What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-08-14 compared with 2020-05-13 · 194 added, 89 removed, 182 unchanged (61% of the section changed)

8 unchanged sentences

Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:

the impact of the COVID-19 pandemic;

competition in the payment processing industry;

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Results of Operations

This section includes a summary of our results of operations for the periods presented followed by a detailed discussion of our results of operations for the three months ended March 31, 2020 (or first quarter 2020) compared to the three months ended March 31, 2019 (or first quarter 2019).

This section includes a summary of our results of operations for the periods presented followed by a detailed discussion of our results of operations for the three months ended June 30, 2020 (or second quarter 2020) compared to the three months ended June 30, 2019 (or second quarter 2019), and the six months ended June 30, 2020 (or first half of 2020) compared to the six months ended June 30, 2019 (or first half of 2019).

We have derived this data, except key indicators for merchant bankcard processing dollar values and transaction volumes, from our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements included in our latest Annual Report on Form 10-K.

Three Months Ended March 31, 2020 Compared to Three Months Ended March 31, 2019

Three Months Ended June 30, 2020 Compared to the Three Months Ended June 30, 2019

(dollars in thousands)

Three Months Ended March 31,

Three Months Ended June 30,

OPERATING EXPENSES:

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Interest expense

Other income, net

Total other expenses, net

Loss before income taxes

Income tax expense

nm = not meaningful

Six Months Ended June 30, 2020 Compared to the Six Months Ended June 30, 2019

(dollars in thousands)

Six Months Ended June 30,

OPERATING EXPENSES:

Costs of services

Salary and employee benefits

Depreciation and amortization

Selling, general and administrative

Total operating expenses

Income from operations

OTHER INCOME (EXPENSES):

Interest expense

Other (expense) income, net

1 unchanged sentence

Loss before income taxes

Income tax expense benefit

The following table shows our reportable segments' financial performance data and selected performance measures for the three months ended March 31, 2020 compared to the three months ended March 31, 2019:

Income tax (benefit) expense

nm = not meaningful

The following table shows our reportable segments' financial performance data and selected performance measures for the three months ended June 30, 2020 compared to the three months ended June 30, 2019 :

(in thousands)

Three Months Ended March 31,

Three Months Ended June 30,

Consumer Payments:

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Merchant bankcard transaction volume

Three Months Ended March 31, 2020 Compared to Three Months Ended March 31, 2019

For the first three months of 2020, our consolidated revenue increased by $9.3 million , or 10.6% , from $87.6 million to $96.9 million .

This revenue growth reflected increases of $7.0 million and $2.6 million in our Consumer Payments and Integrated Partners segments, respectively, partially offset by a decrease in our Commercial Payments segment of $0.3 million .

Consolidated merchant bankcard processing dollar value increased 2.6% while merchant bankcard transactions decreased 0.9% .

The increase in revenue for the first three months of 2020 in our Consumer Payments segment was due to a higher average ticket price and growth in processing volume of 1.7% , partially offset by a decline in merchant bankcard transactions of 1.2% .

The lower merchant bankcard transaction volume for the first three months of 2020 was mainly due to the effects of the COVID-19 pandemic during the last half of March 2020, partially offset by the continuation of strong consumer spending trends from January through mid-March and positive net onboarding of new merchants.

The average dollar amount per bankcard transaction (calculated by dividing bankcard processing volume by the associated number of transactions processed) of $86.97 increased 3.0% for the first three months of 2020 from $84.47 for the first three months of 2019.

Commercial Payments segment revenue for the first three months of 2020 decreased by $0.3 million , or 4.4% , compared to the first three months of 2019.

This decrease was due to lower revenue from our curated managed services program, partially offset by increases in our commercial payments exchange ("CPX") accounts payable automated solutions services, which grew by $0.4 million, or 31.4% , from $1.2 million to $1.6 million.

Revenue from our curated managed services programs declined by $0.7 million from $5.4 million to $4.8 million, driven by lower program activity and incentive revenue in the first three months of 2020.

Revenue in our Integrated Partners reportable segment was $4.5 million for the first three months of 2020 compared to $2.0 million for the first three months of 2019.

Priority Real Estate Technology ("PRET") comprised $4.0 million and $1.6 million of this reportable segment's revenue in the first three months of 2020 and 2019, respectively.

PRET is comprised primarily of the assets acquired from YapStone in March 2019 and the net assets acquired from RadPad Holdings, Inc.

