What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-11 compared with 2021-11-15 · 158 added, 430 removed, 78 unchanged (88% of the section changed)

Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited Consolidated Financial Statements and related notes for the years ended December 31, 2020, 2019 and 2018 and the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations," included in the Company's Annual Report on Form 10-K filed with the U.S.

Securities and Exchange Commission on March 31, 2021 (the "Annual Report").

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Audited Consolidated Financial Statements and related Notes and the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations," included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021.

Cautionary Note Regarding Forward-looking Statements

Some of the statements made in this Quarterly Report on Form 10-Q constitute forward-looking statements within the meaning of the federal securities laws.

Such forward-looking statements include, but are not limited to, statements regarding our or our management's expectations, hopes, beliefs, intentions or strategies regarding the future.

Such forward-looking statements include, but are not limited to, statements regarding our management's expectations, hopes, beliefs, intentions or strategies regarding the future.

In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, such as statements about our future financial performance, including any underlying assumptions, are forward-looking statements.

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• any failure to comply with the rules established by payment networks or standards established by third-party processors;

• any proposed acquisitions or any risks associated with completed acquisitions;

• other risks and uncertainties set forth in the "Item 1A - Risk Factors" included in this Quarterly Report or our Annual Report.

• any proposed acquisitions or dispositions or any risks associated with completed acquisitions or dispositions;

• other risks and uncertainties set forth in the " Item 1A - Risk Factors " section of this Quarterly Report on Form 10-Q or our Annual Report on Form 10-K.

We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.

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We cannot assure you that future developments affecting us will be those that we have anticipated.

These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause our actual results or performance to be materially different from those expressed or implied by these forward-looking statements.

Should one or more of these risks or uncertainties

materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements.

These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions, including the risk factors set forth in the " Item 1A - Risk Factors " section of this Quarterly Report on Form 10-Q or our Annual Report on Form 10-K, that may cause our actual results or performance to be materially different from those expressed or implied by these forward-looking statements.

Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements.

In addition, statements that "we believe" and similar statements reflect our beliefs and opinions on the relevant subject.

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These statements are inherently uncertain, and investors are cautioned not to unduly rely upon these statements.

Table of Con tents

You should read this Quarterly Report on Form 10-Q with the understanding that our actual future results, levels of activity, performance and achievements may be materially different from what we expect.

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Terms Used in this Quarterly Report on Form 10-Q

As used in this Quarterly Report on Form 10-Q, unless the context otherwise requires, references to the terms "Company," "we," "us" and "our" refer to Priority Technology Holdings, Inc.

As used in this Quarterly Report on Form 10-Q, unless the context otherwise requires, references to the terms "Company," "Priority," "we," "us" and "our" refer to Priority Technology Holdings, Inc.

and its consolidated subsidiaries.

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Results of Operations

This section includes a discussion and analysis of our results of operations for the three months ended September 30, 2021 (or third quarter 2021) compared to the three months ended September 30, 2020 (or third quarter 2020), and the nine months ended September 30, 2021 (or 2021 period) compared to the nine months ended September 30, 2020 (or 2020 period).

We have derived this data, except key indicators for merchant bankcard processing dollar values and transaction volumes, from our Unaudited Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q and our audited Consolidated Financial Statements included in our latest Annual Report on Form 10-K.

Three Months Ended September 30, 2021 Compared to the Three Months Ended September 30, 2020

(dollars in thousands) Three Months Ended September 30,

This section includes certain components of our results of operations for the three months ended March 31, 2022, compared to the three months ended March 31, 2021.

We have derived this data, except key indicators for merchant bankcard processing dollar values and transaction volumes, from our Unaudited Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q and our audited Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2021.

For the three months ended March 31, 2022, our consolidated revenue of $153.2 million increased by $39.9 million, or 35.2%, from $113.3 million for the three months ended March 31, 2021.

This overall increase was mainly driven by an increase in bankcard volumes fueled by increased consumer spending and acquisitions completed by the Company in 2021.

The following table presents our revenues by type for the three months ended March 31, 2022 and 2021:

(in thousands) Three Months Ended March 31,

2022 2021 $ Change % Change

Revenue $ 132,542 $ 108,962 $ 23,580 21.6 %

Revenue Type:

Merchant card fees $ 127,952 $ 107,702 $ 20,250 18.8 %

Outsourced services and other services 7,097 4,378 2,719 62.1 %

Money transmission services revenue 16,283 — 16,283 nm

Equipment 1,907 1,217 690 56.7 %

Total revenues $ 153,239 $ 113,297 $ 39,942 35.3 %

For the three months ended March 31, 2022, our merchant card fees revenue of $128.0 million increased by $20.3 million, or 18.8%, from $107.7 million for the three months ended March 31, 2021.

This increase was primarily driven by an increase in the merchant bankcard volume processed by the Company and purchased residuals related to the C&H acquisition, slightly offset by rate decreases.

Outsourced services and other services revenue of $7.1 million for the three months ended March 31, 2022 increased by $2.7 million, or 61.4%, from $4.4 million for the three months ended March 31, 2021, primarily due to growth in revenue from AP automation solutions and the acceleration of certain customer programs which were scaled back in 2021 due to the impact of the COVID-19 pandemic.

Money transmission services revenue of $16.3 million for the three months ended March 31, 2022 is related to the acquisition of Finxera in September 2021.

Equipment revenue of $1.9 million for the three months ended March 31, 2022 increased by $0.7 million, or 58.3%, from $1.2 million for the three months ended March 31, 2021.

The increase was primarily due to increased sales of mobile card reader equipment and other equipment from our MX product line.

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Operating Expenses

Operating expenses for three months ended March 31, 2022 and 2021 were as follows:

(in thousands) Three Months Ended March 31,

2022 2021 $ Change % Change

Operating expenses

Costs of services $ 101,480 $ 81,863 $ 19,617 24.0 %

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Total operating expenses $ 142,413 $ 108,770 $ 33,643 30.9 %

Operating income 8,250 7,042 1,208 17.2 %

Other (expenses) income

Interest expense (8,155) (13,471) 5,316 (39.5) %

Debt extinguishment and modification costs — (1,523) 1,523 (100.0) %

Gain on sale of business — 107,239 (107,239) (100.0) %

Other income, net 146 190 (44) (23.2) %

Total other (expenses) income, net (8,009) 92,435 (100,444) (108.7) %

Income before income taxes 241 99,477 (99,236) (99.8) %

Income tax expense 790 13,737 (12,947) (94.2) %

Net (loss) income $ (549) $ 85,740 $ (86,289) (100.6) %

Nine Months Ended September 30, 2021 Compared to the Nine Months Ended September 30, 2020

(dollars in thousands) Nine Months Ended September 30,

2021 2020 Change % Change

Revenue $ 370,853 $ 298,251 $ 72,602 24.3 %

Operating expenses

Costs of Services

Costs of services of $101.5 million for the three months ended March 31, 2022 increased by $19.6 million, or 23.9%, from $81.9 million for the three months ended March 31, 2021, primarily due to the corresponding increase in revenues.

For the three months ended March 31, 2022, costs of services as a percentage of total revenues decreased to 66.2% as compared to 72.3% for the three months ended March 31, 2021.

This decrease was primarily due to the impact of the Finxera acquisition on gross profit margins, partially offset by bankcard volume growth from larger partners with higher commissions and contraction of the specialized merchant acquiring portfolio.

Salary and Employee Benefits

Depreciation and amortization 32,123 30,886 1,237 4.0 %

Salary and employee benefits expense of $16.1 million for the three months ended March 31, 2022 increased by $6.6 million, or 69.5%, from $9.5 million for the three months ended March 31, 2021, primarily due to increases in headcount related to our acquisition of Finxera in September 2021, an increase in stock-based compensation and overall growth of the Company.

