What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-09 compared with 2022-05-11 · 144 added, 92 removed, 144 unchanged (62% of the section changed)

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Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:

• the impact of the COVID-19 pandemic;

• the impact of the COVID-19 pandemic and its continuing effects on the economic and business environment in which we operate;

• negative economic and political conditions that adversely affect the general economy, consumer confidence and consumer and commercial spending habits, which may, among other things, negatively impact our business, financial condition and results of operations;

• competition in the payment processing industry;

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In addition, statements that "we believe" and similar statements reflect our beliefs and opinions on the relevant subject.

These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information.

These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we

believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information.

These statements are inherently uncertain, and investors are cautioned not to unduly rely upon these statements.

Table of Con tents

You should read this Quarterly Report on Form 10-Q with the understanding that our actual future results, levels of activity, performance and achievements may be materially different from what we expect.

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and its consolidated subsidiaries.

Table of Con tents

Results of Operations

This section includes certain components of our results of operations for the three months ended March 31, 2022, compared to the three months ended March 31, 2021.

This section includes certain components of our results of operations for the three and six months ended June 30, 2022, compared to the three and six months ended June 30, 2021.

We have derived this data, except key indicators for merchant bankcard processing dollar values and transaction volumes, from our Unaudited Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q and our Audited Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2021.

For the three months ended March 31, 2022, our consolidated revenue of $153.2 million increased by $39.9 million, or 35.2%, from $113.3 million for the three months ended March 31, 2021.

This overall increase was mainly driven by an increase in bankcard volumes fueled by increased consumer spending and acquisitions completed by the Company in 2021.

The following table presents our revenues by type for the three months ended March 31, 2022 and 2021:

(in thousands) Three Months Ended March 31,

For the three months ended June 30, 2022, our consolidated revenue of $166.4 million increased by $41.4 million, or 33.1%, from $125.0 million for the three months ended June 30, 2021.

This overall increase was mainly driven by an increase in bankcard volumes resulting from increased consumer spending and acquisitions completed by the Company in 2021.

For the six months ended June 30, 2022, our consolidated revenue of $319.7 million increased by $81.4 million, or 34.2%, from $238.3 million for the six months ended June 30, 2021.

This overall increase was primarily driven by an increase in bankcard volumes resulting from increased consumer spending, an increase in certain fee-based revenue and acquisitions completed by the Company in 2021.

The following table presents our revenues by type for the three and six months ended June 30, 2022 and 2021:

(in thousands) Three Months Ended June 30, Six Months Ended June 30,

2022 2021 $ Change 2022 2021 $ Change

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Outsourced services and other services 6,887 4,825 2,062 13,984 9,203 4,781

Money transmission services revenue 16,283 — 16,283 nm

Money transmission services revenue 17,183 — 17,183 33,466 — 33,466

Equipment 2,567 1,822 745 4,474 3,039 1,435

Total revenues $ 166,430 $ 125,014 $ 41,416 $ 319,669 $ 238,311 $ 81,358

For the three months ended March 31, 2022, our merchant card fees revenue of $128.0 million increased by $20.3 million, or 18.8%, from $107.7 million for the three months ended March 31, 2021.

This increase was primarily driven by an increase in the merchant bankcard volume processed by the Company and purchased residuals related to the C&H acquisition, slightly offset by rate decreases.

Outsourced services and other services revenue of $7.1 million for the three months ended March 31, 2022 increased by $2.7 million, or 61.4%, from $4.4 million for the three months ended March 31, 2021, primarily due to growth in revenue from AP automation solutions and the acceleration of certain customer programs which were scaled back in 2021 due to the impact of the COVID-19 pandemic.

Money transmission services revenue of $16.3 million for the three months ended March 31, 2022 is related to the acquisition of Finxera in September 2021.

Equipment revenue of $1.9 million for the three months ended March 31, 2022 increased by $0.7 million, or 58.3%, from $1.2 million for the three months ended March 31, 2021.

For the three months ended June 30, 2022, our merchant card fees revenue of $139.8 million increased by $21.4 million, or 18.1%, from $118.4 million for the three months ended June 30, 2021.

This increase was primarily driven by an increase in the merchant bankcard volume processed by the Company slightly offset by rate decreases.

