What changed in this filing

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Item 1. Financial Statements

2023-08-10 compared with 2023-05-11 · 184 added, 107 removed, 491 unchanged (37% of the section changed)

Financial Statements

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Current assets:

30 unchanged sentences

250,000 shares authorized;

225,000 issued and outstanding at March 31, 2023 and December 31, 2022

225,000 issued and outstanding at June 30, 2023 and December 31, 2022

240,731 235,579

2 unchanged sentences

100,000,000 shares authorized;

none issued or outstanding at March 31, 2023 and December 31, 2022

none issued or outstanding at June 30, 2023 and December 31, 2022

Common Stock, $ 0.001 par value;

1,000,000,000 shares authorized;

78,902,459 and 78,385,685 shares issued at March 31, 2023 and December 31, 2022, respectively;

and 76,404,628 and 76,044,629 shares outstanding at March 31, 2023 and December 31, 2022, respectively

Treasury stock at cost, 2,497,831 and 2,341,056 shares at March 31, 2023 and December 31, 2022, respectively

79,094,150 and 78,385,685 shares issued at June 30, 2023 and December 31, 2022, respectively;

and 76,531,703 and 76,044,629 shares outstanding at June 30, 2023 and December 31, 2022, respectively

Treasury stock at cost, 2,562,447 and 2,341,056 shares at June 30, 2023 and December 31, 2022, respectively

( 12,577 ) ( 11,559 )

11 unchanged sentences

Three Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

Revenues $ 182,290 $ 166,430 $ 367,318 $ 319,669

10 unchanged sentences

Total other expense, net ( 17,390 ) ( 12,306 ) ( 34,877 ) ( 23,790 )

Loss before income taxes ( 639 ) ( 658 )

Income tax benefit ( 133 ) ( 325 )

Net loss ( 506 ) ( 333 )

Income before income taxes 1,743 754 1,104 96

Income tax expense 2,355 467 2,222 142

Net (loss) income ( 612 ) 287 ( 1,118 ) ( 46 )

Dividends and accretion attributable to redeemable senior preferred stockholders ( 11,765 ) ( 8,549 ) ( 23,060 ) ( 16,949 )

24 unchanged sentences

March 31, 2023 76,404 $ 76 2,498 $ ( 12,336 ) $ 328 $ 24 $ ( 102,714 ) $ ( 114,622 ) $ 852 $ ( 113,770 )

Equity-classified stock-based compensation — — — — 1,746 — — 1,746 — 1,746

ESPP compensation and vesting of stock-based compensation 192 — — — 43 — — 43 — 43

Shares withheld for taxes ( 65 ) — 65 ( 241 ) — — — ( 241 ) — ( 241 )

Dividends on redeemable senior preferred stock — — — — ( 10,934 ) — — ( 10,934 ) — ( 10,934 )

Accretion of redeemable senior preferred stock — — — — ( 831 ) — — ( 831 ) — ( 831 )

Foreign currency translation adjustment — — — — — 7 — 7 — 7

Reclassification of negative additional paid-in capital — — — — 9,648 — ( 9,648 ) — — —

Net loss — — — — — — ( 612 ) ( 612 ) — ( 612 )

June 30, 2023 76,531 $ 76 2,563 $ ( 12,577 ) $ — $ 31 $ ( 112,974 ) $ ( 125,444 ) $ 852 $ ( 124,592 )

Priority Technology Holdings, Inc .

Unaudited Consolidated Statements of Changes in Stockholders' Deficit and Non-Controlling Interest

(in thousands)

Stock Treasury

9 unchanged sentences

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

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

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

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

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

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

Net income — — — — — — 287 287 — 287

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

See Notes to Unaudited Consolidated Financial Statements

2 unchanged sentences

(in thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Cash flows from operating activities:

23 unchanged sentences

Repayments of long-term debt ( 3,525 ) ( 3,100 )

Borrowings under revolving credit facility 5,000 12,000

Repayments of borrowings under revolving credit facility ( 12,000 ) ( 12,500 )

Shares withheld for taxes on vested stock-based compensation ( 777 ) ( 156 )

Repurchases of common stock and shares withheld for taxes ( 1,018 ) ( 2,079 )

Dividends paid to redeemable senior preferred stockholders ( 17,908 ) ( 7,076 )

6 unchanged sentences

Cash and cash equivalents, and restricted cash equivalents at end of period $ 738,523 $ 536,254

Table of Cont ents

Priority Technology Holdings, Inc .

