UNITED STATES
 SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 20212022

OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                    to 
Priority Technology Holdings, Inc.
Commission file number: 001-37872
prth-20220331_g1.jpg
Priority Technology Holdings, Inc.
(Exact name of registrant as specified in its charter)

Delaware47-4257046
(State or other jurisdiction of
incorporation or organization)		(I.R.S. Employer
Identification No.)
2001 Westside Parkway
Suite 155
Alpharetta,GAGeorgia30004
(Address of principal executive offices, including zip code)offices)(Zip Code)
(800)935-5964
(Registrant's phonetelephone number, including area code)code: (800) 935-5961
Not applicable
(Former name, former address and former fiscal year, if changed since last report)


Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common stock, par value $0.001PRTHNasdaq Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes  ☒     No  ☐
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒     No  ☐
 
Indicate by check mark whether the Registrantregistrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company"company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer☐Accelerated filer☐
Non-accelerated filer☒Smaller reporting company☒
Emerging growth company☒☐
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 Yes  ☐    No  ☒
 
As of May 7, 2021,5, 2022, a total of 68,103,12277,734,647 shares of common stock, par value $0.001 per share, were issued and 67,651,89876,936,282 shares were outstanding.


Priority Technology Holdings, Inc.
Quarterly Report on Form 10-Q
March 31, 2021Table of Contents


Page
Financial Informationii
1
Item 1.
1
Unaudited Condensed Consolidated Balance Sheets as of March 31, 2021 31, 2022 and December 31, 20202021
1
Unaudited Condensed Consolidated Statements of Operations for the Three Months Endedthree months ended March 31, 2021 31, 2022 and March 31, 20202021
2
Unaudited Condensed Consolidated Statements of Cash FlowsChanges in Stockholders' Deficit for the Three Months Ended three months ended March 31, 2021 31, 2022 and March 31, 20202021
3
Notes to Unaudited Condensed Consolidated Financial Statements of Cash Flows for the three months ended March 31, 2022 and 2021
4
Notes to Unaudited Consolidated Financial Statements:
Item 2.6
1. Nature of Business and Significant Accounting Policies
6
2. Revenues
8
3. Acquisitions
9
4. Settlement Assets and Customer Account Balances and Related Obligations
11
5. Goodwill and Other Intangible Assets
13
6. Property, Equipment and Software
14
7. Notes Receivable
14
8. Debt Obligations
15
9. Redeemable Senior Preferred Stock and Warrants
16
10. Income Taxes
17
11. Commitments and Contingencies
17
12. Stock-based Compensation
18
13. Segment Information
18
14. Loss per Common Share
20
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
2521
Item 3.
3930
Item 4.
3930
Other Information
4031
Item 1.
4031
Item 1A.
4031
Item 2.
4031
Item 3.
4031
Item 4.
4031
Item 5.
4031
Item 6.
4132
4234
i
Table of Contents


Priority Technology Holdings, Inc.
Commonly Used or Defined Terms
TermDefinition
2018 Plan2018 Equity Incentive Plan
2021 Stock Purchase PlanPriority Technology Holdings, Inc. 2021 Employee Stock Purchase Plan
APAccounts payable
ASCAccounting Standards Codification
ASUAccounting Standards Update
B2BBusiness-to-business
B2CBusiness-to-consumer
C&HC&H Financial Services, Inc.
CEOChief Executive Officer
CFOChief Financial Officer
Credit AgreementCredit and Guaranty Agreement with Truist Bank dated as of April 27, 2021
EAETREstimated annual effective tax rate
EBITDAEarnings before interest, taxes, depreciation and amortization
EGCEmerging Growth Company
Exchange ActSecurities Exchange Act of 1934
FASBFinancial Accounting Standards Board
FBOFor the Benefit Of
FIFinancial Institution
FinxeraFinxera Holdings, Inc.
GAAPU.S. Generally Accepted Accounting Principles
ISOIndependent sales organization
ISVIndependent software vendor
JOBS ActJumpstart Our Business Startups Act of 2012
LIBORLondon Interbank Offered Rate
nmnot meaningful
PIKPayment-in-kind
SECSecurities and Exchange Commission
SMBSmall to medium-sized businesses
Term facility$620.0 million senior secured term loan facility issued under the Credit Agreement (including $320.0 million delayed draw facility)
Total Net Leverage Ratiothe ratio of consolidated total debt to the Consolidated Adjusted EBITDA (as defined in the Credit Agreement)

ii
Table of ContentsContents

PART I. FINANCIAL INFORMATION
ITEMItem 1. FINANCIAL STATEMENTSFinancial Statements

Priority Technology Holdings, Inc.
CondensedUnaudited Consolidated Balance Sheets
(in thousands, except share data)Unaudited
March 31, 2021December 31, 2020
ASSETS
Current assets:
Cash$5,827 $9,241 
Restricted cash58,933 78,879 
Accounts receivable, net of allowance of $374 and $57450,886 41,321 
Prepaid expenses and other current assets4,083 3,500 
Current portion of notes receivable, net of allowance of $467 and $4671,829 2,190 
Settlement assets1,220 753 
Total current assets122,778 135,884 
Notes receivable, less current portion5,084 5,527 
Property, equipment, and software, net23,791 22,875 
Goodwill106,832 106,832 
Intangible assets, net91,062 98,057 
Deferred income taxes, net48,996 46,697 
Other non-current assets1,949 1,957 
Total assets$400,492 $417,829 
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses$29,880 $29,821 
Accrued residual commissions30,300 23,824 
Customer deposits and advance payments5,488 2,883 
Current portion of long-term debt24,302 19,442 
Settlement obligations50,820 72,878 
Total current liabilities140,790 148,848 
Long-term debt, net of current portion, discounts and debt issuance costs350,667 357,873 
Other non-current liabilities8,790 9,672 
Total long-term liabilities359,457 367,545 
Total liabilities500,247 516,393 
Stockholders' deficit:
Preferred stock - $0.001 par value per share; 100,000,000 shares authorized; 0 issued or outstanding0 0 
Common stock - $0.001 par value per share; 1,000,000,000 shares authorized; 68,091,398 and 67,842,204 shares issued, respectively; 67,640,174 and 67,390,980 shares outstanding, respectively68 68 
Additional paid-in capital7,257 5,769 
Treasury stock, 451,224 common shares, at cost(2,388)(2,388)
Accumulated deficit(104,692)(102,013)
Total stockholders' deficit(99,755)(98,564)
Total liabilities and stockholders' deficit$400,492 $417,829 
(in thousands, except share data)
March 31, 2022December 31, 2021
Assets
Current assets:
Cash and cash equivalents$13,557 $20,300 
Restricted cash13,588 28,859 
Accounts receivable, net of allowances of $869 and $555, respectively72,863 58,423 
Prepaid expenses and other current assets12,378 15,807 
Current portion of notes receivable652 272 
Settlement assets and customer account balances498,616 479,471 
Total current assets611,654 603,132 
Notes receivable, less current portion2,027 105 
Property, equipment and software, net25,397 25,233 
Goodwill365,740 365,740 
Intangible assets, net325,084 340,211 
Deferred income taxes, net11,493 8,265 
Other noncurrent assets8,944 9,256 
Total assets$1,350,339 $1,351,942 
Liabilities, Redeemable Senior Preferred Stock and Stockholders' Deficit
Current liabilities:
Accounts payable and accrued expenses$43,464 $42,523 
Accrued residual commissions34,372 29,532 
Customer deposits and advance payments5,008 5,021 
Current portion of long-term debt6,200 6,200 
Settlement and customer account obligations503,731 500,291 
Total current liabilities592,775 583,567 
Long-term debt, net of current portion, discounts and debt issuance costs598,403 604,105 
Other noncurrent liabilities15,677 18,349 
Total noncurrent liabilities614,080 622,454 
Total liabilities1,206,855 1,206,021 
Commitments and contingencies (Note 11)00
Redeemable senior preferred stock, $0.001 par value; 250,000 shares authorized; 225,000 issued and outstanding at March 31, 2022 and December 31, 2021215,053 210,158 
Stockholders' deficit:
Preferred stock, $0.001; 100,000,000 shares authorized; none issued or outstanding at March 31, 2022 and December 31, 2021— — 
Common stock, $0.001 par value; 1,000,000,000 shares authorized; 77,589,180 and 77,460,312 shares issued at March 31, 2022 and December 31, 2021, respectively; and 76,842,093 and 76,739,896 shares outstanding at March 31, 2022 and December 31, 2021, respectively.78 77 
Treasury stock at cost, 747,087 and 720,416 shares at March 31, 2022 and December 31, 2021, respectively(4,248)(4,091)
Additional paid-in capital32,992 39,835 
Accumulated deficit(100,391)(100,058)
Total stockholders' deficit(71,569)(64,237)
Total liabilities, redeemable senior preferred stock and stockholders' deficit$1,350,339 $1,351,942 

See Notes to Unaudited Condensed Consolidated Financial Statements
- 1 -

Table of Contents
Priority Technology Holdings, Inc.
Condensed Consolidated Statements of Operations
Unaudited
(in thousands, except per share amounts)Three Months Ended March 31,
20212020
REVENUES$113,297 $96,933 
OPERATING EXPENSES:
Costs of services81,863 66,364 
Salary and employee benefits9,548 10,129 
Depreciation and amortization9,070 10,272 
Selling, general and administrative8,2896,609 
Total operating expenses108,770 93,374 
Income from operations4,527 3,559 
OTHER EXPENSES:
Interest expense(9,168)(10,315)
Other expenses, net(269)(346)
Total other expenses, net(9,437)(10,661)
Loss before income taxes(4,910)(7,102)
Income tax benefit(2,231)(1,233)
Net loss$(2,679)$(5,869)
Loss per common share:
Basic and diluted$(0.04)$(0.09)
Weighted-average common shares outstanding:
Basic and diluted67,543 67,061 

See Notes to Unaudited Condensed Consolidated Financial Statements
- 2 -

Table of ContentsCon
Priority Technology Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
Unaudited
(in thousands)Three Months Ended March 31,
20212020
Cash flows from operating activities:
Net loss$(2,679)$(5,869)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization of assets9,070 10,272 
Equity-classified and liability-classified stock-based compensation558 338 
Amortization of debt issuance costs and discounts590 460 
Deferred income tax benefit(1,661)(1,699)
Change in allowance for deferred tax assets(638)466 
Payment-in-kind interest1,924 1,391 
Other non-cash items, net(64)208 
Change in operating assets and liabilities:
Accounts receivable(9,575)631 
Settlement assets and obligations, net(22,526)(7,047)
Prepaid expenses and other current assets(583)390 
Notes receivable862 (927)
Accounts payable and other accrued liabilities8,633 (3,541)
Customer deposits and advance payments2,604 (1,647)
Other assets and liabilities, net59 (680)
Net cash used in operating activities(13,426)(7,254)
Cash flows from investing activities:
Additions to property, equipment, and software(2,754)(2,281)
Acquisitions of intangible assets(2,937)(948)
Net cash used in investing activities(5,691)(3,229)
Cash flows from financing activities:
Repayment of long-term debt(4,860)(1,002)
Debt modification costs paid0 (2,749)
Borrowings under revolving credit facility0 3,500 
Proceeds from exercise of stock options617 0 
Net cash used in financing activities(4,243)(251)
Net change in cash and restricted cash:
Net decrease in cash and restricted cash(23,360)(10,734)
Cash and restricted cash at beginning of period88,120 50,465 
Cash and restricted cash at end of period$64,760 $39,731 
Supplemental cash flow information:
Cash paid for interest$6,553 $8,186 
Non-cash investing and financing activities:
Payment-in-kind interest added to principal of debt obligations$1,924 $1,391 
Reconciliation of cash and restricted cash:
Cash$5,827 $2,858 
Restricted cash58,933 36,873 
Total cash and restricted cash$64,760 $39,731 

See Notes to Unaudited Condensed Consolidated Financial Statements
- 3 -

Table of Contentstents

PRIORITY TECHNOLOGY HOLDINGS, INC.Priority Technology Holdings, Inc.
Unaudited Consolidated Statements of Operations
(in thousands, except per share amounts)
Three Months Ended March 31,
20222021
Revenues$153,239 $113,297 
Operating expenses
Costs of services101,480 81,863 
Salary and employee benefits16,077 9,548 
Depreciation and amortization17,353 9,070 
Selling, general and administrative7,503 8,289 
Total operating expenses142,413 108,770 
Operating income10,826 4,527 
Other (expense) income
Interest expense(11,535)(9,168)
Other income (expense), net51 (269)
Total other expense, net(11,484)(9,437)
Loss before income taxes(658)(4,910)
Income tax benefit(325)(2,231)
Net loss(333)(2,679)
Less: Dividends and accretion attributable to redeemable senior preferred stockholders(8,400)— 
Net loss attributable to common stockholders$(8,733)$(2,679)
Loss per common share:
Basic and diluted$(0.11)$(0.04)
Weighted-average common shares outstanding:
Basic and diluted78,597 67,543 


See Notes to Unaudited Consolidated Financial Statements

2
Table of Contents

Priority Technology Holdings, Inc.
Unaudited Consolidated Statements of Changes in Stockholders' Deficit
(in thousands)

Common
Stock		Treasury
Stock		Additional Paid-In CapitalAccumulated DeficitDeficit Attributable to Stockholders
Shares$Shares$
December 31, 202176,740 $77 720 $(4,091)$39,835 $(100,058)$(64,237)
Equity-classified stock-based compensation— — — — 1,558 — 1,558 
Vesting of stock-based compensation129 — — — — — — 
Share repurchases and shares withheld for taxes(27)1 27 (157)(1)— (157)
Dividends on redeemable senior preferred stock— — — — (7,595)— (7,595)
Accretion of redeemable senior preferred stock— — — — (805)— (805)
Net loss— — — — — (333)(333)
March 31, 202276,842 $78 747 $(4,248)$32,992 $(100,391)$(71,569)


Common
Stock		Treasury
Stock		Additional Paid-In CapitalAccumulated DeficitDeficit Attributable to Stockholders
Shares$Shares$
December 31, 202067,391 $68 451 $(2,388)$5,769 $(102,013)$(98,564)
Equity-classified stock-based compensation— — — — 558 — 558 
Vesting of stock-based compensation159 — — — — — — 
Liability-classified stock-based compensation converted to equity-classified— — — — 313 — 313 
Exercise of stock options90 — — — 617 — 617 
Net loss— — — — — (2,679)(2,679)
March 31, 202167,640 $68 451 $(2,388)$7,257 $(104,692)$(99,755)



See Notes to Unaudited Consolidated Financial Statements

3
Table of Contents

Priority Technology Holdings, Inc.
Unaudited Consolidated Statements of Cash Flows
(in thousands)
Three Months Ended March 31,
20222021
Cash flows from operating activities:
Net loss$(333)$(2,679)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization of assets17,353 9,070 
Stock-based compensation1,558 558 
Amortization of debt issuance costs and discounts848 590 
Deferred income tax benefit(3,227)(2,299)
PIK interest— 1,924 
Other non-cash items, net— (64)
Change in operating assets and liabilities:
Accounts receivable(14,440)(9,575)
Prepaid expenses and other current assets164 (539)
Income taxes payable (receivable)2,913 (44)
Notes receivable98 862 
Accounts payable and other accrued liabilities5,316 8,633 
Customer deposits and advance payments(13)2,604 
Other assets and liabilities, net(624)59 
Net cash provided by operating activities9,613 9,100 
Cash flows from investing activities:
Additions to property, equipment and software(2,370)(2,754)
Notes receivable loan funding(2,400)— 
Acquisitions of intangible assets(941)(2,937)
Net cash used in investing activities(5,711)(5,691)
Cash flows from financing activities:
Repayments of long-term debt(1,550)(4,860)
Repayments of borrowings under revolving credit facility(5,000)— 
Dividends paid to redeemable senior preferred stockholders(3,505)— 
Settlement and customer accounts obligations, net12,749 (22,526)
Other financing activities(156)617 
Net cash provided by (used in) financing activities2,538 (26,769)
Net change in cash and cash equivalents, and restricted cash:
Net increase in cash and cash equivalents, and restricted cash6,440 (23,360)
Cash and cash equivalents, and restricted cash at beginning of period518,093 88,120 
Cash and cash equivalents, and restricted cash equivalents at end of period$524,533 $64,760 
Supplemental cash flow information:
Cash paid for interest$10,613 $6,553 
Non-cash investing and financing activities:
PIK interest added to principal of debt obligations$— $1,924 
4
Table of Contents
Three Months Ended March 31,
20222021
Reconciliation of cash and cash equivalents, and restricted cash:
Cash and cash equivalents$13,557 $5,827 
Restricted cash13,588 58,933 
Customer account balances (see Note 4)
497,388 — 
Total cash and cash equivalents, and restricted cash$524,533 $64,760 

See Notes to Unaudited Consolidated Financial Statements

5
Table of Contents

Priority Technology Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements


1.    BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Nature of Business and Significant Accounting Policies
Business, Consolidation and Presentation

Priority Technology Holdings, Inc. and its consolidated subsidiaries are referred to herein collectively as "Priority," "PRTH," the "Company," "we," "our" or "us," unless the context requires otherwise. Priority is a provider of merchant acquiring, integrated payment software, licensed money transmission services and commercial paymentpayments solutions.

The Company operates on a calendar year ending each December 31 and on four calendar quarters ending on March 31, June 30, September 30 and December 31 of each year. Results of operations reported for interim periods are not necessarily indicative of results for the entire year.

These unaudited condensed consolidated financial statementsThe accompanying Unaudited Consolidated Financial Statements include the accounts of the Company including those ofand its majority-owned subsidiaries, and allsubsidiaries. All material intercompany balances and transactions have been eliminated in consolidation. These unaudited condensed consolidated financial statementsUnaudited Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP")GAAP for interim financial information pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC").SEC. The consolidated balance sheetConsolidated Balance Sheet as of December 31, 20202021 was derived from the audited financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 20202021 but does not include all disclosures required by GAAP for annual financial statements.

