false--12-31FY4383000016535580.0180.0228.007.757.717.447.197.006.756.726.505.50511000803000000.0010.00110000000001000000000675121676703830467038000670609430.050.050.050.05P25YP9YP15YP7YP15YP12YP11YP1YP10YP5YP5YP5Y00P1Y0.0750.1050.06710.10500.0010.001000000P7YP7YP10YP3YP2YP5YP3Y0.5451224P5YP5Y 0001653558 2019-01-01 2019-12-31 0001653558 2018-06-29 0001653558 2020-03-26 0001653558 2019-12-31 0001653558 2018-12-31 0001653558 2017-01-01 2017-12-31 0001653558 2018-01-01 2018-12-31 0001653558 us-gaap:RetainedEarningsMember 2017-01-01 2017-12-31 0001653558 us-gaap:ParentMember 2017-12-31 0001653558 us-gaap:RetainedEarningsMember 2019-01-01 2019-12-31 0001653558 srt:RestatementAdjustmentMember prth:CorrectionofAccumulatedEarningsMember us-gaap:RetainedEarningsMember 2016-12-31 0001653558 us-gaap:RetainedEarningsMember 2017-12-31 0001653558 us-gaap:NoncontrollingInterestMember 2018-12-31 0001653558 us-gaap:RetainedEarningsMember 2018-01-01 2018-12-31 0001653558 us-gaap:NoncontrollingInterestMember 2019-12-31 0001653558 us-gaap:NoncontrollingInterestMember 2016-12-31 0001653558 us-gaap:RetainedEarningsMember 2019-12-31 0001653558 us-gaap:ParentMember 2018-12-31 0001653558 us-gaap:ParentMember 2019-12-31 0001653558 srt:RestatementAdjustmentMember prth:CorrectionOfNetIncome2017Member us-gaap:RetainedEarningsMember 2017-12-31 0001653558 srt:RestatementAdjustmentMember prth:CorrectionOfNetLoss2018Member us-gaap:RetainedEarningsMember 2018-12-31 0001653558 us-gaap:NoncontrollingInterestMember 2017-12-31 0001653558 srt:ScenarioPreviouslyReportedMember us-gaap:RetainedEarningsMember 2016-12-31 0001653558 srt:RestatementAdjustmentMember prth:CorrectionOfNetLoss2018Member us-gaap:RetainedEarningsMember 2019-12-31 0001653558 2017-12-31 0001653558 us-gaap:NoncontrollingInterestMember 2017-01-01 2017-12-31 0001653558 us-gaap:RetainedEarningsMember 2018-12-31 0001653558 us-gaap:NoncontrollingInterestMember 2018-01-01 2018-12-31 0001653558 us-gaap:NoncontrollingInterestMember 2019-01-01 2019-12-31 0001653558 us-gaap:RetainedEarningsMember 2016-12-31 0001653558 us-gaap:PreferredStockMember 2018-12-31 0001653558 us-gaap:CommonStockMember 2019-01-01 2019-12-31 0001653558 us-gaap:TreasuryStockMember 2019-01-01 2019-12-31 0001653558 us-gaap:AdditionalPaidInCapitalMember 2018-01-01 2018-12-31 0001653558 us-gaap:AdditionalPaidInCapitalMember 2019-01-01 2019-12-31 0001653558 us-gaap:TreasuryStockMember 2018-12-31 0001653558 us-gaap:CommonStockMember 2018-01-01 2018-12-31 0001653558 us-gaap:CommonStockMember 2017-01-01 2017-12-31 0001653558 us-gaap:TreasuryStockMember 2017-12-31 0001653558 us-gaap:AdditionalPaidInCapitalMember 2016-12-31 0001653558 us-gaap:PreferredStockMember 2017-12-31 0001653558 us-gaap:CommonStockMember 2019-12-31 0001653558 us-gaap:CommonStockMember 2016-12-31 0001653558 us-gaap:TreasuryStockMember 2016-12-31 0001653558 us-gaap:TreasuryStockMember 2018-01-01 2018-12-31 0001653558 us-gaap:PreferredStockMember 2016-12-31 0001653558 us-gaap:CommonStockMember 2017-12-31 0001653558 us-gaap:TreasuryStockMember 2017-01-01 2017-12-31 0001653558 us-gaap:AdditionalPaidInCapitalMember 2017-01-01 2017-12-31 0001653558 us-gaap:AdditionalPaidInCapitalMember 2018-12-31 0001653558 us-gaap:CommonStockMember 2018-12-31 0001653558 us-gaap:TreasuryStockMember 2019-12-31 0001653558 us-gaap:AdditionalPaidInCapitalMember 2017-12-31 0001653558 us-gaap:AdditionalPaidInCapitalMember 2019-12-31 0001653558 2016-12-31 0001653558 us-gaap:CalculatedUnderRevenueGuidanceInEffectBeforeTopic606Member 2019-01-01 2019-12-31 0001653558 us-gaap:AccountingStandardsUpdate201409Member us-gaap:DifferenceBetweenRevenueGuidanceInEffectBeforeAndAfterTopic606Member 2019-01-01 2019-12-31 0001653558 srt:MinimumMember us-gaap:CustomerContractsMember 2019-01-01 2019-12-31 0001653558 srt:MaximumMember us-gaap:SoftwareAndSoftwareDevelopmentCostsMember 2019-01-01 2019-12-31 0001653558 srt:MinimumMember us-gaap:OtherIntangibleAssetsMember 2019-01-01 2019-12-31 0001653558 us-gaap:RevenueFromContractWithCustomerMember us-gaap:RevenueFromRightsConcentrationRiskMember 2019-01-01 2019-12-31 0001653558 prth:MIAcquisitionsMember 2016-09-01 2016-09-30 0001653558 srt:MaximumMember us-gaap:CustomerContractsMember 2019-01-01 2019-12-31 0001653558 us-gaap:RevenueFromContractWithCustomerMember us-gaap:RevenueFromRightsConcentrationRiskMember 2017-01-01 2017-12-31 0001653558 prth:MIAcquisitionsMember 2018-07-25 2018-07-25 0001653558 srt:MaximumMember us-gaap:OtherIntangibleAssetsMember 2019-01-01 2019-12-31 0001653558 us-gaap:RevenueFromContractWithCustomerMember us-gaap:RevenueFromRightsConcentrationRiskMember 2018-01-01 2018-12-31 0001653558 srt:MinimumMember us-gaap:SoftwareAndSoftwareDevelopmentCostsMember 2019-01-01 2019-12-31 0001653558 srt:RestatementAdjustmentMember prth:CorrectionofAccumulatedEarningsMember 2017-01-01 0001653558 prth:ErrorCorrectionsRelatedToSettlementsMember us-gaap:RetainedEarningsMember 2017-01-01 0001653558 2019-10-01 2019-12-31 0001653558 srt:RestatementAdjustmentMember prth:ErrorCorrectionsRelatedToSettlementsMember 2017-01-01 2017-12-31 0001653558 srt:RestatementAdjustmentMember prth:ErrorCorrectionsRelatedToChargebacksMember 2017-01-01 2017-12-31 0001653558 srt:ScenarioPreviouslyReportedMember 2017-01-01 2017-12-31 0001653558 srt:RestatementAdjustmentMember us-gaap:AccountingStandardsUpdate201409Member 2017-01-01 2017-12-31 0001653558 srt:RestatementAdjustmentMember prth:ErrorCorrectionsRelatedToSettlementsMember 2018-12-31 0001653558 srt:RestatementAdjustmentMember prth:ErrorCorrectionsRelatedToChargebacksMember 2018-12-31 0001653558 srt:ScenarioPreviouslyReportedMember 2018-12-31 0001653558 srt:RestatementAdjustmentMember prth:ErrorCorrectionsRelatedToChargebacksMember 2018-01-01 2018-12-31 0001653558 srt:RestatementAdjustmentMember prth:ErrorCorrectionsRelatedToSettlementsMember 2018-01-01 2018-12-31 0001653558 srt:ScenarioPreviouslyReportedMember 2018-01-01 2018-12-31 0001653558 srt:RestatementAdjustmentMember us-gaap:AccountingStandardsUpdate201409Member 2018-01-01 2018-12-31 0001653558 srt:ScenarioPreviouslyReportedMember us-gaap:RetainedEarningsMember 2017-12-31 0001653558 srt:ScenarioPreviouslyReportedMember us-gaap:RetainedEarningsMember 2018-12-31 0001653558 srt:RestatementAdjustmentMember prth:CorrectionOfNetIncome2017Member us-gaap:RetainedEarningsMember 2018-12-31 0001653558 srt:RestatementAdjustmentMember prth:CorrectionofAccumulatedEarningsMember 2018-12-31 0001653558 srt:ScenarioPreviouslyReportedMember 2017-12-31 0001653558 srt:RestatementAdjustmentMember prth:CorrectionOfNetLoss2018Member 2016-12-31 0001653558 srt:ScenarioPreviouslyReportedMember 2016-12-31 0001653558 srt:RestatementAdjustmentMember prth:CorrectionOfNetLoss2018Member us-gaap:RetainedEarningsMember 2016-12-31 0001653558 srt:RestatementAdjustmentMember prth:CorrectionOfNetLoss2018Member 2017-12-31 0001653558 srt:RestatementAdjustmentMember prth:CorrectionofAccumulatedEarningsMember 2016-12-31 0001653558 srt:RestatementAdjustmentMember prth:CorrectionOfNetLoss2018Member 2018-12-31 0001653558 srt:RestatementAdjustmentMember prth:CorrectionofAccumulatedEarningsMember 2017-12-31 0001653558 srt:RestatementAdjustmentMember prth:CorrectionOfNetIncome2017Member 2018-12-31 0001653558 srt:RestatementAdjustmentMember prth:CorrectionOfNetLoss2018Member us-gaap:RetainedEarningsMember 2017-12-31 0001653558 srt:RestatementAdjustmentMember prth:CorrectionOfNetIncome2017Member 2017-12-31 0001653558 srt:RestatementAdjustmentMember prth:CorrectionOfNetIncome2017Member 2016-12-31 0001653558 srt:RestatementAdjustmentMember prth:CorrectionOfNetIncome2017Member us-gaap:RetainedEarningsMember 2016-12-31 0001653558 prth:MerchantCardFeesMember 2018-01-01 2018-12-31 0001653558 prth:MerchantCardFeesMember 2019-01-01 2019-12-31 0001653558 prth:OutsourcedServicesMember 2019-01-01 2019-12-31 0001653558 prth:MerchantCardFeesMember 2017-01-01 2017-12-31 0001653558 prth:EquipmentSalesMember 2019-01-01 2019-12-31 0001653558 prth:OutsourcedServicesMember 2017-01-01 2017-12-31 0001653558 prth:OutsourcedServicesMember 2018-01-01 2018-12-31 0001653558 prth:EquipmentSalesMember 2017-01-01 2017-12-31 0001653558 us-gaap:ServiceOtherMember 2018-01-01 2018-12-31 0001653558 prth:EquipmentSalesMember 2018-01-01 2018-12-31 0001653558 us-gaap:ServiceOtherMember 2019-01-01 2019-12-31 0001653558 us-gaap:ServiceOtherMember 2017-01-01 2017-12-31 0001653558 2018-01-01 0001653558 2017-01-01 0001653558 prth:PriorityPaymentSystemsTechPartnersMember 2018-08-01 2018-08-31 0001653558 prth:PriorityPaymentSystemsTechPartnersMember 2019-12-31 0001653558 prth:PriorityPayRightHealthSolutionsLLCMember srt:SubsidiariesMember prth:PayRightMember 2018-04-01 2018-04-30 0001653558 prth:RadPadAndLandlordStationMember 2018-07-01 2018-07-31 0001653558 prth:ChiefExecutiveOfficerAndChairmanMember 2019-01-31 2019-01-31 0001653558 prth:PriorityPaymentSystemsTechPartnersMember 2018-08-31 0001653558 prth:DirectConnectMerchantServicesLLCMember 2018-12-01 2018-12-31 0001653558 prth:YapStoneIncMember 2019-03-01 2019-03-31 0001653558 2019-03-15 2019-03-15 0001653558 prth:PriorityPayRightHealthSolutionsLLCMember prth:PayRightMember 2017-12-31 0001653558 2019-02-28 0001653558 prth:TermLoanMember prth:SyndicateOfLendersMember us-gaap:LineOfCreditMember 2019-03-15 2019-03-15 0001653558 prth:RadPadAndLandlordStationMember 2018-10-01 2018-12-31 0001653558 prth:PriorityPaymentSystemsNortheastInc.Member 2018-07-31 0001653558 prth:PriorityPaymentSystemsNortheastInc.Member 2018-07-01 2018-07-31 0001653558 prth:PriorityPayRightHealthSolutionsLLCMember srt:SubsidiariesMember prth:PayRightMember 2018-04-30 0001653558 prth:ChiefExecutiveOfficerAndChairmanMember 2019-02-01 2019-02-28 0001653558 prth:PayRightMember 2015-10-01 2018-03-31 0001653558 2018-04-01 2018-06-30 0001653558 prth:RadPadAndLandlordStationMember 2018-07-31 0001653558 prth:YapStoneIncMember 2019-03-31 0001653558 prth:PriorityPayRightHealthSolutionsLLCMember prth:PayRightMember 2018-03-31 0001653558 prth:PriorityPaymentSystemsNortheastInc.Member 2019-12-31 0001653558 prth:PriorityPaymentSystemsNortheastInc.Member 2019-01-01 2019-12-31 0001653558 prth:PriorityPaymentSystemsTechPartnersMember 2019-01-01 2019-12-31 0001653558 prth:DirectConnectMerchantServicesLLCMember 2019-12-31 0001653558 us-gaap:RevolvingCreditFacilityMember 2019-03-15 2019-03-15 0001653558 prth:CardSettlementsDueFromProcessorsMember 2018-12-31 0001653558 prth:CardSettlementsDueFromProcessorsMember 2019-12-31 0001653558 prth:CardSettlementsDueToMerchantsMember 2019-12-31 0001653558 prth:DueToACHPayeesMember 2018-12-31 0001653558 prth:CardSettlementsDueToMerchantsMember 2018-12-31 0001653558 prth:CardSettlementsDueFromMerchantsMember 2019-12-31 0001653558 prth:CardSettlementsDueFromMerchantsMember 2018-12-31 0001653558 prth:DueToACHPayeesMember 2019-12-31 0001653558 us-gaap:DevelopedTechnologyRightsMember 2019-01-01 2019-12-31 0001653558 prth:DirectConnectMerchantServicesLLCMember us-gaap:ServiceAgreementsMember 2018-01-01 2018-12-31 0001653558 prth:ResidualBuyoutsMember 2019-01-01 2019-12-31 0001653558 us-gaap:CustomerRelationshipsMember 2018-01-01 2018-12-31 0001653558 us-gaap:ServiceAgreementsMember 2019-01-01 2019-12-31 0001653558 prth:ResidualBuyoutsMember 2018-01-01 2018-12-31 0001653558 prth:YapStoneIncMember us-gaap:ServiceAgreementsMember 2019-01-01 2019-12-31 0001653558 us-gaap:TradeNamesMember 2018-01-01 2018-12-31 0001653558 srt:WeightedAverageMember us-gaap:NoncompeteAgreementsMember 2019-01-01 2019-12-31 0001653558 us-gaap:NoncompeteAgreementsMember 2019-01-01 2019-12-31 0001653558 srt:WeightedAverageMember us-gaap:DevelopedTechnologyRightsMember 2019-01-01 2019-12-31 0001653558 srt:WeightedAverageMember us-gaap:ServiceAgreementsMember 2019-01-01 2019-12-31 0001653558 srt:WeightedAverageMember us-gaap:CustomerRelationshipsMember 2019-01-01 2019-12-31 0001653558 srt:WeightedAverageMember prth:ResidualBuyoutsMember 2019-01-01 2019-12-31 0001653558 srt:WeightedAverageMember us-gaap:TradeNamesMember 2019-01-01 2019-12-31 0001653558 srt:WeightedAverageMember prth:ISORelationshipsMember 2019-01-01 2019-12-31 0001653558 prth:PayRightMember 2018-01-01 2019-12-31 0001653558 prth:PriorityPaymentSystemsTechPartnersMember 2018-01-01 2019-12-31 0001653558 prth:PriorityPaymentSystemsNortheastInc.Member 2018-01-01 2019-12-31 0001653558 prth:RadPadAndLandlordStationMember 2018-01-01 2019-12-31 0001653558 us-gaap:DevelopedTechnologyRightsMember 2018-12-31 0001653558 us-gaap:CustomerRelationshipsMember 2018-12-31 0001653558 prth:ResidualBuyoutsMember 2019-12-31 0001653558 us-gaap:ServiceAgreementsMember 2018-12-31 0001653558 us-gaap:TradeNamesMember 2019-12-31 0001653558 prth:ISORelationshipsMember 2019-12-31 0001653558 us-gaap:NoncompeteAgreementsMember 2019-12-31 0001653558 us-gaap:ServiceAgreementsMember 2019-12-31 0001653558 prth:ResidualBuyoutsMember 2018-12-31 0001653558 us-gaap:TradeNamesMember 2018-12-31 0001653558 us-gaap:DevelopedTechnologyRightsMember 2019-12-31 0001653558 us-gaap:NoncompeteAgreementsMember 2018-12-31 0001653558 us-gaap:CustomerRelationshipsMember 2019-12-31 0001653558 prth:ISORelationshipsMember 2018-12-31 0001653558 prth:ConsumerPaymentsMember 2018-12-31 0001653558 prth:IntegratedPartnersMember 2018-12-31 0001653558 prth:IntegratedPartnersMember 2019-12-31 0001653558 prth:ConsumerPaymentsMember 2019-12-31 0001653558 srt:MinimumMember us-gaap:DevelopedTechnologyRightsMember 2019-01-01 2019-12-31 0001653558 srt:MinimumMember us-gaap:ServiceAgreementsMember 2019-01-01 2019-12-31 0001653558 srt:MaximumMember prth:ISORelationshipsMember 2019-01-01 2019-12-31 0001653558 srt:MinimumMember prth:ResidualBuyoutsMember 2019-01-01 2019-12-31 0001653558 srt:MaximumMember us-gaap:TradeNamesMember 2019-01-01 2019-12-31 0001653558 srt:MinimumMember prth:ISORelationshipsMember 2019-01-01 2019-12-31 0001653558 srt:MinimumMember us-gaap:TradeNamesMember 2019-01-01 2019-12-31 0001653558 srt:MaximumMember us-gaap:DevelopedTechnologyRightsMember 2019-01-01 2019-12-31 0001653558 srt:MaximumMember us-gaap:CustomerRelationshipsMember 2019-01-01 2019-12-31 0001653558 srt:MaximumMember us-gaap:ServiceAgreementsMember 2019-01-01 2019-12-31 0001653558 srt:MaximumMember prth:ResidualBuyoutsMember 2019-01-01 2019-12-31 0001653558 srt:MinimumMember us-gaap:CustomerRelationshipsMember 2019-01-01 2019-12-31 0001653558 us-gaap:LeaseholdImprovementsMember 2019-12-31 0001653558 us-gaap:SoftwareAndSoftwareDevelopmentCostsMember 2019-12-31 0001653558 us-gaap:SoftwareAndSoftwareDevelopmentCostsMember 2018-12-31 0001653558 us-gaap:EquipmentMember 2018-12-31 0001653558 us-gaap:FurnitureAndFixturesMember 2018-12-31 0001653558 us-gaap:EquipmentMember 2019-12-31 0001653558 us-gaap:LeaseholdImprovementsMember 2018-12-31 0001653558 us-gaap:FurnitureAndFixturesMember 2019-12-31 0001653558 srt:MinimumMember us-gaap:LeaseholdImprovementsMember 2019-01-01 2019-12-31 0001653558 srt:MaximumMember us-gaap:LeaseholdImprovementsMember 2019-01-01 2019-12-31 0001653558 srt:MaximumMember us-gaap:EquipmentMember 2019-01-01 2019-12-31 0001653558 srt:MinimumMember us-gaap:EquipmentMember 2019-01-01 2019-12-31 0001653558 srt:MaximumMember us-gaap:FurnitureAndFixturesMember 2019-01-01 2019-12-31 0001653558 srt:MinimumMember us-gaap:FurnitureAndFixturesMember 2019-01-01 2019-12-31 0001653558 us-gaap:RevolvingCreditFacilityMember prth:SyndicateOfLendersMember us-gaap:LineOfCreditMember us-gaap:BaseRateMember 2018-01-11 2018-01-11 0001653558 prth:TermLoanMember prth:GoldmanSachsSpecialtyLendingGroupMember us-gaap:LineOfCreditMember 2019-01-01 2019-12-31 0001653558 prth:GSWarrantsMember us-gaap:CommonClassAMember 2018-01-11 0001653558 us-gaap:RevolvingCreditFacilityMember prth:SyndicateOfLendersMember us-gaap:LineOfCreditMember 2018-01-11 2018-01-11 0001653558 us-gaap:RevolvingCreditFacilityMember prth:SyndicateOfLendersMember us-gaap:LineOfCreditMember 2019-12-31 0001653558 2017-01-03 0001653558 us-gaap:RevolvingCreditFacilityMember prth:SyndicateOfLendersMember us-gaap:LineOfCreditMember 2019-01-01 2019-12-31 0001653558 prth:TermLoanMember prth:SyndicateOfLendersMember us-gaap:LineOfCreditMember 2017-01-03 0001653558 prth:TermLoanMember prth:SyndicateOfLendersMember us-gaap:LineOfCreditMember us-gaap:BaseRateMember 2018-01-11 2018-01-11 0001653558 prth:GSWarrantsMember 2017-12-31 0001653558 prth:GSWarrantsMember us-gaap:CommonClassAMember 2017-01-02 0001653558 2017-11-14 0001653558 prth:GSWarrantsMember 2018-07-25 2018-07-25 0001653558 prth:TermLoanMember prth:GoldmanSachsSpecialtyLendingGroupMember us-gaap:LineOfCreditMember 2018-01-01 2018-12-31 0001653558 2017-01-03 2017-01-03 0001653558 us-gaap:RevolvingCreditFacilityMember prth:SyndicateOfLendersMember us-gaap:LineOfCreditMember us-gaap:LondonInterbankOfferedRateLIBORMember 2018-01-11 2018-01-11 0001653558 prth:GSWarrantsMember us-gaap:CommonClassAMember 2018-01-10 0001653558 us-gaap:RevolvingCreditFacilityMember prth:SyndicateOfLendersMember us-gaap:LineOfCreditMember 2017-01-03 0001653558 prth:TermLoanMember prth:SyndicateOfLendersMember us-gaap:LineOfCreditMember us-gaap:LondonInterbankOfferedRateLIBORMember 2018-01-11 2018-01-11 0001653558 prth:SubordinatedTermLoanMaturingJuly32023Member us-gaap:SubordinatedDebtMember 2019-12-31 0001653558 prth:SubordinatedTermLoanMaturingJuly32023Member us-gaap:SubordinatedDebtMember 2018-12-31 0001653558 prth:SyndicateOfLendersMember us-gaap:LineOfCreditMember 2017-01-03 0001653558 prth:SyndicateOfLendersMember us-gaap:LineOfCreditMember 2017-01-03 2017-01-03 0001653558 prth:TermLoanMember prth:GoldmanSachsSpecialtyLendingGroupMember us-gaap:LineOfCreditMember 2017-01-03 0001653558 prth:TermLoanMember prth:GoldmanSachsSpecialtyLendingGroupMember us-gaap:LineOfCreditMember 2019-12-31 0001653558 prth:TermLoanMember prth:SyndicateOfLendersMember us-gaap:LineOfCreditMember 2018-01-31 0001653558 prth:TermLoanMember prth:SyndicateOfLendersMember us-gaap:LineOfCreditMember 2018-12-31 0001653558 prth:TermLoanMember prth:SyndicateOfLendersMember us-gaap:LineOfCreditMember 2017-01-31 0001653558 prth:TermLoanMember prth:GoldmanSachsSpecialtyLendingGroupMember us-gaap:LineOfCreditMember 