Priority Technology Holdings, Inc. 10-Q

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Audited Consolidated Financial Statements and related Notes and the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations," included in the Company's Annual Report on Form 10-K for the year ended December 31, 2025. Certain amounts in this section may not add mathematically due to rounding. Cautionary Note Regarding Forward-looking Statements Some of the statements made in this Quarterly Report on Form 10-Q constitute forward-looking statements within the meaning of the federal securities laws. Such forward-looking statements include, but are not limited to, statements regarding our management's expectations, hopes, beliefs, intentions or strategies regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, such as statements about our future financial performance, including any underlying assumptions, are forward-looking statements. The words "anticipate," "believe," "continue," "could," "estimate," "expect," "future," "goal," "intend," "likely," "may," "might," "plan," "possible," "potential," "predict," "project," "seek," "should," "would," "will," "approximately," "shall" and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about: • negative economic and political conditions that adversely affect the general economy, consumer confidence and consumer and commercial spending habits, which may, among other things, negatively impact our business, financial condition and results of operations; • competition in the payment processing industry; • the use of distribution partners; • any unauthorized disclosures of merchant or cardholder data, whether through breach of our computer systems, computer viruses or otherwise; • any breakdowns in our processing systems; • government regulation, including regulation of consumer information; • the use of third-party vendors; • any changes in card association and debit network fees or products; • any failure to comply with the rules established by payment networks or standards established by third-party processors; • any proposed acquisitions or dispositions or any risks associated with completed acquisitions or dispositions; and • other risks and uncertainties set forth in the " Item 1A - Risk Factors " section of this Quarterly Report on Form 10-Q or our Annual Report on Form 10-K. We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q. The forward-looking statements contained in this Quarterly Report on Form 10-Q are based on our current expectations and beliefs concerning future developments and their potential effects on us. You should not place undue reliance on these forward-looking statements in deciding whether to invest in our securities. We cannot assure you that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions, including the risk factors set forth in the " Item 1A - Risk Factors " section of this Quarterly Report on Form 10-Q or our Annual Report on Form 10-K, that may cause our actual results or performance to 27 be materially different from those expressed or implied by these forward-looking statements. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. In addition, statements that "we believe" and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely upon these statements. You should read this Quarterly Report on Form 10-Q with the understanding that our actual future results, levels of activity, performance and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. Forward-looking statements speak only as of the date they were made. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. Terms Used in this Quarterly Report on Form 10-Q As used in this Quarterly Report on Form 10-Q, unless the context otherwise requires, references to the terms "Company," "Priority," "we," "us" and "our" refer to Priority Technology Holdings, Inc. and its consolidated subsidiaries. Results of Operations This section includes certain components of our results of operations for the three months ended March 31, 2026, compared to the three months ended March 31, 2025. We have derived this data, except the key indicators, from our Unaudited Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q and our Audited Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2025. Revenues For the three months ended March 31, 2026, our consolidated revenue of $249.6 million increased by $24.9 million, or 11.1%, from $224.6 million for the three months ended March 31, 2025. This overall increase was mainly driven by increase in total card processing dollar value and total card transaction count in our Merchant Solutions segment, an increase in number of billed clients and higher interest income which is