Flywire Corp (FLYW) FY 2022 MD&A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes appearing elsewhere in this Annual Report on Form 10-K. Some of the information contained in this Annual Report on Form 10-K includes forward-looking statements that involve risks and uncertainties. You should read the sections titled “Special Note Regarding Forward-Looking Statements” and “Risk Factors” for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Our fiscal year end is December 31, and our fiscal quarters end on March 31, June 30, September 30, and December 31.

Overview

Flywire is a leading global payments enablement and software company. Our next-gen payments platform, proprietary global payment network and vertical-specific software help our clients get paid and help their customers pay with ease—no matter where they are in the world. Our clients rely on us for integrated solutions that are both global and local, and combine tailored invoicing, flexible payment options, and highly personalized omni-channel experiences. We believe we make generational advances for our clients by transforming payments into a source of value and growth for their organizations while delighting their customers with payment experiences that are engaging, secure, fast, and transparent.

Our Flywire Advantage is derived from three core elements: (i) our next-gen payments platform; (ii) our proprietary global payment network; and (iii) our vertical-specific software backed by our deep industry expertise. With our Flywire Advantage, we aim to power the transformation of our clients’ accounts receivable functions by automating paper and check-based business processes in addition to creating interactive, digital payment experiences for their customers. As a result, clients who implement our payments and software solutions can see increased digital payments and improved accounts receivable, higher enrollment in payment plans, and a reduction in customer support inquiries. We help our clients turn their accounts receivable functions into strategic, value-enhancing areas of their organizations.

We reach clients through various channels, with our direct channel being our primary go-to-market strategy. Our industry-experienced sales and relationship management teams bring expertise and local reach, and our solution combines high-tech and high-touch functions backed by 24x7 multilingual customer support, resulting in high client and customer satisfaction. In addition, the value of our Flywire Advantage has been recognized, with global financial institutions and technology providers choosing to form channel partnerships with us. These partnerships promote organic referral and lead generation opportunities and enhance our indirect sales strategy.

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The combination of our differentiated solution and efficient go-to-market strategy has resulted in strong and consistent client growth.

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Rapid domestic and international payments volume growth. We have grown our total payment volume by approximately 37% period-over-period from $13.2 billion during the year ended December 31, 2021 to $18.1 billion during the year ended December 31, 2022. We have grown our total payment volume by approximately 76% period-over-period from $7.5 billion during the year ended December 31, 2020 to $13.2 billion during the year ended December 31, 2021.

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Expanded global payments network. We have continued to add to the capabilities of our payment network by means of new local bank accounts and payment partners, and have expanded our global reach to over 240 countries and territories and more than 140 currencies.

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Enjoyable and personalized user experience. Our NPS score of 62 in fiscal year 2022 demonstrates a strong affinity among our clients for our platform.

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Strong dollar-based net retention. For the year ended December 31, 2022, our annual net dollar-based retention rate was approximately 124%. For the year ended December 31, 2021, our annual net dollar-based retention rate was approximately 140%. For the year ended December 31, 2020, despite the impact of the COVID-19 pandemic on our clients and the industries we serve, our annual net dollar-based retention rate was approximately 100%. We calculate the annual net dollar-based retention rate for a given year based on the weighted average of the quarterly net dollar-based retention rates for each quarter in that year. We calculate the quarterly net dollar-based retention rate for a given quarter by dividing the revenue we earned in that quarter by the revenue we earned from the same clients in the corresponding quarter of the previous year. Our calculation of quarterly net dollar-based revenue rate for a given quarter only includes revenue from clients that were clients at the beginning of the corresponding quarter of the previous year.

As of December 31, 2022, we serve over 3,100 clients around the world. In education, we serve more than 2,300 institutions. In healthcare, we power more than 80 healthcare systems, including four of the top 10 healthcare systems in

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the United States ranked by hospital size as of December 31, 2022. In our newer payment verticals of travel and B2B payments, we have a growing portfolio of more than 600 clients as of December 31, 2022.

Our success in building our client base around the world and expanding utilization by our clients’ customers has allowed us to achieve significant scale. We enabled approximately $18.1 billion and $13.2 billion in total payment volume during the years ended December 31, 2022 and 2021, respectively. We generated revenue of $289.4 million, $201.1 million and $131.8 million for the years ended December 31, 2022, 2021 and 2020, respectively, and incurred net losses of $39.3 million, $28.1 million, and $11.1 million for those same years.

We believe that the growth of our business and our operating results will be dependent upon many factors, including our ability to add new clients, expand the usage of our solutions by our existing clients and their customers, and increase the breadth and depth of our payments and software capabilities by adding new solutions. While these areas present significant opportunities for us, they also pose challenges and risks that we must successfully address in order to sustain the growth of our business and improve our operating results.

While we have experienced significant growth and increased demand for our solutions over recent periods, we expect to continue to incur losses in the short term and may not be able to achieve or maintain profitability in the future. Our marketing is focused on generating leads to develop our sales pipeline, building our brand and market awareness, scaling our network of partners and growing our business from our existing client base. We believe that these efforts will result in an increase in our client base, revenues, and improved margins in the long term. To manage any future growth effectively, we must continue to improve and expand our IT and financial infrastructure, our operating and administrative systems and controls, and our ability to manage headcount, capital, and processes in an efficient manner. Additionally, we face intense competition in our market, and to succeed, we need to innovate and offer solutions that are differentiated from legacy payment solutions. We must also effectively hire, retain, train, and motivate qualified personnel and senior management. There are also circumstances beyond our control which can materially impact our business that we need to respond to, including, but not limited to, the ongoing effects of the COVID-19 pandemic and fluctuations in exchange rates. If we are unable to successfully address these challenges, our business, operating results, and prospects could be adversely affected.

Initial Public Offering

On May 28, 2021, we completed our IPO, in which we issued and sold 12,006,000 shares of common stock at a public offering price of $24.00 per share, which included 1,566,000 shares of common stock issued pursuant to the exercise in full of the underwriters' option to purchase additional shares. We received $263.8 million in net proceeds from the IPO, after deducting underwriting discounts and commissions of $19.4 million and other offering costs of $4.9 million.

Recent Acquisition

In July 2022, we acquired all of the issued and outstanding shares of Cohort Go for an estimated aggregate purchase consideration of $23.1 million, consisting of $17.1 million in cash, net of cash acquired, $4.3 million in shares of common stock and up to $1.7 million in contingent consideration. Contingent consideration represents additional payments that Flywire may be required to make in the future dependent upon Cohort Go's achievement of specific post-acquisition milestones. Contingent consideration will be settled at various intervals through May 2023 in the form of cash or shares of common stock at our option upon completion of the post-acquisition milestones and is subject to exchange rate fluctuation adjustment between the U.S. Dollar and Australian Dollar. During the year ended December 31, 2022, we had paid $0.5 million in contingent consideration based on Cohort Go's successful and timely achievement of contracted milestones. Cohort Go is an Australian-based education payments provider that simplifies the student recruitment process by bringing together students, agents and essential student services such as health insurance into one platform. The acquisition of Cohort Go accelerated the growth of Flywire's agent related revenue and contributed to our global expansion. Cohort Go contributed $6.4 million in transaction revenue and $3.3 million in platform revenue during the year ended December 31, 2022.

In December 2021, we acquired all of the issued and outstanding shares of WPM for a purchase consideration of $59.6 million including $56.1 million of cash consideration, net of cash acquired and the estimated fair value of contingent consideration of $3.5 million. The contingent consideration is payable at various intervals through March 2024 in the form of cash or up to approximately 225,000 shares of common stock at our option and is dependent upon our achievement of specified minimum payment volume targets and integration targets established for the years ending December 31, 2022 and 2023. During the year ended December 31, 2022, we had paid $0.4 million in contingent consideration related to the completion of integration targets. There was no contingent consideration paid during the year ended December 31, 2021. WPM is a leading software provider that enables seamless and secure payment experiences for universities and colleges

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across the U.K. The acquisition of WPM was intended to build on our existing education payments business and is expected to further accelerate our market share in the U.K. education sector. WPM contributed $6.4 million and $0.3 million in platform revenue during the years ended December 31, 2022 and 2021, respectively.

In February 2020, we acquired all of the issued and outstanding shares of Simplee for a purchase consideration of $86.5 million, which consisted of $79.4 million in cash, net of cash acquired and $7.1 million in estimated fair value of contingent consideration. Contingent consideration, which totaled up to $20.0 million was payable at various intervals provided that the Company retained key clients and achieved certain revenue and integration targets established for the years ended December 31, 2020 and 2021. During March 2022, we made the final payment of contingent consideration in the amount of $7.8 million. During the year ended December 31, 2021, we paid $7.0 million in contingent consideration. There was no contingent consideration paid during the year ended December 31, 2020. No additional contingent consideration is due or payable with respect to the Simplee acquisition. Simplee is a provider of healthcare payment and collection software. Simplee contributed $41.8 million, $41.9 million and $34.1 million in platform revenue during the years ended December 31, 2022, 2021 and 2020, respectively.

Our Revenue Model

We derive revenue from transactions and platform and usage-based fees.