2017-01-31 0001653558 prth:TermLoanMember prth:SyndicateOfLendersMember us-gaap:LineOfCreditMember 2018-12-01 2018-12-31 0001653558 prth:TermLoanMember prth:SyndicateOfLendersMember us-gaap:LineOfCreditMember 2017-01-01 2017-01-31 0001653558 prth:TermLoanMember prth:SyndicateOfLendersMember us-gaap:LineOfCreditMember 2018-01-01 2018-01-31 0001653558 us-gaap:RevolvingCreditFacilityMember prth:SyndicateOfLendersMember us-gaap:LineOfCreditMember 2017-01-31 0001653558 prth:TermLoanMember prth:SyndicateOfLendersMember us-gaap:LineOfCreditMember 2017-01-01 2019-12-31 0001653558 prth:SeniorTermLoanMaturingJanuary32023Member us-gaap:SeniorNotesMember 2019-12-31 0001653558 prth:SeniorTermLoanMaturingJanuary32023Member us-gaap:SeniorNotesMember 2018-12-31 0001653558 us-gaap:LineOfCreditMember 2018-12-31 0001653558 us-gaap:LineOfCreditMember 2019-12-31 0001653558 prth:SubordinatedTermLoanMaturingJuly32023Member us-gaap:SubordinatedDebtMember prth:PaymentInKindInterestRateMember 2019-01-01 2019-12-31 0001653558 prth:SeniorTermLoanMaturingJanuary32023Member us-gaap:SeniorNotesMember us-gaap:LondonInterbankOfferedRateLIBORMember 2019-01-01 2019-12-31 0001653558 prth:SubordinatedTermLoanMaturingJuly32023Member us-gaap:SubordinatedDebtMember prth:PaymentInKindInterestRateMember 2018-01-01 2018-12-31 0001653558 prth:SeniorTermLoanMaturingJanuary32023Member us-gaap:SeniorNotesMember us-gaap:LondonInterbankOfferedRateLIBORMember 2018-01-01 2018-12-31 0001653558 srt:ScenarioForecastMember 2021-03-31 0001653558 srt:ScenarioForecastMember 2023-01-01 0001653558 srt:ScenarioForecastMember 2021-12-31 0001653558 srt:ScenarioForecastMember 2022-03-31 0001653558 srt:ScenarioForecastMember 2022-06-30 0001653558 srt:ScenarioForecastMember 2021-06-30 0001653558 srt:ScenarioForecastMember 2020-03-31 0001653558 srt:ScenarioForecastMember 2020-12-31 0001653558 srt:ScenarioForecastMember 2021-09-30 0001653558 srt:ScenarioForecastMember 2022-12-31 0001653558 2018-07-25 0001653558 us-gaap:DomesticCountryMember 2019-12-31 0001653558 us-gaap:StateAndLocalJurisdictionMember 2019-12-31 0001653558 us-gaap:DomesticCountryMember 2018-12-31 0001653558 us-gaap:StateAndLocalJurisdictionMember 2018-12-31 0001653558 srt:MaximumMember 2019-12-31 0001653558 srt:MinimumMember 2019-12-31 0001653558 prth:MembersOfPriorityHoldingsLLCMember 2019-12-31 0001653558 prth:MembersOfPriorityHoldingsLLCMember 2018-12-31 0001653558 prth:January1720182Member us-gaap:CommonClassAMember 2018-01-17 2018-01-17 0001653558 2018-08-31 0001653558 prth:TwoBusinessAcquisitionMember 2018-01-01 2018-12-31 0001653558 2018-07-25 2018-07-25 0001653558 prth:MIAcquisitionsFoundersMember prth:MIAcquisitionsMember 2018-07-25 2018-07-25 0001653558 prth:MIAcquisitionsWarrantsPublicMember 2018-08-31 0001653558 us-gaap:AdditionalPaidInCapitalMember 2018-07-25 2018-07-25 0001653558 us-gaap:CommonClassAMember 2017-04-01 2017-04-30 0001653558 prth:MIAcquisitionsFoundersMember prth:MIAcquisitionsMember 2018-01-01 2018-12-31 0001653558 prth:MIAcquisitionsPurchaseOptionsMember 2018-07-24 0001653558 prth:January1720181Member us-gaap:CommonClassAMember 2018-01-17 2018-01-17 0001653558 us-gaap:CommonClassAMember 2018-01-17 2018-01-17 0001653558 us-gaap:CommonClassAMember 2018-12-31 0001653558 us-gaap:CommonClassBMember 2017-12-31 0001653558 us-gaap:CommonClassAMember 2017-01-03 2017-01-03 0001653558 prth:MIAcquisitionsWarrantsMember 2018-07-24 0001653558 prth:MIAcquisitionsWarrantsPrivateMember 2018-07-24 0001653558 prth:MIAcquisitionsWarrantsPublicMember 2018-07-24 0001653558 srt:ParentCompanyMember 2018-01-01 2018-07-25 0001653558 prth:TwoBusinessAcquisitionMember 2018-07-25 2018-07-25 0001653558 prth:MIAcquisitionsWarrantsPrivateMember 2018-08-31 0001653558 prth:CommonStockholdersOfMIAcquisitionsMember prth:MIAcquisitionsMember 2018-01-01 2018-12-31 0001653558 prth:CommonStockholdersOfMIAcquisitionsMember prth:MIAcquisitionsMember 2018-07-25 2018-07-25 0001653558 prth:MIAcquisitionsMember 2018-01-01 2018-12-31 0001653558 2019-04-01 2019-06-30 0001653558 us-gaap:CommonClassAMember 2017-12-31 0001653558 prth:A2018EquityIncentivePlanMember 2018-07-25 2018-07-25 0001653558 us-gaap:CommonClassAMember 2018-01-19 2018-01-19 0001653558 us-gaap:CommonClassAMember 2018-02-23 2018-02-23 0001653558 prth:SellersOfPriorityMember prth:MIAcquisitionsMember 2018-01-01 2018-12-31 0001653558 us-gaap:CommonClassAMember 2017-01-31 0001653558 2016-01-01 2016-12-31 0001653558 prth:MIAcquisitionsPurchaseOptionsMember 2019-12-31 0001653558 prth:MIAcquisitionsWarrantsMember 2019-12-31 0001653558 prth:TheEarnoutIncentivePlanMember 2018-01-01 2018-12-31 0001653558 prth:TheEarnoutIncentivePlanMember 2019-01-01 2019-12-31 0001653558 prth:A2014ManagementIncentivePlanMember 2018-01-01 2018-12-31 0001653558 prth:A2018EquityIncentivePlanMember 2018-01-01 2018-12-31 0001653558 prth:A2014ManagementIncentivePlanMember 2017-01-01 2017-12-31 0001653558 prth:A2018EquityIncentivePlanMember 2017-01-01 2017-12-31 0001653558 prth:A2014ManagementIncentivePlanMember 2019-01-01 2019-12-31 0001653558 prth:TheEarnoutIncentivePlanMember 2017-01-01 2017-12-31 0001653558 prth:A2018EquityIncentivePlanMember 2019-01-01 2019-12-31 0001653558 prth:RestrictedStockUnitsRSUsServiceBasedMember prth:A2018EquityIncentivePlanMember 2019-12-01 2019-12-31 0001653558 prth:RestrictedStockUnitsRSUsPerformanceBasedWithMarketConditionMember prth:A2018EquityIncentivePlanMember 2018-12-01 2018-12-31 0001653558 prth:RestrictedStockUnitsRSUsServiceBasedMember prth:A2018EquityIncentivePlanMember 2018-12-01 2018-12-31 0001653558 prth:RestrictedStockUnitsRSUsPerformanceBasedWithMarketConditionMember prth:A2018EquityIncentivePlanMember 2019-10-01 2019-12-31 0001653558 prth:RestrictedStockUnitsRSUsServiceBasedMember prth:A2018EquityIncentivePlanMember 2019-12-31 0001653558 prth:PriorityHoldingsManagementIncentivePlanMember 2018-07-25 2018-07-25 0001653558 prth:PriorityHoldingsManagementIncentivePlanMember 2017-01-01 2017-12-31 0001653558 us-gaap:EmployeeStockOptionMember prth:A2018EquityIncentivePlanMember 2019-01-01 2019-12-31 0001653558 prth:RestrictedStockUnitsRSUsServiceBasedMember prth:A2018EquityIncentivePlanMember 2019-01-01 2019-12-31 0001653558 prth:A2018EquityIncentivePlanMember 2018-07-31 0001653558 prth:A2018EquityIncentivePlanMember us-gaap:ShareBasedCompensationAwardTrancheOneMember 2018-12-01 2018-12-31 0001653558 prth:A2018EquityIncentivePlanMember us-gaap:ShareBasedCompensationAwardTrancheThreeMember 2018-12-01 2018-12-31 0001653558 prth:PriorityHoldingsManagementIncentivePlanMember 2018-01-01 2018-12-31 0001653558 prth:PriorityHoldingsManagementIncentivePlanMember 2019-01-01 2019-12-31 0001653558 us-gaap:EmployeeStockOptionMember prth:A2018EquityIncentivePlanMember 2018-01-01 2018-12-31 0001653558 prth:A2018EquityIncentivePlanMember us-gaap:ShareBasedCompensationAwardTrancheTwoMember 2018-12-01 2018-12-31 0001653558 prth:A2018EquityIncentivePlanMember 2019-12-31 0001653558 us-gaap:RestrictedStockUnitsRSUMember prth:TheEarnoutIncentivePlanMember 2019-10-01 2019-12-31 0001653558 prth:RestrictedStockUnitsRSUsPerformanceBasedWithMarketConditionMember prth:A2018EquityIncentivePlanMember 2019-01-01 2019-12-31 0001653558 prth:RestrictedStockUnitsRSUsPerformanceBasedWithMarketConditionMember prth:A2018EquityIncentivePlanMember 2018-07-01 2018-09-30 0001653558 prth:RestrictedStockUnitsRSUsServiceBasedMember prth:A2018EquityIncentivePlanMember 2018-12-31 0001653558 prth:PriorityHoldingsManagementIncentivePlanMember 2019-12-31 0001653558 prth:A2018EquityIncentivePlanMember 2018-12-31 0001653558 prth:A2018EquityIncentivePlanMember 2017-12-31 0001653558 srt:ScenarioForecastMember prth:RestrictedStockUnitsRSUsServiceBasedMember prth:A2018EquityIncentivePlanMember 2020-01-01 2020-12-31 0001653558 prth:PriorityPaymentSystemsTechPartnersAndPriorityPaymentSystemsNortheastMember 2018-12-31 0001653558 prth:PriorityPaymentSystemsTechPartnersAndPriorityPaymentSystemsNortheastMember 2019-12-31 0001653558 prth:GSWarrantsMember 2018-07-24 0001653558 prth:ContingentConsiderationMember 2017-01-01 2018-12-31 0001653558 prth:ContingentConsiderationMember 2016-12-31 0001653558 us-gaap:WarrantMember 2017-01-01 2018-12-31 0001653558 prth:GS2.2WarrantsMember us-gaap:WarrantMember 2017-01-01 2018-12-31 0001653558 us-gaap:WarrantMember 2016-12-31 0001653558 prth:ContingentConsiderationMember 2019-01-01 2019-12-31 0001653558 us-gaap:WarrantMember 2019-01-01 2019-12-31 0001653558 prth:ContingentConsiderationMember 2019-12-31 0001653558 us-gaap:WarrantMember 2018-12-31 0001653558 prth:GS1.8WarrantsMember us-gaap:WarrantMember 2017-01-01 2018-12-31 0001653558 prth:ContingentConsiderationMember 2018-12-31 0001653558 us-gaap:WarrantMember 2019-12-31 0001653558 prth:GS2.2WarrantsMember us-gaap:WarrantMember 2018-07-25 0001653558 prth:GS1.8WarrantsMember us-gaap:WarrantMember 2018-07-25 0001653558 srt:RestatementAdjustmentMember us-gaap:AccountingStandardsUpdate201409Member prth:ConsumerPaymentsMember 2019-01-01 2019-12-31 0001653558 prth:ConsumerPaymentsMember 2019-01-01 2019-12-31 0001653558 prth:CommercialPaymentsAndManagedServicesMember 2019-01-01 2019-12-31 0001653558 srt:ScenarioPreviouslyReportedMember prth:ConsumerPaymentsMember 2019-01-01 2019-12-31 0001653558 srt:RestatementAdjustmentMember us-gaap:AccountingStandardsUpdate201409Member prth:IntegratedPartnersMember 2019-01-01 2019-12-31 0001653558 srt:ScenarioPreviouslyReportedMember prth:IntegratedPartnersMember 2019-01-01 2019-12-31 0001653558 srt:ScenarioPreviouslyReportedMember 2019-01-01 2019-12-31 0001653558 srt:RestatementAdjustmentMember us-gaap:AccountingStandardsUpdate201409Member 2019-01-01 2019-12-31 0001653558 prth:IntegratedPartnersMember 2019-01-01 2019-12-31 0001653558 srt:ScenarioPreviouslyReportedMember prth:CommercialPaymentsAndManagedServicesMember 2019-01-01 2019-12-31 0001653558 srt:RestatementAdjustmentMember us-gaap:AccountingStandardsUpdate201409Member prth:CommercialPaymentsAndManagedServicesMember 2019-01-01 2019-12-31 0001653558 us-gaap:OperatingSegmentsMember 2018-01-01 2018-12-31 0001653558 us-gaap:CorporateNonSegmentMember 2018-01-01 2018-12-31 0001653558 us-gaap:CorporateNonSegmentMember 2019-01-01 2019-12-31 0001653558 us-gaap:OperatingSegmentsMember 2019-01-01 2019-12-31 0001653558 us-gaap:CorporateNonSegmentMember 2017-01-01 2017-12-31 0001653558 us-gaap:OperatingSegmentsMember 2017-01-01 2017-12-31 0001653558 us-gaap:OperatingSegmentsMember prth:IntegratedPartnersMember 2018-12-31 0001653558 us-gaap:OperatingSegmentsMember prth:CommercialPaymentsAndManagedServicesMember 2018-12-31 0001653558 us-gaap:CorporateNonSegmentMember 2019-12-31 0001653558 us-gaap:OperatingSegmentsMember prth:ConsumerPaymentsMember 2018-12-31 0001653558 us-gaap:OperatingSegmentsMember prth:ConsumerPaymentsMember 2019-12-31 0001653558 us-gaap:CorporateNonSegmentMember 2018-12-31 0001653558 us-gaap:OperatingSegmentsMember prth:CommercialPaymentsAndManagedServicesMember 2019-12-31 0001653558 us-gaap:OperatingSegmentsMember prth:IntegratedPartnersMember 2019-12-31 0001653558 prth:CommercialPaymentsAndManagedServicesMember 2018-01-01 2018-12-31 0001653558 srt:ScenarioPreviouslyReportedMember prth:ConsumerPaymentsMember 2018-01-01 2018-12-31 0001653558 srt:RestatementAdjustmentMember prth:ConsumerPaymentsMember 2018-01-01 2018-12-31 0001653558 srt:RestatementAdjustmentMember prth:CommercialPaymentsAndManagedServicesMember 2018-01-01 2018-12-31 0001653558 srt:RestatementAdjustmentMember prth:ErrorCorrectionsRelatedToSettlementAndChargebacksRevenueMember 2018-01-01 2018-12-31 0001653558 srt:RestatementAdjustmentMember 2018-01-01 2018-12-31 0001653558 srt:RestatementAdjustmentMember prth:ErrorCorrectionsRelatedToSettlementAndChargebacksRevenueMember prth:CommercialPaymentsAndManagedServicesMember 2018-01-01 2018-12-31 0001653558 srt:ScenarioPreviouslyReportedMember prth:CommercialPaymentsAndManagedServicesMember 2018-01-01 2018-12-31 0001653558 srt:RestatementAdjustmentMember prth:ErrorCorrectionsRelatedToSettlementAndChargebacksRevenueMember prth:ConsumerPaymentsMember 2018-01-01 2018-12-31 0001653558 srt:ScenarioPreviouslyReportedMember prth:IntegratedPartnersMember 2018-01-01 2018-12-31 0001653558 srt:RestatementAdjustmentMember prth:ErrorCorrectionsRelatedToSettlementAndChargebacksRevenueMember prth:IntegratedPartnersMember 2018-01-01 2018-12-31 0001653558 prth:IntegratedPartnersMember 2018-01-01 2018-12-31 0001653558 prth:ConsumerPaymentsMember 2018-01-01 2018-12-31 0001653558 srt:RestatementAdjustmentMember prth:IntegratedPartnersMember 2018-01-01 2018-12-31 0001653558 us-gaap:OperatingSegmentsMember prth:ConsumerPaymentsMember 2018-01-01 2018-12-31 0001653558 us-gaap:CorporateNonSegmentMember 2019-01-01 2019-12-31 0001653558 us-gaap:OperatingSegmentsMember prth:ConsumerPaymentsMember 2019-01-01 2019-12-31 0001653558 us-gaap:OperatingSegmentsMember prth:ConsumerPaymentsMember 2017-01-01 2017-12-31 0001653558 us-gaap:OperatingSegmentsMember prth:CommercialPaymentsAndManagedServicesMember 2018-01-01 2018-12-31 0001653558 us-gaap:OperatingSegmentsMember prth:IntegratedPartnersMember 2017-01-01 2017-12-31 0001653558 us-gaap:OperatingSegmentsMember prth:CommercialPaymentsAndManagedServicesMember 2017-01-01 2017-12-31 0001653558 us-gaap:CorporateNonSegmentMember 2017-01-01 2017-12-31 0001653558 us-gaap:OperatingSegmentsMember prth:IntegratedPartnersMember 2019-01-01 2019-12-31 0001653558 us-gaap:OperatingSegmentsMember prth:IntegratedPartnersMember 2018-01-01 2018-12-31 0001653558 us-gaap:CorporateNonSegmentMember 2018-01-01 2018-12-31 0001653558 us-gaap:OperatingSegmentsMember prth:CommercialPaymentsAndManagedServicesMember 2019-01-01 2019-12-31 0001653558 prth:ConsumerPaymentsMember 2017-01-01 2017-12-31 0001653558 srt:ScenarioPreviouslyReportedMember prth:ConsumerPaymentsMember 2017-01-01 2017-12-31 0001653558 srt:RestatementAdjustmentMember prth:ErrorCorrectionsRelatedToSettlementAndChargebacksRevenueMember 2017-01-01 2017-12-31 0001653558 srt:RestatementAdjustmentMember prth:ErrorCorrectionsRelatedToSettlementAndChargebacksRevenueMember prth:CommercialPaymentsAndManagedServicesMember 2017-01-01 2017-12-31 0001653558 srt:RestatementAdjustmentMember prth:ErrorCorrectionsRelatedToSettlementAndChargebacksRevenueMember prth:ConsumerPaymentsMember 2017-01-01 2017-12-31 0001653558 srt:RestatementAdjustmentMember prth:CommercialPaymentsAndManagedServicesMember 2017-01-01 2017-12-31 0001653558 srt:RestatementAdjustmentMember prth:ConsumerPaymentsMember 2017-01-01 2017-12-31 0001653558 srt:RestatementAdjustmentMember 2017-01-01 2017-12-31 0001653558 srt:ScenarioPreviouslyReportedMember prth:CommercialPaymentsAndManagedServicesMember 2017-01-01 2017-12-31 0001653558 prth:CommercialPaymentsAndManagedServicesMember 2017-01-01 2017-12-31 0001653558 us-gaap:RestrictedStockUnitsRSUMember 2017-01-01 2017-12-31 0001653558 prth:EarnoutIncentiveAwardsSubjectToFutureIssuanceMember 2018-01-01 2018-12-31 0001653558 prth:EarnoutIncentiveAwardsMember 2019-01-01 2019-12-31 0001653558 prth:EarnoutIncentiveAwardsSubjectToFutureIssuanceMember 2017-01-01 2017-12-31 0001653558 prth:EarnoutIncentiveAwardsMember 2017-01-01 2017-12-31 0001653558 prth:EarnoutIncentiveAwardsMember 2018-01-01 2018-12-31 0001653558 prth:EarnoutIncentiveAwardsSubjectToFutureIssuanceMember 2019-01-01 2019-12-31 0001653558 us-gaap:WarrantMember 2018-01-01 2018-12-31 0001653558 us-gaap:WarrantMember 2017-01-01 2017-12-31 0001653558 us-gaap:RestrictedStockUnitsRSUMember 2018-01-01 2018-12-31 0001653558 us-gaap:WarrantMember 2019-01-01 2019-12-31 0001653558 us-gaap:StockOptionMember 2017-01-01 2017-12-31 0001653558 us-gaap:RestrictedStockUnitsRSUMember 2019-01-01 2019-12-31 0001653558 us-gaap:StockOptionMember 2018-01-01 2018-12-31 0001653558 us-gaap:StockOptionMember 2019-01-01 2019-12-31 0001653558 2019-01-01 2019-03-31 0001653558 2019-07-01 2019-09-30 0001653558 srt:RestatementAdjustmentMember us-gaap:AccountingStandardsUpdate201409Member 2019-07-01 2019-09-30 0001653558 srt:ScenarioPreviouslyReportedMember 2019-01-01 2019-03-31 0001653558 srt:ScenarioPreviouslyReportedMember 2019-04-01 2019-06-30 0001653558 srt:RestatementAdjustmentMember us-gaap:AccountingStandardsUpdate201409Member 2019-04-01 2019-06-30 0001653558 srt:RestatementAdjustmentMember us-gaap:AccountingStandardsUpdate201409Member 2019-10-01 2019-12-31 0001653558 srt:RestatementAdjustmentMember us-gaap:AccountingStandardsUpdate201409Member 2019-01-01 2019-03-31 0001653558 srt:ScenarioPreviouslyReportedMember 2019-10-01 2019-12-31 0001653558 srt:ScenarioPreviouslyReportedMember 2019-07-01 2019-09-30 0001653558 srt:RestatementAdjustmentMember prth:ErrorCorrectionsRelatedToSettlementAndChargebacksRevenueMember 2018-07-01 2018-09-30 0001653558 srt:RestatementAdjustmentMember prth:ErrorCorrectionsRelatedToSettlementAndChargebacksRevenueMember 2018-10-01 2018-12-31 0001653558 srt:RestatementAdjustmentMember us-gaap:AccountingStandardsUpdate201409Member 2018-04-01 2018-06-30 0001653558 srt:ScenarioPreviouslyReportedMember 2018-01-01 2018-03-31 0001653558 srt:RestatementAdjustmentMember us-gaap:AccountingStandardsUpdate201409Member 2018-10-01 2018-12-31 0001653558 2018-10-01 2018-12-31 0001653558 srt:ScenarioPreviouslyReportedMember 2018-04-01 2018-06-30 0001653558 2018-01-01 2018-03-31 0001653558 srt:RestatementAdjustmentMember us-gaap:AccountingStandardsUpdate201409Member 2018-01-01 2018-03-31 0001653558 srt:ScenarioPreviouslyReportedMember 2018-10-01 2018-12-31 0001653558 2018-07-01 2018-09-30 0001653558 srt:RestatementAdjustmentMember us-gaap:AccountingStandardsUpdate201409Member 2018-07-01 2018-09-30 0001653558 srt:RestatementAdjustmentMember prth:ErrorCorrectionsRelatedToSettlementAndChargebacksRevenueMember 2018-01-01 2018-03-31 0001653558 srt:ScenarioPreviouslyReportedMember 2018-07-01 2018-09-30 0001653558 srt:RestatementAdjustmentMember prth:ErrorCorrectionsRelatedToSettlementAndChargebacksRevenueMember 2018-04-01 2018-06-30 iso4217:USD xbrli:shares iso4217:USD xbrli:shares prth:error xbrli:pure prth:subsidiary prth:reporting_unit prth:segment prth:agreement prth:acquisition prth:vote prth:combinations