1 unchanged sentence

(in thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Reconciliation of cash and cash equivalents, and restricted cash:

7 unchanged sentences

Non-cash investing and financing activities:

Contingent consideration accrual $ — $ 4,141

Adjustment to value of profit interest units $ 596 $ —

Acquisition of intangible asset $ 193 $ —

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

See Notes to Unaudited Consolidated Financial Statements

Tab le of Contents

Priority Technology Holdings, Inc.

13 unchanged sentences

Changes in the Company's ownership interest while the Company retains its controlling interest are accounted for as equity transactions.

As of March 31, 2023, there was no income or loss attributable to NCI in accordance with the applicable operating agreements.

As of June 30, 2023, there was no income or loss attributable to NCI in accordance with the applicable operating agreements.

In the opinion of the Company's management, all known adjustments necessary for a fair presentation of the Unaudited Consolidated Financial Statements for interim periods have been made.

22 unchanged sentences

The Company adopted ASU 2016-13 effective January 1, 2023 using the modified-retrospective approach.

The implementation of ASU 2016-13 did not have a material impact on the Company's unaudited consolidated financial condition and results of operations.

The implementation of ASU 2016-13 did not have a material impact on the Company's Unaudited Consolidated Financial Statements.

Additionally, the Company modified its accounting policy to conform with the requirements of the adoption of this standard.

Recently Issued Accounting Standards Pending Adoption

Reference Rate Reform

In March 2020, the FASB issued ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting , which provides temporary optional expedients and exceptions to the GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from the LIBOR and other interbank offered rates to alternative reference rates, such as the SOFR.

If certain criteria are met, entities can elect not to apply certain modification accounting requirements to contracts affected by what the guidance calls reference rate reform.

An entity that makes this election would not have to remeasure the contract at the modification date or reassess a previous accounting determination.

In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848), Scope ASU 2021-01, which clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition.

ASU 2022-06, Reference Rate Reform (Topic 848):

Deferral of the Sunset Date of Topic 848, amended ASU 2020-04, deferring the sunset date of Topic 848 to December 31, 2024.

The Company will adopt Topic 848 when relevant contracts are modified upon transition to alternative reference rates.

The Company does not expect the adoption of Topic 848 to have a material impact on the Company's Consolidated Financial Statements.

The Company adopted the optional expedients of Topic 848 on June 30, 2023 upon the amendments of its Credit Agreement (see Note 8.

Debt Obligations ) and the Certificate of Designation (see Note 9.

Redeemable Senior Preferred Stock and Warrants ), which transitioned the Company's reference rates from LIBOR to SOFR.

The adoption of this standard did not have a material impact on the Company's Unaudited Consolidated Financial Statements.

Ovvi Acquisition

9 unchanged sentences

Total purchase consideration 5,026

Fair value of class B shares issued in Ovvi (3)

Fair value of class B shares issued in Ovvi (NCI) (3)

Total enterprise value of business acquired (3)

15 unchanged sentences

Disaggregation of Revenues

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

Three Months Ended March 31,

The following table presents a disaggregation of our consolidated revenues by type for the three and six months ended June 30, 2023 and 2022:

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

(in thousands) 2023 2022 2023 2022

8 unchanged sentences

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

(2) Approximately $ 5.0 million and $ 0.6 million of interest income for the three months ended March 31, 2023 and 2022, respectively, is included in outsourced services and other services revenue in the table above.

Approximately $ 0.2 million and $ 0.1 million of interest income for the three months ended March 31, 2023, and 2022, respectively, is included in other income, net on the Company's Unaudited Consolidated Statements of Operations and Comprehensive Loss and not reflected in the table above.

