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Item 2. Management’s Discussion and Analysis

2024-08-08 compared with 2024-05-09 · 157 added, 98 removed, 112 unchanged (69% of the section changed)

23 unchanged sentences

We cannot assure you that future developments affecting us will be those that we have anticipated.

These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions, including the risk factors set forth in the " Item 1A - Risk Factors " section of this Quarterly Report on Form 10-Q or our Annual Report on Form 10-K, that may cause our actual results or performance to be materially different from those expressed or implied by these forward-looking statements.

be materially different from those expressed or implied by these forward-looking statements.

Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements.

10 unchanged sentences

Results of Operations

This section includes certain components of our results of operations for the three months ended March 31, 2024, compared to the three months ended March 31, 2023.

This section includes certain components of our results of operations for the three and six months ended June 30, 2024, compared to the three and six months ended June 30, 2023.

We have derived this data, except the key indicators, 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, 2023.

For the three months ended March 31, 2024, our consolidated revenue of $205.7 million increased by $20.7 million, or 11.2%, from $185.0 million for the three months ended March 31, 2023.

The overall increase was driven by an increase in new enrollments and higher interest income in our Enterprise Payments segment and revenue from the Plastiq business in our B2B Payments segment that was acquired in the quarter ended September 30, 2023.

These increases were partially offset by a decrease in revenues in our SMB Payments segment due to decreased volumes.

For the three months ended June 30, 2024, our consolidated revenue of $219.9 million increased by $37.6 million, or 20.6%, from $182.3 million for the three months ended June 30, 2023.

This overall increase was mainly driven by increase in merchant bankcard volume in our SMB Payments segment, an increase in new enrollments and higher interest income in our Enterprise Payments segment, and acquisition of the Plastiq business during Q3 2023 in our B2B Payments Segment.

For the six months ended June 30, 2024, our consolidated revenue of $425.6 million increased by $58.3 million, or 15.9%, from $367.3 million for the six months ended June 30, 2023.

The following table presents our revenues by type:

(in thousands) Three Months Ended March 31,

2024 2023 $ Change

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

2024 2023 $ Change 2024 2023 $ Change

Revenue Type:

5 unchanged sentences

Merchant card fees

Merchant card fees revenue for the three months ended March 31, 2024 was $157.9 million an increase of $8.3 million or 5.5%, from $149.6 million for the three months ended March 31, 2023.

The increase was primarily driven by the Plastiq business and rate increases.

These increases were partially offset by a decrease in volume due to the diversification of our merchant portfolio by one of our referral partners.

Merchant card fees revenue for the three months ended June 30, 2024 was $169.2 million, an increase of $24.7 million, or 17.1%, from $144.5 million for the three months ended June 30, 2023.

This increase was primarily driven by an increase in the transaction count processed by the Company, rate increases, and the acquisition of the Plastiq business during Q3 2023.

Merchant card fees revenue for the six months ended June 30, 2024 was $327.2 million an increase of $33.0 million or 11.2%, from $294.2 million for the six months ended June 30, 2023.

The increase was primarily driven by an increase in the transaction count processed by the Company, rate increases, and the acquisition of the Plastiq business during Q3 2023.

Money transmission services

Money transmission services for the three months ended March 31, 2024 was $29.1 million an increase of $7.7 million, or 36.1%, from $21.4 million for the three months ended March 31, 2023.

Money transmission services for the three months ended June 30, 2024 was $31.3 million, an increase of $7.6 million, or 32.1%, from $23.7 million for the three months ended June 30, 2023.

This increase was primarily driven by an increase in customer enrollments.

Money transmission services for the six months ended June 30, 2024 was $60.5 million, an increase of $15.4 million, or 34.0%, from $45.1 million for the six months ended June 30, 2023.

This increase was primarily driven by an increase in customer enrollments.

Outsourced services and other services revenue

Outsourced services and other services revenue of $15.7 million for the three months ended March 31, 2024 increased by $4.7 million, or 42.3%, from $11.0 million for the three months ended March 31, 2023, primarily due to growth in interest income due to higher interest rates and deposit balances.

