What changed in this filing

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Item 1. Financial Statements

2021-08-16 compared with 2021-05-14 · 350 added, 219 removed, 403 unchanged (59% of the section changed)

3 unchanged sentences

(in thousands, except share data) Unaudited

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

Current assets:

26 unchanged sentences

Total liabilities 410,688 516,393

Commitments and contingencies (Note 11)

Redeemable senior preferred stock:

Redeemable senior preferred stock - $ 0.001 par value per share;

250,000 shares authorized;

150,000 issued;

150,000 shares outstanding at June 30, 2021

Stockholders' deficit:

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Common stock - $ 0.001 par value per share;

1,000,000,000 shares authorized;

68,091,398 and 67,842,204 shares issued, respectively;

67,640,174 and 67,390,980 shares outstanding, respectively

1.0 billion shares authorized;

69,561,311 shares issued at June 30, 2021 and 67,842,204 shares issued at December 31, 2020;

69,110,087 shares outstanding at June 30, 2021 and 67,390,980 shares outstanding at December 31, 2020

Additional paid-in capital 14,913 5,769

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Total stockholders' deficit ( 101,574 ) ( 98,564 )

Total liabilities and stockholders' deficit $ 400,492 $ 417,829

Total liabilities, redeemable senior preferred stock and stockholders' deficit $ 442,876 $ 417,829

See Notes to Unaudited Condensed Consolidated Financial Statements

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Priority Technology Holdings, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except per share amounts) Three Months Ended March 31,

(in thousands, except per share amounts) Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

REVENUES $ 125,014 $ 92,356 $ 238,311 $ 189,289

8 unchanged sentences

Interest expense ( 7,285 ) ( 11,668 ) ( 16,453 ) ( 21,983 )

Other expenses, net ( 269 ) ( 346 )

Debt extinguishment and modification costs ( 8,322 ) — ( 8,322 ) ( 376 )

Other income (expenses), net 215 194 ( 54 ) 224

Total other expenses, net ( 15,392 ) ( 11,474 ) ( 24,829 ) ( 22,135 )

Loss before income taxes ( 7,987 ) ( 7,443 ) ( 12,897 ) ( 14,545 )

Income tax benefit ( 2,231 ) ( 1,233 )

Income tax expense (benefit) 1,490 415 ( 741 ) ( 818 )

Net loss ( 9,477 ) ( 7,858 ) ( 12,156 ) ( 13,727 )

Dividends and accretion attributable to redeemable senior preferred stockholders ( 3,911 ) — ( 3,911 ) —

Non-controlling interest preferred unit redemptions ( 10,777 ) — ( 10,777 ) —

Net loss attributable to common stockholders of PRTH $ ( 24,165 ) $ ( 7,858 ) $ ( 26,844 ) $ ( 13,727 )

Loss per common share:

3 unchanged sentences

See Notes to Unaudited Condensed Consolidated Financial Statements

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Priority Technology Holdings, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands) Three Months Ended March 31,

(in thousands) Six Months Ended June 30,

Cash flows from operating activities:

Net loss $ ( 12,156 ) $ ( 13,727 )

Adjustments to reconcile net loss to net cash used in operating activities:

Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

Depreciation and amortization of assets 19,793 20,635

1 unchanged sentence

Amortization of debt issuance costs and discounts 1,158 1,116

Write off of deferred loan costs and discount 3,006 —

Deferred income tax benefit ( 3,446 ) ( 3,569 )

2 unchanged sentences

Other non-cash items, net ( 39 ) 206

Change in operating assets and liabilities:

Change in operating assets and liabilities (net of acquisitions):

Accounts receivable ( 9,115 ) 974

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Other assets and liabilities, net 307 ( 552 )

Net cash used in operating activities ( 13,426 ) ( 7,254 )

Net cash (used in) provided by operating activities ( 45,124 ) 9,822

Cash flows from investing activities:

Acquisition of business ( 34,507 ) —

Additions to property, equipment, and software ( 5,222 ) ( 4,249 )

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Cash flows from financing activities:

Repayment of long-term debt ( 4,860 ) ( 1,002 )

Debt modification costs paid — ( 2,749 )

Proceeds from issuance of long-term debt, net of issue discount 293,619 —

Debt issuance and modification costs paid ( 7,597 ) ( 2,749 )

Repayments of long-term debt ( 384,552 ) ( 2,003 )

Borrowings under revolving credit facility 30,000 7,000

Repayments under revolving credit facility — ( 4,000 )

Proceeds from issuance of senior preferred equity, net of issue discount 145,000 —

Senior preferred equity issuance fees and costs ( 5,472 ) —

Dividends paid to redeemable senior preferred stockholders ( 1,575 ) —

Redemptions of non-controlling interests of subsidiary ( 815 ) —

Proceeds from exercise of stock options 821 —

Net cash used in financing activities ( 4,243 ) ( 251 )

Net cash provided by (used in) financing activities 69,429 ( 1,752 )

Net change in cash and restricted cash:

Net decrease in cash and restricted cash ( 23,360 ) ( 10,734 )

Net (decrease) increase in cash and restricted cash ( 58,777 ) 535

Cash and restricted cash at beginning of period 88,120 50,465

Cash and restricted cash at end of period $ 29,343 $ 51,000

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Supplemental cash flow information:

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Payment-in-kind interest added to principal of debt obligations $ 2,512 $ 3,415

Payment of accrued contingent consideration for asset acquisition from offset of account receivable $ — $ 1,686

Accruals for asset acquisition contingent consideration $ 3,797 $ —

Notes receivable from sellers used as partial consideration for acquisitions $ 3,499 $ —

Reconciliation of cash and restricted cash:

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See Notes to Unaudited Condensed Consolidated Financial Statements

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PRIORITY TECHNOLOGY HOLDINGS, INC.

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These unaudited condensed consolidated financial statements include the accounts of the Company including those of its majority-owned subsidiaries, and all material intercompany balances and transactions have been eliminated in consolidation.

These unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") for interim financial information pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC").

These unaudited condensed consolidated financial statements have been prepared in accordance with Generally Accepted Accounting Principles in the United States ("GAAP") for interim financial information pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC").

The consolidated balance sheet as of December 31, 2020 was derived from the audited financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2020 but does not include all disclosures required by GAAP for annual financial statements.

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Actual results could differ materially from those estimates.

In particular, the continued magnitude, duration and effects of the COVID-19 pandemic are difficult to predict, and the ultimate effect could result in future charges related to the recoverability of assets, including financial assets, long-lived assets, goodwill, and other losses .

In particular, the continued magnitude, duration and effects of the Coronavirus Disease ("COVID-19") pandemic are difficult to predict, and the ultimate effect could result in future charges related to the recoverability of assets, including financial assets, long-lived assets, goodwill, and other losses .

Status as an Emerging Growth Company

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The Company may remain an EGC until December 31, 2021.

However, if the Company's non-convertible debt issued within a rolling three-year period exceeds $1.0 billion, the Company would cease to be an EGC immediately, or if its revenue for any fiscal year exceeds $1.07 billion, or the market value of its common stock that is held by non-affiliates exceeds $700.0 million on the last day of the second quarter of any given year, the Company would cease to be an EGC as of the beginning of the following year.

As an EGC, the Company is not required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002.

Additionally, the Company may continue to elect to delay the adoption of any new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies.

As such, the Company's financial statements may not be comparable to that comply with public company effective dates.

As such, the Company's financial statements may not be comparable to companies that comply with public company effective dates.

Comprehensive Income (Loss)

For the three months ended March 31, 2021 and March 31, 2020, the Company had no activities to report as components of other comprehensive income (loss).

Therefore, no separate Statement of Comprehensive Income (Loss) was prepared for any reporting period as the Company's net income (loss) from continuing operations comprises all of its comprehensive income (loss).

For the three months and six months ended June 30, 2021 and June 30, 2020, the Company had no activities to report as components of other comprehensive income (loss).

Therefore, no separate Statement of Comprehensive Income (Loss) was

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prepared for any reporting period as the Company's net income (loss) from continuing operations comprises all of its comprehensive income (loss).

Comparability of Reporting Periods

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Accounting Policies and New Accounting Standards Adopted

There have been no material changes to the Company's accounting policies as described in its most recent Annual Report on Form 10-K for the year ended December 31, 2020.

The Company did not adopt any new accounting standards during the three months ended March 31, 2021 except for the following:

Simplifying the Accounting for Income Taxes (ASU 2019-12)

In December 2019, the FASB issued Accounting Standards Update ("ASU") 2019-12, Simplifying the Accounting for Income Taxes ("ASU 2019-12"), which is intended to enhance and simplify various aspects of the accounting for income taxes.

The amendments in this update remove certain exceptions to the general principles in Accounting Standards Codification ("ASC") Topic 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences.

In December 2019, the FASB issued Accounting Standards Update ("ASU") 2019-12, Simplifying the Accounting for Income Taxes , which is intended to enhance and simplify various aspects of the accounting for income taxes.

The amendments in this update remove certain exceptions to the general principles in ASC Topic 740 related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences.

ASU 2019-12 also clarifies and amends existing guidance to improve consistency in application of the accounting for franchise taxes, enacted changes in tax laws or rates and transactions that result in a step-up in the tax basis of goodwill.

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Implementation Costs Incurred in Cloud Computing Arrangements (ASU 2018-15)

In August 2018, the FASB issued ASU 2018-15, Implementation Costs Incurred in Cloud Computing Arrangements ("ASU 2018-15"), which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license).

In August 2018, the FASB issued ASU 2018-15, Implementation Costs Incurred in Cloud Computing Arrangements , which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license).

As an EGC, this ASU is effective for the Company's annual reporting period beginning January 1, 2021, and will be effective for interim periods beginning in 2022.

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This ASU provides temporary optional expedients and exceptions to the GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financial Rate.

Entities can elect not to apply certain modification accounting requirements to

contracts affected by what the guidance calls reference rate reform, if certain criteria are met.

Entities can elect not to apply certain modification accounting requirements to contracts affected by what the guidance calls reference rate reform, if certain criteria are met.

An entity that makes this election would not have to remeasure the contract at the modification date or reassess a previous accounting determination.

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The provisions of ASU 2020-04 may impact the Company if future debt modifications or refinancings utilize one or more of the reference rates covered by the provisions of this ASU.

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Leases (ASC 842)

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The impact that ASU 2017-04 may have on the Company's financial condition or results of operations will depend on the circumstances of any goodwill impairment event that may occur after adoption.

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For all periods presented, substantially all of the Company’s revenues from services were recognized over time.

Revenues and commissions earned from the sales of payment equipment were typically recognized at a point in time.

