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

Rhea-AI Summary

Priority Technology Holdings, Inc. (NASDAQ: PRTH) reported strong third quarter 2022 results, with revenue of $166.4 million, a 25.6% increase from $132.5 million in Q3 2021. Gross profit rose 47.4% to $58.5 million, achieving a gross profit margin of 35.1%. Operating income surged 69.9% to $14.1 million, and adjusted EBITDA was $35.1 million, an increase of 48.7%.

The company reaffirmed its 2022 revenue guidance of $650 million to $665 million while revising adjusted EBITDA guidance to $140 million to $145 million.

Positive

• Revenue increased 25.6% YoY to $166.4 million.
• Gross profit rose 47.4% YoY to $58.5 million.
• Gross profit margin improved by 510 basis points to 35.1%.
• Operating income increased 69.9% to $14.1 million.
• Adjusted EBITDA surged 48.7% to $35.1 million.
• Full-year revenue guidance maintained at $650M-$665M.

Negative

• Adjusted EBITDA guidance revised down from $145 million-$150 million to $140 million-$145 million.

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

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

Highlights of Consolidated Results

Third Quarter 2022, Compared with Third Quarter 2021

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

• Revenue of $166.4 million increased 25.6% from $132.5 million.
• Gross profit (a non-GAAP measure¹) of $58.5 million increased 47.4% million from $39.7 million.
• Gross profit margin (a non-GAAP measure¹) of 35.1% increased 510 basis points from 30.0%.
• Operating income of $14.1 million increased 69.9% from $8.3 million.
• Adjusted EBITDA (a non-GAAP measure¹) of $35.1 million increased 48.7% from $23.6 million.

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

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

Full Year 2022 Financial Guidance

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

• Revenue remains forecasted to range between $650 million to $665 million, a growth rate of 26% to 29%.

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

Conference Call

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

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

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

Non-GAAP Financial Measures

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

Gross Profit (non-GAAP) and Gross Profit Margin (non-GAAP)

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

	(in thousands)
	Three Months Ended September 30,
	2022				2021
Revenues	$	166,417			$	132,542
Cost of revenue (excluding depreciation and amortization)		(107,958	)			(92,833	)
Gross profit (non-GAAP)		58,459				39,709
Gross profit margin (non-GAAP)		35.1	%			30.0	%
Depreciation and amortization of revenue generating assets		(2,629	)			(1,495	)
Gross profit		55,830				38,214
Gross profit margin		33.5	%			28.8	%

EBITDA and Adjusted EBITDA

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

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

	(in thousands)
	Three Months Ended September 30,
	2022				2021
Net income (loss)	$	(792	)		$	(549	)
Interest expense		13,412				8,155
Income tax expense		1,691				790
Depreciation and amortization		17,817				12,330
EBITDA		32,128				20,726
Selling, general and administrative (non-recurring)		760				1,901
Non-cash stock-based compensation		1,104				935
Change in the fair value of contingent consideration		1,072				—
Adjusted EBITDA	$	35,064			$	23,562

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

	(in thousands)
	Three Months Ended September 30,
	2022			2021
Selling, general and administrative expenses (non-recurring):
Certain legal fees	$	199		$	932
Professional, accounting and consulting fees		95			383
Other expenses		466			586
	$	760		$	1,901

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

About Priority Technology Holdings, Inc.

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

Forward-Looking Statements

This press release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, statements about future financial and operating results, our plans, objectives, expectations and intentions with respect to future operations, products and services, and other statements identified by words such as "may," "will," "should," "anticipates," "believes," "expects," "plans," "future," "intends," "could," "estimate," "predict," "projects," "targeting," "potential" or "contingent," "guidance," "outlook" or words of similar meaning. These forward-looking statements include, but are not limited to, our 2022 outlook and statements regarding our market and growth opportunities. Such forward-looking statements are based upon the current beliefs and expectations of our management and are inherently subject to significant business, economic and competitive risks, trends and uncertainties that could cause actual results to differ materially from those projected, expressed, or implied by such forward-looking statements. Our actual results could differ materially, and potentially adversely, from those discussed or implied herein.

We caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. All forward-looking statements are expressly qualified in their entirety by these cautionary statements. You should evaluate all forward-looking statements made in this press release in the context of the risks and uncertainties disclosed in our SEC filings, including our most recent Annual Report on Form 10-K filed with the SEC on March 17, 2022 and our Quarterly Report on Form 10-Q filed with the SEC on August 9, 2022. These filings are available online at www.sec.gov or www.prioritycommerce.com.

