Q1 2024 Priority Technology Holdings Inc Earnings Call
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Operator: Good day and welcome to the Priority Technology First Quarter 2024 Conference. All participants will be in listen-only mode. Surgery assistants, policemen, helicopters, specialists, firebrands, and sparky. Followed by zero.
Good day and welcome to the priority technology first quarter 'twenty 'twenty four conference.
Operator: All participants will be in whatsoever.
Operator: Okay.
Operator: Okay.
Speaker Change: Please go ahead.
Operator: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star 1 on your telephone keypad. To withdraw your question, please press star 0. Please note, today's event is being recorded. I would now like to turn the conference over to Chris Kettmann. Please do so.
Operator: Perfect.
Operator: Alright.
Operator: Yes.
Chris Kettmann: After today's presentation.
Operator: Okay.
Chris Kettmann: So that's the question.
Operator: Okay.
Chris Kettmann: Two questions. Please.
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 those expressed in the forward-looking statement. The company undertakes no obligation to update or revise any forward-looking statement.
Speaker Change: Please go ahead.
Chris Kettmann: Yes.
Thomas Charles Priore: Sure Chris.
Speaker Change: Please go ahead.
Speaker Change: Good morning, and thank you for joining us.
Thomas Charles Priore: With me today are Tom.
Chris Kettmann: German.
Chris Kettmann: Pardon.
Chris Kettmann: And.
Chris Kettmann: Kimball Chief Financial Officer.
Chris Kettmann: We provide a detailed discussion of the various risk factors in our SEC filings, and we encourage you to review these documents. 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.
Thomas Charles Priore: Before our prepared remarks.
Thomas Charles Priore: I think our comments today will include forward.
Thomas Charles Priore: Which involve number of risks and.
Thomas Charles Priore: These may cause actual results to differ materially.
Chris Kettmann: Yeah.
Thomas Charles Priore: We undertake no obligation to update or revise it support.
Chris Kettmann: Fred.
Thomas Charles Priore: Future events or otherwise.
Thomas Charles Priore: Thank you, Chris. And thanks, everyone, for joining us for our first quarter of 2024 earnings. I'd like to start today by highlighting the positive trends we continue to see at Priority, and then Tim and I will provide an update on important developments within each segment and broader enterprise. As you saw in this morning's press release, our unwavering focus on delivering the best products and service in the industry drove record first quarter results that placed Priority on a strong financial trajectory for 2024.
Thomas Charles Priore: We provided you gotta catch that.
Thomas Charles Priore: He finally, how are you.
Thomas Charles Priore: Yeah.
Thomas Charles Priore: Okay.
Thomas Charles Priore: I didn't like it.
Thomas Charles Priore: non-GAAP measure.
Thomas Charles Priore: Right.
Thomas Charles Priore: EBITDA and adjusted EBITDA.
Thomas Charles Priore: Okay.
Thomas Charles Priore: Okay.
Thomas Charles Priore: Okay.
Thomas Charles Priore: So do you get.
Thomas Charles Priore: Yeah.
Thomas Charles Priore: It can be found in our press release.
Thomas Charles Priore: Maintaining the momentum we established throughout 2023, we delivered solid results in SMB acquiring, B2B payables, and enterprise payments in the first quarter. Our unified commerce vision continues to resonate with our customers, combining payments and banking functionality in a single platform, accelerated by the strength of our diverse business lines. 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
Thomas Charles Priore: Filings available.
Thomas Charles Priore: All of our web site.
Speaker Change: With that I would like.
Thomas Charles Priore: T O.
Thomas Charles Priore: Alright.
Speaker Change: Thank you Andy.
Speaker Change: And thanks to everyone for joining us for <unk> first quarter 'twenty earnings call.
Speaker Change: I'd like to start today by highlighting the positive trends, we continue to see it priority.
Thomas Charles Priore: Total customer accounts operating on our commerce platform now exceed one million, as we processed over $120 billion in annual transaction volume during the prior 12 months while managing $980 million in average daily deposits as of the end of the quarter.
Thomas Charles Priore: I will provide an update on important developments within each segment.
Thomas Charles Priore: The broader enterprise.
Thomas Charles Priore: Have you found this morning, especially fever and focused on delivering that.
Thomas Charles Priore: The service industry.
Thomas Charles Priore: [laughter] drove record first quarter results.
Thomas Charles Priore: They place priority, a small financial trajectory for.
Thomas Charles Priore: Slide four highlights our consistent financial performance during the first quarter. Revenue of $205.7 million increased by over 11% from the prior year, and this led to a 21% increase in adjusted gross profit to $76.4 million and a 23% improvement in adjusted EBITDA to $46.3 million. Adjusted gross profit margin of 37.1% increased 300 basis points from the prior year quarter, highlighting the strong operating leverage of our purpose-built platform.
Thomas Charles Priore: 2024.
Thomas Charles Priore: Maintaining the momentum we established throughout 'twenty.
Speaker Change: We don't.
Thomas Charles Priore: That would be acquiring.
Thomas Charles Priore: Payables and enterprise payments in the first quarter.
Thomas Charles Priore: Okay.
Thomas Charles Priore: Continues to resonate with our customers.
Thomas Charles Priore: Any payments and banking functionality in a single platform.
Thomas Charles Priore: Accelerated by the strength of our diverse business lines.
Thomas Charles Priore: Now we're positioned to benefit from higher rates.
Thomas Charles Priore: And if you.
Thomas Charles Priore: But right now economic environment.
Thomas Charles Priore: Including the one we're experiencing today.
Thomas Charles Priore: As you can see from our Q1 results and the reiteration of our full-year guidance, we continue to expect that the robust growth and margin trends in our business channels will deliver full-year revenue of $875 million to $890 million, an increase of approximately 16 to 18 percent over 2020, and generate full-year adjusted EBITDA of $193 million to $198 million, a 15 to 18 percent increase over 2023. Our growing partner base continues to see great value in our product and technology offering, and our diverse sales channel performance remains consistent.
Thomas Charles Priore: Some of them are operating on a common platform with 1 million.
Thomas Charles Priore: As we processed over 120 billion in annual transaction volume during the prior 12 months, while administrating $980 million in average daily deposits.
Thomas Charles Priore: As of the end of the quarter.
Thomas Charles Priore: Slide four highlights our consistent financial performance during the first quarter.
Thomas Charles Priore: Revenue of $205 7 million increased over 11% from the prior year.
Thomas Charles Priore: This led to a 21% increase in adjusted gross profit to $76 4 million and a 23% improvement in adjusted EBITDA to $46 3 million.
Thomas Charles Priore: For those of you who are new to the company, Slide 5 highlights the market orientation of our proprietary, unified commerce platform that's purpose-built to collect, store, lend, and send money, combining elegant payment and banking functionality to monetize the commerce networks we serve. Our customers in the current market conditions continue to reinforce our belief that systems combining both features, 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 are committed to meeting our customers' expectations by refining the experience for our partners to make working with Priority seamless and simple.