UNITED STATES
 SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K
 
      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2019
 
      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ____________ to __________     
             
Commission file number: 001-37872
Priority Technology Holdings, Inc.
(Exact name of registrant as specified in its charter)
Delaware
 
47-4257046
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
 
2001 Westside Parkway
 
 
Suite 155
 
 
Alpharetta,
Georgia
 
30004
(Address of principal executive offices)
 
 
(Zip Code)

Registrant's telephone number, including area code: (800) 935-5961

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading symbol
 
Name of each exchange on which registered
Common stock, $0.001 par value
 
PRTH
 
Nasdaq Global Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No

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 registrant 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" 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 June 28, 2019, the last business day of the registrant's most recently completed second fiscal quarter, the aggregate market value of the registrant's common stock held by non-affiliates of the registrant was approximately $54.0 million (based upon the closing sale price of the common stock on that date on The Nasdaq Capital Market).

As of March 26, 2020, 67,512,167 shares of common stock, par value $0.001 per share, were issued and 67,060,943 shares were outstanding.


DOCUMENTS INCORPORATED BY REFERENCE    

Portions of the definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A relating to the Annual Meeting of shareholders of Priority Technology Holdings, Inc., scheduled to be held on June 17, 2020, will be incorporated by reference in Part III of this Form 10-K. Priority Technology Holdings, Inc. intends to file such proxy statement with the Securities and Exchange Commission not later than 120 days after its fiscal year ended December 31, 2019.




  Priority Technology Holdings, Inc.
Annual Report on Form 10-K
For the Year Ended December 31, 2019
 
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 







Table of Contents

Cautionary Note Regarding Forward-Looking Statements
 
Some of the statements made in this Annual Report on Form 10-K 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- 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 Annual Report on Form 10-K include, but are not limited to, statements about:
 
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;
any proposed acquisitions or any risks associated with completed acquisitions; and
other risks and uncertainties set forth in the "Item 1A - Risk Factors" section of this Annual Report on Form 10-K.

We caution you that the foregoing list may not contain all of the forward-looking statements made in this Annual Report on Form 10-K.
 
The forward-looking statements contained in this Annual Report on Form 10-K 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 on page 19 of this 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 Annual Report on Form 10-K, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely upon these statements.
 
You should read this Annual Report on Form 10-K 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 the Annual Report on Form 10-K

As used in this Annual Report on Form 10-K, 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.

1

Table of Contents

PART I.


ITEM 1. BUSINESS


Basis of Presentation

On July 25, 2018, MI Acquisitions, Inc. ("MI Acquisitions"), which was formed under the laws of the State of Delaware on April 23, 2015, acquired all of the outstanding member equity interests of Priority Holdings, LLC in exchange for the issuance of MI Acquisitions' common stock. As a result, Priority Holdings, LLC, which was previously a privately-owned company, became a wholly-owned subsidiary of MI Acquisitions (the "Business Combination"). Simultaneously, MI Acquisitions changed its name to Priority Technology Holdings, Inc. For financial accounting and reporting purposes under generally accepted accounting principles in the United States ("GAAP"), the acquisition was accounted for as a "reverse merger." Under this method of accounting, MI Acquisitions is treated as the acquired entity whereby Priority Holdings, LLC was deemed to have issued common stock for the net assets and equity of MI Acquisitions accompanied by a simultaneous equity recapitalization of Priority Holdings, LLC. Net assets of the Company are stated at historical cost and accordingly the equity and net assets of the Company have not been adjusted to fair value. As of July 25, 2018, the consolidated financial statements of the Company include the combined operations, cash flows, and financial positions of both MI Acquisitions and Priority Holdings, LLC. Prior to July 25, 2018, the results of operations, cash flows, and financial position are those of Priority Holdings, LLC. The units and corresponding capital amounts and earnings per unit of Priority Holdings, LLC prior to July 25, 2018 have been retroactively revised as shares reflecting the exchange ratio established in the recapitalization.

 Overview of the Company
 
We are a leading provider of merchant acquiring and commercial payments solutions with a platform of microservices that activate and monetize vertically specialized merchant networks. We offer unique product capabilities to businesses, enterprises and distribution partners such as retail independent sales organizations ("ISOs"), financial institutions ("FIs"), wholesale ISOs, and independent software vendors ("ISVs") in the United States. The Company, then Priority Holdings, LLC, was founded in 2005 with a mission to build a merchant inspired payments platform that would advance the goals of our small and medium-size business clients ("SMBs"), enterprise clients, and distribution partners.

Since 2013, we have grown from the 38th largest U.S. merchant acquirer to become the 11th largest and the 5th largest non-bank merchant acquirer as of the end of 2019 according to the Nilson Report issued in March 2020. In 2019 and 2018, we processed over 513 million and 466 million transactions, respectively, and over $43.0 billion and $38.2 billion, respectively, in bankcard payment volume across approximately 203,000 and 181,000, respectively, merchants. Headquartered in Alpharetta, Georgia, we had 588 employees as of December 31, 2019 and are led by an experienced group of payments executives.
 
Our growth has been underpinned by three key strengths: (1) a cost-efficient, agile payment and business processing infrastructure, known internally as Vortex.Cloud and Vortex.OS, (2) two proprietary product platforms: the MX product line targeting the consumer payments market and the commercial payments exchange ("CPX") product line targeting the commercial payments market and (3) focused distribution engines dedicated to selling into business-to-consumer ("B2C") and commercial payments business-to-business ("B2B") payments markets.
 
The MX product line provides technology-enabled payment acceptance and business management capabilities to merchants, enterprises and our distribution partners. The MX product line includes: (1) our MX ISO/Agent and VIMAS reseller technology systems (collectively referred to as "MX Connect") and (2) our MX Merchant products, which together provide resellers and merchant clients, a flexible and customizable set of business applications that help better manage critical business work functions and revenue performance using core payment processing as our leverage point. MX Connect provides our consumer payments reselling partners with automated tools that support low friction merchant on-boarding, underwriting and risk management, client service, and commission processing through a single mobile-enabled, web-based interface. The result is a smooth merchant activation onto our flagship consumer payments offering, MX Merchant, which provides core processing and business solutions to SMB clients. In addition to payment processing, the MX Merchant product line encompasses a variety of proprietary and third-party product applications that merchants can adopt such as MX Insights, MX Storefront, MX Retail, MX Invoice, MX B2B and ACH.com, among others. This comprehensive suite of solutions enables merchants to identify key consumer trends in their business,

2

Table of Contents

quickly implement e-commerce or retail point-of-sale ("POS") solutions, and even handle automated clearing house ("ACH") payments. By empowering resellers to adopt a consultative selling approach and embedding our technology into the critical day-to-day workflows and operations of both merchants and resellers, we believe that we have established and maintained "sticky" relationships. We believe that our strong retention, coupled with consistent merchant boarding, have resulted in strong processing volume and revenue growth.
 
The CPX platform, like the MX product line, provides a complete solution suite designed to monetize all types of B2B payments by maximizing automation for buyers and suppliers. CPX supports virtual card, purchase card, electronic fund transfer, ACH and check payments, intelligently routing each transaction via the optimal payment method. Underlying our MX and CPX platforms is the Company's Vortex.Cloud and Vortex.OS enterprise infrastructure, a curated cloud and application programming interface ("API") driven operating system built for scale and agility.
 
We developed an entirely virtual computing infrastructure in 2012. This infrastructure, known as Vortex.Cloud, is a highly-available, redundant, and audited payment card industry ("PCI"), Health Insurance Portability and Accountability Act ("HIPAA"), NACHA, and Financial Stability Oversight Council (the "FSOC") computing platform with centralized security and technical operations. We strive to enable Vortex.Cloud to maintain greater than 99% uptime. All computational and IP assets of our operating companies are hosted and managed on Vortex.Cloud infrastructure. With Vortex.Cloud, we have constructed a uniform set of APIs, called Vortex.OS (operating system), that provide critical functionality to our payment divisions. The Vortex OS APIs provide electronic payments, security/crypto, data persistence, time series data (events), and artificial intelligence (AI). The MX and CPX product platforms leverage Vortex.OS and Vortex.Cloud for maximum scalability, high-availability, security, and access to advanced feature sets. The combined result is a purpose build infrastructure and product offering that produces solid organic growth and profit margin results. Furthermore, in addition to supporting a modern product stack, Vortex.Cloud and Vortex.OS enable the rapid inclusion of data and systems of acquisition targets for smooth consolidation to our operating infrastructure and accelerate achievement of revenue and cost synergies.

We sell our B2C merchant acquiring solutions primarily to SMBs through a growing and diverse reseller network, including ISOs, FIs, ISVs, Value-Added Resellers ("VARs") and other referral partners. We maintain stable, long-term relationships with our resellers, bolstered by the integration of MX Connect, a powerful customer relationship management ("CRM") and business operating system. MX Connect is used by our resellers and internal teams to manage their merchant base and accelerate the growth of their businesses through various value-added tools and resources which include marketing resources, automated onboarding, merchant underwriting, merchant activity monitoring and reporting. In addition, we offer ISVs and VARs a technology "agnostic" and feature rich API, providing developers with the ability to integrate electronic payment acceptance into their software and improve boarding efficiency for their merchant base. For the end user, MX Merchant provides a customizable, virtual terminal with proprietary business management tools and add-on applications that create an integrated merchant experience. MX Merchant's add-on applications include invoicing, website builder, inventory management and customer engagement and data analytics focused on targeted marketing among others. These proprietary business management tools and add-on applications, coupled with our omni-channel payment solutions, enable us to achieve attrition rates that, we believe, are well below industry average. MX Merchant can be deployed on hardware from a variety of vendors and operated either as a standalone product or integrated with third-party software. Through MX Merchant, we are well-positioned to capitalize on the trend towards integrated payments solutions, new technology adoption, and value-added service utilization in the SMB market. Our broad go-to-market strategy has resulted in a merchant base that is both industry and geographically diversified in the United States, resulting in low industry and merchant concentration.
 
In addition to our B2C offering, we have diversified our source of revenues through our growing presence in the B2B market. We work with enterprise clients and leading financial institutions seeking to automate their accounts payable processes. We provide curated managed services and a robust suite of integrated accounts payable automation solutions to industry leading financial institutions and card networks such as Citibank, MasterCard, Visa and American Express, among others. Unlike the consumer payments business which advocates a variable cost indirect sales strategy, Priority Commercial Payments supports a direct sales model that provides turnkey merchant development, product sales, and supplier enablement programs. CPX offers clients a seamless bridge for buyer to supplier (payor to provider) payments by integrating directly to a buyer's payment instruction file and parsing it for payment to suppliers via virtual card, purchase card, ACH +, dynamic discounting, or check. Successful implementation of our Accounts Payable ("AP") automation solutions provides suppliers with the benefits of cash acceleration, buyers with valuable rebate/discount revenue, and the Company with stable sources of payment processing and other revenue. Considering that the commercial payments volume in the United States is over twice the size of consumer payments and substantially less penetrated for electronic payments, we believe that this market represents a high growth opportunity for us.

3

Table of Contents


More recently, we began to build our Integrated Partners component which offers solutions for ISVs, third-party integrators, and merchants that allow for the leveraging of our core payments engine via application program interfaces ("APIs") resources. Integrated Partners connects businesses with other businesses and their customers in the real estate, hospitality, and health care marketplaces.

We generate revenue primarily from fees charged for processing payment transactions, and to a lesser extent, from monthly subscription services and other solutions provided to merchants. Processing fees are generated from the ongoing sales of our merchants under multi-year merchant contracts, and thus are highly recurring in nature. Due to the nature of our strong reseller-centric distribution model and differentiated technology offering, we can drive efficient scale and operating leverage, generating robust margins and profitability.
 
For the year ended December 31, 2019, we generated revenue of $371.9 million (which reflects the adoption of the new revenue recognition standard, ASC 606), a net loss of $33.6 million and Adjusted EBITDA (a non-GAAP measure) of $58.9 million, compared to revenue of $375.8 million (which reflects the retroactive adoption of the new revenue recognition standard, ASC 606), net loss of $17.8 million and Adjusted EBITDA of $49.4 million for the year ended December 31, 2018. For a discussion of Adjusted EBITDA and a reconciliation to net income (loss), the most directly comparable measure under GAAP, please see the section entitled "Item 7 - Management's Discussion and Analysis of Financial Conditions and Results of Operations—Certain Non-GAAP Measures" elsewhere in this Annual Report on Form 10-K.


Industry Overview
 
The B2C payment processing industry provides merchants with credit, debit, gift and loyalty card and other payment processing services, along with related value-added solutions and information services. The industry continues to grow, driven by wider merchant acceptance, increased consumer use of electronic payments and advances in payment technology. The proliferation of bankcards and use of other payment technologies has made the acceptance of electronic payments through multiple channels a virtual necessity for many businesses, regardless of size, to remain competitive. This increased use and acceptance of bankcards and the availability of more sophisticated products and services has resulted in a highly competitive and specialized industry.
 
Services to the SMB merchant market have been historically characterized by basic payment processing without ready access to more sophisticated technology, value-added solutions, or customer service that are typically offered to large merchants. To keep up with the changing demands of how consumers wish to pay for goods and services, we believe that SMB merchants increasingly recognize the need for value-added services wrapped around omni-channel payment solutions that are tailored to their specific business needs.
 
Key Industry Trends
 
The following are key trends we believe are impacting the merchant acquiring / payment processing industry:
 
Trend Toward Electronic Transactions. We believe the continued shift from cash/paper payments toward electronic / card payments will drive growth for merchant acquirers and processors as volume continues to grow correspondingly. We believe the continued migration from cash to card and overall market growth will continue to provide tailwinds to the electronic payments industry.

Increasing Demand for Integrated Payments. Merchant acquirers are increasingly differentiating themselves from competitors via innovative technology, including integrated POS solutions ("integrated payments"). Integrated payments refer to the integration of payment processing with various software solutions and applications that are sold by VARs and ISVs. Integrated software tools help merchants manage their businesses, streamline processes, lower costs, increase accuracy, and drive growth for businesses. The broader solutions delivered as part of an integrated payments platform have become an increasingly important consideration point for many SMBs, whereas pricing was historically the key factor influencing the selection of a merchant acquirer. Merchant acquirers that partner with VARs and ISVs to integrate payments with software or own the software outright may benefit most from new revenue streams and higher merchant retention.


4

Table of Contents

Mobile Payments. Historically, e-commerce was conducted on a computer via a web browser; however, as mobile technologies continue to proliferate, consumers are making more purchases through mobile browsers and native mobile applications. We believe this shift represents a significant opportunity given the high growth rates of mobile payments volume, higher fees for card-not-present and cross-border processing and potential for the in-app economy to stimulate and/or alter consumer spending behavior.

Migration to EMV. EMV, which stands for Europay, MasterCard and Visa, is the global payments standard that utilizes chip technology on cards designed to increase security. EMV technology employs dynamic authentication for each transaction, rendering any data copied from magnetic strip readers to produce counterfeit cards unusable. Demand for EMV ready terminals should remain resilient in the near term due to the following:

The United States was one of the last countries to adopt EMV technology, leaving a large group of merchants still transitioning to the EMV standards; and

U.S. merchants are penalized for failing to comply with EMV standards by bearing the chargeback risk when presented with an EMV enabled card when the terminal is non-compliant.

The large majority of our third-party products are EMV enabled, and we expect that most new hardware sales will be EMV enabled devices, although all hardware sales constitute only a small portion of our total revenue.
 
B2B payments is the largest payment market in the United States by volume and presents a significant opportunity for payment providers to capitalize on the conversion of check and paper-based payments to electronic payments, including card-based acceptance. As businesses have increasingly looked to improve efficiency and reduce costs, the electronification of B2B payments has gained momentum.

 
Electronics Payments Overview
 
The payment processing and services industry provides the infrastructure and services necessary to enable the acceptance, processing, clearing and settlement of electronic payments predominantly consisting of credit card, debit card, ACH payments, gift cards and loyalty rewards programs. Characterized by recurring revenues, high operating leverage, and robust cash flow generation, the industry continues to benefit from the mass migration from cash and checks to electronic payments.
 
There are five key participants in the payment processing value chain: (i) card issuing banks, (ii) merchant acquirers, (iii) payment networks, (iv) merchant processors and (v) sponsor banks. Each of these participants performs key functions in the electronic payments process, while other entities, such as terminal manufacturers, gateway providers and independent sales organizations also play important functions within the value chain.
 
Card Issuing Banks – Typically financial institutions that issue credit/debit cards to consumers (also underwrite the risk associated the cards), authorize (check for fraud and sufficient funds) transactions and transfer funds through the payment networks for settlement. Some card issuers do not have the ability to process transactions in-house, in which case the issuer may engage a card processor.

Merchant Acquirers – Firms that sign up merchants to their platform through a variety of sales channels, enabling them to accept, process and settle electronic payments. Additionally, merchant acquirers provide other value-added services to help merchants run their businesses more efficiently, such as helping to select POS hardware and providing customer support and services.

Payment Networks – Card brand companies, such as MasterCard or Visa, that set rules and provide the rails to route transactions and information between card issuers, merchant acquirers and payments processors in real-time over vast communication networks.

Merchant Processors – Firms that provide the technology needed to allow for payment authorization, data transmission, data security and settlement functions. Oftentimes the term merchant acquirer and processor are used synonymously; however, they perform two distinct functions (sometimes provided by the same entity).

5

Table of Contents


Sponsor Banks – Financial Institutions that are acquiring members of Visa and MasterCard and provide sponsorship access to acquirers and processors to the card networks. Sponsor banks provide merchants the ultimate access to the card networks for their processing activity.
 
The industry also includes other third-party providers, including service, software and hardware companies that provide products and services designed to improve the experience for issuers, merchants and merchant acquirers. This category includes mobile payment enablers, terminal manufacturers, and ISV's.
 
Each electronic payment transaction consists of two key steps: the front-end authorization and back end settlement.

Front End Authorization – The original request for payment authorization that occurs when the card is swiped or inserted at the POS or the data is entered into an online gateway.

Back End Settlement – The settlement and clearing process consists of settling outstanding payables and receivables between the card issuing bank & merchant bank. This process is facilitated by a back-end processor that utilizes the network's platform to send outstanding payable information and funds between the two parties.

A credit or debit card transaction carried out offline or through signature debit is a two-message process, with the front end occurring at the POS and the back end occurring later as a part of a batch processing system that clears all of the day's payments from transaction occurring throughout the day. Credit and debit card transactions carried out with personal identification numbers consist of a single message, whereby the authorization and clearing occur immediately – the money is instantly debited from the cardholder's checking account, although the settlement of funds (the transfer to the merchant's account) may happen later as part of a batch process.
 
illustrativeconsumerpaym08.gif 







6

Table of Contents

Competitive Strengths
 
We possess certain attributes that we believe differentiate us as a leading provider of merchant acquiring and commercial payment solutions in the United States. Our key competitive strengths include:
 
Purpose-Built Proprietary Technology
 
We have strategically built our proprietary software to provide technology-enabled payment acceptance and business management solutions to merchants, enterprises and resellers. The MX product line is embedded into the critical day-to-day workflows and operations of both merchants and resellers, leading to highly "sticky" relationships and high retention. CPX provides a complete commercial solution suite that monetizes commercial payments and maximizes automation for buyers and suppliers. By integrating with Vortex.Cloud and Vortex.OS, MX and CPX can scale in a cost-effective and efficient manner, while enhancing features and functionality. Both product lines also support low friction merchant onboarding and an integrated value-added product offering for merchants, resellers and ISVs in the consumer and commercial payment space. Furthermore, in addition to supporting a modern user experience, Vortex.Cloud enables the rapid inclusion of data and systems of acquisition targets for smooth consolidation to our operating infrastructure and accelerates achievement of revenue and of cost synergies.

Diverse Reseller Community
 
We maintain strong reseller relationships with approximately 1,300 ISOs, FIs, ISVs, VARs and other referral partners. MX Connect enables resellers to efficiently market merchant acquiring solutions to a broad base of merchants through this one-to-many distribution model. Resellers leverage MX Connect's powerful CRM and business operating features to manage their internal sales teams and engage their merchant base through various value-added tools and resources, such as marketing resources, automated onboarding, merchant underwriting, merchant activity monitoring and reporting, to support the growth of their businesses. We believe that our ability to service our reseller partners through a comprehensive offering provides a competitive advantage that has allowed the company to build a large, diverse merchant base characterized by high retention. The strength of our technology offering is manifest in the fact that we maintain ownership of merchant contracts, with most reseller contracts including strong non-solicit and portability restrictions.
 
Comprehensive Suite of Payment Solutions
 
MX Merchant offers a comprehensive and differentiated suite of traditional and emerging payment products and services that enables SMBs to address their payment needs through one provider. We provide a payment processing platform that allows merchants to accept electronic payments (e.g. credit cards, debit cards, and ACH) at the point of sale ("POS"), online, and via mobile payment technologies. In addition, through MX Merchant, we deliver innovative business management products and add-on features that meet the needs of SMBs across different vertical markets. Through our MX Merchant platform, we believe we are well-positioned to capitalize on the trend towards integrated payments solutions, new technology adoption and value-add service utilization that is underway in the SMB market. We believe our solutions facilitate a superior merchant experience that results in increased customer lifetime value.
 
