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What changed in Priority Technology Holdings, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Priority Technology Holdings, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+239 added−213 removedSource: 10-K (2024-03-12) vs 10-K (2023-03-23)

Top changes in Priority Technology Holdings, Inc.'s 2023 10-K

239 paragraphs added · 213 removed · 165 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

66 edited+18 added−14 removed57 unchanged
Biggest changeOur market strategy has resulted in a merchant base that we believe is diversified across both industries and geographies resulting in, what we believe, is more stable average profitability per merchant. Only one single reseller relationship contributes more than 10% of total bankcard processing volume, and that one relationship represents approximately 18% of our total bankcard processing volume.
Biggest changePassport's offering provides those partners with a fully automated, scalable and integrated financial tool to collect, store, lend and send money for their customers. Our market strategy has resulted in a merchant base that we believe is diversified across both industries and geographies resulting in, what we believe, is more stable average profitability per merchant.
Growth strategies include: Organic Growth in our Reseller and Merchant Base We expect to grow through our existing reseller network and merchant base by capitalizing on the organic growth of existing merchant volume and reseller merchant portfolios.
Growth strategies include: Organic Growth in our Reseller Network and Merchant Base We expect to grow through our existing reseller network and merchant base by capitalizing on the organic growth of existing merchant volume and reseller merchant portfolios.
The foregoing is not an exhaustive list of the laws, rules and regulations to which we are subject to and the regulatory framework governing our business is changing continuously. Intellectual Property We have developed a payments platform that includes many instances of proprietary software, code sets, workflows and algorithms.
The foregoing is not an exhaustive list of the laws, rules and regulations which we are subject to and the regulatory framework governing our business is changing continuously. Intellectual Property We have developed a payments platform that includes many instances of proprietary software, code sets, workflows and algorithms.
These laws and regulations include: 1) the federal Gramm-Leach-Bliley Act of 1999, which applies to a broad range of FIs and to companies that provide services to FIs in the U.S.; 2) certain health care technology laws, including HIPAA and the Health Information Technology for Economic and Clinical Act; and 3) the CCPA, which establishes a new privacy framework for covered businesses by: i) creating an expanded definition of personal information; ii) establishing new data privacy rights for consumers in the State of California; iii) imposing special rules on the collection of consumer data from minors; and iv) creating a new and potentially severe statutory damages framework for violations of the CCPA and for businesses that fail to implement reasonable security procedures and practices to prevent data breaches.
These laws and regulations include: 1) the federal Gramm-Leach-Bliley Act of 1999, which applies to a broad range of FIs and to companies 13 Table of Contents that provide services to FIs in the U.S.; 2) certain health care technology laws, including HIPAA and the Health Information Technology for Economic and Clinical Act; and 3) the CCPA, which establishes a new privacy framework for covered businesses by: i) creating an expanded definition of personal information; ii) establishing new data privacy rights for consumers in the State of California; iii) imposing special rules on the collection of consumer data from minors; and iv) creating a new and potentially severe statutory damages framework for violations of the CCPA and for businesses that fail to implement reasonable security procedures and practices to prevent data breaches.
Availability of Filings Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, are made available free of charge on our internet website at www.prth.com, as soon as reasonably practicable after we have electronically filed the material with, or furnished it to the SEC.
Availability of Filings Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, are made available free of charge on our internet website at www.prioritycommerce.com, as soon as reasonably practicable after we have electronically filed the material with, or furnished it to the SEC.
This segment is quickly growing as marketplaces, gig economy platforms, software partners, and legacy business platforms are incorporating features of payment processing and embedded finance services into their customer experience and enhance their offering. Expand our Network of Distribution Partners We have established and maintained a strong position within the reseller community with approximately 1,300 partners.
This segment is quickly growing as marketplaces, gig economy platforms, software partners, and legacy business platforms are incorporating features of payment processing and embedded finance services into their customer experience and enhance their offering. Expand our Network of Distribution Partners We have established and maintained a strong position within the reseller community with approximately 1,200 partners.
Competitive Strengths We possess certain attributes that we believe differentiate us as a leading provider of merchant acquiring, commercial payment and embedded finance solutions in the U.S. Our key competitive strengths include: • Diverse Reseller Community – We maintain strong reseller relationships with approximately 1,300 partners, including ISOs, FIs, ISVs, VARs and other referral partners.
Competitive Strengths We possess certain attributes that we believe differentiate us as a leading provider of merchant acquiring, commercial payment and embedded finance solutions in the U.S. Our key competitive strengths include: • Diverse Reseller Community – We maintain strong reseller relationships with approximately 1,200 partners, including ISOs, FIs, ISVs, VARs and other referral partners.
The commercial payments market is the largest and one of the fastest growing payments markets in the U.S. by volume. We are well positioned to capitalize on the shift from check to Electronic Payments, which currently lags the consumer payments market, by eliminating the friction between buyers and suppliers through our industry leading offerings.
The commercial payments market is the largest and one of the fastest growing payments markets in the U.S. by volume. We are well positioned to capitalize on the shift from check to Electronic Payments, which currently lags the consumer payments market, by eliminating the friction between buyers and suppliers through our industry leading offerings of CPX and Plastiq.
Deploy our Embedded Finance Solution to Enterprise Customers Our Enterprise Payments segment, and its flagship product Priority Passport enables software partners and business platform customers to embed our payments and treasury solutions into their core operating and business systems that deliver a fully automated and digital experience to collect, store and send money for their customers.
Deploy our Embedded Finance Solution to Enterprise Customers Our Enterprise Payments segment, and its flagship product Passport enables software partners and business platform customers to embed our payments and treasury solutions into their core operating and business systems that deliver a fully automated and digital experience to collect, store, lend and send money for their customers.
To keep up with the changing demands of how consumers wish to pay for goods and services, we believe that SMB merchants increasingly recognize the need for value-added services wrapped around omni-channel payment solutions that are tailored to their specific business needs.
To keep up with the changing demands of how consumers wish to pay for goods and services, we believe SMB merchants and enterprise customers increasingly recognize the need for value-added services wrapped around omni-channel payment solutions that are tailored to their specific business needs.
The MX product line includes MX Connect and MX Merchant products, which together provide resellers and merchant clients a flexible and customizable set of business applications that help better manage critical business work functions and revenue performance using core payment processing as our leverage point.
The MX product suite includes MX Connect and MX Merchant products, which together provide resellers and merchant clients a flexible and customizable set of business applications that help better manage critical business work functions and revenue performance using core payment processing as our leverage point.
In addition to payment processing, the MX Merchant product line encompasses a variety of proprietary and third-party product applications that merchants can adopt such as MX Insights, MX Storefront, MX Retail, MX Invoice, MX B2B and ACH.com, among others.
In addition to payment processing, the MX Merchant product suite encompasses a variety of proprietary and third-party product applications that merchants can adopt such as MX Insights, MX Storefront, MX Retail, MX Invoice, MX B2B and ACH.com, among others.
B2B payments is the largest payment market in the U.S. by volume and presents a significant opportunity for payment providers to capitalize on the conversion of check and paper-based payments to Electronic Payments, including card-based 7 Table of Contents acceptance. As businesses have increasingly looked to improve efficiency and reduce costs, the electronification of B2B payments has gained momentum.
B2B payments is the largest payment market in the U.S. by volume and presents a significant opportunity for payment providers to capitalize on the conversion of check and paper-based payments to Electronic Payments, including card-based acceptance. As businesses have increasingly looked to improve efficiency and reduce costs, the electronification of B2B payments has gained momentum.
The rules also contain prohibitions on network exclusivity and merchant routing restrictions. These rules require a card issuer to: 1) enable at least two unaffiliated networks on each debit card; 2) prohibit card networks from entering into exclusivity 12 Table of Contents arrangements; and 3) restrict the ability of issuers or networks to mandate transaction routing requirements.
The rules also contain prohibitions on network exclusivity and merchant routing restrictions. These rules require a card issuer to: 1) enable at least two unaffiliated networks on each debit card; 2) prohibit card networks from entering into exclusivity arrangements; and 3) restrict the ability of issuers or networks to mandate transaction routing requirements.
By establishing a seamless bridge for buyer-to-supplier (payor-to-provider) payments that is integrated directly to a buyer's payment instruction file to facilitate payments to vendors via all payment types (virtual card, purchase card, ACH +, dynamic discounting), we have established ourselves as one of the top solutions in commercial payments.
By establishing a seamless bridge for buyer-to-supplier (payor-to-provider) payments that is integrated directly to a buyer's payment instruction file to facilitate payments to vendors via all payment types (virtual card, purchase card, ACH +, dynamic discounting), we have established ourselves as a top solutions provider in commercial payments.
Priority's solutions are delivered via internally developed payment applications and services to customers in the following business segments: • SMB Payments : Provides full-service acquiring and payment-enabled solutions for B2C transactions, leveraging Priority's proprietary software platform, distributed through ISO, direct sales and vertically focused ISV channels. • B2B Payments : Provides market-leading AP automation solutions to corporations, software partners and industry leading FIs (including Citibank and Mastercard). • Enterprise Payments : Provides embedded payment and treasury solutions to enterprise customers to modernize legacy platforms and accelerate software partners' strategies to monetize payments. 5 Table of Contents The MX product line provides technology-enabled payment acceptance and business management capabilities to merchants, enterprises and our distribution partners.
Priority's solutions are delivered via internally developed payment applications and services to customers in the following business segments: • SMB Acquiring Solutions : Provides full-service acquiring and payment-enabled solutions for B2C transactions, leveraging Priority's proprietary software platform, distributed through ISO, direct sales and vertically focused ISV channels. • B2B Payables : Provides market-leading AP automation solutions to corporations, software partners and industry leading FIs (including Citibank and Mastercard). • Enterprise Payments and BaaS : Provides embedded finance and BaaS solutions to customers to modernize legacy platforms and accelerate software partners' strategies to monetize payments. 5 Table of Contents The MX product suite provides technology-enabled payment acceptance and business management capabilities to merchants, enterprises and our distribution partners.
We believe this shift represents a significant opportunity given the high growth rates of mobile payments volume, higher fees for card-not-present and cross-border processing and potential for the in-app economy to stimulate and/or alter consumer spending behavior.
We believe this shift represents a significant opportunity given the high growth rates of mobile 7 Table of Contents payments volume, higher fees for card-not-present and cross-border processing and potential for the in-app economy to stimulate and/or alter consumer spending behavior.
We believe that the large merchant acquirers whose innovation has been hindered by these redundant, legacy systems risk losing market share to acquirers with more agile and dynamic IT systems, such as Priority. Pricing has historically been the key factor influencing the selection of a merchant acquirer.
We believe that the large merchant acquirers whose innovation has been hindered by these redundant legacy systems risk losing market share to acquirers with more agile and dynamic IT systems. Pricing has historically been the key factor influencing the selection of a merchant acquirer.
Priority delivers value to its partners by leveraging its payments and embedded finance technology to deliver solutions that power modern commerce for SMBs and enterprise software and business partners. Our approach is simple, we handle the complexities of payments and embedded finance to free our partners to focus on their core business objectives.
Priority delivers value to its partners by leveraging its payments and embedded finance technology to deliver solutions that power modern commerce for SMBs and enterprise software and business partners. We handle the complexities of payments and embedded finance to free our partners to focus on their core business objectives.
We actively seek potential acquisition candidates that exhibit certain attractive attributes including predictable and recurring revenue, a scalable operating model, low capital intensity complementary technology offerings and a strong cultural fit. Our operating infrastructure is purpose-built to rapidly and seamlessly consolidate complementary businesses into our ecosystem all while optimizing revenue and cost synergies.
We actively seek potential acquisition candidates that exhibit certain attractive attributes including predictable and recurring revenue, a scalable operating model, low capital intensity, complementary 9 Table of Contents technology offerings and a strong cultural fit. Our operating infrastructure is purpose-built to rapidly and seamlessly consolidate complementary businesses into our ecosystem all while optimizing revenue and cost synergies.
Through Passport, Priority delivers a fully embedded finance solution to customers that manages the inflows and outflows, and reconciliation, of all forms of payments (ACH, wire, check, credit and debit) for an infinite number of clients from a single account.
Through Passport, Priority delivers a fully embedded finance solution to customers that manages the inflows and outflows, and reconciliation, of all forms of payments (ACH, wire, check, credit and debit) for any number of clients from a single account.
None of our employees are represented by a labor union or covered by a collective bargaining agreement. 14 Table of Contents Growth and Development Our strategy to develop and retain the best talent includes an emphasis on employee training and development.
None of our employees are represented by a labor union or covered by a collective bargaining agreement. Growth and Development Our strategy to develop and retain the best talent includes an emphasis on employee training and development.
Industry Overview The payment processing industry provides merchants with credit, debit, gift, loyalty card and other payment processing services, along with related value-added solutions and information services. The industry continues to grow, driven by wider merchant acceptance, increased use of Electronic Payments and advances in payment technology.
Industry Overview The payment processing industry provides merchants with credit, debit, gift, loyalty card and other payment processing services, along with related value-added solutions and information services. The industry continues to grow, driven by wider merchant acceptance, increased use of Electronic Payments, advances in payment technology and the disruption in banking by fintech providers.
Expand Electronic Payments Share of B2B Transactions with CPX We have a growing presence in the commercial payments market where we provide curated managed services and AP automation solutions to industry leading FIs and card networks such as Citibank, Mastercard and Visa.
Expand Electronic Payments Share of B2B Transactions with CPX and Plastiq We have a growing presence in the commercial payments market where we provide curated managed services and AP automation solutions to businesses, FIs and card networks such as Citibank, Mastercard and Visa.
