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Priority Technology Holdings Announces Fourth Quarter and Full Year 2018 Results

Nachrichtenquelle: Business Wire (engl.)
21.03.2019, 00:30  |  603   |   |   

Priority Technology Holdings, Inc. (NASDAQ: PRTH) (“Priority” or the “Company”), a leading provider of merchant acquiring and commercial payment solutions, today announced results for the fourth quarter and full-year ended December 31, 2018.

Highlights
Fourth Quarter 2018, Compared with Fourth Quarter 2017

  • Consolidated revenue of $100.5 million declined 16.3% due to the wind-down of subscription-billing e-commerce merchants resulting from card association rule changes
  • Adjusted consolidated revenue(1) of $93.0 million, which excludes the impact of subscription-billing e-commerce merchants, grew 4.2%
  • Gross profit margin increased to 29.8% from 24.6%. The Company’s gross profit metric represents revenue less costs of merchant fees and other costs of services on its consolidated statement of operations
  • Consolidated income from operations of $5.3 million declined $5.7 million
  • Adjusted consolidated income from operations(1) of $4.4 million, which excludes the impact of subscription-billing e-commerce merchants and certain other expenses as described below, grew 59.1%
  • Consolidated Adjusted EBITDA(1) was $14.6 million compared to $16.9 million
  • Total merchant bankcard processing dollar value grew 6.0% to $9.4 billion from $8.9 billion

Full-Year 2018, Compared with Full-Year 2017

  • Consolidated revenue of $424.4 million declined 0.3% due to the wind-down of the subscription-billing channel, largely offset by overall increases in bankcard processing dollar value and merchant bankcard transaction volume of 10.1% and 6.1%, respectively
  • Adjusted consolidated revenue(1) of $359.2 million grew 8.9%
  • Gross profit margin increased to 25.9% from 24.5%
  • Consolidated income from operations of $19.9 million decreased $15.3 million
  • Adjusted consolidated income from operations(1) of $11.0 million increased $2.0 million, or 22.8%
  • Consolidated Adjusted EBITDA(1) was $52.9 million compared to $56.9 million
  • Total merchant bankcard processing dollar value grew 10.1% to $38.2 billion from $34.7 billion

(1) See “Reconciliation of Non-GAAP Financial Measures” at the end of this earnings release for details regarding these measures

“2018 was a milestone year for Priority, despite being negatively impacted by the closure of certain high-margin e-commerce merchants in our Consumer Payments segment. Excluding that impact, we realized strong organic sales growth in both our Consumer Payments and Commercial Payments and Managed Services segments, while also executing several highly strategic, accretive acquisitions that expanded our merchant portfolio base while also enhancing gross profit. We remained focused throughout the year on expanding our distribution channels and integrated technology offerings for our partners, diversifying the overall business and further aligning Priority with high-growth, technology-driven industry verticals such as real estate, hospitality and health care,” said Tom Priore, Executive Chairman and CEO of Priority.

Subscription-Billing e-Commerce Merchants
The comparative revenue for the fourth quarter and full-year periods has been negatively affected by the wind-down of high-margin accounts with certain subscription-billing e-commerce merchants. The wind-down of merchants in this channel was due to industry-wide changes for enhanced card association compliance. This revenue, entirely within the Consumer Payments segment, was $7.5 million and $30.7 million in the fourth quarters of 2018 and 2017, respectively, and was $65.2 million and $95.6 million for the full-years ended December 31, 2018 and 2017, respectively. The corresponding income from operations associated with this revenue was $3.0 million and $10.3 million in the fourth quarters of 2018 and 2017, respectively, and $21.3 million and $31.9 million for the full years ended December 31, 2018 and 2017, respectively.

Non-recurring Expenses
Income from operations for the fourth quarter and full-year periods has also been negatively affected by the incurrence of non-recurring expenses largely associated with the July 2018 Business Combination and conversion to a public company, such as legal, accounting, advisory and consulting expenses plus certain legal settlements incurred in these periods. Non-recurring operating expenses, entirely within Corporate, were $2.1 million in both fourth quarters, and were $12.4 million and $5.6 million for the full years ended December 31, 2018 and 2017, respectively.

Fourth Quarter and Full-Year 2018 Summary

Revenue:

Fourth Quarter 2018, Compared with Fourth Quarter 2017
Consolidated revenue in the fourth quarter of 2018 amounted to $100.5 million, a decline of $19.5 million compared with the 2017 fourth quarter. This decline was driven by the wind-down of the subscription-billing merchants which generated revenue of $7.5 million in the fourth quarter of 2018 and $30.7 million in the fourth quarter of 2017. Adjusted consolidated revenue grew 4.2% in the 2018 quarter compared with the 2017 quarter.

Total merchant bankcard volume processed in the fourth quarter 2018 of $9.4 billion grew by 6.0%, as compared with $8.9 billion in the fourth quarter 2017. Merchant bankcard transaction volume of 114.3 million in the fourth quarter 2018 grew by 2.0%, as compared with the 2017 quarter.

Consumer Payments revenue in the fourth quarter of 2018 amounted to $92.5 million, a decline of $20.7 million compared with the 2017 fourth quarter. Revenue for the subscription-billing merchants declined $23.2 million during the quarter compared to the prior year. Adjusted consolidated revenue in this segment grew 3.1%. Commercial Payments and Managed Services revenue in the fourth quarter of 2018 amounted to $8.0 million, a 17.9% increase over $6.8 million in the 2017 fourth quarter.

