Priority Technology Holdings, Inc. 10-Q

Item 1. Financial Statements June 30, 2023 December 31, 2022 Assets Current assets: Cash and cash equivalents $ 17,567 $ 18,454 Restricted cash 12,357 10,582 Accounts receivable, net of allowances of $ 1,227 and $ 1,143 , respectively 60,130 78,113 Prepaid expenses and other current assets 14,608 11,832 Current portion of notes receivable, net of allowance of $ 0 and $ 0 , respectively 2,530 1,471 Settlement assets and customer/subscriber account balances 710,705 532,018 Total current assets 817,897 652,470 Notes receivable, less current portion 3,018 3,191 Property, equipment and software, net 38,984 34,687 Goodwill 368,740 369,337 Intangible assets, net 269,428 288,794 Deferred income taxes, net 26,066 16,447 Other noncurrent assets 8,147 8,437 Total assets $ 1,532,280 $ 1,373,363 Liabilities, Redeemable Senior Preferred Stock and Stockholders' Deficit Current liabilities: Accounts payable and accrued expenses $ 59,839 $ 51,864 Accrued residual commissions 34,614 35,979 Customer deposits and advance payments 3,253 2,618 Current portion of long-term debt 6,200 6,200 Settlement and customer/subscriber account obligations 710,551 533,340 Total current liabilities 814,457 630,001 Long-term debt, net of current portion, discounts and debt issuance costs 589,932 598,926 Other noncurrent liabilities 11,752 11,643 Total noncurrent liabilities 601,684 610,569 Total liabilities 1,416,141 1,240,570 Commitments and contingencies ( Note 13 ) Redeemable senior preferred stock, net of discounts and issuance costs: Redeemable senior preferred stock, $ 0.001 par value; 250,000 shares authorized; 225,000 issued and outstanding at June 30, 2023 and December 31, 2022 240,731 235,579 Stockholders' deficit: Preferred stock, $ 0.001 ; 100,000,000 shares authorized; none issued or outstanding at June 30, 2023 and December 31, 2022 — — Common Stock, $ 0.001 par value; 1,000,000,000 shares authorized; 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 76 76 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 ) Additional paid-in capital — 9,650 Accumulated other comprehensive income 31 — Accumulated deficit ( 112,974 ) ( 102,208 ) Total stockholders' deficit attributable to stockholders of PRTH ( 125,444 ) ( 104,041 ) Non-controlling interests in consolidated subsidiaries 852 1,255 Total stockholders' deficit ( 124,592 ) ( 102,786 ) Total liabilities, redeemable senior preferred stock and stockholders' deficit $ 1,532,280 $ 1,373,363 See Notes to Unaudited Consolidated Financial Statements 1 Table of Contents Priority Technology Holdings, Inc . Unaudited Consolidated Statements of Operations and Comprehensive Loss (in thousands, except per share amounts) Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Revenues $ 182,290 $ 166,430 $ 367,318 $ 319,669 Operating expenses Cost of revenue (excludes depreciation and amortization) 115,281 110,749 237,247 212,229 Salary and employee benefits 19,109 15,770 38,157 31,847 Depreciation and amortization 17,980 17,505 36,028 34,858 Selling, general and administrative 10,787 9,346 19,905 16,849 Total operating expenses 163,157 153,370 331,337 295,783 Operating income 19,133 13,060 35,981 23,886 Other (expense) income Interest expense ( 17,765 ) ( 12,335 ) ( 35,464 ) ( 23,870 ) Other income, net 375 29 587 80 Total other expense, net ( 17,390 ) ( 12,306 ) ( 34,877 ) ( 23,790 ) 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 ) Less: Dividends and accretion attributable to redeemable senior preferred stockholders ( 11,765 ) ( 8,549 ) ( 23,060 ) ( 16,949 ) Net loss attributable to common stockholders ( 12,377 ) ( 8,262 ) ( 24,178 ) ( 16,995 ) Other comprehensive income (loss) Foreign currency translation adjustments 7 — 31 — Comprehensive loss $ ( 12,370 ) $ ( 8,262 ) $ ( 24,147 ) $ ( 16,995 ) Loss per common share: Basic and diluted $ ( 0.16 ) $ ( 0.11 ) $ ( 0.31 ) $ ( 0.22 ) Weighted-average common shares outstanding: Basic and diluted 78,292 78,603 78,213 78,600 See Notes to Unaudited Consolidated Financial Statements 2 Table of Contents Priority Technology Holdings, Inc . Unaudited Consolidated Statements of Changes in Stockholders' Deficit and Non-Controlling Interest (in thousands) Common Stock Treasury Stock APIC AOCI Accumulated Deficit Deficit Attributable to Stockholders NCIs Total Shares $ Shares $ December 31, 2022 76,044 $ 76 2,341 $ ( 11,559 ) $ 9,650 $ — $ ( 102,208 ) $ ( 104,041 ) $ 1,255 $ ( 102,786 ) Equity-classified stock-based compensation — — — — 1,936 — — 1,936 — 1,936 ESPP compensation and vesting of stock-based compensation 517 — — — 37 — — 