Priority Technology Holdings, Inc. 10-Q

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Audited Consolidated Financial Statements and related Notes and the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations," included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021. Cautionary Note Regarding Forward-looking Statements Some of the statements made in this Quarterly Report on Form 10-Q constitute forward-looking statements within the meaning of the federal securities laws. Such forward-looking statements include, but are not limited to, statements regarding our management's expectations, hopes, beliefs, intentions or strategies regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, such as statements about our future financial performance, including any underlying assumptions, are forward-looking statements. The words "anticipate," "believe," "continue," "could," "estimate," "expect," "future," "goal," "intend," "likely," "may," "might," "plan," "possible," "potential," "predict," "project," "seek," "should," "would," "will," "approximately," "shall" and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about: • the impact of the COVID-19 pandemic and its continuing effects on the economic and business environment in which we operate; • negative economic and political conditions that adversely affect the general economy, consumer confidence and consumer and commercial spending habits, which may, among other things, negatively impact our business, financial condition and results of operations; • competition in the payment processing industry; • the use of distribution partners; • any unauthorized disclosures of merchant or cardholder data, whether through breach of our computer systems, computer viruses or otherwise; • any breakdowns in our processing systems; • government regulation, including regulation of consumer information; • the use of third-party vendors; • any changes in card association and debit network fees or products; • any failure to comply with the rules established by payment networks or standards established by third-party processors; • any proposed acquisitions or dispositions or any risks associated with completed acquisitions or dispositions; and • other risks and uncertainties set forth in the " Item 1A - Risk Factors " section of this Quarterly Report on Form 10-Q or our Annual Report on Form 10-K. We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q. The forward-looking statements contained in this Quarterly Report on Form 10-Q are based on our current expectations and beliefs concerning future developments and their potential effects on us. You should not place undue reliance on these forward-looking statements in deciding whether to invest in our securities. We cannot assure you that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions, including the risk factors set forth in the " Item 1A - Risk Factors " section of this Quarterly Report on Form 10-Q or our Annual Report on Form 10-K, that may cause our actual results or performance to be materially different from those expressed or implied by these forward-looking statements. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. In addition, statements that "we believe" and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we 26 Table of Contents believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely upon these statements. You should read this Quarterly Report on Form 10-Q with the understanding that our actual future results, levels of activity, performance and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. Forward-looking statements speak only as of the date they were made. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. Terms Used in this Quarterly Report on Form 10-Q As used in this Quarterly Report on Form 10-Q, unless the context otherwise requires, references to the terms "Company," "Priority," "we," "us" and "our" refer to Priority Technology Holdings, Inc. and its consolidated subsidiaries. 27 Table of Contents Results of Operations This section includes certain components of our results of operations for the three and nine months ended September 30, 2022, compared to the three and nine months ended September 30, 2021. We have derived this data, except key indicators for merchant bankcard processing dollar values, transaction volumes and average billed accounts from our Unaudited Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q and our Audited Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2021. Revenue For the three months ended September 30, 2022, our consolidated revenue of $166.4 million increased by $33.9 million, or 25.6%, from $132.5 million for the three months ended September 30, 2021. This overall increase was mainly driven by an increase in bankcard volumes resulting from increased consumer spending and acquisitions completed by the Company in 2021. For the nine months ended September 30, 2022, our consolidated revenue of $486.1 million increased by $115.2 million, or 