What changed in this filing

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Item 1. Financial Statements

2023-11-09 compared with 2023-08-10 · 220 added, 119 removed, 556 unchanged (38% of the section changed)

Financial Statements

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Current assets:

30 unchanged sentences

250,000 shares authorized;

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

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

252,923 235,579

2 unchanged sentences

100,000,000 shares authorized;

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

0 issued or outstanding at September 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

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

79,197,600 and 78,385,685 shares issued at September 30, 2023 and December 31, 2022, respectively;

and 76,633,517 and 76,044,629 shares outstanding at September 30, 2023 and December 31, 2022, respectively

Treasury stock at cost, 2,564,083 and 2,341,056 shares at September 30, 2023 and December 31, 2022, respectively

( 12,577 ) ( 11,559 )

Additional paid-in capital — 9,650

Accumulated other comprehensive income 31 —

Accumulated other comprehensive loss ( 34 ) —

Accumulated deficit ( 123,714 ) ( 102,208 )

8 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

13 unchanged sentences

Income tax expense 4,328 1,691 6,550 1,833

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

Net loss ( 87 ) ( 792 ) ( 1,205 ) ( 838 )

Dividends and accretion attributable to redeemable senior preferred stockholders ( 12,192 ) ( 9,466 ) ( 35,252 ) ( 26,415 )

Net loss attributable to common stockholders ( 12,279 ) ( 10,258 ) ( 36,457 ) ( 27,253 )

Other comprehensive income (loss)

Other comprehensive loss

Foreign currency translation adjustments ( 65 ) — ( 34 ) —

36 unchanged sentences

Shares $ Shares $

Equity-classified stock-based compensation — — — — 1,501 — — 1,501 — 1,501

ESPP compensation and vesting of stock-based compensation 103 1 — — 38 — — 39 — 39

Shares withheld for taxes — — 1 — — — — — — —

Dividends on redeemable senior preferred stock — — — — ( 11,348 ) — — ( 11,348 ) — ( 11,348 )

Accretion of redeemable senior preferred stock — — — — ( 844 ) — — ( 844 ) — ( 844 )

Issuance of profit interests/common equity in subsidiaries — — — — — — — — 514 514

Foreign currency translation adjustment — — — — — ( 65 ) — ( 65 ) — ( 65 )

Reclassification of negative additional paid-in capital — — — — 10,653 — ( 10,653 ) — — —

Net loss — — — — — — ( 87 ) ( 87 ) — ( 87 )

September 30, 2023 76,634 $ 77 2,564 $ ( 12,577 ) $ — $ ( 34 ) $ ( 123,714 ) $ ( 136,248 ) $ 1,366 $ ( 134,882 )

Priority Technology Holdings, Inc .

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

(in thousands)

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 )

13 unchanged sentences

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

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

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

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

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

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

Net income — — — — — — ( 792 ) ( 792 ) — ( 792 )

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

See Notes to Unaudited Consolidated Financial Statements

2 unchanged sentences

(in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash flows from operating activities:

17 unchanged sentences

Cash flows from investing activities:

Acquisition of business, net of cash acquired ( 28,182 ) —

Additions to property, equipment and software ( 15,268 ) ( 11,380 )

3 unchanged sentences

Cash flows from financing activities:

Debt issuance and modification costs paid ( 807 ) —

Repayments of long-term debt ( 4,650 ) ( 4,650 )

5 unchanged sentences

Payment of contingent consideration related to business combination ( 4,698 ) ( 3,992 )

Net cash provided by financing activities 144,138 562

Net cash provided by (used in) financing activities 157,029 ( 8,099 )

Net change in cash and cash equivalents and restricted cash:

1 unchanged sentence

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

Cash and cash equivalents and restricted cash at end of period $ 739,095 $ 539,457

Priority Technology Holdings, Inc .

1 unchanged sentence

(in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Reconciliation of cash and cash equivalents, and restricted cash:

7 unchanged sentences

Non-cash investing and financing activities:

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

Contingent consideration accrual $ — $ 4,825

Non-cash additions to other noncurrent assets for right-of-use operating leases $ — $ 166

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

Measurement period adjustment to purchase price $ 110 $ —

Cash portion of dividend payable for redeemable senior preferred stock (1)

Issuance of NCI $ 184 $ —

(1) Paid on October 2, 2023

See Notes to Unaudited Consolidated Financial Statements

14 unchanged sentences

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.

