Q3 2023 Priority Technology Holdings Inc Earnings Call
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Okay.
Allergy Holdings third quarter 2023 earnings conference call, all participants will be in listen only mode.
You need assistance. Please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions to ask a question. You May Press Star then one on your Touchtone phone to withdraw from the question queue. Please press Star then two please note. This event is being recorded I would.
I'd like to turn the conference over to Chris Gutman. Please go ahead.
Good morning, and thank you for joining US with me today are Tom Priore, Chairman and Chief Executive Officer of priority Technology Holdings, and Tim O'leary Chief Financial Officer.
Before we give our prepared remarks, I would like to remind all participants that our comments today will include forward looking statements, which involve a number of risks and uncertainties that may cause actual results to differ materially from our forward looking statements.
The company undertakes no obligation to update or revise the board 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 reckon.
Reconciliations of our non-GAAP performance and liquidity measures to the appropriate GAAP measures can be found in our press release and SEC filings available in the investors section of our website.
With that I would like to turn the call over to our chairman and CEO Tom Priore.
Thank you, Chris and thanks to everyone for joining us for our third quarter 2023 earnings call.
I'd like to start today by discussing some of the trends. We're currently seeing in the business and then provide an update on important developments at priority.
Including the successful integration process of our August acquisition of plastic.
Consistent with what we saw in the first half of the year during the third quarter, we continued to execute in all three segments of our business.
Delivering strong results in F&B, acquiring b to B and enterprise payments.
We remain committed to our unified commerce vision of combining payments and banking on a single platform accelerated by the strength of our diverse business lines that we're positioned to benefit from higher interest rates and the current macroeconomic environment.
Total accounts operating on our commerce platform now exceed 820000.
Processing over 118 billion in <unk>.
Transaction volume on a last 12 month basis.
While administrating in excess of $850 million in average daily deposits.
We're excited about our 2023 progress to date and working hard to close out the year strongly and position ourselves to accelerate in 2024.
As you saw in our announcement earlier today, we maintained our positive momentum with strong financial results in the third quarter.
Our Q3 revenue of $189 million increased 14% from the prior year.
This led to a 23, 6% increase in adjusted gross profit to $72 3 million.
And a 28% improvement in adjusted EBITDA to $45 million.
Adjusted gross profit margin of 38, 3% increased 310 basis points from.
From the prior year quarter, highlighting the strong operating leverage of our purpose built platform.
Yeah.
On a year to date basis revenue.
Revenue increased 14, 4% to $556 3 million.
Leading to a 22% gain in adjusted gross profit to $202 4 million.
Now.
Find with a 230 basis point increase in adjusted gross profit margin in the first nine months of 2023 to 36, 4%, we generated a 23% increase.
And adjusted EBITDA, thus far in 2023.
As you can see from our published guidance. This morning, we expect.
To end the year strong as current growth and margin trends in our business channels continue.
As a result.
We projected deliver full year revenue.
Of between $755 million to $765 million, an increase of approximately 15% over 2022.
And more importantly.
We're increasing our full year adjusted EBITDA guidance from our previously estimated $160 million to $165 million range.
Two $167 million to $170 million.
A 20 plus percent increase over 2022.
Our confidence reflects the value our customers see in our product and technology offering.
The strength of our diverse sales channel performance and the efficiency of our operating teams that continue to deliver.
A notable example, contributing to our outlook is accelerating operating trends in the plastic b to B channel.
Since closing on August 1st our teams went to work synergize in operations and embracing revenue growth initiatives.
That mitigated drag on EBITDA from the acquisition.
And demonstrated once again that we're uniquely built to systematically absorb and operate software and payment assets to quickly drive profits.
Now for those of you who are new to priority slide six highlights the architecture of our proprietary unified commerce platform that combines.
Robust payments and banking functionality to monetize the merchant and partner networks, we serve.