Transaction revenue is earned from payment processing services provided to our clients. The fee earned on each transaction consists of a rate applied to the total payment value of the transaction, which can vary based on the payment method currency pair conversion and the geographic region in which our client and the clients’ customer resides. We also earn revenue from marketing fees from credit card service providers for marketing arrangements in which we perform certain marketing activities which we consider to be ancillary to the solutions we provide to our clients.

Platform and usage-based fee revenue includes (i) fees earned for the utilization of our payment platform to optimize cash collections, (ii) fees collected on payment plans established by our clients on our payment platform, (iii) subscription fees and (iv) fees related to printing and mailing services which we consider to be ancillary to the solutions we provide to our clients.

Key Operating Metrics and Non-GAAP Financial Measures

To supplement our consolidated financial statements, which are prepared in accordance with generally accepted accounting principles in the United States (GAAP), we use certain non-GAAP financials measures. The following table sets forth our key operating metrics and non-GAAP measures for the periods presented:

For the year ended December 31, 2022, transaction revenue and platform and usage-based fee revenue represented 77.5% and 22.5% of our revenue, respectively. For the year ended December 31, 2022, transaction revenue and platform and usage-based fee revenue represented 83.2% and 16.8% of our total revenue less ancillary services, respectively.

For the year ended December 31, 2021, transaction revenue and platform and usage-based fee revenue represented 73.6% and 26.4% of our revenue, respectively. For the year ended December 31, 2021, transaction revenue and platform and usage-based fee revenue represented 80.7% and 19.3% of our total revenue less ancillary services, respectively.

For the year ended December 31, 2020, transaction revenue and platform and usage-based fee revenue represented 68.0% and 32.0% of our revenue, respectively. For the year ended December 31, 2020, transaction revenue

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and platform and usage-based fee revenue represented 77.0% and 23.0% of our total revenue less ancillary services, respectively.

For the year ended December 31, 2022, our total payment volume was approximately $18.1 billion, consisting of $12.1 billion of total payment volume from transactions included in transaction revenue and $6.0 billion of total payment volume from transactions included in platform and usage-based fee revenue.

For the year ended December 31, 2021, our total payment volume was approximately $13.2 billion, consisting of $8.4 billion of total payment volume from transactions included in transaction revenue and $4.8 billion of total payment volume from transactions included in platform and usage-based fee revenue.

For the year ended December 31, 2020, our total payment volume was approximately $7.5 billion, consisting of $4.7 billion of total payment volume from transactions included in transaction revenue and $2.8 billion of total payment volume from transactions included in platform and usage-based fee revenue.

Total Payment Volume

To grow revenue from clients we must facilitate the use of our payment platform by our clients to process the amounts paid to them by their customers. The more our clients use our platform and rely upon our features to automate their payments, the more payment volume is processed on our solution. This metric provides an important indication of the value of the transactions that our clients’ customers are completing on our payment platform and is an indicator of our ability to generate revenue from our clients. We define total payment volume as the total amount paid to our clients on our payments platform in a given period.

Revenue Less Ancillary Services, Adjusted Gross Profit, Adjusted Gross Margin and Adjusted EBITDA

We use non-GAAP financial measures to supplement financial information presented on a GAAP basis. We believe that excluding certain items from our GAAP results allows management to better understand our consolidated financial performance from period to period and better 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. Moreover, we believe these non-GAAP financial measures provide our stakeholders with useful information to help them evaluate our operating results by facilitating an enhanced understanding of our operating performance and enabling them to make more meaningful period to period comparisons. There are limitations to the use of the non-GAAP financial measures presented here. Our non-GAAP financial measures may not be comparable to similarly titled measures of other companies. Other companies, including companies in our industry, may calculate non-GAAP financial measures differently than we do, limiting the usefulness of those measures for comparative purposes.

We use supplemental measures of our performance which are derived from our consolidated financial information, but which are not presented in our consolidated financial statements prepared in accordance with GAAP. These non-GAAP financial measures include the following:

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Revenue Less Ancillary Services - Revenue Less Ancillary Services represents our consolidated revenue in accordance with GAAP less (i) pass-through cost for printing and mailing services and (ii) marketing fees. We exclude these amounts to arrive at this supplemental non-GAAP financial measure as we view these services as ancillary to the primary services we provide to our clients.

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Revenue Less Ancillary Services at Constant Currency - Revenue Less Ancillary Services at Constant Currency represents Revenue Less Ancillary Services adjusted to show presentation on a constant currency basis. The constant currency information presented is calculated by translating current period results using prior period weighted average foreign currency exchange rates. We analyze Revenue Less Ancillary Services on a constant currency basis to provide a comparable framework for assessing how the business performed excluding the effect of foreign currency fluctuations.

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Adjusted Gross Profit - Adjusted Gross Profit represents Revenue Less Ancillary Services, less cost of revenue adjusted to (i) exclude pass-through cost for printing services, (ii) offset marketing fees against costs incurred and (iii) exclude depreciation and amortization, including accelerated amortization on the impairment of customer set-up costs tied to technology integration. Management believes this presentation supplements the GAAP presentation of gross profit with a useful measure of the gross profit of our payment-related services, which are the primary services we provide to our clients.

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Adjusted Gross Margin - Adjusted Gross Margin represents Adjusted Gross Profit divided by Revenue Less Ancillary Services. Management believes this presentation supplements the GAAP presentation of gross margin with a useful measure of the gross margin of our payment-related services, which are the primary services we provide to our clients. Beginning with the quarter ended December 31, 2022, we have excluded depreciation and amortization from the calculation of our adjusted gross profit, which we believe enhances the understanding of the Company’s operating performance and enables more meaningful period to period comparisons. Our adjusted gross profit and adjusted gross profit margin for the three and twelve months ended December 31, 2021 were recast to conform to the updated methodology and are reflected herein for comparison purposes.

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Adjusted EBITDA - Adjusted EBITDA represents EBITDA further adjusted by excluding (i) stock-based compensation expense and related payroll taxes, (ii) the impact from the change in fair value measurement for contingent consideration associated with acquisitions, (iii) the impact from the change in fair value measurement of our preferred stock warrants prior to our IPO, (iv) other income (expense), net, (v) indirect taxes related to intercompany activity (vi) acquisition related transaction costs and (vii) employee retention costs, such as incentive compensation, associated with acquisition activities. Management believes that the exclusion of these amounts to calculate Adjusted EBITDA provides useful measures for period-to-period comparisons of our business.

These non-GAAP financial measures are not meant to be considered as indicators of performance in isolation from or as a substitute for revenue, gross margin or net loss prepared in accordance with GAAP and should be read only in conjunction with financial information presented on a GAAP basis. Reconciliations of Revenue Less Ancillary Services, Adjusted Gross Profit, Adjusted Gross Margin and Adjusted EBITDA to the most directly comparable GAAP financial measure are presented below. We encourage you to review these reconciliations in conjunction with the presentation of the non-GAAP financial measures for each of the periods presented. In future fiscal periods, we may exclude such items and may incur income and expenses similar to these excluded items.

Reconciliations of Non-GAAP Financial Measures

The tables below provide reconciliations of Revenue Less Ancillary Services, Adjusted Gross Profit, Adjusted Gross Margin and Adjusted EBITDA to the most comparable GAAP figure on a consolidated basis for the periods presented.

Revenue Less Ancillary Services, Adjusted Gross Profit and Adjusted Gross Margin:

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EBITDA and Adjusted EBITDA:

(1)
For the year ended December 31, 2022, other (income) expense, net consisted of $(3.2) million of interest income and $9.1 million of losses from the remeasurement of foreign currency transactions into its functional currency. For the year ended December 31, 2021, other (income) expense, net consisted of ($0.1) million of gains from the remeasurement of foreign currency transactions into its functional currency. For the year ended December 31, 2020, other (income) expense, net consisted of $(0.1) million of interest income and $(0.6) million of gains from the remeasurement of foreign currency transactions into its functional currency.

(2)
Acquisition related transaction costs consisted of legal and advisory fees incurred in connection with the Cohort Go, WPM and Simplee acquisitions.

(3)
Acquisition related employee retention costs consisted of costs incurred to retain and compensate WPM and Simplee's employees in connection with integration of the business.

Key Factors Affecting Our Performance

Increased Utilization by Our Clients and Their Customers

Our ability to monetize our payments platform and global payment network is an important part of our business model. Today, we charge a fee based on the total payment volume we process on behalf of our clients. Our revenue and payment volume increases as our clients process more transactions on our payment platform and more money is collected through our global payment network. Increased average size of the payments processed on our payment platform also increases our revenue. Our ability to influence clients to process more transactions on our platform will have a direct impact on our revenue.

In addition, sustaining our growth requires continued adoption of our platform by new clients and further adoption of use cases such as payment plans, by our clients’ customers. Our ability to influence our clients to expand their customers’ usage of our platform also depends on our ability to successfully introduce new solutions, such as our solutions to support payments by international education consultants and our B2B solutions.

