Q4 2020 Priority Technology Holdings Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the priority Technology Holdings fourth quarter 2020 earnings Conference call.
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And I like to hand, the conference to speak of today day. So Paul. Please go ahead Sir.
Thank you Victor.
Good morning, and thank you everyone for joining us.
Day, Paul Pal I'm, the Chief marketing Officer here priority Technology Holdings, and with me on the call today are Tom Priore, Our chairman and Chief Executive Officer, and Mike bulk of our Chief Financial Officer.
Now before we provider of prepared remarks, I would like to remind all participants that our comments today will include forward looking statements, which involves the number of risks and uncertainties that may cause actual results to differ materially from our forward looking statements. The company undertakes no obligation to update or revise the forward looking statements whether as a result of new it.
Formation future events or otherwise.
We provide a detailed discussion of the various risk factors in our SEC filings and we encourage you to review of these filings.
Additionally, we may refer to non-GAAP measures, including but not limited to EBITDA and adjusted EBITDA during the call reconcile.
Reconciliations of our non-GAAP performance and liquidity measures to the appropriate GAAP measures can be found in our press release and SEC filings available on the investors section of our website.
With that I'd like to turn the call over to our chairman and CEO Tom Priore.
Yeah.
Thank you Dave.
And thanks to everyone for joining us for our fourth quarter earnings call.
I'd like to begin this morning's call by providing a brief overview of our impressive Q4 and year end results.
Along with the discussion of the acquisition of sincere of during the current quarter.
And then I'll turn it over to Mike who will go into more detail on our segment level performance financial highlights and the improvement of our balance sheet.
As you saw in our earnings release, the momentum that we built in Q3 continued through Q4.
Our performance is the result of executing our plan through a challenging year due to the COVID-19 pandemic.
We continue to invest in our people and culture, our products and our technology infrastructure.
The strength of our payment operations product offerings, and having diversified counter cyclical payment assets allowed us to quickly adapt to the changing COVID-19 environment to deliver strong top line revenue growth and bottom line results.
This was the statement here in the history of of our organization.
As consumers and businesses continued to struggle with restrictions related to the pandemic.
Our teams were focused on solving our customers' problems and helping them perform in this environment.
Our results today show the success of that mission.
Revenue of $106 million increased eight 1% from $98 2 million for the quarter and increased eight 7% for the full year. Despite the impact of the Covid Lockdown period.
Income from operations of $6 2 million increased 489, 3% from $1 1 million for the quarter.
And rose to $20 9 million for the year, an increase of 194 per cent.
Meanwhile, adjusted EBITDA of $18 2 million for the quarter, representing an increase of 12, 7% from $16 2 million from the prior year period.
For the full year adjusted EBITDA increased 19, 4% to $73 million. Despite the loss of rent payments contribution during.
During the fourth quarter of 2021.
Recently, we announced an agreement to acquire financier of holdings of pioneer and the Fintech industry and a company that launched and operated one of the first banking as a service platforms.
Combination positions us as a leading innovator in payment and financial technology solutions with the ability to deliver payment facilitation and banking like services at scale to our software partners SMB and enterprise merchants.
And our integrated partner businesses vertical software applications.
C F T pay.
The <unk> Terrace flagship application that provides account administration solutions to the burgeoning.
The counter cyclical debt settlement of industry will operate as a wholly owned subsidiary of priority within the consumer Finance Division of our integrated partners business segment.
We feel that this acquisition completes our payment infrastructure platform to fully monetize payment networks.
Given our combined ability to handle all forms of our money.
Or value in motion.
And at rest and virtual bank accounts and digital wallets.
In short.
We're a one stop shop for modern software companies looking to monetize payments in acquiring and issuing without the headaches of managing payment operation functions like client service risk management underwriting and compliance.
We expect this transaction to close once the transfer of <unk> nationwide money transmission licenses are complete in the next six to nine months.
I'd now like the hand, it over the mic volkmer to provide further insights into the quarter.
Current trends in each of our business segments.
And the improvement of our balance sheet and liquidity.
Mike.
Thank you, Tom and good morning to everybody.
Yesterday's press release provides results for the comparative quarters and the years ended December 31, 2020 in 2019 out of GAAP basis.
It also provides a very relevant highlights of the results on a more comparable basis and exclude the rent payment assets sold on September 22nd.
2020.
So my fourth quarter comments will focus on amounts excluding rent payment in the 2019 fourth quarter relative to provide the most meaningful review of our fourth quarter results and trends.
