Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q, as well as our consolidated financial statements and related notes included in our 2021 Form 10-K. This discussion, particularly information with respect to our future results of operations or financial condition, business strategy and plans, and objectives of management for future operations, includes forward-looking statements that involve risks and uncertainties as described under the heading “Special Note Regarding Forward-Looking Statements” in this Quarterly Report on Form 10-Q. You should review the disclosure in Part I, Item 1A. "Risk Factors" in our 2021 Form 10-K for a discussion of important factors that could cause our actual results to differ materially from those anticipated in these forward-looking statements.
Overview
We are a leading provider of vertically tailored customer engagement software and integrated payments solutions. At EngageSmart, our mission is to simplify customer and client engagement to allow our customers to focus resources on initiatives that improve their businesses and better serve their communities. We offer single instance, multi-tenant, true Software-as-a-Service ("SaaS") vertical solutions that are designed to simplify our customers’ engagement with their clients by driving digital adoption and self-service. As of June 30, 2022, we serve more than 89,000 customers in the SMB Solutions segment and more than 3,200 customers in the Enterprise Solutions segment across several core verticals: Health & Wellness, Government, Utilities, Financial Services, Healthcare and Giving. Our SaaS solutions are purpose-built for each of our verticals and they simplify and automate mission-critical workflows such as scheduling, client onboarding, client communication, paperless billing, and electronic payment processing. Our solutions transform our customers’ digital engagement and empower them to manage, improve, and grow their businesses.
Our vertically tailored solutions include software and payment tools that automate mission-critical business workflows for customers across our verticals. Our value proposition is focused on transforming our customers’ digital engagement through four core SaaS solutions, including:
•SimplePractice. An end-to-end practice management and electronic health record ("EHR") platform that health and wellness professionals use to manage their practices. SimplePractice serves practitioners, who are our customers, throughout their career journey, allowing them to manage their practice development from licensure to private practice. SimplePractice enables customers to engage with their clients across both virtual and in-person settings, schedule appointments, document cases, and handle all aspects of billing and insurance processing on one integrated platform. Our platform also helps our customers build and grow their practices through the use of our online marketplace, Monarch.
•InvoiceCloud. An electronic bill presentment and payment solution that helps our Government, Utility, and Financial Services customers digitize billing, client communications, and collections. We believe InvoiceCloud drives superior client digital adoption, which increases engagement and drives operational efficiency for our customers.
•HealthPay24. A patient engagement and payment platform that helps health systems, physician groups, dental practices, and medical billers efficiently drive patient self-pay collections.
•DonorDrive. A fundraising software platform that helps non-profits, healthcare organizations, and higher education institutions produce virtual events, launch branded donation campaigns, and create peer-to-peer fundraising experiences.
Our Business Segments
We organize our solutions into two reportable segments, Enterprise Solutions and SMB Solutions. The chief operating decision maker (“CODM”), which is our chief executive officer, evaluates segment operating performance using revenue and Adjusted EBITDA from reportable segments to make resource allocation decisions and to evaluate segment performance.
•Enterprise Solutions. The Enterprise Solutions segment is primarily engaged in providing SaaS solutions that simplify customer-client engagement primarily through electronic billing and digital payments, and includes our InvoiceCloud, HealthPay24 and DonorDrive solutions. Enterprise solutions are built to address the unique needs of specific verticals: Government, Utilities, Financial Services, Healthcare and Giving. For the Enterprise Solutions segment, we integrate directly with our customers’ core software systems and utilizes a partner-assisted direct sales model for purposes of our go-to-market strategy. We generate a significant majority of our revenue in this segment
20
from transaction and usage-based revenue. For the six months ended June 30, 2022, this segment generated 45% of total revenue.
•SMB Solutions. The SMB Solutions segment is primarily engaged in providing end-to-end practice management solutions geared toward the Health & Wellness industry and includes our SimplePractice solution. For our SMB Solutions segment, we primarily rely on a free trial to paid customer sales model. We generate interest for our offerings in our SMB Solutions segment through a combination of search engine optimization, word-of-mouth, paid customer referrals, and search engine marketing. We generate a majority of our revenue in this segment from subscription revenue. For the six months ended June 30, 2022, this segment generated 55% of total revenue.
Our Revenue Model
We primarily generate two types of revenue: (i) subscription revenue and (ii) transaction and usage-based revenue.
•Subscription revenue. Generally consists of recurring monthly SaaS subscriptions from the sale of our solutions.
•Transaction and usage-based revenue. Generally based on the number of Transactions Processed, as defined below, or the dollar value of the Transactions Processed within our software solutions, which is paid to us by our customers, our customers’ clients, or a combination of both. For our transaction and usage-based revenue that is derived from the facilitation of payment processing, in general, we receive more revenue for card-based payments than for electronic check and ACH payments.
Impact of COVID-19 on Our Business
The COVID-19 pandemic that began in early 2020 continues to affect global economic activity and create macroeconomic uncertainty, and has impacted our customers and partners, which may ultimately affect our business operations and results. As described in our 2021 Form 10-K, during the second half of 2021, the impact of the COVID-19 pandemic on our solutions began to decrease and our operating results began to normalize. For the three and six months ended June 30, 2022, the COVID-19 pandemic did not have a material adverse effect on our results of operations.
The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations, cash flows, and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted. Given the evolving nature of COVID-19, we will continue to closely monitor the pandemic’s impact on both the verticals we serve and our business specifically. We will continue to prioritize the safety of our employees, customers, their clients and communities in which we operate. Refer to Part I, Item 1A, “Risk Factors – Risks related to our business and industry – The COVID-19 pandemic could have a material adverse impact on our employees, customers, partners, clients and other key stakeholders, which could materially and adversely impact our business, operating results and financial condition" in our 2021 Form 10-K.