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

Priority Technology Holdings, Inc.
Unaudited Consolidated Statements of Operations
(in thousands, except per share amounts)	Three Months Ended September 30,								Nine Months Ended September 30,
	2022				2021				2022				2021
Revenues	$	166,417			$	132,542			$	486,086			$	370,853
Operating expenses
Cost of revenue (excludes depreciation and amortization)		107,958				92,833				320,187				264,527
Salary and employee benefits		16,384				11,909				48,231				31,808
Depreciation and amortization		17,817				12,330				52,675				32,123
Selling, general and administrative		10,178				7,220				27,027				22,213
Total operating expenses		152,337				124,292				448,120				350,671
Operating income		14,080				8,250				37,966				20,182
Other (expense) income
Interest expense		(13,412	)			(8,155	)			(37,282	)			(24,608	)
Debt extinguishment and modification costs		—				—				—				(8,322	)
Other income, net		231				146				311				92
Total other expense, net		(13,181	)			(8,009	)			(36,971	)			(32,838	)
Income (loss) before income taxes		899				241				995				(12,656	)
Income tax expense		1,691				790				1,833				49
Net loss		(792	)			(549	)			(838	)			(12,705	)
Less: Dividends and accretion attributable to redeemable senior preferred stockholders		(9,466	)			(5,813	)			(26,415	)			(9,724	)
Less: NCI preferred unit redemptions		—				—				—				(10,777	)
Net loss attributable to common stockholders	$	(10,258	)		$	(6,362	)		$	(27,253	)		$	(33,206	)
Loss per common share:
Basic and diluted	$	(0.13	)		$	(0.09	)		$	(0.35	)		$	(0.48	)
Weighted-average common shares outstanding:
Basic and diluted		77,984				71,979				78,392				69,689

Priority Technology Holdings, Inc.
Unaudited Consolidated Balance Sheets
(in thousands)
	September 30, 2022				December 31, 2021
Assets
Current assets:
Cash and cash equivalents	$	12,707			$	20,300
Restricted cash		11,624				28,859
Accounts receivable, net of allowances		69,688				58,423
Prepaid expenses and other current assets		16,725				15,807
Current portion of notes receivable		986				272
Settlement assets and customer account balances		516,687				479,471
Total current assets		628,417				603,132
Notes receivable, less current portion		2,072				105
Property, equipment and software, net		29,773				25,233
Goodwill		365,347				365,740
Intangible assets, net		301,729				340,211
Deferred income taxes, net		12,058				8,265
Other noncurrent assets		10,353				9,256
Total assets	$	1,349,749			$	1,351,942
Liabilities, Redeemable Senior Preferred Stock and Stockholders' Deficit
Current liabilities:
Accounts payable and accrued expenses	$	50,955			$	42,523
Accrued residual commissions		32,593				29,532
Customer deposits and advance payments		3,111				5,021
Current portion of long-term debt		6,200				6,200
Settlement and customer account obligations		517,008				500,291
Total current liabilities		609,867				583,567
Long-term debt, net of current portion, discounts and debt issuance costs		593,068				604,105
Other noncurrent liabilities		13,583				18,349
Total noncurrent liabilities		606,651				622,454
Total liabilities		1,216,518				1,206,021
Redeemable senior preferred stock		225,095				210,158
Stockholders' deficit:
Preferred stock		—				—
Common stock		78				77
Additional paid-in capital		17,719				39,835
Treasury stock, at cost		(8,765	)			(4,091	)
Accumulated deficit		(100,896	)			(100,058	)
Total stockholders' deficit		(91,864	)			(64,237	)
Total liabilities, redeemable senior preferred stock and stockholders' deficit	$	1,349,749			$	1,351,942

Priority Technology Holdings, Inc.
Unaudited Consolidated Statements of Cash Flows
(in thousands)	Nine Months Ended September 30,
	2022				2021
Cash flows from operating activities:
Net loss	$	(838	)		$	(12,705	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization of assets		52,675				32,123
Stock-based compensation		4,204				2,349
Amortization of debt issuance costs and discounts		2,613				1,607
Write-off of deferred loan costs and discount		—				2,580
Deferred income tax benefit		(3,567	)			(160	)
PIK interest paid		—				(23,715	)
Other non-cash items, net		(154	)			(39	)
Change in operating assets and liabilities:
Accounts receivable		(11,265	)			(10,847	)
Prepaid expenses and other current assets		(2,575	)			(1,947	)
Income taxes (receivable) payable		1,003				(1,541	)
Notes receivable		569				(190	)
Accounts payable and other accrued liabilities		13,711				9,192
Customer deposits and advance payments		(1,910	)			713
Other assets and liabilities, net		(3,908	)			13
Net cash provided by (used in) operating activities		50,558				(2,567	)
Cash flows from investing activities:
Acquisitions of businesses, net of cash acquired		—				(407,129	)
Additions to property, equipment and software		(11,380	)			(7,530	)
Notes receivable loan funding		(3,250	)			—
Acquisitions of intangible assets		(6,715	)			(48,219	)
Other investing activities		250				—
Net cash used in investing activities		(21,095	)			(462,878	)
Cash flows from financing activities:
Proceeds from issuance of long-term debt, net of issue discount		—				607,318
Debt issuance and modification costs paid		—				(9,073	)
Repayments of long-term debt		(4,650	)			(359,875	)
Borrowings under revolving credit facility		23,000				30,000
Repayments of borrowings under revolving credit facility		(32,000	)			—
Proceeds from the issuance of redeemable senior preferred stock, net of discount		—				219,062
Redeemable senior preferred stock issuance fees and costs		—				(8,098	)
Repurchases of Common Stock and shares withheld for taxes		(4,674	)			(1,023	)
Dividends paid to redeemable senior preferred stockholders		(11,478	)			(4,015	)
Proceeds from exercise of stock options		—				1,190
Settlement and customer accounts obligations, net		25,695				396,338
Contingent consideration for business combinations and asset acquisitions		(3,992	)			—
Other financing activities		—				(814	)
Net cash (used in) provided by financing activities		(8,099	)			871,010
Net change in cash and cash equivalents, and restricted cash:
Net increase in cash and cash equivalents, and restricted cash		21,364				405,565
Cash and cash equivalents, and restricted cash at beginning of period		518,093				88,120
Cash and cash equivalents, and restricted cash equivalents at end of period	$	539,457			$	493,685
Reconciliation of cash and cash equivalents, and restricted cash:
Cash and cash equivalents	$	12,707			$	16,974
Restricted cash		11,624				17,258
Cash and cash equivalents included in settlement assets and customer account balances		515,126				459,453
Total cash and cash equivalents, and restricted cash	$	539,457			$	493,685

