What changed in this filing

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Item 1A. Risk Factors

2022-03-17 compared with 2021-03-31 · 52 added, 44 removed, 237 unchanged (29% of the section changed)

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Our business has been, and is likely to continue to be, negatively affected by the recent COVID-19 outbreak.

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

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

In particular, the COVID-19 pandemic has affected a number of operational factors, including:

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This information may also be stored by third parties to whom we outsource certain functions or other agents ("associated third parties").

We may have responsibility to the card networks, financial institutions, and in some instances, our merchants, and/or ISOs, for our failure or the failure of our associated third parties to protect this information.

We may have responsibility to the card networks, FIs, and in some instances, our merchants, and/or ISOs, for our failure or the failure of our associated third parties to protect this information.

Information security risks for us and our competitors have substantially increased in recent years in part due to the proliferation of new technologies and the increased sophistication, resources and activities of hackers, terrorists, activists, organized crime, and other external parties, including hostile nation-state actors.

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Furthermore, we do not control the actions of our third-party partners and customers in their systems.

These third parties may experience security breaches and any future problems experienced by these third parties, including those resulting

from cyber attacks or other breakdowns or disruptions in services, could adversely affect our ability to conduct our business or expose us to liability.

These third parties may experience security breaches and any future problems experienced by these third parties, including those resulting from cyber attacks or other breakdowns or disruptions in services, could adversely affect our ability to conduct our business or expose us to liability.

Further, our agreements with our bank sponsors and our third-party payment processors (as well as payment network requirements) require us to take certain protective measures to ensure the confidentiality of merchant and consumer data.

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Not only could we suffer damage to our reputation in the event of a system outage or data loss, but we may also be liable to third parties.

Many of our contractual agreements with financial institutions and certain other customers require the payment of penalties if we do not meet certain operating standards.

Many of our contractual agreements with FIs and certain other customers require the payment of penalties if we do not meet certain operating standards.

Our systems and operations or those of our third-party providers could be exposed to damage or interruption from, among other things, fire, natural disaster, power loss or telecommunications failure.

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The payment processing industry is highly competitive.

We primarily compete in the small to medium-size ("SMB") merchant industry.

We compete with, financial institutions and their affiliates, independent payment processing companies, and ISOs.

We primarily compete in the SMB merchant industry.

We compete with FIs and their affiliates, independent payment processing companies and ISOs.

We also compete with many of these same entities for production through distribution partners.

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Our growth will depend on the continued growth of payments with credit, debit and prepaid cards ("Electronic Payments"), particularly Electronic Payments to SMB merchants, and our ability to increase our market share through successful competitive efforts to gain new merchants and distribution partners.

Additionally, many financial institutions and their subsidiaries or well-established payment-enabled technology providers with which we compete, have substantially greater capital, technological, management and marketing resources than we have.

Additionally, many FIs and their subsidiaries or well-established payment-enabled technology providers with which we compete, have substantially greater capital, technological, management and marketing resources than we have.

These factors may allow our competitors to offer better pricing terms to merchants and more attractive compensation to distribution partners, which could result in a loss of our potential or current merchants and distribution partners.

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We experience attrition in merchant credit and debit card processing volume resulting from several factors, including business closures, transfers of merchant accounts to our competitors, unsuccessful contract renewal negotiations and account closures that we initiate for various reasons such as heightened credit risks or contract breaches by merchants.

Our referral partners are

a significant source of new business.

Our referral partners are a significant source of new business.

If a referral partner or an ISO switches to another processor, terminates our services, internalizes payment processing that we perform, merges with or is acquired by one of our competitors, or shuts down or becomes insolvent, we may no longer receive new merchant referrals from such referral partner, and we risk losing existing merchants that were originally enrolled by the referral partner or ISO.

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Payment network rules are established and changed from time to time by each payment network as they may determine in their sole discretion and with or without advance notice to their participants.

The timelines imposed by the payment networks for expected compliance with new rules have historically been, and may continue to be, highly compressed, requiring us to quickly implement changes to our systems which increases the risk of non-compliance with new standards.

The timelines imposed by the payment networks or sponsor banks for expected compliance with new rules have historically been, and may continue to be, highly compressed, requiring us to quickly implement changes to our systems which increases the risk of non-compliance with new standards or the reduction of certain types of merchant activity.

In addition, the payment networks could make changes to interchange or other elements of the pricing structure of the merchant acquiring industry that would have a negative impact on our results of operations.

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The acquisition and integration of businesses and assets involve a number of risks.

