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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __ to __

Commission file number 001-819881
Paya Holdings Inc.
(Exact Name of Registrant as Specified in Charter)
Delaware85-2199433
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
303 Perimeter Center North, Suite 600, Atlanta, Georgia 30346
(Address, including zip code, of principal executive offices)
(800) 261-0240
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, par value $0.001 per share
PAYAThe Nasdaq Capital Market
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No
There were 132,019,818 shares of Common Stock, par value $0.001 per share, issued and outstanding as of November 4, 2021.
1

Table of Contents
Paya Holdings Inc.
TABLE OF CONTENTS
Quarterly Report on FORM 10-Q
September 30, 2021
2

Table of Contents
Cautionary Statement Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements relate to expectations for future financial performance, business strategies or expectations for the Company. Specifically, forward-looking statements may include statements relating to:

operational, economic, political and regulatory risks;
natural disasters and other business disruptions including outbreaks of epidemic or pandemic disease;
changes in demand within a number of key industry end-markets and geographic regions;
failure to retain key personnel;
our inability to recognize deferred tax assets and tax loss carry forwards;
our future operating results fluctuating, failing to match performance or to meet expectations;
unanticipated changes in our tax obligations;
our obligations under various laws and regulations;
the effect of litigation, judgments, orders or regulatory proceedings on our business;
our ability to successfully acquire and integrate new operations;
global or local economic and political movements;
our ability to effectively manage our credit risk and collect on our accounts receivable;
our ability to fulfill our public company obligations;
any failure of our management information systems and data security;
our ability to meet our debt service requirements and obligations;
changes in the payment processing market in which Paya competes;
changes in the vertical markets that Paya targets;
Paya’s relationships within the payment ecosystem;
Paya’s growth strategies;
changes in accounting policies applicable to Paya;
the development and maintenance of effective internal controls; and

other risks and uncertainties discussed in the section titled “Risk Factors,” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31 2020, Part II, Item 1A of this Quarterly Report on Form 10-Q and our other filings with the Securities and Exchange Commission.

These forward-looking statements are based on information available as of the date of this Quarterly Report on Form 10-Q and our management’s current expectations, forecasts and assumptions, and involve a number of judgments, risks and uncertainties. Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date. We undertake no obligation to update forward-looking statements to reflect events or
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circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
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Part I
Item 1. Unaudited Condensed Consolidated Financial Statements
Paya Holdings Inc.
Condensed Consolidated Statements of Income and Other Comprehensive Income
(In thousands except per share data)
(Unaudited)

Three Months Ended
September 30,
Nine Months Ended
September 30,
2021202020212020
Revenue
$63,058 $51,819 $182,297 $152,045 
Cost of services exclusive of depreciation and amortization
(30,504)(25,919)(86,840)(75,328)
Selling, general & administrative expenses
(18,718)(13,963)(56,478)(43,548)
Depreciation and amortization
(7,891)(5,959)(22,442)(17,966)
Income from operations
5,945 5,978 16,537 15,203 
Other income (expense)
Interest expense
(3,137)(4,155)(11,002)(13,494)
Other income (expense)
(67)(25)(8,042)(31)
Total other expense
(3,204)(4,180)(19,044)(13,525)
Income (loss) before income taxes
2,741 1,798 (2,507)1,678 
Income tax (expense) benefit
(5,702)(196)(2,563)(127)
Net income (loss)
$(2,961)$1,602 $(5,070)$1,551 
Weighted average shares outstanding of common stock128,429,090 54,534,022124,523,217 54,534,022
Basic net income (loss) per share$(0.02)$0.03 $(0.04)$0.03 
Diluted net income (loss) per share$(0.02)$0.03 $(0.04)$0.03 
See accompanying notes to the unaudited condensed consolidated financial statements.

