BTRS (BTRS) 10-Q2022 Q3 Quarterly report

In this Quarterly Report on Form 10-Q, unless otherwise stated or as the context otherwise requires, references to “the Company,” “we,” “us,” "our,” "it," and similar references refer to BTRS Holdings Inc., a Delaware corporation, and its consolidated subsidiaries. This Quarterly Report on Form 10-Q also contains registered marks, trademarks, and trade names of other companies, all of which are the property of their respective holders. We do not intend our use or display of other companies’ trade names, trademarks, or service marks to imply a relationship with, endorsement, or sponsorship of us by these other companies.

This Quarterly Report on Form 10-Q contains forward-looking statements about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding the timing, expected completion and impacts of the proposed Merger (as defined herein) and the potential impacts should the Merger not be consummated on a timely basis or at all for any reason, our business strategy and plans, and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “believe,” “may,” “could,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “seek,” “plan,” “expect,” “should,” “would,” “potentially,” or the negative of these terms or similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends we believe may affect our financial condition, results of operations, business strategy, and financial needs.

These forward-looking statements are subject to known and unknown risks, uncertainties, and assumptions, including those described in the section titled "Part I, Item 1A. Risk Factors" contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2021 (the "Annual Report on Form 10-K"), as filed with the U.S. Securities and Exchange Commission (the "SEC") on March 9, 2022, including, among other things, risks associated with:

These risks are not exhaustive. Additional factors could harm our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in, or implied by, any forward-looking statements. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Unless required by law, we undertake no obligation to update or revise any forward-looking statements to reflect new information or future events or developments. Thus, you should not assume that our silence over time means that actual events are bearing out as expressed or implied in such forward-looking statements. We qualify all of the forward-looking statements in this Quarterly Report on Form 10-Q by these cautionary statements.

BTRS Holdings Inc., formerly known as Factor Systems, Inc. ("Legacy Billtrust"), utilizing the trade name Billtrust (the "Company” or “Billtrust”), was incorporated on September 4, 2001, in the State of Delaware and maintains its headquarters in Lawrenceville, New Jersey, with additional domestic offices and print facilities in Colorado and California, and international offices in Belgium, the Netherlands, Germany, and Poland.

The Company provides a comprehensive suite of order-to-cash software as a service ("SaaS") solutions with integrated payments, including credit decisioning and monitoring, online ordering, invoicing, cash application, and collections. In addition, Billtrust founded the Business Payments Network ("BPN") as part of its strategic relationship with VISA, Inc., which combines remittance data with business-to-business ("B2B") payments and facilitates straight-through payment processing. Billtrust primarily serves B2B companies and integrates the key areas of the order-to-cash process: credit decisioning, e-commerce solutions, invoice presentment, invoice payment, cash application, and collections workflow management, helping its clients connect with their customers and cash.

On September 28, 2022, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Bullseye FinCo, Inc., a Delaware corporation (“Parent”), and Bullseye Merger Sub, Inc., a Delaware corporation and a direct, wholly owned subsidiary of Parent (“Merger Sub” and, together with Parent, the "Acquiring Parties"), pursuant to which Merger Sub will, upon the terms and subject to the conditions set forth in the Merger Agreement, merge with and into the Company, with the Company surviving such merger as a wholly-owned subsidiary of Parent (the “Merger”). Parent and Merger Sub are each affiliated with the EQT X Fund.

Subject to the terms and conditions set forth in the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each share of Class 1 common stock of the Company, $0.0001 par value, and Class 2 common stock of the Company, $0.0001 par value (other than shares rolled over in accordance with the Merger Agreement, and shares of its common stock held by the Company as treasury stock), issued and outstanding immediately prior to the Effective Time (other than dissenting shares) will be cancelled and immediately converted into the right to receive $9.50 in cash, without interest and less any applicable withholding taxes.

The completion of the Merger is subject to several conditions beyond the Company's control that may prevent, delay or otherwise adversely affect its completion in a material way, including the approval of the Company's stockholders, the expiration or termination of applicable waiting periods, and the receipt of applicable approvals or consents under antitrust and competition laws and foreign investment laws of certain jurisdictions. Assuming the satisfaction of the remaining outstanding conditions set forth in the Merger Agreement, the Merger is currently expected to close in the fourth quarter of 2022 or first quarter of 2023. However, the Company cannot assure completion of the Merger by any particular date, if at all or that, if completed, it will be completed on the terms set forth in the Merger Agreement.

If the Merger is consummated, the Company’s securities will be de-listed from the Nasdaq Global Select Market and de-registered under the Securities Exchange Act of 1934 as soon as practicable following the Effective Time.

