Q1 2021 Priority Technology Holdings Inc Earnings Call
[music].
Good day, Thank you for standing by and welcome to the priority Technology Holdings first quarter 2021 earnings call.
At this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask the question. During the session you will need to press star one on your telephone. Please be advised that today's conference is being recorded.
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On the conference over to the Speaker today day.
If upheld the please go ahead.
Thank you Victor and good.
Good morning, and thanks, everyone for joining us today with me on the call are Tom Priore, Chairman and Chief Executive Officer of priority Technology Holdings, and Mike Volkmer, Our Chief Financial Officer.
Before we provide our 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 of obligate update or revise the forward looking statements whether as a result of new information.
Future events or otherwise, we provide a detailed discussion of the various risk factors in our SEC filings and we encourage you to review these filings.
Additionally, we may refer to non-GAAP measures, including but not limited to EBITDA and adjusted EBITDA during the call Rec.
The reconciliations of our non-GAAP performance and liquidity measures to the appropriate GAAP measures can be found on our press release and SEC filings available on the investors section of our website.
With that I would now like to turn the call over to our chairman and CEO, Tom Priore, Tom go ahead.
Thank you Dave.
And thanks to everyone for joining us for our first quarter earnings call.
I would like to begin this morning's call by providing a brief overview of our strong growth in.
Q1, and how were positioning priority for success for the remainder of 2021 and over the long term.
I'll also provide an update on the <unk> acquisition and related debt financing and perpetual preferred investment from Ares capital management.
Following Mike's financial review of our first quarter results and the improvement on our balance sheet.
I would like to offer some perspective on our brief history as a public company.
Host Vince here of financial metrics.
And our positioning for the future.
There are a few quick highlights I'd like to share upfront.
As we outlined in our earnings release the growth trajectory, we have established with the pandemic last year continued in the first quarter of 2021.
We met or exceeded forecast across key metrics, including revenue gross profit and adjusted EBITDA.
On a purely organic basis, comparing our first quarter of 2021 results with our first quarter 2020 results.
Switching excludes the rent payments business that was sold in September 2020.
Revenue of $113 3 million increased 21, 7%.
Gross profit increased 16% to $31 4 million.
And adjusted EBITDA increased 37% to $18 million.
These excellent financial results were underpinned by nearly.
13% increase in total bank card processing volume to $11 9 billion for the quarter.
And approximately 8% year over year merchant growth in the acquiring segment.
Of 2% outperformance to budget and commercial payments revenue and a 17% outperformance in integrated partners EBITDA contributions.
In conjunction with our strong financial results. We recently closed the refinancing of our existing debt, which reduces our interest expense by approximately $3 million per year.
We also added a delayed draw facility in perpetual preferred investment.
Of up to $250 million from Ares capital management to help finance the pending for the <unk> acquisition and provide us dry powder for further acquisitions.
With regards to the status of the fence here of closing the key execution items are in place.
And the combination remains on track for Q3 to close.
As noted previously the financing for closing as locked down.
And the regulatory process for the transfer of the money transmission licenses is progressing smoothly.
In terms of the business performance the <unk>.
F T pay integrated payments platform year to date financial results are in line with our expectations.
Importantly, our leadership teams have been coordinating on how best to organize our collective resources. So that upon close we are immediately solving our customers' greatest pain points and deploying resources towards our largest revenue opportunities.
At this point I would like to pause and hand, the call over to Mike who will provide further insights into our performance during the quarter current trends and each business segment and the improvement on our balance sheet and liquidity.
Mike.
Thank you Tom and good morning, yes.
Yesterday's press release provides highlights of our first quarter 2021 results compared with first quarter 2020 on a GAAP basis.
Of those comparisons include first quarter 2020 results for the rent payment business sold the MRI in September of last year.
And also include certain non recurring expenses in both quarters as we described in our press release.
In order to provide comparability of ongoing business performance My comments will focus on the amounts that exclude rent payment from the 2021st quarter and exclude the nonrecurring expenses from both quarters.
This comparison of non-GAAP results is not a substitute for prominent comparisons on under GAAP. Rather my comments are meant to be of complement the understanding of the GAAP based comparisons.
Yesterday's press release provides reconciliations of GAAP to non-GAAP amounts and also provides the details of the rent payment first quarter 'twenty 'twenty results and the nonrecurring expenses in both quarters.
In the first quarter of 2021 consolidated revenue was $113 $3 million of 21, 7% increase from $93 1 million in the 2020 quarter.
During the first quarter of 2021, our diverse distribution channels.
Continued strong new merchant boarding over 14600 merchants were added with nearly 5100 coming on board in March.
Gross profit was $31 $4 million of 16% increase from $27 million in the 2020 quarter.
Gross profit margin was 27, 7%.
We planned for Q1 margin reduction.
The anticipated volume mix was the factor in that plan.
Income from operations of $8 $2 million was the 132, 9% improvement over $3 5 million in the 2020 quarter.
And as Tom mentioned, the adjusted EBITDA of $18 million increased 37% from $13 1 million in the 2020 quarter.
Now, let's break this down within the segments.
Consumer payments revenue was $108 $4 million. This is the 26% increase over $86 million in the 2020 corner.
Growth was driven by $9 $7 million or 372% revenue growth from high margin specialized e-commerce merchants.
And $12 $7 million or 15, 2% revenue growth in our base consumer payments business.
Merchant Bankcard volume in this segment processed was $11 9 billion. This is of 14, 3% increase over $10 4 billion in the 2020 quarter.
Merchant bankcard transactions of $127 5 million increased six 7% from $119 4 million in the 2020 quarter.
An average ticket of $93.12 grew seven 1% from $86 97, and the <unk>.
The year quarter.
The falling following the pandemic declaration back in March of 2020, we saw consumers beginning to conduct fewer payment transactions and higher average tickets and card not present transactions increased.
Again card not present volume generally office, the more favorable pricing to us than other types of transactions.
In the first quarter of 2021, we experienced growth in both payment transactions and average ticket.
As I mentioned the trend of new merchant boarding remained within our historical range of 45 hundreds of 5000, new merchants per month and the addition, as I had mentioned earlier of nearly.
Nearly 5100 merchants in March 2021, bodes very well for ongoing revenue growth.
Consumer payments income from operations was $13 $4 million. This is an 86, 8% increase over $7 2 million in the 2020 quarter.
Key drivers were $5 5 million of increased gross profit and reductions in SG&A of of a point.
$5 million and reductions in salaries and employee benefits of <unk> 2 million.
Commercial payments revenue was $3 5 million does.
Does the $2 $9 million decrease from $6 4 million in the 2020 quarter.
Revenue from processing and <unk> accounts payable automated solutions continued its steady performance with first quarter 2021 revenue of $1 7 million of five 3% growth over the 2020 quarter.
The the commercial payments segments overall revenue decline was driven by a $3 million reduction in managed services and this was caused by the curtailment in April 2020 of a customer's merchant financing program in response to COVID-19 related economic conditions.
And then subsequent changes in this customer's business model.
However revenue trends in the segment of strengthening <unk>.
Managed services at the beginning of new supplier enablement program that will generate annual revenue over $4 million.
And <unk> experienced first quarter volume growth of over 100% and its partner channel and over 200% and its <unk> channel and the sales pipeline for new contract signings is growing.
Commercial payments loss from operations was <unk> 4 million compared with income from operations of <unk> 8 million in the 2020 quarter.
Gross profit, which was down $1 4 million due to the managed services revenue impact was slightly offset by a net decrease in salary and employee benefits in SG&A.
Integrated partners revenue in the first quarter 2021 was $1 $4 million.
Which was the increased by <unk> 7 million compared to revenue in the first quarter 2020 of <unk> 7 million. As a reminder, this comparison excludes the rent payment revenue of $3 8 million from the first quarter 2020.
Through September 22nd of 2020, Pratt was comprised of a rent payment business and our landlord station business.
Simultaneous with the sale of rent payment prep entered into revenue producing agreements with MRI to provide ongoing technology support and payment processing services, which offers us an opportunity to expand the relationship and provide payment processing services to existing customers of MRI.
Revenue of <unk> 8 million from <unk> ongoing business increased <unk> 7 million compared with revenue of <unk> 1 million in the first quarter 2020.
Priority pay right health solutions, and hospitality technology comprised the remainder of this segment's revenue and both continue healthy growth trends.
Our integrated partner segment generated income from operations of <unk> 1 million in the first quarter 2021, an improvement of <unk> 3 million compared to first quarter 2020. Now. This comparison excludes the rent payment income from operations of <unk> 6 million from the first quarter of 2020.
Corporate expense was $4 9 million in the first quarter 2021, an increase of <unk> 7 million from expenses of $4 2 million in the first quarter of 2020. This comparison excludes first quarter of 2021 expenses of $3 $6 million from professional fees and costs.
On that were incurred in connection with the pending acquisition of from Sara the.
The April 2021 debt refinancing and the April 2021 issuance of preferred stock.
It also excludes the first quarter 2020 expenses of <unk> 5 million for professional costs incurred in connection with the March 2020 debt facility Amendment.
Now before turning the call back to Tom.
I'll review, our significantly improved balance sheet and liquidity.
We ended first quarter 2021, with net debt of $373 $3 million of total net leverage ratio was reduced to 544 times at March 31st from 585 times at December 31st our unrestricted cash position was $5 8 million and we had $25 million of <unk>.
Borrowing capacity under the revolver.
On April 27th we completed all the debt refinancing and preferred equity issuance. This has reduced our total net leverage ratio to below four times.
The new senior debt facility, which improves the interest expense by 75 basis points includes an initial term loan of $300 million, which was used to refinance the refinance existing debt and pay debt placement fees and expenses.
It has the committed delayed draw term loan of $290 million, which will be used to finance a portion of the <unk> acquisition.
And we also have of $40 million revolving credit facility, which is fully available to us.
The term loan matures in 2027 on the sixth anniversary annual principal amortization is equal to 1% of the original principal balance paid quarterly with the balance due upon maturity in 2027.
Evolving credit facility matures in 2026 on its fifth anniversary.
We also executed strategic perpetual preferred equity investment from funds managed by certain affiliates of Ares management.
This this preferred includes an initial issuance of $150 million, which was used to refinance existing debt pay stock issuance fees and expenses and add cash to the balance sheet for acquisitions.
It has a committed delayed issuance of $50 million, which will be used to finance a portion of the <unk> acquisition and there was an additional $50 million issuance that's available.
For use within 18 months to finance the other acquisitions.
This refinancing reduces scheduled principal payments by $11 6 million in 2021 that number of assumes the third quarter delayed draw issuance of an additional $290 million of senior debt to finance the from Sarah acquisition.
<unk> 2022.
Principal repayments by $33 million and then when the old facilities was scheduled to mature in 2023, we now stand with over $300 million less of scheduled principal repayments in 2023.
I'll now turn the call back over to Tom.
Thanks, Mike.
As Mike shared on.
On the heels of an excellent finished the 2020, we had an extremely strong start to 2021.
Despite the pandemic.
2020 will be regarded as priorities year of transformation.
And the realization of our mission to emerge.
As of payments powerhouse.
For the single platform to collect store and send money.
The delivers differentiated products to our existing verticals.
At the same time, we are well equipped to activate new solutions.
Including payment facilitation.
Into new market segments quickly and at scale.
In the near term you.
Youll see priority rollout in house settlement processing.
And international payments, both of which represent significant long term growth opportunities.
We.
<unk> of our plans are bold.
We of the platform and the personnel.
Currently in place to execute.
None of this would've been possible without the priority teams focus on resilience.
Shortly after priority became a public company in 2018.
Penguin payment network rule changes resulted in the temporary loss of over 100 million on an annual revenue and $20 million on EBITDA.
It was not easy, but the team managed through it.
We are now on the other side with all signs pointing upward.
Diligently focusing on delivering a differentiated product and service experience to our SMB acquiring clients.
On building out countercyclical payment segments of <unk> healthcare global hospitality and of course real estate.
It enabled us to grow topline and bottom line results through 2000, Twenty's COVID-19 environment.
Importantly.
The proved out the differentiator of the differentiation of our payments operating platform with the successful monetization of the rent payments assets.
Out of 19 times, EBITDA, multiple which helped reduce debt by over $120 million.
As Mike highlighted in his financial remarks.
Price continued to move from strength to strength in 2021.
We are proud of our response to the challenges we overcame.
We offer this perspective with the acknowledgment that the world of payments is moving fast with many smart competitors.
Nevertheless.
We certainly hope that our past performance managing through obstacles without ever losing sight of our clients' needs and building diversified sales channels like <unk> and integrated partners demonstrate the priority is built with intention.
And it is poised to be among the leaders powering commerce for businesses today and in the future.
With each month that goes by the numbers reflected our customers.
Reselling and IFC partners and commercial marketplaces are seeing us as the go to platform for businesses to collect store and send money in an easy the low friction manner.
Taking a brief inventory of the power of our payments platform.
Reveals why we're so well positioned for the future of payments.
On a single unified infrastructure for payments and banking, we operate the fifth largest non bank merchant acquirer in the U S.
Our full service automated payables provider.
And an array of integrated software platforms in several of the most critical and SaaS moving segments of the economy, including consumer finance real estate hospitality and health care.
These channels.
Our partners debt today consistently board approximately 5000, new merchant relationships each month.
Can leverage our direct payment connections into all card networks and the federal reserve.
Our full back end settlement capability soon to be released.
Payment facilitation and virtual account ledger ink capabilities.
As well as can the commercial card issuing.
As we sit today.
On that technology platform.
When including the financing the <unk> acquisition.
And the recent transactions in acquiring.
Run rate pro forma EBIT excuse.
Excuse me run rate pro forma revenue is $520 million.
And pro forma EBITDA is approximately $135 million.
And note.
That does not factor in our current growth trajectory.
Projected synergies from the <unk> transaction.
And our access to ready financing for additional accretive and deleveraging acquisitions.
Before we open the line for Q&A.
I would be remiss not.
Not to acknowledge the situation in India.
We're over 200 colleagues are located in Chandigarh.
The country is experiencing the worst of COVID-19 outbreak in the world.
And its health care system.
Has been overwhelmed.
The current situation is personally impacted the <unk> team.
Over the last several family members. During this outbreak and we also have many priority team members with family in India.
Trying to navigate the crisis from thousands of miles away.
As an organization priority has already committed $100000 to support our colleagues in India as.
As they navigate the crisis.
That money is going to vaccinations for employees their families and their communities.
As well as.
The donation of life saving equipment to hospitals in the local <unk>.
The steps, we're taking will help us maintain the safety and stability of our people.
The families of course.
And our business in much the same way we did during the height of the COVID-19 pandemic in the U S.
Operator.
You would now please open the line for questions.
Yeah.
As a reminder to ask the question you'll need the press star one on your telephone.
To withdraw your question press the pound.
On key placed on Brian we can probably of the Q&A roster.
The first question comes from Ryan.
Brian <unk> from Alliance global.
You may begin.
Great. Thanks Nice results. Thanks for taking my questions can you comment on the lower E Commerce transaction volume during the March quarter debt. You said it was planned should we expect the returned to the second half 'twenty mix or has something changed that will keep the mix of e-commerce and gross margin on the consumer payments business.
The lower going forward.
Well.
A couple of factors, Brian So I would say, we would expect the mix to be.
A little bit more weighted to the card on present, just because of the fact of more of the economy is opening up people are becoming vaccinated more comfortable and we're seeing.
Very very substantial growth in our <unk>.
The retail trade segment.
And that's mostly card present.
Nevertheless.
The less we do expect our E comm segment too.
Reestablish its growth trajectory.
<unk>.
We shut down some merchants that.
We didn't feel were operating.
The the standard we would expect.
And that's.
That's going to happen from time to time in the segment so.
It was a one of the reasons why we did expect it was we knew we would we would see.
A bit of compression from the pairing of those merchants Budd.
But felt like that would would put US ahead of the game long term as a risk mitigation.
With some transaction activity that was.
I'll, just say had some unfavorable markers.
When we when we look at it from a regulatory standpoint.
And so to that end.
The pre <unk> acquisition, the margins will be in the high <unk> as a result of both of those dynamics because of how we should think about it.
I would say in the in that neighborhood, Mike I don't know if you would you would voice of differently, but you know.
I would offer this to you.
From a modeling standpoint.
On that.
That would be.
A conservative view that can only improve.
Yes, I would agree with that and <unk>.
Bankcard volume in specialized merchant grew in Q1 over Q4 of last year.
That's the same trajectory that we had been seeing in the earlier quarters, but again.
The card volume with those merchants as the only a component of what drives the revenue right.
But we did have growth. So you know I can circle back with you.
See why do you think we had the decline in total volume.
Okay, and then on the <unk> payables technology.
What do you see as the catalyst for accelerating growth revenue growth you mentioned it was a little bit confused of 100% and 200% increases I think in sales from looking at the total dollars and Theyre up marginally. So maybe I missed on why <unk> revenue growth is still modest.
And is it more salespeople more more develop me needed as the sales cycles revenue recognition, just maybe a sense for what's going to lead to the acceleration of that.
On a platform yeah that was that.
Those that's the volume growth in those channels, which is.
He is continuing and actually the pipeline is looking very strong.
The reason why that didn't equate into the.
The higher revenue growth in Q1 versus Q1 of last year was one of our customers, which was was the I'd say richly priced.
The year ago.
Became what we repriced that contract more in line with the market overall, the kind of other customer base. So it was just the one customer that had some decent volume that that kind of suppressed the amount of growth that we experience, but the but the momentum is strong.
That's why I cited those volume growth quarter over quarter.
And in the pipeline is building.
And then just on for Dan just to further on that point I'm sorry, just the.
As far as the the distribution when you when you look at kind of our our previous pipe pipeline had been largely focused on the FA community.
And during the during the pandemic because they just didn't launch anything.
Alright, they just didn't have the personnel to do it so we quickly adapt.
<unk> and <unk>.
Our sales initiatives are.
That are.
Kind of poised to tip or.
Our direct customer and and ISP.
But we've.
We're we're very confident in the.
In the pipeline, that's where the either in.
In contract negotiation or been contracted and has yet to launch.
Great last question and I'll get back in the queue of some others, while the <unk> acquisition hasn't closed you talked about youre going through preparations have you begun the approach customers about the new banking offering.
That can be obviously cross sold and if so can you just talk about the response.
How thats being accepted with your customer base.
Yeah I appreciate the question.
The.
Yeah.
The response has been.
Fantastic.
So we are we're already in discussions with existing customers as to how theyre going to implement.
Payment facilitation into their platforms with existing Isps.
We've opened up new channels with.
For instance, a.
Companies that are in the in the money.
The money sending business.
Our realizing we are a much more efficient platform.
On which to operate because we consolidate a lot of their <unk>.
<unk> that now were into 567 banks into one connection that takes of directly to the fed and then can deploy to their endpoints much more efficiently.
So those.
Those are just two examples I think we already noted in our in.
On our initial comments around fits there that we'd be more deeply penetrating.
On the real estate space that's happening.
Uh huh.
The prep.
Prepped to the law.
Launch that solution into our MRI relationship and then we'll we'll immediately start working on them.
On an adjacent solution in.
The handle deposit of <unk>.
Counts for securities from security deposits et cetera.
For that segment so.
We've got a roadmap that the team is already.
Outlining and working on together.
And that's just frankly touching the like just scratching the surface.
We have projects that are customer driven across the board in acquiring and commercial that are implementing a combination of our payment solution with.
The virtual banking or electronic wallet. However, you want to think about it.
So where we.
Yes.
We intended to hit the ground running and that's the that's happened.
Great. Thanks, so much ill get back in the queue.
Okay.
Our next question on collectibles.
Andrew Scott from Roth Capital Partners, you may begin.
Good morning, and thank you for taking my questions.
First question.
Can you just provide some additional comments on the supplier enablement product that you guys talked to in the VW business weighted.
It would generate about $4 million in annual revenue, which would be very.
Substantial on the convert.
The payments business.
Kind of if you talk to customers what the feedback has been and cadence of of rollout that we can expect over over the rest of the year.
Yeah.
Sure that's four.
Obviously, we have a big relationship with American Express and the that's in the American Express program they came to us in the.
We want you to do a supplier of enablement. So what that does is it has us.
Working with their merchants.
You take lots.
The use of American express card to pay certain of their.
On the payables.
So when we say supply of enablement, we're enabling the suppliers and those merchants to use amex cards for payments of of bills.
It's ramping now.
We need the people in seats to make that that program to get it going on we were staffing up.
So we're going to start to see those results coming on you know in Q2.
And it'll be fully ramped and it'll be a $4 million. We estimate of you know of run rate of about $4 million annually.
And maybe to put a fine point on it it's contracted.
Heads are contracted.
We're just filling the seats with sales people.
And that is.
Moving on.
At the pace of our expectations so.
We just keep those seats filled.
And and.
And the revenue will be.
The spot on with.
With the 4 million that Mike referenced we actually are optimistic that that will grow from there which has historically been the case.
And that's also what's the sort.
Sort of then.
Kind of.
Just over to us of that.
We will get this first phase off the ground.
And then we can grow from there based on based on our results.
Great. Thank you that was very helpful.
Second question here.
Maybe provide some.
The update on the progress of the Onboarding the.
Former rent payments clients.
Clients from on MRI I know you guys have been doing a good job.
Especially in the last quarter and maybe if you can provide the revenue contribution in the quarter from that.
Yes, I think.
Mike You had you had mentioned.
On that number or do you want to just review it again.
Yes that was.
700000 of revenue in the quarter.
And I don't have specific numbers on penetrating MRI as existing customer base.
But.
It's a tenfold opportunity we've been up until the stay focused on on.
The.
The rent is that while our customers, but we will be moving into expanding that internationally over the.
The coming quarters.
Just to give you some of.
The sense.
The transaction closed in September so between now and.
The let's call, we really got working in earnest.
In October after everyone sort.
Found the seats over it over at the.
MRI.
We're moving all of the existing platform over.
And we expect that to be done in call. It the June July timeframe.
And then we will start going after.
More aggressively the remainder of the book.
Yeah.
And to Mikes comment of it being a tenfold.
Sort of increase in opportunity.
At the time of the transaction, we had about 1 million of renters.
Had access to rent payments dot com.
And.
At that moment.
They've been growing by about 20% to 25% of year at that moment, there were $12 5 million renters on MRI platform.
<unk>.
We will begin.
That.
In earnest.
Through the summer months.
Yeah.
Great. Thank you, yes, that's a very exciting opportunity.
Another question from any kind of piggybacking off the the first question so.
You guys have seen positive trends that we said in card not present transactions.
Despite the low blip in dropping from e-commerce customers this quarter's strong.
Momentum in E Commerce.
The gross margins were down pretty substantially so are there any kind of onetime items in there or something.
Now it will not be reoccurring. So we can expect to see you guys rebounded to over 30% gross margins.
Yeah.
Yeah.
Mike I'll, let you well yes.
The.
Oh, Yeah, that's fine.
You have to look at our margins, excluding the rent payment for comparison.
But then.
But then.
Because that was the high margin revenue for us.
Health and.
With our margin percentage.
Well, if you take a look at the pro forma debt, we where we're headed with the new priority. If you will with since Sara.
Put those pro forma numbers and you know for first quarter.
Sure.
So foreign basis, we're upwards approaching 40% gross profit margins.
So you know.
I think the the on an organic basis. The margins are kind of in the upper twenty's of the way we had.
This quarter, but you know.
Once we bring from Sarah and just on the historical book of business, we're pushing 40% overall and as we grow in.
And leverage that technology, that's high margin business as well.
Yeah.
Thanks for the color on and I'll hop back in the queue.
On the questions.
Yeah.
Our next question will come from the line of George <unk> from Cowen you may begin.
Hey, guys, sorry, sorry about that congrats on congrats on a nice quarter.
Tom Nice nice to see the things are moving along in terms of from a pro forma perspective with the with the Sarah but just just curious if you could maybe.
Dimensionalize for us how big of a synergy opportunity that could be.
For the company, maybe at a high level, what your sort of.
Thinking those contributions could look like realizing with of obviously not on your Rob you of Brooklyn.
On outlook.
Well.
So George actually.
So let me talk about expense versus revenue okay. The expense synergies are really very straightforward.
You know when you're talking about the the very basics of SG&A.
We feel very comfortable and these are not these are not personnel declines.
Where we're getting rid of people through the through the acquisition, but rather we have some budgeted heads we would add as.
As a standalone that we no longer need to because there'll be felt by you know of.
And Sarah.
Technologist for instance.
So between that.
Some already contracted.
The reductions on on the management side.
And very straightforward SG&A.
Hum.
Combining auditors legal expense things like this insurance et cetera.
We're very comfortably kind of hit $5 billion of expense synergies.
And that's what we've projected.
But in the pro forma debt, we've just discussed ore.
Even the pro forma as we've communicated to the market. We have not included any revenue synergies and I'll just give you two very simple examples.
One of the most of the valve well, let's just let's just.
Take it a logical levels the lifeblood of any small businesses is cash cash flow of acceleration right.
And square cash.
The cash app charges of 1% for the acceleration of cash okay.
There are other some banks who offer what they call immediate funding or same day funding.
For you now.
$20 a month.
Well.
If we just had penetration of 10% on our 200000 plus merchants.
For <unk>.
Instant funding.
Where.
You open up of Bank account of course, we have that ex they have that ability now to create virtual accounts linked to every merchant account.
So when you sign up from merchant processing with priority you can get an immediate funding. Thank.
Bank account.
The IC insured.
So the minute of hits our settlement account it gets credited over to the.
Operating account of a small merchant.
We charge market rates of $20 a month for that 10% penetration that's $5 million of synergies right there.
As that money sits on our balance sheet of course, we have the benefit of carry.
Let's say, we made 50 basis points on that which is pretty low.
But that's another 5 million Bucks.
So.
These are.
Clear line of sight opportunities.
Bringing these technologies together in.
Just one of our biggest verticals, where the need is clear.
Accelerated funding to small businesses.
How much on average.
Insufficient funds or bounce.
Bounced checks cost small businesses a year.
The average is $400.
Right. So think about this is this is just high value to small businesses.
And look we think the penetration rate could be.
Could be greater but we want to.
We're not.
We're not going to.
Kind of go out in advance until we get you know.
Statistics, we feel are going to be clear in terms of penetration rates, but that at least gives you. One example of what it could mean to just a single line of our business putting in one solution.
Now by the way that doesn't include <unk>.
Taking that single account now and saying Hey.
Mr Merchant.
How would you like a.
Priority one debit card on that account right. We are of card issuer after all here's.
Here's a card you can use to.
Pay your suppliers.
Or adopt Cps for your automated payables you can pay all your customers.
With virtual card and earn back the money.
Cash back opportunity right. So all of these products.
Come into play to be a one stop shop for small business bank.
Banking and payments.
And that's where we think the you know.
That's where frankly, we think a lot of the market is headed.
We're just creating that network instead of it being you know a whole bunch of Uber drivers.
Al.
Receiving money from Uber on of card or what have you you name the the comparable marketplace right. We've already built the marketplace George of 225000 of small businesses.
And I.
I don't think this was fully appreciate it and I apologize for the the if I sound preaching but.
We sell our products sell consistently.
Every month, even during COVID-19.
400, 4500 of 5000 merchants.
Other businesses don't.
Distribute.
With that power.
So we're really excited about what the combination of this is going to mean for our small merchants.
And on the entrepreneurs we serve.
And.
You know that's one example, I'll give you a quick other one but I'm sure. You can you can kind of get the value of this look beat of B.
Has been.
But kind of.
There is tremendous appetite out there for the <unk> market I mean look at the transaction that just occurred with repay bought but billing tree for 20 times EBITDA. Okay.
We the business that the.
Is.
You know I think if you if you check around and talk to folks has.
It really premier technology stack for automated payables.
The business is basically valued close to zero.
Where we are right now and yet.
You know that segment has high multiple attached to it.
And now you add into the the mix that.
Hey, you don't need to have a sub.
Supplier of card acceptance account you could come into priority and just have a digital wallet account.
And get paid by card by a C. H right just smoothed out the on boarding so I'm not going to be predictive in what I think it will mean to revenue acceleration.
Let's I think we can all see clear line of sight to it being a low friction experience from a supplier to come into a priority sponsored network.
For payment resolution of their invoice.
So.
No that's that's our mindset.
And how we think some of these tools apply.
And hopefully that gives you some granularity around.
Some of the clear line of sight revenue opportunities, but again to just make it very very pointed we've not included those in our pro forma assessment right. Now we're just looking at the business as steady state at.
At their current rate of performance.
And I'd just add to that just to be clear the pro forma we also did not add any of those expense synergies either.
Okay. That's great I appreciate that color. The just just sort of a quick follow up the the <unk>.
5000, plus merchants that you Bob you've on boarded in in in March can you talk a little bit about some color around those verticals or anything that sort of stands out deal in.
In terms of that on boarding onboarding process and again congrats on the on the quarter.
Okay.
Yeah, it's it's the steady as she goes across the board on that boarding I mean, we've got we're constantly selling into all of our vertical markets and so there's nothing that's unusual it's just our normal cadence at that level and as we pointed out in March in particular, because it was the strongest month of the.
Of the quarter, but it's across the board.
And Joe just to put some granularity on it and I apologize I didn't realize I was on mute. So thanks for jumping in Mike.
On the.
If you look at our book generally were.
Yeah.
Mid teens legal services high teens hospitality.
The kind of you know.
The seven eight ish percent and in the health care and health care providers, the kind of similarly, situated in the Salon space and.
Wholesale trade probably makes up.
10% to 12%.
So the boarding has sort of been consistent with those trends we are of very diverse sales.
The sales channel of set of sales channels.
And.
Collectively.
That's what sort of tends to come in and we haven't seen a lot of volatility in that.
Frankly over the last few years.
The.
The one area that probably.
Which you already know right is is is it special is acquiring in the E. Commerce segments that really have a more of a high compliance bar of it.
We are we have some unique tool.
Tools that make us very effective there.
That's.
That's still growing at a rate higher than you know kind of to the sort of re approach back where we were in 18.
That makes sense really appreciate it guys. Thank you.
Yes, Thank you George.
Our next question ill pass the line.
Right.
On the length of global May begin.
Great. Thanks, one follow up with.
The increased merchants on boarded.
Kind of inflation, where price is on everything across the board in goods and services are going up.
On it.
Is there any reason to believe and we've seen and you've obviously seen the first half of the.
The second quarter play out is there any reason to believe that we won't see growth on the consumer side in June versus the March quarter.
Yeah.
Certainly nothing we can see.
Right now we feel very comfortable on the.
Yeah, and the and the trends we have in place you know it is.
You know as we reflected kind of earlier in 2020, right. We thought that the fact that we were continuing to sell through the COVID-19 period would be.
The catalyst for for growth is all of that volume turned on right and that's.
You know, we're still delivering on it.
Debt at certainly at the same rate in most months of that.
Uh huh.
Above.
Above trend rate.
Great. That's my only follow up thank you.
Yeah.
We have another follow up from Andrew Scott from Roth capital.
Again.
Yeah.
The follow ups from me so first congrats on the.
Completing the refinancing and the preferred issuance.
I know you guys have $50 million preferred that's available for an additional acquisition and you guys have some some dry powder from from the refi.
Just talk about what you're seeing in the market.
And if there's any.
Anything specific you're looking for on a potential acquisition.
Well.
I would say nothing thats changed from.
The the segments we've.
<unk> been interested in the last few years.
We have a pretty strong presence, particularly in the in the down market area of the acquiring space.
<unk>.
When <unk>.
Smaller.
Isos and resellers are looking to us to monetize our business. We're certainly one of the.
The the calls that the.
That are made so we're going to we see opportunities there.
And.
We see those on a regular basis.
Unless the there's nothing I see on the horizon, there that would be you know what.
Would consider a transformational in the acquiring space.
Where we're focusing more of of of our attention.
You know the fin Sarah.
It's a pretty good example of it is.
Look we already think we have a.
Great acquiring business that is uniquely situated to perform.
So opportunities, where we can pick up counter cyclical assets with technology.
That.
Enhances.
Our core offering.
Those are the ones that are most appealing.
And you know those have tended to be in more of Verticalizing strategies, you know good examples being real estate.
Zero of course in consumer finance area and CFT pay.
And.
Certainly have a rise open around the <unk> space.
Four four for the right types of opportunities that fit our profile.
<unk>.
So that's the.
That's where our greatest interest lies.
Does the.
Best of complement.
The acquiring business that we have that we feel very confident in growing organically.
Yeah.
I would note that.
We're pretty disciplined in the way, we got an acquirer of things I mean, you can look at the the MRI transaction we executed.
And what we did with the rent payments assets you know those that.
That was purchased for.
At a very favorable structure for priority yet.
Yeah.
Maybe you know, let's say less than 10 times EBITDA.
And.
We were able to.
Really reposition that.
And.
Improve its efficiency and.
Exit that debt.
19 times EBITDA so.
We will certainly continue to look for opportunities, where we can be that accelerator to integrated assets.
And consolidate them into the the verticals that we already operate in which you know I won't belabor that.
But hopefully that gives you some insight into into how we're thinking of.
But we're on.
Were not wanting to overpay for assets and we think that it's pretty clear you know look at look at the deluxe as purchase of the first American payment systems at 17 five times.
Or.
The the repay a transaction I just referenced right.
We already built those businesses organically.
Much better.
Cost.
So we want to continue to do that we think that's the that's the key the long term success and.
Hopefully we made it very clear to folks that.
I for one personally I'm invested for the long for the long haul this is.
We think of.
Just on a secular opportunity in payments that has a long long runway.
It's the third largest industry on the planet.
Payments.
Which of you know I think it is the underappreciated by a lot of folks. So a lot of ways to play a lot of ways to play successfully we certainly recognize there's <unk>.
Probably more sophisticated players than ever in the marketplace.
But we feel very very good about the the hand, we have and <unk>.
You know on how we can leverage the infrastructure that we've built to be of payments powerhouse and of real force to be record with as we.
As we continue on this journey.
Thank you really appreciate the detail there in the last if I may just kind of housekeeping, but we don't have been share of color you guys offered and.
In the annual guidance.
450 to $4 70 in revenue in the $70 million to $80 million.
EBITDA on the full year on it it looks like you guys are kind of.
On a going to meet those numbers organically.
And then you touched on the pro forma numbers within Sara.
The extra added but on it so I just wanted to make sure on you guys are still comfortable with those numbers.
With the organic growth.
We had you know we we exceeded.
Our plan in Q1, you know.
So it just gives us greater comfort on those organic numbers that we put out.
Yeah.
Awesome. Thanks, that's all from me congrats on the quarter. Thank you. Thank.
Thank you very much.
And I'll now turn the call over to Tom Priore for any closing remarks.
Okay.
Well I just want to once again, thank everyone for for the time and certainly the line of questioning.
To understand not just the quarter, but where our business is headed.
And the.
I appreciate everyone's support and that mission.
I hope everyone has a great remainder of the week and weekend and.
Thank you once again.
Take care everyone.
This concludes today's conference call. Thank you for participating you may now disconnect.
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