partially offset by lower new enrollments in our Treasury Solutions segment, and, increases in buyer funded card processing dollar value, supplier funded issuing dollar value, incentive income, and ACH transactions count in our Payables Segment. The following table presents our revenues by type: (in thousands) Three Months Ended March 31, 2026 2025 $ Change Revenue Type: Merchant card fees $ 185,933 $ 167,079 $ 18,854 Money transmission services 41,748 37,449 4,299 Outsourced services and other services 19,826 17,002 2,824 Equipment 2,051 3,100 (1,049) Total revenues $ 249,558 $ 224,630 $ 24,928 28 Merchant card fees Merchant card fees revenue for the three months ended March 31, 2026 was $185.9 million an increase of $18.9 million or 11.3%, from $167.1 million for the three months ended March 31, 2025. The increase was primarily driven by an increase in total card dollar value, and the transaction count processed by the Company. Money transmission services Money transmission services for the three months ended March 31, 2026 was $41.7 million, an increase of $4.3 million, or 11.5%, from $37.4 million for the three months ended March 31, 2025. This increase was primarily driven by an increase in average billed clients which was partially offset by lower new customer enrollments. Outsourced services and other services revenue Outsourced services and other services revenue of $19.8 million for the three months ended March 31, 2026 increased by $2.8 million, or 16.6%, from $17.0 million for the three months ended March 31, 2025, primarily due to growth in interest income from higher balances of permissible investments driven by higher account balances offset by reduction in interest rates. Equipment Equipment revenue of $2.1 million for the three months ended March 31, 2026 decreased by $1.0 million, or 33.8% from $3.1 million for the three months ended March 31, 2025. The decrease was primarily due to lower point-of-sale equipment sales caused by a decrease in demand from merchants. Operating expenses were as follows: (in thousands) Three Months Ended March 31, 2026 2025 $ Change Operating expenses Cost of revenue (excludes depreciation and amortization) $ 150,787 $ 137,353 $ 13,434 Salary and employee benefits 28,522 25,775 2,747 Depreciation and amortization 17,615 13,777 3,838 Selling, general and administrative 19,244 15,100 4,144 Total operating expenses $ 216,168 $ 192,005 $ 24,163 Cost of revenue (excludes depreciation and amortization) Cost of revenue (excludes depreciation and amortization) of $150.8 million for the three months ended March 31, 2026 increased by $13.4 million, or 9.8%, from $137.4 million for the three months ended March 31, 2025, primarily due to the corresponding increase in revenues. Salary and employee benefits Salary and employee benefits expense of $28.5 million for the three months ended March 31, 2026 increased by $2.7 million, or 10.7%, from $25.8 million for the three months ended March 31, 2025, primarily due to merit increases, increased headcount to support overall growth of the Company and from the acquisition of Sila, Boom and DMS, and increased stock based compensation related to long term incentive awards to executives. Depreciation and amortization expense Depreciation and amortization expense of $17.6 million for the three months ended March 31, 2026 increased by $3.8 million, or 27.9%, from $13.8 million for the three months ended March 31, 2025, primarily due to the addition of intangible assets from the Letus, Sila, Boom and DMS acquisitions and software capitalization. 29 Selling, general and administrative Selling, general and administrative expenses of $19.2 million for the three months ended March 31, 2026 increased by $4.1 million, or 27.4%, from $15.1 million for the three months ended March 31, 2025, primarily due to increase in professional and legal charges related to the Company's go-private project, increased marketing and software expenses to support overall growth and cloud migration, expenses related to acquired businesses and assets, which was partially offset by legal and other expenses related to the Company's secondary offering of common shares incurred during the quarter ended March 31, 2025. Other Expense, net Other expense, net were as follows: (in thousands) Three Months Ended March 31, 2026 2025 $ Change Other expense Interest expense $ (21,016) $ (23,176) $ 2,160 Debt extinguishment and modification costs — (38) 38 Other income, net 1,032 1,107 (75) Total other expense, net $ (19,984) $ (22,107) $ 2,123 Interest expense Interest expense of $21.0 million for the three months ended March 31, 2026 decreased by $2.2 million, or (9.3)%, from $23.2 million for