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

Strong Third Quarter Growth Driven by Performance Across Diverse Business Segments

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

Highlights of Consolidated Results

Third Quarter 2023 Compared with Third Quarter 2022

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

  • Revenue of $189.0 million increased 13.6% from $166.4 million
  • Adjusted gross profit (a non-GAAP measure1) of $72.3 million increased 23.6% from $58.5 million
  • Adjusted gross profit margin (a non-GAAP measure1) of 38.3% increased 310 basis points from 35.2%
  • Operating income of $23.5 million increased 66.7% from $14.1 million
  • Adjusted EBITDA (a non-GAAP measure1) of $45.0 million increased 28.2% from $35.1 million

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

(1)

 

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

Updated Full Year 2023 Financial Guidance

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

  • Revenue forecast revised to range between $755 million to $765 million, a growth rate of 14% to 15%, compared to fiscal results 2022 results
  • Adjusted EBITDA (a non-GAAP measure) forecast to range between $167 million to $170 million, a growth rate of 19% to 21% compared to fiscal 2022 results

Conference Call

Priority's leadership will host a conference call on Thursday, November 9, 2023 at 11:00 a.m. EST to discuss its third quarter 2023 financial results. Participants can access the call by phone in the U.S. or Canada at (833) 636-1319 or internationally at (412) 902-4286.

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

An audio replay of the call will be available shortly after the conference call until November 16, 2023 at 2:00 p.m. EST. To listen to the audio replay, dial (877) 344-7529 or (412) 317-0088 and enter conference ID number 2955856. Alternatively, you may access the webcast replay in the "Investor Relations" section of the Company's website at www.prioritycommerce.com.

Non-GAAP Financial Measures

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

Adjusted Gross Profit and Adjusted Gross Profit Margin

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

 

 

 

 

(in thousands)

Three Months Ended September 30,

 

 

2023

 

 

 

2022

 

Revenues

$

189,015

 

 

$

166,417

 

Cost of revenue (excluding depreciation and amortization)

 

(116,682

)

 

 

(107,958

)

Adjusted gross profit

$

72,333

 

 

$

58,459

 

Adjusted gross profit margin

 

38.3

%

 

 

35.1

%

Depreciation and amortization of revenue generating assets

 

(3,000

)

 

 

(2,629

)

Gross profit

$

69,333

 

 

$

55,830

 

Gross profit margin

 

36.7

%

 

 

33.5

%

EBITDA and Adjusted EBITDA

EBITDA and adjusted EBITDA are performance measures. EBITDA is earnings before interest, income tax, and depreciation and amortization expenses ("EBITDA"). Adjusted EBITDA begins with EBITDA but further excludes certain non-cash costs, such as stock-based compensation and the write-off of the carrying value of investments or other assets, as well as debt extinguishment and modification expenses and other expenses and income items considered non-recurring, such as acquisition integration expenses, certain professional fees, and litigation settlements. We review the non-GAAP adjusted EBITDA measure to evaluate our business and trends, measure our performance, prepare financial projections, allocate resources, and make strategic decisions.

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

(in thousands)

Three Months Ended September 30,

 

 

2023

 

 

 

2022

 

Net loss

$

(87

)

 

$

(792

)

Interest expense

 

19,997

 

 

 

13,412

 

Income tax expense

 

4,328

 

 

 

1,691

 

Depreciation and amortization

 

17,275

 

 

 

17,817

 

EBITDA

 

41,513

 

 

 

32,128

 

Non-recurring gain

 

(166

)

 

 

 

Selling, general and administrative (non-recurring)

 

2,114

 

 

 

760

 

Non-cash stock-based compensation

 

1,501

 

 

 

1,104

 

Change in the fair value of contingent consideration

 

 

 

 

1,072

 

Adjusted EBITDA

$

44,962

 

 

$

35,064

 

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

(in thousands)

Three Months Ended September 30,

 

 

2023

 

 

2022

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

 

 

 

Certain legal fees

$

656

 

$

199

Professional, accounting and consulting fees

 

1,364

 

 

95

Other expenses, net

 

94

 

 

466

 

$

2,114

 

$

760

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

About Priority Technology Holdings, Inc.