In the opinion of the Company's management, all known adjustments necessary for a fair presentation of the results of theUnaudited Consolidated Financial Statements for interim periods have been made. These adjustments consist of normal recurring accruals and estimates that affect the carrying amountamounts of assets and liabilities. These financial statementsUnaudited Consolidated Financial Statements should be read in conjunction with the consolidated financial statementsConsolidated Financial Statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2020.

2021.
Use of Estimates

The preparation of financial statementsUnaudited Consolidated Financial Statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosuresthe disclosure of contingent assets and liabilities at the date of the financial statements, as well asUnaudited Consolidated Financial Statements and the reported amounts of revenues and expenses during the reported period. Actual results could materially differ materially from those estimates. In particular, the continued magnitude, duration and effects of the COVID-19 pandemic are difficult to predict, and the ultimate effect could result in future charges related to the recoverability of assets, including financial assets, long-lived assets, goodwill and other losses.

Status as an Emerging Growth Company

Foreign Currency
The CompanyCompany's reporting currency is an "emerging growth company" ("EGC"), as definedthe U.S. dollar. Assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the Jumpstart Our Business Startups Act of 2012. The Company may remain an EGC until December 31, 2021. However, if the Company's non-convertible debt issued within a rolling three-year period exceeds $1.0 billion, the Company would cease to be an EGC immediately, or if its revenue for any fiscal year exceeds $1.07 billion, or the market value of its common stock that is held by non-affiliates exceeds $700.0 millioncurrent exchange rate on the last day of the second quarterreporting 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 Unaudited Consolidated Statements of any given year, the Company would cease to be an EGC as of the beginning of the following year. As an EGC, the Company is not required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002. Additionally, the Company may continue to elect to delay the adoption of any new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As such, the Company's financial statements may not be comparable to that comply with public company effective dates.

- 4 -

Table of Contents
Comprehensive Income (Loss)

For the three months ended March 31, 2021 and March 31, 2020, the Company had no activities to report as components of other comprehensive income (loss). Therefore, no separate Statement of Comprehensive Income (Loss) was prepared for any reporting period as the Company's net income (loss) from continuing operations comprises all of its comprehensive income (loss).Operations.

Comparability of Reporting Periods

Certain prior period amounts in these unaudited condensed consolidated financial statementsUnaudited Consolidated Financial Statements have been reclassified to conform to the current period presentation, with no net effect on the Company's operating income, from operations, income (loss)loss before income taxes,tax benefit, net income (loss),loss or stockholders' deficit or cash flows from operations, investing, or financing activities for any period presented.
6

Table of Contents
Accounting PoliciesWe reclassified certain cash flows related to settlement assets and New Accounting Standards Adoptedcustomer account balances and the related obligations from net cash used in operating activities to net cash used in financing activities within the Unaudited Consolidated Statements of Cash Flows. Prior period amounts have been reclassified to conform to the current period presentation. These changes have no impact on our previously reported financial position or net increase in cash and cash equivalents.
The current period presentation classifies all changes in settlement and customer account balance obligations on our Unaudited Consolidated Statements of Cash Flows as net cash provided by (used in) financing activities. The current period presentation provides a more meaningful representation of the cash flows related to the movement of settlement assets and customer account balances due to the restrictions on and use of those funds.

There have been no materialThe following tables present the effects of the changes on the presentation of these cash flows to the Company's accounting policies as described in its most recent Annual Report on Form 10-K for the year endedpreviously reported Unaudited Consolidated Statement of Cash Flows:
(in thousands)Three Months Ended March 31, 2021
Net cash (used in) provided by operating activities:
Historically reported$(13,426)
Adjustment22,526 
Reclassified9,100
Net cash used in financing activities:
Historically reported(4,243)
Adjustment(22,526)
Reclassified$(26,769)
Emerging Growth Company Status
Prior to December 31, 2020. The2021, the Company did not adoptwas an EGC, as defined in JOBS Act, and elected to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies until the Company is no longer an EGC, including using the extended transition period for complying with new or revised accounting standards. On December 31, 2021, we ceased to qualify as an EGC and have adopted any new accounting standards during the three months ended March 31, 2021 except for the following:

Simplifying the Accounting for Income Taxes (ASU 2019-12)

In December 2019, the FASB issued Accounting Standards Update ("ASU") 2019-12, Simplifying the Accounting for Income Taxes ("ASU 2019-12"), which is intendedthat we are now required to enhance and simplify various aspects of the accounting for income taxes. The amendments in this update remove certain exceptions to the general principles in Accounting Standards Codification ("ASC") Topic 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12 also clarifies and amends existing guidance to improve consistency in application of the accounting for franchise taxes, enacted changes in tax laws or rates and transactions that result in a step-up in the tax basis of goodwill. The adoption of ASU 2019-12 on January 1, 2021 did not have a material effect on our consolidated financial statements.

adopt.
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.

Implementation Costs Incurred in Cloud Computing Arrangements (ASU 2018-15)

Reference Rate Reform
In August 2018, the FASB issued ASU 2018-15, Implementation Costs Incurred in Cloud Computing Arrangements ("ASU 2018-15"),which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). As an EGC, this ASU is effective for the Company's annual reporting period beginning January 1, 2021, and will be effective for interim periods beginning in 2022. The amendments are applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption, and the Company has not yet made a determination to use the retrospective or prospective adoption method. Based on current operations of the Company, the adoption of ASU 2018-15 is not expected to have a material effect on the Company's results of operations, financial position, or cash flows.

Reference Rate Reform (ASU 2020-04)

On March 12, 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASUReporting, 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 London Interbank Offered Rate ("LIBOR")LIBOR and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financial Rate. EntitiesIf certain criteria are met, entities can elect not to apply certain modification accounting requirements to
- 5 -

Table of Contents
contracts affected by what the guidance calls reference rate reform, if certain criteria are met.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, ASU 2020-04 Reference Rate Reform (Topic 848), 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. These updates can be adopted at any time before December 31, 2022. The provisions of ASU 2020-04Company is currently evaluating the potential impact these updates may impact the Company if future debt modifications or refinancings utilize one or more of the reference rates covered by the provisions of this ASU.

Leases (ASC 842)

In February 2016, the FASB issued new lease accounting guidance in ASU No. 2016-02, Leases-Topic 842, which has been codified in ASC 842, Leases. Under this new guidance, lessees will be required to recognize for all leases (with the exception of short-term leases): 1) a lease liability equal to the lessee's obligation to make lease payments arising from a lease, measured on a discounted basis and 2) a right-of-use asset which will represent the lessee's right to use, or control the use of, a specified asset for the lease term. As an EGC, this standard is effective for the Company's annual and interim reporting periods beginning 2022. The adoption of ASC 842 will require the Company to recognize non-current assets and liabilities for right-of-use assets and operating lease liabilitieshave on its consolidated balance sheet, but it is not expected to have a material effect on the Company's results of operations or cash flows. ASC 842 will also require additional footnote disclosures to the Company's consolidated financial statements.

Unaudited Consolidated Financial Statements.
Credit Losses (ASU 2016-13 and ASU 2018-19)

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This new guidance will change how entities account for credit impairment for trade and other receivables, as well as for certain financial assets and other instruments. ASU 2016-13 will replace the current "incurred loss" model with an "expected loss" model. Under the "incurred
7
Table of Contents
"incurred loss" model, a loss (or allowance) is recognized only when an event has occurred (such as a payment delinquency) that causes the entity to believe that a loss is probable (i.e., that it has been "incurred"). Under the "expected loss" model, a loss (or allowance) is recognized upon initial recognition of the asset that reflects all future events that leads to a loss being realized, regardless of whether it is probable that the future event will occur. The "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 will require 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. The Company is currently evaluating the potential impact that ASU 2016-13this update may have on the timing of recognizing future provisions for expected losses on the Company's accounts receivable and notes receivable. Since the Company is a smaller reporting company, ("SRC"), the Company must adopt this new standard no later than the beginning of 2023 for annual and interim reporting periods.

Goodwill Impairment Testing (ASU 2017-04)

Business Combinations
In January 2017,October 2021, the FASB issued ASU No. 2017-04,2021-08, Intangibles-GoodwillBusiness Combinations (Topic 805): Accounting for Contract Assets and Other (Topic 350): SimplifyingContract 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 Testacquirer 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 Goodwill Impairment. ASU 2017-04 will eliminate the requirement to calculate the implied fair value of goodwill (i.e., step 2 of the current goodwill impairment test) to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit's carrying amount over its fair value (i.e., measure the charge based on the current step 1). Any impairment charge will be limited to the amount of goodwill allocated to an impacted reporting unit. ASU 2017-04 will not change the current guidance for completing Step 1 of the goodwill impairment test, and an entity will still be able to perform the current optional qualitative goodwill impairment assessment before determining whether to proceed to Step 1. Upon adoption, the ASU will be applied prospectively. Since the Company is a SRC, the Company must adopt this new standard no later than the beginning ofon January 1, 2023, for annual andincluding interim reporting periods.periods within those fiscal years. The impact that ASU 2017-042021-08 may have on the Company's financial condition or results of operationsUnaudited Consolidated Financial Statements will depend on the circumstances of any goodwill impairment eventbusiness combination that may occur after adoption.

2.    REVENUESRevenues
Disaggregation of Revenues

For all periods presented, substantially all of the Company’s revenues from services were recognized over time. Revenues and commissions earned from the sales of payment equipment were typically recognized at a point in time.

- 6 -

Table of Contents
The following table presents a disaggregation of the Company'sour consolidated revenues by type and the relationships to the Company's reportable segments, for the three months ended March 31, 20212022 and March 31, 2020:2021:
Three Months Ended March 31,
(in thousands)20222021
Revenue Type:
Merchant card fees$127,952 $107,702 
Outsourced services and other services7,097 4,378 
Money transmission services revenue16,283 — 
Equipment1,907 1,217 
Total revenues(1),(2)
$153,239 $113,297 

(in thousands)Three Months Ended March 31,
20212020
Revenue Type
Merchant card fees$107,702 $89,086 
Outsourced services and other services4,378 6,791 
Equipment1,217 1,056 
Total revenues$113,297 $96,933 
Revenues earned in these disaggregated categories consist of following:

•(1)Merchant card fees - revenues related to discount rates and interchange fees earned from payment services provided by the Company's Consumer Payments, Commercial Payments, and Integrated Partners segments.

•Outsourced services and other services - business process outsourcing services provided by our Commercial Payments segment primarily to certain business customers of American Express, auxiliary services provided primarily to customers in the Company's Integrated Partners segment, and revenue from automated clearing house ("ACH") services.    

•Equipment - revenues from sales of point-of-sale equipment and other payment-processing equipment sold to customers in the Company's Consumer Payments segment.

Transaction Price Allocated to Future Performance Obligations

ASC 606, Revenue Recognition ("ASU 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 anyIncludes contracts with an original duration of one year or less and any variable consideration that meets specified criteria. The Company’s most significant performance obligations consist of variable consideration under a stand-ready series of distinct days of service. Such variable consideration meets the specified criteria for the disclosure exclusion. Therefore, the majority of the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied is variable consideration that is not required for this disclosure. The aggregate fixed consideration portion of customer contracts with an initial contract duration greater than one year is not material.

(2)
Contract Costs

For new, renewed, or anticipated contracts with customers,Approximately $0.1 million, $0.2 million of interest income for the Company doesthree months ended March 31, 2022 and 2021, respectively, is included in other income, net on the Company's Unaudited Consolidated Statements of Operations and not incur material amounts of incremental costs to obtain such contracts, as those costs are defined by ASC 340-40, Related Costs to Obtain or Fulfill a Contract with Customers ("ASU 340-40").

Fulfillment costs, as defined by ASC 340-40, typically benefit only the period (typically a month in duration) in which they are incurred and therefore are expensedreflected in the period incurred (i.e., not capitalized) unless they meet criteria to be capitalized under other accounting guidance.

The Company pays commissions to mosttable above. Approximately $0.6 million of its independent sales organizations ("ISOs"), andinterest income for certain ISOs the Company also pays (through a higher commission rate) them to provide customer servicethree months ended March 31, 2022, is included in outsourced services and other services directly to our merchant customers. The ISO is typically an independent contractor or agent ofrevenue in the Company. Although certain ISOs may have merchant portability rights, the merchant meets the definition of a customertable above.
Deferred revenues were not material for the Company even if the ISO has merchant portability rights. Since payments to ISOs are dependent substantially on variable merchant payment volumes generated after the merchant enters into a new or renewed contract, these payments to ISOs are not deemed to be a cost to acquire a new contract since the ISO payments are based on factors that will arise subsequent to the event of obtaining a new or renewed contract. Also,
- 7 -

Table of Contents
payments to ISOs pertain only to a specific month’s activity. For payments made, or due, to an ISO, the expenses are reported within income from operations on our statements of operations.

The Company from time-to-time may 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.

three months ended March 31, 2022 and 2021.
Contract Assets and Contract Liabilities

A contract with a customer creates legal rights and obligations. As the Company performs under customer contracts, its right to consideration that is unconditional is considered to be accounts receivable. If the Company’s right to consideration for such performance is contingent upon a future event or satisfaction of additional performance obligations, the amount of revenues recognized in excess of the amount billed to the customer is recognized as a contract asset. Contract liabilities represent consideration received from customers in excess of revenues recognized. Material contract assets and liabilities are presented net at the individual contract level in the consolidated balance sheetUnaudited Consolidated Balance Sheets and are classified as current or noncurrent based on the nature of the underlying contractual rights and obligations.
8

Table of Contents
Supplemental balance sheet information related to contracts from customers as of March 31, 20212022 and December 31, 20202021 was as follows:
(in thousands)(in thousands)Consolidated Balance Sheet LocationMarch 31, 2021December 31, 2020(in thousands)Consolidated Balance Sheet LocationMarch 31, 2022December 31, 2021
Liabilities:Liabilities:Liabilities:
Contract liabilities, net (current)Contract liabilities, net (current)Customer deposits and advance payments$1,162$1,494Contract liabilities, net (current)Customer deposits and advance payments$1,280 $1,280 

The balances for the contract liabilities were approximately $1.7 million and $1.9 million at March 31, 2020 and December 31, 2019, respectively. The changes in the balances during the three months ended March 31, 2021 and March 31, 2020 were due to the timing of advance payments received from the customer. Substantially all of these balances are recognized as revenue within twelve12 months.

Net contract assets were not material for any period presented.

Impairment losses recognized on receivables or contract assets arising from the Company's contracts with customers were not material for the three monthsperiods ended March 31, 20212022 and MarchDecember 31, 2020.2021.

3.    Acquisitions
Finxera Acquisition
On September 17, 2021, the Company completed its acquisition of 100% of the equity interests of Finxera. Finxera is a provider of deposit account management and licensed money transmission services in the U.S. The acquisition will allow the Company to offer clients turn-key merchant services, payment facilitation, card issuing, automated payables, virtual banking, e-wallet tools, risk management, underwriting and compliance on a single platform.
The transaction was funded with the Company's cash on hand, proceeds from the issuance of the redeemable senior preferred stock and debt, and the issuance of common equity shares to the sellers.
The acquisition was accounted for as a business combination using the acquisition method of accounting, under which the assets acquired and liabilities assumed were recognized at their fair values as of September 17, 2021, 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 assets acquired and liabilities assumed as of September 17, 2021 were estimated by management based on the valuation of the Finxera business using the discounted cash flow method and other factors specific to certain assets and liabilities. The purchase price allocation is set forth in the table below.
9

Table of Contents
(in thousands)
Consideration:
Cash$379,220 
Equity instruments(1)
34,388 
Less: cash and restricted cash acquired(6,598)
Total purchase consideration, net of cash and restricted cash acquired$407,010
Recognized amounts of assets acquired and liabilities assumed:
Accounts receivable$385 
Prepaid expenses and other current assets5,198 
Current portion of notes receivable784 
Settlement assets and customer account balances498,811 
Property, equipment and software, net712 
Goodwill245,104 
Intangible assets, net(2)
211,400 
Other noncurrent assets955 
Accounts payable and accrued expenses(7,837)
Settlement and customer account obligations(498,811)
Deferred income taxes, net(44,311)
Other noncurrent liabilities(5,380)
Total purchase consideration$407,010
(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.
3.    SETTLEMENT ASSETS AND OBLIGATIONS(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.
Goodwill of $245.1 million arising from the acquisition primarily consists of the expected synergies and other benefits from combining operations. Approximately $8.7 million of the goodwill attributable to the acquisition is expected to be deductible for income tax purposes. The goodwill was allocated 100% to the Company's Enterprise Payments reportable segment.
In 2020, Finxera acquired 2 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 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 March 31, 2022, $0.5 million of the $6.1 million of total contingent consideration has been paid. The remaining $5.6 million was accrued, of which $2.0 million and $3.6 million were included in accounts payable and accrued expenses and other noncurrent liabilities, respectively, on the Company's Unaudited Consolidated Balance Sheet as of March 31, 2022.
Other Acquisitions
Wholesale Payments, Inc.
On April 28, 2021, a subsidiary of the Company completed its acquisition of certain residual portfolio rights for a purchase price of $42.4 million and $24.8 million of post-closing payments and earnout payments based on meeting certain attrition thresholds over a three-year period from the date of acquisition. The transaction did not meet the definition of a business, therefore it was accounted for as an asset acquisition under which the cost of the acquisition was allocated to the acquired assets based on relative fair values. As of March 31, 2022, the sellers earned $3.8 million of the $24.8 million, which was paid during 2021, increasing the total purchase price recorded to $46.2 million, which was recorded to residual buyout intangible assets with a seven-year useful life amortized on a straight-line basis. As this is an asset acquisition, additional purchase price is accounted for when payment to the seller becomes probable and is added to the carrying value of the asset. 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 was netted
10
Table of Contents
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.
C&H
On June 25, 2021, a subsidiary of the Company acquired certain assets and assumed certain related liabilities of C&H under an asset purchase agreement. C&H was an ISO partner of the Company where it developed expertise in software-integrated payment services, as well as marketing programs for specific verticals such as automotive and youth sports. This business is reported within the Company's SMB Payments reportable segment. 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 earnout 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 held by the Company and $4.5 million cash on hand. Transaction costs were not material and were expensed. The purchase price allocation is set forth in the table below.
(in thousands)
Accounts receivable$214 
Prepaid expenses and other current assets209 
Property, equipment and software, net and other current assets287 
Goodwill13,804 
Intangible assets, net(1)
25,400 
Other noncurrent liabilities(214)
Total purchase price$39,700
(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.
The goodwill for the Wholesale Payments, Inc. asset acquisition and the C&H business combination is deductible by the Company for income tax purposes. Based on their purchase prices and pre-acquisition operating results and assets, these 2 businesses acquired by the Company in 2021, as described above, did not meet the materiality requirements for pro forma disclosures individually or collectively.