These risks include valuation (negotiating a fair price for the business and assets), integration (managing the process of integrating the acquired business’ people, products, technology, and other assets to realize the projected value and synergies), regulatory (obtaining any applicable regulatory or other government approvals), and due diligence (identifying risks to the prospects of the business, including undisclosed or unknown liabilities or restrictions).

inability of the parties to agree to the structure or purchase price of the transaction and our inability to finance the transaction on commercially acceptable terms.

These risks include valuation (negotiating a fair price for the business and assets), integration (managing the process of integrating the acquired business' people, products,

technology, and other assets to realize the projected value and synergies), regulatory (obtaining any applicable regulatory or other government approvals), and due diligence (identifying risks to the prospects of the business, including undisclosed or unknown liabilities or restrictions).

There can be no assurances that we will be able to complete suitable acquisitions for a variety of reasons, including the identification of and competition for acquisition targets, the need for regulatory approvals, the inability of the parties to agree to the structure or purchase price of the transaction and our inability to finance the transaction on commercially acceptable terms.

In addition, any potential acquisition can subject us to a variety of other risks:

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markets may adversely affect our business, results of operations and financial condition, including our revenue growth and profitability.

Worldwide financial market conditions, as well as various social and political tensions in the United States and around the world, may contribute to increased market volatility, may have long-term effects on the United States and may cause economic uncertainties or deterioration in the United States.

Worldwide financial market conditions, as well as various social and political tensions in the U.S.

and around the world, may contribute to increased market volatility, may have long-term effects and may cause economic uncertainties or deterioration in the U.S.

markets experienced extreme volatility and disruption during the economic downturn that began in mid-2007, and the U.S.

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financial markets.

Any new legislation that may be adopted in the United States could significantly affect the regulation of U.S.

We are monitoring the conflict between Russia and Ukraine.

While we do not expect that such conflict will itself be material to our business, geopolitical instability and adversity arising from such conflict (including additional conflicts that could arise from such conflict), the imposition of sanctions, taxes and/or tariffs against Russia and Russia's response to such sanctions (including retaliatory acts, such as cyber attacks and sanctions against other countries) could adversely affect the global economy or specific international, regional and domestic markets, which could have a material adverse effect on our business, results of operations or financial condition.

Any new legislation that may be adopted in the U.S.

could significantly affect the regulation of U.S.

financial markets.

Areas subject to potential change, amendment or repeal include the Dodd-Frank Act and the authority of the Federal Reserve Board and the Financial Stability Oversight Council.

The United States may also potentially withdraw from or renegotiate various trade agreements and take other actions that would change current trade policies of the United States.

We cannot predict which, if any, of these actions will be taken or, if taken, their effect on the financial stability of the United States.

Areas subject to potential change, amendment or repeal include the Dodd-Frank Act and the authority of the Federal Reserve Board and the FSOC.

may also potentially withdraw from or renegotiate various trade agreements and take other actions that would change current trade policies of the U.S.

We cannot predict which, if any, of these actions will be taken or, if taken, their effect on the financial stability of the U.S.

Such actions could have a significant adverse effect on our business, financial condition and results of operations, particularly in view of the regulatory oversight we presently face.

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economy impacts our merchant accounts, regulatory changes increase the burden we face in operating our business, or disruptions in the credit markets prevent us from using debt to finance future acquisitions, our financial condition and results of operations may be materially and adversely impacted.

We rely on financial institutions and other service and technology providers.

We rely on FIs and other service and technology providers.

If they fail or discontinue providing their services or technology generally or to us specifically, our ability to provide services to merchants may be interrupted, and, as a result, our business, financial condition and results of operations could be adversely impacted.

We rely on various financial institutions to provide clearing services in connection with our settlement activities.

If such financial institutions should stop providing clearing services, we must find other financial institutions to provide those services.

We rely on various FIs to provide clearing services in connection with our settlement activities.

If such FIs should stop providing clearing services, we must find other FIs to provide those services.

If we are unable to find a replacement financial institution, we may no longer be able to provide processing services to certain customers, which could negatively affect our revenues, earnings and cash flows.

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We have policies to manage merchant-related credit risk and often mitigate such risk by requiring collateral and monitoring transaction activity.

Notwithstanding our programs and policies for managing credit risk, it is possible that a default on such obligations by one or more of our merchants could have a material adverse effect on our business.

Notwithstanding our programs and policies

for managing credit risk, it is possible that a default on such obligations by one or more of our merchants could have a material adverse effect on our business.

If we fail to comply with the applicable requirements of the card networks, they could seek to fine us, suspend us or terminate our registrations for membership.

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We are subject to extensive government regulation, and any new laws and regulations, industry standards or revisions made to existing laws, regulations or industry standards affecting the electronic payments industry may have an unfavorable impact on our business, financial condition and results of operations.

Our business is affected by laws and regulations and examinations that affect us and our industries., Regulation and proposed regulation of the payments industry has increased significantly in recent years.