Equipment revenue of $3.0 million for the three months ended March 31, 2024 remained consistent with $3.0 million for the three months ended March 31, 2023.

Outsourced services and other services revenue of $16.3 million for the three months ended June 30, 2024 increased by $5.7 million, or 53.6%, from $10.6 million for the three months ended June 30, 2023, primarily due to growth in interest income due to higher interest rates and deposit balances.

Outsourced services and other services revenue of $31.9 million for the six months ended June 30, 2024 increased by $10.3 million, or 47.9%, from $21.6 million for the six months ended June 30, 2023, primarily due to growth in interest income due to higher interest rates and deposit balances.

Equipment revenue of $3.0 million for the three months ended June 30, 2024 decreased by $0.4 million, or 12.7%, from $3.5 million for the three months ended June 30, 2023.

The decrease was primarily due to decreased sales of point-of-sale equipment.

Equipment revenue of $6.0 million for the six months ended June 30, 2024 decreased by $0.5 million, or 7.0% from $6.4 million for the six months ended June 30, 2023.

The decrease was primarily due to decreased sales of point-of-sale equipment.

Operating expenses were as follows:

(in thousands) Three Months Ended March 31,

2024 2023 $ Change

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

2024 2023 $ Change 2024 2023 $ Change

Operating expenses

Cost of services (excludes depreciation and amortization) $ 129,298 $ 121,966 $ 7,332

Cost of revenue (excludes depreciation and amortization) $ 138,118 $ 115,281 $ 22,837 $ 267,416 $ 237,247 $ 30,169

Salary and employee benefits 22,119 19,109 3,010 44,269 38,157 6,112

2 unchanged sentences

Total operating expenses $ 186,693 $ 163,157 $ 23,536 $ 364,389 $ 331,337 $ 33,052

Cost of services (excludes depreciation and amortization)

Cost of services (excludes depreciation and amortization) of $129.3 million for the three months ended March 31, 2024, increased by $7.3 million, or 6.0%, from $122.0 million for the three months ended March 31, 2023, primarily due to the corresponding increase in revenues.

Cost of revenue (excludes depreciation and amortization)

Cost of revenue (excludes depreciation and amortization) of $138.1 million for the three months ended June 30, 2024 increased by $22.8 million, or 19.8%, from $115.3 million for the three months ended June 30, 2023, primarily due to corresponding increase in revenues.

Cost of revenue (excludes depreciation and amortization) of $267.4 million for the six months ended June 30, 2024 increased by $30.2 million, or 12.7%, from $237.2 million for the six months ended June 30, 2023, primarily due to the corresponding increase in revenues.

Salary and employee benefits

Salary and employee benefits expense of $22.2 million for the three months ended March 31, 2024 increased by $3.1 million, or 16.3%, from $19.0 million for the three months ended March 31, 2023, primarily due to merit increases, certain performance based non-recurring bonuses and increased headcount from the acquisition of the Plastiq business and to support the overall growth of the Company.

Salary and employee benefits expense of $22.1 million for the three months ended June 30, 2024 increased by $3.0 million, or 15.8%, from $19.1 million for the three months ended June 30, 2023, primarily due to merit increases, certain performance based non-recurring bonuses and increased headcount from the acquisition of the Plastiq business during Q3 2023.

Salary and employee benefits expense of $44.3 million for the six months ended June 30, 2024 increased by $6.1 million, or 16.0%, from $38.2 million for the six months ended June 30, 2023, primarily due to merit increases, certain performance based non-recurring bonuses and increased headcount from the acquisition of the Plastiq business during Q3 2023.

Depreciation and amortization expense

Depreciation and amortization expense of $15.3 million for the three months ended March 31, 2024 decreased by $2.8 million, or 15.5%, from $18.0 million for the three months ended March 31, 2023, primarily due to full amortization of certain intangible assets during 2023.

Depreciation and amortization expense of $15.2 million for the three months ended June 30, 2024 decreased by $2.7 million, or 15.2%, from $18.0 million for the three months ended June 30, 2023, primarily due to full amortization of certain intangible assets during 2023.

