Q2 2021 Paya Holdings Inc Earnings Call
[music].
Good morning, ladies and gentlemen, and welcome to the Pie of Holdings, Inc. Second quarter 2021 earnings Conference call. At this time opt to participate are in a listen only mode. If anyone should require operator assistance. Please press. The star then zero key on your telephone.
A question and answer session will follow the formal presentation. As a reminder, this conference call is being recorded I would now like to turn the conference over to Mr. Matt Humphreys head of Investor Relations at Pi you you may begin.
Good morning, and welcome to the Pie on second 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 <unk> business are.
Adjusted 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 for information about forward looking statements that will be made or discussed on this call.
All statements made today reflect our current expectations only and we undertake no obligation to update any statements to reflect 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 8.2021 and in subsequent periodic reports that the company files with the SEC.
Also during this call we will discuss certain non-GAAP measures of our performance GAAP to non-GAAP financial reconciliations and supplemental financial information on 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've just described on the Investor Relations section of <unk> website.
Please note. We also posted a supplemental second quarter 2021 presentation to the Investor Relations section of the bio website.
Joining us on the call today are <unk>, CEO, Jeff <unk> and CFO Glenn unduly.
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 review our solid second quarter 2021 financial results and discuss key highlights from the quarter.
Payment volume grew 37% in the second quarter to a record $10.7 billion with card volume growing 24% and ACTH volume growing 64%.
Revenue grew over 25% to 64 million led by growth in both card and ACTH as well as incremental contribution from our Paragon acquisition in late April.
On an organic basis revenue grew 17% year over year.
Adjusted EBITDA grew over 18% to $16.8 million.
Compared to the same period in 2019 revenue grew 24% and adjusted EBITDA grew over 31%, which highlights the differentiated strength of pie its business model to varied economic cycles, Glenn will cover more of the financial details shortly including our updated financial guidance.
As mentioned in late April we closed our acquisition of Paragon payment solutions since closing we've been busy executing our integration plan and I'm pleased to report that efforts are on track and we are confident we will realize our expected synergies.
The underwriting we conducted prior to the acquisition was very much in line with the results, we're seeing and we're excited about the opportunities ahead to accelerate growth in the business.
The integration and migration of key talent and functions has largely been completed.
We've also consolidated our physical office footprint within northern Virginia, while maintaining paragon strong presence in the Phoenix area.
Furthermore, our go forward sales and partner development strategy is almost complete and we're making solid progress on our combined sales efforts.
Finally, we're working diligently on platform and technology consolidation as we take the best of both worlds to enhance and strengthen our integrated commerce solutions.
Speaking of partner development and sales pie I had some new wins in the quarter with partners such as in for life storage and more recently record $3.60, a cloud based software and automation solutions provider that focuses primarily on the <unk> vertical.
Through this strategic partnership with record 360, we are able to offer our value added and market, leading integrated payment solutions to additional b to b clients across the United States, improving the efficiency of back office processes, while dramatically improving the overall user experience.
And our government vertical we saw some nice recent wins within 1 of our key partners customers and look forward to integrating these over the coming quarters.
The ability to penetrate existing partners Facebook of customers is a key pillar of our growth strategy and these results give us confidence in our ability to continue to drive penetration rates higher.
And finally I'd be remiss not to mention that with our recent Paragon acquisition, we've been able to add some experienced sales talent in key verticals, while also adding a healthy set of highest fee opportunities to our existing pipeline for us to pursue.
All told our efforts to drive further growth through new and existing partners is progressing well and is another key component of our medium term growth.
Turning to products and solutions, we're delivering enhancements to our pike connect solution through new tools features and functionality across the stack, resulting in better user experiences additional features and improved efficiencies for our partners and their customers specifically.
Specifically, we're scaling our ability to support new and large partners, who convert their existing book of business to Pi through additional hosted API and digital tools.
Not only do we differentiate ourselves on our ability to do this with little to no end customer impact, but we and our partners benefit from rapid time to market, bringing revenue to our partners and pi or faster.
We also delivered new attended an unintended card present solutions for cloud based payments in key channels, while also providing updated solutions and tools into our ERP integrations.