(2) Approximately $ 7.2 million and $ 12.2 million of interest income for the three and six months ended June 30, 2023 and $ 0.8 million and $ 1.4 million 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 $ 0.3 million and $ 0.6 million of interest income for the three and six months ended June 30, 2023, and $ 0.1 million and $ 0.2 million three and six months ended June 30, 2022, respectively, is included in other income, net on the Company's Unaudited Consolidated Statements of Operations and Comprehensive Loss and not reflected in the table above.

The following table presents a disaggregation of our consolidated revenues by segment:

Three months ended March 31, 2023

Three Months Ended June 30, 2023

(in thousands) Merchant Card Fees Money Transmission Services Outsourced and Other Services Equipment Total

3 unchanged sentences

Total revenues $ 144,524 $ 23,718 $ 10,582 $ 3,466 $ 182,290

Three Months Ended March 31, 2022

Six months ended June 30, 2023

(in thousands) Merchant Card Fees Money Transmission Services Outsourced and Other Services Equipment Total

3 unchanged sentences

Total revenues $ 294,168 $ 45,124 $ 21,587 $ 6,439 $ 367,318

Deferred revenues were not material for the three months ended March 31, 2023 and 2022.

Three Months Ended June 30, 2022

(in thousands) Merchant Card Fees Money Transmission Services Outsourced and Other Services Equipment Total

SMB Payments $ 139,163 $ — $ 776 $ 2,567 $ 142,506

B2B Payments 630 — 4,665 — 5,295

Enterprise Payments — 17,183 1,446 — 18,629

Total revenues $ 139,793 $ 17,183 $ 6,887 $ 2,567 $ 166,430

Six Months Ended June 30, 2022

(in thousands) Merchant Card Fees Money Transmission Services Outsourced and Other Services Equipment Total

SMB Payments $ 266,550 $ — $ 1,441 $ 4,474 $ 272,465

B2B Payments 1,195 — 10,025 — 11,220

Enterprise Payments — 33,466 2,518 — 35,984

Total revenues $ 267,745 $ 33,466 $ 13,984 $ 4,474 $ 319,669

Deferred revenues were not material for the three and six months ended June 30, 2023 and 2022.

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.

Contract liabilities were $ 0.6 million and $ 0.2 million as of March 31, 2023 and December 31, 2022, respectively.

Contract liabilities were $ 0.5 million and $ 0.2 million as of June 30, 2023 and December 31, 2022, respectively.

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

Net contract assets and net contract liabilities 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 months ended March 31, 2023 and March 31, 2022.

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, 2023 and June 30, 2022.

Settlement Assets and Customer/Subscriber Account Balances and Related Obligations

4 unchanged sentences

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

Member banks held merchant funds of $ 107.0 million and $ 110.3 million at March 31, 2023 and December 31, 2022, respectively.

Member banks held merchant funds of $ 97.2 million and $ 110.3 million at June 30, 2023 and December 31, 2022, 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 and Comprehensive Loss.

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/subscriber account balances in the Company's Unaudited Consolidated Balance Sheets, with an offsetting reserve for those amounts the Company estimates it will not be able to recover.

Expenses for merchant losses for the three months ended March 31, 2023 and 2022 were $ 1.0 million and $ 1.1 million, respectively.

Expenses for merchant losses for the three and six months ended June 30, 2023 were $ 1.1 million and $ 2.1 million, respectively.

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

B2B Payments Segment

4 unchanged sentences

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

Bank-owned FBO accounts held funds of $ 66.6 million and $ 42.7 million at March 31, 2023 and December 31, 2022, respectively.

Company-owned bank accounts held $ 1.6 million and $ 1.8 million at March 31, 2023 and December 31, 2022, respectively, which are included in restricted cash and settlement and customer/subscriber account obligations in the Company's Unaudited Consolidated Balance Sheets.

Bank-owned FBO accounts held funds of $ 58.0 million and $ 42.7 million at June 30, 2023 and December 31, 2022, respectively.

Company-owned bank accounts held $ 2.0 million and $ 1.8 million at June 30, 2023 and December 31, 2022, respectively, which are included in restricted cash and settlement and customer/subscriber account obligations in the Company's Unaudited Consolidated Balance Sheets.

Enterprise Payments Segment

5 unchanged sentences

The nature of these balances are cash and cash equivalents, but they are not available for day-to-day operations of the Company.