Depreciation and amortization expense of $30.5 million for the six months ended June 30, 2024 decreased by $5.5 million, or 15.4%, from $36.0 million for the six months ended June 30, 2023, primarily due to full amortization of certain intangible assets during 2023.

Selling, general and administrative

Selling, general and administrative expenses of $11.0 million for the three months ended March 31, 2024 increased by $1.9 million, or 20.6%, from $9.1 million for the three months ended March 31, 2023, primarily due to certain software and maintenance expenses and other expenses to support overall growth of the Company.

Selling, general and administrative expenses of $11.2 million for the three months ended June 30, 2024 increased by $0.4 million, or 3.9%, from $10.8 million for the three months ended June 30, 2023, primarily due to certain software and maintenance expenses and other expenses to support overall growth of the Company.

Selling, general and administrative expenses of $22.2 million for the six months ended June 30, 2024 increased by $2.3 million, or 11.6%, from $19.9 million for the six months ended June 30, 2023, primarily due to certain software and maintenance expenses and other expenses to support overall growth of the Company.

Other Expense, net

Other expenses, net were as follows:

(in thousands) Three Months Ended March 31,

2024 2023 $ Change

Other expense, net were as follows:

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

2024 2023 $ Change 2024 2023 $ Change

Other (expense) income

Interest expense $ (21,710) $ (17,765) $ (3,945) $ (42,590) $ (35,464) $ (7,126)

Debt extinguishment and modification costs (8,623) — (8,623) (8,623) — (8,623)

Other income, net 668 375 293 1,300 587 713

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Interest expense

Interest expense of $20.9 million for the three months ended March 31, 2024 increased by $3.2 million, or 18.0%, from $17.7 million for the three months ended March 31, 2023, due to increased interest rates and increased outstanding balance for the term loan facility used for the acquisition of the Plastiq business, offset by a decrease in the revolving credit facility.

Interest expense of $21.7 million for the three months ended June 30, 2024 increased by $3.9 million, or 22.2%, from $17.8 million for the three months ended June 30, 2023, due to increased interest rates and increased outstanding balance for the term loan facility used for the acquisition of the Plastiq business and redemption of redeemable senior preferred stock, offset by a decrease in the revolving credit facility.

Interest expense of $42.6 million for the six months ended June 30, 2024 increased by $7.1 million, or 20.1%, from $35.5 million for the six months ended June 30, 2023, due to increased interest rates and increased outstanding balance for the term loan facility used for the acquisition of the Plastiq business and redemption of redeemable senior preferred stock, offset by a decrease in the revolving credit facility.

Debt extinguishment and modification costs

Debt extinguishment and modification costs of $8.6 million for the three months and six months ended June 30, 2024, relates to the refinancing of the Company's credit facilities on May 16, 2024.

Income tax (benefit) expense

Income tax expense was as follows:

(in thousands) Three Months Ended March 31,

2024 2023 $ Change

Income (loss) before income taxes $ 7,775 $ (639) $ 8,414

Income tax expense (benefit) $ 2,582 $ (133) $ 2,715

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

2024 2023 $ Change 2024 2023 $ Change

Income before income taxes $ 3,509 $ 1,743 $ 1,766 $ 11,284 $ 1,104 $ 10,180

Income tax expense $ 2,515 $ 2,355 $ 160 $ 5,097 $ 2,222 $ 2,875

Effective tax rate 71.7 % 135.1 % 45.2 % 201.3 %

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The EAETR for 2024 is 41.0% 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 2024 interest expense.

The effective tax rate for 2024 changed primarily due to an increase in certain forecasted nondeductible expenses.

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.

The effective tax rate for 2024 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 GAAP and the U.S.

The consolidated effective income tax rate for 2024 may not be indicative of our effective tax rate for future periods.