Consumer
4.    Settlement Assets and Customer Account Balances and Related Obligations
SMB Payments Segment

In the Company’s ConsumerCompany's SMB Payments reportable segment, funds settlement refers to the process of transferring funds for sales and credits between card issuers and merchants. The standards of the card networks restrict non-members, such asrequire possession of funds during the Company, from performing funds settlement or accessing merchant settlement funds. Instead, these funds must be in the possession ofprocess by a member bank untilwhich controls the merchant is funded. The Company has agreements with member banks which allow the Company to route transactions under the member bank's control to clear transactions through the card networks. Timing differences, interchange fees, merchant reserves and exception items cause differences between the amounts received from the card networks and the amounts funded to the merchants.clearing transactions. Since settlement funds are required to be in the possession of a member bank until the merchant is funded, these funds are not assets of the Company and the associated obligations related to these funds are not liabilities of the Company. Therefore, neither is recognized in the Company’s consolidated balance sheets.Company's Unaudited Consolidated Balance Sheets. Member banks held merchant funds of $105.7 million$115.4 million and $103.8$102.1 million at March 31, 20212022 and December 31, 2020,2021, respectively.

- 8 -

Table of Contents
Exception items include items such as customer chargeback amounts received from merchants and other losses. Under agreements between the Company and its merchant customers, the merchants assume liability for such chargebacks and losses. If the Company is ultimately unable to collect amounts from the merchants for any charges or losses due to merchant fraud, insolvency, bankruptcy or any other reason, it may be liable for these charges. In order to mitigate the risk of such liability, the Company may 1) require certain merchants to establish and maintain reserves designed to protect the Company from such charges or losses under its risk-based underwriting policy and 2) engage with certain ISOs in partner programs in which the ISOs assume liability for these charges or losses. A merchant reserve account is funded by the merchant and held by the member bank during the term of the merchant agreement. 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 statementsUnaudited Consolidated Statements of operations.Operations. 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 account balances in the Company’s consolidated balance sheets,Company's Unaudited Consolidated Balance Sheets, with an offsetting reserve for those amounts the Company estimates it will not be able to recover. Expenses for actual and estimated merchant losses for the three months ended March 31, 2022 and 2021 were $1.1 million and March 31, 2020 were $0.4 million, and $1.0 million, respectively.
Commercial
11
Table of Contents
B2B Payments Segment

In the Company’s CommercialCompany's B2B Payments segment, the Company earns revenuerevenues from certain of its services by processing ACH transactions for financial institutionsFIs and other business customers. Customers transfer funds to the Company, which are held in either company-owned bank accounts controlled by the Company or bank-owned FBO accounts controlled by the banks, until such time as the ACH transactions are made. Thesettled with the customer payees. Amounts due to customer payees that are held by the Company recognizesin Company-owned bank accounts are included in restricted cash. Amounts due to customer payees that are held in bank-owned FBO accounts are not assets of the Company, and the associated obligations related to these cash balances withinfunds are not liabilities of the Company. Therefore, neither is recognized in the Company's Unaudited Consolidated Balance Sheets. Bank-owned FBO accounts held funds of $57.6 million and $45.5 million at March 31, 2022 and December 31, 2021, respectively. Company-owned bank accounts held $6.4 million and $21.4 million at March 31, 2022 and December 31, 2021, respectively, which are included in restricted cash and settlement obligations in the Company's Unaudited Consolidated Balance Sheets.
Enterprise Payments Segment
In the Company's Enterprise Payments segment, revenue is derived primarily from enrollment fees, monthly subscription fees and transaction-based fees from licensed money transmission services. As part of its consolidated balance sheets.licensed money transmission services, the Company accepts deposits from consumers and subscribers which are held in bank accounts maintained by the Company on behalf of consumers and subscribers. After accepting deposits, the Company is allowed to invest available balances in these accounts in certain permitted investments, and the return on such investments contributes to the Company's net cash inflows. These balances are payable on demand. As such, the Company recorded these balances and related obligations as current assets and current liabilities. The nature of these balances are cash and cash equivalents but they are not available for day-to-day operations of the Company. Therefore, the Company has classified these balances as settlement assets and customer account balances and the related obligations as settlement and customer account obligations in the Company's Unaudited Consolidated Balance Sheets.

The Company's settlement assets and obligations at March 31, 2021customer account balances and December 31, 2020settlement and customer account obligations were as follows:

(in thousands)March 31, 2021December 31, 2020
Settlement Assets:
Card settlements due from merchants, net of estimated losses$1,065 $753 
Card settlements due from ISOs155 0 
Total settlement assets$1,220 $753 
Settlement Obligations:
Due to ACH payees (1)50,820 72,878 
Total settlement obligations$50,820 $72,878 
(in thousands)March 31, 2022December 31, 2021
Settlement Assets:
Card settlements due from merchants, net of estimated losses$1,228 $537 
Customer Account Balances:
Cash and cash equivalents497,388 468,934 
Time deposits— 10,000 
Total settlement assets and customer account balances$498,616 $479,471 
Settlement and Customer Account Obligations:
Customer account obligations$497,388 $478,935 
Due to customer payees(1)
6,343 21,356 
Total settlement and customer account obligations$503,731 $500,291 

(1)
(1) Amounts due to ACH payeesThe related assets are held by the Companyincluded in restricted cash.

cash on our Unaudited Consolidated Balance Sheets.

12
4. GOODWILL AND OTHER INTANGIBLE ASSETS
Table of Contents

5.    Goodwill and Other Intangible Assets
Goodwill

The Company recordsCompany's goodwill when an acquisition is made and the purchase price is greater than the fair value assignedrelates to the underlying separately-identifiable tangible and intangible assets acquired and the liabilities assumed. Allfollowing reporting units as of the Company's goodwill was allocated to the Company's Consumer Payments reporting unit at March 31, 20212022 and December 31, 2020.2021:

(in thousands)March 31, 2022December 31, 2021
SMB Payments$120,636 $120,636 
Enterprise Payments245,104 245,104 
Total$365,740 $365,740 
The Company considered the market conditions generated by the COVID-19 pandemic and concluded that thereThere were no indicators of impairment for the goodwill of the Consumer Payments reporting unitlosses for the three months ended March 31, 2022 and 2021.

The Company testsperformed its most recent annual goodwill for impairment on an annual basis, or when events occur or circumstances indicatetest as of October 1, 2021, 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 aeach of our reporting unit may be below itsunits exceeds their carrying value. Theamounts. As of March 31, 2022, the Company will continue to monitoris not aware of any triggering events that have occurred since October 1, 2021.
Other Intangible Assets
At March 31, 2022 and December 31, 2021, other intangible assets consisted of the economic impact of COVID-19 on its ongoing assessment of goodwill. The Company expects to perform its next annual goodwill impairment test during thefollowing:
(in thousands, except weighted-average data)March 31, 2022Weighted-average
Useful Life
Gross Carrying ValueAccumulated AmortizationNet Carrying Value
Other intangible assets:
ISO and referral partner relationships$175,300 $(14,771)$160,529 14.8
Residual buyouts126,225 (61,054)65,171 6.3
Customer relationships95,566 (74,046)21,520 8.0
Merchant portfolios76,016 (33,942)42,074 6.7
Technology48,690 (15,921)32,769 9.9
Non-compete agreements3,390 (3,390)— 0.0
Trade names2,870 (1,949)921 11.7
Money transmission licenses(1)
2,100 — 2,100 
Total gross carrying value$530,157 $(205,073)$325,084 10.0
(1)These assets have an indefinite useful life.
- 9 -

13
Table of ContentsContents
fourth quarter of
(in thousands, except weighted-average data)December 31, 2021Weighted-average
Useful Life
Gross Carrying ValueAccumulated AmortizationNet Carrying Value
Other intangible assets:
ISO and referral partner relationships$175,300 $(11,679)$163,621 14.8
Residual buyouts(1)
126,225 (56,186)70,039 6.4
Customer relationships95,566 (70,883)24,683 8.1
Merchant portfolios76,016 (30,879)45,137 6.7
Technology(2)
48,690 (15,039)33,651 9.9
Non-compete agreements(2)
3,390 (3,390)— 0.0
Trade names2,870 (1,890)980 11.6
Money transmission licenses(3)
2,100 — 2,100 
Total gross carrying value$530,157 $(189,946)$340,211 9.7
(1)Additions to residual buyouts were offset by certain assets that became fully amortized in 2021 using market data and discounted cash flow analysis. The Company concluded there was 0 impairment as of March 31, 2021 or December 31, 2020. As such, there was 0 accumulated impairment loss as of March 31, 2021 and December 31, 2020.

Other Intangible Assets

but are still in service.
The Company's other intangible(2)Certain assets include acquired merchant portfolios, customer relationships, ISO relationships, trade names, technology, and residual buyouts. As of March 31,in the group became fully amortized in 2021 and December 31, 2020, intangible assets consisted of the following:
(in thousands)March 31, 2021December 31, 2020
Other intangible assets:
Merchant portfolios$55,816 $55,816 
Customer relationships40,740 40,740 
Residual buyouts116,112 116,112 
Non-compete agreements3,390 3,390 
Trade names2,870 2,870 
Technology14,390 14,390 
ISO relationships15,200 15,200 
 Total gross carrying value248,518 248,518 
Less accumulated amortization:
Merchant portfolios(22,028)(19,471)
Customer relationships(31,071)(30,267)
Residual buyouts(75,975)(72,659)
Non-compete agreements(3,390)(3,390)
Trade names(1,711)(1,651)
Technology(13,975)(13,951)
ISO relationships(7,553)(7,319)
Total accumulated amortization(155,703)(148,708)
Accumulated allowance for impairment(1,753)(1,753)
 Net carrying value$91,062 $98,057 
See Note 9, Commitments and Contingencies, for information about an acquired merchant portfolio with a contingent purchase price.but are still in service.

(3)These assets have an indefinite useful life.
Amortization expense for finite-lived intangible assets was $7.0$15.1 million and $8.5$7.0 million for the three months ended March 31, 2022 and 2021, and March 31, 2020, respectively. Amortization expense for future periods could differ due to new intangible asset acquisitions, changes in useful lives of existing intangible assets, 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 Consumer 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. This impairment was the result of diminished cash flows generated by the merchant portfolio.

The Company also considered the market conditions generated by the COVID-19 pandemic and concluded that there were no additional impairment indicators present at March 31, 2021.

2022.

- 10 -6.    Property, Equipment and Software

TableA summary of Contents
5.    PROPERTY, EQUIPMENT, AND SOFTWARE

The Company's property, equipment and software, balance primarily consistsnet as of furniture, fixtures,March 31, 2022 and equipment used inDecember 31, 2021 was as follows:
(in thousands, except useful lives)March 31, 2022December 31, 2021
Computer software$54,939 $52,715 
Equipment12,874 12,255 
Leasehold improvements6,835 6,467 
Furniture and fixtures3,035 2,819 
Property, equipment and software77,683 74,256 
Less: accumulated depreciation(52,286)(49,023)
Property, equipment and software, net$25,397 $25,233 
Depreciation expense totaled $2.2 million and $2.1 million for the normal course of business, computer software developed for internal use,three months ended March 31, 2022 and leasehold improvements. 2021, respectively.
Computer software represents purchased software and internally developed back office and merchant interfacing systems used to assist in the reporting of merchant processing transactions and other related information.

A summary
7.     Notes Receivable
The Company had notes receivable of property, equipment,$2.7 million and software$0.4 million as of March 31, 20212022 and December 31, 2020 follows:

(in thousands)March 31, 2021December 31, 2020
Furniture and fixtures$2,795 $2,795 
Equipment11,442 10,216 
Computer software46,065 44,320 
Leasehold improvements6,250 6,250 
 66,552 63,581 
Less accumulated depreciation(42,761)(40,706)
Property, equipment, and software, net$23,791 $22,875 

Depreciation expense for property, equipment, and software totaled $2.1 million and $1.8 million for the three months ended March 31, 2021, and 2020, respectively.


6.    ACCOUNTS PAYABLE AND ACCRUED EXPENSES

The Company accrues for certain expenses that have been incurred and not paid,respectively, which are classified within accounts payablereported as current portion of notes receivable and accrued expenses innotes receivable less current portion on the accompanying consolidated balance sheets.

Company's Unaudited Consolidated Balance Sheets. The components of accounts payable and accrued expenses that exceeded five percent of total current liabilities at either March 31, 2021 or December 31, 2020 consistedcarrying value of the following:

(in thousands)March 31, 2021December 31, 2020
Accrued card network fees$8,160 $8,041 


Company's notes receivable approximates fair value. On the fair value hierarchy, Level 3 inputs are used to estimate the fair value of notes receivable. The notes receivable carried weighted-average
- 11 -

14
Table of ContentsContents
7.    DEBT OBLIGATIONSinterest rates of 14.6% and 13.8% as of March 31, 2022 and December 31, 2021, respectively. The notes receivable are comprised of notes receivable from ISOs, and under the terms of the agreements the Company preserves the right to hold back residual payments due to the ISOs and to apply such residuals against future payments due to the Company. As of March 31, 2022 and December 31, 2021, the Company had no allowance for doubtful notes receivable.
As of March 31, 2022, the principal payments for the Company's notes receivable are due as follows:
(in thousands)
Twelve month period ending March 31,
2023$652 
2024549 
2025526 
2026463 
2027489 
Total$2,679 

8.    Debt Obligations
Outstanding debt obligations as of March 31, 20212022 and December 31, 20202021 consisted of the following:
(in thousands)March 31, 2021December 31, 2020
Senior Credit Agreement:
Term facility - Matures January 3, 2023 and bears interest at LIBOR (with a LIBOR "floor" of 1.00% beginning March 18, 2020) plus 6.50% and 6.50% at March 31, 2021 and December 31, 2020, respectively (actual rate of 7.50% and 7.50% at March 31, 2021 and December 31, 2020, respectively)$274,557 $279,417 
Revolving credit facility - $25.0 million line, matures January 22, 2022, and bears interest at LIBOR plus 6.50% and 6.50% at March 31, 2021 and December 31, 2020, respectively (actual rate of 6.65% and 6.65% at March 31, 2021 and December 31, 2020, respectively)0 0 
Term Loan - Subordinated, matures July 3, 2023 and bears interest at 5.00% plus an applicable margin (actual rate of 12.50% and 12.50% at March 31, 2021 and December 31, 2020, respectively)104,547 102,623 
Total debt obligations379,104 382,040 
Less: current portion of long-term debt(24,302)(19,442)
Less: unamortized debt discounts and deferred financing costs(4,135)(4,725)
Long-term debt, net$350,667 $357,873 

Substantially all of the Company's assets are pledged as collateral under the credit agreements. The Company is neither a borrower nor a guarantor of the credit agreements. The Company's subsidiaries that are borrowers or guarantors under the credit agreements are referred to as the "Borrowers."

Senior Credit Agreement

Outstanding borrowings under that certain Credit and Guaranty Agreement, dated as of January 3, 2017, with Truist (the “Senior Credit Agreement”) accrue interest using either a base rate (as defined) or a LIBOR rate plus an applicable margin, or percentage per annum, as provided in the amended credit agreement. For the term loan facility of our Senior Credit Agreement, the Sixth Amendment, which was executed on March 18, 2020, thereto provides for a LIBOR "floor" of 1.0% per annum. Accrued interest is payable monthly. The revolving credit facility incurs a commitment fee on any undrawn amount of the $25.0 million credit line, which equates to 0.50% per annum for the unused portion.

Term Loan Agreement

Outstanding borrowings under that certain Credit and Guaranty Agreement, dated as of January 3, 2017, with Goldman Sachs Specialty Lending Group, L.P. (the “Term Loan Agreement”) accrue interest at 5.0%, plus an applicable margin, or percentage per annum, as indicated in the amended credit agreement. Accrued interest is payable quarterly at 5.0% per annum, and the accrued interest attributable to the applicable margin is capitalized as payment-in-kind ("PIK") interest each quarter.
- 12 -

Table of Contents
Contractual Maturities

Based on terms and conditions existing at March 31, 2021, future minimum principal payments for long-term debt are as follows:
(in thousands)Principal Due
Senior Credit AgreementTerm Loan AgreementTotal
Twelve-month period ending March 31,TermRevolverTerm
2022 (current)$24,302 $0 $0 $24,302 
2023250,255 0 0 250,255 
20240 0 104,547 104,547 
Total$274,557 $0 $104,547 $379,104 


Additionally, the Company may be obligated to make certain additional mandatory prepayments after the end of each year based on excess cash flow, as defined in the Senior Credit Agreement. No such prepayments were made for the year ended December 31, 2020.
Under the Senior Credit Agreement, prepayments of outstanding principal may be made in permitted increments with a 1% penalty for certain prepayments. Under the Term Loan Agreement, prepayments of outstanding principal are subject to a 2.0% penalty for certain prepayments occurring between March 18, 2021 and March 18, 2022. Such penalties are based on the principal amount that is prepaid, subject to the terms of the credit agreements.
PIK Interest

The principal amount borrowed and outstanding under the Term Loan Agreement was $80.0 million at March 31, 2021 and December 31, 2020. Included in the outstanding obligation balance at March 31, 2021 and December 31, 2020 was accumulated PIK interest of $24.5 million and $22.6 million, respectively. For the three months ended March 31, 2021 and March 31, 2020, PIK interest added $1.9 million and $1.4 million, respectively, to the obligation balance under the Term Loan Agreement.
(in thousands)March 31, 2022December 31, 2021
Term facility - matures April 27, 2027, interest rate of 6.75% at March 31, 2022 and December 31, 2021$615,350 $616,900 
Revolving credit facility - $40.0 million line, matures April 27, 2026, interest rate of 5.75% at March 31, 2022 and December 31, 202110,000 15,000 
Total debt obligations625,350 631,900 
Less: current portion of long-term debt(6,200)(6,200)
Less: unamortized debt discounts and deferred financing costs(20,747)(21,595)
Long-term debt, net$598,403 $604,105 
Interest Expense and Amortization of Deferred Loan Costs and Discounts
Deferred financing costs and debt discounts are amortized using the effective interest method over the remaining term of the respective debt and are recorded as a component of interest expense. Unamortized deferred financing costs and debt discounts are included in long-term debt on the Company's Unaudited Consolidated Balance Sheets.