the three months ended March 31, 2025, due to decreased SOFR rates and beneficial changes in margin from the recent refinancing which was partially offset by increased outstanding balances of the 2024 Credit Agreement and the Residual Finance credit facility established during the quarter ended September 30, 2025. Income tax expense Income tax expense was as follows: (in thousands) Three Months Ended March 31, 2026 2025 $ Change Income before income taxes $ 13,406 $ 10,518 $ 2,888 Income tax expense $ 3,646 $ 2,250 $ 1,396 Effective tax rate 27.2 % 21.4 % We compute our interim period income tax expense by using a forecasted EAETR and adjust for any discrete items arising during the interim period and any changes in our projected full-year business interest expense and taxable income. The EAETR for 2026 is 26.5% and includes the income tax provision on pre-tax income. The effective tax rate for 2026 changed primarily due to a year over year change in the discrete tax benefit associated with stock-based compensation vestings. Our consolidated effective income tax rates differ from the statutory rate due to timing and permanent differences between amounts calculated under GAAP and the U.S. tax code. The consolidated effective income tax rate for 2026 may not be indicative of our effective tax rate for future periods. Segment Results The CODM's review of segment performance and allocation of resources are based on Adjusted EBITDA (a non-GAAP financial measure). Adjusted EBITDA at each segment level includes revenues of the segment, less costs of revenue (excluding 30 depreciation and amortization) and operating expenses that are directly related those revenues. Operating overhead and shared costs are managed centrally and included in corporate segment. This non-GAAP financial measure helps to illustrate the underlying financial and business trends relating to results of operations of the Company and therefore used as a measure of segment profit or loss for the purposes of evaluation of segment performance and allocation of resources. Merchant Solutions (in thousands) Three Months Ended March 31, 2026 2025 Change Revenues $ 161,786 $ 151,690 $ 10,096 Adjusted EBITDA $ 27,740 $ 25,705 $ 2,035 Key Indicators: Total card processing dollar value $ 18,130,401 $ 17,685,491 $ 444,910 Total card transaction count 211,244 209,308 1,936 Revenues Revenue from our Merchant Solutions segment was $161.8 million for the three months ended March 31, 2026, compared to $151.7 million for the three months ended March 31, 2025. The increase of $10.1 million, or 6.7%, was primarily driven by an increase in merchant card fee rate, increased total card processing dollar value and total card transaction count. The Company's merchant card fee revenue from the Merchant Solutions segment ($158.5 million for three months ended March 31, 2026 and $147.5 million for the three months ended March 31, 2025) as a percentage of total card processing dollar value during the three months ended March 31, 2026 increased to 0.87% from 0.83% as compared to the three months ended March 31, 2025. Adjusted EBITDA Adjusted EBITDA from our Merchant Solutions segment was $27.7 million for the three months ended March 31, 2026, compared to $25.7 million for the three months ended March 31, 2025. The increase of $2.0 million, or 7.9% was primarily driven by an increase in revenue, offset by mix related margin compression, certain chargeback losses, and increase in other operating expenses. Payables (in thousands) Three Months Ended March 31, 2026 2025 Change Revenues $ 32,441 $ 23,918 $ 8,523 Adjusted EBITDA $ 5,454 $ 3,516 $ 1,938 Key Indicators: Buyer funded card processing dollar value $ 972,910 $ 716,900 $ 256,010 Supplier funded issuing dollar value $ 242,387 $ 237,290 $ 5,097 ACH transaction count 5,059 4,641 418 Revenues Revenue from our Payables segment was $32.4 million for the three months ended March 31, 2026, compared to $23.9 million for the three months ended March 31, 2025. The increase of $8.5 million, or 35.6% was primarily driven by increased buyer 31 funded card processing dollar value, certain incentive income, ACH transaction count, supplier funded issuing dollar value, and interest from higher account balances. Adjusted EBITDA Adjusted EBITDA from our Payables segment of $5.5 million for the three months ended March 31, 2026, compared to $3.5 million for the three months ended March 31, 2025.The increase in Adjusted EBITDA of $1.9 million or 55.1% was contributed by $4.0 million in the supplier funded business (driven by increase in revenues) and $1.5 million in the buyer funded business (driven by increased processing volume which was partially offset by mix related margin compression). Treasury Solutions (in thousands) Three Months Ended March 31, 2026 2025 Change Revenues $ 58,840 $ 50,088 $ 8,752 Adjusted EBITDA $ 46,671 $ 42,442 $ 4,229 Key Indicators: Average CFTPay billed clients 1,128,935 940,463 188,472 Average CFTPay monthly enrollments 50,429 55,946 (5,517) Average total account balances (1) $ 1,419,288 $ 1,041,346 $ 377,942 (1) This represents the average total account balance in the Treasury Solutions segment, and excludes the deposits and balances maintained in the Merchant Solutions and Payables segments. The total account and deposit balances as of March 31, 2026 and 2025, were $1.8 billion and $1.3 billion, respectively. Revenues Revenue from our Treasury Solutions segment was $58.8 million for the three months ended March 31, 2026, compared to $50.1 million for the three months ended March 31, 2025. The increase of $8.8 million, or 17.5%, was primarily driven by an increase in average billed clients and average total account balances, acquisition of Sila, and growth in interest income due to higher balances of permissible investments offset by a reduction in interest rates and decreased average monthly enrollments. Adjusted EBITDA Adjusted EBITDA from our Treasury Solutions segment was $46.7 million for the three months ended March 31, 2026, compared to $42.4 million for the three months ended March 31, 2025. The increase of $4.2 million, or 10.0%, was primarily driven by increases in revenues. 32 (in thousands) Three Months Ended March 31, 2026 Merchant Solutions Payables Treasury Solutions Corporate Total Consolidated Reconciliation of Adjusted EBITDA to GAAP Measure: Adjusted EBITDA $ 27,740 $ 5,454 $ 46,671 $ (21,771) $ 58,094 Interest expense (1,082) — (413) (19,521) (21,016) Depreciation and amortization (9,917) (1,288) (5,203) (1,207) (17,615) Selling, general and administrative (non-recurring) — — — (3,969) (3,969) Non-cash stock based compensation — (36) (1) (2,051) (2,088) Income (loss) before taxes $ 16,741 $ 4,130 $ 41,054 $ (48,519) $ 13,406 Income tax expense (3,646) Net income $ 9,760 (in thousands) Three Months Ended March 31, 2025 Merchant Solutions Payables Treasury Solutions Corporate Total Consolidated Reconciliation of Adjusted EBITDA to GAAP Measure: Adjusted EBITDA $ 25,705 $ 3,516 $ 42,442 $ (20,369) $ 51,294 Interest expense — (1,006) — (22,170) (23,176) Depreciation and amortization (6,625) (1,261) (4,642) (1,249) (13,777) Debt modification and extinguishment expenses — — — (38) (38) Selling, general and administrative (non-recurring) — — — (2,199) (2,199) Non-cash stock based compensation (4) (84) (32) (1,466) (1,586) Income (loss) before taxes $ 19,076 $ 1,165 $ 37,768 $ (47,491) $ 10,518 Income tax expense (2,250) Net income $ 8,268 Critical Accounting Policies and Estimates Our Unaudited Consolidated Financial Statements have been prepared in accordance with GAAP for interim periods, which often require the judgment of management in the selection and application of certain accounting principles and methods. Our critical accounting policies and estimates are discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2025. There have been no material changes to these critical accounting policies and estimates as of March 31, 2026. Liquidity and Capital Resources Liquidity and capital resource management is a process focused on providing the funding we need to meet our short-term and long-term cash and working capital needs. We have used our funding sources to build our merchant portfolio, for technology solutions and to make acquisitions with the expectation that such investments will generate cash flows sufficient to cover our working capital and other anticipated needs, including our acquisition strategy. We anticipate that cash on hand, funds generated from operations and available borrowings under our revolving credit facility are sufficient to meet our working capital requirements for at least the next 12 months. Our principal uses of cash are to fund business operations and administrative costs, and to service our debt. 33 Our working capital, defined as current assets less current liabilities, was $122.9 million at March 31, 2026 and $61.9 million at March 31, 2025. As of March 31, 2026, we had cash totaling $92.2 million compared to $47.6 million at March 31, 2025. These cash balances do not include restricted cash of $16.4 million and $11.5 million at March 31, 2026 and March 31, 2025, respectively, which reflects cash accounts holding customer settlement funds and cash reserves for potential losses. The current portion of long-term debt included in current liabilities was $0.5 million and $1.9 million at March 31, 2026 and March 31, 2025, respectively. At March 31, 2026, we had availability of approximately $100.0 million under our revolving credit facility. The following table and discussion reflect our changes in cash flows for the comparative three month periods. (in thousands) Three Months Ended March 31, 2026 2025 Net cash provided by (used in): Operating activities $ 23,839 $ 9,956 Investing activities 11,418 (9,715) Financing activities 70,626 47,260 Net increase in cash and cash equivalents and restricted cash $ 105,883 $ 47,501 Cash Provided by Operating Activities Net cash provided by operating activities was $23.8 million for the three months ended March 31, 2026 compared to $10.0 million for the three months ended March 31, 2025. The $13.8 million increase was driven by an increase in net income and favorable non-cash adjustments and changes in the operating assets and liabilities. Cash Provided by/(Used in) Investing Activities Net cash provided by investing activities was $11.4 million for the three months ended March 31, 2026, compared to $9.7 million of cash used in investing activities for the three months ended March 31, 2025. For the three months ended March 31, 2026, investing activities included the $25.0 million redemption of short-term investments of MTL funds offset by $8.1 million related to net funding of new loans to ISOs and $5.5 million additions to property, equipment and software. For the three months ended March 31, 2025, net cash used in investing activities included additions to property, equipment and software of $5.1 million, $0.1 million related to net funding of new loans to ISOs and $4.5 million related to the acquisition of a business. Cash Provided by Finance Activities Net cash provided by financing activities was $70.6 million and $47.3 million for the three months ended March 31, 2026 and 2025, respectively. The net cash provided by financing activities for the three months ended March 31, 2026, included borrowings under the Residual Finance credit facility of $6.8 million and changes in the net obligations for funds held on the behalf of customers of $65.0 million, offset by $0.2 million of cash used for the repayment of the Residual Finance credit facility, $0.9 million of cash used to purchase shares withheld for taxes, and $0.1 million for a deferred consideration payment. The net cash used in financing activities for the three months ended March 31, 2025, included changes in the net obligations for funds held on the behalf of customers of $59.1 million and proceeds from the exercise of stock options of $0.1 million offset by $10.0 million of cashed used for the unscheduled repayment of the term loan principal for the 2024 Credit Agreement, $1.5 million of cash used for shares withheld for taxes and $0.4 million of payments of contingent consideration. Long-term Debt As of March 31, 2026, we had outstanding debt obligations, including the current portion and unamortized debt discount of $1.06 billion, compared to $1.06 billion at December 31, 2025, resulting in an increase due to net borrowings from the Residual Finance credit facility. The debt balance at March 31, 2026 consisted of $1.02 billion outstanding under the 2024 Credit Agreement's (as amended) term facility and $0.04 billion under the Residual Finance Credit Facility's term facility offset by $15.6 million of unamortized debt discounts and issuance costs. 34 Minimum amortization of the 2024 Credit Agreement's term facility are equal quarterly installments in aggregate annual amounts equal to 1.0% of the original principal, with the balance paid upon maturity. The term facility matures on July 31, 2032 and the revolving credit facility matures on July 31, 2030. The 2024 Credit Agreement and Residual Finance credit facility both contain 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. Effect of New Accounting Pronouncements and Recently Issued Accounting Pronouncements Not Yet Adopted From time to time, new accounting pronouncements are issued by the FASB or other standards setting bodies that may affect our current and/or future consolidated financial statements. See Note 1, Basis of Presentation and Significant Accounting Policies , to our Unaudited Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, for a discussion of recently issued accounting pronouncements not yet adopted. Item 3. Quantitative and Qualitative Disclosures About Market Risk For quantitative and qualitative disclosures about market risk, see Item 7A, "Quantitative and Qualitative Disclosures About Market Risk," of our Annual Report on Form 10-K for the year ended December 31, 2025. Our exposures to market risk have not changed materially since December 31, 2025.