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What changed in Paymentus Holdings, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Paymentus Holdings, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+331 added−323 removedSource: 10-K (2024-03-05) vs 10-K (2023-03-03)

Top changes in Paymentus Holdings, Inc.'s 2023 10-K

331 paragraphs added · 323 removed · 283 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

202 edited+31 added−22 removed508 unchanged
Biggest changeIf we are held to have breached or failed to fully comply with all the terms and conditions of an open source software license, we could face infringement or other liability, or be required to seek costly licenses from third parties, to continue providing our offerings on terms that are not economically feasible, to re-engineer our platform (which could involve substantial time and resources), to discontinue or delay the provision of our offerings if re-engineering could not be accomplished on a timely basis or to make generally available, in source code form, our proprietary code, any of which could adversely affect our business, operating results and financial condition. 40 In addition to risks related to complying with applicable license requirements, a release of our proprietary code could also allow our competitors to create similar offerings with lower development effort and time and ultimately could result in a loss of our competitive advantages.
Biggest changeWe may need to re-engineer our platform (which could involve substantial time and resources), to discontinue or delay the provision of our offerings if re-engineering could not be accomplished on a timely basis or to make generally available, in source code form, our proprietary code, any of which could adversely affect our business, operating results and financial condition.
Our portfolio data shows that payment adoption is highly 12 correlated to feature utilization. By increasing feature usage, we believe we will realize an increase in transaction volume from our billers.
Our portfolio data shows that payment adoption is highly correlated 12 to feature utilization. By increasing feature usage, we believe we will realize an increase in transaction volume from our billers.
Our IPN partners include PayPal, for which we power bill payment capabilities, a leading global ecommerce retailer, through which we offer electronic bill presentment and payment via its AI-assistant voice service and mobile app, Walmart, for which we enhance in-person bill payment capability at Walmart 13 Money Centers, and Green Dot, to enable in-person cash payments at more than 90,000 retail locations in the Green Dot network.
Our IPN partners include PayPal, for which we power bill payment capabilities, a leading global ecommerce retailer, through which we offer electronic bill presentment and payment via its AI-assistant voice service and mobile app, Walmart, for which we enhance in-person bill payment capability at Walmart Money 13 Centers, and Green Dot, to enable in-person cash payments at more than 90,000 retail locations in the Green Dot network.
Certain other state laws impose similar privacy obligations, such as in New York, Nevada, Virginia, Colorado, Connecticut and Utah, and all 50 states have laws including obligations to provide notification of security breaches of computer databases that contain personal information to affected individuals, state officers and others.
Certain other state laws impose similar privacy obligations, such as in New York, Nevada, Virginia, Colorado, Connecticut and Utah. All 50 states have laws including obligations to provide notification of security breaches of computer databases that contain personal information to affected individuals, state officers and others.
In addition to the laws and regulations described above, various regulatory agencies in the United States and in foreign jurisdictions continue to examine a wide variety of issues which are or may be applicable to us and may impact our business. These issues include payments, identity theft, account management guidelines, privacy, disclosure rules, 17 cybersecurity and marketing.
In addition to the laws and regulations described above, various regulatory agencies in the United States and in foreign jurisdictions continue to examine a wide variety of issues which are or may be applicable to us and may impact our business. These issues include payments, identity theft, account management guidelines, privacy, disclosure rules, cybersecurity and 17 marketing.
The legislative and regulatory landscapes for privacy, data protection and information security continue to evolve in jurisdictions worldwide, with an increasing focus on privacy and data protection issues with the potential to affect our business.
The legislative and regulatory landscapes for privacy, data protection and information security continue to evolve in jurisdictions worldwide, with an increasing focus on privacy and data protection issues with the potential to affect our business.
The U.S. federal and various state and foreign governments have also adopted or proposed limitations on the collection, distribution, use and storage of data relating to individuals and businesses, including the use of contact information and other data for marketing, advertising and other communications with individuals and businesses.
The U.S. federal and various state and foreign governments have also adopted or proposed limitations on the collection, distribution, use and storage of data relating to individuals and businesses, including the use of contact information and other data for marketing, advertising and other communications with individuals and businesses.
In the United States, various laws and regulations apply to the security, collection, processing, storage, use, disclosure and other processing of certain types of data, including the Electronic Communications Privacy Act, the Computer Fraud and Abuse Act, the Gramm Leach Bliley Act, and state and local laws relating to privacy and data security.
In the United States, various laws and regulations apply to the security, collection, processing, storage, use, disclosure and other processing of certain types of data, including the Electronic Communications Privacy Act, the Computer Fraud and Abuse Act, the Gramm Leach Bliley Act, and state and local laws relating to privacy and data security.
Additionally, the FTC and many state attorneys general have interpreted and are continuing to interpret federal and state consumer protection laws to impose standards for the online collection, use, dissemination, processing and security of data.
Additionally, the FTC and many state attorneys general have interpreted and are continuing to interpret federal and state consumer protection laws to impose standards for the online collection, use, dissemination, processing and security of data.
We are required to disclose changes made in our internal control and procedures on a quarterly basis. In order to maintain and, if required, improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources and management oversight are required.
We are required to disclose changes made in our internal control over financial reporting on a quarterly basis. In order to maintain and, if required, improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources and management oversight are required.
We and our billers, financial institutions and partners and their consumers and the third-party vendors and data centers that we use obtain, provide and process large amounts of sensitive and personal data, including data provided by and related to consumers and their transactions, as well as other data of the counterparties to their payments.
We and our billers, financial institutions and partners and their consumers and the third-party vendors and data centers that we use obtain, provide and process large amounts of sensitive and personal data, including data provided by and related to consumers and their financial transactions, as well as other data of the counterparties to their payments.
We may in the future become subject to and involved in lawsuits, disputes, legal proceedings or claims to protect or enforce our intellectual property rights, and we may be subject to claims by third parties that we have infringed, misappropriated or otherwise violated their intellectual property.
We may in the future become subject to and involved in lawsuits, disputes, legal proceedings or claims to protect or enforce our intellectual property rights, and we may be subject to claims by third parties that we have infringed, misappropriated or otherwise violated their intellectual property rights.
Any failure or perceived failure by us or our employees or contractors to comply with existing or new laws, rules, regulations, licensing schemes, industry standards or orders of any governmental authority (including changes to or expansion of the interpretation of those laws, regulations, standards or orders), may, among other things: • subject us to significant fines, penalties, criminal and civil lawsuits, license suspension or revocation, forfeiture of significant assets, audits, inquiries, whistleblower complaints, adverse media coverage, investigations and enforcement actions in one or more jurisdictions levied by federal, state, local or foreign regulators, state attorneys general and private plaintiffs who may be acting as private attorneys general pursuant to various applicable federal, state and local laws; • result in additional compliance and licensure requirements; • increase regulatory scrutiny of our business; 34 • restrict our operations, product features, quality and breadth and depth of functionality; and • force us to change our business practices or compliance program, make product or operational changes or delay planned product launches or improvements.
Any failure or perceived failure by us or our employees or contractors to comply with existing or new laws, rules, regulations, licensing schemes, industry standards or orders of any governmental authority (including changes to or expansion of the interpretation of those laws, regulations, standards or orders), may, among other things: • subject us to significant fines, penalties, criminal and civil lawsuits, license suspension or revocation, forfeiture of significant assets, audits, inquiries, whistleblower complaints, adverse media coverage, investigations and enforcement actions in one or more jurisdictions levied by federal, state, local or foreign regulators, state attorneys general and private plaintiffs who may be acting as private attorneys general pursuant to various applicable federal, state and local laws; • result in additional compliance and licensure requirements; • increase regulatory scrutiny of our business; • restrict our operations, product features, quality and breadth and depth of functionality; and • force us to change our business practices or compliance program, make product or operational changes or delay planned product launches or improvements.
Any perceived or actual security breach or incident, regardless of how it occurs or the extent of the breach or incident, could have a significant impact on our reputation as a trusted brand, cause us to lose existing billers, financial institutions, partners and consumers, prevent us from obtaining new billers, financial institutions, partners and consumers, require us to expend significant funds to remedy problems caused by breaches and incidents and implement measures to prevent further breaches and incidents, and expose us to legal risk and potential liability including those resulting from governmental or regulatory investigations, class action litigation, indemnity obligations, damages for contract breach or penalties for violation of security obligations and costs associated with remediation, such as fraud 43 monitoring and forensics, all of which could divert resources and attention of our management and key personnel away from our business operations and materially and adversely affect our business, operating results and financial condition.
Any perceived or actual security breach or incident, regardless of how it occurs or the extent of the breach or incident, could have a significant impact on our reputation as a trusted brand, cause us to lose existing billers, financial institutions, partners and consumers, prevent us from obtaining new billers, financial institutions, partners and consumers, require us to expend significant funds to remedy problems caused by breaches and incidents and implement measures to prevent further breaches and incidents, and expose us to legal risk and potential liability including those resulting from governmental or regulatory investigations, class action litigation, indemnity obligations, damages for contract breach or penalties for violation of security obligations and costs associated with remediation, such as fraud monitoring and forensics, all of which could divert resources and attention of our management and key personnel away from our business operations and materially and adversely affect our business, operating results and financial condition.
Completed and future acquisitions may result in unforeseen operational difficulties and expenditures associated with: • incorporating new businesses and technologies into our infrastructure; • consolidating operational and administrative functions; • coordinating outreach to our community; • maintaining morale and culture and retaining and integrating key employees; • maintaining or developing controls, procedures and policies (including effective internal control over financial reporting and disclosure controls and procedures); and 28 • identifying and assuming liabilities related to the activities of the acquired business before the acquisition, including liabilities for violations of laws and regulations, intellectual property issues, commercial disputes, taxes and other matters.
Completed and future acquisitions may result in unforeseen operational difficulties and expenditures associated with: • incorporating new businesses and technologies into our infrastructure; • consolidating operational and administrative functions; • coordinating outreach to our community; • maintaining morale and culture and retaining and integrating key employees; • maintaining or developing controls, procedures and policies (including effective internal control over financial reporting and disclosure controls and procedures); and • identifying and assuming liabilities related to the activities of the acquired business before the acquisition, including liabilities for violations of laws and regulations, intellectual property issues, commercial disputes, taxes and other matters.
Any prolonged service disruption affecting our platform for any of the foregoing reasons could result in lengthy interruptions in the delivery of our platform, products or services, cause system interruptions, prevent our billers, financial institutions, partners or consumers from accessing their accounts online, damage our reputation with current and potential billers, financial institutions, partners or consumers, expose us to liability, cause us to lose billers, financial institutions, partners or consumers, cause the loss or unavailability of critical data, prevent us from supporting our platform, products or services, result in regulatory investigations, enforcement actions and litigation or cause us to incur additional expense in investigating, remediating and responding to these disruptions and arranging for new facilities and support or otherwise harm our business.
Any prolonged service disruption affecting our platform for any of the foregoing reasons could result in lengthy interruptions in the delivery 39 of our platform, products or services, cause system interruptions, prevent our billers, financial institutions, partners or consumers from accessing their accounts online, damage our reputation with current and potential billers, financial institutions, partners or consumers, expose us to liability, cause us to lose billers, financial institutions, partners or consumers, cause the loss or unavailability of critical data, prevent us from supporting our platform, products or services, result in regulatory investigations, enforcement actions and litigation or cause us to incur additional expense in investigating, remediating and responding to these disruptions and arranging for new facilities and support or otherwise harm our business.
Our business will be harmed if any provider of such software or other technologies: • discontinues or limits our access to its software or other technologies; • modifies its terms of service or other legal terms or policies, including fees charged to, or other restrictions on us; • changes how information is accessed by us or our billers, financial institutions or partners or their consumers; • has performance or other problems that affect the perception of our platform, products or services; • establishes exclusive or more favorable relationships with one or more of our competitors; or • develops or otherwise favors its own competitive offerings over our platform or products.
Our business will be harmed if any provider of such software or other technologies: • discontinues or limits our access to its software or other technologies; • modifies its terms of service or other legal terms or policies, including fees charged to, or other restrictions on us; • changes how information is accessed by us or our billers, financial institutions or partners or their consumers; • has performance or other problems that affect the perception of our platform, products or services; 38 • establishes exclusive or more favorable relationships with one or more of our competitors; or • develops or otherwise favors its own competitive offerings over our platform or products.
If our policies, procedures or measures relating to privacy, data protection, information security or the processing of data for marketing purposes or consumer communications fail to comply with laws, regulations, policies, legal obligations or industry standards, we may be subject to governmental enforcement actions, litigation, regulatory investigations, fines, penalties and negative publicity, and could cause our application providers, billers, financial institutions and partners to lose trust in us, and have an adverse effect on our business, operating results and financial condition.
If our policies, procedures or measures relating to privacy, data protection, information security or the processing of data for marketing purposes or consumer 33 communications fail to comply with laws, regulations, policies, legal obligations or industry standards, we may be subject to governmental enforcement actions, litigation, regulatory investigations, fines, penalties and negative publicity, and could cause our application providers, billers, financial institutions and partners to lose trust in us, and have an adverse effect on our business, operating results and financial condition.
See the section titled “—Risks Related to Regulation—We are required to comply with payment network operating rules, and changes to such rules or payment network fees could harm our business.” If any of our processors were to terminate its relationship with us, whether as a result of a failure by us to meet our contractual obligations or for other reasons, or if any of them were to refuse to renew its agreement with us on commercially reasonable terms, we would need to engage one or more alternate processors.
