What changed in this filing

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Item 1. Financial Statements

2022-08-09 compared with 2022-05-11 · 231 added, 135 removed, 463 unchanged (44% of the section changed)

3 unchanged sentences

(in thousands, except share data)

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Current assets:

29 unchanged sentences

250,000 shares authorized;

225,000 issued and outstanding at March 31, 2022 and December 31, 2021

225,000 issued and outstanding at June 30, 2022 and December 31, 2021

220,031 210,158

2 unchanged sentences

100,000,000 shares authorized;

none issued or outstanding at March 31, 2022 and December 31, 2021

none issued or outstanding at June 30, 2022 and December 31, 2021

Common stock, $ 0.001 par value;

1,000,000,000 shares authorized;

77,589,180 and 77,460,312 shares issued at March 31, 2022 and December 31, 2021, respectively;

and 76,842,093 and 76,739,896 shares outstanding at March 31, 2022 and December 31, 2021, respectively.

Treasury stock at cost, 747,087 and 720,416 shares at March 31, 2022 and December 31, 2021, respectively

( 4,248 ) ( 4,091 )

77,746,109 and 77,460,312 shares issued at June 30, 2022 and December 31, 2021, respectively;

and 76,568,499 and 76,739,896 shares outstanding at June 30, 2022 and December 31, 2021, respectively

Additional paid-in capital 26,042 39,835

Treasury stock at cost, 1,177,610 and 720,416 shares at June 30, 2022 and December 31, 2021, respectively

( 6,170 ) ( 4,091 )

Accumulated deficit ( 100,104 ) ( 100,058 )

2 unchanged sentences

See Notes to Unaudited Consolidated Financial Statements

Table of Con tents

Priority Technology Holdings, Inc .

1 unchanged sentence

(in thousands, except per share amounts)

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

Revenues $ 166,430 $ 125,014 $ 319,669 $ 238,311

Operating expenses

Costs of services 101,480 81,863

Cost of revenue 110,749 89,831 212,229 171,694

Salary and employee benefits 15,770 10,351 31,847 19,899

5 unchanged sentences

Interest expense ( 12,335 ) ( 7,285 ) ( 23,870 ) ( 16,453 )

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

Other income (expense), net 29 215 80 ( 54 )

Total other expense, net ( 12,306 ) ( 15,392 ) ( 23,790 ) ( 24,829 )

Loss before income taxes ( 658 ) ( 4,910 )

Income tax benefit ( 325 ) ( 2,231 )

Net loss ( 333 ) ( 2,679 )

Income (loss) before income taxes 754 ( 7,987 ) 96 ( 12,897 )

Income tax expense (benefit) 467 1,490 142 ( 741 )

Net income (loss) 287 ( 9,477 ) ( 46 ) ( 12,156 )

Dividends and accretion attributable to redeemable senior preferred stockholders ( 8,549 ) ( 3,911 ) ( 16,949 ) ( 3,911 )

NCI preferred unit redemptions — ( 10,777 ) — ( 10,777 )

Net loss attributable to common stockholders $ ( 8,262 ) $ ( 24,165 ) $ ( 16,995 ) $ ( 26,844 )

4 unchanged sentences

See Notes to Unaudited Consolidated Financial Statements

Table of Con tents

Priority Technology Holdings, Inc .

12 unchanged sentences

March 31, 2022 76,842 $ 78 747 $ ( 4,248 ) $ 32,992 $ ( 100,391 ) $ ( 71,569 )

Equity-classified stock-based compensation — — — — 1,542 — 1,542

ESPP compensation and vesting of stock-based compensation 157 — — — 57 — 57

Share repurchases and shares withheld for taxes ( 431 ) — 431 ( 1,922 ) — — ( 1,922 )

Dividends on redeemable senior preferred stock — — — — ( 7,732 ) — ( 7,732 )

Accretion of redeemable senior preferred stock — — — — ( 817 ) — ( 817 )

Net income — — — — — 287 287

June 30, 2022 76,568 $ 78 1,178 $ ( 6,170 ) $ 26,042 $ ( 100,104 ) $ ( 80,154 )

Stock Treasury

8 unchanged sentences

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

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

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

Exercise of stock options 30 — — — 204 — 204

Dividends on redeemable senior preferred stock — — — — ( 3,413 ) — ( 3,413 )

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

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

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

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

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

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

See Notes to Unaudited Consolidated Financial Statements

Table of Con tents

Priority Technology Holdings, Inc .

