Priority Technology Holdings, Inc. Announces Third Quarter 2021 Financial Results

Strong Third Quarter Financial Performance 

Completion of Finxera Acquisition Creates Premier Payment Solutions that Collect, Store and Send Money

ALPHARETTA, Ga.--(BUSINESS WIRE)-- Priority Technology Holdings, Inc. (NASDAQ: PRTH) ("Priority" or the "Company"), a leading payments technology company building innovative payment solutions that collect, store and send money to power modern commerce, today announced its third quarter 2021 financial results.

Highlights of Consolidated Results

Third Quarter 2021, Compared with Third Quarter 2020

Financial highlights of third quarter 2021 compared with third quarter 2020, are as follows (gross profit, gross profit margin, and adjusted EBITDA are non-GAAP measures1):

  • Revenue2 of $132.5 million increased 21.6% from $109.0 million.
  • Gross profit of $39.7 million increased 16.8% from $34.0 million.
  • Gross profit margin of 30.0% decreased from 31.2%.
  • Operating Income of $8.3 million increased 17.2% from $7.0 million.
  • Net loss of $0.5 million compares with net income of $85.7 million, which included a one-time $94.9 million after tax gain on sale of a business in third quarter 2020.
  • Diluted loss per share of $0.09 compares with diluted earnings per share of $0.60, which included $0.74 diluted earnings per share from the one-time gain on sale of a business in the third quarter 2020.
  • Adjusted EBITDA1,3 of $23.6 million increased 20.0% from $19.6 million.

"We delivered exceptional third quarter results, driven by impressive growth in our Consumer segment and strong demand in our Commercial and Integrated Partners businesses,” said Tom Priore, Chairman and Chief Executive Officer of Priority. “We now offer an unmatched suite of payment solutions to collect, store and send money on a single technology platform in several strategic, high-growth verticals. Priority is built for the future of payments and is better positioned than ever to deliver long-term value for shareholders."

Updated Full Year 2021 Financial Guidance

The Company has updated its outlook for full year 2021 to include the forecasted post-acquisition contribution from Finxera, as follows:

  • Revenue is forecast to range between $500 to $520 million.
  • Adjusted EBITDA1 (a non-GAAP measure) is forecast to range between $94 to $98 million.
 

(1)

See "Non-GAAP Financial Measures" and the reconciliations of Gross Profit, Gross Profit Margin, and Adjusted EBITDA to their most comparable GAAP measures, and the calculation of Total Net Leverage Ratio as of September 30, 2021 provided below for additional information.

(2)

Revenue in the third quarter of 2021 includes $3.0 million from the Finxera business, acquired on September 17, 2021. Revenue in the third quarter of 2020 includes $3.9 million from the RentPayment business, disposed on September 22, 2020.

(3)

Adjusted EBITDA in the third quarter of 2021 includes $2.0 million from the Finxera business, acquired on September 17, 2021. Adjusted EBITDA in the third quarter of 2020 includes $2.6 million from the RentPayment business, disposed on September 22, 2020.

Conference Call

Priority's leadership will host a conference call on Monday, November 15, 2021 at 11:00 a.m. EST to discuss its third quarter financial results and business developments. Participants can access the call by Phone: US/Canada: (877) 501-3161 or International: (786) 815-8443.

Internet webcast link and accompanying slide presentation can be accessed at https://edge.media-server.com/mmc/p/jv75rtyj and will also be posted in the Investor Relations section of the Company's website at www.PRTH.com. An audio replay of the call will be available shortly after the conference call until November 18, 2021 at 1:30 pm Eastern Time. To listen to the audio replay, dial (855) 859-2056 or (404) 537-3406 and enter conference ID number 8288381. Alternatively, you may access the webcast replay in the Investor Relations section of the Company's website at www.PRTH.com.

Non-GAAP Financial Measures

This communication includes certain non-GAAP financial measures that we regularly review to evaluate our business and trends, measure our performance, prepare financial projections, allocate resources, and make strategic decisions. We believe these non-GAAP measures help to illustrate the underlying financial and business trends relating to our results of operations and comparability between current and prior periods. We also use these non-GAAP measures to establish and monitor operational goals. However, these non-GAAP measures are not superior to or a substitute for prominent measurements calculated in accordance with GAAP. Rather, the non-GAAP measures are meant to be a complement to understanding measures prepared in accordance with GAAP.

