BILL.COM HOLDINGS, INC. MANAGEMENT REPORT AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS (Form 10-Q)

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

                                    Overview

We are a leading provider of cloud-based software that simplifies, digitizes,
and automates complex back-office financial operations for SMBs. By transforming
how SMBs manage their cash inflows and outflows, we create efficiencies and free
our customers to run their businesses. Our vision is to become the leading
one-stop solution that helps millions of businesses around the world manage
their financial operations.

Our purpose-built, artificial-intelligence (AI)-enabled financial software
platform creates seamless connections between our customers, their suppliers,
and their clients. Customers use our platform to generate and process invoices,
streamline approvals, make and receive payments, reconcile their books, and
manage their cash. We have built sophisticated integrations with popular
accounting software solutions, banks, card issuers, and payment processors,
enabling our customers to access these mission-critical services through a
single connection. In essence, we sit at the center of an SMB's accounts payable
and accounts receivable operations.

We efficiently reach SMBs through our proven direct and indirect go-to-market
strategies. We acquire customers directly through digital marketing and inside
sales, and indirectly through accounting firms and strategic partnerships. As of
December 31, 2021, our partners included some of the most trusted brands in the
financial services business, including 85 of the top 100 accounting firms and
six of the top ten largest financial institutions in the U.S., including Bank of
America, JPMorgan Chase, Wells Fargo Bank and American Express. As we add
customers and partners, we expect our network to continue to grow organically.

On September 1, 2021, we completed our acquisition of Invoice2go, Inc.
(Invoice2go), a provider of mobile-first accounts receivable software that
empowers SMBs and freelancers to grow their client base, manage invoicing and
payments, and build their brand, for an aggregate purchase price of $674.3
million. On June 1, 2021, we completed our acquisition of DivvyPay, Inc.
(Divvy), a leading provider of cloud-based spend management application and
smart corporate cards to SMBs in the U.S., for an aggregate purchase price of
$2.3 billion. Following the acquisitions, Invoice2go and Divvy became our
wholly-owned subsidiaries. Our condensed consolidated results of operations
shown below for the three and six months ended December 31, 2021 include the
operating results of Invoice2go and Divvy from the dates of the acquisitions.
See Note 3 to our condensed consolidated financial statements included elsewhere
in this Quarterly Report on Form 10-Q for additional discussion about our
acquisitions.

We have grown rapidly and scaled our business operations in recent periods. Our
revenue was $156.5 million and $54.0 million during the three months ended
December 31, 2021 and 2020, respectively, an increase of 190%, and $274.8
million and $100.3 million during the six months ended December 31, 2021 and
2020, respectively, an increase of 174%. We generated net losses of $80.4
million and $17.2 million during the three months ended December 31, 2021 and
2020, respectively, and $154.7 million and $30.1 million during the six months
ended December 31, 2021 and 2020, respectively.

                               Impact of COVID-19

The full impact of the COVID-19 pandemic is inherently uncertain at the time of
this report. The COVID-19 pandemic has resulted in travel restrictions and
greater uncertainty in global financial markets. As the COVID-19 pandemic
persists, including the outbreak of new variants of COVID-19, it has
significantly impacted the health and economic environment around the world.
Many public and commercial establishments, including schools, restaurants, and
shopping malls, have restricted their operations or closed due to restrictions
imposed by the government. Our customers, spending businesses, and subscribers
have been, and may continue to be, negatively impacted by government
restrictions, the closure of manufacturing sites and country borders, and the
increase in unemployment. These conditions may continue to have

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negative consequences on the demand for goods, the supply chain, the production of goods and transportation. Negatively impacting our customers, spenders, and subscribers may cause them to close their doors, request discounts, extend payment terms, or stop using our services. Each of these actions may adversely impact our future results of operations, liquidity and financial condition.

Although we have not experienced significant business disruptions thus far from
the COVID-19 pandemic and there have been positive developments recently in the
U.S. and in other countries in combating the COVID-19 pandemic because of
vaccinations, we are unable to predict the full impact that the COVID-19
pandemic will have on our future results of operations, liquidity and financial
condition due to numerous uncertainties, including the duration of the pandemic,
the actions that may be taken by government authorities across the U.S. or other
countries, the efficacy of vaccinations, the impact to our customers, strategic
partners, and suppliers, and other factors described in the section titled "Risk
Factors" in Part II, Item 1A of this Quarterly Report on Form 10-Q.

                               Our Revenue Model

We generate revenue primarily from subscription and transaction fees.

Our subscription revenue is primarily based on a fixed monthly or annual rate
per user charged to our customers. Our transaction revenue is comprised of
transaction fees and interchange income on a fixed or variable rate per
transaction. Transactions primarily include card payments, check issuance, ACH
origination, cross-border payments, and creation of invoices. Much of our
revenue comes from repeat transactions, which are an important contributor to
our recurring revenue.

                 Our Receivables Purchases and Servicing Model

We market Divvy charge cards to potential spending businesses and issue
business-purpose charge cards through our partnerships with card issuing banks.
When a business applies for a Divvy card, we utilize proprietary risk management
capabilities to confirm the identity of the business, and perform a credit
underwriting process to determine if the business is eligible for a Divvy card
pursuant to our credit policies. Once approved for a Divvy card, the business is
provided a credit limit and can use the Divvy software to request virtual cards
or physical cards.

The majority of cards on our platform are issued by Cross River Bank, an
FDIC-insured New Jersey state chartered bank, and WEX Bank, an FDIC-insured Utah
state chartered bank. Under our arrangements with these banks, we must comply
with their respective credit policies and underwriting procedures, and the banks
maintain ultimate authority to decide whether to issue a card or approve a
transaction. We are responsible for all fraud and unauthorized use of a card and
generally are required to hold the bank harmless from such losses unless claims
regarding fraud or unauthorized use are due to the sole gross negligence of the
bank.

When a spending business completes a purchase transaction, the payment to the
merchant is made by our bank partner that issued the card. Obligations incurred
by the spending business in connection with their purchase transaction are
reflected as receivables on the bank's balance sheet. The bank then sells a 100%
participation interest in the receivable to us. Pursuant to our agreements with
the banks, we are obligated to purchase the participation interests in all of
the receivables originated through our platform, and our obligations are secured
by cash deposits. When we purchase the participation right in the receivable,
the purchase price is equal to the outstanding principal balance of the
receivable.

We act as the servicer on all receivables we purchase from our issuing bank
partners and earn a servicing fee on loans we sell to our funding sources. We do
not sell the servicing rights on any of the loans, allowing us to control the
consumer experience end-to-end.