Therefore, the Company has classified these balances as settlement assets and customer/subscriber

account balances and the related obligations as settlement and customer/subscriber account obligations in the Company's Unaudited Consolidated Balance Sheets.

Therefore, the Company has classified these balances as settlement assets and customer/subscriber account balances and the related obligations as settlement and customer/subscriber account obligations in the Company's Unaudited Consolidated Balance Sheets.

In certain states, the Company accepts deposits under agency arrangement with member banks wherein accepted deposits remain under the control of the member banks.

Therefore, the Company does not record assets for the deposits accepted and liabilities for the associated obligation.

Agency owned accounts held $ 7.1 million and $ 6.1 million at March 31, 2023 and December 31, 2022, respectively.

Agency owned accounts held $ 10.1 million and $ 6.1 million at June 30, 2023 and December 31, 2022, respectively.

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

(in thousands) March 31, 2023 December 31, 2022

(in thousands) June 30, 2023 December 31, 2022

Settlement Assets:

6 unchanged sentences

Subscriber account obligations 15,969 15,488

Total customer/subscriber account obligations 708,599 531,574

Due to customers' payees (1)

2 unchanged sentences

Notes Receivable

The Company had notes receivable of $ 4.6 million and $ 4.7 million as of March 31, 2023 and December 31, 2022, 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 15.4 % as of March 31, 2023 and December 31, 2022.

The Company had notes receivable of $ 5.5 million and $ 4.7 million as of June 30, 2023 and December 31, 2022, 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 18.1 % and 15.4 % as of June 30, 2023 and December 31, 2022.

The notes receivable are comprised of notes receivable from ISOs, and under the terms of the agreements the Company preserves the right to hold back residual payments due to the ISOs and to apply such residuals against future payments due to the Company.

As of March 31, 2023 and December 31, 2022, the Company had no allowance for doubtful notes receivable.

As of March 31, 2023, the principal payments for the Company's notes receivable are due as follows:

As of June 30, 2023 and December 31, 2022, the Company had no allowance for doubtful notes receivable.

As of June 30, 2023, the principal payments for the Company's notes receivable are due as follows:

(in thousands)

Twelve months ending March 31,

Twelve months ending June 30,

After 2027 123

Total $ 5,548

1 unchanged sentence

A summary of property, equipment and software, net was as follows:

(in thousands) March 31, 2023 December 31, 2022

(in thousands) June 30, 2023 December 31, 2022

Computer software $ 70,203 $ 64,197

6 unchanged sentences

Property, equipment and software, net $ 38,984 $ 34,687

Three Months Ended March 31,

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

(in thousands) 2023 2022 2023 2022

Depreciation expense $ 2,815 $ 2,311 $ 5,572 $ 4,537

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

Computer software represents purchased software and internally developed software that is used to provide the Company's services to its customers.

Goodwill and Other Intangible Assets

The Company's goodwill relates to the following reporting units was as follows:

(in thousands) March 31, 2023 December 31, 2022

(in thousands) June 30, 2023 December 31, 2022

SMB Payments $ 124,028 $ 124,625

1 unchanged sentence

Total $ 368,740 $ 369,337

The following table summarizes the changes in the carrying value of goodwill for the periods ended March 31, 2023 and December 31, 2022:

The following table summarizes the changes in the carrying value of goodwill:

(in thousands) Amount

1 unchanged sentence

Purchase price adjustment for Ovvi ( 597 )

Balance at March 31, 2023

As of March 31, 2023, the Company is not aware of any triggering events for impairment that have occurred since the last annual impairment test.

Balance at June 30, 2023

As of June 30, 2023, the Company is not aware of any triggering events for impairment that have occurred since the last annual impairment test.

Other Intangible Assets

Other intangible assets consisted of the following:

(in thousands, except weighted-average data) March 31, 2023 Weighted-average

Gross Carrying Value Accumulated Amortization Net Carrying Value

June 30, 2023 Weighted-average

(in thousands, except weighted-average data) Gross Carrying Value Accumulated Amortization Net Carrying Value

Other intangible assets:

10 unchanged sentences

(1) These assets have an indefinite useful life.