1 unchanged sentence

(in thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Cash flows from operating activities:

Net loss $ ( 46 ) $ ( 12,156 )

Adjustments to reconcile net loss to net cash provided by operating activities:

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

Depreciation and amortization of assets 34,858 19,793

1 unchanged sentence

Amortization of debt issuance costs and discounts 1,719 1,158

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

Deferred income tax benefit ( 3,053 ) ( 881 )

4 unchanged sentences

Prepaid expenses and other current assets ( 4,445 ) ( 3,232 )

Income taxes payable (receivable) 2,913 ( 44 )

Income taxes (receivable) payable ( 304 ) 1,606

Notes receivable 297 198

2 unchanged sentences

Other assets and liabilities, net ( 612 ) 307

Net cash provided by operating activities 9,613 9,100

Net cash provided by (used in) operating activities 30,334 ( 9,781 )

Cash flows from investing activities:

Acquisitions of businesses, net of cash acquired — ( 34,507 )

Additions to property, equipment and software ( 6,011 ) ( 5,222 )

1 unchanged sentence

Acquisitions of intangible assets ( 3,724 ) ( 43,353 )

Other investing activities ( 250 ) —

Net cash used in investing activities ( 12,735 ) ( 83,082 )

Cash flows from financing activities:

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

Debt issuance and modification costs paid — ( 7,597 )

Repayments of long-term debt ( 3,100 ) ( 358,325 )

Borrowings under revolving credit facility 12,000 30,000

Repayments of borrowings under revolving credit facility ( 12,500 ) —

Proceeds from the issuance of redeemable senior preferred stock, net of discount — 145,000

Redeemable senior preferred stock issuance fees and costs — ( 5,472 )

Repurchases of common stock and shares withheld for taxes ( 2,079 ) —

Dividends paid to redeemable senior preferred stockholders ( 7,076 ) ( 1,575 )

Settlement and customer accounts obligations, net 15,180 ( 61,570 )

Contingent consideration for business combinations and asset acquisitions ( 1,863 ) —

Other financing activities — 6

Net cash provided by (used in) financing activities 2,538 ( 26,769 )

Net cash provided by financing activities 562 34,086

Six Months Ended June 30,

Net change in cash and cash equivalents, and restricted cash:

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

Net increase (decrease) in cash and cash equivalents, and restricted cash 18,161 ( 58,777 )

Cash and cash equivalents, and restricted cash at beginning of period 518,093 88,120

4 unchanged sentences

PIK interest added to principal of debt obligations $ — $ 2,512

Table of Con tents

Three Months Ended March 31,

Accruals for future contingent payments $ 4,141 $ 3,797

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

Non-cash additions to other noncurrent assets for right-of-use operating leases $ 67 $ —

Reconciliation of cash and cash equivalents, and restricted cash:

4 unchanged sentences

See Notes to Unaudited Consolidated Financial Statements

Table of Con tents

Priority Technology Holdings, Inc.

25 unchanged sentences

Comparability of Reporting Periods

Certain prior period amounts in these Unaudited Consolidated Financial Statements have been reclassified to conform to the current period presentation, with no net effect on the Company's operating income, loss before income tax benefit, net loss or stockholders' deficit for any period presented.

Table of Con tents

We reclassified certain cash flows related to settlement assets and customer account balances and the related obligations from net cash used in operating activities to net cash used in financing activities within the Unaudited Consolidated Statements of Cash Flows.

Certain prior period amounts in these Unaudited Consolidated Financial Statements have been reclassified to conform to the current period presentation, with no net effect on the Company's operating income, income (loss) before income taxes, net income (loss) or stockholders' deficit for any period presented.

We reclassified certain cash flows related to settlement assets and customer account balances and the related obligations from net cash used in operating activities to net cash provided by financing activities within the Unaudited Consolidated Statements of Cash Flows.

Prior period amounts have been reclassified to conform to the current period presentation.

These changes have no impact on our previously reported financial position or net increase in cash and cash equivalents.

The current period presentation classifies all changes in settlement and customer account balance obligations on our Unaudited Consolidated Statements of Cash Flows as net cash provided by (used in) financing activities.

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.

We also reclassified the amount representing previously deferred PIK interest that was paid in connection with our April 2021 refinancing from repayments of long-term debt within net cash provided by financing activities to PIK interest within net cash used in operating activities.

The reclassification provides a more meaningful presentation of the repayment of interest within operating activities.

These changes have no impact on our previously reported financial position or net decrease in cash and cash equivalents.

The following tables present the effects of the changes on the presentation of these cash flows to the previously reported Unaudited Consolidated Statement of Cash Flows:

(in thousands) Three Months Ended March 31, 2021

(in thousands) Six Months Ended June 30, 2021

Net cash (used in) provided by operating activities:

Historically reported $ ( 45,124 )

Adjustment 22,526

Adjustment related to PIK interest ( 26,227 )

Adjustment related to settlement assets and customer account balances and the related obligations 61,570

Reclassified $ ( 9,781 )

Net cash used in financing activities:

Net cash provided by (used in) financing activities:

Historically reported $ 69,429

Adjustment ( 22,526 )

Adjustment related to PIK interest 26,227

Adjustment related to settlement assets and customer account balances and the related obligations ( 61,570 )

Reclassified $ 34,086

9 unchanged sentences

These updates can be adopted at any time before December 31, 2022.