In order to purchase the participation rights in the receivables, we maintain a
variety of funding arrangements, including warehouse facilities and other
purchase arrangements with a diverse set of funding sources. We typically fund a
substantial portion of these receivable purchases by borrowing under our credit
facilities, although we may also fund receivables purchases using corporate
cash. Typically, we immediately sell a portion of the receivables interests we
have purchased to our warehousing subsidiary which funds the purchases through
loans provided by our financing partners, and we may sell a portion of our
receivables to a third-party institution pursuant to a purchase arrangement. As
of December 31, 2021, we had $155.0 million in committed credit facility
capacity, with $77.5 million drawn, and this is shown on our condensed
consolidated balance sheets included elsewhere in this Quarterly Report on Form
10-Q. On average, our spending businesses pay their statement balances in
approximately 20 days.

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                              Key Business Metrics

We regularly review several metrics, including the metrics presented in the
table below, 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. The table below excludes the metrics of the
Divvy and Invoice2go businesses. Relevant metrics for Divvy and Invoice2go are
set forth in the footnotes to the table.



                              As of December 31,
                             2021            2020         % Growth
Number of customers (1)       135,000         109,200       24%

                              Three months ended                           Six months ended
                                 December 31,                                December 31,
                             2021            2020         % Growth       2021             2020         % Growth

Total volume of payments (amounts in millions) (2) $56,405 $34,780 62% $103,280 $63,602 62%

                              Three months ended                           Six months ended
                                 December 31,                                December 31,
                             2021            2020         % Growth       2021             2020         % Growth
Transactions
processed (3)               9,802,000       7,243,000       35%        18,591,000       13,769,000       35%


(1) As of December 31, 2021, the total number of spending businesses that used
Divvy's spend management platform was approximately 15,500 and the total number
of Invoice2go subscribers was approximately 223,000.

(2) The total card payment volume transacted by spending businesses that used
Divvy cards was approximately $1.9 billion and $3.3 billion during the three and
six months ended December 31, 2021, respectively. The total payment volume
transacted by Invoice2go subscribers was approximately $275.0 million and $369.0
million, during the three and six months ended December 31, 2021, respectively.

(3) The total transactions executed by spending businesses that used Divvy cards
were approximately 5.3 million and 9.9 million during the three and six months
ended December 31, 2021. The total transactions executed by Invoice2go
subscribers were over 335,000 and 453,000 during the three and six months ended
December 31, 2021, respectively.

Number of clients

For the purposes of measuring our key business metrics, we define customers as
entities that are either billed directly by us or for which we bill our
strategic partners during a particular period. Customers who are using our
solutions during a trial period are not counted as new customers during that
period. If an organization has multiple entities billed separately for the use
of our platform, each entity is counted as a customer. The number of customers
in the table above represents the total number of customers at the end of each
fiscal quarter.

Total Payment Volume (TPV)

To grow revenue from customers we must deliver a product experience that helps
them automate their back-office financial operations. The more they use the
product and rely upon our features to automate their operations, the more
transactions they process on our platform. This metric provides an important
indication of the value of transactions that customers are completing on the
platform and is an indicator of our ability to generate revenue from our
customers. We define TPV as the value of customer transactions that we process
on our platform during a particular period. Our calculation of TPV includes
payments that are subsequently reversed. Such payments comprised approximately
1% of TPV during the three and six months ended December 31, 2021 and 2020. The
TPV in the table above does not include transactions made by spending businesses
on our spend management platform and subscribers of Invoice2go.

Transactions processed

We define transactions processed as the number of customer payment and spend
transactions initiated and processed through our platform during a particular
period. Payment transactions include checks, ACH items, wire

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transfers and card payments. The transactions processed in the table above do
not include transactions made by spending businesses on our spend management
platform and subscribers of Invoice2go.

                      Components of Results of Operations

Income

We generate revenue primarily from subscription and transaction fees.

Subscription fees are fixed monthly or annually and charged to our customers for
the use of our platform to process transactions. Subscription fees are generally
charged on a per user per period basis, normally monthly or annually.
Transaction fees are fees collected for each transaction processed through our
platform, on either a fixed or variable fee basis. Transaction fees primarily
include processing of payments in the form of checks, ACH, cross-border
payments, virtual cards, and the creation of invoices. Transaction fees also
include interchange fees paid by suppliers that accept cards as a means of
payment.

Our contracts with SMB and accounting firm customers provide them with access to
the functionality of our cloud-based payments platform to process transactions.
These contracts are either monthly contracts paid in arrears or annual
arrangements paid up front. We charge our SMB and accounting firm customers
subscription fees to access to our platform based on the number of users and
level of service. We also charge these customers transaction fees based on
transaction volume and the category of transaction. The contractual price for
subscription and transaction services is based on either negotiated fees or the
rates published on our website. We account for our annual and monthly contracts
as a series of distinct services that are satisfied over time. We determine the
transaction price for such contracts by estimating the total consideration to be
received over the contract term from subscription and transaction fees. We
recognize the transaction price as a single performance obligation based on the
proportion of transactions processed to the total estimated transactions to be
processed over the contract period. Revenues recognized exclude amounts
collected on behalf of third parties, such as sales taxes collected and remitted
to governmental authorities.

We maintain agreements with WEX Bank and Cross River Bank for card transactions
on the MasterCard and Visa networks, respectively. We facilitate the extension
of credit to spending businesses through our Divvy platform in the form of Divvy
cards, which are originated through our agreements with WEX Bank and Cross River
Bank. The spending businesses utilize the credit on the Divvy cards as a means
of payment for goods and services provided by suppliers. On a transaction basis,
these suppliers are required to pay interchange fees to the issuer of the
credit. Based on our agreement with WEX Bank, we recognize interchange fees net
of the rebate we receive from WEX Bank as we are the agent in the card
transactions and recognize the interchange fees on the gross amount under our
agreement with Cross River Bank, as we are the principal in the card
transactions.

We enter into multi-year contracts with financial institution customers to
provide access to our cloud-based payments platform to process transactions.
These contracts typically include fees for initial implementation services that
are paid during the period the implementation services are provided as well as
fees for subscription and transaction processing services, which are subject to
guaranteed monthly minimum fees that are paid monthly over the contract term.
These contracts enable the financial institutions to provide their customers
with access to online bill pay services through the financial institutions'
online platforms. Implementation services are required up-front to establish an
infrastructure that allows the financial institutions' online platforms to
communicate with our online platform. A financial institution's customers cannot
access online bill pay services until implementation is complete. Initial
implementation services and transaction processing services are not capable of
being distinct from the subscription for online bill pay services and are
combined into a single performance obligation. The total consideration in these
contracts varies based on the number of users and transactions to be processed.
We determined the variable consideration allocation exception is met for these
contracts and therefore recognize guaranteed monthly payments and any overages
as revenue in the month they are earned. Implementation fees are recognized
based on the proportion of transactions processed to the total estimated
transactions to be processed over the contract period.

