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Item 2. Management’s Discussion and Analysis

2023-05-11 compared with 2022-11-10 · 90 added, 172 removed, 123 unchanged (68% of the section changed)

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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, 2022.

Certain amounts in this section may not add mathematically due to rounding.

Cautionary Note Regarding Forward-looking Statements

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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;

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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

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 based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we 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.

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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.

This section includes certain components of our results of operations for the three months ended March 31, 2023, compared to the three months ended March 31, 2022.

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, 2022.

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

For the three months ended March 31, 2023, our consolidated revenue of $185.0 million increased by $31.8 million, or 20.8%, from $153.2 million for the three months ended March 31, 2022.

This overall increase was mainly driven by increased volumes across all segments.

The following table presents our revenues by type for the three months ended March 31, 2023 and 2022:

(in thousands) Three Months Ended March 31,

2023 2022 $ Change

Revenue Type:

Merchant card fees $ 149,644 $ 127,952 $ 21,692

Money transmission services revenue 18,291 2,873 15,418 51,757 2,873 48,884

Money transmission services 21,406 16,283 5,123

Outsourced services and other services 11,005 7,097 3,908

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Total revenues $ 185,028 $ 153,239 $ 31,789

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.

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

For the three months ended March 31, 2023, our merchant card fees revenue of $149.6 million increased by $21.7 million, or 17.0%, from $128.0 million for the three months ended March 31, 2022.

This increase was primarily driven by an increase in the merchant bankcard volume processed by the Company.

Money transmission services of $21.4 million increased by $5.1 million, or 31.3%, from $16.3 million for the three months ended March 31, 2022.

This increase was primarily driven by an increase in customer enrollments.

Outsourced services and other services revenue of $11.0 million for the three months ended March 31, 2023 increased by $3.9 million, or 54.9%, from $7.1 million for the three months ended March 31, 2022, primarily due to growth in revenue from AP automation solutions, increased volumes in the card issuing business and growth in interest income due to higher interest rates and deposit balances offset by decreased managed services revenue due to wind down of certain programs.

Equipment revenue of $3.0 million for the three months ended March 31, 2023 increased by $1.1 million, or 57.9%, from $1.9 million for the three months ended March 31, 2022.

The increase was primarily due to increased sales of point of sale equipment.

Operating expenses for three months ended March 31, 2023 and 2022 were as follows:

(in thousands) Three Months Ended March 31,

2023 2022 $ Change

Operating expenses

Cost of revenue (excludes depreciation and amortization) $ 107,958 $ 92,833 $ 15,125 $ 320,187 $ 264,527 $ 55,660

Cost of services (excludes depreciation and amortization) $ 121,966 $ 101,480 $ 20,486

Salary and employee benefits 19,048 16,077 2,971

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Total operating expenses $ 168,180 $ 142,413 $ 25,767

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.

Cost of services (excludes depreciation and amortization)

Cost of revenue (excludes depreciation and amortization) of $122.0 million for the three months ended March 31, 2023 increased by $20.5 million, or 20.2%, from $101.5 million for the three months ended March 31, 2022, primarily due to the corresponding increase in revenues.

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.

Salary and employee benefits expense of $19.0 million for the three months ended March 31, 2023 increased by $2.9 million, or 18.0%, from $16.1 million for the three months ended March 31, 2022, primarily due to pay raises, an increase in stock-based compensation and increased headcount to support 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.

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.

Depreciation and amortization expense of $18.0 million for the three months ended March 31, 2023 increased by $0.6 million, or 3.4%, from $17.4 million for the three months ended March 31, 2022, primarily due to the depreciation of capitalized internal use software.

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.

Selling, general and administrative expenses of $9.1 million for the three months ended March 31, 2023 increased by $1.6 million, or 21.3%, from $7.5 million for the three months ended March 31, 2022, primarily due to an increase in travel and other expenses to support overall growth of the Company.

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 expenses, net for three months ended March 31, 2023 and 2022 were as follows:

(in thousands) Three Months Ended March 31,

2023 2022 $ Change

Other (expense) income

Interest expense $ (17,699) $ (11,535) $ (6,164)

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

Other income, net 212 51 161

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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.

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

Interest expense of $17.7 million for the three months ended March 31, 2023 increased by $6.2 million, or 53.9%, from $11.5 million for the three months ended March 31, 2022, due to increased interest rates in the three months ended March 31, 2023.

Income tax benefit

Income tax benefit for three months ended March 31, 2023 and 2022 was as follows:

(in thousands) Three Months Ended March 31,

2023 2022 $ Change

Loss before income taxes $ (639) $ (658) $ 19

Income tax benefit $ (133) $ (325) $ 192

Effective tax rate 20.8 % 49.4 %

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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.

We do not expect the enactment of the IRA will have a material effect on our reported results, cash flows, or financial position.

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.

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)

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)

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.

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

2022 2021 $ Change 2022 2021 $ Change

(in thousands) Three Months Ended March 31,

2023 2022 $ Change

Revenue $ 154,933 $ 129,959 $ 24,974

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Merchant bankcard processing dollar value $ 15,220,715 $ 14,076,847 $ 1,143,868

Merchant bankcard transaction volume 165,796 153,053 12,743 476,084 431,369 44,715

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.

Merchant bankcard transaction count 163,406 145,948 17,458

Revenue from our SMB Payments segment was $154.9 million for the three months ended March 31, 2023, compared to $130.0 million for the three months ended March 31, 2022.

The increase of $24.9 million, or 19.2%, was primarily driven by increased merchant bankcard volume, accrual of certain incentives, offset by decrease in certain fee-based revenue.

The Company's revenue from the SMB Payments segment as a percentage of merchant bankcard processing dollar value during

2023 increased to 1.0% from 0.92% during 2022.

The increase was primarily driven by an increase in the incentive revenue 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.

Operating income from our SMB Payments segment was $12.0 million for the three months ended March 31, 2023, compared to $12.5 million for the three months ended March 31, 2022.

The decrease of $0.5 million, or 4.0%, was primarily driven by mix related margin compression, a $2.1 million increase in salary and employee benefits due to higher headcount, higher stock-based compensation and annual pay raises, and a $1.0 million increase in selling, general and administrative expenses driven by higher software and travel and other operating costs 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

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

acquisitions.

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

2022 2021 $ Change 2022 2021 $ Change

Depreciation and amortization expense of our SMB Payments segment was $10.8 million for the three months ended March 31, 2023, which is consistent with $10.8 million for the three months ended March 31, 2022.

(in thousands) Three Months Ended March 31,

2023 2022 $ Change

Revenue $ 2,786 $ 5,925 $ (3,139)

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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 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.

B2B issuing dollar volume $ 198,546 $ 186,380 $ 12,166

B2B issuing transaction count 280 206 74

Revenue from our B2B Payments segment was $2.8 million for the three months ended March 31, 2023, compared to $5.9 million for the three months ended March 31, 2022.

The decrease of $3.1 million, or 52.5%, was primarily driven by a decrease in managed services business due to wind down of certain programs and recognition of certain revenues during 2022 related to a contract termination.

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.

Operating loss from our B2B Payments segment was $0.8 million for the three months ended March 31, 2023 compared to an operating income of $0.4 million for the three months ended March 31, 2022.

The decrease of $1.2 million was primarily attributable to decreases in revenue.

Enterprise Payments

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

2022 2021 $ Change 2022 2021 $ Change

(in thousands) Three Months Ended March 31,

2023 2022 $ Change

Revenue $ 27,309 $ 17,355 $ 9,954

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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 465,219 346,394 118,825

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.

Average new enrollments 45,948 23,441 22,507

Revenue from our Enterprise Payments segment was $27.3 million for the three months ended March 31, 2023, compared to $17.4 million for the three months ended March 31, 2022.

The increase of $9.9 million or 56.9%, was primarily driven by an increase in customer enrollments, and growth in interest income due to higher interest rates and deposit balances.

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.

Operating income from our Enterprise Payments segment was $12.7 million for the three months ended March 31, 2023, compared to $4.5 million for the three months ended March 31, 2022.

The increase of $8.2 million or 182.2%, was primarily driven by increases in revenues.

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.

Depreciation and amortization from our Enterprise Payments segment was $6.7 million for the three months ended March 31, 2023, compared to $6.2 million depreciation and amortization expense for the three months ended March 31, 2022.

The increase of $0.5 million or 8.1%, was primarily driven by the amortization of additional capitalized internal use software and acquired intangibles.

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.

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.

Our critical accounting policies and estimates are discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2022.

There have been no material changes to these critical accounting policies and estimates as of March 31, 2023.

Liquidity and Capital Resources

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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.

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.

The Company did not repurchase any shares under the share repurchase program during the first quarter of 2023.

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,

Our working capital, defined as current assets less current liabilities, was $8.9 million at March 31, 2023 and $22.5 million at December 31, 2022.

As of March 31, 2023, we had cash totaling $15.9 million compared to $18.5 million at December 31, 2022.

These cash balances do not include restricted cash of $11.0 million and $10.6 million at March 31, 2023 and December 31, 2022, respectively, which reflects cash accounts holding customer settlement funds and cash reserves for potential losses.

The current portion of long-term debt included in current liabilities was $6.2 million at March 31, 2023 and December 31, 2022.

At March 31, 2023, we had availability of approximately $33.5 million under our revolving credit facility.

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

Three Months Ended March 31,

(in thousands) 2023 2022

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Net increase in cash and cash equivalents and restricted cash $ 77,631 $ 6,440

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 Provided by Operating Activities

Net cash provided by operating activities was $27.7 million for the three months ended March 31, 2023 compared to $9.6 million of net cash used in operating activities for the three months ended March 31, 2022.

The $18.1 million increase in 2023 was primarily driven by changes in the 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

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.

Net cash used in investing activities was $7.6 million and $5.7 million for the three months ended March 31, 2023 and 2022, respectively.

For the three months ended March 31, 2023, net cash used in investing activities included additions to property, equipment and software of $5.0 million, and acquisitions of intangible assets of $2.7 million offset by $0.2 million related to the net payments received on loans to ISOs.

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

Cash Provided by Financing Activities

Net cash used in financing activities was $57.5 million for the three months ended March 31, 2023, compared to $2.5 million of cash provided by financing activities for the three months ended March 31, 2022.

The net cash provided by financing activities for the three months ended March 31, 2023 included changes in the net obligations for funds held on the behalf of customers of $79.3 million, offset by $7.6 million of cash used for the repayment of debt, $11.4 million of cash dividends paid to redeemable senior preferred stockholders, $0.8 million of cash used for shares withheld for taxes, and $2.0 million of payments of contingent consideration for business combinations.

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

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.

As of March 31, 2023, we had outstanding debt obligations, including the current portion and net of unamortized debt discount of $598.5 million, compared to $605.1 million at December 31, 2022, resulting in a decrease of $6.6 million.

The debt balance at March 31, 2023 consisted of $609.2 million outstanding under the term facility and $6.5 million outstanding under the revolving credit facility, offset by $17.2 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.

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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.

As of March 31, 2023, the Total Net Leverage Ratio was not applicable and the Company was in compliance with the covenants in the Credit Agreement.

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

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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 2. Management’s Discussion and Analysis