See the section titled "—Risks Related to Regulation—We are required to comply with payment network operating rules, and changes to such rules or payment network fees could harm our business." If any of our processors were to terminate its relationship with us, whether as a result of a failure by us to meet our contractual obligations or for other reasons, or if any of them were to refuse to renew its agreement with us on commercially reasonable terms, we would need to engage one or more alternate processors.
Legacy solution providers, new market entrant solution providers and financial institutions may internally develop products, acquire existing, third-party products or enter into partnerships or other strategic relationships that would enable them to expand their product offerings to compete with our platform, provide more comprehensive offerings than they individually had offered or achieve greater economies of scale than us.
Legacy solution providers, new market entrant solution providers and financial institutions may internally develop products, acquire existing, third-party products or enter into partnerships or other strategic 22 relationships that would enable them to expand their product offerings to compete with our platform, provide more comprehensive offerings than they individually had offered or achieve greater economies of scale than us.
Presentment: Consumers are increasingly demanding omni-channel access to their bills through their preferred engagement channels. Our solution offers electronic bill presentment across numerous channels including web, mobile, 9 text, secure PDF, email, IVR, chatbot, social media and through our IPN partners. Our electronic bill presentment products help billers maximize their reach to accelerate revenue realization and engage consumers more efficiently.
Presentment: Consumers are increasingly demanding omni-channel access to their bills through their preferred engagement channels. Our solution offers electronic bill presentment across numerous channels including web, mobile, text, secure PDF, email, IVR, chatbot, social media and through our IPN partners. Our electronic bill presentment products help billers maximize their reach to accelerate revenue realization and engage consumers more efficiently.
Any claims related to our intellectual property or biller, financial institution or consumer confusion related to our marketplace could damage our reputation and 44 adversely affect our growth prospects. In addition, many companies have the capability to dedicate substantially greater resources to enforce their intellectual property rights and to defend claims that may be brought against them than we do.
Any claims related to our intellectual property or biller, financial institution or consumer confusion related to our marketplace could damage our reputation and adversely affect our growth prospects. In addition, many companies have the capability to dedicate substantially greater resources to enforce their intellectual property rights and to defend claims that may be brought against them than we do.
In addition, most of our employees currently work remotely. Given these widespread remote work arrangements, if a natural disaster, power 29 outage, connectivity issue or other event occurs that impacts our employees’ ability to work remotely, it may be difficult or, in certain cases, impossible, for us to continue our business for a substantial period of time.
In addition, most of our employees currently work remotely. Given these widespread remote work arrangements, if a natural disaster, power outage, connectivity issue or other event occurs that impacts our employees’ ability to work remotely, it may be difficult or, in certain cases, impossible, for us to continue our business for a substantial period of time.
The laws and regulations relating to privacy, data 32 protection and information security are evolving, can be subject to significant change, and may result in ever-increasing regulatory and public scrutiny and escalating levels of enforcement and sanctions. We are also subject to certain obligations under HIPAA, as amended by HITECH, as well as certain state laws and related contractual obligations.
The laws and regulations relating to privacy, data protection and information security are evolving, can be subject to significant change, and may result in ever-increasing regulatory and public scrutiny and escalating levels of enforcement and sanctions. We are also subject to certain obligations under HIPAA, as amended by HITECH, as well as certain state laws and related contractual obligations.
Generally, consumers must manually add billers to a financial institution’s system and are generally limited to automated clearing house, or ACH, or other legacy payment channels rather than omni-channel payment capabilities. Ultimately, the lack of optionality and transparency inherent to a financial institution’s bill payment solutions creates an opportunity that we seek to address.
Generally, consumers must manually add billers to a financial institution’s system and are generally limited to automated clearing house, or ACH, or other legacy payment channels rather than omni-channel payment capabilities. Ultimately, the lack of optionality and transparency inherent in a financial institution’s bill payment solutions creates an opportunity that we seek to address.
Payment Timing: We support an array of timing alternatives including one-time guest payments, recurring payments, future-dated payments, multiple payments and payment plans. 11 What Sets Us Apart Paymentus was built on the notion that existing bill payment systems are not equipped to handle how bills will be paid in the future.
Payment Timing: We support an array of timing alternatives including one-time guest payments, recurring payments, future-dated payments, multiple payments and payment plans. What Sets Us Apart Paymentus was built on the notion that existing bill payment systems are not equipped to handle how bills will be paid in the future.
In addition, regulators are subjecting interchange and other fees to increased scrutiny, and new regulations could require greater pricing transparency of the breakdown in fees or fee limitations, which could lead to increased price-based competition, lower margins and higher rates of biller attrition and negatively affect our business, operating results and financial condition.
In addition, regulators are subjecting interchange, surcharging and other fees to increased scrutiny, and new regulations could require greater pricing transparency of the breakdown in fees or fee limitations, which could lead to increased price-based competition, lower margins and higher rates of biller attrition and negatively affect our business, operating results and financial condition.
Information security risks for technology companies such as ours have significantly increased in recent years in part because of the proliferation of new technologies, the use of the internet and telecommunications technologies to conduct financial transactions, and the increased sophistication and activities of organized crime, hackers, terrorists and other external parties as well as nation-state and nation-state-supported actors.
Information security risks for technology companies such as ours have significantly increased in recent years in part because of the proliferation of new technologies, the use of the internet and telecommunications technologies to conduct financial transactions, and the increased sophistication and activities of 43 organized crime, hackers, terrorists and other external parties as well as nation-state and nation-state-supported actors.
Our business and operating results will be harmed if our sales and marketing efforts do not generate significant increases in revenue. We anticipate expanding our operations internationally by targeting international billers, financial institutions and partners, and further expanding use of our platform internationally among our existing international billers, financial institutions and partners, which will create a variety of operational challenges.
Our business and operating results will be harmed if our sales and marketing efforts do not generate significant increases in revenue. 27 We anticipate expanding our operations internationally by targeting international billers, financial institutions and partners, and further expanding use of our platform internationally among our existing international billers, financial institutions and partners, which will create a variety of operational challenges.
Natural disasters, pandemics or other catastrophic events may cause damage or disruption to our operations, commerce in general and the global economy, and thus could harm our business. Our headquarters are located in Charlotte, North Carolina, and we have a large employee presence in the United States, Toronto, Canada and Delhi, India.
Natural disasters or other catastrophic events may cause damage or disruption to our operations, commerce in general and the global economy, and thus could harm our business. Our headquarters are located in Charlotte, North Carolina, and we have a large employee presence in the United States, Toronto, Canada and Delhi, India.
As a result, we are subject to a variety of laws, rules and regulations 31 relating to privacy, data protection and information security, including regulation by various governmental authorities, such as the FTC, and various state, local and foreign agencies. Our data handling and processing activities are also subject to contractual obligations and industry standard requirements.
As a result, we are subject to a variety of laws, rules and regulations relating to privacy, data protection and information security, including regulation by various governmental authorities, such as the FTC, and various state, local and foreign agencies. Our data handling and processing activities are also subject to contractual obligations and industry standard requirements.
Our smart notifications and messaging tools enable billers to provide billing details to their consumers, such as account status, and directly communicate with them over secure channels. Our engagement products help billers and financial institutions facilitate timely and secure bill payments, while driving digital adoption and reducing cost to serve.
Our smart notifications and messaging tools enable billers to provide billing details to their consumers, such as account 9 status, and directly communicate with them over secure channels. Our engagement products help billers and financial institutions facilitate timely and secure bill payments, while driving digital adoption and reducing cost to serve.
As a result, management’s attention may be diverted from other business concerns, which could adversely affect our business and operating results. 35 We have and may need to continue to hire additional employees or engage outside consultants to comply with these requirements, which has and will increase our costs and expenses.
As a result, management’s attention may be diverted from other business concerns, which could adversely affect our business and operating results. We have and may need to continue to hire additional employees or engage outside consultants to comply with these requirements, which has and will increase our costs and expenses.
The owners and operators of our current and future hosting facilities do not guarantee that our billers’ or partners’ or their consumers’ access to our solutions will be uninterrupted, error-free or secure. We or our third-party service providers may experience website disruptions, outages and other performance 38 problems.
The owners and operators of our current and future hosting facilities do not guarantee that our billers’ or partners’ or their consumers’ access to our solutions will be uninterrupted, error-free or secure. We or our third-party service providers may experience website disruptions, outages and other performance problems.
Billers and financial institutions that are able to access a single, integrated end-to-end solution are able to provide a seamless experience for their consumers. 8 Billers and Consumers Are Underserved by Financial Institutions Traditional financial institutions have been slow to adopt modern digital bill payment technologies and the legacy providers which the financial institutions rely on have failed to innovate.
Billers and financial institutions that are able to access a single, integrated end-to-end solution are able to provide a seamless experience for their consumers. Billers and Consumers Are Underserved by Financial Institutions Traditional financial institutions have been slow to adopt modern digital bill payment technologies and the legacy providers which the financial institutions rely on have failed to innovate.
Changes in economic conditions could also adversely affect our future revenue and profit and cause a materially adverse effect on our business, operating results and financial condition. 22 The markets in which we participate are competitive, and if we do not compete effectively, our business, operating results and financial condition could be harmed.
Changes in economic conditions could also adversely affect our future revenue and profit and cause a materially adverse effect on our business, operating results and financial condition. The markets in which we participate are competitive, and if we do not compete effectively, our business, operating results and financial condition could be harmed.
Sales and marketing to large organizations involve risks that may not be present, or that are present to a lesser extent, with sales and marketing to other, smaller organizations. We must invest significant time educating and selling to multiple management and technical decision-makers to obtain their support.
Sales and marketing to large organizations involve risks that may not be present, or that are present to a lesser extent, with sales and marketing to other, smaller organizations. 20 We must invest significant time educating and selling to multiple management and technical decision-makers to obtain their support.
Certain U.S. state laws may be more stringent or broader in scope, or offer greater individual rights, with respect to sensitive and personal information than international, federal, or other state laws, and such laws may differ from each other, which may complicate compliance efforts.
Certain U.S. state laws may be more stringent or broader in scope, or offer greater individual rights, with respect to sensitive and personal information than international, federal, or other state laws, 32 and such laws may differ from each other, which may complicate compliance efforts.
A typical electronic bill payment experience requires the coordination of multiple vendors for bill notification, presentment, various payment channels, call center support, and data and analytics. These vendors lack integration, which results in a fragmented consumer experience and increased cost to the biller.
A typical electronic bill payment experience requires the coordination of multiple vendors for bill notification, presentment, various payment channels, call center support, and data 8 and analytics. These vendors lack integration, which results in a fragmented consumer experience and increased cost to the biller.
Because of the ten-to-one voting ratio between our Class B common stock and Class A common stock, AKKR and our founder and chief executive officer, collectively controlled approximately 99% of the voting power of our outstanding common stock as of December 31, 2022 and therefore are able to control all matters submitted to our stockholders and will continue to control such matters so long as the shares of Class B common stock represent at least 9.1% of all outstanding shares of our Class A common stock and Class B common stock, including the election of directors, amendments of our organizational documents, compensation matters and any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction requiring stockholder approval.
Because of the ten-to-one voting ratio between our Class B common stock and Class A common stock, AKKR and our founder and chief executive officer, collectively controlled approximately 99% of the voting power of our outstanding common stock as of December 31, 2023 and therefore are able to control all matters submitted to our stockholders and will continue to control such matters so long as the shares of Class B common stock represent at least 9.1% of all outstanding shares of our Class A common stock and Class B common stock, including the election of directors, amendments of our organizational documents, compensation matters and any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction requiring stockholder approval.
Our risk management policies, procedures, techniques and processes may not be sufficient to identify all of the risks to which we are exposed, to enable us to prevent or mitigate the risks we have identified or to identify additional risks to which we may become subject in the future.
Our risk management policies, procedures, techniques and processes may not be sufficient to identify all of the risks to which we are exposed, to enable us to prevent or mitigate the risks we have identified or to identify additional risks to which we may become subject 25 in the future.
Our business could be adversely affected by changes to the application or interpretation of existing laws, rules and regulations governing our platform’s communication capabilities, or the enactment of new laws, rules and regulations, and by our and our billers’ and partners’ failure to comply with such laws, rules and regulations in using our platform.
Our business could 34 be adversely affected by changes to the application or interpretation of existing laws, rules and regulations governing our platform’s communication capabilities, or the enactment of new laws, rules and regulations, and by our and our billers’ and partners’ failure to comply with such laws, rules and regulations in using our platform.
Individuals that were involved in the development of intellectual property for us or who had access to our intellectual property but who are not subject to invention assignment agreements may make adverse ownership claims to our current and future intellectual property.
Individuals that were involved in the development of intellectual property for 42 us or who had access to our intellectual property but who are not subject to invention assignment agreements may make adverse ownership claims to our current and future intellectual property.
We expect fluctuations in our operating results, which will make it difficult to project future results and may cause the market price of our Class A common stock to decline. 23 Our growth makes it difficult for us to forecast our future operating results.
We expect fluctuations in our operating results, which will make it difficult to project future results and may cause the market price of our Class A common stock to decline. Our growth makes it difficult for us to forecast our future operating results.
Billers and financial institutions and their consumers rely on our customer support services to resolve issues and realize the full benefits provided by our platform. High-quality support is also important to maintain and drive further 26 adoption by our existing billers and their consumers.
