Financial Statements and Supplementary Data
−Removed: PRIORITY TECHNOLOGY HOLDINGS, INC.
Index to Consolidated Financial Statements
−Removed: Reports of Independent Registered Public Accounting Firm s
+Added: Report s of Independent Registered Public Accounting Firms
Consolidated Balance Sheets as of December 31, 2021 and December 31, 2020
3 unchanged sentences
Notes to Consolidated Financial Statements :
+Added: Nature of Business and Significant Accounting Policies
+Added: Settlement Assets and Customer Account Balances and Related Obligations
+Added: Disposal of Business
+Added: Notes Receivable
+Added: Goodwill and Other Intangible Assets
+Added: Property, Equipment and Software
+Added: Accounts Payable and Accrued Expenses
+Added: Debt Obligations
+Added: Redeemable Senior Preferred Stock and Warrants
+Added: Commitments and Contingencies
+Added: Related Party Transactions
+Added: Stockholders' Deficit
+Added: Stock-based Compensation
+Added: Employee Benefit Plans
+Added: Segment Information
+Added: (Loss) Earnings per Common Share
Report of Independent Registered Public Accounting Firm
1 unchanged sentence
Opinion on the Financial Statements
−Removed: We have audited the accompanying consolidated balance sheet of Priority Technology Holdings, Inc.
−Removed: (“the Company”) as of December 31, 2020, the related consolidated statements of operations, stockholders' deficit and cash flows for the year ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”).
−Removed: In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020, and the results of its operations and its cash flows for the year ended December 31, 2020, in conformity with U.S.
+Added: We have audited the accompanying consolidated balance sheets of Priority Technology Holdings, Inc.
+Added: ("the Company") as of December 31, 2021 and 2020, the related consolidated statements of operations, stockholders' deficit and cash flows for each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the "consolidated financial statements").
+Added: In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with U.S.
generally accepted accounting principles.
1 unchanged sentence
These financial statements are the responsibility of the Company's management.
−Removed: Our responsibility is to express an opinion on the Company’s financial statements based on our audit.
+Added: Our responsibility is to express an opinion on the Company's financial statements based on our audits.
We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
−Removed: We conducted our audit in accordance with the standards of the PCAOB.
+Added: We conducted our audits in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.
−Removed: As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.
+Added: As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.
Accordingly, we express no such opinion.
−Removed: Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
+Added: Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
−Removed: Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.
−Removed: We believe that our audit provides a reasonable basis for our opinion.
+Added: Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.
+Added: We believe that our audits provide a reasonable basis for our opinion.
+Added: Critical Audit Matter
+Added: The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:
+Added: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.
+Added: The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
+Added: Business Combinations
+Added: Description of the Matter As described in Note 3 to the consolidated financial statements, the Company completed its acquisitions of Finxera Holdings, Inc.
+Added: and C&H Financial Services, Inc.
+Added: during the year ended December 31, 2021 for total consideration of $407 million and $39.7 million, respectively.
+Added: The acquisitions were accounted for as business combinations.
+Added: The Company's accounting for these acquisitions included determining the fair value of the intangible assets acquired, which primarily included referral partner relationships, customer relationships, acquired technology, and merchant portfolios.
+Added: Auditing the Company's accounting for the acquisitions was complex due to the significant estimation required by management to determine the fair values of the acquired intangible assets of $211.4 million for Finxera Holdings, Inc.
+Added: and $25.4 million for C&H Financial Services, Inc.
+Added: The significant estimation was primarily due to the sensitivity of the respective fair values to the significant underlying assumptions, including estimated future cash flows or income, discount rate and royalty rate assumptions, as applicable to the individual intangible assets acquired.
+Added: These assumptions relate to the future performance of the acquired businesses, are forward-looking and could be affected by future economic and market conditions.
+Added: How We Addressed the Matter in Our Audit To test the fair value of the acquired intangible assets, our audit procedures included, among others, evaluating the Company's use of valuation methodologies, evaluating the significant assumptions, and evaluating the completeness and accuracy of underlying data supporting the significant assumptions.
+Added: We involved our valuation specialists to assist with our evaluation of the methodologies used by the Company and significant assumptions used in the valuation of the intangible assets acquired.
+Added: For example, we compared the significant assumptions to current industry, market and economic trends, as well as historical results of the acquired businesses.
+Added: We performed sensitivity analyses of the significant assumptions to evaluate the change in the fair value resulting from changes in the assumptions.
+Added: We also evaluated the appropriateness of the Company’s disclosures included in Note 3 in relation to these acquisition matters.
/s/ Ernst & Young LLP
6 unchanged sentences
Opinion on the Financial Statements
−Removed: We have audited the accompanying consolidated balance sheet of Priority Technology Holdings, Inc.
−Removed: and Subsidiaries (the "Company") as of December 31, 2019, the related consolidated statements of operations, changes in stockholders' deficit and cash flows for each of the two years in the period ended December 31, 2019, and the related notes to the consolidated financial statements (collectively, the financial statements).
−Removed: In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.
+Added: We have audited the accompanying consolidated statements of operations, changes in stockholders' deficit and cash flows of Priority Technology Holdings, Inc.
+Added: and Subsidiaries (the "Company") for the year ended December 31, 2019, and the related notes to the consolidated financial statements (collectively, the financial statements).
+Added: In our opinion, the financial statements present fairly, in all material respects, the Company's results of operations and cash flows for the year ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management.
−Removed: Our responsibility is to express an opinion on the Company's financial statements based on our audits.
+Added: Our responsibility is to express an opinion on the Company's financial statements based on our audit.
We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
−Removed: We conducted our audits in accordance with the standards of the PCAOB.
+Added: We conducted our audit in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
−Removed: Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
+Added: Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
−Removed: Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.
−Removed: We believe that our audits provide a reasonable basis for our opinion.
+Added: Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.
+Added: We believe that our audit provides a reasonable basis for our opinion.
/s/ RSM US LLP
1 unchanged sentence
Atlanta, Georgia
−Removed: March 30, 2020
+Added: March 30, 2020 (except for Note 20 as to which the date is March 17, 2022)
Priority Technology Holdings, Inc.
Consolidated Balance Sheets
−Removed: As of December 31, 2020 and 2019
−Removed: (in thousands, except share and per share amounts)
+Added: (in thousands, except share data)
December 31, 2021 December 31, 2020
Current assets:
−Removed: Cash $ 9,241 $ 3,234
+Added: Cash and cash equivalents $ 20,300 $ 9,241
Restricted cash 28,859 78,879
3 unchanged sentences
Current portion of notes receivable, net of allowances of $ 0 and $ 467 , respectively
−Removed: Settlement assets 753 533
+Added: Settlement assets and customer account balances 479,471 753
Total current assets 603,132 135,884
3 unchanged sentences
Intangible assets, net 340,211 98,057
−Removed: Deferred income tax assets, net 46,697 49,657
−Removed: Other non-current assets 1,957 380
+Added: Deferred income taxes, net 8,265 46,697
+Added: Other noncurrent assets 9,256 1,957
Total assets $ 1,351,942 $ 417,829
−Removed: LIABILITIES AND STOCKHOLDERS' DEFICIT
+Added: Liabilities, Redeemable Senior Preferred Stock and Stockholders' Deficit
Current liabilities:
3 unchanged sentences
Current portion of long-term debt 6,200 19,442
−Removed: Settlement obligations 72,878 37,789
+Added: Settlement and customer account obligations 500,291 72,878
Total current liabilities 583,567 148,848
−Removed: Long-term debt, net of current portion, discounts and deferred financing costs 357,873 485,578
−Removed: Other non-current liabilities 9,672 6,612
−Removed: Total non-current liabilities 367,545 492,190
+Added: Long-term debt, net of current portion, discounts and debt issuance costs 604,105 357,873
+Added: Other noncurrent liabilities 18,349 9,672
+Added: Total noncurrent liabilities 622,454 367,545
Total liabilities 1,206,021 516,393
−Removed: Commitments and contingencies
+Added: Commitments and contingencies (Note 14)
+Added: Redeemable senior preferred stock:
+Added: Redeemable senior preferred stock, $ 0.001 par value per share;
+Added: 250,000 shares authorized;
+Added: 225,000 issued and outstanding at December 31, 2021;
+Added: none authorized, issued or outstanding at December 31, 2020
Stockholders' deficit:
Preferred stock, $ 0.001 par value per share;
−Removed: 100,000,000 authorized;
−Removed: zero shares issued and outstanding at December 31, 2020 and 2019.
−Removed: Common stock, par value of $ 0.001 per share;
−Removed: 1.0 billion shares authorized;
−Removed: 67,842,204 shares issued and 67,390,980 shares outstanding at December 31, 2020;
−Removed: and 67,512,167 shares issued and 67,060,943 shares outstanding at December 31, 2019.
+Added: 100,000,000 shares authorized;
+Added: none issued or outstanding at December 31, 2021 and December 31, 2020
+Added: Common stock, $ 0.001 par value per share;
+Added: 1,000,000,000 shares authorized;
+Added: 77,460,312 and 67,842,204 shares issued at December 31, 2021 and December 31, 2020, respectively;
+Added: and 76,739,896 and 67,390,980 shares outstanding at December 31, 2021 and December 31, 2020, respectively.
Additional paid-in capital 39,835 5,769
−Removed: Treasury stock, at cost ( 451,224 shares)
+Added: Treasury stock at cost, 720,416 and 451,224 shares at December 31, 2021 and December 31, 2020, respectively
( 4,091 ) ( 2,388 )
Accumulated deficit ( 100,058 ) ( 102,013 )
−Removed: Total deficit attributable to stockholders of Priority Technology Holdings, Inc.
−Removed: ( 98,564 ) ( 126,343 )
−Removed: Non-controlling interest — 5,654
Total stockholders' deficit ( 64,237 ) ( 98,564 )
−Removed: Total liabilities and stockholders' deficit $ 417,829 $ 464,505
+Added: Total liabilities, redeemable senior preferred stock and stockholders' deficit $ 1,351,942 $ 417,829
See Notes to Consolidated Financial Statements
1 unchanged sentence
Consolidated Statements of Operations
−Removed: For the Years Ended December 31, 2020, 2019, and 2018
−Removed: (in thousands, except per share amounts) Year Ended December 31,
+Added: (in thousands, except per share amounts)
+Added: Years Ended December 31,
2021 2020 2019
6 unchanged sentences
Total operating expenses 481,808 383,481 364,670
−Removed: Income from operations 20,861 7,184 16,393
−Removed: OTHER INCOME (EXPENSE):
+Added: Operating income 33,093 20,861 7,184
+Added: Other (expenses) income
Interest expense ( 36,485 ) ( 44,839 ) ( 40,653 )
−Removed: Debt extinguishment and modification expenses ( 1,899 ) — ( 2,043 )
−Removed: Gain on sale of business, net 107,239 — —
−Removed: Other income (expense), net 596 710 ( 4,741 )
−Removed: Total other income (expenses), net 61,097 ( 39,943 ) ( 36,719 )
−Removed: Income (loss) before income taxes 81,958 ( 32,759 ) ( 20,326 )
−Removed: Income tax expense (benefit) 10,899 830 ( 2,490 )
+Added: Debt extinguishment and modification costs ( 8,322 ) ( 1,899 ) —
+Added: Gain on sale of business and investment 7,643 107,239 —
+Added: Other income, net 202 596 710
+Added: Total other (expenses) income, net ( 36,962 ) 61,097 ( 39,943 )
+Added: (Loss) income before income taxes ( 3,869 ) 81,958 ( 32,759 )
+Added: Income tax (benefit) expense ( 5,258 ) 10,899 830
Net income (loss) 1,389 71,059 ( 33,589 )
−Removed: Less income attributable to redeemable and redeemed non-controlling interests ( 45,398 ) — —
−Removed: Net income (loss) attributable to stockholders of Priority Technology Holdings, Inc.
−Removed: $ 25,661 $ ( 33,589 ) $ ( 17,836 )
−Removed: Income (loss) per common share for stockholders of Priority Technology Holdings, Inc.:
+Added: Dividends and accretion attributable to redeemable senior preferred stockholders ( 18,009 ) — —
+Added: NCI preferred unit redemptions, net of deferred tax benefit ( 8,021 ) — —
+Added: Net income attributable to redeemable and redeemed NCIs — ( 45,398 ) —
+Added: Net (loss) income attributable to common stockholders $ ( 24,641 ) $ 25,661 $ ( 33,589 )
+Added: (Loss) earnings per common share:
Basic $ ( 0.34 ) $ 0.38 $ ( 0.50 )
3 unchanged sentences
Diluted 71,902 67,263 67,086
−Removed: PRO FORMA (C-corporation basis):
−Removed: Pro forma income tax benefit (unaudited) $ ( 3,169 )
−Removed: Pro forma net loss (unaudited) $ ( 17,157 )
−Removed: Loss per common share:
−Removed: basic and diluted (unaudited) $ ( 0.28 )
See Notes to Consolidated Financial Statements
Priority Technology Holdings, Inc .
−Removed: Consolidated Statements of Changes in Stockholders' Deficit
−Removed: For the Years Ended December 31, 2020, 2019, and 2018
−Removed: Year Ended December 31,
+Added: Consolidated Statements of Changes in Stockholders' Deficit and Non-Controlling Interests
(in thousands)
−Removed: Preferred Stock shares — — —
−Removed: Preferred Stock amount $ — $ — $ —
−Removed: Common Stock shares outstanding:
−Removed: Beginning balance 67,061 67,038 73,110
−Removed: Member redemptions — — ( 12,565 )
−Removed: Pro-rata adjustments and forfeitures — — ( 724 )
−Removed: Conversion of MI Acquisitions, Inc.
−Removed: shares — — 6,667
−Removed: Founders' Shares — — ( 175 )
−Removed: Vesting of share-based compensation 330 54 250
−Removed: Common stock issued for business combinations — — 475
+Added: Common Stock Treasury
+Added: Stock Additional Paid-In Capital Accumulated Deficit Deficit Attributable to Stockholders NCIs Total
+Added: Shares $ Shares $
+Added: December 31, 2018 67,038 $ 67 — $ — $ — $ ( 94,085 ) $ ( 94,018 ) $ — $ ( 94,018 )
+Added: Equity-classified stock-based compensation — — — — 3,652 — 3,652 — 3,652
+Added: Vesting of stock-based compensation 54 1 — — ( 1 ) — — — —
Warrant redemptions 420 — — — — — — — —
−Removed: Shares repurchased — ( 451 ) —
−Removed: Ending balance 67,391 67,061 67,038
−Removed: Common Stock amounts outstanding:
−Removed: Beginning balance $ 68 $ 67 $ 73
−Removed: Member redemptions — — ( 13 )
−Removed: Conversion of MI Acquisitions, Inc.
−Removed: Vesting of share-based compensation (a) 1 (a)
−Removed: Warrant redemptions — (a) —
−Removed: Ending balance $ 68 $ 68 $ 67
−Removed: Treasury Stock shares:
−Removed: Beginning balance 451 — —
−Removed: Repurchases of common stock — 451 —
−Removed: Ending balance 451 451 —
−Removed: Treasury Stock amounts:
−Removed: Beginning balance $ ( 2,388 ) $ — $ —
−Removed: Repurchases of common stock — ( 2,388 ) —
−Removed: Ending balance $ ( 2,388 ) $ ( 2,388 ) $ —
−Removed: Additional Paid-In Capital:
−Removed: Beginning balance $ 3,651 $ — $ —
−Removed: Distributions to members — — ( 7,075 )
−Removed: Member redemptions — — ( 36,548 )
−Removed: Equity-classified share-based compensation 2,118 3,652 1,063
−Removed: Vesting of share-based compensation (a) ( 1 ) —
−Removed: Conversion of MI Acquisitions, Inc.
−Removed: shares — — 49,382
−Removed: Founders' Shares — — ( 2,118 )
−Removed: Recapitalization costs — — ( 9,704 )
−Removed: Common stock issued for business combinations — — 5,000
−Removed: Ending balance $ 5,769 $ 3,651 $ —
−Removed: Priority Technology Holdings, Inc.
−Removed: Consolidated Statements of Changes in Stockholders' Deficit, continued
−Removed: For the Years Ended December 31, 2020, 2019, and 2018
−Removed: Year Ended December 31,
−Removed: (in thousands) 2020 2019 2018
−Removed: Accumulated Deficit:
−Removed: Beginning balance $ ( 127,674 ) $ ( 94,085 ) $ ( 95,978 )
−Removed: Member redemptions — — ( 28,342 )
−Removed: Net deferred income tax asset related to loss of partnership status — — 47,485
−Removed: Equity-classified shared-based compensation — — 586
−Removed: Net income (loss) attributable to stockholders of Priority Technology Holdings, Inc.
−Removed: 25,661 ( 33,589 ) ( 17,836 )
−Removed: Ending balance $ ( 102,013 ) $ ( 127,674 ) $ ( 94,085 )
−Removed: Non-Controlling Interests (NCIs):
−Removed: Beginning balance $ 5,654 $ — $ —
+Added: Share repurchases ( 451 ) — 451 ( 2,388 ) — — ( 2,388 ) — ( 2,388 )
+Added: Net (loss) income attributable to common stockholders — — — — — ( 33,589 ) ( 33,589 ) — ( 33,589 )
Issuance of NCI in subsidiary — — — — — — — 5,654 5,654
+Added: December 31, 2019 67,061 $ 68 451 $ ( 2,388 ) $ 3,651 $ ( 127,674 ) $ ( 126,343 ) $ 5,654 $ ( 120,689 )
+Added: Equity-classified stock-based compensation — — — — 2,118 — 2,118 — 2,118
+Added: Vesting of stock-based compensation 330 — — — — — — — —
+Added: Net income (loss) attributable to common stockholders — — — — — 25,661 25,661 — 25,661
Redemption of NCI in subsidiary — — — — — — — ( 5,654 ) ( 5,654 )
1 unchanged sentence
Earnings distributed to redeemable and redeemed NCIs — — — — — — — ( 45,398 ) ( 45,398 )
−Removed: Ending balance $ — $ 5,654 $ —
−Removed: Deficit attributable to stockholders of Priority Technology Holdings, Inc.
−Removed: $ ( 98,564 ) $ ( 126,343 ) $ ( 94,018 )
−Removed: NCIs — 5,654 —
−Removed: Total stockholders' deficit balance $ ( 98,564 ) $ ( 120,689 ) $ ( 94,018 )
−Removed: (a) Rounds to less than one thousand dollars.
+Added: December 31, 2020 67,391 $ 68 451 $ ( 2,388 ) $ 5,769 $ ( 102,013 ) $ ( 98,564 ) $ — $ ( 98,564 )
+Added: Equity-classified stock-based compensation — — — — 2,888 — 2,888 — 2,888
+Added: Vesting of stock-based compensation 465 — — — — — — — —
+Added: Liability-classified stock-based compensation converted to equity-classified — — — — 313 — 313 — 313
+Added: Issuance of common stock 7,551 7 — — 34,381 — 34,388 — 34,388
+Added: Exercise of stock options 174 — — — 1,195 — 1,195 — 1,195
+Added: Fair value of NCI preferred units redemption, net of deferred tax benefit — — — — ( 8,021 ) — ( 8,021 ) — ( 8,021 )
+Added: Fair value of common shares issued for NCI redemption 1,428 2 — — 9,962 — 9,964 — 9,964
+Added: Share repurchases and shares withheld for taxes ( 269 ) — 269 ( 1,703 ) — ( 1,703 ) — ( 1,703 )
+Added: Common Stock Treasury
+Added: Stock Additional Paid-In Capital Accumulated Deficit Deficit Attributable to Stockholders NCIs Total
+Added: Shares $ Shares $
+Added: Warrants issued — — — — 11,357 — 11,357 — 11,357
+Added: Dividends on redeemable senior preferred stock — — — — ( 16,164 ) — ( 16,164 ) — ( 16,164 )
+Added: Accretion of redeemable senior preferred stock — — — — ( 1,845 ) — ( 1,845 ) — ( 1,845 )
+Added: Change in estimate of tax basis differences — — — — — 566 566 — 566
+Added: Net income (loss) — — — — — 1,389 1,389 — 1,389
+Added: December 31, 2021 76,740 $ 77 720 $ ( 4,091 ) $ 39,835 $ ( 100,058 ) $ ( 64,237 ) $ — $ ( 64,237 )
See Notes to Consolidated Financial Statements
1 unchanged sentence
Consolidated Statements of Cash Flows
−Removed: For the Years Ended December 31, 2020, 2019, and 2018
−Removed: Year Ended December 31,
(in thousands)
+Added: Years Ended December 31,
+Added: 2021 2020 2019
Cash flows from operating activities:
1 unchanged sentence
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
−Removed: Gain recognized on sale of business ( 107,239 ) — —
−Removed: Transaction costs for sale of business ( 5,383 ) — —
+Added: Gain and transaction costs recognized on sale of business and investment ( 7,643 ) ( 112,622 ) —
Depreciation and amortization of assets 49,697 40,775 39,092
−Removed: Equity-classified and liability-classified share-based compensation 2,430 3,652 1,649
+Added: Stock-based compensation 3,213 2,430 3,652
Amortization of debt issuance costs and discounts 2,305 2,396 1,667
−Removed: Equity in losses and impairment of unconsolidated entities 211 23 865
−Removed: Deferred income tax expense (benefit) 5,905 ( 8,537 ) ( 2,871 )
−Removed: Change in allowance for deferred tax assets ( 2,945 ) 9,302 ( 66 )
−Removed: Change in fair value of warrant liability, net — — 3,458
−Removed: Change in fair value of contingent consideration ( 360 ) ( 620 ) —
Write-off of deferred loan costs and discount 2,580 1,523 —
+Added: Deferred income tax (benefit) provision ( 2,559 ) 2,960 765
+Added: Change in fair value of contingent consideration — ( 360 ) ( 620 )
Payment-in-kind interest ( 23,715 ) 8,573 5,126
1 unchanged sentence
Other non-cash items, net 462 444 ( 808 )
−Removed: Change in operating assets and liabilities (net of business combinations and disposal):
+Added: Change in operating assets and liabilities (net of acquisitions and sale of business and investment):
Accounts receivable ( 16,694 ) ( 5,160 ) ( 1,736 )
−Removed: Settlement assets and obligations, net 34,870 27,284 6,016
Prepaid expenses and other current assets ( 1,597 ) 303 ( 1,184 )
+Added: Income taxes (receivable) payable ( 5,107 ) ( 238 ) ( 46 )
Notes receivable 333 ( 2,230 ) ( 390 )
−Removed: Customer deposits and advance payments ( 2,045 ) 1,646 ( 1,571 )
Accounts payable and other accrued liabilities 7,018 1,343 ( 1,061 )
+Added: Customer deposits and advance payments 2,138 ( 2,045 ) 1,646
Other assets and liabilities, net ( 2,443 ) 1,298 ( 434 )
1 unchanged sentence
Cash flows from investing activities:
−Removed: Sale of business 179,416 — —
−Removed: Acquisitions of businesses — — ( 7,508 )
+Added: Acquisitions of businesses, net of cash acquired ( 407,129 ) — ( 184 )
+Added: Proceeds from sale of business and investment 15,278 179,416 —
Additions to property, equipment and software ( 9,719 ) ( 7,461 ) ( 11,118 )
1 unchanged sentence
Acquisitions of intangible assets ( 49,463 ) ( 5,559 ) ( 82,945 )
−Removed: Other investing activity — ( 184 ) —
−Removed: Net cash provided by (used in) investing activities 166,396 ( 97,747 ) ( 108,928 )
−Removed: Priority Technology Holdings, Inc.
−Removed: Consolidated Statements of Cash Flows, continued
−Removed: For the Years Ended December 31, 2020, 2019, and 2018
−Removed: Year Ended December 31,
−Removed: (in thousands) 2020 2019 2018
+Added: Net cash (used in) provided by investing activities ( 451,033 ) 166,396 ( 97,747 )
Cash flows from financing activities:
Proceeds from issuance of long-term debt, net of issue discount 607,318 — 69,650
−Removed: Repayments of long-term debt ( 110,507 ) ( 3,828 ) ( 2,834 )
−Removed: Profit distributions to non-controlling interests of subsidiaries ( 45,398 ) — —
−Removed: Redemption of non-controlling interest in subsidiary ( 5,654 ) — —
−Removed: Borrowings under revolving line of credit 7,000 14,000 8,000
−Removed: Repayments of borrowings under revolving line of credit ( 18,505 ) ( 2,500 ) ( 8,000 )
Debt issuance and modification costs (paid) refunded ( 9,073 ) ( 2,749 ) 83
−Removed: Repurchases of common stock — ( 2,388 ) —
−Removed: Distributions from equity — — ( 7,075 )
−Removed: Redemptions of equity interests — — ( 76,211 )
−Removed: Recapitalization proceeds — — 49,389
−Removed: Redemption of warrants — — ( 12,701 )
−Removed: Recapitalization costs — — ( 9,704 )
−Removed: Net cash (used in) provided by financing activities ( 175,813 ) 75,017 67,252
−Removed: Net increase (decrease) in cash and restricted cash 37,655 16,634 ( 10,328 )
−Removed: Cash and restricted cash at beginning of year 50,465 33,831 44,159
−Removed: Cash and restricted cash at end of year $ 88,120 $ 50,465 $ 33,831
−Removed: Reconciliation of cash and restricted cash:
−Removed: Cash $ 9,241 $ 3,234 $ 15,631
−Removed: Restricted cash 78,879 47,231 18,200
−Removed: Total cash and restricted cash $ 88,120 $ 50,465 $ 33,831
+Added: Repayments of long-term debt ( 361,425 ) ( 110,507 ) ( 3,828 )
+Added: Borrowings under revolving credit facility 30,000 7,000 14,000
+Added: Repayments of borrowings under revolving credit facility ( 15,000 ) ( 18,505 ) ( 2,500 )
+Added: Proceeds from the issuance of redeemable senior preferred stock, net of discount 219,062 — —
+Added: Redeemable senior preferred stock issuance fees and costs ( 8,098 ) — —
+Added: Redemption of redeemable NCI in subsidiary — ( 5,654 ) —
+Added: Repurchases of common stock and shares withheld for taxes ( 1,703 ) — ( 2,388 )
+Added: Dividends paid to redeemable senior preferred stockholders ( 7,460 ) — —
+Added: Years Ended December 31,
+Added: 2021 2020 2019
+Added: Profit distributions to redeemable non-controlling interests of subsidiaries ( 815 ) ( 45,398 ) —
+Added: Proceeds from exercise of stock options 1,196 — —
+Added: Settlement and customer accounts obligations, net 417,627 34,870 27,284
+Added: Net cash provided by (used in) financing activities 871,629 ( 140,943 ) 102,301
+Added: Net change in cash and cash equivalents, and restricted cash:
+Added: Net increase in cash and cash equivalents, and restricted cash 429,973 37,655 16,634
+Added: Cash and cash equivalents, and restricted cash at beginning of period 88,120 50,465 33,831
+Added: Cash and cash equivalents, and restricted cash equivalents at end of period $ 518,093 $ 88,120 $ 50,465
Supplemental cash flow information:
1 unchanged sentence
Cash paid for income taxes, net of refunds $ 2,212 $ 8,370 $ —
−Removed: Recognition of initial net deferred income tax asset $ — $ — $ 47,478
Non-cash investing and financing activities:
Payment-in-kind interest added to principal of debt obligations $ — $ 8,573 $ 5,126
−Removed: Purchases of property, equipment and software through accounts payable $ — $ 23 $ 50
−Removed: Payment of accrued contingent consideration for asset acquisition from offset of accounts receivable from same entity $ 1,686 $ — $ —
−Removed: Intangible assets acquired by issuing non-controlling interest in a subsidiary $ — $ 5,654 $ —
+Added: Payment of accrued contingent consideration for asset acquisition from offset of account receivable $ — $ 1,686 $ —
Accruals for asset acquisition contingent consideration $ 3,000 $ 8,332 $ 2,133
−Removed: Notes receivable from sellers used as partial consideration for business acquisitions $ — $ — $ 560
−Removed: Common stock issued as partial consideration in business acquisitions in Consumer Payments segment $ — $ — $ 5,000
−Removed: Cash consideration payable for business acquisition $ — $ — $ 184
+Added: Notes receivable from sellers used as partial consideration for acquisitions $ 3,499 $ — $ —
+Added: Purchases of property, equipment and software through accounts payable $ — $ — $ 23
+Added: Intangible assets acquired by issuing non-controlling interest in subsidiary $ — $ — $ 5,654
+Added: Non-cash additions to other noncurrent assets for right-of-use operating leases $ 234 $ — $ —
+Added: Reconciliation of cash and cash equivalents, and restricted cash:
+Added: Cash and cash equivalents $ 20,300 $ 9,241 $ 3,234
+Added: Restricted cash 28,859 78,879 47,231
+Added: Customer account balances (see Note 5 )
+Added: Total cash and cash equivalents, and restricted cash $ 518,093 $ 88,120 $ 50,465
See Notes to Consolidated Financial Statements
+Added: Priority Technology Holdings, Inc.
Notes to Consolidated Financial Statements
−Removed: NATURE OF BUSINESS AND ACCOUNTING POLICIES
−Removed: Headquartered in Alpharetta, Georgia, Priority Technology Holdings, Inc.
+Added: Nature of Business and Significant Accounting Policies
+Added: Headquartered in Alpharetta, GA, Priority Technology Holdings, Inc.
and subsidiaries (together, the "Company") began operations in 2005 with a mission to build a merchant-inspired payments platform that would advance the goals of its customers and partners.
−Removed: Today, the Company is a leading provider of merchant acquiring and commercial payment solutions, offering unique product capabilities to small and medium size businesses ("SMBs") and enterprises and distribution partners in the United States.
+Added: Our approach leverages a single platform to collect, store and send money that operates at scale.
+Added: Our technology supports high-value payments products complimented by our personalized support.
+Added: We are a leading provider to businesses, enterprises and distribution partners such as retail independent sales organizations ("ISOs"), financial institutions ("FIs"), wholesale ISOs and independent software vendors ("ISVs").
The Company operates from a purpose-built business platform that includes tailored customer service offerings and bespoke technology development, allowing the Company to provide end-to-end solutions for payment and payment-adjacent needs.
The Company provides:
−Removed: • Consumer payments processing solutions for business-to-consumer ("B2C") transactions through independent sales organizations ("ISOs"), financial institutions, independent software vendors ("ISVs"), and other referral partners.
+Added: • Small and medium-size business clients ("SMBs") payments processing solutions for business-to-consumer ("B2C") transactions through ISOs, FIs, ISVs and other referral partners.
Our proprietary MX platform for B2C payments provides merchants a fully customizable suite of business management solutions.
−Removed: • Commercial payments solutions such as automated vendor payments and professionally curated managed services to industry leading financial institutions and networks.
−Removed: Our proprietary business-to-business ("B2B") Commercial Payment Exchange (CPX) platform was developed to be a best-in-class solution for buyer/supplier payment enablement.
+Added: • Business-to-business ("B2B") payments solutions such as automated vendor payments and professionally curated managed services to industry leading FIs and networks.
+Added: Our proprietary B2B CPX platform was developed to be a best-in-class solution for buyer/supplier payment enablement.
• Institutional services (also known as Managed Services) solutions that provide audience-specific programs for institutional partners and other third parties looking to leverage the Company's professionally trained and managed call center teams for customer onboarding, assistance and support, including marketing and direct-sales resources.
−Removed: • Integrated partners solutions for ISVs and other third-parties that allow them to leverage the Company's core payments engine via robust application program interfaces ("APIs") resources and high-utility embeddable code.
+Added: • Enterprise payments solutions for ISVs and other third parties that allow them to leverage the Company's core payments engine via robust application program interfaces ("API") resources and high-utility embeddable code.
• Consulting and development solutions focused on the increasing demand for integrated payments solutions for transitioning to the digital economy.
The Company provides its services through three reportable segments:
−Removed: (1) Consumer Payments, (2) Commercial Payments, and (3) Integrated Partners.
+Added: 1) SMB Payments;
+Added: 2) B2B Payments;
+Added: and 3) Enterprise Payments.
For additional information about our reportable segments, see Note 20, Segment Information .
To provide many of its services, the Company enters into agreements with payment processors which in turn have agreements with multiple card associations.
−Removed: These card associations comprise an alliance aligned with insured financial institutions ("member banks") that work in conjunction with various local, state, territory, and federal government agencies to make the rules and guidelines regarding the use and acceptance of credit and debit cards.
−Removed: Card association rules require that vendors and processors be sponsored by a member bank and register with the card associations.
+Added: These card associations comprise an alliance aligned with insured FIs ("member banks") that work in conjunction with various local, state, territory and federal government agencies to make the rules and guidelines regarding the use and acceptance of credit and the card associations.
The Company has multiple sponsorship bank agreements and is itself a registered ISO with Visa.
1 unchanged sentence
The Company's sponsorship agreements allow the capture and processing of electronic data in a format to allow such data to flow through networks for clearing and fund settlement of merchant transactions.
−Removed: Corporate History and Recapitalization
−Removed: MI Acquisitions, Inc.
−Removed: ("MI Acquisitions") was incorporated under the laws of the state of Delaware as a special purpose acquisition company ("SPAC") whose objective was to acquire, through a merger, share exchange, asset acquisition, stock purchase, recapitalization, reorganization or other similar business combination, one or more businesses or entities.
−Removed: MI Acquisitions completed an initial public offering ("IPO") in September 2016, and MI Acquisitions' common stock began trading on The Nasdaq Capital Market with the symbol MACQ.
−Removed: In addition, MI Acquisitions completed a private placement to
−Removed: certain initial stockholders of MI Acquisitions.
−Removed: MI Acquisitions received gross proceeds of approximately $ 54.0 million from the IPO and private placement.
−Removed: On July 25, 2018, MI Acquisitions acquired all of the outstanding member equity interests of Priority Holdings, LLC ("Priority") in exchange for the issuance of MI Acquisitions' common stock (the "Business Combination") from a private placement.
−Removed: As a result, Priority, which was previously a privately-owned company, became a wholly-owned subsidiary of MI Acquisitions.
−Removed: Simultaneously with the Business Combination, MI Acquisitions changed its name to Priority Technology Holdings, Inc.
−Removed: and its common stock began trading on The Nasdaq Global Market with the symbol PRTH.
−Removed: As a SPAC, MI Acquisitions had substantially no business operations prior to July 25, 2018.
−Removed: For financial accounting and reporting purposes under accounting principles generally accepted in the United States ("U.S.
−Removed: GAAP"), the acquisition was accounted for as a "reverse merger," with no recognition of goodwill or other intangible assets.
−Removed: Under this method of accounting, MI Acquisitions was treated as the acquired entity whereby Priority was deemed to have issued common stock for the net assets and equity of MI Acquisitions consisting mainly of cash of $ 49.4 million, accompanied by a simultaneous equity recapitalization (the "Recapitalization") of Priority.
−Removed: The net assets of MI Acquisitions are stated at historical cost and, accordingly, the equity and net assets of the Company have not been adjusted to fair value.
−Removed: As of July 25, 2018, the consolidated financial statements of the Company include the combined operations, cash flows, and financial positions of both MI Acquisitions and Priority.
−Removed: Prior to July 25, 2018, the results of operations, cash flows, and financial position are those of Priority.
−Removed: The units and corresponding capital amounts and earnings per unit of Priority prior to the Recapitalization have been retroactively revised as shares reflecting the exchange ratio established in the Recapitalization.
