Q4 2023 Priority Technology Holdings Inc Earnings Call
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Operator: www.prioritytech.com Good day, and welcome to the Priority Technology Holdings fourth quarter and 2023 earnings conference call. All participants will be in a listen-only mode.
Good day and welcome to the priority Technology Holdings fourth quarter, and 2023 earnings Conference call.
All participants will be in a listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero.
Operator: Should you need assistance, please signal the 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 1 on your touchtone phone, and to withdraw your question, please press star then 2.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your Touchtone phone and to withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Mr. Chris kept Min. Please go ahead Sir.
Operator: Please note this event is being recorded. I would now like to turn the conference over to Mr. Chris Kettmann. Please go ahead, sir.
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.
Chris Kettmann: 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 OLeary, Chief Financial Officer. Before giving 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 these forward-looking statements, whether as a result of new information, future events, or otherwise.
Before giving 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 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.
Chris Kettmann: 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. 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.
Additionally, we may refer to non-GAAP measures, including but not limited to EBITDA and adjusted EBITDA during the call.
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 fourth quarter and full year 2023 earnings call.
Thomas Charles Priore: And thanks, everyone, for joining us for our fourth quarter and full year 2023 earnings. I'd like to start today by discussing the continued positive trends we're currently seeing in the business, as well as several important developments at Priority, including the successful integration process of our August Acquisition of Plastics. As a result of these trends and developments, we're excited to report the strongest results in our history, and we are well positioned to perform even better in 2024 and beyond. Consistent with what we saw through the first nine months of the year, during the fourth quarter, we delivered strong results in SMB acquiring, B2B payables, and enterprise payments. We remain convinced in the potential of our unified commerce vision, combining payments and banking functionality on a single platform, accelerated by the strength of our diverse business lines that we're positioned to benefit from higher interest rates and to perform in a variety of macroeconomic environments, including the one we're experiencing. Total customer accounts operating on our commerce platform now exceed 860,000, as we processed approximately $120 billion in transaction volume during 2023, while administering. $900 million in deposits at the end of 2023.
I'd like to start today by discussing the continued positive trends. We're currently seeing in the business as well as several important developments that priority, including the successful integration process.
Of our August acquisition of plastic.
As a result of these trends and developments we're excited to report the strongest results in our history.
And we are well positioned to perform even better in 2024 and beyond.
Consistent with what we saw through the first nine months of the year.
During the fourth quarter, we delivered strong results in F N b acquiring PDP payables and enterprise payments.
We remain convinced in the potential of our unified Commerce vision, combining payments and banking functionality on a single platform accelerated by the strength of our diverse business lines that we're positioned to benefit from higher interest rates and to perform in a variety of macroeconomic environments, including the one we're experiencing today.
Total customer accounts operating on our commerce platform now exceed 860000 as.
As we processed approximately 120 billion in transaction volume during 2023.
While administering.
900 million in deposits at the end of.
2023.
Yeah.
Thomas Charles Priore: Looking at our financials, we maintained our positive momentum with strong results in the fourth quarter. Our Q4 revenue of $199.3 million increased by over 12% from the prior year. This led to a 20% increase in adjusted gross profit, $72.9 million, and a 12% improvement in adjusted EBITDA to 44.6%. Adjusted gross profit margin of 36.6% increased 230 basis points from the prior year quarter, highlighting the strong operating leverage of our purpose-built platform. For the full year 2023, revenue increased 14%. $755.6 million, leading to a 21% gain in adjusted gross profit to $275.3 million, combined with a 220 basis point increase in adjusted gross profit margin during 2023. We generated a 20% increase in adjusted EBITDA over the prior year.
Looking at our financials, we maintained our positive momentum with strong results in the fourth quarter.
Our Q4 revenue of $199 3 million increased over 12% from the prior year.
This led to a 20% increase in adjusted gross profit of $72 9 million and.
And a 12% improvement in adjusted EBITDA to $44 6 million.
Adjusted gross profit margin of 36, 6% increased 230 basis points from the prior year quarter, highlighting the strong operating leverage of our purpose built platform.
For the full year 2023.
Revenue increased 14% to <unk>.
$755 6 million.
Leading to a 21% gain in adjusted gross profit to $275 3 million.
Combined with a 220 basis point increase in adjusted gross profit margin during 2023 to 36, 4%.
We generated a 20% increase in adjusted EBITDA over the prior year.
As you can see from our results and the strong guidance, we put out this morning.
Thomas Charles Priore: As you can see from our results and the strong guidance we put out this morning, not only did we outperform expectations in 2023, but we also expect strong growth and margin trends in our business channels to continue in the year ahead. We project to deliver full year revenue of $875 to $890 million, an increase of approximately 16 to 18 percent over 2023. In addition... We expect to generate full year adjusted EBITDA of $193 to $198 million, a 15 to 18 percent increase over 20. Our confidence reflects the value our customers see in our product and technology offerings, the strength of our diverse sales channel performance, and the efficiency of our operating teams that continue to deliver.
Not only did we outperform expectations in 2023.
Well, we also expect strong growth and margin trends in our business channels to continue in the year ahead.
We project to deliver full year revenue of 875 $890 million.
An increase of approximately 16% to 18% over 2023.
In addition.
We expect to generate full year adjusted EBITDA of 193 to 198 million.
15% to 18% increase over 2023.
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 continue to deliver.
Fueling our strong outlook, we expect the plastic b to B channel to be an important growth driver in the business as demonstrated by the success, we're seeing so far.
Thomas Charles Priore: With our strong outlook, we expect the plastic B2B channel to be an important growth driver in the business, as demonstrated by the success we're seeing so far. Since closing on August 1st, our teams have focused on synergizing operations and embracing revenue growth initiatives, mitigating drag on EBITDA from the acquisition, and demonstrating once again that we are uniquely built to systemically absorb, and operate Software and Payment Assets to Quickly Drive Profit. For those of you who are new to the company, slide 6 highlights the architecture of our proprietary Unified Commerce platform that is purpose-built to collect, store, lend, and send money. Combining robust payments and banking functionality, monetize the commerce network.
Since closing on August 1st our teams have focused on <unk> operations and embracing revenue growth initiatives.
Mitigating drag on EBITDA from the acquisition and demonstrating once again that we are uniquely built to suit.
Stomach Lee absorb.
And operate software and payment assets to quickly drive profits.
For those of you who are new to the company slide six highlights the architecture of our proprietary unified Commerce platform that is purpose built to collect store lend and send money combined.
Combining a robust payments and banking functionality monetize the commerce networks, we serve.
Our customers and current market conditions continue to reinforce our belief.