Gross Profit and Gross Profit Margin

The Company's non-GAAP gross profit metric represents revenues less costs of services. Gross profit margin is gross profit divided by revenues. We review these non-GAAP measures to evaluate our underlying profit trends. The reconciliation of gross profit to its most comparable GAAP measure is provided below:

 

(in thousands)

 

Three Months Ended September 30,

 

2021

 

2020

Revenues

$

132,542

 

 

$

108,962

 

Costs of Services

92,833

 

 

 

74,971

 

Gross Profit

$

39,709

 

 

$

33,991

 

 

 

 

 

Gross Profit Margin

30.0

%

 

31.2

%

 

EBITDA, Adjusted EBITDA and Consolidated Adjusted EBITDA

EBITDA and adjusted EBITDA are performance measures. EBITDA is earnings before interest, income tax, and depreciation and amortization expenses ("EBITDA"). Adjusted EBITDA begins with EBITDA but further excludes certain non-cash costs, such as stock-based compensation and the write-off of the carrying value of investments or other assets, as well as debt extinguishment and modification expenses and other expenses and income items considered non-recurring, such as acquisition integration expenses, certain professional fees, and litigation settlements. Consolidated adjusted EBITDA, which is a liquidity measure used in determining our total net leverage ratio, is adjusted EBITDA further adjusted for items specified in the definition of consolidated adjusted EBITDA within our debt agreements, which include the pro-forma impact of acquisitions and dispositions and other specified adjustments. We review the non-GAAP adjusted EBITDA measure to evaluate our business and trends, measure our performance, prepare financial projections, allocate resources, and make strategic decisions.

We review the non-GAAP consolidated adjusted EBITDA to evaluate compliance with our total net leverage ratio at each measurement period. The reconciliation of adjusted EBITDA to its most comparable GAAP measure is provided below:

 

(in thousands)

 

Three Months Ended September 30,

 

2021

 

2020

Net loss (GAAP)

$

(549

)

 

$

40,392

 

Interest expense

8,155

 

 

13,471

 

Income tax expense

790

 

 

13,737

 

Depreciation and amortization

12,330

 

 

10,251

 

EBITDA (Non-GAAP)

20,726

 

 

77,851

 

Gain on sale of NCIs

 

 

(62,091

)

Non-cash stock-based compensation

935

 

 

601

 

Selling, general and administrative

1,901

 

 

1,751

 

Debt extinguishment and modification costs

 

 

1,523

 

Adjusted EBITDA (Non-GAAP)

$

23,562

 

 

$

19,635

 

Reconciliation of Adjusted EBITDA to Consolidated Adjusted EBITDA for the last twelve months ended September 30, 2021 and the calculation of the Total Net Leverage Ratio at September 30, 2021 are provided below:

Adjusted EBITDA (Non-GAAP)

$

80,812

 

 

 

Other adjustments

1,759

 

Pro forma impact of acquisitions

65,274

 

Consolidated Adjusted EBITDA (Non-GAAP)

$

147,845

 

 

 

Consolidated Total Debt at September 30, 2021:

 

Current portion of long-term debt

$

6,200

 

Long-term debt, net of current portion

619,957

 

Unamortized discounts and costs

22,293

 

 

648,450

 

Less unrestricted cash

(16,974

)

Consolidated Net Debt

$

631,476

 

 

 

Total Net Leverage Ratio

4.27x

Further detail of certain of these adjustments, and where these items are recorded in our consolidated statements of operations, is provided below:

 

Three Months Ended September 30,

 

 

(in thousands)

2021

2020

 

Segment

 

 

 

 

 

Selling, general and administrative expense:

 

 

 

 

Litigation settlement recoveries

 

(801

)

 

Corporate

Certain legal fees and expenses

932

 

560

 

 

Corporate

Professional, accounting and consulting fees

383

 

 

 

Corporate

Acquisition transition services

 

1,012

 

 

Integrated Partners

Intangible carrying value adjustment

 