The following table presents a disaggregation of the Company's consolidated revenues by type, and the relationships to the Company's reportable segments, for the three months ended March 31, 2021 and March 31, 2020:

(in thousands) Three Months Ended March 31,

(in thousands) Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

Merchant card fees $ 118,367 $ 85,686 $ 226,069 $ 174,772

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Fulfillment costs, as defined by ASC 340-40, typically benefit only the period (typically a month in duration) in which they are incurred and therefore are expensed in the period incurred (i.e., not capitalized) unless they meet criteria to be capitalized under other accounting guidance.

The Company pays commissions to most of its independent sales organizations ("ISOs"), and for certain ISOs the Company also pays (through a higher commission rate) them to provide customer service and other services directly to our merchant customers.

The Company pays commissions to most of its Independent Sales Organizations ("ISO"), and for certain ISOs the Company also pays (through a higher commission rate) them to provide customer service and other services directly to our merchant

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The ISO is typically an independent contractor or agent of the Company.

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Since payments to ISOs are dependent substantially on variable merchant payment volumes generated after the merchant enters into a new or renewed contract, these payments to ISOs are not deemed to be a cost to acquire a new contract since the ISO payments are based on factors that will arise subsequent to the event of obtaining a new or renewed contract.

payments to ISOs pertain only to a specific month’s activity.

Also, payments to ISOs pertain only to a specific month’s activity.

For payments made, or due, to an ISO, the expenses are reported within income from operations on our statements of operations.

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Material contract assets and liabilities are presented net at the individual contract level in the consolidated balance sheet and are classified as current or noncurrent based on the nature of the underlying contractual rights and obligations.

Supplemental balance sheet information related to contracts from customers as of March 31, 2021 and December 31, 2020 was as follows:

(in thousands) Consolidated Balance Sheet Location March 31, 2021 December 31, 2020

Supplemental balance sheet information related to contracts from customers as of June 30, 2021 and December 31, 2020 was as follows:

(in thousands) Consolidated Balance Sheet Location June 30, 2021 December 31, 2020

Contract liabilities, net (current) Customer deposits and advance payments $ 1,494 $ 1,494

The balances for the contract liabilities were approximately $ 1.7 million and $ 1.9 million at March 31, 2020 and December 31, 2019, respectively.

The changes in the balances during the three months ended March 31, 2021 and March 31, 2020 were due to the timing of advance payments received from the customer.

The balances for the contract liabilities were approximately $ 1.6 million, $ 1.7 million and $ 1.9 million at June 30, 2020, March 31, 2020 and January 1, 2020 respectively.

The changes in the balances during the three months and six months ended June 30, 2021 and June 30, 2020 were due to the timing of advance payments received from the customer.

Substantially all of these balances are recognized as revenue within twelve months.

Net contract assets were not material for any period presented.

Impairment losses recognized on receivables or contract assets arising from the Company's contracts with customers were not material for the three months ended March 31, 2021 and March 31, 2020.

Impairment losses recognized on receivables or contract assets arising from the Company's contracts with customers were not material for the three months and six months ended June 30, 2021 and June 30, 2020.

SETTLEMENT ASSETS AND OBLIGATIONS

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Therefore, neither is recognized in the Company’s consolidated balance sheets.

Member banks held merchant funds of $ 115.4 million and $ 103.8 million at March 31, 2021 and December 31, 2020, respectively.

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Member banks held merchant funds of $ 120.9 million and $ 103.8 million at June 30, 2021 and December 31, 2020, respectively.

Exception items include items such as customer chargeback amounts received from merchants and other losses.

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Exception items that the Company is still attempting to collect from the merchants through the funds settlement process or merchant reserves are recognized as settlement assets in the Company’s consolidated balance sheets, with an offsetting reserve for those amounts the Company estimates it will not be able to recover.

Expenses for actual and estimated merchant losses for the three months ended March 31, 2021 and March 31, 2020 were $ 0.4 million and $ 1.0 million, respectively.

Expenses for actual and estimated merchant losses for the three months and six months ended June 30, 2021 were $ 0.6 million and $ 1.0 million, respectively.

Expenses for actual and estimated merchant losses for the three months and six months ended June 30, 2020 were $ 1.2 million and $ 2.1 million, respectively.

Commercial Payments Segment

In the Company’s Commercial Payments segment, the Company earns revenue from certain of its services by processing ACH transactions for financial institutions and other business customers.

Customers transfer funds to the Company, which are held in bank accounts controlled by the Company until such time as the ACH transactions are made.

The Company recognizes these cash balances within restricted cash and settlement obligations in its consolidated balance sheets.

The Company's settlement assets and obligations at March 31, 2021 and December 31, 2020 were as follows:

(in thousands) March 31, 2021 December 31, 2020

In the Company’s Commercial Payments segment, the Company earns revenue from certain of its services by processing transactions for financial institutions and other business customers.

Customers transfer funds to the Company, which are held in either company-owned bank accounts controlled by the Company or bank-owned For the Benefit Of ("FBO") accounts controlled by the banks, until such time as the transactions are settled with the customer payees.

Amounts due to customer payees that are held by the Company in Company-owned bank accounts are included in restricted cash.

Amounts due to customer payees that are held in bank-owned FBO accounts are not assets of the Company and the associated obligations related to these funds are not liabilities of the Company;

therefore, neither is recognized in the Company’s consolidated balance sheets.

Bank-owned FBO accounts held funds of $ 57.9 million at June 30, 2021, which was the result of a transfer of customer restricted cash from Company-owned bank accounts to bank-owned FBO accounts due to a change in our business practice for certain types of customer deposits and cash advance payments.

Company-owned bank accounts held $ 11.3 million at June 30, 2021 and $ 72.9 million at December 31, 2020;

therefore, these cash balances are included within restricted cash and settlement obligations in the Company’s consolidated balance sheets.

The Company's settlement assets and obligations at June 30, 2021 and December 31, 2020 were as follows:

(in thousands) June 30, 2021 December 31, 2020

Settlement Assets:

Card settlements due from merchants, net of estimated losses $ 722 $ 753

Card settlements due from ISOs 155 —

Total settlement assets $ 1,220 $ 753

Settlement Obligations:

Due to ACH payees (1) 50,820 72,878

Total settlement obligations $ 50,820 $ 72,878

(1) Amounts due to ACH payees are held by the Company in restricted cash.

Due to customer payees $ 11,278 $ 72,878

Based on their purchase prices and pre-acquisition operating results and assets, none of the businesses acquired by the Company in 2021, as described below, met the materiality requirements for pro forma disclosures.

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Pending Merger with Finxera

On March 5,2021, we announced that we entered into a Merger Agreement (the "Merger Agreement") with Finxera Holdings, Inc.

("Finxera"), Prime Warrior Acquisition Corp., an indirect wholly owned subsidiary of the Company ("Merger Sub") and, solely in its capacity as the representative of the stockholders or option holders of Finxera (the "Equityholder Representative"), and Stone Point Capital, LLC in which Priority will acquire, via merger, the Finxera business.

Finxera is a provider of deposit account management payment processing services to the debt settlement industry in the United States.

The Merger Agreement provides that, among other things and on the terms and subject to the conditions of the Merger Agreement, (a) Merger Sub will merge with and into Finxera (the "Merger"), with the separate existence of Merger Sub ceasing and Finxera continuing as the surviving entity of the Merger;

(b) at the effective time of the Merger (the "Effective Time") each share of common stock, par value $ 0.01 per share, of Merger Sub issued and outstanding immediately prior to the Effective Time shall be converted into one validly issued, fully paid and non-assessable share of common stock, par value $ 0.01 per share, of the Surviving Entity;

and (c) the shares of common stock of Finxera designated as "Class A Common Stock", "Class B Common Stock" and preferred stock "Series C Participating Preferred Stock" issued and outstanding immediately prior to the closing of the transactions contemplated by the Merger Agreement (the "Closing") will be converted into rights to receive certain cash and stock consideration and a contingent right to receive a portion of any payments made following the determination of the purchase price adjustments (a "Deferred Payment").

Consideration for the Merger will consist of a combination of cash and stock, with the purchase price comprising (a) $ 425.0 million, plus (b) the aggregate value of the current assets of the Finxera and each of its subsidiaries (the "Group Companies") less the aggregate value of the current liabilities of the Group Companies, in each case, determined on a consolidated basis without duplication, as of the close of business on the business day immediately preceding the date of the Closing (which may be a positive or negative number), plus (c) the sum of all cash and cash equivalents of the Group Companies as of the close of business on the business day immediately preceding the date of the Closing, minus (d) the amount of indebtedness of the Group Companies as of the close of the business day immediately prior to the date of the Closing, minus (e) the amount of unpaid transaction expenses, minus (f) 25 % of the earnings of the Group Companies during the period between the signing of the Merger Agreement and the Closing.

Each option to purchase one or more shares of Class B Common Stock of Finxera issued pursuant to the Finxera Holdings, Inc.

2018 Equity Incentive Plan (the "Company Options"), vested as of immediately prior to the Closing (the "Vested Company Option"), that is issued and outstanding immediately prior to the Closing will be deemed to be exercised and converted into the right to receive a cash payment with respect to such Vested Company Option and a contingent right to receive a portion of any Deferred Payments.

This transaction is expected to close in the third quarter of 2021.

Asset Acquisition

On April 28, 2021, a subsidiary of the Company completed an asset acquisition of certain residual portfolio rights for a purchase price of $ 42.4 million and $ 24.8 million of post-closing payments and earn-out payments based on meeting certain attrition thresholds over a three-year period from the date of acquisition.

As of June 30, 2021, the sellers earned $ 3.8 million of the $ 24.8 million, which was accrued at June 30, 2021, increasing the total purchase price recorded at June 30, 2021 to $ 46.2 million, which was recorded to residual buyout intangible assets with a seven-year useful life amortized on a straight-line basis.

In addition to the $ 24.8 million, there is a further earn-out opportunity based on a percentage of annual portfolio performance in excess of targets for five years from the date of acquisition.

As this is an asset acquisition, additional purchase price is accounted for when payment to the seller becomes probable and is added to the carrying value of the asset.

The seller’s note payable to the Company of $ 3.0 million and an advance of $ 2.0 million outstanding at the time of the purchase was netted against the initial purchase price, resulting in cash of $ 37.4 million being paid by the Company to the seller at closing, which was funded from cash proceeds of the Securities Purchase Agreement executed on April 27, 2021 (refer to Note 9, Redeemable Senior Preferred Stock and Warrants).

This asset acquisition became part of the Company's Consumer Payments reportable segment.

Transaction costs were not material and were expensed.

Simultaneous with the purchase of the residual portfolio rights, the Company and the seller entered into a five-year processing agreement whereby the seller shall refer prospective new merchants to the Company in exchange for commissions and up to an additional $ 11.2 million for achieving certain targets for

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new merchant accounts over specified periods of time.