For the six months ended June 30, 2022, our merchant card fees revenue of $267.7 million increased by $41.6 million, or 18.4%, from $226.1 million for the six months ended June 30, 2021.

This increase was primarily driven by an increase in the merchant bankcard volume processed by the Company, an increase in certain fee-based revenue slightly offset by rate decreases.

Outsourced services and other services revenue of $6.9 million for the three months ended June 30, 2022 increased by $2.1 million, or 43.8%, from $4.8 million for the three months ended June 30, 2021, primarily due to growth in revenue from AP automation solutions and the acceleration of certain customer programs which were scaled back in 2021 due to the impact of the COVID-19 pandemic.

Outsourced services and other services revenue of $14.0 million for the six months ended June 30, 2022 increased by $4.8 million, or 52.2%, from $9.2 million for the six months ended June 30, 2021.

This increase was primarily driven by growth in revenue from AP automation solutions and the acceleration of certain customer programs which were scaled back in 2021 due to the impact of the COVID-19 pandemic.

Money transmission services revenue of $17.2 million and $33.5 million for the three and six months ended June 30, 2022, respectively, is related to the business acquired from Finxera in September 2021.

Equipment revenue of $2.6 million for the three months ended June 30, 2022 increased by $0.8 million, or 44.4%, from $1.8 million for the three months ended June 30, 2021.

The increase was primarily due to increased sales of mobile card reader equipment and other equipment from our MX product line.

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Operating Expenses

Operating expenses for three months ended March 31, 2022 and 2021 were as follows:

(in thousands) Three Months Ended March 31,

Equipment revenue of $4.5 million for the six months ended June 30, 2022 increased by $1.5 million, or 50.0%, from $3.0 million for the six months ended June 30, 2021.

This increase was primarily due to increased sales of mobile card reader equipment and other equipment from our MX product line.

Operating expenses for three and six months ended June 30, 2022 and 2021 were as follows:

(in thousands) Three Months Ended June 30, Six Months Ended June 30,

2022 2021 $ Change 2022 2021 $ Change

Operating expenses

Costs of services $ 101,480 $ 81,863 $ 19,617 24.0 %

Cost of revenue $ 110,749 $ 89,831 $ 20,918 $ 212,229 $ 171,694 $ 40,535

Salary and employee benefits 15,770 10,351 5,419 31,847 19,899 11,948

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Total operating expenses $ 153,370 $ 117,609 $ 35,761 $ 295,783 $ 226,379 $ 69,404

Costs of Services

Costs of services of $101.5 million for the three months ended March 31, 2022 increased by $19.6 million, or 23.9%, from $81.9 million for the three months ended March 31, 2021, primarily due to the corresponding increase in revenues.

For the three months ended March 31, 2022, costs of services as a percentage of total revenues decreased to 66.2% as compared to 72.3% for the three months ended March 31, 2021.

This decrease was primarily due to the impact of the Finxera acquisition on gross profit margins, partially offset by bankcard volume growth from larger partners with higher commissions and contraction of the specialized merchant acquiring portfolio.

Cost of Revenue

Cost of revenue of $110.7 million for the three months ended June 30, 2022 increased by $20.9 million, or 23.3%, from $89.8 million for the three months ended June 30, 2021, primarily due to the corresponding increase in revenues.

For the three months ended June 30, 2022, cost of revenue as a percentage of total revenues decreased to 66.5% as compared to 71.9% for the three months ended June 30, 2021.

This decrease was primarily due to the impact of the Finxera acquisition on gross profit margins, partially offset by mix of bankcard volume growth from larger partners with higher commissions.

Cost of revenue of $212.2 million for the six months ended June 30, 2022 increased by $40.5 million, or 23.6% from $171.7 million for the six months ended June 30, 2021.

For the six months ended June 30, 2022 cost of revenue as a percentage of total revenues decreased to 66.4% as compared to 72.0% for the six months ended June 30, 2021.

This decrease was primarily due to the impact of the Finxera acquisition on gross profit margins, partially offset by mix of bankcard volume growth from larger partners with higher commissions and the temporary pull-back of the specialized merchant acquiring portfolio, resulting from risk-pairing action taken by the company during the prior year period.