Thomas Charles Priore: Adjusted gross profit margin of 37, 1% increased 300 basis points from the prior year quarter.
Thomas Charles Priore: Highlighting the strong operating leverage of our purpose built platform.
Thomas Charles Priore: As you can see from our Q1 results and the reiteration of our full year guidance. We continue to expect that the robust growth and margin trends in our business channels will deliver full year revenue of $875 million to $890 million, an increase of approximately 16% to 18% over 2023.
Thomas Charles Priore: And generate full year adjusted EBITDA of 193 to 198 million, a 15% to 18% increase over 2023.
Thomas Charles Priore: Our growing partner base continues to see great value in our product and technology offering.
Thomas Charles Priore: Our performance illustrates that partners consistently choose the Unified Commerce applications in acquiring payables and banking that best fit their businesses to accelerate cash flow and optimize their working capacity. We're laser-focused on the continued innovation of our SaaS payments and banking suite of services, an accelerated commerce engine, and are eager to meet the evolving needs of our growing portfolio of customers and enterprise partners. At this point, I'd like to hand it over to Tim, who will provide further insights into our segment-level performance during the quarter, along with current trends in each that have factored into our strong guidance for the full year 2020.
Thomas Charles Priore: Our diverse sales channel performance remains consistent.
Tim: For those of you who are new to the company slide five highlights the market orientation of our proprietary unified commerce platform.
Tim: Purpose built to collect store Linden send money, combining elegant payment and banking functionality to monetize the commerce networks, we serve.
Tim: Our customers in current market conditions continue to reinforce our belief that systems combining both features.
Tim: Payments and banking to distribute funds and multi party environments will be critical as businesses put greater demands on software and payment solution providers to accelerate cash flow and optimize working capital.
Timothy OLeary: 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 the Form 10-Q that was filed with the SEC this morning and provides a discussion of our comparative first quarter results. A link to that filing can also be found on our website.
Tim: We are committed to meeting our customers' expectations by refining the experience for our partners to make working with priority seamless and simple.
Timothy OLeary: Our performance illustrates the partners consistently choose the unified commerce applications in acquiring payables and banking.
Timothy OLeary: As Tom mentioned, we had strong financial performance across the business in the first quarter, and we continue to generate high growth in our higher margin operating segment. That growth has resulted in adjusted gross profit from our B2B and enterprise segments continuing to expand, and now represents almost 59% of total adjusted gross profit. Recall that Q3 of 2023 was the first quarter where that metric crossed over the 50% threshold.
Timothy OLeary: That best fit their businesses to accelerate cash flow and optimize their working capital.
Timothy OLeary: We are laser focused on the continued innovation of our SaaS payments and banking suite of services and accelerated commerce engine and are eager to meet the evolving needs of our growing portfolio of customers and enterprise partners.
Timothy OLeary: At this point I'd like to hand, it over to Tim who will provide further insights into our segment level performance during the quarter along with current trends in each that's factored into our strong guidance for the full year 2024.
Timothy OLeary: In addition, the highly recurring nature of our business model remains strong, with over 58% of adjusted gross profit in Q1 coming from monthly fees or revenues that are not dependent on transactions or bank card volume. The last point I'd like to highlight before moving to the segment level financial results is related to our organic growth rate. If you adjust for the impact of plastics, which was not part of our financial results in Q1 of 2023, as well as for the impact of the large reseller that I'll discuss shortly, Priority had year-over-year organic growth in Q1 of 16.3% for revenue, 20.3% for adjusted gross profit, and 29.2% for adjusted EBITDA.
Speaker Change: Thank you Tom and good morning, everyone.
Timothy OLeary: 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-Q that was filed with the SEC. This morning and provides a discussion of our comparative first quarter results are linked to that following can also be found on our website.
Timothy OLeary: I want to repeat those figures for emphasis, over 16% organic revenue growth, over 20% organic adjusted gross profit growth, and over 29% organic growth in adjusted EBITDA. When you combine those strong growth rates with our scaled business, which produces a high level of recurring gross profit, you can quickly see why we're excited about our business and the franchise value that has been built at Priority. Moving now to the segment level results, starting with the S&B segment on slide 7.
Timothy OLeary: As Tom mentioned, we had strong financial performance across the business in the first quarter and we continue to generate high growth in our higher margin operating segments.
Timothy OLeary: That growth has resulted in adjusted gross profit from our B to B and enterprise segments, continuing to expand and now represents almost 59% of total adjusted gross profit.
Timothy OLeary: Recall that Q3 of 2023 was the first quarter, where that metric crossed over the 50% threshold.
Timothy OLeary: In addition, the highly recurring nature of our business model remains strong with over 58% of adjusted gross profit in Q1 coming from monthly fees or revenues that are not dependent on transactions or bank card volume.
Timothy OLeary: The last point I'd like to highlight before moving to the segment level financial results is related to our organic growth rates.
Timothy OLeary: S&B generated Q1 revenue of $143.8 million, which is $11.2 million or 7% lower than the prior year's first quarter, but is sequentially 3% higher than the $139.9 million in Q4 of last year. As discussed on prior calls, a large reseller partner started to diversify its processing activity in Q2 of 2023, and that effort was concluded in Q4. If you look at the year-over-year impact of that shift on the Q1 results, it was an over $21 million headwind of revenue. Excluding that impact, the SMB business experienced over 8% organic revenue growth on a year-over-year basis. We expect a more modest headwind in Q2 from the large reseller given the timing of their shift.
Timothy OLeary: If you adjust for the impact of plastic which was not part of our financial results in Q1 of 2023 as well as for the impact of the large reseller that I'll discuss shortly priority had year over year organic growth in Q1 of 16, 3% for revenue, 23% for adjusted gross profit and 29, 2% for adjusted EBITDA.
Timothy OLeary: I want to repeat those figures for emphasis over 16% organic revenue growth over 20% organic adjusted gross profit growth and over 29% organic growth in adjusted EBITDA.
Timothy OLeary: When you combine those strong growth rates with our scaled business that produces a high level of recurring gross profit you can quickly see what we're excited about our business and the franchise value that has been built to priority.
Timothy OLeary: Bank card dollar volume in S&B was $14.8 billion for the quarter, which is down just under 3% from $15.2 billion in the prior year. However, adjusted for the aforementioned reseller, bank card dollar volume increased almost 8% in the quarter compared to the prior year. From a merchant standpoint, we averaged approximately 177,000 accounts during the quarter, lower than the 205,000 average in Q4 of 2023, while new monthly boards averaged 4,300 during the quarter, compared to only 3,700 in Q4 of 2023.
Timothy OLeary: Moving now to the segment level results and starting with the F&B segment on slide seven.
Timothy OLeary: SMB generated Q1 revenue of $143 8 million, which was $11 2 million or 7% lower than the prior year's first quarter, but it's sequentially, 3% higher than the $139 9 million in Q4 of last year.