This processing agreement is exclusive for years one through three and has minimum requirements for years four and five .

Business Combination

On June 25, 2021, a subsidiary of the Company acquired certain assets and assumed certain related liabilities under an asset purchase agreement.

The purchase of these net assets was deemed a business under ASC 805.

Prior to this acquisition, the business was an ISO partner of the Company where it developed expertise in software-integrated payment services, as well as marketing programs for specific verticals such as automotive and youth sports.

This business is reported within the Company's Consumer Payments reportable segment.

The initial purchase price for the net assets was $ 35.0 million in cash and a total purchase price of not more than $ 60.0 million including post-closing payments and earn-out payments based on certain gross profit and revenue achievements over a three-year period from the date of acquisition.

The seller's note payable to the Company of $ 0.5 million at the time of purchase was netted against the initial purchase price, resulting in cash of $ 34.5 million being paid by the Company to the seller, which was funded from a $ 30.0 million draw down of the revolving credit facility under the Credit Agreement and held by the Company and $ 4.5 million cash on hand.

The initial consideration included $ 17.3 million recorded in merchant portfolio intangible assets with a ten-year useful life amortized on a straight-line basis, $ 0.5 million recorded in fixed assets and other current assets, and $ 17.3 million recorded in goodwill.

The initial assignment of consideration is subject to revision during the measurement period of up to one year from the acquisition date.

Transaction costs were not material and were expensed.

The goodwill and intangibles for acquisitions that have closed as of June 30, 2021 are deductible by the Company for income tax purposes.

GOODWILL AND OTHER INTANGIBLE ASSETS

The Company records goodwill when an acquisition is made and the purchase price is greater than the fair value assigned to the underlying separately-identifiable tangible and intangible assets acquired and the liabilities assumed.

All of the Company's goodwill was allocated to the Company's Consumer Payments reporting unit at March 31, 2021 and December 31, 2020.

The Company considered the market conditions generated by the COVID-19 pandemic and concluded that there were no indicators of impairment for the goodwill of the Consumer Payments reporting unit for the three months ended March 31, 2021.

All of the Company's goodwill was allocated to the Company's Consumer Payments reporting unit at June 30, 2021 and December 31, 2020.

The Company considered the market conditions for triggering events including those generated by the COVID-19 pandemic and concluded that there were no indicators of impairment for the goodwill of the Consumer Payments reporting unit for the three months and six months ended June 30, 2021.

The Company tests goodwill for impairment on an annual basis, or when events occur or circumstances indicate the fair value of a reporting unit may be below its carrying value.

The Company will continue to monitor the economic impact of COVID-19 on its ongoing assessment of goodwill.

The Company expects to perform its next annual goodwill impairment test during the

fourth quarter of 2021 using market data and discounted cash flow analysis.

The Company concluded there was no impairment as of March 31, 2021 or December 31, 2020.

As such, there was no accumulated impairment loss as of March 31, 2021 and December 31, 2020.

The Company will continue to monitor triggering events including the economic impact of COVID-19 on its ongoing assessment of goodwill.

The Company expects to perform its next annual goodwill impairment test during the fourth quarter of 2021 using market data and discounted cash flow analysis.

The Company concluded there was no impairment as of June 30, 2021 or December 31, 2020.

As such, there was no accumulated impairment loss as of June 30, 2021 and December 31, 2020.

See Note 4, Acquisitions, for information about goodwill recorded in the three months ended June 30, 2021 related to the business combination.

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Other Intangible Assets

The Company's other intangible assets include acquired merchant portfolios, customer relationships, ISO relationships, trade names, technology, and residual buyouts.

As of March 31, 2021 and December 31, 2020, intangible assets consisted of the following:

(in thousands) March 31, 2021 December 31, 2020

As of June 30, 2021 and December 31, 2020, intangible assets consisted of the following:

(in thousands) June 30, 2021 December 31, 2020

Other intangible assets:

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Net carrying value $ 145,836 $ 98,057

See Note 9 , Commitments and Contingencies, for information about an acquired merchant portfolio with a contingent purchase price.

Amortization expense for finite-lived intangible assets was $ 7.0 million and $ 8.5 million for the three months ended March 31, 2021 and March 31, 2020, respectively.

Amortization expense for finite-lived intangible assets was $ 8.7 million and $ 15.7 million for the three months and six months ended June 30, 2021, respectively, and $ 8.4 million and $ 16.9 million for the three months and six months ended June 30, 2020, respectively.

Amortization expense for future periods could differ due to new intangible asset acquisitions, changes in useful lives of existing intangible assets, and other relevant events or circumstances.

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This impairment was the result of diminished cash flows generated by the merchant portfolio.

The Company also considered the market conditions generated by the COVID-19 pandemic and concluded that there were no additional impairment indicators present at March 31, 2021.

The Company also considered the market conditions generated by the COVID-19 pandemic and concluded that there were no additional impairment indicators present at June 30, 2021.

See Note 4, Acquisitions, for information about other intangible assets recorded in the three months ended June 30, 2021 related to an asset acquisition and a business combination, and see Note 11 , Commitments and Contingencies, for information about contingent consideration related to an acquisition consummated in 2019.

PROPERTY, EQUIPMENT, AND SOFTWARE

The Company's property, equipment, and software balance primarily consists of furniture, fixtures, and equipment used in the normal course of business, computer software developed for internal use, and leasehold improvements.

Computer software represents purchased software and internally developed back office and merchant interfacing systems used to assist the reporting of merchant processing transactions and other related information.

A summary of property, equipment, and software as of March 31, 2021 and December 31, 2020 follows:

(in thousands) March 31, 2021 December 31, 2020

Computer software

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represents purchased software and internally developed back office and merchant interfacing systems used to assist the reporting of merchant processing transactions and other related information.

A summary of property, equipment, and software as of June 30, 2021 and December 31, 2020 follows:

(in thousands) June 30, 2021 December 31, 2020

Furniture and fixtures $ 2,795 $ 2,795

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Property, equipment, and software, net $ 24,245 $ 22,875

Depreciation expense for property, equipment, and software totaled $ 2.1 million and $ 1.8 million for the three months ended March 31, 2021 and 2020, respectively.

Depreciation expense for property, equipment, and software totaled $ 2.0 million and $ 4.1 million for the three months and six months ended June 30, 2021, respectively, and $ 1.9 million and $ 3.7 million for the three months and six months ended June 30, 2020, respectively.

ACCOUNTS PAYABLE AND ACCRUED EXPENSES

The Company accrues for certain expenses that have been incurred and not paid, which are classified within accounts payable and accrued expenses in the accompanying consolidated balance sheets.

The components of accounts payable and accrued expenses that exceeded five percent of total current liabilities at either March 31, 2021 or December 31, 2020 consisted of the following:

(in thousands) March 31, 2021 December 31, 2020

The components of accounts payable and accrued expenses that exceeded five percent of total current liabilities at either June 30, 2021 or December 31, 2020 consisted of the following:

(in thousands) June 30, 2021 December 31, 2020

Accounts payable - trade $ 6,094 $ 4,308

Accrued card network fees 9,505 8,041

DEBT OBLIGATIONS

Outstanding debt obligations as of March 31, 2021 and December 31, 2020 consisted of the following:

(in thousands) March 31, 2021 December 31, 2020

Senior Credit Agreement:

Term facility - Matures January 3, 2023 and bears interest at LIBOR (with a LIBOR "floor" of 1.00 % beginning March 18, 2020) plus 6.50 % and 6.50 % at March 31, 2021 and December 31, 2020, respectively (actual rate of 7.50 % and 7.50 % at March 31, 2021 and December 31, 2020, respectively)

$ 15,599 $ 12,349

Revolving credit facility - $ 25.0 million line, matures January 22, 2022, and bears interest at LIBOR plus 6.50 % and 6.50 % at March 31, 2021 and December 31, 2020, respectively (actual rate of 6.65 % and 6.65 % at March 31, 2021 and December 31, 2020, respectively)

Term Loan - Subordinated, matures July 3, 2023 and bears interest at 5.00 % plus an applicable margin (actual rate of 12.50 % and 12.50 % at March 31, 2021 and December 31, 2020, respectively)

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DEBT OBLIGATIONS

Outstanding debt obligations as of June 30, 2021 and December 31, 2020 consisted of the following:

(in thousands) June 30, 2021 December 31, 2020

Credit and Guaranty Agreement:

Term facility - Matures April 27, 2027 and bears interest at LIBOR (with a LIBOR "floor" of 1.00 %) plus 5.75 % at June 30, 2021 (actual rate of 6.75 % at June 30, 2021)

$ 300,000 $ —

Revolving credit facility - $ 40.0 million line, matures April 27, 2026 and bears interest at LIBOR (with a LIBOR "floor" of 1.00 %) plus 4.75 % at June 30, 2021 (actual rate of 5.75 % at June 30, 2021)

Senior Credit Agreement:

Term facility - Original maturity at January 3, 2023 and bore interest at LIBOR (with a LIBOR "floor" of 1.00 % beginning March 18, 2020) plus 6.50 % at December 31, 2020 (actual rate of 7.50 % at December 31, 2020)

Term Loan - Subordinated, original maturity at July 3, 2023 and bore interest at 5.00 % plus an applicable margin (actual rate of 12.50 % at December 31, 2020)

Total debt obligations 330,000 382,040

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Long-term debt, net $ 318,187 $ 357,873

Substantially all of the Company's assets are pledged as collateral under the credit agreements.

The Company is neither a borrower nor a guarantor of the credit agreements.

The Company's subsidiaries that are borrowers or guarantors under the credit agreements are referred to as the "Borrowers."

Credit and Guaranty Agreement

On April 27, 2021, Priority Holdings LLC ("Holdings"), which is a direct wholly-owned subsidiary of the Company, and certain direct and indirect subsidiaries of Holdings (together with Holdings, collectively, the "Loan Parties"), entered into a Credit and Guaranty Agreement (the "Credit Agreement") with Truist Bank ("Truist") and the lenders party thereto, pursuant to which Holdings has access to senior credit facilities in an aggregate principal amount of $ 630.0 million which are secured by substantially all of the assets of the Loan Parties and by the equity interests of Holdings.

The credit facilities under the Credit Agreement are comprised of (i) a senior secured first lien term loan facility in an aggregate principal amount of $ 300.0 million (the "Initial Term Loan"), the proceeds of which were used to fund the refinancing described below, (ii) a senior secured revolving credit facility in an aggregate amount not to exceed $ 40.0 million outstanding at any time (the “Revolving Credit Facility”) and (iii) a senior secured first lien delayed draw term loan facility in an aggregate principal amount of $ 290.0 million (the “Delayed Draw Term Loan”), the proceeds of which may be used to fund the Company’s acquisition of Finxera.

