Priority Technology Holdings, Inc. 10-Q

Item 1. Financial Statements September 30, 2023 December 31, 2022 Assets Current assets: Cash and cash equivalents $ 24,595 $ 18,454 Restricted cash 13,890 10,582 Accounts receivable, net of allowances of $ 1,281 and $ 1,143 , respectively 61,134 78,113 Prepaid expenses and other current assets 13,274 11,832 Current portion of notes receivable, net of allowance of $ 0 and $ 0 , respectively 1,561 1,471 Settlement assets and customer/subscriber account balances 712,170 532,018 Total current assets 826,624 652,470 Notes receivable, less current portion 3,616 3,191 Property, equipment and software, net 41,851 34,687 Goodwill 375,794 369,337 Intangible assets, net 285,490 288,794 Deferred income taxes, net 18,879 16,447 Other noncurrent assets 11,145 8,437 Total assets $ 1,563,399 $ 1,373,363 Liabilities, Redeemable Senior Preferred Stock and Stockholders' Deficit Current liabilities: Accounts payable and accrued expenses $ 56,107 $ 51,864 Accrued residual commissions 31,023 35,979 Customer deposits and advance payments 6,634 2,618 Current portion of long-term debt 6,200 6,200 Settlement and customer/subscriber account obligations 710,068 533,340 Total current liabilities 810,032 630,001 Long-term debt, net of current portion, discounts and debt issuance costs 616,781 598,926 Other noncurrent liabilities 18,545 11,643 Total noncurrent liabilities 635,326 610,569 Total liabilities 1,445,358 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 September 30, 2023 and December 31, 2022 252,923 235,579 Stockholders' deficit: Preferred stock, $ 0.001 ; 100,000,000 shares authorized; 0 issued or outstanding at September 30, 2023 and December 31, 2022 — — Common Stock, $ 0.001 par value; 1,000,000,000 shares authorized; 79,197,600 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 77 76 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 loss ( 34 ) — Accumulated deficit ( 123,714 ) ( 102,208 ) Total stockholders' deficit attributable to stockholders of PRTH ( 136,248 ) ( 104,041 ) Non-controlling interests in consolidated subsidiaries 1,366 1,255 Total stockholders' deficit ( 134,882 ) ( 102,786 ) Total liabilities, redeemable senior preferred stock and stockholders' deficit $ 1,563,399 $ 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 September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Revenues $ 189,015 $ 166,417 $ 556,333 $ 486,086 Operating expenses Cost of revenue (excludes depreciation and amortization) 116,682 107,958 353,929 320,187 Salary and employee benefits 20,129 16,384 58,286 48,231 Depreciation and amortization 17,275 17,817 53,303 52,675 Selling, general and administrative 11,423 10,178 31,328 27,027 Total operating expenses 165,509 152,337 496,846 448,120 Operating income 23,506 14,080 59,487 37,966 Other (expense) income Interest expense ( 19,997 ) ( 13,412 ) ( 55,461 ) ( 37,282 ) Other income, net 732 231 1,319 311 Total other expense, net ( 19,265 ) ( 13,181 ) ( 54,142 ) ( 36,971 ) Income before income taxes 4,241 899 5,345 995 Income tax expense 4,328 1,691 6,550 1,833 Net loss ( 87 ) ( 792 ) ( 1,205 ) ( 838 ) Less: 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 loss Foreign currency translation adjustments ( 65 ) — ( 34 ) — Comprehensive loss $ ( 12,344 ) $ ( 10,258 ) $ ( 36,491 ) $ ( 27,253 ) Loss per common share: Basic and diluted $ ( 0.16 ) $ ( 0.13 ) $ ( 0.47 ) $ ( 0.35 ) Weighted-average common shares outstanding: Basic and diluted 78,381 77,984 78,270 78,392 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 $ 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 ) 4 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 ) 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 5 Table of Contents Priority Technology Holdings, Inc . Unaudited Consolidated Statements of Cash Flows (in thousands) Nine Months Ended September 30, 2023 2022 Cash flows from operating activities: Net loss $ ( 1,205 ) $ ( 838 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization of assets 53,303 52,675 Stock-based compensation 5,183 4,204 Amortization of debt issuance costs and discounts 2,812 2,613 Deferred income tax ( 2,432 ) ( 3,567 ) Change in contingent consideration 906 — Other non-cash items, net ( 169 ) ( 154 ) Change in operating assets and liabilities: Accounts receivable 17,931 ( 11,265 ) Prepaid expenses and other current assets ( 2,630 ) ( 2,575 ) Income taxes (receivable) payable 498 1,003 Notes receivable ( 668 ) 569 Accounts payable and other accrued liabilities 302 13,711 Customer deposits and advance payments 3,802 ( 1,910 ) Other assets and liabilities, net ( 4,953 ) ( 3,908 ) Net cash provided by operating activities 72,680 50,558 Cash flows from investing activities: Acquisition of business, net of cash acquired ( 28,182 ) — Additions to property, equipment and software ( 15,268 ) ( 11,380 ) Notes receivable, net 151 ( 3,250 ) Acquisitions of assets and other investing activities ( 7,925 ) ( 6,465 ) Net cash used in investing activities ( 51,224 ) ( 21,095 ) Cash flows from financing activities: Debt issuance and modification costs paid ( 807 ) — Repayments of long-term debt ( 4,650 ) ( 4,650 ) Borrowings under revolving credit facility 44,000 23,000 