Depreciation and Amortization Expense

Depreciation and amortization expense of $17.4 million for the three months ended March 31, 2022 increased by $8.3 million, or 91.2%, from $9.1 million for the three months ended March 31, 2021, primarily due to the amortization of finite-lived intangible assets acquired from the business combinations completed during 2021.

Selling, General and Administrative

Total operating expenses 350,671 283,619 67,052 23.6 %

Operating income 20,182 14,632 5,550 37.9 %

Other (expenses) income

Selling, general and administrative expenses of $7.5 million for the three months ended March 31, 2022 decreased by $0.8 million, or 9.6%, from $8.3 million for the three months ended March 31, 2021, primarily due to an increase in expenses from acquired businesses offset by one-time transaction expenses in the prior year period.

Other (Expenses) Income, net

(in thousands) Three Months Ended March 31,

2022 2021 $ Change % Change

Other (expense) income

Interest expense $ (11,535) $ (9,168) $ (2,367) 25.8 %

Debt extinguishment and modification costs (8,322) (1,899) (6,423) 338.2 %

Gain on sale of business — 107,239 (107,239) (100.0) %

Other income, net 92 414 (322) (77.8) %

Total other (expenses) income, net (32,838) 70,300 (103,138) (146.7) %

(Loss) income before income taxes (12,656) 84,932 (97,588) (114.9) %

Other income (expense), net 51 (269) 320 (119.0) %

Total other expense, net $ (11,484) $ (9,437) $ (2,047) 21.7 %

Table of Con tents

Interest Expense

Interest expense of $11.5 million for the three months ended March 31, 2022 increased by $2.3 million, or 25.0%, from $9.2 million for the three months ended March 31, 2021, due to additional borrowings to fund the acquisition of Finxera in September 2021.

Income Tax Expense

Net (loss) income $ (12,705) $ 72,013 $ (84,718) (117.6) %

The following table shows our reportable segments' financial performance data and selected performance measures for the three months ended September 30, 2021 compared to the three months ended September 30, 2020:

(in thousands) Three Months Ended September 30,

(in thousands) Three Months Ended March 31,

2022 2021 $ Change % Change

Consumer Payments:

Revenues $ 124,027 $ 99,301 $ 24,726 24.9 %

Operating expenses 109,371 88,203 21,168 24.0 %

Operating income $ 14,656 $ 11,098 $ 3,558 32.1 %

Operating margin 11.8% 11.2%

Loss before income taxes $ (658) $ (4,910) $ 4,252 (86.6) %

Income tax benefit $ (325) $ (2,231) $ 1,906 (85.4) %

Effective tax rate 49.4 % 45.4 %

We compute our interim period income tax expense or benefit by using a forecasted EAETR and adjust for any discrete items arising during the interim period and any changes in our projected full-year business interest expense and taxable income.

The EAETR for 2022 is 51.5% and includes the income tax provision on pre-tax income and a tax provision related to establishment of a valuation allowance for deferred income tax on the future portion of the Section 163(j) limitation created by additional 2022 interest expense.

The effective tax rate for 2022 increased primarily due to an increase in the valuation allowance against certain business interest carryover deferred tax assets.

Our consolidated effective income tax rates differ from the statutory rate due to timing and permanent differences between amounts calculated under accounting principles GAAP and the U.S.

The consolidated effective income tax rate for 2022 may not be indicative of our effective tax rate for future periods.

Segment Results

The Company reorganized its business segments as of December 31, 2021, resulting in three segments:

SMB Payments, B2B Payments and Enterprise Payments.

Segment results included in the discussion below were restated in accordance with the new segment structure for comparison purposes.

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The impact of the restatement of the prior period results is as follows:

(in thousands) Three Months Ended March 31, 2021

SMB Payments (1)

B2B Payments (2)

Enterprise Payments (3)

Restated $ 109,101 $ 3,500 $ 696

Historically reported 108,393 3,500 1,404

Difference $ 708 $ — $ (708)

Operating Income (Loss):

Restated $ 13,289 $ (409) $ 164

Historically reported 13,363 (409) 92

Difference $ (74) $ — $ 72

Depreciation and Amortization:

Key Indicators:

Merchant bankcard processing dollar value $ 13,817,001 $ 11,235,068 $ 2,581,933 23.0 %

Merchant bankcard transaction volume 151,524 122,623 28,901 23.6 %

Commercial Payments:

Revenues $ 4,181 $ 4,995 $ (814) (16.3) %

Restated $ 8,708 $ 74 $ —

Historically reported 8,579 74 129

Difference $ 129 $ — $ (129)

(1) Compared to the Company's legacy Consumer Payments segment.

(2) Compared to the Company's legacy Commercial Payments segment.

(3) Compared to the Company's legacy Integrated Partners segment.

(in thousands) Three Months Ended March 31,

2022 2021 $ Change % Change

Revenue $ 129,959 $ 109,101 $ 20,858 19.1 %

Operating expenses 117,473 95,812 21,661 22.6 %

Operating (loss) income $ (29) $ 169 $ (198) (117.2) %

Operating income $ 12,486 $ 13,289 $ (803) (6.0) %

Operating margin 9.6 % 12.2 %

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Merchant bankcard transaction volume 145,948 127,583 18,365 14.4 %

Integrated Partners:

Revenues $ 4,334 $ 4,666 $ (332) (7.1) %

Operating expenses 3,114 4,413 (1,299) (29.4) %

Revenue from our SMB Payments segment was $130.0 million for the three months ended March 31, 2022, compared to $109.1 million for the three months ended March 31, 2021.

The increase of $20.9 million, or 19.2%, was primarily driven by increased merchant bankcard volume.

The Company's revenue from the SMB Payments segment as a percentage of merchant bankcard processing dollar value during 2022 decreased to 0.88% from 0.90% during 2021.

The decrease is primarily driven by a decrease in revenue from the specialized merchant acquiring portfolio offset by an increase in other fees revenues.

Operating Income

Operating margin 28.1% 5.4%

Operating income from our SMB Payments segment was $12.5 million for the three months ended March 31, 2022, compared to $13.3 million for the three months ended March 31, 2021.

The decrease of $0.8 million, or 6.0%, was primarily driven by the increase in volumes from partners with higher commissions.

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Depreciation and Amortization

Key Indicators:

Merchant bankcard processing dollar value $ 13,832 $ 105,537 $ (91,705) (86.9) %

Merchant bankcard transaction volume 160 371 (211) (56.9) %

Operating income of reportable segments $ 15,847 $ 11,520 $ 4,327 37.6 %

Corporate expense (7,597) (4,478) (3,119) (69.7) %

Consolidated operating income $ 8,250 $ 7,042 $ 1,208 17.2 %

Corporate depreciation and amortization $ 269 $ 290 $ (21) (7.2) %

Key indicators:

Merchant bankcard processing dollar value $ 13,917,688 $ 11,398,909 $ 2,518,779 22.1 %

Merchant bankcard transaction volume 151,738 123,018 28,720 23.3 %

The following table shows our reportable segments' financial performance data and selected performance measures for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020:

(in thousands) Nine Months Ended September 30,

Depreciation and amortization expense from our SMB Payments segment was $10.8 million for the three months ended March 31, 2022, compared to $8.7 million depreciation expense for the three months ended March 31, 2021.

The increase of $2.1 million was primarily driven by the amortization of acquired intangibles resulting from the C&H and Wholesale Payments, Inc.

acquisitions.