Until the Delayed Draw Term Loan is drawn, the Loan Parties will pay a fee on the undrawn amounts at a rate of 2.875 % per annum from the 46 th day after the closing date of the Credit Agreement to the 90 th day after closing and 5.75 % per annum thereafter for so long as the amounts remain committed and undrawn.

Outstanding borrowings under the Credit Agreement accrue interest using either a base rate (as defined therein) or a LIBOR rate plus an applicable margin per annum, as provided in the Credit Agreement, which includes a LIBOR rate floor of 1.0 % per annum.

Accrued interest is payable on each interest payment date (as defined in the Credit Agreement).

The revolving credit facility incurs an unused commitment fee on any undrawn amount of the $ 40.0 million credit line in an amount equal to 0.5 % per annum of the unused portion.

Under the terms of the Credit Agreement, the future applicable interest rate margins may vary based on the Loan Parties Total Net Leverage Ratio in addition to future changes in the underlying market rates for LIBOR and the rate used for base-rate borrowing.

Holdings and certain other Loan Parties have previously entered into (i) the Senior Credit Agreement and (ii) the Term Loan Agreement, both of which are described below.

The proceeds from the sale of the Securities (refer to Note 9, Redeemable Senior Preferred Stock and Warrants ) and from the Initial Term Loan were used to refinance the Senior Credit Agreement and the Term Loan Agreement and all outstanding obligations thereunder were repaid in full (or in the case of outstanding undrawn

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letters of credit, deemed issued under the Credit Agreement), and all commitments and guaranties in connection therewith have been terminated or released (the "Refinancing").

Under the Credit Agreement, prepayments of outstanding principal may be made in permitted increments with a 1.0 % penalty for certain prepayments made in connection with repricing transactions.

Such premium will be based on the principal amount that is prepaid, subject to the terms of the credit agreements.

The outstanding amount of any loans and any other amounts owing by the Borrowers under the Credit Agreement may, after the occurrence of an Event of Default (as defined in the Credit Agreement), at the option of Truist, be declared immediately due and payable.

Events of Default include, without limitation, the failure of the Loan Parties to pay principal, premium or interest when due under the Credit Agreement, or the failure by the Loan Parties to perform or comply with any term or covenant in the Credit Agreement, in each case, subject to any applicable cure periods provided therein.

The Credit Agreement contains representations and warranties, financial and collateral requirements, mandatory payment events, events of default, and affirmative and negative covenants, including without limitation, covenants that restrict among other things, the ability to create liens, pay dividends or distribute assets from the Loan Parties to the Company, merge or consolidate, dispose of assets, incur additional indebtedness, make certain investments or acquisitions, enter into certain transactions (including with affiliates), and to enter into certain leases.

If the aggregate principal amount of outstanding revolving loans and letters of credit under the Credit Agreement exceeds 35 % of the total revolving facility thereunder, the Loan Parties are required to comply with certain restrictions on its Total Net Leverage Ratio, which is defined in the Credit Agreement as the ratio of consolidated total debt of the Loan Parties to the Loan Parties Consolidated Adjusted EBITDA (as defined in the Credit Agreement).

If applicable, the maximum permitted Total Net Leverage Ratio is (i) 6.50 :1.00 at each fiscal quarter ended September 30, 2021 through June 30, 2022, (ii) 6.00 :1.00 at each fiscal quarter ended September 30, 2022 through June 30, 2023, and (iii) 5.50 :1.00 at each fiscal quarter ended September 30, 2023 and each fiscal quarter thereafter.

Senior Credit Agreement

Outstanding borrowings under that certain Credit and Guaranty Agreement, dated as of January 3, 2017, with Truist (the “Senior Credit Agreement”) accrue interest using either a base rate (as defined) or a LIBOR rate plus an applicable margin, or percentage per annum, as provided in the amended credit agreement.

For the term loan facility of our Senior Credit Agreement, the Sixth Amendment, which was executed on March 18, 2020, thereto provides for a LIBOR "floor" of 1.0 % per annum.

Accrued interest is payable monthly.

The revolving credit facility incurs a commitment fee on any undrawn amount of the $ 25.0 million credit line, which equates to 0.50 % per annum for the unused portion.

Outstanding borrowings under that certain Credit and Guaranty Agreement, dated as of January 3, 2017 and subsequently amended, with Truist (the "Senior Credit Agreement"), accrued interest using either a base rate (as defined) or a LIBOR rate plus an applicable margin, or percentage per annum, as provided in the amended credit agreement.

For the term loan facility of our Senior Credit Agreement, the Sixth Amendment, which was executed on March 18, 2020, thereto provided for a LIBOR "floor" of 1.0 % per annum.

Accrued interest was payable monthly.

The revolving credit facility incurred a commitment fee on any undrawn amount of the $ 25.0 million credit line, which equated to 0.50 % per annum for the unused portion.

The outstanding obligations under the Senior Credit Agreement at the time of the Refinancing were $ 274.6 million.

Term Loan Agreement

Outstanding borrowings under that certain Credit and Guaranty Agreement, dated as of January 3, 2017, with Goldman Sachs Specialty Lending Group, L.P.

(the “Term Loan Agreement”) accrue interest at 5.0 %, plus an applicable margin, or percentage per annum, as indicated in the amended credit agreement.

Accrued interest is payable quarterly at 5.0 % per annum, and the accrued interest attributable to the applicable margin is capitalized as payment-in-kind ("PIK") interest each quarter.

Outstanding borrowings under that certain Credit and Guaranty Agreement, dated as of January 3, 2017 and subsequently amended, with Goldman Sachs Specialty Lending Group, L.P.

(the "Term Loan Agreement") accrued interest at 5.0 %, plus an applicable margin, or percentage per annum, as indicated in the amended credit agreement.

Accrued interest was payable quarterly at 5.0 % per annum, and the accrued interest attributable to the applicable margin was capitalized as payment-in-kind ("PIK") interest each quarter.

The outstanding obligations under the Term Loan Agreement at the time of the Refinancing were $ 105.1 million, which consisted of the principal amount borrowed under the Term Loan Agreement of $ 80.0 million plus accumulated PIK interest of $ 25.1 million.

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Contractual Maturities

Based on terms and conditions existing at March 31, 2021, future minimum principal payments for long-term debt are as follows:

Based on terms and conditions existing at June 30, 2021, future minimum principal payments for long-term debt are as follows:

(in thousands) Principal Due

Senior Credit Agreement Term Loan Agreement Total

Twelve-month period ending March 31, Term Revolver Term

Credit and Guaranty Agreement

Twelve-month period ending June 30, Term Loan Revolver Total

2022 (current) $ 3,000 $ — $ 3,000

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2024 3,000 — 3,000

2025 3,000 — 3,000

2026 3,000 30,000 33,000

Beyond five years 285,000 — 285,000

Total $ 300,000 $ 30,000 $ 330,000

Additionally, the Company may be obligated to make certain additional mandatory prepayments after the end of each year based on excess cash flow, as defined in the Senior Credit Agreement.

No such prepayments were made for the year ended December 31, 2020.

Under the Senior Credit Agreement, prepayments of outstanding principal may be made in permitted increments with a 1 % penalty for certain prepayments.

Under the Term Loan Agreement, prepayments of outstanding principal are subject to a 2.0 % penalty for certain prepayments occurring between March 18, 2021 and March 18, 2022.

Such penalties are based on the principal amount that is prepaid, subject to the terms of the credit agreements.

The principal amount borrowed and outstanding under the Term Loan Agreement was $ 80.0 million at March 31, 2021 and December 31, 2020.

Included in the outstanding obligation balance at March 31, 2021 and December 31, 2020 was accumulated PIK interest of $ 24.5 million and $ 22.6 million, respectively.

For the three months ended March 31, 2021 and March 31, 2020, PIK interest added $ 1.9 million and $ 1.4 million, respectively, to the obligation balance under the Term Loan Agreement.

Additionally, the Company may be obligated to make certain additional mandatory prepayments after the end of each year based on excess cash flow, as defined in the Credit Agreement.

Interest Expense and Amortization of Deferred Loan Costs and Discounts

Interest expense, including fees for undrawn amounts under the revolving credit facility and amortization of deferred financing costs and debt discounts, was $ 9.2 million and $ 10.3 million for the three months ended March 31, 2021 and March 31, 2020, respectively.

Interest expense increased due to the amortization of deferred financing costs and debt discounts by $ 0.6 million and $ 0.5 million for the three months ended March 31, 2021 and March 31, 2020, respectively.

Interest expense, including fees for undrawn amounts under the revolving credit facility and the delayed draw term loan facility, as well as amortization of deferred financing costs and debt discounts, was $ 7.3 million and $ 16.5 million for the three months and six months ended June 30, 2021, respectively, and $ 11.7 million and $ 22.0 million for the three months and six months ended June 30, 2020, respectively.

Interest expense included amortization of deferred financing costs and debt discounts of $ 0.6 million and $ 1.2 million for the three months and six months ended June 30, 2021, respectively, and $ 0.7 million and $ 1.1 million for the three months and six months ended June 30, 2020, respectively.

Deferred Loan Costs and Discounts, and Debt Extinguishment and Modification Expenses

The Initial Term Loan under the Credit Agreement was issued at a discount of $ 6.4 million.

Additionally, the Company incurred approximately $ 12.9 million of costs for the Refinancing, including $ 5.7 million of fees related to the Delayed Draw Term Loan that was not drawn at June 30, 2021 .

The fees related to the Delayed Draw Term Loan have been deferred and included in other non-current assets on the Company’s consolidated balance sheet at June 30, 2021 .The Company determined that the issuance of the Initial Term Loan under the Refinancing was partially an extinguishment and a modification.

Of the remaining $ 7.2 million of costs incurred for the Refinancing, the Company recorded approximately $ 1.9 million as deferred financing costs, which are presented, along with the discount of $ 6.4 million, as a deduction from the debt obligations on the Company’s consolidated balance sheet at June 30, 2021.

Additionally, the Company recorded debt extinguishment and modification costs of $ 8.3 million during the three months and six months ended June 30, 2021 , which consisted primarily of $ 5.3 million of lender and third-party fees incurred in connection with the Refinancing and a $ 3.0 million partial write-off of previously deferred fees and costs under the Senior Credit Agreement and the Term Loan Agreement.

These costs are reported within other expenses, net on the Company’s consolidated statements of operations.

Senior Credit Agreement:

For the Sixth Amendment, executed in the first quarter of 2020, $ 2.7 million of lender fees were deferred and added to then-existing unamortized loan costs and discount.

Costs that the Company incurs for debt modification that are not eligible for deferral and subsequent amortization as interest expense are reported as debt modification costs on the Company's consolidated statement of operations.

