Priority Technology Holdings, Inc. Announces Third Quarter Financial Results

About this update from Priority Technology Holdings, Inc.

Strong Third Quarter Growth Driven by Performance Across Unified Commerce Platform ALPHARETTA, Ga. --(BUSINESS WIRE)-- Priority Technology Holdings, Inc. (NASDAQ: PRTH) ("Priority" or the "Company"), the payments and banking fintech that streamlines collecting, lending, and sending money to unlock revenue opportunities, today announced its third quarter 2024 financial results including strong year-over-year diversified revenue growth. Highlights of Consolidated Results Third Quarter 2024 Compared with Third Quarter 2023 Financial highlights of the third quarter of 2024 compared with the third quarter of 2023, are as follows1: Revenue of $227.0 million increased 20.1% from $189.0 million Adjusted gross profit (a non-GAAP measure2) of $86.0 million increased 18.9% from $72.3 million Adjusted gross profit margin (a non-GAAP measure2) of 37.9% decreased 40.0 basis points from 38.3% Operating income of $38.1 million increased 62.0% from $23.5 million Adjusted EBITDA (a non-GAAP measure2) of $54.6 million increased 21.5% from $45.0 million (1) Certain amounts/percentages may not compute accurately due to rounding. (2) 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. "We reported record results in the third quarter as we sustained our positive momentum, delivering consistently strong results in SMB Acquiring, B2B Payables and Enterprise Payments," said Tom Priore , Chairman & CEO of Priority. “Our continued execution reinforces that Priority’s technology, operations and decision making have positioned us to excel through the remainder of 2024 and beyond to deliver a thriving ecosystem of financial solutions that accelerate revenue and optimize working capital for businesses.” Full Year 2024 Financial Guidance Priority's outlook remains strong and our adjusted full year 2024 guidance is as follows: Revenue forecast affirmed to range between $875 million to $883 million , a growth rate of 16% to 17%, compared to fiscal 2023 results Adjusted gross profit (a non-GAAP measure) forecast affirmed to range between $325 million to $330 million , a growth rate of 18% to 20% compared to fiscal 2023 results Adjusted EBITDA (a non-GAAP measure) forecast increased to a range between $200 million to $204 million , from $196 million to $200 million , a growth rate of 19% to 21% compared to fiscal 2023 results Conference Call Priority's leadership will host a conference call on Thursday, November 7, 2024 at 11:00 a.m. EST to discuss its third quarter 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/5gtz5go8 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 14, 2024 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 2890176 . 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 , 2024 2023 Revenues $ 227,049 $ 189,015 Cost of revenue (excluding depreciation and amortization) (141,070 ) (116,682 ) Adjusted gross profit $ 85,979 $ 72,333 Adjusted gross profit margin 37.9 % 38.3 % Depreciation and amortization of revenue generating assets (4,207 ) (3,000 ) Gross profit $ 81,772 $ 69,333 Gross profit margin 36.0 % 36.7 % 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 , 2024 2023 Net income (loss) $ 10,608 $ (87 ) Interest expense 23,246 19,997 Income tax expense 4,899 4,328 Depreciation and amortization 13,733 17,275 EBITDA 52,486 41,513 Debt extinguishment and modification 43 — Non-recurring gain — (166 ) Selling, general and administrative (non-recurring) 696 2,114 Non-cash stock-based compensation 1,416 1,501 Adjusted EBITDA $ 54,641 $ 44,962 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 , 2024 2023 Selling, general and administrative expenses (non-recurring): Certain legal fees 552 656 Professional, accounting and consulting fees 128 1,364 Other expenses, net 16 94 $ 696 $ 2,114 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 over 1.1 million active customers across its SMB, B2B and Enterprise channels processing approximately $127 billion in annual transaction volume and providing administration for over $1.1 billion in account balances. Priority is the payments and banking fintech that streamlines collecting, storing, lending, and sending money through its innovative commerce engine to unlock revenue and generate operational success for businesses. 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 2024 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 12, 2024 . 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 Income (Loss) (in thousands, except per share amounts) Three Months Ended September 30 , Nine Months Ended September 30 , 2024 2023 2024 2023 Revenues $ 227,049 $ 189,015 $ 652,635 $ 556,333 Operating expenses Cost of revenue (excludes depreciation and amortization) 141,070 116,682 408,486 353,929 Salary and employee benefits 21,748 20,129 66,017 58,286 Depreciation and amortization 13,733 17,275 44,230 53,303 Selling, general and administrative 12,413 11,423 34,620 31,328 Total operating expenses 188,964 165,509 553,353 496,846 Operating income 38,085 23,506 99,282 59,487 Other (expense) income Interest expense (23,246 ) (19,997 ) (65,836 ) (55,461 ) Debt extinguishment and modification costs (43 ) — (8,666 ) — Other income, net 711 732 2,011 1,319 Total other expense, net (22,578 ) (19,265 ) (72,491 ) (54,142 ) Income before income taxes 15,507 4,241 26,791 5,345 Income tax expense 4,899 4,328 9,996 6,550 Net income (loss) 10,608 (87 ) 16,795 (1,205 ) Less: Dividends and accretion attributable to redeemable senior preferred stockholders (5,121 ) (12,192 ) (36,348 ) (35,252 ) Less: Return on redeemable NCI in consolidated subsidiary — — (639 ) — Net income (loss) attributable to common stockholders 5,487 (12,279 ) $ (20,192 ) $ (36,457 ) Other comprehensive income ( loss) Foreign currency translation adjustments (28 ) (65 ) (37 ) (34 ) Comprehensive income (loss) $ 5,459 $ (12,344 ) $ (20,229 ) $ (36,491 ) Earnings (loss) per common share: Basic $ 0.07 $ (0.16 ) $ (0.26 ) $ (0.47 ) Diluted $ 0.07 $ (0.16 ) $ (0.26 ) $ (0.47 ) Weighted-average common shares outstanding: Basic 77,973 78,381 77,910 78,270 Diluted 80,095 78,381 77,910 78,270 Priority Technology Holdings, Inc. Unaudited Consolidated Balance Sheets (in thousands) September 30, 2024 December 31, 2023 Assets Current assets: Cash and cash equivalents $ 41,072 $ 39,604 Restricted cash 13,398 11,923 Accounts receivable, net of allowances 73,393 58,551 Prepaid expenses and other current assets 19,103 13,273 Current portion of notes receivable, net of allowance 2,567 1,468 Settlement assets and customer/subscriber account balances 879,361 756,475 Total current assets 1,028,894 881,294 Notes receivable, less current portion 3,727 3,728 Property, equipment and software, net 51,603 44,680 Goodwill 376,091 376,103 Intangible assets, net 248,819 273,350 Deferred income taxes, net 25,477 22,533 Other noncurrent assets 25,058 13,649 Total assets $ 1,759,669 1,615,337 Liabilities, Redeemable Senior Preferred Stock, Redeemable NCI, and Stockholders' Deficit Current liabilities: Accounts payable and accrued expenses $ 67,009 $ 52,643 Accrued residual commissions 35,818 33,025 Customer deposits and advance payments 4,205 3,934 Current portion of long-term debt 8,350 6,712 Settlement and customer/subscriber account obligations 875,815 755,754 Total current liabilities 991,197 852,068 Long-term debt, net of current portion, discounts and debt issuance costs 808,081 631,965 Other noncurrent liabilities 19,241 18,763 Total liabilities 1,818,519 1,502,796 Redeemable senior preferred stock, net of discounts and issuance costs 105,098 258,605 Stockholders' deficit: Preferred stock — — Common stock 77 77 Treasury stock, at cost (19,278 ) (12,815 ) Additional paid-in capital — — Accumulated other comprehensive loss (66 ) (29 ) Accumulated deficit (146,571 ) (134,951 ) Total stockholders' deficit attributable to stockholders of Priority (165,838 ) (147,718 ) Non-controlling interests in consolidated subsidiaries 1,890 1,654 Total stockholders' deficit (163,948 ) (146,064 ) Total liabilities, redeemable senior preferred stock, redeemable NCI and stockholders' deficit $ 1,759,669 $ 1,615,337 Priority Technology Holdings, Inc . Unaudited Consolidated Statements of Cash Flows (in thousands) Nine Months Ended September 30 , 2024 2023 Cash flows from operating activities: Net income (loss) $ 16,795 $ (1,205 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization of assets 44,230 53,303 Stock-based, ESPP and incentive units compensation 4,878 5,183 Amortization of debt issuance costs and discounts 2,250 2,812 Debt extinguishment and modification costs 8,666 — Deferred income tax (2,944 ) (2,432 ) Change in contingent consideration 3,280 906 Other non-cash items, net (37 ) (169 ) Change in operating assets and liabilities: Accounts receivable (15,712 ) 17,931 Prepaid expenses and other current assets (2,808 ) (2,630 ) Income taxes (receivable) payable (3,000 ) 498 Notes receivable (883 ) (668 ) Accounts payable and other accrued liabilities 12,864 302 Customer deposits and advance payments 271 3,802 Other assets and liabilities, net (5,998 ) (4,953 ) Net cash provided by operating activities 61,852 72,680 Cash flows from investing activities: Acquisition of business, net of cash acquired — (28,182 ) Additions to property, equipment and software (17,044 ) (15,268 ) Notes receivable, net (216 ) 151 Acquisitions of assets and other investing activities (7,474 ) (7,925 ) Net cash used in investing activities (24,734 ) (51,224 ) Cash flows from financing activities: Proceeds from issuance of long-term debt, net of issue discount 830,200 — Debt issuance and modification costs paid (6,901 ) (807 ) Repayments of long-term debt (656,460 ) (4,650 ) Borrowings under revolving credit facility — 44,000 Repayments of borrowings under revolving credit facility — (23,500 ) Redemption of PHOT redeemable NCI (2,130 ) — Repurchases of shares withheld for taxes (1,208 ) (1,018 ) Redemption of senior preferred stock (136,936 ) — Redemption of accumulated unpaid dividend on redeemable senior preferred stock (30,819 ) — Dividends paid to redeemable senior preferred stockholders (22,099 ) (17,908 ) Settlement and customer/subscriber accounts obligations, net 116,065 165,610 Payment of contingent consideration related to business combination (4,996 ) (4,698 ) Net cash provided by financing activities 84,716 157,029 Net change in cash and cash equivalents and restricted cash: Net increase in cash and cash equivalents, and restricted cash 121,834 178,485 Cash and cash equivalents and restricted cash at beginning of period 796,223 560,610 Cash and cash equivalents and restricted cash at end of period $ 918,057 $ 739,095 Reconciliation of cash and cash equivalents, and restricted cash: Cash and cash equivalents $ 41,072 $ 24,595 Restricted cash 13,398 13,890 Cash and cash equivalents included in settlement assets and customer/subscriber account balances 863,587 700,610 Total cash and cash equivalents, and restricted cash $ 918,057 $ 739,095 Priority Technology Holdings, Inc . Unaudited Reportable Segments' Results (in thousands) Three Months Ended September 30 , Nine Months Ended September 30 , 2024 2023 2024 2023 SMB Payments: Revenues $ 158,770 $ 140,241 $ 457,875 $ 443,122 Adjusted EBITDA $ 28,644 $ 27,613 $ 82,265 $ 84,449 Key Indicators: Merchant bankcard processing dollar value $ 15,517,131 $ 14,150,995 $ 46,096,861 $ 44,483,491 Merchant bankcard transaction count 195,786 178,721 564,855 522,470 B2B Payments: Revenues $ 22,143 $ 13,985 $ 65,368 $ 19,744 Adjusted EBITDA $ 1,933 $ 1,359 $ 5,209 $ 1,877 Key Indicators: B2B issuing dollar volume $ 255,323 $ 221,456 $ 732,589 $ 636,361 B2B issuing transaction count 256 267 738 829 Enterprise Payments: Revenues $ 47,099 $ 35,174 $ 131,758 $ 93,919 Adjusted EBITDA $ 40,940 $ 29,757 $ 112,911 $ 77,853 Key Indicators: Average billed clients 832,351 590,578 766,370 525,274 Average monthly new enrollments 62,875 56,269 57,281 51,864 Priority Technology Holdings, Inc . Unaudited Reportable Segments' Results (in thousands) Three Months Ended September 30, 2024 SMB Payments B2B Payments Enterprise Payments Corporate Total Consolidated Reconciliation of Adjusted EBITDA to GAAP Measure: Adjusted EBITDA $ 28,644 $ 1,933 $ 40,940 $ (16,876 ) $ 54,641 Interest expense — (1,066 ) — (22,180 ) (23,246 ) Depreciation and amortization (6,939 ) (1,261 ) (4,304 ) (1,229 ) (13,733 ) Debt modification and extinguishment expenses — — — (43 ) (43 ) Selling, general and administrative (non-recurring) — — — (696 ) (696 ) Non-cash stock based compensation (4 ) (73 ) (33 ) (1,306 ) (1,416 ) Income (loss) before taxes $ 21,701 $ (467 ) $ 36,603 $ (42,330 ) $ 15,507 Nine Months Ended September 30, 2024 SMB Payments B2B Payments Enterprise Payments Corporate Total Consolidated Reconciliation of Adjusted EBITDA to GAAP Measure: Adjusted EBITDA $ 82,265 $ 5,209 $ 112,911 $ (47,853 ) $ 152,532 Interest expense (1 ) (3,280 ) — (62,555 ) (65,836 ) Depreciation and amortization (24,065 ) (3,992 ) (12,431 ) (3,742 ) (44,230 ) Debt modification and extinguishment expenses — — — (8,666 ) (8,666 ) Selling, general and administrative (non-recurring) — — — (2,131 ) (2,131 ) Non-cash stock based compensation (12 ) (299 ) (98 ) (4,469 ) (4,878 ) Income (loss) before taxes $ 58,187 $ (2,362 ) $ 100,382 $ (129,416 ) $ 26,791 Priority Technology Holdings, Inc . Unaudited Reportable Segments' Results (in thousands) Three Months Ended September 30, 2023 SMB Payments B2B Payments Enterprise Payments Corporate Total Consolidated Reconciliation of Adjusted EBITDA to GAAP Measure: Adjusted EBITDA $ 27,613 $ 1,359 $ 29,757 $ (13,767 ) $ 44,962 Interest expense — (498 ) (62 ) (19,437 ) (19,997 ) Depreciation and amortization (9,136 ) (719 ) (5,947 ) (1,473 ) (17,275 ) Selling, general and administrative (non-recurring) — — — (2,114 ) (2,114 ) Non-cash stock based compensation (114 ) (36 ) (66 ) (1,285 ) (1,501 ) Other non-recurring gain, net — — — 166 166 Income (loss) before taxes $ 18,363 $ 106 $ 23,682 $ (37,910 ) $ 4,241 Nine Months Ended September 30, 2023 SMB Payments B2B Payments Enterprise Payments Corporate Total Consolidated Reconciliation of Adjusted EBITDA to GAAP Measure: Adjusted EBITDA $ 84,449 $ 1,877 $ 77,853 $ (40,484 ) $ 123,695 Interest expense — (498 ) (293 ) (54,670 ) (55,461 ) Depreciation and amortization (27,553 ) (756 ) (18,571 ) (6,423 ) (53,303 ) Selling, general and administrative (non-recurring) — — — (4,410 ) (4,410 ) Non-cash stock based compensation (408 ) (237 ) (195 ) (4,343 ) (5,183 ) Other non-recurring gain, net — — — 7 7 Income (loss) before taxes $ 56,488 $ 386 $ 58,794 $ (110,323 ) $ 5,345 View source version on businesswire.com : https://www.businesswire.com/news/home/20241107931013/en/ Priority Investor Inquiries: Chris Kettmann [email protected] (773) 497-7575 Source: Priority Technology Holdings, Inc.

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