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, 2022
☐ 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
(State or other jurisdiction of
incorporation or organization)
2001 Westside Parkway
Suite 155
47-4257046
(I.R.S. Employer
Identification No.)
Alpharetta,
Georgia
(Address of principal executive offices)
30004
(Zip Code)
Registrant's telephone number, including area code: (404) 952-2107
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $0.001 par value
Trading symbol(s)
PRTH
Name of each exchange on which registered
Nasdaq Capital 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
Non-accelerated filer
☐
☒
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 has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
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 30, 2022, 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 $56.8 million (based upon the closing sale price of the Common Stock on that date on The Nasdaq Capital
Market).
As of March 17, 2023, the number of the registrant's Common Stock outstanding was 78,890,749.
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 May 24, 2023, 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 no later than 120 days after its fiscal year ended December 31,
2022.
.
Table of Contents
Cautionary Note Regarding Forward-Looking Statements and Terms Used in the Annual Report on Form 10-K
Commonly Defined Terms
Part I.
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Part II.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Item 16.
Part III.
Part IV.
Signatures
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Reserved
Management's Discussion and Analysis of Financial Condition and Results of Operations
Qualitative and Quantitative Disclosure About Market Risk
Financial Statements and Supplementary Data
Notes to Consolidated Financial Statements
Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits, Financial Statement Schedules
Form 10-K Summary
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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 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:
•
•
•
•
•
•
•
•
•
•
•
•
negative economic and political conditions that adversely affect the general economy, consumer confidence and consumer and commercial
spending habits, which may, among other things, negatively impact our business, financial condition and results of operations;
the impact of the COVID-19 pandemic and its continuing effects on the economic and business environment in which we operate;
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 processors;
any proposed acquisitions or dispositions or any risks associated with completed acquisitions or dispositions; 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 in the "Item 1A - Risk
Factors" section 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.
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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 this 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.
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Term
2018 Plan
2021 Stock Purchase Plan
2021 Share Repurchase Program
2022 Share Repurchase Program
ACH
AML
AP
API
ASC
ASU
ATI
B2B
B2C
BSA
CARES Act
CCPA
CEO
Common Stock
the Company
Credit Agreement
CRM
Delayed Draw Term Loan
Dodd-Frank Act
EBITDA
Electronic Payments
EPS
ESPP
Exchange Act
EGC
FASB
FBO
FCA
FCRA
Federal Reserve Board
FDIC
FFIEC
FI
FIFO
FinCEN
Commonly Used or Defined Terms
Definition
Priority Technology Holdings, Inc. 2018 Equity Incentive Plan
Priority Technology Holdings, Inc. 2021 Employee Stock Purchase Plan
Priority Technology Holdings, Inc. 2021 Share Repurchase Program
Priority Technology Holdings, Inc. 2022 Share Repurchase Program
Automated clearing house
Anti-money laundering
Accounts payable
Application program interface
Accounting Standards Codification
Accounting Standards Update
Adjusted taxable income
Business-to-business
Business-to-consumer
Bank Secrecy Act of 1970, as amended by the USA Patriot Act of 2001
Coronavirus Aid, Relief, and Economic Security Act
California Consumer Protection Act
The Company's Chairman and Chief Executive Officer
The Company's Common Stock, par value $.001
Priority Technology Holdings, Inc. and Subsidiaries
Credit and Guaranty Agreement dated April 27, 2021, by and between the Company and Truist Bank
Customer relationship management
Delayed draw term loan facility under the credit agreement
Dodd Frank Wall Street Reform and Consumer Protection Act of 2010
Earnings before interest, taxes, depreciation, and amortization
Payments with credit, debit and prepaid cards
Earnings (loss) per share
Employee stock purchase plan
Securities Exchange Act of 1934
Emerging Growth Company
Financial Accounting Standards Board
For the benefit of
United Kingdom's Financial Conduct Authority
Fair Credit Reporting Act
Governors of the Federal Reserve System
Federal Deposit Insurance Corporation
Federal Financial Institutions Examination Council
Financial institution
First in, first out
Financial Crimes Enforcement Network
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Finxera
FSOC
GAAP
Initial Term Loan
IRA
ISO
ISV
IT
LIBOR
LIFO
LLC
Nasdaq
NCI
OFAC
PHOT
PIK
POS
PRET
PRTH
Redeemable NCI's
ROU Asset
RSU
SaaS
SAR
SEC
SMB
SMS
SEC
SOFR
SRC
Tax Act
TCPA
Term Facility
Total Net Leverage Ratio
Total Preferred Equity Interest
Truist
TSP
U.S.
VARs
Finxera Holdings, Inc.
Financial Stability Oversight Council
United States Generally Accepted Accounting Principles
A senior secured first lien term loan facility in an aggregate principal amount of $300,000,000
Inflation Reduction Act
Independent sales organization
Independent software vendors
Information technology
London Interbank Offered Rate
Last in, first out
Limited Liability Company
National Association of Securities Dealers Automated Quotations
Non-controlling interests
Office of Foreign Assets Control
Priority Hospitality Technology, LLC
Payment-in-kind
Point-of-sale
Priority Real Estate Technology, LLC
Priority Technology Holding's Nasdaq Capital Market trading symbol
Redeemable non-controlling preferred equity interests
Right of use asset
Restricted stock units
Software as a Service
Stock appreciation rights
Securities and Exchange Commission
Small and medium-sized businesses
Short message service
Securities and Exchange Commission
Secured Overnight Financing Rate
Smaller reporting company
The Housing Assistance Tax Act of 2008
Federal Telephone Consumer Protection Act of 1991
$620.0 million senior secured term loan facility issued under the Credit Agreement (including $320 million
delayed draw facility).
The ratio of consolidated total debt to the Consolidated Adjusted EBITDA (as defined in the Credit
Agreement).
up to $4.5 million of profits earned by PHOT, plus a preferred yield (6.0% per year)
Truist Bank
Technology service provider
United States
Value-added resellers
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Item 1. Business
Overview of the Company
PART I.
Priority is a leading payments technology company that leverages a purpose-built platform to enable clients to collect, store and send money, operating 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.
Priority was established in 2005 and has grown from a founder-financed startup to become the 5 largest non-bank merchant acquirer in the U.S. by
volume. Since inception, we have built a native technology platform that provides all forms of payments (card acquiring and issuing, ACH, check and wire)
and embedded finance services that serve SMB, ISV and enterprise customers. Collectively, our single platform to collect, store and send money currently
processes approximately $113 billion in payment volume on behalf of its approximately 260,000 SMB and ISV customers and has established
approximately 75,000 supplier relationships. Priority maintains a global business platform with 870 employees operating from its headquarters in
Alpharetta, GA and offices in other locations, including New York, NY; Hicksville, NY; Chattanooga, TN; Raleigh, NC; Houston, TX; and Chandigarh,
India.
th
Priority delivers value to its partners by leveraging its payments and embedded finance technology to deliver solutions that power modern commerce for
SMBs and enterprise software and business partners. Our approach is simple, we handle the complexities of payments and embedded finance to free our
partners to focus on their core business objectives. Priority's solutions are offered via API or proprietary applications with nationwide money transmission
licenses, providing end-to-end operational support including automated risk management and underwriting, full compliance and industry leading customer
service.
Our growth has been underpinned by three key strengths: 1) market leading proprietary product platforms in SMB, B2B and Enterprise Payments verticals;
2) focused distribution engines dedicated to helping our partners monetize their merchant payment networks; and 3) a cost-efficient, agile payment and
business processing infrastructure, purpose-built to support our partners in operating in these distinct market verticals.
Priority's solutions are delivered via internally developed payment applications and services to customers in the following business segments:
•
•
•
SMB Payments: Provides full-service acquiring and payment-enabled solutions for B2C transactions, leveraging Priority's proprietary software
platform, distributed through ISO, direct sales and vertically focused ISV channels.
B2B Payments: Provides market-leading AP automation solutions to corporations, software partners and industry leading FIs (including Citibank
and Mastercard).
Enterprise Payments: Provides embedded payment and treasury solutions to enterprise customers to modernize legacy platforms and accelerate
software partners' strategies to monetize payments.
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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 MX Connect and 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 SMB 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 1) identify key consumer trends in their businesses; 2) quickly implement e-commerce or retail POS
solutions; and 3) handle 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 onboarding, have resulted in strong processing volume and revenue growth.
In addition to our SMB offering, we have diversified our source of revenues through our growing presence in the B2B market. We provide automated AP
offerings to our enterprise clients and financial institutions through our CPX platform. Our CPX platform 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 AP automation solutions provides: 1) suppliers with the benefits
of cash acceleration; 2) buyers with valuable rebate/discount revenue: and 3) the Company with stable sources of payment processing and other revenue.
Additionally, we provide curated managed services and a robust suite of integrated AP automation solutions to industry leading FIs and card networks such
as Citibank, Mastercard and Visa, among others. Considering that the commercial payments volume in the U.S. 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.
Our Enterprise Payments segment provides embedded payment and treasury solutions to enterprise customers that modernize legacy platforms and
accelerate modern software partners looking to monetize payment components. We provide solutions for
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ISVs, third-party integrators, and merchants that allow for the leveraging of our core payments engine, our automated payables platform or our account
ledgering capabilities all via API resources.
We generate revenue primarily from payment processing transactions, and to a lesser extent, from monthly subscription services and other solutions
provided to customers. Payment processing fees are generated from the ongoing sales of our merchants and are governed by multi-year merchant contracts.
As a result, payment processing fees 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, 2022, we generated revenue of $663.6 million, net loss attributable to common stockholders of $39.0 million and
operating income of $56.2 million, compared to revenue of $514.9 million, net loss attributable to common stockholders of $24.6 million and operating
income of $33.1 million for the year ended December 31, 2021.
Industry Overview
The payment processing industry provides merchants with credit, debit, gift, 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 use of Electronic Payments and
advances in payment technology. The proliferation of bankcards and the use of other payment technologies has made the acceptance of Electronic
Payments through multiple channels a virtual necessity for many businesses to remain competitive. The increased use and acceptance of bankcards and the
availability of more sophisticated products and services has resulted in a highly competitive, 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 this migration and overall market growth
will continue to provide tailwinds to the Electronic Payments industry.
Convergence of Payments and Embedded Finance Solutions – As consumer behavior shifted during the COVID-19 pandemic, the scale of
disruption grew dramatically and we believe the speed of change will continue to rise. The appetite of both merchants and consumers for new
alternatives to traditional payment options remains top of mind and big tech companies, fintechs, challenger banks and other non-bank entrants are
driving market disruption by offering customers better user experiences at lower prices. The continued displacement of cash and checks over the
next several years, helped along by customers' adoption of digital shopping and fueled by their desire to avoid contact with physical infrastructure
and objects, continues to create even more opportunities for disruption in payments.
• 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.
B2B payments is the largest payment market in the U.S. 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
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acceptance. As businesses have increasingly looked to improve efficiency and reduce costs, the electronification of B2B payments has gained momentum.
Competitive Strengths
We possess certain attributes that we believe differentiate us as a leading provider of merchant acquiring, commercial payment and embedded finance
solutions in the U.S. Our key competitive strengths include:
• Diverse Reseller Community – We maintain strong reseller relationships with approximately 1,300 partners, including 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 a
one-to-many distribution model. 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 strengths of our
technology offering are manifested 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 – We offer a comprehensive and differentiated suite of traditional and emerging payment products and
services that enables SMBs to address their payment needs through one provider. Our purpose-built proprietary technology provides technology-
enabled payment acceptance and business management solutions to merchants, enterprises and ISVs. We provide a payment processing platform
that allows merchants to accept Electronic Payments (e.g., credit cards, debit cards, and ACH) at the POS, online, and via mobile payment
technologies. We deliver innovative business management products and add-on features that meet the needs of SMBs across different vertical
markets. Additionally, with our embedded finance offerings, we are uniquely positioned to collect, store and send money on behalf of our
customers. As a result, 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 operating efficiency supports a low capital expenditure
environment to develop product enhancements that drive organic growth across our SMB, B2B and Enterprise payment ecosystems, as well as,
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.
•
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 in the payments industry. 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 Reseller and Merchant Base
We expect to grow through our existing reseller network and merchant base by capitalizing on the organic 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 continue to exhibit strong merchant adoption and volume growth trends. Through our resellers, we provide
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merchants with full-service acquiring solutions, as well as value-added services and tools to streamline their business processes and enable them to focus
on driving same store sales growth.
Deploy our Embedded Finance Solution to Enterprise Customers
Our Enterprise Payments segment, and its flagship product Priority Passport enables software partners and business platform customers to embed our
payments and treasury solutions into their core operating and business systems that deliver a fully automated and digital experience to collect, store and
send money for their customers. Through Passport, Priority delivers a fully embedded finance solution to customers that manages the inflows and outflows,
and reconciliation, of all forms of payments (ACH, wire, check, credit and debit) for an infinite number of clients from a single account. The platform
today manages over 460,000 active accounts and, through its money transmission licenses in 46 U.S. states and two U.S. territories, handles over
$500 million in deposits across a growing number of banking partners. This segment is quickly growing as marketplaces, gig economy platforms, software
partners, and legacy business platforms are incorporating features of payment processing and embedded finance services into their customer experience and
enhance their offering.
Expand our Network of Distribution Partners
We have established and maintained 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
technology offering enables us to attract and retain, high-quality resellers focused on growth.
Deploy Industry Specific Payment Technology
We intend to continue to enhance and deploy our technology-enabled payment solutions and our capabilities to collect, store and send money into industry-
specific verticals. We continue to identify and evaluate new, 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 FIs and card networks such as Citibank, Mastercard and Visa. The commercial payments market is the largest and one of the fastest growing
payments markets in the U.S. by volume. We are well positioned to capitalize on the shift from check to Electronic Payments, which currently lags the
consumer payments market, by eliminating the friction between buyers and suppliers through our industry leading offerings. We believe this will drive
strong growth and profitability.
Accretive Acquisitions
With a consistent, long-term goal of maximizing stockholder value, we intend to selectively pursue strategic and tactical acquisitions that meet our
established criteria. We actively seek potential acquisition candidates that exhibit certain attractive attributes including predictable and recurring revenue, a
scalable operating model, low capital intensity complementary technology offerings and a strong cultural fit. Our operating infrastructure is purpose-built
to rapidly and seamlessly consolidate complementary businesses into our ecosystem all while optimizing revenue and cost synergies.
Sales and Distribution
We reach our SMB segment through three primary sales channels: 1) ISOs (Retail and Wholesale) and Agents; 2) FIs; and 3) ISVs and VARs. Our cloud-
based solution, MX Connect, allows our partners and resellers to engage merchants for processing services and a host of value-added features designed to
enhance their customer relationships. Our merchants utilize our cloud-based MX Merchant product suite to manage their businesses and process
transactions. This separate solution increases our ability to retain the merchant if the ISO were to leave the Company.
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Our B2B segment obtains its partner clients through: 1) direct sales initiatives; 2) ISVs and business partnerships; 3) the card networks (Mastercard and
Visa); and 4) large U.S. banking institutions. We support a direct vendor sales model that provides turn-key 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 one of the top solutions in commercial payments.
Our Enterprise segment goes to market through integrations with software partners and business platform customers by enabling them to embed our
payments and treasury solutions into their core operating and business systems. Priority’s Passport offering provides those partners with a fully automated,
scalable and integrated financial tool to collect, store and send money for their customers.
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. Only one single reseller relationship contributes more than 10% of total bankcard processing volume, and
that one relationship represents approximately 18% of our total bankcard processing volume.
Security, Disaster Recovery and Back-up Systems
As a result of routine 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 protect it. Our computational systems are continually updated and audited to the latest security
standards as defined by 1) payment card industry and data security standards; and 2) the Payment Card Industry Security Standards Council. As such, we
have a dedicated team responsible for responding to security incidents. 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 other events that could
potentially jeopardize data availability, integrity and confidentiality. 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. If one data center becomes impaired, the traffic is automatically redirected to the other. 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, most notably processors and sponsor banks which sit between us (the merchant acquirer) and
the card networks, to assist us in providing payment processing services to merchant clients. 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 Global Payments, 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.
To provide processing services, merchant acquirers like Priority must be registered with the card networks (e.g., Visa and Mastercard). To register with a
card network in the U.S., acquirers must maintain relationships with banks willing to sponsor the merchant acquirer's adherence to the rules and standards
of the card networks, or a sponsor bank. We maintain sponsor bank relationships with Wells Fargo, Synovus Bank, Pueblo Bank, Sutton Bank, Fifth Third
Bank and Axiom Bank. For ACH payments, the Company's ACH network (ACH.com) is sponsored by South State 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.
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Risk Management
Our thoughtful merchant and reseller underwriting policies combined with our forward-looking transaction monitoring 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 rules-based modern systems designed to manage risk at the transaction level.
Initial Underwriting – Central to our risk management process are our front-line underwriting policies that vet all resellers and merchants prior to their
contractual arrangements with us. Our automated risk systems pull: 1) credit bureau reports; 2) corporate ownership details; 3) anti-money laundering
information; and, 4) OFAC and FinCEN information from a variety of integrated databases. The collected information is delivered to 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 the merchant or reseller 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 in compliance with
our policies and adjustments to reserve levels. The results of our initial merchant underwriting process inform the transaction-level risk limits for volume,
average ticket, transaction types and authorization codes 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 in addition to other risk mitigation actions. The risk mitigation actions can include: 1) non-authorization of the transaction; 2) debit of
reserves; or 3) termination of the 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 transactions and/or individual merchants are flagged for fraud, or in instances where the transaction activity is
resulting in excessive charge-backs, several loss mitigation actions may be taken. These include: 1) charge-back dispute resolution; 2) merchant and
reseller funds (reserves or processed batches) withheld; 3) inclusion on Network Match List to notify the industry of a "bad actor"; and/or 4) legal action.
Acquisitions and Dispositions of Businesses
On November 18, 2022, the Company completed our acquisition of certain assets of Ovvi, LLC. Ovvi, LLC operated as a SaaS proprietary platform for the
restaurant, hospitality and retail industries. The acquisition will allow the Company to offer point of sale software and hardware systems, comprehensive
ancillary services and processing services.
On September 17, 2021, The Company completed our acquisition of Finxera. Finxera is a provider of deposit account management and licensed money
transmission services in the U.S. The acquisition of Finxera allows the Company to offer clients turn-key merchant services, payment facilitation, card
issuing, automated payables, virtual banking, e-wallet tools, risk management, underwriting and compliance on a single platform.
See Note 2. Acquisitions for additional information related to the Company's acquisitions. For information regarding our business disposal, see Note 3.
Disposal of Business.
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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. non-bank merchant acquirers, according to the Nilson Report issued in March 2022.
The concentration at the top of the industry is partly a result of consolidation. We believe that consolidation has also resulted in many large processors
maintaining 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. Providers with more advanced tech-enabled services (primarily
online and integrated offerings), have an advantage over providers who are 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: 1) price; 2) breadth of product offerings; 3) partnerships with FIs; 4) servicing
capability; 5) data security; and 6) 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 SMB merchant market. According to the SMB Group, a markets insight firm for SMBs, the
majority of SMBs recognize the upside that 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 embedded finance products 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 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 resulted in significant structural and other changes to the regulation of the financial services industry. The Dodd-Frank Act directed
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 $10.0 billion or more are capped at $0.21 per transaction and an ad valorem component of five 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: 1) set minimum
dollar amounts (not to exceed $10.00) 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 2) provide discounts or incentives to encourage consumers to pay with cash, checks, debit
cards or credit cards.
The rules also contain prohibitions on network exclusivity and merchant routing restrictions. These rules require a card issuer to: 1) enable at least two
unaffiliated networks on each debit card; 2) prohibit card networks from entering into exclusivity
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arrangements; and 3) 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 created the CFPB, which has assumed responsibility for enforcing federal consumer protection laws, and the FSOC, which was
established to, among other things, identify risks to the stability of the U.S. 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 U.S. 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 FFIEC is an interagency body comprised of federal bank and credit union regulators such as the Federal Reserve Board, the 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 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 FFIEC to be a TSP based on the services we provide to FIs. As a TSP, we are subject to audits by an interagency group consisting
of the Federal Reserve System, the FDIC, and the Office of the Comptroller of the Currency.
We also hold money transmission licenses in 46 U.S. states and two U.S. territories. Accordingly, we are subject to the applicable laws and regulations and
are subject to examinations by state banking regulators.
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: 1) the
federal Gramm-Leach-Bliley Act of 1999, which applies to a broad range of FIs and to companies that provide services to FIs in the U.S.; 2) certain health
care technology laws, including HIPAA and the Health Information Technology for Economic and Clinical Act; and 3) the CCPA, which establishes a new
privacy framework for covered businesses by: i) creating an expanded definition of personal information; ii) establishing new data privacy rights for
consumers in the State of California; iii) imposing special rules on the collection of consumer data from minors; and iv) 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: 1) restrict the collection, processing, storage, use and disclosure of personal
information; 2) require notice to individuals of privacy practices, and provide individuals with certain rights to prevent use; and 3) disclosure of protected
information. These laws also impose requirements for safeguarding and removal or elimination of personal information.
AML and Counter-terrorism Regulation
The U.S. federal anti-money laundering laws and regulations, including the BSA, and the BSA implementing regulations administered by FinCEN, a
bureau of the U.S. 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 FIs that are directly subject to U.S.
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federal anti-money laundering 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 U.S. 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.
Telephone Consumer Protection Act
We are subject to the Federal TCPA and various state laws to the extent we place telephone calls and SMS messages to clients and consumers. The TCPA
regulates certain telephone calls and SMS messages placed using automatic telephone dialing systems or artificial or prerecorded voices and can alter the
way we do business.
Escheat Laws
We are subject to U.S. federal and state unclaimed or abandoned property laws that require 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 confidentiality, non-disclosure and invention assignment agreements with our employees and contractors, and to enter 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.
Human Capital Management
As of December 31, 2022, we employed 870 employees, of which 863 were employed full-time. We have employees residing throughout the United States
and India. None of our employees are represented by a labor union or covered by a collective bargaining agreement.
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Growth and Development
Our strategy to develop and retain the best talent includes an emphasis on employee training and development. We promote our core values of ownership,
innovation, camaraderie, service, authenticity and trust as an organization and offer awards to colleagues who exemplify these qualities. We require a
mandatory online training curriculum for our employees that includes annual anti-harassment and anti-discrimination training.
Well-being and Safety during COVID-19 Pandemic
The success of our business is connected to the well-being of our employees. Accordingly, we are committed to the health, safety and wellness of our
employees. In response to the COVID-19 pandemic, we implemented significant changes that we determined were in the best interest of our employees and
the communities in which we operate. This included enabling all of our employees to seamlessly shift to work from home. Over the past few years, we
have made investments in our operating environments and technology that support day-to-day execution by employees working from home which allowed
for the smooth transition. Additional health and safety measures have been implemented for employees who have elected to work within office locations.
Inclusion and Diversity
Our inclusion and diversity program focuses on our employees, workplace and community. We believe that our business is strengthened by a diverse
workforce that reflects the communities in which we operate. We believe all of our employees should be treated with respect and equality, regardless of
gender, ethnicity, sexual orientation, gender identity, religious beliefs or other characteristics. Inclusion and diversity remain a common thread in all of our
human resource practices so that we can attract, develop and retain the best talent for our workforce.
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 Exchange Act, are made available free of charge on our internet website at www.prth.com, as soon as reasonably
practicable after we have electronically filed the material with, or furnished it to 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 website is 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.
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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
Our business has been, and is likely to continue to be, negatively affected by the recent COVID-19 outbreak.
The COVID-19 pandemic and the mitigation efforts by governments and other parties to attempt to control the spread of the virus (including its variants)
have adversely impacted the U.S. and global economy, leading to significant changes in consumer and business spending and economic activity and
disruptions and volatility in the U.S. and global capital markets. :
• merchant temporary closures and failures;
•
•
third-party disruptions, including potential outages at network providers and other suppliers; and
increased cyber and payment fraud risk.
Although we have experienced increased demand for some of our service offerings as a result of an accelerated shift to electronic payments, we believe that
the COVID-19 pandemic, the mitigation efforts and the resulting economic impact have had, and may continue to have, an overall adverse effect on our
business, results of operations and financial condition. The full effects of the COVID-19 pandemic on our business, results of operations, financial
condition and cash flows will depend on future developments, which are highly uncertain and difficult to predict at this time, including, but not limited to,
the severity of the pandemic, the restrictive/mitigation actions taken to contain the virus or treat its effects, and its effects on our customers. Accordingly,
while the COVID-19 pandemic could have an adverse effect on our revenues and financial results for reporting periods after 2022, the ultimate effects on
our operations, financial condition and cash flows cannot be determined at this time.
Unauthorized access to our systems or 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.
Our services include the processing, transmission and storing of sensitive business and personal information about our merchants, merchants' customers,
vendors, partners and other third parties. This information may include credit and debit card numbers, bank account numbers, personal identification
numbers, names and addresses or other sensitive business information. This information may also be stored by third parties to whom we outsource certain
functions or other agents ("associated third parties"). We may have responsibility to the card networks, FIs, and in some instances, our merchants, and/or
ISOs, for our failure or the failure of our associated third parties to protect this information.
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. The techniques used 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 and all of which we are vulnerable to. We have been the target of brute force attempts to
obtain unauthorized access to our systems. Threats may derive from human error, fraud or malice on the part of employees or third parties, or may result
from accidental technological failure. Computer viruses can be distributed and spread rapidly over the internet and could infiltrate our systems or those of
our associated third parties. Additionally, 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. Our defensive measures may not prevent down-time, unauthorized access or use of
sensitive data. While we maintain insurance coverage that will cover certain aspects of cyber risks, such insurance coverage may be insufficient to
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cover all losses. Furthermore, we do not control the actions of our third-party partners and customers in their systems. These third parties may experience
security breaches and any future problems experienced by these third parties, including those resulting from cyber attacks or other breakdowns or
disruptions in services, could adversely affect our ability to conduct our business or expose us to liability. Further, 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 such actions, attacks or failure to adequately comply with these protective measures 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, or subject us to fees, penalties, sanctions, litigation or termination of our bank sponsor
agreements or our third-party payment processor agreements.
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.
Our systems or our third-party providers' systems may fail, which could interrupt our service, cause us to lose business, increase our costs and expose
us to liability.
We depend on the efficient and uninterrupted operation of our computer systems, software, data centers and telecommunications networks, as well as the
systems and services of third parties. A system outage or data loss could have a material adverse effect on our business, financial condition, results of
operations and cash flows. Not only could we suffer damage to our reputation in the event of a system outage or data loss, but we may also be liable to third
parties. Many of our contractual agreements with FIs and certain other customers require the payment of penalties if we do not meet certain operating
standards. Our systems and operations or those of our third-party providers could be exposed to damage or interruption from, among other things, fire,
natural disaster, power loss or telecommunications failure.
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 SMB merchant industry. We compete with FIs and their affiliates,
independent payment processing companies and ISOs. We also compete with many of these same entities for production through distribution partners.
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 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.
Additionally, many FIs and their subsidiaries 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. Our current and future competitors may also develop or offer services that have price or other advantages over the services we provide.
We also face 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.
Increased merchant, referral partner or ISO attrition could cause our financial results to decline.
We experience attrition in merchant credit and debit card processing volume resulting from several factors, including business closures, transfers of
merchant accounts to our competitors, unsuccessful contract renewal negotiations and account closures
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that we initiate for various reasons such as heightened credit risks or contract breaches by merchants. Our referral partners are a significant source of new
business. If a referral partner or an ISO switches to another processor, terminates our services, internalizes payment processing that we perform, merges
with or is acquired by one of our competitors, or shuts down or becomes insolvent, we may no longer receive new merchant referrals from such referral
partner, and we risk losing existing merchants that were originally enrolled by the referral partner or ISO. We cannot predict the level of attrition in the
future and it could increase. Higher than expected attrition could negatively affect our results, which could have a material adverse effect on our business,
financial condition, results of operations and cash flows.
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.
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 or sponsor banks for expected compliance with new rules
have historically been, and may continue to be, highly compressed, requiring us to quickly implement changes to our systems which increases the risk of
non-compliance with new standards or the reduction of certain types of merchant activity. 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.
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. 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.
Acquisitions create certain risks and may adversely affect our business, financial condition, or results of operations.
We have actively acquired businesses and expect to continue to make acquisitions of businesses and assets in the future. The acquisition and integration of
businesses and assets involve a number of risks. These risks include valuation (negotiating a fair price for the business and assets), integration (managing
the process of integrating the acquired business' people, products, technology, and other assets to realize the projected value and synergies), regulatory
(obtaining any applicable regulatory or other government approvals), and due diligence (identifying risks to the prospects of the business, including
undisclosed or unknown liabilities or restrictions). 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
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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 can subject us to a variety of other risks:
•
•
•
If we are unable to successfully integrate the benefits plans, duties and responsibilities and other factors of interest to management of employees
of the acquired business, we could lose employees to our competitors in the region, which could significantly affect our ability to operate the
business and complete the integration;
If the integration process causes any delays with the delivery of our services, or the quality of those services, we could lose customers to our
competitors;
Any acquisition may otherwise cause disruption to the acquired company's business and operations and relationships with financial institution
sponsors, customers, merchants, employees and other partners;
• Any acquisition and the related integration could divert the attention of our management from other strategic matters including possible
acquisitions and alliances and planning for new product development or expansion into new markets for payments technology and software
solutions; and
•
The costs related to the integration of an acquired company's business and operations into ours may be greater than anticipated.
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 U.S. and around the world, may contribute to increased
market volatility, may have long-term effects and may cause economic uncertainties or deterioration in the U.S. 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. We are monitoring the conflict between Russia and Ukraine. While we do not expect that such conflict will itself be material to our
business, geopolitical instability and adversity arising from such conflict (including additional conflicts that could arise from such conflict), the imposition
of sanctions, taxes and/or tariffs against Russia and Russia's response to such sanctions (including retaliatory acts, such as cyber attacks and sanctions
against other countries) could adversely affect the global economy or specific international, regional and domestic markets, which could have a material
adverse effect on our business, results of operations or financial condition.
Any new legislation that may be adopted in the U.S. 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 FSOC. The U.S. may also potentially withdraw
from or renegotiate various trade agreements and take other actions that would change current trade policies of the U.S. We cannot predict which, if any, of
these actions will be taken or, if taken, their
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effect on the financial stability of the U.S. 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.
We rely on FIs and 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 various FIs to provide clearing services in connection with our settlement activities. If such FIs should stop providing clearing services, we must
find other FIs 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.
We also 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, 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.
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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.
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.
Legal, Regulatory Compliance and Tax Risks
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 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.
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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.
Our business is affected by laws and regulations and examinations that affect us and our industries. Regulation and proposed regulation of the payments
industry has increased significantly in recent years. Failure to comply with regulations or guidelines may result in the suspension or revocation of a license
or registration, the limitation, suspension or termination of service, including money transmission services, and the imposition of civil and criminal
penalties, including fines, or may cause customers or potential customers to be reluctant to do business with us, any of which could have an adverse effect
on our financial condition.
Interchange fees are subject to intense legal, regulatory and legislative scrutiny. In particular, the Dodd-Frank Act limits the amount of 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. These types of restrictions could negatively affect the number of debit transactions, which would
adversely affect our business. The Dodd-Frank Act also created the CFPB, which has assumed responsibility for enforcing 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 because it is systemically important to the U.S. 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 may be 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 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 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.
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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.
Changes in tax laws and regulations could adversely affect our results of operations and cash flows from operations.
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 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
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our costs and subject us to reputational damage that could limit our ability to grow and cause us to lose existing merchant clients.
Risk Related to Our Capital Structure
We face risks related to our substantial indebtedness.
We have a substantial amount of indebtedness and may incur other debt in the future. Our level of debt and the covenant to which we agreed could have
negative consequences on us, including, among other things, (i) requiring us to dedicate a large portion of our cash flow from operations to servicing and
repayment of the debt; (ii) limiting funds available for strategic initiatives and opportunities, working capital and other general corporate needs and (iii)
limiting our ability to incur certain kinds or amounts of additional indebtedness, which could restrict our ability to react to changes in our business, our
industry and economic conditions.
Substantially all of our indebtedness is variable rate debt, primarily based on LIBOR. LIBOR has been the subject of recent national, international, and
other regulatory guidance and proposals for reform, which will cause LIBOR to disappear entirely in 2023 and largely be replaced by SOFR. As a result of
this variable rate debt, 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 or other derivative transactions 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.
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, the credit agreements governing our senior credit facilities contain a total net leverage ratio financial covenant. A breach of any of these
covenants (or any other covenant in the documents governing our Credit and Guaranty Agreement) could result in a default or event of default under our
Credit and Guaranty Agreement. If an event of default occurred, the applicable lenders or agents could elect to terminate borrowing commitments and
declare all borrowings and loans outstanding thereunder, together with accrued and unpaid interest and any fees and other obligations, to be immediately
due and payable. In addition, or in the alternative, the applicable lenders or agents could exercise their rights under the security documents entered into in
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connection with our Credit and Guaranty Agreement. Any acceleration of amounts due under the Credit and Guaranty Agreement would likely have a
material adverse effect on us.
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 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.
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 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 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
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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.
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 Capital 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.
Financial Risks
Changes in the method for determining the 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 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 ICE Benchmark Administration Limited recently announced that LIBOR settings will cease at the end of
June 2023. The Alternative Reference Rates Committee has proposed the 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. At this time, it is not possible to predict when LIBOR will be replaced as the reference rate in the agreements governing the
Company's indebtedness or the effect any discontinuance, modification or other reforms to LIBOR, or the establishment of alternative reference rates such
as SOFR, or any other reference rate, will have on the Company. When LIBOR ceases to exist or if the methods of calculating LIBOR change from their
current form prior to LIBOR’s cessation, however, the Company's borrowing costs may be adversely affected.
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Item 1B. Unresolved Staff Comments
N/A
Item 2. Properties
We operate from several offices throughout the U.S. and one office in India, all of which we lease.
Our key office locations include:
•
•
•
•
•
corporate headquarters in Alpharetta, GA;
administrative office in Hicksville, NY;
administrative office in New York, NY;
administrative office in Raleigh, NC; and
administrative office in Chandigarh, India.
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
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PART II.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
On July 25, 2018, our Common Stock began trading on The Nasdaq Capital Market under the symbol "PRTH". As of March 17, 2023, we had 85 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. We have never declared or paid, and do not anticipate declaring or paying in the foreseeable future, any cash dividends on our Common
Stock.
Equity Compensation Plan Information
Period
Equity Compensation Plans approved by security
holders
Equity Compensation Plans not approved by
security holders
Number of securities to be
issued upon exercise of
outstanding options,
(1)
warrants and rights
Weighted-average
exercise price of
outstanding options,
(2)
warrants and rights
Number of securities remaining
available for future issuance under
equity compensation plans (excluding
securities reflected in the first column)
2,689,353 $
— $
6.88
—
3,505,286
—
(1)
(2)
Represents stock options and RSU outstanding under the Company's 2018 Plan.
The weighted-average exercise price set forth in this column is calculated for stock options outstanding and excludes outstanding RSU awards,
since recipients are not required to pay an exercise price to receive the shares related to these awards.