Cost of income and expenses

Cost of revenue - Cost of revenue consists primarily of personnel-related costs,
including stock-based compensation expenses, for our customer success and
payment operations teams, certain costs that are directly attributed to
processing customers' transactions (such as the cost of printing checks),
postage for mailing checks, expenses for processing payments (ACH, check, and
cross-border wires), direct and amortized costs for implementing

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and integrating our cloud-based platform into our strategic partners' systems,
costs for maintaining, optimizing, and securing our cloud payments
infrastructure, amortization of capitalized internal-use developed software,
amortization of developed technology, fees on the investment of customer funds,
and allocation of overhead costs. We expect that cost of revenue will increase
in absolute dollars, but may fluctuate as a percentage of total revenue from
period to period, as we continue to invest in growing our business.

Research and development - Research and development expenses consist primarily
of personnel-related expenses, including stock-based compensation expenses,
incurred in developing new products or enhancing existing products, and
allocated overhead costs. We capitalize certain software development costs that
are attributable to developing new products and adding incremental functionality
to our platform and amortize such costs in cost of revenue over the estimated
life of the new product or incremental functionality, which is generally three
years.

We expense a substantial portion of research and development expenses as
incurred. We believe that delivering new functionality is critical to attract
new customers and expand our relationship with existing customers. We expect to
continue to make investments in and expand our offerings to enhance our
customers' experience and satisfaction, and to attract new customers. We expect
our research and development expenses to increase in absolute dollars, but they
may fluctuate as a percentage of total revenue from period to period as we
expand our research and development team to develop new products and product
enhancements.

Sales and Marketing - Sales and marketing expenses consist primarily of
personnel-related expenses, including stock-based compensation expenses, rewards
expense in connection with our card rewards programs, sales commissions,
marketing program expenses, travel-related expenses and costs to market and
promote our platform through advertisements, marketing events, partnership
arrangements, direct customer acquisition, amortization of intangible assets,
and allocated overhead costs. Sales commissions that are incremental to
obtaining new customer contracts are deferred and amortized ratably over the
estimated period of our relationship with new customers.

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

General and Administrative - General and administrative expenses consist
primarily of personnel-related expenses, including stock-based compensation
expenses, for finance, risk management, legal and compliance, human resources
and information technology, costs incurred for external professional services,
provision for credit losses, losses from fraud, and allocated overhead costs. We
expect to incur additional general and administrative expenses as we explore
various growth initiatives, which include incurring higher costs for
professional services. We also expect to increase the size of our general and
administrative functions to support the growth in our business. As a result, we
expect that our general and administrative expenses will increase in absolute
dollars but may fluctuate as a percentage of total revenue from period to
period.

Other expenses, net - Other expenses, net consist primarily of the amortization
of debt discount and issuance costs in connection with our issuance of the
Notes, interest expense on our borrowings from credit agreements, lower of cost
or market adjustment on card receivables sold and held for sale, interest income
on corporate funds, accretion of debt premium, and gains or losses resulting
from remeasurement of foreign currency transactions.

Income tax benefit – The income tax benefit consists primarily of a reduction in the valuation allowance related to the acquisition of
Invoice2go.

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Operating results

The following table sets forth our results of operations for the periods
presented (in thousands):



                                          Three months ended            Six months ended
                                             December 31,                 December 31,
                                        2021 (1)        2020         2021 (1)        2020
Revenue                                 $ 156,478     $  54,045     $  274,827     $ 100,254
Cost of revenue (2)                        34,386        13,973         64,221        26,079
Gross profit                              122,092        40,072        210,606        74,175
Operating expenses
Research and development (2)               51,954        20,486         94,426        38,272
Sales and marketing (2)                    80,817        14,174        143,129        27,082
General and administrative (2)             65,396        19,583        123,331        36,773
Total operating expenses                  198,167        54,243        360,886       102,127
Loss from operations                      (76,075 )     (14,171 )     (150,280 )     (27,952 )
Other expenses, net                        (5,000 )      (3,341 )       (8,475 )      (2,511 )
Loss before benefit from income taxes     (81,075 )     (17,512 )     (158,755 )     (30,463 )
Benefit from income taxes                    (635 )        (333 )       (4,056 )        (333 )
Net loss                                $ (80,440 )   $ (17,179 )   $ (154,699 )   $ (30,130 )

(1) Includes the results of Divvy and Invoice2go.

(2) Includes stock-based compensation expense as follows (in thousands):


                               Three months ended           Six months ended
                                  December 31,                December 31,
                              2021 (1)        2020       2021 (1)        2020
Cost of revenue              $    1,285     $    642     $   2,412     $  1,243
Research and development         14,280        3,246        24,840        6,315
Sales and marketing              11,039        1,871        19,153        3,375
General and administrative       23,080        4,930        41,166        9,650
Total                        $   49,684     $ 10,689     $  87,571     $ 20,583

The following table presents the components of our Consolidated Statements of Income for the periods presented as a percentage of revenue:


                                               Three months ended                Six months ended
                                                  December 31,                     December 31,
                                           2021 (1)            2020          2021 (1)           2020
Revenue                                          100 %             100 %           100 %           100 %
Cost of revenue                                   22 %              26 %            23 %            26 %
Gross margin                                      78 %              74 %            77 %            74 %
Operating expenses
Research and development                          33 %              38 %            34 %            38 %
Sales and marketing                               52 %              26 %            52 %            27 %
General and administrative                        42 %              36 %            45 %            37 %
Total operating expenses                         127 %             100 %           131 %           102 %
Loss from operations                             (49 )%            (26 )%          (54 )%          (28 )%
Other expenses, net                               (3 )%             (6 )%           (3 )%           (3 )%
Loss before benefit from income taxes            (52 )%            (32 )%          (57 )%          (31 )%
Benefit from income taxes                         (- )%             (1 )%           (1 )%            -
Net loss                                         (52 )%            (31 )%          (56 )%          (31 )%

(1) Includes the results of Divvy and Invoice2go.

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Comparison of the three months ended December 31, 2021 and 2020

Income

Turnover during the three months ended December 31, 2021 and 2020 was as follows (amounts in thousands):


            Three months ended
               December 31,                 Change
           2021 (1)        2020        Amount         %

Income $156,478 $54,045 $102,433 190%

(1) Includes the results of Divvy and Invoice2go.

