PR Newswire | Aug 9, 2021 07:01AM EDT

Results

08/09 06:00 CDT

Priority Technology Holdings, Inc. Announces Second Quarter 2021 Financial ResultsStrong Second Quarter Financial Performance and Increased Full Year GuidanceCapital Refinancing Strengthened the Balance Sheet, Increased Liquidity and Reduced LeveragePending Acquisition of Finxera Expected to Close in Third Quarter 2021 ALPHARETTA, Ga., Aug. 9, 2021

ALPHARETTA, Ga., Aug. 9, 2021 /PRNewswire/ -- Priority Technology Holdings, Inc. (NASDAQ: PRTH) ("Priority" or the "Company"), a leading payments technology company helping customers collect, store and send money, today announced its second quarter 2021 financial results.

Highlights of Consolidated Results

Second Quarter 2021, Compared with Second Quarter 2020

The second quarter 2020 includes results of the RentPayment business sold to MRI Software in September 2020. Financial highlights of second quarter 2021 compared with second quarter 2020, are as follows (gross profit, gross profit margin, and adjusted EBITDA are non-GAAP measures1):

* Revenue of $125.0 million increased 35.4% from $92.4 million. * Gross profit of $35.2 million increased 17.4% from $30.0 million. * Gross profit margin of 28.1% decreased from 32.4%. * Income from operations of $7.4 million increased 83.7% from $4.0 million, including non-recurring expenses of $1.8 million and $1.4 million in second quarter 2021 and 2020, respectively. * Loss before income taxes of $8.0 million includes $8.3 million of debt extinguishment and modification costs, and compares with a loss before income taxes of $7.4 million in second quarter 2020. * Diluted loss per share of $0.35, which includes the impact of $8.3 million of debt extinguishment and modification costs and a $10.8 million non-controlling interest preferred unit redemption in second quarter 2021, compares with a diluted loss per share of $0.12 in second quarter 2020. * Adjusted EBITDA of $21.0 million increased 26.1% from $16.7 million. * Total net leverage ratio of 3.43x at June 30, 2021 decreased from 5.44x at March 31, 20211.

The second quarter 2021 results compared with second quarter 2020 results, excluding the RentPayment business sold in September 2020 and non-recurring expenses from both quarters2,3, are as follows:

* Revenue of $125.0 million increased 42.1% from $88.0 million. * Gross profit of $35.2 million increased 35.0% from $26.1 million. * Gross profit margin of 28.1% decreased from 29.6%. * Income from operations of $9.2 million increased 161.3% from $3.5 million. * Adjusted EBITDA of $21.0 million increased 54.9% from $13.6 million.

"Our strong second quarter results reinforce the power of our payments platform and relentless focus on execution," said Tom Priore, Chairman and Chief Executive Officer of Priority. "As we advance the full integration of Finxera's virtual banking capabilities in the coming quarter, we are poised to achieve our mission to be the premier partner for merchants and ISVs to collect, store, and send money."

The Company announced during first quarter 2021 that it entered into an agreement to acquire Finxera Holdings, Inc. ("Finxera"). That acquisition is expected to close in third quarter 2021. In second quarter 2021, Finxera generated revenue of $16.6 million, gross profit of $15.5 million, and Adjusted EBITDA of $11.1 million. On a pro forma basis4, including second quarter and first half results of Finxera, together with pro forma adjustments for June 2021 and April 2021 tuck-in reseller acquisitions, second quarter and first half 2021 financial results (excluding revenue and cost synergies) are as follows:

* Revenue of $142.9 million in second quarter 2021, and $275.1 million in first half 2021. * Gross profit of $51.7 million in second quarter 2021, and $104.6 million in first half 2021. * Gross profit margin of 36.2% in second quarter 2021, and 38.0% million in first half 2021. * Adjusted EBITDA of $32.8 million in second quarter 2021, and $67.9 million in first half 2021.