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Paya Holdings Inc.
Condensed Consolidated Balance Sheets
(In thousands except share data)
(Unaudited)
September 30,December 31,
20212020
Assets
Current assets:
Cash and cash equivalents
$133,144 $23,617 
Trade receivables, net
25,027 17,493 
Prepaid expenses
2,227 2,218 
Income taxes receivable
995 541 
Other current assets
799 457 
Total current assets before funds held for clients
162,192 44,326 
Funds held for clients
82,526 78,505 
Total current assets
$244,718 $122,831 
Non-current assets:
Property and equipment, net
14,416 12,805 
Goodwill
222,008 206,308 
Intangible assets, net
141,978 132,616 
Other non-current assets
1,213 781 
Total Assets
$624,333 $475,341 
Liabilities and stockholders’ equity
Current liabilities:
Trade payables
1,270 3,967 
Accrued liabilities
13,532 10,435 
Accrued revenue share
10,252 7,535 
Other current liabilities
4,366 3,071 
Total current liabilities before client funds obligations
29,420 25,008 
Client funds obligations
80,923 78,658 
Total current liabilities
$110,343 $103,666 
Non-current liabilities:
Deferred tax liability, net
14,971 14,618 
Long-term debt
242,298 220,152 
Tax receivable agreement liability18,930 19,627 
Other non-current liabilities
1,250 1,246 
Total liabilities
$387,792 $359,309 
Stockholders’ Equity:
Common stock, $0.001 par value; 500,000,000 authorized; 132,009,818 and 116,697,441 issued and outstanding as of September 30, 2021 and December 31, 2020, respectively
132 12 
Additional Paid-in-Capital
254,912 129,453 
Accumulated deficit
(18,503)(13,433)
Total stockholders’ equity
236,541 116,032 
Total liabilities and stockholders’ equity
$624,333 $475,341 
See accompanying notes to the unaudited condensed consolidated financial statements.
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Paya Holdings Inc.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
(In thousands except share data)
(Unaudited)
Common stock
SharesAmountAdditional
paid-in-capital
Retained earningsTotal stockholders’ equity
Balance at December 31, 201954,534,022 $5 $147,268 $(12,909)$134,364 
Net loss— — — (675)(675)
Stock based compensation - Class C incentive units— — 392 — 392 
Balance at March 31, 202054,534,022 $5 $147,660 $(13,584)$134,081 
Net loss— — — 625 625 
Stock based compensation - Class C incentive units— — 276 — 276 
Balance at June 30, 202054,534,022 $5 $147,936 $(12,959)$134,982 
Net income— — 1,601 1,601 
Stock based compensation - Class C incentive units— 447 — $447 
Distribution to parent— (22,071)— (22,071)
Balance at September 30, 202054,534,022 $5 $126,312 $(11,358)$114,959 
Balance at December 31, 2020116,697,441 $12 $129,453 $(13,433)$116,032 
Net income— — — 1,045 1,045 
Stock based compensation - Class C incentive units— — 259 — 259 
Stock based compensation - Common stock— — 451 — 451 
    Equity offering10,000,000 1 116,970 — 116,971 
    Warrant exercise51 — 1 — 1 
Balance at March 31, 2021126,697,492 $13 $247,134 $(12,388)$234,759 
Net loss— — — (3,154)(3,154)
Stock based compensation - Class C incentive units— — 74 — 74 
Stock based compensation - Common stock— — 790 — 790 
Equity offering— — (206)— (206)
Reclassification - see Note 1— 113 (113)—  
Shares issued for acquisition682,892 1 7,499 — 7,500 
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Balance at June 30, 2021127,380,384 $127 $255,178 $(15,542)$239,763 
Common stock
SharesAmountAdditional
paid-in-capital
Retained earningsTotal stockholders’ equity
Net loss— — (2,961)(2,961)
Stock based compensation - Class C incentive units— 247 — 247 
Stock based compensation - Class A common stock— 675 — 675 
Warrant exchange4,597,848 5 (1,732)— (1,727)
RSU vesting29,136 — (199)— (199)
Warrant exercise2,450— — —  
Recapitalization transaction - see Note 1743743
Balance at September 30, 2021132,009,818 $132 $254,912 $(18,503)$236,541 
See accompanying notes to the unaudited condensed consolidated financial statements.
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Paya Holdings Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Nine Months Ended September 30,
20212020
Cash flows from operating activities:
Net income (loss)$(5,070)$1,551 
Depreciation & amortization expense22,442 17,966 
Deferred taxes(500)(371)
Bad debt expense899 1,276 
Stock based compensation2,496 1,115 
Change in tax receivable agreement liability(286) 
Gain on contingent consideration(180) 
Amortization of debt issuance costs687 813 
Loss on debt extinguishment6,187  
Changes in assets and liabilities, net of impact of business acquisitions:
Trade receivables(5,881)(4,797)
Prepaid expenses165 (447)
Other current assets29 (3,428)
Other non-current assets(76)10 
Trade payables(4,104)4,856 
Accrued liabilities720 (1,916)
Accrued revenue share2,638 601 
Income tax payable/receivable, net(455)(648)
Other current liabilities1,111 392 
Movements in cash held on behalf of customers, net(2,175)(554)
Other non-current liabilities28 (31)
Net cash provided by operating activities$18,675 $16,388 
Cash flows from investing activities:
Purchases of property and equipment(4,955)(4,421)
Purchases of customer lists(15,951)(570)
Acquisition of business, net of cash received(18,309) 
Net cash (used in) investing activities$(39,215)$(4,991)
Cash flows from financing activities:
Payments on long-term debt(228,677)(1,773)
Borrowings under long-term debt250,000  
Payment of debt issuance costs(6,390)(2,601)
Distribution to Ultra (662)
Proceeds from equity offering116,764  
Repurchase of restricted stock to satisfy tax withholding obligations(199) 
Warrant exchange(1,431) 
Net cash provided by (used in) financing activities$130,067 $(5,036)
Net change in cash and cash equivalents109,527 6,361 
Cash and cash equivalents, beginning of period23,617 25,957 
Cash and cash equivalents, end of period$133,144 $32,318 
Supplemental disclosures:
Cash interest paid$10,105 $12,537 
Cash taxes paid, including estimated payments$3,242 $1,149 
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Non-cash investing activity:
Non-cash stock issuance related to Paragon acquisition$7,500,000  
See accompanying notes to the unaudited condensed consolidated financial statements.
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Notes to Unaudited Condensed Consolidated Financial Statements
(In Thousands, unless otherwise noted)
1.Organization, basis of presentation and summary of accounting policies
Organization

Paya Holdings, Inc., a Delaware corporation, conducts operations through its wholly-owned subsidiaries. These operating subsidiaries are comprised of Paya, Inc., Paya EFT, Inc., Stewardship Technology, Inc., First Mobile Trust, LLC, The Payment Group, LLC, and Blue Parasol Group, LLC (Paragon Payment Solutions).

On October 16, 2020, we consummated the business combination (the “Business Combination”) contemplated by that certain Agreement and Plan of Merger, dated as of August 3, 2020 (“Merger Agreement”), by and among Paya Holdings Inc. (f/k/a FinTech Acquisition Corp. III Parent Corp.) (“we,” “us,” “Paya” or the “Company”), FinTech Acquisition Corp. III (“FinTech”), FinTech III Merger Sub Corp., GTCR-Ultra Holdings, LLC (“Ultra”), GTCR-Ultra Holdings II, LLC (n/k/a Paya Holdings II, LLC, “Holdings”), GTCR/Ultra Blocker, Inc. and GTCR Fund XI/C LP. See Note 3, Business combination for more information.

The Company is an independent integrated payments platform providing card, ACH, and check payment processing solutions via software to middle-market businesses in the United States. Paya’s solutions integrate with customers’ core business software to enable payments acceptance, reconcile invoice detail, and post payment information to their core accounting system.

The Company is headquartered in Atlanta, Georgia and also has operations in Reston, VA, Fort Walton Beach, FL, Dayton, OH, Mount Vernon, OH, Miamisburg, OH, Dallas, TX and Tempe, AZ.

Basis of presentation

The Company’s unaudited condensed consolidated financial statements have been prepared in accordance with the requirements of the U.S. Securities and Exchange Commission (“SEC”) for interim financial information. As permitted under accounting principles generally accepted in the United States of America (“U.S. GAAP”), certain notes and other information have been omitted from the interim unaudited condensed consolidated financial statements presented in this Quarterly Report on Form 10-Q. Therefore, these financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC.

In management’s opinion, the condensed consolidated financial statements include all normal and recurring adjustments necessary for a fair presentation of the Company’s financial position, results of operations and cash flows. The results of operations for any interim period are not necessarily indicative of the operating results that may be expected for the full fiscal year ending December 31, 2021 or any future period.
Emerging growth company

The Company currently qualifies as an emerging growth company (“EGC”) as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities Act”), as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the
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Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard.