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. 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.
Interest expense for outstanding debt, including fees for undrawn amounts under the revolving credit facility and amortization of deferred financing costs and debt discounts, was $9.2$11.5 million, and $10.3$9.2 million for the three months ended March 31, 20212022 and March 31, 2020, respectively.2021. Interest expense increased due to theincluded amortization of deferred financing costs and debt discounts by $0.6of $0.8 million and $0.5$0.6 million for the three months ended March 31, 20212022 and March 31, 2020,2021, respectively.
15

Table of Contents
For the Sixth Amendment, executedFair Value
Outstanding debt obligations are reflected in the first quarter of 2020, $2.7 million of lender fees were deferred and added to then-existing unamortized loan costs and discount. Costs thatCompany's Unaudited Consolidated Balance Sheets at carrying value since the Company incurs fordid not elect to remeasure debt modification that are not eligible for deferral and subsequent amortization as interest expense are reported as debt modification costs onobligations to fair value at the Company's consolidated statementend of operations. Approximately $0.4 millioneach reporting period.
The fair value of such costs were expensed in connection with the Sixth Amendment during the first quarter of 2020.

When the $106.5 million principal repayment was made in September 2020 for the term facility was estimated to be $614.6 million and $613.8 million. at March 31, 2022 and December 31, 2021, respectively, and was estimated using binding and non-binding quoted prices in an active secondary market, which considersthe credit risk and market related conditions, and is within Level 3 of the Senior Credit Agreement, it was deemed to be a partial extinguishment of debt that was permitted and contemplated by the existing debt agreement, as previously amended. As a result, a proportional amount of unamortized loan costs and discount in the amount of $1.5 million was removed and expensed during the third quarter of 2020.

Covenants

fair value hierarchy.
The Seniorcarrying 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.
Debt Covenants
The Credit Agreement and the Term Loan Agreement, as amended, containcontains 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
- 13 -

Table of Contents
the Company's subsidiariesloan 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 Company is alsoIf 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 loan parties are required to comply with certain restrictions on its Total Net Leverage Ratio, which is defined inRatio. If applicable, the credit agreements as the ratio of consolidated total debt of the Borrowers to the Company's consolidated adjusted EBITDA (as defined in the Senior Credit Agreement and Term Loan Agreement). The maximum permitted Total Net Leverage Ratio was 7.71:is: 1) 6.50:1.00 at March 31, 2021.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 March 31, 2022, the Company was in compliance with our financial covenants.
9.    Redeemable Senior Preferred Stock and Warrants
The following table provides a reconciliation of the beginning and ending carrying amounts of the redeemable senior preferred stock for the periods presented:
(in thousands)SharesAmount
January 1, 2022225 $210,158 
Unpaid dividend on redeemable senior preferred stock— 4,090 
Accretion of discounts and issuance cost— 805 
March 31, 2022225 $215,053 
The following table provides a summary of the dividends for the period presented:
(in thousands)Three Months Ended March 31, 2022
Dividends paid in cash$3,505 
Accumulated dividends accrued as part of the carrying value of redeemable senior preferred stock4,090 
Dividends declared at the rate of 13.0% per year$7,595
On April 27, 2021, the Company remainedissued warrants to purchase up to 1,803,841 shares of the Company's common stock, par value $0.001 per share, at an exercise price of $0.001. As of March 31, 2022, none of the warrants have been exercised. The warrants are considered to be equity contracts indexed in compliance with the covenants.Company's own shares and therefore were recorded at their inception date relative fair value and are included in additional paid-in capital on the Company's Unaudited Consolidated Balance Sheets.

Refinancing in April 2021
16
Table of Contents
10.    Income Taxes

See Note 16, Subsequent Events, for information on the new Credit and Guaranty Agreement executed by the Borrowers on April 27, 2021.


8.    INCOME TAXES

The Company's consolidated effective income tax rate was 49.4% for the three months ended March 31, 2021 was 45.4%. Our2022, compared to a consolidated effective income tax rate of 45.4% for the three months ended March 31, 2021. The effective rate for March 31, 2022 differed from the statutory rate of 21.0% primarily due to an increase in the valuation allowance against certain business interest carryover deferred tax assets. The effective rate for March 31, 2021 differed from the U.S. statutory federal rate of 21.0% primarily as a result of changesdue to ouran increase in the valuation allowance foragainst certain business interest limited under section 163(j) of the Internal Revenue Code.

The Company's effective incomecarryover deferred tax rate for the three months ended March 31, 2020 was 17.4%. Our effective income tax rate for the three months ended March 31, 2020 differed from the U.S. statutory rate primarily as a result of changes to our valuation allowance for interest limited under section 163(j) of the Internal Revenue Code and related favorable interest limitation provisions of the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act").

assets.
Valuation Allowance for Deferred Income Tax Assets

The Company considers all available positive and negative evidence to determine whether sufficient taxable income will be generated in the future to permit realization of the existing deferred tax assets. In accordance with the provisions of ASC 740, Income Taxes ("ASC 740"), the Company is required to provide a valuation allowance against deferred income tax assets when it is "more likely than not" that some portion or all of the deferred tax assets will not be realized.
Based on management’smanagement's assessment, as of the first quarter of 2021,March 31, 2022, the Company continues to record a full valuation allowance against non-deductible interest expense. The Company will continue to evaluate the realizability of the net deferred tax asset on a quarterly basis and, as a result, the valuation allowance may change in future periods.

9.    COMMITMENTS AND CONTINGENCIES

11.    Commitments and Contingencies
Minimum Annual Commitments with Third-PartyThird-party Processors

The Company has multi-year agreements with third parties to provide certain payment processing services to the Company. The Company pays processing fees under these agreements that are based on the volume and dollar amounts of processed payment transactions. Some of these agreements have minimum annual requirements for processing volumes. Based on existing contracts in place at March 31, 2021,2022, the Company is committed to pay minimum processing fees under these agreements of approximately $14.8$15.7 million in 20212022 and $7.8$16.6 million in both 2022 and 2023.

Commitment to Lend

See Note 10, Related Party Transactions, for information on a loan commitment extended by the Company to another entity.

- 14 -

Table of Contents
Contingent Consideration for Asset Acquisitions

Under GAAP that applies toFor 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 ConsumerSMB 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 March 31, 2021, an additional $4.3 million of2022, the $6.4 million total contingent consideration has been paidsellers had not achieved the criteria to the seller, whileearn the remaining $2.1 million will be payable in the first quarter of 2022 if certain criteria are achieved.million.

See Note 3, Acquisitions, for information about contingent consideration related to other acquisitions.
Legal Proceedings

The Company is involved in certain legal proceedings and claims which arise in the ordinary course of business. In the opinion of the Company and based on consultations with insideinternal and outsideexternal counsel, the results of any of these matters, individually and in the aggregate, are not expected to have a material effect on the Company's results of operations, financial condition or cash flows. As more information becomes available, and the Company determines that an unfavorable outcome is probable on a claim and that the amount of probable loss that the Company will incur on that claim is reasonably estimable, the Company will record an accrued expense for the claim in question. If and when the Company records such an accrual, it could be material and could adversely impact the Company's results of operations, financial condition and cash flows.
17

Table of Contents
Concentration of Risks

The Company's revenue is substantially derived from processing Visa and MasterCard bank cardbankcard transactions. Because the Company is not a member bank, in order to process these bank cardbankcard transactions, the Company maintains sponsorship agreements with member banks which require, among other things, that the Company abide by the by-laws and regulations of the card associations.

A majority of the Company's cash and restricted cash is held in certain financial institutions,FIs, substantially all of which is in excess of federal deposit insurance corporation limits. The Company does not believe it is exposed to any significant credit risk from these transactions.


12.    Stock-based Compensation
10.    RELATED PARTY TRANSACTIONS

Commitment to Lend and Warrant to Acquire

During 2019, the Company, through one of its wholly-owned subsidiaries, executed an interest-bearing loan and commitment agreement with another entity. The Company has loaned the entity a total of $3.5 million at March 31, 2021 and December 31, 2020, with a commitment to loan up to a total of $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. The Company's commitment to make additional advances under the loan agreement is dependent upon such advances not conflicting with covenants or restrictions under any of the Company's debt or other applicable agreements. Amounts loaned to this entity by the Company are secured by substantially all of the assets of the entity and by a personal guarantee. The note receivable has an interest rate of 12.0% per annum and is repayable in full in May 2024. The Company also received a warrant to purchase a non-controlling interest in this entity's equity at a fixed amount. The loan agreement also gives the Company certain rights to purchase some or all of this entity's equity in the future, at the entity's then-current fair value. The fair values of the warrant, loan commitment, and purchase right were not material at inception or at March 31, 2021.
Contributions of Assets and Contingent Payment
In February 2019, a subsidiary of the Company, Priority Hospitality Technology, LLC ("PHOT"), received a contribution of substantially all of the operating assets of eTab, LLC ("eTab") and CUMULUS POS, LLC ("Cumulus") under asset
- 15 -

Table of Contents
contribution agreements. No material liabilities were assumed by PHOT. These contributed assets were composed substantially of technology-related assets. Prior to these transactions, eTab was 80.0% owned by the Company's Chairman and Chief Executive Officer. No cash consideration was paid to the contributors of the eTab or Cumulus assets on the date of the transactions. As consideration for these contributed assets, the contributors were issued redeemable preferred equity interests in PHOT. Under these redeemable preferred equity interests, the contributors are eligible to receive up to $4.5 million of profits earned by PHOT, plus a preferred yield (6.0% per annum) on any of the $4.5 million amount that has not been distributed to them. The Company's Chairman and Chief Executive Officer owns 83.3% of the redeemable preferred equity interests in PHOT. Once a total of $4.5 million plus the preferred yield has been distributed to the holders of the redeemable preferred equity interests, the redeemable preferred equity interests will cease to exist. The Company determined that the contributor's carrying value of the eTab net assets (as a common control transaction under GAAP) was not material. Under the guidance for a common control transaction, the contribution of the eTab net assets did not result in a change of entity or the receipt of a business, therefore the Company's financial statements for prior periods have not been adjusted to reflect the historical results attributable to the eTab net assets. Additionally, no material amount was estimated for the fair value of the contributed Cumulus net assets. PHOT is a part of the Company's Integrated Partners reportable segment.
Pursuant to the limited liability company agreement of PHOT, any material undistributed earnings generated by the eTab and Cumulus assets that are attributable to the holders of the preferred equity interests are reported by the Company as a form of NCI classified as mezzanine equity on the Company's consolidated balance sheet until $4.5 million and the preferred yield have been distributed to the holders of the preferred equity interests. Subsequent changes, if material, in the value of the NCI will be reported as an equity transaction between the Company's consolidated retained earnings (accumulated deficit) and any carrying value of the NCI in mezzanine equity. Such amounts were not material to the Company's results of operations, financial position, or cash flows for the period covering February 1, 2019 (date the assets were contributed to the Company) through June 30 2020, and therefore no recognition of the NCI was reflected in the Company's consolidated financial statements. For the period from July 1, 2020 through December 31, 2020, a total of $250,000 of PHOT's earnings were attributable to the NCIs of PHOT, and this same amount was also distributed in cash to the NCIs during the same reporting period. Such amounts were not material to the Company's results of operations, financial position, or cash flows for the three months ended March 31, 2021.2022 and 2021, stock-based compensation was as follows:

Three Months Ended March 31,
(in thousands)20222021
Restricted stock units compensation expense$1,558 $558 
Equity-Method Investment

During the first quarter of 2020, the Company wrote off its $0.2 million carrying value in an equity-method investment. This loss is reported as a component of Other expenses, net on the Company's unaudited condensed consolidated statement of operations.


- 16 -

Table of Contents
11.    RECONCILIATION OF STOCKHOLDERS' DEFICIT AND NON-CONTROLLING INTERESTS

The Company is authorized to issue 100,000,000 shares of preferred stock with such designations, voting and other rights and preferences as may be determined from time to time by the board of directors. As ofIn March 31, 2021 and December 31, 2020, the Company has not issued any shares of preferred stock. See Note 16, Subsequent Events, for information on the Securities Purchase Agreement the Company executed on April 27, 2021.
The following tables provide a reconciliation of the beginning and ending carrying amounts for the periods presented for the components of which is the deficit attributable to stockholders of the Company and equity attributable to non-controlling interest:

(in thousands)Additional Paid-In CapitalAccumulated (Deficit)Total Priority Technology Holdings, Inc. Stockholders' (Deficit)
Preferred StockCommon StockTreasury Stock (a)
SharesAmountSharesAmountSharesAmount
January 1, 20210 $0 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 
Net loss— — — — — — — (2,679)(2,679)
Proceeds from exercise of stock options— — 90 — — — 617 — 617 
March 31, 20210 $0 67,640 $68 451 $(2,388)$7,257 $(104,692)$(99,755)


(in thousands)Additional Paid-In CapitalAccumulated (Deficit)Total Priority Technology Holdings, Inc. Stockholders' (Deficit)NCI (b)
Preferred StockCommon StockTreasury Stock (a)
SharesAmountSharesAmountSharesAmount
January 1, 20200 $0 67,061 $68 451 $(2,388)$3,651 $(127,674)$(126,343)$5,654 
Equity-classified stock-based compensation— — — — — — 338 — 338 — 
Net loss— — — — — — — (5,869)(5,869)— 
March 31, 20200 $0 67,061 $68 451 $(2,388)$3,989 $(133,543)$(131,874)$5,654 
- 17 -

Table of Contents
(a)At cost
(b)Prior to third quarter 2020, this balance was related to the acquisition of certain assets from YapStone, Inc. by the Company's PRET subsidiary during 2019. As part of the consideration for the assets acquired from YapStone, Inc. by PRET, YapStone, Inc. was issued a NCI in PRET with an initial estimated fair value and carrying value of $5,654,000. For all reporting periods since PRET's inception through June 30, 2020, no earnings or losses were attributable to the NCIs of PRET. During the three months ended September 30, 2020, a gain on a sale of assets from PRET resulted in the attribution of a total of $45.1 million to the NCIs of PRET. This amount was also distributed in a final redemption of the NCIs' interests in PRET during the three months ended September 30, 2020.


- 18 -

Table of Contents

12.    STOCK-BASED COMPENSATION

Stock-based compensation expense is included in Salary and employee benefits in the accompanying unaudited condensed consolidated statements of operations. The Company recognizes the effects of forfeitures on compensation expense as the forfeitures occur.

Expense recognized for equity-classified stock compensation under the 2018 Equity Incentive Plan was $0.6 million and $0.3 million for the three months ended March 31, 2021 and March 31, 2020, respectively.
During the three months ended March 31, 2021, the Company converted a $0.3 million liability-classified stockstock-based compensation accrualaward for restricted stock units under the 2018 Equity Incentive Plan, whereby the service inception date preceded the future grant-date, to an equity-classified award when the restricted stock units were granted.

Income tax benefit for the stock-based compensation was not materialimmaterial for the three months ended March 31, 2022 and 2021. No stock-based compensation has been capitalized.
2018 Plan
The Company's 2018 Plan provided for the issuance of up to 6,685,696 shares of the Company's common stock. On March 17, 2022, the Company's Board of Directors unanimously approved an amendment to the 2018 Plan, subject to approval by our shareholders, to increase the number of shares authorized for issuance under the plan by 2,500,000 shares, resulting in 9,185,696 shares of the Company's common stock authorized for issuance under the plan.
2021 Stock Purchase Plan
The 2021 Stock Purchase Plan provides for up to 200,000 shares to be purchased under the plan. Shares issued under the plan may be authorized but unissued or reacquired shares of common stock. All employees of the Company who work more than 20 hours per week and March 31, 2020.have been employed by the Company for at least 30 days may participate in the 2021 Stock Purchase Plan.
Under the 2021 Stock Purchase Plan, participants are offered, on the first day of the offering period, the option to purchase shares of Common Stock at a discount on the last day of the offering period. The offering period shall be for a period of three months, and the first offering period began on January 10, 2022. The 2021 Stock Purchase Plan provides eligible employees the opportunity to purchase shares of the Company's common stock on a quarterly basis through payroll deductions at a price equal to 95% of the lesser of the fair value on the first and last trading day of each offering period.


13.    FAIR VALUESegment Information

Fair Value Measurements

At March 31,Prior to the fourth quarter of 2021, and December 31, 2020, the Company no longer has any fair value estimates that are required to be remeasured at the end of each reporting period on a recurring basis.

Fair Value Disclosures

Notes Receivable

Notes receivable are carried at amortized cost. Substantially all of the Company's notes receivable are secured, and the Company has provided for allowances when it believes that certain notes receivable may not be collectible. The fair value of the Company's notes receivable, net at March 31, 2021 and December 31, 2020 was approximately $6.9 million and $7.7 million, respectively. On the fair value hierarchy, Level 3 inputs are used to estimate the fair value of these notes receivable.

Debt Obligations

The Borrower's outstanding debt obligations (see Note 7, Debt Obligations3) 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 term loan facility under the Borrowers' Senior Credit Agreement at March 31, 2021 and December 31, 2020 was estimated to be approximately $275.2 million and $278.0 million, respectively. The fair value of these notes with a notional value and carrying value (gross of deferred costs and discounts) of $274.6 million and $279.4 million, respectively, was estimated using binding and non-binding quoted prices in an active secondary market, which considersthe Borrowers' credit risk and market related conditions, and is within Level 3 of the fair value hierarchy.
The carrying values of the Borrowers' 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.


14.    SEGMENT INFORMATION

At March 31, 2021, the Company has 3 reportable segments that are reviewed byincluded the Company's chief operating decision maker ("CODM"), who is the Company's Chief Executive Officer and Chairman. The Consumer Payments operatingsegment, 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 3 new reportable operating segments are each reported as separateSMB Payments, B2B Payments and Enterprise Payments. All comparative periods have been adjusted to reflect the new reportable segments. The Commercial Payments
- 19 -

18
Table of ContentsContents
and Institutional Services (sometimes referred to as Managed Services) operating segments are aggregated into 1 reportable segment, Commercial Payments.

More information about our 3 reportable segments:

•SMB Payments – provides full-service acquiring and payment-enabled solutions for B2C transactions, leveraging the Company's proprietary software platform, distributed through ISOs, direct sales and vertically focused ISV channels.
•ConsumerB2B Payments – provides AP automation solutions to corporations, software partners and FIs, including Citi, Mastercard and American Express.
•Enterprise Payments – represents consumer-related servicesprovides embedded payment and offerings including merchant acquiring and transaction processing services including the proprietary MX enterprise suite. Either through acquisition of merchant portfolios or through resellers, the Company becomes a party or enters into contracts with a merchant and a sponsor bank. Pursuantbanking solutions to the contracts, for each card transaction, the sponsor bank collects payment from the credit, debit or other payment card issuing bank, net of interchange fees due to the issuing bank, pays credit card association (e.g., Visa, MasterCard) assessments and pays the transaction fee due to the Company for the suite of processing and related services it provides to merchants, with the remainder going to the merchant.

•Commercial Payments – represents services provided to certain enterprise customers including outsourced sales forcethat modernize legacy platforms and accelerate modern software partners looking to those customers and accounts payable automation services to commercial customers.

•Integrated Partners – represents payment adjacent services that are provided primarily to the health care, real estate, and hospitality industries. In September 2020, the Company sold a substantial portion of the assets of this segment.

monetize payments.
Corporate includes costs of corporate functions and shared services not allocated to theour reportable segments.

Information on reportable segments and reconciliations to consolidated revenues, consolidated income (loss) from operations, and consolidated depreciation and amortization, and consolidated operating income are as follows for the periods presented:follows:
(in thousands)Three Months Ended March 31,
20212020
Revenues:
Consumer Payments$108,393 $86,031 
Commercial Payments3,500 6,368 
Integrated Partners1,404 4,534 
Consolidated revenues$113,297 $96,933 
Income (loss) from operations:
Consumer Payments$13,363 $7,152 
Commercial Payments(409)764 
Integrated Partners92 368 
Corporate(8,519)(4,725)
Consolidated income from operations$4,527 $3,559 
Depreciation and amortization:
Consumer Payments$8,579 $8,583 
Commercial Payments74 76 
Integrated Partners129 1,311 
Corporate288 302 
Consolidated depreciation and amortization$9,070 $10,272 
(in thousands)Three Months Ended March 31,
20222021
Revenues:
SMB Payments$129,959 $109,101 
B2B Payments5,925 3,500 
Enterprise Payments17,355 696 
Consolidated revenues$153,239 $113,297 
Depreciation and amortization:
SMB Payments$10,824 $8,708 
B2B Payments73 74 
Enterprise Payments6,197 — 
Corporate259 288 
Consolidated depreciation and amortization$17,353 $9,070 
Operating income (loss):
SMB Payments$12,486 $13,289 
B2B Payments409 (409)
Enterprise Payments4,494 164 
Corporate(6,563)(8,517)
Consolidated operating income$10,826 $4,527 


- 20 -

Table of Contents
A reconciliation of total operating income from operations of reportable segments to the Company's net loss is provided in the following table:
(in thousands)(in thousands)Three Months Ended March 31,(in thousands)Three Months Ended March 31,
2021202020222021
Total income from operations of reportable segments$13,046 $8,284 
Total operating income of reportable segmentsTotal operating income of reportable segments$17,389 $13,044 
CorporateCorporate(8,519)(4,725)Corporate(6,563)(8,517)
Interest expenseInterest expense(9,168)(10,315)Interest expense(11,535)(9,168)
Other expenses, net(269)(346)
Other income (expense), netOther income (expense), net51 (269)
Income tax benefitIncome tax benefit2,231 1,233 Income tax benefit325 2,231 
Net lossNet loss$(2,679)$(5,869)Net loss$(333)$(2,679)
19

Table of Contents
Substantially all revenue is generated in the United States.

For the three months ended March 31, 2021 and March 31, 2020, no one merchant customer accounted for 10% or more of the Company's consolidated revenues. Most of the Company's merchant customers were referred to the Company by an ISO or other referral partners. If the Company's agreement with an ISO allows the ISO to have merchant portability rights, the ISO can potentially move the underlying merchant relationships to another merchant acquirer upon notice to the Company and completion of a "wind down" period. For the three months ended March 31, 2021 and March 31, 2020, merchants referred by one ISO organization with potential merchant portability rights generated revenue within the Company's Consumer Payments reportable segment that represented approximately 23.3% and 20.1%, respectively, of the Company's consolidated revenues.

On September 22, 2020, Priority Real Estate Technology, LLC (“PRET”), a majority-owned and consolidated subsidiary of the Company, sold certain assets comprising its RentPayment business, which was part of the Integrated Partners reportable segment. The allocation of net proceeds from the sale, after transaction costs, to the PRET members included the 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. Approximately $51.4 million and $45.1 million of the excess proceeds were distributed to the Company and the non-controlling interests, respectively. The initial allocation of net proceeds remained subject to final adjustment with 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 are due to the non-controlling interests, which amounts were accrued at March 31, 2021 and included in Other expenses, net in the unaudited condensed consolidated statement of operations.

During the first quarter of 2020, RentPayment generated $3.8 million of revenue and $0.6 million of income from operations.


15.     LOSS PER COMMON SHARE

14.    Loss per Common Share
The following tables set forth the computation of the Company's basic and diluted loss per common share:
(in thousands, except per share amounts)Three Months Ended March 31,
20212020
Basic and Diluted Loss Per Common Share:
Numerator:
Net loss$(2,679)$(5,869)
Less: Income attributable to non-controlling interests0 0 
Net loss attributable to common shareholders$(2,679)$(5,869)
Denominator:
Weighted-average common stock shares outstanding67,543 67,061 
Basic and Diluted Loss Per Common Share$(0.04)$(0.09)
(in thousands except per share amounts)Three Months Ended March 31,
20222021
Numerator:
Net loss$(333)$(2,679)
Less: Dividends and accretion attributable to redeemable senior preferred stockholders(8,400)— 
Net loss attributable to common stockholders$(8,733)$(2,679)
Denominator:
Basic and diluted:
Weighted-average common shares outstanding(1)
78,597 67,543 
Loss per common share$(0.11)$(0.04)

(1)The weighted-average common shares outstanding includes 1,803,841 warrants issued in the second quarter of 2021.
- 21 -

Table of Contents
Potentially anti-dilutive securities that were excluded from the Company's loss per common share for the three months ended March 31, 2021 and March 31, 2020 that could potentially be dilutive in future periods wereare as follows:
(in thousands)Common Stock Equivalents at
March 31, 2021March 31, 2020
Outstanding warrants on common stock (1)3,556 3,556 
Outstanding options and warrants issued to adviser (1)600 600 
Restricted stock unit awards (2)842 395 
Outstanding stock option awards (2)1,394 1,644 
Total6,392 6,195 
Three Months Ended March 31,
(in thousands)20222021
Outstanding warrants on common stock(1)
3,557 3,557 
Outstanding options and warrants issued to adviser(2)
600 600 
Restricted stock awards(3)
2,284 842 
Outstanding stock option awards(3)
1,203 1,394 
Total7,644 6,393 
(1)Issued by M.I. Acquisitions, Inc. prior to July 25, 2018The warrants are exercisable at $11.50 per share and expire on August 24, 2023.
(2)The warrants and options are exercisable at $12.00 per share and expire on August 24, 2023.
(3)Granted under the 2018 Equity Incentive PlanPlan.


16.     SUBSEQUENT EVENTS

Merger Agreement

On March 5,2021, we announced that we had entered into an Agreement and Plan of Merger (the "Merger Agreement") with Finxera Holdings, Inc. ("Finxera"), Prime Warrior Acquisition Corp., an indirect wholly owned subsidiary of the Company ("Merger Sub") and solely in its capacity as the representative of the stockholders or optionholders of Finxera (the "Equityholder Representative"), Stone Point Capital, LLC. Priority will acquire, through a merger of Merger Sub with and into Finxera, the Finxera business. Finxera is a provider of deposit account management payment processing services to the debt settlement industry in the United States.

The Merger Agreement provides that, among other things and on the terms and subject to the conditions of the Merger Agreement, (a) Merger Sub will merge with and into Finxera (the “Merger”), with the separate existence of Merger Sub ceasing and Finxera continuing as the surviving entity of the Merger (the “Surviving Entity”); (b) at the effective time of the Merger (the “Effective Time”) each share of common stock, par value $0.01 per share, of Merger Sub issued and outstanding immediately prior to the Effective Time shall be converted into 1 validly issued, fully paid and non-assessable share of common stock, par value $0.01 per share, of the Surviving Entity; and (c) the shares of common stock of Finxera designated as “Class A Common Stock”, “Class B Common Stock” and preferred stock “Series C Participating Preferred Stock” issued and outstanding immediately prior to the closing of the transactions contemplated by the Merger Agreement (the “Closing”) will be converted into rights to receive certain cash and stock consideration and a contingent right to receive a portion of any payments made following the determination of the purchase price adjustments (a “Deferred Payment”).

Consideration for the Merger will consist of a combination of cash and stock, with the purchase price comprising of: (a) $425,000,000, plus (b) the aggregate value of the current assets of the Finxera and each of its subsidiaries (the “Group Companies”) less the aggregate value of the current liabilities of the Group Companies, in each case, determined on a consolidated basis without duplication, as of the close of business on the business day immediately preceding the date of the Closing (which may be a positive or negative number), plus (c) the sum of all cash and cash equivalents of the Group Companies as of the close of business on the business day immediately preceding the date of the Closing, minus (d) the amount of indebtedness of the Group Companies as of the close of the business day immediately prior to the date of the Closing, minus (e) the amount of unpaid transaction expenses, minus (f) 25% of the earnings of the Group Companies during the period between the signing of the Merger Agreement and the Closing.

Each option to purchase one or more shares of Class B Common Stock of Finxera issued pursuant to the Finxera Holdings, Inc. 2018 Equity Incentive Plan (the “Company Options”), vested as of immediately prior to the Closing (the “Vested Company Option”), that is issued and outstanding immediately prior to the Closing will be deemed to be exercised and converted into the right to receive a cash payment with respect to such Vested Company Option and a contingent right to receive a portion of any Deferred Payments.

- 22 -

20
Table of ContentsContents
Securities Purchase Agreement

On April 27, 2021, we entered into a Securities Purchase Agreement (the “Purchase Agreement”) with credit funds managed by certain affiliates of Ares Management Corporation (the “Investors”), pursuant to which the Company (i) issued and sold 150,000 shares of senior preferred stock, par value $0.001 per share (the “Senior Preferred Stock”, and the shares issued the “Senior Preferred Shares”) at a purchase price of $150,000,000, or $1,000 per Senior Preferred Share (the “Initial Senior Preferred Stock Sale”), and (ii) issued warrants (the “Warrants”) to purchase up to 1,803,841 shares of the Company’s common stock, par value $0.001 per share (“Common Stock” and together with the Warrants, the “Securities”), at an exercise price $0.001. 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.

In addition to the issuance and sale of Senior Preferred Shares which pursuant to the Purchase Agreement, upon the consummation of the Company’s acquisition of Finxera and the satisfaction of other customary closing conditions, the Company will issue and sell to the Investors an additional 50,000 shares of Senior Preferred Stock, at a purchase price of $50,000,000, or $1,000 per share. The Company may also issue and sell to the Investors up to an additional 50,000 shares of Senior Preferred Stock, at a purchase price of $1,000 per share within 18 months after the consummation of the Acquisition Senior Preferred Stock Sale upon the satisfaction of certain customary closing conditions.

The Company used the proceeds from the sale of the Securities to fund the Refinancing (as defined below) and to pay certain fees and expenses relating to the Refinancing and the offering of the Securities.

Registration Rights Agreement

On April 27, 2021 the Company entered into a Registration Rights Agreement, by and among the Company and the Investors (the “Registration Rights Agreement”), pursuant to which the Company agreed to provide certain registration rights with respect to the shares of Common Stock issuable upon exercise of the Warrants (the “Registrable Securities”).

Under the Registration Rights Agreement, the holders of the Registrable Securities were granted (i) piggyback rights to be included in certain underwritten offerings of Common Stock and (ii) the right to demand a shelf registration of Registrable Securities.

Credit and Guaranty Agreement

On April 27, 2021, Priority Holdings, LLC, a Delaware limited liability company (“Holdings”), which is a direct wholly-owned subsidiary of the Company, and certain direct and indirect subsidiaries of Holdings (together with Holdings, collectively, the “Loan Parties”), entered into a Credit and Guaranty Agreement (the “Credit Agreement”) with Truist Bank (“Truist”) and the lenders party thereto, pursuant to which Holdings has access to senior credit facilities in an aggregate principal amount of $630.0 million which are secured by substantially all of the assets of the Loan Parties and by the equity interests of Holdings.

The credit facilities under the Credit Agreement are comprised of (i) a senior secured first lien term loan facility in an aggregate principal amount of $300,000,000 (the “Initial Term Loan”), the proceeds of which have been used to fund the Refinancing, (ii) a senior secured revolving credit facility in an aggregate amount not to exceed $40,000,000 outstanding at any time and (iii) a senior secured first lien delayed draw term loan facility in an aggregate principal amount of $290,000,000, the proceeds of which may be used to fund the Company’s acquisition of Finxera.

Prepayments

Under the Credit Agreement, prepayments of outstanding principal may be made in permitted increments with a 1.0% penalty for certain prepayments made in connection with repricing transactions. Such premium will be based on the principal amount that is prepaid, subject to the terms of the credit agreements.

- 23 -

Table of Contents
Acceleration

The outstanding amount of any loans and any other amounts owing by the Loan Parties under the Credit Agreement may, after the occurrence of an Event of Default (as defined in the Credit Agreement), at the option of Truist, be declared immediately due and payable. Events of Default include, without limitation, the failure of the Loan Parties to pay principal, premium or interest when due under the Credit Agreement, or the failure by the Loan Parties to perform or comply with any term or covenant in the Credit Agreement, in each case, subject to any applicable cure periods provided therein.

Covenants

The Credit Agreement contains representations and warranties, financial and collateral requirements, mandatory payment events, events of default, and affirmative and negative covenants, including without limitation, covenants that restrict among other things, the ability to create liens, pay dividends or distribute assets from the Loan Parties to the Company, merge or consolidate, dispose of assets, incur additional indebtedness, make certain investments or acquisitions, enter into certain transactions (including with affiliates), and to enter into certain leases.

If the aggregate principal amount of outstanding revolving loans and letters of credit under the Credit Agreement exceeds 35% of the total revolving facility thereunder, the Loan Parties are required to comply with certain restrictions on its Total Net Leverage Ratio, which is defined in the Credit Agreement as the ratio of consolidated total debt of the Loan Parties to the Loan Parties Consolidated Adjusted EBITDA (as defined in the Credit Agreement). If applicable, the maximum permitted Total Net Leverage Ratio is (i) 6.50:1.00 at each fiscal quarter ended September 30, 2021 through June 30, 2022, (ii) 6.00:1.00 at each fiscal quarter ended September 30, 2022 through June 30, 2023, and (iii) 5.50:1.00 at each fiscal quarter ended September 30, 2023 each fiscal quarter thereafter.

Refinancing

Holdings and certain other Loan Parties have previously entered into (A) the Term Loan Agreement and (B) the Senior Credit Agreement, the proceeds from the sale of the Securities and from the Initial Term Loan were used to refinance the Term Loan Agreement and the Senior Credit Agreement and all outstanding obligations thereunder were repaid in full (or in the case of outstanding undrawn letters of credit, deemed issued under the Credit Agreement), and all commitments and guaranties in connection therewith have been terminated or released (the “Refinancing”).

Residual Purchase Agreement

On April 28, 2021, a subsidiary of the Company completed an asset acquisition of certain residual portfolio rights for a purchase price of $42.4 million. The seller’s note payable to the Company of $5.0 million at the time of the purchase was netted against the purchase price, resulting in cash of $37.4 million being paid by the Company to the seller, which was funded from cash proceeds of the Securities Purchase Agreement executed on April 27, 2021.






- 24 -

Table of Contents
ITEMItem 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 statementsAudited Consolidated Financial Statements and related notes for the years ended December 31, 2020, 2019 and 2018Notes 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 filed withfor the U.S. Securities and Exchange Commission on Marchyear ended December 31, 2021 (the "Annual Report").2021.


Cautionary Note Regarding Forward-LookingForward-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 or 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- lookingforward-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: 

•the impact of the COVID-19 pandemic;
•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 processor;processors;
•any proposed acquisitions or dispositions or any risks associated with completed acquisitions;acquisitions or dispositions; and
•other risks and uncertainties set forth in the "Item"Item 1A - Risk Factors" included inFactors" section of this Quarterly Report on Form 10-Q or our Annual Report.

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 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
- 25 -

Table of Contents
available relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely upon these statements.
21

Table of Contents
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.

Recent Developments

Merger Agreement
On March 5, 2021, we announced that we had entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Finxera Holdings, Inc. (“Finxera”), Prime Warrior Acquisition Corp., an indirect wholly owned subsidiary of the Company (“Merger Sub”) and, solely in its capacity as the representative of the stockholders or optionholders of Finxera (the “Equityholder Representative”), Stone Point Capital LLC. Priority will acquire, through a merger of Merger Sub with and into Finxera, the Finxera business. Finxera is a provider of deposit account management payment processing services to the debt settlement industry in the United States.