(1) See "Non-GAAP Financial Measures" and the reconciliations of Gross Profit, Gross Profit Margin, and Adjusted EBITDA to their most comparable GAAP measures, and the calculation of Total Net Leverage Ratio as of June 30, 2021 provided below for additional information.(2) See "Results With and Without RentPayment" for a summary of the results for the three months ended June 30, 2020, excluding the actual results of the RentPayment business sold in September 2020.(3) See "Non-GAAP Financial Measures" for the details of non-recurring expenses for the three months ended June 30, 2021 and 2020.(4) See "Pro Forma Results" for a presentation of second quarter and first half 2021 results including the actual second quarter and first half 2021 results of Finxera and the April 2021 and June 2021 tuck-in acquisitions.

Revised Full Year 2021 Financial Guidance

The Company outperformed its plan for revenue and adjusted EBITDA in the six months ended June 30, 2021. As a result of stronger than expected organic growth and the impact of the second quarter 2021 tuck-in acquisitions, the Company has updated its outlook for full year 2021, before any further increases related to the anticipated acquisition of Finxera, as follows:

* Revenue is forecast to range between $480 to $500 million, a growth of 22% to 28% above 2020 revenue of $392.3 million, excluding RentPayment. * Adjusted EBITDA (a non-GAAP measure) is forecast to range between $82 to $86 million, a growth of 32% to 39% above 2020 adjusted EBITDA of $62.1 million, excluding RentPayment.

Conference Call

Priority's leadership will host a conference call on Monday, August 9, 2021 at 11:00 a.m. EDT to discuss its second quarter financial results and business developments. Participants can access the call by Phone: US/Canada: (877) 501-3161 or International: (786) 815-8443.

Internet webcast link and accompanying slide presentation can be accessed at https://edge.media-server.com/mmc/p/kwi9t7p3 and will also be posted in the "Investor Relations" section of the Company's website at www.PRTH.com.

An audio replay of the call will be available shortly after the conference call until August 12, 2021 at 1:30 pm Eastern Time. To listen to the audio replay, dial (855) 859-2056 or (404) 537-3406 and enter conference ID number 1214468. Alternatively, you may access the webcast replay in the "Investor Relations" section of the Company's website at www.PRTH.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 and Gross Profit Margin

The Company's non-GAAP gross profit metric represents revenues less costs of services. Gross profit margin is gross profit divided by revenues. We review these non-GAAP measures to evaluate our underlying profit trends. The reconciliation of gross profit to its most comparable GAAP measure is provided below:

(in thousands)

Three Months Ended June 30,

2021 2020

Revenues $125,014 $ 92,356

Costs of Services 89,831 62,398

Gross Profit $35,183 $ 29,958



Gross Profit Margin 28.1% 32.4%



EBITDA, Adjusted EBITDA and Consolidated 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. Consolidated adjusted EBITDA, which is a liquidity measure used in determining our total net leverage ratio, is adjusted EBITDA further adjusted for items specified in the definition of consolidated adjusted EBITDA within our debt agreements, which include the pro-forma impact of acquisitions and dispositions and other specified adjustments. 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.

We review the non-GAAP consolidated adjusted EBITDA to evaluate compliance with our total net leverage ratio at each measurement period. The reconciliation of adjusted EBITDA to its most comparable GAAP measure is provided below:

(in thousands)

Three Months Ended June 30,

2021 2020

Net loss (GAAP) $(9,477) $ (7,858)

Interest expense 7,285 11,668

Income tax expense 1,490 415

Depreciation and amortization 10,723 10,363

EBITDA (Non-GAAP) 10,021 14,588

Non-cash stock-based compensation 856 688

Selling, general and administrative 1,834 1,385

Debt extinguishment and modification costs 8,322 -

Other non-operating expense (17) -

Adjusted EBITDA (Non-GAAP) $21,016 $ 16,661

Reconciliation of Adjusted EBITDA to Consolidated Adjusted EBITDA for the last twelve months ended June 30, 2021 and the calculation of the Total Net Leverage Ratio at June 30, 2021 are provided below:

Adjusted EBITDA (Non-GAAP) $76,885

Allowable Board fee add-back 1,723

Other adjustments (145)

Pro-formal impact of acquisitions 16,900

RentPayment adjusted EBITDA (2,459)

Consolidated Adjusted EBITDA (Non-GAAP) $92,904



Consolidated Total Debt at June 30, 2021:

Current portion of long-term debt $3,000

Long-term debt, net of current portion 318,187

Unamortized discounts and costs 8,813

330,000

Less unrestricted cash (11,111)