Based on the Company’s aggregate worldwide market value of voting and non-voting common equity held by non-affiliates as of June, 30, 2021, the Company expects that it will become a “large accelerated filer” and lose emerging growth company status beginning with its Annual Report on Form 10-K for the year ended December 31, 2021. At such time, the Company will be subject to the independent registered public accounting firm attestation requirements of Section 404(b) of the Sarbanes-Oxley Act and will no longer be eligible to take advantage of the extended transition period for adoption of new or revised financial accounting standards under the JOBS Act. However, because the Company will continue to qualify as a smaller reporting company with respect to its Annual Report on Form 10-K for the year ended December 31, 2021, the Company will continue to make use of reduced disclosure obligations regarding executive compensation in such Annual Report and in its proxy statement for the year 2022.
Use of estimates

The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. These estimates are based on management’s best knowledge of current events and actions that the Company may undertake in the future. The more significant estimates made by management relate to income taxes, tax receivable agreement liability, contingent liability, and impairment of intangibles and long-lived assets. The Company periodically evaluates the methodologies employed in making its estimates.
Principles of Consolidation

These condensed consolidated financial statements include the accounts of the Company and its subsidiary companies. All significant intercompany accounts and transactions have been eliminated in consolidation.
Cash and cash equivalents

Cash and cash equivalents are short-term, highly liquid investments with a maturity of ninety days or less at the time of purchase. The fair value of our cash and cash equivalents approximates carrying value. At times, cash and cash equivalents exceed the amount insured by the Federal Deposit Insurance Corporation. We maintain an immaterial balance of restricted cash for ACH and card processing as required by certain financial institutions.
Concentration of credit risk
Our cash, cash equivalents, trade receivables, funds receivable and customer accounts are potentially subject to concentration of credit risk. The Company performs ongoing credit evaluations of its customers’ financial condition and generally requires no collateral from its customers. No individual customers represented more than 10% of the Company’s revenue.
Trade receivables, net
Trade receivables are recorded at net realizable value, which includes allowances for doubtful accounts. The Company estimates an allowance for doubtful accounts related to balances that it estimates it cannot collect from merchants. These uncollectible amounts relate to chargebacks, uncollectible merchant fees, and ACH transactions that have been rejected subsequent to the payout date. The Company uses historical write-off data to estimate losses
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incurred relating to uncollectible accounts. The allowance for doubtful accounts was $1.4 million and $1.2 million at September 30, 2021 and December 31, 2020, respectively.
Prepaid expenses

Prepaid expenses primarily consist of prepaid insurance, rent and supplier invoices.
Other current assets

Other current assets primarily consist of current deferred debt issuance costs for the Revolver (as defined herein), other receivables, and equipment inventory.
Funds held for clients and client funds obligation

Funds held for clients and client funds obligations result from the Company’s processing services and associated settlement activities, including settlement of payment transactions. Funds held for clients represent assets that, based upon the Company's intent, are restricted for use solely for the purposes of satisfying the obligations to remit funds relating to the Company’s processing services, which are classified as client funds obligations on our Consolidated Balance Sheets.Funds held for clients are generated principally from merchant services transactions and are comprised of both settlements’ receivable and cash as of period end. Certain merchant settlement assets that relate to settlement obligations accrued by the Company are held by partner banks. The Company classified funds held for clients as a current asset since these funds are held solely for the purpose of satisfying the client funds obligations.

The Company records corresponding settlement obligations for amounts payable to merchants and for payment instruments not yet presented for settlement as client funds obligations. Client funds obligations represent the Company's contractual obligations to remit funds to satisfy clients' settlement obligations. The client funds obligations represent liabilities that will be repaid within one year of the balance sheet date. Differences in the funds held for clients and client funds obligation are due to timing differences between when transactions are settled and when payment instruments are presented for settlement and are considered to be immaterial. The changes in settlement assets and obligations are presented on a net basis within operating activities in the condensed consolidated statements of cash flows.

The funds held for clients account included $36,800 and $45,726 of settlement accounts receivable and cash respectively as of September 30, 2021, and $42,427 and $36,078 of settlement accounts receivable and cash respectively as of December 31, 2020.
Property and equipment, net

Property and equipment, is stated at cost less accumulated depreciation. Depreciation of property and equipment is computed using the straight-line method over the estimated useful lives of the assets. These lives are 3 years for computers and equipment, 5 years for furniture, fixtures, and office equipment, and the lesser of the asset useful life or remaining lease term for leasehold improvements. Also, the Company capitalizes software development costs and website development costs incurred in accordance with ASC 350-40, Internal Use Software. The useful lives are 3 to 5 years for internal-use software. Repair and maintenance costs are expensed as incurred and included in selling, general and administrative expenses on the condensed consolidated statements of income and other comprehensive income.
Impairment of long-lived assets

The Company evaluates the recoverability of its long-lived assets in accordance with the provisions of ASC 360, Property, Plant and Equipment (“ASC 360”). ASC 360 requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets is measured by comparing the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. There was no impairment of long-lived assets recognized in any period presented in the condensed consolidated financial statements.
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Goodwill and other intangible assets, net

Goodwill represents the premium paid over the fair value of the net tangible and identifiable intangible assets acquired in the Company’s business combinations. The Company evaluates goodwill and intangible assets in accordance with ASC 350, Goodwill and Other Intangible Assets (“ASC 350”). ASC 350 requires goodwill to be either qualitatively or quantitatively assessed for impairment annually (or more frequently if impairment indicators arise) for each reporting unit. The Company tests goodwill annually for impairment as of September 30 of each year, and at interim periods upon a potential indication of impairment, using a qualitative approach. If an indicator of impairment is identified, the Company tests goodwill for impairment by comparing the estimated fair value of the reporting units to the related carrying value. If the fair value of the reporting units is lower than its carrying amount, goodwill is written down for the amount by which the carrying amount exceeds fair value. The loss recognized cannot exceed the carrying amount of the goodwill. As a result of the annual impairment test performed by the Company, it was determined that there were no indicators of potential impairment based on the qualitative factors described in ASC 350, and therefore goodwill is not impaired as of September 30, 2021.

Intangible assets with finite lives consist of developed technology and customer relationships and are amortized on a straight-line basis over their estimated useful lives. From time to time, the Company acquires customer lists from sales agents in exchange for an upfront cash payment. The purchase of customer lists are treated as an asset acquisition, resulting in recording an intangible asset at cost on the date of acquisition. The acquired customer lists intangible assets have a useful life of 5 years. Factors that could trigger an impairment review include significant under-performance relative to expected historical or projected future operating results, significant changes in the manner of our use of the acquired assets or the strategy for our overall business or significant negative industry or economic trends. If this evaluation indicates that the value of the intangible asset may be impaired, the Company makes an assessment of the recoverability of the net book value of the asset over its remaining useful life. If this assessment indicates that the intangible asset is not recoverable, based on the estimated undiscounted future cash flows of the asset over the remaining amortization period, the Company reduces the net book value of the related intangible asset to fair value and may adjust the remaining amortization period.

