Priority Technology Holdings, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparison is with Q1 2023 unless otherwise noted. Priority provides merchant acquiring, integrated payment software, money transmission, and commercial payment services. Results include Plastiq, acquired July 31, 2023.
Financial performance
| Metric | Q1 2024 | Q1 2023 / comparison |
|---|---|---|
| Revenue | $205.7 million | $185.0 million; up 11.2% |
| Operating income | $28.0 million | $16.8 million; operating margin about 13.6% versus 9.1% |
| Net income (loss) | $5.2 million | $(0.5) million |
| Net loss attributable to common stockholders | $(8.1) million; $(0.10) per share | $(11.8) million; $(0.15) per share |
| Operating cash flow | $13.3 million | $27.7 million |
| Investing cash flow | $(7.7) million, including $6.6 million of property, equipment and software additions | $(7.6) million |
| Financing cash flow | $(10.3) million | $57.5 million provided, including a large increase in customer-fund obligations |
Revenue mix: merchant card fees were $157.9 million, money transmission services $29.1 million, outsourced and other services $15.7 million, and equipment $3.0 million. Interest income included in outsourced and other services was $11.9 million, versus $5.0 million a year earlier.
Segments and material changes
- SMB Payments: Revenue fell 7.2% to $143.8 million, reflecting lower volumes, reduced incentives, and a referral partner’s merchant portfolio diversification. Operating income edged up to $12.4 million; reported operating margin was 8.6%.
- B2B Payments: Revenue rose to $21.1 million from $2.8 million, primarily reflecting Plastiq. The segment recorded a $0.8 million operating loss, broadly unchanged year over year.
- Enterprise Payments: Revenue increased 49.6% to $40.9 million and operating income rose to $25.5 million, supported by more enrollments and billed clients, as well as higher interest income from rates and deposit balances. Reported operating margin was 62.5%.
- Consolidated cost of revenue increased 6.0% to $129.3 million. Salary and benefits increased 16.3% to $22.2 million, while depreciation and amortization declined 15.5% to $15.3 million, mainly because certain intangible assets became fully amortized in 2023.
- Interest expense increased 18.0% to $20.9 million, reflecting higher rates and term-loan borrowings associated with Plastiq. Merchant losses increased to $4.7 million from $1.0 million.
Liquidity, debt, and capital structure
- At March 31, 2024, cash and cash equivalents were $34.3 million, restricted cash $12.7 million, and working capital $32.4 million. The filing says cash, operating cash generation, and available revolver borrowings are expected to cover working-capital needs for at least 12 months.
- Approximately $65.0 million was available under the revolving credit facility. Gross term-facility debt was $652.7 million; debt carrying value including current debt and net of unamortized discounts and issuance costs was $638.1 million. The term facility bears 11.19% interest and matures in April 2027; the revolver matures in April 2026. The company reported compliance with credit covenants.
- Settlement assets and customer/subscriber balances of $752.6 million are largely matched by $753.9 million of related obligations and are not available for ordinary operating needs. Reported cash figures should therefore be considered alongside these customer-fund balances.
- Redeemable senior preferred stock had a $280.3 million redemption value, including accumulated dividends, and a 17.6% dividend rate. Q1 dividends and accretion attributable to preferred holders were $12.7 million. The quarter’s $7.1 million cash dividend was paid April 1, 2024.
- Stockholders’ deficit was $158.1 million. The company reported $5.8 million of redeemable non-controlling interests following the PHOT-related settlement.
Outlook, risks, and unusual items
- No numerical revenue, earnings, or cash-flow guidance is provided. Management’s stated liquidity expectation covers at least the next 12 months.
- Management identifies risks including economic and spending conditions, competition, reliance on distribution partners and third-party processors, cybersecurity and processing-system disruptions, regulation and payment-network requirements, and acquisition-related risks.
- Plastiq contributed materially to B2B growth; its purchase consideration was approximately $37.0 million, partly funded with revolver borrowings. Contingent consideration liabilities were $11.3 million at quarter-end.
- A January 2024 settlement unwound a prior exchange involving PHOT redeemable preferred units and returned 1.43 million common shares, recorded as treasury stock. The filing reports a pending putative California privacy class action seeking $5,000 per alleged violation; as of May 9, 2024, any financial impact was neither probable nor estimable. Management says ordinary-course legal matters are not expected to be material, but a future accrual could be material.
- The effective tax rate was 33.2%; management cites forecast nondeductible expenses and a valuation allowance related to business-interest carryforwards. A full valuation allowance remains against nondeductible interest expense deferred tax assets.
- Management reported effective disclosure controls as of March 31, 2024 and no material change in internal control over financial reporting during the quarter.
Key facts for investors to verify
- Whether SMB merchant volume and referral-partner diversification continue to pressure revenue and merchant economics.
- How much of Enterprise growth and profitability depends on interest rates and customer deposit balances.
- Plastiq’s contribution to sustainable B2B revenue and the segment’s path to operating profitability.
- Debt-servicing capacity, floating-rate exposure, preferred dividends at a 17.6% rate, and continued covenant compliance.
- Operating cash-flow conversion, given the year-over-year decline, and the distinction between corporate liquidity and customer funds.
- Developments in the California class action, contingent consideration, and the PHOT settlement and related-party arrangements.