BUSINESS COMBINATIONS

9 Months Ended

Sep. 30, 2023

Our acquisitions were accounted for as business combinations and the total purchase consideration of each was allocated to the net tangible and intangible assets and liabilities acquired based on their fair values on the acquisition dates with the remaining amounts recorded as goodwill.

During the three and nine months ended September 30, 2022, we incurred a $1.9 million cost and a $4.3 million of benefit, respectively, primarily in connection with our acquisition of Bridg due to the changes in the estimated brokerage fees and transaction bonuses and accounting for all true-ups and credits related to the acquisition of Bridg. During the three and nine months ended September 30, 2023, we incurred a $0.1 million cost and a $8.1 million benefit, respectively, primarily in connection with our acquisition of Bridg due to the changes in the estimated brokerage fees and transaction bonuses and accounting for all true-ups and credits related to the acquisition of Bridg. These benefits and costs are included in acquisition and integration benefit on our condensed consolidated statements of operations.

Acquisition of Bridg

On May 5, 2021, we completed the acquisition of Bridg for purchase consideration of $578.9 million. The purchase consideration consisted of a $350.0 million cash purchase price, subject to $2.8 million of adjustments and escrows, and contingent consideration with an initial fair value of $230.9 million related to additional potential future payments. Under the Merger Agreement, the potential payment to be paid after the determination or agreement of the first payment amount (the "First Anniversary Payment") was to be equal to 20 times the difference between the U.S. annualized recurring revenue ("ARR"), based on revenue in April 2022, and $12.5 million. The potential payment to be paid after the determination or agreement of the second payment amount (the "Second Anniversary Payment") is equal to 15 times the difference between the ARR for customers as of the first anniversary, based on the April 2023 revenue, and the prior ARR at the first anniversary, based on the April 2022 revenue. At least 30% of each of the First Anniversary Payment and the Second Anniversary Payment is required to be paid in cash, with the remainder to be paid in cash or our common stock, at our option. For the portion of the First Anniversary Payment

or Second Anniversary Payment in our common stock, the number of shares is determined by dividing the amount of the payment by the trailing 20-day volume-weighted average price ending on the first anniversary date or second anniversary date, as applicable. We also assumed unvested options to purchase Bridg’s common stock and attributed $0.8 million of their fair value to the pre-combination service period. "Management's Discussion and Analysis of Financial Condition and Results of Operations". Refer to Note 9—Fair Value Measurements and Note 1—Overview of Business and Basis of Presentation for further information.

On April 28, 2023, the independent accountant made its determination of the appropriate amount of the First Anniversary ARR, determining the First Anniversary ARR to be $23.2 million. Consequently, based on the First Anniversary ARR as determined by the independent accountant, we calculated the First Anniversary Payment to be $208.1 million.

Pursuant to the Merger Agreement, we were obligated to pay at least 30% of the First Anniversary Payment in cash, and can elect to pay the remainder of the First Anniversary Payment in cash or our common stock, based on a share price of $40.15 per share, or a combination thereof. In the event we chose to pay 30% of the First Anniversary Payment, as determined by the independent accountant, in cash and the remainder in common stock, we would have paid $65.3 million in cash and issued 3,556,717 shares of our common stock to complete the First Anniversary Payment, inclusive of brokerage fees and transaction bonuses and accounting for all true-ups and credits. The amount of cash and shares is different than previously reported in our Form 8-K dated May 1, 2023 and our Form 10-Q dated May 4, 2023 – in which we had calculated that $72.6 million in cash and 3,374,383 shares of common stock would be paid in the event we paid the First Anniversary Payment based on the independent accountant’s determination – due to subsequent discussions and agreements reached by the relevant parties related to the amount of the brokerage fees.