The Company evaluates its intangible assets with finite lives for indications of impairment whenever events or changes in circumstances indicate that the net book value may not be recoverable. There were no indicators of impairment identified nor was impairment recognized in intangible assets in any period presented in the condensed consolidated financial statements.
Long-term debt and issuance costs

Eligible debt issuance costs associated with the Company's credit facilities are deferred and amortized to interest expense over the term of the related debt using the effective interest method. Debt issuance costs associated with Company's term debt are presented on the Company's condensed consolidated balance sheets as a direct reduction in the carrying value of the associated debt liability.
Revenue

The Company’s business model provides payment services, card processing, and ACH, to merchants through enterprise or vertically focused software partners, direct sales, reseller partners, other referral partners, and a limited number of financial institutions. The Company recognizes processing revenues on bankcard merchant accounts and ACH merchant accounts at the time merchant transactions are processed and periodic fees over the period the service is performed. See Note 2, Revenue recognition for more information on the Company's revenue recognition policy.
Cost of services exclusive of depreciation and amortization

Cost of services includes card processing costs, ACH costs, and other fees paid to card networks, and equipment expenses directly attributable to payment processing and related services to merchants. These costs are recognized as incurred. Cost of services also includes revenue share amounts paid to reseller and referral partners and are calculated monthly based on monthly merchant activity. These expenses are recognized as transactions are
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processed. Accrued revenue share represent amounts earned during the period but not yet paid at the end of the period.
Selling, general and administrative expenses

Selling, general and administrative expenses consist primarily of salaries, stock based compensation expense, wages, commissions, marketing costs, professional services costs, technology costs, occupancy costs of leased space, and bad debt expense.
Depreciation & Amortization

Depreciation and amortization consist primarily of amortization of intangible assets, mainly including customer relationships, internal-use software, customer lists, trade names and to a lesser extent depreciation on our investments in property, equipment, and software. We depreciate and amortize our assets on a straight-line basis in accordance with our accounting policies. Customer lists are amortized over a period of 5-16 years depending on the intangible, developed technology 3-7 years, and trade names over 25 years.
Derivative financial instruments

The Company accounts for its derivative instruments in accordance with ASC 815, Derivatives and Hedging. ASC 815 establishes accounting and reporting standards for derivative instruments requiring the recognition of all derivative instruments as assets or liabilities in the Company’s condensed consolidated balance sheets at fair value. The Company records its derivative instruments as assets or liabilities, depending on its rights or obligations under the applicable derivative contract. Changes in fair value are recognized in earnings in the affected period.

The Company uses an interest rate cap contract to manage risk from fluctuations in interest rates on its Term Loan credit agreement. Interest rate caps involve the receipt of variable-rate amounts beyond a specified strike price over the life of the agreement without exchange of the underlying principal amount. The interest rate cap is not designated as a hedging instrument. Changes in the fair value of the interest rate cap are recorded through other income (expense) in the condensed consolidated statement of income and other comprehensive income, other current assets and other current liabilities on the condensed consolidated balance sheet, and in changes in other current assets in the combined statement of cash flows.
Income taxes

The Company utilizes the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized principally for the expected tax consequences of temporary differences between the tax basis of assets and liabilities and their reported amounts, using currently enacted tax rates. The measurement of a deferred tax asset is reduced, if necessary, by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized.

The Company recognizes a tax benefit for uncertain tax positions if the Company believes it is more likely than not that the position will be upheld on audit based solely on the technical merits of the tax position. The Company evaluates uncertain tax positions after the consideration of all available information. Such tax positions must initially and subsequently be estimated as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authorities, assuming full knowledge of the position and relevant facts. The Company's policy is to recognize any interest and penalties related to income taxes as income tax expense in the relevant period.
Fair-Value Measurements

ASC 820, Fair Value Measurements, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The determination of fair value is based on the principal or most advantageous market in which the Company could participate and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk,
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transfer restrictions, and risk of nonperformance. Also, determination of fair value assumes that market participants will consider the highest and best use of the asset.

The Company uses the hierarchy prescribed in ASC 820 for fair value measurements, based on the available inputs to the valuation and the degree to which they are observable or not observable in the market.

The three levels of the hierarchy are as follows:

Level 1 Inputs—Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date;

Level 2 Inputs—Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability; and

Level 3 Inputs—Unobservable inputs for the asset or liability used to measure fair value allowing for inputs reflecting the Company’s assumptions about what other market participants would use in pricing the asset or liability, including assumptions about risk.
Recently Issued Pronouncements Not Yet Adopted

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this ASU are effective for all entities as of March 12, 2020 through December 31, 2022. An entity may elect to apply the amendments for contract modifications by Topic or Industry Subtopic as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from the date that the financial statements are available to be issued. Once elected for a Topic or an Industry Subtopic, the amendments must be applied prospectively for all eligible contract modifications for that Topic or Industry Subtopic. The Company may apply ASU 2020-04 as its contracts referenced in London Interbank Offered Rate (“LIBOR”) are impacted by reference rate reform. The Company is currently evaluating the effect of ASU 2020-04 on its condensed consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which is intended to enhance and simplify various aspects of the accounting for income taxes. The amendments in this update remove certain exceptions to the general principles in Topic 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12 also clarifies and amends existing guidance to improve consistent application of the accounting for franchise taxes, enacted changes in tax laws or rates and transactions that result in a step-up in the tax basis of goodwill. ASU 2019-12 is effective for annual and interim periods beginning after December 15, 2021, with early adoption permitted. As the Company will cease to be an EGC as of December 31, 2021, the Company will adopt the standard on December 31, 2021, with effect from January 1, 2021 in the annual financial statements. The Company is currently evaluating the effect of ASU 2019-12 on our condensed consolidated financial statements.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting for Hedging Activities. The new guidance amends the hedge accounting model in Accounting Standards Codification (“ASC”) 815 to better portray the economic results of an entity’s risk management activities in its financial statements and simplifies the application of hedge accounting in certain situations. The ASU eliminates the requirement to separately measure and report hedge ineffectiveness. The ASU is effective for annual periods beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2021. Early adoption is permitted. The Company does not expect the adoption of this ASU to have a significant impact on its condensed consolidated financial statements.

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In January 2017, the FASB issued Accounting Standards Update (“ASU”) 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The ASU simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test which measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount. As a result, an impairment charge will be recorded based on the excess of a reporting unit's carrying amount over its fair value. The amendments of this ASU are effective for reporting periods beginning after December 15, 2022. Early adoption of this ASU is permitted for interim and annual impairment tests performed on testing dates after January 1, 2017. As the Company will cease to be an EGC as of December 31, 2021, the Company will adopt the standard on December 31, 2021, with effect from January 1, 2021 in the annual financial statements. The Company does not expect the adoption of this ASU to have a significant impact on its condensed consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU presents a new methodology for calculating credit losses on financial instruments (e.g. trade receivables) based on expected credit losses and expands the types of information companies must use when calculating expected losses. This ASU is effective for annual periods beginning after December 15, 2021 and interim periods within those annual periods, with early adoption permitted. As the Company will cease to be an EGC as of December 31, 2021, the Company will adopt the standard on December 31, 2021, presenting the initial application of ASC 326 with effect from January 1, 2021 in the annual financial statements. The Company does not expect the adoption of this ASU to have a significant impact on its condensed consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The ASU requires lessees to put most leases on their balance sheets. The guidance also modifies the classification criteria and the accounting for sales-type and direct financing leases for lessors and provides new presentation and disclosure requirements for both lessees and lessors. In June 2020, the FASB issued ASU 2020-05 which delayed the effective date of ASC 842. This standard is effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early adoption is permitted. As the Company will cease to be an EGC as of December 31, 2021, the Company will adopt the standard on December 31, 2021, presenting the initial application of ASC 842 with effect from January 1, 2021 in the annual financial statements. The Company does not expect the adoption of this ASU to have a significant impact on its condensed consolidated financial statements.