The Merger Agreement provides that, among other things and on the terms and subject to the conditions of the Merger Agreement, (a) Merger Sub will merge with and into Finxera (the “Merger”), with the separate existence of Merger Sub ceasing and Finxera continuing as the surviving entity of the Merger (the “Surviving Entity”); (b) at the effective time of the Merger (the “Effective Time”) each share of common stock, par value $0.01 per share, of Merger Sub issued and outstanding immediately prior to the Effective Time shall be converted into one validly issued, fully paid and non-assessable share of common stock, par value $0.01 per share, of the Surviving Entity; and (c) the shares of common stock of Finxera designated as “Class A Common Stock”, “Class B Common Stock” and preferred stock “Series C Participating Preferred Stock” issued and outstanding immediately prior to the closing of the transactions contemplated by the Merger Agreement (the “Closing”) will be converted into rights to receive certain cash and stock consideration and a contingent right to receive a portion of any payments made following the determination of the purchase price adjustments (a “Deferred Payment”).

Consideration for the Merger will consist of a combination of cash and stock, with the purchase price comprising of: (a) $425,000,000, plus (b) the aggregate value of the current assets of the Finxera and each of its subsidiaries (the “Group Companies”) less the aggregate value of the current liabilities of the Group Companies, in each case, determined on a consolidated basis without duplication, as of the close of business on the business day immediately preceding the date of the Closing (which may be a positive or negative number), plus (c) the sum of all cash and cash equivalents of the Group Companies as of the close of business on the business day immediately preceding the date of the Closing, minus (d) the amount of indebtedness of the Group Companies as of the close of the business day immediately prior to the date of the Closing, minus (e) the amount of unpaid transaction expenses, minus (f) 25% of the earnings of the Group Companies during the period between the signing of the Merger Agreement and the Closing.

Each option to purchase one or more shares of Class B Common Stock of Finxera issued pursuant to the Finxera Holdings, Inc. 2018 Equity Incentive Plan (the “Company Options”), vested as of immediately prior to the Closing (the “Vested Company Option”), that is issued and outstanding immediately prior to the Closing will be deemed to be exercised and converted into the right to receive a cash payment with respect to such Vested Company Option and a contingent right to receive a portion of any Deferred Payments.

- 26 -

22
Table of ContentsContents
Residual Purchase Agreement

On April 28, 2021, a subsidiary of the Company completed an asset acquisition of certain residual portfolio rights for a purchase price of $42.4 million. The seller’s note payable to the Company of $5.0 million at the time of the purchase was netted against the purchase price, resulting in cash of $37.4 million being paid by the Company to the seller, which was funded from cash proceeds of the Securities Purchase Agreement executed on April 27, 2021.

- 27 -

Table of Contents
Results of Operations

This section includes a discussion and analysiscertain components of our results of operations for the three months ended March 31, 2021 (or first quarter 2021)2022, compared to the three months ended March 31, 2020 (or first quarter 2020).2021. We have derived this data, except key indicators for merchant bankcard processing dollar values and transaction volumes, from our unaudited condensed consolidated financial statementsUnaudited Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statementsConsolidated Financial Statements included in our latest Annual Report on Form 10-K.10-K for the year ended December 31, 2021.

Revenue
Three Months EndedFor the three months ended March 31, 2021 Compared to2022, our consolidated revenue of $153.2 million increased by $39.9 million, or 35.2%, from $113.3 million for the Three Months Endedthree months ended March 31, 2020

(dollars in thousands)Three Months Ended March 31,
20212020Change% Change
REVENUES$113,297 $96,933 $16,364 16.9 %
OPERATING EXPENSES:
Costs of services81,863 66,364 15,499 23.4 %
Salary and employee benefits9,548 10,129 (581)(5.7)%
Depreciation and amortization9,070 10,272 (1,202)(11.7)%
Selling, general and administrative8,289 6,609 1,680 25.4 %
Total operating expenses108,770 93,374 15,396 16.5 %
Income from operations4,527 3,559 968 27.2 %
OTHER EXPENSES:
Interest expense(9,168)(10,315)1,147 (11.1)%
Other expenses, net(269)(346)77 (22.3)%
Total other expenses, net(9,437)(10,661)1,224 (11.5)%
Loss before income taxes(4,910)(7,102)2,192 (30.9)%
Income tax benefit(2,231)(1,233)(998)80.9 %
Net loss$(2,679)$(5,869)$3,190 (54.4)%












- 28 -

Table of Contents
2021. This overall increase was mainly driven by an increase in bankcard volumes fueled by increased consumer spending and acquisitions completed by the Company in 2021.
The following table showspresents our reportable segments' financial performance datarevenues by type for the three months ended March 31, 2022 and selected performance measures2021:
(in thousands)Three Months Ended March 31,
20222021$ Change% Change
Revenue Type:
Merchant card fees$127,952$107,702$20,25018.8 %
Outsourced services and other services7,0974,3782,71962.1 %
Money transmission services revenue16,283—16,283nm
Equipment1,9071,21769056.7 %
Total revenues$153,239$113,297$39,94235.3 %
For the three months ended March 31, 2022, our merchant card fees revenue of $128.0 million increased by $20.3 million, or 18.8%, from $107.7 million for the three months ended March 31, 2021. This increase was primarily driven by an increase in the merchant bankcard volume processed by the Company and purchased residuals related to the C&H acquisition, slightly offset by rate decreases.
Outsourced services and other services revenue of $7.1 million for the three months ended March 31, 2022 increased by $2.7 million, or 61.4%, from $4.4 million for the three months ended March 31, 2021, comparedprimarily due to growth in revenue from AP automation solutions and the acceleration of certain customer programs which were scaled back in 2021 due to the impact of the COVID-19 pandemic.
Money transmission services revenue of $16.3 million for the three months ended March 31, 2020:2022 is related to the acquisition of Finxera in September 2021.

(in thousands)Three Months Ended March 31,
20212020Change% Change
Consumer Payments:
Revenue$108,393 $86,031 $22,362 26.0 %
Operating expenses95,030 78,879 16,151 20.5 %
Income from operations$13,363 $7,152 $6,211 86.8 %
Operating margin12.3 %8.3 %
Depreciation and amortization$8,579 $8,583 $(4)— %
Key Indicators:
Merchant bankcard processing dollar value$11,871,939 $10,386,748 $1,485,191 14.3 %
Merchant bankcard transaction volume127,488 119,431 8,057 6.7 %
Commercial Payments:
Revenue$3,500 $6,368 $(2,868)(45.0)%
Operating expenses3,909 5,604 (1,695)(30.2)%
(Loss) income from operations$(409)$764 $(1,173)(153.5)%
Operating margin(11.7)%12.0 %
Depreciation and amortization$74 $76 $(2)(2.6)%
Key Indicators:
Merchant bankcard processing dollar value$63,477 $72,677 $(9,200)(12.7)%
Merchant bankcard transaction volume38 25 13 52.0 %
Integrated Partners:
Revenue$1,404 $4,534 $(3,130)(69.0)%
Operating expenses1,312 4,166 (2,854)(68.5)%
Income from operations$92 $368 $(276)(75.0)%
Operating margin6.6 %8.1 %
Depreciation and amortization$129 $1,311 $(1,182)(90.2)%
Key Indicators:
Merchant bankcard processing dollar value$11,372 $124,518 $(113,146)(90.9)%
Merchant bankcard transaction volume95 448 (353)(78.8)%
Income from operations of reportable segments$13,046 $8,284 $4,762 57.5 %
Less: Corporate expense(8,519)(4,725)(3,794)(80.3)%
Consolidated income from operations$4,527 $3,559 $968 27.2 %
Corporate depreciation and amortization$288 $302 $(14)(4.6)%
Key indicators:
Merchant bankcard processing dollar value$11,946,788 $10,583,943 $1,362,845 12.9 %
Merchant bankcard transaction volume127,621 119,904 7,717 6.4 %
Equipment revenue of $1.9 million for the three months ended March 31, 2022 increased by $0.7 million, or 58.3%, from $1.2 million for the three months ended March 31, 2021. The increase was primarily due to increased sales of mobile card reader equipment and other equipment from our MX product line.
- 29 -

23
Table of ContentsContents
ImpactOperating Expenses
Operating expenses for three months ended March 31, 2022 and 2021 were as follows:
(in thousands)Three Months Ended March 31,
20222021$ Change% Change
Operating expenses
Costs of services$101,480$81,863$19,61724.0 %
Salary and employee benefits16,0779,5486,52968.4 %
Depreciation and amortization17,3539,0708,28391.3 %
Selling, general and administrative7,5038,289(786)(9.5)%
Total operating expenses$142,413$108,770$33,64330.9 %
Costs of COVID-19Services
Costs of services of $101.5 million for the three months ended March 31, 2022 increased by $19.6 million, or 23.9%, from $81.9 million for the three months ended March 31, 2021, primarily due to the corresponding increase in revenues. For the three months ended March 31, 2022, costs of services as a percentage of total revenues decreased to 66.2% as compared to 72.3% for the three months ended March 31, 2021. This decrease was primarily due to the impact of the Finxera acquisition on Resultsgross profit margins, partially offset by bankcard volume growth from larger partners with higher commissions and Trendscontraction of the specialized merchant acquiring portfolio.
Salary and Employee Benefits
Salary and employee benefits expense of $16.1 million for the three months ended March 31, 2022 increased by $6.6 million, or 69.5%, from $9.5 million for the three months ended March 31, 2021, primarily due to increases in headcount related to our acquisition of Finxera in September 2021, an increase in stock-based compensation and overall growth of the Company.
Depreciation and Amortization Expense
Depreciation and amortization expense of $17.4 million for the three months ended March 31, 2022 increased by $8.3 million, or 91.2%, from $9.1 million for the three months ended March 31, 2021, primarily due to the amortization of finite-lived intangible assets acquired from the business combinations completed during 2021.
Selling, General and Administrative
Selling, general and administrative expenses of $7.5 million for the three months ended March 31, 2022 decreased by $0.8 million, or 9.6%, from $8.3 million for the three months ended March 31, 2021, primarily due to an increase in expenses from acquired businesses offset by one-time transaction expenses in the prior year period.

The outbreak of COVID-19 in the United States, which was declared a pandemic by the World Health Organization on March 11, 2020, adversely affected commercial activity and contributed to a significant decline in economic activity in 2020.Other (Expenses) Income, net

Starting in mid-March 2020 through April 2020, COVID-19 had a significant negative affect on our results. This impact was evident in a decline in merchant bankcard volume and revenue during the period of restrictive shelter-in-place requirements instituted across the United States toward the end of March 2020 through April 2020. In May 2020, as shelter in place restrictions began to be lifted and regional economies started to reopen, our processing volumes began to return and revenue growth was supplemented by the acceleration of certain specialized product offerings and ecommerce payment transactions. This recovery momentum continued through the second half of 2020 and first quarter of 2021.

While there continues to be considerable uncertainty regarding the future economic impacts of the pandemic, our operating results reflect a recovery from the negative affects during the months immediately following the pandemic declaration. The pandemic’s future impact on the overall economy and our results are beyond our ability to predict or control.

Revenue 

Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020

Consolidated revenue

Our consolidated revenue in first quarter 2021 of $113.3 million increased by $16.4 million, or 16.9%, from revenue in first quarter 2020 of $96.9 million. Revenue growth of $22.4 million in our Consumer Payments segment was partially offset by revenue declines of $2.9 million and $3.1 million in our Commercial Payments and Integrated Partners segments, respectively.

Revenue in Consumer Payments segment

Consumer payments revenue in first quarter 2021 of $108.4 million increased $22.4 million, or 26.0%, compared to revenue in first quarter 2020 of $86.0 million. This increase was driven by $9.7 million, or 372.1%, revenue growth from high-margin specialized ecommerce merchants, and $12.7 million, or 15.2%, revenue growth in our base consumer payments business. The commencement of the COVID-19 pandemic in March 2020 reduced our merchant bankcard volume and revenue during the period of restrictive shelter-in-place requirements instituted across the United States. This impact to first quarter 2020 revenue contributed to first quarter 2021 comparative revenue growth, but the pandemic’s precise impact to March 2020 revenue is not quantifiable by the Company.

Merchant bankcard processing dollar value in the first quarter of 2021 of $11.9 billion increased by $1.5 billion, or 14.3%, as compared with $10.4 billion in the first quarter of 2020. Merchant bankcard transactions of 127.5 million in the first quarter of 2021 increased by 6.7%, as compared with 119.4 million in the first quarter of 2020. Average ticket of $93.12 in first quarter 2021 increased 7.1%, as compared with $86.97 in first quarter 2020. COVID-19 pandemic economic factors have impacted merchant volume mix and spending trends. Following the pandemic declaration in March 2020, consumers began to conduct fewer payment transactions at higher average tickets, and card-not-present transactions increased. Card-not-present volume generally offers more favorable pricing to us than other types of transactions. In the first quarter 2021, we experienced growth in both payment transactions and average ticket. The trend of new merchant boarding remains within our historical range of 4,500 to 5,000 new merchants per month. During first quarter 2021, our monthly average of new merchants boarded was 4,874 compared with 5,139 in first quarter 2020.

Revenue in Commercial Payments segment

Commercial Payments revenue in first quarter 2021 of $3.5 million decreased by $2.9 million, or 45.0%, compared to revenue in first quarter 2020 of $6.4 million. Revenue in this segment is derived primarily from the accounts payable automated solutions business and from our curated managed services business.
(in thousands)Three Months Ended March 31,
20222021$ Change% Change
Other (expense) income
Interest expense$(11,535)$(9,168)$(2,367)25.8 %
Other income (expense), net51(269)320(119.0)%
Total other expense, net$(11,484)$(9,437)$(2,047)21.7 %

- 30 -

24
Table of ContentsContents
Revenue fromInterest Expense
Interest expense of $11.5 million for the accounts payable automated solutions business in first quarter 2021 of $1.7 millionthree months ended March 31, 2022 increased $0.1by $2.3 million, or 5.3%25.0%, from $1.6$9.2 million in first quarter 2020. This increase wasfor the three months ended March 31, 2021, due to increased business from existing customers. Revenue from our curated managed services businessadditional borrowings to fund the acquisition of Finxera in first quarter 2021 of $1.8 million decreased by $3.0 million, or 61.8%, from revenue in first quarter 2020 of $4.8 million. This decrease was driven by a decline and curtailment in 2020 of a customer’s merchant financing program in response to the COVID related economic conditions and subsequent changes in the customer’s business model.September 2021.

Revenue in Integrated Partners segment

Integrated Partners revenue in first quarter 2021 of $1.4 million decreased by $3.1 million, or 69.0%, compared to revenue in first quarter 2020 of $4.5 million. Priority Real Estate Technology, LLC ("PRET") comprised $0.8 million and $4.0 million of this segment's revenue in first quarter 2021 and first quarter 2020, respectively. Through September 22, 2020, PRET was comprised of our RentPayment business and our Landlord Station business. RentPayment, which was sold on September 22, 2020, generated revenue of $3.8 million in first quarter 2020. Simultaneous with this sale, PRET entered into revenue-producing agreements with the buyer to provide ongoing technology support and payment processing services, which offers us an opportunity to expand this relationship and provide payment processing services to existing customers of the buyer. Revenue of $0.8 million from PRET’s ongoing business increased $0.7 million, or 578.8%, compared with revenue of $0.1 million in the first quarter 2020. Priority PayRight Health Solutions ("PayRight") and Priority Hospitality Technology ("PHOT") comprise the remainder of this segment's revenue.

Consolidated Operating expenses 

Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020

Our consolidated operating expenses in first quarter 2021 of $108.8 million increased $15.4 million, or 16.5%, from consolidated operating expenses in first quarter 2020 of $93.4 million. This overall increase was driven by an increase in costs of services of $15.5 million, or 23.4%, resulting from higher revenues in first quarter 2021. Depreciation and amortization expense of $9.1 million decreased by $1.2 million, or 11.7%, in first quarter 2021. Salary and employee benefits expenses of $9.5 million decreased $0.6 million, or 5.7%, in first quarter 2021 driven by lower comparative headcount. Selling, general and administrative expenses ("SG&A") of $8.3 million increased $1.7 million, or 25.4% in the first quarter 2021 from $6.6 million in first quarter 2020. During the first quarter 2021, Corporate SG&A included $3.6 million of professional fees and expenses incurred in connection with the pending acquisition of Finxera, the April 2021 debt refinancing, and the April 2021 issuance of preferred stock. During the first quarter 2020, Corporate SG&A included $0.5 million of professional fees and expenses incurred in connection with the March 2020 amendment of the debt facility, and Integrated Partners SG&A included $0.9 million of acquisition-related transition services.

Income (loss) from operations Tax Expense
(in thousands)Three Months Ended March 31,
20222021$ Change% Change
Loss before income taxes$(658)$(4,910)$4,252 (86.6)%
Income tax benefit$(325)$(2,231)$1,906 (85.4)%
Effective tax rate49.4 %45.4 %

Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020

Consolidated income from operations in first quarter 2021 of $4.5 million increased by $1.0 million, or 27.2%, from $3.6 million in first quarter 2020. This increase was the result of lower depreciation and amortization expense of $1.2 million, lower salary and employee benefits expenses of $0.6 million, and higher revenues less costs of services of $0.9 million. These favorable changes for first quarter 2021 were partially offset by higher SG&A of $1.7 million, driven by the $2.2 million increase in professional fees and other expenses described above under Consolidated Operating Expenses.

Our Consumer Payments segment contributed $13.4 million in income from operations for first quarter 2021, an increase of $6.2 million, or 86.8%, from $7.2 million in first quarter 2020. The main driver of this increase was higher revenue less costs of services of $5.5 million. Income from operations also benefited from a $0.5 million decrease in SG&A and a $0.2 million decrease in salary and employee benefits.

Our Commercial Payments segment had a loss from operations of $0.4 million for first quarter 2021 compared to income from operations of $0.8 million for first quarter 2020. This decline was largely driven by lower revenues less costs of services of $1.4 million, resulting from the revenue decline in our curated managed services, slightly offset by a net decrease in salary and employee benefits and SG&A.
- 31 -

Table of Contents

Our Integrated Partners segment earned income from operations of $0.1 million for first quarter 2021, a decrease of $0.3 million compared to $0.4 million of income from operations for first quarter 2020. The decrease was driven by the September 2020 sale of PRET’s RentPayment business. Revenues less costs of services decreased by $3.2 million, which was largely offset by decreases in SG&A of $1.2 million, business depreciation and amortization of $1.2 million and salary and employee benefits of $0.6 million.

Corporate expenses were $8.5 million for first quarter 2021, an increase of $3.8 million from expenses of $4.7 million for first quarter 2020. This increase was driven by a $3.1 million increase in professional fees and expenses described above under Consolidated Operating Expenses. Salaries and employee benefits increased $0.6 million largely due to higher incentive compensation accruals.

Interest expense

Interest expense in the first quarter 2021 decreased by $1.1 million, or 11.1%, from $10.3 million in first quarter 2020. This decline was driven by lower outstanding debt. In September 2020, proceeds from the RentPayment sale were used to repay $106.5 million of Senior indebtedness. During the third and fourth quarters of 2020, $14.5 million of outstanding revolving credit was repaid.

Interest expense includes cash interest, payment-in-kind interest, and amortization of deferred financing costs and debt discounts. During the first quarters of 2021 and 2020, interest expense was comprised of:

(dollars in thousands)Three Months Ended March 31,
20212020
Cash$6,553 $8,186 
Payment-in-kind1,924 1,391 
Amortization and other691 738 
$9,168 $10,315 

Income taxes

We assess all available positive and negative evidence to estimate whether sufficient taxable income will be generated in the future to permit use of the existing deferred tax assets. ASC 740, Income Taxes ("ASC 740"), requires that all sources of future taxable income be considered in making this determination. The Tax Cuts and Jobs Act of 2017 amended section 163(j) of the Internal Revenue Code. Section 163(j), as amended, limits the business interest deduction to 30% of adjusted taxable income ("ATI"). For taxable years through 2021, the calculation of ATI closely aligns with earnings before interest, taxes, depreciation and amortization ("EBITDA"). Commencing in 2022, the ATI limitation more closely aligns with earnings before interest and taxes ("EBIT"), without adjusting for depreciation and amortization. Any business interest in excess of the annual limitation is carried forward indefinitely. In March 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted, which among other provisions, provides for the increase of the 163(j) ATI limitation from 30% to 50% for tax years 2019 and 2020.

With respect to recording a deferred tax benefit for the carryforward of business interest expense, GAAP applies a "more likely than not" threshold for assessing recoverability. Based on management’s assessment, as of the first quarter of 2021 the Company continues to record a full valuation allowance against non-deductible interest expense. The Company will continue to evaluate the realizability of the net deferred tax asset on a quarterly basis and, as a result, the valuation allowance may change in future periods.

We compute our interim period income tax expense or benefit by using a forecasted estimated annual effective tax rate ("EAETR")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 20212022 is 40.8%51.5% and includes the income tax provision on pre-tax
- 32 -

Table of Contents
income and a tax provision related to establishment of a valuation allowance for deferred income tax on the future portion of the Section 163(j) limitation created by additional 20212022 interest expense.The effective tax rate for 2022 increased primarily due to an increase in the valuation allowance against certain business interest carryover deferred tax assets.
Our consolidated effective income tax rates differ from the statutory rate due to timing and permanent differences between amounts calculated under accounting principles GAAP and the U.S. tax code. The consolidated effective income tax rate for 2022 may not be indicative of our effective tax rate for future periods.

Off-Balance Sheet Arrangements 

Segment Results
We have not entered into any other transactions with third parties or unconsolidated entities whereby we have financial guarantees, subordinated retained interest, derivative instruments, or other contingent arrangements that expose us to material continuing risks, contingent liabilities or other obligations.

Commitments and Contractual Obligations

Commitments

See Note 9, Commitments and Contingencies, to our unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for disclosure information about potential contingent payments that we may be required to make in future periods that are not required to be recognized in our consolidated balance sheetsThe Company reorganized its business segments as of MarchDecember 31, 2021, or December 31, 2020.

Contractual Obligations

There have been no significant changes to our contractual obligations compared to those disclosedresulting in "Management's Discussionthree segments: SMB Payments, B2B Payments and Analysis of Financial Condition and Results of Operations of Priority"Enterprise Payments. Segment results included in the Annual Report for the year ended December 31, 2020, except for changes in the minimum annual spend commitments with third-party processor partners as further described in Note 9, Commitments and Contingencies. For an updated schedule of debt repayments, see Note 7, Debt Obligations. Also, at December 31, 2020, the Company accrued approximately $6.2 million for the remaining cash consideration it estimates it will be required to pay under an assignment of merchant portfolio rights agreement and related reseller agreement it executed with a third-party in October 2019. Payments are required to be made on a quarterly basis through September 30, 2022. The Company continues to review its estimate of the remaining consideration to be paid and will adjust its obligation accordingly if deemed necessary. As of March 31, 2021, the only change in the amounts accrued was for the required payment made in the first quarter of 2021.

Related Party Transactions

See Note 10, Related Party Transactions, to the unaudited condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Critical Accounting Policies and Estimates

Our unaudited condensed consolidated financial statements have been prepareddiscussion below were restated in accordance with U.S. generally accepted accounting principlesthe new segment structure 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 most recent Annual Report on Form 10-K. There have been no material changes to these critical accounting policies and estimates as of March 31, 2021.

Effect of New Accounting Pronouncements and Recently Issued Accounting Pronouncements Not Yet Adopted

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board or other standards setting bodies that may affect our current and/or future financial statements. See Note 1, Basis of Presentation and Significant Accounting Policies, to our unaudited condensed consolidated financial statements included in Part 1, Item 1 of this Quarterly Report on Form 10-Q for a discussion of recently issued accounting pronouncements not yet adopted. 

comparison purposes.
- 33 -

25
Table of ContentsContents
Financial ConditionThe impact of the restatement of the prior period results is as follows:
(in thousands)Three Months Ended March 31, 2021
SMB Payments(1)
B2B Payments(2)
Enterprise Payments(3)
Revenue:
Restated$109,101$3,500$696
Historically reported108,3933,5001,404
Difference$708$—$(708)
Operating Income (Loss):
Restated$13,289$(409)$164
Historically reported13,363(409)92
Difference$(74)$—$72
Depreciation and Amortization:
Restated$8,708$74$—
Historically reported8,57974129
Difference$129$—$(129)

(1)
Compared to the Company's legacy Consumer Payments segment.
(2)Compared to the Company's legacy Commercial Payments segment.
(3)Compared to the Company's legacy Integrated Partners segment.
SMB Payments
(in thousands)Three Months Ended March 31,
20222021$ Change% Change
Revenue$129,959$109,101$20,85819.1 %
Operating expenses117,47395,81221,66122.6 %
Operating income$12,486$13,289$(803)(6.0)%
Operating margin9.6 %12.2 %
Depreciation and amortization$10,824$8,708$2,11624.3 %
Key Indicators:
Merchant bankcard processing dollar value$14,076,847$11,883,166$2,193,68118.5 %
Merchant bankcard transaction volume145,948127,58318,36514.4 %
Revenue
Revenue from our consolidated balance sheet as of December 31, 2020,SMB Payments segment was $130.0 million for the following key changes have occurred atthree months ended March 31, 2021:

Cash

Unrestricted cash decreased by $3.42022, compared to $109.1 million duringfor the first quarter 2021. Net unrestricted cash provided by operating activities of $6.5 million was offset by $5.7 million used in investing activities and $4.2 million of net cash used in financing activities. Cash used in investing activities was comprised of capitalized software development of $1.5 million, purchases of property and equipment of $1.2 million, and payment of December 31, 2020 accrued liabilities for intangible asset acquisitions of $2.9 million. Net cash used in financing activities was comprised of a $4.9 million scheduled debt repayment under our Senior Credit Agreement and $0.6 million of proceeds from the exercise of stock options.

Restricted Cash

Restricted cash decreased by $19.9 million in first quarter 2021, attributable to the timing of operating activities related to disbursement and receipt of cash held on behalf of customers. This decrease resulted from net disbursement of $21.9 million of settlement obligations and net receipt of $2.0 million of customer deposits and advance payments.

Intangible Assets

Intangible assets, net of accumulated amortization, decreased $7.0 million during the first quarter of 2021, resulting from amortization expense of $7.0 million.

Debt Obligations

Outstanding amounts for our debt obligations under that certain Credit and Guaranty Agreement, dated as of January 3, 2017, with Truist (the “Senior Credit Agreement”) and that certain Credit and Guaranty Agreement, dated as of January 3, 2017, with Goldman Sachs Specialty Lending Group, L.P. (the “Term Loan Agreement”) decreased by a net of $2.9 million during the first three months of 2021. This decrease was attributable to principal repayments of $4.9 million for Senior debt, partially offset by PIK interest of $1.9 million under our Term Loan Agreement. See the additional discussion about our debt obligations in the subsequent section for Liquidity and Capital Resources.
Stockholders' Deficit

Stockholders' deficit attributable to the stockholders of the Company increased by $1.2 million, from a deficit of $98.6 million at December 31, 2020 to a deficit of $99.8 million atended March 31, 2021. The primary driverincrease of this change$20.9 million, or 19.2%, was primarily driven by increased merchant bankcard volume. The Company's revenue from the net loss attributableSMB Payments segment as a percentage of merchant bankcard processing dollar value during 2022 decreased to stockholders0.88% from 0.90% during 2021. The decrease is primarily driven by a decrease in revenue from the specialized merchant acquiring portfolio offset by an increase in other fees revenues.
Operating Income
Operating income from our SMB Payments segment was $12.5 million for the three months ended March 31, 2022, compared to $13.3 million for the three months ended March 31, 2021. The decrease of $0.8 million, or 6.0%, was primarily driven by the Companyincrease in volumes from partners with higher commissions.
26
Table of $2.7Contents
Depreciation and Amortization
Depreciation and amortization expense from our SMB Payments segment was $10.8 million partially offsetfor the three months ended March 31, 2022, compared to $8.7 million depreciation expense for the three months ended March 31, 2021. The increase of $2.1 million was primarily driven by the amortization of acquired intangibles resulting from the C&H and Wholesale Payments, Inc. acquisitions.
B2B Payments
(in thousands)Three Months Ended March 31,
20222021$ Change% Change
Revenue$5,925$3,500$2,42569.3 %
Operating expenses5,5163,9091,60741.1 %
Operating income (loss)$409$(409)$818(200.0)%
Operating margin6.9 %(11.7)%
Depreciation and amortization$73$74$(1)(1.4)%
Key Indicators:
Merchant bankcard processing dollar value$108,407$63,650$44,75770.3 %
Merchant bankcard transaction volume883949125.6 %
Revenue
Revenue from our B2B Payments segment was $5.9 million for the three months ended March 31, 2022, compared to $3.5 million for the three months ended March 31, 2021. The increase of $2.4 million, or 68.6%, was primarily driven by $1.5 million, or 42.9%, as a result of the acceleration of certain programs in the Managed Services business operations that were scaled back in 2021 as a result of the COVID-19 pandemic and volume growth in the CPX business. The remaining increase of $0.9 million, or 25.7%, is from the recognition of certain revenues for which recovery became probable during the current quarter.
Operating Income (Loss)
Operating income from our B2B Payments segment was $0.4 million for the three months ended March 31, 2022, compared to an operating loss of $(0.4) million for the three months ended March 31, 2021. The increase of $0.8 million, or 200.0%, was primarily attributable to increases in revenue.
Enterprise Payments
(in thousands)Three Months Ended March 31,
20222021$ Change% Change
Revenue$17,355$696$16,659nm
Operating expenses12,86153212,329nm
Operating income$4,494$164$4,330nm
Operating margin25.9 %23.6 %
Depreciation and amortization$6,197$—$6,197nm
Key Indicators:
Merchant bankcard processing dollar value$216,398$—$216,398nm
Merchant bankcard transaction volume372—372nm
27
Table of Contents
Revenue
Revenue from our Enterprise Payments segment was $17.4 million for the three months ended March 31, 2022, compared to additional paid-in capital$0.7 million for equity-based stock compensationthe three months ended March 31, 2021. The increase of $16.7 million was primarily driven by revenues contributed by the Finxera business acquired in September 2021.
Operating Income
Operating income from our Enterprise Payments segment was $4.5 million for the three months ended March 31, 2022, compared to $0.2 million for the three months ended March 31, 2021. The increase of $4.3 million was primarily driven by operating income contributed by the Finxera business acquired in September 2021.
Depreciation and proceedsAmortization
Depreciation and amortization expense from stock options.our Enterprise Payments segment was $6.2 million for the three months ended March 31, 2022, compared to no depreciation expense for the three months ended March 31, 2021. The increase of $6.2 million was primarily driven by the amortization of acquired intangibles resulting from the Finxera acquisition in September 2021.

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 needs and other anticipated needs, including for our acquisition strategy. We anticipate that cash on hand, funds generated from operations and available borrowings under our revolving credit facilityagreement are sufficient to meet our working capital requirements for at least the next twelve months. This is based upon management’smanagement's estimates and assumptions, including utilizing the most currently available information regarding the effects of the COVID-19 pandemic on our financial results. Actual future results could differ materially, as the magnitude, duration and effects of the COVID-19 pandemic are difficult to predict, and ultimately could negatively impact our liquidity and capital resources, and debt covenant compliance.

resources.
Our principal uses of cash are to fund business operations and administrative costs, and debt service.
- 34 -to service our debt. 

Table of Contents
Our working capital, defined as current assets less current liabilities, was $(18.0) million and $(13.0)$18.9 million at March 31, 20212022 and $19.6 million at December 31, 2021. As of March 31, 2022, we had cash totaling $13.6 million compared to $20.3 million at December 31, 2021. These cash balances do not include restricted cash of $13.6 million and $28.9 million at March 31, 2022 and December 31, 2020, respectively.2021, 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 $24.3 million and $19.4$6.2 million at March 31, 20212022 and December 31, 2020, respectively. On April 27, 2021,2021.At March 31, 2022, we refinanced our credit agreements, which reduced the current portionhad availability of long-term debt to $3.0approximately $30.0 million improved our working capital and increasedunder our revolving credit facility to $40 million. (See the additional discussion about our debt refinancing in the subsequent section for Credit and Guaranty Agreement.)

arrangement. 
At March 31, 2021, we had no outstanding borrowings under the $25.0 million revolving credit facility of our Senior Credit Agreement.
The following tablestable and narrativediscussion reflect our changes in cash flows for the comparative periods:three month periods.
(dollars in thousands)Quarter ended March 31,
20212020Three Months Ended March 31,
Net cash used in:  
(in thousands)(in thousands)20222021
Net cash provided by (used in):Net cash provided by (used in): 
Operating activitiesOperating activities$(13,426)$(7,254)Operating activities$9,613 $9,100 
Investing activitiesInvesting activities(5,691)(3,229)Investing activities(5,711)(5,691)
Financing activitiesFinancing activities(4,243)(251)Financing activities2,538 (26,769)
Net decrease in cash and restricted cash$(23,360)$(10,734)
Net increase in cash and cash equivalents and restricted cashNet increase in cash and cash equivalents and restricted cash$6,440 $(23,360)
28

Table of Contents
Cash Used InProvided by Operating Activities
Net cash usedprovided by operating activities was $9.6 million and $9.1 million for the three months March 31, 2022 and 2021, respectively. The $0.5 million, or 5.5%, increase in 2022 was primarily driven by cash generated from the operations of the Company, offset by changes in operating activities, which includes changes in restricted cash, was $13.4 million in first quarter 2021 compared to net cash used in operating activities of $7.3 million in first quarter 2020. Restricted cash operating activities, which are operating activities related to disbursementassets and receipt of restricted cash held on behalf of customers, used $19.9 million of cash in first quarter 2021 and used $10.4 million of cash in first quarter 2020. This comparative change in cash is driven by timing of customer pre-funding and disbursement activities. Unrestricted cash activities provided $6.5 million of cash in first quarter 2021 and provided $3.1 million of cash in first quarter 2020.liabilities
Cash Used Inin Investing Activities
Net cash used in investing activities was $5.7 million infor both the first quarter 2021 compared tothree months ended March 31, 2022 and 2021. For the three months ended March 31, 2022, net cash used in investing activities included $2.4 million related to the funding of $3.2new loans to ISOs, additions to property, equipment and software of $2.4 million, and acquisitions of intangible assets of $0.9 million. For three months ended March 31, 2021, net cash used in the first quarterinvesting activities included $2.9 million of 2020. Cashcash used to fund a portfolio acquisition and a contingent portion$2.8 million of a residual buyout amounted to $2.9 million and $0.9 million in the first quarter of 2021 and 2020, respectively. Cashcash used to acquire property, equipment and software amountedsoftware.
Cash Provided by (Used in) Financing Activities
Net cash provided by financing activities was $2.5 million for the three months ended March 31, 2022, compared to $2.8$26.8 million and $2.3 million in the first quarter 2021 and 2020, respectively.
Cash Used In Financing Activities
Netof cash used in financing activities was $4.2for the three months ended March 31, 2021. The net cash provided by financing activities for three months ended March 31, 2022 included $6.6 million of cash used for the repayment of debt, $3.5 million of cash dividends paid to redeemable senior preferred stockholders and $0.2 million of cash used for other financing activities, offset by changes in the first quarter 2021 compared tonet obligations for funds held on the behalf of customers of $12.7 million. The net cash used in financing activities for the three months ended March 31, 2021 included $22.5 million of $0.3 millioncash used related to changes in the first quarter 2020. In first quarter 2021, Senior debt principal repaymentsnet obligations for funds held on behalf of customers and $4.9 million were partiallyof cash used for the repayment of debt, slightly offset by $0.6 million of proceeds from the exercise of stock options. In the first quarter of 2020, Senior debt principal repayments of $1.0 million and debt modification costs of $2.7 million were largely offsetcash provided by $3.5 million of borrowings under our revolving credit facility.other financing activities.