As of September 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.

1 unchanged sentence

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.

The results for the quarter and nine months ended September, 30, 2023 include the results of the Plastiq business acquired through Chapter 11 bankruptcy process on July 31, 2023.

Use of Estimates

1 unchanged sentence

Actual results could materially differ from those estimates.

Revenue Recognition

For the Plastiq business that was acquired on July 31, 2023 (refer to Note 2.

Acquisitions ,) the Company accepts card payments from its customers and processes disbursements to their vendors.

For these transactions, the Company acts as merchant of record, therefore, considered as the principal and accordingly presents its revenue on a gross basis.

The Company also offers

volume rebates as an incentive to increase business and customer engagement.

These rebates are presented as net of revenue.

Transaction processing costs, including interchange fees, are presented as costs of revenue.

Accounts Receivable, net

4 unchanged sentences

local currency of Republic of India).

The functional currency of the Canadian subsidiary of the Company is the Canadian Dollar.

Accordingly, assets and liabilities denominated in a foreign currency are translated into U.S.

20 unchanged sentences

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

Plastiq Acquisition

On May 23, 2023, PRTH’s 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 buyer funded

B2B payments platform offering bill pay and instant access to working capital to its customers and will complement the Company's existing supplier-funded B2B payments business.

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 $ 37.3 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.

The acquisition was accounted for as a business combination using the acquisition method of accounting, under which the acquired assets and assumed liabilities were recognized at their fair values as of July 31, 2023, with the excess of the fair value of consideration transferred over the fair value of the net assets acquired recognized as goodwill.

The fair values of the acquired assets and assumed liabilities as of July 31, 2023 were estimated by management using the discounted cash flow method and other factors specific to certain assets and liabilities.

The preliminary purchase price allocation is set forth in the table below and expected to be finalized as soon as practicable but no later than one year from the closing date.

(in thousands)

Consideration:

Cash $ 28,500

Contingent consideration payments (1)

Common equity of acquiring entity 330

cash and restricted cash acquired ( 318 )

Total purchase consideration, net of cash and restricted cash acquired $ 36,931

Recognized amounts of assets acquired and liabilities assumed:

Accounts receivable $ 881

Prepaid expenses 423

Settlement assets 8,277

Equipment, net 47

Goodwill 6,943

Intangible assets (2)

Accounts payable and accrued expenses ( 1,607 )

Customer deposits ( 214 )

Settlement obligations ( 8,279 )

Total purchase consideration $ 36,931

(1) The fair value of the contingent consideration payments issued was determined utilizing a Monte Carlo simulation.

The contingent consideration payments were calculated based on the path for the simulated metrics and the contractual terms of the contingent consideration payments and were discounted to present value at a rate reflecting the risk associated with the payoffs.

The fair value was estimated to be the average present value of the contingent consideration payments over all iterations of the simulation.

(2) The intangible assets acquired consist of $ 13.0 million for customer relationships, $ 7.0 million for referral partner relationships, $ 6.5 million for technology and $ 3.9 million for trade name.

This business is reported within the Company's B2B Payments reportable segment.

The Company's Unaudited Consolidated Financial Statements for three and nine months ended September 30, 2023 include the operating results of Plastiq from August 1, 2023 through September 30, 2023 as noted in the table below:

Three Months Ended September 30, 2023

(in thousands)

Revenues $ 9,932

Operating loss (1)

(1) Excluding acquisition related costs of $ 1.3 million

For the three and nine months ended September 30, 2023, the Company incurred $ 1.3 million and $ 1.7 million respectively, in acquisition related costs, which primarily consisted of consulting, legal and accounting and valuation expenses.

These expenses were recorded in selling, general and administrative expenses in the Company's Unaudited Consolidated Statements of Operations and Comprehensive Loss.

Based on the purchase consideration and pre-acquisition operating results, this business combination did not meet the materiality requirements for pro forma disclosures.

Ovvi Acquisition

4 unchanged sentences

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 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 to NCI 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 unchanged sentences

Property, equipment and software, net 20

Goodwill (3)(4)

Intangible assets (2)

6 unchanged sentences

This measurement period adjustment resulted in a decrease of $ 0.6 million in goodwill and NCI.