Reclassification

During the three months ended June 30, 2021, the Company identified an immaterial error in the par value of its Common stock impacting the balance of Common stock and Additional Paid-in-Capital in the Company’s interim and annual financial statements beginning as of and for the year ended December 31, 2020. The Company corrected the error, which resulted in an increase of $113 to Common stock and a corresponding decrease to Additional Paid-in-Capital as of June 30, 2021.

Recapitalization transaction

During the three months ended September 30, 2021, the Company identified an immaterial error related to the capitalization of a deferred tax asset impacting the balances of the Tax Receivable Agreement liability, Deferred Tax Liability, Net, and Additional Paid-in-Capital in the Company’s interim and annual financial statements beginning as of and for the year ended December 31, 2020. The Company corrected the error which resulted in an increase of $743 to Additional Paid-in-Capital and a corresponding decrease to the Tax Receivable Agreement liability of $410 and Deferred Tax Liability, Net of $333 as of September 30, 2021.


2. Revenue recognition

The Company follows ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASC 606”) and performs a five-step analysis of transactions to determine when and how revenue is recognized, based upon the core principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services
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At contract inception, the Company assesses the goods and services promised in its contracts with customers and identifies performance obligations for each promise to transfer to the customer a good or service that is distinct. The Company’s performance obligation relating to its payment processing services revenue is to provide continuous access to the Company’s system to process as much as its customers require. Since the number or volume of transactions to be processed is not determinable at contract inception, the Company’s payment processing services consist of variable consideration under a stand-ready service of distinct days of service that are substantially the same with the same pattern of transfer to the customer. As such, the stand-ready obligation is accounted for as a single-series performance obligation whereby the variability of the transaction value is satisfied daily as the performance obligation is performed. In addition, the Company applies the right to invoice practical expedient to payment processing services as each performance obligation is recognized over time and the amounts invoiced are reflective of the value transferred to the customer.

The Company uses each day as a time-based measure of progress toward satisfaction of the single performance obligation of each contract. This method most accurately depicts the pattern by which services are transferred to the merchant, as performance depends on the extent of transactions processed for that merchant on a given day. Likewise, consideration to which the Company expects to be entitled is determined according to our efforts to provide service each day.

ASC 606 requires disclosure of the aggregate amount of the transaction price allocated to unsatisfied performance obligations; however, as permitted by the standard, the Company has elected to exclude from this disclosure any contracts with an original duration of one year or less and any variable consideration that meets specified criteria. As discussed above, the Company’s core performance obligation is a stand-ready obligation comprised of a series of distinct days of service, and revenue related to this performance obligation is generally billed and recognized as the services are performed. The variable consideration allocated to this performance obligation meets the specified criteria for disclosure exclusion. The aggregate fixed consideration portion of customer contracts with an initial contract duration greater than one year is not material.

The Company’s customers are all domestic, small to medium size businesses who are underwritten to the credit standards of the Company and who each have merchant processing agreements. The Company, through its risk informed bad debt and allowance accounting, appropriately reserves for any potential risk to its revenue and cash flows. Since the cash is collected for the majority of transactions within a month, there is not a significant time lag or risk of uncollectibility in the recognition of revenue.

We do not have any material contract assets or liabilities for any period presented and we did not recognize any impairments of any contract assets or liabilities for the three or nine months ended September 30, 2021 and 2020, respectively.

The Company generates its revenue from three revenue sources which include Transaction based revenue, Service based fee revenue and Equipment revenue and are defined below:

Transaction based revenue

Transaction based revenue represents revenue generated from transaction fees based on volume, including interchange fees and convenience based fees. The Company generates transaction based revenue from fees charged to merchants for card-based processing volume and ACH transactions. Transaction based revenues are recognized on a net basis equal to the full amount billed to the bankcard merchant, net of interchange fees and assessments. Interchange fees are fees paid to card-issuing banks and assessments paid to payment card networks. Interchange fees are set, and collected, by credit card networks based on various factors, including the type of bank card, card brand, merchant transaction processing volume, the merchant’s industry and the merchant’s risk profile and are recognized at the time merchant transactions are processed. Transaction based revenue was recorded net of interchange fees and assessments of $124,157 and $351,920 for the three and nine months ended September 30, 2021, respectively. Transaction based revenue was recorded net of interchange fees and assessments of $108,909 and $308,583 for the three and nine months ended September 30, 2020, respectively.

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Service based fee revenue

Service based fee revenue represents revenue generated from recurring and periodic service fees. The Company generates service based fee revenue from charging a service fee, a fee charged to the client for facilitating bankcard processing, which are recognized on a gross basis. The Company also generates service based fees related to ACH inclusive of monthly support fees and monthly statement fees.

Equipment revenue

Equipment revenue comprises sales of equipment which primarily consists of payment terminals.

The Company generates its revenue from two segments which are Integrated Solutions and Payment Services and are defined below:

Integrated Solutions

Our Integrated Solutions segment represents the delivery of our credit and debit card payment solutions, and to a lesser extent, ACH processing solutions to customers via integrations with software partners across our strategic vertical markets. Our Integrated Solutions partners include vertical focused front-end Customer Relationship Management software providers as well as back-end Enterprise Resource Planning and accounting solutions.

Payment Services

Our Payment Services segment represents the delivery of card payment processing solutions to our customers through resellers, as well as ACH, check, and gift card processing. Card payment processing solutions in this segment do not originate via a software integration but still utilize Paya’s core technology infrastructure. ACH, check, and gift card processing may or may not be integrated with third-party software.

The following table presents the Company's revenue disaggregated by segment and by source as follows:
Integrated Solutions
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Revenue from contracts with customers
Transaction based revenue
$36,955 $27,782 $104,180 $81,714 
Service based fee revenue
2,568 2,535 7,684 8,023 
Equipment revenue
117 38 232 134 
Total revenue
$39,640 $30,355 $112,096 $89,871 
Payment Services
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Revenue from contracts with customers
Transaction based revenue
$19,061 $17,654 $57,270 $50,532 
Service based fee revenue
4,306 3,794 12,830 11,581 
Equipment revenue
51 16 101 61 
Total revenue
$23,418 $21,464 $70,201 $62,174 
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3. Business combination & acquisitions

Business combination transaction overview

On October 16, 2020, FinTech consummated the Business Combination pursuant to the terms of the Merger Agreement and acquired all of the issued and outstanding equity interests in Paya. As of September 30, 2021, there have been no material changes outside the ordinary course of business related to the Business Combination from the amounts reported within our Annual Report on Form 10-K for the year ended December 31, 2020.
The Payment Group transaction overview

Paya purchased The Payment Group, LLC ("TPG" or "The Payment Group") on October 1, 2020 for total cash consideration of $22,270, which was accounted for as a business combination as defined by ASC 805. The assets acquired and liabilities assumed are recorded at their respective fair values as of the date of the acquisition with the excess of the purchase price over those fair values recorded as goodwill. The determination of the fair values of the acquired assets and assumed liabilities required significant judgment, including estimates impacting the determination of estimated lives of tangible and intangible assets, and their related fair values. The fair values were determined considering the income, market and cost approaches. The fair value measurement is based on significant inputs that are not observable in the market and, therefore represents a Level 3 measurement.