Revenue from Priority PayRight Health Solutions and Priority Hospitality Technology, whose assets we acquired in April 2018 and February 2019, respectively, comprise the remainder of this reportable segment's revenue.

The following table shows our reportable segments' financial performance data and selected performance measures for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 :

(in thousands)

Six Months Ended June 30,

Consumer Payments:

Operating expenses

Three Months Ended March 31, 2020 Compared to Three Months Ended March 31, 2019

Our consolidated operating expenses increased $6.7 million , or 7.7% , from $86.7 million for the first three months of 2019 to $93.4 million for the first three months of 2020.

This overall increase was primarily due to the increase in costs of services of $6.3 million , or 10.4% , related to the corresponding 10.6% increase in revenues, and higher amortization expense of $1.3 million primarily for the acquired YapStone assets and internally developed software.

This increase was partially offset by a $0.8 million decrease, or 7.1% , in salaries and employee benefits and a decrease of $0.1 million , or 2.1% , in selling, general, and administrative ("SG&A") expenses.

This decrease in salaries and employee benefits was related to lower incentive compensation and a decrease of $0.8 million in non-cash stock-based compensation for the first three months of 2020.

Income from operations

Three Months Ended March 31, 2020 Compared to Three Months Ended March 31, 2019

Consolidated income from operations increased by $2.6 million , or 268.4% , from $1.0 million for the first three months of 2019 to $3.6 million for the first three months of 2020.

Our consolidated operating margin for the first three months of 2020 was 3.7% compared to 1.1% for the first three months of 2019.

This margin increase was driven by profitability in our Commercial Payments and Integrated Partners segments, lower corporate expense, partially offset by the decrease in income from operations in our Consumer Payments segment attributable to additional amortization expense.

Our Consumer Payments reportable segment contributed $7.2 million in income from operations for the first three months of 2020, a decrease of $0.6 million , or 7.3% , from the $7.7 million for the first three months of 2019.

This decrease largely reflected lower merchant bankcard transaction volume, higher residual expenses, and an increase in amortization expense primarily for residual rights in merchant portfolios acquired after the first quarter of 2019, partially offset by higher merchant bankcard processing dollar value due to the increase in the average dollar amount per bankcard transaction, as previously discussed.

Our Commercial Payments reportable segment earned income from operations of approximately $0.8 million for the first three months of 2020 compared to a loss from operations of approximately $0.5 million for the first three months of 2019.

This improvement in 2020 was largely driven by growth in our CPX accounts payable automated solutions services, partially offset by a contraction in our curated managed services.

Our Integrated Partners reportable segment contributed $0.4 million in income from operations for the first three months of 2020 compared to a loss from operations of $0.2 million in the first three months of 2019.

Operating margin

Depreciation and amortization

Key Indicators:

Merchant bankcard processing dollar value

Merchant bankcard transaction volume

Commercial Payments:

Operating expenses

Income (loss) from operations

Operating margin

Depreciation and amortization

Key Indicators:

Merchant bankcard processing dollar value

Merchant bankcard transaction volume

Integrated Partners:

Operating expenses

Income (loss) from operations

Operating margin

Depreciation and amortization

Key Indicators:

Merchant bankcard processing dollar value

Merchant bankcard transaction volume

Income from operations of reportable segments

Corporate expense

Consolidated income from operations

Corporate depreciation and amortization

Key indicators:

Merchant bankcard processing dollar value

Merchant bankcard transaction volume

Impact of COVID-19 on Results and Trends

The outbreak of COVID-19 in the United States, which was declared a pandemic by the World Health Organization on March 11, 2020 , continues to adversely affect commercial activity and has contributed to a significant decline in economic activity.

Starting in mid-March 2020, COVID-19 began to significantly affect our results.

The deterioration accelerated toward the end of March and continued at that level through most of April due to restrictive shelter in place requirements instituted across the United States.

In April, we experienced a significant decline in merchant bankcard volume of 31.8% as compared with the comparable period in 2019, which resulted in a decrease in our April revenues of 11.7% and revenues less costs of services of 9.3% .

In May, as shelter in place restrictions began to be lifted and regional economies were reopening, our processing volumes began to return and growth was supplemented by the acceleration of certain specialized product offerings including ecommerce.

This resulted in increasingly strong results in May and June.

Merchant bankcard volumes in May and June were down from the comparable prior year periods by just 15.8% and 1.9% , respectively, while revenues grew 1.7% and 10.8% , respectively.

Revenues less costs of services increased 3.5% and 4.5% in May and June, respectively, as compared to the prior year periods.