Salary and Employee Benefits

Salary and employee benefits expense of $16.1 million for the three months ended March 31, 2022 increased by $6.6 million, or 69.5%, from $9.5 million for the three months ended March 31, 2021, primarily due to increases in headcount related to our acquisition of Finxera in September 2021, an increase in stock-based compensation and overall growth of the Company.

Salary and employee benefits expense of $15.8 million for the three months ended June 30, 2022 increased by $5.4 million, or 51.9%, from $10.4 million for the three months ended June 30, 2021, primarily due to annual pay raises, increases in headcount related to our acquisition of Finxera in September 2021, an increase in stock-based compensation and overall growth of the Company.

Salary and employee benefits expense of $31.8 million for the six months ended June 30, 2022 increased by $11.9 million, or 59.8%, from $19.9 million for the six months ended June 30, 2021, primarily due to in headcount related to our acquisition of Finxera in September 2021, an increase in stock-based compensation and overall growth of the Company.

Depreciation and Amortization Expense

Depreciation and amortization expense of $17.4 million for the three months ended March 31, 2022 increased by $8.3 million, or 91.2%, from $9.1 million for the three months ended March 31, 2021, primarily due to the amortization of finite-lived intangible assets acquired from the business combinations completed during 2021.

Depreciation and amortization expense of $17.5 million for the three months ended June 30, 2022 increased by $6.8 million, or 63.6%, from $10.7 million for the three months ended June 30, 2021, primarily due to the amortization of finite-lived intangible assets acquired from the business combinations completed during 2021.

Depreciation and amortization expense of $34.9 million for the six months ended June 30, 2022 increased by $15.1 million, or 76.3%, from $19.8 million for the six months ended June 30, 2021, primarily due to the amortization of finite-lived intangible assets acquired from the business combinations completed during 2021.

Selling, General and Administrative

Selling, general and administrative expenses of $7.5 million for the three months ended March 31, 2022 decreased by $0.8 million, or 9.6%, from $8.3 million for the three months ended March 31, 2021, primarily due to an increase in expenses from acquired businesses offset by one-time transaction expenses in the prior year period.

Other (Expenses) Income, net

(in thousands) Three Months Ended March 31,

Selling, general and administrative expenses of $9.3 million for the three months ended June 30, 2022 increased by $2.6 million, or 38.8%, from $6.7 million for the three months ended June 30, 2021, primarily due to an increase in expenses from acquired businesses and certain non-recurring expenses.

Selling, general and administrative expenses of $16.8 million for the six months ended June 30, 2022 increased by $1.8 million, or 12.0%, from $15.0 million for the six months ended June 30, 2021, primarily due to an increase in expenses from acquired businesses, offset by a decrease in certain non-recurring transaction related expenses.

Other Expense, net

Other expenses, net for three and six months ended June 30, 2022 and 2021 were as follows:

(in thousands) Three Months Ended June 30, Six Months Ended June 30,

2022 2021 $ Change 2022 2021 $ Change

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Interest expense $ (12,335) $ (7,285) $ (5,050) $ (23,870) $ (16,453) $ (7,417)

Debt extinguishment and modification costs — (8,322) 8,322 — (8,322) 8,322

Other income (expense), net 29 215 (186) 80 (54) 134

Total other expense, net $ (12,306) $ (15,392) $ 3,086 $ (23,790) $ (24,829) $ 1,039

Table of Con tents

Interest Expense

Interest expense of $11.5 million for the three months ended March 31, 2022 increased by $2.3 million, or 25.0%, from $9.2 million for the three months ended March 31, 2021, due to additional borrowings to fund the acquisition of Finxera in September 2021.

Income Tax Expense

(in thousands) Three Months Ended March 31,

Interest expense of $12.3 million for the three months ended June 30, 2022 increased by $5.0 million, or 68.5%, from $7.3 million for the three months ended June 30, 2021, due to additional borrowings to fund the acquisition of Finxera in September 2021.

Interest expense of $23.9 million for the six months ended June 30, 2022 increased by $7.4 million, or 44.8%, from $16.5 million for the six months ended June 30, 2021, primarily due to additional borrowings to fund the acquisition of Finxera in September 2021.