31.1%, from $370.9 million for the nine months ended September 30, 2021. This overall increase was primarily driven by an increase in bankcard volumes resulting from increased consumer spending, an increase in certain fee-based revenue and acquisitions completed by the Company in 2021. The following table presents our revenues by type for the three and nine months ended September 30, 2022 and 2021: (in thousands) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 $ Change 2022 2021 $ Change Revenue Type: Merchant card fees $ 137,659 $ 122,175 $ 15,484 $ 405,404 $ 348,244 $ 57,160 Money transmission services revenue 18,291 2,873 15,418 51,757 2,873 48,884 Outsourced services and other services 7,933 5,778 2,155 21,917 14,981 6,936 Equipment 2,534 1,716 818 7,008 4,755 2,253 Total revenues $ 166,417 $ 132,542 $ 33,875 $ 486,086 $ 370,853 $ 115,233 For the three months ended September 30, 2022, our merchant card fees revenue of $137.7 million increased by $15.5 million, or 12.7%, from $122.2 million for the three months ended September 30, 2021. This increase was primarily driven by an increase in the merchant bankcard volume processed by the Company slightly offset by rate decreases. For the nine months ended September 30, 2022, our merchant card fees revenue of $405.4 million increased by $57.2 million, or 16.4%, from $348.2 million for the nine months ended September 30, 2021. This increase was primarily driven by an increase in the merchant bankcard volume processed by the Company and an increase in certain fee-based revenue slightly offset by rate decreases. Money transmission services revenue of $18.3 million and $51.8 million for the three and nine months ended September 30, 2022, respectively, is related to the business acquired from Finxera in September 2021. Outsourced services and other services revenue of $7.9 million for the three months ended September 30, 2022 increased by $2.1 million, or 36.2%, from $5.8 million for the three months ended September 30, 2021, primarily due to growth in revenue from AP automation solutions and increased volumes in the card issuing business offset by decreases due to the wind down of certain customer programs in the managed services business. Outsourced services and other services revenue of $21.9 million for the nine months ended September 30, 2022 increased by $6.9 million, or 46.0%, from $15.0 million for the nine months ended September 30, 2021. This increase was primarily driven by growth in revenue from AP automation solutions and increased volumes in the card issuing business. 28 Table of Contents Equipment revenue of $2.5 million for the three months ended September 30, 2022 increased by $0.8 million, or 47.1%, from $1.7 million for the three months ended September 30, 2021. The increase was primarily due to increased sales of mobile card reader equipment and other equipment from our MX product line. Equipment revenue of $7.0 million for the nine months ended September 30, 2022 increased by $2.2 million, or 45.8%, from $4.8 million for the nine months ended September 30, 2021. This increase was primarily due to increased sales of mobile card reader equipment and other equipment from our MX product line. Operating expenses for three and nine months ended September 30, 2022 and 2021 were as follows: (in thousands) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 $ Change 2022 2021 $ Change Operating expenses Cost of revenue (excludes depreciation and amortization) $ 107,958 $ 92,833 $ 15,125 $ 320,187 $ 264,527 $ 55,660 Salary and employee benefits 16,384 11,909 4,475 48,231 31,808 16,423 Depreciation and amortization 17,817 12,330 5,487 52,675 32,123 20,552 Selling, general and administrative 10,178 7,220 2,958 27,027 22,213 4,814 Total operating expenses $ 152,337 $ 124,292 $ 28,045 $ 448,120 $ 350,671 $ 97,449 Cost of Revenue (excludes depreciation and amortization) Cost of revenue (excludes depreciation and amortization) of $108.0 million for the three months ended September 30, 2022 increased by $15.2 million, or 16.4%, from $92.8 million for the three months ended September 30, 2021, primarily due to the corresponding increase in revenues. For the three months ended September 30, 2022, cost of revenue (excludes depreciation and amortization) as a percentage of total revenues decreased to 64.9% as compared to 70.0% for the three months ended September 30, 2021. This decrease was primarily due to the impact of the Finxera acquisition, partially offset by mix of bankcard volume growth from larger partners with higher commissions. Cost of revenue (excludes depreciation and amortization) of $320.2 million for the nine months ended September 30, 2022 increased by $55.7 million, or 21.1% from $264.5 million for the nine months ended September 30, 2021. For the nine months ended September 30, 2022 cost of revenue (excludes depreciation and amortization) as a percentage of total revenues decreased to 65.9% as compared to 71.3% for the nine months ended September 30, 