In the second quarter of 2020:

Merchant bankcard volume processed in April, May and June was $2.4 billion , $3.2 billion , and $3.6 billion , respectively.

Consolidated revenue in April, May and June was $26.7 million , $31.9 million , and $33.8 million , respectively.

Consolidated revenue less costs of services in April, May and June was $9.1 million , $10.0 million , and $10.8 million , respectively.

Three Months Ended June 30, 2020 Compared to Three Months Ended June 30, 2019

Our consolidated revenue in second quarter 2020 increased by $0.2 million , or 0.2% , to $92.4 million from $92.1 million in second quarter 2019.

Revenue growth of $0.3 million in our Consumer Payments segment and $0.8 million in our Integrated Partners segment were partially offset by a revenue decline of $0.8 million in our Commercial Payments segment.

Consolidated bankcard processing dollar value and consolidated bankcard transaction volume decreased 16.0% and 28.6% , respectively, in second quarter 2020 while the average consolidated ticket price (calculated by dividing bankcard processing volume by the associated number of transactions processed) grew 17.5% to $98.63 from $83.92 compared to second quarter 2019.

Consumer Payments segment revenue for the second quarter 2020 increased by $0.3 million, or 0.3% , compared to second quarter 2019.

Despite a 16.4% decline in merchant bankcard processing dollar volume in the quarter, the revenue increase was driven by strong ecommerce growth.

Ecommerce volume offers more favorable pricing to the Company than other merchant categories.

The overall merchant mix also resulted in a higher average ticket.

Commercial Payments segment revenue for second quarter 2020 decreased by $0.8 million , or 13.0% , compared to second quarter 2019.

This decrease was due to lower revenue from our curated managed services program, partially offset by increases in our commercial payments exchange ("CPX") accounts payable automated solutions services, which grew by 7.9% from $1.3 million in second quarter 2019 to $1.4 million in second quarter 2020.

Revenue from our curated managed services programs declined by 18.2% from $5.2 million in second quarter 2019 to $4.2 million in second quarter 2020, driven by lower program activity and incentive revenue.

Revenue in our Integrated Partners segment was $5.0 million for second quarter 2020 compared to $4.2 million for second quarter 2019.

Priority Real Estate Technology ("PRET") comprised $4.5 million and $3.7 million of this segment's revenue in second quarter 2020 and second quarter 2019, respectively.

PRET is comprised primarily of the assets acquired from YapStone, Inc.

in March 2019 and the net assets acquired from RadPad Holdings, Inc.

Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019

Our consolidated revenue in the first half of 2020 increased by $9.5 million , or 5.3% , to $189.3 million from $179.8 million in first half of 2019.

Revenue growth of $7.3 million in our Consumer Payments segment and $3.4 million in our Integrated Partners segments were partially offset by a decline of $1.1 million in our Commercial Payments segment.

Consolidated bankcard processing

dollar value and consolidated bankcard transaction volume decreased by 7.0% and 15.3% , respectively in the first half of 2020 while the average consolidated ticket price grew 9.8% to $92.80 from $84.54 compared to first half of 2019.

Consumer Payments segment revenue in the first half of 2020 increased by $7.3 million, or 4.5% , compared to the first half of 2019.

Despite a 7.6% decline in merchant bankcard processing dollar volume in the first half of 2020, the revenue increase was driven by strong ecommerce growth, particularly in the second quarter of 2020.

Ecommerce volume offers more favorable pricing to the Company than other merchant categories.

The overall merchant mix also resulted in a higher average ticket.

Commercial Payments segment revenue for the first half of 2020 decreased by $1.1 million , or 8.6% , compared to the first half of 2019.

This decrease was due to lower revenues from our curated managed services program, partially offset by increases in our CPX accounts payable automated solutions services, which grew by $0.5 million from $2.5 million in the first half of 2019 to $3.0 million in the first half of 2020.

Revenue from our curated managed services program declined by $1.6 million from $10.6 million in the first half of 2019 to $9.0 million in the first half of 2020, driven by lower program activity and incentive revenue in 2020.

Integrated Partners segment revenue for the first half of 2020 increased by $3.4 million, or 54.4% , compared to the first half of 2019.

PRET comprised $8.5 million and $5.3 million of this segment's revenue in the first half of 2020 and the first half of 2019, respectively.

PRET's revenues in the first half of 2019 began to reflect revenue from the YapStone assets which were acquired in March 2019.