Billers and financial institutions and their consumers rely on our customer support services to resolve issues and realize the full benefits provided by our platform. High-quality support is also important to maintain and drive further adoption by our existing billers and their consumers.
Any of these actions could result in liability, lost business, increased insurance costs, difficulty in collecting accounts receivable, costly litigation or adverse publicity, which could materially and adversely affect our business, operating results and financial condition.
Any of these actions could result in liability, lost business, increased insurance costs, difficulty in collecting accounts receivable, costly litigation, regulatory actions, or adverse publicity, which could materially and adversely affect our business, operating results and financial condition.
Moreover, AKKR will be able to determine the outcome of all matters requiring stockholder approval and will be able to cause or prevent a change of control of our company or a change in the composition of our board of directors and could preclude any 47 acquisition of our company.
Moreover, AKKR will be able to determine the outcome of all matters requiring stockholder approval and will be able to cause or prevent a change of control of our company or a change in the composition of our board of directors and could preclude any acquisition of our company.
Despite our efforts to protect our intellectual property and proprietary rights, there can be no guarantee that such rights will be sufficient to protect against others offering products or services that are substantially similar to ours, independently developing similar products, duplicating any of our products, designing around our patents, adopting trade names or domain names similar to ours, competing with our business or attempting to copy aspects of our technology and using information that we consider proprietary, thereby impeding our ability to promote our platform and possibly leading to biller, financial institution or consumer confusion.
Despite our efforts to protect our intellectual property and proprietary rights, there is no guarantee that such rights will be sufficient to protect against others offering products or services that are substantially similar to ours, independently developing similar products, duplicating any of our products, designing around our patents, adopting trade names or domain names similar to ours, competing with our business or attempting to copy aspects of our technology and using information that we consider proprietary, thereby impeding our ability to promote our platform and possibly leading to biller, financial institution or consumer confusion.
If one or more of the analysts initiate research with an unfavorable rating or downgrade our Class A common stock, provide a more favorable recommendation about our competitors or publish inaccurate or unfavorable research about our business, our Class A common stock price would likely decline.
If one or more of the analysts provide research with an unfavorable rating or downgrade our Class A common stock, provide a more favorable recommendation about our competitors or publish inaccurate or unfavorable research about our business, our Class A common stock price would likely decline.
In addition, we, our employees, agents, representatives, business partners and third-party intermediaries may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities.
In addition, we, our employees, agents, representatives, business partners and third-party 37 intermediaries may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities.
To prevent having to litigate 50 claims in multiple jurisdictions and the threat of inconsistent or contrary rulings by different courts, among other considerations, our bylaws also provide that, unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States are the sole and exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act.
To prevent having to litigate claims in multiple jurisdictions and the threat of inconsistent or contrary rulings by different courts, among other considerations, our 51 bylaws also provide that, unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States are the sole and exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act.
Software defects and errors or delays in electronic bill presentment or our facilitation of payment processing could result in additional development costs, diversion of technical and other resources from our other development efforts, loss of credibility with current or potential billers, financial institutions, partners and consumers, harm to our reputation and exposure to liability claims, any of which could result in a material adverse effect on our business, operating results and financial condition.
Software defects and errors or delays in electronic bill presentment or our facilitation of payment processing could result in additional development and remediation costs, diversion of technical and other resources from our existing development efforts, loss of credibility with current or potential billers, financial institutions, partners and consumers, harm to our reputation and exposure to liability claims, any of which could result in a material adverse effect on our business, operating results and financial condition.
Any inability to license third-party technology in the future would have an adverse effect on our business or operating results and would adversely affect our ability to compete.
Any inability to 45 license third-party technology in the future would have an adverse effect on our business or operating results and would adversely affect our ability to compete.
Factors that could cause fluctuations in the market price of our Class A common stock include the following: • market volatility and economic disruption caused by widespread health issues or pandemics; • actual or anticipated fluctuations in our operating results; • variations between our actual operating results and the expectations of securities analysts, investors and the financial community; • any forward-looking financial or operating information we may provide to the public or securities analysts, such as annual guidance, and any changes in this information or our failure to meet expectations based on this information; 45 • actions of securities analysts who initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow our company or our failure to meet these estimates or the expectations of investors; • whether investors or securities analysts view our stock structure unfavorably, particularly our dual-class structure and the significant voting control of AKKR and our founder and chief executive officer; • additional shares of our Class A common stock being sold into the market by us or our existing stockholders, or the anticipation of such sales, including if existing stockholders sell shares into the market; • announcements by us or our competitors of significant products or features, technical innovations, acquisitions, strategic partnerships, joint ventures or capital commitments; • changes in operating performance and stock market valuations of companies in our industry, including our competitors, such as the widespread market revaluation of technology companies generally in 2022; • price and volume fluctuations in the overall stock market, including as a result of trends in trading patterns or the economy as a whole; • lawsuits, claims or investigations threatened, filed or initiated against us; • developments in new legislation and pending lawsuits or regulatory actions, including interim or final rulings by judicial or regulatory bodies; and • other events or factors, including those resulting from war or incidents of terrorism, or responses to these events.
Factors that could cause fluctuations in the market price of our Class A common stock include the following: • market volatility and economic disruption caused by widespread health issues or pandemics; • actual or anticipated fluctuations in our operating results; • variations between our actual operating results and the expectations of securities analysts, investors and the financial community; • any forward-looking financial or operating information we may provide to the public or securities analysts, such as annual guidance, and any changes in this information or our failure to meet expectations based on this information; • actions of securities analysts who initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow our company or our failure to meet these estimates or the expectations of investors; • whether investors or securities analysts view our stock structure unfavorably, particularly our dual-class structure and the significant voting control of Accel-KKR (“AKKR”) and our founder and chief executive officer; • additional shares of our Class A common stock being sold into the market by us or our existing stockholders, or the anticipation of such sales, including if existing stockholders sell shares into the market; 46 • announcements by us or our competitors of significant products or features, technical innovations, acquisitions, strategic partnerships, joint ventures or capital commitments; • changes in operating performance and stock market valuations of companies in our industry, including our competitors, such as the widespread market revaluation of technology companies generally in 2022; • price and volume fluctuations in the overall stock market, including as a result of trends in trading patterns or the economy as a whole; • lawsuits, claims or investigations threatened, filed or initiated against us; • developments in new legislation and pending lawsuits or regulatory actions, including interim or final rulings by judicial or regulatory bodies; and • other events or factors, including those resulting from war or incidents of terrorism, or responses to these events.
These laws and regulations are in certain cases more restrictive than those in the United States. Laws and regulations in these jurisdictions apply broadly to the collection, use, storage, disclosure and security of various types of data, including data that identifies or may be used to identify an individual, such as names, email addresses and in some jurisdictions, IP addresses.
These laws and regulations are in certain cases more stringent than those in the United States. Laws and regulations in these jurisdictions apply broadly to the collection, use, storage, disclosure and security of various types of data, including data that identifies or may be used to identify an individual, such as names, email addresses and in some jurisdictions, IP addresses.
As we look to market and sell our platform to potential billers, financial institutions or strategic partners with existing solutions, we must convince their internal stakeholders that our platform is superior to their current solutions. Furthermore, some lower margin industries are more sensitive to pricing and may select a lower cost provider over our more advanced solutions.
As we look to market and sell our platform to potential billers, financial institutions or strategic partners with existing solutions, we must demonstrate to their internal stakeholders that our platform is superior to their current solutions. Furthermore, some lower margin industries are more sensitive to pricing and may select a lower cost provider over our more advanced solutions.
If our internal control over financial reporting is not effective, management’s report and our independent registered public accounting firm’s report would be adverse. As of December 31, 2022, material weaknesses were identified in our internal control over financial reporting were identified. These material weaknesses, as well as our remediation plans, are described in Item 9A of this annual report.
If our internal control over financial reporting is not effective, management’s report and our independent registered public accounting firm’s report would be adverse. As of December 31, 2023, material weaknesses were identified in our internal control over financial reporting. These material weaknesses, as well as our remediation plans, are described in Item 9A of this annual report.
Our status as an emerging growth company will end as soon as any of the following takes place: • the last day of the fiscal year in which we have at least $1.235 billion in annual revenue; • the date we qualify as a “large accelerated filer,” with at least $700.0 million of equity securities held by non-affiliates; • the date on which we have issued, in any three-year period, more than $1.0 billion in non-convertible debt securities; or • December 31, 2026.
Our status as an emerging growth company will end as soon as any of the following takes place: • the last day of the fiscal year in which we have at least $1.235 billion in annual revenue; • the date we qualify as a "large accelerated filer," with at least $700.0 million of equity securities held by non-affiliates; • the date on which we have issued, in any three-year period, more than $1.0 billion in non-convertible debt securities; or • December 31, 2026.
In addition to the other risks described herein, factors that may affect our operating results include the following: • fluctuations in demand for our platform; • our ability to attract new billers and financial institutions and retain and increase adoption by our existing billers; • our ability to expand our relationships with our partners and identify and attract new partners; • changes in payment method preferences and channels by consumers, which may affect our revenue and gross margin, particularly as a result of interchange fees; • variations across the industries of our billers, which may affect payment methods used by consumers and average payment amounts and, in turn, our revenue and gross margin, particularly as a result of interchange fees; • the impact of widespread health issues on our operating results, liquidity and financial condition and on our employees, billers, financial institutions, partners, consumers and other key stakeholders; • changes in biller and financial institution preference for cloud-based services as a result of security breaches and incidents in the industry or privacy concerns, or other security or reliability concerns regarding our products; • fluctuations or delays in purchasing decisions in anticipation of new products or product enhancements by us or our competitors; • changes in biller, financial institution and consumer budgets and in the timing of their budget cycles and purchasing decisions; • potential and existing billers and financial institutions choosing our competitors’ products or developing their own solutions in-house; • the development or introduction of new platforms or services that are easier to use or more advanced than our current platform and suite of services; • our ability to adapt to new forms or methods of payment that become widely accepted, including cryptocurrencies and blockchain-based transactions; • the adoption or retention of more entrenched or rival services in the international markets where we compete or plan to compete; • our ability to control costs, including our operating expenses; • rising inflation and our ability to adjust pricing and control our costs, including employee wages and benefits and other operating expenses; • the amount and timing of payment for operating expenses, particularly research and development and sales and marketing expenses, including commissions; • the amount and timing of non-cash expenses, including stock-based compensation, goodwill impairments and other non-cash charges; • the amount and timing of costs associated with recruiting, training and integrating new employees, and retaining and motivating existing employees; • the effects of acquisitions and their integration; • general economic conditions, both domestically and internationally, as well as economic conditions specifically affecting industries in which our billers operate; • the impact of new accounting pronouncements; • changes in the competitive dynamics of our markets; • security breaches of and incidents impacting, technical difficulties with, or interruptions to, the delivery and use of our platform; and • awareness of our brand and our reputation in our target markets. 24 Any of these and other factors, or the cumulative effect of some of these factors, may cause our operating results to vary significantly.
In addition to the other risks described herein, factors that may affect our operating results include the following: • fluctuations in demand for our platform; 23 • our ability to attract new billers and financial institutions and retain and increase adoption by our existing billers; • our ability to expand our relationships with our partners and identify and attract new partners; • changes in payment method preferences and channels by consumers, which may affect our revenue and gross margin, particularly as a result of interchange fees; • variations across the industries of our billers, which may affect payment methods used by consumers and average payment amounts and, in turn, our revenue and gross margin, particularly as a result of interchange fees; • the impact of widespread health issues on our operating results, liquidity and financial condition and on our employees, billers, financial institutions, partners, consumers and other key stakeholders; • changes in biller and financial institution preference for cloud-based services as a result of security breaches and incidents in the industry or privacy concerns, or other security or reliability concerns regarding our products; • fluctuations or delays in purchasing decisions in anticipation of new products or product enhancements by us or our competitors; • changes in biller, financial institution and consumer budgets and in the timing of their budget cycles and purchasing decisions; • potential and existing billers and financial institutions choosing our competitors’ products or developing their own solutions in-house; • the development or introduction of new platforms or services that are easier to use or more advanced than our current platform and suite of services; • our ability to adapt to new forms or methods of payment that become widely accepted, including cryptocurrencies and blockchain-based transactions; • the adoption or retention of more entrenched or rival services in the international markets where we compete or plan to compete; • our ability to control costs, including our operating expenses; • rising inflation and our ability to adjust pricing and control our costs, including employee wages and benefits and other operating expenses; • the amount and timing of payment for operating expenses, particularly research and development and sales and marketing expenses, including commissions; • the amount and timing of non-cash expenses, including stock-based compensation, goodwill impairments and other non-cash charges; • the amount and timing of costs associated with recruiting, training and integrating new employees, and retaining and motivating existing employees; • the effects of acquisitions and their integration; • general economic conditions, both domestically and internationally, as well as economic conditions specifically affecting industries in which our billers operate; • the impact of new accounting pronouncements; • changes in the competitive dynamics of our markets; • security breaches of and incidents impacting, technical difficulties with, or interruptions to, the delivery and use of our platform; and • awareness of our brand and our reputation in our target markets.
If our currently issued patents are maintained until the end of their terms, they will expire between 2025 and 2040. The expiration of these patents is not reasonably likely to have a material adverse effect on our business, financial condition or results of operations.
If our currently issued patents are maintained until the end of their terms, they will expire between 2025 and 2041. The expiration of these patents is not reasonably likely to have a material adverse effect on our business, financial condition or results of operations.