37 — 37 Shares withheld for taxes ( 157 ) — 157 ( 777 ) — — — ( 777 ) — ( 777 ) Dividends on redeemable senior preferred stock — — — — ( 10,477 ) — — ( 10,477 ) — ( 10,477 ) Accretion of redeemable senior preferred stock — — — — ( 818 ) — — ( 818 ) — ( 818 ) Adjustment to NCI — — — — — — — — ( 403 ) ( 403 ) Foreign currency translation adjustment — — — — — 24 — 24 — 24 Net loss — — — — — — ( 506 ) ( 506 ) — ( 506 ) 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 ) 3 Table of Contents Priority Technology Holdings, Inc . Unaudited Consolidated Statements of Changes in Stockholders' Deficit and Non-Controlling Interest (in thousands) Common Stock Treasury Stock APIC AOCI Accumulated Deficit Deficit Attributable to Stockholders NCIs Total Shares $ Shares $ December 31, 2021 76,740 $ 77 720 $ ( 4,091 ) $ 39,835 $ — $ ( 100,058 ) $ ( 64,237 ) $ — $ ( 64,237 ) Equity-classified stock-based compensation — — — — 1,558 — — 1,558 — 1,558 Vesting of stock-based compensation 129 — — — — — — — — — Share repurchases and shares withheld for taxes ( 27 ) 1 27 ( 157 ) ( 1 ) — — ( 157 ) — ( 157 ) Dividends on redeemable senior preferred stock — — — — ( 7,595 ) — — ( 7,595 ) — ( 7,595 ) Accretion of redeemable senior preferred stock — — — — ( 805 ) — — ( 805 ) — ( 805 ) Net loss — — — — — — ( 333 ) ( 333 ) — ( 333 ) 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 4 Table of Contents Priority Technology Holdings, Inc . Unaudited Consolidated Statements of Cash Flows (in thousands) Six Months Ended June 30, 2023 2022 Cash flows from operating activities: Net loss $ ( 1,118 ) $ ( 46 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization of assets 36,028 34,858 Stock-based compensation 3,682 3,100 Amortization of debt issuance costs and discounts 1,826 1,719 Deferred income tax ( 9,619 ) ( 3,053 ) Change in contingent consideration 346 — Other non-cash items, net ( 461 ) — Change in operating assets and liabilities: Accounts receivable 18,066 ( 12,015 ) Prepaid expenses and other current assets ( 3,560 ) ( 4,445 ) Income taxes (receivable) payable 498 ( 304 ) Notes receivable ( 389 ) 297 Accounts payable and other accrued liabilities 1,306 14,792 Customer deposits and advance payments 635 ( 3,957 ) Other assets and liabilities, net ( 383 ) ( 612 ) Net cash provided by operating activities 46,857 30,334 Cash flows from investing activities: Additions to property, equipment and software ( 9,869 ) ( 6,011 ) Notes receivable, net ( 498 ) ( 2,750 ) Acquisitions of assets and other investing activities ( 2,715 ) ( 3,974 ) Net cash used in investing activities ( 13,082 ) ( 12,735 ) Cash flows from financing activities: 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 ) Repurchases of common stock and shares withheld for taxes ( 1,018 ) ( 2,079 ) Dividends paid to redeemable senior preferred stockholders ( 17,908 ) ( 7,076 ) Settlement and customer/subscriber accounts obligations, net 175,548 15,180 Payment of contingent consideration related to business combination ( 1,959 ) ( 1,863 ) Net cash provided by financing activities 144,138 562 Net change in cash and cash equivalents, and restricted cash: Net increase in cash and cash equivalents, and restricted cash 177,913 18,161 Cash and cash equivalents, and restricted cash at beginning of period 560,610 518,093 Cash and cash equivalents, and restricted cash equivalents at end of period $ 738,523 $ 536,254 5 Table of Contents Priority Technology Holdings, Inc . Unaudited Consolidated Statements of Cash Flows (in thousands) Six Months Ended June 30, 2023 2022 Reconciliation of cash and cash equivalents, and restricted cash: Cash and cash equivalents $ 17,567 $ 22,162 Restricted cash 12,357 11,717 Cash and cash equivalents included in settlement assets and customer/subscriber account balances (see Note 4 ) 708,599 502,375 Total cash and cash equivalents, and restricted cash $ 738,523 $ 536,254 Supplemental cash flow information: Cash paid for interest $ 35,234 $ 21,362 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 6 Table of Contents Priority Technology Holdings, Inc. Notes to Unaudited Consolidated Financial Statements 1. Basis of Presentation and Significant Accounting Policies Business, Consolidation and Presentation Priority Technology Holdings, Inc. and its consolidated subsidiaries are referred to herein collectively as "Priority," "PRTH," the "Company," "we," "our" or "us," unless the context requires otherwise. Priority is a provider of merchant acquiring, integrated payment software, money transmission services and commercial payments solutions. The Company operates on a