Under the terms of the Merger Agreement, the Company may be required to pay Parent a termination fee of $50.2 million if the Merger Agreement is terminated under certain specified circumstances, including the Company terminating the Merger Agreement to enter into a definitive written agreement with respect to a superior proposal that did not result from a breach of the non-solicitation provisions. The Merger Agreement additionally provides that Parent pay the Company a termination fee of $100.5 million under certain specified circumstances.

During the three and nine months ended September 30, 2022, the Company incurred $5.8 million in Merger related costs, primarily consisting of investment banking, legal, accounting, and other professional advisory fees, filing fees, regulatory fees, and other related costs. These costs were recorded in general and administrative expenses on the Condensed Consolidated Statements of Operations.

On October 18, 2020, as amended on December 13, 2020, South Mountain Merger Corp., a Delaware corporation (“South Mountain”), BT Merger Sub I, Inc., a Delaware corporation and a direct, wholly owned subsidiary of South Mountain (“First Merger Sub”), BT Merger Sub II, LLC, a Delaware limited liability company and a direct, wholly owned subsidiary of South Mountain (“Second Merger Sub”), and Legacy Billtrust entered into a Business Combination Agreement (the “BCA”), pursuant to which (i) First Merger Sub was merged with and into Legacy Billtrust (the “First BCA Merger”), with Legacy Billtrust surviving the First BCA Merger as a wholly owned subsidiary of South Mountain (“Surviving Corporation”), and (ii) the Surviving Corporation merged with and into Second Merger Sub (the “Second BCA Merger”, and together with the First BCA Merger, the “BCA Mergers”), with Second Merger Sub surviving the Second BCA Merger as a wholly owned subsidiary of South Mountain (such BCA Mergers, collectively with the other transactions described in the BCA, the “Business Combination”).

In connection with the execution of the Business Combination, on October 18, 2020, South Mountain entered into separate subscription agreements (“Subscription Agreements”) with a number of investors (“PIPE Investors”), pursuant to which the PIPE Investors agreed to purchase, and South Mountain sold to the PIPE Investors, an aggregate of 20.0 million shares of South Mountain Class A common stock, for a purchase price of $10.00 per share and at an aggregate purchase price of $200.0 million, in a private placement (“PIPE Financing”).

The accompanying Condensed Consolidated Financial Statements have been prepared in accordance with U.S. GAAP and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission ("SEC") regarding interim financial reporting on Form 10-Q. Accordingly, certain information and disclosures required for complete financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. These Condensed Consolidated Financial Statements and notes should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2021 (as filed with the SEC on March 9, 2022). Since the date of that filing, there have been no changes or updates to the Company's significant accounting policies, other than those described below.

In the opinion of management, the accompanying Condensed Consolidated Financial Statements contain all normal recurring adjustments necessary for a fair statement of financial position, results of operations, comprehensive loss, and cash flows as of the dates and for the interim periods presented. The results of operations for the three and nine months ended September 30, 2022 may not be indicative of the results for the full fiscal year ended December 31, 2022 or any other period. The Condensed Consolidated Balance Sheet as of December 31, 2021 included herein was derived from the audited financial statements as of that date, but does not include all disclosures required by U.S. GAAP on an annual reporting basis. Certain prior period amounts have been reclassified to conform to the current period presentation.

The Company's fiscal year is the twelve-month period from January 1 through December 31 and all references to "2022", “2021”, and “2020” refer to the fiscal year unless otherwise noted.

The Condensed Consolidated Financial Statements include the accounts of BTRS Holdings Inc. and its wholly owned subsidiaries. All intercompany transactions have been eliminated in consolidation.

The preparation of the Condensed Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities reported, disclosure about contingent liabilities, and the reported amounts of revenues and expenses in the financial statements and accompanying notes. Such estimates include, but are not limited to, revenue recognition, leases, valuation of goodwill, intangible assets, other long-lived assets, and other assets and liabilities from acquisitions, recoverability of deferred tax assets, ongoing impairment reviews of goodwill, intangible assets, and other long-lived assets, contingent consideration, and stock-based compensation. The Company bases its estimates on historical experience, known trends, market specific information, or other relevant factors it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates, and changes in estimates are recorded in the period in which they become known. Actual results may differ from these estimates.

The functional currency of the Company’s subsidiaries is their respective local currencies. These subsidiary financial statements are translated to U.S. dollars using the period-end exchange rates for assets and liabilities, average exchange rates during the corresponding period for revenues and expenses, and historical rates for equity. The effects of foreign currency translation adjustments are recorded in accumulated other comprehensive income (loss) within stockholders’ equity on the Condensed Consolidated Balance Sheets.