Other Regulation The Housing Assistance Tax Act of 2008 requires certain merchant acquiring entities and third-party settlement organizations to provide information returns for each calendar year with respect to payments made in settlement of electronic payment transactions and third-party payment network transactions occurring in that calendar year. Reportable transactions are also subject to backup withholding requirements.
Other Regulation The Tax Act of 2008 requires certain merchant acquiring entities and third-party settlement organizations to provide information returns for each calendar year with respect to payments made in settlement of electronic payment transactions and 14 Table of Contents third-party payment network transactions occurring in that calendar year. Reportable transactions are also subject to backup withholding requirements.
To register with a card network in the U.S., acquirers must maintain relationships with banks willing to sponsor the merchant acquirer's adherence to the rules and standards of the card networks, or a sponsor bank. We maintain sponsor bank relationships with Wells Fargo, Synovus Bank, Pueblo Bank, Sutton Bank, Fifth Third Bank and Axiom Bank.
To register with a card network in the U.S., acquirers must maintain relationships with banks willing to sponsor the merchant acquirer's adherence to the rules and standards of the card networks, or a sponsor bank. We maintain sponsor bank relationships with Wells Fargo, Synovus Bank, Pueblo Bank and Axiom Bank. We maintain a card issuing relationship with Sutton Bank.
Through our resellers, we provide 8 Table of Contents merchants with full-service acquiring solutions, as well as value-added services and tools to streamline their business processes and enable them to focus on driving same store sales growth.
Through our resellers, we provide merchants with full-service acquiring solutions, as well as value-added services and tools to streamline their business processes and enable them to focus on driving same store sales growth.
These third parties are compensated for their services. These processors in turn have agreements with card networks such as Visa and Mastercard, through which the transaction information is routed in exchange for network fees. To provide processing services, merchant acquirers like Priority must be registered with the card networks (e.g., Visa and Mastercard).
These processors in turn have agreements with card networks such as Visa and Mastercard, through which the transaction information is routed in exchange for network fees. To provide processing services, merchant acquirers like Priority must be registered with the card networks (e.g., Visa and Mastercard).
Initial Underwriting – Central to our risk management process are our front-line underwriting policies that vet all resellers and merchants prior to their contractual arrangements with us. Our automated risk systems pull: 1) credit bureau reports; 2) corporate ownership details; 3) anti-money laundering information; and, 4) OFAC and FinCEN information from a variety of integrated databases.
Initial Underwriting – Central to our risk management process are our front-line underwriting policies that vet all resellers and merchants prior to their contractual arrangements with us. Our automated risk systems access: 1) guarantor information; 2) corporate ownership details; 3) anti-money laundering information; and, 4) OFAC and FinCEN information from a variety of integrated databases.
Since inception, we have built a native tec hnology platform that provides all forms of payments (card acquiring and issuing, ACH, check and wire) and embedded finance services that serve SMB, ISV and enterprise customers.
Since inception, we have built a native tec hnology platform that provides all forms of payments (card acquiring and issuing, ACH, check and wire) and embedded finance services that serve customers of any size.
We promote our core values of ownership, innovation, camaraderie, service, authenticity and trust as an organization and offer awards to colleagues who exemplify these qualities. We require a mandatory online training curriculum for our employees that includes annual anti-harassment and anti-discrimination training.
We promote our core values of ownership, innovation, camaraderie, service, authenticity and trust as an organization and offer awards to colleagues who exemplify these qualities. We require a mandatory online training curriculum for our employees that includes annual anti-harassment and anti-discrimination training. Inclusion and Diversity Our inclusion and diversity program focuses on our employees, workplace and community.
Banking Laws and Regulations The FFIEC is an interagency body comprised of federal bank and credit union regulators such as the Federal Reserve Board, the FDIC, the National Credit Union Administration, the Office of the Comptroller of the Currency and the Bureau of Consumer Financial Protection.
Banking Laws and Regulations The FFIEC is an interagency body comprised of federal bank and credit union regulators such as the Federal Reserve Board, the FDIC, the National Credit Union Administration, the Office of the Comptroller of the Currency and the CFPB.
The platform today manages over 460,000 active accounts and, through its money transmission licenses in 46 U.S. states and two U.S. territories, handles over $500 million in deposits across a growing number of banking partners.
The platform today manages over 700,000 active accounts and, through its money transmission licenses in 46 U.S. states, the District of Columbia and two U.S. territories, handles over $795 million in deposits across a growing number of banking partners.
As a TSP, we are subject to audits by an interagency group consisting of the Federal Reserve System, the FDIC, and the Office of the Comptroller of the Currency. We also hold money transmission licenses in 46 U.S. states and two U.S. territories.
As a TSP, we are subject to audits by an interagency group consisting of the Federal Reserve System, the FDIC, and the Office of the Comptroller of the Currency. Through our subsidiary, Finxera, Inc., we also hold money transmission licenses in 46 U.S. states, the District of Columbia and two U.S. territories.
In addition to these contractual measures, we also rely on a combination of trademarks, copyrights, registered domain names, and patent rights to help protect the Priority brand and our other intellectual property. Human Capital Management As of December 31, 2022, we employed 870 employees, of which 863 were employed full-time. We have employees residing throughout the United States and India.
In addition to these contractual measures, we also rely on a combination of trademarks, copyrights, registered domain names, and patent rights to help protect the Priority brand and our other intellectual property. Human Capital Management As of December 31, 2023, we employed 983 employees, of which 974 were employed full-time. We have employees residing throughout the U.S., Canada and India.
Priority maintains a global business platform with 870 employees operating from its headquarters in Alpharetta, GA and offices in other locations, including New York, NY; Hicksville, NY; Chattanooga, TN; Raleigh, NC; Houston, TX; and Chandigarh, India.
Priority maintains a global business platform with 983 employees operating from its headquarters in Alpharetta, GA and regional offices in other locations, including New York, NY; Hicksville, NY; Chattanooga, TN; Raleigh, NC; Dallas, TX; San Francisco, CA; and Chandigarh, India.
We deliver innovative business management products and add-on features that meet the needs of SMBs across different vertical markets. Additionally, with our embedded finance offerings, we are uniquely positioned to collect, store and send money on behalf of our customers.
We deliver innovative business management products and add-on features that meet the needs of SMBs across different vertical markets. Additionally, with our embedded finance offerings and money transmissions licenses in 46 U.S. states, the District of Columbia and two U.S. territories, we are uniquely positioned to collect, store, lend and send money on behalf of our customers.
Given that a number of our clients are FIs that are directly subject to U.S. 13 Table of Contents federal anti-money laundering laws and regulations, we have developed an anti-money laundering compliance program to best assist our clients in meeting such legal and regulatory requirements.
Given that a number of our clients are FIs that are directly subject to U.S. federal anti-money laundering laws and regulations, we have developed an anti-money laundering compliance program to best assist our clients in meeting such legal and regulatory requirements. We are subject to certain economic and trade sanctions programs that are administered by OFAC of the U.S.
For the year ended December 31, 2022, we generated revenue of $663.6 million, net loss attributable to common stockholders of $39.0 million and operating income of $56.2 million, compared to revenue of $514.9 million, net loss attributable to common stockholders of $24.6 million and operating income of $33.1 million for the year ended December 31, 2021.
For the year ended December 31, 2023, we generated revenue of $755.6 million, net loss attributable to common stockholders of $49.1 million and operating income of $81.5 million, compared to revenue of $663.6 million, net loss attributable to common stockholders of $39.0 million and operating income of $56.2 million for the year ended December 31, 2022.
If one data center becomes impaired, the traffic is automatically redirected to the other. Business continuity planning drills are run each quarter to test fail-over and recovery as well as staff operations and readiness.
Each data center deployment is an exact mirror of the other and each can handle all technical, payment and business operations for all product lines independently. If one data center becomes impaired, the traffic is automatically redirected to the other. Business continuity planning drills are run each quarter to test fail-over and recovery as well as staff operations and readiness.
The concentration at the top of the industry is partly a result of consolidation. We believe that consolidation has also resulted in many large processors maintaining multiple, inflexible legacy IT systems that are not well-equipped to adjust to changing market requirements.
When excluding banks, we ranked 5 th among U.S. non-bank merchant acquirers, according to the March 2023 Nilson Report. The concentration at the top of the industry is partly a result of consolidation. We believe that consolidation has also resulted in many large processors maintaining multiple, inflexible legacy IT systems that are not well-equipped to adjust to changing market requirements.
Our team has continued to develop and enhance our proprietary and innovative technology platforms that differentiate us in the payments industry. We invest to attract and retain executive leadership that align with the opportunities in the market and our strategic focus. Growth Strategies We intend to continue to execute a multi-pronged growth strategy, with diverse organic initiatives supplemented by acquisitions.
We invest to attract and retain executive leadership that align with the opportunities in the market and our strategic focus. 8 Table of Contents Growth Strategies We intend to continue to execute a multi-pronged growth strategy, with diverse organic initiatives supplemented by acquisitions.
Telephone Consumer Protection Act We are subject to the Federal TCPA and various state laws to the extent we place telephone calls and SMS messages to clients and consumers. The TCPA regulates certain telephone calls and SMS messages placed using automatic telephone dialing systems or artificial or prerecorded voices and can alter the way we do business.
The TCPA regulates certain telephone calls and SMS messages placed using automatic telephone dialing systems or artificial or prerecorded voices and can alter the way we do business.
Successful implementation of our AP automation solutions provides: 1) suppliers with the benefits of cash acceleration; 2) buyers with valuable rebate/discount revenue: and 3) the Company with stable sources of payment processing and other revenue.
Successful implementation of our AP automation solutions provides: 1) suppliers with the benefits of cash acceleration; 2) buyers with valuable rebate/discount revenue: and 3) the Company with stable sources of payment processing and other revenue. Additionally, we provide a suite of integrated AP automation solutions businesses to FIs and card networks such as Citibank, Mastercard and Visa, among others.
Wall Street Reform and Consumer Protection Act The Dodd-Frank Act resulted in significant structural and other changes to the regulation of the financial services industry. The Dodd-Frank Act directed the Federal Reserve Board to regulate the debit interchange transaction fees that a card issuer or payment card network receives or charges for an electronic debit transaction.
The Dodd-Frank Act directed the Federal Reserve Board to regulate the debit interchange transaction fees that a card issuer or payment card network receives or charges for an electronic debit transaction.
Our tailored, agile technology powers high-value payments products bolstered by our industry leading personalized support. Priority was established in 2005 and has grown from a founder-financed startup to becom e the 5 th largest non-bank merchant acquirer in the U.S. by volume.
Priority was established in 2005 and has grown from a founder-financed technology startup to becom e the 5 th largest non-bank merchant acquirer in the U.S. by volume, according to the Nilson Report issued in March 2023.
We provide solutions for 6 Table of Contents ISVs, third-party integrators, and merchants that allow for the leveraging of our core payments engine, our automated payables platform or our account ledgering capabilities all via API resources. We generate revenue primarily from payment processing transactions, and to a lesser extent, from monthly subscription services and other solutions provided to customers.
We provide solutions for ISVs, third-party integrators, and merchants that allow for the leveraging of our core payments engine, our automated payables platform or our account ledgering capabilities all via API resources.
We are subject to a variety of federal, state and local laws and regulations and the rules and standards of the payment networks that are utilized to provide our electronic payment services, as more fully described below.
We are subject to a variety of federal, state and local laws and regulations and the rules and standards of the payment networks that are utilized to provide our electronic payment services, as more fully described below. 12 Table of Contents Wall Street Reform and Consumer Protection Act The Dodd-Frank Act resulted in significant structural and other changes to the regulation of the financial services industry.
Processing is a scale-driven business in which many acquirers outsource the processing function to a small number of large processors. In these partnerships, we serve as a merchant acquirer and enter into processing agreements with payment processors, such as First Data or Global Payments, to assist us in providing front-end and back-end transaction processing services for our merchants.
In these partnerships, we serve as a merchant acquirer and enter into processing agreements with payment processors, such as Fiserv or Global Payments, to assist us in providing front-end and back-end transaction processing services 10 Table of Contents for our merchants. These third parties are compensated for their services.
Our risk management strategies are informed by a team with decades of experience managing merchant acquiring risk operations that are augmented by our rules-based modern systems designed to manage risk at the transaction level.
Risk Management Our thoughtful merchant and reseller underwriting policies combined with our forward-looking transaction monitoring capabilities have enabled us to maintain low credit loss performance. Our risk management strategies are informed by a team with experience managing merchant acquiring risk operations that are augmented by our rules-based modern systems designed to manage risk at the transaction level.
We believe all of our employees should be treated with respect and equality, regardless of gender, ethnicity, sexual orientation, gender identity, religious beliefs or other characteristics. Inclusion and diversity remain a common thread in all of our human resource practices so that we can attract, develop and retain the best talent for our workforce.
Inclusion and diversity remain a common thread in all of our human resource practices so that we can attract, develop and retain the best talent for our workforce.
These include: 1) charge-back dispute resolution; 2) merchant and reseller funds (reserves or processed batches) withheld; 3) inclusion on Network Match List to notify the industry of a "bad actor"; and/or 4) legal action. Acquisitions and Dispositions of Businesses On November 18, 2022, the Company completed our acquisition of certain assets of Ovvi, LLC.
These include: 1) charge-back dispute resolution; 2) merchant and reseller funds (reserves or processed batches) withheld; 3) inclusion on Network Match List to notify the industry of a "bad actor"; and/or 4) legal action. Investments - We use our primary portfolio to provide for the investment of excess funds at acceptable risk levels.