calendar year ending each December 31 and on four calendar quarters ending on March 31, June 30, September 30 and December 31 of each year. Results of operations reported for interim periods are not necessarily indicative of results for the entire year. The accompanying Unaudited Consolidated Financial Statements include the accounts of the Company and its majority-owned subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation. These Unaudited Consolidated Financial Statements have been prepared in accordance with GAAP for interim financial information pursuant to the rules and regulations of the SEC. The Consolidated Balance Sheet as of December 31, 2022 was derived from the audited financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022 but does not include all disclosures required by GAAP for annual financial statements. NCI represents the equity interest in certain consolidated entities in which the Company owns less than 100% of the profit interests. Changes in the Company's ownership interest while the Company retains its controlling interest are accounted for as equity transactions. 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. These adjustments consist of normal recurring accruals and estimates that affect the carrying amounts of assets and liabilities. These Unaudited Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022. Use of Estimates The preparation of Unaudited Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the Unaudited Consolidated Financial Statements and the reported amounts of revenues and expenses during the reported period. Actual results could materially differ from those estimates. Accounts Receivable, net Accounts receivables include dues from the Company's sponsor banks (for revenues earned, net of related interchange and processing fees, and do not bear interest), agents, merchants and other customers, stated net of allowance for current expected credit losses for any uncollectible amounts. Foreign Currency The Company's reporting currency is the U.S. dollar. The functional currency of the Indian subsidiary of the Company is Indian Rupee (i.e. local currency of Republic of India). Accordingly, assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the current exchange rate on the last day of the reporting period. Revenues and expenses are translated using the average exchange rate in effect during the reporting period. Translation adjustments are reported as a component of accumulated other comprehensive income (loss). 7 Table of Contents Recently Adopted Accounting Standards Credit Losses In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). This new guidance changes how entities account for credit impairment for trade and other receivables, as well as for certain financial assets and other instruments. ASU 2016-13 replaces the current "incurred loss" model with an "expected loss" model. Under the "incurred loss" model, a loss (or allowance) is recognized only when an event has occurred (such as a payment delinquency) that causes the entity to believe that a loss is probable (i.e., that it has been "incurred"). Under the "expected loss" model, a loss (or allowance) is recognized upon initial recognition of the asset that reflects all future events that leads to a loss being realized, regardless of whether it is probable that the future event will occur. 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 Statements. Additionally, the Company modified its accounting policy to conform with the requirements of the adoption of this standard. 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. 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. 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. 2. Acquisitions Ovvi Acquisition On November 18, 2022, the Company completed its acquisition of certain assets and assumption of a certain liability of Ovvi, LLC, under an asset purchase agreement through its wholly-owned subsidiary, Priority Ovvi, LLC ("Ovvi"). The acquisition was accounted for as a business combination using the acquisition method of accounting. Prior to this acquisition, the business operated as a SaaS proprietary platform for the restaurant, hospitality and retail industries by providing complete all-in-one point of sale software and hardware systems, comprehensive ancillary services including fraud detection and mitigation, and processing services for various types of cards including credit cards, debit cards, private label cards and prepaid cards. This business is reported within the Company's SMB Payments reportable segment. Transaction costs were