Unregistered Sales of Equity Securities and Use of Proceeds
None.
Issuer Purchases of Equity Securities
The following table presents information with respect to purchases made by the Company of its Common Stock during the three months ended
December 31, 2022 (shares are in whole units):
Total Number of
Shares Purchased
(1)
Average Price Paid
per Share
154,356 $
177,508 $
201,087 $
532,951
4.62
5.40
5.43
Total Number of Shares
Purchased as Part of Publicly
Announced Plans or
Programs
121,593
165,586
16,277
303,456
Maximum Number of Shares
that May Yet Be Purchased
Under the Plans or Programs
872,489
706,903
690,626
Includes shares withheld to satisfy employees' tax withholding obligations in connection with the vesting of restricted stock awards. The number
of shares withheld was determined based on the fair market value on the vesting date.
Period
October 1-31, 2022
November 1-30, 2022
December 1-31, 2022
Total
(1)
Item 6. Reserved
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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following management's discussion and analysis of financial condition and results of operations should be read together with our audited financial
statements and the related notes included elsewhere in this Annual Report on Form 10-K. This section of this Form 10-K generally discusses 2022 and
2021 items and year-over-year comparisons between 2022 and 2021. Discussions of 2020 items and year-over-year comparisons between 2021 and 2020
are not included in this Form 10-K, and can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part
II, Item 7 of the Company's Annual Report on Form 10-K for the year ended December 31, 2021.
Certain amounts in this section may not add mathematically due to rounding.
For a description and additional information about our three reportable segments, see Note 20. Segment Information, contained in "Item 8 - Financial
Statements and Supplementary Data" of this Annual Report on Form 10-K.
Results of Operations
This section includes certain components of our results of operations for the years ended December 31, 2022 (or "2022"), December 31, 2021 (or "2021")
and December 31, 2020 (or "2020"). 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.
Revenue
For the year ended December 31, 2022, our consolidated revenue of $663.6 million increased by $148.7 million, or 28.9%, from $514.9 million for the year
ended December 31, 2021. This overall increase was driven by an increase in payment volumes fueled by: 1) increased consumer spending and 2) the full-
year impact of businesses acquired during the prior year.
Revenues by type for 2022 and 2021 were as follows:
(in thousands)
Revenue Type:
Merchant card fees
Money transmission services
Outsourced services and other services
Equipment
Total revenues
Merchant Card Fees
Years Ended December 31,
2021
2022
2022 vs 2021
$ Change
$
$
553,037
71,536
29,627
9,441
663,641
$
$
468,764
19,415
21,033
5,689
514,901
$
$
84,273
52,121
8,594
3,752
148,740
For the year ended December 31, 2022, our merchant card fees revenue of $553.0 million increased by $84.2 million, or 18.0%, from $468.8 million for the
year ended December 31, 2021. This increase was driven by an increase in the merchant bankcard volume processed by the Company.
Money Transmission Services
Money transmission services revenue of $71.5 million for the year ended December 31, 2022 increased by $52.1 million or 268.6%, from $19.4 million for
the year ended December 31, 2021 and is primarily related to the full-year impact of the Finxera acquisition in September 2021 and continued growth in the
customers and markets it serves.
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Outsourced Services and Other Services
Outsourced services and other services revenue of $29.6 million for the year ended December 31, 2022 increased by $8.6 million, or 41.0%, from $21.0
million for the year ended December 31, 2021. This increase was primarily driven by growth in revenue from AP automation solutions and increased
volumes in the card issuing business. The increase was offset by a decrease of $1.7 million driven by the wind down of certain customer programs in the
managed services business.
Equipment
Equipment revenue of $9.4 million for the year ended December 31, 2022, increased by $3.7 million, or 64.9%, from $5.7 million for the year ended
December 31, 2021. The increase was primarily due to increased sales of mobile card reader equipment and other equipment from our MX product line.
Operating Expenses
Operating expenses for 2022 and 2021 were as follows:
(in thousands)
Operating expenses
Cost of services (excludes depreciation and amortization)
Salary and employee benefits
Depreciation and amortization
Selling, general and administrative
Total operating expenses
Costs of Services (excludes depreciation and amortization)
Years Ended December 31,
2021
2022
2022 vs 2021
$ Change
$
$
436,753
65,077
70,681
34,965
607,476
$
$
359,885
43,818
49,697
28,408
481,808
$
$
76,868
21,259
20,984
6,557
125,668
Costs of services (excludes depreciation and amortization) of $436.8 million for the year ended December 31, 2022 increased by $76.9 million, or 21.4%,
from $359.9 million for the year ended December 31, 2021, primarily due to the corresponding increase in revenues. For the year ended December 31,
2022, costs of services (excluding depreciation and amortization) as a percentage of total revenues decreased to 65.8% as compared to 69.9% for the year
ended December 31, 2021. This decrease was primarily due the full-year impact of the Finxera acquisition in September 2021, partially offset by a mix of
bankcard volume growth from larger reseller partners with higher commissions.
Salary and employee benefits
Salary and employee benefits expense of $65.1 million for the year ended December 31, 2022 increased by $21.3 million, or 48.6%, from $43.8 million for
the year ended December 31, 2021, primarily due to pay raises, full-year impact of the Finxera business acquired in September 2021, an increase in stock-
based compensation and overall growth of the Company. The Company's employee headcount increased to 870 in 2022 from 790 in 2021.
Depreciation and amortization expense
Depreciation and amortization expense of $70.7 million for the year ended December 31, 2022 increased by $21.0 million, or 42.3%, from $49.7 million
for the year ended December 31, 2021, primarily due to the full-year amortization of finite-lived intangible assets from acquired businesses.
Selling, general and administrative
Selling, general and administrative expenses of $35.0 million for the year ended December 31, 2022 increased by $6.6 million, or 23.2%, from $28.4
million for the year ended December 31, 2021, primarily due to full-year impact of acquired businesses and certain non-recurring projects.
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Other (Expenses) Income, net
(in thousands)
Other (expense) income
Interest expense
Debt extinguishment and modification costs
Gain on sale of business and investment
Other income, net
Total other expenses, net
Interest expense
Years Ended December 31,
2022
2021
2022 vs 2021
$ Change
$
$
(53,554)
—
—
589
(52,965)
$
$
(36,485)
(8,322)
7,643
202
(36,962)
$
$
(17,069)
8,322
(7,643)
387
(16,003)
Interest expense of $53.6 million for the year ended December 31, 2022 increased by $17.1 million, or 46.8%, from $36.5 million for the year ended
December 31, 2021, primarily due to full-year impact of additional borrowings to fund acquisitions in 2021 and an increase in variable interest rates in
2022.
Debt extinguishment and modification Costs
The Company refinanced its credit facilities in April 2021 and expensed unamortized deferred costs and discounts of $3.0 million associated with the
retirement of its subordinated debt facility and expensed $5.3 million of third-party costs incurred in connection with the refinancing.
Gain on sale of business and investment
Gain on sale of business and investment for the year ended December 31, 2021 was $7.6 million, which resulted from consideration received by the
Company in connection with the termination of certain warrants held in the Common Stock of an entity that was sold during the prior year.
Income tax expense
(in thousands)
Income (loss) before income taxes
Income tax expense
Effective tax rate
Years Ended December 31,
2021
2022
2022 vs 2021
$ Change
3,200
5,350
167.2 %
$
$
(3,869)
(5,258)
135.9 %
$
$
7,069
10,608
$
$
The effective tax rate for 2022 increased primarily due to an increase in the valuation allowance against certain business interest carryover deferred tax
assets.
Our consolidated effective income tax rates differ from the statutory rate due to timing and permanent differences between amounts calculated under
GAAP and the U.S. tax code. The consolidated effective income tax rate for 2022 may not be indicative of our effective tax rate for future periods.
On August 16, 2022, the U.S. government enacted the Inflation Reduction Act into law. The IRA, among other provisions, implements a 15% corporate
alternative minimum tax based on global adjusted financial statement income and a 1% excise tax on share repurchases, which shall take effect in tax years
beginning after December 31, 2022. We are in the process of evaluating the provisions of the IRA, but we do not currently believe the IRA will have a
material effect on our reported results, cash flows, or financial position when it becomes effective. If applicable, we expect to reflect the excise tax within
equity as part of the repurchase price of Common Stock.
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Earnings Attributable to Common Shareholders
(in thousands)
Net income (loss)
Less: Dividends and accretion attributable to redeemable senior preferred stockholders
Less: NCI preferred unit redemptions, net of deferred tax benefit
Net loss attributable to common stockholders
Years Ended December 31,
2021
2022
2022 vs 2021
$ Change
(2,150)
(36,880)
—
(39,030)
$
$
1,389
(18,009)
(8,021)
(24,641)
$
$
(3,539)
(18,871)
8,021
(14,389)
$
$
Dividends and accretion attributable to redeemable senior preferred stockholders was $36.9 million for the year ended December 31, 2022, and was
comprised of $22.1 million of accumulated dividends accrued as part of the carrying value of the redeemable senior preferred stock and the cash dividend
payable at year end, $11.5 million of dividends that were paid in cash, and $3.3 million related to accretion of discounts and issuance costs for the
redeemable senior preferred stock. The increase in dividends and accretion attributable to redeemable senior preferred stockholders from 2021 to 2022 is
due to a full-year impact of dividends and accretion, as well as an increase in the dividend rate for 2022 resulting from an increase in variable interest rates
during the year.
Segment Results
SMB Payments
(in thousands)
Revenue
Operating expenses
Operating income
Operating margin
Depreciation and amortization
Key Indicators:
Merchant bankcard processing dollar value
Merchant bankcard transaction volume
Revenue
Years Ended December 31,
2021
2022
2022 vs 2021
$ Change
562,237
507,371
54,866
9.8 %
43,925
59,440,491
636,576
$
$
$
$
475,630
422,746
52,884
11.1 %
41,144
53,411,622
578,102
$
$
$
$
86,607
84,625
1,982
2,781
6,028,869
58,474
$
$
$
$
Revenue from our SMB Payments segment was $562.2 million for the year ended December 31, 2022, compared to $475.6 million for the year ended
December 31, 2021. The increase of $86.6 million, or 18.2%, was primarily driven by increased merchant bankcard volume and certain fee revenues. The
Company's revenue from the SMB Payments segment as a percentage of merchant bankcard processing dollar value during 2022 increased to 0.95% from
0.89% during 2021. The increase was primarily driven by increased volume (transaction count) related fee revenues and changes in the merchant mix.
Operating Income
Operating income from our SMB Payments segment was $54.9 million for the year ended December 31, 2022, compared to $52.9 million for the year
ended December 31, 2021. The increase of $2.0 million, or 3.8%, is due to increased revenue and was offset by a mix of volume growth from larger reseller
partners with higher commissions and an increase in other operating expenses. Increase in other operating expenses include a $6.3 million increase in salary
and employee benefits due to higher headcount, a $2.2 million increase in selling, general and administrative expenses driven by higher travel and other
operating costs, a $2.8 million increase in depreciation and amortization, and higher stock-based compensation and pay raises. The increase in headcount
and selling, general and administrative expenses are mainly attributable to growth initiatives. Increase in other operating expenses were offset by an
increase in operating income from higher revenue.
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B2B Payments
(in thousands)
Revenue
Operating expenses
Operating income
Operating margin
Depreciation and amortization
Key Indicators:
Merchant bankcard processing dollar value
Merchant bankcard transaction volume
Revenue
Years Ended December 31,
2022
2021
2022 vs 2021
$ Change
$
$
$
$
18,890
18,682
208
1.1 %
744
526,812
304
$
$
$
$
17,138
17,003
135
0.8 %
294
323,502
220
$
$
$
$
1,752
1,679
73
450
203,310
84
Revenue from our B2B Payments segment was $18.9 million for the year ended December 31, 2022, compared to $17.1 million for the year ended
December 31, 2021. The increase of $1.8 million, or 10.5%, was primarily driven by an increase of $3.5 million in the CPX business, of which $2.5 million
is related to volume growth, and the remaining increase of $1.0 million is from the recognition of certain revenues for which recovery became probable
during the current year. This increase was offset by a decrease of $1.7 million driven by the wind down of certain customer programs in the managed
services business.
Operating Income
Operating income from our B2B Payments segment was $0.2 million for the year ended December 31, 2022, compared to $0.1 million for the year ended
December 31, 2021. This is due to the increase in revenue from the CPX business was offset by a decrease in revenue from the managed services business
due to the wind down of certain customer programs.
Enterprise Payments
(in thousands)
Revenue
Operating expenses
Operating income
Operating margin
Depreciation and amortization
Key Indicators:
Merchant bankcard processing dollar value
Merchant bankcard transaction volume
Average number of billed clients
Revenue
$
$
$
$
Years Ended December 31,
2021
2022
2022 vs 2021
$ Change
$
$
$
$
82,514
51,577
30,937
37.5 %
24,892
1,760,518
2,779
380,233
$
$
$
$
22,133
15,370
6,763
30.6 %
7,158
52,376
549
345,828
60,381
36,207
24,174
17,734
1,708,142
2,230
34,405
Revenue from our Enterprise Payments segment was $82.5 million for the year ended December 31, 2022, compared to $22.1 million for the year ended
December 31, 2021. The increase of $60.4 million, or 273.3%, was primarily driven by full-year impact of Finxera business acquired in September 2021
and continued growth in the customers and markets it serves.
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Operating Income
Operating income from our Enterprise Payments segment was $30.9 million for the year ended December 31, 2022, compared to $6.8 million for the year
ended December 31, 2021. The increase of $24.1 million, or 354.4%, was primarily driven by full-year impact of Finxera business acquired in September
2021 and continued growth in the customers and markets it serves.
Depreciation and Amortization
Depreciation and amortization expense from our Enterprise Payments segment was $24.9 million for the year ended December 31, 2022, compared to
$7.2 million for the year ended December 31, 2021. The increase of $17.7 million, or 245.8%, was primarily driven by the amortization of intangibles
resulting from the Finxera acquisition in September 2021.
Liquidity and Capital Resources
Liquidity and capital resource management is a process focused on providing the funding we need to meet our short-term and long-term cash and working
capital needs. We have used our funding sources to build our merchant portfolio, for technology solutions and to make acquisitions with the expectation
that such investments will generate cash flows sufficient to cover our working capital needs and other anticipated needs, including for our acquisition
strategy. We anticipate that cash on hand, funds generated from operations and available borrowings under our revolving credit agreement are sufficient to
meet our working capital requirements for at least the next twelve months. This is based upon management's estimates and assumptions, including utilizing
the most currently available information regarding the effects of the COVID-19 pandemic on our financial results. Actual future results could differ
materially, as the magnitude, duration and effects of changes in economic, political and market conditions are difficult to predict, and ultimately could
negatively impact our liquidity and capital resources.
Our principal uses of cash are to fund business operations (including capital expenditures and strategic investments) and administrative costs, and to service
our debt.
Our working capital, defined as current assets less current liabilities, was $22.5 million at December 31, 2022 and $19.6 million at December 31, 2021. As
of December 31, 2022, we had cash and cash equivalents with a balance of $18.5 million compared to $20.3 million at December 31, 2021. These cash and
cash equivalent balances do not include restricted cash of $10.6 million and $28.9 million at December 31, 2022 and December 31, 2021, respectively,
which reflects cash accounts holding customer settlement funds and cash reserves for potential losses. The current portion of long-term debt included in
current liabilities was $6.2 million at December 31, 2022 and 2021.
At December 31, 2022, we had availability of approximately $27.5 million under our revolving credit arrangement.
The following tables and narrative reflect our changes in cash flows for the comparative annual periods.
(in thousands)
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
Net increase in cash and restricted cash
Cash Provided by Operating Activities
Years Ended December 31,
2021
2022
$
$
70,518 $
(36,503)
8,502
42,517 $
9,377
(451,033)
871,629
429,973
Net cash provided by operating activities was $70.5 million and $9.4 million for the years ended December 31, 2022 and December 31, 2021, respectively.
The $61.1 million, or 650.0% increase in 2022 was driven by cash generated from the operations of the Company. Additionally, 2021 included the non-
recurring payment of PIK interest of $23.7 million upon the refinancing of our credit facilities in April 2021 which decreased operating cash flows for the
year ended December 31, 2021.
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Cash Used in Investing Activities
Net cash used in investing activities was $36.5 million compared to cash used investing activities of $451.0 million for the years ended December 31, 2022
and 2021, respectively. Net cash used to acquire businesses in 2022 was $5.0 million compared to net cash used of $407.1 million in 2021. Additions to
property, equipment and software was $18.9 million for 2022 compared to $9.7 million in 2021 and acquisitions of intangible assets was $8.0 million
compared to $49.5 million in 2021. Additionally, grants of certain loans to our partners was $4.7 million for the year ended December 31, 2022. For the
year ended December 31, 2021, the Company received proceeds from the sale of an investment of $15.3 million.
Cash (Used in) Provided by Financing Activities
Net cash provided by financing activities was $8.5 million for the year ended December 31, 2022, compared to $871.6 million of cash used in financing
activities in the year ended December 31, 2021. The net cash provided by financing activities for 2022 included changes in the net obligations for funds
held on the behalf of customers of $43.1 million and $29.5 million related to additional borrowings under the revolving credit facility. This was offset by
$38.2 million of cash used for the repayment of debt including borrowings under the revolving credit facility, $11.5 million of cash dividends paid to
redeemable senior preferred stockholders, $7.5 million of cash used for stock repurchases, including a portion related to shares withheld for taxes, and $7.0
million of payments of contingent consideration for business combinations. The net cash provided by financing activities for 2021 included proceeds from
the issuance of new debt of $598.2 million, net borrowings from the revolving credit facility of $15.0 million, proceeds from the issuance of the
redeemable senior preferred stock of $211.0 million, proceeds from the exercise of stock options of $1.2 million and changes in the net obligations for
funds held on the behalf of customers of $417.6 million. These cash inflows were offset by cash used for the repayment of debt of $361.4 million, cash
used for the repurchase of Common Stock of $1.7 million, dividends paid to redeemable senior preferred stockholders of $7.5 million and distribution to
NCIs in subsidiaries of $0.8 million.
Long-Term Debt
On April 27, 2021, the Company entered into a Credit Agreement with Truist which provides for: 1) a $300.0 million Initial Term Loan; 2) a
$290.0 million Delayed Draw Term Loan; and 3) a $40.0 million senior secured revolving credit facility. The Credit Agreement was amended on
September 17, 2021 to increase the amount of the Delayed Draw Term Loan facility by $30.0 million to $320.0 million. The additional Delayed Draw Term
Loan is part of the same class of term loans made pursuant to the original commitments under the Credit Agreement.
Outstanding borrowings under the Credit Agreement accrue interest using either a base rate or a LIBOR rate plus an applicable margin per year, subject to a
LIBOR rate floor of 1.00% per year. Accrued interest is payable on each interest payment date (as defined in the Credit Agreement). The revolving credit
facility incurs an unused commitment fee on any undrawn amount in an amount equal to 0.50% per year of the unused portion. The future applicable
interest rate margins may vary based on the Company's Total Net Leverage Ratio in addition to future changes in the underlying market rates for LIBOR
and the rate used for base-rate borrowings.
As of December 31, 2022, the Company had outstanding debt obligations, including the current portion and net of unamortized debt discount of
$605.1 million, compared to $610.3 million at December 31, 2021, resulting in a decrease of $5.2 million. The debt balance at December 31, 2022
consisted of $610.7 million outstanding under the term facility and $12.5 million outstanding under the revolving credit facility, offset by $18.1 million of
unamortized debt discounts and issuance costs. Minimum amortization of the Initial Term Loan are equal quarterly installments in aggregate annual
amounts equal to 1.0% of original principal, with the balance paid upon maturity. The term facility matures in April 2027 and the revolving credit facility
expires in April 2026.
The Credit Agreement contains representations and warranties, financial and collateral requirements, mandatory payment events, events of default and
affirmative and negative covenants, including without limitation, covenants that restrict among other things, the ability to create liens, pay dividends or
distribute assets from the loan parties to the Company, merge or consolidate, dispose of assets, incur additional indebtedness, make certain investments or
acquisitions, enter into certain transactions (including with affiliates) and to enter into certain leases.
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If the aggregate principal amount of outstanding revolving loans and letters of credit under the Credit Agreement exceeds 35% of the total revolving
facility thereunder, the loan parties are required to comply with certain restrictions on its Total Net Leverage Ratio, which is defined in the Credit
Agreement as the ratio of consolidated total debt less unrestricted cash to consolidated adjusted EBITDA (as defined in the Credit Agreement). If
applicable, the maximum permitted Total Net Leverage Ratio is: 1) 6.50:1.00 at each fiscal quarter ended September 30, 2021 through June 30, 2022; 2)
6.00:1.00 at each fiscal quarter ended September 30, 2022 through June 30, 2023; and 3) 5.50:1.00 at each fiscal quarter ended September 30, 2023 and
thereafter. As of December 31, 2022, the Company was in compliance with the covenants in the Credit Agreement and the Total Net Leverage Ratio was
not applicable.
Critical Accounting Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions about future events that affect
the amounts reported in the financial statements and accompanying notes. Actual results could differ significantly from those estimates. We believe that the
following discussion addresses our most critical accounting estimates, which are those that are most important to the portrayal of our financial condition
and results of operations and require management's most difficult, subjective, and complex judgments.
Income Taxes
We account for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when
the differences are expected to be recovered or settled. Realization of deferred tax assets is dependent upon future taxable income. A valuation allowance is
recognized if it is more likely than not that some portion or all of a deferred tax asset will not be realized based on the weight of available evidence,
including expected future earnings.
We recognize an uncertain tax position in our financial statements when we conclude that a tax position is more likely than not to be sustained upon
examination based solely on its technical merits. Only after a tax position passes the first step of recognition will measurement be required. Under the
measurement step, the tax benefit is measured as the largest amount of benefit that is more likely than not to be realized upon effective settlement. This is
determined on a cumulative probability basis. The full impact of any change in recognition or measurement is reflected in the period in which such change
occurs. Interest and penalties related to income taxes are recognized in the provision for income taxes.
Goodwill and Long-lived Assets
We test goodwill for impairment for each of our reporting units on an annual basis on October 1 or when events occur, or circumstances indicate the fair
value of a reporting unit may be below its carrying value. We perform the annual assessment using the qualitative method. Where deemed appropriate, we
may perform a quantitative assessment that uses market data and discounted cash flow analysis, which involve estimates of future revenues and operating
cash flows. Changes in these estimates and assumptions or a significant decrease in earnings, could materially affect the fair value of goodwill and could
result in a goodwill impairment charge.
The annual impairment assessment for goodwill does not change our requirements to assess goodwill on an interim date between scheduled annual testing
dates if triggering events are present.
We review our long-lived assets for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be
recoverable. For long-lived assets, except goodwill, an impairment loss is indicated when the undiscounted future cash flows estimated to be generated by
the asset group are not sufficient to recover the unamortized balance of the asset group.
We amortize the cost of our acquired intangible assets over their estimated useful lives using either a straight-line or an accelerated method that most
accurately reflects the estimated pattern in which the economic benefit of the respective asset is consumed.
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Business Combinations
We allocate the purchase price of an acquired business to the assets acquired and liabilities assumed based on their estimated fair values. The excess of the
purchase price over the fair value of the net assets acquired is recorded as goodwill. For acquisitions that include contingent consideration, we estimate the
fair value of contingent consideration at the acquisition date. The estimated fair value of contingent consideration is updated in future periods based on
information available at that time. Management uses all available information when estimating the fair values of the assets acquired, liabilities assumed and
contingent consideration, and must apply judgement and make certain assumptions when making these estimates. The assumptions management uses when
determining fair values include estimated future cash flows or income, market rate assumptions, actuarial assumptions and discount rate assumptions. We
typically engage third-party valuation advisors to assist in estimating the fair values of acquired assets and assumed liabilities. Our estimates of fair value
are based upon assumptions the Company believes to be reasonable, but that are inherently uncertain, and therefore, may not be realized. Accordingly,
there can be no assurance that the estimates, assumptions and values reflected in the valuations will be realized, and actual results could differ materially.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest rate risk
Our debt facilities under our Credit Agreement bear interest at either a base rate or a LIBOR rate plus an applicable margin per year, subject to a LIBOR
rate floor of 1.00% per year. As of December 31, 2022, we had $623.2 million in outstanding borrowings under our Credit Agreement. Ignoring the 1.00%
LIBOR floor, a hypothetical 1.00% increase or decrease in the applicable LIBOR rate on our outstanding indebtedness under the Credit Agreement would
increase or decrease cash interest expense on our indebtedness by approximately $6.3 million per year. We do not currently hedge against interest rate risk.
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Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2022 and December 31, 2021
Consolidated Statements of Operations for the years ended December 31, 2022, 2021 and 2020
Consolidated Statements of Changes in Stockholders' Deficit for the years ended December 31, 2022, 2021 and 2020
Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 and 2020
Notes to Consolidated Financial Statements:
1. Nature of Business and Significant Accounting Policies
2. Acquisitions
3. Disposal of Business
4. Revenues
5. Settlement Assets and Customer/Subscriber Account Balances and Related Obligations
6. Notes Receivable
7. Property, Equipment and Software
8. Goodwill and Other Intangible Assets
9. Leases
10. Accounts Payable and Accrued Expenses
11. Debt Obligations
12. Redeemable Senior Preferred Stock and Warrants
13. Income Taxes
14. Stockholders' Deficit
15. Stock-based Compensation
16. Employee Benefit Plans
17. Related Party Transactions
18. Commitments and Contingencies
19. Fair Value
20. Segment Information
21. (Loss) Earnings per Common Share
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42
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63
65
66
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68
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72
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To the Stockholders and the Board of Directors of Priority Technology Holdings, Inc.
Report of Independent Registered Public Accounting Firm
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Priority Technology Holdings, Inc. (the Company) as of December 31, 2022 and 2021,
the related consolidated statements of operations, changes in stockholders' deficit and cash flows for each of the three years in the period ended December
31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements
present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial
statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States)
(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor
were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of
internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over
financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in
the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or
required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2)
involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our
opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate
opinion on the critical audit matter or on the accounts or disclosures to which it relates.
39
Table of Contents
Accrued Residual Commissions and Residual Commission Expenses
Description of the Matter
How We Addressed the Matter in Our
Audit
Accrued residual commissions recorded by the Company and included on the Consolidated Balance Sheet were
$35.9 million at December 31, 2022, and residual commission expenses included within costs of services on the
Consolidated Statement of Operations were $383.5 million for the year ended December 31, 2022. As discussed in
Note 1 of the consolidated financial statements, the Company accrues and pays commission expense for certain
customer services and other services provided by its independent sales organizations (ISOs). Commissions are
based on a percentage of the net revenues generated from the Company’s merchant customers, and these
percentages vary based on the program type and transaction volume of each merchant.
Auditing residual commissions was complex due to the non-standard nature of the pricing terms within the ISO
contracts, the volume of contracts, the volume of transactions processed each month, and the degree of auditor
judgment needed to design the nature and extent of audit procedures to obtain sufficient audit evidence.
To test accrued residual commissions and residual commission expenses, our audit procedures included, among
others, testing the completeness and accuracy of the underlying data supporting the commission calculations and
the accuracy of the calculations. We selected a sample of monthly ISO payments and, for each sample item, we
compared the pricing terms included in the calculation to the respective ISO contract or other source documents,
recalculated the related expense and accrual, and agreed the commission payment to evidence of cash
disbursement. Additionally, for these monthly ISO payments, we selected a sample of merchant customers,
obtained their monthly processing statements, which were generated by the Company’s third-party processors, and
agreed the monthly payment volumes to the commission calculations.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2020.
Atlanta, Georgia
March 23, 2023
40
Table of Contents
Assets
Current assets:
Priority Technology Holdings, Inc.
Consolidated Balance Sheets
(in thousands, except share data)
Cash and cash equivalents
Restricted cash
Accounts receivable, net of allowances of $1,143 and $555, respectively
Prepaid expenses and other current assets
Current portion of notes receivable, net of allowances of $0 and $0, respectively
Settlement assets and customer/subscriber account balances
Total current assets
Notes receivable, less current portion
Property, equipment and software, net
Goodwill
Intangible assets, net
Deferred income taxes, net
Other noncurrent assets
Total assets
Liabilities, Redeemable Senior Preferred Stock and Stockholders' Deficit
Current liabilities:
Accounts payable and accrued expenses
Accrued residual commissions
Customer deposits and advance payments
Current portion of long-term debt
Settlement and customer/subscriber account obligations
Total current liabilities
Long-term debt, net of current portion, discounts and debt issuance costs
Other noncurrent liabilities
Total liabilities
Commitments and contingencies (Note 18)
Redeemable senior preferred stock, net of discounts and issuance costs:
December 31, 2022 December 31, 2021
$
$
$
18,454 $
10,582
78,113
11,832
1,471
532,018
652,470
3,191
34,687
369,337
288,794
16,447
8,437
1,373,363 $
51,864 $
35,979
2,618
6,200
533,340
630,001
598,926
11,643
1,240,570
20,300
28,859
58,423
15,807
272
479,471
603,132
105
25,233
365,740
340,211
8,265
9,256
1,351,942
42,523
29,532
5,021
6,200
500,291
583,567
604,105
18,349
1,206,021
Redeemable senior preferred stock, $0.001 par value per share; 250,000 shares authorized; 225,000 issued
and outstanding at December 31, 2022 and December 31, 2021
235,579
210,158
Stockholders' deficit:
Preferred stock, $0.001 par value per share; 100,000,000 shares authorized; none issued or outstanding at
December 31, 2022 and December 31, 2021
Common Stock, $0.001 par value per share; 1,000,000,000 shares authorized; 78,385,685 and 77,460,312
shares issued at December 31, 2022 and December 31, 2021, respectively; and 76,044,629 and 76,739,896
shares outstanding at December 31, 2022 and December 31, 2021, respectively.
Treasury stock at cost, 2,341,056 and 720,416 shares at December 31, 2022 and December 31, 2021,
respectively
Additional paid-in capital
Accumulated deficit
Total stockholders' deficit attributable to stockholders of PRTH
Non-controlling interest
Total stockholders' deficit
Total liabilities, redeemable senior preferred stock and stockholders' deficit
$
See Notes to Consolidated Financial Statements
—
76
(11,559)
9,650
(102,208)
(104,041)
1,255
(102,786)
1,373,363 $
—
77
(4,091)
39,835
(100,058)
(64,237)
—
(64,237)
1,351,942
41
Table of Contents
Priority Technology Holdings, Inc.
Consolidated Statements of Operations
(in thousands, except per share amounts)
Revenues
Operating expenses
Costs of services (excludes depreciation and amortization)
Salary and employee benefits
Depreciation and amortization
Selling, general and administrative
Total operating expenses
Operating income
Other (expense) income
Interest expense
Debt extinguishment and modification costs
Gain on sale of business and investment
Other income, net
Total other (expense) income, net
Income (loss) before income taxes
Income tax expense (benefit)
Net (loss) income
Less: Dividends and accretion attributable to redeemable senior preferred stockholders
Less: NCI preferred unit redemptions, net of deferred tax benefit
Less: Net income attributable to NCIs
Net (loss) income attributable to common stockholders
(Loss) earnings per common share:
Basic
Diluted
Weighted-average common shares outstanding:
Basic
Diluted
Years Ended December 31,
2021
2022
2020
$
663,641
$
514,901 $
404,342
436,753
65,077
70,681
34,965
607,476
56,165
(53,554)
—
—
589
(52,965)
3,200
5,350
(2,150)
(36,880)
—
—
(39,030) $
359,885
43,818
49,697
28,408
481,808
33,093
(36,485)
(8,322)
7,643
202
(36,962)
(3,869)
(5,258)
1,389
(18,009)
(8,021)
—
(24,641) $
(0.50)
(0.50)
$
$
(0.34) $
(0.34) $
78,233
78,233
71,902
71,902
277,374
39,507
40,775
25,825
383,481
20,861
(44,839)
(1,899)
107,239
596
61,097
81,958
10,899
71,059
—
—
(45,398)
25,661
0.38
0.38
67,158
67,263
$
$
$
See Notes to Consolidated Financial Statements
42
Table of Contents
Priority Technology Holdings, Inc.
Consolidated Statements of Changes in Stockholders' Deficit and Non-Controlling Interests
(in thousands)
Common Stock
Shares
67,061 $
$
68
Treasury
Stock
Shares
451 $
$
(2,388) $
Additional
Paid-In
Capital
Accumulated
Deficit
Deficit
Attributable to
Stockholders
NCIs
3,651 $
(127,674) $
(126,343) $
5,654 $
January 1, 2020
Equity-classified stock-based
compensation
Vesting of stock-based
compensation
Redemption of NCI in
subsidiary
Earnings attributable to
redeemable and redeemed NCIs
Earnings distributed to
redeemable and redeemed NCIs
Net income
December 31, 2020
Equity-classified stock-based
compensation
Vesting of stock-based
compensation
Liability-classified stock-based
compensation converted to
equity-classified
Issuance of Common Stock
Exercise of stock options
Fair value of NCI preferred
units redemption, net of
deferred tax benefit
Fair value of common shares
issued for NCI redemption
Share repurchases and shares
withheld of taxes
Warrants issued
Dividends on redeemable senior
preferred stock
Accretion of unamortized
issuance costs for redeemable
senior preferred stock
Change in estimate of tax basis
differences
Net income
December 31, 2021
— —
330 —
— —
— —
— —
—
—
—
—
—
—
—
—
—
—
— —
68
67,391 $
—
451 $
—
(2,388) $
— —
465 —
— —
7,551
7
174 —
— —
1,428
2
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(269)
269
(1,703)
— —
— —
— —
— —
—
—
—
—
—
—
—
—
— —
77
76,740 $
—
720 $
—
(4,091) $
2,118
—
—
—
—
—
5,769 $
2,888
—
313
34,381
1,195
(8,021)
9,962
11,357
(16,164)
(1,845)
—
—
39,835 $
43
Total
(120,689)
2,118
—
—
—
(5,654)
(5,654)
45,398
45,398
—
—
—
—
—
25,661
(102,013) $
—
—
—
—
—
—
—
—
—
—
—
2,118
—
—
—
—
25,661
(98,564) $
2,888
—
313
34,388
1,195
(8,021)
9,964
(1,703)
11,357
(16,164)
(1,845)
566
566
(45,398)
—
— $
—
—
—
—
—
—
—
—
—
—
—
—
1,389
(100,058) $
1,389
(64,237) $
—
— $
(45,398)
25,661
(98,564)
2,888
—
313
34,388
1,195
(8,021)
9,964
(1,703)
11,357
(16,164)
(1,845)
566
1,389
(64,237)
Table of Contents
Priority Technology Holdings, Inc.