Timothy OLeary: As discussed on prior calls a large reseller partners started to diversify their processing activity in Q2 of 2023 and that effort was concluded in Q4.
Timothy OLeary: Adjusting for the impact of the large reseller, the average number of accounts during the quarter improved by over 900 compared to Q4 of 2023, and the average number of new monthly boards increased by 500 per month compared to the prior sequential quarter. Adjusted gross profit in S&B for the first quarter was $31.6 million, which is $3.9 million lower than last year's first quarter. The 11% decline was partially impacted by lower volumes and revenue from the large reseller, but the comparative result was also negatively impacted by $2.5 million of certain incentive fees that benefited the Q1 period last year.
Timothy OLeary: If you look at the year over year impact of that shift on the Q1 results. It was an over $21 million headwind to revenue.
Timothy OLeary: Excluding that impact the F&B business experienced an eight over 8% organic revenue growth on a year over year basis.
Timothy OLeary: We expect a more modest headwinds in Q2 from the large reseller given the timing of their shift.
Timothy OLeary: Bankcard dollar volume in SMB was $14 8 billion for the quarter, which is down just under 3% from $15 2 billion in the prior year. However, adjusted for the aforementioned reseller Bankcard dollar volume increased almost 8% in the quarter compared to the prior year.
Timothy OLeary: Gross margins of 22% in the quarter are down 90 basis points from last year for those same reasons. However, if you adjust for the impact of the incentive fee in the first quarter of 2023, the gross margins in Q1 of this year improved by 35 basis points. Lastly, for S&B, quarterly operating income of $12.4 million represented a $400,000 increase from $12 million in the prior year's first quarter and $1.3 million of sequential improvement from Q4 of 2023 as we continue to manage operating expenses within our business. Moving to B2B.
Timothy OLeary: From a merchant standpoint, we averaged approximately 177000 accounts during the quarter lower than the 205000 average in Q4 of 23, while new monthly boards averaged 4300 during the quarter compared to only 3700 in Q4 of 2023.
Timothy OLeary: Adjusting for the impact of the large reseller the average number of accounts during the quarter improved by over 900 compared to Q4 of 2023 and the average number of new monthly boards increased by 500 per month compared to the prior sequential quarter.
Timothy OLeary: Adjusted gross profit in SMB for the first quarter was $31 6 million, which is $3 9 million lower than last year's first quarter. The 11% decline was partially impacted by lower volumes and revenue from the large reseller, but the comparative result was also negatively impacted by two and a half million dollars a certain incentive fees that benefited.
Timothy OLeary: Revenue of $21.1 million was an increase of $18.3 million from the prior year. Plastic, which joined Priority on August 1st, contributed $17.3 million of the increase during the quarter, while CPX grew by $1.5 million, or 61%, on a year-over-year basis. Those increases were partially offset by a $300,000 reduction in the balance of the B2B business.
Timothy OLeary: The Q1 period last year.
Timothy OLeary: Gross margins of 22% in the quarter are down 90 basis points from last year for those same reasons.
Timothy OLeary: Adjusted gross profit in B2B increased to $6.2 million as a result of the plastic acquisition, combined with over 74% growth in gross profit for the CPX business unit. For the quarter, gross margins were 29.6%, or 470 basis points higher compared to 24.9% in the fourth quarter of 2023. The sequential comparison is a more relevant metric until Q4 of this year, given the year-over-year comparison of margins is impacted by the timing of the plastic acquisition and plastics gap reporting requirements for revenue recognition, which was discussed on our Q3 and Q4 earnings call.
Timothy OLeary: However, if you adjust for the impact of the incentive fee in the first quarter of 2023, the gross margins in Q1 of this year improved by 35 basis points.
Timothy OLeary: Lastly for FNB quarterly operating income of $12 4 million represented a $400000 increase from $12 million in the prior year's first quarter at $1 3 million a sequential improvement from Q4 of 23 as we continue to manage operating expenses within our business.
Timothy OLeary: Moving to be to be.
Timothy OLeary: Revenue of $21 1 million was an increase of $18 3 million from the prior year.
Timothy OLeary: Plastic which joined priority on August 1st contributed $17 3 million of the increase during the quarter. While C. P X grew by $1 5 million or 61% on a year over year basis.
Timothy OLeary: The B2B segment incurred an $800,000 operating loss during the quarter, which is the result of increased operating expenses from plastics, including certain acquisition-related compensation expenses. However, the operating loss for the quarter did improve by over $900,000 from a $1.7 million loss in Q4 of 2023. Moving to the enterprise segment,
Timothy OLeary: Those increases were partially offset by a $300000 reduction in the balance of the b to B business.
Timothy OLeary: Adjusted gross profit and B to be increased to $6 2 million as a result of the plastic acquisition combined with over 74% growth in gross profit for the C. P X business unit.
Timothy OLeary: Q1 revenue of $40.9 million was an increase of $13.5 million, or 50%, from $27.3 million in the prior year. Favorable trends from the past several quarters in new monthly enrollments and billed clients, combined with an increase in the number of passport program managers, growth in deposit balances, and the stable interest rate environment have all contributed to strong revenue growth. As a result of those factors, adjusted gross profit for the enterprise segment increased by 50 percent to $38.6 million, while adjusted gross profit margins remained at 94.5 percent in the quarter compared to the fourth quarter of 2023 but improved by 50 basis points from the first quarter of last year.
Timothy OLeary: For the quarter gross margins were 29, 6% or 470 basis points higher compared to 24, 9% in the fourth quarter of 2023.
Timothy OLeary: The sequential comparison is the more relevant metric until Q4 this year given the year over year comparison of margins is impacted by the timing of the plastic acquisition and plastics GAAP reporting requirements for revenue recognition, which was discussed on our Q3 and Q4 earnings calls.
Timothy OLeary: The <unk> segment incurred an $800000 operating loss during the quarter, which is the result of increased operating expenses from plastic including certain acquisition related compensation expense.
Timothy OLeary: Operating income was $25.5 million for the quarter, which is up over 100% from $12.7 million in last year's first quarter. Moving to Consolidated Operating Expenses on slide 10. Salaries and benefits of $22.2 million increased by $3.1 million, or 16%, compared to Q1 of last year, which was largely due to the addition of plastics in Q3 of 2023. However, on a sequential quarterly basis, salaries and benefits increased by less than $500,000 as a result of continued focus on expense discipline, which helped offset the higher bonus and benefit expense that we typically see in the first quarter.
Timothy OLeary: However, the operating loss for the quarter did improve by over 900000 from a $1 $7 million loss in Q4 of 2023.
Timothy OLeary: Moving to the enterprise segment.
Timothy OLeary: Q1 revenue of $40 9 million was an increase of $13 5 million or 50% from $27 3 million in the prior year.
Timothy OLeary: 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 a stable interest rate environment have all contributed to strong revenue growth.
Timothy OLeary: As a result of those factors adjusted gross profit for the enterprise segment increased by 50% to $38 6 million, while adjusted gross profit margins remained at 94, 5% in the quarter compared to the fourth quarter of 2023, but improved by 50 basis points from the first quarter of last year.