Approximately $ 0.4 million of such costs were expensed in connection with the Sixth Amendment during the first quarter of 2020

When the $ 106.5 million principal repayment was made in September 2020 for the term facility of the Senior Credit Agreement, it was deemed to be a partial extinguishment of debt that was permitted and contemplated by the existing debt agreement, as previously amended.

As a result, a proportional amount of unamortized loan costs and discount in the amount of $ 1.5 million was removed and expensed during the third quarter of 2020.

The Senior Credit Agreement and the Term Loan Agreement, as amended, contain representations and warranties, financial and collateral requirements, mandatory payment events, events of default, and affirmative and negative covenants, including without limitation, covenants that restrict among other things, the ability to create liens, pay dividends or distribute assets from

the Company's subsidiaries to the Company, merge or consolidate, dispose of assets, incur additional indebtedness, make certain investments or acquisitions, enter into certain transactions (including with affiliates), and to enter into certain leases.

The Company is also required to comply with certain restrictions on its Total Net Leverage Ratio, which is defined in the credit agreements as the ratio of consolidated total debt of the Borrowers to the Company's consolidated adjusted EBITDA (as defined in the Senior Credit Agreement and Term Loan Agreement).

The maximum permitted Total Net Leverage Ratio was 7.71 :1.00 at March 31, 2021.

As of March 31, 2021, the Company remained in compliance with the covenants.

Refinancing in April 2021

See Note 16, Subsequent Events , for information on the new Credit and Guaranty Agreement executed by the Borrowers on April 27, 2021.

The Company's effective income tax rate for the three months ended March 31, 2021 was 45.4 %.

Our effective income tax rate for the three months ended March 31, 2021 differed from the U.S.

REDEEMABLE SENIOR PREFERRED STOCK AND WARRANTS

On April 27, 2021, the Company, entered into a Securities Purchase Agreement (the "Securities Purchase Agreement") pursuant to which the Company (i) issued and sold 150,000 shares of redeemable senior preferred stock, par value $ 0.001 per share (the "Redeemable Senior Preferred Stock", and the shares issued the "Redeemable Senior Preferred Shares") at a purchase price of $ 150 million, or $ 1,000 per Redeemable Senior Preferred Share (the "Initial Redeemable Senior Preferred Stock Sale"), less a

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$ 5.0 million discount, and (ii) issued warrants (the "Warrants") to purchase up to 1,803,841 shares of the Company’s common stock, par value $ 0.001 per share ("Common Stock" and together with the Warrants, the "Securities"), at an exercise price of $ 0.001 .

The exercise price and the number of shares issuable upon exercise of the warrants are subject to certain adjustments from time to time on the terms outlined in the Warrants.

In addition to the issuance and sale of Redeemable Senior Preferred Shares which occurred on April 27, 2021, pursuant to the Securities Purchase Agreement, upon the consummation of the Company’s acquisition of Finxera and the satisfaction of other customary closing conditions, the Company may issue and sell to the Investors an additional 50,000 shares of Redeemable Senior Preferred Stock, at a purchase price of $ 50 million, or $ 1,000 per share (the "Acquisition Redeemable Senior Preferred Stock Sale"), less a discount of $ 625,000 .

The Company may also issue and sell to the Investors up to an additional 50,000 shares of Redeemable Senior Preferred Stock, at a purchase price of $ 1,000 per share, less a discount of $ 625,000 , within 18 months after the consummation of the Acquisition Redeemable Senior Preferred Stock Sale upon the satisfaction of certain customary closing conditions.

The terms of the Redeemable Senior Preferred Shares are more fully described in the Certificate of Designations (“Certificate of Designations”), which establishes the rights, preferences, privileges, qualifications, restrictions and limitations relating to the Redeemable Senior Preferred Shares.

The Redeemable Senior Preferred Shares have no stated maturity.

The Redeemable Senior Preferred Stock will remain outstanding indefinitely until redeemed in accordance with the terms of the Certificate of Designations or otherwise repurchased by the Company.

Registration Rights Agreement

On April 27, 2021 the Company entered into a Registration Rights Agreement, by and among the Company and the Investors (the “Registration Rights Agreement”), pursuant to which the Company agreed to provide certain registration rights with respect to the shares of Common Stock issuable upon exercise of the Warrants (the “Registrable Securities”).

Under the Registration Rights Agreement, the holders of the Registrable Securities were granted (i) piggyback rights to be included in certain underwritten offerings of Common Stock and (ii) the right to demand a shelf registration of Registrable Securities.

The dividend rate (the "Dividend Rate") will initially be equal to the Three-Month LIBOR Rate (subject to a 1.00 % floor) plus 12.00 % per annum, reset quarterly as provided in the Certificate of Designations in the Securities Purchase Agreement (the "Certificate of Designations").

The Dividend Rate shall increase automatically by (i) 2.00 % per annum effective as of the first day of each Dividend Period, as defined in the Certificate of Designations, in respect of which the Company for any reason does not pay cash Dividends at or greater than the Three-Month LIBOR Rate for such Dividend Period plus 5.00 % per annum through the final day of such Dividend Period, (ii) 3.00 % per annum effective immediately upon the occurrence of and during the continuance of a Preferred Default, as defined in the Certificate of Designations, and (iii) 5.00 % per annum effective immediately upon the 120 th calendar day following the approval by the Sale Demand Special Committee of a Sale Transaction, as defined in the Certificate of Designations, if all required stockholder approval shall not have been obtained on or prior to such 120 th calendar day, plus an additional 5.00 % per annum on the 30 th calendar day after such 120 th calendar day and on the first day of each subsequent 30 calendar day period, which incremental increase(s) shall continue until such time as the Required Stockholder Approval, as defined in the Certificate of Designations, shall have been obtained.

The Company’s Board of Directors declared a dividend on June 30, 2021 in the amount of $ 3,412,500 , comprised of (i) a cash payment of $ 1,575,000 determined at a Base Rate of 5.0 % plus a LIBOR Rate of 1.0 %, and (ii) a PIK of $ 1,837,500 determined at a Base Rate of 7.0 %.

The PIK dividend has been added to the carrying amount of the Redeemable Senior Preferred Shares in the Company’s consolidated balance sheet at June 30, 2021.

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The liquidation preference (the "Liquidation Preference") of the Redeemable Senior Preferred Shares is $ 1,000 per share of Senior Preferred Stock.

Prior to April 27, 2023, the Company may redeem the outstanding shares of Redeemable Senior Preferred Stock, in whole or in part, for cash at a price equal to 100 % of the Liquidation Preference plus any accrued and unpaid dividends as of the redemption date.

On and after April 27, 2023, the Company may redeem the outstanding shares of Redeemable Senior Preferred Stock at any time, in whole or in part, for cash at a price equal to the sum of the (a) outstanding Liquidation Preference plus (b) any accrued and unpaid dividends on the shares of Redeemable Senior Preferred Stock redeemed, through and including the applicable redemption date.

Upon the occurrence of a change in control or a liquidation event, the Company will redeem all of the then outstanding Redeemable Senior Preferred Shares for cash at the redemption price described above.

From and after the earliest of (i) October 27, 2028, (ii) 30 days after written notice from the Investors to the Company of a failure by the Company to take steps within its control to prevent the Common Stock from no longer being listed, and (iii) the date that is 90 days following the Company’s failure to consummate when due a Mandatory Redemption of the Redeemable Senior Preferred Stock upon the occurrence of a change in control or liquidation event, the Investors may request the Company to pursue a sale transaction, the proceeds of which would be used to redeem the Redeemable Senior Preferred Shares.

Direct costs associated with the issuance of the Securities were $ 5.5 million, which along with the $ 5.0 million discount, have been accounted for as a reduction in the proceeds of the Securities.

These net proceeds of $ 139.5 million have been allocated on the balance sheet to the Redeemable Senior Preferred Shares of $ 131.4 million, additional paid-in capital of $ 11.4 million for the warrants, and non-current assets of $ 3.3 million for the committed financing put right.

The Company has presented the Redeemable Senior Preferred Shares in temporary equity and is accreting the carrying amount to its full redemption amount from the date of issuance to the earliest redemption date using the effective interest method.

Such accretion totaled $ 0.5 million for the three and six months ended June 30, 2021.

The Company used the proceeds from the sale of the Securities to fund the Refinancing (see Note 8, Debt Obligations ) and to pay certain fees and expenses relating to the Refinancing and the offering of the Securities.

The Company's effective income tax rate (benefit) for the three months and six months ended June 30, 2021 was ( 18.7 )% and 5.7 %, respectively.

Our effective income tax rate for the three months ended June 30, 2021 differed from the U.S.

statutory rate primarily as a result of changes to our valuation allowance for interest limited under section 163(j) of the Internal Revenue Code.

The Company's effective income tax rate for the three months ended March 31, 2020 was 17.4 %.

Our effective income tax rate for the three months ended March 31, 2020 differed from the U.S.

The Company's effective income tax rate (benefit) for the three months and six months ended June 30, 2020 was ( 5.6 )% and 5.6 %, respectively.

Our effective income tax rate for the three months ended June 30, 2020 differed from the U.S.

statutory rate primarily as a result of changes to our valuation allowance for interest limited under section 163(j) of the Internal Revenue Code and related favorable interest limitation provisions of the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act").

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The Company considers all available positive and negative evidence to determine whether sufficient taxable income will be generated in the future to permit realization of the existing deferred tax assets.

In accordance with the provisions of ASC 740, Income Taxes ("ASC 740"), the Company is required to provide a valuation allowance against deferred income tax assets when it is "more likely than not" that some portion or all of the deferred tax assets will not be realized.

Based on management’s assessment, as of the first quarter of 2021, the Company continues to record a full valuation allowance against non-deductible interest expense.

In accordance with the provisions of ASC 740, Income Taxes , the Company is required to provide a valuation allowance against deferred income tax assets when it is "more likely than not" that some portion or all of the deferred tax assets will not be realized.

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Based on management’s assessment, as of the second quarter of 2021, the Company continues to record a full valuation allowance against non-deductible interest expense.

The Company 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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Some of these agreements have minimum annual requirements for processing volumes.

Based on existing contracts in place at March 31, 2021, the Company is committed to pay minimum processing fees under these agreements of approximately $ 14.8 million in 2021 and $ 7.8 million in both 2022 and 2023.

Based on existing contracts in place at June 30, 2021, the Company is committed to pay minimum processing fees under these agreements of approximately $ 14.8 million in 2021 and $ 7.8 million in both 2022 and 2023.

Commitment to Lend

See Note 12, Related Party Transactions , for information on a loan commitment extended by the Company to another entity.