We are an emerging growth company, and for as long as we continue to be an emerging growth company, we may choose to take advantage of exemptions from various reporting requirements applicable to other public companies but not to “emerging growth companies,” including: • exemption from the requirement to have our registered independent public accounting firm attest to management’s assessment of our internal control over financial reporting; • exemption from compliance with the requirement of the PCAOB regarding the communication of critical audit matters in the auditor’s report on the financial statements; • reduced disclosure about our executive compensation arrangements; and 48 • exemption from the requirement to hold non-binding advisory votes on executive compensation or golden parachute arrangements.
We are an emerging growth company, and for as long as we continue to be an emerging growth company, we may choose to take advantage of exemptions from various reporting requirements applicable to other public companies but not to "emerging growth companies," including: • exemption from the requirement to have our registered independent public accounting firm attest to management’s assessment of our internal control over financial reporting; • exemption from compliance with the requirement of the PCAOB regarding the communication of critical audit matters in the auditor’s report on the financial statements; • reduced disclosure about our executive compensation arrangements; and 49 • exemption from the requirement to hold non-binding advisory votes on executive compensation or golden parachute arrangements.
Among other things, these provisions provide that: • we have a dual class common stock structure, with differing voting rights; 49 • the authorized number of directors may be changed only by resolution of the board of directors; • any vacancies on the board of directors and any newly created directorships may only be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum; • our board of directors is divided into three classes, each of which stands for election once every three years; • there is no cumulative voting; • the board of directors may issue “blank check” preferred stock that our board of directors could use to implement a stockholder rights plan; • the board of directors may adopt, alter or repeal our bylaws; • the forum for certain litigation against us is restricted to Delaware; and • stockholders seeking to present proposals before a meeting of stockholders or to nominate candidates for election as directors at a meeting of stockholders must provide notice in writing in a timely manner, and also meet specific requirements as to the form and content of a stockholder’s notice.
Among other things, these provisions provide that: • we have a dual class common stock structure, with differing voting rights; 50 • the authorized number of directors may be changed only by resolution of the board of directors; • any vacancies on the board of directors and any newly created directorships may only be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum; • our board of directors is divided into three classes, each of which stands for election once every three years; • there is no cumulative voting; • the board of directors may issue "blank check" preferred stock that our board of directors could use to implement a stockholder rights plan; • the board of directors may adopt, alter or repeal our bylaws; • the forum for certain litigation against us is restricted to Delaware; and • stockholders seeking to present proposals before a meeting of stockholders or to nominate candidates for election as directors at a meeting of stockholders must provide notice in writing in a timely manner, and also meet specific requirements as to the form and content of a stockholder’s notice.
These rules and standards, including PCI-DSS, govern a variety of areas, including how consumers may use their cards, the security features of cards, security standards for processing, data protection and information security and allocation of liability for certain acts or omissions, including liability in the event of a data breach.
These rules and standards, including PCI-DSS, govern a variety of areas, including how consumers may use their cards, surcharging limitations, the security features of cards, security standards for processing, data protection and information security and allocation of liability for certain acts or omissions, including liability in the event of a data breach.
Our IPN promotes more rapid adoption of our platform through partnerships with leading business networks, including: • Banking Partners: We modernize the bill payment infrastructure of banks and credit unions of all sizes, empowering their digital banking consumers with fast, secure and omni-channel payment technology by seamlessly integrating our solution into their digital platforms. • eCommerce Partner: We power electronic bill payments through the mobile app and AI-assistant voice service of a leading global ecommerce retailer, enabling millions of its users to retrieve information about, and pay, their bills for all billers on our network. • PayPal: We enable PayPal’s U.S. consumers to pay their bills directly from PayPal apps. • Other Partners: Other partners benefit from our IPN in a variety of ways, such as enabling bill payment for consumers across the U.S.
Our IPN promotes more rapid adoption of our platform through an extensive partnership ecosystem with leading business networks, including: • Banking Partners: We modernize the bill payment infrastructure of banks and credit unions of all sizes, empowering their digital banking consumers with fast, secure and omni-channel payment technology by seamlessly integrating our solution into their digital platforms. • eCommerce Partner: We power electronic bill payments through the mobile app and AI-assistant voice service of a leading global ecommerce retailer, enabling millions of its users to retrieve information about, and pay, their bills for all billers on our network. • PayPal: We enable PayPal’s U.S. consumers to pay their bills directly from PayPal apps. • Other Partners: Other partners benefit from our IPN in a variety of ways, such as enabling bill payment for consumers across the U.S.
In certain markets, such as utilities and municipalities, convenience fees are commonplace. Despite the fact that such fees are relatively standard, they are often met with negative consumer perception, which could lead to heightened regulatory scrutiny and further pricing pressure.
In certain markets, such as utilities and municipalities, such fees are commonplace. Despite the fact that such fees are relatively standard, they are often met with negative consumer perception and regulatory limitations, which could lead to heightened regulatory scrutiny and further pricing pressure.
Our ability to attract new billers and financial institutions, retain revenue from existing billers and financial institutions or increase adoption of our platform by both new and existing billers is impacted by a number of factors, including: • our transaction fees and certain of our billers’ ability to pass them on to consumers; • our ability to timely expand the functionality and scope of our platform; • our ability to execute timely implementations of new billers and financial institutions to meet their expectations; • our ability to maintain the rates at which our billers and financial institutions pay us and continue to use our platform; • competitive factors, including the introduction of competing solutions, discount pricing and other strategies that may be implemented by our competitors; • our ability to maintain high-quality customer support for billers, financial institutions and consumers; • our ability to attract and retain strategic partners, software partners, resellers and IPN partners; • our ability to expand into new industries and market segments; • actual or perceived privacy or security breaches or incidents; • the frequency and severity of any system outages, technological changes or similar issues; • our ability to successfully identify and acquire or invest in businesses, products or technologies that we believe could complement or expand our platform; • our ability to increase awareness of our brand and successfully compete with other companies; • our ability to expand internationally; and • our focus on long-term value over short-term results, meaning that we may make strategic decisions that may not maximize our short-term revenue or profitability if we believe that the decisions are consistent with our mission and will improve our financial performance over the long-term. 19 Our business could be harmed if we fail to manage our infrastructure to support future growth.
Our ability to attract new billers and financial institutions, retain revenue from existing billers and financial institutions or increase adoption of our platform by both new and existing billers is impacted by a number of factors, including: • our transaction fees and certain of our billers’ ability to pass them on to consumers; • our ability to timely expand the functionality and scope of our platform; • our ability to execute timely implementations of new billers and financial institutions to meet their expectations; • our ability to maintain the rates at which our billers and financial institutions pay us and continue to use our platform; • competitive factors, including the introduction of competing solutions, discount pricing and other strategies that may be implemented by our competitors; • our ability to maintain high-quality customer support for billers, financial institutions and consumers; • our ability to attract and retain strategic partners, software partners, resellers, referral partners and IPN partners; • our ability to expand into new industries and market segments; • actual or perceived privacy or security breaches or incidents; • the frequency and severity of any system outages, technological changes or similar issues; • our ability to successfully identify and acquire or invest in businesses, products or technologies that we believe could complement or expand our platform; • our ability to increase awareness of our brand and successfully compete with other companies; • our ability to expand internationally; and 19 • our focus on long-term value over short-term results, meaning that we may make strategic decisions that may not maximize our short-term revenue or profitability if we believe that the decisions are consistent with our mission and will improve our financial performance over the long-term.
We cannot provide assurance that the measures we have taken to date and may take in the future will be sufficient to remediate the control deficiencies that led to the identified material weaknesses in internal control over financial reporting or that the measures will prevent or avoid future material weaknesses.
We cannot provide assurance that the measures we have taken to date and may take in the future will be sufficient to remediate the control deficiencies that led to the identified material weaknesses in internal control over financial reporting or that the measures will prevent or avoid future related or unrelated material weaknesses.
We simplify how bills are paid and help billers collect revenue faster and more profitably because our platform is: • Scalable: Enterprise-grade platform capable of supporting transaction growth for billers and financial institutions of all sizes across numerous industry verticals. • Innovative: Artificial intelligence, or AI, and machine learning, or ML, algorithms power an omni-channel, end-to-end solution that adapts to new technologies and continuously learns from transaction activity. • Flexible: Platform accessible through an array of application program interfaces, or APIs, software development kits, iFrames and fully hosted solutions that provide complete control over the user experience. • Configurable: Reconfigurable business logic that allows us to quickly implement new functionality required by new and existing billers. 7 • Integrated: Our library of over 400 integrations to core accounting software systems, including customer information systems, or CIS (which are software systems used to efficiently manage customer processes and data and often include bill pay, customer service and forecasting and analytics tools), and enterprise resource planning, or ERP, systems (which are software systems used to collect, store, manage and interpret data from many business activities, typically including accounting systems); as well as core financial institution processing platforms and certain digital banking providers, helps connect disparate systems across the electronic bill payment value chain. • Extensible: Adaptable to new technologies and emerging payment channels, such as pay-by-text, AI-based virtual assistants and social media payments. • Secure: Multi-layer intrusion detection and prevention system, multi-factor authentication and encryption and tokenization designed for trust and security of transaction activity and information.
We simplify how bills are paid and help billers collect revenue faster and more profitably because our platform is: • Scalable: Enterprise-grade platform capable of supporting transaction growth for billers and financial institutions of all sizes across numerous industry verticals. • Innovative: Artificial intelligence, or AI, and machine learning, or ML, algorithms power an omni-channel, end-to-end solution that adapts to new technologies and continuously learns from transaction activity. • Flexible: Platform accessible through an array of application program interfaces, or APIs, software development kits, iFrames and fully hosted solutions that provide complete control over the user experience and real-time customer engagement experiences. 7 • Configurable: Reconfigurable business logic that allows us to quickly implement new functionality required by new and existing billers as we drive additional innovative solutions to our platform and beyond. • Integrated: Our significant and broad library of integrations to core accounting and billing software systems, including customer information systems, or CIS (which are software systems used to efficiently manage customer processes and data and often include bill pay, customer service and forecasting and analytics tools), and enterprise resource planning, or ERP, systems (which are software systems used to collect, store, manage and interpret data from many business activities, typically including accounting systems), as well as core financial institution processing platforms and certain digital banking providers, helps connect disparate systems across the electronic bill payment value chain. • Extensible: Adaptable to new technologies and emerging payment channels, such as pay-by-text, AI-based virtual assistants and social media payments. • Secure: Multi-layer intrusion detection and prevention system, multi-factor authentication and encryption and tokenization designed for trust and security of transaction activity and information.
See the section titled “Special Note Regarding Forward-Looking Statements” for a discussion of such statements and their limitations Our risk factors are not guarantees that no such conditions exist as of the date of this report and should not be interpreted as an affirmative statement that such risks or conditions have not materialized, in whole or in part.
See the section titled "Special Note Regarding Forward-Looking Statements" for a discussion of such statements and their limitations. Our risk factors are not guarantees that no such conditions exist as of the date of this report and should not be interpreted as an affirmative statement that such risks or conditions have not materialized, in whole or in part.
In addition, many states in which we operate have enacted laws that protect the privacy and security of sensitive and personal data, such as the California Consumer Privacy Act, or CCPA, and the California Privacy Rights Act, or CPRA, in California.
In addition, many states in which we operate have enacted laws that protect the privacy and security of sensitive and personal data, such as the California Consumer Privacy Act, or CCPA, as amended by the California Privacy Rights Act, or CPRA, in California.
We have registered the offer and sale of all shares of Class A common stock and Class B common stock subject to equity awards outstanding and reserved for issuance under our 2012 Equity Incentive Plan and 2021 Equity Incentive Plan.
We have registered under the Securities Act the offer and sale of all shares of Class A common stock and Class B common stock subject to equity awards outstanding and reserved for issuance under our 2012 Equity Incentive Plan and 2021 Equity Incentive Plan.
Litigation could be costly for us to defend, have a negative effect on our business, operating results and financial condition or require us to devote additional research and development resources to change our products.
Litigation could be costly for us to defend, have a negative effect on our business, operating results and financial condition or require us to devote additional research and development resources to redesign our products.
If a third party is able to obtain an injunction preventing us from accessing such third-party’s intellectual property rights, or if we cannot license or develop alternative technology for any infringing aspect of our business, we would be forced to limit or stop sales of our products or cease business activities related to such intellectual property.
If a third party is able to obtain an injunction preventing us from accessing such third-party’s intellectual property rights, or if we cannot license or develop alternative technology for any allegedly infringing aspect of our business, we may be forced to limit or stop sales of our products or cease business activities related to such intellectual property.
The shares covered by that registration statement are eligible for resale in the public markets, subject to Rule 144 limitations applicable to affiliates. If these additional shares are sold, or if it is perceived that they will be sold in the public market, the market price of our Class A common stock could decline.
The shares covered by those registration statements are eligible for resale in the public markets, subject to Rule 144 limitations applicable to affiliates. If these additional shares are sold, or if it is perceived that they will be sold in the public market, the market price of our Class A common stock could decline.
For additional discussion of how intellectual property protection affects our business, see the section titled “Risk Factors—Risks Related to Our Technology and Intellectual Property.” 16 Government Regulation Various aspects of our business and service areas are subject to U.S. federal, state, and local regulation, as well as regulation outside the United States.
For additional discussion of how intellectual property protection affects our business, see the section titled "Risk Factors—Risks Related to Our Technology and Intellectual Property." 16 Government Regulation Various aspects of our business and service areas are subject to U.S. federal, state, and local regulation, as well as regulation outside the United States.
