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

Strong First 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 first quarter 2023 financial results including strong quarter-over-quarter diversified revenue growth.

Highlights of Consolidated Results

First Quarter 2023, Compared with First Quarter 2022

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

  • Revenue of $185.0 million increased 20.8% from $153.2 million.
  • Adjusted gross profit (a non-GAAP measure1) of $63.1 million increased 21.8% from $51.8 million.
  • Adjusted gross profit margin (a non-GAAP measure1) of 34.1% increased 30 basis points from 33.8%.
  • Operating income of $16.8 million increased 55.6% from $10.8 million.
  • Adjusted EBITDA (a non-GAAP measure1) of $37.6 million increased 24.1% from $30.3 million

"We once again delivered excellent results, driven by the strength of our diverse business lines, particularly our counter cyclical businesses that are positioned to benefit from higher interest rates and the current economic conditions," said Tom Priore, Chairman & CEO of Priority. "We are continuing to invest prudently in our vision for the convergence of payments and banking features that are essential to delivering a modern commerce experience for our acquiring and B2B customers, reselling and ISV partners, and long term value to our shareholders."

(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.

Full Year 2023 Financial Guidance

Priority's outlook remains strong and we are reaffirming our full year 2023 guidance:

  • Revenue forecasted to range between $740 million to $755 million, a growth rate of 12% to 14%.
  • Adjusted EBITDA (a non-GAAP measure) is forecasted to range between $160 million to $165 million, a growth rate of 14% to 18%.

Conference Call

Priority's leadership will host a conference call on Thursday, May 11, 2023 at 11:00 a.m. EDT to discuss its first 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/mp3ggx5e 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 May 18, 2023 at 2:00 p.m. EDT. To listen to the audio replay, dial (877) 344-7529 or (412) 317-0088 and enter conference ID number 3738244. 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 March 31,

 

 

2023

 

 

 

2022

 

Revenues

$

185,028

 

 

$

153,239

 

Cost of revenue (excluding depreciation and amortization)

 

(121,966

)

 

 

(101,480

)

Adjusted gross profit

$

63,062

 

 

$

51,759

 

Adjusted gross profit margin

 

34.1

%

 

 

33.8

%

Depreciation and amortization of revenue generating assets

 

(2,959

)

 

 

 

(2,449

)

Gross profit

$

60,103

 

 

$

49,310

 

Gross profit margin

 

32.5

%

 

 

32.2

%

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 March 31,

 

 

2023

 

 

 

2022

 

Net loss

$

(506

)

 

$

(333

)

Interest expense

 

17,699

 

 

 

11,535

 

Income tax benefit

 

(133

)

 

 

(325

)

Depreciation and amortization

 

18,048

 

 

 

17,353

 

EBITDA

 

35,108

 

 

 

28,230

 

Selling, general and administrative (non-recurring)

 

437

 

 

 

310

 

Non-cash stock-based compensation

 

1,936

 

 

 

1,558

 

Other nonrecurring expense

 

159

 

 

 

225

 

Adjusted EBITDA

$

37,640

 

 

$

30,323

 

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 March 31,

 

 

2023

 

 

2022

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

 

 

 

Certain legal fees

$

376

 

$

164

Professional, accounting and consulting fees

 

61

 

 

146

 

$

437

 

$

310

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 technology company that leverages a purpose-built platform to enable clients to collect, store and send money, operating at scale. Priority helps its customers take and make payments while managing business and consumer operating accounts to monetize payment networks. Priority's tailored, agile technology powers high-value payments products bolstered by industry-leading personalized support, and delivers value to its partners by leveraging its payments and embedded finance technology to deliver solutions that power modern commerce. The Company's approach is simple – Priority handles the complexities of payments and embedded finance to free its partners to focus on their core business objectives. Priority's solutions are offered via API or proprietary applications with nationwide money transmission licenses, providing end-to-end operational support including automated risk management and underwriting, full compliance and industry leading customer service. 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

 

(in thousands, except per share amounts)

Three Months Ended March 31,

 

 

2023

 

 

 

2022

 

Revenues

$

185,028

 

 

$

153,239

 

Operating expenses

 

 

 

Cost of revenue (excludes depreciation and amortization)

 

121,966

 

 

 

101,480

 

Salary and employee benefits

 

19,048

 

 

 

16,077

 

Depreciation and amortization

 

18,048

 

 

 

17,353

 

Selling, general and administrative

 

9,118

 

 

 

7,503

 

Total operating expenses

 

168,180

 

 

 

142,413

 

Operating income

 

16,848

 

 

 

10,826

 

Other (expense) income

 

 

 

Interest expense

 

(17,699

)

 

 