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

Forward-Looking Statements

This press release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, statements about future financial and operating results, our plans, objectives, expectations and intentions with respect to future operations, products and services, and other statements identified by words such as "may," "will," "should," "anticipates," "believes," "expects," "plans," "future," "intends," "could," "estimate," "predict," "projects," "targeting," "potential" or "contingent," "guidance," "outlook" or words of similar meaning. These forward-looking statements include, but are not limited to, our 2023 outlook and statements regarding our market and growth opportunities. Such forward-looking statements are based upon the current beliefs and expectations of our management and are inherently subject to significant business, economic and competitive risks, trends and uncertainties that could cause actual results to differ materially from those projected, expressed, or implied by such forward-looking statements. Our actual results could differ materially, and potentially adversely, from those discussed or implied herein.

We caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. All forward-looking statements are expressly qualified in their entirety by these cautionary statements. You should evaluate all forward-looking statements made in this press release in the context of the risks and uncertainties disclosed in our SEC filings, including our most recent Annual Report on Form 10-K filed with the SEC on March 23, 2023. These filings are available online at www.sec.gov or www.prioritycommerce.com.

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

Priority Technology Holdings, Inc.

Unaudited Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except per share amounts)

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

2023

 

 

 

2022

 

 

 

2023

 

 

 

2022

 

Revenues

$

189,015

 

 

$

166,417

 

 

$

556,333

 

 

$

486,086

 

Operating expenses

 

 

 

 

 

 

 

Cost of revenue (excludes depreciation and amortization)

 

116,682

 

 

 

107,958

 

 

 

353,929

 

 

 

320,187

 

Salary and employee benefits

 

20,129

 

 

 

16,384

 

 

 

58,286

 

 

 

48,231

 

Depreciation and amortization

 

17,275

 

 

 

17,817

 

 

 

53,303

 

 

 

52,675

 

Selling, general and administrative

 

11,423

 

 

 

10,178

 

 

 

31,328

 

 

 

27,027

 

Total operating expenses

 

165,509

 

 

 

152,337

 

 

 

496,846

 

 

 

448,120

 

Operating income

 

23,506

 

 

 

14,080

 

 

 

59,487

 

 

 

37,966

 

Other (expense) income

 

 

 

 

 

 

 

Interest expense

 

(19,997

)

 

 

(13,412

)

 

 

(55,461

)

 

 

(37,282

)

Other income, net

 

732

 

 

 

231

 

 

 

1,319

 

 

 

311

 

Total other expense, net

 

(19,265

)

 

 

(13,181

)

 

 

(54,142

)

 

 

(36,971

)

Income before income taxes

 

4,241

 

 

 

899

 

 

 

5,345

 

 

 

995

 

Income tax expense

 

4,328

 

 

 

1,691

 

 

 

6,550

 

 

 

1,833

 

Net loss

 

(87

)

 

 

(792

)

 

 

(1,205

)

 

 

(838

)

Less: Dividends and accretion attributable to redeemable senior preferred stockholders

 

(12,192

)

 

 

(9,466

)

 

 

(35,252

)

 

 

(26,415

)

Net loss attributable to common stockholders

 

(12,279

)

 

 

(10,258

)

 

$

(36,457

)

 

$

(27,253

)

Other comprehensive loss

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

(65

)

 

 

 

 

 

(34

)

 

 

 

Comprehensive loss

$

(12,344

)

 

$

(10,258

)

 

$

(36,491

)

 

$

(27,253

)

 

 

 

 

 

 

 

 

Loss per common share:

 

 

 

 

 

 

 

Basic and diluted

$

(0.16

)

 

$

(0.13

)

 

$

(0.47

)

 

$

(0.35

)

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

Basic and diluted

 

78,381

 

 

 

77,984

 

 

 

78,270

 

 

 

78,392

 

Priority Technology Holdings, Inc.

Unaudited Consolidated Balance Sheets

(in thousands)

 

 

September 30, 2023

 

December 31, 2022

Assets

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

24,595

 

 

$

18,454

 

Restricted cash

 

13,890

 

 

 

10,582

 

Accounts receivable, net of allowances

 

61,134

 

 

 

78,113

 

Prepaid expenses and other current assets

 

13,274

 

 

 

11,832

 

Current portion of notes receivable, net of allowance

 

1,561

 

 

 

1,471

 

Settlement assets and customer/subscriber account balances

 

712,170

 

 

 

532,018

 

Total current assets

 

826,624

 

 

 

652,470

 

Notes receivable, less current portion

 

3,616

 

 

 

3,191

 

Property, equipment and software, net

 

41,851

 

 

 

34,687

 

Goodwill

 

375,794

 

 

 

369,337

 

Intangible assets, net

 

285,490

 

 

 

288,794

 

Deferred income taxes, net

 

18,879

 

 

 