Repayments of borrowings under revolving credit facility ( 23,500 ) ( 32,000 ) Repurchases of Common Stock and shares withheld for taxes ( 1,018 ) ( 4,674 ) Dividends paid to redeemable senior preferred stockholders ( 17,908 ) ( 11,478 ) Settlement and customer/subscriber accounts obligations, net 165,610 25,695 Payment of contingent consideration related to business combination ( 4,698 ) ( 3,992 ) Net cash provided by (used in) financing activities 157,029 ( 8,099 ) Net change in cash and cash equivalents and restricted cash: Net increase in cash and cash equivalents, and restricted cash 178,485 21,364 Cash and cash equivalents and restricted cash at beginning of period 560,610 518,093 Cash and cash equivalents and restricted cash at end of period $ 739,095 $ 539,457 6 Table of Contents Priority Technology Holdings, Inc . Unaudited Consolidated Statements of Cash Flows (in thousands) Nine Months Ended September 30, 2023 2022 Reconciliation of cash and cash equivalents, and restricted cash: Cash and cash equivalents $ 24,595 $ 12,707 Restricted cash 13,890 11,624 Cash and cash equivalents included in settlement assets and customer/subscriber account balances (see Note 4 ) 700,610 515,126 Total cash and cash equivalents, and restricted cash $ 739,095 $ 539,457 Supplemental cash flow information: Cash paid for interest $ 54,670 $ 33,023 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 $ — Measurement period adjustment to purchase price $ 110 $ — Cash portion of dividend payable for redeemable senior preferred stock (1) $ 6,810 $ — Issuance of NCI $ 184 $ — (1) Paid on October 2, 2023 See Notes to Unaudited Consolidated Financial Statements 7 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 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. 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. 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 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. 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 8 Table of Contents 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 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). 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. 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). 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 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 9 Table of Contents 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) 8,419 Common equity of acquiring entity 330 Less: 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) 30,460 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. 10 Table of Contents 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) $ ( 699 ) (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 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 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. (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 (4) $ 43 Inventory (4) 98 Property, equipment and software, net 20 Goodwill (3)(4) 3,504 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. 11 Table of Contents (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. (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 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: Three Months Ended September 30, Nine Months Ended September 30, (in thousands) 2023 2022 2023 2022 Revenue Type: Merchant card fees $ 146,974 $ 137,659 $ 441,142 $ 405,404 Money transmission services 25,831 18,291 70,955 51,757 Outsourced services and other services 13,181 7,933 34,768 21,917 Equipment 3,029 2,534 9,468 7,008 Total revenues (1),(2) $ 189,015 $ 166,417 $ 556,333 $ 486,086 (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. (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. 12 Table of Contents The following table presents a disaggregation of our consolidated revenues by segment: Three Months Ended September 30, 2023 (in thousands) Merchant Card Fees Money Transmission Services Outsourced and Other Services Equipment Total Segment SMB Payments $ 136,086 $ — $ 994 $ 3,029 $ 140,109 B2B Payments 10,837 — 2,911 — 13,748 Enterprise Payments 51 25,831 9,276 — 35,158 Total revenues $ 146,974 $ 25,831 $ 13,181 $ 3,029 $ 189,015 Nine months ended September 30, 2023 (in thousands) Merchant Card Fees Money Transmission Services Outsourced and Other Services Equipment Total Segment SMB Payments $ 428,318 $ — $ 5,151 $ 9,468 $ 442,937 B2B Payments 12,718 — 6,787 — 19,505 Enterprise Payments 106 70,955 22,830 — 93,891 Total revenues $ 441,142 $ 70,955 $ 34,768 $ 9,468 $ 556,333 Three Months Ended September 30, 2022 (in thousands) Merchant Card Fees Money Transmission Services Outsourced and Other Services Equipment Total Segment SMB Payments $ 136,340 $ — $ 1,018 $ 2,534 $ 139,892 B2B Payments 1,319 — 3,549 — 4,868 Enterprise Payments — 18,291 3,366 — 21,657 Total revenues $ 137,659 $ 18,291 $ 7,933 $ 2,534 $ 166,417 Nine Months Ended September 30, 2022 (in thousands) Merchant Card Fees Money Transmission Services Outsourced and Other Services Equipment Total Segment SMB Payments $ 402,890 $ — $ 2,459 $ 7,008 $ 412,357 B2B Payments 2,514 — 13,574 — 16,088 Enterprise Payments — 51,757 5,884 — 57,641 Total revenues $ 405,404 $ 51,757 $ 21,917 $ 7,008 $ 486,086 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. 13 Table of Contents 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 nine months ended September 30, 2023 and September 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 $ 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 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 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 $ 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 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. These balances are payable on demand. As such, the Company recorded these balances and related obligations as current assets 14 Table of Contents 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 $ 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) 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: Cash and cash equivalents 700,610 531,574 Total settlement assets and customer/subscriber account balances $ 712,170 $ 532,018 Settlement and Customer/Subscriber Account Obligations: Customer account obligations $ 672,183 $ 516,086 Subscriber account obligations 28,427 15,488 Total customer/subscriber account obligations 700,610 531,574 Due to customers' payees (2) 9,458 1,766 Total settlement and customer/subscriber account obligations $ 710,068 $ 533,340 (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. 5. Notes Receivable 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 September 30, 2023 and December 31, 2022, the Company had no allowance for doubtful notes receivable. 15 Table of Contents As of September 30, 2023, the principal payments for the Company's notes receivable are due as follows: (in thousands) Twelve months ending September 30, 2024 $ 1,561 2025 1,350 2026 827 2027 909 After 2027 530 Total $ 5,177 6. Property, Equipment and Software A summary of property, equipment and software, net was as follows: (in thousands) September 30, 2023 December 31, 2022 Computer software $ 71,463 $ 64,197 Equipment 10,027 13,302 Leasehold improvements 1,535 6,990 Furniture and fixtures 1,442 2,909 Property, equipment and software 84,467 87,398 Less: Accumulated depreciation ( 53,208 ) ( 58,409 ) Capital work in-progress 10,592 5,698 Property, equipment and software, net $ 41,851 $ 34,687 Three Months Ended September 30, Nine Months Ended September 30, (in thousands) 2023 2022 2023 2022 Depreciation expense $ 2,763 $ 2,365 $ 8,335 $ 6,902 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. 16 Table of Contents 7. Goodwill and Other Intangible Assets Goodwill 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 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 ( 486 ) Plastiq acquisition 6,943 Balance at September 30, 2023 $ 375,794 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: September 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 $ 182,339 $ ( 33,764 ) $ 148,575 14.7 Residual buyouts 136,064 ( 90,121 ) 45,943 6.3 Customer relationships 109,017 ( 91,619 ) 17,398 8.4 Merchant portfolios 83,350 ( 52,711 ) 30,639 6.5 Technology 57,639 ( 21,525 ) 36,114 9.0 Trade names 7,104 ( 2,383 ) 4,721 10.6 Non-compete agreements 3,390 ( 3,390 ) — 0.0 Money transmission licenses (1) 2,100 — 2,100 Total $ 581,003 $ ( 295,513 ) $ 285,490 9.7 (1) These assets have an indefinite useful life. 17 Table of Contents 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 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 September 30, 2023, there were no impairment indicators present. 8. Debt Obligations Outstanding debt obligations consisted of the following: (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 - $ 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 Less: current portion of long-term debt ( 6,200 ) ( 6,200 ) Less: unamortized debt discounts and deferred financing costs ( 16,069 ) ( 18,074 ) Long-term debt, net $ 616,781 $ 598,926 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 September 30, Nine Months Ended September 30, (in thousands) 2023 2022 2023 2022 Interest expense (1),(2) $ 19,997 $ 13,412 $ 55,461 $ 37,282 18 Table of Contents (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 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 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. 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 September 30, 2023, the Company was in compliance with the covenants in the Credit Agreement. 19 Table of Contents 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) September 30, 2023 December 31, 2022 Redeemable senior preferred stock $ 225,000 $ 225,000 Accumulated unpaid dividend 38,880 25,498 Dividend payable 6,810 5,341 Redemption value 270,690 255,839 Less: unamortized discounts and issuance costs ( 17,767 ) ( 20,260 ) Redeemable senior preferred stock, net of discounts and issuance costs: $ 252,923 $ 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 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 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 (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. Under the Amended Certificate of Designation, the dividend rate (capped at 22.50 %) will be equal to the three-month term SOFR (minimum of 1.00 %), plus the three-month term SOFR spread adjustment of 0.26 % plus the applicable margin of 12.00 %. All other terms in the agreement were unchanged. For the three months ended September 30, 2023, SOFR is the reference rate for calculation of the dividend. 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 20 Table of Contents 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. 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 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. 10. Income Taxes 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. 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 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. 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 September 30, 2023 and December 31, 2022, the Company has not issued any shares of preferred stock. 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. September 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. 21 Table of Contents 12. Stock-based Compensation 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 nine months ended September 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 nine months ended September 30, 2023, was immaterial and is included in stock-based compensation in the table above. 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 $ 19.4 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 September 30, 2023 and December 31, 2022, respectively. The Company is obligated to make the 22 Table of Contents 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 See Note 4. Settlement Assets and Customer/Subscriber Account Balances and Related Obligations , for information about merchant reserves. Contingent Consideration 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 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 Addition of contingent consideration (related to business combination) 8,682 Accretion of discount on contingent consideration 560 Payment of contingent consideration ( 7,949 ) September 30, 2023 $ 12,706 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. 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 23 Table of Contents 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. 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. Liabilities measured at fair value on a recurring basis consisted of the following: (in thousands) Fair Value Hierarchy September 30, 2023 December 31, 2022 Contingent consideration, current portion Level 3 $ 3,789 $ 6,079 Contingent consideration, noncurrent portion Level 3 8,917 2,000 Total contingent consideration $ 12,706 $ 8,079 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 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 $ 5.2 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. 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 $ 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. 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. 24 Table of Contents • 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. Corporate includes costs of corporate functions and shared services not allocated to our reportable segments. 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 September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Revenues: SMB Payments $ 140,109 $ 139,892 $ 442,937 $ 412,357 B2B Payments 13,748 4,868 19,505 16,088 Enterprise Payments 35,158 21,657 93,891 57,641 Consolidated revenues $ 189,015 $ 166,417 $ 556,333 $ 486,086 Depreciation and amortization: SMB Payments $ 9,858 $ 11,040 $ 31,473 $ 32,844 B2B Payments 772 295 1,024 441 Enterprise Payments 6,154 6,203 19,557 18,599 Corporate 491 279 1,249 791 Consolidated depreciation and amortization $ 17,275 $ 17,817 $ 53,303 $ 52,675 Operating (loss) income: SMB Payments $ 11,821 $ 13,447 $ 35,374 $ 39,928 B2B Payments 78 217 ( 790 ) 1,289 Enterprise Payments 21,339 9,312 50,081 19,504 Corporate ( 9,732 ) ( 8,896 ) ( 25,178 ) ( 22,755 ) Consolidated operating income $ 23,506 $ 14,080 $ 59,487 $ 37,966 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 September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Total operating income of reportable segments $ 33,238 $ 22,976 $ 84,665 $ 60,721 Corporate ( 9,732 ) ( 8,896 ) ( 25,178 ) ( 22,755 ) Interest expense ( 19,997 ) ( 13,412 ) ( 55,461 ) ( 37,282 ) Other income, net 732 231 1,319 311 Income tax benefit (expense) ( 4,328 ) ( 1,691 ) ( 6,550 ) ( 1,833 ) Net loss $ ( 87 ) $ ( 792 ) $ ( 1,205 ) $ ( 838 ) 25 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 September 30, Nine Months Ended September 30, (in thousands except per share amounts) 2023 2022 2023 2022 Numerator: Net loss $ ( 87 ) $ ( 792 ) $ ( 1,205 ) $ ( 838 ) Less: 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 ) Denominator: Basic and diluted: Weighted-average common shares outstanding (1) 78,381 77,984 78,270 78,392 Loss per common share $ ( 0.16 ) $ ( 0.13 ) $ ( 0.47 ) $ ( 0.35 ) (1) The weighted-average common shares outstanding includes 1,803,841 warrants (refer to Note 9. Redeemable Senior Preferred Stock and Warrants ). 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) — 600 — 600 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 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. 26 Table of Contents 17. Subsequent Events 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 . 27 Table of Contents