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Priority Technology Holdings, Inc. Announces Third Quarter 2022 Financial Results

Strong Third Quarter Revenue and Gross Profit (Non-GAAP) Growth Across all Business Segments

Priority Technology Holdings, Inc. (NASDAQ: PRTH) ("Priority" or the "Company"), the platform for unified commerce that delivers integrated payments and banking at scale, today announced its third quarter 2022 financial results including strong quarter-over-quarter diversified revenue growth.

Highlights of Consolidated Results

Third Quarter 2022, Compared with Third Quarter 2021

Financial highlights of the third quarter of 2022 compared with the third quarter of 2021, are as follows:

  • Revenue of $166.4 million increased 25.6% from $132.5 million.
  • Gross profit (a non-GAAP measure1) of $58.5 million increased 47.4% million from $39.7 million.
  • Gross profit margin (a non-GAAP measure1) of 35.1% increased 510 basis points from 30.0%.
  • Operating income of $14.1 million increased 69.9% from $8.3 million.
  • Adjusted EBITDA (a non-GAAP measure1) of $35.1 million increased 48.7% from $23.6 million.
  1. See "Non-GAAP Financial Measures" and the reconciliations of Gross Profit (non-GAAP),Gross Profit Margin (non-GAAP), and Adjusted EBITDA, to their most comparable GAAP measures provided below for additional information.

"We are pleased that our excellent third quarter results, by all financial metrics, continue to reinforce the strength of the solutions we offer our SMB, B2B and Enterprise payments partners," said Tom Priore, Chairman & CEO of Priority. "Our consistently strong performance through COVID and the current economic turmoil demonstrates the differentiation of our unified commerce platform that performs in varying business cycles and is poised to capitalize on emerging opportunities."

Full Year 2022 Financial Guidance

Priority's outlook remains strong and we are reaffirming our full-year 2022 revenue guidance while revising our adjusted EBITDA guidance for the year.

  • Revenue remains forecasted to range between $650 million to $665 million, a growth rate of 26% to 29%.
  • Adjusted EBITDA (a non-GAAP measure) is forecasted to range between $140 million to $145 million, a growth rate of 46% to 50%, compared to the prior forecasted range of $145 million to $150 million.

Conference Call

Priority Technology Holdings, Inc.'s leadership will host a conference call on Thursday, November 10, 2022 at 11:00 a.m. EST to discuss its third quarter 2022 financial results. Participants can access the call by phone in the U.S. or Canada at (833) 636-1319 or internationally at (412) 902-4286.

The Internet webcast link and accompanying slide presentation can be accessed at https://edge.media-server.com/mmc/p/ofqk9ouz and will also be posted in the "Investor Relations" section of the Company's website at www.prioritycommerce.com.

An audio replay of the call will be available shortly after the conference call until November 17, 2022 at 2:00 p.m. EST. To listen to the audio replay, dial (877) 344-7529 or (412) 317-0088 and enter conference ID number 1085687. Alternatively, you may access the webcast replay in the "Investor Relations" section of the Company's website at www.prioritycommerce.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 (non-GAAP) and Gross Profit Margin (non-GAAP)

The Company's gross profit (non-GAAP) metric represents revenues less cost of revenue (excluding depreciation and amortization). Gross profit margin (non-GAAP) is gross profit (non-GAAP) divided by revenues. We review these non-GAAP measures to evaluate our underlying profit trends. The reconciliation of gross profit (non-GAAP) to its most comparable GAAP measure is provided below:

 

(in thousands)

 

Three Months Ended September 30,

 

2022

 

2021

Revenues

$

166,417

 

 

$

132,542

 

Cost of revenue (excluding depreciation and amortization)

 

(107,958

)

 

 

(92,833

)

Gross profit (non-GAAP)

 

58,459

 

 

 

39,709

 

Gross profit margin (non-GAAP)

 

35.1

%

 

 

30.0

%

Depreciation and amortization of revenue generating assets

 

(2,629

)

 

 

(1,495

)

Gross profit

 

55,830

 

 

 

38,214

 

Gross profit margin

 

33.5

%

 

 

28.8

%

EBITDA and 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. 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.