Segment Results

(in thousands) Three Months Ended March 31,

2024 2023 $ Change

Revenue $ 143,751 $ 154,933 $ (11,182)

Operating expenses 131,368 142,922 (11,554)

Operating income $ 12,383 $ 12,011 $ 372

Operating margin 8.6 % 7.8 %

Depreciation and amortization $ 8,802 $ 10,846 $ (2,044)

The CODM's review of segment performance and allocation of resources are based on the Adjusted EBITDA (a non-GAAP financial measure).

Adjusted EBITDA at each segment level includes revenues of the segment, less costs of revenue (excluding depreciation and amortization) and operating expenses that are directly related those revenues.

Operating overhead and shared costs are managed centrally and included in corporate segment.

This non-GAAP financial measure helps to illustrate the underlying financial and business trends relating to results of operations of the Company and therefore used as a measure of segment profit or loss for the purposes of evaluation of segment performance and allocation of resources.

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

2024 2023 Change 2024 2023 Change

Revenues $ 155,101 $ 147,948 $ 7,153 $ 299,105 $ 302,881 $ (3,776)

Adjusted EBITDA $ 28,597 $ 28,434 $ 163 $ 53,620 $ 56,836 $ (3,216)

Key Indicators:

1 unchanged sentence

Merchant bankcard transaction count 193,841 180,343 13,498 369,069 343,749 25,320

Revenue from our SMB Payments segment was $143.8 million for the three months ended March 31, 2024, compared to $154.9 million for the three months ended March 31, 2023.

The decrease of $11.2 million, or 7.2%, was primarily driven by a decrease in certain incentives and, decreased transaction count and processed merchant bankcard volume due to diversification of merchant portfolios by one of the Company's referral partners.

The Company's merchant card fee revenue from the SMB Payments segment ($139.5 million for 2024 and $148.7 million for 2023) as a percentage of merchant bankcard processing dollar value during 2024 decrease to 0.9% from 1.0% during 2023.

The decrease was primarily driven by changes in merchant and card mix.

Operating Income

Operating income from our SMB Payments segment was $12.4 million for the three months ended March 31, 2024, compared to $12.0 million for the three months ended March 31, 2023.

The increase of $0.4 million or 3.1% was the result of a decrease in operating income of $4.0 million in merchant card fee revenue driven by the diversification of merchant portfolios by one of the Company's referral partners, the mix related margin compression and a decrease in certain incentive revenue.

This decrease was offset by decreases in the allocation of salary and employee benefits expense of $1.7 million, a decrease in selling, general and administrative expenses of $0.7 million due to efficiencies and realignment at the corporate level and a decrease in depreciation and amortization expense of $2.0 million due to full amortization of certain intangible assets in 2023.

Depreciation and Amortization

Depreciation and amortization expense of our SMB Payments segment was $8.8 million for the three months ended March 31, 2024, compared to $10.8 million for the three months ended March 31, 2023.

The decrease of $2.0 million is due to full amortization of certain intangible assets in 2023.

(in thousands) Three Months Ended March 31,

2024 2023 $ Change

Revenue $ 21,115 $ 2,786 $ 18,329

Operating expenses 21,908 3,635 18,273

Operating loss $ (793) $ (849) $ 56

Operating margin (3.8) % (30.5) %

Depreciation and amortization $ 1,640 $ 125 $ 1,515

Revenue from our SMB Payments segment was $155.1 million for the three months ended June 30, 2024, compared to $147.9 million for the three months ended June 30, 2023.

The increase of $7.2 million, or 4.8%, was primarily driven by increased transaction count and processed merchant bankcard dollar value.

The Company's merchant card fee revenue from the SMB Payments segment ($150.7 million for 2024 and $143.5 million for 2023) as a percentage of merchant bankcard processing dollar value during 2024 remained consistent at 0.95%.

Revenue from our SMB Payments segment was $299.1 million for the six months ended June 30, 2024, compared to $302.9 million for the six months ended June 30, 2023.

The decrease of $3.8 million, or 1.2%, was primarily driven by a decrease in certain incentives, decrease in rates as the Company's merchant card fee revenue from the SMB Payments segment ($290.5 million for 2024 and $292.2 million for 2023) as a percentage of merchant bankcard processing dollar value during 2024 decrease to 0.95% from 0.96% during 2023, mainly due to changes in merchant and card mix, and decrease in equipment revenue.