Consolidated Statements of Changes in Stockholders' Deficit and Non-Controlling Interests
(in thousands)
Equity-classified stock-based
compensation
Vesting of stock-based
compensation
Issuance of profit interests in
wholly-owned subsidiaries
Exercise of stock options
Share repurchases
Dividends on redeemable senior
preferred stock
Accretion of unamortized
issuance costs for redeemable
senior preferred stock
Net loss
December 31, 2022
Common Stock
Shares
$
Treasury
Stock
Shares
$
— —
925
1
— —
—
—
—
—
—
—
— —
(2)
(1,621)
—
1,621
—
(7,468)
— —
— —
— —
76
76,044 $
—
—
—
—
—
—
2,341 $ (11,559) $
Additional
Paid-In
Capital
6,695
—
—
—
—
(33,594)
(3,286)
Accumulated
Deficit
Deficit
Attributable to
Stockholders
NCIs
Total
—
—
—
—
—
—
—
6,695
1
—
—
(7,470)
(33,594)
(3,286)
—
—
1,255
—
—
—
—
6,695
1
1,255
—
(7,470)
(33,594)
(3,286)
—
9,650 $
(2,150)
(102,208) $
(2,150)
(104,041) $
—
1,255 $
(2,150)
(102,786)
See Notes to Consolidated Financial Statements
44
Table of Contents
Priority Technology Holdings, Inc.
Consolidated Statements of Cash Flows
(in thousands)
Cash flows from operating activities:
Net (loss) income
Adjustments to reconcile net loss to net cash provided by operating activities:
Gain and transaction costs recognized on sale of business and investment
Depreciation and amortization of assets
Stock-based compensation
Amortization of debt issuance costs and discounts
Write-off of deferred loan costs and discount
Deferred income tax
Change in contingent consideration
PIK interest (paid)
Impairment charges for intangible asset
Other non-cash items, net
Change in operating assets and liabilities:
Accounts receivable
Prepaid expenses and other current assets
Income taxes (receivable) payable
Notes receivable
Accounts payable and other accrued liabilities
Customer deposits and advance payments
Other assets and liabilities, net
Net cash provided by operating activities
Cash flows from investing activities:
Acquisitions of businesses, net of cash acquired
Proceeds from sale of business and investment
Additions to property, equipment and software
Notes receivable loan funding
Acquisitions of assets and other investing activities
Net cash (used in) provided by investing activities
Cash flows from financing activities:
Proceeds from issuance of long-term debt, net of issue discount
Debt issuance and modification costs paid
Repayments of long-term debt
Borrowings under revolving credit facility
Repayments of borrowings under revolving credit facility
Proceeds from the issuance of redeemable senior preferred stock, net of discount
Redeemable senior preferred stock issuance fees and costs
Redemption of redeemable NCI in subsidiary
Repurchases of Common Stock and shares withheld for taxes
Dividends paid to redeemable senior preferred stockholders
Profit distributions to redeemable NCIs of subsidiaries
Proceeds from exercise of stock options
45
Years Ended December 31,
2021
2022
2020
$
(2,150) $
1,389 $
71,059
—
70,681
6,228
3,521
—
(8,183)
2,059
—
—
74
(19,580)
(160)
6,260
377
19,794
(2,403)
(6,000)
70,518
(4,976)
—
(18,882)
(4,662)
(7,983)
(36,503)
—
—
(6,200)
29,500
(32,000)
—
—
—
(7,468)
(11,459)
—
—
(7,643)
49,697
3,213
2,305
2,580
(2,559)
—
(23,715)
—
462
(16,694)
(1,597)
(5,107)
333
7,018
2,138
(2,443)
9,377
(407,129)
15,278
(9,719)
—
(49,463)
(451,033)
607,318
(9,073)
(361,425)
30,000
(15,000)
219,062
(8,098)
—
(1,703)
(7,460)
(815)
1,196
(112,622)
40,775
2,430
2,396
1,523
2,960
(360)
8,573
1,753
444
(5,160)
303
(238)
(2,230)
1,343
(2,045)
1,298
12,202
—
179,416
(7,461)
—
(5,559)
166,396
—
(2,749)
(110,507)
7,000
(18,505)
—
—
(5,654)
—
—
(45,398)
—
Table of Contents
Priority Technology Holdings, Inc.
Consolidated Statements of Cash Flows
(in thousands)
Settlement and customer/subscriber accounts obligations, net
Payment of contingent consideration
Net cash (used in) provided by financing activities
Net change in cash and cash equivalents, and restricted cash:
Net increase in cash and cash equivalents, and restricted cash
Cash and cash equivalents, and restricted cash at beginning of period
Cash and cash equivalents, and restricted cash equivalents at end of period
Reconciliation of cash and cash equivalents, and restricted cash:
Cash and cash equivalents
Restricted cash
Cash and cash equivalents included in settlement assets and customer/subscriber account
balances (see Note 5)
Total cash and cash equivalents, and restricted cash
Supplemental cash flow information:
Cash paid for interest
Cash paid for income taxes, net of refunds
Non-cash investing and financing activities:
PIK added to principal of debt obligation
Payment of accrued contingent consideration for asset acquisition from offset of account
receivable
Cash portion of dividend payable and ticking fee for redeemable senior preferred stock
Accruals for future contingent payments
Issuance of NCI
Notes receivable from sellers used as partial consideration for acquisitions
Forfeiture of liability-classified award
Change in ESPP liability
Non-cash additions to other noncurrent assets for right-of-use operating leases
Years Ended December 31,
2021
2022
2020
43,143
(7,014)
8,502
417,627
—
871,629
34,870
—
(140,943)
42,517
518,093
560,610 $
429,973
88,120
518,093 $
18,454 $
10,582
20,300 $
28,859
531,574
560,610 $
468,934
518,093 $
37,655
50,465
88,120
9,241
78,879
—
88,120
46,907 $
6,744 $
26,056 $
2,212 $
33,433
8,370
— $
— $
— $
(5,341) $
6,079 $
1,255 $
— $
325 $
143 $
1,722 $
— $
— $
3,000 $
— $
3,499 $
— $
— $
234 $
8,573
1,686
—
8,332
—
—
—
—
—
$
$
$
$
$
$
$
$
$
$
$
$
$
$
See Notes to Consolidated Financial Statements
46
Table of Contents
Priority Technology Holdings, Inc.
Notes to Consolidated Financial Statements
1. Nature of Business and Significant Accounting Policies
The Business
Headquartered in Alpharetta, GA, the Company began operations in 2005 with a mission to build a merchant-inspired payments platform that would
advance the goals of its customers and partners. Our approach leverages a single platform to collect, store and send money that operates at scale. Our
technology supports high-value payments products complimented by our personalized support. We are a leading provider to businesses, enterprises and
distribution partners such as retail ISOs, FIs, wholesale ISOs and ISVs.
The Company operates from a purpose-built business platform that includes tailored customer service offerings and bespoke technology development,
allowing the Company to provide end-to-end solutions for payment and payment-adjacent needs.
The Company provides:
•
•
•
•
SMB payments processing solutions for B2C transactions through ISOs, FIs, ISVs and other referral partners. Our proprietary MX platform for
B2C payments provides merchants a fully customizable suite of business management solutions.
B2B payments solutions such as automated vendor payments and professionally curated managed services to industry leading FIs and networks.
Our proprietary B2B CPX platform was developed to be a best-in-class solution for buyer/supplier payment enablement.
Institutional services (also known as Managed Services) solutions that provide audience-specific programs for institutional partners and other third
parties looking to leverage the Company's professionally trained and managed call center teams for customer onboarding, assistance and support,
including marketing and direct-sales resources.
Enterprise payments solutions for ISVs and other third parties that allow them to leverage the Company's core payments engine via robust API
resources and high-utility embeddable code and consulting and development solutions focused on the increasing demand for integrated payments
solutions for transitioning to the digital economy.
The Company provides its services through three reportable segments: 1) SMB Payments; 2) B2B Payments; and 3) Enterprise Payments. For additional
information about our reportable segments, see Note 20. Segment Information.
To provide many of its services, the Company enters into agreements with payment processors which in turn have agreements with multiple card
associations. These card associations comprise an alliance aligned with insured FIs ("member banks") that work in conjunction with various local, state,
territory and federal government agencies to make the rules and guidelines regarding the use and acceptance of credit and the card associations. The
Company has multiple sponsorship bank agreements and is itself a registered ISO with Visa. The Company is also a registered member service provider
with Mastercard. The Company's sponsorship agreements allow the capture and processing of electronic data in a format to allow such data to flow through
networks for clearing and fund settlement of merchant transactions. The Company offers money transmission services in 46 U.S. states and two U.S.
territories.
Basis of Presentation and Consolidation
The accompanying Consolidated Financial Statements include the accounts of the Company and its majority-owned subsidiaries. All material
intercompany balances and transactions have been eliminated in consolidation. Investments in unconsolidated affiliated companies are accounted for under
the equity method and are included in other noncurrent assets in the accompanying Consolidated Balance Sheets. The Company generally utilizes the
equity method of accounting when it has an ownership interest of between 20% and 50% in an entity, provided the Company is able to exercise significant
influence over the investee's operations.
47
Table of Contents
NCI represents the equity interest not owned by the Company and are recorded for consolidated entities in which the Company owns less than 100% of the
interests. Changes in the Company's ownership interest while the Company retains its controlling interest are accounted for as equity transactions, and upon
loss of control, retained ownership interests are remeasured at fair value, with any gain or loss recognized in earnings. For 2022, there was no income or
loss attributable to NCI in accordance with the applicable operating agreements.
Use of Estimates
The preparation of Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and
the reported amounts of revenues and expenses during the reported period. Actual results could materially differ from those estimates.
Significant Accounting Policies
Revenue Recognition
The Company applies the five-step model to assess its contracts with customers. At contract inception, the Company assesses the services and goods
promised in its contracts with customers and identifies the performance obligation for each promise to transfer a distinct good or service to the customer.
The Company recognizes revenue when it satisfies a performance obligation by transferring a service or good to the customer in an amount to which the
Company expects to be entitled (i.e., transaction price) allocated to the distinct services or goods. The Company has elected the permitted practical
expedient that allows it to use the portfolio approach for many of its contracts since this approach's impact on the financial statements, when applied to a
group of contracts (or performance obligations) with similar characteristics, is not materially different from the impact of applying the revenue standard on
an individual contract basis. Under the portfolio practical expedient, collectability is still assessed at the individual contract level when determining if a
contract exists. The Company has elected to exclude any contracts with an original duration of one year or less and any variable consideration that meets
specified criteria from its disclosure of the aggregate amount of the transaction price allocated to unsatisfied performance.
In delivering payment services to the customer, the Company may also provide a limited license agreement to the customer for the use of one or more of
the Company's proprietary cloud-based software applications. The Company grants a right to use its software applications only when the customer has
contracted with the Company to receive related payment services. When combined with the underlying payment services, the license and the payment
services provided to the customer are a single stand-ready obligation and the Company's performance obligation is defined by each time increment, rather
than by the underlying activities, (quantity and timing of which is not determinable), satisfied over time based on days elapsed.
In order to provide our payment services, we obtain authorization for the transaction and request funds settlement from the card issuing financial institution
through the payment network. When third parties are involved in the transfer of services or goods to the customer, the Company considers the nature of
each specific promised service or good and applies judgment to determine whether the Company controls the service or good before it is transferred to the
customer or whether the Company is acting as an agent of the third party. To determine whether the Company controls the service or good, it assesses
indicators including: 1) which party is primarily responsible for fulfillment; 2) which party has discretion in determining pricing for the service or good;
and 3) other considerations deemed to be applicable to the specific situation. Based on our assessment of these indicators, we have concluded that the
promise to our customers to provide payment services is distinct from the services provided by the card issuing FIs and payment networks in connection
with payment transactions. We do not have the ability to direct the use of and obtain substantially all of the benefits of the services provided by the card
issuing FIs and payment networks before those services are transferred to our customer, and on that basis, we do not control those services prior to being
transferred to our customer. As a result, we present our revenues net of the interchange fees retained by the card issuing FIs and the fees charged by the
payment networks.
SMB Payments – The Company's SMB Payments segment enables the Company's customers to accept card, electronic and digital-based payments at the
point of sale by providing a suite of services including authorization, settlement and funding, customer support and help-desk functions, chargeback
resolution, payment security, consolidated billing and statements, and online reporting.
48
Table of Contents
Typically, revenues generated from these transactions are based on a variable percentage of the dollar amount of each transaction, and in some instances,
additional fees (e.g., statement fees, annual fees and monthly minimum fees, fees for handling chargebacks, gateway fees and fees for other miscellaneous
services) are charged for each transaction. The Company's sponsoring banks collect the gross merchant discount from the card holder's issuing bank, pay
the interchange fees and assessments to the payment networks and credit card associations, retain their fees, and pay to the Company the net amount which
represents the Company's revenue.
The Company also earns revenue and commissions from resale of electronic POS equipment.
B2B Payments – The Company's B2B Payments segment enables the Company's customers to automate their accounts payable and other commercial
payments functions with the Company's payment services that utilize physical and virtual payment cards as well as ACH transactions. In addition, the
Company provides cost-plus-fee turn-key business process outsourcing and assists commercial customers with programs that are designed to increase
acceptance of Electronic Payments.
Revenues are generally earned on a per-transaction basis and are recognized by the Company net of certain third-party costs for interchange fees,
assessments to the payment networks, credit card associations fees, sponsor bank fees and rebates to customers. For outsourced services, revenue is
recognized to the extent of billable rates multiplied times hours worked and other reimbursable costs incurred. For performance obligations associated with
outsourced services that are satisfied over time, the Company applies the permitted practical expedient known as the "right to invoice practical expedient"
that allows the Company to recognize revenue in the amount of consideration to which the Company has the right to invoice when that amount corresponds
directly to the value transferred to the customer.
Enterprise Payments – The Company's Enterprise Payments segment uses payment-adjacent technologies to facilitate the acceptance of Electronic
Payments from customers.
Revenue from the Enterprise Payments segment consists of the following:
•
•
•
•
Enrollment fees: The revenue associated with enrollment fees is recognized upon the receipt of a fully executed enrollment application,
completion of the customer account setup, data verification and the constructive receipt of the applicable non-refundable fee.
Subscription fees: The Company recognizes monthly subscription fees as recurring maintenance fees each month during the term of the client's
enrollment. Revenue from transaction-based fees is recognized upon constructive receipt of transaction fees for payments to creditors issued via
ACH payments, paper checks or wire transfers. These fees are transferred to the Company from the customer account balances, which may be
maintained by the Company in money transmission license trust accounts or by partner banks.
Interest revenue: Interest revenue is derived from certain customer balances maintained in interest bearing accounts with select partner banks.
CRM and consulting fees: CRM license fees are recognized on a monthly basis and consulting fees are recognized when services are performed.
A substantial portion of this segment's revenues are earned as an agent of a third party, and therefore this earned revenue is reported as a net amount within
revenue.
See Note 4. Revenues.
Transaction Price Allocated to Future Performance Obligations
ASC 606 requires disclosure of the aggregate amount of the transaction price allocated to unsatisfied performance obligations. However, as allowed by
ASC 606, the Company has elected to exclude from this disclosure any contracts with an original duration of one year or less and any variable
consideration that meets specified criteria. As described above, the Company's most significant performance obligations consist of variable consideration
under a stand-ready series of distinct days of service.
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Such variable consideration meets the specified criteria for the disclosure exclusion. Therefore, the majority of the aggregate amount of transaction price
that is allocated to performance obligations that have not yet been satisfied is variable consideration that is not required for this disclosure. The aggregate
fixed consideration portion of customer contracts with an initial contract duration greater than one year is not material.
Cost of Services
Costs of merchant card fees primarily consist of residual payments to agents and ISOs and other third-party costs directly attributable to payment
processing. The residual payments represent commissions paid to agents and ISOs based upon a percentage of the net revenues generated from merchant
transactions. Costs of outsourced services and other revenue consist of salaries directly related to outsourced services revenue, the cost of equipment (point
of sale terminals) sold, and third-party fees and commissions related to the Company's ACH processing activities.
Contracts with Customers and Contract Costs
The Company accrues and pays commission expense based on variable merchant payment volumes and for certain customer service and other services
provided by its ISOs. Since commission expenses are accrued and paid to ISOs on a monthly basis after the merchant enters into a new or renewed
contract, these are not deemed to be a cost to acquire a new contract but they are reported within costs of services on our Consolidated Statements of
Operations. The ISO is typically an independent contractor or agent of the Company.
The Company may occasionally elect to buy out all or a portion of an ISO's rights to receive future commission payments related to certain merchants.
Amounts paid to the ISO for these residual buyouts are capitalized by the Company under the accounting guidance for intangible assets and included in
intangible assets, net on our Consolidated Balance Sheets.
A contract with a customer creates a legal right and obligation. As the Company performs under customer contracts, its right to consideration that is
unconditional is considered to be accounts receivable. If the Company's right to consideration for such performance is contingent upon a future event or
satisfaction of additional performance obligations, the amount of revenues recognized in excess of the amount billed to the customer is recognized as a
contract asset. Contract liabilities represent consideration received from customers in excess of revenues recognized. Material contract assets and liabilities
are presented net at the individual contract level in the Consolidated Balance Sheets and are classified as current or noncurrent based on the nature of the
underlying contractual rights and obligations.
Cash and Cash Equivalents and Restricted Cash
Cash and cash equivalents includes highly liquid instruments with an original maturity of three months or less, and cash owned by the Company that is held
in financial institutions. Restricted cash is held by the Company in financial institutions for the purpose of in-process customer settlements or reserves held
per contact terms.
Accounts Receivable
Accounts receivable is stated net of allowance for doubtful accounts and are amounts primarily due from the Company's sponsor banks for revenues
earned, net of related interchange and processing fees, and do not bear interest. Other types of accounts receivable are from agents, merchants and other
customers. Amounts due from sponsor banks are typically paid within 30 days following the end of each month.
Notes Receivable
Notes receivable are primarily comprised of notes receivable from ISOs and related parties, and under the terms of the agreements the Company preserves
the right to hold back residual payments due to the ISOs and to apply such residuals against future payments due to the Company. See Note 6. Notes
Receivable and Note 17. Related Parties
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Allowance for Doubtful Accounts Receivable and Notes Receivable
The Company records an allowance for doubtful accounts and/or notes receivable when it is probable that the account receivable balance or the note
receivable balance will not be collected, based upon loss trends and an analysis of individual accounts. Accounts receivable and notes receivable are written
off when deemed uncollectible. Recoveries of accounts receivable and notes receivable previously written off, if any, are recognized when received. The
allowance for doubtful accounts was $1.1 million and $0.6 million at December 31, 2022 and 2021, respectively. As of December 31, 2022 and 2021, there
was no allowance for doubtful notes receivable. See Note 6. Notes Receivable.
Customer Deposits and Advance Payments
The Company may receive cash payments from certain customers and vendors that require future performance obligations by the Company. Amounts
associated with obligations expected to be satisfied within one year are reported in customer deposits and advance payments on the Company's
Consolidated Balance Sheets and amounts associated with obligations expected to be satisfied after one year are reported as a component of other
noncurrent liabilities on the Company's Consolidated Balance Sheets. These payments are subsequently recognized in the Company's Consolidated
Statements of Operations when the Company satisfies the performance obligations required to retain and earn these deposits and advance payments.
A vendor may make an upfront payment to the Company to offset costs that the Company incurs to integrate the vendor into the Company's operations.
These upfront payments are deferred by the Company and are subsequently amortized against expense in its Consolidated Statements of Operations as the
related costs are incurred by the Company in accordance with the agreement with the vendor.
Property and Equipment
Property and equipment are stated at cost, except for property and equipment acquired in a business combination, which is recorded at fair value at the time
of the transaction. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets.
Expenditures for repairs and maintenance which do not extend the useful life of the respective assets are charged to expense as incurred. Expenditures that
increase the value or productive capacity of assets are capitalized. At the time of retirements, sales or other dispositions of property and equipment, the
original cost and related accumulated depreciation are removed from the respective accounts and the gains or losses are presented as a component of
income or loss from operations.
Property, equipment and software
Furniture and fixtures
Equipment
Computer software
Leasehold improvements
See Note 7. Property, Equipment and Software.
Costs Incurred to Develop Software for Internal Use
Estimated Useful Life
5 - 10 years
3 - 8 years
2 - 5 years
3 - 10 years
Costs incurred to develop or obtain internal-use software and implementation costs are accounted for in accordance with ASC 350-40, Internal-Use
Software. The Company uses an agile development methodology in which feature-by-feature updates are made to its software. The costs incurred in the
preliminary stages of development are expensed as incurred. Once an application has reached the development stage, internal and external costs incurred to
develop internal-use software are capitalized and amortized using the straight-line method over the estimated useful life of the software, which generally
range from two to five years. Maintenance costs including those in the post-implementation stages, are typically expensed as incurred, unless such costs
relate to substantial upgrades and enhancements to the software that result in added functionality, in which case such costs are capitalized and amortized
using the straight-line method over the estimated useful life of the software.
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Software development costs may become impaired in situations where development efforts are abandoned due to the viability of the planned project
becoming doubtful or due to technological obsolescence of the planned software product. For the years ended December 31, 2022, 2021 and 2020, there
was no impairment associated with internal-use software.
For the years ended December 31, 2022, 2021 and 2020, the Company capitalized software development costs of $16.8 million, $7.8 million and
$7.1 million, respectively. As of December 31, 2022 and 2021, capitalized software development costs, net of cumulated amortization, totaled $28.1
million and $18.3 million, respectively, and are included in property, equipment and software, net on the Consolidated Balance Sheets.
Amortization expense for capitalized software development costs for the years ended December 31, 2022, 2021 and 2020 was $6.9 million, $5.9 million
and $5.3 million, respectively, and are included in depreciation and amortization on the Consolidated Statements of Operations.
Other Intangible Assets
Other intangible assets are initially recorded at cost or fair value when acquired in connection with a business combination. The carrying value of an
intangible asset acquired in an asset acquisition may subsequently be increased for contingent consideration when due to the seller and such amounts can be
estimated. The portion of any unpaid purchase price that is contingent on future activities is not initially recorded by the Company on the date of
acquisition. Rather, the Company recognizes contingent consideration when it becomes probable and estimable. All of the Company's intangible assets,
except goodwill and money transmission licenses, have finite lives and are subject to amortization. Intangible assets consist of acquired merchant
portfolios, customer relationships, ISO and referral partner relationships, residual buyouts, trade names, technology, non-compete agreements and money
transmission licenses.
Intangible Asset
ISO and Referral Partner Relationships
Residual Buyouts
Customer Relationships
Merchant Portfolios
Technology
Trade Names and Non-compete Agreements
Money Transmission Licenses
Impairment of Long-lived Assets
Nature
Acquired relationships with ISOs and referral partners
Surrender of rights to receive commissions by ISOs
Acquired customer relationships
Acquired rights to a portfolio of merchants
Acquired proprietary software and website domains
Acquired trade names and non-compete agreements
Acquired licenses to collect, store and send money in 46 U.S. states
and two U.S. territories.
Estimated Useful
Life
11 – 25 years
3 – 9 years
2 – 15 years
5 – 10 years
7 – 10 years
5 – 12 years
indefinite
The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be
recoverable. For long-lived assets, except goodwill, an impairment loss is indicated when the undiscounted future cash flows estimated to be generated by
the asset group are not sufficient to recover the carrying value of the asset group. If indicated, the loss is measured as the excess of carrying value over the
asset groups' fair value, as determined based on discounted future cash flows. The Company concluded there were no indications of impairment for the
years ended December 31, 2022 and 2021. For the year ended December 31, 2020, the Company recognized an impairment charge of $1.8 million for a
residual buyout intangible asset. See Note 8. Goodwill and Other Intangible Assets.
Goodwill
The Company tests goodwill for impairment on an annual basis, or when events occur or circumstances indicate the fair value of a reporting unit is below
its carrying value. If the fair value of a reporting unit is less than its carrying value, an impairment loss is recorded to the extent that implied fair value of
the goodwill within the reporting unit is less than its carrying value. See Note 8. Goodwill and Other Intangible Assets.
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Leases
The Company adopted ASU 2016-02, Leases and its related interpretations, codified as ASC 842, as of January 1, 2021, applying the optional transition
approach available whereby the new lease standard is applied at the adoption date recognizing a cumulative-effect adjustment to the opening balance of
retained earnings in the period of adoption, if applicable, and prior periods are not restated. Upon adoption the Company recorded ROU Assets of
approximately $7.4 million and related operating lease obligations of approximately $8.4 million. There was no impact to the opening balance of retained
earnings.
Under ASC 842
The Company evaluates lease and service arrangements at lease inception to determine if the arrangement is a lease or contains a lease. Lease arrangements
are evaluated at their commencement date to determine classification as operating or finance. Operating leases are reported as part of other noncurrent
assets, accounts payable and accrued expenses and other noncurrent liabilities on the Company's Consolidated Balance Sheets. Finance leases, if
applicable, are reported as part of property, equipment and software, net, and debt on the Company's Consolidated Balance Sheets. Leases with a term of
twelve months or less are not included on the Company's Balance Sheets. The Company does not separate lease and non-lease components. Certain
estimates and assumptions are made when determining the value of ROU Assets and the related liabilities, including when establishing the lease term and
discount rates and variable lease payments (e.g., rent escalations tied to changes in the Producer Price Index). The lease term for all of the Company's
leases includes the non-cancelable period of the lease adjusted for any renewal or termination options the Company is reasonably certain to exercise. The
lease payment stream includes any rent escalation that is required under certain lease agreements. The Company's leases generally do not provide an
implicit rate of interest, nor is it readily determinable by the Company, and as such the Company uses its incremental borrowing rate in determining the
discounted value of the lease payments. Lease expense and depreciation expense, if applicable, are recognized on a straight-line basis over the term of the
lease.
Prior to the Adoption of ASC 842
The Company has multiple operating leases related to office space. Operating leases do not involve transfer of risks and rewards of ownership of the leased
asset to the lessee, therefore the Company expenses the costs of its operating leases. The Company may make various alterations (leasehold improvements)
to the office space and capitalize these costs as part of property and equipment. Leasehold improvements are generally amortized on a straight-line basis
over the useful life of the improvement or the term of the lease, whichever is shorter. See Note 9. Leases.
Settlement Assets and Customer/Subscriber Account Balances and Related Obligations
Settlement assets and customer/subscriber account balances and the related obligations recognized on the Company's Consolidated Balance Sheets
represent intermediary balances arising in the Company's settlement process for merchants and other customers. See Note 5. Settlement Assets and
Customer/Subscriber Account Balances and Related Obligations.
Debt Issuance and Modification Costs
Eligible debt issuance costs associated with the Company's credit facilities are deferred and amortized to interest expense over the term of the related debt
using the effective interest method. Debt issuance costs associated with Company's term debt are presented on the Company's Consolidated Balance Sheets
as a direct reduction in the carrying value of the associated debt liability. Debt modification costs represents amounts paid to third parties to modify existing
debt agreements when those amounts are not eligible for capitalization.
Acquisitions
Business Combinations
The Company uses the acquisition method of accounting for business combinations which requires assets acquired and liabilities assumed to be recognized
at their fair values on the acquisition date. Goodwill represents the excess of the purchase price over the fair value of the net assets acquired. The fair values
of the assets acquired and liabilities assumed are determined
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based upon the valuation of the acquired business and involves making significant estimates and assumptions based on facts and circumstances that existed
as of the acquisition date. The Company uses a measurement period following the acquisition date to gather information that existed as of the acquisition
date that is needed to determine the fair value of the assets acquired and liabilities assumed. The measurement period ends once all information is obtained,
but no later than one year from the acquisition date.
Contingent Consideration
Contingent consideration related to the Company's business combinations are estimated based on the present value of a weighted payout probability at the
measurement date using a Monte Carlo simulation model. This valuation falls within Level 3 on the fair value hierarchy. The current portion of contingent
consideration is included in accounts payable and accrued expenses on the Company's Consolidated Balance Sheets and the noncurrent portion of
contingent consideration is included in other noncurrent liabilities on the Company's Consolidated Balance Sheets.
For asset acquisitions that do not meet the definition of a business, the portion of the unpaid purchase price that is contingent on future activities is not
recorded by the Company on the date of acquisition, but when it becomes probable and can be estimated.
Non-controlling Interests
The Company issued non-voting incentive units in three of its subsidiaries during 2022 to acquire the operating assets of certain businesses (see Note 2.
Acquisitions). The Company is the majority owner of these subsidiaries and therefore the incentive units are deemed to be NCI.
To estimate the initial fair value of the incentive units, the Company utilizes future cash flow scenarios with focus on those cash flow scenarios which could
result in future distributions to the NCIs. In subsequent periods, income or loss will be attributed to an NCI based on the hypothetical liquidation at book
value method utilizing the terms of the operating agreement between the Company and the NCI.
As the majority owner, the Company has call rights on the incentive units issued to the NCIs. These call rights can only be executed under certain
circumstances and execution is always optional at the Company's discretion. The call rights do not meet the definition of a free-standing financial
instrument or derivative, thus no separate accounting is required for these call rights.
Accrued Residual Commissions
Accrued residual commissions consist of amounts due to ISOs and independent sales agents based on a percentage of the net revenues generated from the
Company's merchant customers. Percentages vary based on the program type and transaction volume of each merchant. Residual commission expenses
were $383.5 million, $318.9 million and $240.2 million, respectively, for the years ended December 31, 2022, 2021 and 2020, and are included in costs of
services in the accompanying Consolidated Statements of Operations.
ISO Deposit and Loss Reserve
ISOs may partner with the Company in an exclusive partner program in which ISOs are given negotiated pricing in exchange for bearing risk of loss.
Through the arrangement, the Company accepts deposits on behalf of the ISO and a reserve account is established by the Company. All amounts
maintained by the Company are included in the accompanying Consolidated Balance Sheets as other liabilities, which are directly offset by restricted cash
accounts owned by the Company.
Stock-based Compensation
The Company recognizes the cost resulting from all stock-based payment transactions in the financial statements at grant date fair value. Stock-based
compensation expense is recognized over the requisite service period and is reflected in salary and employee benefits expense on the Company's
Consolidated Statements of Operations. Awards generally vest over three or four years and may not vest evenly over the vesting period. The effects of
forfeitures are recognized as they occur. All shares issued
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from option exercises or vesting of RSU awards are original issuance shares and any shares withheld for taxes are repurchased by the Company.
The Company measures a liability award under a stock-based compensation payment arrangement based on the award's fair value remeasured at each
reporting date until the date of settlement. Compensation cost for each period until settlement is based on the change (or a portion of the change, depending
on the percentage of the requisite service that has been rendered at the reporting date) in the fair value of the instrument for each reporting period.
Stock options
Under the Company's 2018 Plan, the Company determines the fair value of stock options using the Black-Scholes option pricing model, which requires the
use of the following subjective assumptions:
Expected volatility – Measure of the amount by which a stock price has fluctuated or is expected to fluctuate. Due to the relatively short amount of time that
the Company's Common Stock (Nasdaq: PRTH) has traded on a public market, the Company uses volatility data for the Common Stock of a peer group of
comparable public companies. An increase in the expected volatility will increase the fair value of the stock option and related compensation expense.
Risk-free interest rate – U.S. Treasury rate for a stripped-principal treasury note as of the grant date having a term equal to the expected term of the stock
option. An increase in the risk-free interest rate will increase the fair value of the stock option and related compensation expense.
Expected term – Period of time over which the stock options granted are expected to remain outstanding. In 2018, when the Company's outstanding stock
options were granted, the Company lacked sufficient exercise information for its stock option plan since it was a newly public company. Accordingly, the
Company used a method permitted by the SEC whereby the expected term was estimated to be the mid-point between the vesting dates and the expiration
dates of the stock option grants. An increase in the expected term will increase the fair value of the stock option and the related compensation expense.
Dividend yield – The Company uses an amount of zero as the Company has paid no cash or stock dividends and does not anticipate doing so in the
foreseeable future. An increase in the dividend yield will decrease the fair value of the stock option and the related compensation expenses.
If a participant terminates employment with the Company, vested options may be exercised for a short period of time while unvested options are forfeited.
However, in any event, a stock option will expire ten years from the date of grant.
Time-based restricted stock awards
The fair value of time-based restricted stock awards is determined based on the quoted closing price of the Company's Common Stock on the business day
prior to the grant date and is recognized as compensation expense over the vesting term of the awards.
Performance-based restricted stock awards
The Company accounts for its performance-based restricted stock awards based on the quoted closing price of the Company's Common Stock on the
business day prior to the grant date, adjusted for any market-based vesting criteria, and records stock-based compensation expense over the vesting term of
the awards based on the probability that the performance criteria will be achieved. The performance goals may be work-related goals for the individual
recipient and/or based on certain corporate performance goals. The Company reassesses the probability of vesting at each reporting period and
prospectively adjusts stock-based compensation expense based on its probability assessment. Additionally, if performance goals are set or reset on an
annual basis, compensation cost is recognized in any reporting period only for performance-based restricted stock awards in which the performance goals
have been established and communicated to the award recipient.
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Employee Stock Purchase Program
The 2021 Employee Stock Purchase plan authorizes the issuance of shares of the Company’s Common Stock pursuant to purchase rights granted to
employees. The fair value of purchase rights issued under the Employee Stock purchase Plan is estimated using the Black-Scholes option pricing model.
The model requires management to make a number of assumptions, including the fair value of the Company’s Common Stock, expected volatility, expected
term, risk-free interest rate, and expected dividends. The Company records the resulting compensation expense in the Consolidated Statements of
Operations over each three-month offering period. See Note 15. Stock-based Compensation.
Repurchased Stock
Pursuant to the provisions of ASC 505-30, Treasury Stock, the Company has elected to apply the cost method when accounting for treasury stock resulting
from the repurchase of its Common Stock. Under the cost method, the gross cost of the shares reacquired is charged to a contra equity account, treasury
stock. The equity accounts that were originally credited for the original share issuance, Common Stock and additional paid-in capital, remain intact. See
Note 14. Stockholders' Deficit.
If the treasury shares are ever reissued in the future, proceeds in excess of repurchased cost will be credited to additional paid-in capital. Any deficiency
will be charged to retained earnings (accumulated deficit), unless additional paid-in capital from previous treasury stock transactions exists, in which case
the deficiency will be charged to that account, with any excess charged to retained earnings (accumulated deficit). If treasury stock is reissued in the future,
a cost flow assumption (e.g., FIFO, LIFO or specific identification) will be adopted to compute excesses and deficiencies upon subsequent share
reissuance.
Earnings (Loss) per Share
Basic EPS is computed by dividing net income (loss) available to Common Stockholders by the weighted-average number of shares of Common Stock
outstanding during the period, excluding the effects of any potentially dilutive securities. Diluted EPS gives effect to the potential dilution, if any, that could
occur if securities or other contracts to issue Common Stock were exercised or converted into Common Stock, using the more dilutive of the two-class
method or if-converted method. Diluted EPS excludes potential shares of Common Stock if their effect is anti-dilutive. If there is a net loss in any period,
basic and diluted EPS are computed in the same manner. See Note 14. Stockholders' Deficit.
Income Taxes
The Company accounts for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in
effect when the differences are expected to be recovered or settled. Realization of deferred tax assets is dependent upon future taxable income. A valuation
allowance is recognized if it is more likely than not that some portion or all of a deferred tax asset will not be realized based on the weight of available
evidence, including expected future earnings.