980

 

 

Consumer

Other

586

 

 

 

Corporate

 

$

1,901

 

$

1,751

 

 

 

 

 

 

 

 

Salary and employee benefit expense:

 

 

 

 

Non-cash stock-based compensation

$

94

 

$

111

 

 

Consumer

Non-cash stock-based compensation

16

 

30

 

 

Commercial

Non-cash stock-based compensation

1

 

2

 

 

Integrated Partners

Non-cash stock-based compensation

824

 

458

 

 

Corporate

 

$

935

 

$

601

 

 

 

 

 

 

 

 

Other income, net:

 

 

 

 

Debt extinguishment and modification costs

 

$

(1,523

)

 

 

Gain on sale of business

 

107,239

 

 

 

Attributable to NCIs

 

(45,148

)

 

 

 

$

 

$

60,568

 

 

 

Priority does not provide a reconciliation of forward-looking non-GAAP financial measures to their comparable GAAP financial measures because it could not do so without unreasonable effort due to the unavailability of the information needed to calculate reconciling items and due to the variability, complexity and limited visibility of the adjusting items that would be excluded from the non-GAAP financial measures in future periods. When planning, forecasting and analyzing future periods, the Company does so primarily on a non-GAAP basis without preparing a GAAP analysis as that would require estimates for various cash and non-cash reconciling items that would be difficult to predict with reasonable accuracy. For example, stock-based compensation expense would be difficult to estimate because it depends on the Company's future hiring and retention needs, as well as the future fair market value of the Company's common stock, all of which are difficult to predict and subject to constant change. As a result, the Company does not believe that a GAAP reconciliation would provide meaningful supplemental information about the Company's outlook.

About Priority Technology Holdings, Inc.

Priority is a payments powerhouse driving the convergence of payments and banking. The company has built a single platform to collect, store, and send money that operates at scale. We help our customers take and make payments while managing business and consumer operating accounts to monetize payment networks. Our tailored, agile technology powers high-value, payments products bolstered by our industry-leading personalized support. Additional information can be found at www.PRTH.com.

Forward-Looking Statements

This press release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, statements about future financial and operating results, our plans, objectives, expectations and intentions with respect to future operations, products and services, and other statements identified by words such as "may," "will," "should," "anticipates," "believes," "expects," "plans," "future," "intends," "could," "estimate," "predict," "projects," "targeting," "potential" or "contingent," "guidance," "outlook" or words of similar meaning. These forward-looking statements include, but are not limited to, Priority Technology Holdings, Inc.'s ("Priority," "we," "our," or "us") 2021 outlook and statements regarding our market and growth opportunities. Such forward-looking statements are based upon the current beliefs and expectations of our management and are inherently subject to significant business, economic and competitive risks, trends and uncertainties that could cause actual results to differ materially from those projected, expressed, or implied by such forward-looking statements. These forward-looking statements may include, but are not limited to, statements about the effects of the COVID-19 pandemic on our revenues and financial operating results. Our actual results could differ materially, and potentially adversely, from those discussed or implied herein.

We caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. All forward-looking statements are expressly qualified in their entirety by these cautionary statements. You should evaluate all forward-looking statements made in this press release in the context of the risks and uncertainties disclosed in our SEC filings, including our most recent Annual Report on Form 10-K filed with the SEC on March 31, 2021. These filings are available online at www.sec.gov or www.PRTH.com.

We caution you that the important factors referenced above may not contain all of the factors that are important to you. In addition, we cannot assure you that we will realize the results or developments we expect or anticipate or, even if substantially realized, that they will result in the consequences we anticipate or affect us or our operations in the way we expect. You are cautioned not to place undue reliance on forward-looking statements as a predictor of future performance. The forward-looking statements included in this press release are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law. If we do update one or more forward-looking statements, no inference should be made that we will make additional updates with respect to those or other forward-looking statements. We qualify all of our forward-looking statements by these cautionary statements.

 

Priority Technology Holdings, Inc.

