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Priority Technology Holdings, Inc. Announces Third Quarter 2023 Financial Results

Strong Third Quarter Growth Driven by Performance Across Diverse Business Segments

ALPHARETTA, Ga., November 09, 2023--(BUSINESS WIRE)--Priority Technology Holdings, Inc. (NASDAQ: PRTH) ("Priority" or the "Company"), the platform for unified commerce that delivers integrated payments and banking services at scale, today announced its third quarter 2023 financial results including strong quarter-over-quarter diversified revenue growth.

Highlights of Consolidated Results

Third Quarter 2023 Compared with Third Quarter 2022

Financial highlights of the third quarter of 2023 compared with the third quarter of 2022, are as follows:

  • Revenue of $189.0 million increased 13.6% from $166.4 million

  • Adjusted gross profit (a non-GAAP measure1) of $72.3 million increased 23.6% from $58.5 million

  • Adjusted gross profit margin (a non-GAAP measure1) of 38.3% increased 310 basis points from 35.2%

  • Operating income of $23.5 million increased 66.7% from $14.1 million

  • Adjusted EBITDA (a non-GAAP measure1) of $45.0 million increased 28.2% from $35.1 million

"Building on the momentum we saw in the first half of the year, during the third quarter we continued to execute in all three segments of our business, delivering strong results in SMB Acquiring, B2B and Enterprise Payments," said Tom Priore, Chairman & CEO of Priority. "We are delivering on the promise of unified commerce with clear and sustainable financial performance, as clearly evidenced in our results throughout the tumultuous economic environments like the pandemic and today. We have invested thoughtfully in technology and built scalable operations and financial resources that will continue to outperform as market demands evolve."

(1)

See "Non-GAAP Financial Measures" and the reconciliations of Adjusted Gross Profit (non-GAAP), Adjusted Gross Profit Margin (non-GAAP), and Adjusted EBITDA, to their most comparable GAAP measures provided below for additional information.

Updated Full Year 2023 Financial Guidance

Based on a combination of results for the nine month period ended September 30, 2023 and the forecasted results for the Company's fourth quarter, the Company has updated its outlook for the full year 2023 as follows:

  • Revenue forecast revised to range between $755 million to $765 million, a growth rate of 14% to 15%, compared to fiscal results 2022 results

  • Adjusted EBITDA (a non-GAAP measure) forecast to range between $167 million to $170 million, a growth rate of 19% to 21% compared to fiscal 2022 results

Conference Call

Priority's leadership will host a conference call on Thursday, November 9, 2023 at 11:00 a.m. EST to discuss its third quarter 2023 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/iucimqrs 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 16, 2023 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 2955856. 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.

Adjusted Gross Profit and Adjusted Gross Profit Margin

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

(in thousands)

Three Months Ended September 30,

2023

2022

Revenues

$

189,015

$

166,417

Cost of revenue (excluding depreciation and amortization)

(116,682

)

(107,958

)

Adjusted gross profit

$

72,333

$

58,459

Adjusted gross profit margin

38.3

%

35.1

%

Depreciation and amortization of revenue generating assets

(3,000

)

(2,629

)

Gross profit

$

69,333

$

55,830

Gross profit margin

36.7

%

33.5

%

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,

2023

2022

Net loss

$

(87

)

$

(792

)

Interest expense

19,997

13,412

Income tax expense

4,328

1,691

Depreciation and amortization

17,275

17,817

EBITDA

41,513

32,128

Non-recurring gain

(166

)

Selling, general and administrative (non-recurring)

2,114

760

Non-cash stock-based compensation

1,501

1,104

Change in the fair value of contingent consideration

1,072

Adjusted EBITDA

$

44,962

$

35,064

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,

2023

2022

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

Certain legal fees

$

656

$

199

Professional, accounting and consulting fees

1,364

95

Other expenses, net

94

466

$

2,114

$

760

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 solution provider in Payments and Banking as a Service operating at scale with 820k active customers across its SMB, B2B and Enterprise channels processing $118B in annual transaction volume and providing administration for $850M in average daily deposits. Priority’s purpose-built technology enables clients to collect, store, borrow and send and provides customers the acceptance and AP payment applications and Passport financial tools that best optimize their cash flow and maximize working capital. 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 2023 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 23, 2023. 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 and Comprehensive Loss

(in thousands, except per share amounts)