Foreign currency transaction gains (losses) are included in other non-operating income (expense) on the Condensed Consolidated Statements of Operations. Foreign exchange gains and losses were not material during the three and nine months ended September 30, 2022 and 2021.

For the nine months ended September 30, 2022, the Company incurred a net loss of $65.4 million and used cash in operations of $28.4 million. As of September 30, 2022, the Company had cash and cash equivalents of $145.9 million and an accumulated deficit of $271.5 million. Based on the Company’s business plan, existing cash, and cash equivalents, the Company expects to satisfy its working capital requirements for at least the next 12 months after the date that these Condensed Consolidated Financial Statements are issued.

During 2021 and the nine months ended September 30, 2022, the COVID-19 pandemic did not adversely impact the Company, as evidenced by the continued growth in subscription and transaction revenues. The Company's focus remains on investing in its products and supporting its long-term growth, including global expansion. Since the start of the pandemic, the Company has continued to operate despite the disruption to some of its customer's operations. The pandemic has served to increase awareness and urgency around accelerating the digital transformation of accounts receivable through the Company's platform and offerings, which has helped avoid significant business, bookings, or revenue disruptions thus far. Additionally, shifts from in-person buying and traditional payment methods (such as cash or check) towards e-commerce and digital payments, and the related increase in consumer and B2B demand for safer payment and delivery solutions, have benefited the Company as it has further ingrained its platform in its customers’ critical day-to-day order-to-cash operations. In response to the pandemic, the Company has modified some of its business practices, such as enabling and encouraging its employees to work from anywhere and establishing health and safety protocols in its offices.

In addition, the spread of COVID-19 and its variants has contributed to a global slowdown of economic activity, increased unemployment, supply chain disruptions, higher rates of inflation, higher interest rates, increased volatility in foreign currency exchange rates, and increased volatility in the global capital markets, among other macroeconomic events. The Company is unable to predict the impact the COVID-19 pandemic or other macroeconomic events will have on its future results of operations, liquidity, financial condition, ability to access capital markets, and business practices due to numerous uncertainties, including the duration, severity, and spread of the virus and its variants, actions that may be taken by government authorities, the impact to the Company's employees, customers, and partners, prolonged macroeconomic uncertainty, volatility, and disruption, and various other factors beyond the Company's knowledge or control. The Company continues to monitor these situations and may take further actions as may be required by government authorities or that it determines are in the best interests of its employees, customers, and partners.

Based on the closing share price and the market value of the Company's common stock held by non-affiliates as of June 30, 2021, the Company was deemed to be a large accelerated filer as of December 31, 2021. As a result, on December 31, 2021, the Company no longer qualified as an emerging growth company (“EGC”) under the Jumpstart Our Business Startups Act (“JOBS Act”). The previous EGC status allowed the Company an extended transition period to adopt new or revised accounting pronouncements until such pronouncements were applicable to private companies. The loss of ECG status required the Company to adopt the following new accounting pronouncements retroactively to January 1, 2021 in its 2021 Annual Report on Form 10-K:

As a result, in conformity with U.S. GAAP, the Company has retroactively adjusted its quarterly financial statements and related notes thereto, as of, and for the three and nine months ended September 30, 2021 to reflect the adoption of these new accounting standards as follows:

Except as otherwise noted, the adoption of the accounting pronouncements listed above did not have a material impact on the Company's financial position, results of operations, or the financial statements and related notes included herein.

The financial instruments that potentially subject the Company to concentrations of credit risk are cash, cash equivalents, restricted cash, accounts receivable, and customer funds. The Company maintains its deposits of cash and cash equivalents, restricted cash, and customer funds with high-credit quality financial institutions and balances may exceed federally insured limits.

The Company’s accounts receivable are reported on the Condensed Consolidated Balance Sheets net of allowances for uncollectible accounts. The Company believes that the concentration of credit risk with respect to accounts receivable is limited due to the large number of companies and diverse industries comprising its customer base. Ongoing credit evaluations are performed, with a focus on new customers or customers with whom the Company has no prior collections history, and collateral is generally not required. The Company maintains reserves for potential losses based on customer specific situations, historical experience, and expectations of forward-looking loss estimates. Such losses, in the aggregate, have not exceeded management’s expectations. As of both September 30, 2022 and December 31, 2021, the allowance for uncollectible accounts was $0.3 million.

For the nine months ended September 30, 2022 and 2021, no individual customer accounted for 10% or greater of total revenues. As of September 30, 2022 and December 31, 2021, no individual customer had a balance of 10% or greater of accounts receivable.