You should carefully consider the risks and uncertainties described below, together with all of the other information in this report, including the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our consolidated financial statements and the accompanying notes included elsewhere in this report before making an investment decision.
You should carefully consider the risks and uncertainties described below, together with all of the other information in this report, including the section titled "Management’s Discussion and Analysis of Financial Condition and Results of Operations," and our consolidated financial statements and the accompanying notes included elsewhere in this report before making an investment decision.
Customers get a centralized viewpoint over all their money movement needs and the financial institutions get insights into their customers’ behavior than can inform a meaningful evolution of the customer experience.
Customers get a centralized viewpoint over all their money movement needs and the financial institutions get insights into their customers’ behavior that can inform a meaningful evolution of the customer experience.
Our certificate of incorporation provides that, to the fullest extent permitted by law, none of AKKR or its affiliates, or any of their respective directors, partners, principals, officers, members, managers or employees, including any of the foregoing who serve as our officers or directors (all of whom we refer to as the “Exempted Persons”), has any duty to refrain from engaging directly or indirectly in the same or similar business activities or lines of business as us or any of our affiliates.
Our certificate of incorporation provides that, to the fullest extent permitted by law, none of AKKR or its affiliates, or any of their respective directors, partners, principals, officers, members, managers or employees, including any of the foregoing who serve as our officers or directors (all of whom we refer to as the "Exempted Persons"), has any duty to refrain from engaging directly or indirectly in the same or similar business activities or lines of business as us or any of our affiliates.
Our platform incorporates software modules licensed to us by third-party authors under “open source” licenses, and we expect to continue to incorporate open source software in our products and platform in the future.
Our platform incorporates software modules licensed to us by third-party authors under "open source" licenses, and we expect to continue to incorporate open source modules in our products and platform in the future.
The market price of our Class A common stock has, and may continue to, fluctuate or decline significantly in response to numerous factors, including those described in this “Risk Factors” section, many of which are beyond our control and may not be related to our operating performance.
The market price of our Class A common stock has, and may continue to, fluctuate or decline significantly in response to numerous factors, including those described in this "Risk Factors" section, many of which are beyond our control and may not be related to our operating performance.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeLocation Type Square Footage (approximate) Lease Expiration Charlotte, North Carolina Corporate Headquarters 26,700 March 31, 2027 Richmond Hill, Canada Office space 56,000 March 31, 2031 Richmond Hill, Canada Office space 3,000 May 31, 2025 Delhi, India Office space 4,100 October 23, 2025 Gurugram, India Office space 19,800 February 1, 2023 (1) Bangalore, India Office space 4,000 December 31, 2023 _______________ (1) Lease term converted to month-to-month upon expiration.
Biggest changeLocation Type Square Footage (approximate) Lease Expiration Charlotte, North Carolina Corporate Headquarters 26,700 March 31, 2027 Richmond Hill, Canada Office space 56,000 March 31, 2031 Richmond Hill, Canada Office space 3,000 May 31, 2025 54 Dallas, Texas Office space 10,100 March 15, 2027 Milpitas, California Office space 2,900 May 31, 2024 New York, New York Office space 700 December 31, 2023 (2) Delhi, India Office space 4,100 October 23, 2025 Gurugram, India Office space 19,800 February 1, 2029 Mohali, Punjab, India Office space 9,300 December 31, 2025 Bangalore, India Office space 4,000 December 31, 2023 (1) _______________ (1) Lease term converted to month-to-month upon expiration.
Item 2. P roperties We are headquartered in Charlotte, North Carolina. We also lease office space in Charlotte, North Carolina, Richmond Hill, Canada (part of the Greater Toronto Area) and in Delhi, Gurugram, and Bangalore, India. The table below sets forth certain information regarding these properties, all of which are leased.
Item 2. P roperties We are headquartered in Charlotte, North Carolina. We lease office space in Charlotte, North Carolina; Richmond Hill, Canada (part of the Greater Toronto Area); Dallas, Texas; Milpitas, California; New York, New York and in Delhi, Gurugram, Mohali and Bangalore, India. The table below sets forth certain information regarding these properties, all of which are leased.
For leases that are scheduled to expire during the next 12 months, we may negotiate new lease agreements, renew existing lease agreements or relocate to alternate facilities.
(2) Month to month lease of desk space in a co-working & flexible office concept building. For leases that are scheduled to expire during the next 12 months, we may negotiate new lease agreements, renew existing lease agreements or relocate to alternate facilities.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeAlthough the results of legal proceedings and claims cannot be predicted with certainty, we believe we are not currently party to any legal proceedings which, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results or financial condition. 51 Ite m 4. Mine Safety Disclosures Not applicable. PART II
Biggest changeAlthough the results of legal proceedings and claims cannot be predicted with certainty, we believe we are not currently party to any legal proceedings which, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results or financial condition. Ite m 4. Mine Safety Disclosures Not applicable. 55 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe performance graph and table shall not be deemed “soliciting material” or to be “filed” with the SEC for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any of the Company’s filings under the Securities Act. 52 May 26, 2021 June 30, 2021 September 30, 2021 December 31, 2021 March 31, 2022 June 30, 2022 September 30, 2022 December 31, 2022 Paymentus Holdings, Inc. $ 100.00 $ 123.76 $ 109.48 $ 57.12 $ 47.60 $ 61.88 $ 47.60 $ 38.08 S&P 500 Index 100.00 90.46 87.48 79.10 81.60 75.70 71.72 76.80 S&P Information Technology 100.00 111.44 108.04 94.60 94.88 88.92 83.20 86.88 We will neither make nor endorse any predictions as to future stock performance or whether the trends depicted in the graph above will continue or change in the future.
Biggest changeThe performance graph and table shall not be deemed "soliciting material" or to be "filed" with the SEC for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any of the Company’s filings under the Securities Act. 56 Fiscal Year 2021 Quarters May 26, 2021 December 31, 2021 December 31, 2022 December 31, 2023 Paymentus Holdings, Inc. $ 100.00 $ 166.57 $ 38.14 $ 85.10 S&P 500 Index 100.00 113.71 91.60 113.80 S&P Information Technology 100.00 125.60 89.29 139.65 We will neither make nor endorse any predictions as to future stock performance or whether the trends depicted in the graph above will continue or change in the future.
Stock Performance Graph The following graph and table compare the total stockholder return from May 26, 2021, the date on which our Class A common stock commenced trading on NYSE through December 31, 2022, based on an initial investment of $100 in each of: • our Class A common stock; • the Standard and Poor's 500 Stock Index, or S&P 500 Index; and • the Standard and Poor's 500 Information Technology Index, or S&P Information Technology.
Stock Performance Graph The following graph and table compare the total stockholder return from May 26, 2021, the date on which our Class A common stock commenced trading on NYSE through December 31, 2023, based on an initial investment of $100 in each of: • our Class A common stock; • the Standard and Poor's 500 Stock Index, or S&P 500 Index; and • the Standard and Poor's 500 Information Technology Index, or S&P Information Technology.
Item 5. Mar ket for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Paymentus Holdings, Inc. Class A common stock is listed on the New York Stock Exchange under the ticker symbol “PAY.” There is no established trading market for our Class B common stock.
Item 5. Mar ket for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Paymentus Holdings, Inc. Class A common stock is listed on the New York Stock Exchange under the ticker symbol "PAY." There is no established trading market for our Class B common stock.
Recent Sales of Unregistered Securities All sales of unregistered securities during the fiscal year ended December 31, 2022 have been previously reported in our filings with the SEC. Purchases of Equity Securities Except as previously reported in filings with the SEC, there were no repurchases of equity securities during the year ended December 31, 2022.
Recent Sales of Unregistered Securities Except as may have been previously reported in our filings with the SEC, there were no sales of unregistered securities during the fiscal year ended December 31, 2023.
Holders Based on the records of our transfer agent, as of February 28, 2023, there were 41 holders of record of our Class A common stock and 14 holders of record of our Class B common stock.
Holders Based on the records of our transfer agent, as of February 29, 2024, there were 36 record holders of our Class A common stock and 41 record holders of our Class B common stock.
We do not have any publicly announced or other repurchase plans regarding our Class A common stock.
Issuer Purchases of Equity Securities Except as may have been previously reported in filings with the SEC, there were no repurchases of equity securities during the year ended December 31, 2023. We do not have any publicly announced or other repurchase plans regarding our Class A common stock.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeResults of Operations The following table sets forth our results of operations for the periods presented: Year Ended December 31, 2022 2021 2020 (in thousands) Revenue $ 497,001 $ 395,524 $ 301,767 Cost of revenue (1) 347,323 274,144 209,140 Gross profit 149,678 121,380 92,627 Operating expenses Research and development (1) 41,220 34,122 24,510 Sales and marketing (1) 73,295 43,917 31,842 General and administrative (1) 38,139 32,968 17,847 Total operating expenses 152,654 111,007 74,199 (Loss) income from operations (2,976 ) 10,373 18,428 Other income (expense) Interest income (expense), net 1,663 (6 ) 52 Foreign exchange gain (loss) 5 (1 ) (116 ) (Loss) income before income taxes (1,308 ) 10,366 18,364 (Provision for) benefit from income taxes 795 (1,066 ) (4,653 ) Net (loss) income $ (513 ) $ 9,300 $ 13,711 59 (1) Stock-based compensation expense was allocated in cost of revenue and operating expenses as follows: Year Ended December 31, 2022 2021 2020 (in thousands) Cost of revenue $ — $ — $ — Research and development 1,647 517 27 Sales and marketing 1,736 280 34 General and administrative 3,353 2,339 1,933 Total stock-based compensation $ 6,736 $ 3,136 $ 1,994 The following table presents the components of our consolidated statements of operations for the periods presented as a percentage of revenue: Year Ended December 31, 2022 2021 2020 Revenue 100.0 % 100.0 % 100.0 % Cost of revenue 69.9 69.3 69.3 Gross profit 30.1 30.7 30.7 Operating expenses Research and development 8.3 8.6 8.1 Sales and marketing 14.7 11.1 10.6 General and administrative 7.7 8.4 5.9 Total operating expenses 30.7 28.1 24.6 (Loss) income from operations (0.6 ) 2.6 6.1 Other income (expense) Interest income (expense), net 0.3 — — Foreign exchange gain (loss) — — — (Loss) income before income taxes (0.3 ) 2.6 6.1 (Provision for) benefit from income taxes 0.2 (0.3 ) (1.5 ) Net (loss) income (0.1 %) 2.3 % 4.6 % Comparison of the Years Ended December 31, 2022 and 2021 Revenue Year Ended December 31, Change 2022 2021 Amount % (dollars in thousands) Revenue $ 497,001 $ 395,524 $ 101,477 25.7 The increase in revenue was primarily due to an increase in the number of transactions processed, which was driven by the implementation of new billers, increased transactions from our existing billers and additional transactions as a result of the Payveris and Finovera acquisitions, offset by a decrease in the revenue we received per transaction on a blended basis.
Biggest changeThe decrease in free cash flow for the year ended December 31, 2022 compared to 2021 was primarily as a result of an increase in our investment in research and development activities. 63 Results of Operations The following table sets forth our results of operations for the periods presented: Year Ended December 31, Change 2023 versus 2022 2023 2022 2021 $ % (in thousands) Revenue $ 614,490 $ 497,001 $ 395,524 $ 117,489 23.6 % Cost of revenue (1) 432,148 347,323 274,144 84,825 24.4 % Gross profit 182,342 149,678 121,380 32,664 21.8 % Gross margin 29.7 % 30.1 % 30.7 % Operating expenses Research and development (1) 44,248 41,220 34,122 3,028 7.3 % Sales and marketing (1) 83,996 73,295 43,917 10,701 14.6 % General and administrative (1) 36,005 38,139 32,968 (2,134 ) -5.6 % Total operating expenses 164,249 152,654 111,007 11,595 7.6 % Income (loss) from operations 18,093 (2,976 ) 10,373 21,069 n/m Other income (expense) Interest income, net 7,019 1,663 (6 ) 5,356 322.1 % Foreign exchange (loss) gain 12 5 (1 ) 7 n/m Income (loss) before income taxes 25,124 (1,308 ) 10,366 26,432 n/m Benefit from (provision for) income taxes (2,802 ) 795 (1,066 ) (3,597 ) -452.5 % Net income (loss) $ 22,322 $ (513 ) $ 9,300 $ 22,835 n/m (1) Stock-based compensation expense was allocated in cost of revenue and operating expenses as follows: Year Ended December 31, 2023 2022 2021 (in thousands) Cost of revenue $ 156 $ — $ — Research and development 1,990 1,647 517 Sales and marketing 2,808 1,736 280 General and administrative 4,436 3,353 2,339 Total stock-based compensation $ 9,390 $ 6,736 $ 3,136 The following table presents the components of our consolidated statements of operations for the periods presented as a percentage of revenue: Year Ended December 31, 2023 2022 2021 Revenue 100.0 % 100.0 % 100.0 % Cost of revenue 70.3 % 69.9 % 69.3 % Gross profit 29.7 % 30.1 % 30.7 % Operating expenses Research and development 7.2 % 8.3 % 8.6 % Sales and marketing 13.7 % 14.7 % 11.1 % General and administrative 5.9 % 7.7 % 8.4 % Total operating expenses 26.8 % 30.7 % 28.1 % Income (loss) from operations 2.9 % -0.6 % 2.6 % Other income (expense) Interest income, net 1.1 % 0.3 % 0.0 % Foreign exchange (loss) gain 0.0 % 0.0 % 0.0 % Income (loss) before income taxes 4.0 % -0.3 % 2.6 % Benefit from (provision for) income taxes -0.5 % 0.2 % -0.3 % Net income (loss) 3.5 % -0.1 % 2.3 % 64 Comparison of the Years Ended December 31, 2023 and 2022 Revenue The increase in revenue was primarily driven by an increase in the number of transactions processed, which was driven by the implementation of new billers and increased transactions from our existing billers.