The reconciliation of adjusted EBITDA to its most comparable GAAP measure is provided below:

 

(in thousands)

 

Three Months Ended September 30,

 

2022

 

2021

Net income (loss)

$

(792

)

 

$

(549

)

Interest expense

 

13,412

 

 

 

8,155

 

Income tax expense

 

1,691

 

 

 

790

 

Depreciation and amortization

 

17,817

 

 

 

12,330

 

EBITDA

 

32,128

 

 

 

20,726

 

Selling, general and administrative (non-recurring)

 

760

 

 

 

1,901

 

Non-cash stock-based compensation

 

1,104

 

 

 

935

 

Change in the fair value of contingent consideration

 

1,072

 

 

 

 

Adjusted EBITDA

$

35,064

 

 

$

23,562

 

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

 

(in thousands)

 

Three Months Ended

September 30,

 

2022

 

2021

Selling, general and administrative expenses (non-recurring):

 

 

 

Certain legal fees

$

199

 

$

932

Professional, accounting and consulting fees

 

95

 

 

383

Other expenses

 

466

 

 

586

 

$

760

 

$

1,901

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.prioritycommerce.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, our 2022 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. 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 17, 2022 and our Quarterly Report on Form 10-Q filed with the SEC on August 9, 2022. These filings are available online at www.sec.gov or www.prioritycommerce.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 Consolidated Statements of Operations

 

(in thousands, except per share amounts)

Three Months Ended

September 30,

 

Nine Months Ended

September 30,

 

2022

 

2021

 

2022

 

2021

Revenues

$

166,417

 

 

$

132,542

 

 

$

486,086

 

 

$

370,853

 

Operating expenses

 

 

 

 

 

 

 

Cost of revenue (excludes depreciation and amortization)

 

107,958

 

 

 

92,833

 

 

 

320,187

 

 

 

264,527

 

Salary and employee benefits

 

16,384

 

 

 

11,909

 

 

 

48,231

 

 

 

31,808

 

Depreciation and amortization

 

17,817

 

 

 

12,330

 

 

 

52,675

 

 

 

32,123

 

Selling, general and administrative

 

10,178

 

 

 

7,220

 

 

 

27,027

 

 

 

22,213

 

Total operating expenses

 

152,337

 

 

 

124,292

 

 

 

448,120

 

 

 

350,671

 

Operating income

 

14,080

 

 

 

8,250

 

 

 

37,966

 

 

 

20,182

 

Other (expense) income

 

 

 

 

 

 

 

Interest expense

 

(13,412

)

 

 

(8,155

)

 

 

(37,282

)

 

 

(24,608

)

Debt extinguishment and modification costs

 

 

 

 

 

 

 

 

 

 

(8,322

)

Other income, net

 

231

 

 

 

146

 

 

 

311

 

 

 

92

 

Total other expense, net

 

(13,181

)

 

 

(8,009

)

 

 

(36,971

)

 

 

(32,838

)

Income (loss) before income taxes

 

899

 

 

 

241

 

 

 

995

 

 

 

(12,656

)

Income tax expense

 

1,691

 

 

 

790

 

 

 

1,833

 

 

 

49

 

Net loss

 

(792

)

 

 

(549

)

 

 

(838

)

 

 

(12,705

)

Less: Dividends and accretion attributable to

redeemable senior preferred stockholders

 

(9,466

)

 

 

(5,813

)

 

 

(26,415

)

 

 

(9,724

)

Less: NCI preferred unit redemptions

 

 

 

 

 

 

 

 

 

 

(10,777

)

Net loss attributable to common stockholders

$

(10,258

)

 

$

(6,362

)

 

$

(27,253

)

 

$

(33,206

)

 

 

 

 

 

 

 

 

Loss per common share:

 

 

 

 

 

 

 

Basic and diluted

$

(0.13

)

 

$

(0.09

)

 

$

(0.35

)

 

$

(0.48

)

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

Basic and diluted

 

77,984

 

 

 

71,979

 

 

 

78,392

 

 

 

69,689

 

 

 

 

 

 

 

 

 

Priority Technology Holdings, Inc.

Unaudited Consolidated Balance Sheets

(in thousands)

 

 

 

 

September 30, 2022

 

December 31, 2021

Assets

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

12,707

 

 

$

20,300

 

Restricted cash

 

11,624

 

 

 

28,859

 

Accounts receivable, net of allowances

 

69,688

 

 

 

58,423

 

Prepaid expenses and other current assets

 

16,725

 

 

 

15,807

 

Current portion of notes receivable

 

986

 

 

 

272

 

Settlement assets and customer account balances

 

516,687

 

 

 

479,471

 

Total current assets

 

628,417

 

 

 

603,132

 

Notes receivable, less current portion

 

2,072

 

 

 

105

 

Property, equipment and software, net

 

29,773

 

 

 

25,233

 

Goodwill

 

365,347

 

 

 

365,740

 

Intangible assets, net

 

301,729

 

 

 

340,211

 

Deferred income taxes, net

 

12,058

 

 

 

8,265

 

Other noncurrent assets

 

10,353

 

 

 

9,256

 

Total assets

$

1,349,749

 

 

$

1,351,942

 