Our growing customer base combined with current uncertain market conditions continue to reinforce our belief that systems combining features of both payments and banking to accelerate cash flow and distribute funds and multiparty environments will be critical as businesses put greater demands on software and payment solution providers.
We're committed to meeting our customers' expectations by refining the experience of our partners.
To make working with priority seamless and simple.
Our performance illustrates the partners consistently choose the unified commerce applications.
In F N b b to B and enterprise payment segments that best fit their business.
The passport financial tools that fit their needs and are moving their money with priority.
We're laser focused on the continued innovation of our SaaS payment suite of services.
And passport Commerce engine.
And eager to meet the evolving needs of our growing portfolio of customers.
At this point I'd like to hand, it over to Tim who will provide further insight into our segment level performance during the quarter along with current trends in.
And each that factored into our guidance for the full year.
Thank you Tom and good morning, everyone as I review, the third quarter financial results, including segment level contribution to the consolidated results. Please refer to the supplemental slides or the MD&A for further details.
Our MD&A is included in the Form 10-Q that was filed with the ICC. This morning and provides a discussion of our comparative third quarter and year to date results.
A link to the filing can also be found on our website.
As Tom mentioned, we had strong financial performance across the business in the third quarter and for the first nine months of the year.
Starting with the SMB segment on slide eight.
SMB generated Q3 revenue of $140 $1 million, which was a $2 million increase over the prior year's third quarter.
As discussed on our last earnings call one of our larger reseller partners started to diversify their activity and we said at the time that we expected their diversification strategy to continue throughout 2023, which we continue to believe is the case.
If you look at the year over year impact of that shift on the Q3 results. It was a $15 million headwind to revenue in the quarter.
If you were to exclude that impact the F&B business would have had over 13% revenue growth on a normalized basis, which demonstrates that we continue to see strong results in the balance of the business.
Bankcard dollar volumes and F&B were $14 2 billion in the quarter, which is down 6% from $15 1 billion in the prior year, but again the impact from the large reseller was the primary contributor to the decline as it more than offset year over year growth in the remainder of this segment.
From a merchant standpoint, we averaged just under 240000 accounts during the quarter, which was 5% lower than the 252000 average in Q3 of 2022.
But if you exclude the impact of the large reseller. The average grew by over 5000 accounts on a year over year comparative basis.
For the quarter, New monthly merchant boards averaged 4000 compared to an average of 5000 per month in the third quarter of 2022.
Adjusted gross profit and SMB for the quarter was down by $1.3 million or 4% to $34 2 million compared to last year.
The decline in comparative quarterly gross profit was partially impacted by the lower volumes and revenue from the large reseller, but as we've stated in the past that relationship generates lower margins for priority. So the related quarterly reduction in gross profit was under $1 million.
The quarter was impacted more by a $2 3 million dollar billing adjustment in Q3 of last year that provided for a tough year over year comparison in this year's third quarter.
If you exclude those two items adjusted gross profit on an unaffected basis would have increased by approximately $2 million in the quarter, which again demonstrates strong growth in the balance of the portfolio.
Gross margins of 24, 4% or down slightly from 25, 4% in Q3 of last year.
But if you exclude the impact of the billing adjustment in Q3 of 2022 gross margins in our core business improved by 30 basis points due to the favorable mix of revenues, resulting from a combination of strong growth in our core acquiring business and a decline in the large but low margin reseller.
Lastly for F N b.
Operating income of $11 $8 million represents a $1 7 million or 13% decline from $13 5 million in the prior year's third quarter.
Operating income was negatively impacted by the factors already discussed and gross profit.
Moving to BTB payments.
Revenue of $13 8 million was an increase of $8 9 million or 182% from the prior year.
The acquisition of plastic which closed on July 31 contributed $10 million of the increase during the quarter, but that was partially offset by the final wind down of the managed services business.
As previously discussed we expected to see a year over year impact from managed services in Q3, but that comparative headwind will go away in Q4.