Sales and Marketing Sales and marketing expenses consist primarily of personnel-related expenses, including stock-based compensation expenses for sales and marketing personnel, sales commissions, partner fees, marketing program expenses, travel-related expenses and costs to market and promote our platform through advertisements, marketing events, partnership arrangements and direct biller acquisition as well as amortization of intangible assets acquired as part of our acquisitions 55 of other businesses.
Sales and Marketing Sales and marketing expenses consist primarily of personnel-related expenses, including stock-based compensation expenses for sales and marketing personnel, sales commissions, partner fees, marketing program expenses, travel-related expenses and costs to market and promote our platform through advertisements, marketing events, partnership arrangements and direct biller acquisition as well as amortization of intangible assets acquired as part of our acquisitions of other businesses.
Our board of directors considered numerous objective and subjective factors to determine the fair value of our common stock at each meeting in which awards are approved. These factors 65 included historical and projected financial information, prospects and risks, company performance, various corporate documents, capitalization and economic and financial market conditions.
Our board of directors considered numerous objective and subjective factors to determine the fair value of our common stock at each meeting in which awards are approved. These factors included historical and projected financial information, prospects and risks, company performance, various corporate documents, capitalization and economic and financial market conditions.
We believe that existing unrestricted cash and cash equivalents will be sufficient to support our working capital and capital expenditure requirements for at least the next 12 months. Since inception, we have financed operations primarily through the sale of equity securities and revenue from payment transaction fees and subscriptions.
We believe that existing unrestricted cash and cash equivalents will be sufficient to support our working capital and capital expenditure requirements for at least the next 12 months. Since inception, we have financed operations primarily through the sale of equity securities and revenue from payment transaction fees.
Expected Term —The expected life of options granted to employees was determined by using management’s best estimation of exercise activity. Risk-free Interest Rate—We use a risk-free interest rate in the option valuation model based on U.S. Treasury zero-coupon issues, with remaining terms similar to the expected term of the options.
Expected Term —The expected life of options granted to employees was determined by using management’s best estimation of exercise activity. 69 Risk-free Interest Rate —We use a risk-free interest rate in the option valuation model based on U.S. Treasury zero-coupon issues, with remaining terms similar to the expected term of the options.
We believe that excluding certain items from our GAAP results allows management and our board of directors to more fully understand 57 our consolidated financial performance from period to period and helps management project our future consolidated financial performance as forecasts are developed at a level of detail different from that used to prepare GAAP-based financial measures.
We believe that excluding certain items from our GAAP results allows management and our board of directors to more fully understand our consolidated financial performance from period to period and helps management project our future consolidated financial performance as forecasts are developed at a level of detail different from that used to prepare GAAP-based financial measures.
We will continue to leverage emerging technologies and invest in the development of more features and better functionality for consumers. Key Performance and Non-GAAP Measures We use the following metrics to measure our performance, identify trends affecting our business, prepare financial projections and make strategic decisions.
We will continue to leverage emerging technologies and invest in the development of more features and better functionality for consumers. 60 Key Performance and Non-GAAP Measures We use the following metrics to measure our performance, identify trends affecting our business, prepare financial projections and make strategic decisions.
We expect that our general and administrative expenses will increase in absolute dollars, but they may fluctuate as a percentage of revenue from period to period. Over the longer term, we expect general and administrative expenses to decrease as a percentage of revenue as we leverage the scale of our business.
We expect that our general and administrative expenses will increase in absolute dollars, but they may fluctuate as a percentage of revenue from period to period. Over the longer 59 term, we expect general and administrative expenses to decrease as a percentage of revenue as we leverage the scale of our business.
We approach sales and marketing spend strategically to maintain efficient biller and partner acquisition. Innovation and Enhancement of Our Platform 56 We will continue to invest in our platform and IPN to maintain our position as a leading provider of biller communication and payments.
We approach sales and marketing spend strategically to maintain efficient biller and partner acquisition. Innovation and Enhancement of Our Platform We will continue to invest in our platform and IPN to maintain our position as a leading provider of biller communication and payments.
The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and related disclosure of 63 contingent assets and liabilities, revenue and expenses at the date of the financial statements.
The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and related disclosure of contingent assets and liabilities, revenue and expenses at the date of the financial statements.
In addition, our modern platform architecture allows us to provide integration, implementation, maintenance and upgrades at no additional cost to billers. Impact of Economic and Inflationary Trends In 2022, the United States economy experienced inflationary conditions, increased interest rates and two consecutive quarters of decreased gross domestic product.
In addition, our modern platform architecture allows us to provide integration, implementation, maintenance and upgrades at no additional cost to billers. Impact of Economic and Inflationary Trends In 2022 and 2023, the United States economy experienced inflationary conditions, increased interest rates and consecutive quarters of decreased gross domestic product.
Emerging Growth Company Status Section 107 of the Jumpstart Our Business Startups Act of 2012, as amended, or the JOBS Act, provides that an “emerging growth company” may take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards.
Emerging Growth Company Status Section 107 of the Jumpstart Our Business Startups Act of 2012, as amended, or the JOBS Act, provides that an "emerging growth company" may take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards.
As discussed in the section titled “Special Note Regarding Forward-Looking Statements,” the following discussion and analysis contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements.
As discussed in the section titled "Special Note Regarding Forward-Looking Statements," the following discussion and analysis contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements.
The development of the allowance for doubtful accounts is based on an expected loss model that considers reasonable and supportable forecasts of future conditions and a review of past due amounts, historical write-off and recovery experience, as well as aging trends affecting specific accounts and general operational factors affecting all accounts.
The development of the allowance for credit losses is based on an expected loss model that considers reasonable and supportable forecasts of future conditions and a review of past due amounts, historical write-off and recovery experience, as well as aging trends affecting specific accounts and general operational factors affecting all accounts.
In circumstances where we have minimum revenue or transaction commitments, determining the appropriate accounting treatment of fixed and variable consideration may require considerable judgment. We will evaluate our accounts receivable portfolio to determine if an allowance for doubtful accounts is necessary.
In circumstances where we have minimum revenue or transaction commitments, determining the appropriate accounting treatment of fixed and variable consideration may require considerable judgment. We will evaluate our accounts receivable portfolio to determine if an allowance for credit losses is necessary.
We recognize interest accrued and penalties related to unrecognized tax benefits in income tax expense. We make adjustments to these reserves in accordance with the income tax guidance when facts and circumstances change, such as the closing of a tax audit or the refinement of an estimate.
We recognize interest accrued and penalties related to unrecognized tax benefits in income tax expense. We adjust these reserves in accordance with the income tax guidance when facts and circumstances change, such as the closing of a tax audit or the refinement of an estimate.
In other words, an “emerging growth company” may delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. Section 107 of the JOBS Act provides that any decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.
In other words, an "emerging growth company" may delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. Section 107 of the JOBS Act provides that any decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.
A discussion of changes in our results of operations from fiscal year 2020 to fiscal year 2021 and a discussion of our liquidity and capital resources for 2020 has been omitted from this Annual Report on Form 10-K but may be found under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Comparison of 53 the Years Ended December 31, 2021 and 2020” and “—Liquidity and Capital Resources—"Sources and Uses of Funds" and "—Historical Cash Flows" in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 3, 2022, which is available free of charge on the SECs website at www.sec.gov and our website at https://ir.paymentus.com/home/default.aspx.
A discussion of changes in our results of operations from fiscal year 2021 to fiscal year 2022 and a discussion of our liquidity and capital resources for 2021 has been omitted from this Annual Report on Form 10-K but may be found under the heading "Management’s Discussion and Analysis of Financial Condition and Results of Operations—Comparison of the Years Ended December 31, 2022 and 2021" and "—Liquidity and Capital Resources—"Sources and Uses of Funds" and "—Historical Cash Flows" in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 3, 2023, which is available free of charge on the SECs website at www.sec.gov and our website at https://ir.paymentus.com/home/default.aspx.
Free Cash Flow We calculate free cash flow as net cash provided by (used in) operating activities less capital expenditures and capitalized internal-use software development costs. How We Use Non-GAAP Measures We use non-GAAP measures to supplement financial information presented on a GAAP basis.
Free Cash Flow We calculate free cash flow as net cash provided by (used in) operating activities less capital expenditures, other intangible assets acquired, and capitalized internal-use software development costs. How We Use Non-GAAP Measures We use non-GAAP measures to supplement financial information presented on a GAAP basis.
However, it decreased from 2021 to 2022 due to our investment in sales and marketing and research and development in order to drive future growth of the business as well as the increased costs associated with being a public company and the impact of the Payveris and Finovera acquisitions.
Adjusted EBITDA decreased from 2021 to 2022 due to our investment in sales and marketing and research and development in order to drive future growth of the business as well as the increased costs associated with being a public company and the impact of the Payveris and Finovera acquisitions.
Transactions Processed Year Ended December 31, 2022 2021 2020 (in millions) Transactions processed 366.8 280.5 195.0 We define transactions processed as the number of revenue generating payment transactions, such as checks, credit card and debit card transactions, automated clearing house, or ACH, items and emerging payment types, which are initiated and generally processed through our platform during a period.
Transactions Processed Year Ended December 31, 2023 2022 2021 (in millions) Transactions processed 458.2 366.8 280.5 We define transactions processed as the number of revenue generating payment transactions, such as checks, credit card and debit card transactions, automated clearing house, or ACH, items and emerging payment types, which are initiated and generally processed through our platform during a period.
Overview We are a leading provider of cloud-based bill payment technology and solutions. We deliver our next-generation product suite through a modern technology stack to more than 1,900 biller business and financial institution clients.
Overview We are a leading provider of cloud-based bill payment technology and solutions. We deliver our next-generation product suite through a modern technology stack to more than 2,200 biller business and financial institution clients.
Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. We consider current economic trends when evaluating the adequacy of the allowance for doubtful accounts.
Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. We consider current economic trends when evaluating the adequacy of the allowance for credit losses.
The amount of contribution profit per transaction may vary due to a variety of factors including client size, type and industry as well as whether the client is a biller, financial institution or other partner.
The amount of contribution profit per transaction may vary due to a variety of factors substantially outside of our control, including client size, type and industry as well as whether the client is a biller, financial institution or other partner.
Our platform was used by approximately 27 million consumers and businesses in North America in December 2022 to pay their bills, make money movements and engage with our clients. We serve billers of all sizes that primarily provide non-discretionary services across a variety of industry verticals, including utilities, financial services, insurance, government, telecommunications and healthcare.
Our platform was used by approximately 34 million consumers and businesses in North America in December 2023 to pay their bills, make money movements and engage with our clients. We serve billers of all sizes that primarily provide non-discretionary services across a variety of industry verticals, including utilities, financial services, insurance, government, telecommunications, real estate management and healthcare.
While we believe our business is resilient and can generally weather unusual levels of inflation, the economic uncertainty and continuing inflationary pressures, which have been particularly acute in the utility sector, impacted our 2022 financial performance and will likely impact our 2023 performance.
While we believe our business is resilient and can generally weather unusual levels of inflation, the economic uncertainty and continuing inflationary pressures, which have been particularly acute in the utility sector, negatively impacted our fiscal 2023 and 2022 financial performance.
Net cash used in investing activities for the year ended December 31, 2022 consisted of $29.8 million of capitalized internal-use software development costs, $3.3 million of cash paid for acquisitions, net of cash acquired and $1.3 million of purchases of property and equipment and intangible assets.
Net cash used in investing activities for the year ended December 31, 2023 consisted of $33.7 million of capitalized internal-use software development costs, and $0.6 million of purchases of property and equipment and intangible assets. 66 Net cash used in investing activities for the year ended December 31, 2022 consisted of $29.8 million of capitalized internal-use software development costs, $3.3 million of cash paid for acquisitions, net of cash acquired and $1.3 million of purchases of property and equipment and intangible assets.
Factors that could cause or contribute to these differences include, but are not limited to, those identified below, those discussed in “Special Note Regarding Forward-Looking Statements” and those discussed in the section titled “Risk Factors” under Part I, Item 1A in this Annual Report on Form 10-K.
Factors that could cause or contribute to these differences include, but are not limited to, those identified below, those discussed in "Special Note Regarding Forward-Looking Statements" and those discussed in the section titled "Risk Factors" under Part I, Item 1A in this Annual Report on Form 10-K.
We consider all available evidence, both positive and negative, including historical levels of income, expectations and risks associated with estimates of future taxable income, in assessing the need for a valuation allowance. Our tax positions are subject to income tax audits by multiple tax jurisdictions throughout the world.
We consider all available evidence, both positive and negative, including historical levels of income, expectations and risks associated with estimates of future taxable income, in assessing the need for a valuation allowance. Our tax positions are subject to income tax audits by multiple tax jurisdictions such as USA, Canada and India.