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

Gross Carrying Value Accumulated Amortization Net Carrying Value

December 31, 2022 Weighted-average

(in thousands, except weighted-average data) Gross Carrying Value Accumulated Amortization Net Carrying Value

Other intangible assets:

10 unchanged sentences

(1) These assets have an indefinite useful life.

Three Months Ended March 31,

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

(in thousands) 2023 2022 2023 2022

Amortization expense $ 15,165 $ 15,194 $ 30,456 $ 30,321

As of March 31, 2023, there were no impairment indicators present.

As of June 30, 2023, there were no impairment indicators present.

Debt Obligations

Outstanding debt obligations consisted of the following:

(in thousands) March 31, 2023 December 31, 2022

Term facility - matures April 27, 2027, interest rates of 10.70 % and 9.82 % at March 31, 2023 and December 31, 2022, respectively

(in thousands) June 30, 2023 December 31, 2022

Term facility - matures April 27, 2027, interest rates of 11.23 % (1) and 9.82 % at June 30, 2023 and December 31, 2022, respectively

$ 607,175 $ 610,700

Revolving credit facility - $ 40.0 million line, matures April 27, 2026, interest rates of 9.59 % and 8.82 % at March 31, 2023 and December 31, 2022, respectively

Revolving credit facility - $ 55.0 million line as of June 30, 2023 and $ 40.0 million as of December 31, 2022, matures April 27, 2026, interest rates of 9.94 % (2) and 8.82 % at June 30, 2023 and December 31, 2022, respectively

Total debt obligations 612,675 623,200

2 unchanged sentences

Long-term debt, net $ 589,932 $ 598,926

(1) Considering the last interest pricing date was May 26, 2023, this rate is calculated based on the three-month LIBOR and applicable margin.

(2) Considering the last interest pricing date was June 28, 2023, this rate is calculated based on the one-month LIBOR and applicable margin.

Interest Expense and Amortization of Deferred Loan Costs and Discounts

1 unchanged sentence

Unamortized deferred financing costs and debt discounts are included in long-term debt on the Company's Unaudited Consolidated Balance Sheets.

Outstanding borrowings under the Credit Agreement accrue interest using either a base rate or a LIBOR rate plus an applicable margin per year, subject to a LIBOR rate floor of 1.00 % per year.

The revolving credit facility incurs an unused commitment fee on any undrawn amount in an amount equal to 0.50 % per year of the unused portion.

The future applicable interest rate margins on the revolving credit facility 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 as follows:

Three Months Ended March 31,

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

(in thousands) 2023 2022 2023 2022

1 unchanged sentence

$ 17,765 $ 12,335 $ 35,464 $ 23,870

(1) Included in interest expense is $ 0.1 million and $ 0.0 million related to the accretion of contingent considerations from acquisitions for the three months ended March 31, 2023 and 2022, respectively.

Interest expense included amortization of deferred financing costs and debt discounts of $ 0.9 million and $ 0.8 million for the three months ended March 31, 2023, and 2022, respectively.

(1) Included in interest expense is $ 0.1 million and $ 0.2 million related to the accretion of contingent considerations from acquisitions for the three and six months ended June 30, 2023, respectively, $ 0.6 million and $ 0.6 million for the three and six months ended June 30, 2022, respectively.

(2) Interest expense included amortization of deferred financing costs and debt discounts of $ 0.9 million and $ 1.8 million for the three and six months ended June 30, 2023, respectively, and $ 0.9 million and $ 1.7 million for the three and six months ended June 30, 2022, respectively.

Third Amendment to the April 2021 Credit Agreement

On June 30, 2023, the Credit Agreement of the Company was amended to incorporate the following:

■ Reference rate :

The reference rate for the calculation of interest on the Company’s term loan and revolving credit facility was amended from LIBOR to SOFR effective June 30, 2023.

Per the amended terms, the outstanding borrowings under the Credit Agreement interest will accrue using the SOFR rate plus a term SOFR adjustment plus an applicable margin per year, subject to a SOFR floor of 1.00 % per year.

The applicable interest rate as of June 30, 2023, for the revolving credit facility based on one-month SOFR was 9.97 % and for the term facility based on three-month SOFR was 11.28 %.

■ Increase in the revolving credit facility:

The amendments also resulted in an increase in the Company’s revolving credit facility from $ 40 million to $ 65 million, with $ 10 million of this increase contingent upon closing of the acquisition of assets of Plastiq, Inc (See Note 17 .

Subsequent Events ).

As of June 30, 2023, the acquisition of assets of Plastiq, Inc.

had not closed.

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

As of June 30, 2023, the Total Net Leverage Ratio was not applicable and the Company was in compliance with the covenants in the Credit Agreement.

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 three months ended March 31, 2023:

The following table provides the redemption value of the redeemable senior preferred stock for the periods presented:

(in thousands) June 30, 2023 December 31, 2022

Redeemable senior preferred stock $ 225,000 $ 225,000

Accumulated unpaid dividend 34,342 25,498

Dividend payable — 5,341

Redemption value 259,342 255,839

unamortized discounts and issuance costs ( 18,611 ) ( 20,260 )

Redeemable senior preferred stock, net of discounts and issuance costs:

$ 240,731 $ 235,579

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

(in thousands) Shares Amount

2 unchanged sentences

Unpaid dividend on redeemable senior preferred stock — 4,383

Accretion of discounts and issuance cost — 818

Accretion of discounts and issuance costs — 818

March 31, 2023 225 235,439

The dividend rate for the redeemable senior preferred stock is equal to the three-month LIBOR rate (minimum of 1.00 %) plus an applicable margin of 12.00 % (capped at 22.50 %) per year, with a minimum quarterly cash dividend payment of 5.00 % plus the three-month LIBOR rate per year.

Unpaid dividend on redeemable senior preferred stock — 4,461

Accretion of discounts and issuance costs — 831

June 30, 2023 225 $ 240,731

At June 30, 2023, the dividend rate for the redeemable senior preferred stock was equal to the three-month LIBOR rate (minimum of 1.00 %) plus an applicable margin of 12.00 % (capped at 22.50 %) per year, with a minimum quarterly cash dividend payment of 5.00 % plus the three-month LIBOR rate per year.

The dividend rate is subject to future increases if the Company doesn't comply with the minimum cash payment requirements outlined in the agreement, which includes required payments of dividends, required payments related to redemption or required prepayments.

The dividend rate may also increase if the Company fails to obtain the required stockholder approval for a forced sale transaction triggered by investors or if an event of default as outlined in the agreement occurs.

The dividend rate as of March 31, 2023 and December 31, 2022, was 16.7 % and 15.7 % respectively.

The dividend rate may also increase

if the Company fails to obtain the required stockholder approval for a forced sale transaction triggered by investors or if an event of default as outlined in the agreement occurs.

The dividend rate as of June 30, 2023 and December 31, 2022, was 17.2 % and 15.7 % respectively.

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

Three Months Ended March 31,

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

(in thousands) 2023 2022 2023 2022

2 unchanged sentences

Dividends declared $ 10,934 $ 7,732 $ 21,411 $ 15,327

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 March 31, 2023, none of the warrants have been exercised.

In 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 June 30, 2023, 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 months ended March 31, 2023, was 20.8 %, compared to a consolidated effective income tax rate of 49.4 % for the three months ended March 31, 2022.

The effective rates 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.

On June 30, 2023, the Company amended the Certificate of Designation of its redeemable senior preferred stock to transition the reference rate used for the calculation of dividends from LIBOR to SOFR.

Under the Amended Certificate of Designation, the dividend rate (capped at 22.50 %) will be equal to the three-month term SOFR (minimum of 1 %), plus the three-month term SOFR spread adjustment of 0.26 % plus the applicable margin of 12 %.

All other terms in the agreement were unchanged.

The revised rate will be applicable to the LIBOR/SOFR reset date as of and after June 30, 2023.

For the three and six month period ended June 30, 2023, LIBOR continued to be the reference rate for calculation of the dividend.

The Company's consolidated effective income tax rate for the three and six months ended June 30, 2023, was 135.1 % and 201.3 %, respectively, compared to a consolidated effective income tax rate of 61.9 % and 147.9 % for the three and six months ended June 30, 2022, respectively.

The effective rates 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.