The last two pages of yesterday's press release provide reconciliation.
And full year of 2019 and 2020 GAAP results.
With the results excluding rent payment.
And I also like the point out that the attachments to our March 10th press release provided the same reconciliation for each quarter within 2019 and 2020.
Consolidated revenue in the fourth quarter of 2020 was $106 $2 million, a 12.3 per cent increase.
The $94 5 million in the 2019 quarter.
Throughout 2020, our diverse distribution channels continued strong new merchant boarding nearly 13000 merchants were added in the fourth quarter.
This led to a December that was the highest revenue month of 'twenty 'twenty and the strength has carried into the first quarter of 2021.
Gross profit was $32 $5 million, a 15.5% growth from $28 2 million in the 2019 quarter.
Gross profit margin of 36% increased 84 basis points from 29, 8% in the 2019 quarter.
Income from operations of $6 2 million was of 354% improvement over $1.4 million in the 2019 quarter.
Selling general and administration administrative expenses included nonrecurring expenses of $1 3 million compared with two points of $6 million in the fourth quarter of 2019 and those items are detailed within our press release screening to true offense.
Adjusted EBITDA of $18 3 million increased 35, 2% from $13 6 million in the 2019 quarter.
Similar to revenue December was the highest adjusted EBITDA amount of 'twenty 'twenty and the strength is also carried into the first quarter of 2021.
Now, let's break this down within the segments.
Consumer payments revenue was $108 million. This is the 15.3 per cent increase over $87 4 million in the 2019 quarter.
Growth was driven by a six fold increase in high margin specialized merchant acquiring revenue, which contributed $9 $8 million of growth.
This was supplemented by an overall three per cent increase in merchant bank card volume.
Merchant Bankcard volume processed was $11 1 billion compared with $10 8 billion in the 2019 quarter.
Merchant bankcard transactions of $123 million declined six eight per cent from one of them getting $29 2 million in 2019 quarter. However, average ticket of $91 of 99 cents Glu 10, five per cent from $83.24 in the prior year quarter.
These year over year dynamics are similar to those that we saw in the third quarter of this year.
Pandemic related economic factors have impacted the bought the merchant volume mix, including shifts in payment transaction activity amongst certain vertical industries.
Spending trends have resulted in consumers conducting fewer payment transactions, but a higher average values and card not present transactions have increased.
Card not present transactions generally off of more favorable pricing the priority of and swipe the transactions.
Consumer payments income from operations was $12 $9 million.
This is the 29, 5% improvement of $3 million over $9 9 million in the 2019 quarter.
Key drivers are of 5.3 per cent increase in gross profit, which was partially offset by increases of $1.8 million in SG&A, and <unk> 7 million and depreciation and amortization.
Yeah.
The increase in SG&A largely resulted from non recurring activity in each year's fourth quarter the.
'twenty 'twenty quarter included $1 2 million of nonrecurring asset write downs, partially offset by a benefit of <unk> 4 million and the reduction of contingent consideration the.
2019 quarter included of point $6 million benefit from reduction of contingent consideration.
These non recurring items are detailed on page five of yesterday's press release the.
For your reference.
Commercial payments revenue was $3 $9 million is the $2.6 million decrease from $6 5 million in the 2019 quarter.
Due largely to curtailment of certain programs within managed services.
Revenue from processing in our CP ex accounts payable automated solutions business continued its steady performance with revenue of $1.5 million, which approximated the 2019 fourth quarter.
Commercial payments loss from operations was $5 million compared with income from operations of <unk> 2 million in the 2019 quarter.
Gross profit was down $1.3 million, which was partially offset by a reduction of <unk> 6 million and other operating expenses.
Integrated partners revenue was $1.5 million is the point $8 million of increase from <unk> 7 million in the 2019 quarter.
The integrated partners includes priority real estate technology priority pay right health solutions and priority hospitality technology.
Pret continues to serve the real estate market through our ongoing payment processing arrangement with the MRI as well as our landlord station business.
The largest contributor to the segment's growth.
Over the 2019 quarter.
Now of hospitality, the tab products revenue and profits are reflected within the integrated partners segment. The sales made by the hospitality team within consumer the sales made by that channel.
This reporting under reflects the tremendous growth we have been incurring within eat tab since its introduction.
Of course, both channels fourth quarter volume grew 327% with transactions up 251%.