Key Business Metrics and Non-GAAP Financial Measures
We review the following key business metrics and non-GAAP financial measures to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions. Accordingly, we believe our key business metrics and non-GAAP financial measures provide useful information to investors and others in understanding and evaluating our results of operations in the same manner as our management team. Our key business metrics and non-GAAP financial measures are presented for supplemental informational purposes only, should not be considered a substitute for financial information presented in accordance with accounting principles generally accepted in the United States ("GAAP") and may be calculated differently than similarly titled metrics or measures presented by other companies.
Number of Customers
We serve a wide variety of customers across our verticals. The majority of our customers are based in the United States. For the purposes of measuring our key business metrics, we define customers as individuals or entities with whom we directly contract to use our solutions. The number of customers in the table below represents the total number of customers for each of our segments for the periods presented.
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|
|
|
|
|
|
|
|
|
|
June 30, 2022 |
|
|
June 30, 2021 |
|
Customers in the SMB Solutions segment |
|
|
89,400 |
|
|
|
68,800 |
|
Customers in the Enterprise Solutions segment |
|
|
3,200 |
|
|
|
3,000 |
|
Total |
|
|
92,600 |
|
|
|
71,800 |
|
21
Transactions Processed
We define Transactions Processed as the number of accepted payment transactions, such as credit card and debit card transactions, ACH payments, emerging electronic payments, other communication, text messaging and interactive voice response transactions, and other payment transaction types, which are facilitated through our solutions during a given period. We believe Transactions Processed is a useful key business metric for investors because it directly correlates with transaction and usage-based revenue. We use Transactions Processed to evaluate changes in transaction and usage-based revenue over time.
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|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|
|
(in millions) |
|
Transactions Processed |
|
|
36.1 |
|
|
|
26.6 |
|
|
|
70.4 |
|
|
|
51.5 |
|
Adjusted EBITDA and Adjusted EBITDA Margin
We define Adjusted EBITDA as net income (loss) excluding interest income (expense), net, (benefit from) provision for income taxes, depreciation, and amortization of intangible assets, as further adjusted for transaction-related expenses, the fair value adjustment of acquired deferred revenue, stock/equity-based compensation, and restructuring charges. We define Adjusted EBITDA Margin as Adjusted EBITDA divided by revenue plus the fair value adjustment of acquired deferred revenue. We believe that Adjusted EBITDA and Adjusted EBITDA Margin, when taken collectively with our GAAP results, may be helpful to investors because they provide consistency and comparability with past financial performance and assist in comparisons with other companies, some of which use similar non-GAAP financial measures to supplement their GAAP results.
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|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|
|
(in thousands, except percentages) |
|
Net income (loss) |
|
$ |
6,879 |
|
|
$ |
(211 |
) |
|
$ |
8,938 |
|
|
$ |
274 |
|
Net income (loss) margin |
|
|
9.3 |
% |
|
|
(0.4 |
)% |
|
|
6.3 |
% |
|
|
0.3 |
% |
Adjusted EBITDA |
|
$ |
11,965 |
|
|
$ |
7,764 |
|
|
$ |
22,522 |
|
|
$ |
15,683 |
|
Adjusted EBITDA Margin |
|
|
16.2 |
% |
|
|
15.0 |
% |
|
|
15.9 |
% |
|
|
15.8 |
% |
Adjusted Gross Profit and Adjusted Gross Margin
We define Adjusted Gross Profit as gross profit as adjusted for the fair value adjustment of acquired deferred revenue, amortization of intangible assets, stock/equity-based compensation, and transaction-related expenses. We define Adjusted Gross Margin as Adjusted Gross Profit divided by revenue plus the fair value adjustment of acquired deferred revenue. We believe that Adjusted Gross Profit and Adjusted Gross Margin, when taken collectively with our GAAP results, may be helpful to investors because they provide consistency and comparability with past financial performance and assist in comparisons with other companies, some of which use similar non-GAAP financial measures to supplement their GAAP results.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|
|
(in thousands, except percentages) |
|
Gross profit |
|
$ |
56,059 |
|
|
$ |
38,469 |
|
|
$ |
107,382 |
|
|
$ |
73,673 |
|
Gross profit margin |
|
|
75.9 |
% |
|
|
74.3 |
% |
|
|
76.0 |
% |
|
|
74.3 |
% |
Adjusted Gross Profit |
|
$ |
57,751 |
|
|
$ |
40,071 |
|
|
$ |
110,721 |
|
|
$ |
76,903 |
|
Adjusted Gross Margin |
|
|
78.2 |
% |
|
|
77.4 |
% |
|
|
78.4 |
% |
|
|
77.5 |
% |
Management uses Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Gross Profit, and Adjusted Gross Margin:
•as measures of operating performance because they assist us in comparing the operating performance of our business on a consistent basis, as they remove the impact of items not directly resulting from our core operations;
•for planning purposes, including the preparation of our internal annual operating budget and financial projections;
•to evaluate the performance and effectiveness of our operational strategies; and
•to evaluate our capacity to expand our business.