Consolidated Net Debt $318,889



Total Net Leverage Ratio 3.43x

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

Three Months Ended June 30,

(in thousands) 2021 2020 Segment



Selling, general and administrative expense:

Litigation settlement costs $ - $ 100 Integrated Partners

Litigation settlement recoveries - (23) Consumer

Certain legal fees and expenses 1,587 348 Corporate

Professional, accounting and consulting fees 237 121 Corporate

Acquisition transition services - 839 Integrated Partners

Acquisition transition services 10 - Consumer

$ 1,834$ 1,385



Salary and employee benefit expense:

Non-cash stock-based compensation $ 146 $ 114 Consumer

Non-cash stock-based compensation 32 31 Commercial

Non-cash stock-based compensation 678 543 Corporate

$ 856 $ 688



Other expenses, net:

Debt extinguishment and modification costs8,322 $ -

Other non-operating expense (17) -

$ 8,305$ -

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.

Pro-Forma Results

On a pro forma basis, including second quarter results of Finxera, together with the June 2021 tuck-in reseller acquisition, second quarter 2021 financial results (excluding revenue and cost synergies) are as follows:

(in thousands)

Three Months Ended June 30, 2021 (a)

Priority Finxera Tuck-in Pro Forma Acquisition

Revenues $ 125,014 $ 16,585 $ 1,309 $ 142,908



Gross Profit $ 35,183 $ 15,533 $ 1,030 $ 51,746

Gross Profit Margin 28.1% 93.7% 78.7% 36.2%



Adjusted EBITDA $ 21,016 $ 11,123 $ 672 $ 32,811



(a) Actual second quarter 2021 results of Priority, Finxera and the June 2021 tuck-in reseller acquisition.



On a pro forma basis, including first half results of Finxera, together with the April 2021 and June 2021 tuck-in reseller acquisitions, first half 2021 financial results (excluding revenue and cost synergies) are as follows:

(in thousands)

Six Months Ended June 30, 2021 (a)

Priority Finxera Tuck-in Pro Forma Acquisitions

Revenues $ 238,311 $ 33,353 $ 3,479 $ 275,143



Gross Profit $ 66,617 $ 31,180 $ 6,822 $ 104,619

Gross Profit Margin 28.0% 93.5% 196.1% 38.0%



Adjusted EBITDA $ 39,017 $ 22,817 $ 6,100 $ 67,934



(a) Actual first half 2021 results of Priority, Finxera and the April 2021 and June 2021 tuck-in reseller acquisitions.

About Priority Technology Holdings, Inc.

Priority is a leading provider of merchant acquiring, integrated payment software and commercial payment solutions, offering unique product and service capabilities to its merchant network and distribution partners. Priority's enterprise 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 opportunities. Additional information can be found at www.PRTH.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, expected timing of the closing of Priority Technology Holdings, Inc.'s ("Priority", "we", "our", or "us") merger with Finxera Holdings, Inc. ("Finxera") and our 2021 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. These forward-looking statements may include, but are not limited to, statements about the effects of the COVID-19 pandemic on our revenues and financial operating results. 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 31, 2021. These filings are available online at www.sec.gov or www.PRTH.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.

Condensed Consolidated Statements of Operations

Unaudited



(in thousands, except per share amounts) Three Months Ended June 30,Six Months Ended June 30,

2021 2020 2021 2020

REVENUES $125,014 $92,356 $238,311 $189,289



OPERATING EXPENSES:

Costs of services 89,831 62,398 171,694 128,762

Salary and employee benefits 10,351 9,556 19,899 19,685

Depreciation and amortization 10,723 10,363 19,793 20,635

Selling, general and administrative 6,704 6,008 14,993 12,617

Total operating expenses 117,609 88,325 226,379 181,699



Income from operations 7,405 4,031 11,932 7,590



OTHER EXPENSES:

Interest expense (7,285) (11,668) (16,453) (21,983)

Debt extinguishment and modification costs (8,322) - (8,322) (376)

Other income (expenses), net 215 194 (54) 224

Total other expenses, net (15,392) (11,474) (24,829) (22,135)



Loss before income taxes (7,987) (7,443) (12,897) (14,545)



