What changed in this filing

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Item 1. Financial Statements

2022-11-10 compared with 2022-08-09 · 190 added, 141 removed, 553 unchanged (37% of the section changed)

3 unchanged sentences

(in thousands, except share data)

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Current assets:

29 unchanged sentences

250,000 shares authorized;

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

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

225,095 210,158

2 unchanged sentences

100,000,000 shares authorized;

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

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

Common stock, $ 0.001 par value;

1,000,000,000 shares authorized;

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

77,789,291 and 77,460,312 shares issued at September 30, 2022 and December 31, 2021, respectively;

and 75,981,186 and 76,739,896 shares outstanding at September 30, 2022 and December 31, 2021, respectively

Additional paid-in capital 17,719 39,835

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

Treasury stock at cost, 1,808,105 and 720,416 shares at September 30, 2022 and December 31, 2021, respectively

( 8,765 ) ( 4,091 )

6 unchanged sentences

(in thousands, except per share amounts)

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

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

1 unchanged sentence

Operating expenses

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

Cost of revenue (excludes depreciation and amortization) 107,958 92,833 320,187 264,527

Salary and employee benefits 16,384 11,909 48,231 31,808

6 unchanged sentences

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

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

Other income, net 231 146 311 92

Total other expense, net ( 13,181 ) ( 8,009 ) ( 36,971 ) ( 32,838 )

Income (loss) before income taxes 899 241 995 ( 12,656 )

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

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

Income tax expense 1,691 790 1,833 49

Net loss ( 792 ) ( 549 ) ( 838 ) ( 12,705 )

Dividends and accretion attributable to redeemable senior preferred stockholders ( 9,466 ) ( 5,813 ) ( 26,415 ) ( 9,724 )

27 unchanged sentences

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

Equity-classified stock-based compensation — — — — 1,104 — 1,104

ESPP compensation and vesting of stock-based compensation 43 — — — 39 — 39

Share repurchases and shares withheld for taxes ( 630 ) — 630 ( 2,595 ) — — ( 2,595 )

Dividends on redeemable senior preferred stock — — — — ( 8,636 ) — ( 8,636 )

Accretion of redeemable senior preferred stock — — — — ( 830 ) — ( 830 )

Net loss — — — — — ( 792 ) ( 792 )

September 30, 2022 75,981 $ 78 1,808 $ ( 8,765 ) $ 17,719 $ ( 100,896 ) $ ( 91,864 )

Stock Treasury

18 unchanged sentences

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

Equity-classified stock-based compensation — — — — 790 — 790

Vesting of stock-based compensation 20 — — — — — —

Issuance of acquisition Common Stock 7,551 7 — — 34,381 — 34,388

Exercise of stock options 53 — — — 369 — 369

Share repurchases ( 163 ) — 163 ( 1,023 ) — — ( 1,023 )

Dividends on redeemable senior preferred stock — — — — ( 5,286 ) — ( 5,286 )

Accretion of redeemable senior preferred stock — — — — ( 527 ) — ( 527 )

Net loss — — — — — ( 549 ) ( 549 )

September 30, 2021 76,571 $ 77 614 $ ( 3,411 ) $ 44,640 $ ( 114,718 ) $ ( 73,412 )

See Notes to Unaudited Consolidated Financial Statements

2 unchanged sentences

(in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash flows from operating activities:

6 unchanged sentences

Deferred income tax benefit ( 3,567 ) ( 160 )

PIK interest — ( 23,715 )

PIK interest paid — ( 23,715 )

Other non-cash items, net ( 154 ) ( 39 )

25 unchanged sentences

Dividends paid to redeemable senior preferred stockholders ( 11,478 ) ( 4,015 )

Proceeds from exercise of stock options — 1,190

Settlement and customer accounts obligations, net 25,695 396,338

1 unchanged sentence

Other financing activities — ( 814 )

Net cash provided by financing activities 562 34,086

Six Months Ended June 30,

Nine Months Ended September 30,

Net cash (used in) provided by financing activities ( 8,099 ) 871,010

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

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

Net increase in cash and cash equivalents, and restricted cash 21,364 405,565

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

3 unchanged sentences

Non-cash investing and financing activities:

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

Treasury stock purchases settled after the balance sheet date $ 651 $ —

Accruals for future contingent payments $ 4,825 $ 6,833

4 unchanged sentences

Restricted cash 11,624 17,258

Customer account balances (see Note 4 )

Cash and cash equivalents included in settlement assets and customer account balances (see Note 4 )

515,126 459,453

Total cash and cash equivalents, and restricted cash $ 539,457 $ 493,685

26 unchanged sentences

Foreign exchange translation and transaction gains and losses were not material for the periods presented and are included in the Unaudited Consolidated Statements of Operations.