16,447

 

Other noncurrent assets

 

11,145

 

 

 

8,437

 

Total assets

$

1,563,399

 

 

 

1,373,363

 

Liabilities, Redeemable Senior Preferred Stock and Stockholders' Deficit

 

 

 

Current liabilities:

 

 

 

Accounts payable and accrued expenses

$

56,107

 

 

$

51,864

 

Accrued residual commissions

 

31,023

 

 

 

35,979

 

Customer deposits and advance payments

 

6,634

 

 

 

2,618

 

Current portion of long-term debt

 

6,200

 

 

 

6,200

 

Settlement and customer/subscriber account obligations

 

710,068

 

 

 

533,340

 

Total current liabilities

 

810,032

 

 

 

630,001

 

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

 

616,781

 

 

 

598,926

 

Other noncurrent liabilities

 

18,545

 

 

 

11,643

 

Total noncurrent liabilities

 

635,326

 

 

 

610,569

 

Total liabilities

 

1,445,358

 

 

 

1,240,570

 

Redeemable senior preferred stock, net of discounts and issuance costs

 

252,923

 

 

 

235,579

 

Stockholders' deficit:

 

 

 

Preferred stock

 

 

 

 

 

Common stock

 

77

 

 

 

76

 

Treasury stock, at cost

 

(12,577

)

 

 

(11,559

)

Additional paid-in capital

 

 

 

 

9,650

 

Accumulated other comprehensive loss

 

(34

)

 

 

 

Accumulated deficit

 

(123,714

)

 

 

(102,208

)

Total stockholders' deficit attributable to stockholders of PRTH

 

(136,248

)

 

 

(104,041

)

Non-controlling interest

 

1,366

 

 

 

1,255

 

Total stockholders' deficit

 

(134,882

)

 

 

(102,786

)

Total liabilities, redeemable senior preferred stock and stockholders' deficit

$

1,563,399

 

 

$

1,373,363

 

Priority Technology Holdings, Inc.

Unaudited Consolidated Statements of Cash Flows

(in thousands)

 

 

Nine Months Ended September 30,

 

 

2023

 

 

 

2022

 

Cash flows from operating activities:

 

 

 

Net loss

$

(1,205

)

 

$

(838

)

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

 

 

 

Depreciation and amortization of assets

 

53,303

 

 

 

52,675

 

Stock-based compensation

 

5,183

 

 

 

4,204

 

Amortization of debt issuance costs and discounts

 

2,812

 

 

 

2,613

 

Deferred income tax

 

(2,432

)

 

 

(3,567

)

Change in contingent consideration

 

906

 

 

 

 

Other non-cash items, net

 

(169

)

 

 

(154

)

Change in operating assets and liabilities:

 

 

 

Accounts receivable

 

17,931

 

 

 

(11,265

)

Prepaid expenses and other current assets

 

(2,630

)

 

 

(2,575

)

Income taxes (receivable) payable

 

498

 

 

 

1,003

 

Notes receivable

 

(668

)

 

 

569

 

Accounts payable and other accrued liabilities

 

302

 

 

 

13,711

 

Customer deposits and advance payments

 

3,802

 

 

 

(1,910

)

Other assets and liabilities, net

 

(4,953

)

 

 

(3,908

)

Net cash provided by operating activities

 

72,680

 

 

 

50,558

 

Cash flows from investing activities:

 

 

 

Acquisition of business, net of cash acquired

 

(28,182

)

 

 

 

Additions to property, equipment and software

 

(15,268

)

 

 

(11,380

)

Notes receivable, net

 

151

 

 

 

(3,250

)

Acquisitions of assets and other investing activities

 

(7,925

)

 

 

(6,465

)

Net cash used in investing activities

 

(51,224

)

 

 

(21,095

)

Cash flows from financing activities:

 

 

 

Debt issuance and modification costs paid

 

(807

)

 

 

 

Repayments of long-term debt

 

(4,650

)

 

 

(4,650

)

Borrowings under revolving credit facility

 

44,000

 

 

 

23,000

 

Repayments of borrowings under revolving credit facility

 

(23,500

)

 

 

(32,000

)

Repurchases of Common Stock and shares withheld for taxes

 

(1,018

)

 

 

(4,674

)

Dividends paid to redeemable senior preferred stockholders

 

(17,908

)

 

 

(11,478

)

Settlement and customer/subscriber accounts obligations, net

 

165,610

 

 

 

25,695

 

Payment of contingent consideration related to business combination

 

(4,698

)

