Notes to Unaudited Consolidated Financial Statements
1. Nature of Business and Significant Accounting Policies
Business, Consolidation and Presentation
Priority Technology Holdings, Inc. and its consolidated subsidiaries are referred to herein collectively as "Priority," "PRTH," the "Company," "we," "our" or "us," unless the context requires otherwise. Priority is a provider of merchant acquiring, integrated payment software, licensed money transmission services and commercial payments solutions.
The Company operates on a calendar year ending each December 31 and on four calendar quarters ending on March 31, June 30, September 30 and December 31 of each year. Results of operations reported for interim periods are not necessarily indicative of results for the entire year.
The accompanying Unaudited Consolidated Financial Statements include the accounts of the Company and its majority-owned subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation. These Unaudited Consolidated Financial Statements have been prepared in accordance with GAAP for interim financial information pursuant to the rules and regulations of the SEC. The Consolidated Balance Sheet as of December 31, 2021 was derived from the audited financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021 but does not include all disclosures required by GAAP for annual financial statements.
In the opinion of the Company's management, all known adjustments necessary for a fair presentation of the Unaudited Consolidated Financial Statements for interim periods have been made. These adjustments consist of normal recurring accruals and estimates that affect the carrying amounts of assets and liabilities. These Unaudited Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021.
Use of Estimates
The preparation of Unaudited Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the Unaudited Consolidated Financial Statements and the reported amounts of revenues and expenses during the reported period. Actual results could materially differ from those estimates. In particular, the continued magnitude, duration and effects of the COVID-19 pandemic are difficult to predict, and the ultimate effect could result in future charges related to the recoverability of assets, including financial assets, long-lived assets, goodwill and other losses.
Foreign Currency
The Company's reporting currency is the U.S. dollar. Assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the current exchange rate on the last day of the reporting period. Revenues and expenses are translated using the average exchange rate in effect during the reporting period. Foreign exchange translation and transaction gains and losses were not material for the periods presented and are included in the Unaudited Consolidated Statements of Operations.
Emerging Growth Company Status
Prior to December 31, 2021, the Company was an EGC, as defined in JOBS Act, and elected to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies until the Company is no longer an EGC, including using the extended transition period for complying with new or revised accounting standards. On December 31, 2021, we ceased to qualify as an EGC and have adopted any new standards that we are now required to adopt.
Recently Issued Accounting Standards Pending Adoption
Reference Rate Reform
In March 2020, the FASB issued ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides temporary optional expedients and exceptions to the GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from the LIBOR and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financial Rate. If certain criteria are met, entities can elect not to apply certain modification accounting requirements to contracts affected by what the guidance calls reference rate reform. An entity that makes this election would not have to remeasure the contract at the modification date or reassess a previous accounting determination. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848), which clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. These updates can be adopted at any time before December 31, 2022. The Company's term facility and revolving credit facility bear interest at rates based on LIBOR, and the dividend rate on the Company's redeemable senior preferred stock is also based on LIBOR. The Company is evaluating the potential impact these updates may have on its Unaudited Consolidated Financial Statements.
Credit Losses
In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments. This new guidance will change how entities account for credit impairment for trade and other receivables, as well as for certain financial assets and other instruments. ASU 2016-13 will replace the current "incurred loss" model with an "expected loss" model. Under the "incurred loss" model, a loss (or allowance) is recognized only when an event has occurred (such as a payment delinquency) that causes the entity to believe that a loss is probable (i.e., that it has been "incurred"). Under the "expected loss" model, a loss (or allowance) is recognized upon initial recognition of the asset that reflects all future events that leads to a loss being realized, regardless of whether it is probable that the future event will occur. The "incurred loss" model considers past events and current conditions, while the "expected loss" model includes expectations for the future which have yet to occur. The standard will require entities to record a cumulative-effect adjustment to the balance sheet as of the beginning of the first reporting period in which the guidance is effective. The Company is currently evaluating the potential impact that this update may have on the timing of recognizing future provisions for expected losses on the Company's accounts receivable and notes receivable. Since the Company is a smaller reporting company, the Company must adopt this new standard no later than the beginning of 2023 for annual and interim reporting periods.
Recently Adopted Accounting Standards
Business Combinations
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires entities to recognize and measure contract assets and liabilities acquired in a business combination in accordance with ASC 606, as if the acquirer had originated the contracts. Generally this will result in the acquirer recognizing and measuring the acquired contract assets and liabilities consistent with the manner by which they were recognized and measured by the acquiree. This update is effective for public companies for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, and early adoption is permitted, including in an interim period. If this update is adopted early in an interim period, it must be applied retrospectively to all business combinations that occurred since the beginning of the fiscal year. The Company elected to early adopt ASU 2021-08 in the second quarter of 2022. The Company has not acquired any businesses during 2022, therefore there was no impact on the Company's Unaudited Consolidated Financial Statements.
2. Revenues
Disaggregation of Revenues
The following table presents a disaggregation of our consolidated revenues by type for the three and nine months ended September 30, 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| (in thousands) | 2022 | | 2021 | | 2022 | | 2021 |
| Revenue Type: | | | | | | | |
| Merchant card fees | $ | 137,659 | | | $ | 122,175 | | | $ | 405,404 | | | $ | 348,244 | |
| Money transmission services revenue | 18,291 | | | 2,873 | | | 51,757 | | | 2,873 | |
| Outsourced services and other services | 7,933 | | | 5,778 | | | 21,917 | | | 14,981 | |
| Equipment | 2,534 | | | 1,716 | | | 7,008 | | | 4,755 | |
Total revenues(1),(2) | $ | 166,417 | | | $ | 132,542 | | | $ | 486,086 | | | $ | 370,853 | |
(1)Includes contracts with an original duration of one year or less and variable consideration under a stand-ready series of distinct days of service. The aggregate fixed consideration portion of customer contracts with an initial contract duration greater than one year is not material.
(2)Approximately $2.0 million and $3.4 million of interest income for the three and nine months ended September 30, 2022, respectively, and $0.1 million and $0.1 million three and nine months ended September 30, 2021, respectively, is included in outsourced services and other services revenue in the table above. Approximately $0.2 million and $0.4 million of interest income for the three and nine months ended September 30, 2022, respectively, and $0.1 million and $0.6 million of interest income three and nine months ended September 30, 2021, respectively, is included in other income, net on the Company's Unaudited Consolidated Statements of Operations and not reflected in the table above.
Deferred revenues were not material for the three and nine months ended September 30, 2022 and 2021.