Unaudited Condensed Consolidated Statements of Operations

 

(in thousands, except per share amounts)

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

2021

 

2020

 

2021

 

2020

Revenue

$

132,542

 

 

$

108,962

 

 

$

370,853

 

 

$

298,251

 

 

 

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

 

 

Costs of services

92,833

 

 

74,971

 

 

264,527

 

 

203,733

 

Salary and employee benefits

11,909

 

 

10,010

 

 

31,808

 

 

29,695

 

Depreciation and amortization

12,330

 

 

10,251

 

 

32,123

 

 

30,886

 

Selling, general and administrative

7,220

 

 

6,688

 

 

22,213

 

 

19,305

 

Total operating expenses

124,292

 

 

101,920

 

 

350,671

 

 

283,619

 

Operating Income

8,250

 

 

7,042

 

 

20,182

 

 

14,632

 

 

 

 

 

 

 

 

 

Other (expenses) income

 

 

 

 

 

 

 

Interest expense

(8,155

)

 

(13,471

)

 

(24,608

)

 

(35,454

)

Debt extinguishment and modification costs

 

 

(1,523

)

 

(8,322

)

 

(1,899

)

Gain on sale of business

 

 

107,239

 

 

 

 

107,239

 

Other income, net

146

 

 

190

 

 

92

 

 

414

 

Total other (expenses) income, net

(8,009

)

 

92,435

 

 

(32,838

)

 

70,300

 

Income (loss) before income taxes

241

 

 

99,477

 

 

(12,656

)

 

84,932

 

Income tax expense

790

 

 

13,737

 

 

49

 

 

12,919

 

Net (loss) income

(549

)

 

85,740

 

 

(12,705

)

 

72,013

 

Dividends and accretion attributable to redeemable senior preferred stockholders

(5,813

)

 

 

 

(9,724

)

 

 

Non-controlling interest preferred unit redemptions

 

 

 

 

(10,777

)

 

 

Less net income attributable to redeemable non-controlling interests and redeemed non-controlling interests

 

 

(45,348

)

 

 

 

(45,348

)

Net (loss) income attributable to common stockholders

$

(6,362

)

 

$

40,392

 

 

$

(33,206

)

 

$

26,665

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) earnings per common share:

 

 

 

 

 

 

 

Basic and diluted

$

(0.09

)

 

$

0.60

 

 

$

(0.48

)

 

$

0.40

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

Basic and diluted

71,979

 

 

67,167

 

 

69,689

 

 

67,114

 

 

Priority Technology Holdings, Inc.

Unaudited Condensed Consolidated Balance Sheets

 

(in thousands)

September 30, 2021

 

December 31, 2020

Assets

 

 

 

Current assets:

 

 

 

Cash

$

16,974

 

 

$

9,241

 

Restricted cash

17,258

 

 

78,879

 

Accounts receivable, net of allowance

52,651

 

 

41,321

 

Prepaid expenses and other current assets

13,331

 

 

3,500

 

Current portion of notes receivable, net of allowance

152

 

 

2,190

 

Settlement assets and customer account balances

480,315

 

 

753

 

Total current assets

580,681

 

 

135,884

 

 

 

 

 

Notes receivable, less current portion

3,977

 

 

5,527

 

Property, equipment, and software, net

24,915

 

 

22,875

 

Goodwill

372,702

 

 

106,832

 

Intangible assets, net

346,695

 

 

98,057

 

Deferred income taxes, net

3,462

 

 

46,697

 

Other non-current assets

2,752

 

 

1,957

 

Total assets

$

1,335,184

 

 

$

417,829

 

 

 

 

 

Liabilities, Redeemable Senior Preferred Stock and Stockholders' Deficit

 

 

 

Current liabilities:

 

 

 

Accounts payable and accrued expenses

$

42,103

 

 

$

29,821

 

Accrued residual commissions

27,984

 

 

23,824

 

Customer deposits and advance payments

3,597

 

 

2,883

 

Current portion of long-term debt

6,200

 

 

19,442

 

Settlement and customer account obligations

489,326

 

 

72,878

 

Total current liabilities

569,210

 

 

148,848

 

 

 

 

 

Long-term debt, net of current portion, discounts and debt issuance costs

619,957

 

 

357,873

 

Other non-current liabilities

14,111

 

 

9,672

 