 

 

(3,992

)

Net cash provided by (used in) financing activities

 

157,029

 

 

 

(8,099

)

Net change in cash and cash equivalents and restricted cash:

 

 

 

Net increase in cash and cash equivalents, and restricted cash

 

178,485

 

 

 

21,364

 

Cash and cash equivalents and restricted cash at beginning of period

 

560,610

 

 

 

518,093

 

Cash and cash equivalents and restricted cash at end of period

$

739,095

 

 

$

539,457

 

 

 

 

 

Reconciliation of cash and cash equivalents, and restricted cash:

 

 

 

Cash and cash equivalents

$

24,595

 

 

$

12,707

 

Restricted cash

 

13,890

 

 

 

11,624

 

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

 

700,610

 

 

 

515,126

 

Total cash and cash equivalents, and restricted cash

$

739,095

 

 

$

539,457

 

Priority Technology Holdings, Inc.

Unaudited Reportable Segments' Results

(in thousands)

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

 

2023

 

 

 

2022

 

 

 

2023

 

 

 

2022

 

SMB Payments:

 

 

 

 

 

 

 

 

Revenue

 

$

140,109

 

 

$

139,892

 

 

$

442,937

 

 

$

412,357

 

Operating expenses

 

 

128,288

 

 

 

126,445

 

 

 

407,563

 

 

 

372,429

 

Operating income

 

$

11,821

 

 

$

13,447

 

 

$

35,374

 

 

$

39,928

 

Operating margin

 

 

8.4

%

 

 

9.6

%

 

 

8.0

%

 

 

9.7

%

Depreciation and amortization

 

$

9,858

 

 

$

11,040

 

 

$

31,473

 

 

$

32,844

 

Key indicators:

 

 

 

 

 

 

 

 

Merchant bankcard processing dollar value

 

$

14,150,995

 

 

$

15,098,450

 

 

$

44,483,491

 

 

$

44,577,857

 

Merchant bankcard transaction count

 

 

178,721

 

 

 

165,796

 

 

 

522,470

 

 

 

476,084

 

B2B Payments:

 

 

 

 

 

 

 

 

Revenue

 

$

13,748

 

 

$

4,868

 

 

$

19,505

 

 

$

16,088

 

Operating expenses

 

 

13,670

 

 

 

4,651

 

 

 

20,295

 

 

 

14,799

 

Operating income (loss)

 

$

78

 

 

$

217

 

 

$

(790

)

 

$

1,289

 

Operating margin

 

 

0.6

%

 

 

4.5

%

 

 

(4.1

)%

 

 

8.0

%

Depreciation and amortization

 

$

772

 

 

$

295

 

 

$

1,024

 

 

$

441

 

Key indicators:

 

 

 

 

 

 

 

 

B2B issuing dollar volume

 

$

221,456

 

 

$

214,085

 

 

$

636,361

 

 

$

597,665

 

B2B issuing transaction count

 

 

267

 

 

 

247

 

 

 

829

 

 

 

683

 

Enterprise Payments:

 

 

 

 

 

 

 

 

Revenue

 

$

35,158

 

 

$

21,657

 

 

$

93,891

 

 

$

57,641

 

Operating expenses

 

 

13,819

 

 

 

12,345

 

 

 

43,810

 

 

 

38,137

 

Operating income

 

$

21,339

 

 

$

9,312

 

 

$

50,081

 

 

$

19,504

 

Operating margin

 

 

60.7

%

 

 

43.0

%

 

 

53.3

%

 

 

33.8

%

Depreciation and amortization

 

$

6,154

��

 

$

6,203

 

 

$

19,557

 

 

$

18,599

 

Key indicators:

 

 

 

 

 

 

 

 

Average billed clients

 

 

590,578

 

 

 

387,384

 

 

 

525,274

 

 

 

364,766

 

Average new enrollments

 

 

56,269

 

 

 

37,746

 

 

 

51,864

 

 

 

29,813

 

 

 

 

 

 

 

 

 

 

Operating income of reportable segments

 

$

33,238

 

 

$

22,976

 

 

$

84,665

 

 

$

60,721

 

Less: Corporate expense

 

 

(9,732

)

 

 

(8,896

)

 

 

(25,178

)

 

 

(22,755

)

Consolidated operating income

 

$

23,506

 

 

$

14,080

 

 

$

59,487

 

 

$

37,966

 

Corporate depreciation and amortization

 

$

491

 

 

$

279

 

 

$

1,249

 

 

$

791

 

 

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