(4) During the three months ended September 30, 2023, the Company recorded measurement period adjustments due to additional information received related to accounts receivable and inventory.

This measurement period adjustment resulted in a decrease of $ 0.1 million in accounts receivable and inventory, offset by an increase in goodwill of $ 0.1 million.

Other Acquisition

2 unchanged sentences

Disaggregation of Revenues

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

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

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

Three Months Ended September 30, Nine Months Ended September 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 $ 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.

(2) Approximately $ 9.7 million and $ 21.9 million of interest income for the three and nine months ended September 30, 2023 and $ 2.0 million and $ 3.4 million for the three and nine months ended September 30, 2022, respectively, is included in outsourced services and other services revenue in the table above.

Approximately $ 0.5 million and $ 1.1 million of interest income for the three and nine months ended September 30, 2023, and $ 0.2 million and $ 0.4 million three and nine months ended September 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

Three Months Ended September 30, 2023

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

3 unchanged sentences

Total revenues $ 146,974 $ 25,831 $ 13,181 $ 3,029 $ 189,015

Six months ended June 30, 2023

Nine months ended September 30, 2023

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

3 unchanged sentences

Total revenues $ 441,142 $ 70,955 $ 34,768 $ 9,468 $ 556,333

Three Months Ended June 30, 2022

Three Months Ended September 30, 2022

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

3 unchanged sentences

Total revenues $ 137,659 $ 18,291 $ 7,933 $ 2,534 $ 166,417

Six Months Ended June 30, 2022

Nine Months Ended September 30, 2022

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

3 unchanged sentences

Total revenues $ 405,404 $ 51,757 $ 21,917 $ 7,008 $ 486,086

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

Deferred revenues were not material for the three and nine months ended September 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.

Contract liabilities were $ 0.4 million and $ 0.2 million as of September 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.

Impairment losses recognized on receivables or contract assets arising from the Company's contracts with customers were not material for the three and nine months ended September 30, 2023 and September 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 $ 97.2 million and $ 110.3 million at June 30, 2023 and December 31, 2022, respectively.

Member banks held merchant funds of $ 102.9 million and $ 110.3 million at September 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.

Expenses for merchant losses for the three and nine months ended September 30, 2023 were $ 1.6 million and $ 3.7 million, respectively.

Expenses for merchant losses for the three and nine months ended September 30, 2022 were $ 0.7 million and $ 2.8 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 $ 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.

Bank-owned FBO accounts held funds of $ 93.4 million and $ 42.7 million at September 30, 2023 and December 31, 2022, respectively.

Company-owned bank accounts held $ 9.5 million and $ 1.8 million at September 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.

For the Plastiq business, the Company accepts card payments from its customers and processes disbursements to their vendors.

The time lag between authorization and settlement of card transactions creates certain receivables (from card networks) and payables (to the vendors of customers).

These receivables and payables arise from the settlement activities that the Company performs on the behalf of its customers and therefore, are presented as Settlement assets and related obligations.

Enterprise Payments Segment

3 unchanged sentences

These balances are payable on demand.

As such, the Company recorded these balances and related obligations as current assets and current liabilities.

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.

2 unchanged sentences

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.

Agency owned accounts held $ 8.6 million and $ 6.1 million at September 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

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

Settlement Assets, net of estimated losses (1) :

Card settlements due from merchants $ 4,768 $ 444

Card settlements due from networks 6,792 —

Customer/Subscriber Account Balances:

7 unchanged sentences

Total settlement and customer/subscriber account obligations $ 710,068 $ 533,340

(1) The related assets are included in restricted cash on our Unaudited Consolidated Balance Sheets.

(1) Allowance for estimated losses was $ 5.6 million and $ 5.0 million as of September 30, 2023 and December 31, 2022, respectively

(2) Card settlements due from networks includes $ 6.8 million of related assets and remainder are included in restricted cash on our Unaudited Consolidated Balance Sheets.

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 Company had notes receivable of $ 5.2 million and $ 4.7 million as of September 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 18.2 % and 15.4 % as of September 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:

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

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

(in thousands)

Twelve months ending June 30,

Twelve months ending September 30,

After 2027 530

2 unchanged sentences

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

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

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

Computer software $ 71,463 $ 64,197

6 unchanged sentences

Property, equipment and software, net $ 41,851 $ 34,687

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

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

(in thousands) 2023 2022 2023 2022

1 unchanged sentence

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

Fully depreciated assets are retained in property, equipment and software, net, until removed from service.