The following table summarizes the fair value of the aggregate consideration paid for Order2Cash (in thousands):

The preliminary acquisition date fair value of the total contingent consideration was $11.5 million. At September 30, 2022, the fair value of the total contingent consideration was $3.1 million, which was included in accrued expenses and other current liabilities and other non-current liabilities on the Condensed Consolidated Balance Sheets. The determination of the fair value included the following significant inputs; projected revenue, a risk adjusted discount rate, and estimated volatility. Increases or decreases in the inputs would have resulted in a higher or lower fair value measurement. The range of undiscounted amounts that could be payable under the earnout arrangement is zero to $20.7 million. The amount expensed for the nine months ended September 30, 2022 was $1.1 million.

The following table summarizes the preliminary allocation of the purchase price to the fair value of the assets acquired and liabilities assumed for the acquisition of Order2Cash (in thousands):

The determination of the fair value of the finite-lived intangible assets requires management judgment and the consideration of a number of factors. The Company relies on income, market, and replacement cost valuation methodologies, which include estimates related to projected cash flows for each asset, discount rates, useful lives of each asset, and published industry benchmark data. Based on the preliminary valuation, the intangible assets acquired were (in thousands):

The weighted average amortization period of all the acquired intangible assets is 11.9 years.

Due to the timing of the acquisition in the first quarter of 2022, the purchase price allocation is preliminary with respect to the valuation of acquired assets, liabilities assumed (including income taxes), intangible assets, and goodwill. The Company continues to obtain the information to complete the purchase price allocation and will record adjustments, if any, during the 12 month measurement period from the acquisition date. No purchase price adjustments were recorded during the nine months ended September 30, 2022.

The operating results of Order2Cash have been included in the Company’s financial statements since the acquisition date. Order2Cash’s operating results are reported in both the Company’s Software and Payments segment and Print segment. The goodwill resulting from the acquisition is reported in the Software and Payments segment. The acquisition added approximately $6.8 million of additional revenue and $8.6 million of direct expenses during the nine months ended September 30, 2022. Had the Company acquired Order2Cash in prior periods, the Company's operating results would have been materially different. As a result, the following unaudited pro forma financial information is presented as if Order2Cash had been acquired by the Company on January 1, 2021 (in thousands):

The pro forma results have been prepared in accordance with U.S. GAAP and include the following pro forma adjustments: (1) an increase for amortization expense for the three and nine months ended September 30, 2022 and 2021 as a result of the preliminary purchase price allocation for finite-lived intangible assets, (2) an increase in operating costs for the three and nine months ended September 30, 2021 to recognize non-recurring acquisition costs incurred to close the transaction, and (3) an increase in the estimated tax benefits as a result of the pro forma adjustments. These pro forma results do not necessarily reflect the combined actual results of operations of the Company and Order2Cash that would have been achieved, nor are they necessarily indicative of future results of operations.

On January 12, 2021, Billtrust consummated the previously announced Business Combination pursuant to the Agreement dated October 18, 2020, and amended as of December 13, 2020. As a result of the Agreement, Billtrust stockholders received aggregate consideration with a value equal to approximately $1,190.0 million, which consists of:

As of the completion of the Business Combination, accounted for as a reverse recapitalization, on January 12, 2021, the merged companies, BTRS Holdings Inc. and subsidiaries, had the following outstanding securities:

In connection with the Business Combination:

Immediately prior to the closing, each issued and outstanding share of Legacy Billtrust preferred stock converted into equal shares of Legacy Billtrust common stock. At the closing of the Business Combination, each stockholder of Legacy Billtrust received 7.2282662 shares of the Company’s Class 1 common stock, par value $0.0001 per share (“Common Stock”), for each share of Legacy Billtrust common stock, par value $0.001 per share, that such stockholder owned, except for one investor who requested to receive shares of Class 2 common stock, which is the same in all respects as Class 1 common stock except it does not have voting rights.

Upon the closing of the Business Combination, the Company’s certificate of incorporation was amended and restated to, among other things, increase the total number of authorized shares of capital stock to 575.0 million shares, of which 538.0 million shares were designated Class 1 common stock, $0.0001 par value per share; 27.0 million shares were designated Class 2 common stock, $0.0001 par value per share; and 10.0 million shares were designated preferred stock, $0.0001 par value per share.

Concurrently with the completion of the Business Combination, on the BCA Closing Date 20.0 million new shares of Common Stock were issued (such purchases, the “PIPE”) for an aggregate purchase price of $200.0 million.