By providing these non-GAAP financial measures, together with a reconciliation to the most directly comparable GAAP measure, we believe we are enhancing investors’ understanding of our business and our results of operations, as well as assisting investors in evaluating how well we are executing our strategic initiatives. Adjusted EBITDA, Adjusted EBITDA
22
Margin, Adjusted Gross Profit, and Adjusted Gross Margin have limitations as analytical tools, and should not be considered in isolation, or as an alternative to, or a substitute for net income (loss), gross profit, or other financial statement data presented in our consolidated financial statements as indicators of financial performance. Some of the limitations are:
•such measures do not reflect the interest expense or the cash requirements necessary to service interest or principal payments on our debt;
•such measures do not reflect our tax expense or the cash requirements to pay our taxes;
•although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future and such measures does not reflect any cash requirements for such replacements; and
•other companies in our industry may calculate such measures differently than we do, limiting their usefulness as comparative measures.
Reconciliations of Non-GAAP Financial Measures
The following tables present the reconciliations for each non-GAAP financial measure to the most directly comparable financial measure calculated and presented in accordance with GAAP.
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|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|
|
(in thousands, except percentages) |
|
Net income (loss) |
|
$ |
6,879 |
|
|
$ |
(211 |
) |
|
$ |
8,938 |
|
|
$ |
274 |
|
Net income (loss) margin |
|
|
9.3 |
% |
|
|
(0.4 |
)% |
|
|
6.3 |
% |
|
|
0.3 |
% |
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
(Benefit from) provision for income taxes |
|
|
(2,663 |
) |
|
|
(67 |
) |
|
|
(1,843 |
) |
|
|
48 |
|
Interest (income) expense, net |
|
|
(210 |
) |
|
|
2,295 |
|
|
|
(122 |
) |
|
|
4,600 |
|
Amortization of intangible assets |
|
|
3,899 |
|
|
|
3,900 |
|
|
|
7,800 |
|
|
|
7,800 |
|
Depreciation |
|
|
733 |
|
|
|
537 |
|
|
|
1,473 |
|
|
|
986 |
|
Fair value adjustment of acquired deferred revenue |
|
|
— |
|
|
|
35 |
|
|
|
— |
|
|
|
94 |
|
Stock/equity-based compensation |
|
|
3,327 |
|
|
|
338 |
|
|
|
6,314 |
|
|
|
560 |
|
Restructuring charges |
|
|
— |
|
|
|
89 |
|
|
|
— |
|
|
|
89 |
|
Transaction-related expense |
|
|
— |
|
|
|
848 |
|
|
|
(38 |
) |
|
|
1,232 |
|
Adjusted EBITDA |
|
$ |
11,965 |
|
|
$ |
7,764 |
|
|
$ |
22,522 |
|
|
$ |
15,683 |
|
Adjusted EBITDA Margin |
|
|
16.2 |
% |
|
|
15.0 |
% |
|
|
15.9 |
% |
|
|
15.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|
|
(in thousands, except percentages) |
|
Gross profit |
|
$ |
56,059 |
|
|
$ |
38,469 |
|
|
$ |
107,382 |
|
|
$ |
73,673 |
|
Gross margin |
|
|
75.9 |
% |
|
|
74.3 |
% |
|
|
76.0 |
% |
|
|
74.3 |
% |
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
Fair value adjustment of acquired deferred revenue |
|
|
— |
|
|
|
35 |
|
|
|
— |
|
|
|
94 |
|
Amortization of intangible assets |
|
|
1,537 |
|
|
|
1,538 |
|
|
|
3,076 |
|
|
|
3,076 |
|
Stock/equity-based compensation |
|
|
155 |
|
|
|
4 |
|
|
|
263 |
|
|
|
8 |
|
Transaction-related expense |
|
|
— |
|
|
|
25 |
|
|
|
— |
|
|
|
52 |
|
Adjusted Gross Profit |
|
$ |
57,751 |
|
|
$ |
40,071 |
|
|
$ |
110,721 |
|
|
$ |
76,903 |
|
Adjusted Gross Margin |
|
|
78.2 |
% |
|
|
77.4 |
% |
|
|
78.4 |
% |
|
|
77.5 |
% |
Components of Results of Operations
Revenue
We generate revenue primarily from providing access to our SaaS solutions via subscription and transaction and usage-based fees for services provided through such solutions. To a lesser extent, we also generate revenue from the sale of implementation services, sale of on-demand learning courses and the sale of hardware.
23
Cost of Revenue
Cost of revenue primarily consists of personnel-related expenses for our customer support and operations teams, certain variable transaction and licensing costs, amortization of intangible assets related to acquired developed technology, and hosting and data storage costs associated with our infrastructure and platform environments. We expect that cost of revenue will increase in absolute dollars, but it may fluctuate as a percentage of revenue from period to period as we continue to invest in growing our business across our segments.
Operating Expenses
General and Administrative
General and administrative expenses consist primarily of personnel-related expenses, professional and consulting-related expenses, and software costs. We expect to incur additional general and administrative expenses as a result of operating as a public company and to support the anticipated growth of our business. We expect that general and administrative expenses will increase, but they may fluctuate as a percentage of revenue from period to period. Over the longer term, we expect general and administrative expenses to decrease as a percentage of revenue as we leverage the scale of our business.
Selling and Marketing
Selling and marketing expenses consist primarily of personnel-related expenses, inclusive of sales commission expense, fees paid to third-party partners, and costs to market and promote our solutions through advertisements and marketing events. We expect our selling and marketing expense to increase in absolute dollars as we continue to invest in new customer acquisition and retention efforts, but they may fluctuate as a percentage of revenue from period to period.
Research and Development
Research and development expenses consist primarily of personnel-related expenses, third-party consulting costs, and costs for software tools for product management and software development. Costs associated with developing new products and features that qualify as internal use software are capitalized and amortized. We expect our research and development expenses to increase in absolute dollars, but they may fluctuate as a percentage of revenue from period to period as we expand our research and development team to develop new products and enhance existing products.