not material and were expensed. The non-voting incentive shares issued to the seller will be evaluated at each reporting period to determine whether or not profit or loss should be allocated based on the subsidiary's operating agreement. The preliminary purchase price allocation is set forth in the table below and is expected to be finalized as soon as practicable, but no later than one year from the acquisition date. 8 Table of Contents (in thousands) Consideration: Cash (1) $ 5,026 Total purchase consideration 5,026 Fair value of class B shares issued in Ovvi (NCI) (3) 659 Total enterprise value of business acquired (3) $ 5,685 Recognized amounts of assets acquired and liabilities assumed: Accounts receivable $ 110 Inventory 142 Property, equipment and software, net 20 Goodwill (3) 3,393 Intangible assets (2) 2,021 Other non-current asset 152 Other non-current liability ( 153 ) Total enterprise value of business acquired (3) $ 5,685 (1) Includes $ 50,000 withheld for inventory acquired which was subsequently released in March 2023. (2) The intangible assets consist of $ 1.3 million for technology, $ 0.4 million for customer relationships and $ 0.3 million for trade names. (3) During the three months ended March 31, 2023, the Company recorded measurement period adjustments due to additional information received related to the valuation of the Class B shares. This measurement period adjustment resulted in a decrease of $ 0.6 million in goodwill and NCI. Other Acquisition The Company also completed another acquisition during 2022 for approximately $ 1.2 million, which was not material. The acquisition did not meet the definition of a business, therefore it was accounted for as an asset acquisition under which the cost of acquisition was allocated to the technology asset acquired. 3. Revenues Disaggregation of Revenues 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 Revenue Type: Merchant card fees $ 144,524 $ 139,793 $ 294,168 $ 267,745 Money transmission services 23,718 17,183 45,124 33,466 Outsourced services and other services 10,582 6,887 21,587 13,984 Equipment 3,466 2,567 6,439 4,474 Total revenues (1),(2) $ 182,290 $ 166,430 $ 367,318 $ 319,669 (1) Includes contracts with an original duration of one year or less and variable consideration under a stand-ready series of distinct days of service. The aggregate fixed consideration portion of customer contracts with an initial contract duration greater than one year is not material. 9 Table of Contents (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 June 30, 2023 (in thousands) Merchant Card Fees Money Transmission Services Outsourced and Other Services Equipment Total Segment SMB Payments $ 143,544 $ — $ 885 $ 3,466 $ 147,895 B2B Payments 954 — 2,017 — 2,971 Enterprise Payments 26 23,718 7,680 — 31,424 Total revenues $ 144,524 $ 23,718 $ 10,582 $ 3,466 $ 182,290 Six months ended June 30, 2023 (in thousands) Merchant Card Fees Money Transmission Services Outsourced and Other Services Equipment Total Segment SMB Payments $ 292,232 $ — $ 4,157 $ 6,439 $ 302,828 B2B Payments 1,881 — 3,876 — 5,757 Enterprise Payments 55 45,124 13,554 — 58,733 Total revenues $ 294,168 $ 45,124 $ 21,587 $ 6,439 $ 367,318 Three Months Ended June 30, 2022 (in thousands) Merchant Card Fees Money Transmission Services Outsourced and Other Services Equipment Total Segment 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 Segment 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 10 Table of Contents 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 $ 0.5 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 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. 4. Settlement Assets and Customer/Subscriber Account Balances and Related Obligations SMB Payments Segment In the Company's SMB Payments reportable segment, funds settlement refers to the process of transferring funds for sales and credits between card issuers and merchants. The standards of the card networks require possession of funds during the settlement process by a member bank which controls the clearing transactions. Since settlement funds are required to be in the possession of a member bank until the merchant is funded, these funds are not assets of the Company and the associated obligations are not liabilities of the Company. Therefore, neither is recognized in the Company's Unaudited Consolidated Balance Sheets. 