Highly Scalable Business Model with Operating Leverage
 
As a result of thoughtful investments in our technology, we have developed robust and differentiated infrastructure that has enabled us to scale in a cost-efficient manner. Our purpose-built proprietary technology platforms, MX and CPX, each serve a unique purpose within consumer and commercial payments, enabling the company to realize significant operating leverage within each business segment. Furthermore, the agility of our Vortex.Cloud and Vortex.OS enterprise infrastructure enables us to quickly and cost efficiently consolidate acquisitions to drive revenue and cost synergies. Our operating efficiency supports a low capital expenditure environment to develop product enhancements that drive organic growth across our consumer and commercial payment ecosystems and attract both reselling partners and enterprise clients looking for best-in-class solutions. By creating a cost-efficient environment that facilitates the combination of ongoing product innovation to drive organic growth and stable cash flow to fund acquisitions, we anticipate ongoing economies of scale and increased margins over time.
 




7

Table of Contents

Experienced Management Team Led by Industry Veterans
 
Our executive management team has a record of execution in the merchant acquiring and technology-enabled payments industry. Our team has continued to develop and enhance our proprietary and innovative technology platforms that differentiate us with merchants and resellers in the industry. Since founding the Company, our leadership team has built strong, long-term relationships with reseller and enterprise partners by leveraging the MX and CPX product platforms to meet the needs of businesses in specific vertical markets. We invest to attract and retain executive leadership that align with the opportunities in the market and our strategic focus.


Growth Strategies
 
We intend to continue to execute a multi-pronged growth strategy, with diverse organic initiatives supplemented by acquisitions. Growth strategies include:
 
Organic Growth in our Consumer Reseller and Merchant Base
 
We expect to grow through our existing reseller network and merchant base, capitalizing on the inherent growth of existing merchant volume and reseller merchant portfolios. By providing resellers with agile tools to manage their sales businesses and grow their merchant portfolio, we have established a solid base from which to generate new merchant adoption and retain existing merchants. By engaging in a consultative partnership approach, we maintain strong relationships with our reseller partners and continues to exhibit strong merchant adoption and volume growth trends. Through our resellers, we provide merchants with full-service acquiring solutions, as well as value-added services and tools to streamline their business processes and enables them to focus on driving same store sales growth.
 
Expand our Network of Distribution Partners
 
We have established and maintain a strong position within the reseller community, with approximately 1,300 partners. We intend to continue to expand our distribution network to reach new partners, particularly with ISVs and VARs to expand technology and integrated partnerships. We believe that our MX Connect technology offering enables us to attract, and retain, high quality resellers focused on growth.
 
Increase Margin per Merchant with Complementary Products and Services
 
We intend to drive the adoption of our value-added services and tools with our merchant base. MX Merchant allows merchants to add proprietary Priority applications as well as other third-party applications from the MX Merchant Marketplace to build customized payment solutions that are tailored to a merchant's business needs. As we continue to board new merchants and promote our MX Merchant solution, we can cross-sell these add-on applications. By increasing attachment rates, along with continued benefit from economies of scale, we expect to see improved margins per merchant. Merchants utilizing MX Merchant exhibit somewhat higher retention, contributing to our improving overall retention rates. We believe we are well-positioned to capitalize on the secular trend towards integrated payments solutions, new technology adoption and value-add service utilization in the SMB market.
 
Deploy Industry Specific Payment Technology
 
We intend to continue to enhance and deploy our technology-enabled payment solutions in attractive industries. Through MX Merchant, we have developed proprietary applications and added third-party tools that address the specific needs of merchants in certain verticals, including retail, health care and hospitality. We continue to identify and evaluate new and attractive industries where we can deliver differentiated technology-enabled payment solutions that meet merchants' industry-specific needs.
 
Expand Electronic Payments Share of B2B Transactions with CPX
 
We have a growing presence in the commercial payments market where we provide curated managed services and AP automation solutions to industry leading financial institutions and card networks such as Citibank, MasterCard, Visa and American Express. The Commercial payments market is the largest and one of the fastest growing payments market in the United States by volume.

8

Table of Contents

We are well positioned to capitalize on the secular shift from check to electronic payments, which currently lags the consumer payments markets, by eliminating the friction between buyers and suppliers through our industry leading offering, and driving strong growth and profitability.
 
Accretive Acquisitions
 
We intend to selectively pursue strategic and tactical acquisitions that meet certain criteria, with a consistent long-term goal of maximizing stockholder value. We actively seek potential acquisition candidates that exhibit certain attractive attributes including, predictable and recurring revenue, scalable operating model, low capital intensity complementary technology offerings and strong cultural fit. Our Vortex.Cloud operating infrastructure is purpose-built to rapidly and seamlessly consolidate complementary businesses into our ecosystem, optimizing revenue and cost synergies.


Technology Infrastructure and Product Solutions
 
Infrastructure
 
Vortex.Cloud
 
Vortex.Cloud is a highly-available, redundant, and audited (PCI, HIPAA, NACHA, and FSOC) computing platform with centralized security and technical operations. We strive to enable Vortex.Cloud to maintain 99.999% uptime. All computational and IP assets of our payment operating divisions are hosted and managed on Vortex.Cloud infrastructure. Vortex.Cloud enables the rapid inclusion of data and systems of acquisition targets for smooth consolidation to our operating infrastructure and accelerates achievement of revenue and cost synergies.
 
Vortex.OS
 
Vortex.OS provides critical technological functionality to our payment operating divisions. The Vortex.OS APIs include: electronic payments, security/crypto, data persistence, time series data (events), and artificial intelligence (AI). Our purpose-built payments engine facilitates industry leading organic growth and efficient consolidation of acquisitions resulting in strong profit margins.
 

























9

Table of Contents

Consumer Payments Offering
consumerpaymentsofferinga07.gif
 
 
Reseller Tools
 
MX Connect
 
Our objective is to empower our resellers to grow their businesses and improve their merchant portfolios. To do so, we provide our resellers with a feature rich API architecture, powerful merchant relationship management tools, and thought leadership resources. MX Connect provides dynamic portfolio management giving resellers total control over their financial data along with convenient low friction merchant onboarding, automated underwriting, and robust portfolio reporting and compensation tracking.

In addition, we offer our resellers thought leadership resources to support their growth and educate their employees. Priority University ("PriorityU") includes proprietary white papers on Apple Pay, EMV, regulations & compliance, and other industry topics. PriorityU also includes a comprehensive set of marketing and training tools that re-sellers can leverage to train their employees and tactfully engage merchants. In addition to the written and video-based tools on our website, we maintain a live reseller support phone line to provide resellers with real time assistance.
 
Finally, we offer our resellers Brand Licensing and Wholesale Development Programs which allow resellers to leverage the strength of the Priority brand for immediate and meaningful marketing impact.
 
Merchant Products
 
Our core payment processing technology allows merchants to accept electronic payments via multiple integrated POS technologies. However, our payment processing platform goes beyond traditional electronic payments acceptance with a fully integrated platform called MX Merchant. Our proprietary product maximizes the lifetime value of merchant relationships.
 





10

Table of Contents

MX Merchant
 
Our flagship offering, MX Merchant, is a customizable payments platform that allows merchants to accept electronic payments and manage their business. Merchants can accept credit cards, debit cards, and cash using a virtual terminal, monitor payment activity in real-time, manage payment history and customer data, and create customizable reports and statements. MX Merchant is a proprietary software platform and virtual terminal that can be deployed on hardware from a variety of vendors and operated on a standalone basis or integrated with 3rd party software products.
 
The MX Merchant platform also allows customers to add applications from the MX Merchant Marketplace to build a payment platform customized to that merchant's business, including:
 
MX Invoice – Invoice and recurring billing app which speeds up the payment process and creates automatic, trustworthy, and easy to use invoices.

MX Retail – Inventory and stock control app utilizing both MX Merchant and MX Retail applications to handle all point-of-sale needs, rewards program and inventory management with an iPhone application.

MX B2B – Ensures merchants receive lower rates for Level II / III processing by setting up user level permissions based on job function.

MX Insights – Customer engagement and data analytics tool focused on marketing campaigns with intelligent customer targeting through use of big data.

MX Storefront – Allows merchants to quickly and easily create a professional, comprehensive, entirely customizable website, complete with full payment integration.

MX Medical – Delivers patient payment estimates at the POS of a medical practice. The tool informs patients of their payment responsibility and presents the patient with a range of payment options. Once the patient leaves the medical practice, notifications and messaging are pushed to the patient's mobile device alerting them to future payments.

ACH.com – Integrated ACH payment processing platform.

We offer several third-party products and services to our merchants including:

ControlScan – On demand tools merchants can utilize to analyze, remediate, and validate PCI compliance.

e-Tab – Provides a mobile restaurant / hospitality ordering and payment platform. We acquired the e-Tab business assets in February 2019.

Terminals – we offer several EMV ready terminals and mobile card readers from manufacturers such as Ingenico, Verifone, and Magtek.

Merchant Financing – we are a reseller of several merchant financing solutions provided by American Express.


Commercial Payments Offering: Managed Services and CPX
 
We provide curated managed services and AP automation solutions (CPX) on behalf of industry leading financial institutions and card networks such as Citibank, MasterCard, Visa and American Express ("AMEX"). Our turnkey merchant development, business process outsourcing and refined supplier enablement program, allow commercial partners to leverage our long-standing customer relationships. Established in 2008, our commercial payments offering has allowed us to profit from the large and growing commercial payments market. Priority CPX offers solutions to key pain points such as scalability of expanding supplier onboarding while decreasing costs through automation. Successful implementation of our AP automation strategies provides vendors with the benefits of cash acceleration, buyers with valuable rebate/discount revenue, and the Company with stable sources of merchant acquiring, credit card interchange and discount fee revenue.

11

Table of Contents

 
Managed Services
 
We provide business process outsourcing services to AMEX that offer AMEX's merchants access to several programs, including AMEX Buyer Initiated Payments ("BIP") and AMEX Merchant Financing loans. Acting as an outsourced sales force, we utilize approximately 160 employees to originate BIP or Merchant Financing loans for AMEX, earning a fee for each origination. Additionally, AMEX compensates us for personnel fees incurred for the employees who sell these outsourced services. We do not take any credit risk associated with the aforementioned programs.
 
CPX
 
cpxa07.gif
 
Priority CPX is a turnkey commercial payments platform that automates the AP payment process between buyers and suppliers to maximize financial rebates and ensure timely, automated payment of vendor payments.
 
CPX Access - Interactive portals connecting Buyers and Suppliers to promote the payment and data exchange between partners.

CPX Gateway - Seamless integration with enterprise resource planning systems that produce a single payment file for the entire CPX solutions suite.

CPX Commercial Acceptance - Optimize payment programs with a full suite of targeted solutions and powerful outreach campaign management and automated electronic quick-start application.

CPX Payments - Leveraging a complete suite of traditional and transitional payment solutions to completely automate AP files.

Sales and Distribution
 
We reach our consumer payment merchants through three primary sales channels: 1) Retail ISOs/Agents and Financial Institutions, 2) Wholesale ISOs, and 3) Independent Software Vendors and Value-Added Resellers. MX Connect allows resellers to engage merchants for processing services and a host of value-added features designed to enhance their customer relationship. Merchants utilize our diverse product suite to manage their business, increasing our ability to retain the merchant if the ISO were to leave the Company.
 
Retail ISOs/Agents and Financial Institutions (i.e. community banks) – A non-risk bearing independent group of sales agents, individual sales agents, or financial institutions (mostly community banks) that operates as a sales force on behalf

12

Table of Contents

of the Company. Retail resellers are not employed by us but rather are independently contracted to acquire merchants to utilize our payment processing and product offerings. While the reseller serves as the merchant's key contact, the processing contract is between us and the merchant and agreements with resellers include non-solicitation rights. We manage the transaction risk on behalf of retail resellers.

Wholesale ISO – A risk bearing independent group of sales agents operating as a sales force on behalf of the Company. Wholesale ISOs are not employed by us but rather are independently contracted to acquire merchants to utilize our payment processing and product offerings. While the ISO serves as the merchant's key contact, the processing contract is between us and the merchant, and agreements with ISOs include non-solicitation rights. Wholesale ISOs are responsible and bear all transaction risk on their merchant portfolios. We underwrite all such merchants even though wholesale ISOs bear the risk.

ISVs and VARs - ISVs develop and sell business management software solutions while VARs sell third-party software solutions to merchants as part of a bundled package that includes the computer systems which operates the software. We partner with ISVs and VARs that can integrate our capabilities into a variety of software applications (e.g. medical billing software). These integrated payment solutions create an extremely "sticky" customer relationship.
 
Priority Commercial Payments obtains its "buyer" clients through direct sales initiative and referral and business partnerships with integrated software partners, the card networks (MasterCard, Visa, American Express) and large US banking institutions. We support a direct vendor sales model that provides turnkey merchant development, product sales, and supplier enablement programs. By establishing a seamless bridge for buyer-to-supplier (payor-to-provider) payments that is integrated directly to a buyer's payment instruction file to facilitate payments to vendors via all payment types (virtual card, purchase card, ACH +, dynamic discounting), we have established ourselves as an emerging force in commercial payments.
 
Our market strategy has resulted in a merchant base that we believe is diversified across both industries and geographies resulting in, what we believe, is more stable average profitability per merchant. No single reseller relationship contributes more than 10% of total bankcard processing volume.

Security, Disaster Recovery and Back-up Systems
 
As a result of normal business operations, we store information relating to our merchants and their transactions. Because this information is considered sensitive in nature, we maintain a high level of security to attempt to protect it. Our computational systems are continually updated and audited to the latest security standards as defined by payment card industry and data security standards ("PCI DSS"), FSOC, and HIPAA audits. As such, we have a dedicated team responsible for security incident response. This team develops, maintains, tests and verifies our incident response plan. The primary function of this team is to react and respond to intrusions, denial of service, data leakage, malware, vandalism, and many other events that could potentially jeopardize data availability, integrity, and confidentiality. This team is responsible for investigating and reporting on all malicious activity in and around our information systems. In addition to handling security incidents, the incident response team continually educates themselves and us on information security matters.
 
High-availability and disaster recovery are provided through a combination of redundant hardware and software running at two geographically distinct data centers. Each data center deployment is an exact mirror of the other and each can handle all technical, payment, and business operations for all product lines independently of the other. If one site or service becomes impaired, the traffic is redirected to the other automatically. Business Continuity Planning drills are run each quarter to test fail-over and recovery as well as staff operations and readiness.
 
Third-Party Processors and Sponsor Banks
 
We partner with various vendors in the payments value chain to assist us in providing payment processing services to merchant clients, most notably processors and sponsor banks, which sit between us (the merchant acquirer) and the card networks. Processing is a scale driven business in which many acquirers outsource the processing function to a small number of large processors. In these partnerships, we serve as a merchant acquirer and enter into processing agreements with payment processors, such as First Data or TSYS, to assist us in providing front-end and back-end transaction processing services for our merchants. These third parties are compensated for their services. These processors in turn have agreements with card networks such as Visa and MasterCard, through which the transaction information is routed in exchange for network fees.

13

Table of Contents

 
To provide processing services, acquirers like Priority we must be registered with the card networks (e.g. Visa and MasterCard). To register with a card network in the United States, acquirers must maintain relationships with banks willing to sponsor the acquirer's adherence to the rules and standards of the card networks, or a sponsor bank. We maintain sponsor bank relationships with Citizens Bank, Wells Fargo, Synovus Bank, Pueblo Bank, Sutton Bank, and Axiom Bank. For ACH payments, the Company's ACH network (ACH.com) is sponsored by Atlantic Capital Bank and Fifth Third Bank. Sponsor bank relationships enable us to route transactions under the sponsor bank's control and identification number (referred to as a BIN for Visa and ICA for MasterCard) across the card networks (or ACH network) to authorize and clear transactions.
 
Risk Management
 
Our thoughtful merchant and reseller underwriting policies combined with our forward-looking transaction management capabilities have enabled us to maintain low credit loss performance. Our risk management strategies are informed by a team with decades of experience managing merchant acquiring risk operations that are augmented by our modern systems designed to manage risk at the transaction level.
 
Initial Underwriting- Central to our risk management process is our front-line underwriting policies that vet all resellers and merchants prior to their contracting with us. Our automated risk systems pull credit bureau reports, corporate ownership details, as well as anti-money laundering, Office of Foreign Assets Control ("OFAC") and Financial Crimes Enforcement Network ("FinCEN") information from a variety of integrated data bases. This information is put into the hands of a tenured team of underwriters who conduct any necessary industry checks, financial performance analysis or owner background checks, consistent with our policies. Based upon these results the underwriting department rejects or approves and sets appropriate merchant and reseller reserve requirements which are held by our bank sponsors on our behalf. Resellers are subject to quarterly and/or annual assessments for financial strength compliance with our policies and adjustments to reserve levels. The results of our initial merchant underwriting inform the transaction level risk limits for volume, average ticket, transaction types and authorization codes among other items that are captured by our CYRIS risk module—a proprietary risk system that monitors and reports transaction risk activity to our risk team. This transaction level risk module, housed within MX Connect, forms the foundational risk management framework that enables the company to optimize transaction activity and processing scale while preserving a modest aggregate risk profile that has resulted in historically low losses.
 
Real-Time Risk Monitoring- Merchant transactions are monitored on a transactional basis to proactively enforce risk controls. Our risk systems provide automated evaluation of merchant transaction activity against initial underwriting settings. Transactions that are outside underwriting parameters are queued for further investigation. Also, resellers whose merchant portfolio represents a concentration of investigated merchants are evaluated for risk action (i.e., increased reserves or contract termination).
 
Risk Audit- Transactions flagged by our risk monitoring systems or that demonstrate suspicious activity traits that have been flagged for review can result in funds being held and other risk mitigation actions. These can include non- authorization of the transaction, debit of reserves or even termination of processing agreement. Merchants are periodically reviewed to assess any risk adjustments based upon their overall financial health and compliance with Network standards. Merchant transaction activity is investigated for instances of business activity changes or credit impairment (and improvement).
 
Loss Mitigation- In instances where particular transactions and/or individual merchants are flagged for fraud, where transaction activity is resulting in excessive chargebacks, several loss mitigation actions may be taken. These include charge-back dispute resolution, merchant and reseller funds (reserves or processed batches) withheld, inclusion on Network Match List to notify the industry of a "bad actor", and even legal action.
 
 
Acquisitions of Businesses
 
For information regarding our business and asset acquisitions, see Note 4, Business Combinations, Asset Acquisitions and Asset Contributions, to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
 




14

Table of Contents

Competition
 
The U.S. acquiring industry is highly competitive, with several large processors accounting for the majority of processing volume; when excluding banks, we ranked 5th among U.S. merchant acquiring as of 2019, according to the 2019 Nilson Report issued in March 2020. When comparing top non-bank U.S. merchant acquirers by volume, FIS (which now includes Worldpay) held the leadership position at the end of 2019 followed by Global Payments (which now includes TSYS), and Fiserv (which now includes First Data).
 
The concentration at the top of the industry partly reflects consolidation; however, we believe that consolidation has also resulted in many large processors having multiple, inflexible legacy IT systems that are not well equipped to adjust to changing market requirements. We believe that the large merchant acquirers whose innovation has been hindered by these redundant, legacy systems risk losing market share to acquirers with more agile and dynamic IT systems, such as Priority.

Pricing has historically been the key factor influencing the selection of a merchant acquirer. However, providers with more advanced tech-enabled services (primarily online and integrated offerings) have an advantage over providers operating legacy technology and offering undifferentiated services that have come under pricing pressure from higher levels of competition. High quality customer service further differentiates providers as this helps to reduce attrition. Other competitive factors that set acquirers apart include price, partnerships with financial institutions, servicing capability, data security and functionality. Leading acquirers are expected to continue to add additional services to expand cross-selling opportunities, primarily in omni-channel payment solutions, POS software, payments security, customer loyalty and other payments-related offerings.
 
The largest opportunity for acquirers to expand is within the small to medium-sized merchant market. According to the SMB Group, a markets insight firm for small and medium-sized businesses, the majority of small and medium-sized businesses recognize the upside tech-enabled solutions provide to daily operations and long-term growth potential. As small businesses increasingly demand integrated solutions tailored to specific business functions or industries merchant processors are adopting payment enabled software offerings that combine payments with core business operating software. By subsisting within SMB's critical business software processors are able to improve economic results through better merchant retention and often higher processing margins. Through our MX Merchant platform, we are well-positioned to capitalize on the trend towards integrated solutions, new technology adoption and value added-service utilization in the SMB market.
 

Government Regulation and Payment Network Rules
 
We operate in an increasingly complex legal and regulatory environment. We are subject to a variety of federal, state and local laws and regulations and the rules and standards of the payment networks that are utilized to provide our electronic payment services, as more fully described below.
 
Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act")
 
The Dodd-Frank Act of 2010 resulted in significant structural and other changes to the regulation of the financial services industry. The Dodd-Frank Act directed the Board of Governors of the Federal Reserve System (the "Federal Reserve Board") to regulate the debit interchange transaction fees that a card issuer or payment card network receives or charges for an electronic debit transaction. Pursuant to the so-called "Durbin Amendment" to the Dodd-Frank Act, these fees must be "reasonable and proportional" to the cost incurred by the card issuer in authorizing, clearing and settling the transaction. Pursuant to regulations promulgated by the Federal Reserve Board, debit interchange rates for card issuers with assets of $10 billion or more are capped at $0.21 per transaction and an ad valorem component of 5 basis points to reflect a portion of the issuer's fraud losses plus, for qualifying issuers, an additional $0.01 per transaction in debit interchange for fraud prevention costs. The cap on interchange fees has not had a material direct effect on our results of operations.
 
In addition, the Dodd-Frank Act limits the ability of payment card networks to impose certain restrictions because it allows merchants to: (i) set minimum dollar amounts (not to exceed $10) for the acceptance of a credit card (and allows federal governmental entities and institutions of higher education to set maximum amounts for the acceptance of credit cards) and (ii) provide discounts or incentives to encourage consumers to pay with cash, checks, debit cards or credit cards.
 

15

Table of Contents

The rules also contain prohibitions on network exclusivity and merchant routing restrictions that require a card issuer to enable at least two unaffiliated networks on each debit card, prohibit card networks from entering into exclusivity arrangements and restrict the ability of issuers or networks to mandate transaction routing requirements. The prohibition on network exclusivity has not significantly affected our ability to pass on network fees and other costs to our customers, nor do we expect it to in the future.
 
The Dodd-Frank Act also created the FSOC, which was established to, among other things, identify risks to the stability of the United States financial system. The FSOC has the authority to require supervision and regulation of nonbank financial companies that the FSOC determines pose a systemic risk to the United States financial system. Accordingly, we may be subject to additional systemic risk-related oversight.

Payment Network Rules and Standards
 
As a merchant acquirer, we are subject to the rules of Visa, MasterCard, American Express, Discover and other payment networks. In order to provide services, several of our subsidiaries are either registered as service providers for member institutions with MasterCard, Visa and other networks or are direct members of MasterCard, Visa and other networks. Accordingly, we are subject to card association and network rules that could subject us to a variety of fines or penalties that may be levied by the card networks for certain acts or omissions.
 
Banking Laws and Regulations
 
The Federal Financial Institutions Examination Council (the "FFIEC") is an interagency body comprised of federal bank and credit union regulators such as the Federal Reserve Board, the Federal Deposit Insurance Corporation ("FDIC"), the National Credit Union Administration, the Office of the Comptroller of the Currency and the Bureau of Consumer Financial Protection. The FFIEC examines large data processors in order to identify and mitigate risks associated with systemically significant service providers, including specifically the risks they may pose to the banking industry.