The Company is currently evaluating the potential impact these updates may have on its Unaudited Consolidated Financial Statements.

The Company's term facility and revolving credit facility bear interest at rates based on LIBOR, and the

dividend rate on the Company's redeemable senior preferred stock is also based on LIBOR.

The Company is evaluating the potential impact these updates may have on its Unaudited Consolidated Financial Statements.

Credit Losses

2 unchanged sentences

ASU 2016-13 will replace the current "incurred loss" model with an "expected loss" model.

Table of Con tents

"incurred loss" model, a loss (or allowance) is recognized only when an event has occurred (such as a payment delinquency) that causes the entity to believe that a loss is probable (i.e., that it has been "incurred").

Under the "incurred loss" model, a loss (or allowance) is recognized only when an event has occurred (such as a payment delinquency) that causes the entity to believe that a loss is probable (i.e., that it has been "incurred").

Under the "expected loss" model, a loss (or allowance) is recognized upon initial recognition of the asset that reflects all future events that leads to a loss being realized, regardless of whether it is probable that the future event will occur.

3 unchanged sentences

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.

Recently Adopted Accounting Standards

Business Combinations

2 unchanged sentences

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.

This update is effective for the Company on January 1, 2023, including interim periods within those fiscal years.

The impact that ASU 2021-08 may have on the Company's Unaudited Consolidated Financial Statements will depend on the circumstances of any business combination that may occur after adoption.

This update is effective for public companies for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, and early adoption is permitted, including in an interim period.

If this update is adopted early in an interim period, it must be applied retrospectively to all business combinations that occurred since the beginning of the fiscal year.

The Company elected to early adopt ASU 2021-08 in the second quarter of 2022.

The Company has not acquired any businesses during 2022, therefore there was no impact on the Company's Unaudited Consolidated Financial Statements.

Disaggregation of Revenues

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

Three Months Ended March 31,

The following table presents a disaggregation of our consolidated revenues by type for the three and six months ended June 30, 2022 and 2021:

Three Months Ended June 30, Six Months Ended June 30,

(in thousands) 2022 2021 2022 2021

8 unchanged sentences

The aggregate fixed consideration portion of customer contracts with an initial contract duration greater than one year is not material.

(2) Approximately $ 0.1 million, $ 0.2 million of interest income for the three months ended March 31, 2022 and 2021, respectively, is included in other income, net on the Company's Unaudited Consolidated Statements of Operations and not reflected in the table above.

Approximately $ 0.6 million of interest income for the three months ended March 31, 2022, is included in outsourced services and other services revenue in the table above.

Deferred revenues were not material for the three months ended March 31, 2022 and 2021.

(2) Approximately $ 0.8 million and $ 1.4 million of interest income for the three and six months ended June 30, 2022, respectively, is included in outsourced services and other services revenue in the table above.

Approximately $ 0.1 million and $ 0.2 million of interest income for the three and six months ended June 30, 2022, respectively, and $ 0.2 million and $ 0.4 million of interest income three and six months ended June 30, 2021, respectively, is included in other income, net on the Company's Unaudited Consolidated Statements of Operations and not reflected in the table above.

Deferred revenues were not material for the three and six months ended June 30, 2022 and 2021.

Contract Assets and Contract Liabilities

Material contract assets and liabilities are presented net at the individual contract level in the Unaudited Consolidated Balance Sheets and are classified as current or noncurrent based on the nature of the underlying contractual rights and obligations.

Table of Con tents

Supplemental balance sheet information related to contracts from customers as of March 31, 2022 and December 31, 2021 was as follows:

(in thousands) Consolidated Balance Sheet Location March 31, 2022 December 31, 2021

Supplemental balance sheet information related to contracts from customers as of June 30, 2022 and December 31, 2021 was as follows:

(in thousands) Consolidated Balance Sheet Location June 30, 2022 December 31, 2021

Contract liabilities, net (current) Customer deposits and advance payments $ 303 $ 1,280

1 unchanged sentence

Net contract assets were not material for any period presented.

Impairment losses recognized on receivables or contract assets arising from the Company's contracts with customers were not material for the periods ended March 31, 2022 and December 31, 2021.

Impairment losses recognized on receivables or contract assets arising from the Company's contracts with customers were not material for the three and six months ended June 30, 2022 and June 30, 2021.

Finxera Acquisition

6 unchanged sentences

The purchase price allocation is set forth in the table below.

Table of Con tents

(in thousands)

26 unchanged sentences

The associated earnout opportunities are to be measured and paid every six months and expire at various dates through December 31, 2023.

As of March 31, 2022, $ 0.5 million of the $ 6.1 million of total contingent consideration has been paid.