The Financial Accounting Standards Board, or FASB, Staff has provided additional guidance to address the accounting for the effects of the provisions
related to the taxation of Global Intangible Low-Tax Income noting that companies should make an accounting policy election to recognize deferred taxes
for temporary basis differences expected to reverse in future years or to include the tax expense in the year it is incurred. The Company has made a policy
election to recognize such taxes as current period expenses when incurred.
The Company recognizes an uncertain tax position in its financial statements when it concludes that a tax position is more likely than not to be sustained
upon examination based solely on its technical merits. Only after a tax position passes the first step of recognition will measurement be required. Under the
measurement step, the tax benefit is measured as the largest amount of benefit that is more likely than not to be realized upon effective settlement. This is
determined on a cumulative probability basis. The full impact of any change in recognition or measurement is reflected in the period in which such change
occurs. The Company recognized interest and penalties associated with uncertain tax positions as a component of income tax expense. See Note 13. Income
Taxes.
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Fair Value Measurements
The Company measures certain assets and liabilities at fair value. Fair value is defined as the exchange price that would be received for an asset or paid to
transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants
at the measurement date. The Company uses a three-level fair value hierarchy to prioritize the inputs used to measure fair value and maximizes the use of
observable inputs and minimizes the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:
Level 1 – Quoted market prices in active markets for identical assets or liabilities as of the reporting date.
Level 2 – Observable market-based inputs or unobservable inputs that are corroborated by market data.
Level 3 – Unobservable inputs that are not corroborated by market data.
The fair values of the Company's merchant portfolios, assets and liabilities acquired in mergers and business combinations, and contingent consideration
are primarily based on Level 3 inputs and are generally estimated based upon valuation techniques that include discounted cash flow analysis based on cash
flow projections and, for years beyond the projection period, estimates based on assumed growth rates. Assumptions are also made regarding appropriate
discount rates, perpetual growth rates, and capital expenditures, among others. In certain circumstances, the discounted cash flow analysis is corroborated
by a market-based approach that utilizes comparable company public trading values and, where available, values observed in public market transactions.
The carrying values of accounts and notes receivable, accounts payable and accrued expenses, long-term debt and cash, including settlement assets and the
associated deposit liabilities, approximate their fair values due to either the short-term nature of such instruments or the fact that the interest rate of the debt
is based upon current market rates. The Company does not currently have any fair value estimates that are required to be remeasured at the end of each
reporting period on a recurring basis. See Note 19. Fair Value.
Foreign Currency
The Company's reporting currency is the U.S. dollar. Assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the current
exchange rate on the last day of the reporting period. Revenues and expenses are translated using the average exchange rate in effect during the reporting
period. Foreign exchange translation and transaction gains and losses were not material for the periods presented and are included in the Consolidated
Statements of Operations.
Concentration of Risk
A substantial portion of the Company's revenues and receivables are attributable to merchants. For the years ended December 31, 2022, 2021 and 2020, no
individual merchant customer accounted for 10% or more of the Company's consolidated revenues. Most of the Company's merchant customers were
referred to the Company by an ISO or other reseller partners. If the Company's agreement with an ISO allows the ISO to have merchant portability rights,
the ISO can move the underlying merchant relationships to another merchant acquirer upon notice to the Company and completion of a "wind down"
period. For the years ended December 31, 2022, 2021 and 2020, merchants referred by one ISO organization with merchant portability rights generated
revenue within the Company's SMB Payments reportable segment that represented approximately 21%, 22% and 21%, respectively, of the Company's
consolidated revenues.
The Company's settlement assets and customer /subscriber account balances of $532.0 million includes cash and cash equivalents of $516.1 million related
to customer account balances which are maintained in FDIC insured accounts with certain FIs.
A majority of the Company's cash and restricted cash (including subscriber account balances) is held in certain FIs, substantially all of which is in excess of
FDIC limits.
The Company does not believe it is exposed to any significant credit risk from these transactions.
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Recently Adopted Accounting Standards
Business Combinations
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from
Contracts with Customers, which requires entities to recognize and measure contract assets and liabilities acquired in a business combination in accordance
with ASC 606, as if the acquirer had originated the contracts. Generally this will result in the acquirer recognizing and measuring the acquired contract
assets and liabilities consistent with the manner by which they were recognized and measured by the acquiree. This update is effective for public companies
for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, and early adoption is permitted, including in an
interim period. If this update is adopted early in an interim period, it must be applied retrospectively to all business combinations that occurred since the
beginning of the fiscal year. The Company elected to early adopt ASU 2021-08 in the second quarter of 2022. The adoption of this ASU did not have a
material impact on the 2022 acquisitions.
Recently Issued Accounting Standards Pending Adoption
The following standards are pending adoption and will likely apply to the Company in future periods based on the Company's current business activities.
Credit Losses
In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). This new guidance changes how
entities account for credit impairment for trade and other receivables, as well as for certain financial assets and other instruments. ASU 2016-13 replaces
the current "incurred loss" model with an "expected loss" model. Under the "incurred loss" model, a loss (or allowance) is recognized only when an event
has occurred (such as a payment delinquency) that causes the entity to believe that a loss is probable (i.e., that it has been "incurred"). Under the "expected
loss" model, a loss (or allowance) is recognized upon initial recognition of the asset that reflects all future events that leads to a loss being realized,
regardless of whether it is probable that the future event will occur. The "incurred loss" model considers past events and current conditions, while the
"expected loss" model includes expectations for the future which have yet to occur. The standard requires entities to record a cumulative-effect adjustment
to the balance sheet as of the beginning of the first reporting period in which the guidance is effective. Since the Company is an SRC, the Company will
adopt ASU 2016-13 effective January 1, 2023 and does not expect to have a material impact on its Consolidated Financial Statements
Reference Rate Reform
In March 2020, the FASB issued ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides temporary
optional expedients and exceptions to the GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the
expected market transition from the LIBOR and other interbank offered rates to alternative reference rates, such as the SOFR. If certain criteria are met,
entities can elect not to apply certain modification accounting requirements to contracts affected by what the guidance calls reference rate reform. An entity
that makes this election would not have to remeasure the contract at the modification date or reassess a previous accounting determination. In January
2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848), Scope ASU 2021-01, which clarifies that certain optional expedients and
exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. ASU 2022-06,
Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, amended ASU 2020-04, deferring the sunset date of Topic 848 to December
31, 2024. The Company will adopt Topic 848 when relevant contracts are modified upon transition to alternative reference rates. The Company does not
expect the adoption of Topic 848 to have a material impact on the Company's Consolidated Financial Statements.
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2. Acquisitions
Ovvi Acquisition
On November 18, 2022, the Company completed its acquisition of certain assets and assumption of a certain liability of Ovvi, LLC, under an asset
purchase agreement through its wholly-owned subsidiary, Priority Ovvi, LLC ("Ovvi"). The acquisition was accounted for as a business combination using
the acquisition method of accounting. Prior to this acquisition, the business operated as a SaaS proprietary platform for the restaurant, hospitality and retail
industries by providing complete all-in-one point of sale software and hardware systems, comprehensive ancillary services including fraud detection and
mitigation, and processing services for various types of cards including credit cards, debit cards, private label cards and prepaid cards. This business is
reported within the Company's SMB Payments reportable segment. The acquired business was valued for $6.3 million and the Company acquired a
controlling interest for $5.0 million, the remaining $1.3 million was contributed by sellers for non-voting profit-sharing interest in Ovvi, creating NCI.
Ovvi also issued non-voting incentive units to the seller. Transaction costs were not material and were expensed. The non-voting incentive shares issued to
the seller will be evaluated at each reporting period to determine whether or not profit or loss should be allocated based on the subsidiary's operating
agreement. The preliminary purchase price allocation is set forth in the table below and is expected to be finalized as soon as practicable, but no later than
one year from the acquisition date.
(in thousands)
Consideration:
Cash
Amount withheld for inventory
Total purchase consideration, inclusive of amount withheld for inventory
Fair value of class B shares issued in Ovvi
(1)
(3)
Total enterprise value of business acquired
(3)
Recognized amounts of assets acquired and liabilities assumed:
Accounts receivable
Inventory
Property, equipment and software, net
Goodwill
Intangible assets
Other non-current asset
Other non-current liability
(3)
(2)
Total enterprise value of business acquired
(3)
$
$
$
$
4,976
50
5,026
1,255
6,281
110
142
20
3,989
2,021
152
(153)
6,281
(1)
(2)
(3)
The inventory acquired is subject to a reduction for any portion up to the total amount withheld pending final determination of the inventory
acquired.
The intangible assets consist of $1.3 million for technology, $0.4 million for customer relationships and $0.3 million for trade name.
The fair value determination for the Class B shares is subject to adjustment due to final determination as soon as practicable but no later than one
year from the closing date. This will affect the enterprise value of the business acquired.
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Other Acquisition
The Company also completed another acquisition during 2022 for approximately $1.0 million, which was not material. The acquisition did not meet the
definition of a business, therefore it was accounted for as an asset acquisition under which the cost of acquisition was allocated to the technology asset
acquired.
Finxera Acquisition
On September 17, 2021, the Company completed its acquisition of 100% of the equity interests of Finxera. Finxera is a provider of deposit account
management and licensed money transmission services in the U.S. The acquisition allows the Company to offer clients turn-key merchant services,
payment facilitation, card issuing, automated payables, virtual banking, e-wallet tools, risk management, underwriting and compliance on a single platform.
The transaction was funded with the Company's cash on hand, proceeds from the issuance of the redeemable senior preferred stock and debt, and the
issuance of common equity shares to the sellers.
The acquisition was accounted for as a business combination using the acquisition method of accounting, under which the assets acquired and liabilities
assumed were recognized at their fair values as of the September 17, 2021, with the excess of the fair value of consideration transferred over the fair value
of the net assets acquired recognized as goodwill. The fair values of the assets acquired and liabilities assumed as of the September 17, 2021 were
estimated by management based on the valuation of the Finxera business using the discounted cash flow method and other factors specific to certain assets
and liabilities. The final purchase price allocation is set forth in the table below.
(in thousands)
Consideration:
Cash
Equity instruments
Less: cash and restricted cash acquired
(1)
Total purchase consideration, net of cash and restricted cash acquired
(2)
Recognized amounts of assets acquired and liabilities assumed:
Accounts receivable
Prepaid expenses and other current assets
Current portion of notes receivable
Settlement assets and customer/subscriber account balances
Property, equipment and software, net
Goodwill
Intangible assets, net
Other noncurrent assets
Accounts payable and accrued expenses
Settlement and customer/subscriber account obligations
(2)
Deferred income taxes, net
Other noncurrent liabilities
(2)
(3)
Total purchase consideration
$
$
$
$
379,220
34,388
(6,598)
407,010
385
5,198
784
498,811
712
245,104
211,400
955
(7,837)
(498,811)
(44,311)
(5,380)
407,010
(1)
(2)
The fair value of the 7,551,354 shares of PRTH Common Stock that were issued was determined based on their market price at the time of closing
adjusted for an appropriate liquidity discount due to trading restrictions under Securities Rule 144.
During the year ended December 31, 2022, the Company recorded measurement period adjustments due to additional information received related
to income taxes and deferred income taxes, net. These measurement period adjustments resulted in an increase of $0.1 million in prepaid expenses
and an increase of $0.3 million in other current assets and deferred income taxes, offset by a decrease in goodwill of $0.4 million.
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(3)
The intangible assets acquired consist of $154.9 million for referral partner relationships, $34.3 million for technology, $20.1 million for customer
relationships and $2.1 million for money transmission licenses.
Goodwill of $245.1 million arising from the acquisition primarily consists of the expected synergies and other benefits from combining operations.
Goodwill attributable to the acquisition of $8.7 million was deductible for income tax purposes. The goodwill was allocated 100% to the Company's
Enterprise Payments reportable segment.
In 2020, Finxera acquired two businesses for which the purchase price included contingent consideration valued at $6.1 million. The contingent
consideration payable is comprised of earnout opportunities equal to 25% to 50% of certain revenues earned from the customers assumed in these
acquisitions. The associated earnout opportunities are to be measured and paid every six months and expire at various dates through December 31, 2023.
As of the year ended December 31, 2022, an adjustment of $1.2 million was recorded due to changes in the fair value of the contingent consideration (as
selling, general and administrative expenses in the Company's Consolidated Statements of Operations) resulting in total contingent consideration of
$7.3 million. The accretion of contingent consideration was $0.6 million for the year ended December 31, 2022, which is included in interest expense on
the Company's Consolidated Statement of Operations, increasing total liability to $7.9 million of which $1.8 million has been paid. The remaining
$6.1 million was accrued and was included in accounts payable on the Company's Consolidated Balance Sheet.
The Company's Consolidated Financial Statements for the year ended December 31, 2021 included the operating results of Finxera from the Closing Date
through December 31, 2021, which were reported as part of the Enterprise Payments reportable segment. Revenues and operating income from Finxera
during this period were $19.4 million and $4.3 million, respectively.
For the year ended December 31, 2021 we incurred $9.3 million, in acquisition related costs, which primarily consisted of consulting, legal, accounting and
valuation expenses. These expenses were recorded in selling, general and administrative expenses in the Company's Consolidated Statements of
Operations.
The following unaudited pro forma financial information presents results as if the acquisition occurred on January 1, 2020. The historical consolidated
financial information of the Company and Finxera has been adjusted in the pro forma information to give effect to pro forma events that are directly
attributable to the transaction and are factually supportable. The unaudited pro forma results do not reflect events that have occurred or may occur after the
transaction, including the impact of any synergies expected to result from the acquisition. Accordingly, the unaudited pro forma financial information is not
necessarily indicative of the results of operations as they would have been had the transaction occurred on January 1, 2020, nor is it necessarily an
indication of future operating results.
(in thousands, except per share amounts)
Revenues
Operating income
Wholesale Payments, Inc.
Years Ended December 31,
2021
2020
$
$
561,585 $
21,619 $
463,823
32,548
On April 28, 2021, a subsidiary of the Company completed its acquisition of certain residual portfolio rights for a purchase price of $42.4 million and
$24.8 million of post-closing payments and earn-out payments based on meeting certain attrition thresholds over a three-year period from the date of
acquisition. The transaction did not meet the definition of a business, therefore it was accounted for as an asset acquisition under which the cost of the
acquisition was allocated to the acquired assets based on relative fair values. As an asset acquisition, additional purchase price is accounted for when
payment to the seller becomes probable and is added to the carrying value of the asset. The seller's note payable to the Company of $3.0 million and an
advance of $2.0 million outstanding at the time of the purchase were netted against the initial purchase price, resulting in cash of $41.2 million being paid
by the Company to the seller, which was funded from cash proceeds from the issuance of the redeemable senior preferred stock and cash on hand.
As of December 31, 2022, the sellers earned $8.9 million of the $24.8 million, increasing the total purchase price recorded at December 31, 2022 to
$51.9 million, which was recorded to residual buyout intangible assets with a seven-year useful life
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amortized on a straight-line basis. The $8.9 million includes a fair value adjustment of $0.5 million in the third quarter of 2022, which reduced the total
amount earned from $9.4 million to $8.9 million.
C&H Financial Services, Inc.
On June 25, 2021, a subsidiary of the Company acquired certain assets and assumed certain related liabilities under an asset purchase agreement. The
acquisition was accounted for as a business combination using the acquisition method of accounting. Prior to this acquisition, the business was an ISO
partner of the Company where it developed expertise in software-integrated payment services, as well as marketing programs for specific verticals such as
automotive and youth sports. This business is reported within the Company's SMB Payments reportable segment. The initial purchase price for the net
assets was $35.0 million in cash and a total purchase price of not more than $60.0 million including post-closing payments and earn-out payments based on
certain gross profit and revenue achievements over a three-year period from the date of acquisition. The acquisition date fair value of the contingent
consideration was $4.7 million, which increased the total purchase price to $39.7 million. The seller's note payable to the Company of $0.5 million at the
time of purchase was netted against the initial purchase price, resulting in cash of $34.5 million being paid by the Company to the seller, which was funded
from a $30.0 million draw down of the revolving credit facility under the Credit Agreement and $4.5 million cash on hand. Transaction costs were not
material and were expensed. The purchase price allocation is set forth in the table below.
(in thousands)
Accounts receivable
Prepaid expenses and other current assets
Property, equipment and software, net and other current assets
Goodwill
Intangible assets, net
Other noncurrent liabilities
(1)
Total purchase price
$
$
214
209
287
13,804
25,400
(214)
39,700
(1)
The intangible assets acquired consist of $20.2 million for merchant portfolio intangible assets with a ten-year useful life and $5.2 million for ISO
partner relationships with a twelve-year useful life.
As of December 31, 2022, the fair value of the C&H contingent consideration was $2.0 million, of which was included in other noncurrent liabilities on the
Consolidated Balance Sheets as of December 31, 2022. The accretion of contingent consideration was $0.3 million for the year ended December 31, 2022,
which is included in interest expense on the Company's Consolidated Statement of Operations.
3. Disposal of Business
On September 1, 2020, PRET entered into an agreement to sell certain assets from PRET's real estate services business. The buyer also agreed to assume
certain obligations associated with the assets. The assets covered by the agreement were PRET's RentPayment component. The transaction was completed
on September 22, 2020 after receiving regulatory approval. Prior to execution of the agreement, the buyer was not a related party of PRET or the Company.
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Proceeds received by PRET were $179.4 million, net of $0.6 million for a working capital adjustment. The gain amounted to $107.2 million as follows:
(in thousands)
Gross cash consideration from buyer
Less working capital adjustment paid in cash
Net proceeds from buyer
Transaction costs incurred
Assets sold:
Intangible assets
Other assets sold, net of obligations assumed
Goodwill assigned to business sale
Other intangible assets
Pre-tax gain on sale of business
$
$
180,000
(584)
179,416
(5,383)
(62,158)
(716)
(2,683)
(1,237)
107,239
PRET is a limited liability company and is a pass-through entity for income tax purposes. Income tax expenses associated with the gain attributable to the
stockholders of the Company were estimated to be approximately $12.3 million.
Allocation of net proceeds, after transaction costs, to the PRET members included return of each member's invested capital in PRET and excess proceeds
were distributed in accordance with the distribution provisions of the PRET LLC governing agreement. The Company's invested capital amounted to
$71.8 million, which included the assets sold, goodwill and other intangible assets. The NCI's invested capital was $5.7 million. Approximately
$51.4 million and $45.1 million of the excess proceeds were distributed to the Company and the NCI, respectively. The initial allocation of net proceeds
remained subject to final adjustment by the PRET members at December 31, 2020. During the first quarter of 2021, it was determined that an additional
$0.5 million of the excess proceeds was due to the NCI, which was included in other expenses, net on the Company's Consolidated Statement of Operations
for the year ended December 31, 2021.
Continuing Operations
Based on historical financial results, the Company does not believe the sale of the RentPayment component represents a strategic shift. The sale of the
business was not reported as discontinued operations in its Consolidated Financial Statements for any reporting period. The Company will continue to
serve the rental property market through its ongoing PRET operations.
4. Revenues
Disaggregation of Revenues
The following table presents a disaggregation of our consolidated revenues by type:
(in thousands)
Revenue Type:
Merchant card fees
Money transmission services
Outsourced services and other services
Equipment
Total revenues
(1)(2)
2022
Years Ended December 31,
2021
2020
$
$
553,037 $
71,536
29,627
9,441
663,641 $
468,764 $
19,415
21,033
5,689
514,901 $
377,346
—
23,103
3,893
404,342
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(1)
(2)
Includes contracts with an original duration of one year or less and variable consideration under a stand-ready series of distinct days of service.
The aggregate fixed consideration portion of customer contracts with an initial contract duration greater than one year is not material.
Approximately $7.5 million and $0.7 million, of interest income for the years ended December 31, 2022 and 2021, respectively, is included in
outsourced services and other services revenue in the table above.
The following table presents a disaggregation of our consolidated revenues by segment:
(in thousands)
Segment
SMB
B2B
Enterprise
Total revenues
(in thousands)
Segment
SMB
B2B
Enterprise
Total revenues
(in thousands)
Segment
SMB
B2B
Enterprise
Total revenues
Merchant Card Fees
Money Transmission
Services
Year Ended December 31, 2022
Outsourced and
Other Services
Equipment
Total
$
$
549,646 $
3,391
—
553,037 $
— $
—
71,536
71,536 $
3,150 $
15,499
10,978
29,627 $
9,441 $
—
—
9,441 $
Merchant Card Fees
Money Transmission
Services
Year Ended December 31, 2021
Outsourced and
Other Services
Equipment
Total
$
$
466,819 $
1,945
—
468,764 $
— $
—
19,415
19,415 $
3,122 $
15,193
2,718
21,033 $
5,689 $
—
—
5,689 $
Merchant Card Fees
Money Transmission
Services
Year Ended December 31, 2020
Outsourced and
Other Services
Equipment
Total
$
$
364,163 $
1,795
11,388
377,346 $
— $
—
—
— $
2,465 $
19,127
1,511
23,103 $
3,893 $
—
—
3,893 $
562,237
18,890
82,514
663,641
475,630
17,138
22,133
514,901
370,521
20,922
12,899
404,342
Deferred revenues were not material for the years ended December 31, 2022, 2021 and 2020.
Contract Assets and Contract Liabilities
Material contract assets and liabilities are presented net at the individual contract level in the Consolidated Balance Sheets and are classified as current or
noncurrent based on the nature of the underlying contractual rights and obligations.
Supplemental balance sheet information related to contracts from customers was as follows:
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(in thousands)
Liabilities:
Consolidated Balance Sheet Location
December 31, 2022
December 31, 2021
Contract liabilities, net (current)
Customer deposits and advance payments
$
— $
1,280
Substantially all of these balances are recognized as revenue within 12 months. Net contract liabilities were not material at December 31, 2022. Net
contract assets were not material for any period presented.
Impairment losses recognized on receivables or contract assets arising from the Company's contracts with customers were not material for the years ended
December 31, 2022, 2021 or 2020.
5. Settlement Assets and Customer/Subscriber Account Balances and Related Obligations
SMB Payments Segment
In the Company's SMB Payments reportable segment, funds settlement refers to the process of transferring funds for sales and credits between card issuers
and merchants. The standards of the card networks require possession of funds during the settlement process by a member bank which controls the clearing
transactions. Since settlement funds are required to be in the possession of a member bank until the merchant is funded, these funds are not assets of the
Company and the associated obligations related to these funds are not liabilities of the Company. Therefore, neither is recognized in the Company's
Consolidated Balance Sheets. Member banks held merchant funds of $110.3 million and $102.1 million at December 31, 2022 and 2021, respectively.
Exception items include items such as customer chargeback amounts received from merchants and other losses. Under agreements between the Company
and its merchant customers, the merchants assume liability for such chargebacks and losses. If the Company is ultimately unable to collect amounts from
the merchants for any charges or losses due to merchant fraud, insolvency, bankruptcy or any other reason, it may be liable for these charges. In order to
mitigate the risk of such liability, the Company may: 1) require certain merchants to establish and maintain reserves designed to protect the Company from
such charges or losses under its risk-based underwriting policy; and 2) engage with certain ISOs in partner programs in which the ISOs assume liability for
these charges or losses. A merchant reserve account is funded by the merchant and held by the member bank during the term of the merchant agreement.
Unused merchant reserves are returned to the merchant after termination of the merchant agreement or in certain instances upon a reassessment of risks
during the term of the merchant agreement.
Exception items that become the liability of the Company are recorded as merchant losses, a component of costs of services in the Consolidated Statements
of Operations. Exception items that the Company is still attempting to collect from the merchants through the funds settlement process or merchant
reserves are recognized as settlement assets and customer/subscriber account balances in the Company's Consolidated Balance Sheets, with an offsetting
reserve for those amounts the Company estimates it will not be able to recover. Expenses for merchant losses for the years ended December 31, 2022, 2021
and 2020 were $4.4 million, $2.8 million and $4.1 million, respectively.
B2B Payments Segment
In the Company's B2B Payments segment, the Company earns revenues from certain of its services by processing transactions for FIs and other business
customers. Customers transfer funds to the Company, which are held in either Company-owned bank accounts controlled by the Company or bank-owned
FBO accounts controlled by the banks, until such time as the transactions are settled with the customer payees. Amounts due to customer payees that are
held by the Company in Company-owned bank accounts are included in restricted cash. Amounts due to customer payees that are held in bank-owned FBO
accounts are not assets of the Company. As such, the associated obligations related to these funds are not liabilities of the Company; therefore, neither is
recognized in the Company's Consolidated Balance Sheets. Bank-owned FBO accounts held funds of $42.7 million and $45.5 million at December 31,
2022 and 2021, respectively. Company-owned bank accounts held $4.1 million and $21.4 million at December 31, 2022 and 2021, respectively, which are
included in restricted cash and settlement obligations in the Company's Consolidated Balance Sheets.
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Enterprise Payments Segment
In the Company's Enterprise Payments segment, revenue is derived primarily from enrollment fees, monthly subscription fees, transaction-based fees and
money transmission services fees. As part of its licensed money transmission services, the Company accepts deposits from customers and subscribers
which are held in bank accounts maintained by the Company on behalf of customers and subscribers. After accepting deposits, the Company is allowed to
invest available balances in these accounts in certain permitted investments, and the return on such investments contributes to the Company's net cash
inflows. These balances are payable on demand. As such, the Company recorded these balances and related obligations as current assets and current
liabilities. The nature of these balances are cash and cash equivalents but they are not available for day-to-day operations of the Company. Therefore, the
Company has classified these balances as settlement assets and customer/subscriber account balances and the related obligations as settlement and
customer/subscriber account obligations in the Company's Consolidated Balance Sheets.
In certain states, the Company accepts deposits under agency arrangement with member banks wherein accepted deposits remain under the control of the
member banks. Therefore, the Company does not record assets for the deposits accepted and liabilities for the associated obligation. Agency owned
accounts held $6.1 million and $3.2 million and at December 31, 2022 and 2021, respectively.
The Company's consolidated settlement assets and customer/subscriber account balances and settlement and customer/subscriber account obligations were
as follows:
(in thousands)
Settlement Assets:
Card settlements due from merchants, net of estimated losses
Customer/Subscriber Account Balances:
Cash and cash equivalents
Time deposits
Total settlement assets and customer/subscriber account balances
Settlement and Customer/Subscriber Account Obligations:
Customer account obligations
Subscriber account obligations
Due to customer payees
(1)
Total settlement and customer/subscriber account obligations
December 31, 2022
December 31, 2021
$
$
$
$
444 $
531,574
—
532,018 $
516,086 $
15,488
1,766
533,340 $
537
468,934
10,000
479,471
470,476
8,459
21,356
500,291
(1)
The related assets are included in restricted cash on our Consolidated Balance Sheets.
6. Notes Receivable
The Company has notes receivable of $4.7 million and $0.4 million as of December 31, 2022 and 2021, respectively, which are reported as current portion
of notes receivable and notes receivable less current portion on the Company's Consolidated Balance Sheets. The notes bear a weighted-average interest
rate of 15.4% and 13.8% as of December 31, 2022 and 2021, respectively. The notes receivable are comprised of notes receivable from ISOs, and under the
terms of the agreements the Company preserves the right to hold back residual payments due to the ISOs and to apply such residuals against future
payments due to the Company. Notes receivable from three other entities were fully repaid during 2021.
As of December 31, 2022, the principal payments for the Company's notes receivables are due as follows:
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(in thousands)
Year Ending December 31,
2023
2024
2025
2026
2027
Thereafter
Total
$
$
1,471
1,046
907
845
393
—
4,662
As of December 31, 2022 and 2021, the Company had no allowance for doubtful notes receivable.
7. Property, Equipment and Software
A summary of property, equipment and software, net was as follows:
(in thousands)
Computer software
Equipment
Leasehold improvements
Furniture and fixtures
Property, equipment and software
Less: Accumulated depreciation
Capital work in-progress
Property, equipment and software, net
(in thousands)
Depreciation expense
December 31, 2022
December 31, 2021
$
$
64,197 $
13,302
6,990
2,909
87,398
(58,409)
5,698
34,687 $
50,799
12,255
6,467
2,819
72,340
(49,023)
1,916
25,233
2022
Years Ended December 31,
2021
2020
$
9,511 $
8,460 $
7,710
Computer software represents purchased software and internally developed back office and merchant interfacing systems used to assist the reporting of
merchant processing transactions and other related information.
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8. Goodwill and Other Intangible Assets
Goodwill
The Company records goodwill upon acquisition of a business when the purchase price is greater than the fair value assigned to the underlying separately
identifiable tangible and intangible assets acquired and the liabilities assumed. The Company's goodwill relates to the following reporting units:
(in thousands)
SMB Payments
Enterprise Payments
Total
December 31, 2022
December 31, 2021
$
$
124,625 $
244,712
369,337 $
120,636
245,104
365,740
The following table summarizes the changes in the carrying value of goodwill for the years ended December 31, 2022 and 2021:
(in thousands)
Balance at January 1, 2021
C&H Financial Services, Inc. acquisition
Finxera acquisition
Balance at December 31, 2021
Final purchase price adjustment for Finxera
Ovvi acquisition
Balance at December 31, 2022
Amount
106,832
13,804
245,104
365,740
(392)
3,989
369,337
$
In connection with the acquisition of Finxera, $8.7 million of goodwill recorded was deductible for income tax purposes. For all other business
combinations consummated during the years ended December 31, 2022 and 2021, goodwill was fully deductible for income tax purposes.
There were no impairment losses for the years ended December 31, 2022, 2021 or 2020. The Company performed its most recent annual goodwill
impairment test as of October 1, 2022, using the optional qualitative method. Under the qualitative method, we examined the factors most likely to affect
our valuations. As a result, we have concluded that it remains more likely than not that the fair value of each of our reporting units exceeds their carrying
amounts. As of December 31, 2022, the Company is not aware of any triggering events that have occurred since October 1, 2022.
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Other Intangible Assets
At December 31, 2022 and 2021, other intangible assets consisted of the following:
(in thousands, except weighted-average data)
Other intangible assets:
ISO and referral partner relationships
Residual buyouts
Customer relationships
Merchant portfolios
Technology
Non-compete agreements
Trade names
Money transmission licenses
(1)
Total gross carrying value
(1)
These assets have an indefinite useful life.
(in thousands, except weighted-average data)
(1)
Other intangible assets:
ISO relationships
Residual buyouts
Customer relationships
Merchant portfolios
Trade names
Non-compete agreements
(2)
Technology
Money transmission licenses
(3)
Total gross carrying value
Gross Carrying Value
December 31, 2022
Accumulated
Amortization
Net Carrying Value
Weighted-average
Useful Life
$
$
175,300 $
132,325
96,000
76,423
50,963
3,390
3,183
2,100
539,684 $
(24,021) $
(76,316)
(83,298)
(43,170)
(18,566)
(3,390)
(2,129)
—
(250,890) $
151,279
56,009
12,702
33,253
32,397
—
1,054
2,100
288,794
14.8
6.6
8.2
6.7
8.4
0.0
11.6
9.7
Gross Carrying Value
December 31, 2021
Accumulated
Amortization
Net Carrying Value
Weighted-average
Useful Life
$
$
175,300 $
126,225
95,566
76,016
2,870
3,390
48,690
2,100
530,157 $
(11,679) $
(56,186)
(70,883)
(30,879)
(1,890)
(3,390)
(15,039)
—
(189,946) $
163,621
70,039
24,683
45,137
980
—
33,651
2,100
340,211
14.8
6.4
8.1
6.7
11.6
0.0
9.9
9.7
(1)
(2)
(3)
Additions to residual buyouts were offset by certain assets that became fully amortized in 2021 but are still in service.
Certain assets in the group became fully amortized in 2021 but are still in service.
These assets have an indefinite useful life
(in thousands)
Amortization expense
2022
Years Ended December 31,
2021
2020
$
61,170 $
41,237 $
33,065
The estimated amortization expense of intangible assets as of December 31, 2022 for the next five years and thereafter is:
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(in thousands)
Year Ending December 31,
2023
2024
2025
2026
2027
Thereafter
(1)
Total
Estimated Amortization
Expense
53,648
35,872
29,754
28,939
26,675
111,806
286,694
$
$
(1)
Total will not agree to the intangible asset net book value due to intangible asset with indefinite useful life.
Actual amortization expense to be reported in future periods could differ from these estimates as a result of new intangible asset acquisitions, changes in
useful lives and other relevant events or circumstances.
The Company tests intangible assets for impairment when events occur or circumstances indicate that the fair value of an intangible asset or group of
intangible assets may be impaired. In the Company's SMB Payments segment, a residual buyout intangible asset with a net carrying value of $2.2 million
was deemed to be impaired at December 31, 2020. The fair value of this intangible asset was estimated to be approximately $0.5 million, resulting in the
recognition of an impairment charge of $1.8 million, which is included in selling, general and administrative expenses on the Company's Consolidated
Statement of Operations for the year ended December 31, 2020. This impairment was the result of diminished cash flows generated by the merchant
portfolio.
The Company also considered the market conditions and other factors and concluded that there were no additional impairment indicators present at
December 31, 2022.
9. Leases
The Company's leases consist primarily of real estate leases for office space, which are classified as operating leases. Lease expense for the Company's
operating leases is recognized on a straight-line basis over the term of the lease. The Company did not have any finance leases at December 31, 2022 and
2021.
As of December 31, 2022 and 2021, ROU Assets and lease liabilities consisted of the following:
(in thousands, except weighted-average data)
Operating Lease ROU Assets:
Operating lease ROU Assets
Operating Lease Obligations:
Operating lease obligations - current
Operating lease obligations - noncurrent
Total operating lease obligations
Weighted-average remaining lease term in years
Weighted-average discount rate
Financial Statement Classification
December 31, 2022 December 31, 2021
Other noncurrent assets
Accounts payable and accrued expenses
Other noncurrent liabilities
$
$
$
4,593
1,336
4,110
5,446
$
$
$
4.4
6.9 %
6,262
1,723
5,596
7,319
4.9
6.9 %
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The Components of lease expense for the years ended December 31, 2022 and 2021 were as follows:
(in thousands)
Operating lease expense
(1)
Financial Statement Classification
Selling, general and administrative
Years Ended December 31,
2021
2022
$
1,984 $
1,841
(1)
Excludes short-term lease expense and sublease income, which was immaterial for the years ended December 31, 2022 and 2021.
Total rent expense for the year ended December 31, 2020 was $2.5 million, which is included in selling, general and administrative expenses in the
Company's Consolidated Statements of Operations..
Cash paid for amounts included in the measurement of lease liabilities was as follows:
(in thousands)
Operating cash flows from operating leases
Financial Statement Classification
Operating activities
Years Ended December 31,
2022
2021
$
2,131 $
1,803
Lease Commitments
Future minimum lease payments for the Company's real estate operating leases at December 31, 2022 were as follows:
(in thousands)
Year Ending December 31,
2023
2024
2025
2026
2027
Thereafter
Total future minimum lease payments
Amount representing interest
Total future minimum lease payments, net of interest
Amount Due
1,704
1,308
1,188
1,302
958
—
6,460
(1,014)
5,446
$
$
As of December 31, 2022, the Company had one lease that has not yet commenced. The future obligation for this lease is not material.