We are considered by the Federal Financial Institutions Examination Council to be a technology service provider ("TSP") based on the services we provide to financial institutions. As a TSP, we are subject to audits by an interagency group consisting of the Federal Reserve System, FDIC, and the Office of the Comptroller of the Currency.

Privacy and Information Security Laws
 
We provide services that may be subject to various state, federal and foreign privacy laws and regulations. These laws and regulations include the federal Gramm-Leach-Bliley Act of 1999, which applies to a broad range of financial institutions and to companies that provide services to financial institutions in the United States, certain health care technology laws, including HIPAA and the Health Information Technology for Economic and Clinical Act, and the California Consumer Protection Act ("CCPA"), which establishes a new privacy framework for covered businesses by creating an expanded definition of personal information, establishing new data privacy rights for consumers in the State of California, imposing special rules on the collection of consumer data from minors, and creating a new and potentially severe statutory damages framework for violations of the CCPA and for businesses that fail to implement reasonable security procedures and practices to prevent data breaches. We are also subject to a variety of foreign data protection and privacy laws, including, without limitation, Directive 95/46/EC, as implemented in each member state of the European Union and its successor, the General Data Protection Regulation. Among other things, these foreign and domestic laws, and their implementing regulations, in certain cases restrict the collection, processing, storage, use and disclosure of personal information, require notice to individuals of privacy practices, and provide individuals with certain rights to prevent use and disclosure of protected information. These laws also impose requirements for safeguarding and removal or elimination of personal information.
 
Anti-Money Laundering and Counter-Terrorism Regulation
 
The United States federal anti-money laundering laws and regulations, including the Bank Secrecy Act of 1970, as amended by the USA PATRIOT Act of 2001 (collectively, the "BSA"), and the "BSA" implementing regulations administered by FinCEN, a bureau of the United States Department of the Treasury, require, among other things, each financial institution to: (1) develop and implement a risk-based anti-money laundering program; (2) file reports on large currency transactions; (3) file suspicious activity reports if the financial institution believes a customer may be violating U.S. laws and regulations; and (4) maintain transaction records. Given that a number of our clients are financial institutions that are directly subject to U.S. federal anti-money laundering

16

Table of Contents

laws and regulations, we have developed an anti-money laundering compliance program to best assist our clients in meeting such legal and regulatory requirements.
 
We are subject to certain economic and trade sanctions programs that are administered by OFAC of the United States Department of Treasury, which place prohibitions and restrictions on all U.S. citizens and entities with respect to transactions by U.S. persons with specified countries and individuals and entities identified on OFAC's Specially Designated Nationals list (for example, individuals and companies owned or controlled by, or acting for or on behalf of, countries subject to certain economic and trade sanctions, as well as terrorists, terrorist organizations and narcotics traffickers identified by OFAC under programs that are not country specific). Similar anti-money laundering, counter-terrorist financing and proceeds of crime laws apply to movements of currency and payments through electronic transactions and to dealings with persons specified on lists maintained by organizations similar to OFAC in several other countries and which may impose specific data retention obligations or prohibitions on intermediaries in the payment process. We have developed and continue to enhance compliance programs and policies to monitor and address such legal and regulatory requirements and developments. We continue to enhance such programs and policies to ensure that our customers do not engage in prohibited transactions with designated countries, individuals or entities.
 
Debt Collection and Credit Reporting Laws
 
Portions of our business may be subject to the Fair Debt Collection Practices Act, the Fair Credit Reporting Act and similar state laws. These debt collection laws are designed to eliminate abusive, deceptive and unfair debt collection practices and may require licensing at the state level. The Fair Credit Reporting Act regulates the use and reporting of consumer credit information and also imposes disclosure requirements on entities that take adverse action based on information obtained from credit reporting agencies. We have procedures in place to comply with the requirements of these laws.
 
Telephone Consumer Protection Act
 
We are subject to the Federal Telephone Consumer Protection Act and various state laws to the extent we place telephone calls and short message service ("SMS") messages to clients and consumers. The Telephone Consumer Protection Act regulates certain telephone calls and SMS messages placed using automatic telephone dialing systems or artificial or prerecorded voices.
 
Escheat Laws

We are subject to U.S. federal and state unclaimed or abandoned property state laws in the United States that requires us to transfer to certain government authorities the unclaimed property of other that we hold when that property has been unclaimed for a certain period of time. Moreover, we are subject to audit by state and foreign regulatory authorities with regard to our escheatment practices.

Other Regulation
 
The Housing Assistance Tax Act of 2008 requires certain merchant acquiring entities and third-party settlement organizations to provide information returns for each calendar year with respect to payments made in settlement of electronic payment transactions and third-party payment network transactions occurring in that calendar year. Reportable transactions are also subject to backup withholding requirements.
 
The foregoing is not an exhaustive list of the laws, rules and regulations to which we are subject to and the regulatory framework governing our business is changing continuously.
 

Intellectual Property
 
We have developed a payments platform that includes many instances of proprietary software, code sets, workflows and algorithms. It is our practice to enter into confidentiality, non-disclosure, and invention assignment agreements with our employees and contractors, and into confidentiality and non-disclosure agreements with other third parties, to limit access to, and disclosure and use of, our confidential information and proprietary technology. In addition to these contractual measures, we also rely on a combination of trademarks, copyrights, registered domain names, and patent rights to help protect the Priority brand and our other intellectual property.

17

Table of Contents



Employees
 
As of December 31, 2019, we employed 588 employees, of which 580 were employed full-time. None of our employees are represented by a labor union and we have experienced no work stoppages.


Availability of Filings

Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), are made available free of charge on our internet web site at www.prth.com, as soon as reasonably practicable after we have electronically filed the material with, or furnished it to, the Securities and Exchange Commission (the "SEC"). The SEC maintains an internet site that contains our reports, proxy and information statements and our other SEC filings. The address of that web site is https://www.sec.gov/. The contents of our websites are not intended to be incorporated by reference into this Annual Report on Form 10-K or in any other report or document we file with the SEC, and any references to our websites are intended to be inactive textual references only.

18

Table of Contents

ITEM 1A. RISK FACTORS
 
An investment in our common stock and our financial results are subject to a number of risks. You should carefully consider the risks described below and all other information contained in this Annual Report on Form 10-K and the documents incorporated by reference. Our business, prospects, financial condition or operating results could be harmed by any of these risks, as well as other risks not currently known to us or that we currently consider immaterial. Additional risks and uncertainties, including those generally affecting the industry in which we operate and risks that management currently deems immaterial, may arise or become material in the future and affect our business.

 
Risk Factors Related to Our Business

Unauthorized disclosure of merchant or cardholder data, whether through breach of our computer systems, computer viruses, or otherwise, could expose us to liability, protracted and costly litigation and damage our reputation.

We are responsible for data security for ourselves and for third parties with whom we partner, including by contract and under the rules and regulations established by the payment networks, such as Visa, MasterCard, Discover and American Express, as well as debit card networks. These third parties include merchants, our distribution partners and other third-party service providers and agents. We and other third parties collect, process, store and/or transmit sensitive data, such as names, addresses, social security numbers, credit or debit card numbers and expiration dates, driver's license numbers and bank account numbers. We have ultimate liability to the payment networks and our bank sponsors that register us with Visa or MasterCard for our failure or the failure of third parties with whom we contract to protect this data in accordance with payment network requirements. The loss, destruction or unauthorized modification of merchant or cardholder data by us or our contracted third parties could result in significant fines, sanctions and proceedings or actions against us by the payment networks, governmental bodies, consumers or others.

Information security risks for us and our competitors have substantially increased in recent years in part due to the proliferation of new technologies and the increased sophistication, resources and activities of hackers, terrorists, activists, organized crime, and other external parties, including hostile nation-state actors. Examples of such information security risks are the recent Spectre and Meltdown threats which, rather than acting as viruses, were design flaws in many computers that allowed programs to steal data stored in the memory of other running programs and required patch software to correct. The techniques used by these bad actors to obtain unauthorized access, disable or degrade service, sabotage systems or utilize payment systems in an effort to perpetrate financial fraud change frequently and are often difficult to detect. Furthermore, threats may derive from human error, fraud or malice on the part of employees or third parties, or may result from accidental technological failure. For example, certain of our employees have access to sensitive data that could be used to commit identity theft or fraud. Concerns about security increase when we transmit information electronically because such transmissions can be subject to attack, interception or loss. Also, computer viruses can be distributed and spread rapidly over the internet and could infiltrate our systems or those of our contracted third parties. Denial of service or other attacks could be launched against us for a variety of purposes, including interfering with our services or to create a diversion for other malicious activities. These types of actions and attacks and others could disrupt our delivery of services or make them unavailable. Any such actions or attacks against us or our contracted third parties could hurt our reputation, force us to incur significant expenses in remediating the resulting impacts, expose us to uninsured liability, result in the loss of our bank sponsors or our ability to participate in the payment networks, subject us to lawsuits, fines or sanctions, distract our management or increase our costs of doing business. For example, we are presently evaluating whether the recent Spectre and Meltdown threats may require us to replace substantial portions of our current technology hardware and infrastructure in order to mitigate the risk associated with those threats. If we are required to replace a substantial portion of our current technology hardware and infrastructure, either as a result of the Spectre and Meltdown threats or similar future threats, we would likely incur substantial capital expenditures, which may materially and adversely affect our free cash flow and results of operations as a result.

We and our contracted third parties could be subject to breaches of security by hackers, and our encryption of data and other protective measures may not prevent unauthorized access to or use of sensitive data. A breach of a system may subject us to material losses or liability, including payment network fines, assessments and claims for unauthorized purchases with misappropriated credit, debit or card information, impersonation or other similar fraud claims. A misuse of such data or a cybersecurity breach could harm our reputation and deter merchants from using electronic payments generally and our services specifically, thus reducing our revenue. In addition, any such misuse or breach could cause us to incur costs to correct the breaches or failures, expose us to uninsured liability, increase our risk of regulatory scrutiny, subject us to lawsuits, and result in the imposition of material penalties and fines under state and federal laws or by the payment networks. While we maintain insurance coverage that may, subject to

19

Table of Contents

policy terms and conditions, cover certain aspects of cyber risks, our insurance coverage may be insufficient to cover all losses. In addition, a significant cybersecurity breach of our systems or communications could result in payment networks prohibiting us from processing transactions on their networks or the loss of our bank sponsors that facilitate our participation in the payment networks, either of which could materially impede our ability to conduct business.

The confidentiality of the sensitive business information and personal consumer information that resides on our systems and our associated third parties' systems are critical to our business. While we maintain controls and procedures to protect the sensitive data we collect, we cannot be certain that these measures will be successful or sufficient to counter all current and emerging technology threats that are designed to breach these systems in order to gain access to confidential information. For example, although we generally require that our agreements with distribution partners or our service providers which may have access to merchant or cardholder data include confidentiality obligations that restrict these parties from using or disclosing any merchant or cardholder data except as necessary to perform their services under the applicable agreements, we cannot guarantee that these contractual measures will prevent the unauthorized use, modification, destruction or disclosure of data or allow us to seek reimbursement from the contracted party. In addition, many of our merchants are small and medium businesses that may have limited competency regarding data security and handling requirements and may thus experience data breaches. Any unauthorized use, modification, destruction or disclosure of data could result in protracted and costly litigation and the incurrence of significant losses.

In addition, our agreements with our bank sponsors and our third-party payment processors (as well as payment network requirements) require us to take certain protective measures to ensure the confidentiality of merchant and consumer data. Any failure to adequately comply with these protective measures could result in fees, penalties, litigation or termination of our bank sponsor agreements or our third-party payment processor agreements.

Any significant unauthorized disclosure of sensitive data entrusted to us would cause significant damage to our reputation and impair our ability to attract new integrated technology and referral partners, and may cause parties with whom we already have such agreements to terminate them.

As a result of information security risks, we must continuously develop and enhance our controls, processes, and practices designed to protect our computer systems, software, data and networks from attack, damage, or unauthorized access. This continuous development and enhancement will require us to expend additional resources, including to investigate and remediate significant information security vulnerabilities detected. Despite our investments in security measures, we are unable to assure that any security measures will not be subject to system or human error.

The payment processing industry is highly competitive and such competition is likely to increase, which may adversely influence the prices we can charge to merchants for our services and the compensation we must pay to our distribution partners, and as a result, our profit margins.
 
The payment processing industry is highly competitive. We primarily compete in the small to medium-size ("SMB") merchant industry. Competition has increased recently as other providers of payment processing services have established a sizable market share in the SMB merchant acquiring industry. Our primary competitors for SMB merchants in these markets include financial institutions and their affiliates and well-established payment processing companies that target SMB merchants directly and through third parties, including Bank of America Merchant Services, Chase Merchant Services, Elavon, Inc. (a subsidiary of U.S. Bancorp), Wells Fargo Merchant Services, First Data Corporation, Worldpay, Inc., Global Payments/TSYS and Square. We also compete with many of these same entities for the assistance of distribution partners. For example, many of our distribution partners are not exclusive to us but also have relationships with our competitors, such that we have to continually expend resources to maintain those relationships. Our growth will depend on the continued growth of payments with credit, debit and prepaid cards ("Electronic Payments"), particularly Electronic Payments to SMB merchants, and our ability to increase our market share through successful competitive efforts to gain new merchants and distribution partners.
 
In addition, many financial institutions, subsidiaries of financial institutions or well-established payment-enabled technology providers with which we compete, have substantially greater capital, technological, management and marketing resources than we have. These factors may allow our competitors to offer better pricing terms to merchants and more attractive compensation to distribution partners, which could result in a loss of our potential or current merchants and distribution partners. Competing with financial institutions is also challenging because, unlike us, they often bundle processing services with other banking products and services. This competition may effectively limit the prices we can charge our merchants, cause us to increase the compensation

20

Table of Contents

we pay to our distribution partners and require us to control costs aggressively in order to maintain acceptable profit margins. Our current and future competitors may also develop or offer services that have price or other advantages over the services we provide.
 
We are also facing new, well capitalized, competition from emerging technology and non-traditional payment processing companies as well as traditional companies offering alternative electronic payments services and payment enabled software solutions. If these new entrants gain a greater share of total electronic payments transactions, they could impact our ability to retain and grow our relationships with merchants and distribution partners. Acquirers may be susceptible to the adoption by the broader merchant community of payment enabled software versus terminal based payments. 
 
To acquire and retain a segment of our merchants, we depend in part on distribution partners that may not serve us exclusively and are subject to attrition.
 
We rely in significant part on the efforts of ISOs, ISVs, and referral partners to market our services to merchants seeking to establish a merchant acquiring relationship. These distribution partners seek to introduce us, as well as our competitors, to newly established and existing SMB merchants, including retailers, restaurants and other businesses. Generally, our agreements with distribution partners (with the exception of a portion of our integrated technology partners and bank referral partners) are not exclusive, and distribution partners retain the right to refer merchants to other merchant acquirers. Gaining and maintaining loyalty or exclusivity can require financial concessions to maintain current distribution partners and merchants or to attract potential distribution partners and merchants from our competitors. We have been required, and expect to be required in the future, to make concessions when renewing contracts with our distribution partners and such concessions can have a material impact on our financial condition or operating performance. If these distribution partners switch to another merchant acquirer, cease operations or become insolvent, we will no longer receive new merchant referrals from them, and we risk losing existing merchants that were originally enrolled by them. Additionally, our distribution partners are subject to the requirements imposed by our bank sponsors, which may result in fines to them for non-compliance and may, in some cases, result in these entities ceasing to refer merchants to us. We cannot accurately predict the level of attrition of our distribution partners or merchants in the future, particularly those merchants we acquired as customers in the portfolio acquisitions we have completed in the past five years, which makes it difficult for us to forecast growth. If we are unable to establish relationships with new distribution partners or merchants, or otherwise increase our transaction processing volume in order to counter the effect of this attrition, our revenues will decline.
 
We may experience breakdowns in our processing systems that could damage client relations and expose us to liability.
 
Our core business depends heavily on the reliability of our processing systems. A system outage could have a material adverse effect on our business, financial condition, and results of operations. Not only would we suffer damage to our reputation in the event of a system outage, but we may also be liable to third parties. Many of our contractual agreements with clients require us to pay penalties if our systems do not meet certain operating standards. To successfully operate our business, we must be able to protect our processing and other systems from interruption, including from events that may be beyond our control. Events that could cause system interruptions include, but are not limited to, fire, natural disaster, unauthorized entry, power loss, telecommunications failure, computer viruses, terrorist acts, cyber-attacks and war. Although we have taken steps to protect against data loss and system failures, there is still risk that we may lose critical data or experience system failures. To help protect against these events, we perform the vast majority of disaster recovery operations ourselves, but we also utilize select third parties for certain operations. To the extent we outsource our disaster recovery, we are at risk of the vendor's unresponsiveness or other failures in the event of breakdowns in our systems. In addition, our property and business interruption insurance may not be adequate to compensate us for all losses or failures that may occur.

Governmental regulations designed to protect or limit access to or use of consumer information could adversely affect our ability to effectively provide our services to merchants.
 
Governmental bodies in the United States have adopted, or are considering the adoption of, laws and regulations restricting the use, collection, storage, and transfer of, and requiring safeguarding of, non-public personal information. Our operations are subject to certain provisions of these laws. Relevant federal privacy laws include the Gramm-Leach-Bliley Act of 1999, which applies directly to a broad range of financial institutions and indirectly, or in some instances directly, to companies that provide services to financial institutions. These laws and regulations restrict the collection, processing, storage, use and disclosure of personal information, require notice to individuals of privacy practices and provide individuals with certain rights to prevent the use and disclosure of protected information. These laws also impose requirements for safeguarding and proper destruction of personal information through the issuance of data security standards or guidelines.

21

Table of Contents

 
The Federal Trade Commission's information safeguarding rules under the Gramm-Leach-Bliley Act require us to develop, implement and maintain a written, comprehensive information security program containing safeguards that are appropriate for our size and complexity, the nature and scope of our activities and the sensitivity of any customer information at issue. Our financial institution clients are subject to similar requirements under the guidelines issued by the federal banking regulators. As part of their compliance with these requirements, each of our financial institution clients is expected to have a program in place for responding to unauthorized access to, or use of, customer information that could result in substantial harm or inconvenience to customers and they are also responsible for our compliance efforts as a major service provider. In addition, regulators are proposing new laws or regulations which could require us to adopt certain cybersecurity and data handling practices. In many jurisdictions consumers must be notified in the event of a data breach, and such notification requirements continue to increase in scope and cost. The changing privacy laws in the United States create new individual privacy rights and impose increased obligations on companies handling personal data.
 
In addition, there are state laws restricting the ability to collect and utilize certain types of information such as Social Security and driver's license numbers. Certain state laws impose similar privacy obligations as well as obligations to provide notification of security breaches of computer databases that contain personal information to affected individuals, state officers and consumer reporting agencies and businesses and governmental agencies that own data. For example, the CCPA, which went into effect on January 1, 2020, establishes a new privacy framework for covered businesses by creating an expanded definition of personal information, establishing new data privacy rights for consumers in the State of California, imposing special rules on the collection of consumer data from minors, and creating a new and potentially severe statutory damages framework for violations of the CCPA and for businesses that fail to implement reasonable security procedures and practices to prevent data breaches.
 
In connection with providing services to our merchants, we are required by regulations and contracts with our merchants and with our financial institution referral partners to provide assurances regarding the confidentiality and security of non-public consumer information. These contracts require periodic audits by independent companies regarding our compliance with industry standards and also allow for similar audits regarding best practices established by regulatory guidelines. The compliance standards relate to our infrastructure, components and operational procedures designed to safeguard the confidentiality and security of non-public consumer personal information shared by our merchants with it. Our ability to maintain compliance with these standards and satisfy these audits will affect our ability to attract, grow and maintain business in the future. If we fail to comply with the laws and regulations relating to the protection of data privacy, we could be exposed to suits for breach of contract or to governmental proceedings. In addition, our relationships and reputation could be harmed, which could inhibit our ability to retain existing merchants and distribution partners and obtain new merchants and distribution partners.
 
If more restrictive privacy laws or rules are adopted by authorities in the future, our compliance costs may increase and our ability to perform due diligence on, and monitor the risk of, our current and potential merchants may decrease, which could create liability for it. Additionally, our opportunities for growth may be curtailed by our compliance capabilities or reputational harm, and our potential liability for security breaches may increase.
 
Potential distribution partners and merchants may be reluctant to switch to a new merchant acquirer, which may adversely affect our growth.
 
Many potential distribution partners and merchants worry about potential disadvantages associated with switching merchant acquirers, such as a loss of accustomed functionality, increased costs and business disruption. For our distribution partners, switching to us from another merchant acquirer or integrating with us may be perceived by them as a significant undertaking. As a result, many distribution partners and merchants often resist change. There can be no assurance that our strategies for overcoming potential reluctance to change vendors or initiate a relationship with us will be successful, and this resistance may adversely affect our growth and performance results.

Because we rely on third-party vendors to provide products and services, we could be adversely impacted if they fail to fulfill their obligations.
 
Our business is dependent on third-party vendors to provide us with certain products and services. For example, we utilize First Data and TSYS to provide authorization and settlement services. Our current amended and restated processing agreement with First Data was entered into in December 2014 and will remain in effect through December 2020 and automatically renews for successive 90-day terms thereafter unless either party provides 30-day written notice of non-renewal to the other party.  Our current

22

Table of Contents

processing agreement with TSYS is effective January 1, 2019 for a three-year term and automatically renews for a successive one-year term thereafter unless either party provides written notice of non-renewal to the other party.

The failure of these vendors, such as First Data and TSYS, to perform their obligations in a timely manner could adversely affect our operations and profitability. In addition, if we are unable to renew our existing contracts with our most significant vendors, such as First Data and TSYS, we might not be able to replace the related product or service at the same cost, which would negatively impact our profitability. Specifically, while we believe we would be able to locate alternative vendors to provide substantially similar services at comparable rates, or otherwise replicate such services internally, it is not assured that a change will not be disruptive to our business, which could potentially lead to a material adverse impact on our revenue and profitability until resolved.
 
Changes in card association and debit network fees or products could increase costs or otherwise limit our operations.
 
From time to time, card associations and debit networks increase the organization and/or processing fees (known as interchange fees) that they charge. It is possible that competitive pressures will result in us absorbing a portion of such increases in the future, which would increase our operating costs, reduce our profit margin, and adversely affect our business, operating results, and financial condition. In addition, the various card associations and networks prescribe certain capital requirements. Any increase in the capital level required would further limit our use of capital for other purposes.
 
We are subject to extensive government regulation, and any new laws and regulations, industry standards or revisions made to existing laws, regulations or industry standards affecting the electronic payments industry may have an unfavorable impact on our business, financial condition and results of operations.
 
We are subject to numerous regulations that affect electronic payments including, U.S. financial services regulations, consumer protection laws, escheat regulations, and privacy and information security regulations. Regulation and proposed regulation of our industry has increased significantly in recent years. Changes to statutes, regulations or industry standards, including interpretation and implementation of statutes, regulations or standards, could increase our cost of doing business or affect the competitive balance. For example, the Trump Administration has called for changes in existing regulatory requirements, including those applicable to financial services.
 
We cannot predict the impact, if any, of such changes on our business. It is likely that some policies adopted by the new administration will benefit us, while others will negatively affect it. Until we know what changes are adopted, we will not know whether in total we benefit from, or are negatively affected by, the changes. Failure to comply with regulations may have an adverse effect on our business, including the limitation, suspension or termination of services provided to, or by, third parties, and the imposition of penalties or fines.

Interchange fees, which are typically paid by the payment processor to the issuer in connection with electronic payments, are subject to increasingly intense legal, regulatory, and legislative scrutiny. In particular, the Dodd-Frank Act significantly changed the United States financial regulatory system, including by regulating and limiting debit card fees charged by certain issuers, allowing merchants to set minimum dollar amounts for the acceptance of credit cards and allowing merchants to offer discounts or other incentives for different payment methods.
 
Rules implementing the Dodd-Frank Act also contain certain prohibitions on payment network exclusivity and merchant routing restrictions. These restrictions could limit the number of debit transactions, and prices charged per transaction, which would negatively affect our business. The Dodd-Frank Act also created the CFPB, which has assumed responsibility for most federal consumer protection laws, and the FSOC, which has the authority to determine whether any non-bank financial company, which may include us within the definitional scope, should be supervised by the Federal Reserve Board because it is systemically important to the United States financial system. Any such designation would result in increased regulatory burdens on our business, which increases our risk profile and may have an adverse impact on our business, financial condition and results of operations.
 
We and many of our merchants are subject to Section 5 of the Federal Trade Commission Act prohibiting unfair or deceptive acts or practices. That statement and other laws, rules and or regulations, including the Telemarketing Sales Act, may directly impact the activities of certain of our merchants and, in some cases, may subject us, as the merchant's electronic processor or provider of certain services, to investigations, fees, fines and disgorgement of funds if we were deemed to have improperly aided and abetted or otherwise provided the means and instrumentalities to facilitate the illegal or improper activities of the merchant through our services. Various federal and state regulatory enforcement agencies, including the Federal Trade Commission and state attorneys

23

Table of Contents

general, have authority to take action against non-banks that engage in unfair or deceptive practices or violate other laws, rules and regulations and to the extent we are processing payments or providing services for a merchant that may be in violation of laws, rules and regulations, we may be subject to enforcement actions and as a result may incur losses and liabilities that may impact our business.
 
Our business may also be subject to the Fair Credit Reporting Act (the "FCRA"), which regulates the use and reporting of consumer credit information and also imposes disclosure requirements on entities that take adverse action based on information obtained from credit reporting agencies. We could be liable if our practices under the FCRA are not in compliance with the FCRA or regulations under it.
 
Separately, the Housing Assistance Tax Act of 2008 included an amendment to the Internal Revenue Code that requires the filing of yearly information returns by payment processing entities and third-party settlement organizations with respect to payments made in settlement of electronic payment transactions and third-party payment network transactions occurring in that calendar year. Transactions that are reportable pursuant to these rules are subject to backup withholding requirements. We could be liable for penalties if our information returns do not comply with these regulations.
 
These and other laws and regulations, even if not directed at us, may require us to make significant efforts to change our products and services and may require that we incur additional compliance costs and change how we price our services to merchants. Implementing new compliance efforts may be difficult because of the complexity of new regulatory requirements and may cause us to devote significant resources to ensure compliance. Furthermore, regulatory actions may cause changes in business practices by us and other industry participants which could affect how we market, price and distribute our products and services, which could limit our ability to grow, reduce our revenues, or increase our costs. In addition, even an inadvertent failure to comply with laws and regulations, as well as rapidly evolving social expectations of corporate fairness, could damage our business or our reputation.

Failure to comply with the rules established by payment networks or standards established by third-party processors could result in those networks or processors imposing fines or the networks suspending or terminating our registrations through our bank sponsors.

In order to provide our merchant acquiring services, we are registered through our bank sponsors with the Visa and MasterCard networks as service providers for member institutions. As such, we and our merchants are subject to payment network rules. The payment networks routinely update and modify requirements applicable to merchant acquirers including rules regulating data integrity, third-party relationships (such as those with respect to bank sponsors), merchant chargeback standards and PCI DSS. Standards governing our third-party processing agreements may also impose requirements with respect to compliance with PCI DSS.
 
If we do not comply with the payment network requirements or standards governing our third-party processing agreements, our transaction processing capabilities could be delayed or otherwise disrupted, and recurring non-compliance could result in fines from the payment networks or third-party processors, the payment networks suspending or terminating our registrations which allow us to process transactions on their networks, which would make it impossible for us to conduct our business on our current scale.

Under certain circumstances specified in the payment network rules or our third-party processing agreements, we may be required to submit to periodic audits, self-assessments or other assessments of our compliance with the PCI DSS. Such activities may reveal that we have failed to comply with the PCI DSS. In addition, even if we comply with the PCI DSS, there is no assurance that we will be protected from a security breach. The termination of our registration with the payment networks, or any changes in payment network or issuer rules that limit our ability to provide merchant acquiring services, could have an adverse effect on our payment processing volumes, revenues and operating costs. If an audit or self-assessment under PCI DSS identifies any deficiencies that we need to remediate, the remediation efforts may distract our management team and be expensive and time consuming.
 
Changes in payment network rules or standards could adversely affect our business, financial condition and results of operations.
 
Payment network rules are established and changed from time to time by each payment network as they may determine in their sole discretion and with or without advance notice to their participants. The timelines imposed by the payment networks for expected compliance with new rules have historically been, and may continue to be, highly compressed, requiring us to quickly

24

Table of Contents

implement changes to our systems which increases the risk of non-compliance with new standards. In addition, the payment networks could make changes to interchange or other elements of the pricing structure of the merchant acquiring industry that would have a negative impact on our results of operations. For example, we closed approximately 1,200 merchant accounts in 2018 in order to ensure compliance with the card association subscription e-commerce criteria.

There may be a decline in the use of electronic payments as a payment mechanism for consumers or adverse developments with respect to the electronic payments industry in general which could adversely affect our business, financial condition and operating results.
 
Maintaining or increasing our profitability is dependent on consumers and businesses continuing to use credit, debit and prepaid cards at the same or greater rate than previously. If consumers do not continue to use these cards for their transactions or if there is a change in the mix of payments between cash and electronic payments which is adverse to us, our business could decline and we could incur material losses. Regulatory changes may also result in merchants seeking to charge customers additional fees for use of electronic payments. Additionally, in recent years, increased incidents of security breaches have caused some consumers to lose confidence in the ability of retailers to protect their information.
 
Our business may be adversely affected by the recent coronavirus (COVID-19) outbreak.

In December 2019, a novel strain of coronavirus (COVID-19) was reported to have surfaced in Wuhan, China. In January 2020, this coronavirus spread to other countries, including the U.S., and efforts to contain the spread of this coronavirus intensified. In March 2020, the World Health Organization declared the COVID-19 virus outbreak a global pandemic. The outbreak and any preventative or protective actions that governments or others may take in respect of this coronavirus may result in global business disruptions, including for the Company's customers and business partners, and in a period of business disruption, reduced customer demand and reduced operations. Any resulting financial impact cannot be reasonably estimated at this time but may materially affect our business, financial condition, results of operations, and cash flows, despite the fact that such impacts may not be felt for a significant period of time. Although we are diligently working to ensure that we can operate with minimal disruption, prepare to mitigate the impact of the outbreak on our employees’ health and safety, and address potential business interruptions on ourselves and our customers, the full extent to which the coronavirus could affect the global and U.S. ecomonies and our business will depend on future developments and factors that cannot be predicted.

In order to remain competitive and to continue to increase our revenues and earnings, we must continually update our products and services, a process which could result in increased costs and the loss of revenues, earnings, merchants and distribution partners if the new products and services do not perform as intended or are not accepted in the marketplace.
 
The electronic payments industry in which we compete is subject to rapid technological changes and is characterized by new technology, product and service introductions, evolving industry standards, changing merchant needs and the entrance of non-traditional competitors. We are subject to the risk that our existing products and services become obsolete, and that we are unable to develop new products and services in response to industry demands. Our future success will depend in part on our ability to develop or adapt to technological changes and the evolving needs of our resellers, merchants and the industry at large. We are continually involved in many business and technology projects, such as CPX, MX Connect and MX Merchant. MX Connect and MX Merchant provide resellers and merchant clients, a flexible and customizable set of business applications that help better manage critical business work functions and revenue performance using core payment processing as our leverage point. Additionally, CPX provides AP automation solutions that offers enterprise clients a bridge for buyer to supplier payments. These may require investment in products or services that may not directly generate revenue. These projects carry the risks associated with any development effort, including difficulty in determining market demand and timing for delivery of new products and services, cost overruns, delays in delivery and performance problems. In addition, new products and offerings may not perform as intended or generate the business or revenue growth expected. Defects in our software and errors or delays in our processing of electronic transactions could result in additional development costs, diversion of technical and other resources from our other development efforts, loss of credibility with current or potential distribution partners and merchants, harm to our reputation, fines imposed by card networks, or exposure to liability claims. Any delay in the delivery of new products or services or the failure to differentiate our products and services could render them less desirable, or possibly even obsolete, to our merchants. Additionally, the market for alternative payment processing products and services is evolving, and we may develop too rapidly or not rapidly enough for us to recover the costs we have incurred in developing new products and services.
 

25

Table of Contents

We may not be able to continue to expand our share of the existing electronic payments industry or expand into new markets, which would inhibit our ability to grow and increase our profitability.
 
Our future growth and profitability depend, in part, upon our continued expansion within the markets in which we currently operate, the emergence of other markets for electronic payments and our ability to penetrate these markets and our current distribution partners' merchant base. Future growth and profitability of our business may depend upon our ability to penetrate new industries and markets for electronic payments.

Our ability to expand into new industries and markets also depends upon our ability to adapt our existing technology or to develop new technologies to meet the particular needs of each new industry or market. We may not have adequate financial or technological resources to develop effective and secure services or distribution channels that will satisfy the demands of these new industries or markets. Penetrating these new industries or markets may also prove to be more challenging or costly or take longer than we may anticipate. If we fail to expand into new and existing electronic payments industries and markets, we may not be able to continue to grow our revenues and earnings.
 
Our acquisitions subject us to a variety of risks that could harm our business.
 
We review and complete selective acquisition opportunities as part of our growth strategy. There can be no assurances that we will be able to complete suitable acquisitions for a variety of reasons, including the identification of and competition for acquisition targets, the need for regulatory approvals, the inability of the parties to agree to the structure or purchase price of the transaction and our inability to finance the transaction on commercially acceptable terms. In addition, any potential acquisition will subject us to a variety of other risks:
 
we may need to allocate substantial operational, financial and management resources in integrating new businesses, technologies and products, and management may encounter difficulties in integrating the operations, personnel or systems of the acquired businesses;

acquisitions may have a material adverse effect on our business relationships with existing or future merchants or distribution partners, in particular, to the extent we consummate acquisitions that increase our sales and distribution capabilities;

we may assume substantial actual or contingent liabilities, known and unknown;

acquisitions may not meet our expectations of future financial performance;

counter-parties to the acquisition transactions may fail to perform their obligations under the applicable acquisition related documents, and/or negligently or intentionally commit misrepresentations as to the condition of the acquired business, asset, or go-forward enterprise;

we may experience delays or reductions in realizing expected synergies or benefits;

we may incur substantial unanticipated costs or encounter other problems associated with acquired businesses or devote time and capital investigating a potential acquisition and not complete the transaction;

we may be unable to achieve our intended objectives for the transaction; and

we may not be able to retain the key personnel, customers and suppliers of the acquired business.
 
Additionally, we may be unable to maintain uniform standards, controls, procedures and policies as we attempt to integrate the acquired businesses, and this may lead to operational inefficiencies. These factors related to our acquisition strategy, among others, could have a material adverse effect on our business, financial condition and results of operations.
 



26

Table of Contents

Potential changes in the competitive landscape, including disintermediation from other participants in the payments value chain, could harm our business.
 
We expect that the competitive landscape will continue to change, including the following developments:

rapid and significant changes in technology may result in technology-led marketing that is focused on business solutions rather than pricing, new and innovative payment methods and programs that could place us at a competitive disadvantage and reduce the use of our services;

competitors, distribution partners, and other industry participants may develop products that compete with or replace our value-added products and services;

participants in the financial services, payments and technology industries may merge, create joint ventures or form other business combinations that may strengthen their existing business services or create new payment services that compete with us; and

new services and technologies that we develop may be impacted by industry-wide solutions and standards related to migration to EMV chip technology, tokenization or other security-related technologies.

Failure to compete effectively against any of these competitive threats could have a material adverse effect on our business, financial condition and results of operations.
 
We may not be able to successfully manage our intellectual property and may be subject to infringement claims.
 
We rely on a combination of contractual rights and copyright, trademark, patent and trade secret laws to establish and protect our proprietary technology. Third parties may challenge, circumvent, infringe or misappropriate our intellectual property, or such intellectual property may not be sufficient to permit us to take advantage of current market trends or otherwise to provide competitive advantages, which could result in costly redesign efforts, discontinuance of service offerings or other competitive harm. Others, including our competitors, may independently develop similar technology, duplicate our services or design around our intellectual property and, in such cases, we could not assert our intellectual property rights against such parties. Further, our contractual arrangements may not effectively prevent disclosure of our confidential information or provide an adequate remedy in the event of unauthorized disclosure of our confidential information. We may have to litigate to enforce or determine the scope and enforceability of our intellectual property rights and know-how, which is expensive, could cause a diversion of resources and may not prove successful. Also, because of the rapid pace of technological change in our industry, aspects of our business and our services rely on technologies developed or licensed by third parties, and we may not be able to obtain or continue to obtain licenses and technologies from these third parties on reasonable terms or at all. The loss of intellectual property protection or the inability to license or otherwise use third-party intellectual property could harm our business and ability to compete.
 
We may also be subject to costly litigation if our services and technology are alleged to infringe upon or otherwise violate a third-party's proprietary rights. Third parties may have, or may eventually be issued, patents that could be infringed by our products, services or technology. Any of these third parties could make a claim of infringement against us with respect to our products, services or technology. We may also be subject to claims by third parties for patent, copyright or trademark infringement, breach of license or violation of other third-party intellectual property rights. Any claim from third parties may result in a limitation on our ability to use the intellectual property subject to these claims. Additionally, in recent years, individuals and groups have been purchasing intellectual property assets for the sole purpose of making claims of infringement or other violations and attempting to extract settlements from companies like ours. Even if we believe that intellectual property related claims are without merit, defending against such claims is time consuming and expensive and could result in the diversion of the time and attention of our management and employees. Claims of intellectual property infringement or violation also might require us to redesign affected products or services, enter into costly settlement or license agreements, pay costly damage awards, or face a temporary or permanent injunction prohibiting us from marketing or selling certain of our products or services. Even if we have an agreement for indemnification against such costs, the indemnifying party, if any in such circumstances, may be unable to uphold our contractual obligations. If we cannot or do not license the infringed technology on reasonable terms or substitute similar technology from another source, our revenue and earnings could be adversely impacted.


27

Table of Contents

We are subject to economic and political risk, the business cycles of our merchants and distribution partners and the overall level of consumer and commercial spending, which could negatively impact our business, financial condition and results of operations.
 
The electronic payments industry depends heavily on the overall level of consumer, commercial and government spending. We are exposed to general economic conditions that affect consumer confidence, consumer spending, consumer discretionary income and changes in consumer purchasing habits. A sustained deterioration in general economic conditions or increases in interest rates could adversely affect our financial performance by reducing the number or aggregate dollar volume of transactions made using electronic payments. If our merchants make fewer sales of their products and services using electronic payments, or consumers spend less money through electronic payments, we will have fewer transactions to process at lower dollar amounts, resulting in lower revenue. In addition, a weakening in the economy could force merchants to close at higher than historical rates, resulting in exposure to potential losses and a decline in the number of transactions that we process. We also have material fixed and semi-fixed costs, including rent, debt service, contractual minimums and salaries, which could limit our ability to quickly adjust costs and respond to changes in our business and the economy.
 
Global economic, political and market conditions affecting the U.S. markets may adversely affect our business, results of operations and financial condition, including our revenue growth and profitability.
 
Worldwide financial market conditions, as well as various social and political tensions in the United States and around the world, may contribute to increased market volatility, may have long-term effects on the United States and may cause economic uncertainties or deterioration in the United States. The U.S. markets experienced extreme volatility and disruption during the economic downturn that began in mid-2007, and the U.S. economy was in a recession for several consecutive calendar quarters during the same period. In addition, the fiscal and monetary policies of foreign nations, such as Russia and China, may have a severe impact on U.S. financial markets.

Any new legislation that may be adopted in the United States could significantly affect the regulation of U.S. financial markets. Areas subject to potential change, amendment or repeal include the Dodd-Frank Act and the authority of the Federal Reserve Board and the Financial Stability Oversight Council. The United States may also potentially withdraw from or renegotiate various trade agreements and take other actions that would change current trade policies of the United States. We cannot predict which, if any, of these actions will be taken or, if taken, their effect on the financial stability of the United States. Such actions could have a significant adverse effect on our business, financial condition and results of operations, particularly in view of the regulatory oversight we presently face. We cannot predict the effects of these or similar events in the future on the U.S. economy in general, or specifically on our business model or growth strategy, which typically involves the use of debt financing. To the extent a downturn in the U.S. economy impacts our merchant accounts, regulatory changes increase the burden we face in operating our business, or disruptions in the credit markets prevent us from using debt to finance future acquisitions, our financial condition and results of operations may be materially and adversely impacted.
 
A substantial portion of all of our merchants are small- and medium-sized businesses, which may increase the impact of economic fluctuations and merchant attrition on it.
 
We market and sell our solutions primarily to SMB merchants. SMB merchants are typically more susceptible to the adverse effects of economic fluctuations than larger businesses. We experience attrition in merchants and merchant charge volume in the ordinary course of business resulting from several factors, including business closures, transfers of merchants' accounts to our competitors and account closures that we initiate due to heightened credit risks relating to, or contract breaches by, a merchant. Adverse changes in the economic environment or business failures of our SMB merchants may have a greater impact on us than on our competitors who do not focus on SMB merchants to the extent that we do. We cannot accurately predict the level of SMB merchant attrition in the future. If we are unable to establish accounts with new merchants or otherwise increase our payment processing volume in order to counter the effect of this attrition, our revenues will decline.

Our systems and our third-party providers' systems may fail due to factors beyond our control, which could interrupt our service, resulting in our inability to process, cause us to lose business, increase our costs and expose us to liability.
 
There are factors that may be beyond our control that could affect our operations and business. We depend on the efficient and uninterrupted operation of numerous systems, including our computer network systems, software, data centers and telecommunication networks, as well as the systems and services of our bank sponsors, the payment networks, third-party providers

28

Table of Contents

of processing services and other third parties. Our systems and operations or those of our third-party providers, such as our provider of dial-up authorization services, or the payment networks themselves, could be exposed to factors that may be beyond our or their control that could affect our or their operations and business. Such factors include, among other things, fire, natural disasters and health emergencies, including earthquakes, fires, power outages, typhoons, floods, pandemics or epidemics such as the coronavirus, power loss, telecommunications failure, unauthorized entry, computer viruses, denial-of-service attacks, international conflicts, acts of terrorism, wars and civil unrest, human error or sabotage, financial insolvency, labor disruption, international trade disputes, critical infrastructure attacks and the conditions in the domestic and global economies, generally. Any of these events, among others, could materially and adversely affect our financial condition and operating results. For example, the coronavirus may impact the global economy or negatively affect various aspects of our business, including our workforce and demand for our services, which could impact our ability to deliver services to our customers and make it more difficult to meet our expectations and obligations. Our property and business interruption insurance may not be adequate to compensate us for all losses or failures that may occur. At present, our critical operational systems, such as our payment gateway, are fully redundant, while certain of our less critical systems are not. Therefore, certain aspects of our operations may be subject to interruption. Also, while we have disaster recovery policies and arrangements in place, they have not been tested under actual disasters or similar events.

Defects in our systems or those of third parties, errors or delays in the processing of payment transactions, telecommunications failures or other difficulties could result in failure to process transactions, additional operating and development costs, diversion of technical and other resources, loss of revenue, merchants and distribution partners, loss of merchant and cardholder data, harm to our business or reputation, exposure to fraud losses or other liabilities and fines and other sanctions imposed by payment networks.
 
We rely on other service and technology providers. If they fail or discontinue providing their services or technology generally or to us specifically, our ability to provide services to merchants may be interrupted, and, as a result, our business, financial condition and results of operations could be adversely impacted.
 
We rely on third parties to provide or supplement bankcard processing services and for infrastructure hosting services. We also rely on third parties for specific software and hardware used in providing our products and services. The termination by our service or technology providers of their arrangements with us or their failure to perform their services efficiently and effectively may adversely affect our relationships with our merchants and, if we cannot find alternate providers quickly, may cause those merchants to terminate their relationship with us.
 
We also rely in part on third parties for the development and access to new technologies, or updates to existing products and services for which third parties provide ongoing support, which increases the cost associated with new and existing product and service offerings. Failure by these third-party providers to devote an appropriate level of attention to our products and services could result in delays in introducing new products or services, or delays in resolving any issues with existing products or services for which third-party providers provide ongoing support.
 
Fraud by merchants or others could cause us to incur losses.

We have potential liability for fraudulent electronic payment transactions or credits initiated by merchants or others. Examples of merchant fraud include when a merchant or other party knowingly uses a stolen or counterfeit credit or debit card, card number, or other credentials to record a false sales or credit transaction, processes an invalid card, or intentionally fails to deliver the merchandise or services sold in an otherwise valid transaction. Criminals are using increasingly sophisticated methods to engage in illegal activities such as counterfeiting and fraud. Failure to effectively manage risk and prevent fraud could increase in the future. Increases in chargebacks or other liabilities could have a material adverse effect on our financial condition, results of operations and cash flows.

We incur liability when our merchants refuse or cannot reimburse us for chargebacks resolved in favor of their customers.
 
We have potential liability for chargebacks associated with the transactions we process. If a billing dispute between a merchant and a cardholder is not ultimately resolved in favor of the merchant, the disputed transaction is "charged back" to the merchant's bank and credited or otherwise refunded to the cardholder. The risk of chargebacks is typically greater with those merchants that promise future delivery of goods and services rather than delivering goods or rendering services at the time of payment. If we or our bank sponsors are unable to collect the chargeback from the merchant's account or reserve account (if applicable), or if the merchant refuses or is financially unable (due to bankruptcy or other reasons) to reimburse the merchant's bank for the chargeback,

29

Table of Contents

we may bear the loss for the amount of the refund paid to the cardholder. Any increase in chargebacks not paid by our merchants could increase our costs and decrease our revenues. We have policies to manage merchant-related credit risk and often mitigate such risk by requiring collateral and monitoring transaction activity. Notwithstanding our programs and policies for managing credit risk, it is possible that a default on such obligations by one or more of our merchants could have a material adverse effect on our business.

If we fail to comply with the applicable requirements of the card networks, they could seek to fine us, suspend us or terminate our registrations for membership. If we incur fines or penalties for which our merchants or ISOs are responsible that we cannot collect, we may have to bear the cost of such fines or penalties.