Timothy OLeary: We finished the quarter with approximately 970 employees, which is compared to approximately 980 at the end of 2023. SG&A of $11 million increased by $1.9 million from $9.1 million in Q1 of 2023 but was down by $3.1 million compared to the fourth quarter of last year, when SG&A was $14.1 million, including the non-cash restructuring costs related to the discontinued operation of our healthcare payments business. Depreciation and amortization of $15.3 million for the quarter decreased by $2.8 million from the comparable quarter last year.
Timothy OLeary: Operating income was $25 5 million for the quarter, which is up over 100% from $12 7 million in last year's first quarter.
Timothy OLeary: Moving to consolidated operating expenses on slide 10.
Timothy OLeary: Salaries and benefits of $22 2 million increased by $3 1 million or 16% compared to Q1 of last year, which was largely due to the addition of plastic in Q3 of 2023.
Timothy OLeary: Moving to the next slide, adjusted EBITDA for the quarter was $46.3 million, which is a new quarterly record for Priority and was an increase of 23% from $37.6 million in Q1 of 2023. Interest expense of $20.9 million for the quarter increased to $3.2 million from Q1 2023 levels as a result of acquisition-related debt increases during 2023, combined with the impact of the higher interest rate environment. Moving to the Capital Structure and Liquidity Overview on page 12, debt levels during the quarter declined to $652.7 million due to the amortization of the term loan.
Timothy OLeary: However, on a sequential quarterly basis salaries and benefits increased by less than 500000. As a result of continued focus on expense discipline, which helped to offset the higher bonus and benefit expense that we typically see in the first quarter.
Timothy OLeary: We finished the quarter with approximately 970 employees, which as compared to approximately 980 at the end of 2023.
Timothy OLeary: SG&A of $11 million increased by $1 9 million from $9 1 million in Q1 of 2023, but it was down by $3 1 million compared to the fourth quarter of last year, when SG&A was $14 1 million, including the noncash restructuring costs related to the discontinued operation of our health care payments business.
Timothy OLeary: Net debt of $618.4 million increased by $3.6 million compared to the balance at the end of Q4 due to lower cash balances following certain seasonally higher cash expenses in Q1. From a liquidity standpoint, we ended the quarter with all $65 million of borrowing capacity available under our revolving credit facility and $34.3 million of unrestricted cash on the balance sheet for the LTM period ended March 31st. Adjusted EBITDA of $177 million represents $8.7 million of sequential quarterly growth from $168.3 million at the end of Q4.
Timothy OLeary: Depreciation and amortization of $15 3 million for the quarter decreased by $2 8 million from the comparable quarter last year.
Speaker Change: Moving to the next slide.
Timothy OLeary: Adjusted EBITDA for the quarter was $46 3 million, which is a new quarterly record for priority and it was an increase of 23% from $37 6 million in Q1 of 2023.
Timothy OLeary: Interest expense of $20 9 million for the quarter increased to $3 2 million from Q1 2023 levels. As a result of acquisition related debt increases during 'twenty three combined with the impact of the higher interest rate environment.
Timothy OLeary: Preferred stock on our balance sheet totaled $264.2 million on March 31st and was net of $16 million of unaccredited discounts and issuance costs. The first quarter preferred dividend included $7.1 million paid in cash and $4.7 million of a PIC component.
Timothy OLeary: Moving to the capital structure and liquidity overview on page 12.
Timothy OLeary: Debt levels during the quarter declined to $652 7 million due to amortization of the term loan.
Timothy OLeary: Before turning the call back over to Tom, I wanted to further address our capital structure and our plans to recapitalize the balance sheet, which is outlined on slide 13. Based on our continued strong performance and the resulting increase in our debt capacity as we've deleveraged, we've undertaken an effort to refinance our existing debt on more favorable terms, as well as to upsize the debt facility, with the excess proceeds being used for a partial redemption of our preferred equity.
Timothy OLeary: Net debt of $618 4 million increased by $3 6 million compared to the balance at the end of Q4 due to lower cash balances following certain seasonally higher cash expenses in Q1.
Timothy OLeary: From a liquidity standpoint, we ended the quarter with all $65 million of borrowing capacity available under our revolving credit facility and $34 3 million of unrestricted cash on the balance sheet.
Timothy OLeary: For the LTM period ended March 31st.
Timothy OLeary: As you can see on the slide, we plan to close on a new $835 million term loan with pricing that is lower than our current rate, while also extending the maturity for a new seven-year term. Proceeds from the new term loan will refinance the existing senior debt, pay fees and expenses, and redeem approximately $170 million of the preferred equity. The net impact of the refinancing will be an improvement of over $5.5 million in annualized free cash flow as we lower the cash dividends on the preferred equity and pay a lower interest rate on the debt, but pay that lower rate on a new larger quantum of debt.
Timothy OLeary: Adjusted EBITDA of $177 million represents $8 $7 million of sequential quarterly growth from $168 3 million at the end of Q4.
Timothy OLeary: Preferred stock on our balance sheet totaled $264 2 million at March 31.
Timothy OLeary: And is net of $16 million of unaccredited discounts and issuance costs.
Timothy OLeary: The first quarter preferred dividend included $7 1 million paid in cash and $4 7 million of Pik component.
Speaker Change: Before turning the call back over to Tom I wanted to further address our capital structure and our plans to recapitalize the balance sheet, which is outlined on slide 13.
Timothy OLeary: To be very clear, this refinancing effort has not closed yet, but we have commitments from a syndicate of lenders for the new debt facility and are working with counsel to finalize the agreements so that the closing and funding of the financing can occur within the next couple of weeks. Once that closing occurs, we will provide additional information via an 8K filing. Moving forward, we will continue to look for additional opportunities to further reduce our cost of capital and drive value for our shareholders. With that, I'll now turn the call back over to Tom for his closing comments.
Timothy OLeary: Based on our continued strong performance and the resulting increase in our debt capacity as we've deleveraged, we've undertaken an effort to refinance our existing debt or more favorable terms as well as upsides the debt facility with the excess proceeds being used for a partial redemption of our preferred equity.
Timothy OLeary: As you can see on the slide we plan to close on a new $835 million term loan with pricing that is lower than our current rate while also extending the maturity for a new seven year term.
Timothy OLeary: <unk> from the new term loan will refinance the existing senior debt pay fees and expenses and redeem approximately $170 million of the preferred equity.
Thomas Charles Priore: Before wrapping up, I'd like to take a minute to talk about the differentiated organic growth performance of Priority that Tim noted during his comment. To summarize, during the past 12 months, on a purely organic basis, Priority's revenue increased 16.3%, while gross profit expanded 20.3%, resulting in 29.2%. and Adjusted EBITDA. Our consistently market-leading organic growth results reflect that today's businesses are adopting a broader expectation for their payments technology providers to deliver solutions that transcend basic merchant acquiring and help them accelerate cash flow and optimize working.