And looking separately at CP ex that business grew by $1 2 million or 47% in Q3 compared to last year's third quarter.
Adjusted gross profit in <unk> increased to $5 million as a result of the plastic acquisition combined with 60% growth in gross profit for the <unk> business, which was also partially offset by the managed services wind down.
For the quarter gross margins were 36, 2% compared to 61, 2% last year, but that decline is fully attributable to the plastic acquisition, including the impact of the GAAP reporting requirements for the plastic business compared to the balance of the <unk> segment.
Gross margins for <unk> continued to improve and we're almost 85% for the quarter.
The BW segment produced $1 1 million of operating income during the quarter, which was down <unk> 1 million compared to last year due to the previously discussed operating losses of plastic and wind down of managed services.
Moving to the enterprise segment on the next page.
Q3 revenue of $35 1 million was an increase of $13 5 million or 63% from $21 6 million in Q3 of 2022.
I'll sound like a broken record on this but the favorable trends for the past several quarters and new monthly enrollments and increase in the number of build clients growth in deposit balances and the higher interest rate environment have all continued to contribute to strong revenue growth.
That strong revenue growth then flows through the P&L at a high conversion rate, which resulted in adjusted gross profit for the enterprise segment, increasing by 66% to $33 1 million, while adjusted gross profit margins improved to just over 94%.
Operating income was $21 3 million for the quarter and the enterprise segment.
Moving on to consolidated operating expenses on slide 11.
Salaries and benefits of $21 million increased 23% from Q3 of last year, but that was only $1 million higher sequentially than during Q2 of this year as we continue to maintain our expense discipline after investing in the business and team during 2022.
Compared to the Q2 levels the $1 million sequential increase was almost entirely attributable to the acquisition of plastic on July 31.
We finished the quarter with approximately 990 employees, including 370, and our India Development Center, which is compared to approximately 875 at the end of Q3 in 2022.
SG&A of $11 $4 million increased by $1 2 million or 12% from $10 2 million in Q3, 2022, and <unk> 6 million sequentially from $10 8 million in Q2 of this year.
The year over year increase was due to certain nonrecurring items, including transaction related expenses for the plastic acquisition.
Depreciation and amortization of $17 3 million for the quarter decreased modestly from the comparable quarter last year and from Q2 of this year.
Moving to the next slide adjusted EBITDA for the quarter was $45 million, which was an increase of 28% from $35 1 million in Q3 of 2022.
Interest expense of $20 million for the quarter increased $6 6 million from Q3 2022 levels as a result of acquisition related debt increases in the quarter combined with the impact of the higher interest rate environment.
For those that have joined our prior calls you'll likely remember that we have a natural hedge in place for the floating rate debt given the interest income we generate in our deposits.
At the end of Q3 that natural hedge covered over 130% of the debt and just under 100% of the floating rate liabilities. If you also include the preferred stock.
Moving to the capital structure and liquidity slide on page 13 that.
Debt levels increased during the quarter to $639 1 million, which was driven by the acquisition of plastic on July 31, and the related borrowings on the revolver at that time.
Net debt of $614 $5 million was higher by $19 4 million compared to the balance at the end of Q2 for the same reason.
From a liquidity standpoint, we ended the quarter with $32 million of borrowing capacity available under our $65 million revolving credit facility and $24 6 million of unrestricted cash on the balance sheet.
Subsequent to quarter end, we raised an incremental $50 million of term loan borrowings that transaction was neutral on a net leverage basis with proceeds being used to repay the quarter end revolver borrowings in full and put additional cash on the balance sheet.
For the LTM period ended September 30th adjusted EBITDA of $163 $5 million represents approximately $7 million of sequential quarterly growth from $153 6 million at the end of Q2.
Preferred stock on our balance sheet.
Totaled $252 9 million at September 30th and is net of $17 $8 million on accretive discounts and issuance costs.
The third quarter preferred dividend of $11 4 million consists of $6 8 million paid in cash and $4 5 million of Pik component.