The number of transactions also includes account-to-account and person-to-person transfers. The number of transactions processed during the year ended December 31, 2022 increased approximately 30.8% as compared to 2021.The number of transactions processed during the year ended December 31, 2021 increased approximately 43.8% as compared to 2020.
The number of transactions also includes account-to-account and person-to-person transfers. The number of transactions processed during the year ended December 31, 2023 increased approximately 24.9% as compared to 2022. The number of transactions processed during the year ended December 31, 2022 increased approximately 30.8% as compared to 2021.
We had more than 1,900 billers and financial institution clients as of December 31, 2022, including billers of all sizes and across numerous vertical markets and financial institutions of all sizes.
We had more than 2,200 billers and financial institution clients as of December 31, 2023, including billers of all sizes and across numerous vertical markets and financial institutions of all sizes.
Transaction fees are fees collected for each transaction processed through our platform, on either a fixed basis or variable basis based on the transaction value, with the actual fees dependent on type of transaction, payment or transaction channel and industry vertical.
Components of Results of Operations Revenue We generate substantially all of our revenue from payment transaction fees. Transaction fees are fees collected for each transaction processed through our platform, on either a fixed basis or variable basis based on the transaction value, with the actual fees dependent on type of transaction, payment or transaction channel and industry vertical.
Contribution Profit Year Ended December 31, 2022 2021 2020 (in thousands) Gross profit $ 149,678 $ 121,380 $ 92,627 Plus: other cost of revenue 51,622 37,098 27,876 Contribution profit $ 201,300 $ 158,478 $ 120,503 In general, contribution profit is driven by the number of transactions we process offset by network fees associated with processing those transactions.
Contribution Profit Year Ended December 31, 2023 2022 2021 (in thousands) Gross profit $ 182,342 $ 149,678 $ 121,380 Plus: other cost of revenue 58,606 51,622 37,098 Contribution profit $ 240,948 $ 201,300 $ 158,478 In general, contribution profit is driven by the number of transactions we process offset by network fees associated with processing those transactions.
Year Ended December 31, 2022 2021 2020 (in thousands) Net cash provided by (used in) Operating activities $ 19,867 $ 19,493 $ 35,620 Investing activities (34,560 ) (77,809 ) (15,137 ) Financing activities (37,283 ) 213,487 (1,358 ) Effects of foreign exchange on cash, cash equivalents and restricted cash (168 ) (8 ) 114 Net (decrease) increase in cash, cash equivalents and restricted cash $ (52,144 ) $ 155,163 $ 19,239 Net Cash Provided by Operating Activities Our primary source of operating cash is revenue from payment transaction fees.
Year Ended December 31, 2023 2022 2021 (in thousands) Net cash provided by (used in) Operating activities $ 68,828 $ 19,867 $ 19,493 Investing activities (34,299 ) (34,560 ) (77,809 ) Financing activities (1,195 ) (37,283 ) 213,487 Effects of foreign exchange on cash 176 (168 ) (8 ) Net increase in cash, cash equivalents and restricted cash $ 33,510 $ (52,144 ) $ 155,163 Net Cash Provided by Operating Activities Our primary source of operating cash is revenue from payment transaction fees.
We also urge you to review the reconciliation of these non-GAAP financial measures included below. To properly and prudently evaluate our business, we encourage you to review the consolidated financial statements and related notes included elsewhere in this report and to not rely on any single financial measure to evaluate our business.
To properly and prudently evaluate our business, we encourage you to review the consolidated financial statements and related notes included elsewhere in this report and to not rely on any single financial measure to evaluate our business.
Net cash provided by operating activities mainly consists of our net income (loss) adjusted for certain non-cash items, including depreciation and amortization, stock-based compensation, other non-cash income and expense items, and net changes in operating assets and liabilities.
Net cash provided by operating activities mainly consists of our net income (loss) adjusted for certain non-cash items, including depreciation and amortization, stock-based compensation, other non-cash income and expense items, and net changes in operating assets and liabilities. Net cash provided by operating activities for the year ended December 31, 2023 was $68.8 million.
We have concluded that we are typically the principal in our payment processing arrangements as we control the service on our platform. We also typically contract directly with our billers and have complete pricing latitude on the processing fees charged to our billers. As such, we bear the credit risk for network fees and transactions charged back to the biller.
We also typically contract directly with our billers and have complete pricing latitude on the processing fees charged to our billers. As such, we bear the credit risk for network fees and transactions charged back to the biller.
We believe there are two key estimates within the internal-use capitalized software development balance, which are the determination of the useful life of the software and the determination of the amounts to be capitalized. 64 We determined that a three to five year life is appropriate for our internal-use software based on our best estimate of the useful life of the internally developed software after considering factors such as continuous developments in the technology, obsolescence and anticipated life of the service offering before significant upgrades.
We determined that a three to five-year life is appropriate for our internal-use software based on our best estimate of the useful life of the internally developed software after considering factors such as continuous developments in the technology, obsolescence and anticipated life of the service offering before significant upgrades.
Sales and Marketing Expenses The increase in sales and marketing expenses was primarily due to an increase in employee-related costs, including benefits, as we continued to expand our sales and marketing efforts with additional headcount in order to continue to drive our growth.
Sales and Marketing Expenses The increase in sales and marketing expenses was primarily due to an increase in employee-related costs, including benefits, as we continued to expand our sales and marketing efforts with additional headcount in order to continue to drive our growth. We also incurred increased stock-based compensation associated with routine and new hire grants.
General and administrative expenses also include costs incurred for external professional services and other corporate expenses. We expect to incur additional general and administrative expenses as a result of operating as a public company, and to support the growth in our business.
General and administrative expenses also include costs incurred for external professional services, leasing of office buildings and other corporate expenses. We expect to continue to incur additional general and administrative expenses to support the growth in our business.
For example, if we received information that indicated the useful life of all internally developed software was one year rather than three to five, our capitalized software balance would materially decrease and our expense would materially increase.
For example, if we received information that indicated the useful life of all internally developed software was one year rather than three to five, our capitalized software balance would materially decrease and our expense would materially increase. 68 We determine the amount of internal-use software development costs to be capitalized based on the amount of time spent by our developers on projects.
Our non-GAAP measures may not be comparable to similarly titled measures of other companies; other companies, including companies in our industry, may calculate non-GAAP measures differently than we do, limiting the usefulness of those measures for comparative purposes. These non-GAAP measures should not be considered in isolation from or as a substitute for financial measures prepared in accordance with GAAP.
Our non-GAAP measures may 61 not be comparable to similarly titled measures of other companies; other companies, including companies in our industry, may calculate non-GAAP measures differently than we do, limiting the usefulness of those measures for comparative purposes.
Net cash provided by operating activities for the year ended December 31, 2022 was $19.9 million, primarily consisting of our net loss of $0.5 million, non-cash charges of $24.1 million in depreciation and amortization, $2.1 million in non-cash lease expense related to our operating right-of-use assets, $2.1 million in amortization of contract asset, $6.7 million in stock-based compensation, $0.3 million in the provision for credit losses, $3.0 million for deferred income taxes, and net cash outflows of $11.9 million provided by changes in our operating assets and liabilities.
Net cash provided by operating activities for the year ended December 31, 2022 was $19.9 million, primarily consisting of our net loss of $0.5 million, adjusted for non-cash charges of $32.3 million consisting primarily of depreciation and amortization, non-cash lease expense related to our operating right-of-use assets, amortization of contract asset and stock-based compensation, which contributed positively to operating activities.
Adjusted EBITDA We calculate adjusted EBITDA as net income before other income (expense) (which consists of interest income (expense), net and foreign exchange gain (loss)), depreciation and amortization, income taxes, adjusted to exclude the effects of stock-based compensation expense and certain nonrecurring expenses that management believes are not indicative of ongoing operations, consisting primarily of professional fees and other indirect charges associated with our initial public offering, or IPO.
Adjusted EBITDA We calculate adjusted EBITDA as net income before other income (expense), which consists of interest income (expense), depreciation and amortization of acquisition-related intangible assets and capitalized software development costs, and income taxes, adjusted to exclude the effects of net foreign exchange gain (loss), stock-based compensation expense and certain nonrecurring expenses that management believes are not indicative of ongoing operations.
Critical Accounting Policies and Estimates Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with GAAP.
Off-Balance Sheet Arrangements We have not entered into any off-balance sheet arrangements and do not have any holdings in variable interest entities. Critical Accounting Policies and Estimates Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with GAAP.
Adjusted Gross Profit We calculate adjusted gross profit as gross profit adjusted for non-cash items, primarily stock-based compensation and amortization.
Adjusted Gross Profit We calculate adjusted gross profit as gross profit adjusted for non-cash items, primarily stock-based compensation and amortization of acquisition-related intangible assets and capitalized software development costs.
Adjusted gross profit is driven primarily by the same factors that impact gross profit with the exception of excluding the amortization in cost of revenue.
Adjusted gross profit is driven primarily by the same factors that impact gross profit with the exception of excluding the amortization in cost of revenue, as well as stock based compensation. The 2023 increase in amortization was driven by the additional capitalization of software costs.
We cannot assure you that any additional financing will be available to us on acceptable terms, or at all. The inability to raise capital would adversely affect our ability to achieve our business objectives. If we raise additional funds by issuing equity or equity-linked securities, the ownership of our existing stockholders will be diluted.
From time to time, we may explore additional financing sources and means to lower our cost of capital, which could include equity, equity-linked and debt financing. We cannot assure you that any additional financing will be available to us on acceptable terms, or at all. The inability to raise capital would adversely affect our ability to achieve our business objectives.
Revenue Recognition Application of the accounting principles in GAAP related to the measurement and recognition of revenue requires us to make judgments and estimates. Complex arrangements with nonstandard terms and conditions may require significant contract interpretation to determine the appropriate accounting. Specifically, the determination of whether we are a principal to a transaction or an agent can require considerable judgment.
Complex arrangements with nonstandard terms and conditions may require significant contract interpretation to determine the appropriate accounting. Specifically, the determination of whether we are a principal to a transaction or an agent can require considerable judgment. We have concluded that we are typically the principal in our payment processing arrangements as we control the service on our platform.
For 2022, contribution profit increased at a slower rate than transactions processed due to a continued mix shift to larger, high volume clients.
The increase in 2022 was primarily driven by the addition of new billers and increased transactions from our existing billers. For 2022 and 2023, contribution profit increased at a slower rate than transactions processed due to a continued mix shift to larger, high volume clients.
The critical accounting policies and estimates that we believe have the most significant impact on our consolidated financial statements are described below. See Note 2 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information.
The critical accounting policies and estimates that we believe have the most significant impact on our consolidated financial statements are described below.
Free Cash Flow Year Ended December 31, 2022 2021 2020 (in thousands) Net cash provided by operating activities $ 19,867 $ 19,493 $ 35,620 Purchases of property and equipment (1,257 ) (979 ) (458 ) Other intangible assets acquired (280 ) (130 ) — Capitalized internal-use software development costs (29,763 ) (19,300 ) (14,389 ) Free cash flow $ (11,433 ) $ (916 ) $ 20,773 Net cash used in investing activities(1) $ (34,560 ) $ (77,809 ) $ (15,137 ) Net cash provided by financing activities $ (37,283 ) $ 213,487 $ (1,358 ) (1) Net cash used in investing activities includes payments for purchases of property and equipment and costs related to capitalized internal-use software development, which is also included in our calculation of free cash flow.
Free Cash Flow Year Ended December 31, 2023 2022 2021 (in thousands) Net cash (used in) provided by operating activities $ 68,828 $ 19,867 $ 19,493 Purchases of property and equipment and software (600 ) (1,257 ) (979 ) Other intangible assets acquired — (280 ) (130 ) Capitalized software development costs (33,699 ) (29,763 ) (19,300 ) Free cash flow $ 34,529 $ (11,433 ) $ (916 ) Net (cash used in) provided by investing activities $ (34,299 ) $ (34,560 ) $ (77,809 ) Net cash (used in) provided by financing activities $ (1,195 ) $ (37,283 ) $ 213,487 The increase in free cash flow for the year ended December 31, 2023 compared to 2022 was primarily as a result of increases in cash generated from operations.
Our principal uses of cash are funding operations, which primarily consist of employee-related costs, and acquisitions. Currently, we do not have any material planned capital expenditures in the next 12 months. From time to time, we may explore additional financing sources and means to lower our cost of capital, which could include equity, equity-linked and debt financing.
Our principal uses of cash are funding operations, which primarily consist of employee-related costs, and acquisitions. Although subject to change based on market opportunity or changing priorities, currently, we do not have any material planned capital expenditures in the next 12 months.
While we are seeking to adjust our prices to address the inflationary pressures, our ability to do so typically lags behind the impact of inflation on our clients, the increase in average bill amounts and increased interchange fees. We intend to continue to manage through this uncertain economic environment by working closely with clients on implementations and price adjustments.
Where appropriate, we seek to adjust our prices to address the inflationary pressures, however our ability to do so typically lags behind the impact of inflation on our clients, 58 the increase in average bill amounts and increased interchange fees.
We amortize these development costs over the estimated useful life of three to five years on a straight-line basis.
We amortize these development costs over the estimated useful life of three to five years on a straight-line basis. We believe there are two key estimates within the internal-use capitalized software development balance, which are the determination of the useful life of the software and the determination of the amounts to be capitalized.
Valuation of Goodwill and Intangibles The valuation of assets acquired in a business combination and asset impairment reviews require the use of significant estimates and assumptions.