Thomas Charles Priore: The net impact of the refinancing will be an improvement of over five and a half million dollars in annualized free cash flow as we lower the cash dividends on the preferred equity and pay a lower interest rate on the debt, but pay that lower rate on a new larger quantum of debt.
Thomas Charles Priore: It can be very clear this refinancing effort is not closed yet, but we have commitments from a syndicate of lenders for the new debt facility and are working with counsel to finalize the agreements so that the closing and funding of the finance it can occur within the next couple of weeks.
Thomas Charles Priore: Once that closing occurs we will provide additional information via an 8-K filing.
Thomas Charles Priore: Moving forward, we will continue to look for additional opportunities to further reduce our cost of capital and drive value for our shareholders.
Thomas Charles Priore: Priority was built with intention during the past several years to meet these exacting customer needs and be their trusted partner by establishing our Priority Accelerated Commerce Engine, delivering tech-enabled services that collect, store, lend, and send money on a single platform for acquiring payables and banking. The value of our product suite is evident not only in our growth numbers and margins but also in talking to our customers and partners as they expand their engagement with our solution As evidence, consider the following opportunities being harvested within our existing customer base and distribution channels in the first quarter alone since launching the cross-selling of plastic bill payments in late January with our acquiring partners.
Thomas Charles Priore: With that I'll now turn the call back over to Tom for his closing comments.
Speaker Change: Thank you Tim.
Thomas Charles Priore: Before wrapping up I'd like to take a minute to talk about the differentiated organic growth performance of priority that Tim noted during his comments.
Thomas Charles Priore: To summarize during the past 12 months on a purely organic basis priorities revenue increased 16, 3%.
Thomas Charles Priore: While gross profit expanded 23%, resulting in 29, 2% improvement in adjusted EBITDA.
Thomas Charles Priore: Our consistently market, leading organic growth results reflect at today's businesses are adopting a broader expectations for their payments technology providers to deliver solutions that transcend basic merchant acquiring and help them accelerate cash flow and optimize working capital.
Thomas Charles Priore: Run rate revenue contribution from that channel already exceeds $1.2 million annually and has been growing month over month by over 100%. Additionally, Q1 downloads across our POS suite represented 20% of total new boards as we continue to activate new distributors with eight going live this quarter and 27 new resellers executing contracts. The growing penetration of our POS tools will increase our mix of recurring SAS revenue, improve merchant loyalty, and continue to open additional paths for banking and payables product adoption that increases margin per merchant. Our Banking as a Service offering now maintains over $980 million in average daily balances, up from an average of $920 million in Q4 2023.
Thomas Charles Priore: Pardee was built with intention during the past several years to meet these exacting customer needs and be their trusted partner by establishing our priority accelerated commerce engine delivering tech enabled services that collect store London send money on a single platform for acquiring payables and banking needs.
Thomas Charles Priore: The value of our product suite is evident not only in our gross numbers and margins, but also when talking to our customers and partners as they expand their engagement with our solutions.
Thomas Charles Priore: As evidenced consider the following opportunities being harvested within our existing customer base and distribution channels in the first quarter alone.
Thomas Charles Priore: Since watching the cross selling of plastic bill payment and.
Thomas Charles Priore: Late January with our acquiring partners.
Thomas Charles Priore: Run rate revenue contribution from that channel already exceeds $1 2 million annually and that's been growing month over month by over 100%.
Thomas Charles Priore: Importantly, nearly 25 percent of that comes from improved technology integration with our acquiring, payables, and enterprise business partners, up from 17% in Q4 2023. Lastly, in April, we launched our specialty finance offering, Priority Capital, in partnership with PIPE, a leading small business specialty financier. Our initial outreach to just over 50,000 merchants resulted in approximately 36,000 customers receiving offers for working capital lines of credit, totaling 1.9 billion dollars of Recurring Origination Opportunities for Priority and our partners to capture.
Thomas Charles Priore: Additionally, Q1 downloads across our POS suite represented 20% of total new boards as we continue to activate new distributors would eat going live this quarter and 27, new resellers executing contracts.
Thomas Charles Priore: The growing penetration of our Pos tools will increase our mix of recurring SaaS revenue improved merchant loyalty and continue to open additional pass for banking and payables product adoption that increases margin per merchant.
Thomas Charles Priore: Our banking as a service offering now maintains over $980 million in average daily balances up from an average of 920 in Q4 2023.
Thomas Charles Priore: And we have over 100,000 more customers to whom we can introduce Priority. The cumulative success of these ongoing initiatives represents pure upside to our current project. I offer these noteworthy activities to reinforce that Priority's technology and operations are built for the future and are proving ready for the current test under fire. We're confident our future results will demonstrate how we've taken unified commerce to the next level by meeting the demands of modern businesses and empowering our customers to thrive in a real-time economy through unmatched speed and transparency to their cashflow.
Thomas Charles Priore: Importantly, nearly 25% of that comes from improved technology integration with our acquiring payables and enterprise business partners up from 17% in Q4 2023.
Thomas Charles Priore: Lastly in April.
Thomas Charles Priore: We launched our specialty finance offering priority capital in partnership with pipe.
Thomas Charles Priore: Leading small business specialty financier.
Thomas Charles Priore: Our initial outreach to just over 50000 merchants.
Thomas Charles Priore: <unk> and approximately 36000 customers.
Thomas Charles Priore: And we're delivering this message as we broaden the Unified Commerce conversation, and it resonates with current and prospective customers alike. Our vision and ahead-of-the-curve offering has been the key driver of our market-out performance, and most importantly, reflects the clear advantages we create through our unique capabilities and style of engagement, which provides long-term runway for enormous growth. I want to thank my colleagues at Priority who continue to execute our unified commerce vision and for never accepting being ordinary.
Thomas Charles Priore: <unk> offerings for working capital lines of credit.
Thomas Charles Priore: <unk> $1.9 billion.
Thomas Charles Priore: Our recurring origination opportunities for priority and our partners to capture.
Thomas Charles Priore: And we have over 100000 more customers to whom we can introduce priority capital.
Thomas Charles Priore: The cumulative success of these ongoing initiatives represents pure upside to our current projections.
Thomas Charles Priore: I offer these noteworthy activities to reinforce that priority technology and operations are built for the future and are proving ready for the current test under fire.
Thomas Charles Priore: Your unrelenting drive and dedication is evident in everything you do, and the market is taking notice. Lastly, we greatly appreciate the ongoing support of our investors and analysts and those in attendance who are new to Priority for taking the time to participate in today's call. Operator, we would now like to open it up.
Thomas Charles Priore: 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 businesses and empowering our customers to thrive in a real time economy through unmatched speed and transparency to their cash flow.
Thomas Charles Priore: And we're delivering this message as we broaden the unified commerce conversation and it resonates with current and prospective customers alike.
Operator: Thank you. If you would like to ask a question, please press star and then 1 on your telephone keypad. If your question has already been answered and you would like to remove yourself from the queue, please press star 1 and 2. Once again, that's stars and one if you have a question. And today's first question comes from Tim Switzer with KBW. Please go ahead. Hey, good morning.
Tim Switzer: Our vision and ahead of the curve offering has been the key driver of our market outperformance and most importantly.
Tim Switzer: Reflects the clear advantages, we create through our unique capabilities and style of engagement.
Tim Switzer: Which provides long term runway for enormous upside.
Tim Switzer: Hey, good morning. Thank you for taking my question.
Tim Switzer: I want to thank my colleagues at priority, who continue to execute our unified commerce vision and for never accepting being ordinary.
Chris Kettmann: Absolutely. Good morning Tim.
Tim Switzer: Can you guys talk a little bit about the integration and growth of plastic now that, you know, it's been in the run rate for a couple quarters now, how that's trended relative to your expectations and, you know, if there's been any surprises one way or the other on performance and, you know, conversations with customers as you continue with it? Yeah, sure.
Tim Switzer: Your unrelenting drive and dedication is evident in everything you do and the market is taking notice.
Tim Switzer: Lastly.
Tim Switzer: We greatly appreciate the ongoing support of our investors and analysts and those in attendance who are new to priority for taking the time to participate in today's call.
Speaker Change: Operator, we now like to open it up for questions.
Speaker Change: Thank you.
Thomas Charles Priore: Sure, Tim. I would say, look, nothing that has been a surprise. We had pretty conservative estimates going in. I would say from a financial standpoint, it's outperforming those expectations. But we have a conservative outlook in terms of synergizing the business.
Tim Switzer: To ask a question. Please press Star then one on your telephone keypad.
Thomas Charles Priore: If a question has already been addressed and you'd like to remove yourself from queue. Please press Star then two.
Thomas Charles Priore: Once again Thats Star then one if you have a question.
Thomas Charles Priore: And today's first question comes from Tim Schweitzer with VW.
Speaker Change: Go ahead.
Speaker Change: Hey, good morning, Thank you for taking my questions.
Thomas Charles Priore: I think you may recall when we first announced it; we had it as a drag on EBITDA through the end of 2023. We were able to get it EBITDA positive and net income positive before the end of the year. The trend on it has accelerated, and we would anticipate that through the remainder of the year it will outperform initial expectations. But it's been a quick turnaround, you know, you may, you may recall when we first acquired it, projected even, you know, or I should say it's run by radio, but I was, it was probably negative, you know, mid-to-high teens, and so that's been reversed very, very quickly.
Thomas Charles Priore: Yeah, absolutely good morning, Tim.
Speaker Change: Kim can you guys talk a little bit about the integration and growth of plastic now that it is.
Thomas Charles Priore: <unk> been in the run rate for a couple of quarters now how has that trended relative to your expectations and if theres been any surprises one way or the other on performance and.
Thomas Charles Priore: The conversations with customers.
Thomas Charles Priore: Continue with it.
Speaker Change: Yeah sure Tim up I would say look nothing that has been a surprise.
Thomas Charles Priore:
Thomas Charles Priore: The.
Thomas Charles Priore: We had pretty conservative estimates going in I would say from a financial standpoint, it's outperforming those expectations.
Thomas Charles Priore: And kind of what we but we had a very we have a conservative outlook in terms of <unk>. The business. So you know.
Thomas Charles Priore: You know, we certainly think it could do, you know, something in the high single digits to low double digits of adjusted EBITDA contribution and certainly be on that run rate by the back half of the year. And that's been a result of, as I noted in other comments, integrating it into our other channels. That's been successful, but that's the blocking and tackling that we just need to continue to do. And then we saw, and this was our suspicion, that it could really be positioned for larger customers, more enterprise-oriented, that could more fully leverage their credit capacity as a cheaper source of working capital.
Thomas Charles Priore: I think you may recall, when we first announced it we had it as a drag to EBITDA through the you know the end of 2023.
Thomas Charles Priore: We were able to get it EBITDA positive and net income positive before the end of the year.
Thomas Charles Priore: The trend on it has accelerated.
Thomas Charles Priore:
Thomas Charles Priore: Uh huh.
Thomas Charles Priore: We would anticipate through the remainder of the year it'll it'll outperform initial expectations.
Thomas Charles Priore: Hum.
Thomas Charles Priore: But it's been a quick turnaround.
Thomas Charles Priore: You May you may recall, when we first acquired it.
Thomas Charles Priore: That's proven to be the case. So, we're seeing larger enterprise customers that are doing $10 million, $20 million, upwards of $50 million in payments using our buyer-funded strategies that Plastics Technology enabled as a complement to our broader payables offering. And that's been the source of growth, and we expect that to continue to be the case.
Thomas Charles Priore: Projected EBITDA or I should say its run rate EBITDA was it was probably negative.
Thomas Charles Priore: Mid to high teens, and so that's been reverse very very quickly.
Thomas Charles Priore: We certainly think it could do something in the high single digits to low double digits.
Thomas Charles Priore: Adjusted EBITDA contribution and certainly beyond that run rate by the back back half of the year.
Thomas Charles Priore: And that's been a result of.
Thomas Charles Priore: As I noted in other comments integrating it into our other channels.
Thomas Charles Priore: Great. Yeah, that sounds good. And following up on that, are there any other areas or businesses you'd be interested in acquiring or any other M&A activity you guys are looking into right now?
Thomas Charles Priore: <unk> been successful, but we have that's blocking and tackling.
Thomas Charles Priore: Tackling that we just need to continue to do and then we've seen and this was our suspicion we thought it could really be positioned for larger customers more enterprise oriented.
Thomas Charles Priore: You know, we're, you know, that's something we're always on, uh, on, uh, on the look for. And, uh, you know, we B2B is definitely a segment that we think we can have differentiated performance in. And, you know, we think we've proven it more than once.
Thomas Charles Priore: That could more fully leverage their credit capacity.
Thomas Charles Priore: <unk> has a cheaper source of working capital.
Thomas Charles Priore: That's proven to be the case. So we are seeing larger enterprise customers that are doing 10, 20 upwards of $50 million in payments using our.
Thomas Charles Priore: Let's say the acquisition of Yapstone real estate rentpayments.com, the way we were able to quickly turn that, ended up monetizing that with a sales MRI at a multiple of return. We've now turned around plastic very quickly. The engine's just been built to refactor.
Thomas Charles Priore: Buyer funded strategies that the plastics technology enabled.
Thomas Charles Priore: As a complement to our broader payables offering.
Thomas Charles Priore: So that that's been a source of growth.
Thomas Charles Priore: And Oh.
Thomas Charles Priore: Well, we'll we'll expect that to that continue to be the case.
Thomas Charles Priore: Software and Payment Technology Assets in a unique way. So we do think there's a number of attractive things in B2B that we're, you know, tracking. There are some other vertically-focused software offerings that we think payments monetization has been underpenetrated and that we can be successful at. So, definitely, looking at a handful of sectors, but I would say more of them fall into those segments than traditional merchant acquiring, although we've got a couple there that we think could provide value to distributors, but our greater focus is more towards payables. Vertical SAS, Flash Payments.
Speaker Change: Great Yeah that sounds good.
Speaker Change: And following up on that are there any other areas or businesses you'd be interested in acquiring or any other M&A activity you guys are looking into right now.
Thomas Charles Priore: Yeah.
Thomas Charles Priore: It's something we're always on the on.
Thomas Charles Priore: On the look for and you know we've.
Thomas Charles Priore: <unk> is definitely a segment that we think we can have differentiated performance and we think we've proven it more than once in let's say the acquisition of the capstone real estate rent payments Dot com and the way we were able to quickly turn that.
Thomas Charles Priore: We ended up monetizing that with a with a sale of MRI yet.
Thomas Charles Priore: Multiple of return.
Thomas Charles Priore: We've now turned around plastic very quickly.
Thomas Charles Priore: And he has just been built to re factor.
Thomas Charles Priore: Software and payment technology assets.
Timothy OLeary: And Tim, I would just add on top of that, too. Obviously, we're always looking at acquisition opportunities to increase shareholder value, but we're constantly also evaluating just the best use of our capital. And obviously, as you can see from the presentation today, we've used a portion of our capacity to take out the redeemable preferred equity. So we're going to continue to evaluate the best use of capital and do what we feel is providing the best overall shareholder value, whether it's addressing the capital structure or addressing M&A or investing in the business for faster growth in certain verticals we already have.
Tim Switzer: Gotcha. Yeah, that all makes sense. If I could have one more real quick, please.
Thomas Charles Priore: In a unique way so we do think there's a number of attractive things.
Tim Switzer: And in <unk> that were you know.
Speaker Change: We're tracking.
Tim Switzer: There are some other vertically focused.
Tim Switzer: Software offerings that we think payments.
Tim Switzer: <unk> monetization as.
Tim Switzer: It's been Underpenetrated that we can be successful at so I'm definitely looking at a handful of sectors, but I would say more of them fall into those segments than.
Tim Switzer: The depreciation and amortization expense was down quite a bit, quarter over quarter. Where should we expect that to trend over the rest of the year?
Tim Switzer: Traditional merchant.
Tim Switzer: Merchant acquiring although we've got a we got a couple of there that we think can provide value to the distribution, but our greater focus is more towards payables.
Tim Switzer: And.
Tim Switzer: Vertical SaaS flash payments opportunities.
Timothy OLeary: I think the runway we're on now is what you should continue to expect. It declined as we had some assets that were fully depreciated, so that's why you saw the reduction on a quarterly basis, but the run rate you have now from this quarter is more of what you should expect for the balance of the economy.
Speaker Change: Yes, Tim.
Speaker Change: Tim I would just layer on top of that to we obviously, we're always we're always looking at acquisition opportunities to increase shareholder value, but we're constantly also evaluating just the the best use of our capital right and obviously as you can tell by the presentation. Today. We you know we've used a portion of our capacity to take out the redeemable preferred equity. So yeah, we're going to continue to evaluate that.
Operator: Thank you. And as a reminder, if you would like to ask a question, please press star then 1. Our next question comes from Jacob Stephan on Lake Street. Please go ahead.
Operator: Best use of capital and do what we feel is providing the best overall shareholder value, whether it's addressing the capital structure, we're addressing M&A or investing in the business for faster growth in certain verticals, we already have.
Jacob Michael Stephan: Hey, good morning, guys. Thanks for taking my questions.
Jacob Michael Stephan: Got you yeah that all makes sense.
Jacob Michael Stephan: I could have one more real quick please the depreciation and amortization expense was down quite a bit quarter over quarter, where should we expect that to trend over the rest of the year.
Jacob Michael Stephan: I think the runway. We're on now is what you should continue to expect it declined as we had some assets that were fully depreciated. So that's why you saw the reduction from a quarterly basis, but the the run rates you have now from this quarter is more of what you should expect for the balance of the year.
Jacob Michael Stephan: I guess I just wanted to get some color on kind of the B2B segment. You know, when I run the math, $17.3 million came from plastic in Q1 here. You know, total revenue in that segment was flat. Maybe you could just help us understand, you know, in Q1 plastic, sorry, in Q4 plastic was roughly flat with that $17.3 million, or am I missing something?
Speaker Change: Perfect. Thank you.
Timothy OLeary: No, that is accurate. I think the revenue was pretty flat. You have, you know, some larger payers that come in at quarter-end at times, and sometimes those volumes vary, which drives revenue. But those payers tend to come in with big volumes but a little bit lower margin. So I think revenue was flat, but the gross profit in that business improved quarter to quarter. So I think that's what we're certainly measuring and thinking about in terms of the net that we keep on the revenue side. So I think we're optimistic where the business sits today and the trends it's on. And as Tom mentioned, we feel like that, by the end of the year, is going to be in a run.
Speaker Change: Thank you and as a reminder, if you would like to ask a question. Please press Star then one.
Timothy OLeary: Our next question comes from Joseph <unk> with Lake Street. Please go ahead.
Speaker Change: Yeah, Hey, good morning, guys. Thanks for taking my questions.
Speaker Change: I guess I'm just wanted to get some color on kind of the.
Timothy OLeary: <unk> segment.
Timothy OLeary: When I run the math.
Timothy OLeary: $17 3 million came from plastic in Q1 here.
Timothy OLeary: Total revenue in that segment was flat maybe you could just help us understand.
Timothy OLeary: In Q1 plastic.
Thomas Charles Priore: Okay, got it. You know, if I can add to that real quick on that on that question. The other thing we've seen, because we just have a more expansive offering, from what Plastic had originally been or how they had originally been oriented, we've seen margin expansion within that business because we've been able to offer other fast-pay tools and things that the constituent using plastic found valuable, that increase that gross profit take rate, as Tim noted, without necessarily increasing volume because we're adding revenue on pay in and pay out, given some of the tools we've been able to add into the mix.
Timothy OLeary: Sorry in Q4 plastic was roughly flat with that $17 3 million or.
Speaker Change: Am I missing something.
Thomas Charles Priore: No that is that's accurate right I think the the revenue was pretty flat you have some larger.
Thomas Charles Priore: Payers that come in quarter end at times, and sometimes those volumes very which drives revenue, but you know.
Thomas Charles Priore: Those those payers tend to come in with big volumes, but a little bit lower margin. So I think the the revenue was flat, but the gross profit in that business improved quarter to quarter right. So I think that's what we're certainly measuring and thinking about the the net that we keep on the revenue side. So I think we're we're optimistic where the business sits today and the trends, it's on and as Tom mentioned.
Thomas Charles Priore: We feel like that by the end of the year is going to be at a run rate of EBITDA, that's going to be approaching <unk>.
Thomas Charles Priore: Double digits of millions of EBITDA.
Jacob Michael Stephan: Okay, got it. Um, and then maybe just kind of remind me about the reseller diversification, I believe we're going to be overlapping that in Q2 here, or at least kind of the start of it. Is Q2 or is it going to be Q3 where we kind of see the first, you know, quarter post-diversification Yeah, Q3.
Speaker Change: Okay got it if I can add.
Speaker Change: Yes, correct correct on that on that question.
Jacob Michael Stephan: The other thing we've seen because we just have a more expansive offering.
Speaker Change: Uh huh.
Jacob Michael Stephan: From what plastic had originally.
Timothy OLeary: Q3 will be a clean comparative quarter. Q2 there will be some... year-over-year growth-through, but it'll be, you know, half of what we had in Q1 of this year. We actually saw business with that large reseller grow in Q1 from where it was in Q4 and Q3. So, as we talked about, it was truly a diversification effort. It wasn't a decline in the business overall. So I think we're optimistic that that will You'll have, you know, growth for us in the back half of this year, but you will see some headwinds in Q2, but they'll be, you know, less than half of what we had here in Q1.
Jacob Michael Stephan: Ben or how they had originally been oriented.
Jacob Michael Stephan: Got it. Okay.
Timothy OLeary: We've seen margin expansion within that business, because we we've been able to offer other fast pay tools and things that the constituent using plastic found valuable.
Jacob Michael Stephan: That increase that gross profit take rate as Tim noted without necessarily increasing volume because we're we're adding revenue on pay in and pay out.
Jacob Michael Stephan: Given some of the tools that we've been able to add into the mix.
Speaker Change: Okay got it.
Speaker Change: And then maybe just kind of remind me on the reseller diversification I believe we're going to be over lapping that in Q2 here or at least kind of the start of it.
Jacob Michael Stephan: And then maybe just one more on kind of the pending recapitalization here. You know, certainly nice to see you guys kind of targeting that preferred equity out there. But maybe you could just kind of help me understand, you know, how much this kind of reduces that preferred dividend by? And ultimately, kind of what's the objective for kind of the excess free cash flow here? Is it to readdress the debt or continue to target the preferred first? Yeah, so if you think on an
Jacob Michael Stephan: As Q2 or is it going to be Q3, where we kind of see the first.
Jacob Michael Stephan: Quarter.
Jacob Michael Stephan: Diversification.
Jacob Michael Stephan: Yes, Q Q3 will be a clean comparative quarter Q2, there'll be some.
Jacob Michael Stephan: Year over year growth through but it'll be.
Jacob Michael Stephan: Half of what we had in Q1 of this year, we actually saw the the business with that large reseller actually grew in Q1 from where it was in Q4 and Q3. So as we've talked about it was it was truly a diversification effort it wasn't a.
Timothy OLeary: Yeah, so if you think on an annualized basis, it's about $11 million of preferred dividend now going forward on the cash component of that, so pretty meaningful reduction from where it is today. And if you think about the free cash flow savings we'll have on a net basis between the lower interest rate on the new debt, right, we're obviously reducing the interest rate by 100 basis points. We are going to have a higher debt quantum we're paying that on, though, but net-net, we're going to have north of $5.5 million of annual free cash flow savings, which, you know, that should take us, you know, meaningfully north of, you know, $50 million of estimated free cash flow for the year, you know, probably pushing closer to $60 million as we think about our forecast, what we've expected before this refinancing, so we're optimistic that this is going to help from a cash flow standpoint and we'll continue to evaluate the use of that, whether it's some of the M&A opportunities Tom talked about or continue to take advantage of our debt capacity and further address the cost of capital by looking at the balance of preferred
Timothy OLeary: A decline in their business overall, so I think we're optimistic that that will.
Timothy OLeary: Have you know growth for us in the back half of this year, but you will see some headwind in Q2, but it'll be less than half of what we had here in Q1.
Speaker Change: Got it Okay, and then maybe just one more on kind of the.
Timothy OLeary: The pending recapitalization here.
Speaker Change: Certainly nice to see you guys kind of targeting that preferred equity out there, but maybe you can just kind of help me understand.
Timothy OLeary: How much does this kind of reduce that preferred dividend by.
Timothy OLeary: And ultimately kind of what what's the objective or kind of the excess free cash flow here as you to readdress the data.
Timothy OLeary: We continue to target the preferred first.
Timothy OLeary: Yeah. So if you think on an annualized basis, it's about $11 million of preferred dividend now going forward on the cash component of that so pretty meaningful reduction from where it is today.
Jacob Michael Stephan: Got it. Appreciate the color guys. Good luck going forward here. Thanks, Jacob.
Jacob Michael Stephan: And if you think about the the free cash flow savings will have on a net basis between.
Thomas Charles Priore: Thanks, Jacob. Thank you. And that concludes our question and answer session. I'd like to turn the conference back over to Tom Priore for closing remarks.
Thomas Charles Priore: The lower interest rate on the new debt, we obviously, reducing the interest rate by 100 basis points. Now we are going to have a higher debt quantum are paying then I'll know, but net net we're going to have north of $500 million of annual free cash flow savings, which you.
Thomas Charles Priore: All right, well, I would like to thank everybody for taking the time to allow us to reflect on the first quarter of 2023. You know, as you can see, it was quite a successful one. I feel like the business is set up to continue to perform at that rate through the remainder of the year, and we'll look forward to the opportunity to update you once again as we progress through quarter two. Thank you, everyone, and I hope everyone has a great rest of the week.
Thomas Charles Priore: That should take us.
Thomas Charles Priore: Meaningfully north of $50 million of estimated free cash flow for the year, probably pushing closer to 60, as we think about our our forecasting.
Thomas Charles Priore: What we've expected before this refinancing so yeah, we're optimistic.
Thomas Charles Priore: That this is going to help from a free cash flow standpoint, and that will continue to evaluate the use of that whether it's you know some of the M&A opportunities Tom talked about or continue to take advantage of you know our debt capacity and further address the cost of capital by looking at the balance of the preferred equity.
Operator: Thank you, sir. Everyone, this concludes today's conference call, and we thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.
Speaker Change: Okay got it.
Speaker Change: Appreciate the color guys and good luck going forward here.
Speaker Change: Thanks Jacob.
Speaker Change: This concludes our question and answer session.
Operator: I'd like to turn the conference back over to Tom Priore for closing remarks.
Operator: Alright, well, hey, we'd like to thank everybody for taking the time to.
Operator:
Operator: Allow us to reflect on the on the first.
Speaker Change: <unk> first quarter 2023.
Operator: You can see it was.
Operator: It was quite a successful one.
Operator: I feel like the business is set up.
Speaker Change: To continue to perform at that rate through the remainder of the year.
Operator: And we'll look forward to the opportunity to update you once again as we as.
Operator: As we progressed through quarter two.
Operator: Everyone and I hope everyone has a great remember the remainder of the week.
Speaker Change: Thank you Sir everyone. This concludes today's conference call and we thank you all for attending today's presentation.
Operator: You may now disconnect your lines and have a wonderful day.
Operator: [music].