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, 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.

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) Six Months Ended June 30, 2021

Net cash (used in) provided by operating activities:

Historically reported $ ( 45,124 )

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 provided by (used in) financing activities:

Historically reported $ 69,429

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

Emerging Growth Company Status

8 unchanged sentences

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

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'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.

19 unchanged sentences

Disaggregation of Revenues

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,

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

Three Months Ended September 30, Nine Months Ended September 30,

(in thousands) 2022 2021 2022 2021

1 unchanged sentence

Merchant card fees $ 137,659 $ 122,175 $ 405,404 $ 348,244

Outsourced services and other services 6,887 4,825 13,984 9,203

Money transmission services revenue 18,291 2,873 51,757 2,873

Outsourced services and other services 7,933 5,778 21,917 14,981

Equipment 2,534 1,716 7,008 4,755

3 unchanged sentences

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

(2) Approximately $ 0.8 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.

(2) Approximately $ 2.0 million and $ 3.4 million of interest income for the three and nine months ended September 30, 2022, respectively, and $ 0.1 million and $ 0.1 million three and nine months ended September 30, 2021, respectively, is included in outsourced services and other services revenue in the table above.

Approximately $ 0.2 million and $ 0.4 million of interest income for the three and nine months ended September 30, 2022, respectively, and $ 0.1 million and $ 0.6 million of interest income three and nine months ended September 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 nine months ended September 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.

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

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

(in thousands) Consolidated Balance Sheet Line Item September 30, 2022 December 31, 2021

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

Substantially all of these balances are recognized as revenue within 12 months.

As of September 30, 2022, all of the contract liabilities, have been recognized as revenue.

Net contract assets were not material for any period presented.

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

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

Finxera Acquisition

5 unchanged sentences

The fair values of the assets acquired and liabilities assumed as of September 17, 2021 were estimated by management based on the valuation of the Finxera business using the discounted cash flow method and other factors specific to certain assets and liabilities.

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

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

(in thousands)

10 unchanged sentences

Property, equipment and software, net 712

Goodwill 245,104

Intangible assets, net (3)

5 unchanged sentences

Total purchase consideration $ 407,010

(1) The fair value of the 7,551,354 shares of PRTH common stock that were issued was determined based on their market price at the time of closing adjusted for an appropriate liquidity discount due to trading restrictions under Securities Rule 144.

(1) The fair value of the 7,551,354 shares of Common stock that were issued was determined based on their market price at the time of closing adjusted for an appropriate liquidity discount due to trading restrictions under Securities Act Rule 144.

(2) During the nine months ended September 30, 2022, the Company recorded measurement period adjustments due to additional information received related to income taxes and deferred income taxes, net.

These measurement period adjustments resulted in an increase of $ 0.1 million in prepaid expenses and an increase of $ 0.3 million in other current assets and deferred income taxes, offset by a decrease in goodwill of $ 0.4 million.

(3) The intangible assets acquired consist of $ 154.9 million for referral partner relationships, $ 34.3 million for technology, $ 20.1 million for customer relationships and $ 2.1 million for money transmission licenses.

Goodwill of $ 245.1 million arising from the acquisition primarily consists of the expected synergies and other benefits from combining operations.

Approximately $ 8.7 million of the goodwill attributable to the acquisition is expected to be deductible for income tax purposes.

Goodwill of $ 244.7 million arising from the acquisition of Finxera primarily consists of the expected synergies and other benefits from combining operations.

Goodwill attributable to the acquisition of $ 8.7 million was deductible for income tax purposes.

The goodwill was allocated 100 % to the Company's Enterprise Payments reportable segment.

In 2020, Finxera acquired two businesses for which the purchase price included contingent consideration valued at $ 6.1 million.

The contingent consideration payable is comprised of earnout opportunities equal to 50 % of certain revenues earned from the customers assumed in these acquisitions.