The remaining $ 5.6 million was accrued, of which $ 2.0 million and $ 3.6 million were included in accounts payable and accrued expenses and other noncurrent liabilities, respectively, on the Company's Unaudited Consolidated Balance Sheet as of March 31, 2022.

As of June 30, 2022, $ 0.4 million of contingent consideration has been paid.

The remaining $ 5.8 million was accrued, of which $ 2.4 million and $ 3.4 million were included in accounts payable and accrued expenses and other noncurrent liabilities, respectively, on the Company's Unaudited Consolidated Balance Sheet as of June 30, 2022.

The accretion of contingent consideration was $ 0.3 million for the three and six months ended June 30, 2022, which is included in interest expense on the Company's Unaudited Consolidated Statements of Operations.

Other Acquisitions

2 unchanged sentences

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.

As of March 31, 2022, the sellers earned $ 3.8 million of the $ 24.8 million, which was paid during 2021, increasing the total purchase price recorded to $ 46.2 million, which was recorded to residual buyout intangible assets with a seven-year useful life amortized on a straight-line basis.

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

The seller's note payable to the Company of $ 3.0 million and an advance of $ 2.0 million outstanding at the time of the purchase was netted

Table of Con tents

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.

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.

As of June 30, 2022, the sellers earned $ 9.4 million of the $ 24.8 million, increasing the total purchase price recorded to $ 51.8 million, which was recorded to residual buyout intangible assets with a seven-year useful life amortized on a straight-line basis.

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

15 unchanged sentences

(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.

The goodwill for the Wholesale Payments, Inc.

asset acquisition and the C&H business combination is deductible by the Company for income tax purposes.

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.

As of June 30, 2022, the fair value of the C&H contingent consideration was $ 5.0 million, of which $ 3.0 million and $ 2.0 million were included in accounts payable and accrued expenses and other noncurrent liabilities, respectively, on the Company's Unaudited Consolidated Balance Sheet as of June 30, 2022.

The goodwill for the C&H business combination is deductible by the Company for income tax purposes.

Settlement Assets and Customer Account Balances and Related Obligations

4 unchanged sentences

Therefore, neither is recognized in the Company's Unaudited Consolidated Balance Sheets.

Member banks held merchant funds of $ 105.7 million and $ 102.1 million at March 31, 2022 and December 31, 2021, respectively.

Exception items that become the liability of the Company are recorded as merchant losses, a component of costs of services in the Unaudited Consolidated Statements of Operations.

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 Unaudited Consolidated Balance Sheets, with an offsetting reserve for those amounts the Company estimates it will not be able to recover.

Expenses for merchant losses for the three months ended March 31, 2022 and 2021 were $ 1.1 million and $ 0.4 million, respectively.

Table of Con tents

Member banks held merchant funds of $ 115.5 million and $ 102.1 million at June 30, 2022 and December 31, 2021, respectively.

Exception items that become the liability of the Company are recorded as merchant losses, a component of cost of revenue in the Company's Unaudited Consolidated Statements of Operations.

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 Unaudited Consolidated Balance Sheets, with an offsetting reserve for those amounts the Company estimates it will not be able to recover.

Expenses for merchant losses for the three and six months ended June 30, 2022 were $ 1.0 million and $ 2.1 million, respectively.

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

B2B Payments Segment

4 unchanged sentences

Therefore, neither is recognized in the Company's Unaudited Consolidated Balance Sheets.

Bank-owned FBO accounts held funds of $ 57.6 million and $ 45.5 million at March 31, 2022 and December 31, 2021, respectively.

Company-owned bank accounts held $ 6.4 million and $ 21.4 million at March 31, 2022 and December 31, 2021, respectively, which are included in restricted cash and settlement obligations in the Company's Unaudited Consolidated Balance Sheets.

Bank-owned FBO accounts held funds of $ 83.1 million and $ 45.5 million at June 30, 2022 and December 31, 2021, respectively.

Company-owned bank accounts held $ 4.4 million and $ 21.4 million at June 30, 2022 and December 31, 2021, respectively, which are included in restricted cash and settlement and customer account obligations in the Company's Unaudited Consolidated Balance Sheets.

Enterprise Payments Segment

7 unchanged sentences

The Company's settlement assets and customer account balances and settlement and customer account obligations were as follows:

(in thousands) March 31, 2022 December 31, 2021

(in thousands) June 30, 2022 December 31, 2021

Settlement Assets:

9 unchanged sentences

(1) The related assets are included in restricted cash on our Unaudited Consolidated Balance Sheets.

Table of Con tents

Goodwill and Other Intangible Assets

The Company's goodwill relates to the following reporting units as of March 31, 2022 and December 31, 2021:

(in thousands) March 31, 2022 December 31, 2021

The Company's goodwill relates to the following reporting units as of June 30, 2022 and December 31, 2021:

(in thousands) June 30, 2022 December 31, 2021

SMB Payments $ 120,636 $ 120,636

1 unchanged sentence

Total $ 365,740 $ 365,740

There were no impairment losses for the three months ended March 31, 2022 and 2021.