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10. Accounts Payable and Accrued Expenses
The components of accounts payable and accrued expenses as of December 31, 2022 and 2021 consisted of the following:
(in thousands)
Accrued expenses
Accrued card network fees
Accrued compensation
Contingent consideration
Accounts payable
Total accounts payable and accrued expenses
December 31, 2022
December 31, 2021
$
$
17,742 $
14,243
7,287
6,079
6,513
51,864 $
18,215
10,239
5,861
3,000
5,208
42,523
11. Debt Obligations
Outstanding debt obligations as of December 31, 2022 and 2021 consisted of the following:
(in thousands)
Credit Agreement:
Term facility - matures April 27, 2027, interest rate of 9.82% and 6.75% at December 31, 2022 and
2021, respectively
Revolving credit facility - $40.0 million line, matures April 27, 2026, interest rate of 8.82% and
5.75% at December 31, 2022 and 2021, respectively
Total debt obligations
Less: current portion of long-term debt
Less: unamortized debt discounts and deferred financing costs
Long-term debt, net
Contractual Maturities
December 31, 2022
December 31, 2021
$
$
610,700 $
12,500
623,200
(6,200)
(18,074)
598,926 $
616,900
15,000
631,900
(6,200)
(21,595)
604,105
Based on terms and conditions existing at December 31, 2022, future minimum principal payments for long-term debt are as follows:
(in thousands)
December 31,
2023
2024
2025
2026
2027
Total
Term Facility
Revolving Credit Facility
Total Principal Due
$
$
6,200 $
6,200
6,200
6,200
585,900
610,700 $
— $
—
—
12,500
—
12,500 $
6,200
6,200
6,200
18,700
585,900
623,200
Additionally, the Company may be obligated to make certain additional mandatory prepayments after the end of each year based on excess cash flow, as
defined in the Credit Agreement.
Credit Agreement
On April 27, 2021, the Company entered into a Credit Agreement with Truist which provides for: 1) a $300.0 million Initial Term Loan; 2) a
$290.0 million Delayed Draw Term Loan (together, the "term facility"); and 3) a $40.0 million senior secured
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revolving credit facility. The Credit Agreement was amended on September 17, 2021 to increase the amount of the Delayed Draw Term Loan facility by
$30.0 million to $320.0 million. The additional Delayed Draw Term Loan is part of the same class of term loans made pursuant to the original
commitments under the Credit Agreement.
Outstanding borrowings under the Credit Agreement accrue interest using either a base rate or a LIBOR rate plus an applicable margin per year, subject to a
LIBOR rate floor of 1.00% per year. Accrued interest is payable on each interest payment date (as defined in the Credit Agreement). The revolving credit
facility incurs an unused commitment fee on any undrawn amount in an amount equal to 0.50% per year of the unused portion. The future applicable
interest rate margins may vary based on the Company's Total Net Leverage Ratio in addition to future changes in the underlying market rates for LIBOR
and the rate used for base-rate borrowings.
Prepayments of outstanding principal may be made in permitted increments subject to a 1.00% penalty for certain prepayments made in connection with
repricing transactions.
The Credit Agreement contains representations and warranties, financial and collateral requirements, mandatory payment events, events of default and
affirmative and negative covenants, including covenants that restrict the ability to create liens, pay dividends or distribute assets from the Company's
subsidiaries to the Company, merge or consolidate, dispose of assets, incur additional indebtedness, make certain investments or acquisitions, enter into
certain transactions (including with affiliates) and to enter into certain leases. The outstanding amount of any loans and any other amounts owed under the
Credit Agreement may, after the occurrence of an event of default, at the option of Truist on behalf of lenders representing a majority of the commitments,
be declared immediately due and payable. Events of default include the failure of the Company to make principal, premium or interest payment when due,
or the failure by the Company to perform or comply with any term or covenant in the Credit Agreement, after any applicable cure period.
If the aggregate principal amount of outstanding revolving loans and letters of credit under the Credit Agreement exceeds 35% of the total revolving
facility thereunder, the Company is required to comply with certain restrictions on its Total Net Leverage Ratio, which is defined as the ratio of
consolidated total debt less unrestricted cash to consolidated adjusted EBITDA (as defined in the Credit Agreement). If applicable, the maximum permitted
Total Net Leverage Ratio is: 1) 6.50:1.00 at each quarter ended September 30, 2021 through June 30, 2022; 2) 6.00:1.00 at each quarter ended September
30, 2022 through June 30, 2023; and 3) 5.50:1.00 at each quarter ended September 30, 2023 and thereafter. As of December 31, 2022, the Company is in
compliance with the covenants in the Credit Agreement and the Total Net Leverage Ratio was not applicable.
Proceeds from the Initial Term Loan were used to partially fund the refinancing of the Company's existing credit facilities as of April 27, 2021. Proceeds
from the Delayed Draw Term Loan were used to fund the Company's acquisition of Finxera. See Note 2. Acquisitions for additional information related to
the acquisition of Finxera.
Interest Expense and Amortization of Deferred Loan Costs and Discounts
Deferred financing costs and debt discounts are amortized using the effective interest method over the remaining term of the respective debt and are
recorded as a component of interest expense. Unamortized deferred financing costs and debt discount are included in long-term debt on the Company's
Consolidated Balance Sheets.
(in thousands)
Interest expense
(1)
Twelve Months Ended December 31,
2022
2021
2020
$
53,554 $
36,485 $
44,839
(1)
Included in this amount is $0.9 million of interest expense related to the accretion of contingent considerations from acquisitions.
Interest expense included amortization of deferred financing costs and debt discounts of $3.5 million, $4.0 million and $2.4 million for the years ended
December 31, 2022, 2021 and 2020, respectively.
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Deferred Loan Costs and Discounts, and Debt Extinguishment and Modification Expenses
In April 2021, the Initial Term Loan under the Credit Agreement was issued at a discount of $6.4 million. The Company incurred $6.4 million of costs
including $3.5 million of ticking fees (debt commitment fees) prior to the drawdown of the funds in September 2021.
In September 2021, the Delayed Draw Term Loan was issued at a discount of $6.3 million. Additionally, the Company incurred $9.9 million of costs for the
Delayed Draw Term Loan. Approximately $6.1 million of the remaining fees incurred for the Delayed Draw Term Loan were paid in connection with the
Initial Term Loan and were deferred in other noncurrent assets on the Company's Consolidated Balance Sheet at June 30, 2021. The costs for the Delayed
Draw Term Loan were amortized over the delayed commitment access period until September 2021, at which time the unamortized balance of the deferred
costs was removed from other noncurrent assets and recorded as a reduction of the carrying amount of the debt obligation and are being amortized over the
remaining term of the debt.
The Company determined that the issuance of the Initial Term Loan as part of the April 2021 refinancing of an existing facility was partially an
extinguishment and a modification, and therefore, recognized debt extinguishment and modification costs of $8.3 million in April 2021, which included a
portion of the refinancing fees and the write off of previously deferred fees under the prior credit agreements. These costs are reported within other
expenses, net on the Company's Consolidated Statements of Operations.
12. Redeemable Senior Preferred Stock and Warrants
On April 27, 2021, the Company entered into an agreement pursuant to which it issued 150,000 shares of redeemable senior preferred stock, par value
$0.001 per share, and a detachable warrant to purchase 1,803,841 shares of the Company's Common Stock, for gross proceeds of $150.0 million, less a
$5.0 million discount and $5.5 million of issuance costs.
The agreement also provided the Company the option to issue an additional 50,000 shares of redeemable senior preferred stock upon the closing of the
Finxera acquisition for $50.0 million, less a $0.6 million discount and within 18 months after the issuance of those additional shares, subject to the
satisfaction of certain customary closing conditions.
Of the total net proceeds of $139.5 million, $131.4 million was allocated to the redeemable senior preferred stock, $11.4 million was allocated to additional
paid-in capital for the warrants and $3.3 million was allocated to noncurrent assets for the committed financing put right.
On September 17, 2021 the Company issued an additional 75,000 shares of redeemable senior preferred stock for $75.0 million, less a $0.9 million
discount, $0.7 million of ticking fees and $1.9 million of issuance costs. Upon issuance of these additional shares, the $3.3 million that was previously
allocated to noncurrent assets for the committed financing put right was reclassified to the redeemable senior preferred stock.
The redeemable senior preferred stock ranks senior to the Company's Common Stock, equal with any other class of the Company's stock designated as
being ranked on a parity basis with the redeemable senior preferred stock and junior to any other class of the Company's stock, including preferred stock,
that is designated as being ranked senior to the redeemable senior preferred stock, with respect to the payment and distribution of dividends, the purchase or
redemption of the Company's stock and the liquidation, winding up of and distribution of assets of the Company.
The redeemable senior preferred stock does not meet the definition of a liability pursuant to ASC 480, Distinguishing Liabilities from Equity, as it is
redeemable upon the occurrence of events that are not solely within the Company's control. Therefore, the Company classified the redeemable senior
preferred stock as temporary equity and is accreting the carrying amount to its full redemption amount from the date of issuance to the earliest redemption
date using the effective interest method.
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The following table provides a reconciliation of the beginning and ending carrying amounts of the redeemable senior preferred stock for the periods
presented:
(in thousands)
January 1, 2021
Proceeds from issuance of redeemable senior preferred stock, net of discount and issuance costs
Unpaid dividend on redeemable senior preferred stock
Accretion of discounts and issuance cost
December 31, 2021
Proceeds from issuance of redeemable senior preferred stock, net of discount and issuance costs
Unpaid dividend on redeemable senior preferred stock
Accretion of discounts and issuance cost
Cash portion of dividend and ticking fee outstanding at the end of the year
December 31, 2022
Shares
Amount
— $
225
—
—
225 $
—
—
—
—
225 $
—
199,609
8,704
1,845
210,158
—
16,794
3,286
5,341
235,579
The dividend rate for the redeemable senior preferred stock is equal to the three-month LIBOR rate (minimum of 1.00%) plus an applicable margin of
12.00% (capped at 22.50%) per year, with a required quarterly cash dividend payment of 5.00% plus the three-month LIBOR rate per year. The dividend
rate is subject to future increases if the Company doesn't comply with the cash payment requirements outlined in the agreement, which includes required
payments of dividends, required payments related to redemption or required prepayments. The dividend rate may also increase if the Company fails to
obtain the required stockholder approval for a forced sale transaction triggered by investors or if an event of default as outlined in the agreement occurs.
The dividend rate as of December 31, 2022, and 2021 was 15.7% and 13.0% respectively.
The following table provides a summary of the dividends for the period presented:
(in thousands)
(1)
Dividends paid in cash
Accumulated dividends accrued as part of the carrying value of redeemable senior preferred
stock
Dividends declared
$
$
Year Ended
December 31, 2022
Year Ended December 31,
2021
16,800 $
16,794
33,594 $
7,460
8,704
16,164
(1)
Included in this amount is $5.3 million of dividends outstanding as of December 31, 2022
The following table presents cumulative dividends in arrears in aggregate and per-share:
(in thousands, except per share amounts)
Cumulative preferred dividends in arrears
Redeemable senior preferred stock, outstanding
Cumulative preferred dividends in arrears, per share
Year Ended
December 31, 2022
Year Ended December 31,
2021
$
$
25,497 $
225
113.3 $
8,704
225
38.7
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The redeemable senior preferred shares have no stated maturity and will remain outstanding indefinitely until redeemed or otherwise repurchased by the
Company. Outstanding shares of redeemable senior preferred stock can be redeemed at the option of the Company for cash in whole or in part at the
following redemption price:
Redemption Date
Redemption Price
Prior to April 27, 2023
April 27, 2023 - April 26, 2024
April 27, 2024 and thereafter
100% of liquidation preference (i.e., $1,000 per share) plus any accrued and unpaid dividends and the make-
whole amount (i.e., present value of additional 2% of the liquidation preference plus any accrued and unpaid
dividends thereon through the redemption date plus 102% of the amount of dividends that will accrue from the
redemption date through April 27, 2023)
102% of the sum of the (a) outstanding liquidation preference plus (b) any accrued and unpaid dividends
through and including the applicable redemption date
100% of the sum of the (a) outstanding liquidation preference plus (b) any accrued and unpaid dividends
through and including the applicable redemption date
Upon the occurrence of a change in control or a liquidation event, the Company will redeem all of the outstanding redeemable senior preferred shares for
cash at the applicable redemption price described above.
The holders of the redeemable senior preferred stock may request the Company to pursue a sale transaction for the purpose of redeeming the redeemable
senior preferred stock from and after the earliest of: 1) October 27, 2028; 2) 30 days after the redeemable senior preferred stockholders provide written
notice to the Company of a failure by the Company to take steps within its control to prevent the Company's Common Stock from no longer being listed;
and 3) the date that is 90 days following the Company's failure to consummate a mandatory redemption of the redeemable senior preferred stock upon the
occurrence of a change in control or liquidation event.
The Company used the proceeds from the April 2021 sale of the redeemable senior preferred stock to partially fund the Refinancing (see Note 11. Debt
Obligations), to partially fund the Wholesale Payments, Inc. and C&H Financial Services, Inc. acquisitions in the second quarter of 2021 (see Note 2.
Acquisitions) and to pay certain fees and expenses relating to the Refinancing and the offering of the redeemable senior preferred stock and warrants. The
Company used the proceeds from the September 2021 sale of additional shares of redeemable senior preferred stock to fund the Finxera acquisition (see
Note 2. Acquisitions).
Warrants
On April 27, 2021 the Company issued warrants to purchase up to 1,803,841 shares of the Company's Common Stock, par value $0.001 per share, at an
exercise price of $0.001. The exercise price and the number of shares issuable upon exercise of the warrants are subject to certain adjustments from time to
time on the terms outlined in the warrants. In connection with the issuance of the warrants, the Company entered into an agreement pursuant to which it
agreed to provide certain registration rights with respect to the common shares issuable upon exercise of the warrants. Under this agreement the holders of
the related shares of Common Stock were granted piggyback rights to be included in certain underwritten offerings of Common Stock and the right to
demand a shelf registration of the shares of Common Stock issued upon exercise of the warrants. As of December 31, 2022, none of the warrants have been
exercised. The warrants are considered to be equity contracts indexed in the Company's own shares and therefore were recorded at their inception date
relative fair value and are included in additional paid-in capital on the Company's Consolidated Balance Sheet.
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13. Income Taxes
Components of consolidated income tax (benefit) expense for the years ended December 31, 2022, 2021, and 2020 were as follows:
(in thousands)
U.S. current income tax expense (benefit)
Federal
State and local
Foreign
Total current income tax (benefit) expense
U.S. deferred income tax expense (benefit)
Federal
State and local
Foreign
Total deferred income tax (benefit) expense
Total income tax expense (benefit)
For the Years Ended December 31,
2021
2020
2022
$
$
$
$
$
10,411 $
2,546
349
13,306 $
(5,001) $
(2,970)
15
(7,956) $
5,350 $
(2,321) $
(379)
1
(2,699) $
(1,343) $
(1,213)
(3)
(2,559) $
(5,258) $
4,766
3,173
—
7,939
3,875
(915)
—
2,960
10,899
The Company's consolidated effective income tax rate was 167.2% for the year ended December 31, 2022, compared to a consolidated effective income tax
rate of 135.9% for the year ended December 31, 2021. For the year ended December 31, 2020, the Company's consolidated effective income tax benefit
rate was 13.3%. The effective rate for 2022 differed from the statutory rate of 21% primarily due to: 1) an increase in the valuation allowance against
certain business interest carryover deferred tax assets; and 2) the finalization of prior estimates of certain intangible deferred tax liabilities resulting from
the Finxera acquisition. The effective rate for December 31, 2021 differed from the statutory federal rate of 21% primarily due to: 1) an increase in the
valuation allowance against certain business interest carryover deferred tax assets; 2) non-deductible transaction costs incurred in the acquisition of
Finxera; 3) the finalization of prior estimates on the sale of the assets of PRET's real estate services business impacting amounts attributable to
noncontrolling partners; and 4) an increase in the tax basis of certain intangible assets resulting from a change in a subsidiary's entity status. The effective
rate for December 31, 2020 differed from the statutory federal rate of 21% primarily due to earnings attributable to noncontrolling interests and valuation
allowance changes against certain business interest carryover deferred tax assets.
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The following table provides a reconciliation of the consolidated income tax (benefit) expense at the statutory U.S. federal tax rate to actual consolidated
income tax (benefit) expense for the years ended December 31, 2022, 2021 and 2020:
(in thousands)
U.S. federal statutory (benefit) expense
Non-controlling interests
State and local income taxes, net
Foreign rate differential
Excess tax benefits pursuant to ASU 2016-09
Valuation allowance changes
Nondeductible items
Transaction Costs
Intangible assets
Tax credits
Other, net
Income tax expense (benefit)
2022
For the Years Ended December 31,
2021
2020
$
$
672 $
—
421
142
4
4,957
576
—
(1,226)
(100)
(96)
5,350 $
(813) $
(3,024)
(372)
—
(339)
1,120
703
2,338
(4,110)
(223)
(538)
(5,258) $
17,211
(5,626)
1,140
—
(37)
(2,945)
233
—
1,056
(283)
150
10,899
Deferred income taxes reflect the expected future tax consequences of temporary differences between the financial statement carrying amount of the
Company's assets and liabilities, tax credits and their respective tax bases, and loss carry forwards. The significant components of consolidated deferred
income taxes were as follows:
(in thousands)
Deferred Tax Assets:
Accruals and reserves
Intangible assets
Net operating loss carryforwards
Interest limitation carryforwards
Other
Gross deferred tax assets
Valuation allowance
Total deferred tax assets
Deferred Tax Liabilities:
Prepaid assets
Investments in partnership
Property and equipment
Total deferred tax liabilities
Net deferred tax assets
As of December 31,
2022
2021
$
1,510 $
15,600
749
15,142
4,107
37,108
(15,462)
21,646
(1,101)
(41)
(4,057)
(5,199)
16,447 $
$
1,751
9,673
820
10,786
3,332
26,362
(10,781)
15,581
(1,191)
—
(6,125)
(7,316)
8,265
In accordance with the provisions of ASC 740, Income Taxes, the Company provides a valuation allowance against deferred tax assets when it is more
likely than not that some portion or all of the deferred tax assets will not be realized. The assessment considers all available positive and negative evidence
and is measured quarterly. As of December 31, 2022 and 2021, the Company had a consolidated valuation allowance of approximately $15.5 million and
$10.8 million, respectively, against certain deferred income tax assets related to business interest deduction carryovers and business combination costs that
the Company believes are not more likely than not to be realized.
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The Company recognizes the tax effects of uncertain tax positions only if such positions are more likely than not to be sustained based solely upon its
technical merits at the reporting date. The Company refers to the difference between the tax benefit recognized in its financial statements and the tax
benefit claimed in the income tax return as an "unrecognized tax benefit." A reconciliation of the beginning and ending amount of unrecognized tax
benefits is as follows:
(in thousands)
Balance as of January 1, 2022
Additions based on tax positions related to the current year
Additions based on positions of prior years
Reductions for tax positions of prior years
Reductions related to lapse of the applicable statutes of limitations
Settlements
Balance as of December 31, 2022
$
$
537
—
—
(66)
(169)
—
302
As of December 31, 2022 and 2021, the balance of unrecognized tax benefits that, if recognized, affect our effective tax rate was $0.1 million and
$0.1 million, respectively. The Company continually evaluates the uncertain tax benefit associated with its uncertain tax positions. It is reasonably possible
that the liability for uncertain tax benefits could decrease during the next 12 months by up to $0.1 million due to the expiration of statutes of limitations.
The Company is subject to U.S. federal income tax and income tax in multiple state jurisdictions. Tax periods for December 31, 2019 and all years
thereafter remain open to examination by the federal and state taxing jurisdictions and tax periods for December 31, 2018 and all years thereafter remain
open for certain state taxing jurisdictions to which the Company is subject.
At December 31, 2022 and December 31, 2021, the Company had state NOL carryforwards of approximately $13.4 million and $13.6 million, respectively,
with expirations dates ranging from 2023 to 2041.
The Company has historically been impacted by the new interest deductibility rule under the Tax Act. This rule disallows interest expense to the extent it
exceeds 30% of ATI, as defined. In March 2020, the CARES Act was enacted, which among other provisions, provides for the increase of the 163(j) ATI
limitation from 30% to 50% for tax years 2019 and 2020. As of December 31, 2022, the Company had interest deduction limitation carryforwards of
$61.5 million.
14. Stockholders' Deficit
Except as otherwise required by law or as otherwise provided in any certificate of designation for any series of preferred stock, the holders of the
Company's Common Stock possess all voting power for the election of members of the Company's Board of Directors and all other matters requiring
stockholder action and will at all times vote together as one class on all matters submitted to a vote of the Company's stockholders. Holders of the
Company's Common Stock are entitled to one vote per share on matters to be voted on by stockholders. Holders of the Company's Common Stock will be
entitled to receive such dividends and other distributions, if any, as may be declared from time to time by the Company's Board of Directors in its
discretion. Historically, the Company has neither declared nor paid dividends. The holders of the Company's Common Stock have no conversion,
preemptive or other subscription rights and there is no sinking fund or redemption provisions applicable to the Common Stock.
The Company is authorized to issue 100,000,000 shares of preferred stock with such designations, voting and other rights and preferences as may be
determined from time to time by the Board of Directors. As of December 31, 2022, the Company has not issued any shares of preferred stock.
Share Repurchase Program
During the second quarter of 2022, PRTH's Board of Directors authorized a general share repurchase program under which the Company may purchase up
to 2.0 million shares of its outstanding Common Stock for a total of up to $10.0 million. Under the
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terms of this plan, the Company may purchase shares through open market purchases, unsolicited or solicited privately negotiated transactions, or in
another manner so long as it complies with applicable rules and regulations.
In August 2021, PRTH's Board of Directors authorized a $10.0 million 2021 share repurchase program. Under the 2021 Share Repurchase Program. the
Company was authorized to purchase up to 1.0 million shares of its Common Stock through open market transactions, unsolicited or solicited privately
negotiated transactions, or otherwise in accordance with all applicable securities laws and regulations. The Company terminated the 2021 Share
Repurchase Program effective as of the close of business on September 23, 2021.
For the years ended December 31, 2022 and 2021, share re-purchase activity under these programs was as follows:
in thousands, except share data, which is in whole units
Number of shares purchased
Average price paid per share
Total Investment
(1)
(1)
Years Ended December 31,
2021
2022
$
$
1,309,374
4.42 $
5,791 $
162,715
5.87
1,023
(1)
These amounts may differ from the repurchases of Common Stock amounts in the Consolidated Statements of Cash Flows due to shares withheld
for taxes and unsettled share repurchases at the end of the quarter.
Warrants and Purchase Options
As of December 31, 2022, 3,556,470 warrants from the original business combination in July 2018, remain outstanding. These warrants allow the holders
to purchase shares of the Company's Common Stock at an exercise price of $11.50 per share. These warrants expire on August 24, 2023.
Prior to July 25, 2018, a purchase option was sold to an underwriter for consideration of $100. The purchase option, which survived the business
combination, allow the holders to purchase up to a total of 300,000 units (each consisting of a share of Common Stock and a public warrant) exercisable at
$12.00 per unit. The purchase option expires on August 24, 2023. The purchase option is classified as equity for accounting purposes and remain
outstanding as of December 31, 2022.
15. Stock-based Compensation
2018 Equity Incentive Plan
The 2018 Plan was approved by the Company's Board of Directors and shareholders in July 2018. The 2018 Plan provided for the issuance of up to
6,685,696 of the Company's Common Stock, and these shares were registered on a Form S-8 during 2018. Under the 2018 Plan, the Company's
compensation committee may grant awards of non-qualified stock options, incentive stock options, SARs, restricted stock awards, RSUs, other stock-based
awards (including cash bonus awards) or any combination of the foregoing. Any current or prospective employees, officers, consultants or advisors that the
Company's compensation committee (or, in the case of non-employee directors, the Company's Board of Directors) selects, from time to time, are eligible
to receive awards under the 2018 Plan. If any award granted under the 2018 Plan expires, terminates, or is canceled or forfeited without being settled or
exercised, or if a SAR is settled in cash or otherwise without the issuance of shares, shares of the Company's Common Stock subject to such award will
again be made available for future grants. In addition, if any shares are surrendered or tendered to pay the exercise price of an award or to satisfy
withholding taxes owed, such shares will again be available for grants under the 2018 Plan. On March 17, 2022, the Company's Board of Directors
unanimously approved an amendment to the 2018 Plan which was subsequently approved by our shareholders, to increase the number of shares authorized
for issuance under the plan by 2,500,000 shares, resulting in 9,185,696 shares of the Company's Common Stock authorized for issuance under the plan.
These additional shares were registered on a Form S-8 in December 2022.
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Stock-based compensation was as follows:
(in thousands)
2018 Equity Incentive Plan
Restricted stock units compensation expense
Stock options compensation expense
Liability-classified compensation expense
ESPP compensation expense
Total
2022
Years Ended December 31,
2021
2020
$
$
6,182
7 $
—
39
6,228 $
2,561
327 $
325
—
3,213 $
1,364
753
313
—
2,430
For the years ended December 31, 2022, 2021 and 2020, the Company recognized an income tax benefit of approximately $0.7 million, $0.4 million and
$0.4 million, respectively, for stock-based compensation expense. No stock-based compensation has been capitalized.
A summary of the activity in stock units for the 2018 Plan that occurred during the years ended December 31, 2022, 2021 and 2020 is as follows:
Common Stock available for issuance at January 1, 2020
Stock options granted
Stock options forfeited
RSUs granted
RSU granted with performance goals that have not been determined
RSUs forfeited
Common Stock available for issuance at December 31, 2020
Stock options forfeited
Stock options expired
RSUs granted
RSUs forfeited
Shares withheld for taxes
(1)
Common Stock available for issuance at December 31, 2021
New shares authorized for issuance
Stock options forfeited
RSUs granted
RSUs forfeited
Shares withheld for taxes
(1)
Common Stock available for issuance at December 31, 2022
4,796,176
(15,000)
220,045
(1,031,740)
(128,624)
21,277
3,862,134
50,589
53,870
(711,987)
1,957
106,477
3,363,040
2,500,000
221,733
(3,223,949)
353,196
291,266
3,505,286
(1)
The number of shares surrendered to satisfy withholding taxes owed are subsequently added back to the shares available for grant under the 2018
Plan.
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Details about the time-based equity-classified stock options granted under the plan are as follows:
Outstanding, December 31, 2021
Forfeited
Outstanding, December 31, 2022
Exercisable at December 31, 2022
Number of Shares
Weighted-average
Exercise Price
Weighted-average
Remaining
Contractual Term
Aggregate Intrinsic
Value (in thousands)
1,227,625 $
(221,733)
1,005,892
998,392 $
6.90
6.95
6.88
6.92
5.7 years $
5.7 years $
42
21
The weighted-average grant date fair value of options granted in 2020 was $1.99. There were no options granted in 2022 or 2021. The intrinsic value of
options exercised in 2021 was $0.2 million, there were no options exercised in 2022 or 2020. As of December 31, 2022, there was $11.7 thousand of
unrecognized compensation costs related to stock options, which is expected to be recognized over a remaining weighted-average period of 1.6 years.
The table below presents the assumptions used to calculate the fair value of the stock options issued in 2020:
Expected volatility
Risk-free interest rate
Expected term (years)
Dividend yield
Exercise price
2020
94 %
0.5 %
7.5
— %
2.47
$
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Equity-classified Restricted Stock Units
Below is a summary of the Company's equity-classified RSUs for the periods presented:
Service-based vesting:
Unvested at January 1, 2020
(1)
Granted
Forfeited
Vested
Unvested at December 31, 2020
(1)
Granted
Forfeited
Vested
Unvested at December 31, 2021
(1)
Granted
Forfeited
Vested
Unvested at December 31, 2022
Performance-based vesting:
Unvested at January 1, 2020
(2)
Granted
Forfeited
Unvested at December 31, 2020
(2)
Granted
Vested
Unvested at December 31, 2021
(2)
Granted
Vested
Unvested at December 31, 2022
Underlying Common
Shares
Weighted-average Grant Date
Fair Value
53,571 $
892,142 $
(21,277) $
(328,035) $
596,401 $
647,512 $
(1,957) $
(362,706) $
879,250 $
2,878,948 $
(353,196) $
(822,602) $
2,582,400 $
71,383 $
139,598 $
(71,383) $
139,598 $
64,475 $
(104,620) $
99,453 $
64,366 $
(64,366) $
99,453 $
7.00
2.93
2.35
3.18
3.18
6.63
7.92
3.65
5.51
6.14
6.04
5.44
5.70
10.52
2.56
10.52
2.56
6.90
7.24
4.46
5.00
6.90
3.24
(1)
(2)
Includes 228,347 shares with an estimated fair value of $1.1 million, 55,689 shares with an estimated fair value of $0.5 million and 212,768 shares
with an estimated fair value of $0.4 million issued to non-employees in December 31, 2022, 2021 and 2020, respectively.
Includes only the portions of grants for which the performance goals have been determined and communicated to the grant recipient. Any grants
for which the required performance goals have not been determined and communicated to the grant recipient are not considered to have been
granted for accounting purposes.
As of December 31, 2022, there was $13.1 million and $0.2 million of unrecognized compensation costs for equity-classified service-based RSUs and
performance-based RSUs, respectively, which are expected to be recognized over a remaining weighted-average period of 2.5 years and 0.5 years,
respectively. The total fair value of RSUs that vested in 2022, 2021 and 2020 was $0.9 million, $3.2 million and $1.3 million, respectively.
Liability-classified Stock-based Arrangements
In March 2020, the Company was authorized by the compensation committee of its Board of Directors to issue an RSU award to its Chairman and CEO if
certain annual performance goals and achievement criteria were attained for 2020. The award was
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accounted for as a liability-classified award. In March 2021, the performance goals and achievement criteria were met and the award was converted to an
equity-classified award.
In June 2021, the Company committed to issue an additional liability-classified award with a target value of $0.9 million in 2022 to its Chairman and CEO
if certain annual performance goals and achievement criteria were attained for 2021. The Company has accrued $0.3 million in compensation expense for
this liability-classified award, which is included in salary and employee benefit expenses in the Company's Consolidated Statement of Operations for the
year ended December 31, 2021. In the first quarter of 2022, the Company determined that the performance criteria was not met and this award was
subsequently forfeited.
Employee Stock Purchase Plan
On April 16, 2021, the 2021 Stock Purchase Plan was authorized by the Company's Board of Directors. The maximum number of shares available for
purchase under the 2021 Stock Purchase Plan is 200,000 shares.The shares issued under the 2021 Stock Purchase Plan may be authorized but unissued or
reacquired shares of Common Stock. All employees of the Company who work more than 20 hours per week and have been employed by the Company for
at least 30 days may participate in the 2021 Stock Purchase Plan.
Under the 2021 Stock Purchase Plan, participants are offered, on the first day of the offering period, the option to purchase shares of Common Stock at a
discount on the last day of the offering period. The offering period shall be for a period of three months, and the first offering period began during the first
quarter of 2022. The 2021 Stock Purchase Plan provides eligible employees the opportunity to purchase shares of the Company's Common Stock on a
quarterly basis through payroll deductions at a price equal to 95% of the lesser of the fair value on the first and last trading day of each quarter. The
compensation expense for the year ended December 31, 2022 was immaterial and is included in stock-based compensation expense.
16. Employee Benefit Plans
The Company sponsors a 401(k) defined contribution savings plan that covers substantially all of its eligible employees. Under the plan, the Company
contributes safe-harbor matching contributions to eligible plan participants on an annual basis. The Company may also contribute additional discretionary
amounts to plan participants. The Company's contributions to the plan were $1.7 million, $1.2 million and $1.3 million for the years ended December 31,
2022, 2021 and 2020, respectively.
The Company offers a comprehensive medical benefit plan to eligible employees. All obligations under the plan are fully insured through third-party
insurance companies. Employees participating in the medical plan pay a portion of the costs for the insurance benefits.
17. Related Party Transactions
PHOT Preferred Unit Redemption - Distribution to NCIs
In February 2019, PHOT a subsidiary of the Company, received a contribution of substantially all of the operating assets of certain companies under an
asset contribution agreement. In November 2020, the Company agreed with the contributors to an exchange of shares of Common Stock of the Company,
or cash, for the remaining undistributed Total Preferred Equity Interests of $4.8 million. An exchange valuation for the Company's Common Stock was
established as of November 12, 2020 at the prior 20-day volume weighted average price of $2.78 per share. The exchange was contingent upon receiving
approval of the Company's lenders; therefore, the binding exchange agreements were not entered into until after lender approval was received in April 2021
in connection with the Refinancing.
In May 2021, the Company entered into exchange agreements and completed the exchange of 1,428,358 shares of Common Stock and $0.8 million of cash
for the Total Preferred Equity Interests. The CEO received 605,623 shares of Common Stock of the Company in exchange for his 35.3% interest, and the
Company's Chief Operating Officer received 413,081 shares of Common Stock of the Company in exchange for her 24.1% interest. Subsequent to
establishing the Common Stock valuation in
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November 2020 and the date of exchange in May 2021, the Company's Common Stock price appreciated to $7.75 per share. The Company's financial
statements for the year ended December 31, 2021 reflect this exchange as a distribution to NCIs at an appreciated Common Stock value of $6.975 per
share, which incorporates a 10% liquidity discount of $0.775 per share due to trading restrictions under Securities Rule 144. Therefore, the total
distribution amounted to $10.8 million, comprised of $10.0 million of Common Stock and $0.8 million of cash. In addition, the Company recorded a
$2.8 million tax benefit related to an increase in the tax basis associated with the share exchange, for a net impact to equity of $8.0 million.
Commitment to Lend and Warrant to Acquire
During 2019, the Company, through one if its wholly-owned subsidiaries, executed an interest-bearing loan and commitment agreement with another entity
to loan the entity up to $10.0 million based on certain growth metrics of the entity and continued compliance by the entity with the terms and covenants of
the agreement.
In December 2021, the entity was sold to a third party. In connection with the sale, the Company's note receivable was fully repaid and the Company's
warrants were cancelled in exchange for cash consideration. The Company recognized a gain of $7.6 million in its Consolidated Statements of Operations
for the year ended December 31, 2021 related to this transaction.
Advance to Affiliate
During 2022, the Chairman and CEO, who is considered to be an affiliate of the Company, received an advance of incentive compensation of $1.2 million.
Subsequent to December 31, 2022, the advance was satisfied in full.
18. Commitments and Contingencies
Minimum Annual Commitments with Third-party Processors
The Company has multi-year agreements with third parties to provide certain payment processing services to the Company. The Company pays processing
fees under these agreements that are based on the volume and dollar amounts of processed payment transactions. Some of these agreements have minimum
annual requirements for processing volumes. Based on existing contracts in place at December 31, 2022, the Company is committed to pay minimum
processing fees under these agreements of approximately $15.7 million in 2023 and $17.0 million in 2024.