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 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 In the Company's B2B Payments segment, the Company earns revenues by processing transactions for FIs and other business customers. Customers transfer funds to the Company, which are held in either company-owned bank accounts controlled by the Company or bank-owned FBO accounts controlled by the banks, until such time that the transactions are settled with the customer payees. Amounts due to customer payees that are held by the Company in company-owned bank accounts are included in restricted cash. Amounts due to customer payees that are held in bank-owned FBO accounts are not assets of the Company, and the associated obligations are not liabilities of the Company. Therefore, neither is recognized 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 In the Company's Enterprise Payments segment revenue is derived primarily from enrollment fees, monthly subscription fees and transaction-based fees from licensed money transmission services. As part of its licensed money transmission services, the Company accepts deposits from consumers and subscribers which are held in bank accounts maintained by the Company on behalf of consumers and subscribers. After accepting deposits, the Company is allowed to invest available balances in these accounts in certain permitted investments, and the return on such investments contributes to the Company's net cash inflows. 11 Table of Contents These balances are payable on demand. As such, the Company recorded these balances and related obligations as current assets and current liabilities. 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. 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 $ 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) June 30, 2023 December 31, 2022 Settlement Assets: Card settlements due from merchants, net of estimated losses $ 2,106 $ 444 Customer/Subscriber Account Balances: Cash and cash equivalents 708,599 531,574 Total settlement assets and customer/subscriber account balances $ 710,705 $ 532,018 Settlement and Customer/Subscriber Account Obligations: Customer account obligations $ 692,630 $ 516,086 Subscriber account obligations 15,969 15,488 Total customer/subscriber account obligations 708,599 531,574 Due to customers' payees (1) 1,952 1,766 Total settlement and customer/subscriber account obligations $ 710,551 $ 533,340 (1) The related assets are included in restricted cash on our Unaudited Consolidated Balance Sheets. 5. Notes Receivable 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 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 June 30, 2024 $ 2,530 2025 1,178 2026 971 2027 746 After 2027 123 Total $ 5,548 12 Table of Contents 6. Property, Equipment and Software A summary of property, equipment and software, net was as follows: (in thousands) June 30, 2023 December 31, 2022 Computer software $ 70,203 $ 64,197 Equipment 13,903 13,302 Leasehold improvements 7,194 6,990 Furniture and fixtures 2,974 2,909 Property, equipment and software 94,274 87,398 Less: Accumulated depreciation ( 63,976 ) ( 58,409 ) Capital work in-progress 8,686 5,698 Property, equipment and software, net $ 38,984 $ 34,687 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 software that is used to provide the Company's services to its customers. 7. Goodwill and Other Intangible Assets Goodwill The Company's goodwill relates to the following reporting units was as follows: (in thousands) June 30, 2023 December 31, 2022 SMB Payments $ 124,028 $ 124,625 Enterprise Payments 244,712 244,712 Total $ 368,740 $ 369,337 The following table summarizes the changes in the carrying value of goodwill: (in thousands) Amount Balance at December 31, 2022 $ 369,337 Purchase price adjustment for Ovvi ( 597 ) Balance at June 30, 2023 $ 368,740 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. 13 Table of Contents Other Intangible Assets Other intangible assets consisted of the following: June 30, 2023 Weighted-average Useful Life (in thousands, except weighted-average data) Gross Carrying Value Accumulated Amortization Net Carrying Value Other intangible assets: ISO and referral partner relationships $ 175,300 $ ( 30,166 ) $ 145,134 14.8 Residual buyouts 136,064 ( 86,239 ) 49,825 6.3 Customer relationships 96,000 ( 89,298 ) 6,702 8.2 Merchant portfolios 83,350 ( 49,281 ) 34,069 6.5 Technology 51,156 ( 20,474 ) 30,682 8.9 Trade names 3,183 ( 2,267 ) 916 11.4 Non-compete agreements 3,390 ( 3,390 ) — 0.0 Money transmission licenses (1) 2,100 — 2,100 Total $ 550,543 $ ( 281,115 ) $ 269,428 9.6 (1) These assets have an indefinite useful life. December 31, 2022 Weighted-average Useful Life (in thousands, except weighted-average data) Gross Carrying Value Accumulated Amortization Net Carrying Value Other intangible assets: ISO and referral partner relationships $ 175,300 $ ( 24,021 ) $ 151,279 14.8 Residual buyouts 132,325 ( 76,316 ) 56,009 6.6 Customer relationships 96,000 ( 83,298 ) 12,702 8.2 Merchant portfolios 76,423 ( 43,170 ) 33,253 6.7 Technology 50,963 ( 18,566 ) 32,397 8.4 Trade names 3,183 ( 2,129 ) 1,054 11.6 Non-compete agreements 3,390 ( 3,390 ) — 0.0 Money transmission licenses (1) 2,100 — 2,100 Total $ 539,684 $ ( 250,890 ) $ 288,794 9.7 (1) These assets have an indefinite useful life. 