Mix of Business on Our Platform

Our revenue is affected by several factors, including the amount of payment volume processed by us on behalf of our clients, the industry in which our clients operate, the currency in which payments are made and received, the method of payment and the number of payment plans initiated by our clients’ customers. For example, we recognize more transaction revenue as our clients engage in cross border payment flows which may increase or decrease depending on the industry in which our clients operate. We may experience shifts in the type of revenue we earn (transaction revenue or platform and usage-based fee revenue) depending on the nature of the activity of our clients and our clients’ customers on our platform.

Investment in Technology and Development and Sales and Marketing

We make significant investments in both new solutions and existing solution enhancement. New solution features and functionality are brought to market through a variety of distribution and promotional activities. We plan to continue to adopt emerging technologies, expand our library of software integrations and invest in the development of more features. While we expect our expenses related to technology and development to increase, we believe these investments will contribute to long-term growth and profitability.

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Additionally, we plan to continue to expand efforts to market our payment platform and global payment network directly to our clients through comprehensive marketing initiatives. We are focused on the effectiveness of sales and marketing spending and will continue to be strategic in maintaining efficient client acquisition in the next quarters, including adjusting spending levels as needed in response to changes in the economic environment.

Seasonality

Our operating results and operating metrics are subject to seasonality and volatility, which could result in fluctuations in our quarterly revenues and operating results or in perceptions of our business prospects. We have experienced in the past, and expect to continue to experience, seasonal fluctuations in our revenue, which can vary by geographic corridor. For instance, our revenue has historically been strongest in our first and third quarters and weakest in our second quarter. Some variability results from seasonal events including the timing of when our education clients’ customers make their tuition payments on our payment platform and the number of business days in a month or quarter. We also experience volatility in certain other metrics, such as transactions processed, total payment volume and payment mix.

Economic Conditions and Resulting Consumer Spending Trends

Changes in macro-level consumer spending for education, healthcare and travel trends, including as a result of COVID-19 pandemic, inflation or fluctuations in foreign exchange rates could affect the amounts of volumes processed on our platform, thus resulting in fluctuations to our revenue streams.

Impact of the Conflict between Russia and Ukraine

We do not have any operations, including long-lived assets, in Ukraine or Russia, and to our knowledge, our clients do not receive material amounts of payments from payers in these regions. We are actively monitoring the situation in Ukraine and assessing its impact on our business, but as of the issuance date of these consolidated financial statements, the current conflict between Russia and Ukraine has not had a material impact on the Company’s revenue, results of operations or financial position. However, we have no way to predict the progress or outcome of the conflict or its impacts in Ukraine, Russia or Belarus as the conflict, and any resulting government reactions, are rapidly developing and beyond our control. The extent and duration of the military action, sanctions and resulting market disruptions could be significant and could potentially have a substantial impact on the global economy and our business for an unknown period of time.

Ukraine is a major engineering hub and the conflict may create a global challenge in outsourcing or hiring engineering talent. In addition, we have put in place and continue to actively manage a program to comply with government sanctions imposed on Russian persons and financial institutions. Also, providers of payment and accounts receivable software have frequently been targeted by cyber threats and due to the war in the Ukraine and continued political uncertainty involving Russia and Ukraine and potentially other regions of Europe, there is an increased likelihood that escalation of tensions could result in cyber-attacks that could either directly or indirectly impact our operations. We continue to invest in systems, software and personnel to protect against these enhanced threats, but any failure to protect against such attacks, could result in unauthorized access to or leakage of, sensitive data, or compromise our ability to provide our solutions in a timely manner, which could harm our ability to conduct business or delay our financial reporting. Such failures could adversely affect our operating results and financial condition.

Impact of Inflation

We do not believe that inflation had a material effect on our cash flows and results of operations during the year ended December 31, 2022.

Diversified Mix of Clients

We have a wide range of clients across education, healthcare, travel and B2B. Following the onset of the COVID-19 pandemic, there was a temporary deceleration of payment volumes and revenue from education clients relying on international enrollments due to the uncertainty of borders re-opening. During 2021 and 2022, borders continued to open allowing for an increase in international students to attend education clients. We expect this trend to continue for our education clients, although COVID-19 related restrictions in China have slowed the growth of Chinese students studying in the U.S. and may have resulted in changes in Chinese student education destinations. Additionally, the opening of borders and abatement of COVID-19 restrictions has increased travel abroad and we expect travel to continue to return to pre-pandemic levels.

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Dynamic Changes to Client Communication and Product Solutions

In response to the macroeconomic impact of the COVID-19 pandemic, we initiated a series of refinements to our technology and personalization engine to optimize our clients’ ability to offer payment plans and communicate effectively and digitally with their customers. For example, we developed streamlined versions of our solution that allowed healthcare clients to rapidly deploy secure payment capabilities in support of newly emergent telehealth services that were deployed in the early phases of the COVID-19 to enable remote healthcare services. Similarly, we configured some of our education payment plan solutions for a very streamlined implementation in support of our clients’ requests for affordability solutions for their students that could be deployed with minimal IT involvement. While we continue to invest in our technology and product capabilities, our ability to continue providing streamlined and effective products through our technology platform may impact our ability to retain and win new clients in the future. We believe that our ability to help increase payment affordability has become more critical to our clients during the COVID-19 pandemic as the lack of affordability drives the need for more financial flexibility.

Business Continuity

In response to COVID-19 developments, we implemented measures to focus on the safety of our FlyMates and support of our clients, while at the same time seeking to mitigate the impact on our financial position and operations. We have implemented remote working capabilities for our entire organization and to date, there has been minimal disruption to our operations. During the Spring of 2020, due to initial COVID-19 uncertainty, we reduced our workforce by approximately 12%. From July 2020 through December 31, 2022, our workforce increased by approximately 125% in order to meet the demand of client growth and life as a public company with the goal of ensuring continuity and growth. As vaccination rates have increased, our offices have reopened, although FlyMates have the flexibility to work remotely.

Components of Results of Operations

Revenue

We generate revenue from transactions and platform and usage-based fees as described below.

Transaction Revenue

Transaction revenue consists of a fee based on the total payment volume processed through our payment platform and global payment network. The fee can vary depending on the geographic region in which our client and client’s customer resides, the payment method selected by our clients’ customer and the currencies in which the transaction is completed on our solution. Fees received are reported as revenue upon the completion of payment processing transaction. Our revenue mix fluctuates and as more revenue is derived from credit cards our adjusted gross margin goes down.

We also earn marketing fees from credit card service providers for marketing arrangements in which we perform certain marketing activities to increase the awareness of the credit card provider and promote certain methods of payments on our payment platform. Fees from these marketing services are recognized as revenue when we complete our obligations under the marketing arrangements. We do not expect our marketing services revenue to be material in future periods.

Platform and Usage-Based Fee Revenue

We earn revenue from many of our clients based on the amount of accounts receivable they collect through our platform. For these services, we are paid a platform and usage-based fee based on the total payment volume that our clients collect. We also earn revenue from clients’ customers when they enter into a payment plan and make actual payments against a payment plan in satisfying their obligation to our client. Additionally, we earn a subscription fee from some of our clients for their use of our payment platform. Finally, we earn fees from providing other ancillary services to our clients including printing and mailing services.

Our insurance offering provides students a platform which enables them to compare, select and purchase the mandated health insurance coverage needed. We earn a commission from insurance providers when a student purchases an insurance policy as well as consideration from the student in the form of a markup on the foreign exchange rate.

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Payment Processing Services Costs

Payment processing services costs consist of costs incurred to process payment transactions which include banking and credit card processing fees, foreign currency translation costs, partner fees, personnel-related expenses for our FlyMates who facilitate these payments and personnel related expenses for our FlyMates who provide implementation services to our clients. We expect that payment processing services costs will increase in absolute dollars but may fluctuate as a percentage of total revenue from period to period, as we continue to invest in scaling our processing operations and grow our revenue base.

Technology and Development

Technology and development includes (a) costs incurred in connection with the development of our solution and the improvement of existing solutions, including the amortization of software and website development costs incurred in developing our solution, which are capitalized, and acquired developed technology, (b) site operations and other infrastructure costs incurred, (c) amortization related to capitalized cost to fulfill a contract, (d) personnel-related expenses, including salaries, stock based compensation and other expenses, (e) hardware and software engineering, consultant services and other costs associated with our technology platform and products, (f) research materials and facilities, and (g) depreciation and maintenance expense.

We believe delivering new functionality is critical to attract new clients and expand our relationship with existing clients. We expect to continue to make investments to expand our solutions in order to enhance our clients’ experience and satisfaction, and to attract new clients. We expect our technology and development expenses to increase in absolute dollars, but they may fluctuate as a percentage of total revenue from period to period as we expand our technology and development team to develop new solutions and enhancements to existing solutions.

Selling and Marketing

Selling and marketing expenses consist of personnel-related expenses, including stock-based compensation expense, sales commissions, amortization of acquired client relationship intangible assets, marketing program expenses, travel related expenses and costs to market and promote our solutions through advertisements, marketing events, partnership arrangements, and direct client acquisition.