Contingent Consideration Expense
Contingent consideration expense consists of increases or decreases in the fair value of our contingent consideration liabilities. We remeasure the fair value of potential future payments based upon the achievement levels of remaining targets at each subsequent reporting period until the contingent liabilities are settled or have expired. The contingent consideration liability was fully settled in the first quarter of 2022.
Restructuring Charges
Restructuring charges consist of charges related to our restructuring efforts associated with relocating certain operations. Refer to Note 14 - Restructuring to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for additional information.
Amortization of Intangible Assets
Amortization of intangible assets, within operating expenses, consists primarily of amortization of customer relationship and tradename assets acquired as part of business combinations. We amortize acquired intangible assets over their estimated useful lives based on the pattern of consumption of the economic benefits or, if that pattern cannot be readily determined, on a straight-line basis.
Other Income (Expense), Net
Interest Expense
Interest expense consists of interest expense on our long-term and related party debt, costs incurred to extinguish debt, amortization of debt issuance costs and fees associated with unused revolving credit facility commitments.
Results of Operations
The following table sets forth, for the periods presented, each line item from our condensed consolidated statements of operations on a percentage of revenue basis. The period-to-period comparison of financial results is not necessarily indicative of future results. The information contained in the table below should be read in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q.
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|
|
(% of total revenue) |
|
Revenue |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost of revenue |
|
|
24.1 |
% |
|
|
25.7 |
% |
|
|
24.0 |
% |
|
|
25.7 |
% |
Gross profit |
|
|
75.9 |
% |
|
|
74.3 |
% |
|
|
76.0 |
% |
|
|
74.3 |
% |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
|
20.3 |
% |
|
|
17.5 |
% |
|
|
20.0 |
% |
|
|
16.8 |
% |
Selling and marketing |
|
|
32.1 |
% |
|
|
33.0 |
% |
|
|
32.8 |
% |
|
|
32.4 |
% |
Research and development |
|
|
14.9 |
% |
|
|
15.1 |
% |
|
|
14.9 |
% |
|
|
14.9 |
% |
Contingent consideration expense |
|
|
— |
% |
|
|
0.0 |
% |
|
|
— |
% |
|
|
0.2 |
% |
Restructuring charges |
|
|
— |
% |
|
|
0.2 |
% |
|
|
— |
% |
|
|
0.1 |
% |
Amortization of intangible assets |
|
|
3.2 |
% |
|
|
4.6 |
% |
|
|
3.3 |
% |
|
|
4.8 |
% |
Total operating expenses |
|
|
70.5 |
% |
|
|
70.4 |
% |
|
|
71.1 |
% |
|
|
69.2 |
% |
Income from operations |
|
|
5.4 |
% |
|
|
4.0 |
% |
|
|
4.9 |
% |
|
|
5.0 |
% |
Other income (expense), net: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, including related party interest |
|
|
(0.2 |
)% |
|
|
(4.4 |
)% |
|
|
(0.2 |
)% |
|
|
(4.6 |
)% |
Other income (expense), net |
|
|
0.4 |
% |
|
|
(0.1 |
)% |
|
|
0.2 |
% |
|
|
(0.1 |
)% |
Total other income (expense), net |
|
|
0.3 |
% |
|
|
(4.5 |
)% |
|
|
0.1 |
% |
|
|
(4.7 |
)% |
Income (loss) before income taxes |
|
|
5.7 |
% |
|
|
(0.5 |
)% |
|
|
5.0 |
% |
|
|
0.3 |
% |
(Benefit from) provision for income taxes |
|
|
(3.6 |
)% |
|
|
(0.1 |
)% |
|
|
(1.3 |
)% |
|
|
0.0 |
% |
Net income (loss) and comprehensive income (loss) |
|
|
9.3 |
% |
|
|
(0.4 |
)% |
|
|
6.3 |
% |
|
|
0.3 |
% |
Comparison of the Three and Six Months Ended June 30, 2022 and 2021
The following tables set forth our results of operations for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
2022 |
|
|
2021 |
|
|
Change |
|
|
2022 |
|
|
2021 |
|
|
Change |
|
|
Amount |
|
|
Amount |
|
|
Amount |
|
|
% |
|
|
Amount |
|
|
Amount |
|
|
Amount |
|
|
% |
|
|
(in thousands, except percentages) |
|
Revenue |
$ |
73,862 |
|
|
$ |
51,747 |
|
|
$ |
22,115 |
|
|
|
42.7 |
% |
|
$ |
141,224 |
|
|
$ |
99,171 |
|
|
$ |
42,053 |
|
|
|
42.4 |
% |
Cost of revenue |
|
17,803 |
|
|
|
13,278 |
|
|
|
4,525 |
|
|
|
34.1 |
% |
|
|
33,842 |
|
|
|
25,498 |
|
|
|
8,344 |
|
|
|
32.7 |
% |
Gross profit |
|
56,059 |
|
|
|
38,469 |
|
|
|
17,590 |
|
|
|
45.7 |
% |
|
|
107,382 |
|
|
|
73,673 |
|
|
|
33,709 |
|
|
|
45.8 |
% |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
14,997 |
|
|
|
9,048 |
|
|
|
5,949 |
|
|
|
65.7 |
% |
|
|
28,284 |
|
|
|
16,703 |
|
|
|
11,581 |
|
|
|
69.3 |
% |
Selling and marketing |
|
23,692 |
|
|
|
17,083 |
|
|
|
6,609 |
|
|
|
38.7 |
% |
|
|
46,356 |
|
|
|
32,128 |
|
|
|
14,228 |
|
|
|
44.3 |
% |
Research and development |
|
10,993 |
|
|
|
7,822 |
|
|
|
3,171 |
|
|
|
40.5 |
% |
|
|
21,033 |
|
|
|
14,815 |
|
|
|
6,218 |
|
|
|
42.0 |
% |
Contingent consideration expense |
|
— |
|
|
|
11 |
|
|
|
(11 |
) |
|
|
(100.0 |
)% |
|
|
— |
|
|
|
213 |
|
|
|
(213 |
) |
|
|
(100.0 |
)% |
Restructuring charges |
|
— |
|
|
|
89 |
|
|
|
(89 |
) |
|
|
(100.0 |
)% |
|
|
— |
|
|
|
89 |
|
|
|
(89 |
) |
|
|
(100.0 |
)% |
Amortization of intangible assets |
|
2,362 |
|
|
|
2,362 |
|
|
|
— |
|
|
|
— |
% |
|
|
4,724 |
|
|
|
4,724 |
|
|
|
— |
|
|
|
— |
% |
Total operating expenses |
|
52,044 |
|
|
|
36,415 |
|
|
|
15,629 |
|
|
|
42.9 |
% |
|
|
100,397 |
|
|
|
68,672 |
|
|
|
31,725 |
|
|
|
46.2 |
% |
Income from operations |
|
4,015 |
|
|
|
2,054 |
|
|
|
1,961 |
|
|
|
95.5 |
% |
|
|
6,985 |
|
|
|
5,001 |
|
|
|
1,984 |
|
|
|
39.7 |
% |
Other income (expense), net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, including related party interest |
|
(121 |
) |
|
|
(2,295 |
) |
|
|
2,174 |
|
|
|
(94.7 |
)% |
|
|
(240 |
) |
|
|
(4,600 |
) |
|
|
4,360 |
|
|
|
(94.8 |
)% |
Other income (expense), net |
|
322 |
|
|
|
(37 |
) |
|
|
359 |
|
|
|
(970.3 |
)% |
|
|
350 |
|
|
|
(79 |
) |
|
|
429 |
|
|
|
(543.0 |
)% |
Total other income (expense), net |
|
201 |
|
|
|
(2,332 |
) |
|
|
2,533 |
|
|
|
(108.6 |
)% |
|
|
110 |
|
|
|
(4,679 |
) |
|
|
4,789 |
|
|
|
(102.4 |
)% |
Income (loss) before income taxes |
|
4,216 |
|
|
|
(278 |
) |
|
|
4,494 |
|
|
|
(1,616.5 |
)% |
|
|
7,095 |
|
|
|
322 |
|
|
|
6,773 |
|
|
|
2,103.4 |
% |
(Benefit from) provision for income taxes |
|
(2,663 |
) |
|
|
(67 |
) |
|
|
(2,596 |
) |
|
|
3,874.6 |
% |
|
|
(1,843 |
) |
|
|
48 |
|
|
|
(1,891 |
) |
|
|
(3,939.6 |
)% |
Net income (loss) and comprehensive income (loss) |
$ |
6,879 |
|
|
$ |
(211 |
) |
|
$ |
7,090 |
|
|
|
(3,360.2 |
)% |
|
$ |
8,938 |
|
|
$ |
274 |
|
|
$ |
8,664 |
|
|
|
3,162.0 |
% |
Revenue
Revenue increased $22.1 million for the three month period ended June 30, 2022, as compared to the corresponding period in 2021, primarily due to an increase of $11.8 million in subscription revenue driven by an increase in the number of customers utilizing our solutions, higher revenue from existing customer expansion and the impact of the pricing and packaging changes in our SMB Solutions segment that occurred in the first quarter of 2022. Additionally, transaction and usage-based revenue increased $10.1 million driven by an increase in the number of Transactions Processed.
25
Revenue increased $42.1 million for the six month period ended June 30, 2022, as compared to the corresponding period in 2021, primarily due to an increase of $21.1 million in subscription revenue driven by an increase in the number of customers utilizing our solutions, higher revenue from existing customer expansion and the impact of the pricing and packaging changes in our SMB Solutions segment that occurred in the first quarter of 2022. Additionally, transaction and usage-based revenue increased $20.7 million driven by an increase in the number of Transactions Processed.
Cost of revenue
Cost of revenue increased $4.5 million for the three month period ended June 30, 2022, as compared to the corresponding period in 2021, primarily related to an increase of $1.8 million in certain variable transaction, licensing and hosting costs due to higher usage of our solutions, and a $1.8 million increase in personnel-related costs, driven by headcount growth within our customer support departments needed to sustain the increased demand for our solutions.
Cost of revenue increased $8.3 million for the six month period ended June 30, 2022, as compared to the corresponding period in 2021, primarily related to an increase of $3.6 million in certain variable transaction, licensing and hosting costs due to higher usage of our solutions, and a $3.3 million increase in personnel-related costs, driven by headcount growth within our customer support departments needed to sustain the increased demand for our solutions.
General and administrative expenses
General and administrative expenses increased $5.9 million for the three month period ended June 30, 2022, as compared to the corresponding period in 2021, primarily due to an increase of $3.7 million in personnel-related costs, driven by an increase of $2.1 million in stock-based compensation expense as well as increased headcount to support overall growth and public company operations. In addition, professional and consulting-related expenses, including legal and insurance, increased $1.5 million related to increased costs required to support operating as a public company.
General and administrative expenses increased $11.6 million for the six month period ended June 30, 2022, as compared to the corresponding period in 2021, primarily due to an increase of $7.7 million in personnel-related costs, driven by an increase of $4.2 million in stock-based compensation expense as well as increased headcount to support overall growth and public company operations. In addition, professional and consulting-related expenses, including legal and insurance, increased $3.3 million related to increased costs required to support operating as a public company.
Selling and marketing expenses
Selling and marketing expenses increased $6.6 million for the three month period ended June 30, 2022, as compared to the corresponding period in 2021, primarily due to an increase of $2.3 million in personnel-related costs associated with headcount growth, an increase of $1.8 million in advertising and other marketing-related spend utilized to drive new customer additions, and an increase of $1.3 million in fees paid to third-party channel partners.
Selling and marketing expenses increased $14.2 million for the six month period ended June 30, 2022, as compared to the corresponding period in 2021, primarily due to an increase of $4.8 million in personnel-related costs associated with headcount growth, an increase of $3.9 million in advertising and other marketing-related spend utilized to drive new customer additions, and an increase of $2.8 million in fees paid to third-party channel partners.
Research and development expenses
Research and development expenses increased $3.2 million for the three month period ended June 30, 2022, as compared to the corresponding period in 2021, primarily due to an increase of $2.5 million in personnel-related costs associated with headcount growth needed to enhance the functionality and ease of use of our solutions.
Research and development expenses increased $6.2 million for the six month period ended June 30, 2022, as compared to the corresponding period in 2021, primarily due to an increase of $5.2 million in personnel-related costs associated with headcount growth needed to enhance the functionality and ease of use of our solutions.
Contingent consideration expense
The contingent consideration liability was fully settled in the first quarter of 2022, therefore there was no contingent consideration expense recorded for the three or six month periods ended June 30, 2022. Contingent consideration expense was less than $0.1 million and $0.2 million for the three and six months ended June 30, 2021, respectively, and relates to the change in fair value of the contingent consideration liability.
Restructuring charges
During the three and six month periods ended June 30, 2022, there were no restructuring charges recorded. During the three and six month periods ended June 30, 2021, the Company recorded a $0.1 million restructuring charge associated with a change in sublease assumptions used to calculate a prior year restructuring liability.
26
Amortization of intangible assets
Amortization of intangible assets, within operating expenses, remained consistent for the three and six months ended June 30, 2022, as compared to the corresponding periods in 2021.
Interest expense
During the three and six month periods ended June 30, 2022, interest expense was $0.1 million and $0.2 million, respectively, associated with our 2021 Revolving Credit Facility, as defined below.
During the three and six month periods ended June 30, 2021, interest expense was $2.3 million and $4.6 million, respectively, which primarily relates to our prior credit facility which was extinguished on September 27, 2021.
(Benefit from) provision for income taxes
The benefit from income taxes was $2.7 million during the three months ended June 30, 2022, as compared to $0.1 million for the three months ended June 30, 2021. Our effective income tax rate was (63.2)% for the three months ended June 30, 2022, compared to 24.1% for the three months ended June 30, 2021. The effective tax rate for the three months ended June 30, 2022 was lower than the statutory rate of 21.0% primarily due to excess benefits from stock-based compensation. The effective tax rate for the three months ended June 30, 2021 was higher than the statutory rate of 21.0% due to the impact of state income taxes and permanent adjustments.
The benefit from income taxes was $1.8 million during the six months ended June 30, 2022, as compared to a provision for income taxes of less than $0.1 million for the six months ended June 30, 2021. Our effective income tax rate was (26.0)% for the six months ended June 30, 2022, compared to 14.9% for the six months ended June 30, 2021. The effective tax rate for the six months ended June 30, 2022 was lower than the statutory rate of 21.0% primarily due to excess benefits from stock-based compensation. The effective tax rate for the six months ended June 30, 2021 was lower than the statutory rate of 21.0% due to the impact of state income taxes, as well as permanent adjustments and excess benefits from stock-based compensation.
Segment Information
Our reportable segments have been determined in accordance with Accounting Standards Codification ("ASC"), ASC 280, Segment Reporting. Currently, we have two reportable segments: Enterprise Solutions and SMB Solutions. The CODM, which is our chief executive officer, evaluates segment operating performance using revenue and Adjusted EBITDA from reportable segments to make resource allocation decisions and to evaluate segment performance. We define Adjusted EBITDA as net income (loss) excluding interest income (expense), net; (benefit from) provision for income taxes; depreciation; and amortization of intangible assets, as further adjusted for transaction-related expenses, the fair value adjustment of acquired deferred revenue, stock/equity-based compensation, and restructuring charges. Adjusted EBITDA from reportable segments excludes unallocated corporate costs which are primarily comprised of costs for accounting, finance, legal, human resources and costs for certain executives supporting overall business strategy and execution.
Adjusted EBITDA from reportable segments is a non-GAAP measure. Refer to “Key Business Metrics and Non-GAAP Financial Measures” for a reconciliation of Adjusted EBITDA, a non-GAAP measure, to net income, the most directly comparable financial measure calculated and presented in accordance with GAAP.