Failure to comply with regulations or guidelines may result in the suspension or revocation of a license or registration, the limitation, suspension or termination of service, and

the imposition of civil and criminal penalties, including fines, or may cause customers or potential customers to be reluctant to do business with us, any of which could have an adverse effect on our financial condition.

Our business is affected by laws and regulations and examinations that affect us and our industries.

Regulation and proposed regulation of the payments industry has increased significantly in recent years.

Failure to comply with regulations or guidelines may result in the suspension or revocation of a license or registration, the limitation, suspension or termination of service, and the imposition of civil and criminal penalties, including fines, or may cause customers or potential customers to be reluctant to do business with us, any of which could have an adverse effect on our financial condition.

Interchange fees are subject to intense legal, regulatory and legislative scrutiny.

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These types of restrictions could negatively affect the number of debit transactions, which would adversely affect our business.

The Dodd-Frank Act also created the CFPB, which has assumed responsibility for enforcing federal consumer protection laws, and the FSOC, which has the authority to determine whether any non-bank financial company, which may include us within the definitional scope, should be supervised by the Federal Reserve because it is systemically important to the United States financial system.

financial system.

Any such designation would result in increased regulatory burdens on our business, which increases our risk profile and may have an adverse impact on our business, financial condition and results of operations.

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Further, our contractual arrangements may not effectively prevent disclosure of our confidential information or provide an adequate remedy in the event of unauthorized disclosure of our confidential information.

We may have to litigate to enforce or

determine the scope and enforceability of our intellectual property rights and know-how, which is expensive, could cause a diversion of resources and may not prove successful.

We may have to litigate to enforce or determine the scope and enforceability of our intellectual property rights and know-how, which is expensive, could cause a diversion of resources and may not prove successful.

Also, because of the rapid pace of technological change in our industry, aspects of our business and our services rely on technologies developed or licensed by third parties, and we may not be able to obtain or continue to obtain licenses and technologies from these third parties on reasonable terms or at all.

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Additionally, our risk detection system is subject to a high degree of "false positive" risks being detected, which makes it difficult for us to identify real risks in a timely manner.

If our policies and procedures are not fully effective or we are not always successful in capturing all risks to which we are or may be exposed, we may suffer harm to our reputation or be subject to litigation or regulatory actions that materially increase our costs and subject us to reputational damage that could limit our ability to grow and cause us to lose existing merchant clients.

our costs and subject us to reputational damage that could limit our ability to grow and cause us to lose existing merchant clients.

Risk Related to Our Capital Structure

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We have a substantial amount of indebtedness and may incur other debt in the future.

Our level of debt and the covenant to which we agreed could have negative consequences on us, including, among other things, (1) requiring us to dedicate a large portion of our cash flow from operations to servicing and repayment of the debt;

(2) limiting funds available for strategic initiatives and opportunities, working capital and other general corporate needs and (3) limiting our ability to incur certain kinds or amounts of additional indebtedness, which could restrict our ability to react to changes in our business, our industry and economic conditions.

Substantially all of our indebtedness is floating rate debt.

As a result, an increase in interest rates generally, such as those we have recently experienced, would adversely affect our profitability.

Our level of debt and the covenant to which we agreed could have negative consequences on us, including, among other things, (i) requiring us to dedicate a large portion of our cash flow from operations to servicing and repayment of the debt;

(ii) limiting funds available for strategic initiatives and opportunities, working capital and other general corporate needs and (iii) limiting our ability to incur certain kinds or amounts of additional indebtedness, which could restrict our ability to react to changes in our business, our industry and economic conditions.

Substantially all of our indebtedness is variable rate debt, primarily based on LIBOR.

LIBOR is the subject of recent national, international, and other regulatory guidance and proposals for reform, which may cause LIBOR to disappear entirely or to perform differently than in the past.

While we expect reasonable alternatives to LIBOR will be implemented, we cannot predict the consequences and timing of any impact, which could include an increase in our interest expense As a result of this variable rate debt, an increase in interest rates generally, such as those we have recently experienced, would adversely affect our profitability.

We may enter into pay-fixed interest rate swaps to limit our exposure to changes in floating interest rates.

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In addition, the credit agreements governing our senior credit facilities contain a total net leverage ratio financial covenant.

See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” A breach of any of these covenants (or any other covenant in the documents governing our Senior Credit Agreement) could result in a default or event of default under our Senior Credit Agreement.

If an event of default occurred, the applicable lenders or agents could elect to terminate borrowing commitments and declare all borrowings and loans outstanding thereunder, together with accrued and unpaid interest and any fees and other obligations, to be immediately due and payable.

In addition, or in the alternative, the applicable lenders or agents could exercise their rights under the security documents entered into in connection with our Senior Credit Agreement.

Any acceleration of amounts due under the Senior Credit Agreement would likely have a material adverse effect on us.

See Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations .

A breach of any of these covenants (or any other covenant in the documents governing our Credit and Guaranty Agreement) could result in a default or event of default under our Credit and Guaranty Agreement.

If an event of default occurred, the applicable lenders or agents could elect to terminate borrowing commitments and declare all borrowings and loans outstanding thereunder, together with

accrued and unpaid interest and any fees and other obligations, to be immediately due and payable.

In addition, or in the alternative, the applicable lenders or agents could exercise their rights under the security documents entered into in connection with our Credit and Guaranty Agreement.

Any acceleration of amounts due under the Credit and Guaranty Agreement would likely have a material adverse effect on us.

Because we have no current plans to pay cash dividends on our common stock for the foreseeable future, you may not receive any return on investment unless you sell your common stock for a price greater than that which you paid for it.

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Thomas Priore, our President, Chief Executive Officer and Chairman, controls the Company, and his interests may conflict with ours or yours in the future.

Thomas Priore and his affiliates have the ability to elect all of the members of our board of directors and thereby control our policies and operations, including the appointment of management, future issuances of our common stock or other securities, the payment of dividends, if any, on our common stock, the incurrence or modification of debt by us, amendments to our

Amended and Restated Certificate of Incorporation and our Amended and Restated Bylaws, and the entering into of extraordinary transactions, and their interests may not in all cases be aligned with your interests.

Thomas Priore and his affiliates have the ability to elect all of the members of our Board of Directors and thereby control our policies and operations, including the appointment of management, future issuances of our common stock or other securities, the payment of dividends, if any, on our common stock, the incurrence or modification of debt by us, amendments to our Amended and Restated Certificate of Incorporation and our Amended and Restated Bylaws, and the entering into of extraordinary transactions, and their interests may not in all cases be aligned with your interests.

In addition, Thomas Priore may have an interest in pursuing acquisitions, divestitures, and other transactions that, in his judgment, could enhance his investment, even though such transactions might involve risks to you.

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We may redeem your unexpired warrants prior to their exercise at a time that is disadvantageous to you, thereby making your warrants worthless.

We have the ability to redeem outstanding warrants (the "Warrants") at any time after they become exercisable and prior to their expiration, at $0.01 per warrant, if the last reported sales price (or the closing bid price of our common stock in the event the common stock is not traded on any specific trading day) of the common stock equals or exceeds $16.00 per share for any 20 trading days within a 30-trading day period ending on the third business day prior to the date we send proper notice of such redemption, provided that on the date we give notice of redemption and during the entire period thereafter until the time we redeem the Warrants, we have an effective registration statement under the Securities Act covering the common stock issuable upon exercise of the Warrants and a current prospectus relating to them is available or cashless exercise is exempt from the registration requirements under the Securities Act.

upon exercise of the Warrants and a current prospectus relating to them is available or cashless exercise is exempt from the registration requirements under the Securities Act.

If and when the Warrants become redeemable by us, we may exercise our redemption right even if we are unable to register or qualify the underlying securities for sale under all applicable state securities laws.

Redemption of the outstanding Warrants could force a warrant holder:

(i) to exercise Warrants and pay the exercise price therefore at a time when it may be disadvantageous for you to do so, (ii) to sell Warrants at the then-current market price when you might otherwise wish to hold your Warrants or (iii) to accept the nominal redemption price which, at the time the outstanding Warrants are called for redemption, may be substantially less than the market value of your Warrants.

(i) to exercise Warrants and pay the exercise price therefore at a time when it may be disadvantageous for you to do so;

(ii) to sell Warrants at the then-current market price when you might otherwise wish to hold your Warrants;

or (iii) to accept the nominal redemption price which, at the time the outstanding Warrants are called for redemption, may be substantially less than the market value of your Warrants.

The liquidity of the Warrants may be limited.

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The majority of our current indebtedness bears interest at a variable rate based on LIBOR, and we may incur additional indebtedness based on LIBOR.

In July 2017, the United Kingdom’s Financial Conduct Authority ("FCA"), a regulator of

financial services firms and financial markets in the United Kingdom, stated that they will plan for a phase out of regulatory oversight of LIBOR interest rates indices.

In July 2017, the United Kingdom's Financial Conduct Authority ("FCA"), a regulator of financial services firms and financial markets in the United Kingdom, stated that they will plan for a phase out of regulatory oversight of LIBOR interest rates indices.

The FCA has indicated they will support the LIBOR indices through 2021, to allow for an orderly transition to an alternative reference rate.

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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-K

Item 1A. Risk Factors