Revenue, which is comprised mainly of subscription and transactions fees,
increased to $156.5 million during the three months ended December 31, 2021 from
$54.0 million during the three months ended December 31, 2020, an increase of
$102.5 million or 190%. The increase was due primarily to the following:

Subscription fees increased to $49.2 million during the three months ended
December 31, 2021 from $26.6 million during the three months ended December 31,
2020, an increase of $22.6 million or 85%, driven primarily by the increase in
customers and average subscription revenue per customer.
•
Transaction fees increased to $106.3 million during the three months ended
December 31, 2021 from $25.7 million during the three months ended December 31,
2020, an increase of $80.6 million or 313%, due primarily to increased adoption
of new product offerings and the mix of transaction revenues shifting to
variable-priced products.

We expect revenue to be affected by fluctuations in foreign currency rates in
the future, especially if our revenue through our Australian subsidiary grows as
a percentage of our total revenue or our operations in Australia increase.

Cost of revenue, gross profit and gross margin

Cost of sales, gross profit and gross margin during the three months ended
December 31, 2021 and 2020 were as follows (amounts in thousands):


                    Three months ended
                       December 31,                 Change
                   2021 (1)        2020        Amount        %
Cost of revenue   $   34,386     $ 13,973     $ 20,413       146 %
Gross profit      $  122,092     $ 40,072     $ 82,020       205 %
Gross margin              78 %         74 %

(1) Includes the results of Divvy and Invoice2go.

Cost of revenue increased to $34.4 million during the three months ended
December 31, 2021 from $14.0 million during the three months ended December 31,
2020, an increase of $20.4 million or 146%. The increase was due primarily to
the following:

a $9.3 million increase in amortization of acquired developed technology;
•
a $4.5 million increase in direct costs associated with the processing of our
customers' payment transactions, use of software applications and equipment,
bank fees for funds held for customers, and data hosting services, which were
driven by the increase in the number of customers, increased adoption of new
product offerings, and an increase in the volume of transactions;
•
a $4.4 million increase in personnel-related costs, including stock-based
compensation expense and amortization of increased deferred service costs, due
to the hiring of additional personnel who were directly engaged in providing
implementation and support services to our customers, including the headcount
from the

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acquisitions of Divvy and Invoice2go. Our average headcount of such personnel
during the three months ended December 31, 2021 increased by 117% compared to
the same period in fiscal 2021; and
•
a $2.2 million increase in costs for consultants, temporary contractors, and
shared overhead and other costs.

Gross margin increased to 78% during the three months ended December 31, 2021
from 74% during the same period in fiscal 2021 due primarily to a higher mix of
variable-priced transaction revenue.

Research and development costs

Research and development expenses during the three months ended December 31, 2021 and 2020 were as follows (amounts in thousands):


                                      Three months ended
                                         December 31,                 Change
                                     2021 (1)        2020        Amount        %

Research and development costs $51,954 $20,486 $31,468

    154 %
Percentage of revenue                       33 %         38 %


(1) Includes the results of Divvy and Invoice2go.

Research and development expenses increased to $52.0 million during the three
months ended December 31, 2021 from $20.5 million during the three months ended
December 31, 2020, an increase of $31.5 million or 154%. The increase was due
primarily to the following:

a $26.6 million increase in personnel-related costs, including stock-based
compensation expense, resulting from the hiring of additional personnel, who
were directly engaged in developing new product offerings, and the acquisitions
of Divvy and Invoice2go. Our average research and development headcount during
the three months ended December 31, 2021 increased by 199% compared to the same
period in fiscal 2021; and
•
a $4.9 million increase in shared overhead costs, costs for engaging consultants
and temporary contractors who provided product development services, and other
costs.

As a percentage of total revenue, research and development expenses decreased to
33% during the three months ended December 31, 2021 from 38% during the three
months ended December 31, 2020 due primarily to the leveraging of our total
research and development spend relative to the increase in our total revenue.

We expect research and development expenses to be affected by fluctuations in
foreign currency rates in the future, especially if our operations in Australia
increase.

Sales and marketing expenses

Sales and marketing expenses during the three months ended December 31, 2021 and 2020 were as follows (amounts in thousands):


                                 Three months ended
                                    December 31,                 Change
                                2021 (1)        2020        Amount        %

Sales and marketing expenses $80,817 $14,174 $66,643 470% Percentage of turnover

                  52 %         26 %


(1) Includes the results of Divvy and Invoice2go.

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Sales and marketing expenses increased to $80.8 million during the three months
ended December 31, 2021 from $14.2 million during the three months ended
December 31, 2020, an increase of $66.6 million or 470%. The increase was due
primarily to the following:

a $21.5 million increase in personnel-related costs, including stock-based
compensation expense, due to the hiring of additional personnel, who were
directly engaged in acquiring new customers and in marketing our products and
services, and the acquisitions of Divvy and Invoice2go. Our average sales and
marketing headcount during the three months ended December 31, 2021 increased by
260% compared to the same period in fiscal 2021;
•
a $21.5 million increase in rewards expense in connection with our rewards
programs. We offer promotion programs whereby spending businesses who use the
spend management application can earn rewards based on transaction volume on the
cards issued to them. Rewards can be redeemed by spending businesses on cash
back, statement credit, gift cards and travel. Rewards expense is driven by
transaction volume and an estimate of the cost of earned rewards that are
expected to be redeemed;
•
a $10.5 million increase in amortization of acquired intangible assets;
•
a $10.4 million increase in advertising spend and various marketing initiatives
and activities, such as engaging consultants and attending marketing events, as
we increased our efforts in promoting our products and services and in
increasing brand awareness; and
•
a $2.7 million increase in shared overhead and other costs.

As a percentage of total revenue, sales and marketing expenses increased to 52%
during the three months ended December 31, 2021 from 26% during the three months
ended December 31, 2020 due mainly to the rewards expense and the amortization
of acquired intangible assets that were recognized during the current fiscal
quarter and none in the same quarter in fiscal 2021. Additionally, the increase
was attributed to higher stock-based compensation expense during the current
fiscal quarter.

General and administrative expenses

General and administrative expenses during the three months ended December 31, 2021 and 2020 were as follows (amounts in thousands):


                                        Three months ended
                                           December 31,                 Change
                                       2021 (1)        2020        Amount        %

General and administrative expenses $65,396 $19,583 $45,813

      234 %
Percentage of revenue                         42 %         36 %


(1) Includes the results of Divvy and Invoice2go.