Liabilities, Redeemable Senior Preferred Stock and Stockholders' Deficit

 

 

 

Current liabilities:

 

 

 

Accounts payable and accrued expenses

$

50,955

 

 

$

42,523

 

Accrued residual commissions

 

32,593

 

 

 

29,532

 

Customer deposits and advance payments

 

3,111

 

 

 

5,021

 

Current portion of long-term debt

 

6,200

 

 

 

6,200

 

Settlement and customer account obligations

 

517,008

 

 

 

500,291

 

Total current liabilities

 

609,867

 

 

 

583,567

 

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

 

593,068

 

 

 

604,105

 

Other noncurrent liabilities

 

13,583

 

 

 

18,349

 

Total noncurrent liabilities

 

606,651

 

 

 

622,454

 

Total liabilities

 

1,216,518

 

 

 

1,206,021

 

Redeemable senior preferred stock

 

225,095

 

 

 

210,158

 

Stockholders' deficit:

 

 

 

Preferred stock

 

 

 

 

 

Common stock

 

78

 

 

 

77

 

Additional paid-in capital

 

17,719

 

 

 

39,835

 

Treasury stock, at cost

 

(8,765

)

 

 

(4,091

)

Accumulated deficit

 

(100,896

)

 

 

(100,058

)

Total stockholders' deficit

 

(91,864

)

 

 

(64,237

)

Total liabilities, redeemable senior preferred stock and stockholders' deficit

$

1,349,749

 

 

$

1,351,942

 

Priority Technology Holdings, Inc.

Unaudited Consolidated Statements of Cash Flows

 

(in thousands)

Nine Months Ended September

30,

 

2022

 

2021

Cash flows from operating activities:

 

 

 

Net loss

$

(838

)

 

$

(12,705

)

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

 

 

 

Depreciation and amortization of assets

 

52,675

 

 

 

32,123

 

Stock-based compensation

 

4,204

 

 

 

2,349

 

Amortization of debt issuance costs and discounts

 

2,613

 

 

 

1,607

 

Write-off of deferred loan costs and discount

 

 

 

 

2,580

 

Deferred income tax benefit

 

(3,567

)

 

 

(160

)

PIK interest paid

 

 

 

 

(23,715

)

Other non-cash items, net

 

(154

)

 

 

(39

)

Change in operating assets and liabilities:

 

 

 

Accounts receivable

 

(11,265

)

 

 

(10,847

)

Prepaid expenses and other current assets

 

(2,575

)

 

 

(1,947

)

Income taxes (receivable) payable

 

1,003

 

 

 

(1,541

)

Notes receivable

 

569

 

 

 

(190

)

Accounts payable and other accrued liabilities

 

13,711

 

 

 

9,192

 

Customer deposits and advance payments

 

(1,910

)

 

 

713

 

Other assets and liabilities, net

 

(3,908

)

 

 

13

 

Net cash provided by (used in) operating activities

 

50,558

 

 

 

(2,567

)

Cash flows from investing activities:

 

 

 

Acquisitions of businesses, net of cash acquired

 

 

 

 

(407,129

)

Additions to property, equipment and software

 

(11,380

)

 

 

(7,530

)

Notes receivable loan funding

 

(3,250

)

 

 

 

Acquisitions of intangible assets

 

(6,715

)

 

 

(48,219

)

Other investing activities

 

250

 

 

 

 

Net cash used in investing activities

 

(21,095

)

 

 

(462,878

)

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

)

Repayments of long-term debt

 

(4,650

)

 

 

(359,875

)

Borrowings under revolving credit facility

 

23,000

 

 

 

30,000

 

Repayments of borrowings under revolving credit facility

 

(32,000

)

 

 

 

Proceeds from the issuance of redeemable senior preferred stock, net of discount

 

 

 

 

219,062

 

Redeemable senior preferred stock issuance fees and costs

 

 

 

 

(8,098

)

Repurchases of Common Stock and shares withheld for taxes

 

(4,674

)

 

 

(1,023

)

Dividends paid to redeemable senior preferred stockholders

 

(11,478

)

 

 

(4,015

)

Proceeds from exercise of stock options

 

 

 

 

1,190

 

Settlement and customer accounts obligations, net

 

25,695

 

 

 

396,338

 

Contingent consideration for business combinations and asset acquisitions

 

(3,992

)

 

 

 

Other financing activities

 

 

 

 

(814

)

Net cash (used in) provided by financing activities

 

(8,099

)

 

 

871,010

 

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

 

 

 

Net increase in cash and cash equivalents, and restricted cash

 

21,364

 

 

 

405,565

 

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

 

518,093

 

 

 

88,120

 

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

$

539,457

 

 

$

493,685

 

 

 

 

 

Reconciliation of cash and cash equivalents, and restricted cash:

 

 

 

Cash and cash equivalents

$

12,707

 

 

$

16,974

 

Restricted cash

 

11,624

 

 

 

17,258

 

Cash and cash equivalents included in settlement assets and customer account balances

 

515,126

 

 

 

459,453

 

Total cash and cash equivalents, and restricted cash

$

539,457

 

 

$

493,685

 

Priority Technology Holdings, Inc.