A significant change in the time spent on each project could have a material impact on the amount capitalized and related amortization expense in subsequent periods. Valuation of Goodwill and Intangibles The valuation of assets acquired in a business combination and asset impairment reviews require the use of significant estimates and assumptions.
Contractual Obligations and Other Commitments The following table summarizes our contractual obligations and commitments in cash as of December 31, 2022: Payments Due by Period: Total Less than 1 Year 1 - 3 Years 3 -5 Years More than 5 Years (in thousands) Operating lease liabilities (1) 11,070 1,880 3,700 2,827 2,663 Finance lease liabilities (2) 102 102 — — — Purchase obligations (3) 8,100 4,416 3,684 — — $ 19,272 $ 6,398 $ 7,384 $ 2,827 $ 2,663 (1) Consists of operating lease liabilities for our offices and data centers.
Contractual Obligations and Other Commitments The following table summarizes our contractual obligations and commitments in cash as of December 31, 2023: Payments Due by Period: Total Less than 1 Year 1 - 3 Years 3 - 5 Years More than5 Years Operating lease liabilities (1) 11,514 2,369 4,773 2,450 1,922 Purchase obligations (2) 13,391,959 8,362,170 5,029,789 — — Other (3) 1,170 1,170 — — $ 13,404,643 $ 8,365,709 $ 5,034,562 $ 2,450 $ 1,922 Consists of operating lease liabilities for our offices and data centers.
We have elected to use this extended transition period under the JOBS Act until we are no longer an emerging growth company or until we affirmatively and irrevocably opt out of the extended transition period. 66 Recent Accounting Pronouncements See Note 2 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for more information regarding recently issued accounting pronouncements.
We have elected to use this extended transition period under the JOBS Act until we are no longer an emerging growth company or until we affirmatively and irrevocably opt out of the extended transition period.
We determine the amount of internal-use software development costs to be capitalized based on the amount of time spent by our developers on projects. Costs associated with building or significantly enhancing our platforms are capitalized, while costs associated with planning new developments and maintaining our platform are expensed as incurred.
Costs associated with building or significantly enhancing our platforms are capitalized, while costs associated with planning new developments and maintaining our platform are expensed as incurred. There is judgment involved in estimating the stage of development as well as estimating time allocated to a particular project.
(2) Consists of finance lease liabilities for equipment. (3) Consists of purchase obligations which were not recognized on the balance sheet as of December 31, 2022, related primarily to infrastructure services and IT software and maintenance service costs. Off-Balance Sheet Arrangements We have not entered into any off-balance sheet arrangements and do not have any holdings in variable interest entities.
(1) Consists of operating lease liabilities for office space and data centers. (2) Consists of purchase obligations which were not recognized on the balance sheet as of December 31, 2023, related primarily to infrastructure services and IT software and maintenance service costs. (3) Consists of Acquisition holdback payments due to the former owners of Finovera and PROFIT.
Cost of Revenue, Gross Profit and Gross Margin Year Ended December 31, Change 2022 2021 Amount % (dollars in thousands) Cost of revenue $ 347,323 $ 274,144 $ 73,179 26.7 Gross profit $ 149,678 $ 121,380 $ 28,298 23.3 Gross margin 30.1 % 30.7 % The increase in cost of revenue was driven by the increase in revenue and transactions processed as it consists primarily of interchange fees and processor costs, driven by higher average bill amounts due primarily to inflation, as well as other direct and indirect costs associated with making our platform available to our billers.
Cost of Revenue, Gross Profit and Gross Margin The increase in cost of revenue was driven by the increase in revenue and transactions processed, as it consists primarily of interchange fees and processor costs, as well as other direct costs associated with making our platform available to our billers.
Net cash provided by operating activities for the year ended December 31, 2021 was $19.5 million, primarily consisting of our net income of $9.3 million, adjusted for non-cash charges of $13.3 million in depreciation and amortization, $2.5 million in non-cash lease expense related to our operating right-of-use assets, $3.1 million in stock-based compensation, $0.7 million in amortization of contract assets recorded as contra revenue related to the recognition of the warrant issued to JPMC Strategic Investments I Corporation, and net cash outflows of $8.7 million provided by changes in our operating assets and liabilities.
Net income was $22.3 million, adjusted for non-cash charges of $45.3 million consisting primarily of depreciation and amortization, stock-based compensation, amortization of contract assets and non-cash lease expense, which contributed positively to operating activities. This was decreased by net cash outflows of $1.2 million used in changes in our operating assets and liabilities.
Adjusted Gross Profit Year Ended December 31, 2022 2021 2020 (in thousands) Gross profit $ 149,678 $ 121,380 $ 92,627 Stock-based compensation — — — Amortization 12,077 6,005 3,513 Adjusted gross profit $ 161,755 $ 127,385 $ 96,140 Adjusted gross profit for the year ended December 31, 2022 increased 27.0% as compared to 2021 and increase 32.5% for the year ended December 31, 2021 as compared to 2020.
Adjusted Gross Profit Year Ended December 31, 2023 2022 2021 (in thousands) Gross profit $ 182,342 $ 149,678 $ 121,380 Stock-based compensation 156 — — Amortization of capitalized software development costs 13,341 8,761 4,900 Amortization of acquisition-related intangibles 3,314 3,316 1,105 Adjusted gross profit $ 199,153 $ 161,755 $ 127,385 Adjusted gross profit for the year ended December 31, 2023 increased 23.1% as compared to 2022 and increased 27.0% for the year ended December 31, 2022 as compared to 2021.
Contribution profit for the year ended December 31, 2022 increased approximately 27.0% as compared to 2021 and increased approximately 31.5% for the year ended December 31, 2021 as compared to 2020. The increase in both years was primarily driven by the addition of new billers and increased transactions from our existing billers.
Contribution profit for the year ended December 31, 2023 increased approximately 19.7% as compared to 2022 and increased approximately 27.0% for the year ended December 31, 2022 as compared to 2021.
The increase in amortization was driven by additional amortization of capitalization of software costs as well as amortization of acquired intangibles associated with the 2021 acquisition of Payveris and Finovera. 58 Adjusted EBITDA (1) Other nonrecurring expenses consists of indirect costs incurred associated with completion of our IPO in 2021 and an estimated liability booked in 2022 related to the potential cost of terminating a commercial contract.
The 2022 increase in amortization was driven by additional amortization of capitalization of software costs as well as amortization of acquired intangibles associated with the 2021 acquisitions of Payveris and Finovera.
Income Taxes Year Ended December 31, Change 2022 2021 Amount % (dollars in thousands) Benefit from (provision for) income taxes $ 795 $ (1,066 ) $ 1,861 (174.6 ) The change in benefit from (provision for) income taxes, as well as the increase in our effective tax rate, which increased to 60.8% for the year ended December 31, 2022 as compared to 10.4% for the same period in the prior year, was primarily due to the excess tax benefits on stock-based compensation from option exercises, offset by the impact of non-deductible expenses for executive compensation, state taxes and the valuation allowance recorded against the net U.S. deferred tax assets.
Income Taxes The change in benefit from (provision for) income taxes, as well as the decrease in our effective tax rate, which decreased to 11% for the year ended December 31, 2023 as compared to 60.8% for the same period in the prior year, was primarily due to the increase in pre-tax income from the prior year, which had the effect of causing rate impact items to have a lower percentage impact on the rate overall given the higher base of pre-tax income.
Net cash provided by financing activities for the year ended December 31, 2021 consisted of proceeds from the IPO of $224.6 million, proceeds from the concurrent private placement of $50.0, an increase in financial institution funds in-transit of $2.0 million, proceeds of $0.8 million from the repayment of a related party loan and proceeds of $0.3 million from the exercise of stock options, offset by $23.0 million for the redemption of the Series A preferred stock, $34.4 million for the payment of dividends on the Series A preferred stock, $4.9 million of payments on finance leases and other financing obligations and $2.0 million of payments of deferred offering costs directly related to our IPO.
Net cash used in financing activities for the year ended December 31, 2023 consisted of $1.7 million of payments on other financing obligations, $0.1 million of payments on finance leases and $0.6 million proceeds from exercise of stock-based awards by employees.
Year Ended December 31, 2022 2021 2020 (in thousands) Net (loss) income $ (513 ) $ 9,300 $ 13,711 Excluding Interest (expense) income, net (1,663 ) 6 (52 ) Provision for (benefit from) income taxes (795 ) 1,066 4,653 Depreciation and amortization 24,063 13,295 8,069 Foreign exchange loss (gain) (5 ) 1 116 Stock-based compensation 6,736 3,136 1,994 Other nonrecurring expenses(1) 769 2,711 — Adjusted EBITDA $ 28,592 $ 29,515 $ 28,491 As adjusted EBITDA is a measure of profitability, it would generally be expected to move in line with revenue, contribution profit, gross profit and adjusted gross profit.
See Note 4 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information regarding these acquisitions. 62 Adjusted EBITDA Year Ended December 31, 2023 2022 2021 (in thousands) Net income (loss) — GAAP $ 22,322 $ (513 ) $ 9,300 Interest income, net (7,019 ) (1,663 ) 6 Provision for (benefit from) income taxes 2,802 (795 ) 1,066 Amortization of capitalized software development costs 21,349 14,621 9,376 Amortization of acquisition-related intangibles 8,380 8,176 2,812 Depreciation 871 1,266 1,107 EBITDA 48,705 21,092 23,667 Adjustments Foreign exchange loss (gain) (12 ) (5 ) 1 Stock-based compensation 9,390 6,736 3,136 Other nonrecurring expense (1) — 769 2,711 Adjusted EBITDA $ 58,083 $ 28,592 $ 29,515 (1) Other nonrecurring expenses consists of indirect costs incurred associated with completion of our IPO in 2021 and an estimated liability booked in 2022 related to the cost of terminating a commercial contract.
General and Administrative Expenses The increase in general and administrative expenses was primarily due to the increased costs of operating as a public company, including increases in employee-related costs, including benefits and stock-based compensation, due to an increase in general and administrative headcount.
Research and Development Expenses The increase in research and development expenses was primarily due to increased amortization cost of capitalized internal-use software development costs and acquired intangibles relating to our PROFIT acquisition, and an increase in employee-related costs, including benefits due to an increase in headcount as we continued to invest in developing and adding additional features and functionality to our platform.
Removed
For example, some of our clients have deferred anticipated 2022 implementations into 2023 or are reevaluating the development of technology resources, which will delay expected revenue recognition. Furthermore, inflationary pressure is resulting in higher average bills, particularly in the utility sector, and increased interchange fees.
Added
Although inflationary pressures lessened to some extent in the second half of 2023, economic uncertainty and inflationary conditions remain high and could have an adverse impact on our 2024 performance. Inflationary pressure is resulting in higher average bills, particularly in the utility sector, and increased interchange fees.
Removed
In addition, although we are focused on prudent expense management, we are seeing ongoing wage pressure in our current workforce due to the levels of inflation, which is also putting some short-term pressure on our EBITDA margins.
Added
While we made several price adjustments in 2023 as a result of the inflationary impacts on our business, we will continue to monitor and manage the economic environment in 2024 and by working closely with clients on implementations and further price adjustments as necessary.
Removed
Potential Impacts of the Widespread Health Issues or Pandemics 54 We are subject to many risks associated with widespread health issues, such as the recent COVID-19 pandemic, which can result in significantly curtailing the movement of people, goods and services in the United States, where we generate substantially all of our revenue, and worldwide, where we are targeting future growth.
Added
These non-GAAP measures should not be considered in isolation from or as a substitute for financial measures prepared in accordance with GAAP. We also urge you to review the reconciliation of these non-GAAP financial measures included below.
Removed
Precautionary measures we may take and government policies instituted in the event of future widespread health issues could negatively impact employee productivity, training and collaboration or otherwise disrupt our business operations.
Added
The increase in 2023 was primarily driven by growth in transaction count and volume driven by the addition of new billers and financial institutions and increased transactions from our existing billers and financial institutions, together with improvements resulting from disinflation in the utility sector on a year over year basis, pricing improvements from customers related to our inflation management and the implementation of certain cost improvement measures.
Removed
In addition, such restrictions may impact certain of our sales efforts, marketing efforts and implementations, adversely affecting the effectiveness of such efforts in some cases and potentially inhibiting future growth.
Added
As adjusted EBITDA is a measure of profitability, it would generally be expected to move in line with revenue, contribution profit, gross profit and adjusted gross profit. Adjusted EBITDA increased 103.1% for the year ended December 31, 2023 compared to 2022 and decreased 3.1% for the year ended December 31, 2022 compared to 2021.
Removed
In addition, widespread health issues may disrupt the operations of our billers and partners for an indefinite period of time, which in turn could negatively impact our business and operating results.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeWe do not believe that an immediate 10% increase or decrease in the relative value of the U.S. dollar to other applicable currencies would have a material effect on operating results. 67
Biggest changeAs of December 31, 2023, we do not believe that a hypothetical 10% increase or decrease in the relative value of the U.S. dollar to other applicable currencies would have a material effect on operating results. 71
As of December 31, 2022, a hypothetical 10% relative change in interest rates would not have had a material impact on the value of our cash equivalents, investment portfolio or expenses. Foreign Currency Exchange Risk Certain of our operations are conducted in foreign currencies.
As of December 31, 2023, we do not believe that a hypothetical 10% relative change in interest rates would have had a material impact on the value of our cash equivalents, investment portfolio or expenses. Foreign Currency Exchange Risk Certain of our operations are conducted in foreign currencies.

Other PAY 10-K year-over-year comparisons