Operating expenses

Three Months Ended June 30, 2020 Compared to Three Months Ended June 30, 2019

Our consolidated operating expenses decreased $1.4 million , or 1.5% , from $89.7 million in second quarter 2019 to $88.3 million in second quarter 2020.

This overall decrease was driven by a $0.8 million reduction in salary and employee benefit expenses due primarily to reduced headcount.

At June 30, 2020 we had 537 full-time equivalent employees compared to 575 at June 30, 2019 .

Selling, general and administrative ("SG&A") expenses decreased by $1.6 million attributable mainly to decreases in office and travel-related costs due to the COVID-19 pandemic, lower outside professional fees due to in-sourcing of certain services, and an overall focus on cost containment.

Partially offsetting these decreases was an increase in depreciation and amortization expense of $0.6 million , or 6.2% , caused by higher amortization expense in 2020 from acquired intangible assets and internally-developed software.

Consolidated operating expenses in the second quarter 2020 and the second quarter 2019 included non-recurring expenses of $1.4 million and $1.6 million, respectively.

Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019

Our consolidated operating expenses increased by $5.3 million , or 3.0% , from $176.4 million in the first half of 2019 to $181.7 million in the first half of 2020.

This overall increase was driven by higher revenues of 5.3% , which was reflected in the corresponding increase of $6.7 million , or 5.4% , for costs of services.

Depreciation and amortization expense also increased $1.9 million , or 10.4% , due to higher amortization expense in 2020 from acquired intangible assets and internally-developed software.

Partially offsetting these increases in the first half of 2020 were decreases in salary and employee benefits and in SG&A expenses.

Salary and employee benefits decreased by $1.6 million , or 7.4% , in the first half of 2020 due to lower headcount.

SG&A expenses decreased by $1.7 million attributable mainly to decreases in office and travel-related costs beginning in mid-March 2020 due to the COVID-19 pandemic, lower outside professional fees due to in-sourcing of certain services, and an overall focus on cost containment.

Consolidated operating expenses in the first half of 2020 and the first half of 2019 included non-recurring expenses of $2.8 million for both periods.

Income from operations

Three Months Ended June 30, 2020 Compared to Three Months Ended June 30, 2019

Consolidated income from operations increased by $1.6 million , or 65.5% , from $2.4 million for second quarter 2019 to $4.0 million for second quarter 2020.

Our consolidated operating margin for second quarter 2020 was 4.4% compared to 2.6% for second quarter 2019.

This margin increase was the result of lower salary and employee benefits of $0.8 million and lower SG&A expense of $1.6 million, partially offset by higher depreciation and amortization expense of $0.6 million and lower revenue less costs of services of $0.2 million.

Our Consumer Payments segment contributed $7.3 million in income from operations for second quarter 2020, a slight decrease of $0.1 million , or 1.3% , from $7.4 million for second quarter 2019.

A $0.6 million increase in depreciation and amortization expense primarily related to residual rights of acquired merchant portfolios and internally-developed software was offset by a $0.7 million decrease in salaries and employee benefits and a $0.6 million decrease in SG&A expenses.

Our Commercial Payments segment earned income from operations of $0.5 million for second quarter 2020 compared to a loss from operations of $0.3 million for second quarter 2019.

This improvement was largely driven by a $0.2 million decrease in salaries and employee benefits and a $0.6 million decrease in SG&A expenses.

Our Integrated Partners segment contributed $0.8 million in income from operations for second quarter 2020 compared to $0.6 million for second quarter 2019.

This improvement was largely attributable to growth in electronic rent payments revenue within PRET.

Operating results for second quarter 2020 and second quarter 2019 included depreciation and amortization expense of $1.3 million and $1.1 million , respectively, primarily related to the acquired YapStone assets.

Other operating expenses in second quarter 2020 and second quarter 2019 also included expenses for transition services related to the acquired YapStone assets of $0.8 million and $0.7 million , respectively.

Corporate expenses were $4.6 million for second quarter 2020, a decrease of $0.7 million , or 12.6% , from expenses of $5.2 million for second quarter 2019.

This decline in Corporate expenses was due primarily to a $0.6 million decrease in SG&A expenses.

Corporate expenses that we deem to be non-recurring in nature were $0.5 million and $0.8 million for second quarter 2020 and second quarter 2019, respectively.

Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019

Consolidated income from operations increased by $4.2 million , or 123.1% , from $3.4 million for the first half of 2019 to $7.6 million for the first half of 2020.

Our consolidated operating margin for the first half of 2020 was 4.0% compared to 1.9% for the first half of 2019.