We focus our sales and marketing efforts on generating awareness of our business, platform, and solutions, creating sales leads, and establishing and promoting our brand. We plan to continue investing in sales and marketing efforts by driving our go-to-market strategies, building our brand awareness, and sponsoring additional marketing events; however, we will adjust our sales and marketing spend level as needed, and this may fluctuate from period to period, in response to changes in the economic environment.

General and Administrative

General and administrative expenses consist of personnel-related expenses, including stock-based compensation expense, for finance, risk management, legal and compliance, human resources and IT functions, costs incurred for external professional services, as well as rent, and facility and insurance costs. We expect to incur additional general and administrative expenses as we continue to invest in our planned growth of our business. We also expect to increase the size of our general and administrative functions to support the growth in the business, and to operate as a public company. As a result, we expect that our general and administrative expenses will increase in absolute dollars but may fluctuate as a percentage of total revenue from period to period.

Interest Expense

Interest expense consists of interest previously incurred on our Loan and Security Agreement (LSA) and interest on our revolving credit syndication loan (Revolving Credit Facility). During 2018, we borrowed $25.0 million under the LSA to complete the acquisition of OnPlan Holdings LLC. On April 25, 2020, we entered into a Joinder and Second Amendment to the LSA to refinance the LSA. As part of the refinancing, the lender re-advanced $4.2 million of principal paid on the loan through May 1, 2020. The LSA was interest only until May 2023 and carried annual interest at a rate equal to the greater of (i) 5.25% above the prime rate or (ii) 8.50%. In July 2021, we refinanced the LSA by entering into a $50.0 million Revolving Credit Facility. During the year ended December 31, 2022, we repaid the $25.9 million outstanding under the Revolving Credit Facility. Following the repayment, we continue to have access to a total commitment of $50.0 million under the Revolving Credit Facility. The Revolving Credit Facility has an adjustable rate of interest based on the type of loan requested, either at an annual rate based on the Alternate Base Rate (ABR), which references the prime rate

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plus an applicable rate or LIBO Rate plus an applicable rate. Loans based on ABR bear interest at a rate between ABR plus 0.75% and ABR plus 1.25%, and loans based on LIBO Rate bear interest at a rate between LIBO Rate plus 1.75% and LIBO Rate plus 2.25%, depending on our liquidity.

Change in Fair Value of Preferred Stock Warrant Liability

In connection with our financing arrangements, we issued warrants to purchase convertible preferred stock to a lender. The warrants to purchase preferred stock provided for net share settlement under which the maximum number of shares that could be issued represented the total amount of shares under the warrant agreements. These warrants were classified as liabilities on our consolidated balance sheets as these were free standing instruments that may have required us to transfer an asset upon exercise. The warrant liability associated with these warrants was recorded at fair value on the issuance date of the warrants and was marked to market each reporting period based on changes in the warrants’ fair value calculated using the Black-Scholes model. Following our IPO, all preferred stock warrants were either fully exercised or converted to warrants to purchase common stock and no longer require liability classification. As a result, we no longer recognize the change in fair value of preferred stock warrant liability in our consolidated statements of operations and comprehensive loss.

Other Income (Expense), Net

Other income (expense), net consists of interest income and gains and losses from the remeasurement of foreign currency transactions into its functional currency.

Provision for (Benefit From) Income Tax

Provision for (benefit from) income taxes consists primarily of foreign and state income taxes. We have historically generated NOL carryforwards for U.S. Federal and state tax purposes as we expand the scale of our business activities. Changes in the U.S. and foreign tax law may impact our overall provision for income taxes in the future.

We have a valuation allowance for our U.S. deferred tax assets, including federal and state NOLs. We expect to maintain this valuation allowance until it becomes more likely than not that the benefit of our federal and state deferred tax assets will be realized through expected future taxable income generated in the United States.

Results of Operations

Comparison of results for the years ended December 31, 2022 and 2021

The following table sets forth our consolidated results of operations for periods presented:

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Revenue

Revenue was $289.4 million for the year ended December 31, 2022, compared to $201.1 million for the year ended December 31, 2021, an increase of $88.3 million or 43.9%. Revenue is comprised of transaction revenue and platform and usage-based fee revenue as follows:

Transaction revenue was $224.2 million for the year ended December 31, 2022, compared to $148.0 million for the year ended December 31, 2021, an increase of $76.2 million or 51.5%. The increase in transaction revenue was primarily driven by growth in transaction payment volumes, from both our existing clients and new clients added during the year ended December 31, 2022. We experienced strong growth in payment volume across all regions and verticals during the period. Total payment volume increased 37% during the year ended December 31, 2022 to $18.1 billion. Our marketing services revenue increased as a result of our payments partners using more of our marketing services during the year ended December 31, 2022, compared to the year ended December 31, 2021.

Platform and usage-based fee revenue was $65.2 million for the year ended December 31, 2022, compared to $53.1 million for the year ended December 31, 2021, an increase of $12.1 million or 22.8%. The increase in platform and usage-based fee revenue was primarily driven by the WPM and Cohort Go acquisitions, which accounted for a $9.7 million increase over 2021. The remainder of the increase was attributable to increased usage by our clients and new clients signed during the year ended December 31, 2022.

Payment Processing Services Costs

Payment processing services costs were $107.9 million for the year ended December 31, 2022, compared to $70.2 million for the year ended December 31, 2021, an increase of $37.7 million or 53.7%. The increase in payment processing services costs is correlated with the increase in total payment volume of 37% over the same period as well as increased use of credit cards, which have higher processing costs.

Technology and Development

Technology and development expenses were $50.3 million for the year ended December 31, 2022, compared to $31.3 million for the year ended December 31, 2021, an increase of $19.0 million or 60.7%. The increase in technology and development cost was primarily driven by an increase in personnel costs, stock-based compensation expense, amortization expense, and software and hosting expenses. Personnel costs were $32.1 million for the year ended December 31, 2022, compared to $18.3 million for the year ended December 31, 2021, an increase of $13.8 million or 75.4%. The increase in personnel costs was primarily driven by an increase in headcount within our technology and development teams. Stock-based compensation expense was $5.7 million for year ended December 31, 2022, compared to $2.5 million for the year ended December 31, 2021, an increase of $3.2 million or 128.0%. The increase in stock-based compensation is attributable to equity grants awarded to existing and new FlyMates. Amortization of intangible assets was $6.3 million for the year ended December 31, 2022, compared to $5.0 million for the year ended December 31, 2021, an increase of $1.3 million or 26.0%. The increase in amortization expense was due to acquired relationships related to the WPM and Cohort Go acquisitions. Software and hosting expenses was $4.6 million for the year ended December 31, 2022, compared to $3.9 million for the year ended December 31, 2021, an increase of $0.7 million or 17.9%. The increase in software and hosting expenses was primarily related to increased hosting fees based on payment volumes growth and additional software needs based on headcount growth.

Selling and Marketing

Selling and marketing expenses were $78.5 million for the year ended December 31, 2022, compared to $51.3 million for the year ended December 31, 2021, an increase of $27.2 million or 53.0%. The increase in selling and marketing expenses was primarily driven by an increase in personnel costs, professional fees, stock-based compensation, marketing costs, travel related expenses, amortization expense and software and hosting expenses. Personnel costs were $44.5 million for the year ended December 31, 2022, compared to $31.7 million for the year ended December 31, 2021, an increase of $12.8 million or 40.4%. The increase in personnel costs was primarily driven by an increase in headcount within our selling and marketing teams and commissions earned on sales during the period.

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Professional fee expenses were $10.2 million for the year ended December 31, 2022, compared to $4.9 million for the year ended December 31, 2021, an increase of $5.3 million or 108.2%. The increase in professional fees was due to increases in third party commissions and consulting fees. Stock-based compensation was $8.0 million for year ended December 31, 2022, compared to $5.2 million for the year ended December 31, 2021, an increase of $2.8 million or 53.8%. The increase in stock-based compensation is attributable to equity grants awarded to existing and new FlyMates. Marketing costs were $5.8 million during the year ended December 31, 2022, compared to $4.0 million for the year ended December 31, 2021, an increase of $1.8 million or 45.0%. The increase in marketing costs was due to increased marketing initiatives and hosted events. Travel expenses were $2.4 million during the year ended December 31, 2022, compared to $0.8 million for the year ended December 31, 2021, an increase of $1.6 million or 200.0%. Higher travel expenses were due to increased client engagement and FlyMate collaboration. Amortization of intangible assets were $3.9 million during the year ended December 31, 2022, compared to $2.4 million for the year ended December 31, 2021, an increase of $1.5 million or 62.5%. The increase in amortization expense was due to acquired customer relationships related to the WPM and Cohort Go acquisitions. Software and hosting expenses was $2.0 million for the year ended December 31, 2022, compared to $1.1 million for the year ended December 31, 2021, an increase of $0.9 million or 81.8%. The increase in software and hosting expenses was primarily related to increased hosting fees based on payment volumes growth and additional software needs based on headcount growth.