Reportable Segments' Results

(in thousands)

 

Three Months Ended

September 30,

 

Nine Months Ended

September 30,

 

 

2022

 

2021

 

2022

 

2021

SMB Payments:

 

 

 

 

 

 

 

 

Revenue

 

$

139,892

 

 

$

124,737

 

 

$

412,357

 

 

$

354,149

 

Operating expenses

 

 

126,445

 

 

 

110,090

 

 

 

372,429

 

 

 

311,769

 

Operating income

 

$

13,447

 

 

$

14,647

 

 

$

39,928

 

 

$

42,380

 

Operating margin

 

 

9.6

%

 

 

11.7

%

 

 

9.7

%

 

 

12.0

%

Depreciation and amortization

 

$

11,040

 

 

$

11,049

 

 

$

32,844

 

 

$

30,130

 

Key indicators:

 

 

 

 

 

 

 

 

Merchant bankcard processing dollar value

 

$

15,098,450

 

 

$

13,830,550

 

 

$

44,577,857

 

 

$

39,602,577

 

Merchant bankcard transaction volume

 

 

165,796

 

 

 

153,053

 

 

 

476,084

 

 

 

431,369

 

B2B Payments:

 

 

 

 

 

 

 

 

Revenue

 

$

4,868

 

 

$

4,181

 

 

$

16,088

 

 

$

11,722

 

Operating expenses

 

 

4,651

 

 

 

4,210

 

 

 

14,799

 

 

 

12,139

 

Operating income (loss)

 

$

217

 

 

$

(29

)

 

$

1,289

 

 

$

(417

)

Operating margin

 

 

4.5

%

 

 

(0.7

) %

 

 

8.0

%

 

 

(3.6

)%

Depreciation and amortization

 

$

295

 

 

$

73

 

 

$

441

 

 

$

220

 

Key indicators:

 

 

 

 

 

 

 

 

Merchant bankcard processing dollar value

 

$

116,348

 

 

$

87,116

 

 

$

380,217

 

 

$

226,056

 

Merchant bankcard transaction volume

 

 

63

 

 

 

55

 

 

 

239

 

 

 

143

 

Enterprise Payments:

 

 

 

 

 

 

 

 

Revenue

 

$

21,657

 

 

$

3,624

 

 

$

57,641

 

 

$

4,982

 

Operating expenses

 

 

12,345

 

 

 

2,395

 

 

 

38,137

 

 

 

3,418

 

Operating income

 

$

9,312

 

 

$

1,229

 

 

$

19,504

 

 

$

1,564

 

Operating margin

 

 

43.0

%

 

 

33.9

%

 

 

33.8

%

 

 

31.4

%

Depreciation and amortization

 

$

6,203

 

 

$

939

 

 

$

18,599

 

 

$

939

 

Key indicators:

 

 

 

 

 

 

 

 

Merchant bankcard processing dollar value

 

$

585,382

 

 

$

23

 

 

$

1,189,034

 

 

$

23

 

Merchant bankcard transaction volume

 

 

808

 

 

 

 

 

 

2,023

 

 

 

 

Average billed clients

 

 

387,384

 

 

 

342,789

 

 

 

363,993

 

 

 

342,789

 

 

 

 

 

 

 

 

 

 

Operating income of reportable segments

 

$

22,976

 

 

$

15,847

 

 

$

60,721

 

 

$

43,527

 

Less: Corporate expense

 

 

(8,896

)

 

 

(7,597

)

 

 

(22,755

)

 

 

(23,345

)

Consolidated operating income

 

$

14,080

 

 

$

8,250

 

 

$

37,966

 

 

$

20,182

 

Corporate depreciation and amortization

 

$

279

 

 

$

269

 

 

$

791

 

 

$

834

 

Key indicators:

 

 

 

 

 

 

 

 

Merchant bankcard processing dollar value

 

$

15,800,180

 

 

$

13,917,689

 

 

$

46,147,108

 

 

$

39,828,656

 

Merchant bankcard transaction volume

 

 

166,667

 

 

 

153,108

 

 

 

478,346

 

 

 

431,512

 

Average billed clients

 

 

387,384

 

 

 

342,789

 

 

 

363,993

 

 

 

342,789

 

 

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