This margin increase was the result of higher revenues less costs of services of $2.8 million, lower salary and employee benefits of $1.6 million, and lower SG&A expenses of $1.7 million, partially offset by higher depreciation and amortization expense of $1.9 million.

Our Consumer Payments segment contributed $14.4 million in income from operations for the first half of 2020, a decrease of $0.7 million , or 4.4% , from the $15.1 million for the first half of 2019.

This decrease was the result of lower revenue less costs of services of $0.5 million and a $1.3 million increase in depreciation and amortization expenses primarily related to residual rights of acquired merchant portfolios and internally-developed software, which were partially offset by a $1.0 million decrease in salaries and employee benefits expenses and a $0.1 million decrease in SG&A expenses.

Our Commercial Payments segment earned income from operations of $1.2 million for the first half of 2020 compared to a loss from operations of $0.7 million for the first half of 2019.

This improvement was driven by a $0.6 million improvement in revenues less costs of services, a $0.3 million decrease in salaries and employee benefits expenses, and a $1.0 million decrease in SG&A expenses.

Our Integrated Partners segment contributed $1.2 million in income from operations for the first half of 2020 compared to $0.3 million in the first half of 2019.

The growth in 2020 was largely attributable to the YapStone assets acquired in late first quarter of 2019.

Operating results for first three months of 2020 included depreciation and amortization expense of $1.3 million primarily related to the YapStone assets acquired.

Other operating expenses in the first quarters of 2020 included $0.9 million for transition services related to the acquired YapStone assets.

Corporate expense was $4.7 million for the first three months of 2020, a decrease of $1.3 million , 22.1% , from expenses of $6.1 million for the first three months of 2019.

Corporate expenses that we deem to be non-recurring in nature were $0.5 million in the first quarter of 2020 and $1.2 million in the first quarter 2019.

The decline in Corporate expenses was also due to decreases in non-cash stock-based compensation expense and certain SG&A costs.

Operating results for the first half of 2020 and the first half of 2019 included depreciation and amortization expense of $2.6 million and $1.8 million , respectively, primarily related to the acquired YapStone assets.

Other operating expenses in the first half of 2020 and the first half of 2019 also included $1.7 million and $0.7 million , respectively, for transition services related to the assets acquired from YapStone, Inc.

Corporate expenses were $9.3 million for the first half of 2020, a decrease of $2.0 million , or 17.7% , from expenses of $11.3 million for the first half of 2019.

The decline in Corporate expenses was due primarily to a $1.6 million decrease in SG&A expenses.

Corporate expenses that we deem to be non-recurring in nature were $1.0 million and $2.0 million in the first half of 2020 and the first half of 2019, respectively.

Interest expense

For the first three months of 2020, interest expense increased by $1.0 million , or 10.2% , to $10.3 million from $9.4 million from the first three months of 2019.

The increase in 2020 was primarily due to higher outstanding borrowings driven by draws on the revolving credit facility and a delayed draw on the term facility of our Senior Credit Agreement that occurred in March 2019.

The amortization of deferred financing costs and debt discounts increased our reported interest expense, and such amortization resulted in an effective interest rate of 8.87% for our senior term loan and 12.91% for our subordinated term loan at March 31, 2020.

Other, net resulted in an expense of $0.3 million in the first three months of 2020 compared to income of $0.2 million for the first three months of 2019.

The first three months of 2020 included expenses of $0.4 million related to debt modifications and a $0.2 million non-cash write-off of an equity-method investment.

For second quarter 2020, interest expense increased by $0.9 million , or 8.3% , to $11.7 million from $10.8 million in second quarter 2019.

For the first half of 2020, interest expense increased $1.8 million , or 9.2% , to $22.0 million from $20.1 million in the first half of 2019.

These increases in 2020 were primarily due to higher outstanding borrowings driven by draws on the revolving credit facility and increases in the applicable margins on the Senior Credit Agreement and the GS Credit Agreement that resulted from the Sixth Amendment in March 2020.

The amortization of deferred financing costs and debt discounts increased our reported interest expense and the effective interest rates under our Senior Credit Agreement and GS Credit Agreement, as disclosed in Note 8, Debt Obligations .

We assess all available positive and negative evidence to estimate whether sufficient taxable income will be generated in the future to permit use of the existing deferred tax assets.

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With respect to recording a deferred tax benefit for the carryforward of business interest expense, GAAP applies a "more likely than not" threshold for assessing recoverability.