General and administrative expenses increased to $65.4 million during the three
months ended December 31, 2021 from $19.6 million during the three months ended
December 31, 2020, an increase of $45.8 million or 234%. The increase was due
primarily to the following:

a $28.8 million increase in personnel-related costs, including stock-based
compensation expense, resulting from the hiring of additional general and
administrative personnel and the acquisitions of Divvy and Invoice2go. Our
average general and administrative headcount during the three months ended
December 31, 2021 increased by 235% compared to the same period in fiscal 2021;
•
a $7.2 million increase in provision for card and fraud losses;
•
a $5.5 million increase in professional and consulting fees as we obtained
additional external assistance to support certain corporate initiatives,
including the integration of our acquired businesses; and
•
a $4.3 million increase in shared overhead costs and other costs.

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As a percentage of total revenue, general and administrative expenses increased
to 42% during the three months ended December 31, 2021 from 36% during the three
months ended December 31, 2020 due primarily to the increase in stock-based
compensation expense and provision for card and fraud losses.

Other expenses, net

Other expenses, net during the three months ended December 31, 2021 and 2020 was as follows (amounts in thousands):


                        Three months ended
                           December 31,                Change
                       2021 (1)        2020        Amount       %
Other expenses, net   $   (5,000 )   $ (3,341 )   $ (1,659 )     50 %

(1) Includes the results of Divvy and Invoice2go.

Other expenses, net increased to $5.0 million during the three months ended
December 31, 2021 from $3.3 million during the three months ended December 31,
2020, an increase of $1.7 million or 50%. The increase was due primarily to the
increase in the amount of discount associated with the measurement of cards
receivable sold and held for sale at a lower of cost or market, partially offset
by a decrease in interest expense due to the lower amortization of debt discount
and issuance costs associated with our 2025 Notes.

Benefit from income tax

Benefit from income taxes in the completed three months December 31, 2021 and 2020 was as follows (amounts in thousands):


                              Three months ended
                                 December 31,                Change
                            2021 (1)         2020       Amount        %
Benefit from income taxes   $    (635 )     $  (333 )   $  (302 )     (91 )%

(1) Includes the results of Divvy and Invoice2go.

Benefit from income taxes during the three months ended December 31, 2021
pertained mainly to the tax benefit of the net loss incurred during the period.
The benefit from income taxes during the three months ended December 31, 2020
pertained to a partial reversal of net deferred income tax liability that was
established in connection with our issuance of the 2025 Notes.

Comparison of the six months ended December 31, 2021 and 2020

Income

Turnover during the half-year ended December 31, 2021 and 2020 was as follows (amounts in thousands):


             Six months ended
               December 31,                 Change

2021 (1) 2020 Amount % Revenue $274,827 $100,254 $174,573 174%

(1) Includes the results of Divvy and Invoice2go.

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Revenue, which is comprised mainly of subscription and transactions fees,
increased to $274.8 million during the six months ended December 31, 2021 from
$100.3 million during the six months ended December 31, 2020, an increase of
$174.5 million or 174%. The increase was due primarily to the following:

Subscription fees increased to $86.2 million during the six months ended
December 31, 2021 from $51.2 million during the six months ended December 31,
2020, an increase of $35.0 million or 68%, driven primarily by the increase in
customers and average subscription revenue per customer.
•
Transaction fees increased to $186.8 million during the six months ended
December 31, 2021 from $44.9 million during the six months ended December 31,
2020, an increase of $141.9 million or 316%, due primarily to increased adoption
of new product offerings and the mix of transaction revenues shifting to
variable-priced products.

We expect revenue to be affected by fluctuations in foreign currency rates in
the future, especially if our revenue through our Australian subsidiary grows as
a percentage of our total revenue or our operations in Australia increase.

Cost of revenue, gross profit and gross margin

Cost of sales, gross profit and gross margin during the six months ended
December 31, 2021 and 2020 were as follows (amounts in thousands):



                     Six months ended
                       December 31,                Change
                  2021 (1)        2020        Amount         %
Cost of revenue   $  64,221     $ 26,079     $  38,142       146 %
Gross profit      $ 210,606     $ 74,175     $ 136,431       184 %
Gross margin             77 %         74 %

(1) Includes the results of Divvy and Invoice2go.

Cost of revenue increased to $64.2 million during the six months ended December
31, 2021 from $26.1 million during the six months ended December 31, 2020, an
increase of $38.1 million or 146%. The increase was due primarily to the
following:

a $17.7 million increase in amortization of acquired developed technology;
•
an $8.4 million increase in direct costs associated with the processing of our
customers' payment transactions, use of software applications and equipment,
bank fees for funds held for customers, and data hosting services, which were
driven by the increase in the number of customers, increased adoption of new
product offerings, and an increase in the volume of transactions;
•
an $8.2 million increase in personnel-related costs, including stock-based
compensation expense and amortization of increased deferred service costs, due
to the hiring of additional personnel who were directly engaged in providing
implementation and support services to our customers, including the headcount
from the acquisitions of Divvy and Invoice2go. Our average headcount of such
personnel during the six months ended December 31, 2021 increased by 108%
compared to the same period in fiscal 2021; and
•
a $3.8 million increase in costs for consultants, temporary contractors, and
shared overhead and other costs.

Gross margin increased to 77% during the six months ended December 31, 2021
compared to 74% during the six months ended December 31, 2020 primarily due to a higher mix of variable price transaction revenue.

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Research and development costs

Research and development expenses during the half-year ended December 31, 2021
and 2020 were as follows (amounts in thousands):


                                       Six months ended
                                         December 31,                Change
                                    2021 (1)        2020        Amount        %

Research and development costs $94,426 $38,272 $56,154

   147 %
Percentage of revenue                      34 %         38 %


(1) Includes the results of Divvy and Invoice2go.

Research and development expenses increased to $94.4 million during the six
months ended December 31, 2021 from $38.3 million during the six months ended
December 31, 2020, an increase of $56.1 million or 147%. The increase was due
primarily to the following:

a $47.4 million increase in personnel-related costs, including stock-based
compensation expense, resulting from the hiring of additional personnel, who
were directly engaged in developing new product offerings, and the acquisitions
of Divvy and Invoice2go. Our average research and development headcount during
the six months ended December 31, 2021 increased by 179% compared to the same
period in fiscal 2021; and
•
an $8.7 million increase in shared overhead costs, costs for engaging
consultants and temporary contractors who provided product development services,
and other costs.

As a percentage of total revenue, research and development expenses decreased to
34% during the six months ended December 31, 2021 from 38% during the six months
ended December 31, 2020 due primarily to the leveraging of our total research
and development spend relative to the increase in our total revenue.