Annual Commitment with Vendor
Effective January 1, 2022, the Company entered into a three year business cooperation agreement with a vendor to resell its services. Under the agreement,
the Company purchased vendor services worth $0.7 million for the year ended December 31, 2022, and is committed to purchase vendor services worth
$1.5 million in 2023 and $2.3 million in 2024.
Capital Commitments
The Company committed to capital contributions to fund the operations of certain subsidiaries totaling $22.0 million. The Company is obligated to make
the contributions within 10 business days of receiving notice for such contribution from the subsidiary. As of December 31, 2022, the Company contributed
$6.9 million.
Merchant Reserves
See Note 5. Settlement Assets and Customer/Subscriber Account Balances and Related Obligations, for information about merchant reserves.
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Contingent Consideration
For asset acquisitions that do not meet the definition of a business, the portion of the unpaid purchase price that is contingent on future activities is not
initially recorded by the acquirer on the date of acquisition. Rather, the acquirer generally recognizes contingent consideration when it becomes probable
and estimable.
On March 15, 2019, a subsidiary of the Company paid $15.2 million cash to acquire certain residual portfolio rights. This asset acquisition became part of
the Company's SMB Payments reportable segment. The initial purchase price is subject to an increase of up to $6.4 million in accordance with the terms of
the agreement between the Company and the sellers. As of December 31, 2021, the Company paid $4.0 million to the seller and the fair value of the
contingent consideration was increased by $0.2 million. On April 14, 2022, the Company amended the purchase agreement related to its acquisition of
certain residual portfolio rights to provide for an additional earnout opportunity to be earned during the 12 months ending March 31, 2023. As of December
31, 2022, the fair value of the contingent consideration was increased for $0.3 million and the Company paid $2.7 million. As of December 31, 2022, it is
not probable the seller will meet criteria for any future earnout opportunities.
Legal Proceedings
The Company is involved in certain legal proceedings and claims which arise in the ordinary course of business. In the opinion of the Company and based
on consultations with inside and outside counsel, the results of any of these matters, individually and in the aggregate, are not expected to have a material
effect on the Company's results of operations, financial condition or cash flows. As more information becomes available, and the Company determines that
an unfavorable outcome is probable on a claim and that the amount of probable loss that the Company will incur on that claim is reasonably estimable, the
Company will record an accrued expense for the claim in question. If and when the Company records such an accrual, it could be material and could
adversely impact the Company's results of operations, financial condition and cash flows.
Concentration of Risks
The Company's revenue is substantially derived from processing Visa and Mastercard bankcard transactions. Because the Company is not a member bank,
in order to process these bankcard transactions, the Company maintains sponsorship agreements with member banks which require, among other things,
that the Company abide by the by-laws and regulations of the card association.
A majority of the Company's cash and restricted cash is held in certain FIs, substantially all of which is in excess of federal deposit insurance corporation
limits. The Company does not believe it is exposed to any significant credit risk from these transactions.
19. Fair Value
Fair Value Measurements
Contingent consideration liabilities related to certain of the Company's acquisition is uncertain due to the utilization of unobservable inputs and
management's judgement in determining the likelihood of achieving the earn-out criteria or the years ended December 31, 2022 and 2021. These liabilities
measured at fair value on a recurring basis consisted of the following:
(in thousands)
Contingent consideration, current portion
Contingent consideration, noncurrent portion
Total contingent consideration
Fair Value Hierarchy
Level 3
Level 3
Years Ended December 31,
2021
2022
$
$
6,079 $
2,000
8,079 $
4,006
6,680
10,686
During the year ended December 31, 2022, there were no transfers into, out of, or between levels of the fair value hierarchy.
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The following table provides a reconciliation of the beginning and ending balance of the Company's contingent consideration for the years ended
December 31, 2022 and 2021.
(in thousands)
Balance at January 1, 2021
Contingent consideration related to the acquisitions
Balance at December 31, 2021
Accretion of discount on contingent consideration
Fair value adjustments
Payment of contingent consideration
Balance at December 31, 2022
Fair Value Disclosures
Notes Receivable
Contingent Consideration
Liability
—
10,686
10,686
864
1,195
(4,666)
8,079
$
$
Notes receivable are carried at amortized cost. Substantially all of the Company's notes receivable are secured, and the Company provides for allowances
when it believes that certain notes receivable may not be collectible. The carrying value of the Company's notes receivable, net approximates fair value and
was approximately $4.7 million and $0.4 million at December 31, 2022 and December 31, 2021, respectively. On the fair value hierarchy, Level 3 inputs
are used to estimate the fair value of these notes receivable.
Debt Obligations
Outstanding debt obligations (see Note 11. Debt Obligations) are reflected in the Company's Consolidated Balance Sheets at carrying value since the
Company did not elect to remeasure debt obligations to fair value at the end of each reporting period.
The fair value of the of the term loan facility was estimated to be approximately $606.1 million and $613.8 million at December 31, 2022 and 2021,
respectively, and was estimated using binding and non-binding quoted market prices in an active secondary market, which considers the credit risk and
market related conditions, and is within Level 2 of the fair value hierarchy.
The carrying values of the other long-term debt obligations approximate fair value due to mechanisms in the credit agreements that adjust the applicable
interest rates and the lack of a market for these debt obligations.
20. Segment Information
Prior to the fourth quarter of 2021, the Company's three reportable segments included the Consumer Payments segment, the Commercial Payments
segment and the Integrated Partners segment. As a result of the Company's organic growth and recent acquisitions, a new internal reporting structure was
implemented which resulted in changes to the Company's reportable segments. The three new reportable operating segments are SMB Payments, B2B
Payments and Enterprise Payments. All comparative periods have been adjusted to reflect the new reportable segments. The Company does not have
dedicated assets assigned to any particular reportable segment and such information is not available and continues to be aggregated.
More information about our three reportable segments:
•
SMB Payments: Provides full-service acquiring and payment-enabled solutions for B2C transactions, leveraging Priority's proprietary software
platform, distributed through ISO, direct sales and vertically focused ISV channels.
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•
•
B2B Payments: Provides market-leading AP automation solutions to corporations, software partners and industry leading FIs (including Citibank
and Mastercard).
Enterprise Payments: Provides embedded payment and treasury solutions to enterprise customers to modernize legacy platforms and accelerate
software partners' strategies to monetize payments.
Corporate includes costs of corporate functions and shared services not allocated to our reportable segments.
Information on reportable segments and reconciliations to consolidated revenues, consolidated depreciation and amortization, and consolidated operating
income are as follows:
(in thousands)
Revenues:
SMB Payments
B2B Payments
Enterprise Payments
Consolidated revenues
Depreciation and amortization:
SMB Payments
B2B Payments
Enterprise Payments
Corporate
Consolidated depreciation and amortization
Operating income:
SMB Payments
B2B Payments
Enterprise Payments
Corporate
Consolidated operating income
$
$
$
$
$
$
Years Ended December 31,
2021
2022
2020
562,237 $
18,890
82,514
663,641 $
475,630 $
17,138
22,133
514,901 $
370,521
20,922
12,899
404,342
43,925 $
744
24,892
1,120
70,681 $
41,144 $
294
7,158
1,101
49,697 $
54,866 $
208
30,937
(29,846)
56,165 $
52,884 $
135
6,763
(26,689)
33,093 $
A reconciliation of total operating income of reportable segments to the Company's net (loss) income is provided in the following table:
Years Ended December 31,
(in thousands)
Total operating income of reportable segments
Corporate
Interest expense
Debt modification and extinguishment costs
Gain on sale of business
Other income, net
Income tax (expense) benefit
Net (loss) income
2022
2021
2020
$
$
86,011 $
(29,846)
(53,554)
—
—
589
(5,350)
(2,150) $
59,782 $
(26,689)
(36,485)
(8,322)
7,643
202
5,258
1,389 $
88
35,627
306
3,674
1,168
40,775
37,897
923
1,899
(19,858)
20,861
40,719
(19,858)
(44,839)
(1,899)
107,239
596
(10,899)
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21. (Loss) Earnings per Common Share
The following tables set forth the computation of the Company's basic and diluted earnings (loss) per common share:
(in thousands except per share amounts)
Numerator:
Net (loss) income
Less: Dividends and accretion attributable to redeemable senior preferred stockholders
Less: NCI preferred unit redemptions
Less: Earnings attributable to NCI
Net (loss) income attributable to common stockholders
Denominator:
Basic:
Weighted-average common shares outstanding
Basic (loss) earnings per common share
(1)
Diluted:
Weighted-average common shares outstanding
Effect of potentially dilutive common stock equivalents
Diluted weighted-average common shares outstanding
(1)
Diluted (loss) earnings per common share
Years Ended December 31,
2021
2022
2020
(2,150) $
(36,880)
—
—
(39,030) $
1,389
(18,009)
(8,021)
—
(24,641) $
71,059
—
—
(45,398)
25,661
78,233
71,902
(0.50) $
(0.34) $
78,233
—
78,233
71,902
—
71,902
(0.50) $
(0.34) $
67,158
0.38
67,158
105
67,263
0.38
$
$
$
$
(1)
The weighted-average common shares outstanding includes 1,803,841 warrants issued in the second quarter of 2021 (refer to Note 12,
Redeemable Senior Preferred Stock and Warrants).
Potentially anti-dilutive securities that were excluded from (loss) earnings per common share that could potentially be dilutive in future periods are as
follows:
(in thousands)
Outstanding warrants on common stock
Outstanding options and warrants issued to adviser
(3)
Restricted stock awards
Liability-classified restricted stock units
Outstanding stock option awards
(3)
(1)
(2)
Total
Common Stock Equivalents at December 31,
2020
2021
2022
3,556
600
2,440
—
1,098
7,694
3,556
600
442
129
1,313
6,040
3,556
600
280
107
1,506
6,049
(1)
(2)
(3)
The warrants are exercisable at $11.50 per share and expire on August 24, 2023. Refer to Note 14. Stockholders' Deficit.
The warrants and options are exercisable at $12.00 per share and expire on August 24, 2023. Refer Note 14. Stockholders' Deficit.
Granted under the 2018 Plan.
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Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
N/A
Item 9A. Controls and Procedures
(a)
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, designed to provide reasonable
assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed,
summarized or reported within the time periods specified in SEC rules and regulations and that such information is accumulated and communicated to our
management, including our principal executive officer (CEO), our principal financial officer (CFO) and, as appropriate, to allow timely decisions regarding
required disclosures.
Management, with the participation of the CEO and CFO, has evaluated the effectiveness of the Company's disclosure controls and procedures as of
December 31, 2022. Based on that evaluation, the Company's CEO and CFO concluded that the Company's disclosure controls and procedures were
effective as of December 31, 2022.
(b)
Report of Management on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-
15(f) under the Securities Exchange Act of 1934. Our internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. The Company's
internal control over financial reporting includes those policies and procedures that:
(i) pertain to maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and disposition of the Company's assets;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and
that receipts and expenditures of the Company are made only in accordance with authorizations of the Company's management and directors; and
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that
could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2022. In making this assessment,
management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) the Internal Control -
Integrated Framework (2013). Based on this assessment, management determined that the Company maintained effective internal control over financial
reporting as of December 31, 2022.
(c)
Attestation Report of Independent Registered Public Accounting Firm
Not applicable due to the Company's status as a non-accelerated filer.
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(d)
Changes in Internal Control over Financial Reporting
During 2022, the Company implemented new general ledger, accounts payable, consolidation and financial reporting systems. The implementation
involved changes to certain processes and related internal controls over financial reporting. The Company has reviewed the system and controls affected
and has made the appropriate changes as necessary.
There were no other changes in the Company's internal control over financial reporting during the year ended December 31, 2022 that have materially
affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
Item 9B. Other Information
N/A
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PART III.
Item 10. Directors, Executive Officers and Corporate Governance
The information called for by Item 10 is incorporated herein by reference to the definitive proxy statement relating to the Company's 2023 Annual Meeting
of Stockholders. We intend to file such definitive proxy statement with the SEC pursuant to Regulation 14A within 120 days of the end of the fiscal year
covered by this Annual Report on Form 10-K.
Item 11. Executive Compensation
The information called for by Item 11 is incorporated herein by reference to the definitive proxy statement referenced above in Item 10.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information called for by Item 12 is incorporated herein by reference to the definitive proxy statement referenced above in Item 10.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information called for by Item 13 is incorporated herein by reference to the definitive proxy statement referenced above in Item 10.
Item 14. Principal Accountant Fees and Services
The information called for by Item 14 is incorporated herein by reference to the definitive proxy statement referenced above in Item 10.
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PART IV.
Item 15. Exhibit and Financial Statement Schedules
(a) (1) Our consolidated financial statements listed below are set forth in "Item 8 - Financial Statements and Supplementary Data" of this Annual Report on
Form 10-K:
Report of Independent Registered Public Accounting Firm (EY PCAOB ID: 42)
Consolidated Balance Sheets as of December 31, 2022 and December 31, 2021
Consolidated Statements of Operations for the Years Ended December 31, 2022, 2021 and 2020
Consolidated Statements of Changes in Stockholders' Deficit for the Years Ended December 31, 2022, 2021 and 2020
Consolidated Statements of Cash Flows for the Years Ended December 31, 2022, 2021 and 2020
Notes to the Consolidated Financial Statements
(2) Financial Statement Schedule
Page
39
41
42
42
44
47
N/A
(b) Exhibits
Exhibit
2.1
2.2 †
2.3
2.4
3.1
3.2
3.3
4.1
4.2
4.3
4.4
4.5*
4.6
Description
Second Amended and Restated Contribution Agreement, dated as of April 17, 2018, by and among Priority Investment Holdings, Priority
Incentive Equity Holdings, LLC and M I Acquisitions, Inc. (incorporated by reference to Annex A to the Company's Proxy Statement on
Schedule 14(a), filed July 5, 2018).
Agreement and Plan of Merger, dated as of March 5, 2021, by and among the Company, Finxera, Merger Sub, and the Equityholder
Representative.
Certificate of Amendment to the Certificate of Incorporation of Priority Technology Holdings dated April 16, 2021, filed April 29, 2021
Agreement and Plan of Merger by and among the Company, Finxera Holdings, Inc., Prime Warrior Acquisition Corp., and Stone Point
Capital LLC.
Second Amended and Restated Certificate of Incorporation of Priority Technology Holdings, Inc. (incorporated by reference to Exhibit 3.1
to the Company's Current Report on Form 8-K, filed July 31, 2018).
Amended and Restated Bylaws of Priority Technology Holdings, Inc. (incorporated by reference to Exhibit 3.2 to the Company's Current
Report on Form 8-K, filed July 31, 2018).
Certificate of Designations of Senior Preferred Stock
Specimen Unit Certificate (incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-1, filed July 26, 2016).
Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.2 to the Registration Statement on Form S-1, filed July 26,
2016).
Specimen Warrant Certificate (incorporated by reference to Exhibit 4.3 to the Registration Statement on Form S-1, filed July 26, 2016).
Warrant Agreement, dated September 13, 2016, by and between American Stock Transfer & Trust Company, LLC and the Registrant
(incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K, filed September 16, 2016).
Description of Securities
Form of Warrant
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Table of Contents
10.1
10.2 †
10.3
10.3.1
10.4 †
10.5 †
10.6 †
10.7*
10.8*
10.9
10.11 †
10.12 †
10.13 †
10.14
10.15
10.16
10.17
10.18 †
10.19 †
10.21 †
10.22
21.1 *
23.1 *
31.1 *
31.2 *
32 *
101.INS *
101.SCH *
101.CAL *
101.LAB *
Registration Rights Agreement dated as of July 25, 2018 by and among M I Acquisitions, Inc. and the other parties thereto (incorporated
by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed July 31, 2018).
Priority Technology Holdings, Inc. 2018 Equity Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company's Current
Report on Form 8-K, filed July 31, 2018).
Priority Technology Holdings, Inc. 2021 Employee Stock Purchase Plan
Amendment No. 1 to Priority Technology Holdings, Inc. 2021 Employee Stock Purchase Plan
Credit Agreement, dated as of April 27, 2021, among the Loan Parties name therein and Truist Bank.
Director Agreement by and among Priority Holdings LLC, Pipeline Cynergy Holdings, LLC, Priority Payment Systems Holdings, LLC
and Thomas C. Priore, dated May 21, 2014 (incorporated by reference to Exhibit 10.6 to the Company's Registration Statement on Form
S-4/A, filed December 26, 2018).
Amendment No. 1 to Director Agreement by and among Priority Holdings LLC, Pipeline Cynergy Holdings, LLC, Priority Payment
Systems Holdings, LLC and Thomas C. Priore, dated April 19, 2018 (incorporated by reference to Exhibit 10.7 to the Company's
Registration Statement on Form S-4/A, filed December 26, 2018).
Executive Employment Agreement of Bradley Miller dated April 15, 2022
Executive Employment Agreement of Timothy O'Leary dated September 19, 2022
Form Restricted Stock Unit Award Agreement
Executive Employment Agreement between Priority Technology Holdings, Inc. and Michael Vollkommer, dated December 20, 2018
(incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed December 26, 2018).
Restricted Stock Unit Award Agreement between Priority Technology Holdings, Inc. and Michael Vollkommer, dated December 20, 2018
(incorporated by reference to Exhibit 10.13 to the Company's Annual Report on Form 10-K, filed March 29, 2019).
Form of Independent Director Agreement (incorporated by reference to Exhibit 10.19 to the Company's Annual Report on Form 10-K,
filed March 29, 2019).
Asset Purchase Agreement by and between MRI Payments LLC, MRI Software LLC, and Priority Real Estate Technology LLC, dated
August 31, 2020 (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed September 1, 2020).
Support Agreement, dated as of March 5, 2021, by and among the Stockholders and Finxera
Debt Commitment Letter, dated as of March 5, 2021, between Priority Holdings, LLC and Truist Securities, Inc.
Preferred Stock Commitment Letter, dated as of March 5, 2021, among the Company and certain affiliates of Ares Capital Management
LLC
Securities Purchase Agreement, dated as of April 27, 2021, among the Company and the Investors named therein
Registration Rights Agreement, dated as of April 27, 2021, among the Company and the Investors name therein
Credit Agreement, dated as of April 27, 2021, among the Loan Parties name therein and Truist Bank
Amendment No. 2, dated September 17, 2021, to the Credit Agreement, dated as of April 27, 2021, by and among the Loan Parties named
therein and Truist Bank.
Subsidiaries
Consent of Independent Registered Public Accounting Firm.
Certification of Chief Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act
of 1934, as amended.
Certification of Principal Financial Officer pursuant to Exchange Act Rule 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002
Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded
within the Inline XBRL document.
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Calculation Linkbase Document
XBRL Taxonomy Extension Label Linkbase Document
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101.PRE *
101.DEF *
XBRL Taxonomy Extension Presentation Linkbase Document
XBRL Taxonomy Extension Definition Linkbase Document
* Filed herewith
** Furnished herewith
† Indicates exhibits that constitute management contracts or compensation plans or arrangements.
Item 16. Form 10-K Summary
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
March 23, 2023
PRIORITY TECHNOLOGY HOLDINGS, INC.
/s/ Thomas C. Priore
Thomas C. Priore
President, Chief Executive Officer and Chairman
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Thomas C. Priore
Thomas C. Priore
/s/ Timothy M. O'Leary
Timothy M. O'Leary
/s/ Rajiv Kumar
Rajiv Kumar
/s/ John Priore
John Priore
/s/ Michael Passilla
Michael Passilla
/s/ Marietta C. Davis
Marietta C. Davis
/s/ Christina M. Favilla
Christina M. Favilla
/s/ Stephen W. Hipp
Stephen W. Hipp
/s/ Marc Crisafulli
Marc Crisafulli
President, Chief Executive Officer and Chairman
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial Officer)
Senior Vice President and
Chief Accounting Officer
(Principal Accounting Officer)
Director
Director
Director
Director
Director
Director
96
March 23, 2023
March 23, 2023
March 23, 2023
March 23, 2023
March 23, 2023
March 23, 2023
March 23, 2023
March 23, 2023
March 23, 2023
DESCRIPTION OF THE REGISTRANT’S SECURITIES
REGISTERED PURSUANT TO SECTION 12 OF THE SECURITIES
EXCHANGE ACT OF 1934
Exhibit 4.5
The following is a summary description of the Common Stock, par value $0.001 per share (the “Common Stock”), of Priority Technology
Holdings, Inc. (“Priority”), which is the only security of Priority registered pursuant to Section 12 of the Securities Exchange Act of 1934, as
amended.
DESCRIPTION OF COMMON STOCK
General
The following description of our Common Stock is based on our Second Amended and Restated Certificate of Incorporation (“Certificate of
Incorporation”) and Amended and Restated Bylaws (“Bylaws”), and applicable provisions of law. We have summarized certain portions of
our Certificate of Incorporation and Bylaws below. The summary is subject to, and is qualified in its entirety by, our Certificate of
Incorporation and our Bylaws, each of which is filed as an exhibit to our Annual Report on Form 10-K, and the applicable provisions of the
Delaware General Corporation Law (“DGCL”). You should read our Certificate of Incorporation, Bylaws, and the applicable provision of the
DGCL for additional information. For purposes of this description, references to “Company,” “Priority,” “Registrant,” “we,” “our,” and “us”
refer to Priority Technology Holdings, Inc. and its subsidiaries.
Authorized Capitalization
Our authorized capitalization consists of 1,000,000,000 shares of Common Stock and 100,000,000 shares of preferred stock, par value $.001
per share.
As of March [xx], 2022, there were [xx,xxx,xxx] shares of Common Stock issued and outstanding and no shares of preferred stock issued and
outstanding. This amount for issued shares of Common Stock includes approximately 451,000 shares held by Priority as “treasury shares.”
On December 31, 2020, there were employee stock options and restricted stock awards outstanding to issue approximately [x,xxx,000] shares
of Priority's Common Stock and warrants to issue approximately [x.xxx.000] shares of our Common Stock. A former underwriter holds
options for 300,000 shares of our common stock and 300,000 warrants whereby each warrant represents one share of Priority's common
stock.
Common Stock
Exhibit 4.5
Voting Rights. Each holder of Priority's Common Stock is entitled to one vote for each share of Common Stock held of record on the
applicable record date on all matters submitted to a vote of stockholders. Holders of Common Stock do not have cumulative voting rights in
the election of directors.
Our Bylaws provide for a majority vote standard for all corporate actions. Except as otherwise provided by law or by the Certificate of
Incorporation, the holders of a majority of the votes entitled to be cast by the stockholders entitled to vote generally, present in person or by
proxy, shall constitute a quorum at any meeting of the stockholders; provided, however, that in the case of any vote to be taken by classes or
series, the holders of a majority of the votes entitled to be cast by the stockholders of a particular class or series, present in person or by
proxy, shall constitute a quorum of such class or series.
Dividend Rights. Subject to any preferential dividend rights of outstanding preferred stock, holders of Common Stock are entitled to receive
equally and ratably, share for share, dividends, if any, as may be declared by our board of directors (our “Board”) out of funds legally
available therefor.
Liquidation Rights. Upon liquidation, dissolution of assets or other winding up, the holders of Common Stock are entitled to receive ratably
the assets available for distribution to the stockholders after payment of liabilities and the liquidation preference of any outstanding shares of
preferred stock.
Fully Paid and Nonassessable. The outstanding shares of our Common Stock are fully paid and non-assessable.
Other Matters. Holders of our Common Stock have no preemptive or conversion rights and are not subject to further calls or assessment by
us. There are no redemption or sinking fund provisions applicable to the Common Stock.
Listing and Transfer Agent. Our Common Stock is listed for trading on the NASDAQ Stock Market under the symbol “PRTH.” The transfer
agent and registrar for our Common Stock is American Stock Transfer.
Anti-Takeover Provisions
Certain provisions in our Certificate of Incorporation, Bylaws and the DGCL may have the effect of delaying, deferring or discouraging
another party from acquiring us. These provisions, which are summarized below, are expected to discourage coercive takeover practices and
inadequate takeover bids. These provisions also are designed to encourage persons seeking to acquire control of us to first negotiate with our
Board.
Amendment to Certificate of Incorporation and Bylaws. Our Bylaws may be amended, altered, changed or repealed by a majority vote of
our Board. In addition to any other vote otherwise required by law, any amendment, alteration, change, or repeal of our Bylaws by our
stockholders will require the affirmative
Exhibit 4.5
2/3
2/3
vote of at least 66 % of the voting power of our outstanding shares of common stock, voting as a single class. Additionally, the affirmative
vote of at least 66 % of the voting power of our outstanding shares of common stock, voting as a single class, will be required to amend or
repeal certain provisions of our Certificate of Incorporation or to adopt any provision inconsistent with specified provisions of our Certificate
of Incorporation. This requirement of a supermajority vote to approve amendments to our Certificate of Incorporation and Bylaws could
enable a minority of our stockholders to exercise veto power over any such amendments.
Advance Notice Requirements for Stockholder Proposals and Director Nominations. Our Bylaws establish advance notice procedures with
respect to stockholder proposals and the nomination of candidates for election as directors. In order for any matter to be “properly brought”
before a meeting, a stockholder will have to comply with advance notice requirements and provide us with certain information. Our Bylaws
allow the presiding officer at a meeting of the stockholders to adopt rules and regulations for the conduct of meetings which may have the
effect of precluding the conduct of certain business at a meeting if the rules and regulations are not followed. These provisions may defer,
delay or discourage a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise
attempting to obtain control of Priority.
Choice of Forum. Our Certificate of Incorporation provides that, unless we consent in writing to the selection of an alternative forum, the
Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, the United States District Court for the
District of Delaware) will be the sole and exclusive forum for (1) any derivative action or proceeding brought on our behalf, (2) any action
asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders, (3) any
action asserting a claim against the Company or any director or officer of our Company arising pursuant to any provision of the DGCL, our
Certificate of Incorporation or our Bylaws or (4) any other action asserting a claim against our Company or any director or officer of our
Company that is governed by the internal affairs doctrine. Although we believe these provisions benefit us by providing increased
consistency in the application of Delaware law for the specified types of actions and proceedings, the provisions may have the effect of
discouraging lawsuits against us or our directors and officers. The exclusive forum provision does not apply to any actions under United
States federal securities laws.
Controlled Company. Mr. Thomas Priore controls a majority of the voting power of Priority's outstanding Common Stock. As a result,
Priority is 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;
Exhibit 4.5
•
•
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.
No Cumulative Voting. The DGCL provides that stockholders are not entitled to the right to cumulate votes in the election of directors unless
our Certificate of Incorporation provides otherwise. Our Certificate of Incorporation prohibits cumulative voting.
Delaware General Corporation Law. As a Delaware corporation, we are subject to certain anti-takeover provisions of the DGCL. Subject to
certain exceptions, Section 203 of the DGCL prevents a publicly held Delaware corporation from engaging in a “business combination” with
any “interested stockholder” for three years following the date that the person became an interested stockholder, unless the interested
stockholder attained such status with the approval of our Board or unless the business combination is approved in a prescribed manner. A
“business combination” includes, among other things, a merger or consolidation involving us and the “interested stockholder” and the sale of
more than 10% of our assets. In general, an “interested stockholder” is any entity or person beneficially owning 15% or more of our
outstanding voting stock and any entity or person affiliated with or controlling or controlled by such entity or person. Section 203 of the
DGCL makes it more difficult for an interested stockholder to effect various business combinations with a corporation for a three-year
period. This statute could prohibit or delay mergers or other takeover or change in control attempts not approved in advance by our Board
and as a result could discourage attempts to acquire us, which could depress the market price of our Common Stock.
Undesignated Preferred Stock. Our Certificate of Incorporation authorizes our Board to issue preferred stock in one or more series and to fix
the number of shares constituting such series and the designation of such series, the voting powers (if any) of the shares of such series, and
the preferences and relative, participating, optional or other special rights, if any, and any qualifications, limitations or restrictions thereof, of
the shares of such series. The powers, preferences and relative, participating, optional and other special rights of each series of preferred
stock, and the qualifications, limitations or restrictions thereof, if any, may differ from those of any and all other series at any time
outstanding. Except as otherwise required by the Certificate of Incorporation or by applicable law, holders of a series of preferred stock, as
such, shall be entitled only to such voting rights, if any, as shall expressly be granted to such holders by the Certificate of Incorporation
(including any certificate of designation relating to such
Exhibit 4.5
series). Our authorized preferred stock consists of 100,000,000 shares of preferred stock, par value $.001 per share. Issuance of preferred
stock in the future could discourage bids for the Common stock at a premium as well as create a depressive effect on the market price of the
Common stock.
Removal of Directors; Vacancies. Our Certificate of Incorporation provides that directors may be removed from office only for cause and
only upon the affirmative vote of at least 66 % of the voting power of our outstanding shares of common stock entitled to vote in the
election of directors. In addition, any newly-created directorship on our Board that results from an increase in the number of directors and
any vacancy occurring on our Board shall be filled only by a majority of the directors then in office, although less than a quorum, or by a sole
remaining director.
2/3
Special Meetings. A special meeting of stockholders of Priority may be called only by (a) the Board or (b) the Secretary of the Company
upon the written request of stockholders owning at least twenty-five percent (25%) in amount of the entire capital stock of the Company
issued and outstanding, or entitled to vote at the special meeting.
Execution Version
Exhibit 10.7
EXECUTIVE EMPLOYMENT AGREEMENT
AMONG
PRIORITY TECHNOLOGY HOLDINGS, INC.
AND
Bradley J. Miller
April 15, 2022
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT (the “Agreement”) by and among Priority Technology Holdings, Inc.,
a Delaware corporation with its principal place of business located at 2001 Westside Parkway, Suite 155, Alpharetta, Georgia
30004 (“PRTH”), and Bradley J. Miller, an individual resident of Fulton County, Georgia (“Employee”) is entered into and
effective as of the __ day of March, 2022 (the “Effective Date”). PRTH and You are collectively referred to herein as the
“Parties”. Further, for purposes of this Agreement, the services provided pursuant to this Agreement are to be performed for the
benefit of PRTH and its Subsidiary Affiliates, which are collectively referred to herein as the “Company”, as applicable.
“Subsidiary Affiliate” means, with respect to PRTH, any corporation, limited liability company, partnership, firm, joint venture,
association, joint-stock company, trust, unincorporated organization, governmental body or other entity that is, directly or
indirectly, controlled by or under common control with PRTH.
WHEREAS, PRTH desires to continue to employ Employee on and after the Effective Date and to enter into this Agreement
with Employee embodying the terms of such employment; and
WHEREAS, Employee desires to continue to accept such employment by entering into this Agreement with the
Company.
NOW, THEREFORE, in consideration of the mutual covenants and promises contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:
1.
Term of Employment. Employee is employed by the Company as its General Counsel and Chief Risk Officer as of
the Effective Date. PRTH hereby agrees to employ Employee, and Employee hereby accepts such employment with PRTH, upon
the terms and subject to the conditions set forth in this Agreement, for a period commencing on the Effective Date and continuing
for an initial term of three (3) years with automatic successive one-year extension terms thereafter unless earlier terminated in
accordance with the provisions of Section 5 (the “Employment Term”).
2.
Title; Duties. Employee shall serve as the General Counsel and Chief Risk Officer. Employee shall report to Chief
Executive Officer (“CEO”). Employee shall provide such management updates, division performance updates, personnel and
operational updates, and any such other updates or business performance reports as reasonably requested by the CEO. Employee
further agrees to devote substantially all of Employee’s working time and attention on a full time basis to such duties and
responsibilities, except for PTO, absence for sickness or similar disability in accordance with the Company’s existing policies and
practices, and reasonable amounts of time spent performing services for any charitable, religious, or community organizations, so
long as such services do not interfere with the performance of Employee’s duties under this Agreement.
3.
No Conflicting Commitments. Employee will not enter into any employment or consulting agreement that, in the
opinion of the Board, conflicts with the Company’s interests or that might impair the performance of Employee’s duties as an
employee of the Company consistent with the terms of this Agreement.
- 2 -
4.
Compensation and Benefits.
4.1.
Salary & Bonus.
(a)
Base Salary. The Company shall pay Employee for Employee’s services hereunder a base salary at
the initial annual rate of Three Hundred Seventy-Five Thousand Dollars ($375,000), payable in regular installments in
accordance with the Company’s usual payment practices and subject to annual review and increase. Such amount (as it
may be increased from time to time) shall be referred to herein as the “Base Salary.” The Company will review the Base
Salary of Employee at least annually and may increase (but not decrease other than pursuant to across-the-board
reductions for all or substantially all employees or personnel similarly situated) the Base Salary based upon the past and
projected performance of the Company.
(b)
Bonus. Beginning with calendar years commencing on and after January 1, 2022, Employee will be
eligible to receive an annual bonus during the Employment Term (“Bonus”). The target Bonus for each calendar year shall
be in the range of twenty five percent (25%) to fifty percent (50%) of Employee’s Base Salary with the actual amount to
be based on the level of achievement of individual and Company performance criteria established by the Board for such
calendar year and paid out as approved by the Board. Employee will not be eligible to receive any Bonus if Employee is
not employed on the last day of the calendar year for which the Bonus is to be paid, except as provided in Section 5
below. The Bonus will be subject to all applicable withholdings and will be paid no later than sixty (60) days after the end
of the applicable calendar year.
(c)
Equity Incentive. Employee has been awarded Restricted Stock Units (“RSUs”) and may be
awarded in the future. Notwithstanding the foregoing or anything in this Agreement or the PRTH Equity Incentive Plan
to the contrary, the unvested portion of any outstanding Restricted Stock Unit award granted to Employee under the
PRTH Equity Incentive Plan shall immediately and automatically become one-hundred percent (100%) vested upon the
closing of any go-private transaction that causes all of the equity to cease to be publicly traded on Nasdaq or any other
public stock exchange or in the event of a Change of Control of the Company. For purposes of this definition, a “Change
of Control” shall have such meaning as defined in the Company’s Credit and Guaranty Agreement with Truist Bank
dated April 27, 2021, as amended from time to time (the “Truist Agreement”).
4.2.
Employee Benefits. Subject to any contributions therefor generally required of employees of the Company,
Employee shall be entitled to receive such employee benefits (including fringe benefits, 401(k) plan participation, and life,
health, dental, accident and short- and long-term disability insurance) that the Company may, in its sole and absolute discretion,
make available generally to its employees or personnel similarly situated; provided that, Employee acknowledges and agrees that
any such employee benefit plans may be altered, modified or terminated by the Company in accordance with their terms at any
time in its sole discretion without recourse by Employee.
4.3.
Paid Time Off. Employee shall be entitled to paid time off (“PTO”), accrued in accordance with the
Company’s existing policies and practices, provided that such PTO shall to be taken at such time or times as shall be mutually
convenient for the Company and Employee.
- 3 -
4.4.
Business Expenses and Perquisites. Upon delivery of adequate documentation of expenses incurred in
accordance with the policies and practices of the Company as may from time to time be in effect, Employee shall be entitled to
reimbursement by the Company for reasonable travel and other business expenses incurred by Employee in the performance of
Employee’s duties hereunder.
4.5.
Certain Other Matters. In connection with this Agreement, Employee shall execute and deliver the
Employee Confidentiality, Assignment of Inventions, and Non-Solicitation Agreement (the “Non-Solicitation Agreement”)
attached as Exhibit A.