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 June 30, 2023, there were no impairment indicators present. 14 Table of Contents 8. Debt Obligations Outstanding debt obligations consisted of the following: (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 - $ 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 5,500 12,500 Total debt obligations 612,675 623,200 Less: current portion of long-term debt ( 6,200 ) ( 6,200 ) Less: unamortized debt discounts and deferred financing costs ( 16,543 ) ( 18,074 ) 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 Deferred financing costs and debt discounts are amortized using the effective interest method over the remaining term of the respective debt and are recorded as a component of interest expense. Unamortized deferred financing costs and debt discounts are included in long-term debt on the Company's Unaudited Consolidated Balance Sheets. 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 June 30, Six Months Ended June 30, (in thousands) 2023 2022 2023 2022 Interest expense (1),(2) $ 17,765 $ 12,335 $ 35,464 $ 23,870 (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 %. 15 Table of Contents ■ 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 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 June 30, 2023, the Total Net Leverage Ratio was not applicable and the Company was in compliance with the covenants in the Credit Agreement. 9. Redeemable Senior Preferred Stock and Warrants 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 Less: 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 December 31, 2022 225 $ 235,579 Payment of cash portion of dividend and ticking fee outstanding at December 31, 2022 — ( 5,341 ) Unpaid dividend on redeemable senior preferred stock — 4,383 Accretion of discounts and issuance costs — 818 March 31, 2023 225 235,439 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 16 Table of Contents 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 June 30, Six Months Ended June 30, (in thousands) 2023 2022 2023 2022 Dividends paid in cash $ 6,473 $ 3,571 $ 12,567 $ 7,076 Accumulated dividends accrued as part of the carrying value of redeemable senior preferred stock 4,461 4,161 8,844 8,251 Dividends declared $ 10,934 $ 7,732 $ 21,411 $ 15,327 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. 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. 10. Income Taxes 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 The Company considers all available positive and negative evidence to determine whether sufficient taxable income will be generated in the future to permit realization of the existing deferred tax assets. In accordance with the provisions of ASC 740, Income Taxes , the Company is required to provide a valuation allowance against deferred income tax assets when it is "more likely than not" that some portion or all of the deferred tax assets will not be realized. Based on management's assessment, as of June 30, 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. 11. Stockholders' Deficit 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 June 30, 2023 and December 31, 2022, the Company has not issued any shares of preferred stock. 17 Table of Contents Share Repurchase Program During the second quarter of 2022, PRTH's Board of Directors authorized 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. 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 Number of shares purchased (1) — 1,309,374 Average price paid per share $ — $ 4.42 Total Investment (1) $ — $ 5,791 (1) These amounts may differ from the repurchases of Common Stock amounts in the Unaudited Statements of Cash Flows due to shares withheld for taxes and unsettled share repurchases at the end of the quarter. 12. Stock-based Compensation 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 and six months ended June 30, 2023 and 2022. No stock-based compensation has been capitalized. 