The contingent consideration payable is comprised of earnout opportunities equal to 25 % to 50 % of certain revenues earned from the customers assumed in these acquisitions.

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

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.

As of September 30, 2022, an adjustment of $ 1.1 million was recorded due to changes in the fair value of the contingent consideration (as selling, general and administrative expenses in the Company's Consolidated Statements of Operations) resulting in total contingent consideration of $ 7.2 million.

The accretion of contingent consideration was $ 0.1 million and $ 0.4 million for the three and nine months ended September 30, 2022, respectively, which is included in interest expense on the Company's Unaudited Consolidated Statements of Operations, increasing the total liability to $ 7.6 million of which $ 1.8 million has been paid.

The remaining $ 5.8 million was accrued, of which $ 3.9 million and $ 1.9 million were included in accounts payable and accrued expenses and other noncurrent liabilities, respectively, on the Company's Unaudited Consolidated Balance Sheet as of September 30, 2022.

Other Acquisitions

Wholesale Payments, Inc .

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

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

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.

1 unchanged sentence

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.

As of the second quarter 2022, the sellers earned $ 9.4 million of the $ 24.8 million earnout, 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.

In September 2022, an adjustment of $ 0.5 million was recorded, decreasing the total amount earned as of September 30, 2022 to $ 8.9 million.

As of September 30, 2022, $ 5.1 million had been paid.

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.

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.

As of September 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 September 30, 2022.

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

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

5 unchanged sentences

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

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

Member banks held merchant funds of $ 113.3 million and $ 102.1 million at September 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.

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 nine months ended September 30, 2022 were $ 0.7 million and $ 2.8 million, respectively.

Expenses for merchant losses for the three and nine months ended September 30, 2021 were $ 0.6 million and $ 1.6 million, respectively.

B2B Payments Segment

In the Company's B2B Payments segment, the Company earns revenues from certain of its services by processing transactions for FIs and other business customers.

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

Customers transfer funds to the Company, which are held in either company-owned bank accounts controlled by the Company or bank-owned FBO accounts controlled by the banks, until such time that the transactions are settled with the customer payees.

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

1 unchanged sentence

Therefore, neither is recognized 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.

Bank-owned FBO accounts held funds of $ 71.8 million and $ 45.5 million at September 30, 2022 and December 31, 2021, respectively.

Company-owned bank accounts held $ 4.4 million and $ 21.4 million at September 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) June 30, 2022 December 31, 2021

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

Settlement Assets:

10 unchanged sentences

Goodwill and Other Intangible Assets

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

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

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

SMB Payments $ 120,636 $ 120,636

1 unchanged sentence

Total $ 365,347 $ 365,740

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

The following table summarizes the changes in the carrying value of goodwill for the periods ended September 30, 2022 and December 31, 2021

(in thousands) Amount

Balance at December 31, 2021 $ 365,740

Changes in the value of goodwill —

Balance at March 31, 2022 365,740

Changes in the value of goodwill —

Balance at June 30, 2022 365,740

Final purchase price adjustment for Finxera ( 393 )

Balance at September 30, 2022

As of September 30, 2022, the Company is not aware of any triggering events for impairment that have occurred since the last annual impairment test.

Other Intangible Assets

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

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

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

Gross Carrying Value Accumulated Amortization Net Carrying Value

10 unchanged sentences

Total $ 537,336 $ ( 235,607 ) $ 301,729 9.9

(1) These assets have an indefinite useful life.

(1) Money transmission licenses have an indefinite useful life.

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

17 unchanged sentences

(3) These assets have an indefinite useful life.

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

Three Months Ended September 30, Nine Months Ended September 30,

(in thousands) 2022 2021 2022 2021

Amortization expense $ 15,452 $ 10,191 $ 45,773 $ 25,858

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

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

Property, Equipment and Software

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

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

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

Computer software $ 63,087 $ 52,715

5 unchanged sentences

Property, equipment and software, net $ 29,773 $ 25,233

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

Three Months Ended September 30, Nine Months Ended September 30,

(in thousands) 2022 2021 2022 2021

2 unchanged sentences

Notes Receivable

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 Company had notes receivable of $ 3.1 million and $ 0.4 million as of September 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 14.8 % and 13.8 % as of September 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 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:

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

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

(in thousands)

Twelve months ending June 30,

Twelve months ending September 30,

Total $ 3,058

Debt Obligations

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 rates of 5.81 % and 5.75 % at June 30, 2022 and December 31, 2021, respectively

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

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

Term facility - matures April 27, 2027, interest rates of 8.27 % and 6.75 % at September 30, 2022 and December 31, 2021, respectively

$ 612,250 $ 616,900

Revolving credit facility - $ 40.0 million line, matures April 27, 2026, interest rates of 7.24 % and 5.75 % at September 30, 2022 and December 31, 2021, respectively

Total debt obligations 618,250 631,900

8 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 $ 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.