The following table reconciles the elements of the Business Combination, accounted for as a reverse recapitalization, to the Condensed Consolidated Statements of Cash Flows and the Condensed Consolidated Statements of Stockholders' Equity for the nine months ended September 30, 2021 (in thousands):

The number of shares of Class 1 and Class 2 common stock of BTRS Holdings Inc. issued immediately following the consummation of the Business Combination, accounted for as a reverse recapitalization, is summarized as follows (in thousands):

Following the closing of the Business Combination, holders of Legacy Billtrust common stock (including all redeemable preferred shareholders whose shares were converted into common stock at the closing of the Business Combination) and holders of stock options and restricted stock pursuant to the 2003 Plan and the 2014 Plan (as defined in the Business Combination Agreement) had the contingent right to receive, in the aggregate, up to 12.0 million shares of Class 1 common stock if, from the closing of the Business Combination until the fifth anniversary thereof, the average closing price of BTRS Holdings Inc. Common Stock exceeds certain thresholds. The first issuance of 6.0 million earnout shares is based on the volume-weighted average price of Common Stock exceeding $12.50 for any 20 trading days within any 30 trading day period (the “First Earnout”). The second issuance of 6.0 million earnout shares is based on the volume weighted average price of Common Stock exceeding $15.00 for any 20 trading days within any 30 trading day period (the “Second Earnout” and together with the First Earnout, the "Earnout Shares").

Subsequent to the closing of the Business Combination and in the first quarter of 2021, 10.9 million shares of Class 1 and Class 2 common stock were issued associated with attainment of the First Earnout and the Second Earnout thresholds.

The difference in the Earnout Shares issued and the aggregate amounts defined in the BCA is primarily due to 0.8 million unissued shares reserved for future issuance to holders of unvested options in the form of restricted stock units (the "Earnout RSUs"), which are subject to the same vesting terms and conditions as the underlying unvested stock options and are not replacement awards. Additionally, 0.2 million shares of Common Stock were withheld from employees to satisfy the mandatory tax withholding requirements, for which the company remitted cash of $4.0 million to the appropriate tax authorities.

As of the BCA Closing Date, the prior holders of South Mountain stock agreed that of their existing issued and outstanding shares of Class 1 common stock, 2.4 million shares would be subject to vesting conditions based upon the same price milestones in the First Earnout (1.2 million shares) and Second Earnout (1.2 million shares) as discussed above ("Sponsor Vesting Shares").

The Company determined that the Earnout Shares issued to non-employee shareholders and to holders of BTRS Holdings Inc. common stock, vested options from the 2003 Plan and 2014 Plan, and the Sponsor Vesting Shares did not meet the criteria for equity classification under Accounting Standards Codification ("ASC") 815-40. Accordingly, these shares were required to be classified as a liability and recorded at their fair values, with the remeasurement of their fair values at each reporting period recorded in earnings. Upon closing of the Business Combination, the fair value of the shares was determined using a Monte Carlo simulation (using the same assumptions as Earnout RSUs discussed below), resulting in a fair value of $16.80 per share. The shares were remeasured at their fair values through the dates the First Earnout and Second Earnout were achieved in the first quarter of 2021. The liability associated with the Earnout Shares delivered to the equity holders and the Vesting Shares that vested upon achievement of the First Earnout and Second Earnout during the first quarter of 2021 was then reclassified to equity as the shares issued, with the appropriate allocation to common stock at par value and additional paid-in capital.

The following table is a reconciliation of the liability balance at the BCA Closing Date and the changes therein for the nine months ended September 30, 2021 (in thousands):

Earnout RSUs issued based on the amount of the unvested options are recognized in earnings as stock-based compensation expense under ASC 718. The fair value of the Earnout RSUs was determined using a Monte Carlo simulation, including the stock price on the BCA Closing Date of $16.80, a risk free rate of 0.5%, and a volatility rate of 42%.

In accordance with ASC 340-10-S99-1, the offering costs, consisting principally of underwriters' fees and professional, printing, filing, regulatory, and other costs, were charged to additional paid-in capital upon completion of the Business Combination.

In connection with the Business Combination, the Company paid all of its outstanding debt facilities in full. In connection therewith, the unamortized debt discount of $1.2 million and a prepayment penalty and associated costs of $1.6 million were recorded in interest expense and loss on extinguishment of debt on the Condensed Consolidated Statements of Operations.

Pursuant to the terms of the purchase agreement, the Company paid an initial amount of $57.0 million in cash at closing, which was subject to a closing working capital adjustment and typical indemnity provisions from the seller.