These decreases are partially offset by additional revenue from increases in transaction count and processed merchant bankcard dollar value.

Adjusted EBITDA

Adjusted EBITDA from our SMB Payments segment was $28.6 million for the three months ended June 30, 2024, compared to $28.4 million for the three months ended June 30, 2023.

The increase of $0.2 million or 0.6% was primarily driven by increased merchant card fee revenue and $0.3 million decrease in selling, general and administrative expenses, offset by mix related margin compression and a $0.5 million increase in salaries and benefit expenses.

Adjusted EBITDA from our SMB Payments segment was $53.6 million for the six months ended June 30, 2024, compared to $56.8 million for the six months ended June 30, 2023.

The decrease of $3.2 million or 5.7% was primarily driven by a decrease in certain incentive revenues and mix related margin compression.

Other operating expenses of the segment remained consistent.

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

2024 2023 Change 2024 2023 Change

Revenues $ 21,881 $ 2,974 $ 18,907 $ 43,225 $ 5,760 $ 37,465

Adjusted EBITDA $ 1,530 $ 608 $ 922 $ 3,276 $ 518 $ 2,758

Key Indicators:

1 unchanged sentence

B2B issuing transaction count 242 282 $ (40) 482 562 $ (80)

Revenue from our B2B Payments segment was $21.1 million for the three months ended March 31, 2024, compared to $2.8 million for the three months ended March 31, 2023.

The increase of $18.3 million was primarily driven by revenue from the Plastiq business.

Operating Loss

Operating loss from our B2B Payments segment of $0.8 million for the three months ended March 31, 2024 remained consistent compared to the three months ended March 31, 2023.

The increase in operating income due to increased revenue was offset by certain performance based non-recurring bonuses related to the Plastiq business and processing losses related to the CPX business.

Depreciation and Amortization

Depreciation and amortization from our B2B Payments segment was $1.6 million for the three months ended March 31, 2024, compared to $125.0 thousand depreciation and amortization expense for the three months ended March 31, 2023.

The increase is primarily attributable to the Plastiq business.

Revenue from our B2B Payments segment was $21.9 million for the three months ended June 30, 2024, compared to $3.0 million for the three months ended June 30, 2023.

The increase of $18.9 million was primarily driven by revenue from the Plastiq business and growth in CPX business.

Revenue from our B2B Payments segment was $43.2 million for the six months ended June 30, 2024, compared to $5.8 million for the six months ended June 30, 2023.

The increase of $37.5 million was primarily driven by revenue from the Plastiq business and growth in CPX business.

Adjusted EBITDA

Adjusted EBITDA from our B2B Payments segment of $1.5 million for the three months ended June 30, 2024, compared to $0.6 million for the three months ended June 30, 2023.

The increase in Adjusted EBITDA of $0.9 million was contributed by both CPX business for $0.2 million and Plastiq business for $0.7 million.

The Plastiq business was acquired during Q3 2023.

Adjusted EBITDA from our B2B Payments segment of $3.3 million for the six months ended June 30, 2024, compared to $0.5 million for the six months ended June 30, 2023.The increase in Adjusted EBITDA of $2.8 million was contributed by both the CPX business for $1.6 million and the Plastiq business for $1.2 million.

The Plastiq business was acquired during Q3 2023.

Enterprise Payments

(in thousands) Three Months Ended March 31,

2024 2023 $ Change

Revenue $ 40,853 $ 27,309 $ 13,544

Operating expenses 15,306 14,646 660

Operating income $ 25,547 $ 12,663 $ 12,884

Operating margin 62.5 % 46.4 %

Depreciation and amortization $ 4,356 $ 6,690 $ (2,334)

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

2024 2023 Change 2024 2023 Change

Revenues $ 43,670 $ 31,438 $ 12,232 $ 84,660 $ 58,744 $ 25,916

Adjusted EBITDA $ 37,244 $ 25,728 $ 11,516 $ 71,971 $ 48,096 $ 23,875

Key Indicators:

1 unchanged sentence

Average new enrollments 55,089 53,374 1,715 53,563 49,661 3,902

Revenue from our Enterprise Payments segment was $40.9 million for the three months ended March 31, 2024, compared to $27.3 million for the three months ended March 31, 2023.