Debt Extinguishment and Modification Costs

In April 2021, the Company expensed unamortized deferred costs and discounts of $3.0 million associated with the retirement of our subordinated debt facility and refinancing of our senior debt facility, and expensed $5.3 million of third-party costs incurred in connection with the refinancing.

Income Tax Expense (Benefit)

Income tax expense (benefit) for three and six months ended June 30, 2022 and 2021 was as follows:

(in thousands) Three Months Ended June 30, Six Months Ended June 30,

2022 2021 $ Change 2022 2021 $ Change

Loss before income taxes $ (658) $ (4,910) $ 4,252 (86.6) %

Income tax benefit $ (325) $ (2,231) $ 1,906 (85.4) %

Income (loss) before income taxes $ 754 $ (7,987) $ 8,741 $ 96 $ (12,897) $ 12,993

Income tax expense (benefit) $ 467 $ 1,490 $ (1,023) $ 142 $ (741) $ 883

Effective tax rate 61.9 % (18.7) % 147.9 % 5.7 %

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The EAETR for 2022 is 81.4% and includes the income tax provision on pre-tax income and a tax provision related to establishment of a valuation allowance for deferred income tax on the future portion of the Section 163(j) limitation created by additional 2022 interest expense.

The effective tax rate for 2022 increased primarily due to an increase in the valuation allowance against certain business interest carryover deferred tax assets.

The effective tax rate for 2022 changed primarily due to an increase in the valuation allowance against certain business interest carryover deferred tax assets.

Our consolidated effective income tax rates differ from the statutory rate due to timing and permanent differences between amounts calculated under accounting principles GAAP and the U.S.

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Segment results included in the discussion below were restated in accordance with the new segment structure for comparison purposes.

Table of Con tents

The impact of the restatement of the prior period results is as follows:

(in thousands) Three Months Ended March 31, 2021

(in thousands) Three Months Ended June 30, 2021

SMB Payments (1)

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Difference (4)

$ (4) $ — $ 6

Depreciation and Amortization:

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Difference $ 76 $ — $ (76)

(in thousands) Six Months Ended June 30, 2021

SMB Payments (1)

B2B Payments (2)

Enterprise Payments (3)

Restated $ 229,412 $ 7,541 $ 1,358

Historically reported 228,018 7,541 2,752

Difference $ 1,394 $ — $ (1,394)

Operating Income (Loss):

Restated $ 27,733 $ (388) $ 335

Historically reported 27,811 (388) 257

Difference $ (78) $ — $ 78

Depreciation and Amortization:

Restated $ 19,081 $ 147 $ —

Historically reported 18,876 147 205

Difference $ 205 $ — $ (205)

(1) Compared to the Company's legacy Consumer Payments segment.

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(3) Compared to the Company's legacy Integrated Partners segment.

(in thousands) Three Months Ended March 31,

(4) Amounts may not net to zero due to rounding differences.

(in thousands) Three Months Ended June 30, Six Months Ended June 30,

2022 2021 $ Change 2022 2021 $ Change

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Merchant bankcard transaction volume 164,341 150,733 13,608 310,289 278,316 31,973

Revenue from our SMB Payments segment was $130.0 million for the three months ended March 31, 2022, compared to $109.1 million for the three months ended March 31, 2021.

Revenue from our SMB Payments segment was $142.5 million for the three months ended June 30, 2022, compared to $120.3 million for the three months ended June 30, 2021.

The increase of $22.2 million, or 18.5%, was primarily driven by increased merchant bankcard volume.

The Company's revenue from the SMB Payments segment as a percentage of merchant bankcard processing dollar value during 2022 decreased to 0.88% from 0.90% during 2021.

The decrease is primarily driven by a decrease in revenue from the specialized merchant acquiring portfolio offset by an increase in other fees revenues.

The Company's revenue from the SMB Payments segment as a percentage of merchant bankcard processing dollar value during 2022 increased to 0.92% from 0.87% during 2021.

The increase was primarily driven by increased volume (transaction count) related fees revenues and changes in the merchant mix.

Revenue from our SMB Payments segment was $272.5 million for the six months ended June 30, 2022, compared to $229.4 million for the six months ended June 30, 2021.

The increase of $43.1 million, or 18.8%, was primarily driven by increased merchant bankcard volume and an increase in certain fee-based revenue.