Total long-term liabilities

634,068

 

 

367,545

 

 

 

 

 

Total liabilities

1,203,278

 

 

516,393

 

 

 

 

 

Senior preferred stock

205,318

 

 

 

 

 

 

 

Stockholders' deficit:

 

 

 

Preferred stock

 

 

 

Common stock

77

 

 

68

 

Additional paid-in capital

44,640

 

 

5,769

 

Treasury stock, at cost

(3,411

)

 

(2,388

)

Accumulated deficit

(114,718

)

 

(102,013

)

Total stockholders' deficit

(73,412

)

 

(98,564

)

 

 

 

 

Total liabilities, senior preferred stock and stockholders' deficit

$

1,335,184

 

 

$

417,829

 

 

Priority Technology Holdings, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

 

(in thousands)

Nine Months Ended September 30,

 

2021

 

2020

Cash flows from operating activities:

 

 

 

Net (loss) income

$

(12,705

)

 

$

72,013

 

Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

 

 

 

Gain and transaction costs recognized on sale of business

 

 

(111,611

)

Depreciation and amortization of assets

32,123

 

 

30,886

 

Stock-based compensation

2,349

 

 

1,627

 

Amortization of debt issuance costs and discounts

1,607

 

 

1,798

 

Write off of deferred loan costs and discount

2,580

 

 

1,523

 

Deferred income tax (benefit) provision

(160

)

 

6,695

 

Payment-in-kind interest

(23,715

)

 

6,643

 

Impairment charges for intangible asset

 

 

980

 

Other non-cash items, net

(39

)

 

211

 

Change in operating assets and liabilities:

 

 

 

Accounts receivable

(10,847

)

 

(3,962

)

Prepaid expenses and other current assets

(1,947

)

 

(296

)

Income taxes (receivable) payable

(1,541

)

 

6,026

 

Notes receivable

(190

)

 

(398

)

Accounts payable and other accrued liabilities

9,192

 

 

287

 

Customer deposits and advance payments

713

 

 

(1,479

)

Other assets and liabilities, net

13

 

 

(512

)

Net cash (used in) provided by operating activities

(2,567

)

 

10,431

 

 

 

 

 

Cash flows from investing activities:

 

 

 

Acquisition of business, net of cash acquired

(407,129

)

 

 

Proceeds from sale of business

 

 

179,416

 

Additions to property, equipment and software

(7,530

)

 

(6,011

)

Acquisitions of intangible assets

(48,219

)

 

(4,415

)

Net cash used in (provided by) investing activities

(462,878

)

 

168,990

 

 

 

 

 

Cash flows from financing activities:

 

 

 

Proceeds from issuance of long-term debt, net of issue discount

607,318

 

 

 

Debt issuance and modification costs paid

(9,073

)

 

(2,749

)

Repayments of long-term debt

(359,875

)

 

(109,505

)

Borrowings under revolving credit facility

30,000

 

 

7,000

 

Repayments under revolving credit facility

 

 

(7,505

)

Proceeds from issuance of senior preferred equity, net of issue discount

219,062

 

 

 

Senior preferred equity issuance fees and costs

(8,098

)

 

 

Redemption of redeemable non-controlling interest of subsidiary

 

 

(5,654

)

Repurchases of common stock

(1,023

)

 

 

Dividends paid to senior preferred stockholders

(4,015

)

 

 

Profit distributions to redeemable non-controlling interest of subsidiary

(814

)

 

(45,348

)

Proceeds from exercise of stock options

1,190

 

 

 

Settlement and customer accounts obligations, net

396,338

 

 

(7,295

)

Net cash provided by (used in) financing activities

871,010

 

 

(171,056

)

 

 

 

 

Net change in cash and cash equivalents, and restricted cash:

 

 

 

Net increase in cash and cash equivalents, and restricted cash

405,565

 

 

8,365

 

Cash and cash equivalents, and restricted cash at beginning of period

88,120

 

 

50,465

 

Cash and cash equivalents, and restricted cash at end of period

$

493,685

 

 

$

58,830

 

 

PRIORITY TECHNOLOGY HOLDINGS, INC.