27
Comparison of the Three and Six Months Ended June 30, 2022 and 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|
(in thousands, except percentages) |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
Enterprise Solutions |
|
$ |
33,017 |
|
|
$ |
25,635 |
|
|
$ |
63,877 |
|
|
$ |
49,714 |
|
SMB Solutions |
|
|
40,845 |
|
|
|
26,112 |
|
|
|
77,347 |
|
|
|
49,457 |
|
Total revenue |
|
|
73,862 |
|
|
|
51,747 |
|
|
|
141,224 |
|
|
|
99,171 |
|
Adjusted EBITDA |
|
|
|
|
|
|
|
|
|
|
|
|
Enterprise Solutions |
|
|
4,285 |
|
|
|
3,288 |
|
|
|
8,761 |
|
|
|
6,576 |
|
SMB Solutions |
|
|
15,907 |
|
|
|
9,195 |
|
|
|
28,925 |
|
|
|
17,322 |
|
Total Adjusted EBITDA from reportable segments |
|
|
20,192 |
|
|
|
12,483 |
|
|
|
37,686 |
|
|
|
23,898 |
|
Unallocated corporate expenses |
|
|
(8,227 |
) |
|
|
(4,719 |
) |
|
|
(15,164 |
) |
|
|
(8,215 |
) |
Total Adjusted EBITDA |
|
|
11,965 |
|
|
|
7,764 |
|
|
|
22,522 |
|
|
|
15,683 |
|
Reconciling items: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest income (expense), net |
|
|
210 |
|
|
|
(2,295 |
) |
|
|
122 |
|
|
|
(4,600 |
) |
Amortization of intangible assets |
|
|
(3,899 |
) |
|
|
(3,900 |
) |
|
|
(7,800 |
) |
|
|
(7,800 |
) |
Depreciation |
|
|
(733 |
) |
|
|
(537 |
) |
|
|
(1,473 |
) |
|
|
(986 |
) |
Transaction-related expenses |
|
|
— |
|
|
|
(848 |
) |
|
|
38 |
|
|
|
(1,232 |
) |
Fair value adjustment of acquired deferred revenue |
|
|
— |
|
|
|
(35 |
) |
|
|
— |
|
|
|
(94 |
) |
Stock/equity-based compensation |
|
|
(3,327 |
) |
|
|
(338 |
) |
|
|
(6,314 |
) |
|
|
(560 |
) |
Restructuring charges |
|
|
— |
|
|
|
(89 |
) |
|
|
— |
|
|
|
(89 |
) |
Income (loss) before income taxes |
|
|
4,216 |
|
|
|
(278 |
) |
|
|
7,095 |
|
|
|
322 |
|
(Benefit from) provision for income taxes |
|
|
(2,663 |
) |
|
|
(67 |
) |
|
|
(1,843 |
) |
|
|
48 |
|
Net income (loss) |
|
$ |
6,879 |
|
|
$ |
(211 |
) |
|
$ |
8,938 |
|
|
$ |
274 |
|
Net income (loss) margin |
|
|
9.3 |
% |
|
|
(0.4 |
)% |
|
|
6.3 |
% |
|
|
0.3 |
% |
Adjusted EBITDA Margin - Enterprise Solutions |
|
|
13.0 |
% |
|
|
12.8 |
% |
|
|
13.7 |
% |
|
|
13.2 |
% |
Adjusted EBITDA Margin - SMB Solutions |
|
|
38.9 |
% |
|
|
35.2 |
% |
|
|
37.4 |
% |
|
|
35.0 |
% |
Revenue
Revenue for the Enterprise Solutions segment increased $7.4 million and $14.2 million for the three and six month periods ended June 30, 2022, as compared to the corresponding periods in 2021, respectively, primarily attributable to an increase in transaction and usage-based revenue driven by an increase in Transactions Processed.
Revenue for the SMB Solutions segment increased $14.7 million for the three month period ended June 30, 2022, as compared to the corresponding period in 2021, primarily attributable to an increase of $11.6 million in subscription revenue driven by an increase in the number of customers utilizing our solutions, higher revenue from existing customer expansion and the impact of the pricing and packaging changes that occurred in the first quarter of 2022. Additionally, transaction and usage-based revenue increased $3.1 million driven by an increase in Transactions Processed.
Revenue for the SMB Solutions segment increased $27.9 million for the six month period ended June 30, 2022, as compared to the corresponding period in 2021, primarily attributable to an increase of $20.6 million in subscription revenue driven by an increase in the number of customers utilizing our solutions, higher revenue from existing customer expansion and the impact of the pricing and packaging changes that occurred in the first quarter of 2022. Additionally, transaction and usage-based revenue increased $7.0 million driven by an increase in Transactions Processed.
Adjusted EBITDA
Adjusted EBITDA margin for the Enterprise Solutions segment increased to 13.0% and 13.7% for the three and six month periods ended June 30, 2022, as compared to 12.8% and 13.2% in the corresponding periods in 2021, respectively. The increase in Adjusted EBITDA margin was primarily driven by revenue growth outpacing headcount and consulting spend, partially offset by an increase in travel and entertainment costs as travel resumed following waning travel restrictions.
Adjusted EBITDA margin for the SMB Solutions segment increased to 38.9% and 37.4% for the three and six month periods ended June 30, 2022, as compared to 35.2% and 35.0% in the corresponding periods in 2021, respectively. The increase in Adjusted EBITDA margin was primarily driven by revenue growth outpacing headcount and consulting spend,
28
as well as a reduction in non-income based taxes, partially offset by an increase in marketing spend to drive higher trial volumes.
Liquidity and Capital Resources
As of June 30, 2022 and December 31, 2021, we had cash and cash equivalents of $274.2 million and $254.3 million, respectively, which were primarily held for working capital purposes. Our primary source of funds has been, and we expect it to continue to be, cash generated from our net revenues, supplemented through debt financing and sale of our equity securities. We believe our existing cash and cash equivalents, cash provided by operations and access to our 2021 Revolving Credit Facility, as defined below, will be sufficient to meet our working capital and capital expenditures needs for at least the next 12 months.