The Company's revenue from the SMB Payments segment as a percentage of merchant bankcard processing dollar value during 2022 increased to 0.92% from 0.89% during 2021.

The increase was primarily driven by an increase in other fees revenues and changes in the merchant mix.

Operating Income

Operating income from our SMB Payments segment was $12.5 million for the three months ended March 31, 2022, compared to $13.3 million for the three months ended March 31, 2021.

The decrease of $0.8 million, or 6.0%, was primarily driven by the increase in volumes from partners with higher commissions.

Table of Con tents

Operating income from our SMB Payments segment was $14.0 million for the three months ended June 30, 2022, compared to $14.4 million for the three months ended June 30, 2021.

The decrease of $0.4 million, or 2.8%, was primarily driven by mix related margin compression, a $1.7 million increase in salary and employee benefits due to higher headcount, higher stock-based compensation and annual pay raises, a $1.2 million increase in selling, general and administrative expenses driven by higher software, travel and other operating costs and a $0.6 million increase in depreciation and amortization.

The increase in headcount and selling, general and administrative expenses are mainly attributable to growth initiatives.

Operating income from our SMB Payments segment was $26.5 million for the six months ended June 30, 2022, compared to $27.7 million for the six months ended June 30, 2021.

The decrease of $1.2 million, or 4.3%, was primarily driven by mix related margin compression, a $3.2 million increase in salary and employee benefits due to higher headcount, higher stock-based compensation and annual pay raises, a $1.6 million increase in selling, general and administrative expenses driven by higher software and travel and other operating costs and a $2.7 million increase in depreciation and amortization.

The increase in headcount and selling, general and administrative expenses are mainly attributable to growth initiatives.

Depreciation and Amortization

Depreciation and amortization expense from our SMB Payments segment was $10.8 million for the three months ended March 31, 2022, compared to $8.7 million depreciation expense for the three months ended March 31, 2021.

Depreciation and amortization expense from our SMB Payments segment was $11.0 million for the three months ended June 30, 2022, compared to $10.4 million for the three months ended June 30, 2021.

The increase of $0.6 million was primarily driven by the amortization of acquired intangibles resulting from the C&H and Wholesale Payments, Inc.

acquisitions.

(in thousands) Three Months Ended March 31,

Depreciation and amortization expense from our SMB Payments segment was $21.8 million for the six months ended June 30, 2022, compared to $19.1 million for the six months ended June 30, 2021.

The increase of $2.7 million was primarily driven by the amortization of acquired intangibles resulting from the C&H and Wholesale Payments, Inc.

acquisitions.

(in thousands) Three Months Ended June 30, Six Months Ended June 30,

2022 2021 $ Change 2022 2021 $ Change

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Merchant bankcard transaction volume 88 48 40 176 87 89

Revenue from our B2B Payments segment was $5.9 million for the three months ended March 31, 2022, compared to $3.5 million for the three months ended March 31, 2021.

The increase of $2.4 million, or 68.6%, was primarily driven by $1.5 million, or 42.9%, as a result of the acceleration of certain programs in the Managed Services business operations that were scaled back in 2021 as a result of the COVID-19 pandemic and volume growth in the CPX business.

The remaining increase of $0.9 million, or 25.7%, is from the recognition of certain revenues for which recovery became probable during the current quarter.

Revenue from our B2B Payments segment was $5.3 million for the three months ended June 30, 2022, compared to $4.0 million for the three months ended June 30, 2021.

The increase of $1.3 million, or 32.5%, was primarily driven by an increase of $0.4 million as a result of the acceleration of certain programs in the Managed Services business operations that were scaled back in 2021 as a result of the COVID-19 pandemic, an increase of $0.9 million in the CPX business, of which $0.5 million is related to volume growth, and the remaining increase of $0.4 million is from the recognition of certain revenues for which recovery became probable during the current quarter.

Revenue from our B2B Payments segment was $11.2 million for the six months ended June 30, 2022, compared to $7.5 million for the six months ended June 30, 2021.