Long-Term Debt at March 31, 2021

As of March 31, 2021,2022, we had outstanding long-term debt obligations, including the current portion and net of $379.1unamortized debt discount of $604.6 million, compared to $382.0$610.3 million at December 31, 2020,2021, resulting in a decrease of $2.9$5.7 million. The debt balance at March 31, 20212022 consisted of $615.3 million outstanding term debt of $274.6 million under the Senior Credit Agreementterm facility and $104.5$10.0 million in term debtoutstanding under the Subordinated Term Loan Facility. Additionally, under the Senior Credit Facility, we have a $25 million revolving credit facility, which was fully available asoffset by $20.7 million of March 31, 2021.unamortized debt discounts and issuance costs. Minimum amortization of the term facility are equal quarterly installments in aggregate annual amounts equal to 1.0% of original principal, with the balance paid upon maturity. The
- 35 -

Table of Contents
outstanding principal amounts under the Senior Credit Facility term facility matures in April 2027 and the Term Loan Agreement mature in January 2023 and July 2023, respectively. The $25 million revolving credit facility expires in January 2022.

As of March 31, 2021, we were in compliance with our financial covenants. Total Net Leverage Ratio, Consolidated Total Debt, and Consolidated Adjusted EBITDA are defined in Section 1.01 of Exhibit A to the Sixth Amendment to the Senior Credit Agreement and are summarized below:

•The Total Net Leverage Ratio means, at any date of determination, the ratio of Consolidated Total Debt for such date, to Consolidated Adjusted EBITDA.

•Consolidated Total Debt is the aggregate principal amount of indebtedness minus the aggregate amount of unrestricted cash at the balance sheet date.

•Consolidated Adjusted EBITDA is consolidated net income plus any applicable items determined in accordance with clauses (i)(b) through (i)(v) of the Consolidated Adjusted EBITDA definition, minus any applicable items determined in accordance with clauses (ii)(a) through (ii)(g) of the Consolidated Adjusted EBITDA definition in Section 1.01 of the Sixth Amendment ("Applicable Adjustments").

Under the provisions of the Sixth Amendment, for interim quarterly and full year measurement periods commencing in January 2021, calculation of Consolidated Adjusted EBITDA is determined on a last twelve months basis.

Consolidated Adjusted EBITDA is a non-GAAP liquidity measure. For determining the Total Net Leverage Ratio at March 31, 2021, Consolidated Adjusted EBITDA was calculated as follows in accordance with the referenced clause definitions from Section 1.01 of the Sixth Amendment:

(in thousands)Last Twelve Months Ended
March 31, 2021
Consolidated Net Income (GAAP)$28,851 
Applicable Adjustments:
Gain on sale of business, less amounts attributable and paid to NCIs (clause (ii)(c))(62,091)
Interest expense (clause (i)(b))43,692 
Depreciation and amortization (clause (i)(d) and (i)(e))39,573 
Income tax expense (clause (i)(c))9,901 
Non-cash stock-based compensation (clause (i)(j))2,650 
Acquisition transition services (clause (i)(k))1,732 
Debt extinguishment and modification expenses (clause (i)(h))1,523 
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))3,167 
Litigation settlement recoveries (clause (i)(k))(721)
Professional, accounting and consulting fees (clause (i)(k))1,905 
Other professional and consulting fees (clause (i)(h))1,500 
Other adjustments (clause (i)(k))648 
Pro forma impact of disposal(5,553)
Consolidated Adjusted EBITDA (non-GAAP)$68,637 

- 36 -

Table of Contents
At March 31, 2021, the Total Net Leverage Ratio was 5.44:1.00, calculated as follows:

(in thousands, except ratio)March 31, 2021
Consolidated Total Debt:
Current portion of long-term debt$24,302 
Long-term debt, net of discounts and deferred financing costs350,667 
Unamortized debt discounts and deferred financing costs4,135 
379,104 
Less unrestricted cash(5,827)
Consolidated Net Debt$373,277 
Consolidated Adjusted EBITDA (non-GAAP)$68,637 
Total Net Leverage Ratio5.44x

Securities Purchase Agreement

On April 27, 2021, we entered into a Securities Purchase Agreement (the “Purchase Agreement”) with credit funds managed by certain affiliates of Ares Management Corporation (the “Investors”), pursuant to which the Company (i) issued and sold 150,000 shares of senior preferred stock, par value $0.001 per share (the “Senior Preferred Stock”, and the shares issued the “Senior Preferred Shares”) at a purchase price of $150,000,000, or $1,000 per Senior Preferred Share (the “Initial Senior Preferred Stock Sale”), and (ii) issued warrants (the “Warrants”) to purchase up to 1,803,841 shares of the Company’s common stock, par value $0.001 per share (“Common Stock” and together with the Warrants, the “Securities”), at an exercise price $0.001. 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.

In addition to the issuance and sale of Senior Preferred Shares which pursuant to the Purchase Agreement, upon the consummation of the Company’s acquisition of Finxera and the satisfaction of other customary closing conditions, the Company will issue and sell to the Investors an additional 50,000 shares of Senior Preferred Stock, at a purchase price of $50,000,000, or $1,000 per share. The Company may also issue and sell to the Investors up to an additional 50,000 shares of Senior Preferred Stock, at a purchase price of $1,000 per share within 18 months after the consummation of the Acquisition Senior Preferred Stock Sale upon the satisfaction of certain customary closing conditions.

The Company used the proceeds from the sale of the Securities to fund the Refinancing (as defined below) and to pay certain fees and expenses relating to the Refinancing and the offering of the Securities.

Registration Rights Agreement

On April 27, 2021 the Company entered into a Registration Rights Agreement, by and among the Company and the Investors (the “Registration Rights Agreement”), pursuant to which the Company agreed to provide certain registration rights with respect to the shares of Common Stock issuable upon exercise of the Warrants (the “Registrable Securities”).

Under the Registration Rights Agreement, the holders of the Registrable Securities were granted (i) piggyback rights to be included in certain underwritten offerings of Common Stock and (ii) the right to demand a shelf registration of Registrable Securities.

Credit and Guaranty Agreement

On April 27, 2021, Priority Holdings, LLC, a Delaware limited liability company (“Holdings”), which is a direct wholly-owned subsidiary of the Company, and certain direct and indirect subsidiaries of Holdings (together with Holdings, collectively, the “Loan Parties”), entered into a Credit and Guaranty Agreement (the “Credit Agreement”) with Truist Bank (“Truist”) and the
- 37 -

Table of Contents
lenders party thereto, pursuant to which Holdings has access to senior credit facilities in an aggregate principal amount of $630.0 million which are secured by substantially all of the assets of the Loan Parties and by the equity interests of Holdings.

The credit facilities under the Credit Agreement are comprised of (i) a senior secured first lien term loan facility in an aggregate principal amount of $300,000,000 (the “Initial Term Loan”), the proceeds of which have been used to fund the Refinancing, (ii) a senior secured revolving credit facility in an aggregate amount not to exceed $40,000,000 outstanding at any time and (iii) a senior secured first lien delayed draw term loan facility in an aggregate principal amount of $290,000,000, the proceeds of which may be used to fund the Company’s acquisition of Finxera.

Prepayments

Under the Credit Agreement, prepayments of outstanding principal may be made in permitted increments with a 1.0% penalty for certain prepayments made in connection with repricing transactions. Such premium will be based on the principal amount that is prepaid, subject to the terms of the credit agreements.

Acceleration

The outstanding amount of any loans and any other amounts owing by the Loan Parties under the Credit Agreement may, after the occurrence of an Event of Default (as defined in the Credit Agreement), at the option of Truist, be declared immediately due and payable. Events of Default include, without limitation, the failure of the Loan Parties to pay principal, premium or interest when due under the Credit Agreement, or the failure by the Loan Parties to perform or comply with any term or covenant in the Credit Agreement, in each case, subject to any applicable cure periods provided therein.

Covenants

2026.
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 Partiesloan parties to the Company, merge or consolidate, dispose of assets, incur additional indebtedness, make certain investments or acquisitions, enter into certain transactions (including with affiliates), and to enter into certain leases.

If the aggregate principal amount of outstanding revolving loans and letters of credit under the Credit Agreement exceeds 35% of the total revolving facility thereunder, the Loan Partiesloan parties are required to comply with certain restrictions on its Total Net Leverage Ratio, which is defined in the Credit Agreement as the ratio of consolidated total debt of the Loan Parties to the Loan Parties Consolidated Adjusted EBITDA (as defined in the Credit Agreement).Ratio. If applicable, the maximum permitted Total Net Leverage Ratio is (i)is: 1) 6.50:1.00 at each fiscal quarter ended September 30, 2021 through June 30, 2022, (ii)2022; 2) 6.00:1.00 at each fiscal quarter ended September 30, 2022 through June 30, 2023,2023; and (iii)3) 5.50:1.00 at each fiscal quarter ended September 30, 2023 each fiscal quarter thereafter.

Refinancing

Holdings and certain other Loan Parties have previously entered into (A) As of March 31, 2022, the Term Loan Agreement and (B) the Senior Credit Agreement, the proceeds from the sale of the Securities and from the Initial Term Loan were used to refinance the Term Loan Agreement and the Senior Credit Agreement and all outstanding obligations thereunder were repaid in full (or in the case of outstanding undrawn letters of credit, deemed issued under the Credit Agreement), and all commitments and guaranties in connection therewith have been terminated or released (the “Refinancing”).

COVID-19 Pandemic

Our current assessment is that we anticipate cash on hand, funds generated from operations and available borrowings under our revolving credit facility to be sufficient to meet our working capital requirements, and that we will remainCompany was in compliance with our debtfinancial covenants. However, the ongoing magnitude, duration and effects of the COVID-19 pandemic on our future results of operation, cash flows, and financial condition are difficult to predict at this time, and our current assessment is subject to material revision.
- 38 -

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, 2021. There have been no material changes to these critical accounting policies and estimates as of March 31, 2022.
29

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 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. 

ITEMItem 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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, 2020.2021. Our exposures to market risk have not changed materially since December 31, 2020.2021.


ITEMItem 4. CONTROLS AND PROCEDURESControls and Procedures

(a)
a)Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act, of 1934 (the "Exchange Act"), designed to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized or reported within the time periods specified in SEC rules and regulations and that such information is accumulated and communicated to our management, including our principal executive officer (CEO) and chief, our principal financial officer (CFO) and, as appropriate, to allow timely decisions regarding required disclosures.

Management, with the participation of the CEO and CFO, has evaluated the effectiveness of the Company's disclosure controls and procedures as of March 31, 2021.2022. Based on that evaluation, the Company's CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of March 31, 2021.2022.

(b)
b)  Changes in Internal Control over Financial Reporting

There were no changes in the Company’sCompany's internal control over financial reporting during the first quarter of 2021three months ended March 31, 2022 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
- 39 -

30
PART II. OTHER INFORMATION

ITEMItem 1. LEGAL PROCEEDINGS

Legal Proceedings
We are involved in certain legal proceedings and claims, which occurarise in the normalordinary course of our business. WeIn the opinion of the Company, based on consultations with internal and external counsel, the results of any of these ordinary course matters, individually and in the aggregate, are not currently a partyexpected to any legal proceedings that we believe would have a material adverse effect on our financial position, results of operations, financial condition, or cash flows. As more information becomes available and we determine that an unfavorable outcome is probable on a claim and that the amount of probable loss that we will incur on that claim is reasonably estimable, we will record an accrued expense for the claim in question. If and when we record such an accrual, it could be material and could adversely impact our results of operations, financial condition and cash flows.


ITEMItem 1A. RISK FACTORS

Risk Factors
In addition to the other information set forth in this report, you should carefully consider the factors discussed in our Annual Report under Part I, Item 1A “Risk Factors”"Risk Factors" because these risk factors may affect our operations and financial results.

The risks described in the Annual Report are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and operating results.


ITEMItem 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDSUnregistered Sales of Equity Securities and Use of Proceeds
Unregistered Sales of Equity Securities and Use of Proceeds
None.
Issuer Purchases of Equity Securities
The Company's purchases of its common stock during the three months ended March 31, 2022 were as follows:
Period
Total Number of Shares Purchased(1)
Average Price Paid per ShareTotal Number of Shares Purchased as Part of Publicly Announced Plans or ProgramsMaximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
January 1-31, 2022—$— ——
February 1-28, 202226,671$5.86 ——
March 1-31, 2022—$— ——
Total26,671 — 

N/A(1)Includes shares (in whole units) withheld to satisfy employees' tax withholding obligations related to the vesting of restricted stock awards, which was determined based on the fair market value on the vesting date.


ITEMItem 3. DEFAULTS UPON SENIOR SECURITIES

Defaults Upon Senior Securities
N/A


ITEMItem 4. MINE SAFETY DISCLOSURES

Mine Safety Disclosures
N/A


ITEMItem 5. OTHER INFORMATION

Other Information
N/A



- 40 -

31
Table of ContentsContents


ITEMItem 6. EXHIBITSExhibits
ExhibitDescription
2.1
Second Amended and Restated Contribution Agreement, dated as of April 17, 2018, by and among Priority Investment Holdings, Priority Incentive Equity Holdings, LLC and M I Acquisitions, Inc. (incorporated by reference to Annex A to the Company's Proxy Statement on Schedule 14(a), filed July 5, 2018).
2.2†
Agreement and Plan of Merger, dated as of March 5, 2021, by and among the Company, Finxera, Merger Sub, and the Equityholder Representative.
2.3
Certificate of Amendment to the Certificate of Incorporation of Priority Technology Holdings dated April 16, 2021, filed April 29, 2021
2.4
Agreement and Plan of Merger by and among the Company, Finxera Holdings, Inc., Prime Warrior Acquisition Corp., and Stone Point Capital LLC.
3.1
Second Amended and Restated Certificate of Incorporation of Priority Technology Holdings, Inc. (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K, filed July 31, 2018).
3.2
Amended and Restated Bylaws of Priority Technology Holdings, Inc. (incorporated by reference to Exhibit 3.2 to the Company's Current Report on Form 8-K, filed July 31, 2018).
3.3
Certificate of Designations of Senior Preferred Stock
4.4
Warrant Agreement, dated September 13, 2016, by and between American Stock Transfer & Trust Company, LLC and the Registrant (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K, filed September 16, 2016).
10.1
Registration Rights Agreement dated as of July 25, 2018 by and among M I Acquisitions, Inc. and the other parties thereto (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed July 31, 2018).
10.2†
Priority Technology Holdings, Inc. 2018 Equity Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K, filed July 31, 2018).
10.3
Priority Technology Holdings, Inc. 2021 Employee Stock Purchase Plan
10.3.1
Amendment No. 1 to Priority Technology Holdings, Inc. 2021 Employee Stock Purchase Plan
10.4†
Credit Agreement, dated as of April 27, 2021, among the Loan Parties name therein and Truist Bank.
10.5†
Director Agreement by and among Priority Holdings LLC, Pipeline Cynergy Holdings, LLC, Priority Payment Systems Holdings, LLC and Thomas C. Priore, dated May 21, 2014 (incorporated by reference to Exhibit 10.6 to the Company's Registration Statement on Form S-4/A, filed December 26, 2018).
10.6†
Amendment No. 1 to Director Agreement by and among Priority Holdings LLC, Pipeline Cynergy Holdings, LLC, Priority Payment Systems Holdings, LLC and Thomas C. Priore, dated April 19, 2018 (incorporated by reference to Exhibit 10.7 to the Company's Registration Statement on Form S-4/A, filed December 26, 2018).
10.11†
Executive Employment Agreement between Priority Technology Holdings, Inc. and Michael Vollkommer, dated December 20, 2018 (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed December 26, 2018).
10.12†
Restricted Stock Unit Award Agreement between Priority Technology Holdings, Inc. and Michael Vollkommer, dated December 20, 2018 (incorporated by reference to Exhibit 10.13 to the Company's Annual Report on Form 10-K, filed March 29, 2019).
10.13†
Form of WarrantIndependent Director Agreement (incorporated by reference to Exhibit 10.19 to the Company's Annual Report on Form 10-K, filed March 29, 2019).
10.110.14
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 Company's Current Report on Form 8-K filed September 1, 2020).
10.15
Support Agreement, dated as of March 5, 2021, by and among the Stockholders and Finxera
10.1†10.16
Debt Commitment Letter, dated as of March 5, 2021, between Priority Holdings, LLC and Truist Securities, Inc.
10.17
Preferred Stock Commitment Letter, dated as of March 5, 2021, among the Company and certain affiliates of Ares Capital Management LLC
10.18†
Securities Purchase Agreement, dated as of April 27, 2021, among the Company and the Investors named therein
10.210.19
Registration Rights Agreement, dated as of April 27, 2021, among the Company and the Investors namedname therein
32
Table of Contents
10.3†10.21†
Credit Agreement, dated as of April 27, 2021, among the Loan Parties namedname therein and Truist Bank
10.310.22
Consent and Sixth Amendment No. 2, dated September 17, 2021, to the Credit and Guaranty Agreement, dated as of March 18, 2020April 27, 2021, by and among Priority Holdings LLC, the Guarantors, the LendersLoan Parties named therein and Goldman Sachs Specialty Group LP (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K, filed March 23, 2020).Truist Bank.
10.23 *
Form Restricted Stock Unit Award Agreement
21.1
Subsidiaries
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.DEF101.LAB *XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*XBRL Taxonomy Extension Label Linkbase Document
101.PRE **XBRL Taxonomy Extension Presentation Linkbase Document
104101.DEF *Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
†Schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The registrant hereby undertakes to furnish supplementally copies of any of the omitted schedules upon request by the SEC.XBRL Taxonomy Extension Definition Linkbase Document

* Filed herewithherewith.
** Furnished herewithherewith.
† Schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The registrant hereby undertakes
to furnish supplemental copies of any of the omitted schedules upon request by the SEC. Indicates exhibits that constitute management contracts or compensation plans or arrangements.


- 41 -

33
SIGNATURES 


SIGNATURES 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrantregistrant has duly caused this report to be signed on theirits behalf by the undersigned thereunto duly authorized.



                        PRIORITY TECHNOLOGY HOLDINGS, INC.


May 14, 202111, 2022
/s/ THOMASThomas C. PRIOREPriore
Thomas C. Priore
President, Chief Executive Officer and Chairman
(Principal Executive Officer)
May 14, 202111, 2022
/s/ MICHAEL T. VOLLKOMMERMichael Vollkommer
Michael T. Vollkommer
Chief Financial Officer
(Principal Financial Officer)
































34