This is supplemented on our income statement with the accretion of discounts and issuance costs of just over $800000.
Before turning the call back over to Tom I wanted to discuss the revised revenue and adjusted EBITDA guidance for the full year.
Based on the combination of year to date results and our latest expectations for the fourth quarter of 2023, we are reducing our full year revenue guidance to a range of $755 million to $765 million, but we are simultaneously increasing our adjusted EBITDA guidance to a range of $167 million to $170 million for the full year.
Sure.
The revised guidance reflects the revenue impact that we've already discussed related to the diversification strategy being employed by one of our large lower margin resellers.
But it also importantly reflects the continued strong performance that we expect in our higher margin operating segments.
I'll state the obvious from a math standpoint, but this is the first quarter with a combined gross profit from our higher growth and higher margin <unk> and enterprise segments totals more than the gross profit of the SMB segment simply.
Simply put our business and the related mix of profit pools has evolved and not all revenue is created equal.
So we will continue to invest our capital, both human and financial and products and markets that we believe will create significant shareholder value.
With that I'll now turn the call back over to Tom for his closing comments.
Thank you Tim.
As we conclude our third quarter review I wanted to take a moment to reflect on the execution of our vision for a unified commerce.
And a multiyear planning and work that underpins our consistently strong performance.
For those of you who have participated on these calls in the past few years and certainly if you work at priority.
You've likely heard me share my belief that the decisions of the past or.
Are the architects of our present.
I would like to offer a brief reminder of a handful of the decisions that we emphasize to investors.
In 2020.
Amidst the height of the pandemic, we noted that and I'm quoting.
We have and will continue to target growth in countercyclical assets.
Where businesses look for revenue in down markets.
And cash acceleration has more value.
And we are managing our business several quarters ahead by building a platform to maintain stability and growth through.
Through various business cycles.
That is a one stop shop for companies looking to monetize payments and acquiring and issuing without the headaches of managing payment operations client service risk.
Underwriting and compliance.
And again following the acquisition of our banking as a service assets in 2020. One we stated that 'twenty, one would be regarded as priorities year of transformation.
When we realize our emergence as a payments powerhouse.
With a meticulously curated platform to collect store and send money.
That would deliver differentiated products to our business channels.
As the economic downturn unfolded in 2022.
What we had anticipated and planned for became a reality.
Our strategy to remain lean.
And position, our innovative agile technology to leverage the combination.
Of traditional and counter cyclical assets performed as expected.
Delivering nearly 29% topline and 45% bottom line growth.
Our foresight allowed us to continue to accelerate our initiatives and new revenue channels.
That are early in the conversion to embedded finance and unified Commerce solutions.
That positioned us to benefit.
From higher interest rates.
And the inflationary environment.
Now I highlight these decisions of the past.
Because I would submit that first.
It's time that priority be recognized as an organization that operates.
With superior vision and is built to last.
And second.
And we're delivering on the promise of unified commerce with clear and sustainable financial performance as evidenced in our quarterly results.
Throughout tumultuous economic environments like the pandemic and today.
And last.
So we've invested thoughtfully in technology and build scalable operations and financial resources that will continue to outperform.
As market demands evolve.
Simply put.
Regardless of investment disclaimers that say otherwise.
Past performance is a predictor of future results.
In closing.
I want to share a short anecdote that I believe is informative of the culture at priority.
We have a tradition each Monday.
For one of our now 990 team members to share reflection.
What we call a Monday morning motivation.
And they share with the entire company.
Last week submission came from one of our UI UX designers.
Yeah hobby that speaks to who we are as an organization.
She shared.
We honor the dream.
By doing the work.
Priority is on a mission to change how businesses of all types and sizes think about the movement of money and their expectations for cash acceleration reconciliation and supply city.
From their payment and banking partners.
Our entire team is dedicated to our mission and honors our goals each day.
By doing the work.
I want to say, thank you to our dedicated team of priority for delivering again this quarter and throughout 2023.
And thank you to our investors and analysts for your ongoing support.
Operator.
We'd now like to open the call for questions.
We will now begin the question and answer session.
I'll ask a question you May press Star then one on your Touchtone phone. If you are using a speaker phone. Please pick up your handset before pressing the keys and withdraw from the question queue. Please press Star then two.
First question is from Michael Perito of <unk>. Please go ahead.
Hey, guys. Thanks for having me on the call and taking my questions.
Yeah.
Absolutely I wanted to.
I wanted to start.
So I'd say all in Las Vegas, a couple of weeks ago for money 2020, and I felt like there was a lot of.
A lot of conversations around kind of margins and pricing in the payment space B to B enterprise SMB merchant acquirer you name it.
And I was just wondering maybe if you guys could.
Provide some context around kind of how is the.
Pricing dynamics in your business are trending and how the unified Commerce approach has maybe helped insulate you guys a little bit from some of the pressures that that you know some of your peers are are clearly seeing an N speaking to.
Yes sure.
Michael you know by the way great Great question and like this is the.
Yeah. This is this is what unified commerce is designed to address right at the end of the day customers of all sizes, whether you want to talk about the SMB market or looking up market.
Kind of more middle market and even enterprise customers.
There's a wallet share if you will.
Hum.
You know what we've been very successful at.
<unk>.
I'll I'll I'll think about it.
From our resellers.
Standpoint, what's are recognizing a priority is that.
Payments.
He is about more than card acceptance.
It's about certainly part of it card acceptance or I'll call. It digital revenue acceptance, whether it's car T C H.
But I want to re disposition that money to actually help my business grow and party gives you all the tools to do that.
Because when you get a.
While we're while we're doing that work it makes itself into and it makes its way into our router Bowl FDIC insured bank account, where you could use that money quickly to pay vendors through virtual card.
Or you can use that using plastic.
With your existing credit to maybe capture early pay discounts and pay vendors who won't accept card.
But get a benefit nonetheless, because you'll have a cashback card and you're generating an early pay discount and the funds can get resolved too you.
You know youre pay either way they want them.
So.
Those are the.
The types of elements, we're bringing into you know what.
Seamless experience across our channels did just make doing business with priority.
At a revenue proposition.
Not just for the customer, but also for our our reselling channels that are the beneficiaries of.
One a more loyal customer, which is why our attrition so low.
And to.
Hey.
Additional sources of.
Really just earnings from services being provided.
That's why you know when you when you.
When you look at the composition and I think Tim alluded to this.
Of our of our gross profit.
More than 50% of it now is coming from services unrelated to I'll call It transaction volume.
Okay.
That's helpful. Yeah.
It's an interesting time and I think it's a good time to kind of have a.
A different approach to.
Growing, especially outside of transactional volumes I guess, if we tried to kind of bridge that to some of the financials. I know you guys arent really yet providing a ton of color on 'twenty four but based on the dynamics of what you're seeing today and particularly.
Some of the good trends in enterprise and B to B I mean is the expectation still I mean is it fair for US there would be kind of thinking about double digit topline and bottomline is as we think about the maybe the intermediate term or or would you guys qualifier or or change that at all.
Yeah, I would say that that is a fair expectation.
We are too.
Offer an opinion on the current guidance that is in the market you know I would say it's a.
The very low end reflection of the trend of the business.
And.
One of the.
The mix of our business and the.
You know frankly, just the rapid adoption of our passport commerce platform.
By large enterprise partners.
<unk>.
We would like to have a a very keen.
Appreciation and expectation of conversion.
Before we.
All I'll say offer the 2024 guidance, that's why I've been we've been evaluating because it dramatically changes the picture.
And we don't want we don't want to.
Be inaccurate.
That's helpful. Yeah, No that's helpful contracts on both sides. So I appreciate that and then just lastly for me maybe for Tim.
The enterprise segment can.
Can you maybe.
Give us a little bit more inside baseball on how you know I mean, who knows what the macro is going to do in 'twenty, four but presumably I mean uprights that's been beneficial for this business can you maybe.
Provide a little context about what some of the puts and takes are around rates on the enterprise revenue trajectory, both kind of just on an absolute basis, but also on the on the margins.
Sure happy to so obviously, the the right components, where we earn interest income on the deposit balances.
In that business, you know that flows through at effectively 100% margins right. It's a it's a straight flow through so you know.
That revenue in total interest income across the franchise for the quarter was just under $10 million.
Roughly six of that was attributable to the enterprise segment right. So if you took the the balance of the revenue in an enterprise.
A lot of that still flows through at very high margins as well right to Tom's point you have.
A high percentage of that revenue is monthly recurring revenue, that's not volume or transaction dependent. So it is a highly recurring highly valuable revenue stream that now is just north of 50% of our of our gross profit.
So I think while we've got some way to the interest income I think we're already pretty balanced with the other types of fee income we are generating across the business.
Great Perfect I appreciate you guys Oh, sorry go ahead.
I would submit to you as well just on that topic, we're still early innings.
In.
Taking that capability and pushing it into the SME vertical.
Right right. So there's a lot of volume growth opportunity still you would say kind of regardless of where rates are yes, yes, that's exactly right. The other thing I would just note about it and the way we're positioned in that segment. We have a lot of assets that have come onto the platform our call a lot of partners that have come onto the platform.
That.
Let's just say a decline in rates would indicate some probably economic softening.
Which would further increase.
Adoption.
So there is some of your point that you can pull levers to it.
The rate benefit might not be as great, but it's not necessarily like a dollar for dollar drop it if that's the case.
That's right because youll, just see youll see some more onboarding trends. It would you know that would increase and then like I said, we're still early innings in and just the rollout to the other segments of the embedded financial tools and their capabilities. So.
<unk>.
Which is look I just going back to your initial question about guidance right, we want to get some adoption you know.
Our expectations and trends.
Which would give us better insight as to how we want to.
No.
Think about those metrics for 2024.
But.
Our current our current guidance as you know I'll say, it's built for failure Gnostics, Yeah makes sense and I. Appreciate you guys, taking all my questions and I'll, let someone else jump in but thanks. Thanks a lot.
Thanks, Mike.
Okay and if you have a question. Please press Star then one next question is from how gets B Riley Securities. Please go ahead.
Hey, good morning, guys, and it's really good quarter and interesting commentary related to Peel back on on Plastique, It really seemed to lending.
Huge benefit.
Yeah.
The <unk> segment and you guys broke even in that segment.
I wanted to delve into the path. He was a couple of bankruptcy you quickly gotten this whole segment.
To basically breakeven I wanted to know what are the.
What are the things you guys did to make that happen.
Sure Hi, Al It's Tim I'll jump in on that so yeah, I think as we indicated last quarter.
We expect it to get that business to cash flow profitability and EBITDA profitability in the first quarter of 2024.
Submit that where we're running ahead of that pace given some of the actions we've taken in a lot of it is the ability to bring companies like plastic and others into the broader priority franchise and we use the term operational operationalize some of the business and you'll find efficiencies across the infrastructure and the team.
We have in place. So we've we've been able to do that really reduced a lot of the operating costs in that business. So far we havent really ramped up the marketing spend.
And the go to market for that business, yet so there might be a little bit of increase in cost in the business in Q4, but nominally so but I think we're very pleased with the effort. So far from a cost standpoint, and then on the the revenue side of the equation there.
There's still a lot of levers to be pulled and we havent, we havent fully pulled all the levers that we expect to in that business to really drive the topline growth.
But even what I would call somewhat baseline revenues that we had in Q3, we got that business to effectively almost breakeven EBITDA.
Okay.
Terrific.
On SMB you know thanks for the color on on what it would have looked like.
Excluding.
Hmm.
The loss of the transition of the reseller is it.
Okay.
Is it safe to say, we should think about this as being kind of a headwind through well.
Q2 of next year, where you first started feeling those effects.
First when I'm, saying is there or is there.
More volume to come off and then also it's completely transitioned at this point.
Okay.
Couple of couple of things just to clarify.
We didn't lose the reseller they remain a reseller.
And there I would submit their boarding trends have.
Certainly stabilize to increase stabilized.
The <unk>.
They were going through a diversification, which.
Which by the way and I mentioned this previously we wouldn't.
Couldn't blame them for it it was <unk>.
Given their evolution it it made some sense.
That being said.
What we have seen is a considerable increase of adoption.
Although our reseller community, we've already signed a 116 new resellers.
On this year through the first nine months.
That would compare with our full year last year of 70.
So again coming back to this.
Collects.
What I will call now collect store borrow and send capability.
At our resellers benefit from with priority.
The adoption has been very very strong with folks just recognizing your portfolio is worth more a priority.
It's just a fact, because there's more ways.
To help your customers and generate fees off things they are doing.
Every day.
Less efficiently with other parties like.
Pay their bills.
Store their money.
Borrow money you know maximize our working capital those those types of things so we're actually.
On our newer agreements were just seeing the benefit of.
Of our better margins.
Great terrific. Thank you.
Yeah, and how just adding on to that just to your question on the impact for the next couple of quarters I.
I think if that business continues at its current rate, we will definitely see some headwinds in Q4 and into Q1 of next year that will moderate certainly into Q2 of next year, but I think the the profitability impact of that as I've mentioned in our prepared remarks is is somewhat limited. So I think it was more of a revenue impact.
You've seen us increase EBITDA guidance. So we're we're reflecting the impact of both of those in our guidance for the year.
Thank you.
The next question is from Brian Chin Slinger Alliance Global Partners. Please go ahead.
Great. Thanks, so much for taking my question.
She'd been adding 12000 merchants per month for the last two quarters from the 14 to 15000.
Before the change at this reseller as you look at the size and capabilities of your new resellers I missed the number maybe you could give it again that were added recently.
Recently do you expect to get back to that 15000 or above and as you look at those new resellers.
Will you be staying in your lanes with I mean do they focus on the same verticals or are they bringing on from different verticals that you are not quite as experienced in or one or does it change the risk profile at all.
Sure the comment on a few things and then maybe we can.
Clarify the math, a little bit so first off composition.
These are actually Theyre, just higher margin resellers than let's say the related to the to the merchant migration that occurred with the current reseller.
It is important to note as far as the what we will say the boarding trends, which you referenced.
Those are those are actually.
Quite.
Quite similar but that hasn't really changed much.
The net impact you're reflecting.
As a result of that.
The migration of the reseller and those merchants. It is the net impact of the new merchants added.
And the merchants that were migrated.
To their alternative platform does that make sense.
Yeah, So what you're saying is merchants are leaving as opposed to you are not acquiring as many because of the reseller not bring.
Bringing more to you it's more of a migration issue.
Exactly so it's existing so youre seeing the net at a much lower back yeah exactly exactly so the boarding trends each month.
Pretty stable with where they've been historically.
Okay.
And then as you look at these can you give me the reseller number you added again and do you expect that to accelerate the merchant count than from the 14 or 15000 that you're probably at <unk>.
Adjusted for that retailer.
You know.
Remains to be seen we think there'll certainly be a.
A modest impact upward.
It was 116 that have been added.
Year to date.
And that was <unk> 70 last year for the full year is that what you said 70 for the full year Yep Yep.
Yes.
Okay. Thank you.
And look I would submit to you Brian the more impactful thing and the thing that we're focused on with our resellers is the recognition of.
There's just more opportunity just within your existing merchant base.
Alright, there's there's these opportunities to harvest that.
No one's providing these customers.
Bill pay.
Opportunities for vendor spend management, where they can make incremental.
Incremental revenue.
Better optimize their working capital.
Use priorities tool to accelerate there there.
Their cash flow by using our our passport.
Financial platform and what that actually does for people, Brian put a fine point on it. So you can appreciate this adder.
That kind of a more genetic level.
Customers that are on our gateway.
Have their funds reflected in their passport account in five minutes or less.
If you're not a gateway, but a processing customer.
Youre getting that within the same day typically 12 hours.
Now think about that if you're running a restaurant on the weekend.
More often if youre on a weekend like in a traditional setting you're not seeing that money for two to three days.
Because the banks not open on the weekend, but priority is.
So we're able to give people access to their money.
And ways to use it to pay vendors and negotiate better terms.
That are really meaningful, particularly in this economic environment, and that's where we're going like I said, we call. It a unified commerce experience.
That's what customers expect now.
You add to that the ability to you know take that money and.
Push it out to our salon worker on a on a passport accounting or push the tips out to your servers on a path forward account and now they can go out and spend and generate additional kind of interchange revenue that that comes to everyone in that ecosystem. It's just a different model.
And it's a fintech model, it's not a it's not a merchant acquirer and model.
And that's.
That's a big part of the message, we're trying to trying to get people to recognize to different machine to house. Early question. It's why we synergize things like plastic exceedingly well exceedingly quickly were built.
To optimize the performance of software and payment assets.
And.
The results speak for themselves.
We can point to and other examples, but we do it well because we're very intentional about it and you know this company.
If I could say it is purely is this just like we just have something to prove.
And everyone here thinks that way.
Great. Thank you.
The next question is from Natasha Aten DGA. Please go ahead.
Hi, good morning.
You mentioned that the gross margin decline in the <unk> segment was related to the addition of Patrik and how they need to report their financials differently from a GAAP standpoint, compared to the rest of the BW.
Could you please explain that further in lights treated differently.
Thank you Troy and Hitachi.
Wanted to explain that last quarter as we acquired plastic and some of the different GAAP requirements, but I've got the benefit of sitting here next year Rajeev Kumar, who is our chief accounting officer, who does a fantastic job for us. So I may let him try to answer that a little bit better this quarter and see if we can.
Dispel some of the concerns out there in the market on that those gross margins.
Thanks, Tim.
Plastic on the business model is that they are merchant of record in the <unk> since we had that accepting payment. So they collect the gross fee is a principal and then the pain does change.
<unk> card networks on their service providers and that is a GAAP required in that scenario that revenue should be recognized.
Ross and all the interchange payments would be recognized as cost of services, whereas if you compare that against our merchant acquiring business. There we collect fee from the customers of module onto a card and then we settled them on their behalf and therefore, they are not our fee that vendor changes in what our experience and therefore, we have to do that netting that would.
So hopefully that answers the question, but he will differentiate that plastic is a merchant of record and all the transactions that they're processing and therefore, we are required to record the revenue and the cost basis.
Okay.
Yeah, So I'll touch on that.
The net effect there is that the the margins for the plastic business.
Look lower but on a transaction basis.
The revenue as we would think about it maybe apples to apples to other parts of our business.
Gross profit more approximates the revenue of plastic if it was looked at the same way as the rest of our business that's correct.
Thank you Barak.
This concludes our question and answer session I would like to turn the conference back over to Tom Priore for closing remarks.
Alright, well I.
I hope everyone has an excellent weekend I want to just thank everyone for taking the time to.
To follow our story.
<unk> learned more about where we're headed as a business.
We look forward to continuing to deliver for our investors.
And.
Rest assured we've got a very dedicated team.
You know hopefully it's starting to.
Be very clear to folks.
We're laser focused on on on performing so thank you everyone have a great afternoon, and and a terrific weekend.
And given we're not going to speak to everyone for awhile fans.
Fantastic Thanksgiving and holidays.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.