On the basis of our assessment, during the first three months of 2020 we recorded an increase in the valuation allowance of $0.5 million for our business interest carryover comprised of (i) a discrete valuation allowance benefit of $1.5 million associated with our 2019 business interest deferred tax asset as a result of the CARES Act and

(ii) a provision for the valuation allowance of $2.0 million associated with our 2020 excess business interest.

These provisions are a component of our income tax benefit reported on our consolidated statements of operations.

On the basis of our assessment, during second quarter 2020, second quarter 2019, the first half of 2020, and the first half of 2019, we recorded increases in the deferred income tax valuation allowance of $2.2 million , $5.3 million , $4.2 million , and $5.3 million , respectively, associated with excess business interest for the then-current reporting periods.

During second quarter 2019 and in the first half of 2019, we recorded discrete increases to the valuation allowance of $2.6 million for excess business interest related to a prior year(s).

In the first half of 2020 we recorded a decrease to the valuation allowance of $1.5 million for business interest related to 2019 as a result of the CARES Act.

These provisions and adjustments are a component of our income tax benefit reported on our consolidated statements of operations.

We will continue to evaluate the realizability of the net deferred tax asset on a quarterly basis and, as a result, the valuation allowance may change in future periods.

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As a result, the methods we use to calculate Adjusted EBITDA may differ from the methods used by other companies to calculate their non-GAAP measures.

Our income from operations for the three months ended March 31, 2020 and 2019 included SG&A expenses that we consider to be non-recurring in nature.

These expenses totaled $1.4 million and $1.2 million in the three months ended March 31, 2020 and 2019, respectively.

In the first quarter of 2020, these expenses included $0.9 million associated with transition services from YapStone, Inc.

related to integration of the March 2019 asset acquisition, and $0.5 million of certain legal expenses.

In the first quarter of 2019, these expenses included $0.7 million of accounting services associated with the conversion to a public company and $0.5 million of certain legal expenses.

Other (expense) income, net in the first three months of 2020 included $0.6 million of non-operating expenses that we consider non-recurring in nature, which consisted of $0.4 million of debt modification expenses and a $0.2 million non-cash write-off of the carrying value of an equity method investment.

Our income from operations for all reporting periods presented herein included certain SG&A expenses that we consider to be non-recurring in nature, including transition services from YapStone, Inc.

related to integration of the March 2019 asset acquisition and certain legal and professional expenses related to non-recurring matters.

These expenses totaled $1.4 million and $2.8 million for the three months and six months ended June 30, 2020 , respectively, and $1.6 million $2.8 million for the three months and six months ended June 30, 2019 , respectively, as disclosed in the reconciliation table presented below.

The non-GAAP reconciliations of EBITDA, Adjusted EBITDA, and Consolidated Adjusted EBITDA to consolidated net loss, the most directly comparable financial measure calculated and presented in accordance with GAAP, include adjustments for these and certain other items, are shown in the table below:

(in thousands)

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Consolidated Net Loss (GAAP)

1 unchanged sentence

Depreciation and amortization

Income tax benefit

Income tax expense (benefit)

EBITDA (non-GAAP)

11 unchanged sentences

Other professional and consulting fees

Other tax expenses and other adjustments

Other adjustments and tax expenses

Consolidated Adjusted EBITDA (non-GAAP) (4)

3 unchanged sentences

( 4) Presented to reflect the definition in the Company's credit agreements, as amended.

Until December 31, 2019, the Consolidated Adjusted EBITDA of the Borrowers under the credit agreements excluded expenses of Priority Technology Holdings, Inc., which is neither a Borrower nor a guarantor under the credit agreements, subsequent to the Business Combination.

Effective December 31, 2019, in accordance with the Sixth Amendment to the Company's Credit and Guaranty Agreement, the Consolidated Adjusted EBITDA of the Borrowers under the credit agreements includes expenses of Priority Technology Holdings, Inc.

Consolidated Adjusted EBITDA of the Borrowers was approximately $16.2 million and $19.4 million for the quarters ended March 31, 2020 and 2019, respectively.

The 2019 amount excludes $3.7 million of expenses of Priority Technology Holdings, Inc.

Until December 31, 2019, the Consolidated Adjusted EBITDA of the borrowers under the credit agreements excluded expenses of Priority Technology Holdings, Inc., which is neither a borrower nor a guarantor under the credit agreements, subsequent to its acquisition of Priority Holdings, LLC on July 25, 2018.

Effective December 31, 2019, in accordance with the Sixth Amendment, the Consolidated Adjusted EBITDA of the borrowers under the credit agreements includes expenses of Priority Technology Holdings, Inc.