Contract Assets and Contract Liabilities
Material contract assets and liabilities are presented net at the individual contract level in the Unaudited Consolidated Balance Sheets and are classified as current or noncurrent based on the nature of the underlying contractual rights and obligations.
Supplemental balance sheet information related to contracts from customers as of September 30, 2022 and December 31, 2021 was as follows:
| | | | | | | | | | | | | | | | | | | | |
| (in thousands) | | Consolidated Balance Sheet Line Item | | September 30, 2022 | | December 31, 2021 |
| Liabilities: | | | | | | |
| Contract liabilities, net (current) | | Customer deposits and advance payments | | $ | — | | | $ | 1,280 | |
Substantially all of these balances are recognized as revenue within 12 months. As of September 30, 2022, all of the contract liabilities, have been recognized as revenue. Net contract assets were not material for any period presented.
Impairment losses recognized on receivables or contract assets arising from the Company's contracts with customers were not material for the three and nine months ended September 30, 2022 and September 30, 2021.
3. Acquisitions
Finxera Acquisition
On September 17, 2021, the Company completed its acquisition of 100% of the equity interests of Finxera. Finxera is a provider of deposit account management and licensed money transmission services in the U.S. The acquisition will allow the Company to offer clients turn-key merchant services, payment facilitation, card issuing, automated payables, virtual banking, e-wallet tools, risk management, underwriting and compliance on a single platform.
The transaction was funded with the Company's cash on hand, proceeds from the issuance of the redeemable senior preferred stock and debt, and the issuance of common equity shares to the sellers.
The acquisition was accounted for as a business combination using the acquisition method of accounting, under which the assets acquired and liabilities assumed were recognized at their fair values as of September 17, 2021, with the excess of the fair value of consideration transferred over the fair value of the net assets acquired recognized as goodwill. The fair values of the assets acquired and liabilities assumed as of September 17, 2021 were estimated by management based on the valuation of the Finxera business using the discounted cash flow method and other factors specific to certain assets and liabilities. The final purchase price allocation is set forth in the table below.
| | | | | |
| (in thousands) | |
| Consideration: | |
| Cash | $ | 379,220 | |
Equity instruments(1) | 34,388 | |
| Less: cash and restricted cash acquired | (6,598) | |
| Total purchase consideration, net of cash and restricted cash acquired | $ | 407,010 | |
| |
| Recognized amounts of assets acquired and liabilities assumed: | |
| Accounts receivable | $ | 385 | |
Prepaid expenses and other current assets(2) | 5,298 | |
| Current portion of notes receivable | 784 | |
| Settlement assets and customer account balances | 498,811 | |
| Property, equipment and software, net | 712 | |
Goodwill(2) | 244,711 | |
Intangible assets, net(3) | 211,400 | |
| Other noncurrent assets | 955 | |
| Accounts payable and accrued expenses | (7,837) | |
| Settlement and customer account obligations | (498,811) | |
Deferred income taxes, net(2) | (44,018) | |
| Other noncurrent liabilities | (5,380) | |
| Total purchase consideration | $ | 407,010 | |
(1)The fair value of the 7,551,354 shares of Common stock that were issued was determined based on their market price at the time of closing adjusted for an appropriate liquidity discount due to trading restrictions under Securities Act Rule 144.
(2)During the nine months ended September 30, 2022, the Company recorded measurement period adjustments due to additional information received related to income taxes and deferred income taxes, net. These measurement period adjustments resulted in an increase of $0.1 million in prepaid expenses and an increase of $0.3 million in other current assets and deferred income taxes, offset by a decrease in goodwill of $0.4 million.
(3)The intangible assets acquired consist of $154.9 million for referral partner relationships, $34.3 million for technology, $20.1 million for customer relationships and $2.1 million for money transmission licenses.
Goodwill of $244.7 million arising from the acquisition of Finxera primarily consists of the expected synergies and other benefits from combining operations. Goodwill attributable to the acquisition of $8.7 million was deductible for income tax purposes. The goodwill was allocated 100% to the Company's Enterprise Payments reportable segment.
In 2020, Finxera acquired two businesses for which the purchase price included contingent consideration valued at $6.1 million. The contingent consideration payable is comprised of earnout opportunities equal to 25% to 50% of certain revenues earned from the customers assumed in these acquisitions. The associated earnout opportunities are to be measured and paid every six months and expire at various dates through December 31, 2023. As of September 30, 2022, an adjustment of $1.1 million was recorded due to changes in the fair value of the contingent consideration (as selling, general and administrative expenses in the Company's Consolidated Statements of Operations) resulting in total contingent consideration of $7.2 million. The accretion of contingent consideration was $0.1 million and $0.4 million for the three and nine months ended September 30, 2022, respectively, which is included in interest expense on the Company's Unaudited Consolidated Statements of Operations, increasing the total liability to $7.6 million of which $1.8 million has been paid. The remaining $5.8 million was accrued, of which $3.9 million and $1.9 million were included in accounts payable and accrued expenses and other noncurrent liabilities, respectively, on the Company's Unaudited Consolidated Balance Sheet as of September 30, 2022.
Other Acquisitions
Wholesale Payments, Inc.
On April 28, 2021, a subsidiary of the Company completed its acquisition of certain residual portfolio rights for a purchase price of $42.4 million in addition to $24.8 million of post-closing payments and earnout payments based on meeting certain attrition thresholds over a three-year period from the date of acquisition. The transaction did not meet the definition of a business, therefore it was accounted for as an asset acquisition under which the cost of the acquisition was allocated to the acquired assets based on relative fair values. As this is an asset acquisition, additional purchase price is accounted for when payment to the seller becomes probable and is added to the carrying value of the asset. The seller's note payable to the Company of $3.0 million and an advance of $2.0 million outstanding at the time of the purchase was netted against the initial purchase price, resulting in cash of $41.2 million being paid by the Company to the seller, which was funded from cash proceeds from the issuance of the redeemable senior preferred stock and cash on hand.
As of the second quarter 2022, the sellers earned $9.4 million of the $24.8 million earnout, increasing the total purchase price recorded to $51.8 million, which was recorded to residual buyout intangible assets with a seven-year useful life amortized on a straight-line basis. In September 2022, an adjustment of $0.5 million was recorded, decreasing the total amount earned as of September 30, 2022 to $8.9 million. As of September 30, 2022, $5.1 million had been paid.