Revenue from our Enterprise Payments segment was $43.7 million for the three months ended June 30, 2024, compared to $31.4 million for the three months ended June 30, 2023.

The increase of $12.2 million or 38.9%, was primarily driven by an increase in billed clients and customer enrollments, and growth in interest income due to higher interest rates and deposit balances.

Operating Income

Operating income from our Enterprise Payments segment was $25.5 million for the three months ended March 31, 2024, compared to $12.7 million for the three months ended March 31, 2023.

Revenue from our Enterprise Payments segment was $84.7 million for the six months ended June 30, 2024, compared to $58.7 million for the six months ended June 30, 2023.

The increase of $25.9 million or 44.1%, was primarily driven by an increase in billed clients and customer enrollments, and growth in interest income due to higher interest rates and deposit balances.

Adjusted EBITDA

Adjusted EBITDA from our Enterprise Payments segment was $37.2 million for the three months ended June 30, 2024, compared to $25.7 million for the three months ended June 30, 2023.

The increase of $11.5 million or 44.8%, was primarily driven by increases in revenues.

Adjusted EBITDA from our Enterprise Payments segment was $72.0 million for the six months ended June 30, 2024, compared to $48.1 million for the six months ended June 30, 2023.

The increase of $23.9 million or 49.6%, was primarily driven by increases in revenues.

Three Months Ended June 30, 2024

(in thousands) SMB Payments B2B

Payments Enterprise Payments Corporate Total Consolidated

Reconciliation of Adjusted EBITDA to GAAP Measure

Adjusted EBITDA $ 28,597 $ 1,530 $ 37,244 $ (15,820) $ 51,551

Interest expense — (1,241) — (20,469) (21,710)

Depreciation and amortization (8,541) (1,261) (4,087) (1,355) (15,244)

Depreciation and amortization from our Enterprise Payments segment was $4.4 million for the three months ended March 31, 2024, compared to $6.7 million depreciation and amortization expense for the three months ended March 31, 2023.

The decrease of $2.3 million or 34.9%, was primarily driven by full amortization of certain intangible assets in 2023.

Debt modification and extinguishment expenses — — — (8,623) (8,623)

Selling, general and administrative (non-recurring) — — — (636) (636)

Non-cash stock based compensation (4) (109) (32) (1,684) (1,829)

Income (loss) before taxes $ 20,052 $ (1,081) $ 33,125 $ (48,587) $ 3,509

Three Months Ended June 30, 2023

(in thousands) SMB Payments B2B

Payments Enterprise Payments Corporate Total Consolidated

Reconciliation of Adjusted EBITDA to GAAP Measure

Adjusted EBITDA $ 28,434 $ 608 $ 25,728 $ (13,677) $ 41,093

Interest expense — — (117) (17,648) (17,765)

Depreciation and amortization (9,151) (17) (6,319) (2,493) (17,980)

Selling, general and administrative (non-recurring) — — — (1,859) (1,859)

Non-cash stock based compensation (112) (7) (65) (1,562) (1,746)

Income (loss) before taxes $ 19,171 $ 584 $ 19,227 $ (37,239) $ 1,743

Six Months Ended June 30, 2024

(in thousands) SMB Payments B2B

Payments Enterprise Payments Corporate Total Consolidated

Reconciliation of Adjusted EBITDA to GAAP Measure

Adjusted EBITDA $ 53,620 $ 3,276 $ 71,971 $ (30,976) $ 97,891

Interest expense — (2,214) — (40,376) $ (42,590)

Depreciation and amortization (17,127) (2,731) (8,126) (2,513) $ (30,497)

Debt modification and extinguishment expenses — — — (8,623) $ (8,623)

Selling, general and administrative (non-recurring) — — — (1,435) $ (1,435)