Valuation Allowance for Deferred Income Tax Assets

1 unchanged sentence

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

Based on management's assessment, as of March 31, 2023, the Company continues to record a full valuation allowance against non-deductible interest expense.

Based on management's assessment, as of June 30, 2023, 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.

1 unchanged sentence

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 Board of Directors.

As of March 31, 2023 and December 31, 2022 , the Company has not issued any shares of preferred stock.

As of June 30, 2023 and December 31, 2022, the Company has not issued any shares of preferred stock.

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.

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

March 31, 2023 December 31, 2022

The Company has not repurchased any shares under the share repurchase program for the three and six months ended June 30, 2023.

June 30, 2023 December 31, 2022

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

4 unchanged sentences

Stock-based Compensation

For the three months ended March 31, 2023 and 2022, stock-based compensation expense was as follows:

Three Months Ended March 31,

For the three and six months ended June 30, 2023 and 2022, stock-based compensation expense was as follows:

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

(in thousands) 2023 2022 2023 2022

Stock-based compensation expense $ 1,746 $ 1,542 3,682 $ 3,100

Income tax benefit for stock-based compensation was immaterial for the three months ended March 31, 2023 and 2022.

Income tax benefit for stock-based compensation was immaterial for the three and six months ended June 30, 2023 and 2022.

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 months ended March 31, 2023, was immaterial and is included in stock-based compensation in the table above.

The compensation expense for the three and six months ended June 30, 2023, was immaterial and is included in stock-based compensation in the table above.

Commitments and Contingencies

1 unchanged sentence

The Company has multi-year agreements with third parties to provide certain payment processing services to the Company.

The Company pays processing fees under these agreements that are based on the volume and dollar amounts of processed payment transactions.

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

The Company pays processing fees under these agreements.

Based on existing contracts in place, the Company is committed to pay minimum processing fees under these agreements of approximately $ 19.3 million in 2023 and $ 22.0 million in 2024.

3 unchanged sentences

Capital Commitments

The Company committed to capital contributions to fund the operations of certain subsidiaries totaling $ 26.0 million and $ 22.0 million as March 31, 2023 and December 31, 2022 , respectively.

The Company committed to capital contributions to fund the operations of certain subsidiaries totaling $ 26.0 million and $ 22.0 million as June 30, 2023 and December 31, 2022, respectively.

The Company is obligated to make the contributions within 10 business days of receiving notice for such contribution from the subsidiary.

As of March 31, 2023 and December 31, 2022, the Company has contributed $ 7.1 million and $ 6.9 million, respectively.

As of June 30, 2023 and December 31, 2022, the Company has contributed $ 10.2 million and $ 6.9 million, respectively.

Merchant Reserves

1 unchanged sentence

The Company received an invoice of $ 2.7 million in March 2023 from one of the partner banks related to certain services rendered during Q1 2022.

Of the invoiced amount, $ 2.3 million was disputed with the partner bank and further review is in

Pending completion of the review, the Company is unable to estimate the amount of liability and therefore an accrual related to this item has not been recorded as of March 31, 2023.

Of the invoiced amount, $ 2.3 million was disputed with the partner bank.

During the three months ended June 30, 2023, the dispute was resolved wherein the Company received a revised invoice of $ 1.0 million and granted certain future price concessions to the vendor.

The revised invoice of $ 1.0 million was recorded during the three months ended June 30, 2023 and the price concession of approximately $ 1.3 million, will be recorded as costs in the future periods when the related revenue is recognized.

Contingent Consideration

7 unchanged sentences

March 31, 2023 6,349

Addition of contingent consideration due to resolution of contingency 7,000

Adjustment for receivable due to residual shortfall ( 2,053 )

Accretion of discount on contingent consideration 117

June 30, 2023 $ 11,413

Legal Proceedings

6 unchanged sentences

Because the Company is not a member bank, in order to process these bankcard transactions, the Company maintains sponsorship agreements with member banks which require, among other things, that the Company abide by the by-laws and regulations of the card associations.

The Company's settlement assets and customer /subscriber account balances of $ 708.6 million includes cash and cash equivalents of $ 692.6 million related to customer account balances which are maintained in FDIC insured accounts with certain FIs.