−Removed: The Company's President, Chief Executive Officer and Chairman controls a majority of the voting power of the Company's outstanding common stock.
−Removed: As a result, the Company is a "controlled company" within the meaning of the corporate governance standards of the Nasdaq Stock Market, LLC ("Nasdaq").
−Removed: Emerging Growth Company
−Removed: The Company is an "emerging growth company" (EGC), as defined in the Jumpstart Our Business Startups Act of 2012 ("JOBS Act").
−Removed: The Company may remain an EGC until December 31, 2021.
−Removed: However, if the Company's non-convertible debt issued within a rolling three-year period or if its revenue for any year exceeds $1.07 billion, the Company would cease to be an EGC immediately, 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.
−Removed: 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.
−Removed: Additionally, the Company as an EGC 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.
−Removed: As such, the Company's financial statements may not be comparable to companies that comply with public company effective dates.
+Added: Emerging Growth Company Status
+Added: Prior to December 31, 2021, the Company was an emerging growth company ("EGC"), as defined in the Jumpstart Our Business Startups Act of 2012 ("JOBS Act"), and elected to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies until the Company is no longer an EGC, including using the extended transition period for complying with new or revised accounting standards.
+Added: On December 31, 2021, we ceased to qualify as an EGC and have adopted any new standards that we are now required to adopt.
Basis of Presentation and Consolidation
−Removed: The accompanying consolidated financial statements include those of the Company and its controlled subsidiaries.
−Removed: All intercompany accounts and transactions have been eliminated upon consolidation.
−Removed: Investments in unconsolidated affiliated companies are accounted for under the equity method and are included in "Other non-current assets" in the accompanying consolidated balance sheets.
+Added: The accompanying Consolidated Financial Statements include the accounts of the Company and its majority-owned subsidiaries.
+Added: All material intercompany balances and transactions have been eliminated in consolidation.
+Added: Investments in unconsolidated affiliated companies are accounted for under the equity method and are included in other noncurrent assets in the accompanying Consolidated Balance Sheets.
The Company generally utilizes the equity method of accounting when it has an ownership interest of between 20% and 50% in an entity, provided the Company is able to exercise significant influence over the investee's operations.
Use of Estimates
−Removed: The preparation of consolidated financial statements in conformity with U.S.
−Removed: GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reported period.
+Added: The preparation of Consolidated Financial Statements in conformity with accounting principles generally accepted in the U.S.
+Added: GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenues and expenses during the reported period.
Actual results could materially differ from those estimates.
−Removed: Components of Revenues and Expenses
−Removed: See Note 3 , Revenue , for information about our revenue.
−Removed: Costs of Services
−Removed: Costs of services primarily consist of residual payments to ISOs and other direct costs of providing payment services.
−Removed: The residual payments represent commissions paid to ISOs and are generally based upon a percentage of the net revenues generated from merchant transactions.
−Removed: Other costs of services consist of third-party costs related to the Company's commercial payment services, ACH processing services, salaries that are reimbursed under cost-plus business process outsourcing services, and the cost of equipment (point of sale terminals).
−Removed: Selling, General and Administrative
−Removed: Selling, general and administrative expenses include mainly professional services, advertising, rent, office supplies, software licenses, utilities, state and local franchise and sales taxes, litigation settlements, executive travel, insurance, and expenses related to the Business Combination.
−Removed: Interest Expense
−Removed: Interest expense consists of interest on outstanding debt and amortization of deferred financing costs and original issue discounts.
−Removed: Other, net is composed of interest income, changes in fair value of warrant liabilities, and equity in losses and impairment of unconsolidated entities.
−Removed: Interest income consists mainly of interest received pursuant to notes receivable from independent sales agents and another entity (see Note 6 , Notes Receivable ).
−Removed: Equity in loss and impairment of unconsolidated entities consists of the Company's share of the income or loss of its equity method investment as well as any impairment charges related to such investments.
−Removed: At December 31, 2020, the Company no longer has any investments that are accounted for under the equity method.
−Removed: Changes in fair value of warrant liability relates to a warrant that was fully redeemed in 2018.
−Removed: Debt Extinguishment and Modification Expenses
−Removed: Debt extinguishment expenses represents the write-offs of unamortized deferred financing costs and original issue discount relating to the extinguishment, including partial extinguishment, of debt.
−Removed: Debt modification expenses represents amounts paid to third parties to modify existing debt agreements when those amounts are not eligible for capitalization.
−Removed: Earnings Attributable to Redeemable and Redeemed Non-Controlling Interests
−Removed: Represents the earnings and gains that are attributable to the non-controlling equity interests of certain of the Company's consolidated subsidiaries based on the operating agreements of the subsidiaries.
−Removed: See the "Non-Controlling" section under the following header for "Significant Accounting Policies."
−Removed: Net Income (Loss) Attributable to Stockholders of Priority Technology Holdings, Inc.
−Removed: Represents the net income or loss attributable to the stockholders of Priority Technology Holdings, Inc.
−Removed: after subtracting earnings, gains, or losses of consolidated subsidiaries that are attributable to the non-controlling equity interests of the subsidiaries.
−Removed: Comprehensive Income (Loss)
−Removed: Comprehensive income (loss) represents the sum of net income (loss) and other amounts that are not included in the consolidated statement of operations as the amounts have not been realized.
−Removed: For the years ended December 31, 2020, 2019, and 2018, there were no differences between the Company's net income (loss) and comprehensive income (loss).
−Removed: Therefore, no separate Statements of Other Comprehensive Income (Loss) are included in the financial statements for the reporting periods.
Significant Accounting Policies
Revenue Recognition
+Added: The Company applies the five-step model to assess its contracts with customers.
+Added: At contract inception, the Company assesses the services and goods promised in its contracts with customers and identifies the performance obligation for each promise to transfer a distinct good or service to the customer.
The Company recognizes revenue when it satisfies a performance obligation by transferring a service or good to the customer in an amount to which the Company expects to be entitled (i.e., transaction price) allocated to the distinct services or goods.
−Removed: The Company uses the 5-step model in ASC 606 to determine when and how much revenue to recognize:
−Removed: Step 1 - Identify the contract with the customer
−Removed: Step 2 - Identify the performance obligation
−Removed: Step 3 - Determine the transaction price
−Removed: Step 4 - Allocate the transaction price to the performance obligation
−Removed: Step 5 - Recognize revenue when (or as) the Company satisfies the performance obligation
−Removed: Instead of evaluating each contract with a customer on an individual basis, the Company elects the permitted practical expedient that allows it to use the portfolio approach for many of its contracts since this approach’s impact on the financial statements, when applied to a group of contracts (or performance obligations) with similar characteristics, is not materially different from the impact of applying the revenue standard on an individual contract basis.
+Added: The Company has elected the permitted practical expedient that allows it to use the portfolio approach for many of its contracts since this approach's impact on the financial statements, when applied to a group of contracts (or performance obligations) with similar characteristics, is not materially different from the impact of applying the revenue standard on an individual contract basis.
Under the portfolio practical expedient, collectability is still assessed at the individual contract level when determining if a contract exists.
−Removed: Deferred revenues are not material for any reporting period.
−Removed: The Company's reportable segments are organized by services the Company provides through distinct business units.
−Removed: Set forth below is a description of the Company's revenue recognition polices by segment.
−Removed: Consumer Payments - Revenue in this segment represents merchant card fee revenues, which involves promises to the customer for services related to the electronic authorization, acceptance, processing, and settlement of credit, debit and electronic benefit payment transactions through the payment networks.
−Removed: Merchants, who are the Company’s customers, are charged rates which are based on various factors, including the type of bank card, card brand, merchant charge volume, the merchant's industry and the merchant's risk profile.
−Removed: Typically, revenues generated from these transactions are based on a variable percentage of the dollar amount of each transaction, and in some instances, additional fees are charged for each transaction.
−Removed: The Company's merchant contracts involve three parties:
−Removed: the Company, the merchant and the sponsoring bank.
−Removed: The Company's sponsoring banks collect the gross merchant discount from the card holder’s issuing bank, pay the interchange fees and assessments to the payment networks and credit card associations, retain their fees, and pay to the Company the remaining amount which represents the Company's revenue.
−Removed: The Company recognizes its revenue net of the amounts retained by these third parties.
−Removed: Company incurs internal costs and costs of other third parties related to processing services.
−Removed: Merchant customers may also be charged miscellaneous fees, including statement fees, annual fees, and monthly minimum fees, fees for handling chargebacks, gateway fees and fees for other miscellaneous services.
−Removed: Commercial Payments - This segment provides business-to-business ("B2B") automated payment services for customers, including virtual payments, purchase cards, electronic funds transfers, ACH payments, and check payments.
−Removed: Revenues are generally earned on a per-transaction basis and are recognized by the Company net of certain third-party costs for interchange fees, assessments to the payment networks, credit card associations, and sponsor bank fees.
−Removed: In this segment, a portion of the revenue is rebated to certain customers, and these rebates are reported as a reduction of revenue.
−Removed: Additionally, this segment provides outsourced business process services by providing a sales force to certain enterprise customers.
−Removed: Such business process services are provided on a cost-plus fee arrangement and revenue is recognized to the extent of billable rates times hours worked and other reimbursable costs incurred.
−Removed: For most performance obligations associated with outsourced services that are satisfied over time, the Company applies the permitted practical expedient known as the “invoice practical expedient” that allows the Company to recognize revenue in the amount of consideration to which the Company has the right to invoice when that amount corresponds directly to the value transferred to the customer.
−Removed: Integrated Partners - The Integrated Partners segment earns revenue by providing services for payment-adjacent technologies that facilitate the acceptance of electronic payments from customers who conduct business in the rental real estate, rental storage, medical, and hospitality industries.
+Added: The Company has elected to exclude any contracts with an original duration of one year or less and any variable consideration that meets specified criteria from its disclosure of the aggregate amount of the transaction price allocated to unsatisfied performance.
+Added: In delivering payment services to the customer, the Company may also provide a limited license agreement to the customer for the use of one or more of the Company's proprietary cloud-based software applications.
+Added: The Company grants a right to use its software applications only when the customer has contracted with the Company to receive related payment services.
+Added: When combined with the underlying payment services, the license and the payment services provided to the customer are a single stand-ready obligation and the Company's performance obligation is defined by each time increment, rather than by the underlying activities, (quantity and timing of which is not determinable), satisfied over time based on days elapsed.
+Added: In order to provide our payment services, we obtain authorization for the transaction and request funds settlement from the card issuing financial institution through the payment network.
+Added: When third parties are involved in the transfer of services or goods to the customer, the Company considers the nature of each specific promised service or good and applies judgment to determine whether the Company controls the service or good before it is transferred to the customer or whether the Company is acting as an agent of the third party.
+Added: To determine whether the Company controls the service or good, it assesses indicators including:
+Added: 1) which party is primarily responsible for fulfillment;
+Added: 2) which party has discretion in determining pricing for the service or good;
+Added: and 3) other considerations deemed to be applicable to the specific situation.
+Added: Based on our assessment of these indicators, we have concluded that the promise to our customers to provide payment services is distinct from the services provided by the card issuing financial institutions and payment networks in connection with payment transactions.
+Added: We do not have the ability to direct the use of and obtain substantially all of the benefits of the services provided by the card issuing financial institutions and payment networks before those services are transferred to our customer, and on that basis, we do not control those services prior to being transferred to our customer.
+Added: As a result, we present our revenues net of the interchange fees retained by the card issuing financial institutions and the fees charged by the payment networks.
+Added: SMB Payments – The Company's SMB Payments segment enables the Company's customers to accept card, electronic and digital-based payments at the point of sale by providing a suite of services including authorization, settlement and funding, customer support and help-desk functions, chargeback resolution, payment security, consolidated billing and statements, and online reporting
+Added: The Company's SMB Payments segment enables the Company's customers to accept card, electronic and digital-based payments at the point of sale by providing a suite of services including authorization, settlement and funding, customer support and help-desk functions, chargeback resolution, payment security, consolidated billing and statements, and online reporting.
+Added: Typically, revenues generated from these transactions are based on a variable percentage of the dollar amount of each transaction, and in some instances, additional fees (e.g., statement fees, annual fees and monthly minimum fees, fees for handling chargebacks, gateway fees and fees for other miscellaneous services) are charged for each transaction.
+Added: The Company's sponsoring banks collect the gross merchant discount from the card holder's issuing bank, pay the interchange fees and assessments to the payment networks and credit card associations, retain their fees, and pay to the Company the net amount which represents the Company's revenue.
+Added: The Company also earns revenue and commissions from resale of electronic POS equipment.
+Added: B2B Payments – The Company's B2B Payments segment enables the Company's customers to automate their accounts payable and other commercial payments functions with the Company's payment services that utilize physical and virtual payment cards as well as ACH transactions.
+Added: In addition, the Company provides cost-plus-fee turn-key business process outsourcing and assists commercial customers with programs that are designed to increase acceptance of electronic payments.
+Added: Revenues are generally earned on a per-transaction basis and are recognized by the Company net of certain third-party costs for interchange fees, assessments to the payment networks, credit card associations fees, sponsor bank fees and rebates to customers.
+Added: For outsourcing services, revenue is recognized to the extent of billable rates times hours worked and other reimbursable costs incurred.
+Added: For performance obligations associated with outsourced services that are satisfied over time, the Company applies the permitted practical expedient known as the "right to invoice practical expedient" that allows the Company to recognize revenue in the amount of consideration to which the Company has the right to invoice when that amount corresponds directly to the value transferred to the customer.
+Added: Enterprise Payments – The Company's Enterprise Payments segment uses payment-adjacent technologies to facilitate the acceptance of electronic payments from customers.
+Added: Revenue from the Enterprise Payments segment consists of the following:
+Added: • Enrollment fees :
+Added: The revenue associated with enrollment fees is recognized upon the receipt of a fully executed enrollment application, completion of the customer account setup, data verification and the constructive receipt of the applicable non-refundable fee.
+Added: • Subscription fees :
+Added: The Company recognizes monthly subscription fees as recurring maintenance fees each month during the term of the client's enrollment.
+Added: Revenue from transaction-based fees is recognized upon constructive receipt of transaction fees for payments to creditors issued ACH payments, paper checks or wire transfers.
+Added: These fees are transferred to the Company from the client account balances, which may be maintained by the Company in money transmission license trust accounts or by partner banks.
+Added: • Interest revenue :
+Added: Interest revenue is derived from certain client cash deposit balances maintained in interest bearing accounts with select partner banks.
+Added: • Customer relationship management ("CRM") and consulting fees :
+Added: CRM license fees are recognized on a monthly basis and consulting fees are recognized when services are performed.
A substantial portion of this segment's revenues are earned as an agent of a third party, and therefore this earned revenue is reported as a net amount within revenue.
−Removed: Cash and Restricted Cash
−Removed: Cash includes cash held at financial institutions that is owned by the Company.
−Removed: Restricted cash is held by the Company in financial institutions for the purpose of in-process customer settlements or reserves held per contact terms.
+Added: Transaction Price Allocated to Future Performance Obligations
+Added: Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers, ("ASC 606") requires disclosure of the aggregate amount of the transaction price allocated to unsatisfied performance obligations.
+Added: However, as allowed by ASC 606, the Company has elected to exclude from this disclosure any contracts with an original duration of one year or less and any variable consideration that meets specified criteria.
+Added: As described above, the Company's most significant performance obligations consist of variable consideration under a stand-ready series of distinct days of service.
+Added: Such variable consideration meets the specified criteria for the disclosure exclusion.
+Added: Therefore, the majority of the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied is variable consideration that is not required for this disclosure.
+Added: The aggregate fixed consideration portion of customer contracts with an initial contract duration greater than one year is not material.
+Added: Contracts with Customers and Contract Costs
+Added: The Company accrues and pays commission expense based on variable merchant payment volumes and for certain customer service and other services provided by its ISOs.
+Added: Since commissions expenses are accrued and paid to ISOs on a monthly basis after the merchant enters into a new or renewed contract, these are not deemed to be a cost to acquire a new contract but they are reported within costs of services on our Consolidated Statements of Operations.
+Added: The ISO is typically an independent contractor or agent of the Company.
+Added: The Company may occasionally elect to buy out all or a portion of an ISO's rights to receive future commission payments related to certain merchants.
+Added: Amounts paid to the ISO for these residual buyouts are capitalized by the Company under the accounting guidance for intangible assets and included in intangible assets, net on our Consolidated Balance Sheets.
+Added: A contract with a customer creates a legal right and obligation.
+Added: As the Company performs under customer contracts, its right to consideration that is unconditional is considered to be accounts receivable.
+Added: If the Company's right to consideration for such performance is contingent upon a future event or satisfaction of additional performance obligations, the amount of revenues recognized in excess of the amount billed to the customer is recognized as a contract asset.
+Added: Contract liabilities represent consideration received from customers in excess of revenues recognized.
+Added: Material contract assets and liabilities are presented net at the individual contract level in the Consolidated Balance Sheets and are classified as current or noncurrent based on the nature of the underlying contractual rights and obligations.
+Added: Cash and Cash Equivalents and Restricted Cash
+Added: Cash and cash equivalents includes highly liquid instruments with an original maturity of three months or less, and cash held at FIs that is owned by the Company.
+Added: Restricted cash is held by the Company in FIs for the purpose of in-process customer settlements or reserves held per contact terms.
Accounts Receivable
−Removed: Accounts receivable are stated net of allowance for doubtful accounts and are amounts primarily due from the Company's sponsor banks for revenues earned, net of related interchange and processing fees, and do not bear interest.
+Added: Accounts receivable is stated net of allowance for doubtful accounts and are amounts primarily due from the Company's sponsor banks for revenues earned, net of related interchange and processing fees, and do not bear interest.
Other types of accounts receivable are from agents, merchants and other customers.
3 unchanged sentences
Accounts receivable and notes receivable are written off when deemed uncollectible.
−Removed: Recoveries of accounts receivable and notes receivable, if any, previously written off are recognized when received.
−Removed: The allowance for doubtful accounts was $ 0.6 million and $ 0.8 million at December 31, 2020 and 2019, respectively.
−Removed: The allowance for doubtful notes receivable was $ 0.5 million and zero at December 31, 2020 and 2019, respectively.
+Added: Recoveries of accounts receivable and notes receivable previously written off, if any, are recognized when received.
+Added: The allowance for doubtful accounts was $ 0.6 million at December 31, 2021 and 2020.
+Added: As of December 31, 2021, there was no allowance for doubtful notes receivable.
+Added: The allowance for doubtful notes receivable was $ 0.5 million at December 31, 2020.
Customer Deposits and Advance Payments
The Company may receive cash payments from certain customers and vendors that require future performance obligations by the Company.
−Removed: Amounts associated with obligations expected to be satisfied within one year are reported in Customer deposits and advance payments on the Company's consolidated balance sheets and amounts associated with obligations expected to be satisfied after one year are reported as a component of Other non-current liabilities on the Company's consolidated balance sheets.
+Added: Amounts associated with obligations expected to be satisfied within one year are reported in customer deposits and advance payments on the Company's Consolidated Balance Sheets and amounts associated with obligations expected to be satisfied after one year are reported as a component of other noncurrent liabilities on the Company's Consolidated Balance Sheets.
These payments are subsequently recognized in the Company's Consolidated Statements of Operations when the Company satisfies the performance obligations required to retain and earn these deposits and advance payments.
A vendor may make an upfront payment to the Company to offset costs that the Company incurs to integrate the vendor into the Company's operations.
−Removed: These upfront payments are deferred by the Company and are subsequently amortized against expense
−Removed: in its statement of operations as the related costs are incurred by the Company in accordance with the agreement with the vendor.
−Removed: Property and Equipment, Including Leases
−Removed: Property and equipment are stated at cost, except for property and equipment acquired in a merger or business combination, which is recorded at fair value at the time of the transaction.
+Added: These upfront payments are deferred by the Company and are subsequently amortized against expense in its Consolidated Statements of Operations as the related costs are incurred by the Company in accordance with the agreement with the vendor.
+Added: Property and Equipment
+Added: Property and equipment are stated at cost, except for property and equipment acquired in a business combination, which is recorded at fair value at the time of the transaction.
Depreciation is calculated using the straight-line method over the estimated useful lives of the assets.
−Removed: The Company has multiple operating leases related to office space.
−Removed: Operating leases do not involve transfer of risks and rewards of ownership of the leased asset to the lessee, therefore the Company expenses the costs of its operating leases.
−Removed: The Company may make various alterations (leasehold improvements) to the office space and capitalize these costs as part of property and equipment.
−Removed: Leasehold improvements are generally amortized on a straight-line basis over the useful life of the improvement or the term of the lease, whichever is shorter.
Expenditures for repairs and maintenance which do not extend the useful life of the respective assets are charged to expense as incurred.
3 unchanged sentences
Costs incurred to develop computer software for internal use are capitalized once:
−Removed: (1) the preliminary project stage is completed, (2) management authorizes and commits to funding a specific software project, and (3) it is probable that the project will be completed and the software will be used to perform the function intended.
+Added: 1) the preliminary project stage is completed;
+Added: 2) management authorizes and commits to funding a specific software project;
+Added: and 3) it is probable that the project will be completed and the software will be used to perform the function intended.
Costs incurred prior to meeting the qualifications are expensed as incurred.
1 unchanged sentence
Post-implementation costs related to the internal-use computer software, are expensed as incurred.
−Removed: Internal use software development costs are amortized using the straight-line method over its estimated useful life which generally ranges from three to five years .
+Added: Internal-use software development costs are amortized using the straight-line method over the estimated useful life of the software, which generally ranges from three to five years .
Software development costs may become impaired in situations where development efforts are abandoned due to the viability of the planned project becoming doubtful or due to technological obsolescence of the planned software product.
1 unchanged sentence
For the years ended December 31, 2021, 2020 and 2019, the Company capitalized software development costs of $ 7.8 million, $ 7.1 million and $ 8.2 million, respectively.
−Removed: As of December 31, 2020 and 2019, capitalized software development costs, net of accumulated amortization, totaled $ 16.4 million and $ 14.9 million, respectively, and is included in property, equipment, and software, net on the consolidated balance sheets.
−Removed: Amortization expense for capitalized software development costs for the years ended December 31, 2020, 2019, and 2018 was $ 5.3 million, $ 4.1 million, and $ 2.6 million, respectively, and are included in depreciation and amortization in the accompanying consolidated statements of operations.
−Removed: Settlement Assets and Obligations
−Removed: Settlement processing assets and obligations recognized on the Company's consolidated balance sheet represent intermediary balances arising in the Company's settlement process for merchants and other customers.
−Removed: See Note 5 , Settlement Assets and Obligations .
+Added: As of December 31, 2021 and 2020, capitalized software development costs, net of accumulated amortization, totaled $ 18.3 million and $ 16.4 million, respectively, and are included in property, equipment and software, net on the Consolidated Balance Sheets.
+Added: Amortization expense for capitalized software development costs for the years ended December 31, 2021, 2020 and 2019 was $ 5.9 million, $ 5.3 million and $ 4.1 million, respectively, and are included in depreciation and amortization on the Consolidated Statements of Operations.
+Added: Other Intangible Assets
+Added: Other intangible assets are initially recorded at cost or fair value when acquired in connection with a business combination.
+Added: The carrying value of an intangible asset acquired in an asset acquisition may subsequently be increased for contingent consideration when due to the seller and such amounts can be estimated.
+Added: The portion of any unpaid purchase price that is contingent on future activities is not initially recorded by the Company on the date of acquisition.
+Added: Rather, the Company
+Added: recognizes contingent consideration when it becomes probable and estimable.
+Added: All of the Company's intangible assets, except goodwill and money transmission licenses, have finite lives and are subject to amortization.
+Added: Intangible assets consist of acquired merchant portfolios, customer relationships, ISO and referral partner relationships, residual buyouts, trade names, technology, non-compete agreements and money transmission licenses.
+Added: Intangible Asset Nature Estimated Useful Life
+Added: ISO and Referral Partner Relationships acquired relationships with ISOs and referral partners 11 - 25 years
+Added: Residual Buyouts surrender of rights to receive commissions by ISOs 3 - 9 years
+Added: Customer Relationships acquired customer relationships 2 - 15 years
+Added: Merchant Portfolios acquired rights to a portfolio of merchants 5 - 10 years
+Added: Technology acquired proprietary software and website domains 7 - 10 years
+Added: Trade Names and Non-compete Agreements acquired trade names and non-compete agreements 5 - 12 years
+Added: Money Transmission Licenses acquired licenses to collect, store and send money in the U.S.
+Added: and Puerto Rico indefinite
+Added: Impairment of Long-lived Assets
+Added: The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable.
+Added: For long-lived assets, except goodwill, an impairment loss is indicated when the undiscounted future cash flows estimated to be generated by the asset group are not sufficient to recover the carrying value of the asset group.
+Added: If indicated, the loss is measured as the excess of carrying value over the asset groups' fair value, as determined based on discounted future cash flows.
+Added: The Company concluded there were no indications of impairment for the years ended December 31, 2021 and 2019.
+Added: For the year ended December 31, 2020, the Company recognized an impairment charge of $ 1.8 million for a residual buyout intangible asset.
+Added: See Note 8, Goodwill and Other Intangible Assets .
+Added: The Company tests goodwill for impairment on an annual basis, or when events occur or circumstances indicate the fair value of a reporting unit is below its carrying value.
+Added: If the fair value of a reporting unit is less than its carrying value, an impairment loss is recorded to the extent that implied fair value of the goodwill within the reporting unit is less than its carrying value.
+Added: See Note 8, Goodwill and Other Intangible Assets .
+Added: The Company adopted Accounting Standards Update ("ASU") 2016-02, Leases and its related interpretations, codified as ASC 842 ("ASC 842"), as of January 1, 2021, applying the optional transition approach available whereby the new lease standard is applied at the adoption date recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption, if applicable, and prior periods are not restated.
+Added: Upon adoption the Company recorded right-of-use ("ROU") assets of approximately $ 7.4 million and related operating lease obligations of approximately $ 8.4 million.
+Added: There was no impact to the opening balance of retained earnings.
+Added: Under ASC 842
+Added: The Company evaluates lease and service arrangements at lease inception to determine if a lease is or contains a lease.
+Added: Lease arrangements are evaluated at their commencement date to determine classification as operating or finance.
+Added: Operating leases are reported as part of other noncurrent assets, accounts payable and accrued expenses and other noncurrent liabilities on the Company's Consolidated Balance Sheets.
+Added: Finance leases, if applicable, are reported as part of property, equipment and software, net, and debt on the Company's Consolidated Balance Sheets.
+Added: Leases with a term of twelve months or less are not included on the Company's Balance Sheets.
+Added: The Company does not separate lease and non-lease components.
+Added: Certain estimates and assumptions are made when determining the value of ROU assets and the related liabilities, including when establishing the lease term and discount rates and variable lease payments (e.g., rent escalations tied to changes in the Producer Price Index).
+Added: The lease term for all of the Company's leases includes the non-cancelable period of the lease adjusted for any renewal or termination options the Company is reasonably certain to exercise.
+Added: The lease payment stream includes any rent escalation that is required under certain lease agreements.
+Added: The Company's leases generally do not provide an implicit rate of interest, nor is it readily determinable by the Company, and as such the Company uses its incremental borrowing rate in determining the discounted value of the lease payments.
+Added: Lease expense and depreciation expense, if applicable, are recognized on a straight-line basis over the term of the lease.
+Added: Prior to the Adoption of ASC 842
+Added: The Company has multiple operating leases related to office space.
+Added: Operating leases do not involve transfer of risks and rewards of ownership of the leased asset to the lessee, therefore the Company expenses the costs of its operating leases.
+Added: The Company may make various alterations (leasehold improvements) to the office space and capitalize these costs as part of property and equipment.
+Added: Leasehold improvements are generally amortized on a straight-line basis over the useful life of the improvement or the term of the lease, whichever is shorter.
+Added: Settlement Assets and Customer Account Balances and Related Obligations
+Added: Settlement assets and customer account balances and the related obligations recognized on the Company's Consolidated Balance Sheets represent intermediary balances arising in the Company's settlement process for merchants and other customers.
+Added: See Note 5, Settlement Assets and Customer Account Balances and Related Obligations .
Debt Issuance and Modification Costs
1 unchanged sentence
Debt issuance costs associated with Company's term debt are presented on the Company's Consolidated Balance Sheets as a direct reduction in the carrying value of the associated debt liability.
+Added: Debt modification costs represents amounts paid to third parties to modify existing debt agreements when those amounts are not eligible for capitalization.
Business Combinations
The Company uses the acquisition method of accounting for business combinations which requires assets acquired and liabilities assumed to be recognized at their fair values on the acquisition date.
−Removed: Goodwill represents the excess of the purchase
−Removed: price over the fair value of the net assets acquired.
+Added: Goodwill represents the excess of the purchase price over the fair value of the net assets acquired.
The fair values of the assets acquired and liabilities assumed are determined based upon the valuation of the acquired business and involves making significant estimates and assumptions based on facts and circumstances that existed as of the acquisition date.
2 unchanged sentences
Non-controlling Interests
−Removed: The Company issued non-voting profit-sharing interests in three of its subsidiaries that were formed in 2018 or 2019 to acquire the operating assets of certain businesses (see Note 4 , Asset Acquisitions, Asset Contributions , and Business Combinations ).
−Removed: The Company is the majority owner of these subsidiaries and therefore the profit-sharing interests are deemed to be non-controlling interests ("NCI").
−Removed: To estimate the initial fair value of a profit-sharing interest, the Company utilized future cash flow scenarios with focus on those cash flow scenarios that could result in future distributions to the NCIs.
+Added: The Company previously issued non-voting profit-sharing interests in three of its subsidiaries that were formed in 2019 or 2018 to acquire the operating assets of certain businesses, which were deemed to be NCIs.
+Added: As of December 31, 2021, the Company's NCIs have all been fully redeemed.
+Added: See Note 3, Acquisitions and Note 6, Disposal of Business for more details related to the redemptions in 2021 and 2020.
+Added: To estimate the initial fair value of a profit-sharing interest, the Company utilized future cash flow scenarios with a focus on those cash flow scenarios that could result in future distributions to the NCIs.
Profits or losses are attributed to an NCI based on the hypothetical-liquidation-at-book-value method that utilizes the terms of the profit-sharing agreement between the Company and the NCIs.
−Removed: As the majority owner, the Company has call rights on the profit-sharing interests issued to the NCIs.
−Removed: These call rights can be executed only under certain circumstances and execution is always voluntary at the Company's discretion.
−Removed: The call rights do not meet the definition of a free-standing financial instrument or derivative, thus no separate accounting is required for these call rights.
Based on the LLC agreements for these three subsidiaries, in certain instances the NCIs are entitled to certain earnings of the respective subsidiary.
1 unchanged sentence
All material earnings attributable to the NCIs for the year ended December 31, 2020 were simultaneously distributed to the NCIs.
−Removed: As disclosed in Note 2 , Disposal of Business , the NCIs of one of these subsidiaries, Priority Real Estate Technology, LLC, were fully redeemed during the year ended December 31, 2020.
−Removed: At December 31, 2020, the NCIs of one of the other subsidiaries, Priority PayRight Health Solutions, LLC, have also been fully redeemed and only one of the subsidiaries, Priority Hospitality Technology, LLC, has NCIs at December 31, 2020.
−Removed: See Note 4 , Asset Acquisitions, Asset Contributions , and Business Combinations .
−Removed: The Company tests goodwill for impairment for its reporting units on an annual basis, or when events occur or circumstances indicate the fair value of a reporting unit is below its carrying value.
−Removed: If the fair value of a reporting unit is less than its carrying value, an impairment loss is recorded to the extent that implied fair value of the goodwill within the reporting unit is less than its carrying value.
−Removed: See N ote 7 , Goodwill and Other Intangible Assets .
−Removed: Other Intangible Assets
−Removed: Other Intangible assets are initially recorded at cost upon acquisition by the Company.
−Removed: The carrying value of an intangible asset acquired in an asset acquisition may be subsequently increased for contingent consideration when due to the seller and such amounts can be estimated.
−Removed: The portion of any unpaid purchase price that is contingent on future activities is not initially recorded by the Company on the date of acquisition.
−Removed: Rather, the Company recognizes contingent consideration when it becomes probable and estimable.
−Removed: All of the Company's intangible assets, except Goodwill, have finite lives and are subject to amortization.
−Removed: Intangible assets consist of acquired merchant portfolios, customer relationships, ISO relationships, residual buyouts, trade names, technology, and non-compete agreements.
−Removed: Merchant portfolios
−Removed: Merchant portfolios consist of the acquired rights to a portfolio of merchants such as those acquired from Direct Connect Merchant Services, LLC, and YapStone, Inc.
−Removed: The Company amortizes the cost of its acquired merchant portfolios over their estimated useful lives, which generally range from five years to six years using a straight-line amortization method.
−Removed: Customer Relationships
−Removed: Customer relationships represent the cost of the acquired customer relationship, which typically consists of a portfolio of merchants or contracted business relationships.
−Removed: The Company amortizes the cost of its acquired customer relationships over their estimated useful lives, which generally range from 10 years to 15 years, using either a straight-line or an accelerated amortization method that most accurately reflects the pattern in which the economic benefits of the respective asset is consumed.
−Removed: ISO Relationships
−Removed: ISO relationships represent the cost of acquired relationships with ISOs.
−Removed: The Company amortizes the cost of its acquired ISO relationships over their estimated useful lives, which generally range from 11 years to 25 years, using an accelerated amortization method that most accurately reflects the pattern in which the economic benefits of the respective asset is consumed.
−Removed: Residual Buyouts
−Removed: Most of the Company's merchant customers in its Consumer Payments reportable segment are associated with independent ISOs, and these ISOs typically have a right to receive commissions from the Company based on the revenue earned by the associated merchants.
−Removed: The Company may occasionally decide to pay an ISO an agreed-upon amount in exchange for the ISO's surrender of its right to receive future commissions from the Company.
−Removed: The amount that the Company pays for these residual buyouts is capitalized and subsequently amortized over the expected life of the underlying merchant relationships.
−Removed: These amortization periods generally range between 1 year and 9 years and the Company uses either a straight-line or an accelerated amortization method that most accurately reflects the pattern in which the economic benefits of the respective asset is consumed.
−Removed: Technology intangible assets represent acquired technology, such as proprietary software and website domains.
−Removed: The Company amortizes the cost of acquired technology over their estimated useful lives, which generally range between 6 years and 7 years, using a straight-line amortization method that most accurately reflects the pattern in which the economic benefits of the respective asset is consumed.
−Removed: Trade Names and Non-Compete Agreements
−Removed: These intangible assets are amortized over their estimated useful lives, which generally ranging between 5 years and 12 years, using a straight-line amortization method.
−Removed: All non-compete agreements were fully amortized at December 31, 2020 and 2019.
−Removed: Impairment of Long-lived Assets
−Removed: The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable.
−Removed: For long-lived assets, except goodwill, an impairment loss is indicated when the undiscounted future cash flows estimated to be generated by the asset group are not sufficient to recover the unamortized balance of the asset group.
−Removed: If indicated, the loss is measured as the excess of carrying value over the asset groups' fair value, as determined based on discounted future cash flows.
−Removed: The Company concluded there were no indications of impairment for the years ended December 31, 2019 and 2018.
−Removed: For the year ended December 31, 2020, the Company recognized impairment charges of $ 1.8 million for a residual buyout intangible asset.
−Removed: See Note 7 , Goodwill and Other Intangible Assets .
Accrued Residual Commissions
−Removed: Accrued residual commissions consist of amounts due to independent sales organizations ("ISOs") and independent sales agents based on a percentage of the net revenues generated from the Company's merchant customers.
+Added: Accrued residual commissions consist of amounts due to ISOs and independent sales agents based on a percentage of the net revenues generated from the Company's merchant customers.
Percentages vary based on the program type and transaction volume of each merchant.
1 unchanged sentence
ISO Deposit and Loss Reserve
−Removed: ISOs may partner with the Company in an executive partner program in which ISOs are given negotiated pricing in exchange for bearing risk of loss.
+Added: ISOs may partner with the Company in an exclusive partner program in which ISOs are given negotiated pricing in exchange for bearing risk of loss.
Through the arrangement, the Company accepts deposits on behalf of the ISO and a reserve account is established by the Company.
All amounts maintained by the Company are included in the accompanying Consolidated Balance Sheets as other liabilities, which are directly offset by restricted cash accounts owned by the Company.
−Removed: Share-Based Compensation
−Removed: The Company recognizes the cost resulting from all share-based payment transactions in the financial statements at grant date fair value.
−Removed: Share-based compensation expense is recognized over the requisite service period and is reflected in salary and employee benefits expense on the Company's consolidated statements of operations.
+Added: Stock-based Compensation
+Added: The Company recognizes the cost resulting from all stock-based payment transactions in the financial statements at grant date fair value.
+Added: Stock-based compensation expense is recognized over the requisite service period and is reflected in salary and employee benefits expense on the Company's Consolidated Statements of Operations.
Awards generally vest over two or three years and may not vest evenly over the vesting period.
The effects of forfeitures are recognized as they occur.
−Removed: The Company measures a liability award under a share-based payment arrangement based on the award’s fair value remeasured at each reporting date until the date of settlement.
+Added: The Company measures a liability award under a stock-based payment arrangement based on the award's fair value remeasured at each reporting date until the date of settlement.
Compensation cost for each period until settlement is based on the change (or a portion of the change, depending on the percentage of the requisite service that has been rendered at the reporting date) in the fair value of the instrument for each reporting period.
12 unchanged sentences
An increase in the expected term will increase the fair value of the stock option and the related compensation expense.
−Removed: Dividend yield - The Company used an amount of zero as the Company has paid no cash or stock dividends and does not anticipate doing so in the foreseeable future.
+Added: Dividend yield – The Company uses an amount of zero as the Company has paid no cash or stock dividends and does not anticipate doing so in the foreseeable future.
An increase in the dividend yield will decrease the fair value of the stock option and the related compensation expenses.
+Added: If a participant terminates employment with the Company, vested options may be exercised for a short period of time while unvested options are forfeited.
+Added: However, in any event, a stock option will expire ten years from the date of grant.
Time-based restricted stock awards
1 unchanged sentence
Performance-based restricted stock awards
−Removed: The Company accounts for its performance-based restricted equity awards based on the quoted closing price of the Company's common stock on the date of grant, adjusted for any market-based vesting criteria, and records shared-based compensation expense over the vesting term of the awards based on the probability that the performance criteria will be achieved.
+Added: The Company accounts for its performance-based restricted stock awards based on the quoted closing price of the Company's common stock on the date of grant, adjusted for any market-based vesting criteria, and records stock-based compensation expense over the vesting term of the awards based on the probability that the performance criteria will be achieved.
The performance goals may be work-related goals for the individual recipient and/or based on certain corporate performance goals.
−Removed: The Company reassesses the probability of vesting at each reporting period and prospectively adjusts share-based compensation expense based on its probability assessment.
−Removed: Additionally, if performance goals are set or reset on an annual basis, compensation cost is recognized in any reporting period only for performance-based RSU awards in which the performance goals have been established and communicated to the award recipient.
+Added: The Company reassesses the probability of vesting at each reporting period and prospectively adjusts stock-based compensation expense based on its probability assessment.
+Added: Additionally, if performance goals are set or reset on an annual basis, compensation cost is recognized in any reporting period only for performance-based restricted stock awards in which the performance goals have been established and communicated to the award recipient.
Repurchased Stock
Pursuant to the provisions of ASC 505-30, Treasury Stock , the Company has elected to apply the cost method when accounting for treasury stock resulting from the repurchase of its common stock.
−Removed: Under the cost method, the gross cost of the shares reacquired is charged to a contra equity account labeled Treasury Stock.
+Added: Under the cost method, the gross cost of the shares reacquired is charged to a contra equity account, treasury stock.
The equity accounts that were originally credited for the original share issuance, common stock and additional paid-in capital, remain intact.
8 unchanged sentences
If there is a net loss in any period, basic and diluted EPS are computed in the same manner.
−Removed: The two-class method determines net income (loss) per common share for each class of common stock and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings.
−Removed: The two-class method requires income available to common shareholders for the period to be allocated between common stock and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed.
−Removed: Prior to redemption in July 2018, the Goldman Sachs warrants were deemed to be participating securities because they had a contractual right to participate in non-forfeitable dividends on a one-for-one basis with the Company's common stock.
−Removed: Accordingly, the Company applied the two-class method for EPS when computing net income (loss) per common share.
−Removed: For periods beginning after September 30, 2018, EPS using the two-class method is no longer required due to the redemption of the Goldman Sachs warrant.
−Removed: See Note 10 , Long-term Debt and Warrant Liability .
−Removed: Prior to July 25, 2018, Priority was a "pass-through" entity for income tax purposes and had no material income tax accounting reflected in its financial statements since taxable income and deductions were "passed through" to Priority's unconsolidated owners.
−Removed: As a limited liability company, Priority Holdings, LLC elected to be treated as a partnership for the purpose of filing income tax returns, and as such, the income and losses of Priority Holdings, LLC flowed through to its members.
−Removed: no provisions for federal and most state income taxes was provided in the consolidated financial statements.
−Removed: However, periodic distributions were made to members to cover company-related tax liabilities.
−Removed: MI Acquisitions was a taxable "C-Corp" for income tax purposes.
−Removed: As a result of Priority's acquisition by MI Acquisitions, the combined Company is now a taxable "C-Corp" that reports all of Priority's income and deductions for income tax purposes.
−Removed: Accordingly, subsequent to July 25, 2018, the consolidated financial statements of the Company reflect the accounting for income taxes in accordance with Financial Accounting Standards Board 's ("FASB") Accounting Standards Codification ("ASC") 740, Income Taxes ("ASC 740").
The Company accounts for income taxes under the asset and liability method.
5 unchanged sentences
Under the measurement step, the tax benefit is measured as the largest amount of benefit that is more likely than not to be realized upon effective settlement.
−Removed: This is determined on a cumulative probability basis.
+Added: This is determined on a cumulative
+Added: probability basis.
The full impact of any change in recognition or measurement is reflected in the period in which such change occurs.
11 unchanged sentences
In certain circumstances, the discounted cash flow analysis is corroborated by a market-based approach that utilizes comparable company public trading values and, where available, values observed in public market transactions.
−Removed: The carrying values of accounts and notes receivable, accounts payable and accrued expenses, long-term debt and cash, including settlement assets and the associated deposit liabilities approximate fair value due to either the short-term nature of such instruments or the fact that the interest rate of the debt is based upon current market rates.
−Removed: New Accounting and Reporting Standards
−Removed: Prior to July 25, 2018, Priority was defined as a non-public entity for purposes of applying transition guidance related to new or revised accounting standards under U.S.
−Removed: GAAP, and as such was typically required to adopt new or revised accounting standards subsequent to the required adoption dates that applied to public companies.
−Removed: MI Acquisitions was classified as an EGC.
−Removed: Subsequent to the Business Combination, the Company will cease to be an EGC no later than December 31, 2021.
−Removed: The Company will maintain the election available to an EGC to use any extended transition period applicable to non-public companies when complying with a new or revised accounting standards.
−Removed: Therefore, as long as the Company retains EGC status, the Company can continue to elect to adopt any new or revised accounting standards on the adoption date (including early adoption) required for a private company.
−Removed: Accounting Standards Adopted in 2020
−Removed: Disclosures for Fair Value Measurements (ASU 2018-13)
−Removed: On January 1, 2020, the Company adopted Accounting Standards Update ("ASU") No.
−Removed: 2018-13, Fair Value Measurement (Topic 820):
−Removed: Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement ("ASU 2018-13").
−Removed: ASU 2018-13 eliminated, added, and modified certain disclosure requirements for fair value measurements as part of the Financial Accounting Standards Board's ("FASB") disclosure framework project.
−Removed: Certain amendments must be applied prospectively while others are applied on a retrospective basis to all periods presented.
−Removed: As disclosure guidance, the adoption of this ASU had no effect on the Company's results of operations, financial position, or cash flows for the year ended December 31, 2020.
−Removed: Note 1 7 , Fair Value , reflects the disclosure provisions of ASU 2018-13.
−Removed: Share-Based Payments to Non-Employees (ASU 2018-07)
−Removed: In June 2018, the FASB issued ASU 2018-07, Share-based Payments to Non-Employees , to simplify the accounting for share-based payments to non-employees by aligning it with the accounting for share-based payments to employees, with certain exceptions.
−Removed: As an EGC, the ASU was effective for the Company's annual reporting period that began on January 1, 2020 and will be effective for interim periods beginning first quarter of 2021.
−Removed: The adoption of ASU 2018-07 had no material effect on the Company's results of operations, financial position, or cash flows for the year ended December 31, 2020.
−Removed: Share-Based Payments to Customers (ASU 2019-08)
−Removed: In November 2019, the FASB issued ASU 2019-08, Stock Compensation and Revenue from Contracts with Customers ("ASU 2019-08").
−Removed: ASU 2019-08 applies to share-based payments granted in conjunction with the sale of goods and services to a customer that are not in exchange for a distinct good or service.
−Removed: Entities apply ASC 718 to measure and classify share-based sales incentives, and reflect the measurement of such incentives, as a reduction of the transaction price and also recognize such incentives in accordance with the guidance in ASC 606 on consideration payable to a customer.
−Removed: Entities that receive distinct goods or services from a customer account for the share-based payment in the same manner as they account for other purchases from suppliers (i.e., by applying the guidance in ASC 718).
−Removed: Any excess of the fair-value-based measure of the share-based payment award over the fair value of the distinct goods or services received is reflected as a reduction to the transaction price and recognized in accordance with the guidance in ASC 606 on consideration payable to a customer.
−Removed: ASU 2019-08 was effective for the Company at the same time it adopted ASU 2018-07, which was for its annual reporting period that began January 1, 2020 and will be effective for interim periods beginning first quarter 2021.
−Removed: The adoption of ASU 2018-07 had no material effect on the Company's results of operations, financial position, or cash flows for the year ended December 31, 2020.
−Removed: Accounting Standards Adopted in 2019
−Removed: Revenue Recognition (ASC 606) and Related Costs to Obtain or Fulfill a Contracts with Customers (ASC 340-40)
−Removed: For the annual reporting period that began on January 1, 2019, the Company adopted ASU 2014-09 and the other clarifications and technical guidance issued by the Financial Accounting Standards Board ("FASB") related to this new revenue standard that
−Removed: have been collectively codified in ASC 606, Revenue from Contracts with Customers, and the related ASC Subtopic 340-40, Other Assets and Deferred Costs - Contracts with Customers, (together, "ASC 606").
−Removed: As an emerging growth company, the Company adopted ASC 606 under the extended transition provisions available to a non-public business entity.
−Removed: Accordingly, the Company was not required to report under the new standards until the Company’s annual reporting period for the year ended December 31, 2019.
−Removed: In reporting the effects of the adoption of ASC 606 in its consolidated financial statements and related disclosures, the Company elected the full retrospective transition method.
−Removed: Under this method, all annual periods presented herein in these consolidated financial statements and related disclosures have been retrospectively recasted to reflect the provisions of ASC 606.
−Removed: In connection with the Company’s evaluation and adoption of ASC 606, the classification of certain transactions previously presented in revenue at their gross amounts were re-evaluated under the principal-agent guidance were retrospectively recasted within the Company’s statements of operations to a net presentation.
−Removed: There were no other adjustments as the result of the adoption of ASC 606 and, accordingly, no adjustment was required to the Company’s beginning retained earnings (deficit) at January 1, 2017 to reflect the cumulative effect of initially applying the new standards.
−Removed: The adoption of ASC 606 resulted only in offsetting reclassifications between revenues and costs of services within the same reporting periods.
−Removed: Accordingly, these reclassifications did not have any impact on income from operations, income (loss) before income taxes, net income (loss), assets, liabilities, stockholders’ deficit, or cash flows for any period.
−Removed: Gains and Losses from Derecognition of Non-Financial Assets (ASU 2017-05)
−Removed: Concurrent with the adoption of ASC 606, the Company was also required to adopt the provisions of ASU 2017-05, Other Income-Gains and Losses from the Derecognition of Non-financial Assets ("ASU 2017-05").
−Removed: ASU 2017-05 clarifies that the guidance in ASC 610-20 on accounting for derecognition of a non-financial asset and an in-substance non-financial asset applies only when the asset or asset group does not meet the definition of a business or is not a non-for-profit entity.
−Removed: Non-financial assets include, but are not limited to, intangible assets, property and equipment.
−Removed: This ASU also clarifies that the provisions of ASC 606 apply if an entity transfers an asset to a customer.
−Removed: If an asset transfer in within the scope of ASU 2017-05, an entity measures its gain or loss on derecognition of each distinct asset as the difference between the amount of consideration received and the carrying amount of the distinct asset.
−Removed: The adoption of ASU 2017-05 had no impact on the Company's results of operations, financial position, or cash flows for the year ended December 31, 2019.
−Removed: However, the application of ASU 2017-05 to future transactions could be material.
−Removed: Measurements of Certain Equity Investments (ASU 2016-01)
−Removed: Under ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, entities have to measure equity investments (except those accounted for under the equity method, those that result in consolidation of the investee and certain other investments) at fair value and recognize any changes in fair value in net income.
−Removed: However, for equity investments that do not have readily determinable fair values and do not qualify for the existing practical expedient in ASC 820 to estimate fair value using the net asset value per share (or its equivalent) of the investment, the guidance provides a new measurement alternative.
−Removed: Entities may choose to measure those investments at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.
−Removed: The Company early adopted the provisions of ASU 2016-01 on April 1, 2019 and applied them to an acquired warrant to purchase equity of another entity, the same entity that borrowed $ 3.5 million from the Company during 2019 under a $ 10.0 million loan and loan commitment agreement.
−Removed: The carrying value, at cost, and fair value of the warrant were not material.
−Removed: See Note 13 , Related Party Matters .
−Removed: Statement of Cash Flows (ASU 2016-15)
−Removed: In August 2016, the FASB issued ASU No.
−Removed: 2016-15, Statement of Cash Flows (Topic 230).
−Removed: This ASU represents a consensus of the FASB's Emerging Issues Task Force on eight separate issues that each impact classifications on the statement of cash flows.
−Removed: In particular, issue number three addresses the classification of contingent consideration payments made after a business combination.
−Removed: Under ASU 2016-15, cash payments made soon after an acquisition's consummation date (i.e., approximately three months or less) will be classified as cash outflows from investing activities.
−Removed: Payments made thereafter will be classified as cash outflows from financing activities up to the amount of the original contingent consideration liability.
−Removed: Payments made in excess of the amount of the original contingent consideration liability will be classified as cash outflows from operating activities.
−Removed: As an EGC, this ASU was effective for the Company's annual reporting period beginning in 2019 and was effective for interim periods beginning in 2020.
−Removed: The Company made no payments in 2020 or 2019 for contingent consideration related to business combinations.
−Removed: Income Taxes for Intra-Entity Transfers of Assets Other Than Inventory (ASU 2016-16)
−Removed: In October 2016, the FASB issued ASU 2016-16, Intra-Entity Transfers of Assets Other Inventory ("ASU 2016-16").
−Removed: ASU 2016-16 removes the prohibition in ASC 740 against the immediate recognition of the current and deferred income tax effects of intra-entity transfers of assets other than inventory.
−Removed: The ASU is intended to reduce the complexity of U.S.
−Removed: GAAP and diversity in practice related to the tax consequences of certain types of intra-entity asset transfers, particularly those involving intellectual property.
−Removed: ASU 2016-16 was effective for the Company's annual reporting period ended December 31, 2019 and interim periods beginning in 2020.
−Removed: The adoption of ASU 2016-16 did not have a material effect on the Company's results of operations, financial position, or cash flows.
−Removed: However, any future inter-entity transfers of assets within scope of this ASU may be affected.
−Removed: Accounting Standards Adopted in 2018
−Removed: Modifications to Share-Based Compensation Awards (ASU 2017-09)
−Removed: As of January 1, 2018, the Company adopted Accounting Standards Update ("ASU") No.
−Removed: 2017-09, Compensation-Stock Compensation Topic 718 - Scope of Modification Accounting ("ASU 2017-09").
−Removed: ASU 2017-09 clarifies when changes to the terms and conditions of share-based payment awards must be accounted for as modifications.
−Removed: Entities apply the modification accounting guidance if the value, vesting conditions, or classification of an award changes.
−Removed: The Company has not modified any share-based payment awards since the adoption of ASU 2017-09, therefore this new ASU has had no impact on the Company's financial position, operations, or cash flows.
−Removed: Should the Company modify share-based payment awards in the future, it will apply the provisions of ASU 2017-09.
−Removed: Balance Sheet Classification of Deferred Income Taxes (ASU 2015-17)
−Removed: In connection with the Business Combination and Recapitalization, the Company prospectively adopted the provisions of ASU No.
−Removed: 2015-17, Balance Sheet Classification of Deferred Taxes ("ASU 2015-17"), during the third quarter of 2018.
−Removed: ASU 2015-17 simplifies the balance sheet presentation of deferred income taxes by reporting the net amount of deferred tax assets and liabilities for each tax-paying jurisdiction as non-current on the balance sheet.
−Removed: Prior guidance required the deferred taxes for each tax-paying jurisdiction to be presented as a net current asset or liability and net non-current asset or liability.
−Removed: Definition of a Business (ASU 2017-01)
−Removed: On October 1, 2018, the Company prospectively adopted the provisions of ASU No.
−Removed: 2017-01, Business Combinations (Topic 805):
−Removed: Clarifying the Definition of a Business ("ASU 2017-01") .
−Removed: ASU 2017-01 assists entities in determining if acquired assets constitute the acquisition of a business or the acquisition of assets for accounting and reporting purposes.
−Removed: The guidance requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets;
−Removed: if so, the set of transferred assets and activities is not a business.
−Removed: In practice prior to ASU 2017-01, if revenues were generated immediately before and after a transaction, the acquisition was typically considered a
−Removed: The Company's December 2018 acquisition of certain assets of Direct Connect Merchant Services, LLC was not deemed to be the acquisition of a business under ASU 2017-01 because substantially all of the fair value was concentrated in a single identifiable group of similar identifiable assets.
−Removed: Accounting for Share-Based Payments to Employees (ASU 2016-09)
−Removed: For its annual reporting period beginning January 1, 2018, the Company adopted the provisions of ASU 2016-09, Improvements to Employee Share-Based Payment Accounting ("ASU 2016-09"), which amends ASC Topic 718, Compensation–Stock Compensation .
−Removed: This adoption had the following effects:
−Removed: Consolidated Statement of Operations - ASU 2016-09 imposes a new requirement to record all of the excess income tax benefits and deficiencies (that result from an increase or decrease in the value of an award from grant date to settlement date) related to share-based payments at settlement through the statement of operations instead of the former requirement to record income tax benefits in excess of compensation cost ("windfalls") in equity, and income tax deficiencies ("shortfalls") in equity to the extent of previous windfalls, and then to operations.
−Removed: This change is required to be applied prospectively upon adoption of ASU 2016-09 to all excess income tax benefits and deficiencies resulting from settlements of share-based payments after the date of adoption.
−Removed: This particular provision of ASU 2016-09 had no material effect on the Company's financial position, operations, or cash flows.
−Removed: Consolidated Statement of Cash Flows - ASU 2016-09 requires that all income tax-related cash flows resulting from share-based payments, such as excess income tax benefits, are to be reported as operating activities on the statement of cash flows, a change from the prior requirement to present windfall income tax benefits as an inflow from financing activities and an offsetting outflow from operating activities.
−Removed: This particular provision of ASU 2016-09 had no material effect on the Company's financial position, operations, or cash flows.
−Removed: Additionally, ASU 2016-09 clarifies that:
−Removed: • All cash payments made to taxing authorities on an employee's behalf for withheld shares at settlement are presented as financing activities on the statement of cash flows.
−Removed: This change must be applied retrospectively.
−Removed: This particular provision of ASU 2016-09 had no material effect on the Company's financial position, operations, or cash flows.
−Removed: • Entities are permitted to make an accounting policy election for the impact of forfeitures on the recognition of expense for share-based payment awards.
−Removed: Forfeitures can be estimated or recognized when they occur.
−Removed: Estimates of forfeitures will still be required in certain circumstances, such as at the time of modification of an award or issuance of a replacement award in a business combination.
−Removed: If elected, the change to recognize forfeitures when they occur needs to be adopted using a modified retrospective approach, with a cumulative effect adjustment recorded to opening retained earnings.
−Removed: The Company made a policy election to recognize the impact of forfeitures when they occur.
−Removed: This policy election primarily impacted the Company's new equity compensation plans originating in 2018 (see Note 15, Share -Based Compensation ) , thus not requiring a cumulative effect adjustment to opening retained earnings for these new plans.
−Removed: For the Company's previously existing equity compensation plan (the Management Incentive Plan), see Note 15, Share -Based Compensation .
−Removed: The amount of the cumulative effect upon adoption of ASU 2016-09 was not material and therefore has not been reflected in opening retained earnings on the Company's consolidated balance sheets or consolidated statements of changes in stockholders' deficit.
+Added: The carrying values of accounts and notes receivable, accounts payable and accrued expenses, long-term debt and cash, including settlement assets and the associated deposit liabilities, approximate their fair values due to either the short-term nature of such instruments or the fact that the interest rate of the debt is based upon current market rates.
+Added: The Company does not currently have any fair value estimates that are required to be remeasured at the end of each reporting period on a recurring basis.
+Added: Foreign Currency
+Added: The Company's reporting currency is the U.S.
+Added: Assets and liabilities denominated in a foreign currency are translated into U.S.
+Added: dollars at the current exchange rate on the last day of the reporting period.
+Added: Revenues and expenses are translated using the average exchange rate in effect during the reporting period.
+Added: Foreign exchange translation and transaction gains and losses were not material for the periods presented and are included in the Consolidated Statements of Operations.
+Added: Recently Adopted Accounting Standards
+Added: As an EGC, the Company made an election under Section 107(b)(1) of the JOBS Act to take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act, for complying with new or revised accounting standards and has been following requirements applicable to the private companies for adopting new and updated accounting standards.
+Added: On December 31, 2021, the Company ceased to qualify as an EGC, and accordingly adopted new accounting standards when applicable for non-EGC, smaller reporting company filers.
+Added: Leases (ASC 842)
+Added: In February 2016, the FASB issued ASU 2016-02, Leases , codified as ASC 842.
+Added: Under this new guidance, lessees are required to recognize for all leases (with the exception of short-term leases):
+Added: 1) a lease liability equal to the lessee's obligation to make lease payments arising from a lease, measured on a discounted basis and 2) a ROU asset which will represent the lessee's right to use, or control the use of, a specified asset for the lease term.
+Added: On December 31, 2021, we ceased to qualify as an EGC, and therefore, we adopted ASC 842 and its related interpretations as of January 1, 2021.
+Added: In the adoption of ASC 842, the Company
+Added: used the optional transition approach available under ASU 2018-11, Leases.
+Added: Under the optional transition approach, which the new lease standard is applied at the adoption date recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption, if applicable, and prior periods are not restated.
+Added: The Company elected to adopt the package of practical expedients pursuant to which it has not reassessed:
+Added: 1) whether existing or expired contracts contain a lease;
+Added: 2) lease classification for existing or expired leases;
+Added: or 3) the accounting for initial direct costs that were previously capitalized.
+Added: The Company has also elected the practical expedients available under the standard and has made accounting policy elections to:
+Added: 1) exclude short-term leases from the balance sheets;
+Added: and 2) not separate lease and non-lease components.
+Added: The Company did not elect the practical expedient to use hindsight in determining lease terms for existing leases and when assessing existing ROU assets for impairment.
+Added: Upon adoption we recognized approximately $ 7.4 million for ROU assets and approximately $ 8.4 million for the related operating lease obligations.
+Added: There was no impact to the opening balance of retained earnings.
+Added: The Company does not expect the new accounting standard to have a material effect on future financial results.
+Added: Implementation Costs Incurred in Cloud Computing Arrangements
+Added: In August 2018, the FASB issued ASU 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract ("ASU 2015-15"), 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).
+Added: The Company adopted ASU 2018-15 on January 1, 2021, electing to apply the amendments prospectively to all implementation costs incurred after adoption.
+Added: The adoption of this ASU did not impact the Company's Consolidated Financial Statements, as there were no implementation costs incurred for hosting arrangements that are service contracts during 2021.
+Added: Simplifying the Accounting for Income Taxes
+Added: In December 2019, the FASB issued 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.
+Added: The amendments in this update remove certain exceptions to the general principles in ASC 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.
+Added: ASU 2019-12 also clarifies and amends existing guidance to improve consistency in the 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.
+Added: The adoption of ASU 2019-12 on January 1, 2021 did not have a material effect on our Consolidated Financial Statements.
+Added: Goodwill Impairment Testing (ASU 2017-04)
+Added: In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350):
+Added: Simplifying the Test for Goodwill Impairment ("ASU 2017-04").
+Added: ASU 2017-04 eliminates the requirement to calculate the implied fair value of goodwill (i.e., step 2 of the current goodwill impairment test) to measure a goodwill impairment charge.
+Added: Instead, entities will record an impairment charge based on the excess of a reporting unit's carrying amount over its fair value (i.e., measure the charge based on the current step 1).
+Added: Any impairment charge will be limited to the amount of goodwill allocated to an impacted reporting unit.
+Added: ASU 2017-04 will not change the current guidance for completing Step 1 of the goodwill impairment test, and an entity will still be able to perform the current optional qualitative goodwill impairment assessment before determining whether to proceed to Step 1.
+Added: The Company adopted ASU 2017-04 on January 1, 2021, and there was no impact to the Company's Consolidated Financial Statements.
Recently Issued Accounting Standards Pending Adoption
The following standards are pending adoption and will likely apply to the Company in future periods based on the Company's current business activities.
−Removed: Implementation Costs Incurred in Cloud Computing Arrangements (ASU 2018-15)
−Removed: 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
−Removed: 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).
−Removed: As an EGC, this ASU will be effective for the Company's annual reporting period beginning January 1, 2021, and will be effective for interim periods beginning in 2022.
−Removed: The amendments are applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption, and the Company has not yet made a determination to use the retrospective or prospective adoption method.
−Removed: Based on current operations of the Company, the adoption of ASU 2018-15 is not expected to have a material effect on the Company's results of operations, financial position, or cash flows.
−Removed: Reference Rate Reform (ASU 2020-04)
−Removed: On March 12, 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting.
−Removed: 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.
−Removed: 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.
−Removed: An entity that makes this election would not have to remeasure the contact at the modification date or reassess a previous accounting determination.
−Removed: ASU 2021-01 ASU 2020-04 can be adopted at any time before December 31, 2022.
−Removed: 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.
−Removed: Leases (ASC 842)
−Removed: In February 2016, the FASB issued new lease accounting guidance in ASU No.
−Removed: 2016-02, Leases-Topic 842 , which has been codified in ASC 842, Leases .
−Removed: Under this new guidance, lessees will be required to recognize for all leases (with the exception of short-term leases):
−Removed: 1) a lease liability equal to the lessee's obligation to make lease payments arising from a lease, measured on a discounted basis and 2) a right-of-use asset which will represent the lessee's right to use, or control the use of, a specified asset for the lease term.
−Removed: As an EGC, this standard is effective for the Company's annual and interim reporting periods beginning 2022.
−Removed: The adoption of ASC 842 will require the Company to recognize non-current assets and liabilities for right-of-use assets and operating lease liabilities on its consolidated balance sheet, but it is not expected to have a material effect on the Company's results of operations or cash flows.
−Removed: ASC 842 will also require additional footnote disclosures to the Company's consolidated financial statements.
−Removed: Credit Losses (ASU 2016-13 and ASU 2018-19)
−Removed: In June 2016, the FASB issued ASU No.
−Removed: 2016-13, Financial Instruments-Credit Losses (Topic 326):
−Removed: Measurement of Credit Losses on Financial Instruments .
+Added: Reference Rate Reform
+Added: In March 2020, the FASB issued ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting , which provides temporary optional expedients and exceptions to the GAAP guidance on contract modifications and hedge
+Added: 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.
+Added: 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.
+Added: An entity that makes this election would not have to remeasure the contract at the modification date or reassess a previous accounting determination.
+Added: In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848), Scope ("ASU 2021-01"), which clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition.
+Added: These updates can be adopted at any time before December 31, 2022.
+Added: The Company is currently evaluating the potential impact that ASU 2021-01 may have on the Consolidated Financial Statements.
+Added: Credit Losses
+Added: In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments ("ASU 2016-13").
This new guidance will change how entities account for credit impairment for trade and other receivables, as well as for certain financial assets and other instruments.
4 unchanged sentences
The standard will require entities to record a cumulative-effect adjustment to the balance sheet as of the beginning of the first reporting period in which the guidance is effective.
−Removed: The Company is currently evaluating the potential impact that ASU 2016-13 may have on the timing of recognizing future provisions for expected losses on the Company's accounts receivable and notes receivable.
−Removed: Since the Company was a smaller reporting company ("SRC") on November 15, 2019, the Company must adopt this new standard no later than the beginning of 2023 for annual and interim reporting periods.
−Removed: Goodwill Impairment Testing (ASU 2017-04)
−Removed: In January 2017, the FASB issued ASU No.
−Removed: 2017-04, Intangibles-Goodwill and Other (Topic 350):
−Removed: Simplifying the Test for Goodwill Impairment .
−Removed: ASU 2017-04 will eliminate the requirement to calculate the implied fair value of goodwill (i.e., step 2 of the current goodwill impairment test) to measure a goodwill impairment charge.
−Removed: Instead, entities will record an impairment charge based on the excess of a reporting unit's carrying amount over its fair value (i.e., measure the charge based on the current step 1).
−Removed: Any impairment charge will be limited to the amount of goodwill allocated to an impacted reporting unit.
−Removed: ASU 2017-04 will not change the current guidance for completing Step 1 of the goodwill impairment test, and an entity will still be able to perform the current optional qualitative goodwill impairment assessment before determining whether to proceed to Step 1.
−Removed: Upon adoption, the ASU will be applied prospectively.
−Removed: Since the Company was a SRC on November 15, 2019, the Company must adopt this new standard no later than the beginning of 2023 for annual and interim reporting periods.
−Removed: 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.
−Removed: Simplifying the Accounting for Income Taxes (ASU 2019-12)
−Removed: In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes ("ASU 2019-12").
−Removed: ASU 2019-12 will affect several topics of income tax accounting, including:
−Removed: tax-basis step-up in goodwill obtained in a transaction that is not a business combination;
−Removed: intra-period tax allocation;
−Removed: ownership changes in investments when an equity method investment becomes a subsidiary of an entity;
−Removed: interim-period accounting for enacted changes in tax law;
−Removed: and year-to-date loss limitation in interim-period tax accounting.
−Removed: This ASU is effective for the Company on January 1, 2022.
−Removed: We are evaluating the effect of ASU 2019-12 on our consolidated financial statements.
+Added: The Company is currently evaluating the potential impact that this update may have on the timing of recognizing future provisions for expected losses on the Company's accounts receivable and notes receivable.
+Added: Since the Company is a smaller reporting company, the Company must adopt this new standard no later than the beginning of 2023 for annual and interim reporting periods.
+Added: Business Combinations
+Added: In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805):
+Added: Accounting for Contract Assets and Contract Liabilities from Contracts with Customers ("ASU 2021-08"), which requires entities to recognize and measure contract assets and liabilities acquired in a business combination in accordance with ASC 606, as if the acquirer had originated the contracts.
+Added: Generally this will result in the acquirer recognizing and measuring the acquired contract assets and liabilities consistent with the manner by which they were recognized and measured by the acquiree.
+Added: This update is effective for the Company on January 1, 2023, including interim periods within those fiscal years.
+Added: The impact that ASU 2021-08 may have on the Company's Consolidated Financial Statements will depend on the circumstances of any business combination that may occur after adoption.
Concentration of Risk
A substantial portion of the Company's revenues and receivables are attributable to merchants.
−Removed: For the years ended December 31, 2020, 2019, and 2018, no one merchant customer accounted for 10% or more of the Company's consolidated revenues.
+Added: For the years ended December 31, 2021, 2020 and 2019, no individual 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 move the underlying merchant relationships to another merchant acquirer upon notice to the Company and completion of a "wind down" period.
−Removed: For the years ended December 31, 2020, 2019, and 2018, merchants referred by one ISO organization with merchant portability rights generated revenue within the Company's Consumer Payments reportable segment that represented approximately 21 %, 18 %, and 14 %, respectively, of the Company's consolidated revenues.
−Removed: A majority of the Company's cash and restricted cash is held in certain financial institutions, substantially all of which is in excess of federal deposit insurance corporation limits.
+Added: For the years ended December 31, 2021, 2020 and 2019, merchants referred by one ISO organization with merchant portability rights generated revenue within the Company's SMB Payments reportable segment that represented approximately 22 %, 21 % and 18 %, respectively, of the Company's consolidated revenues.
+Added: A majority of the Company's cash and restricted cash is held in certain FIs, substantially all of which is in excess of federal deposit insurance corporation limits.
The Company does not believe it is exposed to any significant credit risk from these transactions.
Reclassifications
−Removed: Certain prior year amounts in these consolidated financial statements have been reclassified to conform to the current year presentation, with no net effect on the Company's income from operations, income (loss) before income tax expense (benefit), net income (loss), stockholders' deficit, or cash flows from operations, investing, or financing activities.
+Added: Certain prior year amounts in these Consolidated Financial Statements have been reclassified to conform to the current year presentation, with no net effect on the Company's operating income, income (loss) before income tax expense (benefit), net income (loss), stockholders' deficit.
+Added: We reclassified certain cash flows related to settlement assets and customer account balances and the related obligations from net cash provided by operating activities to net cash provided by (used in) financing activities within the Consolidated Statements of Cash Flows.
+Added: Prior period amounts have been reclassified to conform to the current period presentation.
+Added: These changes have no impact on our previously reported consolidated net income, financial position or net increase in cash and cash equivalents.
+Added: The current period presentation classifies all changes in settlement and customer account balance obligations on our Consolidated Statements of Cash Flows as net cash provided by (used in) financing activities.
+Added: The current period presentation provides a more meaningful representation of the cash flows related to the movement of settlement assets and customer account balances due to the restrictions on and use of those funds.
+Added: The following tables present the effects of the changes on the presentation of these cash flows to the previously reported consolidated statements of cash flows:
+Added: (in thousands) Years Ended December 31,
+Added: Net cash provided by operating activities:
+Added: Historically reported $ 47,072 $ 39,364
+Added: Adjustment ( 34,870 ) ( 27,284 )
+Added: Reclassified 12,202 12,080
+Added: Net cash (used in) provided by financing activities:
+Added: Historically reported ( 175,813 ) 75,017
+Added: Adjustment 34,870 27,284
+Added: Reclassified $ ( 140,943 ) $ 102,301
+Added: The Company adopted ASC 842 and its related interpretations effective January 1, 2021, using the optional transition approach available under ASU 2018-11, Leases , under which the new lease standard is applied at the adoption date recognizing a cumulative-effect adjustment to the opening balance of retained earnings, if applicable, in the period of adoption and prior periods are not restated.
+Added: The Company's leases consist primarily of real estate leases for office space, which are classified as operating leases.
+Added: Lease expense for the Company's operating leases is recognized on a straight-line basis over the term of the lease.
+Added: The Company did not have any finance leases at January 1, 2021 or December 31, 2021.
+Added: As of December 31, 2021, ROU assets and lease liabilities consisted of the following:
+Added: (in thousands, except weighted-average data) Financial Statement Classification December 31, 2021
+Added: Operating Lease ROU Assets:
+Added: Operating lease ROU assets Other noncurrent assets $ 6,262
+Added: Operating Lease Obligations:
+Added: Operating lease obligations - current Accounts payable and accrued expenses $ 1,723
+Added: Operating lease obligations - noncurrent Other noncurrent liabilities 5,596
+Added: Total operating lease obligations $ 7,319
+Added: Weighted-average remaining lease term, in years 4.9
+Added: Weighted-average discount rate 6.88 %
+Added: The Components of lease expense for the year ended December 31, 2021 were as follows:
+Added: (in thousands) Financial Statement Classification Year Ended
+Added: December 31, 2021
+Added: Operating lease expense (1)
+Added: Selling, general and administrative $ 1,841
+Added: (1) Excludes short-term lease expense which was immaterial for the year ended December 31, 2021.
+Added: Cash paid for amounts included in the measurement of lease liabilities was as follows:
+Added: (in thousands) Financial Statement Classification Year Ended
+Added: December 31, 2021
+Added: Operating cash flows from operating leases Operating activities $ 1,803
+Added: Lease Commitments
+Added: Future minimum lease payments for the Company's real estate operating leases at December 31, 2021 were as follows:
+Added: (in thousands)
+Added: Year Ending December 31, Amount Due
+Added: Thereafter 958
+Added: Total future minimum lease payments 8,646
+Added: Amount representing interest ( 1,327 )
+Added: Total future minimum lease payments, net of interest $ 7,319
+Added: As of December 31, 2021, the Company had not committed to any additional future obligations for leases that have not yet commenced.
+Added: Future minimum lease commitments under non-cancelable operating leases with initial or remaining terms in excess of one year were as follows at December 31, 2020:
+Added: (in thousands)
+Added: Year Ending December 31, Amount Due
+Added: Thereafter 2,388
+Added: Total $ 9,168
+Added: Total rent expense for the years ended December 31, 2020 and 2019 was $ 2.5 million and $ 2.0 million, respectively, which is included in selling, general and administrative expenses in the Company's Consolidated Statements of Operations.
+Added: Finxera Acquisition
+Added: On September 17, 2021 (the "Closing Date"), the Company completed its acquisition of 100 % of the equity interests of Finxera Holdings, Inc.
+Added: Finxera is a provider of deposit account management and licensed money transmission services in the U.S.
+Added: The acquisition will allow the Company to offer clients turn-key merchant services, payment facilitation, card issuing, automated payables, virtual banking, e-wallet tools, risk management, underwriting and compliance on a single platform.
+Added: The transaction was funded with the Company's cash on hand, proceeds from the issuance of the redeemable senior preferred stock and debt, and the issuance of common equity shares to the sellers.
+Added: The acquisition was accounted for as a business combination using the acquisition method of accounting, under which the assets acquired and liabilities assumed were recognized at their fair values as of the Closing Date, with the excess of the fair value of consideration transferred over the fair value of the net assets acquired recognized as goodwill.
+Added: The fair values of the assets acquired and liabilities assumed as of the Closing Date were estimated by management based on the valuation of the Finxera business using the discounted cash flow method and other factors specific to certain assets and liabilities.
+Added: The preliminary purchase price allocation is set forth in the table below and is expected to be finalized as soon as practicable, but no later than one year from the Closing Date.
+Added: (in thousands)
+Added: Consideration:
+Added: Cash $ 379,220
+Added: Equity instruments (1)
+Added: cash and restricted cash acquired ( 6,598 )
+Added: Total purchase consideration, net of cash and restricted cash acquired $ 407,010
+Added: Recognized amounts of assets acquired and liabilities assumed:
+Added: Accounts receivable $ 385
+Added: Prepaid expenses and other current assets 5,198
+Added: Current portion of notes receivable 784
+Added: Settlement assets and customer account balances 498,811
+Added: Property, equipment and software, net 712
+Added: Goodwill 245,104
+Added: Intangible assets, net (2)
+Added: Other noncurrent assets 955
+Added: Accounts payable and accrued expenses ( 7,837 )
+Added: Settlement and customer account obligations ( 498,811 )
+Added: Deferred income taxes, net ( 44,311 )
+Added: Other noncurrent liabilities ( 5,380 )
+Added: Total purchase consideration $ 407,010
+Added: (1) The fair value of the 7,551,354 shares of PRTH common stock that were issued was determined based on their market price at the time of closing adjusted for an appropriate liquidity discount due to trading restrictions under Securities Rule 144.
+Added: (2) The intangible assets acquired consist of $ 154.9 million for referral partner relationships, $ 34.3 million for technology, $ 20.1 million for customer relationships and $ 2.1 million for money transmission licenses.
+Added: Goodwill of $ 245.1 million arising from the acquisition primarily consists of the expected synergies and other benefits from combining operations.
+Added: Approximately $ 8.7 million of the goodwill attributable to the acquisition is expected to be deductible for income tax purposes.
+Added: The goodwill was allocated 100 % to the Company's Enterprise Payments reportable segment.
+Added: In 2020, Finxera acquired two businesses for which the purchase price included contingent consideration valued at $ 6.1 million.
+Added: The contingent consideration payable is comprised of earnout opportunities equal to 50 % of certain revenues earned from the customers assumed in these acquisitions.
+Added: The associated earnout opportunities are to be measured and paid every six months and expire at various dates through December 31, 2023.
+Added: As of December 31, 2021, $ 0.1 million of the $ 6.1 million of total contingent consideration has been paid to the sellers.
+Added: At December 31, 2021, there was $ 6.0 million accrued, of which $ 1.0 million and $ 5.0 million was included in accounts payable and accrued expenses and other noncurrent liabilities, respectively, on the Company's Consolidated Balance Sheet.
+Added: The Company's Consolidated Financial Statements include the operating results of Finxera from the Closing Date through December 31, 2021, which are reported as part of the Enterprise Payments reportable segment.
+Added: Revenues and operating income from Finxera during this period were $ 19.4 million and $ 4.3 million, respectively.
+Added: For the year ended December 31, 2021 we incurred $ 9.3 million, in acquisition related costs, which primarily consisted of consulting, legal, accounting and valuation expenses.
+Added: These expenses were recorded in selling, general and administrative expenses in the Company's Consolidated Statements of Operations.
+Added: The following unaudited pro forma financial information presents results as if the acquisition occurred on January 1, 2020.
+Added: The historical consolidated financial information of the Company and Finxera has been adjusted in the pro forma information to give effect to pro forma events that are directly attributable to the transaction and are factually supportable.
+Added: The unaudited pro forma results do not reflect events that have occurred or may occur after the transaction, including the impact of any synergies expected to result from the acquisition.
+Added: Accordingly, the unaudited pro forma financial information is not necessarily indicative
+Added: of the results of operations as they would have been had the transaction occurred on January 1, 2020, nor is it necessarily an indication of future operating results.
+Added: (in thousands, except per share amounts) Years Ended December 31,
+Added: Revenues $ 561,585 $ 463,823
+Added: Operating income $ 21,619 $ 32,548
+Added: Other Acquisitions
+Added: Wholesale Payments, Inc .
+Added: On April 28, 2021, a subsidiary of the Company completed its 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.
+Added: The transaction did not meet the definition of a business, therefore it was accounted for as an asset acquisition under which the cost of the acquisition was allocated to the acquired assets based on relative fair values.
+Added: As of December 31, 2021, the sellers earned $ 3.8 million of the $ 24.8 million, which was paid during the third quarter of 2021, increasing the total purchase price recorded at December 31, 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.
+Added: 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.
+Added: 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 $ 41.2 million being paid by the Company to the seller, which was funded from cash proceeds from the issuance of the redeemable senior preferred stock and cash on hand.
+Added: C&H Financial Services, Inc .
+Added: On June 25, 2021, a subsidiary of the Company acquired certain assets and assumed certain related liabilities under an asset purchase agreement.
+Added: The acquisition was accounted for as a business combination using the acquisition method of accounting.
+Added: 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.
+Added: This business is reported within the Company's SMB Payments reportable segment.
+Added: 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.
+Added: The acquisition date fair value of the contingent consideration was $ 4.7 million, which increased the total purchase price to $ 39.7 million.
+Added: 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 and Guaranty Agreement held by the Company and $ 4.5 million cash on hand.
+Added: Transaction costs were not material and were expensed.
+Added: The preliminary purchase price allocation is set forth in the table below and is expected to be finalized as soon as practicable, but no later than one year from the acquisition date.
+Added: (in thousands)
+Added: Accounts receivable $ 214
+Added: Prepaid expenses and other current assets 209
+Added: Property, equipment and software, net and other current assets 287
+Added: Goodwill 13,804
+Added: Intangible assets, net (1)
+Added: Other noncurrent liabilities ( 214 )
+Added: Total purchase price $ 39,700
+Added: (1) The intangible assets acquired consist of $ 20.2 million for merchant portfolio intangible assets with a ten-year useful life and $ 5.2 million for ISO partner relationships with a twelve-year useful life.
+Added: The goodwill for the Wholesale Payments, Inc.
+Added: asset acquisition and the C&H Financial Services, Inc.
+Added: business combination is deductible by the Company for income tax purposes.
+Added: Based on their purchase prices and pre-acquisition operating results and assets, these two businesses acquired by the Company in 2021, as described above, did not meet the materiality requirements for pro forma disclosures individually or collectively.
+Added: YapStone, Inc.
+Added: In March 2019, the Company, through one of its subsidiaries, Priority Real Estate Technology, LLC (" PRET") , acquired certain assets and assumed certain related liabilities from YapStone, Inc.
+Added: under an asset purchase and contribution agreement.
+Added: The purchase price for the YapStone net assets was $ 65.0 million in cash plus a non-controlling interest ("NCI") in PRET issued to YapStone, Inc.
+Added: with a fair value that was estimated to be approximately $ 5.7 million.
+Added: The total purchase price was assigned to customer relationships, except for $ 1.0 million and $ 1.2 million which were assigned to a software license agreement and a services agreement, respectively.
+Added: The $ 65.0 million of cash was funded from the Company's Senior Credit Facility.
+Added: PRET is part of the Company's Enterprise Payments reportable segment.
+Added: During the third quarter of 2020, substantially all of the YapStone net assets were sold to a third party (see Note 6, Disposal of Business ).
+Added: Approximately $ 45.1 million of PRET's 2020 earnings through the disposal date, which were primarily composed of the gain recognized on the sale, were attributed and distributed in cash to the NCI during the third quarter of 2020 pursuant to the profit-sharing agreement between the Company and the NCI.
+Added: At the time of the sale, the NCI was also redeemed in cash for its $ 5.7 million interest in PRET.
+Added: For the year ended December 31, 2019, no earnings of PRET were allocated to the NCI.
+Added: Residual Portfolio Rights Acquired
+Added: On March 15, 2019, a subsidiary of the Company paid $ 15.2 million cash to acquire certain residual portfolio rights.
+Added: Of the $ 15.2 million, $ 5.0 million was funded from the term loan under Senior Credit Agreement, $ 10.0 million was funded from the revolving credit facility under the Senior Credit Agreement, and cash on hand was used to fund the remaining amount.
+Added: This acquisition became part of the Company's SMB Payments reportable segment.
+Added: The purchase price was subject to a potential increase of up to $ 6.4 million in accordance with the terms of the agreement between the Company and the sellers over a three-year period.
+Added: Additional purchase price is accounted for when payment to the seller becomes probable and is added to the carrying value of the asset and amortization expense is adjusted to reflect the new carrying value at the original purchase date.
+Added: The first period for determining contingent consideration ended in March 2020, and the Company paid the seller $ 2.1 million of additional cash consideration, partially offset by an amount owed to the Company by the seller.
+Added: In 2021, the Company paid the seller an additional $ 2.1 million for the second period for determining contingent consideration that ended in March 2021, which had been recorded as a contingent consideration liability at December 31, 2020.
+Added: T he remaining $ 2.1 million will be payable in the first quarter of 2022 if certain criteria are achieved.
+Added: Merchant Portfolio Rights and Reseller Agreement
+Added: In October 2019, the Company simultaneously entered into two agreements with another entity.
+Added: These two related agreements assign to the Company certain perpetual rights to a merchant portfolio and form a five -year reseller arrangement whereby the Company will offer and sell to its customer base certain online services to be fulfilled by the other entity.
+Added: No cash consideration was paid to, or received from, the other entity at execution of either agreement.
+Added: It was not initially determinable if the Company would have to pay any amount as consideration for the merchant portfolio rights due to the provisions of the related reseller agreement.
+Added: The Company does not anticipate any net losses under the two contracts.
+Added: Subsequent cash payments from the Company to the other entity for the merchant portfolio rights are determined based on a combination of:
+Added: 1) the actual financial performance of the acquired merchant portfolio rights;
+Added: and 2) actual sales and variable wholesale costs for the online services sold by the Company under the reseller arrangement.
+Added: Prior to December 31, 2020, amounts paid to the other entity were accounted for as either standard costs of the services sold by the Company under the five -year reseller agreement or consideration for the merchant portfolio rights.
+Added: As of December 31, 2020, the Company determined it had accumulated the additional data and historical experience that it deems necessary in order to reasonably estimate an amount of cash that the Company believes it will ultimately have to transfer as remaining consideration for the merchant portfolio rights.
+Added: Accordingly, at December 31, 2021 and 2020 the Company had accrued approximately $ 2.4 million and $ 6.2 million of estimated remaining cash consideration and additional accumulated costs for the merchant portfolio, respectively.
+Added: At December 31, 2021 and 2020 the Company had recorded aggregate costs, including both actual costs and estimated remaining consideration, totaling $ 11.1 million.
+Added: Amortization expense was adjusted to reflect the new carrying value at the original purchase date.
+Added: As of December 31, 2021 and 2020, accumulated amortization was $ 5.0 million and $ 2.8 million, respectively.
+Added: The merchant portfolio has an estimated remaining life of 2.75 years at December 31, 2021.
+Added: The Company will continue to review its estimate of the remaining consideration to be funded and adjust the value of the intangible asset and accrual for its obligation accordingly.
+Added: Disaggregation of Revenues
+Added: The following table presents a disaggregation of our consolidated revenues by type for the years ended December 31, 2021, 2020 and 2019:
+Added: Years Ended December 31,
+Added: (in thousands) 2021 2020 2019
+Added: Revenue Type:
+Added: Merchant card fees $ 468,764 $ 377,346 $ 339,450
+Added: Outsourced services and other services 21,033 23,103 28,712
+Added: Money transmission services revenue 19,415 — —
+Added: Equipment 5,689 3,893 3,692
+Added: Total revenues (1)(2)
+Added: $ 514,901 $ 404,342 $ 371,854
+Added: (1) Includes contracts with an original duration of one year or less and variable consideration under a stand-ready series of distinct days of service.
+Added: The aggregate fixed consideration portion of customer contracts with an initial contract duration greater than one year is not material.
+Added: (2) Approximately $ 0.7 million, $ 0.8 million and $ 0.6 million of interest income for the years ended December 31, 2021, 2020 and 2019, respectively, is included in other income, net on the Company's Consolidated Statements of Operations and not reflected in the table above.
+Added: Deferred revenues were not material for the years ended December 31, 2021, 2020 and 2019.
+Added: Contract Assets and Contract Liabilities
+Added: Material contract assets and liabilities are presented net at the individual contract level in the Consolidated Balance Sheets and are classified as current or noncurrent based on the nature of the underlying contractual rights and obligations.
+Added: Supplemental balance sheet information related to contracts from customers as of December 31, 2021 and 2020 was as follows:
+Added: (in thousands) Consolidated Balance Sheet Location December 31, 2021 December 31, 2020
+Added: Contract liabilities, net (current) Customer deposits and advance payments $ 1,280 $ 1,494
+Added: Substantially all of these balances are recognized as revenue within 12 months.
+Added: Net contract assets were not material for any period presented.
+Added: Impairment losses recognized on receivables or contract assets arising from the Company's contracts with customers were not material for the years ended December 31, 2021, 2020 or 2019.
+Added: Settlement Assets and Customer Account Balances and Related Obligations
+Added: SMB Payments Segment
+Added: In the Company's SMB Payments reportable segment, funds settlement refers to the process of transferring funds for sales and credits between card issuers and merchants.
+Added: The standards of the card networks require possession of funds during the settlement process by a member bank which controls the clearing transactions.
+Added: Since settlement funds are required to be in the possession of a member bank until the merchant is funded, these funds are not assets of the Company and the associated obligations related to these funds are not liabilities of the Company.
+Added: Therefore, neither is recognized in the Company's Consolidated Balance Sheets.
+Added: Member banks held merchant funds of $ 102.1 million and $ 103.8 million at December 31, 2021 and 2020, respectively.
+Added: Exception items include items such as customer chargeback amounts received from merchants and other losses.
+Added: Under agreements between the Company and its merchant customers, the merchants assume liability for such chargebacks and losses.
+Added: If the Company is ultimately unable to collect amounts from the merchants for any charges or losses due to merchant fraud, insolvency, bankruptcy or any other reason, it may be liable for these charges.
+Added: In order to mitigate the risk of such liability, the Company may:
+Added: 1) require certain merchants to establish and maintain reserves designed to protect the Company from such charges or losses under its risk-based underwriting policy;
+Added: and 2) engage with certain ISOs in partner programs in which the ISOs assume liability for these charges or losses.
+Added: A merchant reserve account is funded by the merchant and held by the member bank during the term of the merchant agreement.
+Added: Unused merchant reserves are returned to the merchant after termination of the merchant agreement or in certain instances upon a reassessment of risks during the term of the merchant agreement.
+Added: Exception items that become the liability of the Company are recorded as merchant losses, a component of costs of services in the Consolidated Statements of Operations.
+Added: 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 and customer account balances in the Company's Consolidated Balance Sheets, with an offsetting reserve for those amounts the Company estimates it will not be able to recover.
+Added: Expenses for merchant losses for the years ended December 31, 2021, 2020 and 2019 were $ 2.8 million, $ 4.1 million and $ 3.1 million, respectively.
+Added: B2B Payments Segment
+Added: In the Company's B2B Payments segment, the Company earns revenues from certain of its services by processing transactions for FIs and other business customers.
+Added: 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
+Added: time as the transactions are settled with the customer payees.
+Added: Amounts due to customer payees that are held by the Company in Company-owned bank accounts are included in restricted cash.
+Added: Amounts due to customer payees that are held in bank-owned FBO accounts are not assets of the Company.
+Added: As such, the associated obligations related to these funds are not liabilities of the Company;
+Added: therefore, neither is recognized in the Company's Consolidated Balance Sheets.
+Added: Bank-owned FBO accounts held funds of $ 45.5 million at December 31, 2021.
+Added: Company-owned bank accounts held $ 21.4 million and $ 72.9 million at December 31, 2021 and 2020, respectively;
+Added: which are included in restricted cash and settlement obligations in the Company's Consolidated Balance Sheets.
+Added: Enterprise Payments Segment
+Added: In the Company's Enterprise Payments segment, revenue is derived primarily from enrollment fees, monthly subscription fees, transaction-based fees and licensed money transmission services fees.
+Added: As part of its licensed money transmission services, the Company accepts deposits from consumers and subscribers which are held in bank accounts maintained by the Company on behalf of consumers and subscribers.
+Added: After accepting deposits, the Company is allowed to invest available balances in these accounts in certain permitted investments, and the return on such investments contributes to the Company's net cash inflows.
+Added: These balances are payable on demand.
+Added: As such, the Company recorded these balances and related obligations as current assets and current liabilities.
+Added: The nature of these balances are cash and cash equivalents but they are not available for day-to-day operations of the Company.
+Added: Therefore, the Company has classified these balances as settlement assets and customer account balances and the related obligations as settlement and customer account obligations in the Company's Consolidated Balance Sheets.
+Added: The Company's settlement assets and customer account balances and settlement and customer account obligations were as follows:
+Added: (in thousands) December 31, 2021 December 31, 2020
+Added: Settlement Assets:
+Added: Card settlements due from merchants, net of estimated losses $ 537 $ 753
+Added: Customer Account Balances:
+Added: Cash and cash equivalents 468,934 —
+Added: Time deposits 10,000 —
+Added: Total settlement assets and customer account balances $ 479,471 $ 753
+Added: Settlement and Customer Account Obligations:
+Added: Customer account obligations $ 478,935 $ —
+Added: Due to customer payees (1)
+Added: 21,356 72,878
+Added: Total settlement and customer account obligations $ 500,291 $ 72,878
+Added: (1) The related assets are included in restricted cash on our Consolidated Balance Sheets.
Disposal of Business
−Removed: On September 1, 2020, PRET, a majority-owned and consolidated subsidiary of the Company, entered into an asset purchase agreement (the "Agreement") with MRI Payments LLC and MRI Software LLC (together, "MRI" or the buyer) to sell certain assets from PRET's real estate services business.
+Added: On September 1, 2020, PRET entered into an agreement to sell certain assets from PRET's real estate services business.
The buyer also agreed to assume certain obligations associated with the assets.
−Removed: The transaction contemplated by the Agreement was completed on September 22, 2020 after receiving regulatory approval.
+Added: The transaction was completed on September 22, 2020 after receiving regulatory approval.
Prior to execution of the agreement, the buyer was not a related party of PRET or the Company.
−Removed: The assets covered by the Agreement were substantially the same assets that PRET acquired in March 2019 from YapStone, Inc.
−Removed: and these assets constituted PRET's RentPayment component, which was part of the Integrated Partners reporting unit, operating segment and reportable segment.
+Added: The assets subject to the agreement were substantially the same assets that PRET acquired in March 2019 from YapStone, Inc.
+Added: These assets constituted PRET's RentPayment component, which was part of the Enterprise Payments reporting unit, operating segment and reportable segment.
These assets consist of contracts with customers, an assembled workforce, technology-related assets, Internet domains, trade names and trademarks.
1 unchanged sentence
Since PRET's acquisition of these assets from YapStone, Inc.
−Removed: in March 2019, PRET and the Company have made operational changes that resulted in these assets becoming a business as defined by the provisions of ASU 2017-01, Clarifying the Definition of a Business, before their sale to MRI .
+Added: in March 2019, PRET and the Company have made operational changes that resulted in these assets becoming a business as defined by the provisions of ASU 2017-01, Business Combinations (Topic 805):
+Added: Clarifying the Definition of a Business, before their sale .
Proceeds received by PRET were $ 179.4 million, net of $ 0.6 million for a working capital adjustment.
14 unchanged sentences
The Company's invested capital amounted to $ 71.8 million, which included the assets sold, goodwill and other intangible assets.
−Removed: The non-controlling interest's invested capital was $ 5.7 million.
−Removed: Approximately $ 51.4 million and $ 45.1 million of the excess proceeds were distributed to the Company and the non-controlling interests, respectively.
−Removed: The working capital adjustment of $ 584 thousand and the allocation of net proceeds described above remain subject to final adjustment with the buyer and PRET members, respectively.
−Removed: Any remaining payments made or received by the Company will be recorded in the period in which such amounts are finalized.
−Removed: As disclosed in Note 10 , Long-T erm Debt and Warrant Liability , $ 106.5 million of cash received by the Company was used on September 25, 2020 to reduce the outstanding balance of the term loan facility under the Company's Senior Credit Facility.
+Added: The NCI's invested capital was $ 5.7 million.
+Added: Approximately $ 51.4 million and $ 45.1 million of the excess proceeds were distributed to the Company and the NCI, respectively.
+Added: The initial allocation of net proceeds remained subject to final adjustment by the PRET members at December 31, 2020.
+Added: During the first quarter of 2021, it was determined that an additional $ 0.5 million of the excess proceeds was due to the NCI, which was included in other expenses, net on the Company's Consolidated Statement of Operations for the year ended December 31, 2021.
+Added: As disclosed in Note 11, Debt Obligations , $ 106.5 million of cash received by the Company was used on September 25, 2020 to reduce the outstanding balance of the term loan facility under the Company's Senior Credit Facility.
Operating Lease Obligation
−Removed: The buyer assumed an in-place operating lease in Dallas, Texas which expires on November 1, 2024.
−Removed: The Company has not adopted ASC 842;
−Removed: therefore this lease obligation was not reflected in the Company's balance sheet prior to the assumption by the buyer.
−Removed: The Company was relieved of minimum lease payment obligations totaling $ 0.5 million for the remainder of the current lease term.
+Added: The buyer assumed an in-place operating lease in Dallas, Texas which was set to expire on November 1, 2024.
+Added: The Company had not adopted ASC 842 at the time of this transaction, therefore this lease obligation was not reflected in the Company's Consolidated Balance Sheet prior to the assumption by the buyer.
+Added: The Company was relieved of minimum lease payment obligations totaling $ 0.5 million for the remainder of the lease term in connection with this transaction.
Continuing Operations
Based on historical financial results, the Company does not believe the sale of the RentPayment component represents a strategic shift.
−Removed: Therefore, in accordance with ASC 205-20, Presentation of Financial Statements - Discontinued Operations , the Company will not classify or report the business that was sold as discontinued operations in its consolidated financial statements for any reporting period.
+Added: As such, the Company will not classify or report the business that was sold as discontinued operations in its Consolidated Financial Statements for any reporting period.
The Company will continue to serve the rental property market through its ongoing PRET operations.
Pro Forma Information
−Removed: The following unaudited pro forma information is provided for the business (the RentPayment component) that was sold under the Agreement, excluding the gain recognized on the sale transaction:
+Added: The following unaudited pro forma information is provided for the business (the RentPayment component) that was sold, excluding the gain recognized on the sale transaction:
Year Ended December 31,
1 unchanged sentence
Revenues $ 12,042 $ 11,694
−Removed: Income from operations (1)
−Removed: $ 1,825 $ 2,275
+Added: Operating income $ 1,825 $ 2,275
Net income (1)
$ 1,725 $ 2,218
−Removed: Net income attributable to the stockholders of Priority Technology Holdings, Inc.
+Added: Net income attributable to common stockholders (2)
$ 1,725 $ 2,218
−Removed: Income per common share for stockholders of Priority Technology Holdings, Inc.
−Removed: - Basic and Diluted (4)
+Added: Basic and diluted earnings per common share (2)
$ 0.03 $ 0.03
−Removed: (1) Historical financial results are not being reported as discontinued operations.
−Removed: (2) Does not reflect interest expense on the borrowings used to acquire the YapStone assets in March 2019.
−Removed: (3) Pro forma income tax expense based on the following consolidated effective tax rates of Priority Technology Holdings, Inc.:
+Added: (1) Pro forma income tax expense was based on the following consolidated effective tax rates of Priority Technology Holdings, Inc.:
5.5 % and 2.5 % for the years ended December 31, 2020 and 2019, respectively.
1 unchanged sentence
(2) Prior to the September 2020 sale transaction that resulted in the gain on the sale, no earnings or losses of the PRET LLC were attributable to the NCIs of PRET.
−Removed: For all periods presented, most of the Company’s revenues were recognized over time.
−Removed: Revenues and commissions earned from the sales of payment equipment are typically recognized at a point in time.
−Removed: Nature of our Customer Arrangements
−Removed: The Company’s payment services customers contract with the Company for payment services, which the Company provides in exchange for consideration for completed transactions.
−Removed: Some of these payment services are performed by third parties.
−Removed: The Company’s consumer payment services enable the Company’s customers to accept card, electronic, and digital-based payments at the point of sale.
−Removed: These services may include authorization services, settlement and funding services, customer support and help-desk functions, chargeback resolution, payment security services, consolidated billing and statements, and online reporting.
−Removed: The Company also earns revenue and commissions from resale of electronic point-of-sale (“POS”) equipment.
−Removed: The Company’s commercial payment services enable the Company’s customers to automate their accounts payable and other commercial payments functions with the Company’s payment services that utilize physical and virtual payment cards as well as
−Removed: ACH transactions.
−Removed: In addition, the Company provides cost-plus-fee turnkey business process outsourcing and assists commercial customers with programs that are designed to increase acceptance of electronic payments.
−Removed: The Company's Integrated Partners segment uses payment-adjacent technologies to facilitate the acceptance of electronic payments from customers in the rental real estate, medical, and hospitality industries.
−Removed: Revenue Recognition
−Removed: At contract inception, the Company assesses the services and goods promised in its contracts with customers and identifies the performance obligation for each promise to transfer to the customer a service or good that is distinct.
−Removed: For substantially all of the Company's services, the nature of the Company’s promise to the customer is to stand ready to accept and process the transactions that customers request on a daily basis over the contract term.
−Removed: Since the timing and quantity of transactions to be processed is not determinable, the services comprise an obligation to stand ready to process as many transactions as the customer requires.
−Removed: Under a stand-ready obligation, the evaluation of the nature of the Company’s performance obligation is focused on each time increment rather than the underlying activities.
−Removed: Therefore, the Company has determined that its services comprise a series of distinct days of service that are substantially the same and have the same pattern of transfer to the customer.
−Removed: Accordingly, the promise to stand ready is accounted for as a single-series performance obligation.
−Removed: When third parties are involved in the transfer of services or goods to the customer, the Company considers the nature of each specific promised service or good and applies judgment to determine whether the Company controls the service or good before it is transferred to the customer or whether the Company is acting as an agent of the third party.
−Removed: The Company follows the requirements of ASC 606-10, Principal Agent Considerations , which states that the determination of whether an entity should recognize revenue based on the gross amount billed to a customer or the net amount retained is a matter of judgment that depends on the facts and circumstances of the arrangement.
−Removed: To determine whether or not the Company controls the service or good, it assesses indicators including:
−Removed: 1) whether the Company or the third party is primarily responsible for fulfillment;
−Removed: 2) if the Company or the third party provides a significant service of integrating two or more services or goods into a combined item that is a service or good that the customer contracted to receive;
−Removed: 3) which party has discretion in determining pricing for the service or good;
−Removed: and 4) other considerations deemed to be applicable to the specific situation.
−Removed: Based on assessments of these indicators, the Company concluded:
−Removed: • Promises to customers to provide certain payment services is distinct from the other payment services provided by the card-issuing financial institutions, payment networks, and sponsor banks.
−Removed: The Company does not have the ability to direct the use of and obtain substantially all of the benefits of the services provided by the card-issuing financial institutions, payment networks, and sponsor banks before those services are transferred to the customer, and on that basis, the Company does not control those services prior to being transferred to the customer.
−Removed: The Company has either no or little discretion in setting the price that the customer pays for these specific services.
−Removed: The Company therefore acts as agent for these payment services provided by the card-issuing financial institutions, payment networks, and sponsor banks.
−Removed: • For other promises to customers to provide other significant payment services such as onboarding, underwriting, processing, customer service, and fraud detection/prevention services, the Company has discretion in setting the price that the customer ultimately pays for these services and the Company either is responsible for fulfillment or has shared responsibility.
−Removed: If a third party is partially responsible for fulfillment, the Company provides a significant service of integrating two or more services, which may include services from other parties, and directs their use to create a combined item that is a specified service requested by the customer.
−Removed: For services that involve these other parties, the Company has direct contractual relationships with these parties.
−Removed: Substantially all of the Company’s payment services are priced as a percentage of transaction value or a specified fee per transaction, or a combination of both.
−Removed: Given the nature of the promise and the underlying fees based on unknown quantities or outcomes of services to be performed over the contract terms with customers, the total consideration is determined to be variable consideration.
−Removed: The variable consideration for payment services is usage-based and therefore it specifically relates to efforts to satisfy the payment services obligation.
−Removed: Said another way, the variability is satisfied each day the service is provided to the customer.
−Removed: The Company directly ascribes variable fees to the distinct day of service to which it relates, and considers the services performed each day in order to ascribe the appropriate amount of total fees to that day.
−Removed: Therefore, the Company measures revenue for payment services on a daily basis based on the services that are performed on that day.
−Removed: Once the Company determines the performance obligations and the transaction price, including an estimate of any variable consideration, the Company then allocates the transaction price to each performance obligation in the contract using a relative standalone selling price method.
−Removed: The Company determines standalone selling price based on the price at which the service or good is sold separately.
−Removed: If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price by considering all reasonably available information, including market conditions, trends or other company-specific or customer-specific factors.
−Removed: Substantially all of the performance obligations described above that involve services are satisfied over time.
−Removed: Equipment sales are generally transferred to the customer at a point in time.
−Removed: In delivering payment services to the customer, the Company may also provide a limited license agreement to the customer for use of one or more of the Company’s proprietary cloud-based software applications.
−Removed: The Company grants a right to use its software applications only when the customer has contracted with the Company to receive related payment services.
−Removed: When combined with the underlying payment services, the license and the payment services provided to the customer are a single stand-ready obligation and the Company’s performance obligation is defined by each time increment, rather than by the underlying activities, satisfied over time based on days elapsed.
−Removed: Interest income is reported separately on the Company’s statements of operations within Other, net and was approximately $ 0.8 million, $ 0.6 million, and $ 0.6 million for the years ended December 31, 2020, 2019, and 2018, respectively.
−Removed: Transaction Price Allocated to Future Performance Obligations
−Removed: ASC 606 requires disclosure of the aggregate amount of the transaction price allocated to unsatisfied performance obligations.
−Removed: However, as allowed by ASC 606, the Company has elected to exclude from this disclosure any contracts with an original duration of one year or less and any variable consideration that meets specified criteria.
−Removed: As described above, the Company’s most significant performance obligations consist of variable consideration under a stand-ready series of distinct days of service.
−Removed: Such variable consideration meets the specified criteria for the disclosure exclusion.
−Removed: Therefore, the majority of the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied is variable consideration that is not required for this disclosure.
−Removed: The aggregate fixed consideration portion of customer contracts with an initial contract duration greater than one year is not material.
−Removed: Contract Costs
−Removed: For new, renewed, or anticipated contracts with customers, the Company does not incur material amounts of incremental costs to obtain such contracts, as those costs are defined by ASC 340-40.
−Removed: 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.
−Removed: The Company pays commissions to most of its 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.
−Removed: The ISO is typically an independent contractor or agent of the Company.
−Removed: Although certain ISOs may have merchant portability rights, the merchant meets the definition of a customer for the Company even if the ISO has merchant portability rights.
−Removed: 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.
−Removed: Also, payments to ISOs pertain only to a specific month’s activity.
−Removed: For payments made, or due, to an ISO, the expenses are reported within costs of services on our statements of operations.
−Removed: The Company from time-to-time may elect to buy out all or a portion of an ISO’s rights to receive future commission payments related to certain merchants.
−Removed: Amounts paid to the ISO for these residual buyouts are capitalized by the Company under the accounting guidance for intangible assets and included in intangible assets, net on our consolidated balance sheets.
−Removed: Contract Assets and Contract Liabilities
−Removed: A contract with a customer creates legal rights and obligations.
−Removed: As the Company performs under customer contracts, its right to consideration that is unconditional is considered to be accounts receivable.
−Removed: If the Company’s right to consideration for such performance is contingent upon a future event or satisfaction of additional performance obligations, the amount of revenues recognized in excess of the amount billed to the customer is recognized as a contract asset.
−Removed: Contract liabilities represent consideration received from customers in excess of revenues recognized.
−Removed: Material contract assets and liabilities are presented net at the individual contract level in the consolidated balance sheet and are classified as current or non-current based on the nature of the underlying contractual rights and obligations.
−Removed: Supplemental balance sheet information related to contracts from customers as of December 31, 2020 and 2019 was as follows:
−Removed: (in thousands) Consolidated Balance Sheet Location December 31, 2020 December 31, 2019
−Removed: Contract liabilities, net (current) Customer deposits and advance payments $ 1,494 $ 1,912
−Removed: The balance for the contract liabilities was approximately $ 1.8 million and $ 2.2 million at January 1, 2019 and January 1, 2018, respectively.
−Removed: The changes in the balances during the years ended December 31, 2020, 2019, and 2018 were due to the timing of advance payments received from the customer.
−Removed: Net contract assets were not material for any period presented.
−Removed: Impairment losses recognized on receivables or contract assets arising from the Company's contracts with customers were not material for the years ended December 31, 2020, 2019, or 2018.
−Removed: Disaggregation of Revenues
−Removed: The following table presents a disaggregation of our consolidated revenues by type for the years ended December 31, 2020, 2019 and 2018:
−Removed: Year Ended December 31,
−Removed: (in thousands) 2020 2019 2018
−Removed: Revenue Type:
−Removed: Merchant card fees $ 377,346 $ 339,450 $ 343,791
−Removed: Outsourced services and other services 23,103 28,712 29,099
−Removed: Equipment 3,893 3,692 2,932
−Removed: Total revenues $ 404,342 $ 371,854 $ 375,822
−Removed: ASSET ACQUISITIONS, ASSET CONTRIBUTIONS, AND BUSINESS COMBINATIONS
−Removed: Asset Acquisitions
−Removed: In March 2019, the Company, through one of its subsidiaries, PRET, acquired certain assets and assumed certain related liabilities (the "YapStone net assets") from YapStone, Inc.
−Removed: under an asset purchase and contribution agreement.
−Removed: The purchase price for the YapStone net assets was $ 65.0 million in cash plus a non-controlling interest ("NCI") in PRET issued to YapStone, Inc.
−Removed: with a fair value that was estimated to be approximately $ 5.7 million.
−Removed: The total purchase price was assigned to customer relationships, except for $ 1.0 million and $ 1.2 million which were assigned to a software license agreement and a services
−Removed: agreement, respectively.
−Removed: The $ 65.0 million of cash was funded from the Company's Senior Credit Facility.
−Removed: PRET is part of the Company's Integrated Partners reportable segment.
−Removed: During the third quarter of 2020, substantially all of the YapStone net assets were sold to a third party.
−Removed: See Note 2 , Disposal of Business , to the consolidated financial statements.
−Removed: Approximately $ 45.1 million of PRET's 2020 earnings through the disposal date, which were composed mostly of gain recognized on the sale, were attributed and distributed in cash to the NCI during the third quarter 2020 pursuant to the profit-sharing agreement between the Company and the NCI.
−Removed: At the time of the sale, the NCI was also redeemed in cash for its $ 5.7 million interest in PRET.
−Removed: For the year ended December 31, 2019, no earnings of PRET were allocated to the NCI.
−Removed: Residual Portfolio Rights Acquired
−Removed: On March 15, 2019, a subsidiary of the Company paid $ 15.2 million cash to acquire certain residual portfolio rights.
−Removed: Of the $ 15.2 million, $ 5.0 million was funded from the Senior Credit Facility, $ 10.0 million was funded from revolving credit facility under the Senior Credit Facility, and cash on hand was used to fund the remaining amount.
−Removed: This acquisition became part of the Company's Consumer Payments reportable segment.
−Removed: The purchase price was subject to a potential increase of up to $ 6.4 million in accordance with the terms of the agreement between the Company and the sellers over a three-year period.
−Removed: Additional purchase price is accounted for when payment to the seller becomes probable and is added to the carrying value of the asset and amortization expense is adjusted to reflect the new carrying value at the original purchase date.
−Removed: The first period for determining contingent consideration ended in March 2020, and the Company paid the seller $ 2.1 million of additional cash consideration, partially offset by an amount owed to the Company by the seller.
−Removed: At December 31, 2020, it became apparent that the Company would owe the seller an additional $ 2.1 million for the second period for determining contingent consideration ending March 2021, and the Company recorded this estimated amount in its consolidated financial statements as of December 31, 2020.
−Removed: Direct Connect
−Removed: In December 2018, the Company acquired a merchant portfolio for $ 44.8 million from Direct Connect Merchant Services, LLC.
−Removed: The purchase price included cash contingent consideration of up to approximately $ 7.3 million, determinable over a period that ended on December 31, 2019.
−Removed: At December 31, 2019, the Company determined that it did no t owe the contingent consideration.
−Removed: Asset Assignments and Contributions
−Removed: Merchant Portfolio Rights and Reseller Agreement
−Removed: In October 2019, the Company simultaneously entered into two agreements with another entity.
−Removed: These two related agreements 1) assign to the Company certain perpetual rights to a merchant portfolio and 2) form a 5 -year reseller arrangement whereby the Company will offer and sell to its customer base certain online services to be fulfilled by the other entity.
−Removed: No cash consideration was paid to, or received from, the other entity at execution of either agreement.
−Removed: It was not initially determinable if the Company would have to pay any amount as consideration for the merchant portfolio rights due to the provisions of the related reseller agreement.
−Removed: The Company does not anticipate any net losses under the two contracts.
−Removed: Subsequent cash payments from the Company to the other entity for the merchant portfolio rights are determined based on a combination of both:
−Removed: 1) the actual financial performance of the acquired merchant portfolio rights and 2) actual sales and variable wholesale costs for the online services sold by the Company under the reseller arrangement.
−Removed: Prior to December 31, 2020, amounts paid to the other entity were accounted for as either 1) standard costs of the services sold by the Company under the 5 -year reseller agreement or 2) consideration for the merchant portfolio rights.
−Removed: At December 31, 2020, the Company believes it has accumulated the additional data and historical experience that it deems necessary in order to reasonably estimate an amount of cash that the Company believes it will ultimately have to transfer as remaining consideration for the merchant portfolio rights.
−Removed: Accordingly, at December 31, 2020 the Company accrued
−Removed: approximately $ 6.2 million of estimated remaining cash consideration and additional accumulated costs for the merchant portfolio.
−Removed: At December 31, 2020, the Company has recorded aggregate costs, including both actual costs and estimated remaining consideration, totaling $ 11.1 million.
−Removed: As of December 31, 2019, the Company had recorded aggregate actual costs of approximately $ 1.1 million.
−Removed: A mortization expense was adjusted to reflect the new carrying value at the original purchase date.
−Removed: As of December 31, 2020 and 2019, accumulated amortization was $ 2.8 million and $ 0.1 million, respectively.
−Removed: The merchant portfolio has an estimated remaining life of 3.5 years at December 31, 2020.
−Removed: The Company will continue to review its estimate of the remaining consideration to be funded and adjust the value of the intangible asset and accrual for its obligation accordingly.
−Removed: eTab and Cumulus (Related Party)
−Removed: In February 2019, a subsidiary of the Company, PHOT, received a contribution of substantially all of the operating assets of eTab, LLC ("eTab") and CUMULUS POS, LLC ("Cumulus") under asset contribution agreements.
−Removed: No material liabilities were assumed by PHOT.
−Removed: These contributed assets were composed substantially of technology-related assets.
−Removed: Prior to these transactions, eTab was 80 % owned by the Company's Chairman and Chief Executive Officer.
−Removed: No cash consideration was paid to the contributors of the eTab or Cumulus assets on the date of the transactions.
−Removed: As consideration for these contributed assets, the contributors were issued redeemable preferred equity interests in PHOT.
−Removed: 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 % per annum) on any of the $ 4.5 million amount that has not been distributed to them.
−Removed: The Company's Chairman and Chief Executive Officer owns 83.3 % of the redeemable preferred equity interests in PHOT.
−Removed: 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.
−Removed: The Company determined that the contributor's carrying value of the eTab net assets (as a common control transaction under GAAP) was not material.
−Removed: 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.
−Removed: Additionally, no material amount was estimated for the fair value of the contributed Cumulus net assets.
−Removed: PHOT is a part of the Company's Integrated Partners reportable segment.
−Removed: Pursuant to the limited liability company agreement of PHOT, any material future earnings generated by the eTab and Cumulus assets that are attributable to the holders of the preferred equity interests will be reported by the Company as a form of non-controlling interests 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.
−Removed: 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 non-controlling interests in mezzanine equity.
−Removed: For the year ended 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.
−Removed: Accordingly, there is no material amount to classify as mezzanine equity on the Company's consolidated balance sheet at December 31, 2020.
−Removed: 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 December 31, 2019, and therefore no recognition of the NCI was reflected in the Company's consolidated financial statements for reporting periods prior to 2020 .
−Removed: Business Combinations in 2018
−Removed: In April 2018, Priority PayRight Health Solutions, LLC ("PPRHS"), a subsidiary of the Company, purchased the majority of the operating assets and certain operating liabilities of PayRight Health Solutions LLC ("PayRight").
−Removed: This asset purchase was deemed to be a business under ASC 805.
−Removed: This purchase allowed PPRHS to gain control over the PayRight business and therefore the Company's consolidated financial statements include the financial position, results of operations, and cash flows of PayRight from the date of acquisition.
−Removed: PayRight utilizes technology assets to deliver customized payment solutions to the health care industry.
−Removed: The results of the acquired business and goodwill of $ 0.3 million from the transaction are being reported by the
−Removed: Company as part of its Integrated Partners reportable segment.
−Removed: The acquisition resulted in the recognition of intangible and net tangible assets with a fair value of $ 0.6 million.
−Removed: The Company transferred total consideration with a fair value of $ 0.9 million consisting of:
−Removed: $ 0.5 million in cash and forgiveness of amounts owed to the Company by PayRight;
−Removed: $ 0.3 million fair value of the Company's previous equity-method investment in PayRight described in the following paragraph;
−Removed: and $ 0.1 million of other consideration.
−Removed: Certain PayRight sellers were provided profit-sharing rights in PayRight as non-controlling interests "NCIs"), however, based on this arrangement no losses or earnings were allocated to the NCIs for the years ended December 31, 2020, 2019 and 2018.
−Removed: At December 31, 2020, all of the NCIs' interest have been redeemed for amounts that were not material.
−Removed: Previously, in October 2015, the Company purchased a non-controlling interest in the equity of PayRight, and prior to April 2018 the Company accounted for this investment using the equity method of accounting.
−Removed: At January 1, 2018, the Company's carrying value of this investment was $ 1.1 million.
−Removed: Immediately prior to PPRHS' April 2018 purchase of substantially all of PayRight's business assets, the Company's existing non-controlling investment in PayRight had a carrying value of approximately $ 1.1 million with an estimated fair value on the acquisition date of approximately $ 0.3 million.
−Removed: The Company recorded an impairment loss of $ 0.8 million during the second quarter of 2018 for the difference between the carrying value and the fair value of the non-controlling equity-method investment in PayRight.
−Removed: The loss is reported within Other, net in the Company's consolidated statements of operations for the year ended December 31, 2018.
−Removed: RadPad and Landlord Station
−Removed: In July 2018, the Company's subsidiary PRET, acquired substantially all of the operating assets of RadPad Holdings, Inc.
−Removed: ("RadPad") and Landlord Station, LLC ("Landlord Station").
−Removed: RadPad is a marketplace for the rental real estate market.
−Removed: Landlord Station offers a complementary tool set that focuses on facilitation of tenant screening and other services to the fast-growing independent landlord market.
−Removed: These asset purchases were deemed to be a business under ASC 805.
−Removed: Due to the related nature of the two sets of business assets, same acquisition dates, and how the Company intends to operate them under the "RadPad" name and operating platform within PRET, the Company deemed them to be one business for accounting and reporting purposes.
−Removed: PRET is reported within the Company's Integrated Partners reportable segment.
−Removed: Total consideration paid for RadPad and Landlord Station was $ 4.3 million consisting of $ 3.9 million in cash plus forgiveness of pre-existing debt owed by the sellers to the Company of $ 0.4 million.
−Removed: Net tangible and separately-identifiable intangible assets with an initial fair value of $ 2.1 million were acquired along with goodwill with an initial value of $ 2.2 million.
−Removed: During the fourth quarter of 2018, the Company received additional information about the fair values of assets acquired and liabilities assumed.
−Removed: Accordingly, measurement period adjustments were made to the opening balance sheet to decrease net assets acquired and increase goodwill by $ 0.2 million.
−Removed: NCIs in PRET were issued to certain sellers of the RadPad and Landlord Station assets in the form of residual profit interests and distribution rights.
−Removed: However the fair value of these NCIs was deemed to not be material at time of acquisition due to the nature of the profit-sharing and liquidations provisions contained in the operating agreement for PRET.
−Removed: Under the terms of PRET's operating agreement, no material earnings or losses related to RadPad or Landlord Station were attributable to the NCIs for the years ended December 31, 2019 or 2018.
−Removed: As disclosed in Note 2 , Disposal of Business , to the consolidated financial statements, in third quarter 2020 PRET sold substantially all of its assets, composed mostly of the assets acquired from YapStone, Inc.
−Removed: in March 2019, to a third party.
−Removed: This disposal by PRET resulted in the redemptions of PRET's NCIs, including the NCIs that originated from PRET's July 2018 acquisition of the RadPad and Landlord Station assets.
−Removed: Priority Payment Systems Northeast
−Removed: In July 2018, the Company acquired substantially all of the operating assets of Priority Payment Systems Northeast, Inc.
−Removed: ("PPS Northeast").
−Removed: This purchase of these net assets was deemed to be a business under ASC 805.
−Removed: Prior to this acquisition, PPS Northeast was an independent brand-licensed office of the Company where it developed expertise in software-integrated payment services designed to manage turnkey installations of point-of-sale and supporting systems, as well as marketing programs that place emphasis on online ordering systems and digital marketing campaigns.
−Removed: PPS Northeast is reported within the Company's Consumer Payments reportable segment.
−Removed: Initial consideration of $ 3.5 million consisted of $ 0.5 million plus 285,117 shares of common stock of the Company with a fair value of approximately of $ 3.0 million.
−Removed: In addition, contingent consideration in an amount up to $ 0.5 million was deemed to have a fair value of $ 0.4 million at acquisition date.
−Removed: If earned, the seller can receive this contingent consideration in either cash or additional shares of the Company's common stock, as mutually agreed by the Company and seller, over a two-year period from the date of the acquisition.
−Removed: Net tangible and separately-identifiable intangible assets with an initial fair value of $ 2.0 million were acquired along with goodwill with an initial value of $ 1.9 million, including the $ 0.4 million estimated fair value of the contingent consideration due to the seller.
−Removed: Transaction costs were not material and were expensed.
−Removed: As of December 31, 2020, the Company has determined that it will owe no contingent consideration to the seller, and accrued contingent consideration of approximately $ 0.2 million was credited to the Company's statements of operations for both years ended December 31, 2020 and 2019.
−Removed: Priority Payment Systems Tech Partners
−Removed: In August 2018, the Company acquired substantially all of the operating assets of M.Y.
−Removed: Capital, Inc.
−Removed: and Payments In Kind, Inc., collectively doing business as Priority Payment Systems Tech Partners ("PPS Tech").
−Removed: These related asset purchases were deemed to be a business under ASC 805.
−Removed: Due to the related nature of the two sets of business assets and how the Company intends to operate them, the Company deemed them to be one business for accounting and reporting purposes.
−Removed: Prior to this acquisition, PPS Tech was an independent brand-licensed office of the Company where it developed a track record and extensive network in the integrated payments and B2B marketplaces.
−Removed: PPS Tech is reported within the Company's Consumer Payments reportable segment.
−Removed: Initial consideration of $ 5.0 million consisted of $ 3.0 million plus 190,078 shares of common stock of the Company with a fair value of approximately $ 2.0 million.
−Removed: In addition, contingent consideration in an amount up to $ 1.0 million was deemed to have a fair value of $ 0.6 million at acquisition date.
−Removed: If earned, the seller would have received half of any contingent consideration in cash and the other half in a number of shares of common stock of the Company equal to the portion of the earned contingent consideration payable in shares of common stock of the Company, over a two-year period from the date of acquisition.
−Removed: Net tangible and separately-identifiable intangible assets with an initial fair value of $ 2.2 million were acquired along with goodwill with an initial value of $ 3.4 million, including the $ 0.6 million estimated fair value of the contingent consideration due to the seller.
−Removed: Transaction costs were not material and were expensed.
−Removed: As of December 31, 2020, the Company has determined that it will owe no contingent consideration to the seller, and accrued contingent consideration of approximately $ 0.2 million and $ 0.4 million was credited to the Company's statement of operations for the years ended December 31, 2020 and 2019, respectively.
−Removed: Other Information
−Removed: Based on their purchase prices and pre-acquisition operating results and assets, none of the business combinations consummated by the Company in 2018, as described above, met the materiality requirements for disclosure of pro-forma financial information, either individually or in the aggregate.
−Removed: The measurement periods, as defined by ASC 805, Business Combination ("ASC 805"), is closed for these 2018 business combinations.
−Removed: Goodwill for all 2018 business combinations is deductible by the Company for income tax purposes.
−Removed: SETTLEMENT ASSETS AND OBLIGATIONS
−Removed: Consumer Payments Segment
−Removed: In the Company’s Consumer Payments reportable segment, funds settlement refers to the process of transferring funds for sales and credits between card issuers and merchants.
−Removed: The standards of the card networks restrict non-members, such as the Company, from performing funds settlement or accessing merchant settlement funds.
−Removed: Instead, these funds must be in the possession of a member bank until the merchant is funded.
−Removed: The Company has agreements with member banks which allow the Company to route transactions under the member bank's control to clear transactions through the card networks.
−Removed: differences, interchange fees, merchant reserves and exception items cause differences between the amounts received from the card networks and the amounts funded to the merchants.
−Removed: Since settlement funds are required to be in the possession of a member bank until the merchant is funded, these funds are not assets of the Company and the associated obligations related to these funds are not liabilities of the Company.
−Removed: Therefore, neither is recognized in the Company’s consolidated balance sheets.
−Removed: Member banks held merchant funds of approximately $ 103.8 million and $ 79.8 million at December 31, 2020 and 2019, respectively.
−Removed: Exception items include items such as customer chargeback amounts received from merchants and other losses.
−Removed: Under agreements between the Company and its merchant customers, the merchants assume liability for such chargebacks and losses.
−Removed: If the Company is ultimately unable to collect amounts from the merchants for any charges or losses due to merchant fraud, insolvency, bankruptcy or any other reason, it may be liable for these charges.
−Removed: In order to mitigate the risk of such liability, the Company may 1) require certain merchants to establish and maintain reserves designed to protect the Company from such charges or losses under its risk-based underwriting policy and 2) engage with certain ISOs in partner programs in which the ISOs assume liability for these charges or losses.
−Removed: A merchant reserve account is funded by the merchant and held by the member bank during the term of the merchant agreement.
−Removed: Unused merchant reserves are returned to the merchant after termination of the merchant agreement or in certain instances upon a reassessment of risks during the term of the merchant agreement.
−Removed: Exception items that become the liability of the Company are recorded as merchant losses, a component of costs of services in the consolidated statements of operations.
−Removed: 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.
−Removed: Expenses for actual and estimated merchant losses for the years ended December 31, 2020, 2019, and 2018 were $ 4.1 million, $ 3.1 million, and $ 3.1 million, respectively.
−Removed: Commercial Payments Segment
−Removed: 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.
−Removed: 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.
−Removed: The Company recognizes these cash balances within restricted cash and settlement obligations in its consolidated balance sheets.
−Removed: The Company's settlement assets and obligations at December 31, 2020 and 2019 were as follows:
−Removed: (in thousands) December 31, 2020 December 31, 2019
−Removed: Settlement Assets:
−Removed: Card settlements due from merchants, net of estimated losses $ 753 $ 446
−Removed: Card settlements due from processors — 87
−Removed: Total Settlement Assets $ 753 $ 533
−Removed: Settlement Obligations:
−Removed: Card settlements due to merchants $ — $ 44
−Removed: Due to ACH payees (1) 72,878 37,745
−Removed: Total Settlement Obligations $ 72,878 $ 37,789
−Removed: (1) Amounts due to ACH payees are held by the Company in restricted cash.
Notes Receivable
−Removed: The Company has notes receivable from ISOs and another entity (see Note 13 , Related Party Matters ) totaling approximately $ 7.7 million and $ 5.7 million as of December 31, 2020 and 2019, respectively.
−Removed: These notes receivable are reported as current
−Removed: and non-current on the Company's consolidated balance sheet.
+Added: The Company has notes receivable of $ 0.4 million and $ 7.7 million as of December 31, 2021 and 2020, respectively, which are reported as current portion of notes receivable and notes receivable less current portion on the Company's Consolidated Balance Sheets.
The notes bear a weighted-average interest rate of 13.8 % and 13.1 % as of December 31, 2021 and 2020, respectively.
+Added: The notes receivable are comprised of notes receivable from ISOs.
+Added: Notes receivable from three other entities were fully repaid during 2021.
+Added: See Note 3, Acquisitions and Note 15, Related Party Transactions for more information about the repayments of these notes receivable.
Under the terms of the agreements with ISOs, the Company preserves the right to hold back residual payments due to the ISOs and to apply such residuals against future payments due to the Company.
−Removed: The note receivable due from another entity is secured by business assets and a personal guarantee.
−Removed: The allowance for doubtful note receivable is shown net of the current outstanding principal balances for notes receivable on the consolidated balance sheet and the $ 0.5 million provision for doubtful note receivable is included within selling, general and administrative expense on the consolidated statement of operations and within other noncash items, net on the consolidated statement of cash flows.
−Removed: Principal contractual maturities on the notes receivable, including payment-in-kind interest, at December 31, 2020 were as follows:
−Removed: (in thousands)
−Removed: Year Ended December 31, Maturities
−Removed: Total principal due 8,222
−Removed: Discount (long-term) ( 38 )
−Removed: Allowance for doubtful note receivable (current) ( 467 )
−Removed: Notes receivable, net $ 7,717
+Added: The note receivable from another entity that was repaid during the fourth quarter of 2021 was secured by business assets and a personal guarantee.
+Added: In 2020, the Company recorded an allowance for doubtful notes receivable of $ 0.5 million on its Consolidated Balance Sheet, and recognized the related expense within selling, general and administrative expense on its Consolidated Statements of Operations and within other noncash items, net on its Consolidated Statements of Cash Flows for the year ended December 31, 2020.
+Added: In 2021, the Company determined the balance would not be collected and as such the allowance for doubtful notes receivable was written off.
+Added: As of December 31, 2021, the Company had no allowance for doubtful notes receivable.
+Added: As of December 31, 2021 approximately $ 0.3 million of the notes receivable balance is due in 2022 and approximately $ 0.1 million of the balance is due in 2023.
Goodwill and Other Intangible Assets
−Removed: 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.
−Removed: The Company's goodwill was allocated to reporting units as follows:
+Added: The Company records goodwill upon acquisition of a business when the purchase price is greater than the fair value assigned to the underlying separately identifiable tangible and intangible assets acquired and the liabilities assumed.
+Added: The Company's goodwill relates to the following reporting units as of December 31, 2021 and 2020:
(in thousands) December 31, 2021 December 31, 2020
−Removed: Consumer Payments $ 106,832 $ 106,832
−Removed: Integrated Partners — 2,683
−Removed: $ 106,832 $ 109,515
+Added: SMB Payments $ 120,636 $ 106,832
+Added: Enterprise Payments 245,104 —
+Added: Total $ 365,740 $ 106,832
The following table summarizes the changes in the carrying value of goodwill for the years ended December 31, 2021, 2020 and 2019:
(in thousands) Amount
−Removed: Balance at January 1, 2018 (all Consumer Payments) $ 101,532
−Removed: Additions for the year ended December 31, 2018:
−Removed: PayRight (Integrated Partners) 298
−Removed: RadPad/Landlord Station (Integrated Partners) 2,385
−Removed: PPS Northeast (Consumer Payments) 1,920
−Removed: PPS Tech (Consumer Payments) 3,380
−Removed: Balance at December 31, 2019 and 2018 109,515
−Removed: Disposal of goodwill in Integrated Partners reporting unit (Note 2 , Disposal of Business )
Balance at December 31, 2018 $ 109,515
−Removed: For business combinations consummated during the year ended December 31, 2018, goodwill is deductible for income tax purposes.
+Added: Changes in the value of goodwill —
+Added: Balance at December 31, 2019 109,515
+Added: Disposal of Business ( See Note 6.
+Added: Disposal of Business )
+Added: Balance at December 31, 2020 106,832
+Added: C&H Financial Services, Inc.
+Added: acquisition 13,804
+Added: Finxera acquisition 245,104
+Added: Balance at December 31, 2021
+Added: In connection with the acquisition of Finxera, $ 8.7 million of goodwill recorded was deductible for income tax purposes.
+Added: For all other business combinations consummated during the years ended December 31, 2021 and 2020, goodwill was fully deductible for income tax purposes.
There were no impairment losses for the years ended December 31, 2021, 2020 or 2019.
−Removed: The Company performed its most recent annual goodwill impairment test as of October 1, 2020, as noted below, using the optional qualitative method.
−Removed: On October 1, 2020 and December 31, 2020, only one of the Company's reporting units, Consumer Payments, had goodwill assigned to it due to the 2020 events described in Note 2 , Disposal of Business .
−Removed: Effective for the annual reporting period ended December 31, 2020, the Company voluntarily changed the date for its annual goodwill impairment assessment from November 30 to October 1.
−Removed: Both dates occur in the Company’s fourth quarter.
−Removed: The Company believes this prospective change does not represent a material change to a method of applying an accounting principle, even though the carrying value of goodwill is material to the Company’s consolidated financial statements.
−Removed: This change had no effect on the Company’s results of operations, financial condition, or cash flows for any reporting period.
−Removed: By using the October 1 annual assessment date, the Company believes that it will be able to utilize more readily available data from both internal and external sources and have additional time to evaluate the data prior to finalizing its year-end consolidated financial statements and disclosures.
−Removed: Based on the last quantitative assessment performed as of November 30, 2019, the estimated fair value of the Consumer Payments reporting unit exceeded the carrying value of the reporting unit.
−Removed: The Consumer Payments reporting unit passed the qualitative assessment as of October 1, 2020 and the Company believes that it is not more likely than not that the fair value of the Consumer Payments reporting unit is less than its carrying amount on October 1, 2020.
−Removed: This change in the date for the annual impairment assessment for goodwill does not change the Company’s requirements to assess goodwill on an interim date between scheduled annual testing dates if triggering events are present.
+Added: The Company performed its most recent annual goodwill impairment test as of October 1, 2021, using the optional qualitative method.
+Added: Under the qualitative method, we examined the factors most likely to affect our valuations.
+Added: As a result, we have concluded that it remains more likely than not that the fair value of each of our reporting units exceeds their carrying amounts.
As of December 31, 2021, the Company is not aware of any triggering events that have occurred since October 1, 2021.
Other Intangible Assets
−Removed: The Company's other intangible assets include acquired merchant portfolios, customer relationships, ISO relationships, trade names, technology, non-compete agreements, and residual buyouts.
−Removed: For the year ended December 31, 2020, the Company recognized costs, including accrued contingent consideration, of $ 10.0 million and $ 3.5 million for merchant portfolios and residual buyouts, respectively.
−Removed: For the year ended December 31, 2019, the Company recognized costs, including accrued contingent consideration, of $ 69.8 million for merchant portfolios (including $ 68.7 million related to the asset acquisition from YapStone, Inc.), $ 19.9 million for residual buyouts, and $ 1.0 million for technology intangibles.
−Removed: See Note 4 , Asset Acquisitions, Asset Contributions , and Business Combinations , for information about contingent consideration related to acquisitions consummated in 2019 and 2018.
−Removed: See Note 2 , Disposal of Business , for information about intangible assets that were disposed during the year ended December 31, 2020.
−Removed: At December 31, 2020 and December 31, 2019, other intangible assets consisted of the following:
−Removed: As of December 31,
−Removed: (in thousands) 2020 2019
−Removed: Merchant portfolios $ 55,816 $ 114,554
−Removed: Customer relationships 40,740 40,740
+Added: At December 31, 2021 and 2020, other intangible assets consisted of the following:
+Added: (in thousands, except weighted-average data) December 31, 2021 Weighted-average
+Added: Gross Carrying Value Accumulated Amortization Net Carrying Value
+Added: Other intangible assets:
+Added: ISO and referral partner relationships $ 175,300 $ ( 11,679 ) $ 163,621 14.8
Residual buyouts (1)
+Added: 126,225 ( 56,186 ) 70,039 6.4
+Added: Customer relationships 95,566 ( 70,883 ) 24,683 8.1
+Added: Merchant portfolios 76,016 ( 30,879 ) 45,137 6.7
+Added: Technology (2)
+Added: 48,690 ( 15,039 ) 33,651 9.9
Non-compete agreements (2)
+Added: 3,390 ( 3,390 ) — 0.0
Trade names 2,870 ( 1,890 ) 980 11.6
−Removed: Technology 14,390 15,390
+Added: Money transmission licenses (3)
+Added: 2,100 — 2,100
+Added: Total gross carrying value $ 530,157 $ ( 189,946 ) $ 340,211 9.7
+Added: (1) Additions to Residual buyouts were offset by certain assets that became fully amortized in 2021 but are still in service.
+Added: (2) Certain assets in the group became fully amortized in 2021 but are still in service.
+Added: (3) These assets have an indefinite useful life.
+Added: (in thousands, except weighted-average data) December 31, 2020 Weighted-average
+Added: Gross Carrying Value Accumulated Amortization Net Carrying Value
+Added: Other intangible assets:
ISO relationships $ 15,200 $ ( 7,319 ) $ 7,881 23.7
−Removed: Total capitalized $ 248,518 $ 304,875
−Removed: Less accumulated amortization:
−Removed: Merchant portfolios $ ( 19,471 ) $ ( 12,655 )
−Removed: Customer relationships ( 30,267 ) ( 25,836 )
Residual buyouts 114,359 ( 72,659 ) 41,700 6.8
−Removed: Non-compete agreements ( 3,390 ) ( 3,390 )
+Added: Customer relationships 40,740 ( 30,267 ) 10,473 11.0
+Added: Merchant portfolios 55,816 ( 19,471 ) 36,345 5.5
Trade names 2,870 ( 1,651 ) 1,219 11.6
+Added: Non-compete agreements 3,390 ( 3,390 ) — 3.0
Technology 14,390 ( 13,951 ) 439 6.1
−Removed: ISO relationships ( 7,319 ) ( 6,341 )
−Removed: Total accumulated amortization $ ( 148,708 ) $ ( 122,049 )
−Removed: Accumulated allowance for impairment $ ( 1,753 ) $ —
−Removed: Net carrying value $ 98,057 $ 182,826
−Removed: The weighted-average amortization periods for intangible assets held at December 31, 2020 are as follows:
−Removed: Useful Life Amortization Method Weighted-Average Life
−Removed: Merchant portfolios 5 - 6 years
−Removed: Straight-line 5.5 years
−Removed: Residual buyouts 1 - 9 years
−Removed: Straight-line and double declining 6.8 years
−Removed: Non-compete agreements 3 years Straight-line 3.0 years
−Removed: Trade names 5 - 12 years
−Removed: Straight-line 11.6 years
−Removed: Technology 6 - 7 years
−Removed: Straight-line 6.1 years
−Removed: ISO relationships 11 - 25 years
−Removed: Sum-of-years digits 23.7 years
−Removed: Customer relationships 10 - 15 years
−Removed: Straight-line and sum-of-years digits 11.0 years
+Added: Total gross carrying value $ 246,765 $ ( 148,708 ) $ 98,057 8.4
Amortization expense for intangible assets was $ 41.2 million, $ 33.1 million and $ 32.4 million for the years ended December 31, 2021, 2020 and 2019, respectively.
The estimated amortization expense of intangible assets as of December 31, 2021 for the next five years and thereafter is:
−Removed: (in thousands)
−Removed: Year Ending December 31, Amortization Expense
+Added: (in thousands) Estimated Amortization Expense
+Added: Year Ending December 31,
2022 $ 59,262
3 unchanged sentences
The Company tests intangible assets for impairment when events occur or circumstances indicate that the fair value of an intangible asset or group of intangible assets may be impaired.
−Removed: In the Company's Consumer Payments segment, a residual buyout intangible asset with a net carrying value of $ 2.2 million was deemed to be impaired at December 31, 2020.
−Removed: The fair value of this intangible asset was estimated to be approximately $ 0.5 million, resulting in the recognition of an impairment charge of $ 1.8 million and this amount is included in selling, general and administrative expenses on the Company' consolidated statement of operations for the year ended December 31, 2020.
+Added: In the Company's SMB Payments segment, a residual buyout intangible asset with a net carrying value of $ 2.2 million was deemed to be impaired at December 31, 2020.
+Added: The fair value of this intangible asset was estimated to be approximately $ 0.5 million, resulting in the recognition of an impairment charge of $ 1.8 million, which is included in selling, general and administrative expenses on the Company's Consolidated Statement of Operations for the year ended December 31, 2020.
This impairment was the result of diminished cash flows generated by the merchant portfolio.
1 unchanged sentence
Property, Equipment and Software
−Removed: 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.
−Removed: 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.
−Removed: A summary of property, equipment and software as of December 31, 2020 and December 31, 2019 was as follows:
−Removed: As of December 31,
−Removed: (in thousands) 2020 2019 Estimated Useful Life
+Added: A summary of property, equipment and software, net as of December 31, 2021 and 2020 was as follows:
+Added: (in thousands, except useful lives) December 31, 2021 December 31, 2020 Estimated Useful Life
Furniture and fixtures $ 2,819 $ 2,795 5 - 10 years
2 unchanged sentences
Leasehold improvements 6,467 6,250 3 - 10 years
−Removed: 63,581 56,695
−Removed: Less accumulated depreciation ( 40,706 ) ( 33,177 )
+Added: Property, equipment and software 74,256 63,581
+Added: accumulated depreciation ( 49,023 ) ( 40,706 )
Property, equipment and software, net $ 25,233 $ 22,875
Depreciation expense totaled $ 8.5 million, $ 7.7 million and $ 6.6 million for the years ended December 31, 2021, 2020 and 2019, respectively.
+Added: 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.
Accounts Payable and Accrued Expenses
−Removed: 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.
−Removed: The components of accounts payable and accrued expenses that exceeded five percent of total current liabilities at December 31, 2020 and December 31, 2019 consisted of the following:
−Removed: As of December 31,
−Removed: (in thousands) 2020 2019
−Removed: Accounts payable - trade $ 4,308 $ 6,968
+Added: The components of accounts payable and accrued expenses that exceeded five percent of total current liabilities at either December 31, 2021 or December 31, 2020 consisted of the following:
+Added: (in thousands) December 31, 2021 December 31, 2020
Accrued card network fees $ 10,239 $ 8,041
−Removed: LONG-TERM DEBT AND WARRANT LIABILITY
−Removed: Long-term debt owed by certain subsidiaries (the "Borrowers") of the Company consisted of the following as of December 31, 2012 and December 31, 2019:
−Removed: As of December 31, 2020
−Removed: (dollar amounts in thousands) 2020 2019
−Removed: Senior Credit Agreement:
−Removed: Term Loan - Matures January 3, 2023 and bears interest at LIBOR (with a LIBOR "floor" of 1.00 % beginning March 8, 2020) plus 6.50 % and 5.0 % at December 31, 2020 and 2019, respectively (actual rate of 7.50 % and 6.71 % at December 31, 2020 and 2019, respectively)
−Removed: $ 279,417 $ 388,837
−Removed: Revolving credit facility - $ 25.0 million line, matures January 22, 2022, and bears interest at LIBOR plus 6.50 % and 5.0 % at December 31, 2020 and 2019, respectively (actual rate of 6.65 % and 6.71 % at December 31, 2020 and 2019, respectively).
−Removed: Term Loan - Subordinated, matures July 3, 2023 and bears interest at 5.0 % plus an applicable margin at December 31, 2020 and 2019 (actual rate of 12.50 % and 10.50 % at December 31, 2020 and 2019, respectively)
+Added: Debt Obligations
+Added: Outstanding debt obligations as of December 31, 2021 and 2020 consisted of the following:
+Added: (in thousands) December 31, 2021 December 31, 2020
+Added: Credit and Guaranty Agreement:
+Added: Term facility - matures April 27, 2027, interest rate of 6.75 % at December 31, 2021
$ 616,900 $ —
+Added: Revolving credit facility - $ 40.0 million line, matures April 27, 2026, interest rate of 5.75 % at December 31, 2021
+Added: Senior Credit Agreement:
+Added: Term facility - Original maturity at January 3, 2023, interest rate of 7.50 % at December 31, 2020
+Added: Term Loan Agreement:
+Added: Term loan - subordinated, original maturity at July 3, 2023, interest rate of 12.50 % at December 31, 2020
Total debt obligations 631,900 382,040
1 unchanged sentence
unamortized debt discounts and deferred financing costs ( 21,595 ) ( 4,725 )
−Removed: Total long-term debt, net $ 357,873 $ 485,578
−Removed: Substantially all of the Company's assets are pledged as collateral under the credit agreements.
−Removed: The Company is neither a borrower nor a guarantor of the credit agreements.
−Removed: The Company's subsidiaries that are borrowers or guarantors under the credit agreements are referred to as the "Borrowers."
−Removed: Long-Term Debt
−Removed: On January 3, 2017, the Company refinanced existing long-term debt whereby the Borrowers entered into a credit agreement with a syndicate of lenders (the "Senior Credit Agreement").
−Removed: The Senior Credit Agreement had an original maximum borrowing amount of $ 225.0 million, consisting of a $ 200.0 million term loan and a $ 25.0 million revolving credit facility.
−Removed: As part of the debt refinancing on January 3, 2017, the Borrowers also entered into a Credit and Guaranty Agreement (the "GS Credit Agreement") with Goldman Sachs Specialty Lending Group, L.P.
−Removed: ("Goldman Sachs" or "GS") for an $ 80.0 million term loan, the proceeds of which were used to refinance the amounts previously outstanding with Goldman Sachs.
−Removed: The Company determined that the 2017 debt refinancing should be accounted for as a debt extinguishment.
−Removed: The following table summarizes changes made as the results of key amendments to the 2017 credit agreements through December 31, 2020:
−Removed: (in millions) GS Credit
−Removed: Senior Credit Agreement Agreement Discounts and Costs
−Removed: Additional Revolving
−Removed: Principal Line Amendment Principal Issue Costs Costs
−Removed: Amendment Established Established Type Established (a) Discount Expensed (b) Capitalized
−Removed: January 2017 $ 200.0 $ 25.0 Extinguishment $ 80.0 $ 3.7 $ 1.8 $ 3.3
−Removed: January 2018 67.5 — Modification — $ 0.4 $ 0.8 $ 0.7
−Removed: December 2018 130.0 — Modification — $ 0.3 $ 1.2 $ 0.1
−Removed: March 2020 — — Modification — $ — $ 0.4 $ 2.7
−Removed: $ 397.5 $ 25.0 $ 80.0
−Removed: (a) The GS Credit Agreement allows for payment-in-kind interest which subsequently increases the amount outstanding.
−Removed: Beginning with the Sixth Amendment, the Senior Credit Agreement began to allow certain amounts of interest to be treated as payment-in-kind interest and added to the outstanding borrowings balance, as discussed below under the header "Changes to Applicable Interest Rate Margins."
−Removed: (b) Reported within "Debt extinguishment and modification expenses" on the Company's consolidated statements of operations.
−Removed: The Senior Credit Agreement and the GS Credit Agreement were also amended on November 14, 2017.
−Removed: This amendment allows for loan advances of less than $ 5.0 million and for certain liens on cash securing the Company's funding obligations under a new product involving a virtual credit card program.
−Removed: This amendment did not affect any of the material terms, conditions, or covenants of the Senior Credit Agreement or the GS Credit Agreement.
−Removed: Additionally, two amendments were executed in 2019 that concerned procedural changes to the quarterly and annual reporting for lenders and did not affect any of the material terms, conditions, or covenants of the Senior Credit Agreement or the GS Credit Agreement.
−Removed: Senior Credit Agreement
−Removed: Outstanding borrowings under 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.
−Removed: For the term loan facility of the Senior Credit Facility, the Sixth Amendment provides for a LIBOR "floor" of 1.0 % per annum.
−Removed: Accrued interest is payable quarterly.
−Removed: The revolving credit facility incurs a commitment fee on any undrawn amount of the $ 25.0 million credit line, which equates to 0.5 % per annum for the unused portion.
−Removed: GS Credit Agreement
−Removed: Outstanding borrowings under the GS Credit Agreement accrue interest at 5.0 %, plus an applicable margin, or percentage per annum, as indicated in the amended credit agreement.
−Removed: 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.
−Removed: Senior Credit Agreement - Partial Pay Down of Term Debt and Changes to Applicable Interest Rate Margins in 2020
−Removed: Under the Sixth Amendment, the interest rate margins for the Senior Credit Agreement and the GS Credit Agreement increased incrementally by 1.0 % on June 16, 2020, and then increased incrementally by 0.5 % on each of the dates July 16, August 15, and September 14, 2020 because the Borrowers did not make a permitted accelerated principal payment of at least $ 100.0 million under the term loan facility of the Senior Credit Agreement on or before those dates as described in the Sixth Amendment (the "$ 100.0 million principal prepayment").
−Removed: The additional interest expense incurred by the Borrowers due to the increases in the applicable margin for the revolving credit facility under the Senior Credit Agreement was paid in cash and such increases for the term facility of the Senior Credit Facility and the GS Credit Agreement were accounted for as PIK interest at the election of the Borrowers.
−Removed: On September 25, 2020, the Borrowers made the $ 100.0 million principal prepayment plus an additional $ 6.5 million principal prepayment to reduce the outstanding indebtedness under the term loan facility of the Senior Credit Agreement.
−Removed: This $ 106.5 million prepayment resulted in simultaneous reductions in the applicable interest rate margins under the Senior Credit Agreement and the GS Credit Agreement, which prospectively eliminates and reverses the applicable margin increases described in the preceding paragraph.
−Removed: Under the terms of the Senior Credit Agreement and the GS Credit Agreement, the future applicable interest rate margins may vary based on the Borrowers' future Total Net Leverage Ratio (as defined) in addition to future changes in the underlying market rates for LIBOR and the rate used for base-rate borrowings.
−Removed: The Senior Credit Agreement and the GS Credit Agreement also have incremental margins that would apply to the future applicable interest rates if the Borrowers are deemed to be in violation of the terms of the credit agreement.
+Added: Long-term debt, net $ 604,105 $ 357,873
Contractual Maturities
−Removed: Principal outstanding at December 31, 2020 for term debt under the Senior Credit Agreement and the GS Credit Agreement are scheduled to be paid as follows:
−Removed: (in thousands) Principal Due
−Removed: Senior Credit Agreement GS Credit Agreement Total
−Removed: Year Ending December 31, Term Revolver Term
−Removed: 2021 ( current )
+Added: Based on terms and conditions existing at December 31, 2021, future minimum principal payments for long-term debt are as follows:
+Added: (in thousands) Revolving Credit Facility
+Added: Year Ending December 31, Term Facility Total Principal Due
2022 $ 6,200 $ — $ 6,200
1 unchanged sentence
2024 6,200 — 6,200
+Added: 2025 6,200 — 6,200
+Added: 2026 6,200 15,000 21,200
+Added: After 2026 585,900 — 585,900
Total $ 616,900 $ 15,000 $ 631,900
−Removed: 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.
−Removed: No such prepayments were due for the years ended December 31, 2020 and 2019.
−Removed: Under the Senior Credit Agreement, prepayments of outstanding principal may be made in permitted increments with a 1.0 % penalty for certain prepayments.
−Removed: Under the GS Credit Agreement, prepayment of outstanding principal is subject to a 4.0 % penalty for certain prepayments occurring prior to March 18, 2021 and 2.0 % for certain prepayments occurring between March 18, 2021 and March 18, 2022.
−Removed: Such penalties will be based on the principal amount that is prepaid, subject to the terms of the credit agreements.
−Removed: On March 5, 2021, the Company entered into a debt commitment letter with Truist Bank and Truist Securities, Inc., pursuant to which Truist has committed to provide Priority with a new Term Loan Facility and Revolving Credit Facility, which will replace existing Senior loan facilities.
−Removed: Also, on March 5, 2021, the Company entered into a preferred stock commitment letter (the “Equity Commitment Letter”) with Ares Capital Management LLC and Ares Alternative Credit Management LLC to issue preferred stock, the proceeds of which will be partially used to entirely repay our Subordinated Debt Facility.
−Removed: See Note 21, Subsequent Events, for additional information.
−Removed: The principal amount borrowed and outstanding under the GS Credit Agreement was $ 80.0 million at December 31, 2020 and December 31, 2019.
−Removed: Included in the outstanding principal balance at December 31, 2020 and December 31, 2019 was accumulated PIK interest of $ 22.6 million and $ 15.1 million, respectively.
−Removed: For the years ended December 31, 2020 and 2019, the payment-in-kind (PIK) interest under the GS Credit Agreement added $ 7.5 million and $ 5.1 million, respectively, to the principal amount outstanding under the GS Credit Agreement.
+Added: 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 and Guaranty Agreement.
+Added: Credit and Guaranty Agreement
+Added: On April 27, 2021, the Company entered into a Credit and Guaranty Agreement with Truist Bank ("Truist") (the "Credit Agreement") which provides for:
+Added: 1) a $ 300.0 million senior secured term loan facility (the "initial term loan");
+Added: 2) a $ 290.0 million senior secured delayed draw term loan facility (the "delayed draw term loan") (together, the "term facility");
+Added: and 3) a $ 40.0 million senior secured revolving credit facility.
+Added: The Credit Agreement was amended on September 17, 2021 to increase the amount of the delayed draw term loan facility by $ 30.0 million to $ 320.0 million.
+Added: The additional delayed draw term loan is part of the same class of term loans made pursuant to the original commitments under the Credit Agreement.
+Added: Outstanding borrowings under the Credit Agreement accrue interest using either a base rate or a LIBOR rate plus an applicable margin per year, subject to a LIBOR rate floor of 1.00 % per year.
+Added: Accrued interest is payable on each interest payment date (as defined in the Credit Agreement).
+Added: The revolving credit facility incurs an unused commitment fee on any undrawn amount in an amount equal to 0.50 % per year of the unused portion.
+Added: The future applicable interest rate margins may vary based on the Company's Total Net Leverage Ratio in addition to future changes in the underlying market rates for LIBOR and the rate used for base-rate borrowings.
+Added: Prepayments of outstanding principal may be made in permitted increments subject to a 1.00 % penalty for certain prepayments made in connection with repricing transactions.
+Added: The Credit Agreement contains representations and warranties, financial and collateral requirements, mandatory payment events, events of default and affirmative and negative covenants, including covenants that restrict 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.
+Added: The outstanding amount of any loans and any other amounts owed under the Credit Agreement may, after the occurrence of an event of default, at the option of Truist, be declared immediately due and payable.
+Added: Events of default include the failure of the Company to make principal, premium or interest payment when due, or the failure by the Company to perform or comply with any term or covenant in the Credit Agreement.
+Added: 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 Company is required to comply with certain restrictions on its Total Net Leverage Ratio, which is defined as the ratio of consolidated total debt to Consolidated Adjusted EBITDA (as defined in the Credit Agreement).
+Added: If applicable, the maximum permitted Total Net Leverage Ratio is:
+Added: 1) 6.50 :1.00 at each quarter ended September 30, 2021 through June 30, 2022;
+Added: 2) 6.00 :1.00 at each quarter ended September 30, 2022 through June 30, 2023;
+Added: and 3) 5.50 :1.00 at each quarter ended September 30, 2023 and thereafter.
+Added: As of December 31, 2021, the Company is in compliance with its debt covenants.
+Added: Proceeds from the initial term loan were used to partially fund the Refinancing described below.
+Added: Proceeds from the delayed draw term loan were used to fund the Company's acquisition of Finxera.
+Added: See Note 3, Acquisitions for additional information related to the acquisition of Finxera.
+Added: Senior Credit Agreement and Term Loan Agreement
+Added: On January 3, 2017, the Company refinanced existing long-term debt whereby it entered into a credit agreement with a syndicate of lenders (the "Senior Credit Agreement") consisting of:
+Added: 1) a $ 200.0 million term loan;
+Added: and 2) a $ 25.0 million revolving credit facility.
+Added: Also on January 3, 2017, the Company entered into a Credit and Guaranty Agreement (the "Term Loan Agreement") with Goldman Sachs Specialty Lending Group, L.P.
+Added: ("Goldman Sachs") for an $ 80.0 million subordinated term loan, the proceeds of which were used to refinance the amounts previously outstanding with Goldman Sachs.
+Added: The Company determined that the 2017 debt refinancing should be accounted for as a debt extinguishment.
+Added: The Senior Credit Agreement and the Term Loan Agreement were amended on November 14, 2017 to allow for loan advances of less than $ 5.0 million and for certain liens on cash securing the Company's funding obligations under a new product involving a virtual credit card program.
+Added: This amendment did not affect any of the material terms, conditions or covenants of these agreements.
+Added: Additionally, the Senior Credit Agreement was amended in January 2018 and December 2018 to increase the term loan by $ 67.5 million and $ 130.0 million, respectively.
+Added: Two amendments were executed in 2019 that concerned
+Added: procedural changes to the quarterly and annual reporting for lenders and did not affect any of the material terms, conditions or covenants of the Senior Credit Agreement or the Term Loan Agreement.
+Added: In March 2020, a sixth amendment was made to the Senior Credit Agreement and Term Loan Agreement which included (among other updates):
+Added: 1) changes to the Senior Credit Agreement to allow for certain amounts of interest to be treated as PIK interest and added to the outstanding borrowings balance (similar to what was already allowed by the Term Loan Agreement);
+Added: and 2) increases to the interest rate margins for these agreements incrementally of 1.00 % on June 16, 2020, and 0.50 % on each of the following dates;
+Added: 2) August 15;
+Added: and 3) September 14, 2020 because the Company did not make a permitted accelerated principal payment of at least $ 100.0 million under the term loan facility of the Senior Credit Agreement on or before those dates.
+Added: The additional interest expense incurred by the Company due to the increases in the applicable margin for the revolving credit facility under the Senior Credit Agreement was paid in cash and such increases for the term facility of the Senior Credit Agreement and the Term Loan Agreement were accounted for as PIK interest.
+Added: On September 25, 2020, the Company made the $ 100.0 million principal prepayment plus an additional $ 6.5 million principal prepayment to reduce the outstanding indebtedness under the term loan facility of the Senior Credit Agreement.
+Added: This resulted in simultaneous reductions in the applicable interest rate margins under the Senior Credit Agreement and the Term Loan Agreement, which prospectively eliminated and reversed the applicable margin increases described in the preceding paragraph.
+Added: 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 covenants that restrict 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.
+Added: Under the terms of the Senior Credit Agreement and the Term Loan Agreement, the future applicable interest rate margins could vary based on the Company's Total Net Leverage Ratio in addition to future changes in the underlying market rates for LIBOR and the rate used for base-rate borrowings.
+Added: The Senior Credit Agreement and the Term Loan Agreement also have incremental margins that would apply to the future applicable interest rates if the Company was deemed to be in violation of the terms of the credit agreement.
+Added: The Company was also required to comply with certain restrictions on its Total Net Leverage Ratio, which is defined as the ratio of consolidated total debt to Consolidated Adjusted EBITDA (as defined in the Senior Credit Agreement and Term Loan Agreement).
+Added: The maximum permitted Total Net Leverage Ratio was 7.75 :1.00 at December 31, 2020 and was 7.71 :1.00 at March 31, 2021.
+Added: Under the Senior Credit Agreement, prepayments of outstanding principal could be made in permitted increments with a 1.00 % penalty for certain prepayments.
+Added: Under the Term Loan Agreement, prepayment of outstanding principal was subject to a 4.00 % penalty for certain prepayments occurring prior to March 18, 2021 and 2.00 % for certain prepayments occurring between March 18, 2021 and March 18, 2022.
+Added: Outstanding borrowings under the Senior Credit Agreement accrued interest using either a base rate (as defined) or a LIBOR rate plus an applicable margin, or percentage per year.
+Added: For the term loan facility of our Senior Credit Agreement, the sixth amendment described above provided for a LIBOR "floor" of 1.00 % per year.
+Added: Accrued interest was payable monthly.
+Added: The revolving credit facility incurred a commitment fee on any undrawn amount, which equated to 0.50 % per year for the unused portion.
+Added: Outstanding borrowings under the Term Loan Agreement accrued interest at 5.00 %, plus an applicable margin, or percentage per year.
+Added: Accrued interest was payable quarterly at 5.00 % per year, and the accrued interest attributable to the applicable margin was capitalized as PIK interest each quarter.
+Added: The outstanding obligation under the Term Loan Agreement was $ 102.6 million at December 31, 2020, which consisted of $ 80.0 million in principal and $ 22.6 million of accumulated PIK interest.
+Added: For the year ended December 31, 2020, PIK interest under the Term Loan Agreement added $ 7.5 million to the principal amount outstanding under the Term Loan Agreement.
+Added: In connection with the April 2021 debt refinancing, the outstanding obligation of $ 274.6 million under the Senior Credit Agreement and the outstanding obligation of $ 105.1 million (which consisted of $ 80.0 million in principal and $ 25.1 million of accumulated PIK interest) under the Term Loan Agreement 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").
Interest Expense and Amortization of Deferred Loan Costs and Discounts
−Removed: Deferred financing costs and debt discount are being amortized using the effective interest method over the remaining term of the respective debt and are recorded as a component of interest expense.
−Removed: Unamortized deferred financing costs and debt discount are included in net long-term debt in the Company's consolidated balance sheets.
−Removed: Interest expense, including fees for undrawn amounts under the revolving credit facility and amortization of deferred financing costs and debt discounts, was $ 44.8 million, $ 40.7 million, and $ 29.9 million for the years ended December 31, 2020, 2019 and 2018, respectively.
−Removed: Interest expense increased due to the amortization of deferred financing costs and debt discounts by $ 2.4 million, $ 1.7 million, and $ 1.4 million for the years ended December 31, 2020, 2019, and 2018, respectively.
−Removed: Interest expense for the year ended December 31, 2019 also included a $ 0.4 million fee for the $ 70.0 million delayed principal draw under December 2018 amendment to the Senior Credit Agreement, which occurred during the first quarter of 2019.
−Removed: Debt Extinguishment and Debt Modification Expenses
−Removed: In addition to the $ 0.4 million of expenses associated with amounts paid to third parties related to the debt modification that occurred in March 2020, debt modification and extinguishment expenses for the year ended December 2020 also included the write off of certain previously deferred loan costs.
−Removed: The $ 106.5 million principal repayment made in September 2020 for the term facility of the Senior Credit Agreement was deemed to be a partial extinguishment of debt that was permitted and contemplated by the existing debt agreement, as previously amended.
−Removed: As a result, a proportional amount of unamortized loan costs and discount in the amount of $ 1.5 million were removed and expensed during the year ended December 31, 2020.
−Removed: The Senior Credit Agreement and the GS Credit 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.
−Removed: 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 GS Credit Agreement).
−Removed: The maximum permitted Total Net Leverage Ratio was 7.75 :1.00 at December 31, 2020.
−Removed: As of December 31, 2020, the Company remained in compliance with the covenants.
−Removed: The table below sets forth the maximum permitted Total Net Leverage Ratio for the indicated test periods:
−Removed: Test Period Ending Total Net Leverage Ratio Maximum Permitted
−Removed: December 31, 2020 7.75 :
−Removed: March 31, 2021 7.71 :
−Removed: June 30, 2021 7.44 :
−Removed: September 30, 2021 7.19 :
+Added: Deferred financing costs and debt discounts are amortized using the effective interest method over the remaining term of the respective debt and are recorded as a component of interest expense.
+Added: Unamortized deferred financing costs and debt discount are included in long-term debt on the Company's Consolidated Balance Sheets.
+Added: Interest expense, including fees for undrawn amounts under the revolving credit facility and the delayed draw term loan facility of the Credit Agreement and the delayed principal draw under the Senior Credit Agreement, as well as amortization of deferred financing costs and debt discounts, was $ 36.5 million, $ 44.8 million and $ 40.7 million for the years ended December 31, 2021, 2020 and 2019, respectively.
+Added: Interest expense included amortization of deferred financing costs and debt discounts of $ 4.0 million, $ 2.4 million and $ 1.7 million for the years ended December 31, 2021, 2020 and 2019, respectively.
+Added: Deferred Loan Costs and Discounts, and Debt Extinguishment and Modification Expenses
+Added: In April 2021, the initial term loan under the Credit Agreement was issued at a discount of $ 6.4 million, while in September 2021, the delayed draw term loan was issued at a discount of $ 6.3 million.
+Added: Additionally, the Company incurred $ 6.4 million of costs for the Refinancing in April 2021 and $ 9.9 million of costs for the delayed draw term loan, including $ 3.5 million of ticking fees (debt commitment fees) prior to the drawdown of the funds in September 2021.
+Added: Approximately $ 6.1 million of the remaining fees incurred for the delayed draw term loan were paid during the initial Refinancing and were deferred and included in other noncurrent assets on the Company's Consolidated Balance Sheet at June 30, 2021.
+Added: The costs for the delayed draw term loan were amortized over the delayed commitment access period until September 2021, at which time the unamortized balance of the deferred costs was removed from other noncurrent assets and recorded as a reduction of the carrying amount of the debt obligation and are being amortized over the remaining term of the debt.
+Added: The Company determined that the issuance of the initial term loan as part of the April 2021 Refinancing was partially an extinguishment and a modification, and therefore, recognized debt extinguishment and modification costs of $ 8.3 million in April 2021, which included a portion of the Refinancing fees and the write off of previously deferred fees under the prior credit agreements.
+Added: These costs are reported within other expenses, net on the Company's Consolidated Statements of Operations.
+Added: Senior Credit Agreement and Term Loan Agreement:
+Added: At December 31, 2020, unamortized debt discounts and deferred financing costs were $ 4.7 million.
+Added: Prior to the April 2021 Refinancing, the Company recognized approximately $ 0.6 million of amortization expense related to debt discounts and deferred financing costs.
+Added: In connection with the Refinancing, $ 4.1 million was included as debt extinguishment and modification costs in the Company's Consolidated Statement of Operations for the year ended December 31, 2021.
+Added: Redeemable Senior Preferred Stock and Warrants
+Added: On April 27, 2021, the Company entered into an agreement pursuant to which it issued 150,000 shares of redeemable senior preferred stock, par value $ 0.001 per share, and a detachable warrant to purchase 1,803,841 shares of the Company's common stock, for gross proceeds of $ 150.0 million, less a $ 5.0 million discount and $ 5.5 million of issuance costs.
+Added: The agreement also provided the Company the option to issue an additional 50,000 shares of redeemable senior preferred stock upon the closing of the Finxera acquisition for $ 50.0 million, less a $ 0.6 million discount and within 18 months after the issuance of those additional shares, the Company was provided the option to issue an additional 50,000 shares at a purchase price of $ 50.0 million, less a $ 0.6 million discount, subject to the satisfaction of certain customary closing conditions.
+Added: Of the total net proceeds of $ 139.5 million, $ 131.4 million was allocated to the redeemable senior preferred stock, $ 11.4 million was allocated to additional paid-in capital for the warrants and $ 3.3 million was allocated to noncurrent assets for the committed financing put right.
+Added: Redeemable Senior Preferred Stock
+Added: The redeemable senior preferred stock ranks senior to the Company's common stock, equal with any other class of the Company's stock designated as being ranked on a parity basis with the redeemable senior preferred stock and junior to any other class of the Company's stock, including preferred stock, that is designated as being ranked senior to the redeemable senior preferred stock, with respect to the payment and distribution of dividends, the purchase or redemption of the Company's stock and the liquidation, winding up of and distribution of assets of the Company.
+Added: The redeemable senior preferred stock does not meet the definition of a liability pursuant to ASC 480, Distinguishing Liabilities from Equity , as it is redeemable upon the occurrence of events that are not solely within the Company's control.
+Added: Therefore, the Company classified the redeemable senior preferred stock as 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.
+Added: On September 17, 2021 the Company issued an additional 75,000 shares of redeemable senior preferred stock for $ 75.0 million, less a $ 0.9 million discount, $ 0.7 million of ticking fees and $ 1.9 million of issuance costs.
+Added: Upon issuance of these additional shares, the $ 3.3 million that was previously allocated to noncurrent assets for the committed financing put right was reclassified to the redeemable senior preferred stock.
+Added: The following table provides a reconciliation of the beginning and ending carrying amounts of the redeemable senior preferred stock for the periods presented:
+Added: (in thousands) Shares Amount
+Added: January 1, 2021 — $ —
+Added: Proceeds from issuance of redeemable senior preferred stock, net of discount and issuance costs 225 199,609
+Added: Unpaid dividend on redeemable senior preferred stock — 8,704
+Added: Accretion of discounts and issuance cost — 1,845
December 31, 2021 225 $ 210,158
−Removed: March 31, 2022 6.75 :
−Removed: June 30, 2022 6.72 :
−Removed: September 30, 2022 to December 31, 2022 6.50 :
−Removed: Each test period thereafter 5.50 :
−Removed: Redeemed Goldman Sachs Warrant ("GS Warrant")
−Removed: In connection with the prior GS Credit Agreement, Priority Holdings, LLC issued a warrant to GS to purchase 1.0 % of Priority Holdings, LLC's outstanding Class A common units.
−Removed: As part of the 2017 debt amendment, the 1.0 % warrant with GS was extinguished and Priority Holdings, LLC issued a new warrant to GS to purchase 1.8 % of Priority Holding, LLC's outstanding Class A common units.
−Removed: As of December 31, 2017, the warrant had a fair value of $ 8.7 million and was presented as a warrant liability in the accompanying consolidated balance sheets.
−Removed: On January 11, 2018, the 1.8 % warrant was amended to provide GS with a warrant to purchase 2.2 % of Priority Holdings, LLC's outstanding Class A common units.
−Removed: The change in the warrant percentage was the result of anti-dilution provisions in the warrant agreement, which were triggered by Priority Holdings, LLC's Class A common unit redemption that occurred during the first quarter of 2018.
−Removed: The warrant had a term of 7 years and an exercise price of $ 0 .
−Removed: Since the obligation was based solely on the fact that the 2.2 % interest in equity of Priority Holdings, LLC was fixed and known at inception as well as the fact that GS could exercise the warrant with a settlement in cash any time prior to the expiration date of December 31, 2023, the warrant was recorded as a liability in the Company's historical financial statements prior to redemption on July 25, 2018.
−Removed: On July 25, 2018, Priority Holdings, LLC and GS agreed to redeem the warrant in full in exchange for $ 12.7 million in cash.
−Removed: In connection with the Business Combination as disclosed in Note 1, Nature of Business and Accounting Policies , the partnership tax status was terminated on July 25, 2018.
−Removed: Under the former partnership status, Priority Holdings, LLC was a dual member limited liability company and as such its financial statements reflected no income tax provisions as a pass-through entity.
−Removed: As a result of the Business Combination, for income tax purposes Priority Holdings, LLC became a disregarded subsidiary of the Company, the successor entity to MI Acquisitions, Inc., whereby its operations became taxable.
−Removed: For all periods subsequent to the Business Combination, the income tax provision reflects the taxable status of the Company as a corporation.
−Removed: The initial net deferred tax asset from the Business Combination is the result of the difference between initial tax basis, generally substituted tax basis, and the reflective carrying amounts of the assets and liabilities for financial statement purposes.
−Removed: The net deferred tax asset as of July 25, 2018 was approximately $ 47.5 million, which was recorded and classified on the Company's consolidated balance sheet in accordance with ASU 2015-17 and as an adjustment to Additional Paid-In Capital in
−Removed: the Company's consolidated statement of changes in stockholders' deficit.
−Removed: In addition, the Company's consolidated financial statement for the year ended December 31, 2018 presented herein reflects unaudited pro-forma income tax disclosure amounts to illustrate the income tax effects had the Company been subject to federal and state income taxes for the full year 2018.
−Removed: Components of consolidated income tax expense (benefit) for the years ended December 31, 2020, 2019, and 2018 was as follows:
−Removed: For the Year Ended December 31,
−Removed: (in thousands) 2020 2019 2018
−Removed: current income tax expense (benefit)
+Added: The dividend rate for the redeemable senior preferred stock is equal to the three-month LIBOR rate (minimum of 1.00 %) plus an applicable margin of 12.00 % (capped at 22.50 %) per year, with a required quarterly payment of 5.00 % plus the three-month LIBOR rate per year.
+Added: The dividend rate is subject to future increases if the Company doesn't comply with the cash payment requirements outlined in the agreement, which includes required payments of dividends, required payments related to redemption or required prepayments.
+Added: The dividend rate may also increase if the Company fails to obtain the required stockholder approval for a forced sale transaction triggered by investors or if an event of default as outlined in the agreement occurs.
+Added: The following table provides a summary of the dividends for the period presented:
+Added: (in thousands) Year Ended December 31, 2021
+Added: Dividends paid in cash $ 7,460
+Added: Accumulated dividends accrued as part of the carrying value of redeemable senior preferred stock 8,704
+Added: Dividends declared at the rate of 13.0 % per year
+Added: The redeemable senior preferred shares have no stated maturity and will remain outstanding indefinitely until redeemed or otherwise repurchased by the Company.
+Added: Outstanding shares of redeemable senior preferred stock can be redeemed at the option of the Company for cash in whole or in part at the following redemption price:
+Added: Redemption Date
+Added: Redemption Price
+Added: Prior to April 27, 2023 100 % of liquidation preference (i.e., $ 1,000 per share) plus any accrued and unpaid dividends and the make-whole amount (i.e., present value of additional 2 % of the liquidation preference plus any accrued and unpaid dividends thereon through the redemption date plus 102 % of the amount of dividends that will accrue from the redemption date through April 27, 2023)
+Added: April 27, 2023 - April 26, 2024 102 % of the sum of the (a) outstanding liquidation preference plus (b) any accrued and unpaid dividends through and including the applicable redemption date
+Added: April 27, 2024 and thereafter 100 % of the sum of the (a) outstanding liquidation preference plus (b) any accrued and unpaid dividends through and including the applicable redemption date
+Added: Upon the occurrence of a change in control or a liquidation event, the Company will redeem all of the outstanding redeemable senior preferred shares for cash at the applicable redemption price described above.
+Added: The holders of the redeemable senior preferred stock may request the Company to pursue a sale transaction for the purpose of redeeming the redeemable senior preferred stock from and after the earliest of:
+Added: 1) October 27, 2028;
+Added: 2) 30 days after the redeemable senior preferred stockholders provide written notice to the Company of a failure by the Company to take steps within its control to prevent the Company's common stock from no longer being listed;
+Added: and 3) the date that is 90 days following the Company's failure to consummate a mandatory redemption of the redeemable senior preferred stock upon the occurrence of a change in control or liquidation event.
+Added: The Company used the proceeds from the April 2021 sale of the redeemable senior preferred stock to partially fund the Refinancing (see Note 11, Debt Obligations ), to partially fund the Wholesale Payments, Inc.
+Added: and C&H Financial Services, Inc.
+Added: acquisitions in the second quarter of 2021 (see Note 3, Acquisitions ) and to pay certain fees and expenses relating to the Refinancing and the offering of the redeemable senior preferred stock and warrants.
+Added: The Company used the proceeds from the September 2021 sale of additional shares of redeemable senior preferred stock to fund the Finxera acquisition (see Note 3, Acquisitions ).
+Added: On April 27, 2021 the Company issued warrants to purchase up to 1,803,841 shares of the Company's common stock, par value $ 0.001 per share, at an exercise price of $ 0.001 .
+Added: 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.
+Added: In connection with the issuance of the warrants, the Company entered into an agreement pursuant to which it agreed to provide certain registration rights with respect to the common shares issuable upon exercise of the warrants.
+Added: Under this agreement the holders of the related shares of common stock were granted piggyback rights to be included in certain underwritten offerings of common stock and the right to demand a shelf registration of the shares of common stock issued upon exercise of the warrants.
+Added: As of December 31, 2021, none of the warrants have been exercised.
+Added: The warrants are considered to be equity contracts indexed in the Company's own shares and therefore were recorded at their inception date relative fair value and are included in additional paid-in capital on the Company's Consolidated Balance Sheet.
+Added: Components of consolidated income tax (benefit) expense for the years ended December 31, 2021, December 31, 2020, and December 31, 2019 were as follows:
+Added: (in thousands) For the Years Ended December 31,
+Added: 2021 2020 2019
+Added: current income tax (benefit) expense
Federal $ ( 2,321 ) $ 4,766 $ ( 11 )
State and local ( 379 ) 3,173 75
−Removed: Total current income tax expense $ 7,939 $ 64 $ 447
+Added: Foreign 1 — —
+Added: Total current income tax (benefit) expense $ ( 2,699 ) $ 7,939 $ 64
deferred income tax expense (benefit)
1 unchanged sentence
State and local ( 1,213 ) ( 915 ) ( 1,154 )
−Removed: Total deferred income tax expense (benefit) $ 2,960 $ 766 ( 2,937 )
−Removed: Total income tax expense (benefit) $ 10,899 $ 830 $ ( 2,490 )
−Removed: The Company's consolidated effective income tax rate was 13.3 % for the year ended December 31, 2020, compared to an consolidated effective income tax benefit rate of 2.5 % for the year ended December 31, 2019.
−Removed: For the year ended December 31, 2018, the Company's consolidated effective income tax rate was 12.5 %.
−Removed: The effective rate for 2020 differed from the statutory rate of 21% primarily due to earnings attributable to noncontrolling interests and valuation allowance changes against certain business interest carryover deferred tax assets.
−Removed: The effective rate for 2019 differed from the statutory federal rate of 21% primarily due to valuation allowance changes against certain business interest carryover deferred tax assets.
−Removed: The effective rate for 2018 differed from the statutory federal rate of 21% primarily due to the partnership status of Priority Holdings, LLC.
−Removed: for periods prior to July 25, 2018.
−Removed: The following table provides a reconciliation of the consolidated income tax expense (benefit) at the statutory U.S.
−Removed: federal tax rate to actual consolidated income tax expense (benefit) for the years ended December 31, 2020, 2019 and 2018:
−Removed: For the Year Ended December 31,
−Removed: (in thousands) 2020 2019 2018
−Removed: federal statutory (benefit) $ 17,211 $ ( 6,879 ) $ ( 4,268 )
+Added: Foreign ( 3 ) — —
+Added: Total deferred income tax (benefit) expense $ ( 2,559 ) $ 2,960 $ 766
+Added: Total income tax (benefit) expense $ ( 5,258 ) $ 10,899 $ 830
+Added: The Company's consolidated effective income tax rate was 135.9 % for the year ended December 31, 2021, compared to a consolidated effective income tax rate of 13.3 % for the year ended December 31, 2020.
+Added: For the year ended December 31, 2019, the Company's consolidated effective income tax benefit rate was 2.5 %.
+Added: The effective rate for 2021 differed from the statutory rate of 21% primarily due to:
+Added: 1) an increase in the valuation allowance against certain business interest carryover deferred tax assets;
+Added: 2) non-deductible transaction costs incurred in the acquisition of Finxera;
+Added: 3) the finalization of prior estimates on the sale of the assets of PRET's real estate services business impacting amounts attributable to noncontrolling partners;
+Added: and 4) an increase in the tax basis of certain intangible assets resulting from a change in a subsidiary's entity status.
+Added: The effective rate for December 31, 2020 differed from the statutory federal rate of 21% primarily due to earnings attributable to noncontrolling interests and valuation allowance changes against certain business interest carryover deferred tax assets.
+Added: The effective rate for December 31, 2019 differed from the statutory federal rate of 21% primarily due to valuation allowance changes against certain business interest carryover deferred tax assets.
+Added: The following table provides a reconciliation of the consolidated income tax (benefit) expense at the statutory U.S.
+Added: federal tax rate to actual consolidated income tax (benefit) expense for the years ended December 31, 2021, 2020 and 2019:
+Added: (in thousands) For the Years Ended December 31,
+Added: 2021 2020 2019
+Added: federal statutory (benefit) expense $ ( 813 ) $ 17,211 $ ( 6,879 )
Non-controlling interests ( 3,024 ) ( 5,626 ) —
−Removed: Earnings as dual-member LLC — — 1,643
State and local income taxes, net ( 372 ) 1,140 ( 1,564 )
1 unchanged sentence
Valuation allowance changes 1,120 ( 2,945 ) 9,302
−Removed: Intangible assets 1,056 — —
Nondeductible items 703 233 125
+Added: Transaction Costs 2,338 — —
+Added: Intangible assets ( 4,110 ) 1,056 —
Tax credits ( 223 ) ( 283 ) ( 323 )
Other, net ( 538 ) 150 ( 140 )
−Removed: Income tax expense (benefit) $ 10,899 $ 830 $ ( 2,490 )
+Added: Income tax (benefit) expense $ ( 5,258 ) $ 10,899 $ 830
Deferred income taxes reflect the expected future tax consequences of temporary differences between the financial statement carrying amount of the Company's assets and liabilities, tax credits and their respective tax bases, and loss carry forwards.
17 unchanged sentences
Net deferred tax assets $ 8,265 $ 46,697
−Removed: In accordance with the provisions of ASC 740, Income Taxes ("ASC 740"), the Company provides a valuation allowance against deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized.
+Added: In accordance with the provisions of ASC 740, Income Taxes , the Company provides a valuation allowance against deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized.
The assessment considers all available positive and negative evidence and is measured quarterly.
−Removed: As of December 31, 2020 and 2019, the Company had a consolidated valuation allowance of approximately $ 7.2 million and $ 10.1 million, respectively, against certain deferred income tax assets related to business interest deduction carryovers and Business Combination costs that the Company believes are not more likely than not to be realized.
+Added: As of December 31, 2021 and December 31, 2020, the Company had a consolidated valuation allowance of approximately $ 10.8 million and $ 7.2 million, respectively, against certain deferred income tax assets related to business interest deduction carryovers and business combination costs that the Company believes are not more likely than not to be realized.
The Company recognizes the tax effects of uncertain tax positions only if such positions are more likely than not to be sustained based solely upon its technical merits at the reporting date.
−Removed: The Company refers to the difference between the tax benefit recognized in its financial statements and the tax benefit claimed in the income tax return as an "unrecognized tax benefit." As of December 31, 2020 and 2019, the net amounts of our unrecognized tax benefits were not material.
+Added: The Company refers to the difference between the tax benefit recognized in its financial statements and the tax benefit claimed in the income tax return as an "unrecognized tax benefit." A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
+Added: (in thousands)
+Added: Balance as of January 1, 2021 $ —
+Added: Additions based on tax positions related to the current year —
+Added: Additions based on positions of prior years 537
+Added: Reductions for tax positions of prior years —
+Added: Reductions related to lapse of the applicable statutes of limitations —
+Added: Settlements —
+Added: Balance as of December 31, 2021 $ 537
+Added: The Company continually evaluates the uncertain tax benefit associated with its uncertain tax positions.
+Added: It is reasonably possible that the liability for uncertain tax benefits could decrease during the next 12 months by up to $ 0.2 million due to the expiration of statutes of limitations.
The Company is subject to U.S.
federal income tax and income tax in multiple state jurisdictions.
−Removed: Tax periods for 2017 and all years thereafter remain open to examination by the federal and state taxing jurisdictions and tax periods for 2016 and all years thereafter remain open for certain state taxing jurisdictions to which the Company is subject.
−Removed: At December 31, 2020, the Company has utilized all of its federal NOL carryforwards of approximately $ 26.5 million.
−Removed: Also, at December 31, 2020 and 2019, the Company had state NOL carryforwards of approximately $ 6.2 million and $ 19.5 million, respectively, with expirations dates ranging from 2023 to 2044.
−Removed: On December 22, 2017, the Tax Cuts and Jobs Act ("Tax Act") was enacted.
−Removed: The Tax Act included a number of changes to existing U.S.
−Removed: The most notable provisions of the Tax Act that impacted the Company included a reduction of the U.S.
−Removed: corporate income tax rate from 35% to 21% and the limitations on interest deductibility, both effective January 1, 2018, as well as immediate expensing for certain assets placed into service after September 27, 2017.
−Removed: The Company did not experience any material impacts of the provisions of the Tax Act for the year ended December 31, 2018 other than the impact of the reduction
−Removed: corporate rate from 35% to 21% and the limitation on interest deductibility.
−Removed: As of December 31, 2018, the Company had completed the accounting for the income tax effects of all elements of the Tax Act in accordance with the SEC's Staff Accounting Bulletin No.
+Added: Tax periods for December 31, 2018 and all years thereafter remain open to examination by the federal and state taxing jurisdictions and tax periods for December 31, 2017 and all years thereafter remain open for certain state taxing jurisdictions to which the Company is subject.
+Added: At December 31, 2021 and December 31, 2020, the Company had state NOL carryforwards of approximately $ 13.6 million and $ 6.2 million, respectively, with expirations dates ranging from 2023 to 2041.
The Company has historically been impacted by the new interest deductibility rule under the Tax Act.
1 unchanged sentence
In March 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted, which among other provisions, provides for the increase of the 163(j) ATI limitation from 30% to 50% for tax years 2019 and 2020.
−Removed: As a result of its earnings and the enactment of the CARES Act during 2020, the Company has fully utilized its federal, and the majority of its state, interest deduction limitation carryforwards of $ 21.2 million and $ 11.0 million for the years ended December 31, 2019 and 2018, respectively.
+Added: As of December 31, 2021, the Company had interest deduction limitation carryforwards of $ 41.4 million.
Commitments and Contingencies
−Removed: The Company has various operating leases for office space and equipment.
−Removed: These leases range in terms from 2 years to 16 years.
−Removed: Most of these leases are renewable at expiration, subject to terms acceptable to the lessors and the Company.
−Removed: Future minimum lease commitments under non-cancelable operating leases with initial or remaining terms in excess of one year are as follows at December 31, 2020:
−Removed: (in thousands)
−Removed: Due In Amount Due
−Removed: Thereafter 2,388
−Removed: Total $ 9,168
−Removed: Total rent expenses for the years ended December 31, 2020, 2019, and 2018 was $ 2.5 million, $ 2.0 million, and $ 1.9 million, respectively, which is included in selling, general and administrative expenses in the Company's consolidated statements of operations.
Minimum Annual Commitments with Third-party Processors
The Company has multi-year agreements with third parties to provide certain payment processing services to the Company.
−Removed: The Company pays processing fees under these agreements that are based on the volume and dollar amounts of processed payments transactions.
+Added: The Company pays processing fees under these agreements that are based on the volume and dollar amounts of processed payment transactions.
Some of these agreements have minimum annual requirements for processing volumes.
−Removed: As of December 31, 2020, the Company is committed to pay minimum processing fees under these agreements of approximately $ 7.0 million over the next year.
+Added: Based on existing contracts in place at December 31, 2021, the Company is committed to pay minimum processing fees under these agreements of approximately $ 8.7 million in 2022 and $ 7.8 million in 2023.
Merchant Reserves
−Removed: See Note 5 , Settlement Assets and Obligations , for information about merchant reserves.
−Removed: Commitment to Lend
−Removed: See Note 13 , Related Party Matters , for information on a loan commitment extended by the Company to another entity.
+Added: See Note 5, Settlement Assets and Customer Account Balances and Related Obligations , for information about merchant reserves.
Contingent Consideration
−Removed: See Note 4 , Asset Acquisitions, Asset Contributions , and Business Combinations , for information about contingent consideration related to acquisitions consummated in 2019 and 2018.
+Added: 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.
+Added: Rather, the acquirer generally recognizes contingent consideration when it becomes probable and estimable.
+Added: On March 15, 2019, a subsidiary of the Company paid $ 15.2 million cash to acquire certain residual portfolio rights.
+Added: This asset acquisition became part of the Company's SMB Payments reportable segment.
+Added: 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.
+Added: As of December 31, 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.
+Added: See Note 3, Acquisitions , for information about contingent consideration related to acquisitions consummated in 2021 and 2019.
Legal Proceedings
3 unchanged sentences
If and when the Company records such an accrual, it could be material and could adversely impact the Company's results of operations, financial condition and cash flows.
−Removed: RELATED PARTY MATTERS
−Removed: Contributed Assets of eTab and Cumulus
−Removed: See Note 4 , Asset Acquisitions, Asset Contributions , and Business Combinations , for information about the contributions from related parties of certain assets and liabilities of eTab and Cumulus.
−Removed: Loan with Warrant
−Removed: During 2019, the Company, through one of its wholly-owned subsidiaries, executed an interest-bearing loan and commitment agreement with another entity.
−Removed: The Company loaned the entity a total of $ 3.5 million during 2019, with a commitment to loan up to $ 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.
−Removed: 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.
+Added: Related Party Transactions
+Added: PHOT Preferred Unit Redemption - Distribution to NCIs
+Added: In February 2019, PHOT, a subsidiary of the Company, received a contribution of substantially all of the operating assets of eTab and Cumulus under asset contribution agreements.
+Added: PHOT is a part of the Company's SMB reportable segment.
+Added: No material liabilities were assumed by PHOT.
+Added: These contributed assets were primarily composed of technology-related assets.
+Added: Prior to these transactions, eTab was 80.0 % owned by the Company's Chairman and Chief Executive Officer ("CEO").
+Added: No cash consideration was paid to the contributors of the eTab or Cumulus assets on the date of the transactions.
+Added: As consideration for these contributed assets, the contributors were issued redeemable non-controlling preferred equity interests ("redeemable NCIs") in PHOT.
+Added: 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 year) on any undistributed preferred equity interest ("Total Preferred Equity Interest").
+Added: Once the Total Preferred Equity Interest is distributed to the holders, the redeemable NCIs cease to exist.
+Added: 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.
+Added: At the time of contribution, the Company determined that the contributor's carrying values of the eTab and Cumulus net assets (as a common control transaction under GAAP) were not material.
+Added: 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, as such the Company's Consolidated Financial Statements for prior periods were not adjusted to reflect the historical results attributable to the eTab net assets.
+Added: For the period from February 1, 2019 through December 31, 2020, a total of $ 0.3 million of PHOT's earnings were attributable to the redeemable NCIs of PHOT, and this same amount was distributed in cash to the redeemable NCIs during the same period.
+Added: 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.
+Added: 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.
+Added: The exchange was contingent upon receiving approval of the Company's lenders;
+Added: therefore, the binding exchange agreements were not entered into until after lender approval was received in April 2021 in connection with the Refinancing.
+Added: In May 2021, the Company entered into exchange agreements and completed the exchange of 1,428,358 shares of common stock and $ 0.8 million of cash for the Total Preferred Equity Interests.
+Added: 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.
+Added: Subsequent to 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.
+Added: The Company's financial statements for the year ended December 31, 2021 reflect this exchange as a distribution to NCIs 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.
+Added: Therefore, the total distribution amounted to $ 10.8 million, comprised of $ 10.0 million of common stock and $ 0.8 million of cash.
+Added: In addition, the Company recorded a $ 2.8 million tax benefit related to an increase in the tax basis associated with the share exchange, for a net impact to equity of $ 8.0 million.
+Added: Equity-method Investment
+Added: During the first quarter of 2020, the Company wrote off its $ 0.2 million carrying value in an equity-method investment.
+Added: This loss is reported as a component of other expenses, net on the Company's Consolidated Statement of Operations.
+Added: Commitment to Lend and Warrant to Acquire
+Added: During 2019, the Company, through one of its wholly-owned subsidiaries, executed an interest-bearing loan and commitment agreement with another entity to loan the entity up to $ 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.
Amounts loaned to this entity by the Company are secured by substantially all of the assets of the entity and by a personal guarantee.
−Removed: The note receivable has an interest rate of 12.0 % per annum and is repayable in full in May 2024.
+Added: The note receivable has an interest rate
+Added: of 12.0 % per year and is repayable in full in May 2024.
The Company also received a warrant to purchase a non-controlling interest in this entity's equity at a fixed amount.
−Removed: 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.
−Removed: The fair values of the warrant, loan commitment, and purchase right were not material at inception or at December 31, 2020.
−Removed: Prior Management Services Agreement
−Removed: During the year ended December 31, 2018, Priority Holdings, LLC had a management services agreement with PSD Partners LP, which is owned by Mr.
−Removed: Thomas Priore, the Company's President, Chief Executive Officer and Chairman.
−Removed: The Company incurred total expenses of $ 1.1 million for the year ended December 31, 2018 related to management service fees, annual bonus
−Removed: payout, and occupancy fees, which are recorded in selling, general and administrative expenses in the Company's consolidated statements of operations.
−Removed: Due from Members of Priority Holdings, LLC
−Removed: As noted in Note 1, Nature of Business and Accounting Policies , on July 25, 2018 the owners of Priority Holdings, LLC contributed their member equity interests in exchange for the issuance of MI Acquisitions Inc.'s common stock, and MI Acquisitions, Inc.
−Removed: simultaneously changed its name to Priority Technology Holdings, Inc.
−Removed: Subsequent to July 25, 2018, the Company has made cash payments to, and received cash refund payments from, the former owners of Priority Holdings, LLC, mostly related to pass-through tax amounts for periods prior to July 25, 2018.
−Removed: At December 31, 2020 and 2019, the net amounts receivable from these parties were approximately $ 0.2 million and $ 0.2 million, respectively.
−Removed: Underwriting Commissions
−Removed: During the year ended December 31, 2018, the Company paid and capitalized in additional paid-in capital underwriting commissions of $ 8.0 million related to the recapitalization.
−Removed: See Note 14 , Stockholders' Deficit .
−Removed: The Company's President, Chief Executive Officer and Chairman was given the right to require any of the founders of MI Acquisitions to sell all or a portion of their Company securities at a call-right purchase price, payable in cash.
−Removed: The call right purchase price for common stock will be based on the greater of:
−Removed: 2) a preceding volume-weighted average closing price (as defined in the governing document);
−Removed: or 3) a subsequent volume-weighted average closing price (as defined in the governing document).
−Removed: The call right purchase price for warrants will be determined by the greater of:
−Removed: 1) a preceding volume-weighted average closing price (as defined in the governing document) of the called security or 2) a subsequent volume-weighted average closing price of the called security.
−Removed: For the Company, the call right does not constitute a financial instrument or derivative under GAAP since it does not represent an asset or obligation of the Company, however the Company discloses it as a related party matter.
+Added: The loan agreement also gave 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.
+Added: The fair values of the warrant, loan commitment and purchase right were not material at inception.
+Added: The Company loaned the entity a total of $ 3.5 million in 2019.
+Added: In December 2021, the entity was sold to a third party.
+Added: In connection with the sale, the Company's note receivable was fully repaid and the Company's warrants were cancelled in exchange for cash consideration.
+Added: The Company recognized a gain of $ 7.6 million in its Consolidated Statements of Operations for the year ended December 31, 2021 related to this transaction.
+Added: C ertain adjustments may be made in the future related to a potential earnout that is contingent on 2022 performance and the allocation of the net proceeds described above remain subject to final adjustments.
+Added: Any remaining payments made or received by the Company will be recorded in the period in which such amounts are finalized.
Stockholders' Deficit
−Removed: As disclosed in Note 1, Nature of Business and Accounting Policies , on July 25, 2018, the Company executed the Business Combination which was accounted for as a "reverse merger" between Priority Holdings, LLC and MI Acquisitions, resulting in the Recapitalization of the Company's equity.
−Removed: The combined entity was renamed Priority Technology Holdings, Inc.
−Removed: Common and Preferred Stock
−Removed: For periods prior to July 25, 2018, equity has been retroactively revised to reflect the number of shares received as a result of the Recapitalization.
−Removed: The equity structure of the Company was as follows as of December 31, 2020 and 2019:
−Removed: (shares in thousands) December 31, 2020 December 31, 2019
−Removed: Authorized Issued Outstanding Authorized Issued Outstanding
−Removed: Common stock, par value $ 0.001
−Removed: 1,000,000 67,842 67,391 1,000,000 67,512 67,061
−Removed: Preferred stock, par value $ 0.001
−Removed: 100,000 — — 100,000 — —
−Removed: The difference between the issued and outstanding common stock at December 31, 2020 and 2019 is due to 451,224 shares of treasury stock held by the Company.
−Removed: In connection with the Business Combination and Recapitalization, the following occurred in 2018:
−Removed: • In exchange for the 4.6 million common units of Priority Holdings, LLC, 60.1 million shares of common stock were issued in a private placement that resulted in the Company receiving approximately $ 49.4 million.
−Removed: The 60.1 million shares exclude 0.5 million shares issued as partial consideration in two business acquisitions (see N ote 4, Asset Acquisitions, Asset Contributions , and Business Combinations ) and includes 3.0 million shares issued in connection with the 2014 Management Incentive Plan (see Note 15 , Share -Based Compensation ).
−Removed: • Approximately 4.9 million shares of common stock were deemed to have been issued through share conversion in exchange for the publicly-traded shares of MI Acquisitions that originated from MI Acquisitions' 2016 IPO.
−Removed: • $ 2.1 million was paid to MI Acquisitions' founding shareholders (the "MI Founders") in exchange for 421,107 units and 453,210 shares of common stock held by the MI Founders.
−Removed: Each unit consisted of one share and one warrant of MI Acquisitions.
−Removed: • The MI Founders forfeited 174,863 shares of their common stock.
−Removed: At December 31, 2018, the Company had 67,038,304 shares of common stock outstanding, of which:
−Removed: 1) 60,071,200 shares were issued in the Recapitalization through the private placement;
−Removed: 2) 874,317 shares were transferred to the sellers of Priority Holdings, LLC that were purchased from the MI Founders;
−Removed: 3) 4,918,138 shares were issued in MI Acquisitions' 2016 IPO;
−Removed: 4) 699,454 shares were issued to the MI Founders;
−Removed: and 5) 475,195 shares were issued as partial consideration for two business acquisitions.
−Removed: Certain holders of common stock from the private placement may be subject to holding period restrictions under applicable securities laws.
+Added: In August 2021, Priority's Board of Directors authorized a $ 10.0 million share repurchase program (the "2021 Share Repurchase Program").
+Added: Under the 2021 Share Repurchase Program.
+Added: the Company was authorized to purchase up to 1.0 million shares of its common stock through open market transactions, unsolicited or solicited privately negotiated transactions, or otherwise in accordance with all applicable securities laws and regulations.
+Added: The 2021 Share Repurchase Program was set to expire on August 17, 2022 and it could be discontinued by the Company at any time.
+Added: The Company terminated the 2021 Share Repurchase Program effective as of the close of business on September 23, 2021.
+Added: During this period, the Company purchased a total of 162,715 shares of its common stock at an average price of $ 5.87 per share.
+Added: Total cash paid by the Company was approximately $ 1.0 million.
During the second quarter of 2019, the Company repurchased a total of 451,224 shares of its common stock at an average price of $ 5.29 per share.
4 unchanged sentences
Holders of the Company's common stock will be entitled to receive such dividends and other distributions, if any, as may be declared from time to time by the Company's Board of Directors in its discretion.
−Removed: Since the Business Combination and Recapitalization, the Company has neither declared nor paid dividends.
+Added: Historically, the Company has neither declared nor paid dividends.
The holders of the Company's common stock have no conversion, preemptive or other subscription rights and there is no sinking fund or redemption provisions applicable to the common stock.
1 unchanged sentence
As of December 31, 2021, the Company has not issued any shares of preferred stock.
−Removed: Warrants issued by MI Acquisitions
−Removed: Prior to July 25, 2018, MI Acquisitions issued warrants that allow the holders to purchase up to 5,731,216 shares of the Company's common stock at an exercise price of $ 11.50 per share, subject to certain adjustments ( 5,310,109 of these warrants were designated as "public warrants" and 421,107 were designated as "private warrants").
−Removed: The warrants, which survived the Business Combination, may be exercised before August 24, 2023, which is the end of the five-year period that commenced 30 days after the Business Combination of July 25, 2018.
−Removed: The Company has the option to redeem all (and not less than all) of the outstanding public warrants at any time from and after the warrants become exercisable, and prior to their expiration, at the price of $ 0.01 per warrant;
−Removed: provided that the last sales price of the Company's common stock has been equal to or greater than $ 16.00 per share (subject to adjustment for splits, dividends, recapitalizations and other similar events), for any 20 trading days within a 30 trading day period ending on the third business day prior to the date on which notice of redemption is given and
−Removed: provided further that (i) there is a current registration statement in effect with respect to the shares of common stock underlying the public warrants for each day in the 30-day trading period and continuing each day thereafter until the redemption date or (ii) the cashless exercise is exempt from the registration requirements under the Securities Act of 1933, as amended.
−Removed: The warrants are classified as equity for accounting purposes.
−Removed: In August 2018, the Company was informed by Nasdaq that Nasdaq intended to delist the Company's outstanding warrants and units due to an insufficient number of round lot holders for the public warrants.
−Removed: The Company subsequently filed a Registration Statement on Form S-4 with the SEC for the purpose of offering holders of the Company's outstanding 5,310,109 public warrants and 421,107 private warrants the opportunity to exchange each warrant for 0.192 shares of the Company's common stock.
−Removed: The exchange offer expired in February 2019 resulting in approximately 2.2 million warrants being tendered during 2019 in exchange for approximately 0.4 million shares of the Company's common stock plus cash in lieu of fractional shares.
−Removed: Nasdaq proceeded to delist the remaining outstanding warrants and units, which were comprised of one share of common stock and one warrant, from The Nasdaq Global Market at the open of business on March 6, 2019.
−Removed: The delisting of the remaining outstanding warrants and units had no impact on the Company's financial statements.
−Removed: Purchase option issued by MI Acquisitions
−Removed: Prior to July 25, 2018, a purchase option was sold to an underwriter by MI Acquisitions for consideration of $ 100 .
−Removed: The purchase option, which survived the Business Combination, allows the holder to purchase up to a total of 300,000 units (each consisting of a share of common stock and a public warrant) exercisable at $ 12.00 per unit.
−Removed: The purchase option expires on August 24, 2023, which is the end of the five-year period that commenced 30 days after the Business Combination of July 25, 2018.
−Removed: The purchase option is classified as equity for accounting purposes.
−Removed: No exercises have occurred through December 31, 2020.
−Removed: 2018 Business Combination and Recapitalization Costs
−Removed: In connection with the Business Combination and Recapitalization, the Company incurred $ 13.3 million in fees and expenses, of which $ 9.7 million of recapitalization costs were charged to Additional Paid in Capital in 2018 since these costs were less than the cash received in conjunction with the Recapitalization costs and were directly related to the issuance of equity for the Recapitalization.
−Removed: These costs are presented as Recapitalization costs in the accompanying consolidated statements of changes in stockholders' deficit.
−Removed: The remaining $ 3.6 million of expenses were related to the Business Combination and are presented in selling, general and administrative expenses in the accompanying consolidated statements of operations.
−Removed: 2018 Equity Events for Priority Holdings, LLC that Occurred Prior to July 25, 2018 (date of Business Combination)
−Removed: On January 31, 2017, Priority entered into a redemption agreement with one of its minority unit holders to redeem their former Class A common membership units for a total redemption price of $ 12.2 million.
−Removed: Priority accounted for the Common Unit Repurchase Obligation as a liability because it was required to redeem these former Class A common units for cash.
−Removed: The liability was recorded at fair value at the date of the redemption agreement, which was equal to the redemption value.
−Removed: Under this agreement, Priority redeemed $ 3.0 million of 69,450 former Class A common units in April 2017.
−Removed: The remaining $ 9.2 million was redeemed through the January 17, 2018 redemption of 115,751 former Class A common units for $ 5.0 million and the February 23, 2018 redemption of 96,999 former Class A common units for $ 4.2 million.
−Removed: In addition to the aforementioned redemptions, Priority redeemed 295,834 former Class A common units for $ 25.9 million on January 17, 2018 and 445,410 former Class A common units for $ 39.0 million on January 19, 2018.
−Removed: As a result of the aforementioned redemptions, Priority was 100 % owned by Priority Investment Holdings, LLC and Priority Incentive Equity Holdings, LLC until July 25, 2018.
−Removed: The former Class A common units redeemed in January and February 2018 were then canceled by Priority.
−Removed: The redemption transactions and the amended and restated operating agreement resulted in one unit-holder gaining control and becoming the majority unit holder of the Company.
−Removed: These changes in the equity structure of Priority were recorded as capital transactions.
−Removed: For the year ended December 31, 2018, Priority recorded distributions to its members of $ 7.1 million prior to the Business Combination.
−Removed: SHARE-BASED COMPENSATION
−Removed: During 2020, 2019 and 2018, the Company had three share-based compensation plans:
−Removed: 2018 Equity Incentive Plan;
−Removed: Earnout Incentive Plan;
−Removed: and 2014 Management Incentive Plan.
−Removed: Total share-based compensation expense, for both equity-classified and liability-classified awards, was approximately $ 2.4 million, $ 3.7 million, $ 1.6 million for the years ended December 31, 2020, 2019, and 2018, respectively, which is included in salary and employee benefits in the accompanying consolidated statements of operations.
−Removed: For the years ended December 31, 2020, 2019 and 2018, the Company recognized an income tax benefit of approximately $ 0.4 million, $ 0.5 million and $ 0.1 million, respectively, for share-based compensation expense.
−Removed: For the years ended December 31, 2020, 2019, and 2018, share-based compensation was recognized by plan as follows:
−Removed: Year Ended December 31,
+Added: Warrants and Purchase Options
+Added: As of December 31, 2021 3,556,470 warrants from the original business combination in July 2018, remain outstanding.
+Added: These warrants allow the holders to purchase shares of the Company's common stock at an exercise price of $ 11.50 per share.
+Added: These warrants expire on August 24, 2023.
+Added: Prior to July 25, 2018, a purchase option was sold to an underwriter by for consideration of $ 100 .
+Added: The purchase option, which survived the business combination, allow the holders to purchase up to a total of 300,000 units (each consisting of a share of common stock and a public warrant) exercisable at $ 12.00 per unit.
+Added: The purchase option expires on August 24, 2023.
+Added: The purchase option is classified as equity for accounting purposes and remain outstanding as of December 31, 2021 .
+Added: Stock-based Compensation
+Added: For the years ended December 31, 2021, 2020 and 2019, stock-based compensation was as follows:
+Added: Years Ended December 31,
(in thousands) 2021 2020 2019
2018 Equity Incentive Plan
−Removed: Earnout Incentive Plan — — —
+Added: Stock options compensation expense $ 327 $ 753 $ 2,003
+Added: Restricted stock units compensation expense 2,561 1,364 382
+Added: Liability-classified compensation expense 325 313 —
2014 Management Incentive Plan — — 1,267
Total $ 3,213 $ 2,430 $ 3,652
−Removed: No share-based compensation has been capitalized.
−Removed: Beginning in 2018, the Company elected to recognize the effects of forfeitures on compensation expense as the forfeitures occur for all plans.
+Added: For the years ended December 31, 2021, 2020 and 2019, the Company recognized an income tax benefit of approximately $ 0.4 million, $ 0.4 million and $ 0.5 million, respectively, for stock-based compensation expense.
+Added: No stock-based compensation has been capitalized.
2018 Equity Incentive Plan
The 2018 Equity Incentive Plan ("2018 Plan") was approved by the Company's Board of Directors and shareholders in July 2018.
−Removed: The 2018 Plan provides for the issuance of up to 6,685,696 of the Company's common stock, and these shares were registered on a Form S-8 during 2018.
−Removed: Under the 2018 Plan, the Company's compensation committee may grant awards of non-qualified stock options, incentive stock options, stock appreciation rights ("SARs"), restricted stock awards, restricted stock units RSU), other share-based awards (including cash bonus awards) or any combination of the foregoing.
+Added: The 2018 Plan provided for the issuance of up to 6,685,696 of the Company's common stock, and these shares were registered on a Form S-8 during 2018.
+Added: Under the 2018 Plan, the Company's compensation committee may grant awards of non-qualified stock options, incentive stock options, stock appreciation rights ("SAR"), restricted stock awards, restricted stock units ("RSU"), other stock-based awards (including cash bonus awards) or any combination of the foregoing.
Any current or prospective employees, officers, consultants or advisors that the Company's compensation committee (or, in the case of non-employee directors, the Company's Board of Directors) selects, from time to time, are eligible to receive awards under the 2018 Plan.
2 unchanged sentences
A summary of the activity in stock units for the 2018 Plan that occurred during the years ended December 31, 2021, 2020 and 2019 is as follows:
−Removed: 6,685,696 Common stock authorized for the 2018 Plan
−Removed: ( 2,044,815 ) Stock options granted in December 2018
−Removed: 7,558 Stock option grants forfeited in 2018
−Removed: ( 202,200 ) RSUs granted in 2018
−Removed: 4,446,239 Common stock available for issuance under the 2018 Plan at December 31, 2018
−Removed: 326,173 Stock option grants forfeited in 2019
−Removed: ( 36,657 ) RSUs granted in 2019
−Removed: 60,421 RSUs forfeited in 2019
−Removed: 4,796,176 Common stock available for issuance under the 2018 Plan at December 31, 2019
−Removed: ( 15,000 ) Stock options granted in 2020
−Removed: 220,045 Stock option grants forfeited in 2020
−Removed: ( 1,031,740 ) RSUs granted in 2020
−Removed: ( 128,624 ) RSU granted in 2020 with performance goals that have not been determined
−Removed: 21,277 RSUs forfeited in 2020
−Removed: 3,862,134 Common stock available for issuance under the 2018 Plan at December 31, 2020
−Removed: The above table does not reflect a liability-classified award with an estimated fair value of $ 0.8 million included in accounts payable and accrued expenses in the consolidated balance sheet at December 31, 2020.
−Removed: Stock Options
−Removed: Substantially all stock options grants were granted in December 2018 when the Company issued stock option grants to substantially all of the Company's employees at the time, excluding the Company's executive officers.
−Removed: The stock options issued in December 2018 vest as follows:
−Removed: 50 % on July 27, 2019;
−Removed: 25 % on July 27, 2020;
−Removed: and 25 % on July 27, 2021.
−Removed: If a participant terminates employment with the Company, vested options may be exercised for a short period of time while unvested options are forfeited.
−Removed: However, in any event, a stock option will expire ten years from date of grant.
+Added: Common stock available for issuance at December 31, 2018 4,446,239
+Added: Stock options forfeited 326,173
+Added: RSUs granted ( 36,657 )
+Added: RSUs forfeited 60,421
+Added: Common stock available for issuance at December 31, 2019 4,796,176
+Added: Stock options granted ( 15,000 )
+Added: Stock options forfeited 220,045
+Added: RSUs granted ( 1,031,740 )
+Added: RSU granted with performance goals that have not been determined ( 128,624 )
+Added: RSUs forfeited 21,277
+Added: Common stock available for issuance at December 31, 2020 3,862,134
+Added: Stock options forfeited 50,589
+Added: Stock options expired 53,870
+Added: RSUs granted ( 711,987 )
+Added: RSUs forfeited 1,957
+Added: Shares withheld for taxes (1)
+Added: Common stock available for issuance at December 31, 2021 3,363,040
+Added: (1) The number of shares surrendered to satisfy withholding taxes owed are subsequently added back to the shares available for grants under the 2018 Plan.
Details about the time-based equity-classified stock options granted under the plan are as follows:
−Removed: Options for average Weighted-average Aggregate
−Removed: number of exercise remaining intrinsic value
−Removed: shares price contractual terms (in thousands)
−Removed: Outstanding, January 1, 2018 — —
−Removed: Granted in 2018 2,044,815 $ 6.95
−Removed: Exercised in 2018 — —
−Removed: Forfeited in 2018 ( 7,558 ) $ 6.95
−Removed: Expired in 2018 — —
−Removed: Outstanding, December 31, 2018 2,037,257 $ 6.95 9.6 years $ 2,139
−Removed: Granted in 2019 — —
−Removed: Exercised in 2019 — —
−Removed: Forfeited or expired in 2019 ( 326,173 ) $ 6.95
−Removed: Outstanding, December 31, 2019 1,711,084 $ 6.95 8.6 years $ —
−Removed: Granted in 2020 15,000 $ 2.47
−Removed: Exercised in 2020 — —
−Removed: Forfeited or expired in 2020 ( 220,045 ) $ 6.95
+Added: Number of Shares Weighted-average Exercise Price Weighted-average Remaining Contractual Term Aggregate Intrinsic Value (in thousands)
+Added: Outstanding, December 31, 2020 1,506,039 $ 6.91
+Added: Exercised ( 173,955 ) 6.88
+Added: Forfeited ( 50,589 ) 6.70
+Added: Expired ( 53,870 ) 6.95
Outstanding, December 31, 2021 1,227,625 6.90 6.8 years $ 227
−Removed: Vested and Expected to Vest 1,506,039 $ 6.91 7.8 years $ 203
Exercisable at December 31, 2021 1,216,375 $ 6.94 6.8 years $ 175
−Removed: No stock options have been exercised as of December 31, 2020.
−Removed: For the years ended December 31, 2020, 2019 and 2018, compensation expense of $ 0.8 million, $ 2.0 million and $ 0.2 million was recognized for stock option grants.
−Removed: As of December 31, 2020, there was approximately $ 0.4 million of unrecognized compensation cost related to stock options, which is expected to be recognized over a remaining weighted-average period of 0.7 years.