Priority Technology Holdings, Inc.
Reportable Segments' Results
(in thousands)		Three Months Ended September 30,								Nine Months Ended September 30,
		2022				2021				2022				2021
SMB Payments:
Revenue		$	139,892			$	124,737			$	412,357			$	354,149
Operating expenses			126,445				110,090				372,429				311,769
Operating income		$	13,447			$	14,647			$	39,928			$	42,380
Operating margin			9.6	%			11.7	%			9.7	%			12.0	%
Depreciation and amortization		$	11,040			$	11,049			$	32,844			$	30,130
Key indicators:
Merchant bankcard processing dollar value		$	15,098,450			$	13,830,550			$	44,577,857			$	39,602,577
Merchant bankcard transaction volume			165,796				153,053				476,084				431,369
B2B Payments:
Revenue		$	4,868			$	4,181			$	16,088			$	11,722
Operating expenses			4,651				4,210				14,799				12,139
Operating income (loss)		$	217			$	(29	)		$	1,289			$	(417	)
Operating margin			4.5	%			(0.7	) %			8.0	%			(3.6	)%
Depreciation and amortization		$	295			$	73			$	441			$	220
Key indicators:
Merchant bankcard processing dollar value		$	116,348			$	87,116			$	380,217			$	226,056
Merchant bankcard transaction volume			63				55				239				143
Enterprise Payments:
Revenue		$	21,657			$	3,624			$	57,641			$	4,982
Operating expenses			12,345				2,395				38,137				3,418
Operating income		$	9,312			$	1,229			$	19,504			$	1,564
Operating margin			43.0	%			33.9	%			33.8	%			31.4	%
Depreciation and amortization		$	6,203			$	939			$	18,599			$	939
Key indicators:
Merchant bankcard processing dollar value		$	585,382			$	23			$	1,189,034			$	23
Merchant bankcard transaction volume			808				—				2,023				—
Average billed clients			387,384				342,789				363,993				342,789
Operating income of reportable segments		$	22,976			$	15,847			$	60,721			$	43,527
Less: Corporate expense			(8,896	)			(7,597	)			(22,755	)			(23,345	)
Consolidated operating income		$	14,080			$	8,250			$	37,966			$	20,182
Corporate depreciation and amortization		$	279			$	269			$	791			$	834
Key indicators:
Merchant bankcard processing dollar value		$	15,800,180			$	13,917,689			$	46,147,108			$	39,828,656
Merchant bankcard transaction volume			166,667				153,108				478,346				431,512
Average billed clients			387,384				342,789				363,993				342,789

 

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Priority Investor Inquiries:

Chris Kettmann

ckettmann@lincolnchurchilladvisors.com

(773) 497-7575

Source: Priority Technology Holdings, Inc.

FAQ

What were Priority Technology Holdings' Q3 2022 earnings results?

Priority Technology reported Q3 2022 revenue of $166.4 million, a 25.6% increase from Q3 2021, and gross profit of $58.5 million, a 47.4% increase.

What is the adjusted EBITDA for Priority Technology in Q3 2022?

The adjusted EBITDA for Q3 2022 was $35.1 million, an increase of 48.7% from the previous year.

What is Priority Technology's full-year 2022 revenue and EBITDA guidance?

Priority Technology maintains its revenue guidance of $650 million to $665 million but has revised its adjusted EBITDA guidance to $140 million to $145 million.