The Company performed its most recent annual goodwill impairment test as of October 1, 2021, using the optional qualitative method.

Under the qualitative method, we examined the factors most likely to affect our valuations.

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 March 31, 2022, the Company is not aware of any triggering events that have occurred since October 1, 2021.

As of June 30, 2022, the Company is not aware of any triggering events that have occurred since October 1, 2021.

Other Intangible Assets

At March 31, 2022 and December 31, 2021, other intangible assets consisted of the following:

(in thousands, except weighted-average data) March 31, 2022 Weighted-average

At June 30, 2022 and December 31, 2021, other intangible assets consisted of the following:

(in thousands, except weighted-average data) June 30, 2022 Weighted-average

Gross Carrying Value Accumulated Amortization Net Carrying Value

9 unchanged sentences

2,100 — 2,100

Total gross carrying value $ 530,157 $ ( 205,073 ) $ 325,084 10.0

Total $ 537,230 $ ( 220,266 ) $ 316,964 9.9

(1) These assets have an indefinite useful life.

Table of Con tents

(in thousands, except weighted-average data) December 31, 2021 Weighted-average

13 unchanged sentences

2,100 — 2,100

Total gross carrying value $ 530,157 $ ( 189,946 ) $ 340,211 9.7

Total $ 530,157 $ ( 189,946 ) $ 340,211 9.7

(1) Additions to residual buyouts were offset by certain assets that became fully amortized in 2021 but are still in service.

1 unchanged sentence

(3) These assets have an indefinite useful life.

Amortization expense for intangible assets was $ 15.1 million and $ 7.0 million for the three months ended March 31, 2022 and 2021, respectively.

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.

The Company also considered the market conditions generated by the COVID-19 pandemic and concluded that there were no additional impairment indicators present at March 31, 2022.

Three Months Ended June 30, Six Months Ended June 30,

(in thousands) 2022 2021 2022 2021

Amortization expense $ 15,194 $ 8,673 $ 30,321 $ 15,667

As of June 30, 2022, there were no impairment indicators present.

Property, Equipment and Software

A summary of property, equipment and software, net as of March 31, 2022 and December 31, 2021 was as follows:

(in thousands, except useful lives) March 31, 2022 December 31, 2021

A summary of property, equipment and software, net as of June 30, 2022 and December 31, 2021 was as follows:

(in thousands, except useful lives) June 30, 2022 December 31, 2021

Computer software $ 58,286 $ 52,715

5 unchanged sentences

Property, equipment and software, net $ 26,749 $ 25,233

Depreciation expense totaled $ 2.2 million and $ 2.1 million for the three months ended March 31, 2022 and 2021, respectively.

Three Months Ended June 30, Six Months Ended June 30,

(in thousands) 2022 2021 2022 2021

Depreciation expense $ 2,311 $ 2,050 $ 4,537 $ 4,126

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

Notes Receivable

The Company had notes receivable of $ 2.7 million and $ 0.4 million as of March 31, 2022 and December 31, 2021, respectively, which are reported as current portion of notes receivable and notes receivable less current portion on the Company's Unaudited Consolidated Balance Sheets.

The carrying value of the Company's notes receivable approximates fair value.

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

The notes receivable carried weighted-average

Table of Con tents

interest rates of 14.6 % and 13.8 % as of March 31, 2022 and December 31, 2021, respectively.

The Company had notes receivable of $ 2.8 million and $ 0.4 million as of June 30, 2022 and December 31, 2021, respectively, which are reported as current portion of notes receivable and notes receivable less current portion on the Company's Unaudited Consolidated Balance Sheets.

The notes receivable carried weighted-average interest rates of 14.6 % and 13.8 % as of June 30, 2022 and December 31, 2021, respectively.

The notes receivable are comprised of notes receivable from ISOs, and under the terms of the agreements 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.

As of March 31, 2022 and December 31, 2021, the Company had no allowance for doubtful notes receivable.

As of March 31, 2022, the principal payments for the Company's notes receivable are due as follows:

As of June 30, 2022 and December 31, 2021, the Company had no allowance for doubtful notes receivable.

