Priority Technology Holdings, Inc 10-Q for FY2021 Q2

Priority Technology Holdings, Inc. (PRTH)

10-Q 2021-08-16 For: 2021-06-30

Added on April 12, 2026

About this 10-Q

Priority Technology Holdings, Inc filed this 10-Q on August 16, 2021, covering the quarter ended June 30, 2021 (FY2021 Q2).

Headline figures

Quarter ended June 30, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $125.01M; up 35.4% from $92.36M a year earlier
Net loss: $9.48M; compared with a net loss of $7.86M a year earlier
Diluted EPS: -$0.35; compared with -$0.12 a year earlier

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Delaware		47-4257046
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

2001 Westside Parkway
Suite 155
Alpharetta,	GA	30004
(Address of principal executive offices, including zip code)

(800)		935-5964
(Registrant's phone number, including area code)

Not applicable
(Former name, former address and former fiscal year, if changed since last report)


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☒


			Page

Part I.	Financial Information		1
	Item 1.	Financial Statements	1
		Unaudited Condensed Consolidated Balance Sheets as of June 30 , 2021 and December 31, 2020	1
		Unaudited Condensed Consolidated Statements of Operations for the Three Months and Six Months Ended June 30 , 2021 and June 30 , 2020	2
		Unaudited Condensed Consolidated Statements of Cash Flows for the Si x Months Ended June 30 , 2021 and June 30 , 2020	3
		Notes to Unaudited Condensed Consolidated Financial Statements	5
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	29
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	49
	Item 4.	Controls and Procedures	49

Part II.	Other Information		50
	Item 1.	Legal Proceedings	50
	Item 1A.	Risk Factors	50
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	50
	Item 3.	Defaults Upon Senior Securities	50
	Item 4.	Mine Safety Disclosures	50
	Item 5.	Other Information	50

	Item 6.	Exhibits	51

Signatures			52


(in thousands, except share data)	Unaudited
	June 30, 2021		December 31, 2020
ASSETS
Current assets:
Cash	$	11,111	$	9,241
Restricted cash	18,232		78,879
Accounts receivable, net of allowance of $417 and $574	50,596		41,321
Prepaid expenses and other current assets	5,443		3,500
Current portion of notes receivable, net of allowance of $467 and $467	230		2,190
Settlement assets	722		753
Total current assets	86,334		135,884
Notes receivable, less current portion	3,915		5,527
Property, equipment, and software, net	24,245		22,875
Goodwill	124,078		106,832
Intangible assets, net	145,836		98,057
Deferred income taxes, net	47,578		46,697
Other non-current assets	10,890		1,957
Total assets	$	442,876	$	417,829
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses	$	37,420	$	29,821
Accrued residual commissions	28,201		23,824
Customer deposits and advance payments	4,269		2,883
Current portion of long-term debt	3,000		19,442
Settlement obligations	11,278		72,878
Total current liabilities	84,168		148,848
Long-term debt, net of current portion, discounts and debt issuance costs	318,187		357,873

Other non-current liabilities	8,333		9,672
Total long-term liabilities	326,520		367,545
Total liabilities	410,688		516,393
Commitments and contingencies (Note 11)
Redeemable senior preferred stock:
Redeemable senior preferred stock - $0.001 par value per share; 250,000 shares authorized; 150,000 issued; 150,000 shares outstanding at June 30, 2021	133,762		—
Stockholders' deficit:
Preferred stock - $0.001 par value per share; 100,000,000 shares authorized; zero issued or outstanding	—		—
Common stock - $0.001 par value per share; 1.0 billion shares authorized; 69,561,311 shares issued at June 30, 2021 and 67,842,204 shares issued at December 31, 2020; 69,110,087 shares outstanding at June 30, 2021 and 67,390,980 shares outstanding at December 31, 2020	70		68
Additional paid-in capital	14,913		5,769
Treasury stock, 451,224 common shares, at cost	(2,388)		(2,388)
Accumulated deficit	(114,169)		(102,013)
Total stockholders' deficit	(101,574)		(98,564)
Total liabilities, redeemable senior preferred stock and stockholders' deficit	$	442,876	$	417,829


(in thousands, except per share amounts)	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020



REVENUES	$	125,014	$	92,356	$	238,311	$	189,289

OPERATING EXPENSES:
Costs of services	89,831		62,398		171,694		128,762

Salary and employee benefits	10,351		9,556		19,899		19,685
Depreciation and amortization	10,723		10,363		19,793		20,635
Selling, general and administrative	6,704		6,008		14,993		12,617


Total operating expenses	117,609		88,325		226,379		181,699

Income from operations	7,405		4,031		11,932		7,590

OTHER EXPENSES:
Interest expense	(7,285)		(11,668)		(16,453)		(21,983)

Debt extinguishment and modification costs	(8,322)		—		(8,322)		(376)


Other income (expenses), net	215		194		(54)		224
Total other expenses, net	(15,392)		(11,474)		(24,829)		(22,135)

Loss before income taxes	(7,987)		(7,443)		(12,897)		(14,545)

Income tax expense (benefit)	1,490		415		(741)		(818)

Net loss	(9,477)		(7,858)		(12,156)		(13,727)
Dividends and accretion attributable to redeemable senior preferred stockholders	(3,911)		—		(3,911)		—
Non-controlling interest preferred unit redemptions	(10,777)		—		(10,777)		—
Net loss attributable to common stockholders of PRTH	$	(24,165)	$	(7,858)	$	(26,844)	$	(13,727)

Loss per common share:
Basic and diluted	$	(0.35)	$	(0.12)	$	(0.39)	$	(0.20)


Weighted-average common shares outstanding:
Basic and diluted	69,496		67,114		68,525		67,088


(in thousands)	Six Months Ended June 30,
	2021		2020
Cash flows from operating activities:
Net loss	$	(12,156)	$	(13,727)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:


Depreciation and amortization of assets	19,793		20,635
Equity-classified and liability-classified stock-based compensation	1,414		1,026
Amortization of debt issuance costs and discounts	1,158		1,116
Write off of deferred loan costs and discount	3,006		—
Deferred income tax benefit	(3,446)		(3,569)

Change in allowance for deferred tax assets	2,565		2,642

Payment-in-kind interest	2,512		3,415


Other non-cash items, net	(39)		206
Change in operating assets and liabilities (net of acquisitions):
Accounts receivable	(9,115)		974
Settlement assets and obligations, net	(61,570)		1,584
Prepaid expenses and other current assets	(1,626)		851

Notes receivable	198		(888)

Accounts payable and other accrued liabilities	10,490		(1,845)

Customer deposits and advance payments	1,385		(2,046)
Other assets and liabilities, net	307		(552)

Net cash (used in) provided by operating activities	(45,124)		9,822

Cash flows from investing activities:
Acquisition of business	(34,507)		—

Additions to property, equipment, and software	(5,222)		(4,249)
Acquisitions of intangible assets	(43,353)		(3,286)


Net cash used in investing activities	(83,082)		(7,535)

Cash flows from financing activities:
Proceeds from issuance of long-term debt, net of issue discount	293,619		—
Debt issuance and modification costs paid	(7,597)		(2,749)
Repayments of long-term debt	(384,552)		(2,003)
Borrowings under revolving credit facility	30,000		7,000
Repayments under revolving credit facility	—		(4,000)
Proceeds from issuance of senior preferred equity, net of issue discount	145,000		—
Senior preferred equity issuance fees and costs	(5,472)		—


Dividends paid to redeemable senior preferred stockholders	(1,575)		—

Redemptions of non-controlling interests of subsidiary	(815)		—
Proceeds from exercise of stock options	821		—
Net cash provided by (used in) financing activities	69,429		(1,752)

Net change in cash and restricted cash:
Net (decrease) increase in cash and restricted cash	(58,777)		535
Cash and restricted cash at beginning of period	88,120		50,465
Cash and restricted cash at end of period	$	29,343	$	51,000


Supplemental cash flow information:
Cash paid for interest	$	10,276	$	17,032

Non-cash investing and financing activities:
Payment-in-kind interest added to principal of debt obligations	$	2,512	$	3,415
Payment of accrued contingent consideration for asset acquisition from offset of account receivable	$	—	$	1,686
Accruals for asset acquisition contingent consideration	$	3,797	$	—
Notes receivable from sellers used as partial consideration for acquisitions	$	3,499	$	—
Reconciliation of cash and restricted cash:
Cash	$	11,111	$	5,854
Restricted cash	18,232		45,146
Total cash and restricted cash	$	29,343	$	51,000


(in thousands)	Principal Due
	Credit and Guaranty Agreement
Twelve-month period ending June 30,	Term Loan		Revolver		Total
2022 (current)	$	3,000	$	—	$	3,000
2023	3,000		—		3,000
2024	3,000		—		3,000
2025	3,000		—		3,000
2026	3,000		30,000		33,000
Beyond five years	285,000		—		285,000
Total	$	300,000	$	30,000	$	330,000


(in thousands)													Additional Paid-In Capital		Accumulated (Deficit)		Total Priority Technology Holdings, Inc. Stockholders' (Deficit)
	Redeemable Senior Preferred Stock (a)			Preferred Stock			Common Stock			Treasury Stock (b)
	Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount



January 1, 2021	—	$	—	—	$	—	67,391	$	68	451	$	(2,388)	$	5,769	$	(102,013)	$	(98,564)
Equity-classified stock-based compensation	—	—		—	—		—	—		—	—		558		—		558
Vesting of stock-based compensation	—	—		—	—		159	—		—	—		—		—		—
Liability-classified stock-based compensation converted to equity-classified	—	—		—	—		—	—		—	—		313		—		313

Proceeds from exercise of stock options	—	—		—	—		90	—		—	—		617		—		617
Net loss	—	—		—	—		—	—		—	—		—		(2,679)		(2,679)

March 31, 2021	—	$	—	—	$	—	67,640	$	68	451	$	(2,388)	$	7,257	$	(104,692)	$	(99,755)
Equity-classified stock-based compensation	—	—		—	—		—	—		—	—		821		—		821
Vesting of stock-based compensation	—	—		—	—		12	—		—	—		—		—		—
Proceeds from issuance of redeemable senior preferred stock, net of discount and issuance costs	150	131,426		—	—		—	—		—	—		—		—		—
Proceeds from exercise of stock options	—	—		—	—		30	—		—	—		204		—		204
Cash dividends declared and paid on redeemable senior preferred stock	—	—		—	—		—	—		—	—		(1,575)		—		(1,575)
PIK dividends declared on redeemable senior preferred stock	—	1,838		—	—		—	—		—	—		(1,838)		—		(1,838)
Fair value of warrants issued	—	—		—	—		—	—		—	—		11,357		—		11,357
Accretion of redeemable senior preferred stock discount	—	498		—	—		—			—	—		(498)		—		(498)


Fair value of PHOT preferred units redemption	—	—		—	—		—	—		—	—		(10,777)		—		(10,777)
Fair value of common shares issued for PHOT redemption	—	—		—	—		1,428	2					9,962		—		9,964
Net loss	—	—		—	—		—	—		—	—		—		(9,477)		(9,477)
June 30, 2021	150	$	133,762	—	$	—	69,110	$	70	451	$	(2,388)	$	14,913	$	(114,169)	$	(101,574)


(in thousands)	Common Stock Equivalents at
	June 30, 2021	June 30, 2020
Outstanding warrants on common stock (a)	3,556	3,556
Outstanding options and warrants issued to adviser (a)	600	600
Restricted stock unit awards (b)	1,188	371
Liability-classified restricted stock units	118	290
Outstanding stock option awards (b)	1,301	1,607
Total	6,763	6,424


(dollars in thousands)	Three Months Ended June 30,
	2021		2020		Change		% Change
REVENUES	$	125,014	$	92,356	$	32,658	35.4	%




OPERATING EXPENSES:
Costs of services	89,831		62,398		27,433		44.0	%

Salary and employee benefits	10,351		9,556		795		8.3	%
Depreciation and amortization	10,723		10,363		360		3.5	%
Selling, general and administrative	6,704		6,008		696		11.6	%



Total operating expenses	117,609		88,325		29,284		33.2	%

Income from operations	7,405		4,031		3,374		83.7	%

OTHER EXPENSES:

Interest expense	(7,285)		(11,668)		4,383		(37.6)	%

Debt extinguishment and modification costs	(8,322)		—		(8,322)		nm*


Other income, net	215		194		21		10.8	%
Total other expenses, net	(15,392)		(11,474)		(3,918)		34.1	%
Loss before income taxes	(7,987)		(7,443)		(544)		7.3	%
Income tax expense	1,490		415		1,075		259.0	%




Net loss	$	(9,477)	$	(7,858)	$	(1,619)	20.6	%


(in thousands)	Last Twelve Months Ended
	June 30, 2021
Consolidated Net Income (GAAP)	$	27,232
Applicable Adjustments:
Gain on sale of business, less amounts attributable and paid to NCIs (clause (ii)(c))	(62,091)
Interest expense (clause (i)(b))	39,309
Depreciation and amortization (clause (i)(d))	39,933
Income tax expense (clause (i)(c))	10,976
Non-cash stock-based compensation (clause (i)(j))	2,818
Acquisition transition services (clause (i)(k))	903
Debt extinguishment and modification expenses (clause (i)(h))	9,845
Impairment of intangible asset (clause (i)(f))	1,753
Provision for allowance for note receivable (clause (i)(f))	467
Change in fair value of contingent consideration for business combinations (clause (ii)(a))	(360)

Certain legal fees and expenses (clause (i)(m))	4,406
Litigation settlement recoveries (clause (i)(k))	(798)
Professional, accounting and consulting fees (clause (i)(k))	2,021
Other professional and consulting fees (clause (i)(h))	1,724
Other adjustments (clause (i)(k))	325
Pro forma impact of disposal	(2,459)
Pro forma impact of acquisitions and transactions	16,900
Consolidated Adjusted EBITDA (non-GAAP)	$	92,904


(in thousands, except ratio)	June 30, 2021
Consolidated Total Debt:
Current portion of long-term debt	$	3,000
Long-term debt, net of discounts and deferred financing costs	318,187
Unamortized debt discounts and deferred financing costs	8,813
	330,000
Less unrestricted cash	(11,111)
Consolidated Net Debt	$	318,889


Total Net Leverage Ratio	3.43x


Exhibit		Description

3.1		Certificate of Designations of Redeemable Senior Preferred Stock (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K, filed May 3, 2021).
3.2		Second Amended and Restated Certificate of Incorporation of Priority Technology Holdings, Inc. (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K, filed July 31, 2018).
3.3	*	Certificate of Amendment to the Certificate of Incorporation of Priority Technology Holdings, Inc.
4.1		Form of Warrant (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K, filed May 3, 2021).
10.1		Asset Purchase Agreement by and between MRI Payments LLC, MRI Software LLC, and Priority Real Estate Technology LLC, dated August 31, 2020 (incorporated by reference to Exhibit 10.1 to the current Report on Form 8-K, filed September 1, 2020).
10.2	*	Priority Technology Holdings, Inc. 2021 Employee Stock Purchase Plan
10.3 †		Securities Purchase Agreement, dated as of April 27, 2021, among the Company and the Investors named therein (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed May 3, 2021).
10.4 †		Registration Rights Agreement, dated as of April 27, 2021, among the Company and the Investors, named therein (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K, filed May 3, 2021).
10.5 †		Credit Agreement, dated as of April 27, 2021, among the Loan Parties named therein and Truist Bank (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K, filed May 3, 2021).

31.1	*	Certification of Chief Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended.
31.2	*	Certification of Chief Financial Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended.
32	**	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	*	XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH	*	XBRL Taxonomy Extension Schema Document
101.CAL	*	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	*	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	*	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	*	XBRL Taxonomy Extension Presentation Linkbase Document
104	*	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)


(in thousands)	June 30, 2021		December 31, 2020
Other intangible assets:
Merchant portfolios	$	73,062	$	55,816
Customer relationships	40,740		40,740
Residual buyouts	162,312		116,112
Non-compete agreements	3,390		3,390
Trade names	2,870		2,870
Technology	14,390		14,390
ISO relationships	15,200		15,200
Total gross carrying value	311,964		248,518
Less accumulated amortization:
Merchant portfolios	(24,586)		(19,471)
Customer relationships	(31,837)		(30,267)
Residual buyouts	(81,009)		(72,659)
Non-compete agreements	(3,390)		(3,390)
Trade names	(1,770)		(1,651)
Technology	(14,000)		(13,951)
ISO relationships	(7,783)		(7,319)
Total accumulated amortization	(164,375)		(148,708)
Accumulated allowance for impairment	(1,753)		(1,753)
Net carrying value	$	145,836	$	98,057


(in thousands)	June 30, 2021		December 31, 2020
Furniture and fixtures	$	2,795	$	2,795
Equipment	11,846		10,216
Computer software	48,143		44,320
Leasehold improvements	6,252		6,250
	69,036		63,581
Less accumulated depreciation	(44,791)		(40,706)
Property, equipment, and software, net	$	24,245	$	22,875


(in thousands)	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Revenues:
Consumer Payments	$	119,625	$	81,707	$	228,018	$	167,738
Commercial Payments	4,041		5,654		7,541		12,022
Integrated Partners	1,348		4,995		2,752		9,529
Consolidated revenues	$	125,014	$	92,356	$	238,311	$	189,289

Income (loss) from operations:
Consumer Payments	$	14,448	$	7,270	$	27,811	$	14,422
Commercial Payments	21		475		(388)		1,239
Integrated Partners	165		845		257		1,213
Corporate	(7,229)		(4,559)		(15,748)		(9,284)
Consolidated income from operations	$	7,405	$	4,031	$	11,932	$	7,590

Depreciation and amortization:
Consumer Payments	$	10,297	$	8,657	$	18,876	$	17,240
Commercial Payments	73		78		147		154
Integrated Partners	76		1,334		205		2,645
Corporate	277		294		565		596
Consolidated depreciation and amortization	$	10,723	$	10,363	$	19,793	$	20,635


(in thousands)	Three Months Ended June 30,
	2021		2020		Change		% Change
Consumer Payments:
Revenue	$	119,625	$	81,707	$	37,918	46.4	%
Operating expenses	105,177		74,437		30,740		41.3	%
Income from operations	$	14,448	$	7,270	$	7,178	98.7	%
Operating margin	12.1%		8.9%
Depreciation and amortization	$	10,297	$	8,657	$	1,640	18.9	%

Key Indicators:
Merchant bankcard processing dollar value	$	13,875,957	$	9,010,908	$	4,865,049	54.0	%
Merchant bankcard transaction volume	150,598		92,842		57,756		62.2	%

Commercial Payments:
Revenue	$	4,041	$	5,654	$	(1,613)	(28.5)	%
Operating expenses	4,020		5,179		(1,159)		(22.4)	%
Income (loss) from operations	$	21	$	475	$	(454)	(95.6)	%
Operating margin	0.5%		8.4%
Depreciation and amortization	$	73	$	78	$	(5)	(6.4)	%

Key Indicators:
Merchant bankcard processing dollar value	$	75,070	$	64,247	$	10,823	16.8	%
Merchant bankcard transaction volume	47		21		26		123.8	%

Integrated Partners:
Revenue	$	1,348	$	4,995	$	(3,647)	(73.0)	%
Operating expenses	1,183		4,150		(2,967)		(71.5)	%
Income from operations	$	165	$	845	$	(680)	(80.5)	%
Operating margin	12.2%		16.9%
Depreciation and amortization	$	76	$	1,334	$	(1,258)	(94.3)	%

Key Indicators:
Merchant bankcard processing dollar value	$	13,051	$	122,089	$	(109,038)	(89.3)	%
Merchant bankcard transaction volume	136		388		(252)		(64.9)	%

Income from operations of reportable segments	$	14,634	$	8,590	$	6,044	70.4	%
Less: Corporate expense	(7,229)		(4,559)		(2,670)		(58.6)	%
Consolidated income from operations	$	7,405	$	4,031	$	3,374	83.7	%
Corporate depreciation and amortization	$	277	$	294	$	(17)	(5.8)	%


August 16, 2021			/s/ THOMAS C. PRIORE Thomas C. Priore Chief Executive Officer and Chairman (Principal Executive Officer)

August 16, 2021			/s/ MICHAEL T. VOLLKOMMER Michael T. Vollkommer Chief Financial Officer (Principal Financial Officer)