beginning of period | 17,919 | | | 4,736 | |
Cash, cash equivalents, and restricted cash, end of period (Note 2) | $ | 244,203 | | | $ | 10,440 | |
| | | |
Supplemental disclosure of cash flow information: | | | |
Cash paid for interest | $ | 135 | | | $ | 2,078 | |
Cash paid for income taxes | $ | 0 | | | $ | 8 | |
Non-cash investing & financing activities: | | | |
| | | |
Reclassification of Series C preferred stock warrant liability to equity (Note 3) | $ | 1,433 | | | $ | 0 | |
Net assets acquired in Business Combination and other | $ | 255 | | | $ | 0 | |
Equity issuance costs in other assets and accrued expenses charged to additional paid-in-capital | $ | 1,888 | | | $ | 0 | |
Issuance and vesting of Earnout Shares at fair value (Note 3) | $ | 237,008 | | | $ | 0 | |
The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.
BTRS HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 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 business-to-business ("B2B") payments and facilitates straight-through payment 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 on 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 (“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 (“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 Business Combination, on October 18, 2020, South Mountain entered into separate subscription agreements (“Subscription Agreements”) with a number of investors (“PIPE Investors”), pursuant to which the PIPE Investors agreed to purchase, and South Mountain 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 $200.0 million, in a private placement (“PIPE Financing”).
As described in Note 3 - Business Combination, the Business Combination and PIPE Financing closed on January 12, 2021 (the "Closing Date"). The Business Combination was accounted for as a reverse recapitalization in accordance with the generally accepted accounting principles in the United States of America ("U.S. GAAP"). Under this method of accounting, South Mountain was treated as the “acquired” company for financial reporting purposes. For accounting purposes, Billtrust was the accounting acquirer in the transaction and, consequently, the transaction was 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 presentedof "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 Closing 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.
Note 2 - Summary of Significant Accounting Policies
Basis of Presentation
The accompanying Condensed Consolidated Financial Statements have been prepared in accordance with U.S. GAAP and pursuant to the rules and regulations of the US Securities and Exchange Commission ("SEC") regarding interim financial reporting on Form 10-Q. Accordingly, certain information and disclosures required for complete financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. These Condensed Consolidated Financial Statements and notes should be read in
conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2019. 2020 (as filed with the SEC on March 24, 2021), the audited financial statements included in the Company's Amendment No. 1 to the Current Report on Form 8-K (as filed with the SEC on March 24, 2021), and the Company's Registration Statement on Form S-1 (as filed with the SEC on June 28, 2021). Since the date of these filings, there have been no changes or updates to the Company's significant accounting policies, other than those described below.
The accompanying Condensed 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.
In the opinion of management, the accompanying Condensed Consolidated Financial Statements contain all normal recurring adjustments necessary for a fair statement of financial position, results of operations, comprehensive loss, and cash flows as of the dates and for the interim periods presented. The results of operations for the three and ninesix months ended SeptemberJune 30, 2020 are2021 may not necessarilybe indicative of the results for the full fiscal year ended December 31, 2021 or any other period. 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 required by U.S. GAAP on an annual reporting basis.
The Company's fiscal year is the twelve-month period from January 1 through December 31. Unless otherwise indicated, all references to a "year" mean the Company's fiscal year.
Reclassification
During the second quarter of 2021, the Condensed Consolidated Balance Sheets were updated to remove restricted cash as a standalone line item and combine it with other current assets or other assets. Prior periods have been reclassified to conform to the current period presentation, which resulted in approximately $3.3 million of restricted cash being reclassified into other current assets for the year ended December 31, 2020. The reclassification had no impact on the amount of total current assets or total assets previously reported.
Impact of COVID-19
In March 2020, the United States declared a State of National Emergency due to the COVID-19 pandemic. Since then, the Company has continued to operate despite the disruption to many of our customer's operations. The pandemic has served to increase awareness and urgency around accelerating the digital transformation of accounts receivable through the Company's products and platforms. While this helped avoid significant business, bookings, or revenue disruptions thus far, during the three months ended June 30, 2020, the pandemic did cause a decrease in the Company's transaction fee revenues for certain customers. This was a result of the pandemic's broader economic impact on some companies in heavily transaction based industries and the related slowing of their business activity. These revenues started rebounding in the second half of 2020 and into 2021, which the Company expects to continue.
We are unable to predict the full impact the COVID-19 pandemic will have on our future results of operations, liquidity, and financial condition due to numerous uncertainties, including the duration, severity, and spread of the virus, actions that may be taken by government authorities, the impact to our customers, employees, and suppliers, and various other factors beyond our knowledge and control. The pandemic has caused us to modify our business practices, such as employee travel restrictions, cancellation of physical participation in meetings, events and conferences, and requiring employees to work remotely. We may take further actions as may be required by government authorities or that we determine are in the best interests of our employees and customers. The Company has previously implemented certain cost savings measures, some of which have ended, such as reducing employee incentive compensation programs, and others which are continuing, such as restricted travel and reduced discretionary spend in certain areas. The Company will continue to monitor the situation and adjust its response accordingly.
On March 27, 2020, Congress enacted 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 appropriation of funds for the SBA Paycheck Protection Program. The Company, through its payroll provider, elected to defer employer side social security payments effective as of April 2020. During 2021, the Company expects to pay the entire amount due for 2020 of approximately $2.3 million, which is included in accrued expenses and other in the Condensed Consolidated Balance Sheets as of both June 30, 2021 and December 31, 2020.
Change in Filing Status from Emerging Growth Company
Billtrust currently qualifies as an emerging growth company (“EGC”), under the Jumpstart Our Business Startups Act (“JOBS Act”), which allows the Company to delay adoption of new or revised accounting pronouncements 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 that the Company is not considered to be expectedan EGC. 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 will be deemed a large accelerated filer as of December 31, 2021. As a result, beginning with the Annual Report on Form 10-K for the year ending December 31, 2020 or for any future interim periods.
Emerging Growth2021, the Company
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable will not be able to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory voterely on executive compensation and stockholder approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period noted above and comply withwill be required to adopt all new accounting pronouncements within the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable.same time periods as public companies. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard.
This may make comparisoneffect of the Company’s financial statements with another public company whichloss of ECG status and impact on the adoption of new accounting pronouncements is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
discussed further below.
Use of Estimates
The preparation of condensed financial statementsthe Condensed Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities andreported, disclosure ofabout contingent assets and liabilities, at the date of the condensed financial statements and the reported amounts of revenues and expenses during the reporting period.
Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date ofin the financial statements which management considered in formulating its estimate, could change in the near term dueand accompanying notes. Such estimates include, but are not limited to, one or more future confirming events. Accordingly, the actual results could differ significantly from those estimates.
Cash and Cash Equivalents
The Company considers all short-term investments with an original maturityrevenue recognition, recoverability of three months or less when purchased to be cash equivalents. The Company did not have any cash equivalents asdeferred tax assets, valuation of September 30, 2020 and December 31, 2019.
SOUTH MOUNTAIN MERGER CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(Unaudited)
Marketable Securities Held in Trust Account
At September 30, 2020, substantially all of the assets held in the Trust Account were held in money market funds, which primarily invest in U.S. Treasury securities. At December 31, 2019, substantially all of the assets held in the Trust Account were held in U.S. Treasury Bills. Through September 30, 2020, the Company withdrew $954,463 of interest earned on the Trust Account, of which $482,347 was withdrawn during the nine months ended September 30, 2020.
Common Stock Subject to Possible Redemption
The Company accounts for its common stock subject to possible redemption in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” Common stock subject to mandatory redemption is classified as a liability instrument and is measured at fair value. Conditionally redeemable common stock (including common stock that features redemption rights that is either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) is classified as temporary equity. At all other times, common stock is classified as stockholders’ equity. The Company’s Class A common stock features certain redemption rights that are considered to be outside of the Company’s control and subject to occurrence of uncertain future events. Accordingly, common stock subject to possible redemption is presented at redemption value as temporary equity, outside of the stockholders’ equity section of the Company’s condensed balance sheets.
Income Taxes
The Company follows the asset and liability method of accounting for income taxes under ASC 740, “Income Taxes.” Deferred taxacquired assets and liabilities, are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amountsongoing impairment reviews of existinggoodwill, intangible assets, and liabilitiesother long-lived assets, contingent consideration, and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expectedstock based compensation. The Company bases its estimates on historical experience, known trends, market specific information, or other relevant factors it believes to be recovered or settled. The effect on deferred tax assetsreasonable under the circumstances. On an ongoing basis, management evaluates its estimates and liabilities of a changechanges in tax rates is recognized in incomeestimates are recorded in the period that includedin which they become known. Actual results may differ from these estimates.
Retroactive Adjustments Related to Reverse Recapitalization
On May 14, 2021, the enactment date. Valuation allowances are established, when necessary,Company filed its Quarterly Report on Form 10-Q with the SEC for the three months ended March 31, 2021 and 2020, with such interim financial statements reflecting the reverse recapitalization of Billtrust (as described in Note 1 - Organization and Nature of Business and Note 3 - Business Combination) as if it had occurred as of the beginning of each period presented. As a result, in conformity with U.S. GAAP, the Company has retroactively adjusted its financial statements and related notes herein, as of the year ended December 31, 2020, and as of and for the three and six months ended June 30, 2020 to reduce deferred tax assetsreflect the aforementioned reverse recapitalization as follows:
•Within the Condensed Consolidated Balance Sheets, redeemable convertible preferred stock in mezzanine equity was converted into Class 1 and 2 common stock and classified in permanent equity.
•The Statements of Redeemable Convertible Preferred Stock and Stockholders’ Deficit were renamed the Condensed Consolidated Statements of Stockholders’ Equity.
•Within the Condensed Consolidated Statements of Stockholders’ Equity:
◦Redeemable convertible preferred stock, common stock, share activity, and per share amounts were converted to Class 1 and 2 common stock at an exchange ratio of 7.2282662 shares per share of Legacy Billtrust common stock (the "Conversion Rate").
◦Preferred stock dividends and accretion of preferred stock to redemption value for the six months ended June 30, 2020 in the amount expected$4.3 million has been reclassified from redeemable convertible preferred stock to be realized.accumulated deficit.