Thomas Charles Priore: Our customers and current market conditions continue to reinforce our belief that systems combining features of both payments and banking to distribute funds in multi-party environments will be critical as businesses put greater demands on software and payment solution providers to accelerate Cash Flow, and Optimize Working. We're committed to meeting our customers' expectations by refining the experience of our partners, to make working with Priority as seamless and simple as we can. Our performance illustrates that partners consistently choose the Unified Commerce Application in the SMB, B2B payables, and enterprise segments that best fit their business. Adopt the Passport financial tools that meet their needs and move their money with priority. We are highly focused on the continued innovation of our SaaS payment suite of services and the Passport Commerce Engine and are eager to meet the evolving needs of our growing portfolio of customers. At this point,
That systems, combining features a bulk payments and banking to distribute funds and multiparty environments will be critical as businesses put greater demands on software and payment solution providers to accelerate cash flow and optimize working capital.
We're committed to meeting our customers' expectations by refining the experience of our partners.
Working with priority as seamless and simple as we can.
Our performance illustrates that partners.
Assistant we choose the unified commerce applications and E F N B BW payables and enterprise segment that best fit their business.
The passport financial tools that meet their needs and move their money with priority.
We are highly focused on the continued innovation of our SaaS payment suite of services and the passport Commerce engine.
And are eager to meet the evolving needs of our growing portfolio of customers.
At this point I'd.
Tim OLeary: I'd like to hand it over to Tim, who will continue to provide further insight into our segment-level performance during the quarter and the year, along with current trends in each that have been factored into our guidance for the full year 2024. Thank you, Tom, and good morning, everyone. As I review the results, please refer to the supplemental slides or the MD&A for further detail. Our MD&A is included in the Form 10-K that was filed with the SEC this morning and provides a discussion of our comparative fourth quarter and full year results. A link to that filing can also be found on our website. As Tom mentioned, we had strong financial performance across the business in the fourth quarter and for the full year. I won't repeat the highlights, as I already did, ref.
I'd like to hand, it over to Tim who will continue to provide further insights into our segment level performance during the quarter and the year along with current trends in each that's factored into our guidance.
Full year 2024.
Thank you Tom and good morning, everyone.
As I review the results please refer to the supplemental slides or the MD&A for further details.
Our MD&A is included in our Form 10-K that was filed with the SEC. This morning and provides a discussion of our comparative fourth quarter and full year results are linked to that falling can also be found on our website.
As Tom mentioned, we had strong financial performance across the business in the fourth quarter and for the full year.
I won't repeat the highlights already referenced but before I go into segment level results for the fourth quarter I do want to mention a few other key metrics as it relates to some of the discussion we had on our Q3 earnings call.
Tim OLeary: But before I go into segment-level results for the fourth quarter, I do want to mention a few other key metrics as they relate to some of the discussion we had on our Q3 earnings call. For the full year, adjusted gross profit from our B2B and enterprise segments represented over 50% of total, while for the fourth quarter, that same figure was 57%, as we continue to experience higher growth in our higher margin operating segments. Recall that Q3 was the first quarter where the combined profitability of B2B and enterprise exceeded S&B. In addition, the highly visible and recurring nature of our business model continues to gain momentum, as over 58% of adjusted gross profit in Q4 came from monthly fees or revenues that are not dependent on transactions or bank card volumes. Moving now to the segment level results, starting with the S&B segment on slide 8.
For the full year adjusted gross profit from our B to B and enterprise segments represented over 50% of total.
For the fourth quarter that same figure was 57% as we continued to experience higher growth in our higher margin operating segments.
Recall that Q3 was the first quarter, where the combined profitability of B to B and enterprise exceeded SMB.
In addition, the highly visible and recurring nature of our business model continues to gain momentum as over 58% of adjusted gross profit in Q4 came from monthly fees or revenues that are not dependent on transactions or bank card volume.
Moving now to the segment level results and starting with the S&P segment on slide eight.
Tim OLeary: S&B generated Q4 revenue of $139.9 million, which is $9.9 million or 7% lower than the prior year's fourth quarter. As discussed on prior calls, a large reseller partner started to diversify their activity, and we expected that diversification strategy to continue throughout 2023. If you look at the year-over-year impact of that shift on the Q4 results, it was an almost $18 million headwind to revenue. Excluding that impact, the S&B business experienced over 5% revenue growth. Vanguard dollar volume in S&B was $14.6 billion for the quarter, which is down 2% from $14.9 billion in the prior year.
S&P generated Q4 revenue of $139 9 million, which is $9 9 million or 7% lower than the prior year's fourth quarter.
As discussed on prior calls a large reseller partners started to diversify their activity and we expected that diversification strategy to continue throughout 2023.
If you look at the year over year impact of that shift on the Q4 results. It was an almost $18 million headwind to revenue.
Excluding that impact the F&B business experienced over 5% revenue growth.
Bankcard dollar volume in SMB was $14 6 billion for the quarter, which is down 2% from 14.9 billion in the prior year. However, adjusted for the aforementioned reseller Bankcard dollar volume increased 7% in the quarter compared to the prior year.
Tim OLeary: However, adjusted for the aforementioned reseller, Vanguard dollar volume increased 7% in the quarter compared to the prior year. From a merchant standpoint, we averaged over 205,000 accounts during the quarter, lower than the 257,000 average in Q4 of 2022. And new merchant boards averaged $3,700 per month during the quarter compared to an average of $4,600 per month in last year's fourth quarter.
From a merchant standpoint, we averaged over 205000 accounts during the quarter.
Lower than the 257000 average in Q4 of 2022.
And new merchant boards averaged 3700 per months during the quarter compared to an average of 4600 per month from last year's fourth quarter.
Adjusting for the impact of the large reseller the average number of merchant accounts during the quarter improved by 4300, and the average number of new merchant boards increased by 300 per months.
Tim OLeary: Adjusting for the impact of the large reseller, the average number of merchant accounts during the quarter improved by 4,300, and the average number of new merchant accounts increased by 300 per month. As a last point on this topic, I would highlight that the diversification activity with the large reseller concluded in Q4, so while we expect a related year-over-year impact in Q1 and Q2 of 2024, as of the anniversary of that change, the sequential quarters should not see a comparative headwind. Adjusted gross profit in S&P for the fourth quarter was $31.6 million, which is $4.4 million lower than last year's fourth quarter.
As a last point on this topic I would highlight that the diversification activity with a large reseller concluded in Q4, so while we expect the related year over year impact in Q1, and Q2 2024, as we anniversary of that change the sequential quarters should not see a comparative headwind.
Adjusted gross profit in SMB for the fourth quarter was $31 6 million, which is $4 4 million lower than last year's fourth quarter.
Tim OLeary: The 12% decline was partially impacted by lower volumes and revenue from the large reseller, but given its lower margin, that resulted in a modest $1 million reduction in gross profit. The quarter is also reflective of a shift in the mix of volume, revenue, and related gross profit from our top reselling partners, who operate with higher commission rates. Gross margins of 22.6% in the quarter were down from 24% last year for the same reason.
The 12% decline was partially impacted by lower volumes and revenue from the large reseller, but given its lower margin that resulted in a modest $1 million reduction in gross profit.