General and Administrative

General and administrative expenses were $82.9 million for the year ended December 31, 2022, compared to $61.6 million for the year ended December 31, 2021, an increase of $21.3 million or 34.6%. The increase in general and administrative expenses was primarily driven by an increase in personnel costs, stock-based compensation, professional fees, general and administrative expenses, software and hosting expenses, other costs, and travel related expenses, offset by a change in the fair value of contingent consideration. Personnel costs were $33.6 million for the year ended December 31, 2022, compared to $23.7 million for the year ended December 31, 2021, an increase of $9.9 million or 41.8%. The increase in personnel costs was primarily driven by an increase in headcount. Stock-based compensation was $17.1 million for year ended December 31, 2022, compared to $11.3 million for the year ended December 31, 2021, an increase of $5.8 million or 51.3%. The increase in stock-based compensation is attributable to equity grants awarded to existing and new FlyMates. Professional fees were $11.1 million for the year ended December 31, 2022, compared to $7.2 million for the year ended December 31, 2021, an increase of $3.9 million or 54.2%. The increase in professional fees was due to increased legal and audit fees as a result of becoming a public company in May 2021. General and administrative costs were $5.7 million for the year ended December 31, 2022, compared to $3.8 million for the year ended December 31, 2021, an increase of $1.9 million or 50.0%. The increase in general and administrative costs was primarily due to increased insurance costs as a public company, and additional insurance obligations incurred as a result of the WPM and Cohort Go acquisitions. Software and hosting expenses were $5.6 million for the year ended December 31, 2022, compared to $3.8 million for the year ended December 31, 2021, an increase of $1.8 million or 47.4%. The increase in software and hosting expenses was primarily related to increased hosting fees based on payment volumes growth and additional software needs based on headcount growth. Other costs were $4.2 million for the year ended December 31, 2022, compared to $3.0 million for the year ended December 31, 2021, an increase of $1.2 million or 40.0%. The increase in other costs is primarily due to increased hedging fees related to increase in total payment volume and indirect taxes recorded during the period. Travel expenses were $1.4 million during the year ended December 31, 2022, compared to $0.5 million for the year ended December 31, 2021, an increase of $0.9 million or 180.0%. Higher travel expenses were due to increased client engagement and FlyMate collaboration. The change in the fair value of contingent consideration related to acquisitions was $(2.8) million for the year ended December 31, 2022, compared to $2.3 million for the year ended December 31, 2021, a decrease of $5.1 million or 221.7%.

Interest Expense

Interest expense was $1.2 million for the year ended December 31, 2022, compared to $2.0 million for the year ended December 31, 2021, a decrease of 0.8 million or 40.0%. During July 2021, we entered into a Revolving Credit Facility with three banks for a total commitment of $50.0 million. We drew $25.9 million on the Revolving Credit Facility and used the proceeds to early prepay the existing LSA of $25.0 million, which resulted in a new interest rate per year. During the year ended December 31, 2022, we repaid the $25.9 million outstanding under the Revolving Credit Facility. Following the repayment, we continued to have access to a total commitment of $50.0 million under the Revolving Credit Facility.

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Change in Fair Value of Preferred Stock Warrant Liability

Change in fair value of preferred stock warrant liability was $0 for the year ended December 31, 2022, compared to $10.8 million for the year ended December 31, 2021, a decrease of $10.8 million or 100%. Upon the completion of our IPO, all preferred stock warrants were either fully exercised or converted to warrants to purchase common stock. As a result, we no longer recognize the change in fair value of preferred stock warrant liability in our consolidated statements of operations and comprehensive loss.

Other Income (Expense), net

Other income (expense), net, was $(5.9) million for the year ended December 31, 2022, compared to $0.1 million for the year ended December 31, 2021, an increase of $(6.0) million. The increase was the result of the remeasurement of foreign currency transactions, offset by an increase in interest income. Losses from the remeasurement of foreign currency transactions into its functional currencies were $9.1 million while interest income was $3.2 million for the year ended December 31, 2022. Gains from the remeasurement of foreign currency transactions into its functional currencies were $0.1 million for the year ended December 31, 2021.

Provision for Income Taxes

Provision for income taxes was $2.0 million during the year ended December 31, 2022, compared to $ 2.2 million during the year ended December 31, 2021, a decrease of $(0.2) million or 9.1%. During the year ended December 31, 2022 and 2021, we recorded an income tax expense of $2.0 million and $2.2 million, respectively, which was primarily attributable to income taxes related to our profitable foreign subsidiaries and U.S. state taxes. Our effective tax rate was (5.4)% for the year ended December 31, 2022, compared to (8.3)% for the year ended December 31, 2021.

Comparison of results for the years ended December 31, 2021 and 2020

The following table sets forth our consolidated results of operations for periods presented:

Revenue

Revenue was $201.1 million for the year ended December 31, 2021, compared to $131.8 million for the year ended December 31, 2020, an increase of $69.3 million or 52.6%. Revenue is comprised of transaction revenue and platform and usage-based fee revenue as follows:

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Transaction revenue was $148.0 million for the year ended December 31, 2021, compared to $89.6 million for the year ended December 31, 2020, an increase of $58.4 million or 65.2%. The increase in transaction revenue was primarily driven by growth in transaction payment volumes from both our existing clients and new clients added during the year ended December 31, 2021. We experienced strong growth in payment volume across all regions during the period. Total payment volume increased 76% during the year ended December 31, 2021 to $13.2 billion. Our marketing services revenue remained consistent in the year ended December 31, 2021, compared to the year ended December 31, 2020.

Platform and usage-based fee revenue was $53.1 million for the year ended December 31, 2021, compared to $42.2 million for the year ended December 31, 2020, an increase of $10.9 million or 25.8%. The increase in platform and usage-based fee revenue was driven by the full year of revenue from Simplee, increased usage by our clients and new clients signed during the year ended December 31, 2021.

Payment Processing Services Costs

Payment processing services costs were $70.2 million for the year ended December 31, 2021, compared to $47.8 million for the year ended December 31, 2020, an increase of $22.4 million or 46.9%. The increase in payment processing services costs is correlated with the increase in total payment volume of 76% over the same period, and was offset by lower processing costs related to bank, credit card and alternative payment transactions.

Technology and Development

Technology and development expenses were $31.3 million for the year ended December 31, 2021, compared to $24.5 million for the year ended December 31, 2020, an increase of $6.8 million or 27.8%. The increase in technology and development cost was primarily driven by an increase in personnel costs, stock-based compensation expense, software and hosting expenses and amortization expense. Personnel costs were $18.3 million for the year ended December 31, 2021, compared to $16.1 million for the year ended December 31, 2020, an increase of $2.2 million or 13.7%. The increase in personnel costs was primarily driven by an increase in headcount within our technology and development teams. Stock-based compensation expense was $2.5 million for year ended December 31, 2021, compared to $0.9 million for the year ended December 31, 2020, an increase of $1.6 million. The increase in stock-based compensation is attributable to grants awarded to existing and new FlyMates and the additional compensation charges taken in relation to a secondary sale during the period that involved stockholders who were also FlyMates. Software and hosting expenses was $3.9 million for the year ended December 31, 2021, compared to $2.9 million for the year ended December 31, 2021, and increase of $1.0 million. The increase is primarily related to increased hosting fees based on growth in payment volumes and additional software needs based on headcount growth. Amortization of intangible assets was $5.0 million for the year ended December 31, 2021, compared to $3.2 million for the year ended December 31, 2020, an increase of $1.8 million or 56.3%. The increase in amortization expense is attributable to the full year of amortization expense for acquired Simplee intangible assets in 2021 versus a partial year in 2020.

Selling and Marketing

Selling and marketing expenses were $51.3 million for the year ended December 31, 2021, compared to $32.6 million for the year ended December 31, 2020, an increase of $18.7 million or 57.4%. The increase in selling and marketing expenses was primarily driven by an increase in personnel costs, stock-based compensation, professional fees, and marketing costs. Personnel costs were $31.7 million for the year ended December 31, 2021, compared to $23.1 million for the year ended December 31, 2020, an increase of $8.6 million or 37.2%. The increase in personnel costs was primarily driven by an increase in headcount within our selling and marketing teams and commissions earned on sales during the period. Stock-based compensation was $5.2 million for year ended December 31, 2021, compared to $1.3 million for the year ended December 31, 2020, an increase of $3.9 million. The increase in stock-based compensation is attributable to grants awarded to existing and new FlyMates and the additional compensation charges taken in relation to a secondary sale during the period that involved stockholders who were also FlyMates. Professional fee expenses were $4.9 million for the year ended December 31, 2021, compared to $1.5 million for the year ended December 31, 2020, an increase of $3.4 million. The increase in professional fees was due to increases in third party commissions, expenses incurred related to our public offering and consulting fees. Marketing costs were $4.0 million during the year ended December 31, 2021, compared to $2.0 million for the year ended December 31, 2020, an increase of $2.0 million or 100%. The increase in marketing costs was due to increased marketing initiatives and hosted events.