2021. This decrease was primarily due to the impact of the Finxera acquisition, partially offset by mix of bankcard volume growth from larger partners with higher commissions and risk management initiatives taken by the Company in the specialized merchant acquiring portfolio during the prior year period. Salary and Employee Benefits Salary and employee benefits expense of $16.4 million for the three months ended September 30, 2022 increased by $4.5 million, or 37.8%, from $11.9 million for the three months ended September 30, 2021, primarily due to pay raises, increases in headcount related to our acquisition of Finxera in September 2021, an increase in stock-based compensation and overall growth of the Company. Salary and employee benefits expense of $48.2 million for the nine months ended September 30, 2022 increased by $16.4 million, or 51.6%, from $31.8 million for the nine months ended September 30, 2021, primarily due to increases in headcount related to our acquisition of Finxera in September 2021, an increase in stock-based compensation and overall growth of the Company. Depreciation and Amortization Expense Depreciation and amortization expense of $17.8 million for the three months ended September 30, 2022 increased by $5.5 million, or 44.7%, from $12.3 million for the three months ended September 30, 2021, primarily due to the amortization of finite-lived intangible assets acquired from the business combinations completed during 2021. 29 Table of Contents Depreciation and amortization expense of $52.7 million for the nine months ended September 30, 2022 increased by $20.6 million, or 64.2%, from $32.1 million for the nine months ended September 30, 2021, primarily due to the amortization of finite-lived intangible assets acquired from the business combinations completed during 2021. Selling, General and Administrative Selling, general and administrative expenses of $10.2 million for the three months ended September 30, 2022 increased by $3.0 million, or 41.7%, from $7.2 million for the three months ended September 30, 2021, primarily due to an increase in expenses from acquired businesses and certain non-recurring expenses. Selling, general and administrative expenses of $27.0 million for the nine months ended September 30, 2022 increased by $4.8 million, or 21.6%, from $22.2 million for the nine months ended September 30, 2021, primarily due to an increase in expenses from acquired businesses, offset by a decrease in certain non-recurring transaction related expenses. Other Expense, net Other expenses, net for three and nine months ended September 30, 2022 and 2021 were as follows: (in thousands) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 $ Change 2022 2021 $ Change Other (expense) income Interest expense $ (13,412) $ (8,155) $ (5,257) $ (37,282) $ (24,608) $ (12,674) Debt extinguishment and modification costs — — — — (8,322) 8,322 Other income, net 231 146 85 311 92 219 Total other expense, net $ (13,181) $ (8,009) $ (5,172) $ (36,971) $ (32,838) $ (4,133) Interest Expense Interest expense of $13.4 million for the three months ended September 30, 2022 increased by $5.2 million, or 63.4%, from $8.2 million for the three months ended September 30, 2021, due to additional borrowings to fund the acquisition of Finxera in September 2021 and increased interest rates in the three months ended September 30, 2022. Interest expense of $37.3 million for the nine months ended September 30, 2022 increased by $12.7 million, or 51.6%, from $24.6 million for the nine months ended September 30, 2021, primarily due to additional borrowings to fund the acquisition of Finxera in September 2021 and increased interest rates in the nine months ended September 30, 2022. Debt Extinguishment and Modification Costs In April 2021, the Company expensed unamortized deferred costs and discounts of $3.0 million associated with the retirement of our subordinated debt facility and refinancing of our senior debt facility, and expensed $5.3 million of third-party costs incurred in connection with the refinancing. 30 Table of Contents Income Tax Expense (Benefit) Income tax expense (benefit) for three and nine months ended September 30, 2022 and 2021 was as follows: (in thousands) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 $ Change 2022 2021 $ Change Income (loss) before income taxes $ 899 $ 241 $ 658 $ 995 $ (12,656) $ 13,651 Income tax expense $ 1,691 $ 790 $ 901 $ 1,833 $ 49 $ 1,784 Effective tax rate 188.1 % 327.8 % 184.2 % (0.4) % We compute our interim period income tax expense or benefit by using a forecasted EAETR and adjust for any discrete items arising during the interim period and any changes in our projected full-year business interest expense and taxable income. The EAETR for 2022 is 162.7% and includes the income tax provision on pre-tax income and a tax provision related to establishment of a valuation allowance for deferred income tax on the future portion of the Section 163(j) limitation created by additional 2022 interest expense. The effective tax rate for 2022 changed primarily due to an increase in the valuation allowance against certain business interest carryover deferred tax assets. Our consolidated effective income tax rates differ from the statutory rate due to timing and permanent differences between amounts calculated under accounting principles GAAP and the U.S. tax code. The consolidated effective income tax rate for 2022 may not be indicative of our effective tax rate for 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. Segment Results The Company reorganized its business segments as of December 31, 2021, resulting in three segments: SMB Payments, B2B Payments and Enterprise Payments. Segment results included in the discussion below were restated in accordance with the new segment structure for comparison purposes. 31 Table of Contents The impact of the restatement of the prior period results is as follows: (in thousands) Three Months Ended September 30, 2021 SMB Payments (1) B2B Payments (2) Enterprise Payments (3) Revenue: Restated $ 124,737 $ 4,181 $ 3,624 Historically reported 124,027 4,181 4,334 Difference $ 710 $ — $ (710) Operating Income (Loss): Restated $ 14,647 $ (29) $ 1,229 Historically reported 14,656 (29) 1,220 Difference (4) $ (9) $ — $ 9 Depreciation and Amortization: Restated $ 11,049 $ 73 $ 939 Historically reported 10,971 73 1,017 Difference $ 78 $ — $ (78) (in thousands) Nine Months Ended September 30, 2021 SMB Payments (1) B2B Payments (2) Enterprise Payments (3) Revenue: Restated $ 354,149 $ 11,722 $ 4,982 Historically reported 352,045 11,722 7,086 Difference $ 2,104 $ — $ (2,104) Operating Income (Loss): Restated $ 42,380 $ (417) $ 1,564 Historically reported 42,467 (417) 1,477 Difference $ (87) $ — $ 87 Depreciation and Amortization: Restated $ 30,130 $ 220 $ 939 Historically reported 29,847 220 1,222 Difference $ 283 $ — $ (283) (1) Compared to the Company's legacy Consumer Payments segment. (2) Compared to the Company's legacy Commercial Payments segment. (3) Compared to the Company's legacy Integrated Partners segment. (4) Amounts may not net to zero due to rounding differences. 32 Table of Contents SMB Payments (in thousands) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 $ Change 2022 2021 $ Change Revenue $ 139,892 $ 124,737 $ 15,155 $ 412,357 $ 354,149 $ 58,208 Operating expenses 126,445 110,090 16,355 372,429 311,769 60,660 Operating income $ 13,447 $ 14,647 $ (1,200) $ 39,928 $ 42,380 $ (2,452) Operating margin 9.6 % 11.7 % 9.7 % 12.0 % Depreciation and amortization $ 11,040 $ 11,049 $ (9) $ 32,844 $ 30,130 $ 2,714 Key Indicators: Merchant bankcard processing dollar value $ 15,098,450 $ 13,830,550 $ 1,267,900 $ 44,577,857 $ 39,602,577 $ 4,975,280 Merchant bankcard transaction volume 165,796 153,053 12,743 476,084 431,369 44,715 Revenue Revenue from our SMB Payments segment was $139.9 million for the three months ended September 30, 2022, compared to $124.7 million for the three months ended September 30, 2021. The increase of $15.2 million, or 12.2%, was primarily driven by increased merchant bankcard volume. The Company's revenue from the SMB Payments segment as a percentage of merchant bankcard processing dollar value during 2022 increased to 0.92% from 0.90% during 2021. The increase was primarily driven by increased volume (transaction count) related fees revenues and changes in the merchant mix. Revenue from our SMB Payments segment was $412.4 million for the nine months ended September 30, 2022, compared to $354.1 million for the nine months ended September 30, 2021. The increase of $58.3 million, or 16.5%, was primarily driven by increased merchant bankcard volume and an increase in certain fee-based revenue. The Company's revenue from the SMB Payments segment as a percentage of merchant bankcard processing dollar value during 2022 increased to 0.92% from 0.89% during 2021. The increase was primarily driven by an increase in other fees revenues and changes in the merchant mix. Operating Income Operating income from our SMB Payments segment was $13.4 million for the three months ended September 30, 2022, compared to $14.6 million for the three months ended September 30, 2021. The decrease of $1.2 million, or 8.2%, was primarily driven by mix-related margin compression, a $1.7 million increase in salary and employee benefits due to higher headcount, higher stock-based compensation and pay raises, a $0.7 million increase in selling, general and administrative expenses driven by higher travel and other operating costs and a $0.1 million increase in depreciation and amortization, offset by an increase in operating income from higher revenue. The increase in headcount and selling, general and administrative expenses are mainly attributable to growth initiatives. Operating income from our SMB Payments segment was $39.9 million for the nine months ended September 30, 2022, compared to $42.4 million for the nine months ended September 30, 2021. The decrease of $2.5 million, or 5.9%, was primarily driven by mix related margin compression, a $5.3 million increase in salary and employee benefits due to higher headcount, higher stock-based compensation and annual pay raises, a $2.3 million increase in selling, general and administrative expenses driven by higher software and travel and other operating costs and a $2.7 million increase in depreciation and amortization offset by an increase in operating income from higher revenue. The increase in headcount and selling, general and administrative expenses are mainly attributable to growth initiatives. Depreciation and Amortization Depreciation and amortization expense from our SMB Payments segment was $11.0 million for the three months ended September 30, 2022, compared to $11.0 million for the three months ended September 30, 2021. Depreciation and amortization expense from our SMB Payments segment was $32.8 million for the nine months ended September 30, 2022, compared to $30.1 million for the nine months ended September 30, 2021. The increase of $2.7 million 33 Table of Contents was primarily driven by the amortization of acquired intangibles resulting from the C&H and Wholesale Payments, Inc. acquisitions. B2B Payments (in thousands) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 $ Change 2022 2021 $ Change Revenue $ 4,868 $ 4,181 $ 687 $ 16,088 $ 11,722 $ 4,366 Operating expenses 4,651 4,210 441 14,799 12,139 2,660 Operating income (loss) $ 217 $ (29) $ 246 $ 1,289 $ (417) $ 1,706 Operating margin 4.5 % (0.7) % 8.0 % (3.6) % Depreciation and amortization $ 295 $ 73 $ 222 $ 441 $ 220 $ 221 Key Indicators: Merchant bankcard processing dollar value $ 116,348 $ 87,116 $ 29,232 $ 380,217 $ 226,056 $ 154,161 Merchant bankcard transaction volume 63 55 8 239 143 96 Revenue Revenue from our B2B Payments segment was $4.9 million for the three months ended September 30, 2022, compared to $4.2 million for the three months ended September 30, 2021. The increase of $0.7 million, or 16.7%, was primarily driven by an increase of $1.1 million in the CPX business, of which $0.5 million is related to volume growth, and the remaining increase of $0.6 million is from the recognition of certain revenues for which recovery became probable during the current quarter. This increase was offset by a decrease of $0.4 million driven by wind down of certain customer programs in managed services business. Revenue from our B2B Payments segment was $16.1 million for the nine months ended September 30, 2022, compared to $11.7 million for the nine months ended September 30, 2021. The increase of $4.4 million, or 37.6%, was primarily driven by an increase of $0.8 million, during the first six months of 2022, as a result of the acceleration of certain programs in the managed services business operations that were scaled back in 2021 as a result of the COVID-19 pandemic, an increase of $3.6 million in the CPX business, of which $2.0 million is related to volume growth, and the remaining increase of $1.6 million is from the recognition of certain revenues for which recovery became probable. Operating Income (Loss) Operating income from our B2B Payments segment was $0.2 million for the three months ended September 30, 2022, compared to a loss of $29 thousand for the three months ended September 30, 2021. The increase was primarily attributable to increases in revenue. Operating income from our B2B Payments segment was $1.3 million for the nine months ended September 30, 2022. compared to an operating loss of $0.4 million for the nine months ended September 30, 2021. The increase of $1.7 million was primarily attributable to increases in revenue. 34 Table of Contents Enterprise Payments (in thousands) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 $ Change 2022 2021 $ Change Revenue $ 21,657 $ 3,624 $ 18,033 $ 57,641 $ 4,982 $ 52,659 Operating expenses 12,345 2,395 9,950 38,137 3,418 34,719 Operating income $ 9,312 $ 1,229 $ 8,083 $ 19,504 $ 1,564 $ 17,940 Operating margin 43.0 % 33.9 % 33.8 % 31.4 % Depreciation and amortization $ 6,203 $ 939 $ 5,264 $ 18,599 $ 939 $ 17,660 Key Indicators: Merchant bankcard processing dollar value $ 585,382 $ 23 $ 585,359 $ 1,189,034 $ 23 $ 1,189,011 Merchant bankcard transaction volume 808 — 808 2,023 — 2,023 Average billed clients 387,384 342,789 44,595 363,993 349,595 14,398 Revenue Revenue from our Enterprise Payments segment was $21.7 million for the three months ended September 30, 2022, compared to $3.6 million for the three months ended September 30, 2021. The increase of $18.1 million was primarily driven by revenues contributed by the Finxera business acquired in September 2021. Revenue from our Enterprise Payments segment was $57.6 million for the nine months ended September 30, 2022, compared to $5.0 million for the nine months ended September 30, 2021. The increase of $52.6 million was primarily driven by revenues contributed by the Finxera business acquired in September 2021. Operating Income Operating income from our Enterprise Payments segment was $9.3 million for the three months ended September 30, 2022, compared to $1.2 million for the three months ended September 30, 2021. The increase of $8.1 million was primarily driven by operating income contributed by the Finxera business acquired in September 2021. Operating income from our Enterprise Payments segment was $19.5 million for the nine months ended September 30, 2022, compared to $1.6 million for the nine months ended September 30, 2021. The increase of $17.9 million was primarily driven by operating income contributed by the Finxera business acquired in September 2021. Depreciation and Amortization Depreciation and amortization expense from our Enterprise Payments segment was $6.2 million for the three months ended September 30, 2022, compared to $0.9 million depreciation and expense for the three months ended September 30, 2021. The increase of $5.3 million was primarily driven by the amortization of acquired intangibles resulting from the Finxera acquisition in September 2021. Depreciation and amortization from our Enterprise Payments segment was $18.6 million for the nine months ended September 30, 2022, compared to $0.9 million depreciation and amortization expense for the nine months ended September 30, 2021. The increase of $17.7 million was primarily driven by the amortization of acquired intangibles resulting from the Finxera acquisition in September 2021. Critical Accounting Policies and Estimates Our Unaudited Consolidated Financial Statements have been prepared in accordance with GAAP for interim periods, which often require the judgment of management in the selection and application of certain accounting principles and methods. Our 35 Table of Contents critical accounting policies and estimates are discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2021. There have been no material changes to these critical accounting policies and estimates as of September 30, 2022. Liquidity and Capital Resources Liquidity and capital resource management is a process focused on providing the funding we need to meet our short-term and long-term cash and working capital needs. We have used our funding sources to build our merchant portfolio, for technology solutions and to make acquisitions with the expectation that such investments will generate cash flows sufficient to cover our working capital and other anticipated needs, including our acquisition strategy. We anticipate that cash on hand, funds generated from operations and available borrowings under our revolving credit facility are sufficient to meet our working capital requirements for at least the next 12 months. 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. As of September 30, 2022, 1,005,918 shares were repurchased under the plan, with a total purchase price of $4.2 million. Average price per share was $4.20 and there were approximately 1.0 million shares available for repurchase under the plan. Our principal uses of cash are to fund business operations and administrative costs, and to service our debt. Our working capital, defined as current assets less current liabilities, was $18.6 million at September 30, 2022 and $19.6 million at December 31, 2021. As of September 30, 2022, we had cash totaling $12.7 million compared to $20.3 million at December 31, 2021. These cash balances do not include restricted cash of $11.6 million and $28.9 million at September 30, 2022 and December 31, 2021, respectively, which reflects cash accounts holding customer settlement funds and cash reserves for potential losses. The current portion of long-term debt included in current liabilities was $6.2 million at September 30, 2022 and December 31, 2021. At September 30, 2022, we had availability of approximately $34.0 million under our revolving credit facility. The following table and discussion reflect our changes in cash flows for the comparative nine month periods. Nine Months Ended September 30, (in thousands) 2022 2021 Net cash provided by (used in): Operating activities $ 50,558 $ (2,567) Investing activities (21,095) (462,878) Financing activities (8,099) 871,010 Net increase in cash and cash equivalents and restricted cash $ 21,364 $ 405,565 Cash Provided by (Used in) Operating Activities Net cash provided by operating activities was $50.6 million for the nine months ended September 30, 2022 compared to $2.6 million of net cash used in operating activities for the nine months ended September 30, 2021. The $53.2 million increase in 2022 was primarily driven by the PIK interest upon the refinancing of our credit facilities in April 2021 and cash generated from the operations of the Company, offset by changes in operating assets and liabilities. Cash Used in Investing Activities Net cash used in investing activities was $21.1 million and $462.9 million for the nine months ended September 30, 2022 and 2021, respectively. For the nine months ended September 30, 2022, net cash used in investing activities included $3.3 million 36 Table of