Contingent Consideration for Asset Acquisitions

Under GAAP that applies to asset acquisitions that do not meet the definition of a business, the portion of the unpaid purchase price that is contingent on future activities is not initially recorded by the acquirer on the date of acquisition.

Contingent Consideration for Acquisitions

For asset acquisitions that do not meet the definition of a business, the portion of the unpaid purchase price that is contingent on future activities is not initially recorded by the acquirer on the date of acquisition.

Rather, the acquirer generally recognizes contingent consideration when it becomes probable and estimable.

2 unchanged sentences

The initial purchase price is subject to an increase of up to $ 6.4 million in accordance with the terms of the agreement between the Company and the sellers.

As of March 31, 2021, an additional $ 4.3 million of the $ 6.4 million total contingent consideration has been paid to the seller, while the remaining $ 2.1 million will be payable in the first quarter of 2022 if certain criteria are achieved.

As of June 30, 2021, $ 4.3 million of the $ 6.4 million total contingent consideration has been paid to the seller, while the remaining $ 2.1 million will be payable in the first quarter of 2022 if certain criteria are achieved.

See Note 4, Acquisitions , for information about contingent consideration related to acquisitions consummated in 2021.

Legal Proceedings

8 unchanged sentences

The Company does not believe it is exposed to any significant credit risk from these transactions.

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RELATED PARTY TRANSACTIONS

1 unchanged sentence

During 2019, the Company, through one of its wholly-owned subsidiaries, executed an interest-bearing loan and commitment agreement with another entity.

The Company has loaned the entity a total of $ 3.5 million at March 31, 2021 and December 31, 2020, with a commitment to loan up to a total of $ 10.0 million based on certain growth metrics of the entity and continued compliance by the entity with the terms and covenants of the agreement.

The Company has loaned the entity a total of $ 3.5 million at June 30, 2021 and December 31, 2020, with a commitment to loan up to a total of $ 10.0 million based on certain growth metrics of the entity and continued compliance by the entity with the terms and covenants of the agreement.

The Company's commitment to make additional advances under the loan agreement is dependent upon such advances not conflicting with covenants or restrictions under any of the Company's debt or other applicable agreements.

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The loan agreement also gives the Company certain rights to purchase some or all of this entity's equity in the future, at the entity's then-current fair value.

The fair values of the warrant, loan commitment, and purchase right were not material at inception or at March 31, 2021.

Contributions of Assets and Contingent Payment

In February 2019, a subsidiary of the Company, Priority Hospitality Technology, LLC ("PHOT"), received a contribution of substantially all of the operating assets of eTab, LLC ("eTab") and CUMULUS POS, LLC ("Cumulus") under asset

contribution agreements.

No material liabilities were assumed by PHOT.

These contributed assets were composed substantially of technology-related assets.

Prior to these transactions, eTab was 80.0 % owned by the Company's Chairman and Chief Executive Officer.

No cash consideration was paid to the contributors of the eTab or Cumulus assets on the date of the transactions.

As consideration for these contributed assets, the contributors were issued redeemable preferred equity interests in PHOT.

Under these redeemable preferred equity interests, the contributors are eligible to receive up to $ 4.5 million of profits earned by PHOT, plus a preferred yield ( 6.0 % per annum) on any of the $ 4.5 million amount that has not been distributed to them.

The Company's Chairman and Chief Executive Officer owns 83.3 % of the redeemable preferred equity interests in PHOT.

Once a total of $ 4.5 million plus the preferred yield has been distributed to the holders of the redeemable preferred equity interests, the redeemable preferred equity interests will cease to exist.

The Company determined that the contributor's carrying value of the eTab net assets (as a common control transaction under GAAP) was not material.

Under the guidance for a common control transaction, the contribution of the eTab net assets did not result in a change of entity or the receipt of a business, therefore the Company's financial statements for prior periods have not been adjusted to reflect the historical results attributable to the eTab net assets.

Additionally, no material amount was estimated for the fair value of the contributed Cumulus net assets.

PHOT is a part of the Company's Integrated Partners reportable segment.

Pursuant to the limited liability company agreement of PHOT, any material undistributed earnings generated by the eTab and Cumulus assets that are attributable to the holders of the preferred equity interests are reported by the Company as a form of NCI classified as mezzanine equity on the Company's consolidated balance sheet until $ 4.5 million and the preferred yield have been distributed to the holders of the preferred equity interests.

Subsequent changes, if material, in the value of the NCI will be reported as an equity transaction between the Company's consolidated retained earnings (accumulated deficit) and any carrying value of the NCI in mezzanine equity.

Such amounts were not material to the Company's results of operations, financial position, or cash flows for the period covering February 1, 2019 (date the assets were contributed to the Company) through June 30 2020, and therefore no recognition of the NCI was reflected in the Company's consolidated financial statements.

For the period from July 1, 2020 through December 31, 2020, a total of $ 250,000 of PHOT's earnings were attributable to the NCIs of PHOT, and this same amount was also distributed in cash to the NCIs during the same reporting period.

Such amounts were not material to the Company's results of operations, financial position, or cash flows for the three months ended March 31, 2021.

The fair values of the warrant, loan commitment, and purchase right were not material at inception or at June 30, 2021.

Equity-Method Investment

1 unchanged sentence

This loss is reported as a component of other expenses, net on the Company's unaudited condensed consolidated statement of operations.

RECONCILIATION OF STOCKHOLDERS' DEFICIT AND NON-CONTROLLING INTERESTS

PHOT Preferred Unit Redemption - Distribution to Non-Controlling Interests

In February 2019, Priority Hospitality Technology, LLC ("PHOT"), a subsidiary of the Company, received a contribution of substantially all of the operating assets of eTab, LLC ("eTab") and CUMULUS POS, LLC ("Cumulus") under asset contribution agreements.

PHOT is a part of the Company's Integrated Partners reportable segment.

No material liabilities were assumed by PHOT.

These contributed assets were composed substantially of technology-related assets.

Prior to these transactions, eTab was 80.0 % owned by the Company’s Chairman and Chief Executive Officer ("CEO").

No cash consideration was paid to the contributors of the eTab or Cumulus assets on the date of the transactions.

As consideration for these contributed assets, the contributors were issued redeemable non-controlling preferred equity interests ("NCIs") in PHOT.

Under these redeemable NCIs, the contributors were eligible to receive up to $ 4.5 million of profits earned by PHOT, plus a preferred yield ( 6.0 % per annum) on any undistributed preferred equity interest ("Total Preferred Equity Interest").

Once the Total Preferred Equity Interest is distributed to the holders, the redeemable NCIs cease to exist.

The Company's CEO initially owned 83.3 % of the redeemable NCIs, which ownership interest was subsequently reduced to 35.3 % through the CEO’s disposition of interests to others.

At the time of contribution, the Company determined that the contributor’s carrying value of the eTab and Cumulus net assets (as a common control transaction under GAAP) were not material.

Under the guidance for a common control transaction, the contribution of the eTab and Cumulus net assets did not result in a change of entity or the receipt of a business, therefore the Company’s financial statements for prior periods were not adjusted to reflect the historical results attributable to the eTab net assets.

For the period from February 1, 2019 through October 31, 2020, a total of $ 250,000 of PHOT’s earnings were attributable to the NCIs of PHOT, and this same amount was distributed in cash to the NCIs during the same period.

In November 2020, the Company agreed with the contributors to an exchange of shares of common stock of the Company, or cash, for the remaining undistributed Total Preferred Equity Interests of $ 4.8 million.

An exchange valuation for the Company’s common stock was established as of November 12, 2020 at the prior 20 -day volume weighted average price of $ 2.78 per share.

The exchange was contingent upon receiving approval of the Company’s lenders;

therefore, the binding exchange agreements were not entered into until after lender approval was received in April 2021 in connection with the Refinancing.

In May 2021, the Company entered into exchange agreements and completed the exchange of 1,428,358 shares of common stock and $ 814,219 of cash for the Total Preferred Equity Interests.

The CEO received 605,623 shares of common stock of the Company in exchange for his 35.3 % interest, and the Company’s Executive Vice President of M&A and Corporate Development received 413,081 shares of common stock of the Company in exchange for her 24.1 % interest.

Subsequent to

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establishing the common stock valuation in November 2020 and the date of exchange in May 2021, the Company’s common stock price appreciated to $ 7.75 per share.

The Company’s financial statements for the three months ended June 30, 2021 reflect this exchange as a distribution to non-controlling interests at an appreciated common stock value of $ 6.975 per share, which incorporates a 10 % liquidity discount of $ 0.775 per share due to trading restrictions under Securities Rule 144.

Therefore, the total distribution amounted to $ 10.8 million, comprised of $ 10.0 million of common stock and $ 0.8 million of cash.

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RECONCILIATION OF STOCKHOLDERS' DEFICIT, NON-CONTROLLING INTERESTS AND REDEEMABLE SENIOR PREFERRED STOCK

The Company is authorized to issue 100,000,000 shares of preferred stock with such designations, voting and other rights and preferences as may be determined from time to time by the board of directors.

As of March 31, 2021 and December 31, 2020, the Company has not issued any shares of preferred stock.

See Note 16, Subsequent Events , for information on the Securities Purchase Agreement the Company executed on April 27, 2021.

As of June 30, 2021 and December 31, 2020, the Company has not issued any shares of preferred stock.

See Note 9, Redeemable Senior Preferred Stock and Warrants , for information about the Redeemable Senior Preferred Stock.

The following tables provide a reconciliation of the beginning and ending carrying amounts for the periods presented for the components of which is the deficit attributable to stockholders of the Company and equity attributable to non-controlling interest:

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Stockholders' (Deficit)

Preferred Stock Common Stock Treasury Stock (a)

Shares Amount Shares Amount Shares Amount

Redeemable Senior Preferred Stock (a) Preferred Stock Common Stock Treasury Stock (b)

Shares Amount Shares Amount Shares Amount Shares Amount

January 1, 2021 — $ — — $ — 67,391 $ 68 451 $ ( 2,388 ) $ 5,769 $ ( 102,013 ) $ ( 98,564 )

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Liability-classified stock-based compensation converted to equity-classified — — — — — — — — 313 — 313

Net loss — — — — — — — ( 2,679 ) ( 2,679 )

Proceeds from exercise of stock options — — — — 90 — — — 617 — 617

Net loss — — — — — — — — — ( 2,679 ) ( 2,679 )

March 31, 2021 — $ — — $ — 67,640 $ 68 451 $ ( 2,388 ) $ 7,257 $ ( 104,692 ) $ ( 99,755 )

Equity-classified stock-based compensation — — — — — — — — 821 — 821

Vesting of stock-based compensation — — — — 12 — — — — — —

Proceeds from issuance of redeemable senior preferred stock, net of discount and issuance costs 150 131,426 — — — — — — — — —

Proceeds from exercise of stock options — — — — 30 — — — 204 — 204

Cash dividends declared and paid on redeemable senior preferred stock — — — — — — — — ( 1,575 ) — ( 1,575 )

PIK dividends declared on redeemable senior preferred stock — 1,838 — — — — — — ( 1,838 ) — ( 1,838 )

Fair value of warrants issued — — — — — — — — 11,357 — 11,357

Accretion of redeemable senior preferred stock discount — 498 — — — — — ( 498 ) — ( 498 )

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Fair value of PHOT preferred units redemption — — — — — — — — ( 10,777 ) — ( 10,777 )

Fair value of common shares issued for PHOT redemption — — — — 1,428 2 9,962 — 9,964

Net loss — — — — — — — — — ( 9,477 ) ( 9,477 )

June 30, 2021 150 $ 133,762 — $ — 69,110 $ 70 451 $ ( 2,388 ) $ 14,913 $ ( 114,169 ) $ ( 101,574 )

(in thousands) Additional Paid-In Capital Accumulated (Deficit) Total Priority Technology Holdings, Inc.