C&H
On June 25, 2021, a subsidiary of the Company acquired certain assets and assumed certain related liabilities of C&H under an asset purchase agreement. C&H was an ISO partner of the Company where it developed expertise in software-integrated payment services, as well as marketing programs for specific verticals such as automotive and youth sports. This business is reported within the Company's SMB Payments reportable segment. The initial purchase price for the net assets was $35.0 million in cash and a total purchase price of not more than $60.0 million including post-closing payments and earnout payments based on certain gross profit and revenue achievements over a three-year period from the date of acquisition. The acquisition date fair value of the contingent consideration was $4.7 million, which increased the total purchase price to $39.7 million. The seller's note payable to the Company of $0.5 million at the time of purchase was netted against the initial purchase price, resulting in cash of $34.5 million being paid by the Company to the seller, which was funded from a $30.0 million draw down of the revolving credit facility under the Credit Agreement held by the Company and $4.5 million cash on hand. Transaction costs were not material and were expensed. The purchase price allocation is set forth in the table below.
| | | | | |
| (in thousands) | |
| Accounts receivable | $ | 214 | |
| Prepaid expenses and other current assets | 209 | |
| Property, equipment and software, net and other current assets | 287 | |
| Goodwill | 13,804 | |
Intangible assets, net(1) | 25,400 | |
| Other noncurrent liabilities | (214) | |
| Total purchase price | $ | 39,700 | |
(1)The intangible assets acquired consist of $20.2 million for merchant portfolio intangible assets with a ten-year useful life and $5.2 million for ISO partner relationships with a twelve-year useful life.
As of September 30, 2022, the fair value of the C&H contingent consideration was $5.0 million, of which $3.0 million and $2.0 million were included in accounts payable and accrued expenses and other noncurrent liabilities, respectively, on the Company's Unaudited Consolidated Balance Sheet as of September 30, 2022. The accretion of contingent consideration was $0.3 million for the three and nine months ended September 30, 2022, which is included in interest expense on the Company's Unaudited Consolidated Statements of Operations.
The goodwill for the C&H business combination is deductible by the Company for income tax purposes.
4. Settlement Assets and Customer Account Balances and Related Obligations
SMB Payments Segment
In the Company's SMB Payments reportable segment, funds settlement refers to the process of transferring funds for sales and credits between card issuers and merchants. The standards of the card networks require possession of funds during the settlement process by a member bank which controls the clearing transactions. Since settlement funds are required to be in the possession of a member bank until the merchant is funded, these funds are not assets of the Company and the associated obligations related to these funds are not liabilities of the Company. Therefore, neither is recognized in the Company's Unaudited Consolidated Balance Sheets. Member banks held merchant funds of $113.3 million and $102.1 million at September 30, 2022 and December 31, 2021, respectively.
Exception items that become the liability of the Company are recorded as merchant losses, a component of cost of revenue in the Company's Unaudited Consolidated Statements of Operations. Exception items that the Company is still attempting to collect from the merchants through the funds settlement process or merchant reserves are recognized as settlement assets and customer account balances in the Company's Unaudited Consolidated Balance Sheets, with an offsetting reserve for those amounts the Company estimates it will not be able to recover. Expenses for merchant losses for the three and nine months ended September 30, 2022 were $0.7 million and $2.8 million, respectively. Expenses for merchant losses for the three and nine months ended September 30, 2021 were $0.6 million and $1.6 million, respectively.
B2B Payments Segment
In the Company's B2B Payments segment, the Company earns revenues from certain of its services by processing transactions for FIs and other business customers. Customers transfer funds to the Company, which are held in either company-owned bank accounts controlled by the Company or bank-owned FBO accounts controlled by the banks, until such time that the transactions are settled with the customer payees. Amounts due to customer payees that are held by the Company in company-owned bank accounts are included in restricted cash. Amounts due to customer payees that are held in bank-owned FBO accounts are not assets of the Company, and the associated obligations related to these funds are not liabilities of the Company. Therefore, neither is recognized in the Company's Unaudited Consolidated Balance Sheets. Bank-owned FBO accounts held funds of $71.8 million and $45.5 million at September 30, 2022 and December 31, 2021, respectively. Company-owned bank accounts held $4.4 million and $21.4 million at September 30, 2022 and December 31, 2021, respectively, which are included in restricted cash and settlement and customer account obligations in the Company's Unaudited Consolidated Balance Sheets.
Enterprise Payments Segment
In the Company's Enterprise Payments segment revenue is derived primarily from enrollment fees, monthly subscription fees and transaction-based fees from licensed money transmission services. As part of its licensed money transmission services, the Company accepts deposits from consumers and subscribers which are held in bank accounts maintained by the Company on behalf of consumers and subscribers. After accepting deposits, the Company is allowed to invest available balances in these accounts in certain permitted investments, and the return on such investments contributes to the Company's net cash inflows. These balances are payable on demand. As such, the Company recorded these balances and related obligations as current assets and current liabilities. The nature of these balances are cash and cash equivalents, but they are not available for day-to-day operations of the Company. Therefore, the Company has classified these balances as settlement assets and customer account balances and the related obligations as settlement and customer account obligations in the Company's Unaudited Consolidated Balance Sheets.
The Company's settlement assets and customer account balances and settlement and customer account obligations were as follows:
| | | | | | | | | | | |
| (in thousands) | September 30, 2022 | | December 31, 2021 |
| Settlement Assets: | | | |
| Card settlements due from merchants, net of estimated losses | $ | 1,561 | | | $ | 537 | |
| Customer Account Balances: | | | |
| Cash and cash equivalents | 515,126 | | | 468,934 | |
| Time deposits | — | | | 10,000 | |
| Total settlement assets and customer account balances | $ | 516,687 | | | $ | 479,471 | |
| | | |
| Settlement and Customer Account Obligations: | | | |
| Customer account obligations | $ | 515,126 | | | $ | 478,935 | |
Due to customer payees(1) | 1,882 | | | 21,356 | |
| Total settlement and customer account obligations | $ | 517,008 | | | $ | 500,291 | |
(1)The related assets are included in restricted cash on our Unaudited Consolidated Balance Sheets.