Our merchants utilize our cloud-based MX Merchant product suite to manage their businesses and process transactions.
Our merchants utilize our cloud-based MX Merchant product suite to manage their businesses and process transactions. This separate solution increases our ability to retain the merchant if the ISO were to leave the Company.
As small businesses increasingly demand integrated solutions tailored to specific business functions or industries, merchant processors are adopting payment-enabled software offerings that combine embedded finance products with core business operating software. By subsisting within SMB's critical business software, processors are able to improve economic results through better merchant retention and higher processing margins.
The largest opportunity for acquirers to expand is within the SMB merchant market. As small businesses increasingly demand integrated solutions tailored to specific business functions or industries, merchant processors are adopting payment-enabled software offerings that combine embedded finance products with core business operating software.
The primary function of this team is to react and respond to intrusions, denial of service, data leakage, malware, vandalism and other events that could potentially jeopardize data availability, integrity and confidentiality. In addition to handling security incidents, the incident response team continually educates themselves and us on information security matters.
As such, we have a dedicated team responsible for responding to security incidents. This team develops, maintains, tests and verifies our incident response plan. The primary function of this team is to react and respond to intrusions, denial of service, data leakage, malware, vandalism and other events that could potentially jeopardize data availability, integrity and confidentiality.
The collected information is delivered to a tenured team of underwriters who conduct any necessary industry checks, financial performance analysis or owner background checks, consistent with our policies. Based upon these results, the underwriting department rejects or approves the merchant or reseller and sets appropriate merchant and reseller reserve requirements which are held by our bank sponsors on our behalf.
The collected information is delivered to a team of underwriters who conduct necessary industry checks, financial performance analysis or owner background checks, as applicable and consistent with our policies.
Our Enterprise segment goes to market through integrations with software partners and business platform customers by enabling them to embed our payments and treasury solutions into their core operating and business systems. Priority’s Passport offering provides those partners with a fully automated, scalable and integrated financial tool to collect, store and send money for their customers.
Our Plastiq offerings consist of all payment types including wires and checks to the vendors of our customers. Our Enterprise segment goes to market through integrations with software partners and business platform customers by enabling them to embed our payments and treasury solutions into their core operating and business systems.
Our computational systems are continually updated and audited to the latest security standards as defined by 1) payment card industry and data security standards; and 2) the Payment Card Industry Security Standards Council. As such, we have a dedicated team responsible for responding to security incidents. This team develops, maintains, tests and verifies our incident response plan.
Because this information is considered sensitive in nature, we maintain a high level of security to protect it. Our computational systems are continually updated and audited to the latest security standards as defined by 1) payment card industry and data security standards; and 2) the Payment Card Industry Security Standards Council.
Sponsor bank relationships enable us to route transactions under the sponsor bank's control and identification number (referred to as a BIN for Visa and ICA for Mastercard) across the card networks (or ACH network) to authorize and clear transactions. 10 Table of Contents Risk Management Our thoughtful merchant and reseller underwriting policies combined with our forward-looking transaction monitoring capabilities have enabled us to maintain low credit loss performance.
For ACH payments, the Company's ACH network (ACH.com) is sponsored by South State Bank. Sponsor bank relationships enable us to route transactions under the sponsor bank's control and identification number (referred to as a BIN for Visa and ICA for Mastercard) across the card networks (or ACH network) to authorize and clear transactions.
Resellers are subject to quarterly and/or annual assessments for financial strength in compliance with our policies and adjustments to reserve levels.
Based upon these results, the underwriting department rejects or approves the merchant or reseller and sets appropriate merchant and reseller reserve requirements which are held by our bank sponsors on our behalf. Resellers may be subject to quarterly and/or annual assessments for financial strength in compliance with our policies and adjustments to reserve levels.
This separate solution increases our ability to retain the merchant if the ISO were to leave the Company. 9 Table of Contents Our B2B segment obtains its partner clients through: 1) direct sales initiatives; 2) ISVs and business partnerships; 3) the card networks (Mastercard and Visa); and 4) large U.S. banking institutions.
Our B2B segment obtains its partner clients through: 1) direct sales initiatives; 2) ISVs and business partnerships; 3) the card networks (Mastercard and Visa); 4) large U.S. banking institutions and 5) other card issuer referral partners. We support a direct vendor sales model that provides turn-key merchant development, product sales and supplier enablement programs.
Our Enterprise Payments segment provides embedded payment and treasury solutions to enterprise customers that modernize legacy platforms and accelerate modern software partners looking to monetize payment components.
The Plastiq Connect API suite enables platforms, marketplaces, and ERPs, to expand B2B payment options for payables and receivables in their native customer experience while outsourcing payment execution, risk, and compliance. Our Enterprise Payments segment provides embedded finance and BaaS solutions to customers that modernize legacy platforms and accelerate modern software partners looking to monetize payment components.
Through our MX Merchant platform, we are well-positioned to capitalize on the trend towards integrated solutions, new technology adoption and value added-service utilization in the SMB market. Government Regulation and Payment Network Rules We operate in an increasingly complex legal and regulatory environment.
By subsisting within SMB's critical business software, processors are able to improve economic results through better merchant retention and higher processing margins. Through our MX Merchant platform, we are well-positioned to capitalize on the trend towards integrated solutions, new technology adoption and value added-service utilization in the SMB market. Providing BaaS products is highly competitive.
Security, Disaster Recovery and Back-up Systems As a result of routine business operations, we store information relating to our merchants and their transactions. Because this information is considered sensitive in nature, we maintain a high level of security to protect it.
Only one reseller relationship contributes more than 10% of total bankcard processing volume, and such relationship represents approximately 14% of our total bankcard processing volume for the fiscal year ending December 31, 2023. Security, Disaster Recovery and Back-up Systems As a result of routine business operations, we store information relating to our merchants and their transactions.
High-availability and disaster recovery are provided through a combination of redundant hardware and software running at two geographically distinct data centers. Each data center deployment is an exact mirror of the other and each can handle all technical, payment and business operations for all product lines independently.
In addition to handling security incidents, the incident response team continually educates themselves and us on information security matters. High-availability and disaster recovery are provided through a combination of redundant hardware and software running at two geographically distinct data centers.
For information regarding our business disposal, see Note 3. Disposal of Business . 11 Table of Contents Competition The U.S. acquiring industry is highly competitive, with several large processors accounting for the majority of processing volume. When excluding banks, we ranked 5th among U.S. non-bank merchant acquirers, according to the Nilson Report issued in March 2022.
The cash consideration for the purchase was funded by borrowings from the Company's revolving credit facility. See Note 2. Acquisitions for additional information related to the Company's acquisitions. Competition The U.S. acquiring industry is highly competitive, with several large processors accounting for the majority of processing volume.
Removed
Item 1. Business Overview of the Company Priority is a leading payments technology company that leverages a purpose-built platform to enable clients to collect, store and send money, operating at scale. We help our customers take and make payments while managing business and consumer operating accounts to monetize payment networks.
Added
Item 1. Business Overview of the Company Priority is a solutions provider in Payments and BaaS industry, o perating at scale with 860,000 active customers across its SMB, B2B and Enterprise customers channels. Priority proc esses $120 billion in annual transaction volume and provides administration for $900 million in deposits.
Removed
Collectively, our single platform to collect, store and send money currently processes approximately $113 billion in payment volume on behalf of its approximately 260,000 SMB and ISV customers and has established approximately 75,000 supplier relationships.
Added
P riority’s purpose-built technology enables clients to collect, store, lend and send money while providing AP payment applications and Passport financial tools that best optimize their cash flow and maximize working capital bolstered by our industry leading personalized support.
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Additionally, we provide curated managed services and a robust suite of integrated AP automation solutions to industry leading FIs and card networks such as Citibank, Mastercard and Visa, among others.
Added
Alongside CPX as part of the AP suite, Priority acquired the assets of Plastiq Inc. through its subsidiary Plastiq, Powered by Priority, LLC, a leading B2B payments company, in the third fiscal quarter of 2023, and has helped tens of thousands of businesses improve cash flow with instant access to working capital, while automating and enabling control over all aspects of accounts payable and receivable.
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Considering that the commercial payments volume in the U.S. is over twice the size of consumer payments and substantially less penetrated for Electronic Payments, we believe that this market represents a high growth opportunity for us.
Added
The flagship product, Plastiq Pay, pioneered a way for businesses to pay suppliers by credit card regardless of acceptance as an alternative to expensive, scarce bank loan options.
Removed
Payment processing fees are generated from the ongoing sales of our merchants and are governed by multi-year merchant contracts. As a result, payment processing fees are highly recurring in nature. Due to the nature of our strong reseller-centric distribution model and differentiated technology offering, we can drive efficient scale and operating leverage, generating robust margins and profitability.
Added
Plastiq Accept offers an alternative to expensive merchant services, enabling businesses to accept credit cards with no merchant 6 Table of Contents fees and get paid across any customer touch point, including a website, invoice, checkout process, and in person via QR code.
Removed
We support a direct vendor sales model that provides turn-key merchant development, product sales and supplier enablement programs.
Added
We generate revenue primarily from payment processing transactions, and to a lesser extent, from monthly subscription services and other solutions provided to customers and interest income from the permissible investments of the deposits we hold. Payment processing fees are generated from the ongoing sales of our merchants and are governed by multi-year merchant contracts.
Removed
For ACH payments, the Company's ACH network (ACH.com) is sponsored by South State Bank and Fifth Third Bank.
Added
As a result, payment processing fees are highly recurring in nature.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

34 edited+33 added−21 removed117 unchanged
Biggest changeShould the ultimate judgments or settlements in any pending litigation or future litigation or investigation significantly exceed our insurance coverage, they could have a material adverse effect on our business, financial condition and results of operations. 21 Table of Contents We are subject to extensive government regulation, and any new laws and regulations, industry standards or revisions made to existing laws, regulations or industry standards affecting the Electronic Payments industry may have an unfavorable impact on our business, financial condition and results of operations.
Biggest changeShould the ultimate judgments or settlements in any pending litigation or future litigation or investigation significantly exceed our insurance coverage, they could have a material adverse effect on our business, financial condition and results of operations.
If we are unable to find a replacement financial institution, we may no longer be able to provide processing services to certain customers, which could negatively affect our revenues, earnings and cash flows. We also rely on third parties to provide or supplement bankcard processing services and for infrastructure hosting services.
If we are unable to find a replacement financial institution, we may no longer be able to provide these services to certain customers, which could negatively affect our revenues, earnings and cash flows. We also rely on third parties to provide or supplement bankcard processing services and for infrastructure hosting services.
Our level of debt and the covenant to which we agreed could have negative consequences on us, including, among other things, (i) requiring us to dedicate a large portion of our cash flow from operations to servicing and repayment of the debt; (ii) limiting funds available for strategic initiatives and opportunities, working capital and other general corporate needs and (iii) limiting our ability to incur certain kinds or amounts of additional indebtedness, which could restrict our ability to react to changes in our business, our industry and economic conditions.
Our level of debt and the covenants to which we agreed could have negative consequences on us, including, among other things, (i) requiring us to dedicate a large portion of our cash flow from operations to servicing and repayment of the debt; (ii) limiting funds available for strategic initiatives and opportunities, working capital and other general corporate needs and (iii) limiting our ability to incur certain kinds or amounts of additional indebtedness, which could restrict our ability to react to changes in our business, our industry and economic conditions.
The timelines imposed by the payment networks or sponsor banks for expected compliance with new rules have historically been, and may continue to be, highly compressed, requiring us to quickly implement changes to our systems which increases the risk of non-compliance with new standards or the reduction of certain types of merchant activity.
The timelines imposed by the payment networks or 17 Table of Contents sponsor banks for expected compliance with new rules have historically been, and may continue to be, highly compressed, requiring us to quickly implement changes to our systems which increases the risk of non-compliance with new standards or the reduction of certain types of merchant activity.
There can be no assurances that we will be able to complete suitable acquisitions for a variety of reasons, including the identification of and competition for acquisition targets, the need for regulatory approvals, the 18 Table of Contents inability of the parties to agree to the structure or purchase price of the transaction and our inability to finance the transaction on commercially acceptable terms.
There can be no assurances that we will be able to complete suitable acquisitions for a variety of reasons, including the identification of and competition for acquisition targets, the need for regulatory approvals, the inability of the parties to agree to the structure or purchase price of the transaction and our inability to finance the transaction on commercially acceptable terms.
Among other things, these covenants will restrict our ability to: • pay dividends, or redeem or purchase equity interests; • incur additional debt; • incur liens; • change the nature of our business; • engage in transactions with affiliates; • sell or otherwise dispose of assets; • make acquisitions or other investments; and • merge or consolidate with other entities.
Among other things, these covenants will restrict our ability to: • pay dividends, or redeem or purchase equity interests; • incur additional debt; • incur liens; • change the nature of our business; • engage in transactions with affiliates; • sell or otherwise dispose of assets; • make acquisitions or other investments; and 25 Table of Contents • merge or consolidate with other entities.
We depend on the efficient and uninterrupted operation of our computer systems, software, data centers and telecommunications networks, as well as the systems and services of third parties. A system outage or data loss could have a material adverse effect on our business, financial condition, results of operations and cash flows.
We depend on the efficient and uninterrupted operation of our computer systems, software, data centers and telecommunications networks, as well as the systems and services of third parties. A system outage or data loss could have a 16 Table of Contents material adverse effect on our business, financial condition, results of operations and cash flows.