2018 Plan The Company's 2018 Plan initially provided for the issuance of up to 6,685,696 shares of the Company's Common Stock. On March 17, 2022, the Company's Board of Directors unanimously approved an amendment to the 2018 Plan, which was subsequently approved by our shareholders, to increase the number of shares authorized for issuance under the plan by 2,500,000 shares, resulting in 9,185,696 shares of the Company's Common Stock authorized for issuance under the plan. 2021 Stock Purchase Plan The 2021 Stock Purchase Plan provides for up to 200,000 shares to be purchased under the plan. Shares issued under the plan may be authorized but unissued or reacquired shares of Common Stock. All employees of the Company who work more than 20 hours per week and have been employed by the Company for at least 30 days may participate in the 2021 Stock Purchase Plan. Under the 2021 Stock Purchase Plan, participants are offered, on the first day of the offering period, the option to purchase shares of Common Stock at a discount on the last day of the offering period. The offering period shall be for a period of three months, and the first offering period began on January 10, 2022. The 2021 Stock Purchase Plan provides eligible employees the opportunity to purchase shares of the Company's Common Stock on a quarterly basis through payroll deductions at a price equal to 95 % of the lesser of the fair value on the first and last trading day of each offering period. The compensation expense for the three and six months ended June 30, 2023, was immaterial and is included in stock-based compensation in the table above. 18 Table of Contents 13. Commitments and Contingencies Minimum Annual Commitments with Third-party Processors 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. 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. Annual Commitment with Vendor Effective January 1, 2022, the Company entered into a three year business cooperation agreement with a vendor to resell its services. Under the agreement, the Company purchased vendor services worth $ 0.7 million for the year ended December 31, 2022, and is committed to purchase vendor services worth $ 1.5 million in 2023 and $ 2.3 million in 2024. Capital Commitments 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 June 30, 2023 and December 31, 2022, the Company has contributed $ 10.2 million and $ 6.9 million, respectively. Merchant Reserves See Note 4. Settlement Assets and Customer/Subscriber Account Balances and Related Obligations , for information about merchant reserves. Contingency 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. 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. 19 Table of Contents Contingent Consideration The following table provides a reconciliation of the beginning and ending balance of the Company's contingent consideration liabilities related to acquisitions completed during prior years: (in thousands) Contingent Consideration Liabilities December 31, 2022 $ 8,079 Addition of contingent consideration (related to asset acquisition) 2,100 Accretion of contingent consideration 113 Fair value adjustments due to changes in estimates of future payments 116 Payment of contingent consideration ( 4,059 ) 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 The Company is involved in certain legal proceedings and claims which arise in the ordinary course of business. In the opinion of the Company and based on consultations with internal and external counsel, the results of any of these matters, individually and in the aggregate, are not expected to have a material effect on the Company's results of operations, financial condition or cash flows. As more information becomes available, and the Company determines that an unfavorable outcome is probable on a claim and that the amount of probable loss that the Company will incur on that claim is reasonably estimable, the Company will record an accrued expense for the claim in question. If and when the Company records such an accrual, it could be material and could adversely impact the Company's results of operations, financial condition and cash flows. Concentration of Risks The Company's revenue is substantially derived from processing Visa and Mastercard bankcard transactions. 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. The Company does not believe it is exposed to any significant credit risk from these transactions. 14. Fair Value Fair Value Measurements Contingent consideration related to the Company's business combinations is estimated based on the present value of a weighted payout probability at the measurement date, which falls within Level 3 on the fair value hierarchy. The current portion of contingent consideration is included in accounts payable and accrued expenses on the Company's Unaudited Consolidated Balance Sheets and the noncurrent portion of contingent consideration is included in other noncurrent liabilities on the Company's Unaudited Consolidated Balance Sheets. 