We are subject to card association and network rules that could subject us to a variety of fines or penalties that may be levied by the card networks for certain acts or omissions. The rules of the card networks are set by the card networks themselves and may be influenced by card issuers, some of which are our competitors with respect to processing services. Many banks directly or indirectly sell processing services to merchants in direct competition with us. These banks could attempt, by virtue of their influence on the networks, to alter the networks’ rules or policies to the detriment of non-members, including us. The termination of our registrations or our membership status as a service provider or merchant processor, or any changes in a card association or other network rules or standards, including interpretation and implementation of the rules or standards, that increase the cost of doing business or limit our ability to provide transaction processing services to our customers, could have a material adverse effect on our business, financial condition, results of operations and cash flows. If a merchant or an ISO fails to comply with the applicable requirements of the card associations and networks, we or the merchant or ISO could be subject to a variety of fines or penalties that may be levied by the card associations or networks. If we cannot collect or pursue collection of such amounts from the applicable merchant or ISO, we may have to bear the cost of such fines or penalties, resulting in lower earnings for us. The termination of our registration, or any changes in the Visa or Mastercard rules that would impair our registration, could require us to stop providing Visa and Mastercard payment processing services, which would make it impossible for us to conduct our business on its current scale.

We rely on various financial institutions to provide clearing services in connection with our settlement activities. If we are unable to maintain clearing services with these financial institutions and are unable to find a replacement, our business may be adversely affected.

We rely on various financial institutions to provide clearing services in connection with our settlement activities. If such financial institutions should stop providing clearing services, we must find other financial institutions to provide those services. If we are unable to find a replacement financial institution, we may no longer be able to provide processing services to certain customers, which could negatively affect our revenues, earnings and cash flows.

Our risk management policies and procedures may not be fully effective in mitigating our risk exposure in all market environments or against all types of risks.
 
We operate in a rapidly changing industry. Accordingly, our risk management policies and procedures may not be fully effective to identify, monitor, manage and remediate our risks. Some of our risk evaluation methods depend upon information provided by others and public information regarding markets, merchants or other matters that are otherwise inaccessible by us. In some cases, that information may not be accurate, complete or up-to-date. Additionally, our risk detection system is subject to a high degree of "false positive" risks being detected, which makes it difficult for us to identify real risks in a timely manner. If our policies and procedures are not fully effective or we are not always successful in capturing all risks to which we are or may be exposed, we may suffer harm to our reputation or be subject to litigation or regulatory actions that materially increase our costs and subject us to reputational damage that could limit our ability to grow and cause us to lose existing merchant clients.
 
Legal proceedings could have a material adverse effect on our business, financial condition or results of operations.
 
In the ordinary course of business, we may become involved in various litigation matters, including but not limited to commercial disputes and employee claims, and from time to time may be involved in governmental or regulatory investigations or similar matters arising out of our current or future business. Any claims asserted against us, regardless of merit or eventual outcome, could harm our reputation and have an adverse impact on our relationship with our merchants, distribution partners and other third parties and could lead to additional related claims. Certain claims may seek injunctive relief, which could disrupt the ordinary conduct of our business and operations or increase our cost of doing business. Our insurance or indemnities may not cover all claims that

30

Table of Contents

may be asserted against us, and any claims asserted against it, regardless of merit or eventual outcome, may harm our reputation and cause us to expend resources in our defense. Furthermore, there is no guarantee that we will be successful in defending ourselves in future litigation. Should the ultimate judgments or settlements in any pending litigation or future litigation or investigation significantly exceed our insurance coverage, they could have a material adverse effect on our business, financial condition and results of operations.
 
The loss of, for example, key personnel or of our ability to attract, recruit, retain and develop qualified employees could adversely affect our business, financial condition and results of operations.
 
Our success depends upon the continued services of our senior management and other key personnel who have substantial experience in the electronic payments industry and the markets in which we offer our services. In addition, our success depends in large part upon the reputation within the industry of our senior managers who have developed relationships with our distribution partners, payment networks and other payment processing and service providers. Further, in order for us to continue to successfully compete and grow, we must attract, recruit, develop and retain personnel who will provide us with expertise across the entire spectrum of our intellectual capital needs. Our success is also dependent on the skill and experience of our sales force, which we must continuously work to maintain. While we have many key personnel who have substantial experience with our operations, we must also develop our personnel to provide succession plans capable of maintaining the continuity of our operations. The market for qualified personnel is competitive, and we may not succeed in recruiting additional personnel or may fail to effectively replace current personnel who depart with qualified or effective successors.
 
In addition, we rely heavily on several senior key directors and executive officers, including Mr. Thomas Priore, who is our President, Chief Executive Officer and Chairman, who helped found Priority. Our future success will continue to depend on the diligence, skill, network of business contacts and continued service of Thomas Priore, together with members of our senior management team. We cannot assure you that unforeseen business, medical, personal or other circumstances would not lead any such individual to terminate his relationship with us. The loss of Thomas Priore, or any of the members of our senior management team, could have a material adverse effect on our ability to achieve our growth strategy as well as on our future financial condition and results of operations. Failure to retain or attract key personnel could impede our ability to grow and could result in our inability to operate our business profitably. In addition, contractual obligations related to confidentiality, assignment of intellectual property rights, and non-solicitation may be ineffective or unenforceable and departing employees may share our proprietary information with competitors in ways that could adversely impact us or seek to solicit our distribution partners or merchants or recruit our key personnel to competing businesses.
 
Changes in tax laws and regulations could adversely affect our results of operations and cash flows from operations.
 
Our operations are subject to tax by U.S. federal, state, local, and non-U.S. taxing jurisdictions. Changes in tax laws in our significant tax jurisdictions could materially increase the amount of taxes we owe, thereby negatively impacting our results of operations as well as our cash flows from operations. For example, restrictions on the deductibility of interest expense in a U.S. jurisdiction without a corresponding reduction in statutory tax rates could negatively impact our effective tax rate, financial position, results of operations, and cash flows in the period that such a change occurs and future periods.
 
Our reported financial results may be adversely affected by changes in U.S. GAAP.
 
Generally accepted accounting principles in the United States ("U.S. GAAP") are subject to interpretation by the Financial Accounting Standards Board ("FASB"), the American Institute of Certified Public Accountants, the SEC and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations, including changes related to revenue recognition, could have a significant effect on our reported financial results, and could affect the reporting of transactions completed before the announcement of a change.
 
We are an "emerging growth company" and the reduced disclosure requirements applicable to emerging growth companies may make our securities less attractive to investors.
 
We are an "emerging growth company," as defined in the Jumpstart Our Business Startups Act of 2012 ("JOBS Act"). We may remain an "emerging growth company" until the fiscal year ending December 31, 2021. However, if our non-convertible debt issued within a three-year period or revenues exceeds $1.07 billion, or the market value of our common stock that are held by non-affiliates exceeds $700 million on the last day of the second fiscal quarter of any given fiscal year, we would cease to be an emerging

31

Table of Contents

growth company as of the following fiscal year. As an emerging growth company, we are not required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, have reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and are exempt from the requirements of holding a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. Additionally, as an emerging growth company, we have elected to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As such, our financial statements may not be comparable to companies that comply with public company effective dates. We cannot predict if investors will find our common stock less attractive because we will rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active market for our common stock, our share price may be more volatile and the price at which our securities trade could be less than if we did not use these exemptions.

Material weaknesses have been identified in our internal control over financial reporting.

We have identified material weaknesses in internal controls over our financial reporting that remain unremediated. A material weakness is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis. The material weaknesses identified were lack of sufficient accounting and financial reporting resources, deficiencies in certain aspects of our financial statement review and close processes, and functional limitations of the accounting and financial reporting system.

We performed an evaluation of our disclosure controls and internal control over financial reporting as of December 31, 2019 in accordance with the provisions of the Sarbanes-Oxley Act of 2002. As a result of these evaluations, we determined that our disclosure controls and procedures were not effective as of December 31, 2019 and we did not maintain effective internal control over financial reporting as of December 31, 2019, due to the material weaknesses described above.

We have taken steps to enhance our internal control environment and plan to take additional steps to remediate the material weaknesses. Although we plan to complete this remediation process as quickly as possible, we cannot at this time estimate how long it will take.

 
Risk Factors Related to Our Indebtedness
 
We face risks related to our substantial indebtedness.
 
As of December 31, 2019, we had total outstanding debt of $495.5 million compared to $412.7 million as of December 31, 2018, an increase of $82.8 million or 20.1%, consisting of outstanding debt of $400.3 million under a senior credit facility with a syndicate of lenders (the "Senior Credit Facility") and $95.1 million under a subordinated term loan (including accrued payment-in-kind interest through December 31, 2019) (the "Subordinated Term Loan"). In addition, the Senior Credit Facility includes a $25.0 million revolving credit facility, which had outstanding draws totaling $11.5 million as of December 31, 2019. Our total interest expense was $40.7 million, $29.9 million, and $25.1 million in 2019, 2018, and 2017, respectively. In the future, we may elect to use additional forms of indebtedness, including publicly or privately offered notes, which may further increase our levels of indebtedness. See "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources" for a description of our existing credit facilities.

Our current and future levels of indebtedness could have important consequences to us, including, but not limited to:
 
increasing our vulnerability to, and reducing our flexibility to respond to, general adverse economic and industry conditions;

requiring the dedication of a substantial portion of our cash flow from operations to the payment of principal of, and interest on, our indebtedness, thereby reducing the availability of such cash flow to fund working capital, capital expenditures, acquisitions, joint ventures or other general corporate purposes;

limiting our flexibility in planning for, or reacting to, changes in our business and the competitive environment; and


32

Table of Contents

limiting our ability to borrow additional funds and increasing the cost of any such borrowing.
 
Substantially all of our indebtedness is floating rate debt. As a result, an increase in interest rates generally, such as those we have recently experienced, would adversely affect our profitability. We may enter into pay-fixed interest rate swaps to limit our exposure to changes in floating interest rates. Such instruments may result in economic losses should interest rates decline to a point lower than our fixed rate commitments. We would be exposed to credit-related losses, which could impact the results of operations in the event of fluctuations in the fair value of the interest rate swaps due to a change in the credit worthiness or non-performance by the counterparties to the interest rate swaps.
 
We may incur substantial additional indebtedness in the future. Although the agreements governing our existing indebtedness contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to several significant qualifications and exceptions and, under certain circumstances, the amount of indebtedness that could be incurred in compliance with these restrictions could be substantial.

Changes in the method for determining the London Interbank Offered Rate ("LIBOR") and the potential replacement of the LIBOR benchmark interest rate could adversely affect our business, financial condition, results of operations and cash flows.

The majority of our current indebtedness bears interest at a variable rate based on LIBOR, and we may incur additional indebtedness based on LIBOR. In July 2017, the United Kingdom’s Financial Conduct Authority ("FCA"), a regulator of financial services firms and financial markets in the United Kingdom, stated that they will plan for a phase out of regulatory oversight of LIBOR interest rates indices. The FCA has indicated they will support the LIBOR indices through 2021, to allow for an orderly transition to an alternative reference rate. The Alternative Reference Rates Committee has proposed the Secured Overnight Financing Rate ("SOFR") as its recommended alternative to LIBOR, and the Federal Reserve Bank of New York began publishing SOFR rates in April 2018. SOFR is intended to be a broad measure of the cost of borrowing cash overnight collateralized by U.S. Treasury securities.

We are evaluating the potential effect of the eventual replacement of the LIBOR benchmark interest rate, including the possibility of SOFR as the dominant replacement. The market transition away from LIBOR and towards SOFR is expected to be gradual and complicated, including the development of term and credit adjustments to accommodate differences between LIBOR and SOFR. Introduction of an alternative rate also may introduce additional basis risk for market participants as an alternative index is utilized along with LIBOR. There can be no guarantee that SOFR will become widely used and that alternatives may or may not be developed with additional complications. We are not able to predict whether LIBOR will cease to be available after 2021, whether SOFR will become a widely accepted benchmark in place of LIBOR, or what the effect of such a possible transition to SOFR may be on our business, financial condition, results of operations or cash flows.

Our Senior Credit Facility requires us to maintain certain leverage ratios.
 
Certain of our subsidiaries are borrowers (the "Borrowers") or guarantors under the Senior Credit Facility. The Senior Credit Facility includes a Total Net Leverage Ratio covenant, which requires a Total Net Leverage Ratio of no more than 8.00:1.00 as of December 31, 2019 and March 31, 2020, and further steps down periodically to be no more than 5.50:1.00 at December 31, 2022 for each quarter thereafter. The Senior Credit Facility defines Total Net Leverage Ratio as the consolidated total debt of the Borrowers, less unrestricted cash subject to certain restrictions, divided by the Consolidated Adjusted EBITDA (a non-GAAP measure) of the Borrowers, as defined in the agreement. See "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Certain Non-GAAP Measures."
 
If the Borrowers were to fail to comply with the Total Net Leverage Ratio covenant, it would trigger an event of default under the Senior Credit Facility, as described below. As of December 31, 2019, the Borrowers' were in compliance with the required Total Net Leverage Ratio.
 
Upon the occurrence of an event of default under the credit agreements relating to our credit facilities or any future debt instruments we may issue, the lenders thereunder could elect to accelerate payments due and terminate all commitments to extend further credit. Consequently, we may not have sufficient assets to repay amounts then outstanding under any such indebtedness.
 

33

Table of Contents

Under the terms of our existing credit facilities, upon the occurrence of an event of default, the lenders will be able to elect to declare all amounts outstanding under such credit facilities to be immediately due and payable and terminate all commitments to lend additional funds. Among other reasons, an event of default could be declared by the lenders in the event we fail to pay when due the interest, principal of or premium on any loan, we fail to comply with certain financial and operational covenants or any negative covenant, or event of default with respect to certain other credit facilities or debt instruments we may issue in the future.
 
Any future credit facilities or debt instruments we may issue will likely contain similar, or potentially more expansive, events of default as compared to those set forth in the terms of our existing credit facilities, including those breach or defaults with respect to any of our other outstanding debt instruments. Our existing credit facilities are secured by a pledge of substantially all of our assets and any indebtedness we incur in the future may also be secured.
 
The credit agreements governing our existing credit facilities and any other debt instruments we may issue in the future will contain restrictive covenants that may impair our ability to conduct business.
 
The credit agreements governing our existing credit facilities contain operating covenants and financial covenants that may limit management's discretion with respect to certain business matters. In addition, any debt instruments we may issue in the future will likely contain similar operating and financial covenants restricting our business. Among other things, these covenants will restrict our ability to:

pay dividends, or redeem or purchase equity interests;

incur additional debt;

incur liens;

change the nature of our business;

engage in transactions with affiliates;

sell or otherwise dispose of assets;

make acquisitions or other investments; and

merge or consolidate with other entities.

In addition, we are required to comply with certain restrictions on the ratio of our indebtedness to our "Consolidated Adjusted EBITDA" (a non-GAAP measure as defined in the credit agreements governing our existing credit facilities).

As a result of these covenants and restrictions, we will be limited in our ability to pay dividends or buy back stock and how we conduct our business, and we may be unable to raise additional debt or other financings to compete effectively or to take advantage of new business opportunities. The terms of any future indebtedness we may incur could also include even more restrictive covenants. Failure to comply with such restrictive covenants may lead to default and acceleration and may impair our ability to conduct business. We may not be able to maintain compliance with these covenants in the future and, if we fail to do so, that we will be able to obtain waivers from the lenders and/or amend the covenants, which may result in foreclosure on our assets and our common stock becoming worthless. See "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources" for a description of our existing credit facilities.


 Risks Factors Related to Our Common Stock
 
You may not be able to resell shares of our common stock at or above the price you paid or at all, and you could lose all or part of your investment as a result.
 
The trading price of our common stock is likely to be volatile. The stock market recently has experienced volatility. This volatility often has been unrelated or disproportionate to the operating performance of particular companies. You may not be able to resell

34

Table of Contents

your shares at or above the initial price you paid due to a number of factors such as those listed in "—Risks Factors Related to our Business" and the following:

results of operations that vary from the expectations of securities analysts and investors;

results of operations that vary from those of our competitors;

changes in expectations as to our future financial performance, including financial estimates and investment recommendations by securities analysts and investors;

declines in the market prices of stocks generally;

strategic actions by us or our competitors;

announcements by us or our competitors of significant contracts, new products, acquisitions, joint marketing relationships, joint ventures, other strategic relationships, or capital commitments;

changes in general economic or market conditions or trends in our industry or markets;

changes in business or regulatory conditions;

future sales of our common stock or other securities;

investor perceptions or the investment opportunity associated with our common stock relative to other investment alternatives;

the public's response to press releases or other public announcements by us or third parties, including our filings with the SEC;

announcements relating to litigation;

guidance, if any, that we provide to the public, any changes in this guidance, or our failure to meet this guidance;

the development and sustainability of an active trading market for our stock;

changes in accounting principles;

occurrences of extreme or inclement weather; and

other events or factors, including those resulting from natural disasters, war, acts of terrorism, pandemics, or responses to these events.
 
These broad market and industry fluctuations may adversely affect the market price of our common stock, regardless of our actual operating performance. In addition, price volatility may be greater if the public float and trading volume of our common stock is low.
 
In the past, following periods of market volatility, stockholders have instituted securities class action litigation. If we were involved in securities litigation, it could have a substantial cost and divert resources and the attention of executive management from our business regardless of the outcome of such litigation.
 
Because we have no current plans to pay cash dividends on our common stock for the foreseeable future, you may not receive any return on investment unless you sell your common stock for a price greater than that which you paid for it.
 
We intend to retain future earnings, if any, for future operations, expansion, and debt repayment and have no current plans to pay any cash dividends for the foreseeable future. The declaration, amount, and payment of any future dividends on shares of common

35

Table of Contents

stock will be at the sole discretion of our board of directors. Our board of directors may take into account general and economic conditions, our financial condition, and results of operations, our available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax, and regulatory restrictions, implications on the payment of dividends by us to our stockholders or by our subsidiaries to us, and such other factors as our board of directors may deem relevant. In addition, our ability to pay dividends is limited by covenants of our existing and outstanding indebtedness and may be limited by covenants of any future indebtedness we or our subsidiaries incur. As a result, you may not receive any return on an investment in our common stock unless you sell our common stock for a price greater than that which you paid for it.
 
If securities analysts do not publish research or reports about our business or if they downgrade our common stock or our sector, our stock price and trading volume could decline.
 
The trading market for our common stock will rely in part on the research and reports that industry or financial analysts publish about us or our business. We do not control these analysts. Furthermore, if one or more of the analysts who do cover us downgrades our common stock or our industry, or the stock of any of our competitors, or publish inaccurate or unfavorable research about our business, the price of our common stock could decline. If one or more of these analysts ceases coverage of the combined company or fails to publish reports on us regularly, we could lose visibility in the market, which in turn could cause our stock price or trading volume to decline.
 
Anti-takeover provisions in our organizational documents could delay or prevent a change of control.
 
Certain provisions of our Amended and Restated Certificate of Incorporation and our Amended and Restated Bylaws have an anti-takeover effect and may delay, defer, or prevent a merger, acquisition, tender offer, takeover attempt, or other change of control transaction that a stockholder might consider in its best interest, including those attempts that might result in a premium over the market price for the shares held by our stockholders.

These provisions provide for, among other things:
 
the ability of our board of directors to issue one or more series of preferred stock;

advance notice for nominations of directors by stockholders and for stockholders to include matters to be considered at our annual meetings; and

certain limitations on convening special stockholder meetings.

In addition, these anti-takeover provisions could make it more difficult for a third-party to acquire us, even if the third-party's offer may be considered beneficial by many of our stockholders. As a result, our stockholders may be limited in their ability to obtain a premium for their shares.
 
Mr. Thomas Priore, our President, Chief Executive Officer and Chairman, controls the Company, and his interests may conflict with ours or yours in the future.
 
Thomas Priore and his affiliates have the ability to elect all of the members of our board of directors and thereby control our policies and operations, including the appointment of management, future issuances of our common stock or other securities, the payment of dividends, if any, on our common stock, the incurrence or modification of debt by us, amendments to our Amended and Restated Certificate of Incorporation and our Amended and Restated Bylaws, and the entering into of extraordinary transactions, and their interests may not in all cases be aligned with your interests. In addition, Thomas Priore may have an interest in pursuing acquisitions, divestitures, and other transactions that, in his judgment, could enhance his investment, even though such transactions might involve risks to you. For example, he could cause us to make acquisitions that increase our indebtedness or cause us to sell revenue-generating assets. Additionally, in certain circumstances, acquisitions of debt at a discount by purchasers that are related to a debtor can give rise to cancellation of indebtedness income to such debtor for U.S. federal income tax purposes.
 
Our Amended and Restated Certificate of Incorporation provides that neither he nor any of his affiliates, or any director who is not employed by us (including any non-employee director who serves as one of our officers in both his director and officer capacities) will have any duty to refrain from engaging, directly or indirectly, in the same business activities or similar business activities or lines of business in which we operate. So long as Thomas Priore continues to own a significant amount of our combined

36

Table of Contents

voting power, even if such amount is less than 50%, he will continue to be able to strongly influence or effectively control our decisions. Furthermore, so long as Thomas Priore and his respective affiliates collectively own at least 50% of all outstanding shares of our common stock entitled to vote generally in the election of directors, they will be able to appoint individuals to our board of directors. In addition, given his level of control, Thomas Priore will be able to determine the outcome of all matters requiring stockholder approval and will be able to cause or prevent a change of control of the Company or a change in the composition of our board of directors and could preclude any unsolicited acquisition of the Company. The concentration of ownership could deprive you of an opportunity to receive a premium for your shares of common stock as part of a sale of the Company and ultimately might affect the market price of our common stock.
 
We are a "controlled company" within the meaning of the rules of the Nasdaq Stock Market, LLC ("Nasdaq") and, as a result, qualify for, and rely on, exemptions from certain corporate governance requirements. You will not have the same protections as those afforded to stockholders of companies that are subject to such governance requirements.
 
Mr. Thomas Priore controls a majority of the voting power of our outstanding common stock. As a result, we are a "controlled company" within the meaning of the corporate governance standards of Nasdaq. Under these rules, a company of which more than 50% of the voting power is held by an individual, group or another company is a "controlled company" and may elect not to comply with certain corporate governance requirements, including:

the requirement that a majority of our board of directors consist of independent directors;

the requirement that we have a Nominating/Corporate Governance Committee that is composed entirely of independent directors with a written charter addressing the committee's purpose and responsibilities; and

the requirement that we have a Compensation Committee that is composed entirely of independent directors with a written charter addressing the committee's purpose and responsibilities.

We utilize and intend to continue to utilize these exemptions. As a result, we do not have a majority of independent directors and our Compensation Committee and Nominating/Corporate Governance Committee does not consist entirely of independent directors. Accordingly, our stockholders do not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of Nasdaq.
 

Risk Factors Related to Our Warrants
 
We may redeem your unexpired warrants prior to their exercise at a time that is disadvantageous to you, thereby making your warrants worthless.
 
We have the ability to redeem outstanding warrants (the "Warrants") at any time after they become exercisable and prior to their expiration, at $0.01 per warrant, if the last reported sales price (or the closing bid price of our common stock in the event the common stock is not traded on any specific trading day) of the common stock equals or exceeds $16.00 per share for any 20 trading days within a 30-trading day period ending on the third business day prior to the date we send proper notice of such redemption, provided that on the date we give notice of redemption and during the entire period thereafter until the time we redeem the Warrants, we have an effective registration statement under the Securities Act covering the common stock issuable upon exercise of the Warrants and a current prospectus relating to them is available or cashless exercise is exempt from the registration requirements under the Securities Act. If and when the Warrants become redeemable by us, we may exercise our redemption right even if we are unable to register or qualify the underlying securities for sale under all applicable state securities laws. Redemption of the outstanding Warrants could force a warrant holder: (i) to exercise Warrants and pay the exercise price therefore at a time when it may be disadvantageous for you to do so, (ii) to sell Warrants at the then-current market price when you might otherwise wish to hold your Warrants or (iii) to accept the nominal redemption price which, at the time the outstanding Warrants are called for redemption, may be substantially less than the market value of your Warrants.
 





37

Table of Contents

The liquidity of the Warrants may be limited.
 
There is a limited trading market for our Warrants, which might adversely affect the liquidity, market price and price volatility of the Warrants. In addition, our publicly-traded Warrants have been removed from quotation on The Nasdaq Global Market. As a result, investors in our Warrants may find it more difficult to dispose of or obtain accurate quotations as to the market value of our Warrants, and the ability of our stockholders to sell our Warrants in the secondary market has been materially limited.
 

 


38

Table of Contents

ITEM 1B. UNRESOLVED STAFF COMMENTS

N/A


ITEM 2. PROPERTIES

We maintain several offices across the United States, all of which we lease.

Our key office locations include:

corporate headquarters in Alpharetta, Georgia;
administrative office in Hicksville, NY; and
administrative office in New York, NY.

We lease several small facilities for sales and operations. Our current facilities meet the needs of our employee base and can accommodate our currently contemplated growth.



ITEM 3. LEGAL PROCEEDINGS

We are involved in certain other legal proceedings and claims, which arise in the ordinary course of business. In the opinion of the Company, based on consultations with inside and outside counsel, the results of any of these ordinary course matters, individually and in the aggregate, are not expected to have a material effect on our 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.



ITEM 4. MINE SAFETY DISCLOSURES

N/A

39

Table of Contents

PART II.


ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES


Market Information

Prior to the consummation of the Business Combination on July 25, 2018, MI Acquisitions' common stock, warrants and units were each listed on The Nasdaq Capital Market under the symbol "MACQ," "MACQW" and "MACQU," respectively. Upon the consummation of the Business Combination and the change of the Company's name to Priority Technology Holdings, Inc., our common stock commenced trading on The Nasdaq Global Market under the symbol "PRTH" and our warrants and units commenced trading under the symbols "PRTHW" and "PRTHU," respectively. As of March 6, 2019, our warrants and units were delisted from trading on The Nasdaq Global Market. Following their delisting, our warrants and units became available to be quoted in the over-the-counter market under the symbols "PRTHW" and "PRTHU," respectively.

Holders

As of March 26, 2020, we had 36 holders of record of our common stock. This figure does not include the number of persons whose securities are held in nominee or "street" name accounts through brokers. With the exception of one holder, all of our outstanding warrants and units were held in nominee or "street" name accounts through brokers.

Dividends
 
We have never declared or paid, and do not anticipate declaring or paying in the foreseeable future, any cash dividends on our common stock.

Recent Sales of Unregistered Securities

None.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

On December 19, 2018, the Company's Board of Directors authorized a stock repurchase program. Under the program, the Company was authorized to purchase up to $5.0 million of its outstanding common stock from time to time through June 30, 2019. During the second quarter of 2019, the Company repurchased a total of 451,224 shares of its common stock at an average price of $5.29 per share. Total cash paid by the Company was approximately $2.4 million.


40

Table of Contents

ITEM 6. SELECTED FINANCIAL DATA
 
The following table sets forth selected historical financial information derived from our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K as of December 31, 2019 and 2018 and for the years then ended. You should read the following selected financial data in conjunction with the sections entitled "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations" and the audited consolidated financial statements and the related notes appearing elsewhere in this Annual Report on Form 10-K. 
 
(in thousands except per share amounts)
 
Year Ended December 31,
 
As recasted
 
As restated
 
 As restated
 
2019 (a)
 
2018 (b)
 
2017 (b)
 
 
 
 
 
 
 
 
 
Statement of operations data
 
 
 
 
 
 
 
Revenues
 
$
371,854

 
$
375,822

 
$
382,167

 
Operating expenses
 
364,670

 
359,429

 
347,673

 
Interest expense
 
(40,653
)
 
(29,935
)
 
(25,058
)
 
Other, net
 
710

 
(6,784
)
 
(5,597
)
 
(Loss) income before income taxes
 
(32,759
)
 
(20,326
)
 
3,839

 
Income tax expense (benefit)
 
830

 
(2,490
)
 

 
Net (loss) income
 
$
(33,589
)
 
$
(17,836
)
 
$
3,839

 
 
 
 
 
 
 
 
 
Basic and diluted (loss) earnings per share
 
$
(0.50
)
 
$
(0.29
)
 
$
0.05

 
 
 
(a) Recasted to reflect the full retrospective adoption of ASC 606. See Note 1 to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K.
 
(b) Recasted to reflect the full retrospective adoption of ASC 606 and restated to reflect the corrections of errors. See Note 1 and Note 2 to the consolidated financial statements in Item 8 of the Annual Report on Form 10-K.
 
 
 
 
(in thousands)
 
Year Ended December 31,
 
2019
 
2018
 
2017
 
Statement of cash flows data
 
 
 
 
 
 

 
Net cash provided by (used in):
 
 
 
 
 
 

 
Operating activities
 
$
39,364

 
$
31,348

 
$
36,869

 
Investing activities
 
$
(97,747
)
 
$
(108,928
)
 
$
(9,037
)
 
Financing activities
 
$
75,017

 
$
67,252

 
$
(25,375
)
  
(in thousands)
 
As of December 31,
 
 
2019
 
2018 (a)
Balance Sheet data
 
 
 
 
Cash and restricted cash
 
$
50,465

 
$
33,831

Total assets
 
$
464,505

 
$
379,296

Total liabilities
 
$
585,194

 
$
473,314

Total stockholders' deficit
 
$
(120,689
)
 
$
(94,018
)
Shares of common stock outstanding
 
67,061

 
67,038

 
 
 
 
 
(a) Restated to reflect the corrections of errors. See Note 2 to the consolidated financial statements in Item 8 of the Annual Report on Form 10-K.

41

Table of Contents

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
You should read the following management's discussion and analysis of financial condition and results of operations together with "Item 6 - Selected Financial Data" and our audited financial statements and the related notes included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements about our business, operations and industry that involve risks and uncertainties, such as statements regarding our plans, objectives, expectations and intentions. Our future results and financial condition may differ materially from those currently anticipated by us as a result of the factors described in the sections entitled "Item 1A - Risk Factors" and "Cautionary Note Regarding Forward Looking Statements."

Certain amounts in this section may not foot due to rounding.

For a description and additional information about our three reportable segments, see Note 18, Segment Information, contained in "Item 8 - Financial Statements and Supplementary Data" of this Annual Report on Form 10-K.


Full Retrospective Adoption of ASC 606, Revenues from Contracts with Customers, and Error Corrections in Prior Periods

As disclosed in Notes 1 and 2 to our consolidated financial statements presented in Item 8 of the Annual Report on Form 10-K, we have:
1) recasted our consolidated statements of operations for the years ended December 31, 2019, 2018, and 2017 for the full retrospective adoption of ASC 606, Revenue from Contracts with Customers; and

2) restated our consolidated statements of operations and our consolidated statements of cash flows for the years ended December 31, 2018 and 2017, our consolidated balance sheet as of December 31, 2018, and our consolidated statements of stockholders' equity (deficit) for the years ended December 31, 2018 and 2017 including beginning stockholders equity as of January 1, 2017 for the cumulative effects for reporting periods prior to 2017. The revisions were the result of certain error corrections that occurred in reporting periods prior to 2019.

All results of operations, financial condition, cash flows, and other matters disclosed and discussed in this Item 7 reflect the results of the above revisions.

Additional information about the restatement can be found in the following notes to our consolidated financial statements in Item 8 of this Annual Report on Form 10-K:

Note 18, Segment Information
Note 20, Selected Quarterly Financial Results (Unaudited)


Results of Operations
 
This section includes a summary of our results of operations for the periods presented followed by a detailed discussion of our results for (i) the year ended December 31, 2019 compared to the year ended December 31, 2018 and (ii) the year ended December 31, 2018 compared to the year ended December 31, 2017. We have derived this data, except key indicators for merchant bankcard processing dollar values and transaction volumes, from our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Our revenue for the years ended December 31, 2019 and 2018 was negatively affected by the closure of high-margin accounts with certain subscription-billing e-commerce merchants. The closure of merchants in this channel was due to industry-wide changes for enhanced card association compliance. This revenue, which is entirely within our Consumer Payments reportable segment, was $7.8 million, $59.3 million, and $98.9 million for the years ended December 31, 2019, 2018, and 2017, respectively. Our income from operations associated with these merchants was $3.5 million, $21.3 million, and $32.7 million for the years ended December 31, 2019, 2018, and 2017, respectively.


42

Table of Contents

In addition to the impact of the closures of certain merchants described above, our income from operations for the years ended December 31, 2018 and 2017 were negatively affected by expenses associated with our Business Combination, conversion to a public company, and certain legal matters. These expenses were $8.9 million, $12.4 million, and $5.6 million, for the years ended December 31, 2019, 2018, and 2017 respectively.


Year Ended December 31, 2019 Compared to Year Ended December 31, 2018
 
(dollars in thousands)
 
Year Ended December 31,
 
 
 
 
 
 
As recasted
 
As restated
 
 
 
 
 
 
2019
 
2018
 
$ Change
 
% Change
 
 

 
 
 
 
 
 
REVENUES
 
$
371,854

 
$
375,822

 
$
(3,968
)
 
(1.1
)%
 
 
 
 
 
 
 
 
 
OPERATING EXPENSES:
 
 
 
 

 
 
 
 
Costs of services
 
252,569

 
269,284

 
(16,715
)
 
(6.2
)%
Salary and employee benefits
 
42,214

 
38,324

 
3,890

 
10.2
 %
Depreciation and amortization
 
39,092

 
19,740

 
19,352

 
98.0
 %
Selling, general and administrative
 
30,795

 
32,081

 
(1,286
)
 
(4.0
)%
Total operating expenses
 
364,670

 
359,429

 
5,241

 
1.5
 %
 
 
 
 
 
 
 
 
 
Income from operations
 
7,184

 
16,393

 
(9,209
)
 
(56.2
)%
Operating margin
 
1.9
%
 
4.4
%
 


 
 
OTHER (EXPENSES) INCOME:
 
 
 
 

 
 
 
 
Interest expense
 
(40,653
)
 
(29,935
)
 
(10,718
)
 
35.8
 %
Other, net
 
710

 
(6,784
)
 
7,494

 
(110.5
)%
Total other expenses, net
 
(39,943
)
 
(36,719
)
 
(3,224
)
 
8.8
 %
 
 
 
 
 
 
 
 
 
Loss income before taxes
 
(32,759
)
 
(20,326
)
 
(12,433
)
 
61.2
 %
 
 
 
 
 
 
 
 
 
Income tax expense (benefit) 
 
830

 
(2,490
)
 
3,320

 
nm

 
 
 
 
 
 
 
 
 
Net loss
 
$
(33,589
)
 
$
(17,836
)
 
$
(15,753
)
 
88.3
 %
 

nm = not meaningful















43

Table of Contents

The following table shows our segment income statement data and selected performance measures for the periods indicated: 
(dollars and volume amounts in thousands)
 
Year Ended December 31,
 
 
 
 
 
 
As recasted
 
As restated
 
 
 
 
 
 
2019
 
2018
 
Change
 
% Change
 
 

Consumer Payments:
 
 

 
 

 
 

 
 

Revenue
 
$
330,599

 
$
347,013

 
$
(16,414
)
 
(4.7
)%
Operating expenses
 
298,362

 
300,011

 
(1,649
)
 
(0.5
)%
Income from operations
 
$
32,237

 
$
47,002

 
$
(14,765
)
 
(31.4
)%
Operating margin
 
9.8
 %
 
13.5
 %
 


 


Depreciation and amortization
 
$
32,842

 
$
17,945

 
$
14,897

 
83.0
 %
 
 
 
 
 
 
 
 
 
Key Indicators:
 
 
 
 
 
 
 
 
Merchant bankcard processing dollar value
 
$
42,303,880

 
$
37,892,474

 
$
4,411,406

 
11.6
 %
Merchant bankcard transaction volume
 
511,852

 
465,584

 
46,268

 
9.9
 %
 
 
 
 
 
 
 
 
 
Commercial Payments:
 
 
 
 
 


 


Revenue
 
$
25,980

 
$
27,056

 
$
(1,076
)
 
(4.0
)%
Operating expenses
 
26,871

 
28,008

 
(1,137
)
 
(4.1
)%
Loss from operations
 
$
(891
)
 
$
(952
)
 
$
61

 
(6.4
)%
Operating margin
 
(3.4
)%
 
(3.5
)%
 


 


Depreciation and amortization
 
$
323

 
$
557

 
$
(234
)
 
(42.0
)%
 
 
 
 
 
 
 
 
 
Key Indicators:
 
 
 
 
 
 
 
 
Merchant bankcard processing dollar value
 
$
312,342

 
$
257,308

 
$
55,034

 
21.4
 %
Merchant bankcard transaction volume
 
109

 
118

 
(9
)
 
(7.6
)%
 
 
 
 
 
 
 
 
 
Integrated Partners:
 
 
 
 
 
 
 
 
Revenue
 
$
15,275

 
$
1,753

 
$
13,522

 
nm

Operating expenses
 
14,550

 
3,722

 
10,828

 
nm

Income (loss) from operations
 
$
725

 
$
(1,969
)
 
$
2,694

 
nm

Depreciation and amortization
 
$
4,398

 
$
145

 
$
4,253

 
nm

 
 
 
 
 
 
 
 
 
Key Indicators:
 
 
 
 
 
 
 
 
Merchant bankcard processing dollar value
 
$
386,101

 
$
5,516

 
$
380,585

 
nm

Merchant bankcard transaction volume
 
1,380

 
55

 
1,325

 
nm

 
 
 
 
 
 
 
 
 
Income from operations of reportable segments
 
$
32,071

 
$
44,081

 
$
(12,010
)
 
(27.2
)%
Corporate expenses
 
24,887

 
27,688

 
(2,801
)
 
(10.1
)%
Consolidated income from operations
 
$
7,184

 
$
16,393

 
$
(9,209
)
 
(56.2
)%
Corporate depreciation and amortization
 
$
1,529

 
$
1,093

 
$
436

 
39.9
 %
 
 
 
 
 
 
 
 
 
Key Indicators:
 
 
 
 
 
 
 
 
Merchant bankcard processing dollar value
 
$
43,002,323

 
$
38,155,298

 
$
4,847,025

 
12.7
 %
Merchant bankcard transaction volume
 
513,341

 
465,757

 
47,584

 
10.2
 %

nm = not meaningful

44

Table of Contents

Revenue
 
For the year ended December 31, 2019, our consolidated revenue decreased by $4.0 million, or 1.1%, from the year ended December 31, 2018 to $371.9 million. This decrease was driven by a $16.4 million, or 4.7%, decrease in revenue from our Consumer Payments segment and a $1.1 million, or 4.0%, decrease in revenue from our Commercial Payments segment, partially offset by a $13.5 million increase in revenue from our Integrated Partners segment. Consolidated bankcard processing dollar value and merchant bankcard transactions increased 12.7% and 10.2%, respectively.

For the year ended December 31, 2019, the decrease in Consumer Payments revenue was primarily attributable to a decrease in revenue of $51.5 million from certain subscription-billing e-commerce merchants, largely offset by revenue resulting from the overall increases in bankcard processing dollar value and merchant bankcard transactions of 11.6% and 9.9%, respectively, compared to the year ended December 31, 2018. The higher merchant bankcard processing dollar value and transaction volume in 2019 were mainly due to the continuation of higher consumer spending trends in 2019 and positive net onboarding of new merchants. Additionally, the average dollar amount per bankcard transaction increased to $82.65, or 1.5%, in 2019 from $81.39 in 2018.
 
For the year ended December 31, 2019, the decrease in Commercial Payments revenue was attributable to a $2.3 million decrease in revenue from our curated managed services program, partially offset by a $1.2 million increase in revenue from our CPX accounts payable solutions. The managed services decline was largely driven by lower incentive revenue and the CPX increase was driven by customer additions and higher merchant bankcard processing dollar value.
 
For the year ended December 31, 2019, the increase in our Integrated Partners revenue was due primarily to a $12.3 million increase in revenue from Priority Real Estate Technology ("PRET"). PRET's revenue growth included $11.7 million from our March 2019 acquisition of a portfolio of customers from YapStone, Inc. Revenue from Priority PayRight Health Solutions and Priority Hospitality Technology, which commenced operations in April 2018 and February 2019, respectively, comprised the remainder of this reportable segment’s $1.2 million revenue growth.

 
Operating expenses
 
Our consolidated operating expenses increased by $5.2 million, or 1.5%, from $359.4 million for the year ended December 31, 2018 to $364.7 million for the year ended December 31, 2019, driven primarily by a $19.4 million, or 98.0%, increase in amortization and depreciation expense related to asset acquisitions that occurred in late 2018 and 2019. Salary and employee benefits increased $3.9 million, or 10.2%, related to increases in corporate and operations headcount and higher headcount from business and asset acquisitions in 2019 and 2018. These increases were partially offset by a $16.7 million, or 6.2%, decrease in costs of services in correlation with lower revenues in 2019 and due to lower residual expenses in 2019 resulting from buyouts of residual commission rights in 2019 and 2018. Costs of merchant card fees as a percentage of merchant card fee revenue dropped by 190 basis points in 2019 from 2018. Selling, General, and Administrative ("SG&A") expenses decreased by $1.3 million, or 4.0%, due primarily to a $0.6 million reduction in the fair value of contingent consideration and to lower corporate expenses related to transaction costs associated with the Business Combination and conversion to a public company, such as legal, accounting and other advisory and consulting expenses.
 
Income from operations
 
Consolidated income from operations decreased $9.2 million, or 56.2%, for the year ended December 31, 2019 compared to the year ended December 31, 2018. Our consolidated operating margin for year ended December 31, 2019 was 1.9% compared to 4.4% for the year ended December 31, 2018. The margin decrease was primarily due to the loss of certain subscription-billing e-commerce merchants.
 
Our Consumer Payments reportable segment earned $32.2 million in income from operations for the year ended December 31, 2019, a decrease of $14.8 million, or 31.4%, from $47.0 million for the year ended December 31, 2018. This decrease largely reflected the loss of certain subscription-billing e-commerce merchants, which contributed $3.5 million and $21.3 million of income from operations in the years ended December 31, 2019 and 2018, respectively, partially offset by income resulting from the growth in merchant bankcard processing dollar value and transaction volume.
 

45

Table of Contents

Our Commercial Payments reportable segment incurred a $0.9 million loss from operations for the year ended December 31, 2019, compared to a $1.0 million loss from operations for the year ended December 31, 2018.

Our Integrated Partners segment earned income from operations of $0.7 million for the year ended December 31, 2019 compared to a loss from operations of $2.0 million for the year ended December 31, 2018. This increase in income from operations in 2019 was due primarily to the 2019 acquisition of certain portfolio assets from YapStone, Inc., which included $4.0 million of increased depreciation expense and $2.9 million of transitional acquisition integration costs.

Corporate expenses were $24.9 million for the year ended December 31, 2019, a decrease of $2.8 million, or 10.1%, over expenses of $27.7 million for the year ended December 31, 2018. This decrease was driven primarily by a $6.4 million decrease in expenses associated with our Business Combination, conversion to a public company, and certain legal matters. These expenses were $6.0 million and $12.4 million for the years ended December 31, 2019 and 2018, respectively.
 
Interest expense

Interest expense, including amortization of deferred debt issuance costs and discount, increased by $10.7 million, or 35.8%, to $40.7 million in 2019 from $29.9 million in 2018. This increase was primarily due to higher outstanding borrowings in 2019 driven by acquisition related borrowings.

Other, net
 
Other, net increased $7.5 million from a net expense of $6.8 million in the year ended December 31, 2018 to net income of $0.7 million in the year ended December 31, 2019. The 2018 amount included $3.5 million expense from the change in fair value of a prior warrant liability and also included $3.3 million of debt modification and other net costs.

Income tax expense (benefit)
 
We became part of a C-Corporation reporting tax group on July 25, 2018 in connection with the Business Combination. On July 25, 2018, we recognized a net deferred income tax asset of $47.5 million, which also resulted in a credit to our additional paid-in capital within our consolidated stockholders' deficit. The net deferred tax asset is the result of the difference between the initial tax bases in the assets and liabilities and their respective carrying amounts for financial statement purposes.

For the year ended December 31, 2019, our income tax expense was $0.8 million, resulting in an effective income tax benefit rate of 2.5%. See note 11, Income Taxes, to our consolidated financial statements in Item 8 of the Annual Report on Form 10-K.

For the year ended December 31, 2018, our income tax benefit was $2.5 million, resulting in an effective income tax rate of 12.5%. This income tax benefit was based on the pre-tax loss incurred after July 25, 2018. On a pro-forma basis assuming C-Corporation status for the full year 2018, our income tax benefit would have been $3.2 million, resulting in a pro-forma effective income tax rate of 15.6%. Our annualized pro-forma effective income tax rate for 2018 was less than the statutory rate due to timing and permanent differences between amounts calculated under GAAP and the tax code.

The effective income tax rate for 2019 may not be indicative of our effective tax rate for future periods.
 
Net loss
 
Our consolidated net loss for the year ended December 31, 2019 was $33.6 million compared to a net loss of $17.8 million for the year ended December 31, 2018 for the aforementioned reasons.








46

Table of Contents

Year Ended December 31, 2018 Compared to Year Ended December 31, 2017
 

The following table shows our consolidated income statement data for the periods indicated:
 
(dollars in thousands)
 
Year Ended December 31,
 
 
 
 
As restated
 
As restated
 
 
 
 
 
 
2018
 
2017
 
$ Change
 
% Change
 
 
 
 
 
 
 
 
 
REVENUES
 
$
375,822

 
$
382,167

 
$
(6,345
)
 
(1.7
)%
 
 
 
 
 
 
 
 
 
OPERATING EXPENSES:
 
 

 
 

 
 

 
 

Costs of services
 
269,284

 
278,507

 
(9,223
)
 
(3.3
)%
Salary and employee benefits
 
38,324

 
32,357

 
5,967

 
18.4
 %
Depreciation and amortization
 
19,740

 
14,674

 
5,066

 
34.5
 %
Selling, general and administrative
 
32,081

 
22,135

 
9,946

 
44.9
 %
Total operating expenses
 
359,429

 
347,673

 
11,756

 
3.4