In addition, even an inadvertent failure to comply with laws and regulations, as well as rapidly evolving social expectations of corporate fairness, could damage our business or our reputation. 22 Table of Contents We may not be able to successfully manage our intellectual property and may be subject to infringement claims.
In addition, even an inadvertent failure to comply with laws and regulations, as well as rapidly evolving social expectations of corporate fairness, could damage our business or our reputation. We may not be able to successfully manage our intellectual property and may be subject to infringement claims.
The U.S. may also potentially withdraw from or renegotiate various trade agreements and take other actions that would change current trade policies of the U.S. We cannot predict which, if any, of these actions will be taken or, if taken, their 19 Table of Contents effect on the financial stability of the U.S.
The U.S. may also potentially withdraw from or renegotiate various trade agreements and take other actions that would change current trade policies of the U.S. We cannot predict which, if any, of these actions will be taken or, if taken, their effect on the financial stability of the U.S.
We may also be subject to claims by third parties for patent, copyright or trademark infringement, breach of license or violation of other third-party intellectual property rights. Any claim from third parties may result in a limitation on our ability to use the intellectual property subject to these claims.
We may also be subject to claims by third parties for patent, copyright or trademark 22 Table of Contents infringement, breach of license or violation of other third-party intellectual property rights. Any claim from third parties may result in a limitation on our ability to use the intellectual property subject to these claims.
In addition, or in the alternative, the applicable lenders or agents could exercise their rights under the security documents entered into in 24 Table of Contents connection with our Credit and Guaranty Agreement. Any acceleration of amounts due under the Credit and Guaranty Agreement would likely have a material adverse effect on us.
In addition, or in the alternative, the applicable lenders or agents could exercise their rights under the security documents entered into in connection with our Credit and Guaranty Agreement. Any acceleration of amounts due under the Credit and Guaranty Agreement would likely have a material adverse effect on us.
The Dodd-Frank Act also created the CFPB, which has assumed responsibility for enforcing federal consumer protection laws, and the FSOC, which has the authority to determine whether any non-bank financial company, which may include us within the definitional scope, should be supervised by the Federal Reserve because it is systemically important to the U.S. financial system.
The Dodd-Frank Act also created the CFPB, which has assumed responsibility for enforcing federal consumer protection laws, and the FSOC, which has the authority to determine whether any non-bank financial company, which may include us within the definitional scope, should be supervised by the Federal Reserve because it is systemically important to the U.S. financial 21 Table of Contents system.
While we maintain insurance coverage that will cover certain aspects of cyber risks, such insurance coverage may be insufficient to 16 Table of Contents cover all losses. Furthermore, we do not control the actions of our third-party partners and customers in their systems.
While we maintain insurance coverage that will cover certain aspects of cyber risks, such insurance coverage may be insufficient to cover all losses. Furthermore, we do not control the actions of our third-party partners and customers in their systems.
If our policies and procedures are not fully effective or we are not always successful in capturing all risks to which we are or may be exposed, we may suffer harm to our reputation or be subject to litigation or regulatory actions that materially increase 23 Table of Contents our costs and subject us to reputational damage that could limit our ability to grow and cause us to lose existing merchant clients.
If our policies and procedures are not fully effective or we are not always successful in capturing all risks to which we are or may be exposed, we may suffer harm to our reputation or be subject to litigation or regulatory actions that materially increase our costs and subject us to reputational damage that could limit our ability to grow and cause us to lose existing merchant clients.
While we do not expect that such conflict will itself be material to our business, geopolitical instability and adversity arising from such conflict (including additional conflicts that could arise from such conflict), the imposition of sanctions, taxes and/or tariffs against Russia and Russia's response to such sanctions (including retaliatory acts, such as cyber attacks and sanctions against other countries) could adversely affect the global economy or specific international, regional and domestic markets, which could have a material adverse effect on our business, results of operations or financial condition.
While we do not expect that such conflicts will themselves be material to our business, geopolitical instability and adversity arising from such conflict (including additional conflicts that could arise from such conflicts), the imposition of sanctions, taxes and/or tariffs against one of the countries or their response to such sanctions (including retaliatory acts, such as cyber attacks and sanctions against other countries) could adversely affect the global economy or specific international, regional and domestic markets, which could have a material adverse effect on our business, results of operations or financial condition.
Unauthorized access to our systems or unauthorized disclosure of merchant or cardholder data, whether through breach of our computer systems, computer viruses, or otherwise, could expose us to liability, protracted and costly litigation and damage our reputation.
Risk Factors Related to Our Business Unauthorized access to our systems or unauthorized disclosure of merchant or cardholder data, whether through breach of our computer systems, computer viruses, or otherwise, could expose us to liability, protracted and costly litigation and damage our reputation.
In addition, any potential acquisition can subject us to a variety of other risks: • If we are unable to successfully integrate the benefits plans, duties and responsibilities and other factors of interest to management of employees of the acquired business, we could lose employees to our competitors in the region, which could significantly affect our ability to operate the business and complete the integration; • If the integration process causes any delays with the delivery of our services, or the quality of those services, we could lose customers to our competitors; • Any acquisition may otherwise cause disruption to the acquired company's business and operations and relationships with financial institution sponsors, customers, merchants, employees and other partners; • Any acquisition and the related integration could divert the attention of our management from other strategic matters including possible acquisitions and alliances and planning for new product development or expansion into new markets for payments technology and software solutions; and • The costs related to the integration of an acquired company's business and operations into ours may be greater than anticipated.
In addition, any potential acquisition can subject us to a variety of other risks: • If we are unable to successfully integrate the benefits plans, duties and responsibilities and other factors of interest to management of employees of the acquired business, we could lose employees to our competitors in the region, which could significantly affect our ability to operate the business and complete the integration; • If the integration process causes any delays with the delivery of our services, or the quality of those services, we could lose customers to our competitors; • Any acquisition may otherwise cause disruption to the acquired company's business and operations and relationships with financial institution sponsors, customers, merchants, employees and other partners; • Any acquisition and the related integration could divert the attention of our management from other strategic matters including possible acquisitions and alliances and planning for new product development or expansion into new markets for payments technology and software solutions; and • The costs related to the integration of an acquired company's business and operations into ours may be greater than anticipated. 18 Table of Contents We are subject to economic and political risk, the business cycles of our merchants and distribution partners and the overall level of consumer and commercial spending, which could negatively impact our business, financial condition and results of operations.
We experience attrition in merchant credit and debit card processing volume resulting from several factors, including business closures, transfers of merchant accounts to our competitors, unsuccessful contract renewal negotiations and account closures 17 Table of Contents that we initiate for various reasons such as heightened credit risks or contract breaches by merchants.
We experience attrition in merchant credit and debit card processing volume resulting from several factors, including business closures, transfers of merchant accounts to our competitors, unsuccessful contract renewal negotiations and account closures that we initiate for various reasons such as heightened credit risks or contract breaches by merchants. Our referral partners are a significant source of new business.
We rely on various FIs to provide clearing services in connection with our settlement activities. If such FIs should stop providing clearing services, we must find other FIs to provide those services.
We rely on various FIs to provide clearing services in connection with our settlement activities. If such FIs should stop providing clearing services, we must find other FIs to provide those services. Additionally, we rely on FIs to facilitate our B2B and money transmission services offerings.
The concentration of ownership could deprive you of an opportunity to receive a premium for your shares of Common Stock as part of a sale of the Company and ultimately might affect the market price of our Common Stock.
The concentration of ownership could deprive you of an opportunity to receive a premium for your shares of Common Stock as part of a sale of the Company and ultimately might affect the market price of our Common Stock. 26 Table of Contents Item 1B. Unresolved Staff Comments N/A
In addition, the credit agreements governing our senior credit facilities contain a total net leverage ratio financial covenant. A breach of any of these covenants (or any other covenant in the documents governing our Credit and Guaranty Agreement) could result in a default or event of default under our Credit and Guaranty Agreement.
A breach of any of these covenants (or any other covenant in the documents governing our Credit and Guaranty Agreement) could result in a default or event of default under our Credit and Guaranty Agreement.
We are exposed to general economic conditions that affect consumer confidence, consumer spending, consumer discretionary income and changes in consumer purchasing habits. A sustained deterioration in general economic conditions or increases in interest rates could adversely affect our financial performance by reducing the number or aggregate dollar volume of transactions made using Electronic Payments.
A sustained deterioration in general economic conditions or increases in interest rates could adversely affect our financial performance by reducing the number or aggregate dollar volume of transactions made using Electronic Payments.
Risk Related to Our Capital Structure We face risks related to our substantial indebtedness. We have a substantial amount of indebtedness and may incur other debt in the future.
We have a substantial amount of indebtedness and may incur other debt in the future.
The termination of our registration, or any changes in the Visa or Mastercard rules that would impair our registration, could require us to stop providing Visa and Mastercard payment processing services, which would make it impossible for us to conduct our business on its current scale.
The termination of our registration, or any changes in the Visa or Mastercard rules that would impair our registration, could require us to stop providing Visa and Mastercard payment processing services, which would make it impossible for us to conduct our business on its current scale. 20 Table of Contents The loss of, for example, key personnel or of our ability to attract, recruit, retain and develop qualified employees could adversely affect our business, financial condition and results of operations.
Additional risks and uncertainties, including those generally affecting the industry in which we operate and risks that management currently deems immaterial, may arise or become material in the future and affect our business. Risk Factors Related to Our Business Our business has been, and is likely to continue to be, negatively affected by the recent COVID-19 outbreak.
Additional risks and uncertainties, including those generally affecting the industry in which we operate and risks that management currently deems immaterial, may arise or become material in the future and affect our business.
Such instruments may result in economic losses should interest rates decline to a point lower than our fixed rate commitments.
We may enter into pay-fixed interest rate swaps or other derivative transactions to limit our exposure to changes in floating interest rates. Such instruments may result in economic losses should interest rates decline to a point lower than our fixed rate commitments.
If we incur fines or penalties for which our merchants or ISOs are responsible that we cannot collect, we may have to bear the cost of such fines or penalties .
If we fail to comply with the applicable requirements of the card networks, they could seek to fine us, suspend us or terminate our registrations for membership. If we incur fines or penalties for which our merchants or ISOs are responsible that we cannot collect, we may have to bear the cost of such fines or penalties .
Notwithstanding our programs and policies for managing credit risk, it is possible that a default on such obligations by one or more of our merchants could have a material adverse effect on our business. 20 Table of Contents If we fail to comply with the applicable requirements of the card networks, they could seek to fine us, suspend us or terminate our registrations for membership.
Notwithstanding our programs and policies for managing credit risk, it is possible that a default on such obligations by one or more of our merchants could have a material adverse effect on our business.
The termination by our service or technology providers of their arrangements with us or their failure to perform their services efficiently and effectively may adversely affect our relationships with our merchants and, if we cannot find alternate providers quickly, may cause those merchants to terminate their relationship with us.
The termination by our service or technology providers of their arrangements with us or their failure to perform their services efficiently and effectively may adversely affect our relationships with our merchants and, if we cannot find alternate providers quickly, may cause those merchants to terminate their relationship with us. 19 Table of Contents We also rely in part on third parties for the development and access to new technologies, or updates to existing products and services for which third parties provide ongoing support, which increases the cost associated with new and existing product and service offerings.
The market for qualified personnel is competitive, and we may not succeed in recruiting additional personnel or may fail to effectively replace current personnel who depart with qualified or effective successors. Legal, Regulatory Compliance and Tax Risks Legal proceedings could have a material adverse effect on our business, financial condition or results of operations.
The market for qualified personnel is competitive, and we may not succeed in recruiting additional personnel or may fail to effectively replace current personnel who depart with qualified or effective successors. We may be responsible for the actions of our vendors in some circumstances.
Our business is affected by laws and regulations and examinations that affect us and our industries. Regulation and proposed regulation of the payments industry has increased significantly in recent years.
Regulation and proposed regulation of the payments industry has increased significantly in recent years.
As a result of this variable rate debt, an increase in interest rates generally, such as those we have recently experienced, would adversely affect our profitability. We may enter into pay-fixed interest rate swaps or other derivative transactions to limit our exposure to changes in floating interest rates.
Substantially all of our indebtedness is variable rate debt, primarily based on SOFR, which replaced LIBOR effective June 30, 2023. As a result of this variable rate debt, an increase in interest rates generally, such as those we have recently experienced, would adversely affect our profitability.
The U.S. markets experienced extreme volatility and disruption during the economic downturn that began in mid-2007, and the U.S. economy was in a recession for several consecutive calendar quarters during the same period. In addition, the fiscal and monetary policies of foreign nations, such as Russia and China, may have a severe impact on U.S. financial markets.
In addition, the fiscal and monetary policies of foreign nations, such as Russia and China, may have a severe impact on U.S. financial markets. We are monitoring the conflicts between Russia and Ukraine and Israel and Hamas.
We are subject to economic and political risk, the business cycles of our merchants and distribution partners and the overall level of consumer and commercial spending, which could negatively impact our business, financial condition and results of operations. The Electronic Payments industry depends heavily on the overall level of consumer, commercial and government spending.
The Electronic Payments industry depends heavily on the overall level of consumer, commercial and government spending. We are exposed to general economic conditions that affect consumer confidence, consumer spending, consumer discretionary income and changes in consumer purchasing habits.
Removed
The COVID-19 pandemic and the mitigation efforts by governments and other parties to attempt to control the spread of the virus (including its variants) have adversely impacted the U.S. and global economy, leading to significant changes in consumer and business spending and economic activity and disruptions and volatility in the U.S. and global capital markets. : • merchant temporary closures and failures; • third-party disruptions, including potential outages at network providers and other suppliers; and • increased cyber and payment fraud risk.