As of September 30, 2021, there have been no material changes outside the ordinary course of business related to the TPG acquisition from the amounts reported within our Annual Report on Form 10-K for the year ended December 31, 2020. In the three months ended March 31, 2021, the Company made measurement period adjustments totaling $29 to increase goodwill to reflect facts and circumstances in existence as of the effective date of the acquisition. There were no measurement period adjustments in the three months ended September 30, 2021 and the measurement period is now closed.
Paragon Payment Solutions transaction overview
On April 23, 2021, the Company closed the acquisition of Paragon Payment Solutions (“Paragon”), which was accounted for as a business combination as defined by ASC 805. The aggregate purchase price paid at closing was $26,624, consisting of $19,124 in cash and $7,500 of common stock. In addition, up to $5,000 may become payable, subject to the achievement of certain future performance metrics. The assets acquired and liabilities assumed are recorded at their respective fair values as of the date of the acquisition with the excess of the purchase price over those fair values recorded as goodwill. The determination of the fair values of the acquired assets and assumed liabilities required significant judgment, including estimates impacting the determination of estimated lives of tangible and intangible assets, and their related fair values. The fair values were determined considering the income, market and cost approaches. The fair value measurement is based on significant inputs that are not observable in the market and, therefore represents a Level 3 measurement.
Goodwill of $15,671 resulted from the acquisition and is partially deductible for tax purposes. Qualitative factors that contribute to the recognition of goodwill include certain intangible assets that are not recognized as separate identifiable intangible assets apart from goodwill. Intangible assets not recognized apart from goodwill consist primarily of the expected revenue synergies. During the three months ended September 30, 2021, the Company recorded various measurement period adjustments, including a decrease of intangible assets of $3,380 and an increase of Goodwill of $5,562 to reflect additional information received related to facts and circumstances in existence as of the effective date of the acquisition impacting the valuation of Paragon. The measurement period remains open as of September 30, 2021.
The following table summarizes the acquisition date fair value of the assets acquired and liabilities assumed by the Company and resulting goodwill as of September 30, 2021:
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Assets
Current Assets:
Cash and cash equivalents
$835 
Trade receivables, net2,553 
Prepaid expenses
174 
Other current assets
199 
Funds held for clients3,846 
Total current assets
$7,607 
Other assets:
Property and equipment, net
$52 
Goodwill
15,671 
Intangible assets
12,510 
Other non-current assets
60 
Total assets
$35,900 
Liabilities
Current liabilities:
Trade payables
$1,407 
Accrued liabilities2,113 
Accrued revenue share80 
Other current liabilities58 
Client funds obligations
4,266 
Total current liabilities
7,924 
Non-current liabilities:
Deferred tax liability, net1,186 
Other non-current liabilities147 
Total liabilities
$9,257 
Net assets
$26,643 




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4. Property and equipment, net
Property and equipment, net consists of the following:
September 30, 2021December 31, 2020
Computers and equipment
$8,374 $7,134 
Internal-use software
14,334 10,708 
Office equipment
142 130 
Furniture and fixtures
1,357 1,320 
Leasehold improvements
1,396 1,353 
Other equipment
26 26 
Total property and equipment
25,629 20,671 
Less: accumulated depreciation
(11,213)(7,866)
Total property and equipment, net
$14,416 $12,805 
Depreciation and amortization expense, including internal-use software, totaled $1,282 and $3,395 for the three and nine months ended September 30, 2021, respectively. Depreciation and amortization expense, including depreciation and amortization of internal-use software, totaled $930 and $2,900 for the three and nine months ended September 30, 2020, respectively.
5. Goodwill and other intangible assets, net
Goodwill recorded in the condensed consolidated financial statements was $222,008 and $206,308 as of September 30, 2021 and December 31, 2020, respectively. There were no indicators of impairment noted in the periods presented.
The following table presents changes to goodwill for the nine months ended September 30, 2021:
Integrated SolutionsPayments ServicesTotal
Balance at December 31, 2020$152,408 $53,900 $206,308 
Measurement period adjustment (Note 3)29  29 
Acquisitions - Paragon purchase accounting (Note 3)10,898 4,773 15,671 
Balance at September 30, 2021
$163,335 $58,673 $222,008 
Intangible assets other than goodwill at September 30, 2021 included the following:
Weighted
Average
Useful
Life (Years)
Useful
Lives
Gross Carrying Amount at September 30, 2021
Accumulated
Amortization
Net Carrying Value as of September 30, 2021
Customer Relationships
10.4
5-16 years
$183,397 $(64,951)$118,446 
Developed Technology
5.3
3-7 years
36,620 (17,793)18,827 
Trade name
25
25 years
5,260 (555)4,705 
8.4$225,277 $(83,299)$141,978 
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Intangible assets other than goodwill at December 31, 2020 included the following:
Weighted
Average
Useful
Life (Years)
Useful
Lives
Gross Carrying Amount at December 31, 2020
Accumulated
Amortization
Net Carrying Value as of December 31, 2020
Customer Relationships
10.4
5-15 years
$167,158 $(50,477)$116,681 
Developed Technology
4.2
3-5 years
25,520 (13,435)12,085 
Trade name
25
25 years
4,190 (340)3,850 
8.6$196,868 $(64,252)$132,616 
Amortization expense totaled $6,609 and $19,047 for the three and nine months ended September 30, 2021, respectively. Amortization expense totaled $5,029 and $15,066 for the three and nine months ended September 30, 2020, respectively.
The following table shows the expected future amortization expense for intangible assets at September 30, 2021:
Expected Future Amortization Expense
2021 - remaining$6,211 
202224,839 
202324,637 
202423,017 
202522,057 
Thereafter41,217 
Total expected future amortization expense$141,978 

6. Long-term debt

On June 25, 2021, Paya Holdings III, LLC, as Parent borrower, Paya, Inc., as borrower (together, the “Borrowers”), and Holdings, each a wholly-owned subsidiary of the Company, entered into a new senior secured credit agreement (the “Credit Agreement”) with Credit Suisse AG, Cayman Islands Branch, as administrative agent, collateral agent and L/C issuer (the “Agent”), and the other lenders and L/C issuers party thereto. The Credit Agreement governs new senior secured credit facilities (the “Senior Secured Credit Facilities”), consisting of a $250.0 million senior secured term loan facility (the “Term Loan”) and a $45.0 million senior secured revolving credit facility (the “Revolver”). The Revolver includes borrowing capacity available for letters of credit. Any issuance of letters of credit will reduce the amount available under the Revolver.