During the quarter ended September 30, 2023, certain fully depreciated assets were removed from service.

Goodwill and Other Intangible Assets

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

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

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

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

SMB Payments $ 124,139 $ 124,625

Enterprise Payments 244,712 244,712

Plastiq (B2B Payments) 6,943 —

Total $ 375,794 $ 369,337

3 unchanged sentences

Purchase price adjustment for Ovvi ( 486 )

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.

Plastiq acquisition

Balance at September 30, 2023

As of September 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:

June 30, 2023 Weighted-average

September 30, 2023 Weighted-average

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

25 unchanged sentences

(1) These assets have an indefinite useful life.

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

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

(in thousands) 2023 2022 2023 2022

Amortization expense $ 14,512 $ 15,452 $ 44,968 $ 45,773

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

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

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

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

Term facility - matures April 27, 2027, interest rates of 11.43 % and 9.82 % at September 30, 2023 and December 31, 2022, respectively

$ 606,050 $ 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

Revolving credit facility - $ 65.0 million line as of September 30, 2023 and $ 40.0 million as of December 31, 2022, matures April 27, 2026, interest rates of 10.20 % and 8.82 % at September 30, 2023 and December 31, 2022, respectively

33,000 12,500

Total debt obligations 639,050 623,200

2 unchanged sentences

Long-term debt, net $ 616,781 $ 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

2 unchanged sentences

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,

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

(in thousands) 2023 2022 2023 2022

1 unchanged sentence

$ 19,997 $ 13,412 $ 55,461 $ 37,282

(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.

(1) Included in interest expense is $ 0.6 million and $ 0.8 million related to the accretion of contingent consideration from acquisitions for the three and nine months ended September 30, 2023, respectively, $ 0.1 million and $ 0.7 million for the three and nine months ended September 30, 2022, respectively.

(2) Interest expense included amortization of deferred financing costs and debt discounts of $ 1.0 million and $ 2.8 million for the three and nine months ended September 30, 2023, respectively, and $ 0.9 million and $ 2.6 million for the three and nine months ended September 30, 2022, respectively.

Third Amendment to the April 2021 Credit Agreement

3 unchanged sentences

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 %.

The applicable interest rate as of September 30, 2023, for the revolving credit facility based on one-month SOFR was 10.20 % and for the term facility based on three-month SOFR was 11.43 %.

■ 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.

The amendments also resulted in an increase in the Company’s revolving credit facility from $ 40 million to $ 65 million.

Debt Covenants

5 unchanged sentences

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

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

As of September 30, 2023, the Company was in compliance with the covenants in the Credit Agreement.

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

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

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

15 unchanged sentences

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 June 30, 2023 and December 31, 2022, was 17.2 % and 15.7 % respectively.

Unpaid dividend on redeemable senior preferred stock — 4,538

Accretion of discounts and issuance cost — 844

Cash portion of dividend outstanding at September 30, 2023 6,810

September 30, 2023 225 $ 252,923

The dividend rate as of September 30, 2023 and December 31, 2022, was 17.5 % 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,

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

(in thousands) 2023 2022 2023 2022

Dividends paid in cash (1)

$ 6,810 $ 4,402 $ 19,377 $ 11,478

Accumulated dividends accrued as part of the carrying value of redeemable senior preferred stock 4,538 4,234 13,382 12,485

Dividends declared $ 11,348 $ 8,636 $ 32,759 $ 23,963

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.

(1) Dividend payable for the three months ended September 30, 2023 paid on October 2, 2023.

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.

1 unchanged sentence

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.

For the three months ended September 30, 2023, SOFR is the reference rate for calculation of the dividend.

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.

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 September 30, 2023, none of the warrants have been exercised.

The Company's consolidated effective income tax rate for the three and nine months ended September 30, 2023, was 102.1 % and 122.5 %, respectively, compared to a consolidated effective income tax rate of 188.1 % and 184.2 % for the three and nine months ended September 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.

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

Based on management's assessment, as of June 30, 2023, the Company continues to record a full valuation allowance against non-deductible interest expense.