We expect research and development expenses to be affected by fluctuations in
foreign currency rates in the future, especially if our operations in Australia
increase.

Sales and marketing expenses

Sales and marketing expenses during the six months ended December 31, 2021 and 2020 were as follows (amounts in thousands):


                                  Six months ended
                                    December 31,                Change
                               2021 (1)        2020        Amount         %

Sales and marketing expenses $143,129 $27,082 $116,047 429% Percentage of turnover

                 52 %         27 %


(1) Includes the results of Divvy and Invoice2go.

Sales and marketing expenses increased to $143.1 million during the six months
ended December 31, 2021 from $27.1 million during the six months ended December
31, 2020, an increase of $116.0 million or 429%. The increase was due primarily
to the following:

a $37.3 million increase in personnel-related costs, including stock-based
compensation expense, due to the hiring of additional personnel, who were
directly engaged in acquiring new customers and in marketing our products and
services, and the acquisitions of Divvy and Invoice2go. Our average sales and
marketing headcount during the six months ended December 31, 2021 increased by
214% compared to the same period in fiscal 2021;
•
a $37.2 million increase in rewards expense in connection with our rewards
programs. We offer promotion programs whereby spending businesses who use the
spend management application can earn rewards based

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on transaction volume on the cards issued to them. Rewards can be redeemed by
spending businesses on cash back, statement credit, gift cards and travel.
Rewards expense is driven by transaction volume and an estimate of the cost of
earned rewards that are expected to be redeemed;
•
an $18.8 million increase in amortization of acquired intangible assets;
•
a $17.3 million increase in advertising spend and various marketing initiatives
and activities, such as engaging consultants and attending marketing events, as
we increased our efforts in promoting our products and services and in
increasing brand awareness; and
•
a $5.4 million increase in shared overhead and other costs.

As a percentage of total revenue, sales and marketing expenses increased to 52%
during the six months ended December 31, 2021 from 27% during the six months
ended December 31, 2020 due mainly to the rewards expense and the amortization
of acquired intangible assets that were recognized during the current period and
none in the same period in fiscal 2021. Additionally, the increase was
attributed to higher stock-based compensation expense during the current period.

General and administrative expenses

General and administrative expenses during the half-year ended December 31, 2021 and 2020 were as follows (amounts in thousands):


                                         Six months ended
                                           December 31,                Change
                                      2021 (1)        2020        Amount        %

General and administrative expenses $123,331 $36,773 $86,558

     235 %
Percentage of revenue                        45 %         37 %


(1) Includes the results of Divvy and Invoice2go.

General and administrative expenses increased to $123.3 million during the six
months ended December 31, 2021 from $36.8 million during the six months ended
December 31, 2020, an increase of $86.5 million or 235%. The increase was due
primarily to the following:

a $50.6 million increase in personnel-related costs, including stock-based
compensation expense, resulting from the hiring of additional executive
employees and general and administrative personnel and the acquisitions of Divvy
and Invoice2go. Our average general and administrative headcount during the six
months ended December 31, 2021 increased by 210% compared to the same period in
fiscal 2021;
•
a $15.4 million increase in professional and consulting fees as we obtained
additional external assistance to support certain corporate initiatives,
including the acquisitions of Divvy and Invoice2go;
•
a $12.5 million increase in provision for card and fraud losses; and
•
an $8.0 million increase in shared overhead and other costs.

As a percentage of total revenue, general and administrative expenses increased
to 45% during the six months ended December 31, 2021 from 37% during the six
months ended December 31, 2020 due primarily to the increase in stock-based
compensation expense and provision for card and fraud losses.

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Other expenses, net

Other expenses, net during the six months ended December 31, 2021 and 2020 was as follows (amounts in thousands):


                         Six months ended
                           December 31,                Change
                      2021 (1)        2020        Amount        %
Other expenses, net   $  (8,475 )   $ (2,511 )   $ (5,964 )     238 %

(1) Includes the results of Divvy and Invoice2go.

Other expenses, net increased to $8.5 million during the six months ended
December 31, 2021 from $2.5 million during the six months ended December 31,
2020, an increase of $6.0 million or 238%, due primarily to the increase in the
amount of discount associated with the measurement of cards receivable sold and
held for sale at a lower of cost or market and the increase in loss on servicing
acquired card receivables sold.

Benefit from income tax

Benefit from income taxes during the closed semester December 31, 2021 and 2020 was as follows (amounts in thousands):


                              Six months ended
                                December 31,                 Change
                             2021 (1)       2020       Amount         %
Benefit from income taxes   $   (4,056 )   $ (333 )   $ (3,723 )     (1,118 )%



(1) Includes the results of Divvy and Invoice2go.

Benefit from income taxes during the six months ended December 31, 2021
consisted primarily of a reduction of valuation allowance in connection with the
acquisition of Invoice2go. The benefit from income taxes during the six months
ended December 31, 2020 pertained to a partial reversal of net deferred income
tax liability that was established in connection with our issuance of the 2025
Notes.

                          Non-GAAP Financial Measures

To supplement our consolidated financial statements, which are prepared and
presented in accordance with GAAP, we use certain non-GAAP financial measures,
as described below, to understand and evaluate our core operating performance.
These non-GAAP financial measures, which may be different than similarly-titled
measures used by other companies, are presented to enhance investors' overall
understanding of our financial performance and should not be considered a
substitute for, or superior to, the financial information prepared and presented
in accordance with GAAP.

We believe that these non-GAAP financial measures provide useful information
about our financial performance, enhance the overall understanding of our past
performance and future prospects and allow for greater transparency with respect
to important metrics used by our management for financial and operational
decision-making. We are presenting these non-GAAP metrics to assist investors in
seeing our financial performance using a management view. We believe that these
measures provide an additional tool for investors to use in comparing our core
financial performance over multiple periods with other companies in our
industry.

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Non-GAAP Gross Profit and Non-GAAP Gross Margin

We define non-GAAP gross profit and non-GAAP gross margin as gross profit and
gross margin, respectively, excluding amortization of intangible assets,
stock-based compensation expense, depreciation expense, and payroll taxes
related to stock-based compensation expense. We believe non-GAAP gross profit
and non-GAAP gross margin provide our management and investors' consistency and
comparability with our past financial performance and facilitate
period-to-period comparisons of operations. The following table presents a
reconciliation of our non-GAAP gross profit and non-GAAP gross margin to our
gross profit and gross margin for the periods presented (amounts in thousands):



                                         Three months ended           Six months ended
                                            December 31,                December 31,
                                        2021 (1)        2020       2021 (1)        2020
Revenue                                $  156,478     $ 54,045     $ 274,827     $ 100,254
Gross profit                              122,092       40,072       210,606        74,175
Add:
Amortization of intangible assets           9,285            -        17,686             -
Stock-based compensation expense            1,285          642         2,412         1,243
Payroll taxes related to stock-based
  compensation expense                         89           98           252           143
Depreciation expense                          763          833         1,484         1,557
Non-GAAP gross profit                  $  133,514     $ 41,645     $ 232,440     $  77,118
Gross margin                                 78.0 %       74.1 %        76.6 %        74.0 %
Non-GAAP gross margin                        85.3 %       77.1 %        84.6 %        76.9 %

(1) Includes the results of Divvy and Invoice2go.

