Q1 2021 Paya Holdings Inc Earnings Call
Yeah.
Good morning, ladies and gentlemen, and welcome to the Park Holdings, Inc. First quarter 2021 earnings Conference call. At this time, all participants are in a listen only mode.
If anyone should require assistance. Please press star and then zero on your telephone a question answer session will follow the formal presentation. As a reminder, this conference call is being recorded on wind.
And I'd like to turn the conference over to Mr. Matt Humphreys head of Investor Relations at Pi and you.
You may begin.
Good morning, and welcome to the first quarter 2021 earnings conference call.
Before we begin let me remind everyone that today's discussion will contain forward looking statements based on our current assumptions expectations and beliefs, including financial guidance the growth of the pie as business, our objectives and business strategies as well as other forward looking statements.
Please refer to the disclosure at the end of the company's earnings press release and form 8-K filed with the SEC today.
You mentioned about forward looking statements that would be made or discussed on this call.
All statements made today reflect our current expectations only and we undertake no obligation to update any statement to reflect the events that will occur after this call.
You can learn more about the specific risk factors that could cause our actual results to differ materially from today's discussion and the risk factors section of the company's form 10-K filed with the SEC on March eight 2021, and and subsequent periodic reports that the company files with the SEC.
Also during the call we will discuss certain non-GAAP measures of our performance GAAP to non-GAAP financial reconciliations and supplemental financial information and are provided in the earnings press release, and the 8-K filed with the SEC.
This call is also available via webcast you can find all the information I have just described and the Investor Relations section of <unk> website.
Please note we posted a supplemental first quarter 2021 presentation to the Investor Relations section of the pie and website.
Joining us on the call today on <unk>, CEO, Jeff <unk> and CFO Glenn Renzulli following their prepared remarks, we will open the call to your questions.
With that let me turn the call over to Jeff.
Thank you, Matt and good morning, everyone. Thank you for joining us today as we discuss our first quarter 2021 financial results and our recently announced acquisition of Paragon and payment solutions.
The Paragon acquisition marks our fourth acquisition, which follows our playbook of executing strategic M&A of integrated payment providers and attractive verticals, serving as a powerful complement to our organic growth strategy.
Let's begin with a discussion on the Paragon transaction and then we'll turn to our quarterly results.
Paragon has a growing integrated payment solution provider based in Tempe, Arizona. It focuses primarily on serving the unique needs of the nonprofit and healthcare vertical per.
Oregon and brings to pie and some terrific partners and unique capabilities and complement <unk> existing solutions in these verticals.
Annual payment volume is approximately $1 $5 billion and importantly, Paragon has been one of pious distribution partner since 2011.
Similar to Pi and Paragon he has a robust omnichannel offering a partner centric distribution model, a payment agnostic platform, including HCA and a.
Hi card not present mix, which makes this a highly additive acquisition.
Given our long standing relationship with a very solid understanding of Paragon and business model capabilities talent and culture and.
Nonprofit and health care verticals Paragon, primarily serves are very attracted to pioneer is they are still highly underpenetrated from and integrated payments perspective, and continue to grow and a double digit annual rate.
And with an attractive roster of growing ISP partners. The acquisition will expand pie as existing ISP partnership base, providing additional opportunities to drive penetration rates higher.
And you to elevate the pirate brands within these verticals.
All told the acquisition of Paragon and allows us to further expand and strengthen our strong position and capabilities and these key verticals, while positioning us to deliver future growth.
Going forward as we have and past transactions, we're focused on reinvesting the highly visible synergies back into sales and marketing, which will accelerate the growth at paragon and allow us the business to naturally scale, while delivering accretive returns.
And we will cover the financial details shortly but suffice to say we're excited about this transaction and we'll look to leverage pie is existing infrastructure and capabilities to accelerate paragons growth.
Our integration efforts are well underway and we're making solid progress despite closing the transaction a few short weeks ago.
At the same time, our pipeline for accretive near term strategic deals remain strong.
Combining the actionable pipeline with a successful capital raise we completed on March 22nd we have the flexibility and capacity to accomplish additional strategic M&A to further accelerate our growth strategy.
Now, let's review pie as strong first quarter results.
Payment volume grew 24% and the first quarter to $9 5 billion led by 62% volume growth and our proprietary EC each solution and 6% growth and card volume, even with one less business day and the period versus 2020.
We saw notable strength in key verticals led by <unk> and government.
Total revenue grew 12, 4% to $55 3 million, primarily driven by strong D C. Each growth and solid momentum and our integrated card business.
Adjusted EBITDA grew 14% to $14 8 million, while adjusted EBITDA margin expanded 520 basis points year over year to 26, 8%.