However, we believe that the independent accountant exceeded its authority with respect to its determination related to one specific contract at issue. As a result, we filed a verified complaint in the Delaware Court of Chancery in May 2023 seeking a declaratory judgment that the portion of the independent accountant's determination related to that one contract be stricken as null and void. Since the lawsuit is pending, we have not made the portion of the First Anniversary Payment related to the one specific contract at issue. After adjusting the First Anniversary ARR to not include the contract for which we believe the independent accountant exceeded its authority, we have determined the First Anniversary ARR to be $20.8 million. Consequently, based on the adjusted First Anniversary ARR, we calculated the First Anniversary Payment to be $160.1 million. Based on this calculation, and due to our decision to pay 30% of the First Anniversary Payment in cash and the remainder in common stock, we calculated that $50.1 million of cash and 2,740,418 shares of our common stock would be needed to complete the First Anniversary Payment of $160.1 million, inclusive of brokerage fees and transaction bonuses and accounting for all true-ups and credits. As of September 30, 2023, we have paid $50.1 million in cash and delivered 2,740,418 shares of our common stock related to the First Anniversary Payment, inclusive of brokerage fees and transaction bonuses and accounting for all true-ups and credits. Solely in connection with the disputed contract at issue in the Delaware court proceeding and included in our current contingent consideration and accrued expenses on our consolidated balance sheet, we are withholding $15.2 million and 816,299 shares of our common stock, inclusive of brokerage fees and transaction bonuses and accounting for all true-ups and credits.

Additionally, we have calculated the Second Anniversary ARR to be less than the First Anniversary ARR, and we have therefore calculated the Second Anniversary Payment to be $0, inclusive of brokerage fees and transaction bonuses and accounting for all true-ups and credits. Per the terms of the Merger Agreement, we delivered the Second Earnout Statement within thirty days of the end of the Second Earnout Period. We subsequently agreed to extend the Stockholder Representative's review period. In October 2023, we received an Earnout Objection Notice from the Stockholder Representative that alleges a material understatement of the Second Anniversary Payment amount. We are continuing the dispute-resolution process specific to the Second Anniversary Payment outlined in the Merger Agreement. We have not changed our calculation of the contingent consideration related to our acquisition of Bridg as a result of the dispute over the Second Anniversary ARR

Acquisition of Entertainment

On January 7, 2022, we completed the acquisition of Entertainment for purchase consideration of $14.6 million, as presented below (in thousands):


	January 7, 2022
Fair value of common stock transferred	$	11,937
Cash paid to extinguish acquiree debt	2,053
Cash paid to settle pre-acquisition liabilities and acquiree deal-related costs	624
Cash paid to membership interest holders	24
Cash receivable from membership interest holders pursuant to finalization of net working capital	(61)
Total purchase consideration	$	14,577

The following table presents the preliminary purchase consideration allocation recorded on our condensed consolidated balance sheet as of the acquisition date (in thousands):


	January 7, 2022
Cash and cash equivalents	$	376
Accounts receivable and other assets	1,259
Intangible assets	9,800
Goodwill	5,002
Accounts payable and other liabilities	(1,860)
Total purchase consideration	$	14,577

The goodwill was primarily attributed to the value of future synergies created with our current and future offerings. Goodwill is not expected to be deductible for income tax purposes.

The following table presents the components of identifiable intangible assets acquired and their estimated useful lives as of the date of acquisition (dollars in thousands):


	Fair Value		Useful life (in years)
Trade name	$	800	3.0
Developed technology	700		3.0
Merchant relationships	8,300		4.0

The results of Entertainment have been included in the consolidated financial statements since its date of acquisition. For each of the nine months ended September 30, 2022 and 2023, Entertainment's combined revenue included in the consolidated statement of operations was approximately 3% of consolidated revenue. Due to the continued integration of the combined businesses, it was impractical to determine the earnings.

Pro forma consolidated results of operations

The following unaudited pro forma financial information presents combined results of operations for the period presented as if the acquisition of Entertainment had been completed on January 1, 2022. The pro forma information includes adjustments to depreciation expense for property and equipment acquired, to amortize expense for the intangible assets acquired and to eliminate the acquisition transaction expenses recognized in the period. The pro forma financial information is for informational purposes only and is not necessarily indicative of the consolidated results of operations of the combined business had the acquisition actually occurred on January 1, 2022 or the results of future operations of the combined business. For instance, planned or expected operational synergies following the acquisition are not reflected in the pro forma information. Consequently, actual results will differ from the unaudited pro forma information presented below.


	Nine Months Ended September 30, 2022
	(in thousands)
Revenue	$	216,060
Net loss	$	(85,902)