ASC 740 prescribes a recognition threshold•Within the Condensed Consolidated Statements of Operations and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. There were no unrecognized tax benefits and no amounts accrued for interest and penalties as of September 30, 2020 and December 31, 2019. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position.
The Company may be subject to potential examination by federal, state and city taxing authorities in the areas of income taxes. These potential examinations may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions and compliance with federal, state and city tax laws. The Company is subject to income tax examinations by major taxing authorities since inception. The Company’s management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months.
NetComprehensive Loss, Per Common Share
Netnet loss per common share is computed by dividing net loss byand the weighted average number of common shares outstanding for the period. The Company applies the two-class method in calculating earnings per share. Shares of common stock subjectused to possible redemption at September 30, 2020 and 2019, which are not currently redeemable and are not redeemable at fair value, have been excluded from the calculation of basiccompute net loss per share since suchwere adjusted based on the converted number of Class 1 and 2 common shares.
•Within the Notes to Financial Statements:
◦In Note 6 - Loss Per Share, all per share and share amounts for the 2020 periods presented were adjusted based on (1) the converted number of Class 1 and 2 common shares, if redeemed, only participate in their pro rata shareand (2) the removal of the Trust Account earnings. The Company has not considered the effect of warrants sold in the Initial Public Offeringpreferred stock dividends and accretion to redemption value.
◦In Note 7 - Stockholders' Equity and Stock-Based Compensation, stock options outstanding at December 31, 2020 and the private placement to purchase 19,454,500 sharesweighted average fair value of Class A common stock inoptions granted during the calculation of diluted loss per share, since the exercise of the warrants is contingent upon the occurrence of future events. As a result, diluted loss per common share is the same as basic loss per common share for the periods presented.
Reconciliation of Net Loss Per Common Share
The Company’s net (loss) income is adjusted for the portion of income that is attributable to common stock subject to possible redemption, as these shares only participate in the earnings of the Trust Account and not the income or losses of the Company. Accordingly, basic and diluted loss per common share is calculated as follows:
six
SOUTH MOUNTAIN MERGER CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBERmonths ended June 30, 2020 before the Business Combination have been adjusted using the Conversion Rate.
(Unaudited)
Except as otherwise noted, the financial statements and related notes included herein have not been adjusted.
| | Three Months Ended September 30, | | | Nine Months Ended September 30, | | | For the Period from February 28, 2019 (inception) Through September 30, | |
| | 2020 | | | 2019 | | | 2020 | | | 2019 | |
Net (loss) income | | $ | (147,481 | ) | | $ | 808,635 | | | $ | 163,492 | | | $ | 824,196 | |
Less: Income attributable to common stock subject to possible redemption | | | (9,080 | ) | | | (937,377 | ) | | | (676,674 | ) | | | (968,309 | ) |
Adjusted net loss | | $ | (156,561 | ) | | $ | (128,742 | ) | | $ | (513,182 | ) | | $ | (144,113 | ) |
| | | | | | | | | | | | | | | | |
Weighted average shares outstanding, basic and diluted | | | 7,422,844 | | | | 7,363,896 | | | | 7,403,146 | | | | 6,657,747 | |
| | | | | | | | | | | | | | | | |
Basic and diluted net loss per common share | | $ | (0.02 | ) | | $ | (0.02 | ) | | $ | (0.07 | ) | | $ | (0.02 | ) |
ConcentrationConcentrations of Credit Risk
Financial instrumentsThe Company maintains its deposits of cash, cash equivalents, restricted cash, and customer funds with high-credit quality financial institutions and the amounts of these balances may exceed federally insured limits. The Company’s accounts receivable are reported in the Condensed Consolidated Balance Sheets net of allowances for uncollectible accounts. The Company believes that potentially subject the Company to concentrationsconcentration of credit risk consistwith respect to accounts receivable is limited due to the large number of companies and diverse industries comprising its customer base. On-going credit evaluations are performed, generally with a cash account in a financial institution, which, at times, may exceedfocus on new customers or customers with whom the Federal Depository Insurance Coverage of $250,000.Company has no prior collections history, and collateral is generally not required. The Company hasmaintains reserves for potential losses based on customer specific situations as well as on historic experience and such losses, in the aggregate, have not experienced lossesexceeded management’s expectations. As of June 30, 2021 and December 31, 2020 the allowances for uncollectible accounts were $0.3 million and $0.4 million, respectively.
For the six months ended June 30, 2021 and 2020, no individual customer accounted for 10% or greater of total revenues. As of June 30, 2021 and December 31, 2020, no individual customer had a balance of 10% or greater of accounts receivable.
Presentation of Restricted Cash
The following table summarizes the period ending cash and cash equivalents from the Company's Condensed Consolidated Balance Sheets and the total cash, cash equivalents, and restricted cash as presented on this accountthe Condensed Consolidated Statements of Cash Flows (in thousands):
| | | | | | | | | | | |
| Six Months Ended June 30, |
| 2021 | | 2020 |
Cash and cash equivalents | $ | 241,607 | | | $ | 7,164 | |
Restricted cash (1) | 2,596 | | | 3,276 | |
Total cash, cash equivalents, and restricted cash | $ | 244,203 | | | $ | 10,440 | |
(1) Restricted cash consists of collateral for letters of credit required for leased office space. At June 30, 2021 restricted cash is included in other assets in the Condensed Consolidated Balance Sheets. At December 31, 2020 restricted cash is included in other current assets in the Condensed Consolidated Balance Sheets. The short-term or long-term classification is determined in accordance with the expiration of the underlying letters of credit.
Recent Accounting Pronouncements
Accounting Pronouncements Issued and management believesAdopted
In November 2019, the Company is not exposedFinancial Accounting Standards Board ("FASB") Issued Accounting Standards Update ("ASU") 2019-08, Compensation - Stock Compensation (Topic 718): Improvements to significant risksNon-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, the amount that will be recorded as a reduction in the transaction price should be based on such account.
Fair Value of Financial Instruments
Thethe grant-date fair value of the Company’s assetsshare-based payment award. The new guidance was adopted by the Company on January 1, 2021 and liabilities, which qualify as financialthe adoption 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 under ASC 820, “Fair Value Measurement,” approximatesby eliminating large sections of the carrying amounts represented inexisting guidance and eliminating several triggers for derivative accounting, including a requirement to settle certain contracts by delivering registered shares. The new guidance was adopted by the accompanying condensed balance sheets, primarily due to their short-term nature.Company on January 1, 2021 and the adoption did not impact its Consolidated Financial Statements.
Recent Accounting Standards
Management does not believe that any recently issued,Pronouncements Issued but not yet Adopted
As an EGC, the JOBS Act permits the Company an extended transition period for complying with new or revised accounting pronouncements affecting public companies. The Company has elected to use this extended
transition period and adopts certain new accounting pronouncements on the private company timeline, which means that its financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting pronouncements on a non-delayed basis. The Company will cease to qualify as an EGC effective December 31, 2021 unless the eligibility standards are modified. Loss of EGC status will result in the Company losing the extended transition period noted above and will require it to adopt new accounting standards, ifpronouncements within the same time periods as public companies.
In February 2016, the FASB issued ASU 2016-02 Leases (Topic 842), which outlines a comprehensive lease accounting model and supersedes the current lease guidance. Topic 842 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 for all leases longer than 12 months. 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.
The two permitted transition methods under the new standard are both modified retrospective methods. Under the first method, the standard is applied to all leases that existed at, or subsequently commenced after, the beginning of the earliest comparative period presented in the financial statements, with a cumulative effect adjustment recorded at the beginning of the earliest comparative period for all leases that commenced prior to such date. Under the second method, comparative periods are not adjusted and the cumulative effect of applying the standard is recorded at the date of initial application.
As a result of losing EGC status effective as of December 31, 2021, the Company will be required to adopt the standard for annual reporting on December 31, 2021 and for quarterly reporting beginning with the first quarter of 2022. While the Company is currently adopted, wouldin the process of quantifying the full impact of the new guidance, the adoption of this standard is expected to have a material effectimpact on the Company’s condensedCompany's financial statements.position as most operating leases longer than 12 months will be recorded on the balance sheets as a ROU asset and a lease liability. The standard is not expected to have a material impact on the Company's results of operations or liquidity. The Company is currently evaluating the changes related to this standard on its future financial reporting and disclosures, as well as designing and implementing related processes and controls related to Topic 842.
In June 2016, the FASB issued ASU 2016-13 Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments. 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 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. The standard requires an entity to record a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. As a result of losing EGC status effective as of December 31, 2021, the Company will be required to adopt the standard for annual reporting on December 31, 2021 and for quarterly reporting beginning with the first quarter of 2022. The Company is currently evaluating the impact of this standard on its Consolidated Financial Statements.
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. As a result of losing EGC status effective as of December 31, 2021, the Company will be required to adopt the standard for annual reporting on December 31, 2021 and for quarterly reporting beginning with the first quarter of 2022. 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). As a result of losing EGC status effective as of December 31, 2021, the Company will be required to adopt the standard for annual reporting on December 31, 2021 and for quarterly reporting beginning with the first quarter of 2022. The Company is currently evaluating the impact that the pronouncement will have on its Consolidated Financial Statements.
In December 2019, the FASB issued ASU 2019-12 Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, whichsimplifies various aspects related to accounting for income taxes. As a result losing EGC status effective as of December 31, 2021, the Company will be required to adopt the standard for annual reporting on December 31, 2021 and for quarterly reporting beginning with the first quarter of 2022. The adoption of this standard is not expected to have a material impact on the Company's Consolidated Financial Statements.
Note 3—Initial Public Offering3 - Business Combination
Closing of Business Combination, Accounted for as a Reverse Recapitalization
PursuantOn January 12, 2021, Billtrust consummated the previously announced Business Combination pursuant to the Initial Public Offering,Agreement dated October 18, 2020 and amended as of December 13, 2020. As a result of the Company sold 25,000,000 UnitsAgreement, Billtrust stockholders received aggregate consideration with a value equal to approximately $1,190.0 million, which consists of:
i.Approximately $90.1 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 purchasereverse recapitalization; and
ii.Approximately $1,099.0 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 based on an assumed share price of $10.00 per Unit, which includesshare.