Interest expense for outstanding debt, including fees for undrawn amounts and amortization of deferred financing costs and debt discounts was as follows:

Three Months Ended September 30, Nine Months Ended September 30,

(in thousands) 2022 2021 2022 2021

Interest expense $ 13,303 $ 8,155 $ 36,571 $ 24,608

Interest expense included amortization of deferred financing costs and debt discounts of $ 0.9 million and $ 2.6 million for the three and nine months ended September 30, 2022, respectively, and $ 2.1 million and $ 3.3 million three and nine months ended September 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.

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

Debt Covenants

5 unchanged sentences

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

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

As of September 30, 2022, the Total Net Leverage Ratio was not applicable and the Company was in compliance with our financial covenants.

Fair Value Measurements

2 unchanged sentences

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

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

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

Contingent consideration, current portion Level 3 $ 6,883 $ 4,006

1 unchanged sentence

Total contingent consideration $ 10,753 $ 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:

During the three and nine months ended September 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 nine months ended September 30, 2022:

(in thousands) Contingent Consideration Liability

5 unchanged sentences

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:

Addition of contingent consideration due to acquisition —

Accretion of discount on contingent consideration 108

Fair value adjustments due to resolution of contingencies related to future payments 1,070

Payment of contingent consideration ( 1,250 )

September 30, 2022 $ 10,753

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

(in thousands) Contingent Consideration Liability

5 unchanged sentences

June 30, 2021 4,700

Addition of contingent consideration due to acquisition 5,986

Accretion of discount on contingent consideration —

Fair value adjustments due to resolution of contingencies related to future payments —

Payment of contingent consideration —

September 30, 2021 $ 10,686

Fair Value Disclosures

2 unchanged sentences

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.

The carrying value of the Company's notes receivable, net approximates fair value and was approximately $ 3.1 million and $ 0.4 million at September 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.

1 unchanged sentence

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 $ 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.

The fair value of the of the term facility was estimated to be $ 590.8 million and $ 613.8 million at September 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.

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.

Redeemable Senior Preferred Stock and Warrants

The following table provides a reconciliation of the beginning and ending carrying amounts of the redeemable senior preferred stock for the periods presented:

The following table provides a reconciliation of the beginning and ending carrying amounts of the redeemable senior preferred stock for the three and nine months ended September 30, 2022:

(in thousands) Shares Amount

6 unchanged sentences

June 30, 2022 225 $ 220,031

Unpaid dividend on redeemable senior preferred stock — 4,234

Accretion of discounts and issuance cost — 830

September 30, 2022 225 $ 225,095

The following table provides a reconciliation of the beginning and ending carrying amounts of the redeemable senior preferred stock for the three and nine months ended September 30, 2021

(in thousands) Shares Amount

December 31, 2020 — $ —

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

Unpaid dividend on redeemable senior preferred stock — 1,838

Accretion of discounts and issuance cost — 498

June 30, 2021 150 133,762

Proceeds from issuance of redeemable senior preferred stock, net of discount and issuance costs 75 68,183

Unpaid dividend on redeemable senior preferred stock — 2,846

Accretion of discounts and issuance cost — 527

September 30, 2021 225 $ 205,318

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

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

Three Months Ended September 30, Nine Months Ended September 30,

(in thousands) 2022 2021 2022 2021

3 unchanged sentences

$ 8,636 $ 5,286 $ 23,963 $ 8,699

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

On April 27, 2021, the Company issued warrants to purchase up to 1,803,841 shares of the Common Stock, at an exercise price of $ 0.001 .

As of September 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.

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.

The Company's consolidated effective income tax rate for the three and nine months ended September 30, 2022, was 188.1 % and 184.2 %, respectively.

The effective rate for the three and nine months ended September 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 nine months ended September 30, 2021, was 327.8 % and ( 0.4 )%, respectively.

