Annual report pursuant to Section 13 and 15(d)

DISPOSAL OF BUSINESS

v3.21.1
DISPOSAL OF BUSINESS
12 Months Ended
Dec. 31, 2020
Discontinued Operations and Disposal Groups [Abstract]  
DISPOSAL OF BUSINESS DISPOSAL OF BUSINESSOn September 1, 2020, PRET, a majority-owned and consolidated subsidiary of the Company, entered into an asset purchase agreement (the "Agreement") with MRI Payments LLC and MRI Software LLC (together, "MRI" or the buyer) to sell certain assets from PRET's real estate services business. The buyer also agreed to assume certain obligations associated with the assets. The transaction contemplated by the Agreement was completed on September 22, 2020 after receiving regulatory approval. Prior to execution of the Agreement, the buyer was not a related party of PRET or the Company.
The assets covered by the Agreement were substantially the same assets that PRET acquired in March 2019 from YapStone, Inc. and these assets constituted PRET's RentPayment component, which was part of the Integrated Partners reporting unit, operating segment and reportable segment. These assets consist of contracts with customers, an assembled workforce, technology-related assets, Internet domains, trade names and trademarks. The buyer also assumed obligations under an in-place and off-balance-sheet operating lease for office space. Since PRET's acquisition of these assets from YapStone, Inc. in March 2019, PRET and the Company have made operational changes that resulted in these assets becoming a business as defined by the provisions of ASU 2017-01, Clarifying the Definition of a Business, before their sale to MRI.

Proceeds received by PRET were $179.4 million, net of $0.6 million for a working capital adjustment. The gain amounted to $107.2 million as follows:


(in thousands)
Gross cash consideration from buyer $ 180,000 
Less working capital adjustment paid in cash (584)
Net proceeds from buyer 179,416 
Transaction costs incurred (5,383)
Assets sold:
Intangible assets (62,158)
Other assets sold, net of obligations assumed (716)
Goodwill assigned to business sale (2,683)
Other intangible assets (1,237)
Pre-tax gain on sale of business $ 107,239 


PRET is a limited liability company and is a pass-through entity for income tax purposes. Income tax expenses associated with the gain attributable to the stockholders of the Company were estimated to be approximately $12.3 million.

Allocation of net proceeds, after transaction costs, to the PRET members included return of each member's invested capital in PRET and excess proceeds were distributed in accordance with the distribution provisions of the PRET LLC governing agreement. The Company's invested capital amounted to $71.8 million, which included the assets sold, goodwill and other intangible assets. The non-controlling interest's invested capital was $5.7 million. Approximately $51.4 million and $45.1 million of the excess proceeds were distributed to the Company and the non-controlling interests, respectively.

The working capital adjustment of $584 thousand and the allocation of net proceeds described above remain subject to final adjustment with the buyer and PRET members, respectively. Any remaining payments made or received by the Company will be recorded in the period in which such amounts are finalized.

As disclosed in Note 10, Long-Term Debt and Warrant Liability, $106.5 million of cash received by the Company was used on September 25, 2020 to reduce the outstanding balance of the term loan facility under the Company's Senior Credit Facility.

Operating Lease Obligation

The buyer assumed an in-place operating lease in Dallas, Texas which expires on November 1, 2024. The Company has not adopted ASC 842; therefore this lease obligation was not reflected in the Company's balance sheet prior to the assumption by the buyer. The Company was relieved of minimum lease payment obligations totaling $0.5 million for the remainder of the current lease term.
Continuing Operations

Based on historical financial results, the Company does not believe the sale of the RentPayment component represents a strategic shift. Therefore, in accordance with ASC 205-20, Presentation of Financial Statements - Discontinued Operations, the Company will not classify or report the business that was sold as discontinued operations in its consolidated financial statements for any reporting period. The Company will continue to serve the rental property market through its ongoing PRET operations.


Pro Forma Information

The following unaudited pro forma information is provided for the business (the RentPayment component) that was sold under the Agreement, excluding the gain recognized on the sale transaction:

Year Ended December 31,
(in thousands) 2020 2019
Revenues $ 12,042  $ 11,694 
Income from operations (1)
$ 1,825  $ 2,275 
Net income (2) (3)
$ 1,725  $ 2,218 
Net income attributable to the stockholders of Priority Technology Holdings, Inc. (4)
$ 1,725  $ 2,218 
Income per common share for stockholders of Priority Technology Holdings, Inc. - Basic and Diluted (4)
$ 0.03  $ 0.03 


(1) Historical financial results are not being reported as discontinued operations.
(2) Does not reflect interest expense on the borrowings used to acquire the YapStone assets in March 2019.
(3) Pro forma income tax expense based on the following consolidated effective tax rates of Priority Technology Holdings, Inc.: 5.5% and 2.5% for the years ended December 31, 2020 and 2019, respectively. These rates exclude the effect of the $107.2 million net gain on the sale recognized during the year ended December 31, 2020.
(4) Prior to the September 2020 sale transaction that resulted in the gain on the sale, no earnings or losses of the PRET LLC were attributable to the NCIs of PRET.