The proceeds from the Term Loan were used (1) to repay, in full, the outstanding loans under the Credit Agreement, dated as of August 1, 2017, among Holdings, the Borrowers, the financial institutions from time to time party thereto as lenders, and Antares Capital LP, as administrative agent (as amended from time to time, the “Prior Credit Agreement”), permanently terminate all commitments thereunder, release and terminate all liens securing such Prior Credit Agreement, and discharge all guarantees thereunder, (2) to pay certain fees and expenses incurred in connection with the Credit Agreement and the repayment of the Prior Credit Agreement, and (3) for working capital and general corporate purposes (including capital expenditures and acquisitions permitted thereunder). At closing of the Credit Agreement, the Revolver was undrawn.

The Term Loan has a seven-year maturity and the Revolver has a five-year maturity. The Credit Agreement provides that the Company may make one or more offers to the lenders, and consummate transactions with individual lenders that accept the terms contained in such offers, to extend the maturity date of the lender’s term loans and/or revolving
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commitments, subject to certain conditions, and any extended term loans or revolving commitments will constitute a separate class of term loans or revolving commitments.

All of the Borrowers’ obligations under the Senior Secured Credit Facilities are guaranteed by the subsidiary guarantors named therein. In addition, the obligations under the Senior Secured Credit Facilities are secured by a pledge of 100% of the capital stock of certain domestic subsidiaries owned by the Holdings and a security interest in substantially all of the Borrowers’ and the guarantors’ tangible and intangible assets.

At the Borrowers’ option, the Borrowers may request an increase of the commitments under the Revolver or the Term Loan or may add one or more new term loan facilities or revolving credit facilities in an aggregate amount not to exceed the sum of (x) the greater of 61 million and 100% of consolidated EBITDA (as defined in the Credit Agreement) plus (y) unused amounts under the Credit Agreement’s general indebtedness basket, so long as certain conditions, including a consolidated first lien net leverage ratio (as defined in the Credit Agreement) of not more than 4.25 to 1.00 (on a pari passu basis) or 5.00 to 1.00 (on a junior basis), in each case on a pro forma basis, is satisfied.

Borrowings under the Senior Secured Credit Facilities bear interest, equal to (i) an ABR rate equal to the greater of (a) the prime rate announced by the Agent or the highest interest rate published by the Federal Reserve Board as the “bank prime loan” rate, (b) the Federal Reserve Bank of New York rate plus 0.5% per annum, and (c) the Eurodollar rate for an interest period of one-month beginning on such day plus 100 basis points, plus 2.25% (provided that the Eurodollar rate applicable to the Term Loan shall not be less than 0.75% per annum); or (ii) the Eurodollar rate (provided that the Eurodollar rate applicable to the Term Loan shall not be less than 0.75% per annum), plus 3.25% . The Borrowers are also required to pay an unused commitment fee to the lenders under the Revolver equal to 0.50% with step-downs to 0.375% and 0.250% when the Borrowers’ consolidated first lien net leverage ratio is less than or equal to 3.75 to 1.00 and 3.25 to 1.00, respectively. The Borrowers must also pay customary letter of credit fees, including a fronting fee as well as administration fees.

Commencing December 31, 2021, the Borrowers are required to repay the Term Loan portion of the Senior Secured Credit Facilities in quarterly principal installments equal to 0.25% of the aggregate principal amount outstanding thereunder, with the balance payable at maturity.

The Credit Agreement contains a financial covenant that requires Holdings to maintain at the end of each fiscal quarter, commencing with the quarter ending December 31, 2021, a consolidated first lien net leverage ratio of not more than 6.50 to 1.00 but solely to the extent that the aggregate amount under letters of credit and loans outstanding under the Revolver exceeds 35% of the aggregate amount of all revolving commitments.

The Credit Agreement also contains a number of covenants that, among other things, restrict, subject to certain exceptions, the ability of Holdings and its subsidiaries to: (i) incur additional indebtedness; (ii) create liens on assets; (iii) engage in mergers or consolidations; (iv) sell assets; (v) pay dividends and distributions or repurchase the Company’s capital stock; and (vi) change their fiscal year. The Credit Agreement contains customary affirmative covenants and events of default.

Net proceeds from the issuance of the Term Loan totaled $243.6 million, which includes a debt discount of $1.3 million and related debt issuance costs of $5.1 million. The debt discount and related debt issuance costs are capitalized and amortized over the life of the agreement. Proceeds used to repay the Prior Credit Agreement totaled $233.8 million, which includes principal payment of $228.1 million, interest payment of $3.4 million and a prepayment penalty of $2.3 million. The prepayment penalty and a write-off of debt issuance costs of $6.2 million are included in other income (expense) in the condensed consolidated statement of income and other comprehensive income.

The Company’s long-term debt consisted of the following for the nine months ended September 30, 2021 and year ended December 31, 2020:
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September 30, 2021December 31, 2020
Term loan credit agreement(1)
$250,000 $228,677 
Debt issuance costs, net(5,211)(6,161)
Total debt244,789 222,516 
Less: current portion of debt(2,491)(2,364)
Total long-term debt$242,298 $220,152 

(1) Outstanding borrowings as of December 31, 2020 were under the Prior Credit Agreement. Outstanding borrowings as of September 30, 2021 are under the new Credit Agreement.

There were no borrowings outstanding under the Revolver as of September 30, 2021 and December 31, 2020, respectively.

The current portion of debt was included within other current liabilities on the condensed consolidated balance sheet.

The Company had $5,211 and $6,161 of unamortized Term Loan debt issuance costs that were netted against the outstanding loan balance and $923 and $457 of unamortized costs associated with the Revolver as of September 30, 2021 and December 31, 2020, respectively. The Revolver debt issuance costs are recorded in other current and other long term assets and are amortized over the life of the Revolver. Amortization of the debt issuance costs are included in interest expense in the condensed consolidated statement of income and other comprehensive income.

Total interest expense was $3,137 and $11,002 for the three and nine months ended September 30, 2021, respectively. This included the long-term debt interest expense of $2,611 and $9,590 for the three and nine months ended September 30, 2021, respectively and amortization of debt issuance costs of $242 and $687 for the three and nine months ended September 30, 2021.