Taxes. All of Employee’s compensation, including, without limitation, the Base Salary and Bonus, shall be
subject to withholding for all applicable federal, state and local employment-related taxes, including income, social security, and
similar taxes.
4.6.
5.
Termination.
5.1.
Termination by the Company. The Company may terminate Employee’s employment hereunder at any
time with or without cause to be effective immediately upon delivery of notice thereof. The effective date of Employee’s
termination shall be referred to herein as the “Termination Date.” If Employee’s employment is terminated by the Company
pursuant to this Section 5.1, the Company shall pay Employee all earned but unpaid Base Salary prior to the Termination Date
and, if consistent with the Company’s then-current policies and practices, the cash value of any accrued but unused PTO as of the
Termination Date (collectively, “Accrued Obligations”).
(a) Without Cause Termination. In the event Employee’s employment is terminated during the initial
term of this Agreement by the Company or surviving companies (i.e., if the Company is acquired), in addition to the
Accrued Obligations, for reasons other than for cause pursuant to Section 5.1(b) below, the Company shall also pay
Employee (in increments according to the Company’s normal payroll schedule) the Base Salary for a period of six (6)
months following the Termination Date and the earned but unpaid portion of the Bonus for the calendar year preceding
the calendar year in which the Termination Date occurs (collectively, the “Severance Package”), provided that Employee
satisfies the conditions set forth at the end of this paragraph (the “Severance Conditions”). Employee shall not be eligible
for the Severance Package unless and until twenty-eight (28) days (including a seven-day revocation period) after
Employee has first satisfied and continues to satisfy the following Severance Conditions: (1) Employee is in compliance
with the Non-Solicitation Agreement; (2) Employee is in compliance with all of Employee’s obligations under this
Agreement; and (3) Employee executes and delivers a waiver and general release of claims in favor of the Company and
its affiliates substantially in the form of Exhibit B.
(b)
For Cause Termination. In the event Employee’s employment is terminated “for cause” (defined
below) by the Company under this Section 5.1(b), the Company shall pay Employee only the Accrued Obligations. For
purposes of this Agreement, “for cause” means: (i) Employee’s arbitrary, unreasonable or willful failure to perform, in
any material respect, the duties and responsibilities required hereunder and assigned by the CEO from time to time
(including, without limitation, continuous constructive collaboration with the Executive Chairman and other members of
the management team) that is not cured by Employee within ten days after the first notice from the Company specifying
the nature of the default in reasonable detail (i.e., how
- 4 -
Employee has failed to perform or comply) or, if the default cannot be cured within such ten-day period, failure of
Employee within such ten-day period to commence and pursue curative action with reasonable diligence; (ii) Employee’s
gross negligence or willful misconduct in the performance of Employee’s duties under this Agreement; (iii) Employee’s
commission of an act constituting fraud, embezzlement, breach of any fiduciary duty owed to the Company or its
shareholders or other material dishonesty with respect to the Company; (iv) Employee’s conviction of, or the filing of a
plea of nolo contendere or its equivalent, with respect to a felony or any other crime involving dishonesty or moral
turpitude; (v) substance abuse (for the purposes of this agreement substance abuse is the use of alcohol or illegal
substances including misuse of otherwise legally obtained medications that otherwise interferes with Employee’s ability
to perform the functions of the position) that is materially injurious to the Company (whether from a monetary perspective
or otherwise); or (vi) Employee’s material breach of Employee’s obligations under this Agreement or the Non-Solicitation
Agreement that is not cured by Employee within ten days after the first notice from the Company specifying the nature of
the default in reasonable detail (i.e., how Employee has failed to perform or comply) or, if the default cannot be cured
within such ten-day period, failure of Employee within such ten-day period to commence and pursue curative action with
reasonable diligence and to the reasonable satisfaction of the Company.
5.2.
Termination by Employee; Deemed Termination. Employee’s employment hereunder may be terminated
by Employee at any time upon not less than ninety (90) days’ prior written notice from Employee to the Company. Employee
agrees that such notice period is reasonable and necessary in light of the duties assumed by Employee pursuant to this Agreement
and fair in light of the consideration Employee is receiving pursuant to this Agreement. In the event of such notice by Employee,
the Company may limit the Employee’s activities during the notice period or the Company may impose any other restrictions it
deems necessary and reasonable, including relieving Employee of all duties during the notice period.
(a)
Termination for Good Reason. Notwithstanding the foregoing, Employee shall be deemed to have
terminated Employee’s employment with the Company for “good reason” and, in such case, in addition to the Accrued
Obligations, Employee shall be entitled to the Severance Package (provided Employee satisfies the Severance Conditions)
in the event any of the following occurs and Employee provides to the Company Notice of Termination (as defined in
Section 5.3) during the time frame specified above or, if later, after any applicable cure period: (i) the Company reduces
Employee’s Base Salary or benefits (other than in connection with a proportional reduction of the base salaries or benefits
in excess of twenty percent (20%) of all executive employees of the Company); or (ii) the Company materially breaches
any of Sections 4.1 through 4.4 hereof; provided that any of the events described in clauses (i) or (ii) of this Section 5.2(a)
shall be deemed termination for “good reason” only if the Company fails to cure such event within ten days after a written
notice is delivered by Employee to the Company specifically identifying the event that may be deemed termination for
“good reason” pursuant to this Section 5.2(a) or, if the default cannot be cured within such ten-day period, failure of the
Company within such ten-day period to commence and pursue curative action with reasonable diligence and to the
reasonable satisfaction of Employee.
(b)
Termination Without Good Reason. In the event Employee terminates Employee’s employment
with the Company without “good reason” (as
- 5 -
defined in Section 5.2(a)), the Company shall only pay Employee the Accrued Obligations.
5.3.
Notice of Termination. Any termination of employment by the Company or Employee shall be
communicated by written Notice of Termination to the other Party in accordance with Section 9 hereof. For purposes of this
Agreement, a “Notice of Termination” means a notice that shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of
employment under the provision so indicated.
5.4.
the termination of this Agreement.
Survival. The provisions of Sections 4, 5, and 6 hereof and the Non-Solicitation Agreement shall survive
6.
Confidentiality Agreement. In connection with this Agreement, Employee has executed the Non-Solicitation
Agreement, which is incorporated herein by reference and made a part of this Agreement.
7.
Return of Company Property. Employee agrees that upon termination of Employee’s employment hereunder,
Employee shall return immediately to the Company any proprietary materials, any materials containing Confidential Information
(as defined in the Non-Solicitation Agreement) and any other Company or Company affiliate’s property then in Employee’s
possession or under Employee’s control, including without limitation all notes, customer, voluntary benefits carrier, employer,
employee and broker lists and contact information, drawings, memoranda, magnetic disks or tapes, or other recording media
containing such Confidential Information, whether alone or together with non-confidential information, all documents, reports,
files, memoranda, records, software, credit cards, door and file keys, telephones, personal digital assistants, computers, tablet
devices, computer access codes, disks and instructional manuals, or any other physical property that Employee received, had
access to, prepared, or helped prepare in connection with Employee’s employment under this Agreement. Following termination,
Employee shall not retain any copies, duplicates, reproductions, or excerpts of Confidential Information, nor shall Employee
show or give any of the above to any third party. Employee further agrees that Employee shall not retain or use for Employee’s
account at any time any trade name, trademark, service mark, logo or other proprietary business designation used or owned in
connection with the business of the Company or any affiliate of the Company.
8.
Specific Performance; Remedies. Employee agrees that, in the event of a breach or threatened breach of the Non-
Solicitation Agreement, in addition to any remedies at law, the Company, without posting any bond, shall be entitled to obtain
equitable relief in the form of specific performance, temporary restraining orders, temporary or permanent injunctions or any
other equitable remedy that may then be available.
9.
Notices. Any notice hereunder by either Party to the other shall be given in writing by personal delivery, email
(with confirmation from the receiving party), facsimile, overnight courier or certified mail, return receipt requested, addressed, if
to the Company, to the attention of the CEO at the Company’s executive offices or to such other address as the Company may
designate in writing at any time or from time to time to Employee with a copy (which shall not constitute notice) to the
Company’s General Counsel at the Company’s executives offices, and if to Employee, to Employee’s most recent address and
contact information on file with the Company. Notice shall be deemed given, if by personal delivery or by overnight courier, on
the date of such delivery or, if by facsimile, on the business day
- 6 -
following receipt of delivery confirmation, if by email, on the date confirmation from the receiving Party is received by the Party
providing notice, or, if by certified mail, on the date shown on the applicable return receipt.
10.
Successors and Assigns. This Agreement shall inure to the benefit of the Company and its respective successors
and assigns. This Agreement may not be assigned by either Party without the prior written consent of the other Party; provided
that the Company may assign this Agreement without Employee’s consent to an affiliate of the Company (or its successor),
provided, however, that in the event of a sale of all or substantially all of the assets of the Company or any direct or indirect
division or subsidiary thereof to which employee’s employment primarily relates, the Company may provide that this Agreement
will be assigned to, and assumed by, the acquiror of such assets, it being agreed that in such circumstances, Employee’s consent
will not be required in connection therewith. This Agreement shall be binding on the Parties’ permitted successors and assigns.
11.
Entire Agreement. This Agreement, the Non-Solicitation Agreement, and the Company’s policies and procedures
as approved by the Company and in effect and as amended from time to time constitute the entire agreement between the Parties
with respect to the subject matter hereof. To the extent there is any conflict between this Agreement and the Non-Solicitation
Agreement, this Agreement shall prevail.
12.
Expenses. The Parties shall each pay their own respective expenses incident to the enforcement or interpretation
of, or dispute resolution with respect to, this Agreement, including all fees and expenses of their counsel for all activities of such
counsel undertaken pursuant to this Agreement.
13.
Governing Law. THIS AGREEMENT (INCLUDING ANY CLAIM OR CONTROVERSY ARISING OUT OF
OR RELATING TO THIS AGREEMENT) SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF GEORGIA, WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES THAT WOULD
RESULT IN THE APPLICATION OF ANY LAW OTHER THAN THE LAWS OF THE STATE OF GEORGIA. ANY
DISPUTE OR CLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR CLAIM OF BREACH HEREOF
SHALL BE BROUGHT EXCLUSIVELY IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT
OF GEORGIA, ATLANTA DIVISION, TO THE EXTENT FEDERAL JURISDICTION EXISTS, AND IN THE SUPERIOR
COURT OF FULTON COUNTY, GEORGIA, BUT ONLY IN THE EVENT FEDERAL JURISDICTION DOES NOT EXIST,
AND ANY APPLICABLE APPELLATE COURTS. BY EXECUTION OF THIS AGREEMENT, THE PARTIES HERETO,
AND THEIR RESPECTIVE AFFILIATES, CONSENT TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS, AND
WAIVE ANY RIGHT TO CHALLENGE JURISDICTION OR VENUE IN SUCH COURT WITH REGARD TO ANY SUIT,
ACTION, OR PROCEEDING UNDER OR IN CONNECTION WITH THIS AGREEMENT.
14. Waiver of Jury Trial. EACH PARTY HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING
DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY
(A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED,
EXPRESSLY OR
- 7 -
OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HAVE BEEN INDUCED TO
ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN
THIS SECTION.
15. Waivers and Further Agreements. Any waiver of any terms or conditions of this Agreement shall not operate as a
waiver of any other breach of such terms or conditions or any other term or condition, nor shall any failure to enforce any
provision hereof operate as a waiver of such provision or of any other provision hereof; provided, that no such written waiver,
unless it, by its own terms, explicitly provides to the contrary, shall be construed to effect a continuing waiver of the provision
being waived and no such waiver in any instance shall constitute a waiver in any other instance or for any other purpose or impair
the right of the Party against whom such waiver is claimed in all other instances or for all other purposes to require full
compliance with such provision. Each Party agrees to execute all such further instruments and documents and to take all such
further action as the other Party may reasonably request to effectuate the terms and purposes of this Agreement.
16.
Amendments. This Agreement may not be amended, nor shall any waiver, change, modification, consent or
discharge be effected, except by an instrument in writing executed by both Parties.
17.
Severability; Headings. If any portion of this Agreement is held invalid or inoperative, the other portions of this
Agreement shall be deemed valid and operative and, so far as is reasonable and possible, effect shall be given to the intent
manifested by the portion held invalid or inoperative. The section headings are for reference purposes only and are not intended
in any way to describe, interpret, define or limit the extent of the Agreement or of any part hereof.
18.
Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same instrument. This Agreement may be executed by facsimile
and electronically transmitted signature (e.g., portable document format) and such signatures shall be deemed to be originals.
19.
Legal Advice. Employee acknowledges that Employee has been advised to seek the advice of independent legal
counsel and has either obtained such advice or has voluntarily and without compulsion elected to enter into and be bound by the
terms of this Agreement without such advice of independent legal counsel.
[Signature Page Follows]
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Execution Version
IN WITNESS WHEREOF, the Parties have duly executed and delivered this Employment Agreement as of the
Effective Date.
EMPLOYEE:
Bradley J. Miller
COMPANY:
Priority Technology Holdings, Inc.
By:
Name:
Title:
DOC ID
Signature Page to Employment Agreement
Execution Version
Exhibit A
EMPLOYEE CONFIDENTIALITY, ASSIGNMENT OF INVENTIONS,
AND NON-SOLICITATION AGREEMENT
Bradley J. Miller
In consideration of my employment with and continued employment by Priority Technology Holdings, Inc., a Delaware
corporation (together with its affiliates, the “Company”), and for other valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, I agree as follows:
Confidentiality
I understand that the Company and its affiliates continually obtain and develop valuable proprietary and confidential
information concerning their business, business relationships, and financial affairs, (the “Confidential Information”), that has or
may become known to me in connection with my employment. By way of illustration but not limitation, Confidential Information
shall include Inventions (as defined below), trade secrets, technical information, know-how, research and development activities,
product, service and marketing plans, business plans, budgets and unpublished financial statements, licenses, prices and costs,
customer and supplier information, information (including contact coordinates) for employers and employees, and information
disclosed to the Company or to me by third parties of a proprietary or confidential nature or under an obligation of confidence.
Confidential Information is contained in various media, including without limitation, patent applications, computer programs in
object and source code, flow charts and other program documentation, manuals, plans, drawings, designs, technical
specifications, supplier, customer, carrier and claimant lists, claimant case files, internal financial data and other documents and
records of the Company.
Confidential Information shall not include information that I can demonstrate: (1) is or becomes generally known within
the Company’s industry through no fault of mine or any other person with an obligation of confidentiality to the Company; (2) is
lawfully and in good faith made available to me by a third party who did not derive it from the Company and who imposes no
obligation of confidence on me; or (3) is required to be disclosed by a governmental authority or by order of a court of competent
jurisdiction, provided that such disclosure is subject to all applicable governmental or judicial protection available for like
material and reasonable advance notice is given to the Company.
I represent and warrant that: (1) I am not subject to any legal or contractual duty or agreement that would prevent or
prohibit me from performing the duties contemplated by my employment agreement with the Company or otherwise contained
herein, and (2) I am not in breach of any legal or contractual duty or agreement, including any agreement concerning trade secrets
or confidential information owned by any other party.
I agree that I will not: (1) use, disclose, or reverse engineer any Confidential Information for any purpose other than the
Business (as defined below), except as authorized in writing by the Company; (2) during my employment with the Company, use,
disclose, or reverse engineer (a) any confidential information or trade secrets of any former employer or third party or (b) any
works of authorship developed in whole or in part by me during any former employment or for any other party, unless authorized
in writing by the former employer or third party; or (3) upon my resignation or termination (a) retain any Confidential
Information, including any copies
existing in any form (including electronic form), which are in my possession, custody, or control, or (b) destroy, delete, or alter
any Confidential Information without the Company’s written consent.
I acknowledge that the confidentiality, property, and proprietary rights protections contained in this Agreement are in
addition to, and not exclusive of, any and all other rights to which the Company may be entitled under federal and state law,
including without limitation rights provided under copyright laws, trade secret and confidential information laws, and laws
concerning fiduciary duties.
I acknowledge that all Confidential Information, whether or not in writing and whether or not labeled or identified as
confidential or proprietary, is and shall remain the exclusive property of the Company or the third party providing such
Confidential Information to myself or the Company.
I agree to exercise all reasonable precautions to protect the integrity and confidentiality of Confidential Information in my
possession and not to remove any materials containing Confidential Information from the Company’s premises except to the
extent necessary for my employment. Upon the termination of my employment, or at any time upon the Company’s request, I
shall return immediately to the Company any and all materials containing any Confidential Information then in my possession or
under my control.
Nothing contained herein or in my employment agreement with the Company is intended to or will be used in any way to limit
your rights to communicate or cooperate with, or provide information to, a governmental agency or entity as provided for,
protected under, or warranted by whistleblower or other provisions of applicable law or regulation.
Assignment of Inventions
I agree promptly to disclose to the Company any and all discoveries, inventions, developments, original works of authorship,
software programs, software and systems documentation, trade secrets, technical data, and know-how that are conceived,
devised, invented, developed or reduced to practice or tangible medium by me, under my direction or jointly with others in the
course and scope of my employment by the Company, whether or not during normal working hours or on the premises of the
Company, which relate directly or indirectly to the business of the Company or its affiliates (collectively, the “Business”) and
arise out of my employment with the Company (hereinafter “Inventions”).
I hereby assign to the Company (or its designated affiliates) all of my right, title, and interest to the Inventions and any and all
related patent rights, copyrights, and applications and registrations therefor. During and after my employment, I shall cooperate
with the Company, at the Company’s expense, in obtaining proprietary protection for the Inventions, and I shall execute all
documents that the Company shall reasonably request in order to perfect the Company’s (or its designated affiliates’) rights in the
Inventions. I understand that, to the extent this Agreement shall be construed in accordance with the laws of any state which
limits the assignability to the Company of certain employee inventions, this Agreement shall be interpreted not to apply to any
such invention that a court rules or the Company agrees is subject to such state limitation.
I acknowledge that all original works of authorship made by me within the scope of my employment that are protectable by
copyright are intended to be “works made for hire”, as that
term is defined in Section 101 of the United States Copyright Act of 1976 (the “Act”), and shall be the property of the Company,
and the Company shall be the sole author within the meaning of the Act. I hereby waive all claims to moral rights in any
Inventions. I further represent that there are no inventions made, conceived or first reduced to practice by me, under my direction
or jointly with others prior to my employment with the Company.
Restrictive Covenants
I acknowledge and agree that: (1) my position is a position of trust and responsibility with access to Confidential
Information; (2) the Confidential Information, and the relationship between the Company, its affiliates, and the employees and
customers of each, are valuable assets of the Company that may not be used for any purpose other than the Business; (3) the
names of any customers of the Company or its affiliates are considered Confidential Information that constitutes valuable,
special, and unique property of the Company; (4) customer lists and customer information that have been compiled by the
Company or its affiliates represent a material investment of the Company’s time and money; (5) the Company will invest its time
and money in the development of my skills in the Business; and (6) the restrictions contained in this herein, including without
limitation the restrictive covenants set forth in this Agreement, are reasonable and necessary to protect the legitimate business
interests of the Company and its affiliates, and they will not impair or infringe upon my right to work or earn a living when my
employment with the Company ends.
I acknowledge that (1) the markets served by the Company are intended to be national in scope and not dependent on the
geographic location of the executive personnel or the businesses by which they are employed, and (2) the below covenants are
manifestly reasonable on their face. The Company and I expressly agree that such restrictions have been designed to be
reasonable and no greater than is required for the protection of the Company and are a significant element of the consideration
hereunder. If the final judgment of a court of competent jurisdiction declares that any term or provision contained herein is
invalid or unenforceable, the Company and I agree that the court making the determination of invalidity or unenforceability shall
have the power to reduce the scope, duration, or area of the term or provision, to delete specific words or phrases, or to replace
any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision, and the covenants and agreements contained herein
shall be enforceable as so modified to cover the maximum duration, scope, or area permitted by law.
Non-Solicitation of Customers
I agree that, while I am employed by the Company and for a period of two years following any termination or cessation of
such employment (such period, the “Non-Interference Period”), I shall not solicit, divert, or take away, or attempt to divert or take
away, the business or patronage of any of the referral sources, clients, customers, or accounts of the Company for the purpose of
selling or providing any products or services competitive with the Business.
Non-Solicitation and Non-Hire of Employees
While I am employed by the Company and during the Non-Interference Period, I will not, directly or indirectly, for my benefit
or for the benefit of any person other than the Company, (1) solicit or assist any person to solicit, recruit, or induce any officer,
director, Executive Chairman, executive, employee or consultant of the Company or its affiliates to (a) terminate his or her
employment or relationship with the Company or its affiliates, or (b) work for any other person,
or (2) hire or cause to be hired any person who is then, or who will have been at any point in time during the Non-Interference
Period, an officer, director, Executive Chairman, executive, employee, or consultant of the Company or its affiliates.
Non-Competition
While I am employed by the Company and during the Non-Interference Period, I will not engage or participate, directly
or indirectly, as principal, agent, executive, director, proprietor, joint venturer, trustee, employee, employer, consultant,
stockholder, partners, or in any other capacity whatsoever in the conduct or management of, or fund, invest in, lend to, own any
stock or any other equity or debt investment in, or provide any services of any nature whatsoever to or in respect of any business
that is competitive with or in the same line of business as the Business in the United States, provided that nothing in this
Agreement shall prohibit me from being passive beneficial owner of less than two percent of the outstanding stock of any
publicly-traded corporation.
Separate Obligations
I hereby acknowledge that the foregoing obligations are separate and distinct (and that I have received or will receive separate
consideration for the foregoing obligations) from and not in derogation of any obligations I have undertaken in connection with
any other agreements between myself and the Company.
Other Agreements
I hereby represent to the Company that I am not bound by any agreement or any other previous or existing business
relationship that conflicts with or prevents the full performance of my duties and obligations to the Company (including my
duties and obligations under this or any other agreement with the Company) during my employment. All existing business
relationships and agreements that I have with persons other than the Company are set forth on Schedule A hereto.
General
This Agreement may not be assigned by either party, except that the Company may assign this Agreement to its affiliates or in
connection with the merger, consolidation or sale of all or substantially all of its business or assets. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their respective successors and other legal representatives
and, to the extent that any assignment hereof is permitted hereunder, their assignees. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same
instrument. This Agreement may be executed by facsimile or electronically transmitted signature (e.g., portable document
format), and such signatures shall be deemed to be originals.
This Agreement supersedes all prior agreements, written or oral, with respect to the subject matter of this Agreement. This
Agreement may be changed only by a written instrument signed by both parties hereto.
In the event that any one or more of the provisions contained herein shall, for any reason, be held to be invalid, illegal, or
unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provisions of this
Agreement, and all other provisions
shall remain in full force and effect. If any of the provisions of this Agreement is held to be excessively broad, it shall be
reformed and construed by limiting and reducing it so as to be enforceable to the maximum extent permitted by law. I agree that
should I violate any obligation imposed on me in this Agreement, I shall continue to be bound by the obligation until a period
equal to the term of such obligation has expired without violation of such obligation.
No delay or omission by the Company in exercising any right under this Agreement will operate as a waiver of that or any
other right. A waiver or consent given by the Company on any occasion is effective only in that instance and will not be
construed as a bar to or waiver of any right on any other occasion.
I acknowledge that the restrictions contained in this Agreement are necessary for the protection of the business and goodwill of
the Company and the Company’s legitimate business interests, are reasonable for such purpose, and are reasonable and valid in
geographical and temporal scope and in all other respects and not overly broad or unduly burdensome. I agree that any breach of
this Agreement by me will cause irreparable damage to the Company and that, in the event of such breach, the prevailing party in
any such enforcement action shall be entitled, in addition to monetary damages and any other remedies available to the prevailing
party under this Agreement and at law, to equitable relief, including injunctive relief, and to payment of all costs incurred by the
prevailing party in enforcing or defending the provisions of this Agreement, including reasonable attorneys’ fees and costs. I
agree that should I violate any obligation imposed on me in this Agreement, I shall continue to be bound by the obligation until a
period equal to the term of such obligation has expired without violation of such obligation.
This Agreement shall be construed as a sealed instrument and shall in all events and for all purposes be governed by, and
construed in accordance with, the laws of the State of Georgia without regard to any choice of law principles that would dictate
the application of the laws of another jurisdiction.
[Signature Page Follows]
Execution Version
I HAVE READ ALL OF THE PROVISIONS OF THIS EMPLOYEE CONFIDENTIALITY, ASSIGNMENT OF
INVENTIONS, AND NON-SOLICITATION AGREEMENT AND I UNDERSTAND AND AGREE TO EACH OF SUCH
PROVISIONS EFFECTIVE AS OF THE DATE FIRST SET FORTH ABOVE.
Bradley J. Miller
Acknowledged and Agreed to by:
Priority Technology Holdings, Inc.
By:
Name:
Title:
Signature Page to
Employee Confidentiality, Assignment of Inventions, and Non-Solicitation Agreement
Exhibit B
Form of Release
[DATE]
Priority Technology Holdings, Inc.
Attn: General Counsel
2001 Westside Parkway, Suite 155
Alpharetta, GA 30004
(together with its affiliates, the “Company”)
Except as set forth in the Employment Agreement by and between myself (the “Employee” or “I”) and the Company dated as of
___________ (the “Employment Agreement”), I am entitled to no severance or termination payment or benefits. I acknowledge
the Company has no legal obligation to provide me with the benefits and consideration outlined in the Employment Agreement
except as part of this release letter and in consideration for my signing of this release letter. I have been notified of my right to
review this release letter with counsel, and I have received, if I so chose, legal advice concerning this release letter.
General Release. Employee acknowledges that the Company has no legal obligation to provide Employee with these benefits
except as part of the Employment Agreement and in consideration for Employee signing this release letter and the waiver and
release of claims contained herein. In return for these benefits, Employee irrevocably and unconditionally releases the Company
and all affiliated companies, predecessors and successors of each and each such entity’s officers, directors, employees, agents,
attorneys or insurers in their individual and representative capacities (collectively referred to as the “Company Parties”) from any
and all claims, causes of action, complaints, damages, liabilities and expenses whatsoever, whether known or unknown, direct or
indirect, at law or in equity and whether sounding in contract, tort or other theory (collectively, “Claims”) that Employee may
have now, have had in the past or have in the future for or by reason of any matter, cause or thing whatsoever that has happened,
developed or occurred on or before the date hereof, including without limitation in connection with Employee’s employment or
termination of employment with the Company. This release of the Company includes any Claims that Employee might have for
re-employment or for additional compensation or benefits (except as specifically stated below), and applies to Claims that
Employee might have under federal, state or local law or ordinance dealing with employment, contract, wage and hour, tort, or
civil rights matters, including, but not limited to, applicable local and state civil rights matters, including, but not limited to,
applicable local and state civil rights laws or wage payment laws, Employee Retirement Income Security Act, Title VII of the
Civil Rights Act of 1964, the Civil Rights Acts (42 USC § 1981-1988), the Civil Rights Act of 1991, the Age Discrimination in
Employment Act of 1967 (the “ADEA”), Section 806 of the Sarbanes Oxley Act of 2002 and any other Claims alleging
retaliation of any nature, the Vietnam Era Veterans Readjustment Assistance Act, the Uniformed Services Employment and
Reemployment Rights Act of 1994, the Older Workers Benefit Protection Act, the Equal Pay Act of 1963, the Rehabilitation Act
of 1973, the Americans with Disabilities Act of 1990, the Equal Pay Act of 1963, the Fair Labor Standards Act, sections 503 and
504 of the Vocational Rehabilitation Act, the Family and Medical Leave Act, Executive Order 11246, and the Consolidated
Omnibus Budget Reconciliation Act of 1985 (“COBRA”), all as amended from time to time, together with all laws and
regulations promulgated thereunder. Employee represents that there are no claims, complaints or charges pending against the
Company in which Employee is a party or complainant, or any unasserted Workers’ Compensation claims.
Employee further agrees not to institute any Claim to challenge the validity of this release or the circumstances surrounding its
execution. This is a general release, including a waiver of Claims for age discrimination under federal and state statutes, such as
the ADEA. Employee understands the waiver and release of claims does not affect rights or claims arising under the ADEA or
the Older Workers Benefit Protection Act after the date of the execution of this release letter.
Covenant Not to Sue. Employee represents and warrants that Employee has not filed any Claims against the Company or any of
the Company Parties with any local, state or federal court or administrative agency. Employee agrees and covenants not to sue or
bring any Claims against the Company or any of the Company Parties with respect to any matters arising out of or relating to
Employee’s employment with the Company or separation from the Company, or any Claims that as a matter of law cannot be
released, such as under workers’ compensation, for unemployment benefits or any Claims related to the Company’s future
involvement with, if any, Employee’s 401(k)/retirement plans with the Company. Except as set forth herein, in the event that
Employee on Employee’s behalf institutes any such action, that Claim shall be dismissed upon presentation of this release letter,
and Employee shall reimburse the Company for all legal fees and expenses incurred in defending such Claim and obtaining its
dismissal.
Exclusion. Nothing in this release letter shall preclude Employee from filing a charge or complaint, including a challenge to the
validity of this release letter, with the Equal Employment Opportunity Commission or any state anti-discrimination agency or
from participating or cooperating in any investigation or proceeding conducted by any of such agencies. In the event that a charge
or complaint is filed with any administrative agency by Employee or in the event of an authorized investigation, charge or lawsuit
filed by any administrative agency, Employee expressly waives and shall not accept any monetary awards or damages, costs or
attorneys’ fees of any sort therefrom against the Company or any of the Releasees.
Waiting Period. I understand I have a period of up to 21 days to consider this release letter and that I have been advised to speak
with an attorney. I agree this release letter is written in a manner that I understand what I am releasing. I understand that this
release must be signed no later than 21 days from the date first set forth above for me to be entitled to the benefits of the
Severance Package (as defined in the Employment Agreement). I agree that upon signing this release letter I become bound by its
terms unless I revoke the release contained herein. I understand I may revoke the release contained herein within seven days after
signing it; and that, unless I so revoke it, the release contained herein will be fully effective seven days after I have signed it.
Once this release letter is fully effective, the Severance Package will be forwarded by U.S. mail according to the schedule in the
terms of the Employment Agreement.
Yours truly,
Date: Signature:
Print Name: Bradley J. Miller
Execution Version
Exhibit 10.8
EXECUTIVE EMPLOYMENT AGREEMENT
AMONG
PRIORITY TECHNOLOGY HOLDINGS, INC.
AND
Timothy O’Leary
September 19, 2022
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT (the “Agreement”) by and among Priority Technology Holdings, Inc.,
a Delaware corporation with its principal place of business located at 2001 Westside Parkway, Suite 155, Alpharetta, Georgia
30004 (“PRTH”), and Timothy O’Leary, an individual resident of Fulton County, Georgia (“Employee”) is entered into and
effective as of the 19th day of September, 2022 (the “Effective Date”). PRTH and You are collectively referred to herein as the
“Parties”. Further, for purposes of this Agreement, the services provided pursuant to this Agreement are to be performed for the
benefit of PRTH and its Subsidiary Affiliates, which are collectively referred to herein as the “Company”, as applicable.
“Subsidiary Affiliate” means, with respect to PRTH, any corporation, limited liability company, partnership, firm, joint venture,
association, joint-stock company, trust, unincorporated organization, governmental body or other entity that is, directly or
indirectly, controlled by or under common control with PRTH.
WHEREAS, PRTH desires to continue to employ Employee on and after the Effective Date and to enter into this Agreement
with Employee embodying the terms of such employment; and
WHEREAS, Employee desires to continue to accept such employment by entering into this Agreement with the
Company.
NOW, THEREFORE, in consideration of the mutual covenants and promises contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:
1.
Term of Employment. Employee is employed by the Company as its Chief Financial Officer as of the Effective
Date. PRTH hereby agrees to employ Employee, and Employee hereby accepts such employment with PRTH, upon the terms and
subject to the conditions set forth in this Agreement, for a period commencing on the Effective Date and continuing for an initial
term of three (3) years with automatic successive one-year extension terms thereafter unless earlier terminated in accordance with
the provisions of Section 5 (the “Employment Term”).
2.
Title; Duties. Employee shall serve as the Chief Financial Officer. Employee shall report to Chief Executive
Officer (“CEO”). Employee shall provide such management updates, division performance updates, personnel and operational
updates, and any such other updates or business performance reports as reasonably requested by the CEO. Employee further
agrees to devote substantially all of Employee’s working time and attention on a full time basis to such duties and
responsibilities, except for PTO, absence for sickness or similar disability in accordance with the Company’s existing policies and
practices, and reasonable amounts of time spent performing services for any charitable, religious, or community organizations, so
long as such services do not interfere with the performance of Employee’s duties under this Agreement.
3.
No Conflicting Commitments. Employee will not enter into any employment or consulting agreement that, in the
opinion of the Board, conflicts with the Company’s interests or that might impair the performance of Employee’s duties as an
employee of the Company consistent with the terms of this Agreement.
4.
Compensation and Benefits.
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4.1.
Salary & Bonus.
(a)
Base Salary. The Company shall pay Employee for Employee’s services hereunder a base salary at
the initial annual rate of Four Hundred Thousand Dollars ($400,000), payable in regular installments in accordance with
the Company’s usual payment practices and subject to annual review and increase. Such amount (as it may be increased
from time to time) shall be referred to herein as the “Base Salary.” The Company will review the Base Salary of
Employee at least annually and may increase (but not decrease other than pursuant to across-the-board reductions for all
or substantially all employees or personnel similarly situated) the Base Salary based upon the past and projected
performance of the Company.
(b)
Bonus. Beginning with calendar years commencing on and after January 1, 2022, Employee will be
eligible to receive an annual bonus during the Employment Term (“Bonus”). The target Bonus for each calendar year shall
be sixty five percent (65%) of Employee’s Base Salary with the actual amount to be based on the level of achievement of
individual and Company performance criteria established by the Board for such calendar year and paid out as approved by
the Board. Employee will not be eligible to receive any Bonus if Employee is not employed on the last day of the calendar
year for which the Bonus is to be paid, except as provided in Section 5 below. The Bonus will be subject to all applicable
withholdings and will be paid no later than sixty (60) days after the end of the applicable calendar year.
(c)
Equity Incentive. Equity Incentive. During the Employment Term, Employee shall be eligible to
participate in the PRTH Equity Incentive Plan, under the terms and conditions set forth in the PRTH Equity Incentive
Plan. The Company and the Employee shall enter into a restricted stock unit (RSU) award agreement (the “Award
Agreement”) pursuant to which the Employee receives the right to earn up to Six Hundred Thousand Dollars ($600,000)
worth of Restricted Stock Units annually (based on current market value of the Company’s shares on each grant date),
with each annual issuance of Restricted Stock Units subject to a three (3) year vesting schedule as set forth in the Award
Agreement (such shares, the “Restricted Stock Unit Award”). Employee and the Company will negotiate in good faith to
resolve and execute any applicable PRTH Equity Incentive Plan documents, including any applicable Restricted Stock
Unit Award Agreements, within ninety (90) days of the execution of this Agreement. Any Restricted Stock Unit Award
Agreement will be in substantially the form as that attached as Exhibit D.
(d)
Notwithstanding the foregoing or anything in this Agreement or the PRTH Equity Incentive Plan
to the contrary, the unvested portion of any outstanding Restricted Stock Unit award granted to Employee under the
PRTH Equity Incentive Plan shall immediately and automatically become one-hundred percent (100%) vested upon the
closing of any go-private transaction that causes all of the equity to cease to be publicly traded on Nasdaq or any other
public stock exchange or in the event of a Change of Control of the Company. For purposes of this definition, a “Change
of Control” shall have such meaning as defined in the Company’s Credit and Guaranty Agreement with Truist Bank
dated April 27, 2021, as amended from time to time (the “Truist Agreement”).
Employee shall be entitled to receive such employee
4.2.
Employee Benefits. Subject to any contributions therefor generally required of employees of the Company,
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benefits (including fringe benefits, 401(k) plan participation, and life, health, dental, accident and short- and long-term disability
insurance) that the Company may, in its sole and absolute discretion, make available generally to its employees or personnel
similarly situated; provided that, Employee acknowledges and agrees that any such employee benefit plans may be altered,
modified or terminated by the Company in accordance with their terms at any time in its sole discretion without recourse by
Employee.
4.3.
Paid Time Off. Employee shall be entitled to paid time off (“PTO”), accrued in accordance with the
Company’s existing policies and practices, provided that such PTO shall to be taken at such time or times as shall be mutually
convenient for the Company and Employee.
4.4.
Business Expenses and Perquisites. Upon delivery of adequate documentation of expenses incurred in
accordance with the policies and practices of the Company as may from time to time be in effect, Employee shall be entitled to
reimbursement by the Company for reasonable travel and other business expenses incurred by Employee in the performance of
Employee’s duties hereunder.
4.5.
Certain Other Matters. In connection with this Agreement, Employee shall execute and deliver the
Employee Confidentiality, Assignment of Inventions, and Non-Solicitation Agreement (the “Non-Solicitation Agreement”)
attached as Exhibit A.
4.6.
Taxes. All of Employee’s compensation, including, without limitation, the Base Salary and Bonus, shall be
subject to withholding for all applicable federal, state and local employment-related taxes, including income, social security, and
similar taxes.
5.
Termination.
5.1.
Termination by the Company. The Company may terminate Employee’s employment hereunder at any
time with or without cause to be effective immediately upon delivery of notice thereof. The effective date of Employee’s
termination shall be referred to herein as the “Termination Date.” If Employee’s employment is terminated by the Company
pursuant to this Section 5.1, the Company shall pay Employee all earned but unpaid Base Salary prior to the Termination Date
and, if consistent with the Company’s then-current policies and practices, the cash value of any accrued but unused PTO as of the
Termination Date (collectively, “Accrued Obligations”).
(a) Without Cause Termination. In the event Employee’s employment is terminated during the initial
term of this Agreement by the Company or surviving companies (i.e., if the Company is acquired), in addition to the
Accrued Obligations, for reasons other than for cause pursuant to Section 5.1(b) below, the Company shall also pay
Employee (in increments according to the Company’s normal payroll schedule) the Base Salary for a period of six (6)
months following the Termination Date and the earned but unpaid portion of the Bonus for the calendar year preceding
the calendar year in which the Termination Date occurs (collectively, the “Severance Package”), provided that Employee
satisfies the conditions set forth at the end of this paragraph (the “Severance Conditions”). Employee shall not be eligible
for the Severance Package unless and until twenty-eight (28) days (including a seven-day revocation period) after
Employee has first satisfied and continues to satisfy the following Severance Conditions: (1) Employee is in compliance
with the Non-Solicitation Agreement; (2) Employee is in compliance with all of Employee’s obligations under this
Agreement; and (3)
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Employee executes and delivers a waiver and general release of claims in favor of the Company and its affiliates
substantially in the form of Exhibit B.
(b)
For Cause Termination. In the event Employee’s employment is terminated “for cause” (defined
below) by the Company under this Section 5.1(b), the Company shall pay Employee only the Accrued Obligations. For
purposes of this Agreement, “for cause” means: (i) Employee’s arbitrary, unreasonable or willful failure to perform, in
any material respect, the duties and responsibilities required hereunder and assigned by the CEO from time to time
(including, without limitation, continuous constructive collaboration with the Executive Chairman and other members of
the management team) that is not cured by Employee within ten days after the first notice from the Company specifying
the nature of the default in reasonable detail (i.e., how Employee has failed to perform or comply) or, if the default cannot
be cured within such ten-day period, failure of Employee within such ten-day period to commence and pursue curative
action with reasonable diligence; (ii) Employee’s gross negligence or willful misconduct in the performance of
Employee’s duties under this Agreement; (iii) Employee’s commission of an act constituting fraud, embezzlement, breach
of any fiduciary duty owed to the Company or its shareholders or other material dishonesty with respect to the Company;
(iv) Employee’s conviction of, or the filing of a plea of nolo contendere or its equivalent, with respect to a felony or any
other crime involving dishonesty or moral turpitude; (v) substance abuse (for the purposes of this agreement substance
abuse is the use of alcohol or illegal substances including misuse of otherwise legally obtained medications that otherwise
interferes with Employee’s ability to perform the functions of the position) that is materially injurious to the Company
(whether from a monetary perspective or otherwise); or (vi) Employee’s material breach of Employee’s obligations under
this Agreement or the Non-Solicitation Agreement that is not cured by Employee within ten days after the first notice
from the Company specifying the nature of the default in reasonable detail (i.e., how Employee has failed to perform or
comply) or, if the default cannot be cured within such ten-day period, failure of Employee within such ten-day period to
commence and pursue curative action with reasonable diligence and to the reasonable satisfaction of the Company.
5.2.
Termination by Employee; Deemed Termination. Employee’s employment hereunder may be terminated
by Employee at any time upon not less than ninety (90) days’ prior written notice from Employee to the Company. Employee
agrees that such notice period is reasonable and necessary in light of the duties assumed by Employee pursuant to this Agreement
and fair in light of the consideration Employee is receiving pursuant to this Agreement. In the event of such notice by Employee,
the Company may limit the Employee’s activities during the notice period or the Company may impose any other restrictions it
deems necessary and reasonable, including relieving Employee of all duties during the notice period.
(a)
Termination for Good Reason. Notwithstanding the foregoing, Employee shall be deemed to have
terminated Employee’s employment with the Company for “good reason” and, in such case, in addition to the Accrued
Obligations, Employee shall be entitled to the Severance Package (provided Employee satisfies the Severance Conditions)
in the event any of the following occurs and Employee provides to the Company Notice of Termination (as defined in
Section 5.3) during the time frame specified above or, if later, after any applicable cure period: (i) the Company reduces
Employee’s Base Salary or benefits (other than in connection with a proportional reduction of the base salaries or benefits
in excess of twenty percent (20%) of all executive employees of the Company); or (ii) the Company materially breaches
any of
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Sections 4.1 through 4.4 hereof; provided that any of the events described in clauses (i) or (ii) of this Section 5.2(a) shall
be deemed termination for “good reason” only if the Company fails to cure such event within ten days after a written
notice is delivered by Employee to the Company specifically identifying the event that may be deemed termination for
“good reason” pursuant to this Section 5.2(a) or, if the default cannot be cured within such ten-day period, failure of the
Company within such ten-day period to commence and pursue curative action with reasonable diligence and to the
reasonable satisfaction of Employee.
(b)
Termination Without Good Reason. In the event Employee terminates Employee’s employment
with the Company without “good reason” (as defined in Section 5.2(a)), the Company shall only pay Employee the
Accrued Obligations.
5.3.
Notice of Termination. Any termination of employment by the Company or Employee shall be
communicated by written Notice of Termination to the other Party in accordance with Section 9 hereof. For purposes of this
Agreement, a “Notice of Termination” means a notice that shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of
employment under the provision so indicated.
5.4.
the termination of this Agreement.
Survival. The provisions of Sections 4, 5, and 6 hereof and the Non-Solicitation Agreement shall survive
6.
Confidentiality Agreement. In connection with this Agreement, Employee has executed the Non-Solicitation
Agreement, which is incorporated herein by reference and made a part of this Agreement.
7.
Return of Company Property. Employee agrees that upon termination of Employee’s employment hereunder,
Employee shall return immediately to the Company any proprietary materials, any materials containing Confidential Information
(as defined in the Non-Solicitation Agreement) and any other Company or Company affiliate’s property then in Employee’s
possession or under Employee’s control, including without limitation all notes, customer, voluntary benefits carrier, employer,
employee and broker lists and contact information, drawings, memoranda, magnetic disks or tapes, or other recording media
containing such Confidential Information, whether alone or together with non-confidential information, all documents, reports,
files, memoranda, records, software, credit cards, door and file keys, telephones, personal digital assistants, computers, tablet
devices, computer access codes, disks and instructional manuals, or any other physical property that Employee received, had
access to, prepared, or helped prepare in connection with Employee’s employment under this Agreement. Following termination,
Employee shall not retain any copies, duplicates, reproductions, or excerpts of Confidential Information, nor shall Employee
show or give any of the above to any third party. Employee further agrees that Employee shall not retain or use for Employee’s
account at any time any trade name, trademark, service mark, logo or other proprietary business designation used or owned in
connection with the business of the Company or any affiliate of the Company.
8.
Specific Performance; Remedies. Employee agrees that, in the event of a breach or threatened breach of the Non-
Solicitation Agreement, in addition to any remedies at law, the Company, without posting any bond, shall be entitled to obtain
equitable relief in the form of
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specific performance, temporary restraining orders, temporary or permanent injunctions or any other equitable remedy that may
then be available.
9.
Notices. Any notice hereunder by either Party to the other shall be given in writing by personal delivery, email
(with confirmation from the receiving party), facsimile, overnight courier or certified mail, return receipt requested, addressed, if
to the Company, to the attention of the CEO at the Company’s executive offices or to such other address as the Company may
designate in writing at any time or from time to time to Employee with a copy (which shall not constitute notice) to the
Company’s General Counsel at the Company’s executives offices, and if to Employee, to Employee’s most recent address and
contact information on file with the Company. Notice shall be deemed given, if by personal delivery or by overnight courier, on
the date of such delivery or, if by facsimile, on the business day following receipt of delivery confirmation, if by email, on the
date confirmation from the receiving Party is received by the Party providing notice, or, if by certified mail, on the date shown on
the applicable return receipt.
10.
Successors and Assigns. This Agreement shall inure to the benefit of the Company and its respective successors
and assigns. This Agreement may not be assigned by either Party without the prior written consent of the other Party; provided
that the Company may assign this Agreement without Employee’s consent to an affiliate of the Company (or its successor),
provided, however, that in the event of a sale of all or substantially all of the assets of the Company or any direct or indirect
division or subsidiary thereof to which employee’s employment primarily relates, the Company may provide that this Agreement
will be assigned to, and assumed by, the acquiror of such assets, it being agreed that in such circumstances, Employee’s consent
will not be required in connection therewith. This Agreement shall be binding on the Parties’ permitted successors and assigns.
11.
Entire Agreement. This Agreement, the Non-Solicitation Agreement, and the Company’s policies and procedures
as approved by the Company and in effect and as amended from time to time constitute the entire agreement between the Parties
with respect to the subject matter hereof. To the extent there is any conflict between this Agreement and the Non-Solicitation
Agreement, this Agreement shall prevail.
12.
Expenses. The Parties shall each pay their own respective expenses incident to the enforcement or interpretation
of, or dispute resolution with respect to, this Agreement, including all fees and expenses of their counsel for all activities of such
counsel undertaken pursuant to this Agreement.
13.
Governing Law. THIS AGREEMENT (INCLUDING ANY CLAIM OR CONTROVERSY ARISING OUT OF
OR RELATING TO THIS AGREEMENT) SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF GEORGIA, WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES THAT WOULD
RESULT IN THE APPLICATION OF ANY LAW OTHER THAN THE LAWS OF THE STATE OF GEORGIA. ANY
DISPUTE OR CLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR CLAIM OF BREACH HEREOF
SHALL BE BROUGHT EXCLUSIVELY IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT
OF GEORGIA, ATLANTA DIVISION, TO THE EXTENT FEDERAL JURISDICTION EXISTS, AND IN THE SUPERIOR
COURT OF FULTON COUNTY, GEORGIA, BUT ONLY IN THE EVENT FEDERAL JURISDICTION DOES NOT EXIST,
AND ANY APPLICABLE APPELLATE COURTS. BY EXECUTION OF THIS AGREEMENT, THE PARTIES HERETO,
AND THEIR RESPECTIVE AFFILIATES,
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CONSENT TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS, AND WAIVE ANY RIGHT TO CHALLENGE
JURISDICTION OR VENUE IN SUCH COURT WITH REGARD TO ANY SUIT, ACTION, OR PROCEEDING UNDER OR
IN CONNECTION WITH THIS AGREEMENT.
14. Waiver of Jury Trial. EACH PARTY HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING
DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY
(A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO
ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HAVE BEEN
INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION.
15. Waivers and Further Agreements. Any waiver of any terms or conditions of this Agreement shall not operate as a
waiver of any other breach of such terms or conditions or any other term or condition, nor shall any failure to enforce any
provision hereof operate as a waiver of such provision or of any other provision hereof; provided, that no such written waiver,
unless it, by its own terms, explicitly provides to the contrary, shall be construed to effect a continuing waiver of the provision
being waived and no such waiver in any instance shall constitute a waiver in any other instance or for any other purpose or impair
the right of the Party against whom such waiver is claimed in all other instances or for all other purposes to require full
compliance with such provision. Each Party agrees to execute all such further instruments and documents and to take all such
further action as the other Party may reasonably request to effectuate the terms and purposes of this Agreement.
16.
Amendments. This Agreement may not be amended, nor shall any waiver, change, modification, consent or
discharge be effected, except by an instrument in writing executed by both Parties.
17.
Severability; Headings. If any portion of this Agreement is held invalid or inoperative, the other portions of this
Agreement shall be deemed valid and operative and, so far as is reasonable and possible, effect shall be given to the intent
manifested by the portion held invalid or inoperative. The section headings are for reference purposes only and are not intended
in any way to describe, interpret, define or limit the extent of the Agreement or of any part hereof.
18.
Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same instrument. This Agreement may be executed by facsimile
and electronically transmitted signature (e.g., portable document format) and such signatures shall be deemed to be originals.
19.
Legal Advice. Employee acknowledges that Employee has been advised to seek the advice of independent legal
counsel and has either obtained such advice or has voluntarily and without compulsion elected to enter into and be bound by the
terms of this Agreement without such advice of independent legal counsel.
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[Signature Page Follows]
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Execution Version
IN WITNESS WHEREOF, the Parties have duly executed and delivered this Employment Agreement as of the
Effective Date.
EMPLOYEE:
Timothy O’Leary
COMPANY:
Priority Technology Holdings, Inc.
By:
Name:
Title:
DOC ID
Signature Page to Employment Agreement
Execution Version
Exhibit A
EMPLOYEE CONFIDENTIALITY, ASSIGNMENT OF INVENTIONS,
AND NON-SOLICITATION AGREEMENT
Timothy O’Leary
In consideration of my employment with and continued employment by Priority Technology Holdings, Inc., a Delaware
corporation (together with its affiliates, the “Company”), and for other valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, I agree as follows:
Confidentiality
I understand that the Company and its affiliates continually obtain and develop valuable proprietary and confidential
information concerning their business, business relationships, and financial affairs, (the “Confidential Information”), that has or
may become known to me in connection with my employment. By way of illustration but not limitation, Confidential Information
shall include Inventions (as defined below), trade secrets, technical information, know-how, research and development activities,
product, service and marketing plans, business plans, budgets and unpublished financial statements, licenses, prices and costs,
customer and supplier information, information (including contact coordinates) for employers and employees, and information
disclosed to the Company or to me by third parties of a proprietary or confidential nature or under an obligation of confidence.
Confidential Information is contained in various media, including without limitation, patent applications, computer programs in
object and source code, flow charts and other program documentation, manuals, plans, drawings, designs, technical
specifications, supplier, customer, carrier and claimant lists, claimant case files, internal financial data and other documents and
records of the Company.
Confidential Information shall not include information that I can demonstrate: (1) is or becomes generally known within
the Company’s industry through no fault of mine or any other person with an obligation of confidentiality to the Company; (2) is
lawfully and in good faith made available to me by a third party who did not derive it from the Company and who imposes no
obligation of confidence on me; or (3) is required to be disclosed by a governmental authority or by order of a court of competent
jurisdiction, provided that such disclosure is subject to all applicable governmental or judicial protection available for like
material and reasonable advance notice is given to the Company.
I represent and warrant that: (1) I am not subject to any legal or contractual duty or agreement that would prevent or
prohibit me from performing the duties contemplated by my employment agreement with the Company or otherwise contained
herein, and (2) I am not in breach of any legal or contractual duty or agreement, including any agreement concerning trade secrets
or confidential information owned by any other party.
I agree that I will not: (1) use, disclose, or reverse engineer any Confidential Information for any purpose other than the
Business (as defined below), except as authorized in writing by the Company; (2) during my employment with the Company, use,
disclose, or reverse engineer (a) any confidential information or trade secrets of any former employer or third party or (b) any
works of authorship developed in whole or in part by me during any former employment or for any other party, unless authorized
in writing by the former employer or third party; or (3) upon my resignation or termination (a) retain any Confidential
Information, including any copies
existing in any form (including electronic form), which are in my possession, custody, or control, or (b) destroy, delete, or alter
any Confidential Information without the Company’s written consent.
I acknowledge that the confidentiality, property, and proprietary rights protections contained in this Agreement are in
addition to, and not exclusive of, any and all other rights to which the Company may be entitled under federal and state law,
including without limitation rights provided under copyright laws, trade secret and confidential information laws, and laws
concerning fiduciary duties.
I acknowledge that all Confidential Information, whether or not in writing and whether or not labeled or identified as
confidential or proprietary, is and shall remain the exclusive property of the Company or the third party providing such
Confidential Information to myself or the Company.
I agree to exercise all reasonable precautions to protect the integrity and confidentiality of Confidential Information in my
possession and not to remove any materials containing Confidential Information from the Company’s premises except to the
extent necessary for my employment. Upon the termination of my employment, or at any time upon the Company’s request, I
shall return immediately to the Company any and all materials containing any Confidential Information then in my possession or
under my control.
Nothing contained herein or in my employment agreement with the Company is intended to or will be used in any way to limit
your rights to communicate or cooperate with, or provide information to, a governmental agency or entity as provided for,
protected under, or warranted by whistleblower or other provisions of applicable law or regulation.
Assignment of Inventions
I agree promptly to disclose to the Company any and all discoveries, inventions, developments, original works of authorship,
software programs, software and systems documentation, trade secrets, technical data, and know-how that are conceived,
devised, invented, developed or reduced to practice or tangible medium by me, under my direction or jointly with others in the
course and scope of my employment by the Company, whether or not during normal working hours or on the premises of the
Company, which relate directly or indirectly to the business of the Company or its affiliates (collectively, the “Business”) and
arise out of my employment with the Company (hereinafter “Inventions”).
I hereby assign to the Company (or its designated affiliates) all of my right, title, and interest to the Inventions and any and all
related patent rights, copyrights, and applications and registrations therefor. During and after my employment, I shall cooperate
with the Company, at the Company’s expense, in obtaining proprietary protection for the Inventions, and I shall execute all
documents that the Company shall reasonably request in order to perfect the Company’s (or its designated affiliates’) rights in the
Inventions. I understand that, to the extent this Agreement shall be construed in accordance with the laws of any state which
limits the assignability to the Company of certain employee inventions, this Agreement shall be interpreted not to apply to any
such invention that a court rules or the Company agrees is subject to such state limitation.
I acknowledge that all original works of authorship made by me within the scope of my employment that are protectable by
copyright are intended to be “works made for hire”, as that
term is defined in Section 101 of the United States Copyright Act of 1976 (the “Act”), and shall be the property of the Company,
and the Company shall be the sole author within the meaning of the Act. I hereby waive all claims to moral rights in any
Inventions. I further represent that there are no inventions made, conceived or first reduced to practice by me, under my direction
or jointly with others prior to my employment with the Company.
Restrictive Covenants
I acknowledge and agree that: (1) my position is a position of trust and responsibility with access to Confidential
Information; (2) the Confidential Information, and the relationship between the Company, its affiliates, and the employees and
customers of each, are valuable assets of the Company that may not be used for any purpose other than the Business; (3) the
names of any customers of the Company or its affiliates are considered Confidential Information that constitutes valuable,
special, and unique property of the Company; (4) customer lists and customer information that have been compiled by the
Company or its affiliates represent a material investment of the Company’s time and money; (5) the Company will invest its time
and money in the development of my skills in the Business; and (6) the restrictions contained in this herein, including without
limitation the restrictive covenants set forth in this Agreement, are reasonable and necessary to protect the legitimate business
interests of the Company and its affiliates, and they will not impair or infringe upon my right to work or earn a living when my
employment with the Company ends.
I acknowledge that (1) the markets served by the Company are intended to be national in scope and not dependent on the
geographic location of the executive personnel or the businesses by which they are employed, and (2) the below covenants are
manifestly reasonable on their face. The Company and I expressly agree that such restrictions have been designed to be
reasonable and no greater than is required for the protection of the Company and are a significant element of the consideration
hereunder. If the final judgment of a court of competent jurisdiction declares that any term or provision contained herein is
invalid or unenforceable, the Company and I agree that the court making the determination of invalidity or unenforceability shall
have the power to reduce the scope, duration, or area of the term or provision, to delete specific words or phrases, or to replace
any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision, and the covenants and agreements contained herein
shall be enforceable as so modified to cover the maximum duration, scope, or area permitted by law.
Non-Solicitation of Customers
I agree that, while I am employed by the Company and for a period of two years following any termination or cessation of
such employment (such period, the “Non-Interference Period”), I shall not solicit, divert, or take away, or attempt to divert or take
away, the business or patronage of any of the referral sources, clients, customers, or accounts of the Company for the purpose of
selling or providing any products or services competitive with the Business.
Non-Solicitation and Non-Hire of Employees
While I am employed by the Company and during the Non-Interference Period, I will not, directly or indirectly, for my benefit
or for the benefit of any person other than the Company, (1) solicit or assist any person to solicit, recruit, or induce any officer,
director, Executive Chairman, executive, employee or consultant of the Company or its affiliates to (a) terminate his or her
employment or relationship with the Company or its affiliates, or (b) work for any other person,
or (2) hire or cause to be hired any person who is then, or who will have been at any point in time during the Non-Interference
Period, an officer, director, Executive Chairman, executive, employee, or consultant of the Company or its affiliates.
Non-Competition
While I am employed by the Company and during the Non-Interference Period, I will not engage or participate, directly
or indirectly, as principal, agent, executive, director, proprietor, joint venturer, trustee, employee, employer, consultant,
stockholder, partners, or in any other capacity whatsoever in the conduct or management of, or fund, invest in, lend to, own any
stock or any other equity or debt investment in, or provide any services of any nature whatsoever to or in respect of any business
that is competitive with or in the same line of business as the Business in the United States, provided that nothing in this
Agreement shall prohibit me from being passive beneficial owner of less than two percent of the outstanding stock of any
publicly-traded corporation.
Separate Obligations
I hereby acknowledge that the foregoing obligations are separate and distinct (and that I have received or will receive separate
consideration for the foregoing obligations) from and not in derogation of any obligations I have undertaken in connection with
any other agreements between myself and the Company.
Other Agreements
I hereby represent to the Company that I am not bound by any agreement or any other previous or existing business
relationship that conflicts with or prevents the full performance of my duties and obligations to the Company (including my
duties and obligations under this or any other agreement with the Company) during my employment. All existing business
relationships and agreements that I have with persons other than the Company are set forth on Schedule A hereto.
General
This Agreement may not be assigned by either party, except that the Company may assign this Agreement to its affiliates or in
connection with the merger, consolidation or sale of all or substantially all of its business or assets. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their respective successors and other legal representatives
and, to the extent that any assignment hereof is permitted hereunder, their assignees. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same
instrument. This Agreement may be executed by facsimile or electronically transmitted signature (e.g., portable document
format), and such signatures shall be deemed to be originals.
This Agreement supersedes all prior agreements, written or oral, with respect to the subject matter of this Agreement. This
Agreement may be changed only by a written instrument signed by both parties hereto.
In the event that any one or more of the provisions contained herein shall, for any reason, be held to be invalid, illegal, or
unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provisions of this
Agreement, and all other provisions
shall remain in full force and effect. If any of the provisions of this Agreement is held to be excessively broad, it shall be
reformed and construed by limiting and reducing it so as to be enforceable to the maximum extent permitted by law. I agree that
should I violate any obligation imposed on me in this Agreement, I shall continue to be bound by the obligation until a period
equal to the term of such obligation has expired without violation of such obligation.
No delay or omission by the Company in exercising any right under this Agreement will operate as a waiver of that or any
other right. A waiver or consent given by the Company on any occasion is effective only in that instance and will not be
construed as a bar to or waiver of any right on any other occasion.
I acknowledge that the restrictions contained in this Agreement are necessary for the protection of the business and goodwill of
the Company and the Company’s legitimate business interests, are reasonable for such purpose, and are reasonable and valid in
geographical and temporal scope and in all other respects and not overly broad or unduly burdensome. I agree that any breach of
this Agreement by me will cause irreparable damage to the Company and that, in the event of such breach, the prevailing party in
any such enforcement action shall be entitled, in addition to monetary damages and any other remedies available to the prevailing
party under this Agreement and at law, to equitable relief, including injunctive relief, and to payment of all costs incurred by the
prevailing party in enforcing or defending the provisions of this Agreement, including reasonable attorneys’ fees and costs. I
agree that should I violate any obligation imposed on me in this Agreement, I shall continue to be bound by the obligation until a
period equal to the term of such obligation has expired without violation of such obligation.
This Agreement shall be construed as a sealed instrument and shall in all events and for all purposes be governed by, and
construed in accordance with, the laws of the State of Georgia without regard to any choice of law principles that would dictate
the application of the laws of another jurisdiction.
[Signature Page Follows]
Execution Version
I HAVE READ ALL OF THE PROVISIONS OF THIS EMPLOYEE CONFIDENTIALITY, ASSIGNMENT OF
INVENTIONS, AND NON-SOLICITATION AGREEMENT AND I UNDERSTAND AND AGREE TO EACH OF SUCH
PROVISIONS EFFECTIVE AS OF THE DATE FIRST SET FORTH ABOVE.
Timothy O’Leary
Acknowledged and Agreed to by:
Priority Technology Holdings, Inc.
By:
Name:
Title:
Signature Page to
Employee Confidentiality, Assignment of Inventions, and Non-Solicitation Agreement
Exhibit B
Form of Release
[DATE]
Priority Technology Holdings, Inc.
Attn: General Counsel
2001 Westside Parkway, Suite 155
Alpharetta, GA 30004
(together with its affiliates, the “Company”)
Except as set forth in the Employment Agreement by and between myself (the “Employee” or “I”) and the Company dated as of
___________ (the “Employment Agreement”), I am entitled to no severance or termination payment or benefits. I acknowledge
the Company has no legal obligation to provide me with the benefits and consideration outlined in the Employment Agreement
except as part of this release letter and in consideration for my signing of this release letter. I have been notified of my right to
review this release letter with counsel, and I have received, if I so chose, legal advice concerning this release letter.
General Release. Employee acknowledges that the Company has no legal obligation to provide Employee with these benefits
except as part of the Employment Agreement and in consideration for Employee signing this release letter and the waiver and
release of claims contained herein. In return for these benefits, Employee irrevocably and unconditionally releases the Company
and all affiliated companies, predecessors and successors of each and each such entity’s officers, directors, employees, agents,
attorneys or insurers in their individual and representative capacities (collectively referred to as the “Company Parties”) from any
and all claims, causes of action, complaints, damages, liabilities and expenses whatsoever, whether known or unknown, direct or
indirect, at law or in equity and whether sounding in contract, tort or other theory (collectively, “Claims”) that Employee may
have now, have had in the past or have in the future for or by reason of any matter, cause or thing whatsoever that has happened,
developed or occurred on or before the date hereof, including without limitation in connection with Employee’s employment or
termination of employment with the Company. This release of the Company includes any Claims that Employee might have for
re-employment or for additional compensation or benefits (except as specifically stated below), and applies to Claims that
Employee might have under federal, state or local law or ordinance dealing with employment, contract, wage and hour, tort, or
civil rights matters, including, but not limited to, applicable local and state civil rights matters, including, but not limited to,
applicable local and state civil rights laws or wage payment laws, Employee Retirement Income Security Act, Title VII of the
Civil Rights Act of 1964, the Civil Rights Acts (42 USC § 1981-1988), the Civil Rights Act of 1991, the Age Discrimination in
Employment Act of 1967 (the “ADEA”), Section 806 of the Sarbanes Oxley Act of 2002 and any other Claims alleging
retaliation of any nature, the Vietnam Era Veterans Readjustment Assistance Act, the Uniformed Services Employment and
Reemployment Rights Act of 1994, the Older Workers Benefit Protection Act, the Equal Pay Act of 1963, the Rehabilitation Act
of 1973, the Americans with Disabilities Act of 1990, the Equal Pay Act of 1963, the Fair Labor Standards Act, sections 503 and
504 of the Vocational Rehabilitation Act, the Family and Medical Leave Act, Executive Order 11246, and the Consolidated
Omnibus Budget Reconciliation Act of 1985 (“COBRA”), all as amended from time to time, together with all laws and
regulations promulgated thereunder. Employee represents that there are no claims, complaints or charges pending against the
Company in which Employee is a party or complainant, or any unasserted Workers’ Compensation claims.
Employee further agrees not to institute any Claim to challenge the validity of this release or the circumstances surrounding its
execution. This is a general release, including a waiver of Claims for age discrimination under federal and state statutes, such as
the ADEA. Employee understands the waiver and release of claims does not affect rights or claims arising under the ADEA or
the Older Workers Benefit Protection Act after the date of the execution of this release letter.
Covenant Not to Sue. Employee represents and warrants that Employee has not filed any Claims against the Company or any of
the Company Parties with any local, state or federal court or administrative agency. Employee agrees and covenants not to sue or
bring any Claims against the Company or any of the Company Parties with respect to any matters arising out of or relating to
Employee’s employment with the Company or separation from the Company, or any Claims that as a matter of law cannot be
released, such as under workers’ compensation, for unemployment benefits or any Claims related to the Company’s future
involvement with, if any, Employee’s 401(k)/retirement plans with the Company. Except as set forth herein, in the event that
Employee on Employee’s behalf institutes any such action, that Claim shall be dismissed upon presentation of this release letter,
and Employee shall reimburse the Company for all legal fees and expenses incurred in defending such Claim and obtaining its
dismissal.
Exclusion. Nothing in this release letter shall preclude Employee from filing a charge or complaint, including a challenge to the
validity of this release letter, with the Equal Employment Opportunity Commission or any state anti-discrimination agency or
from participating or cooperating in any investigation or proceeding conducted by any of such agencies. In the event that a charge
or complaint is filed with any administrative agency by Employee or in the event of an authorized investigation, charge or lawsuit
filed by any administrative agency, Employee expressly waives and shall not accept any monetary awards or damages, costs or
attorneys’ fees of any sort therefrom against the Company or any of the Releasees.
Waiting Period. I understand I have a period of up to 21 days to consider this release letter and that I have been advised to speak
with an attorney. I agree this release letter is written in a manner that I understand what I am releasing. I understand that this
release must be signed no later than 21 days from the date first set forth above for me to be entitled to the benefits of the
Severance Package (as defined in the Employment Agreement). I agree that upon signing this release letter I become bound by its
terms unless I revoke the release contained herein. I understand I may revoke the release contained herein within seven days after
signing it; and that, unless I so revoke it, the release contained herein will be fully effective seven days after I have signed it.
Once this release letter is fully effective, the Severance Package will be forwarded by U.S. mail according to the schedule in the
terms of the Employment Agreement.
Yours truly,
Date: Signature:
Print Name: Timothy O’Leary
Exhibit D
Form of Restricted Stock Unit Award Agreement
[to be attached]
Subsidiaries of Priority Technology Holdings, Inc.
Exhibit 21.1
Priority Technology Holdings, Inc.
Priority Holdings, LLC
Priority Commercial Payments, LLC
Priority Integrated Partner Holdings, LLC
Priority Hospitality Technology, LLC
Priority Payright Health Solutions, LLC
Priority Real Estate Technology, LLC
Priority Payment Systems, LLC
Priority Finance, LLC
Priority Newco, LLC
Priority Tech Ventures, LLC
Priority Ovvi, LLC
Priority Wave, LLC
Priority Build, LLC
Priority Property Rev, LLC
Priority Account Administration Services, Inc.
Finxera Holdings, Inc.
Finxera Intermediate, LLC
Finxera, Inc.
Finxera India Private Limited (India Plc)
Enhanced Capital RETC Fund XXI, LLC
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the following Registration Statements:
(1) Registration Statement (Form S-3 No. 333-226713) of Priority Technology Holdings, Inc.,
(2) Registration Statement (Form S-8 No. 333-230620) of Priority Technology Holdings, Inc.,
(3) Registration Statement (Form S-8 No. 333-264064) of Priority Technology Holdings, Inc.,
(4) Registration Statement (Form S-8 No. 333-268918 of Priority Technology Holdings, Inc., and
(5) Registration Statement (Form S-8 No. 333-268919) of Priority Technology Holdings, Inc.;
of our report dated March 23, 2023, with respect to the consolidated financial statements of Priority Technology Holdings, Inc. included in this Annual
Report (Form 10-K) of Priority Technology Holdings, Inc. for the year ended December 31, 2022.
/s/ Ernst & Young LLP
Atlanta, Georgia
March 23, 2023
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO
EXCHANGE ACT RULE 13a-14(a) AS ADOPTED PURSUANT TO
SECTION 303 OF THE SARBANES-OXLEY ACT OF 2002
I, Thomas C. Priore, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Priority Technology Holdings, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal
control over financial reporting.
March 23, 2023
/s/ Thomas C. Priore
Thomas C. Priore
President, Chief Executive Officer and Chairman
(Principal Executive Officer)
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO
EXCHANGE ACT RULE 13a-14(a) AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Timothy O'Leary, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Priority Technology Holdings, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal
control over financial reporting.
March 23, 2023
/s/ Timothy O'Leary
Timothy O'Leary
Chief Financial Officer
(Principal Financial Officer)
Exhibit 32
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K of Priority Technology Holdings, Inc. (the "Company") for the year ended 12/31/2022 as filed with
the Securities and Exchange Commission (the "Report"), each of the undersigned, on the dates indicated below, hereby certifies pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.
March 23, 2023
March 23, 2023
/s/ Thomas C. Priore
Thomas C. Priore
President, Chief Executive Officer and Chairman
(Principal Executive Officer)
/s/ Timothy O'Leary
Timothy O'Leary
Chief Financial Officer
(Principal Financial Officer)
The foregoing certifications are being furnished solely pursuant to 18 U.S.C. § 1350 and are not being filed as part of the Report on Form 10-K or as a
separate disclosure document.