Based on management's assessment, as of September 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 June 30, 2023 and December 31, 2022, the Company has not issued any shares of preferred stock.

As of September 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 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

September 30, 2023 December 31, 2022

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

4 unchanged sentences

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,

Stock-based compensation expense was as follows:

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

(in thousands) 2023 2022 2023 2022

Stock-based compensation expense $ 1,501 $ 1,104 $ 5,183 $ 4,204

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

Income tax benefit for stock-based compensation was immaterial for the three and nine months ended September 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 and six months ended June 30, 2023, was immaterial and is included in stock-based compensation in the table above.

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

Commitments and Contingencies

7 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 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.

The Company committed to capital contributions to fund the operations of certain subsidiaries totaling $ 26.0 million and $ 22.0 million as September 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 September 30, 2023 and December 31, 2022, the Company has contributed $ 11.6 million and $ 6.9 million, respectively.

Merchant Reserves

Settlement Assets and Customer/Subscriber Account Balances and Related Obligations , for information about merchant reserves.

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.

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:

The following table provides a reconciliation of the beginning and ending balance of the Company's contingent consideration liabilities related to completed acquisitions:

(in thousands) Contingent Consideration Liabilities

9 unchanged sentences

June 30, 2023 11,413

Addition of contingent consideration (related to business combination)

Accretion of discount on contingent consideration 560

Payment of contingent consideration ( 7,949 )

September 30, 2023 $ 12,706

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.

As of September 30, 2023, the Company's customer account balances of $ 672.2 million are maintained in FDIC insured accounts with certain FIs (refer to Note 4.

Settlement Assets and Customer/Subscriber Account Balances and Related

Obligations ) 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.

3 unchanged sentences

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

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

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

Contingent consideration, current portion Level 3 $ 3,789 $ 6,079

1 unchanged sentence

Total contingent consideration $ 12,706 $ 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.

During the three and nine months ended September 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 $ 5.5 million and $ 4.7 million at June 30, 2023 and December 31, 2022, respectively.

The carrying value of the Company's notes receivable, net approximates fair value and was approximately $ 5.2 million and $ 4.7 million at September 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 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 fair value of the term facility was estimated to be $ 603.0 million and $ 606.1 million at September 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.

• B2B Payments – provides AP automation to corporations, software partners and FIs, and, working capital solutions to other business customers.

• 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 June 30, Six Months Ended June 30,

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

2023 2022 2023 2022

16 unchanged sentences

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,

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

2023 2022 2023 2022

4 unchanged sentences

Income tax benefit (expense) ( 4,328 ) ( 1,691 ) ( 6,550 ) ( 1,833 )

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

Net loss $ ( 87 ) $ ( 792 ) $ ( 1,205 ) $ ( 838 )

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,

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

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

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

Net loss $ ( 87 ) $ ( 792 ) $ ( 1,205 ) $ ( 838 )

Dividends and accretion attributable to redeemable senior preferred stockholders ( 12,192 ) ( 9,466 ) ( 35,252 ) ( 26,415 )

6 unchanged sentences

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,

For the three and nine months ended September 30, 2023 and 2022, all potentially dilutive securities were anti-dilutive, so diluted net loss per share was equivalent to basic net loss per share.

Potentially anti-dilutive securities that were excluded from the Company's loss per common share are as follows:

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

(in thousands) 2023 2022 2023 2022

Outstanding warrants on Common Stock (1)

— 3,557 — 3,557

Outstanding options and warrants issued to adviser (2)

Restricted stock awards (3)

1,109 2,680 1,297 1,126

Outstanding stock option awards (3)

918 1,034 909 2,292

Total 2,027 7,871 2,206 7,575

(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.

(1) The warrants were issued in 2018 and were exercisable at $ 11.50 per share.

These warrants expired on August 24, 2023.

(2) The warrants were issued in 2018 and were exercisable at $ 12.00 per share.

These warrants expired on August 24, 2023.

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

On October 2, 2023, the Company entered into the fourth amendment to its Credit Agreement to increase its term loan facility by $ 50.0 million.

All other terms remained unchanged.

The proceeds of the increase was used to repay the outstanding balance of the revolving credit facility and other general corporate needs.

The accounting evaluation of the amendment is in process .

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