The effective rate for the three and nine months ended September 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 June 30, 2022, the Company continues to record a full valuation allowance against non-deductible interest expense.

Based on management's assessment, as of September 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.

On August 16, 2022, the U.S.

government enacted the Inflation Reduction Act into law.

The IRA, among other provisions, implements a 15% corporate alternative minimum tax based on global adjusted financial statement income and a 1% excise tax on share repurchases, which shall take effect in tax years beginning after December 31, 2022.

We are in the process of evaluating the provisions of the IRA, but we do not currently believe the IRA will have a material effect on our reported results, cash flows, or financial position when it becomes effective.

If applicable, we expect to reflect the excise tax within equity as part of the repurchase price of common stock.

Commitments and Contingencies

3 unchanged sentences

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

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.

Based on existing contracts in place at September 30, 2022, the Company is committed to pay minimum processing fees under these agreements of approximately $ 15.7 million in 2022 and $ 17.0 million in 2023.

Contingent Consideration

2 unchanged sentences

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.

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.

As of September 30, 2022 and December 31, 2021, the Company had accrued $ 0.1 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 September 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.

As of September 30, 2022 and December 31, 2021, accumulated amortization was $ 6.7 million and $ 5.0 million, respectively.

The merchant portfolio has an estimated remaining life of two years at September 30, 2022.

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

15 unchanged sentences

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.

As of September 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.

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.

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 Chief Operating Officer 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.

The Company's Unaudited Consolidated Financial Statements for the nine months ended September 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 Act 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.

1 unchanged sentence

Stock-based Compensation

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,

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

Three Months Ended September 30, Nine Months Ended September 30,

(in thousands) 2022 2021 2022 2021

1 unchanged sentence

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 and six months ended June 30, 2022 and 2021.

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

No stock-based compensation has been capitalized.

8 unchanged sentences

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.

The compensation expense for the three and nine months ended September 30, 2022, was immaterial and is included in stock-based compensation in the table above.

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.

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

2022 Share Repurchase Program

1 unchanged sentence

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.

In August 2021, Priority's Board of Directors authorized a $ 10.0 million share repurchase program.

Under this program the Company was authorized to purchase up to 1.0 million shares of its Common Stock through open market transactions, unsolicited or solicited privately negotiated transactions, or otherwise in accordance with all applicable securities laws and regulations.

The 2021 Share Repurchase Program was terminated effective on the close of business on September 23, 2021.

For the three and nine months ended September 30, 2022 and 2021, share repurchase activity was as follows:

Three Months Ended September 30, Nine Months Ended September 30,

in thousands, except share data, which is in whole units 2022 2021 2022 2021

Number of shares purchased (1)

626,673 162,715 1,005,918 162,715

Average price paid per share $ 4.11 $ 6.29 $ 4.20 $ 6.29

Total Investment $ 2,578 $ 1,023 $ 4,227 $ 1,023

(1.) These amounts may differ from the repurchases of common stock amounts in the Consolidated Statements of Cash Flows due to unsettled share repurchases at the end of quarter.

Segment Information

9 unchanged sentences

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 June 30, Six Months Ended June 30,

(in thousands) Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

9 unchanged sentences

Consolidated depreciation and amortization $ 17,817 $ 12,330 $ 52,675 $ 32,123

Operating income (loss):

Operating (loss) income:

SMB Payments $ 13,447 $ 14,647 $ 39,928 $ 42,380

3 unchanged sentences

Consolidated operating income $ 14,080 $ 8,250 $ 37,966 $ 20,182

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,

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

(in thousands) Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

3 unchanged sentences

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

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

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

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

Other income, net 231 146 311 92

Income tax expense ( 1,691 ) ( 790 ) ( 1,833 ) ( 49 )

Net loss $ ( 792 ) $ ( 549 ) $ ( 838 ) $ ( 12,705 )

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 June 30, Six Months Ended June 30,

(in thousands except per share amounts) Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

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

Net loss $ ( 792 ) $ ( 549 ) $ ( 838 ) $ ( 12,705 )

Dividends and accretion attributable to redeemable senior preferred stockholders ( 9,466 ) ( 5,813 ) ( 26,415 ) ( 9,724 )

7 unchanged sentences

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:

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands) 2022 2021

9 unchanged sentences

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