Added
We use third parties to provide services to us including IT related services and sales related functions. Should a cybersecurity related event or other act of negligence occur as a result of a third-party service provider, we may be liable for those actions.
Removed
Although we have experienced increased demand for some of our service offerings as a result of an accelerated shift to electronic payments, we believe that the COVID-19 pandemic, the mitigation efforts and the resulting economic impact have had, and may continue to have, an overall adverse effect on our business, results of operations and financial condition.
Added
Legal, Regulatory Compliance and Tax Risks Legal proceedings could have a material adverse effect on our business, financial condition or results of operations.
Removed
The full effects of the COVID-19 pandemic on our business, results of operations, financial condition and cash flows will depend on future developments, which are highly uncertain and difficult to predict at this time, including, but not limited to, the severity of the pandemic, the restrictive/mitigation actions taken to contain the virus or treat its effects, and its effects on our customers.
Added
We are subject to extensive government regulation, and any new laws and regulations, industry standards or revisions made to existing laws, regulations or industry standards affecting the Electronic Payments industry may have an unfavorable impact on our business, financial condition and results of operations. Our business is affected by laws and regulations and examinations that affect us and our industries.
Removed
Accordingly, while the COVID-19 pandemic could have an adverse effect on our revenues and financial results for reporting periods after 2022, the ultimate effects on our operations, financial condition and cash flows cannot be determined at this time.
Added
The financial services industry continues to be highly regulated and subject to new laws or regulations in many jurisdictions, including the U.S. states in which we operate, which could restrict the products and services we offer, impose additional compliance costs on us, render our current operations unprofitable or even prohibit our current or future operations.
Removed
Our referral partners are a significant source of new business.
Added
We are required to comply with frequently changing federal, state, and local laws and regulations that regulate, among other things, the terms of the financial products and services we offer. New laws or regulations may require us to incur significant expenses to ensure compliance.
Removed
We are monitoring the conflict between Russia and Ukraine.
Added
Federal and state regulators of consumer financial products and services are also enforcing existing laws, regulations, and rules more aggressively, and enhancing their supervisory expectations regarding the management of legal and regulatory compliance risks.
Removed
We also rely in part on third parties for the development and access to new technologies, or updates to existing products and services for which third parties provide ongoing support, which increases the cost associated with new and existing product and service offerings.
Added
For example, State attorneys general have indicated that they will take a more active role in enforcing consumer protection laws, including through the establishment of state consumer protection agencies as well as the use of Dodd-Frank Act provisions that authorize state attorneys general to enforce certain provisions of federal consumer financial laws and obtain civil money penalties and other relief available to the CFPB.
Removed
The loss of, for example, key personnel or of our ability to attract, recruit, retain and develop qualified employees could adversely affect our business, financial condition and results of operations.
Added
The application of traditional federal and state consumer protection statutes and related regulations to innovative products offered by financial technology companies such as us is often uncertain, evolving and unsettled.
Removed
Substantially all of our indebtedness is variable rate debt, primarily based on LIBOR. LIBOR has been the subject of recent national, international, and other regulatory guidance and proposals for reform, which will cause LIBOR to disappear entirely in 2023 and largely be replaced by SOFR.
Added
To the extent that our products are deemed to be subject to any such laws, we could be subject to additional compliance obligations, including state licensing requirements, disclosure requirements and usury or fee limitations, among other things.
Removed
We may redeem your unexpired warrants prior to their exercise at a time that is disadvantageous to you, thereby making your warrants worthless.
Added
Application of such requirements and restrictions to our products and services could require us to make significant changes to our business practices (which may increase our operating expenses and/or decrease revenue) and, in the event of retroactive application of such laws, subject us to litigation or enforcement actions that could result in the payment of damages, restitution, monetary penalties, injunctive 23 Table of Contents restrictions, or other sanctions, any of which could have a material adverse effect on our business, financial position, and results of operations.
Removed
We have the ability to redeem outstanding warrants (the "Warrants") at any time after they become exercisable and prior to their expiration, at $0.01 per warrant, if the last reported sales price (or the closing bid price of our Common Stock in the event the Common Stock is not traded on any specific trading day) of the Common Stock equals or exceeds $16.00 per share for any 20 trading days within a 30-trading day period ending on the third business day prior to the date we send proper notice of such redemption, provided that on the date we give notice of redemption and during the entire period thereafter until the time we redeem the Warrants, we have an effective registration statement under the Securities Act covering the Common Stock issuable upon exercise of the Warrants and a current prospectus relating to them is available or cashless exercise is exempt from the registration requirements under the Securities Act.
Added
Recently, federal bank regulators have increasingly focused on the risks related to bank and non-bank financial service company partnerships, raising concerns regarding risk management, oversight, internal controls, information security, change management, and information technology operational resilience.
Removed
If and when the Warrants become redeemable by us, we may exercise our 25 Table of Contents redemption right even if we are unable to register or qualify the underlying securities for sale under all applicable state securities laws.
Added
This focus is demonstrated by recent regulatory enforcement actions against banks that have allegedly not adequately addressed these concerns while growing their non-bank financial service offerings. Additionally, there are ongoing investigations by federal and state governmental entities concerning a prepaid debit card product program that was offered by the Company through an independent program manager.
Removed
Redemption of the outstanding Warrants could force a warrant holder: (i) to exercise Warrants and pay the exercise price therefore at a time when it may be disadvantageous for you to do so; (ii) to sell Warrants at the then-current market price when you might otherwise wish to hold your Warrants; or (iii) to accept the nominal redemption price which, at the time the outstanding Warrants are called for redemption, may be substantially less than the market value of your Warrants.
Added
We could be subject to additional regulatory scrutiny with respect to that portion of our business that could have a material adverse effect on the business, financial condition, results of operations and growth prospects of the Company.
Removed
The liquidity of the Warrants may be limited. There is a limited trading market for our Warrants, which might adversely affect the liquidity, market price and price volatility of the Warrants. In addition, our publicly traded Warrants have been removed from quotation on The Nasdaq Capital Market.
Added
Further, we may not be able to respond quickly or effectively to regulatory, legislative, and other developments, and these changes may in turn impair our ability to offer our existing or planned features, products, and services and/or increase our cost of doing business.
Removed
As a result, investors in our Warrants may find it more difficult to dispose of or obtain accurate quotations as to the market value of our Warrants, and the ability of our stockholders to sell our Warrants in the secondary market has been materially limited.
Added
In addition, we expect to continue to launch new products and services in the coming years, which may subject us to additional legal and regulatory requirements under federal, state and local laws and regulations.
Removed
Financial Risks Changes in the method for determining the LIBOR and the potential replacement of the LIBOR benchmark interest rate could adversely affect our business, financial condition, results of operations and cash flows. The majority of our current indebtedness bears interest at a variable rate based on LIBOR, and we may incur additional indebtedness based on LIBOR.
Added
To the extent the application of these laws or regulations to our new offerings is unclear or evolving, including changing interpretations and the implementation of new or varying regulatory requirements by federal or state governments and regulators, this may significantly affect or change our proposed business model, increase our operating expenses and hinder or delay our anticipated launch timelines for new products and services.
Removed
In July 2017, the FCA, a regulator of financial services firms and financial markets in the United Kingdom, stated that they will plan for a phase out of regulatory oversight of LIBOR interest rates indices. The FCA has indicated they will support the LIBOR indices through 2021, to allow for an orderly transition to an alternative reference rate.
Added
Disruptions or security failures in our information technology systems, including as a result of cybersecurity incidents, could create liability for us and/or limit our ability to effectively monitor, operate and control our operations and adversely affect our reputation, business, financial condition, results of operation and cash flows.
Removed
The ICE Benchmark Administration Limited recently announced that LIBOR settings will cease at the end of June 2023. The Alternative Reference Rates Committee has proposed the SOFR as its recommended alternative to LIBOR, and the Federal Reserve Bank of New York began publishing SOFR rates in April 2018.
Added
We may face risks related to cybersecurity, such as unauthorized access, cybersecurity attacks and other security incidents, which could adversely affect our business and operations.
Removed
SOFR is intended to be a broad measure of the cost of borrowing cash overnight collateralized by U.S. Treasury securities.
Added
The Company relies upon operational and information systems, some of which are managed by third parties, to process, transmit and store electronic information and to manage or support a variety of our business processes, activities and products.
Removed
At this time, it is not possible to predict when LIBOR will be replaced as the reference rate in the agreements governing the Company's indebtedness or the effect any discontinuance, modification or other reforms to LIBOR, or the establishment of alternative reference rates such as SOFR, or any other reference rate, will have on the Company.
Added
Additionally, we collect and store sensitive data, including the personally identifiable information of our customers and employees, in data centers and on information systems (including systems that may be controlled or maintained by third parties).
Removed
When LIBOR ceases to exist or if the methods of calculating LIBOR change from their current form prior to LIBOR’s cessation, however, the Company's borrowing costs may be adversely affected. 26 Table of Contents Item 1B. Unresolved Staff Comments N/A
Added
The Company’s business, and in particular, the debit card and cash management solutions business and global payments business, is dependent on its ability to process and monitor, on a daily basis, a large number of transactions, many of which are highly complex, across numerous and diverse markets.
Added
These transactions, as well as the information technology services provided to clients, often must adhere to client-specific guidelines, as well as legal and regulatory standards.
Added
Due to the breadth and geographical reach of the Company’s client base, developing and maintaining its operational and information systems and infrastructure is challenging, particularly as a result of rapidly evolving legal and regulatory requirements and technological shifts.
Added
Although the Company continues to take protective measures to maintain the confidentiality, integrity and security of our operational and information systems and infrastructure, the techniques used in cyberattacks are becoming increasingly diverse and sophisticated.
Added
For example, the Company’s operational and information systems or infrastructure, or those of our third-party providers, may be vulnerable to unauthorized access, loss or destruction of data (including confidential client information), account takeovers, disruptions of service, computer viruses or other malicious code, cyberattacks and other incidents that could create a cybersecurity event, any of which could remain undetected for an extended period of time.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. Properties We operate from several offices throughout the U.S. and one office in India, all of which we lease. Our key office locations include: • corporate headquarters in Alpharetta, GA; • administrative office in Hicksville, NY; • administrative office in New York, NY; • administrative office in Raleigh, NC; and • administrative office in Chandigarh, India.
Biggest changeItem 2. Properties We operate from several offices throughout the U.S. and one office in India, all of which we lease.
Added
Our key office locations include: 27 Table of Contents • corporate headquarters in Alpharetta, GA; • administrative office in Hicksville, NY; • administrative office in New York, NY; • administrative office in Dallas, TX; • administrative office in Houston, TX; • administrative office in Chattanooga, TN; • administrative office in San Francisco, CA; • administrative office in Raleigh, NC; and • administrative office in Chandigarh, India.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeIf and when we record such an accrual, it could be material and could adversely impact our results of operations, financial condition and cash flows. Item 4. Mine Safety Disclosures N/A 27 Table of Contents PART II.
Biggest changeIf and when we record such an accrual, it could be material and could adversely impact our results of operations, financial condition and cash flows. The Company is involved in a case that was filed on October 11, 2023 and is currently pending in the United States District Court for the Northern District of California (the “Complaint”).
Item 3. Legal Proceedings We are involved in certain other legal proceedings and claims, which arise in the ordinary course of business.
Item 3. Legal Proceedings The Company is involved in certain legal proceedings and claims, which arise in the ordinary course of business.
Added
The Complaint is a putative class action brought by Wyatt Miller d/b/a Hellam’s Tobacco and Wine Shop and Aguilar Auto Repair, LLC against The Credit Wholesale Company, Inc. (“Wholesale”), Priority Technology Holdings, Inc., Priority Payment Systems (“PPS”), LLC and Wells Fargo Bank, N.A. (“Wells Fargo”).
Added
The Complaint alleges that Wholesale is an agent of Priority, PPS and Wells Fargo and that it made non-consensual recordation of telephonic communications with California businesses in violation of California Invasion of Privacy Act (the “Act”). The Complaint seeks to certify a class of affected businesses and an award of $5,000 per violation of the Act.
Added
As of March 12, 2024, the outcome of this legal proceeding is not probable nor is there any reasonable estimate of loss. Item 4. Mine Safety Disclosures N/A 28 Table of Contents PART II.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeIssuer Purchases of Equity Securities The following table presents information with respect to purchases made by the Company of its Common Stock during the three months ended December 31, 2022 (shares are in whole units): Period Total Number of Shares Purchased (1) Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs October 1-31, 2022 154,356 $ 4.62 121,593 872,489 November 1-30, 2022 177,508 $ 5.40 165,586 706,903 December 1-31, 2022 201,087 $ 5.43 16,277 690,626 Total 532,951 303,456 (1) Includes shares withheld to satisfy employees' tax withholding obligations in connection with the vesting of restricted stock awards.
Biggest changeIssuer Purchases of Equity Securities The following table presents information with respect to purchases made by the Company of its Common Stock during the three months ended December 31, 2023 (shares are in whole units): Period Total Number of Shares Purchased (1) Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs October 1-31, 2023 38,817 $ 4.35 — 690,626 November 1-30, 2023 11,923 $ 3.53 — 690,626 December 1-31, 2023 17,343 $ 3.56 — 690,626 Total 68,083 — (1) Includes shares withheld to satisfy employees' tax withholding obligations in connection with the vesting of restricted stock awards.