Contents related to the funding of new loans to ISOs, additions to property, equipment and software of $11.4 million, and acquisitions of intangible assets of $6.7 million. For the nine months ended September 30, 2021, net cash used in investing activities included $48.2 million of cash used to fund acquisitions of intangible assets, $407.1 million of net cash used for the acquisition of businesses and $7.5 million of cash used to acquire property, equipment and software. Cash (Used in) Provided by Financing Activities Net cash used in financing activities was $8.1 million for the nine months ended September 30, 2022, compared to $871.0 million of cash provided by financing activities for the nine months ended September 30, 2021. The net cash provided by financing activities for the nine months ended September 30, 2022 included changes in the net obligations for funds held on the behalf of customers of $25.7 million and $23.0 million related to additional borrowings under the revolving credit facility, offset by $36.7 million of cash used for the repayment of debt, $11.5 million of cash dividends paid to redeemable senior preferred stockholders, $4.7 million of cash used for stock repurchases, including a portion related to shares withheld for taxes, and $4.0 million of payments of contingent consideration for business combinations and asset acquisitions. The net cash provided by financing activities for the nine months ended September 30, 2021 included $598.2 million of cash proceeds from the issuance of long-term debt, net of debt issuance and modification costs, $211.0 million of proceeds from the issuance of the redeemable senior preferred stock, net of issuance fees and costs, and $30.0 million related to borrowings under the revolving credit facility, offset by $359.9 million of cash used for the repayment of debt, $396.3 million of cash provided by related to changes in the net obligations for funds held on behalf of customers, and $4.0 million of cash dividends paid to the redeemable senior preferred stockholders. Long-term Debt As of September 30, 2022, we had outstanding debt obligations, including the current portion and net of unamortized debt discount of $599.3 million, compared to $610.3 million at December 31, 2021, resulting in a decrease of $11.0 million. The debt balance at September 30, 2022 consisted of $612.3 million outstanding under the term facility and $6.0 million outstanding under the revolving credit facility, offset by $19.0 million of unamortized debt discounts and issuance costs. Minimum amortization of the term facility are equal quarterly installments in aggregate annual amounts equal to 1.0% of the original principal, with the balance paid upon maturity. The term facility matures in April 2027 and the revolving credit facility expires in April 2026. The Credit Agreement contains representations and warranties, financial and collateral requirements, mandatory payment events, events of default and affirmative and negative covenants, including without limitation, covenants that restrict among other things, the ability to create liens, pay dividends or distribute assets from the loan parties to the Company, merge or consolidate, dispose of assets, incur additional indebtedness, make certain investments or acquisitions, enter into certain transactions (including with affiliates) and to enter into certain leases. If the aggregate principal amount of outstanding revolving loans and letters of credit under the Credit Agreement exceeds 35% of the total revolving credit facility thereunder, the loan parties are required to comply with certain restrictions on its Total Net Leverage Ratio. If applicable, the maximum permitted Total Net Leverage Ratio is: 1) 6.50:1.00 at each fiscal quarter ended September 30, 2021 through June 30, 2022; 2) 6.00:1.00 at each fiscal quarter ended September 30, 2022 through June 30, 2023; and 3) 5.50:1.00 at each fiscal quarter ended September 30, 2023 each fiscal quarter thereafter. As of September 30, 2022, the Total Net Leverage Ratio was not applicable and the Company was in compliance with our financial covenants. Effect of New Accounting Pronouncements and Recently Issued Accounting Pronouncements Not Yet Adopted From time to time, new accounting pronouncements are issued by the FASB or other standards setting bodies that may affect our current and/or future financial statements. See Note 1, Basis of Presentation and Significant Accounting Policies , to our Unaudited Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, for a discussion of recently issued accounting pronouncements not yet adopted. 37 Table of Contents Item 3. Quantitative and Qualitative Disclosures About Market Risk For quantitative and qualitative disclosures about market risk, see Item 7A, "Quantitative and Qualitative Disclosures About Market Risk," of our Annual Report on Form 10-K for the year ended December 31, 2021. Our exposures to market risk have not changed materially since December 31, 2021.