20 Table of Contents Liabilities measured at fair value on a recurring basis consisted of the following: (in thousands) Fair Value Hierarchy June 30, 2023 December 31, 2022 Contingent consideration, current portion Level 3 $ 9,413 $ 6,079 Contingent consideration, noncurrent portion Level 3 2,000 2,000 Total contingent consideration $ 11,413 $ 8,079 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 Notes Receivable Notes receivable are carried at amortized cost. Substantially all of the Company's notes receivable are secured, and the Company provides for allowances when it believes that certain notes receivable may not be collectible. The carrying value of the Company's notes receivable, net approximates fair value and was approximately $ 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. Debt Obligations Outstanding debt obligations (see Note 8. 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 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. 15. Segment Information The Company has three reportable segments: • 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. • Enterprise Payments – provides embedded payment and banking solutions to enterprise customers that modernize legacy platforms and accelerate modern software partners looking to monetize payments. Corporate includes costs of corporate functions and shared services not allocated to our reportable segments. 21 Table of Contents Information on reportable segments and reconciliations to consolidated revenues, consolidated depreciation and amortization, and consolidated operating income are as follows: (in thousands) Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Revenues: SMB Payments $ 147,895 $ 142,506 $ 302,828 $ 272,465 B2B Payments 2,971 5,295 5,757 11,220 Enterprise Payments 31,424 18,629 58,733 35,984 Consolidated revenues $ 182,290 $ 166,430 $ 367,318 $ 319,669 Depreciation and amortization: SMB Payments $ 10,769 $ 10,980 $ 21,615 $ 21,804 B2B Payments 127 73 252 146 Enterprise Payments 6,713 6,199 13,403 12,396 Corporate 371 253 758 512 Consolidated depreciation and amortization $ 17,980 $ 17,505 $ 36,028 $ 34,858 Operating (loss) income: SMB Payments $ 11,542 $ 13,995 $ 23,553 $ 26,481 B2B Payments ( 19 ) 663 ( 868 ) 1,072 Enterprise Payments 16,079 5,698 28,742 10,192 Corporate ( 8,469 ) ( 7,296 ) ( 15,446 ) ( 13,859 ) 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) 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 Corporate ( 8,469 ) ( 7,296 ) ( 15,446 ) ( 13,859 ) Interest expense ( 17,765 ) ( 12,335 ) ( 35,464 ) ( 23,870 ) Other income, net 375 29 587 80 Income tax benefit (expense) ( 2,355 ) ( 467 ) ( 2,222 ) ( 142 ) Net (loss) income $ ( 612 ) $ 287 $ ( 1,118 ) $ ( 46 ) 22 Table of Contents 16. Loss per Common Share The following tables set forth the computation of the Company's basic and diluted loss per common share: Three Months Ended June 30, Six Months Ended June 30, (in thousands except per share amounts) 2023 2022 2023 2022 Numerator: Net (loss) income $ ( 612 ) $ 287 $ ( 1,118 ) $ ( 46 ) Less: Dividends and accretion attributable to redeemable senior preferred stockholders ( 11,765 ) ( 8,549 ) ( 23,060 ) ( 16,949 ) Net loss attributable to common stockholders $ ( 12,377 ) $ ( 8,262 ) $ ( 24,178 ) $ ( 16,995 ) Denominator: Basic and diluted: Weighted-average common shares outstanding (1) 78,292 78,603 78,213 78,600 Loss per common share $ ( 0.16 ) $ ( 0.11 ) $ ( 0.31 ) $ ( 0.22 ) (1) The weighted-average common shares outstanding includes 1,803,841 warrants (refer to Note 9. Redeemable Senior Preferred Stock and Warrants ). Potentially anti-dilutive securities that were excluded from the Company's loss per common share that could potentially be dilutive in future periods are as follows: Six Months Ended June 30, (in thousands) 2023 2022 Outstanding warrants on Common Stock (1) 3,557 3,557 Outstanding options and warrants issued to adviser (2) 600 600 Restricted stock awards (3) 1,018 2,045 Outstanding stock option awards (3) 919 1,172 Total 6,094 7,374 (1) The warrants are exercisable at $ 11.50 per share and expire on August 24, 2023. (2) The warrants and options are exercisable at $ 12.00 per share and expire on August 24, 2023. (3) Granted under the 2018 Plan. 23 Table of Contents 17. 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. 24 Table of Contents