Consolidated Adjusted EBITDA of the borrowers was approximately $18.9 million and $38.4 million for the three months and six months ended June 30, 2019, respectively.

The amounts for the three months and six months ended June 30, 2019 excluded $3.6 million and $7.2 million, respectively, of expenses of Priority Technology Holdings, Inc.

Financial Condition

Compared to our consolidated balance sheet as of December 31, 2019, the following key changes have occurred as of March 31, 2020.

Cash decreased by $0.4 million.

Compared to our consolidated balance sheet as of December 31, 2019, the following key changes have occurred at June 30, 2020 .

Cash increased by $0.5 million during the first half of 2020.

Excluding restricted cash, the increase was $2.6 million.

For an explanation of the key drivers of this change, see the subsequent section, Liquidity and Capital Resources .

Intangible Assets

Intangible assets, net of accumulated amortization, decreased during the first three months of 2020 by $7.5 million due to amortization expense of $8.5 million, partially offset by $0.9 million payment for a portion of a contingent purchase price for a merchant portfolio intangible asset.

Intangible assets, net of accumulated amortization, decreased during the first half of 2020 by $14.1 million due to amortization expense of $16.9 million, partially offset by $3.3 million payment for additions to intangible assets during the first half of 2020.

Debt Obligations

Outstanding amounts for our debt obligations under our Senior Credit Agreement and our GS Credit Agreement increased by a net $3.9 million during the first three months of 2020.

This increase was driven by additional borrowings of $3.5 million on the revolving facility under our Senior Credit Agreement and PIK interest of $1.4 million added to the amount outstanding under our GS Credit Agreement.

These new borrowings were partially offset by $1.0 million of principal repayment on the term facility of our Senior Credit Agreement

Outstanding amounts for our debt obligations under our Senior Credit Agreement and our GS Credit Agreement increased by a net of $4.4 million during the first half of 2020.

This increase was driven by additional net borrowings of $3.0 million on the revolving facility under our Senior Credit Agreement and PIK interest of $3.3 million and $0.2 million added to the amount outstanding under our GS Credit Agreement and Senior Credit Agreement, respectively.

This overall increase was partially offset by $2.0 million of principal repayment on the term facility of our Senior Credit Agreement

Stockholders' Deficit

Stockholders' deficit attributable to the stockholders of the Company changed by $5.5 million, from a deficit of $126.3 million at December 31, 2019 to a deficit of $131.9 million at March 31, 2020.

The primary driver of this change was the net loss of $5.9 million for the first three months of 2020 million, partially offset by a $0.3 million increase to additional paid-in capital for stock-based compensation.

Stockholders' deficit attributable to the stockholders of the Company changed by $12.8 million, from a deficit of $126.3 million at December 31, 2019 to a deficit of $139.2 million at June 30, 2020 .

The primary driver of this change was the net loss of $13.7 million for the first half of 2020 million, partially offset by a $0.9 million increase to additional paid-in capital for equity-based stock compensation.

Liquidity and Capital Resources

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Our principal uses of cash are to fund business operations, administrative costs, and debt service.

Our working capital, defined as current assets less current liabilities, was $(2.3) million and $1.2 million at March 31, 2020 and December 31, 2019, respectively.

As of March 31, 2020, we had cash totaling $2.9 million compared to $3.2 million at December 31, 2019.

These balances do not include restricted cash, which reflects cash accounts holding customer settlement funds of $36.9 million at March 31, 2020 and $47.2 million at December 31, 2019.

At March 31, 2020, approximately $10.0 million was available under the revolving credit facility of our Senior Credit Agreement.

Our working capital, defined as current assets less current liabilities, was $(4.8) million and $1.2 million at June 30, 2020 and December 31, 2019, respectively.

As of June 30, 2020 , we had cash totaling $5.9 million compared to $3.2 million at December 31, 2019.

These balances do not include restricted cash, which reflects cash accounts holding customer settlement funds of $45.1 million at June 30, 2020 and $47.2 million at December 31, 2019 .

At June 30, 2020 , approximately $10.5 million was available under the revolving credit facility of our Senior Credit Agreement.

The following tables and narrative reflect our changes in cash flows for the comparative periods:

(dollars in thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Net cash (used in) provided by:

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Financing activities

Net decrease in cash and restricted cash

Cash Used In Operating Activities

Net cash used in operating activities, which includes changes in restricted cash, in the first three months of 2020 was $7.3 million compared to net cash used of $1.2 million for the first three months of 2019.