Stockholders' (Deficit) NCI (b)

Preferred Stock Common Stock Treasury Stock (a)

Stockholders' (Deficit) NCI (c)

Preferred Stock Common Stock Treasury Stock (b)

Shares Amount Shares Amount Shares Amount

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March 31, 2020 — $ — 67,061 $ 68 451 $ ( 2,388 ) $ 3,989 $ ( 133,543 ) $ ( 131,874 ) $ 5,654

(b) Prior to third quarter 2020, this balance was related to the acquisition of certain assets from YapStone, Inc.

Equity-classified stock compensation — — — — — — 580 — 580 —

Issue shares of common stock — — — — — — — — — —

Net loss — — — — — — — ( 7,858 ) ( 7,858 ) —

June 30, 2020 — $ — 67,061 $ 68 451 $ ( 2,388 ) $ 4,569 $ ( 141,401 ) $ ( 139,152 ) $ 5,654

(a) On April 27, 2021, the Company authorized 250,000 shares and issued 150,000 shares of redeemable senior preferred stock with a par value of $ 0.001 per share for a purchase price of $ 1,000 per share under the Securities Purchase Agreement.

by the Company's PRET subsidiary during 2019.

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This amount was also distributed in a final redemption of the NCIs' interests in PRET during the three months ended September 30, 2020 .

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STOCK-BASED COMPENSATION

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The Company recognizes the effects of forfeitures on compensation expense as the forfeitures occur.

Expense recognized for equity-classified stock compensation under the 2018 Equity Incentive Plan was $ 0.6 million and $ 0.3 million for the three months ended March 31, 2021 and March 31, 2020, respectively.

During the three months ended March 31, 2021, the Company converted a $ 0.3 million liability-classified stock compensation accrual for restricted stock units under the 2018 Equity Incentive Plan, whereby the service inception date preceded the future grant-date, to an equity-classified award when the restricted stock units were granted.

Income tax benefit for the stock-based compensation was not material for the three months ended March 31, 2021 and March 31, 2020.

Expense recognized for equity-classified stock compensation by plan was as follows:

(in thousands) Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

2018 Equity Incentive Plan $ 821 $ 580 $ 1,379 $ 918

In addition, the Company recognized compensation expense of $ 35 thousand in the three months and six months ended June 30, 2021, and $ 108 thousand during the three months and six months ended June 30, 2020, related to liability-classified stock compensation under the 2018 Equity Incentive Plan whereby the service inception date preceded the future grant-date.

In March 2021, the Company converted a $ 313 thousand liability-classified stock compensation accrual for restricted stock units under the 2018 Equity Incentive Plan, whereby the service inception date preceded the future grant-date, to an equity-classified award when the restricted stock units were granted.

Income tax benefit for the stock-based compensation was not material for the three months and six months ended June 30, 2021 and June 30, 2020.

Employee Stock Purchase Plan

On April 16, 2021, the Priority Technology Holdings, Inc.

2021 Employee Stock Purchase Plan ("2021 Stock Purchase Plan") was adopted by the Board of Directors.

The maximum number of shares available for purchase under the plan is 20,000 shares.

Shares issued under the plan may be authorized but unissued or reacquired shares of common stock.

The plan became effective on July 1, 2021, to all employees of the Company who work more than 20 hours per week and have been employed by the Company for at least 30 days.

Under the 2021 Stock Purchase Plan, participants are offered, on the first day of the offering period, the option to purchase shares of Common Stock at a discount on the last day of the offering period.

The offering period shall be for a period of three months beginning on July 1, 2021.

The plan provides eligible employees the opportunity to purchase shares of the Company's common stock on a quarterly basis through payroll deductions at a price equal to 95 % of the lesser of the fair value on the first and last trading day of each quarter.

Fair Value Measurements

At March 31, 2021 and December 31, 2020, the Company no longer has any fair value estimates that are required to be remeasured at the end of each reporting period on a recurring basis.

At June 30, 2021 and December 31, 2020, the Company no longer has any fair value estimates that are required to be remeasured at the end of each reporting period on a recurring basis.

Fair Value Disclosures

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Substantially all of the Company's notes receivable are secured, and the Company has provided for allowances when it believes that certain notes receivable may not be collectible.

The fair value of the Company's notes receivable, net at March 31, 2021 and December 31, 2020 was approximately $ 6.9 million and $ 7.7 million, respectively.

The fair value of the Company's notes receivable, net at June 30, 2021 and December 31, 2020 was approximately $ 4.2 million and $ 7.7 million, respectively.

On the fair value hierarchy, Level 3 inputs are used to estimate the fair value of these notes receivable.

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Debt Obligations

The Borrower's outstanding debt obligations (see Note 7, Debt Obligations ) are reflected in the Company's consolidated balance sheets at carrying value since the Company did not elect to remeasure debt obligations to fair value at the end of each reporting period.

The fair value of the term loan facility under the Borrowers' Senior Credit Agreement at March 31, 2021 and December 31, 2020 was estimated to be approximately $ 275.2 million and $ 278.0 million, respectively.

The fair value of these notes with a notional value and carrying value (gross of deferred costs and discounts) of $ 274.6 million and $ 279.4 million, respectively, was estimated using binding and non-binding quoted prices in an active secondary market, which considers the Borrowers' credit risk and market related conditions, and is within Level 3 of the fair value hierarchy.

Outstanding debt obligations (see Note 8, Debt Obligations ) are reflected in the Company's consolidated balance sheets at carrying value since the Company did not elect to remeasure debt obligations to fair value at the end of each reporting period.

The fair value of the of the term loan facility under the Credit and Guaranty Agreement at June 30, 2021 was estimated to be approximately $ 294.8 million The fair value of the term loan facility under the Borrowers' Senior Credit Agreement at December 31, 2020 was estimated to be approximately $ 278.0 million.

The fair value of these notes at June 30, 2021 and December 31, 2020, with a notional value and carrying value (gross of deferred costs and discounts) of $ 300 million and $ 279.4 million, respectively, was estimated using binding and non-binding quoted prices in an active secondary market, which considers the Borrowers' credit risk and market related conditions, and is within Level 3 of the fair value hierarchy.

The carrying values of the Borrowers' other long-term debt obligations approximate fair value due to mechanisms in the credit agreements that adjust the applicable interest rates and the lack of a market for these debt obligations.

SEGMENT INFORMATION

At March 31, 2021, the Company has three reportable segments that are reviewed by the Company's chief operating decision maker ("CODM"), who is the Company's Chief Executive Officer and Chairman.

At June 30, 2021, the Company has three reportable segments.

The Consumer Payments operating segment and the Integrated Partners operating segments are each reported as separate reportable segments.

The Commercial Payments

and Institutional Services (sometimes referred to as Managed Services) operating segments are aggregated into one reportable segment, Commercial Payments.

The Commercial Payments and Institutional Services (sometimes referred to as Managed Services) operating segments are aggregated into one reportable segment, Commercial Payments.

More information about our three reportable segments:

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Corporate includes costs of corporate functions and shared services not allocated to the reportable segments.

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Information on reportable segments and reconciliations to consolidated revenues, consolidated income (loss) from operations, and consolidated depreciation and amortization are as follows for the periods presented:

(in thousands) Three Months Ended March 31,

(in thousands) Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

Consumer Payments $ 119,625 $ 81,707 $ 228,018 $ 167,738

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A reconciliation of total income from operations of reportable segments to net loss is provided in the following table:

(in thousands) Three Months Ended March 31,

(in thousands) Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

Total income from operations of reportable segments $ 14,634 $ 8,590 $ 27,680 $ 16,874

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Interest expense ( 7,285 ) ( 11,668 ) ( 16,453 ) ( 21,983 )

Other expenses, net ( 269 ) ( 346 )

Income tax benefit 2,231 1,233

Debt modification and extinguishment costs ( 8,322 ) — ( 8,322 ) ( 376 )

Other income (expenses), net 215 194 ( 54 ) 224

Income tax (expense) benefit ( 1,490 ) ( 415 ) 741 818

Net loss $ ( 9,477 ) $ ( 7,858 ) $ ( 12,156 ) $ ( 13,727 )

Substantially all revenue is generated in the United States.

For the three months ended March 31, 2021 and March 31, 2020 , no one merchant customer accounted for 10% or more of the Company's consolidated revenues.

For the three months and six months ended June 30, 2021 and June 30, 2020 , no one merchant customer accounted for 10% or more of the Company's consolidated revenues.

Most of the Company's merchant customers were referred to the Company by an ISO or other referral partners.

If the Company's agreement with an ISO allows the ISO to have merchant portability rights, the ISO can potentially move the underlying merchant relationships to another merchant acquirer upon notice to the Company and completion of a "wind down" period.

For the three months ended March 31, 2021 and March 31, 2020, merchants referred by one ISO organization with potential merchant portability rights generated revenue within the Company's Consumer Payments reportable segment that represented approximately 23.3 % and 20.1 %, respectively, of the Company's consolidated revenues.

On September 22, 2020, Priority Real Estate Technology, LLC (“PRET”), a majority-owned and consolidated subsidiary of the Company, sold certain assets comprising its RentPayment business, which was part of the Integrated Partners reportable segment.

The allocation of net proceeds from the sale, after transaction costs, to the PRET members included the return of each member’s invested capital in PRET and excess proceeds were distributed in accordance with the distribution provisions of the PRET LLC governing agreement.

For the three months ended June 30, 2021 and June 30, 2020, merchants referred by one ISO organization with potential merchant portability rights generated revenue within the Company's Consumer Payments reportable segment that represented approximately 23.2 % and 21.4 %, respectively, of the Company's consolidated revenues.