Three Months Ended September 30,

Nine Months Ended September 30,

2023

2022

2023

2022

Revenues

$

189,015

$

166,417

$

556,333

$

486,086

Operating expenses

Cost of revenue (excludes depreciation and amortization)

116,682

107,958

353,929

320,187

Salary and employee benefits

20,129

16,384

58,286

48,231

Depreciation and amortization

17,275

17,817

53,303

52,675

Selling, general and administrative

11,423

10,178

31,328

27,027

Total operating expenses

165,509

152,337

496,846

448,120

Operating income

23,506

14,080

59,487

37,966

Other (expense) income

Interest expense

(19,997

)

(13,412

)

(55,461

)

(37,282

)

Other income, net

732

231

1,319

311

Total other expense, net

(19,265

)

(13,181

)

(54,142

)

(36,971

)

Income before income taxes

4,241

899

5,345

995

Income tax expense

4,328

1,691

6,550

1,833

Net loss

(87

)

(792

)

(1,205

)

(838

)

Less: Dividends and accretion attributable to redeemable senior preferred stockholders

(12,192

)

(9,466

)

(35,252

)

(26,415

)

Net loss attributable to common stockholders

(12,279

)

(10,258

)

$

(36,457

)

$

(27,253

)

Other comprehensive loss

Foreign currency translation adjustments

(65

)

(34

)

Comprehensive loss

$

(12,344

)

$

(10,258

)

$

(36,491

)

$

(27,253

)

Loss per common share:

Basic and diluted

$

(0.16

)

$

(0.13

)

$

(0.47

)

$

(0.35

)

Weighted-average common shares outstanding:

Basic and diluted

78,381

77,984

78,270

78,392

Priority Technology Holdings, Inc.

Unaudited Consolidated Balance Sheets

(in thousands)

September 30, 2023

December 31, 2022

Assets

Current assets:

Cash and cash equivalents

$

24,595

$

18,454

Restricted cash

13,890

10,582

Accounts receivable, net of allowances

61,134

78,113

Prepaid expenses and other current assets

13,274

11,832

Current portion of notes receivable, net of allowance

1,561

1,471

Settlement assets and customer/subscriber account balances

712,170

532,018

Total current assets

826,624

652,470

Notes receivable, less current portion

3,616

3,191

Property, equipment and software, net

41,851

34,687

Goodwill

375,794

369,337

Intangible assets, net

285,490

288,794

Deferred income taxes, net

18,879

16,447

Other noncurrent assets

11,145

8,437

Total assets

$

1,563,399

1,373,363

Liabilities, Redeemable Senior Preferred Stock and Stockholders' Deficit

Current liabilities:

Accounts payable and accrued expenses

$

56,107

$

51,864

Accrued residual commissions

31,023

35,979

Customer deposits and advance payments

6,634

2,618

Current portion of long-term debt

6,200

6,200

Settlement and customer/subscriber account obligations

710,068

533,340

Total current liabilities

810,032

630,001

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

616,781

598,926

Other noncurrent liabilities

18,545

11,643

Total noncurrent liabilities

635,326

610,569

Total liabilities

1,445,358

1,240,570

Redeemable senior preferred stock, net of discounts and issuance costs

252,923

235,579

Stockholders' deficit:

Preferred stock

Common stock

77

76

Treasury stock, at cost

(12,577

)

(11,559

)

Additional paid-in capital

9,650

Accumulated other comprehensive loss

(34

)

Accumulated deficit

(123,714

)

(102,208

)

Total stockholders' deficit attributable to stockholders of PRTH

(136,248

)

(104,041

)

Non-controlling interest

1,366

1,255

Total stockholders' deficit

(134,882

)

(102,786

)

Total liabilities, redeemable senior preferred stock and stockholders' deficit

$

1,563,399

$

1,373,363

Priority Technology Holdings, Inc.