Income tax expense (benefit) 1,490 415 (741) (818)

Net loss (9,477) (7,858) (12,156) (13,727)

Dividends attributable to senior preferred stockholders(3,911) - (3,911) -

Non-controlling interest preferred unit redemptions (10,777) - (10,777) -

Net loss attributable to common stockholders of PRTH $(24,165) $(7,858)$(26,844) $(13,727)





Loss per common share:

Basic and diluted $(0.35) $(0.12) $(0.39) $(0.20)



Weighted-average common shares outstanding:

Basic and diluted 69,496 67,114 68,525 67,088

PRIORITY TECHNOLOGY HOLDINGS, INC.

Condensed Consolidated Balance Sheets



(in thousands) Unaudited

June 30, 2021December 31, 2020

ASSETS

Current assets:

Cash $ 11,111 $ 9,241

Restricted cash 18,232 78,879

Accounts receivable, net of allowance 50,596 41,321

Prepaid expenses and other current assets 5,443 3,500

Current portion of notes receivable, net of allowance 230 2,190

Settlement assets 722 753

Total current assets 86,334 135,884



Notes receivable, less current portion 3,915 5,527

Property, equipment, and software, net 24,245 22,875

Goodwill 124,078 106,832

Intangible assets, net 145,836 98,057

Deferred income taxes, net 47,578 46,697

Other non-current assets 10,890 1,957

Total assets $ 442,876$ 417,829



LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:

Accounts payable and accrued expenses $ 37,420 $ 29,821

Accrued residual commissions 28,201 23,824

Customer deposits and advance payments 4,269 2,883

Current portion of long-term debt 3,000 19,442

Settlement obligations 11,278 72,878

Total current liabilities 84,168 148,848



Long-term debt, net of current portion, discounts and debt issuance costs318,187 357,873

Other non-current liabilities 8,333 9,672

Total long-term liabilities 326,520 367,545



Total liabilities 410,688 516,393



Senior preferred stock 133,762 -



Stockholders' deficit:

Preferred stock - -

Common stock 70 68

Additional paid-in capital 14,913 5,769

Treasury stock, at cost (2,388) (2,388)

Accumulated deficit (114,169) (102,013)

Total stockholders' deficit (101,574) (98,564)



Total liabilities, senior preferred stock and stockholders' deficit $ 442,876$ 417,829

PRIORITY TECHNOLOGY HOLDINGS, INC.

Condensed Consolidated Statements of Cash Flows

Unaudited



(in thousands) Six Months Ended June 30,

2021 2020

Cash flows from operating activities:

Net loss $ (12,156)$(13,727)

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

Depreciation and amortization of assets 19,793 20,635

Equity-classified and liability-classified stock-based compensation 1,414 1,026

Amortization of debt issuance costs and discounts 1,158 1,116

Write off of deferred loan costs and discount 3,006 -

Deferred income tax benefit (3,446) (3,569)

Change in allowance for deferred tax assets 2,565 2,642

Payment-in-kind interest 2,512 3,415

Other non-cash items, net (39) 206

Change in operating assets and liabilities:

Accounts receivable (9,115) 974

Settlement assets and obligations, net (61,570) 1,584

Prepaid expenses and other current assets (1,626) 851

Notes receivable 198 (888)

Accounts payable and other accrued liabilities 10,490 (1,845)

Customer deposits and advance payments 1,385 (2,046)

Other assets and liabilities, net 307 (552)

Net cash (used in) provided by operating activities (45,124) 9,822



Cash flows from investing activities:

Acquisition of business (34,507) -

Additions to property, equipment, and software (5,222) (4,249)

Acquisitions of intangible assets (43,353) (3,286)

Net cash used in investing activities (83,082) (7,535)



Cash flows from financing activities:

Proceeds from issuance of long-term debt, net of issue discount 293,619 -

Debt issuance and modification costs paid (7,597) (2,749)

Repayments of long-term debt (384,552) (2,003)

Borrowings under revolving credit facility 30,000 7,000

Repayments under revolving credit facility - (4,000)

Proceeds from issuance of senior preferred equity 150,000 -

Senior preferred equity issuance fees and costs (10,472) -

Dividends paid to senior preferred stockholders (1,575) -

Redemptions of non-controlling interests of subsidiary (815) -

Proceeds from exercise of stock options 821 -

Net cash provided by (used in) financing activities 69,429 (1,752)



Net change in cash and restricted cash:

Net (decrease) increase in cash and restricted cash (58,777) 535

Cash and restricted cash at beginning of period 88,120 50,465

Cash and restricted cash at end of period $ 29,343 $51,000

PRIORITY TECHNOLOGY HOLDINGS, INC.

Reportable Segments' Results

Unaudited

(in thousands) Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

Consumer Payments:

Revenue $119,625 $81,707 $228,018 $167,738

Operating expenses 105,177 74,437 200,207 153,316

Income from operations $14,448 $7,270 $27,811 $14,422

Operating margin 12.1% 8.9% 12.2% 8.6%

Depreciation and amortization $10,297 $8,657 $18,876 $17,240



Key indicators:

Merchant bankcard processing dollar value $13,875,957 $9,010,908$25,747,896 $19,397,656

Merchant bankcard transaction volume 150,598 92,842 278,086 212,273



Commercial Payments:

Revenue $4,041 $5,654 $7,541 $12,022

Operating expenses 4,020 5,179 7,929 10,783

Income (loss) from operations $21 $475 $(388) $1,239

Operating margin 0.5% 8.4% (5.1)% 10.3%

Depreciation and amortization $73 $78 $147 $154



Key indicators:

Merchant bankcard processing dollar value $75,070 $64,247 $138,518 $136,925

Merchant bankcard transaction volume 47 21 86 46



Integrated Partners:

Revenue $1,348 $4,995 $2,752 $9,529

Operating expenses 1,183 4,150 2,495 8,316

Income from operations $165 $845 $257 $1,213

Operating margin 12.2% 16.9% 9.3% 12.7%

Depreciation and amortization $76 $1,334 $205 $2,645



Key indicators:

Merchant bankcard processing dollar value $13,051 $122,089 $24,424 $246,607

Merchant bankcard transaction volume 136 388 231 836



Income from operations of reportable segments$14,634 $8,590 $27,680 $16,874

Less: Corporate expense (7,229) (4,559) (15,748) (9,284)

Consolidated income from operations $7,405 $4,031 $11,932 $7,590

Corporate depreciation and amortization $277 $294 $565 $596



Key indicators:

Merchant bankcard processing dollar value $13,964,078 $9,197,244$25,910,838 $19,781,188

Merchant bankcard transaction volume 150,781 93,251 278,403 213,155



PRIORITY TECHNOLOGY HOLDINGS, INC.

Results With and Without RentPayment

Unaudited

(in thousands)

Second Quarter 2020 Six Months Ended June 30, 2020

ConsolidatedRentPaymentExcl ConsolidatedRentPaymentExcl RentPayment RentPayment



Revenues $ 92,356$ 4,391$ 87,965 $ 189,289$ 8,235$ 181,054



Operating Expenses:

Costs of services 62,398 498 61,900 128,762 872 127,890

Salary and employee benefits 9,556 507 9,049 19,685 1,046 18,639

Depreciation and amortization 10,363 1,214 9,149 20,635 2,430 18,205

Selling, general and administrative 6,008 1,231 4,777 12,617 2,390 10,227

Total operating expenses 88,325 3,450 84,875 181,699 6,738 174,961



Income from operations $ 4,031 $ 941 $ 3,090 $ 7,590 $ 1,497$ 6,093



Depreciation and amortization 10,363 1,214 9,149 20,635 2,430 18,205

Other income, net 194 - 194 435 - 435

Non-cash stock-based compensation 688 - 688 1,026 - 1,026

Legal and professional fees 469 - 469 965 - 965

Legal settlements 77 100 (23) 79 100 (21)

Acquisition integration services 839 839 - 1,735 1,735 -

Adjusted EBITDA $ 16,661$ 3,094$ 13,567 $ 32,465 $ 5,762$ 26,703

View original content: https://www.prnewswire.com/news-releases/priority-technology-holdings-inc-announces-second-quarter-2021-financial-results-301350752.html

SOURCE Priority Technology Holdings, Inc.