On September 27, 2021, we completed our initial public offering ("IPO"), in which we issued and sold 13,620,054 shares of common stock at a price of $26.00 per share. We raised net proceeds of $326.4 million from the IPO after deducting the underwriting discounts of $22.1 million and offering expenses of $5.6 million. On September 27, 2021, we used a portion of the net proceeds from our IPO to repay in full the outstanding borrowings of $114.2 million under our prior credit facility.
On September 27, 2021, we entered into a revolving credit agreement ("2021 Revolving Credit Facility") which allows us to borrow up to $75.0 million, $7.5 million of which may be comprised of a letter of credit facility. The 2021 Revolving Credit Facility matures on September 27, 2026 and proceeds of any borrowings under the 2021 Revolving Credit Facility will be used for general corporate purposes. As of June 30, 2022, we have not drawn upon the 2021 Revolving Credit Facility, although $2.1 million has been utilized against the 2021 Revolving Credit Facility in the form of a line of credit, reducing our borrowing capacity to $72.9 million. The 2021 Revolving Credit Facility contains certain financial maintenance covenants, which require us to not exceed certain specified total net leverage ratios at the end of each fiscal quarter. As of June 30, 2022, we were in compliance with all financial covenants under the 2021 Revolving Credit Facility.
To the extent that current and anticipated future sources of liquidity are insufficient to fund our future business activities and requirements, we may be required to seek additional equity or debt financing. The sale of additional equity would result in additional dilution to our stockholders. The incurrence of debt financing would result in debt service obligations and the instruments governing such debt could provide for operating and financing covenants that would restrict our operations. There can be no assurances that we will be able to raise additional capital. In the event that additional financing is required from outside sources, we may not be able to negotiate terms acceptable to us or at all. If we are unable to raise additional capital when required, or if we cannot expand our operations or otherwise capitalize on our business opportunities because we lack sufficient capital, our business, results of operations, financial condition, and cash flows would be adversely affected.
Cash Flows
The following table summarizes our cash flows for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
|
2022 |
|
|
2021 |
|
|
|
(in thousands) |
|
Net cash provided by operating activities |
|
$ |
18,438 |
|
|
$ |
12,044 |
|
Net cash used in investing activities |
|
|
(2,933 |
) |
|
|
(2,189 |
) |
Net cash provided by (used in) financing activities |
|
|
4,410 |
|
|
|
(7,444 |
) |
Cash Flows from Operating Activities
Our primary source of operating cash is revenue generated from subscription and transaction and usage-based fees associated with our SaaS solutions. Our primary uses of operating cash are personnel-related costs and payments to our vendors. Our cash flows from operating activities are impacted by the amount of our net income (loss), revenue and customer growth, volume of transactions, changes in working capital accounts, the timing of payments to vendors and add-backs of non-cash expense items such as depreciation and amortization, stock/equity-based compensation expense, deferred income taxes, non-cash operating lease expense and non-cash interest expense.
Net cash provided by operating activities increased $6.4 million for the six month period ended June 30, 2022, as compared to the corresponding period in 2021, due to a $13.1 million increase in net income adjusted for non-cash expense items, offset by a decrease of $6.7 million in cash generated from the change in operating asset and liability accounts.
Cash Flows from Investing Activities
Investing activities primarily consist of payments made related to capital expenditures.
29
Net cash used in investing activities increased $0.7 million for the six month period ended June 30, 2022, as compared to the corresponding period in 2021, driven by an increase in capital expenditures.
Cash Flows from Financing Activities
Financing activities primarily consist of proceeds from the exercise of stock/equity-based options, repayments on related party debt, contingent consideration payments, payments of taxes related to net share settlement of equity awards, proceeds from issuance of common stock under our employee stock purchase plan, and payments of IPO costs.
Net cash provided by financing activities increased $11.9 million for the six month period ended June 30, 2022, as compared to the corresponding period in 2021.
During the six months ended June 30, 2022, cash provided by financing activities was $4.4 million, which was primarily driven by $5.6 million of proceeds from exercise of stock options, offset by contingent consideration payments of $1.1 million.
During the six months ended June 30, 2021, cash used in financing activities was $7.4 million, which was driven by $5.9 million used to repay related party notes, contingent consideration payments of $1.9 million, $0.5 million of payments related to IPO costs, offset by $0.8 million of proceeds from exercise of equity-based options.
Contractual Obligations and Commitments
As of June 30, 2022, there were no material changes in our contractual obligations and commitments from those disclosed in our 2021 Form 10-K.
For additional discussion on our operating leases and other non-cancellable commitments, refer to Note 5 - Leases and Note 13 - Commitments and Contingencies to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Critical Accounting Policies and Estimates
Management’s discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q, which have been prepared in accordance with GAAP. The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, as well as the reported revenue generated and expenses incurred during the reporting periods, as well as related disclosures. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities and the amount of revenue and expenses that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, and any such differences may be material.
There have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates as described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in our 2021 Form 10-K, except as noted in Note 2 - Summary of Significant Accounting Policies and Note 5 - Leases to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Recent Accounting Pronouncements
Refer to Note 2 - Summary of Significant Accounting Policies to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for a description of recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted.
JOBS Act
We currently qualify as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Accordingly, we have the option to adopt new or revised accounting guidance either (i) within the same periods as those otherwise applicable to non-emerging growth companies or (ii) within the same time periods as private companies. We have elected to delay the adoption of new or revised accounting standards, and as a result, we may not comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Our utilization of these transition periods may make it difficult to compare our
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financial statements to those of non-emerging growth companies and other emerging growth companies that have opted out of the transition periods afforded under the JOBS Act.
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