As of the completion of the Business Combination, accounted for as a partial exercise byreverse recapitalization, on January 12, 2021, the underwritermerged companies, BTRS Holdings Inc. and subsidiaries, had the following outstanding securities:
i.138,728,373 shares of its optionClass 1 common stock, including 2,375,000 shares to purchase an additional 2,500,000 Units at $10.00 per Unit. Each Unit consistsprior 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 one2021, all of these shares vested;
ii.6,537,735 shares of Class 2 common stock; and
iii.12,500,000 warrants, each exercisable for 1 share of Class A common stock and one-half of one warrant (“Public Warrant”). Each whole Public Warrant entitles the holder to purchase one share of Class A1 common stock at a price of $11.50 per share subject(the "Public Warrants", refer to adjustment (see Note 7)7 - Stockholders' Equity and Stock-Based Compensation).
In connection with the Merger:
Note 4—Private Placementi.Each issued and outstanding South Mountain Class A and Class B share was converted into 1.0 share of Class 1 common stock of the Company; and
ii.All 6,954,500 private placement warrants of South Mountain were cancelled and are no longer outstanding.
Simultaneously withImmediately 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 closing of the Initial Public Offering,Business Combination, each stockholder of Legacy Billtrust received 7.2282662 shares of the Sponsor purchased an aggregateCompany’s Class 1 common stock, par value $0.0001 per share (“Common Stock”), for each share of 6,954,500 Private Placement Warrants at a priceLegacy Billtrust common stock, par value $0.001 per share, that such stockholder owned, except for one investor who requested to receive shares of $1.00Class 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, $0.0001 par value per Private Placement Warrant,share; 27,000,000 shares were designated Class 2 common stock, $0.0001 par value per share; and 10,000,000 shares were designated preferred stock, $0.0001 par value per share.
Concurrently with the completion of the Business Combination, on the Closing Date 20,000,000 new shares of Common Stock were issued (such purchases, the “PIPE”) for an aggregate purchase price of $6,954,500. Each Private Placement Warrant is exercisable$200.0 million.
In connection with the Business Combination, 9,005,863 shares of Common Stock were repurchased for cash from Legacy Billtrust shareholders (after conversion) at a price of $10.00 per share. Additionally, in connection
with a previous loan agreement in July 2014, the Company issued a lender a warrant to purchase one shareshares 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 Statements of Cash Flows and the Condensed Consolidated Statements of Stockholders' Equity for the six months ended June 30, 2021 (in thousands):
| | | | | |
| Reverse Recapitalization |
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) | |
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 A1 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 | |
South Mountain founder shares | 5,500,000 | |
Redemption of South Mountain shares | (2,015) | |
Common stock of South Mountain | 30,497,985 | |
Shares issued from PIPE | 20,000,000 | |
Legacy Billtrust shareholders' shares purchased for cash | (9,005,863) | |
Recapitalization shares | 41,492,122 | |
Legacy Billtrust stockholders' shares | 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 an exercisethe 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) had the contingent right to receive, in the aggregate, up to 12,000,000 shares of Class 1 common stock if, from the closing of the Merger until the fifth anniversary thereof, the average closing price of $11.50.BTRS Holdings Inc. Common Stock exceeds certain thresholds. The proceeds fromfirst issuance of 6,000,000 earnout shares is based on the Private Placement Warrants were added to the proceeds from the Initial Public Offering held in the Trust Account. If the Company does not complete a Business Combination within the Combination Period, the proceeds from the sale of the Private Placement Warrants will be used to fund the redemption of the Public Shares (subject to the requirements of applicable law), and all underlying securities will expire worthless.
SOUTH MOUNTAIN MERGER CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(Unaudited)
Note 5—Related Party Transactions
Founder Shares
In April 2019, the Sponsor purchased 5,750,000 shares (the “Founder Shares”) of the Company’s Class B common stock for an aggregatevolume-weighted average price of $25,000. On June 19, 2019, the Company effected a 1.125-for-1 stock split of its Class B common stock. As a result, the Sponsor held 6,468,750 Founder Shares, of which up to 218,750 shares were subject to forfeiture following the underwriter’s election to partially exercise its over-allotment option, so that the Sponsor would own, on an as-converted basis, 20% of the Company’s issued and outstanding shares after the Initial Public Offering (assuming the Sponsor did not purchase any Public Shares in the Initial Public Offering). The underwriters’ election to exercise their remaining over-allotment option expired unexercised on August 5, 2019 and, as a result, 218,750 Founder Shares were forfeited, resulting in 6,250,000 Founder Shares outstanding as of August 5, 2019. The Founder Shares will automatically convert into Class A common stock upon the consummation of a Business Combination on a one-for-one basis, subject to adjustments as described in Note 7.
The Sponsor has agreed, subject to certain limited exceptions, not to transfer, assign or sell any of its Founder Shares until the earlier to occur of: (i) one year after the completion of a Business Combination or (ii) the date on which the Company completes a liquidation, merger, capital stock exchange or other similar transaction that results in all of the Company’s stockholders having the right to exchange their shares of common stock for cash, securities or other property. Notwithstanding the foregoing, if the last sale price of the Class A common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like)Common Stock exceeding $12.50 for any 20 trading days within any 30-trading30 trading day period commencing(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” and together with the First Earnout, the "Earnout Shares").
Subsequent to the closing of the Merger and in the first quarter of 2021, 10,917,736 shares of Class 1 and Class 2 common stock were issued associated with attainment of the First Earnout and the Second Earnout thresholds.
The difference in the Earnout Shares issued and the aggregate amounts defined in the Merger Agreement is primarily attributable to 836,208 unissued shares reserved for future issuance to holders of unvested options in the form of restricted stock units (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, 246,056 shares of common stock were withheld from employees to satisfy the mandatory tax withholding requirements, for which the company remitted cash of $4.0 million to the appropriate tax authorities.
As of the Closing date, the prior holders of South Mountain stock agreed that of their existing issued and outstanding shares of Class 1 common stock, 2,375,000 shares would be subject to vesting conditions based upon the same price milestones in the First Earnout (1,187,500 shares) and Second Earnout (1,187,500 shares) as discussed above ("Sponsor Vesting Shares").
The Company determined that the Earnout Shares issued to non-employee shareholders and to holders of BTRS Holdings Inc. common stock, vested options from the 2003 Plan and 2014 Plan, and the Sponsor Vesting Shares do not meet the criteria for equity classification under Accounting Standards Codification ("ASC") 815-40. Accordingly, these shares are required to be classified as a liability and recorded at least 150 days after atheir fair values, with the remeasurement of their fair values at each reporting period recorded in earnings. Upon closing of the Business Combination, the Founderfair value of the shares was determined using a Monte Carlo simulation (using the same assumptions as Earnout RSUs discussed below), resulting in a fair value of $16.80 per share. The shares were remeasured at their fair values through the dates the First Earnout and Second Earnout were achieved in the first quarter of 2021. The liability associated with the Earnout Shares will be released from the lock-up.
Promissory Note—Related Party
On April 19, 2019, the Company issued an unsecured promissory notedelivered to the Sponsor (the “Promissory Note”), pursuantequity 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 whichequity as shares issued, with the Sponsor agreedappropriate allocation to loancommon stock at par value and additional paid-in capital.
The following table is a reconciliation of the Company an aggregateliability balance at the Closing Date and the changes therein for the six months ended June 30, 2021 (in thousands):
| | | | | | | | | | | | | | | | | |
| Earnout Shares | | Sponsor Vesting Shares | | Total |
Fair value on Closing Date | $ | 191,095 | | | $ | 39,900 | | | $ | 230,995 | |
Fair value adjustment (1) | 8,246 | | | 1,780 | | | 10,026 | |
Amount paid for tax withholding | (4,013) | | | 0 | | | (4,013) | |
Amount reclassified to equity | (195,328) | | | (41,680) | | | (237,008) | |
Ending balance, June 30, 2021 | $ | 0 | | | $ | 0 | | | $ | 0 | |
(1) Included in change in fair value of up to $300,000 to cover expenses related tofinancial instruments and other income in the Initial Public Offering. The Promissory Note was non-interest bearingCondensed Consolidated Statements of Operations and payableComprehensive Loss.
Earnout RSU's issued based on the earlier of December 31, 2019 or the completionamount of the Initial Public Offering.unvested options are recognized in earnings as stock-based compensation expense under ASC 718. The borrowings outstanding under the Promissory Note of $175,000 were repaid upon the consummationfair value of the Initial Public OfferingEarnout RSU's was determined using a Monte Carlo simulation, including the stock price on June 24, 2019.
Administrative Support Agreement
The Company entered into an agreement whereby, commencing on June 19, 2019, the Company will pay an affiliateClosing Date of $16.80, a risk free rate of 0.5%, and a volatility rate of 42%. Stock-based compensation expense is recorded over the vesting period of the Sponsor a totalEarnout RSU's.
For the three and six months ended June 30, 2021, $2.0 million and $4.1 million of $25,000 per monthexpense, respectively, was recognized for office space, administrativethe Earnout RSU's and support services. Uponis included in operating expenses and cost of subscription, transaction and services in the Condensed Consolidated Statements of Operations and Comprehensive Loss.
Offering Costs
In accordance with ASC 340-10-S99-1, offering costs, consisting principally of underwriters fees and professional, printing, filing, regulatory, and other costs, were charged to additional paid-in capital upon completion of the Business CombinationCombination. As of December 31, 2020, of $2.8 million of these costs were accrued and deferred in other assets on the Condensed Consolidated Balance Sheets.
Note 4 - Goodwill and Intangible Assets
Goodwill
Goodwill represents the excess of the purchase price of acquired businesses over the estimated fair values of the tangible and identifiable intangible net assets acquired. Goodwill is not amortized; however, it is required to be tested for impairment annually, which requires assessment of the potential impairment at the reporting unit level. Testing for impairment is also required on an interim basis if an event or circumstance indicates it is more likely than not an impairment loss has been incurred.
The Company performed its annual impairment testing as of October 1, 2020 utilizing a qualitative assessment to determine if it was more likely than not that the Company’s liquidation,fair values of each of its reporting units was less than their respective carrying values and concluded that no impairment existed. Subsequent to completing the annual test and through June 30, 2021, there were no events or circumstances that required an interim impairment test. Additionally, as of June 30, 2021, the Company will cease paying these monthly fees. Forhad no accumulated goodwill impairment losses.
All of the Company's goodwill is attributable to its Software and Payments segment. There were no changes to the carrying amount of goodwill during the six months ended June 30, 2021.
Finite-Lived IntangibleAssets
The gross carrying values, accumulated amortization, and net carrying values of finite-lived intangible assets as of June 30, 2021 and December 31, 2020 are as follows (in thousands):
| | | | | | | | | | | | | | | | | |
| June 30, 2021 |
| Gross Carrying Value | | Accumulated Amortization | | Net Carrying Value |
Customer relationships | $ | 16,350 | | | $ | (9,524) | | | $ | 6,826 | |
Non-compete agreements | 1,430 | | | (773) | | | 657 | |
Trademarks and trade names | 160 | | | (60) | | | 100 | |
Technology | 1,540 | | | (700) | | | 840 | |
Total | $ | 19,480 | | | $ | (11,057) | | | $ | 8,423 | |
| | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| Gross Carrying Value | | Accumulated Amortization | | Net Carrying Value |
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 | |
Amortization expense for finite-lived intangible assets was $0.6 million for both the three and nine months ended SeptemberJune 30, 2021 and 2020, and $1.1 million for both the six months ended June 30, 2021 and 2020.
Estimated amortization expense for each of the next five years and thereafter is as follows (in thousands):
| | | | | |
2021 (remainder) | $ | 714 | |
2022 | 1,269 | |
2023 | 1,174 | |
2024 | 930 | |
2025 | 737 | |
Thereafter | 3,599 | |
Total | $ | 8,423 | |
Note 5 - Revenue and Related Matters
Disaggregated Revenue
The Company disaggregates revenue as set forth in the following table (in thousands):
Revenue by Type
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
Revenues: | | 2021 | | 2020 | | 2021 | | 2020 |
Subscription and transaction fees | | $ | 29,072 | | | $ | 23,809 | | | $ | 59,255 | | | $ | 46,935 | |
Services and other | | 2,517 | | | 1,837 | | | 5,453 | | | 3,235 | |
Subscription, transaction, and services | | $ | 31,589 | | | $ | 25,646 | | | $ | 64,708 | | | $ | 50,170 | |
Contract Assets and Liabilities
Accounts Receivable
Accounts receivable includes amounts billed and currently due from customers. The Company’s payment terms and conditions vary by contract type and generally require payment of 25% to 100% of total contract consideration upon signing. 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. There were no contract assets as of June 30, 2021 or 2020.
In addition, since payment is generally expected within one year from the transfer of products and services, the Company does not adjust its receivables or transaction prices for the effects of a significant financing component.
Deferred Revenue
Amounts billed to clients in excess of revenue recognized are contract liabilities (referred to as deferred revenue in the Condensed Consolidated Balance Sheets). Deferred revenue primarily relates to implementation fees for new customers or for new services. These fees are recognized ratably over the estimated term of the customer relationship, which is five years for the Company's SaaS products, and two to four years for services sold from acquired companies, billing data storage fees, and annual maintenance services agreements.
During the three months ended June 30, 2021 and 2020, the Company incurred $75,000recognized $4.9 million and $225,000,$4.1 million of revenue, respectively, related to its deferred revenue balance at the beginning of each such period. During the six months ended June 30, 2021 and 2020, the Company recognized $11.5 million and $5.4 million of revenue, respectively, related to its deferred revenue balance at the beginning of each such period. To determine revenue recognized in feeseach period, the Company first allocates revenue to the deferred revenue balance outstanding at the beginning of each period, until the revenue equals that balance.
The amount of revenue recognized in the six months ended June 30, 2021 included $2.5 million in the first quarter of 2021 related to the acceleration of previously paid and deferred revenue from a customer that terminated its contract in the first quarter of 2021.
Remaining Performance Obligations
As of June 30, 2021, the Company had approximately $33.3 million of remaining performance obligations, primarily from multi-year contracts for these services. Therethe 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 revenue for approximately 95% of this amount during the next 36 months, and the remainder thereafter.
To determine the amount of remaining performance obligations, the Company applies the practical expedient which allows for the exclusion of (1) amounts from contracts with an original expected duration of one year or less, and (2) variable consideration allocated to unsatisfied performance obligations for which variable consideration is $375,000allocated 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.
Deferred Commissions
The Company capitalizes commissions paid to sales personnel that are incremental and $150,000recoverable costs of obtaining customer contracts. These costs are included in accrued expensesdeferred implementation, commissions, and other costs, current in the accompanying condensed balance sheetsCondensed Consolidated Balance Sheets. Commission costs are amortized to earnings ratably over four to five years based on the Company's experience with its 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.
Commissions are earned by sales personnel upon the execution of a sales contract by the customer. 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. Substantially all sales commissions are generally paid at one of three points: (1) upon execution of a customer contract, (2) when a customer completes implementation and training processes or commences usage based volume, or (3) after a period of time from three to twelve months thereafter.
During the six months ended June 30, 2021, the Company capitalized commission costs of $1.7 million and amortized $1.5 million to sales and marketing expense in the Condensed Consolidated Statements of Operations and Comprehensive Loss, in addition to commissions which were expensed as incurred related to the achievement of Septemberquotas or other sales performance targets. As of June 30, 20202021 and December 31, 2019, respectively.
Related Party Loans
In order to finance transaction costs in connection with a Business Combination, the Sponsor, an affiliate of the Sponsor, or the Company’s officers and directors may, but none of them are obligated to, loan2020 the Company funds from timehad approximately $2.6 million and $2.4 million, respectively, of current deferred commissions for amounts expected to time or at any time, as may be required (“Working Capital Loans”). Each Working Capital Loan would be evidenced by a promissory note. The Working Capital Loans would either be paid upon consummation of a Business Combination, without interest, or, at the holder’s discretion, up to $1,500,000 of the Working Capital Loans may be converted into warrants at a price of $1.00 per warrant. The warrants would be identical to the Private Placement Warrants. In the event that a Business Combination does not close, the Company may use a portion of the proceeds held outside the Trust Account to repay the Working Capital Loans, but no proceeds heldrecognized in the Trust Account would be used to repay the Working Capital Loans.
Note 6—Commitments
Registration Rights
Pursuant to a registration rights agreement entered into on June 19, 2019, the holdersnext 12 months, and $5.3 million and $5.2 million, respectively, of the Founder Shares, Private Placement Warrants and warrants issued upon conversion of Working Capital Loans (and any shares of common stock issuable upon the exercise of the Private Placement Warrants or warrants issued upon conversion of the Working Capital Loans) will be entitled to registration rights pursuant to a registration rights agreementnon-current deferred commissions for amounts expected to be signed prior to or on the effective date of the Initial Public Offering requiring the Company to register such securities for resale (in the case of the Founder Shares, only after conversion into shares of Class A common stock). These holders of these securities will be entitled to make up to three demands, excluding short form registration demands, that the Company register such securities. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to the completion of a Business Combination and rights to require the Company to register for resale such securities pursuant to Rule 415 under the Securities Act. recognized thereafter.
The Company will bearevaluates the expenses incurred in connection with the filingrecoverability of any such registration statements.
SOUTH MOUNTAIN MERGER CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(Unaudited)
Sale of Units to Related Party
A fund managed by an affiliate of the Sponsor purchased 2,227,500 Units in the Initial Public Offeringdeferred commissions at the Initial Public Offering price. The underwriter did not receive any underwriting discount or commissions on the Units purchased by such fund.
Underwriting Agreement
The underwriter was paid a cash underwriting discount of 2.0% of the gross proceeds from the Units sold in the Initial Public Offering, after deducting the proceeds received from the fund managed by an affiliate of the Sponsor, or $4,554,500 in the aggregate. In addition, the underwriter is entitled to a deferred fee of 3.5% of the gross proceeds from the Units sold in the Initial Public Offering, or $7,970,375. The deferred fee will be forfeited by the underwriter solely in the event that the Company fails to complete a Business Combination, subject to the terms of the underwriting agreement. The underwriter did not receive any underwriting discount or commissions on Units purchased by a fund managed by an affiliate of the Sponsor.
Note 7—Stockholders’ Equity
Preferred Stock —The Company is authorized to issue 1,000,000 shares of preferred stock with a par value of $0.0001 per share with such designations, votingeach balance sheet date and other rights and preferences as may be determined from time to time by the Company’s board of directors. At September 30, 2020 and December 31, 2019, there were no shares of preferred stock issuedimpairments recorded during the six months ended June 30, 2021 or outstanding.2020.
Class A Common Stock —The CompanyNote 6 - 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 authorized to issue 200,000,000 shares of Class A common stock with a par value of $0.0001an earnings allocation that determines net income (loss) per share. Holders of Class A common stock are entitled to one voteshare for each share. At September 30, 2020 and December 31, 2019, there were 1,179,479 and 1,138,051 sharesclass of Class A common stock issued and outstanding, excluding 23,820,521 and 23,861,949 shares of Class Astock. Per share amounts are calculated by dividing the net loss attributable to common stock subject to possible redemption, respectively.
Class B Common Stock —The Company is authorized to issue 20,000,000 shares of Class B common stock with a par value of $0.0001 per share. Holders of Class B common stock are entitled to one vote for each share. At September 30, 2020 and December 31, 2019, there were 6,250,000 shares of Class B common stock issued and outstanding.
Holders of Class B common stock will havestockholders by the right to elect all of the Company’s directors prior to the consummation of a Business Combination. On any other matter submitted to a vote of the Company’s stockholders, holders of Class A common stock and Class B common stock will vote together as a single class on all other matters submitted to a vote of stockholders, except as required by law. These provisions of the Company’s Amended and Restated Certificate of Incorporation may only be amended if approved by a majority of at least 90% of the Company’s common stock voting at a stockholder meeting.
The shares of Class B common stock will automatically convert into shares of Class A common stock at the time of a Business Combination on a one-for-one basis, subject to adjustment. In the case that additional shares of Class A common stock, or equity-linked securities, are issued or deemed issued in excess of the amounts offered in the Initial Public Offering and related to the closing of a Business Combination, the ratio at which shares of Class B common stock shall convert into shares of Class A common stock will be adjusted (unless the holders of a majority of the outstanding shares of Class B common stock agree to waive such adjustment with respect to any such issuance or deemed issuance) so that theweighted-average number of shares of Class A common stock issuable upon conversion of all shares of Class B common stock will equal, in the aggregate, on an as-converted basis, 20% of the sum of the total number of all shares of common stock outstanding uponduring the completionperiod, 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 Initial Public Offering (not includingCompany.
The following table sets forth the computation of the basic and diluted net loss per share attributable to the Class 1 and Class 2 common stockholders, which have the same rights and privileges, except for voting rights, for the periods presented (in thousands, except per share and share amounts):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Numerator: | | | | | | | |
Net loss | $ | (10,736) | | | $ | (2,902) | | | $ | (33,530) | | | $ | (9,999) | |
| | | | | | | |
Denominator: | | | | | | | |
Weighted-average common shares outstanding | 157,196,511 | | | 99,853,968 | | | 151,289,243 | | | 99,828,779 | |
Net loss per share attributable to common stockholders: | | | | | | | |
Basic and diluted | $ | (0.07) | | | $ | (0.03) | | | $ | (0.22) | | | $ | (0.10) | |
Since the Company was in a loss position for all periods presented, basic net loss per share is the same as diluted net loss per share as the inclusion of all potential common shares outstanding would have been anti-dilutive. Potentially dilutive securities that were not included in the diluted per share calculations because they would be antidilutive, were as follows as of Class Athe dates presented, based on the underlying shares and not considering all factors that would be involved in determining the common stock underlying the Private Placement Warrants) plus all shares of Class A common stockequivalents:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Stock options | 21,082,614 | | | 16,913,426 | | | 21,082,614 | | | 16,913,426 | |
Restricted stock units | 706,471 | | | 0 | | | 706,471 | | | 0 | |
Warrants | 12,497,700 | | | 12,500,000 | | | 12,497,700 | | | 12,500,000 | |
| 34,286,785 | | | 29,413,426 | | | 34,286,785 | | | 29,413,426 | |
Note 7 - Stockholders' Equity and equity-linked securities issued or deemed issued inStock-Based Compensation
Public Warrants
In connection with athe Business Combination (excluding any shares or equity-linked securities(refer to Note 3 - Business Combination), Billtrust assumed the Public Warrants that had previously been issued or to be issued, to any seller in a Business Combination, any private placement-equivalent securities issued, or to be issued, to any seller in a Business Combination, any private placement equivalent securities issued to the Sponsor or its affiliates upon conversion of loans made to the Company).
Warrants —Publicby South Mountain. The Public Warrants may only be exercised for a whole number of shares.shares of Class 1 common stock at a price of $11.50 per share. No fractional warrants will be issued upon separation of the Unitsunits and only whole warrants will trade. The Public Warrants will become exercisable on the later of (a) 30 days after the completion of a Business Combination or (b) 12 months fromFollowing the closing of the Initial Public Offering; provided in each case that the Company has an effective registration statement under the Securities Act covering the shares of common stock issuable upon exercise of the Public Warrants and a current prospectus relating to them is available. The Company has agreed that as soon as practicable, but in no event later than 15 business days after the closing of a Business Combination, the Company will use its best efforts to filefiled a registration statement with the SEC and within 60 business days following a Business Combination to havethat was declared effective a registration statementin February 2021 covering the issuance of the shares of Class A1 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 warrantsPublic Warrants expire or are redeemed. Notwithstanding the above, if ourthe Company's Class A1 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 weat the time of any exercise of a Public Warrant, the Company may, at ourits option, require holders of public warrantsPublic Warrants who exercise their warrants to do so on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act and, inAct. In the event wethe Company so elect, weelects, it will not be required to file or maintain in effect a registration statement, but will use ourits 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 Combinationbusiness combination or earlier upon redemption or liquidation.
SOUTH MOUNTAIN MERGER CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(Unaudited)
Redemptions of Warrants for Cash — Once the warrantsPublic Warrants become exercisable, the Company may redeem the Public Warrants:them as follows:
ini.In whole and not in part;
atii.At a price of $0.01 per warrant;
uponiii.Upon a minimum of 30 days’ prior written notice of redemption; and
if,iv.If, and only if, the reported last sale price of the Company’s Class A1 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.
Note 8—Fair Value Measurements
The Company followsdetermined (1) the guidancePublic 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 as of the Closing Date, the Public Warrants were accounted for within stockholders' equity as a component of additional paid-in capital in ASC 820the Condensed Consolidated Balance Sheets. 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 its financial assetscash.
Common Stock
Each share of Class 1 common stock has the right to one vote. The holders of the common stock are also entitled to receive dividends whenever funds are legally available and liabilities thatif/when declared by the Board of Directors. No dividends have been declared or paid since inception. Each share of Class 2 common stock is the same in all respects as Class 1 common stock, except it does not have voting rights.
Preferred Stock
As of June 30, 2021, the Board of Directors had authorized 10,000,000 shares of preferred stock, par value $0.0001, of which no shares were issued and outstanding.
Equity Incentive Plans
As part of the Business Combination (refer to Note 3 - Business Combination), the Company adopted the 2020 Equity Incentive Plan (the "2020 Plan") and 2020 Employee Stock Purchase Plan (the "2020 ESPP"). These plans are re-measuredadministered by the Board of Directors, which has the authority to designate participants and reported atdetermine the number and type of awards to be granted and any other terms or conditions of the awards. Awards eligible to be granted include incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance awards, and other awards. The Board of Directors authorized up to 14,526,237 shares of common stock to be granted pursuant to the 2020 Plan and 1,452,623 shares of common stock to be issued pursuant to the 2020 ESPP. Such aggregate number of shares 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 4 percent (for the 2020 Plan) and 1 percent (for the 2020 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. The Board of Directors may act prior to January 1st of a given year to restrict the increase for such year to a lesser number of shares.
In connection with adopting the 2020 Plan and 2020 ESPP, the 2003 Stock Incentive Plan and the 2014 Incentive Compensation Plan (together, the "Prior Plans") were frozen and no further grants can be made pursuant to the Prior Plans. All outstanding options under the Prior Plans were converted to options of the Company using the Conversion Rate applied to the number of options and original exercise price. The converted options continue to vest based upon their original terms.
Stock Options
Stock option activity for the six months ended June 30, 2021 is presented below (in thousands, except share, per share, and contractual life amounts):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Number of Shares | | Weighted-Average Exercise Price | | Weighted-Average Remaining Contractual Life (in Years) | | Aggregate Intrinsic Value |
Outstanding at December 31, 2020 | | 16,170,738 | | | $ | 2.69 | | | | | |
Granted | | 8,251,638 | | | 16.70 | | | | | |
Exercised | | (3,046,982) | | | 1.39 | | | | | |
Forfeited | | (292,780) | | | 10.24 | | | | | |
Outstanding at June 30, 2021 | | 21,082,614 | | | $ | 8.26 | | | 8.2 | | $ | 125,232 | |
Vested and expected to vest at June 30, 2021 | | 18,285,991 | | | $ | 7.36 | | | 8.0 | | $ | 120,570 | |
Exercisable at June 30, 2021 | | 7,122,553 | | | $ | 2.97 | | | 6.4 | | $ | 70,029 | |
Restricted Stock Units
Restricted stock units ("RSU's") represent the right to receive one share of Billtrust common stock upon meeting the vesting conditions. Shares are delivered to the grantee upon vesting, less shares for the payment of withholding taxes. The fair value atof RSU's is determined based on the closing price of the common stock on the grant date.
Restricted stock unit activity for the six months ended June 30, 2021 is presented below:
| | | | | | | | | | | | | | |
| | Number of Shares | | Weighted-Average Grant Date Fair Value |
Unvested at December 31, 2020 | | 0 | | | $ | 0 | |
Granted (1) | | 847,888 | | | 16.77 | |
Vested | | (134,823) | | | 16.58 | |
Forfeited | | (27,492) | | | 16.80 | |
Unvested at June 30, 2021 | | 685,573 | | | $ | 16.80 | |
(1) No RSU's were granted prior to the Business Combination. 836,208 of the granted shares represent the Earnout RSU's issued as part of the Business Combination (refer to Note 3 - Business Combination for further discussion).
Additionally, 21,898 shares of common stock were withheld from employees to satisfy the mandatory tax withholding requirements, for which the Company remitted cash of $0.3 million to the appropriate tax authorities.
Employee Stock Purchase Plan ("ESPP")
Under the terms of the 2020 ESPP, on May 26, 2021, the Board of Directors approved the Company's ESPP offering program. With certain limitations, all Billtrust employees whose customary employment is more than 20 hours per week are eligible to participate in the ESPP.
The initial offering period, which consists of one purchase period, will commence on July 1, 2021 and run through November 30, 2021. Thereafter, each reportingoffering period will run for approximately six months, consisting of a single six month purchase period commencing on each successive June 1 and non-financial assetsDecember 1. At the end of each purchase period, employee payroll contributions are used to purchase shares of the Company's common stock. Employees can elect to have up to 15% of their eligible compensation withheld for the purpose of purchasing shares under the ESPP. During an offering period, employees may decrease their contributions to, or withdraw from, the ESPP by the 20th day of the month in which the purchase period ends, and liabilitiesreceive a refund of their accumulated payroll contributions.
During each purchase period, the maximum number of shares of common stock that are re-measuredmay be purchased by an employee is limited to the number of shares equal to $12,500 divided by the common stock closing price on the first day of a purchase period. The number of shares purchased on any single date, by any one employee, cannot exceed 5,000 shares. The purchase price for each share of common stock purchased is the lower of: (1) 85% of the closing price of the common stock on the first day of the purchase period, or (2) 85% of the closing price of the common stock on the last day of the purchase period.
During the six months ended June 30, 2021, 0 shares were purchased or issued pursuant to the 2020 ESPP.
Stock-Based Compensation Expense
The Company records stock-based compensation expense related to all of the Company’s stock-based awards over the requisite service period of the individual grantee, which is generally equal to the vesting period. Stock-based compensation expense was recorded in the following categories in the Condensed Consolidated Statements of Operations and reported at fair value at least annually.Comprehensive Loss (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
Cost of subscription, transaction, and services | | $ | 405 | | | $ | 57 | | | $ | 848 | | | $ | 88 | |
Research and development | | 1,091 | | | 139 | | | 2,314 | | | 237 | |
Sales and marketing | | 961 | | | 117 | | | 2,292 | | | 193 | |
General and administrative | | 3,249 | | | 367 | | | 9,078 | | | 643 | |
Total | | $ | 5,706 | | | $ | 680 | | | $ | 14,532 | | | $ | 1,161 | |
The fair value of RSU's was estimated based on the closing market price of the Company's common stock on the date of grant. As of June 30, 2021, the total unrecognized stock-based compensation expense related to RSUs was $10.6 million. These costs are expected to be recognized over a weighted-average period of 2.5 years.
The fair value of stock options granted was estimated at the date of grant using the Black-Scholes valuation model with the following assumptions:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, | | | |
| | 2021 | | 2020 | | 2021 | | 2020 | |
Risk-free interest rate | | 1.3% - 1.4% | | 0.5% - 0.7% | | 0.6% - 1.4% | | 0.5% - 1.6% | | | |
Expected dividend yield | | 0 | % | | 0 | % | | 0 | % | | 0 | % | |
Expected volatility | | 41 | % | | 39% -44% | | 41% - 42% | | 39% - 44% | | | |
Expected life (in years) | | 5.5 | | 6.9 | | 5.5 | | 6.9 | |
| | | | | | | | | | | |
Weighted average grant date fair value | | $ | 6.61 | | | $ | 0.97 | | | $ | 7.47 | | | $ | 1.14 | | | | |
As of June 30, 2021, the total unrecognized stock-based compensation expense related to stock options was $39.2 million. These costs are expected to be recognized over a weighted average period of 3.1 years.
Note 8 - Defined Contribution Plan
The Company sponsors a 401(k) defined contribution benefit plan. Participation in the plan is available to substantially all employees. Company contributions to the plan are discretionary and are subject to vesting requirements based on four years of continuing employment. The Company generally makes matching contributions of one-half of the first 6% of employee contributions. During the three months ended June 30, 2021 and 2020 the Company contributed $0.4 million and $0.1 million, respectively. During the six months ended June 30, 2021 and 2020 the Company contributed $0.9 million and $0.4 million, respectively.
Note 9 - Debt and Capital Lease Obligations
The following table summarizes the Company's total debt and capital lease obligations as of the dates indicated (in thousands):
| | | | | | | | | | | |
| June 30, | | December 31, |
| 2021 | | 2020 |
Term Loan | $ | 0 | | | $ | 44,663 | |
Unamortized debt issuance costs | 0 | | | (1,234) | |
Capital lease obligations (Note 10) | 152 | | | 246 | |
Net carrying amounts | 152 | | | 43,675 | |
2020 Financing Agreement
On January 17, 2020, the Company entered into a Financing Agreement (the "2020 Financing Agreement") for a $72.5 million credit facility, secured by substantially all the assets of the Company. In connection therewith, the previously outstanding Term Loan and Revolver of $28.3 million was paid in full and the related liens were released.
The 2020 Financing Agreement consisted of the following facilities:
i.An Initial Term Loan of $45.0 million, which was drawn at closing and used to pay off previously outstanding borrowings;
ii.A Delayed Draw Term Loan of up to $20.0 million, which was available to draw in minimum increments through July 17, 2021; and
iii.A Revolving Commitment facility of $7.5 million, including a sub-limit of up to $4.0 million for issuing additional letters of credit.
In connection with the Business Combination on January 12, 2021 (refer to Note 3 - Business Combination), the Company paid the outstanding facilities in full, along with a prepayment penalty, and extinguished the 2020 Financing Agreement. In connection therewith, the unamortized debt discount of $1.2 million and a prepayment penalty and associated costs of $1.6 million were recorded in interest expense and loss on extinguishment of debt in the Condensed Consolidated Statements of Operations and Comprehensive Loss.
Note 10 - Commitments and Contingencies
Lease Commitments
The majority of the Company's leases are operating leases for its office space and print facilities.
In August 2017, the Company entered into a lease agreement for its Company headquarters consisting of 88,759 square feet of office space in Lawrenceville, New Jersey. The term of this lease is 15 years, 6 months subject to early termination if (1) there is not sufficient space for expansion beyond the initial space, starting 6 years, 6 months after lease commencement, which will require an early termination payment that declines from $7.5 million at such date by $0.7 million per year after such date, or (2) upon advance notice by the Company, at 12 years, 6 months after lease commencement, which will require an early termination payment of $3.6 million. The lease contains an option to lease up to 61,000 additional square feet, starting 6 years, 6 months after lease commencement, and also contains 2 extension periods of 5 years each. The lease commenced in June 2018 and the Company recognizes rent expense on a straight-line basis over the initial term of the lease, including the free rent period.
The Company has capitalized approximately $5.7 million of costs related to leasehold improvements, furniture and fixtures, and computer equipment associated with this office space. Additionally, in 2018 the landlord paid for approximately $5.8 million of costs and related improvements to modify the existing space to meet the Company's requirements. This lease incentive was recorded as an asset and other long term liability as of the date the lease commenced. The asset is being amortized over term of the lease, and the long term liability is being recorded as a reduction to rent expense over the same period of time.
The Company also leases equipment under capital lease agreements. The capital leases have stated or implied interest rates between 5% and 11% and maturity dates into 2024. The equipment financed under the capital leases serves as collateral, and certain leases contain casualty loss values if the equipment is not returned in working order at the end of the lease term.
Future minimum lease payments under non-cancelable operating and capital leases as of June 30, 2021 are as follows (in thousands):
| | | | | | | | | | | |
| Operating Leases | | Capital Leases |
2021 (remainder) | $ | 2,333 | | | $ | 91 | |
2022 | 4,563 | | | 52 | |
2023 | 4,284 | | | 13 | |
2024 | 4,138 | | | 1 | |
2025 | 4,115 | | | 0 | |
Thereafter | 28,136 | | | 0 | |
Total minimum lease payments | $ | 47,569 | | | $ | 157 | |
Less: Amounts representing interest | | | (5) | |
Present value of lease payments | | | 152 | |
Less: Current portion | | | (124) | |
Long-term portion of minimum lease payments | | | $ | 28 | |
Total rent expense for both the six months ended June 30, 2021 and 2020 amounted to $2.6 million.
Purchase Commitments
The Company enters into purchase commitments with certain vendors to secure pricing for paper, envelopes, and similar products necessary for its print operations. As of June 30, 2021, the Company did not have a material balance remaining under such purchase orders.
Legal Contingencies, Claims, and Assessments
During the normal course of business, the Company is occasionally involved with various claims and litigation. Reserves are established for such matters when a loss is probable and the amount of such loss can be reasonably estimated, including for indemnifications with customers or other parties as a result of contractual agreements. Currently, the Company is not party to any such matters that, in the opinion of management, would individually or taken together have a material adverse effect on its business, operating results, financial condition, or cash flows. Accordingly, no material reserves have been recorded.
Note 11 - Income Taxes
The Company is subject to federal and various state income taxes in the United States. The Company’s provision for income taxes during interim periods is determined using an estimate of the Company’s annual effective tax rate, which is adjusted for certain discrete tax items during interim periods.
Income taxes for the six months ended June 30, 2021 and 2020 are primarily due to tax amortization of indefinite-lived assets and state income taxes.
Section 382 of the Internal Revenue Code of 1986, as amended, imposes an annual limitation on the amount of net operating loss carryforwards that may be used to offset federal taxable income and federal tax liabilities when a corporation has undergone significant changes in its ownership. The Company is evaluating the ownership change as a result of the Business Combination (refer to Note 3 - Business Combination) to determine any impact on utilization of net operating loss carryforwards.
Note 12 - Short Term Investments
The Company’s investments at June 30, 2021 consist entirely of certificates of deposit with a financial institution, and have maturity dates of twelve months or less.
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 included in interest income (expense) in the Condensed Consolidated Statements of Operations and Comprehensive Loss. The Company uses the specific identification method to determine the cost basis of securities sold and realized gains or losses are included in earnings.
The Company did not have any investments classified as held-to-maturity as of June 30, 2021 or December 31, 2020.
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, 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 in the investment is established.
Note 13 - Fair Value Measurements
The carrying amounts reflected in the Condensed Consolidated Balance Sheets for cash, cash equivalents, restricted cash, accounts receivable, funds held for customers, other current assets, other assets, accounts payable, accrued expenses (excluding the contingent consideration and warrants discussed below), other current liabilities, and other liabilities approximate fair value due to their short-term maturities.
Additionally, the Company measures certain financial assets and liabilities reflects management’s estimateat fair value on a recurring basis including short term investments, contingent consideration, and warrants to purchase Series C preferred stock (refer to Note 3 - Business Combination). The fair values of amountsthese 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, quotes prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the Company would have received in connection with the salefull term of the assets or paid in connection with the transfer of the liabilities in an orderly transaction betweenliabilities.
•Level 3: Unobservable inputs for which there is little or no market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities,data, requiring the Company seeks to maximize the use of observable inputs (market data obtained from independent sources)develop its own estimates and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities).
The following tables present the Company's fair value hierarchy is used to classifyfor its financials assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:
| Level 1: | Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
|
| Level 2: | Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active.
|
| Level 3: | Unobservable inputs based on our assessment of the assumptions that market participants would use in pricing the asset or liability.
|
The following table presents information about the Company’s assets that are measured at fair value on a recurring basis (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2021 |
| Balance | | Level 1 | | Level 2 | | Level 3 |
Assets: | | | | | | | |
Short-term investments | 45,037 | | | 45,037 | | | 0 | | | 0 | |
Total Assets | $ | 45,037 | | | $ | 45,037 | | | $ | 0 | | | $ | 0 | |
| | | | | | | |
Liabilities: | | | | | | | |
Contingent consideration (1) | $ | 370 | | | $ | 0 | | | $ | 0 | | | $ | 370 | |
| | | | | | | |
Total Liabilities | $ | 370 | | | $ | 0 | | | $ | 0 | | | $ | 370 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| Balance | | Level 1 | | Level 2 | | Level 3 |
Liabilities: | | | | | | | |
Contingent consideration (1) | $ | 660 | | | $ | 0 | | | $ | 0 | | | $ | 660 | |
Warrants to purchase Series C Preferred Stock (2) | 1,172 | | | 0 | | | 0 | | | 1,172 | |
Total Liabilities | $ | 1,832 | | | $ | 0 | | | $ | 0 | | | $ | 1,832 | |
(1) The acquisition of Second Phase, LLC in April 2019 included a contingent consideration arrangement that required additional consideration to be paid to the sellers annually based meeting certain recurring revenue growth and profitability targets (together, "the Financial Targets") during the three-year period beginning May 1, 2019. No amounts were paid during 2020 or 2021 for the first or second year as the Financial Targets were not met. The year three amount, if any, is expected to be finalized and paid to the sellers by the end of 2022. The range of outcomes for the year three amount cannot be estimated as the amount payable is a percentage of the growth in the Financial Targets. The fair value of the remaining contingent consideration is included in other current liabilities in the Condensed Consolidated Balance Sheets.
(2) The Company had outstanding warrants to purchase Series C stock, as described in Note 3 - Business Combination. The amount was included in other long term liabilities in the Condensed Consolidated Balance Sheets.
During the six months ended June 30, 2021 and 2020, the Company did not transfer assets or liabilities between levels of the fair value hierarchy. Additionally, there have been no changes to the valuation techniques for Level 2 or Level 3 liabilities.
The following tables present the changes in the Company’s Level 3 financial instruments measured at Septemberfair value on a recurring basis (in thousands):
| | | | | | | | |
| | Contingent Consideration |
| | |
| | |
| | |
| | |
Ending balance, December 31, 2020 | | $ | 660 | |
| | |
| | |
| | |
Fair value adjustment to contingent consideration (1) | | (290) | |
Ending balance, June 30, 2021 | | $ | 370 | |
| | | | | | | | |
| | Warrants |
Ending balance, December 31, 2020 | | $ | 1,172 | |
Change in fair value (2) | | 256 | |
Exercise of Series C warrants (3) | | (1,428) | |
Ending balance, June 30, 2021 | | $ | 0 | |
(1) Subsequent to the acquisition of Second Phase, LLC, the changes in the fair value of the contingent consideration were primarily due to management's estimates and the achievements of the Financial Targets during each period. Increases or decreases in the inputs would have resulted in higher or lower fair value adjustments. This amount was recognized in change in fair value of financial instruments and other income in the Condensed Consolidated Statements of Operations and Comprehensive Loss.
(2) Included in change in fair value of financial instruments and other expenses in the Condensed Consolidated Statements of Operations and Comprehensive Loss.
(3) As part of the Business Combination on January 12, 2021 (refer to Note 3 - Business Combination), the warrants were exercised and subsequently converted to common stock.
Note 14 - Property and Equipment
Property and equipment, net consists of the following (in thousands):
| | | | | | | | | | | | | | |
| | June 30, | | December 31, |
| | 2021 | | 2020 |
Assets held under capital leases | | $ | 3,784 | | | $ | 3,752 | |
Computer, print and mail equipment | | 8,777 | | | 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 | | 2,959 | | | 2,644 | |
Construction in progress | | 90 | | | 79 | |
Total property and equipment | | 33,368 | | | 32,218 | |
Less: accumulated depreciation and amortization | | (17,174) | | | (15,568) | |
Total property and equipment, net | | $ | 16,194 | | | $ | 16,650 | |
Depreciation and amortization expense of property and equipment, including amortization of software development costs and depreciation of capital leases, was $0.8 million and $0.9 million for the three months ended June 30, 2021 and 2020, respectively and $1.6 million and $1.7 million for the six months ended June 30, 2021 and 2020, respectively.
The Company had 0 material write-offs or disposals of fixed assets during the six months ended June 30, 2021 and 2020.
Note 15 - Accrued Expenses and Other
Accrued expenses and other consist of the following (in thousands):
| | | | | | | | | | | | | | |
| | June 30, | | December 31, |
| | 2021 | | 2020 |
Accrued expenses | | $ | 14,152 | | | $ | 11,749 | |
Accrued compensation | | 10,059 | | | 9,513 | |
Accrued professional services and other | | 5,707 | | | 3,569 | |
Accrued business combination expense | | 1,137 | | | 1,510 | |
Total accrued expenses and other | | $ | 31,055 | | | $ | 26,341 | |
Note 16 - Segment Information
The Company's operations are grouped into 2 reportable segments: (1) Print, and (2) Software and Payments. The Company's Chief Operating Decision Maker (“CODM”) is the Chief Executive Officer ("CEO"), who reviews discrete financial and other information presented for print services and software and payment services for purposes of allocating resources and evaluating the Company's financial performance.
•Print – The Print segment is primarily responsible for printing customer invoices and optimizing the amount of time and costs associated with billing customers via mail.
•Software and Payments – The Software and Payments segment primarily operates using software and cloud based services, optimizes electronic invoice presentment, electronic payments, credit decisioning, collections automation, cash application and deduction management, and e-commerce of B2B customers.
“All other” represents implementation, services, and other business activities which are not reviewed by CODM on regular basis.
The Company evaluates segment performance and allocates resources based on revenues, cost of revenues, and gross profit. The accounting policies used by the reportable segments are the same as those used by the Company. All of the revenues shown in the reportable segments is revenue from external customers; there is no revenue from transactions with other operating segments. Segment expenses include the direct expenses of each segment's operations and exclude sales and marketing expenses, research and development expenses, general and administrative expenses, depreciation and amortization expense, stock-based compensation expense, interest income (expense), and certain other identified costs that the Company does not allocate to its segments for purposes of evaluating operational performance.
Given the nature of the Company’s business, the amount of assets does not provide meaningful insight into the operating performance of the Company. As a result, the Company does not identify or allocate assets by reportable segment and total assets are not included in the Company’s segment financial information.
The following tables include a reconciliation of segment revenues, cost of revenues, and gross profits to loss before income taxes (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2021 |
| Print | | Software and Payments | | All other | | Consolidated |
Revenues: | | | | | | | |
Subscription and transaction | $ | 4,490 | | | $ | 24,582 | | | $ | 0 | | | $ | 29,072 | |
Services and other | 0 | | | 0 | | | 2,517 | | | 2,517 | |
Subscription, transaction, and services | 4,490 | | | 24,582 | | | 2,517 | | | 31,589 | |
Reimbursable costs | 8,643 | | | 0 | | | 0 | | | 8,643 | |
Total revenues | 13,133 | | | 24,582 | | | 2,517 | | | 40,232 | |
Cost of Revenues: | | | | | | | |
Cost of subscription, transaction, and services revenue | 1,900 | | | 3,679 | | | 3,781 | | | 9,360 | |
Cost of reimbursable costs | 8,643 | | | 0 | | | 0 | | | 8,643 | |
Total cost of revenues | 10,543 | | | 3,679 | | | 3,781 | | | 18,003 | |
Gross profit: | | | | | | | |
| | | | | | | |
| | | | | | | |
Total segment gross profit (loss) | $ | 2,590 | | | $ | 20,903 | | | $ | (1,264) | | | $ | 22,229 | |
Total segment gross margin | 20 | % | | 85 | % | | (50) | % | | 55 | % |
Subscription, transaction, and services gross margin | 58 | % | | 85 | % | | (50) | % | | 70 | % |
Unallocated amounts: | | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Sales, marketing, research, development, and administrative expenses | | | | (31,728) | |
Depreciation and amortization | | | | | | | (1,359) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Interest, loss on extinguishment of debt, changes in fair value of financial instruments, and other income (expenses) | | | | 133 | |
Loss before income taxes | | | | | | | $ | (10,725) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2020 |
| Print | | Software and Payments | | All other | | Consolidated |
Revenues: | | | | | | | |
Subscription and transaction | $ | 4,448 | | | $ | 19,361 | | | $ | 0 | | | $ | 23,809 | |
Services and other | 0 | | | 0 | | | 1,837 | | | 1,837 | |
Subscription, transaction, and services | 4,448 | | | 19,361 | | | 1,837 | | | 25,646 | |
Reimbursable costs | 8,945 | | | 0 | | | 0 | | | 8,945 | |
Total revenues | 13,393 | | | 19,361 | | | 1,837 | | | 34,591 | |
Cost of Revenues: | | | | | | | |
Cost of subscription, transaction, and services revenue | 2,297 | | | 2,880 | | | 2,456 | | | 7,633 | |
Cost of reimbursable costs | 8,945 | | | 0 | | | 0 | | | 8,945 | |
Total cost of revenues | 11,242 | | | 2,880 | | | 2,456 | | | 16,578 | |
Gross profit: | | | | | | | |
| | | | | | | |
| | | | | | | |
Total segment gross profit (loss) | $ | 2,151 | | | $ | 16,481 | | | $ | (619) | | | $ | 18,013 | |
Total segment gross margin | 16 | % | | 85 | % | | (34) | % | | 52 | % |
Subscription, transaction, and services gross margin | 48 | % | | 85 | % | | (34) | % | | 70 | % |
Unallocated amounts: | | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Sales, marketing, research, development, and administrative expenses | | | | (18,778) | |
Depreciation and amortization | | | | | | | (1,410) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Interest, loss on extinguishment of debt, changes in fair value of financial instruments, and other expenses | | | | (690) | |
Loss before income taxes | | | | | | | $ | (2,865) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2021 |
| Print | | Software and Payments | | All other | | Consolidated |
Revenues: | | | | | | | |
Subscription and transaction | $ | 8,988 | | | $ | 50,267 | | | $ | 0 | | | $ | 59,255 | |
Services and other | 0 | | | 0 | | | 5,453 | | | 5,453 | |
Subscription, transaction, and services | 8,988 | | | 50,267 | | | 5,453 | | | 64,708 | |
Reimbursable costs | 17,460 | | | 0 | | | 0 | | | 17,460 | |
Total revenues | 26,448 | | | 50,267 | | | 5,453 | | | 82,168 | |
Cost of revenues: | | | | | | | |
Cost of subscription, transaction, and services revenue | 3,826 | | | 7,391 | | | 7,396 | | | 18,613 | |
Cost of reimbursable costs | 17,460 | | | 0 | | | 0 | | | 17,460 | |
Total cost of revenues | 21,286 | | | 7,391 | | | 7,396 | | | 36,073 | |
Gross profit: | | | | | | | |
| | | | | | | |
| | | | | | | |
Total segment gross profit (loss) | $ | 5,162 | | | $ | 42,876 | | | $ | (1,943) | | | $ | 46,095 | |
Total segment gross margin | 20 | % | | 85 | % | | (36) | % | | 56 | % |
Subscription, transaction, and services gross margin | 57 | % | | 85 | % | | (36) | % | | 71 | % |
Unallocated amounts: | | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Sales, marketing, research, development, and administrative expenses | | | | (64,107) | |
Depreciation and amortization | | | | | | | (2,719) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Interest, loss on extinguishment of debt, changes in fair value of financial instruments, and other expenses | | | | (12,696) | |
Loss before income taxes | | | | | | | $ | (33,427) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2020 |
| Print | | Software and Payments | | All other | | Consolidated |
Revenues: | | | | | | | |
Subscription and transaction | $ | 9,234 | | | $ | 37,701 | | | $ | 0 | | | $ | 46,935 | |
Services and other | 0 | | | 0 | | | 3,235 | | | 3,235 | |
Subscription, transaction, and services | 9,234 | | | 37,701 | | | 3,235 | | | 50,170 | |
Reimbursable costs | 18,566 | | | 0 | | | 0 | | | 18,566 | |
Total revenues | 27,800 | | | 37,701 | | | 3,235 | | | 68,736 | |
Cost of Revenues: | | | | | | | |
Cost of subscription, transaction, and services revenue | 4,508 | | | 5,994 | | | 5,021 | | | 15,523 | |
Cost of reimbursable costs | 18,566 | | | 0 | | | 0 | | | 18,566 | |
Total cost of revenues | 23,074 | | | 5,994 | | | 5,021 | | | 34,089 | |
Gross profit: | | | | | | | |
| | | | | | | |
| | | | | | | |
Total segment gross profit (loss) | $ | 4,726 | | | $ | 31,707 | | | $ | (1,786) | | | $ | 34,647 | |
Total segment gross margin | 17 | % | | 84 | % | | (55) | % | | 50 | % |
Subscription, transaction, and services gross margin | 51 | % | | 84 | % | | (55) | % | | 69 | % |
Unallocated amounts: | | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Sales, marketing, research, development, and administrative expenses | | | | (39,832) | |
Depreciation and amortization | | | | | | | (2,821) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Interest, loss on extinguishment of debt, changes in fair value of financial instruments, and other expenses | | | | (1,876) | |
Loss before income taxes | | | | | | | $ | (9,882) | |
Note 17 - Related Party Transactions
A member of the Company's Board of Directors is also an executive at a company (the "Related Party Customer") that purchases certain of Billtrust's services under an ongoing commercial relationship. During the three months ended June 30, 2021 and 2020, the Related Party Customer generated total revenues of approximately $78 thousand and $64 thousand, respectively. During the six months ended June 30, 2021 and 2020, the Related Party Customer generated total revenues of approximately $150 thousand and $147 thousand, respectively. At June 30, 2021 and December 31, 2019,2020, Billtrust had open receivable balances from the Related Party Customer of $64 thousand and indicates the fair value hierarchy$46 thousand, respectively.
The Company also has ongoing commercial agreements with several of Bain Capital Ventures, LLC's ("Bain") portfolio companies ("Portfolio Companies"). Bain is a greater than 5% shareholder of the valuation inputsCompany's outstanding common stock at June 30, 2021, and one of the members of the Company's Board of Directors is also an executive at Bain. During the three months ended June 30, 2021 and 2020, the Company utilizedincurred expenses to determine such fair value:the Portfolio Companies of approximately $122 thousand and $85 thousand, respectively. During the six months ended June 30, 2021 and 2020, the Company incurred expenses to the Portfolio Companies of approximately $226 thousand and $159 thousand, respectively. At June 30, 2021 and December 31, 2020, Billtrust had open payables balances to the Portfolio Companies of 0 and $102 thousand, respectively. Additionally, during the three months ended June 30, 2021 and 2020, the Portfolio Companies generated total revenues of approximately $46 thousand and $26 thousand, respectively. During the six months ended June 30, 2021 and 2020, the Portfolio Companies generated total revenues of approximately $85 thousand and $48 thousand, respectively. At June 30, 2021 and December 31, 2020, Billtrust had open receivables balances from Portfolio Companies of $30 thousand and $25 thousand, respectively.
Refer to Note 18 - Subsequent Events for a description of costs the Company paid for on behalf of several of its selling security holders associated with the secondary offering that closed in July 2021.
Description | | Level | | September 30, 2020 | | December 31, 2019 | |
Assets: | | | | | | | |
Marketable securities held in Trust Account | | | 1 | | | $ | 252,287,249 | | | $ | 251,865,941 | |
Note 9—18 - Subsequent Events
The Company evaluated subsequentreviews events and transactions that occurredoccur after the balance sheet date, upbut before this Quarterly Report on Form 10-Q is filed with the SEC, to identify matters that require additional disclosure or to provide additional support relative to certain estimates made in preparing the date that the condensed financial statements were issued. Based upon this review, other thanstatements. The Company has evaluated subsequent events through August 12, 2021, and except as describeddiscussed below, the Company didis not identifyaware of any subsequent events thatwhich would have required adjustmentrequire recognition or disclosure in the condensed financial statements.
On July 6, 2021, the Company completed an underwritten secondary offering (the "Offering") of 10,350,000 shares of the Company's Class 1 common stock at a public offering price of $12.25 per share. All of the Class 1 common stock was offered by existing shareholders. No new shares were issued and Billtrust did not receive any proceeds from the Offering. The gross proceeds from the Offering, before deducting underwriting discounts and commissions, was $126.8 million.
12
costs directly related to the Offering, consisting principally of professional, printing, filing, regulatory and other costs. These costs were recorded in general and administrative expenses in the Condensed Consolidated Statements of Operations and Comprehensive Loss since the Offering did not generate any proceeds to the Company, and therefore the costs do not qualify to be deferred or charged to additional paid-in capital under ASC 340-10-S99-1. Additionally, as no new shares were issued, the shares transacted as part of the Offering would not have impacted the number of common shares outstanding at the end of June 30, 2021 for the purposes of calculating earnings per share as of that date.SOUTH MOUNTAIN MERGER CORP.33
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
You should read this section in conjunction with the Condensed Consolidated Financial Statements and related notes included in Part I. Item 1 of this Quarterly Report on Form 10-Q, our Annual Report on Form 10-K for the year ended December 31, 2020 (the "Annual Report on Form 10-K"), as filed with the US Securities and Exchange Commission (the "SEC") on March 24, 2021, the Company's Amendment No. 1 to the Current Report on Form 8-K (the "Amendment on Form 8-K"), as filed with the SEC on March 24, 2021, and the Company's Registration Statement on Form S-1 as amended (File No. 333-257488), originally filed with the SEC on June 28, 2021.
Certain figures, such as interest rates and other percentages, included in this section have been rounded for ease of presentation. Percentage figures included in this section have not in all cases been calculated on the basis of such rounded figures but on the basis of such amounts prior to rounding. For this reason, percentage amounts in this section may vary slightly from those obtained by performing the same calculations using the figures in our Condensed Consolidated Financial Statements or in the Notes to Condensed Consolidated Financial Statements. Certain other amounts that appear in this section may similarly not sum due to rounding.
Forward Looking Statements
This discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking statements are identified by words 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 on Form 10-Q. You should read these statements carefully because they discuss future expectations, contain projections of future results of operations or financial condition, or state other “forward-looking” information. These statements relate to our future plans, objectives, expectations, intentions, and financial performance and the assumptions that underlie these statements. These forward-looking statements are subject to certain risks and uncertainties that could cause a difference include, but are not limited to, those discussed under the caption “Risk Factors” in our Annual Report on Form 10-K, the Amendment on Form 8-K, the Company's Registration Statement on Form S-1, and elsewhere in this Quarterly Report (refer to the section titled “Special Note Regarding Forward-Looking Statements”). Forward-looking statements are based on management’s current beliefs and assumptions and based on information currently available. These statements, like all statements in this Quarterly Report on Form 10-Q, speak only as of their date, and we undertake no obligation to update or revise these statements in light of future developments, except as required by law.
Business Overview
We are a leading provider of cloud-based software and integrated payment processing solutions that simplify and automate B2B commerce. Accounts receivable (“AR”) is broken and relies on conventional processes that are outdated, inefficient, manual, and largely paper-based. We are at the forefront of the digital transformation of AR, providing mission-critical solutions that span credit decisioning and monitoring, online ordering, invoicing, cash application, and collections. Our solutions provide our customers accelerated savings, faster realization of cash, and a better user experience.
Companies throughout the world have the daunting task of capturing and applying payments from hundreds or thousands of their customers, all via different channels and payment types. Larger buyers, or their outsourced accounts payable ("AP") providers, offer their portals as a means for suppliers to be paid. Suppliers, on the other hand, prefer a single source of payments with clean remittance or payment instructions. To address this large and increasingly growing pain point for suppliers, we created a leading, two-sided B2B payments network, the Business Payments Network ("BPN") that connects buyers and suppliers. We built integrations with leading enterprise resource planning ("ERP") and accounting systems, banks, and AP software providers to offer an online supplier business directory, programmatic payment preferences, payment flexibility, and streamlined reconciliation of remittance data.
Customers use our integrated AR platform to automate credit decisioning, online ordering, invoice delivery, payment capture, cash application, and collections. Our solutions integrate with a number of ecosystem players, including financial institutions, ERP systems, and AP software platforms, to help customers accelerate cash flow and generate sales more quickly and efficiently.
Our proprietary technology also offers our customers multiple ways to send invoices (via print, fax, email, online, and AP portals) and receive payments (via paper check, ACH, email, phone, and credit card). Our electronic solutions team that works closely with customers to transition their users from paper invoices and payments to electronic, helping them convert from expensive paper invoicing and check acceptance to efficient electronic billing and payments.
We have expanded our product reach and customer base over the past years and scaled our business operations in recent periods. Our total revenues were $82.2 million and $68.7 million for the six months ended June 30, 2021 and 2020, respectively. As a result of our focus on product development and sales and marketing, we have generated net losses of $33.5 million and $10.0 million for the six months ended June 30, 2021 and 2020, respectively.
(Unaudited)