Free movement of capital

Free cash flow is defined as net cash used in operating activities, increased by
purchases of property and equipment and capitalization of internal-use software
costs. We believe free cash flow is an important liquidity measure of the cash
(if any) that is available, after purchases of property and equipment and
capitalization of internal-use software costs, for operational expenses and
investment in our business. Free cash flow is useful to investors as a liquidity
measure because it measures our ability to generate or use cash. Once our
business needs and obligations are met, cash can be used to maintain a strong
balance sheet and invest in future growth. The following table presents a
reconciliation of our free cash flow to net cash used in operating activities
for the periods presented (in thousands):



                                                  Three months ended           Six months ended
                                                     December 31,                December 31,
                                                2021 (1)        2020        2021 (1)        2020
Net cash used in operating activities           $ (12,930 )   $  (9,227 )   $ (34,064 )   $ (11,583 )
Purchases of property and equipment                (1,063 )      (7,742 )      (2,467 )     (13,636 )
Capitalization of internal-use software costs      (2,081 )        (346 )      (5,023 )        (660 )
Free cash flow                                  $ (16,074 )   $ (17,315 )   $ (41,554 )   $ (25,879 )

(1) Includes the results of Divvy and Invoice2go.

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                        Liquidity and Capital Resources

As of December 31, 2021, our principal sources of liquidity were our cash and
cash equivalents of $1.7 billion, our available-for-sale short-term investments
of $1.1 million, and our available lines of credit. Our cash equivalents are
comprised primarily of money market funds and investments in debt securities
with original maturities of three months or less. Our short-term investments are
comprised primarily of available-for-sale investments in corporate bonds,
certificates of deposit, asset-backed securities, municipal bonds, and U.S.
treasury securities with original maturities of more than three months. Our
lines of credit are comprised of credit agreements, under which we have a total
borrowing commitment of $155.0 million. We can draw funds from these lines of
credit to the extent there is sufficient balance of eligible acquired card
receivables that serve as collateral.

A significant portion of our cash, cash equivalents and short-term investments
as of December 31, 2021 was derived from our recent public offering of our
common stock and issuance of 2027 Notes in a private offering on September 24,
2021, in which we received combined aggregate net proceeds of approximately $1.9
billion, after deducting discounts, commissions and other offering costs.

We believe that our cash, cash equivalents, available-for sale short-term
investments, and funds available under our lines of credit will be sufficient to
meet our working capital requirements for at least the next 12 months. In the
future, we may attempt to raise additional capital through the sale of equity
securities or through equity-linked or debt financing arrangements to fund
future operations or obligations, including the repayment of the principal
amount of the Notes in the event that the Notes become convertible and the
noteholders opt to exercise their right to convert. If we raise additional funds
by issuing equity or equity-linked securities, the ownership of our existing
stockholders will be diluted. If we raise additional financing by incurring
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.
Any future indebtedness we incur may have 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.

Cash flow

Below is a summary of our consolidated cash flows for the periods presented (in
thousands):



                                       Six months ended
                                         December 31,
                                   2021 (1)          2020
Net cash provided by (used in):
Operating activities              $   (34,064 )   $   (11,583 )
Investing activities              $  (969,311 )   $  (179,274 )
Financing activities              $ 3,063,290     $ 1,636,278

Net cash used in operating activities

Our primary source of cash provided by our operating activities is our revenue
from subscription and transaction fees. Our subscription revenue is primarily
based on a fixed monthly or annual rate per user charged to our customers. Our
transaction revenue is comprised of transaction fees on a fixed or variable rate
per type of transaction. Our primary uses of cash in our operating activities
include payments for employee salary and related costs, payments to third
parties to fulfill our payment transactions, payments to sales and marketing
partners, payments for card rewards expenses, and other general corporate
expenditures.

Net cash used in operating activities increased to $34.1 million during the six
months ended December 31, 2021 from $11.6 million during the six months ended
December 31, 2020, due mainly to the increase in payments for costs of our
services and operating expenses, partially offset by the increase in revenue.

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Net cash used in investment activities

Our cash proceeds from our investing activities consist primarily of proceeds
from the maturities and sale of corporate and customer fund available-for-sale
investments. Our cash usage for our investing activities consists primarily of
purchases of corporate and customer fund available for-sale investments,
business acquisitions, purchases of property and equipment, and capitalization
of internal-use software. Additionally, the increase or decrease in our net cash
from investing activities is impacted by the net change in acquired card
receivable balances.

Our net cash used in investing activities increased to $969.3 million during the
six months ended December 31, 2021 from $179.3 million during the six months
ended December 31, 2020 due primarily to the increase in purchases of corporate
and customer fund short-term investments, payment to acquire Invoice2go, and
increase in acquired card receivables; partially offset by the increase in
proceeds from maturities and sales of corporate and customer short-term
investments.

Net cash provided by financing activities

Our cash proceeds from our financing activities consist primarily of proceeds
from public offerings of our common stock, issuance of convertible notes,
exercises of stock options, and employee purchases of our common stock under our
ESPP. Our cash usage for our financing activities consists primarily of payments
of costs related to public offerings of our common stock, and issuance of debt.
Additionally, the increase or decrease in our net cash from financing activities
is impacted by the change in customer fund deposits liability.

Net cash provided by financing activities increased to $3.1 billion during the
six months ended December 31, 2021 from $1.6 billion during the six months ended
December 31, 2020 due primarily to the proceeds from the public offering of our
common stock and increase in customer funds liability.

Tickets 2027

On September 24, 2021, we issued $575.0 million in aggregate principal amount of
our 0% convertible senior notes due on April 1, 2027. The 2027 Notes are senior,
unsecured obligations, and will not accrue interest unless we determine to pay
special interest.