The quarter is also reflective of a shift in mix of volume revenue and related gross profit from our top reselling partners cooperate with higher commission rates.
Gross margins of 22, 6% in the quarter down from 24% last year for the same reason.
Lastly for F N b.
Tim OLeary: Lastly, for SMB, quarterly operating income of $11.1 million represents a $3.8 million decline from $14.9 million in the prior year's fourth quarter. Operating income was negatively impacted by the factors already discussed in gross profit. Moving to B2B, revenue of $21.2 million was an increase of $18.4 million from the prior year. Plastic, which joined Priority on August 1st, contributed $17.5 million of the increase during the quarter, while CPX grew by $1.4 million, or 57% on a year-over-year basis. However, those increases were partially offset by a $300,000 reduction in the balance of the B2B business.
Quarterly operating income of $11 1 million represents a $3 $8 million decline from $14 9 million in the prior year's fourth quarter.
Operating income was negatively impacted by the factors already discussed and gross profit.
Moving to be to be revenue of $21 2 million was an increase of $18 4 million from the prior year plastic which joined priority on August 1st contributed $17 5 million of the increase during the quarter. While C. P X grew by $1 4 million or 57% on a year over year basis.
Those increases were partially offset by a $300000 reduction in the balance of the VW business.
Adjusted gross profit and B to be increased to $5 3 million as a result of the plastic acquisition combined with over 60% growth in gross profit for the Cps business.
Tim OLeary: Adjusted gross profit in B2B increased to $5.3 million as a result of the plastic acquisition, combined with over 60% growth in gross profit for the CPX business, with a quarter gross margin of 24.9% compared to 62.1% last year. But, as discussed in our third-quarter earnings call, that decline is fully attributable to the plastic acquisition and the related impact of the GAAP reporting requirements for the plastic business compared to the balance of the B2B cycle, which results in lower reported margins per unit of volume. The B2B segment produced a $1.7 million operating loss during the quarter, which was the result of increased operating expenses for plastics, including certain non-recurring compensation expenses.
For the quarter gross margins were 24, 9% compared to 62, 1% last year, but as discussed in our third quarter earnings call that decline is fully attributable to the plastic acquisition and the related impact of the GAAP reporting requirements. So the plastic business compared to the balance of the B to B segment, which results in lower reported.
Margins per unit of volume.
The PDP segment produced a $1 $7 million operating loss during the quarter, which was the result of increased operating expenses from plastic including certain nonrecurring compensation expense.
Moving to the Enterprise segment Q4 revenue of $38 1 million was an increase of $13 3 million or 53% from $24 9 million in the prior year.
Tim OLeary: Moving to the enterprise segment, Q4 revenue of $38.1 million was an increase of $13.3 million, or 53%, from $24.9 million in the prior year. Favorable trends from the past several quarters in new monthly enrollments and build clients, combined with an increase in the number of passport program managers, growth in deposit balances, and the higher interest rate environment, all contributed to strong revenue growth. As a result of those factors, adjusted gross profit for the enterprise segment increased by 55% to $36 million, while adjusted gross profit margins improved to 94.5% in the quarter. Operating income was $23.9 million for the enterprise segment.
Favorable trends for the past several quarters and new monthly enrollments and build clients combined with an increase in the number of passport program managers growth in deposit balances and the higher interest rate environment, all contributed to strong revenue growth.
As a result of those factors adjusted gross profit for the enterprise segment increased by 55% to 36 million, while adjusted gross profit margins improved to 94, 5% in the quarter.
Operating income was $23 9 million for the quarter and the enterprise segment.
Moving to consolidated operating expenses on slide 11.
Tim OLeary: Moving to Consolidated Operating Expenses on slide 11, salaries and benefits of $21.7 million increased by $4.8 million, or 29%, from Q4 of last year. That was only $1.6 million higher sequentially than Q3, as we continue to focus on maintaining our expense discipline. Compared to the Q3 levels, the $1.6 million sequential increase was partially attributable to the full quarter impact in Q4 of the acquisition of Plastics, combined with higher bonus and benefit expenses in the quarter. We finished the quarter with approximately 980 employees, which is compared to approximately 870 at the end of 2022 and 990 at the end of Q3, 2023.
Salaries and benefits of $21 7 million increased by $4 8 million or 29% from Q4 of last year, but that was only 1.6 million higher sequentially than Q3, as we continue to focus on maintaining our expense discipline.
Compared to the Q3 levels the $1 6 million dollar sequential increase was partially attributable to the full quarter impact in Q4 of the acquisition of plastic combined with higher bonus and benefit expenses in the quarter.
We finished the quarter with approximately 980 employees.
Which as compared to approximately 870 at the end of 2022 and 990 at the end of Q3 2023.
SG&A of $14 1 million increased by $6 1 million from $7 9 million in Q4 2022.
Tim OLeary: SG&A, at $14.1 million, increased by $6.1 million from $7.9 million in Q4 2022. The year-over-year increase was due primarily to the acquisition of plastics in Q3, combined with non-cash restructuring costs related to discontinued operations for part of our healthcare payments business, legal fees for certain non-recurrent litigation matters, and an increase in third-party software costs. However, appreciation and amortization of $15.1 million for the quarter decreased by $2.9 million from the comparable quarter last year. Moving to the next slide, adjusted EBITDA for the quarter was $44.6 million, which was an increase of 12% from $39.8 million in Q4 of 2022. Interest expense of $20.6 million for the quarter increased to $4.4 million from Q4 2022 levels as a result of acquisition-related debt increases in the quarter combined with the impact of the higher interest rate environment.
The year over year increase was due primarily to the acquisition of plastic in Q3, combined with noncash restructuring costs related to discontinued operations for part of our health care payments business.
Legal fees for certain nonrecurring litigation matters and an increase in third party software costs.
Depreciation and amortization of $15 1 million for the quarter decreased by $2 $9 million from the comparable quarter last year.
Moving to the next slide.
Adjusted EBITDA for the quarter was $44 6 million, which was an increase of 12% from $39 8 million in Q4 of 2022.
Interest expense of $20 6 million for the quarter increased $4 4 million from Q4 2022 levels as a result of acquisition related debt increases in the quarter combined with the impact of the higher interest rate environment.
Moving to the capital structure and liquidity overview on page 13.
Debt levels during the quarter increased to $654 4 million, which was driven by the issuance of $50 million of incremental term loan borrowings in the quarter.
Tim OLeary: Moving to the Capital Instructional Liquidity Overview on page 13, debt levels during the quarter increased to $654.4 million, which was driven by the issuance of $50 million of incremental term loan borrowings during the quarter. Proceeds from the issuance were used to repay revolver borrowings from the plastic acquisition and to put additional cash on the balance sheet for general corporate purposes. Net debt of $614.8 million was higher by $300,000 compared to the balance at the end of Q3.
Proceeds from the issuance were used to repay revolver borrowings from the plastic acquisition and to put additional cash on the balance sheet for general corporate purposes.