As of June 30, 2022, the principal payments for the Company's notes receivable are due as follows:

(in thousands)

Twelve month period ending March 31,

Twelve months ending June 30,

Total $ 2,830

Debt Obligations

Outstanding debt obligations as of March 31, 2022 and December 31, 2021 consisted of the following:

(in thousands) March 31, 2022 December 31, 2021

Term facility - matures April 27, 2027, interest rate of 6.75 % at March 31, 2022 and December 31, 2021

Outstanding debt obligations as of June 30, 2022 and December 31, 2021 consisted of the following:

(in thousands) June 30, 2022 December 31, 2021

Term facility - matures April 27, 2027, interest rates of 6.81 % and 6.75 % at June 30, 2022 and December 31, 2021, respectively

$ 613,800 $ 616,900

Revolving credit facility - $ 40.0 million line, matures April 27, 2026, interest rate of 5.75 % at March 31, 2022 and December 31, 2021

Revolving credit facility - $ 40.0 million line, matures April 27, 2026, interest rates of 5.81 % and 5.75 % at June 30, 2022 and December 31, 2021, respectively

14,500 15,000

9 unchanged sentences

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.

Interest expense for outstanding debt, including fees for undrawn amounts and amortization of deferred financing costs and debt discounts, was $ 11.5 million, and $ 9.2 million for the three months ended March 31, 2022 and 2021.

Interest expense included amortization of deferred financing costs and debt discounts of $ 0.8 million and $ 0.6 million for the three months ended March 31, 2022 and 2021, respectively.

Table of Con tents

Outstanding debt obligations are reflected in the Company's Unaudited Consolidated Balance Sheets at carrying value since the Company did not elect to remeasure debt obligations to fair value at the end of each reporting period.

The fair value of the of the term facility was estimated to be $ 614.6 million and $ 613.8 million.

at March 31, 2022 and December 31, 2021, respectively, and 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.

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.

Interest expense for outstanding debt, including fees for undrawn amounts and amortization of deferred financing costs and debt discounts, was $ 12.4 million and $ 23.9 million for the three and six months ended June 30, 2022, respectively, and $ 7.3 million and $ 16.5 million for the three and six months ended June 30, 2021, respectively.

Interest expense included amortization of deferred financing costs and debt discounts of $ 0.9 million and $ 1.7 million for the three and six months ended June 30, 2022, respectively, and $ 0.6 million and $ 1.2 million three and six months ended June 30, 2021, respectively.

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

In connection with the April 2021 refinancing, the Company recorded $ 8.3 million of debt extinguishment and modification costs for the three and six months ended June 30, 2021 on the Company's Unaudited Consolidated Statements of Operations.

Debt Covenants

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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.

As of June 30, 2022, the Company was in compliance with our financial covenants.

Fair Value Measurements

Contingent consideration related to the Company's business combinations is estimated based on the present value of a weighted payout probability at the measurement date, which falls within Level 3 on the fair value hierarchy.

The current portion of contingent consideration is included in accounts payable and accrued expenses on the Company's Unaudited Consolidated Balance Sheets and the noncurrent portion of contingent consideration is included in other noncurrent liabilities on the Company's Unaudited Consolidated Balance Sheets.

Liabilities measured at fair value on a recurring basis consisted of the following:

(in thousands) Fair Value Hierarchy June 30, 2022 December 31, 2021

Contingent consideration, current portion Level 3 $ 5,367 $ 4,006

Contingent consideration, noncurrent portion Level 3 5,458 6,680

Total contingent consideration $ 10,825 $ 10,686

During the three and six months ended June 30, 2022, there were no transfers into, out of, or between levels of the fair value hierarchy.

The following table provides a reconciliation of the beginning and ending balance of the Company's contingent consideration liability for the three and six months ended June 30, 2022:

(in thousands) Contingent Consideration Liability

December 31, 2021 $ 10,686

Payment of contingent consideration ( 415 )

March 31, 2022 10,271

Accretion of discount on contingent consideration 602

Fair value adjustments due to resolution of contingencies related to future payments ( 48 )

June 30, 2022 $ 10,825

The following table provides a reconciliation of the beginning and ending balance of the Company's contingent consideration liability for the three and six months ended June 30, 2021:

(in thousands) Contingent Consideration Liability

December 31, 2020 $ —

Payment of contingent consideration —

March 31, 2021 —

Addition of contingent consideration due to acquisition 4,700

Payment of contingent consideration —

June 30, 2021 $ 4,700

Fair Value Disclosures

Notes Receivable

Notes receivable are carried at amortized cost.

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.

The carrying value of the Company's notes receivable, net approximates fair value and was approximately $ 2.8 million and $ 0.4 million at June 30, 2022 and December 31, 2021, respectively.

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

Debt Obligations

The fair value of the of the term facility was estimated to be $ 587.7 million and $ 613.8 million at June 30, 2022 and December 31, 2021, respectively, and 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.