A majority of the Company's cash and restricted cash is held in certain FIs, substantially all of which is in excess of FDIC limits.

4 unchanged sentences

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

(in thousands) Fair Value Hierarchy March 31, 2023 December 31, 2022

(in thousands) Fair Value Hierarchy June 30, 2023 December 31, 2022

Contingent consideration, current portion Level 3 $ 9,413 $ 6,079

1 unchanged sentence

Total contingent consideration $ 11,413 $ 8,079

During the three months ended March 31, 2023, there were no transfers into, out of, or between levels of the fair value hierarchy.

During the three and six months ended June 30, 2023, there were no transfers into, out of, or between levels of the fair value hierarchy.

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 $ 4.6 million and $ 4.7 million at March 31, 2023 and December 31, 2022, respectively.

The carrying value of the Company's notes receivable, net approximates fair value and was approximately $ 5.5 million and $ 4.7 million at June 30, 2023 and December 31, 2022, respectively.

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

2 unchanged sentences

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 $ 604.6 million and $ 606.1 million at March 31, 2023 and December 31, 2022, 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 term facility was estimated to be $ 604.1 million and $ 606.1 million at June 30, 2023 and December 31, 2022, 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.

2 unchanged sentences

• SMB Payments – provides full-service acquiring and payment-enabled solutions for B2C transactions, leveraging the Company's proprietary software platform, distributed through ISOs, direct sales and vertically focused ISV channels.

• B2B Payments – provides AP automation solutions to corporations, software partners and FIs, including Citi and Mastercard.

• B2B Payments – provides AP automation solutions to corporations, software partners and FIs.

• Enterprise Payments – provides embedded payment and banking solutions to enterprise customers that modernize legacy platforms and accelerate modern software partners looking to monetize payments.

1 unchanged sentence

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

(in thousands) Three Months Ended March 31,

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

2023 2022 2023 2022

SMB Payments $ 147,895 $ 142,506 $ 302,828 $ 272,465

14 unchanged sentences

Consolidated operating income $ 19,133 $ 13,060 $ 35,981 $ 23,886

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

(in thousands) Three Months Ended March 31,

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

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

2023 2022 2023 2022

Total operating income of reportable segments $ 27,602 $ 20,356 $ 51,427 $ 37,745

2 unchanged sentences

Other income, net 375 29 587 80

Income tax benefit 133 325

Net loss $ ( 506 ) $ ( 333 )

Income tax benefit (expense) ( 2,355 ) ( 467 ) ( 2,222 ) ( 142 )

Net (loss) income $ ( 612 ) $ 287 $ ( 1,118 ) $ ( 46 )

Loss per Common Share

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

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

Net loss $ ( 506 ) $ ( 333 )

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

(in thousands except per share amounts) 2023 2022 2023 2022

Net (loss) income $ ( 612 ) $ 287 $ ( 1,118 ) $ ( 46 )

Dividends and accretion attributable to redeemable senior preferred stockholders ( 11,765 ) ( 8,549 ) ( 23,060 ) ( 16,949 )

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:

Three Months Ended March 31,

Six Months Ended June 30,

(in thousands) 2023 2022

7 unchanged sentences

(3) Granted under the 2018 Plan.

Subsequent Events

On May 23, 2023, PRTH’s indirect subsidiary, Plastiq, Powered by Priority, LLC (the "acquiring entity"), entered into a stalking horse equity and asset purchase agreement (the "Purchase Agreement") with Plastiq, Inc.

and certain of its affiliates ("Plastiq") to acquire substantially all of the assets of Plastiq, including the equity interest in Plastiq Canada, Inc.

Plastiq is a B2B payments platform offering bill pay and instant access to working capital to SMBs.

On May 24, 2023, Plastiq filed voluntary petitions for relief under Chapter 11 of Title 11 of the United States Code in the United States Bankruptcy Court for the District of Delaware.

The purchase was completed on July 31, 2023 for a total purchase consideration of approximately $ 43.8 million.

The total purchase consideration included $ 28.5 million in cash and the remaining consideration is in the nature of deferred or contingent consideration and certain equity interest in the acquiring entity.

The cash consideration for the purchase was funded by borrowings from the Company's revolving credit facility.

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