Net debt of $614 8 million was higher by 300000 compared to the balance at the end of Q3.
From a liquidity standpoint, we ended the quarter with all 65 million of borrowing capacity available under our revolving credit facility and $39 6 million of unrestricted cash on the balance sheet.
For the LTM period ended December 31st adjusted EBITDA of $168 3 million represents $4 8 million of sequential quarterly growth from $163 5 million at the end of Q3 and $28 million or 20% growth since the end of 2022.
Tim OLeary: From a liquidity standpoint, we ended the quarter with all $65 million of borrowing capacity available under our revolving credit facility and $39.6 million of unrestricted cash on the balance sheet. The LTM period ended December 31st. Adjusted EBITDA of $168.3 million represents $4.8 million of sequential quarterly growth from $163.5 million at the end of Q3 and $28 million, or 20% growth, since the end of 2022. Preferred stock on our balance sheet totaled $258.6 million at December 31st and is net of $16.9 million of unaccreted discounts and issuance costs. The fourth quarter preferred dividend of $12.5 million consists of $7 million paid in cash and $4.6 million of a PIC component. This is supplemented on our income statement with the accretion of discounts and issuing costs of $850,000.
Preferred stock on our balance sheet totaled $258 6 million at December 31, and is net of $16 9 million of on accretive discounts and issuance costs.
The fourth quarter preferred dividend of <unk> 12, and a half million consist of 7 million paid in cash and $4 6 million of Pik component.
This is supplemented on our income statement with the accretion of discounts and issuance costs of 850000.
Before turning the call back over to Tom I wanted to further address our financial guidance for the full year of 2024, which can be found on slide 14 in the presentation.
Based on continued strong growth and trends in the business, we are forecasting 16% to 18% growth in revenue to a range of $875 million to $890 million for the year.
Adjusted EBITDA growth is forecast to be 15% to 18%, which would result in a range of $193 million to $198 million for the full year.
Given our prior comments on the margin variances in certain segments and even specific partnerships within the consolidated business. This year. We're also providing our guidance for adjusted gross profit, which we view as an important metric for measuring overall performance of the business since not all revenue is created equal.
Tim OLeary: Before turning the call back over to Tom, I wanted to further address our financial guidance for the full year of 2024, which can be found on slide 14 in the presentation. Based on continued strong growth and trends in the business, we are forecasting 16 to 18% growth in revenue to a range of $875 to $890 million for the year. Adjusted EVTA growth is forecast to be 15 to 18%, which would result in a range of $193 to $198 million for the full year.
For the full year, we're forecasting 18% to 22% growth in adjusted gross profit, which would result in a range of $325 million to $335 million.
Provide some color on the guidance by segment.
We're forecasting mid single digit growth in revenues from S. M B as we anniversary the impact of the large resellers diversification.
If you adjust for that impact we are forecasting low double digit revenue growth in SMB.
Tim OLeary: Given our prior comments on the margin variances in certain segments and even specific partnerships within the consolidated business, this year we are also providing guidance for adjusted gross profit, which we view as an important metric for measuring the overall performance of the business since not all revenue is created equal. For the full year, we are forecasting 18 to 22% growth in adjusted gross profit, which will result in a range of $325 to $335 million. Provide some color on the guidance by segment.
Vdb's topline growth will be skewed by the full year effect of plastic, which only had five months of results in 2023, but we also expect C. P X to show continued growth over 20% on a year over year basis.
Lastly, enterprise is forecast to continue its momentum, although we have moderated growth expectations in 2024 to account for the strong growth already experienced in 2022 and 2023.
With that I'll now turn the call back over to Tom for his closing comments.
Thank you Tim.
Tim OLeary: We're forecasting mid-single-digit growth in revenues from SMB as we anniversary the impact of the large reseller's diversification. If you adjust for that impact, we are forecasting low double-digit revenue growth in SMB. B2B's top line growth will be skewed by the full-year effect of plastics, which only had five months of results in 2023, but we also expect CPX to show continued growth over 20% on a year-over-year basis. Lastly, enterprise is forecast to continue its momentum, although we have moderated growth expectations in 2024 to account for the strong growth already experienced in 2022 and 2023. With that, I'll now turn the call back over to Tom for his closing comments. Thank you, Tim.
Before wrapping up I'd like to take a minute to discuss where priority is in our journey.
Everything we've done over the past several years from the significant early investment in our technology infrastructure.
So our focus on diversifying our offering with countercyclical assets.
Through our acquisition of plastic was done with intention and purpose.
Our customers win an elegant unified commerce experience, combining our pillars in acquiring payables and banking on a single platform.
Our results are demonstrating that we are achieving that goal.
Priority has made the turn to delivering tech enabled services that accelerate cash flow and optimize working capital.
Through our powerful commerce platform to collect store Linden send money.
Allowing us to approach the marketplace and acquiring payables and banking solutions in a very unique way.
Thomas Charles Priore: Before wrapping up, I'd like to take a minute to discuss where priority is on our journey. Everything we've done over the past several years, from the significant early investment in our technology infrastructure, to our focus on diversifying our offering with countercyclical assets, to our acquisition of Plastic, was done with intention and purpose, to provide our customers with an elegant, unified commerce experience, combining our pillars in acquiring, payables, and banking on a single platform. Our results are demonstrating that we're achieving that goal.
The success of our offering is evident not only in our growth numbers and margins, but also when talking to our customers and partners.
Well, we are outperforming our peers in todays market. Most importantly, a clear advantage we've created through our unique capabilities and style of engagement provides a long term runway with enormous upside.
Let me share one of the ways, we separate ourselves.
On slide six we've included a link to a video highlighting priorities passport product for the SMB and I S V.
Thomas Charles Priore: Priority has made the turn to delivering tech-enabled services that accelerate cash flow and optimize working capital through a powerful commerce platform to collect, store, lend, and send money. This allows us to approach the marketplace for acquiring payables and banking solutions in a very unique way. The success of our offering is evident not only in our growth numbers and margins but also when talking to our customers and partners. While we are outperforming our peers in today's market, most importantly, the clear advantage we've created through our unique capabilities and style of engagement provides a long-term runway with enormous upside. Let me share one of the ways we've separated.
Acquiring Chang.
I highly encourage you to watch the two minute video when you have a chance.
As it showcases how our commerce API can embed cutting edge finance application and optimize our customers' cash flow Dreamliner transaction reconciliation and optimize working capital.
Through passports linked to our <unk> merchant acquiring tools.
Customers can have access to their funds.
In minutes of their batch closures.
Even on weekends and holidays.
They can access bill payment tools did earn them cashback as they pay their bills.
Utilize embedded line credit as they need them and even investors surplus cash and money market Treasury, Bill and core bond funds.
Thomas Charles Priore: On slide 6, we've included a link to a video highlighting Priority's Passport product for the SMB and ISV. Acquiring Tech I highly encourage you to watch the two-minute video when you have it, as it showcases how our Commerce API can embed cutting-edge finance applications that optimize our customers' cash flow, streamline transaction reconciliation, and optimize work efficiency, through Passport's link to our MX Merchant Acquiring Tools. Additionally, customers can have access to their funds in minutes of their batch closure, even on weekends and holidays. They can access bill payment tools that earn them cash back as they pay their bills, utilize embedded lines of credit as they need them, and even invest their surplus cash in money market, treasury bill, and core bond funds.
While this short video primarily highlight the F N B use case, it's just one monetization opportunities.
Our technology is transferable across our current payable business line and our growing list of enterprise verticals like instruction investment management lending healthcare sports and entertainment and insurance among others.
Our decision in late 2022 to accelerate investment in passport is paying significant dividends, especially given the continued struggle over the banking sector and a general frustration and banks among businesses of all sizes.
Our systems are built for the future and are proving ready for the current test under fire.
Thomas Charles Priore: While this short video primarily highlights the SMB use case, it's just one monetization. Our technology is transferable across our current payable business lines and our growing list of enterprise verticals like instruction, investment management, lending, healthcare, sports and entertainment, and insurance, among others. Our decision in late 2022 to accelerate investment in Passport is paying significant dividends, especially given the continued struggle of the banking sector and the general frustration with banks among businesses of all types. Our systems are built for the future and are proving ready for the current test under fire.
We're confident in our future results will demonstrate how we've taken unified commerce to the next level by meeting the demands of modern business and empowering our customers to thrive in a real time economy through unmatched speed and transparency to their cash flow.
We're delivering this message as we broaden unified commerce conversation.
And it resonates.
With our current customers and prospective customers alike.
In closing.
Thomas Charles Priore: We're confident our future results will demonstrate how we've taken unified commerce to the next level by meeting the demands of modern business and empowering our customers to thrive in a real-time economy through unmatched speed and transparency to their customers. We're delivering this message as we broaden the unified commerce conversation, and it resonates with our current customers and prospective customers alike.
I want to thank all of my colleagues at priority.
Not only delivered an excellent year of growth and success in 2023.
But entered 2024 more committed than ever to our mission.
Thank you for your continued dedication and the exceptional work you do every day.
And lastly, we appreciate you all taking the time to participate in today's call and your ongoing support of our investors and analysts.
Operator: I want to thank all of my colleagues at Priority, who not only delivered an excellent year of growth and success in 2023 but entered 2024 more committed than ever to our mission. Thank you for your continued dedication and the exceptional work you do every day. And lastly, we appreciate you all taking the time to participate in today's call and the ongoing support of our investors and alums. Operator, we'd now like to open up the call to questions. Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch tone phone. If you're using a speaker phone, please pick up your handset before pressing the key.
Operator, we'd now like to open up the call for questions.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone, if you're using a speakerphone. Please pick up your handset before pressing the keys. If at any time. Your question has been addressed and you would like to withdraw. Your question. Please press Star then two and at this time, we'll pause momentarily to assemble our roster.
And the first question will come from Jacob Steven with Lake Street Capital markets. Please go ahead.
Hey, guys. Thanks for taking my questions.
I know you've kind of touched on the reseller diversification concluding here in Q4, but maybe you could just kind of.
Operator: If at any time your question has been addressed, and you would like to withdraw your question, please press star and then. And at this time, we'll pause momentarily to assemble our roster. And the first question will come from Jacob Stephan with Lake Street Capital Markets. Please go ahead.
Walk us through how youre thinking about verticals within SMB.
Youre primarily targeting here.
Yeah, I'll, just I don't think it's going to be really.
A departure from you know what we're what we've done historically.
We've got a very diverse.
Group of resellers that some of whom are I'll call them horizontal.
Jacob Michael Stephan: Hey guys, thanks for taking my questions. I know you kind of touched on the reseller diversification closing here in Q4, but maybe you could just kind of walk us through how you're thinking about verticals within SMB that you're primarily targeting here. Yeah, I just, I don't think it's going to be really... a departure from, you know, what we've done historically.
Networks, others, you know more of a vertically based so some in professional services or you know in in wholesale.
Great or yeah.
Those in and you know Paul recurring billings. So some of them have like unique areas of expertise and they really blend together in a in a framework that.
Thomas Charles Priore: We've got a very diverse group of resellers, some of whom are, I'll call them, horizontal sales networks; others, you know, are more vertically based, so some in, you know, professional services or, you know, in wholesale trade or, you know, those in, you know, what I'll call recurring billing. So some of them have unique areas of expertise, and they really, you know, blend together in a framework that, you know, that you see across our portfolios that we don't expect that mix to meaningfully change. Let's say there are some areas where we're adding renewed dedication that we think will, you know, increase proportionally over time. They really mesh with some of our ISV investments. The Construction Space, most certainly.
You know that you see across our our portfolio that we don't expect that mix to meaningfully change.
Let's say if there are some areas, where we're adding renewed dedication.
Do we think we will you know will increase.
Proportionately over time.
They they really mesh with our with some of our R. I S V investments.
The.
Construction space. Most most certainly we built some unique tools that will be rolling out.
Across our distribution and.
You know in the in the second quarter.
Health care is another that you know well will proportionately you know seek to increase say if theres a dynamic in particular really driving.
Thomas Charles Priore: We built some unique tools that we'll be rolling out across our distribution in the second quarter. Healthcare is another that we'll proportionally seek to increase. There's a dynamic in particular really driving it.
Thomas Charles Priore: The Future of Acquiring, is it? It'll be less segment driven, um.., and more so, the implementation of, you know, you could think of it as adjacent or bundled services. If you get a chance to, for instance, just watch that video, picking up all of the other areas of expense that small businesses have that they're frustrated with. They're frustrated with their bank, here.
The future of acquiring.
Is it's.
It'll be less so segment driven.
And.
More so the implementation of yeah, you could think of it as adjacent or bundled services.
If you get a chance to for instance, just just watched that video.
It's picking up all of the other areas.
Areas of expense that small businesses have that they are frustrated with their frustrated with their bank they're.
Thomas Charles Priore: They're frustrated with the way they pay bills and the way cash flow moves through their business. So, you know, we think providing tailored or curated point of sale on the front end, and Banking and Payables products that work seamlessly with that experience. That's, that's the focal point at this point. And, you know, we have very high expectations for that strategy. And the beautiful thing, I think, is the way we've built it. Our ability to deploy it does not come at any incremental cost.
They're frustrated with the way they pay bills in the way cash flow moves through their business. So you know we think providing.
Tailored or curated point of sale on the front end.
And banking and payables products that works seamlessly with that experience.
That's the focal point at this point and you know where we have.
We have very high expectations of that strategy.
And.
Ah you know the the beautiful thing I think is the way we've built it it's our.
Our ability to deploy it does not come at any incremental cost.
So it's it's.
Tim OLeary: So it's, you know, very high margin on our performance. Okay, got it. That's helpful. And then maybe just last one for me here, the restructuring charges on the healthcare payments business that you referenced. Do you expect any kind of lingering impacts in Q1, any kind of elevated non-cash charges as we look at our models? No, we don't expect any lingering charges there.
You know, it's very high margin to our performance.
Yeah.
Okay got it that's helpful. And then maybe just last one for me here that the restructuring charges on the health care payments business that you referenced do you expect any kind of lingering.
Impacts in Q1, any kind of elevated noncash charges.
At our models.
No. We don't expect any lingering charges. There. We went ahead and took a restructuring charge in the fourth quarter and.
Tim OLeary: We went ahead and took the restructuring charge in the fourth quarter, and it won't have much of an impact on the numbers either going forward. It's already been baked into our guidance. Okay, got it. Thanks. I'll turn it over to Tim Switzer with KBW. Please go ahead. And good morning.
It won't have much of an impact on the the numbers either going forward, it's already been baked into our guidance.
Okay got it thanks, I'll turn it over.
The next question will come from Tim Switzer with K B W. Please go ahead.
Hey, good morning, Thanks for taking my question.
Operator: Thanks for taking my question. I appreciate all the color on the guy, and you guys touched on it real quick, but for the expense outlook, could you guys talk about where you expect expenses to trend over the course of 2024 and then, particularly, the cost of revenue trends and how you guys would like to direct your investments going forward next year? Sure, yeah, I think from a, you know, overall guide standpoint on the expenses, as you can see, sequentially going from Q3 to Q4, you would continue to maintain, you know, good discipline on the salary and benefit side and really try to gain efficiencies across the business as we think about the growth over from what we had in 22, where we did invest a lot in the business from a personnel and technology standpoint. So I think you'll continue to see that discipline deployed throughout the balance of 2024.
I appreciate all the color on the guide you guys touched on it real quick, but I'm pretty expense outlook could you guys talk about.
Where do you expect expenses to trend over the course of 'twenty 'twenty, four and particularly the cost of revenue trends and how you guys would like to direct your investments going forward next year.
Sure Yeah, I think from a you know overall guide standpoint on the expenses as you can tell sequentially going from Q3 to Q4, you would continue to maintain good discipline on the salary and benefit side and really try to gain efficiencies across the business as we think about the grow over from what we had in 'twenty two.
Did invest a lot in the business from a personnel and technology standpoint, So I think you'll continue to see that discipline deployed here throughout the balance of 2024.
Tim OLeary: You know, within the various segments, I think our faster growing parts of SMB are the larger resellers. So I think we'll continue to see some compression there in the core gross margins. But as Tom was mentioning a second ago, a lot of the ancillary products we can sell into that SMB customer base are going to be margin-enhancing events. So I think we're optimistic that we'll be able to hold and expand margins in S&B overall, despite some of the natural headwinds you have there as the larger resellers grow faster. And then in enterprise and B2B, we'll continue to see margin expansion or at least consistency. I think you'll see some...
Within the various segments, Yeah, I think our faster growing parts of S. M. B you know are the larger resellers. So I think we'll continue to see some.
Compression there in the core gross margins, but as Tom was mentioning you know Seth.
Can I go a lot of the ancillary products, we can sell into that SMB customer base are going to be margin enhancing.
Vince I, so I think we're optimistic that we.
We will be able to you know.
Hold and expand margins and S&P overall, despite some of the the natural headwinds you have there as the the larger resellers grow faster.
And then in enterprise and in <unk>, we will continue to see margin expansion or at least consistency right I think youll see some.
Tim OLeary: Some potential flattening in enterprises, given where it's already operating, at 94% plus gross margins. And then within B2B, as we continue to see plastic expand, we only had five months of revenue in 2023 from plastic. As we get a full year effect in 2024, that may put some overall pressure on gross margins in B2B, but that's really just because of the accounting treatment.
Some potential flattening in enterprises, given where it's already operating at 94% plus gross margins and then within B to B as we continue to see plastic expands we only had five months of revenue in 2023 from plastic is we get a full year effect in 24 that may put some overall pressure.
On gross margins and BTB, but that's really just because of the accounting treatment that business is performing well. Its ahead of expectations. When we originally had we made the acquisition and our optimistic that that will continue in 'twenty four.
Tim OLeary: That business is performing well. It's ahead of expectations from what we originally had when we made the acquisition, and we're optimistic that that will continue in 2024.
Great Yeah, that's helpful and for the rest of the guidance that you guys gave could you talk about the different factors, whether it's macro or customer trends that could maybe drive ups.
Tim OLeary: Yeah, that's helpful. And for the rest of the guidance that you guys gave, could you talk about the different factors, whether it's macro or, you know, customer trends that can maybe drive Upside or downside from the high end and low end of the guide? So I'll tell you. Look, first off, the macro environment will always have some influence.
Upside or downside from the high end and low end of the guidance.
Hum.
So I'll tell you.
Well first off you know in the macro environment will always have some influence.
Thomas Charles Priore: You know, we've I think we would submit that we've been very thoughtful in the way we've constructed the diversification of our business lines, where there'll be instances in a downward economic environment where you'll see the consumer slow down, which is a natural headwind to payment processing and acquiring. Historically, we have offsets to that on the enterprise side that do very, very well when consumers need... Assistants with Debt Resolution, or I'll call it Consumer Wellness Strategies that benefit many of the areas that we operate in. The other thing, of course, is B2B tends to do well, you know, when interest rates are higher and there is a focus on new sources of revenue in business as economies slow because, you know, it does provide a unique source of revenue for more efficient supply chain management and working capital optimization.
You know we've I.
I think we would submit that we've been very thoughtful in the way we've constructed.
The diversification of our business lines, where you know there'll be instances in a downward economic environment, where you'll see the consumer slowdown, which you know it was a natural headwind too.
To payment processing and acquiring historically you know we have offsets to that on the enterprise side that do very very well.
When consumers need.
Assistance with.
That resolution or I'll call it consumer wellness strategies that that benefit.
Many of the areas that it that.
We operate.
The other thing of course is V to be.
Tends to do well when interest rates are higher end.
And there is a focus on.
New sources of revenue in business as economies slow because you know it.
It does provide.
A unique source of of of revenue for <unk>.
More efficient supply chain management and working capital optimization.
So you know having tools that they bring those to bear with customers as they are ready to adopt.
Thomas Charles Priore: So having tools that bring those to bear with customers as they're ready to adopt has been to our benefit. So we feel really good about that, you know, the, I'll call it, the cyclicality that could present, look, the biggest opportunity we have, and we've been very, very modest in our assumptions, is really the adoption of banking and payables, as an adjacency to our customers who are using us for acquiring and, you know, and other, you know, really other kinds of, I'll call it, vertical solutions, A good example is, you know, let's take two quick examples, and this is why we sent that video out, so you could see it. You know, as they say, a picture is worth a thousand words. The Famine SMB, right?
You know as accrued to our benefit so so we feel really.
Good about.
The I'll call it a cyclicality.
Could present.
Look the biggest opportunity we have in and we've been very very modest in our assumptions.
Is.
Is is really the adoption of of our banking and payables.
As a.
Adjacency too.
You know to our customers who are using us for acquiring and you know and other yeah.
Are there other kind of I'll call. It vertical solutions right, there being now exposed to a tool set that.
Gives them.
Simplicity to do things that they want to do every day in their business, but their current <unk>.
Solutions don't provide them a.
A good example is you know what let's take two two quick examples and it's why we send out video out so you could see it.
Say it picture's worth a thousand words.
The filing of an S. N D right, Hey, I want to get my money fast well when youre using our banking as a service product alongside Amex merchant that money shows up.
Thomas Charles Priore: Hey, I want to get my money fast. Well, when you're using our banking as a service product alongside MX Merchant, that money shows up within minutes of your batch closure, even on a holiday or a weekend. That doesn't happen with any other provider in our space.
Within minutes of your batch closure, even on a holiday or a weekend.
That doesn't happen with any other provider in our space if I'm a restaurant that's gold to me.
Thomas Charles Priore: If I'm a restaurant, that's gold to me. I'm getting my money on a Saturday, a Friday night, or a Saturday, a Sunday, or a holiday, and I can then utilize that cash flow to pay vendors using my debit card that's attached to that account, or perhaps a virtual card. That allows me to receive cash back because my vendor will accept virtual cards, or perhaps they won't, and I want to extend my receivable. I can use plastic, use my own credit card, to pay my vendor. They'll get an ACH the next day, and perhaps I will get an early pay discount. I paid a fee to Plastic, which, of course, is a priority entity. And I don't have to pay my credit card bill for, you know, on average 55 to 60 days is the typical delay between making a purchase and when your credit card bill is due. So these are very elegant tools that all work in harmony. And it's really just right. Educating their use case in our existing customer base. We don't need to
I'm getting my money on a Saturday or Friday night, or Saturday or Sunday, or a holiday and I can then utilize that cash flow to pay vendors using my debit card that's attached to that account or perhaps a virtual card.
That allows me to receive cashback, because my vendor will accept virtual card.
Or perhaps they.
They won't and I want to extend my receivable I can use plastic use my own credit card.
To pay my vendor.
You'll get and a C. H that next day, and perhaps I get our early pay discount.
I paid a fee to plastic which of course is a priority entity.
And I don't have to pay my credit card Bill for you know on average 55 to 60 days is a typical delay between making a purchase of when your credit card bills do so these are very elegant tools at all work in harmony.
And it's really just Ed.
Educating.
Use case in our existing customer base.
We don't need to sell more customers, we just need to have them adopt tools that are good for their business.
That's one such use case another they were very focused on is we have lots of consumers who come in.
To our partners to help them resolve.
Debt issues, particularly in this current environment, well, adding to that a bank account that will help them start to go.
Go on our consumer wellness journey with that same partner, that's helping them.
You know out of of issues with their with their debt.
That that really helps harmonize their financial wellbeing and their experience in one place.
And these are all things that we can offer without any incremental expense at priority. It's all built it's just deployment. So we think that's the most powerful advantage we have and it's a you know I can tell you it's winning in the marketplace with a host of of Isps and enterprise customers, who are saying.
Yeah, I want embed those types of <unk>.
<unk> solutions in my in my product experience in my customer relationship.
And you know, where where an easy or an easy place to help them do that.
That's awesome really appreciate all the detail. Thank you guys.
Yeah. Thank you for the question. The next question will come from Brian Kingston Linker with Alliance Global Partners. Please go ahead.
Hey, great. Good morning, Thanks for taking my questions.
Wanted to discuss.
The balance sheet and start there.
Despite the cash flow the net debts increased can you talk about capital.
<unk> plans in 2024 and related to this and that.
Past, you've made some strategic divestitures, where it made sense that would create shareholder value do you see any of these opportunities and we're only throwing it out there probably not at Cps, it's about 1% revenue contribution although it fits well in your flywheel of money movement.
There's been some great valuations of M&A I'm, just kind of curious high level, but some of those things.
Hey, Brian it's Tim Thanks for the question.
Yeah, so looking at the balance sheet, obviously the debt from a gross standpoint did increase from Q3 to Q4 right that was largely driven by the the plastic acquisition. We had financed that acquisition under the revolver and then is the the broader debt markets improved we went to the term loan market upsized, our existing term loan.
And paid off the revolver given some of the demand we actually upsize the term loan and put a lot of cash on the balance sheet. So from a from a net debt standpoint. It was neutral so it was a.
Leverage neutral transaction, if you think about it that way. So you know the the net debt at $614 million, we continued to delever from a multiple standpoint as EBITDA grows. So we finished the quarter with three six times net leverage you know on the the senior debt.
The preferred equity it would be at $5 two but those numbers continue to come down and if you think about the balance of the year.
Even if you don't assume a debt pay down, which obviously is not our assumption, but even if you don't assume a debt pay down and you just look at the EBITDA guidance, we have out there you'll have another half turn deleveraging throughout the year just from growth and cash flow in the business at the EBITDA level. So I think we're optimistic about the balance sheet and our ability to manage that so we're constantly thinking of.
Capital deployment in whether it's acquisitions versus debt pay down versus other investments, we can make to drive further revenue growth and margin enhancements and overall increase shareholder value. So that's a constant conversation we have as well as looking at the portfolio of assets, we have you've seen us do that in the past.
Yeah, I'm not going to fly.
Right right anything that we may or may not have in the works, but we've always looked at the portfolio and thought about value creation and.
And thinking about how can we best monetize assets and drive.
Drive shareholder value and that that won't stop.
Yes.
And Brian if I could add a thought on that just and I appreciate your kind of perspective on it.
The.
You don't.
You know and in some regard in fact, I would I would submit that you've given.
The stock that's clearly undervalued relative to our peers our growth rate is substantially higher multiples.
Is it is much lower reconciling utilizing equity for some of these acquisitions.
Acquisitions, it's it's it's hard to justify that that's actually going to create shareholder value.
Particularly when you look at how quickly we get assets performing.
I wouldn't take plastic is a good example is the business when we acquired it it was it was a losing.
You know conservatively it was burning $20 million of cash.
That business in our hands is cash flow positive.
It is it is on a phenomenal trajectory so at the appropriate time, when we feel like we've you know maximized its value within our platform or even though the things. We have you know well we find other partnerships will we consider other ways too.
Our portfolio of assets.
Certainly knowing that hey in doing in the way we have we will have created outsized returns for shareholders.
But it you know it's going to take.
The work of getting assets you know.
They were nonperforming performing which where we've proven we're very good at.
And then.
You know optimizing knows that at the right time when.
When it's going to benefit.
A long term shareholder value.
And.
So just just to kind of reiterate that is.
That is a focal point.
And you know and that in and some of the current circumstances, you know while it increases the quantum of debt, we're doing it responsibly, where we're actually deleveraging and the process. So you know the value.
Creation is it's pretty it's pretty obvious.
Yes, yes.
No look I mean, my answer that would only be create.
Creating good returns on acquisitions and growing EBITDA hasn't generated value because of the balance sheet overhang and so I would just submit it.
You know that that has to do with the cheaper valuations if anything more but anyways the EBITDA conversion to free cash flow in the last few years, we've been about 36% is there opportunity to grow that or is that a good.
<unk> a good proxy for how we should think about cash flow compared to EBITDA.
Oh, Yes, I think we we always look at ways to expand that right, whether it's being more efficient with.
The balance sheet and thinking about opportunities to lower our cost of capital as markets improve around us and I think we have seen the capital markets improve so we're evaluating those opportunities from a cost of capital standpoint.
We also think about the acquisitions that we look at in the pipeline and the ability to deploy capital more efficiently and.
Potentially off our own balance sheets or other partnerships. So I think we're always looking at ways to enhance the the free cash flow conversion in the business.
Okay Lastly.
Lastly.
The growth rate year over year growth rate for accounts build an enterprise business.
It accelerated in the last two quarters to above 50%.
Is there a large law of large numbers, we should think about I guess I'm trying to understand can you sustain that growth rate for the next couple of quarters.
And then which industries are enjoying the best business development trends as it relates to that business.
Sure let me.
Just talk about the so the industry sectors.
The.
I think it was really successfully taken.
A simple approach Brian like we follow the money, Okay, you know that.
You know we're in we're in payments right. So you can appreciate the logic of that.
We've tried to build tools that are <unk>.
Particularly work well in where there are large pools and there is complexity.
And a couple that have caught our eye wear.
We were active and we are.
Winning logos or construction.
Yeah that is a that's a bit of a quagmire right company that it's a it's a sector that needs cash flow acceleration.
It is has a broad spectrum of participants you know its a multi trillion dollar industry in the United States that's largely.
Lacks automation.
So we've got tools that I'll say are suited for the enterprise segment.
That we are deploying in our winning we have those that are for the middle to small market segment that I alluded to in acquiring that we've already.
We've already are in beta testing and will be going out to the broader <unk>.
The entity.
So that's an area where.
Linking that a R. So I take in money, but then I also have to make payments out is a natural.
A natural solution elegance to that.
So that's what we're bringing to market across <unk>.
Enterprise and mid market.
Enterprises more ISC focused mid market small market is more with our own proprietary technology, it's called Amex build.
So that would be one example, another is the investment management space.
Again very archaic.
Terrible banking experience I think if you talk to go talk to our our our debtholders.
And they are raising money from Lps they'll tell you. It takes six weeks to set up an account even for an existing LP terrible experience.
We can do that in six minutes.
Cuz, we virtualized all the banking and I've already prequalified participants for AML K Y C O M L.
<unk> right. These are these are modern banking automation.
That apply very well in industries like that.
So those are two of the more substantial that we already have customers on platform we.
Our learning more and more and we see tremendous opportunity.
And then I'll mentioned another that's been a mainstay for us is in real estate.
That you know that that whole segment in a way transactions occur through real estate everything from.
No escrow and how how closings and broker fees occur to the renter experience.
And.
And how that's transforming.
Through the property management and this idea of being able to manage cash flow at a property level through a R and a P solutions that persist at a property level all of that requires a meshing of payments and banking.
And those are the segments, where there are large flows of money large pools.
They take some sophistication you know two to address so not everyone's going to get there and we're seeing a.
A lot of opportunities to win and you know are deploying resources in those verticals.
Okay. Thank you.
Our last question today will come from how gods with B Riley. Please go ahead.
Hey, Good morning, guys I had a quick question you guys gave some great detail on gross profit you said, 58% of Q4 gross profit was from monthly fees and I was wondering if you could give us some color on.
The components of that how much of that gross profit of theaters.
Dispersed amongst the three different segments.
Mostly in.
Enterprise or.
B to b or or is there still like a pretty good amount of gross profit in monthly subs.
Subscriptions for even in the SMB can you can you give us some color on that.
Sure he'll have to jump in there so.
Yeah. The the various components that we have fixed monthly fees or even in the SMB business. Its not all transaction or volume dependent there are fixed monthly fees per account. So you know.
That that figure if I think about gross profit.
That's gonna be 15.
Plus percent or so of gross profit in the quarter and then you have the monthly fees within the enterprise business along with the the income we make on a permissible investments are those all drive you know a part of the balance of the the recurring gross profit that's not transactional volume dependent.
So a lot of it does sit in enterprise, but SMB has a very consistent level of for current gross profit as well.
It wouldn't be like you know monthly or monthly fee like for them.
Like 20 Bucks, a month or it would depend on the client how much volume they do or not.
Hardware and software they use that kind of where it comes from.
Yeah. It depends on the the nature I'll describe it this way is the nature of the subscription.
So some play pay platform.
And then we manage accounts on their behalf.
And then others think of it like pay by the drink.
Where each.
Account has a subscription.
And the reason that is different.
How is.
There are certain expenses they may be passing along to their end market.
And others they are not.
So it's that those are the driving factors.
And it's very subscription.
I should say subscriber slash.
Integrated partner.
[noise] oriented it'll it'll depend on their business model.
Yeah.
That doesn't really detailed question, but I'm just kind of.
<unk> business.
Not dependent on bank card volume kind of.
Can you give us a feel for like what that grew versus the previous year. So we know I mean, this is like really high value business.
This is like this is a growing part of your business. This is a very high multiple types of things and we're not one right now I have to call. It. It's like it's a great question and that's kind of what we're saying is right.
Every dollar is not created equal right.
I know Tim has got some SaaS prepared for you.
Okay.
Yeah, so without getting into specific dollars, but if you think about just the percentage of.
You mentioned, 58% of gross profit was recurring in Q4 of this year that number was 43% last year in Q4 and sort of a.
Full year 'twenty three it was 51%.
So we're continuing to see that percentage grow.
Five higher value of the business right that that is repeatable highly visible recurring gross profit that we see and that's why we're starting to report that and give you a better sense of the consistency and the profitability.
Alright terrific. Thanks, guys.
Late quarter.
Okay.
This concludes our question and answer session I would like to turn the conference back over to Mr. Tom Priore for any closing remarks. Please go ahead Sir.
Well just like to thank.
Thank you everyone once again for taking the time to.
To learn more about priority and.
Listen to our perspective on.
The potential for our business the.
The industry at large and where we see the opportunity set.
We are hopefully as you can see.
The quality of our performance and what we're projecting for the upcoming year. We are we are laser focused on.
On delivering results. So thank you very very much I hope everyone has a great remainder of the week and we look forward to the next opportunity to connect.
And measure how we did.
Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
Okay.
[music].
Yes.