Bridging our position of sages preferred payments provider in the U S. We continue to differentiate pie as offerings in the market through new and innovative critical back office functionality, such as enhanced T invoicing.
Developing and delivering product innovation to the market and being relentlessly focused on supporting our partners is a hallmark of our approach and a competitive differentiator for Pi in the markets we serve.
As Glenn will mention shortly we're seeing opportunities to make targeted investments in key parts of our business to support our growth over the next few years.
And finally, we continue to see a healthy pipeline of acquisition opportunities in front of US. The deals. We're currently evaluating are of varying sizes and types across our existing verticals or in adjacent and complementary verticals.
With our current balance sheet, which was further strengthened by our recent debt refinancing we have the financial capacity to pursue significant strategic and accretive M&A we.
We will pursue these opportunities provided they make strategic and financial sense and can be integrated into the broader payer business is M&A is a powerful complement to our attractive organic growth profile.
With that I'll turn it over to Glenn to walk you through the financials Glenn.
Thanks, Jeff and good morning, everyone.
We're pleased with our solid second quarter financial results and the strength, we're seeing across the business specifically, we continue to deliver favorable performance in our EZ reach product offerings, and our b to B and government verticals.
Total payment volume in the second quarter was $10.7 billion, an increase of 37% year over year in the quarter card volume grew 24% and E. C. H volume grew 64% with each stage transactions growing 31%.
Total revenue in the quarter was nearly $64 million, an increase of 25% versus last year integrated solutions revenue was $39.6 million up 31% led by growth in our beauty and government verticals combined with the incremental contribution from our Paragon acquisition.
Payment services revenue was $24.4 million up 17% year over year with <unk> revenue growing 34%.
Gross profit for the quarter was $33.8 million up 29% year over year with gross margin of 52, 8% up 160 basis points integrated solutions gross profit of 21 million was up 30% while payment services gross profit was $12.7 million up 28%.
BCH and mix were key drivers of margin expansion in the quarter.
In the second quarter adjusted operating expenses came in at $17 million as we layered in expenses related to our Paragon acquisition combined with targeted growth investments related to tech and product innovation we.
We expect to continue to make incremental targeted growth investments when and where it makes sense and provided a return on investment aligns with our capital allocation framework.
Adjusted EBITDA in the quarter was $16.8 million up over 18% versus the prior year adjusted EBITDA margin declined year over year to 26, 3%, primarily due to the year over year increase in public company costs costs, which were not applicable while we were a private company in the second quarter of 2020, excluding these public companies.
Any cost adjusted EBITDA growth would've been 27% in the quarter.
Finally, GAAP net loss for the quarter was $3.1 million versus net income of $6 million in the prior year.
The loss was driven by onetime expenses related to our recently completed debt refinancing and Paragon related transaction expenses.
The net income was $13.7 million for the quarter.
Regarding our balance sheet.
At the end of the second quarter, we had $136 million in cash and $250 million of gross debt with a net leverage ratio of approximately 1.9 times, our cash position reflects the $20 million in cash paid at closing for Paragon in late April and an additional $15 million that was added to the balance sheet from our debt refinancing completed in late June.
With the recently completed debt refinancing, we were able to meaningfully lower interest rates, which should result in approximately $5 million of interest expense savings per year.
We were also able to upsize on our revolver, which is currently on drawn to $45 million.
At the end of the second quarter, our total liquidity is approximately $180 million and it positions us well as we continue to focus on opportunities to accelerate our growth through strategic investments and accretive M&A.
Net cash provided by operating activities in the quarter was approximately $8 million and finally, our share count at the end of the second quarter was $127.4 million diluted shares outstanding inclusive of approximately $5.7 million earn out shares that have not yet debt issuance thresholds.
Our supplemental earnings presentation provided this morning contains an updated illustrative walk through of our share count at the end of the quarter.
Turning to our updated guidance for full year 2021, we are raising our total revenue range to $244 million to $248 million due to continued revenue outperformance, reflecting growth of over 19% year over year at the midpoint of this range.
We've also raised our gross margin guidance to a range of 52% to 53%, reflecting continued strong margin performance in our business.