General and Administrative

General and administrative expenses were $61.6 million for the year ended December 31, 2021, compared to $42.7 million for the year ended December 31, 2020, an increase of $18.9 million or 44.3%. The increase in general and

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administrative expenses was primarily driven by an increase in stock-based compensation, personnel costs, professional fees, general and administrative and other costs offset by a change in the fair value of contingent consideration and acquisition related expenses. Stock-based compensation was $11.3 million for year ended December 31, 2021, compared to $1.7 million for the year ended December 31, 2020, an increase of $9.6 million. The increase in stock-compensation is attributable to grants awarded to existing and new FlyMates, and the additional compensation charges taken in relation to a secondary sale during the period that involved stockholders who were also FlyMates. Personnel costs were $23.7 million for the year ended December 31, 2021, compared to $19.6 million for the year ended December 31, 2020, an increase of $4.1 million or 20.9% primarily due to increased headcount. Professional fees were $7.2 million for the year ended December 31, 2021, compared to $4.2 million for the year ended December 31, 2020, an increase of $3.0 million or 71.4%. The increase in professional fees was due to increased legal and audit fees. General and administrative costs were $3.8 million for the year ended December 31, 2021, compared to $1.0 million for the year ended December 31, 2020, an increase of $2.8 million. The increase in general and administrative costs was primarily due to increased insurance costs as a public company. Other costs were $3.0 million for the year ended December 31, 2021, compared to $2.0 million for the year ended December 31, 2020, an increase of $1.0 million or 50.0%. The increase in other costs is primarily due to indirect taxes recorded during the period and increased hedging fees related to increase in total payment volume. The fair value change of contingent consideration was $2.2 million for the year ended December 31, 2021 compared to $5.4 million for the year ended December 31, 2020, a decrease of $3.2 million. Acquisition related expenses were $0.5 million for the year ended December 31, 2021 compared to $1.5 million for the year ended December 31, 2020, a decrease of $1.0 million.

Interest Expense

Interest expense was $2.0 million for the year ended December 31, 2021, compared to $2.5 million for the year ended December 31, 2020, a decrease of 0.5 million or 20.%. During July 2021, we entered into a Revolving Credit Facility with three banks for a total commitment of $50.0 million. We drew $25.9 million on the Revolving Credit Facility and used the proceeds to early prepay our existing LSA of $25.0 million, which resulted in a new interest rate per year.

Change in Fair Value of Preferred Stock Warrant Liability

Change in fair value of preferred stock warrant liability was $10.8 million for the year ended December 31, 2021, compared to $0.7 million for the year ended December 31, 2020, an increase of $10.1 million. The increase in preferred stock warrant liability was the result of an increase in the value of our preferred stock. Upon the completion of the IPO, all preferred stock warrants were either fully exercised or converted to warrants to purchase common stock. As a result, we no longer recognize the change in fair value of preferred stock warrant liability in our consolidated statements of operations and comprehensive loss.

Other Income (Expense), net

Other income (expense), net, was $0.1 million for the year ended December 31, 2021, compared to $0.7 million for the year ended December 31, 2020, a decrease of $0.6 million or 85.7%. The decrease was the result of the remeasurement of foreign currency transactions, offset by a decrease in interest income. Gains from the remeasurement of foreign currency transactions into its functional currencies were $0.1 million for the year ended December 31, 2021, compared to $0.6 million for the year ended December 31, 2020, a decrease of $0.5 million or 83.3%. The decrease was the result of the changes in foreign exchange rates against the U.S. Dollar, our financial reporting currency.

Provision for (Benefit From) Income Taxes

Provision for income taxes was $2.2 million during the year ended December 31, 2021, compared to a tax benefit of $ 7.2 million during the year ended December 31, 2020, an increase of 9.4 million. During the year ended December 31, 2021, we recorded an income tax expense of $2.2 million, which was primarily attributable to income taxes related to our profitable foreign subsidiaries and U.S. state taxes. During the year ended December 31, 2020, we recorded an income tax benefit of $7.2 million, which was primarily attributable to a non-recurring benefit of $8.4 million relating to the release of a portion of our valuation allowance. This release was due to taxable temporary differences recorded as part of the Simplee acquisition which were a source of income to realize certain pre-existing federal and state deferred tax assets. Our effective tax rate was (8.3)% for the year ended December 31, 2021, compared to 39.3% for the year ended December 31, 2020.

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Liquidity and Capital Resources

Since inception, we have financed operations primarily through proceeds received from sales of equity securities, credit facilities and payments received from our clients as further detailed below.

In May 2021, we completed our IPO which resulted in aggregate net proceeds of $263.8 million, after underwriting discounts of $19.4 million and issuance costs of $4.9 million. As of December 31, 2022, our principal source of liquidity is cash, cash equivalents and restricted cash of $351.2 million. Cash equivalents is comprised primarily of money market funds.

We believe that our existing cash will be sufficient to support our expected working capital needs and material cash requirements for at least the next 12 months from the issuance of these consolidated financial statements. Our future capital requirements will depend on many factors, including our revenue growth rate, the timing and the amount of cash received from clients, the expansion of sales and marketing activities, the timing and extent of spending to support development efforts, the price at which we are able to purchase public cloud capacity, expenses associated with our international expansion, the introduction of platform enhancements, and the continuing market adoption of our platform. In the future, we may enter into arrangements to acquire or invest in complementary businesses, products, and technologies. We may be required to seek additional equity or debt financing. In the event that we require additional financing, we may not be able to raise such financing on terms acceptable to us or at all. If we are unable to raise additional capital or generate cash flows necessary to expand our operations and invest in continued innovation, we may not be able to compete successfully, which would harm our business, results of operations, and financial condition.

Contractual Obligations

Contractual obligations consist of operating leases that relate to real estate for our primary facilities.

The following table summarizes our contractual obligations as of December 31, 2022:

Cash Flows

The following table sets forth a summary of our cash flow information for the periods presented:

Operating Activities

Net cash provided by (used in) operating activities consists of net loss adjusted for certain non-cash items and changes in other assets and liabilities.

During 2022, cash provided by operating activities of $5.4 million was primarily the result of net loss of $39.3 million adjusted for non-cash expenses of $40.3 million, which primarily include stock-based compensation expense of $30.3 million, depreciation and amortization of $12.3 million and amortization of deferred contract costs of $1.8 million, offset by change in fair value of contingent consideration of $(2.8) million and deferred tax provision of $(1.7) million, benefited by changes in operating assets and liabilities of $4.4 million.

During 2021, cash provided by operating activities of $17.1 million was primarily the result of net loss of $28.1 million adjusted for noncash expenses of $41.8 million, which primarily include stock-based compensation expense of $18.9

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million, change in fair value of preferred stock warrant liability of $10.8 million, depreciation and amortization of $9.0 million, change in fair value of contingent consideration of $2.3 million, non-cash interest expense of $0.3 million, amortization of deferred contract costs of $0.2 million, bad debt expense of $0.2 million and deferred tax provision of $0.1 million, benefited by changes in operating assets and liabilities of $3.5 million.

During 2020, cash used in operating activities of $14.2 million was primarily the result of net loss of $11.1 million adjusted for non-cash expenses of $9.0 million, which primarily include depreciation and amortization of $6.8 million, change in fair value of contingent consideration of $5.4 million, stock-based compensation expense of $3.8 million, and the change in fair value of preferred stock warrant liability of $0.7 million, offset by $8.5 million related to deferred taxes and $12.1 million related to changes in our operating assets and liabilities.

Investing Activities

During 2022, cash used in investing activities of $24.7 million was primarily the result of our acquisition of Cohort Go for a purchase consideration of $17.1 million and capitalization of internally developed software costs of $7.1 million.

During 2021, cash used in investing activities of $62.9 million was the result of our acquisition of WPM for a purchase consideration of $56.1 million in cash, purchase of property and equipment for $6.7 million and asset acquisition of $0.1 million.

During 2020, cash used in investing activities of $81.5 million was the result of our acquisition of Simplee for a purchase consideration of $79.4 million in cash and $2.1 million related to purchases of computer equipment and software.

Financing Activities

During 2022, cash used in financing activities of $24.0 million was driven by the repayment of our Revolving Credit Facility of $25.9 million, payments for contingent consideration of $3.7 million primarily related to the acquisition of Simplee, payments of tax withholdings of $2.6 million for net settled option exercises, offset by proceeds from the exercise of stock options of $7.0 million and proceeds from the issuance of stock under the ESPP of $1.3 million.

During 2021, cash provided by financing activities of $327.5 million was primarily driven by the net proceeds received from our IPO of $263.8 million, net proceeds received from our sale of preferred stock of $59.7 million and proceeds from the exercise of stock options and warrants of $6.9 million, net proceeds from borrowings under our Revolving Credit Facility of $25.9 million, offset by the payoff of our previously existing term loan of $25.0 million, payments for contingent consideration of $3.8 million related to our acquisition of Simplee and $0.4 million related to issuance costs associated with our Revolving Credit Facility.

During 2020, cash provided by financing activities of $119.0 million was primarily the result of our sale of preferred stock for aggregate proceeds of $119.8 million and proceeds from the exercise of stock options of $0.8 million, primarily offset by payments for contingent consideration of $1.3 million related to our acquisition of OnPlan Holdings, LLC during 2018.

As of December 31, 2022 and 2021, we had $0 and $25.9 million of outstanding indebtedness under the Revolving Credit Facility. The proceeds of the Revolving Credit Facility were used to pay the LSA of $25.0 million. During the year ended December 31, 2022, we repaid the $25.9 million outstanding under the Revolving Credit Facility. Following the repayment, we continue to have access to a total commitment of $50.0 million under the Revolving Credit Facility. The Revolving Credit Facility consists of ABR loans or Eurodollar Borrowings, at our option. ABR loans bear interest at the ABR plus the applicable rate. Eurodollar Borrowings bear interest at the Adjusted LIBO Rate plus the applicable rate. The ABR rate is based on the greatest of (a) the Prime Rate (b) the Federal Funds Effective Rate plus 1/2 of 1% and (c) the Adjusted LIBO Rate for a one-month Interest Period plus 1%. The adjusted LIBO rate is based on (a) the LIBO Rate multiplied by (b) the Statutory Reserve Rate. The applicable rate is based upon our liquidity as of the most recent consolidated financial information and ranges from 0.75% to 2.25%. The Revolving Credit Facility incurs a commitment fee ranging from 0.25% to 0.35% based upon our liquidity as of the most recent consolidated financial information assessed on the average undrawn portion of the available commitment.

As of December 31, 2020, we had $25.0 million of outstanding indebtedness under the LSA. The LSA was interest only until May 2023 and bore annual interest at a rate equal to the greater of (i) 5.25% above the prime rate of (ii) 8.50%.

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Critical Accounting Policies

Our consolidated financial statements have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported revenue generated, and reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Our significant accounting policies are described in Note 1 - Business Overview and Summary of Significant Accounting Policies to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. We believe that the following critical accounting policies are most important to the judgments and estimates used in the preparation of our consolidated financial statements.

Intangible Assets

Intangible assets consist of acquired developed technology, acquired relationships, trade names and associated trademarks and noncompete agreements. Intangible assets are recognized at fair value using generally accepted valuation methods deemed appropriate for the type of intangible asset acquired, and reported net of accumulated amortization, separately from goodwill.

We estimate the fair value of acquired developed technology using the relief-from-royalty method, a form of the income approach, which estimates the cost savings that accrue to the owner of an intangible asset who would otherwise have to pay royalties or license fees on revenues earned through the use of the asset. The royalty rate used is based on an analysis of empirical, market-derived royalty rates for similar technology. The fair value of acquired relationships is estimated using the multi-period excess earnings method under the income approach, which represents the total income to be generated by the asset. Under this method, the value of an intangible asset is equal to the present value of the incremental after-tax cash flows attributable solely to the intangible asset. We value noncompete agreements using the with and without method. This method compares our projected discounted cash flows in two distinct scenarios: first, we assume that the covenant not-to-compete is in-place and, second, we assume that the covenant not-to-compete is not in-place. A probability adjustment factor is then applied to the difference between the two scenarios to determine the fair value of the noncompete agreement. We value trade names and trademarks using the relief from royalty method. The relief-from-royalty method determines the present value of the economic royalty savings associated with the ownership or possession of the trade name or trademark based on an estimated royalty rate applied to the cash flows to be generated by the business. The estimated royalty rate is determined based on the assessment of a reasonable royalty rate that a third party would negotiate in an arm’s-length license agreement for the use of the trade name or trademark.

The useful lives for developed technology are determined based on expectations regarding the evolution of existing technology and future investments. The useful lives for customer-related intangible assets are determined based primarily on forecasted cash flows, which include estimates for the revenues, expenses and customer attrition associated with the assets. The useful lives of definite-lived trademarks and trade names are based on our plans to phase out the trademarks and trade names in the applicable markets. The useful lives for noncompete agreements are determined based on the term of the related agreements.

Intangible assets are amortized using a method that reflects the pattern in which the economic benefits of the intangible asset are expected to be realized over their estimated useful lives ranging from one to fifteen years. No significant residual value is estimated for intangible assets.

The estimated fair values of these intangible assets reflect various assumptions including discount rates, revenue growth rates, operating margins, terminal values, attrition, useful lives and other prospective financial information.

The judgments made in determining the estimated fair value of intangibles as well as the estimated lives, can materially impact net income or loss in periods subsequent to the acquisition through depreciation and amortization, and in certain instances through impairment charges, if the assets become impaired in the future.

Contingent Consideration

Contingent consideration in business combinations is recognized at fair value on the acquisition date.

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In connection with the acquisition of Cohort Go, we entered into an agreement to make certain earn-out payments based on Cohort Go's achievement of specific post-acquisition milestones established through a period ending March 31, 2023. Contingent consideration will be settled upon completion of the post-acquisition milestones at various intervals through May 2023 in the form of cash or shares of common stock at the Company's option and it is subject to exchange rate fluctuation adjustment between the U.S. Dollar and Australian Dollar. The fair value of the contingent consideration was determined using a scenario-based method formed on the likelihoods of achieving each of the milestones. Increases or decreases in any of the probabilities of success in which the specific post-acquisition milestones are expected to be achieved would result in a higher or lower fair value measurement, respectively. Increases or decreases in the discount rate would result in a lower or higher fair value measurement, respectively.

In connection with the acquisition of WPM, we entered into an agreement to make certain earn-out payments based on the achievement of certain platform integration objectives as well as the achievement of minimum payment volume targets. The platform integration objectives are payable upon completion, and the payment volume targets are payable based on the results of the 15 month and subsequent 12 month periods after acquisition. The fair value of the contingent consideration related to the payment volume targets was determined using an option pricing model and the fair value of the contingent consideration related to the platform integration objectives was determined using a scenario-based method that reflects our expectation about the probability of payment based on facts and circumstances that existed at the acquisition closing date. The option pricing model includes significant unobservable inputs such as expectations regarding payment volume, a market price of risk adjustment for revenue and revenue volatility. The scenario-based method includes significant unobservable inputs such as the probability of completing certain platform integrations. Increases or decreases in any of the probabilities of success in which the platform integration objectives are expected to be achieved would result in higher or lower fair value measurement, respectively. Increases or decreases in expectations regarding the level at which payment volume are expected to be achieved would result in a higher or lower fair value measurement, respectively. Increases or decreases in the market price of risk adjustment of revenue would result in a decrease or increase in the fair value measurement, respectively. Increases or decreases in the revenue volatility would result in a decrease or increase in the fair value measurement, respectively.

In connection with the acquisition of Simplee, we entered into an agreement to make certain earn-out payments based on the achievement of applicable objectives as well as the achievement of certain revenue targets established for the years ended December 31, 2020 and 2021. The earn-outs related to the Simplee acquisition were payable at the one-year and two-year acquisition anniversary dates based on the prior year calendar revenue results. The fair value of the contingent consideration was determined using an option pricing model that reflects our expectation about the probability of payment based on facts and circumstances that existed at the acquisition closing date. The option pricing model includes significant unobservable inputs such as a discount rate that equals risk-free rate plus a spread to reflect the credit risk as estimated by our cost of debt, the probability of achieving established revenue, the probability of retaining key employees and the probability of completing certain platform integrations. Increases or decreases in any of the probabilities of success in which volume targets are expected to be achieved would result in a higher or lower liability, respectively. Increases or decreases in the discount rate would result in a lower or higher liability, respectively.

Subsequent to the acquisition date, at each reporting date, the contingent consideration is remeasured and changes in the fair value resulting from a change in the underlying inputs are recognized in general and administrative expense in the consolidated statements of operations and comprehensive loss until the contingent consideration is settled. The maximum amount we would be required to pay related to Cohort Go and WPM acquisitions is $2.2 million and $7.9 million, respectively. During the year ended December, 31 2022, the Company made the final payment of contingent consideration in the amount of $7.8 million related to the Simplee acquisition. No additional contingent consideration is due or payable with respect to the Simplee acquisition. The fair value of the contingent consideration at December 31, 2022 and 2021 was $1.3 and $11.3 million, respectively.

Valuation of Warrants to Purchase Preferred Stock

Prior to our IPO, we classified warrants to purchase shares of our convertible preferred stock as liabilities on our balance sheets as these were free standing instruments that may have required us to transfer assets upon exercise. The warrant liability associated with these warrants was recorded at fair value on the issuance date of each warrant and was subsequently marked to market each reporting period based on changes in the warrants’ fair value calculated using the Black-Scholes model. Inputs used in the fair value calculation included exercise price, risk-free interest rate, expected dividend yield, remaining contractual term and expected volatility. We determined the fair value per share of the underlying preferred stock by taking into consideration the most recent sales of our convertible preferred stock, results obtained from third-party valuations and additional factors that we deemed relevant. We were a private company and lacked company-specific historical and implied volatility information of our stock. Therefore, we estimated expected stock

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volatility based on the historical volatility of publicly traded peer companies for a term equal to the remaining contractual term of the warrants. The risk-free interest rate was determined by reference to the U.S. Treasury yield curve for time periods approximately equal to the remaining contractual term of the warrants. We estimated a 0% dividend yield based on the fact that we have never paid or declared dividends. Following our IPO, the preferred stock warrants were either fully exercised or converted to warrants to purchase common stock. As of December 31, 2022 and 2021, there were no preferred stock warrants outstanding. Changes in fair value of the warrants were recognized on the consolidated statements of operations and comprehensive loss.

The table below quantifies the weighted average of the most significant inputs used for the warrants valuation for the year ended December 31, 2020:

Revenue Recognition

We derive revenue from transactions and platform and usage-based fees.

Transaction Revenue

Our transaction revenue is derived from fees charged for payment processing services provided to educational institutions, healthcare entities and other commercial entities. Our services relate to facilitating payments from individuals, such as students and patients, and organizations to clients. Fees charged for payment processing services consists of a rate applied to the monetary value of the payment and can vary based on the payment method, currency pair conversion the transaction is settling in, as well as the geographic region in which the client and the client’s customer resides. Fees received are recorded as revenue in the consolidated statements of operations and comprehensive loss upon completion of the payment processing transaction. We do not recognize the underlying amount of the transaction being settled between client and client’s customer, as revenue or cost of revenue in the consolidated statements of operations and comprehensive loss, as we are not the responsible party for fulfilling the obligation between the client and client’s customer. Therefore, revenue is only recognized for the fee for which we are entitled for processing the payment.

We also earn revenue from fees charged to credit card service providers for marketing arrangements in which we perform certain marketing activities to increase the awareness of the credit card provider and promote certain methods of payment. Consideration under these arrangements include fixed fees and variable fees based on a percentage of transactions processed during the duration of the marketing program.

The money can be wired directly from the client’s customer to us, however, in certain situations when the client’s customer lives in a country where we do not have an active bank account, we use third-party service providers to collect wired funds before remitting the funds to us. The third-party service provider invoices us on a recurring basis with a fee for each payment processed and deposited into our bank account. The fee paid to third-party service providers as well as any foreign exchange banking fees paid by us are reflected in the payment processing services costs line in the consolidated statements of operations and comprehensive loss.

Platform and Usage-Based Fee Revenue

Our platform and usage-based fee revenue is derived from fees earned for utilizing our platform to collect accounts receivables on behalf of our clients from their customers, fees collected on payment plans established by a client for obligations due by a client’s customer, subscription fees and fees related to printing and mailing statements. Fees charged consist of a fixed fee and a variable fee determined based on volume of transaction processed through our platform.

Performance Obligations

We use significant judgement on determining the performance obligations in the arrangement based on considerations such as whether the client can benefit from each service on its own or together with other resources that are readily available from third parties or from us and whether each service is distinct in the context of the arrangement,

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whereby the transfer of the service is separately identifiable from other promises in the contract. In addition, we consider whether the arrangements contain a series of distinct services that are substantially the same and whether they have the same pattern of transfer.

Substantially all of our arrangements represent a single promise to provide continuous access to our platform to perform a series of activities such as payment processing services, cash collection optimization services, marketing, printing and mailing services, on an as-needed basis. As each day of providing these services is substantially the same and the client simultaneously receives and consumes the benefits as services are provided, these services are viewed as a single performance obligation comprised of a series of distinct daily services. We satisfy the performance obligation as these services are provided. Revenue is recognized in the month the service is complete.

For those arrangements that include fixed consideration, the fixed component is recognized ratably over the service period while variable consideration is recognized in the period earned.

We consider implementation service an activity to fulfill a contract, rather than a distinct performance obligation as the client does not obtain benefits from the implementation service alone. We charge an immaterial amount for implementation services.

Variable Consideration

Our contracts contain variable consideration as the amount we expect to receive in a contract is based on the occurrence or non-occurrence of future events, such as processing services performed as a transaction-based pricing arrangement. The variable consideration relates specifically to our effort to transfer each distinct daily service, as such we allocate the variable consideration earned to the distinct day in which those activities are performed and we recognize these fees as revenue in period earned, at which point the variable amount is known and it does not require estimation.

Other Revenue Recognition Policies

We incur costs in processing payments which may include banking, credit card processing, foreign currency translation and partner fees. These fees are direct costs incurred in providing payment processing services. The determination of whether we are a principal to a transaction (gross revenue) or an agent (net revenue) can require considerable judgment. Changes in judgments with respect to these assumptions and estimates could impact the amount of revenue recognized. Since we control the payment processing service, we are responsible for completing the payment, bear primary responsibility for the fulfillment of the payment service, and have full discretion in determining the fee charged, we act as a principal. As such, we recognize payment processing fee charged on a gross basis.

Stock-Based Compensation

We determine stock-based compensation expense associated with stock options based on the estimated grant date fair value method using the Black-Scholes option-pricing model. We recognize these compensation costs on a straight-line basis over the requisite service period of the award, which is generally the option vesting term of four years. We account for forfeitures as they occur.

The Black-Scholes option-pricing model requires the use of highly subjective assumptions which determine the fair value of stock- based awards. These assumptions include:

Expected term—The expected term represents the period that stock-based awards are expected to be outstanding. The expected term for option grants is determined using the simplified method. The simplified method deems the term to be the average of the time-to-vesting and the contractual life of the stock-based awards.

Expected volatility—Since we are a recent public company with limited trading history for our common stock, the expected volatility is estimated based on the average volatility for comparable publicly traded companies over a period equal to the expected term of the stock option grants. The comparable companies are chosen based on their similar size, stage in the lifecycle or area of specialty.

Risk-free interest rate—The risk-free interest rate is based on the U.S. Treasury zero coupon issues in effect at the time of grant for periods corresponding with the expected term of the option.

Expected dividend yield—We have never paid dividends on our common stock and non-voting common stock and have no plans to pay dividends on our common stock.

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Common Stock Valuation—Given the absence of an active market for our common stock and non-voting common stock prior to our IPO, the fair value of the shares of common stock underlying our share-based awards was estimated on each grant date by our board of directors with input from management and contemporaneous third-party valuations. These third-party valuations were performed in accordance with the guidance outlined by the American Institute of Certified Public Accountants 2013 Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation using either an option-pricing method, or OPM, or a hybrid method, both of which used market approaches and income approaches to estimate our enterprise value. The hybrid method is a probability-weighted expected return method, or PWERM, where the equity value in one or more of the scenarios is calculated using an OPM. The PWERM is a scenario-based methodology that estimates the fair value of common stock based upon an analysis of future values for a company, assuming various outcomes. The common stock value is based on the probability-weighted present value of expected future investment returns considering each of the possible outcomes available as well as the rights of each class of stock. The future value of the common stock under each outcome is discounted back to the valuation date at an appropriate risk-adjusted discount rate and probability weighted to arrive at an indication of value for the common stock. A discount for lack of marketability of the common stock is then applied to arrive at an indication of value for the common stock. The OPM treats common stock and redeemable convertible preferred stock as call options on an equity value, with exercise prices based on the liquidation preference of our redeemable convertible preferred stock. Under this method, our common stock has value only if the funds available for distribution to stockholders exceed the value of the liquidation preference at the time of a liquidity event, such as a merger or sale, assuming we have funds available to make a liquidation preference meaningful and collectible by the stockholders. The common stock is considered to be a call option with a claim at an exercise price equal to the remaining value immediately after the redeemable convertible preferred stock is liquidated.

In addition to considering the results of third-party valuations, our board of directors exercised reasonable judgment and considered various objective and subjective factors to determine the fair value of our common stock as of the date of each grant, including:

•
our actual operating results and financial performance;

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conditions in the industry and economy in general;

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the rights, preferences and privileges of our redeemable convertible preferred stock and convertible preferred stock relative to those of our common stock;

•
the likelihood of achieving a liquidity event for the holders of our common stock, such as an IPO or a sale of our company, given prevailing market conditions;

•
equity market conditions affecting comparable public companies and the market performance of comparable publicly traded companies;

•
the U.S. and global capital market conditions; and

•
the lack of marketability of our common stock and the results of independent third-party valuations.

The assumptions underlying these valuations represented management’s best estimate, which involved inherent uncertainties and the application of management’s judgment. As a result, if we had used significantly different assumptions or estimates, the fair value of our common stock and our stock-based compensation expense could have been materially different.

Following our IPO, our board of directors no longer estimate the fair value of our common stock in connection with granted stock options and other granted equity awards as the fair value of our common stock is determined based on the quoted market price of our common stock.

Emerging Growth Company Status

The JOBS Act permits an “emerging growth company” to take advantage of an extended transition period to comply with new or revised financial accounting standards applicable to public companies until those standards would otherwise apply to nonpublic companies. The Company previously qualified as an emerging growth company and had elected to use this extended transition period for complying with new or revised financial accounting standards that had different effective dates for public and private companies until the earlier of the date we (i) were no longer an emerging growth company or (ii) affirmatively and irrevocably opted out of the extended transition period provided in the JOBS Act.

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As of June 30, 2022, the market value of our common stock that was held by non-affiliates exceeded $700.0 million, and as a result, we no longer qualified as an emerging growth company as of December 31, 2022 when we became a large accelerated filer. Therefore, we are required to comply with new or revised financial accounting standards as of the effective dates applicable to public companies that are not emerging growth companies.

Recent Accounting Pronouncements

See Note 1 - Business Overview and Summary of Significant Accounting Policies to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for accounting pronouncements adopted and accounting pronouncements not yet adopted as of December 31, 2022.

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