Total revenue approached $400000 in the fourth quarter of 2020 across all channels.
This growth has carried into 2020 2021 of each fab continues to gain wider acceptance among our hospitality merchants.
We are also seeing similar acceptance momentum within our pay right products.
Corporate expense was $6 $1 million compared with $8 5 million in the 2019 quarter.
And the 'twenty 'twenty fourth quarter were nonrecurring expenses of <unk> 4 million and that compares with nonrecurring expenses of $3. Two in the 2019 quarter and again. These nonrecurring items are detailed on page five of yesterday's press release.
Now, let's move on and review our significantly improved the liquidity position.
As you recall at the end of the first quarter of 2020 net debt was $496 $5 million and total net leverage ratio was 767 times.
Our cash position stood at $2 $9 million at that time, we had $10 million of borrowing capacity of $25 million revolver.
At that time, we said the way, we're laser focused on improving liquidity and 2020.
Well, we ended the year with net debt of $372 $8 million, the $123 $7 million reduction in nine months.
And a total net leverage ratio was reduced to 5.85 times.
Our cash position was $9 2 million at December 31st.
We have $25 million of borrowing capacity on the revolver, having repaid the remaining 100 million outstanding during the fourth quarter.
We continue to be laser focused on improving liquidity in 2020 one.
We're in the midst of refinancing our debt, which will not only reduce interest rates, but when we do some mandatory debt amortization by well over $40 million in the next two years.
Our liquidity will be further enhanced with the new $40 million revolving credit facility and ready access the preferred equity for for accretive acquisitions.
Now before turning the call back to the time I liked the review the guidance that we provided in our March 10th press release.
This guidance does not include any increases related to the acquisition of Sarah which is expected to close in six to nine months.
Revenue is expected to range between 450, the $470 million.
Growth of 15% to 20% above 2020 of revenue of $392 million, excluding rent payment.
Adjusted EBITDA is expected to range between $76 million to $80 million the growth of 22% to 29% above twenty-twenty adjusted EBITDA of $62 1 million excluding rent payment.
The strength, we're experiencing so far in the 2021 first quarter bodes very well for achieving these earnings objectives.
So now I'd like to turn the call back over to Tom.
Thanks, Mike.
As Mike shared we had very strong growth in Q4 and during fiscal year 2020.
The momentum we built in december's continuing for us into the first quarter of 2021.
As measured by top line revenue and bottom line adjusted EBITDA growth.
As you can see from our strong results through Covid.
And as the economy reopens, we have a resilient business that performs through various business cycles.
It's built to last.
And it's built with intention.
Our core merchant acquiring business is the fifth largest by volume among non bank acquires.
All of us well our C. P ex automated payables product is market, leading among its peers.
And within our integrated partners segment, we can expand and monetize vertical strategies like we have with rent payments and fin Sara with.
With relative ease.
That reality is becoming clearer to a broadening base of customers investors.
And market Analyst says, we continue to perform and accelerate our operating and technology platform developed for the future of payments.
As a company.
We are energized by the collective quest to make payments easy.
And our organization is moving with purpose towards that mission.
Operator, we'd now like to open the line for questions.
Ladies and gentlemen, as your language asked the question you will need the press star one on the telephone and to withdraw your question press the pound key.
Please send vital we compile the Q&A roster.
The first question will come from the line of Bryan Keane.
Insular from Alliance Global you may begin.
Hi, guys. Thanks for taking my questions can you talk about any seasonality in your commercial payments business. It sounded like December was the strongest volume ever and you send that carried into.
The first quarter of show that suggest to me, we shouldn't see any material seasonality is that right.
Yeah, we don't really experience seasonality in that business you know what what's the lead some of the growth trajectory that we had in our pipeline.
<unk> has really just been COVID-19 related and the way the banks responded to COVID-19. So.
That you know just to just the reality of that shut down and in kind of a taking a moment.
To kind of reassess.
Among our bank Treasury partners.
In terms of how they were going to really push forth on automated payables, which and I think generally in the market has largely been travelling teeny and fleet.
So you know.
The good news is.
They're recognizing that true automated payables is is of much more important element of their commercial card platforms and you know, we're just now seeing the benefit of of that momentum picking up.
Yeah.
So you know he's asking braugher on the seasonality, but to my point. Another question I had was on C. P. Ex revenue is.
It's flat line throughout 2020.
Is that what you're referring to as tanks.
I guess, let me take a step back and see PX.