Our adjusted EBITDA guidance range of 64 million to $68 million remains in place on reflects the targeted growth investments in our business as we outperform on revenue and gross margin.
As a final point, we are closely monitoring recent COVID-19 developments and the potential impacts that may or may not have on the business for the duration of the year.
That concludes my prepared remarks. This morning, I'll turn the call back over to Jack to closeout.
Jeff.
Thank you Glenn.
I'm proud of the solid results, we delivered this quarter, which speaks to the caliber of talent and dedication of our employees the unique and differentiated solutions, we offer and our relentless commitment to serving our partners.
I'm also proud that we were added to the Russell 2000 index this quarter, especially after becoming a public company just a few short quarters ago.
Although we're pleased with all of our recent accomplishments we remain focused on what's ahead with a fragmented middle market and secular tailwind is driven by an ongoing digital transformation, we see further opportunities to grow and scale our business as we deliver on our promises to our partners and shareholders.
With that operator, we're ready to take questions.
Thank you.
As a reminder to ask a question you'll need to press star 1 on your telephone to withdraw your question press the pound key.
Our first question comes from David <unk> with Evercore ISI. Your line is open.
Thank you good morning revenue spreads came in above our estimate for the quarter and ACTH volume, notably grew more than twice the rate of transaction growth for HCA. So can you talk through the.
The impact on pricing in the quarter and was there any material change in average transaction size that might've contributed.
Hey, David Happy to take that this is Glenn.
No that is correct. Yeah. We are we saw some lift from pricing.
This quarter focused on card right not on the AC side and you'll see it on the sequential increase in spreads versus Q1.
So it provided a little bit of lift, but yeah and then we also saw.
To your question on average ticket some lift there as well when you think about it.
Just overall.
Ticket level ticket size.
Which we saw especially on our b to B.
Verticals, we saw lift there.
But yeah, and then ACS continues to be a great story for us right at 34% growth in BCH revenue year over year.
So again, we've already talked through in the past kind of the.
Heavier volume and average ticket size, there, which really accelerates the volume, but we're getting good growth on the transaction side as well, which is a little more correlated to the revenue growth. So very pleased with the AC side, and that's helping and you know from a year over year perspective, again, we've gone through it before but that influences the year over year spread would that ECH growth.
Yes, we got some lift from from card in the quarter pricing, which was a favorable.
Got it thanks for that and then your updated 2021 guidance brackets consensus revenue and EBITDA expectations in the middle of your new range can you walk through the tailwind that might take you to the high end of the range for revenue and EBITDA and some of the headwinds that might keep you towards the lower or bottom end of the range.
Yes, David happy to take that again this is Glenn.
Look yes, I think we're trying to be conservative on the top line in our guidance given the current environment right. We saw obviously a nice quarter.
Good broad strength, we mentioned again on the <unk> side, which really had a very very strong quarter.
So to answer your question on Accelerants, I mean, certainly.
If the economy stays at a level it was in the second quarter.
I could see us hitting more on the higher end of that range right. If we kind of continue as is and again with the conservative nature.
Nature, we built into the top line on our forecast certainly if theres, a slight slowing compared to where we're at today.
Then that would.
Transfer to the more of that lowering guidance, but I think we feel again, we've tried to put out conservative topline guidance number out there because of those kind of unknown macro factors, but it's on.
From that I think the accelerants again would be kind of more continued as is.
First not.
Got it just a quick final question what.
What level of ACTH and card volume growth do you have embedded in your second half 2021revenue guidance.
Yeah, I don't think we typically get into the volume guidance just again, because some of it is just a little bit harder to forecast and we do have still a healthy.
On a fee and service fee pricing, which helps us.
See some stability, even if volume changes a little so we tend to.
Try to avoid.
Kind of quarterly volume guidance.
Again, the Acs examples of really good reason why but.
Again, we're seeing again.
In the quarter, we saw the.
37% volume growth card.
Card was up 24%, which more correlates a little closer to the revenue side is these transactions and 31%.
So yes, no I think we're continuing to see kind of.
Good solid performance across the business and we just we just want to see that carry through with such a strong quarter on that we keep seeing that each month. So far so good but I think theres a lot of unknowns here on the second half on we're just trying to be very careful about that.