It is worth noting that the year over year growth rates are even more impressive given that Q1, 2020 with a strong quarter with minimal pandemic related impacts.
Now I want to share with you some of our recent product innovation that highlights the focus we have on delivering value added services to our partners and clients.
His sages U S preferred payments partner, we released advanced new features that enhance the sage 100, and Sage intact solutions supporting both card present and card not present transactions and increase user productivity, while deepening our integration and test agent software suite.
Specifically, we introduced new enhanced customer portals and E invoicing capabilities for Sage 100 users, allowing for further automation of the collection and reconciliation process for car from U C. H payments, we also deliver turnkey M D capabilities via pie as cloud <unk> solution to sage intact users.
Reduces hardware setup and compliance complexity.
We take great pride and our approach to delivering tailored solutions to our partners and as such we also delivered a new merchant boarding solution. This quarter the solution offer sporting optionality, giving our partners and enhanced flexibility and how they want to engage with their customers.
Offering a more streamlined and efficient experience our partners can accelerate their speed and monetizing payments, while also delivering a higher level of satisfaction for the end user.
And finally, we went live with our new modern and citizen facing municipal portal, featuring and intuitive UI and enhanced tools and features built off our flagship Hyatt connect solution.
This continued innovation and focus on customer experience continues to be a hallmark of our approach at pioneer and serves to differentiate ourselves and the market.
While these new features and improvements are vital and driving adoption and deepening penetration.
Our go to market efforts remain a central to deliver return on these investments.
Recently, we launched and scaled numerous engagement campaigns with some of our key partners as we focus on accelerating penetration levels within our partners' customer base.
Interest the first month of one of these campaigns with a select nonprofit partner, we saw a threefold increase and the number of new client side. We've also dedicated additional resources to co marketing with newer partners focusing on accelerating partner production.
Finally, and our government vertical we had some noteworthy win against long established and well known incumbents that are currently in various stages of implementation.
These actions and recent wins will lay the foundation for continued growth over the next few years, while further deepening our integration within our partner software suites.
With that I'll turn it over nickel and to walk you through the financials in more detail as well as cover our outlook for 2020 one plan.
Thanks, Jeff and good morning, everyone.
As stated we are pleased with our first quarter financial results and the momentum, we're seeing and the business total payment volume and the first quarter was $9 5 billion and increase of 24, 1% year over year.
<unk> volume was up 62% with ace the ace transactions growing 34%.
Card volume growth also accelerated in the quarter up 6% versus the prior year and.
Importantly, we saw strong growth and our b to B and government verticals.
Our volume performance was notable given we had one less business day and the quarter versus the same period last year and as a point of reference Q1 is typically our lowest volume quarter of the year.
Total revenue in the quarter was $55 $3 million and increase of 12, 4% versus last year from a segment perspective integrated solutions revenue was $32 9 billion up 12% year over year led by growth and our ISP channel and our government vertical.
Payment services revenue was $22 4 million up 13% year over year, driven by broad strength within our S. T E. C solutions combined with a full quarter benefit from a large east th conversion.
Gross profit for the quarter was $29 1 million up 18, 2% year over year with gross margin of 52, 7% up 260 basis points.
Integrated solutions gross profit of $18 2 million was up 17% with gross margin expanding 260 basis points to 55, 3% driven by positive contribution from TPG and favorable mix.
Payment services gross profit of $10 9 million was up 19% with gross margin expanding 240 basis points to 48, 8% with HTH continuing to drive gross margin expansion and our payment services segment.
First quarter adjusted operating expenses came in at $14 3 million as expected as we focused on building out our talent to support future growth, while layering in incremental public company costs.
For the second quarter, we expect to see operating expense and step up moderately due to incremental expenses related to our paragon acquisition as well as certain public company costs.
We also expect certain expenses to layer back in that were temporarily reduced and 2020 due to COVID-19.
Adjusted EBITDA and the quarter was $14 8 million up 39, 6% over the prior year and.
Adjusted EBITDA margin expanded 520 basis points to 26, 8% as we continue to see favorable operating leverage as our business continues to grow and scale.
Finally, GAAP net income for the quarter was $1 million versus a loss of <unk> 6 million and the prior year.
Adjusted net income was $9 2 million for the quarter.
Regarding our balance sheet and statement of cash flow is at the end of the first quarter. We have we had $134 million of cash and $228 million of gross debt with a net leverage ratio of 1.65.
Our cash position reflects the proceeds from the primary equity offering that was completed in March but excludes cash pay per paragon and subsequent to the end of the quarter.