Our customers reluctant of enterprises reluctant right now to take this in this environment what has led to.
The flat line of that business and then what are you doing that you think will drive much stronger demand for that business in 2021.
Yeah sure so actually volume is up considerably.
So the.
The you know what it really is just the change in margin mix and yeah. We have of different margin profile on bank volume versus direct.
So we've actually seen adoption of.
Card Bolton.
What I'll call kind of pure commercial payments as well as the beat of be acquiring segment.
Pick up.
And we expect that trend to continue.
The you know the driver of.
You know the acceleration and in the commercial side is really just going to be the adoption among our.
Pipeline, that's you know in a position to close.
And and driving that adoption through to.
Two treasury clients within those that bank segment.
And to get back to on the commercial side 4500 of 5000.
And merchant of quarter, which you highlighted in your slide deck.
Is there any more of investments that you're making or need to make or is that all of a function of that'll be it in new Orleans side those those merchants.
Yeah, just to be clear of those are those are on the acquiring side yes.
Yeah.
And and you know, we've we've kind of steadily.
At that at that rate December is normally a little bit you know below just because it's it's the holiday season. So we'll see boarding drop off but you know the the trend.
And that level of boarding through you know even through Covid and you know as the economy recovered.
<unk> has been very consistent and it remains so in the early part of 2021.
Okay. Thank you.
Yeah, absolutely Hey, if I could just make one other comment is I think it's relevant to the kind of where you go on the on the on the commercial side is.
The.
We do not need to make any additional investment in that business as it scales. So it's you know as I as I mentioned in my in kind of my.
My notes.
This has been built with intention it's been.
Filled with purpose, where we're poised for for that momentum we already see in the pipeline and we don't need to make additional investments to the convert it.
Okay. Thanks, very much thanks, Brian.
Our next question will come from the line of George You know all of those from Cowen you may begin.
Hey, guys. Good good afternoon. Thanks for taking my question and the unhappy some parts of your boat.
Well George I wanted to wanted to to start off just can you remind us in in the fourth quarter within the consumer business how much of that is card not present today and then.
As you think about the outlook for for a 2021 what kind of growth rates are you incorporating into the guidance again for the E Comm business.
Sure the E Com E E Comm business is from of card not present transaction perspective, we see the consumer behavior of probably holding you know I think of you know as volume grows you know with with the <unk>.
The opening of a state of the north Eastern restaurants people go into restaurant, yeah, there'll be volume coming on that's card presence, but a lot of what's.
Built into the fabric of People's behaviors from the you know of.
Not present activity you know, we don't see that receding.
When you ask a question about what growth from the from the he kind of if you were talking about the specialized merchant acquiring program, which we've had you know really exceptional growth throughout 2020, we see continued growth in that business.
We're forecasting a more conservative growth then obviously, we had in 2020, but you know it grew largely in the second half of.
The <unk> 'twenty 'twenty. So we're really riding a good crest of a year over year comparison in the first half of the year.
So we it continues to grow nicely and Oh, and but we don't have the forecasted to grow at the same rates, obviously than it did in 'twenty to 'twenty.
Yeah.
Understood and that's that's all of US he just for comparison issues just given the strength that you saw in 2020, you right. It sounds like you're still entirely encouraged by what you see Oh, absolutely yes, yes.
Yeah.
Okay, Great and just last question for me maybe to catch the part of your question a little differently that the the 450% to 470% of revenue that are that you're contemplating for for 'twenty, one any thoughts around kind of the cadence of how that revenue growth might progress throughout the course of the year just want to make sure we're thinking of.
That appropriately thanks, guys.
Yeah, well you know we've been growing you know when you have your you know it's a.
The comparative quarters of been a little difficult this year right, because I think you're going to see really exceptional growth in Q2 last year was.
It was you know.
Flat year over year, even though we grew EBITDA.
So Q2 of the issue is going to be over 30% we think of.
But you know the other quarters or in you know in the teens you know the mid teens kind of consistent with what we've been seeing a this year.
And George perhaps if you're referencing sort of.
The contribution over of that you know of of kind of the the.
The revenue range over time.
Don't see we don't see a lot of seasonality in the book.
So it's you know it's it's relatively.
Consistent throughout the year.
But as Mike noted given some of the you know the.
The Covid period.
Is gonna be the biggest GAAP.
In terms of.
Year over year growth.
I appreciate the color. Thank you.
Thank you George.
And as a reminder, kinds of question that sort of one star one to ask the question.
Our next question will come from the line of Andrew Scott from Roth Capital you may begin.
Hey, good morning, Congrats on the quarter first question is just on guidance I believe you said.
Revenue and EBITDA does not account for the impact of the sincere acquisition. I was just wondering does that include an EBITDA of any integration or kind of.
Of course, and there are or does that not include anything even on the on the cost side of the business.
We we've not included in the projection any.
Yeah.
Any synergies.
<unk>.
So.
We think there's an and.
We know that they're there.
Is a meaningful.
Amount of there.
The platforms are very complementary.
So.
Even the.
The the cost of let's say of the.
Achieving some of the synergies which really.
Amount to the contract consolidation expenses things like that which we've already you know examined our.
Less than $250000.
Great. Thank you and then the second question here all the different I mean, you guys seen a shift in kind of the industries, where are your merchants are seeing demand now that the the economies opened and are there any yeah kind of segments that are still being pressured.
And then secondly are there any chance you guys could see here with the you know the second two rounds of stimulus checks coming out any bump in in consumer spending that you guys could get some.
Incremental.
He was from.
So as it relates.
To your first question.
Areas, where we had seen lift throughout the year.
Wholesale trades.
You know as you might expect like trades businesses the.
Plumbing electrical landscaping those types of things.
That is.
More and more of moving to digital transactions.
So that's you know that transition has kind of been in motion, we see that continuing.
That will certainly be an area of lift.
From a from a volume perspective.
You know look the overall hospitality space and you know as you might imagine kind of Salon and so forth is is down relative to its historical norm, but.
You know from the from the Heights of Covid.
Tremendous rebound.
Nevertheless, it's it's still you know flattish to down versus.
Yeah.
Versus prior years.
That decline is more in the in the single digits.
So you know until we kind of fully reach herd immunity and we get them you know more of the the.
Safety concerns or are fully alleviated.
We would probably you know we we've modeled the expectation that we will sort of stay in this kind.
Kind of steady state.
Until we see of bump as as as people just get get back out in greater numbers.
The.
The good news is those segments because they're so.
The card present.
They are very thin margin areas in the merchant acquiring space.
So they have.
You know less of an impact at the you know what the.
The recurring net revenue and gross profit level for us.
So.
So hopefully that answers your that answers your question.
And Andrew I apologize you you had a follow up and I can't quite remember the the granularity on it would you mind.
Repeating yeah, Yeah, no problem, and then and that that answer is it was very very helpful. So I. Appreciate the second one was just on with the two rounds of stimulus checks have come out and potential boost to consumer spending that you guys see any kind of incremental upside there or any possibility of that.
You know I would and I'll ask Mike to comment on I'll, just say within our thinking we haven't we haven't modeled in and the expectation that that's going to have a meaningful impact on spa.
The spending trends that we would see.
I think you know more importantly, particularly with the addition of you know now with the addition of the share of business is.
We've we've modeled what historically there has been.
Gross of north of 20% upwards of 30%.
The stimulus checks of actually I think we think held down the line.
Capacity of of that business.
And you know once the once the punch Bowl is taken away.
It's more than likely we're gonna see.
More consumer activity.
Activity within.
You know the the the debt settlement arena that would meaningfully benefit.
The.
<unk> business line as the administrator to those consumer accounts to help them a range for debt relief.
So so we feel like the combination of our platform is going to you know again, it's just going to perform well through all business cycles and you know we're already seeing the benefit of the of the transition from.
Segments that were historically non card.
Going to digital payments, so we'll benefit there and as the you know as we do see some of the stimulus.
Get extracted.
We expect the counter cyclical.
The segments that the pin Sarah operates will do quite well, while we begin to inject their technology.
The into our existing business lines for integrated payments.
No I think that's right.
Certainly don't expect to see you know the stimulus.
Driving volumes in the notice of boy.
Can you just tell us if it does if it does it would just be upside to our to our current case exact.
Exactly.
Yeah.
Thank you and I'm not showing any further questions in the queue I'd like to turn the call back over to Tom Priore of for any closing remarks.
Thank you very much operator.
With this I'd like to thank everyone very much for for their interest in our business and for participating in the call. Today Hope everyone has a fantastic St. Patrick's day. Despite the you know the the unusual way in which we're celebrating it but the everyone have a great day. Thank you very much.
Ladies and gentlemen, this concludes the conference call.
Thank you for participating you may now disconnect.
Okay.
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