Total interest expense was $4,155 and $13,494 for the three and nine months ended September 30, 2020, respectively. This included the long-term debt interest expense of $3,671 and $12,009 for the three and nine months ended September 30, 2020, and amortization of debt issuance costs of $265 and $813 for the three and nine months ended September 30, 2020, respectively.
Annual principal payments on the Term Loan for the remainder of 2021 and the following years is as follows:
Future Principal
Payments
2021 - remaining$625 
20222,484 
20232,460 
20242,435 
20252,411 
Thereafter239,585 
Total future principal payments$250,000 
7. Derivatives

The Company has historically utilized derivative instruments to manage risk from fluctuations in interest rates on its term loan and intends to continue to do so in connection with the new Term Loan. On February 3, 2021, the Company entered into an interest rate cap agreement with a notional amount of $171,525. The effective date is March 31, 2021 and terminates on March 31, 2023. The Company paid a premium of $67 for the right to receive
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payments if LIBOR rises above the cap rate of 1.00%. The premium is recorded in other long-term assets on the condensed consolidated balance sheet. The interest rate cap agreement was a derivative not designated as a hedging instrument for accounting purposes. There were no changes to the interest rate cap in connection with the entry into the new Credit Agreement. The fair value of the interest rate cap agreement was $45 at September 30, 2021. The Company recognized $22 and $0 for the three months ended September 30, 2021 and 2020, respectively. The Company recognized $48 and $1 for the nine months ended September 30, 2021 and 2020, respectively.
8. Equity
Common Stock

The holders of the Company's common stock, $0.001 par value per share, are entitled to one vote for each share of common stock held. Of the 132,009,818 shares of common stock outstanding at September 30, 2021, a total of 5,681,812 are considered contingently issuable as they require the trading price of our stock to exceed $15.00 per share for 20 out of any 30 consecutive trading days during the first five years following the closing of the Business Combination. In addition, should our share price exceed $17.50 per share for 20 out of any 30 consecutive trading days during the first five years following the closing of the Business Combination, the Company is required to issue up to an additional 14,018,188 shares of common stock. Total contingently issuable shares are 19,700,000.

On March 17, 2021, the Company priced an offering of 20,000,000 shares of its common stock. The Company and the selling stockholder each agreed to sell 10,000,000 shares of common stock to the underwriters at a price of $12.25 per share. The offering closed and the shares were delivered on March 22, 2021. As a result of the offering, the Company received cash proceeds of $122,500, net of transaction costs of $5,736.

Paya Holdings Inc. Omnibus Incentive Plan

On December 22, 2020, the Company adopted the Paya Holdings Inc. Omnibus Incentive Plan, which allows for issuance of up to 8,800,000 shares of its common stock. Under the Omnibus Incentive Plan, the Company may grant stock options, stock appreciation rights, restricted shares, performance awards, and other stock-based and cash-based awards to eligible employees, consultants or non-employee directors of the Company. The Company recognized $675 and $1,916 of share-based compensation for the three and nine months ended September 30, 2021, respectively. Share-based compensation is recorded in selling, general & administrative expenses on the condensed consolidated statement of income and other comprehensive income on a straight-line basis over the vesting periods. As of September 30, 2021, the Company had two stock-based compensation award types granted and outstanding: restricted stock units (RSUs) and stock options.

A summary of RSUs activity under the Omnibus Incentive Plan is as follows for three and nine months ended September 30, 2021:
Three Months Ended September 30, 2021
Number of RSUs
Weighted-Average Grant Date Fair Value
Weighted-Average Remaining Term
Balance at beginning of period balance377,994 $13.53 2.6
Granted
89,500 $11.45 3.1
Vested(46,469)$13.87 0.0
Balance at end of period balance421,025 $13.05 2.6

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Nine Months Ended September 30, 2021
Number of RSUs
Weighted-Average Grant Date Fair Value
Weighted-Average Remaining Term
Balance at beginning of period balance230,000 $13.73 3.4
Granted
237,494 $12.55 3.1
Vested(46,469)$13.87 0.0
Balance at end of period balance421,025 $13.05 2.6


On December 22, 2020, the Company granted 185,000 stock options under the Omnibus Incentive Plan. These options generally vest in five annual installments, starting on the first anniversary of the grant date and have ten-year contractual terms. The grant date fair value of the stock options was $0.8 million based on the use of the Black-Scholes option pricing model with the following assumptions: expected term of 6.5 years; risk-free interest rate of 0.57%; expected volatility of 29.9%; dividend yield of 0%; and fair value at the grant date and weighted-average strike price of $13.73.

On April 13, 2021 and July 29, 2021, the Company granted 22,500 and 66,500 additional stock options, respectively, under the Omnibus Incentive Plan. Similar to other stock options granted under the Omnibus Incentive Plan, these stock options generally vest in five annual installments, starting on the anniversary of the grant date and have ten-year contractual terms. The grant date fair value of the stock options was $137.4 and $395.3, respectively, based on the use of the Black-Scholes option pricing model with the following assumptions: expected term of 6.5 years; risk-free interest rate of 1.2% and 1.0%, respectively; expected volatility of 53.4% and 52.2% respectively; dividend yield of 0%; and fair value at the grant date and weighted-average strike price of $11.68 and $11.65, respectively.

The risk-free interest rate is based on the yield of a zero coupon United States Treasury Security with a maturity equal to the expected life of the stock option from the date of the grant. The assumption for expected volatility is based on the historical volatility of a peer group of market participants as the Company has limited historical volatility. It is the Company's intent to retain all profits for the operations of the business for the foreseeable future, as such the dividend yield assumption is zero. The Company applied the simplified method (as described in Staff Accounting Bulletin 110), which is the mid-point between the vesting date and the end of the contract term in determining the expected term of the stock options as the Company has limited historical basis upon which to determine historical exercise periods. All stock options exercised will be settled in common stock.

Class C Incentive Units

Ultra, our principal stockholder, provides Class C Incentive Units as part of their incentive plan. As certain employees of the Company were recipients of the Class C Incentive Units, the related share-based compensation was recorded by the Company.

The total number of units associated with share-based compensation granted and forfeited during the period from December 31, 2019 to September 30, 2020 and December 31, 2020 to September 30, 2021 is as follows:
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Total Units
December 31, 2019 balance43,451,157 
Granted
1,022,954 
Forfeited
(818,225)
September 30, 2020 balance43,655,886 
December 31, 2020 balance42,881,437 
Granted
 
Forfeited
(3,274,532)
September 30, 2021 balance39,606,905 
As of September 30, 2021, 20,889,215 of the units had vested. The units vest on a straight-line basis over the terms of the agreement as described below.

There were 39,606,905 and 42,881,437 Class C Incentive Units issued as of September 30, 2021 and December 31, 2020, respectively. Of these units outstanding as of September 30, 2021, 39,308,610 units were time vesting units with a five-year vesting period (vesting date varies by employee contract) and 298,296 units were time vesting units within a