Redeemable Senior Preferred Stock and Warrants

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(in thousands) Shares Amount

January 1, 2022 225 $ 210,158

December 31, 2021 225 $ 210,158

Unpaid dividend on redeemable senior preferred stock — 4,090

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March 31, 2022 225 215,053

Unpaid dividend on redeemable senior preferred stock — 4,161

Accretion of discounts and issuance cost — 817

June 30, 2022 225 $ 220,031

The following table provides a summary of the dividends for the period presented:

(in thousands) Three Months Ended March 31, 2022

Three Months Ended June 30, Six Months Ended June 30,

(in thousands) 2022 2021 2022 2021

Dividends paid in cash $ 3,571 $ 1,575 $ 7,076 $ 1,575

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Dividends declared at the rate of 13.0 % per year

$ 7,732 $ 3,413 $ 15,327 $ 3,413

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 .

As of March 31, 2022, none of the warrants have been exercised.

As of June 30, 2022, none of the warrants have been exercised.

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 Unaudited Consolidated Balance Sheets.

Table of Con tents

The Company's consolidated effective income tax rate was 49.4 % for the three months ended March 31, 2022, compared to a consolidated effective income tax rate of 45.4 % for the three months ended March 31, 2021.

The effective rate for March 31, 2022 differed from the statutory rate of 21.0% primarily due to an increase in the valuation allowance against certain business interest carryover deferred tax assets.

The effective rate for March 31, 2021 differed from the statutory federal rate of 21.0% primarily due to an increase in the valuation allowance against certain business interest carryover deferred tax assets.

The Company's consolidated effective income tax rate for the three and six months ended June 30, 2022, was 61.9 % and 147.9 %, respectively.

The effective rate for the three and six months ended June 30, 2022 differed from the statutory rate of 21.0% primarily due to an increase in the valuation allowance against certain business interest carryover deferred tax assets.

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

The effective rate for the three and six months ended June 30, 2021 differed from the statutory federal rate of 21.0% primarily due to an increase in the valuation allowance against certain business interest carryover deferred tax assets.

Valuation Allowance for Deferred Income Tax Assets

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

Based on management's assessment, as of March 31, 2022, the Company continues to record a full valuation allowance against non-deductible interest expense.

Based on management's assessment, as of June 30, 2022, the Company continues to record a full valuation allowance against non-deductible interest expense.

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

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

Based on existing contracts in place at March 31, 2022, the Company is committed to pay minimum processing fees under these agreements of approximately $ 15.7 million in 2022 and $ 16.6 million in 2023.

Based on existing contracts in place at June 30, 2022, the Company is committed to pay minimum processing fees under these agreements of approximately $ 15.7 million in 2022 and $ 16.6 million in 2023.

Contingent Consideration

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

On March 15, 2019, a subsidiary of the Company paid $ 15.2 million cash to acquire certain residual portfolio rights.

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

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

As of March 31, 2022, the sellers had not achieved the criteria to earn the remaining $ 2.1 million.

On April 14, 2022, the Company amended the purchase agreement related to its acquisition of certain residual portfolio rights in 2019 to provide for an additional earnout opportunity to be earned during the 12 months ending March 31, 2023.

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

In connection with this amendment, the Company paid $ 2.1 million to the sellers during the second quarter of 2022, of which half was related to the earnout for the 12 months ended March 31, 2022 and half was paid as an advance of the earnout for the 12 months ending March 31, 2023.

This advance must be repaid by the sellers if certain metrics are not achieved.

As of June 30, 2022 and December 31, 2021, the Company had accrued $ 1.0 million and $ 2.4 million, respectively, of estimated remaining cash consideration and additional accumulated costs related to its October 2019 acquisition of certain merchant portfolio rights.

The Company had recorded aggregate costs, including both actual costs and estimated remaining consideration, totaling $ 11.5 million and $ 11.1 million as of June 30, 2022 and December 31, 2021, respectively.

Amortization expense was adjusted to reflect the new carrying value at the original purchase date.

As of June 30, 2022 and December 31, 2021, accumulated amortization was $ 6.1 million and $ 5.0 million, respectively.

The merchant portfolio has an estimated remaining life of 2.25 years at June 30, 2022.

See Note 3, Acquisitions , for information about contingent consideration related to other acquisitions.

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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.

Table of Con tents

Concentration of Risks

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

Related Party Transactions

Employee Loan

In February 2021, the Company loaned $ 0.9 million to an employee who is considered to be an affiliate of the Company.

Under the terms the loan agreement, the loan accrues interest at the rate of 4.0 % per year and is secured by shares of the Company's common stock that are owned by the employee.

The loan was originally repayable in August 2021, but the agreement was amended in August 2021 to automatically renew for one year terms until the Company requires repayment.

The loan may be prepaid at any time.

As of June 30, 2022 and December 31, 2021, the amount due to the Company for this loan was $ 0.9 million.

PHOT Preferred Unit Redemption - Distribution to NCIs

In November 2020, the Company agreed to an exchange of shares of common stock of the Company, or cash, for the $ 4.8 million of remaining undistributed preferred equity interests related to the February 2019 contribution of the eTab and Cumulus assets to PHOT.

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 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 undistributed 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 Unaudited Consolidated Financial Statements for the three and six months ended June 30, 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.