−Removed: The table below presents the assumptions used to calculate the fair value of the stock options issued in 2020 and 2018:
+Added: The weighted-average grant date fair value of options granted in 2020 was $ 1.99 .
+Added: There were no options granted in 2021 or 2019.
+Added: The intrinsic value of options exercised in 2021 was $ 0.2 million, there were no options exercised in 2020 or 2019.
+Added: As of December 31, 2021, there was $ 19 thousand of unrecognized compensation costs related to stock options, which is expected to be recognized over a remaining weighted-average period of 2.6 years.
+Added: The table below presents the assumptions used to calculate the fair value of the stock options issued in 2020:
Expected volatility 94 %
3 unchanged sentences
Exercise price $ 2.47
−Removed: No stock options were granted in 2019.
Equity-classified Restricted Stock Units
−Removed: Underlying Weighted-average (in thousands)
−Removed: Common Grant-date Aggregate
−Removed: Shares Fair Value Fair Value
+Added: Below is a summary of the Company's equity-classified RSUs for the periods presented:
+Added: Underlying Common Shares Weighted-average Grant Date Fair Value
Service-based vesting:
−Removed: Unvested at January 1, 2018 —
−Removed: Granted in 2018 107,142 $ 7.00 $ 750
Unvested at December 31, 2018 107,142 $ 7.00
−Removed: Granted in 2019 36,657 $ 6.82 $ 250
−Removed: Vested in 2019 ( 53,571 ) $ 171
−Removed: Forfeited in 2019 ( 36,657 ) $ 6.82
+Added: Granted 36,657 $ 6.82
+Added: Vested ( 53,571 ) $ 7.00
+Added: Forfeited ( 36,657 ) $ 6.82
Unvested at December 31, 2019 53,571 $ 7.00
−Removed: Granted in 2020 892,142 $ 2.93 $ 2,617
−Removed: Forfeited in 2020 ( 21,277 ) $ 2.35
−Removed: Vested in 2020 ( 328,035 ) $ 1,150
+Added: 892,142 $ 2.93
+Added: Forfeited ( 21,277 ) $ 2.35
+Added: Vested ( 328,035 ) $ 3.18
Unvested at December 31, 2020 596,401 $ 3.18
+Added: 647,512 $ 6.63
+Added: Forfeited ( 1,957 ) $ 7.92
+Added: Vested ( 362,706 ) $ 3.65
+Added: Unvested at December 31, 2021 879,250 $ 5.51
Performance-based vesting:
−Removed: Unvested at January 1, 2018 —
−Removed: Granted in 2018 95,057 $ 10.52 $ 1,000
Unvested at December 31, 2018 95,057 $ 10.52
−Removed: Forfeited in 2019 ( 23,674 ) $ 10.52
+Added: Forfeited ( 23,674 ) $ 10.52
Unvested at December 31, 2019 71,383 $ 10.52
−Removed: Granted in 2020 (a) (b) 139,598 $ 2.56 $ 358
−Removed: Forfeited in 2020 ( 71,383 ) $ 10.52
+Added: 139,598 $ 2.56
+Added: Forfeited ( 71,383 ) $ 10.52
Unvested at December 31, 2020 139,598 $ 2.56
−Removed: (a) Includes only the portions of grants for which the performance goals have been determined and communicated to the grant recipient.
−Removed: For the portions of any grants for which the required performance goals have not been determined and communicated to the grant recipient, a grant has not yet occurred for accounting purposes.
−Removed: (b) Does not include a liability-classified performance-based RSU award with an estimated fair value of $ 0.8 million.
−Removed: As of December 31, 2020, there was approximately $ 1.6 million and $ 0.2 million of unrecognized compensation cost for equity-classified service-based RSUs and performance-based RSUs, respectively, and these costs are expected to be recognized over a weighted-average period of 2.2 years and 2.6 years, respectively.
−Removed: Liability-Classified Share-Based Arrangement
−Removed: In March 2020, the compensation committee of the Company's board of directors provided performance goals and achievement criteria to its CEO and Chairman.
−Removed: If these performance goals are met, the Company has committed to issue an RSU grant with a target fair value of $ 0.8 million on the future grant date, which occurred in the first quarter of 2021.
−Removed: The Company began accruing compensation expense in 2020 and through December 31, 2020 has accrued an aggregate of $ 0.3 million for this liability-classified award.
−Removed: Earnout Incentive Plan
−Removed: The Company's Earnout Incentive Plan (the "EIP") expired on December 31, 2019.
−Removed: No shares were issued under the EIP.
−Removed: During the fourth quarter of 2019, a total of 95,057 RSUs expired under the EIP with a grant-date fair value of $ 10.52 each (these grants were in addition to the 95,057 RSUs issued under the 2018 Plan, as previously noted above).
−Removed: Prior to December 31, 2019, it was not probable that the performance metrics would be achieved, thus no compensation expense was recognized for these RSUs for any reporting period.
+Added: 64,475 $ 6.90
+Added: Vested ( 104,620 ) $ 7.24
+Added: Unvested at December 31, 2021 99,453 $ 4.46
+Added: (1) Includes 55,689 shares with an estimated fair value of $ 0.5 million and 212,768 shares with an estimated fair value of $ 0.4 million issued to non-employee members of the Company's Board of Directors in December 31, 2021 and 2020, respectively.
+Added: (2) Includes only the portions of grants for which the performance goals have been determined and communicated to the grant recipient.
+Added: Any grants for which the required performance goals have not been determined and communicated to the grant recipient are not considered to have been granted for accounting purposes.
+Added: As of December 31, 2021, there was $ 3.0 million and $ 0.2 million of unrecognized compensation costs for equity-classified service-based RSUs and performance-based RSUs, respectively, which are expected to be recognized over a remaining weighted-average period of 1.8 years and 0.4 years, respectively.
+Added: The total fair value of RSUs that vested in 2021, 2020 and 2019 was $ 3.2 million, $ 1.3 million and $ 0.2 million, respectively.
+Added: Liability-classified Stock-based Arrangements
+Added: In March 2020, the Company was authorized by the compensation committee of its Board of Directors to issue an RSU award to its Chairman and CEO if certain annual performance goals and achievement criteria were attained for 2020.
+Added: The award was accounted for as a liability-classified award.
+Added: In March 2021, the performance goals and achievement criteria were met and the award was converted to an equity-classified award.
+Added: In June 2021, the Company committed to issue an additional liability-classified award with a target value of $ 0.9 million in 2022 to its Chairman and CEO if certain annual performance goals and achievement criteria were attained for 2021.
+Added: The Company has accrued $ 0.3 million in compensation expense for this liability-classified award, which is included in salary and employee benefit expenses in the Company's Consolidated Statement of Operations for the year ended December 31, 2021.
+Added: Employee Stock Purchase Plan
+Added: On April 16, 2021, the Priority Technology Holdings, Inc.
+Added: 2021 Employee Stock Purchase Plan ("2021 Stock Purchase Plan") was authorized by the Company's Board of Directors.
+Added: The maximum number of shares available for purchase under the 2021 Stock Purchase Plan is 200,000 shares.
+Added: Shares issued under the 2021 Stock Purchase Plan may be authorized but unissued or reacquired shares of common stock.
+Added: 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 may participate in the 2021 Stock Purchase Plan.
+Added: 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.
+Added: The offering period shall be for a period of three months, and the first offering period begins during the first quarter of 2022.
+Added: The 2021 Stock Purchase 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.
2014 Management Incentive Plan
−Removed: The Priority Holdings Management Incentive Plan (the "MIP") was established in 2014 to issue share-based compensation awards to selected employees.
−Removed: Simultaneously with the Business Combination and Recapitalization (see Note 14 , Stockholders' Deficit ), the fair value of the outstanding equity awards under the MIP were exchanged for approximately 3 .0 million shares of common stock of Priority Technology Holdings, Inc.
−Removed: having approximately the same fair value.
−Removed: As such, this exchange was not deemed to be a modification for accounting purposes.
+Added: The Priority Holdings Management Incentive Plan (the "MIP") was established in 2014 to issue stock-based compensation awards to selected employees.
During the year ended December 31, 2019, the Company elected to accelerate vesting for all remaining unvested awards under the MIP, resulting in accelerated compensation expense.
−Removed: Compensation expense under the MIP was approximately $ 1.3 million and $ 1.5 million for the years ended December 31, 2019 and 2018, respectively.
−Removed: As of December 31, 2020 and 2019, there was no unrecognized compensation cost for the MIP and no grants remain outstanding under this plan.
+Added: Compensation expense under the MIP was approximately $ 1.3 million for the year ended December 31, 2019.
+Added: There is no unrecognized compensation cost for the MIP and no grants remain outstanding under this plan.
Employee Benefit Plans
7 unchanged sentences
Fair Value Measurements
−Removed: The following is a description of the valuation methodologies used for contingent consideration for business combinations and for the Goldman Sachs warrant prior to its July 2018 redemption (see Note 10 , Long-Term Debt and Warrant Liability ), both of which were initially recorded and remeasured at fair value at the end of each reporting period.
−Removed: The contingent consideration for business combinations are related to acquisitions made in 2018 and the contingency periods have expired at December 31, 2020.
−Removed: The Goldman Sachs warrant was fully redeemed in July 2018.
−Removed: Accordingly, at December 31, 2020, the Company no longer has any fair value estimates that are remeasured at the end of each reporting period.
−Removed: Redeemed Goldman Sachs Warrant
−Removed: Prior to its redemption in July 2018, the Goldman Sachs warrant was classified as level 3 in the fair value hierarchy.
−Removed: Historically, the fair value of the Goldman Sachs warrant was estimated based on the fair value of Priority Holdings, LLC using a weighted-average of values derived from generally accepted valuation techniques, including market approaches, which consider the guideline public company method, the guideline transaction method, the recent funding method, and an income approach, which considers discounted cash flows.
−Removed: Priority Holdings, LLC adjusted the carrying value of the warrant to fair value as determined by the valuation model and recognized the change in fair value as an increase or decrease in interest and other expense.
−Removed: On July 25, 2018, the Goldman Sachs warrant was fully redeemed in exchange for $ 12.7 million cash, which resulted in a gain of $ 0.1 million, as the value of the Goldman Sachs warrant immediately prior to the cancellation was $ 12.8 million.
−Removed: Contingent Consideration for Business Combinations
−Removed: The initial estimated fair value of approximately $ 1.0 million for the contingent consideration related to the 2018 business combinations for PPS Tech and PPS Northeast (see Note 4 , Asset Acquisitions, Asset Contributions , and Business Combinations ) were based on a weighted payout probability at the measurement date, which falls within Level 3 on the fair value hierarchy since these recurring fair value measurements are based on significant unobservable inputs.
−Removed: The probabilities used to estimate the payout probability of the contingent consideration for the two business combinations ranged between 15 % and 35 % for one and between 5.0 % and 80 % for the other.
−Removed: The weighted average probabilities were based on present value of estimated projections for financial metrics for the remaining earnout periods.
−Removed: At December 31, 2019 and 2018, the fair value of this contingent consideration was estimated to be an aggregate of approximately $ 0.4 million and $ 1.0 million, respectively.
−Removed: During the years ended December 31, 2020 and 2019, the carrying values of these contingent consideration arrangements were reduced by approximately $ 0.4 million and $ 0.6 million, respectively, and these amounts are reported within selling, general and administrative expense on the Company's consolidated statements of operations.
−Removed: The Company paid no amounts under either of these earnout arrangements which expired during the year ended December 31, 2020.
−Removed: The following table shows a reconciliation of the beginning and ending balances for liabilities measured at fair value on a recurring basis using significant unobservable inputs that are classified as Level 3 in the fair value hierarchy for the years ended December 31, 2020, 2019, and 2018:
−Removed: (in thousands) Warrant Liability Contingent Consideration
−Removed: Balance at January 1, 2018 $ 8,701 $ —
−Removed: Extinguishment of GS 1.8 % warrant liability (Note 10)
−Removed: GS 2.2 % warrant liability (Note 10)
−Removed: Adjustment to fair value included in earnings 591 —
−Removed: Extinguishment of GS 2.2 % warrant liability (Note 10)
−Removed: Change in fair value of warrant liability ( 72 ) —
−Removed: Earnout liabilities arising from business combinations (Note 4) — 980
−Removed: Balance at December 31, 2018 — 980
−Removed: Adjustment to fair value included in earnings — ( 620 )
−Removed: Balance at December 31, 2019 — 360
−Removed: Adjustment to fair value included in earnings — ( 360 )
−Removed: Balance at December 31, 2020 $ — $ —
−Removed: There were no transfers among the fair value levels during the years ended December 31, 2020, 2019, or 2018.
+Added: As of December 31, 2021 and 2020, the Company does not have any fair value estimates that are required to be remeasured at the end of each reporting period on a recurring basis.
Fair Value Disclosures
1 unchanged sentence
Notes receivable are carried at amortized cost.
−Removed: Substantially all of the Company's notes receivable are secured, and the Company believes that all of its notes receivable are collectible.
−Removed: The fair value of the Company's notes receivable at December 31, 2020 and December 31, 2019 was approximately $ 7.7 million and $ 5.7 million, respectively.
+Added: Substantially all of the Company's notes receivable are secured, and the Company provides for allowances when it believes that certain notes receivable may not be collectible.
+Added: The carrying value of the Company's notes receivable, net approximates fair value and was approximately $ 0.4 million and $ 7.7 million at December 31, 2021 and December 31, 2020, respectively.
On the fair value hierarchy, Level 3 inputs are used to estimate the fair value of these notes receivable.
Debt Obligations
−Removed: The Borrower's outstanding debt obligations (see Note 10 , Long-Term Debt and Warrant Liability ) 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.
−Removed: The fair value of the term loan facility under the Borrowers' Senior Credit Agreement at December 31, 2020 and 2019 was estimated to be approximately $ 278.0 million and $ 381.0 million, respectively.
−Removed: The fair value of these notes with a notional value and carrying value (gross of deferred costs and discounts) of $ 279.4 million and $ 388.8 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.
−Removed: 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.
+Added: Outstanding debt obligations (see Note 11, 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.
+Added: The fair value of the of the term loan facility under the Credit Agreement at December 31, 2021 was estimated to be approximately $ 613.8 million.
+Added: The fair value of the term loan facility under the Senior Credit Agreement at December 31, 2020 was estimated to be approximately $ 278.0 million.
+Added: The fair value of these notes at December 31, 2021 and 2020, with a notional value and carrying value (gross of deferred costs and discounts) of $ 616.9 million and $ 279.4 million, respectively, was estimated using binding and non-binding quoted prices in an active secondary market, which considers the credit risk and market related conditions, and is within Level 3 of the fair value hierarchy.
+Added: The carrying values of the 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
−Removed: The Company has three reportable segments that are reviewed by the Company's chief operating decision maker ("CODM"), who is the Company's President, Chief Executive Officer and Chairman.
−Removed: The Consumer Payments operating segment is one reportable segment.
−Removed: The Commercial Payments and Institutional Services (aka Managed Services) operating segments are aggregated into one reportable segment, Commercial Payments.
−Removed: The Integrated Partners operating segment is one reportable segment.
−Removed: Prior to second quarter of 2019, the Integrated Partners operating segment was aggregated with the Commercial Payments and Institutional Services operating segments and reported as one aggregated reportable segment, Commercial Payments.
−Removed: As of the second quarter of 2019, the Integrated Partners operating segment is no longer aggregated into the Commercial Payments operating segment.
−Removed: All comparative periods have been adjusted to reflect the current three reportable segments.
+Added: Prior to the fourth quarter of 2021, the Company's three reportable segments included the Consumer Payments segment, the Commercial Payments segment and the Integrated Partners segment.
+Added: As a result of the Company's organic growth and recent acquisitions, a new internal reporting structure was implemented which resulted in changes to the Company's reportable segments.
+Added: The three new reportable operating segments are SMB Payments, B2B Payments and Enterprise Payments.
+Added: All comparative periods have been adjusted to reflect the new reportable segments.
+Added: The Company does not have dedicated assets assigned to any particular reportable segment and such information is not available and continues to be aggregated.
More information about our three reportable segments:
−Removed: • Consumer Payments – represents consumer-related services and offerings including merchant acquiring and transaction processing services including the proprietary MX enterprise suite.
−Removed: Either through acquisition of merchant portfolios or through resellers, the Company becomes a party or enters into contracts with a merchant and a sponsor bank.
−Removed: Pursuant to the contracts, for each card transaction, the sponsor bank collects payment from the credit, debit or other payment card issuing bank, net of interchange fees due to the issuing bank, pays credit card association (e.g., Visa, MasterCard) assessments and pays the transaction fee due to the Company for the suite of processing and related services it provides to merchants, with the remainder going to the merchant.
−Removed: • Commercial Payments – represents services provided to certain enterprise customers, including outsourced sales force to those customers and accounts payable automation services to commercial customers.
−Removed: • Integrated Partners - represents payment adjacent services that are provided primarily to the rental real estate and rental storage, medical and hospitality industries.
−Removed: Integrated Partners had no material operations prior to 2018 and sold a significant portion of its business in September 2020.
+Added: • SMB Payments – provides full-service acquiring and payment-enabled solutions for B2C transactions, leveraging the Company's proprietary software platform, distributed through ISOs, direct sales and vertically focused ISV channels.
+Added: • B2B Payments – provides accounts payable automation solutions to corporations, software partners and FIs, including Citi, Mastercard and American Express.
+Added: • Enterprise Payments– provides embedded payment and banking solutions to enterprise customers that modernize legacy platforms and accelerate modern software partners looking to monetize payments.
Corporate includes costs of corporate functions and shared services not allocated to our reportable segments.
−Removed: Information on segments and reconciliations to consolidated revenues, consolidated income (loss) from operations, and consolidated depreciation and amortization are as follows for the years presented:
−Removed: Year Ended December 31,
−Removed: (in thousands) 2020 2019 2018
−Removed: Consumer Payments $ 367,816 $ 330,599 $ 347,013
−Removed: Commercial Payments 20,922 25,980 27,056
−Removed: Integrated Partners 15,604 15,275 1,753
+Added: Information on reportable segments and reconciliations to consolidated revenues, consolidated depreciation and amortization, and consolidated operating income are as follows:
+Added: (in thousands) Years Ended December 31,
+Added: 2021 2020 2019
+Added: SMB Payments $ 475,630 $ 370,521 $ 334,180
+Added: B2B Payments 17,138 20,922 25,980
+Added: Enterprise Payments 22,133 12,899 11,694
Consolidated revenues $ 514,901 $ 404,342 $ 371,854
−Removed: Income (loss) from operations:
−Removed: Consumer Payments $ 38,392 $ 32,237 $ 47,002
−Removed: Commercial Payments 923 ( 891 ) ( 952 )
−Removed: Integrated Partners 1,404 725 ( 1,969 )
−Removed: Corporate ( 19,858 ) ( 24,887 ) ( 27,688 )
−Removed: Consolidated income from operations $ 20,861 $ 7,184 $ 16,393
Depreciation and amortization:
−Removed: Consumer Payments $ 35,002 $ 32,842 $ 17,945
−Removed: Commercial Payments 306 323 557
−Removed: Integrated Partners 4,299 4,398 145
+Added: SMB Payments $ 41,144 $ 35,627 $ 33,194
+Added: B2B Payments 294 306 323
+Added: Enterprise Payments 7,158 3,674 4,046
Corporate 1,101 1,168 1,529
Consolidated depreciation and amortization $ 49,697 $ 40,775 $ 39,092
−Removed: A reconciliation of total income from operations of reportable segments to the Company's net income (loss) attributable to stockholders of Priority Technology Holdings, Inc.
−Removed: is provided in the following table:
−Removed: Year Ended December 31,
−Removed: (in thousands) 2020 2019 2018
−Removed: Total income from operations of reportable segments $ 40,719 $ 32,071 $ 44,081
−Removed: Less Corporate ( 19,858 ) ( 24,887 ) ( 27,688 )
−Removed: Less interest expense ( 44,839 ) ( 40,653 ) ( 29,935 )
−Removed: Less debt modification and extinguishment expense ( 1,899 ) — ( 2,043 )
−Removed: Add gain on sale of business 107,239 — —
−Removed: Add (less) other, net 596 710 ( 4,741 )
−Removed: Income tax (expense) benefit ( 10,899 ) ( 830 ) 2,490
−Removed: Net income (loss) 71,059 ( 33,589 ) ( 17,836 )
−Removed: Less earnings attributable to non-controlling interests ( 45,398 ) — —
−Removed: Net income (loss) attributable to stockholders of Priority Technology Holdings, Inc.
+Added: Operating income:
+Added: SMB Payments $ 52,884 $ 37,897 $ 30,936
+Added: B2B Payments 135 923 ( 891 )
+Added: Enterprise Payments 6,763 1,899 2,027
+Added: Corporate ( 26,689 ) ( 19,858 ) ( 24,888 )
+Added: Consolidated operating income $ 33,093 $ 20,861 $ 7,184
+Added: A reconciliation of total operating income of reportable segments to the Company's net (loss) income is provided in the following table:
+Added: (in thousands) Years Ended December 31,
2021 2020 2019
−Removed: Total assets, all located in the United States, by reportable segment reconciled to consolidated assets as of December 31, 2020 and 2019 were as follows:
−Removed: (in thousands) As of December 31,
−Removed: Consumer Payments $ 261,675 $ 274,136
−Removed: Commercial Payments 81,106 45,152
−Removed: Integrated Partners 3,991 74,386
+Added: Total operating income of reportable segments $ 59,782 $ 40,719 $ 32,072
Corporate ( 26,689 ) ( 19,858 ) ( 24,888 )
−Removed: Total consolidated assets $ 417,829 $ 464,505
−Removed: Assets in Corporate at December 31, 2020 and 2019 primarily represent prepaid expenses and other current assets;
−Removed: property, equipment and software;
−Removed: and net deferred income tax assets.
−Removed: Substantially all assets related to business operations are assigned to one of the Company's three reportable segments even though some of those assets result in Corporate expenses.
−Removed: EARNINGS (LOSS) PER COMMON SHARE
−Removed: As a result of the Recapitalization, the Company has retrospectively adjusted the weighted-average Class A units outstanding prior to July 25, 2018 by multiplying them by the exchange ratio used to determine the number of Class A common stock into which they converted.
−Removed: The following tables set forth the computation of the Company's earnings (loss) per common share:
−Removed: Year Ended December 31,
−Removed: (in thousands except per share amounts) 2020 2019 2018
+Added: Interest expense ( 36,485 ) ( 44,839 ) ( 40,653 )
+Added: Debt modification and extinguishment costs ( 8,322 ) ( 1,899 ) —
+Added: Gain on sale of business 7,643 107,239 —
+Added: Other income, net 202 596 710
+Added: Income tax benefit (expense) 5,258 ( 10,899 ) ( 830 )
Net income (loss) $ 1,389 $ 71,059 $ ( 33,589 )
−Removed: Income allocated to participating securities — — ( 45 )
+Added: (Loss) Earnings per Common Share
+Added: The following tables set forth the computation of the Company's basic and diluted earnings (loss) per common share:
+Added: (in thousands except per share amounts) Years Ended December 31,
+Added: 2021 2020 2019
+Added: Net income (loss) $ 1,389 $ 71,059 ( 33,589 )
+Added: Dividends and accretion attributable to redeemable senior preferred stockholders ( 18,009 ) — —
+Added: Non-controlling interest preferred unit redemptions ( 8,021 ) — —
Earnings attributable to non-controlling interests — ( 45,398 ) —
−Removed: Net income (loss) attributable to stockholders of Priority Technology Holdings, Inc.
+Added: Net (loss) income attributable to common stockholders $ ( 24,641 ) $ 25,661 $ ( 33,589 )
+Added: Weighted-average common shares outstanding (1)
71,902 67,158 67,086
−Removed: Weighted-average common stock shares outstanding 67,158 67,086 61,607
−Removed: Basic earnings (loss) per common share $ 0.38 $ ( 0.50 ) $ ( 0.29 )
−Removed: Fully Diluted:
−Removed: Weighted-average common stock shares outstanding 67,158 67,086 61,607
−Removed: Weighted-average dilutive common shares outstanding 105 — —
−Removed: Weighted-average common shares for fully-diluted earnings (loss) per share 67,263 67,086 61,607
−Removed: Fully-diluted earnings (loss) per common share $ 0.38 $ ( 0.50 ) $ ( 0.29 )
−Removed: Anti-dilutive securities that were excluded from earnings (loss) per common share that could potentially be dilutive in future periods are as follows:
−Removed: As of December 31,
+Added: Basic (loss) earnings per common share $ ( 0.34 ) $ 0.38 $ ( 0.50 )
+Added: Weighted-average common shares outstanding (1)
+Added: 71,902 67,158 67,086
+Added: Effect of potentially dilutive common stock equivalents — 105 —
+Added: Diluted weighted-average common shares outstanding 71,902 67,263 67,086
+Added: Diluted (loss) earnings per common share $ ( 0.34 ) $ 0.38 $ ( 0.50 )
+Added: (1) The weighted-average common shares outstanding includes 1,803,841 warrants issued in the second quarter of 2021 (refer to Note 12, Redeemable Senior Preferred Stock and Warrants ) .
+Added: Potentially anti-dilutive securities that were excluded from (loss) earnings per common share that could potentially be dilutive in future periods are as follows:
+Added: Common Stock Equivalents at December 31,
(in thousands) 2021 2020 2019
−Removed: Stock options (1) 1,506 1,711 2,091
−Removed: Restricted stock units (1) 280 125 202
+Added: Outstanding warrants on common stock (1)
+Added: 3,556 3,556 3,556
+Added: Outstanding options and warrants issued to adviser (2)
+Added: Restricted stock awards (3)
Liability-classified restricted stock units 129 107 —
−Removed: Earnout incentive awards subject to vesting (2) — — 95
−Removed: Warrants on common stock (3) 3,556 3,556 5,731
−Removed: Options and warrants issued to underwriter (3) 600 600 600
−Removed: Earnout incentive awards subject to issuance (2) — — 9,705
+Added: Outstanding stock option awards (3)
+Added: 1,313 1,506 1,711
Total 6,040 6,049 5,992
+Added: (1) The warrants are exercisable at $ 11.50 per share and expire on August 24, 2023.
+Added: Refer to Note 16.
+Added: Stockholders' Deficit .
+Added: (2) The warrants and options are exercisable at $ 12.00 per share and expire on August 24, 2023.
+Added: Refer Note 16.
+Added: Stockholders' Deficit .
(3) Granted under the 2018 Equity Incentive Plan.
−Removed: See Note 15 , Share - Based Compensation .
−Removed: (2) Plan expired on December 31, 2019 with no shares issued.
−Removed: (3) Issued by M.I.
−Removed: Acquisitions prior to July 25, 2018.
−Removed: See Note 14 , Stockholders ' Deficit .
−Removed: SELECTED QUARTERLY FINANCIAL RESULTS (UNAUDITED)
−Removed: (in thousands, except per share amounts) 2020
−Removed: 1Q 2Q 3Q 4Q Year
−Removed: Revenues $ 96,933 $ 92,356 $ 108,962 $ 106,091 $ 404,342
−Removed: Operating expenses 93,374 88,325 101,920 99,862 383,481
−Removed: Income from operations 3,559 4,031 7,042 6,229 20,861
−Removed: Interest expense ( 10,315 ) ( 11,668 ) ( 13,471 ) ( 9,385 ) ( 44,839 )
−Removed: Gain on sale of business — — 107,239 — 107,239
−Removed: Debt extinguishment and modification expenses ( 376 ) — ( 1,523 ) — ( 1,899 )
−Removed: Other, net 30 194 190 182 596
−Removed: Income tax (benefit) expense ( 1,233 ) 415 13,737 ( 2,020 ) 10,899
−Removed: Net (loss) income ( 5,869 ) ( 7,858 ) 85,740 ( 954 ) 71,059
−Removed: Income attributable to non-controlling interests — — ( 45,348 ) ( 50 ) ( 45,398 )
−Removed: Net (loss) income attributable to stockholders of Priority Technology Holdings, Inc.
−Removed: $ ( 5,869 ) ( 7,858 ) $ 40,392 $ ( 1,004 ) $ 25,661
−Removed: Basic and diluted (loss) income per common share (1) $ ( 0.09 ) $ ( 0.12 ) $ 0.60 $ ( 0.01 ) $ 0.38
−Removed: (in thousands, except per share amounts) 2019
−Removed: 1Q 2Q 3Q 4Q Year
−Removed: Revenues $ 87,646 $ 92,142 $ 93,883 $ 98,183 $ 371,854
−Removed: Operating expenses 86,680 89,706 91,158 97,126 364,670
−Removed: Income from operations 966 2,436 2,725 1,057 7,184
−Removed: Interest expense ( 9,363 ) ( 10,776 ) ( 10,463 ) ( 10,051 ) ( 40,653 )
−Removed: Other, net 227 138 158 187 710
−Removed: Income tax (benefit) expense ( 1,724 ) 5,928 ( 1,736 ) ( 1,638 ) 830
−Removed: Net loss $ ( 6,446 ) $ ( 14,130 ) $ ( 5,844 ) $ ( 7,169 ) $ ( 33,589 )
−Removed: Basic and diluted loss per common share (1) $ ( 0.10 ) $ ( 0.21 ) $ ( 0.09 ) $ ( 0.11 ) $ ( 0.50 )
−Removed: (1) May not be additive to the net (loss) income per common share amounts for the year due to the calculation provision of ASC 260, Earnings Per Share .
−Removed: SUBSEQUENT EVENTS
−Removed: Merger with Finxera Holdings, Inc.
−Removed: On March 5, 2021, the Company entered into a definitive merger agreement to acquire Finxera Holdings, Inc.
−Removed: Finxera is a provider of deposit account management payment processing services to the debt settlement industry.
−Removed: The transaction is expected to close in the third quarter of 2021, subject to customary closing conditions, regulatory approvals, shareholder approval for both companies, and Finxera having delivered all required consents of banking departments or other governmental entities related to its money transmitter licenses or an arrangement sufficient to enable Finxera to continue operating the business in any material jurisdictions in compliance with all applicable law without a money transmitter license.
−Removed: In the event that the condition is waived for a material jurisdiction pursuant to the above, the Company’s closing stock consideration will be reduced by $ 10 million, and if a non-material jurisdiction, Finxera will take all steps necessary to ensure compliance with applicable law.
−Removed: Consideration for the Merger will consist of a combination of cash and stock, with the purchase price comprising of:
−Removed: (a) $ 425 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 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.
−Removed: If the merger agreement is terminated by the Company because the transactions have not been consummated by February 28, 2022, and every condition to consummate the transactions contemplated by the merger agreement has been satisfied and the merger has not been consummated, or if the Company is in material breach of the representations, warranties or covenants in the merger agreement, then the Company may be required to pay Finxera a $ 22.5 million termination fee.
−Removed: Debt Commitment Letter
−Removed: In connection with the definitive merger agreement, Priority entered into a debt commitment letter with Truist Bank and Truist Securities, Inc.
−Removed: to provide Priority with $ 300 million of term loan commitments, $ 290 million of delayed draw term loan commitments, and a $ 40 million revolving credit facility, subject to the conditions set forth in the debt commitment letter.
−Removed: The proceeds of the term loan facility and the revolving credit facility will be used to refinance existing Senior loan facilities, to pay fees and expenses in connection with the refinancing, and for working capital and general corporate requirements.
−Removed: The proceeds of the delayed draw term loan facility will be used to finance a portion of the merger consideration and paying fees and expenses related to the merger.
−Removed: The availability of loans under the term loan commitments and the revolving credit facility is subject to certain conditions including, but not limited to, prior or substantially simultaneous completion of the transactions contemplated by the equity commitment letter (as described below), either a successful marketing period in connection with the syndication of the initial term loan facility and the revolving credit facility or substantially simultaneous satisfaction of the conditions precedent for the delayed draw term loan facility, and certain other customary closing conditions.
−Removed: The availability of loans under the delayed draw term loan facility is subject to certain conditions including, but not limited to, completion of the merger in accordance with the merger agreement substantially concurrently with the borrowing under the delayed draw term loan facility, substantially simultaneous occurrence of the issuance of common equity of the Company as merger consideration, pro forma leverage below a particular threshold, and certain other customary closing conditions.
−Removed: Equity Commitment Letter
−Removed: Additionally in connection with the definitive merger agreement, the Company entered into a preferred stock commitment letter with Ares Capital Management LLC (“ACM”) and Ares Alternative Credit Management LLC (“AACM” and together with
−Removed: ACM, the “Equity Commitment Parties”), pursuant to which, among other things, the Equity Commitment Parties have agreed to purchase perpetual senior preferred equity securities (the “Preferred Stock”) of the Company (a) to be issued in connection with the refinancing and repayment in full of certain Credit and Guaranty Agreements as described in the Equity Commitment Letter (the “Closing Date Refinancing”) (the “Initial Preferred Stock” and the issuance and sale thereof and certain warrants representing 2.50 % of the fully diluted Company Common Shares at the Closing, the “Initial Preferred Stock Financing”) in an amount equal to (i) in the case of ACM, $ 90.0 million and (ii) in the case of AACM, $ 60.0 million, (b) to be issued in connection with the Merger (the “Acquisition Preferred Stock” and the issuance and sale thereof, the “Acquisition Preferred Stock Financing”) in an amount equal to (i) in the case of ACM, $ 30.0 million and (ii) in the case of AACM, $ 20.0 million and (c) available to be issued in connection with one or more acquisitions by the Company or its subsidiaries as permitted by the Equity Commitment Letter (the “Delayed Preferred Stock” and the issuance and sale thereof, the “Delayed Preferred Stock Financing” and together with the Initial Preferred Stock Financing and the Acquisition Preferred Stock Financing, the “Preferred Stock Financing”) an amount equal to (i) in the case of ACM, $ 30.0 million and (ii) in the case of AACM, $ 20.0 million.
−Removed: The Company has also agreed to issue to the Equity Commitment Parties warrants to purchase shares of common stock of the Company equal to an aggregate of 2.5 % of the outstanding shares of common stock at a nominal exercise price.
−Removed: The Preferred Stock will require quarterly dividend payments initially equal to a LIBOR rate plus 12 % per annum of the liquidation preference, of which at least LIBOR plus 5 % is to be payable in cash and the remainder paid in kind.
−Removed: In certain circumstances, including if the Company does not pay the minimum cash dividend, the required dividend may be increased.
−Removed: The Preferred Stock will be redeemable beginning two years after the first issuance of Preferred Stock at a price equal to 102 % of the liquidation preference of the Preferred Stock plus any accrued and unpaid dividends or, beginning three years after the first issuance of Preferred Stock, at a price equal to the liquidation preference plus any accrued and unpaid dividends.
−Removed: Prior to two years after the first issuance, the Preferred Stock is redeemable at a make-whole rate.
−Removed: In the event of a change of control or liquidation event, the Company will be required to redeem the outstanding Preferred Stock.
−Removed: The Preferred Stock will not have any voting rights except as required under Delaware law, but certain actions by the Company will require the consent of holders of a majority of the Preferred Stock.
−Removed: In addition, the Preferred Stock will include certain covenants restricting, among other things, restricted payments, the incurrence of indebtedness, acquisitions and investments.
−Removed: The Equity Commitment Parties’ commitment to provide the initial preferred stock financing is subject to certain conditions including but not limited to, the occurrence of the debt commitment refinancing, execution and delivery of the definitive documentation for the preferred stock financing, delivery by the Company to the investors of evidence of a bound buyer-side representation and warranty insurance policy, and certain other customary closing conditions.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
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.