This $6.0 million decrease for the first three months of 2020 was principally the result of a decrease in restricted cash, partially offset by a lower net loss.

Net increase (decrease) in cash and restricted cash

Cash Provided By Operating Activities

Net cash provided by operating activities, which includes changes in restricted cash, in the first half of 2020 was $9.8 million compared to net cash provided by operating activities of $3.7 million for the first half of 2019.

This $6.1 million increase for the first half of 2020 was principally the result of higher cash flows from operations and changes in assets and liabilities, partially offset by a decrease in restricted cash flows.

Cash Used In Investing Activities

Net cash used in investing activities was $3.2 million and $82.2 million for the first three months of 2020 and 2019, respectively.

Cash used in investing activities for the first three months of 2019 included $15.8 million used for residual buyouts and $63.8 million used to acquire certain intangible assets from YapStone.

Cash used to acquire property, equipment, and software amounted to $2.3 million and $2.4 million for the first three months of 2020 and 2019, respectively.

Net cash used in investing activities was $7.5 million and $89.8 million for the first half of 2020 and the first half of 2019, respectively.

Cash used in investing activities for the first half of 2019 included $15.8 million used for residual buyouts and $63.8 million used to acquire certain intangible assets from YapStone.

Cash used to acquire property, equipment, and software amounted to $4.2 million and $5.4 million for the first half of 2020 and first half of 2019, respectively.

Cash (Used In) Provided By Financing Activities

Net cash used in financing activities was $0.3 million for the first three months of 2020 compared to cash provided of $78.8 million in the first three months of 2019.

The amount for the first three months of 2019 included new borrowings under our Senior Credit Agreement consisting of $10.0 million under the revolving facility and a $69.7 million delayed draw under the term facility that was used to acquire certain assets from YapStone, Inc.

Net cash used in financing activities was $1.8 million for the first half of 2020 compared to cash provided of $79.4 million in the first half of 2019.

The amount for the first half of 2019 included new borrowings under our Senior Credit Agreement consisting of $14.0 million under the revolving facility and a $69.7 million delayed draw under the term facility that was used to acquire certain assets from YapStone, Inc.

COVID-19 Pandemic

Our results of operations for the entire first quarter of 2020 were not significantly impacted by the COVID-19 pandemic since the economic consequences of the pandemic did not begin to materially impact consumer payment transactions in the United States until the last half of March 2020.

However, starting in mid-March, the pandemic began to negatively impact our daily consumer payment processing volumes as the pandemic spread across the United States and restrictive shelter in place requirements were instituted.

From mid-March 2020 through the end of April 2020, we experienced a significant decline of approximately 35% in consumer payment processing dollar volumes as compared with the comparable period in 2019.

In May 2020, as shelter in place restrictions began to be removed, we have experienced a rebound in daily consumer payment processing dollar volumes, with a currently projected decline of 15% to 20% in May 2020 as compared with May 2019.

In mid-April 2020, we implemented several actions to reduce expenses and preserve cash in order to mitigate the financial impact of COVID-19, including the furlough of 47 employees, reduction of 21 full-time contractors, freezing of new hires, and postponement of certain capital expenditures.

Our results of operations for the most of the first quarter of 2020 were not significantly impacted by the COVID-19 pandemic since the economic consequences of the pandemic did not begin to materially impact consumer payment transactions in the United States until the last half of March 2020.

Beginning in mid-March, however, the pandemic began to negatively impact our daily consumer payment processing volumes as the pandemic spread across the United States and restrictive shelter in place requirements were instituted.

In mid-April 2020, we implemented several actions to reduce expenses and preserve cash in order to mitigate the financial impact of COVID-19.

We continue to closely monitor the effects of the pandemic on our financial results, and will take additional cost-saving actions, if necessary, to further mitigate its impact.

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Commitments and Contractual Obligations

See Note 10, Commitments and Contingencies , to our unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for disclosure information about potential contingent payments that we may be required to make in future periods that are not required to be recognized in our consolidated balance sheets as of March 31, 2020 or December 31, 2019.

Contractual Obligations

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Our critical accounting policies and estimates are discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our most recent Annual Report on Form 10-K.

There have been no material changes to these critical accounting policies and estimates as of March 31, 2020.

There have been no material changes to these critical accounting policies and estimates as of June 30, 2020 .

Effect of New Accounting Pronouncements and Recently Issued Accounting Pronouncements Not Yet Adopted

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis