What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-03-12 compared with 2023-03-23 · 469 added, 399 removed, 1142 unchanged (43% of the section changed)

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Consolidated Balance Sheets as of December 31, 2023 and December 31, 2022

Consolidated Statements of Operations for the years ended December 31, 2022, 2021 and 2020

Consolidated Statements of Changes in Stockholders' Deficit for the years ended December 31, 2022, 2021 and 2020

Consolidated Statements of Operations and Comprehensive Lo ss for the years ended December 31, 2023, 2022 and 2021

Consolidated Statements of Changes in Stockholders' Deficit and Non-Controlling Interests for the years ended December 31, 2023, 2022 and 2021

Consolidated Statements of Cash Flows for the years ended December 31, 2023, 2022 and 2021

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Nature of Business and Significant Accounting Policies

Disposal of Business

Settlement Assets and Customer/Subscriber Account Balances and Related Obligations

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Employee Benefit Plans

Related Party Transactions

Commitments and Contingencies

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(Loss) Earnings per Common Share

Subsequent Events

Report of Independent Registered Public Accounting Firm

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We have audited the accompanying consolidated balance sheets of Priority Technology Holdings, Inc.

(the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations, changes in stockholders' deficit and cash flows for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”).

(the Company) as of December 31, 2023 and 2022, the related consolidated statements of operations and comprehensive loss, changes in stockholders' deficit and non-controlling interests and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with U.S.

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Accrued Residual Commissions and Residual Commission Expense s

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of the critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Accounting for Plastiq

Description of the Matter As more fully described in Note 2 of the consolidated financial statements, the Company completed its acquisition of substantially all of the assets of Plastiq, including the equity interests in Plastiq Canada, Inc.

The purchase was completed on July 31, 2023 for total consideration of $37.0 million including $28.5 million in cash and the remaining consideration is in the nature of deferred or contingent consideration and certain equity interest in Plastiq, Powered by Priority, LLC.

The acquisition was accounted for as a business combination.

The Company’s accounting for the acquisition included determining the fair value of contingent consideration payments in addition to intangible assets acquired of $30.5 million, which primarily included customer relationships, referral partner relationships, tradename, and developed technology.

Auditing the Company’s accounting for the acquisition was complex due to the significant estimation uncertainty in determining the fair values of the contingent consideration payments as well as the fair value of the acquired intangible assets.

The significant estimation was primarily due to the sensitivity of the respective fair values to the future performance of the acquired business.

The significant underlying assumptions used to estimate the fair value of contingent consideration payments and intangible assets, included revenue and operating margin growth rates and prospective free cash flow from the operations of the acquired business, weighted average cost of capital, and royalty rate assumptions, as applicable.

These assumptions relate to the future performance of the acquired business are forward-looking and could be affected by future economic and market conditions.

Description of the Matter As more fully described in Note 2 of the consolidated financial statements, the Company completed its acquisition of Plastiq, Inc.

during the year ended December 31, 2023 for total consideration of $37.0 million including $28.5 million in cash and the remaining consideration of $8.5 million was in the form of deferred or contingent consideration and certain equity interest in the acquiring entity.

The acquisition was accounted for as a business combination.

The Company’s accounting for the acquisition included determining the fair value of contingent consideration payments in addition to intangible assets acquired of $30 million, which primarily included customer relationships, referral partner relationships, tradename, and developed technology.

The significant estimation was primarily due to the sensitivity of the respective fair values to the future performance of the acquired business.

The significant underlying assumptions used to estimate the fair value of contingent consideration payments and intangible assets, included revenue and operating margin growth rates and prospective free cash flow from the operations of the acquired entity, weighted average cost of capital, and royalty rate assumptions, as applicable.

These assumptions relate to the future performance of the acquired business are forward-looking and could be affected by future economic and market conditions.

How We Addressed the Matter in Our Audit To test the fair value of the contingent consideration payments and intangible assets identified, our audit procedures included, among others, evaluating the Company’s use of income approach and Monte Carlo simulation, as applicable, evaluating the significant assumptions, and evaluating the completeness and accuracy of underlying data supporting the significant assumptions.

We involved our specialist to assist with our evaluation of the methodologies used by management’s expert and significant assumptions used in the valuation of the contingent consideration payments and intangible assets identified.

For example, we compared the significant assumptions to current industry, market and economic trends, as well as historical results of the acquired businesses.

We performed sensitivity analyses of the significant assumptions to evaluate the change in the fair value resulting from changes in the assumptions.

We also evaluated the appropriateness of the Company’s disclosures included in Note 2 in relation to the acquisition.

Accrued Residual Commissions and Residual Commission Expenses

Description of the Matter Accrued residual commissions recorded by the Company and included on the Consolidated Balance Sheet were $33.0 million at December 31, 2023, and residual commission expenses included within costs of services on the Consolidated Statement of Operations were $415.1 million for the year ended December 31, 2023.

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Additional paid-in capital — 9,650

Accumulated other comprehensive income ( 29 ) —

Accumulated deficit ( 134,951 ) ( 102,208 )

Total stockholders' deficit attributable to stockholders of PRTH ( 147,718 ) ( 104,041 )

Non-controlling interest 1,255 —

Non-controlling interests in consolidated subsidiaries 1,654 1,255

Total stockholders' deficit ( 146,064 ) ( 102,786 )

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Priority Technology Holdings, Inc .

Consolidated Statements of Operations

Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except per share amounts)

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NCI preferred unit redemptions, net of deferred tax benefit — — ( 8,021 )

Net income attributable to NCIs — — ( 45,398 )

Net (loss) income attributable to common stockholders $ ( 39,030 ) $ ( 24,641 ) $ 25,661

(Loss) earnings per common share:

Net loss attributable to common stockholders ( 49,055 ) ( 39,030 ) ( 24,641 )

Other comprehensive loss

Foreign currency translation adjustments ( 29 ) — —

Comprehensive loss $ ( 49,084 ) $ ( 39,030 ) $ ( 24,641 )

Loss per common share:

Basic $ ( 0.63 ) $ ( 0.50 ) $ ( 0.34 )

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Common Stock Treasury

Stock Additional Paid-In Capital Accumulated Deficit Deficit Attributable to Stockholders NCIs Total

Stock APIC AOCI Accumulated

Deficit Deficit Attributable to Stockholders NCIs Total

Shares $ Shares $

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Vesting of stock-based compensation 465 — — — — — — — — —

Redemption of NCI in subsidiary — — — — — — — ( 5,654 ) ( 5,654 )

Earnings attributable to redeemable and redeemed NCIs — — — — — — — 45,398 45,398

Earnings distributed to redeemable and redeemed NCIs — — — — — — — ( 45,398 ) ( 45,398 )

Net income — — — — — 25,661 25,661 — 25,661

December 31, 2020 67,391 $ 68 451 $ ( 2,388 ) $ 5,769 $ ( 102,013 ) $ ( 98,564 ) $ — $ ( 98,564 )

Equity-classified stock-based compensation — — — — 2,888 — 2,888 — 2,888

Vesting of stock-based compensation 465 — — — — — — — —

Liability-classified stock-based compensation converted to equity-classified — — — — 313 — — 313 — 313

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December 31, 2021 76,740 $ 77 720 $ ( 4,091 ) $ 39,835 $ — $ ( 100,058 ) $ ( 64,237 ) $ — $ ( 64,237 )

Equity-classified stock-based compensation — — — — 6,695 — — 6,695 — 6,695

Vesting of stock-based compensation 925 1 — — — — — 1 — 1

Issuance of profit interests in wholly-owned subsidiaries — — — — — — — — 1,255 1,255

Share repurchases ( 1,621 ) ( 2 ) 1,621 ( 7,468 ) — — — ( 7,470 ) — ( 7,470 )

Dividends on redeemable senior preferred stock — — — — ( 33,594 ) — — ( 33,594 ) — ( 33,594 )

Accretion of unamortized issuance costs for redeemable senior preferred stock — — — — ( 3,286 ) — — ( 3,286 ) — ( 3,286 )

Net loss — — — — — — ( 2,150 ) ( 2,150 ) — ( 2,150 )

Priority Technology Holdings, Inc .

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Common Stock Treasury

Stock Additional Paid-In Capital Accumulated Deficit Deficit Attributable to Stockholders NCIs Total

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 — — — — 6,480 — — 6,480 — 6,480

Vesting of stock-based compensation 925 1 — — — — 1 — 1

Issuance of profit interests in wholly-owned subsidiaries — — — — — — — 1,255 1,255

Exercise of stock options — — — — — — — — —

Share repurchases ( 1,621 ) ( 2 ) 1,621 ( 7,468 ) — — ( 7,470 ) — ( 7,470 )

ESPP compensation and vesting of stock-based compensation 1,204 1 — — 182 — — 183 — 183

Shares withheld for taxes ( 291 ) — 291 ( 1,256 ) — — — ( 1,256 ) — ( 1,256 )

Dividends on redeemable senior preferred stock — — — — ( 44,404 ) — — ( 44,404 ) — ( 44,404 )

Accretion of unamortized issuance costs for redeemable senior preferred stock — — — — ( 3,286 ) — ( 3,286 ) — ( 3,286 )

Accretion of redeemable senior preferred stock — — — — ( 3,340 ) — — ( 3,340 ) — ( 3,340 )

Adjustments to NCI — — — — — — — — ( 403 ) ( 403 )

Issuance of profit interests/common equity in subsidiaries — — — — — — — — 802 802

Foreign currency translation adjustment — — — — — ( 29 ) — ( 29 ) — ( 29 )

Reclassification of negative additional paid-in capital — — — — 31,432 — ( 31,432 ) — — —

Net loss — — — — — — ( 1,311 ) ( 1,311 ) — ( 1,311 )

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Net (loss) income $ ( 1,311 ) $ ( 2,150 ) $ 1,389

Adjustments to reconcile net loss to net cash provided by operating activities:

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

Gain and transaction costs recognized on sale of business and investment — — ( 7,643 )

Depreciation and amortization of assets 68,395 70,681 49,697

Stock-based compensation 6,228 3,213 2,430

Stock-based, ESPP and incentive units compensation 6,769 6,228 3,213

Amortization of debt issuance costs and discounts 3,849 3,521 2,305

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PIK interest (paid) — — ( 23,715 )

Impairment charges for intangible asset — — 1,753

Other non-cash items, net ( 3,924 ) 74 462

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Cash flows from investing activities:

Acquisitions of businesses, net of cash acquired ( 4,976 ) ( 407,129 ) —

Acquisition of business, net of cash acquired ( 28,222 ) ( 4,976 ) ( 407,129 )

Proceeds from sale of business and investment — — 15,278

Additions to property, equipment and software ( 21,256 ) ( 18,882 ) ( 9,719 )

Notes receivable loan funding ( 4,662 ) — —

Notes receivable, net 376 ( 4,662 ) —

Acquisitions of assets and other investing activities ( 6,646 ) ( 7,983 ) ( 49,463 )

Net cash (used in) provided by investing activities ( 36,503 ) ( 451,033 ) 166,396

Net cash used in investing activities ( 55,748 ) ( 36,503 ) ( 451,033 )

Cash flows from financing activities:

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Redeemable senior preferred stock issuance fees and costs — — ( 8,098 )

Redemption of redeemable NCI in subsidiary — — ( 5,654 )

Repurchases of Common Stock and shares withheld for taxes ( 1,256 ) ( 7,468 ) ( 1,703 )

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Proceeds from exercise of stock options — — 1,196

Settlement and customer/subscriber accounts obligations, net 211,077 43,143 417,627

Payment of contingent consideration related to business combination ( 4,700 ) ( 7,014 ) —

Priority Technology Holdings, Inc .

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2023 2022 2021

Settlement and customer/subscriber accounts obligations, net 43,143 417,627 34,870

Payment of contingent consideration ( 7,014 ) — —

Net cash (used in) provided by financing activities 8,502 871,629 ( 140,943 )

Net cash provided by financing activities 210,105 8,502 871,629

Net change in cash and cash equivalents and restricted cash:

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Cash and cash equivalents and restricted cash at beginning of period 560,610 518,093 88,120

Cash and cash equivalents, and restricted cash equivalents at end of period $ 560,610 $ 518,093 $ 88,120

Cash and cash equivalents and restricted cash at end of period $ 796,223 $ 560,610 $ 518,093

Reconciliation of cash and cash equivalents, and restricted cash:

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Non-cash investing and financing activities:

PIK added to principal of debt obligation $ — $ — $ 8,573

Payment of accrued contingent consideration for asset acquisition from offset of account receivable $ — $ — $ 1,686

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

Accruals for future contingent payments $ 6,079 $ 3,000 $ 8,332

$ ( 7,027 ) $ ( 5,341 ) $ —

Contingent consideration accrual $ 5,951 $ 6,079 $ 3,000

Adjustment to value of profit interest unit $ ( 404 ) $ — $ —

Issuance of NCI $ 184 $ 1,255 $ —

Measurement period adjustment to purchase price $ 111 $ — $ —

Notes receivable from sellers used as partial consideration for acquisitions $ — $ — $ 3,499

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Non-cash additions to other noncurrent assets for right-of-use operating leases $ 1,520 $ 1,722 $ 234

(1) The dividend payable for year ended December 31, 2023, was paid on January 2, 2024.

The dividend payable for year ended December 31, 2022, was paid on January 2, 2023.

See Notes to Consolidated Financial Statements

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Headquartered in Alpharetta, GA, the Company began operations in 2005 with a mission to build a merchant-inspired payments platform that would advance the goals of its customers and partners.

Our approach leverages a single platform to collect, store and send money that operates at scale.

Our technology supports high-value payments products complimented by our personalized support.

Our approach leverages a single platform to collect, store, lend and send money that operates at scale.

Our technology supports high-value payments products complemented by our personalized support.

We are a leading provider to businesses, enterprises and distribution partners such as retail ISOs, FIs, wholesale ISOs and ISVs.

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Our proprietary MX platform for B2C payments provides merchants a fully customizable suite of business management solutions.

We enable customers to accept card, electronic and digital-based payments at the point of sale by providing a suite of services.

• B2B payments solutions such as automated vendor payments and professionally curated managed services to industry leading FIs and networks.

Our proprietary B2B CPX platform was developed to be a best-in-class solution for buyer/supplier payment enablement.

• Institutional services (also known as Managed Services) solutions that provide audience-specific programs for institutional partners and other third parties looking to leverage the Company's professionally trained and managed call center teams for customer onboarding, assistance and support, including marketing and direct-sales resources.

Our Plastiq payables management software helps businesses improve cash flow with instant access to working capital, while automating and enabling control over all aspects of accounts receivable and payable.

• Enterprise payments solutions for ISVs and other third parties that allow them to leverage the Company's core payments engine via robust API resources and high-utility embeddable code and consulting and development solutions focused on the increasing demand for integrated payments solutions for transitioning to the digital economy.

Our BaaS features transaction monitoring, draft authorization audits, fee collection practice monitoring, and other services.

The Company provides its services through three reportable segments:

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The Company's sponsorship agreements allow the capture and processing of electronic data in a format to allow such data to flow through networks for clearing and fund settlement of merchant transactions.

The Company offers money transmission services in 46 U.S.

states and two U.S.

The Company also offers money transmission services in 46 U.S.

states, the District of Columbia and two U.S.

Basis of Presentation and Consolidation

The accompanying 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.

Investments in unconsolidated affiliated companies are accounted for under the equity method and are included in other noncurrent assets in the accompanying Consolidated Balance Sheets.

The Company generally utilizes the equity method of accounting when it has an ownership interest of between 20% and 50% in an entity, provided the Company is able to exercise significant influence over the investee's operations.

All material intercompany balances and transactions have been eliminated in consolidation.

NCI represents the equity interest not owned by the Company and are recorded for consolidated entities in which the Company owns less than 100% of the interests.

Changes in the Company's ownership interest while the Company retains its controlling interest are accounted for as equity transactions, and upon loss of control, retained ownership interests are remeasured at fair value, with any gain or loss recognized in earnings.

Changes in the Company's ownership interest while the Company retains its controlling

interest are accounted for as equity transactions, and upon loss of control, retained ownership interests are remeasured at fair value, with any gain or loss recognized in earnings.

For 2023, there was no income or loss attributable to NCI in accordance with the applicable operating agreements.

The results for the year ended December 31, 2023, include the post-acquisition results of the Plastiq business which was acquired through Chapter 11 bankruptcy process on July 31, 2023.

Use of Estimates

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As a result, we present our revenues net of the interchange fees retained by the card issuing FIs and the fees charged by the payment networks.

SMB Payments – The Company's SMB Payments segment enables the Company's customers to accept card, electronic and digital-based payments at the point of sale by providing a suite of services including authorization, settlement and funding, customer support and help-desk functions, chargeback resolution, payment security, consolidated billing and statements, and online reporting.

online reporting.

Additionally, the Company enables customers to accept card, electronic and digital-based payments at the point of sale by providing a suite of services.

The Company also earns revenue and commissions from resale of electronic POS equipment and certain subscription coupons.

Typically, revenues generated from these transactions are based on a variable percentage of the dollar amount of each transaction, and in some instances, additional fees (e.g., statement fees, annual fees and monthly minimum fees, fees for handling chargebacks, gateway fees and fees for other miscellaneous services) are charged for each transaction.

The Company's sponsoring banks collect the gross merchant discount from the card holder's issuing bank, pay the interchange fees and assessments to the payment networks and credit card associations, retain their fees, and pay to the Company the net amount which represents the Company's revenue.

The Company also earns revenue and commissions from resale of electronic POS equipment.

B2B Payments – The Company's B2B Payments segment enables the Company's customers to automate their accounts payable and other commercial payments functions with the Company's payment services that utilize physical and virtual payment cards as well as ACH transactions.

In addition, the Company provides cost-plus-fee turn-key business process outsourcing and assists commercial customers with programs that are designed to increase acceptance of Electronic Payments.

The Company also provides cost-plus-fee turn-key business process outsourcing and assists commercial customers with programs that are designed to increase acceptance of Electronic Payments.

Revenues are generally earned on a per-transaction basis and are recognized by the Company net of certain third-party costs for interchange fees, assessments to the payment networks, credit card associations fees, sponsor bank fees and rebates to customers.

For outsourced services, revenue is recognized to the extent of billable rates multiplied times hours worked and other reimbursable costs incurred.

For performance obligations associated with outsourced services that are satisfied over time, the Company applies the permitted practical expedient known as the "right to invoice practical expedient" that allows the Company to recognize revenue in the amount of consideration to which the Company has the right to invoice when that amount corresponds directly to the value transferred to the customer.

The Company's payables management software helps businesses improve cash flow with instant access to working capital, while automating and enabling control over all aspects of accounts receivable and payable.

For these transactions, the Company acts as a 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.

Enterprise Payments – The Company's Enterprise Payments segment uses payment-adjacent technologies to facilitate the acceptance of Electronic Payments from customers.

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ASC 606 requires disclosure of the aggregate amount of the transaction price allocated to unsatisfied performance obligations.

However, as allowed by ASC 606, the Company has elected to exclude from this disclosure any contracts with an original duration of one year or less and any variable consideration that meets specified criteria.

However, as allowed by ASC 606, the Company has elected to exclude from this disclosure any contracts with an original

duration of one year or less and any variable consideration that meets specified criteria.

As described above, the Company's most significant performance obligations consist of variable consideration under a stand-ready series of distinct days of service.

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The Company accrues and pays commission expense based on variable merchant payment volumes and for certain customer service and other services provided by its ISOs.

Since commission expenses are accrued and paid to ISOs on a monthly basis after the merchant enters into a new or renewed contract, these are not deemed to be a cost to acquire a new contract but they are reported within costs of services on our Consolidated Statements of Operations.

The ISO is typically an independent contractor or agent of the Company.

The Company may occasionally elect to buy out all or a portion of an ISO's rights to receive future commission payments related to certain merchants.

Amounts paid to the ISO for these residual buyouts are capitalized by the Company under the accounting guidance for intangible assets and included in intangible assets, net on our Consolidated Balance Sheets.

Amounts paid to the ISO for these residual buyouts are capitalized and amortized over the useful life on a straight-line basis under the accounting guidance for intangible assets and included in intangible assets, net on our Consolidated Balance Sheets.

The Company pays bonuses to certain ISOs for meeting established performance criteria which results in a continued benefit to the Company for future periods.

The incremental costs are incurred to secure a future stream of revenue and are recorded as contract acquisitions costs and are amortized over the estimated time on which benefit is expected to be received.

A contract with a customer creates a legal right and obligation.

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Material contract assets and liabilities are presented net at the individual contract level in the Consolidated Balance Sheets and are classified as current or noncurrent based on the nature of the underlying contractual rights and obligations.

Contract Acquisition Costs

The Company pays certain bonuses to it's ISOs for boarding incremental merchants which the Company expects to obtain benefit from in future periods.

These bonuses are recorded as contract acquisition costs and are amortized over five years .

Net contract acquisition costs were $ 6.6 million and $ 2.1 million at December 31, 2023 and 2022, respectively.

Amortization expense for contract acquisition costs for the years ended December 31, 2023 and 2022 was $ 1.0 million and $ 0.2 million, respectively.

Amortization expense for the year ended December 31, 2021, was immaterial .

Cash and Cash Equivalents and Restricted Cash

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Restricted cash is held by the Company in financial institutions for the purpose of in-process customer settlements or reserves held per contact terms.

Accounts Receivable

Accounts receivable is stated net of allowance for doubtful accounts and are amounts primarily due from the Company's sponsor banks for revenues earned, net of related interchange and processing fees, and do not bear interest.

Accounts Receivable, net

Accounts receivable is stated net of allowance for current period credit losses for any uncollectible amounts and are amounts primarily due from the Company's sponsor banks for revenues earned, net of related interchange and processing fees, and do not bear interest.

Other types of accounts receivable are from agents, merchants and other customers.

Amounts due from sponsor banks are typically paid within 30 days following the end of each month.

Inventory consists primarily of POS terminals and certain subscription coupons which is carried at the lower of cost or net realizable value.

Cost is equal to the purchase price and other expenses incurred with acquiring the inventory and is substantially valued using the weighted average cost method.

The carrying amount is reduced when items are determined to be obsolete/expired.

Notes Receivable

Notes receivable are primarily comprised of notes receivable from ISOs and related parties, 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.

Notes Receivable and Not e 17.

Related Parties

Allowance for Doubtful Accounts Receivable and Notes Receivable

The Company records an allowance for doubtful accounts and/or notes receivable when it is probable that the account receivable balance or the note receivable balance will not be collected, based upon loss trends and an analysis of individual accounts.

Accounts receivable and notes receivable are written off when deemed uncollectible.

Recoveries of accounts receivable and notes receivable previously written off, if any, are recognized when received.

The allowance for doubtful accounts was $ 1.1 million and $ 0.6 million at December 31, 2022 and 2021, respectively.

As of December 31, 2022 and 2021, there was no allowance for doubtful notes receivable.

Notes receivable are primarily comprised of notes receivable from ISOs 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.

Notes receivable are recorded at the unpaid principal balance.

Interest on notes receivable is recognized on a monthly basis and is included in interest income.

Notes Receivable .

Allowance for Expected Losses

The Company utilizes a combination of aging and loss-rate methodologies to develop an estimate of current expected credit losses based on the nature and risks associated with the underlying asset pool.

A broad range of factors are considered during the estimation of the allowance including historical losses, adjustments for current conditions and future trends.

The Company may also utilize a mix of qualitative and quantitative risk factors within its estimation.

The allowance for expected loss from accounts receivable was $ 5.3 million and $ 1.1 million at December 31, 2023 and 2022, respectively.

As of December 31, 2023 and 2022, there was no allowance for expected loss on notes receivable.

Notes Receivable .

As of December 31, 2023 and 2022, the allowance for expected losses on settlement assets was $ 6.6 million and $ 5.0 million, respectively.

Settlement Assets and Customer/Subscriber Account Balances and Related Obligations .

A reconciliation of the beginning and ending amount of allowance for expected losses is as follows for the year ended December 31, 2023:

(in thousands) Trade Receivables Settlement assets

Balance at January 1, 2023 $ ( 1,143 ) $ ( 4,976 )

Charge-offs (recoveries), net 130 3,407

Provision (1)

( 4,276 ) ( 4,989 )

Balance at December 31, 2023 $ ( 5,289 ) $ ( 6,558 )

(1) Provision for trade receivables includes restructuring related costs of $ 3.5 million

The Company has elected not to measure expected losses for accrued interest on notes receivable but instead recognize losses for accrued interest within the period losses are incurred.

Customer Deposits and Advance Payments

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Amounts associated with obligations expected to be satisfied within one year are reported in customer deposits and advance payments on the Company's Consolidated Balance Sheets and amounts associated with obligations expected to be satisfied after one year are reported as a component of other noncurrent liabilities on the Company's Consolidated Balance Sheets.

These payments are subsequently recognized in the Company's Consolidated Statements of Operations when the Company satisfies the performance obligations required to retain and earn these deposits and advance payments.

These payments are subsequently recognized in the Company's Consolidated Statements of Operations and Comprehensive Loss when the Company satisfies the performance obligations required to retain and earn these deposits and advance payments.

A vendor may make an upfront payment to the Company to offset costs that the Company incurs to integrate the vendor into the Company's operations.

These upfront payments are deferred by the Company and are subsequently amortized against expense in its Consolidated Statements of Operations as the related costs are incurred by the Company in accordance with the agreement with the vendor.

These upfront payments are deferred by the Company and are subsequently amortized against expense in its Consolidated Statements of Operations and Comprehensive Loss as the related costs are incurred by the Company in accordance with the agreement with the vendor.

Property and Equipment

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Software development costs may become impaired in situations where development efforts are abandoned due to the viability of the planned project becoming doubtful or due to technological obsolescence of the planned software product.

For the years ended December 31, 2022, 2021 and 2020, there was no impairment associated with internal-use software.

For the year ended December 31, 2023, there was accelerated depreciation for internal-use software of $ 0.3 million from certain restructuring costs.

There were no impairment charges associated with internal-use software for the years ended December 31, 2022 and 2021.

For the years ended December 31, 2023, 2022 and 2021, the Company capitalized software development costs of $ 21.3 million, $ 16.8 million and $ 7.8 million, respectively.

As of December 31, 2022 and 2021, capitalized software development costs, net of cumulated amortization, totaled $ 28.1 million and $ 18.3 million, respectively, and are included in property, equipment and software, net on the Consolidated Balance Sheets.

Amortization expense for capitalized software development costs for the years ended December 31, 2022, 2021 and 2020 was $ 6.9 million, $ 5.9 million and $ 5.3 million, respectively, and are included in depreciation and amortization on the Consolidated Statements of Operations.

As of December 31, 2023 and 2022, capitalized software development costs, net of accumulated amortization, totaled $ 40.6 million and $ 28.1 million, respectively, and are included in property, equipment and software, net on the Consolidated Balance Sheets.

Amortization expense for capitalized software development costs for the years ended December 31, 2023, 2022 and 2021 was $ 9.4 million, $ 6.9 million and $ 5.9 million, respectively, and are included in depreciation and amortization on the Consolidated Statements of Operations and Comprehensive Loss.

Other Intangible Assets

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Trade Names and Non-compete Agreements Acquired trade names and non-compete agreements 3 – 10 years

Money Transmission Licenses Acquired licenses to collect, store and send money in 46 U.S.

states and two U.S.

Money Transmission Licenses Acquired licenses to collect, store, lend and send money in 46 U.S.

states, the District of Columbia and two U.S.

Impairment of Long-lived Assets

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The Company concluded there were no indications of impairment for the years ended December 31, 2023, 2022 and 2021.

For the year ended December 31, 2020, the Company recognized an impairment charge of $ 1.8 million for a residual buyout intangible asset.

Goodwill and Other Intangible Assets .

The Company tests goodwill for impairment on an annual basis, or when events occur or circumstances indicate the fair value of a reporting unit is below its carrying value.

The test for goodwill impairment may be a qualitative or a quantitative analysis depending on the facts and circumstances associated with the reporting unit.

If the fair value of a reporting unit is less than its carrying value, an impairment loss is recorded to the extent that implied fair value of the goodwill within the reporting unit is less than its carrying value.

Goodwill and Other Intangible Assets .

The Company adopted ASU 2016-02, Leases and its related interpretations, codified as ASC 842, as of January 1, 2021, applying the optional transition approach available whereby the new lease standard is applied at the adoption date recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption, if applicable, and prior periods are not restated.

Upon adoption the Company recorded ROU Assets of approximately $ 7.4 million and related operating lease obligations of approximately $ 8.4 million.

There was no impact to the opening balance of retained earnings.

Under ASC 842

Goodwill and Other Intangible Assets for further information.

The Company evaluates lease and service arrangements at lease inception to determine if the arrangement is a lease or contains a lease.

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Finance leases, if applicable, are reported as part of property, equipment and software, net, and debt on the Company's Consolidated Balance Sheets.

Leases with a term of twelve months or less are not included on the Company's Balance Sheets.

Leases with a term of twelve months or less are generally not included on the Company's Balance Sheets.

The Company does not separate lease and non-lease components.

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The lease payment stream includes any rent escalation that is required under certain lease agreements.

The Company's leases generally do not provide an implicit rate of interest, nor is it readily determinable by the Company, and as such the Company uses its incremental borrowing rate in determining the discounted value of the lease payments.

The Company's leases generally do not provide an

implicit rate of interest, nor is it readily determinable by the Company, and as such the Company uses its incremental borrowing rate in determining the discounted value of the lease payments.

Lease expense and depreciation expense, if applicable, are recognized on a straight-line basis over the term of the lease.

Prior to the Adoption of ASC 842

The Company has multiple operating leases related to office space.

Operating leases do not involve transfer of risks and rewards of ownership of the leased asset to the lessee, therefore the Company expenses the costs of its operating leases.

The Company may make various alterations (leasehold improvements) to the office space and capitalize these costs as part of property and equipment.

Leasehold improvements are generally amortized on a straight-line basis over the useful life of the improvement or the term of the lease, whichever is shorter.

Settlement Assets and Customer/Subscriber Account Balances and Related Obligations

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Debt issuance costs associated with Company's term debt are presented on the Company's Consolidated Balance Sheets as a direct reduction in the carrying value of the associated debt liability.

Debt modification costs represents amounts paid to third parties to modify existing debt agreements when those amounts are not eligible for capitalization.

Business Combinations

Debt modification costs represent amounts paid to third parties to modify existing debt agreements when those amounts are not eligible for capitalization.

Debt Obligations for amounts paid for the year ended December 31, 2023, which were not eligible for capitalization.

Restructuring Costs

The Company's Management approved a plan to restructure the business of its wholly owned subsidiary, PayRight.

PayRight's business activity included advancing funds to customers, which did not generate the desired financial results due to changes in the economic environment, particularly the cost of capital.

The restructuring plan includes termination of the advancing business effective June 30, 2024.

The Company included costs related to this restructuring within selling, general and administrative operating expenses and depreciation and amortization within its Consolidated Statement of Operations and Comprehensive Loss for the year ended December 31, 2023.

The costs include allowance for certain advances whose recoverability was impacted by the restructuring of $ 3.5 million and $ 0.3 million for accelerated depreciation and amortization of assets of the restructured business.

Business Combinations and Asset Acquisitions

The Company uses the acquisition method of accounting for business combinations which requires assets acquired and liabilities assumed to be recognized at their fair values on the acquisition date.

Goodwill represents the excess of the purchase price over the fair value of the net assets acquired.

The fair values of the assets acquired and liabilities assumed are determined

based upon the valuation of the acquired business and involves making significant estimates and assumptions based on facts and circumstances that existed as of the acquisition date.

The fair values of the assets acquired and liabilities assumed are determined based upon the valuation of the acquired business and involves making significant estimates and assumptions based on facts and circumstances that existed as of the acquisition date.

The Company uses a measurement period following the acquisition date to gather information that existed as of the acquisition date that is needed to determine the fair value of the assets acquired and liabilities assumed.

The measurement period ends once all information is obtained, but no later than one year from the acquisition date.

The Company accounts for a transaction as an asset acquisition when substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, or otherwise does not meet the definition of a business.

Asset acquisition-related costs are capitalized as part of the asset or assets acquired.

Contingent Consideration

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Non-controlling Interests

The Company issued non-voting incentive units in three of its subsidiaries during 2022 to acquire the operating assets of certain businesses (see Note 2.

Acquisitions ).

The Company is the majority owner of these subsidiaries and therefore the incentive units are deemed to be NCI.

Occasionally, the Company issues common equity and non-voting incentive units within its subsidiaries.

The Company is the majority owner of these subsidiaries and, therefore, the common equity and incentive units are deemed to be NCI.

NCI is valued based on the events and methodologies including the acquisition-date fair value or the option pricing method.

Acquisitions for further information related to the fair value of the common equity issued during 2023.

To estimate the initial fair value of the incentive units, the Company utilizes future cash flow scenarios with focus on those cash flow scenarios which could result in future distributions to the NCIs.

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These call rights can only be executed under certain circumstances and execution is always optional at the Company's discretion.

The call rights do not meet the definition of a free-standing financial instrument or derivative, thus no separate accounting is required for these call rights.

The call rights do not meet the definition of a free-standing financial instrument or derivative;

thus no separate accounting is required for these call rights.

Accrued Residual Commissions

Accrued residual commissions consist of amounts due to ISOs and independent sales agents based on a percentage of the net revenues generated from the Company's merchant customers.

Accrued residual commissions consist of amounts due to ISOs and independent sales agents based on a percentage of the net revenues generated from the Company's merchant customers referred by the respective ISO and independent sales agent.

Percentages vary based on the program type and transaction volume of each merchant.

Residual commission expenses were $ 383.5 million, $ 318.9 million and $ 240.2 million, respectively, for the years ended December 31, 2022, 2021 and 2020, and are included in costs of services in the accompanying Consolidated Statements of Operations.

Residual commission expenses were $ 415.1 million, $ 396.2 million and $ 330.2 million, respectively, for the years ended December 31, 2023, 2022 and 2021, and are included in costs of services in the accompanying Consolidated Statements of Operations and Comprehensive Loss.

ISO Deposit and Loss Reserve

ISOs may partner with the Company in an exclusive partner program in which ISOs are given negotiated pricing in exchange for bearing risk of loss.

ISOs may partner with the Company in an exclusive partner program in which ISOs are given negotiated pricing in exchange for bearing the risk of loss.

Through the arrangement, the Company accepts deposits on behalf of the ISO and a reserve account is established by the Company.

All amounts maintained by the Company are included in the accompanying Consolidated Balance Sheets as other liabilities, which are directly offset by restricted cash accounts owned by the Company.

All amounts maintained by the Company are included in the accompanying Consolidated Balance Sheets as other liabilities, which are directly offset by restricted cash accounts owned by the Compan y of $ 6.4 million and $ 5.1 million as of December 31, 2023 and 2022, respectively.

Stock-based Compensation

The Company recognizes the cost resulting from all stock-based payment transactions in the financial statements at grant date fair value.

Stock-based compensation expense is recognized over the requisite service period and is reflected in salary and employee benefits expense on the Company's Consolidated Statements of Operations.

Stock-based compensation expense is recognized over the requisite service period and is reflected in salary and employee benefits expense on the Company's Consolidated Statements of Operations and Comprehensive Loss.

Awards generally vest over three or four years and may not vest evenly over the vesting period.

The effects of forfeitures are recognized as they occur.

All shares issued

from option exercises or vesting of RSU awards are original issuance shares and any shares withheld for taxes are repurchased by the Company.

All shares issued from option exercises or vesting of RSU awards are original issuance shares and any shares withheld for taxes are repurchased by the Company.

The Company measures a liability award under a stock-based compensation payment arrangement based on the award's fair value remeasured at each reporting date until the date of settlement.

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Expected volatility – Measure of the amount by which a stock price has fluctuated or is expected to fluctuate.

Due to the relatively short amount of time that the Company's Common Stock (Nasdaq:

PRTH) has traded on a public market, the Company uses volatility data for the Common Stock of a peer group of comparable public companies.

An increase in the expected volatility will increase the fair value of the stock option and related compensation expense.

In 2018, when the Company's outstanding stock options were granted, there was a relatively short amount of time that the Company's Common Stock (Nasdaq:

PRTH) were traded on a public market, the Company utilized volatility data for the Common Stock of a peer group of comparable public companies.

An increase in the expected volatility would increase the fair value of the stock option and related compensation expense.

Risk-free interest rate – U.S.

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If a participant terminates employment with the Company, vested options may be exercised for a short period of time while unvested options are forfeited.

However, in any event, a stock option will expire ten years from the date of grant.

However, in any event, a stock option will expire ten years from the date of the grant.

Time-based restricted stock awards

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Additionally, if performance goals are set or reset on an annual basis, compensation cost is recognized in any reporting period only for performance-based restricted stock awards in which the performance goals have been established and communicated to the award recipient.

Non-voting Incentive Units

The Company issued non-voting incentive units to certain employees and partners in six subsidiaries.

These non-voting incentive units were determined to be equity and are accounted for under ASC 718 Stock Compensation.

The non-voting incentive units are either fully vested when granted, or vest according to the service period and/or performance measure noted in the grant agreement.

As the non-voting incentive units are vested, they are recognized as NCI to the Company, who is the majority owner of the subsidiaries.

Employee Stock Purchase Program

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The fair value of purchase rights issued under the Employee Stock purchase Plan is estimated using the Black-Scholes option pricing model.

The model requires management to make a number of assumptions, including the fair value of the Company’s Common Stock, expected volatility, expected term, risk-free interest rate, and expected dividends.

The Company records the resulting compensation expense in the Consolidated Statements of Operations over each three-month offering period.

The model requires management to make a number of assumptions, including the fair value of the Company’s Common Stock, expected volatility, expected term, risk-free interest rate, and

expected dividends.

The Company records the resulting compensation expense in the Consolidated Statements of Operations and Comprehensive Loss over each three-month offering period.

Stock-based Compensation .

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Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date.

The Company uses a three-level fair value hierarchy to prioritize the inputs used to measure fair value and maximizes the use of observable inputs and minimizes the use of unobservable inputs.

The Company uses a three-level fair

value hierarchy to prioritize the inputs used to measure fair value and maximizes the use of observable inputs and minimizes the use of unobservable inputs.

The three levels of inputs used to measure fair value are as follows:

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Level 3 – Unobservable inputs that are not corroborated by market data.

The fair values of the Company's merchant portfolios, assets and liabilities acquired in mergers and business combinations, and contingent consideration are primarily based on Level 3 inputs and are generally estimated based upon valuation techniques that include discounted cash flow analysis based on cash flow projections and, for years beyond the projection period, estimates based on assumed growth rates.

The fair values of the Company's merchant portfolios, assets and liabilities acquired in mergers and business combinations, and contingent consideration are primarily based on Level 3 inputs and are generally estimated based upon valuation techniques that include discounted cash flow analysis based on cash flow projections or Monte Carlo simulations and, for years beyond the projection period, estimates based on assumed growth rates.

Assumptions are also made regarding appropriate discount rates, perpetual growth rates, and capital expenditures, among others.

In certain circumstances, the discounted cash flow analysis is corroborated by a market-based approach that utilizes comparable company public trading values and, where available, values observed in public market transactions.

The carrying values of accounts and notes receivable, accounts payable and accrued expenses, long-term debt and cash, including settlement assets and the associated deposit liabilities, approximate their fair values due to either the short-term nature of such instruments or the fact that the interest rate of the debt is based upon current market rates.

The Company does not currently have any fair value estimates that are required to be remeasured at the end of each reporting period on a recurring basis.

In certain circumstances, the discounted cash flow analysis or Monte Carlo simulation is corroborated by a market-based approach that utilizes comparable company public trading values and, where available, values observed in public market transactions.

The carrying values of accounts and notes receivable, accounts payable and accrued expenses, long-term debt, restricted cash and cash and cash equivalents, including settlement assets and the associated deposit liabilities, approximate their fair values due to either the short-term nature of such instruments or the fact that the interest rate of the debt is based upon current market rates.

Foreign Currency

The Company's reporting currency is the U.S.

Assets and liabilities denominated in a foreign currency are translated into U.S.

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.

Foreign exchange translation and transaction gains and losses were not material for the periods presented and are included in the Consolidated Statements of Operations.

Translation adjustments are reported as a component of accumulated other comprehensive income (loss).

Concentration of Risk

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For the years ended December 31, 2023, 2022 and 2021, merchants referred by one ISO organization with merchant portability rights generated revenue within the Company's SMB Payments reportable segment that represented approximately 15 %, 21 % and 22 %, respectively, of the Company's consolidated revenues.

The Company's settlement assets and customer /subscriber account balances of $ 532.0 million includes cash and cash equivalents of $ 516.1 million related to customer account balances which are maintained in FDIC insured accounts with certain FIs.

As of December 31, 2023, the Company's settlement assets and customer /subscriber account balances of $ 745.6 million includes cash and cash equivalents of $ 710.8 million related to customer account balances which are maintained in FDIC insured accounts with certain FIs.

Settlement Assets and Customer/Subscriber Account Balances and Related Obligations .

A majority of the Company's cash and restricted cash (including subscriber account balances) 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 signi f icant credit risk from these transactions.

On at least an annual basis, the Company reviews qualitative and quantitative factors including earnings (with emphasis on return on equity and net interest margin), capitalization (with emphasis on Tier 1 and Capital ratios), asset quality (emphasis on Net charge-offs ratios), and liquidity, evaluating the performance of these FIs with their peers.

The Company may shift funds as a response to risks noted and to optimize returns and costs .

The Company does not believe it is exposed to any significant credit risk from these transactions.

Recently Adopted Accounting Standards

Business Combinations

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers , which requires entities to recognize and measure contract assets and liabilities acquired in a business combination in accordance with ASC 606, as if the acquirer had originated the contracts.

Generally this will result in the acquirer recognizing and measuring the acquired contract assets and liabilities consistent with the manner by which they were recognized and measured by the acquiree.

This update is effective for public companies for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, and early adoption is permitted, including in an interim period.

If this update is adopted early in an interim period, it must be applied retrospectively to all business combinations that occurred since the beginning of the fiscal year.

The Company elected to early adopt ASU 2021-08 in the second quarter of 2022.

The adoption of this ASU did not have a material impact on the 2022 acquisitions.

Recently Issued Accounting Standards Pending Adoption

The following standards are pending adoption and will likely apply to the Company in future periods based on the Company's current business activities.

Credit Losses

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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 "incurred loss" model considers past events and current conditions, while the "expected loss" model includes expectations for the future which have yet to occur.

The standard requires entities to record a cumulative-effect adjustment to the balance sheet as of the beginning of the first reporting period in which the guidance is effective.

Since the Company is an SRC, the Company will adopt ASU 2016-13 effective January 1, 2023 and does not expect to have a material impact on its Consolidated Financial Statements

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 Audited 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.

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

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

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

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

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

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

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

The Company adopted the optional expedients of Topic 848 on June 30, 2023 upon the amendments of its Credit Agreement (see Note 10.

Debt Obligations ) and the Certificate of Designation (see Note 11.

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 Consolidated Financial Statements.

Recently Issued Accounting Standards Pending Adoption

Segment Reporting ASU 2023-07

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures, which requires incremental reportable segment disclosures, primarily about significant segment expenses.

The amendments also require entities with a single reportable segment to provide all disclosures required by these amendments, and all existing segment disclosures.

This guidance is effective for fiscal years beginning after December 15, 2023, and interim periods after December 15, 2024.

The Company will adopt this guidance for the year ended December 31, 2024.

This guidance is expected to only impact the disclosures with no impact on the results of operations, financial position or cash flows.

Income Taxes ASU 2023-09

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvement to Income Tax Disclosures, to enhance the transparency and decision usefulness of income tax disclosures.

The guidance includes improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid.

This guidance is effective for annual periods beginning after December 15, 2024, with early adoption permitted.

The Company is in the process of evaluating when it will adopt this guidance and the potential effects this guidance will have on its disclosures.

Plastiq Acquisition

On May 23, 2023,Plastiq, Powered by Priority, LLC (the "Acquiring Entity"), a subsidiary of PRTH, entered into a stalking horse equity and asset 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 $ 37.0 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 the Acquiring Entity 330

cash and restricted cash acquired (3)

Total purchase consideration, net of cash and restricted cash acquired $ 36,971

Recognized amounts of assets acquired and liabilities assumed:

Accounts receivable (3)

Prepaid expenses (3)

Settlement assets 8,277

Equipment, net 47

Intangible assets (2)

Accounts payable and accrued expenses (3)

Customer deposits ( 214 )

Settlement obligations ( 8,279 )

Total purchase consideration $ 36,971

(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.

(3) During the fourth quarter 2023, the Company recorded measurement period adjustments due to additional information received related to cash acquired, accounts receivable, prepaid expenses, goodwill and accounts payable.

measurement period adjustment resulted in decreases in cash and restricted cash acquired of $ 40.0 thousand, and accounts receivable of $ 50.0 thousand offset by increases in prepaid expenses of $ 46.0 thousand, and goodwill of $ 0.3 million, and accounts payable of $ 0.2 million.

The contingent consideration will not exceed the contractual undiscounted future value of $ 23.1 million and will be remeasured quarterly based on actual operating results.

As of December 31, 2023, total consideration was $ 9.7 million, $ 2.2 million included in accounts payable and accrued expenses and $ 7.5 million included in noncurrent liabilities on the Consolidated Balance Sheets.

Total interest accreted for the year was $ 1.3 million.

The Company will make quarterly payments equal to 75 % of the cash available for the contingent consideration as required by the contract.

The payment made for the year ended December 31, 2023, was immaterial.

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

The Company's Consolidated Financial Statements for year ended December 31, 2023 include the operating results of Plastiq from August 1, 2023 through December 31, 2023 as noted in the table below:

Year Ended December 31, 2023

(in thousands)

Revenues $ 27,436

Operating loss (1)

(1) Excluding acquisition related costs of $ 1.3 million

The bankruptcy of Plastiq, Inc.

before acquisition by the Company resulted in significant changes to the cost structure of the acquired business.

As a result, pre-acquisition financial information is not relevant and therefore impractical to include.

For the twelve months ended December 31, 2023, the Company incurred $ 1.7 million 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 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.

Acquisitions occurring in prior years

Ovvi Acquisition

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

The acquired business was valued for $ 6.3 million and the Company acquired a controlling interest for $ 5.0 million, the remaining $ 1.3 million was contributed by sellers for non-voting profit-sharing interest in Ovvi, creating NCI.

Ovvi also issued non-voting incentive units to the seller.

Transaction costs were not material and were expensed.

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Consideration:

Amount withheld for inventory (1)

Total purchase consideration, inclusive of amount withheld for inventory 5,026

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

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

Total enterprise value of business acquired (3)

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Property, equipment and software, net 20

Goodwill (3)(4)

Intangible assets (2)

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Total enterprise value of business acquired (3)

(1) The inventory acquired is subject to a reduction for any portion up to the total amount withheld pending final determination of the inventory acquired.

(2) The intangible assets consist of $ 1.3 million for technology, $ 0.4 million for customer relationships and $ 0.3 million for trade name.

(3) The fair value determination for the Class B shares is subject to adjustment due to final determination as soon as practicable but no later than one year from the closing date.

This will affect the enterprise value of the business acquired.

Other Acquisition

The Company also completed another acquisition during 2022 for approximately $ 1.0 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.

(1) Includes $ 50.0 thousand withheld for inventory acquired which was subsequently released in March 2023.

(2) The intangible assets consist of $ 1.3 million for technology, $ 0.4 million for customer relationships and $ 0.3 million for trade names.

(3) During the first quarter of 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 third quarter of 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.

Finxera Acquisition

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Property, equipment and software, net 712

Goodwill 244,712

Intangible assets, net (2)

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(1) The fair value of the 7,551,354 shares of PRTH Common Stock that were issued was determined based on their market price at the time of closing adjusted for an appropriate liquidity discount due to trading restrictions under Securities Rule 144.

(2) During the year ended December 31, 2022, the Company recorded measurement period adjustments due to additional information received related to income taxes and deferred income taxes, net.

These measurement period adjustments resulted in an increase of $ 0.1 million in prepaid expenses and an increase of $ 0.3 million in other current assets and deferred income taxes, offset by a decrease in goodwill of $ 0.4 million.

(2) The intangible assets acquired consist of $ 154.9 million for referral partner relationships, $ 34.3 million for technology, $ 20.1 million for customer relationships and $ 2.1 million for money transmission licenses.

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The goodwill was allocated 100 % to the Company's Enterprise Payments reportable segment.

In 2020, Finxera acquired two businesses for which the purchase price included contingent consideration valued at $ 6.1 million.

The contingent consideration payable is comprised of earnout opportunities equal to 25 % to 50 % of certain revenues earned from the customers assumed in these acquisitions.

The associated earnout opportunities are to be measured and paid every six months and expire at various dates through December 31, 2023.

As of the year ended December 31, 2022, an adjustment of $ 1.2 million was recorded due to changes in the fair value of the contingent consideration (as selling, general and administrative expenses in the Company's Consolidated Statements of Operations) resulting in total contingent consideration of $ 7.3 million.

The accretion of contingent consideration was $ 0.6 million for the year ended December 31, 2022, which is included in interest expense on the Company's Consolidated Statement of Operations, increasing total liability to $ 7.9 million of which $ 1.8 million has been paid.

The remaining $ 6.1 million was accrued and was included in accounts payable on the Company's Consolidated Balance Sheet.

The Company's Consolidated Financial Statements for the year ended December 31, 2021 included the operating results of Finxera from the Closing Date through December 31, 2021, which were reported as part of the Enterprise Payments reportable segment.

Revenues and operating income from Finxera during this period were $ 19.4 million and $ 4.3 million, respectively.

For the year ended December 31, 2021 we incurred $ 9.3 million, in acquisition related costs, which primarily consisted of consulting, legal, accounting and valuation expenses.

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

The following unaudited pro forma financial information presents results as if the acquisition occurred on January 1, 2020.

The historical consolidated financial information of the Company and Finxera has been adjusted in the pro forma information to give effect to pro forma events that are directly attributable to the transaction and are factually supportable.

The unaudited pro forma results do not reflect events that have occurred or may occur after the transaction, including the impact of any synergies expected to result from the acquisition.

Accordingly, the unaudited pro forma financial information is not necessarily indicative of the results of operations as they would have been had the transaction occurred on January 1, 2020, nor is it necessarily an indication of future operating results.

(in thousands, except per share amounts) Years Ended December 31,

Revenues $ 561,585 $ 463,823

Operating income $ 21,619 $ 32,548

Wholesale Payments, Inc.

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The seller's note payable to the Company of $ 3.0 million and an advance of $ 2.0 million outstanding at the time of the purchase were netted against the initial purchase price, resulting in cash of $ 41.2 million being paid by the Company to the seller, which was funded from cash proceeds from the issuance of the redeemable senior preferred stock and cash on hand.

As of December 31, 2022, the sellers earned $ 8.9 million of the $ 24.8 million, increasing the total purchase price recorded at December 31, 2022 to $ 51.9 million, which was recorded to residual buyout intangible assets with a seven-year useful life

amortized on a straight-line basis.

The $ 8.9 million includes a fair value adjustment of $ 0.5 million in the third quarter of 2022, which reduced the total amount earned from $ 9.4 million to $ 8.9 million.

C&H Financial Services, Inc.

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The initial purchase price for the net assets was $ 35.0 million in cash and a total purchase price of not more than $ 60.0 million including post-closing payments and earn-out payments based on certain gross profit and revenue achievements over a three-year period from the date of acquisition.

The acquisition date fair value of the contingent consideration was $ 4.7 million, which increased the total purchase price to $ 39.7 million.

The seller's note payable to the Company of $ 0.5 million at the time of purchase was netted against the initial purchase price, resulting in cash of $ 34.5 million being paid by the Company to the seller, which was funded from a $ 30.0 million draw down of the revolving credit facility under the Credit Agreement and $ 4.5 million cash on hand.

acquisition date fair value of the contingent consideration was $ 4.7 million, which increased the total purchase price to $ 39.7 million.

The seller's note payable to the Company of $ 0.5 million at the time of purchase was netted against the initial purchase price, resulting in cash of $ 34.5 million being paid by the Company to the seller, which was funded from a $ 30.0 million draw down from a revolving credit facility and $ 4.5 million cash on hand.

Transaction costs were not material and were expensed.

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(1) The intangible assets acquired consist of $ 20.2 million for merchant portfolio intangible assets with a ten-year useful life and $ 5.2 million for ISO partner relationships with a twelve-year useful life.

As of December 31, 2022, the fair value of the C&H contingent consideration was $ 2.0 million, of which was included in other noncurrent liabilities on the Consolidated Balance Sheets as of December 31, 2022.

The accretion of contingent consideration was $ 0.3 million for the year ended December 31, 2022, which is included in interest expense on the Company's Consolidated Statement of Operations.

Disposal of Business

On September 1, 2020, PRET entered into an agreement to sell certain assets from PRET's real estate services business.

The buyer also agreed to assume certain obligations associated with the assets.

The assets covered by the agreement were PRET's RentPayment component.

The transaction was completed on September 22, 2020 after receiving regulatory approval.

Prior to execution of the agreement, the buyer was not a related party of PRET or the Company.

Proceeds received by PRET were $ 179.4 million, net of $ 0.6 million for a working capital adjustment.

The gain amounted to $ 107.2 million as follows:

(in thousands)

Gross cash consideration from buyer $ 180,000

Less working capital adjustment paid in cash ( 584 )

Net proceeds from buyer 179,416

Transaction costs incurred ( 5,383 )

Intangible assets ( 62,158 )

Other assets sold, net of obligations assumed ( 716 )

Goodwill assigned to business sale ( 2,683 )

Other intangible assets ( 1,237 )

Pre-tax gain on sale of business $ 107,239

PRET is a limited liability company and is a pass-through entity for income tax purposes.

Income tax expenses associated with the gain attributable to the stockholders of the Company were estimated to be approximately $ 12.3 million.

Allocation of net proceeds, after transaction costs, to the PRET members included return of each member's invested capital in PRET and excess proceeds were distributed in accordance with the distribution provisions of the PRET LLC governing agreement.

The Company's invested capital amounted to $ 71.8 million, which included the assets sold, goodwill and other intangible assets.

The NCI's invested capital was $ 5.7 million.

Approximately $ 51.4 million and $ 45.1 million of the excess proceeds were distributed to the Company and the NCI, respectively.

The initial allocation of net proceeds remained subject to final adjustment by the PRET members at December 31, 2020.

During the first quarter of 2021, it was determined that an additional $ 0.5 million of the excess proceeds was due to the NCI, which was included in other expenses, net on the Company's Consolidated Statement of Operations for the year ended December 31, 2021.

Continuing Operations

Based on historical financial results, the Company does not believe the sale of the RentPayment component represents a strategic shift.

The sale of the business was not reported as discontinued operations in its Consolidated Financial Statements for any reporting period.

The Company will continue to serve the rental property market through its ongoing PRET operations.

Disaggregation of Revenues

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

(2) Approximately $ 7.5 million and $ 0.7 million, of interest income for the years ended December 31, 2022 and 2021, respectively, is included in outsourced services and other services revenue in the table above.

(2) Approximately $ 33.4 million, $ 7.5 million and $ 0.7 million, of interest income for the years ended December 31, 2023, 2022 and 2021, respectively, is included in outsourced services and other services revenue in the table above.

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

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Supplemental balance sheet information related to contracts from customers was as follows:

(in thousands) Consolidated Balance Sheet Location December 31, 2022 December 31, 2021

Contract liabilities, net (current) Customer deposits and advance payments $ — $ 1,280

Contract liabilities were $ 0.6 million, $ 0.2 million and $ 1.3 million as of December 31, 2023, 2022, and 2021, respectively.

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

Net contract liabilities were not material at December 31, 2022.

Net contract assets were not material for any period presented.

Impairment losses recognized on receivables or contract assets arising from the Company's contracts with customers were not material for the years ended December 31, 2022, 2021 or 2020.

Impairment losses recognized on receivables or contract assets arising from the Company's contracts with customers were $ 0.5 million for the year ended December 31, 2023.

For the years ended December 31, 2022 or 2021, the impairment losses on receivables or contract assets arising from the Company's contracts with customers were no t material.

Settlement Assets and Customer/Subscriber Account Balances and Related Obligations

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Unused merchant reserves are returned to the merchant after termination of the merchant agreement or in certain instances upon a reassessment of risks during the term of the merchant agreement.

Exception items that become the liability of the Company are recorded as merchant losses, a component of costs of services in the Consolidated Statements of Operations.

Exception items that become the liability of the Company are recorded as merchant losses, a component of costs of services in the 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 Consolidated Balance Sheets, with an offsetting reserve for those amounts the Company estimates it will not be able to recover.

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Company-owned bank accounts held $ 1.2 million and $ 4.1 million at December 31, 2023 and 2022, respectively, which are included in restricted cash and settlement obligations in the Company's 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

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As part of its licensed money transmission services, the Company accepts deposits from customers and subscribers which are held in bank accounts maintained by the Company on behalf of customers 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.

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 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.

The nature of these balances is 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 Consolidated Balance Sheets.

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

Settlement Assets:

Card settlements due from merchants, net of estimated losses $ 444 $ 537

Settlement Assets, net of estimated losses (1) :

Card settlements due from merchants $ 2,705 $ 444

Card settlements due from networks 8,185 —

Customer/Subscriber Account Balances:

Cash and cash equivalents 745,585 531,574

Time deposits — 10,000

Total settlement assets and customer/subscriber account balances $ 756,475 $ 532,018

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Subscriber account obligations

33,921 15,488

Total customer/subscriber account obligations 744,696 531,574

Due to customer payees (2)

Total settlement and customer/subscriber account obligations $ 755,754 $ 533,340

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

(1) Allowance for estimated losses was $ 6.6 million and $ 5.0 million as of December 31, 2023 and 2022, respectively

(2) Card settlements due from networks includes $ 8.2 million as of December 31, 2023 of related assets and remainder are included in restricted cash on our Consolidated Balance Sheets.

There were no card settlements due from networks in 2022.

Notes Receivable

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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.

Notes receivable from three other entities were fully repaid during 2021.

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

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Depreciation expense $ 11,494 $ 9,511 $ 8,460

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

Computer software consists of purchased software, internally developed back office systems including those used to assist in the reporting of merchant processing transactions and other related information.

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

During the year ended December 31, 2023, certain fully depreciated assets were removed from service.

Goodwill and Other Intangible Assets

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Enterprise Payments 244,712 244,712

Plastiq (B2B Payments) 7,252 —

Total $ 376,103 $ 369,337

The following table summarizes the changes in the carrying value of goodwill for the years ended December 31, 2022 and 2021:

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

(in thousands) Amount

Balance at January 1, 2022 365,740

C&H Financial Services, Inc.

acquisition 13,804

Finxera acquisition 245,104

Balance at December 31, 2021

Final purchase price adjustment for Finxera ( 392 )

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Balance at December 31, 2022

In connection with the acquisition of Finxera, $ 8.7 million of goodwill recorded was deductible for income tax purposes.

For all other business combinations consummated during the years ended December 31, 2022 and 2021, goodwill was fully deductible for income tax purposes.

Purchase price adjustment for Ovvi ( 486 )

Plastiq acquisition and purchase price adjustments 7,252

Balance at December 31, 2023

For business combinations consummated during the year ended December 31, 2023, goodwill was fully deductible for income tax purposes.

The Company performed its most recent annual goodwill impairment analysis as of October 1, 2023, as noted below:

• For the purpose of the goodwill impairment analysis, the Company determined the reporting units were Enterprise Payments, SMB Payments, and Plastiq, a component of the B2B Payments operating segment, as allowed by ASC 350.

• The Company's SMB Payments operating segment experienced a decrease in bankcard volume and revenue during 2023 due to the diversification of an ISV.

Additionally, this operating segment also experienced compressed margins due to expenses associated with costs of sales increasing at a larger rate than revenue.

Considering the most recent fair value valuation was performed in 2019, the Company elected the option to unconditionally bypass the qualitative impairment analysis and proceed with performing the quantitative analysis for the SMB Payments reporting unit as allowed by ASC 350.

For the purpose of the quantitative analysis, the guideline public company method and the discounted cash flow method (equally weighted) were determined to be the appropriate methodology.

The impairment analysis concluded the fair value of the reporting unit was greater than its carrying amount and therefore, no impairment was recognized.

• The Company's Enterprise Payments operating segment had an increase in volumes, revenue and margins for 2023.

The remaining goodwill related to the acquisition of Plastiq (see Note 2.

Acquisitions ).

Given the performance of the Enterprise Payments operating segment and the relatively short time passed since the Plastiq acquisition, the Company elected to perform the qualitative impairment analysis for these reporting units.

Under the qualitative impairment analysis, the Company identified drivers which may affect the reporting units' fair value, determined which events and circumstances impacted those drivers and concluded it was not more likely than not that the fair value of the reporting units was less than the carrying amount.

There were no impairment losses for the years ended December 31, 2023, 2022 or 2021.

The Company performed its most recent annual goodwill impairment test as of October 1, 2022, using the optional qualitative method.

Under the qualitative method, we examined the factors most likely to affect our valuations.

As a result, we have concluded that it remains more likely than not that the fair value of each of our reporting units exceeds their carrying amounts.

As of December 31, 2023, the Company is not aware of any triggering events that have occurred since October 1, 2023.

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Residual buyouts 132,325 ( 76,316 ) 56,009 6.6

126,225 ( 56,186 ) 70,039 6.4

Customer relationships 96,000 ( 83,298 ) 12,702 8.2

Merchant portfolios 76,423 ( 43,170 ) 33,253 6.7

Trade names 2,870 ( 1,890 ) 980 11.6

Non-compete agreements 3,390 ( 3,390 ) — 0.0

Technology 50,963 ( 18,566 ) 32,397 8.4

48,690 ( 15,039 ) 33,651 9.9

Non-compete agreements 3,390 ( 3,390 ) — 0.0

Trade names 3,183 ( 2,129 ) 1,054 11.6

Money transmission licenses (1)

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Total gross carrying value $ 539,684 $ ( 250,890 ) $ 288,794 9.7

(1) Additions to residual buyouts were offset by certain assets that became fully amortized in 2021 but are still in service.

(2) Certain assets in the group became fully amortized in 2021 but are still in service.

(1) These assets have an indefinite useful life.

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Thereafter 107,667

(1) Total will not agree to the intangible asset net book value due to intangible asset with indefinite useful life.

(1) Total will not agree to the intangible asset net book value due to intangible assets with indefinite useful life.

Actual amortization expense to be reported in future periods could differ from these estimates as a result of new intangible asset acquisitions, changes in useful lives and other relevant events or circumstances.

The Company tests intangible assets for impairment when events occur or circumstances indicate that the fair value of an intangible asset or group of intangible assets may be impaired.

In the Company's SMB Payments segment, a residual buyout intangible asset with a net carrying value of $ 2.2 million was deemed to be impaired at December 31, 2020.

The fair value of this intangible asset was estimated to be approximately $ 0.5 million, resulting in the recognition of an impairment charge of $ 1.8 million, which is included in selling, general and administrative expenses on the Company's Consolidated Statement of Operations for the year ended December 31, 2020.

This impairment was the result of diminished cash flows generated by the merchant portfolio.

The Company also considered the market conditions and other factors and concluded that there were no additional impairment indicators present at December 31, 2023.

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The Company did not have any finance leases at December 31, 2023 and 2022.

As of December 31, 2022 and 2021, ROU Assets and lease liabilities consisted of the following:

The ROU Assets and lease liabilities consisted of the following:

(in thousands, except weighted-average data) Financial Statement Classification December 31, 2023 December 31, 2022

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Weighted-average discount rate 5.9 % 6.9 %

The Components of lease expense for the years ended December 31, 2022 and 2021 were as follows:

The Components of lease expense were as follows:

Years Ended December 31,

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(1) Excludes short-term lease expense and sublease income, which was immaterial for the years ended December 31, 2023 and 2022.

Total rent expense for the year ended December 31, 2020 was $ 2.5 million, which is included in selling, general and administrative expenses in the Company's Consolidated Statements of Operations..

Cash paid for amounts included in the measurement of lease liabilities was as follows:

Years Ended December 31,

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Year Ending December 31, Amount Due

Thereafter 65

Total future minimum lease payments 6,889

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Total future minimum lease payments, net of interest $ 6,174

As of December 31, 2022, the Company had one lease that has not yet commenced.

The future obligation for this lease is not material.

Accounts Payable and Accrued Expenses

The components of accounts payable and accrued expenses as of December 31, 2022 and 2021 consisted of the following:

The components of accounts payable and accrued expenses consisted of the following:

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

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Accrued compensation 8,748 7,287

Contingent consideration 6,079 3,000

Contingent consideration, current portion 5,951 6,079

Accounts payable 11,003 6,513

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Debt Obligations

Outstanding debt obligations as of December 31, 2022 and 2021 consisted of the following:

Outstanding debt obligations consisted of the following:

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

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$ 654,373 $ 610,700

Revolving credit facility - $ 40.0 million line, matures April 27, 2026, interest rate of 8.82 % and 5.75 % at December 31, 2022 and 2021, respectively

12,500 15,000

Revolving credit facility - $ 65.0 million ($ 40.0 million for 2022) line, matures April 27, 2026, interest rate of 10.20 % and 8.82 % at December 31, 2023 and 2022, respectively

Total debt obligations 654,373 623,200

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2027 634,237 — 634,237

2027 585,900 — 585,900

Total $ 654,373 $ — $ 654,373

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2) a $ 290.0 million Delayed Draw Term Loan (together, the "Term Facility");

and 3) a $ 40.0 million senior secured

revolving credit facility.

The Credit Agreement was amended on September 17, 2021 to increase the amount of the Delayed Draw Term Loan facility by $ 30.0 million to $ 320.0 million.

and 3) a $ 40.0 million senior secured revolving credit facility.

The First Amendment to the Credit Agreement on May 20, 2021, clarified and provided further detail on the Credit Agreement's terms.

The Second Amendment to the Credit Agreement on September 17, 2021, increased the amount of the Delayed Draw Term Loan facility by $ 30.0 million to $ 320.0 million.

The additional Delayed Draw Term Loan is part of the same class of term loans made pursuant to the original commitments under the Credit Agreement.

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

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 December 31, 2023, for the revolving credit facility based on one-month SOFR was 10.20 % and for the term facility based on one-month SOFR was 11.21 %.

• Increase in the revolving credit facility:

The amendments also resulted in an increase in the Company’s revolving credit facility from $ 40.0 million to $ 65.0 million.

Fourth Amendment to the April 2021 Credit Agreement

On October 2, 2023, the Company modified its existing Term Facility Credit agreement with Truist.

The agreement increased the principal balance by $ 50.0 million and increased the quarterly principal amortization payment from $ 1.6 million to $ 1.7 million.

There were no other significant modifications to the Credit Agreement.

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

Accrued interest is payable on each interest payment date (as defined in the Credit Agreement).

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

The future applicable interest rate margins may vary based on the Company's Total Net Leverage Ratio in addition to future changes in the underlying market rates for LIBOR and the rate used for base-rate borrowings.

The future applicable interest rate margins may vary based on the Company's Total Net Leverage Ratio in addition to future changes in the underlying market rates for SOFR and the rate used for base-rate borrowings.

Prepayments of outstanding principal may be made in permitted increments subject to a 1.00 % penalty for certain prepayments made in connection with repricing transactions.

The Credit Agreement contains representations and warranties, financial and collateral requirements, mandatory payment events, events of default and affirmative and negative covenants, including covenants that restrict the ability to create liens, pay dividends or distribute assets from the Company's subsidiaries 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.

The outstanding amount of any loans and any other amounts owed under the Credit Agreement may, after the occurrence of an event of default, at the option of Truist on behalf of lenders representing a majority of the commitments, be declared immediately due and payable.

Events of default include the failure of the Company to make principal, premium or interest payment when due, or the failure by the Company to perform or comply with any term or covenant in the Credit Agreement, after any applicable cure period.

If the aggregate principal amount of outstanding revolving loans and letters of credit under the Credit Agreement exceeds 35 % of the total revolving facility thereunder, the Company is required to comply with certain restrictions on its Total Net Leverage Ratio, which is defined as the ratio of consolidated total debt less unrestricted cash to consolidated adjusted EBITDA (as defined in the Credit Agreement).

If applicable, the maximum permitted Total Net Leverage Ratio is:

1) 6.50 :1.00 at each quarter ended September 30, 2021 through June 30, 2022;

2) 6.00 :1.00 at each quarter ended September 30, 2022 through June 30, 2023;

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

As of December 31, 2022, the Company is in compliance with the covenants in the Credit Agreement and the Total Net Leverage Ratio was not applicable.

Proceeds from the Initial Term Loan were used to partially fund the refinancing of the Company's existing credit facilities as of April 27, 2021.

Proceeds from the Delayed Draw Term Loan were used to fund the Company's acquisition of Finxera.

Acquisitions for additional information related to the acquisition of Finxera.

Proceeds from the Fourth Amendment were used to repay the balance of the revolving credit facility (used to acquire Plastiq business) and added additional cash for general corporate purposes.

Interest Expense and Amortization of Deferred Loan Costs and Discounts

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$ 76,108 $ 53,554 $ 36,485

(1) Included in this amount is $ 0.9 million of interest expense related to the accretion of contingent considerations from acquisitions.

(1) Included in this amount is $ 1.7 million and $ 0.9 million of interest expense related to the accretion of contingent considerations from acquisitions for December 31, 2023 and 2022.

Interest expense included amortization of deferred financing costs and debt discounts of $ 3.8 million, $ 3.5 million and $ 4.0 million for the years ended December 31, 2023, 2022 and 2021, respectively.

Deferred Loan Costs and Discounts, and Debt Extinguishment and Modification Expenses

In April 2021, the Initial Term Loan under the Credit Agreement was issued at a discount of $ 6.4 million.

The Company incurred $ 6.4 million of costs including $ 3.5 million of ticking fees (debt commitment fees) prior to the drawdown of the funds in September 2021.

In September 2021, the Delayed Draw Term Loan was issued at a discount of $ 6.3 million.

Additionally, the Company incurred $ 9.9 million of costs for the Delayed Draw Term Loan.

Approximately $ 6.1 million of the remaining fees incurred for the Delayed Draw Term Loan were paid in connection with the Initial Term Loan and were deferred in other noncurrent assets on the Company's Consolidated Balance Sheet at June 30, 2021.

The costs for the Delayed Draw Term Loan were amortized over the delayed commitment access period until September 2021, at which time the unamortized balance of the deferred costs was removed from other noncurrent assets and recorded as a reduction of the carrying amount of the debt obligation and are being amortized over the remaining term of the debt.

The Company determined that the issuance of the Initial Term Loan as part of the April 2021 refinancing of an existing facility was partially an extinguishment and a modification, and therefore, recognized debt extinguishment and modification costs of $ 8.3 million in April 2021, which included a portion of the refinancing fees and the write off of previously deferred fees under the prior credit agreements.

These costs are reported within other expenses, net on the Company's Consolidated Statements of Operations.

As a result of the Third Amendment in June 2023, the Company incurred $ 0.8 million of deferred loan costs.

The Fourth Amendment in October 2023 was issued at a discount of $ 0.3 million.

These costs, along with other capitalized modification costs of $ 0.4 million, will be amortized over the remaining period of the existing Term Loan as a reduction of the carrying amount of the debt obligation.

Debt issuance costs of $ 0.1 million for the Fourth Amendment were expensed as incurred.

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.

The outstanding amount of any loans and any other amounts owed under the Credit Agreement may, after the occurrence of an event of default, at the option of Truist on behalf of

lenders representing a majority of the commitments, be declared immediately due and payable.

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 December 31, 2023, the Company was in compliance with the covenants in the Credit Agreement.

Redeemable Senior Preferred Stock and Warrants

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The agreement also provided the Company the option to issue an additional 50,000 shares of redeemable senior preferred stock upon the closing of the Finxera acquisition for $ 50.0 million, less a $ 0.6 million discount and within 18 months after the issuance of those additional shares, subject to the satisfaction of certain customary closing conditions.

The Company was also provided with the option to issue an additional delayed 50,000 shares at a purchase price of $ 50.0 million, less a $ 0.6 million discount, subject to the satisfaction of certain customary closing conditions.

Of the total net proceeds of $ 139.5 million, $ 131.4 million was allocated to the redeemable senior preferred stock, $ 11.4 million was allocated to additional paid-in capital for the warrants and $ 3.3 million was allocated to noncurrent assets for the committed financing put right.

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Therefore, the Company classified the redeemable senior preferred stock as temporary equity and is accreting the carrying amount to its full redemption amount from the date of issuance to the earliest redemption date using the effective interest method.

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

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

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

Accumulated unpaid dividend 43,498 25,498

Dividend payable 7,027 5,341

Redemption value 275,525 255,839

unamortized discounts and issuance costs ( 16,920 ) ( 20,260 )

Redeemable senior preferred stock, net of discounts and issuance costs $ 258,605 $ 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:

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January 1, 2022 225 $ 210,158

Proceeds from issuance of redeemable senior preferred stock, net of discount and issuance costs 225 199,609

Unpaid dividend on redeemable senior preferred stock — 16,794

Accretion of discounts and issuance cost — 3,286

Cash portion of dividend and ticking fee outstanding at the end of the year — 5,341

December 31, 2022 225 $ 235,579

Proceeds from issuance of redeemable senior preferred stock, net of discount and issuance costs — —

Unpaid dividend on redeemable senior preferred stock — 18,000

Accretion of discounts and issuance cost — 3,340

Cash portion of dividend and ticking fee outstanding at the end of the year — 5,341

Cash portion of dividend outstanding at December 31, 2023 — 7,027

Payment of cash portion of dividend and ticking fee outstanding at December 31, 2022 — ( 5,341 )

December 31, 2023 225 $ 258,605

The dividend rate for the redeemable senior preferred stock is equal to the three-month LIBOR rate (minimum of 1.00 %) plus an applicable margin of 12.00 % (capped at 22.50 %) per year, with a required 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 cash payment requirements outlined in the agreement, which includes required payments of dividends, required payments related to redemption or required prepayments.

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 December 31, 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 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.

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

(in thousands) Year Ended

December 31, 2022 Year Ended December 31, 2021

(in thousands) Year Ended December 31, 2023 Year Ended

December 31, 2022

Dividends paid in cash (1)

2 unchanged sentences

Dividends declared $ 44,404 $ 33,594

(1) Included in this amount is $ 5.3 million of dividends outstanding as of December 31, 2022

(1) Included in this amount is $ 7.0 million and $ 5.3 million of dividends outstanding as of December 31, 2023 and 2022 respectively.

The following table presents cumulative dividends in arrears in aggregate and per-share:

(in thousands, except per share amounts) Year Ended

December 31, 2022 Year Ended December 31, 2021

(in thousands, except per share amounts) Year Ended December 31, 2023 Year Ended

December 31, 2022

Cumulative preferred dividends in arrears $ 43,498 $ 25,497

13 unchanged sentences

and 3) the date that is 90 days following the Company's failure to consummate a mandatory redemption of the redeemable senior preferred stock upon the occurrence of a change in control or liquidation event.

The Company used the proceeds from the April 2021 sale of the redeemable senior preferred stock to partially fund the Refinancing (see Note 11.

Debt Obligations ), to partially fund the Wholesale Payments, Inc.

The Company used the proceeds from the April 2021 sale of the redeemable senior preferred stock to partially fund the refinancing to partially fund the Wholesale Payments, Inc.

and C&H Financial Services, Inc.

5 unchanged sentences

The exercise price and the number of shares issuable upon exercise of the warrants are subject to certain adjustments from time to time on the terms outlined in the warrants.

These warrants were exercisable upon issuance.

In connection with the issuance of the warrants, the Company entered into an agreement pursuant to which it agreed to provide certain registration rights with respect to the common shares issuable upon exercise of the warrants.

2 unchanged sentences

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 Consolidated Balance Sheet.

Components of consolidated income tax (benefit) expense for the years ended December 31, 2022, 2021, and 2020 were as follows:

Components of consolidated income tax (benefit) expense were as follows:

(in thousands) For the Years Ended December 31,

4 unchanged sentences

Foreign 738 349 1

Total current income tax (benefit) expense $ 13,306 $ ( 2,699 ) $ 7,939

Total current income tax expense (benefit) $ 14,549 $ 13,306 $ ( 2,699 )

deferred income tax expense (benefit)

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1) an increase in the valuation allowance against certain business interest carryover deferred tax assets.

and 2) the finalization of prior estimates of certain intangible deferred tax liabilities resulting from the Finxera acquisition.

The effective rate for December 31, 2022 differed from the statutory federal rate of 21% primarily due to:

5 unchanged sentences

The following table provides a reconciliation of the consolidated income tax (benefit) expense at the statutory U.S.

federal tax rate to actual consolidated income tax (benefit) expense for the years ended December 31, 2022, 2021 and 2020:

federal tax rate to actual consolidated income tax (benefit) expense:

(in thousands) For the Years Ended December 31,

2023 2022 2021

federal statutory (benefit) expense $ 672 $ ( 813 ) $ 17,211

federal statutory expense (benefit) $ 1,502 $ 672 $ ( 813 )

Non-controlling interests — — ( 3,024 )

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Accruals and reserves $ 1,392 $ 1,510

Investments in partnership 689 —

Intangible assets 25,682 15,600

45 unchanged sentences

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.

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.

In August 2021, PRTH's Board of Directors authorized a $ 10.0 million 2021 share repurchase program.

Under the 2021 Share Repurchase Program.

the Company was authorized to purchase up to 1.0 million shares of its Common Stock through open market transactions, unsolicited or solicited privately negotiated transactions, or otherwise in accordance with all applicable securities laws and regulations.

The Company terminated the 2021 Share Repurchase Program effective as of the close of business on September 23, 2021.

For the years ended December 31, 2022 and 2021, share re-purchase activity under these programs was as follows:

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.

Share re-purchase activity under these programs was as follows:

Years Ended December 31,

1 unchanged sentence

Number of shares purchased (1)

1,309,374 162,715

Average price paid per share $ — $ 4.42

Total Investment (1)

$ 5,791 $ 1,023

(1) These amounts may differ from the repurchases of Common Stock amounts in the Consolidated Statements of Cash Flows due to shares withheld for taxes and unsettled share repurchases at the end of the quarter.

Warrants and Purchase Options

As of December 31, 2022, 3,556,470 warrants from the original business combination in July 2018, remain outstanding.

These warrants allow the holders to purchase shares of the Company's Common Stock at an exercise price of $ 11.50 per share.

These warrants expire on August 24, 2023.

As of December 31, 2022 and December 31, 2021, 3,556,470 warrants from the original business combination in July 2018, were outstanding.

These warrants allowed the holders to purchase shares of the Company's Common Stock at an exercise price of $ 11.50 per share.

These warrants expired on August 24, 2023 and no warrants were exercised.

Prior to July 25, 2018, a purchase option was sold to an underwriter for consideration of $ 100 .

The purchase option, which survived the business combination, allow the holders to purchase up to a total of 300,000 units (each consisting of a share of Common Stock and a public warrant) exercisable at $ 12.00 per unit.

The purchase option expires on August 24, 2023.

The purchase option is classified as equity for accounting purposes and remain outstanding as of December 31, 2022.

The purchase option, which survived the business combination, allowed the holders to purchase up to a total of 300,000 units (each consisting of a share of Common Stock and a public warrant) exercisable at $ 12.00 per unit.

The purchase option expired on August 24, 2023.

Stock-based Compensation

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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.

These additional shares were registered on a Form S-8 in December 2022.

These additional shares were registered on Form S-8 in December 2022.

Stock-based compensation was as follows:

5 unchanged sentences

Liability-classified compensation expense — — 325

Total stock-based compensation under the 2018 Equity Incentive Plan 6,430 6,189 3,213

ESPP compensation expense 50 39 —

Incentive units compensation expense 288 — —

Total $ 6,768 $ 6,228 $ 3,213

For the years ended December 31, 2022, 2021 and 2020, the Company recognized an income tax benefit of approximately $ 0.7 million, $ 0.4 million and $ 0.4 million, respectively, for stock-based compensation expense.

For the year ended December 31, 2023, the Company recognized an income tax expense of approximately $ 0.1 million for stock-based compensation expense.

For the years ended December 31, 2022 and 2021, the Company recognized and income tax benefit of approximately $ 0.7 million and $ 0.4 million, respectively, for stock-based compensation expense.

No stock-based compensation has been capitalized.

A summary of the activity in stock units for the 2018 Plan that occurred during the years ended December 31, 2022, 2021 and 2020 is as follows:

A summary of the activity in stock units for the 2018 Plan is as follows:

Common Stock available for issuance at January 1, 2021 3,862,134

Stock options granted ( 15,000 )

Stock options forfeited 50,589

Stock options expired 53,870

RSUs granted ( 711,987 )

RSU granted with performance goals that have not been determined ( 128,624 )

RSUs forfeited 1,957

Shares withheld for taxes (1)

Common Stock available for issuance at December 31, 2021

New shares authorized for issuance 2,500,000

Stock options forfeited 221,733

Stock options expired 53,870

RSUs granted ( 3,223,949 )

2 unchanged sentences

Common Stock available for issuance at December 31, 2022

New shares authorized for issuance 2,500,000

Stock options forfeited 129,380

7 unchanged sentences

Outstanding, December 31, 2022

1,227,625 $ 6.90

1,005,892 $ 6.88 5.7 years $ 42

Forfeited (1)

( 129,380 ) 6.95

Outstanding, December 31, 2023

2 unchanged sentences

872,762 $ 6.89 5.0 years $ 12

The weighted-average grant date fair value of options granted in 2020 was $ 1.99 .

(1) Forfeited includes awards for which the participant has been terminated but has 90 days from the date of termination to exercise the award based on the agreement.

There were no options granted in 2023, 2022, or 2021.

The intrinsic value of options exercised in 2021 was $ 0.2 million, there were no options exercised in 2022 or 2020.

The intrinsic value of options exercised in 2021 was $ 0.2 million and there were no options exercised in 2023 or 2022.

As of December 31, 2023, there was $ 4.2 thousand of unrecognized compensation costs related to stock options, which is expected to be recognized over a remaining weighted-average period of 0.6 years.

The table below presents the assumptions used to calculate the fair value of the stock options issued in 2020:

Expected volatility 94 %

Risk-free interest rate 0.5 %

Expected term (years) 7.5

Dividend yield — %

Exercise price $ 2.47

Equity-classified Restricted Stock Units

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64,475 $ 6.90

Forfeited ( 71,383 ) $ 10.52

Vested ( 104,620 ) $ 7.24

Unvested at December 31, 2021

4 unchanged sentences

99,453 $ 3.24

64,366 $ 5.00

Granted 345,000 $ 5.31

Forfeited ( 37,500 ) $ 5.31

Vested ( 116,958 ) $ 5.12

5 unchanged sentences

As of December 31, 2023, there was $ 9.6 million and $ 1.2 million of unrecognized compensation costs for equity-classified service-based RSUs and performance-based RSUs, respectively, which are expected to be recognized over a remaining weighted-average period of 2.0 years and 2.0 years, respectively.

The total fair value of RSUs that vested in 2022, 2021 and 2020 was $ 0.9 million, $ 3.2 million and $ 1.3 million, respectively.

Liability-classified Stock-based Arrangements

In March 2020, the Company was authorized by the compensation committee of its Board of Directors to issue an RSU award to its Chairman and CEO if certain annual performance goals and achievement criteria were attained for 2020.

The award was

accounted for as a liability-classified award.

In March 2021, the performance goals and achievement criteria were met and the award was converted to an equity-classified award.

In June 2021, the Company committed to issue an additional liability-classified award with a target value of $ 0.9 million in 2022 to its Chairman and CEO if certain annual performance goals and achievement criteria were attained for 2021.

The Company has accrued $ 0.3 million in compensation expense for this liability-classified award, which is included in salary and employee benefit expenses in the Company's Consolidated Statement of Operations for the year ended December 31, 2021.

In the first quarter of 2022, the Company determined that the performance criteria was not met and this award was subsequently forfeited.

The total fair value of RSUs and PSUs that vested in 2023, 2022, and 2021 was $ 1.3 million, $ 0.9 million and $ 3.2 million, respectively.

Employee Stock Purchase Plan

On April 16, 2021, the 2021 Stock Purchase Plan was authorized by the Company's Board of Directors.

The maximum number of shares available for purchase under the 2021 Stock Purchase Plan is 200,000 shares.The shares issued under the 2021 Stock Purchase Plan may be authorized but unissued or reacquired shares of Common Stock.

The maximum number of shares available for purchase under the 2021 Stock Purchase Plan is 200,000 shares.

The shares issued under the 2021 Stock Purchase 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.

2 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 quarter.

The compensation expense for the year ended December 31, 2022 was immaterial and is included in stock-based compensation expense.

Employee Benefit Plans

6 unchanged sentences

Employees participating in the medical plan pay a portion of the costs for the insurance benefits.

Related Party Transactions

PHOT Preferred Unit Redemption - Distribution to NCIs

In February 2019, PHOT a subsidiary of the Company, received a contribution of substantially all of the operating assets of certain companies under an asset contribution agreement.

In November 2020, the Company agreed with the contributors to an exchange of shares of Common Stock of the Company, or cash, for the remaining undistributed Total Preferred Equity Interests of $ 4.8 million.

An exchange valuation for the Company's Common Stock was established as of November 12, 2020 at the prior 20 -day volume weighted average price of $ 2.78 per share.

The exchange was contingent upon receiving approval of the Company's lenders;

therefore, the binding exchange agreements were not entered into until after lender approval was received in April 2021 in connection with the Refinancing.

In May 2021, the Company entered into exchange agreements and completed the exchange of 1,428,358 shares of Common Stock and $ 0.8 million of cash for the Total Preferred Equity Interests.

The CEO received 605,623 shares of Common Stock of the Company in exchange for his 35.3 % interest, and the Company's Chief Operating Officer received 413,081 shares of Common Stock of the Company in exchange for her 24.1 % interest.

Subsequent to e stablishing the Common Stock valuation in

November 2020 and the date of exchange in May 2021, the Company's Common Stock price appreciated to $ 7.75 per share.

The Company's financial statements for the year ended December 31, 2021 reflect this exchange as a distribution to NCIs at an appreciated Common Stock value of $ 6.975 per share, which incorporates a 10 % liquidity discount of $ 0.775 per share due to trading restrictions under Securities Rule 144.

Therefore, the total distribution amounted to $ 10.8 million, comprised of $ 10.0 million of Common Stock and $ 0.8 million of cash.

In addition, the Company recorded a $ 2.8 million tax benefit related to an increase in the tax basis associated with the share exchange, for a net impact to equity of $ 8.0 million.

Commitment to Lend and Warrant to Acquire

During 2019, the Company, through one if its wholly-owned subsidiaries, executed an interest-bearing loan and commitment agreement with another entity to loan the entity up to $ 10.0 million based on certain growth metrics of the entity and continued compliance by the entity with the terms and covenants of the agreement.

In December 2021, the entity was sold to a third party.

In connection with the sale, the Company's note receivable was fully repaid and the Company's warrants were cancelled in exchange for cash consideration.

The Company recognized a gain of $ 7.6 million in its Consolidated Statements of Operations for the year ended December 31, 2021 related to this transaction.

Advance to Affiliate

During 2022, the Chairman and CEO, who is considered to be an affiliate of the Company, received an advance of incentive compensation of $ 1.2 million.

Subsequent to December 31, 2022, the advance was satisfied in full.

Commitments and Contingencies

6 unchanged sentences

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 $ 22.0 million.

Under the agreement, the Company purchased vendor services worth $ 1.5 million for the year ended December 31, 2023, and is committed to purchase vendor services worth $ 2.3 million in 2024.

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

As of December 31, 2023 and 2022, the Company contributed $ 11.8 million and $ 6.9 million, respectively.

Merchant Reserves

1 unchanged sentence

Contingent Consideration

For asset acquisitions that do not meet the definition of a business, the portion of the unpaid purchase price that is contingent on future activities is not initially recorded by the acquirer on the date of acquisition.

Rather, the acquirer generally recognizes contingent consideration when it becomes probable and estimable.

On March 15, 2019, a subsidiary of the Company paid $ 15.2 million cash to acquire certain residual portfolio rights.

This asset acquisition became part of the Company's SMB Payments reportable segment.

The initial purchase price is subject to an increase of up to $ 6.4 million in accordance with the terms of the agreement between the Company and the sellers.

As of December 31, 2021, the Company paid $ 4.0 million to the seller and the fair value of the contingent consideration was increased by $ 0.2 million.

On April 14, 2022, the Company amended the purchase agreement related to its acquisition of certain residual portfolio rights to provide for an additional earnout opportunity to be earned during the 12 months ending March 31, 2023.

As of December 31, 2022, the fair value of the contingent consideration was increased for $ 0.3 million and the Company paid $ 2.7 million.

As of December 31, 2022, it is not probable the seller will meet criteria for any future earnout opportunities.

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

January 1, 2022 $ 10,686

Accretion of contingent consideration 864

Fair value adjustments due to changes in estimates of future payments 1,195

Payment of contingent consideration ( 4,666 )

December 31, 2022 $ 8,079

Addition of contingent consideration (related to asset acquisition) 263

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

Addition of contingent consideration (related to business combination)

Accretion of contingent consideration 1,658

Fair value adjustments due to changes in estimates of future payments ( 19 )

Payment of contingent consideration ( 9,909 )

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

December 31, 2023 $ 13,438

Legal Proceedings

3 unchanged sentences

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.

The Company is involved in a case that was filed on October 11, 2023 and is currently pending in the United States District Court for the Northern District of California (the “Complaint”).

The Complaint is a putative class action against The Credit Wholesale Company, Inc.

(“Wholesale”), Priority Technology Holdings, Inc., Priority Payment Systems (“PPS”), LLC and Wells Fargo Bank, N.A.

(“Wells Fargo”).

The Complaint alleges that Wholesale is an agent of Priority, PPS and Wells Fargo and that it made non-consensual recordation of telephonic communications with California businesses in violation of California Invasion of Privacy Act (the “Act”).

T he Complaint seeks to certify a class of affected businesses and an award of $5,000 per violation of the Act.

As of March 12, 2024, the financial impact, if any, of the outcome of this legal proceeding is neither probable nor estimable.

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 association.

Because the Company is not a member bank, 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 association.

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

1 unchanged sentence

Fair Value Measurements

Contingent consideration liabilities related to certain of the Company's acquisition is uncertain due to the utilization of unobservable inputs and management's judgement in determining the likelihood of achieving the earn-out criteria or the years ended December 31, 2022 and 2021.

The Company's contingent consideration derived from business combinations are classified within Level 3 of the fair value hierarchy due to the uncertainty of the fair value measurement created by the absence of quoted market prices, the inherent lack of liquidity and unobservable inputs used to measure fair value which require judgement.

The Company uses valuation techniques including discounted cash flow analysis based on cash flow projections and Monte Carlo simulations to estimate fair value based on projection period and assumed growth rates.

A change in inputs in the valuation techniques used might result in a significantly higher or lower fair value measurement than what is reported.

The current portion of contingent consideration is included in accounts payable and accrued expenses on the Company's Consolidated Balance Sheets and the noncurrent portion of contingent consideration is included in other noncurrent liabilities on the Company's Consolidated Balance Sheets.

Contingent consideration liabilities related to certain of the Company's acquisitions are uncertain due to the utilization of unobservable inputs and management's judgement in determining the likelihood of achieving the earn-out criteria or the years ended December 31, 2023 and 2022.

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

5 unchanged sentences

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

The following table provides a reconciliation of the beginning and ending balance of the Company's contingent consideration for the years ended December 31, 2022 and 2021.

(in thousands) Contingent Consideration Liability

Balance at January 1, 2021 $ —

Contingent consideration related to the acquisitions 10,686

Balance at December 31, 2021

Accretion of discount on contingent consideration 864

Fair value adjustments 1,195

Payment of contingent consideration ( 4,666 )

Balance at December 31, 2022

Fair Value Disclosures

2 unchanged sentences

Substantially all of the Company's notes receivable are secured, and the Company provides for allowances when it believes that certain notes receivable may not be collectible.

The carrying value of the Company's notes receivable, net approximates fair value and was approximately $ 4.7 million and $ 0.4 million at December 31, 2022 and December 31, 2021, respectively.

The carrying value of the Company's notes receivable, net approximates fair value was approximately $ 5.2 million and $ 4.7 million at December 31, 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 Consolidated Balance Sheets at carrying value since the Company did not elect to remeasure debt obligations to fair value at the end of each reporting period.

The fair value of the of the term loan facility was estimated to be approximately $ 606.1 million and $ 613.8 million at December 31, 2022 and 2021, respectively, and was estimated using binding and non-binding quoted market prices in an active secondary market, which considers the credit risk and market related conditions, and is within Level 2 of the fair value hierarchy.

The fair value of the term loan facility was estimated to be approximately $ 651.9 million and $ 606.1 million at December 31, 2023 and 2022, respectively, and was estimated using binding and non-binding quoted market prices in an active secondary market, which considers the credit risk and market related conditions, and is within Level 2 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.

Segment Information

Prior to the fourth quarter of 2021, the Company's three reportable segments included the Consumer Payments segment, the Commercial Payments segment and the Integrated Partners segment.

As a result of the Company's organic growth and recent acquisitions, a new internal reporting structure was implemented which resulted in changes to the Company's reportable segments.

The three new reportable operating segments are SMB Payments, B2B Payments and Enterprise Payments.

All comparative periods have been adjusted to reflect the new reportable segments.

The Company's three reportable segments included SMB Payments, B2B Payments and Enterprise Payments.

The Company does not have dedicated assets assigned to any particular reportable segment and such information is not available and continues to be aggregated.

1 unchanged sentence

• SMB Payments :

Provides full-service acquiring and payment-enabled solutions for B2C transactions, leveraging Priority's proprietary software platform, distributed through ISO, direct sales and vertically focused ISV channels.

• B2B Payments :

Provides market-leading AP automation solutions to corporations, software partners and industry leading FIs (including Citibank and Mastercard).

Provides market-leading AP automation solutions to corporations, software partners and industry leading FIs (including Citibank and Mastercard) in addition to working improving cash flow by providing instant access to working capital.

• Enterprise Payments :

Provides embedded payment and treasury solutions to enterprise customers to modernize legacy platforms and accelerate software partners' strategies to monetize payments.

Provides embedded finance and treasury solutions to enterprise customers to modernize legacy platforms and accelerate software partners' strategies to monetize payments.

Corporate includes costs of corporate functions and shared services not allocated to our reportable segments.

36 unchanged sentences

NCI preferred unit redemptions — — ( 8,021 )

Earnings attributable to NCI — — ( 45,398 )

Net (loss) income attributable to common stockholders $ ( 39,030 ) $ ( 24,641 ) $ 25,661

Net loss attributable to common stockholders $ ( 49,055 ) $ ( 39,030 ) $ ( 24,641 )

Weighted-average common shares outstanding (1)

3 unchanged sentences

78,333 78,233 71,902

Effect of potentially dilutive common stock equivalents — — 105

Diluted weighted-average common shares outstanding 78,333 78,233 71,902

13 unchanged sentences

Total 2,080 7,694 6,040

(1) The warrants are exercisable at $ 11.50 per share and expire on August 24, 2023.

(1) The warrants were exercisable at $ 11.50 per share and expired on August 24, 2023.

Refer to Note 13.

Stockholders' Deficit .

(2) The warrants and options are exercisable at $ 12.00 per share and expire on August 24, 2023.

(2) The warrants and options were exercisable at $ 12.00 per share and expired on August 24, 2023.

Refer Note 13.

1 unchanged sentence

(3) Granted under the 2018 Plan.

Subsequent Events

In February 2019, PHOT, a subsidiary of the Company, received contributions of certain assets from its Chairman and CEO and issued redeemable preferred units as consideration.

Part of these preferred units were later assigned to other related parties.

In May 2021, the Company entered into an exchange agreement wherein these preferred units were exchanged for 1,428,358 equity shares and $ 814,219 in cash.

On October 31, 2023, a lawsuit was filed alleging that the Board breached its fiduciary duties by approving the transaction.

The Company denied any wrongdoing.

The lawsuit was settled on January 30, 2024, wherein the Company agreed to unwind the exchange transaction and pay $ 0.4 million to settle all claims.

The unwinding of this transaction does not meet the recognition criteria as of December 31, 2023, and therefore considered as non-recognized subsequent event.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

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-K

Item 8. Financial Statements and Supplementary Data