The number of shares withheld was determined based on the fair market value on the vesting date. Item 6. Reserved 28 Table of Contents
The number of shares withheld was determined based on the fair market value on the vesting date. Item 6. Reserved 29 Table of Contents
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information On July 25, 2018, our Common Stock began trading on The Nasdaq Capital Market under the symbol "PRTH". As of March 17, 2023, we had 85 holders of record of our Common Stock.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information On July 25, 2018, our Common Stock began trading on The Nasdaq Capital Market under the symbol "PRTH". As of March 7, 2024, we had 69 holders of record of our Common Stock.
Equity Compensation Plan Information Period Number of securities to be issued upon exercise of outstanding options, warrants and rights (1) Weighted-average exercise price of outstanding options, warrants and rights (2) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in the first column) Equity Compensation Plans approved by security holders 2,689,353 $ 6.88 3,505,286 Equity Compensation Plans not approved by security holders — $ — — (1) Represents stock options and RSU outstanding under the Company's 2018 Plan.
Equity Compensation Plan Information Period Number of securities to be issued upon exercise of outstanding options, warrants and rights (1) Weighted-average exercise price of outstanding options, warrants and rights (2) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in the first column) Equity Compensation Plans approved by security holders 400,365 $ 6.870 3,547,798 Equity Compensation Plans not approved by security holders — $ — — (1) Represents stock options and RSUs outstanding under the Company's 2018 Plan.

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

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Biggest changeItem 6. Reserved 28 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 29 Item 7A. Qualitative and Quantitative Disclosure About Market Risk 37 Item 8. Financial Statements and Supplementary Data 38 Notes to Consolidated Financial Statements 47
Biggest changeItem 6. Reserved 29 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 30 Item 7A. Qualitative and Quantitative Disclosure About Market Risk 38 Item 8. Financial Statements and Supplementary Data 39 Notes to Consolidated Financial Statements 49

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeSelling, general and administrative Selling, general and administrative expenses of $35.0 million for the year ended December 31, 2022 increased by $6.6 million, or 23.2%, from $28.4 million for the year ended December 31, 2021, primarily due to full-year impact of acquired businesses and certain non-recurring projects. 30 Table of Contents Other (Expenses) Income, net (in thousands) Years Ended December 31, 2022 vs 2021 2022 2021 $ Change Other (expense) income Interest expense $ (53,554) $ (36,485) $ (17,069) Debt extinguishment and modification costs — (8,322) 8,322 Gain on sale of business and investment — 7,643 (7,643) Other income, net 589 202 387 Total other expenses, net $ (52,965) $ (36,962) $ (16,003) Interest expense Interest expense of $53.6 million for the year ended December 31, 2022 increased by $17.1 million, or 46.8%, from $36.5 million for the year ended December 31, 2021, primarily due to full-year impact of additional borrowings to fund acquisitions in 2021 and an increase in variable interest rates in 2022.
Biggest changeOther (Expenses) Income, net (in thousands) Years Ended December 31, 2023 vs 2022 2023 2022 $ Change Other (expense) income Interest expense $ (76,108) $ (53,554) $ (22,554) Other income, net 1,736 589 1,147 Total other expenses, net $ (74,372) $ (52,965) $ (21,407) Interest expense Interest expense of $76.1 million for the year ended December 31, 2023 increased by $22.5 million, or 42.1%, from $53.6 million for the year ended December 31, 2022, due to increased interest rates and higher debt balances to fund the acquisition of Plastiq in the third fiscal quarter of 2023.
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 and thereafter.
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.
Certain amounts in this section may not add mathematically due to rounding. For a description and additional information about our three reportable segments, see Note 20. Segment Information , contained in " Item 8 - Financial Statements and Supplementary Data " of this Annual Report on Form 10-K.
Certain amounts in this section may not add mathematically due to rounding. For a description and additional information about our three reportable segments, see Note 18. Segment Information , contained in " Item 8 - Financial Statements and Supplementary Data " of this Annual Report on Form 10-K.
Under the measurement step, the tax benefit is measured as the largest amount of benefit that is more likely than not to be realized upon effective settlement. This is determined on a cumulative probability basis. The full impact of any change in recognition or measurement is reflected in the period in which such change occurs.
Under the measurement step, the tax benefit is measured as the largest amount of 37 Table of Contents benefit that is more likely than not to be realized upon effective settlement. This is determined on a cumulative probability basis. The full impact of any change in recognition or measurement is reflected in the period in which such change occurs.
Discussions of 2020 items and year-over-year comparisons between 2021 and 2020 are not included in this Form 10-K, and can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of the Company's Annual Report on Form 10-K for the year ended December 31, 202 1 .
Discussions of 2021 items and year-over-year comparisons between 2022 and 2021 are not included in this Form 10-K, and can be found in " Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of the Company's Annual Report on Form 10-K for the year ended December 31, 202 2 .
Actual results could differ significantly from those estimates. We believe that the following discussion addresses our most critical accounting estimates, which are those that are most important to the portrayal of our financial condition and results of operations and require management's most difficult, subjective, and complex judgments. Income Taxes We account for income taxes under the asset and liability method.
We believe that the following discussion addresses our most critical accounting estimates, which are those that are most important to the portrayal of our financial condition and results of operations and require management's most difficult, subjective, and complex judgments. Income Taxes We account for income taxes under the asset and liability method.
This section of this Form 10-K generally discusses 2022 and 2021 items and year-over-year comparisons between 2022 and 2021.
This section of this Form 10-K generally discusses 2023 and 2022 items and year-over-year comparisons between 2023 and 2022.
Minimum amortization of the Initial Term Loan are equal quarterly installments in aggregate annual amounts equal to 1.0% of original principal, with the balance paid upon maturity. The term facility matures in April 2027 and the revolving credit facility expires in April 2026.
Minimum amortization of the term facility are equal quarterly 36 Table of Contents installments in aggregate annual amounts equal to 1.0% of the original principal, with the balance paid upon maturity. The term facility matures in April 2027 and the revolving credit facility expires in April 2026.
The net cash provided by financing activities for 2022 included changes in the net obligations for funds held on the behalf of customers of $43.1 million and $29.5 million related to additional borrowings under the revolving credit facility.
The net cash provided by financing activities for 2022 included borrowings from the revolving credit facility of $29.5 million and changes in the net obligations for funds held on the behalf of customers of $43.1 million.
This increase was offset by a decrease of $1.7 million driven by the wind down of certain customer programs in the managed services business. Operating Income Operating income from our B2B Payments segment was $0.2 million for the year ended December 31, 2022, compared to $0.1 million for the year ended December 31, 2021.
This increase was offset by a decrease of $7.3 million driven by the wind down of certain customer programs in the managed services business during Q4 2022. Operating Loss Operating loss from our B2B Payments segment was $2.5 million for the year ended December 31, 2023, compared to operating income of $0.2 million for the year ended December 31, 2022.
Results of Operations This section includes certain components of our results of operations for the years ended December 31, 2022 (or "2022"), December 31, 2021 (or "2021") and December 31, 2020 (or "2020").
Results of Operations This section includes certain components of our results of operations for the years ended December 31, 2023 (or "2023"), December 31, 2022 (or "2022").
Our consolidated effective income tax rates differ from the statutory rate due to timing and permanent differences between amounts calculated under GAAP and the U.S. tax code. The consolidated effective income tax rate for 2022 may not be indicative of our effective tax rate for future periods.
Our consolidated effective income tax rates differ from the statutory rate due to timing and permanent differences between amounts calculated under GAAP and the U.S. tax code. The consolidated effective income tax rate for 2023 may not be indicative of our effective tax rate for future periods. On August 16, 2022, the U.S. government enacted the IRA into law.
Our working capital, defined as current assets less current liabilities, was $22.5 million at December 31, 2022 and $19.6 million at December 31, 2021. As of December 31, 2022, we had cash and cash equivalents with a balance of $18.5 million compared to $20.3 million at December 31, 2021.
Our working capital, defined as current assets less current liabilities, was $29.2 million at December 31, 2023 and $22.5 million at December 31, 2022. As of December 31, 2023, we had cash and cash equivalents with a balance of $39.6 million compared to $18.5 million at December 31, 2022.
The increase of $2.0 million, or 3.8%, is due to increased revenue and was offset by a mix of volume growth from larger reseller partners with higher commissions and an increase in other operating expenses.
The decrease of $8.4 million, or 15.3%, is due to a higher mix of volume growth from larger reseller partners with higher commissions of $3.2 million and an increase in other operating expenses.
The excess of the purchase price over the fair value of the net assets acquired is recorded as goodwill. For acquisitions that include contingent consideration, we estimate the fair value of contingent consideration at the acquisition date. The estimated fair value of contingent consideration is updated in future periods based on information available at that time.
For acquisitions that include contingent consideration, we estimate the fair value of contingent consideration at the acquisition date. The estimated fair value of contingent consideration is updated in future periods based on information available at that time.
As of December 31, 2022, the Company was in compliance with the covenants in the Credit Agreement and the Total Net Leverage Ratio was not applicable. Critical Accounting Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes.
As of December 31, 2023, the Company was in compliance with the covenants in the Credit Agreement. Critical Accounting Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ significantly from those estimates.
Net cash used to acquire businesses in 2022 was $5.0 million compared to net cash used of $407.1 million in 2021. Additions to property, equipment and software was $18.9 million for 2022 compared to $9.7 million in 2021 and acquisitions of intangible assets was $8.0 million compared to $49.5 million in 2021.
Net cash used to acquire businesses in 2023 was $28.2 million compared to net cash used of $5.0 million in 2022. Additions to property, equipment and software was $21.3 million for 2023 compared to $18.9 million in 2022 and acquisitions of intangible assets was $6.6 million compared to $8.0 million in 2022.
We amortize the cost of our acquired intangible assets over their estimated useful lives using either a straight-line or an accelerated method that most accurately reflects the estimated pattern in which the economic benefit of the respective asset is consumed. 36 Table of Contents Business Combinations We allocate the purchase price of an acquired business to the assets acquired and liabilities assumed based on their estimated fair values.
We amortize the cost of our acquired intangible assets over their estimated useful lives using either a straight-line or an accelerated method that most accurately reflects the estimated pattern in which the economic benefit of the respective asset is consumed.
We have derived this data, except key indicators for merchant bankcard processing dollar values and transaction volumes, from our audited Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.
We have derived this data, except key indicators including merchant bankcard processing dollar values and transaction volumes (SMB Payments), issuing dollar volume and transaction count (B2B Payments), and average billed clients and new enrollments (Enterprise Payments), from our audited Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.
Cash (Used in) Provided by Financing Activities Net cash provided by financing activities was $8.5 million for the year ended December 31, 2022, compared to $871.6 million of cash used in financing activities in the year ended December 31, 2021.
Cash Provided by Financing Activities Net cash provided by financing activities was $210.1 million for the year ended December 31, 2023, compared to $8.5 million for the year ended December 31, 2022.
The increase in dividends and accretion attributable to redeemable senior preferred stockholders from 2021 to 2022 is due to a full-year impact of dividends and accretion, as well as an increase in the dividend rate for 2022 resulting from an increase in variable interest rates during the year.
The increase in dividends and accretion from 2022 to 2023 is due to an increase in the dividend rate for 2023 resulting from an increase in variable interest rates during the year and increase in carrying value of redeemable senior preferred stocks (as a result of accumulated accrued dividend).
This was offset by $38.2 million of cash used for the repayment of debt including borrowings under the revolving credit facility, $11.5 million of cash dividends paid to redeemable senior preferred stockholders, $7.5 million of cash used for stock repurchases, including a portion related to shares withheld for taxes, and $7.0 million of payments of contingent consideration for business combinations.
This was offset by $56.5 million of cash used for the repayment of borrowings under the revolving credit facility, $6.3 million of cash used for the repayment of the Term Facility, $24.7 million of cash dividends paid to redeemable senior preferred stockholders, $1.3 million of cash used for shares withheld for taxes, $4.7 million of payments of contingent consideration for business combinations and $1.2 million for debt issuance and modification costs paid related to the modification of the Term Facility and the revolving credit facility.
At December 31, 2022, we had availability of approximately $27.5 million under our revolving credit arrangement. The following tables and narrative reflect our changes in cash flows for the comparative annual periods.
The current portion of long-term debt included in current liabilities was $6.7 million and $6.2 million at December 31, 2023 and 2022, respectively. At December 31, 2023, we had availability of approximately $65.0 million under our revolving credit arrangement. The following tables and narrative reflect our changes in cash flows for the comparative annual periods.
These cash inflows were offset by cash used for the repayment of debt of $361.4 million, cash used for the repurchase of Common Stock of $1.7 million, dividends paid to redeemable senior preferred stockholders of $7.5 million and distribution to NCIs in subsidiaries of $0.8 million.
These cash inflows were offset by cash used for the repayment of debt of $38.2 million, cash used for the repurchase of Common Stock of $7.5 million, dividends paid to redeemable senior preferred stockholders of $11.5 million and $7.0 million of payments of contingent consideration for business combinations.
These cash and cash equivalent balances do not include restricted cash of $10.6 million and $28.9 million at December 31, 2022 and December 31, 2021, respectively, which reflects cash accounts holding customer settlement funds and cash reserves for potential losses. The current portion of long-term debt included in current liabilities was $6.2 million at December 31, 2022 and 2021.
These cash and cash equivalent balances do not include restricted cash of $11.9 million and $10.6 million at December 31, 2023 and December 31, 2022, respectively, which reflects cash accounts holding customer 35 Table of Contents settlement funds and cash reserves for potential losses.
Years Ended December 31, (in thousands) 2022 2021 Net cash provided by (used in): Operating activities $ 70,518 $ 9,377 Investing activities (36,503) (451,033) Financing activities 8,502 871,629 Net increase in cash and restricted cash $ 42,517 $ 429,973 Cash Provided by Operating Activities Net cash provided by operating activities was $70.5 million and $9.4 million for the years ended December 31, 2022 and December 31, 2021, respectively.
Years Ended December 31, (in thousands) 2023 2022 Net cash provided by (used in): Operating activities $ 81,256 $ 70,518 Investing activities (55,748) (36,503) Financing activities 210,105 8,502 Net increase in cash and restricted cash $ 235,613 $ 42,517 Cash Provided by Operating Activities Net cash provided by operating activities was $81.3 million and $70.5 million for the years ended December 31, 2023 and December 31, 2022, respectively.
We anticipate that cash on hand, funds generated from operations and available borrowings under our revolving credit agreement are sufficient to meet our working capital requirements for at least the next twelve months. This is based upon management's estimates and assumptions, including utilizing the most currently available information regarding the effects of the COVID-19 pandemic on our financial results.
We anticipate that cash on hand, funds generated from operations and available borrowings under our revolving credit agreement are sufficient to meet our working capital requirements for at least the next twelve months.
If applicable, we expect to reflect the excise tax within equity as part of the repurchase price of Common Stock. 31 Table of Contents Earnings Attributable to Common Shareholders (in thousands) Years Ended December 31, 2022 vs 2021 2022 2021 $ Change Net income (loss) $ (2,150) $ 1,389 $ (3,539) Less: Dividends and accretion attributable to redeemable senior preferred stockholders (36,880) (18,009) (18,871) Less: NCI preferred unit redemptions, net of deferred tax benefit — (8,021) 8,021 Net loss attributable to common stockholders $ (39,030) $ (24,641) $ (14,389) Dividends and accretion attributable to redeemable senior preferred stockholders was $36.9 million for the year ended December 31, 2022, and was comprised of $22.1 million of accumulated dividends accrued as part of the carrying value of the redeemable senior preferred stock and the cash dividend payable at year end, $11.5 million of dividends that were paid in cash, and $3.3 million related to accretion of discounts and issuance costs for the redeemable senior preferred stock.
If applicable in future periods, we expect to reflect the excise tax within equity as part of the repurchase price of Common Stock. 32 Table of Contents Earnings Attributable to Common Shareholders (in thousands) Years Ended December 31, 2023 vs 2022 2023 2022 $ Change Net income (loss) $ (1,311) $ (2,150) $ 839 Less: Dividends and accretion attributable to redeemable senior preferred stockholders (47,744) (36,880) (10,864) Net loss attributable to common stockholders $ (49,055) $ (39,030) $ (10,025) Dividends and accretion attributable to redeemable senior preferred stockholders was $47.7 million for the year ended December 31, 2023, and was comprised of $18.0 million of accumulated dividends accrued as part of the carrying value of the redeemable senior preferred stock, $26.4 million of cash dividends, and $3.3 million related to accretion of discounts and issuance costs.
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. 35 Table of Contents 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, which is defined in the Credit Agreement as the ratio of consolidated total debt less unrestricted cash to consolidated adjusted EBITDA (as defined in the Credit Agreement).
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.
The increase of $86.6 million, or 18.2%, was primarily driven by increased merchant bankcard volume and certain fee revenues. The Company's revenue from the SMB Payments segment as a percentage of merchant bankcard processing dollar value during 2022 increased to 0.95% from 0.89% during 2021.
The Company's merchant card fee revenue from the SMB Payments segment ($563.9 million for 2023 and $549.6 million for 2022) as a percentage of merchant bankcard processing dollar value during 2023 increased to 0.95% from 0.92% during 2022. The increase was primarily driven by an increase in incentive revenue and changes in the merchant mix.
Equipment Equipment revenue of $9.4 million for the year ended December 31, 2022, increased by $3.7 million, or 64.9%, from $5.7 million for the year ended December 31, 2021. The increase was primarily due to increased sales of mobile card reader equipment and other equipment from our MX product line.
Equipment Equipment revenue of $12.7 million for the year ended December 31, 2023, increased by $3.3 million, or 34.2%, from $9.4 million for the year ended December 31, 2022. The increase was primarily due to increased sales of point-of-sale equipment.
Income tax expense (in thousands) Years Ended December 31, 2022 vs 2021 2022 2021 $ Change Income (loss) before income taxes $ 3,200 $ (3,869) $ 7,069 Income tax expense $ 5,350 $ (5,258) $ 10,608 Effective tax rate 167.2 % 135.9 % The effective tax rate for 2022 increased primarily due to an increase in the valuation allowance against certain business interest carryover deferred tax assets.
Income tax expense (in thousands) Years Ended December 31, 2023 vs 2022 2023 2022 $ Change Income (loss) before income taxes $ 7,152 $ 3,200 $ 3,952 Income tax expense $ 8,463 $ 5,350 $ 3,113 Effective tax rate 118.3 % 167.2 % The decrease in the effective tax rate from 2022 to 2023 is primarily due to a reduction in the amount of additional valuation allowance recorded against certain business interest carryover deferred tax assets.
Operating Expenses Operating expenses for 2022 and 2021 were as follows: (in thousands) Years Ended December 31, 2022 vs 2021 2022 2021 $ Change Operating expenses Cost of services (excludes depreciation and amortization) $ 436,753 $ 359,885 $ 76,868 Salary and employee benefits 65,077 43,818 21,259 Depreciation and amortization 70,681 49,697 20,984 Selling, general and administrative 34,965 28,408 6,557 Total operating expenses $ 607,476 $ 481,808 $ 125,668 Costs of Services (excludes depreciation and amortization) Costs of services (excludes depreciation and amortization) of $436.8 million for the year ended December 31, 2022 increased by $76.9 million, or 21.4%, from $359.9 million for the year ended December 31, 2021, primarily due to the corresponding increase in revenues.
Operating Expenses Operating expenses for 2023 and 2022 were as follows: (in thousands) Years Ended December 31, 2023 vs 2022 2023 2022 $ Change Operating expenses Cost of services (excludes depreciation and amortization) $ 480,307 $ 436,753 $ 43,554 Salary and employee benefits 79,974 65,077 14,897 Depreciation and amortization 68,395 70,681 (2,286) Selling, general and administrative 45,412 34,965 10,447 Total operating expenses $ 674,088 $ 607,476 $ 66,612 Costs of Services (excludes depreciation and amortization) Costs of services (excludes depreciation and amortization) of $480.3 million for the year ended December 31, 2023 increased by $43.6 million, or 10.0%, from $436.8 million for the year ended December 31, 2022, primarily due to the corresponding increase in revenues.
The debt balance at December 31, 2022 consisted of $610.7 million outstanding under the term facility and $12.5 million outstanding under the revolving credit facility, offset by $18.1 million of unamortized debt discounts and issuance costs.
The debt balance for the year ended December 31, 2023 consisted of funds outstanding under the term facility, offset by $15.7 million of unamortized debt discounts and issuance costs. There were no funds outstanding under the revolving credit facility as of December 31, 2023.
Salary and employee benefits Salary and employee benefits expense of $65.1 million for the year ended December 31, 2022 increased by $21.3 million, or 48.6%, from $43.8 million for the year ended December 31, 2021, primarily due to pay raises, full-year impact of the Finxera business acquired in September 2021, an increase in stock-based compensation and overall growth of the Company.
Salary and employee benefits Salary and employee benefits expense of $80.0 million for the year ended December 31, 2023 increased by $14.9 million, or 22.9%, from $65.1 million for the year ended December 31, 2022, primarily due to higher wages, an increase in stock-based compensation and increased headcount from acquisitions and to support overall growth of the Company.
Revenues by type for 2022 and 2021 were as follows: (in thousands) Years Ended December 31, 2022 vs 2021 2022 2021 $ Change Revenue Type: Merchant card fees $ 553,037 $ 468,764 $ 84,273 Money transmission services 71,536 19,415 52,121 Outsourced services and other services 29,627 21,033 8,594 Equipment 9,441 5,689 3,752 Total revenues $ 663,641 $ 514,901 $ 148,740 Merchant Card Fees For the year ended December 31, 2022, our merchant card fees revenue of $553.0 million increased by $84.2 million, or 18.0%, from $468.8 million for the year ended December 31, 2021.
Revenues by type for 2023 and 2022 were as follows: (in thousands) Years Ended December 31, 2023 vs 2022 2023 2022 $ Change Revenue Type: Merchant card fees $ 595,205 $ 553,037 $ 42,168 Money transmission services 98,137 71,536 26,601 Outsourced services and other services 49,600 29,627 19,973 Equipment 12,670 9,441 3,229 Total revenues $ 755,612 $ 663,641 $ 91,971 Merchant Card Fees For the year ended December 31, 2023, our merchant card fees revenue of $595.2 million increased by $42.2 million, or 7.6%, from $553.0 million for the year ended December 31, 2022.
Depreciation and Amortization Depreciation and amortization expense from our Enterprise Payments segment was $24.9 million for the year ended December 31, 2022, compared to $7.2 million for the year ended December 31, 2021. The increase of $17.7 million, or 245.8%, was primarily driven by the amortization of intangibles resulting from the Finxera acquisition in September 2021.
Depreciation and Amortization Depreciation and amortization expense from our Enterprise Payments segment was $23.8 million for the year ended December 31, 2023, compared to $24.9 million for the year ended December 31, 2022.
Segment Results SMB Payments (in thousands) Years Ended December 31, 2022 vs 2021 2022 2021 $ Change Revenue $ 562,237 $ 475,630 $ 86,607 Operating expenses 507,371 422,746 84,625 Operating income $ 54,866 $ 52,884 $ 1,982 Operating margin 9.8 % 11.1 % Depreciation and amortization $ 43,925 $ 41,144 $ 2,781 Key Indicators: Merchant bankcard processing dollar value $ 59,440,491 $ 53,411,622 $ 6,028,869 Merchant bankcard transaction volume 636,576 578,102 58,474 Revenue Revenue from our SMB Payments segment was $562.2 million for the year ended December 31, 2022, compared to $475.6 million for the year ended December 31, 2021.
Segment Results SMB Payments (in thousands) Years Ended December 31, 2023 vs 2022 2023 2022 $ Change Revenue $ 582,870 $ 562,237 $ 20,633 Operating expenses 536,388 507,371 29,017 Operating income $ 46,482 $ 54,866 $ (8,384) Operating margin 8.0 % 9.8 % Depreciation and amortization $ 41,036 $ 43,925 $ (2,889) Key Indicators: Merchant bankcard processing dollar value $ 59,054,039 $ 59,440,491 $ (386,452) Merchant bankcard transaction volume 696,203 636,576 59,627 Revenue Revenue from our SMB Payments segment was $582.9 million for the year ended December 31, 2023, compared to $562.2 million for the year ended December 31, 2022.
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. Accrued interest is payable on each interest payment date (as defined in the Credit Agreement).
Per the amended terms, the outstanding borrowings under the Credit Agreement interest will accrue using the SOFR rate plus a term SOFR adjustment plus an applicable margin per year, subject to a SOFR floor of 1.00% per year.
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.
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 took effect for tax years beginning after December 31, 2022. The IRA did not have a material effect on our reported results, cash flows, or financial position during 2023.
For the year ended December 31, 2022, costs of services (excluding depreciation and amortization) as a percentage of total revenues decreased to 65.8% as compared to 69.9% for the year ended December 31, 2021.
For the year ended December 31, 2023, costs of services (excluding depreciation and amortization) as a percentage of total revenues decreased to 63.6% as compared to 65.8% for the year ended December 31, 2022. This decrease was primarily due to the increase in interest and money transmission revenues which do not have significant cost of services.
The net cash provided by financing activities for 2021 included proceeds from the issuance of new debt of $598.2 million, net borrowings from the revolving credit facility of $15.0 million, proceeds from the issuance of the redeemable senior preferred stock of $211.0 million, proceeds from the exercise of stock options of $1.2 million and changes in the net obligations for funds held on the behalf of customers of $417.6 million.
The net cash provided by for 2023 included changes in the net obligations for funds held on the behalf of customers of $211.1 million, $49.8 million related to proceeds from the increase of the Term Facility and $44.0 million related to additional borrowings under the revolving credit facility.
As of December 31, 2022, the Company had outstanding debt obligations, including the current portion and net of unamortized debt discount of $605.1 million, compared to $610.3 million at December 31, 2021, resulting in a decrease of $5.2 million.
Long-Term Debt For the year ended December 31, 2023, we had outstanding debt obligations, including the current portion and net of unamortized debt discount of $638.7 million, compared to $605.1 million for the year ended December 31, 2022, resulting in an increase of $33.6 million.
The increase was primarily driven by increased volume (transaction count) related fee revenues and changes in the merchant mix. Operating Income Operating income from our SMB Payments segment was $54.9 million for the year ended December 31, 2022, compared to $52.9 million for the year ended December 31, 2021.
Operating Income Operating income from our SMB Payments segment was $46.5 million for the year ended December 31, 2023, compared to $54.9 million for the year ended December 31, 2022.
The increase of $60.4 million, or 273.3%, was primarily driven by full-year impact of Finxera business acquired in September 2021 and continued growth in the customers and markets it serves. 33 Table of Contents Operating Income Operating income from our Enterprise Payments segment was $30.9 million for the year ended December 31, 2022, compared to $6.8 million for the year ended December 31, 2021.
Operating Income Operating income from our Enterprise Payments segment was $74.0 million for the year ended December 31, 2023, compared to $30.9 million for the year ended December 31, 2022. The increase of $43.1 million, or 139.1%, was primarily driven by the increase in revenue.
Increase in other operating expenses include a $6.3 million increase in salary and employee benefits due to higher headcount, a $2.2 million increase in selling, general and administrative expenses driven by higher travel and other operating costs, a $2.8 million increase in depreciation and amortization, and higher stock-based compensation and pay raises.
Increase in other operating expenses include a $5.7 million increase in salary and employee benefits due to higher headcount and stock-based compensation and a $2.3 million increase in selling, general and administrative expenses driven by higher travel and other operating costs which was offset by a decrease of $2.8 million in depreciation and amortization for assets fully depreciated and amortized in the prior year. 33 Table of Contents Depreciation and Amortization Depreciation and amortization expense of our SMB Payments segment was $41.0 million for the year ended December 31, 2023, compared to $43.9 million for the year ended December 31, 2022.
The Company's employee headcount increased to 870 in 2022 from 790 in 2021. Depreciation and amortization expense Depreciation and amortization expense of $70.7 million for the year ended December 31, 2022 increased by $21.0 million, or 42.3%, from $49.7 million for the year ended December 31, 2021, primarily due to the full-year amortization of finite-lived intangible assets from acquired businesses.
Depreciation and amortization expense Depreciation and amortization expense of $68.4 million for the year ended December 31, 2023 decreased by $2.3 million, or 3.2%, from $70.7 million for the year ended December 31, 2022, primarily due to full amortization of certain intangible assets partially offset by the depreciation of new assets placed in service. 31 Table of Contents Selling, general and administrative Selling, general and administrative expenses of $45.4 million for the year ended December 31, 2023 increased by $10.4 million, or 29.9%, from $35.0 million for the year ended December 31, 2022, primarily due to certain nonrecurring expenses and other expenses to support overall growth of the Company.
Additionally, 2021 included the non-recurring payment of PIK interest of $23.7 million upon the refinancing of our credit facilities in April 2021 which decreased operating cash flows for the year ended December 31, 2021. 34 Table of Contents Cash Used in Investing Activities Net cash used in investing activities was $36.5 million compared to cash used investing activities of $451.0 million for the years ended December 31, 2022 and 2021, respectively.
The $10.8 million, or 15.2% increase in 2023 was driven by changes in the operating assets and liabilities. Cash Used in Investing Activities Net cash used in investing activities was $55.7 million compared to cash used investing activities of $36.5 million for the years ended December 31, 2023 and 2022, respectively.
Money Transmission Services Money transmission services revenue of $71.5 million for the year ended December 31, 2022 increased by $52.1 million or 268.6%, from $19.4 million for the year ended December 31, 2021 and is primarily related to the full-year impact of the Finxera acquisition in September 2021 and continued growth in the customers and markets it serves. 29 Table of Contents Outsourced Services and Other Services Outsourced services and other services revenue of $29.6 million for the year ended December 31, 2022 increased by $8.6 million, or 41.0%, from $21.0 million for the year ended December 31, 2021.
Outsourced Services and Other Services Outsourced services and other services revenue of $49.6 million for the year ended December 31, 2023 increased by $20.0 million, or 67.4%, from $29.6 million for the year ended December 31, 2022.
Increase in other operating expenses were offset by an increase in operating income from higher revenue. 32 Table of Contents B2B Payments (in thousands) Years Ended December 31, 2022 vs 2021 2022 2021 $ Change Revenue $ 18,890 $ 17,138 $ 1,752 Operating expenses 18,682 17,003 1,679 Operating income $ 208 $ 135 $ 73 Operating margin 1.1 % 0.8 % Depreciation and amortization $ 744 $ 294 $ 450 Key Indicators: Merchant bankcard processing dollar value $ 526,812 $ 323,502 $ 203,310 Merchant bankcard transaction volume 304 220 84 Revenue Revenue from our B2B Payments segment was $18.9 million for the year ended December 31, 2022, compared to $17.1 million for the year ended December 31, 2021.
B2B Payments (in thousands) Years Ended December 31, 2023 vs 2022 2023 2022 $ Change Revenue $ 40,726 $ 18,890 $ 21,836 Operating expenses 43,261 18,682 24,579 Operating (loss) income $ (2,535) $ 208 $ (2,743) Operating margin (6.2) % 1.1 % Depreciation and amortization $ 2,221 $ 744 $ 1,477 Key Indicators: B2B issuing dollar volume $ 851,948 $ 814,964 $ 36,984 B2B issuing transaction count 1,087 933 154 Revenue Revenue from our B2B Payments segment was $40.7 million for the year ended December 31, 2023, compared to $18.9 million for the year ended December 31, 2022.
This is due to the increase in revenue from the CPX business was offset by a decrease in revenue from the managed services business due to the wind down of certain customer programs.
This increase was primarily due to growth in interest income due to higher interest rates and deposit balances, and additional revenues generated by our Passport platform, offset by decreased managed services revenue due to wind down of certain programs in Q4 2022.
Revenue For the year ended December 31, 2022, our consolidated revenue of $663.6 million increased by $148.7 million, or 28.9%, from $514.9 million for the year ended December 31, 2021. This overall increase was driven by an increase in payment volumes fueled by: 1) increased consumer spending and 2) the full-year impact of businesses acquired during the prior year.
Revenue For the year ended December 31, 2023, our consolidated revenue of $755.6 million increased by $92.0 million, or 13.9%, from $663.6 million for the year ended December 31, 2022.
Enterprise Payments (in thousands) Years Ended December 31, 2022 vs 2021 2022 2021 $ Change Revenue $ 82,514 $ 22,133 $ 60,381 Operating expenses 51,577 15,370 36,207 Operating income $ 30,937 $ 6,763 $ 24,174 Operating margin 37.5 % 30.6 % Depreciation and amortization $ 24,892 $ 7,158 $ 17,734 Key Indicators: Merchant bankcard processing dollar value $ 1,760,518 $ 52,376 $ 1,708,142 Merchant bankcard transaction volume 2,779 549 2,230 Average number of billed clients 380,233 345,828 34,405 Revenue Revenue from our Enterprise Payments segment was $82.5 million for the year ended December 31, 2022, compared to $22.1 million for the year ended December 31, 2021.
The increase in depreciation and amortization expense is primarily due to assets acquired from the acquisition of the Plastiq business in the 3rd quarter of 2023. 34 Table of Contents Enterprise Payments (in thousands) Years Ended December 31, 2023 vs 2022 2023 2022 $ Change Revenue $ 132,016 $ 82,514 $ 49,502 Operating expenses 58,052 51,577 6,475 Operating income $ 73,964 $ 30,937 $ 43,027 Operating margin 56.0 % 37.5 % Depreciation and amortization $ 23,753 $ 24,892 $ (1,139) Key Indicators: Average billed clients $ 556,526 $ 379,725 $ 176,801 Average monthly new enrollments 51,059 32,013 19,046 Revenue Revenue from our Enterprise Payments segment was $132.0 million for the year ended December 31, 2023, compared to $82.5 million for the year ended December 31, 2022.
Additionally, grants of certain loans to our partners was $4.7 million for the year ended December 31, 2022. For the year ended December 31, 2021, the Company received proceeds from the sale of an investment of $15.3 million.
Net payments received of $0.4 million on loans to ISOs for the year ended December 31, 2023, compared to $4.7 million related to the funding of new loans to ISOs in 2022.
Removed
This increase was driven by an increase in the merchant bankcard volume processed by the Company.
Added
This overall increase was driven by increases in merchant card fee rates and equipment revenue, offset by a decrease in certain fee-based revenue, a true up of an invoice from one of the partner banks for certain services provided in Q1 2022 and a decline in processed merchant bankcard dollar value due to diversification of merchant portfolio by one of the referral partners in our SMB Payments segment, an increase in new enrollments and higher interest income in our Enterprise Payments segment and an increase in revenue from the Plastiq business acquired during the year offset by a decrease in revenue in B2B Payments segment due to the wind down of certain managed services programs in Q4 2022.
Removed
This increase was primarily driven by growth in revenue from AP automation solutions and increased volumes in the card issuing business. The increase was offset by a decrease of $1.7 million driven by the wind down of certain customer programs in the managed services business.
Added
This increase was primarily driven by revenue from the Plastiq business that was acquired during the year and merchant card fee rate increases.
Removed
This decrease was primarily due the full-year impact of the Finxera acquisition in September 2021, partially offset by a mix of bankcard volume growth from larger reseller partners with higher commissions.
Added
These increases were partially offset by a decrease in certain fee-based revenue, a true up of an invoice from one of the partner banks for certain services provided in Q1 2022 and a decline in processed merchant bankcard dollar value due to the diversification of processor services by one of the referral partners. 30 Table of Contents Money Transmission Services Money transmission services revenue of $98.1 million for the year ended December 31, 2023 increased by $26.6 million or 37.2%, from $71.5 million for the year ended December 31, 2022 and is primarily driven by an increase in customer enrollments.
Removed
Debt extinguishment and modification Costs The Company refinanced its credit facilities in April 2021 and expensed unamortized deferred costs and discounts of $3.0 million associated with the retirement of its subordinated debt facility and expensed $5.3 million of third-party costs incurred in connection with the refinancing.
Added
The Company's employee headcount increased to 983 in 2023 from 870 in 2022.
Removed
Gain on sale of business and investment Gain on sale of business and investment for the year ended December 31, 2021 was $7.6 million, which resulted from consideration received by the Company in connection with the termination of certain warrants held in the Common Stock of an entity that was sold during the prior year.
Added
Nonrecurring expenses for the year primarily include PayRight restructuring costs of $3.5 million, expenses related to the acquisition of the Plastiq business of $1.7 million and certain legal and other costs of $3.0 million.
Removed
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.
Added
Other income, net of $1.7 million for the year ended December 31, 2023 increased by $1.1 million, or 194.7%, from $0.6 million for the year ended December 31, 2022, due to increased interest income from the Company's operating accounts.
Removed
The increase in headcount and selling, general and administrative expenses are mainly attributable to growth initiatives.
Added
The increase of $20.6 million, or 3.7%, was primarily driven by merchant card fee rate increases, equipment revenue, and accrual of certain incentives, offset by a decrease in certain fee-based revenue, a true up of an invoice from one of the partner banks for certain services provided in Q1 2022 and a decline in processed merchant bankcard volume due to the diversification of processor services by one of its referral partners.
Removed
The increase of $1.8 million, or 10.5%, was primarily driven by an increase of $3.5 million in the CPX business, of which $2.5 million is related to volume growth, and the remaining increase of $1.0 million is from the recognition of certain revenues for which recovery became probable during the current year.
Added
The decrease of $2.9 million or 6.6% is due to full amortization of certain intangible assets.
Removed
The increase of $24.1 million, or 354.4%, was primarily driven by full-year impact of Finxera business acquired in September 2021 and continued growth in the customers and markets it serves.
Added
The increase of $21.8 million, or 115.6%, was primarily driven by an increase of $27.4 million in the Plastiq business and an increase of $1.7 million in the CPX business due to increased volumes.
Removed
The $61.1 million, or 650.0% increase in 2022 was driven by cash generated from the operations of the Company.
Added
This is primarily due to certain provisions for doubtful accounts in the CPX business, transaction bonuses in the Plastiq business, and loss of operating income from the managed services business.
Removed
Long-Term Debt On April 27, 2021, the Company entered into a Credit Agreement with Truist which provides for: 1) a $300.0 million Initial Term Loan; 2) a $290.0 million Delayed Draw Term Loan; and 3) a $40.0 million senior secured revolving credit facility.
Added
Depreciation and Amortization Depreciation and amortization from our B2B Payments segment was $2.2 million for the year ended December 31, 2023, compared to $0.7 million depreciation and amortization expense for the year ended December 31, 2022.
Removed
The Credit Agreement was amended on September 17, 2021 to increase the amount of the Delayed Draw Term Loan facility by $30.0 million to $320.0 million. The additional Delayed Draw Term Loan is part of the same class of term loans made pursuant to the original commitments under the Credit Agreement.
Added
The increase of $49.5 million, or 60.0%, was primarily driven by an increase in customer enrollments, additional revenues generated by our Passport BaaS platform, and growth in interest income due to higher deposit balances and higher returns on the permissible investments related to our money transmission licenses.
Removed
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.
Added
The decrease of $1.1 million, or 4.6%, was primarily driven by full amortization of certain intangible assets in the prior year offset by depreciation expense on assets placed in service during the year.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeAs of December 31, 2022, we had $623.2 million in outstanding borrowings under our Credit Agreement. Ignoring the 1.00% LIBOR floor, a hypothetical 1.00% increase or decrease in the applicable LIBOR rate on our outstanding indebtedness under the Credit Agreement would increase or decrease cash interest expense on our indebtedness by approximately $6.3 million per year.
Biggest changeAs of December 31, 2023, we had $654.4 million in outstanding borrowings under our Credit Agreement. Ignoring the 1.00% SOFR floor, a hypothetical 1.00% increase or decrease in the applicable SOFR rate on our outstanding indebtedness under the Credit Agreement would increase or decrease cash interest expense on our indebtedness by approximately $6.7 million per year.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk Interest rate risk Our debt facilities under our Credit Agreement bear interest at 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.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk Interest rate risk Our debt facilities under our Credit Agreement bear interest at either a base rate or a SOFR rate plus an applicable margin per year, subject to a SOFR rate floor of 1.00% per year.
We do not currently hedge against interest rate risk. 37 Table of Contents
We do not currently hedge against interest rate risk. 38 Table of Contents

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