Reportable Segments' Results

Unaudited

 

(in thousands)

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

2021

 

2020

 

2021

 

2020

Consumer Payments:

 

 

 

 

 

 

 

 

Revenue

 

$

124,027

 

 

$

99,301

 

 

$

352,045

 

 

$

267,039

 

Operating expenses

 

109,371

 

 

88,203

 

 

309,578

 

 

241,519

 

Operating income

 

$

14,656

 

 

$

11,098

 

 

$

42,467

 

 

$

25,520

 

Operating margin

 

11.8

%

 

11.2

%

 

12.1

%

 

9.6

%

Depreciation and amortization

 

$

10,971

 

 

$

8,481

 

 

$

29,847

 

 

$

25,721

 

 

 

 

 

 

 

 

 

 

Key indicators:

 

 

 

 

 

 

 

 

Merchant bankcard processing dollar value

 

$

13,817,001

 

 

$

11,235,068

 

 

$

39,564,898

 

 

$

30,632,724

 

Merchant bankcard transaction volume

 

151,524

 

 

122,623

 

 

429,610

 

 

334,896

 

 

 

 

 

 

 

 

 

 

Commercial Payments:

 

 

 

 

 

 

 

 

Revenue

 

$

4,181

 

 

$

4,995

 

 

$

11,722

 

 

$

17,017

 

Operating expenses

 

4,210

 

 

4,826

 

 

12,139

 

 

15,609

 

Operating (loss) Income

 

$

(29

)

 

$

169

 

 

$

(417

)

 

$

1,408

 

Operating margin

 

(0.7

)%

 

3.4

%

 

(3.6

) %

 

8.3

%

Depreciation and amortization

 

$

73

 

 

$

77

 

 

$

220

 

 

$

231

 

 

 

 

 

 

 

 

 

 

Key indicators:

 

 

 

 

 

 

 

 

Merchant bankcard processing dollar value

 

$

86,855

 

 

$

58,304

 

 

$

225,373

 

 

$

195,229

 

Merchant bankcard transaction volume

 

54

 

 

24

 

 

140

 

 

70

 

 

 

 

 

 

 

 

 

 

Integrated Partners:

 

 

 

 

 

 

 

 

Revenue

 

$

4,334

 

 

$

4,666

 

 

$

7,086

 

 

$

14,195

 

Operating expenses

 

3,114

 

 

4,413

 

 

5,609

 

 

12,729

 

Operating income

 

$

1,220

 

 

$

253

 

 

$

1,477

 

 

$

1,466

 

Operating margin

 

28.1

%

 

5.4

%

 

20.8

%

 

10.3

%

Depreciation and amortization

 

$

1,017

 

 

$

1,403

 

 

$

1,222

 

 

$

4,048

 

 

 

 

 

 

 

 

 

 

Key indicators:

 

 

 

 

 

 

 

 

Merchant bankcard processing dollar value

 

$

13,832

 

 

$

105,537

 

 

$

38,256

 

 

$

352,144

 

Merchant bankcard transaction volume

 

160

 

 

371

 

 

390

 

 

1,207

 

 

 

 

 

 

 

 

 

 

Operating income of reportable segments

 

$

15,847

 

 

$

11,520

 

 

$

43,527

 

 

$

28,394

 

Less: Corporate expense

 

(7,597

)

 

(4,478

)

 

(23,345

)

 

(13,762

)

Consolidated operating income

 

$

8,250

 

 

$

7,042

 

 

$

20,182

 

 

$

14,632

 

Corporate depreciation and amortization

 

$

269

 

 

$

290

 

 

$

834

 

 

$

886

 

 

 

 

 

 

 

 

 

 

Key indicators:

 

 

 

 

 

 

 

 

Merchant bankcard processing dollar value

 

$

13,917,688

 

 

$

11,398,909

 

 

$

39,828,527

 

 

$

31,180,097

 

Merchant bankcard transaction volume

 

151,738

 

 

123,018

 

 

430,140

 

 

336,173

 

 

Priority Investor and Media Inquiries:
Chris Kettmann
ckettmann@lincolnchurchilladvisors.com
(773) 497-7575

Source: Priority Technology Holdings, Inc.