Unaudited Consolidated Statements of Cash Flows

(in thousands)

Nine Months Ended September 30,

2023

2022

Cash flows from operating activities:

Net loss

$

(1,205

)

$

(838

)

Adjustments to reconcile net loss to net cash provided by operating activities:

Depreciation and amortization of assets

53,303

52,675

Stock-based compensation

5,183

4,204

Amortization of debt issuance costs and discounts

2,812

2,613

Deferred income tax

(2,432

)

(3,567

)

Change in contingent consideration

906

Other non-cash items, net

(169

)

(154

)

Change in operating assets and liabilities:

Accounts receivable

17,931

(11,265

)

Prepaid expenses and other current assets

(2,630

)

(2,575

)

Income taxes (receivable) payable

498

1,003

Notes receivable

(668

)

569

Accounts payable and other accrued liabilities

302

13,711

Customer deposits and advance payments

3,802

(1,910

)

Other assets and liabilities, net

(4,953

)

(3,908

)

Net cash provided by operating activities

72,680

50,558

Cash flows from investing activities:

Acquisition of business, net of cash acquired

(28,182

)

Additions to property, equipment and software

(15,268

)

(11,380

)

Notes receivable, net

151

(3,250

)

Acquisitions of assets and other investing activities

(7,925

)

(6,465

)

Net cash used in investing activities

(51,224

)

(21,095

)

Cash flows from financing activities:

Debt issuance and modification costs paid

(807

)

Repayments of long-term debt

(4,650

)

(4,650

)

Borrowings under revolving credit facility

44,000

23,000

Repayments of borrowings under revolving credit facility

(23,500

)

(32,000

)

Repurchases of Common Stock and shares withheld for taxes

(1,018

)

(4,674

)

Dividends paid to redeemable senior preferred stockholders

(17,908

)

(11,478

)

Settlement and customer/subscriber accounts obligations, net

165,610

25,695

Payment of contingent consideration related to business combination

(4,698

)

(3,992

)

Net cash provided by (used in) financing activities

157,029

(8,099

)

Net change in cash and cash equivalents and restricted cash:

Net increase in cash and cash equivalents, and restricted cash

178,485

21,364

Cash and cash equivalents and restricted cash at beginning of period

560,610

518,093

Cash and cash equivalents and restricted cash at end of period

$

739,095

$

539,457

Reconciliation of cash and cash equivalents, and restricted cash:

Cash and cash equivalents

$

24,595

$

12,707

Restricted cash

13,890

11,624

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

700,610

515,126

Total cash and cash equivalents, and restricted cash

$

739,095

$

539,457

Priority Technology Holdings, Inc.

Unaudited Reportable Segments' Results

(in thousands)

Three Months Ended September 30,

Nine Months Ended September 30,

2023

2022

2023

2022

SMB Payments:

Revenue

$

140,109

$

139,892

$

442,937

$

412,357

Operating expenses

128,288

126,445

407,563

372,429

Operating income

$

11,821

$

13,447

$

35,374

$

39,928

Operating margin

8.4

%

9.6

%

8.0

%

9.7

%

Depreciation and amortization

$

9,858

$

11,040

$

31,473

$

32,844

Key indicators:

Merchant bankcard processing dollar value

$

14,150,995

$

15,098,450

$

44,483,491

$

44,577,857

Merchant bankcard transaction count

178,721

165,796

522,470

476,084

B2B Payments:

Revenue

$

13,748

$

4,868

$

19,505

$

16,088

Operating expenses

13,670

4,651

20,295

14,799

Operating income (loss)

$

78

$

217

$

(790

)

$

1,289

Operating margin

0.6

%

4.5

%

(4.1

)%

8.0

%

Depreciation and amortization

$

772

$

295

$

1,024

$

441

Key indicators:

B2B issuing dollar volume

$

221,456

$

214,085

$

636,361

$

597,665

B2B issuing transaction count

267

247

829

683

Enterprise Payments:

Revenue

$

35,158

$

21,657

$

93,891

$

57,641

Operating expenses

13,819

12,345

43,810

38,137

Operating income

$

21,339

$

9,312

$

50,081

$

19,504

Operating margin

60.7

%

43.0

%

53.3

%

33.8

%

Depreciation and amortization

$

6,154

$

6,203

$

19,557

$

18,599

Key indicators:

Average billed clients

590,578

387,384

525,274

364,766

Average new enrollments

56,269

37,746

51,864

29,813

Operating income of reportable segments

$

33,238

$

22,976

$

84,665

$

60,721

Less: Corporate expense

(9,732

)

(8,896

)

(25,178

)

(22,755

)

Consolidated operating income

$

23,506

$

14,080

$

59,487

$

37,966

Corporate depreciation and amortization

$

491

$

279

$

1,249

$

791

View source version on businesswire.com: https://www.businesswire.com/news/home/20231109550688/en/

Contacts

Priority Investor Inquiries:
Chris Kettmann
chris.kettmann@dentonsglobaladvisors.com
(773) 497-7575