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

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.

Stock-based Compensation

For the three months ended March 31, 2022 and 2021, stock-based compensation was as follows:

Three Months Ended March 31,

For the three and six months ended June 30, 2022 and 2021, stock-based compensation expense was as follows:

Three Months Ended June 30, Six Months Ended June 30,

(in thousands) 2022 2021 2022 2021

Restricted stock units compensation expense $ 1,558 $ 558

Stock-based compensation expense $ 1,542 $ 821 3,100 $ 1,379

In March 2021, the Company converted a $ 0.3 million liability-classified stock-based compensation award for restricted stock units under the 2018 Plan, whereby the service inception date preceded the future grant-date, to an equity-classified award when the restricted stock units were granted.

Income tax benefit for stock-based compensation was immaterial for the three months ended March 31, 2022 and 2021.

Income tax benefit for stock-based compensation was immaterial for the three and six months ended June 30, 2022 and 2021.

No stock-based compensation has been capitalized.

The Company's 2018 Plan provided for the issuance of up to 6,685,696 shares of the Company's common stock.

On March 17, 2022, the Company's Board of Directors unanimously approved an amendment to the 2018 Plan, subject to approval by our shareholders, to increase the number of shares authorized for issuance under the plan by 2,500,000 shares, resulting in 9,185,696 shares of the Company's common stock authorized for issuance under the plan.

The Company's 2018 Plan initially provided for the issuance of up to 6,685,696 shares of the Company's common stock.

On March 17, 2022, the Company's Board of Directors unanimously approved an amendment to the 2018 Plan, which was subsequently approved by our shareholders, to increase the number of shares authorized for issuance under the plan by 2,500,000 shares, resulting in 9,185,696 shares of the Company's common stock authorized for issuance under the plan.

2021 Stock Purchase Plan

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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 offering period.

The compensation expense for the three and six months ended June 30, 2022, was immaterial.

Stockholders' Equity

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

As of June 30, 2022 and December 31, 2021, the Company has not issued any shares of preferred stock.

2022 Share Repurchase Program

During the second quarter of 2022, PRTH's Board of Directors authorized the Company to implement a general share repurchase program under which the Company may purchase up to 2.0 million shares of its outstanding common stock for a total of up to $ 10.0 million.

Under the terms of this plan, the Company may purchase shares through open market purchases, unsolicited or solicited privately negotiated transactions, or in another manner so long as it complies with applicable rules and regulations.

Segment Information

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All comparative periods have been adjusted to reflect the new reportable segments.

Table of Con tents

More information about our three reportable segments:

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Information on reportable segments and reconciliations to consolidated revenues, consolidated depreciation and amortization, and consolidated operating income are as follows:

(in thousands) Three Months Ended March 31,

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

2022 2021 2022 2021

SMB Payments $ 142,506 $ 120,311 $ 272,465 $ 229,412

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Consolidated operating income $ 13,060 $ 7,405 $ 23,886 $ 11,932

A reconciliation of total operating income of reportable segments to the Company's net loss is provided in the following table:

(in thousands) Three Months Ended March 31,

A reconciliation of total operating income of reportable segments to the Company's net income (loss) is provided in the following table:

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

2022 2021 2022 2021

Total operating income of reportable segments $ 20,356 $ 14,636 $ 37,745 $ 27,680

1 unchanged sentence

Interest expense ( 12,335 ) ( 7,285 ) ( 23,870 ) ( 16,453 )

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

Other income (expense), net 29 215 80 ( 54 )

Income tax benefit 325 2,231

Net loss $ ( 333 ) $ ( 2,679 )

Table of Con tents

Income tax (expense) benefit ( 467 ) ( 1,490 ) ( 142 ) 741

Net income (loss) $ 287 $ ( 9,477 ) $ ( 46 ) $ ( 12,156 )

Loss per Common Share

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

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

Net loss $ ( 333 ) $ ( 2,679 )

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

2022 2021 2022 2021

Net income (loss) $ 287 $ ( 9,477 ) $ ( 46 ) $ ( 12,156 )

Dividends and accretion attributable to redeemable senior preferred stockholders ( 8,549 ) ( 3,911 ) ( 16,949 ) ( 3,911 )

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

Net loss attributable to common stockholders $ ( 8,262 ) $ ( 24,165 ) $ ( 16,995 ) $ ( 26,844 )

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Potentially anti-dilutive securities that were excluded from the Company's loss per common share that could potentially be dilutive in future periods are as follows:

Three Months Ended March 31,

Six Months Ended June 30,

(in thousands) 2022 2021

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Restricted stock awards (3)

Liability-classified restricted stock units — 118

Outstanding stock option awards (3)

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(3) Granted under the 2018 Plan.

Table of Con tents

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

What changed 10-Q

Item 1. Financial Statements