5. Goodwill and Other Intangible Assets
Goodwill
The Company's goodwill relates to the following reporting units as of September 30, 2022 and December 31, 2021:
| | | | | | | | | | | | | |
| (in thousands) | September 30, 2022 | | December 31, 2021 | | |
| SMB Payments | $ | 120,636 | | | $ | 120,636 | | | |
| Enterprise Payments | 244,711 | | | 245,104 | | | |
| Total | $ | 365,347 | | | $ | 365,740 | | | |
The following table summarizes the changes in the carrying value of goodwill for the periods ended September 30, 2022 and December 31, 2021
| | | | | |
| (in thousands) | Amount |
| Balance at December 31, 2021 | $ | 365,740 | |
| Changes in the value of goodwill | — | |
| Balance at March 31, 2022 | 365,740 | |
| Changes in the value of goodwill | — | |
| Balance at June 30, 2022 | 365,740 | |
| Final purchase price adjustment for Finxera | (393) | |
Balance at September 30, 2022 | $ | 365,347 | |
As of September 30, 2022, the Company is not aware of any triggering events for impairment that have occurred since the last annual impairment test.
Other Intangible Assets
At September 30, 2022 and December 31, 2021, other intangible assets consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands, except weighted-average data) | September 30, 2022 | | Weighted-average
Useful Life |
| Gross Carrying Value | | Accumulated Amortization | | Net Carrying Value | |
| Other intangible assets: | | | | | | | |
| ISO and referral partner relationships | $ | 175,300 | | | $ | (20,941) | | | $ | 154,359 | | | 14.8 |
| Residual buyouts | 132,997 | | | (71,182) | | | 61,815 | | | 6.2 |
| Customer relationships | 95,566 | | | (80,254) | | | 15,312 | | | 8.0 |
| Merchant portfolios | 76,423 | | | (40,087) | | | 36,336 | | | 6.7 |
| Technology | 48,690 | | | (17,684) | | | 31,006 | | | 9.9 |
| Non-compete agreements | 3,390 | | | (3,390) | | | — | | | 0.0 |
| Trade names | 2,870 | | | (2,069) | | | 801 | | | 11.7 |
Money transmission licenses(1) | 2,100 | | | — | | | 2,100 | | | |
| Total | $ | 537,336 | | | $ | (235,607) | | | $ | 301,729 | | | 9.9 |
(1)Money transmission licenses have an indefinite useful life.
| | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands, except weighted-average data) | December 31, 2021 | | Weighted-average
Useful Life |
| Gross Carrying Value | | Accumulated Amortization | | Net Carrying Value | |
| Other intangible assets: | | | | | | | |
| ISO and referral partner relationships | $ | 175,300 | | | $ | (11,679) | | | $ | 163,621 | | | 14.8 |
Residual buyouts(1) | 126,225 | | | (56,186) | | | 70,039 | | | 6.4 |
| Customer relationships | 95,566 | | | (70,883) | | | 24,683 | | | 8.1 |
| Merchant portfolios | 76,016 | | | (30,879) | | | 45,137 | | | 6.7 |
Technology(2) | 48,690 | | | (15,039) | | | 33,651 | | | 9.9 |
Non-compete agreements(2) | 3,390 | | | (3,390) | | | — | | | 0.0 |
| Trade names | 2,870 | | | (1,890) | | | 980 | | | 11.6 |
Money transmission licenses(3) | 2,100 | | | — | | | 2,100 | | | |
| Total | $ | 530,157 | | | $ | (189,946) | | | $ | 340,211 | | | 9.7 |
(1)Additions to residual buyouts were offset by certain assets that became fully amortized in 2021 but are still in service.
(2)Certain assets in the group became fully amortized in 2021 but are still in service.
(3)These assets have an indefinite useful life.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| (in thousands) | 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | |
| | | | | | | |
| Amortization expense | $ | 15,452 | | | $ | 10,191 | | | $ | 45,773 | | | $ | 25,858 | |
| | | | | | | |
| | | | | | | |
As of September 30, 2022, there were no impairment indicators present.
6. Property, Equipment and Software
A summary of property, equipment and software, net as of September 30, 2022 and December 31, 2021 was as follows:
| | | | | | | | | | | | | | | |
| (in thousands) | September 30, 2022 | | December 31, 2021 | | | | |
| Computer software | $ | 63,087 | | | $ | 52,715 | | | | | |
| Equipment | 12,916 | | | 12,255 | | | | | |
| Leasehold improvements | 6,720 | | | 6,467 | | | | | |
| Furniture and fixtures | 2,869 | | | 2,819 | | | | | |
| Property, equipment and software | 85,592 | | | 74,256 | | | | | |
| Less: accumulated depreciation | (55,819) | | | (49,023) | | | | | |
| Property, equipment and software, net | $ | 29,773 | | | $ | 25,233 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| (in thousands) | 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | |
| | | | | | | |
| Depreciation expense | $ | 2,365 | | | $ | 2,139 | | | $ | 6,902 | | | $ | 6,265 | |
| | | | | | | |
| | | | | | | |
Computer software represents purchased software and internally developed back office and merchant interfacing systems used to assist in the reporting of merchant processing transactions and other related information.
7. Notes Receivable
The Company had notes receivable of $3.1 million and $0.4 million as of September 30, 2022 and December 31, 2021, respectively, which are reported as current portion of notes receivable and notes receivable less current portion on the Company's Unaudited Consolidated Balance Sheets. The notes receivable carried weighted-average interest rates of 14.8% and 13.8% as of September 30, 2022 and December 31, 2021, respectively. The notes receivable are comprised of notes receivable from ISOs, and under the terms of the agreements the Company preserves the right to hold back residual payments due to the ISOs and to apply such residuals against future payments due to the Company. As of September 30, 2022 and December 31, 2021, the Company had no allowance for doubtful notes receivable.
As of September 30, 2022, the principal payments for the Company's notes receivable are due as follows:
| | | | | |
| (in thousands) | |
| Twelve months ending September 30, | |
| 2023 | $ | 986 | |
| 2024 | 792 | |
| 2025 | 522 | |
| 2026 | 515 | |
| 2027 | 243 | |
| After 2027 | — | |
| Total | $ | 3,058 | |
8. Debt Obligations
Outstanding debt obligations as of September 30, 2022 and December 31, 2021 consisted of the following:
| | | | | | | | | | | |
| (in thousands) | September 30, 2022 | | December 31, 2021 |
Term facility - matures April 27, 2027, interest rates of 8.27% and 6.75% at September 30, 2022 and December 31, 2021, respectively | $ | 612,250 | | | $ | 616,900 | |
Revolving credit facility - $40.0 million line, matures April 27, 2026, interest rates of 7.24% and 5.75% at September 30, 2022 and December 31, 2021, respectively | 6,000 | | | 15,000 | |
| Total debt obligations | 618,250 | | | 631,900 | |
| Less: current portion of long-term debt | (6,200) | | | (6,200) | |
| Less: unamortized debt discounts and deferred financing costs | (18,982) | | | (21,595) | |
| Long-term debt, net | $ | 593,068 | | | $ | 604,105 | |
Interest Expense and Amortization of Deferred Loan Costs and Discounts
Deferred financing costs and debt discounts are amortized using the effective interest method over the remaining term of the respective debt and are recorded as a component of interest expense. Unamortized deferred financing costs and debt discounts are included in long-term debt on the Company's Unaudited Consolidated Balance Sheets.
Outstanding borrowings under the Credit Agreement accrue interest using either a base rate or a LIBOR rate plus an applicable margin per year, subject to a LIBOR rate floor of 1.00% per year. The revolving credit facility incurs an unused commitment fee on any undrawn amount in an amount equal to 0.50% per year of the unused portion. The future applicable interest rate margins may vary based on the Company's Total Net Leverage Ratio in addition to future changes in the underlying market rates for LIBOR and the rate used for base-rate borrowings.
Interest expense for outstanding debt, including fees for undrawn amounts and amortization of deferred financing costs and debt discounts was as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| (in thousands) | 2022 | | 2021 | | 2022 | | 2021 |
| Interest expense | $ | 13,303 | | | $ | 8,155 | | | $ | 36,571 | | | $ | 24,608 | |
| | | | | | | |
| | | | | | | |
Interest expense included amortization of deferred financing costs and debt discounts of $0.9 million and $2.6 million for the three and nine months ended September 30, 2022, respectively, and $2.1 million and $3.3 million three and nine months ended September 30, 2021, respectively.
Deferred Loan Costs and Discounts, and Debt Extinguishment and Modification Expenses
In connection with the April 2021 refinancing, the Company recorded $8.3 million of debt extinguishment and modification costs for the nine months ended September 30, 2021 on the Company's Unaudited Consolidated Statements of Operations.
Debt Covenants
The Credit Agreement contains representations and warranties, financial and collateral requirements, mandatory payment events, events of default and affirmative and negative covenants, including without limitation, covenants that restrict among other things, the ability to create liens, pay dividends or distribute assets from the loan parties to the Company, merge or consolidate, dispose of assets, incur additional indebtedness, make certain investments or acquisitions, enter into certain transactions (including with affiliates) and to enter into certain leases.
If the aggregate principal amount of outstanding revolving loans and letters of credit under the Credit Agreement exceeds 35% of the total revolving facility thereunder, the loan parties are required to comply with certain restrictions on its Total Net Leverage Ratio. If applicable, the maximum permitted Total Net Leverage Ratio is: 1) 6.50:1.00 at each fiscal quarter ended September 30, 2021 through June 30, 2022; 2) 6.00:1.00 at each fiscal quarter ended September 30, 2022 through June 30, 2023; and 3) 5.50:1.00 at each fiscal quarter ended September 30, 2023 each fiscal quarter thereafter. As of September 30, 2022, the Total Net Leverage Ratio was not applicable and the Company was in compliance with our financial covenants.
9. Fair Value
Fair Value Measurements
Contingent consideration related to the Company's business combinations is estimated based on the present value of a weighted payout probability at the measurement date, which falls within Level 3 on the fair value hierarchy. The current portion of contingent consideration is included in accounts payable and accrued expenses on the Company's Unaudited Consolidated Balance Sheets and the noncurrent portion of contingent consideration is included in other noncurrent liabilities on the Company's Unaudited Consolidated Balance Sheets.
Liabilities measured at fair value on a recurring basis consisted of the following:
| | | | | | | | | | | | | | | | | |
| (in thousands) | Fair Value Hierarchy | | September 30, 2022 | | December 31, 2021 |
| Contingent consideration, current portion | Level 3 | | $ | 6,883 | | | $ | 4,006 | |
| Contingent consideration, noncurrent portion | Level 3 | | 3,870 | | | 6,680 | |
| Total contingent consideration | | | $ | 10,753 | | | $ | 10,686 | |
During the three and nine months ended September 30, 2022, there were no transfers into, out of, or between levels of the fair value hierarchy.
The following table provides a reconciliation of the beginning and ending balance of the Company's contingent consideration liability for the three and nine months ended September 30, 2022:
| | | | | |
| (in thousands) | Contingent Consideration Liability |
| December 31, 2021 | $ | 10,686 | |
| |
| |
| |
| Payment of contingent consideration | (415) | |
| March 31, 2022 | 10,271 | |
| |
| Accretion of discount on contingent consideration | 602 | |
| Fair value adjustments due to resolution of contingencies related to future payments | (48) | |
| |
| June 30, 2022 | 10,825 | |
| Addition of contingent consideration due to acquisition | — | |
| Accretion of discount on contingent consideration | 108 | |
| Fair value adjustments due to resolution of contingencies related to future payments | 1,070 | |
| Payment of contingent consideration | (1,250) | |
| September 30, 2022 | $ | 10,753 | |
The following table provides a reconciliation of the beginning and ending balance of the Company's contingent consideration liability for the three and nine months ended September 30, 2021:
| | | | | |
| (in thousands) | Contingent Consideration Liability |
| December 31, 2020 | $ | — | |
| |
| |
| |
| Payment of contingent consideration | — | |
| March 31, 2021 | — | |
| Addition of contingent consideration due to acquisition | 4,700 | |
| |
| |
| Payment of contingent consideration | — | |
| June 30, 2021 | 4,700 | |
| Addition of contingent consideration due to acquisition | 5,986 | |
| Accretion of discount on contingent consideration | — | |
| Fair value adjustments due to resolution of contingencies related to future payments | — | |
| Payment of contingent consideration | — | |
| September 30, 2021 | $ | 10,686 | |
Fair Value Disclosures
Notes Receivable
Notes receivable are carried at amortized cost. Substantially all of the Company's notes receivable are secured, and the Company provides for allowances when it believes that certain notes receivable may not be collectible. The carrying value of the Company's notes receivable, net approximates fair value and was approximately $3.1 million and $0.4 million at September 30, 2022 and December 31, 2021, respectively. On the fair value hierarchy, Level 3 inputs are used to estimate the fair value of these notes receivable.
Debt Obligations
Outstanding debt obligations are reflected in the Company's Unaudited Consolidated Balance Sheets at carrying value since the Company did not elect to remeasure debt obligations to fair value at the end of each reporting period.
The fair value of the of the term facility was estimated to be $590.8 million and $613.8 million at September 30, 2022 and December 31, 2021, respectively, and was estimated using binding and non-binding quoted prices in an active secondary market, which considers the credit risk and market related conditions, and is within Level 3 of the fair value hierarchy.
The carrying values of the other long-term debt obligations approximate fair value due to mechanisms in the credit agreements that adjust the applicable interest rates and the lack of a market for these debt obligations.
10. Redeemable Senior Preferred Stock and Warrants
The following table provides a reconciliation of the beginning and ending carrying amounts of the redeemable senior preferred stock for the three and nine months ended September 30, 2022:
| | | | | | | | | | | |
| (in thousands) | Shares | | Amount |
| December 31, 2021 | 225 | | | $ | 210,158 | |
| Unpaid dividend on redeemable senior preferred stock | — | | | 4,090 | |
| Accretion of discounts and issuance cost | — | | | 805 | |
| March 31, 2022 | 225 | | | 215,053 | |
| Unpaid dividend on redeemable senior preferred stock | — | | | 4,161 | |
| Accretion of discounts and issuance cost | — | | | 817 | |
| June 30, 2022 | 225 | | | $ | 220,031 | |
| Unpaid dividend on redeemable senior preferred stock | — | | | 4,234 | |
| Accretion of discounts and issuance cost | — | | | 830 | |
| September 30, 2022 | 225 | | | $ | 225,095 | |
The following table provides a reconciliation of the beginning and ending carrying amounts of the redeemable senior preferred stock for the three and nine months ended September 30, 2021
| | | | | | | | | | | |
| (in thousands) | Shares | | Amount |
| December 31, 2020 | — | | | $ | — | |
| Proceeds from issuance of redeemable senior preferred stock, net of discount and issuance costs | 150 | | | $ | 131,426 | |
| Unpaid dividend on redeemable senior preferred stock | — | | | 1,838 | |
| Accretion of discounts and issuance cost | — | | | 498 | |
| June 30, 2021 | 150 | | | 133,762 | |
| Proceeds from issuance of redeemable senior preferred stock, net of discount and issuance costs | 75 | | | 68,183 | |
| Unpaid dividend on redeemable senior preferred stock | — | | | 2,846 | |
| Accretion of discounts and issuance cost | — | | | 527 | |
| September 30, 2021 | 225 | | | $ | 205,318 | |
The following table provides a summary of the dividends for the period presented:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| (in thousands) | 2022 | | 2021 | | 2022 | | 2021 |
| Dividends paid in cash | $ | 4,402 | | | $ | 2,440 | | | $ | 11,478 | | | $ | 4,015 | |
| Accumulated dividends accrued as part of the carrying value of redeemable senior preferred stock | 4,234 | | | 2,846 | | | 12,485 | | | 4,684 | |
Dividends declared at the rate of 13.0% per year | $ | 8,636 | | | $ | 5,286 | | | $ | 23,963 | | | $ | 8,699 | |
On April 27, 2021, the Company issued warrants to purchase up to 1,803,841 shares of the Common Stock, at an exercise price of $0.001. As of September 30, 2022, none of the warrants have been exercised. The warrants are considered to be equity contracts indexed in the Company's own shares and therefore were recorded at their inception date relative fair value and are included in additional paid-in capital on the Company's Unaudited Consolidated Balance Sheets.
11. Income Taxes
The Company's consolidated effective income tax rate for the three and nine months ended September 30, 2022, was 188.1% and 184.2%, respectively. The effective rate for the three and nine months ended September 30, 2022 differed from the statutory rate of 21.0% primarily due to an increase in the valuation allowance against certain business interest carryover deferred tax assets.
The Company's consolidated effective income tax (benefit) rate for the three and nine months ended September 30, 2021, was 327.8% and (0.4)%, respectively. The effective rate for the three and nine months ended September 30, 2021 differed from the statutory federal rate of 21.0% primarily due to an increase in the valuation allowance against certain business interest carryover deferred tax assets.
Valuation Allowance for Deferred Income Tax Assets
The Company considers all available positive and negative evidence to determine whether sufficient taxable income will be generated in the future to permit realization of the existing deferred tax assets. In accordance with the provisions of ASC 740, Income Taxes, the Company is required to provide a valuation allowance against deferred income tax assets when it is "more likely than not" that some portion or all of the deferred tax assets will not be realized.
Based on management's assessment, as of September 30, 2022, the Company continues to record a full valuation allowance against non-deductible interest expense. The Company will continue to evaluate the realizability of the net deferred tax asset on a quarterly basis and, as a result, the valuation allowance may change in future periods.
On August 16, 2022, the U.S. government enacted the Inflation Reduction Act into law. The IRA, among other provisions, implements a 15% corporate alternative minimum tax based on global adjusted financial statement income and a 1% excise tax on share repurchases, which shall take effect in tax years beginning after December 31, 2022. We are in the process of evaluating the provisions of the IRA, but we do not currently believe the IRA will have a material effect on our reported results, cash flows, or financial position when it becomes effective. If applicable, we expect to reflect the excise tax within equity as part of the repurchase price of common stock.
12. Commitments and Contingencies
Minimum Annual Commitments with Third-party Processors
The Company has multi-year agreements with third parties to provide certain payment processing services to the Company. The Company pays processing fees under these agreements that are based on the volume and dollar amounts of processed payment transactions. Some of these agreements have minimum annual requirements for processing volumes. Based on existing contracts in place at September 30, 2022, the Company is committed to pay minimum processing fees under these agreements of approximately $15.7 million in 2022 and $17.0 million in 2023.
Contingent Consideration
For asset acquisitions that do not meet the definition of a business, the portion of the unpaid purchase price that is contingent on future activities is not initially recorded by the acquirer on the date of acquisition. Rather, the acquirer generally recognizes contingent consideration when it becomes probable and estimable.
On April 14, 2022, the Company amended the purchase agreement related to its acquisition of certain residual portfolio rights in 2019 to provide for an additional earnout opportunity to be earned during the 12 months ending March 31, 2023. The initial
purchase price was subject to an increase of up to $6.4 million in accordance with the terms of the agreement between the Company and the sellers. In connection with this amendment, the Company paid $2.1 million to the sellers during the second quarter of 2022.
As of September 30, 2022 and December 31, 2021, the Company had accrued $0.1 million and $2.4 million, respectively, of estimated remaining cash consideration and additional accumulated costs related to its October 2019 acquisition of certain merchant portfolio rights. The Company had recorded aggregate costs, including both actual costs and estimated remaining consideration, totaling $11.5 million and $11.1 million as of September 30, 2022 and December 31, 2021, respectively. Amortization expense was adjusted to reflect the new carrying value at the original purchase date. As of September 30, 2022 and December 31, 2021, accumulated amortization was $6.7 million and $5.0 million, respectively. The merchant portfolio has an estimated remaining life of two years at September 30, 2022.
See Note 3, Acquisitions, for information about contingent consideration related to other acquisitions. Legal Proceedings
The Company is involved in certain legal proceedings and claims which arise in the ordinary course of business. In the opinion of the Company and based on consultations with internal and external counsel, the results of any of these matters, individually and in the aggregate, are not expected to have a material effect on the Company's results of operations, financial condition or cash flows. As more information becomes available, and the Company determines that an unfavorable outcome is probable on a claim and that the amount of probable loss that the Company will incur on that claim is reasonably estimable, the Company will record an accrued expense for the claim in question. If and when the Company records such an accrual, it could be material and could adversely impact the Company's results of operations, financial condition and cash flows.
Concentration of Risks
The Company's revenue is substantially derived from processing Visa and Mastercard bankcard transactions. Because the Company is not a member bank, in order to process these bankcard transactions, the Company maintains sponsorship agreements with member banks which require, among other things, that the Company abide by the by-laws and regulations of the card associations.
A majority of the Company's cash and restricted cash is held in certain FIs, substantially all of which is in excess of federal deposit insurance corporation limits. The Company does not believe it is exposed to any significant credit risk from these transactions.
13. Related Party Transactions
Employee Loan
In February 2021, the Company loaned $0.9 million to an employee who is considered to be an affiliate of the Company. Under the terms the loan agreement, the loan accrues interest at the rate of 4.0% per year and is secured by shares of the Company's Common Stock that are owned by the employee. The loan was originally repayable in August 2021, but the agreement was amended in August 2021 to automatically renew for one year terms until the Company requires repayment. The loan may be prepaid at any time. As of September 30, 2022 and December 31, 2021, the amount due to the Company for this loan was $0.9 million.
PHOT Preferred Unit Redemption - Distribution to NCIs
In November 2020, the Company agreed to an exchange of shares of Common Stock of the Company, or cash, for the $4.8 million of remaining undistributed preferred equity interests related to the February 2019 contribution of the eTab and Cumulus assets to PHOT. An exchange valuation for the Company's Common Stock was established as of November 12, 2020 at the prior 20-day volume weighted average price of $2.78 per share. The exchange was contingent upon receiving approval of the Company's lenders; therefore, the binding exchange agreements were not entered into until after lender approval was received in April 2021. In May 2021, the Company entered into exchange agreements and completed the exchange of 1,428,358
shares of Common Stock and $0.8 million of cash for the undistributed preferred equity interests. The CEO received 605,623 shares of Common Stock of the Company in exchange for his 35.3% interest, and the Company's Chief Operating Officer received 413,081 shares of Common Stock of the Company in exchange for her 24.1% interest. Subsequent to establishing the Common Stock valuation in November 2020 and the date of exchange in May 2021, the Company's Common Stock price appreciated to $7.75 per share. The Company's Unaudited Consolidated Financial Statements for the nine months ended September 30, 2021 reflect this exchange as a distribution to NCIs at an appreciated Common Stock value of $6.975 per share, which incorporates a 10% liquidity discount of $0.775 per share due to trading restrictions under Securities Act Rule 144. Therefore, the total distribution amounted to $10.8 million, comprised of $10.0 million of Common Stock and $0.8 million of cash. In addition, the Company recorded a $2.8 million tax benefit related to an increase in the tax basis associated with the share exchange, for a net impact to equity of $8.0 million.
14. Stock-based Compensation
For the three and nine months ended September 30, 2022 and 2021, stock-based compensation expense was as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| (in thousands) | 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | |
| | | | | | | |
| Stock-based compensation expense | $ | 1,104 | | | $ | 935 | | | 4,204 | | | $ | 2,349 | |
| | | | | | | |
| | | | | | | |
In March 2021, the Company converted a $0.3 million liability-classified stock-based compensation award for restricted stock units under the 2018 Plan, whereby the service inception date preceded the future grant-date, to an equity-classified award when the restricted stock units were granted.
Income tax benefit for stock-based compensation was immaterial for the three and nine months ended September 30, 2022 and 2021. No stock-based compensation has been capitalized.
2018 Plan
The Company's 2018 Plan initially provided for the issuance of up to 6,685,696 shares of the Company's Common Stock. On March 17, 2022, the Company's Board of Directors unanimously approved an amendment to the 2018 Plan, which was subsequently approved by our shareholders, to increase the number of shares authorized for issuance under the plan by 2,500,000 shares, resulting in 9,185,696 shares of the Company's Common Stock authorized for issuance under the plan.
2021 Stock Purchase Plan
The 2021 Stock Purchase Plan provides for up to 200,000 shares to be purchased under the plan. Shares issued under the plan may be authorized but unissued or reacquired shares of Common Stock. All employees of the Company who work more than 20 hours per week and have been employed by the Company for at least 30 days may participate in the 2021 Stock Purchase Plan.
Under the 2021 Stock Purchase Plan, participants are offered, on the first day of the offering period, the option to purchase shares of Common Stock at a discount on the last day of the offering period. The offering period shall be for a period of three months, and the first offering period began on January 10, 2022. The 2021 Stock Purchase Plan provides eligible employees the opportunity to purchase shares of the Company's Common Stock on a quarterly basis through payroll deductions at a price equal to 95% of the lesser of the fair value on the first and last trading day of each offering period. The compensation expense for the three and nine months ended September 30, 2022, was immaterial and is included in stock-based compensation in the table above.
15. Stockholders' Equity
The Company is authorized to issue 100,000,000 shares of preferred stock with such designations, voting and other rights and preferences as may be determined from time to time by the Company's Board of Directors. As of September 30, 2022 and December 31, 2021, the Company has not issued any shares of preferred stock.
2022 Share Repurchase Program
During the second quarter of 2022, PRTH's Board of Directors authorized the Company to implement a general share repurchase program under which the Company may purchase up to 2.0 million shares of its outstanding Common Stock for a total of up to $10.0 million. Under the terms of this plan, the Company may purchase shares through open market purchases, unsolicited or solicited privately negotiated transactions, or in another manner so long as it complies with applicable rules and regulations.
In August 2021, Priority's Board of Directors authorized a $10.0 million share repurchase program. Under this program the Company was authorized to purchase up to 1.0 million shares of its Common Stock through open market transactions, unsolicited or solicited privately negotiated transactions, or otherwise in accordance with all applicable securities laws and regulations. The 2021 Share Repurchase Program was terminated effective on the close of business on September 23, 2021.
For the three and nine months ended September 30, 2022 and 2021, share repurchase activity was as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| in thousands, except share data, which is in whole units | 2022 | | 2021 | | 2022 | | 2021 |
Number of shares purchased(1) | 626,673 | | | 162,715 | | | 1,005,918 | | | 162,715 | |
| Average price paid per share | $ | 4.11 | | | $ | 6.29 | | | $ | 4.20 | | | $ | 6.29 | |
| Total Investment | $ | 2,578 | | | $ | 1,023 | | | $ | 4,227 | | | $ | 1,023 | |
| | | | | | | |
(1.)These amounts may differ from the repurchases of common stock amounts in the Consolidated Statements of Cash Flows due to unsettled share repurchases at the end of quarter.
16. Segment Information
Prior to the fourth quarter of 2021, the Company's three reportable segments included the Consumer Payments segment, the Commercial Payments segment and the Integrated Partners segment. As a result of the Company's organic growth and recent acquisitions, a new internal reporting structure was implemented which resulted in changes to the Company's reportable segments. The three new reportable operating segments are SMB Payments, B2B Payments and Enterprise Payments. All comparative periods have been adjusted to reflect the new reportable segments.
More information about our three reportable segments:
•SMB Payments – provides full-service acquiring and payment-enabled solutions for B2C transactions, leveraging the Company's proprietary software platform, distributed through ISOs, direct sales and vertically focused ISV channels.
•B2B Payments – provides AP automation solutions to corporations, software partners and FIs, including Citi, Mastercard and American Express.
•Enterprise Payments – provides embedded payment and banking solutions to enterprise customers that modernize legacy platforms and accelerate modern software partners looking to monetize payments.
Corporate includes costs of corporate functions and shared services not allocated to our reportable segments.
Information on reportable segments and reconciliations to consolidated revenues, consolidated depreciation and amortization, and consolidated operating income are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands) | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Revenues: | | | | | | | |
| SMB Payments | $ | 139,892 | | | $ | 124,737 | | | $ | 412,357 | | | $ | 354,149 | |
| B2B Payments | 4,868 | | | 4,181 | | | 16,088 | | | 11,722 | |
| Enterprise Payments | 21,657 | | | 3,624 | | | 57,641 | | | 4,982 | |
| Consolidated revenues | $ | 166,417 | | | $ | 132,542 | | | $ | 486,086 | | | $ | 370,853 | |
| | | | | | | |
| Depreciation and amortization: | | | | | | | |
| SMB Payments | $ | 11,040 | | | $ | 11,049 | | | $ | 32,844 | | | $ | 30,130 | |
| B2B Payments | 295 | | | 73 | | | 441 | | | 220 | |
| Enterprise Payments | 6,203 | | | 939 | | | 18,599 | | | 939 | |
| Corporate | 279 | | | 269 | | | 791 | | | 834 | |
| Consolidated depreciation and amortization | $ | 17,817 | | | $ | 12,330 | | | $ | 52,675 | | | $ | 32,123 | |
| | | | | | | |
| Operating (loss) income: | | | | | | | |
| SMB Payments | $ | 13,447 | | | $ | 14,647 | | | $ | 39,928 | | | $ | 42,380 | |
| B2B Payments | 217 | | | (29) | | | 1,289 | | | (417) | |
| Enterprise Payments | 9,312 | | | 1,229 | | | 19,504 | | | 1,564 | |
| Corporate | (8,896) | | | (7,597) | | | (22,755) | | | (23,345) | |
| Consolidated operating income | $ | 14,080 | | | $ | 8,250 | | | $ | 37,966 | | | $ | 20,182 | |
A reconciliation of total operating (loss) income of reportable segments to the Company's net (loss) is provided in the following table:
| | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands) | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Total operating income of reportable segments | $ | 22,976 | | | $ | 15,847 | | | $ | 60,721 | | | $ | 43,527 | |
| Corporate | (8,896) | | | (7,597) | | | (22,755) | | | (23,345) | |
| Interest expense | (13,412) | | | (8,155) | | | (37,282) | | | (24,608) | |
| Debt modification and extinguishment costs | — | | | — | | | — | | | (8,322) | |
| | | | | | | |
| Other income, net | 231 | | | 146 | | | 311 | | | 92 | |
| Income tax expense | (1,691) | | | (790) | | | (1,833) | | | (49) | |
| Net loss | $ | (792) | | | $ | (549) | | | $ | (838) | | | $ | (12,705) | |
| | | | | | | |
| | | | | | | |
17. Loss per Common Share
The following tables set forth the computation of the Company's basic and diluted loss per common share:`
| | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands except per share amounts) | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Numerator: | | | | | | | |
| 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: Non-controlling interest preferred unit redemptions | — | | | — | | | — | | | (10,777) | |
| | | | | | | |
| Net loss attributable to common stockholders | $ | (10,258) | | | $ | (6,362) | | | $ | (27,253) | | | $ | (33,206) | |
| Denominator: | | | | | | | |
| Basic and diluted: | | | | | | | |
Weighted-average common shares outstanding(1) | 77,984 | | | 71,979 | | | 78,392 | | | 69,689 | |
| Loss per common share | $ | (0.13) | | | $ | (0.09) | | | $ | (0.35) | | | $ | (0.48) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
(1)The weighted-average common shares outstanding includes 1,803,841 warrants issued in the second quarter of 2021.
Potentially anti-dilutive securities that were excluded from the Company's loss per common share that could potentially be dilutive in future periods are as follows: | | | | | | | | | | | |
| Nine Months Ended September 30, |
| (in thousands) | 2022 | | 2021 |
Outstanding warrants on Common Stock(1) | 3,557 | | | 3,557 | |
Outstanding options and warrants issued to adviser(2) | 600 | | | 600 | |
Restricted stock awards(3) | 1,126 | | | 1,202 | |
| Liability-classified restricted stock units | — | | | 135 | |
Outstanding stock option awards(3) | 2,292 | | | 1,232 | |
| Total | 7,575 | | | 6,726 | |
(1)The warrants are exercisable at $11.50 per share and expire on August 24, 2023.
(2)The warrants and options are exercisable at $12.00 per share and expire on August 24, 2023.
(3)Granted under the 2018 Plan.