The following table summarizes the fair value of the aggregate consideration paid for iController (in thousands):

The following table summarizes the final allocation of the purchase price to the fair value of the assets acquired and liabilities assumed for the acquisition of iController (in thousands):

The determination of the fair value of the finite-lived intangible assets requires management judgment and the consideration of a number of factors. The Company relies on income, market, and replacement cost valuation methodologies, which included estimates related to projected cash flows for each asset, discount rates, useful lives of each asset, and published industry benchmark data. Based on the valuation, the intangible assets acquired were (in thousands):

The weighted average amortization period of all the acquired intangible assets is 13.4 years.

No purchase price adjustments were recorded since the acquisition date or during the nine months ended September 30, 2022.

The operating results of iController have been included in the Company’s financial statements since the acquisition date and are not material to the Company’s consolidated financial results. iController’s operating results and the goodwill resulting from the acquisition are reported in the Company’s Software and Payments segment.

During the three and nine months ended September 30, 2022, the Company recognized $0.2 million and $2.3 million, respectively of acquisition costs. These costs primarily consisted of legal, accounting, tax professional fees, and the Order2Cash contingent consideration recognized as compensation expense, and are included in general and administrative expenses on the Condensed Consolidated Statements of Operations. The Company did not have acquisition costs during the three and nine months ended September 30, 2021.

Goodwill represents the amount an acquisition’s purchase price exceeds the fair value of the assets acquired, including identifiable intangible assets, and liabilities assumed. Goodwill is not amortized; however it is required to be tested for impairment annually at the reporting unit level. Testing for impairment is also required on an interim basis if events or circumstances indicate it is more likely than not that an impairment loss has been incurred.

The Company performed its annual impairment test as of October 1, 2021, utilizing a qualitative assessment to determine if it was more likely than not that the fair value of each of its reporting units was less than their respective carrying values, and concluded that no impairment existed. Subsequent to completing the annual test and through September 30, 2022, there were no events or circumstances that required an interim impairment test. Additionally, as of September 30, 2022, the Company had no accumulated goodwill impairment losses.

All of the Company's goodwill is attributable to its Software and Payments segment. A summary of goodwill and the changes in its carrying amount are shown in the following table (in thousands):

The gross carrying values, accumulated amortization, and net carrying values (reduced for fully amortized intangibles) of finite-lived intangible assets as of September 30, 2022 and December 31, 2021, are as follows (in thousands):

Amortization expense was $1.2 million and $0.4 million for the three months ended September 30, 2022 and 2021, respectively, and $3.4 million and $1.5 million for the nine months ended September 30, 2022 and 2021, respectively.

Estimated amortization expense for each of the next five years and thereafter is as follows (in thousands):

The Company disaggregates revenue as set forth in the following table (in thousands):

There were no contract assets as of September 30, 2022 or December 31, 2021.

Amounts billed to clients in excess of revenue recognized are contract liabilities (referred to as deferred revenue on the Condensed Consolidated Balance Sheets). Deferred revenue primarily relates to implementation fees for new customers or for new services and subscription fees billed in advance.

During the three months ended September 30, 2022 and 2021, the Company recognized $5.7 million and $3.5 million of revenue, respectively, related to its deferred revenue balance at the beginning of each such period. During the nine months ended September 30, 2022 and 2021, the Company recognized $18.8 million and $15.0 million, respectively, related to its deferred revenue balance at the beginning of each such period. To determine revenue recognized in each period, the Company first allocates revenue to the deferred revenue balance outstanding at the beginning of each period, until the revenue equals that balance.

The amount of revenue recognized in the nine months ended September 30, 2021 included $2.5 million related to the acceleration of previously paid and deferred revenue from a customer that terminated its contract in the first quarter of 2021.

As of September 30, 2022, the Company had approximately $40.7 million of remaining performance obligations, primarily from multi-year contracts for the Company's services, which includes both the deferred revenue balance and amounts that will be invoiced and recognized as revenue in future periods. The Company expects to recognize revenue for approximately 96% of this amount during the next 36 months, and the remainder thereafter.

The current and non-current portions of deferred implementation and commission costs on the Condensed Consolidated Balance Sheets are as follows (in thousands):

Amortization of commissions was $0.8 million and $0.7 million during the three months ended September 30, 2022 and 2021, respectively, and $2.3 million and $1.9 million during the nine months ended September 30, 2022 and 2021. Amortization of implementation costs was $0.7 million and $0.6 million during the three months ended September 30, 2022 and 2021, respectively, and $2.1 million and $2.7 million during the nine months ended September 30, 2022 and 2021, respectively.

The Company evaluates the recoverability of deferred commissions and implementation costs at each balance sheet date and there were no impairments recorded during the nine months ended September 30, 2022 or 2021.

The following table sets forth the computation of the basic and diluted net loss per share attributable to the Class 1 and Class 2 common stockholders (in thousands, except per share amounts):

Since the Company was in a loss position for all periods presented, basic net loss per share is the same as diluted net loss per share as the inclusion of all potential common shares outstanding would have been anti-dilutive. Potentially dilutive securities that were not included in the diluted per share calculations because they would be antidilutive, were as follows based on the underlying shares and not considering all factors that would be involved in determining the common stock equivalents (in thousands):

The Company determined the Warrants met the definition of a derivative as they were indexed to the Company’s Common Stock pursuant to ASC 815-40-15-7 and met all other criteria for equity classification pursuant to ASC 815-40. Therefore, as of the BCA Closing Date, the Warrants were accounted for within stockholders' equity as a component of additional paid-in capital on the Condensed Consolidated Balance Sheets. As part of this assessment, it was concluded only events that would constitute a fundamental change of ownership could require the Company to settle the Warrants for cash.

On November 18, 2021, the Company commenced a tender offer (the “Warrant Exchange Offer”) to each holder of its outstanding Warrants the opportunity to exchange their Warrants for shares of the Company’s Common Stock, par value $0.0001 per share. Each holder was set to receive 0.30 shares of Common Stock in exchange for each outstanding Warrant tendered by the holder and exchanged pursuant to the terms of the Warrant Exchange Offer. Concurrently with the Warrant Exchange Offer, the Company solicited consents from holders of the Warrants to amend the Warrant Agreement (“Warrant Amendment”) dated June 19, 2019, to permit the Company to require that each Warrant outstanding upon the closing of the Warrant Exchange Offer be converted into 0.27 shares of Common Stock, which is a ratio 10% less than the exchange ratio applicable to the Warrant Exchange Offer. Pursuant to the terms of the Warrant Agreement, an amendment required the written consent of at least 50% of the holders of the Warrants.

In connection with adopting the 2020 Plan and 2020 ESPP, the 2003 Stock Incentive Plan and the 2014 Incentive Compensation Plan (together, the "Prior Plans") were frozen and no further grants can be made pursuant to the Prior Plans. All outstanding options under the Prior Plans were converted to options of the Company using the Conversion Rate applied to the number of options and original exercise price. The converted options continue to vest based upon their original terms.

Stock option activity for the nine months ended September 30, 2022 is presented below (in thousands, except per share and contractual life amounts):

No stock options were granted during the nine months ended September 30, 2022.

Restricted stock unit ("RSUs") activity for the nine months ended September 30, 2022 is presented below (in thousands, except per share amounts):

Under the terms of the 2020 ESPP, on May 26, 2021, the Board of Directors approved the Company's ESPP offering program. With certain limitations, all Billtrust employees whose customary employment is more than 20 hours per week are eligible to participate in the ESPP.

The initial offering period, which consisted of one purchase period, commenced on July 1, 2021 and ran through November 30, 2021. Thereafter, each offering period runs for approximately six months, consisting of a single six month purchase period commencing on each successive June 1 and December 1. At the end of each purchase period, employee payroll contributions are used to purchase shares of the Company's Common Stock. The purchase price for each share of Common Stock purchased is the lower of: (1) 85% of the closing price of the Common Stock on the first day of the purchase period, or (2) 85% of the closing price of the Common Stock on the last day of the purchase period.

During the nine months ended September 30, 2022, employees purchased 193,381 shares.

Stock-based compensation expense was recorded in the following categories on the Condensed Consolidated Statements of Operations (in thousands):

The fair value of the Company's stock options granted and purchase rights to the ESPP were estimated using the Black-Scholes valuation model with the following assumptions:

As of September 30, 2022, the total unrecognized stock-based compensation expense related to stock options was $29.9 million and RSUs was $28.2 million. These costs are expected to be recognized over a weighted-average period of 2.0 years for stock options and 3.9 years for RSUs.

The Company sponsors a 401(k) defined contribution benefit plan. Participation in the plan is available to substantially all employees. Company contributions to the plan are discretionary and are subject to vesting requirements based on four years of continuing employment. The Company generally makes matching contributions of one-half of the first 6% of employee contributions. During both the three months ended September 30, 2022 and 2021, the Company contributed $0.4 million. During the nine months ended September 30, 2022 and 2021, the Company contributed $1.6 million and $1.3 million, respectively.

The components of lease expense were as follows (in thousands):

The weighted-average remaining lease term and discount rate for operating and finance leases as of September 30, 2022 are as follows:

The following table indicates the financial statement lines where the Company's operating and finance lease assets and liabilities are included on the Condensed Consolidated Balance Sheets (in thousands):

Supplemental cash flow information related to leases is as follows (in thousands):

Future minimum lease payments under non-cancellable operating and finance leases as of September 30, 2022 are as follows (in thousands):

Amounts listed in the future minimum lease payments table above do not include sublease income.

During the first quarter of 2022, the Company approved a strategic plan to optimize its structure and costs related to its leased facilities and print operations. As part of the plan, the Company approved a formal work-from-anywhere policy due to high interest in allowing employees to work remotely and investments in the Company's operating environments and technology enabling seamless day-to-day execution and increased productivity across a distributed workforce. Additionally, the Company closed one of its print locations due to the continued decline in customer print volumes and efficiencies gained through streamlining its print operations. The overall plan included vacating some or all of several of the Company's leased office facilities and one of its leased print operations facilities and making them available for sublease. The Company ceased using all of the leased facility space outlined in the plan by March 31, 2022. As a result, during the three months ended March 31, 2022, the Company incurred $10.0 million of ROU asset impairments and $3.6 million of leasehold improvement and fixed asset impairments

Subsequently, the Company approved an expansion of the strategic plan to further vacate an additional portion of its leased office space. By September 30, 2022, the Company ceased using the leased facility space under the expanded plan. As a result, during the three months ended September 30, 2022, the Company incurred $3.3 million of ROU asset impairments and $1.3 million of leasehold improvement and fixed asset impairments.

In the future if the Company determines it no longer intends to utilize some or all of its other remaining leased facility spaces, the Company may be required to record additional impairment or restructuring charges.

For certain leased facility space that the Company has ceased occupying, it has entered into subleases under non-cancellable operating lease agreements. Such sublease arrangements expire at various dates in 2024 through 2029, and do not contain any material residual value guarantees.

Future sublease payments to be received under the terms of our operating sublease agreements, excluding expense reimbursements, as of September 30, 2022 are as follows (in thousands):

The Company's lease expense for print facilities in use is recorded in cost of subscription, transaction, and services on the Condensed Consolidated Statements of Operations. The Company’s lease expense for all office facilities, print facilities no longer in use, and all sublease income are recorded in general and administrative expenses on the Condensed Consolidated Statements of Operations.

The Company enters into purchase commitments with certain vendors to secure materials necessary for its print operations. As of September 30, 2022, the Company had approximately $0.4 million remaining under such purchase orders.

From time to time, the Company may become involved in legal proceedings or be subject to claims arising in the ordinary course of its business. The Company accrues estimates for legal and other contingencies when losses are probable and estimable. Although the results of current litigation and claims cannot be predicted with certainty, the Company currently believes that the final outcome of any current matters will not have a material adverse effect on the Company’s business, operating results, financial condition, or results of operations. Regardless of the outcome, litigation can have a material adverse effect on the Company due to defense and settlement costs, diversion of management resources, and other factors.

The Company is subject to taxation in the United States (federal and state) and foreign jurisdictions. The Company’s income tax expense (benefit) during interim periods is determined using an estimate of the Company’s annual effective tax rate, which is adjusted for certain discrete tax items during interim periods.

Income tax expense for the nine months ended September 30, 2022 and 2021 is primarily due to the tax amortization of indefinite-lived assets, state income taxes, and foreign income taxes.

Section 382 of the Internal Revenue Code of 1986, as amended, imposes an annual limitation on the amount of net operating loss carryforwards that may be used to offset federal taxable income and federal tax liabilities when a corporation has undergone significant changes in its ownership. The Company does not believe that an ownership change in connection with the Business Combination would have a material impact to its Condensed Consolidated Financial Statements and will continue to monitor the potential impact.

The Company did not have any marketable securities at September 30, 2022 as they all matured in the second quarter of 2022. At December 31, 2021, marketable securities consisted entirely of certificates of deposit with a financial institution and had maturity dates of 12 months or less.

The Company did not record any impairments of its marketable securities during the nine months ended September 30, 2022 and 2021.

The carrying amounts reflected on the Condensed Consolidated Balance Sheets for cash, restricted cash, accounts receivable, customer funds, other current assets, other assets, accounts payable, accrued expenses, other current liabilities (excluding deferred purchase price and contingent consideration), and customer postage deposits approximate their fair value due to their short-term maturities.

Additionally, the Company measures certain financial assets and liabilities at fair value on a recurring basis including cash equivalents, marketable securities, deferred purchase price, and contingent consideration. The fair value of these financial assets and liabilities have been classified as Level 1, 2, or 3 within the fair value hierarchy as described in the accounting standards for fair value measurements:

The following tables present the Company's fair value hierarchy for its financials assets and liabilities that are measured at fair value on a recurring basis (in thousands):