And the March equity offering we raised $117 million net of fees further strengthening our balance sheet and giving us more flexibility to pursue accretive M&A.
You should expect us to continue to focus on strategic M&A is a key pillar of our growth strategy going forward.
Net cash provided by operating activities and the quarter was $3 million and finally, our share count at the end of the first quarter was $126 7 million shares outstanding inclusive of approximately $5 7 million earn out shares that have not yet met as june's thresholds. Our supplemental earnings presentation provided this morning contains.
And the illustrative walkthrough of our share count at the end of the quarter as well as the various share price levels in order to provide additional detail on our equity capital structure.
Turning to our recently announced acquisition of Paragon and payment solutions I want to Echo Jeff's excitement and provide some financial details on the transaction first the total consideration paid at closing was $27 $5 million comprised of $20 million and cash and $7 5 million and class a common stock.
Also there is an earn out and place of up to $5 million consisting of half cash and half stock that is payable upon the achievement of certain future growth objectives.
For full year 2021, we expect a high single digit million dollar revenue contribution from Paragon we.
We also expect the transaction to be net neutral to adjusted EBITDA in 2021.
We expect paragon to be highly accretive with visible synergies, which we are already making solid progress against as such for 2022, we expect the transaction to contribute approximately $2 5 million and fully synergize adjusted EBITDA.
Turning now to our revised full year 2021 financial guidance, we are raising our total revenue range to 242 million to $248 million, reflecting 19% growth year over year at the midpoint driven by a combination of overall business performance and the incremental paragon contribution or <unk>.
Most margin and adjusted EBITA ranges remain unchanged from prior guidance.
That concludes my prepared remarks, I'll turn the call back over to Jeff to close this out Jeff.
Thank you Glenn.
We've started the year off on a strong note and have accomplished much in a short period of time.
While we're pleased with our recent financial performance and excited about our acquisition of Paragon and we remain focused on the opportunities ahead and.
We're committed to delivering against our growth initiatives and you should continue to expect us to seek out further inorganic opportunities to complement our attractive organic growth profile and terrific high growth end markets. Once again, I'm reminded that the support of our employees, both existing and our new colleagues from Paragon.
Our software partners and our shareholders reinforce our ability to quickly execute in order to maximize value creation.
We appreciate your continued support and thank you for joining us today.
With that operator, we're ready to take questions.
As a reminder, task a question you will need to press star one on your telephone to withdraw your question press the pound key please standby, while we compile the Q&A roster.
Our first question comes from the line of Bob Napoli from William Blair. Your line is now open.
Thank you good morning, Jeff and Glen and I appreciate it.
And the opportunity and nice job on the quarter and the.
Interesting acquisition.
Wondering if you could give a little color on how.
And how the business trended through the quarter and then into April.
And I know your business, Jeff was not and.
Nearly as affected as many other companies by the pandemic, but.
But did you see have you seen any acceleration and trends or any notable.
Yeah.
Items, you could call out related to economic and acceleration.
Glenn do you want and I will take good morning, Jeff and Pep Q, Glenn you want to speak to the trends through the quarter sure happy to happy to do that this is Glenn and Hey, Bob.
Yeah, We certainly did I think like you said that it's important to note that our trough whats kind of better than others last year right, but we saw great.
Good momentum coming out of the Q1 quarter. So March.
It was the highest month in the quarter and saw good trends and then for April.
And our card business saw volume north of 30% year over year.
So we were we did obviously have impact last year, right, which AIDS then yes, we continue to see kind of a good start to the second quarter with a 30% plus.
Year over year growth and card.
And the month of April.
Great. Okay. Thank you I.
Appreciate that and then.
You called out the <unk> segment, and the government segment, there's areas of.
Particular strength any sub verticals and there that stood out for you.
Yeah sure happy to take that one as well. This is Glenn yeah. No I think the ones that are look I think everything seems like it's improving across the board which is great.
The the contract or construction side, the hardware equipment supplier part of our business on the <unk> side is certainly continuing to see acceleration that's aided by some of the macro things going on right. When you think about.
Housing and some of the spend going on and the manufacturing side, that's I think helping that.
The other component is we have some really strong partners and that area, which also helps.
But that's probably the one on larger highlight at the moment as far as momentum.
Thank you and then just last question on the M&A front.
And then and Paragon being a partner and it makes it easy integration I guess and a low risk transaction is on.
Many of the transactions that youre looking at partner.
Related is that Hey, you know what the.
Key hunting ground, if you would.
Bob This is Jeff.
A very good question.
On the vast majority of the pipeline or not of that.
But there are some terrific opportunities within existing partner basis, and we obviously pursue those enthusiastically it's a night.
And if you will a it makes a good transaction even better.
If you really understand their business you understand the quality of their solutions the quality of their team and obviously understand from an integration point of view how to make the most of the asset. So so they do present.
And there are certainly some and the pipeline, but not the majority of the pipeline.
Thank you appreciate it.
Thank you. Our next question comes from the line of David <unk> from Evercore ISI. Your line is now open.
Thank you good morning.
We exclude the high single digit million revenue contribution and anticipated from the Paragon acquisition.
Is there any change in your 2021 revenue guide recognizing that high single digit could be anywhere between 7% and $9 million.
Yes, no. Good question. Thanks, David This is Glen no no change that's essentially what we're doing is kind of reiterating our guidance and just layering and the impact from the acquisition.
Thanks for that and then.
Is there any apples to apples change and the take rate either versus the fourth quarter of 2020 or Q1 of 2020, if we adjust for the 62% growth and AC H volume in other words on an apples to apples basis is take rate changing at all.
Yeah no. Good question. Thanks. This is Glenn again take.
Take rate improved and card for the quarter, both sequentially and year over year. So we didn't see a huge lift there because it really wasn't a large pricing quarter for us, but we did see a slight uptick and card spread which was encouraging and on the HVAC side from a spread perspective.
Pretty much stability when you think about it sequentially.
From Q4 to Q1.
Can you kind of see then the overall spread number as well.
Great.
And then how should we think about potential revenue contribution from the accounting suite partnership over the next 12 months is that materially positive to the revenue outlook.
Yes, so David it's Jeff. So generally I think you know this you will not hear us speak to the individual contribution or.
You know of any one partner.
Would say look and totality at the deals that we've announced and we've talked about the fact that some of them depending on the nature can ramp as quickly as the first quarter post signing larger deals can take two or three quarters to.
Respectively layer in.
Understood and just finally, you called out strength, Jeff and the acquisition pipeline and.
And specific callouts in terms of.
Likely near term closure of acquisitions any specific verticals that stand out.
Yeah, So great question, David and it's Geoff again.
A couple of things first of all the pipeline itself is very strong within the pipeline that next leg is how much of that pipeline is actionable in the near term and I would say that feels about as strong as it has and a long time.
So actual pipeline good in terms of the categories. It runs the gamut and it runs the gamut of size it runs the gamut.
Traditional strike zone integrated payments and there are some terrific deeper software capabilities that meet payments in the pipeline and then obviously theres always some really unique assets and presents as well. So it really is across the board strength and I can't point to.
Anything and the pipeline.
And that I wish were Fuller. It's hit is the quality is good the quantity is good the action ability is good and we are very excited and focused on finding the next right opportunity and getting it done.
Understood and actually just one quick final one with economic reopening you and Glen called out strength and b to be especially construction.
But are there any callouts that you see in terms of consumer behavior changing.
And with economic reopening are you seeing.
Even more of a shift towards your online business any any callouts in terms of card present volume.
So I'll, let Glenn speak to the heart the volume item itself, but I would remind folks that.
Our card mix today is already 87% card not present.
So the vast majority of our business.
Business is geared Ted middle market business to business types of activity rather than the in person.
And I would also remind you even within card present, if its paying a utility bill just to pick a simple example, it's not really.
Driven by the market cycle. So overall, you know pardon me a beneficiary of consumer physical reopening.
We are on the margin, but it's not a primary driver of our momentum.
Yeah, Okay. Thanks, so much.
Yeah.
Thank you. Our next question comes from the line of John Davis from Raymond James Your line is now open.
Hey, Thanks, Good morning, guys I just wanted to start off with a couple of follow ups on Paragon and apologize if I missed it.
Jeff and Glen, but did you guys give a growth rate for how fast that that growth is for that business and growing today and maybe your expectation for what it could look like under pilot.
Yeah. This is Glenn we didn't disclose that John.
But it isn't going to be a growing growing area for us we they bring some really nice.
Feature sets and partner relationships on the ISP side. So we're confident that we can it looked like it was growing coming in.
And we're confident we can kind of accelerate that.
They are a pretty you know really strong commercial team there.
And there that we're looking to tap into as well. So we're excited about it and on.
And I think we're going to give you an exact growth number, but we think it can grow nicely force.
Okay, and then on the on the synergy side is it two and a half millions at all costs or any sort of revenue synergies would be upside and then yeah.
I think you've already said, you're kind of well on your way on integration and Sony chance some of those.
Could slip into this year, because I assume it was the business unprofitable before and so upside synergies this year, which just gets you to breakeven or just maybe to talk a little bit about that that would be helpful.
And that's a good question. This is Glenn again the answer is yes. They are primarily on the cost side. So the good news about that is there.
High visibility right and to your question about this year I think yeah, I think it's a layering impact this year. So we're trying to be.
Serve them and make sure we don't.
Get too aggressive and the timeline for those synergies, but again the visibility strong we're highly confident and what that's going to mean to next year's numbers and it will be a process. This year.
And we'll see kind of where we get through that get through and the second half.
From a synergy perspective.
Sure.
We have a good line of sight into it.
Okay, Great and then.
And maybe another one for you Glenn just organic growth and I think it's about 11% and the quarter and <unk>.
Adjusted to get to your guidance that kind of news and step up to roughly 16% for the rest of the year and so I'm just trying to think about on average so how should we think about the cadence of organic growth on for Layne and these acquisitions for Q3 <unk>.
On your comps actually get more difficult, which I think is different from most of your competitors.
Yeah No. Good question look I think.
You know like we said the second quarter is already showing some good momentum right. It's early in the quarter. So we want to be careful with that but so far so good there.
We also have some of our biannual pricing actions that.
And that take place as well.
And in April here, so that will provide some nice lift.
We have our government.
Partner, one of our larger government partners layering and right throughout the year, so seeing some good momentum there as well.
And so yes, each each quarter and kind of can continue to see the step up we've talked about Q1, being a low seasonal quarter as well, which helps on the sequential so we.
We still have a good line of sight into and feel good about kind of where we've.
We've put our guidance.
Okay, and then last one from me just maybe this is little higher level question and.
If I think about ACTH, specifically I think it's really important and some of your verticals.
Which may be a little bit different than some of the other larger.
And public peers. So just talk about your <unk> offering how that's competitively differentiated and.
And where you are kind of winning that ACTH.
Share.
Because people think acha. Thank legacy, but you know a lot of you are replacing a lot of checks and some of these verticals like government education, and so just want to understand your a huge operating and how it sets up competitively and the verticals and what you'd call out.
Yeah. Thanks, John that's a great question. This is Jeff again.
So think of the ECH in.
Two different ways. So first of all I think you all understand the breadth of our middle market franchise larger average ticket and.
And the verticals, we always talk about.
For many of those folks the ability to bolt on and E C H into the integration.
To solve for the larger tickets that are never going to be cost effective on a card.
That is prime hunting ground.
Because youre basically widening the net and existing partner and existing integration and.
And allowing them to both serve more customer needs and their customer needs and as well as you know monetize payments. So think of that is integrated and ACTH and the companion to integrated card.
So that's probably and hunting zone and folks continue to understand how that works. That's that is a classic adoption curve.
That you would expect and then secondarily John.
But just as important.
E C H as a solution either standalone or as a companion to card, but not to the state and integration.
Continues to be very strong.
I mean, maybe even stronger than we expected.
As folks start to tune into that and what you might ask why would people do it that way well there are a lot of people today, who have a card model in place and one and at ACTH and there are a bunch of reasons why they might not always be and the same integration and so that and that Standalone E. C. H is showing a lot of momentum.
And it's really for the reason that you just mentioned.
And there is still on the physical.
Invoice physical check and if you were skewed to very large ticket you might never have binnie card acceptor, you were just on paper.
And so nice movement from folks who are adopting AC H on its own.
And as opposed to as part of a broader offer so.
And good momentum on both sides of the coin and from a capability point of view I think you asked about that is we made a very big decision a couple of years and thought when we were building pipe and act to put ACTH alongside card acceptance in the full tech stack core solutions ecosystem. So you can take the friction on imports.
And you have enhanced reporting portals, you have flexible funding. So the idea is that and E. C checks scepter should have available to them all of the same great technology that is being offered.
And frankly has been offered on the card side and we think that's a big differentiator for <unk>.
Thank you. Our next question comes from the line of Mike Grondahl from Northland Securities. Your line is now open.
Hey, guys, thanks, and good morning.
Two quick questions one.
And when you talked about some of your marketing with this non profit.
Client you kind of said that you got three times, the new client engagement or sign ups.
Would you kind of describe that co marketing that you do.
And that marketing process, and then secondly, any updates to the sales force to call out.
Alright, Hey, Mike It's Jeff again, two good questions. So the first one on the co marketing and.
You've heard me say, many many times before the single biggest opportunity at Pi is the further penetration of the installed base of our existing partners.
By far the biggest tailwind and.
And the way you get at that beyond the obvious continual enhancements and your solutions and offers which is a given.
And is to really embed our resources marketing.
Tools marketing content marketing talent and the efforts of our partners. So that's a classic ground game partner by partner to understand their marketing calendar, how do we stand tall within that and some cases, we in fact drive the marketing calendar.
And think about campaigns thinking about incentives all the kind of stuff that gets that attention to drive adoption. So it is really executing bread and butter basics over and over again partner by partner and the reason we called that out is very strong start to the year and that kind of partner engagement.
To your second question on the sales force nobody no major updates to speak of.
And I will remind you of a couple of things when we do things like the Paragon acquisition.
Importantly, we there will always be operating synergies and we plow those back into sales and marketing.
That is our growth acquisition playbook.
As it relates to Paragon, we have now inherited or brought on some amazing sales talent and it's one of the benefits and the fact that Paragon was operating in a similar vein to pie, obviously with particular strength in health care and not for profit.
He is experienced salespeople, who really understand the value prop and.
Can carry that dialogue through the clients is a very big deal. So it's one of the things I'm excited about a lot of things on Paragon.
Quality of the talent, both sales and other talent is a big part of it.
Great. Thank you.
Thank you. Our next question comes from the line of Craig and more from Unplugged and this research. Your line is now open.
Yes, good morning. Thanks.
Wanted to ask you a question about.
The way Youre disclosing the business.
I know a lot of ACTH is integrated volume.
And the way you're segmenting right now and it gives the impression that your old line and payments businesses Outgrowing your integrated business, which isn't going to help your story. So I was wondering if you could tell us if you included integrated ECH and.
And the integrated segment, what integrated versus non integrated volume growth and the business will look like.
Yeah, no it's a good.
Good question Craig. Thank you for that this is Glenn.
Yeah look I think.
You are correct. There is some combination and there are both integrated and and kind of non integrated our more traditional.
The.
On the Ace each business I think we've disclosed kind of in our supplement the growth of that which were which we're excited about but I don't think we're going to break out.
Kind of the underlying components of payment services other than what we've disclosed in the supplement.
Okay, great price.
Craig Let me just add one thing on his hum.
And I think I mentioned this on our prior call Segmenting is you know.
As science and art right to make it the most useful there's no perfect way to slice and dice and if we had placed at the other way then you guys would've said were having trouble with yields.
In the combined segments. So we did it this way to try to give you guys a better understanding certainly the biggest chunk of our business is the is the integrated card and <unk>.
Itself, and we didn't want that and anyway confuse.
Confused with overlapping payment methods et cetera, so the intention was on.
And to try to be helpful to all of you and the second thing I would observe is how.
To the point about how payment services and the segment and the story.
Yes.
It also has great and growing margins. It also has very strong topline growth characteristics. So it's not you know.
A question of a good and a bad segment right. It is a very fast growing very strong margin segment and and other segment that is also growing nicely and also has great and growing margins.
No I understand that I'm, just making the point that it that it's a little misleading because I know there's a good portion of that is integrated and Pi connect and is flowing through there.
So but thank you.
Thank you.
Next question comes from Joseph <unk> from Canaccord. Your line is now open.
Hey, guys good morning.
Focus on gross margin, a little bit, which I think was pretty strong.
And Glenn.
Called out.
They're on favorable mix.
And then you know.
We're talking a lot about ACTH by these kids as well so.
Yes.
Outlook on on gross margin.
I think youre also going from price increases but.
Maybe.
Perhaps that large government partner of yours as attractive driver here as well.
And to continue to grow like this.
And whats the implication there per payment services gross margin as a quick follow up.
Yeah. Thanks, Joe This is Glenn.
Yeah, No that's right I think we're seeing really good trends and gross margin.
Few drivers there one we talked about previously the ECH growth is favorable to.
The gross margin at a higher.
Higher rates and our blended.
So that helps.
The TPG acquisition had more favorable gross margin as well compared to kind of our average.
So that's also helped as well and.
And then yeah, we've seen a good mix in the quarter.
Really without again, I've mentioned before and not much really not much of a pricing.
And that not much and pricing initiatives this quarter, and Q1, where that really comes into play and Q2.
So to your point that will also help margins a little bit. So yeah. We were feeling good about gross margins I think we're trying to be conserved and our guidance and not get too ahead of ourselves, but the trend is good there and we're feeling good and see a lot of underlying drivers that are going to stick.
Okay and then.
What about Paragon growth margin.
Yeah no good question.
Yeah, and Paragon on gross margins are slightly below our blended average.
And so that's another reason and kind of just to make sure. It works.
And we're being careful with guidance, but not to the point, where it would impact kind of the continued good trend, we're seeing on a year over year basis.
Sure and then anything.
And the sales pipeline moving forward I know.
And it does sound like you have a large government.
Partner win with a.
And nice further and the company's cap here for.
This year.
How does the pipeline and look for maybe some of those larger deals out there. Thanks, a lot guys.
Yes.
Thank you this is Jeff.
The pipeline for larger deals as you would imagine they are they are chunky.
And I would say we are much more systematic about identifying those and working them and I think as you know right. They take longer but once you have them you will have them forever and they will be large so we're very pleased with how that pipeline is building and we are equally pleased at our ability to successfully prop.
Acute those opportunities so.
Obviously, it takes longer for them to manifest in the P&L itself and that's okay.
We're very excited about it and of course, each opportunity builds on the previous successes as well right. The more of those you due to easier and is to get others to understand and embrace it as well.
Sure Great. Thanks, Jeff.
Thank you. Our next question comes from the line of Peter Heckmann from Davidson. Your line is now open.
Hey, good morning, most of my questions have been answered, but I just thought I'd check in and just trying to think about the seasonality or any seasonality that may have changed last year.
Between timing of payments, maybe tax payments anything that we should be considering that maybe.
And in the second quarter last year that wont be in and there this year or wasn't in there last year and normally is.
No. Good question I think the largest headlines and we mentioned one less business day this quarter versus last last year's quarter.
So that group muted the growth a little bit more would've been slightly higher.
Without that impact.
Good question on the tax payments, we haven't spent a lot of time looking at that and as a component of our business, but not enough really probably the drive.
And any kind of substantial year over year variance.
But that should have a little bit of a benefit in Q2, if there's any deferral of tax payments most of our tax payments. However, at the property and municipal level, which for the most part I think they'll have much in terms of deferral.
So probably not much impact there.
Okay. Okay, and then just thinking about the cadence through the year I don't want opinion down too hard on quarterly numbers, but.
Based on on.
Your read of the businesses and the consensus for the second quarter and the right ballpark.
And given kind of the lay out of EBITDA for the rest of the year.
Yes, no. Good question, Yeah look Q2 jumps up seasonally so that.
That trend is right right. When you think about the larger jump that that's kind of embedded and the numbers and Q2, we feel good about that and that matches kind of the seasonal flow.
So yes, no I think the the numbers are in line I think we did call out the cost side right.
With some of the things for the COVID-19 comment really is around things like travel right and you do have travel starting to get layered back and a little bit which is really net net.
Positive for us right and all of us getting back on the road and on the commercial side really.
On increasing momentum even there.
So we're really excited about that.
And those things are a little bit of an uptick and cost out obviously, paragon layering that and as wells and have some impact.
And I think the.
Year over year on a public company costs right, we still have a couple of quarters about that.
And I am getting layered and when you think about prior year comparison so.
But yes look I think thats.
That's probably the best commentary I can give on it and then the last and maybe the last point would be gross margin.
We're looking good there so.
Any offset on the cost side I think it's going to be picked up on gross profit.
Alright.
Good day.
And here thinking.
Thank you our next click on from the line of Timothy Cheap Kyoto from Credit Suisse. Your line is now open.
Thank you and good morning.
And so we spent a lot of good time on the call today digging into that opportunity.
And maybe you could just talk a little bit you've got a great job of laying out what you think the card opportunity is your Tam there and some of your presentation materials. When do you think internally about within your core verticals. What is the multiplier on that opportunity for ACTH and and how it might be a harder thing to put a number on but when you guys talk about it how much bigger is that opportunity.
And then I have a quick follow up on some of the deals that you mentioned that you won away from some of the larger and covenants.
Hey, Tim it's Jeff Thanks, and that's a great question.
And here's here's how we think about ACTH I think you know that.
And the reports of the tens of trillions of dollars of Tam that are right for electronic payments that today, our physical paper and physical check you start there.
The carnival portion of that is by far the smaller half. If you will are much much smaller so AC from a payments volume perspective, and this is because in the middle market, where we play as you know ticket sizes get larger ACTH is more suitable and.
And so he and his many times larger than the card opportunity and then of course importantly, the way to capturing value on that is not through the commodity processing, but it's through the integrated experience that also facilitates both the front and order management attack and accounting and reconciliation. So as you can tell and.
We've been consistent on that from the get go.
We are incredibly excited by it and we see our capabilities is differentiated.
And you know pace of adoption, obviously it is the great unknown, but tons of headroom and we couldnt be more excited and we will continue to invest heavily in that.
Okay excellent. Thank you and then the follow up was around you mentioned during your prepared remarks that there were a few recent.
<unk> you want away from some of the larger merchant acquirers and maybe you could just put a little more on that just bring it to life in terms of how that came about what the RFP process was like and how you what some of the differentiating patricide, where I guess, where that helped you win that business.
Yes, Timm great question so the.
First you.
Notion is by definition, we are now talking about competitive steels as opposed to first time adopters and as you know many of our newer partners are first time adopters to integrate payments so with competitive sales on two trends are two themes that we hear over and over again.
On lack of continuing the pace of technology enhancements and supported the partnership so people and they get them signed up over a few years eyes wander elsewhere and they take partners for granted and they do not keep pace.
And then the second is is the 360 customer experience.
So what I need and by that is.
And you've heard me say this before Tim It technology change management.
Joining incident management.
Customer support and its most basic level.
And you have to have a commitment to understanding the partner and their software and the nature of their integration with our integration and the end user base and so it service so basically when we get the call.
And somebody is talking about swapping on a provider.
And the net result is they've been added for a few years and they have very low penetration. So we will often hear about single digit penetration. After three years' time, which is a disappointing result, and then you work back to the solutions and the support to take a single digit penetrating partner and figure out how together.
And to move it into the Thirty's or 40% per penetration, which is ultimately why these software companies are doing this so the themes are very similar.
In the and Hugh you prevail on tailoring solutions, you prevail on demonstrating and this is not the pitch book right. This is reference ability and other things that Youre support model is really respective of the software suite as opposed to what you would think of as the traditional.
<unk> support of commodity and merchant processing.
Great. Thank you so much.
He brings it to life that's exactly what we're looking for so I appreciate the time and thank you for taking the questions.
So the question Tim.
Thank you. Our next question comes from the line of Bob Napoli from William Blair. Your line is now open hi.
Alright, Thank you for the follow up question.
Jeff you had called out the new merchant on boarding solution and.
Upfront and knowing that your biggest opportunities and penetration of the installed base I was wondering if that is an important tool.
In improving that penetration rate.
Great question, Bob So I want to answer this in two ways.
The first is on.
It is very important because the specific enhancements we deployed make the boarding experience inside of our partners' ecosystems far more natural and so it doesn't feel as much like a separate event from other cross selling of services that they're providing or frankly the software.
Sale itself.
So that that is a big deal.
And and we're very excited about the recent enhancements and so where our partners and they helped us frankly inform how it would look.
On flexible by the way so that it's relevant to each partner at the way they want to consume and so that's 0.1, but point to what I do want to say to everybody on this call.
You'll hear me talk about board and again in a few quarters and then again and a few quarters. So 40 is one of the Holy Grail of this business. It is a continuous investment in those experiences and the flexibility and the tailoring per unique use cases and verticals. So I don't want you to think in terms of.
A single very exciting boarding event as being the end of the night on.
Running a real growth business like we do for a lending and we will be investing and this part of our capability for the rest of our lives more or less at a state. If you know what I mean.
Yes. Thank you that's it that's really helpful.
The card improvement did you called out.
Glenn on the AR and in the month of April was that Gonna put upward pressure on the take rate is and how much higher is the card take rates and the blended average 30% growth.
And in April was a pretty.
And I pumping.
Yeah No. Good question and I think you know the car take rate is much more favorable versus each day.
You are talking and the 80 basis point.
Level versus twenties.
On a spread basis and as you know <unk>, usually price on a per tran basis.
But no the answer is no it won't it's actually the opposite.
And more favorable economics, and again, we have some some of our pricing initiatives layering and as well so.
We don't have any concern about spreads and the second quarter.
And I think that that would put upside.
And what it looks like question does that put upside on spread is exactly yeah. Yeah, Yeah, and then the sequential growth and the integrated solutions, you should see stronger sequential growth and integrated solutions versus payment services and.
And the second quarter.
Yes.
Yeah Okay.
Great. Thank you I appreciate it.
Thank you at this time I am showing no further questions I would like to turn the call back over to Jeff <unk> for closing remarks.
Great. Thank you operator, and thanks, everybody for joining us on this early Friday morning, I'm very pleased to meet with you I think I think you can tell from our remarks, we are.
Very proud and pleased of the progress we're making both in the organic growth efforts as well as obviously another great strategic accretive transaction under our belts.
We we will always be trying for more and hopefully you hear a consistency and what leads and saying to you since we began speaking last summer.
About clearly setting out our objectives and meeting or exceeding those objectives every step of the way and.
Really pleased to see that again and the first quarter and we'll look forward to talking to you guys again soon.
This concludes today's conference call. Thank you for participating you may now disconnect.
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