(in thousands) Three Months Ended March 31,

2022 2021 $ Change % Change

Consumer Payments:

Revenues $ 352,045 $ 267,039 $ 85,006 31.8 %

Revenue $ 5,925 $ 3,500 $ 2,425 69.3 %

Operating expenses 5,516 3,909 1,607 41.1 %

Operating income $ 42,467 $ 25,520 $ 16,947 66.4 %

Operating income (loss) $ 409 $ (409) $ 818 (200.0) %

Operating margin 6.9 % (11.7) %

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Merchant bankcard transaction volume 88 39 49 125.6 %

Commercial Payments:

Revenues $ 11,722 $ 17,017 $ (5,295) (31.1) %

Operating expenses 12,139 15,609 (3,470) (22.2) %

Revenue from our B2B Payments segment was $5.9 million for the three months ended March 31, 2022, compared to $3.5 million for the three months ended March 31, 2021.

The increase of $2.4 million, or 68.6%, was primarily driven by $1.5 million, or 42.9%, as a result of the acceleration of certain programs in the Managed Services business operations that were scaled back in 2021 as a result of the COVID-19 pandemic and volume growth in the CPX business.

The remaining increase of $0.9 million, or 25.7%, is from the recognition of certain revenues for which recovery became probable during the current quarter.

Operating Income (Loss)

Operating income from our B2B Payments segment was $0.4 million for the three months ended March 31, 2022, compared to an operating loss of $(0.4) million for the three months ended March 31, 2021.

The increase of $0.8 million, or 200.0%, was primarily attributable to increases in revenue.

Enterprise Payments

(in thousands) Three Months Ended March 31,

2022 2021 $ Change % Change

Revenue $ 17,355 $ 696 $ 16,659 nm

Operating expenses 12,861 532 12,329 nm

Operating income $ 4,494 $ 164 $ 4,330 nm

Operating margin 25.9 % 23.6 %

Depreciation and amortization $ 220 $ 231 $ (11) (4.8) %

Depreciation and amortization $ 6,197 $ — $ 6,197 nm

Key Indicators:

Merchant bankcard processing dollar value $ 225,373 $ 195,229 $ 30,144 15.4 %

Merchant bankcard transaction volume 140 70 70 100.0 %

Integrated Partners:

Revenues $ 7,086 $ 14,195 $ (7,109) (50.1) %

Operating expenses 5,609 12,729 (7,120) (55.9) %

Merchant bankcard processing dollar value $ 216,398 $ — $ 216,398 nm

Merchant bankcard transaction volume 372 — 372 nm

Table of Con tents

Revenue from our Enterprise Payments segment was $17.4 million for the three months ended March 31, 2022, compared to $0.7 million for the three months ended March 31, 2021.

The increase of $16.7 million was primarily driven by revenues contributed by the Finxera business acquired in September 2021.

Operating Income

Operating margin 20.8 % 10.3 %

Operating income from our Enterprise Payments segment was $4.5 million for the three months ended March 31, 2022, compared to $0.2 million for the three months ended March 31, 2021.

The increase of $4.3 million was primarily driven by operating income contributed by the Finxera business acquired in September 2021.

Depreciation and Amortization

Key Indicators:

Merchant bankcard processing dollar value $ 38,256 $ 352,144 $ (313,888) (89.1) %

Merchant bankcard transaction volume 390 1,207 (817) (67.7) %

Operating income of reportable segments $ 43,527 $ 28,394 $ 15,133 53.3 %

Corporate expense (23,345) (13,762) (9,583) (69.6) %

Consolidated operating income $ 20,182 $ 14,632 $ 5,550 37.9 %

Corporate depreciation and amortization $ 834 $ 886 $ (52) (5.9) %

Key indicators:

Merchant bankcard processing dollar value $ 39,828,527 $ 31,180,097 $ 8,648,430 27.7 %

Merchant bankcard transaction volume 430,140 336,173 93,967 28.0 %

Impact of COVID-19 on Results and Trends

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

Starting in mid-March 2020 through April 2020, COVID-19 had a significant negative effect on our results.

This impact was evident in a decline in merchant bankcard volume and our revenues particularly during the period of restrictive shelter-in-place requirements instituted across the United States toward the end of March 2020 through April 2020.

In May 2020, as shelter-in-place restrictions began to be lifted and regional economies started to reopen, our processing volumes began to return, and revenue growth was supplemented by the acceleration of certain specialized product offerings and e-commerce payment transactions.

This recovery momentum continued through the second half of 2020 and first nine months of 2021.

While there continues to be uncertainty regarding the future economic impacts of COVID-19 variants, our operating results reflect a significant recovery from the pandemic's negative effects during the first half of 2020.

The pandemic's impact on the overall economy and on our comparative historical results and future results are beyond our ability to quantify predict or control.

Three Months Ended September 30, 2021 Compared to Three Months Ended September 30, 2020

Consolidated revenues

Our consolidated revenues in the third quarter of 2021 of $132.5 million increased by $23.6 million, or 21.6%, from revenues in the third quarter of 2020 of $109.0 million.

Revenue growth of $24.7 million in our Consumer Payments segment was partially offset by revenue declines of $0.8 million and $0.3 million in our Commercial Payments and Integrated Partners segments, respectively.

Revenues in Consumer Payments segment

Consumer payments revenues in the third quarter 2021 of $124.0 million increased $24.7 million, or 24.9%, compared to revenues in the third quarter of 2020 of $99.3 million.

This increase was driven by $30.0 million, or 33.3%, in revenue growth from our base merchant business, and was partially offset by a $5.3 million, or 58.0%, revenue decline from specialized e-commerce merchants.

Merchant bankcard volume in the third quarter of 2021 of $13.8 billion increased by $2.6 billion, or 23.0%, as compared with $11.2 billion in the third quarter of 2020.

Merchant bankcard transactions of 151.5 million in the third quarter of 2021 increased by 23.6%, as compared with 122.6 million in the third quarter of 2020.

Average ticket (calculated by dividing bankcard processing dollar value by the associated number of transactions processed) of $91.19 in the third quarter of 2021 decreased by 0.5%, as compared with $91.62 in the third quarter of 2020.

The pandemic's influence on consumer behavior impacted the comparative volume, vertical industry mix and overall consumer spending trends.

Revenues in Commercial Payments segment

Commercial Payments revenues in the third quarter of 2021 of $4.2 million decreased by $0.8 million, or 16.3%, compared to revenues in the third quarter of 2020 of $5.0 million.

Revenues in this segment are derived primarily from the accounts payable automated solutions business and from our curated managed services business.

Revenues from the accounts payable automated solutions business in the third quarter of 2021 of $1.6 million increased $0.1 million, or 3.9%, from $1.5 million in the third quarter of 2020.

This increase was moderate due to increased volume from customers with lower yield.

Revenues from our curated managed services business in the third quarter of 2021 of $2.6 million decreased by $0.9 million, or 25.7%, from revenues in the third quarter of 2020 of $3.5 million.

This decrease was driven by a decline and curtailment in 2020 of a customer's merchant financing program in response to the COVID-19 related economic

conditions and subsequent changes in the customer's business model.

However, this customer initiated a new supplier enablement program during the first quarter of 2021 which contributed $1.0 million of additional revenue in the third quarter of 2021.

Revenues in Integrated Partners segment

Integrated Partners revenues in the third quarter of 2021 of $4.3 million decreased by $0.3 million, or 7.1%, compared to revenues in the third quarter of 2020 of $4.7 million.

PRET comprised $0.8 million and $4.1 million of this segment's revenues in the third quarter of 2021 and 2020, respectively.

Through September 22, 2020, PRET was comprised of our RentPayment and Landlord Station businesses.

RentPayment, which was sold on September 22, 2020, generated revenue of $3.9 million in the third quarter of 2020.

Simultaneous with the sale of RentPayment, PRET entered into revenue-producing agreements with the buyer to provide ongoing technology support and payment processing services, which offers us an opportunity to expand this relationship and provide payment processing services to existing customers of the buyer.

Revenues in the third quarter 2021 of $0.8 million from PRET's ongoing business increased $0.6 million, or 274.2%, compared with revenues of $0.2 million in the third quarter of 2020.