The 2027 Notes are convertible on or after January 1, 2027 until the close of
business on the second scheduled trading day immediately preceding the maturity
date on April 1, 2027. The 2027 Notes are convertible by the holders at their
option during any calendar quarter after December 31, 2021 under certain
circumstances, including if the last reported sale price of our common stock for
at least 20 trading days (whether or not consecutive) during a period of 30
consecutive trading days ending on and including the last trading day of the
immediately preceding calendar quarter is greater than or equal to 130% of the
$414.80 per share initial conversion price. If the note holders exercise their
right to convert, our current intent is to settle such conversion through a
combination settlement involving a repayment of the principal portion in cash
and the balance in shares of common stock.

In conjunction with the issuance of the 2027 Notes, we entered into Capped Call
transactions with certain counterparties. The Capped Calls each have an initial
strike price of approximately $414.80 per share, subject to certain adjustments.
The Capped Calls have an initial cap price of $544.00 per share, subject to
certain adjustments; provided that such cap price shall not be reduced to an
amount less than the strike price of $414.80 per share. The purpose of the
Capped Calls is to reduce the potential dilution of our common stock upon any
conversion of the 2027 Notes and/or offset any cash payments that we are
required to make in excess of the principal amount of such converted notes, as
the case may be, with such reduction and/or offset subject to a cap.

Tickets 2025

On November 30, 2020, we issued $1.15 billion in aggregate principal amount of
our 0% convertible senior notes due on December 1, 2025. The 2025 Notes are
senior, unsecured obligations, and will not accrue interest unless we determine
to pay special interest. The 2025 Notes are convertible on or after September 1,
2025 until the close of business on the second scheduled trading day immediately
preceding the maturity date on December 1, 2025. The 2025 Notes are convertible
by the holders at their option during any calendar quarter after March 31, 2021
under certain circumstances, including if the last reported sale price of our
common stock for at least 20 trading days (whether or not

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consecutive) for a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the $160.88 initial conversion price per share.

As of December 31, 2021, one of the conditions for early conversion of the 2025
Notes was triggered. Specifically, our common stock during the calendar quarter
ended December 31, 2021 traded at a price greater than 130% of the initial
conversion price of the 2025 Notes for more than 20 consecutive trading days.
Pursuant to the terms of the 2025 Notes, the holders of the 2025 Notes have the
right to convert their notes at their option at any time during the calendar
quarter subsequent to December 31, 2021. If the note holders exercise their
right to convert, our current intent is to settle such conversion through a
combination settlement involving a repayment of the principal portion in cash
and the balance in shares of common stock. As of December 31, 2021, we
classified the net carrying amount of the 2025 Notes as a current liability in
the condensed consolidated balance sheets included elsewhere in this Quarterly
Report on Form 10-Q.

In conjunction with the issuance of the 2025 Notes, we entered into Capped Call
transactions with certain counterparties. The Capped Calls each have an initial
strike price of approximately $160.88 per share, subject to certain adjustments.
The Capped Calls have an initial cap price of $218.14 per share, subject to
certain adjustments; provided that such cap price shall not be reduced to an
amount less than the strike price of $160.88 per share. The purpose of the
Capped Calls is to reduce the potential dilution of our common stock upon any
conversion of the 2025 Notes and/or offset any cash payments that we are
required to make in excess of the principal amount of such converted notes, as
the case may be, with such reduction and/or offset subject to a cap.

Credit agreements

Our credit agreements consisted of (i) a Revolving Credit and Security Agreement (Revolving Credit Agreement 2021) and (ii) a Warehouse Credit Agreement (Credit Agreement 2019, as amended).

Our 2021 Revolving Credit Agreement has a total commitment of $95.0 million
consisting of a Class A facility amounting to $75.0 million and a Class B
facility amounting to $20.0 million. The total outstanding borrowings from the
Class A and Class B facilities, which bear interest at 2.75% and 10.25% per
annum, respectively, plus LIBOR (subject to a floor rate of 0.25%), were $37.5
million and $10.0 million, respectively, as of December 31, 2021. Our 2021
Revolving Credit Agreement matures in June 2023 or earlier pursuant to such
agreement and the outstanding borrowings are payable on or before the maturity
date.

Our 2019 Credit Agreement (as amended) has a total commitment of $60.0 million.
The outstanding borrowings from the amended 2019 Credit Agreement, which bear
interest at 6.0% per annum plus LIBOR (subject to a floor rate of 2.0%),
amounted to $30.0 million as of December 31, 2021. The interest rate dropped to
4.5% per annum plus LIBOR (subject to a floor rate of 0.25%) beginning October
2021. Our 2019 amended Credit Agreement matures in January 2023 and the
outstanding borrowings are payable on or before the maturity date.

The funds available under our credit agreements, after deducting our borrowings totaling $77.5 millionhas been $77.5 million from December 31, 2021.

Contractual obligations and other commitments

As discussed above, we issued $575.0 million in aggregate principal amount of
the 2027 Notes in the first quarter of fiscal 2022. The 2027 Notes are senior,
unsecured obligations, and will not accrue interest. The 2027 Notes are
convertible on or after January 1, 2027 until the close of business on the
second scheduled trading day immediately preceding the maturity date. For
additional discussion about our 2027 Notes, refer to Note 9 to our condensed
consolidated financial statements included elsewhere in this Quarterly Report on
Form 10-Q.

Other than the 2027 Notes, there were no material changes in our contractual
obligations and other commitments from those disclosed in our Annual Report on
Form 10-K for fiscal 2021. For additional discussion on our leases and other
contractual commitments, refer to Notes 13 and 14 to our condensed consolidated
financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Off-balance sheet arrangements

We are contractually obligated to purchase all card receivables from U.S. based
card issuing banks (Issuing Banks) including authorized transactions that have
not cleared. The transactions that have been authorized but not cleared

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totaled $18.8 million as of December 31, 2021 and have not been recorded on our
condensed consolidated balance sheets. We have off-balance sheet credit
exposures with these authorized but not cleared transactions; however, our
expected credit losses with respect to these transactions was not material as of
December 31, 2021.

Other than our expected credit loss exposure on the card transactions that have
not cleared, we had no other off-balance sheet arrangements that have, or are
reasonably likely to have, a current or future material effect on our
consolidated financial condition, results of operations, liquidity, capital
expenditures, or capital resources as of December 31, 2021.

Critical accounting estimates

Our condensed consolidated financial statements have been prepared in accordance
with GAAP. The preparation of these condensed consolidated 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 condensed 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 estimates from the critical accounting estimates described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10- K for fiscal year 2021.

Recent accounting pronouncements

See "The Company and its Significant Accounting Policies" in Note 1 of the notes
to our condensed consolidated financial statements included in Part I, Item 1 of
this Quarterly Report on Form 10-Q.

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