Full-Year 2018, Compared with Full-Year 2017
Consolidated revenue for full year 2018 of $424.4 million approximated full year 2017 revenue of $425.6 million. This slight decline was driven by the wind-down of the subscription-billing merchants which generated revenue of $65.2 million in the full-year 2018 and $95.6 million in the full-year 2017, largely offset by overall increases in bankcard processing dollar value and merchant bankcard transaction volume. Adjusted consolidated revenue of $359.2 million for full-year 2018, compares with $330.0 million in the 2017, an 8.9% increase.

Total merchant bankcard volume processed in full-year 2018 of $38.2 billion grew by 10.1%, as compared with $34.7 billion in the full-year 2017. Merchant bankcard transaction volume of 465.8 million in the full-year 2018 grew by 6.1%, as compared with full-year 2017.

Consumer Payments revenue for full year 2018 amounted to $395.0 million, a decline of $5.3 million compared with full year 2017. Revenue from the subscription-billing merchants declined $30.4 million. Adjusted revenue in this segment grew 8.2%. Commercial Payments and Managed Services revenue for full year 2018 amounted to $29.4 million, a 16.3% growth over $25.3 million for full year 2017.

Income from Operations:

Fourth Quarter 2018, Compared with Fourth Quarter 2017
Consolidated income from operations was $5.3 million in the fourth quarter 2018, compared with $10.9 million in the 2017 fourth quarter. This decline was driven by the wind-down of the subscription-billing merchants which generated income of $3.0 million in the fourth quarter of 2018 and $10.3 million in the fourth quarter of 2017. Adjusted consolidated income from operations grew 4.2% in the 2018 quarter compared with the 2017 quarter.

Consumer Payments income from operations in the fourth quarter of 2018 amounted to $13.1 million, a decline of $4.5 million compared with the 2017 fourth quarter. Income from operations from the subscription-billing merchants declined $7.3 million. Adjusted income from operations in this segment grew 38.5% in the 2018 quarter compared with the 2017 quarter. Commercial Payments and Managed Services loss from operations in the fourth quarter of 2018 amounted to $1.5 million, compared with an operating loss of $0.2 million in the fourth quarter of 2017. Corporate expense in the fourth quarter of 2018 amounted to $6.2 million, compared with $6.4 million in the fourth quarter of 2017. Non-recurring expenses amounted to $2.1 million in both fourth quarters.

Full-Year 2018, Compared with Full-Year 2017
Income from operations was $19.9 million for full year 2018, compared with $35.2 million for full year 2017. Subscription-billing operating income was $21.3 million in 2018 and $31.9 million in 2017. Non-recurring expenses were $12.4 million in 2018 and $5.6 million in 2017. Adjusted income from operations was $11.0 million in full-year 2018, compared with $8.9 million in full year 2017, a growth of 22.8%.

Consumer Payments income from operations for full-year 2018 amounted to $50.5 million, a decline of $4.9 million compared with full-year 2017. Income from operations from the subscription-billing merchants declined $10.6 million. Adjusted income from operations in this segment grew 23.8%. Commercial Payments and Managed Services loss from operations for full-year 2018 amounted to $2.9 million, compared with full-year income from operations of $1.0 million in 2017. Corporate expense for full-year 2018 amounted to $27.7 million, compared with $21.2 million for full year 2017. Non-recurring expenses amounted to $12.4 million in 2018, compared with $5.6 million. Excluding the non-recurring expenses, Corporate expense amounted to $15.3 million in 2018, compared with $15.6 million in 2017.

Interest Expense:

Interest expense of $8.0 million in the fourth quarter of 2018 increased by $1.6 million from $6.4 million in the 2017 fourth quarter. Full-year 2018 interest expense of $29.9 million increased by $4.9 million compared with $25.1 million in 2017. The increases in interest expense are due to higher outstanding borrowings.

Other Expense, Net:

Other expense, net of $1.7 million in the fourth quarter of 2018, compares with $2.6 million in the fourth quarter of 2017. The 2018 quarter includes $1.3 million of debt modification costs, and the 2017 quarter includes $2.7 million of expense related to the fair value change of the Goldman Sachs warrant.

Other expense, net of $6.8 million in full year 2018, compares with $5.6 million in full year 2017. The 2018 amount includes $3.5 million expense related to the fair value change of the Goldman Sachs warrant, $2.6 million debt modification expense, and $0.9 million loss on equity method investment, and $0.6 million of interest income. For full-year 2017, other expense, net was comprised of $4.4 million expense related to the fair value change of the Goldman Sachs warrant, $1.7 million debt modification expense and $0.6 million of interest income.

Acquisition / Partnership Updates

Priority’s acquisition strategy is focused on identifying immediately accretive purchases of residual sales channels designed to improve earnings and lock in long-term revenue and sales commitments with independent resellers. In addition to continued purchases of merchant portfolios in the fourth quarter, the Company consummated the acquisition of certain merchant portfolio assets from Direct Connect Merchant Services LLC and Blue Parasol Group LLC, a portfolio company of The Beekman Group. As part of the transaction, Priority added a diverse and low-risk merchant portfolio processing $1.7 billion in annual volume.

In addition, the Company has recently negotiated an operating partnership in the real estate payments vertical with an industry leader in the space. The new partner cannot be named publicly until it receives final Board approval, which the Company believes is imminent. Priority will be the majority owner with a preferred equity position and handle day-to-day operations of the enterprise, while benefitting from technology and property management contracts from its new partner’s existing business. Together, the Company believes that the new entity will provide a single platform that meets the needs of all landlord constituents - from integrated enterprise property managers, middle market partners and small/local landlords for rent, dues and storage

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