(11,535

)

Other income, net

 

212

 

 

 

51

 

Total other expense, net

 

(17,487

)

 

 

(11,484

)

Loss before income taxes

 

(639

)

 

 

(658

)

Income tax benefit

 

(133

)

 

 

(325

)

Net loss

 

(506

)

 

 

(333

)

Less: Dividends and accretion attributable to redeemable senior preferred stockholders

 

(11,295

)

 

 

(8,400

)

Loss attributable to common stockholders

$

(11,801

)

 

$

(8,733

)

Other comprehensive income (loss)

 

 

 

Foreign currency translation adjustments

 

24

 

 

 

 

Comprehensive loss

$

(11,777

)

 

$

(8,733

)

 

 

 

 

Loss per common share:

 

 

 

Basic

$

(0.15

)

 

$

(0.11

)

Diluted

$

(0.15

)

 

$

(0.11

)

 

 

 

 

Weighted-average common shares outstanding:

 

 

 

Basic and diluted

 

78,133

 

 

 

78,597

 

Diluted

 

78,133

 

 

 

78,597

 

Priority Technology Holdings, Inc.

Unaudited Consolidated Balance Sheets

 

(in thousands)

 

 

 

 

March 31, 2023

 

December 31, 2022

Assets

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

15,882

 

 

$

18,454

 

Restricted cash

 

11,012

 

 

 

10,582

 

Accounts receivable, net of allowances

 

78,042

 

 

 

78,113

 

Prepaid expenses and other current assets

 

10,443

 

 

 

11,832

 

Current portion of notes receivable

 

1,581

 

 

 

1,471

 

Settlement assets and customer/subscriber account balances

 

612,146

 

 

 

532,018

 

Total current assets

 

729,106

 

 

 

652,470

 

Notes receivable, less current portion

 

3,066

 

 

 

3,191

 

Property, equipment and software, net

 

36,976

 

 

 

34,687

 

Goodwill

 

368,740

 

 

 

369,337

 

Intangible assets, net

 

277,478

 

 

 

288,794

 

Deferred income taxes, net

 

22,163

 

 

 

16,447

 

Other noncurrent assets

 

8,456

 

 

 

8,437

 

Total assets

$

1,445,985

 

 

 

1,373,363

 

Liabilities, Redeemable Senior Preferred Stock and Stockholders' Deficit

 

 

 

Current liabilities:

 

 

 

Accounts payable and accrued expenses

$

57,110

 

 

$

51,864

 

Accrued residual commissions

 

41,049

 

 

 

35,979

 

Customer deposits and advance payments

 

2,868

 

 

 

2,618

 

Current portion of long-term debt

 

6,200

 

 

 

6,200

 

Settlement and customer/subscriber account obligations

 

612,953

 

 

 

533,340

 

Total current liabilities

 

720,180

 

 

 

630,001

 

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

 

592,279

 

 

 

598,926

 

Other noncurrent liabilities

 

11,857

 

 

 

11,643

 

Total noncurrent liabilities

 

604,136

 

 

 

610,569

 

Total liabilities

 

1,324,316

 

 

 

1,240,570

 

Redeemable senior preferred stock

 

235,439

 

 

 

235,579

 

Stockholders' deficit:

 

 

 

Preferred stock

 

 

 

 

 

Common stock

 

76

 

 

 

76

 

Treasury stock, at cost

 

(12,336

)

 

 

(11,559

)

Additional paid-in capital

 

328

 

 

 

9,650

 

Accumulated other comprehensive income

 

24

 

 

 

 

Accumulated deficit

 

(102,714

)

 

 

(102,208

)

Total stockholders' deficit attributable to stockholders of PRTH

 

(114,622

)

 

 

(104,041

)

Non-controlling interest

 

852

 

 

 

1,255

 

Total stockholders' deficit

 

(113,770

)

 

 

(102,786

)

Total liabilities, redeemable senior preferred stock and stockholders' deficit

$

1,445,985

 

 

$

1,373,363

 

Priority Technology Holdings, Inc.

Unaudited Consolidated Statements of Cash Flows

 

(in thousands)

Three Months Ended March 31,

 

 

2023

 

 

 

2022

 

Cash flows from operating activities:

 

 

 

Net loss

$

(506

)

 

$

(333

)

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

 

 

 

Depreciation and amortization of assets

 

18,048

 

 

 

17,353

 

Stock-based compensation

 

1,936

 

 

 

1,558

 

Amortization of debt issuance costs and discounts

 

903

 

 

 

848

 

Deferred income tax

 

(5,716

)

 

 

(3,227

)

Change in contingent consideration

 

229

 

 

 

 

Other non-cash items, net

 

14

 

 

 

 

Change in operating assets and liabilities:

 

 

 

Accounts receivable

 

81

 

 

 

(14,440

)

Prepaid expenses and other current assets

 

481

 

 

 

164

 

Income taxes (receivable) payable

 

8,666

 

 

 

2,913

 

Notes receivable

 

(163

)

 

 

98

 

Accounts payable and other accrued liabilities

 

3,916

 

 

 

5,316

 

Customer deposits and advance payments

 

250

 

 

 

(13

)

Other assets and liabilities, net

 

(462

)

 

 

(624

)

Net cash provided by operating activities

 

27,677

 

 

 

9,613

 

Cash flows from investing activities:

 

 

 

Additions to property, equipment and software

 

(5,046

)

 

 

(2,370

)

Notes receivable, net

 

178

 

 

 

(2,400

)

Acquisitions of assets and other investing activities

 

(2,715

)

 

 

(941

)

Net cash used in investing activities

 

(7,583

)

 

 

(5,711

)

Cash flows from financing activities:

 

 

 

Repayments of long-term debt

 

(1,550

)

 

 

(1,550

)

Repayments of borrowings under revolving credit facility

 

(6,000

)

 

 

(5,000

)

Shares withheld for taxes on vested stock-based compensation

 

(777

)

 

 

(156

)

Dividends paid to redeemable senior preferred stockholders

 

(11,435

)

 

 

(3,505

)

Settlement and customer/subscriber accounts obligations, net

 

79,258

 

 

 

12,749

 

Payment of contingent consideration related to business combination

 

(1,959

)

 

 

 

Net cash provided by financing activities

 

57,537

 

 

 

2,538

 

Net change in cash and cash equivalents, and restricted cash:

 

 

 

Net increase in cash and cash equivalents, and restricted cash

 

77,631

 

 

 

6,440

 

Cash and cash equivalents, and restricted cash at beginning of period

 

560,610

 

 

 

518,093

 

Cash and cash equivalents, and restricted cash equivalents at end of period

$

638,241

 

 

$

524,533

 

 

 

 

 

Reconciliation of cash and cash equivalents, and restricted cash:

 

 

 

Cash and cash equivalents

$

15,882

 

 

$

13,557

 

Restricted cash

 

11,012

 

 

 

13,588

 

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

 

611,347

 

 

 

497,388

 

Total cash and cash equivalents, and restricted cash

$

638,241

 

 

$

524,533

 

Priority Technology Holdings, Inc.

Unaudited Reportable Segments' Results

 

(in thousands)

 

Three Months Ended March 31,

 

 

 

2023

 

 

 

2022

 

SMB Payments:

 

 

 

 

Revenue

 

$

154,933

 

 

$

129,959

 

Operating expenses

 

 

142,922

 

 

 

117,473

 

Operating income

 

$

12,011

 

 

$

12,486

 

Operating margin

 

 

7.8

%

 

 

9.6

%

Depreciation and amortization

 

$

10,846

 

 

$

10,824

 

Key indicators:

 

 

 

 

Merchant bankcard processing dollar value

 

$

15,220,715

 

 

$

14,076,847

 

Merchant bankcard transaction count

 

 

163,406

 

 

 

145,948

 

B2B Payments:

 

 

 

 

Revenue

 

$

2,786

 

 

$

5,925

 

Operating expenses

 

 

3,635

 

 

 

5,516

 

Operating income (loss)

 

$

(849

)

 

$

409

 

Operating margin

 

 

(30.5

)%

 

 

6.9

%

Depreciation and amortization

 

$

125

 

 

$

73

 

Key indicators:

 

 

 

 

B2B issuing dollar volume

 

$

198,546

 

 

$

186,380

 

B2B issuing transaction count

 

 

280

 

 

 

206

 

Enterprise Payments:

 

 

 

 

Revenue

 

$

27,309

 

 

$

17,355

 

Operating expenses

 

 

14,646

 

 

 

12,861

 

Operating income

 

$

12,663

 

 

$

4,494

 

Operating margin

 

 

46.4

%

 

 

25.9

%

Depreciation and amortization

 

$

6,690

 

 

$

6,197

 

Key indicators:

 

 

 

 

Average billed clients

 

 

465,219

 

 

 

346,394

 

Average new enrollments

 

 

45,948

 

 

 

23,441

 

 

 

 

 

 

Operating income of reportable segments

 

$

23,825

 

 

$

17,389

 

Less: Corporate expense

 

 

(6,977

)

 

 

(6,563

)

Consolidated operating income

 

$

16,848

 

 

$

10,826

 

Corporate depreciation and amortization

 

$

387

 

 

 

$

259

 

 

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