Understood. Thanks, so much.
Hmm.
Thank you. Our next question comes from Bob Napoli with William Blair. Your line is open.
Thank you and good morning.
I guess just following up with that Glenn So how did July look how was july versus the trends and how did it trend through the quarter and did you see acceleration I guess when we last talked you had a pretty strong April was that where the trends kind of steady and.
Has that continued to be steady at a healthy rate.
Yeah, we're seeing volume kind of hold at a higher level here right. So we're not seeing any kind of decline, but we're also seeing that like an accelerant right into Q3.
So I think we're seeing kind of a strong performance continue.
From what we saw in Q2 right.
Obviously still early in the quarter with just July but very similar trends.
What we saw on the second quarter at the moment.
And you called out I guess, a b to B is an area can be maybe a little bit more color on the strength youre seeing by vertical.
I mean, how do you know how.
Strong and day to be in.
Karen nonprofit anything else stand out.
Yeah No absolutely. This is Glenn again, thanks, Bob.
Yeah look I think <unk>, we're getting hit with a couple of positive factors here..1 is we talked about the ticket size right.
A big factor right now on some of those Edinburg sub verticals, we serve construction manufacturing industrial side.
That's a good price.
Flow through and we get the benefit of that we also have some favorable growing partners in this area that.
That are focused on kind of field services ERP manufacturing systems.
Manufacturer providers.
That is also helping us with just.
Good organic growth with our partners there.
So that's helping as well.
And then we got a little bit of price lift there, but that wasn't the lead story on the BD side.
But right now I think when you think about volume ticket and just.
Just.
Merchant growth customer growth kind of thing all of those factors on the <unk> side health care, we are actually starting to see a year over year lift now finally, again, which is great.
So come on coming out coming out of that trough.
Last year so.
Good story, there starting to see more.
Volume and activity in health care government continues to grow steady for us and had a nice nice lift there as well a little bit above the overall trend in the business overall growth number and then the 1 lag at the moment, which I think we've spoken about in the past, but is the face to face the nonprofit side just because we saw such an influx in too.
<unk> thousand 20.
Do you see a little more slowness this year there I mean, that's not really helping the growth rate.
Thank you and then just last.
For Jeff.
On the competitive front are you have.
Have you seen any any changes in the competitive environment and you know as.
As you look at M&A what areas are you.
Would you like to add to the business, you're getting a perfect world what now.
Now how is the pipeline and what where would you like to add.
Yes, good morning, Bob This is Jeff.
Let me take those in turn so competitive landscape.
We were all together.
We like our relative competitive position, we are very proud of.
Both peak and who are just place.
In surveying great partners, So I would not point to any discernible change in that.
On the past several months.
<unk> talked about this before larger deals tend to be a competitive process smaller deals are often proprietary and non competitive.
Which is great too in terms of the M&A landscape.
Our priorities have not changed.
We look first and foremost to strengthen our capabilities within our existing verticals and Paragon is a perfect example of going deeper into our existing space given their strength in both healthcare and non for profit.
Of course, we look at adjacent verticals and then finally the.
The broadening of our proprietary technology capability, so widening the value added cros.
If you will the payments spectrum. So we feel good about our pipeline. We are doing a lot of work on a lot of opportunities, but and as you guys know, we are disciplined and deals need to meet our strategic and financial criteria.
And frankly further bolstered by.
The successful and strong capital position we have.
Which I think you guys have noticed.
Which gives us ample firepower to execute on transactions that we like.
Okay.
I appreciate it.
Thank you. Our next question comes from Peter Heckmann with Davidson. Your line is open.
Hey, good morning, everyone, just thinking about just aggregating the growth a bit more in the quarter.
It looked like the acquisitions added a bit more can you talk about the underlying growth.
Those 2 acquisitions and then if possible how should we think about ECH grows when we anniversary. This large conversion from from from late last year.
Yeah, no happy to happy to take that.
Yes, so on the organic side organic growth was 17%.
In the quarter year over year. So it gives you a sense for how much.
Both TPG and paragon or contributing or did contribute in the quarter versus the 25% growth rate.
So happy to spend more time on that as well and then yeah look ACTH is.
I think the thing that we're really excited about it it's really a broad based story right. Obviously the lift we're getting from the from the larger bank clients.
That's layered in in debt.
Debt.
A year over year perspective that was a December item right 2020, So we'll see.
Good year over year.
Incremental growth from that and that win through really the fourth quarter, mostly rate partially at least.
But again, we're seeing growth not just their right. It's it's across the board in AC agents at the.
I think just the.
On a trend that a lot or a lot of our clients are just demanding and wanting that option for a transaction and we're very willing and excited to serve them there.
There's just certain transaction sizes that just makes sense over the easy thrilled and we're.
Capturing a good part of that market. So I think it's going to be a continued.
Area of growth for us, but we haven't done our 2022 budget and planning yet. So we don't have a <unk> number target yet for next year, but.
We expect it to continue that growth through strong maybe not as at the same level that we're currently growing at but still above trend and kind of probably above the overall business growth rate.
Okay, Okay, and then interest on the acquisitions is trying to determine.
The recent acquisitions growing faster than the overall company I mean, I would assume they would have just given some additional capabilities but.
Or are they growing no, notably faster year over year kind of on a on a apples to apples basis.
No they are I mean.
I'll take them, both part right TPG in a very attractive area.
Similar to our you know our FBS government business.
So really good strength, there and strong organic growth.
And really allows us to serve kind of.
A smaller municipal client, which has been really great.
Great.
On that deal right, where SBS was more on the kind of the mid to high end of the debt.
On the municipal side TPG really allows us to do some smaller point solutions, so really rounding out the offerings there on the government side.
And then on the Paragon acquisition, absolutely have some really good.
Underlying partners in ISP that continue to grow with us.
So we're really excited about that.
As well and so far so good and also off to a good start on the integration and kind of the early synergies that we are targeting so more work to go there, but we're off to a good start 1 quarter end.
Got it okay. Thanks.
Thank you. Our next question comes from John Davis with Raymond James Your line is open.
Hey, good morning, guys.
Quite a few times on the call you called out conservatism kind of on the topline guidance you called out the Delta variant.
Having a little bit of unknown to the back half of this year.
Is it fair to say the guide raise would have been higher on the topline absent delta and if it doesn't become a meaningful impact that you could see some outperformance there just any commentary would be helpful.
Yeah, Hey, John This is Glenn Yeah, No I think Thats fair I think it was definitely a consideration as we thought about kind of the guidance and not getting ahead of ourselves on some of those unknown. So I think that's a fair.
A fair way to put it.
Okay, and then the nice outperformance on the top line as well as the gross margin EBITDA and line you called out growth investments. So I just wanted to dive a little bit is that people with the technology. What exactly are you doing from kind of a growth investment side.
Yeah, Hey, John its Jeff.
So.
It is.
As I'm sure you noticed this is not major shifts this is simply more a function of working to accelerate some of the product and feature capabilities roadmap, which we have in place and as you know.
Those the piece of those investments continues to grow at <unk> and we saw the opportunity to accelerate a few of our initiatives and that's what we're doing and.
Happy to do so.
Okay. Thanks, and then last 1 from me, Jeff just you commented that a lot of the larger deals from M&A perspective, or auctions, obviously, we're all well aware of valuations on what the environment's like.
Should we expect more tuck ins in the near term or do you think that there's a chance that you can do something a little bit more a little bit bigger, maybe maybe not quite transformational but larger deal.
Do you guys think about valuation and returns on capital when you are evaluating on a deal.
Yeah. So Jon very good question first of all our priorities and our thoughts around this have not changed.
We are working on both larger transaction opportunities as well as tuck ins.
As you know tuck ins need to meet a very high strategic bar had the impact on the business that we would expect.
And the important point here is there are a lot of gray.
Small and midsized companies that will eventually wind up as part of pie out or someone else.
And that's a great part of the opportunity and our criteria has not changed.
We need to have conviction that the growth rate as part of pie out based on our capabilities and investments in sales and solutions will accelerate their growth I think you guys know, we we've got a great.
Great integration playbook to make sure we capture the synergies. So you know our level of enthusiasm for getting the right deals done both larger and tuck in.
Is is largely unchanged and to your point, there will always be things that trade at some very large number of that.
We would not be comfortable with and we're disciplined acquirers, we've got the capital and we're confident we'll get it done.
Okay I appreciate all color thanks, guys.
Thank you. Our next question comes from Timothy Child.
With credit Suisse. Your line is open.
Thanks, a lot good morning, everyone. Thanks for taking my question I wanted to dig into what you mentioned around 1 of your government partners you mentioned that you've been having some success with further penetrating that partner you have some wins on the come coming from that partner I think it's an important point given you've said very clearly that your biggest growth driver is further penetration gains.
On your existing partners I think it would be just helpful to recap that penetration stance I think when we last talked you mentioned that of course, it can range from a newer partner and sort of the low single digits to some of your longest tenured partners youre penetrated in the 30% to 40% range, maybe just talk a little bit about where that is on average across the book and where it could.
Reach maybe up into that 30% range and how that's a driver of your growth over the next call. It 3 to 5 years.
Yes.
Hey, Tim it's Jeff.
Great question so.
It is hard to quantify in general averages.
But what we.
Caller on it there too.
Is it penetration 1 is that you are penetrating the rate of our partners and customers.
And then the second is once you sign 1 of those end customers. There is a relatively predictable adoption curve of digital electronic payments within base. So as an example.
When a utility starts utilizing our services their penetration rate typically starts in the single digits somewhere perhaps at zero, perhaps it's starting.
Above zero and then typically what occurred over the first week first 12 quarters.
Is penetration and adoption goes into the <unk> or 40% range. So again, there's a multiplier on that occur because you weren't penetrating the underlying customers of our partners and then you are driving the accelerated adoption of our solutions within that base and that's really the combination of the 2 and in.
Terms of the other part of your question, which is how does that blend across the space that is more art than science.
But the key point is that both.
Significant contributors to what is a lot of 3 to 5 year runway to continue to penetrate partner base and underlying customer adoption.
Okay, Great. That's really helpful. And then specifics on that that government part that you mentioned clearly it was meaningful enough that you've called it out earlier.
The wins that youre pulling out of that partner or is that something that was expected already in the guide was that sort of an upside surprise.
Yeah, I'm happy to take that this is glenn pick them.
Yeah, No I think I think there's kind of a mixed story with the large government and partner I think the the.
The negative is its taken a little while longer to ramp up the positive visit it's starting to ramp now right. So we're actually starting to see really good momentum come in and just start hitting the numbers now.
As we got through the second quarter here.
A small impact in the quarter, but the pipeline with that large partner that I think we've discussed in the past is there right. We have a nice schedule of implementations now and should really be a nice lift as we look forward, so really hasnt been a big lift.
Over the last 12 months or so but really starting to take off now. So I think we're we're excited about that and I think that's going to be 1 of the 2022 stories for us as a kind of an acceleration there on the government side.
Excellent Thanks, a lot.
Yep.
Thank you. Our next question comes from Mike Grondahl with Northland Securities. Your line is open.
Hey, guys, good morning, and happy Friday.
First question could you just talk a little bit about the funnel or the backlog for kind of integrated partners and how that looks and then maybe just any update on the sales force or any changes youre, making there are additions.
Yeah, Good morning, Mike It's Jeff.
Happy Friday to you.
So 2 things in terms of integrated partners.
I would observe that.
But obviously the opportunities and the level of interest remains strong.
1 of the discernible changes in the last few months is the ability to start spending time together and as you know with deep integrated solutions.
Uh huh.
Making the most of those opportunities often involves solutions sessions workshops, not that you can't do them on zoom, but I have to tell you on.
The ability to engage with folks in person really helps too.
In terms of your question around the sales force.
We continue to invest in quality salespeople.
Where the demand exists and where we find great people I think the most important call out Mike.
Is that pound per pound the depth and the quality of sales talent that we inherited through the Paragon acquisition.
We had high regard for it on.
During diligence and it has exceeded our expectations.
These folks are hard to find and develop and when you can bring them on board and bulk is a huge lever and we're really excited about it.
Great. Thanks, a lot.
Yeah.
Our next question comes from Andrew Jeffrey with true of Securities. Your line is open.
Hi, Good morning, gentlemen, hope everybody is doing well.
Jeff. Thank you you've mentioned that you've.
Spent some time to money enhancing the pie of connect capabilities.
It sounds like card not present, which I know a big part of your business can.
Can you talk a little bit about what you think the long term yield lift potential is with connect and maybe provide some.
Some sense of what attach rate.
If not by specific functionality should've broadly, but what the opportunity is to drive attach.
In connect as well.
Yeah, Andrew Good morning, it's Jeff again.
Thanks for the question. So it doesn't lend itself to a soundbite, but let me tell you what the key categories are that drive that adoption.
The first 1 which is very powerful but it does not.
It's not as soundbite like is constant enhancements in the user experience and user interfaces to make it easier for quick invoicing for a quick pay for recurring pay from the adoption of recurring pay so a lot of the investment is is not new features but it is frankly, making existing fee.
<unk> on <unk>.
Even better which is what drives that adoption.
The other thing in terms of attach rate and adoption.
At Pi I think you know this is we developed pilot connect to.
To be very tailored to the needs of each vertical that we play in and I think you guys know most of the B to B municipal not for profit health care and so.
The key there is that you were adding.
Components tailored to the vertical so that your partners are using the full capabilities.
As you know, we generally speaking do not fail Ala carte interest and functions, we try to deliver the most robust whole experience into each of the verticals.
And that is why our investments continue in those features and capabilities and most importantly experience.
Okay.
Appreciate it thanks.
Thank you. Our next question comes from Joseph <unk> with Canaccord. Your line is open.
Hey, guys good morning Lana.
Questions already but maybe just 1 on <unk>.
Sure.
And just you know just.
Clearly the bank integration was unique and I was wondering if there's any other unique opportunities that youre seeing with your hgh capabilities out there on the pipeline.
Then just 1 more quick 1 on the pipeline any any change out there on relative size of partners or anything like that maybe moving.
Up market, just a little bit and.
Which would be good for for growth longer term if average potential deal size is getting larger thanks a lot.
Yes, good morning, Joe It's Jeff again, I'll take those in reverse order.
So.
1 of the things we are most proud of is that as we continue to develop and grow as a company our ability to find and capture larger opportunities continues to grow I think you guys know thats been an important ingredient of our successful growth.
In the most recent periods. So so yes, we feel very good about that that does not come at the expense of smaller opportunities.
But certainly.
The the more.
Sure.
On the sharper we are in that focus in the tighter we are executing the larger opportunities that obviously has an impact on the average mix and we're proud of the progress we've made there.
In terms of the other part of your question on ECH. It is it really is a number of things. So obviously when you talk about a very large and unique.
Partner in this case for our <unk> business.
The question as to whether or not many come along that look exactly like that they tend not to but what it does is it showcases the breadth and depth of our capabilities to other larger opportunities that you want to capture over time and I think.
There is no better estimate to the strength of our proprietary <unk> platform and the maturity of our capabilities there.
Denny.
Then signing a partner of that magnitude so that will serve us well and then the other thing Joe very important is and this I think is something which is evolving in the marketplace.
A lot of understanding of larger software partners, particularly with larger ticket transactions that they should be offering an E. C. H capability alongside card acceptance and card for smaller transactions ACTH for larger that continues to build we have been investing in unifying that experience. So people are underwritten.
Once they are integrated once they are boarded once reporting and so on come together, so I think.
To part of your question, we see that as offering great growth potential in the short and medium term and frankly youre already seeing it in our results to some degree but.
To some degree the understanding of the importance and the role that AC each can play I think may not yet be fully appreciate it and we're excited about our proprietary capabilities there.
Yeah.
Thanks, Joe.
Thank you. Our next question comes from Josh Sigler with Cantor Fitzgerald. Your line is open.
Hi, Good morning. Thanks for taking my question can you provide a little more color on your pricing power, especially in card and do you expect this pricing power to continue as we move towards the back half.
Yes, Charles It's channel go ahead.
I'll take that and Glen Glen can add to it as well. So first Josh you know we have been very consistent and clear on 2 points..1 when you have deep integrations.
On that drives very strong retention, which in turn of course provides.
Provides some level of pricing power and I think that has been borne out.
Frankly.
Steadily over time.
Having said that we are disciplined about how we apply price and so we have a finely tuned methodology, we tend to leverage the the biannual increases at the brands obviously.
But we are very thoughtful as to who is impacted and when and how often so it is not our intention to maximize the last dollar of price in any given time period, but to do something steadily over time and surgically.
That reflects the value that we provide so we do see that.
We can and will continue but used responsibly.
Glenn anything you'd add there.
No.
Great. That's very helpful. Thank you very much for the color also following up on a previous question are you guys seeing any change in customer behavior as adult the variance has started to spread through July on the beginning of August.
Yeah.
We have not seen anything to date.
Looking at July that would have different from kind of how we were ending the quarter. So the answer is no.
Great. Thank you very much.
Thank you and we have a question from Bob Napoli with William Blair. Your line is open.
Thank you for the follow up Jeff a big picture question.
When you guys came public when pilot came public.
It was kind of a model kind of low double digit organic growth and margin expansion.
On to 200 basis points over the next couple of years I mean as you.
Sit here.
Close to a year from when you deal was announced I guess, you're getting there then.
If you look at the market is is that the right model or are you seeing.
More opportunities for growth such that you should be investing more into.
Marketing to take advantage of that and maybe drive up that organic.
I mean, youre growing faster obviously this year.
Pretty good momentum and is that sustainable.
But are you seeing opportunities is this going to grow faster than maybe what was initially anticipated. When you came public and then would you in the short term I mean invest.
As such net margins.
Don't go up in the short term as you're investing for long term higher growth.
Yeah. Thanks, Thanks for the question Bob This is Jeff again.
So let me just pointed out 2 things in trying to answer that you know first of all.
As you know because you were with us in the process of going public.
The first order of business was all the questions we had.
<unk>.
From protections in our ability in the latter part of 2020.1.
To me what you kindly pointed out are some impressive growth objectives, and we have continued to hit the mark there and we're really proud of that.
And obviously, we expect.
To drive that forward from here I think the other part of your question.
Is would you invest more to try to grow faster. It is a fair question I think to a large degree we feel like within our debt.
On this we run today and the expense since we manage today there is a fair bit of growth in embedded in that so obviously that is the first order of business.
But what I would say to you is if we saw something significant that we thought we should do because it was in the medium term interest of the company.
We would do it right capital allocation framework invest in organic growth Inorganically talked about and so on.
But generally speaking.
We feel good about our ability to hit our growth objectives within the.
Income statements structure that we manage today.
Just to be thoughtful and responsible on the margin where we see those opportunities.
Okay.
I appreciate that that's a appreciate the answer and just maybe a quick follow up for Glenn.
Do you feel comfortable with like taking the leverage ratio for the rate.
Acquisition and understanding that you generate very good cash and you could delever.
Relatively quickly, but where would you take leverage.
Yeah.
Talked about it before right I think our our cap is always going to be right around 4 right and then we've always had the goal of moving it back down to 3.
Right now we're in a very favorable position net under 2 alright with the cash on the balance sheet.
But somewhere in that range.
Yeah no.
I think the the refinancing we went through.
This quarter.
He is going to give us some nice interest savings gives us flexibility for future deals, we upped our revolver as well so excited about the new debt structure and gives us a lot of.
Capital today to go goes on.
On some nice deals in.
We're really focused on that right, where we've spent a lot of time on looking at targets.
And trying to find something to fit in here.
Great. Thank you appreciate it.
Okay.
Thank you and there are no other questions in the queue I'd like to call back to Mr. Jeff <unk> for closing remarks.
Great. Thank you operator listen we are obviously very pleased with our progress. We appreciate your thoughtful questions.
We'll look forward to updating you on our progress so thanks, everybody and have a great day.
This concludes today's conference call. Thank you for participating you may now disconnect.
[music].
Sure.
[music].
Yes.