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On September 22, 2020, Priority Real Estate Holdings, LLC ("PRET"), a majority-owned and consolidated subsidiary of the Company, sold certain assets comprising its RentPayment business, which was part of the Integrated Partners reportable segment.

Approximately $ 51.4 million and $ 45.1 million of the excess proceeds were distributed to the Company and the non-controlling interests, respectively.

The initial allocation of net proceeds remained subject to final adjustment with the PRET members at December 31, 2020.

During the first quarter of 2021, it was determined that an additional $ 0.5 million of the excess proceeds are due to the non-controlling interests, which amounts were accrued at March 31, 2021 and included in Other expenses, net in the unaudited condensed consolidated statement of operations.

During the first quarter of 2020, RentPayment generated $ 3.8 million of revenue and $ 0.6 million of income from operations.

L OSS PER COMMON SHARE

During the first quarter of 2021, it was determined that an additional $ 0.5 million of the excess proceeds was due to the non-controlling interests, which amounts were included in other expenses, net in the unaudited condensed consolidated statement of operations.

During the three months and six months ended June 30, 2020, RentPayment generated $ 4.4 million and $ 8.2 million of revenue, respectively, and $ 0.9 million and $ 1.5 million of income from operations, respectively.

LOSS PER COMMON SHARE

The following tables set forth the computation of the Company's basic and diluted loss per common share:

(in thousands, except per share amounts) Three Months Ended March 31,

(in thousands, except per share amounts) Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

Basic and Diluted Loss Per Common Share:

Net loss $ ( 9,477 ) $ ( 7,858 ) $ ( 12,156 ) $ ( 13,727 )

Income attributable to non-controlling interests — —

Net loss attributable to common shareholders $ ( 2,679 ) $ ( 5,869 )

Weighted-average common stock shares outstanding 67,543 67,061

Dividends and accretion attributable to redeemable senior preferred stockholders ( 3,911 ) — ( 3,911 ) —

Non-controlling interest preferred unit redemptions ( 10,777 ) — ( 10,777 ) —

Net loss attributable to common stockholders $ ( 24,165 ) $ ( 7,858 ) $ ( 26,844 ) $ ( 13,727 )

Weighted-average common shares outstanding(a) 69,496 67,114 68,525 67,088

Basic and Diluted Loss Per Common Share $ ( 0.35 ) $ ( 0.12 ) $ ( 0.39 ) $ ( 0.20 )

Potentially anti-dilutive securities that were excluded from loss per common share for the three months ended March 31, 2021 and March 31, 2020 that could be dilutive in future periods were as follows:

(a) The weighted-average common stock shares outstanding include the 1.8 million warrants issued under the Securities Purchase Agreement (refer to Note 9 , Redeemable Senior Preferred Stock and Warrants).

Potentially anti-dilutive securities that were excluded from loss per common share for the three months and six months ended June 30, 2021 and June 30, 2020 that could be dilutive in future periods were as follows:

(in thousands) Common Stock Equivalents at

March 31, 2021 March 31, 2020

Outstanding warrants on common stock (1) 3,556 3,556

Outstanding options and warrants issued to adviser (1) 600 600

Restricted stock unit awards (2) 842 395

Outstanding stock option awards (2) 1,394 1,644

June 30, 2021 June 30, 2020

Outstanding warrants on common stock (a) 3,556 3,556

Outstanding options and warrants issued to adviser (a) 600 600

Restricted stock unit awards (b) 1,188 371

Liability-classified restricted stock units 118 290

Outstanding stock option awards (b) 1,301 1,607

Total 6,763 6,424

(1) Issued by M.I.

(a) Issued by M.I.

Acquisitions, Inc.

prior to July 25, 2018.

(2) Granted under the 2018 Equity Incentive Plan

SUBSEQUENT EVENTS

Merger Agreement

On March 5,2021, we announced that we had entered into an Agreement and Plan of Merger (the "Merger Agreement") with Finxera Holdings, Inc.

("Finxera"), Prime Warrior Acquisition Corp., an indirect wholly owned subsidiary of the Company ("Merger Sub") and solely in its capacity as the representative of the stockholders or optionholders of Finxera (the "Equityholder Representative"), Stone Point Capital, LLC.

Priority will acquire, through a merger of Merger Sub with and into Finxera, the Finxera business.

Finxera is a provider of deposit account management payment processing services to the debt settlement industry in the United States.

The Merger Agreement provides that, among other things and on the terms and subject to the conditions of the Merger Agreement, (a) Merger Sub will merge with and into Finxera (the “Merger”), with the separate existence of Merger Sub ceasing and Finxera continuing as the surviving entity of the Merger (the “Surviving Entity”);

(b) at the effective time of the Merger (the “Effective Time”) each share of common stock, par value $ 0.01 per share, of Merger Sub issued and outstanding immediately prior to the Effective Time shall be converted into one validly issued, fully paid and non-assessable share of common stock, par value $ 0.01 per share, of the Surviving Entity;

and (c) the shares of common stock of Finxera designated as “Class A Common Stock”, “Class B Common Stock” and preferred stock “Series C Participating Preferred Stock” issued and outstanding immediately prior to the closing of the transactions contemplated by the Merger Agreement (the “Closing”) will be converted into rights to receive certain cash and stock consideration and a contingent right to receive a portion of any payments made following the determination of the purchase price adjustments (a “Deferred Payment”).

Consideration for the Merger will consist of a combination of cash and stock, with the purchase price comprising of:

(a) $ 425,000,000 , plus (b) the aggregate value of the current assets of the Finxera and each of its subsidiaries (the “Group Companies”) less the aggregate value of the current liabilities of the Group Companies, in each case, determined on a consolidated basis without duplication, as of the close of business on the business day immediately preceding the date of the Closing (which may be a positive or negative number), plus (c) the sum of all cash and cash equivalents of the Group Companies as of the close of business on the business day immediately preceding the date of the Closing, minus (d) the amount of indebtedness of the Group Companies as of the close of the business day immediately prior to the date of the Closing, minus (e) the amount of unpaid transaction expenses, minus (f) 25 % of the earnings of the Group Companies during the period between the signing of the Merger Agreement and the Closing.

Each option to purchase one or more shares of Class B Common Stock of Finxera issued pursuant to the Finxera Holdings, Inc.

2018 Equity Incentive Plan (the “Company Options”), vested as of immediately prior to the Closing (the “Vested Company Option”), that is issued and outstanding immediately prior to the Closing will be deemed to be exercised and converted into the right to receive a cash payment with respect to such Vested Company Option and a contingent right to receive a portion of any Deferred Payments.

Securities Purchase Agreement

On April 27, 2021, we entered into a Securities Purchase Agreement (the “Purchase Agreement”) with credit funds managed by certain affiliates of Ares Management Corporation (the “Investors”), pursuant to which the Company (i) issued and sold 150,000 shares of senior preferred stock, par value $ 0.001 per share (the “Senior Preferred Stock”, and the shares issued the “Senior Preferred Shares”) at a purchase price of $ 150,000,000 , or $ 1,000 per Senior Preferred Share (the “Initial Senior Preferred Stock Sale”), and (ii) issued warrants (the “Warrants”) to purchase up to 1,803,841 shares of the Company’s common stock, par value $ 0.001 per share (“Common Stock” and together with the Warrants, the “Securities”), at an exercise price $ 0.001 .

The exercise price and the number of shares issuable upon exercise of the warrants are subject to certain adjustments from time to time on the terms outlined in the Warrants.

In addition to the issuance and sale of Senior Preferred Shares which pursuant to the Purchase Agreement, upon the consummation of the Company’s acquisition of Finxera and the satisfaction of other customary closing conditions, the Company will issue and sell to the Investors an additional 50,000 shares of Senior Preferred Stock, at a purchase price of $ 50,000,000 , or $ 1,000 per share.

The Company may also issue and sell to the Investors up to an additional 50,000 shares of Senior Preferred Stock, at a purchase price of $ 1,000 per share within 18 months after the consummation of the Acquisition Senior Preferred Stock Sale upon the satisfaction of certain customary closing conditions.

The Company used the proceeds from the sale of the Securities to fund the Refinancing (as defined below) and to pay certain fees and expenses relating to the Refinancing and the offering of the Securities.

Registration Rights Agreement

Credit and Guaranty Agreement

On April 27, 2021, Priority Holdings, LLC, a Delaware limited liability company (“Holdings”), which is a direct wholly-owned subsidiary of the Company, and certain direct and indirect subsidiaries of Holdings (together with Holdings, collectively, the “Loan Parties”), entered into a Credit and Guaranty Agreement (the “Credit Agreement”) with Truist Bank (“Truist”) and the lenders party thereto, pursuant to which Holdings has access to senior credit facilities in an aggregate principal amount of $ 630.0 million which are secured by substantially all of the assets of the Loan Parties and by the equity interests of Holdings.

The credit facilities under the Credit Agreement are comprised of (i) a senior secured first lien term loan facility in an aggregate principal amount of $ 300,000,000 (the “Initial Term Loan”), the proceeds of which have been used to fund the Refinancing, (ii) a senior secured revolving credit facility in an aggregate amount not to exceed $ 40,000,000 outstanding at any time and (iii) a senior secured first lien delayed draw term loan facility in an aggregate principal amount of $ 290,000,000 , the proceeds of which may be used to fund the Company’s acquisition of Finxera.

Under the Credit Agreement, prepayments of outstanding principal may be made in permitted increments with a 1.0 % penalty for certain prepayments made in connection with repricing transactions.

Such premium will be based on the principal amount that is prepaid, subject to the terms of the credit agreements.

The outstanding amount of any loans and any other amounts owing by the Loan Parties under the Credit Agreement may, after the occurrence of an Event of Default (as defined in the Credit Agreement), at the option of Truist, be declared immediately due and payable.

Holdings and certain other Loan Parties have previously entered into (A) the Term Loan Agreement and (B) the Senior Credit Agreement, the proceeds from the sale of the Securities and from the Initial Term Loan were used to refinance the Term Loan Agreement and the Senior Credit Agreement and all outstanding obligations thereunder were repaid in full (or in the case of outstanding undrawn letters of credit, deemed issued under the Credit Agreement), and all commitments and guaranties in connection therewith have been terminated or released (the “Refinancing”).

Residual Purchase Agreement

On April 28, 2021, a subsidiary of the Company completed an asset acquisition of certain residual portfolio rights for a purchase price of $ 42.4 million.

The seller’s note payable to the Company of $ 5.0 million at the time of the purchase was netted against the purchase price, resulting in cash of $ 37.4 million being paid by the Company to the seller, which was funded from cash proceeds of the Securities Purchase Agreement executed on April 27, 2021.

(b) Granted under the 2018 Equity Incentive Plan.

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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 1. Financial Statements