AVIDXCHANGE HOLDINGS, INC. Management report and analysis of the financial situation and operating results. (Form 10-Q)
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the unaudited interim financial statements and notes thereto included in this Quarterly Report on Form 10-Q and with our audited financial statements and notes thereto for the year ended
December 31, 2021and the related Management's Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K for the year ended December 31, 2021. Forward Looking Statements The following discussion and other parts of this Quarterly Report contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, (the "Exchange Act"). All statements other than statements of historical facts contained in this Quarterly Report, including statements regarding our future operating results and financial position, our business strategy and plans, market growth, and our objectives for future operations. These statements are often identified by the use of words such as "believe," "may," "will," "estimate," "potential," "continue," "anticipate," "intend," "expect," "could," "would," "project," "plan," "target," and similar expressions or variations. The forward-looking statements in this Quarterly Report are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, operating results, business strategy, short-term and long-term business operations and objectives. These forward-looking statements speak only as of the date of this Quarterly Report and are subject to a number of risks, uncertainties and assumptions, including those described in the Part II, Item 1A under the heading "Risk Factors." The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise. You should read this Quarterly Report on Form 10-Q, and the documents that we reference in this Quarterly Report on Form 10-Q and have filed with the SEC, with the understanding that our actual future results, performance, and events and circumstances may be materially different from what we expect.
In this Quarterly Report on Form 10-Q, the words “we”, “us”, “we”, “
AvidXchangewas founded in 2000 to serve the AP automation needs of the middle market. In 2012, in response to customer demand for more efficient payment methods, we launched the AvidPay Network. Since 2012, we have had substantial growth, both organic and through a series of strategic acquisitions allowing us to expand the vertical markets that we serve and enter new ones.
Our business and revenue model
We sell our solutions through a hybrid go-to-market strategy that includes direct and indirect channels. Our direct sales force leverages their deep domain expertise in select verticals and over 120 referral relationships with integrated software providers, financial institutions and other partners to identify and attract buyers that would benefit from our AP software solutions and the AvidPay Network. Our indirect channel includes reseller partners and other strategic partnerships such as Mastercard, through MasterCard's B2B Hub, which includes
Fifth Third Bankand Bank of America, and other financial institutions, such as KeyBank, and third-party software providers such as MRI Software, RealPage and SAP Concur. Our referral and indirect channel partnerships provide us greater reach across the market to access a variety of buyers. One of the ways that we evaluate our revenue model is by looking at our net transactions processed retention rate. We calculate the net transactions processed retention rate for a current period by dividing the (i) number of total transactions processed for customers in the current period by (ii) the number of total transactions processed for the same customers in the comparable prior period. Accordingly, the net transactions processed retention rate is calculated solely based on transactions of prior period customers in the current period, regardless of whether or not the prior period customer remains a customer in the current period. Correspondingly, customers in the current period that were not customers in the prior period are excluded from the current period calculation of the net transactions processed retention rate. Net transactions processed retention rate, together with our key metric Transactions Processed (as described below in the section titled "Key Financial and Business Metrics"), enables us to both assess transaction volume attributable to retained customers in a period as well as determine transaction volume attributable to new customers during the same period. This annual metric allows us to quantify the activity of retained customers over time and illustrates both retention and expansion of the volume of total transactions processed for such customers. Our net transactions processed retention rate from 2018 to 2019 was 105%, from 2019 to 2020 it was 102%, and from 2020 to 2021 it was 107%. 19 -------------------------------------------------------------------------------- We have a highly visible revenue model based on the durability of our buyer relationships and the recurring nature of the revenues we earn. Our revenues are derived from multiple sources, predominantly through software revenue from our buyers and revenue from payments made to their suppliers. The table below represents our revenues disaggregated by type of service performed (in thousands): Three Months Ended March 31, Disaggregation of Revenue: 2022 2021 Software revenue $ 23,911 $ 20,415Payment revenue 46,468 34,161 Services revenue 824 638 Total revenues $ 71,203 $ 55,214
Software revenue, payment revenue and service revenue are described below in the section titled “Components of Operating Results”.
Impact of the Covid-19 pandemic
Notwithstanding current vaccinations and the gradual re-opening of the
U.S.economy, the global COVID-19 pandemic, including the emergence of recently discovered variants that are thought to be more contagious (such as the increasingly widespread "Delta" and "Omicron" variants), continues to adversely affect commercial activity and has contributed to significant volatility in the financial markets, which may continue. In 2022, we have continued to see the impact of COVID-19 on our business and on our buyers and suppliers. We believe that, as a result of the uncertainty created by the pandemic, many buyers have been and may continue to be in the near term reluctant to invest in the purchase and implementation of our products and services, which has had a negative impact on new sales and has led to longer sales cycles. These trends have made it, and if they continue will make it, more difficult for us to acquire new buyers and have led to greater uncertainty around closing new sales opportunities, adversely impacting our future revenue.
Impact of inflation
U.S.economy is currently experiencing a higher than normal level of inflation. The long term impacts of inflation on the economy and our business are unclear. Our revenue could be positively impacted by inflation as the value of our customer's payments could rise, increasing our payment volume and the base on which we earn interchange revenue. Conversely, the impact of inflationary pressures on the macro economy could slow the spending of our customers and decrease payment volume. Inflation could also negatively impact our operating costs by increasing costs incurred by us to operate our business in terms of higher costs from our vendors and increased personnel costs.
Main financial and commercial indicators
We regularly review several financial and business metrics to measure our performance, identify trends affecting our business, prepare financial projections, and make strategic decisions. We believe that these key business metrics provide meaningful supplemental information for management and investors in assessing our historical and future operating performance. The calculation of the key metrics and other measures discussed below may differ from other similarly-titled metrics used by other companies, securities analysts or investors. Three Months Ended March 31, 2022 2021 Percentage Change Transactions Processed 16,852,489 14,581,241 15.6 % Transaction Yield $ 4.23
$ 3.7911.6 % Total Payment Volume (in millions) $ 15,197 $ 10,81440.5 % Transactions processed We believe that transactions processed is an important measure of our business because it is a key indicator of the use by both buyers and suppliers of our solutions and our ability to generate revenue, since a majority of our revenue is generated based on transactions processed. We define transactions processed as the number of invoice transactions and payment transactions, such as invoices, purchase orders, checks, ACH payments and VCCs, processed through our platform during a particular period. Transaction yield We believe that transaction yield is an important measure of the value of solutions to buyers and suppliers as we scale. We define transaction yield as the total revenue during a particular period divided by the total transactions processed during such period. 20 -------------------------------------------------------------------------------- Total payment volume We believe total payment volume is an important measure of our AvidPay Network business as it quantifies the demand for our payment services. We define total payment volume as the dollar sum of buyers' AP payments paid to their suppliers through the AvidPay Network during a particular period.
Components of operating results
We generate revenue from the following sources: (i) software, (ii) payments and (iii) services.
Software Revenue We generate software revenue from our buyers primarily through (i) fees calculated based on the number of invoices and payment transactions processed and (ii) recurring maintenance and SaaS fees. Software revenue is typically billed to and paid by our buyers on a monthly basis. Our software offerings, many of which are built for specific verticals, address the needs of buyers and together they comprise our suite of predominately cloud-based solutions designed to manage invoices and automate the AP function. We generally sign multi-year contracts with buyers and revenue is recognized over the term of the contract. We also receive initial upfront implementation fees and software maintenance fee revenue for ongoing support, which are recognized ratably over the term of the applicable support period. Payment Revenue We generate revenue from the payments our buyers make to their suppliers through (i) offering electronic payment solutions to suppliers, (ii) fees charged to suppliers from our invoice factoring product, and (iii) interest on funds held for buyers pending disbursement. Our electronic payment solutions currently include VCC and an enhanced ACH payment product, or AvidPay Direct, which eliminate paper checks and increase the speed to payment for the supplier. AvidPay Direct also provides suppliers with enhanced remittance data allowing the supplier to reconcile the payment and the underlying invoice. VCC revenues result from interchange fees applied to the spend processed and are recorded net of fees and incentives. AvidPay Direct revenue is based on a per transaction fee that we charge to suppliers that generally includes a cap and is based on the spend per payment and is recorded net of incentives. Our invoice factoring product, Invoice Accelerator, provides certain suppliers with the opportunity to better manage cash flows and receive payments even faster by allowing suppliers to receive advance payment on qualifying invoices. Revenues are generated on a per transaction basis for each payment that is advanced. We currently fund the purchase of invoices from our balance sheet.
Interest income represents interest received from buyer deposits held during the payment clearing process. We earn interest on funds held under our contractual relationship with our buyers.
Our media payments business includes clients involved in political advertising in the
Service Revenue Service Revenue includes fees charged to process service requests modified by the buyer.
Total Revenue We expect our total revenue to increase year over year due to an increase in the number of buyers and transactions processed, and that payment revenue will comprise a greater proportion of total revenue should the volume of transactions on the AvidPay Network continue to increase.
Cost of Operating Revenues and Expenses
Cost of Revenues Cost of revenues includes personnel related costs, which include direct compensation, fringe benefits, short- and long-term incentive plans and stock-based compensation expense. Cost of revenues includes teams responsible for buyer and supplier onboarding and setup, invoice processing, payment operations, money movement execution, and customer service. Personnel costs also include internal labor associated with the employees who monitor the performance and reliability of our buyer and supplier solutions and the underlying delivery infrastructure (i.e., application and data hosting administration, product support and escalations, payment monitoring and settlement functions). Cost of revenues also includes external expenses that are directly attributed to the processing of invoice and payment transactions. These expenses include the cost of scanning and indexing invoices, printing checks, postage for mailing checks, expenses for processing payments (ACH, check, and wires), bank fees associated with buyer deposits held during the payment clearing process, and other transaction execution costs. Additionally, cost of revenues includes fees paid to third parties for the 21 -------------------------------------------------------------------------------- use of their technology, data hosting services, and customer relationship management tools in the delivery of our services or in supporting the delivery infrastructure and adjustments to the allowance for uncollectible advancements processed through Invoice Accelerator. Lastly, cost of revenues includes estimates for treasury losses that occur in treasury operations.
Treasurylosses include various unrecoverable internal payment processing errors that occur in the ordinary course of business, such as duplicate payments, overpayments, payments to the wrong party and reconciliation errors.
We have chosen to exclude the amortization expense of capitalized developed software and acquired technology, as well as allocations of amortization expense of fixed assets and installation expenses from the cost of products.
We expect our cost of revenue as a percentage of revenue to decline as we continue to realize operational efficiencies and shift more of our transactions to electronic payments.
Sales and Marketing Sales and marketing consists primarily of costs related to our direct sales force and partner channels that are incurred in the process of setting up go-to-market strategies, generating leads, building brand awareness and acquiring new buyers and suppliers, including efforts to convert suppliers from paper check payments to electronic forms of payments and efforts to enroll them into the Invoice Accelerator solution. Personnel costs include salaries, wages, direct and amortized sales commissions, fringe benefits, short- and long-term incentive plans and stock-based compensation expense. Most of the commissions paid to the direct sales force are incremental based upon invoice and payment volume from the acquisition of a new buyer and are deferred and amortized ratably over an estimated benefit period of five years.
The partner ecosystem consists of resellers, referral partners and accounting systems. Remunerations paid to SEO and accounting system partners in exchange for the partner’s SEO and marketing efforts are classified as sales and marketing expenses.
In addition, we focus on generating awareness of our platform and products through a variety of sponsorships, user conferences, trade shows, and integrated marketing campaigns. Costs associated with these efforts, including travel expenses, external consulting services, and various technology applications are included in sales and marketing as well. We expect our sales and marketing expenses to increase in absolute dollars while remaining fairly consistent as a percentage of revenue as we continue to expand our market presence, grow our customer base, and continue to develop new offerings to sell to our buyers and suppliers. We are focused on the efficient deployment of marketing resources to drive our sales efforts and expect to continue to increase marketing activities over the coming periods. Research and Development Research and development efforts focus on the development of new products and business intelligence tools or enhancements to existing products and applications, as well as large scale infrastructure projects that improve the underlying architecture of our technology. The main contributors of research and development costs are (i) personnel related expenses, including fringe benefits, short- and long-term incentive plans and stock-based compensation expense, and (ii) fees for outsourced professional services. We capitalize certain internal and external development costs that are attributable to new products or new functionality of existing products and amortize such costs to depreciation and amortization on a straight-line basis over an estimated useful life, which is generally three years. We also incur research and development costs attributable to the use of software tools and technologies required to facilitate the research and development activities. Examples of such costs include fees paid to third parties to host lower technical environments and the associated virtual machine ware fees paid to support agile development efforts, and fees paid for software tools and licenses used in quality control testing and code deployment activities. We expect our research and development expense to increase in absolute dollars, but to decrease as a percentage of revenue as we are able to efficiently deploy our development resources against a larger revenue base. General and Administrative General and administrative expenses consist primarily of our finance, human resources, legal and compliance, facilities, information technology, administration, and information security organizations. Significant cost contributors are (i) personnel expenses, including fringe benefits, short- and long-term incentive plans and stock-based compensation expense, and (ii) costs of software applications, including end user computing solutions, and various technology tools utilized by these organizations. Occupancy expenses, which include personnel, rent, maintenance and property tax costs are not allocated to other components of the statements of operations and remain in general and administrative expenses. General and administrative expenses are reduced by incentives we have received from state and local government agencies as part of various local job development investment grants. 22 -------------------------------------------------------------------------------- We expect our general and administrative expenses to increase in both absolute dollars and as a percentage of revenue over the next two years, as we continue to build out our infrastructure to support our operations as a public company, and to support a greater customer base. After approximately two years we expect these expenses to decrease as a percentage of revenue as a large portion of this public company infrastructure investment is comprised of fixed costs. Impairment and Write-Off of Intangible Assets Impairment and write-off of intangible assets is the reduction from carrying value to fair value for assets or asset groups whose carrying value is not recoverable and also includes charges determined based on our estimation of the amount of obsolescence of previously capitalized software development costs. Depreciation and Amortization Depreciation and amortization expense includes depreciation of property and equipment over the estimated useful life of the applicable asset, as well as amortization of acquired intangibles (i.e., technology, customer list and tradename) with a useful life between 3 and 15 years, and amortization of capitalized software development costs with an estimated benefit of 3 years.
Other income (expenses) Other income (expenses) mainly includes interest expense on our bank loans and head office finance leases, offset by interest income on non-customer funds of the company. In addition, in periods prior to our IPO, other income (expense) included changes in the fair value of our derivative instrument, which required fair value adjustments at each reporting period.
Income Tax Expense (Benefit) Income tax expense (benefit) consists of federal and state income taxes.
The following table sets forth our results of operations for the periods presented (in thousands, except per share and per share data):
Three Months Ended March 31, 2022 2021 Revenues $ 71,203
$ 55,214Cost of revenues (exclusive of depreciation and amortization expense) 27,807 22,540 Operating expenses Sales and marketing 17,239 13,511 Research and development 20,072 13,933 General and administrative 18,688
Depreciation and amortization 7,718 7,077 Total operating expenses 63,717 48,685 Loss from operations (20,321 ) (16,011 ) Other income (expense) Interest income 220 132 Interest expense (4,977 ) (5,025 ) Change in fair value of derivative instrument -
Charge for amending financing advisory engagement letter - related party - (50,000 ) Other expenses (4,757 ) (53,947 ) Loss before income taxes (25,078 ) (69,958 ) Income tax expense 69 68 Net loss
$ (25,147 ) $ (70,026 )Accretion of convertible preferred stock - (4,602 ) Net loss attributable to common stockholders $ (25,147 ) $ (74,628 )Net loss per share attributable to common stockholders, basic and diluted $ (0.13 ) $ (1.43 )Weighted average number of common shares used to compute net loss per share attributable to common stockholders, basic and diluted 197,017,555 52,057,532
Comparison of the three months ended
Three Months Ended
March 31, Period-to-Period
Change 2022 2021 Amount Percentage (in thousands) Revenues
$ 71,203 $ 55,214 $ 15,98929.0 % The increase in revenues was comprised of an increase in software revenue of $3.5 million, or 17.1%, primarily driven by increased invoice and payment transaction volume from new and existing customers and the inclusion of $0.1 millionof software 23 --------------------------------------------------------------------------------
revenues associated with the acquisition of FastPay which was finalized in
Cost of Revenues Three Months Ended March 31, 2022 2021 Percentage Percentage Period-to-Period Change Amount of Revenue Amount of Revenue Amount Percentage (in thousands) Cost of revenues (excluding depreciation and amortization expense)
$ 27,80739.1 % $ 22,54040.8 % $ 5,26723.4 % The increase in cost of revenues (excluding depreciation and amortization expense) was due primarily to an increase in employee costs of $2.4 million, including an increase in stock-based compensation of $0.9 million. This increase is driven by hiring efforts to support the growth in our business as well as a $0.4 millionimpact related to headcount additions from our acquisition of FastPay, which closed in July 2021. The additional employees are supporting buyer and supplier experience services, SaaS product delivery and money movement. The remainder of the increase was primarily driven by increases in invoice and check processing fees of $0.9 million, increases in cloud hosting fees of $0.7 millionrelated to a higher volume of transactions processed through our applications as well as our on-going transition of services to cloud hosting, and increases of $0.8 millionfor misdirected payments and reserve Invoice Accelerator purchased invoices as we changed our estimate for the recoverability of supplier advance receivables. An additional increase of $0.5 millionis attributable to impact of deferred implementation costs as amortization costs continue increase with the addition of new costs as well as more costs were deferred in the prior year. Operating Expenses Three Months Ended March 31, 2022 2021 Percentage Percentage Period-to-Period Change Amount of Revenue Amount of Revenue Amount Percentage (in thousands) Sales and marketing $ 17,23924.2 % $ 13,51124.5 % $ 3,72827.6 % Research and development 20,072 28.2 % 13,933 25.2 % 6,139 44.1 % General and administrative 18,688 26.2 % 14,164 25.7 % 4,524 31.9 % Depreciation and amortization 7,718 10.8 % 7,077 12.8 % 641 9.1 % Sales and Marketing Expenses The increase in sales and marketing expenses was due primarily to an increase of $1.5 millionin employee costs (net of capitalized sales commissions), driven by a $0.6 millionimpact related to headcount additions from the acquisition of FastPay and includes an increase in stock-based compensation of $0.8 million. We experienced increases in marketing costs of $1.0 millionand travel expenses of $0.4 millionas events and sales-related travel increased compared to the low levels we experienced in 2021 due to the pandemic. We experienced increases in partner commissions of $0.4 millionas well as an additional increase of $0.4 millionin consulting and other costs. Research and Development Expenses Research and development expenses increased primarily due to a $0.4 millionincrease in costs associated with engaging consultants and contractors to support the investment in our platform, and $6.0 millionrelated to increased employee costs. The investments in our platform are intended to increase the quality, reliability and efficiency of our technology. The increase in employee costs relates to both headcount and compensation increases and includes increases of $0.8 millionassociated with the acquisition of FastPay and an increase in stock-based compensation of $1.7 million. These increases were offset, in part, by a reduction in expense associated with capitalization of internally developed software of approximately $0.6 million. General and Administrative Expenses The increase in general and administrative expenses is attributable to a $3.8 millionincrease in employee costs, including an increase in stock-based compensation of $2.5 million, as well as a $1.1 millionincrease of professional and consulting fees and contract labor. The increases reflect the growth in our business and our preparation to operate as a public company. The increases in employee costs include $0.2 millionassociated with the acquisition of FastPay which closed in July 2021. These increases were offset, in part, by a reduction in transaction costs of $1.4 millionattributable to deal related costs incurred in the prior year period. An additional increase of $0.5 millionis attributable to facilities costs and rent attributable to FastPay and a $0.3 millionincrease is attributable to bad debt expense. 24 -------------------------------------------------------------------------------- Depreciation and Amortization Depreciation and amortization increased primarily due to the amortization of intangible assets associated with the acquisitions of FastPay, which closed in July 2021, and media customer assets, which closed in January 2022. Other Income (Expense) Three Months Ended March 31, 2022 2021 Percentage Percentage Period-to-Period Change Amount of Revenue Amount of Revenue Amount Percentage (in thousands)
Other income (expenses)
$ 49,190(91.2 )%
Other expenses decreased mainly due to a
Income Tax Expense Three Months Ended March 31, 2022 2021 Percentage Percentage Period-to-Period Change Amount of Revenue Amount of Revenue Amount Percentage (in thousands) Income tax (benefit) expense
$ 690.1 % $ 680.1 % $ 11.5 %
The provision for income taxes primarily relates to state income taxes and non-current federal taxes related to the future non-deductibility of goodwill.
Stock-based Compensation All of our RSUs outstanding prior to our IPO in
October 2021contained both service-based and performance-based vesting conditions. The performance condition was settled in connection with our IPO. No compensation expense was recognized for RSUs in periods prior to the fourth quarter of 2021.
Cash and capital resources
We do not currently generate positive cash flow through our operations. We have financed our operations and capital expenditures primarily through sales of common and preferred stock and borrowings under our 2019 Credit Agreement, as defined below, and, more recently, our IPO that was completed in
October 2021, which resulted in net proceeds of $621.4 million, including the exercise of the overallotment option and after deducting underwriting discounts and commissions of $40.4 millionand offering expenses of approximately $11.8 million. As of March 31, 2022, our principal sources of liquidity are our unrestricted cash and cash equivalents of approximately $294.9 million, marketable securities of approximately $228.7 millionand funds available under our existing term loan and revolving credit facilities, which we collectively refer to as the 2019 Credit Agreement. As of March 31, 2022, our unused committed capacity under the 2019 Credit Agreement was $22.4 millioncomprised of a delayed draw term loan and a revolving commitment. We believe that our unrestricted cash, cash equivalents, marketable securities, and funds available under our 2019 Credit Agreement will be sufficient to meet our working capital requirements for at least the next twelve months. To the extent existing cash, marketable securities, cash from operations, and amounts available for borrowing under the 2019 Credit Agreement are insufficient to fund future activities, we may need to raise additional capital. In the future, we may attempt to raise additional capital through the sale of equity securities or through equity-linked or debt financing arrangements. If we raise additional capital by issuing equity or equity-linked securities, the ownership of our existing stockholders will be diluted. If we raise additional capital by the incurrence of additional indebtedness, we may be subject to increased fixed payment obligations and could also be subject to additional restrictive covenants, such as limitations on our ability to incur additional debt, and other operating restrictions that could adversely impact our ability to conduct our business. Our ability to raise additional debt may be limited by applicable regulatory requirements as a licensed money transmitter that require us to meet certain net worth requirements. Any future indebtedness we incur may result in terms that could be unfavorable to equity investors. There can be no assurances that we will be able to raise additional capital. The inability to raise capital would adversely affect our ability to achieve our business objectives.
Here is a summary of our consolidated cash flows:
Three Months Ended March 31, Selected Cash Flow Data: 2022 2021 (in thousands) Net cash (used in) provided by: Operating activities
$ (25,314 ) $ (19,944 )Investing activities (243,686 ) (4,098 ) Financing activities (309,265 ) 388,793 Net increase in cash and cash equivalents, and restricted funds held for customers $ (578,265 ) $ 364,751
Our primary source of cash provided by our operating activities is from our software and payment revenue. Our primary uses of cash in our operating activities include payments for employee salary and related costs, payments to third party service providers to execute our payment transactions, sales and marketing costs, and other general corporate expenditures. Net cash used in operating activities increased to
$25.3 millionduring the three months ended March 31, 2022from $19.9 millionduring the three months ended March 31, 2021due primarily to changes in working capital from variations in the timing of receipts from customers and payments to vendors and timing of the payment of annual bonuses.
Cash flows used in our investing activities primarily include purchases of marketable securities, purchases of property, plant and equipment, purchases of intangible assets, capitalization of software for internal use and advances from suppliers related to our Invoice product Accelerator.
Net cash used in investing activities increased to
$243.7 millionduring the three months ended March 31, 2022compared to $4.1 millionduring the three months ended March 31, 2021, primarily due to the purchase of marketable securities of $228.6 millionas well as the acquisition of customer list and non-compete agreements in our media payments market and as both internal-use software and cash invested in supplier advances increased.
Net cash used in financing activities was
$309.3 millionduring the three months ended March 31, 2022compared to cash provided by financing activities of $388.8 millionduring the three months ended March 31, 2021, due primarily to variations in the inflows and outflows from payment service obligations of our customers. Outstanding Debt
Below is a summary of our outstanding debt (in thousands):
As of March As of December 31, 2022 31, 2021 Term loan facility
$ 95,000 $ 95,000Delayed draw term loan 10,193 9,023 Promissory note payable for land acquisition 23,500
Total principal due 128,693
Current portion of promissory note (4,800 ) (4,800 ) Unamortized portion of debt issuance costs (2,527 ) (2,843 ) Long-term debt
$ 121,366 $ 119,880Credit Facilities Our senior secured credit facility, which we refer to as the 2019 Facility, with Sixth Streetand KeyBankmakes available an aggregate amount of $133.5 millionas of March 31, 2022. The 2019 Credit Agreement consists of the following:
Interest on the loans under the 2019 Facility is equal to LIBOR or a base rate, plus a margin. The applicable margin will be between 8.0% and 9.0% for the first three years, with the lower rate applicable for quarters in which we do not borrow from the 26 -------------------------------------------------------------------------------- Interest DDTL, and after the third anniversary will be 7.5% or 8.0% depending on whether the cash burn rate is greater than or less than negative
$2.5 million. The base rate is equal to the higher of the current prime rate, federal funds effective rate plus 0.5%, or 4.0%. We may elect an interest period of up to three months in connection with a LIBOR rate loan. Per the terms of the 2019 Credit Agreement, the unavailability or replacement of LIBOR would result in the use of a similar measure based upon a calculated average of borrowing rates offered by major banks in the Londoninterbank as determined by Sixth Street. As such, we do not believe that the unavailability of LIBOR will have any material impact on our borrowing costs.
The maturity date for DDTL 2019 Term and Interest Loans is
Borrowing increments on the 2019 revolver start at
$0.5 million, and multiples of $0.1 millionin excess of that amount. There was no balance outstanding under the facility as of March 31, 2022and December 31, 2021. The maturity date for the 2019 revolver is October 1, 2023. Borrowing availability under the 2019 revolver is reduced by the then current amount of the letter of credit dated October 1, 2019and issued by KeyBankto secure our obligation to make payments under the lease related to our headquarters building in Charlotte, North Carolina. The current amount of the letter of credit is approximately $6.0 million. Liquidity and Financial Covenants Our 2019 Facility contains certain covenants and restrictions on actions, including limitations on the payment of dividends. In addition, the 2019 Facility requires that we comply monthly with specified ratios, including a maximum ratio of debt to recurring revenue and a minimum cash balance requirement. We are in compliance with our financial debt covenants as of March 31, 2022. Land Promissory Note On November 15, 2018, we signed a promissory note in connection with the purchase of two land parcels at our Charlotte, North Carolinaheadquarters campus. The principal amount of $5.0 millionwill be repaid in $1.0 millioninstallments, plus accrued interest at a rate of 6.75%, due on each anniversary date, with final payment due on November 15, 2023. The note is collateralized by the land parcels and any future building to be situated on, or improvements to, the land. In December 2021in connection with the purchase of additional land and improvements, the promissory note was modified to extend its term to November 15, 2025and reduce the annual payment to $0.5 million. In December 2021, we executed a promissory note in connection with the purchase of land and improvements adjacent to our Charlotte, North Carolinaheadquarters campus. The principal amount of $21.5 millionwill be repaid in four annual installments of $4.3 million, plus accrued interest at a rate of 6.75%, starting on December 1, 2022and the final payment of $4.3 millionplus accrued interest due on May 15, 2026. The note is collateralized by the land and improvements on the land.
We are current with all payments under the Notes.
Issuances of Common Stock During the three months ended
March 31, 2022, we issued 821,813 shares of common stock for the settlement of vested restricted stock units and exercise of options. Payment Obligations We process payments for our customers. As part of our payment product offering we have recorded payment service obligations in our consolidated balance sheets of $932.0 millionas of March 31, 2022and an offsetting asset of restricted funds held for customers. This balance is short-term in nature and represents our obligation to pay our customers' suppliers as directed by our customers. Under our legacy trust model for processing payments, which we are in the process of phasing out, buyers' funds were held in trust accounts that are maintained and operated by a trustee pending distribution. After buyers' funds are deposited in a trust account, we initiate payment through external payment networks whereby the buyers' funds are distributed from the trust to the appropriate supplier. We are not the trustee or beneficiary of the trusts which hold these buyer deposits, accordingly, we do not record these assets and offsetting liability on our consolidated balance sheets. However, we contractually earn interest on funds held for buyers with associated counterparties. The amount of buyer funds held in trust-related accounts was approximately $100.6 millionand $123.6 millionat March 31, 2022and December 31, 2021, respectively. We have largely transitioned away from the trust model for processing payments, and expect the amount of buyer funds held in trust to continue to decrease as those buyers transition to our current payments model.
There were no material changes in our contractual obligations and commitments during the three months ended
March 31, 2022from the contractual obligations and commitments disclosed in our annual report on Form 10- K. See Note9 of the notes to our 27 --------------------------------------------------------------------------------
consolidated financial statements included elsewhere in this quarterly report on Form 10-Q for additional information regarding contractual obligations and commitments.
Significant Accounting Policies and Estimates
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.
There have been no material changes in our critical accounting policies from the critical accounting policies and material judgments and estimates disclosed in our Annual Report on Form 10-K for the year ended
Recent accounting pronouncements
See Note 2 to our unaudited consolidated financial statements included elsewhere in this quarterly report on Form 10-Q for recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted as of
March 31, 2022.
Emerging Growth Company Status
We are an emerging growth company, as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates. We expect to use the extended transition period for any other new or revised accounting standards during the period in which we remain an emerging growth company.
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