The increase of $3.7 million, or 49.3%, was primarily driven by an increase of $1.2 million as a result of the acceleration of certain programs in the Managed Services business operations that were scaled back in 2021 as a result of the COVID-19 pandemic, an increase of $2.5 million in the CPX business, of which $1.5 million is related to

volume growth, and the remaining increase of $1.0 million is from the recognition of certain revenues for which recovery became probable during the current quarter.

Operating Income (Loss)

Operating income from our B2B Payments segment was $0.4 million for the three months ended March 31, 2022, compared to an operating loss of $(0.4) million for the three months ended March 31, 2021.

The increase of $0.8 million, or 200.0%, was primarily attributable to increases in revenue.

Operating income from our B2B Payments segment was $0.7 million for the three months ended June 30, 2022, compared to $21 thousand for the three months ended June 30, 2021.

The increase was primarily attributable to increases in revenue.

Operating income from our B2B Payments segment was $1.1 million for the six months ended June 30, 2022.

compared to an operating loss of $0.4 million for the six months ended June 30, 2021.

The increase of $1.5 million was primarily attributable to increases in revenue.

Enterprise Payments

(in thousands) Three Months Ended March 31,

(in thousands) Three Months Ended June 30, Six Months Ended June 30,

2022 2021 $ Change 2022 2021 $ Change

Revenue $ 17,355 $ 696 $ 16,659 nm

Operating expenses 12,861 532 12,329 nm

Operating income $ 4,494 $ 164 $ 4,330 nm

Revenue $ 18,629 $ 662 $ 17,967 $ 35,984 $ 1,358 $ 34,626

Operating expenses 12,931 491 12,440 25,792 1,023 24,769

Operating income $ 5,698 $ 171 $ 5,527 $ 10,192 $ 335 $ 9,857

Operating margin 30.6 % 25.8 % 28.3 % 24.7 %

Depreciation and amortization $ 6,197 $ — $ 6,197 nm

Depreciation and amortization $ 6,199 $ — $ 6,199 $ 12,396 $ — $ 12,396

Key Indicators:

Merchant bankcard processing dollar value $ 216,398 $ — $ 216,398 nm

Merchant bankcard transaction volume 372 — 372 nm

Table of Con tents

Revenue from our Enterprise Payments segment was $17.4 million for the three months ended March 31, 2022, compared to $0.7 million for the three months ended March 31, 2021.

Merchant bankcard processing dollar value $ 387,253 $ — $ 387,253 $ 603,652 $ — $ 603,652

Merchant bankcard transaction volume 842 — 842 1,214 — 1,214

Revenue from our Enterprise Payments segment was $18.6 million for the three months ended June 30, 2022, compared to $0.7 million for the three months ended June 30, 2021.

The increase of $17.9 million was primarily driven by revenues contributed by the Finxera business acquired in September 2021.

Revenue from our Enterprise Payments segment was $36.0 million for the six months ended June 30, 2022, compared to $1.4 million for the six months ended June 30, 2021.

The increase of $34.6 million was primarily driven by revenues contributed by the Finxera business acquired in September 2021.

Operating Income

Operating income from our Enterprise Payments segment was $4.5 million for the three months ended March 31, 2022, compared to $0.2 million for the three months ended March 31, 2021.

Operating income from our Enterprise Payments segment was $5.7 million for the three months ended June 30, 2022, compared to $0.2 million for the three months ended June 30, 2021.

The increase of $5.5 million was primarily driven by operating income contributed by the Finxera business acquired in September 2021.

Operating income from our Enterprise Payments segment was $10.2 million for the six months ended June 30, 2022, compared to $0.3 million for the six months ended June 30, 2021.

The increase of $9.9 million was primarily driven by operating income contributed by the Finxera business acquired in September 2021.

Depreciation and Amortization

Depreciation and amortization expense from our Enterprise Payments segment was $6.2 million for the three months ended March 31, 2022, compared to no depreciation expense for the three months ended March 31, 2021.

Depreciation and amortization expense from our Enterprise Payments segment was $6.2 million for the three months ended June 30, 2022, compared to no depreciation and expense for the three months ended June 30, 2021.

The increase of $6.2 million was primarily driven by the amortization of acquired intangibles resulting from the Finxera acquisition in September 2021.

Depreciation and amortization from our Enterprise Payments segment was $12.4 million for the six months ended June 30, 2022, compared to no depreciation and amortization expense for the six months ended June 30, 2021.

The increase of $12.4 million was primarily driven by the amortization of acquired intangibles resulting from the Finxera acquisition in September 2021.

Critical Accounting Policies and Estimates

Our Unaudited Consolidated Financial Statements have been prepared in accordance with GAAP for interim periods, which often require the judgment of management in the selection and application of certain accounting principles and methods.

Our critical accounting policies and estimates are discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2021.

There have been no material changes to these critical accounting policies and estimates as of June 30, 2022.

Liquidity and Capital Resources

Liquidity and capital resource management is a process focused on providing the funding we need to meet our short-term and long-term cash and working capital needs.

We have used our funding sources to build our merchant portfolio, for technology solutions and to make acquisitions with the expectation that such investments will generate cash flows sufficient to cover our working capital needs and other anticipated needs, including for our acquisition strategy.

We anticipate that cash on hand, funds generated from operations and available borrowings under our revolving credit agreement are sufficient to meet our working capital requirements for at least the next twelve months.

This is based upon management's estimates and assumptions, including utilizing the most currently available information regarding the effects of the COVID-19 pandemic on our financial results.

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Our principal uses of cash are to fund business operations and administrative costs, and to service our debt.

Our working capital, defined as current assets less current liabilities, was $18.9 million at March 31, 2022 and $19.6 million at December 31, 2021.

As of March 31, 2022, we had cash totaling $13.6 million compared to $20.3 million at December 31, 2021.

These cash balances do not include restricted cash of $13.6 million and $28.9 million at March 31, 2022 and December 31, 2021, respectively, which reflects cash accounts holding customer settlement funds and cash reserves for potential losses.

The current portion of long-term debt included in current liabilities was $6.2 million at March 31, 2022 and December 31, 2021.

At March 31, 2022, we had availability of approximately $30.0 million under our revolving credit arrangement.

The following table and discussion reflect our changes in cash flows for the comparative three month periods.

Three Months Ended March 31,

Our working capital, defined as current assets less current liabilities, was $23.8 million at June 30, 2022 and $19.6 million at December 31, 2021.

As of June 30, 2022, we had cash totaling $22.2 million compared to $20.3 million at December 31, 2021.

These cash balances do not include restricted cash of $11.7 million and $28.9 million at June 30, 2022 and December 31, 2021, respectively, which reflects cash accounts holding customer settlement funds and cash reserves for potential losses.

The current portion of long-term debt included in current liabilities was $6.2 million at June 30, 2022 and December 31, 2021.

At June 30, 2022, we had availability of approximately $25.5 million under our revolving credit arrangement.

The following table and discussion reflect our changes in cash flows for the comparative six month periods.

Six Months Ended June 30,

(in thousands) 2022 2021

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Financing activities 562 34,086

Net increase in cash and cash equivalents and restricted cash $ 6,440 $ (23,360)

Table of Con tents

Cash Provided by Operating Activities

Net cash provided by operating activities was $9.6 million and $9.1 million for the three months March 31, 2022 and 2021, respectively.

Net increase (decrease) in cash and cash equivalents and restricted cash $ 18,161 $ (58,777)

Cash Provided by (Used in) Operating Activities

Net cash provided by operating activities was $30.3 million for the six months ended June 30, 2022 compared $9.8 million of net cash used in operating activities for the six months ended June 30, 2021.

The $40.1 million, or 409.2%, increase in 2022 was primarily driven by cash generated from the operations of the Company, offset by changes in operating assets and liabilities.

Cash Used in Investing Activities

Net cash used in investing activities was $5.7 million for both the three months ended March 31, 2022 and 2021.

For the three months ended March 31, 2022, net cash used in investing activities included $2.4 million related to the funding of new loans to ISOs, additions to property, equipment and software of $2.4 million, and acquisitions of intangible assets of $0.9 million.

For three months ended March 31, 2021, net cash used in investing activities included $2.9 million of cash used to fund a portfolio acquisition and $2.8 million of cash used to acquire property, equipment and software.

Cash Provided by (Used in) Financing Activities

Net cash provided by financing activities was $2.5 million for the three months ended March 31, 2022, compared to $26.8 million of cash used in financing activities for the three months ended March 31, 2021.

The net cash provided by financing activities for three months ended March 31, 2022 included $6.6 million of cash used for the repayment of debt, $3.5 million of cash dividends paid to redeemable senior preferred stockholders and $0.2 million of cash used for other financing activities, offset by changes in the net obligations for funds held on the behalf of customers of $12.7 million.

The net cash used in financing activities for the three months ended March 31, 2021 included $22.5 million of cash used related to changes in the net obligations for funds held on behalf of customers and $4.9 million of cash used for the repayment of debt, slightly offset by $0.6 million of cash provided by other financing activities.

Net cash used in investing activities was $12.7 million and $83.1 million for the six months ended June 30, 2022 and 2021, respectively.

For the six months ended June 30, 2022, net cash used in investing activities included $2.8 million related to the funding of new loans to ISOs, additions to property, equipment and software of $6.0 million, and acquisitions of intangible assets of $3.7 million.

For the six months ended June 30, 2021, net cash used in investing activities included $43.4 million of cash used to fund acquisitions of intangible assets, $34.5 million of net cash used for the acquisition of a business and $5.2 million of cash used to acquire property, equipment and software.

Cash Provided by Financing Activities

Net cash provided by financing activities was $0.6 million for the six months ended June 30, 2022, compared to $34.1 million of cash provided by financing activities for the six months ended June 30, 2021.

The net cash provided by financing activities for the six months ended June 30, 2022 included changes in the net obligations for funds held on the behalf of customers of $15.2 million and $12.0 million related to additional borrowings under the revolving credit facility, offset by $15.6 million of cash used for the repayment of debt, $7.1 million of cash dividends paid to redeemable senior preferred stockholders, $2.1 million of cash used for stock repurchases, including a portion related to shares withheld for taxes, and $1.9 million of payments of contingent consideration for business combinations and asset acquisitions.

The net cash provided by financing activities for the six months ended June 30, 2021 included $286.0 million of cash proceeds from the issuance of long-term debt, net of debt issuance and modification costs, $139.5 million of proceeds from the issuance of the redeemable senior preferred stock, net of issuance fees and costs, and $30.0 million related to borrowings under the revolving credit facility, offset by $358.3 million of cash used for the repayment of debt, $61.6 million of cash used related to changes in the net obligations for funds held on behalf of customers, and $1.6 million of cash dividends paid to the redeemable senior preferred stockholders.

Long-term Debt

As of March 31, 2022, we had outstanding debt obligations, including the current portion and net of unamortized debt discount of $604.6 million, compared to $610.3 million at December 31, 2021, resulting in a decrease of $5.7 million.

The debt balance at March 31, 2022 consisted of $615.3 million outstanding under the term facility and $10.0 million outstanding under the revolving credit facility, offset by $20.7 million of unamortized debt discounts and issuance costs.

Minimum amortization of the term facility are equal quarterly installments in aggregate annual amounts equal to 1.0% of original principal, with the balance paid upon maturity.

As of June 30, 2022, we had outstanding debt obligations, including the current portion and net of unamortized debt discount of $608.4 million, compared to $610.3 million at December 31, 2021, resulting in a decrease of $1.9 million.

The debt balance at June 30, 2022 consisted of $613.8 million outstanding under the term facility and $14.5 million outstanding under the revolving credit facility, offset by $19.9 million of unamortized debt discounts and issuance costs.

The $14.5 million outstanding under the revolving credit facility was fully repaid subsequent to June 30, 2022.

Minimum amortization of the term facility are equal quarterly installments in aggregate annual amounts equal to 1.0% of the original principal, with the balance paid upon maturity.

The term facility matures in April 2027 and the revolving credit facility expires in April 2026.

5 unchanged sentences

and 3) 5.50:1.00 at each fiscal quarter ended September 30, 2023 each fiscal quarter thereafter.

As of March 31, 2022, the Company was in compliance with our financial covenants.

Critical Accounting Policies and Estimates

There have been no material changes to these critical accounting policies and estimates as of March 31, 2022.

Table of Con tents

As of June 30, 2022, the Company was in compliance with our financial covenants.

Effect of New Accounting Pronouncements and Recently Issued Accounting Pronouncements Not Yet Adopted

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis