Priority Technology Holdings Inc
For the period ended Dec 31, 2023. Filed Mar 12, 2024.
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FY2023 · Filed Mar 12, 2024
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17. Fair Value
- Fair Value
Fair Value Measurements
The Company's contingent consideration derived from business combinations are classified within Level 3 of the fair value hierarchy due to the uncertainty of the fair value measurement created by the absence of quoted market prices, the inherent lack of liquidity and unobservable inputs used to measure fair value which require judgement. The Company uses valuation techniques including discounted cash flow analysis based on cash flow projections and Monte Carlo simulations to estimate fair value based on projection period and assumed growth rates. A change in inputs in the valuation techniques used might result in a significantly higher or lower fair value measurement than what is reported. The current portion of contingent consideration is included in accounts payable and accrued expenses on the Company's Consolidated Balance Sheets and the noncurrent portion of contingent consideration is included in other noncurrent liabilities on the Company's Consolidated Balance Sheets.
Contingent consideration liabilities related to certain of the Company's acquisitions are uncertain due to the utilization of unobservable inputs and management's judgement in determining the likelihood of achieving the earn-out criteria or the years ended December 31, 2023 and 2022. These liabilities measured at fair value on a recurring basis consisted of the following:
| Years Ended December 31, | |||
|---|---|---|---|
| (in thousands) | Fair Value Hierarchy | 2023 | 2022 |
| Contingent consideration, current portion | Level 3 | $5,951 | $6,079 |
| Contingent consideration, noncurrent portion | Level 3 | 7,487 | 2,000 |
| Total contingent consideration | $13,438 | $8,079 | |
During the year ended December 31, 2023, there were no transfers into, out of, or between levels of the fair value hierarchy.
Fair Value Disclosures
Notes Receivable
Notes receivable are carried at amortized cost. Substantially all of the Company's notes receivable are secured, and the Company provides for allowances when it believes that certain notes receivable may not be collectible. The carrying value of the Company's notes receivable, net approximates fair value was approximately $5.2 million and $4.7 million at December 31, 2023 and December 31, 2022, respectively. On the fair value hierarchy, Level 3 inputs are used to estimate the fair value of these notes receivable.
Debt Obligations
Outstanding debt obligations (see Note 10. Debt Obligations) are reflected in the Company's Consolidated Balance Sheets at carrying value since the Company did not elect to remeasure debt obligations to fair value at the end of each reporting period.
The fair value of the term loan facility was estimated to be approximately $651.9 million and $606.1 million at December 31, 2023 and 2022, respectively, and was estimated using binding and non-binding quoted market prices in an active secondary market, which considers the credit risk and market related conditions, and is within Level 2 of the fair value hierarchy.
The carrying values of the other long-term debt obligations approximate fair value due to mechanisms in the credit agreements that adjust the applicable interest rates and the lack of a market for these debt obligations.
- Segment Information
The Company'sthree reportable segments included SMB Payments, B2B Payments and Enterprise Payments. The Company does not have dedicated assets assigned to any particular reportable segment and such information is not available and continues to be aggregated.
More information about ourthree reportable 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 in addition.
B2B Payments: Provides market-leading AP automation solutions to corporations, software partners and industry leading FIs (including Citibank and Mastercard) in addition to working improving cash flow by providing instant access to working capital.
Enterprise Payments: Provides embedded finance and treasury solutions to enterprise customers to modernize legacy platforms and accelerate software partners' strategies to monetize payments.
Corporate includes costs of corporate functions and shared services not allocated to our reportable segments.
Information on reportable segments and reconciliations to consolidated revenues, consolidated depreciation and amortization, and consolidated operating income are as follows:
| (in thousands) | Years Ended December 31, | ||
|---|---|---|---|
| 2023 | 2022 | 2021 | |
| Revenues: | |||
| SMB Payments | $582,870 | $562,237 | $475,630 |
| B2B Payments | 40,726 | 18,890 | 17,138 |
| Enterprise Payments | 132,016 | 82,514 | 22,133 |
| Consolidated revenues | $755,612 | $663,641 | $514,901 |
| Depreciation and amortization: | |||
| SMB Payments | $41,036 | $43,925 | $41,144 |
| B2B Payments | 2,221 | 744 | 294 |
| Enterprise Payments | 23,753 | 24,892 | 7,158 |
| Corporate | 1,385 | 1,120 | 1,101 |
| Consolidated depreciation and amortization | $68,395 | $70,681 | $49,697 |
| Operating income: | |||
| SMB Payments | $46,482 | $54,866 | $52,884 |
| B2B Payments | (2,535) | 208 | 135 |
| Enterprise Payments | 73,964 | 30,937 | 6,763 |
| Corporate | (36,387) | (29,846) | (26,689) |
| Consolidated operating income | $81,524 | $56,165 | $33,093 |
A reconciliation of total operating income of reportable segments to the Company's net (loss) income is provided in the following table:
| (in thousands) | Years Ended December 31, | ||
|---|---|---|---|
| 2023 | 2022 | 2021 | |
| Total operating income of reportable segments | $117,911 | $86,011 | $59,782 |
| Corporate | (36,387) | (29,846) | (26,689) |
| Interest expense | (76,108) | (53,554) | (36,485) |
| Debt modification and extinguishment costs | — | — | (8,322) |
| Gain on sale of business | — | — | 7,643 |
| Other income, net | 1,736 | 589 | 202 |
| Income tax (expense) benefit | (8,463) | (5,350) | 5,258 |
| Net (loss) income | $(1,311) | $(2,150) | $1,389 |
The text of this filing, as the company filed it with the SEC, without its images or exhibits. This is not investment advice.