Non-cash stock based compensation (8) (227) (65) (3,162) $ (3,462)

Income (loss) before taxes $ 36,485 $ (1,896) $ 63,780 $ (87,085) $ 11,284

Six Months Ended June 30, 2023

(in thousands) SMB Payments B2B

Payments Enterprise Payments Corporate Total Consolidated

Reconciliation of Adjusted EBITDA to GAAP Measure

Adjusted EBITDA $ 56,836 $ 518 $ 48,096 $ (26,717) $ 78,733

Interest expense — — (230) (35,234) $ (35,464)

Depreciation and amortization (18,417) (37) (12,624) (4,950) $ (36,028)

Selling, general and administrative (non-recurring) — — — (2,296) $ (2,296)

Non-cash stock based compensation (294) (201) (129) (3,058) $ (3,682)

Other non-recurring loss, net — — — (159) $ (159)

Income (loss) before taxes $ 38,125 $ 280 $ 35,113 $ (72,414) $ 1,104

Critical Accounting Policies and Estimates

1 unchanged sentence

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, 2023.

There have been no material changes to these critical accounting policies and estimates as of March 31, 2024.

There have been no material changes to these critical accounting policies and estimates as of June 30, 2024.

Liquidity and Capital Resources

3 unchanged sentences

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 $32.4 million at March 31, 2024 and $8.9 million at March 31, 2023.

As of March 31, 2024, we had cash totaling $34.3 million compared to $15.9 million at March 31, 2023.

These cash balances do not include restricted cash of $12.7 million and $11.0 million at March 31, 2024 and March 31, 2023, 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 $6.7 million and $6.2 million at March 31, 2024 and March 31, 2023, respectively.

At March 31, 2024, we had availability of approximately $65.0 million under our revolving credit facility.

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 $23.6 million at June 30, 2024 and $3.4 million at June 30, 2023.

As of June 30, 2024, we had cash totaling $34.6 million compared to $17.6 million at June 30, 2023.

These cash balances do not include restricted cash of $12.6 million and $12.4 million at June 30, 2024 and June 30, 2023, 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 $8.4 million and $6.2 million at June 30, 2024 and June 30, 2023, respectively.

At June 30, 2024, we had availability of approximately $70.0 million under our revolving credit facility.

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

Six Months Ended June 30,

(in thousands) 2024 2023

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Cash Provided by Operating Activities

Net cash provided by operating activities was $13.3 million for the three months ended March 31, 2024 compared to $27.7 million for the three months ended March 31, 2023.

Net cash provided by operating activities was $42.0 million for the six months ended June 30, 2024 compared to $46.9 million for the six months ended June 30, 2023.

The $4.9 million decrease in 2024 was primarily driven by changes in the operating assets and liabilities.

Cash Used in Investing Activities

Net cash used in investing activities was $7.7 million and $7.6 million for the three months ended March 31, 2024 and 2023, respectively.

For the three months ended March 31, 2024, investing activities included additions to property, equipment and software of $6.6 million and $1.1 million related funding of new loans to ISOs.

For the three months ended March 31, 2023, net cash used in investing activities included $2.7 million of cash used to fund acquisitions of intangible assets and $5.0 million of cash used to acquire property, equipment and software offset by $0.2 million related to net payments received on loans to ISOs.

Net cash used in investing activities was $20.6 million and $13.1 million for the six months ended June 30, 2024 and 2023, respectively.

For the six months ended June 30, 2024, investing activities included additions to property, equipment and software of $11.7 million, $1.4 million related to net payments received on loans to ISOs and $7.5 million related to the acquisition of intangible assets and an investment in an unconsolidated entity.

For the six months ended June 30, 2023, net cash used in investing activities included $2.7 million of cash used to fund acquisitions of intangible assets, $9.9 million of cash used to acquire property, equipment and software and $0.5 million related to net payments received on loans to ISOs.

Cash Provided by Financing Activities

Net cash used in financing activities was $10.3 million for the three months ended March 31, 2024, compared to $57.5 million of cash provided by financing activities for the three months ended March 31, 2023.

