Priority Technology Holdings Announces Third Quarter 2018 Financial Results

November 15, 2018

ALPHARETTA, Ga.--(BUSINESS WIRE)--Nov 14, 2018--Priority Technology Holdings, Inc. (NASDAQ: PRTH) (“Priority” or the “Company”), a leading provider of merchant acquiring and commercial payment solutions, today announced results for the third quarter ended September 30, 2018.

Consolidated revenue in the third quarter of 2018 was $103.6 million, a decline of 6.6% compared to $110.9 million in the prior year period. A 10.5% year-over-year increase in bankcard processing dollar volume and a 6.8% increase in bankcard transactions were more than offset by the loss of business from certain high-margin e-commerce merchants.

Consolidated income from operations was $3.6 million for the quarter ended September 30, 2018 compared to $9.5 million in the prior year period. Consolidated net loss under GAAP for the third quarter of 2018 was $2.6 million, which included an income tax benefit of $1.0 million, compared to consolidated net income of $2.3 million in the third quarter of 2017. Consolidated Adjusted EBITDA was $12.7 million for the quarter ended September 30, 2018, compared to $15.6 million in the prior year period. Consolidated income from operations, net loss, and Adjusted EBITDA were negatively impacted by the loss of business from certain high-margin e-commerce merchants, increased interest expense, and one-time costs related to the public-company transaction, as well as costs associated with the continued ramp up of business in our Commercial Payments and Managed Services segment.

“During the third quarter, we saw continued strength in organic sales growth throughout our business and improvement in our gross profit trends, with double-digit transaction volume growth in the Consumer Payments and Commercial Payments and Managed Services segments, as well as the positive impact to gross profit from accretive acquisitions in our distribution channels and integrated technology offerings. Our results were negatively impacted by the closure of certain high-margin e-commerce merchants in our Consumer Payments segment representing approximately two percent of our processing volume. The card associations have recently announced new industry-wide compliance rules for this merchant channel, which we are implementing. As we rebuild revenue streams for subscription billing under the new card association rules, we are likewise taking a deliberate and disciplined approach to maximizing our organic volume and gross profit growth trends while managing a robust pipeline of accretive acquisitions,” said Tom Priore, Executive Chairman of the Company.

Acquisition Update

Priority’s acquisition strategy is focused on identifying immediately accretive purchases of residual sales channels designed to improve earnings and lock in long-term revenue and sales commitments with independent resellers. In addition to these purchases of merchant portfolios in the third quarter, the Company consummated three business acquisitions:

Priority Payment Systems Northeast - previously an independent brand-licensed office of the Company with expertise in software-integrated payment services designed to manage turnkey installations of point-of-sale and supporting systems and marketing programs emphasizing online ordering systems and digital marketing campaigns. Priority Payment Systems Tech Partners - previously an independent brand-licensed office of the Company with a track record and extensive network in the integrated payments and business-to-business (B2B) marketplaces. RadPad and Landlord Station - operating under the “Priority Real Estate Technology” name, provides a holistic marketplace model for the down-stream rental real estate industry, including lead generation and conversion, facilitation of tenant screening and value-added services such as rent payments and other products for renters.

In addition to the third quarter acquisitions, presently the Company is in final discussions to execute a number of accretive acquisitions that are expected to close in December and contribute approximately $20 million in annual Earn-out Adjusted EBITDA for 2018. The Company anticipates upsizing its existing credit facility with SunTrust to facilitate the transactions.

“Bringing a measure of liquidity to our distribution partners has been an important element of our success as it builds loyalty among our resellers and bolsters long term growth. Blending strategic distribution acquisitions with targeted integrated payment opportunities, like those we have lined up for the 4 th quarter, is core to our long term growth and value creation strategies,” said Chief Executive Officer John Priore.

2018 Outlook

Tom Priore concluded, “We remain confident in achieving our Earn-out Adjusted EBITDA (a non-GAAP measure) target of $82.5 million for the full year 2018, despite the temporary industry-wide headwinds we’ve experienced in the subscription e-commerce market. Our growth is being driven by a combination of strong organic volumes and improved gross profit trends - in each of our business segments - along with several strategic, accretive acquisitions that affirm our position as a consolidation platform in payments, well positioned to create long term enterprise value for our shareholders.”

Conference Call

Priority Technology Holdings Inc.’s leadership will host a conference call on Thursday, November 15, 2018 at 8:30 a.m. ET to discuss its third quarter financial results. Participants can access the call by phone at (877) 501-3161 or (786) 815-8443, or via the Internet at https://edge.media-server.com/m6/p/eybxyc72. The webcast link will also be posted in the “Investor Relations” section of the Company’s website at www.PRTH.com. An audio replay of the call will be available shortly after the conference call by dialing (855) 859-2056 or (404) 537-3406 and entering conference ID number 5178847. Alternatively, you may access the webcast replay in the “Investor Relations” section of the Company’s website at www.PRTH.com.

Non-GAAP Financial Measures - EBITDA, Adjusted EBITDA and Earnout Adjusted EBITDA

Included in this quarterly announcement are discussions and reconciliations of earnings before interest, income tax and depreciation and amortization (“EBITDA”) and EBITDA adjusted for certain non-cash, non-recurring or non-core expenses (“Adjusted EBITDA”) to net income in accordance with GAAP. Adjusted EBITDA excludes certain non-cash and other expenses, litigation settlement costs, certain legal services costs, professional and consulting fees and expenses, severance, separation and employee settlements, share-based compensation and one-time business combination expenses and certain adjustments. We believe these non-GAAP measures 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.

In addition, our financial covenants under our debt agreements and the earnout incentive plan pursuant to the business combination and recapitalization events that occurred in the third quarter of 2018, are based on a measure similar to Adjusted EBITDA (“Earnout Adjusted EBITDA”). The calculations of Earnout Adjusted EBITDA under our debt agreements and the earnout incentive plan include adjustments for, among other things, pro forma effects related to acquired merchant portfolios and residual streams and run rate adjustments for certain contracted savings on an annualized basis, which are not included as adjustments to Adjusted EBITDA.

These non-GAAP measures are not in accordance with, or an alternative to, GAAP and should be considered in addition to, and not as a substitute or superior to, the other measures of financial performance prepared in accordance with GAAP. Using only the non-GAAP financial measures, particularly Adjusted EBITDA or Earnout Adjusted EBITDA, to analyze our performance would have material limitations because their calculations are based on subjective determination regarding the nature and classification of events and circumstances that investors may find significant. We compensate for these limitations by presenting both the GAAP and non-GAAP measures of our operating results. Although other companies may report measures entitled “Adjusted EBITDA” or similar in nature, numerous methods may exist for calculating a company’s Adjusted EBITDA or similar measures. As a result, the methods we use to calculate Adjusted EBITDA and Earnout Adjusted EBITDA may differ from the methods used by other companies to calculate their non-GAAP measures.

About Priority Technology Holdings, Inc.

Priority is a leading provider of merchant acquiring and commercial payment solutions, offering unique product and service capabilities to its merchant network and distribution partners. Our enterprise operates from a purpose-built business platform that includes tailored customer service offerings and bespoke technology development, allowing us to provide end-to-end solutions for payment and payment-adjacent opportunities. Additional information can be found at  www.PRTH.com.

Forward-Looking Statements

This press release contains forward-looking statements that are subject to certain risks, trends and uncertainties that could cause actual results to differ materially from those projected, expressed, or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by use of words such as “may, will, should, anticipates, believes, expects, plans, future, intends, could, estimate, predict, projects, targeting, potential or contingent,” the negative of these terms or other similar expressions. Our actual results could differ materially 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. These filings are available online at www.sec.gov or www.PRTH.com.

We caution you that the important factors referenced above may not contain all of the factors that are important to you. In addition, we cannot assure you that we will realize the results or developments we expect or anticipate or, even if substantially realized, that they will result in the consequences we anticipate or affect us or our operations in the way we expect. 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.

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