Finxera Holdings, Inc.

("Finxera"), which was acquired on September 17, 2021, contributed $3.0 million to this segment’s revenues in the third quarter of 2021.

Priority PayRight Health Solutions and PHOT contributed $0.6 million of this segment's revenues in the third quarter of 2021.

Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020

Consolidated revenues

Our consolidated revenues in the first nine months of 2021 of $370.9 million increased by $72.6 million, or 24.3%, from revenues in the first nine months of 2020 of $298.3 million.

Revenue growth of $85.0 million in our Consumer Payments segment was partially offset by revenue declines of $5.3 million and $7.1 million in our Commercial Payments and Integrated Partners segments, respectively.

Revenues in Consumer Payments segment

Consumer payments revenues in the first nine months of 2021 of $352.0 million increased $85.0 million, or 31.8%, compared to revenues in the first nine months of 2020 of $267.0 million.

This increase was driven by $87.6 million, or 35.1%, revenue growth from our base merchant business, and a $2.6 million, or 14.9%, decrease in revenue from specialized e-commerce merchants.

Merchant bankcard volume in the first nine months of 2021 of $39.6 billion increased by $8.9 billion, or 29.2%, as compared with $30.6 billion in the first nine months of 2020.

Merchant bankcard transactions of 429.6 million in the first nine months of 2021 increased by 28.3%, as compared with 334.9 million in the first nine months of 2020.

Average ticket of $92.09 in the first nine months of 2021 increased 0.7%, as compared with $91.47 in first nine months of 2020.

Revenues in Commercial Payments segment

Commercial Payments revenues in the first nine months of 2021 of $11.7 million decreased by $5.3 million, or 31.1%, compared to revenues in the first nine months of 2020 of $17.0 million.

Revenue in this segment is derived primarily from the accounts payable automated solutions business and from our curated managed services business.

Revenue from the accounts payable automated solutions business in the first nine months of 2021 of $4.9 million increased $0.4 million, or 8.9%, from $4.5 million in the first nine months of 2020.

This increase was due to increased volume from customers with lower yield.

Revenue from our curated managed services business in the first nine months of 2021 of $6.8 million decreased by $5.7 million, or 45.6%, from revenue in the first nine months 2020 of $12.5 million.

This decrease was driven by a decline and curtailment in 2020 of a customer's merchant financing program in response to the COVID-19 related economic conditions and subsequent changes in the customer's business model.

However, this customer initiated a new supplier enablement program during the first quarter 2021 which contributed $1.7 million of additional revenue in the first nine months of 2021.

Revenues in Integrated Partners segment

Integrated Partners revenues in the first nine months of 2021 of $7.1 million, decreased by $7.1 million, or 50.1%, compared to revenues in the first nine months of 2020 of $14.2 million.

PRET comprised $2.3 million and $12.6 million of this segment's revenues in the first nine months of 2021 and 2020, respectively.

Through September 22, 2020, PRET was comprised of our RentPayment and our Landlord Station businesses.

RentPayment, which was sold on September 22, 2020, generated revenue of $12.1 million in the first nine months of 2020.

Revenue in the first nine months of 2021 of $2.3 million from PRET's ongoing business increased $1.9 million, or 475.0%, compared with revenue of $0.4 million in the in the first nine months of 2020.

Finxera, which was acquired on September 17, 2021, contributed $3.0 million to this segment’s revenue in the first nine months of 2021.

Priority PayRight Health Solutions and PHOT contributed $1.8 million of this segment's revenue in the first nine months of 2021.

Consolidated Operating expenses

Three Months Ended September 30, 2021 Compared to Three Months Ended September 30, 2020

Our consolidated operating expenses in the third quarter of 2021 of $124.3 million increased $22.4 million, or 22.0%, from consolidated operating expenses in the third quarter of 2020 of $101.9 million.

This increase was driven by an increase in costs of services.

Costs of services is the third quarter of 2021 of $92.8 million increased by $17.9 million or 23.8%, from costs of services in the third quarter of 2020 of $74.9 million due to higher revenues in the third quarter of 2021.

Depreciation and amortization expense in the third quarter of 2021 of $12.3 million increased by $2.1 million, or 20.3%, from depreciation and amortization expense in the third quarter of 2020 of $10.3 million primarily due to amortization expense from intangible assets acquired during the period.

Salary and employee benefits expense in the third quarter of 2021 of $11.9 million increased $1.9 million, or 19.0%, from salary and employee benefits expense in the third quarter of 2020 of $10.0 million, primarily attributable to an increase in the number of employees and contracted resources caused by the increased level of operations and acquisitions, as well as higher stock-based compensation expense.

Selling, general and administrative ("SG&A") expense in the third quarter of 2021 of $7.2 million increased $0.5 million, or 8.0%, from SG&A expense in the third quarter of 2020 of $6.7 million, primarily attributable to acquisition and corporate financing activities, tax-related assessments, and slightly higher costs for travel, tradeshows and office-related expenses.

During the third quarter of 2021, SG&A expense included $1.3 million of professional fees and expenses incurred in connection with the acquisition of Finxera, as well as certain litigation activities, and $0.6 million of tax-related assessments and acquisition-related transition services.

During the third quarter of 2020, SG&A expense included $0.6 million of professional fees and expenses primarily incurred in connection with acquisition and litigation activities, $1.0 million of acquisition-related transition services in the Integrated Partners segment, and a $1.0 million write-down in the carrying value of an intangible asset in the Consumer Payments segment.

These expenses were partially offset by a $0.8 million legal recovery settled in the third quarter of 2020.

Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020

Our consolidated operating expenses in the first nine months of 2021 of $350.7 million increased $67.1 million, or 23.6%, from consolidated operating expenses in the first nine months of 2020 of $283.6 million.

This increase was driven by higher costs of services.

Costs of services in the first nine months 2021 of $264.5 million increased $60.8 million, or 29.8%, from costs of services in the first nine months 2020 of $203.7 million due to higher revenues in the first nine months of 2021.

Depreciation and amortization expense in the first nine months of 2021 of $32.1 million increased by $1.2 million, or 4.0%, from depreciation and amortization expense in the first nine months of 2020 of $30.9 million due to amortization expense from intangible assets acquired during the period.

Salary and employee benefits expense in the first nine months of 2021 of $31.8 million increased $2.1 million, or 7.1%, from salary and employee benefits expenses in the first nine months of 2020 of $29.7 million, primarily attributable to an increase in the number of employees and contracted resources caused by the increased level of operations, as well as higher stock-based compensation expense.

SG&A expense in the first nine months of 2021 of $22.2 million increased $2.9 million, or 15.1%, from SG&A expense in the first nine months of 2020 of $19.3 million.

During the first nine months of 2021, SG&A expense included $6.8 million of professional fees and expenses incurred in connection with the acquisition of Finxera, the April 2021 debt refinancing and issuance of preferred stock and other acquisition activities, as well as litigation activities, and $0.6 million of tax-related assessments and acquisition-related

transition services.

During the first nine months of 2020, Corporate SG&A expense included $1.5 million of professional fees and expenses primarily incurred in connection with acquisition and litigation activities, partially offset by $0.7 million of legal settlement recoveries.

The Integrated Partners segment SG&A expense included $2.7 million of acquisition-related transition services, while the Consumer Payments segment expense included a $1.0 million write-down of the carrying value of an intangible asset.

Operating income (loss)

Three Months Ended September 30, 2021 Compared to Three Months Ended September 30, 2020

Consolidated operating income in the third quarter of 2021 of $8.3 million increased by $1.2 million, or 17.2%, from $7.0 million in the third quarter of 2020.

This increase was the result of $5.7 million of higher revenues less costs of services partially offset by $1.9 million of higher salary and employee benefits expense, $0.5 million of higher SG&A expense and $2.1 million of higher depreciation and amortization expense.

Our Consumer Payments segment contributed $14.7 million in operating income for the third quarter of 2021, an increase of $3.6 million, or 32.1%, from $11.1 million in the third quarter of 2020.

This increase was the result of $6.6 million higher revenues less costs of services and $0.8 million of lower SG&A expense being partially offset by $1.3 million of higher salary and employee benefits expense and $2.5 million of higher depreciation and amortization expense.

Our Commercial Payments segment had an operating income slightly below breakeven for the third quarter of 2021 compared to operating income of $0.2 million for the third quarter of 2020.

This decline was primarily the result of $0.4 million of lower revenues less costs of services being partially offset by $0.2 million of lower other operating costs, primarily salaries and employee benefits.

Our Integrated Partners segment contributed operating income of $1.2 million for the third quarter of 2021, an increase of $1.0 million compared to $0.3 million of operating income for the third quarter of 2020.

The increase was driven by the September 2021 acquisition of Finxera.

Revenues less costs of services decreased by $0.5 million, which was more than offset by a decrease in SG&A of $1.1 million, and a decrease in depreciation and amortization expense of $0.4 million.

SG&A in the third quarter of 2020 included $1.0 million of RentPayment acquisition-related transition services.

The RentPayment business was sold in September, 2020.

Corporate expenses were $7.6 million for the third quarter of 2021, an increase of $3.1 million from expenses of $4.5 million for the third quarter of 2020.

This increase was driven by an increase in professional fees, selling, general and administrative expenses, and salaries and employee benefits, as described above in the prior section for Consolidated Operating expenses.

Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020

Consolidated operating income in the first nine months of 2021 of $20.2 million increased by $5.6 million, or 37.9%, from $14.6 million in the first nine months of 2020.

This increase was the result of $11.8 million of higher revenues less costs of services being partially offset by $2.1 million of higher salary and employee benefits expense, $2.9 million of higher SG&A expense and $1.2 million of higher depreciation and amortization expense.

Our Consumer Payments segment contributed $42.5 million in operating income in the first nine months of 2021, an increase of $16.9 million, or 66.4%, from $25.5 million in the first nine months of 2020.

This increase was the result of $21.6 million higher revenues less costs of services and $1.4 million of lower SG&A expense being partially offset by $1.9 million of higher salary and employee benefits expense and $4.1 million of higher depreciation and amortization due to an increase in intangible assets from acquisitions.

Our Commercial Payments segment had an operating loss of $0.4 million in the first nine months of 2021 compared to operating income of $1.4 million in the first nine months of 2020.

This $1.8 million decline was the result of $2.3 million of lower revenues less costs of services, partially offset by $0.5 million of lower salary and employee benefits.

Our Integrated Partners segment contributed operating income of $1.5 million in the first nine months of 2021, which is consistent with $1.5 million of operating income in the first nine months of 2020.

The September 2021 acquisition of Finxera resulting in $1.0 million of operating profit, and PRET's ongoing operating profit increased $0.8 million for the first nine months of 2021, which was offset by the September 2020 sale of PRET's RentPayment business, which had operating profit of $1.8 million for the first nine months of 2020.

Corporate expenses were $23.3 million in the first nine months of 2021, an increase of $9.5 million from expenses of $13.8 million in the first nine months of 2020.

This increase was driven by a $5.5 million increase in professional fees, a $2.1 million increase in selling, general and administrative expenses, and a $1.9 million increase in salaries and employee benefits, as described above in the prior section for Consolidated Operating expenses.

Interest expense

Three Months Ended September 30, 2021 Compared to Three Months Ended September 30, 2020

Interest expense in the third quarter of 2021 of $8.2 million decreased by $5.3 million, or 39.5%, from $13.5 million in the third quarter of 2020.

This decline was primarily driven by lower rate of interest on the new loans secured by the Company on the refinancing of its credit facilities in April 2021.

The new term and revolver loans carry an interest rate of 6.75% and 5.75%, respectively, as compared to the old term loans and subordinated term loans, which carried an interest rate of 7.5% and 12.5%, respectively.

The outstanding debt during the third quarter 2020 was also higher as proceeds from the RentPayment sale in September 2020 were used to fund the senior debt principal repayment.

Additionally, proceeds from the issuance of our redeemable senior preferred stock in April 2021 were used to repay the subordinated debt which carried a higher rate of interest.

Interest expense included cash interest, payment-in-kind interest and amortization of deferred financing costs and debt discounts.

During the third quarter of 2021 and 2020, interest expense was comprised of:

(dollars in thousands) Three Months Ended September 30,

Cash $ 8,296 $ 9,589

Payment-in-kind — 3,228

Amortization and other (141) 654

$ 8,155 $ 13,471

Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020

Interest expense in the first nine months of 2021 of $24.6 million decreased by $10.9 million, or 30.6%, from $35.5 million in the first nine months of 2020.

This decline was primarily driven by the factors described above for the three months ended September 30, 2021 compared to three months ended September 30, 2020.

Interest expense included cash interest, payment-in-kind interest and amortization of deferred financing costs and debt discounts.

During the first nine months of 2021 and 2020, interest expense was comprised of:

(dollars in thousands) Nine Months Ended September 30,

Cash $ 17,250 $ 27,028

Payment-in-kind 2,512 6,643

Amortization and other 4,846 1,783

$ 24,608 $ 35,454

Debt extinguishment and modification costs

Three and Nine Months Ended September 30, 2021 Compared to Three and Nine Months Ended September 30, 2020

During April 2021, the Company expensed unamortized deferred costs and discounts of $3.0 million associated with the retirement of our subordinated debt facility and refinancing of our senior debt facility and expensed $5.3 million of third-party costs incurred in connection with the refinancing.

During September 2020 the Company expensed unamortized deferred costs and discount of $1.5 million associated with the $106.5 million principal prepayment for the term facility under our Senior Credit Facility.

In the first quarter of 2020, the Company expensed $0.4 million of third-party costs incurred in connection with the amendment of our debt facilities.

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

ASC 740, Income Taxes , requires that all sources of future taxable income be considered in making this determination.

The Tax Cuts and Jobs Act of 2017 amended section 163(j) of the Internal Revenue Code.

Section 163(j), as amended, limits the business interest deduction to 30% of ATI.

For taxable years through 2021, the calculation of Available Taxable Income ("ATI") closely aligns with EBITDA.

Commencing in 2022, the ATI limitation more closely aligns with EBITDA, without adjusting for depreciation and amortization.

Any business interest in excess of the annual limitation is carried forward indefinitely.

In March 2020, the 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.

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

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

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

We have historically calculated the provision for income taxes during interim reporting periods by applying an estimate of the annual effective tax rate for the full fiscal year to "ordinary" income or loss (pre-tax income or loss excluding unusual or infrequently occurring discrete items) for the reporting period.

We have used a discrete effective tax rate method to calculate taxes for the fiscal three month and nine month periods ended September 30, 2021.

We determined that since small changes in estimated "ordinary" income would result in significant changes in the estimated annual effective tax rate, the historical method would not provide a reliable estimate of the year to date tax provision for the fiscal three month and nine month periods ended September 30, 2021.

Financial Condition

The following discussion describes key changes that have occurred to our consolidated balance sheet at September 30, 2021 compared to December 31, 2020.

Total current assets of $580.7 million at September 30, 2021 increased by $444.8 million from $135.9 million at December 31, 2020 due primarily to the following factors:

Cash and cash equivalents

Unrestricted cash of $17.0 million at September 30, 2021 increased by $7.8 million from $9.2 million at December 31, 2020.

The increase is largely attributable to net cash used in operating activities of $2.6 million, offset by the net impact of cash provided by (used in) investing and financing activities.

Restricted cash

Restricted cash of $17.3 million decreased by $61.6 million in the first nine months 2021, largely attributable to the transfer of customer restricted cash from a Priority-owned account to a bank-owned FBO account resulting from a change in our business practice for certain types of customer deposits and cash advance payments.

Prepaid expenses and other current assets

Prepaid expenses and other current assets of $13.3 million increased by $9.8 million in the first nine months 2021, largely attributable to acquisition of Finxera.

Settlement assets and customer account balances

Settlement assets and customer account balances of $480.3 million increased by $479.5 million in the first nine months of 2021, largely attributable to the acquisition of Finxera for cash balances in client and subscriber accounts.

Accounts receivable, net of allowance for doubtful accounts

Accounts receivable, net of $52.7 million increased by $11.3 million in the first nine months of 2021, largely attributable to higher revenues.

Total assets of $1,335.2 million at September 30, 2021 increased by $917.4 million from $417.8 million at December 31, 2020 due primarily to the $444.8 million increase in current assets and the following increases in long-term assets:

Goodwill of $372.7 million increased by $265.9 million in the first nine months of 2021, resulting from the acquisition of C&H Financial Services, Inc.in June 2021 and the acquisition of Finxera in September 2021.

Intangible assets

Intangible assets, net of accumulated amortization, of $346.7 million increased by $248.6 million in the first nine months of 2021, resulting from acquisitions of $274.5 million, offset by amortization expense of $25.9 million.

Deferred taxes

The net deferred tax asset of $3.5 million decreased by $43.2 million in the first nine months of 2021, primarily resulting from a deferred tax liability recorded as part of the acquisition of Finxera in September 2021.

Total current liabilities of $569.2 million at September 30, 2021 increased by $420.4 million from $148.8 million at December 31, 2020 due primarily to the following factors:

Accounts payable and accrued expenses

Accounts payable and accrued expenses of $42.1 million increased by $12.3 million in the first nine months of 2021, as a result of the acquisition of Finxera and an increase in operations.

Settlement and customer account obligations

Settlement and customer account obligations of $489.3 million at September 30, 2021 increased by $416.4 million from $72.9 million at December 31, 2020 largely attributable to obligations related to customer account balances of $479.5 million from the Finxera acquisition offset by a decrease in customer restricted cash from a Priority-owned account to a bank-owned FBO account resulting from a change in our business practice for certain types of customer cash advance activities.

The increase in customer account obligations is directly correlated with the increase in customer account balances.

Current portion of long-term debt

Current portion of long-term debt of $6.2 million at September 30, 2021 decreased by $13.2 million from $19.4 million at December 31, 2020 due to the April 2021 debt refinancing, which resulted in an updated repayment schedule.

The April 2021 debt refinancing is discussed below in the subsequent section for Liquidity and Capital Resources.

Total liabilities of $1,203.3 million at September 30, 2021 increased by $686.9 million from $516.4 million at December 31, 2020 due primarily to the $420.4 million increase in current liabilities and the following changes in long-term liabilities:

Long-term debt, net of current portion, discounts and debt issuance costs

Long-term debt of $620.0 million, including borrowings under the revolving credit facility of $30.0 million at September 30, 2021 increased by $262.1 million from $357.9 million at December 31, 2020 due largely to the April 2021 debt refinancing and additional borrowings for the funding of the Finxera and the C&H Financial Services, Inc.

acquisitions.

Redeemable senior preferred stock

Redeemable senior preferred stock of $205.3 million at September 30, 2021 increased by $205.3 million due to the issuance and sale Redeemable Senior Preferred Stock.

The issuance of redeemable senior preferred stock is discussed below in the subsequent section for Liquidity and Capital Resources.

The Company issued 150.0 million of redeemable senior preferred stock along with detachable 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 $0.001 in April 2021.

In September 2021, an additional $75.0 million of redeemable senior preferred stock was issued as part of the September 17, 2021 Finxera acquisition.

The Company received a commitment from the investors to purchase up to an additional $25.0 million of redeemable senior preferred stock to provide financing for other permitted acquisitions.

Proceeds from the issuance of the redeemable senior preferred stock of $211.0 million (net of discount of $5.9 million and issuance costs of $7.4 million) were allocated to the redeemable senior preferred stock $199.6 million and to the warrants $11.4 million.

Stockholders' deficit

Stockholders' deficit of $73.4 million at September 30, 2021 decreased by $25.2 million from a deficit of $98.6 million at December 31, 2020.

Accumulated deficit of $114.7 million increased $12.7 million in the first nine months of 2021 due to the net loss of $12.7 million for nine months ended September 30, 2021.

Additional paid-in capital of $44.6 million increased by $38.8 million in the first nine months of 2021.

The increase was primarily driven by a $34.4 million in proceeds from the issuance of 7,551,354 common shares from the Finxera merger, $11.4 million from the issuance of detachable warrants, $10.0 million from the issuance of common stock in redemptions of non-controlling interest preferred units, $2.2 million from stock-based compensation and $1.2 million from stock option exercises.

These increases were offset by a decrease of $10.8 million related to non-controlling interest preferred unit redemptions and a decrease of $9.7 million for dividends to redeemable senior preferred stockholders, including $1.0 million of discount accretion.

The preferred unit redemption is discussed below in PHOT Preferred Unit Redemption – Distribution to Non-Controlling Interests.

Depreciation and amortization expense from our Enterprise Payments segment was $6.2 million for the three months ended March 31, 2022, compared to no depreciation expense for the three months ended March 31, 2021.

The increase of $6.2 million was primarily driven by the amortization of acquired intangibles resulting from the Finxera acquisition in September 2021.

Liquidity and Capital Resources

Liquidity and capital resource management is a process focused on providing the funding we need to meet our short-term and long-term cash and working capital needs.

We have used our funding sources to build our merchant portfolio, technology solutions and to make acquisitions with the expectation that such investments will generate cash flows sufficient to cover our working capital needs and other anticipated needs, including our acquisition strategy.

We anticipate that cash on hand, funds generated from operations and available borrowings under our revolving credit facility are sufficient to meet our working capital requirements for at least the next twelve months.

We have used our funding sources to build our merchant portfolio, for technology solutions and to make acquisitions with the expectation that such investments will generate cash flows sufficient to cover our working capital needs and other anticipated needs, including for our acquisition strategy.

We anticipate that cash on hand, funds generated from operations and available borrowings under our revolving credit agreement are sufficient to meet our working capital requirements for at least the next twelve months.

This is based upon management's estimates and assumptions, including utilizing the most currently available information regarding the effects of the COVID-19 pandemic on our financial results.

Actual future results could differ materially, as the magnitude, duration and effects of the COVID-19 pandemic are difficult to predict, and ultimately could negatively impact our liquidity and capital resources.

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

Our working capital, defined as current assets less current liabilities, was $11.5 million at September 30, 2021 and $(13.0) million December 31, 2020, respectively.

At September 30, 2021, we had $30.0 million outstanding under the $40.0 million revolving credit facility of our Senior Credit Agreement.

The following tables and narrative reflect our changes in cash flows for the comparative nine month periods ended September 30, 2021 and 2020:

(dollars in thousands) Nine Months Ended September 30,

Net cash (used in) provided by:

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

Our working capital, defined as current assets less current liabilities, was $18.9 million at March 31, 2022 and $19.6 million at December 31, 2021.

As of March 31, 2022, we had cash totaling $13.6 million compared to $20.3 million at December 31, 2021.

These cash balances do not include restricted cash of $13.6 million and $28.9 million at March 31, 2022 and December 31, 2021, respectively, which reflects cash accounts holding customer settlement funds and cash reserves for potential losses.

The current portion of long-term debt included in current liabilities was $6.2 million at March 31, 2022 and December 31, 2021.

At March 31, 2022, we had availability of approximately $30.0 million under our revolving credit arrangement.

The following table and discussion reflect our changes in cash flows for the comparative three month periods.

Three Months Ended March 31,

(in thousands) 2022 2021

Net cash provided by (used in):

Operating activities $ 9,613 $ 9,100

2 unchanged sentences

Net increase in cash and cash equivalents and restricted cash $ 6,440 $ (23,360)

Cash (Used In) Provided By Operating Activities

Net cash used in operating activities was $2.6 million in the first nine months of 2021 compared to net cash provided by operating activities of $10.4 million in the first nine months of 2020.

The decrease is primarily driven by the payment of PIK interest and changes in operating assets and liabilities.

Cash (Used In) Provided by Investing Activities

Net cash used in investing activities was $462.9 million in the first nine months 2021 compared to net cash provided by investing activities of $169.0 million in the first nine months of 2020.

Cash used to acquire intangible portfolio assets amounted to $48.2 million in the first nine months of 2021 compared to $4.4 million in the first nine months of 2020.

Cash used to acquire businesses in the first nine months of 2021 amounted to $407.1 million.

Cash used to acquire property, equipment and software amounted to $7.5 million in the first nine months of 2021 and $6.0 million in the first half of 2020.

Table of Con tents

Cash Provided by Operating Activities

Net cash provided by operating activities was $9.6 million and $9.1 million for the three months March 31, 2022 and 2021, respectively.

The $0.5 million, or 5.5%, increase in 2022 was primarily driven by cash generated from the operations of the Company, offset by changes in operating assets and liabilities

Cash Used in Investing Activities

Net cash used in investing activities was $5.7 million for both the three months ended March 31, 2022 and 2021.

For the three months ended March 31, 2022, net cash used in investing activities included $2.4 million related to the funding of new loans to ISOs, additions to property, equipment and software of $2.4 million, and acquisitions of intangible assets of $0.9 million.

For three months ended March 31, 2021, net cash used in investing activities included $2.9 million of cash used to fund a portfolio acquisition and $2.8 million of cash used to acquire property, equipment and software.

Cash Provided by (Used in) Financing Activities

Net cash provided by financing activities was $871.0 million in the first nine months compared to net cash used in financing activities of $171.1 million in the first nine months of 2020.

In the first nine months of 2021, total debt principal repayments were $359.9 million;

proceeds from the issuance of long-term debt, net of deferred discounts and debt issuance costs, were $598.2 million;

proceeds from borrowings under the revolving credit facility were $30.0 million;

proceeds from issuance of senior preferred equity, net of discounts and issuance costs, were $211.0 million cash portion of dividend paid to redeemable senior preferred stockholder was $4.0 million;

cash portion of preferred unit redemption to non-controlling interests was $0.8 million, proceeds from exercise of stock options was $1.2 million and the Company repurchased 162,715 shares of its common stock at a cost of $1.0 million under its share repurchase program.

In the first nine months of 2020, senior debt principal repayments of $109.5 million, debt modification costs of $2.7 million , $0.5 million of net repayments under the revolving credit facility, redemption of redeemable non-controlling interests of $5.7 million and profit distributions to non-controlling interests of $45.3 million.

In the first nine months of 2021, cash provided by financing activities included balances in customer accounts of $396.3 million resulting from the acquisition of Finxera.

Long-Term Debt at September 30, 2021

On April 27, 2021, the Company refinanced its previous credit facilities by entering into a new Credit and Guaranty Agreement ("the Credit Agreement").

The Credit Agreement, is comprised of a senior secured first lien term loan facility in an aggregate principal amount of $300.0 million (the "Initial Term Loan", or "Term Loan"), a senior secured revolving credit facility in an aggregate amount not to exceed $40.0 million outstanding at any time and a senior secured first lien delayed draw term loan facility in an aggregate principal amount of $290.0 million ("Delayed Draw Term Loan", or "Term Loan"), the proceeds of which may be used to fund the Company's acquisition of Finxera.

The Term Loan's interest rate is LIBOR (1.0% floor) plus 5.75%, which is a 75 basis point reduction from LIBOR (1.0% floor) plus 6.5% under the prior senior indebtedness.

As of September 30, 2021, we had outstanding debt obligations, including current portion and net of unamortized debt discount of $626.2 million, compared to $377.3 million at December 31, 2020, resulting in an increase of $248.9 million.

The debt balance at September 30, 2021 consisted of $596.2 million outstanding under the Term Loan and $30 million outstanding under the revolving credit facility.

Minimum amortization of the Initial Term Loan are equal quarterly installments in aggregate annual amounts equal to 1.0% of original principal, with the balance paid upon maturity.

The Term Loan matures in April 2027 and the revolving credit facility expires in April 2026.

Net cash provided by financing activities was $2.5 million for the three months ended March 31, 2022, compared to $26.8 million of cash used in financing activities for the three months ended March 31, 2021.

The net cash provided by financing activities for three months ended March 31, 2022 included $6.6 million of cash used for the repayment of debt, $3.5 million of cash dividends paid to redeemable senior preferred stockholders and $0.2 million of cash used for other financing activities, offset by changes in the net obligations for funds held on the behalf of customers of $12.7 million.

The net cash used in financing activities for the three months ended March 31, 2021 included $22.5 million of cash used related to changes in the net obligations for funds held on behalf of customers and $4.9 million of cash used for the repayment of debt, slightly offset by $0.6 million of cash provided by other financing activities.

Long-Term Debt

As of March 31, 2022, we had outstanding debt obligations, including the current portion and net of unamortized debt discount of $604.6 million, compared to $610.3 million at December 31, 2021, resulting in a decrease of $5.7 million.

The debt balance at March 31, 2022 consisted of $615.3 million outstanding under the term facility and $10.0 million outstanding under the revolving credit facility, offset by $20.7 million of unamortized debt discounts and issuance costs.

Minimum amortization of the term facility are equal quarterly installments in aggregate annual amounts equal to 1.0% of original principal, with the balance paid upon maturity.

The term facility matures in April 2027 and the revolving credit facility expires in April 2026.

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

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

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

As of September 30, 2021, we were in compliance with our financial covenants.

Total Net Leverage Ratio, Consolidated Total Debt and Consolidated Adjusted EBITDA are defined in the Credit and Guaranty Agreement and are summarized below:

• The Total Net Leverage Ratio means, at any date of determination, the ratio of Consolidated Total Debt for such date, to Consolidated Adjusted EBITDA.

• Consolidated Total Debt is the aggregate principal amount of indebtedness minus the aggregate amount of unrestricted cash at the balance sheet date.

• Consolidated Adjusted EBITDA is consolidated net income plus any applicable items determined in accordance with clauses (i)(b) through (i)(x) of the Consolidated Adjusted EBITDA definition, minus any applicable items determined in accordance with clauses (ii)(a) through (ii)(h) of the Consolidated Adjusted EBITDA.

Under the provisions of the agreement, calculation of Consolidated Adjusted EBITDA is determined on a last twelve months basis.

Consolidated Adjusted EBITDA is a non-GAAP liquidity measure.

For determining the Total Net Leverage Ratio at September 30, 2021, Consolidated Adjusted EBITDA was calculated as follows in accordance with the referenced clause definitions from the Credit and Guaranty Agreement executed on April 27, 2021:

(in thousands) Last Twelve Months Ended

September 30, 2021

Consolidated Net Income (GAAP) $ (13,709)

Applicable Adjustments:

Interest expense (clause (i)(b)) 33,992

Depreciation and amortization (clause (i)(d)) 42,012

Income tax expense (clause (i)(c)) (1,971)

Non-cash stock-based compensation (clause (i)(j)) 3,153

Acquisition transition services (clause (i)(k)) (50)

Debt extinguishment and modification expenses (clause (i)(h)) 8,322

Impairment of intangible asset (clause (i)(f)) 773

Provision for allowance for note receivable (clause (i)(f)) 467

Change in fair value of contingent consideration for business combinations (clause (ii)(a)) (360)

Certain legal fees and expenses (clause (i)(m)) 4,778

Litigation settlement recoveries (clause (i)(k)) 3

Professional, accounting and consulting fees (clause (i)(k)) 2,404

Other professional and consulting fees (clause (i)(h)) 1,693

Other adjustments (clause (i)(k)) 965

Pro forma impact of disposal 99

Pro forma impact of acquisitions and transactions 65,274

Consolidated Adjusted EBITDA (non-GAAP) $ 147,845

At September 30, 2021, the Total Net Leverage Ratio was 4.27:1.00, calculated as follows:

(in thousands, except ratio) September 30, 2021

Consolidated Total Debt:

Current portion of long-term debt $ 6,200

Long-term debt, net of discounts and deferred financing costs 619,957

Unamortized debt discounts and deferred financing costs 22,293

Less unrestricted cash (16,974)

Consolidated Net Debt $ 631,476

Total Net Leverage Ratio 4.27x

Redeemable Senior Preferred Stock.

On April 27, 2021, we entered into the Securities Purchase Agreement with credit funds managed by certain affiliates of Ares Management Corporation ("Investors"), pursuant to which we issued and sold 150,000 shares of Redeemable Senior Preferred Stock, par value $0.001 per share, at a purchase price of $150.0 million, or $1,000 per Redeemable Senior Preferred Share, less a $5.0 million discount and 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 $0.001.

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

In addition on September 17, 2021 the Company issued an additional 75,000 shares of Redeemable Senior Preferred Stock, upon the consummation of the Company's acquisition of Finxera for a purchase price of $75.0 million, or $100 per share, less a discount of $0.9 million.

The Company may also issue and sell to the Investors up to an additional 25,000 shares of Redeemable Senior Preferred Stock, at a purchase price of $1,000 per share, less a discount of $0.3 million, within 18 months after September 17, 2021, upon the completion of a permitted acquisition and satisfaction of certain customary closing conditions.

Proceeds from the sale of the Redeemable Senior Preferred Stock were used to repay subordinated debt, pay certain fees and expenses relating to the debt refinancing and the Securities Purchase Agreement, fund an April 2021 asset acquisition and fund the Finxera acquisition in September 2021.

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

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

The Redeemable Senior Preferred Stock has a quarterly cumulative preferred dividend at LIBOR plus 12.0%, with a cash portion at the discretion of the Company at LIBOR (1.0% floor) plus 5.0% and accumulated portion at 7.0%.

The dividend is subject to a 2.0% increase if the Company elects the cash portion to be added to accumulated.

There are scheduled dividend rate increases after the fifth anniversary of issuance.

In the first nine months of 2021, the Company's Board of Directors declared and authorized the second and third quarter 2021 dividends with a 6.0% cash portion of $1.6 million and $2.4 million, respectively, and a 7.0% accumulated portion of $1.8 million and $2.9 million respectively.

The Company paid the dividend on June 30, 2021 and September 30, 2021.

Additionally, the Company recorded $0.5 million of discount accretion.

Impact of COVID-19 Pandemic on Liquidity and Capital Resources

Our current assessment is that we anticipate cash on hand, funds generated from operations and available borrowings under our revolving credit facility to be sufficient to meet our working capital requirements, and that we will remain in compliance with our debt covenants.

However, the ongoing magnitude, duration and effects of the COVID-19 pandemic on our future results of operation, cash flows and financial condition are difficult to predict at this time, and our current assessment is subject to material revision.

Related Party Transactions

PHOT Preferred Unit Redemption - Distribution to Non-Controlling Interests

In February 2019, PHOT, a subsidiary of the Company, received a contribution of substantially all of the operating assets eTab and Cumulus under asset contribution agreements.

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

No material liabilities were assumed by PHOT.

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

Prior to these transactions, eTab was 80.0% owned by the Company's CEO.

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

As consideration for these contributed assets, the contributors were issued redeemable NCIs in PHOT.

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

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

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

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

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

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

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

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

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

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

The April 2021 debt refinancing is discussed above in the prior section for Liquidity and Capital Resources.

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

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

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

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

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

Off-Balance Sheet Arrangements

We have not entered into any other transactions with third parties or unconsolidated entities whereby we have financial guarantees, subordinated retained interest, derivative instruments, or other contingent arrangements that expose us to material continuing risks, contingent liabilities or other obligations.

Commitments and Contractual Obligations

Acquisitions and Note 1 2 .

Commitments and Contingencies , to our Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for disclosure information about potential contingent payments that we may be required to make in future periods that are not required to be recognized in our consolidated balance sheets as of September 30, 2021 or December 31, 2020.

Contractual Obligations

Except as described in the following, there have been no significant changes to our contractual obligations compared to those disclosed in "Management's Discussion and Analysis of Financial Condition and Results of Operations of Priority" included in the Annual Report for the year ended December 31, 2020.

Changes in the minimum annual spend commitments with third-party processor partners and contingent consideration for acquisitions are further described in Note 1 2 .

Commitments and Contingencies .

For an updated schedule of debt repayments under the Credit and Guaranty Agreement executed on April 27, 2021 and amended on September 17, 2021, see Note 9 .

Debt Obligations .

Also, at December 31, 2020, the Company accrued approximately $6.2 million for the remaining cash consideration it estimates it will be required to pay under an assignment of merchant portfolio rights agreement and related reseller agreement it executed with a third-party in October 2019.

Payments are required to be made on a quarterly basis through September 30, 2022.

The Company continues to review its estimate of the remaining consideration to be paid and will adjust its obligation accordingly if deemed necessary.

As of September 30, 2021, the only change in the amounts accrued was for the required payments made in 2021.

If the aggregate principal amount of outstanding revolving loans and letters of credit under the Credit Agreement exceeds 35% of the total revolving facility thereunder, the loan parties are required to comply with certain restrictions on its Total Net Leverage Ratio.

If applicable, the maximum permitted Total Net Leverage Ratio is:

1) 6.50:1.00 at each fiscal quarter ended September 30, 2021 through June 30, 2022;

2) 6.00:1.00 at each fiscal quarter ended September 30, 2022 through June 30, 2023;

and 3) 5.50:1.00 at each fiscal quarter ended September 30, 2023 each fiscal quarter thereafter.

As of March 31, 2022, the Company was in compliance with our financial covenants.

Critical Accounting Policies and Estimates

Our Unaudited Condensed Consolidated Financial Statements have been prepared in accordance with U.S.

generally accepted accounting principles for interim periods, which often require the judgment of management in the selection and application of certain accounting principles and methods.

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

There have been no material changes to these critical accounting policies and estimates as of September 30, 2021.

Our Unaudited Consolidated Financial Statements have been prepared in accordance with GAAP for interim periods, which often require the judgment of management in the selection and application of certain accounting principles and methods.

Our critical accounting policies and estimates are discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2021.

There have been no material changes to these critical accounting policies and estimates as of March 31, 2022.

Table of Con tents

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

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board or other standards setting bodies that may affect our current and/or future financial statements.

Basis of Presentation and Significant Accounting Policies , to our Unaudited Condensed Consolidated Financial Statements included in Part 1, Item 1 of this Quarterly Report on Form 10-Q for a discussion of recently issued accounting pronouncements not yet adopted.

From time to time, new accounting pronouncements are issued by the FASB or other standards setting bodies that may affect our current and/or future financial statements.

See Note 1, Basis of Presentation and Significant Accounting Policies , to our Unaudited Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, for a discussion of recently issued accounting pronouncements not yet adopted.

Quantitative and Qualitative Disclosures About Market Risk

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Item 2. Management’s Discussion and Analysis