The net cash used in financing activities for the three months ended March 31, 2024 included changes in the net obligations for funds held on the behalf of customers of $1.9 million, offset by $1.7 million of cash used for the repayment of debt, $7.0 million of cash dividends paid to redeemable senior preferred stockholders, $0.4 million of cash used for shares withheld for taxes and $3.1 million of payments of contingent consideration.

The net cash provided by financing activities for the three months ended March 31, 2023 included $7.6 million of cash used for the repayment of debt, $11.4 million of cash dividends paid to redeemable senior preferred stockholders, $0.8 million of cash used for shares withheld for taxes and share repurchases, and $2.0 million of payments of contingent consideration for business combinations, which was offset by changes in the net obligations for funds held on the behalf of customers of $79.3 million.

Net cash used in financing activities was $18.1 million for the six months ended June 30, 2024, compared to $144.1 million of cash provided by financing activities for the six months ended June 30, 2023.

The net cash used in financing activities for the six months ended June 30, 2024 included changes in the net obligations for funds held on the behalf of customers of $40.9 million and borrowings under the 2024 Credit Agreement net of issue discounts of $830.2 million, offset by $661.9 million of cash used for the repayment of the principal of the 2021 Credit Agreement and debt issuance and modification costs related to the refinancing, $167.8 million related to the redemption of senior preferred stock and accumulated unpaid dividend, $2.1 million for the redemption of redeemable NCI in subsidiary, $16.4 million of cash dividends paid to redeemable senior preferred stockholders, $0.6 million of cash used for shares withheld for taxes and $4.2 million of payments of contingent consideration.

The net cash provided by financing activities for the six months ended June 30, 2023 included $15.5 million of cash used for the repayment of debt, $17.9 million of cash dividends paid to redeemable senior preferred stockholders, $1.0 million of cash used for shares withheld for taxes and share repurchases, and $2.0 million of payments of contingent consideration for business combinations, which was offset by changes in the net obligations for funds held on the behalf of customers of $175.5 million and $5.0 million in borrowings under the revolving credit facility.

Long-term Debt

As of March 31, 2024, we had outstanding debt obligations, including the current portion and net of unamortized debt discount of $638.1 million, compared to $638.7 million at December 31, 2023, resulting in a decrease of $0.6 million.

The debt balance at March 31, 2024 consisted of $652.7 million outstanding under the term facility offset by $14.6 million of unamortized debt discounts and issuance costs.

As of June 30, 2024, we had outstanding debt obligations, including the current portion and net of unamortized debt discount of $817.4 million, compared to $638.7 million at December 31, 2023, resulting in an increase of $178.7 million.

The increase is due to the refinancing of the 2021 Credit Agreement on May 16, 2024.

The debt balance at June 30, 2024 consisted of $835.0 million outstanding under the term facility offset by $17.6 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 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.

The term facility matures on May 16, 2031 and the revolving credit facility matures on May 16, 2029.

The Credit Agreement contains representations and warranties, financial and collateral requirements, mandatory payment events, events of default and affirmative and negative covenants, including without limitation, covenants that restrict among other things, the ability to create liens, pay dividends or distribute assets from the loan parties to the Company, merge or consolidate, dispose of assets, incur additional indebtedness, make certain investments or acquisitions, enter into certain transactions (including with affiliates) and to enter into certain leases.

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If applicable, the maximum permitted Total Net Leverage Ratio is:

1) 6.50:1.00 at each fiscal quarter ended September 30, 2021 through June 30, 2022;

2) 6.00:1.00 at each fiscal quarter ended September 30, 2022 through June 30, 2023;

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

As of March 31, 2024, the Company was in compliance with the covenants in the Credit Agreement.

1) 6.90:1.00 at each fiscal quarter ended September 30, 2024 through December 31, 2025;

2) 6.40:1.00 at each fiscal quarter ended March 31, 2026 and each fiscal quarter thereafter.

As of June 30, 2024, the Company was in compliance with the covenants in the 2024 Credit Agreement.

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